Subsidy blow for Elon Musk raises questions over orbital broadband

Elon Musk may regret having railed against government subsidies for electric vehicles last year. Last week the US communications regulator agreed with the principle of his criticism, withdrawing nearly $900mn in subsidies that had been granted to his satellite operator Starlink to bring the internet to 642,000 remote, rural locations.

Even if $900mn is a drop in the bucket to a multi-billionaire entrepreneur like Musk (Forbes estimates his net worth at around $270bn), that must have hurt. Certainly $900mn was key anchor revenue for a new satellite broadband constellation that has to heavily subsidise customer terminals — priced in most markets at $599 — in order to expand the service.

But what must have been even more painful is that the Federal Communications Commission, in reversing a December 2020 grant, called proposals from Starlink and another subsidy candidate “risky”. It also questioned Starlink’s ability to deliver a reliable and affordable offer.

That decision cast a cloud not only over Starlink, which may still appeal against the decision, but over the many satellite broadband hopefuls around the world that are making a business case out of connecting the world’s 2.9bn unconnected.

If any company seems equipped to deliver high-speed broadband from low earth orbit — where delays in transmitting data are substantially shorter than from satellites at higher altitudes — it is Starlink.

The company, which did not reply to a request for comment, already claims more than 400,000 users, and has launched nearly 3,000 satellites. Its spacecraft can hitch a ride on rockets flown by parent company SpaceX, which also happens to manufacture the satellites in-house.

But the service is still a long way from qualifying for the FCC’s largesse. Acknowledging that “Starlink’s technology has real promise”, FCC chairperson Jessica Rosenworcel indicated the agency was not willing to “publicly subsidise its still developing technology”.

There have been suggestions that the FCC’s about-face was either politically motivated or due to lobbying from the politically powerful fibre and cable industries — a charge the agency denies. There was no change in direction, said an FCC spokesperson, “but rather . . . the way this process was designed to work”. The initial grant had been provisional on further due diligence.

But the U-turn is still a timely warning to those such as Amazon, OneWeb, Telesat and others planning LEO broadband services that the industry remains a long way from being competitive — either for the billions still living offline or those in more populated areas.

Once built, these constellations can deliver connectivity to new areas far quicker than traditional terrestrial providers. But the economics of delivering the service from networks of hundreds or thousands of satellites are not yet consumer-friendly due to the complexity of the systems.

And if $600 for a terminal is too much for consumers in a country such as the US, how will those in less affluent countries afford it?

Technology is evolving rapidly and terminal costs and performance will both improve. But as LEO networks win new subscribers and average data demands increase, they will also be under pressure to spend billions more on bigger fleets and better satellites to address congestion.

“LEO operators are planning for larger next-generation constellations and those new satellites must incorporate technology advances, all requiring more and more investment,” said Carissa Christensen, chief executive of consultancy BryceTech.

“The challenge that [they] have is that you need to keep money pouring in to keep the network expanding to meet growing customer requirements,” said Nathan De Ruiter of consultancy Euroconsult.

Moreover, these mega-constellations of satellites are costly to operate and monitor. Roger Rusch, president of space consultancy TelAstra, writing in SpaceNews, estimated that the biggest constellations would overrun initial budgets “by a factor of two or more”. 

Any government considering subsidies for new LEO broadband providers will have to weigh this trade-off between the cost and sustainability of an unproven business model and rapid internet access for the underserved.

It is a tough decision, made more difficult by the fact that traditional terrestrial providers have also often failed to deliver. But in most emerging technologies, government support has a key role to play. Perhaps not in the context of this FCC programme. But if the dream of bringing broadband to everyone, everywhere is to be realised, it is unlikely to be accomplished without accepting that there will be some risk.

peggy.hollinger@ft.com