Simple Math on FY12 Defense Appropriations Bill...The Satcom Effect

by NSR

Cambridge, Mass., June 17, 2011--As budget pressures continue to reign supreme on Capitol Hill, the satellite sector might experience an unexpected turn of events. Focus is now squarely on the U.S. House of Representatives as they attempt to kill off a DISA plan for a long-term lease of a commercial satellite to provide services over the Middle East in favor of an additional WGS satellite. With this new development still ongoing, questions emerge as to the long-term viability of defense-related leasing of commercial satellite capacity.

Although an additional WGS satellite would likely meet U.S. Military bandwidth needs at first glance, unless there is an accompanying redeployment of UAV traffic to WGS-supported Ka-Band military frequencies, the U.S. DoD will still require a sizeable amount of commercial Ku-Band bandwidth. According to NSR’s most recent Government and Military Satellite Communications, 7th Edition report, roughly 70% of UAV traffic between 2010 and 2019 is projected to utilize Ku-Band, which equates near 1,100 TPEs of cumulative capacity. However, questions still remain as to the speed in which existing and future UAVs can transition to WGS-compatible frequencies.

As written, the bill authorizes funding for 48 MQ-9 “Reaper”-class UAVs (down from initial requests), 3 Global Hawk UAVs (up from previous requests), and continuing research into the Broad Area Maritime Surveillance Program (unchanged from previous requests). Given the decrease in UAV procurement, existing platforms will see greater usage than previously expected, further increasing the bandwidth demand for Ku-band UAVs. Yet, with questionable funding to transition units to WGS, this leaves only two options: reduce UAV operations to meet current budget limits, or, move UAV operations into Special Operations Missions (which saw increased funding levels to the tune of $200M for procurement of communications equipment, tactical radio systems, and combatant craft systems.) In all, COMSATCOM providers should expect reduced fill rates for their U.S. DoD contracts if the bill is enacted as-is.

While the math is clear for commercial bandwidth providers, hardware suppliers see more complex algebra. As mentioned, U.S. SOCOM will increase funding for purchases of communications equipment, whereas the WIN-T program remains unchanged, and the FAB-T program saw funding levels decrease (but the FAB-T alternative program saw an increase). This means communications equipment providers could see funding increase by approximately $99M over recommendations from the White House, and satellite-based solutions will likely experience some of that increase.

Bottom Line
If the FY12 Defense Appropriations Bill is enacted, congress would present the government satellite services sector this simple equation: + $335M (Boeing) - $416M (Intelsat/SES/Eutelsat) + $Unknown (U.S. SOCOM) < $FY2011. Bandwidth providers could expect a decrease in U.S. DoD leasing over the Middle East, which could be slightly offset by increases in capacity requirements from the U.S. Special Operations Command. Hardware providers might experience a slight boost in program funding and procurement, but the U.S. DoD still remains under severe pressure to reduce overall spending across the board. Bottom line, expect previous DoD purchasing to slow down in the near-term, and/or transition to Special Operations Commands as the U.S. enters election season, and congress struggles to reduce defense-related spending across the board.