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Download Full Report (2.7 Mb | .pdf)  » Intro [.pdf]  » Authors [.pdf]  » Letter from the Editor    [.pdf | html]  » Table of Contents    [.pdf]  » Federal Update    [.pdf | html]  » State Privatization    Update    [.pdf | html]  » Tax and Spending    Limitations    [.pdf | html]  » Emerging Issues    » Social Security Reform      [.pdf | html]    » Arctic National Wildlife      Refuge      [.pdf | html]    » Offshore Outsourcing      [.pdf | html]    » Improving Parks      Funding and Services      with User Fees      [.pdf | html]    » Contract Management      and Performance      [.pdf | html]    » Privatization Going      Postal in Japan      [.pdf | html]    » Military Housing      Privatization      [.pdf | html]  » Housing and Land Use    [.pdf | html]  » Air Transportation    [.pdf | html]  » Surface Transportation    [.pdf | html]  » Rail Transportation    [.pdf | html]  » Space Travel    [.pdf | html]  » Health Care    [.pdf | html]  » Water / Wastewater    [.pdf | html]  » Corrections    [.pdf | html]  » Education    [.pdf | html]  » Insurance    [.pdf | html]  » Developing Nations    [.pdf | html]  » Endnotes    [.pdf]

» Annual Privatization Report 2005

Space Travel

•  "It's Mainly Just for Fun"
•  After the X Prize
•  The Era of Personal Spaceflight

"It's Mainly Just for Fun"

Space entrepreneur Burt Rutan discusses how private space flight policy should emphasize innovation, safety—and having a helluva good time.

Lots of hard work. Big burst of publicity. Lots of hard work. That's been the pattern for Burt Rutan.

He is the model of persistent performance, averaging more than one new aircraft design per year for over 30 years. Then, last October 4, Rutan and his team at Scaled Composites grabbed the world's attention. They became the first private operation to send a man into suborbital space twice within two weeks, using the same vehicle. Rutan and company nabbed the $10 million Ansari X Prize, and proved that entrepreneurial creativity could extend beyond the earth's atmosphere. Now it'll take more hard work—both scientific and political—to make space tourism a reality.

Ted Balaker, Jacobs Fellow at Reason Foundation, interviewed Burt Rutan in April.

REASON: After the X Prize you enjoyed a huge amount of media attention. Do you think this burst of positive publicity will help improve the regulatory climate in which the private space flight industry operates?

Burt Rutan : Well, first of all we're working the regulatory climate very hard. We just had a two and a half hour meeting with an FAA administrator a couple of weeks ago, and we have a very specific regulatory plan for this new industry that we call private space flight. And it's a very specific plan on what's appropriate for, not just research testing, but also for the certification of things that will fly ticket-buying passengers.

I think that it is good that the public know what's going on. For example, FAA is having difficulty staffing their airplane certification staff with their budgets now, and for them to build additional staff to certify, not just airplanes but spaceliners, that's going to need, I think, public support in order to help their funding for this. So I think in general if you look back before May of last year, even though we developed some 36 different manned airplanes, we had never invited the press and the public to a research test flight. But starting in May of last year we had CNN, and we had print media out for one of our test flights. And then of course the big one was June 21st for the first manned private space flight where we invited the world's press and we had hundreds of print and broadcast media, and I think some 90 broadcast media video cameras.

REASON: There was that excellent documentary.

BR: Oh yeah, and the fact that we filmed in house for two and a half years and then made the deal with Discovery. They did a very good job with Black Sky (http://dsc.discovery.com/convergence/raceforspace/ raceforspace.html). They've shown Black Sky at least three times now and it's a full three hours, so we look back on that and realize that this was the right thing to do. It's not the right thing to do to bring in the public and the media for most research testing, but we realize that it is the right thing to do now, and answering your question, it really will be positive in terms of meeting the goals that we need for regulatory [policy]. It will be very positive, the fact that the public is not only knowledgeable, but is strongly behind us.

REASON: And you mentioned how you're trying to hash out a new kind of policy. What would you like that policy to look like?

BR: We've asked for a research airplane-like environment while a developer is doing his research testing in order to allow innovation, allow the test to be run with efficiency. And then we actually are asking for more regulation than the new legislation edicts. We do feel that the FAA needs to be accepting or proving the safety of the ship as it pertains to the passengers that get flown. Whereas their focus has been on only protecting the non-involved public who live on the ground below. We think that the industry will prosper only if there is some acceptance of [responsibility for] the safety of the ship as it pertains to the passengers.

REASON: What's the best balance to strike there? Because obviously informed adults already do all sorts of risky things from catching crabs off the Alaskan coast, to taking adventure vacations, or even just smoking three packs of cigarettes per day.

BR: Yeah, well for decades informed adults have taken treks to the top of Everest, even though more than 10 percent of those who've reached the summit have died on the mountain.

Now I don't object to that. I think that's fine. There should be freedoms. That people know that they have a one in 10 chance of dying by doing this and they still want to do it anyway, I'm the first one to say, hey, let them. However, I don't feel that that's the right thing to develop and sustain [for] a private space flight industry. Our goals are much more aggressive than that. Our goals are to have the same level of safety that the early airliners enjoyed, and a lot of people don't realize, but those early airliners 1927, 28, 29, 1930, 31, and so on, those were the first regularly scheduled commercial airliners. They were dangerous as hell compared to airlines today, however they were a hundred times safer than all of manned space flight. Not 10 times, 100 times safer.

Now I don't believe that it's right to say, listen, we'll let people take risks and we'll go and build the kind of systems that have been used historically for manned space flight, and somehow solve the affordability problem, and that's the only problem. We strongly feel that the biggest problem is the safety problem, not the affordability problem. If you fly dozens of people every day, you'll get affordability with almost any kind of system. The safety problem is the biggie, and that's why we think the most significant thing that came out of the SpaceShipOne program was not just showing that the little guy can fly above a hundred kilometers, without government assistance, and government technology, and government funds.

The real thing that we did here is to develop three new breakthroughs, and each one of them is going to have enormous effects on safety. The "care-free reentry" [in which the craft realigns itself automatically] is just one of those, so we think this is the right way to go and we think that we can get that level of early airline safety if we adequately do our flight tests ahead of time. We are developing a process that will not be debilitating like doing a Part 25 airline certification. That's where we're headed and I think it's the right thing to do.

REASON: Do you see the Commercial Space Launch Amendments Act as a step in the right direction?

BR: Well, it didn't address the problem that I'm discussing, getting an FAA acceptance of the safety of passengers. It doesn't address that. However, everything else in it is positive, there's nothing negative in it. It does address asking FAA to develop an experimental research category for launch licenses. However, it's not specific and we think it needs to be more specific to force FAA to regulate these tests more like airplane research rather than like they did our program.

The license process for our program actually decreased safety and it involved an enormous amount of monitoring. It forced our people to defend the product where our safety policy is to never defend it, but always question the safety. We have to get that changed.

REASON: How did the process compromise safety?

BR: We have, I think the count now is 39 new types—new airplanes from scratch—in 30 years. We have yet to injure a pilot. We've had things like landing gear failure, but we've never had a real accident. And that's a record that no one has come close to, and we maintain that a major reason we have a superb record is our safety policy, that we always require of, not just people building it, but those designing, flying, and testing it. But to never, ever put themselves in a position where they defend the safety. Once they do, you're screwed.

We always want them in a mode in which they question the safety. If you're always questioning it, you can turn around and find something better and immediately incorporate it. For example, if you had turned in last week a report to a government agency in which you've told them the product, as it is, is safe, if you discover something better next week, you have two choices.

One, you can go an write an addendum to that report and essentially tell the government, that, gee, I was wrong last week, it wasn't the safest that it can be, and now it is because I've discovered this new thing. And then you'll find yourself debating that with them and losing your credibility with them. We make changes almost every day when we're in a research mode. So you can see you get into this big back and forth in which they see you making changes after you defend the safety to them. Now the solution there is to never tell anybody that it's safe, but always question it, which then allows you to immediately incorporate safety features and go on. And, instead of firing somebody who designed something unsafe, you reward whoever found a better way and congratulate him.

The other choice that people have is they'll see something safer and they'll realize they just told the government that it was safe last week. And then they make the decision that, well, you know, last week's configuration—it's safe enough. Another thing too is that we're a small company. We don't have a big safety department that works with the government regulators. We have the people that are there testing the product and we can only afford to have the team that's there. And now we get our team, instead of focusing on the job of making it as safe as possible, they're distracted to write reports and provide data for the government.

Another thing too is it forced us into flying trajectories and glide paths back over the airport that weren't the safest ones to fly because they, the government, was only interested in the best safety for people on the ground. Now if you look at it, for many decades, you go back to the 40s and you find that all the research flight testing done up here in this desert, there's been hundreds of accidents with research airplanes, but nobody's ever been hurt on the ground. So why would you compromise the safety of the test pilot in order to make it more safe for people on the ground?

REASON: Let me read you something from a recent interview in Wired magazine with [then NASA Administrator] Sean O'Keefe. He's addressing the SpaceShipOne launch, and says yes it was amazing, "but let's put this in a relative context. Mike Melville went half the altitude that Alan Shepard did, for a fraction of the amount of time, did it 40 years later, and flew in a plastic airplane fueled by laughing gas. From a technical standpoint, this was a modest objective, except for one major point: They did it themselves. It's like a bunch of guys doing this in their garage."

BR: And what he didn't say is that we developed three new breakthrough technologies, which will allow us immediately to launch a commercial spaceline industry in which people can fly at the same safety level of the early airlines. What Alan Shepard flew in was an expendable booster with a parachute recovery, and for 44 years of NASA manned space flight, they have not made significant improvements in concepts that will allow safe access to space.

REASON: For those interested in space policy, it seems like there were two camps when the question was—what's the biggest barrier to private space exploration? Some people said it was a regulatory, government-imposed barrier, and others said it was a perception barrier, that people could not imagine a small group of people doing what you did. How do you see it?

BR: People may interpret the regulatory barrier as the government won't let you fly something that is safe enough to fly. That's what people may think the regulatory barrier is, and I want to make it very clear that that's not my opinion at all, and this is true with airplanes, too. The regulations for light planes, which is called Part 23, there isn't anything there [that doesn't let] you fly something that otherwise should be safe. In fact, if you make an airplane that just barely makes Part 23, it'll be a lousy airplane that in my opinion is not very safe.

But it's a process that [involves] working with naïve, and sometimes inexperienced, regulators who won't make a quick decision, so it drags your program out. I don't see anything in the regulatory rules that's restrictive. I think it's too early to regulate because they don't know what new ideas will come out. For example, if you assume that something is like a V-2 Rocket or something is like a Mercury Redstone, you can regulate that, and they have been regulating things like that for 10 years under the Office of Commercial Space Transportation. However, for them to apply those rules for something that flies to space like an airplane does not work. So they can't sit down and write regulatory rules for things that will happen in the future because you can't know what's going to happen in the future.

I have a solution for that, and that's what I'm working on right now. The developer himself [should] define the testing that is needed for his system to show that it is safe, and he negotiates that test plan with the FAA, and they approve the fact that he did it. I think that it's the only way to do it. You can't regulate spaceships like you can airplanes because every one of them is different.

REASON: Let's talk about the possible job creation effect of the private space flight industry. Because you look at, for example, the Wright brothers. They couldn't have anticipated professions like airport manager or flight attendant, and yet today the aviation industry employs millions of Americans.

BR: When people think of the Wright brothers they think of 1903. I think a more important thing to look at when you make the point you're making is 1908 to 1911, early 1912. We're talking about only a three and a half year time period that started when only 10 people had flown, and ended three and a half years later when thousands of pilots flew hundreds of airplanes in 39 countries.

Those people were doing it just for fun because they weren't developing airliners yet, developing the World War I airplanes yet, or even the mail planes yet. What happened later were the applications, but people wanted to fly. People the world around wanted to fly with a barnstormer, people wanted to go to air shows and see them do loop-the-loop. You know, this is all kind of fun.

Go back to 1977 when you could first buy an Apple computer. This was a big deal that people could have computers, but the personal computer was mainly for fun. Most people used them for games, and balancing our checkbook with a personal computer really wasn't why we bought personal computers. I mean, people said, well that's why we need them, but if you think about it, until we had the Internet, we didn't know what computers were really for. Now it's our communication, it's our commerce, it's our—everything.

I like to think that's what suborbital space tourism is; it's going to be a big industry. Just like personal computers. But it's mainly just for fun.

You've got to have thousands, tens of thousands, of people enjoying it in order to figure out what to do with it. We never would have invented the use of the Internet, the communication, and the commerce, and everything if you had just a few dozen people with computers. So I look at this suborbital phase that we'll go through, and I think we'll always have suborbital space flight, but I think the main thing is, is that people are going to flat enjoy it. And it's going to be absolutely thrilling. They're going to be floating their bodies around big cabins. It's not going to be just like the SpaceShipOne flights. There's going to be a lot more things you can do for the experience.

To answer your question, I think it's going to be a huge industry. And it's going to be competitive very early in the game, and ticket sales will come down to the point where hundreds of thousands of people will fly.

REASON: And I think the concept of fun you mentioned is hugely important and at NASA it's very different—they can't justify something on the basis of fun.

BR: No, and they don't understand the concept of taking risks in order to find breakthroughs. I hate to say that because we send billions to them for what we think is research but they don't do research, they only do development. They won't reach out and look for new concepts.

The same thing is happening with this Bush initiative, the Crew Exploration Vehicle. NASA's going to award multi-billion dollar contracts in September for the primes, and the primes are going to go out and they're going to fight to make sure that they win the next phase after spending billions, and because of that, they're not going to try new, innovative stuff. They're just going to just build some new capsules, and they're going to get launched by expendable boosters, and they won't go out and solve the safety problems that are preventing us from having resort hotels in orbit.

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After the X Prize

Will space exploration return to aviation's freewheeling roots?

Who could have imagined that a small team would need only three years and $25 million to send a private astronaut into space twice within one week. Besides fulfilling their own curiosity, the team members behind SpaceShipOne had the extra incentive of the $10 million Ansari X Prize, offered by a private foundation. But however inspiring SpaceShipOne's story might be, it is hardly unprecedented.

Aviation began with a great burst of decentralized experimentation, in which inventor's ambitions were stoked by more than 100 private incentive prizes. When Charles Lindbergh crossed the Atlantic alone and without stopping, he collected a privately funded purse, the $25,000 Orteig prize.

This environment produced all sorts of rickety contraptions, but the good ideas separated themselves from the pack, and the march of progress was brisk. Imagine that only 24 years separated Lindbergh's trans-Atlantic trip from the Wright Brothers' herky-jerky jaunt into history.

Still, many find it difficult to trust small groups of private people to continue such progress into space. Leaving the ground is one thing, they say, but leaving Earth's atmosphere requires the kind of might only government can muster.

Indeed space exploration has proceeded differently than aviation. A presidential declaration spurred Neil Armstrong's moon walk, and space exploration has always been dominated by top-down government control. The recently released Aldridge Report, the product of a presidential commission on space policy, notes that "today an independent space industry does not really exist." However, the same report suggests changing course, recommending that:

NASA recognize and implement a far larger presence of private industry in space operations with the specific goal of allowing private industry to assume the primary role of providing services to NASA, and most immediately in accessing low-Earth orbit. In NASA decisions, the preferred choice for operational activities must be competitively awarded contracts with private and non-profit organizations ...

Recalling the spirit of the early days of aviation incentive prizes, the reports suggests that the government could offer as much as $1 billion "to the first organization to place humans on the Moon and sustain them for a fixed period."

Meanwhile, the private sector is already dangling new carrots. The X Prize Foundation has plans for at least six more competitions, including prizes for the highest altitude and most passengers carried. And the day after SpaceShipOne made its claim on the original X Prize by reaching a suborbital altitude of 62 miles, hotel magnate Robert Bigelow offered $50 million to the first private craft that can go four times higher and reach orbit.

Chances are the most lucrative prizes won't be announced in advance, but will be offered by investors eager to get in on a project that shows early promise. British billionaire Richard Branson has already joined with the team behind SpaceShipOne and committed over $100 million to create his Virgin Galactic space-bound passenger service.

NASA has long turned away would-be space tourists like Dennis Tito and pop singer Lance Bass who were willing to fork over tens of millions of dollars to tag along on a trip into space. Already, the private sector has dropped the price of space travel to $200,000 and found a new market. Roughly 7000 people have joined actor William Shatner on the waiting list, and Burt Rutan envisions a day when such trips cost about as much as a luxury cruise, meaning that the market will continue to expand.

A larger private-sector presence in space could also mean more jobs. It's always tricky to predict what sort of job creation figures a given innovation will yield, but if it turns out to be at all analogous to the aviation industry, the space industry gushes with job growth potential.

Over 100,000 Americans get paid to fly planes, but most of those with aviation-related jobs are not pilots, they're engineers, mechanics, airport managers, aviation educators, crew schedulers, and so on. Just one century after the Wright Brothers, the aviation industry employs 2.2 million American civilians.

Just as the Wright brothers could not anticipate airport managers or crew schedulers we cannot know what kind of space-related jobs will someday become commonplace.

With the right legal framework, perhaps some day entrepreneurs will offer same-day parcel delivery, super fast transcontinental shuttles or even lunar honeymoon packages.

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The Era of Personal Spaceflight

When people look back in the history books, 2005 might be known as the beginning of the era of the Space Entrepreneur. Tremendous progress has been made since this report was last published. The X Prize has been won, the X Prize Cup has been established, and new space ventures were announced. Progress in privatizing space is dependent upon overcoming emerging policy issues and increased investment in entrepreneurial endeavors.

On October 4, 2004, Scaled Composites became the first private manned spacecraft to exceed an altitude of 328,000 feet twice within the span of a 14-day period, thus claiming the $10 million Ansari X Prize. Just as Charles Lindburgh won the Orteig Prize in 1927 to usher in the era of commercial air travel, the X Prize has ushered in the era of commercial space travel.

Granted, Space Adventures was the first to charge a tourist to go into space and it should be recognized for its landmark achievement in helping found the Space Tourism industry. The fundamental difference between the two is that the X Prize was focused on a sub-orbital flight that lasts a few minutes while the first space tourists took an orbital flight lasting a full week. With the price of an orbital experience still around $20 million, it is out of reach of almost everyone. To contrast, the initial cost of a sub-orbital experience is around $200,000 and is projected to go down as more flights and providers launch service.

Most importantly, this has demonstrated to the whole world that the space industry is most productive when privatized and placed in the hands of entrepreneurs. The use of prizes and competition has ignited a market for people to push the envelope and achieve something most people only dream of.

In a move of marketing brilliance, Virgin Galactic sponsored the historic flights and has subsequently licensed the Scaled Composites design and related technology to develop the world's first privately funded spaceships dedicated to carrying commercial passengers on space flights. According to testimony given at a hearing of the House Science Committee's space subcommittee on April 20, Will Whitehorn, president of Virgin Galactic, the subsidiary of Richard Branson's Virgin Group, said as of the date of the hearing that "29,000 people have said they're willing to pay deposits of up to $20,000 for spaceflights within a range of prices of up to $200,000." He expanded upon that comment saying "100 people have signed contracts with Virgin Galactic to pay the full $200,000 up front."

According to testimony given at that same hearing, Burt Rutan said, "By the twelfth year of operations 50,000 to 100,000 astronauts will have enjoyed that black sky view." This is amazing since as of the date of this publication, only 500 people have traveled into space. With flights scheduled for 2008 and new competitors preparing to launch service, we can confidently say that the "Era of Personal Spaceflight" has begun.

NASA Still Having Problems

Over the past year, NASA has seen a change in leadership with the appointment of Dr. Michael Griffin as the new administrator. He is coming into an organization that is still suffering the effects of the Columbia disaster and as of this date, the Space Shuttle sits on the launch pad waiting to go. This "analysis paralysis" has placed the future of the program and much of the organization into a position that it must fight for its relevance. From this fight emerged what is called "The Vision." "The Vision" or "Vision for Space Exploration" is based on the conference President Bush gave on January 14, 2004 and was covered in detail in the previous edition of this report. The essence of "The Vision" is to focus the goal of NASA on purely exploratory missions. This means more missions like the extremely successful Mars Rover, Cassini-Huygens (Titan) and Deep Impact (Comet Tempel 1). Other essential goals are to send a robotic mission to the moon by 2008, laying the groundwork for the return of astronauts.

In 2010, they plan to retire the shuttle and build a new spacecraft, the Crew Exploration Vehicle (CEV). The plan is to send astronauts to the moon no later than 2020, and establish a moon base similar to what they have got down in Antarctica. They plan to keep the Space Station on an exploratory mission but there is a serious gap because Russia doesn't have any obligations to transport U.S. crew members to and from the ISS after the return of Main Expedition 12 in April 2006. As of the date of this publication, Russia's obligations toward NASA for the training of crews and their delivery aboard Soyuz spacecraft expire in 2006.

This game of "space chicken" is set to hit a critical point next year as all missions by NASA that leverage the Soyuz program must be paid for out-of-pocket. This is compounded by a stickier policy problem: U.S. law forbids NASA from paying the Russians any real money, except under specific conditions that have not been met. In an attempt to squeeze the Russian government into enforcing existing nonproliferation agreements, the Iran Non-Proliferation Act or INA was signed in 2000. This act forbids NASA to send any money to the Russian Space Agency until the White House has certified that technology transfer to "rogue states" has stopped. Since no certification has been made, there is a deadlock looming on the horizon.

This shift of NASA as a pure exploration organization and the need for orbital flight alternatives leaves a large gap in the final frontier. One perfectly suited for the new "Space Entrepreneur."

The New Space Entrepreneur

The Internet boom of the last decade created many new millionaires and billionaires. With this new-found wealth, many of these tycoons are dipping their toes in the pool by creating space ventures. Many of these are close to bearing fruit because the same innovation these smart people applied to the Internet is working for the space industry. However, there are many opportunities emerging that are not the exclusive realm of the ultra-wealthy.

Privatization of space relies on those daring individuals to take monetary risk, but it also leaves room for early adopters with good ideas that have a good return on investment. For the most part, this is dedicated to the realm of angel investors that share the passion and understand the vision an entrepreneur has for their venture. There are some space companies one could start now (12-24 months) and some in the near future (five to eight years). Let's break down the categories of space entrepreneurship:

Launch Entrepreneurs—These companies are focused on the launch process, which includes the traditional use of rockets or moveable platforms. The use of rockets is not new, but companies like SpaceX are currently rethinking all aspects of this method to dramatically lower the cost of delivery by a factor of four. This means that all types or increased frequency of missions are now within economic reach of government agencies and corporations. They already have contracts and are launching their first rocket in 2005.

Looking a little farther out are moveable platforms, or what is being called the "Space Elevator." A space elevator is a physical connection from the surface of the Earth via an ocean- or land-based platform to a platform located in geostationary Earth orbit. The goal is to move people, payloads, power, and gases between the surface of the Earth and space. Current Space Elevator ventures like LiftPort and education foundations like Elevator:2010 are working hard to push through the technology barriers (i.e., carbon nano-tubes, beam power) by 2010 to place a Space Elevator into use by 2020.

Tourism Entrepreneurs—The space tourism market is not new; it is just getting tremendous press these days with the X Prize won by Scaled Composites. There are companies like Space Adventures that have been around since 1998. They designed trips as simple as visiting Cape Canaveral for a shuttle launch to brokering the flights of Dennis Tito and Mark Shuttleworth to the International Space Station. Another company providing service is Zero-G founded by Dr. Peter Diamandis, Chairman of the X Prize Foundation. Zero-G offers parabolic flights to experience weightlessness and has appeal for adventure travel, movie companies and government agencies.

What the X Prize has done is made people open to the possibility and opened up a whole new world of tourism opportunities that most people just dreamed about. In the next 12-24 months, Virgin Galactic will launch service and charge the general public for sub-orbital flights. There are many competitors preparing their own craft and over time, cost will come down and these companies will make the leap to orbital flights bridging the gap from early adopters to everyday space travel services.

Once companies do provide orbital service, space hotels will start to be built. Already, visionaries in the travel industry, like Robert Bigelow of Budget Suites, have started companies with a practical approach to creating destinations in space. So it won't just be about the fun of getting up there, there will be fun things to do when you get there. When you tie this into technologies like space elevators to deliver supplies and new launch vehicles to take passengers there it doesn't seem so out of this world.

Data Service Entrepreneurs—This is an interesting area because these companies are repurposing existing data services and building software for the current marketplace. EarthSat and DigitalGlobe are examples of service providers that use government or privately owned satellites to collect the data and do just that.

These companies then sell the data and related services to government agencies and private companies that have requirements in the areas of Geographic Information Systems (GIS), Agriculture, Weather Services, Geological Surveys, National Security objectives and much more.

Some of the more prominent examples where these services are used by the general public are TerraServer from Microsoft which leverages data from USGS or Google Maps which leverages data from EarthSat and DigitalGlobe.

Communication Entrepreneurs—These companies are focused on leveraging the communication aspect of space systems. They are usually grouped into two areas: media entertainment and space communications systems. Companies in media entertainment are launching new communication services, opening up a whole new media channel. Primary examples of these companies are XM and Sirius radio. Both are pioneering the XM band of radio and looking to add real-time GPS traffic services, data services and video feeds as the service grows in popularity.

The space communications systems segment is a mix of companies that provide monitoring software, GPS hardware, and mobile device communications. In monitoring software space, Deimos Space is an example of companies that provide parallel computing and database systems to control and monitor satellites. Global Positioning Satellites (GPS) is one of the most popular technologies companies leverage to provide hardware-related mapping software. There are many companies in this segment, the most popular being Garmin and Magellan. In the mobile communications area, cellular phones are the dominant path, but entrepreneurs are leveraging satellites to provide something as straightforward as satellite phones (i.e.,Iridium, GlobalStar) to accelerating the delivery of digital content and making information access more ubiquitous.

The new space entrepreneur is working now to uncover new opportunities that create jobs for communities and generate wealth for shareholders. As for those entrepreneurs working on longer-term (5-10 years) enterprises, they are currently making breakthroughs in areas such as materials and propulsion. While these breakthroughs have far-reaching implications, there is an immediate upside for technology transfer and licensing opportunities. This allows space entrepreneurs to make a very big business out of innovation to enable their long-term vision. The only things standing in their way are the policy roadblocks that hinder trade and free enterprise in this global economy.

Overcoming the Red Tape: Policy Issues

We discussed earlier in this report the issues NASA must deal with regarding the Iran Non-Proliferation Act of 2000. However, there are broader policy issues that impact the privatization of space. These come from improving export controls handling private space launches, providing incentives to accelerate the privatization of space.

Export Controls: Problems still exist from the 1998 Strom Thurmond National Defense Authorization Act, which transferred export licensing from the Department of Commerce to the State Department. As of this report, controls are tightening and jeopardize future collaborations from entrepreneurs from various countries.

However, its distant cousin, the International Traffic in Arms Regulations or ITAR has become a serious problem. The recent launch of a Chinese rocket with a European-built satellite did not have any U.S. components. Also, Virgin Galactic is having serious problems getting access to Burt Rutan's designs for the next generation of suborbital vehicles, which they have financed. These two recent events are signs that the ITAR process is doing more and more serious harm to the U.S. space industry.

Congress has heard the cries and not answered them, so alternatives to resolving the problem must be found.

Private Space Launches: In Washington, some of the regulatory hurdles for the industry were removed with the passage of HR 5382, the Commercial Space Launch Amendments Act, in the final hours of the 108th Congress.

The press surrounding the SpaceShipOne flights accelerated its passing, which establishes the process for private citizens to fly on spacecraft launched from the United States. The Act is not perfect, but it is a solid beginning, and aerospace companies at least now know where to go for licensing. Ironically, the only critique of the law comes from SpaceShipOne's designer, Burt Rutan.

He has been a harsh critic of the office of the associate administrator for commercial space transportation, known as the AST. AST's stated mission is to "ensure protection of the public, property and the national security and foreign policy interests of the United States during a commercial launch or re-entry activity, and to encourage, facilitate and promote U.S. commercial space transportation." Mr. Rutan stated at the April 20^th House Science Committee's space subcommittee that the policy of the AST "resulted in cost overruns, increased the risk for my test pilots, did not reduce the risk to the non-involved public, destroyed our 'always question, never defend' safety policy, and removed our opportunities to seek new innovative safety solutions."¹

He believes that craft like SpaceShipOne should be regulated like aircraft. He noted that "the airline experience has shown us that it is not just technology that provides safety but the maturity that comes from a high level of flight activity". His contrarian views place him in a controversial position that goes against the Commercial Space Launch Amendments Act, which leaves the regulation of suborbital spacecraft within AST.

While he supports the other parts of HR 5382, the certification process for "SpaceShipTwo", the vehicle under development for Virgin Galactic, is forcing the FAA and AST to work together. The results of this new working relationship are still to be determined.

Incentive and Relief Programs: The attention-grabbing events of the X Prize and President Bush's "Vision for Space Exploration" reinvigorates a timeline for companies to explore the stars to chase that entrepreneurial spirit and create new space ventures. As mentioned earlier in this report, there are many new types of space entrepreneurs emerging. Some have an eye on making money in the next 12-24 months and some have a 10-20 year vision.

What they share in common is what the government does to foster innovation and growth. Right now, the U.S. government has treaties in place that prevent them from offering land grants on the moon or securing monopolies for companies that develop and build new, low-cost and reliable space transportation systems. This means finding a starting point for incentives and various relief options.

In last year's report, the book "Space: The Free-Market Frontier" by Edward L. Hudgins was mentioned because of innovative tax policies suggested by former Rep. Bob Walker (R-PA).² This 25-year tax holiday is intriguing, but we must make small steps to accelerate change. We are optimistic with a new vision put forth and a reinvigorated interest in space that new legislation will move forward to increase the incentive for privatization.

One of those core legislative moves is the push to eliminate tax burdens. A few years ago, Rep. Dana Rohbacher (R-CA) proposed a "Zero-G, Zero-Tax" incentive. This has been reintroduced to the House as the "Zero Gravity, Zero Tax Act of 2005." This bill includes capital gains exclusions and investment credits to create an enterprise zone in orbit similar to the advantages Internet commerce has with a tax-free zone.

Another alternative is to be more earth-based and follow some states motivating companies with tax credit awards. A perfect example is the state of Oklahoma awarding Rocketplane $18 million to fund its space plane program and transform the former Clinton-Sherman Air Force Base into the Oklahoma Spaceport. This is also happening in New Mexico and in California at Mojave Airport where Scaled Composites, builder of SpaceShipOne, is located. These "Space Incubators" could be the focal points necessary to share resources and promote this emerging industry.

Conclusion

This has been a landmark year with the X Prize won and the beginning of the era of the space entrepreneur. Privatization of space seems more and more potentially profitable by private industry, which motivates government agencies and business to innovate and meet this emerging market opportunity. However, with all of the advancement and enthusiasm, there must be the will to overcome regulatory and policy disagreements that hinder our progress. As we move forward, new policies will be introduced and old treaties updated to fit the needs of the global economy. This is our chance to answer the call for a new future where all of humanity has the opportunity to go to the stars.

By Steven J. Fisher, founder and CEO of SlipStream Air.

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Endnotes

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