Since the start of 2019, slightly over half¹ of SpaceX’s launches have been for the Starlink satellite network. The idea of becoming a worldwide provider of Internet service with a constellation of flashy satellites that people can see crossing the sky after launch has been a welcome boost for the SpaceX fan club. The image of boosters coming back for a perfect touchdown has provided a great cover for the reality that may be lurking behind the SpaceX curtain…SpaceX must sell Starlink.
¹[Starlink = 29 launches, Commercial and Government = 28 launches]
5 Reasons SpaceX Should Sell Starlink
In a previous article, I argue that SpaceX is not doing what is required to keep a business viable, that is to make money. [SpaceX “Burning Through Cash” and Boosters] In 2018, all 21 of SpaceX launches were revenue-producing (100% for a paying customer) flights for either commercial or government customers. That dropped to 11 revenue-producing flights in 2019, and 12 in 2020. In the first six months of this year, SpaceX has only launched 5 revenue-producing flights.
The drastic cut in revenue-producing flights in 2019 raises questions as to why SpaceX couldn’t find customers. Possibly in response, SpaceX ramped up their pet Starlink project in 2020 to maintain the public image of a busy private space enterprise.
However, that image does not come without its costs. Each Starlink launch is estimated to cost $111 million² [Morgan Stanley report Sept 2019.] That number is disputed [NextBigFuture article Dec 2019] by SpaceX; however, they don’t offer to disclose the real costs of the system. If the costs per launch were only $100 million, SpaceX will have spent $2.9 billion since 2019 on the Starlink launches.
Revenue from the users of the Starlink system is not expected to break even with the costs for several years so SpaceX looks to be in a serious cashflow deficit.
²[$50 million for vehicle + ($1 million per satellite x 60) = $111 million]
2. Weak Market Base
Despite the fact that the Internet has been around for over two decades, there is no significant use of satellite-based Internet services. Space allows greater access to users; however, the cost/benefit comparison makes ground-based systems a better option.
The target market is the rural user that can’t easily access a broadband connection and this market consists of users with the least spendable income. There is a great need for quality Internet service in rural areas; however, rural area economies don’t provide the financial resources to pay for it.
Starlink is a service that is like selling food to starving people. The need is there, but if the people could afford it, they wouldn’t be starving.
Starlink has already run into controversy about the impact of the massive satellite system. Astronomers worldwide have voiced complaints about the network interfering with the scientific study of space from Earth-based telescopes. SpaceX has attempted to lessen the impact of the reflectivity of the satellites and they have become less obvious in orbit.
There has also been an incident in 2019, where a request was made by the European Space Agency (ESA) to alter the orbit of a Starlink satellite and the Starlink operator refused to comply. SpaceX claims they initially felt the threat was not a concern, then later realized that it was; however, because of a communications breakdown between SpaceX and the Starlink operator, they failed to act. [Forbes article Sept 2019]
With tens of thousands of satellites and scores of launches every year to build and maintain the constellation, the risk of a significant incident is high. The possibility of a collision would not only impact the satellites involved but would send debris out toward other satellites creating the nightmare scenario that was the plot of the 2013 movie Gravity.
Whoever operates the Starlink constellation takes on the liability of an accident that has global implications.
4. Risk of Failure
The Starlink satellite system is a long-term, high-risk gamble both financially and technologically. The logic of how such a system will be economically feasible seems to be flawed. It is a business venture that seems likely to leave someone holding the bag…and the bag may be filled with debt and public humiliation.
5. Cost of Maintenance
Based on the Morgan Stanley analysis, the initial cost of the full 30,000 Starlink satellite system will be somewhere between $40 and $50 billion but the cost doesn’t end there.
Each satellite’s lifespan is only five years according to SpaceX President Gwynne Shotwell [CNBC.com article Nov 2019.] That would seem to indicate that SpaceX may be continuously launching satellites for the life of the constellation.
But SpaceX is Rolling In Money!
SpaceX has been successful in obtaining venture capital; however, the investors expect a return on their investment. If SpaceX can’t make a profit, there will be consequences.
What about the rumored IPO?
An Initial Public Offering (IPO) of Starlink has been talked about by Musk, Shotwell, and the financial community; however, an IPO means that SpaceX will still be responsible for the costs and risks of Starlink. Selling Starlink allows SpaceX to wash their hands of it and recoup the money they’ve already spent.
Starlink has done what it needed it to do. It has given SpaceX the image of a successful private space corporation. SpaceX will likely be in desperate need of money to keep operations functioning for all of the existing projects. Starlink will likely become a liability and finding someone to dump it on is the best-case scenario for SpaceX.