Commercial and government demand for broadband services is driving the communications satellite market
Add bandwidth to those perennial consumables of war, bullets and beans, and it becomes clear why the government and commercial satellite-communications markets are drawing closer.
While the military continues to have unique requirements for satellite surveillance and protected communications, the need for bandwidth to connect unmanned aircraft and network ground forces has driven increasing demand for, and reliance on, leased commercial satellite capacity.
Although troops are pulling out of Afghanistan, U.S. and NATO military planners expect demand for bandwidth to remain high as operations continue, primarily to support unmanned aircraft. As ground forces are withdrawn, reliance on UAVs to protect those that remain is increasing, and they are large consumers of bandwidth. Demand for capacity is also shifting to other areas of operations, such as North Africa.
The Pentagon is the largest user of commercial communications-satellite capacity and in 2010 put in place the Future Comsatcom Services Acquisition program, worth $3.5 billion over five years, to increase competition and drive down bandwidth prices.
A similar approach was taken for military purchases of commercial satellite imagery, with the EnhancedView program worth $7.3 billion over 10 years. But the Pentagon cut funding for fiscal 2013 by half, leaving only enough money for one of the two performers. This is forcing DigitalGlobe and GeoEye to merge.
Europe, where some militaries rely solely on commercial satcom services, is also moving to streamline procurement. The European Defense Agency (EDA) has launched a program to pool satcom demand and reduce costs by 10%, and has awarded Astrium Services an initial three-year, €2.3 million ($3 million) contract to act as the commercial and operational interface with satellite operators.
EDA sees the European Satellite Communications Procurement Cell pilot project as a step toward European cooperation on replacing existing national military satcom capabilities. France, Italy, Germany, Spain and the U.K. all operate national military systems that need to be replaced in 2017-25 at a combined cost of around €12 billion, and pooling and sharing could save at least €1 billion, estimates EDA.
The U.S., meanwhile, is fielding new military communications satellites and laying the groundwork for the next generation of protected satcom. Today's architecture consists of Milstar satellites and the first two of fourAdvanced Extremely High Frequency ( ) spacecraft. Study contracts have been awarded to , , Space Systems/Loral and others to support a new acquisition program in the 2020 timeframe.
The U.S. Air Force is still hoping for more-efficient procurement of expensive satellites such as the AEHF and Space-Based Infrared System through multi-spacecraft “bulk buys,” but Congress continues to have reservations about the program.
Demand for satellite capacity from military and civilian government agencies is expected to drive not only procurement of spacecraft and services, but also a trend toward hosted payloads, where a commercial operator is paid to loft a government-developed payload on its satellite. This reduces costs while providing additional revenue to operators. Bureaucratic and technical hurdles remain to be overcome, but hosted payloads are expected to increase over the next 10 years.
Government payloads usually take longer to develop than commercial satellites, but both industry and government are working to make hosted payloads more widespread. The Pentagon is developing administrative and cost models to make procuring and deploying hosted payloads easier, and more companies are joining the Hosted Payload Alliance formed in 2011. The Australian Defense Force hosted a $167 million military satcom payload on the Intelsat 22 satellite launched in 2012.
The U.S. accounts for more than two-thirds of military satellite production, with spacecraft valued at more than $21 billion to be produced over the next 10 years. Japan (6.7%), Russia (4.8%), China (4.7%) and France (4.4%) are the other leading buyers. Even as defense spending declines in the U.S., Boeing and Lockheed Martin will continue to dominate the military market, with demand from home markets also benefiting Astrium in Europe, Mitsubishi in Japan and Reshetnev in Russia.
After focusing on military production, both Boeing and Lockheed are again targeting the commercial market, where growth is being driven by demand for broadband Internet services, video distribution and government services. Growth will be most rapid in Latin America, Eastern Europe, the Middle East, Africa and Asia as those regions demand the digital television and wireless connectivity services already available in North America and Western Europe.
A number of the major commercial satellite operators, such as SES, are nearing the end of programs to replace aging satellites and expand their fleets. Most deliveries under these programs are expected to be completed by 2014. This could put pressure on satellite manufacturers as backlogs begin to decline, but demand is expected to remain strong as smaller regional operators continue to upgrade their fleets.
Even the large operators are expected to continue buying satellites as they expand into areas such as Ka-band broadband for faster, cheaper Internet access. High-throughput Ka-band satellites will be the primary supplier of bandwidth for the growing market to provide mobile broadband services to aircraft and ships. Escalating demand for wireless devices is leading even large fixed-satellite service operators like Intelsat to take aim at the mobile broadband market.
Intelsat, which will complete its seven-satellite Ku-band mobile network in 2013, plans a series of Epic spacecraft with C-, Ku- and Ka-band capability. Scheduled for launch in 2015, the Boeing-built first Epic satellite will cover the Americas and North Atlantic. Inmarsat will launch three Ka-band satellites for its Global Xpress broadband mobile network beginning in 2013. Intelsat and Inmarsat will join Europe's Avanti Communications, Eutelsat and SES, ViaSat and Hughes Communications in the U.S., Australia's NBN and Russia's RTComm in offering Ka-band service.