Tip Osterthaler

President and Chief Executive Officer, Americom Government Services (AGS)

The U.S. Department of Defense has begun launching a new line of communications satellites that will dramatically increase the bandwidth available to U.S. forces and, according to some, reduce the military’s reliance on commercial capacity. Just one of the U.S. Air Force’s Wideband Global Satcom (WGS) spacecraft – six are planned – provides more capacity than the entire constellation of the previous-generation satellites. But if Tip Osterthaler, whose company sells commercial satellite capacity and associated services to the U.S. government, is worried about the trend, it doesn’t show. He says the military’s demand continues to outpace its deployment of new capacity. And one of the military’s most highly touted satellite programs, the Transformational Satellite Communications system, appears headed for what could be a significant delay.

AGS is a wholly owned subsidiary of SES Americom, a principal division of Luxembourg-based satellite-fleet operator SES. Contracts with the Defense Department account for about 80 percent of the AGS business, with classified work coming in second.

Company officials estimate Americom’s 2007 revenue will be in excess of $500 million, but do not break out the AGS contribution.

A significant portion of the Pentagon business flows through the Defense Satellite Transmission Services-Global (DSTS-G) contracting vehicle, under which three relatively small firms act as middlemen between the customer and the satellite operators. This arrangement is a long-running source of heartburn to the satellite operators, who would rather be able to market directly to their Defense Department customers.

AGS and its brethren also complain that despite years of warning that commercial capacity does not grow on trees, the government still does not provide the incentives that would enable them to ensure that their largest single customer’s future needs are met.

But there are signs of progress in the customer-provider relationship, among them the Pentagon’s growing receptiveness to the idea of having commercial satellites host dedicated military payloads. Osterthaler said

Americom Government Services is in discussions with several customers for hosted payloads and expects to have at least one deal in place by the end of the year.

Osterthaler, a retired U.S. Air Force brigadier general, spoke recently with Space News Editor Lon Rains and staff writer Turner Brinton about these and other issues.

What have you learned from doing business with the Pentagon via the DSTS-G contracting vehicle?

One of the most important lessons I think we’ve learned is it’s not realistic to expect small companies to be able to effectively integrate complicated systems and solutions for government problems, and quite often that is what the government is expecting. The small companies really don’t have the engineering depth or experience in managing a large number of subcontractors.

The other observation I would make about DSTS-G is we understand and expect the government to try to be as efficient as it can be in aggregating and purchasing bandwidth. However, concentrating only on price is a short-term strategy. The government also needs the commercial satellite industry to be willing and able to make investments that will benefit the government in the long term, including putting capacity where the government needs it and building features into spacecraft that are attractive to the government.

How should the government restructure the way it buys satellite communications services?

An important element the government needs to focus on is to bring commercial providers into the planning process so as not to undermine a commercial company’s investment case.

That will potentially take the government out of the environment where it must buy capacity on the spot market and put it into a longer-term relationship environment where the industry understands where the government is going and what their requirements are likely to be two or three years out.

The industry will be in a much better position to invest in areas where the government will need capacity and then provide at least a capability for the government to buy in different ways.

It’s interesting to watch this industry and think back upon the way the telephone industry and terrestrial communications were 20 or 30 years ago. There was a point in time where the government thought it had to own its own telephone systems and infrastructure. Eventually, the government came to grips with the fact that all the investments were being driven by the commercial users and decided to take advantage of that rather than fight against it. They still do in specialized cases, for highly secure networks, but for normal day-to-day communications, the government doesn’t even try to do it themselves.

Do you believe the WGS system will reduce the military’s demand for commercial capacity?

No, I don’t. Despite the fact that government systems will always perform for some needs of the government, when you look at the aggregate amount of capacity on government-owned constellations, and you look at the overall demand, the gap between them is continuing to grow.

So we don’t see WGS as a threat to commercial business, we don’t see it even as a competitor to commercial business. Where the government has specialized requirements and thinks it’s best to use their own constellations, that’s fine. It doesn’t change the fact that 80 percent of government traffic travels on commercial systems and no one is really projecting that to change, including me.

Some military officials have in fact said it is possible to change, perhaps even reverse, that ratio. Your response?

I’m skeptical. I would like to know the basis of their projections. There are always going to be some specialized requirements – intelligence, high-priority strategic communications, hardened communications – which we will not ever find a commercial business case for, but the idea that the government ought to create a parallel infrastructure for day-to-day communications needs will probably not find support among programmers and politicians and the people that have to allocate the necessary resources.

As you look at the end users for the services you provide, where do you see the demand coming from in the next five or 10 years?

Unmanned aerial vehicles (UAVs) will continue to grow in importance to the Defense Department. They are big consumers of bandwidth and their usage will only continue to rise, but they don’t necessarily consume bandwidth the same way other systems do. UAVs usually operate in a theater in high concentration, so you get a big spike in demand in a fairly small geographic area.

Also, current generations of UAVs predominantly use the Ku-band, which puts them in competition with commercial customers. In the future they will take up even more bandwidth as third- and fourth-generation systems come on board. They’ll be going from trouble spot to trouble spot, which may be problematic as they may end up in areas where there isn’t much in the way of capacity. They will also tend to migrate out of the Ku-band into the Ka-band, so a different supply and demand relationship will come about when that occurs.

Do you see further market potential in the arena of homeland security?

Yes. But it’s a much more complex market in the sense that there are many players that have their own buying practices. An awful lot of the homeland security mission is carried out at the state and local level, so it’s not like dealing with the federal government where you understand their buying processes and you have a set of relationships. Going out and creating those relationships at the individual state level or at the independent sub-agency level in the Homeland Security Department is a time-consuming enterprise. We still want to understand the needs of that market, and we want to be responsive to it as we can. I think fragmentation is just characteristic of that department in general; it’s not just unique to satellite solutions.