Private sector financing may be the solution when it comes to replacing a longtime orbital communications constellation.
The United Kingdom is turning to the aerospace industry, the telecommunications sector and the banking community to establish a new web of military communications satellites based on commercial technologies. Under a novel acquisition approach, the Ministry of Defence is seeking a contractor that will be a service provider rather than a hardware deliverer.
The target of opportunity is the proposed Skynet 5 communications satellite constellation, which the ministry is planning for March 2005 operation. Under the United Kingdom’s private finance initiative (PFI) acquisition approach, the winning contractor would obtain financing to design, build and launch a system through which it would sell services to military communicators. The same system could be used in the commercial marketplace to help the contractor recoup some of its costs.
The ministry’s Defence Procurement Agency has awarded two project definition contracts to determine a possible PFI solution for Skynet 5. In addition to the team led by Lockheed Martin Missiles and Space, Matra Marconi Space leads another competing team, known as Paradigm. Each team was awarded a £30 million ($50 million) contract. Procurement agency officials state that they are leaning toward a PFI effort for this program.
The United Kingdom’s current military satellite communications asset is the Skynet 4 constellation, which began orbiting in the late 1980s. This satellite model also formed the basis for the North Atlantic Treaty Organization’s (NATO’s) NATO IV communications orbiter.
The ministry views Skynet 5 as a follow-on to Skynet 4, but generationally rather than literally. The new system must support British defense communication requirements for mobility, flexibility, out-of-area operations and battlespace digitization. This is considerably different from Skynet 4’s original requirements, according to David A. Adams, marketing manager for satellite communications at British Aerospace. His company is part of the Lockheed Martin-led team now competing for the Skynet 5 program implementation contract.
The existing Skynet 4 constellation was designed for Cold War missions, Adams explains. The Skynet 5 requirements reflect the changing mission of the British military as well as the more dynamic environment facing military communicators.
Adams offers that Skynet 4 “partially provides” the necessary capabilities for the British military. The constellation, which comprises three active orbiters, is slated to continue operation until the end of its design lifetime in 2005. The first Skynet 5 launch is slated for late 2004. The short service overlap will ensure that there is no break in communications capability while the Skynet 5 constellation is ramped up, Adams says.
If awarded the implementation contract, Lockheed Martin Missiles and Space would be the prime contractor. British Aerospace, BT and Lockheed Martin Mission Systems are the subcontractors for this team. British Aerospace is the builder of Skynet 5’s predecessor, Skynet 4, as well as its ground assets. It originally teamed with the two Lockheed Martin companies in an earlier bid for a conventional acquisition of Skynet 5 that was abandoned in favor of the PFI approach.
Lockheed Martin Missiles and Space is in charge of building the orbital vehicles. The prime and its subsidiary company are responsible for system engineering, communications mission management, U.S. interoperability, system management, and launch vehicles and services. British Aerospace is tasked with the military terminal definition, remote network interface, military anchor station module construction, and user migration to the new constellation. BT is in charge of network management, commercial network interfaces, management information systems, service offering formulation and commercial business development.
The ministry seeks an end-to-end approach to designing the successor to Skynet 4, Adams relates. Instead of just replacing the “black box in the sky” that constitutes each Skynet 4, the vendor is to take a system “user-to-user” philosophy. Ideally, this would be achieved using the PFI approach, but its viability remains to be determined. Another factor is that the ministry must retain the ability to fall back to a conventional, asset-based procurement if the PFI approach proves to be not viable.
Key aspects of a PFI acquisition begin with the private sector—the contractor—financing the project. For communications, it entails selling services to the customer instead of selling equipment. This financing method already has been adopted in the domestic military communications program known as the Defence Fixed Telecommunications Service.
Adams notes that one goal of taking a PFI approach to the Skynet 5 program would be to complement the terrestrial telecommunications effort. The Skynet 4 constellation would be transferred to the service provider, which would operate these existing assets while the Skynet 5 system is being implemented. Instead of allocating large sums of upfront funding for the development and launch of a new satellite constellation, the ministry would spread its costs evenly over several years by paying for services provided by the satellites.
“We will be designing and building a Skynet 5 satellite” if the company is awarded the implementation contract, Adams explains. “However, it will not be the total solution.”
The value of this program will be judged against a comparable private sector project, Adams notes. This activity would begin with the ministry determining how much the new system would cost were it to be acquired through a conventional, asset-based procurement. Expenses would include hardware, cost of operation and maintenance, system support and other infrastructure assets. The PFI approach would prevail only if it could produce a lower lifetime cost than the conventional alternative.
The majority of risk would be transferred to the private sector when it “can best be managed” there, according to the ministry. The military would receive guaranteed service levels or credits where those levels are not met. These service levels likely would include capabilities such as availability and capacity.
Opening up the system to third-party users in the commercial marketplace would provide less-expensive service through economies of scale. Adams relates that the ministry views this as a way of reducing its own service charges.
Overall, applying PFI to Skynet 5 translates to a lower capital outlay for the Ministry of Defence, in addition to manpower savings, significant risk transfer, greater cost-effectiveness and an improved level of service, Adams maintains. For industry, the benefits include a ready market for the service provider’s own products. Other advantages for industry include access to third-party revenue, protection from falling prices for capital equipment, and the possibility of revenue increases from new services with little additional investment.
Commercial partners are also part of this proposal. Adams explains that the private sector financing of the project will be substantial. Estimates are that the vendors must raise billions of dollars to finance the system. “It’s no good coming up with what we perceive to be a brilliant solution” only to have to beg for financing, Adams relates. So, the vendor team is working with the London branch of Bank of America as a commercial adviser for raising the necessary funding. Adams explains that the bank is virtually a member of the team. It warns the four companies when their program directions may cause fundraising difficulties. The same philosophy of involvement applies to the Ministry of Defence, which is the anchor tenant, and any other users with large requirements.
The proposed system draws heavily from commercial broadband satellite communications technologies. Iridium, for example, already is in operation, and other handheld personal communications systems are in the works. More planned satellites are geared toward providing switched broadband network services that are relayed from trunking orbiters. High-speed trunking service features television broadcast and backhaul, V-band fiber pop and point-to-point wideband.
For current military systems, trunking environments generate interconnectivity challenges, Adams relates. Choke points can hinder communications. Secure telephone units and local area networks run through a central office to technical control, where further connectivity to an anchor station runs afoul of narrowband chokedown. For field units, links pass through systems such as mobile subscriber equipment and the global command and control system to encounter chokedowns at the mobile groundstation. For both applications, the result is point-to-point static networks that are inefficient and are difficult to manage, he emphasizes.
The Lockheed Martin team’s proposal is to offer a dynamic network with shared bandwidth and asynchronous transfer mode (ATM) switching or Milstar-type processing. The switched service would extend wideband data directly to users on demand. Adams describes this as satellite communications provided in a sensor-to-shooter configuration.
The advantages of this type of system include low overall cost, increased flexibility, more connectivity and greater deployability, Adams notes. It would provide separate, direct connectivity to various user elements. Field units such as Ptarmigan, Tracer and the theatre wide area communications network, or TWACN (SIGNAL, September, page 23), could operate through personal communications system links.
“At the end of the day, we have to operate this as a service provider,” he says. “It is not in our interests to operate it in anything other than the optimal cost-effective manner.”
In March 2000, the Ministry of Defence will formally decide whether to proceed with Skynet 5 as a PFI program. If it determines that the proposed system will not work as a PFI effort, the contractor team will offer a conventional asset-based procurement. It would be based on the same architecture proposed under the service provider approach.
In either scenario, the implementation phase contract will be awarded in late 2001. With the first satellite launch slated for 2004, operation would begin in March 2005. The system will have a guaranteed service life of 12 years.
This long implementation time introduces some drawbacks for the contractor in the PFI scenario, Adams notes. For the first five years of the project, before military service begins, the provider would not realize any return on its investment. To recoup some of these expenditures, the team would begin providing some commercial service two years before launching the first spacecraft. This might entail placing an X-band transponder on another commercial satellite, for example. This commercial service provision would begin in 2002.
Just as Skynet 4 served as the basis for NATO IV, Adams hopes that the proposed Skynet 5 system can serve other users. He notes that NATO already has opted not to replace NATO IV with follow-on hardware but instead will use a system belonging to a member nation.