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September 29, 2006

In-Flight Cellular Services: Will They Ever Take Off?

By Patrick Barnard, TMCnet Associate Editor

To most business travelers, providing in-flight cellular services is a great idea. But with the recent failure of Boeing’s Connexion service, many are now wondering if it will ever be profitable for the airlines.

The topic of in-flight cellular service is explored in detail in a recent report from Telecom, Media and Finance Associates Inc. (TMF Associates). The report, “The Market for In-Flight Passenger Communications: Lessons from Connexion,” predicts that while providing in-flight cellular service might pay off for the larger airlines, it probably won’t for the smaller ones, at least as of present, simply because of the costs involved. The recent failure of Boeing’s Connexion service is cited as a prime example of the challenges airlines face in making in-flight cellular services take off.

According to the report, the cost of installing equipment for in-flight service is a big pill for most airlines to swallow, particularly when considering that most cell phone users are tending to keep their phones under wraps while in the air, resulting in low usage. Although not specifically outlined in the press release announcing the report’s availability, there are three likely causes for this: First, many air travelers aren’t aware that they can use their cell phones while in flight (this due to decades of announcements from the airlines that cell phone use while in flight was prohibited), plus, those who are aware of the service’s availability are also aware that it comes at a premium price. Adding to this is the fact that in recent polls, many air travelers expressed objections to the airlines allowing in-flight calling, mainly on the basis that it results in disruptions for other travelers – many of whom would rather travel in peace and solitude. So the big question for most airlines is: will the investment in equipment pay off?

“A key lesson from the failure of the Connexion-by-Boeing system was that low usage, leading to insufficient revenue per equipped aircraft, results in airlines having to subsidize the cost of equipment,” said Tim Farrar, author of the TMF report, in a press release. “We estimate that the in-flight cellular services offered by OnAir and AeroMobile, using Inmarsat satellite equipment, will need to generate much higher end-user revenues than the $100,000 per plane achieved by Connexion before the service reaches breakeven for airlines on a standalone basis. Only then will it start to become attractive to low-cost carriers.”

As Farrar explained, this represents a significant challenge when considering that in-flight cellular services are generally offered at premium prices. However, new, terrestrially based Air-To-Ground (ATG) systems, such as that planned by AirCell, are expected to use less expensive equipment and therefore may become profitable, even with low use.

As explained in the report, some airlines will decide to offer in-flight cellular service simply to differentiate themselves from their competitors. It might not necessarily mean that they make a profit from the actual in-flight calls … but it might be enough to give some travelers the “peace of mind” that they can make an in-flight call if they need to, and thus will attract them to buy tickets.

The report provides airlines, equipment manufacturers, service providers and analysts with a comprehensive re-evaluation of the in-flight passenger connectivity market, including lessons from the recent failure of Connexion. It discusses proposed connectivity services and the views of airlines, passengers and regulators, and analyzes the business air traveler market, including spending on comparable existing services.

In a related development, Panasonic Avionics announced recently that it is considering assuming the service requirements of Connexion, but only as part of a wider commitment to its own in-flight connectivity system, which was unveiled in April.

Boeing announced that it was shutting down its Ku-band-based Connexion service in August, citing a lack of demand. However, several Connexion operators, including Lufthansa, are attempting to keep their broadband offering alive beyond the Jan. 1, 2007 cut-off planned by Boeing.

For more information about the report, visit www.tmfassociates.com/aero.

For more information about TMF Associates, visit www.tmfassociates.com.

Fixed-mobile convergence is no longer a matter of “if” but “when” and although projections vary on timing, everyone knows the it is now inevitable. How can service providers capitalize on it? What do enterprises and end-users to need to do to prepare for it? Be sure to attend the Mobility Summit taking place at INTERNET TELEPHONY Conference & Expo, WEST, which runs October 10-13, 2006, in San Diego.

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Patrick Barnard is Associate Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page.

(source: http://ipcommunications.tmcnet.com/hot-topics/wireless/articles/2875-in-flight-cellular-services-will-they-ever-take.htm)

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