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Starlink revenue plans questioned

December 16, 2019

Elon Musk’s plans for a potential mega-constellation of 42,000 broadband satellites have been called into question.

There are already more than 120 Starlink satellites in orbit, and another 60 will be orbited later in December. But there are concerns. Tim Farrar, an analyst at TMF Associates, questions the vague business plans for Musk’s system and likely demand for Starlink capacity.

Farrar suggests in a blog post that the best scenario is that each of Musk’s satellites will handle around 250-500 Gbytes per orbit. He bases this estimate on a peak capacity of 20 Gb/s and a load factor per orbit of 2-4 per cent.

There is already an assumption that this capacity will be sold to subscribers at a cost of $1/GB. Farrar then brings a powerful ‘reality check’ into these assumptions: “For example, the average usage of Altice customers was 220Gbytes per month back in Q2 2018, while Charter’s median broadband usage in Q1 2019 was 200Gbytes with cord cutters averaging 400Gbytes per month. If we take a typical retail ARPU of around $60 then the retail price is $0.15-$0.30 per Gbyte and with consumer Internet data usage projected to increase by 160% between 2018 and 2022 (according to Cisco) the retail price of data on existing fixed broadband connections will soon be below $0.10 per Gbyte.”

The other hard fact to be faced by Starlink is the cost of ground-receive infrastructure. Farrar reminds readers that Viasat (a very successful broadband-by-satellite supplier) spends $700 to acquire each satellite customer. This equates to about $300 on end-user equipment, and around $150 on installation costs.

Viasat’s system is geostationary, and ‘fixed’ in the sky. Starlink’s craft will hurtle across the heavens, and need sophisticated consumer-equipment.

Farrar adds: “A Starlink terminal could easily cost $1000 or more, even with various compromises to reduce cost (such as narrowing the scan angle, though that will require a very large number of satellites, potentially several thousand, to be in orbit), before adding the cost of rooftop installation, let alone customer acquisition. And if each customer consumes say 500 Gbytes per month, then that will mean 250-500 terminals will need to be deployed to consume each satellite’s saleable capacity, implying incremental terminal costs of at least $250K-$500K per satellite (at $1000 per terminal).”

Farrar concludes that Starlink’s ability to dramatically disrupt the market is limited. “Starlink may provide service for customers with no access to terrestrial broadband alternatives, but the satellite broadband market has fewer than 2 million subscribers in North America and 1 million users in the rest of the world combined, which Viasat, Echostar and others have spent the last decade trying to serve (and at least in North America have essentially saturated the market). So it seems unlikely that Starlink will do much better.”

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