Select Committee on Science and Technology Written Evidence

Memorandum 99

Supplementary submission from UKspace



  1.  This submission is from UKspace, the main Trade Association for the UK space industry. Membership covers upstream satellite manufacturers, equipment suppliers and ground support providers, including Astrium, SSTL, QinetiQ, Logica, Vega, SciSys, SEA and Serco and downstream operators and service providers such as Inmarsat, BT and Infoterra. It is submitted to the Committee to expand on evidence provided by Sir Martin Sweeting and Messieurs Martin, Paynter and Williams on 6 December 2006.


  2.  The UK's space industry represents a vital high technology national capability, where the upstream satellite manufacturers enable a wide range of high value-added downstream businesses in a rapidly expanding global market for space-based services. However, the upstream industry does not operate in a true commercial environment and this represents a substantial risk to the valuable downstream business, thus necessitating HMG intervention.

  3.  The downstream business benefits strongly from having a vibrant upstream sector in the UK, as this enables the UK community to influence market direction, definition & adoption of standards and regulatory controls, and to be positioned to recognize and move rapidly to exploit new business opportunities.

  4.  Whilst the downstream businesses already operate in a fully commercial marketplace and do not require special support from HMG, the upstream space segment manufacturers (on which the downstream rely) are in an international environment that is not yet commercial since it is highly distorted by the strategic interests of national governments. The upstream space market is thus not yet commercially mature, even in communications and certainly not in Earth Observation and Remote Sensing.

  5.  This intervention will be needed until the market matures and control of space assets is no longer seen as of national strategic importance.

  6.  Without this intervention producing a healthy UK upstream, the UK downstream will be less competitive. The UK upstream requires HMG intervention to "level the playing field" when competing with foreign manufacturers who are supported very substantially through their government's long-term investment in strategic interests. The UK upstream has been remarkably successful in converting limited HMG support into substantial ROI for the UK economy, however there is a discontinuity in the value chain that prevents these economic returns reaching the upstream players and without intervention these UK players are at risk of steadily slipping behind foreign competitors as the market for space expands.

  7.  The decline in long term investment by HMG in space technology is already seriously limiting UK industry's ability to build on its capabilities and maintain international competitiveness; and this kind of long term investment is beyond the horizon of the UK's capital markets. Continued decline in HMG long term investment will inevitably lead to a further erosion of our national high technology capability in space. This will result in a corresponding decline in the UK's ability to play a leading role in key space business opportunities, wealth creation and national security.

  8.  The following notes detail the immature nature of the space market and the essential need for a degree of sustained HMG support to restore and maintain UK industry's ability to exploit our national capabilities and create opportunities for growing commercial businesses.


  9.  Space is crucially important for the global economy and for national and international security. There is a commercially competitive and growing international marketplace operating in conjunction with major government and institutional procurement of satellite infrastructure and services. Key commercial and security applications include broadcasting, communications, global navigation and remote observation.

  10.  This infrastructure is complex. Access is restricted by governments in areas of strategic national interest, including secure communications, surveillance and security as well as certain technological capabilities that also underpin industrial leadership. Some space assets are procured directly by national governments; others are provided by multinational government funded collaborations (eg ESA) and institutional customers (eg EUMATSAT). In some more commercial cases such as satellite telecommunications, industrial contribution in development of new technology and infrastructure is matched (50:50) to support received from national governments and from key international collaborations.

  11.  Government investment in major collaborations (e.g. Galileo, GMES) is essential in order that UK industry is able to access the investment via European governments via ESA, EU, and GJU etc... These programmes are fully funded by governments, recognising that self sustaining commercial activity will only occur in the longer term. If the UK government does not invest at this stage it has a direct impact on the distribution of work during development and subsequently—due to lack of positioning—a much larger impact on the hoped for commercial follow through. GMES in particular has great political and environmental importance as well as commercial implications for industry.

  12.  The commercial market at operator and downstream levels is driven by organisations offering innovative satellite services, leveraging advantage directly or indirectly from technologies developed under government funding.

  13.  An additional factor distorting the market is the selective availability of technology arising from military programmes. This seriously affects those countries without substantial national engagement in such activities, enabling strong nations such as the US and France to hold most of the upstream cards and therefore a significant advantage in controlling the downstream game. Furthermore, countries with a strong home defence market are less vulnerable to manipulation of export controls by others. In a number of areas, particularly Earth Observation and Remote Sensing, the UK is not capturing the advantages of dual use of space technology through an involvement in military applications and this increases the challenge facing industry in overcoming overseas competition in the civil sector.

  14.  This interrelationship between government and private sector means that if its own government does not participate, a nation's industry finds itself unable to engage with advanced technology development as effectively as its competitors. As a consequence, industry will then find it extremely difficult to develop the vital leading edge products and services needed to outperform competitors in the commercial marketplace.

  15.  The strategic importance of the space and satellite infrastructure, its relationship to commercial markets and its capacity to deliver social benefit is recognized by the majority of the world's leading nations and by many developing nations. Their governments therefore fund national programmes and local industry to ensure national sovereignty and leverage over strategic assets, skills and capabilities. However this is not the case in the UK. The UK's policy is to rely on the US for space related defence surveillance and it has invested only on a very modest scale in European space, apart from ESA's science programmes. This is weakening industry's ability to serve a number of important space markets, including satellite surveillance and civil Earth observation in particular.

  16.  The problem is exacerbated by the strong "user pays" philosophy which is at the heart of the UK space policy. This means that Government (apart from the Research Councils) almost exclusively uses what it can already buy on the commercial market or receive free of charge from institutional suppliers. This results in:

    —  limited opportunities for the UK space industry to supply innovative products and services to its home market;

    —  unbalanced UK involvement in space programmes, weighted strongly towards science, generally without a holistic approach to engaging industry in programme implementation;

    —  dwindling support for technology development in the UK in support of space;

    —  weakened bargaining power in international dealings involving space;

    —  weakened industrial positioning for competitive ESA procurements; and

    —  diminishing UK geo-return from ESA and progressive attrition of UK space industry capability.

  17.  A further difficulty compounding the problem for industry is the "disconnected" nature of the value chain. The bulk of the R&D to provide the infrastructure used by the downstream service segment is carried out by the upstream component of the industry. Yet downstream suppliers exploiting the space infrastructure do not need to procure space assets from upstream suppliers on the scale needed to fully fund the necessary R&D and, in any event, a significant proportion of the upstream R&D is already funded by other governments from tax revenues (much of it collected from profitable downstream service providers). In the UK, this source of support for upstream R&D is significantly lacking in comparison to most other countries.

  18.  Where R&D investment has been made in space, UK industry has shown that it can achieve well above average financial returns, but this type of investment is becoming increasingly sub-critical.

  19.  From a private sector investor perspective, the commercial return on investment in space continues to look attractive at the operator level where an international market has developed, but this is dependent at marginal cost on access to nationally funded technologies. However, further investment in new innovative services that are dependent on new infrastructure looks unattractive in the short term—the time scale to realise a return is long (sometimes 10-15 years) and there are multiple risks (technical, execution and delivery, market, political/regulatory). Industry cannot take on all of these risks by itself, particularly when the return is a long way into the future. The HYLAS model—where ESA is a contributor—looks like a step towards a solution, but this still involves significant government involvement to be able to attract commercial investors.

  20.  Investment in downstream satellite services looks more attractive but it too has to invest heavily from its own resources to stay ahead and expand into growing markets. The return here can be rendered uncertain by the fact that some governments are involved in procuring assets for public good, from which space derived images and information are then frequently made freely available to institutional end users. This is perhaps a good means of stimulating an initial downstream market but it does not facilitate a free-market nor permit development of a vertically integrated value chain.

  21.  Downstream service revenues are where the government derives its financial return on investment in space through commercial tax take. By not re-investing sufficient of this tax return from downstream satellite services in the upstream R&D activity, the space in the UK is becoming a "cash cow" in a market that is still growing and developing. The inevitable result is going to be a forced withdrawal from space by the rest of the UK upstream industry and a weakened competitive position for UK downstream service suppliers. The UK would lose its aerospace and pharmaceutical industries without governmental involvement in market. With space it also risks loss of long term sovereignty over strategic security assets.

  22.  UK decisions not to engage strongly in a number of institutional programmes has already led to the withdrawal of UK largest prime contractors in space, such as BAe and Marconi, leaving remaining capability in the UK at this level largely in foreign hands and the only UK space segment prime contractor left is SSTL.

  23.  Nevertheless, the remaining UK space industry is very efficient and productive and has shown itself capable of winning greater up- and downstream market share, when it can gain access to leading edge technology quickly. However, this will only be sustainable if the government supports the relevant strategic research, technology development and international engagement at an appropriate level.

  24.  The industry has also shown itself able to develop niches ahead of the main stream international dependence on government procured infrastructure. UK leadership in small satellites was achieved during the 1990s, before the niche was recognised by the US, France, Russia, China, India. That niche is now subject to growing competition, non tariff barriers and export controls. The UK government needs to engage in national technology development and demonstrations of innovative capability in order to encourage further niches to develop, to sustain the UK presence long term and obtain a good return on initial investment.

  25.  For the future, the government should use its procurement power to drive innovation and competitiveness in the space sector, as in aerospace and pharmaceuticals. Recent analysis by OEF shows clearly that space offers considerably above average leverage compared to many other areas of economic and social activity.

  26.  The conclusion is that the UK cannot operate successfully and commercially in the growing space market, or successfully protect its national strategic interests, without more substantial government involvement in space. This is particularly important in the development and application of innovative space technology and in the development of a more holistic, "joined-up" space strategy for the UK.

  27.  Government intervention will be needed for some time, but only for as long as the upstream market remains subject to distortion by the national strategic interests of other nations. The options of "leaving the upstream infrastructure provision to others" will not serve UK interests well as it results in loss of control over the critical technologies, intellectual property and rights of ownership that are needed to underpin a strong downstream position on which to base economic growth in the future.

January 2007

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