Interview | Anand Chari, EVP & CTO of Gogo
Topic: "How Satellites are Changing Air Travel"
NAB - New York
Wednesday, November 9, 2016
Catherine: Okay. I think we have our audience. Thank you to everybody here joining our session today. I think it will be interesting as we’ll be discussing how satellites are changing air travel. My name is Catherine Melquist and I lead the Satellite Division at Sage Communications, which is an integrated PR and marketing firm in Washington DC. I'm also the President of the Mobile Satellite Users Association, which is a group that's been in existence for a couple of decades and is focused today on development of the mobility market as well as on promoting mobility innovations.
I'm pleased to introduce you to Anand Chari, the Executive Vice President and CTO of Gogo. Anand, can you please give us a little more background about yourself and about Gogo?
Anand: Sure. Thank you Catherine. Thanks everyone. Gogo has been around for a number of years. We are the leading provider of in-flight connectivity and related services to the aviation market. We serve both commercial airlines, commercial aviation aircraft, as well as business aviation aircraft. Just in terms of connectivity, we have over 7,000 aircraft between commercial aviation and business aviation that have broadband access, multi-megabit per second access.
The company started 25 years ago in 1991 with the goal of providing communication services to the business aviation and general aviation market. In 2003, we had an opportunity to enter the commercial aviation market when the FCC decided to set aside some spectrum for air-to-ground aviation use. We started developing air-to-ground technologies using cell tower based technology. We won the spectrum in 2006, launched our service on American Airlines in 2008, and we have been a leader in that industry since then. Just over United States, we have over 2,500 aircraft using our cell tower technologies.
About 14 years ago, we decided to expand globally, so we have nearly 300 aircraft using satellite technologies flying all over the globe, providing connectivity service and we have more than 1,4,00 aircraft backlog that we need to install over the next two years. In addition to connectivity to the passengers, we are also expanding into in-flight entertainment. I will talk about it as the session goes along, and also into connected aircraft services focusing more on the operational applications for the airlines.
Catherine: Okay. When we think about changes in air travel, we can think about it in terms of the passenger side of the business as well as the operational side of the business. Beginning with passenger, I know when I go to book a flight and choose what airline I'm going to fly, I'm think about my frequent flyer miles, finding a non-stop flight and a low cost ticket, but with the rise in passenger expectations for live onboard entertainment and wifi access, are passengers thinking about these factors when choosing which airline to travel with?
Anand: Interesting you should ask that question. We did a survey back in 2007-2008 when we just started getting into the commercial aviation market. We surveyed the passengers to see how many of them would be willing to switch an airline, pick a different flight because wifi was available on the flight. About one in four passengers said they'll make that switch. We shared that information with the airlines. That was eight years ago, even when this was only a conceptual question. Today, almost every plane in the United States has wifi connectivity, and if you are an airline, either with an entire fleet or even one aircraft without connectivity, it is a problem. It is a big deal.
Evidencing this is one of our airline customers. They were taking delivery of a new aircraft from Airbus and the timing the aircraft delivery was such that we could install the wifi connectivity on the aircraft only a couple of weeks after the aircraft was delivered. It was a big deal for that airline. They put so much pressure on us. They didn't even want that aircraft to be in service taking a single flight without connectivity, even though the airline has nearly 1,000 planes flying around with connectivity. That's how important it has become to the airline and the reason it has become important to the airline is because it's important to the passengers.
Catherine: Okay, so once the passengers are on board, the next thing is – they want to entertained “just like at home”. They want broadcast live TV. Gogo offers this capability right?
Anand: Yes we do. We call the whole thing in-flight entertainment and connectivity, IFEC, so it's a combination of connectivity and entertainment. Talking specifically about the broadcast and we'll get the internet portion of it later, we offer two types of entertainment. One is IPTV, so the reason it has to be IPTV is because airlines' flights routes where a particular BBS satellite may not have coverage over all of their flight routes. You got to take the media and then you have to convert it to IP and put it out over our own satellite coverage area so that it matches the airline routes. We offer IPTV.
We also offer stored digital media content on the aircraft that people can stream to their personal devices. We call that product Gogo Vision, so hundreds of movies stored on a server on the aircraft and wirelessly stream to personal devices of the passengers. We are the leading provider of that. Over 2,000 aircraft have Gogo Vision working today. Pretty much every plane of Delta Airlines, American Airlines, and Alaska Airlines offer that service. United offers that service as well. All US carriers offer the wireless streaming service.
Catherine: Okay, so I have product management in my background as well and know there must be a lot of issues involved in making live TV aboard an aircraft possible. Talk about what's involved both commercially as well as technically.
Anand: Yeah. Commercially, actually, believe it or not, it is more economical to offer a broadcast live TV to the aircraft than internet because you're sending the signal over the satellite link just once. All the aircraft within the footprint of the satellite picks up the signal, whereas a unicast, if someone is streaming a movie from Amazon or Netflix, essentially you're taking up the satellite capacity to serve that movie, but only one passenger gets served, whereas with a broadcast IPTV, it is a broadcast service. It's much more economical.
Where it gets challenging is when you want to have global coverage and a global offering of IPTV. Now you're talking about multiple satellites, satellite footprints, having to broadcast that channel and the trick to that is to have enough scale in the business. If you're trying to do it for a dozen aircraft, it's prohibitively expensive. Gogo is a market leader with nearly 3,000 commercial aviation aircraft, and that number keeps growing, therefore we have economies of scale in being able to take the broadcast signal and put it over a particular satellite's footprint and have it shared by many aircraft.
Catherine: That cost of the content and the cost of the connectivity are both huge. Who pays for this? What's the business model? Is it the airline or the passengers?
Anand: That's a great question, both in the TV entertainment as well as the internet connectivity, the business models are evolving. When we started, we had what we called the retail model, where we sold hardware to the airline, they installed it and we took all the bandwidth risk. In other words, we put together, whether it's a cell tower network, a satellite network, we put together the network. We purchased capacity and we charged the passengers and we shared a portion of the revenue with the airline.
The industry has evolved over the last eight years dramatically. Now, Gogo offers what's called the multi-payer business model. At one end of the spectrum, it's completely passenger paid. At the other end of the spectrum, it's probably free to the passengers and airline picks up the tab. There are a lot of in-between models where the airline says it's available only to the frequent flyers, or maybe a lower tier product that's available to all passengers like a texting or a messaging only product.
A good example is what we are doing right now with T-mobile where as a wireless carrier, T-mobile is offering free Gogo sessions to any T-mobile customer on a Gogo-equipped plane. T-mobile pays Gogo. It's a benefit to the passenger. It's a marketing tool for them to attract more customers to their service. We are looking at all of these multi-payer models.
Catherine: Lots of creative adaptations.
Anand: Yes. Every industry evolves and I think there is insatiable demand for connectivity and bandwidth. Everybody wants connectivity. About 90% of the passengers carry a device, a wifi-capable device onto the plane. When you can't live without connectivity while you're on the ground, I just don't see how you would be able to do that while you're on a plane. The trick is to find the right value proposition. What applications does each person want to use? How much are they willing to pay? How could we find the right value proposition and the right price so we could satisfy every passenger's demand?
Catherine: Okay. How do you go about figuring out customizing the content? You're working with a mix of cultures and localized content programming. How do you figure that out for the different regions and get scale so that it is cost efficient?
Anand: You're talking about the broadcast side, the TV as well as the movies and so on that we store on the aircraft. That is primarily an airline choice. We will offer it as a turnkey solution and on behalf of the airline, we are happy to put together the package of channels, TV channels, our set of movies, but it's really an airline decision on what they want. We do serve many airlines in any particular region, so we try to go to the airline with a set package to say it's a lot more economical to pick from the common channels. Then all the airlines get to share the cost of the channel. We do try to do this, but to the extent they want to customize it, we are happy to accommodate them.
Catherine: Okay, that's interesting. What cyber security? You've got passengers on board. They've got their own devices. They're interacting with the IT system of the aircraft as well as the connectivity. Doesn't that just open another threat vector that needs to be monitored and managed? Who has the responsibility for overseeing this? Does Gogo have a role?
Anand: Well, all of us have a role, but Gogo takes cyber security very seriously. We follow all the guidelines of all regulatory bodies, whether it's FAA, ESI, FCC. Of course, we have our own internal audit procedures to look at intrusion protection systems, firewalls, and all kinds of cyber security measures. Can't go into specifics of any particular measure that we take, but it's important to note a couple of things here. One, the in-flight connectivity system is not connected to anything else on the aircraft-
Catherine: It’s standalone.
Anand: ... Yeah, like a flight management. It's a standalone. It's a non-essential system. It is not required for the operation of the flight itself. Second, any access that we have to any aircraft bus or equipment is a read-only access. For example, if you are getting a position information from the aircraft so you can point to the correct satellite knowing the position of the aircraft, it is a read-only access. We are not writing to any of the aircraft information systems. From a safety of flight perspective, there are very strict guidelines on what you can and cannot do that's issued by the aviation authorities.
Purely from an information security standpoint, it is no different than a wireless hot spot on the ground. If anything, we are a private network, right, and the modems and the terminals that are on the aircraft belong to us. It is not like somebody's walking on to the aircraft with a modem. The websites that passengers visit, those are the websites they visit on the ground, so they take all the precautions that they could take. Having said all of that, it continues to be a top of the mind item. We take it very seriously.
Catherine: Okay. Before we shift over to the operational side of the business, thinking about the technology roadmap, what do you see in the future for the evolution of passenger services with satellite connectivity?
Anand: Yup, well, our technology roadmap and pretty much anybody, any of our competitors' technology roadmap has one predominant goal, which is to bring more and more bandwidth at lower cost. That drives the roadmap itself, but specific to the aviation industry, there are a few other factors. Of course, cost, coverage, capacity, optimizing it, maximizing it applies to any industry, but in the aviation industry, the reliability is a key because if the system fails, it costs a lot of money to bring the aircraft down.
First, it's not easy to bring an aircraft down to replace any component of the aircraft because it's a pretty complex logistical challenge as well as any repair on the aircraft itself is expensive. Again, whatever system you install on the aircraft, just for the same reason as I said before, it is not easy to replace that system or even upgrade the system. You want certain degree of future-proofness built into whatever system that you are deploying.
Gogo's approach has been a modular design based on an open architecture. I'll give you an example. We started with our first generation antenna, satellite antenna, and we have the second generation satellite antenna called 2KU. In deciding which frequency spectrum to use, what satellites to use, what kind of modem to use along with that antenna, we had to make sure that that antenna and the system on the aircraft is compatible with today's satellites. Those are broad beam satellites. It's compatible with future spot beam satellites. It's also compatible with future lower orbit satellites, not just geostationary satellites because it's too expensive for an airline to keep switching hardware on the aircraft.
Even when we upgrade, for example, a modem or a wireless access point within the plane, we try to make sure the new modem that we come up with is a drop in replacement. Even the screws are the same. The connectors are the same. It's a drop in replacement. A lot of thought goes into ...
When you think about the product roadmap, it is not just the new features and functions. Those are important. The efficiencies are important, but thinking about it from airline perspective and seeing, how does this roadmap fit in with an airline's desire to keep the system on an aircraft and keep it working for 10, 15, 20 years because the life of an aircraft is usually way longer than the life of a particular communication technology that we deploy.
Catherine: Let's now think about the changes on the operational side of the business. The connected aircraft is a new industry term of art and that means a lot of things. To pilots, it means new weather information that they can use for navigation. For crews, they have more sophisticated uses to provide higher level of service to the passengers. Air systems have IoT applications as do maintenance crews. There's a lot of different elements that go into the connected aircraft. What's your view of how this piece of the market is going to evolve? Again, does Gogo have a role in that?
Anand: Yes, absolutely. It's a great question. Today, more than 95% of our revenue comes from passenger connectivity, but we see that changing. In fact, 10 years from now, we think the non-passenger connectivity or the operational applications is going to be even a bigger component of our revenue and our competitors' revenue in general. The industry is going to get a lot more revenue out of the operational applications or non-passenger facing connectivity.
Just to give you an example, Delta Airlines and American Airlines have about 55,000 tablet devices they have given to their flight attendants. They can turn it on. It auto-authenticates on a Gogo system. They're able to do on those tablets anything that the airline allows them and wants them to do. These are pre-provisioned and pre-configured to access the wifi on the plane.
A couple of key things. One, an airline has to have 100% of its plane equipped with wifi before they are willing to consider operational applications and process changes in their operations group because it's very difficult for an airline to have systems that work only on 80% of their planes or to change procedures, operational procedures only on select planes and select routes. Gogo has achieved full fleet deployment on almost all our airline partners, our customers.
The kind of applications range…anything from the cabin crew and the cockpit crew having access to airline systems and information, to the operations group getting alerts before the plane lands so that repair and maintenance can be done faster, to the pilots getting electronic flight bag type information, weather information, optimal route information, and even without any human intervention, just the machine to machine communication. The modern aircraft generates so much data. There are sensors in everything that you have from engines to seats to a variety of avionics. There is enormous value in transmitting the data in real time to the ground so there could be proactive maintenance. There could be proactive steps that could be taken.
Gogo, our role, the way we see it is we are not going to get into the application side of stuff. We are not going to write the next application for optimal flight routing, but we are the enabler of such applications. We will offer a managed transport network. We will offer a platform for those applications to reside. We will provide the kind of speeds and feeds and encryption and quality of service requirements for those applications. We see ourselves as an enabler of those IoT applications.
Catherine: Let's shift and talk about the satellite connectivity because it's really the life blood making both the passenger services possible as well as the operational developments. There's a lot happening at the satellite operator level. There are new high-throughput satellites, new capabilities, new constellations and we have big price fluctuations in the marketplace. From your perspective, what are the most important factors / drivers to your ability to offer your services to this market?
Anand: First, from a satellite operator's perspective, this mobility market, where in-flight connectivity is a subset of the mobility market, is growing. The number of planes that have connectivity is growing. The number of planes that's expected to have connectivity is also growing. In 10 years from now, if you are an airline or if you have your own aircraft and it is not connected, it will be a huge disadvantage to you. I just don't see how every plane is not connected in about 10-20 year time frame.
The number of planes is growing. The number of passengers on each aircraft that want to use connectivity is growing. The per capita consumption, the amount of bandwidth they all need because of the applications and the device capabilities, that is also growing. All this is good news in the sense there is a lot of demand and the satellite operators are working on next generation satellites that deliver, that are capable of delivering higher and higher bandwidth at lower prices. High-throughput satellites are a good example. Almost every major operator has at least a handful of high-throughput satellites that they are planning on launching within the next 2-3 years. Gogo is very pleased about it because in order to meet the demands, we do need more bandwidth. We need it at more affordable prices, and both of which are on the roadmap of the satellite operators.
The second important thing is what I covered. Airlines want future-proofness and reliability. We are very encouraged to see in every region of the globe that we serve, there are multiple satellites for us to choose from that are, whether it is a launch failure to disruption in the market because of the availability of the capacity. We like an ecosystem where it's open architecture, open platform, and there is plenty of redundancy built into the ecosystem. It's good to see, even in the high-throughput world, you could pick pretty much any high aircraft density geography. There are multiple satellite providers, some of them with multiple satellites just covering that geography. It's very encouraging. I think there's going to be plentiful bandwidth.
The evidence is with our 2KU system for example. We have it on about 50 aircraft right now. We still got another 1,300 plus aircraft to be installed over the next couple of years, but we are offering all kinds of capability from texting, email, to streaming services on those aircraft. With our first generation technology, we were bandwidth limited on what we are able to do. Now you can do anything on the aircraft that you are able to do on the ground.
Catherine: We are one minute to the end of our interview time allotment. I will lop off the rest of my questions because your last answer was so comprehensive. Is there anybody in the audience that has a question they would like to ask of Anand
Speaker 3: Hi. You talked initially about doing a shared revenue model with the airline where you install the service. They got some of the money and you got some of the money. That's the op-ex. What about the cap-ex? Who actually paid to get that equipment on board the aircraft?
Anand: Typically, the airline pays for the hardware. Of course, the economics of each deal is slightly different, but the general rule is the airline pays for the hardware.
Speaker 4: Hi. Have you done any satellite capacity purchases in sort of more of the cap-ex way versus the op-ex way, as other companies have done where you sort of buy the capacity early on in the design process? If you haven't, is that something you would consider?
Anand: Well, I'm not an accountant. I don't know if I can say whether it's a cap-ex or op-ex. The accounting treatment of it I'll let the finance guys handle it. But if your question is about have we made large commitments, influenced satellite designs, purchased a fraction of the total satellite's capacity, yes. We recently announced at the beginning of the year two such purchases. We didn't provide all the details for competitive reasons but that is the direction which the industry is heading and Gogo is heading.
Catherine: One more question.
Speaker 5: Yes, hi. Could you just comment on your roadmap for the air-to-ground versus the satellite? I think I read an article recently where you were saying that, Gogo is expecting to be expanding your air-to-ground capabilities as well as your satellite capabilities.
Anand: That is correct. On the air-to-ground side, over North America, particularly US and Canada, we have rights to a spectrum that can be used to provide air-to-ground communication, but we have only four megahertz of spectrum. That is the reason we had only limited bandwidth to serve the passengers. The best way for us to expand that capacity to meet the demand was to look for either more spectrum or to look at satellite to provide a lot more bandwidth. We decided to launch 2KU, our second generation satellite system. It's both a global solution as well as a North American solution. It takes the speeds to an aircraft to north of 100 megabit per second, particularly with high-throughput satellites.
Recently, about a month ago, we announced that next generation of our air-to-ground system, it's going to be a combination of unlicensed band and licensed band. We have been investing in R&D to figure out how we can use unlicensed band, combined with the licensed band, to deliver higher speeds than what our four megahertz spectrum can deliver. We can deliver more than 100 megabit per second peak speed to an aircraft using the combination of the unlicensed spectrum and our licensed spectrum. We expect to put that service into commercial operation in 2018.
It's a great solution for those aircraft that have flight routes just within the North American footprint. It's a great solution for smaller aircraft that really cannot take the large antenna, satellite antenna. But for most of the mainline fleet of most airlines, they do flight routes outside the conus footprint. They do over-water services. They want multiple channels of TV. The 2KU, the satellite solution that delivers 100 plus megabit per second continues to be the choice for the larger planes whereas the next gen ATG brings 100 plus megabit per second to the smaller planes.
Catherine: Oh, one more.
Speaker 6: I'm wondering, are you looking at expanding into the UAV market, either for payload communications or even for command and control of the UAV?
Anand: That's in the future. As I said, we have a business aviation segment that's looking at a lot of those applications. We haven't publicly announced anything there, but there is no reason not to be able to use our technology for those applications as well.
Speaker 7: Yeah, just one question on the monetization and big data analytics on the content that you use over your network. Do you use any of those tools to get the profiles of what your people watch and see and how to monetize that content?
Anand: Yup. Certainly, we’ve got a lot of tools and capabilities that allow us, just like Google or anybody else, to monetize that. We have access to data, very general data, not personal information, on the popular websites, what people like to do, where they like to go, the ability to do either on the portal or otherwise, advertisements and so on. We are looking at that, but right now, I would say that is not a huge percentage of the revenue because all people want to do is to go to the internet sites that they want. We do not like the approach of standing in between the passengers and the internet site that they want by introducing an ad or forcing them to view the ad. That's not going to be our business model. To the extent we can monetize it without interrupting the experience of the passenger wants, we will do that, but that's going to be a fraction of the, a small percentage of the revenue.
Catherine: Okay. Anand Chari, thank you so much for sharing your time and your perspective. Thank you to the audience for your interest in how satellites are changing air travel. Thank you.
Anand: Thank you.
About Anand Chari
Anand Chari currently serves as Executive Vice President and Chief Technology Officer. Chari has been with Gogo since 2003, playing a critical role in the design and development of our Air-To-Ground broadband connectivity concept and technology. He also leads the development of Gogo's portfolio of satellite solutions.
Prior to joining Gogo, Anand held various business and technology management positions in companies ranging from startups to Fortune 500. He founded and served as President of Simma Technologies Inc., a technology and management consulting company. He also served as Vice President of Sales and Business Development at ISCO International, Director of Business Development at 3Com, Director of Advanced Technology at Ameritech, and Manager at Telephone and Data Systems.
Anand received his M.B.A. from The University of Chicago Booth School of Business, his M.S. in Computer Engineering from Iowa State University, and a B.S. in Electronics and Communications Engineering from National Institutes of Technology, Trichy, India.