07.23.25
Posted in Broadband, Operators, Regulatory, Services, SpaceX at 12:12 pm by timfarrar
Last week, the Washington Post published an article about Starlink’s supposed capacity limitations, based on a paper from X-Lab. This is part of the larger fight over the future of BEAD funding and how much should be redirected from fiber to satellite, with a rival ITIF paper suggesting the opposite, that it’s a myth that “LEOs Don’t Belong in BEAD”.
SpaceX has also been lobbying hard on this topic, publishing a network update that notes speeds and latency have both been improving in the US, even with more than 2M active users, and regulatory chief Dave Goldman highlighting his conversations with the FCC, NTIA and others “about how Starlink will make gigabit speeds available to people across the country”. Countering that, several articles have been published suggesting that Starship might never succeed, which would mean SpaceX being unable to launch the larger V3 satellites that the company is “targeting to begin launching…in the first half of 2026″
As one might expect, the lobbyists take an extreme position and the reality is somewhere in the middle: fundamentally there must be some limit to how much it is worth spending on fiber deployment to the most rural and remote locations, when Starlink (and in the future hopefully Kuiper) can provide an high quality, cost-effective residential broadband service. But on the other hand, putting fiber in the ground is a long term investment and it is comparing apples and oranges to equate that to the cost of a Starlink user terminal that the company expects to have a useful life of three years.
The X-Lab paper suggests that Starlink shouldn’t be funded by BEAD in areas where the population density is more than 6.7 Broadband Service Locations (BSLs) per square mile (which corresponds to limiting the addressable market to just over 3M homes around the country). However, when Starlink had waitlists in parts of the US such as the Pacific Northwest in January this year (since replaced by “congestion charges”), these were in regions with an average of about 4-5 customers per square mile, based on Starlink’s estimated US subscriber base in the area deemed “sold out”.
Since not all households would be expected to actually subscribe to internet service, this suggests that Starlink has already seen plenty of demand in areas at or above the proposed 6.7 BSL per square mile density limit, and those customers certainly found it worth paying for, even if the uplink speeds often fell short of the BEAD benchmark. Regardless of when/if Starlink actually gets to orbit, even the current Falcon 9 launch tempo is allowing the capacity of the Starlink service to improve significantly over time, so this proposed cutoff seems too low in limiting where Starlink can usefully provide service.
More to the point, the calculations in the paper simply don’t match the actual constraints on the Starlink service. The assumption is that only one satellite can serve a given cell, but a Starlink user would realize that’s not how it works in practice because if you set up a portable Starlink terminal and take it down each evening, one day you may be told (by the app) to point it say northeast, and the next day you may be told to point it west. That’s because the system is load balancing across the multiple satellites serving a given cell.
At the moment, the primary constraint on the downlink is the FCC’s limit on spectrum re-use (known technically as Nco=1) which means Starlink can only serve a single cell once with a given channel across Starlink’s 2GHz of downlink spectrum (10.7-12.7GHz). While the efficiency of spectrum use varies (for example it’s lower for a Starlink mini than a regular terminal), a reasonable estimate is ~3-4bps/Hz. So 2GHz of spectrum would equate to a maximum of ~7Gbps in a cell, which isn’t too different to the 6Gbps assumed in the paper. However, the FCC has allowed Starlink’s Gen1 and Gen2 satellites to be counted separately for the purposes of the re-use limit, and so the current theoretical maximum downlink speed in a cell is actually twice this level. And now the FCC is consulting on loosening these limits further.
The X-Lab paper focuses more on the uplink capacity as the key density constraint and it is certainly the case that the amount of spectrum available to Starlink is more limited there, because only 500MHz of Ku-band spectrum is allocated to uplink (14.0-14.5GHz) compared to 2GHz for downlink. However, the primary determinant of uplink capacity for Starlink end users is the number of timeslots allocated to uplink transmission, because the network uses Time Division Duplex (TDD) and was originally only configured to support transmission up to 10% of the time. That was intended to ensure that the terminal cannot produce enough radiation to heat up the head of someone standing in front of it (what the FCC refers to as SAR limits). Over time SpaceX has been able to improve this percentage (now 15.5% of the time for uncontrolled use) and professionally installed terminals can go even higher. So there’s no reason to conclude that the supposed 0.4Gbps per beam assumed in the paper is a hard limit.
On the other side of the lobbying effort, the ITIF paper ignores the fact that the BEAD funding mechanisms are extremely poorly suited to fund satellite deployments, as I discussed in this thread on X/Twitter. BEAD has been set up so you bid for money to deploy infrastructure in a particular geographical area, regardless of how many customers actually sign up. That makes sense when funding fiber or even wireless infrastructure: if you build a tower or lay a fiber line, the only way to make a return is to sell service within that coverage area. However, if you fund a satellite operator to build more LEO satellites, then those satellites will spend only a tiny fraction of 1% of the time over that area as they go around the Earth, and can devote 99%+ of the orbit to earning money from more valuable customers. So there is no real incentive for a satellite operator to actually sell service to the unserved customers.
The best way to square this circle would be to provide affordability instead of deployment incentives (i.e. a subsidy for terminals and/or monthly service), so that the satellite operator only earns money when end users in these unserved areas actually sign up, which was how the Affordable Connectivity Program (ACP) was structured. Otherwise the satellite operator is getting paid for something they are already doing: Starlink has over 7000 satellites in orbit already and is launching dozens every week, why pay them to launch a few hundred more? One possibility is to structure reimbursement payments “based on the number of subscribers the provider serves and/or enrolls” rather than “in equal installments throughout the period of performance”.
And when it comes to bidding, why wouldn’t any satellite operator bid a very low amount for the right to deploy service in unserved areas? If they can prevent terrestrial broadband technologies like fiber and wireless from getting subsidies for deployment, then they have a captive market to themselves. Certainly if both Starlink and Kuiper are bidding against one another, and these reimbursements are independent of the number of customers served, it would be logical for their deployment bids to be particularly low, since the cost of simply making service available is essentially zero. We saw in the RDOF auction (when Starlink didn’t face any meaningful competition from other satellite operators) that SpaceX was able to undercut terrestrial technologies, but the fight over whether or not they actually were going to receive their $885M in winning bids, made absolutely no difference to the number of satellites that the company put into orbit.
So in conclusion, satellite has a great opportunity to enhance broadband service in rural areas, potentially in more places than the very lowest density parts of the country. But unless the BEAD payments are linked to the number of customers served, the program will not do a good job of helping consumers realize those benefits.
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07.14.25
Posted in Broadband, Financials, KVH, Maritime, Operators, SpaceX at 4:29 pm by timfarrar
As I told the Wall St Journal last week, the revenue growth reported in the newly filed accounts for Starlink’s international operations is amazing, in the context of a satellite industry that does not grow fast. In fact, Starlink’s near $2B of international broadband service revenues reported in 2024 compares to about $3B for all other satellite operators combined, a roughly 40% market share that has been obtained in only the third full year of Starlink’s operations.
However, that alone represents a warning sign: in order to grow further and faster, Starlink now needs to focus heavily on expanding the market beyond traditional satellite users, not just winning customers from other satellite operators (though of course they will do that too). And terminal prices are already getting lower and lower: Starlink’s consumer terminal revenues in these international markets averaged only about $230 per new terminal manufactured in 2024, so terminal subsidies in 2025 (with 5M terminals manufactured in the last 11 months) may end up being as high as $1B.
These accounts don’t represent the whole of Starlink’s business, they exclude direct US sales to individuals, businesses and the government, which account for more than half of Starlink’s revenues. We’ve just published a note giving a more detailed breakdown of these accounts by customer type and geography, as well as an assessment of the changes to our 100+ page Starlink profile that was published last October. Get in touch if you’re interested in subscribing to our research.
One additional area of interest in Starlink’s financial reporting is the large prepayments that the company has received, which have gone a long way to shoring up its cash position and allowing the company to claim it has $3B of cash on hand (at least before the company handed over $2B of that to xAI). At the end of last year Starlink’s international business had booked over $600M of deferred revenue from one or more counterparties and I’m sure there will be lots of speculation about the source of those payments.
One example of how (much smaller) prepayments work is given by KVH, which as a public company helpfully discloses this information, with enough granularity to allow all of the details to be worked out. We published a profile of KVH last November which discusses all of this, but as shown below, KVH entered into a purchase of 15PB of data for a total of $16.95M in June 2024 (i.e. a price of $1.13 per Gbyte), with the data to be consumed over 15 months (according to KVH’s 2025Q1 call, the “follow-on pool” will be renegotiated “at some point later this year”).
However, according to KVH’s Q1 results, the company is far short of this goal, only having consumed 30% of the total after 9 months, and even being generous in terms of future growth in KVH’s Starlink business, it will likely take until early 2026 for the data pool to be used up. So the question is what will Starlink and KVH do at the end of Q3? Roll the additional data into a new larger pool? Or forfeit perhaps $5M of prepaid capacity?
This highlights one of the challenges for Starlink distributors that commit to prepurchase large amounts of data at an attractive rate. Each time a distributor renews their capacity pool, they may end up more and more dependent on Starlink continuing to supply them with capacity, and less and less able to divert spending to other LEO systems, even if they want to be “network-agnostic.”
And what then for other competing LEO providers who are seeking distributors to sell their services? Which distributors will actually have any spare budget to divert to these other sources of capacity? And what about the risk that Starlink might someday decide not to rollover millions of dollars of unused capacity if a distributor looks elsewhere? That’s likely to add to fears that Starlink will dominate the satellite industry, as I discussed in an NPR podcast a few weeks ago.
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07.07.25
Posted in Financials, SpaceX at 10:27 pm by timfarrar
As we head into summer, attention turns to the question of when SpaceX will launch its next secondary funding round and what valuation will be achieved. Over the last three years we have generally seen press reports in mid to late June, specifically on June 27, 2024, June 23, 2023 and June 13, 2022, which means a summer 2025 announcement is already overdue.
After the sharp jump in valuation to $350B in December 2024, the whisper number was that the next round was aiming for a $500B valuation. But with the political fallout in recent weeks is that still plausible? Is it even possible to raise a multi-billion dollar round for SpaceX right now? Of course there are nonsense valuation models out there, suggesting that SpaceX could be worth $2.5T in 2030, which don’t stand up to a moment’s scrutiny. Even a cursory sanity check would note that the TAM put together by ARK assumes each subscriber would receive 500kbps of provisioned capacity, which doesn’t increase between now and 2040. In reality, Starlink already provisions more than 2Mbps per subscriber today, and that number will need to more than double just to match today’s terrestrial provisioning rates, and then track double digit terrestrial growth rates. And when it comes to the financial modeling, the idea SpaceX will launch over 28,000 Starlink satellites in 2030 and sell all that capacity immediately to grow revenues by more than $80B during that year alone, is simply ludicrous. What is the point of this nonsense other than to convince gullible Musk fans who don’t bother to look at the Excel?
These secondary rounds don’t just serve to provide liquidity to employees, but also provide an important cash float for the company’s operations, due to the difference in timing between when the money comes in and when it’s paid out. It’s no surprise that there’s an equity round each December so that SpaceX can report a large cash balance at the end of each year (and pay down its credit line). That’s why SpaceX needs a very large Asset Backed Line of Credit (ABL), which the company had to increase in size in June 2023 after Elon Musk decreed that there wouldn’t be any more primary equity funding rounds.
The investment by Intesa Sanpaolo in October 2023 was critical in providing billions of dollars of liquidity to the company in the latter part of that year (so that the ABL could be paid down). Then in spring 2024 much of the money was used to buy back several billion dollars of Elon Musk’s SpaceX shares (his economic stake declined from 42.1% to 40.3% and his voting stake from 78.5% to 75.5%), when he needed cash to support a potential refinancing of Twitter. When that refinancing didn’t happen, Musk was able to execute a wash sale to avoid most taxes, by buying Gwynne Shotwell’s shares (and thereby increasing his economic stake from 40.3% to 41.7% and voting stake from 75.% to 79.3%) to persuade her to stay with SpaceX (and reject the Boeing CEO job that Boeing’s board apparently wanted to offer her).
It’s hardly surprising that many in the industry regard SpaceX’s CFO Bret Johnsen as a miracle worker for his ability to keep executing these financial deals and both providing Musk with cash when he needs it, and finding the money for SpaceX to continue investing billions of dollars in Starship plus new Starlink satellites and terminals each year (of course the above referenced nonsense model claims that SpaceX generated $2.6B of free cash flow in 2024 by simply forgetting about huge parts of SpaceX’s business, like Starlink terminals, which consume significant cash and working capital). The question now is whether, despite Musk’s best efforts to annoy the White House, Johnsen can keep the show on the road and execute another equity round at or above last December’s $350B valuation. And if he does, how much of the round will need to come from SpaceX buying back its own shares?
EDIT (7/8/25): Well I didn’t expect the news to break quite that quickly, but SpaceX has revealed that it is hoping for a roughly $400B valuation in the upcoming fundraising round. That number alone shows that the company may be feeling some pressure on valuation, or at least that Johnsen is trying to distance himself from some of Musk’s foolishness, since one might otherwise have expected the mooted valuation to be $420B. What’s even more significant is the suggestion that there will be a primary equity raise, in apparent repudiation of Musk’s April 2023 assertion that SpaceX doesn’t need any more primary equity fundraising rounds, because the company would be able to generate positive cashflows going forward (which was never true, instead SpaceX leaned more heavily on an expanded ABL credit line and then on Intesa Sanpaolo to meet its funding needs in summer and fall 2023).
It will also be interesting to see if more specific information emerges about Starlink revenues, which are now said to account for “more than half of SpaceX’s annual revenue”, because other details, including Starlink’s international accounts, suggest that Starlink’s 2024 revenues (excluding custom satellites, such as those being built for the NRO, which SpaceX doesn’t count in its Starlink revenue figures) were likely in the region of $5.7B, well below some analyst expectations (we published a note for subscribers detailing these previously unpublished Starlink figures last month).
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07.06.25
Posted in Echostar, Financials, Operators, Regulatory, SpaceX, Spectrum at 1:05 pm by timfarrar
After focusing my public posts mainly on Twitter/X threads for the past couple of years, I thought it would be better to resume blogging, especially as it’s got harder and harder to search X posts effectively. I’ve also been publishing numerous research publications, which included a detailed report on the IFC market last summer, an updated profile and revenue forecasts for Starlink in October 2024, and a new report projecting demand for satellite capacity in May 2025 that gives a full breakdown between LEO and GEO out to 2033 across the key professional verticals (maritime, aviation, backhaul, enterprise and government). Unlike some other industry forecasts, we are happy to share full details of our spreadsheets containing the historical base data, forecasting methodology and assumptions. One major satellite operator told us, “your assumptions (especially on the GEO outlook) differ from Novaspace’s, which is a bit more optimistic about the future of GEO (for now). And I tend to agree with your assessment/assumptions.”
And due to increased interest in the sector from investors, and the rapid pace of announcements, particularly in D2D, the research service now includes regular (approximately monthly) updates in response to key developments in the industry and takeaways from industry conferences. These include:
A summary of the WSBW conference (Sep 2024)
A note on the Globalstar-Apple deal (Nov 2024)
A briefing on the Globalstar investor day (Dec 2024)
An update on D2D and Starlink (Jan 2025)
A note on Starlink’s C-band filing (Feb 2025)
A summary of developments at Satellite 2025 (Mar 2025)
A review of AST’s technology (Apr 2025)
An update on EchoStar and the FCC (May 2025)
An update on EchoStar and AST (Jun 2025), and
A briefing giving details of Starlink’s international financials that have never been reported in the press (Jun 2025).
As another subscriber said recently, “Fascinating, as ever. Thanks for your continued bar-settingly-brilliant analysis.”
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02.07.23
Posted in Echostar, Financials, Globalstar, Handheld, Operators, Services, SpaceX, Spectrum at 8:35 pm by timfarrar
Yesterday, Globalstar filed an 8-K noting that on January 31 it had entered into a forbearance agreement with MDA and Rocket Lab, the contractors building 17 new satellites, under which additional payments beyond an initial $20M will be delayed until March 15. In addition, Globalstar noted that:
“The Company is currently exploring financing options for satisfying its remaining payment obligations under the Contractor Agreements, as well as its obligation to refinance its 2019 Facility Agreement. It cannot currently predict whether, and on what terms, any such financing will be available but maximizing shareholder value is the driving consideration.”
The reason for these financing challenges is that Globalstar is unable to close on the new first lien debt agreement to fund the satellites (that was expected to be backed by Apple to the tune of $450M) unless and until it has refinanced the $150M currently owed to Echostar under the 2019 Facility Agreement. Under the September 2022 Partnership Agreements between Apple and Globalstar, Globalstar is required:
“(i) upon commencement of the Services, to convert all loans outstanding under the 2019 Facility Agreement that are held by affiliates of the Thermo Companies (collectively, “Thermo”) into non-convertible perpetual preferred stock with a cash pay interest rate of 7% per annum or lower, convertible preferred stock with cash pay interest rate of 4% per annum or lower, common stock, or another security acceptable to Partner (the “Thermo Debt Conversion”) and (ii) within 90 days of the commencement of the Services, to refinance or convert all loans outstanding under the 2019 Facility Agreement that are held by persons other than Thermo on terms that are no less favorable to the Company than the Thermo Debt Conversion.”
Of course there was no chance whatsoever that Charlie Ergen would agree to exchange first lien debt with a PIK interest rate of 13.5% for preferred stock that would be subordinate to ~$500M of new first lien debt with an interest rate of 4%-7%, so the only plausible reason for Jay Monroe to agree to these terms was a Hail Mary bet that he could find a buyer for Globalstar before the deadline occurred for Echostar’s debt conversion.
That deadline is coming due on Monday February 13, 90 days after Apple began offering services on November 15, 2022 and no buyer has appeared for Globalstar. The Key Terms Agreement has specific provisions dealing with an offer for the company:
(i) Sale Notice. If a third party submits a non-frivolous proposal to acquire any material Required Resource or the Spectrum Subsidiary or for a Change of Control transaction involving Globalstar or Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) approves a process with respect to the potential sale of any material Required Resource or the Spectrum Subsidiary or a Change of Control transaction (each, a “Sale Transaction”), Globalstar shall provide written notice of the Sale Transaction, with the material terms and related process of such transaction, including (A) at a minimum the structure of, and the assets proposed to be sold in the Sale Transaction and any relevant timelines or deadlines relating to the Sale Transaction, and (B) other material terms and related process to the extent permitted by Globalstar’s confidentiality obligations (a “Sale Notice”), to Partner within one day following Globalstar’s receipt of such proposal or such determination by Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee), which Sale Notice shall be considered Globalstar Confidential Information. If Globalstar enters into any confidentiality agreement relating to a potential Sale Transaction after the Effective Date, such agreement shall not restrict Globalstar from providing to Partner any of the information set forth in Section 10.2(e)(i)(A) that is required to be included in the Sale Notice.
(ii) Discussions. Following the delivery of the Sale Notice to Partner, Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) shall, and shall cause the management, employees and other representatives of Globalstar to conduct discussions with Partner in good faith and on a non-exclusive basis and provide Partner with all information made available or provided to any potential third party acquiror, to enable Partner to make a proposal to Globalstar for a Sale Transaction, during the ten business day period following the date of the Sale Notice. Globalstar hereby agrees that it shall not, and shall cause its Related Entities, management, employees and other representatives not to, enter into a term sheet or letter of intent or other binding agreement or obligation with any other third party with respect to a Sale Transaction during the ten business day period commencing on the date of the Sale Notice.
(iii) Proposals. If Partner makes a proposal for a Sale Transaction prior to the expiration of the ten business day period, then Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) will exercise its fiduciary duties to evaluate Partner’s proposal along with any other proposals for a Sale Transaction. In the event Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) determines the proposal from Partner is in the best interests of Globalstar and its stockholders, then Globalstar will enter into a binding agreement to negotiate in good faith with Partner on an exclusive basis for a period of not less than 20 business days.
(iv) Consummation. If Partner declines to make, or Globalstar (after having considered such offer or proposal in good faith) declines to accept or pursue, a proposal for a Sale Transaction from Partner, then Globalstar shall be permitted to consummate a Sale Transaction with a third party, provided that Globalstar shall have first obtained and delivered to Partner a written agreement from the acquiror in the form included as Attachment 7.
So what happens next? The statement in the 8-K that “maximizing shareholder value is the driving consideration” suggests that Ergen will soon (or perhaps already has) submitted a “non-frivolous proposal” to acquire Globalstar, presumably at a very low price, given that Globalstar will soon be in breach of its obligations to Apple. This will trigger the 30 (business) day period for Globalstar to advise Apple of a sale transaction and then negotiate on an exclusive basis, which would also run through the mid March satellite payment deferral period (assuming Ergen has now made an offer for the company).
However, given the cards that Ergen and Apple hold in respect of a potential forced default on the Apple agreement, and that neither appears to have much interest (or belief that there is meaningful value) in Band 53, it is hard to see how their offers would meaningfully exceed the value generated by Globalstar’s satellite services, including the value of Apple’s messaging contract. I estimate that in those circumstances the best Globalstar might obtain would be roughly $1B-$1.5B in cash plus an agreement to assume the costs of the construction contract. That would be a pretty disastrous outcome for Jay Monroe after he’s invested over $800M and 20 years of his life in trying (against overwhelming odds) to make something of Globalstar, and Globalstar shareholders would also be hugely disappointed.
The most interesting question is what Ergen would seek to gain from Apple, if he was to either enable Apple to buy Globalstar at a low price or buy Globalstar himself (presumably through Echostar) and continue the partnership. One obvious possibility could be to collaborate to include the 2GHz satellite spectrum held by DISH and Echostar into future iPhones for additional NTN capacity. Perhaps not entirely coincidentally, Echostar announced plans to build a 28 satellite LEO IoT network just last week.
I also noted a few days ago that D2D is likely to be the next focus for hype over Starlink’s future prospects (which we can already see in the decision of SpaceX’s Jonathan Hofeller to join the Satellite-Cellular panel at Satellite 2023). And I predicted in my D2D report that SpaceX’s next step might be to acquire more MSS spectrum, most obviously Omnispace, but perhaps even Ligado. So now we could face the real prospect of a fight for this new market opportunity and the associated global satellite spectrum rights between Musk and Ergen, building on prior skirmishes over the 12.2-12.7GHz band. Wouldn’t that be fun!
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02.05.23
Posted in Globalstar, Handheld, Iridium, Operators, Regulatory, Services, SpaceX, Spectrum, T-Mobile at 9:42 pm by timfarrar
There’s been plenty of hype about the Direct-to-Device (D2D) market for satellite to smartphone connectivity in the last couple of years, and that has only intensified in the wake of recent announcements about Apple’s partnership with Globalstar and Qualcomm’s partnership with Iridium. Some analysts have even gone so far as to suggest that D2D represents the “largest opportunity in Satcom’s history“.
But the reality is that going beyond basic messaging presents significant technical challenges, and the messaging market will remain modest in size, anchored as it is by the size of Apple’s deal with Globalstar, which costs Apple little more than $100M per year for both global coverage and the ability to support tens of billions of messages per year. Regulatory challenges are still significant, with some regulators going so far as to ban systems that plan to use terrestrial spectrum from operating anywhere near their territory.
Nevertheless, D2D is becoming the next opportunity that SpaceX can hype, beyond its core fixed broadband market, as it looks for additional increases in the company’s valuation so it can keep raising money to keep developing Starship, while putting even more distance between Starlink and broadband competitors like OneWeb and Kuiper. And just as SpaceX has scared away potential investors in nascent LEO broadband systems like Telesat’s Lightspeed, we expect SpaceX to crowd out many of the other players in the D2D market, now that funding for speculative space projects is becoming more scarce.
Unfortunately, the perspectives of some investors and commentators have been skewed by the unrealistic D2D projections that were made during the SPAC boom, and they have failed to look at relevant benchmarks such as current levels of spending on international roaming. Our new 70+ page report on the D2D satellite smartphone communications opportunity, which has just been released, looks in detail at the regulatory constraints and technical limits to system performance, and projects revenue growth in both the messaging segment and in the voice and data segment over the next decade.
Our conclusion is that while D2D messaging is likely to deliver meaningful upside for existing MSS networks like Globalstar and Iridium, it will be much more difficult to gain global consensus on use of terrestrial spectrum. As a result, SpaceX is likely to hedge its bets and pursue a twin-track strategy of seeking access to both terrestrial and satellite spectrum, and potentially follow up its 2021 acquisition of Swarm with further deals to buy satellite operators and their spectrum licenses.
Then, as Starlink moves beyond its initial D2D messaging capabilities later this decade, and perhaps even amplifies the hype still further by suggesting that the next step will be to build a SpaceX smartphone, Starlink is likely to gain a majority share of the D2D market. Even so we project the potential market size to remain far smaller than Starlink’s fixed broadband opportunity and it is not at all clear that it will be possible to make an economic return on these D2D investments.
If you’d like to order a copy of the report then an order form is available here. And you can hear me speak about many of these issues this coming week at the SmallSat Symposium in Mountain View, CA.
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09.08.22
Posted in Broadband, Financials, Operators, SpaceX, Spectrum at 10:06 am by timfarrar
Up until 2020, I was very skeptical about the LEO broadband opportunity, and whether any of the planned systems would be able to raise enough money and build out a constellation that could deliver a service that is competitive with existing GEO operators. That skepticism seemed entirely justified after the failure of LeoSat in late 2019 and OneWeb’s spiral towards a bankruptcy filing in March 2020. SpaceX had also given wildly over-ambitious forecasts for Starlink’s revenue and timing, with projections for $6B of revenue in 2021, rising to over $30B in 2025.
But over the last two years, Starlink has launched a consumer broadband service that has upended the industry by providing vastly more capacity per subscriber than Viasat and Hughes, with a simple, easy to install terminal, and as of June 2022 already served over 400K users. Successfully developing such a system is an extraordinary technical feat when so many previous broadband constellation plans have failed. And after raising over $6B in the last 2.5 years at ever increasing valuations, SpaceX has been able to launch thousands of Starlink satellites and build scale that competitors will struggle to match.
I didn’t think that SpaceX would pull this off, but they did, and today too many people in the industry, who are rightly skeptical of Elon Musk’s litany of unfulfilled promises, remain far too complacent and are continuing to dismiss Starlink as just a consumer service that won’t threaten other parts of the satellite market, or are even suggesting that the network remains economically unviable and is doomed to failure.
However, the dam is starting to break for acceptance of Starlink amongst professional users, with Royal Caribbean’s recent move to deploy Starlink representing just the start of disruption in traditional satellite verticals. And SpaceX’s latest $2B in equity funding should see the company through to late 2023, by which time I expect Starlink to have captured around 1M users and have reached cash flow breakeven (even accounting for ongoing satellite replenishment costs).
That doesn’t mean Starlink (or SpaceX more broadly) will offer a positive return to those recent investors at the ludicrous valuation of $127B, because satellite will remain a last resort solution compared to terrestrial fiber, cable modem and even 5G fixed wireless options, but it does mean that there’s no reason to suppose that Starlink will cease to be an enormous competitive threat to the satellite industry in the foreseeable future.
One largely unrecognized issue in the LEO market is that there are significant benefits to scale, due to the virtuous circle that comes from adding more satellites to a constellation, as shown in the diagram below.
With more satellites in the sky, the user terminal antennas don’t have to scan as far to find a satellite to connect to, so they can be cheaper, with fewer antenna elements. And the altitude of the constellation can be lower, improving the link margin and capacity, and allowing the user terminal to operate at lower power. Capacity provisioning also becomes more uniform, as traffic loading can be averaged across multiple satellites, improving the quality of service. Starlink has been designed from the ground up to minimize the cost of the terminal, unlike traditional satellite systems (even recent designs like Telesat’s Lightspeed), which optimize the satellite and treat the terminal as an afterthought. Cheaper terminals and more capacity attract more users and generate more revenue, which can be fed back into building yet more satellites, making it ever harder for competitors to catch up.
So now we’re in a position where Starlink has clearly won the race for LEO broadband (at least for the next 4-5 years, since Amazon’s Kuiper won’t be completed before 2026-27), and is likely to become the largest satellite operator by revenue within that timeframe. Our new report on LEO broadband and the future of the satellite industry forecasts what this means for industrywide growth in revenue and traffic, and analyzes how satellite operators, distributors and equipment suppliers are likely to respond to what for many will represent an existential threat. The outcomes will include an acceleration of industry consolidation, decisions to exit, and even bankruptcies. The report also complements our June 2022 Starlink profile, which analyzes Starlink’s technology and forecasts Starlink’s revenue growth by segment. You can order one or both reports using the form here, or contact us to discuss subscription options for all of our industry analysis.
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11.19.21
Posted in Financials, Operators, SpaceX at 4:31 pm by timfarrar
There’s been a lot of breathless commentary over the last year about SpaceX’s ever-increasing valuation, which reportedly nearly tripled between spring 2020 and October 2021, with the share price rising from $220 to $560 and the valuation increasing from $36B to $100B.
However, there is a distinct inconsistency between what SpaceX has been telling the FCC about Elon Musk’s stake in the company and the amount of dilution implied by sales of new shares at these prices. Specifically, SpaceX told the FCC in November 2016 that Musk owned 54% of the company, which declined to 50.5% in November 2018, 47.4% in April 2020 and finally 43.61% in August 2021.
Over this period, SpaceX reported selling a total of $5.31B in equity, based on its Form D submissions to the SEC. Using the public reports on the share price for the transactions through April 2021 (before last week’s equity raise of $345M), I calculate that this represents approximately 22.4M shares, which increased the share count from a little over 154M shares to just under 177M shares.
However, if the valuations and share prices quoted to financial reporters are accurate, Musk’s stated ownership percentage over the same period would have equated to 83.4M shares in November 2016, 80.3M shares in November 2018, 78.9M shares in April 2020 and 77.2M shares in August 2021. Did Musk really dispose of his SpaceX shares on a regular basis over this period? That seems unlikely, especially given that he had minimal taxable income in 2017 and 2018.
Or is SpaceX reporting a fully diluted share count to the FCC, including options or restricted shares granted to employees, but not mentioning those to the financial press and investing public? If Musk didn’t sell any of the 83.4M shares corresponding to his 54% stake in November 2016, then in order to dilute his stake to 43.61% over the following four and a half years, the company would have needed to issue an extra 14M shares, over and above those sold and reported via Form D to the SEC.
If that’s the case, then SpaceX would appear to have granted options worth up to $8B at the current $560 share price to employees (although the exercise price for any options would presumably be somewhere between 20% and 40% of this amount and it is possible some of these shares might have been used to acquire technology or incentivize suppliers). Are SpaceX investors aware that the shares they bought might be diluted by about 7%? Does this mean that senior SpaceX executives are now extremely rich and some are perhaps even paper billionaires? That certainly could help to explain a number of recent retirements.
In addition, the most recent (October 2021) reported valuation of $100.3B at a $560 share price appears to reflect an increase of around 2.1M shares since spring 2021. How much of that amount (worth $1.2B at this valuation) represents the shares used to acquire Swarm in August 2021? Although part of this increase might represent conversion of some of the options noted above (since SpaceX was selling 1.35M existing shares), it seems very plausible that a significant proportion of these shares went to Swarm’s owners, which would represent a very high valuation (many hundreds of millions of dollars) for a company that had barely begun to offer commercial services.
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04.05.20
Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX at 11:41 am by timfarrar
Eight and a half years ago, I wrote a blog post that got a lot of attention inside the FCC, comparing LightSquared’s request for a license that would give it a $10B windfall to the relatively small beer of the $535M Solyndra loan scandal. Despite knowing that LightSquared’s promise of an integrated satellite-terrestrial network was nonsense (not least because LightSquared had already told the FCC in November 2010 that the wholesale cost of its satellite data would be $10 per Mbyte), the FCC and White House offered strong backing for LightSquared right up until summer 2011 when political pressures became too great and their support was withdrawn.
Now it appears that the FCC’s LightSquared debacle could be exceeded by an even greater debacle in the satellite sector, because SpaceX is seeking to participate in the upcoming Rural Digital Opportunity Fund auction later this year, which will offer up to $16B of funding over 10 years to service providers that commit to offer voice and broadband services to fixed locations in eligible unserved high-cost census blocks. While the Wall St Journal highlighted competitors’ complaints a few weeks ago, SpaceX has now upped its demands even further, suggesting in a March 27 letter to the FCC that “the laws of physics” dictate that SpaceX should be allowed to bid in the highest performance tiers (which carry the most money per potential customer) because “far from [being] untested or hypothetical, SpaceX has already launched over 360 satellites and demonstrated that its network is capable of offering high-speed, low-latency service”.
That of course is complete nonsense, because the laws of physics aren’t the only factor determining the latency of a LEO constellation, especially one that is (or apparently was in SpaceX’s case) supposed to have onboard processing and crosslinks. For example, Iridium’s latency on voice calls is not actually much better than a GEO satellite network and certainly exceeds “the Commission’s 100-millisecond threshold for low-latency services” (this paper estimated it at “between 270-390 milliseconds”). In fact one should regard claims of extremely low (and improved) latency for Starlink’s current satellites as indicating that in reality some of the most important design features, such as onboard processing, have likely been discarded.
To date SpaceX has certainly not demonstrated anything whatsoever about the performance of its planned commercial voice and broadband services for consumers. Notably SpaceX has still not published details of its terminals (except to advise that the antennas will need mechanical steering, raising the cost significantly), and last year’s testing by the US Air Force onboard a plane did not even use a SpaceX antenna. Moreover, that test did not involve most of the operational elements needed to offer a scalable commercial service, such as provisioning and sharing of capacity between multiple users, because SpaceX simply dedicated an entire satellite to one user terminal.
In particular, SpaceX makes great sounding (but carefully worded) claims in its submission to the FCC that “SpaceX also specifically designed Starlink to provide high-speed broadband service, using advanced phased-array antennas that allow the system to automatically optimize service to certain locations and dynamically adjust its throughput per user” when in fact many features of the supposed “design” have not actually been implemented in practice. While some of those discarded design features, such as crosslinks, are well known, I’m told that to date the satellites also don’t have any ability to dynamically reallocate capacity between beams, because that was apparently “too hard”. Perhaps that’s not surprising, when SpaceX is writing the software itself, rather than looking to companies with actual experience in designing scalable satellite broadband networks, like Hughes and Viasat.
But what is truly outrageous in SpaceX’s submission is the suggestion that the FCC should now let SpaceX participate in an auction to win $16B of ratepayers’ money without ever providing service to a single consumer, because SpaceX has now pushed back the launch date until after the FCC’s planned October 2020 auction date. The latest letter states simply that (even if you are foolish enough to take Elon Musk’s ever-optimistic timelines at face value) “SpaceX will now begin to offer its Starlink broadband service for consumers—first in the United States and Canada—by the end of 2020″. Of course now that Starlink’s primary competitor, OneWeb, has gone into bankruptcy, the urgency of pushing Starlink forward as quickly as possible has diminished (not to mention SpaceX being short of money itself), and why would SpaceX now want to risk consumers experiencing a service that in the early days may not work very well, if at all, before the FCC auction takes place?
But as I pointed out a couple of weeks ago, bidders are not required to actually provide service to any specific number of customers at all in order to receive the RDOF funding, and instead are simply expected to use the funding to subsidize their buildout and make it available. So SpaceX could then take the FCC’s money, never provide service to a single customer that the money was meant to help, and reallocate its capacity to serve other users like the DoD anywhere within the country or even the rest of the world.
Perhaps the FCC and Congress, like the rest of us, are pre-occupied with the coronavirus, and think this issue should not be at the forefront of our concerns right now. But when Elon Musk has convinced many gullible people that Starlink will “catalyze enormous positive change, bringing, for the first time, billions of humans into our future global cybernetic collective” and so it would be “stupid to put one more federal dime into rural broadband when Starlink could solve the whole problem by later this year” it remains possible that SpaceX will be able to get away with this nonsense and walk away with billions of dollars of funding that were intended to help close the homework gap while we are all distracted.
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03.21.20
Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX at 12:36 pm by timfarrar
Over the last couple of months its been interesting to watch the maneuvering by SpaceX as it sought to raise its next funding round, in large part from a range of new investors with little or no knowledge of the satellite sector. My understanding is that the original ambition was to raise well over $1B, to be announced in conjunction with Elon Musk’s appearance at Satellite 2020, and attempt to flatten the competition as OneWeb struggled to complete its own planned $1B round.
SpaceX staffed up in anticipation of this new funding, doubling the staff in Boca Chica in February, which has increased the company’s burn rate even further. According to data disclosed at the time of the November 2018 debt funding round, SpaceX generated $270M of adjusted EBITDA in the 12 months to September 2018, but only by counting hundreds of millions of dollars of customer deposits, such as that paid by Japanese billionaire Yusaku Maezawa for his trip around the moon. As a result it seems clear that SpaceX was otherwise burning cash even in 2018, when its revenues were projected to be $2.5B+. And in 2019, revenues roughly halved as the number of launches fell from 21 to 13 (of which 2 were unpaid Starlink launches). So before the staffing ramp up in early 2020, SpaceX had already been burning over $100M per month in cash, and so far in 2020 four of the six launches have been unpaid Starlink launches, resulting in even less revenue now coming in the door.
In early 2020, a key objective was to raise enough money to last until the end of the year, when SpaceX anticipated that it would receive considerable funding from the DoD (we heard rumors that up to $1B was being sought) and planned to obtain billions more from the FCC’s Rural Digital Opportunity Fund auction (which was expected to start in October and will offer up to $16B of funding over 10 years to service providers that commit to offer voice and broadband services to fixed locations in eligible unserved high-cost census blocks). Importantly, bidders are not required to actually provide service to any specific number of customers at all in order to receive the funding, but instead are expected to use the funding to subsidize their buildout and make it available. While this is a rational approach for a terrestrial network that can only make a return on the investment to the extent that it is then able to win customers within the coverage footprint that has been built out, it makes no sense whatsoever for a satellite system that covers all customers immediately but can then reallocate its capacity anywhere within the country or even the rest of the world.
SpaceX downplayed expectations in February as rumors began to spread about its funding round, telling CNBC on February 21 that it was raising $250M to buy back employees’ shares (an obvious attempt to boost its hiring efforts), while hoping to maintain the element of shock and awe, just as happened in May last year when it launched 60 satellites, a far higher number than anyone had expected. As markets began to teeter, SpaceX had to be content with telling CNBC on March 9 that the company had “authorized” $500M in new shares, but when the Form D was filed on March 13 it became clear that investors had contributed far less than expected, with only $221M contributed to date and the round listed as just $250M. That’s no more than two months of cash burn at SpaceX’s current rate of spend.
Elon Musk’s appearance at Satellite 2020 didn’t go well, and was notable mainly for his comments that “zero LEO constellations haven’t gone bankrupt” and that he “just wanted to be in the not bankrupt category”. His obsession with the problems in closing the SpaceX funding round was also very evident from the fact that he was still tweeting about the market correction when he should have already been on stage.
So it’s hardly surprising that we now see reports that the Commercial Spaceflight Federation is asking for a bailout for SpaceX and other member companies and that Musk has adopted a high risk approach of criticizing the coronavirus as exaggerated and insisting that SpaceX remain open and working at full speed. But what articles suggesting that Tesla has the cash to weather the storm miss is that Musk’s most critical near term cash problem is now at SpaceX not at Tesla.
It’s hard to imagine the company changing course and abandoning either Starship or Starlink, which means the enormous cash burn will continue. However, the recent equity valuation of $36B is now completely untenable (especially if OneWeb collapses, as has been rumored this week), although a several hundred million dollar secured loan might still be a feasible option to tide the company over for several months. Nevertheless, unless Musk is proved right about the coronavirus and the markets improve quickly enough that new funding becomes available to SpaceX relatively soon, or alternatively the US government offers to bail him out (either publicly or with off the books money from the DoD), SpaceX is currently heading on autopilot towards a concrete wall of bankruptcy.
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