It’s tough being a SpaceX competitor no matter if you are building rockets, providing satellite internet or seeking to enter the nascent direct-to-mobile-phone industry.
Elon Musk’s space company has cracked the code on reusable rockets, driving down launch costs that rivals aren’t yet close to matching. This gives SpaceX an insurmountable advantage for launching its own satellites and building out an unrivaled low-Earth-orbit network that now stands at about 8,000 satellites and counting.
Starlink, SpaceX’s satellite internet company, has also proved adept at designing and producing equipment for both space and ground, winning praise from internet customers for the speed provided by its small antenna and WiFi router. The low-cost structure derived from this router-to-rocket vertical integration creates an unprecedented competitive moat.
This is why SpaceX’s agreement to pay $17 billion for a big chunk of spectrum licenses from EchoStar Corp. has raised so many eyebrows in the telecommunications world. The spectrum gives SpaceX the firepower to offer a direct-to-device satellite service that competitors will struggle to match. It all goes back to the low-cost launch capabilities. The moat will widen even more after SpaceX perfects the launch and retrieval of Starship, which boasts the largest payload capacity of any rocket.
An additional problem for satellite competitors is that markets for space services are limited, and the industry requires huge capital expenditures. In densely populated areas, fiber-optic cable and cellular towers can’t be beat on price and speed for broadband internet and mobile phone service. This relegates the addressable market to rural areas where the number of customers doesn’t justify the expense of laying cable or building cell towers.
Half a million square miles of the US are not covered by wireless networks, an area the size of California, Texas and Florida combined, Philip Burnett, an analyst with New Street Research, said in an interview. “So it’s a large land area, but it’s a very tiny population of people,” he said.
SpaceX’s cost structure will pave the way for a dominant position in the direct-to-device market, just as the company has carved out that position for satellite internet and rocket launches.
This spells trouble for companies that have been investing in this new technology. Since the spectrum purchase deal was announced early on Monday, shares of AST SpaceMobile Inc. have tumbled 11%. Iridium Communications, which sells special satellite phones, has shed more than a quarter of its value. Ottawa-based Telesat Corp. has fallen about 9%. The big head start that SpaceX enjoys will make it difficult for Amazon.com Inc. to break into the market with Project Kuiper, which now has about 100 low-Earth-orbit satellites out of a planned 3,200. New Glenn, Blue Origin’s reusable rocket, is scheduled to make its second flight later this month.
Speculation has swirled around whether SpaceX’s spectrum purchase means the company wants to become the US’ fourth nationwide mobile phone service provider. That would require many more spectrum purchases and implies an uphill battle to carve out market share from entrenched, ferocious competitors. Instead, SpaceX dropped a not-so-subtle hint that it wants to partner with the mobile service providers to offer their customers complete coverage with an added charge to their bills.
A new Starlink satellite, which has 100 times more capacity than the first generation, will allow connectivity “with a comparable experience to current terrestrial LTE service, which will be used in partnership with Mobile Network Operators to augment high capacity terrestrial 5G networks.” The key word here is augment, not replace.
Technology advances allow for the satellite service to work on existing phones with only a change in the chipset. This will take some time to roll out. Starlink already has a partnership with T-Mobile that allows text and limited apps to work in dead zones. The service will soon be upgraded to voice and video as the technology improves.
Both makers of mobile phones and providers of cell service will have to decide whether to hitch their wagon to Starlink or risk losing a competitive edge to those that can offer that “no dead zone” service. Apple Inc. in November invested directly in Globalstar Inc. as part of a deal to provide satellite connections for its devices, including the Apple watch. Globalstar’s shares have surrendered their gains after jumping 21% the day of the SpaceX spectrum announcement and then dropping the next two days.
The Apple-Globalstar agreement shows how companies want more competitors in the direct-to-device market. Globalstar is building a low-Earth-orbit network, but it depends on third-party companies to make the satellites and launch them. This means that Globalstar will have a higher cost structure than SpaceX, making it difficult to keep up on price and service speed. Will Apple be willing to pay more to keep a competitor going?
Regional governments will likely subsidize competition. There will be national champions that offer both satellite internet and direct-to-device service. China will build out a low-Earth-orbit network no matter the cost and will be aggressive to win customers around the world where it’s permitted to operate. Europe already has named its champion, Eutelsat Communications SACA, and will subsidize as needed to keep the service available.
Too many companies are already chasing the dream of direct-to-device service, which has unknown potential. The shakeout may begin even before the service is widely available.
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