S CHUMPETER IS ONLY an amateur stargazer. His equipment is no more sophisticated than a pair of eyes and a place in the countryside, far from the light pollution of London. This is enough to distinguish Venus, Mars, Jupiter and Saturn – and, occasionally, the International Space Station crossing the firmament. In recent years, a new spectacle has emerged, in the form of Starlink satellites. Launched in batches by SpaceX, an American rocket firm founded by Elon Musk, the tech billionaire behind Tesla’s electric cars, they look like nothing else in the sky, floating like a train of white dots in tight formation. Bad weather delayed the launch of the last batch on July 8. When they increase, they will total almost 600, making SpaceX the largest satellite operator in the world.
SpaceX is a remarkable company. It was founded in 2002, to realize Mr. Musk’s dream of colonizing Mars. This is a disruptive case study: a startup with no track record humiliated incumbents like Boeing and Lockheed Martin. Its rockets cost half those of rivals, thanks in part to their ability to land their first stages for reuse rather than dumping them into the sea in accordance with standard industrial practice. The company was last valued at $36 billion, more than better-known tech darlings such as Airbnb, DoorDash or Palantir.
SpaceX’s rocket business alone does not justify this rich valuation. The launch market is small and stagnant. Mr. Musk himself has said that the most his company could hope to earn is about $3 billion in revenue per year. If he wants to get to Mars – and if his investors want to see big returns – he needs another plan. That’s where Starlink comes in. These satellites visible from Schumpeter’s backyard are the vanguard of a planned constellation of more than 1,000, designed to beam the internet to every corner of the globe.
Satellite broadband is not a new idea. But existing options are expensive and slow. According to SpaceX, Starlink’s cheap, mass-produced, low-altitude satellites would offer service comparable to terrestrial broadband at competitive prices. It could serve poorly connected villages in rural Africa (or rural America for that matter), as well as oil rigs or cargo ships at sea. Mr. Musk noted that the global telecommunications market is worth about $1 billion . If SpaceX captured even a fraction of that, Morgan Stanley, a bank, recently said it could be worth $50 billion to $120 billion or more, which would make its current valuation look like a bargain.
The world has already been here. Iridium announced similar plans in the late 1990s with bursts of hype: the first call on its network was between Al Gore, then US vice president, and a distant descendant of Alexander Graham Bell. Nine months later, the company went bankrupt, overwhelmed by the initial investment costs of launching satellites. LeoSat, a Luxembourg-based company, was founded in 2013. It closed its doors last year due to lack of investor interest.
Starlink’s main competitor is OneWeb, with 74 satellites in orbit and hundreds more planned. It also went bankrupt in March, after failing to persuade even Son Masayoshi (also known as Masa), a Japanese tech billionaire with a well-documented interest and affection for risky startups, to pony up more money. But he has new backers. On July 3, Boris Johnson, Britain’s shaggy dog prime minister, announced that his government had raised $500 million for a 45% stake in OneWeb and a golden share giving him control of its future. Bharti Global, an Indian telecommunications company, also invested $500 million.
Mr Johnson’s decision sparked widespread bewilderment and a wave of speculation about its justification. Could he be trying to save a national high-tech gem? Britain has long tried to develop its small but sophisticated space sector and OneWeb is nominally a British company; its parent company is based on Jersey, an island in the English Channel. But many of its operations, including satellite manufacturing, are in America. Maybe the reasons were strategic? China was going in circles, says a person close to the deal, and Britain pounced to frustrate its ambitions. Except that the US bankruptcy court may be reluctant to hand over OneWeb to a Chinese company. Politics almost certainly played a role. Britain’s exit from the European Union has limited its access to Galileo, the EU ‘s alternative to America’s GPS satellites. An explosive promise to build an all-British replacement, at a cost of £5 billion ($6.3 billion) or more, appears doubtful. Bolting a less capable navigation service onto OneWeb satellites may offer Mr Johnson a way to save face, while fending off the perception that Brexit has made the country parochial.
Yet there are also hopes, according to insiders, that the bizarre acquisition could work for purely commercial reasons. OneWeb has priority over SpaceX for the bits of the electromagnetic spectrum needed to broadcast the internet from the skies. Satellite companies that survived bankruptcy – like Iridium – emerged on the other side as viable, if somewhat boring, businesses. Like 19th century railways and subsequent infrastructure projects, global satellite broadband may become a viable proposition once early investors, who often pay exuberantly, have been wiped out.
And Mr. Musk could use a rival in low Earth orbit. Jeff Bezos, the biggest tech mogul of them all, is working on a similar project, but has yet to put satellites in space. In the meantime, competition from OneWeb would spur innovation and prevent SpaceX from settling into a celestial monopoly.
A giant leap of faith
Can the UK government be a source of competitive pressure? The politest description of his entrepreneurial record is “spotty” – just ask the owners of clunkers like Austin Allegro or Morris Marina, produced after the 1968 partial nationalization of British Leyland. OneWeb may need a new cash injection to complete its constellation. UK taxpayers may never see a financial return on their investment. But if OneWeb keeps Mr. Musk on his toes even for a little while, their loss could turn out to be a gain for global consumers. Strange things have been happening in space. ■
This article appeared in the Business section of the print edition under the headline « The Battle for Low Earth Orbit »
