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Posted for MikeEasley@aol.com:
I think that link will only work for subscribers. Here's the article. I
hope Aviation Consumer excuses my copyright violation!
Mike Easley
Lost in Space: Snags for WSI, XM
WSI weatherlink buyers will have to switch to Sirius Radio (and buy a new
box) while XM’s financials aren’t encouraging.
WSI will end its datalink service provided by the twin beam Mobile Satellite
Ventures system, above. Its new Sirius-based system will be compatible with
existing displays.When cockpit datalinked weather exploded into the aviation
market barely four years ago with too much hardware and too many companies,
we predicted a nasty shakeout. But even we didn’t expect this. Just as the
market matures into what appeared to be two stable, competitive players—the
XM
Radio-based WxWorx and WSI’s Inflight service—neither service appears to be
as rock-solid as we thought. Two developments within days of each other may
affect both services in ways that will clearly infuriate some customers and
worry others.
WSI announced in February that it will switch satellite providers from a
third-party commercial company called Mobile Satellite Ventures to Sirius
Satellite Radio, XM’s rival in the space-based broadcasting business. Given
XM’s
success and the reliability of the service, WSI’s switchover makes sense.
But the nasty surprise is that owners who bought WSI’s AV100 and AV200
satellite receivers for between $3500 and $5000 will soon have an obsolete
box
occupying the avionics bay.
Those receivers won’t work with the Sirius signal and will have to be
replaced, probably by next year.
Meanwhile, the financials at XM Radio look rocky, making some buyers who’ve
bought into that technology understandably nervous. A week before the WSI
announcement, Pierce J. Roberts Jr., a key XM director, left the company,
declaring that XM is headed for a financial crisis if it doesn’t make major
changes.
Given the piddly size of the aviation data market, an owner who bought the XM
service for weatherlink can be forgiven for wondering if that service will
be tossed overboard to stanch XM’s cash hemorrhaging. We’re told that this
isn
’t likely but frankly, we wouldn’t expect to hear anything else.
WSI
Although we’ve heard a few complaints about satellite coverage gaps in WSI’
s service, owners have praised the service for its robustness and
sophisticated radar and text products. WSI has suffered for not having as
many display
options as does XM, but it still appeared to be a comer.
Evidently, however, the satellite service WSI picked to deliver its service—
Mobile Satellite Ventures—isn’t up to the task. The WSI architecture uses a
single satellite capable of forming “spot beams” for data delivery. WSI’s
service depends on a pair of beams to deliver coverage in the U.S. and
Canada.
However, some users have encountered service gaps in the U.S., which WSI’s
Paul Devlin acknowledges. He told us the problem is in the receiver software,
which holds onto one beam too aggressively without sensing and picking up the
second beam. As a result, users experience slow or no data service.
Isn’t there a technical fix for this? When we contacted WSI in February,
Devlin declined to provide details, explaining that more information would be
available in a few weeks. Meanwhile, WSI is devoting its resources to
developing
a new datalink receiver for use with Sirius Satellite Radio system, a
clean-sheet box that will be about the same size as the current WSI
technology but
will require a new antenna and wiring harness. The antenna, said Devlin,
will be the same size and have the same hole pattern and the current antenna
for
the AV100 and AV200 receivers.
The hardware is expected to be available by the end of 2006 or early 2007.
Devlin said WSI would announce shortly when its current satellite service
through MSV will end, but we believe it will be in 2007.
WSI says it will try to make the switchover to Sirius from the MSV service “
as appealing as possible” and plans to offer a discount price of $1500 for
the
Sirius receiver. No prices have been set for new Sirius-capable receivers
from WSI. If we owned a WSI receiver, we would be on the phone to the
company
to negotiate the fairest accommodation possible. Our sense is that WSI wants
to do right by its customers.
XM Woes
When XM’s Roberts departed the board, he bluntly said that given the
company’
s current strategy, “there is, in my view, a significant chance of a crisis
on the horizon.” XM has hit the capital markets heavily to fund brisk growth
in subscribers, but it continues to lose money.
Despite XM concerns, Garmin’s XM-based GDL69, above, remains the leading
choice for weatherlink. Owners report excellent performance.Although XM’s
revenue increased in 2005, the company lost $270 million during the
October-December period, up substantially from the $190 million it lost
during the same
period a year earlier. The insider squabble appears to be subscriber growth
versus profitability. Pierce favored less borrowing and growth and more cost
control to turn the company black sooner. Either way, XM’s CEO, Hugh Panero,
said
the company would reach profitability by the end of 2006, with 9 million
subscribers.
If there’s good news for aviation datalink subscribers, it’s this: A year
ago, XM’s revenue from datalink services was trivial but has been steadily
increasing. Although XM has only about 19,000 data subscribers, it earned
low-cost revenue from them in 2005 and the datalink market is expected to
continue
growing. Moreover, while XM has to spend about $141 in marketing costs to
bring on a single entertainment subscriber, data subscribers are profitable
from
day one, because other companies bear the marketing costs.
“We’re beginning to be noticed at the board level,” says WxWorx’s Mick
Gosdin. “They recognize the data side is an untapped market. It’s basically a
freebie for them. It’s something they hadn’t really thought of until we came
along.”
Gosdin says he understands buyer concern about XM’s survival but he explains
that datalink continues to be such a strong, low-cost growth market—both in
aviation and marine—that XM will increasingly rely on it for revenue. In
other
words, although the volume is low, the profitability is high enough that
datalink seems unlikely to be tossed aside to make room for more profitable
bandwidth use.
Recommendations
Given the number of recent instances of avionics buyers having been left
high and dry with dead-end technology, we’re not quite so sanguine about
XM’s
prospects. Its survival may depend less on subscribers and more on how
friendly the capital markets are toward funding its continued rapid growth
until it
turns the corner.
In our view, datalink is such a lucrative market for XM that it will survive
but the larger issue is whether XM itself will prevail. It’s unrealistic to
assume there’s no chance that it will go belly up, just as other high-tech,
high-risk ventures have. For now, we wouldn’t delay or advise against buying
XM-based weather datalink, but buyers should know there are unknown risks in
doing so. Our guess is that XM will survive but that’s just our guess.
WSI, unfortunately, faces more difficult circumstances. The company is fully
aware that it has to dig itself out of a deep hole. Ideally, it should buy
back all of the AV100 and AV200 receivers on a pro-rata basis, but that’s
not
likely to happen because it will result in an untenable business plan which,
ultimately, serves neither WSI nor its customers.
We’re sure that many owners won’t be pleased with WSI’s offer of a drop-in
replacement for Sirius reception for $1500. In any case, WSI isn’t currently
a new purchase option and the company will have to do some careful fence
mending to keep the subscribers it does have aboard and interested in
converting
to the Sirius Radio option. And don’t forget, Sirius is also losing money
and
has fewer subscribers than XM. Its recent deal to sign Howard Stern
notwithstanding, Sirius’ profitability is far from assured.
Other options? Two come to mind: Honeywell/Bendix/King’s Wingman service and
the developing FAA-sponsored ADS-B system. As we reported in the August 2004
issue, the Wingman system is fully built out but works reliably only at mid-
and high-altitude and can seldom be used on the ground before departure.
For a report on the ADS-B system, see the August 2005 issue. This technology
has promise and although the hardware is available and the FAA insists it’s
the shape of the future, the agency hasn’t funded the ground network and
it’s
not known when that will happen, making it the iffiest of all the choices.
For now, XM still appears to be the most cost-effective, reliable choice in
datalink. But know this: Neither of the satellite-based options are without
risk for purchasers.
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