Supplier-customer tension is a natural and mostly healthy dynamic in any industry, and satellite telecommunications is no exception. Here it is evident in several areas, most visibly between satellite operators and launch service providers, who perpetually disagree over pricing and the appropriate balance of supply and demand. This running debate isn’t likely to subside anytime soon, especially with the number of available commercial rockets set to increase on the eve of what could be a significant drop in demand. But another parley taking place between satellite operators and manufacturers is every bit as deserving of the industry’s attention.

At issue is the cost of including certain technologies aboard commercial satellites, especially data processing. During the recent World Satellite Business Week conference in Paris, an official with satellite television provider DirecTV bemoaned the cost of satellites incorporating the sophisticated digital signal processing technology featured on the Spaceway 1 and Spaceway 2 satellites purchased from Boeing Satellite Systems International. Phil Goswitz, senior vice president of DirecTV, sang the praises of the technology and the coverage flexibility it provides, and said the company would like to buy more of these types of satellites but the price is too high.

Top executives with two other satellite buyers, broadband providers Hughes Communications and ViaSat, voiced similar sentiments, saying on-board digital signal processing, while attractive, is too expensive and also carries a penalty in terms of overall satellite throughput.

In a similar vein, Antonio Abad, chief technology officer at fixed satellite services operator Hispasat, said manufacturers need to find a way to reduce the price of flexible payloads, perhaps through bulk production. The argument he made bucks conventional wisdom among manufactures, which is that satellites with flexible payloads — which typically means on-board digital signal processing — represent too small a share of the market to lend themselves to bulk production. Mr. Abad said satellites that aren’t tailored to specific geographic regions but instead can be quickly reconfigured on orbit as coverage needs change could be the default production approach for manufacturers, who could then order components for digital signal processing capabilities in bulk. “This would be a revolution,” he said. “If the satellite manufacturers want to look to the future, this is one area where they should look.”

As is always the case when two sides see the same issue differently, the truth — in this example, how far the cost of digital signal processing technology can reasonably be expected to drop — lies somewhere in the middle. In other words, it’s safe to say that there are legitimate reasons why satellites incorporating the technology are so expensive, but at the same time, manufacturers could bring the price down to a more acceptable range with bold and innovative thinking.

Given the longstanding business axiom that the customer is always right, the onus is on the manufacturers to step up to the challenge issued by Mssrs. Abad, Goswitz and others. For their own good, satellite makers have to consider how the future commercial market landscape is shaping up. Orders for geostationary commercial telecommunications satellites are likely to decline in the coming years as the major fleet operators complete their recapitalization cycles. Meanwhile, companies like Boeing and Lockheed Martin, which for the past decade or so have been flush with U.S. Defense Department business, are increasingly focused on the commercial market these days given the anticipated decline in Pentagon procurement spending in the next several years.

These trends suggest that the global commercial satellite manufacturing business is going to become even more competitive in the next couple of years. The business these companies will be chasing, meanwhile, likely will be tilted more heavily than in the recent past toward emerging applications like broadband that might benefit from flexible payloads. In this type of environment, it likely will be the companies that come closest to meeting the technical and pricing challenges issued by the customer community that come out on top.