Starlink: Who is it really for?

This article looks at who the true intended targets of Starlink are and whether or not traditional fibre companies should be looking over their shoulders.

Starlink is a satellite based internet service provider owned by Elon Musks’ space exploration company, SpaceX. It is not the first satellite internet provider, there are other well established companies like HughesNet and Viasat. HughesNet is the largest provider of high speed satellite internet in the US and boasts a 50% market share. However, it is largely believed that Starlink is the better product and despite only having 500,000 active customers it is expected to out perform all competition. At least in the satellite internet service market for now.

One key difference between Starlink and other satellite internet providers is that Starlink satellites operate in low Earth orbit (LEO) which is approximately 340 miles above the earth. In contrast, both HughesNet and Viasat use geosynchronous satellites which orbit at around 22,236 miles above the Earth. Utilising LEO gives Starlink a massive advantage in that signals have far less distance to travel. However a major downside to operating in LEO is the risk of drag on the satellite from atmospheric pressures and geomagnetic storms. Back in February 2022 Starlink lost 40 satellites due to a geomagnetic storm causing them to re-enter the Earths atmosphere and burn up. The estimated cost of the loss of these satellites was around $100 million. Fortunately there is still around 2,000 Starlink satellite safely in orbit. Starlink are able to offer faster speeds, at lower cost and do not cap or throttle data, unlike their competition stationed above. Another key strategic advantage that has so far flew under the radar is the design of the hardware received by customers. Having seen is some detail both generation dish supplied by Starlink and their router, it looks as if the designers at Starlink sat in on a Steve Jobs inspired design course.

So Starlink can outperform its competition above Earth, but what about those sat on it? Firstly, Starlink does not claim to be in competition with traditional broadband providers and technology such as fibre. They claim that their purpose it to reach the areas of the world that fibre and 5G can’t. And what a very noble claim this is from such a humble organisation built on nobility. But in actual fact, Starlink can hold its own against fibre. It is true that it cannot complete with upload speeds which are around half of what you could get from fibre. But download, well that is getting interesting. The fastest fibre we have commercially available is around 1Gbps but this isn’t consistently achieved. Google Fibre is the fastest internet provider in the US and their average speeds are 167.1Mbp which were taken from a 12 month study into actual speeds. Starlink is currently offering average speeds of 105.91Mbps, so it is some way behind the fastest. However, many in the US do not have access to Google Fibre and the actual average for the country is 119Mbps and in Europe it is much lower. This puts Starlink comfortably back in the conversation. It is also very important to understand the 2,000 Starlink satellite in orbit are only the begging of a project aiming to launch and maintain 40,000 orbital satellites. The more satellites in orbit, the faster the internet speeds on Earth. Starlink initially predicted download speeds to be at 1Gbps, they have now increased this prediction to 10Gbps based on recent system test results.

It is not just the potential speed that should have traditional internet providers worried, it is also the cost of the product and the track record of Elon Musk in disrupting established industries. When you sign up with Starlink you pay an upfront fee for the hardware of around $500. After that you pay a monthly subscription of around $100 on a rolling monthly contract. That’s not too bad for the consumer but it leaves plenty of ground to make up on the Starlink balance sheet. It is estimated that the hardware received by customers, the dish, router and cables have a manufacturing cost of around $2,000. That’s a net loss off $1,500 for every customer and as previously mentioned, they currently have 500,000! That means they have already lost $750,000,000 on customer hardware alone. Remember the $100m lost when the 40 satellites went down? Well that can be added to the bill. Then they need to pay for the satellites that are in orbit which cost a conservative estimate of $250,000 each. Remember, there’s 2,000 up there and they want to increase this to 40,000! That’s $10,000,000,000 on satellites once they have them all up there but it doesn’t include the cost of actually getting them there. It has also been reported that the lifespan of a satellite is only 5 years. So that’s effectively $2 billion a year just to pay for the satellites. The payback period for the loss on customer hardware is 15 months based on a $100 per month subscription fee. So for every new customer they will make $0 for the first 15 months. How are they going to make this work?

Starlink claim that their ambition is to provide high speed internet to the 3+ billion people in remote areas of the world. Unfortunately, these people also represent the poorest! To be able to sell to these people Starlink will need to bring its costs down significantly. The only way to do this is by increasing sales. So who are they going to sell their product to in order to become financially viable enough to sell to the customer base they say is core? Their target has to be regular people in regular areas of the world. Why else would they be publishing projected speeds of 10Gbps? This is excessive and frankly a waste of money to those who don’t currently have access to 100Mbps. The product design isn’t going to hurt either. Does Musk and Starlink anticipate the following and loyalty that basically made Apple a religion? His products are pretty cool in design and we’ve seen that a good design will outshine the shadow of a hefty price tag.

It could be that the ambitions of Starlink are closer to market dominance and rhetorical world domination rather than the noble claims they have made which sound closer to humanitarian aid and charity. It seems clear that the Starlink business plan is to tap I to the 3+ billion customers ready and waiting to receive the fast speed internet they have craved for so long but in order to get there, they must first pillage the market currently occupied by fibre.