Battle for the Skies

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Competition for dominance of the Aeronautical satellite broadband market is certainly hotting up. The delivery of connectivity in flight is already a reasonable market. According to Wall Street Equity Research, there were over seven million devices connected to broadband services in flight in 2014. But with commercial aircraft numbers set to rise from 10,000 in 2011 to 43,000 in 2031, and Corporate Aircraft showing similar growth, this market is getting bigger. Southwest, Delta, United, American, Air Canada, Lufthansa to name but a few are already full steam ahead in their drive to deliver connectivity. Serving them are the pure play operators who opened the market early like Gogo (with some 9000 planes equipped) and and the smaller Row 44. Catching them up are Panasonic, Thales and AT & T. Hughes and Viasat are also jockeying for position in not only equipment but also the service provision market, with Viasat in particular working quite hard to stitch together global coverage deals – and the various regional Ka band operators must be rubbing their hands together in anticipation. There is for sure room for some competition in this market, especially given its regional nature.

The bigger question rests on standards and capacity. It is notable that we now see Inmarsat, Intelsat, SES, Iridium and EUTELSAT all making strategic moves and noises around this market. Inmarsat and Intelsat perhaps have the biggest head to head battle looming. Inmarsat is to launch a globally ubiquitous Ka band system called Global Express, using Ka band to delver higher data rates than were previously possible. It is also investing in an S-Band overlay.

Intelsat is designing its latest Ku band TV satellites called EPIC to also carry some smaller spot beams to provide coverage of air corridors with higher throughput. They will not match the capacity and therefore cost per Mb of the Inmarsat Ka band services, but Intelsat is desperate for growth and can be expected to try hard to succeed in this market. Iridium already have a strong position in global voice and low speed data and must now come up with a competitive offer for next generation services. Eutelsat and SES have been making noises lately about putting together a patchwork of capacities on some new satellites, but it does not feel like a commitment to a large scale service by either.

So it does feel like its a play off between Inmarsat and Intelsat for dominance of the skies. Whoever can forge the stickiest partnerships and get the best equipment for next generation services specified and installed stands to command a long term advantage. Once devices are installed on aircraft, they are unlikely to be churned easily. This market therefore begins to look a little like the DTH market with stable long term revenues up for grabs. But is it big enough? Will enough users really pay a premium for access? This occasional traveller certainly prefers to watch an inflight movie and check out for a few hours shuteye rather than being harassed by bosses and customers on email! But the history of the data market suggests that one should never underestimate growth prospects. Who will win this emerging battle is much harder to see. If standards settle, there will be losers, and one wonders if the service provider layer will survive given that the small number of customers can easily be accessed by the operators if they chose to go direct. It does seem like Inmarsat have a clearer more consistent strategy than their challengers and the best ability to go direct with a managed service.

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