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.
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: