Space Exploration Technologies, or SpaceX, is one of the largest, and most well known, private companies in the world. Currently valued at ~$74B, the company was founded in 2002 to revolutionize access to space and enable a multi-planetary society. Since 2008, the company has had over 100 successful launches with the Falcon 1, Falcon 9, Falcon Heavy, and Crew Dragon, and, through re-usability, has reduced the cost to access space from ~$200M (United Launch Alliance) to tens of millions of dollars — and even lower if you account for the ride sharing program for small satellite launches. SpaceX still plans to get launch costs orders of magnitude cheaper, further opening up humanity’s next great frontier — Space.
Notwithstanding the importance of it’s next generational launch vehicle, Starship, or their ambitions to enable hypersonic intra earth travel, or to open up travel and colonies on the Moon and Mars — Starlink is the future value driver for SpaceX. Starlink is a LEO satellite internet constellation that will offer high speed internet connectivity to the entire world. Yes, the entire world. Within 2 years, Starlink already has over 1000 satellites within its constellation, and plans to place anywhere from 12,000–42,000 total, depending on FCC approval and future needs. The service launched in Q1 of this year and we are in the beginnings of a revolutionary new technology and business. Now here is the main question. Why is Starlink so important? Why will it change the world? How large is the opportunity? This is where I wanted to share some of my thoughts on just how transformative Starlink is, not just for SpaceX, but for the entire country, and the world.
The Problem:
First, let’s establish an unknown known, not everyone in developed countries has access to high speed internet. The latest FCC Broadband Development report estimates there are approximately 18 million Americans without access to any Broadband network, but the actual number is closer to 40 million. The disparity between the latest estimate and the FCC’s largely comes from the agency’s reliance on Form 477 reports, in which internet providers self-report the locations they serve. Providers can claim to serve the population of an entire census block if service is provided to just one household in that block. Regardless, there are tens of millions of Americans without access to information discovery, job opportunities, entertainment, and connectivity. This problem only scales as you look at other countries in Europe, like Italy and Austria, and emerging markets like Africa and India, where greater than 50% of the population still lacks broadband access.
For now, let’s stay focused on the initial market for Starlink, the US. How did we get here? How does a country leading almost all technical innovation in commercial technology and connectivity, not fully connected themselves. We see the cause here as a similar cause for the shortcomings of our military technology — government procurement. Over the past five years alone, the federal government has provided over $22 billion to support the expansion of rural broadband, yet ~6%-12% of Americans still do not have access to a quality broadband network. Simultaneously, the government has relied on outdated programs, and ISPs, to do the job they seem to not be able to. Currently, every American’s wired and wireless phone bill contains an ever-increasing 21.2% monthly fee of interstate and international call charges that is supposed to support the expansion of broadband to all. Revenues from those charges, however, are declining as the internet replaces the need for traditional telephone services. The result forces the fee onto an ever-upward trajectory. It is a classic example of why a program designed to solve problems in the telephone era needs to be replaced to solve problems in the internet era. To make matters worse, federal funds go towards providing 25mbps connections, far below the standards most Americans have of at least 100mbps down, and these dollars go towards whomever can provide the minimal need at the lowest price. Now, it is important to note that not all of these shortcomings are on the government and ISPs. There are many rural areas where fiber can not be built, and telcos cannot cover, so satellite is the only option. Also, a recent Pew Research study found that half of Americans without high speed internet cite cost being the main reason. We clearly need a solution to reach the unreached areas and expand affordability.
Even more astonishing than the amount of Americans without internet access is the lack of stable, global connectivity for our most critical enterprise and military infrastructure. Routinely our leaders in the battlefield can’t access their e-mail, let alone have scalable networking communication and M2M communication. Existing satellite infrastructure is not equipped to tackle the needs of our most important enterprise and government institutions, and the needs of our citizens.
The Impact:
The reason satellite providers like Hughes Net, or LEO constellation companies like the now bankrupt OneWeb, fail in addressing the needs of both rural and suburban customers is in fact quite simple — price. It has always been very expensive to build, launch, and maintenance satellites. SpaceX has a very different dynamic due to a powerful business dynamic called — vertical integration. Vertical integration is simply defined as a mechanic where aspects of the supply chain of a company is owned by a company. Another piece to vertical integration is that investments in one business line end up creating value, and driving costs down, for other business lines. SpaceX can not only build satellites faster and cheaper than competitors, but they can launch and maintain them cheaper than anyone else. Many launches end up even partially subsidized by customers as multiple SpaceX launches have involved delivering a customer payload, as well as a batch of Starlink satellites.
SpaceX has the capability to execute on something no other company has ever been able to achieve, and even with a small portion of the American market, Starlink can reach massive scale from their customer facing business from day one. Over the years they will take market share in the massive American market and then scale globally — a recent Morgan Stanley report has a some interesting work on Starlink’s scale potential. Yet a less talked about opportunity is the opportunity to provide network and communications infrastructure for the enterprise and defense sectors. It’s hard to value potential TCV here from enterprise and defense contracts, but SpaceX is already working on implementing Starlink within the military’s infrastructure which will be very transformative for our most important institutions, and very lucrative for SpaceX. Even in it’s private beta stages, Starlink recently was used in a field test with the AC-130, a flagship vehicle for our military.
Lastly, the most important opportunity for Starlink is the chance to provide internet to the rest of the world that still lacks internet access. Anywhere from 40–50% of the world still does not have basic internet access. Starlink can finally be the company to change that, and truly change the world. Countless studies show the tie between internet growth and GDP growth. Countless citizens of the world will enter the global economy and have access to information, communications, banking, healthcare, entertainment, business opportunities, jobs, and more.
—Opinions expressed are solely my own and do not express the views or opinions of my employer, 137 Ventures