Defense Satellite Communications: Alternative to DOD's Satellite
Replacement Plan Would Be Less Costly (Letter Report, 07/16/97,
GAO/NSIAD-97-159).

GAO reviewed the Department of Defense's (DOD) plan to acquire a
follow-on system to the Defense Satellite Communications System (DSCS),
focusing on DOD's long-range plan to replace DSCS in fiscal year (FY)
2006 and its interim plan to replenish the DSCS constellation with
satellites in the inventory, relative to satellite communication
requirements.

GAO noted that: (1) during the next decade, DOD anticipates that its
requirements for high-capacity satellite communications will increase
significantly because of the: (a) shift in the national military
strategy; and (b) increasing availability of advanced satellite
communication technologies and services and DOD's desire to take
advantage of such technologies; (2) DOD's Joint Requirements Oversight
Council plans to review these requirements later this year; (3) the
DSCS' replenishment satellites, most of which are to have twice the
capacity of the existing operational satellites, are not expected to
keep pace with the projected requirements; (4) to the extent that these
requirements are not satisfied by the system, the users' alternative
would be to lease satellite communications from commercial providers;
(5) funding for the replacement of the system in FY 2006 is to be
requested starting in FY 2001; (6) meanwhile, the projected requirements
are expected to continue increasing, which will force increases in the
leasing of commercial satellite communication services to meet
unsatisfied requirements; (7) a DOD analysis indicates that commercial
leasing is more costly than acquiring equivalent commercial-like
capabilities; (8) according to military satellite communications program
representatives and studies, the first launch of a replacement satellite
would be technically feasible in FY 2003; (9) GAO's analysis of the
effect on costs of this 2003 alternative, compared to DOD's 2006 plan,
indicates that the government could save about $2.8 billion in future
years; and (10) the alternative, however, would require DOD to transfer
about $945 million in planned funding from FYs 2004-2006 to its FYs
1999-2003 future years defense program.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-97-159
     TITLE:  Defense Satellite Communications: Alternative to DOD's 
             Satellite Replacement Plan Would Be Less Costly
      DATE:  07/16/97
   SUBJECT:  Communication satellites
             Military satellites
             National defense operations
             Defense cost control
             Commercial products
             Defense procurement
             Cost effectiveness analysis
IDENTIFIER:  Defense Satellite Communications System
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

July 1997

DEFENSE SATELLITE COMMUNICATIONS -
ALTERNATIVE TO DOD'S SATELLITE
REPLACEMENT PLAN WOULD BE LESS
COSTLY

GAO/NSIAD-97-159

Defense Satellite Communications

(707144)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  DSCS - Defense Satellite Communications System
  GBPS - Gigabits Per Second
  MBPS - Megabits Per Second

Letter
=============================================================== LETTER


B-272656

July 16, 1997

The Honorable William S.  Cohen
The Secretary of Defense

Dear Mr.  Secretary: 

We reviewed the Department of Defense's (DOD) plan to acquire a
follow-on system to the Defense Satellite Communications System
(DSCS).  Our specific objectives were to assess DOD's long-range plan
to replace DSCS in fiscal year 2006 and its interim plan to replenish
the DSCS constellation with satellites in the inventory, relative to
satellite communication requirements.  This report discusses an
alternative to DOD's long-range plan that could save the government
about $2.8 billion in future years if acquisition of the replacement
system were accelerated to fiscal year 2003. 


   BACKGROUND
------------------------------------------------------------ Letter :1

DSCS is DOD's primary means of providing worldwide satellite
communications in support of the National Command Authorities,
intelligence users, and military forces.  DSCS also provides
communications services to non-DOD users, as approved by the Joint
Chiefs of Staff and the Office of the Secretary of Defense. 

According to a 1992 Joint Chiefs of Staff policy statement, the DSCS
constellation is to consist of five fully capable satellites, plus
any residual satellites in orbit that have partial capabilities. 
Currently, operational DSCS satellites are located over the East and
West Atlantic, East and West Pacific, and Indian oceans.  Each fully
capable satellite has a communications throughput capacity of about
100 megabits per second (MBPS).\1 Additionally, DOD has five DSCS
satellites that are scheduled to be launched during fiscal years 1997
through 2003 to replenish the existing constellation.  DOD does not
plan to acquire any more DSCS satellites of the current design. 

In 1996, the DOD Space Architect\2 assessed alternative ways of
meeting emerging satellite communication requirements and established
time frames for replacing existing satellite communication systems. 
Regarding DSCS, which is designed for high-capacity communications
(defined as 1.544 MBPS and greater), the Architect recommended that
DOD acquire a constellation of replacement satellites, based on
commercial technology and using commercial acquisition practices,
that would include a broadcast capability.\3 According to the
Architect, this acquisition strategy would minimize technical risks,
development costs, and delivery times.  DOD expected that each
satellite would have about 1 gigabit per second (GBPS) of
capacity--10 times the amount of an existing 100 MBPS operational
DSCS satellite.  Because of expected funding constraints, the
Architect recommended that the first replacement satellite be
launched in fiscal year 2006.  The Joint Space Management Board\4
agreed with the Architect's recommendation, and DOD authorized the
effort last fall in a program decision memorandum. 


--------------------
\1 The amount of information that can be passed through a satellite
is measured in bits per second.  A bit is the smallest unit of
information, and a megabit is a million bits.  Megabits per second
and gigabits (one billion bits) per second are used as common units
of measure for high-capacity satellite throughput. 

\2 The purpose of the Space Architect organization is to consolidate
the responsibilities for DOD space missions and system architecture
development into a single organization to achieve acquisition and
future operational efficiencies.  The Architect also performs this
function with the intelligence community to support national security
requirements. 

\3 Satellite broadcast means data would be transmitted from
terrestrial sources to the satellites, and then retransmitted from
the satellites to multiple users, simultaneously, within focused or
earth coverage listening areas. 

\4 This Board was established by the Secretary of Defense and the
Director of Central Intelligence to ensure that defense and
intelligence needs for space systems, and their terrestrial
components, are satisfied within available resources, using
integrated architectures to the extent possible. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

During the next decade, DOD anticipates that its requirements for
high-capacity satellite communications will increase significantly
because of the (1) shift in the national military strategy and (2)
increasing availability of advanced satellite communication
technologies and services and DOD's desire to take advantage of such
technologies.  DOD's Joint Requirements Oversight Council\5 plans to
review these requirements later this year. 

The Defense Satellite Communications System's replenishment
satellites, most of which are to have twice the capacity of the
existing operational satellites, are not expected to keep pace with
the projected requirements.  To the extent that these requirements
are not satisfied by the System, the users' alternative would be to
lease satellite communications from commercial providers. 

Funding for the replacement of the System in fiscal year 2006 is to
be requested starting in fiscal year 2001.  Meanwhile, the projected
requirements are expected to continue increasing, which will force
increases in the leasing of commercial satellite communication
services to meet unsatisfied requirements.  A DOD analysis indicates
that commercial leasing is more costly than acquiring equivalent
commercial-like capabilities. 

According to military satellite communications program
representatives and studies, the first launch of a replacement
satellite would be technically feasible in fiscal year 2003.  Our
analysis of the effect on costs of this 2003 alternative, compared to
DOD's 2006 plan, indicates that the government could save about $2.8
billion in future years.  The alternative, however, would require DOD
to transfer about $945 million in planned funding from fiscal years
2004-2006 to its fiscal years 1999-2003 future years defense program. 


--------------------
\5 This Council is DOD's authoritative forum for assessing
requirements for defense acquisition programs.  It is chaired by the
Vice Chairman of the Joint Chiefs of Staff. 


   DOD ANTICIPATES A SIGNIFICANT
   INCREASE IN SATELLITE
   COMMUNICATION REQUIREMENTS
------------------------------------------------------------ Letter :3

DOD anticipates that the requirements for satellite communications
will increase significantly during the next decade.  In the 1996
military satellite communications architecture study, the Space
Architect predicted that the demand for high-capacity communications
would increase from the current requirement of 1 GBPS to at least 3.6
GBPS by fiscal year 2006.  Although quantifying requirements beyond
fiscal year 2006 is more difficult, the U.S.  Space Command and other
DOD representatives project that the demand could be much higher by
fiscal year 2010.  The Joint Requirements Oversight Council has not
validated the fiscal year 2006 requirements, but it is expected to
review them later this year. 

A 1995 DOD Satellite Communications Technical Advisory Group's final
report and several previous and subsequent DOD documents that led to
the 1996 architecture study stated that the expected increase in
satellite communications is attributable, in part, to the shift in
the national military strategy from deploying large numbers of forces
overseas to stationing most forces in the United States.  According
to the documents, this shift creates a greater dependence on
satellite communications because of the operational support required
from centers in the United States when forces are to be deployed
overseas for military operations. 

In addition, the documents indicate that the requirements are
expected to increase because of the increasing availability of
advanced satellite communication technologies and services.  DOD has
indicated its desire to take advantage of such advanced technologies. 
Future satellite communications systems, for example, are expected to
support increased military demands for video, imagery, and personal
communication capabilities as well as alternate transmission methods
such as direct broadcasting.  These growing demands will require
higher communication data rates, additional communications capacity,
and better interoperability. 


   DOD'S DSCS REPLENISHMENT PLAN
   WILL NOT SATISFY EMERGING
   REQUIREMENTS THAT WILL RESULT
   IN MORE LEASING
------------------------------------------------------------ Letter :4

DOD plans to replenish the existing DSCS constellation during fiscal
years 1997- 2003 with the five satellites remaining in the inventory. 
DOD is modifying four of these satellites (1) to double each
satellite's capacity from 100 MBPS to about 200 MBPS and (2) to
replace potentially defective parts with improved electronic
components.  Although the increase in capacity is significant, it
will not keep pace with the projected requirements.  To the extent
that valid high-capacity requirements are not satisfied by DSCS, the
users' alternative would be to lease satellite communications from
commercial providers. 

In comparing the 1 GBPS requirement for 1997 with the existing DSCS
constellation's capacity, 50 percent of the requirements either are
satisfied by leasing commercial services or unsatisfied.  Using a
straight-line extrapolation to 3.6 GBPS, by fiscal year 2005--1 year
before DOD plans to replace DSCS--about 75 percent of the
requirements could be satisfied by leasing or using other satellites,
or could be unsatisfied. 

A preliminary DOD assessment indicates that DOD currently pays
commercial providers, on average, about $450,000 per year for 1 MBPS
of satellite communication services.  This average leasing cost was
derived from costs under DOD's commercial satellite communications
initiative\6 and defense business operations fund\7 rates.  DOD
representatives estimated that of the current 1 GBPS requirement,
about 500 MBPS are satisfied by DSCS, about 300 MBPS are leased, and
the remaining 200 MBPS are unsatisfied.  Thus, DOD's current annual
leasing costs are estimated at $135 million ($450,000 times 300
MBPS).  These leasing costs could be as high as $225 million
($450,000 times 500 MBPS) if all the requirements were to be
satisfied.  By fiscal year 2005, the difference between requirements
and DSCS capacity could be about 2,500 MBPS.  Assuming that the
current average leasing cost remained the same, DOD's annual leasing
cost would be over $1 billion ($450,000 times 2,500 MBPS) if all the
projected requirements were to be satisfied. 


--------------------
\6 In 1992, DOD established this initiative to explore greater uses
of the advances in commercial satellite communications.  The
initiative is managed by the Defense Information Systems Agency and
was intended to consolidate commercial satellite leases into a
comprehensive program to take advantage of economies of scale. 

\7 This is a revolving fund for providing goods and services on a
reimbursable basis.  For commercial satellite communications, the
Defense Information Systems Agency develops specific billing rates
for use by DOD components. 


   REPLACING DSCS EARLIER THAN
   PLANNED IS A LESS COSTLY
   ALTERNATIVE
------------------------------------------------------------ Letter :5

DOD's fiscal year 2006 replacement plan for DSCS will not satisfy the
growth in satellite communications requirements, which will
necessitate an increase in commercial leasing of high-capacity
communications services.  A less costly alternative would be to
launch the follow-on system in fiscal year 2003.  Our analysis
indicates that this alternative would cost about $2.8 billion less
than DOD's 2006 plan.  Table 1 illustrates the differences in the
estimated acquisition and commercial leasing costs associated with
(1) DOD's fiscal year 2006 plan and (2) the alternative of
accelerating DOD's plan by 3 years to 2003. 



                                Table 1
                
                Acquisition and Commercial Leasing Costs
                     for DOD's Current Plan and an
                              Alternative

                         (Dollars in millions)

                                                         Increases and
                                                           (decreases)
                                                   2003      from 2006
Costs by fiscal years        2006 plan\a    alternative           plan
-------------------------  -------------  -------------  -------------
======================================================================
Acquisition cost                  $1,575         $1,575              0
1999-2003                            630          1,575           $945
2004-2006                            945              0          (945)
======================================================================
Commercial leasing cost           $6,219         $3,384       ($2,835)
1999-2003                          3,125          2,810          (315)
2004-2006                          3,094            574        (2,520)
======================================================================
Total cost                        $7,794         $4,959       ($2,835)
1999-2003                          3,755          4,385            630
2004-2006                          4,039            574        (3,465)
----------------------------------------------------------------------
\a Our funding assumptions are based on preliminary DOD satellite
replacement cost data. 

According to a DOD analysis, purchasing commercial-like,
high-capacity communication capabilities is more cost-effective than
leasing equivalent commercial services.  Under DOD's 2006 plan, a
constellation of five commercial-like DSCS follow-on satellites,
which would include a broadcast capability, would (1) have a total
capacity of about 5 GBPS (1 GBPS per satellite) and (2) cost almost
$1.6 billion, including launch costs ($315 million per satellite). 
Each satellite would be expected to provide communications over a
10-year life span.  These costs convert to $31,500 for 1 MBPS of
capacity per year ($315 million divided by 10 years divided by 1,000
MBPS), which is in contrast to the estimated average of $450,000 for
1 MBPS of capacity that DOD currently pays for commercial leasing. 
Thus, if this leasing rate remained the same for 10 years, there
would be a 14-to-1 cost advantage ($450,000 to $31,500) for DOD to
acquire a commercial-like system rather than lease an equivalent
amount of commercial services. 

Under its plan, DOD could spend about $6.2 billion in commercial
leasing during the 8-year period from fiscal year 1999 through 2006
to satisfy all the requirements not satisfied by the existing DSCS
and the replacement system.  This estimate (1) assumes that the
requirements for high-capacity satellite communications will increase
on a straight-line basis, (2) includes the existing capacity of the
operational DSCS satellites and the increased capacity of the
replenishment satellites that are currently being modified, and (3)
applies the $450,000 annual average lease rate to the difference
between (1) and (2). 

Under the alternative, DOD could satisfy all the requirements not
satisfied by DSCS and the replacement system through commercial
leasing for about $3.4 billion during fiscal years 1999-2006. 
However, all the planned funds to acquire the five DSCS replacement
satellites would be needed earlier, requiring DOD to transfer about
$945 million from fiscal years 2004-2006 to fiscal years 1999-2003. 
The next opportunity for DOD to address a funding transfer is in its
fiscal year 1999 future years defense program, which will be
developed during the remainder of 1997.  Such a funding change would
create considerable savings in operations and maintenance funds that
would otherwise be needed for commercial leasing to satisfy all the
projected requirements.  We estimated that during fiscal years
1999-2006, the alternative would save about $2.8 billion ($6.2
billion minus $3.4 billion) compared to DOD's 2006 plan. 


   RECOMMENDATION
------------------------------------------------------------ Letter :6

Considering the (1) anticipated increase in requirements for
high-capacity satellite communications, (2) relative high cost of
leasing commercial satellite communications and apparent
cost-effectiveness of acquiring commercial-like satellites instead of
leasing equivalent services from commercial providers, and (3)
potential for significant long-term savings to the government, we
recommend that the Secretary of Defense accelerate the introduction
of a DSCS replacement system from fiscal year 2006 to 2003, or as
soon as practicable, if the emerging requirements are deemed valid,
the estimated acquisition and commercial leasing costs are considered
credible, and the necessary acquisition funds can be made available. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, DOD agreed with our
assessment of future shortfalls in military satellite communications. 
It stated that our recommendation regarding accelerating the
introduction of the DSCS replacement system is one option that will
be given full consideration pending completion of efforts by a DOD
military satellite communication transition planning team.  DOD
indicated that in the fall of 1997, it will validate future needs,
determine the level to which these needs will be satisfied, and
establish dates for a replacement system.  Until then, DOD does not
believe it is in a position to consider departures from the baseline
plan, such as accelerating the DSCS replacement system.  Therefore,
it partially concurs with our recommendation at this time. 

DOD's comments are reprinted in appendix II. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To develop information for the report, we examined (1) transition
plans, launch schedules, and budget information related to DOD's
replenishment plans for DSCS; (2) the military satellite
communications architecture study, master plan, capstone requirements
document, single integrated program plan, investment strategy, and
contractor studies related to DOD's replacement plans for DSCS; and
(3) internal memoranda and analyses related to satellite
communication requirements and commercial leasing. 

To perform our analysis, we used DOD's estimates for future
high-capacity requirements, high-capacity satellite replacement and
launch costs, and average commercial leasing rates.  We developed a
model to derive the total costs DOD could incur if the requirements
that exceed DSCS capacity were to be satisfied through commercial
leasing.  Appendix I discusses our analysis of the high-capacity
communications shortfalls in more detail, including information on
DOD's emerging satellite communication requirements, DSCS
constellation capacity, DOD's replacement plan, and an acquisition
alternative. 

We held discussions with representatives of the Office of the Deputy
Under Secretary of Defense for Space; the Office of the DOD Space
Architect; the Defense Information Systems Agency; the Joint Staff
Directorate for Command, Control, Communication, and Computers; the
Air Force's Office of the Assistant Secretary for Acquisition; and
the Army's Directorate of Information Systems for Command, Control,
Communication, and Computers in the Washington, D.C., area.  We also
held discussions with representatives of the Air Force's Space and
Missile Systems Center and the Aerospace Corporation in El Segundo,
California. 

We performed our review from June 1996 through April 1997 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

As you know, the head of a federal agency is required by 31 U.S.C. 
720 to submit a written statement on action taken on our
recommendations to the Senate Committee on Governmental Affairs and
the House Committee on Government Reform and Oversight not later than
60 days after the date of this report.  A written statement must also
be submitted to the Senate and House Committees on Appropriations
with the agency's first request for appropriations made more than 60
days after the date of the report. 

We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Armed Services; Senate
Committee on Appropriations, Subcommittee on Defense; House Committee
on National Security; and House Committee on Appropriations,
Subcommittee on National Security.  We are also sending copies to the
Secretaries of the Air Force, the Army, and the Navy and the
Director, Office of Management and Budget.  Copies will be made
available to others upon request. 


This report was prepared under the direction of Thomas J.  Brew,
Associate Director, Defense Acquisitions Issues, who may be reached
at (202) 512-4841 if you or your staff have any questions concerning
this report.  Major contributors to this report are listed in
appendix III. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions Issues


DOD'S PROJECTED SATELLITE
COMMUNICATION REQUIREMENTS
COMPARED WITH EXISTING AND PLANNED
DSCS CONSTELLATION CAPACITY
=========================================================== Appendix I

Figure I.1 illustrates the Department of Defense's (DOD) projected
high-capacity satellite communication requirements (solid line) from
the validated 1 gigabit per second (GBPS) for fiscal year 1997 to the
projected 3.6 GBPS in fiscal year 2006.  The 6.6 GBPS in fiscal year
2010 is based on an interpolation of DOD's estimated high-capacity
satellite communications requirements.  We used a straight-line
extrapolation to assess requirements data between these points. 

   Figure I.1:  DOD's Projected
   High-Capacity Requirements
   Compared With DSCS
   Constellation Capacity and
   DOD's Fiscal Year 2006
   Replacement Plan

   (See figure in printed
   edition.)

Figure I.1 also illustrates the estimated Defense Satellite
Communications System (DSCS) constellation capacity for fiscal years
1997-2010 (bold bars).  Currently, the cumulative capacity of the
existing constellation of five DSCS satellites is about 500 megabits
per second (MBPS).  Enhancements to four of the five satellites in
the inventory, which are to replenish the existing constellation,
would increase this capacity to about 900 MBPS in fiscal
year 2003.  Thereafter, the constellation capacity is expected to
decrease to about 500 MBPS by 2010.  This is because satellites
gradually degrade before they reach the end of their useful lives. 
We used a straight-line extrapolation to assess capacity data between
these points. 

In addition, figure I.1 shows the cumulative capacity per year for
the DSCS replacement satellites under DOD's 2006 plan (shaded bars)
that would be added to the DSCS constellation.  We assumed that DOD
would launch one satellite per year.  Each replacement satellite is
estimated to have about
1 GBPS of capacity, consisting of about 700 MBPS for high-capacity
communications and about 300 MBPS for a broadcast capability.  For
direct comparison purposes with the high-capacity requirements, the
figure shows only 700 MBPS for each satellite. 

The satellite capacity information presumes no launch vehicle or
satellite failures or delays that would affect the schedule in future
years.  From fiscal year 1997 through 2006, the gap between projected
requirements and the cumulative satellite capacity represents
unsatisfied requirements that would have to be leased or satisfied
with other satellite systems or would remain unsatisfied.  DOD has
not made a decision regarding capacity beyond its fiscal year 2006
plan, and would therefore need to evaluate the continuing gap between
requirements and capacity. 

   Figure I.2:  DOD's Projected
   High-Capacity Requirements
   Compared With DSCS
   Constellation Capacity and the
   Fiscal Year 2003 Replacement
   Alternative

   (See figure in printed
   edition.)

Figure I.2 shows the same basic information as figure I.1, but it
introduces the DSCS replacement system in fiscal year 2003 instead of
fiscal year 2006.  From fiscal year 1997 through 2006, the gap
between projected requirements and the cumulative satellite capacity
represents unsatisfied requirements that would have to be leased or
satisfied with other satellite systems or would remain unsatisfied. 
However, compared with figure I.1, this gap is considerably narrowed,
therefore reducing the need for costly commercial leasing.  Similar
to figure I.1, DOD has not made a decision regarding capacity beyond
its fiscal year 2006 plan, and would therefore need to evaluate the
continuing gap between requirements and capacity. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I



(See figure in printed edition.)

Now on pp.  6 and 7. 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Homer H.  Thomson
Rahul Gupta
James P.  Tallon

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Keith A.  Rhodes

LOS ANGELES OFFICE

James D.  Moses
Samuel L.  Hinojosa

*** End of document. ***