One of the founders of inflight connectivity provider Row 44 believes the industry is now ripe for consolidation.
The industry has reached a level of “maturity” where it’s understandable if mergers and acquisitions are being studied, Row 44 co-founder John Guidon told RGN in July after we sought comment about rumors that Row 44 parent Global Eagle Entertainment was eyeing a sale of Row 44.
Interestingly, one month after our discussion with Guidon, Wall Street is now buzzing that Verizon might be studying a potential joint venture, acquisition or partnership with Row 44 competitor, Gogo.
Such a move “would be very strategic on Verizon’s part”, notes an industry insider. The company’s defunct Verizon Airfone unit, which once offered seat-back telephones on domestic aircraft, famously left the market when Gogo bought an exclusive 3MHz broadband license for air-to-ground (ATG) services during the Federal Communication Commission’s 2006 auction of the spectrum. Though it exited the business, Verizon has always retained an interest in the space, and has been taking steps to formalize its vertical marketing efforts within the broader travel ecosystem.
Rival AT&T – which also once offered a competing onboard telephony solution to Airfone, called Claircom – recently signaled its intent to launch a 4G LTE air-to-ground connectivity solution in the US, which will compete with Gogo. This decision is doubtlessly giving food for thought to major telecommunications companies in the US.
Should Verizon and AT&T find themselves competing again on connectivity – this time on the Wi-Fi/mobile connectivity front – it’s not clear what the impact would be for passengers. Despite its April announcement, AT&T has remained quiet on these sorts of details, though it’s logical to presume that the firm will be well positioned to provide attractive pricing to current AT&T subscribers in the continental United States.
As readers are well aware, M&A activity right now is at a hypersonic level because of low interest rates, and it’s certainly feasible that various combinations in the connectivity sector are being studied.
“I think that an interest in Gogo would certainly make sense because life is getting increasingly difficult for standalone connectivity providers,” says satellite industry consultant Tim Farrar. “When you have the big boys coming in from the equipment side, the Panasonic and Honeywell-types of the world, and also the terrestrial connectivity side in terms of AT&T, you’ve got to pick your partners. So in terms of Verizon, the real question is going to be – it didn’t work out too well for them last time; are they doing something different? Airfone wasn’t exactly a financial success. This applies to any cellular provider eyeing the business. Are they treating this as a profit center, just like they’re doing by getting into the Internet of Things (IoT) and connected cars? Are they viewing it as an upside of revenue or a marketing deal much like sponsoring or paying for Internet connectivity at Starbucks?
“If I go to a Hilton hotel, I get free Internet because I’m an AT&T subscriber. So that has been the biggest question – for AT&T and Verizon, is there more benefit for them in providing free access to cellular subscribers to attract more customers than they would give up by not trying to charge as much as possible to everyone? If I was Verizon, and I didn’t see this [inflight connectivity] as a money-making exercise, I’d consider some sort of partnership with Gogo. It doesn’t expose them, but maybe it would screw up AT&T’s plans. Ideally, from Gogo’s side, they’d like to screw up AT&T’s ability to capture any airlines.”
Verizon could not be reached for comment, and Gogo declined to comment.
On the Global Eagle front, the company said it does not comment on rumors. Earlier this year, John Guidon stepped down from his role as Chief Technology Officer at Global Eagle, leaving the business “in capable hands”, he said. Though Guidon retained an advisory position with Global Eagle, he said he has absolutely no visibility into whether or not Global Eagle wants to sell the Ku-band connectivity business that he spent 10 years building.
Guidon suggested, however, that Row 44 proved the model, and that new connectivity technologies now entering the industry speak to how exciting the sector has become.