Tenzing's in-flight strategy: keep costs low by piggybacking on existing hardware, satellites; big speed boost coming in two years: Tenzing is a Seattle-based firm that offers its Internet access service to airlines. So far, the company has installed its offering in 900 planes, with contracts for substantially more. Their partners include United, Continential, and US Airways in the U.S., with their service offered via Verizon AirFone, and Cathay Pacific, Iberia, and Emirates, among other international airlines.
But Connexion by Boeing has received much more press for its higher-speed offering. Tenzing's 128 Kbps service today allows email by proxy for $15.95 per flight in the US, with surcharges for emails longer than two kilobytes, and no corporate virtual private network (VPN) connections. I and other reporters have been critical of Tenzing's offering because of these limitations which would seem to price consumers out of the market while eliminating most business travelers from accessing their email.
Connexion's service features 5 Mpbs download speeds, 1 Mbps upload speeds, full VPN and Internet access, and costs per flight from $10 for pay as you go up to $30 per flight for unlimited use on the longest durations. Connexion has contracts or letters of intent with several airlines, including SAS, ANA, and Lufthansa; Lufthansa should loft the first Wi-Fi-enabled, Connexion-enabled plane later this month.
But Tenzing and Connexion have fundamental differences which Tenzing hopes to exploit as new higher-speed satellite service from their satellite data partner becomes available in early 2006. The 864 Kbps service from satellite giant Inmarsat delivered from its three fourth-generation I4 satellites scheduled for launch starting in late 2004 could dramatically change the future of aviation Internet access. This service is called B-GAN for Broadband Global Area Network. The service is in symmetrical 432 Kbps units with Tenzing recommending two bonded channels for 864 Kbps of bandwidth, although four channels and 1.7 Mbps are possible as well.
I spoke today with Alex McGowan, VP of sales and marketing at Tenzing, to ask him how Tenzing can compete with a behemoth like Boeing that's offering substantially more bandwidth at comparable prices and has major international airlines' long-haul routes wrapped up.
A factor that McGowan emphasized over and over again is that Tenzing's capital cost to airlines is extremely low--in some cases, as low as zero dollars. McGowan said that existing Inmarsat antennas and receivers used in international flights for telephony and cockpit communications worked directly with their server software. If the aircraft has an existing in-flight entertainment server, Tenzing's software is certified to install on it. In other cases, a server costing less than $100,000 has to be added to a plane. (For U.S. carriers domestic flights, Tenzing's service runs over AirFone's groundstation-based network, but the costs remain the same for this generation of service.)
By contrast, many press reports put Connexion's cost per plane at as high as $1,000,000. Further, McGowan stated that Lufthansa had to ground a plane for 20 days to install Connexion's service at a cost he estimated at $25,000 per day in leasing fees alone for a 747 aircraft.
Recent statements indicate that most of the airlines which have committed to Connexion won't have their complete long-haul fleets built out until well into 2005 or even 2006, with a total number of planes currently at well below 200.
Tenzing installation, by contrast to Connexion's, is about eight hours for an average plane, or an overnight airport stop. "It's a very very quick upgrade," he said. The swapout from 128 Kbps to 864 Kbps on Inmarsat-equipped planes starting in late 2005 will be "literally minutes."
For Tenzing's next-generation offering of 864 Kbps, McGowan said a new radio would be required which would cost under $100,000. McGowan noted that 3,000 aircraft worldwide would require just this radio upgrade to handle the new service. "If they're a tier 1, 2, or 3 airline, they'll have this system onboard already," he said. "This is most easy for the airline and most attractive because they have so much of this equipment right now." (Domestic planes tend to not have Inmarsat avionics systems, which cost about $500,000 to $600,000 per plane, due to less expensive groundstation alternatives.)
McGowan also noted that Connexion's service leases transponders from satellites at what he said was $1 million per transponder per year with 150 pairs required for Connexion's offering--or $300 million per year. "They've got 550 staff, and by their own accounts, they've spent $1.1 billion developing the system," McGowan said.
Tenzing will be paying only for bandwidth used with their Inmarsat deal. More directly important to the service's users, Inmarsat's fourth-generation L-band satellites provide a symmetrical 864 Kbps per plane, not per transponder. McGowan noted that in Connexion's service, the 5 Mbps downstream bandwidth is divided among the current number of planes flying in a given transponder pair's footprint, which are areas of a few hundred miles on a side. Potentially, he said, 100 planes could be in one zone at the same time.
McGowan said that Tenzing estimates Boeing needs at least 80 passengers spending $20 to $30 per flight on 4,000 aircraft to pay for capital and continuing expense. Although McGowan wouldn't reveal precise numbers from their current fleet due to confidentiality agreements with carriers, he said, "We're not seeing anywhere near that level of usage. None of our research shows that we'll see anywhere near that point."
But Tenzing's break-even point is as few as four passengers per flight, he said, or 1 or 2 passengers at their highest fee level with the new B-GAN service. "Do I ever think we'll get to 80 passengers per flight on a 747? No, frankly, I don't, but it could be 30 passengers per flight on a 747 at maturity," McGowan said.
Tenzing has started offering a more complete access service to airlines that commit to its next-generation service which would allow passengers direct Internet access at up to 128 Kbps, which would allow for VPN connections and Web surfing as the company expects only a few users per flight.
This package of service allows unlimited instant messaging at $5 per flight, unlimited email for $10 per flight (with a surcharge of 10 cents per kilobyte per message larger than 2K), or unlimited Internet access for $25 per flight. "We don't cannibalize our market through low-bandwidth applications," he said, because Tenzing only pays for bandwidth usage. When the higher bandwidth is deployed, McGowan expects the email rate to drop for unlimited email to $8 per flight for messages of unlimited length with a 1 to 2 cent per kilobyte surcharge only for attachments.
To address the VPN limitation on Tenzing's current offering, McGowan said the company has worked to partner with corporations to provide a ground station VPN tunnel for their users. Any traveler that works for a company that has partnered with Tenzing in this fashion can log in with their email address and LAN password on Tenzing's service, and Tenzing's ground station creates the VPN connection on the ground to retrieve mail and relay it to the plane.
Tenzing is also looking to terrestrial partnerships. Its relationship with Hong Kong ISP Pacific Century Cyberworks allows all of that ISP's consumer Netvigator subscribers to use their existing account login and billing to access the Tenzing service on Cathay Pacific flights.
Tenzing and PCCW also offer a flat-rate plan for unlimited PCCW hotspot access and Cathay Pacific access for frequent travelers. PCCW has 150 hotspots, McGowan said, with new service added in airport-railway train stations and the main Hong Kong airport. Travelers flying Cathay Pacific to Hong Kong can sign up for PCCW's service en route.
McGowan said that Tenzing is benefitting from other piggybacking as well as the Inmarsat deal. Emirates airline is currently testing three Airbus planes that have Wi-Fi throughout, part of a new networking service that Airbus is offering. Later this month, Tenzing and Emirates should roll out Wi-Fi email access to Tenzing service, freeing users from a more tedious RJ11 phone jack experience that's been roundly criticized for its awkwardness.
In fact, McGowan said, the Emirates launch would be the first airline in the world to offer Wi-Fi-based email access commercially, a fact that Tenzing wants to use as bragging rights over Connexion -- but only if Lufthansa's single Wi-Fi-equipped plane doesn't launch first.