by Gerry Oberst

Europe took a number of important steps in mid-summer this year toward turning its proposed Galileo satellite radionavigation system into a reality.

In late June, the European Union (EU) and the United States reached an agreement on the use of Galileo alongside the existing U.S. Global Positioning System. Then in mid-July, the European Commission issued a proposal to finance and implement the commercial operation of the system, while the European Council adopted a structure for managing the program.

The Commission press statement on the June 28 EU/U.S. agreement contained some understandable hyperbole. It proclaimed that "Galileo has now become the de facto world standard of open signals…" This statement is somewhat rich, given that the system is not due to start operating until 2008 or 2009–if all remaining validation, deployment and commercialization steps take place on schedule.

Agreement with the United States was necessary to keep this schedule moving, because critical decisions on how to share radio spectrum between GPS and Galileo were needed. The Agreement sets up a framework for cooperation, creating at least four working parties on issues such as radio frequency compatibility, trade and civil applications, design and development of next-generation systems and security matters.

From the regulatory perspective, the Agreement requires consultation between the U.S. and Europe before establishing licensing requirements, technical regulations or any rules that have the effect of mandating the use of any civil satellite-based navigation and timing services. Further, the U.S. and Europe agree to take a non-discriminatory approach to trade in civil satellite-based navigation, and to avoid disguised restrictions to international trade.

The parties agree to "endeavor" to provide navigation and timing signals without direct fees for end use. This vague limit is contradicted by subsequent language that the parties will encourage "practicable steps" to ensure accountability for fees, which seems to presuppose that there will be fees for satellite radionavigation signals. Time will tell what happens, but this language clearly does not impose any serious barriers to charging for Galileo signals in the future.

The basic aim of the agreement is to make GPS and Galileo service fully compatible and interoperable. "This means that all users of satellite radionavigation will be able to simultaneously, with only one receiver, use one of the other of the two systems, or both at the same time," according to the EU press release.

Before anybody can use Galileo, simultaneously or not, it has to move out of the development and validation stage toward deployment. To that end, in mid-July the European Commission proposed how to finance successive phases of the program in order to progress to commercial operation.

The definition stage for Galileo started as far back as 1999. European political institutions have agreed all along about the "enormous significance of Galileo for the European Union’s industrial, transport, technological and environmental development…" Moving the project from definition to development and validation has required an investment of over a billion euros.

In its July paper, the Commission proposed to devote upwards of another cool billion euros ($1.2 billion) to continuing the project into deployment.

The Commission estimates that the deployment phase will cost 2.1 billion euros ($2.5 billion). This covers building and launching satellites and establishing the ground-base infrastructure. The private sector is expected to pay for two-thirds of this cost, with the rest financed by the public sector.

The Commission also expects that "exceptional" public financing will be needed for the first years of the commercial operating phase, which could start in 2008. The exact amount of the public contribution is not set, and will not be known until negotiations with industry are completed in 2005. (The European Space Agency released its procurement process to industry in July 2004, in order to create the future "Galileo Operating Company.")

To ensure it is wisely spent and managed, the European Council on July 12 adopted a regulation No. 1321/2004 to establish the management structure for Galileo.

The Council regulation creates a European Global Navigation Satellite System Supervisory Authority (called the "Authority"). The Authority has a long list of duties, which include concluding a concession contract with industry, managing public funds in the project, coordinating EU member state activities with respect to radio frequencies and coordination through the International Telecommunication Union.

It also will hold responsibility for system safety and security. The Authority will own large chunks of assets already financed from public funds for Galileo and generally be the face of European government in the Galileo project.

None of these critical steps are yet complete. The EU/U.S. agreement must be ratified, the Commission proposal must be adopted, and the new Authority must be set up to negotiate a concession with industry players. These steps, nevertheless, show clear signs of progress for the world’s next satellite radionavigation system.

Gerry Oberst is a partner in the Brussels office of the Hogan & Hartson law firm.