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Boeing, ARINC Seek Viable Broadband Strategy

By | August 30, 2004

      Global, in-flight broadband connectivity is one service that must use satellites. Unlike multi-channel video, voice services and radio, there is no alternative technology that can offer broadband connectivity across the oceans and virtually anywhere else an aircraft may travel. The big challenge will be to prove that a workable business model can be found to allow a service provider to turn a profit.

      Annapolis, Md.-based ARINC plans to begin demonstrating its Skylink service next month, and it wants to sign up airline partners to offer its service. Connexion by Boeing began operating commercially on Lufthansa [DLAKY] in May, and it already has firm or tentative agreements with eight other non-U.S. carriers. ARINC currently handles about 20 million messages a month from air-to-ground, mostly on commercial jets in the United States, Canada, Mexico, Central America, the Caribbean and Europe. The company also uses Inmarsat satellite services to provide data communications in the oceanic regions.

      Both Boeing and ARINC are the frontrunners in a rush to provide in-flight broadband services that at one time attracted upward of a dozen potential service providers. Some of those prospective entrants still need financing, while others appear to have given up their plans completely.

      “We think we offer a viable alternative,” said Tom Mullan, senior director of ARINC’s Skylink program. He may be right but his venture is high-risk.

      “This is not, frankly, a high-margin business for us,” Mullan told me last week. However, the reward could be long-term customer relationships and revenue streams.

      Officials at both Boeing and ARINC are offering no hint about how much they have spent to develop their respective services but industry sources estimate Boeing has poured significantly more money into its rollout than has its much smaller rival. Estimates of Boeing’s investment in the in-flight service, including the people assigned to work on the project, are in the hundreds of millions of dollars.

      A big question is exactly which business model is best to maximize a provider’s revenues and profits, while offering service at a price customers would be willing to pay. Boeing is pricing its service identically for each airline partner. ARINC will let its airline customers choose their pricing, thus giving them the chance to offer broadband service to selected customers for free as one way of becoming the carrier of choice for high-yield business travelers.

      It is unclear either business model will succeed, due to the high cost of providing the service. One way both Boeing and ARINC are keeping their startup costs down is by leasing capacity on existing in-orbit satellites rather than launching and operating their own.

      American Airlines [AMR], United Airlines [UAL] and Delta Airlines [DAL] had planned to invest in the Connexion by Boeing service prior to the 9/11 terrorist attacks but each withdrew from that arrangement after they incurred severe financial fallout from reduced air passenger travel. All three carriers along with the other U.S. airlines remain uncommitted to either broadband service.

      Only non-U.S. carriers have been willing to offer in-flight broadband. South Korea’s Asiana Airlines last week became Connexion by Boeing’s latest partner. The carrier’s home country has the world’s strongest acceptance rates for broadband access per household, with 75 percent of homes having either DSL or cable connectivity. Clearly, those passengers value broadband, and they might pay for it in the air.

      Corporations also are committing to the Connexion by Boeing service in fairly significant numbers for a venture still in its infancy.

      “We have 42 corporate agreements in place, representing more than 300,000 business travelers worldwide,” said Stan Deal, Connexion by Boeing’s vice president of global network sales. Roughly two-thirds of those business travelers are from Siemens AG, a German-based electronics and engineering company, so it shows Boeing could add customers quickly if other big corporations follow suit. Unclear is how much those travelers would use the service. Boeing needs revenues, not just potential users of its broadband service who may travel occasionally and who like the option of gaining discounted service if they need it on a given trip.

      Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769.

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