Report questions future of inflight phones

A new report from Telecom,
Media and Finance Associates, “The Market for
In-Flight Passenger Communications: Lessons from Connexion,” is questioning the enthusiasm from airlines for in-flight cellular services. The report forecasts that
widespread deployment of in-flight cellular services could be limited to
those airlines who can justify investment in passenger connectivity as a
service differentiator, since many airlines may be unable to demonstrate a
compelling direct return on investment in these services.
  While rapid deployment of in-flight cellular could produce annual
end-user revenues of more than $600M from 4500 equipped planes by 2016, a
failure to generate sufficient ROI for airlines may result in revenues of
less than $200M from under 1800 equipped planes.
  Tim Farrar, author of the report, commented, “A key lesson from the
failure of the Connexion-by-Boeing system was that low usage, leading to
insufficient revenue per equipped aircraft, results in airlines having to
subsidize the cost of equipment. We estimate that the in-flight cellular
services offered by OnAir and AeroMobile, using Inmarsat satellite
equipment, will need to generate much higher end-user revenues than the
$100,000 per plane achieved by Connexion before the service reaches
breakeven for airlines on a standalone basis. Only then will it start to
become attractive to low- cost carriers. This represents a challenging
objective since in-flight cellular calling will remain a premium-priced
service, targeted primarily at the limited number of frequent business
travelers who need to remain constantly in touch. However, terrestrially
based Air-To-Ground (ATG) systems, such as that planned by AirCell in the
US, are expected to use lighter, cheaper equipment and thus may be
profitable at much lower levels of end-user revenue. As a result,
widespread deployment of in-flight Internet access may be easier for US
airlines to justify.”
  The report provides airlines, equipment manufacturers, service
providers and analysts with a comprehensive re-evaluation of the in-flight
passenger connectivity market and the lessons from the failure of
Connexion-by-Boeing. It discusses proposed connectivity services and the
views of airlines, passengers and regulators, and analyzes the business air
traveler market in detail, including spending on comparable existing
services. The report examines rapid and slow deployment scenarios for
in-flight connectivity, analyzes the key factors that will determine which
scenario is realized, and provides ten-year market forecasts of deployment
and revenues for in-flight cellular and Internet access services by region
of the world and passenger type. Conclusions are drawn about the size of
the opportunity and the implications for airlines, passengers and service