In a few of the past columns, we discussed the expanding role of commercial satellite capacity and network services for military and other government use, the role of integrators or aggregators serving as intermediaries between fleet operators and the Pentagon in commercial service provision, and what military needs the commercial fleet can serve best.

The Defense Information Systems Network Satellite Transmission Services-Global (DSTS-G) regime, under which the Pentagon procures commercial satellite service, is due to expire in 2011 and must be replaced. The Pentagon also is in the midst of its 2010 Quadrennial Defense Review process. Both of these events will influence military use of commercial satellite service going forward. What is the future likely to look like?

The Pentagon has used the spot market for commercial satellite service extensively and used long-term contracts only on an infrequent basis, driven principally by end user profiles and requirements. Military and government use of the spot market tends to benefit the integrators/aggregators and arguably acts to the detriment of fleet operators, which, as we have noted, argue that long-term contracts and direct relationships with the military and government are necessary for their own satellite procurement and capacity forecasting.

The Pentagon is used to long-term development and procurement contracts for equipment like airplanes and ships, says Denis Curtin, COO of X-band satellite operator Xtar, and a high percentage of its satellite capacity and service requirements are predictable year-on-year. The Pentagon, therefore, should be willing to de-emphasize the spot market for long-term capacity contracts. Curtin further sees Pentagon acceptance of procurement by commercial operators of military X-band (roughly 7.2-8.4 GHz) downlink/uplink frequencies like Xtar to meet the Pentagon’s continuing bandwidth demands.

While excess bandwidth capacity exists to be sold, the spot market gives maximum flexibility to the Pentagon. It also is the case that the comparison between long-term contracts for equipment like planes and ships and for services is a limited one. The military approaches the purchase of commercial fiber-optic capacity much as it does satellite capacity and as a supplemental budget procurement item. The Navy is the only service that has a specific line item in its budget for commercial satellite use. Curtin also sees a Congress-driven push away from supplemental budget procurement and towards Navy-style line-item budgeting for commercial satellite capacity by the other services, a trend that would favor long-term contracts. He anticipates that Pentagon replacement of the DSTSG contract will use multiple contracts, maintaining the integrators’ ability to give the operators continued competition.

While the Pentagon once viewed commercial satellite service as a supplement to its own fleet, it now considers commercial service a necessity, says Rebecca Cowen-Hirsch, president of Inmarsat Government Services. This shift is driven by requirements for bandwidth-intensive applications and supported by the commercial fleet’s comparable reliability to the military fleet as well as the fact that the applications for which the military employs commercial service do not require the military fleet’s anti-nuclear hardening and other levels of security.

Nevertheless, Cowen-Hirsch notes that operators increasingly are investing in security technologies driven by military use but which also provide added value for commercial customers. For Inmarsat, this includes National Security Agency Type 1 encryption command link functionality, preventing any unauthorized party from commanding the enabled satellites. She adds that while there is a place for direct relationships between operators and the Pentagon, integrators do provide clear added value in turnkey network solutions.

These industry insiders point to a future of continued expansion of military use of commercial service, a continued place at the table for integrators/aggregators, and a post-DSTS-G future of multiple contracts to maintain competition among operators and providers and to continued use of the spot market by the military to preserve flexibility. The pending Quadrennial Defense Review should provide some additional predictability as to Pentagon excess capacity needs and might support greater willingness to enter into long-term contracts.