Copyright 2004 Gannett Company Inc.


October 14, 2004, Thursday, FIRST EDITION

The good news is that U.S. domestic flights could soon become Wi-Fi hot spots, letting passengers surf the Web at 35,000 feet as easily as they can at Starbucks.

The bad news is that federal regulators have been boxed into a no-win situation: promote low prices and great features, or ensure the service works reliably. Unfortunately, some industry officials say, it may be impossible to do both.

The Federal Communications Commission is set next month to decide how to auction spectrum to wireless carriers to bring high-speed Internet service to U.S. airlines as early as next year. Proponents say the new "air-to-ground" service would be more economical for struggling U.S. airlines than current satellite-based in-flight broadband offered only overseas.

The agency could auction the airwaves to at least two companies, encouraging competition but risking interference among the services that, some say, would prevent any from working properly.

Alternatively, it could auction the spectrum to one company, ensuring the service works smoothly but creating a virtual monopoly that could mean higher prices, fewer features and more limited rollout.

"It's tough," says Lauren Patrich of the FCC's wireless bureau. "Competition is very important, but quality of service is equally important."

FCC staff had been poised to recommend to the five commissioners that the interference concerns were too great and that most of the spectrum be sold to one company.

But wireless carriers that say a multicarrier system is viable persuaded the agency to re-examine the issue. No decision has been made, but a multicarrier setup has not been tested. Commissioners, though, prefer a competitive arena and may find those concerns overblown.

Today, many domestic flights offer instant messaging, text messaging and e-mail for $4 to $10 a flight. The introduction of broadband, though, would let passengers shop online and tap into corporate networks.

The problem is that just a small slice of spectrum is available for communications services on airplanes. Verizon Airfone is the only carrier using it for a seatback phone service that, industry experts say, is sparsely used.

At one time, several carriers had licenses for similar services but pulled out in the face of weak demand, prompting plans by the FCC to re-allocate the spectrum.

Verizon initially said just one company could handle broadband with the limited spectrum and its Airfone subsidiary should be awarded the airwaves free because it's already in the spectrum. Verizon Airfone President Bill Pallone says he now agrees with FCC officials who want to auction a block of spectrum for broadband and a block for voice and possibly e-mail and text-messaging services.

It's possible that Verizon would win the larger chunk of airwaves anyway because of its deep pockets and entrenched position in the market.

AirCell and Boeing say that Verizon is simply trying to protect its monopoly and that the spectrum can easily be shared by two to four carriers. They want to place rivals' ground antenna towers far apart from each other and use "smart" antennas that ignore incompatible signals, among other techniques.

Competition would "drive down prices for the airlines, which translates into lower prices" for passengers, says AirCell CEO Jack Blumenstein. "A bad decision by the FCC will create a monopoly right out of the gate." A monopoly also could result in exclusive deals on certain routes that lock out competing airlines.

"We want a marketplace that has competition, so when it's time for us to go shopping, we have alternatives," says Erik Miller, manager of aircraft engineering for American Airlines. He added, though, that the service must be reliable.

Verizon says it could be tough for rivals to coordinate tower placement, especially when they build new towers to accommodate growth. Also, Verizon says, competing wireless signals are more likely to disrupt each other on takeoff and landing when planes and towers are closer together. Interference would cut download speeds and, at worst, knock out service.

"The physics just don't allow it," says Pallone. "We need to operate in the real world." AirCell says the concerns can easily be addressed.

Under either plan, passengers' laptops would not communicate directly with antennas on the ground, at least initially. Rather, they would use Wi-Fi, the popular short-range wireless technology, to talk to an airplane antenna. The antenna would, in turn, beam the data to and from ground networks.

Airlines would spend about $80,000 per plane for an antenna and related equipment and could share in the revenue, Blumenstein says.

AirCell says its broadband prices would be less than $10. Verizon cites prices of $5 to $8 for short flights and up to $20 for coast-to-coast trips. Both companies say cellphone service can be added to the broadband with new Internet-based phone technology.

Cellphone use is barred on flights today, but dual Wi-Fi/cellphones likely would be permitted.

By contrast, Connexion by Boeing, the leading satellite-based in-flight broadband service, charges $14.95 to $29.95. It has struck deals with seven overseas airlines. Three U.S. airlines — American, Delta and United — scuttled plans for the Boeing service after the Sept. 11 terrorist attacks hurt their businesses.

With the equipment costing about $500,000 a plane and weighing about 500 pounds — adding to fuel costs — the system is often impractical for domestic airlines that fly narrow-body jets, says in-flight entertainment consultant Rich Slater. The proposed service "seems a lot more reasonable to me," he says.

Yet prices of the satellite services might fall as new players enter the market. Tenzing, which offers slow-speed e-mail on U.S. airlines, plans to launch $20 satellite broadband next year.

American is considering a satellite service for at least part of its fleet because ground networks won't work on transoceanic flights.

The possibility of satellite competition could fuel the arguments of FCC staffers who prefer to auction the air-to-ground licenses to one company.