Can Google parent Alphabet disrupt the inflight wifi connectivity market? Reports last week – first from Bloomberg then others – suggest that Alphabet is looking hard at pieces of Nokia’s operations, with an eye on supporting its own LTE-based hardware solutions. Given the role Nokia plays in the upcoming European Aviation Network (EAN) inflight connectivity rollout the quick conclusion is that Alphabet wants to play in that space. Such a move could be bad news for Gogo and SkartSky in the United States or for Inmarsat‘s hopes of expanding its terrestrial or hybrid network offerings beyond Europe.
There are also many reasons to believe other factors are in play. The bit about Nokia seeking new options remains unconfirmed by the company. The division is known to be seeking other potential customers of its hardware outside the exclusive area it serves with Telekom. Undoubtedly that is the genesis of these conversations, but hardly the end of them.
Nokia and the EAN
Perhaps the most important point to consider is Nokia’s position in the EAN operation. EAN is a hybrid network, using a S-band satellite recently launched by Inmarsat and a terrestrial LTE-based network (on the same S-band frequencies) deployed and managed by Deutsche Telekom group. The terrestrial segment uses Nokia hardware on the towers but that’s far different from suggesting that Nokia alone is deploying or operating an air-to-ground connectivity network. By extension, buying that division from Nokia does not give Alphabet its own ATG operation.
While Europe and North America are generally seen as key markets for terrestrial-based aviation connectivity solutions there are other parts of the world where such systems could thrive. India is expected to approve domestic connectivity in the coming months, opening a massive and rapidly growing aviation sector to the industry. Some areas in Russia or China could also be targets, though those would more likely benefit from a hybrid approach on most carriers given the expanding route networks and remote terrain challenges. Australia is similarly challenging for a full ATG network, plus it brings a lower population and flight volume. Growing into another multi-country region such as ASEAN is theoretically possible but the regulatory challenges around coordinating spectrum use rights could prove too daunting.
So, if it is not for the potential aviation segments then why would Alphabet be interested in the Nokia LTE portfolio? The coming 5G (r)evolution might yield some answers. Controlling more of the communications pipe is clearly part of the Alphabet strategy. It enables even better targeting of ads via the Google platforms and that’s where the revenue is. The company is pushing hard in the 3.5 GHz space today and transitioning the LTE equipment to that frequency band from the current S-band should be a relatively easy step.
Google wants to help control access to the 5G spectrum in partnership with a plan the FCC appears inclined to approve in the near future. The three-tiered distribution of spectrum in the 3.5 GHz Citizens Broadband Radio Service (CBRS) range could upend the traditional auction model where companies invest billions for exclusive access in certain geographies. Google can invest a few million dollars helping to build a platform and services to enable such sharing, saving it billions in spectrum costs along the way.
And if the company happens to also own one of the hardware manufacturers that can produce the equipment that works in the CBRS prioritization scheme that’s an added bonus. It guarantees at least one vendor will be manufacturing compliant kit at every step of the certification process.
Hardware is hard
Nokia is certainly interested in growing sales from the division; pushing a few hundred towers across Europe likely does not deliver the profits the company seeks. It is understood to have reached out to multiple potential partners globally in an effort to find other regions where the technology could be viable. The buyout conversation stemmed from that discussion. Yes, the technology can be used for aviation networks, but that is not the only option. It probably is not even the most compelling or potentially profitable one.
Alphabet also carries a spotty track record of infrastructure projects. Whether because of regulatory or deployment challenges, projects like Loon and Google Fiber are generally seen today as failing to meet the hype they brought forward at launch. Even if Google entered the aviation market with this hardware it is unlikely that leads to success on its own. Nor that Alphabet can the stomach the significant market development costs (and other challenges) associated with joining the aviation sector.