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European Military Strategic Communications Market: Evolving Opportunities |
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(Source: Frost & Sullivan; issued March 13, 2006)
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The need for situational awareness in today’s multidimensional battlefield has been steadily increasing over the past years. Sensors and Communication technologies play a critical role in the collection of sensitive data and distribution of crucial intelligence within armed forces. Communications alone do not only ensure the transmission of critical information within the command structure but also facilitate connectivity of otherwise isolated networks, therefore enabling situational awareness at a much greater scale. Together with the United States, European market for military communications account for almost 70% of the global market.
Technological advances in this area have resulted in a qualitative leap with regards to operational capability in the tactical and strategic domains. Such upswings in technology enable transmissions of progressively larger amounts of data through the existing channels. The improving capability of sensors to collect larger amounts of data results in the need and a consequent requirement for an increased capability to send these larger amounts of data via communication networks. Such an improved capability is a defining factor for time critical targeting.
These evolutionary changes in communications and IT technology inside the military are the determining factor on the road towards NCW. This article further examines the market for strategic communications which covers all systems and networks used outside the tactical theatre of operations or otherwise not tactical in nature with the exception of satellite terminals. There are of course some grey areas here between the tactical / operational and strategic domains which include Air Defence (AD) communications and military Air Traffic Control (ATC) communications or IT infrastructures such as the UK DII or the German Hercules program. These segments are not part of this particular market assessment.
There are three main pillars of the strategic military communications: Military Satellite Communications (MilSatCom), long range communications, (for the purposes of this article defined as HF radios and their associated networks) and fixed telecommunication networks. By far the largest market segment - approximately 50% of the overall strategic communications market - is captured by MilSatCom. Frost & Sullivan estimates the value of this market to be in the range of $11bn over the following decade from 2005 to 2014. According to Frost & Sullivan’s analysis, the market for fixed communications follows closely with a 43% market share and expected value of circa $9.4bn. The HF radio market accounts for 7% or $1.6bn throughout the decade.
The MilSatCom plays an essential role in the conduct of 21st century warfare due to its capability to transmit and receive large amounts of information over great distances at the fastest possible rate. Such capabilities are necessary especially for expeditionary warfare, overseas deployments or Operations Other Than War (OOTW). The sub-segment of terminal equipment is expected to grow with all the major European spenders having significant procurement programs peaking during 2009 and 2014.
A representative example of this trend is the French Syracuse III program, which is aimed at the acquisition of approximately 600 terminals by 2009. However, this market will eventually be affected by the wide adoption of multi-band terminals in the near future. So far, the size of multi-band terminals has been a hindering factor for their adoption but as technology matures their flexibility will become apparent – as in the case of SDR for the radio market – especially as Extremely High Frequency (EHF) is utilised more and the other bands capacity is taken up.
With regards to frequency bands in Europe, X-Band (SHF) still remains the band of choice but demand for UHF – especially for naval forces - is also expected to be strong. Its high penetration levels and vast beam coverage, which make it essential in areas of severe climate conditions are the key market drivers for this technology. Furthermore, data is likely to make up around 95% of the total traffic in the future, thus the increased level of throughput offered today by EHF and soon by AEHF will drive the demand for these bands. Such levels of growth also suggest that over the projected timeframe exponential growth in bandwidth demand is likely to push militaries towards more reliance on non-dedicated (or otherwise commercial) sources to satisfy their needs.
The segment for long range communications includes HF radios and their associated networks, which enable armed forces to communicate over long distances without having to commit to large investments typical in the MilSatCom. Besides being a good backup capability for long range, HF has undergone a renaissance recently through the use of ALE (Automatic Link Establishment) technology. ALE made HF communications user-friendly and substantially reduced the need for skilled personnel to operate radios in this frequency, thus reducing training costs as well. In total, this market is expected to remain stable over the next few years and is likely to be negatively affected by the wide introduction of SDR’s early the following decade.
The long range communications market in the form of HF radios and networks is likely to stay on an average annual spending of approximately $160m for the following decade for unit acquisition, associated maintenance services as well as unit replacement. With respect to HF operational advantages it should be made clear that it represents a cheap and reliable backup to SatCom.
At the same time it does not have the inherent security and uncertainty issues of utilising commercial sources – typically a serious consideration for militaries. That is not to say that HF does not have its own security associated problems. Despite technological advances in encryption and faster transmission time that ALE allows, HF still remains at risk from tapping and other electronic warfare measures. However, it is widely assumed that this problem will become less important as encryption devices improve and typical defensive measures (such as spread spectrum techniques) are utilised.
The fixed telecommunications market is typically dominated by national telecommunications providers. It is not just a question of these nation-wide companies having the knowledge and experience to undertake major military contracts but more importantly they are trusted by the respective Ministries of Defence. It therefore comes as no surprise that the major competitors in this market are companies such as France Telecom, T-Systems, Telefonica, BT, Turk Telecom and OTE.
The fixed communications market segment has also been greatly affected by technological advancements, in particular new switching systems, investments in PBX, introduction of VPN’s and IP (or VoIP) technology. Consequently, information technology companies such as Cisco, Nortel and Cogent have been steadily gaining traction in this market.
Partly due to these technological innovations, this market is expected to see an average annual spending close to $900 million over the following decade. Internet Protocol will be the next major spending driver as militaries will progressively seek to migrate their systems towards IP solutions. This technology has proven to reduce the cost of calls and maintenance while increasing efficiency. Interestingly enough, services and maintenance market are very close in size to the nodes and networks markets for fixed communications.
In terms of adoption of new technologies, it is important to note that not all militaries will be rushing to incorporate such technologies into their networks / systems. We expect this trend to be a rather gradual process as opposed to a pivotal change. The fact that more and more militaries harness IP technology will eventually lead to a shift in the market dynamics influencing the entire military communications market.
By Konstantinos Tigkos, Senior Defense Analyst, Frost & Sullivan
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