What have you always wondered about the economy? Tell Us
Apr 5, 2021

High-speed internet is the new space race. But do the economics work?

HTML EMBED:
COPY
Could internet service beamed from low -Earth orbit solve rural America's lack of access?

The White House’s $2 trillion infrastructure plan proposes $100 billion for broadband. Right now, however, it is hard to get broadband to large expanses of this country unless the infrastructure is in space. Low-Earth-orbit satellite constellations could bring high-speed internet access to those areas.

Elon Musk’s Starlink is the best known, but there are a few other companies in the mix. Starlink is in beta with about 10,000 users. I spoke with Sascha Segan, a lead analyst at PCMag who’s been following Starlink. I asked him who could benefit from this new version of satellite internet. The following is an edited transcript of our conversation.

Sascha Segan: It’s a huge deal, and this is going to be transformative for people in rural areas. But satellite internet, even this new form of satellite internet, has relatively little capacity per square mile. It’s good at covering large areas with the internet.

Molly Wood: So transformative for rural areas, but not necessarily something that we could see transform the competitive landscape in the U.S.?

Segan: It’s not going to fix the regional monopoly problem. Now, what you may see happening with the regional monopoly problem is that Starlink is going to help people in suburban and exurban areas, where there’s a lot of people who say, “AT&T has laid a line 500 feet from my property, and they refuse to extend it,” or, “Spectrum has a line 1,000 feet from my property, and they want $80,000 to extend it.” And those people are going to potentially start getting Starlink. And at that point, are AT&T and Spectrum going to want to expand their coverage somewhat? There’s some hope for that.

Wood: So let’s talk about pricing. Right now, it’s pretty high, relatively. Installation costs $500, and then it’s $100 a month. How does that compare to options that might currently be available?

Segan: Yeah, it’s not only high, they’re losing money on it. I’ve seen estimates that those $500 hardware packages may be costing Starlink $2,000 each.

Wood: Wow.

Segan: Yeah, exactly. And then, that’s plus $99 a month for service. So once again, it’s not really competitive with your $60-a-month Verizon or AT&T or Spectrum cable service, but it blows the pricing and quality for HughesNet and Viasat out of the water.

Wood: Speaking of those other satellite companies that currently offer service, what is the competition for Starlink? Is this sort of a race between satellites and 5G infrastructure to sort of blanket the middle of the country?

Segan: I think that’s a good way to frame it. There is definitely going to be some tension between T-Mobile, especially expanding into broad-coverage 5G internet, and Starlink and these other satellite players. And then, there are small, local, rural ISPs that I think are doing a great job, that I’d love to see more of. I did a big story on cities to work from home. And a lot of those cities have their own co-op or nonprofit ISPs, and I think those are a great opportunity for smaller towns.

Wood: I mean, a bunch of money is about to go into broadband infrastructure. I wonder how that will change the calculation. It was one thing when it was green fields, so to speak, for either Starlink or 5G, but now it does sound like there could be a lot more local competition.

Segan: Yeah. The new head of the [Federal Communications Commission], Jessica Rosenworcel, tweeted something like “Broadband for everyone. I’m all in.” And she is the head of the FCC.

Wood: She can’t lay the fiber, though.

Segan: No, but the question…. Well, I mean, so my point here is that why wait for AT&T? Why not give your subsidy to Empire Access in New York and Vermont [Telephone Co.] in Vermont and Paul Bunyan [Communications] in Bemidji, Minnesota? These smaller, more locally based companies that are doing a really good job of serving their communities that maybe just need to serve some more communities.

Wood: Is Paul Bunyan actually a real ISP?

Segan: It is a real ISP. Bemidji, Minnesota, is the home of the legendary Paul Bunyan.

Wood: OK, I just had to check that before I can move on. Is this a sustainable business model, do we think, for Starlink?

Segan: Well, that’s the big question, isn’t it? These satellite internet things have never been great business. But Starlink, businesswise, you have to understand it as part of the complex of the Elon Musk companies. And so Starlink being linked to SpaceX, being linked to anything else he’s doing, how can he leverage these things off against each other? Are Starlink’s effective launch prices way down because SpaceX can put other things on its rockets? There’s economies available there that aren’t available to other satellite companies.

Wood: Got it. Although, I believe another term for what you just described could be “house of cards.” I’m just throwing that out there.

Segan: I mean, there’s a graveyard of companies that thought satellite was a terrific business, and then found that the costs were much higher than they expected.

Wood: How is the service?

Segan: So from what we’ve seen talking to users and from looking at users on Reddit, people are generally pretty satisfied with the Starlink service. Right now, in the beta test, it cuts out from time to time because there aren’t quite enough satellites up yet. But in terms of it working during inclement weather, and in terms of it delivering 50 to 100 megabits [per second] consistently to people who live out in the woods, it seems like it’s delivering well.

This long-exposure image shows a trail of a group of SpaceX's Starlink satellites passing over Uruguay as seen from the countryside some 185 km north of Montevideo near Capilla del Sauce, Florida Department, on February 6, 2021.
This long-exposure image shows the trail of a group of SpaceX’s Starlink satellites passing over Uruguay, seen from the countryside about 115 miles north of Montevideo. (Mariana Suarez/Getty Images)

Related links: More insight from Molly Wood

Starlink has competition from Amazon. In 2019, the company said it would launch its own satellite constellation, known as Project Kuiper.

Here’s Sascha Segan’s piece on the best work-from-home cities, in case you’re contemplating a move. Also, reviews of Starlink’s service are coming in, and it’s, as Segan mentioned, impressively fast, if not consistent. But there’s also a Financial Times piece from last week about potential problems for Starlink, including the fact that Musk wants to relocate 2,800 satellites to a lower orbit than they’re currently at, so that instead of floating in space forever when they reach the end of their satellite lives, they’ll be pulled into the atmosphere and burn up. But the move would put the satellites close to the range where Jeff Bezos wants to put his constellation. And some other satellite companies argue that Starlink satellites could end up interfering with their satellites and messing up their service. And side note, it’s kind of amazing that we’re at a point where space is already too crowded. I’m not sure how to feel about all this.

Speaking of feelings, there was a good piece in Axios on Friday about how cable companies are already making a lot of noise, not surprisingly, about that $100 billion in Biden’s infrastructure bill for broadband, mainly the part where it would prioritize nonprofit or government-run networks. And they’re afraid the plan would pay to lay new fiber in areas where they already operate, or maybe areas where the current fiber stops a block from your house. The CEO of the big cable trade group NCTA actually called the plan “surprisingly Soviet.” Watch this fight. It oughta be a good one.

The future of this podcast starts with you.

Every day, Molly Wood and the “Tech” team demystify the digital economy with stories that explore more than just “Big Tech.” We’re committed to covering topics that matter to you and the world around us, diving deep into how technology intersects with climate change, inequity, and disinformation.

As part of a nonprofit newsroom, we’re counting on listeners like you to keep this public service paywall-free and available to all.

Support “Marketplace Tech” in any amount today and become a partner in our mission.

The team

Molly Wood Host
Michael Lipkin Senior Producer
Stephanie Hughes Producer
Jesus Alvarado Assistant Producer