As Intelsat moves towards closing on its recently announced deal to acquire Gogo‘s Commercial Aviation business the company faces one question more significant than the rest: How will this deal work out better at Intelsat than it did for Gogo.
During a wide-ranging conversation about the deal Intelsat’s Chief Commercial Officer Samer Halawi offered a clear value proposition, split between drastically reducing the cost of connecting aircraft and delivering a better product to more airplanes and passengers than ever before.
We’re looking at a future where take rates will become 60, 70, 80% on a plane. That will take a little bit of time, maybe three to four years, but after that [the IFC market] is going to grow at a healthy double digit rate, and a lot of it is going to come from increased take rate That will be possible because the experience on board is much improved as opposed to what it is today.– Intelsat CCO Samer Halawi
Owner economics driving down costs
Inmarsat and Viasat have never been shy about the advantages they believe owning the satellite networks brings to their inflight connectivity offerings. Historically Gogo took the counter position, believing that open standards and access to satellite networks from a variety of providers brought it advantages. Intelsat now sees a hybrid of the two approaches, one that it expects to shift the operating cost of the network to the tune of millions of dollars per year.
Gogo’s satellite capacity spend topped $100 million last year, a significant portion of which was not on Intelsat’s satellites. Halawi expects to shift significant portions of the Gogo network to Intelsat’s satellites, a move that likely creates enough EBIDTA upside for Intelsat to justify the deal. But the benefits don’t stop there.
For now the owner economics means being able to offer managed services on an end-to-end basis across satellites shared between aero, maritime and terrestrial segments, amortizing costs across the different markets. Looking to the future, however, Halawi sees significant investment coming dedicated to the commercial aviation market. “The owner economics allows Intelsat to provide a better service and more efficient service today and support the long term prospects of growth in the sector. We are believers in the sector and we are betting on it. We are designing the next generation of software defined satellites, taking into account this sector as one of the main use cases for us, if not the most important use case for us. That’s why it makes sense to do this whole thing.”
Keeping the open network architecture
Unlike Inmarsat and Viasat, Intelsat recognizes that there are some markets where it will need to augment its satellite capacity with outside partners. Because the Gogo platform is open that remains possible. Intelsat expects to bring significant capacity “on-net” but it will keep some partner coverage in the network as well. Explains Halawi, “By having access to capacity from any operator, you know, obviously we can serve a market that is going to require a lot more bandwidth and the future.”
This model is particularly important for serving higher-density hub airports where the total Ku-band capacity on any one satellite or from any one vendor, even on the newer high throughput satellites, is insufficient to meet future needs. “And over hub cities where you have a lot of traffic you want to be able to give them the increased amount of capacity. In order to do this, you have to have multiple satellites that are looking at the same city, because you want to be able to look at that city from multiple angles and provide layers of capacity over that particular city.”
This approach sounds very similar to how Gogo, Global Eagle, and Panasonic Avionics have positioned themselves a non-owner operators. That Intelsat intends to keep that architecture in play, even as it does own the bulk of the bandwidth it expects to consume going forward, shows how it sees itself a unique player in the market.
Changing the inflight passenger experience
Halawi is also keen to change the way the service is perceived by passengers. He joins in what has become a common view that as passengers return to the sky, “everyone is expecting now connectivity on the airplane. It’s not a nice to have anymore it’s a must have.” While that line has been used many times since inflight connectivity took flight over the past decade there is growing evidence that it might be true this time around.
And to satisfy those passengers Halawi is talking up the idea of a new approach to SLAs, to ensure delivery of “that living room at home and office experience at 35,000 feet” for travelers. “We are aiming to make sure that we provide SLAs not just for the airplane, but to every passenger and every device on the airplanes…and at rates that make sense, at rates that will grow the market.”
Just how will Intelsat drop prices? A lot of that comes back to the lower cost of using its own satellites for the services. Just how low the company can go without sacrificing its future profitability remains unclear, but Halawi is confident there’s enough capacity at a low enough price point to make it work.
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