- SpaceX is charging $99 a month to test users of Starlink, the aerospace company’s new satellite-internet service, plus a $499 starter kit.
- The starter kit contains a user terminal, or satellite dish, to talk to Starlink spacecraft. Key to its operation is a phased-array antenna, which is an electronic component that can cost tens of thousands of dollars.
- SpaceX is likely paying much less to manufacture Starlink terminals, but telecommunications experts think the company is subsidizing potentially thousands of dollars’ worth of hardware for each user.
- “Getting the terminal out there is great PR for gaining market access,” Tim Farrar, an industry expert, told Business Insider. “It also impresses potential (and current) investors and makes life difficult for competitors.”
- Heavy long-term subsidization could majorly hinder SpaceX’s ability to break even on Starlink, let alone profit from the audacious venture.
- Visit Business Insider’s homepage for more stories.
SpaceX is running circles around its competitors with Starlink, a satellite-internet project the company has rapidly deployed and is proving to rival even terrestrial broadband services.
In just under a year, SpaceX, founded by Elon Musk in 2002, has rocketed nearly 900 Starlink satellites into orbit and kicked off a public beta to test the network. SpaceX charges each US subscriber $99 per month plus a one-time fee of $499 for a startup kit.
So far, the reviews are solid.
But telecommunications industry experts tell Business Insider that SpaceX is likely spending more — much, much more — to build Starlink hardware than the company charges its customers.
Key to making Starlink work is the starter kit’s satellite dish, or user terminal, which Musk nicknamed a “UFO on a stick.” The tech mogul said in 2015 that he’d like user terminals to cost subscribers about $100 to $300, though he has since repeatedly lamented their costly manufacturing and said it could take years to achieve affordability.
Roger Rusch, a satellite communications industry consultant at TelAstra, says he’s not surprised by SpaceX’s struggle with user-terminal costs.
“It’s like taking … a really state-of-the-art computer, and then connecting it to a very sophisticated array of electronics,” Rusch told Business Insider. “It’s one of the most sophisticated pieces of electronics that I’ve ever heard about, and there’s a lot of sophisticated software that goes with it.”
Based on the costs of comparable technology and what little is publicly known about SpaceX’s pricing, the company may be losing thousands of dollars on every beta subscriber, says Tim Farrar, an industry consultant at TMF Associates. That’s on top of growing capital costs for building, launching, and operating satellites.
“It seems likely that they are subsidizing [each terminal] by at least $1,000 for these initial customers, and possibly as much as $2,000,” Farrar told Business Insider. “You’d need tens of thousands of customers before you got those subsidies down to $1,000 or less.” (Farrar does some work for a rival internet provider but said he spoke independently for this story.)
A relatively small price for global domination?
Traditional internet satellites are the size of a bus and launch to geostationary orbit, which is about 22,236 miles above Earth. From that vantage point they can float above one point on Earth and offer expansive coverage, yet at limited data rates and significant connection delays.
Starlink aims to provide a lot more bandwidth with much lower lag, and at a similar price point. SpaceX thinks it can do so by deploying perhaps tens of thousands of flat, desk-size satellites some 340 miles above the planet. If Starlink can snag a few percent of a $1 trillion-per-year telecommunications industry, Musk said in May 2019, SpaceX could possibly net $30 billion to $50 billion annually from the service.
But SpaceX isn’t alone. OneWeb, Viasat, Amazon’s Kuiper, and other efforts are working to deploy their own satellite constellations and get their services licensed in countries all over the world.
None are as far along as SpaceX and, in that context, Rusch said the $99 subscription and $499 kit prices SpaceX is charging beta users — numbers the company presumably knew would be publicized by the media — is strategic.
“They had to pick a price that would be acceptable in the market,” he said. “For a user, the total cost of ownership is an important factor.”
Farrar thinks the beta pricing is not just an advertisement to consumers, but also to government agencies which license satellite communications within their countries, as well as industry players positioned to fuel Starlink’s growth.
“Getting the terminal out there is great PR for gaining market access,” Farrar said in a message. “It also impresses potential (and current) investors and makes life difficult for competitors.”
For a beta with a limited number of terminals, he said “the cost to them of a few thousand is peanuts.” Yet as Starlink grows, the subsidies could become hindering without significant cost reduction.
‘I would not expect that you could make this work as a business’
Rusch said going out and buying a similar phased-array component individually may cost “tens of thousands of dollars.” He doesn’t think SpaceX’s costs are that high, but noted the technology is inherently complex, making it difficult to rapidly reduce cost.
Where traditional satellite-internet dishes typically have one transceiver (which Rusch says costs about $100) to communicate with spacecraft, SpaceX’s user terminal has dozens arranged on a platter.
“These Starlink terminals need a large number of those transceivers on a matrix, and then you need to have electronics that process all information, connect all these things together, and drive all these signals so that the terminal points in the right place — logic that says where it’s supposed to be pointed in the sky — so it’s connecting to the right satellite,” Rusch said. “It’s a gargantuan processing problem on top of a very elaborate set of electronics.”
Job postings and statements by SpaceX over the past two years suggest the company purchases components overseas and assembles them into satellites, user terminals, and other Starlink equipment at its facilities in Seattle, Washington.
The company is likely building what are called active electronically scanned arrays, which are popular for military applications like communications and radar, says Richard Williams, an engineer and physicist who researches and develops phased-array antennas. He noted assembling user terminals in-house would cut some costs, but not by all that much since most of the expense lies with making their microelectronic components.
“It is very, very intensive process. We’re talking about people in clean rooms, and all kinds of safety protocols on top of person hours, materials, and components going into the fabrication process and machinery,” Williams told Business Insider, speaking independently of his employer. “If there was a big revolution in increasing the efficiency of semiconductor fabrication for these integrated circuits, then we probably would have heard something about it by now.”
Farrar says he derived his cost estimates in part by comparing beta pricing to SpaceX’s plans to charge a Texas school district about $300,000 to get up to 135 families online. That works out to roughly $185 per month per household, which is $85 higher than the company’s beta subscription, and more than $1,000 per year. He said if Starlink follows the path of traditional satellite-internet competitors like Viasat and HughesNet, which recover their user terminal costs over three years through a subscription fee, “then the [Starlink] terminal and install cost would be several thousand dollars.”
Farrar and Rusch each noted that increasing volume production of phased-array panels would definitely help lower cost to SpaceX, but within limits.
“All the data I’ve ever seen suggests the phased-array component of these terminals will have costs that, even with large enough volumes — say millions of terminals — they’re going to be at least $1,000 each,” Rusch said. “And that is the cost level to a manufacturer who’s putting the terminal system together.”
Williams concurred. “I really find it hard to believe that they are buying at the scale necessary to even drive the cost down remotely near to being affordable,” he said. Even if SpaceX secured excellent outsourcing contracts and produced thousands of its own terminals, “there’s no way that those things are costing under a few thousand dollars,” Williams added.
SpaceX did not acknowledge multiple queries from Business Insider, including questions about Starlink user terminal costs.
Beyond consumers, Rusch said Starlink has plenty of opportunities to tap, including with the government and other businesses. The project has already secured military contracts and deals to shuttle or backhaul data for other companies. In October, for example, Microsoft announced its partnership with SpaceX to connect shipping container-size cloud data centers almost anywhere in the world.
Still, both Farrar and Rusch are bearish on the long-term economics, in part due to projections for steep terminal costs.
“I would not expect that you could make this work as a business based on what I’ve seen today in the industry and competition in the terrestrial alternatives,” Rusch said, referring to ever-expanding networks of high-speed fiberoptic cabling. “But I will say Elon Musk has the determination to make things happen. He might succeed.”
This story has been updated with new information. It was originally published at 12:11 p.m. ET on November 11, 2020.
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