Kieran Daly/LONDON
FEW battles being fought in the world of airliner equipment are fiercer than those to supply on-board telephony. As passengers come to expect telephones on aircraft, the degree of use is growing and so are the incentives for suppliers.
The contest is sharpened, however, by two other factors. The first is that a short, sharp, race is under way to fulfil the needs of the world's (particularly Europe's) short/medium-haul fleets. More pointedly, there may not be long-term roles for all the would-be players. For some vendors and service providers, the next 24 months - possibly even 12 months - will have deep ramifications for their futures.
The struggle for market share is exceeded in ferocity only by the accompanying propaganda. Few airline managers receiving the competing sales pitches can claim complete confidence in this immature field. The result may well be that the carriers, which make the earliest decisions, will take the rest with them.
In the long-haul/widebody environment, life is less tense. The retrofit market is fast diminishing, leaving fewer aircraft for long-time satellite-communications (satcom) avionics providers Rockwell-Collins and Honeywell/Racal to spar over. Satcom service providers Satellite Aircom, Skyphone, and Skyways Alliance are in a similar situation. For all of them, there are two new, closely linked, priorities in the communications world, which stem from the arrival of the spot-beam capability of the Inmarsat 3 satellite constellation, intended for service entry in the second half of 1997.
On The Spot
Spot-beam implementation heralds the arrival of Inmarsat's Aero-I satcom service, which will (in principle) permit the use of cheaper avionics and the introduction of lower call-charges. Regional airlines and corporate-aircraft operators are intended to be prime beneficiaries, but the former in particular are often going to be faced with a choice between the Aero-I and terrestrially based airborne telephony services. The second concern (the more pressing in some managers' views) is to ensure that existing customers for the current Aero-H service are able to capitalise on the lower charges available to them by use of the Inmarsat spot-beams - the so-called evolved Aero-H or Aero-H+ service.
The spot-beam programme is of considerable importance to the satcom industry. So far, that group has made little progress in infiltrating the vast market for telephony on narrowbody aircraft. In Europe, only Italy's Meridiana has followed Swissair, which has equipped even its medium-haul types with satcom. No US carrier has forsaken the US North American Telecommunications System for satcom and, so far, of carriers in regions without terrestrial services, only Saudi Arabian Airlines has opted for satcom on narrowbodies. More alarming for the service providers is that at least three Middle Eastern carriers are equipping long-haul types to use the European Terrestrial Flight Telecommunications System (TFTS). It is unclear whether the three - Egyptair, Kuwait Airways and Saudi Arabian Airlines - are motivated by the desire to provide a service over Europe or by the much-discussed possible development of a TFTS network in their own region. Either way, the result is a loss of satcom traffic, with similar developments likely elsewhere, unless the spot beams can be used to drive down the costs of satcom use. Nevertheless, there is no cause for complacency in the TFTS camp. Precious few carriers have so far committed to the service.
Customer Shortage
Of the two service providers to emerge (the BT/France Telecom team Jetphone and Cable & Wireless FlightLink), the latter still has no customer with a firm long-term contract, although an agreement with Lufthansa is widely expected, and a single-aircraft trial with Crossair is under way. For Jetphone, the situation is rosier, but still uninspiring: its customer base consists of Air France, Braathens SAFE, SAS and, for the purposes of a limited trial, British Airways. Both Jetphone owners are also members of satcom service-provision consortia, and their satcom partners without TFTS interests are given to suggesting that Jetphone's future is less than secure. There is no real evidence for that, but both TFTS providers are in a hurry to seize market share before satcom costs come down. Before the end of the decade, competitive pressures on both the TFTS and current satcom sectors are due to build still further - and this is why it may well be the case that not all players have a long-term future in satcom.
In 1999, a new aeronautical-communications service is due to become available for passenger use on the back of the expected explosive growth in global, hand-held, telephony. That is the year when the first of the low- or medium-Earth-orbit communications satellite networks, are expected to lead to less-expensive satcom links to aircraft.
Current schedules would make the Iridium consortium first to be operational, and it is certainly the first to select a partner for the aeronautical service, which it believes, could provide some 5% of its call volume. That partner is AlliedSignal, which has so far declined to discuss its involvement. What is known is that it will not only provide the necessary avionics, but will act as the one-stop service provider for the aeronautical project. Iridium's competitor, Globalstar, is due to announce its own aeronautical tie-up shortly, and there are other possible contenders, most significantly Inmarsat's own affiliated ICO consortium.
Iridium talks of $3/min call charges, compared with around $10/min imposed on Aero H users and roughly $5.50/min with TFTS. Plenty of uncertainty still attaches to the timetables at least of Iridium and Globalstar, but their threat is clear.
The good news for the suppliers is that there is a growing sense of urgency among the airlines that they need to provide on-board telephony. That is driven by a combination of the simple desire to gain a competitive advantage and the proliferation of conventional mobile telephones. Scandinavia, where between one in five and one in four individuals possesses a personal mobile telephone, provides the classic example. It is no coincidence that SAS has become the first major carrier to put fleetwide TFTS-provision in place.
Fast Development
It is equally natural that the first second-tier carrier to do the same should be Norwegian independent Braathens SAFE, and that the second deal should rapidly follow the first. Braathens manager of route planning, in-flight, Lars Draagen, explains: "The development of these things is happening so fast that you have to be in it. Our main competitor has installed them in all their aircraft and we have to consider that."
It is important to note that airlines are going ahead with these programmes even though, on intracontinental routes, little or no direct revenue is gained from telephone provision. In broad terms, the service provider underwrites the equipping of the aircraft, increasingly via a one-stop prime-contractorship, and then operates the service for profit. The airlines' incentive is the desire to increase or protect market-share.
In long-haul operations the position is distinctly different. Perhaps most significantly, the case for satcom equipment is bolstered by the growing need to have satcom available for air-traffic-control datalinking purposes. Additionally, however, satcom enables the implementation of potentially revenue-generating services such as gambling and shopping; and satcom charges are presently high enough to provide a profit margin for airlines even on telephone calls.
Not all equipped carriers are taking advantage of the latter, but a study by the International Air Transport Association (IATA) this year suggests that it can certainly be done. IATA reports that there is a weak relationship between charges and passenger use, most notably finding that the carrier with by far the highest use (unnamed, but obviously Swissair) also imposes some of the highest charges. It is clear that other factors contribute, and the three most significant are thought to be degree of service promotion to passengers; ease of use of service, particularly in-seat rather than kiosk provision; and service reliability.
The role of the service provider is crucial in the quest for higher rates of use. In Europe, Jetphone, for example, has found it worthwhile to put its own representatives on SAS aircraft purely to assist passengers in making their first calls. In the USA, GTE Airfone is constantly experimenting with service enhancements in an effort to boost use, and particularly to persuade passengers to regard the service as more than just for "emergencies only". With Delta Air Lines, for example, it has been trying a $15-per-call flat rate, rather than the normal $2.50 hook-up plus $2.50/min. A corporate-discount programme rapidly pulled in eight major US corporations, which will benefit from increasing discounts the more their staff use the service - typically resulting in about a 35% bill-reduction. GTE Airfone has also linked with its GTE Mobilnet cellular-phone sister to provide dramatically reduced in-flight charges to Mobilnet customers for payment of a monthly fee. Most recently, it has begun providing common billing for mobile and in-flight services.
Although there are technical challenges to be met, for the airline community telephony presents one of the most cost-effective opportunities to enhance their products. For the telephony industry, however, the biggest challenges may yet lie ahead.
Source: Flight International
