The — and then the big issues really are when that happens, how do those airlines have confidence that you can deliver? That’s what has led to having us sort of well-defined service level agreements that we and the airline can measure. And then the other ingredient that we’ve been increasingly successful at is helping the airlines monetize that engagement. Different airlines have different strategies for monetizing it. But if they don’t monetize it and they just add more costs, that doesn’t work for a lot of airlines. So the idea of building the increasing supply of bandwidth and the increasing engagement into a business model that works for each airline. That’s one of the main things that we’ve been focused on. And one of the areas that we’re going to aim to try to provide investors with more visibility on.
Operator: Your next question comes from the line of Mike Crawford with B. Riley.
Michael Crawford: A couple of questions regarding the L-band. First, can you elaborate on your 3 geostationary smallsat L-band satellites that you’re developing and whether that may contain some of the discontinued ViaSat-4 IP?
Mark Dankberg: No. The L-band satellites — those 3 new L-band satellites were started by Inmarsat prior to the merger being completed. They do have some pretty innovative bus features. They’re very low-cost geosynchronous satellites, which are interesting for a variety of reasons, but they’re not based on ViaSat-3 IP. Those 3 aren’t.
Michael Crawford: And those might launch in 2026?
Mark Dankberg: Yes. I think they’re going to — intended to be in service in by the — by 2027. Part of it is they will have reasonably orbit raising time. So we’ve got to work through the launch and the orbit raising and bringing into service mission, but those are ballpark correct at this point.
Michael Crawford: Okay. And then separately on L-band, could you just elaborate more of what you, Skylo and Ligado, each are bringing to the table on this NTN direct-to-device service and whether that requires a special device such as like a formerly Bullitt phone or a TAT phone that — or would this would be to any iPhone or Android phone?
Mark Dankberg: Okay. Yes. So what is happening in the device market is expanded interest in this integration of terrestrial and satellite networks. And satellite networks are often referred to as NTN or nonterrestrial networks. The — you have to think of motivations of different parties here. But the device makers — and think of it as device makers, mobile network operators, over-the-top companies that provide services — data services to smartphones as well. And then — or other devices. And then also think about it from the user’s perspective. So the device makers are really looking to integrate a next generation of modem chips. That’s what’s standardized in this 3GPP standard. There’s also some specifications around satellite frequency bands.
L-band being one of the most prominent for delivering these services. And then the devicemakers are working to seamlessly integrate this handoff from terrestrial cellular networks to satellite service. And that is — so that’s the general theme what you’ll see. And what you’ll probably see are initially some functions that are for remote — basically remote emergency or remote location type services. And then also just remote coming now will be remote messaging and communication services that are built into devices. The idea would be if you have a device that benefits from cellular connectivity that you would use the satellite connectivity to extend that range and what we think is also fill in black spots in coverage. Some part of — and this is to be determined, but some part of the market is in people that you know are far away, often deserts or mountain ranges where there wasn’t and probably won’t ever be cellular coverage.
But a lot of devices are disconnected just even though they are near terrestrial cellular coverage, but in a dead spot or a black spot or shadowed by a mountain or hill side or similar things like that. So one of the big things going on in the industry is whether you want to serve those people with existing cellular terrestrial frequencies that are allocated to satellite, or — and this is the part that we’re aiming for, and we think makes a lot of sense is if you can augment terrestrial cellular with licensed satellite spectrum that will fill in all these black spots, and you don’t have to take — you, the carrier doesn’t have to take any existing spectrum out of service. They have to take terrestrial spectrum and dedicate it to satellite use.
That’s — so that is — that’s what these 3GPP standards are about is enabling that capability. We think, ultimately, that’s the way to both get scale and make the services more attractive. So now Skylo has put together kind of a network and back office solution that lets us start delivering those services pretty much right away. We’re doing tests with some really interesting devices. We’re working with Ligado to help scale what we can do in the U.S. And worked with Ligado for years. They have a very — they’ve kind of the most advanced L-band, ground-based beam forming satellite. We helped develop that, and we also help them operate it. And then with Inmarsat, we can extend that globally across all the rest of our fleet. So that’s what’s going on now.
I’d say the main thing you’ll see kind of the near future are device makers that choose those chips that have the satellite NTN capability starting to talk about their products and bring them to market probably later this year.
Kumara Gowrappan: A couple of quick clarification points, Mike. One, this is, as Mark said, it’s still in market discovery and development mode, and we don’t have any incremental CapEx associated with this deal, just for clarity.
Mark Dankberg: And right now, we think this will start slowly. Ultimately, we think it will build, as Guru said. I think market discovery is a good way to describe it.
Michael Crawford: Okay. Just one final question, more on the financials. Just given the quarter-to-quarter variability in your gross margins for products and services, how — what was in the mix to cause that variance this quarter? And how should we be thinking about that and say, the March quarter and also next year is regarding gross margin on products and services revenue?
Shawn Duffy: Mike, it’s Shawn. So I think if you think about this quarter, there’s a couple of unique things. One is we had a little bit of favorability on the mix in our government business. And so that yielded a little bit improved margins. And on the service side, we also had — we had a kind of a contract negotiation that we were able to resolve with the customer and so that had some favorability as well. So those are things I would say that I’m not expecting to keep going into the next quarter. And then also, we get a little bit of benefit from the acquisition accounting and the flow-through of that, and that’s going to start to meter down as well.
Operator: Your next question comes from the line of Ryan Koontz with Needham & Company.
Ryan Koontz: Appreciate your commentary, Mark, about the major long-haul versus regionals there and different strategies. Maybe if we take step back, can you maybe characterize kind of how you view those markets in your kind of targeted western markets of where we are in penetration for long haul and regionals? Number one. And second question is that you’ve talked before about wholesale partnerships to fill bandwidth needs. Is that still on the table of looking a relationship with other providers to fill any gaps you might have with the change in plan for F1?
Mark Dankberg: Okay. Sure. Yes, I’d say that if you want to see what the future of in-flight is, one is, if you look at the region — I don’t like regional, that would be like the U.S. market. Looking at the U.S. as a domestic market compared to international flights to and from the U.S., that’s a good proxy I’d say. On the domestic part, the domestic mainline fleets are typically single-aisle planes, maybe a couple of hundred on the range of a couple of hundred passengers. And some, there’s a mix of seat-back entertainments and no screens. So you’re seeing, I’d say, a pretty fair — very high penetration of those or many flights where we’ll serve well over 200 devices at peak times. And I’d say we’re serving both entertainment and connectivity options.
And one of the main themes is going to be greater integration between those sort of reflecting what people do, but — at home, well first they’re watching entertainment and still doing — communicating with friends or social media or other things on their devices. In the long-haul business, that — the long-haul market has been, I’d say, it’s a little bit behind. And that has been because the planes have a lot more people. So high engagement, high bandwidth, means higher capacity of links. And so that’s an area that I think we’re going to do well in, but we’re really with Inmarsat and the new ViaSat-3 satellites, really entering that now, and we’re working with our customers to bring similar experiences to the — to those large twin-aisle long-haul aircraft, as have been in the, say, the U.S. domestic market or intra big domestic markets in other parts of the world, like Australia, Europe, Brazil, some of the other markets that we’ve been in.
Also, you’re going to see — because seatbacks are such an important part of that, I think that’s where you’ll also see a lot of innovation in combining the entertainment and connectivity parts. The part that’s still really to be penetrated is the low-cost carriers because their focus on cost per seat mile really is — it’s a big . So building up these monetization strategies, I think, is going to be a big factor in the low-cost carriers, both on the regional domestic fleets and on the long haul. Does that give you some sense of what those dynamics are?
