May Need $30 Billion to keep Starlink in Orbit - Elon Musk

Speaking at the Mobile World Congress in Barcelona, Elon Musk said on Tuesday that Starlink might cost anywhere between $20-$30 billion. He said that the costs depend on how fast the satcom service grows.

A High Risk, High Reward Project in Starlink

According to Musk, Starlink has "two quite significant partnerships with major country telcos". These could prove vital for Starlink, as it can then look to provide backhaul for 5G networks. He also said that before the satcom service achieves fully positive cash flow, it would need an investment of up to $10 billion. "It's a lot, basically," Musk said in a video conferencing interview at MWC 2021, Barcelona.

Musk had already mentioned that they plan to cover the world by August, except the poles. Right now, it has more than 1,500 satellites in orbit and is operating in about a dozen countries. The service had already received 500,000 pre-orders from various countries, including India. Musk had said that over the next 12 months, Starlink will seek to cover these customers.

However, there are questions over whether satellite internet can be a good business model. Since it only plans to cover remote areas, that significantly limits the potential user base. And the service needs customers to recoup its investment costs. Tim Farrar, President, TMF Associates, said that Starlink will need a few million subscribers, each paying $99 a month. This will let the service recoup its $5 billion investment in a year. Moreover, Musk does not need a dramatic rise in users to recoup a total $30 billion investment over a decade.

However, what's a little difficult is the target to achieve that number in revenue. Farrar said, "it is not implausible to get this number (a few million) to make the system not to go bankrupt. But this is not enough to justify the valuation of SpaceX".

Farrar also reckons that Musk keeps talking big money because he wants to demoralize and limit competition. Right now, Starlink faces competition from Amazon subsidiary Kuiper and OneWeb, a joint venture of the British government and India's Bharti Group. Along with this, veterans like Telesat, Hughes and a number of others are also eyeing the field.

Why Does Starlink Want to Partner With Telcos?

Starlink needs to scale up, and that would automatically lower costs. However, for that, it needs to support of local telcos. Musk has also said that he has been talking to potential partners. A number of countries have already put in rural coverage as a condition for 5G licences. As such, these telcos can look to Starlink as a potential partner to get that license and rural coverage.

It is also possible that the telcos get Starlink to provide broadband backhaul to them in rural coverage, rather than a strategic tie-up for services. That might be a better option for most telcos, as it serves to expand their network.

Starlink is selling terminals for half price, Musk said, adding he expects to bring down terminal costs from over $1,000 to $300-500 in the next 12 months. "If we succeed in not going bankrupt, then that'll be great, and we can move on from there," he said.