Innovative Analytics and Training, LLC. Proprietary 2012. Page 1

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Alternative Futures: United States

Commercial Satellite Imagery in 2020

Robert A. Weber and Kevin M. O’Connell

November 2011

Contact Information:

Kevin O’Connell

President and CEO

Innovative Analytics and Training, LLC

1455 Pennsylvania Ave NW, Suite 415

Washington, DC 2004

www.innovative-analytics.com

Phone 202-280-2045 x1

Prepared for:

Department of Commerce

National Oceanic and Atmospheric Administration

National Environmental Satellite, Data, and Information Service

Commercial Remote Sensing Regulatory Affairs

1455 Pennsylvania Avenue, NW

Suite 415

Washington, DC 20004

202-280-2045 phone

www.innovative-analytics.com

Innovative Analytics and Training, LLC. Proprietary 2012. Page 2

Foreword

This independent study, sponsored by the U.S. Department of Commerce in late 2010, posits

three alternative futures for U.S. commercial satellite imagery in 2020. It begins with a detailed

history of the U.S. policy and regulatory environment for remote sensing commercialization,

including many of the assumptions made about U.S. government and commercial interests,

international competition, security issues that relate to the proliferation of remote sensing data

and technology, and others. In many ways, it reflects a brilliant American vision that has

sometimes stumbled in implementation.

Following a discussion about remote sensing technologies, and how they are changing, the

report goes on to describe three alternative futures for U.S. commercial satellite imagery in

2020, with a special emphasis on the U.S. high-resolution electro-optical firms. The reader

should note that, by definition, none of these futures is “correct” nor reflects a prediction or a

preference in any way. Alternative futures methodologies are designed to identify plausible

futures, and their underlying factors and drivers, in such a way as to allow stakeholders to

understand important directions for a given issue, including important signposts to monitor as

reflective of movement toward those (or perhaps other) futures. Alternative futures also allow

decision-makers to adapt strategy in the face of these changes, including mitigation or

elimination of futures with negative outcomes or consequences. For this study, the near-term

timeframe of 2020 was chosen to reflect the truly dynamic changes in global thinking and

global markets about this topic.

The report concludes with our independent observations and options about the future role of

the U.S. Department of Commerce and NOAA in the governance of space-based remote

sensing. For both U.S. and international remote sensing countries, space policy and regulation

is becoming less relevant (but not irrelevant) to the governance of remote sensing as the

sensed data is being fused with other data sets (e.g., navigational data) and incorporated into

powerful public and commercial applications.

Three appendices are included at the back of this report. The first highlights key areas of

remote sensing policy and regulation and how they might be re-considered for the 2020

timeframe. The final two appendices map European and Japanese approaches to remote

sensing over the past few decades. Here, the reader might take note of two different aspects

of those comparative approaches: first, the simple differences in the national approaches, and

second, the extent to which U.S. assumptions about foreign behavior were correct, incorrect, or

stimulated unintended consequences. In looking to the future, foreign remote sensing

programs will reflect complex calculations about cooperation and competition that will have to

be assessed critically and objectively.

Innovative Analytics and Training, LLC. Proprietary 2012. Page 3

The research in this report was concluded in April of 2011. While there have continued to be

many dynamic developments in global remote sensing (such as Surrey’s sale of three 1-meter

satellites to China; the success of ORS-1 and NRO launches; shifts in development and launch

schedules for Pleiades and ASNARO; and the emergence of new U.S. licensees like Skybox and

others), we believe that the approach taken within this report will help U.S. government and

commercial decision-makers think creatively about the future.

Indeed, creative thinking is needed in these challenging times. We need to change a 50-year

mindset about how and why we use space for vital civil and national security missions, as well

as the ways that we do it. It would be unfortunate for the national debate about the future of

remote sensing to devolve into a feckless “commercial versus NTM” debate during a time of

fiscal constraint and extraordinary innovation in technical and commercial applications. We will

need to draw upon the comparative advantages of each sector in order to maintain and

advance the exquisite contributions that remote sensing and satellite imagery bring to our

science, safety, and security, every single day.

Finally, on a personal note, space-based remote sensing is “at the leading edge of global

transparency” as I wrote about it (in Commercial Observation Satellites: At the Leading Edge of

Global Transparency with John Baker and Ray Williamson) over a decade ago. The key

difference is that it is only one dimension of a whirlwind of data and technology, and of new

information applications and innovation. Our more transparent world creates challenges and

opportunities for almost every dimension of governance, security, and commerce, in ways that

require substantial re-thinking.

We hope that this report is informative and helpful.

Kevin M. O’Connell

President and CEO

Innovative Analytics and Training, LLC

Washington, D.C. 20004

Innovative Analytics and Training, LLC. Proprietary 2012. Page 4

Contents

Table of Contents………………………………………………………………………………………………….………… 4

Summary………………………………………………………………………………………………………………………. 6

Purpose and Scope…………………………………………………………………………………………………………. 8

National Legal, Policy, and Regulatory Environment……………………………………………………….. 8

Space Commercialization in the 1970s……………………………………………………………………………. 10

Early 1980s Policy, Legal, and Regulatory Framework……………………………………………………. 10

1986 – 1990 Policy Framework………………………………………………………………………………………. 13

1991 – 1994 Policy, Legal, and Regulatory Framework…………………………………………………… 16

1993 – 1995 Policy Push….……………………………………………………………………………………………… 17

1990 – 2000 Commercial Satellite Imagery Projections…………………………………………………. 18

1996 – 2000 Buildup to Commercial Imagery Satellite Operations………………………………… 20

2000 – 2010 Commercial Satellite Imagery Projections…………………………………………………. 24

2001 – 2009 Policy, Regulatory, and Fiscal Framework…………………………………………………. 27

2010: More White House Policy and Commercial Imagery Developments…………………… 34

Remote Sensing Technology Developments………………………………………………………………….. 37

2020 Future One: U.S. Commercial Satellite Imagery is a Thriving Business…………………. 44

2020 Future Two: A Slow Growth Business, Still a U.S. Government Appendage…………. 48

2020 Future Three: Failure as U.S. Government Funds Erode and Competition Grows… 53

Role of the Department of Commerce……………………………….…………………………………………. 60

Appendix A: Key Points in Remote Sensing Law and Regulation…………………………………….. 67

Appendix B: Europe’s Evolving Approach……………………………………………………………………….. 73

Appendix C: Japan’s Evolving Approach……………………….…..……………………………………………. 99

Innovative Analytics and Training, LLC. Proprietary 2012. Page 5

Reference Points

1980 Reference Point: U.S. Concerns in Retrospect about Japan and France…………………. 11

1990 Reference Point: U.S. Government Policy………………………………………………………………. 15

2000 Reference Point: Commercial Satellites Operational; Regulatory Debate Continues.. 23

2010 Reference Point: Another Space Policy………………………………………………………………….. 36

2020 Reference Point: The Purpose of Commercial Satellite Imagery……………………………. 59

Innovative Analytics and Training, LLC. Proprietary 2012. Page 6

Summary

Commercial satellites capable of collecting one meter or better resolution imagery have

been in space since 1999. Two companies operating these satellites, GeoEye, Inc. and

DigitalGlobe, Inc., are largely dependent on U.S. Government funding, such as the 10-year, $7.3

billion two- contract award announced on 6 August 2010 by the National Geospatial-

Intelligence Agency (NGA). Averaged over ten years from 2010 – 2020, this amounts to $730

million per year, or 100 times more than NGA (then NIMA) paid for commercial imagery in

Fiscal Year 1999.

For over 30 years, the U.S. Government in policy, law, and regulation has been an

advocate for commercial satellite imagery, noting repeatedly that Government funding should

not be the basis for long-term success of the industry. Reality is the opposite. Changes in

funding, or a major contribution by disruptive technologies such as small satellites, would have

much more impact than changes in U.S. Government policy, law and regulation because thus

far the Government itself is the business case for this commercial activity.

This alternative futures paper includes decade-spaced reference points since 1980, and

projections by experts in the field that point to possible 2020 outcomes for U.S. commercial

imagery suppliers. Annexes are included on developments in Europe and Japan to track their

progress since a 1980 view by U.S. intelligence that French and Japanese programs would

become serious competitors.

Aside from Federal funding, which may contract due to concerns about the national

debt, the 2020 outlook for U.S. commercial imagery companies depends largely on the scope of

foreign competition and the reason for having such satellites in the first place.

 By 2020, foreign competition likely will strengthen. France, Germany, India, Israel,

Japan, and South Korea all should have mature commercial programs for optical,

sub-meter imagery. Operators in other countries could also impact the market.

Nothing can be done to slow this technology development because the United

States does not control it.

 Commercial satellite imagery programs gained traction in the United States because

the data are unclassified and sharable. The satellites for NGA, however, are

becoming more capable and more expensive due to performance demands. In the

long-run, the need for three kinds of imagery satellites for defense and intelligence

(classified, commercial and tactical) may face declining budget reality.

Innovative Analytics and Training, LLC. Proprietary 2012. Page 7

 Experts agree that the main purpose of the geospatial industry is to track changes on

the planet and changes in physical resources, such as food, water and minerals. If

analysts are correct that the international geo-political-economic system as we

know it will be almost unrecognizable in 2025, high-resolution commercial imagery

satellites should make a much greater contribution than today for non-military

purposes.

Innovative Analytics and Training, LLC. Proprietary 2012. Page 8

Alternative Futures: United States Commercial Satellite Imagery in 2020

November 2011

Purpose and Scope

This paper outlines three alternative futures for U.S. commercial, one meter or better

resolution, satellite imagery in 2020.1 Satellites capable of collecting this imagery have been in

space since 1999. Two companies who have these satellites, GeoEye, Inc. and DigitalGlobe,

Inc., are largely dependent on U.S. Government funding, such as the 10-year, $7.3 billion two-

contract award announced on 6 August 2010 by the National Geospatial-Intelligence Agency

(NGA).23 Because non-U.S. companies are moving ahead in this sector, the alternative futures

build on decade-spaced reference points since 1980, and projections by experts in the field,

that point to possible 2020 outcomes for U.S. commercial imagery suppliers. Although the U.S.

Government has for decades had a supportive policy regarding commercial satellite imagery,

the 2020 outlook for U.S. companies depends largely on the annual amount of Federal funding,

the reason for having such satellites, and the scope of foreign competition. Because GeoEye

and DigitalGlobe cite Government rules and regulations as risk factors for their business, the

paper includes an appendix listing key points in current statute and regulation adapted to 2020.

National Legal, Policy, and Regulatory Environment

Projections on the future health of U.S. commercial satellite imagery activities cannot be

made in a vacuum because Federal law, policy, and regulation affect the conduct of commercial

business in this sector. United States earth observation law, policy, and regulations are

generally not issued together. What is common in all three, however, is that the Department

of Defense, Department of State, and Intelligence Community have a major role in setting the

rules for operating commercial earth observation systems. The Department of Commerce is

the licensing authority, but other departments have a major voice in the decisions. The

outcome of earth observation licensing decisions reflects agency-specific needs and interests,

not just the substance of the license application.

United States law and regulation are more important than earth observation policy

because licenses are issued and enforced according to legal and regulatory criteria, not policy.

Policies are open to interpretation and have no penalties. Law and regulation are specific,

1 There are other types of commercial earth observation satellites licensed by the National Oceanic and

Atmospheric Administration in the Department of Commerce (http://www.licensing.noaa.gov/licenses.html), but this paper is focused on the future of one-meter or better electro-optical imagery due to large U.S. defense and intelligence outlays for these data. 2 NGA News Release, NGA Awards EnhancedView Commercial Imagery Contract, 6 August 2010.

3 Warren Ferster, NGA Awards Big Satellite Imagery Contracts, SpaceNews, 6 August 2010.

Innovative Analytics and Training, LLC. Proprietary 2012. Page 9

enforceable, and intertwined. Tracking rules and regulations since 1978 is useful because it

gives context for risks to business cited by DigitalGlobe and GeoEye in their 2009 and 2010

Annual Reports. Cyber security is a risk first cited in 2010, but specific threats were not

listed.4567 Countries such as China and Russia could be suspects.89101112

2010: DigitalGlobe, Inc. 2010: GeoEye, Inc.

Loss or reduction in scope of any of primary contracts, mostly with U.S. government agencies.

Substantial portion of revenue from U.S. government agencies.

Changes in U.S. government policy. Changes in U.S. government policy.

Interruption or failure of infrastructure. Satellites have life limits and are expensive.

Satellites may not operate as intended. Satellites may not operate as designed.

Failure of ImageLibrary could affect business. Satellites may have construction & launch delays.

Market may not accept products and services. Industry is highly competitive and specialized.

Competition may cause company to reduce prices or lose market share.

U.S. and other governments may operate their own systems.

Changes in U.S. or foreign laws and regulations. Success depends on market acceptance.

Failure to obtain regulatory approvals. Failure of infrastructure.

Global economic condition could affect results. Reliance on resellers who could fail.

Dependence on resellers who could fail. Insurance coverage may be difficult or costly.

Dependence on third parties for aerial imagery. Global financial crisis may affect financial results.

International business exposes company to risks. Business is capital intensive.

Inability to attract and retain key employees. Failure to obtain regulatory approvals.

Satellites have life limits and are expensive. International business exposes company to risks.

Limited insurance coverage and availability. Success hinges on small number of key personnel.

Substantial debt. Government audit could affect cash position.

Stock price will fluctuate substantially. Effective income tax rate may vary.

Amended Delaware certificate might affect stock. Acquisitions, investments, alliances, and ventures could affect operational results.

Do not pay dividends on common stock. Company has substantial indebtedness; servicing debt requires significant cash.

Breach of system security could result in loss of business.

Information and security systems may be subject to intrusion.

4 DigitalGlobe, Inc., 2009 Annual Report, U.S. Security and Exchange Commission Form 10-K, 24 February 2010.

5 GeoEye, Inc., 2009 Annual Report, U.S. Security and Exchange Commission Form 10-K, 12 March 2010.

6 DigitalGlobe, Inc., 2010 Annual Report, U.S. Securities and Exchange Commission Form 10-K, February 2011.

7 GeoEye, Inc. 2010 Annual Report, U.S. Securities and Exchange Commission Form 10-K, March 2011.

8 Ken Dilanian, Virtual war a real threat, Los Angeles Times, 28 March 2011.

9 DigitalGlobe, Inc., Press release on major milestone for imagery collection of China, 22 March 2011.

10 http://finance.yahoo.com/news/DigitalGlobe-Reaches-Major-Milestone, Marketwire, 22 March 2011.

11 GeoEye signs reseller contracts, Geospatial World, 19 March 2009.

12 Department of Defense, Military and Security Developments Involving the People’s Republic of China, 2010.

Innovative Analytics and Training, LLC. Proprietary 2012. Page 10

Space Commercialization in the 1970s

The United States first deployed the government-developed and operated Landsat

imagery satellite in 1972. There were no commercial U.S. imagery satellites in that decade.

Nonetheless, in May 1978, President Jimmy Carter signed a directive giving the U.S.

Government authority to regulate remote sensing, noting that commercial use of space could

provide economic benefit.13

 “The United States shall encourage domestic commercial exploitation of space capabilities and systems for economic benefit and to promote the technological position of the United States, except that all United States earth-oriented remote sensing satellites will require United States Government authorization and supervision or regulation.”

In October 1978, when noting that the United States had photoreconnaissance satellites

for monitoring arms agreements, President Carter described the value and contribution of the

American investment in space programs.14

 “We have invested so far some $100 billion over the history of our American space programs. It’s now time for us to capitalize on that major investment even more.”

 “Earth resources satellites have already proved their value to many countries through remote sensing. They tell us about everything from the location of mineral and energy deposits to the condition of our crops, from the motion of icebergs to the health of the oceans. We will continue to develop and to use these satellites for the benefit of all people of the world.”

Early 1980s Policy, Legal, and Regulatory Framework

Although the 1970s U.S. experience with Landsat was positive, what to do about the

future of the program was uncertain. Competition was expected from France and Japan. The

Acting Director of Central Intelligence wrote to the Secretary of Commerce with views on what

to do about a Landsat follow-on system.15

 “…the remote sensing field will become far more dynamic in the next few years as

U.S. leadership is challenged by the ongoing programs of France and Japan…This

SPOT program has been under development for a number of years and was

approved in late 1977 by the French government…The Japanese satellite program

can also be expected to be a strong competitor.”

13

The White House, National Space Policy, Presidential Directive / NSC-37, 1978. 14

Weekly Compilation of Presidential Documents, 9 October 1978. 15

Frank C.Carlucci to Philip M. Klutznik, 14 October 1980.

Innovative Analytics and Training, LLC. Proprietary 2012. Page 11

 “…an inadequate or poorly implemented system of capital investments poses the

risk of developing and inefficient or unreliable remote sensing system…this will only

serve to further stimulate foreign competition in the international market…the

Europeans and Japanese are already making major remote sensing advances…”

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