Executive Summary
A recent wave of private investment in space creates new opportunities for government agencies to benefit from commercial innovation. Leaders of national security space acquisition organizations regularly express their intention to first buy commercial space capabilities and build government space systems only when they must.1 However, achieving greater use of commercial space services requires overcoming barriers that have thus far prevented the government from fully benefiting from private sector funding and creativity.
This report assesses the increasingly wide range of commercial space services available to government agencies, identifies obstacles hindering greater use by the US government, and makes recommendations for overcoming them.2 While the report focuses on the US government use of commercial space services, its analysis and recommendations are relevant for governments of other space-faring nations.
National Security Use of Space
Space has transitioned from a sanctuary to a contested warfighting domain, access to which is essential for military operations. US Air Force Secretary Frank Kendall declared that space is “the great enabler,” because “without space nothing happens operationally.”3 The increasing importance of space is reflected in the Department of Defense (DoD) budget, with space investments growing at an annual rate of 20 percent over the past 3 years.4
Recognizing the threat from Russian and Chinese interference with the space layer—whether through jamming, cyber, or anti-satellite (ASAT) weapons—the DoD has pursued efforts to improve the resiliency of the space architecture. The Space Force and the National Reconnaissance Office (NRO) have sought to combine exquisite systems in high orbits with proliferated small systems in lower orbits in order to make the architecture more difficult to disrupt. To this end, the DoD established the Space Development Agency (SDA) in 2019 to field these proliferated systems, and it is one of the fastest-growing elements of the DoD’s space budget.
Commercial Use of Space
While the growth in DoD investment in space has been significant, the maturation of the commercial industry has been even more dramatic. Private investment now rivals the DoD’s own spending on research and development (R&D) for new space systems. Private venture investment in commercial space start-ups doubled from 2020 to 2021, totaling over $15 billion, with much of this investment aimed at developing new systems.5 This level of investment is broadly comparable with the Space Force’s FY2023 R&D budget for space systems of $16.6 billion. While space venture investment declined by roughly half in 2022, it remains well above levels seen prior to 2020.
The boom in commercial space investment has been fueled by plentiful private capital and powered by technology and business model advancements that enabled increasingly capable small satellites in low Earth orbit (LEO) and reductions in launch costs. Investments over the past decade or so have created and fueled the growth of hundreds of new players offering an increasing range of commercial space services, mainly in four market areas:
- Communications. SpaceX, OneWeb, Amazon, and numerous start-ups have deployed or are developing new LEO satellite constellations offering affordable and lower latency messaging and broadband services, space data relay, enhanced positioning, navigation, and timing (PNT), as well as ground stations as a service. Venture investment in companies offering commercial satellite communications (SATCOM) services totals over $11 billion through 2022.6
- Sensing. More than $5.6 billion in venture investment since 2022 has funded the development of a broadening array of space sensing services such as optical and synthetic aperture radar (SAR) imagery of the Earth, radio frequency monitoring, weather forecasting, geospatial data analytics, and space domain awareness.
- Launch. SpaceX accounts for the largest share of the over $13 billion in venture funding raised for companies primarily focused on launch services. SpaceX now dominates the heavy launch market while a handful of newer contenders like Blue Origin and Relativity Space seek to enter the market. At the same time, a profusion of start-ups has been created to develop small launch vehicles.
- In-space logistics. Over $1.8 billion has been invested in start-ups focused on the emerging market to support assets in space, including in-space transport, satellite servicing and refueling, and commercial space stations.
Government Use of Commercial Space Services
Governments can realize multiple benefits from using commercial space services instead of buying dedicated space systems, including greater investment flexibility for emerging requirements, faster adoption of new technologies, and cost savings. However, commercial services involve tradeoffs, primarily a lack of control over the capabilities and security approach for commercial systems as well as the risk of relying on the financial solvency of commercial partners for critical services.
The DoD and NRO have struggled to balance these issues and have been relatively slow to adopt new commercial space services. The US government as a whole spends relatively little on commercial space services compared to what agencies spend to acquire space systems. In total, the US government will spend roughly $36 billion in FY2023 to develop and acquire space systems and associated ground infrastructure, mostly from traditional government space prime contractors. By comparison, the US government will spend at most around $5 billion on commercial space services, mostly for launch.
This difficulty in adoption can be traced back to several institutional barriers rooted in a historical comfort with procuring systems over services along with risk aversion, too many restrictions on how government funding is used, and misalignment in how government and commercial players operate. This report summarizes the primary barriers to greater government use of commercial space services and offers the following recommendations:
Space organizations are not built to handle services procurement.
The DoD and the intelligence community have longstanding experience in acquiring dedicated systems, but limited experience in meeting operational needs using commercial space services. This creates a built-in bias favoring the acquisition of satellite systems over purchasing commercial services.
Recommendation: Establish a framework for when to use commercial services. This framework should account for the diversity of mission needs across the DoD, and assess whether commercial services can either augment or replace government-owned systems. An example of such a framework is shown in table 1 of this report.
Recommendation: Limit the acquisition of space systems in areas where commercial services are readily available. The Office of Management and Budget (OMB) could restrict the procurement of additional satellites when equivalent capabilities could be provided by commercial services. For example, OMB or Congress should require the Space Force to determine whether Wideband Global System (WGS) or Mobile User Objective System (MUOS) capabilities could be provided by commercial SATCOM services, and what adaptations commercial services would require.
Commercial services may not meet 100 percent of existing requirements.
Commercial systems are typically built to serve broad market needs and may lack capabilities such as military frequency bands, imagery resolution, or security protocols that the DoD needs. The DoD has been slower than NASA to partner and tailor commercial services to meet mission-specific needs.
Recommendation: Expand the use of strategic partnerships to stimulate the development of commercial services that meet specific government needs. Partnerships should not simply be the offloading of a government function to a single commercial performer but should provide the foundation for a larger market in the future.
Space budgets are not fungible between systems and services.
Since funds can only be spent where appropriated, any savings delivered by acquiring commercial services over system procurement are delivered back to the Treasury Department. This provides little incentive to pursue cost savings and negates one of the main potential advantages of commercial services. Likewise, the segmentation of appropriations between development, procurement, launch, and operation of systems makes it difficult to holistically compare the relative costs between “build” and “buy.”
Recommendation: Increase reprogramming authority. The congressionally directed Commission on Planning, Programming, Budgeting, and Execution Report has made preliminary recommendations to consolidate budget lines and allow the DoD more flexibility in how funds are spent.[vii] Congress could provide the DoD and NASA more reprogramming authority to move funds from space procurement or R&D lines to operations and maintenance accounts, where they could be used to purchase commercial space services.
Lack of clarity about demand hampers commercial investment.
The classified nature of many DoD requirements as well as acquisition and budging processes restricting the discussion of pre-decisional plans makes it difficult for commercial providers to anticipate the needs of the government market. This limits commercial investment to meet government needs and threatens the viability of providers that may be highly dependent on government contracts initially.
Recommendation: Create clearer government demand signals for space services. Government space acquisition agencies should be encouraged to communicate their needs early and often to existing and emerging commercial service providers. In addition, agencies could find permissible ways to give commercial ventures more feedback on proposed services, such as identifying capabilities and features that would make agencies interested in buying services.
The government acquisition process is cumbersome and slow.
The acquisition process prioritizes risk minimization and legal compliance over speed, innovation, and cost-effectiveness. Navigating this process is time-consuming and costly, especially for smaller firms with limited funding and staff. The delays imposed by this process are out of sync with the rapid tempo of venture capital investment and growth.
Government users may lack trust in commercial service providers.
At the same time, government users require high assurance of security and reliability before they are willing to depend on commercial services, and risk aversion naturally favors capability acquisition that maximizes user control over the system. Without a way to evaluate and balance the need for assurance, end-users will continue to be slow to trust non-government-owned systems.
Recommendation: Move faster and build trust with “buy to try” approaches. Rather than engaging in long acquisition cycles to select service providers for large multiyear contracts, agencies should buy and use commercial services under faster Other Transaction Authority or Federal Acquisition Regulation (FAR) Part 12 contracts to assess which add the most value. Organizations can learn more quickly by using commercial space services to support their operations (e.g., for military exercises) than by studying how they could be used. Trust comes with the experience of using and integrating commercial services into military and other government operations.
The regulatory regime is unclear.
Regulatory authorities for space activities have typically been assigned to existing departments and agencies as the need has arisen. This approach can hinder the growth of rapidly emerging areas like in-space logistics when it is unclear which agency or agencies have the authority to approve commercial space activities. A haphazard regulatory regime also hinders the use of regulations to create markets for important services like active debris removal, for which there may otherwise be little or no commercial demand.
Recommendation: Encourage the development of commercial services with streamlined licensing. To the extent possible, the US government should designate a single licensing authority for commercial space services. For example, a single office, such as the Office of Space Commerce in the National Oceanic and Atmospheric Administration (NOAA), should be designated as the licensing authority for commercial in-space logistics. Regulations should build upon the Federal Communication Commission’s recent rule requiring satellites licensed by the FCC to deorbit within five years after mission completion.
Conclusion
After a decade of record private investment, the US and other governments have many more opportunities to acquire space capabilities as commercial services rather than systems. For many of the mission areas profiled in this report, commercial services would deliver needed space capabilities more quickly, at lower cost, without the need for large up-front capital investments, and with faster technological refresh cycles. Greater US government reliance on commercial space services would not only encourage US commercial innovation but also free up government resources to invest in unique, specialized capabilities not suitable for delivery as commercial services. Realizing the full benefits of commercial space services will require implementing the recommendations in this report. It is time for the US government to move beyond expressing a policy preference for commercial space offerings and significantly increase the actual use of commercial space services to deliver needed space capabilities.