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National Defense > Blog > Posts > Facing Uncertain Defense Market, Wireless Contractors Seek to Diversify
Facing Uncertain Defense Market, Wireless Contractors Seek to Diversify
By Sandra I. Erwin

The Defense Department for years has been the federal government’s biggest buyer of wireless communications systems. Many tech firms, however, see a stagnant military market and are turning their attention to new opportunities such as an upcoming multibillion-dollar project to build a nationwide network for emergency responders.

A projected slowdown in the military wireless sector is partly a consequence of tighter budgets. Another obstacle is a shortage of radio-frequency spectrum, which limits how much new wireless equipment the military can buy and operate.

The automatic budget cuts known as the sequester and last year’s government shutdown created an “extraordinarily difficult” environment for federal technology contractors, said Kevin Kelly, CEO of LGS Innovations LLC, in Herndon, Va.

Federal agencies make up LGS’ primary customer base. The company predicts its defense business to remain steady, but will be pursuing other customers as it seeks to reduce its dependence on military work, Kelly said in an interview.

LGS, a descendent of AT&T’s Bell Labs, was until recently owned by the global telecom giant Alcatel-Lucent. In late December it was acquired for $200 million by the private-equity firm Madison Dearborn Partners and CoVant.

The investor group expects to use LGS as a “platform investment” on which to build a larger network integrator that addresses more than just the government, the company said in a statement. This means possibly expanding into non-U.S. markets and, domestically, into state and local government markets. “This is admittedly some wishful thinking, but there are real opportunities,” Kelly said.

“The defense market has been a challenge,” he added. “We have grown our defense sales over the past few years. … There is still strong demand for networking technologies, but it's difficult.”

LGS, along with every major telecom and wireless provider, is eyeing new work in promising areas such as public safety. This year, federal, state and local governments are scheduled to begin to acquire a nationwide emergency communications system known as FirstNet, for first responder network.

The first responders' 4G wireless network, analysts estimate, will generate tens of billions of dollars worth of contracts over the coming decade. Congress authorized $7 billion to kick start the project, although there are still concerns about future funding. The $7 billion is to be generated from spectrum licenses that are sold to commercial wireless carriers. The total cost of FirstNet could reach tens of billions of dollars.

Despite lingering budget worries, companies such as LGS view FirstNet as an opportunity to apply the knowledge they acquired building complex networks for the military and defense agencies. “We've done many deployments like that for the Defense Department,” said Kelly. “We can take that technology and repurpose it for first responders.” The contract possibilities are significant and most of the technology already exists, he said, so companies would not have to make major investments in research and development.

FirstNet is managed by the Commerce Department’s National Telecommunications and Information Administration. Congress in 2012 created the First Responder Network Authority as an independent body that will be responsible to provide public safety, law enforcement agencies and National Guard units with a nationwide, high-speed network.

Kelly said telecom and wireless firms are confident that FirstNet — which was conceived following the 9/11 attacks and has been delayed by political infighting — will move forward in 2014. NTIA last year released 12 “requests for information” that defined the program’s goals. A formal solicitation for industry bids is anticipated this year.

Because of its huge scope, FirstNet could create work for hundreds of prime vendors and subcontractors. It will be larger than Verizon, AT&T and Sprint combined. “No existing network even comes close to that,” Kelly said.

Companies that are jockeying for a piece of FirstNet must understand that this is a “huge undertaking that will take careful planning,” Kelly said. LGS built a pilot network in Hawaii with federal state and local authorities. “There are complicated issues, not just technological but also of political domains” as different levels of government have to agree on who controls budgets and policy.

The project also will be a boost for the cybersecurity business, Kelly said. A shared infrastructure such as FirstNet will require secure ways to identify legitimate users. “It's going to take time to sort through the issues,” he said. “But some of that is very necessary.”

Spectrum limitations, which kept FirstNet bogged down for a decade, are now impeding the Defense Department’s adoption of 4G networks.

The Army, which has spent billions of dollars on battlefield wireless networks, will be restricted from acquiring advanced systems because it does not have 4G spectrum licenses to operate equipment outside of warzones.

“That is one of the concerns that slows down that marketplace,” said Kelly.

The allocation of wireless, or radio-frequency, spectrum is overseen by the Federal Communications Commission for commercial use and by NTIA for federal government use.

When the military is at war, it can grab spectrum for emergency use. To deploy networks for routine peacetime operations, the Army would need licensed spectrum, and it doesn't have it. “That is why the market has been slow,” said Kelly. “Companies have unrealistic expectations that there is going to be a boom in the wireless business, but the lack of spectrum is a huge issue.”

One reason why it took 10 years for FirstNet to get off the ground was the reallocation of spectrum by the FCC. Commercial spectrum users had to be displaced to free up the frequencies for public safety. The good news for equipment suppliers is that FirstNet now has the spectrum.

To overcome the shortage of RF resources, the Defense Department has experimented with alternative technologies such as free-space optical communications. This is an optical technology that uses light propagating in free space to transmit data wirelessly. LGS has been investing in this technology for eight years, Kelly said. “We now have systems that run from rooftop to rooftop,” he said. “We are just on the cusp of this market accelerating.”

Image Credit: Thinkstock


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