Wireless22.04.2013

In-flight WiFi finances revealed

Vodacom court documents have revealed that the mobile operator financed WirelessG’s in-flight WiFi service to the tune of R30 million. The service does not generate any positive returns, Vodacom said.

WirelessG filed an urgent court application in January 2013, arguing that Vodacom is reneging on its shareholder agreement and is in breach of its first right of refusal when it comes to WiFi provisioning.

Vodacom has hit back, saying in its court statements that a loss of income of R1.4 million per month is behind WirelessG’s urgent court application.

Mango in-flight WiFi investment

As part of its submission Vodacom said that it has financed the acquisition and installation of the equipment needed to provide WiFi hotspot services on Mango airplanes.

This R30 million investment from Vodacom came with very favourable repayment terms. Vodacom added that none of the other WirelessG shareholders were willing to invest in this project.

Vodacom is also providing satellite services for free to enable the Mango WiFi hotspot system to work.

Vodacom highlighted that, if WirelessG had to finance this project using a standard loan, a monthly repayment of around R370,000 would be required to repay the debt.

Subash Devkaran and Carel van der Merwe with the latest In-Flight broadband equipment

Big in-flight WiFi losses

According to a monthly revenue share document for the service, which was included in Vodacom’s legal submission, the service only generated total revenues of between R27,191 (September 2012) and R18,255 (October 2012) per month from July 2012 to the last reporting period.

The documentation shows that the service made a loss of R294,669 over the last eight months of operations. This loss does not include any repayments for the initial capital investment.

“It appears that the Mango initiative does not generate any positive gross profits,” said Vodacom. “With a negative return like this, Vodacom is unlikely to ever recover its investment over the 10 year contract.”

These figures raise the question of whether there is a business model which will justify the investment needed to operate an in-flight WiFi service.

According to one industry player, who asked to remain anonymous, the only business model which may make sense is for the airline to invest in this system to attract customers. The losses should therefore be absorbed by a potential increase in ticket sales.