Military Bandwidth Migration Path Leads to Ka-, X-band Satellite Offerings

Two years ago, the major challenge for U.S. military bandwidth providers in the commercial sector was persuading high-ranking Pentagon officials to accept the fiscal reality of commercial bandwidth reliance. Now, commercial providers and their bandwidth-starved military customers find themselves working together to make the same argument to Congress. This new environment, created by the global economic recession and its resulting budget constraints, has forced the U.S. Department of Defense to scale back its manned missions on the ground and retune focus on communications technology to maintain operations.
    The U.S. military sector has experienced a major shift in how battle theatre operations are managed, coupled with a dramatic increase in military bandwidth for unmanned and remotely managed operations. The Pentagon has worked well with commercial satellite providers to maximize existing military satcom capabilities in the wake of the Transformational Satellite Communications System (TSAT) program cancellation in April 2009. In order to make the long-term migration from legacy systems to next-generation satellite offerings a reality, operators, providers and military customers are now selling the importance of bandwidth and communications infrastructure to Congress over expensive new vehicles, missiles and fighter jets.
    In his 2012 budget proposal to Congress, Defense Secretary Robert Gates addressed these arguments expressing support for increased unmanned aerial vehicles (UAV) missions and investments in the bandwidth required to support these missions. The $553 billion 2012 budget proposal includes a five-year military cost-cutting plan that will divert about $70 billion back into new technology in the next five years. Gates said the Pentagon is budgeting for an increase in commercial satcom demand through 2014.
    U.S. Air Force Space Command Brig. Gen. Ian Dickinson, who is designated approval authority for the Air Force’s $10 billion space mission system portfolio and responsible for organizing, training and equipping space and cyber forces with communications and information capability, says the military’s bandwidth migration path ultimately leads to high-speed X- and Ka-band offerings to support demanding UAV applications. “Once migrated to military Ka-band, today’s long-track airborne ISR platforms such as Global Hawk will pose a particular challenge for wideband space systems to simultaneously satisfy all satcom needs for maritime and ground forces while maintaining a dedicated beam on individual RPAs. Therefore, as part of the future milsatcom strategy, we also will need to consider the space segment options to accommodate the growing number of RPAs which require satcom for command and control as well as sensor data relay.” 
    In a response report to the 2012 U.S. defense budget, analysis firm NSR assesses the proposal’s language as a positive opportunity for commercial satellite bandwidth providers over Iraq and Afghanistan. “On top of expected modest increases on the overall budget, war funding should continue at current, if not higher, levels through 2015 and perhaps beyond,” the firm said. “A large percentage of budget cuts will come from inefficient programs, and funds available will be re-directed to other programs. Moreover, tactical UAV missions similar to drone attacks in Pakistan are likely to be sustained, if not increased, in the two major hotspots with troop withdrawals.”
    Aerospace Industries Association (AIA) CEO Marion Blakey, who has consistently expressed concern over the increasing rate of military satcom demand compared to the government investments it meeting those demands, says she was “encouraged” by the U.S. defense budget. “It comes close to reaching the 35 percent marker that we think is needed to ensure a healthy industrial base for the aerospace and defense industry,” says Blakey. “Personnel and operations accounts are increasing at four times the rate of growth of the investment accounts and we are concerned about the long-term robustness of procurement and research.”
    The way in which the Pentagon spends its allocated technology and bandwidth acquisition budget will depend on the viability of future commercial offerings. While developing next-generation bandwidth offerings, the satellite industry’s major military and mobile companies have taken into account that they will have to make convincing cost and performance arguments to the Pentagon in order to secure long-term contracts.
    Currently, the military’s satcom capability is relying on the backbone of the three-satellite Wideband Global Satcom (WGS) constellation. When the WGS-3 satellite entered service for the U.S. Air Force in August, it completed the military’s Block 1 constellation. Dickinson says the launch drastically improved broadband communications to U.S. military forces and their allies around the world. “Both WGS and Advanced EHF systems offer an order-of-magnitude increase in capacities over the systems they replace. Wideband also offers significantly enhanced military Ka-band services along with cross-banded X-band services that significantly ease networking planning. We are seeing aggressive adoptions of these products as the WGS constellation is populated. AEHF also offers significantly increased protected channel capacities to our strategic and tactical forces. The recently improved initial capabilities document for the Joint Space Communications Layer identifies a continual upward trend as new systems and bandwidth-dependent applications enter our inventory.”
    Air Force Col. Don Robbins, the WGS satcom group commander, says the WGS is providing crucial benefits for military operations. “This milestone means that our warfighters around the world, even deep in the mountains or far out at sea, can now reap the benefits of high-capacity communications. WGS delivers the information they need to make quicker decisions, which is a key enabler of mission success. This is a system that saves warfighters’ lives and makes their lives better.”
    Boosted by recent military efforts to expedite the process of acquiring commercial satcom bandwidth and technology, mobile satellite service rivals Inmarsat and Iridium unveiled big plans for next-generation government and military offerings in 2010. With, more than 80 percent of the satellite communications capabilities provided to the military today come from commercial satellites, the two companies have been able to present strong business cases that have attracted significant public and private sector investments.
    In August, Inmarsat announced a $1.2 billion investment in a next-generation Ka-band satellite network and I-5 constellation, which will support its new Global Xpress service to provide increased capability for military and civil government users. The operator ordered three Ka-band satellites from Boeing based on the 702 high-power platform, which will be used to supplement military capacity on the Boeing’s Wideband Global Satcom (WGS) fleet and create a variety of incremental market opportunities in VSAT services. Inmarsat estimates the investment in its Inmarsat-5 constellation and Global Xpress will be $1.2 billion over four-and-a-half years, incorporating the fixed cost of the satellites as well as the cost of additional ground network infrastructure, product development, launch services and insurance.
    One of the Global Xpress satellites will carry a hosted payload specifically designed for U.S. Department of Defense customers. Inmarsat Government Services President Rebecca Cowen-Hirsch, a U.S. Defense Intelligence Systems Agency veteran who helped consolidate industry support for the U.S. Future Comsatcom Services Acquisition (FCSA) vehicle in 2009, says that Inmarsat kept military X- and Ka-band capacity requirements at the center of the new offering’s development. “More than 80 percent of the satellite communications capabilities provided to the military today come from commercial satellites. We’re not only focused on commercial Ka-band and utilization of our global beams but also on the defense sector, where a lot of our business will come from. We want to ensure that the terminals and their users can take the greatest advantage of the owned and organic WGS satellite capability as well as other augmentation capabilities, including Global Xpress.”
    To launch Global Xpress by 2014, Inmarsat secured $666 million in U.S. Export-Import (Ex-Im) Bank loans to finance its construction contract with Boeing and insure the three Ka-band satellites. Euroconsult Senior Analyst Richard Roithner said that the investment is a logical consequence of Inmarsat seeking to introduce a more competitive service into the market in a relatively short term, “Otherwise, the company risks losing more market share and could miss a significant growth opportunity (based on current market forecasts for mobile VSAT services). We see this clearly as a strategic move by Inmarsat that is on the one hand seen as a consequence of increasing competition and the limited growth possibilities for pure L-band systems and on the other hand a pro-active move towards a relatively new technology through which Inmarsat wants to keep its leading position in its core markets. In parallel to new generation MSS systems, Inmarsat faces in its core maritime market more and more pressures from mobile VSAT, especially the Ku-band systems that have become better performing as well as smaller cheaper in recent years, and has lost some of its high-end customers to VSAT.”
    After meeting Global Xpress’ financial challenges and potential military requirements, Hirsch says that convincing policy-makers of the system’s economic viability and making progress in acquisition programs will be just as crucial for the operator to overcome. “Discussions with potential military customers are beginning, and at the operation level there is significant receptiveness. At the policy level, there is conceptual receptiveness. The most difficult challenge is the program level, and there has not been as much traction, yet, but we’re getting there and making progress. As with all commercial communications and technology discussions with the military, these things take time,” Hirsch said.
    Like Inmarsat, Iridium also is developing a Ka-band service offering that is scheduled to launch in 2015 – a year after the launch of GlobalXpress. The operator hopes its Iridium Next second-generation constellation, with Thales Alenia Space as its prime contractor, will provide an attractive offering, with data rates for users of up to 8 megbits per second serving areas where Inmarsat cannot provide service.
    Iridium CEO Matt Desch says that the company is focusing on its phased deployment approach for the Iridium Next service, which aims to provide significant throughput and memory capacity and operational flexibility for the machine-to-machine market. “While our current constellation supports ongoing growth and takes us to the Iridium Next era, our next-generation network architecture will provide a sustainable competitive advantage and outstanding new services with backwards compatibility to existing customer devices. Iridium Next will realize meaningful, additional opportunities to support ongoing growth,” he said.
   In October, Iridium closed a $1.8 billion financing facility for the next-generation satellite constellation with a syndicate of nine banks led by Deutsche Bank AG, Banco Santander SA, Société Générale, Natixis and Mediobanca International S.A., and including BNP Paribas, Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. and Unicredit Bank Austria AG. By acquiring the necessary funding, the deal put Iridium’s full-scale system development contract with Thales Alenia Space into effect.   
    Since then, the operator has introduced new technology to migrate potential customers to the Iridium Next service, including an updated version of its Direct Internet software package to connect to the Internet using the Iridium 9555 and Iridium 9505A satellite phones as well as the Iridium 9522B L-band Transceiver. In November, the operator also won three DISA contracts to upgrade military ground systems with enhancements that would support mutual migration towards its next-generation constellation, Iridium Next.
    Analysts say the ground Iridium has gained in the government sector has placed the operator in a strong position as it races with Inmarsat for a share of the military market. Raymond James Analyst Chris Quilty believes that the interest rate on the operator’s Iridium Next credit facility – less than 6 percent at a fixed rate with a repayment term from 2017 through 2024 – shows private sector confidence in the offering’s viability. “Iridium’s financing puzzle is now effectively solved. The company’s cost of money is well below what we had originally modeled (a 9 percent borrowing cost), and the favorable repayment terms will further-boost Iridium’s near-term cash flows. The only remaining questions are: When, exactly, will the deal close, and just how cheap will the package be?”
     Desch says that his company is set to launch Iridium Next, as scheduled, in the first quarter of 2015. “Since we announced Thales Alenia Space as our prime contractor, they have met the milestones agreed upon for this first phase of the project, and we are off to an excellent start. Our requirements development process is well underway. Planning and design for the satellites and constellation are on schedule. Both our teams and roster of partners are growing quickly.”
    As WGS capacity is filled, commercial and military players see government using more X-band and Ka-band communications over the next five years. Boeing has even established a unit within its Space and Intelligence Systems division to market hosted payloads, represents a major part of Boeing’s long-term business model as global demand for communications bandwidth continues to increase dramatically, says Boeing Satellite Systems International CEO Craig Cooning, who will manage the new unit. “The success we’ve seen in hosted payloads by winning five contract in the past 18 months validates our market strategy to promote these solutions as creative and crucial alternatives for military customers to acquire limited bandwidth resources. The demand for satellite communications continues to be greater than the supply.”
    Boeing entered the hosted payloads business in 1993, when the company helped the U.S. Navy upgrade its ultra-high frequency (UHF) satellite communications system to host an extremely high frequency (EHF) payload as well as the first military Ka-band payload, Cooning said. “We also built L-band, X-band and Ka-band hosted payloads that have served foreign governments through spacecraft owned by commercial satellite operators and we entered into an agreement with Inmarsat in 2010 to assist them in leasing Ka-band services under their Global Xpress offering. This business model can be applied to a commercial satellite operator interested in leasing service to governments.”
    NSR estimates that the Ka-band market for communications-on-the-move systems will be as high as $100 million for aeronautical equipment by the end of 2019, and about $110 million for UAVs by the end of 2018. The firm says that military UAV system purchasers likely will use a combination of commercial and military systems, since the latter offers encryption and protected communications features, and that commercial Ka-band systems supporting communications-on-the-pause will generate almost $50 million by the end of 2018, with a vast majority of users of these systems to be deployed for military satellite users.