Miles J. Stoner, @StockHollywood

Dallas, Texas

2.03.2014

GOGO - a monopoly or a good investment long for this year?

First of all, let me disclose my position is 500 shares long at 22.5, I may buy more I may sell out.

The reason I'm writing this is because I have been long for a month during this market sell off building into this position because I thought it would be good to hold through e/r report on Feb 10th, 2014 and what I had hoped would be a move back to 52's. I was dead wrong so far.

Today, some negative news was put out http://gigaom.com/2014/02/03/passengers-win-ruling-in-fight-over-gogos-in-flight-wifi-monopoly/ outlining GOGO's hold on the wifi in airplanes as a monopoly. On a side note, the stock had sold off because of the general market sell off and also because the CEO said JBLU was competition (read here https://twitter.com/MelissaLeeCNBC/status/426385039866077184)

I want to prove this monopoly wrong, but I am going to be as unbiased as I can now so lets begin.

Judge Chen (http://en.wikipedia.org/wiki/Edward_M._Chen) is presiding over this case in San Francisco, he had previously thrown out the initial complaint (http://gigaom.com/2013/04/10/judge-says-no-monopoly-on-in-flight-internet-prices-tosses-case-against-gogo/), but he is letting the amended version go forward after the plaintiffs added new facts.

Chen rejected the initial claim without prejudice because he accepted that Gogo doesn't have dominant market share because it covers only 16% of all US airplanes, but 85% of all internet equipt US airplanes. Chen accepted the fact that they could sign up with competitors on airplanes that don't yet offer internet. Although Gogo has 10 year contracts
they aren't sold across entire airlines, but on a airplane by airplane basis. additional claims were that Row44 charges $5 for entire flight of internet service, but Gogo can't be dropped because of long contracts. also, Gogo's technology is inferior than Row44 and JBLU's viasat service. These were all the claims that Judge Chen said did not warrant the violation of anti-trust laws and make GOGO a monopoly, which were dismissed. Gogo wanted it duly noted that Panasonic just entered the market with sat service on United. (read all the first case here http://www.scribd.com/doc/135252181/GoGo-Dismissal)

Now, dismissing without prejeduce left the door open for new evidence, which is why we are here where we are now, new evidence was brought forth and judge Chen said, "Gogo’s objections may be legitimate, but added that the passengers supplied enough other other facts to let the case go forward."
-----it is these "other facts" that we will touch upon now, but before we do we must talk about anti-trust laws and monopolies. 

  1. Sherman Anti-Trust Act ".. [a person] who merely by superior skill and intelligence...got the whole business because nobody could do it as well as he could was not a monopolist..(but was if) it involved something like the use of means which made it impossible for other persons to engage in fair competition."
  2. only the first 2 parts of the Clayton anti-trust act could potentially apply:
    1. price discrimination between different purchasers if such a discrimination substantially lessens competition or tends to create a monopoly in any line of commerce (Act Section 2, codified at 15 U.S.C. § 13;
    2. sales on the condition that (A) the buyer or lessee not deal with the competitors of the seller or lessor ("exclusive dealings") or (B) the buyer also purchase another different product ("tying") but only when these acts substantially lessen competition (Act Section 3, codified at 15 U.S.C. § 14);

it's important to point out that an airline can get out of a contract if "the airline would suffer competitive harm from not using a competitor's superior services," which nullifies Gogo's contracts if a better product or a better service comes along. Gogo also talks about AirTran terminating an agreement. Gogo litigated against AirTran to stop them from conceiving from this contract, ultimately failing and although that would be enough proof in a motion, it certainly wouldn't hold up against ruling Gogo as a monopoly.


I think Gogo will update their internet technology (supposed to in 2015 to Ka-Band), keep rates fair on 10 year contracts,