Defensive Customer

New York-The commercial satellite industry has become a key pillar in the American war machine. During the recent war in Iraq, most military communications traveled over satellites owned and operated by private companies. The technology allowed unmanned aerial drones to beam video to military commanders almost instantaneously, making it an inextricable component of the Defense Department's concept of "network-centric warfare."

Because the military buys so much commercial satellite time, and because the commercial market has shrunk in the midst of the larger technology industry shakeout, the military has become a key customer for satellite operators. But it's also grown into a difficult one, the operators complain. At a satellite industry conference in New York Monday, executives from some of those operators scolded their military customers for not being better shoppers.

Today, the military is generally an impulse buyer when it comes to purchasing satellite bandwidth. Operators say Defense agencies wait until the last minute to decide what and how much to buy, and then go on shopping sprees, rather than try to anticipate their requirements years in advance and sign multi-year contracts, the way commercial clients do.

For example, from October 2002 to March 2003, the period leading up to the U.S. invasion of Iraq, the Defense Department bought a huge amount of satellite time-the equivalent of one and a half year's worth, said David Helfgott, chief executive officer of satellite firm Americom Government Systems. In fact, the Pentagon gobbled up so much time on the satellite "spot market" that now it's sitting atop a bandwidth glut, said Steven Symonds, a telecommunications consultant.

In some ways, that makes the Pentagon a salesman's dream, because it's willing to pay a premium to get large amounts of time on short notice. But the military also seems to have a commitment problem, industry leaders say, showing an unwillingness to sign long-term contracts with individual satellite providers.

The satellite operators complain that military estimates of future needs are wildly inaccurate. The Defense Department's 2001 requirement, for instance, was at least double what military planners thought they'd need in 1999, Symonds said. Studies show the Pentagon's need will be four times current levels by the end of the decade, he added.

Part of the reason for the surging requirements is the military's new reliance on bandwidth-hogging devices, like the unmanned aerial drones. Executives speaking here agreed the defense and national security markets are poised for the largest growth in the satellite markets. They're also hoping the Homeland Security Department will start buying soon. The government won't solve all of the industry's problems, but it will become a valued customer.

But since satellite companies have only recently made the government a top priority, the operators aren't in a strong position to influence federal agencies' buying decisions-unlike information technology and telecommunications companies, who've invested years building personal relationships with federal officials. Many satellite operators must rely on those long-time contractors to bring them face-to-face with their federal customers.

Conpounding the problem is the fact that most military buyers don't realize they can purchase satellite time on their own, rather than relying on the Pentagon to centrally purchase time, industry executives said. The Defense Information Systems Agency aggregates most military requirements and strikes deals with vendors. But agencies are free to buy time through standing contracts the vendors hold with the General Services Administration.

Companies have been trying to dispel the "myth" that the Pentagon holds all the purse strings, said Tom Eaton, president of G2 Satellite Solutions, the government division of PanAmSat Corp., one of the world's top satellite operators. Eaton told executives from other companies that it was important to "play any of the cards you can get" to get Defense agencies to buy off non-Pentagon contracts, which vendors might find more agreeable.

But none of the executives were kidding themselves that they could get the Defense Department to change its ways overnight. "It would be crazy" to presume the satellite industry could get a behemoth like the Pentagon to play by its rules, Helfgott said.