“We are not pushing for the two consortia to join together, definitely not,” Rainer Grohe, executive director of the Galileo Joint Undertaking (GJU), told Satellite News when asked whether the GJU was trying to push the two consortia to join forces in the running for the concession contract.

The speculation that the concession would be awarded to the remaining bidders has gained momentum since March 1, with the somewhat surprising decision that the GJU, the organization formed to award the Galileo concession, would resume negotiations with both consortia in parallel for the lucrative concession contract to operate the European Union’s (EU) Galileo satellite-based navigation system. Benoit Denis, research analyst at Frost and Sullivan previously told Satellite News that the GJU “may want to push them [the two consortia] to merge as the EU has on other projects, [like it has done] for space exploration for instance.” (SN, March 7). Additionally, Finmeccanica Chairman Pier Francesco Guarguaglini was quoted in recent news reports that he believed that the delay in the awarding of the concession was to allow for negotiations to bring the two consortia together. Finmeccanica, along with Alcatel and Hispasat, are the lead companies in the Eurely consortium. They are competing with the iNavSat consortium, led by EADS Space, Inmarsat and Thales for the concession.

Grohe, however, refuted those allegations and said that he still expects the GJU to ultimately choose one of the consortia for the project. “We will confront them both with most likely a maximum of four criteria and our proposals to how we would deal with real crucial items of this concession contract,” he said. “Then we will see the response and I expect that will lead us to the conclusion that one is better than the other and we should then continue the negotiations with only one consortium.”

Benefits of Having Extra Time

“We have two very attractive proposals,” Grohe added. “I would like to explore how good they really are and how committed the bidders are to these proposals. I would like to see it from both of them. In theory it would be the best solution to negotiate with both bidders until the very end and then make a decision. As long as you have competition, you will achieve more. That is one side. The other side, in the course of the negotiations, is getting more difficult to distinguish. Here, we have a number of different criteria to take into consideration and try to achieve the optimum [result].”

However, while Grohe denied that he is pushing both consortia together, he also said the GJU would look at the situation if the two consortia decided to join forces on their own. He commented, “The reason we have decided to do this is that we feel this is the best way for the public to have as much competition as possible In terms of pressure, competition, challenge for the bidders, it is much better to have two rather than one in the race. That is already indirectly answering your question about a potential merger. First of all, it is certainly not in the best interest of the public side to encourage a merger.”

He continued, “Secondly, we have set clear rules and regulations in case the companies involved in the process would develop the idea of a merger at a later stage. They would have to ask us. We would carefully scrutinize that and then we would make a decision. They would not be allowed to do it without our prior approval.”

Consortia Reaction

The decision by the GJU to continue the negotiation process has come as a surprise. Jean-Francois Bou, Galileo Program Director at Thales, which is part of the iNavSat consortium told Satellite News, “I am not in a position to comment on whether one of the proposals was better than the other. Given the complexity and magnitude of the program, in addition to the extensive preparation carried out, it is surprising that the GJU did not consider itself in a position to select a preferred bidder.”

In terms of the differences between the respective proposals, Bou added, “If you take a look at the structure of the consortia, they are operating on different qualifications. I would assume, given their respective background, that the bids should be substantially different, at least for the operations, deployment and development of services. iNavSat, with Inmarsat, EADS and Thales is probably more orientated toward high-end markets, defense, aerospace and professional markets. But, we also have some good ideas for the mass market and road applications. Thales is quite active in the satellite navigation equipment and services areas. But I think we are bidding more on the Galileo differentiators which are related to safety of life services and government services, whereas the other consortium would probably be more inclined toward telecom-related services.”

The possibility of the two consortia joining together is not something that Bou would rule out either, and he sees some potential synergies between the two, which could lead to cooperation. “You can say that with the two consortia coming from different backgrounds, there could be some merits in a joint approach,” he said. “It could be valuable in terms of the market. Within the framework of Galileo Industries, we are cooperating on the development phase. We are part of the same prime contractor, Galileo Industries, and ultimately there may be a synergy in terms of geography and in terms of market. There are probably some complementary elements. I am not saying the two consortia should be merged. I am saying that, given the present situation, some kind of joint approach could be considered, if the customer so wishes.”

Jean-Claude Dardelet, vice president of European affairs of Alcatel Space and director of the Eurely concession, told Satellite News that he found it “bizarre” that after so much time, the bids can still be so equally matched.

“The decision by the GJU was a surprise to everyone,” Dardelet said. “We all expected a decision, because the decision had already been postponed. It was especially a surprise to us, because we really believe our offer goes far beyond what the EC could expect. This has been recognized by all the banks that support us. In terms of an overall majority, the financial institutions are supporting Eurely. It was a surprise, because in a large selection process, it almost never happened that it lasts so long, that the bidders remain bizarrely equal.”

In terms of whether the two consortia can or will join up, Dardelet believes differing statements in the press are making it difficult to judge whether this is a realistic prospect. “There are a number of contradictory discussions on the subject,” he said. “You read statements from very knowledgeable people such as Roger Maurice Bonnet from the European Space Agency (ESA) who said that a merger is inevitable. You can see in the newspapers statements from certain countries, for example Germany, which we do not understand at all, where they openly conclude that one consortium is better than the other. We regret that officials now want to influence the evaluation process.”

Dardelet added, “Let us make it clear, we are looking for a signal in terms of what the public sector would want from us. Today, the signs seems to be in favour of getting closer and that Europe can offer one winning solution to its taxpayers. When you see all the countries joining Galileo, you see that they are organizing their industry where the country wins. At Eurely we remain, however, certain that our offer is the best one for Europe.”

When directly asked as whether the two consortia joining forces was a realistic possibility, Dardelet said, “Everything is possible. We have looked at numerous possibilities throughout the last few years. We are seeing that people are saying that one consortium is more Germany, England, France and the other is more France, Italy, Spain. I think it is a mistake to oppose Northern and Southern Europe against each other. As to the Eurely consortium, we have also thousands of employees and numerous interests in the United Kingdom and Germany for example. Eurely is more than anyone else European in a very balanced and fair manner vis-a-vis all the European Member States.”

In terms of the merits of its bid for the contract, Dardelet said, “Our political advantage is that we fully support the main objectives of Galileo, which is European independence, for example through system operation. The operation, as we see it, should be fully handled by public and private European actors for Europe using existing assets and resources. On the economic side, our main advantage relies on our outstanding knowledge of the commercial markets, aiming to relax the European tax-payer from paying for Galileo in the long run, whereas the other consortia relies more on the public resources to make Galileo sustainable.”

Competitive Imbalance?

One of the other issues raised is whether by awarding the contract to one consortium, this would create a competitive imbalance in terms of Europe’s satellite landscape. Responding to this, Grohe said, “Historically, this industry is not used to having winners and losers as they are working with European projects, so this might create some problems for them to understand. From our point of view, it would be positive to have one leader in the game. If we have a clear leader, there will be a clear structure, decision lines and power to take decisions. This is positive for the public side. The question of imbalance, you can see it from two different angles. If the two consortia join together, there could also be an imbalance. It makes no difference at all.”

Early Integration of EGNOS

Grohe still expects the concession contract to be signed this year. In assessing the main challenges this year, he said, “What we are aiming for is that we are still signing the concession contract at the end of this year. So, there is no change. The industry needs 48 months for the realization of the development phase.”

“In the future, we will have to manage the industry via ESA in order to fulfil this task from 2005 until the end of 2008,” Grohe added. “So, this is the main issue. In addition, we will start with the operations of EGNOS (European Geostationary Navigation Overlay Service) and we have to make a decision in terms of how we are dealing with the concessionaire and whether we are going for separate economic operators for EGNOS, or start with the selected concessionaire. It seems to be very attractive to go with what we call an ‘early integration’ for EGNOS meaning that the concessionaire should operate that system. It is not yet decided, but that is a very attractive option.”

International Involvement

While the outcome of the concession contract will continue to be the dominant issue, there will be other issues, such as the involvement of other countries in the Galileo project. Last October, GJU announced that the Chinese National Remote Sensing Center (NRSCC) had become a member of the GJU. Other countries are expected to be involved.

“We are very close to an agreement with Israel and there are others to follow,” Grohe said. “To implement their contributions in the program is also a task for the next two to three years. We had productive discussions in Israel last week. We expect to come to terms with them at the end of April having come to an agreement. We have a number of countries that have expressed their interest to join us, like Korea, Ukraine, Argentina, Brazil and others. I expect a number of countries will join us in 2005.”

200,000 New Jobs

In terms of the significance of the Galileo project for Europe, Grohe said, “it will create new activities, new technologies and new areas of technology that we are not even dreaming of today. In terms of jobs, in the space industry as well as applications of the system, I believe we will have up to 200,000 new jobs. Finally, if you are going back to the strategy making Europe the competitively driven technology region in the world, Galileo will contribute to that.”

–Mark Holmes (Laurent Zimmermann, Alcatel Space, laurent.zimmermann@space.alcatel.fr; Hans Peter Marchlewski, Galileo Joint Undertaking, hans.marchlewski@galileoju.com; Verena Adt, Thales, verena.adt@thalesgroup.com)