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.
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.
“Despite the growth in popularity for Inmarsat and now Viasat services by the military worldwide, both seem to have left the field of secure, defined, in its fullest sense, milsatcom to the provision of dedicated satellites by the likes of Boeing, Airbus, and others.” A source told BATTLESPACE.
“We have known each other many years and have witnessed the extraordinary changes in the military communications market from Software Defined Radios, JTRS and Bowman thru network centric warfare to today’s soldier armed with a mobile phone and satcom. What is the greatest change you have seen in this period?” The Editor said.
“You are right, technology has developed in leaps and bounds, but the greatest change has been the move from government funded systems to governments buying technology developed by civil companies. A good example of this is the iPhone and Blackberry now in regular use by armed forces across the world. Viasat’s approach runs counter to most government satellite systems. A good example of this is the US Wideband Global Satellite (WGS) System. When it was conceived it was seen as the state-of-the-art in satellite systems, with a capacity of 2.1 to 3.6 gigabytes per second, which in itself, was ten times more than the legacy defence satellites. ViaSat-1, on the other hand, launched in 2011 and has a satellite capacity of more than 140 gigabytes per second. ViaSat-2, launched in 2017, has ~300 gigabytes per second; whilst ViaSat-3 to be launched in ~2020 will have 1 terabyte (1000 gigabytes) per second. Each ViaSat-3 satellite has more than 200 times more capacity than a WGS satellite! This is a complete game changer in terms of what can be achieved in terms of data transmission, images, video conferring and cloud computing from our systems. For the first time military users will be able to access the Cloud direct from the front line, aircraft, ships and vehicles.” Ken Peterman replied.
“What makes Viasat different than its competitors?”
“We are definitely a unique company! We have more defence experience and capabilities than other commercial companies in terms of our tactical networking, cybersecurity, satcom and broadband services offerings. We also offer more innovative business models compared to pure-play defence companies, so we can take advantage of the best of both worlds. We have key knowledge and insight into emerging threats and mission capability gaps, while at the same time operating under a commercial business model that enables us to be innovative with an agile development process, flexible business model and cutting-edge technologies. These attributes allow us to fulfill the evolving and emerging needs of the warfighter with proven operational solutions that create new and enhanced mission effects on a very rapid timeline.
Our differentiation is highlighted by our performance in the market. According to Defense News, 37% of the Top 100 Defense Primes saw negative growth in 2016, while Viasat’s Government Systems segment marked another record quarter of operating profit driven by revenue growth of 7% year-over-year. This growth was achieved, in large part, due to increased interest in our tactical data link products, government mobility platforms, and secure networking products – all of which solve real-world warfighter problems in a rapidly changing macro defense environment.”
Viasat’s strategy was recently rewarded with a large $350 million U.S. Special Operations Command (USSOCOM) contract.
On December 21st the DoD announced that Viasat Inc., Carlsbad, California, an estimated $350,000,000 single award indefinite–delivery/indefinite-quantity contract for mission networking sustainment in support of U.S. Special Operations Command (USSOCOM) procurement division. Fiscal 2017 research and development funds in the amount of $316,800 are being obligated at time of award. The work will be performed primarily at Viasat’s facility; and USSOCOM mission units, and is expected to be completed in December 2022. This contract was awarded through other than full and open competition under Competition in Contracting Act exception – 10 U.S. Code 2304(c)(1). U.S. Special Operations Command Contracting office, Tampa, Florida is the contacting activity (H92222-18-D-0003).
This is an IDIQ contract with an initial ceiling of $350 million. The contract award is for advanced equipment, systems, services and support. The contract is structured to expand and evolve over time; keeping pace with the rapid technology advancements Viasat is making in the mobile networking, cybersecurity and broadband satellite communications technology sectors. The flexible nature of the IDIQ will allow SOCOM to rapidly acquire, deploy and evolve a wide variety of new operational capabilities, terminals, products, systems, services, support and sustainment in support of current and future SOCOM missions. These technologies have clear applicability in SOCOM market adjacencies such as the UK.
To reflect this growth, on December 14th Viasat announced it that it had officially opened new offices in Austin, Texas; Seattle, Washington; and Amsterdam, Netherlands. The new offices aim to drive innovation across a number of technical and engineering disciplines by leveraging the talented candidate pools in the local regions.
- Viasat Austin: The Viasat Austin office will be a hub for the Company’s growing DevOps teams to support its satellite services platforms; cloud and infrastructure engineering groups; security engineering and automation teams; and the Company’s expanding data science group. The new office is located at 111 Sandra Muraida Way, at the north end of the Lamar (Pfluger) Pedestrian Footbridge spanning Lady Bird Lake, in the newly transformed Seaholm EcoDistrict. The office will employ more than 50 employees, with plans to double its headcount by mid-2019. Viasat expects to add software engineering positions, across multiple technical disciplines, based on Company needs.
- Viasat Seattle: The Viasat Seattle office will be a growing hotspot for Viasat software engineers, developers and data scientists focused on cloud-based services. Temporarily located in historic Pioneer Square at 111 South Jackson Street, this new engineering center will help Viasat expand its cloud and software-as-a-service technology expertise. The office will be home to engineers from across the Company’s business areas, including security, commercial networks and infrastructure.
- Viasat Amsterdam: The Viasat Amsterdam office will be a research and development (R&D) center dedicated to the development of satellite access network (SAN) subsystems, embedded cloud-based software and ground segment infrastructure for the ViaSat-3 satellite platform as well as customer presence equipment logistics for Europe. The new office is located in Vijzelstraat 68-72 1017 HL Amsterdam and is ideally located to assist in establishing partnerships with satellite, technology and broadband companies across Dutch and other European countries.
“Viasat works on extremely difficult communications challenges – like how to bring high-speed, high-performing internet to the hardest-to-reach places,” said Rick Baldridge, president and chief operating officer, Viasat. “By opening new offices around the globe, we can offer candidates an opportunity to work on challenging programs that have a real impact on how the world communicates.”
Baldridge continued, “Each of these cities—Austin, Seattle and Amsterdam—are highly respected, growing cities with a booming technology sector. We look forward to engaging with potential candidates, university systems, local industry and government delegations, as we focus on attracting new, qualified team members to help us expand and innovate our software platforms, technical infrastructure and security toolsets.”
Separately, Viasat provided an update on its expanding headquarters in Carlsbad, Calif. The new 23-acre campus expansion, located across the street from the Company’s existing headquarters, was designed to embody Viasat’s culture of creativity, exploration, freedom and innovation, as well as foster interaction between employees, clients and visitors. The space can accommodate six new office buildings, three parking structures, a cafe/conference center, recreational amenities for employees and an outdoor space providing ‘unexpected experiences’ and displays of Viasat’s latest technologies.
In another announcement on Viasat annonced on Januray 3rd 2018 that it had been awarded a contract to upgrade the NATO UHF satellite communications (SATCOM) control stations to comply with the Integrated Waveform (IW) baseline. The upgrade gives NATO greater communications interoperability, scalability and flexibility across legacy and next-generation platforms to enhance situational awareness as the battlespace dynamically expands.
As part of this award, NATO will upgrade its legacy UHF communications network to Viasat’s Visual Integrated SATCOM Information, Operation and Networking (VISION) planning and network management platform, the first commercially-available software package to simultaneously support all 25-kHz legacy Demand-Assigned Multiple-Access (DAMA) and next-generation IW networks and services.
The Viasat VISION platform gives network operators real-time capabilities to reconfigure UHF satellite networks to meet new mission profiles on-the-fly. By enabling interoperability between DAMA and IW platforms, NATO can double its channel efficiency without additional investment in the UHF space segment. This optimization doubles the number of users, giving more warfighters access to reliable, high-quality, resilient voice and data communications.
“Networked forces need to be able to receive and execute orders dynamically in the fog of war. With the Viasat VISION platform, we can use our UHF space segment more efficiently as it more than doubles our existing UHF user access,” said Giovanni Battista Durando, NATO Communications and Information Agency, Network Services and IT Infrastructure, Satcom Service Area Owner. “We believe the Viasat VISION platform will give NATO network operators more control over communications stations from a single terminal, simplifying operations and offering multi-site flexibility to ultimately increase the network readiness of the warfighter.”
The Viasat VISION platform provides a single user-friendly network management interface for legacy DAMA and IW services, inclusive of the ability to locally or remotely manage and control ground station networks, monitor status and system performance, track event/alarm management situations and add/remove services when missions change.
“Frontline warfighters need assured, reliable real-time communications in order to safely execute their missions, especially at the tactical edge,” said Ken Peterman, president, Government Systems, Viasat. “Viasat is a global leader in UHF channel control capabilities. Our innovative VISION platform leverages Viasat’s decades of UHF SATCOM expertise to enable cost-effective, scalable, interoperable UHF bandwidth from multiple NATO partner nations to support dynamic mission requirements – all without the need for a costly user radio replacement.”
Inmarsat was quoted in the Investor’s Chronicle, Bearbull Income Fund’s 2017 roundup. This new technology has reflected in the sudden drop in Inmarsat’s shares in 2017. Mr Bearbull of the Investors Chronicle had bought Inmarsat with the belief that its new GlobalExpress constellation would generate huge revenues to pay the huge upfront investments in the new constellation.
The Bearbull Income Fund’s latest holding – satellite communications provider Inmarsat (ISAT) – had tanked and an investment from late 2015 – student accommodation provider Empiric Student Property (ESP) – wasn’t far behind. Losses sustained on these two in the second half of 2017 – Inmarsat shares were only bought in August – are £11,000, which has removed over 3 per cent from the fund’s value. That isn’t catastrophic, but it means gains in the second half will be only nominal. Intriguing speculation surrounds both companies, especially Inmarsat where the contrast between what its bosses say and what the market portends via the share price could hardly be more stark. Inmarsat is dashing for growth as it attempts to capture enough of the newish market to supply broadband via satellite, particularly to in-flight passenger aircraft. To the winners, providing in-flight connectivity should mean a plentiful stream of cash profits. But Inmarsat’s window of opportunity is limited, the market is competitive, agreeing contracts with airlines takes forever (each deal is bespoke) and the upfront capital spend is daunting. These factors will drain profits and cash flow in both 2017 and 2018 more than was guessed 12 months ago. That much is acknowledged both by Inmarsat’s bosses, City analysts and institutional investors.
As to the divergence between the ostensible confidence of Inmarsat’s bosses and the message coming from the share price, Inmarsat’s chief executive, Rupert Pearce, says the seamless coverage provided by Inmarsat’s Global Xpress broadband network puts it in a strong position and that “we are probably doing better than anyone else in the market right now”. Meanwhile, the share price says Inmarsat is a wreck. At 462p, it is 60 per cent below its all-time peak, hit just two years ago. More telling, if 2017’s final dividend were maintained, the dividend yield would be 9.1 per cent. Yields of that level don’t emerge from trouble-free companies. Rather, they signal strongly that the payout is unaffordable and will be slashed. Yet that was the elephant in the room during the company’s Q&A with City analysts for the third-quarter results last month. In a strange dance, both Inmarsat’s bosses and the analysts avoided any mention of the subject.
This has left me reworking my valuation figures. A level of about £11 a share (see Bearbull, 28 July 2017) now looks too optimistic. Focusing harder on cash profits – rather than the accounting variety – reduces the annuity value of the average annual free cash that one could expect from Inmarsat based on the past five years. That value now lies pretty much in line with the share price. Besides that is the great unknown – how much value to give to the barrow loads of capital spending Inmarsat has done in the past five years and will continue to do for another two. Tweaking the assumptions – chiefly, the discount rates used – can generate almost any figure you want.
However, the core message is that the overall value should be – but only ‘should be’ – still well clear of the 462p share price. In which case, I am holding on, but with a sense of foreboding.
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 Herefordshire-based Spectra 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.
“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.”
SlingShot, a small external adaptor for military radios, allows low-latency voice and data tactical communications, with the additional option of connecting to an out-of-theatre rear-base command node. Using Inmarsat’s world leading satellite communications network, SlingShot gives the unique capability to access single-hop L-L band relay from an existing global constellation of geostationary satellites. A Walk-on system was launched at DSEI in 2015, which added an Aviation capability to the existing Manpack, Vehicle and Maritime systems. SlingShot is radio agnostic and can be bolted onto existing tactical radios without compromising the crypto system. The SlingShot capability delivers a tactical command and control COTM system to complement UHF TacSat. Conceived and designed in direct response to military requirements, it already offers clear benefits to those engaged in high-tempo operations, which require reliable and robust BLOS COTM. (See: Spectra – A Growing Concern, By Julian Nettlefold, BATTLESPACE UPDATE Vol.19 ISSUE 05, 30 January 2017)
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.
Maintaining domestic space capabilities, in August, the British MoD awarded Airbus with a contract that will see the current Skynet 5 SATCOM constellation being replaced by Skynet 6, as the earlier satellites in this system are going to be reaching their end-of-life. 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.
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.
SSTL, an Airbus subsidiary based in Guildford, southern England, did not return calls by Defense News.
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. So, in turn, this is also very good news for defence and military organizations across the globe.
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.