Gogo sparks war of words with Inmarsat, ViaSat over lease versus owner model

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WASHINGTON — Inflight connectivity provider Gogo is causing sparks to fly over its claim that leasing capacity is superior to owning satellites and that proponents of pure satellite ownership are only promoting ownership models to protect their business.

Gogo Chief Executive Michael Small defended the Chicago company’s Ku-band leasing strategy during a May 4 company earnings call, describing leasing capacity as “far more cost-effective” than owning satellites. In the weeks following, Gogo and Inmarsat put out material taking aim at each other’s claims. A Gogo op-ed published June 28 targeted both Inmarsat and ViaSat, causing the competitive operators, which themselves are sparring in court over the legality of Inmarsat’s European Aviation Network, to bury the hatchet long enough to counter the company’s claims.

Writing on Gogo’s “from the C-Suite” blog, Jon Cobin, executive vice president and chief commercial officer described Inmarsat and ViaSat as “two small to mid-sized satellite operators who want the market to believe that ‘less is more’ – that having a few available satellites is somehow better than having many.”

“Today, the satellite industry is more dynamic than ever, with rapid changes in performance and cost structure,” Cobin wrote. “Capacity growth is exploding and unit prices are falling. The largest providers, including our partners – SES and Intelsat, deliver an open architecture with many satellites. Meanwhile, smaller players like ViaSat and Inmarsat are trying to sell a closed architecture consisting of just a few satellites.”

Cobin wrote ViaSat and Inmarsat can’t dedicate enough of their Ka-band capacity to aviation because they both serve other large customer segments — residential broadband subscribers for ViaSat, and maritime vessels for Inmarsat. He wrote further that the capacity from Inmarsat’s four Global Xpress (GX) satellites is spread too thinly and ultimately lacks global coverage due to performance shortcomings. On ViaSat, Cobin wrote that neither ViaSat-2, a 300 Gbps Ka-band satellite that launched June 1 on an Ariane 5 rocket, or the upcoming ViaSat-3 satellite trio promising a full Terabit-per-second of capacity each, will truly have enough capacity for aviation after serving residential customers and factoring in the breadth of each satellite’s footprint.

Both Inmarsat and ViaSat are vehemently refuting Gogo’s arguments, calling them misleading.

“Gogo’s math on our capacity is made with zero knowledge of our network design and architecture,” Don Buchman, ViaSat’s vice president and general manager for commercial mobility, told SpaceNews. “We are 100-percent certain we will have more than enough capacity to satisfy the needs and demands of the passenger, crew and operational teams today and well into the future. We cannot say the same thing for our competitors.”

Frederik van Essen, senior vice president of strategy for Inmarsat Aviation told SpaceNews that Gogo’s assertions are “disingenuous and without foundation.”

“Inmarsat’s GX satellites are very flexible and dynamically shape capacity within the coverage area,” he said. “This means that the satellite’s power is routed to meet customer demand instead of wasting power over empty areas. This is very different from the way classic Ku satellites work.”

Margin stacking and pricing fluctuations

Van Essen said leasing capacity gives companies like Gogo “short-term flexibility” at the expense of long-term exposure to market volatility, which in turn could cause airlines to pay more later assuming capacity prices rise. Airlines also have to pay more from lessors because both the satellite operator and the leasing inflight connectivity provider include profit margins in their pricing, he said.

“You work with what is available, you pay a markup to the lessor and are exposed to fluctuating prices. I think airlines are pretty aware from their own industry that, if your balance sheet can accommodate, then owning is better than leasing from a buyer’s perspective,” van Essen said.

Gogo disagrees with Inmarsat’s logic.

“[T]he flaw in Inmarsat’s logic is that in a constrained market, access to more capacity across multiple, large suppliers would be more important than ever. If the satellite industry were to experience a disruption, it is hard to envision a benefit of locking into one smaller provider with a closed system that is itself highly capacity constrained and where there are no options to improve capacity or economics,” Cobin wrote.

Future technology investments

Cobin wrote that Gogo’s antenna efficiency and leasing flexibility “effectively offsets embedded satellite operator margins,” and that ViaSat falls short on cost per bit because the operator “uses overstated numbers to make this case,” and “ignores antenna performance and utilization.”

In response, Buchman said that “Gogo is misleading the industry.”

Buchman said ViaSat’s network is sized for peak utilization, and that the company’s Gen-2 antenna will access the entire range of Ka-band spectrum as defined by the International Telecommunication Union, “doubling useable satellite capacity and enabling the full range of capabilities on ViaSat’s satellites.” The antennas will also use an upgraded power supply, and ViaSat’s Gen-2 modems will be able to handle throughput up to 1 Gbps each, he said.

Network performance relies on the entire system — the satellite, link, modem, antenna — he said, with total capacity ultimately dominated by the satellite.

“As the idiom states, ‘you can’t get blood from a stone,’ and this translates well here,” he said. “If the satellite you’re tapping into doesn’t have the capacity, no magic size antenna will dramatically improve performance.”

Aircraft served

As of March 31, Gogo counted close to 3,000 commercial aircraft connected, more than 4,300 business aircraft, and over 1,600 aircraft contracted for its new 2Ku antenna. Competitor Global Eagle Entertainment tallied 831 aircraft by March 31, and Panasonic Avionics said in June the company has 1,600 aircraft connected.

Gogo said ViaSat and Inmarsat collectively serve around 100 aircraft when not counting their own resellers. ViaSat called this an outright lie.

“ViaSat currently serves 559 planes with its in-flight internet system (ViaSat satellites, ViaSat ground infrastructure, ViaSat aircraft hardware and ViaSat managed satellite services),” said Buchman. “That number continues to increase monthly as the company has more than 830 planes in install backlog.”

Van Essen declined to break out how many of the 1,200 GX-connected aircraft Inmarsat services without resellers. The operator is selling GX connectivity directly as well as through select resellers like Honeywell Aerospace and Rockwell Collins. Historically, Inmarsat did all of its L-band connectivity business, primarily for safety and cockpit services, through resellers. The company has several thousand aircraft connected through those services.

In an email to SpaceNews, Gogo Chief Technology Officer Anand Chari said of the 25-plus satellites the company uses, three are high-throughput satellites, and the company has contracts for capacity on four more in the next two years.

“By selecting the Ku ecosystem, we can take advantage of the rapid innovation cycles and the falling costs of capacity,” he said. “We’ve thoroughly analyzed Inmarsat GX and they simply don’t have enough capacity to serve aviation. It’s also a network built on a few satellites, which is risky. SES just lost AMC-9 and we were able to shift capacity with minimal impact on service. If Inmarsat loses one of their GX satellites, the impact could be large. We wouldn’t want to put that kind of risk on our airline partners.”

Inmarsat’s fourth GX satellite, launched May 15, is an in-orbit backup the operator also plans to use to serve customers. The company has a fifth GX satellite on order from Thales Alenia Space, and two sixth generation satellites with Ka-band payloads under construction from Airbus Defence and Space.

Van Essen said Gogo’s comments have caused confusion in the aviation market that Inmarsat is now trying to undo.

“It pains me because when speaking to airlines, that don’t have people who are experts in this field; it’s not good that we [as aviation telecom providers] confuse them so much,” he said. “I feel that it’s really a function of the immaturity of this industry still, and speaking on behalf of Inmarsat, I think it’s time to grow up.”