— The GeoEye-1 high-resolution optical Earth observation satellite will not enter commercial service until December due to software glitches on the satellite’s attitude-control system that went undetected in ground testing, GeoEye Inc. officials said Nov. 11.

They said the problem is reparable and will not affect the satellite’s performance or service life.

But the software issue is delaying the entry into force of a long-expected contract with the U.S. National Geospatial-Intelligence Agency (NGA) for GeoEye-1 imagery.

A drop in NGA business is the main reason Dulles, Va.-based GeoEye reported a 33-percent decline in revenue, to $35.9 million, for the three months ending Sept. 30 compared to the same period in 2007. The NGA contract, called a Service Level Agreement, is expected to follow once NGA has verified GeoEye-1’s imagery quality.

officials had expected to bring GeoEye-1 into service within 45 days of its Sept. 6 launch. GeoEye Chief Operating Officer William Schuster said that goal was overly ambitious, especially given the unforeseen software problem.

In a conference call on the company’s financial results, Schuster said the software issue is “the main reason why checkout has taken longer than expected [but] won’t have any impact on future GeoEye-1 operations or life expectancy.”

Schuster told Space News Nov. 13 that the issue was close to being resolved. “We think we’ve found the proverbial smoking gun,” he said.

GeoEye-1 was built by General Dynamics/Advanced Information Systems of Gilbert, Ariz. Industry sources said the problem is with the software interface between the spacecraft and a star tracker system supplied by Ball Aerospace and Technologies Corp. of
The glitch affects the ability to precisely determine the ground-location coordinates of GeoEye-1 imagery, sources said.

Chief Executive Matthew O’Connell said the NGA contract, once it enters into force, will “even out the peaks and valleys in NGA’s image-ordering process so that we get a predictable revenue stream and the government gets a predictable supply of imagery.”

NGA accounts for about half GeoEye’s total revenue.

O’Connell said GeoEye’s decision to modify its business model for the GeoEye-1 satellite should result in better service to the
government and higher incremental revenue for the company.

Under GeoEye’s former sales practice, a non-U.S. regional affiliate purchased access to GeoEye’sIkonos satellite by buying minutes of control of the spacecraft. The images taken during these minutes became the property of the regional affiliate. GeoEye then would need to repurchase them for subsequent sale to the
government or another customer outside the regional affiliate’s jurisdiction.

For GeoEye-1, the company is asking its foreign affiliates to purchase a number of kilometers of imagery, not minutes of satellite time. In addition, the purchased data will be exclusive to the regional affiliate only in the affiliate’s geographic coverage area. GeoEye Inc. is free to sell the data outside that area to other customers, including NGA.

The new policy also permits GeoEye Inc. to provide Google with the huge amount of GeoEye-1 imagery to which Google is entitled under a long-term contract with GeoEye. Under the contract, Google is the only online mapping site with access to GeoEye-1.

O’Connell said the Google contract “won’t be material in the financial picture but will be a steady source of recurring revenue. It will be ancillary revenue. There is no specific dedication of satellite or imaging time; they just want a copy of everything we take. For every picture we take, we get ancillary revenue by delivering a copy to Google.”

“They have a lot of dough, a big appetite and, as is common with high-technology people, they tend to want more, faster,” O’Connell said of Google.

has signed up three foreign government customers for GeoEye-1 data, with a fourth expected to be signed in December and a fifth in early 2009. These governments will be upgrading their existing Ikonos ground stations to receive GeoEye-1 imagery.

On the commercial front, the company signed a multiyear, multimillion-dollar agreement with Telespazio of Rome for GeoEye-1 data. “They have committed to a guaranteed minimum annual payment for imaging,” O’Connell said of Telespazio, whose GeoEye-1 contract makes Telespazio the exclusive GeoEye-1 distributor in
North Africa

O’Connell said international demand for high-resolution satellite imagery remains strong, especially in
. He said
appears to be using more GeoEye satellite data for its infrastructure development than the
United States
. Chinese customers are purchasing data to plan airport installation or extension, and for land-use decisions such as where to place new roads so that they have a minimal impact on the amount of food-producing land.

The NGA and GeoEye signed the GeoEye-1 contract in September 2004, with the agency agreeing to pay $237 million of the satellite’s expected $502 million in construction and launch costs.

O’Connell said the final GeoEye-1 project cost likely will be slightly less than $502 million, a fact GeoEye thinks works to its advantage as the U.S. government determines whether to move forward with the purchase of its own GeoEye-1-type satellites under a program called Broad Area Space-based Imagery Collector (BASIC).

The U.S. Congress has withheld funding for the BASIC satellites pending a review to be conducted in 2009.

The suspension of the BASIC program is clearly good news for GeoEye. O’Connell said the government’s current focus on cutting costs should cast the GeoEye-1 product in a favorable light.

“People at the Pentagon look at this [GeoEye-1] and say, ‘Wow, here’s a fixed-cost program that came in under budget.’ When has a Pentagon program come in under budget?” GeoEye has begun reviewing designs of a GeoEye-2 satellite that could be launched in 2012 assuming a construction contract is signed late this year or early in 2009, O’Connell said. GeoEye will use its free cash flow to fund the project and has no immediate need to turn to the debt market, he said.