Wi-Fi In-flight Auction Lands the U.S. Treasury $38.3 Million

Article ImageWhile Government regulation of communication may seem like a crystal-clear area of the law, the internet has kicked up a whole lot of static. The demand for anytime, anywhere internet access has gone sky-high. In June, the FCC auctioned off frequencies for in-flight wireless internet access on all domestic flights.

Bidders filed applications to participate in the auction in March, and the Upfront Payments Deadline was established as April 17, 2006. The auction officially opened with nine qualified bidders on May 10 and closed on June 2 after 144 bidding rounds. AC Bidco LLC came out on top with the highest bid. For $31.3 million, it received an FCC license for 3MHz of the 4MHz band, while Live TV LLC (a subsidiary of the low-cost airline JetBlue) was the next highest bidder at $7 million, garnering it a license for the remaining 1MHz. The $38.3 million raised will go into the U.S. Treasury.

These licenses allow the carriers to offer wireless seat-back phone service as well as internet broadband access on all domestic flights. The FCC and FAA have not yet made a decision about whether they will permit wireless cell phone usage on airlines and have not commented on the potential for VoIP access. Verizon Airfone held the license as the airlines' wireless seat-back phone provider, but the costly service was never popular. A source at the FCC said that as a result of the auction, AC Bidco will share the 3MHz spectrum with Verizon Airfone's system for two years. At that point, Verizon Airfone is mandated to migrate its operations to the 1MHz and share that band with Live TV until May 2010, when Verizon Airfone's license will expire and Live TV will take over sole control of the 1MHz band.

Some industry watchers question the level of enthusiasm for divvying up the spectrum for in-flight internet broadband access when so many travelers already kill time between flights by accessing the internet at airports. "It's going to impact business users but that's not going to be a large number," according to John Horrigan, associate director of research for the Pew Internet and American Life Project. "I'm not seeing where extra demand comes into the content industry just from people flying around on airplanes."

Others wonder if this is the best way to provide digital-content access on airplanes. "The concern I have for the consumer is that this is a monopoly situation and there may need to be regulation between the FAA or the FCC so the airlines don't gouge the user for the broadband service," says Ben Levitan, a cellular telephone and internet consultant for major cell phone providers and government clients. "But it would be a tremendous facility to coach passengers to have access to broadband entertainment services; for example, instant messaging capabilities."

Though the views of how to maximize megahertz for air travel cover the spectrum, one thing is clear: auction bidders believe there's money to be made in in-flight internet access. "If viewed from a per-passenger point of view, the revenue will be huge compared to earth-bound people," says Mary Ann Ingram, associate professor of electrical and computer engineering at Georgia Tech. "The audience will, in general, be more highly educated, more wealthy, more accustomed to using the internet, and trapped in a seat for hours at a time."