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Feature: Dave Davis says industry consolidation is inevitable

Dave Davis

Dave Davis

Until recently, Dave Davis was the CEO of Global Eagle Entertainment (GEE). He recently left the organisation, but hasn’t left the connectivity industry. He recently spoke to “Get Connected’s” Steve Nichols about why he left GEE, his outlook on the IFEC industry and what he plans to do next.

Firstly, can you tell me why you left Global Eagle Entertainment?

I was with Global Eagle really from the beginning of the company. We formed the company in January 2013 by merging a connectivity company and a content company and I was there right from the beginning.

We took the company public, did a series of eight additional acquisitions and really scaled the business in a very significant way and grew it very rapidly.

You know, by the beginning of this year, I think the board and I really determined that what was best going forward was taking a breather from the mergers and acquisition work and really focus on consolidating the business and integrating things. I think the board felt, and I agreed, that it was better for Jeff Leddy to do that.

From a skill-set standpoint and from an interest standpoint Jeff was more suited to that.

That was really the reason I left. My relationship with the board and with the company remains great and I had a three-month consulting arrangement with the company were I did a fair amount of stuff.

So what are you doing now?

Going forward I’m looking at several things. I’m very interested in this space and I’m very interested in staying involved as an investor and as a potential executive.

But the whole area of connected mobility, new satellite constellations; all these things interest me and I am planning to stay involved in the space in several different ways.

Let’s talk about the inflight connectivity space first of all. Do you think we’re going to see some consolidation there? There’s been an awful lot of talk from some of the senior leaders in the industry that there’s too many people chasing too small a pie. What do you think?

I think consolidation in the connected mobility space is under way and is going to continue into the future.

If you just look at some recent merger and acquisition activity, Global Eagle bought EMC, which is a maritime company, and Panasonic bought ITC Global, which is mainly in the energy sector.

There was a merger between SpeedCast and CapRock in the not too distant past. So that consolidation is under way and it will definitely continue.

On the aero side, there’s a lot of competitors in the space, investing heavily and sometimes, in my mind, doing fairly irrational things. As a result you have a business where a lot of people are burning a lot of cash.

I think that’s not sustainable and there’s going to be consolidation in the future and there needs to be.

Do you think the way forward is for a model like Inmarsat and ViaSat, which own the whole satellite ecosystem, or for a separated model, like Panasonic, Global Eagle and Gogo, which leases satellite provision as required.

I actually think that there’s a merging of these different models and the best future state is some combination thereof.

When you are a provider of connectivity services to people, particularly focused on the mobility space, there are areas in the world where it doesn’t make sense to own satellite assets, because you don’t have enough density of customers there.

Then there are other areas in the world where you may have a lot of density of customers where it does make sense to own them.

So you’ve seen Panasonic talk about dedicated payloads that they want to launch in the future to serve areas where there’s a lot of their customers.

Global Eagle bought an SES satellite at the beginning of 2017, focused on North America. But it also continues to lease most of its capacity and Panasonic continues to lease most of its capacity too.

I think what makes the most sense is to have “satellite-owner economics” in regions of the world where density dictates that that makes sense, and then lease space in areas of the world where you really don’t have that density.

I think that’s the model that probably makes the most sense economically going forward.

But what about consolidation in the inflight connectivity industry?

I think you’re going to see consolidation among service providers, but then I also think in the years ahead there will be increasing consolidation between the satellite operators and service providers.

So I think you’ll see certain operators looking to acquire service providers to essentially capture more of the value chain all the way down to the end user.

What about consolidation in the satellite industry itself?

I think the satellite space is set for some serious disruption.

What is interesting is the whole emergence of all these small satellite companies and their ability to put out constellations of dozens of satellites at very low cost into low earth orbit.

This is backed by the corresponding development of technology on the ground to take advantage of those constellations.

I think is going to be a major disrupter in the satellite space. So I think consolidation is inevitable there as well – for example, we just saw Intelsat and OneWeb come together.

So is the future low earth orbit (LEO) or geostationary (GEO) satellites for in-flight connectivity?

I think of some combination of both actually. I think there’s interesting antenna technology being developed that allows you to pick up multiple beams at the same time from multiple satellites.

And there’s an opportunity to select whatever is the most economic source of bandwidth available.

Once these systems are commercialised and available there’s a lot of advantages to these LEO consolations, including lower latency and lower cost – potentially much, much lower cost going forward.

So what about the age-old question of Ku versus Ka? Is that really irrelevant nowadays?

I don’t know if it’s irrelevant, but it’s I think it’s going to become less and less relevant going forward.

If you look at some of the constellations that are on the drawing board they are Ku, but there’s also talk of Ka. So I don’t think it makes that much of a difference honestly.

The last few years has been all about speed and bandwidth. Is the business now more about what you can do with it?

I think that’s right and I really think this is still an issue though.

It’s still about speed and capacity because the existing networks. particularly in the US, are so constrained that people are demanding more and more capacity.

I think the airlines around the globe are going to continue to want more and more capacity.

But then once you have it going to the aircraft, so the passengers can basically do in the sky what they can do on the ground, the question is how does the airline monetise that?

And I think that’s a big challenge in our industry actually.

So how do airlines make money out of connectivity and how do they charge for it?

That’s the big question and I think it really varies from carrier to carrier.

I think you see a trend in North America that airlines are going to begin viewing this the same way hotels view internet access – as a “must have” for passengers.

And if they can find ways to make enough of it directly they will. Theoretically. I guess it is embedded in the ticket price.

I think you’re going to start seeing more passengers demand it as some sort of free service.

Maybe the connectivity access could be tiered, the same way hotels offer a basic free service and then you can buy something faster.

But I think there is a trend towards airlines concluding that they simply need to provide it.

I think in much of the world, even in North America, people are going to try to get passengers to pay for it, at least for a few years to come. So they can cover their costs that way.

I think no one has cracked the code yet in any significant way in terms of an advertising and sponsorship model and I think there’s opportunities to interweave content into the package, to weave in advertising, and to get certain sponsors to sponsor the television product and other things like we did at Global Eagle.

But it remains a bit illusive and no one I think is really putting together anything yet that is compelling to prove that you can pay for these systems and cover their costs through advertising and sponsorship.

What do you think the in-flight connectivity space will look like in five years time compared with now?

Well, I think the big thing and the most obvious is just that there’s going to be more aircraft connected.

The service is going to be faster, with higher speeds and presumably far lower cost with some of these new constellations.

So I think it’ll just be a ubiquitous product that’s available on most aircraft around the world.

I think a big trend that I don’t think anyone really understand yet is once you have these pipes onboard the airplanes, what can you do with them from an operational standpoint?

I think the value to the airline is being able to collect data in real time and use that data to change its operations in real time or after the fact.

It potentially has a tonne of value.

But it requires airlines to gather the data, analyse the data and then effect operational changes based on the data, and airlines generally move relatively slowly.

So I don’t think it’s precisely clear how that plays out, but I think there could be tremendous value in connected aircraft from an operations perspective.

So what is your next step?

I think the next five years are going to be fascinating, both from the number of aircraft connected as well as the evolution of these LEO constellations driving bandwidth costs ever lower

I think the future is an exciting and interesting one.

I’ve done a bit of consulting work, but I have a little investment fund that I’m putting together with myself and another partner.

We’re out in the space looking for opportunities to invest and get involved in, not only in the connectivity world, but in the in the small satellite arena as well.

So my focus right now is getting this investment fund together and moving forward.

 

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Feature: Dave Davis says industry consolidation is inevitable was last modified: May 26th, 2017 by Steve Nichols
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