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Page 110 Conversely, the U.S. military uses many commercial communications products. The military uses a variety of commercial systems, including satellites developed in the mid-1970s to transfer weather data to computer processing centers and disseminate the processed data; commercial satellites and land-based services to transport military-encrypted communications links; VSAT networks operating over commercial satellites to disseminate logistical and weather data; satellite video teleconferencing networks to provide training and distance learning to the National Guard and reserve units and for telemedicine applications; and access-management approaches such as TDMA. The ongoing synergy between the commercial and defense sectors is readily apparent in satellite communications. The introduction of commercial satellite communications in 1965 was limited to very small satellite payloads and required very large Earth stations to receive the very weak signals (e.g., INTELSAT Earth stations required antennas 100 feet in diameter). A 1971 experiment clearly demonstrated the feasibility of providing satellite communications—including digital voice, data, and fax services—to ships at sea. However, the business aspects of such services were not strong enough to justify the required investment in satellite and ground control systems. Subsequent events led to a contract between COMSAT, an international industry consortium, and the Navy to provide a GEO satellite system with an added commercial L-band package for ship-to-shore use. This agreement eventually led to INMARSAT, now widely used not only by large ships (e.g., tankers, cruise ships) but also by pleasure craft and mobile users around the world, who can transmit and receive data and voice via low-cost, brief-case-sized terminals. Terminals are also used on transoceanic airline routes for navigation, control, and passenger telephone calls. An INMARSAT spin-off, ICO, is building a MEO mobile telecommunications system using 12 satellites. Similarly, the introduction of commercial DBS sparked military interest in developing the GBS to satisfy broadband data requirements in all environments, including the battlefield, ships, and logistics. The architectures of Ka-band (superhigh frequency, or SHF), high-speed interactive systems planned for commercial operation by the year 2000 will have an impact on the ultimate GBS design in the near future. Ultrasmall-aperture terminals in these systems will be able to transmit several megabits per second and receive 100 Mbps from a 24-satellite constellation. The GBS has been designed to leverage the current DBS satellites through modifications such as moveable spot beams and different frequency bands. The opportunities for defense use of commercial off-the-shelf (COTS) products depend in part on the particular characteristics of a military

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Page 111 operation. For the purpose of analyzing communications requirements, military activities can be divided into the following four categories: • Non-mission-critical operations require general communications infrastructure to provide logistics, training, entertainment, and general administration. For these activities, the military has either purchased COTS systems or leased services operated over commercial carrier systems. For example, the Army Training and Doctrine Command uses a commercial teleconferencing system based on a VSAT to provide training to the National Guard as well as telemedicine services. • Limited peacekeeping missions, such as the Bosnia deployment, can feature a mix of COTS communications equipment (primarily VSATs and video teleconferencing) and military systems. • Regional conflicts, such as Desert Storm, can feature a mix of COTS and military systems depending on the threat to commercial assets. Conflicts of this type seem likely to benefit from the use of emerging COTS systems (or derivations) such as satellite-based personal communications and broadcast data satellites. • Strategic/global conflict requires the use of "survivable" military communications systems whatever the cost, implying reduced use of COTS systems. 3.2 Motivations For Commercial-Defense Synergy Two key factors currently motivate the DOD to seek commercial products and services. First, the size of the business and consumer markets and the nature of many commercial practices help achieve economies of scale at many levels. Second, commercial approaches to R&D reduce cycle time such that advances in technical performance can be integrated into field operations in a timely manner. The DOD therefore has both economic and functional reasons to adopt commercial products and approaches when they meet—or could be adapted to meet—defense communications requirements. The commercial equipment is likely to cost much less overall than would equivalent defense-unique systems. Furthermore, because commercial industry evolves very rapidly in response to a competitive marketplace, the DOD can leverage commercial developments to field equipment that offers advantages in size, weight, power, bandwidth, or performance much more rapidly than is possible using traditional defense procurement practices. Economies of scale are extremely important in the development and deployment of commercial products. Firms seek a balance of cost and quantity when deciding whether and how to enter business or consumer markets. As examples, business products such as VSATs are built in

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Page 113 FIGURE 3-1 The world military share of the world semiconductor market dropped from 17 percent to 1 percent between 1975 and 1995 (the line graph, which corresponds to the scale on the right). During the same time period, the commercial market soared from $4.2 billion to $144 billion (the left bar graph for each decade) while the military market grew only slightly (the right bar graph for each decade). SOURCE: Joseph Neal, Commercial Plus Technology Operations, Motorola, Inc. Reproduced from Bradley (1996), with permission from the Semiconductor Industry Association and World Semiconductor Trade Statistics. years of production. In contrast, commercial production of land-based mobile radios is in the range of 400,000 units per month, and cellular radios are produced in volumes exceeding 2.5 million units per month for the largest suppliers. To meet such market demands a typical cellular telephone factory might produce 5,000 telephones a day. Another factor distinguishing the two sectors is the open, competitive environment of commercial production. The market pressure for improved quality, pricing, and other features is felt by all commercial competitors, whereas the defense market has typically been limited to a few and sometimes just one contractor. The next four subsections examine economies of scale manifested in several areas of commercial technology development: design, production, maintenance, and training. The fifth subsection reviews how cycle time can be reduced, thereby moving technical advances into the field quickly and also lowering costs over the life of a product. 3.2.1 Design Reuse Commercial communications equipment typically is produced with a basic design that has a 2- to 5-year life span. The components used in that design are selected in the 1 or 2 years just prior to product introduction and typically represent the then-current state of the art in performance and cost effectiveness. Thus, during the product life the components

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Page 114 remain cost-effective for the suppliers and are manufactured using state-of-the-art, cost-effective manufacturing facilities. Manufacturers typically anticipate new features in the market by modifying the design to use new components after 2 years of production. They also use components and manufacturing processes that are within a generation of the then-current state of the art, thereby operating close to the optimum level of cost effectiveness. By contrast, military equipment is often outdated: SINCGARS was designed more than 10 years ago, for example. Commercial firms achieve the initial economies of scale through design reuse. The use of previous hardware and software designs can often save 50 to 80 percent of development time because detailed design documentation can be readily reproduced and design weaknesses can be largely eliminated using experience as a guide. Although the design cycle is not a major contributor to the economic cost of a commercial product, it is typically a large part of defense deployment cost. The DOD typically does not reuse hardware designs, instead relying on independent "stovepipe" systems, which are optimized to solve a specific problem. Some efforts have been made to create software libraries for reuse. Increased reliance on common building blocks could significantly reduce design cycle time (see Section 3.2.5). 3.2.2 Production Learning Curve The learning curve is a statistical tool used to predict production costs and plan and control production. The curve is based on the assumption that there is a relationship between the time required to build a unit and the number of units that have been built; specifically, the learning process reduces the time needed to produce a unit as the cumulative number of units produced rises. It follows, then, that the less time it takes to build a unit, the lower the cost of that unit. If the cost of producing a unit follows an 80 percent learning curve, then there will be a 20 percent reduction in cost per unit each time the total number of units produced doubles. In the example shown in Figure 3-2, the first unit took 100 hours to build and the second unit took 80 hours, or 80 percent of the time and cost involved in building the first unit. The 10th unit required 48 hours, and the 20th unit required 80 percent of that effort, or 38 hours. The major factors that affect the cost of production are the initial cost, or the starting point of the curve, and the rate of improvement or learning, or the slope of the curve (Anderlohr, 1969). The implication of the learning curve is that large volumes of standardized items, produced continuously (i.e., without significant hiatuses), reduce the cost per unit. Heeding this message, commercial production is fairly continuous, fluctuating somewhat with the demands of the market

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Page 115 FIGURE 3-2 As more units are produced, manufacturing costs per unit decline steadily. but generally changing processes gradually and with few interruptions. Although customized versions of products are increasingly in demand, the basic platform is usually consistent and the adaptations are minimal. By contrast, defense programs frequently begin with the building of only a few units, perhaps a few hundred, to determine feasibility or fulfill a limited need. Often these units are produced in numerous small batches with interruptions between the production cycles. Cost management is practiced throughout the design and production of commercial products. For example, production volume typically needs to be known before detailed designs can be completed. The component costs, labor costs, and investments in labor-saving manufacturing devices are factored into the final design of a consumer electronic device. Large production volumes enable the manufacturing of designs that would not be viable at smaller volumes. A significant example is the fabrication of customized ICs with many functions that normally would be implemented in separate ICs. The large volume reduces the overall cost of components, parts, and assembly, even after the nonrecurring investments are taken into account. Another example is the design of electronic equipment for cost-effective manufacturing. These designs typically feature modules that snap together and minimal numbers of wiring bundles, fasteners, moving parts, and different part types. Costs are reduced further through incremental production changes. During the repetitive commercial design and production cycles, the boundaries between system, subsystem, unit, and component begin to blur as automation enables larger and larger subsystems to be treated as components. In this way, what was once a high-technology system (e.g., computer memory) becomes a commodity part. Following the lead of the commercial sector, the DOD might achieve some economies of scale in production by revising its procurement practices

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Page 116 to make large-volume purchases of basic COTS communications equipment for entire departments at one time. Some isolated efforts have been made in this regard, but there are ample opportunities to expand this approach. 3.2.3 Maintenance and Logistics Support Economies of scale can be achieved in the maintenance of equipment after it has been developed and fielded. Equipment occasionally fails in the field because of design defects, manufacturing defects, worn-out mechanisms, lightning or power surges, or simply heavy use. Sometimes fielded equipment is upgraded during maintenance procedures to add new features or functions. In the commercial sector field-failure data are typically analyzed on highly automated equipment, which can trace failures to specific modules and components and automatically update design and component history databases, including any links to environmental factors. Design updates are inserted into the manufacturing process throughout the commercial life of a product, thereby improving its robustness. After approximately one year of production, experience with field failures often has produced the feedback necessary to eliminate most design defects, reduce manufacturing defects to a level consistent with the current state of the art, and generally achieve the best product possible within price constraints. Consumers rarely, if ever, pay for the maintenance or repair of low-cost communications equipment. Rather, warranties and service contracts are often viewed as a necessity in maintaining complex products that are not easily repaired; products are often replaced if they need repairs after the warranty expires. Viewing warranties as insurance policies, or guaranteed streams of income, specialty maintenance companies have emerged to provide a variety of maintenance tasks, both on site and at the factory. In the defense sector, communications equipment is often maintained by the acquiring agency rather than the manufacturer, typically at greater expense. Typically a module is replaced and the equipment is retested, a strategy that usually finds the primary defect but sometimes misses marginal problems elsewhere. Large numbers of spare components need to be kept available, either in replacement modules or in component form such that modules can be manufactured, throughout the useful service life of the system. The supply of spares is often threatened when, because of the small production volume, the supplier no longer finds the component profitable to produce. When this occurs the manufacturer usually notifies customers of an ''end-of-life buyout." The customers then try to

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Page 117 project future needs and purchase enough components to satisfy them (not always at competitive prices). The DOD is known for keeping communications equipment in service far beyond the life span of equivalent commercial technology; typically, military systems are removed from service only after catastrophic failure. Defense equipment is often kept in use for 20 years, whereas component suppliers often set product lifetimes at less than 8 years; thus, the military needs to stockpile approximately 10 years' worth of components. Under normal circumstances, the DOD assumes that 25 percent of its equipment will need to be refurbished at some point. The additional maintenance costs associated with traditional defense acquisition could be reduced if manufacturers—who can efficiently analyze all field failures, suggest redesign enhancements, and redesign components and modules to enhance cost effectiveness and other features—provided for maintenance and logistics support when appropriate. In addition, a reevaluation of military equipment maintenance practices may be warranted in light of the capabilities of advanced communications and transportation systems. Defense acquisition systems have historically provided logistics support for rapid equipment repair (i.e., within a few minutes of field failure) anywhere in the world by staging replacement modules near locations where critical equipment is in use. Such an approach may no longer be necessary. 3.2.4 Training The commercial sector achieves additional economies of scale in training. The expense of user, logistics, and support training is built into the cost of new product introductions, and training is subsequently converted from expensive formats (i.e., personal, face-to-face support) to videotape, interactive CD-ROM manuals, on-line help, and literature. By contrast, the training of defense maintenance and logistics support personnel offers few economies of scale. Training materials are developed, but they are neither as detailed nor as widely distributed as are commercial manuals. Indeed, defense support training can remain somewhat diffused and superficial because the military uses so many types of equipment and relatively small numbers of each type. As the DOD purchases more COTS products, the use of commercial training materials might be appropriate. 3.2.5 Cycle Time Commercial product design cycles, which usually last from one to four years, are set by competitive pressures: The first company to market a product with a new feature can reap large increases in market share and