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Friday, August 18, 2006 - Page updated at 12:00 AM

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High-tech business strategy dies with Boeing's flying Web service

Seattle Times aerospace reporter

When Boeing finally pulled the plug on its Connexion division Thursday, two dreams ended.

One was the idea airplane passengers would be able to log onto the Internet from anywhere over land or sea. The other was Boeing's ambition to build new, multibillion-dollar businesses out of satellite technologies.

Boeing had spent about $1.5 billion over six years to provide inflight Internet service to passengers. The Connexion service — an expensive technology that worked beautifully but didn't bring in nearly enough money — will likely shut down by year-end, Boeing spokesman John Dern said.

That means regular air travelers won't be getting fast, full-fledged Internet connectivity on intercontinental flights at affordable prices any time soon.

"I don't think there's anything else on the horizon that will provide global broadband connectivity," said Tim Farrar, president of satellite-communications consultancy Telecom, Media and Finance (TMF) Associates .

A competing technology may eventually offer full broadband access on passenger laptops on commercial flights within North America. But on flights over the oceans, the prospect is for nothing beyond narrowband voice and text data connectivity — cellphones, e-mail, BlackBerry data.

"I don't see a future for global inflight broadband," Farrar said.

For Boeing, Thursday's announcement was the last vestige of former Chairman Phil Condit's grand ambition — rolled out in the late 1990s just before the Internet bubble burst — to diversify the company with a series of high-tech information-technology businesses depending on satellite communications.

In 2004, Boeing sold off its Digital Cinema unit, which aimed to distribute movies via satellite to theaters around the country.

That same year, it dissolved its Air Traffic Management unit, abandoning a plan to remake the world's air-traffic-control system using satellite tracking and global-positioning systems on airplanes.

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"Dominate the world"

Boeing "launched a succession of projects ... with 'dominate-the-world' notions using data links to bind together every aspect of an airline's operation," said Brendan Gallagher, editor of Inflight Online , a Web news service.

"What's happened with Connexion is the final stepping back from that rather grandiose position."

With Connexion, Boeing got the technology right and the business case badly wrong.

Gallagher said Boeing built "a wonderful gold watch of a system" but was never close to recouping its investment.

"They simply spent too much money implementing it," he said. "Big corporations develop an awful head of steam behind things. ... It takes a long, long time before they realize the emperor's got no clothes."

The service operates today on 156 aircraft worldwide. German carrier Lufthansa, with 62 Connexion-equipped jets in service, led the field.

Other blue-chip carriers followed, including Singapore Airlines, All Nippon and SAS of Scandinavia.

On Connexion flights, for $10 an hour or $27 for the whole journey, passengers have wireless access on their laptops at speeds comparable to their office connections.

Web data is beamed on and off the plane from a large antenna on top, bounced via satellites overhead to ground stations and the terrestrial network.

But installing the antennae and computer servers can cost as much as $500,000 per jet, while the aerodynamic drag of the antenna and the added weight increase fuel consumption on a typical long-haul flight as much as carrying about five additional passengers, said TMF's Farrar.

Boeing launched the Connexion business in 2000, projecting $5 billion in annual revenue by 2010.

Yet company spokesman Dern said that after two years of service, a typical flight saw only around 4 percent of passengers use the service: about 10 passengers on a midsize airliner, bringing in perhaps $200 in revenue.

"Inflight connectivity businesses have always been overhyped, and the forecasts have been enormous," Farrar said.

"Projecting multibillion-dollar opportunities from nothing is a risky business."

Major U.S. airlines backed off plans to install Connexion after 9/11. Since then, air carriers have had other priorities.

"I'd love connectivity to be the top issue for the airlines. But it's probably issue number 45 on the list, with fuel, fuel, fuel, fuel as the first ones," said Lars Ringertz, head of marketing for the aeronautical business of leading satellite company Inmarsat.

Future prospects

What prospects remain for inflight Internet?

Inmarsat, which most commercial airliners already use for flight-safety communications via satellite, is poised to extend its connectivity service to the passenger cabin. For airlines, it is virtually a "freebie on the back of Inmarsat equipment already on airplanes," Ringertz said.

But not so for passengers. Ringertz said the Inmarsat service will cost as much as $6 per megabyte of transmitted information, not viable as a standard passenger feature.

So various Connexion competitors are focusing on inflight cellphone service, not full Web access. Among them is OnAir, the successor to former Seattle company Tenzing, which will debut cell calling on airplanes in Europe next year.

TMF's Farrar said unlimited broadband will likely be available only on business and military jets.

As an alternative, Louisville, Colo.-based AirCell plans a ground-based service that could provide Connexion-like bandwidth to laptops, but it would work only on flights over North America and remains in the early stages of development.

Airlines with Connexion today will have to scramble to find a lower-level alternative to replace what they have promoted as a premium service. With Inmarsat broadband not covering the Pacific, Singapore Airlines and the other Asian customers are in a particularly difficult position.

Boeing will take an accounting charge this year of $320 million to cover the cost of terminating the service, including compensation to satellite companies and to airline customers.

Boeing Chief Financial Officer James Bell projects that cutting out the expense of Connexion will improve the bottom line in 2007 by 15 cents a share, which after taking tax into account translates into a saving of about $190 million.

Of Connexion's work force of 560, about 400 are in Seattle. Most will be redeployed within Boeing, although there may be some layoffs, Dern said.

Boeing can take comfort in the fact its engineers delivered the technology. Morgan Stanley financial analyst Heidi Wood saw another positive side to the closure: Boeing was at least willing to embrace risk and innovation.

She recalled former Boeing Chairman Condit telling her: "We're a big company. We can afford to take some swings. And we won't get them all right."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

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