ViaSat challenges Gogo’s 2Ku in the battle for Chicago
PARIS—Satellite broadband hardware and service provider ViaSat Inc. on May 18 laid out what it sees as multibillion-dollar markets in aeronautical and maritime connectivity and sought anew to persuade investors that its satellites deliver substantially more bandwidth for the buck than competitors’ spacecraft.
Taking fresh aim at the company’s biggest aeronautical connectivity competitor, Gogo Inc. of Chicago, ViaSat Chief Executive Mark D. Dankberg said Gogo’s new 2Ku modem, which Gogo claims is the state of the art and offers 70 megabits per second to a given aircraft, will be gasping for air in densely populated airspace over airports.
“Say 70 megabits per airplane. OK: But 100 airplanes over Chicago? They do not have 7 gigabits of bandwidth, they maybe have 200 megabits in total,” Dankberg said at a MoffettNathanson Research investor conference. “We are now [with the ViaSat-1 satellite] at 100 megabits per second per plane. We’ll get to 200 megabits and we’ll have multiple gigabits of capacity over Chicago. We’re already in the 1 gigabit range.”
ViaSat-1 provides a total throughput of about 140 gigabits per second. ViaSat-2, set for launch in early 2017, has about 300 gigabits of throughput. ViaSat-3, to launch around 2019, is designed to provide 1 terabit per second of throughput.
Dankberg said ViaSat-3 in fact might surpass the 1-terabit milestone.
“It’s in the terabit range,” he said. “If things go well it could be more.” Carlsbad, California-based ViaSat has two ViaSat-3 satellite platforms on order from Boeing Space and Intelligence Systems of El Segundo, California. ViaSat is building the payloads on its own.
Gogo Chief Executive Michael Small said the 2Ku modem, which is now being deployed onto Gogo customers’ planes, can deliver up to 400 megabits per second of throughput, future-proofing the system as satellite bandwidth availability increases.
“There’s plenty of room to grow” with 2Ku, Small told investors May 6. “I’m very comfortable we will be able to meet the needs of the entire aircraft, no matter how big the aircraft is, and will do it more economically than anybody else in this industry.”
Small said Gogo has not made a religion of Ku-band and would switch to Ka-band if that frequency proved to offer a superior service and provided the redundancy that comes from having dozens of satellites in orbit, from multiple providers. That is not the case with Ka-band.
“Today we don’t wee a lot of benefit to spending money on a Ka-band solution,” Small said. “But if it turns out that that ecosystem gets going and has true global coverage and redundancy and all the things we’re looking for, then we’ll adopt Ka-band. I don’t see that as imminent.”
ViaSat, Gogo, Panasonic Avionics, GEE, Inmarsat, Thales LiveTV – all the companies in the in-flight-connectivity market are struggling to find the right business model for themselves and to their customers.
Dankberg said Gogo, whose business began as a U.S. air-to-ground WiFi service before adding satellites, attracts an average of 6.7 percent of passengers to its on-board WiFi service, a figure he said is spread over all flights and has not changed in recent years. Gogo officials have reported that airlines with a history of in-flight connectivity report higher rates of take-up than the average.
He said JetBlue now views free WiFi as a major selling point to customers. On-line retailer Amazon’s payments for privileged access to the JetBlue customers offsets the cost of satellite transmissions from ViaSat.
“So what they pay us they get back from sponsored connectivity,” Dankberg said. The revenue opportunity appears enormous. Figure $1 or $2 per passenger, with 800 million annual airline passengers in the United States alone, plus the larger opportunity outside the United States, he said – a $3 billion annual addressable market in total.
ViaSat’s consumer broadband business is treading water until ViaSat-2 is operational. Its wholesale customer, Dish Network of Englewood, Colorado – a sister company of ViaSat competitor EchoStar Corp.’s Hughes Network Systems – continues to sell ViaSat service despite the competitive anomaly.
Dankberg said the ViaSat consumer broadband offer accounts for 25 percent to 30 percent of Dish Network’s half-million broadband subscribers in the United States.
“Dish would rather put customers on on the EchoStar satellite than on ours, but they’re still working with us,” Dankberg said. “We’re really happy with it considering the circumstances.”
Carlsbad, California-based ViaSat’s ViaSat-1 Ka-band broadband satellite entered commercial service in January 2012. Dankberg said that 5.5 years into its 15-year life, the satellite looks set to deliver the 30 percent return on invested capital that had been expected of it.
“We are at about $500 million in revenues for ViaSat-1, with an EBITDA approaching $200 million. If you can do that [with a satellite] for a few years, things are going to work out well.”
ViaSat’s business with the U.S. Defense Department has been increasing in the past couple of years as the company finds customers attracted by the same increasing demand for bandwidth as commercial customers.
Dankberg said ViaSat, after a long effort, been able to demonstrate ViaSat-1’s performance aboard U.S. military aircraft. The U.S. military’s long-expected shift to Ka-band has taken longer than expected, in part because of budget pressures that have limited the military services’ ability to outfit aircraft.
London-based Inmarsat too has suffered from the slow transition. Inmarsat Chief Executive Rupert Pearce told investors May 5 that the company’s Global Xpress Ka-band satellite system – three Global Xpress satellites now provide global coverage, with both civil and military Ka-band frequencies – has been slower than expected to find traction in the U.S. military.
“The strategic move of U.S. government and affiliated programs out of Ku-band and into Ka-band has not progressed at the pace we’d expected, simply because our end customers need to save money in the short term,” Pearce said.
Dankberg said U.S. defense officials had suspected that throughput was a function of the modem on the plane. “We outfit the planes with modems that can work with any satellite, incuding ours,” he said. “We have been trying to show them—here’s the same modem, now with a different satellite, and you see the enormous difference.”
ViaSat 2 is scheduled for launch in early 2017 and will provide more bandwidth and broader coverage, including the North Atlantic air routes.