SES GS Exec Warns of Looming Challenges From Spot-Market Dependence
The United States military is seeking to curtail its spending, but its need for greater bandwidth is increasing, not unlike the commercial sector. SES Government Solutions provides commercial satellite services to the United States through a constellation of 56 geostationary satellites. At the helm is President and CEO Tip Osterthaler, who retired in 1997 from the U.S. Air Force as a Brigadier General and Deputy Assistant Secretary of Defense for European and NATO Policy. Osterthaler brings with him a wealth of knowledge from both the government and commercial sectors, which he shared with Via Satellite in an exclusive interview on the satcom spot-market.
VIA SATELLITE: Multi-year procurements, or long-term leases of comsatcom have largely met obstacles in the congressional arena. What do you suggest to assuage their concerns?
Osterthaler: The long-term solution to this problem is not an either/or solution. It doesn’t require the abandonment of all our current leasing practices. In the short term, leasing some capacity will always be a part of what we do. What I am proposing is that we ought not use it as our only, or even our primary, procurement method. It would likely be best to supplement our existing approach with a combined architecture where the government acknowledges that commercial satcom is essential infrastructure, just like the Wideband Global System (WGS), and plans for both of them. Let’s define where comsatcom will be needed and for what approximate period of time, and then give that information to the industry so it can go about making decisions on how, when and where to invest.
VIA SATELLITE: Has there ever been a point where the industry has been under the gun to avert a crisis?
Osterthaler: Yes. When we as the industry finally started to run out of capacity to support both Iraq and Afghanistan, more than one industry participant actually moved satellites. That can’t be done overnight, and typically can’t even be done in 30 days, but it is realistic within a few months. It does create some real challenges when you have to rely on that type of response mechanism. It’s not just a question of having the platform available, the platform has to be authorized to operate and coordinated in terms of frequencies.
The geostationary orbit (GEO) arc is so crowded, and the Radio Frequency (RF) spectrum so highly used, that you are really quite constrained even when moving a satellite to a new location. You should expect to have a lot of challenges if you expect to simply plug in a satellite and light it up. You will probably interfere with other satellites in the area, and in fact, that is what happened when we did this in the past. We found ways to muddle through and bring some additional capacity to bear, but it has generally been pretty ugly and expensive. It’s not a great solution.
VIA SATELLITE: Could multi-year procurements of comsatcom satisfy the bulk of bandwidth needs for the DoD or would a number of procurement models need to be employed?
Osterthaler: There is an ongoing procurement right now and that is called Pathfinder One. They are calling it a pathfinder because it really is a proof of concept for a new business model where the government buys capacity and is the owner of this capacity, as opposed to leasing it. That allows them to use procurement money. Pathfinder directly addresses this problem that we as the industry are starting to fear more and more: that we are not going to be in a position to respond when the government has a crisis. The Pathfinder initiative is the first of several that will attempt to expand on this concept, with the fundamental idea being that government will, in a sense, achieve owner-economics though buying long-term. More fundamentally, they will have assured access to whatever capacity they buy. They will not have to worry about whether or not it will be there.
VIA SATELLITE: Do you see Pathfinder as the right step forward?
Osterthaler: I think the use of procurement money is going to be an important enabler in order to create the future architecture I described. The use of procurement money enables the government to make commitments today for capabilities that are not available until sometime in the future. When you are just buying services, you are generally not able to do that.
VIA SATELLITE: What alternatives are there to building new satellites?
Osterthaler: If we had an idea that the government was going to need additional capacity, let’s say over Africa, for example, six months or a year from now, we would be looking at our fleet of satellites that have coverage in that area and asking ourselves “can we move some customers around and re-groom capacity on those existing satellites?” This way, six months from now if the government issues an RFP, we would be in a position to respond. You can’t do very much of that when you have a 30-day response window. You can do quite a lot more if you have six months to a year.
VIA SATELLITE: How would you define “spot-market” purchases in the comsatcom arena?
Osterthaler: The essence of a spot market purchase is where the customer is buying out of existing inventory and is placing an order now. You as the satellite operator do not have a chance to replace or move anything. You choose out of your existing inventory, you go to your price sheet and, based on the quantity and the duration of the lease your customer is contemplating, you quote them a price. The more you buy and the longer term you buy, the better discounts you get on the price.
VIA SATELLITE: Would you define this approach as primarily being a reactive procurement method?
Osterthaler: It is reactive in the sense that this kind of transaction would generally be undertaken by the Defense Information Services Agency (DISA) in response to a government customer requirement that they are attempting to fill. It is also reactive in the sense that the only opportunity to fill this kind of order for the industry is to provide it out of existing inventory. Reactive might not be the best term, but this a fairly limiting process in terms of what choices the government is going to be offered in response to their needs.
VIA SATELLITE: How would a more proactive approach to leasing comsatcom be of benefit?
Osterthaler: A less reactive process would be one in which the government makes their best effort to project where they are going to need capacity as far out as they can see, with an understanding that the level of uncertainty rises over time. This gives industry an opportunity to do some long-term planning. There are things we can do that are well short of building new satellites.
VIA SATELLITE: What risks, other than cost, are associated with spot-market purchases?
Osterthaler: The real risk is non-availability. When the government only buys short-term out of existing inventory and we are not planning on their behalf, they are assuming 100 percent of the risk of non-availability. If a crisis develops in some part of the world, and there isn’t any excess capacity there, we are simply not going to be able to respond. It may not matter how much money the government brings, if there is no capacity available, there is no capacity available.
VIA SATELLITE: An alternative to spot-market purchases could be longer-term contracts for the leasing of comsatcom. Why doesn’t DISA select this procurement method today?
Osterthaler: There are two reasons: First, DISA is constrained by procurement rules that discourage long-term leases, although Congress is showing some flexibility on this issue. Second, DISA is not always sure what it will need in the long term and does not want to risk buying the wrong capacity.