Space: the forgotten frontier?
Space is very much a reality in our lives, even if we are not always aware of it. And it is likely to grow in importance in the future, with far-reaching national and international implications, not least because of the dual nature (military and civilian) of most space technologies.
Whether we benefit from these developments or not depends on the actions of space-faring countries – including OECD members. Now is an opportune time to take a closer look at the problems facing the space sector and the issues new space applications raise.
The space industry has indeed had its problems of late. Apart from headlines about accidents and stories of space tourism, public interest in space has generally declined since the heady days of the space race between the US and the former Soviet Union four decades ago.
Public budgets have declined too. In the 1960s the race to put a man on the moon propelled the budget of the National Aeronautics and Space Agency (NASA), a civilian agency, to close to 1% of the US GDP. By comparison, today’s NASA budget is sharply lower, at 0.14% of US GDP.
Still, the total US public space effort (including the military) is US$28 billion, which accounts for a hefty 75% of the world’s public space expenditure.
Although the Soviet Union was the first country to send a man into orbit, Russia is now just a medium-sized player in budget terms, with public spending around $700 million per year.
This is less than Italy, whose $939 million budget in 2001 makes it the second most important space-faring nation in Europe after France ($1.2 billion). Germany is third, with a space budget of only $616 million (40% lower than in 1995). Total European space outlays (civilian and military) were just $6 billion in 2001 (including $3.5 billion for the European Space Agency), or a fifth of the US figure.
In Asia, Japan still has the second largest civilian space budget in the world, at $2.4 billion in 2001, but that budget has declined since 1995. Outside the OECD, China’s ambitious programme, which includes sending a person into space before the end of 2003, is believed to soak up some $2 billion annually, putting it nearly as high as Japan. And India also has a strong interest in space, with a budget of $402 million.
The decline in OECD member budgets has affected the manufacturers of launch vehicles and spacecraft and the providers of launching services – the so-called upstream segment of the space sector (see table for a definition of the sector). In an effort to maintain revenues, they have been forced to seek new private business opportunities globally, notably in telecommunications.
However, the shift from domestic, largely protected, public markets to global private ones forced the industry to consolidate into international consortia. In the US, out of the 20 major space companies in the 1980s, only three major ones were left by 1997 – Boeing, Lockheed Martin and Raytheon. In Europe only three main players were left by the end of 1990s – European Aeronautic Defence and Space Company (EADS), Alcatel Space and Alenia Aerospazio.
Now the sector is in the doldrums, as demand fell after the high-tech bubble burst in 2000. Moreover, the large fleets of low earth orbit (LEO) mobile telecommunications satellites that many expected would be launched in the 1990s never really got off the ground. The low point for the sector was reached in 2001, when only 16 commercial satellites were launched. Conditions have since improved, with 33 commercial satellites launched in 2002. A similar launch rate is expected in 2003, meaning satellite replenishment needs will be met, but there will be little in the way of actual growth. Even this market has its limits; newer satellites are more powerful, more versatile and last longer than old ones and therefore do not have to be maintained or replaced as often.
Although firms like EADS, Boeing and Lockheed Martin have had to cut back in a weak market, they have been encouraged by governments to invest in building new launchers to stay in the space race. As a result, a new generation of heavy launchers has come on stream in the US (Atlas 5 and Delta 4) and Europe (Ariane 5), while India and Japan are about to enter the market with their own rockets, besides existing Russian and Ukrainian launching capacity. The resulting over-supply has further depressed prices of competing national space firms.
One way to reduce the strain would be further consolidation. For now, this is probably out of the question, partly because governments normally want independently guaranteed access to space for national security reasons. The Columbia disaster may well force a comprehensive review of this policy. Nevertheless, further mergers among so few major players would probably raise competition concerns.
Cutting launch costs will not help space firms much in a situation of weak demand, simply resulting in lower revenue. The best hope for the industry is for new spacerelated applications to emerge that would get launch pads busy again. Growth would then resume. But are there any to watch out for?
Watch this space
Indeed, firms further downstream, in spacereliant services and applications, have been doing quite well. In some cases, but for regulatory and other bottlenecks, they could do even better. However, while the actual and potential benefits of these applications are substantial, their growth holds implications that demand close public attention.
Consider the case of telecommunications. This is by far the most dynamic and commercially mature market for space applications. But it is fraught with challenges.
Particularly striking in recent years has been the direct-to-home (DTH) revolution, reflecting the superiority of satellites over their terrestrial competitors for one-way communication, particularly broadcasting. Over the last decade, the number of TV channels broadcast by satellite has increased more than tenfold, from less than 800 in 1991 to 9,300 in 2001. This progress is due, in large part, to remarkable advances in space technology and lower cost: today, one single DTH satellite is capable of broadcasting 200 channels to 1 billion people and it is 180 times cheaper to send a broadcast signal by satellite now than it was five years ago.
The success of DTH is reflected in the increase in the subscription base over the past decade: between 1991 and 2001, the number of paying subscribers to satellite TV services (such as EchoStar in the US, BskyB in Europe and SkyPerfectTV in Japan) rose from a few thousand to close to 50 million, while another 50 million or so viewers have access to free satellite channels. This DTH craze has been a boon for direct broadcasting satellite (DBS) operators; their revenues have shot from close to zero in 1991 to more than $24 billion in 2001. This represented about a quarter of the value-added created in the telecom segment of the space sector in 2001 ($98.7 billion). By 2010, this telecoms figure may almost triple to more than $283 billion (see table). By then, more than 55,000 satellite-based TV and video channels may be available worldwide.
Such a rapidly evolving market has important implications. DBS operators appear to have some natural monopoly characteristics for a start, as experience to date suggests: the larger the subscriber base, the more content the operator can offer and the greater its ability to attract new subscribers. In this context, regulators have to decide whether the benefits of size in terms of the ability to offer a wider choice and attractive subscription charges are sufficient to offset the risk that the DBS operator might abuse its dominant position.
Some regulators have already acted. In the US, the Federal Communications Commission (FCC) recently blocked a proposed merger between Direct TV and EchoStar, despite the overall dominant position of cable operators, arguing that the US market was large enough to accommodate two satellite operators and that rural viewers (with no access to cable) could be adversely affected. By contrast, the Office of Fair Trading (OFT), the British competition authority, ruled in December 2002 that although British Sky Broadcasting (BSkyB) dominates the UK market, it has not been found in breach of competition law. It is likely that a similar view will prevail in other major European markets (France, Italy, Spain), eventually leading to consolidation and growth. Nevertheless, regulators will have to keep a sharp eye on the market as it matures.
Earth Observation (EO) is another space application that marries potential and risk. EO was originally developed for security and defence purposes. Indeed, the world’s first spy satellite system, the US’s Corona project, used EO to keep track of Soviet military build-ups from 1960 to 1972, after an American U-2 spy plane was shot down in May 1960. Since then, the use of EO has been extended to civilian applications, including land use, resource management, exploration, mapping and regional planning, as well as hazard warning and disaster assessment related to landslides, earthquakes, volcanic eruptions, floods and droughts. EO can also help with the enforcement of international agreements and has proved useful in the verification of arms control treaties between the US and the former Soviet Union.
EO is largely publicly funded. The data generated is distributed free of charge or for a fee to public and private users. However, even when a fee is charged, the revenues generated by these sales do not cover the operating cost of satellites. Most EO systems (such as meteorological satellites) are seen as global public goods that generate widespread indirect benefits.
Privately funded EO systems targeting value-added services are emerging and the collection and processing of satellite images is developing fast. For instance, Space Imaging, a Colorado-based firm founded in 1994 with financial backing from Lockheed Martin Space Systems, Raytheon Systems Company, Mitsubishi and Hyundai, sees its business as “transforming visual information into visible results” to improve efficiency in areas such as fire and other hazard control as well as home security.
As technology improves and prices come down, the use of EO will probably spread. Such heightened global transparency is bound to cause policy tensions, especially in defence and security matters. Privacy concerns are also likely to rise as EO images become increasingly available to government agencies, business and the public at large.
Global navigation and positioning is another space application that deserves public attention, not least because several key economic sectors have grown to rely on it. Even financial institutions use navigation satellite receivers as a precise time reference to enable transactions on thousands of computers around the world.
The global positioning system (GPS) is the best known such system today. Originally developed by the US Department of Defense to maintain troop contact and position, it consists of 24 satellites launched between 1989 and 1993 in medium earth orbit (10,600 miles). After proving its military value in the Gulf War, GPS was made available free to commercial users in 1996, but remains under US military control.
Its success in the consumer and business markets was instantaneous. GPS is rapidly becoming a standard feature in everything from automobile navigation to leisure goods. It can be found in mobile phones and handheld computers. The transportation industry now depends on GPS for truck fleet and shipping management, for instance. GPS can help locate lost fishing crews, missing children and the like. It is currently being tested as an air traffic control support that could help reduce flight congestion. GPS could also be used in road pricing and could play a major role in the development of intelligent highway systems. It can track the movement of glaciers, tectonic plates and coastlines, and help in monitoring large structures such as dams or bridges. It can even be used for underground work: the builders of the Channel Tunnel were one of the technology’s first commercial users, employing GPS to guide crews moving from opposite directions in England and France to an exact meeting place in the middle.
So, what are the risks? Quite simply, a disruption in the GPS signal (whether accidental or deliberate) could have serious consequences, especially for those systems that now depend on it. Its protection is understandably becoming an issue of widespread public concern.
Another risk is that the US military who control the GPS system might one day have to limit or even cancel the service to users abroad, in the event of a military conflict, for instance. Not surprisingly, other countries want control of the technology and to avail themselves of the perceived industrial benefits by building their own positioning and navigation systems. Europe’s Galileo is a civilian system that, by the end of the decade, should complement and compete with GPS. Its inter-operability with GPS should increase reliability and reduce vulnerability to failure. Questions remain, however, notably over security.
Space technology is out of the genie’s bottle. Properly harnessed, it can generate substantial benefits for mankind, notably by contributing to a more widespread diffusion of knowledge, more efficient movement of people and goods, and a better management of resources. It can also contribute to a safer world. But space carries risks.
National and international policy objectives, resource implications, efficacy of approaches, benefits and costs, public-private roles, public interest issues and size of programmes, all demand critical review, as does the question of regulation of space activities at the international level.
The OECD’s International Futures Programme can help find answers to such questions. Its non-adversarial, results-oriented international approach enhances clarity of arguments and furthers international co-operation. The high stakes in space reinforce the need for such an initiative. Space may be a final frontier, but it should not be a forgotten one.
Note: Various space-related issues have been addressed by the OECD in the past, notably issues related to trade, industrial policy and competition policy in the telecommunications sector. The two-year Futures Project on the Commercialisation of Space and the Development of Space Infrastructure represents the most comprehensive OECD effort on space to date.
• OECD (1985), The Space Industry: Trade Related Issues, Paris, France.
• OECD (1988), Satellites and Fibre Optics: Competition and Complementarity, Information and Computer Communications Policy No. 15, Paris, France.
• OECD (1995), Satellite Communication – Structural Change and Competition, Committee for Information, Computer and Communications Policy, OCDE/GD(95)109.
• OECD (1996), The Reform of the International Satellite Organisations, Competition Policy Roundtables No. 7, OCDE/GD (96) 123.
• OECD (2002), “The Commercialisation of Space and the Development of Space Infrastructure”: A proposal for an OECD Futures Project, International Futures Programme (www.oecd.org/futures), Paris.
© OECD Observer No. 236, March 2003
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