Space and Communications
"Space: Problems and Promise"
U.S. Space Foundation
National Space Symposium
Colorado Springs, Co.
April 10, 2001
Thank you. It's a pleasure for me to be here today and participate in what is always a great conference.
You know, every year at this conference they have dual keynote speakers, and somehow it always seems to be Al Smith of Lockheed Martin and me. Note that I said dual speakers... not dueling speakers.... Actually, I think folks would be surprised how much Al and I really do agree on.
While maybe the speakers never change, it is interesting how much else can change in a year.
Last year before this group I seem to recall bemoaning the divergent fortunes between asset-light, info-heavy dotcoms, and the asset-heavy, "old-economy" manufacturing firms.
You'll recall that the NASDAQ had recently doubled and was enjoying an average P/E of about 100... while the Standard & Poor's 500 -- which includes many of the companies represented here today -- averaged less than a third of that.
I think I may even have talked about how ideas were worth more than fixed assets... and that businesses that succeed in the future will be less about bending metal... and more about bending minds.
Unfortunately -- or perhaps fortunately -- things have not panned out the way many folks, including myself, predicted this time last year. And while it's never fun to admit you were wrong... I will admit that being called an "old" and "heavy" industry doesn't sound so bad anymore.
Hopefully my remarks today will prove more long-lasting.
Before I get going, though, I'd just like to say that I'm wildly enthusiastic about the business of space... and I get tired of hearing, from a lot of fronts, what a lousy area this is.
Certainly it's not without issues, and our problems always seem to find a way to end up on the front page. But in my opinion, the outlook for our industry has never been brighter.
With that in mind, what I'd like to discuss this afternoon are the current problems and future promise of the space business.
And I want to look at problems and promise in four basic markets: Launch Services; Global Satellite Communications; The Integrated Battlespace; and Missile Defense & Space Control
To put this in context. . . let's look at some of the numbers my staff and I look at all the time.
Here are the addressable markets we see over the next 10 years in each area:
- The Launch market looks relatively flat over the next 10 years.
- In Missile Defense, we see the market doubling or so over next decade (could be more than that, depending on what comes out of the Secretary of Defense's office)
- In Government Information & Communications, we see the market set to triple. . . and
- In Commercial Info & Comm, we see growth by a factor of four.
Let me say first that future reality seldom reflects current market projections, but we need to start somewhere.
Looking beyond the numbers, it's important to ask: where are we going in the future (in each of these markets), what does that future look like, and what are the issues we face? In effect, what is the promise and what are the problems?
First, let's look at Launch Services.
Here, I think the "problems" have been well-documented, if perhaps somewhat exaggerated. We all know that going back several years, we anticipated significant growth in this market. In 1997-98, it looked like it was going to double.
But then we stubbed our toes on some launch failures; we had some export control issues and robust international competition; the LEO constellations ran into trouble; and some key development programs got canceled or delayed. You know the story as well as I.
Despite all this, the reality is actually far from bleak.
For instance: I wonder how many folks in this room know that last year we had as many commercial launches as any time in history (that is, 28)? Or that the commercial backlog for U.S. launches is higher now than at any point in history? (According to publicly available data, the two major U.S. launch providers have a backlog of about 160.)
Based on combined estimates from NASA, DOD and Merrill Lynch: Over the next nine years, we see the U.S. Government market hovering around $1.6 billion/year, and remaining more or less stable. Meanwhile, the worldwide commercial market looks slightly more robust, growing slowly from about $2 billion/year in '00 to $2.5- to $3 billion in 2010.
For those launch providers who play the game right -- that is, who can satisfy customer requirements for:
- Capability (how much payload can you put up?)
- Flexibility (how fast can you put it up?)
- Affordability (can you do it at a reasonable cost?)
- Financeability (can you provide pre- and post-launch financing?) ... and most important
- Reliability (can you do what you say you will for your customers?)
For those players, there is the potential for growth and good profits in the launch services market.
While we're talking about Launch Vehicles, I believe we need to address the fact that with existing propulsion technology, we've nearly exhausted our ability to reduce the cost of access to space. To get the cost down any further, we need to achieve a truly revolutionary breakthrough in propulsion.
Now, for the past two years, I've been talking to this group -- and, quite frankly, anybody who will listen -- about this issue. And I've been fairly clear that I think the U.S. Government is missing the mark relative to funding in this area.
While the Space Launch Initiative goes a long way towards addressing this problem... in my opinion, the government needs to spend significantly more than currently planned on breakthrough technologies in propulsion.
Without these breakthroughs, it will be impossible -- in my mind anyway -- ever to achieve single-stage-to-orbit; or to close the business case on a reusable launch vehicle, or even to build an expendable launch vehicle any more cost-effective than today's vehicles.
As an aside, I know there's been a lot of speculation about whether the the U.S. government would step in, if it looked like we might get down to one major launch vehicle provider in the United States.
Let me just say, I don't know if it will ever get that far, or if it does, who will win. But I do know that the decision will be made by the commercial marketplace, and not by the U.S. government.
The government is no longer a big enough player in this market to dictate winners and losers. In my opinion, the decision will be made by Adam Smith... not Uncle Sam.
Next, let's take a look at the Commercial Satellite Communications market. This is an area that appears poised for significant growth over the next five years.
According to a recent Merrill Lynch study, revenues for the satellite communications industry -- and here I'm including infrastructure, constellation and satellite operations, as well as the space services business -- are expected to rise from approximately $30 billion in 2000 to almost $115 billion by 2007.
That's a compound annual growth rate of 20 percent, and that's growing at a higher rate than the rest of the communications industry, which is only growing at about 12 percent.
Assuming that kind of growth does occur, I can envision a time in which all of us have the ability to be connected to people, resources, and information... with high-speed data, imagery and video... from fixed-point locations and mobile platforms... anytime... anywhere.
The underlying complexity of required systems and infrastructure will be transparent to users, and facilitated by an invisible web of integrated space-, wireless- and terrestrial-based communications systems. It's the kind of seamless and transparent connectivity that will let individuals and businesses pull -- or even passively receive -- whatever information they need... in whatever format they choose... from the ether.
Tailored, value-added data delivery that makes businesses and individuals more productive, more powerful, more connected to the world.
To me, that represents what the future could be. Of course realizing that promise is going to be up to all of us.
I envision that future coming true in any number of areas: For air traffic management and battle management; for the man on the street and the sailor at sea; for the mountain climber on Pikes Peak; and for mom and dad at home (keeping track of their children, wherever they may be); for the air traveler enroute to Colorado Springs and the fighter pilot enroute to a target...
Getting there will not be easy and we face a number of challenges, perhaps the least of which is technical.
The biggest challenge we face in achieving this vision of the future, I believe, is financial. As in other parts of our business, increasingly, the question will not be: "can this be done (technically)?"... but "does the business case close?"
Future issues are less likely to be about our ability to get data from point A to point B quickly and securely... but doing so affordably and with the potential for profit.
That's one lesson we learned from the early low-Earth orbit satellite communications ventures that ran into trouble.They were so enamored with their handiwork and technology. . . that they didn't pay attention to what the competition could do. (Here I'm talking about fiber.) Nor did they pay enough attention to what the customer or consumer really wanted or to where the markets were really going.
Viewed from a business perspective, satellites are just one of several possible ways of transmitting voice, data and images over long distances. Nobody who pays for the service really cares how it's provided. Only that it works, meaning it's cheap, instantaneous and reliable.
The real competitive advantage satellites have, I think, is that they provide not just two-way communication capabilities... but a true bird's-eye-view of a large part of the earth's surface. As a result, satellites can be used for point-to-multipoint communications, with minimal infrastructure cost compared to cable systems... with no difficulty in traversing the infamous "last mile."
This is an advantage that's going to last a long time. This is an enduring advantage satellites have over fiber.
Clearly, we have some issues we need to address on the regulatory side, including spectrum allocation and export control.
Spectrum must be efficiently and effectively allocated and it must be utilized in a timely manner. To this end, it is the responsibility of the U.S. Government to require spectrum applications to demonstrate: technical competency; business plan credibility; and specific deployment timeframes. And if they don't use the spectrum. . . they lose the spectrum.
On Export Control... we have all talked too long about it... there must be some changes. Much study, many recommendations and apparently goodwill are all in play, but as we continue to discuss the problem, markets are being closed and business lost.
We need to apply common sense, redefine what critical technology really is, improve the licensing process, and provide funding to the State Department (so it can adequately staff the review process). We have all failed in this area.
Now forgive me for being a bit negative on Export Control and Spectrum Allocation, but they remain areas of concern.
Regardless, I see great promise in the commercial satcom market... and I think the fact there were 35 GEO satellites ordered last year -- the most since 1995 -- bodes well for this industry.
Now let's take a look at the Integrated Battlespace
Earlier today, you heard Secretary Peters, Gen. Moorman and other panelists debate the programmatic and budgetary implications of the Rumsfeld Commission. The Commission made some strong statements about our country's vulnerability and readiness.
And whether we, in industry, agree or disagree about the wisdom of "skipping a generation" of weapons, there can be no disagreement that U.S. command, control, communications, intelligence and space capabilities must be modernized to support our 21st century needs.
Similarly, we can all agree that achieving dominant battlefield awareness requires integrated air- and space-based assets to provide global awareness, intelligence, communications, weather and navigation support, and a truly interactive common battlespace picture.
Whether we call it Ubiquitous Connectivity in the commercial arena... or the Integrated Battlespace in the military arena... one thing is clear: those systems must be fully interoperable, seamless, reliable, and secure.
And just as "anytime, anywhere" connectivity represents the future for commercial users, for tomorrow's warfighter, the future holds the promise of providing: a common operating picture, global situational awareness, data fusion from multiple collection sources, seamless communication and information connectivity. . . and operational decision superiority
In summary, a network-centric approach to warfare that will provide our servicemen and servicewomen a huge force multiplier across a full spectrum of military operations.
Depending on how you define it... the future market for such network- or information-centric warfare is projected to at least double through 2010, increasing from about $9 billion per year now to roughly $22 billion per year by the end of the decade.
The Intelligence, Surveillance & Reconnaissance (ISR) portion of this market holds particular promise for those of us in the satellite business... especially if you believe the Rumsfeld Commission report, which says - let me quote: "The Department of Defense and the Intelligence Community are undertaking substantial and expensive programs to replace virtually their entire inventory of satellites over the next decade or so, [at a cost of] more than $60 billion."
Now, maybe the future does look a little brighter from up here at 6,500 feet, and maybe it seems too good to be true, but every indication we're getting from Washington is that space will play an important role in future combat, that there will be much more reliance on space-based assets as a force multiplier, and that this new space focus suggests increased funding.
Consider some of the following, from the Rumsfeld report:
- "The U.S. is more dependent on space than any other nation."
- "An attack on elements of U.S. space systems during a crisis or conflict should not be considered an improbable act."
- "Maintaining control of space will require new systems, concepts of operation, and organizations". . . and
- "[The U.S. must] significantly increase investment in breakthrough technologies to fuel innovative, revolutionary capabilities."
Clearly... this presents a tremendous opportunity for our business.
Finally, in the area of Missile Defense and Space Control, we, in industry, face some unique technical challenges, which I believe we'll be able to address.
As you can see from the chart, the market forecast in Missile Defense through 2010 looks set to double from about $3 billion to about $6 billion per year. And further out, we see opportunity for tremendous growth, depending on the type of system(s) deployed.
Similarly, I think it's fair to say we're only one event away from Space Control becoming an area of significant focus. And judging from the Space Commission report, it's an area that's getting significant review in the Pentagon.
I won't say much more about Missile Defense, other than to note that -- like many folks in this room... we've been providing input to the Pentagon on Missile Defense... and we're interested to see what kind of architecture the Secretary of Defense chooses. Certainly, it will have broad implications for all of us.
Finally, I know in some circles it's become fashionable to complain about the state of the industrial base. Certainly, many studies have pointed this out as an issue.
Before I close, I'd like to say a few words about that, because it's something I feel strongly about.
I see space as a healthy business with a bright future. You saw the numbers and the potential for growth... I think most businesses would be thrilled to have as good an outlook.
Maybe there needs to be some consolidation -- and we're seeing some -- but overall it's a good, healthy industry and an expanding market.
Speaking for myself, at Boeing Space and Communications, on our existing programs, we had double-digit earnings performance last year. Ironically, the reason operating earnings were down somewhat, is because we do believe in this market and we are investing heavily in new programs like Delta IV... Connexion by Boeing... Air Traffic Management... next-generation Airborne Early Warning and Control, and other programs.
On a personal level, I look around the company and I see a satellite factory nearly filled to capacity, with a healthy backlog. I see a Delta IV manifest for 2002 that's sold out. I walk around the shop floors or cubicle rows, and I see motivated and energetic young engineers choosing to commit themselves to projects of national significance, and working hard to ensure America remains number one in space.
And I read in the papers, and in reports coming out of Washington, DC, about an administration that's committed to making space the national priority it needs to be.
I see every reason for optimism, and I'm confident that by working together, industry and government can overcome the problems... and realize the promise of space.