Peter Shaper, Chief Executive Officer, CapRock Communications

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CapRock Communications, a supplier of satellite-based managed network solutions to government and commercial customers, including military forces and energy companies operating in some of the world’s most remote regions, has been in the news a lot lately.

In March, CapRock was among a group of companies thatprotested the U.S. Navy’s award of a large satellite communications contract to a subsidiary of Intelsat, accusing the global satellite operator of engaging in anti-competitive practices. That had to take a bit of audacity considering that CapRock relies on leased capacity from companies like Intelsat, one of the world’s top two satellite firms with exclusive access to many choice orbital slots.

The protest was denied, but Houston-based CapRock appears to have other cards to play as a major buyer of satellite bandwidth. The company recently announced it had won four U.S. government contracts and would not be using Intelsat capacity on any of them. CapRock Chief Executive Peter Shaper says that is no coincidence.

In May, meanwhile, CapRock and communications technology giant Harris Corp. announced that Harris would acquire CapRock for $525 million. According to Shaper, Harris is likely to be looking for similar acquisitions in the near future to consolidate certain niches of the communications market.

Other changes are afoot for CapRock. The U.S. Department of Defense for the last several years has procured satellite capacity through CapRock and two other firms — Artel and DRS Technologies — via a contracting vehicle known as Defense Satellite Transmission Services-Global (DSTS-G). Under the follow-on Future Comsatcom Services Acquisition (FCSA) contracting vehicle, however, the Pentagon will be able to deal directly with satellite operators.

CapRock recorded a profit of $28 million on sales of $359 million in 2009, both numbers representing better than 20 percent growth over the previous year, Shaper said. He spoke recently with Space News staff writer Turner Brinton.

 

How are relations with Intelsat these days?

I don’t think CapRock is in a different position than any other company in our industry that deals with Intelsat. We’ve been seeing a tendency for Intelsat to begin to move down the food chain, and we view that as a threat. It’s difficult to determine if they consider the service provider community as partners or competitors. It’s not clear what their strategy is, and it makes it difficult for us to incorporate them into our planning process. They’re certainly not easy to do business with.

 

Can CapRock, as a business, afford to have sour relations with Intelsat?

Yes, but it’s not ideal.

 

Have these tensions adversely affected CapRock’s business to date?

We use Intelsat for a number of requirements today, but having one of our suppliers act as a competitor can make things difficult at times. According to Intelsat, CapRock is one of their top 12 customers, but even as one of their top buyers it is still challenging to work with them.

 

CapRock recently announced it had won $47 million worth of U.S. government contracts, none of which involves Intelsat capacity. Is that a coincidence, or is CapRock making an effort to reduce reliance on Intelsat to the extent possible?

We view space segment as a commodity. We drive our business to fleet operators who are willing to work with us to come up with new solutions in support of our customers’ growing requirements, rather than trying to compete with us. Flexibility and willingness to partner with us have always been determining factors as to which operators garner the bulk of our business.

 

How much of CapRock’s business is government versus commercial these days?

Our business today is about a 50-50 split. The acquisition of [DSTS-G service provider] Arrowhead really made the difference. When we acquired Arrowhead, it was a small business without capital, and now it’s part of a much larger organization that has capital, infrastructure and people spread all around the globe. It’s really allowed them to go after different business and achieved explosive growth for CapRock since then.

 

How have the U.S. government’s needs changed over the last few years?

They’ve moved more toward buying managed services instead of buying each individual component separately, and we hope to see that trend continue. The commercial markets went that way years ago and it’s a much more effective way for us to provide service. We’re excited about the move to FCSA, which will allow the government more freedom to move up the chain into managed services. That’s the biggest trend moving forward.

 

Why do you suppose commercial and government customers are buying more managed services?

On the commercial side, most of our largest customers used to own their own communications capabilities, which they built themselves. In the early 1990s, they began to realize there is massive inefficiency in 10 different energy players each building separate satellite networks to cover the same regions of the world. So they sort of created the service industry by starting to use third parties to gain efficiencies. That proved to be a better and more economical model for all of those players. The government has also realized it can gain efficiencies in the same way.

 

Why do you think you are well positioned to continue your government work under FCSA?

In the last few years working through DSTS-G, we have been less focused on task orders that are just component sales, bandwidth sales, and focusing on ones where the customer wants more value-added services around that. It doesn’t always have to go all the way to a fully managed solution. There are steps along the way where we are helping customers see additional pieces of value that can be delivered for them. That’s where we’ve been focusing for the last few years, and we have had great success with it.

 

How will CapRock benefit from being a part of Harris, a $5 billion company?

Being part of a much larger organization is very exciting because they have technologies, capabilities and assets that will allow us to bring a better service to our customers. At the same time, they are a very stable and very well capitalized business, so that’s always important for a high-growth company like CapRock to know we’ve got that stability behind us.

On the international side, CapRock has performed services in more than 120 countries. So we’re pretty geographically spread, but we’re not big. Harris has operations in a number of those countries, so being able to work together is going to bring efficiencies to both companies.

 

What makes CapRock worth its $525 million price tag?

As with any acquisition, the value is in what we bring to the table for Harris. That comes in a couple of areas. We’ve been a very high growth organization and plan to continue to be. So that should deliver significant earnings for Harris that should make it worthwhile for them. In addition, the ability to marry our businesses together and bring more capabilities to the customer adds even more value as you go forward. And the third aspect is Harris would like to use CapRock as a platform to do further acquisitions and consolidate the marketplace. So there’s value to CapRock as a platform as well.

 

What types of companies are the most appealing targets for acquisition?

Similar to how energy companies realized they shouldn’t all own their own networks, there are other players that look very similar to CapRock that are running satellite networks over the exact same areas providing the same field services and needing to have the same geographic spread. The synergies from being able to create that larger platform are what will be attractive to us.