O’Neill: In the late 1990s, our industry was dominated by the need for a large number of satellite constellations, but then the dot.com crash happened and there was quite a decline in demand. We were predominately commercial when we were under Hughes up until October 2000. We now have a strategy that we think has worked well for us — we provide both government and commercial satellites so that we are able to withstand downturns. It gives us quite a high level of stability both in terms of orders, revenues and, most importantly, stability in staffing. If we look at 2010 in the satellite business, around 10 percent of our revenue was commercial and about 90 percent government. Last year, it doubled to 20 percent commercial and 80 percent government. This year, we believe we are going to be in the range of about 25 percent commercial and 75 percent government.

 

O’Neill: In 2009, we introduced the 702 Medium-Power (702MP) satellite and we signed a four-satellite deal with Intelsat. Not only did that deal lead to the first 702MP satellite, but it also led to two UHF hosted payloads on IS-22 and IS-27. We delivered the first satellite, IS-22, in 29 months from the time we received the order. It has now been launched and is on orbit. We anticipate turning it over to Intelsat for operations very soon. We have done three things for providing increased value to the government: a hosted payload that provides capability much faster; capability at much lower costs; and faster access to space.

 

O’Neill: A hosted payload improves a commercial business case by generating additional revenue and reducing investment risk by providing downside revenue protection. Intelsat was able to sell the UHF hosted capacity to Australia on IS-22, thereby generating significant additional revenue and giving more protection to shareholders on downside risk. In 2010, we improved our service offerings again. The best example of that improvement is the Inmarsat I-5 contract. That was a three-satellite firm contract for an all-commercial Ka-band solution with options for a fourth and fifth satellite. We added additional value by providing a hosted military Ka-band payload on all the satellites and Boeing agreed upfront on a take-or-pay distribution service contract for military Ka-band. From Inmarsat’s perspective, we believe that was a really big deal in helping them close their business case. Again, we provided them additional guaranteed revenue sources and protected their downside for their shareholders on the commercial Ka-band side.

   What we are trying to do is leverage the value of our company. We are a $70 billion business with almost 50 percent of our revenue on the defense side. Many of our existing defense customers have a continuing need for satellite capacity. Now, we are able to provide that capability directly to our customers and facilitate Inmarsat expanding their customer base in the military market.

 

O’Neill: Yes. Traditionally, service providers and distribution partners have higher margins than satellite manufacturers. We found this an attractive environment to enter. From a satellite operator viewpoint, they now have an additional distribution partner to market their capacity. At SATELLITE 2012, we announced our agreement with Artel to jointly market Inmarsat I-5 capacity.

 

O’Neill: There is natural evolution to go to a Ka-frequency for additional bandwidth. We built the very first satellite for commercial Ka-band in North America, Anik-F2 for Telesat. There clearly is great interest today in Ka-band for higher speed and increased capacity.

 

O’Neill: The number one challenge is always mission success. We believe no matter what, we have to have a 100 percent quality product delivered to our customer. Secondly, our customers in the commercial satellite business are themselves in a competitive arena, so continued cost reduction in our offerings. Boeing has demonstrated with the all-electric propulsion satellite a lower cost to orbit per transponder. We will need to continue to build on that. The last challenge is for us to continue to deliver our products on time like we did for Intelsat IS-22.