Struggling airlines wary of SwiftBroadband’s cost

 - September 15, 2006, 5:54 AM

Priced at about $11 per megabyte, access to Inmarsat’s SwiftBroadband airborne data service will represent a relatively expensive option for in-flight Internet access. It’s a tough reality for decision-makers at financially distressed airlines, who know they’ll be hard pressed to entice passengers to pay such hefty fees (even accounting for volume discounts they can expect to receive through Inmarsat service providers) for something most people have come to take for granted in their daily lives.

On the other hand, business jet passengers and government VIP fliers will be less sensitive to price. While comparatively small, Inmarsat and its partners are eager to tap these markets, reasoning that the bigger the data pipe the more apt high-flying passengers will be to use the connection. Meanwhile, e-mail through Blackberries and other wireless devices will likely represent SwiftBroadband’s true strength in the airline domain. In fact, many in the industry are now saying airline passengers will be more likely to ask for the ability to send text messages in flight rather than for high-speed Internet access.

There’s a certain amount of marketing spin in that prediction, but there is also a kernel of truth. Aboard multimillion-dollar business jets, passengers will gladly pay the relatively high prices for Internet access, officials believe. After all, they’re already paying almost as much for single-channel Swift64 service, and, at 64 kilobytes per second (kbps) per channel, that’s a far slower option than SwiftBroadband’s 432 kbps. As the conventional wisdom goes nowadays, in the coach seats on a typical airliner you’re lucky if you even have room to open your laptop with the seat in front of you pressing almost against your nose; a more productive use of time in the packed confines of a 737 or A320 would be “thumbing” e-mail messages on a Blackberry or Palm Treo.

Speaking last month at an Inmarsat-sponsored aeronautical conference in Boston, Wale Adepoju, chief analyst for UK-based in-flight research and consultancy firm IMDC, said a mix of airborne services is likely to emerge for airline passengers’ connectivity needs in the next several years, with the Ku-band Connexion by Boeing satellite service and future North American terrestrial broadband options eroding what early on had been taken for granted as Inmarsat’s potential market.

“Airlines have been waiting and observing the market so far, but we expect to see more activity in this area this year,” Adepoju said. By 2011, he said, more than 400 airliners will have been fitted with Ku-band data systems, limiting the penetration by SwiftBroadband mainly to those airlines seeking to offer text messaging and in-flight cellular calling, according to IMDC research data. Not surprisingly, he said, ticket price will outweigh connectivity options when it comes time for passengers to pick an airline. In other words, if the fare price is right, passengers won’t care if they can receive e-mail, surf the Web or make a call using their personal cellphone.

This is a factor that undoubtedly is playing a role in the reluctance of many airlines to commit to a particular satellite data service. SwiftBroadband hardware alone costs more than $400,000 per airplane, and Connexion by Boeing receivers and antennas are even more than that. Airlines already awash in red ink will continue to have a tough time justifying data satcom equipment that might or might not improve their bottom lines.

Still, with Connexion by Boeing (and other Ku-band services) offering faster connection speeds and targeted at about $30 per passenger for the duration of a flight, Inmarsat’s service faces tough competition. The good news is that satcom voice calling using the SwiftBroadband link is targeted at about $1.50 a minute, down sharply from the $8-per-minute charge for traditional Aero-H+ satcom. That cost saving alone could entice airline buyers.

Broadband-hungry Users Key

Conference keynote speaker Jay Donoghue, an airline industry expert and the editor of Air Safety World, a new publication from the Flight Safety Foundation that consolidates and replaces dozens of foundation publications, painted a bleak picture for the airline industry in the next several years, saying high fuel prices are currently eroding the profits major carriers should be enjoying now.

“These are supposed to be the good times for the airlines,” he said, adding that the next cyclical downturn will likely hit the industry especially hard. Donoghue and Adepoju both predicted that the airlines will turn the corner financially next year, but they said the turnaround will come too late to soften the impact of the down cycle to follow, which could wallop a number of well known carriers in tenuous financial states now.

It’s no wonder, then, that Inmarsat is turning to business aviation and government clients to spur growth in its aeronautical services segment. The company last year reported strong growth of its aero services thanks to these segments, saying aviation now accounts for 6 percent of Inmarsat’s overall business, up from 3 percent only a few years ago. SwiftBroadband should lead to further growth as bandwidth-hungry business jet and government VIP users start accessing the service. The prevailing theory is that the faster the connection speeds on board, the more likely passengers are to get and stay connected.

Several SwiftBroadband pricing options will be offered, with the most popular likely to be an ISDN service that will cost $9.95 per minute, according to preliminary pricing information from Satcom Direct. Voice calling will be charged at a rate of $1.45 per minute and text messages at $0.75 apiece. Special streaming services will also be offered, starting with a 32-kbps channel for $7.95 per minute and graduating to the top-tier service of 256 kbps for $33.95 a minute. Military VIP customers could use the streaming services for video conferencing, for example. As a last option, “background IP” would provide data by the megabyte at a price of $10.95 each.

Lars Ringertz, head of marketing for Inmarsat’s aeronautical business, noted that the last 12 months have seen a flurry of activity related to Swift64 and SwiftBroadband, with installations of the data satcom gear up 68 percent in the first quarter of this year compared with last year’s first quarter. Chief among the activity reported in the last year were the launches of the first two I-4 satellites that will route SwiftBroadband data traffic. Each the size of a London double-decker bus, the satellites are the largest ever launched by a commercial entity.

The first I-4 satellite stationed over Europe blasted off from Cape Canaveral in South Florida on an Atlas V rocket last March after a one-day delay caused by a hydraulics problem with the launch vehicle. The second I-4 satellite, positioned over North America, was launched last fall by a Ukrainian-built rocket from the Boeing Sea Launch mobile platform stationed in the Pacific Ocean.

Inmarsat noted that one of the first critical phases of the I-4 satellites’ deployment involved a maneuver in which a nearly 30-foot-wide reflector “bloomed” like a giant flower in outer space. Now that these two I-4 satellites are operational, these reflectors are relaying busy streams of commercial traffic to a variety of receivers on the Earth’s surface.

Inmarsat plans to launch a third I-4 satellite for the Asia-Pacific region, although when that will occur is an open question. The company’s board of directors is meeting this month to decide on a possible timetable. Cost to launch the third I-4 satellite will be about $150 million, which has yet to be officially earmarked. Further complicating the launch timing is the need for a large rocket to launch the satellite. Still, according to Inmarsat technical manager Dick Smith, the biggest decision before the company’s board at this point centers on “when to launch the third satellite, not if.”

The third I-4 satellite is being housed at a special facility in Toulouse, France, and won’t be launched before the end of next year.

Beta Testing this Year

With 19 regional beams and 228 high-power spot beams per satellite, the I-4s will support all aeronautical services that are currently handled by various other Inmarsat satellites, including Aero I, H, H+ and Swift64. When SwiftBroadband service begins later this year they will support new cellular telephone services under development, which Inmarsat has been strongly supporting. Inmarsat was part of a GSM cellphone service demonstration recently aboard a Boeing 777 on a nonstop 12,500-mile trip from Hong Kong to London.

On the flight, passengers were allowed to place calls and send text messages on their cellphones, which were connected to mobile networks through Inmarsat satellites. Inmarsat partner AeroMobile provided the technology for the trial, which used the Aero H and H+ calling services.

Early next year Air France plans to take delivery of an A318 fitted with cellphone technology developed by Airbus and a company called OnAir. Special “pico cell” equipment on the aircraft will manage mobile phone power levels, ensuring that the devices do not interfere with avionics or callers on the ground, the companies claim. Prices for calling within Europe (where the service will be offered initially) will be in line with current international roaming rates.

Beta testing of SwiftBroadband with a select group of customers will begin later this year, Smith said. The plan is to work out any bugs in the fall and winter in time for full commercial deployment of the service by the middle of next year.

With the successful launch of the first I-4 satellites, Inmarsat is turning its attention to development of the next-generation I-5 satellites. Development of the next Inmarsat constellation will take about 10 years, aligning well with the expected 14-year lifespan of the I-4 satellites. The previous-generation I-3 satellites that host Classic Aero services (Aero-I, Aero-M, Aero-H, Aero-H+) will remain in orbit until about 2015. When they were launched, Inmarsat estimated they would have a 13-year service life, but their lifespan will actually turn out to be 17 to 18 years.

Smith said Inmarsat is assessing the feasibility of offering safety services over the I-4 network, although this won’t occur until 2010 at the earliest. If the company decides to offer safety services over SwiftBroadband, they would also operate for a number of years alongside today’s Classic Aero service, he told conference attendees.