Connexion by Boeing Wins Fans

Connexion by Boeing, a unit of Boeing [NYSE: BA] set up to provide in-flight broadband services to airline passengers, is showing resiliency by winning the support of additional business partners for the high-risk endeavor.

Connexion by Boeing is attempting to become a pioneer in providing in-flight broadband services to business travelers and other airline passengers willing to pay for the privilege of staying connected while traveling. Although Connexion by Boeing’s business model is unproven, satellite manufacturer Alcatel Space and satellite operator SES Global [Luxembourg: SESG] recently agreed to play key roles in the unit’s rollout.

The venture recently disclosed plans to expand its service offering to include high-speed satellite broadband capability for the maritime industry. Connexion by Boeing successfully tested real-time data communication and live video teleconferencing from a private vessel in Seattle’s Lake Union to the company’s Seattle-area campus. Connexion by Boeing said its maritime service will be 10 times faster than the most commonly deployed narrowband maritime communications systems available today and less expensive to use.

The maritime service leverages the existing satellite and ground-based network of Connexion by Boeing and will bring the same capabilities for high-speed connectivity to the maritime industry that the company plans to offer in-flight to its airline customers.

Connexion by Boeing has gathered “significant momentum” during the last six months to boost its credibility in the marketplace, said Phil McAlister, director of space and telecommunications industry analysis at Bethesda, Md.-based Futron Corp., a satellite market research firm. However, the project needs to be considered a long-term investment for Boeing, he added.

“If Boeing is in it for the long haul, Connexion has a chance, and the odds are much better now than they were just six months ago,” McAlister said.

Palpable Progress

New Boeing Chairman Harry Stonecipher met with Connexion by Boeing officials earlier this month to discuss the venture’s strategy and express support for the project. Stonecipher’s interest in the endeavor is important in light of the recent departure of former Boeing Chairman Phil Condit, a key supporter of the venture.

Confidence in Connexion by Boeing’s viability is coming from sources outside the company, as well. Alcatel Space, a subsidiary of Paris-based Alcatel [NYSE: ALA], earlier this month inked a deal to build and launch a new telecommunications satellite for Worldsat, a fledging unit of SES Global’s Princeton, N.J.-based SES Americom. The Worldsat-3 satellite would provide in-flight broadband capacity to Connexion by Boeing in the Pacific Ocean region.

Worldsat initially was a 50-50 joint venture with Lockheed Martin [NYSE: LMT] and SES that was called Americom Asia Pacific. Lockheed Martin’s interest in the venture was acquired by SES Americom at the end of June last year.

The high-powered hybrid C-/Ku-band satellite, named Worldsat-3, is scheduled for launch into the 172 degrees East orbital slot over the Pacific region by the end of 2005. The Worldsat-3’s Ku-band payload has been designed to meet the unique requirements in that region for Connexion by Boeing. Worldsat plans to lease capacity on the C-band payload to other customers, including broadcasters and cable programmers, Internet service providers, government agencies, educational institutions, carriers and private networks.

Worldsat-3 will be a modified version of the AMC-13 satellite currently under construction by Alcatel Space. The satellite manufacturer won the contract to build the Worldsat-3 by submitting a proposal to reconfigure the AMC-13 satellite to meet Connexion by Boeing’s need for high-powered Ku-band service, said Monica Morgan, SES Americom’s vice president of communications. The AMC-13 satellite originally was intended to provide only C-band capacity.

Worldsat-3 will weigh about 5,000 kilograms (11,020 pounds) at launch, with beginning-of-life electrical power of 13 kW, and a design life exceeding 15 years. The redundancy levels on the satellite’s critical core systems, such as on-board computers, beacon transmitters, and command receivers, surpass other satellites in the region, according to SES Americom officials.

Based on a Spacebus 4100 platform, Worldsat-3’s Ku-band payload would feature 20 high-powered, 138-watt channels arranged to cover major airline corridors over the Pacific. The C-band payload would feature 18 high-powered, 80-watt channels designed for reception by antennas smaller than 2 meters (79 inches). The satellite’s planned coverage would span from Alaska to New Zealand and from California to Malaysia.

To seize business opportunities in Japan, Worldsat obtained a telecommunications business license from the country’s Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT) and became an Earth station operator in Yamaguchi.

Dean Olmstead, SES Americom’s president and CEO, said his company’s Worldsat business is entering the Japanese telecommunications industry to support both Japanese and U.S.- based customers with connectivity and bandwidth services. SES Americom currently operates a fleet of 11 spacecraft in orbital positions providing service throughout the Americas.

Worldsat was created by SES Global last year to deliver connectivity over the oceans to supplement SES Americom’s and SES Astra’s fleets of land-targeted satellites and to address the fast-growing mobile services and government telecommunications sectors.

Worldsat operates former SES Americom satellites at five orbital positions — 108 degrees East, 172 degrees East, 174 degrees West, 47 degrees West and 37.5 degrees West.

“The opportunity is to offer customers seamless worldwide solutions for distribution of services over land masses and between regions in a unique and cost-effective manner,” Morgan said.

Rocky Beginning

Shortly after the terrorist attacks of Sept. 11, 2001, Connexion by Boeing lost commitments during the following month from three major U.S. airlines to invest in the venture and become anchor customers of the service. United Airlines [NYSE: UAL], Delta Airlines [NYSE: DAL] and American Airlines [NYSE: AMR] all pulled out of their planned investment in the venture.

However, Connexion by Boeing adjusted its original plan by focusing instead on non-U.S. air carriers with international flights and air routes. The new strategy still allows Connexion by Boeing to develop customer relationships with U.S. airlines at a later date.

Connexion by Boeing’s in-flight broadband service is particularly attractive for passengers on extremely long international flights to and from Asia, Morgan said. Connexion by Boeing has signed agreements to provide its in-flight broadband service to several Asian-based air carriers, including Singapore Airlines [Singapore: SIAL], China Airlines and All Nippon Airways [OTC: ALNPY] (ANA). The definitive agreement with ANA was announced Jan. 15, while tentative contracts with the other two Asian carriers have yet to be finalized. Final agreements also have been reached with Lufthansa, Japan Airlines System (JAL) and SAS [Stockholm: SAS], while a tentative deal with British Airways [NYSE: BAB] still needs to be firmed up.

Despite the loss of its U.S. airline partners, Connexion by Boeing moved ahead last year and tested its service with British Airways on a New York-London route between February and May and with Lufthansa on a Frankfort-D.C. route in January and April. British Airways tested normal customer behavior with pricing of $25 and $35 per flight to measure acceptance with “fairly light marketing,” whereas Lufthansa handed out laptops to entice as many passengers to use the service as possible, said Sean Schwinn, Connexion by Boeing’s director of strategy and business development.

On a five-point rating scale, more than 90 percent of those participating in those trials described themselves as “extremely satisfied” or “very satisfied,” Schwinn said.

“We were extremely gratified with the response, as were Lufthansa and British Airways,” Schwinn said. “The U.S. airline market has taken longer to recover than many other international carriers but Connexion by Boeing is heartened by the increasing level of interest from U.S. carriers in high-speed Internet services.”

Pioneering Service

Jeff Flagel, Connexion by Boeing’s director of supplier management, said that no satellite coverage of the Pacific Ocean currently exists that met the “economics” of his company’s business plan.

“It came down to finding an operator that was willing to make an investment and look for other ways to market part of that payload to close the business case for all of us,” Flagel said. “We are responsible for the planned launch of a payload to serve the Atlantic Ocean region.”

Connexion by Boeing agreed to take four Ku-band beams on the Worldsat-3 that cover the entire Pacific Ocean and Australia, while leaving a remaining beam for Worldsat to market elsewhere in Asia, Flagel said.

With the Worldsat-3, Connexion by Boeing will become the first broadband communications service available across the Pacific Ocean. London-based Inmarsat offers its Inmarsat 4 service with a 432-Kbps bi-directional system, but has not announced plans to provide broadband capacity across the Pacific Ocean, Schwinn said. Connexion by Boeing is the only service that would be able to serve any ocean in the world once Worldsat-3 is deployed.

Commenting on the maritime use of Connexion by Boeing service, Schwinn said, “The opportunity for ships to improve their operations, safety and security with true broadband communications is every bit as great as we believe it is for airlines.”

Connexion by Boeing works with airlines to enhance their operational efficiency and service to customers in the cabin. For example, Connexion by Boeing not only would provide passengers with broadband capability but also would enable airlines to monitor onboard systems and reschedule passengers who missed flights.

“The investment in Connexion by Boeing is significant because we are committed to revolutionizing mobile broadband communications,” said Schwinn, who declined to provide a ballpark investment of Boeing’s substantial investment in the fledgling service. The agreement for Connexion by Boeing to use satellite capacity on Worldsat-3 also is “very dramatic” evidence of the company’s unwavering goal of serving its Asian customers, Schwinn said.

“Our investment in Worldsat-3 demonstrates our commitment to Connexion by Boeing,” Morgan said. With the growing need for high-speed access and connectivity, interest in the service should continue to rise. “We are all getting hungrier for broadband Internet connections,” she added.

–Paul Dykewicz

(Phil McAlister, Futron Corp., 301/347-3423; Monica Morgan, SES AMERICOM, 609-987-4143; Sherry Nebel, Connexion by Boeing, 206/655-5205)