Reuters May 25, 2004
Military use boosts commercial satellite companies
By Michael Learmonth
NEW YORK (Reuters) - The U.S. military's increasing reliance on commercial satellites for transmitting everything from soldier e-mail to Predator aircraft video images has boosted profits at satellite operators such as SES Global , Pamamsat and Intelsat Ltd.
Military use of satellites, up sharply from Operation Desert Storm, has overwhelmed the capacity of the Pentagon's own communications satellites. Commercial satellites now handle an estimated 84 percent of military traffic in the Middle East.
"Military requirements for satellite services have far outstripped their own assets," said Tom Eaton, vice president of PanAmSat Corp. "They've been forced to reach out to the commercial satellite community."
Short-term and last-minute military buys have helped the troubled commercial satellite business weather a three-year downturn in demand from media and communications clients.
Northern Sky Research predicts U.S. government spending on satellite capacity will grow from an estimated $927 million in 2003 to $1.7 billion in 2008. U.S. military spending alone is expected to grow from $511.1 million in 2003 to $723.5 million in 2008.
Hoping to boost their market share, satellite operators created subsidiaries dedicated to selling bandwidth to the Department of Defense, the Department of Homeland Security and other government agencies.
SES Americom, a unit of SES Global, projects that its Americom Government Services unit will grow from 17 percent of revenue in 2003 to 20 percent this year.
PanAmSat formed its government services unit, G2, to focus on the military. Executives said G2 accounts for between 12 percent and 15 percent of PanAmSat revenue.
Intelsat, which was owned by a consortium of 100 governments before it was privatized in 2001, seeks U.S. military and NATO business through its Government Solutions Group.
INFLATED BUBBLE?
The military's use of satellite bandwidth exploded after the Sept. 11 attacks and has grown to 3200 megabits per second from 99 megabits per second during the first Gulf War. But some analysts view the military market as a bubble that will burst, or at least deflate over the next decade.
"For the last three years they have been buying all the bandwidth they can get a hold of," said defense analyst John Pike of GlobalSecurity.org.
The military buys commercial satellite capacity on an as-needed basis, but is reluctant to entrust top-secret communications to satellites built to send HBO or the Disney Channel to televisions in Bosnia.
"I don't think anyone in the Pentagon wants our military and intelligence communications to go over a commercial bird," said John Edwards, space systems analyst at Forecast International.
Several new generations of military communications satellites are under construction and scheduled to go into service over the next decade, promising to increase the military's bandwidth 10 times by 2012.
"The window is going to close," Edwards said. "The ultimate goal for the military is to rely solely on military satellites."
Northern Sky Research analyst Christopher Baugh doesn't see the window slamming completely shut, but rather a flattening of demand.
"Over time we do forecast decreasing return," Baugh said. "It's a sustained market, but we don't see it growing as it is today."
© Copyright 2004, Reuters News Service
