[Starlink] SpaceX ordered to explain pricing strategy

Fri Apr 8 17:04:04 EDT 2022

To be clear, I am focusing on the consumer product, not the Premium product, which is not available yet.

Mr. Musk himself said last year that he will have to invest an additional USD 20-30 billion to make Starlink survive. After all, he has to build ground stations and launch some 23,000 satellites by the end of the decade to meet his FCC license obligations (not counting any satellites lost to unplanned events, such as a solar flare, warfare, or rocket loss).

If you can finance at 5% (which is optimistic), debt of 10 billion costs you 500 million a year. 

At the same time, the number of clients paying USD99 is limited. The system has limited bandwidth. As the IEEE paper shows, users can expect 25 Mbit/s IF there are no more than 0.1 clients per square kilometre, and IF only 5% of these clients actually use the bandwidth - given a complement of 5040 operational satellites. Currently, 1421 satellites are operational (according to starlink.sx).

The global landmass is about 134 million square kilometres, including all uninhabited areas except Antarctica. The number of humans who can afford USD 100 a month is limited (and don't forget the initial investment, the cost of Dishy's significant power draw, and taxes). Those who are willing to pay all that AND be happy with, say, 30 Mbit/s, is even smaller. And the additional bandwidth per satellite added diminishes as the network grows. You can't double the bandwidth by doubling the satellites, because the available spectrum and the spectral efficiency are given.

At the moment, Starlink revenue is at a runrate of about 25 million dollars a month. A terribly negative cashflow. Yes, there is additional demand, but, like everyone else, Starlink suffers from chip shortages, so they can't make as many terminals as they would like to. And some of the demand they can't fulfill without massively oversubscribing. If there are, say, 10,000 New York City residents on the waiting list, Starlink can't serve them.

In the given setup, churn will be high. When a client moves, there is no guarantee they can keep their Starlink account. When a taller building goes up next door, the connection my be interrupted for good, etc.

Having clients scattered over dozens of countries comes with massive overhead in the legal department. Starlink is just being kicked out of France because their radio license is invalid. I believe they can fight their way back in, but still. This costs time and money. Multiply this with dozens of countries with different legal regulatory regimes, consumer protection laws, tax and filtering/surveillance requirements, etc. 

At 99 dollars is not enough - which is why Starlink had to raise the price. And unless they have tremenduous success with Premium subscriptions, or larger business accounts, they will have to raise prices again.

The good news for Starlink is: They have a captive audience, who has significant sunk cost and often little alternative. So Starlink will be able to raise prices.

BR
Daniel AJ

On April 8, 2022 8:15:44 p.m. GMT+02:00, David Lang <david at lang.hm> wrote:
>Why are you so sure that Starlink's current prices are unsustainable?
>
>That's an assertion that requires prove, not just assumed.
>
>David Lang
>
>On Fri, 8 Apr 2022, Daniel AJ Sokolov wrote:
>
>> Date: Fri, 8 Apr 2022 01:59:21 -0700
>> From: Daniel AJ Sokolov <daniel at falco.ca>
>> To: starlink at lists.bufferbloat.net
>> Subject: [Starlink] SpaceX ordered to explain pricing strategy
>> 
>> Hello,
>>
>> the Canadian regulatory authority CRTC has ordered SpaceX to reveal how 
>> its Starlink prices "may change within the next two years".
>>
>> However, SpaceX will likely file this under seal, meaning it will not 
>> become public information.
>>
>> Technically, the order only refers to prices charged in the Far North of 
>> Canada (The Yukon, the Northwest Territories, Nunavut, Northern 
>> British-Columbia and one community in Alberta). But as long as 
>> Starlink's prices are global, this geographical restriction in the order 
>> is meaningless.
>>
>> The order is part of CRTC proceeding 8646-N1-202108175, and SpaceX' 
>> answer is due today, April 8.
>> Docket at 
>> https://services.crtc.gc.ca/pub/instances-proceedings/Default-Defaut.aspx?S=C&PA=T&PT=PT1&PST=A
>> (incomplete due to various 404 errors)
>>
>> The order to SpaceX has came about after I filed a procedural request in 
>> this proceeding.
>>
>> Here is the background:
>>
>> In most of Canada's Far North, a company named Northwestel has a 
>> monopoly on landline internet. Also, Northwestel owns the backbone to 
>> large parts of the area. Northwestel is actually Bell Canada, but with 
>> much higher rates. It's only been a bit over year that Northerners can 
>> even buy unlimited internet access, and it is not cheap. (Northwestel 
>> also has a resale agreement with OneWeb.)
>>
>> In some areas, one small competitor is trying to hold on: SSi Micro.
>>
>> They and a few others would want to buy wholesale data transfer from 
>> Northwestel at regulated prices, so they can mount some competition.
>>
>> Because Northwestel has a monopoly, they are not allowed to sell 
>> internet access below cost, and they have to obtain permission from the 
>> CRTC to change rates. Rates must be "just and reasonable" under the law, 
>> for whatever that means. The CRTC proceedings to permit rate changes are 
>> unreasonably slow - a real problem for Northwestel.
>>
>> However, Northwestel would also love to sell below cost, so they can 
>> extinguish the little competition they have, and make sure no new 
>> investor even thinks about entering the market. Northwestel runs a very 
>> profitable cable TV operation, and they charge business users more than 
>> double the residential rate for internet access - so they have plenty of 
>> revenue to cross-subsidize internet, if they would be allowed to do so.
>>
>> In January, Northwestel applied to the CRTC for permission to change 
>> this regime. Explicitly, Northwestel wants to be allowed to sell 
>> residential internet access below cost (cross subsidized from cable TV), 
>> and to reduce rates or increase data allowances or increase bandwidth at 
>> any time without another CRTC proceeding.
>>
>> This, Northwestel argues, is necessary, otherwise Starlink will eat 
>> Northwestel's lunch. Because Starlink is awesome and cheaper.
>>
>> Such permission, of course, would be great for consumers in the shortrun 
>> and awful in the long run. Because it would kill competition.
>>
>> Most participants in the consultation to Northwestel's application fail 
>> to understand that. They are jubilant for potentially lower internet rates.
>>
>> In my filing in February, I asked the CRTC to deny Northwestel's 
>> application. It is bad policy in the long run.
>>
>> Also, Northwestel has many options to fight against the (perceived) 
>> competitive threat from Starlink. Currently, the cheapest unlimited use 
>> access is a 100 MBit/s down and 12.5 MBit/s up line. They offer plans 
>> with less bandwidth, but all of those have a usage cap. And overages are 
>> crazy expensive. It's a topsy-turvy world, where the rich users with fat 
>> pipes, who can put huge stress on the network, get a free-for-all, 
>> whereas less affluent users with thin pipes get charged extra per GByte.
>>
>> In addition, I argued that Starlink does not have the capacity to be a 
>> real competitor to Northwestel's fat pipes - unless one takes the 
>> Premium version. Now Starlink Premium is geared at businesses and govs, 
>> for which Northwestel does NOT ask for permission to lower rates.
>>
>> Plus other arguments. If you are so inclined, you can find my submission 
>> in the aforementioned docket under "Interventions".
>>
>> There, I also pointed out that Starlink's current price point is 
>> unsustainable, and that they will have to raise prices.
>>
>> Low and behold, while everyone was waiting for the CRTC's decision on 
>> Northwestel's application, Starlink increased prices.
>>
>> So I filed a procedural request to obtain permission to add that 
>> information to the docket (after the official deadline to add 
>> Interventions do the docket).
>>
>> The CRTC has granted my request, added Starlink's price increase to the 
>> docket, and has ordered SpaceX to explain their pricing plans for the 
>> next two years by today. Other parties will have until April 18 to 
>> comment on SpaceX' submission - which may be difficult, because I expect 
>> all interesting bits to be filed under seal.
>>
>> Cheers
>> Daniel
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>