As many militaries across the world examine their forthcoming satcom strategies, a number of indicators in both the financial and satcom sectors, are flashing at amber, indicating that a big change is underway in the method by which satcom is used by both military and civil operators across the world.
An initial Commercial Satellite Strategy Perspective demonstrates that we are seeing the opposing strategies (satellite coverage versus satellite capacity) of these satellite providers play out. What I mean more specifically is:
The two most basic fundamental satellite attributes are coverage and capacity. Companies have had to choose which attribute (coverage or capacity) to prioritize in terms of their respective macro-business strategy.
Historically, nearly every satellite provider (except Viasat) initially prioritized their business strategy around global coverage. Companies like Inmarsat, Intelsat, SES and others built large constellations of dozens of low capacity (3-15Gbps) satellites to provide a thin layer of global satellite coverage. Because implementing this ‘coverage strategy’ required so many satellites, it was really expensive, thus these companies took on billions of dollars’ worth in debt to deploy large constellations of these low capacity satellites.
Viasat went the other direction and prioritized around capacity. Viasat-1 has ~140Gbps of capacity, but is limited to ‘local coverage’ over selected portions of the US. Viasat-2 has ~250-300Gbps of capacity, and expanded from ‘local’ to ‘regional coverage’ over all of North America, including the transatlantic bridge to the UK, so that Viasat could connect transatlantic commercial airline flights. Viasat-3 satellites will each have >1,000Gbps of capacity, and expand coverage to ‘full visible earth’ (such that just one Viasat-3 satellite will provide coverage for all of North and South America). This means that just three Viasat-3 satellites are needed to provide global coverage with unprecedented deep global capacity (>3,000Gbps). The implementation of Viasat’s strategy also requires much less debt, because each satellite in this technology progression (Viasat-1, 2 and 3) have such enormous advances in capacity that they practically generate enough revenue to pay for themselves and fund much of the development cost of the next generation satellite technology.
How These Strategies May Play Out
So how do these two competing strategies play out? Many believe that the companies that initially prioritized on coverage will find themselves coming under significant financial pressure. Why?
As Viasat-3 satellites attain global coverage, the global supply of on-orbit satellite capacity will increase by 10-100x, which will cause prices to decrease dramatically, for as we all know, as supply goes up, price goes down.
This is really good news for consumers, as consumers will get much more capacity at a much lower price. Also, more capacity creates a ‘richer’ network and this enables us to do things that were not possible before- enabling things like smaller antennas, advanced waveforms and real-time active cybersecurity because the additional satellite network capacity can now support these advanced capabilities. This is also very good news for consumers. Bear in mind also that all of these satellites cost about the same, regardless of their capacity. Thus, some in the investor community are forecasting that as satellite capacity goes up and prices fall, the satellite companies that have incurred such high ($B’s) debt will no longer be able to sustain their traditional dividend payouts or perhaps even cover their debt payments. This is because as prices fall, they will face increasing pressure to sell their satellite capacity below their cost in an attempt to retain subscribers. Additionally, these same investors speculate that low capacity satellite providers (like Inmarsat) will not have sufficient network capacity to support the advanced capabilities that high capacity satellite providers (like Viasat) will be able to routinely provide as a part of their global satellite services (such as smaller antennas, advanced waveforms and real-time active cybersecurity).
The bottom line is that if Viasat can really provide 100-1000x the satellite capacity with only a few Viasat-3 satellites, then those companies that have deployed 30-50 satellites, but only have 1/100 to 1/100 the global capacity will face real financial and competitive challenges. Investors doing this type of analysis are placing increasing pressure on the stock prices of companies like Inmarsat as investors anticipate how these two competing satellite strategies (prioritizing on coverage versus prioritizing on satellite capacity) will play out over the next several years.
Governments and MoDs should also watch closely how these ‘coverage versus capacity’ business strategies play out in the commercial market, and government’s should proactively adapt their forward-looking Acquisition Policy and Practice to leverage, exploit and generally take full advantage of this emerging transformational change in the satellite market to reduce satellite costs for defence while simultaneously empowering warfighters with significant new and enhanced capabilities enabled by these emerging ‘richer’ satellite networks.
UK MoD LE TacCIS Strategy
The MORPHEUS and Future Beyond Line of Sight (FBLOS)Programmes will deliver the next iteration of the Land Environment Tactical Communication Information Systems (LE TacCIS) capability, addressing critical system obsolescence and introducing capability improvements to enable better Command and Control. Its intent is to explore the scope for delivering efficiency and effectiveness benefits through improved programme coherence, systems engineering, exploitation of impending technology ‘shifts’ and optimisation of the supplier base, for example through taking an open systems approach. MORPHEUS will seek to harness civil commercial developments in mobile communication and computing and apply these to the military tactical space.
In an interview in early 2017 with Tim Gibson Vice President, Head of Defence and National Security Fujitsu UK and Ireland, ‘Information Superiority in a Network Enabled World By Julian Nettlefold. (See: BATTLESPACE UPDATE Vol.19 ISSUE 05, 30 January 2017), Tim Gibson commented on current MoD comms strategy.
“The UK MoD is certainly meeting the networks challenge head on and a new doctrine is being formulated to allow for flexibility of the armed forces when conducting operations. The Authority is making significant investments in both the Global Connectivity Contract and the new ‘Morpheus at Pace’ contract. For instance, fighting ISIS requires a totally different doctrine to fighting the Russians. The ISIS fight allows more use of UAVs and light forces given the fact that ISIS do not possess (yet!) combat aircraft and anti-aircraft systems capable of shooting down slow flying UAVs. The Russians, on the other hand, have sophisticated fighter jets armed with powerful air-to-air missiles and sophisticated radars as well as missiles and gun systems capable of shooting down UAVs. However, having said that, in both scenarios there has been a huge rise in the ability of electronics and EW in particular in today’s war. The use of Twitter and mobile chat in the defeat of the Iraq army at Mosul in 2014 is a case in point. It will soon be possible to bring down aircraft and UAVs by tampering with the software using advanced cyber techniques, the challenge is huge!” Tim Gibson said.
“Can you give us an idea of the tasks the MoD is facing?”
“In short huge! The MoD has decided that rather than place the management of the tasks with industry that it will be the Prime Contractor on such contracts as the Atlas run MoDNet, the next iteration of DII using Microsoft 360 in the Cloud, Morpheus, FBLOS, the Skynet 5 successor programme, Morpheus, BT’s voice and EE’s mobile programme. To that end the MoD has formed a huge team at Corsham to manage these systems. All major partners are called to a two hour teleconference meeting every Friday from 9-11 am to discuss developments and to iron out any problems.”
“Has today’s soldier got the wherewithal and training to fight on such terms?
“That is a very good question! The average 18-year-old today has the ability to connect to the web to find information 24/7and to speak to his or her friends at all times, so anyone choosing the military as a career requires such an ability on or off the battlefield. Hence the UK MoD is taking an approach that modernises the whole system from factory to foxhole. The first task is to expand the bandwidth available to meet the challenges of today’s Armed Forces. The new network will provide much greater network capacity with multiple 10 gigabytes links and excellent network resilience” said Tim Gibson.
Specialist communications companies like Welsh-based Spectra Group (UK) Ltd. are rising to the challenge with new products such as its Slingshot satcom system. BATTLESPACE interviewed CEO Simon Davies early in 2017. He won the BATTLESPACE Businessman of The Year Award 2017, presented at the 2017 SSAFA Raceday at Chepstow Racecourse.
Spectra Group (UK) Ltd is a world leading solutions provider of high grade information security and communication capabilities. Working with Defence & Security, Aid & Emergency and commercial organisations, Spectra is specialist in delivering comprehensive, robust, and reliable, solutions. First-hand experience of creating communications networks in the most austere environments, combined with a knowledge of satellite service provision that is second-to-none, allows Spectra to deliver outstanding service levels.
Gold-level partnerships with the major networking and satellite suppliers gives Spectra the ability to put together the best possible airtime packages and, in addition, Spectra has also developed its own systems such as SHADE™ and SlingShot®, to provide unique solutions to critical requirements.
“What took you into the satellite services business?” The Editor asked.
“We saw that as a natural progression from our existing networks business. We undertook a survey of clients in 2008 and found that there were very few companies offering a fully managed solution that provided end to end services. The proximity of the BT Madley satellite site gave us an instant platform to offer services across the world. We leased services and accommodation at Madley and won our first contract soon afterwards. We have now built our own tailor-made facility at a site near our HQ and use a number of global suppliers of satellite services to offer our clients a worldwide footprint. Our biggest partner is Inmarsat who have Global L- Band and Ka Satellite networks and who are also a partner for our SlingShot hardware; they recently placed a very large order on us for Slingshot equipment from a customer in Canada.” Simon Davies said.
“You moved into manufacturing in 2012. What would you say is your most important product to date?”
“Without a doubt, SlingShot. We started development of SlingShot in December 2012 and were in full production in August 2013. We have now sold over 2000 systems across the world and many new contracts are in an advanced stage and we are expecting a number of large orders over the next 6 months from various overseas organisations. The requirement was to deliver the benefits of UHF TacSat at a greatly reduced cost and without the limitation that exists on the number of available channels. SlingShot delivers this by attaching a small and lightweight appliqué by coax to the radio’s antenna connection. The appliqué converts the radio frequency to L-Band SATCOM frequency for both voice and data. The system is being evaluated by the UK MoD to enhance the existing Bowman system which will hopefully take the system to the level required by the new Morpheus Requirement. Global sales are conducted through a Distribution Channel Partner Network who provide equipment and services to end customers. The Channel Partners include; Inmarsat, Airbus, Trustcomm and Satcom Direct. We also subcontract elements of the manufacturing, such as the antennas, to specialist manufacturers based in the UK and California.”
Spectra Group (UK) SlingShot
Spectra continues to expand its SlingShot business with just over 600 SlingShot systems having been ordered across 4 continents since November 2017. 453 systems have already been delivered with 211 orders awaiting completion. This takes the total number of systems shipped since the system was launched to over the 3000 mark, further endorsing Spectra’s dominant position in the Tactical SATCOM market place.
Spectra’s SlingShot is a unique low SWaP system that enables in-service U/VHF tactical radios to utilise Inmarsat’s commercial satellite network for BLOS COTM. Including omnidirectional antenna for the man, vehicle, maritime and aviation platforms, the tactical net can broadcast over 1000s kms between forward units and a rear HQ, no matter how, where or at what speed the deployment. In addition to C2 voice, the system enables data capability supporting mission critical applications such as; artillery fire missions, GPS tracking and biometric analysis. With reduced cost compared to traditional TACSAT, increased channel availability and almost no increase in the training burden, SlingShot is redefining tactical communications. Spectra has strategic relationships with both Inmarsat, whose L-TAC™ service uses SlingShot and Airbus, which brands SlingShot as TREx services.
On March 13th Spectra Group (UK) Ltd, announced the receipt of a series of significant North American orders for SlingShot, Spectra’s BLOS COTM (Beyond Line Of Sight Communications On The Move) system for tactical radios. Already popular with specialist users in the US, in the run up to Satellite 2018 Spectra Group has received a total of 12 separate orders with a combined value of over GBP £2 million. The SlingShot orders have been placed by undisclosed US partners and are for use by a variety of end-users.
Simon Davies, CEO at Spectra Group (UK) Ltd said, “These recent orders further consolidate our position in the US market and prove, again, that SlingShot is fast becoming the system of choice for tactical radio users needing to increase range, flexibility and interoperability. Users are really beginning to understand the benefits that SlingShot brings with its excellent utility for coalition interoperability, customs and border patrol, anti-narcotics, maritime patrol, homeland security, National Guard, intelligence communities, police, and emergency responders.”
Airbus Skynet 6 Contract
The UK was expected to place a ‘like for like’ renewal of its Skynet 5 constellation with Airbus and continue the exiting PFI contract. However, given ‘lessons learnt,’ under the Skynet 5 contract which, albeit successful, is very costly to maintain and service, there was a change of strategy. The growth in satcom requirements led the MoD to look at its whole strategy and the £6 billion Future Beyond Line Of Sight (FBLOS) Requirement requires a mix of satcom and other means of transmission.
In addition, it was seen that to order all the satellites in one go meant that the UK MoD was stuck with one and ageing technology, as with Skynet 5. With an industry developing technologies at huge pace to meet the ever-growing civil requirements for aircraft and ships, the MoD ordered only one new satellite from incumbent Airbus.
On July 31st the MoD announced the selection of Airbus Defence and Space for the construction of the Skynet 6A satellite. An MoD spokesperson said, “The MoD intends to award Airbus Defence and Space Limited the single source contract for the manufacture, assembly, integration, test and launch of a SKYNET 6A geostationary military communications satellite. This will secure delivery of a sovereign and secure capability for the UK.”
The single source contract will have Airbus work on the manufacture, assembly, integration, test and launch of the new Brit MILSATCOM system, with Skynet 6 estimated start of life being mid-2025. Airbus has built four of the Skynet 5 spacecraft that are currently in service, having launched between 2007 and 2012. The British MoD operates the spacecraft as well commands the ground systems. Included in this contract are stop-gap satellites, the taking over of ground operations starting in 2022 and the provisioning of future SATCOM capacity.
This decision was reached in order to secure delivery of a capability meeting the MoD’s sovereignty and security criteria within the timeframe required. The more substantial and less time sensitive elements representing the remainder of the programme (the Service Delivery construct and Enduring Capability) retain their default competitive strategy. The first sovereign satellite for launch under this programme, SKYNET 6A, will deliver a space-based capability by mid-2025. This programme is aligned to the UK Space Agency Space Growth Action Plan with development of a UK capability reinforcing the demand for Science, Technology, Engineering and Mathematics. The UK conducts world-class innovation across all the major commercial technology sectors with national security applications. The MOD will continue to champion new approaches through bodies such as the Small Business Research Initiative to support Small to Medium Enterprises as part of the programme.
This move was believed to have been made to allow new technology to flow into the development for the next 5 satellites. The Skynet 5 bid was run on the basis that all six birds were acquired at the same time, leaving no room to install new technology.
In another move, in December the MoD announced that it was leasing satellite time for surveillance purposes, a first for the MoD.
In November, Andrew Chuter of Defense News reported that the British military is to test the ability of constellations of low-Earth orbit satellites to provide tactical intelligence gathering.
The UK military has taken a share in a prototype space vehicle about to be launched by Surrey Satellite Technology, or SSTL. The satellite, known as Carbonite-2, sometimes referred to as EiX2, will give the military hands-on experience on a spacecraft able to offer customers high-resolution, full-motion video imagery in color for intelligence gathering and other duties.
The Ministry of Defence’s involvement in what was previously a commercial program has not been officially announced, but a spokesman for the department confirmed they had struck a deal with a satellite builder to explore the space vehicles capabilities.
“We have entered into an agreement with a commercial satellite provider for a capability demonstrator program. Details remain commercially sensitive until after the launch of the vehicle. This program will play a crucial role in shaping our vision for a future constellation of small satellites, comprising a diverse range of sensors and ground stations, and offers the U.K. the opportunity to lead the development of that program,” the MoD official said.
Industry sources say the spacecraft is the Carbonite-2. The technology demonstration mission is scheduled to get underway late next month when India’s Polar Satellite Launch Vehicle lifts the spacecraft into low-Earth orbit.
The MoD spokesman confirmed they were committed to spending £4.5 million (U.S. $6 million) on a commercial satellite provider, but would not confirm it was in relation to the Carbonite-2.
It’s the first time the MoD has invested in this kind of space program since a joint venture with the then-British National Space Centre saw an SSTL-built demonstrator satellite called TopSat launched in 2005.
The 100-kilogram Carbonite-2 spacecraft is owned and operated by SSTL but is a prototype for a constellation of satellites ordered earlier this month by Earth-i , a British commercial imagery company.
Earth-i has ordered a batch of five satellites based on Carbonite-2 for delivery starting early 2019. Further spacecraft are expected to be added to the constellation subject to demand.
The constellation’s Earth-observation capabilities include the provision of high-frame rate images with resolutions better than 1 meter. The vehicle has the ability to film moving objects such as vehicles, ships and aircraft in ultrahigh-definition color video as well as undertake rapid tasking of satellites to take images or video and fast data download within minutes of acquisition.
How These Strategies Play Out
So how do these two competing strategies play out? Many believe that the companies that initially prioritized on coverage will find themselves coming under significant financial pressure and we have already seen examples of this in Intelsat’s latest financial reports highlighting the volatile nature of competitive pricing.
This pricing pressure is expected to get worse as Viasat-3 satellites attain global coverage because the global supply of on-orbit satellite capacity will increase by 10-100x, which will likely cause prices to decrease dramatically, for as we all know, as supply goes up, price goes down.
This is really good news for consumers, as consumers will get much more capacity at a much lower price. Also, more capacity creates a ‘richer’ more resilient network that enables things that were not possible before; like smaller antennas, advanced waveforms and real-time active cybersecurity. This is also very good news for consumers.
All of these satellites cost about the same amount of money to develop and deploy regardless of their capacity or their producer. Thus, some in the investor community are forecasting that as satellite capacity goes up and prices fall the satellite companies that have incurred high ($B’s) debt will no longer be able to easily cover their debt payments. These investors believe that as prices fall the low capacity suppliers will face increasing pressure to sell their satellite capacity below cost in an attempt to retain subscribers.
Additionally, these same investors speculate that low capacity providers will not have sufficient network capacity to support the advanced capabilities that high capacity satellite providers (e.g. Viasat) will be able to routinely provide as a part of their global satellite services and will therefore face a competitive disadvantage beyond simple cost.
The bottom line is that if Viasat can really provide 100-1000x the capacity with only a few Viasat-3 satellites, then those companies that have deployed dozens of satellites, but only have 1/100 to 1/1000 of Viasat’s global capacity will face real financial and competitive challenges.
Investors doing this type of analysis are placing increasing pressure on the stock prices of companies like Inmarsat and Intelsat as investors anticipate how these two competing satellite strategies (prioritizing on coverage versus capacity) will play out over the next several years.
International Governments and Militaries should also watch closely how these ‘coverage versus capacity’ business strategies play out in the commercial market, and governments should proactively adapt their forward-looking Acquisition Policy and Practice to leverage, exploit and generally take full advantage of this emerging transformational changes in the satellite market to reduce satellite costs for defence while simultaneously empowering warfighters with significant new and enhanced capabilities enabled by these emerging satellite networks.