The Missing Link in Satellite Communications

By Deering, Ann M. | Risk Management, October 1990 | Go to article overview

The Missing Link in Satellite Communications


Deering, Ann M., Risk Management


The Missing Link In Satellite Communications

A severe hurricane knocks out several satellite communications stations throughout the Southeastern United States. The transmission of information from all over the globe - stock trades, ATM transactions, inventories, shipping instructions - that thousands of area businesses depend on ceases. For some businesses, particularly those without the foresight to have a backup, getting the information flowing again and the downtime until that happens can cost millions of dollars.

Although hypothetical, this situation, or even worse a satellite failure in orbit, can easily occur, especially as more companies rely on satellites to help them transact business. Satellites have been used for nearly two decades for international broadcasting and telephony; however, business applications, such as data exchange and teleconferencing, are just emerging. Already, several hundred companies have networks in place, including K mart Corp., Farmer's Insurance Group, Cargill, Days Inn of America, Domino's Pizza, EDS Corp., Frito-Lay, Prudential Bache and Chrysler Corp.

As with terrestial, or ground-based, communications and any new technology, there are several unique risks associated with satellite communications. Satellite users and their risk managers must become familiar with the technology and the risks it poses, how to quantify and avoid the financial consequences of a network failure and how to design a contingency plan that would allow the company to continue operating under adverse conditions.

Unfortunately, as with many other developments, the risk manager is often among the last employees to know that his or her company has embarked on a venture into the world of satellite communications. Yet the risk manager should be involved in the company's satellite communications program before it gets off the ground, beginning with the initial stage of network design. He or she should interact with engineering, legal and financial personnel to identify and help eliminate potential risks. Those risks that cannot be eliminated should be quantified and, in many cases, transferred contractually prior to the signing of equipment sale, lease and service contracts. Furthermore, the risk manager should anticipate network outages by spearheading the development of a disaster recovery plan, which he or she will implement when necessary, and obtain transponder failure insurance to cover potential business interruption and extra expense exposures.

Assessing Risk

Many companies that purchase equipment and services from satellite operators for the first time are unfamiliar with the risks associated with spacecraft and earth station technology. As they switch to satellite-based systems, they must be aware of the various types of network failures that may occur.

Though rare, transponders and satellites have failed after satellites are operating in orbit. Earth-related satellite problems include failure of the master hub earth station or multiple remote earth stations and signal interference due to poor weather conditions or other terrestrial communication systems. Failures resulting in space include problems with one or more transponders and satellite subsystems, temporary or permanent failure of part or all of the satellite and interference from other satellites.

Whether or not a company has an exposure and the extent of the exposure depends on several factors such as the type and duration of the outage, nature of the satellite application, the availability of alternative communications methods, including terrestial systems, and the contractual obligations for service restoration with the satellite service provider.

Transferring Risk

Satellite users rely heavily on information supplied by service providers regarding equipment and system reliability. Users can contractually define the service provider's obligation to maintain satellite equipment at a specified level of service.

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