Regulatory Approval Process Could Determine AT&T’s ATG Success

AT&T Center in San Antonio. Photo: AT&T

[Via Satellite 05-06-2014] AT&T’s decision to enter the in-flight Wi-Fi market with an Air-to-Ground (ATG) system puts the company in direct competition with existing providers of in-flight connectivity services. By partnering with Honeywell Aerospace for hardware, and building thousands of additional towers, AT&T plans to offer 4G LTE service through a new ATG network by 2015. If successful, the telecom giant could challenge Gogo, who uses a combination of ATG and satellite to connect passengers. But before this can happen, AT&T will need regulatory approval from the Federal Communications Commission (FCC) for spectrum rights, and the Federal Aviation Association (FAA) for installing equipment on planes.

“AT&T spectrum must be cleared for ATG usage by the FCC. As Gogo currently owns all the FCC spectrum licenses designated for an air-to-ground network, this announcement presumes that AT&T will be given FCC permission to use terrestrial wireless designated spectrum for air-to-ground,” Jim Breen, CFA at William Blair, said in a research note. “While spectrum issues are at the top of the FCC’s list of priorities, we believe the focus is more on the land-based market, and therefore approvals would take time.”

Gogo holds a powerful position with its spectrum rights, but AT&T may be able to use a band located at about 2,300 MHz. This is part of the Wireless Communication Service (WCS) band, and was acquired as part of AT&T’s 2012 purchase of NextWave. Initially set aside as guard blocks for SiriusXM radio, AT&T could seek to use this terrestrial band for ATG. Tim Farrar, president of TMF Associates, believes this will be fairly straightforward for AT&T.

“AT&T will need permission from the FCC to make use of the spectrum in that way, but I don’t think there are likely to be serious concerns about interference, and I don’t think that there is likely to be any significant barrier to making use of the spectrum in that way,” Farrar told Via Satellite.

Under normal circumstances, cellular operators are much more inclined to use terrestrial spectrum for other purposes, but the WCS band, being adjacent to satellite radio, is unfit for terrestrial use. Repurposing the spectrum for ATG could give it new lucrative cause.

“Gogo proposed this in 2012 and they were hoping AT&T might make the spectrum available to them at that point,” added Farrar. “It didn’t, and now it’s come along and decided to compete with Gogo.”

AT&T’s other challenge is on the FAA side. While Farrar suspects the approval process for installing antennas and other infrastructure on aircraft would take six to 12 months, Breen believes it would take much longer.

“The FAA approval process for equipment on planes is an arduous and long endeavor,” he wrote. “Although AT&T may have technology tested by year-end 2015, most commercial North American contracts do not come due until the 2018 and, for many, 2022 time frame. Then it would have to bid successfully for those contracts during that time and go through the approval process. After getting approval, removing existing equipment, and installing new equipment, commercial service would not launch until 2023 or 2024, at the earliest.”

The cost of removing existing equipment to install Honeywell and AT&T products would likely cause significant service disruption, which could make it less favorable. Once approved, the deciding factor may come down to service. AT&T is ramping up its investment in ground infrastructure, and if it gets approved to use the WCS spectrum, the company could ultimately take the high ground — terrestrially speaking.

“It should be much better than Gogo’s current ATG network,” said Farrar. Gogo has 1.5 by 1.5 MHz — 1.5 up and 1.5 down. Soon that will go up to 2 MHz up and 2 MHz down with the spectrum Gogo bought from LiveTV last year. AT&T has 5 MHz up and 5 MHz down. So as a starting point you are talking about a capacity advantage of 2.5 times. Then AT&T plans to build thousands of towers compared to the 200-250 that Gogo has today. So that would mean more frequency re-use and even more capacity in AT&T’s network. It’s eminently reasonable to expect that AT&T would have potentially 10 times the capacity that Gogo offers today on its ATG network.”

Honeywell anticipates pairing AT&T’s land coverage through ATG with Inmarsat’s Global Xpress (GX) L-band service. Inmarsat launched the first of three GX satellites, Inmarsat 5 F1, in December 2013. Gogo plans to use GX’s Ka-band payload along with its own proprietary 2KU service, which the company expects to offer commercially in 2015 with speeds of 70 Mbps and higher. Gogo also plans to charge for its service, but AT&T has not yet stated whether or not they will connect passengers for free.

“For AT&T, the question is, are they really doing this to make a profit or are they doing this as a differentiator?” said Farrar. “You can imagine that they might treat in-flight connectivity the same way [as their Starbucks service]. If you are an AT&T customer and you get free service whenever you go on a particular airline, then that can be good for AT&T as well as to the airline, but is obviously a threat for Gogo who wants to charge quite a lot of money for that service.”

AT&T could be looking to spur on brand loyalty by establishing its presence in the in-flight connectivity market. For Gogo, who has been offering in-flight Wi-Fi for five years, this could mark the entrance of a significant new competitor. When the two services can be truly compared depends, for now, on the regulators.