Will SmartSky’s ground game erode satellite’s in-flight connectivity high ground?
A six-year-old company headquartered near Charlotte, North Carolina’s busy international airport raised $66 million this February as it nears completion of an air-to-ground network of 250 cellular towers. When finished, those towers will point close to 20,000 beams at passenger planes crossing the continental United States.
Before the end of 2017, SmartSky Networks expects to activate what would be only the second terrestrial network for in-flight connectivity in North America (Gogo’s debuted in 2008) and possibly the world (Inmarsat’s European air-to-ground network is also nearing completion).
Today, the North American in-flight connectivity (IFC) market is dominated by five companies — Gogo, Panasonic Avionics, Global Eagle Entertainment, Inmarsat and ViaSat — all vying to wring more dollars out of the most saturated, and most lucrative, skies in the world.
“On busy routes such as New York to San Francisco or New York to Los Angeles, approximately 80 percent of the flights provide IFC services,” says Euroconsult’s Capucine Fargier. “This is partly due to the fact that North America is currently the only region with an operating [air-to-ground] network. North America is currently the biggest market in terms of aircraft fleet, traffic and aircraft equipped with IFC systems.”
SmartSky is stepping directly onto turf held only by Gogo, whose network of roughly the same number of towers catalysed the IFC market in North America using 3 megahertz of licensed spectrum. Gogo started building its business on the ground a decade ago and has since gone higher, buying large quantities of capacity from satellite operators such as Intelsat and SES.
Gogo outlasted AT&T in the air-to-ground, or ATG segment, and inspired Inmarsat (in part) to build their own hybrid ATG and satellite IFC network over Europe. Chicago-based Gogo continues to upgrade its ATG network to use more spectrum while also preparing for new high-throughput capacity from OneWeb’s forthcoming low-Earth orbit constellation.
Will SmartSky, likewise, be both competitor and customer for the satellite industry? Not clear. While Gogo has highlighted satellite as the future, SmartSky brags on its website that the success of its network will be thanks to beamforming technology, 60MHz of spectrum, and the use of a “platform of cell towers rather than satellites.”
Friend or foe?
“I would start out by saying that’s not what we concluded,” said Ryan Stone, president of SmartSky, when asked what convinced him an air-to-ground system was the best way to provide connectivity to aircraft. “What we did was we said, ‘there is a problem in high-density areas over land that air-to-ground can solve. That’s a fancy way of saying air-to-ground doesn’t compete with satellite; they complement each other, just like business aviation and commercial aviation complement each other. Airlines don’t compete with business jets, or the other way around. They serve two different purposes.”
Stone, a former U.S. Navy submarine officer who still serves as chairman of a private air charter firm he co-founded in 2004, said SmartSky determined its network needed to be affordable, have good forward speed, good return speed and low latency. It also needed to be a cost-effective investment. SmartSky advertises a 4G passenger connectivity experience that feels like being at home, without the latency that comes with satellite connectivity.
“At that point there is only one option, and that’s an air to ground network,” he said.
The secret weapon
At the core of the SmartSky network is the use of 60 MHz of unlicensed spectrum in the 2.4 GHz band. Prior to the Federal Communications Commission approving its plans last September, SmartSky had kept quiet about where it had found the spectrum to power a 4G-level service. The FCC certified a SmartSky radio system that, though it relies on spectrum others use for terrestrial applications, only employs it high above terra firma. Stone said getting that certification was challenging from both a physics and a regulatory perspective. SmartSky had to make sure frequency reuse won’t cause loads of interference for an already heavily used band, and then convince the FCC that the radio would work as promised. SmartSky accumulated roughly two dozen patents for its ATG radio to protect the technology developed for this feat.
“We weren’t the first people in the world to say, ‘wouldn’t 2.4GHz be an interesting place to go,’ it’s just everyone else in the industry decided it would be much easier to take a licensed approach,” Stone said. “We felt that with 2.4GHz being a mostly universal frequency around the world, it would be fantastic if we could come up with a system that can do this.”
Room for satellite
Stone downplays the concern that SmartSky’s confidence in its terrestrial connectivity solution means satellite companies have a new competitor to fear. “A lot of our early-bird customers have satellite systems, and they also want air to ground. They want hybrid for redundancy, they want it for the difference in capabilities, and also it provides economic benefits,” he said.
An obvious use is aircraft that fly beyond the continental United States (they will need satellite if they want to stay connected for their entire journey) but that’s not the only scenario. Stone said SmartSky customers who want to use satellite and ATG are often seeking least-cost routing, meaning they can choose the lowest-priced means of sending and receiving data depending on what is available.
“Bizjet operators have told us that even after installing our equipment, they think they could save $100,000 a year by doing least-cost routing, bouncing between the two systems,” he said.
Another use case Stone listed is balancing satellite’s generally asymmetric bandwidth, where speedy downloads typically go hand in hand with sluggish uploads. Stone said aircraft can receive forward-link services where data is sent to the aircraft, like streaming video, via satellites very effectively, but return links get trickier. Satellite return links are often only a fraction of the throughput of forward links, and new aero-applications such as aircraft health monitoring require getting data off of planes in greater quantities. Stone said SmartSky’s ATG network will have forward link speeds akin to Ka- and Ku-band high-throughput satellites, but with a return link nearly just as fast.
John Apostolides, the senior vice president at Macquarie Capital who leads many of the firm’s satellite, IFC and maritime broadband advisory and capital-raising efforts, said he sees a move away from airlines signing exclusively to one connectivity provider for their entire fleet.
“Historically, as an example, if you flew American or Delta, you knew exactly who the connectivity provider was,” Apostolides said. “Now it’s not that clear. When you look at American, they are using Gogo, Panasonic and ViaSat and may be looking to use some other providers for certain routes or types of planes. Southwest recently made an announcement where it has Global Eagle and Panasonic providing service to its whole fleet. There are likely other airlines that will be doing the same thing over time.”
Chasing different markets?
Euroconsult’s Fargier estimates 75 percent of commercial connected aircraft are in North America, with about 60 percent of them using Gogo’s ATG. Some commercial airlines might be OK with investing in multiple connectivity systems, but given the maturity of this market, SmartSky’s foothold in aviation may have to come through greenfield opportunities in business aviation.
“[Seeing how] it requires significant investment and takes time to equip a fleet with connectivity, the impact of SmartSky on the commercial aviation market might take some time, depending on the investment cycles of each airline,” she said. “The decisions of the largest airlines might be decisive for the success of one or another service provider. First impacts from SmartSky are expected on the business aviation market, where the untapped market is larger and where decision-makers can make faster decisions.”
Many of SmartSky’s prominent business partners — Bombardier, Jet Aviation, Duncan Aviation — are in business aviation, as is the company’s first “early bird” customer, Davinci Jets (the air charter company SmarSky’s CEO co-founded). Apostolides agrees that SmartSky’s behavior suggests it is trying to carve a different niche in IFC.
“It seems that SmartSky is trying to do something different both in terms of its business model and spectrum. They are probably not, at least at first, going to try and tackle American, Delta or United, or even JetBlue and Southwest. They are probably not also going for certain larger government or corporate jets. It’s more likely going to be smaller, like six-seater corporate jets, or having a different sales channel through aircraft distributors,” he said.
Will SmartSky’s pursuit of business aviation, and aviation in general, involve the satellite industry? Time will tell. Stone said he couldn’t talk about satellite operators that have reached out to partner, citing non-disclosure agreements. What’s for sure is that the satellite industry knows it has a new neighbor, and SmartSky says it wants to be friends.
“I think I could generically say that the industry recognizes what we’ve been saying for a while, which is the two are very complementary technologies and as such there are benefits to working together,” Stone said.