Starlink vs 5G
Satellite communications networks
Telecommunications networks in space, in the form of low-Earth-orbit (LEO) constellations of communications satellites have been attempted multiple times. None were successful. A combination of technological and financial reasons stymied previous efforts. There were never enough people who really needed satellite internet connections, and were willing to pay enough to get them, to support a telecommunications infrastructure in orbit.
Can Starlink beat these odds? It gets easier as technology improves. It also gets harder as relatively low cost terrestrial wireless internet connections, especially as fixed wireless access (FWA) gets more widely deployed. FWA will benefit from 5G because 5G brings standardization to a type of network that had previously been built using proprietary equipment.
The moment Elon bought Twitter...
The moment Elon Musk bought Twitter, his net worth declined by $10-20 billion. That is how much less Twitter is worth than the price Musk agreed to pay. Since he bought Twitter, the value has declined further. By some estimates he got $200 billion less wealthy in 2022.
The Twitter buy is very hard to leverage. Elon Musk bought Twitter with the proceeds of selling or borrowing against a large amount of Tesla shares. He has some co-investors, like Peter Thiel, a Saudi prince, a front for Russian oligarchs, and other luminaries. He also borrowed about $13 billion from banks, mostly in the form of senior debt that must be paid off before equity investors. While Elon Musk remains enormously wealthy, much of his wealth is either illiquid, in shares of companies like SpaceX that are not publicly traded, or in the form of Tesla shares pledged to collateralize previous borrowing.
The way he bought and is running Twitter will have an effect on everything Elon Musk is trying to do, including Starlink.
Space is expensive
SpaceX consumes around $2B in losses per year. That seems like a lot. Falcon 9 is the leading system for all kinds of payloads to get to orbit. It probably makes a good operating profit per customer payload.
However, the development of Starship, which has been ongoing for ten years now, is tremendously ambitious, risky, and expensive, and has yet to make any money from payloads. As of the time this was written, Starship hasn't gotten to Earth orbit, nor even fired a full complement of rocket engines on a test stand.
But SpaceX has a way of accessing cheap capital: Just as Tesla wants to be thought of as a software company that delivers software in the form of a car, SpaceX wants to be known as a global telecommunications provider, not just a rocket launching company. Being good at launching stuff into Earth orbit is a highly visible success. It attracts a lot of public recognition. It's how billionaires measure their... whatever it is they measure. But there is not enough demand for getting satellites into orbit to make it a really big business that has real economies of scale.
Telecommunications, on the other hand, is something every person on this planet wants and will pay to get. A global telecommunications provider that can reach every point on the planet from the high ground of space is, in theory, a very large and valuable company indeed. SpaceX, therefore, is betting heavily on being thought of, by investors, as a telecommunications company.
It is a massive bet. We know there is not enough demand to just be a space launch provider because Starlink satellites are the majority of satellites launched in the past three years. Starlink is most of the mass SpaceX has put into orbit. But Starlink isn't a paying customer. For Starlink to make sense, it has to substantially increase the value of SpaceX. Can it actually do that?
Starlink drives SpaceX valuation
the current Starlink network claims to have about 1,000,000 subscribers. Telecom companies like Verizon are valued at about $1000 per subscriber. SpaceX could be worth double, possibly triple, that $1000 per user because Starlink has a high annual revenue per user (ARPU). That means Starlink is worth somewhere between $1 billion, by conventional measures, to $3 billion granting all the factors such as that Starlink is growing, developing new tech for satellites, etc. But the bottom line is that Starlink is not worth more than the cost of building, launching, and running a space network of more than 4,000 satellites. Not by miles.
Elon Musk has publicly mused about spinning off Starlink. But, anyone buying Starlink out of SpaceX would have to pay the cost of building Starlink satellites, and then pay SpaceX, at prices similar to what other outside customers pay, for launching those satellites. That sounds pretty good for SpaceX if Starlink would be a source of revenue, like any other paying customer!
What would actually happen is that Starlink would go bust. Starlink is totally dependent on SpaceX's paying customers, in the form of a "ride share" and the use of refurbished boosters. Starlink is not, at this time, financially plausible on its own. Falcon 9 may seem like an economical way to launch a satellite constellation, but it entails using launch facilities, fuel, and Falcon 9's single-use upper stage. It isn't cheap, even if it is cheaper than paying the going commercial rate for launch to orbit.
How far is it to a profitable Starlink?
What is the distance between where Starlink is now and, for example, Verizon's revenue from its approximately 150 million subscribers? That distance cannot be spanned with the current generation of Starlink satellites. The lines never cross.
That means every dollar that goes into launching another current-generation satellite is another cash flow negative element of SpaceX's financials.
Is there a benefit to building the current-generation network? Starlink is building a customer base, albeit a small, never-to-be-profitable customer base, just like every LEO satellite telecom venture ever. But if Starlink wants those customers to be there for the next generation of Starlink's satellite constellation, they have to continue to build and maintain the current generation constellation. That's expensive, in part because Starlink satellites have a fairly short lifespan.
A constellation of thousands of satellites with a short lifespan means Starlink has to attract tens of millions of customers. It has to grow the customer numbers and grow the satellite network while showing that, unlike the current generation network, it will converge on a sustainable revenue and operating model.
How large and daunting is this challenge? One startling fact about the scale of Stearlink ambitions is that despite being a kind of prototype that needs to get 100 times larger, Starlink is already most of the space business, and most of what has been launched recently:
Starlink generation 2
The scale that Starlink needs to achieve looks insurmountable, but there is a plan. The viability of Starlink rests on the new generation of satellites: These are more expensive, five times heavier, and more complex. They must serve many more users per satellite. They must communicate directly with one another without needing ground stations near every area served. On top of all that, they still have a limited lifespan. New satellites must be launched at a fast tempo, first to build, and then to maintain the constellation.
In rough numbers, each satellite has about 10X more capacity, and SpaceX has plans to launch 10 times more satellites than in the first generation Starlink constellation. While the first generation of Starlink is a "bent pipe" model of satellite communications, where every satellite must find not only the user's antenna on the ground, but also a downlink antenna, the second generation satellites will form a kind of "space backbone," by being able to communicate with each other using lasers.
That second generation, with ten times more satellites in the constellation, will take Starlink from what is a proof-of-concept that has trouble scaling past one million subscribers, to something that has the theoretical ability to support around 100 times as many. That kind of capacity could put Starlink into the league of first tier global telecom providers.
Space is expensive, can Starship change that?
It took about three years and dozens of launches to build the current Starlink constellation. At five times the weight of a generation 1 satellite, the generation 2 satellites would take roughly 50 times as many launches of Falcon 9 rockets to build the proposed 10 times larger constellation. A high tempo of launches would have to be maintained to keep the constellation healthy. This will not happen if Falcon 9 is the vehicle for putting this constellation in orbit. But there is a plan: Starship.
Starship is the largest rocket ever built. It is designed to have the capacity to take large payloads to the Moon, to Mars, and beyond. Elon Musk proposed to build a city on Mars, which would require hundreds of Mars trips from Earth. While you may think that putting thousands of Elon Musk's most ardent fans on a different planet is a worthy humanitarian goal, there is some question whether Starship will work as well as hoped.
Back to low Earth orbit: Starship is projected to have a payload to LEO of about 220,000 pounds. That's stupendous. That's about 100 tons. That's roughly fourfold more than Falcon 9. Interesting. Impressive. Starship would be able to launch about as many generation 2 satellites as Falcon 9 can launch generation 1 satellites. But, still short of what's needed to launch a constellation of 40,000 satellites, tenfold more than Starlink generation 1. Remember: the goal is for Starlink to serve 100 times as many subscribers as it does today.
That means the tempo of launches needs to be tenfold faster, and cost per launch has to be tenfold less. This is roughly what Elon Musk claims Starship will be able to do. Will it, in reality?
Starship and Starlink are two enormous, intertwined gambles: Without Starship, a large Starlink network is not possible. Without Starlink, there isn't nearly enough demand for orbital launch capacity (though Starship could still be vital to missions to the Moon, Mars, and other interplanetary destinations). Nor is there enough revenue to support the valuation SpaceX needs to raise the capital to build Starship.
There are additional risks. For example: Newly launched generation 1 satellites are equipped with laser links to enable inter-satellite data transfer. This can create something like an internet backbone in space. It will at least enable Starlink to serve locations, like open oceans, that are distant from ground stations. No more "bent pipe." The risk is whether this scales to 40,000 satellites reliably.
Even if everything goes right, will enough people buy it?
It is not a slam dunk that there are 100 times as many potential subscribers for Starlink. At the low end of user needs, geostationary and smaller LEO constellations can carry smaller amounts of near-real-time data. For consumer and business general purpose internet service, 5G fixed-wireless (FWA) will be competing for the same potential subscribers.
Currently, there are many proprietary microwave and millimeter wave radio systems for reaching customers of wireless internet services 5-10 kilometers away from base station antennas. Starting in 2022, cellular providers have been rolling out extended range millimeter wave 5G FWA. This extends range from around 200 meters to at least 5 kilometers. That fulfills the promise of 5G in transforming FWA from a proprietary product suitable for niche service providers in rural areas to a relatively simple add-on to existing 5G networks. It vastly lowers the cost of deploying 5G for rural FWA: the base stations can be kilometers away, not within a couple hundred meters.
As described elsewhere in these documents covering 5G, FWA is the part of millimeter wave 5G that actually works reliably. It uses beamforming, but does not require beam steering to work reliably when devices are on the move. It is standardized: terminal equipment from one vendor will work with any other vendor's 5G base stations. Network operators are already experienced users of proprietary mmWave links as a proven approach for rural internet service, with knowns costs.
When will we know?
Elon Musk's genius is to take outsize audacious risks. Starlink and Starship are the capstone to these gambles. If both of them work as claimed, Musk will have a cash cow that will enable him to take further risks. If one or the other fails, the valuation of Spacex will be that of a highly successful space launch provider, and Starlink will probably go bust by being too costly for niche customers that won't yield enough revenue to keep it running.