David W. Thompson
Orbital Sciences Corporation
7 December 2000
Thank you. I am happy to be back at the WSBR for what I believe is my fifth appearance as your luncheon speaker in the 15-year history of the Roundtable. As some of you know, the first SBR was established in Houston in 1983 by the Space Foundation, an organization that was also influential in Orbital’s conception and founding in 1981 and 1982. The initial organizational meeting of the WSBR took place in the fall of 1985, when a small group of space industry leaders got together to set up a branch of the Houston roundtable here in Washington. Even though it’s a few months late, I’d like to wish the WSBR a happy 15th birthday.
Introduction
The commercial space industry has changed a great deal since the WSBR was founded 15 years ago. During that time, American companies and entrepreneurs have developed extraordinarily more powerful and capable communications satellites; new, innovative launch vehicles; advanced ground networking and processing systems; and an array of small, inexpensive satellite access products that, together, have directly delivered a wide range of communications and information services to businesses and consumers, literally bringing the benefits of space to many tens of millions of people around the world. In addition, U.S. Government agencies have privatized some major space-related functions, so that commercial concerns today play a major role in operating the Space Shuttle and helping to build and utilize the International Space Station.
Now, we are only a month or so away from the inauguration of a new President and the installation of a new Congress. With this important transition in mind, I thought I’d address my remarks today to the matter of the U.S. Government’s commercial space policies for the next few years. To begin, let’s look back at some of the successes and setbacks for commercial space initiatives over the last 7 or 8 years. This should help put in perspective what new government policies might be instituted to promote greater progress in the time immediately ahead. In looking back, the first thing one observes is that the commercial space sector has grown dramatically since the early 1990’s. For instance, in 1993 worldwide space-related demand totaled a little less than $50 billion. Less than 25% of that figure was accounted for by commercial customers, while the remaining 75%-plus came from governments. Seven years later, total global space demand is more than 60% greater, adding up to some $80-plus billion in 2000. Strikingly, 55 or 60% of this year’s space-related spending is by industrial and consumer users, eclipsing government demand for the third consecutive year.
The primary driver of the space industry’s expansion during the 1990’s was fast-growing commercial demand for space-based communications, broadcasting and navigation services. On the supply side, market growth was also propelled by improving satellite and ground equipment technologies and supportive private capital markets for equity and debt financing. While helpful in many areas, U.S. Government space policies played a secondary role in the dramatic growth of the commercial space sector in the last decade. Weak follow-through in actually implementing expressed government policies was the cause of some painfully significant missed opportunities, but this was largely overshadowed by the much bigger story of the last ten years: namely, the degree to which the space industry has been pulled out of the grip of traditional aerospace market forces and captured by the much stronger pull of rising demand in the five or six times larger global communications and information industries.
So, considering the remarkable growth and changes over the last five or ten years, as well as some of the new challenges that remain ahead, this is a good time to seriously examine those government policies that have shaped, for better or worse, commercial involvement in space and to determine their relevance to today’s market, technological and financial circumstances. Only then can the American space industry suggest to a new President and Congress those guidelines and programs that are most likely to maintain America’s public and private sectors in the space leadership positions they have worked so hard to achieve over the past decades.
Today, to help stimulate this discussion, I plan to cover five particular topics related to the U.S. Government’s commercial space policies: first, the government’s internal structure for managing and coordinating overall space policy; second, its approach to commercial satellite export regulation; third, its space transportation policies and programs; fourth, its satellite remote imaging policies; and fifth, its opportunities for creative new policies that should be examined in the months ahead. I will address several aspects of each of these topics, including government decisions and actions over the past 5-6 years; the effect of those actions on the U.S. commercial space sector; and some specific changes in policies which I would recommend to the incoming Administration and Congress.
1. Management and Coordination
In the Bush Administration from 1989 to 1993, the National Space Council served as an important policy development and coordination mechanism for the Executive Branch of the U.S. Government. Comprised of very capable senior people from various Executive agencies, the Council successfully reviewed and resolved issues ranging from the allocation of new frequency spectrum for global communications services to the licensing of commercial space launches. The Space Council was able to reconcile interagency disputes and coordinate the development and implementation of government-wide space policies of relevance to the commercial sector.
Upon assuming office in early 1993, the Clinton Administration decided to eliminate the National Space Council. As I understand the current situation, Vice President Gore’s advisers have indicated they would not resurrect the Space Council if he is elected; instead, the new President himself would direct space policy. Advisers to Governor Bush, on the other hand, have indicated they favor the establishment of a National Aerospace Council, with its charter being to act as a high-level coordinating entity empowered at the White House level much like the original Space Council. As evidenced by the remainder of this talk, my judgement is that the need for such a White House-based coordinating body for space policy has never been greater, especially for the U.S. commercial space sector.
2. Satellite Export Control
During most of the last several decades, U.S. industry has been the undisputed world leader in designing and manufacturing commercial communications satellites. Since the early 1990’s, as global demand for communications satellites grew, the international sales and exports of U.S.-built satellites were licensed by the Commerce Department. Early last year, Congress shifted satellite export jurisdiction to the Department of State. You all know the story: alleged technology transfer violations by domestic satellite manufacturers, who occasionally launch their spacecraft on foreign rockets, led the Congress to establish a special commission to review the matter and to ultimately direct the transfer of export licensing jurisdiction to State. As a result, commercial communications satellites are now deemed to fall in the category of “munitions” and are treated much like missiles and fighter aircraft for export approval purposes.
In the last year and a half, a burdensome and unpredictable licensing process at State has resulted in U.S. industry losing over $1 billion of new international satellite procurement opportunities, along with an almost equal amount of cancelled contracts previously awarded to American suppliers. While no one thinks it is opposed to the U.S. satellite industry’s interests, the fact re
mains that State is not motivated by a primary objective of helping our domestic space manufacturers to remain competitive; instead, its principal licensing mission is to ensure that sensitive technologies are not transferred to foreign entities without full U.S. Government review. However well-meaning its efforts have been, State has neither the resources nor the orientation to effectively process commercial satellite licenses.
In this case, a National Space Council that included commercial, military/intelligence and economic policy interests would have been the natural place to resolve interagency matters as well as spearhead appropriate discussions with Congress. The Council also could address short-term “emergency” issues such as the need for additional State Department personnel to handle the increased caseload forced upon that department by Congress’s concerns over technology transfer.
Looking ahead, I believe the export control function for commercial communications satellites must be moved back to Commerce as soon as possible. Congressman Chris Cox, Chairman of the Congressional commission I mentioned earlier, recently signed a California Delegation letter calling for liberalization and streamlining of the export licensing process for communications satellites. If the U.S. is to fully regain and maintain its lead in this critical space sector, then Commerce is the logical home for regulation of international sales of these products. The new President should waste no time in working with the 107th Congress to effect the transfer of this responsibility back to Commerce.
3. Space Transportation
In 1995, the Clinton Administration announced its National Space Transportation Policy. Addressing issues such as government agency roles in ELVs and RLVs and rules covering the use of excess ballistic missile assets, this policy has been and today remains vital to the health of the U.S. space launch industry. However, there have been a number of problems in implementing this policy over the past 5 years that have made it much less effective than it could have been.
For example, the U.S. Trade Representative’s failure to enforce the pricing guidelines in the 1993 Launch Services Trade Agreements with Russia and Ukraine resulted in substantial losses by U.S. small rocket suppliers of already scarce launch opportunities to subsidized overseas competitors. As we know from recently compiled Department of Transportation statistics, the robust space launch market many expected five years ago has not materialized, due generally to market overprojections and specifically to business failures of several LEO constellations. While companies like Orbital have retained many of our domestic launch customers, most of the international small launch market has gone to overseas suppliers. Furthermore, after encouraging the privately-funded development of launch vehicles like Pegasus, Taurus and Athena, the U.S. Government has not turned out to be a completely reliable customer for them. Specifically, anchor tenancy arrangements and advance purchase agreements have not been used effectively in this class of launchers. Some U.S. Government agencies have even sought cheap foreign launch opportunities for their payloads, in apparent violation of the overall transportation policy.
The short-term impact of outdated or unenforced policies has been lost business opportunities for U.S. rocket suppliers; the long-term impact may be a permanent weakening or destruction of an important part of our country’s space and defense industrial base. We also should not overlook the associated national security implications, as foreign launch suppliers often will be able to bolster their military missile programs as they achieve higher space launch rates. Finally, lack of sustained government funding for NASA and DoD small spacecraft represents another setback to the small launch industry which, along with the others, threatens its very existence over the next two or three years.
There are some practical things that can be done to reverse this state of affairs. Since the U.S. Government has not been able to consistently enforce its own policies or fund its own programs supporting U.S. commercial launchers, the current policy of restricting use of U.S. ballistic missile assets to launches of government spacecraft should be reconsidered. The previous policy was designed to prevent U.S. commercial small launch vehicles from losing significant market share to potentially competing ICBM-based government systems. However, the failure of the U.S. Government to enforce trade agreements resulted in multiple foreign missile-based systems entering the commercial and international market and crowding out virtually all U.S. launch suppliers in them. The next Administration should consider alternative means for addressing this worsening problem. These might include negotiating international agreements with clear and enforceable pricing provisions, using existing trade law to apply sanctions when “dumping” of foreign rockets occurs, and relaxing current U.S. policy governing the use of excess ballistic missile assets. Further, the U.S. Government could strengthen its commitment to small launch providers, and the propulsion companies that support them, by striving to purchase some minimum number of annual launches to ensure survival of a critical part of the nation’s space industrial base. Clearly, preservation of this component of the industrial base would also be supported if all U.S. Government satellites and secondary payloads continue to be launched on American rockets.
Looking a bit farther ahead, the White House and NASA have recently initiated an important new program called the Space Launch Initiative (SLI). Starting with significant funding this year, the initiative is projected to receive a total of $4.5 billion over the next five years. It is imperative that the incoming Administration adopt the SLI as its own and continue “pushing the technology envelope” with full funding for programs like CRV and second-generation RLV. Beyond top-level program and budgetary support, there are a number of specific recommendations that I would make to enhance the value of our SLI investment to both the U.S. public and private sectors. For instance, it is critical that near-term objectives such as a target of a 30-50% reduction in cost-to-orbit over the next 5-6 years be given higher priority then they now have in SLI planning and funding. And, in addition to addressing the fundamental technologies of propulsion, structures and operations, it is important to actually build and demonstrate prototype flight vehicles within SLI’s five-year duration, to address the systems integration and operation challenges that are at least as important to long-term market success for a new RLV as are subsystem technology advances. Finally and, it seems to me, critically, we need to accept the idea that experimental vehicles will sometimes fail: there are much more expensive mistakes we can make than breaking a few prototype vehicles. An overly risk-adverse approach now may well be less prudent and more costly in the long run than one that accepts reasonable risks and occasional failures as the price of fundamental technical and economic progress.
4. Satellite Remote Sensing
Promulgated in 1994, Presidential Decision Directive (PDD)23 gave the “green light” to U.S. industry to develop and operate commercial remote sensing systems at resolutions heretofore reserved for classified systems. The policy went further in calling for U.S. industry to achieve a leading position in this exciting new commercial space sector. To help achieve this objective, the U.S. Government also committed to anchor tenancy arrangements as well as cooperative ventures designed to leverage government systems by flying them on commercial satellite platforms. Former Commerce Secretary Ron Brown and current DCI George Tenet were instrumental in securing a sound policy that could not have been more welcome by the private sector. Several companies, including my own,
immediately embarked on building new businesses and raised and invested several billion dollars of required private capital. One of these companies is already selling high-resolution imagery, while our company, ORBIMAGE, will be ready to launch its initial high-resolution satellite in mid-2001.
Six years later, however, this policy cannot be judged as more than a partial success, and the current outlook is more negative than positive. First, when it came to implementation of the policy, the “devil was in the regulatory details”, as many in industry had initially feared. Onerous restrictions and secretive review processes have rendered the licensing process inconsistent with building and operating successful businesses. A Commerce Department-led licensing process turned out to be a surprisingly closed operation, which in several key areas did not involve commercial viewpoints to any significant extent. Second, government commitments to purchase satellite imagery from commercial firms turned out to be relatively hollow; so far, in fact, only small congressional plus-up actions have benefited our industry. Third, pledges to allow commercial firms to sell data derived from government sensors in exchange for flying such sensors on commercial spacecraft have fallen flat. And fourth, provisions in the original PDD that authorized the sale of turnkey remote sensing systems to foreign customers turned out to be so burdened by regulatory restrictions that foreign customers do not have confidence that U.S.-built systems will ultimately be available to them.
What can be done to address these problems? First, the Interim Rules on Licensing of Remote Sensing Systems recently released by the Department of Commerce need to be reopened for industry comment. Neither the companies in this industry nor their financial backers can operate in an environment so riddled with uncertainty. The new comment process needs to be “much more interactive;” discussions must be held in the open with all government principals present. The new Secretary of Commerce must take ownership of this process and coordinate it through the new Space Council. Second, the requirement for 1-meter commercial imagery by the Department of Defense and other U.S. Government agencies is real. Although national satellite systems are more capable than the new commercial ones, many warfighter needs can be fulfilled by lower resolution systems. Agency budgetary self-preservation must not drive national policy. Third, the process for licensing remote sensing hardware for export must be made more predictable; timeframes and other rules must be visible to both purchasers and suppliers.
5. Other Areas for Policy Review
There are several areas where new opportunities exist for creative policies to promote more effective commercial/government cooperative interactions. In the interest of time, I’ll highlight only two of these possibilities today. First, I think we’ve reached the point where most U.S. Government Earth science missions have strong potential for dual-use approaches. NASA should more seriously consider commercial-style purchases of specified Earth observation data rather than contracting for its own dedicated remote sensing satellites. Second, for planetary and other deep space probes, the U.S. Government ought to look carefully at purchasing certain infrastructure services, in areas like communications and navigation, from commercial operators. Emplacement and operation of commercial relay systems in orbits around the Moon and Mars might be a good place to start. In both these examples, the underlying principle is this: a basic purpose of the U.S. Government space program, in both its civil and military aspects, should be to use Federal funding to stimulate and augment the development of U.S. industrial capabilities wherever possible.
Conclusions
The American space industry can do a great deal to help the new Administration focus on commercial space policy areas like these that may be ripe for change. Industry coalitions, such as the Space Enterprise Council recently established by the U.S. Chamber of Commerce, will be essential to getting space in general, and commercial space in particular, elevated on the national agenda early next year.
For my part, the five areas I’ve discussed today would be at the top of the list for commercial space policy reform. I recommend the new Administration and the incoming Congress place these and similar ones high on their aerospace priorities. Over the coming weeks, the new President will have an important opportunity to assemble his “space team” and begin the process of developing and refining space policies to assist the commercial sector. As this takes place, I would urge policymakers to consider both the huge economic potential that commercial space represents in its own right, as well as the many substantial benefits it can bring to U.S. government space initiatives.
Thank you.
