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Bangkok Post
Bangkok Post

Faster Wi-Fi on Planes Is Taking Off. Profits Aren't.

Last month, hop-on jet service JSX became Starlink's launch customer.  Bloomberg

The long-awaited arrival of free, dependable Wi-Fi on planes will be a boon to fliers in the coming years. Investors, maybe not so much.

Anyone who has tried to use in-flight Wi-Fi over the past two decades knows that, when available, the service is slow and frustrating.

The historic market leader, Colorado-based Gogo, based its coverage on cell towers, which struggled to serve planes flying at high altitudes, leading demand to permanently undershoot forecasts.

When Gogo started contracting satellite coverage for overseas trips, it appeared to pave the way for a revolution fueled by the ongoing boom in the satellite industry and the wider space economy.

Yet massive cost overruns and the pandemic drove Gogo to sell its commercial-aviation unit in 2020 to Intelsat, a satellite company then undergoing bankruptcy. British peer OneWeb went bust the same year.

The sorry saga underscores the uncertain path of investor returns in this promising yet capital-hungry industry.

The potential is clear: Leased in-flight Wi-Fi capacity is forecast to increase 19-fold by 2031, according to Euroconsult, much of it in the underexploited "Ka-band."

U.S. carriers are leading the way: Delta Air Lines is set to roll it out on domestic mainline flights soon, following in the footsteps of JetBlue.

Also working in investors' favor is that long-predicted consolidation has started to happen. In November 2021 California's Viasat announced a $7.3 billion deal to buy Inmarsat, the crown jewel in Britain's space sector. This summer, France's Eutelsat said it is combining with OneWeb, which emerged from bankruptcy in November of 2020.

Traditional satellites transmit from geostationary orbit, or GEO, 22,000 miles above the surface. From there they cover a lot of ground, but transmission takes time. And GEO satellites are few, so they struggle in hot spots like the airspace around airports.

Seeking to overcome this is a new approach championed by SpaceX's Starlink, whereby constellations of miniaturized satellites are deployed at altitudes below 1,200 miles, in low earth orbit or LEO.

Each small satellite can provide latencies comparable to those of fiber-optic lines, but may struggle to provide enough bandwidth to allow a big plane full of passengers to all stream TV, for example.

Inmarsat's solution is to combine technologies: 14 GEO spacecraft -- which would increase to 19 under Viasat, plus 10 more under construction -- will ensure coverage, while 5G ground stations and the prospective launch of at least 150 LEO satellites will ease congestion. Likewise, the Eutelsat-OneWeb merger will unite GEO and LEO spacecraft. OneWeb has a partnership with Intelsat too.

"Hybrid" systems, while cost-effective, won't produce the low latencies of larger LEO-only constellations.

Inmarsat initially played down the importance of latency, which only matters for a few applications like live-sports streaming, videoconferencing and online gaming. Lately, though, airlines have shown signs of wanting to use it as a selling point of their free Wi-Fi.

In any case, antitrust officials may frustrate Inmarsat's plans.

Last week, the U.K. Competition and Markets Authority delayed its deal with Viasat pending an in-depth investigation, precisely due to in-flight Wi-Fi raising concentration concerns. Most mergers don't make it past this stage.

The antitrust case isn't very convincing. Together, Inmarsat and Viasat would have a global market share of 20%, behind Intelsat at 29%, Euroconsult says.

Crucially, powerful entrants are knocking at the door: Last month, hop-on jet service JSX became Starlink's launch customer.

Delta, a Viasat customer, said in April that it had conducted exploratory Starlink tests. Its 3,000-satellite constellation -- with at least 12,000 planned -- can overcome any hurdles through sheer size. and Canada's Telesat are building LEO constellations too.

This staggering level of satellite deployment by large, vertically integrated players is more likely to create overcapacity than rent-generating monopolies.

The industry's challenge is that travelers could come to expect Wi-Fi on planes rather than see it as a value-add, because they have it everywhere else.

Gogo, which never turned a profit on the business, found that fliers hate whipping out a wallet to pay for internet access from their seats.

Comfort-minded carriers will probably ape hotels and bake it into fares, whereas ultra-low-cost players will likely offer it as an add-on at the point of purchase.

Either way, it spells the end of the variable pricing that often discourages usage today, risking ever increasing bandwidth and latency demands.

It is a familiar problem for traditional telecommunications firms.

In the past 20 years, a surge in data usage forced them into an infrastructure rat race, leading returns on capital to nosedive.

Satellites are an even more early-stage and investment-heavy market. Viasat has bled cash every year since 2015. Arguably, a 12-year-low market valuation makes its stock worth a gamble.

As Viasat chief executive Mark Dankberg points out, satellite capacity can always be shifted to the segments that make more money.

But, for airlines, profiting long-term from in-flight Wi-Fi seems like a fantasy.

Although Inmarsat-sponsored research estimates that airlines' broadband-enabled ancillary revenues could reach $30 billion by 2035, the service will probably end up being more of a differentiator than a revenue generator.

Third-party partners can foot part of the bill of fitting jets with antennas and modems, as does for JetBlue, but the payouts will decrease as adoption grows.

Proponents argue that connecting to the internet will generate operational efficiencies for airlines, but these are hard to predict.

Travelers can celebrate the end of a Wi-Fi black spot. Whether this will make anyone rich remains doubtful.

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