AT&T Inc.  plans to offer an in-flight Wi-Fi service that will connect planes to its wireless network, becoming new competition to Gogo Inc.  for fliers seeking online access.
The service—which will be available as soon as late 2015—aims to bring a more consistent and faster connection through its 4G LTE network to flights as mobile-device usage rises. The company says current in-flight service is capacity constrained and expensive.
AT&T will face an entrenched rival in Gogo, the biggest provider of in-flight Internet in the U.S. Gogo has existing contracts with many airlines and already has its equipment installed. Nearly all the major U.S. air carriers have committed to some form of in-flight connectivity, either through ground-based networks or orbiting satellites.
"We've spent a lot of time analyzing the market," said AT&T Chief Strategy Officer John Stankey. "There are terms to those contracts and they expire and have to be renewed."
After the AT&T announcement, shares of Gogo dropped 18.7% in after-hours trading Monday. AT&T shares remained unchanged.
Gogo Chief Executive Michael Small said the company is confident in its product and position. "We're very comfortable," he said in an interview. "Our technology portfolio is extensive and will compete with anybody's."
Gogo has 10-year contracts with most of its airline clients, the first of which expire in 2018, Mr. Small said. Gogo has a long list of airline customers, including Delta Air LinesInc.,  American Airlines Group Inc.  and Virgin America, though American Airlines's contract expires on some of its planes in 2018. He added his clients have made substantial investments in equipment that works with Gogo's technology. Gogo is installed on roughly 2,000 commercial aircraft and 7,000 business aircraft and uses both satellite and ground-based networks.
Satellite consultant Tim Farrar, who tracks the in-flight connectivity industry, said AT&T's entry "is a big threat" to Gogo. Stand-alone in-flight connectivity providers such as Gogo have long struggled, Mr. Farrar said, while companies with other businesses to support them, such as Panasonic Corp.  , have succeeded in the field.
AT&T has been working on the plan for in-flight connections for more than a year and will spend "hundreds of millions of dollars" on the effort, Mr. Stankey said.
The company will use new antennas on its terrestrial cellular sites to beam its signal to the sky where equipment on the planes will convert the signal to be usable by wireless devices onboard. Antennas will only be added to less than a fifth of its cell sites because the signal is wider and faces less interference, Mr. Stankey said.
AT&T has teamed up with Honeywell International Inc. which will provide the hardware on the plane to receive the signal. The service will be able to connect to a satellite as a back-up connection or when the plane is over water, if fitted with additional equipment.
The companies will need FAA and FCC approval both for the equipment that will be installed on planes and for using the wireless airwaves in that way.
Jack Jacobs, Honeywell vice president in charge of its connectivity business, said the higher quality Wi-Fi service AT&T is offering could compel airlines to switch providers because current in-flight services frustrate customers due to their lack of consistent connection. Honeywell has begun discussions with potential customers.
Honeywell will first certify the use and installation of LTE-compatible hardware for the aircraft, later seeking to work with aircraft manufacturers Boeing Co.  ,Airbus Group  NV, Bombardier Inc.  and Embraer SA to have their technology installed in the factory on newly built aircraft.