I recently spoke at some length with John Guidon, the co-founder of Row44, the company that is emerging as a major competitor to Aircell in the business of supplying in-flight Wi-Fi service on airplanes. Southwest Airlines has been testing Row44's satellite-based system on four of its 737s all year, and is expected to decide this fall whether to roll out Wi-Fi on all of its fleet. Alaska Airlines has also tested Row44 on a single aircraft. Aircell, meanwhile, has installed its Gogo system -- a land-tower based technology -- on nearly 500 airplanes, including all of AirTran's and Virgin America's fleets, with Delta's mainline domestic fleets to be fully equipped by late September. American, US Airways and United are also installing Gogo.
Guidon's background is in satellite, digital communications and internet technology. He's also a private pilot. His technology career included consulting on airborne electronics for Marconi Space and Defense Systems, then as an engineer for Litton, where he was responsible for navigation elements still used in aircraft today. He founded the microelectronics consultancy GME, which he took to $20 million in annual sales and, after 10 years, recast as chip-maker ComCore Semiconductor, which he sold to National Semiconductor for $150 million.
Row44, based in Westlake Village, Calif., this week received its permanent operating license from the Federal Communications Commission.
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Q--So far, your major activities are with testing the system on Southwest and Alaska?
GUIDON --Yes, our agreements with Southwest and Alaska are initially related to providing proof of concept through the trials. There's one aircraft on Alaska and four on Southwest, and those planes are still flying. Both airlines have been wonderful development partners,. We are doing everything we can to make sure we become a good mainline supplier for their entire fleet -- but it's never over till the fat lady sings [in terms of being awarded the fleetwide contracts]
Q--Your major development partner, Southwest, doesn't fly overseas, but yet your system works on overseas flights while the Aircell land-based system does not. So why Southwest for Row44?
GUIDON--Well, one of the other things you get with satellite connectivity is a consistency of experience over the entire geography that you’re flying over, land or ocean, as well as the ability to keep increasing the amount of bandwidth you provide as demand for bandwidth goes up. So in the case of a purely North American landlocked airline, if you will, there are real benefits to going with satellite.
And for airlines which have international operations, those initial benefits are augmented by the ability to have a single infrastructure across your entire fleet as opposed to having a hybrid infrastructure. We believe satellite is the correct way to do this, the way to give the best and most consistent experience as this becomes more and more heavily used by larger and larger numbers of people.
Because our system is the same wherever you are, there are no variations in speed which can result from congestion in air-to-ground systems [such as Aircell's]. So from our point of view, one of the strengths we have over air-to-ground is the speed does not vary; the experience is seamless. That's a big deal.
However, the jury is going to be out for some time as to how each of these systems stands up to large numbers of users
Q--The initial foray into in-flight connectivity was Connexion by Boeing, which went belly-up in 2006, partly because of capital costs and partly because it just didn't have enough users. What gives you the confidence to assume you will prevail?
GUIDON --Several factors led to the failure of the Boeing product. The first was that economic climate for air travel, and for furnishing these services, was damaged by 9/11. The second was that the carriers that opted to install this equipment were necessarily only putting it on widebody aircraft, the reason being that the equipment was five times heavier than our equipment, and so was too big to put on, for example, a Boeing 737 or an Airbus A320.
The high density most-profitable markets are the intra, within-a-continent markets. The intra-North American market is the best market in the world, closely followed by the European internal market, because of the density of air travel. You know, 34 percent of all air travel is over North America.
Also, besides the size and weight issue, and the affect post-9/11, Boeing had elected to build everything themselves from scratch. They wrote their own back-office software and everything else, all of which wound up creating a very large company with very high overhead. Contrast that, if you will, with Row44's staff of about 35. Connexion by Boeing had a staff approaching 700 people. They spent well over a $1 billion on their rollout.
Row44 is built on the alternative philosophy, which I learned in a previous company I had started, a fabless semiconductor company, where all of the capital expenditure for tooling and equipment and so on was handled by outside contractors, while the intellectual property is retained within the company. You do everything you can using other peoples resources.
In the case of Row44 that’s what we do. We deliberately keep the company as lean as we can. We sit on top of the Hughes infrastructure -- and Hughes is the world’s largest broadband-satellite operator by a long shot. We use their network operations centers and so on, and that affords us enormous reach and power but also affords us enormous economies of scale because those networks are already in place and already profitable. It makes a huge difference to Row44 in terms of be able to grow rapidly and to provide a very high level of service because we're working with somebody who’s already the premier service in the world at doing just that.
Q--Critics maintain that there is no evidence that enough passengers on an airplane will pay for Wi-Fi connections to make this industry viable. How do you answer that?
GUIDON -- We know from our trials that a very high percentage of people are carrying Wi-Fi devices on board. The number fluctuates, but on average around 30-35 percent are. We might get 30 percent of those people using the service in a free trial period, but of course that number goes down if you charge [Southwest has begun charging for the service in its most recent trials].
Our internal analyses have had a target in the single-digit take range for paying internet customers. That we feel is a conservative number and we don’t want hype anybody on the idea, in an immature market and in a down economy, that there will be users in the double-digit ranges. We do believe in the long term that they certainly will climb there, though. We're very bullish on that.
We know that this is an increasingly essential service that the customer will demand. But we're not saying there are going to be high take-rates overnight
Q--Aircell tells me it costs about $100,000 to outfit one airplane with its Gogo equipment. How much does it cost to outfit a plane with Row44?
GUIDON -- I don't want to discuss actual figures, but it's quite a lot more, let’s put it that way. But we believe that our customers understand the value proposition
Q--Obviously, with most major U.S. airlines signed up (Southwest conspicuously not among them), Aircell has a big lead on Row44. Aircell says it will have 1,000 planes outfitted by the end of this year. What are your projections for Row44?
GUIDON -- I would say perhaps by the end of 2010 we’d be looking at somewhere between 500 and 1,000 worldwide. In the U.S., I’d say by the end of 2010, somewhere around 500
Q--Aircell puts a lot of effort into branding its Gogo system. Will Row44 do that?
GUIDON --Row44 has no branding and no branding ambition. We are firmly of the belief that the passenger is the airline’s customer, not ours. We see no reason to insert a brand between the identity of the airlines and the passenger. Why would a passenger care that they getting their broadband from one place or another? All they want to know is what's the quality of that experience on their airline.
From our point of view, the airlines are analytical about this, and one of the things they care deeply about is the integrity of their passenger experience and the way they do their own marketing. That’s why it's very important to our customers [airlines] to be able to be in control of not only the branding but also the pricing.
Q--Aircell has its own pricing, and it's been discounting. Where does Row44 fall in with estimated prices?
GUIDON -- So much of it is going to be determined by how the airlines want to use the pricing in the market. If Row44 were going to be controlling prices, which we are not, we would shoot for long-haul prices of somewhere under $10, and a short-haul price somewhere close to $5.
Q--What about Wi-Fi smart phones and BlackBerrys? Aircell discounts prices for using them.
GUIDON-- Personal devices, those are always go to be cheaper. It’s hard to consume that much data with a smaller device; the screens are smaller with lower resolution. In general, studies show the amount of data used on personal devices is just smaller, so they're not consuming the same level of bandwidth.
This market is very important. We see an enormous number of Iphones in use. That's certainly the dominant portable smart phones being used on the service, in our experience.
By the way, I believe it's incumbent upon BlackBerry and the service providers to become more aggressive with the provisioning of Wi-Fi across their offerings. Historically they really only had one or two BlackBerry devices with Wi-Fi. To some extent this reflects the concerns and intentions of the cellular operators -- they have questions about what Wi-Fi means to them, and so you're going to see a spectrum of different preferences.
Q-There's a lot of concern about voice over Internet protocol use -- I mean, theoretically, a Wi-Fi device on an airplane can now be used to make voice calls, with all of the social commotion that prospect entails. I know that both Row44 and Aircell try to block VoIP use in-flight, but someone always is figuring out how to cirumvent that. Where are we headed with this?
GUIDON -- It's certainly a hot topic. We block voice over IP; nevertheless, there will always be a cat and mouse game between people who try to figure out ways of getting voice over IP over row44 service and our attempts to stop them. I think that's just what makes the world go around.
We will certainly maintain a policy of not enabling a lot of voice over IP. However, there are other questions that this raises, certainly internationally, where you're already seeing a deployment of cellphone roaming on board aircraft. That's a political hot-potato here in North America, where the airlines are very concerned about the social implications of having people talking on phones, annoying other passengers.
But while there is a sentiment that we just don’t want this on board, nevertheless across the rest of world this seems to be rolling out with no drama
I think a huge amount of use of cellphone on board will unquestionably be texting. But we all have to adapt to the changing ways of social interaction. I'm sure that we’ll figure this thing out. I not particularly concerned about the future of voice roaming on aircraft
Our customers are the airlines. Row44’s equipment is certainly technically capable of producing all categories of mobile-phone connectivity.
Q-Southwest Airlines is obviously your big leap forward, assuming they go with Row44. Beyond that possibility, who are you talking with?
GUIDON -- We are getting ready for a European and transatlantic expansion, because ultimately, of course, we're going to provide global service. The inquires around the globe are very promising; we have a lot of interest across the entire planet.
We're going to have to run really hard to meet what the desired customers’ timing is for those markets. So I would just say, watch us and look at the results. We not a company that all about making a big splash in marketing and presentation.
Q -- So when do you expect Southwest to decide?
GUIDON -- Now that we have been through this proof-of-concept, Southwest will reflect on the timing of what it wants to do, and I am sure they’ll make their own announcement in their own time. It's not something we have any control over.
Q - But you're geared up to go?
GUIDON -- You better believe we're geared up. We use third-party heavy-maintenance facilities that do all of the heavy maintenance for, example, Southwest or Alaska airlines. We train those organizations and they do the installations for us, and they are ready to go.
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