Why Wi-Fi In The Sky Just Got Ridiculously Expensive

Think it’s crazy now? It’s going to get much worse before it gets better.

If you’re flying between New York and San Francisco on Virgin America, getting online coast-to-coast using in-flight Wi-Fi could now cost you as much as $60. You can actually fly to another place from San Francisco for that much money.

Before you get all everything is amazing and nobody is happy, inflight Wi-Fi is awesome — but spending $60 on a cross country flight for internet speeds that can’t stream Netflix (or post to BuzzFeed — I tried) is not so awesome. A PandoDaily journalist was the first to notice that Gogo’s standard fare of $15 for the day (or $12.70 if you buy ahead of time) wasn’t available on his Virgin America flight from San Francisco to New York, and instead cost $10 per hour.

“We’ve been experimenting with different pricing on the flights we’ve seen with heavier use, to make sure pricing keeps up with demand,” a spokesperson for Gogo explained to me. “There’s a limited amount of bandwidth on the plane, so we want to make sure the pricing reflects the demand on any given flight.”

In other words, people are actually using in-flight Wi-Fi now — and there’s enough demand, on certain flights, that Gogo can charge more. Low supply + high demand = higher prices. Gogo has seen a 25 percent increase in inflight usage this year, up from 4.3 percent of flyers in the first six months of 2011 to 5.4 percent in the first six months of 2012. Five percent of all flyers doesn’t really make it seem like inflight Wi-Fi is in high demand, but this number is for every flight with Gogo. Shorter flights might have usage rates of 1 percent, but the Virgin flights from SF to NY are up to 26 percent of passengers. A lot of people chomping on tiny bit of bandwidth is the reason Gogo either has to hike its rate or change its system altogether.

The problem with Gogo’s prices stems from the fact each flight has a limited amount of bandwidth — about 3 megabits per second, or slower than what any smartphone made post-2008 is capable of — which it can’t change. Back in 2006, Gogo (formerly Aircell) purchased the exclusive rights to the air-to-ground (ATG) spectrum from the FCC and FAA for $31.3 million. They were the first to get into the inflight Wi-Fi game, and because of this, no other service can touch the 150 skyward facing towers that Gogo has scattered across the country. In ATG transmissions, radio waves from the ground send a signal up to a small antenna on the plane as you travel from tower to tower, which explains why internet speeds can vary throughout the course of a flight. But because Gogo is working with a fixed spectrum, there’s only so much bandwidth to go around — which explains why it’s experimenting with prices on Wi-Fi-heavy flights. Pointedly, Gogo remained mum about exactly which routes and carriers will be affected. “You will start to see more time-based pricing, rather than purely segment-based products from us,” said the Gogo spokesperson.

“It’s another clever tactic to ensure quality bandwidth,” IMS Research analyst Rose Yin told me. “But it’s really testing the market to see how far you can push.” In a survey of 1,000 passengers traveling domestically, IMS found that people thought $4 to $5 for inflight Wi-Fi was the average value for their money, though they’d still be willing to pay $7 to $10. Anything above $12 is getting too expensive — and these amounts didn’t vary much between longer and shorter flights. These amounts weren’t necessarily what people paid, but what they thought about paying those prices for inflight Wi-Fi.

The reaction to Gogo’s $10 per hour rate is pretty spot on, then, because it’s about as much as people are willing to pay (for an hour). And since alternative options are limited — Gogo currently services 1600 aircrafts across nine different airlines including Virgin America, Delta, and US Airways — there’s a good chance you’re flying with Gogo. While other airlines are starting to journey into the complicated world of streaming internet onto a metal beast speeding 500 miles per hour 35,000 feet in the air, it’s going to be awhile before passengers can fly around Gogo’s monopoly (pun intended).

The advantage of the ATG spectrum is in reaching the masses — the towers are already in place and there’s very little installation downtime for the airline — which means it’s easy for Gogo to get in-flight service installed in a lot of planes, fast. And Gogo’s monopoly on ATG means that everyone else has to use a satellite system — which entails leasing bandwidth from a satellite server, building a system on each individual aircraft and heavy FAA regulations — an endeavor that is “not for the faint of heart,” says JetBlue’s director of product development, Jamie Perry, which recently announced that it will be offering free Wi-Fi on select flights in 2013.

JetBlue and Southwest are among the few airlines that have opted for something other than Gogo. Southwest has consistently offered $5 inflight Wi-Fi per device on select flights, regardless of duration, in part thanks to its novel Row 44 system. Row 44, like any other satellite-based system, sends a signal from a ground station up to one of the hundreds of satellites orbiting the Earth, which then broadcasts that signal as a series of beams across the U.S. The aircraft picks the signal up like someone running through sprinklers. A bigger, heavier antenna on the plane (than Gogo’s ATG) catches that signal, moves it to a modem and turns this into an internet connection. BAM, Wi-Fi in the sky.

Because there are so many satellites — each with dozens of transponders — airlines operating outside of Gogo’s spectrum service don’t have to manage the number of people who can access inflight Wi-Fi. And once an airline is set up, they’re in a much better position to offer faster Wi-Fi to customers. “We are not trapped inside a bandwidth box, we can release as much as we need in a given region at given time,” Row 44’s chief technology officer, John Guidon, told me.

Where things differ between Southwest and JetBlue, or Row 44 and ViaSat (JetBlue’s new partner) is which network the satellite operates on — the Ku band or the Ka band. Row 44 uses the Ku band, a more established satellite infrastructure that’s been around for decades. ViaSat, on the other hand, hopes to take advantage of a newer, cheaper-per-bit system on the Ka band. ViaSat claims that one satellite on the Ka band is equivalent to 100 on the Ku band, which is why JetBlue will be able to offer free Wi-fi. “The ViaSat 1 offers the most capacity in the sky,” Don Buchman, ViaSat’s director of mobile broadband, said. How fast? “Greater than 12Mbps, which is on par with Wi-Fi speeds on the ground.”

As good as the Ka band sounds (and more important, the free Wi-Fi), this type of system is so new there really isn’t much infrastructure to support everyone on the Ka spectrum yet. (Even Gogo has plans to implement satellites on the Ka band in the future.) In addition to Ka’s unseen advantages, JetBlue will only start offering in-flight testing this January and hopes to see its first aircraft with Wi-Fi in the months following. A full fleet? Maybe two years.

“When there’s a more established base of Ka in orbit and when the antenna manufacturers and terminal have produced a good and readily usable system, there will be opportunities for Ka in aviation,” said Row44’s Guidon.

What this all means for you is that it’s going to be awhile before Wi-Fi is treated “like Coke and peanuts,” which is what ViaSat’s Buchman envisions for JetBlue. And now that we expect to surf in the sky, Gogo can keep pushing up the price of inflight Wi-Fi until the competition catches up.

“About a third of respondents already indicated they have chosen to fly with one airline because it offered inflight Wi-Fi,” said IMS’s Yin about their survey. “And over a third who did not, would consider doing so in the future.” Added to all the other arbitrary fees the airlines tack on, it’s almost enough to start to make travelers want to stay on.

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