[Starlink] SpaceX ordered to explain pricing strategy

[Dave Collier-Brown]

Starlink's sustainability is an interesting question for us to debate, but normally uninteresting to the
Canadian Radio and Television Commission. The fact that they have raised their prices forces the CRTC to address it, and may give us some hints.

What is more interesting to me is seeing Northwestel on the radar again. Friends (hey, Jim!) have encountered them in the past, as part of the Canadian "duopoly" that keeps internet prices high and software cheap, ancient, and bloated. A little competition over quality could be a very good thing for single- and two-supplier regions of the Canadian North and the US West.

--dave

On 4/8/22 17:45, David Lang wrote:
outside major cities, starlink costs and bandwidth are attractive compared to existing options (and frequently cheaper, even including the initial cost over a year or so)

your claim that launching additional satellites will not increase bandwith is directly coutnered by Starlink's desire to launch additional satellites.

As a private company, we don't know their finances, but we've seen enough to know their profit margin on launches is quite high, so it's not a given that they are borrowing billions of dollars.

I don't see premium chaning things much, it's 5x the price, but also 5x the bandwidth, just in one easy-to-use dish vs configuring load balancing across 5 dishes. So it looks like a wash to me.

0.1 clients by sq km seems like an incredibly low density. I haven't seen that paper, so I can't argue with it's assumptions directly.

I think the number of people who can afford the $100 (or if not individuals, then communities sharing a dish) is much higher than you are estimateing. As you say there are not a lot of other options.

I agree that the current level of service/pricing is touch-and-go for starlink, but with cheaper launches (Starship) and more satellites (and the satellite lasers to reduce the need to have a ground station near you)

I've seen people talking about revenue on the order of $30B/year as a possibility, and while I think they are probably optomistic, $10B/year on $30B in additional investment is a fairly short payback period.

David Lang


On Fri, 8 Apr 2022, Daniel AJ Sokolov wrote:

Date: Fri, 08 Apr 2022 23:04:04 +0200
From: Daniel AJ Sokolov <daniel at falco.ca><mailto:daniel at falco.ca>
To: David Lang <david at lang.hm><mailto:david at lang.hm>
Cc: starlink at lists.bufferbloat.net<mailto:starlink at lists.bufferbloat.net>
Subject: Re: [Starlink] SpaceX ordered to explain pricing strategy

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><mailto: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><mailto:daniel at falco.ca>
To: starlink at lists.bufferbloat.net<mailto: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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--
David Collier-Brown,         | Always do right. This will gratify
System Programmer and Author | some people and astonish the rest
dave.collier-brown at indexexchange.com<mailto:dave.collier-brown at indexexchange.com> |              -- Mark Twain


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