N -P -R. The first half of this year, it has been hard to go a day without hearing something new about Elon Musk.
Yeah, Musk unleashing Doge on the federal government was obviously the big news story.
Followed by activists vandalizing Tesla dealerships.
And then we did have SpaceX successfully helping return astronauts from space.
That was a win for Musk.
And that's not even getting into the more gossipy elements.
I'll leave that for a different show.
You're no fun. The point is, it's too early to talk about ketamine, Darian.
And the other point is that Musk's personal brand has been as volatile as the price of Dogecoin.
But one area where he is undoubtedly the leader is satellite internet.
That's with Starlink.
Yes. Satellite communications analyst Tim Farrah says Starlink is top dog.
It's already 90 % of all the satellite data traffic that goes over Starlink in the world.
I mean, it's amazing how dominant.
90 % of all satellite internet traffic goes through Starlink.
Yes. When you want to stream movies in your log cabin, you know, like Abraham Lincoln did, or check emails on a boat, satellite internet makes that possible.
And what Starlink has done is driven prices down so that it's not that much more expensive than broadband.
But in the process, has it created a monopoly?
This is the Indicator from Planet Money.
I'm Waylon Wong. And I'm Darian Woods.
Today on the show, the economics of Starlink.
We learn how Elon Musk's satellite Internet service became so dominant and whether it's likely to stay that way.
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Starlink is the satellite internet service provided by SpaceX. You buy one of these terminals, which looks kind of like a silver iPad.
You set it up facing the sky, and then almost anywhere in the world you can have high -speed internet.
We asked satellite communications analyst Tim Fair whether he had Starlink.
Yes, we have a Starlink that we use when we go camping.
Okay, so no campfire stories?
Well, I mean, we were away for the Super Bowl.
this February. And we were not the only person in the campground who was watching the Super Bowl and having a party in the middle of nowhere in Southern California.
At an RV site, it's quite often now 20, 25 % of the RVs are using it.
You've got to get some escapism from all that nature.
There's too many birds chirping here.
Let's put on the TV.
So how did one company become the provider of satellite internet?
A big explanation is what's It's known as fixed costs.
These are the costs before you add on more customers.
So let's go through what's required to get the very first customer onto satellite Internet.
You need licenses from the Federal Communications Commission for the spectrum that you're going to use to transmit your signals from the satellites.
Then you have to build satellites.
And you have technicians crawling around, sticking chips on there and wiring them and soldering them.
Traditionally in the satellite industry, it has been a very manual process.
Oh, and by the way, one satellite will not do because most of the time it won't be passing above your customer.
You know, the satellites go all around the Earth and they only spend a limited amount of time over somewhere like the U .S. Back of the envelope, we'll probably need a couple of dozen satellites to ensure continuous service.
And with each of those satellites in space, you want to make absolutely sure that they're going to work.
So you do a lot of testing.
You shake it around really hard to check that nothing's going to come loose and mean your satellite stops working.
Because when you launch it up on a rocket, there's obviously lots of vibration getting up there into space.
Then you find a rocket to get it up there.
If it all goes to plan, those satellites will be good for several years.
And even then, you're not done.
You need to have a factory to build what's called a terminal.
This is what the user has, basically the satellite dish and the modem.
They're not cheap to build.
Take the company called Utilsat OneWeb in Europe.
They've made several thousand terminals so far.
Those terminals cost about $5 ,000 to $8 ,000 when they come out of the factory.
So between the licenses, the satellites and the terminal factories, the fixed costs of satellite Internet are really high.
What is cheaper is what's known as the variable costs.
Once you've added one customer, you've got one customer in place, Adding a second or a third one doesn't cost you that much extra.
Mostly, it's just the cost of manufacturing a new terminal.
What's interesting about industries with those characteristics is that these tend to be natural monopolies.
That means the more customers a company gets, the cheaper it becomes for them to provide that service.
One company naturally becomes a monopoly.
Electrical grids in a local area are an example of a natural monopoly.
Once the grid company spends a big fixed cost on building the power lines, adding new customers is relatively cheap.
And it doesn't really make sense to have two sets of power lines going from house to house just for the sake of competition.
So a monopoly arises.
And so we wanted to know, is Starlink a natural monopoly for satellite internet?
Yes, I think that's right.
It's a natural monopoly in satellite communication.
very clearly. But not everyone seems to agree that European satellite internet service OneWeb is one of them.
Clearly, it's competing and thinks it has a chance to wrest away customers who might otherwise go to Starlink.
Also, Jeff Bezos disagrees.
Amazon has launched satellites into space, too, to start an internet service.
This is called Project Kuiper.
But they've got a lot of catching up to do.
So Starlink has over 7 ,000 satellites in orbit today.
Today, the next biggest system is OneWeb, which has just over 600 satellites launched to date.
OK, 600 to 7 ,000. That is a huge gap.
We're not talking about a neck and neck race.
We're talking, you know, worlds apart.
Right. And then everyone else is even further behind.
Amazon would like to launch 3 ,000 satellites, but they've only launched about 54 satellites in orbit.
54! Jeff Bezos, hurry up if you want to compete with Mr. Musk.
Starlink wasn't the first Internet satellite company, But it's been the first to really invest at this enormous scale and make it accessible to everyday people.
The natural monopoly economics of the satellite Internet industry are the big reason why it's so far in the lead.
But the granular details of how Starlink leaped ahead are pretty interesting.
So let's recap the steps needed to get satellite Internet.
You know, first, building your satellite.
Starlink has automated an awful lot of that.
and even when it comes to launching them because Starlink is throwing up so many satellites if they have a few that don't work they don't really mind.
And because Starlink is owned by SpaceX that means cheaper rocket launches than the prices its competitors have to pay.
Sometimes the competitors are paying SpaceX itself to hitch a ride.
So with more satellites in orbit that gives you more bandwidth.
The more bandwidth you have the more customers you can have and the the more customers you have, that helps you bring down costs through the magic of what's called economies of scale.
Take terminal production.
Starlink's made about 5 million terminals in the last 12 months.
If you are making it in huge volumes, you can invest in miniaturizing the components, integrating chips that are more powerful and fulfill more functions.
And that all gets cheaper in the long run if you're making a lot of them.
Tim says Starlink's got the cost of producing each one down to about $500, way below its competitors.
Having a dominant company innovating and using those economies of scale is all well and good until that monopoly does begin to care about profits and raises prices on customers who have no other choice.
That's why a lot of utilities like power and natural gas are regulated by the government.
There are limits to how much they can squeeze customers.
Then there's the question of how much power one unelected person should hold.
Elon Musk refused to let Ukraine extend Starlink to the contested territory of Crimea.
Ukraine has been frustrated with this.
Its military uses Starlink.
For partly this reason, China and the European Union are encouraging their own satellite internet.
But any competitors have to grapple with the fact that Starlink is part of Elon Musk's empire.
And that means the usual principles of finance don't apply.
SpaceX has not been subject to significant financial constraints, unlike most normal companies.
And so they've been able to invest billions of dollars into developing the Starlink system.
I mean, Waylon, would you want to compete with a company that doesn't really seem to care about day -to -day profits and is backed by one of the world's richest people and his acolytes?
No, I'm just going to play with my ham radio.
video. This episode was produced by Angel Carreras with engineering by Neil Rauch. It was fact -checked by Sierra Juarez.
Julia Ritchie edited, Caken Cannon edits the show, and The Indicator is a production of NPR.
