A classic economic dispute — the innovative power of competition versus the efficiency of monopoly — is emerging in the unlikely corner of launching military satellites.
It’s a business few of us think about, but it is big bucks indeed. The Los Angeles Times last week reported that some $70 billion in contracts over the next 16 years are at stake.
In one corner is United Launch Alliance, a consortium of Boeing and Lockheed Martin. United Launch has enjoyed an eight-year monopoly on launching spy satellites without competitive bids.
In the other corner is SpaceX, an relatively new operation that has already filled the cargo-to-the-space-station gap created when the space shuttle fleet was retired. SpaceX wants a chance to compete for the spy launch chores.
United Launch has a powerful argument on its behalf: It has put 69 satellites into orbit for the Pentagon without a failure. The record prior to United Launch is considerably more spotty — and the satellites are expensive and difficult to replace.
Still, the price of the launches, according to the General Accounting Office, has soared as if lifted by rockets — by $28.1 billion in the last fiscal year alone. The GAO says the program has tripled in cost in five years.
United Launch disputes the GAO’s findings, but the details of the spy satellite program, including rocket costs, are classified. (The GAO report suggests that the Pentagon may not even know exactly what it’s paying for.)
The Pentagon appears unwilling to end its cozy relationship with United Launch, and it’s not clear that there is room in the marketplace for two such businesses. United Launch thought at its creation that it would get business from the telecommunications industry, but it has remained dependent on government business. It has been a dual monopoly, with one buyer and one seller.
But there is building pressure from Congress to open the program up to competition, and the efficiency argument from United Launch loses some of its power when the price escalates the way the GAO says it has. SpaceX may not be as efficient as United Launch, but it may be considerably cheaper.