ViaSat is enjoying plenty of talkability at the moment, with its Exede streaming class of service on JetBlue and a portion of United’s fleet said to be giving other US carriers much to think about, and excitement building for the high-capacity, near global coverage that ViaSat-3 promises down the road. But Inmarsat, which now boasts the only global-except-for-the-poles Ka-band constellation, shrugs off any suggestion that ViaSat poses a meaningful threat to the London-headquartered firm, with Inmarsat aviation president Leo Mondale recently telling RGN that Inmarsat expects to operate some “10 or 12 payloads before anything like a ViaSat-3 is ordered sees the light of day”.
And in any case, “talk is cheap”, he says, noting that ViaSat-2 “is still on the ground and probably going to be on ground for quite a bit longer.” Indeed, ViaSat yesterday announced that it is shifting its plans for the ViaSat-2 launch as it faces scheduling challenges with launch partner SpaceX that would cause an undue burden to the satellite operator. The launch is further delayed from H2 ’16 to Q1 ’17 but that date is much more secure now as the launch partner has shifted to the reliable Arianespace platform.
Our full January interview with Inmarsat’s Mondale is below.
Where does GX terminal unit certification stand?
The fuselage mount terminal has received its first STC on the Honeywell testbed 757, and that generates a lot of the data set used for additional STCs, so [according to] the review I had earlier this week, there is an STC process going on for every model of Airbus and Boeing aircraft out there, and they are all on slightly different schedules, in some cases [handled by] by VARs, some cases by airlines themselves and in some cases by [terminal unit provider] Honeywell. We’re pretty confident that for STCs, we won’t see any kind of material delays that would affect when a terminal comes on and is activated. The linefit is a little trickier, but we’re on track to be linefit on every Boeing and Airbus model coming off the line. And basically virtually every business and general aviation aircraft, by the way. We’re feeling pretty comfortable that the certification outcome is known… Mid-year is what we’re working towards [in terms of launch on commercial aircraft]. I’m being a little vague there because obviously we’re coming into the market with a system designed to deliver with Quality of Service (QoS) that is well above what’s available now and we’re going to make sure everything is working exactly the way it should before we announce anything from a PR point of view…. We’re not going to predict down to the week [in terms of] granularity right now. But there are no show stoppers; the hardware has all checked out. This phase of the certification process is all about software, bug fixing, and the whole thing has to be certified, so the outcome as I said is not something we’re particularly concerned about and more importantly nor is the market. We’re able to demonstrate performance, and the satellites are obviously all up now and performing.
Now that GX service is in sight for aviation, it seems as if some carriers are holding back on their connectivity decisions so that they can kick your tires; are you observing the same?
Airlines are very sophisticated purchasing organizations as you know and they love nothing better than a good competitive dynamic. I was surprised and gratified by the pre-rollout buzz generated [for GX} and even got a number of deals done. But many airlines are conservative and want to touch and feel what they’re buying and that opportunity is coming up and it fits time-wise so yeah, we’re getting a lot of them wanting to look at it and include Global Xpress offers in their procurement process and there is a huge amount of activity right now. We are approaching it as a service provider and we come from a safety environment too so what we’re promising is…I’m willing to commit to contractually go after the issues they’ve had with connectivity historically in terms of consistency, and concern over whether a Gogo-type QoS is really good enough to take the market where you want the airlines to go, which is to stream… Obviously there are demonstrations out there [Exede customers], with aircraft delivering Netflix streaming, and in North America a lot of the airlines are saying, “why don’t I need that?” The pause [in the market] isn’t just about us coming into the market; it’s about – is it time to move to Gen 2 technology? The airlines would love to close the gap between QoS and performance in terms of what customers want. And while there is a bit of a pause in the market, they’ll get right back to it. It’s not because airlines have lost interest in connectivity, I can pretty much guarantee you that.
Can GX support a streaming class of service like ViaSat?
Certainly the [GX] technology supports it but what you do in the telecom business is you sell the QoS that the airline wants. Not everyone approaches it the way that Emirates does, as you mentioned. We’ll sell a range of service but be responsible to what airlines see they need in their approach to the market.
Does Inmarsat see Gogo’s 2Ku as a threat?
Of course Gogo is an effective marketing organization; they sell what they’ve got very well. When you see how much ATG they’ve sold [it’s] more than their system can support. But in terms of technology, you have to feed the terminal and look at the economics; do you have the right amount of capacity at the right place at the right time, something that matters as we move into QoS. An airline route system is very hub-oriented and there are peak busy hours around big hub airports and if you’re trying to supply connectivity at an effective QoS with that kind of demand, it’s not easy, and you need a lot more [capacity] than when the aircraft take off and spread out. Other providers invariably face a limitation at peak capacity…. So if you come up short during peak busy hours you’ll have a bad reputation. Getting great service in the middle of the night doesn’t fix that. It’s not a theoretical capacity game; it’s what do you got when people want it and where people want it and that’s where designing the system for it [as Inmarsat has done] makes a big difference.
Panasonic is seeing exploding demand for TV; and there is a question as to how important inflight TV is to Inmarsat. Are you seeing the demand?
If you look on the ground, you’ll see that video and television is a very healthy market but it’s abandoning the linear cable/broadcast model and has been migrating to on-demand and instant gratification model, and VOD. So it’s pretty clear to us that that needs to be supported in the air as well, and for an operator like us, that basically translates into more data. So…if you can support streaming then you are now in a position to support video content to passengers that want it. So there are a lot of open questions in the airline market as to how much and what kind of content they [airlines] will want to make available to their passengers, but clearly they want passengers to be able to access Netflix and Amazon Prime and the pools of video content passengers have access to normally. Frankly, our response to the TV question is ‘let’s put enough data capability onto the aircraft so that the airline or the passenger can have a lot of options in terms of what they want to [offer] on the airplane’… I don’t know if you’ve seen the seven or eight channels made available [by Panasonic] but other than the sports and news channels, none are that time sensitive and could have been carried on the IFE system. The definition of television is not fixed; it will not stay still even if people do try to fix it, and there is a pronounced interest in the market in watching it on your device when you want to watch it and that’s the model we can support and provide. And if an airline wants to package that with X amount of channels and package and brand with other services, that’s fine; we can support it if that’s what they want. It’s just more data. A lot of our industry is oriented around trying to sell airlines a one-time technology solution and they get wrapped around the idea that this will solve your problem forever and it never does. We’re approaching the market differently. We’re a telecom provider; we’ll provide this to meet your requirements for the next five or six years and then here’s the next step. It means more capacity, more throughput per use per airplane in this case, at a lower unit price so we’re making offers to airlines that show these steps of increased capacity and lower price backed by the investment we made. We announced over the holidays two more satellites so we have three in orbit, a fourth on the ground which we no longer need as a launch spare because we successfully launched [the three GX satellites] and now two more companion payloads [coming at] the back of the decade so we’ve committed now to six large payloads. We’re looking at several more that could come sooner whether leased or payloads of satellites being built or dedicated satellites. So our strategy is infrastructure heavy; we’re the only on that operates its own infrastructure [globally] and we’re playing that card strongly. We’ll make commitments to lower the price of the service at a fixed intervals. It’s a pretty different pitch from the guys that say “we’ll take care of all the capacity and…. blah blah”; we approach it very differently, saying: here’s what we’ve engineered for your fleet, here are the consequences if we fail, and we’ve made the investment and how does that sound? And we’re getting a very good response to that approach.
Lowering the pricing at fixed intervals for aero is a different type of strategy than you’ve pursued, for instance, in maritime [with FleetBroadband].
Everything has its time. It’s a little bit self-fulfilling; you’ve been around the aviation connectivity space for a while and you know that up and until the [current] group of players in the market, have all failed. The only ones that haven’t failed are the ones in the market now. We took a very hands-on approach saying we’re happy to provide capacity…because of the risk vehicle for that market and we have been doing that for our whole existence. But what happened obviously is the broadband revolution on the ground, and the devices and applications and the whole ecosystem that’s built around it. It [connectivity] is a market need; it’s not a luxury anymore. So we spent a bunch of money to play in that space [years ago] and followed through to do more to continue to play in that space. We expect to operate 10 or 12 payloads before anything like a ViaSat-3 is ordered sees the light of day… What that means to the mobility airline market; it means a great deal, multiple satellites looking at locations on the ground, which gives you vastly greater ability around hubs…two or three satellites looking at the same space. You don’t make one satellite do all the singing and dancing and linear calculus. And this new capacity can focus…on the demand areas so the whole thing becomes much more efficient and effective in cost and performance.
ViaSat in the past talked about being open to partnering with Inmarsat (before announcing ViaSat-3); how do you view ViaSat from a competitive standpoint?
Talk is cheap and ViaSat-2 is still on the ground and probably going to be on ground for quite a bit longer. Why don’t we talk about that before we talk about ViaSat-3? They may be knocking out Guinness book records but these theoretical capacity numbers are really irrelevant…it’s a question of what can be brought to market, and in the case of ViaSat, it [currently] has limitations in local capacity…So around Chicago, JFK or Los Angeles, with three or four hundred aircraft using connectivity – which is not a problem they have right now – the amount they can allocate to aircraft at peak busy hours at the hub is nowhere near what they claim they can deliver to every passenger…
Is it Inmarsat’s preference to be lead on contracts?
No, it’s a practical matter and it turns on airline preferences and it turns on having the structure of the contract follow the obligations, and the exposure which is what one must do in business but our VARs provide a very important part of the value chain and whether they do it as subcontractor or prime doesn’t change that. We’re not trying to duplicate what they do. But the world we’ve been in, prior to this next generation of technology deploying, has been one in which the hardware seems to dominate the TCO analysis and that’s the focus and the reason was because the hardware – including Inmarsat stuff – didn’t generate enough service revenue to knock hardware out of that important position. Hardware in nextgen [connectivity] is standing pretty much at same cost levels it has been at, but the capacity being offered to the market by systems like ours means that the airtime component is in fact a much larger contributor to a much larger TCO pie. So the result is that the VAR contribution…ends up being a smaller piece in the pie and depending on the airline some of them want to get closer to [our] airtime and others want to get that through the VAR…. What one has to be is responsive to what the customer wants and you know the airlines have their own ideas about what they want to do themselves – how much they want to outsource, how many suppliers. Just recently we’ve seen decisions by airlines for connectivity which are based on “we didn’t want two suppliers”, and others say, “we want at least two suppliers”. These airlines have a mind of their own and you have to be responsive to what they want. It’s not religion for us [being lead on contracts]; you’ll be surprised with some of the contracts that go through VARs and we’ve had success with VARs and I think that will continue so we see it going both ways for some time to come based on the needs and wants of the airlines. Don’t forget that a lot of the VARs can bundle [cabin connectivity] with other things as well. Thales is a bit IFE; Rockwell with both IFE and safety services; they’ve all got more to offer than just our airtime.
European carriers have started gravitating towards the hybrid ATG/S-band system [Lufthansa, IAG]; where does everything stand?
We’ve now bedded down pretty much all aspects of that hybrid service and what it offers of course unlike Gogo North America is a solution that offers potentially higher performance than satellite on a local basis in a package that can weigh as much as 200 kilos less than a satellite solution which for a small airplane is a lot of the operating benefit of doing that versus satellite. It is compelling for a single-aisle aircraft so frankly there is not a major single-aisle operator in Europe that feels they don’t need to look at that alternative before making a decision. If there is something that can save you tens of millions of operating costs you really have to take a look at it. IAG – we’re delighted [in their interest] but we’re not going to talk about it. The engagement is intense; we’re prepared for them to be a major customer but as I said we’re talking to all single-aisle, short-haul operators in Europe, and in some of the cases packaged with GX for widebodies or for narrowbodies on routes outside of the coverage of the hybrid ATG system so there are some small aircraft flying pretty long routes so it’s all tying together and we’re trying to make it attractive for them to get all their connectivity needs from us so we’re putting out offers out there to cover their whole fleet.
Do you agree with other industry stakeholders/observers that consolidation is inevitable in the connectivity industry?
I think the technology for example that we’re deploying now will put a lot of pressure on models that aren’t competitive and I think the other thing is broadband; if the behavior on the ground plays out in the air, which we are betting it will, broadband will become a requirement, and obviously there is a long way to go from where connectivity is today to meet the demands of the market on the ground, so there is no cheap miracle solution to broadband. It requires substantial amounts of focused infrastructure investment to deliver to a large number of players. We’re not the only one investing in this space but we may be more focused than anyone else is investing. It will play out… I’d rather agree with you that the market is over-served but the transformation from first generation or “prototype” connectivity service to [Gen 2], service more in line with service on the ground will force a shakeout; either consolidation by acquisition or by exiting the market in some cases. Obviously, there are some big players for whom connectivity is just one part of their activity with the airline industry, and they may just decide it’s not [worth continued investment]… Decisions are made in this industry years before they are fully implemented…it can still take a handful of years to fully deploy a fleet, so this might be super slow motion whether [consolidation] happens because frankly the financial markets love aviation connectivity right now or else they wouldn’t be valuing the players [the way they are doing] right now. Some of them [service providers] have more staying power than they might appear to…they sell what they have. I don’t know how quickly it will evolve, but I can tell you we’re taking a long view on it, doubling up in investment, keeping our eye on the fundamentals, like broadband, and for us at this point we’ve gotten the word out so it’s [about] execution; that is the most important. So the question about global service introduction is foremost in our mind because we’ll be shifting from the claim game, which everyone love to play to the demonstration game; we’re very focused on that.
