Galileo public-private partnership crashes to earth

The group of industrial companies selected as would-be concessionaires for the Galileo system was asked by the EU’s Transport Council to restructure and restart the negotiations by today (10 May).

But last week Jacques Barrot, the European commissioner for transport, crossed the Rubicon and unveiled a long-awaited alternative contingency plan to set up the initial infrastructure through public funding before handing over an operational system to the public sector.

According to many insiders at the European Space Agency (ESA) and in the industry, this could be the end of a long misunderstanding on the actual nature of the Galileo project, which should be considered as a strategic infrastructure for public service with commercial applications, rather than as a commercial and industrial venture initiated and sponsored by public funding.

When Galileo was first announced in 1999, after five years of preliminary studies, we were living in a very different world. The internet bubble was still inflating rapidly and the space industry was considered as a valuable investment on the stock market, with more than 30 commercial geostationary satellite launches a year, and the prospect of large constellations in low earth orbit for mobile telephony and global broadband access. Navigation signals were available for free (although with limited accuracy), courtesy of the US Department of Defense’s GPS (global positioning system). Nevertheless, the need for a more efficient and compatible system was perceived as strategic by the European Union to ensure the long-term viability of a very promising sector of positioning and timing-based services (from personal navigation to the synchronisation of mobile phone cells). A public-private partnership (PPP) was considered to be a good funding scenario by most partners, possibly based on a mutual hypocrisy once described with humour by ESA’s Director-General Jean-Jacques Dordain as "in a PPP, each partner expects the other to pay the bill".

At the turn of the millennium, the prospects for the space industry turned grim. The bubble burst, leading to a collapse in the geostationary satellite market. Constellations proved to be a failure, with more than $2.5 billion from investors lost. Space was no longer a stockmarket bonanza and the industry had to undergo major restructuring, with massive lay-offs, to survive. Meanwhile, the Galileo scheme remained unchanged.

ESA and the European Commission poured €1.1bn into the development phase. The ESNI (European Satellite Navigation Industries, formerly Galileo Industries) consortium was set up from major space contractors from France, Germany, Italy, Spain and the UK, to develop the satellites and ground segment, while the Commission/ESA Galileo Joint Undertaking (GJU) was created to select a private concessionaire to bring in an additional €2.5bn to build, deploy and operate the system.

Today, the project is almost stalled and both ESA and the Commission are trying to cut the Gordian knot created by years of endless bargaining over petty European and national interests in every part of the programme, from the tiniest industrial return issue to the location of control centres. "We’ve been held hostage on each decision," laments an insider of the programme at ESA.

The delays have forced ESA to order two Giove test-bed satellites to demonstrate technologies and to secure the frequency reservations from the International Telecommunications Union (ITU) before a June 2006 deadline (the operational constellation was initially scheduled for 2004). A minimum satellite, Giove A, was launched in December 2005. An actual prototype of a Galileo satellite, Giove B, went through major technical problems during tests last year. A back-up Giove A2 was discreetly ordered in March in case of launch failure. Four Galileo satellites were also ordered by ESA in January 2006 and are tentatively planned for launch in 2009 to demonstrate an initial capability.

In January, ESA issued a warning to ESNI following delays and inconsistencies in the in-orbit validation programme about results from the investigation on the Giove B mishap. On ESNI’s performance, Gilles Maquet from Astrium admits: "We could have done better. But other voices in the industry disagree. "We worked under high political pressure and we had to deal with moving requirements," one says.

"No one can handle a project that complex if the blueprints are to be changed everyday to cope with the latest political decision."

ESNI now declares itself confident that the technical problems have been solved and that Giove B will be ready for launch in late 2007.

Further delays might prove disastrous for the industry. The satellite production-line must not be stopped between the four early satellites and the bulk of the constellation, which will number 26 more spacecraft. Otherwise there will be extra costs and technical risks.

The GJU, whose mandate had been extended, was dissolved last December on the basis of "mission accomplished", although it had failed to select a concessionaire and to sign a contract with the merged finalists. The GNSS Supervisory Authority (GSA), whose role should have been to overview the concessionaire’s work, has taken over the negotiation.

On the other side, the concessionaire (a mixed conglomerate of industrial groups - AENA, Alcatel-Lucent, EADS, Finmeccanica, Thales - and operators - Hispasat, Inmarsat, TeleOp) still lacks an integrated structure. In March, the EU’s transport ministers issued a real ultimatum to the consortium to restructure and propose options by 10 May, ahead of their next meeting by 7 June. A 20-year concession contract would follow in September.

For the concessionaire, however, the key question remains: how to be sure of making money with Galileo?

Most users will use the free Open Service and prospects for the value-added Commercial Service are promising but uncertain. Before investing several billion euros, the concessionaire has been seeking anchor customers for its best product: the encrypted, high-accuracy, high-integrity public regulated service (PRS), which should be mostly limited to governments and military users. Unfortunately the guarantee that might come from long-term military contracts was denied to the concessionaire by several EU member countries arguing that Galileo should be limited to civilian use.

Barrot’s proposal might be the simplest option to ensure that Galileo will eventually take off around 2011-12, still in time to compete with the next generation of the Pentagon’s GPS. But there is a price tag of €1.2-2.4 bn, depending on when the concessionaire takes over.

If the figures announced by the Commission for the use of Galileo are confirmed, regular taxes on services created via Galileo might repay this investment in time.

Meanwhile, ESA and GSA have started to work on the continuity of the programme, for the technological accompani-ment of Galileo and the preparation of its second-generation satellites.

• Stefan Barensky is a space editor and consultant.

The group of industrial companies selected as would-be concessionaires for the Galileo system was asked by the EU’s Transport Council to restructure and restart the negotiations by today (10 May).