AirCell plans nationwide network for in-flight Wi-Fi

 - September 15, 2006, 6:02 AM

AirCell’s winning bid of $31.319 million for an important segment of the air-to-ground frequency spectrum last month bodes well for business jet operators and passengers, who stand to benefit from access to high-speed-data services available across the U.S. over a network of special ground towers.

The story of how AirCell beat out heavyweight competitor Verizon Airfone to win the FCC auction for a 3-MHz slice of spectrum in the 800-MHz band is almost as interesting as what AirCell plans to do with the license. Plans are afoot to build a nationwide broadband Wi-Fi network for the sky that AirCell claims will trounce competing satellite services in terms of price to the end user and data transmission speeds.

A key piece of the puzzle enabling AirCell to win the frequency spectrum license was a cash infusion from New York private-equity firm Ripplewood Holdings, headed by financier Timothy Collins and controlling more than $10 billion in capital primarily in telecommunications, banking and entertainment.

From the customer’s point of view, little at AirCell should appear changed–but behind the scenes the company is a tumult of activity. Its first order of business is to tie up loose ends related to the FCC auction, after which it can move forward with plans for the deployment of its air-to-ground communications network, consisting of about 200 ground transmitters, most of which AirCell hopes to field in the next 12 or so months.

Ron LeMay, an industrial partner at Ripplewood Holdings, has been installed as chairman of the board at AirCell. An experienced global telecom executive (LeMay is the former president and COO of Sprint and CEO of Sprint PCS) he should bring added clout to the company as it seeks to forge new business relationships.

That’s not to say AirCell has suffered from a dearth of leaders with telecommunications industry experience. AirCell CEO Jack Blumenstein, another telecom industry veteran (who held the title of chairman before the auction), has been at the helm of the company for more than 10 years, successfully guiding it through a sometimes thriving, sometimes tumultuous past.

AirCell was founded in the mid-1990s with the idea to equip existing cellphone towers with air-to-ground transmitters permitting cellular calling aboard aircraft using special onboard hardware and handsets. The FCC granted AirCell a license for the service, but the business model fell apart when cellular service providers began switching from analog to digital technology. AirCell quickly transformed itself into a seller of Iridium airborne satellite communications hardware, and since then has become the number-one player in that market.  

In an interview with AIN, AirCell’s CEO said the company’s plan is to launch its commercial broadband service within a year of receiving the license, which could happen as early as next month. Planning for the national network is well under way, according to Blumenstein. A major focus right now, he said, involves talking to–and ultimately reaching agreements with–U.S. airlines and business aircraft operators and OEMs about the services AirCell plans to bring to the market.

“I would expect that well before the end of next year you will be able to climb on board a scheduled airliner and fly in the states and have access to broadband communications on your laptop, PDA or other similar device,” Blumenstein predicted. The service will also be available for general aviation in that time frame, he said. AirCell designed and introduced its new Axxess communications product line specifically for general aviation to be plug-and-play compatible with air-to-ground broadband as soon as it is available. The baseline Axxess hardware package includes two Iridium satcom channels and a Wi-Fi hot spot in the cabin for Internet access.

Download data rates through AirCell’s network were tested at an impressive three megabytes per second during flight trials last September aboard a Falcon 2000. The network required for the service will include far fewer base stations than a traditional nationwide cellular network because the AirCell transmitters will point up at the sky, covering a diameter of roughly 300 nm each. Capacity of individual stations could become an issue in the future, but AirCell will be able to add base towers to accommodate demand as needed.

The physical construction of the network will be relatively straightforward, Blumenstein said, and will mimic what AirCell did with its first-generation cellular network, which included about 135 base stations covering nearly all air routes in the continental U.S.

Lessons Learned

AirCell plans to use existing cellular infrastructure by installing its base stations as part of existing cell tower installations through agreements with tower owners. In areas where it cannot install its base station on a tower, AirCell plans to build its own. Lessons learned in deploying its original ground cellular network a decade ago will help the company complete the project more quickly than it otherwise might–while avoiding the pitfalls inherent in such projects, Blumenstein said.

“Our view is that we want the aircraft operator and passengers to have a phenomenally great experience from day one,” he said. “We’re going to overbuild and over-engineer and create more capacity than we think we’ll need to make sure that coming right out of the gate everybody has a fantastic experience.”

Service pricing won’t be set until sometime next year, but Blumenstein said he expects AirCell’s broadband offering to cost far less than current satellite options such as Connexion by Boeing and Inmarsat’s SwiftBroadband. AirCell wants to stimulate demand in the market by offering broadband services at prices similar to what people pay for Internet access at a local Starbucks, he said.

There likely will be a premium on top of this price to reflect the degree of difficulty in providing access at 35,000 feet and 500 mph, Blumenstein said, but AirCell wants the end user to view the pricing as appropriate and attractive. Business jet customers would likely sign up for package pricing permitting a certain amount of use per month or year, again at prices far lower than those at competing satellite services.

Hardware, likewise, will be lighter, less complicated and more affordable than today’s satcom equipment, Blumenstein said. The architecture will be scalable, he added, allowing for future provisions for personal cellphone use and text messaging, assuming the FAA and FCC change the rules prohibiting such activity in flight. Hardware will include the Wi-Fi hotspot on board the aircraft that will interface with a data router and antenna. Total weight is anticipated to tip the scales at “far less” than 50 pounds, Blumenstein said.  

Anatomy of a Spectrum Auction

It was always AirCell’s plan to enter the FCC frequency spectrum auction with the resources that would allow it to be competitive with other would-be players, most notably Verizon Airfone, which holds the original 800-MHz spectrum license, used for air-to-ground calling. After Blumenstein met with Ripplewood’s LeMay–an almost legendary figure in the telecom and wireless industries–he said he immediately realized that the former Sprint CEO’s knowledge and connections coupled with Ripplewood’s vast financial resources gave AirCell an excellent chance of succeeding in this new market.

AirCell and Ripplewood created a revamped financing package before the auction that formed a separate holding company called AC HoldCo LLC and a spin off called AC BidCo LLC, which became the actual bidder for the 3-MHz broadband license. The money from Ripplewood Holdings creates a fairly complex new investment structure whereby AirCell’s original investors have put up more money, Ripplewood has put in money of its own, but at the end of the day AirCell remains essentially the same company it was before the auction, Blumenstein said.

That strong financial backing undoubtedly played a role in how the auction played out over a three-week period from mid-May to early June. Several days after the bidding started, Verizon dropped out of the competition without explanation, leaving AC BidCo the only serious contender among the nine original eligible bidders. The auction began on May 10 and should have wrapped up around May 23, but a second auction for a 1-MHz slice of
narrowband spectrum kept AirCell and Ripplewood executives from popping their champagne corks until that portion of the auction finally ended on June 5.

Livetv, a spinoff of JetBlue Airlines, and Space Data Spectrum Holdings battled for the second, narrowband license, driving the bidding above $5 million. Until that portion of the online auction was over, AirCell was merely the provisional winner of the 3-MHz license. There was always the chance, Blumenstein explained, that Livetv or Space Data could have switched at the last moment and started bidding on the 3-MHz license. Both probably realized, however, that AirCell still had ample funding to continue a bidding war for longer than anyone probably wanted, and by the official end of the auction AirCell had emerged the winner of the 3-MHz license and Livetv was the winner of the 1-MHz license.

Verizon Airfone’s decision to quit bidding as early as it did came as a surprise to many, including executives at Continental Airlines, who said afterward that they had held talks with Verizon about a future airborne broadband service and had received assurances from Verizon sales executives that it fully intended to win the 3-MHz license. Some have speculated that Verizon did its homework before the auction and had come up with a hard figure above which bidding for the license no longer made financial sense. Once AirCell surpassed that figure, Verizon bowed out, they surmise.