Editorial: Monopoly’s Impact

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  Space News Business

Editorial: Monopoly’s Impact

posted: 09 October 2006
04:34 pm ET


The U.S. Federal Trade Commission’s Oct. 3 statement announcing its ruling on the merger of Boeing’s and Lockheed Martin’s rocket manufacturing and government launch services businesses explains why it was so long in coming.

In conditionally approving the creation of United Launch Alliance (ULA), the commission made no attempt to hide its strong reservations about sanctioning a monopoly. The commission said the consolidation of the only two U.S. suppliers of medium- to heavy-lift launch services probably violates U.S. antitrust laws and likely will cause “significant competitive harm.” The potential damage, the commission said, extends to the U.S. government satellite market, which is dominated by Boeing, Lockheed Martin and Northrop Grumman.

This jaundiced view of ULA is perhaps best illustrated in a July 6 letter to Pentagon Deputy General Counsel Douglas Larson from Michael Moiseyev, assistant director of the commission’s Bureau of Competition: “The anticipated result of this anticompetitive consolidation would be to reduce the rate of innovation and other non-price benefits and increase the prices that the government, including the Air Force, NASA and other government agencies, would pay for these services.”

Ultimately, however, the commission was swayed to go against its instincts by Defense Department arguments that space launch represents a unique situation and that ULA’s national security benefits outweigh the harm it would cause in the form of lost competition. Pentagon officials clearly feared — with good reason — that without ULA, either Boeing or Lockheed Martin would have abandoned the launch business, leaving the nation with only one option for launching critical national security payloads. ULA, at least in the near term, will preserve two vehicle families, in theory making it less likely that the government will find itself unable to launch a satellite due to hardware reliability concerns.

Given that Boeing’s Delta 4 and Lockheed Martin’s Atlas 5 rockets are both relatively new, it certainly makes sense for now to keep both vehicles available as a hedge against potential reliability issues.

The heavy-lift variant of the Delta 4 rocket, for example, which will be used to launch some of the nation’s most critical and expensive national security payloads, failed in a demonstration launch to put its payload in a sustainable orbit and is not slated to make its next flight until early next year.

Ironically, once the Delta 4 and Atlas 5 have had a chance to prove themselves over a large number of launches, the case for keeping both in production at considerable expense to the government becomes less compelling. Congress already has questioned whether maintaining twin families of rockets — the Pentagon’s assured-access strategy — is a luxury the nation can afford at a time of tremendous pressure on budgets. Moreover, the congressionally mandated “National Security Space Launch Report,” recently released by the Rand Corp. challenged the widely accepted notion that maintaining two rocket families is the best way to ensure timely and reliable access to space.

Even the White House, which officially endorsed the two-vehicle strategy in its 2004 U.S. Space Transportation Policy, has its doubts. The policy calls on the next administration to revisit the issue in 2010. By that time, the government hopefully will have a better idea of the performance and reliability of the vehicles, and whether ULA can truly guarantee the continued availability of the Russian-supplied RD-180 engine that powers the core stage of the Atlas 5. Resolving the RD-180 question should be a top priority for ULA and the government in the next couple of years.

Meanwhile, the Defense Department, by virtue of its insistence on getting ULA approved, has a responsibility to ensure that the venture does not validate the Federal Trade Commission’s worst fears about monopolies.

Defense officials must be vigilant in enforcing the conditions the commission has attached to its approval of the merger. These conditions, or consent decrees, are intended to ensure that ULA does not give an unfair advantage to the satellite divisions of Boeing and Lockheed Martin in government contracts that call for on-orbit delivery of space capabilities; that these divisions not give preference to ULA on such contracts in the unlikely event that other launch competitors emerge; and that proprietary data on competitors is not shared between ULA and these divisions.

Moreover, the Pentagon must be prepared to undertake, and Boeing and Lockheed Martin must be prepared to accept, extra scrutiny of ULA to ensure to everyone’s satisfaction that the venture does not take advantage of its monopoly status in negotiating launch contract prices. Boeing and Lockheed Martin made lots of promises when they first proposed ULA — they should be compelled to live up to them.