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June 21, 2006

Prediction: AirFone Will Shut Down

By Glenn Fleishman

This is wild speculation on my part based on an analysis of Verizon’s low bid for air-to-ground spectrum and an all-hands company meeting at AirFone tomorrow: Verizon has two years to re-equip several thousand planes to use a 1 MHz slice of spectrum (two 0.5 MHz sections) for a non-renewable in-flight phone license that expires in 2010. That’s not a lot of time to recoup what should be tens of millions of dollars in expense, if not more.

I’ve speculated for a while that AirFone could choose to shut down entirely, and enter into a partnership with other firms. By not acquiring the 3 MHz license that was up for grabs for broadband, they have no more than two years before voice over IP services could effectively compete with anything that they could offer in seatbacks. Airlines are reluctant to allow tons of rewiring these days, too, because of the downtime cost on the plane. Even if it cost, say, $25,000 to replace equipment on a plane, it might take weeks and require time outside the regular seven-day maintenance period for planes.

Here’s my guess as to what will be announced tomorrow. AirFone will halt service within a few weeks or month. They will accept funds from AirCell for this purpose, which is explicitly allowed under the terms of the order that renewed Verizon’s license and established auction terms. Verizon will create a partnership with AirCell, perhaps with some branding, that will allow their wireless service to get favorable terms for roaming onto planes.

Remember, this is just speculation from 18 months of following this story. I have a few leads, but anything’s possible, including Ripplewood, AirCell’s minority investor from a recent reorganization, allowing an additional minority investment by Verizon—or an acquisition. But given Verizon’s current plate full of business and regulation issues, I expect they’ll take some money and exit the business, ending two decades of radiotelephone service.

Posted by Glennf at June 21, 2006 3:27 PM

Categories: Air Travel

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