In June, the U.S. Army awards Comtech Mobile Datacom a $419 million IDIQ contract for Movement Tracking System (MTS),
a satellite-based, logistics-oriented tracking and messaging system.
In January, Comtech Mobile Datacom begins work with the Dominguez Hills division of TRW (later to be
purchased by Northrop-Grumman) to determine a way to provide
satellite service to the U.S. Army Force XXI Brigade and Below (FBCB2) program using
existing MTS L-band transceivers. At this time, the FBCB2 program relied solely on terrestrial,
line-of-sight radios to communicate in a mesh network, however when a vehicle moved out of sight it would
lose connectivity and drop out of the network. Satellite-based networks held the promise of greatly
improved network coverage and connectivity.
In April, MTS passes operational testing with the 180th Transportation
Battalion, 13th Corps Support Command (COSCOM), at Fort Hood, Texas.
In October Brigadier General Mazzucchi, as the Designated Approval Authority (DAA),
signs the Initial Authority to Operate (IATO) paperwork for FBCB2 Blue Force Tracking (BFT).
This clears the way for Comtech hardware and software to be used in Operation
Enduring Freedom (OEF).
In July, Joel Alper retires. Under his leadership, Mobile Datacom grew from a startup to a significant
player in military satellite communications, having developed a new satellite system and won
two major Army contracts (MTS and FBCB2 BFT). Over the subsequent eight years,
these contracts would bring in $1.5 billion of revenue to the company. His contemporaneous
analysis of Comtech Mobile Datacom's future would prove prescient
as he commented in private correspondence on a then-current Army analysis of the BFT system:
[The article] is very
interesting and confirms my view of what the future holds for systems
such as Comtech's.
To our very great credit, the satellite system, and
the operating software and applications worked. Now, the warfighters
have a taste for what is available, and a very clear idea of
shortcomings. That is to say, they see what is being done, and now they
understand how it can work for them, were it to have been designed with
their specific needs in mind. While this always comes down to questions
of time and money, there is going to be a big push to put in place the
systems that work the way the warfighter wants them to work, since now
it's only a matter of, as I indicated, time and money. Time isn't a
factor, since they can use what they've got in the interim, and money,
well, there's a lot going to be spent, so why not on bandwidth and software.
The challenge comes from the possibility that the future system will not
be a derivative of the exisiting system, but the result of a totally new
development, like JTRS [Joint Tactical Radio System].
That could come out of NG [Northrop-Grumman], or GD [General Dynamics],
or any of the large (or small) systems integrators. Comtech will need to get on board, somehow,
or the train will leave them at the station.
[This] article is the first I've seen, and undoubtedly not the
last, reflecting the real needs. And those needs will be met. The Army
isn't going to grow, so it's the systems that will have to maintain the
effectiveness of the small fighting force. Great selling point if you
can make the connection.
J. Preston Windus, Jr., a Comtech corporate financial officer, takes over management of
the Mobile Datacom division.
In September, installation of MT-2011 satellite transceivers NATO vehicles in Kosovo begins.
These units will provide messaging and location data for peacekeeping operations.
Also in September, a thesis from a Naval Postgraduate School student discussing tracking technologies contains this:
Position location is provided by the Globalstar constellation rather via
the GPS satellite system. The satellites calculate position using radio
frequency (RF) time difference of arrival (TDOA), frequency difference
of arrival, angle of arrival or a combination of the geolocation
methodologies. Accuracy of the positions is up to 10 km.
A clarification to the thesis would note that CMDC licensed Geostar
technology from Comsat Corporation, who owned the rights after Geostar's
Incidentally, this type of positional technology is similar to Radio
Determination Satellite Service (RDSS) created by GEOSTAR in the 1980s
and currently owned by Comtech Mobile Data Corporation (CMDC). RDSS
establishes geolocation by radio frequency TDOA using two or more
satellites in geosynchronous orbit. CMDC currently uses GPS along with
the two-way communication capability of RDSS to provide location data
in its movement tracking system service, which is enabled by Inmarsat
constellation. Although GPS technology seems to be the favorite for
geolocation, RDSS is worth investigating.
By May there are about 3,700 MTS-equipped vehicles
operating around the world, including more than
2,000 in Iraq and Kuwait.
In April, Windus retires and is replaced as President of Comtech Mobile
Datacom by Daniel S. Wood, a former Group Director of Finance, Director
of Marketing and Strategic Planning, and Director of Contracts at EDO
Corporation, a supplier of military and commercial products and services,
where he had been for 15 years. The press release issued at the time
"Dan Wood has the ideal background and skill set to take over the reins
from Pres Windus at Comtech Mobile Datacom. His strong operations and
finance experience is very similar to that of Pres."
Like Mr. Windus, his background is financial rather than technical
and is lacking in any significant mobile satellite industry experience.
In May, the FBCB2 BFT Program Office at Fort Monmouth, New Jersey
issues a "sources sought" notice for
[C]ommercial L-band bandwidth, network management services, engineering
design and development services, and L-band satellite transceivers
for Fiscal Year 2007 (FY-07) and beyond supporting US Army FBCB2 BFT
The notice includes the following request:
Optional - A source of supply for engineering services capable of reverse
engineering the firmware contained within the CMDC MT-2011 and CMDC hub
and packet switch equipment to provide a more secure and more capable
waveform to support FBCB2 BFT operations. NOTE: The Government does not
own the design rights to the CMDC MT-2011 transceiver, CMDC hub equipment,
or CMDC packet switch, nor does it have any drawings or documentation
that describes the design and operation of this equipment. The Government
does own CMDC MT-2011 transceivers and CMDC packet switch equipment that
can be provided for purposes of reverse engineering.
Also in May, Comtech corporate tells the Government that it had not agreed
to allow CMDC to license any proprietary information to the Government
at any price for use in future competitive procurements. At time,
CMDC estimated that the value of their ongoing business operations,
and the potential risks associated with releasing the proprietary data
to competitors in the industry would be valued (if a value were to be
assigned) in excess of $100 million.
In April, FBCB2 Prime Contractor Northrop-Grumman awards an initial $9.3 million contract to
California-based ViaSat, Inc., a Comtech competitor, to develop a faster satellite-based Blue Force Tracking system.
In August, the Federal Communications Commission (FCC) issues a
Letter of Inquiry ("LOI") regarding whether CMDC
violated section 301 of the Communications Act of 1934 and sections 25.102, 25.117, 25.136(d)
and 25.276(a) of the Commission's Rules by modifying and operating its
MET [Mobile Earth Terminal] system without appropriate authorization.
In September, Comtech enters into a consent degree with the Federal Communications Commission (FCC):
The Enforcement Bureau ("Bureau") and Comtech Mobile Datacom Corporation
("CMDC"), by their authorized representatives, hereby enter into this
Consent Decree for the purpose of terminating the Bureau's investigation
into whether CMDC violated section 301 of the Communications Act of 1934,
as amended ("Act") and sections 25.102, 25.117, 25.136(d) and 25.276(a) of
the Commission's Rules by modifying and operating its mobile earth
terminal ("MET") system without appropriate authorization.
As part of the consent decree, CMDC makes a
"voluntary" contribution to the United States Treasury in the amount of $25,000 and
is required to make regular reports regarding technical parameters of system operation.
In February, the MTS Program Office releases a Request for Information (RFI) seeking
alternatives to Comtech.
Sixteen (16) companies responded to the RFI, including Comtech and Northrop-Grumman,
the Prime Contractor for FBCB2. Analysis of the Northrop bid included this:
Respondent proposes the adoption of the Battle Command
Product Line (BCPL) Logistics software variant, Movement Tracking System. Enhanced
Software (MTS-ES), (currently undergoing test), to stand up a new NOC [Network Operations Center]
to host MTS running
MTS-ES software, to ramp up the system as quickly as possible, and to undergo a transition
period from legacy NOC to the new proposed NOC. Separate and apart from this proposal, the
current plan is for MTS to adopt MTS-ES as its future software (assuming successful testing and
user acceptance). However current schedules do not project the availability
of MTS-ES until second quarter FY2011. The current MTS contract ends July 2010 which is 6
plus months before MTS-ES is projected to be available.
With successful testing, acceptance, and availability of this software, MTS will no
longer need to sole-source CMDC's proprietary components or require a prime contractor to use
CMDC as its sub-contractor. Once the BCPL software is released, it will allow for MTS to have
open standards, and this is expected to significantly increase competition for future contracts.
In April, the FBCB2 BFT Project Manager issues a Market Survey seeking sources for:
L-band bandwidth, network management services, engineering design and
development services, and the procurement of BFT-2 L-band satellite
transceivers, during the years 2010 - 2015 and beyond supporting PM
FBCB2 BFT operations worldwide.
The PM seeks to procure the hardware and acquire the services, using multiple awards
of Indefinite Delivery Indefinite Quantity (IDIQ) contracts.
The total dollar value of each contract would be $477M.
Starting in 2010 thru 2015, the Army wants to replace the current BFT-1 CMDC
equipment with improved equipment that provides an order of magnitude improvement in
In September, CMDC repeats to the Government that the value
of its ongoing business operations, the Government-wide application of Government Purpose
License Rights, and the potential risks associated with releasing the proprietary data to unlimited
industry competitors, would necessitate a minimum license price of $125 million with any data,
documentation or other information provided in an "as is" condition with no warranties or
guarantees associated with the license.
The Government immediately determines that these terms and conditions are unacceptable.
In July, the U.S. Army awards a $477 million IDIQ contract for the next generation FBCB2 Blue Force Tracking system (called BFT-2)
to ViaSat, Inc. rather than incumbent Comtech Mobile Datacom. In response to this loss,
Comtech stock (ticker symbol CMTL) drops by nearly a third in a single day, representing the extent to which the market valued
the Army contract and the division's relationship with the military.
Also in July, a Memorandum of Understanding (MOU) is signed that places
the Movement Tracking System (MTS) office under PEO C3T, and thus
In May, the Movement Tracking System (MTS) Product Office offically moves
under the Army's Program Executive Office (PEO) Command, Control and
Also in May, Comtech was notified that their BFT-1 contract was selected
for a post award audit by the Defense Contract Audit Agency ("DCAA"). A
post award audit (sometimes referred to as a Truth in Negotiations Act
or "TINA" audit) generally focuses on whether the contractor disclosed
current, accurate and complete cost or pricing data in the contract
negotiation process pursuant to Federal Acquisition Regulations
At the end of June, after multiple rounds of layoffs, Comtech Mobile Datacom ceases providing commercial satellite service over North America.
For the fiscal year ending July 31, payments from the BFT-1 and MTS contracts accounted for 40 percent of Comtech corporate revenue.
Since 1999, Comtech delivered about 139,000 BFT-1 mobile satellite transceivers and 47,000 MTS units.
In August, Comtech corporate offers to sell the rights to CMDC's intellectual property to the Government for $120 million.
The Government declines.
With the Army indicating it would contract for satellite capacity directly rather than through Comtech,
during a September conference call to investors, Comtech officials indicated they would charge the government
a separate fee for the use of the company's intellectual property.
Comtech makes "The GMI Risk List" for October, 2011 with the following
analysis from GMI Ratings:
The defense industry in general poses social concerns for some
investors. At defense contractor Comtech, the average director tenure is
18 years and only one director is under seventy; the board also lacks
diversity with regard to gender. High average tenures and ages, taken
together, suggest entrenchment planning concerns. Remuneration decisions
are only loosely linked to performance, which has lagged peers and the
S&P 500 for the last five years. Finally, a number of accounting
flags suggest that expenses may be understated or possibly capitalized.
Also in October, after a period of unexplained absence, Dan Wood resigns
as President of Comtech Mobile Datacom. Management of the division is
to be handled by Comtech AeroAstro, a sister division located in Ashburn, Virginia.
According to a Schedule 14A (Proxy Statement) filed in November 2010 with the
Securities and Exchange Commission (SEC), in addition to his $314,140 base salary,
Mr. Wood received a 2010 non-equity incentive award of $750,000 which
was primarily based on the level of fiscal 2010 pre-tax profit achieved
for the business operations for which he was responsible and the ECC's
[Executive Compensation Committee] evaluation of his overall performance.
The evaluation includes this:
The ECC considered the fact that the subsidiary Mr. Wood supervises was
not selected as the program manager and vendor for the Blue Force Tracking
2 ("BFT-2") program because a third party vendor bid a price that was 50%
lower than the price submitted by Mr. Wood's subsidiary. Ultimately, as
a result of the expected future decline in sales and profits related to
BFT-2, the Company recorded a goodwill impairment charge in its fiscal
Mr. Wood was also awarded 20,000 shares of CMTL stock in June 2010,
with an estimated value of $216,354. His total reported compensation
for the 2010 fiscal year was $1,451,726.
In addition, at the time of his departure Mr. Wood sold 42,000 shares of
CMTL, netting $1,332,240.
Later in October, Comtech corporate tersely announces his departure and names
his replacement as Paul Lithgow. From the press release,
Fred Kornberg, Chairman and Chief Executive Officer of Comtech
Telecommunications Corp., said:
"As President of both CMDC and AeroAstro, Paul is the perfect candidate
to further reposition our mobile data communications segment. I believe
that Paul's experience in establishing AeroAstro as a leader in the
emerging microsatellites industry will be beneficial as we continue to
adjust our mobile data communication segment's business strategy."
A December Comtech investor presentation confirms the success of the original
Mobile Datacom work with this line:
"I believe that the people and technology at CMDC are second to none
and I am confident that Paul and the team will position our mobile data
communications segment for future growth and continued profitability."
Fiscal 1999 - Mobile Datacom - generated over $1.5 billion of revenue over 10 years
The presentation summarizes Comtech's predicament with this:
After 10 Years of Rapid Growth, Revenues in Fiscal 2012 are Expected to
Materially Decline as MTS & BFT-1 Programs Go Into Sustainment Mode
The presentation also admits the transition (although not referring to it
as such) of the Movement Tracking System (MTS) Network Operations Center
(NOC) from Comtech's Germantown facility to the FBCB2 BGN at Aberdeen
Subsequent to October 31, 2011, we received an
order for $3.8 million to support the integration and
establishment of an MTS network operations center
within the existing BFT facilities by July 9, 2012.
In January the Army awards Comtech short-term contracts for equipment and
service. The intent of the Army is to acquire commercial satellite capacity
through the DISA-GSA Future COMSATCOM Services Acquisition (FCSA) program
rather than through Comtech.
Through January 31, 2012, Comtech received $378,009,000 in total
orders under their BFT-1 contract.
During a March 9 investor's conference call, Chairman Fred Kornberg repeats
his demand for payment from the Army and further maintains that even if the
Army moves to other vendors for BFT-2 and satellite service, Comtech will
still demand payment for the use of their "intellectual property."
At the end of March, with a 31 March contract expiration looming,
the Army agrees to a service extension with Comtech. The contract
includes a list of intellectual property claims, for which Comtech
will be paid $10 million each year. From an April 2 press release:
The specific terms and conditions related to the IP license are covered
by a separate licensing agreement which provides for an initial licensing
period that begins April 1, 2012 and ends March 31, 2013 and provides for
annual renewals, at the U.S. government's option, for up to a five-year
period, after which time the U.S. government will have a limited
non-exclusive right to use Comtech's IP for no additional IP licensing fee.
The first order under this contract established the IP license fee
as $10.0 million for the initial period. This amount is separate
from any services, management or operations costs.
In April, BFT-2 equipment from ViaSat begins official fielding, marking
the start of a planned replacement program of BFT-1.
In July, Comtech shuts down the AeroAstro division and lays off about
50 employees. In October some of the assets of AeroAstro are
sold to San Diego-based Space Micro.
In a Fourth Quarter investor presentation, Comtech again highlights their
"Strong Track Record of Successful Acquisitions" with the inclusion of
the line "Fiscal 1999 - Mobile Datacom - generated over $1.5 billion of
revenue over 10 years."
In a November proxy statement (Schedule 14A), Comtech acknowledges some of
the financial effects of losing the BFT-2 competition:
Like it did in fiscal 2011, our ECC decided to award lower total fiscal
2012 compensation to our NEOs (including our CEO), in part, as a result
of the continuing impact to our business of the July 2010 decision by
the U.S. Army to award the Blue-Force Tracking-2 ("BFT-2") contract
to a competitor, and the U.S. Army's related decision to combine its
Movement Tracking System ("MTS") program with the BFT program. While the
U.S. Army's decisions did not have an immediate impact on our financial
results, the July 2010 announcement of the loss of the BFT-2 contract
to a competitor resulted in a 31.9% one-day drop in our stock price
(which has not yet been fully recovered) and its loss will negatively
impact our comparative financial results for several years.
According to a filing made by Comtech to the Securities and Exchange Commission (SEC),
in December Comtech is informed that a preliminary report by the government auditor
(the audit conducted by the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency)
concluded that Comtech's pricing methods under the BFT-1 contract were unacceptable,
and that the company would be asked to reimburse $11.8 million plus $2.3 million in interest.