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(Reuters) – Don Joyce, a Nokia (NYSE:NOK) director working from home at a remote lake cottage in Canada, recently abandoned his painfully slow phone-line internet in favor of satellite broadband service Starlink, offered by Elon Musk’s SpaceX.
Starlink, which cost him C$600 dollars (US$486) for hardware and a lofty C$150 monthly subscription, provides “blindingly fast” speeds when uploading videos or streaming movies, he said.
But the beta test customer said he experiences dropouts during calls on Microsoft Teams and Zoom.
“If you’re in the city and you have alternatives, I wouldn’t recommend it. But if you’re in the country, like in the middle of nowhere and you’re getting pathetic internet service, then it’s definitely a competitor.”
For billionaire entrepreneur Elon Musk – founder of electric vehicle manufacturer Tesla (NASDAQ:TSLA) Inc – the success of one of his biggest bets may come down to just how many people like Joyce are out there.
Musk on Tuesday is expected to discuss Starlink’s progress in a speech at the Mobile World Congress telecommunications event, an audience with a lot a stake in fate of Starlink. If the service is successful, it could vastly expand the reach of broadband internet around the world, connect Tesla vehicles, and even provide a new platform for traders and others with exotic internet needs, people familiar with the Starlink plan said.
But to do that, it must avoid the fate of similar satellite ventures that have preceded it.
“Not bankrupt, that would be a big step,” Musk said last year. “That’s our goal.”
SpaceX’s Starlink division launched its “Better Than Nothing Beta program” in the United States last October, with data speeds up to a competitive 150 megabits per second. Early reviews are mixed, with some users complaining of the problems that have always plagued satellite internet: sensitivity to weather.
Recent heat waves have caused new problems.
“I’m gonna have to spray it with a garden hose to reboot my internet… That just feels so wrong,” a Reddit user who said he lives in Arizona posted earlier this month, along with an error message saying “Offline: Thermal shutdown” and “Starlink will reconnect after cooling down”.
SpaceX President Gwynne Shotwell in April said the firm has “a lot of work to do to make the network reliable”. The company on Tuesday did not have an immediate comment.
Service should improve with more satellites and other improvements: Starlink has launched over 1,700 of its 260 kilogram satellites so far, and envisions more than 40,000.
The economics are daunting nonetheless. Musk has said Starlink could serve less than 5% of internet users and still generate $30 billion a year in revenue. Critics called that wishful thinking.
“Is the demand there for tens of millions of subscribers at that price point?” asked analyst Tim Farrar, president at TMF Associates. “In most parts of the world, if you said to someone, your broadband service will cost you 100 U.S. dollars a month, they’d be like, incredulous.”
He said there might be wealthy people in isolated areas, “but there’s just not very many of those people”.
He said Starlink would also struggle for enough capacity to support that level of demand, especially as people are consuming more data for video streaming. That would mean “significant additional expenditure on upgrading the satellites and adding more satellites.”
RURAL SUBSIDIES
Pricing pain could be eased by nearly $900 million in Federal Communications Commission subsidies earmarked for Starlink for bringing the internet to rural areas.
Jonathan Hofeller, SpaceX’s vice president, said COVID-19 highlighted the need for “access to quality internet” anywhere on the globe.
Perhaps more importantly, Starlink said it can drive costs down by building its own terminals and satellites. It has hired engineers from chipmakers Broadcom (NASDAQ:AVGO) Inc, Qualcomm (NASDAQ:QCOM) Inc and others to design its own communications chips, a person familiar with the matter said – an approach similar to that taken by Tesla.
Starlink has more than halved the terminal cost from $3,000 and expects it to be in a range of a few hundred dollars within the next year or two, Shotwell said in April.
“Lowering Starlink terminal cost, which may sound rather pedestrian, is actually our most difficult technical challenge,” Musk tweeted last year.
Starlink also benefits from SpaceX’s low-cost launch capability.
“When you own pieces of the stack, you can do really technically sophisticated things at an affordable cost,” said Misha Leybovich, a former Starlink sales director.
Still, competition promises to be fierce. Amazon.com Inc (NASDAQ:AMZN) subsidiary Kuiper has a directly competing project, while OneWeb – a collapsed satellite operator rescued by the British government and India’s Bharti Group – has vowed to be in the game as well. Terrestrial telecom providers, meanwhile, are racing to deploy high-speed, fifth-generation (5G) broadband services.
The rapid spread of wireless and terrestrial broadband, along with high prices, were significant factors in killing previous low-Earth-orbit satellite ventures. Motorola-backed Iridium Communications (NASDAQ:IRDM) Inc went through bankruptcy after billions of dollars in investment, while a similar fate met Teldesic, backed by Microsoft Corp (NASDAQ:MSFT) founder Bill Gates.
SpaceX, Amazon and a number of others have “created quite a race that no one is absolutely sure whether there is a big enough market for it,” Iridium Chief Executive Matthew J. Desch told Reuters.
