PanAmSat Corp. [SPOT], SES Americom and Intelsat Ltd. have positioned themselves to tap into the U.S. government’s demand for satellite services, one of the few segments that is showing growth during this economic downturn. Key drivers of the growth are the need for satellite capacity to aid the Department of Defense and homeland security.

As part of its strategy to tap this market, PanAmSat recently acquired Hughes Global Services (HGS), a unit of Hughes Electronics [GMH] that serves the government market. PanAmSat has renamed the unit G2 Satellite Solutions. PanAmSat wants G2 to develop a range of satellite and value-added services to support the global requirements of the U.S. government and its numerous agencies, explained G2 President Tom Easton.

Battlefield communications, surveillance and weapons guidance requirements of the U.S. military are growing by the minute, said Joe Wright, president and CEO of PanAmSat. In addition, future homeland-security communication requirements will fuel demand for satellite services.

Until recently, Intelsat dominated the U.S. government market because of its status as an intergovernmental organization. Now that Intelsat has been privatized, the government market should be opening up for other operators, Wright said.

Eaton added, “We believe that there is room for improvement in helping the government [use] commercial space segment. The government now is forced to go out and look for space segment on the spot market. The government should follow a more commercial, best-practices model.”

The U.S. government has committed to boost its use of commercial satellite capacity, Wright said.

“From our point of view, we starting getting interested in the federal government about a year or two ago,” he explained. The terrorist attacks of Sept. 11, 2001, had a big impact on expanding government demand for satellite capacity, he added.

The acquisition of HGS gives PanAmSat a General Services Administration (GSA) contract that otherwise might have taken more than a year to obtain. The GSA contract qualifies the company to provide services to the government.

PanAmSat’s satellites with the lowest commercial utilization could be those in highest demand by the government, Wright said. In addition, new satellites could be built that would offer additional transponders for U.S. government users, he added. The company currently has 11 satellites in the U.S. orbital arc.

Eaton, who retains his role as PanAmSat’s executive vice president of global sales and marketing, said it is only a matter of time before all the technology and bandwidth applications are deployed for the U.S. government’s defense of the homeland.

Still unclear is how contracts will be awarded by the new Department of Homeland Security.

“We believe that satellites will play a very important role in homeland security,” Eaton said. “We are positioning the company to provide solutions to support homeland defense.”

The U.S. government already is the largest customer of commercial satellite services in the world. With government demand exploding, many satellite services providers and contractors are converging on decision-makers in Washington to lobby for business, Eaton said.

A recent report by the Defense Information Systems Agency (DISA) found that the U.S. military’s need for commercial space segment rose 663 percent to support deployments during the past decade. The comparison is based on space segment needs during the 1991 “Desert Storm” conflict in the Persian Gulf and the recent “Enduring Freedom” military campaign in Afghanistan.

The military now uses “predator” vehicles and other equipment with bandwidth-intensive applications, Eaton said. The enormous size of the DoD communications market is reflected in its role as the nation’s largest employer, with approximately 1.4 million men and women on active duty and 654,000 civilian personnel.

Prior to its acquisition, PanAmSat had a small team devoted to government satellite services. Its new G2 unit has a large staff of people who possess security clearances and understand the right sales channels. No “significant changes” are expected in staffing, Eaton said.

G2 staffing levels depend “totally” on government demand for commercial satellite services to fill in gaps in government satellite coverage, Wright said.

The unit’s new name was influenced by the use of the term “G2” as a military acronym for intelligence inside the Washington Beltway, Eaton said.

G2 will operate as a stand-alone company. It will leverage PanAmSat’s satellite infrastructure but use whatever satellites best suit the needs of a particular customer, Eaton said. If those satellites belong to a direct competitor, the rival will win the business, he said.

“The capacity that is used is secondary to meeting [the customer’s] needs,” Eaton said. “We will not be setting up a preference for our own fleet. It is not about selling bandwidth. It is about selling a service.”

Prior to the acquisition, PanAmSat satellites were used to provide roughly half of HGS’ services, Wright said. “Now that HGS is part of us, we will deal directly with the government,” he said.

PanAmSat brings “engineering expertise” that will aid G2’s focus on business development, Eaton said.

Day-to-day management of G2 will be the responsibility of Senior Vice President Don Gonzales, a 30-year veteran of Hughes who will report directly to Eaton. G2 will focus strictly on government applications and not stray into PanAmSat’s commercial markets, he added.

Americom Dream

David Helfgott, president and CEO of Americom Government Services (AGS), a unit of SES Americom, notched a 15-percent revenue jump last year. He expects at least the same growth rate this year.

“The U.S. government is the largest purchaser of space segment and value-added services and networks,” Helfgott said. In addition, the U.S. military generally is the largest part of the government’s spending on satellite capacity, he added.

AGS boasts a 30-year history in the government satellite communications market. The company provides federal agencies with broadband communications for both routine and mission-critical applications. As part of the U.S. unit of Luxembourg-based SES Global [SES.LU], AGS has access to a fleet of 41 satellites around the world.

The government business for AGS is roughly 60 percent defense and 40 percent civilian. The civilian government agency users include the National Aeronautics and Space Administration (NASA) and the Department of Commerce.

AGS was recently awarded a GSA contract that will allow federal agencies to purchase capacity on select spacecraft and up/down link services. The schedule also includes technical and regulatory support for AGS satellites, as well as the necessary engineering and consulting services such as network development and project implementation.

With the GSA schedule in place, AGS can meet the needs of its government clients more effectively through a streamlined process, said Helfgott.

AGS now is better prepared to tap the “exciting growth wave” for satellite services to support U.S. homeland security. “The homeland security requirements are being driven from the bottom up,” Helfgott said. One possible user is the Transportation Security Administration (TSA).

An advantage that AGS and PanAmSat offer compared to Intelsat is the availability of satellite capacity over the continental United States.

Even with G2, PanAmSat still lacks the global coverage that SES can deliver, Helfgott argued. PanAmSat is “very strong” over the Americas, “pretty strong” over Asia but just “okay” over Europe and the Middle East, he explained.

Three keys to serve the government market, said Helfgott, are a track record of performance, global reach, and delivering services, not just leasing capacity. “If you don’t have all three ingredients, you can come up short,” he said.

Helfgott admitted that SES’ rivals have some strengths as well. “Intelsat has a long history of working with the government,” Helfgott said. “PanAmSat’s strengths are providing services.”

The government market should benefit from three “strong competitors” vying for its business, he added.

New Skies Satellites [NSK] and Eutelsat are lesser factors in the government services market, Helfgott said. New Skies inherited government customer lists as a spin-off of Intelsat. On the other hand, it has limited capacity and reach, he added. Eutelsat is a late entrant into the government services market. It had the good fortune to have satellites able to serve the Middle East when such capacity came into high demand, he noted.

Entrenched Intelsat?

Susan Miller, president of Intelsat Government Solutions, said her company’s 30-plus years of service to the government market shows it can deliver reliable capacity. “We have global coverage and the right kind of satellite beams,” she said.

Intelsat is tapping into the increased military demand, Miller said. Intelsat Government Solutions, a wholly owned subsidiary of Intelsat USA Sales Corp. focuses on maintaining and developing government customers located in North America and Europe.

At least 70 percent of Intelsat Government Solutions’ revenues come from military business, said Britt Lewis, director of sales, marketing and business planning at the Intelsat unit. And this percentage has been on the rise, Lewis said.

Intelsat is looking to supplement its coverage over North America, which Miller admitted falls short of its rivals. One way is through strategic investments in other systems.

For example, Intelsat recently invested in the proposed satellite broadband service WildBlue. WildBlue is expected to become the world’s first commercially dedicated all-Ka- band, multiple spot-beam broadband satellite service when deployed into service next year. The system is intended to provide affordable broadband services to consumers and small businesses. Miller sees a role for WildBlue in providing high-speed U.S. domestic coverage that could be used for homeland security.

“We want to look at that asset for serving this other segment of the marketplace,” Miller said about WildBlue. One possible use would be in border security communications. Intelsat not only serves the U.S. government but also the governments of NATO countries, she said.

While WildBlue might help plug Intelsat’s gaps over North America, SES Americom will keep a substantial advantage in the U.S. market.

Intelsat does have “consistent and high demand” for its existing capacity. And demand has grown since the terrorist strike on Sept. 11, 2001, she said. One consequence of those attacks is that U.S. embassies are taking a fresh look at their communications networks and are looking at ways to add security applications, Miller said. Intelsat is helping embassies upgrade their data, voice, video conferencing and imagery capabilities, she added.

Intelsat has continued to expand its global satellite fleet by launching replacement satellites into orbit in key regions throughout the world. The additional capacity allows Intelsat to be flexible in meeting the needs of government and military customers, she added.

Intelsat currently has contracts with commercial distributors and a GSA contract, Miller said.

Intelsat also demonstrated its commitment to the government services market recently by creating the new business unit that Miller heads. The move leaves Intelsat “well- positioned” to focus on the market and able to sell more advanced services, in addition to transponder capacity, Miller said.

Roger Rusch, president of the TelAstra consultancy, commented that “there certainly are indications that the U.S. government needs more capacity than it is using right now. However, the government is challenged in tracking how much satellite capacity it needs or uses. The reason is largely due to the process used by the government for acquiring its communication services. Either the government owns its capacity or it leases capacity under conditions that are not precisely measured.”

–Paul Dykewicz

(Joe Wright, PanAmSat, 203/210-8606; Monica Morgan, SES Americom, 609/987-4143; Susan Gordon, Intelsat, 202/944-6890; Roger Rusch, TelAstra, 310/373-1925)

Reasons For Rising Government Use Of Satellites

• The Defense Department has called for the use of commercial satellites and services to supplement the needs of intelligence and defense agencies because current demand for these services exceeds the government’s capacity.
• Satellites provide the best opportunity for quick mobile deployment of assets.
• Technology requirements after Sept. 11, 2001, have risen faster than the government expected.

Source: Americom Government Services