JetBlue, AirCell Win Some Airtime

The Federal Communications Commission (FCC) auction of two nationwide air-to-ground spectrum licenses finally ended today, after 144 rounds of bidding.

There were two winners. AC BidCo LLC -- a team comprising airline phone system maker Aircell Inc. and private equity firm Ripplewood Holdings LLC -- won a 3MHz chunk of spectrum with a bid of $31.3 million. LiveTV LLC, a subsidiary of JetBlue Airways, won 1 MHz with a bid of $7 million.

Verizon Communications Inc. (NYSE: VZ)'s Airfone unit is the current tenant of the spectrum, which it uses to provide service to the phones on the back of airplane seats -- for $4.99 per minute. Verizon's licenses run out in 2010; the company initially re-bid for the spectrum in this auction, but dropped out in May. Now, Verizon has two years to stop using the spectrum that AC BidCo won, but until 2010 to vacate the spectrum that LiveTV won.

Verizon's pullout was a bit of a surprise. Last December the company issued a press release announcing that the auction would let the company offer airborne broadband services in 2007. The release did include the parenthetical, "(subject to acquiring a license from the FCC)." Verizon had been working with base station maker Airvana Inc. on a broadband system. (See Airvana Targets Inflight.)

Airvana says that Verizon's exodus from the auction does not signal Airvana's exodus from the in-flight wireless communication equipment market.

"Airvana has a huge lead-time advantage over other possible infrastructure vendors," said Patrick Rafter, a spokesman for the company, a couple of days before the auction closed. "While Airvana and Verizon Airfone worked very closely, Airvana developed this product and tested it, and it worked, and whoever ends up winning can save themselves a lot of time by coming to Airvana and having a solution."

The air-to-ground license allows for communication between the plane and a terrestrial base station, rather than a satellite. "These stations can be hundreds of miles apart," says Craig Mathias, principal analyst at the Farpoint Group , a wireless consultancy. "A phone can see an awful lot of cells on the ground from the sky."

The FCC has imposed a 10-day quiet period prohibiting the winners from immediately announcing their plans for the spectrum. Currently, Live TV provides television services to JetBlue using satellite service from DirecTV Group Inc. (NYSE: DTV). AirCell provides voice and Internet services, mostly to corporate and government aircraft, using the Iridium Communications Inc. (Nasdaq: IRDM) network.

In announcing the end of the auction, the FCC published a statement noting that the spectrum could be used for broadband Internet access, but that auction doesn't affect the Federal Aviation Administration's present rules restricting the use of commercial cell phones on planes, nor does it affect any restrictions on any other electronic devices. [Ed. note: And nail clippers are still prohibited.]

— Carmen Nobel, Senior Editor, Light Reading

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