Pentagon Seeing Sharp Price Increases for Commercial Satcom
WASHINGTON — The U.S. Defense Department in recent months has seen price increases as great as 300 percent for commercial satellite communications capacity as it transitions to a new contract vehicle for buying these services, government and industry officials said March 15.
Military customers experienced “sticker shock” as task orders for bandwidth and managed network services expired and were replaced with new orders — reflecting current market prices — awarded under the recently established Future Comsatcom Services Acquisition (FCSA) contract, officials said during a panel discussion at the Satellite 2011 conference here.
For years, the military bought its commercial satellite communication bandwidth and network services under the Defense Satellite Transmission Services-Global (DSTS-G) program managed by the Defense Information Systems Agency (DISA).
In 2010, DISA and the General Services Administration initiated the FCSA program to gradually replace DSTS-G and several other government vehicles for buying commercial satellite services. Many DSTS-G task orders expired Feb. 15. Some of those transitioned to FCSA; others were renewed under DSTS-G.
Under DSTS-G, the Pentagon has been limited to buying bandwidth and network services from three approved firms known as integrators. The FCSA program, in contrast, allows the Pentagon to buy from larger set of firms and order bandwidth and services directly from satellite operators.
Jim Russo, FCSA program manager for the General Services Administration, said the government has awarded indefinite-delivery, indefinite-quantity contracts to 10 companies so far, and about 10 more firms are expected to become eligible to compete for task orders in the next 90 days.
Under DSTS-G, DISA was able to lock in bandwidth prices for five or six years on many of its task orders at a time when there was a glut of commercial capacity on orbit and prices were very low. Today, commercial capacity over regions of U.S. interest is scarce or in some cases not available.
“From the customer’s perspective, they would very much like to pay in 2011 the same prices they paid in 2006, or something real close,” said Charlie Edwards, DISA’s deputy program manager for commercial satellite services. “It’s a noble idea, but there’s not a lot of reality to it. So we’ve had a little bit of sticker shock from our customers because it was going to cost more for the same thing than buying for five years previously.”
DISA spends about $400 million a year on commercial satellite services. DISA spokeswoman Tracy Sharpe was unable by press time to say whether the agency plans to increase its spending on these services or simply buy less capacity.
The jump in price has been sudden and customers are not happy about it, said Jim Scott, vice president and general manager of global enterprise for DRS Technical Services, one of the three original DSTS-G integrators that now competes for FCSA task orders.
“Much like many of us don’t like driving by the gas station and paying four bucks for the same gallon of gas we paid $2.50 for a week ago, if you look at it from a customer’s perspective, it’s pretty doggone hard to go from paying $2,500 a megahertz on Feb. 15 to paying $6,000 to $7,000 a megahertz for the same thing the next day,” Scott said.
“That was a hard conversation to have with our customers, to go from price A to price A times three.”
On the positive side, the military is successfully transitioning to the FCSA contract without negatively impacting the service to the end user, said David Cavossa, executive vice president and general manager at CapRock Government Solutions, another of the original DSTS-G integrators. But with DISA having to modify or recompete dozens of task orders in a period of 60 to 90 days, industry did not have adequate time to prepare bids for all of them, resulting in less competition, Cavossa said.
Cavossa estimated about 90 percent of the new task orders had only one bidder; Edwards responded that about 70 percent had “two bidders or less.”