Profile: Telecomm Tag Team

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Profile: Telecomm Tag Team

By MISSY FREDERICK
Space News Staff Writer
posted: 06 December 2005
05:05 pm ET


Profile: Mary Ann Elliott and Dean Olmstead

Arrowhead Global Services

Since founding Arrowhead Global Services in 1991, Chairman and Chief Executive Mary Ann Elliott has seen it grow from a company with first-year revenues of $64,000 to a $100 million business. She is setting her sights even higher these days.

“I’m an entrepreneur, and a real small-company type of person,” Elliott said. “I needed another level of management if I wanted to approach $500 million a year. So I looked for someone who had the broad range of management skills and the vision to be able to get us there.”

Enter Dean Olmstead, the former chief executive of satellite operator SES Americom, who joined Arrowhead as president in April. Olmstead brings not only big-company management experience, but also the valuable insight and perspective of a former strategic adversary. Arrowhead is one of three companies that arrange commercial satellite services for Pentagon users under the Defense Satellite Transmission Services Global (DSTS-G) program, which is managed by the Defense Information Systems Agency (DISA). Big satellite operators, SES Americom among them, would like to see the DSTS-G program go away so they can contract directly with DISA.

Elliott and Olmstead spoke recently with Space News staff writer Missy Frederick .

How does DISA benefit by buying commercial satellite services through the DSTS-G contractors rather than directly from companies that actually operate satellites?

Olmstead: Bandwidth purveyors like Intelsat and SES Americom, what do they want to sell? They want to sell as much bandwidth as they can.

Elliott: For as high a price as they can.

Olmstead: We want to give the government the most efficient commercial solution to meet their requirements in a secure fashion. If the government is getting more for their money, they’re going to use more bandwidth, and part of the reason the government is using more communications services is because the [DSTS-G] integrators have helped increase the value part of the equation.

As chief executive of SES Americom, you argued against the DSTS-G program. How do you reconcile that with the arguments you are making today as president of Arrowhead?

Olmstead: Doing what I did at Americom was the right thing to do for Americom. Sitting where I sit today, the role of the integrator is to provide more value to the taxpayer. The interesting thing is this is the exact reason that Americom was trying to get rid of Arrowhead — because we drive down bandwidth costs through additional levels of creativity and competition.

How are the DSTS-G integrators more creative?

Olmstead: We think we offer creativity because our people are not just satellite people; they’re also ground station people, telecom people.

Elliott: And Internet protocol (IP) people, and IT [information technology] integrators.

Olmstead: So we bring in all of the commercial technologies that are available. And no offense to my old organization , but they’re satellite people. They do it very well, but you’re not going to find a lot of people over there who know the latest in Voice Over Internet Protocol components. And we have those people.

Currently DISA orders satellite capacity primarily through short-term leases that the satellite operators say are not economical. How would DISA’s adoption of long-term leases affect Arrowhead?

Olmstead: If that structure gets implemented, what they would do is just redefine everything as long-term leases, and it all becomes semantics. I think the reason the argument becomes cogent and captures people’s attention is that certainly there is an advantage to buying anything in an aggregate amount. The counter argument is that in some cases you don’t know what you need. Maybe in 80 percent of cases the U.S. government knows what it needs, but there’s absolutely no reason that even at 80 percent that business can’t be purchased through the integrators. Even if you go through multi-year procurements, that still doesn’t address the question of incentives or multi-vendor environments.

What do you mean?

Olmstead: The operators say that if they knew over the long-term they’d actually design their satellites different. Hogwash. If you’re getting ready to build a satellite, one of two situations prevails: Either you have a specified customer for an individual satellite, or you’re building a satellite because you’re trying to collect a basket of customers and design a satellite around that basket.

If the government wants its requirements incorporated, first off, it’s not going to be a one-to-one relationship. They’ve done that before. If the government can articulate its requirements, that can be a big help to a satellite designer, but the idea that an operator is going to pay $15 million to add another spot beam because a government agency may use it at some point? That’s hogwash.

Would long-term leases diminish the added value that you say the DSTS-G contractors provide?

Elliott: You still have to manage it. If some guy somewhere in the world needs a cell phone or Voice Over IP, they’re still going to be dealing with Arrowhead.

Olmstead: Let’s say there’s a lease of 10 transponders over 10 years, which has to meet a certain set of requirements. Then the government gets new requirements. What happens? The wholesaler’s incentive would be to add an additional transponder; ours would be “let’s see how we can figure these requirements in.”

Where are you in discussions with DISA about extending the DSTS-G contracts?

Elliott: They are looking at modifying our contract, and all three vendors have responded. The contract will be expanded so that we can provide a more diverse set of solutions to our customers.

One good thing that has come out of these discussions is that the entire function of commercial satellite communications will be elevated in DISA to be supervised by a new leader. It has not been formally announced, but a more senior individual, the equivalent of a one-star general, will oversee things. That is very welcomed.

Is there a dominant DSTS-G contractor?

Elliott: No, we’re very even. We like to think that we win more of the more complex contracts.

Olmstead: Artel wins more of the ones which are Intelsat bandwidth-related. Spacelink brought Eutelsat into the equation. But that’s just in general.

How would the Intelsat-PanAmSat merger affect government services?

Olmstead: The government has a complex set of objectives. One is getting more value for its money. Another is ease of interaction. The government has a tendency to like bigger companies — but it costs it more. And I don’t want to second guess their objectives on this, but the aggregation, at the end of the day, is going to result in fewer choices and higher costs.

This is not an Arrowhead view, but rather an industry observation: allowing this merger to happen undoes 20 years of U.S. government policy and efforts to create a competitive environment . A lot of U.S. government money and resources were used over a long period of time to ensure this.

Elliott: And the world was a better place for it.

What do you see as major growth areas for Arrowhead?

Olmstead: We really have four areas of activity: satellite, and DSTS-G is a big part of that; telecom services, particularly in several classified programs; special operations for the intel community, which makes up about a quarter of our business; and our networks unit. We started the networks unit three years ago and that’s been growing, and the telecom unit about two years ago, and that’s been growing. The theme which is common throughout is a growing appetite for telecom services inside the government. In a general sense, we see a lot of opportunity for mobile satellite services as well.

What percentage of Arrowhead’s business comes from the DSTS-G program?

Olmstead: On a revenue basis, it makes up about a third of our business. Of the bandwidth we move, it’s about half.