Bidding starts to put EU's Galileo navigation system into space

Satellite network, designed to give Europe independence, has been delayed by Brussels rows
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The European Commission kicked off plans yesterday for a rival to the United States' global positioning system (GPS) with calls for suppliers for €3.4bn-worth (£2.7bn) of hi-tech space-technology deals.

The Galileo programme's network of 30 satellites is designed to give Europe strategic independence from the US, steal a march on the nascent market for mobile location-based services and boost the region's hi-tech and engineering sectors.

But squabbles in Brussels have already pushed the scheme years behind schedule and British MPs warned last year it could become an "orbiting RailTrack" costing up to £10bn. The five-year project is split into six parts, including hardware, complex ground-control and navigation systems and systems integration work. Key players that are likely to put themselves into the running include Thales Alenia Space, EADS Astrium and Logica, but the scheme could also attract non-European firms and Boeing has expressed some interest.

Notwithstanding predictions of disaster by the scheme's opponents, Galileo is a superior technology. While the American system is accurate to 10 metres at best, and considerably less in built-up areas, Galileo can pinpoint down to a few centimetres. Richard Peckham, the business development director at EADS Astrium, said: "GPS started as a military system but a massive market has developed around it and US industry has reaped the benefits many times over.

"All kinds of industries are dependent on GPS now – everything from oil and gas, to electricity distribution, to telecommunications."

The Galileo business model also includes plans to make money back from the sale of guaranteed services, which can be either location-based or based on the super-accurate timing that satellite systems also deliver. GPS is not used in safety-critical industries, such as air traffic control, because there is no guarantee of service. But by offering a contractual certainty, Galileo could have wide-ranging applications from monitoring cars' drift in motorway lanes to berthing ships in dockyards.

There are also major consumer applications. Paul Lee, a director of research at Deloitte, said: "At the moment there is just one major application, which is car navigation systems, but as the cost of the chipsets goes down they are being integrated into mobile phones and over time they will be tagged into anything which can be tracked to avoid theft."

Although yesterday's tender documents are only the beginning, it has been a long road for Galileo already.

The programme started a decade ago with a joint plan between the Commission and the European Space Agency (ESA), under which ESA was to develop the technology and the Commission was to fund it through a public-private partnership (PPP).

ESA's technological developments were slower than anticipated: the whole programme was originally due by 2008, but so far only two of the four test satellites have been launched and the most recent, the EADS Astrium-built GIOVE-B, only went up three months ago. Under the current timetable, Galileo will not be in place until 2013.

But the real problem was politics. By 2004, the list of consortia bidding for Galileo was down to three, but the programme hit the skids when one dropped out and the Commission tried to negotiate a merger between the remaining two, which included AlcatelAleniaSpace, Thales and EADS.

Discussions continued until last summer, before falling apart. A major problem for the suppliers was that individual member states were pushing for specific locations for certain parts of the scheme – control centres in Rome, Toulouse and Munich, for example – regardless of commercial realities. "It ended up with such a politically driven infrastructure that there is no ability of the industry to make decisions based on efficiency and cost effectiveness," said an industry source involved in the procurement. "The consortia were being asked to bear the risk but they didn't have any power and didn't have any control over costs."

The ESA's director general, Jean-Jacques Dordain, said last month: "Europe needs vision ... That doesn't start with governance."

The scheme was only saved, after extensive EU parliamentary debates, with the decision to scrap the PPP arrangement and fund it centrally from the Commission.

But while sources close to the programme claim that the plans are progressing, and some of the most unhelpful political divisions have been overcome, there are still major questions to be answsered – such as how to get smaller states involved so they benefit from the infrastructure investment.

But even that may play to some advantage. Logica, which already has €70m-worth of business on the pilot scheme, plans to bid for the systems integration deal. Stuart Martin, a director at Logica, said: "We will construct a team from our subsidiaries all around Europe to provide a virtual centre of excellence."