GAO: Consolidation Not to Blame for Government Satellite Service Price Hike

[Satellite TODAY Insider 09-26-11] While recent analyst studies have blamed consolidation in the satellite industry for a 30 percent spike in government satellite service prices in the United States between 2003 and 2010, a U.S. Government Accountability Report (GAO) issued Sept. 22 claims that other market factors had more of an effect on costs.

   The satellite industry’s sweeping consolidation over the past 11 years left Intelsat and SES as the two primary operators to contract with the U.S. government, which has led some to believe that government agencies are dealing in an uncompetitive market. However, the GAO said the U.S. Defense Information Systems Agency (DISA) and General Services Agency (GSA) officials told its auditors that other market factors, such as demand and availability of bandwidth and the length of a task order were responsible.

   In the report, GAO stated that, according to U.S. Strategic Command officials, the amount of bandwidth purchased, the length of the contract, the specific frequency band purchased, the geographic location of satellite coverage and bandwidth capacity played a much larger role in driving up prices.

   “The acquisition of competing satellite operators, or horizontal integration, was unlikely to induce any significant adverse effects,” the report said. “However, vertical integration, in which subsidiaries are acquired, could allow operators to favor the subsidiary it owns over another by charging the satellite service provider a higher price for capacity.” 

   Regardless of the arguments over consolidation, the GAO highlighted that DISA, GSA, and industry officials are using the Future Commercial Satellite Communications Services Acquisition program (FCSA) to increase competition in the market. The effort may also put downward pressure on the government’s cost to acquire fixed satellite services, according to the report’s authors.

   “A finite number of orbital locations and enforcement mechanisms within international regulations have limited new entrants in the satellite market. International regulations have processes in place to promote equitable and efficient access to orbital resources, but the International Telecommunication Union, a United Nations specialized agency, does not have the ability to monitor and enforce these regulations,” the GAO said.