Beam Counters: Awaiting GAO directive
- By Gary Arlen
- Oct 13, 2003
Talk about mixed signals.
A cadre of satellite communications providers is fretting that one of its best customers, the Department of Defense ? which contracts for at least $300 million per year in services ? "purchases capacity like a small-time customer," as put by Futron Corp., a Bethesda, Md., satellite industry research firm.
The satellite carriers are complaining about the Defense Department process, even though the current, chaotic system generates higher fees under the short-term contracts for "spot" services. Now the companies, which include Americom Government Services, PanAmSat's G2 subsidiary, Eutelsat and Intelsat, are eagerly awaiting a long-delayed General Accounting Office study that ? they hope ? will encourage the Pentagon to make longer-term commitments to satellite capacity. Today, at least one-third, or more than $100 million, of the Pentagon's annual commercial satellite budget is spent for ad hoc spot usage.
Of course, the satellite firms want the multiyear contracts for reasons that extend well beyond public cost savings. The troubled and overcapacity industry needs the pacts to secure investment backing for their costly satellite launches, typically $300 million each, and operations.
They've got beams to sell, and 40 percent of that transponder capacity is often idle. Although that would suggest that the Defense Department or additional government customers, including the Department of Homeland Security, NASA, NOAA and other civilian agencies, should be able to pick up bargain circuits when they need them, the satellite operators insist the process creates operating threats for customers and carriers alike.
The carriers point to the huge demand for bandwidth during the Iraq war buildup as an example of clumsy procurement policy, which threatens the Defense Department's ability to secure capacity. Early this year, when everyone from TV networks to traditional telecom providers was vying for satellite circuits, defense customers were not assured of the bandwidth they needed. Occasional opportunities such as this create a bonanza in high-priced, short-term sales. But the satellite companies want consistency, and that's what they hope the GAO report will recommend.
They are drawing encouragement from a separate GAO study, issued in mid-September, dealing with satellite facilities acquisition. (www.gao.gov/cgi-bin/getrpt?GAO-03-1073). The recent report suggested that the Pentagon integrate technology development and product development for satellite facilities, which are part of its $18 billion annual space and satellite budget. (Much of that vast sum used for secretive intelligence programs.)
Richard DalBello, president of the Satellite Industry Association, which represents the commercial satellite carriers, spearheads the campaign seeking GAO's recommendation that the Defense Department make similar commitments to long-term service arrangements. Noting that 80 percent of communications services from the Gulf region during the war were transported via commercial satellites, DalBello repeats his industry's mantra to the Pentagon: "It doesn't make sense to buy short term."
The ripple effect of the Pentagon's procurement capacity touches many other contractors who provide information technology services that are carried via the satellite beams. Indeed, the fate of the dwindling core of satellite carriers could affect other IT agendas. With fewer surviving operators, IT providers will have diminished options ? and inevitably higher prices ? when they want satellite circuits. For example, Loral Space and Communications, another of the premier carriers, is trying to unload its birds to Intelsat, which itself has been struggling to go public.
For now, the beleaguered satellite industry is most concerned about its own stability and survival. If the Pentagon embraces it, a favorable GAO report would assure some of that stability. The industry hovers over any encouragement it can find, such as remarks by Army Chief Information Officer Lt. Gen Steve Boutelle, who recently acknowledged that future combat systems, such as the Warfighter Information Network ?Tactical (WIN-T) initiative would benefit from a "coherent" satellite program.
Needless to say, the satellite vendors have a solution: long-term contracts. There may be some value in generic capacity, says David Helfgott, president and chief executive officer of Americom Government Services, a wholly owned subsidiary of SES Americom, a Luxenbourg firm. But he quickly adds that the ad-hoc process can't assure services when the government needs it.
"You have to have the right capacity with the right company at the right time," Helfgott says. He calls spot-purchasing system used by the Defense Information Services Agency "very inefficient." DISA aggregates procurement requests from several military units, using contractors. This often leads to situations in which DISA wants vast capacities, beyond what individual carriers could bid or provide.
Balancing capacity, price and assured long-term viability is becoming a way of life for government services providers. The satellite carriers, some in life-or-death mode, understandably want assurances. But as has been seen before, there's no guarantee that the Pentagon will adhere to any GAO directive. Moreover, any mandate seen as an effort to support the struggling satellite industry may be deemed a dangerous precedent in today's fast-evolving technical environment.
On top of all this, the entire process is part of a quagmire of structural and legislative issues. As SIA's DalBello points out, the Defense Department purchasing process (run by DISA, which is not a planning agency, although it would like to be) often conflicts with Congress' appropriations to it.
It will take more than a GAO report, now expected out by early 2004, to sort out that conflict, no matter how many beam counters are thrown at the problem.
Gary Arlen is president of Arlen Communications Inc., a Bethesda, Md., research firm. His e-mail address is GaryArlen@columnist.com.