Intelsat General, the Bethesda, Md.-based U.S. subsidiary of the world’s largest satellite fleet operator, provides three kinds of services exclusively for its U.S. government customers: satellite communications bandwidth, integrated network solutions and opportunities to host government payloads on Intelsat satellites.
Parent company Intelsat was acquired in June 2007 by an investment group led by BC Partners and Silver Lake Partners. The deal was completed in February and brought Intelsat’s total debt load to $15.1 billion. The large amount of debt the company took on in order to complete that deal has not affected the ability of Intelsat General to effectively serve its giant customer, said Intelsat General Chief Executive Officer (CEO) William Shernit, who adds that he has no doubts the company will continue to invest in its ability to effectively serve the U.S. government.
Intelsat General provides satellite communications capacity to the military through a Defense Information Systems Agency (DISA) contracting vehicle known as the DISA Network Satellite Transmission Services-Global (DSTS-G). That contract is a large portion of Intelsat General’s business, bringing in $90 million to $100 million for the company in 2007.
The current DSTS-G contract uses three vendors that arrange the procurement of bandwidth and communications solutions for the government. It will expire in 2011, and DISA now is seeking input from the industry about how the next contract should be structured. Shernit says a lot has changed since that contract’s inception, and the procurement model must change as well.
In the area of shared payloads, the company’s Internet Routing in Space payload is the space segment of a Defense Department project that seeks to demonstrate the viability of conducting military satellite communications with an Internet router. That payload is on track to launch in 2009. Though it is a technology demonstration, Shernit thinks it eventually could move to an operational capability, perhaps even operating in tandem with the next-generation Transformational Satellite Communications System.
Shernit, who was named CEO in March 2007, recently spoke with Space News staff writer Turner Brinton about these and other issues.
Given the amount of forward planning satellite operators must do, what is Intelsat General assuming about future military demand for commercial satellite communications?
Since I’ve been in the communications industry, demand for bandwidth has continued to increase. I don’t think there’s yet been a negative inflection. When you look at the drivers of demand today, you see them very clearly: high-definition television consumes a lot more bandwidth than radio does, and full-motion video is going to consume a lot more bandwidth than dot diagrams on a newspaper page. So the demand for bandwidth-intensive information will continue to increase.
The question is how much can be served by government assets and how much can be served in combination with commercial assets. I don’t think anyone can predict the future. But we certainly see a continuing demand for the services we provide, services that will be in complement with what is provided by the government.
Do you think the satellite communications industry is heading toward a more cohesive relationship with the government?
Solid dialogue is increasing. There is an increasingly open forum that I have been participating in that will allow for more robust planning. We now have open access to many senior officials at the Pentagon.
If you simply assume a capability is going to be there, there will probably come a time when it does not meet your expectations. If you plan for it, the chances of having what you want are much more likely. The planning and dialogue taking place will result in the mix that we ultimately want to see achieved. We’re seeing an understanding of the need to work together and an understanding of what drives a commercial investment.
The procurement process doesn’t lend itself to long-term planning, and that’s also something we have to address.
What is Intelsat General doing to distinguish itself in the competition for government contracts?
I wouldn’t give the store away, but we recognize the need for a highly networked global capability. Ensuring good customer intimacy and having candid dialogue with our customers is the way toward a healthy relationship. And planning for what technology will appear in the future is important as well. The need for ultimately more digital- and IP-based services is sitting in front of us, just as it once was for a terrestrial Internet capability. Provisions for more flexible payloads are something that must be considered for the future as well.
Intelsat General wants to be directly included in the next DSTS-G contract. Are you able to provide the end-to-end services that are being delivered by the current contract?
Intelsat is not just a series of satellites. It is a fully integrated, global wideband network with multiple teleports, multiple interfaces to the Internet and an IP layer over top. So it is truly an integrated, space-terrestrial communications capability. If you start from that point, Intelsat has a good and existing ability to provide managed network services to its users on an end-to-end level. We can continue to provide that. The big question is going to relate to the boundary conditions of the next procurement vehicle. If it moves from a commodity procurement to a more solutions-based delivery, it will serve both us and the customer well. We certainly have the capability to provide the integrated managed network services.
What do you think DISA will do for the next DSTS-G?
I think it will do something other than what it is doing today. That’s my guess, because the environment has changed since the early 2000s, and thus a different response is needed. The supply and demand is the biggest change. Around the turn of the century, there was a lot of overcapacity in the industry in general. Today that is not the case. And today there is a much more sophisticated set of managed services that are delivered on a more integrated and tailored basis.
There’s also been a significant amount of consolidation in the industry, and the ever-increasing demand has caused a higher utilization of current assets across the board. Whether it’s Intelsat, or , they all are experiencing the same increased utilization of assets, and in those situations you cannot as easily play one against the other.
Given the environment that exists today, you have to question why DISA would want to stay with the current procurement model in the future.
Why should the government work directly with satellite operators?
Just looking at basic principles, tighter communications are obviously better. If you look at what drives the investment – for example, in steerable beams or the unique requirements needed for unmanned aerial vehicles – you’re not going to get a satellite operator to consider an investment based on the recommendation of a small business or an agent of the government, as opposed to from the government itself. It’s the operators that are going to do those things. And it’s not clear to me that the government gets the best pricing by using another layer. It’s the same reason people like to buy from wholesalers, because they get a better price by going directly to the source and bypassing added costs.
What evidence makes you think the government may be willing to move away from the current model?
If the customer is more interested in something other than just a commodity, the customer will want to go to the ultimate provider. I think that’s just a natural situation. If you want to buy some light bulbs, you go to the store and buy light bulbs. But if there’s a custom light bulb solution that you’re looking for with a special colors and configurations, you’re going to want to work with the people who make those things to ensure you get what you want.
The vendors would tell you that the government has gone directly to the operators before and paid higher prices.
I’ve not been in this industry as long as most, but this is not my understanding. If you look at the commercial imagery model compared to the commercial communications model, you don’t find the government going through an intermediary to buy the imagery. The government is a sophisticated buyer, and it’s perfectly able to define what it wants, when it wants it, and it should go directly to the provider to get it.
Could you envision a situation where the government essentially finances your satellites for you the way it has done with the satellite imagery providers?
All things are possible. The fundamental premise is doing what is in the best interest of the government. If that is the case with the commercial communications providers, I see no reason why that cannot be possible. And there are emerging opportunities to do that.