AirCell plan takes wing

Company's $31 million bid wins right to offer phone, Internet service on planes

David Milstead, Rocky Mountain News

Published June 3, 2006 at midnight

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A high-flying deal: Louisville-based AirCell has won the rights to offer telephone and Internet services on passenger airplanes with a $31.3 million bid.

The company, backed by new investor Ripplewood Holdings LLC, is buying 3 megahertz of bandwidth after winning an auction held by the Federal Communications Commission.

A subsidiary of JetBlue won the auction for another, smaller piece of bandwidth for $7 million. JetBlue, based in Forest Hills, N.Y., has said it wants to provide passengers with Internet service and doesn't plan to offer phone service.

AirCell's plans, however, are grander.

"This is going to be one of the great stories in telecom . . . and it's going to be done by a little ol' company right here in Colorado," said AirCell CEO Jack Blumenstein, who said his company is "sitting up here on the ceiling" in elation over its winning bid.

AirCell began in 1991 with the idea of providing a reliable cell-phone service on airplanes, according to a history on the company's Web site. Despite periodic struggles with the FCC and the existing cell-phone companies who served customers on the ground, AirCell now provides satellite-based phone equipment on planes that travel both domestically and internationally. AirCell's application with the FCC listed last year's revenues at only $18 million.

AirCell's new plan is to do air-to-ground communications, rather than involve a satellite.

That would differ from the current leading air-Internet offering, the Connexion by Boeing. Connexion, launched commercially in May 2004, is offered on more than 180 routes daily worldwide, according to the company. All are on international carriers such as Lufthansa and Korean Air that do not fly domestic U.S. routes.

Airline industry officials say cash-strapped domestic carriers haven't bought into the service, largely because of the cost - an estimated $500,000 per jet to install the needed equipment.

AirCell's Blumenstein said the cost and the weight of his company's offering "is just a small fraction of what these satellite systems cost."

A Connexion spokesman could not be reached Friday.

David Castelveter, a spokesman for airline trade group the Air Transport Association, said "carriers will have to make careful decisions as to what and how much they want to invest in technology, depending on the demand for that technology."

Blumenstein said he expected the federal government to take a couple of months to formally award the license. He hopes to have the AirCell service rolled out in the summer or early fall of 2007, roughly 12 months after the license.

The privately held company is paying for the spectrum and the rollout costs with money from Ripplewood Holdings and its shareholders. Blumenstein said Ripplewood is taking an equity position in AirCell as part of the deal. He would not disclose financial terms.

Ripplewood counts former Sprint President Ron LeMay among its partners. LeMay will become AirCell's chairman as part of the investment.

"It's a significant commitment of not only money but talent," Blumenstein said.

At a glance

• What happened: Louisville-based AirCell won a Federal Communications Commission auction.

• What it means: AirCell will be able to offer telephone and Internet services on passenger airplanes.

• What's next: The government will issue a license in the next couple of months, and AirCell expects to roll out its product by fall 2007.

News wire services contributed to this report. David Milstead is finance editor of the Rocky Mountain News. He can be reached at 303-892-2648 or milstead@RockyMountainNews.com.

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