Chairman and CEO
Boeing Satellite Systems, Inc.
"Trends in the Commercial Satellite Industry"
Euroconsult 2007 Keynote Speech
September 05, 2007
Good afternoon. It's great to be here today, and Boeing is pleased to once again sponsor this luncheon.
I'd like to begin my remarks today by reflecting for a moment on the year 2007.
We've seen the market improve, with commercial satellite orders predicted to be 20 or more again this year.
And -- on the launch side of the business, despite a launch failure early in the year -- a combination of well over 20 commercial spacecraft, military and science payloads are scheduled to be launched.
So I congratulate everyone here today, because these are our successes.
As some of you know, I've just completed my second year in the satellite business.
During this time, I've been able to rely upon my 40 years in the aircraft business, leading programs such as the B-1B Bomber and the C-17 Globemaster III transport program, and I'm happy to report that manufacturing airplanes and satellites isn't that different.
The main objectives -- outstanding performance, on-time delivery, cost management, and delivering products of the highest quality -- are applicable to both.
And, believe it or not, there are some other similarities as well.
Both have wings, although the wings on a satellite are solar.
One major difference is that an airplane gets about 3.96 miles to a gallon of fuel, whereas a satellite gets about 1.8 million miles to a gallon -- not bad for fuel efficiency!
And, there are obviously more differences than just fuel efficiency.
One significant difference is that we are building products that are expected to operate for 15 years on orbit, without any direct maintenance.
Also, the business case -- for a satellite -- which defines how it will be used, must also be determined for that 15-year life.
This is a remarkable feat when you consider the fact that Long Range Business Planning seldom goes beyond 10 years, and the real predictive capability is most likely 3 to 5 years, at best.
This tells me that the more adaptive the satellites are in the future, the better off the service providers will be in achieving their goals as the demands of their business change.
Flexibility is the key.
Another significant difference between the satellite business and the airplane business is the production run.
In the airplane industry, the production run drives economic pricing for the customer, and the ability to increase profit as the learning curve for airplane production improves.
In satellite manufacturing, because of the diversity of customers and the diversity of their services, we are effectively making custom satellites each and every time.
So, although we emphasize Lean Manufacturing, we are not achieving the economies of scale that would enable customers to take risks to move into radically new markets to disruptively expand our business, and that of our customers.
Prior to my arrival to the satellite world, I'd heard that "broadband" and "LEO constellations" were the "killer applications."
Although Broadband is on the rise -- and examples of this include Wild Blue, SHIN, and Spaceway -- it took several years and a different manufacturing infrastructure and satellite model to provide the desired services.
Today's "killer applications" are Mobile Satellite Services with Ancillary Terrestrial components, and Commercial Satellite Services for government applications.
Will they be successful? Yes.
When? That's harder to predict.
Another trend that is discussed every year is consolidation.
The service providers have consolidated dramatically in the last few years, and we are seeing consolidation on the manufacturing side as well, especially in Europe.
Will we see similar consolidation in the United States? It's hard to sayâ¦ but we will see a more selective approach to the pursuit of satellite build opportunities from manufacturers, including Boeing.
We strongly believe in a multiple market approach -- Civil, Military, and Commercial -- and see it as the key to maintaining a stable business.
In our case, in 1997, 70 percent of our satellite business was commercial; and 30 percent was government in 2007. Today, that ratio is reversed.
What is going to happen in the next 10 years? Also hard to say -- but we are convinced that having a multi-market approach will position us well, regardless of the outcome.
We think that this approach will also benefit the Commercial sector by providing adaptable and flexible technology that can be used for multiple missions.
The objective is to reduce risk by procuring fungible assets that can be used in other business applications, or sold or leased to others for their use.
Price points are currently a challenge, but we are also working to productize our current technologies to enable their use in multiple applications.
This is different from the past, where the technology was an "enabler" for the business, and price was not the strongest factor.
We productized digital processing and phased array technologies and provided them on several satellites, including Thuraya and Spaceway.
What other issues in the commercial market have I seen in the last 2 years?
ITAR and Export control.
Despite opinions to the contrary, I believe that in many respects Export Control has improved.
The U.S. Departments of State and Defense, and we as providers of product, are better defining the problem, the issues, and the applications at a higher fidelity that has resulted in some applications being allowed, where previously they would have been disallowed.
Is it a perfect system? No.
But response time is faster, and this will benefit the commercial community, while at the same time safeguarding security.
If I may get nostalgic for a minute, I am also amazed at how far this industry has come -- and in such a short time.
In less than half of a century, we have gone from a satellite, like SYNCOM 2, weighing only 78 pounds with 28 watts of power -- less than a standard light bulb -- to a 702 satellite weighing 6 metric tons and providing more than 16 kilowatts of power.
Computing power is another example of how the satellite business has evolved.
In the early 1990s, processors for satellites had the computing power of 150 Pentium M's, and by 2001, we were building processors for Spaceway with the capability of 3000 Pentium Ms, an increase of 20 times in less than 10 years.
It is fascinating to me that there are so many different ways that space assets can be used, and that each use builds upon the former.
When we started, back in the 1960s the focus was on the movement of data -- one channel at a time.
As early as 1958, Christmas greetings from President Dwight Eisenhower were broadcast via satellite.
This momentous event spurred engineers to improve satellite capability, longevity, and tracking.
Within two years government communications satellites were orbiting close to the planet, but these small satellites orbited Earth so rapidly that they raced past ground stations and were out of sight over the horizon much of the time.
At the same time, the large Sputnik-era satellites were too large for any existing launcher to take them up, 22,300 miles above the equator, so engineers began working on a smaller satellite.
As we all know, eventually we came to understand the benefits, described by Arthur C. Clarke, of geosynchronous orbit, and that we could cover the entire Earth with three spacecraft.
But large, ground-based antennas were required to communicate to these smaller spacecraft, and our programming abilities rested on the ground.
Fast forward to today, and the small satellites that communicated to antennas the size of a house have been replaced by highly capable, sophisticated satellites able to communicate to an antenna the size of an 18-inch pizza.
Satellites originally slated to deliver data have expanded their roles to include the Internet, direct-to-home television, continuous radio programming, and advanced mobile services beyond voice, data, and video.
A decade ago satellites already in orbit could perform just one specific mission. Today they can now be reprogrammed on-orbit in a matter of days, resulting in increased service and capability, not to mention the costs possible with multiple-use characteristics.
So what is the future for communications satellites?
I was impressed by a recent article written by Ed Horowitz that discussed the Internet Protocol as the key technology driver.
And I agree with Ed, that if we start with this principle, then how do we provide capabilities to further support the transformation from digital to an IP-based Satellite Service Provision?
How can we customize our offerings to further support our customers as they seek to serve their customers?
This may seem a ways off, but if you look at the speed of advancements in this industry, I predict that it will be sooner than we all think.
And I know of another area that, although less technically revolutionary, is one that I think it will have significant impact on the government and commercial markets.
That is the concept of the "hosted payload," which means that commercial providers can host a payload on their satellites that can then be leased to the military to augment their telecommunications requirements.
This deserves attention, for today the demand for routine communications within the military -- and I am referring to those that do not require encryption or other security measures -- far exceeds the supply available.
A recent statistic showed that the U.S. Department of Defense currently uses 3 gigabytes per second of worldwide SATCOM capacity, and 80 percent of that is being provided by commercial satellites -- at a cost in excess of $500 million annually.
And -- it is predicted that the military will require 50 gigabytes per second by 2019.
To me, that opportunity has tremendous potential for commercial satellite service providers.
Another interesting trend deals with anti-jamming, which is being increasingly discussed among commercial operators as incidences of signal piracy and signal jamming -- and lost revenues associated with them -- rise.
In this highly competitive industry where continuous communications -- 24 / 7 -- is an imperative -- satellite providers must be able to rely on not only the quality of their signal, but the integrity of their signal.
And those who cannot protect the business face the possibility of customers moving to other satellite providers or terrestrial applications.
The good news is that today we have the technology to substantially eliminate these types of issues in the future.
What remains before us is the mechanism to provide it commercially -- and I think that's just around the corner.
From my position, it has been an amazing two years, and I am proud to be part of this dynamic and innovative industry.
Our future -- and the advancements to come -- are very exciting.
On behalf of Euroconsult and Boeing, enjoy your lunch and the rest of the conference.