July 11, 2020
SCHUMPETER IS ONLY an amateur stargazer. His equipment is no more chic than a pair of eyes and a place in the countryside, far from London’s light pollution. This is enough to distinguish Venus, Mars, Jupiter and Saturn – and, occasionally, the International Space Station crossing the sky. In recent years, a new show has appeared, in the form of Starlink satellites. Launched in batches by SpaceX, an American rocket company founded by Elon Musk, the technological billionaire behind Tesla’s electric cars, they resemble nothing in the skies, floating like a train of white dots in tight formation. Bad weather delayed the launch of the last batch on 8 July. When they go up, they will total almost 600, making SpaceX the largest satellite operator in the world.
SpaceX is a notable company. It was founded in 2002 to promote Musk’s dream of colonizing Mars. It’s a disruptive case study – a startup with no history has humiliated incumbents like Boeing and Lockheed Martin. Their rockets cost half as much as those of their rivals, thanks in part to the ability to land their first stages for reuse, instead of throwing them into the sea according to standard industry practice. The company was valued at $ 36 billion for the last time, more than the most well-known technicians like Airbnb, DoorDash or Palantir.
The SpaceX rocket business alone does not justify this rich assessment. The launch market is small and stagnant. Musk himself said that the maximum his company could hope to obtain from them is about $ 3 billion in revenue per year. If he wants to get to Mars – and if his investors have big returns – he needs another plan. This is where Starlink comes in. These satellites visible in Schumpeter’s garden are at the forefront of a planned constellation of more than 1,000, designed to broadcast the Internet to all corners of the globe.
Satellite broadband is not a new idea. But the existing options are expensive and slow. Starlink’s inexpensive, mass-produced, low-flight satellites, SpaceX says, would offer a service comparable to terrestrial broadband at competitive prices. It could serve poorly connected villages in rural Africa (or rural America), as well as oil platforms or cargo ships at sea. Musk noted that the global telecommunications market is worth approximately $ 1 trillion. If SpaceX captured a fraction of that, Morgan Stanley, a bank, recently opined, could be worth $ 50 billion to $ 120 billion or more, making its current valuation look like a bargain.
The world has been here before. Iridium announced similar plans in the late 1990s with a whirlwind of exaggeration: the first call on its network was between Al Gore, then Vice President of America, and a distant descendant of Alexander Graham Bell. Nine months later, the company went bankrupt, flooded by the initial capital costs of launching satellites. LeoSat, a Luxembourg-based company, was founded in 2013. It was closed last year due to lack of interest from investors.
Starlink’s main competitor is OneWeb, with 74 satellites in orbit and hundreds more planned. He also went bankrupt in March, after not convincing even Son Masayoshi (aka Masa), a Japanese technology billionaire with a stake and a well-documented affection for risky startups, to save more money. But it has new supporters. On July 3, Boris Johnson, the British prime minister of furry dogs, announced that his government had increased $ 500 million through a 45% stake in OneWeb and a gold share that gave him control over his future. Bharti Global, an Indian telecommunications company, also invested $ 500 million.
Johnson’s decision caused general confusion – and an instant wave of speculation about his logic. Could he be trying to protect a high-tech home jewel? Britain has long tried to cultivate its small but sophisticated space sector, and OneWeb is a British company; its parent company is based in Jersey, an island in the English Channel. But many of its operations, including satellite manufacturing, are in America. Perhaps the reasons were strategic? China was circulating, says a person close to the agreement, and Britain attacked to thwart its ambitions. Except that the American bankruptcy court may be reluctant to hand over OneWeb to a Chinese company. Politics almost certainly played a role. Britain’s departure from the European Union has limited its access to Galileo, the EU’s alternative to America’s GPS satellites. A bombastic promise to build an all-British replacement, at a cost of £ 5 billion ($ 6.3 billion) or more, seems doubtful. Using a less capable navigation service on OneWeb’s satellites may offer Johnson a way to step back, while backing down against the perception that Brexit has made the country parochial.
However, there are also hopes, according to experts, that the bizarre acquisition may work for purely commercial reasons. OneWeb takes priority over SpaceX for the bits of the electromagnetic spectrum needed to transmit the Internet from the sky. Satellite companies that survived bankruptcy – such as Iridium – emerged on the other side as viable, albeit somewhat monotonous, businesses. Like 19th century railroads and subsequent infrastructure projects, satellite broadband worldwide can become a viable proposition after initial investors, who usually pay exuberantly, are wiped out.
And Musk could use a rival in low Earth orbit. Jeff Bezos, the biggest tech mogul of all, is working on a similar project, but has yet to place satellites in space. Meanwhile, competition from OneWeb would spur innovation and prevent SpaceX from establishing itself in a heavenly monopoly.
A giant leap of faith
Can the British government be a source of competitive pressure? The most polite description of his business history is “irregular” – just ask old car owners like Austin Allegro or Morris Marina, produced after the partial nationalization in 1968 of British Leyland. OneWeb may need an additional injection of money to complete its constellation. British taxpayers may never see a financial return on their investments. But if OneWeb keeps Musk watching, even for a short time, their loss could become a gain for global consumers. Strange things happened in space. ■
This article was published in the Business section of the print edition, under the title “The battle for low Earth orbit”
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