When MCI Communications Corp. founder John D. Goeken boarded a flight from Washington to Los Angeles in late 1989, dollar signs danced in his eyes. MCI stock had just hit a record high of 47, and Goeken planned to sell part of the stake he had accumulated before leaving the company in 1974. But the GTE Airfone Inc. phone on the plane didn't work when he tried to call his broker. By the time he landed, the market was closed. The next day, MCI stock began a long slide.
A disaster, right? Not to Goeken. He says the broken phone helped convince him that GTE's Airfone unit, which he had helped launch, had become a fat and happy monopolist providing lousy service in the $500 million a year air-to-ground phone business. So Goeken, 61, is about to give GTE new competition.
In the next few weeks, his In-Flight Phone Corp., based in Oak Brook, Ill., will begin to outfit more than two dozen Northwest Airlines, USAir, and American Airlines planes with a state-of-the-art phone system. Because it is digital, the system will transmit better than GTE's phones. They will also come with liquid-crystal display screens mounted on seatbacks, so that In-Flight can offer such services as stock quotes and news. Kathy V. Libonati, managing director of product design for American Airlines Inc., says Goeken's "chances for success are great."
BIG BREAK. Goeken isn't the only one angling for airline passengers--a truly captive market. McCaw Cellular Communications Inc. and others are looking at the air-to-ground phone market. And on Sept. 9, Gannett Co. said it will launch a service called Sky Radio in April, 1992, which will include multiple channels of live news and sports transmitted by satellite. Goeken has a similar plan. Sony, Hughes, Matsushita, and Philips want to install small video screens at every seat so that passengers can watch movies. And Capital Cities/ABC Inc. wants to sell even more programming to the airlines.
Goeken and his backers put nearly $33 million in his new venture in 1989, even before they knew whether he could enter the business. When Goeken sold Airfone to GTE in 1986, he stayed on as chairman and agreed not to compete with GTE should he leave. When he left after a power struggle in 1989, Goeken sued GTE and won the right to launch the rival. He now runs In-Flight with daughter Sandra.
Another big break came in July, when the Federal Communications Commission opened up the fledgling industry. The agency decided that airlines could sign up with any communications companies, even if they had long-term contracts with GTE. The move was warranted because "this was essentially an air-to-ground monopoly," says Greg J. Vogt, chief of the FCC's Mobile Services Div.
GTE isn't standing still as the competition gears up. It plans to begin upgrading its system to digital technology beginning in 1992, but the project could take several years to complete. GTE also is expected to announce on Oct. 8 that it plans to merge its phone network with video screens sold by other companies starting in 1993. GTE says that doing the job right is more important than being first to market. "We're going to have a quality product," promises GTE Airfone President Robert C. Calafell.
GTE also has size and name recognition on its side--big selling points to airlines that might balk at going with an upstart such as Goeken. To counter those advantages, Goeken is trying to sign on big-time partners, including Time Warner Inc. His no-pun-intended sales pitch: "The sky's the limit."
MORE THAN JUST AN IN-FLIGHT MOVIE
Coming soon to a jet near you:
Sports, news, and other forms of programming will be beamed up by satellite or ground relay stations
Small screens above the tray table will allow passengers to choose among movies, news, sports, shopping services, up-to-date gate information, weather reports, and stock quotes
Passengers will be able to receive and make calls and even send faxes from their seats. And digital transmission will vastly improve quality