TheChek News Flow

The Takeaway

Since launching in 2020, SpaceX’s Starlink satellite internet service has quickly eclipsed its rocket launch business to become its biggest source of revenue, and, investors hope, a significant cash generator in coming years.

But recent efforts to maintain user growth have increasingly turned Starlink into a competitor to mass-market telecom firms selling internet access, rather than the premium service SpaceX CEO Elon Musk initially envisioned. Starlink has cut hardware and subscription costs aggressively, juicing user growth while potentially weighing on margins.

The firm introduced a $50 a month low-cost tier in the U.S. last year and in some cases gives away internet-access terminals that cost up to $600 each to manufacture, according to two former SpaceX employees with direct knowledge of the figure. In Europe, Starlink cut prices even earlier after running into weaker than expected demand, according to two additional former SpaceX employees.

The latest price cuts come as the first serious potential rival to Starlink, Amazon’s Leo service, is gearing up to launch service in the U.S. and some other countries later this year. At the same time, Starlink has also been spending on improving its bare-bones customer service and opening its first bricks-and-mortar stores.

“Although Starlink is growing very fast in subscribers, they’re cutting the price like crazy to keep growth up,” said space consultant Tim Farrar of TMF Associates. “They’ve got all the people who live in the middle of nowhere, but now they have to start competing with AT&T and Comcast. That requires going a lot cheaper.”

Starlink’s cash-generating potential should be a big focus for investors ahead of a potential SpaceX initial public offering this summer. That’s particularly true now that the company has merged with xAI, which has been burning cash to the tune of $1 billion per month. And Musk is talking up costly endeavors such as putting data centers in space and building satellite factories on the moon.

Analysts have expected Starlink to become an increasingly important driver of the company’s overall free cash flow in the coming years, and for Starlink’s margins to eventually far exceed those of SpaceX’s launch business. But some of the assumptions underpinning initial expectations are looking increasingly questionable.

In a 2024 report that circulated widely among SpaceX investors, Morgan Stanley analysts made their projections assuming that SpaceX would bring in over $2,000 each year—or more than $170 a month—per individual Starlink user in 2024 and 2025, not including hardware or activation charges. (Morgan Stanley, historically Musk’s investment bank of choice, is among the banks that have started offering research coverage of private market companies in recent years.)

In that report, Morgan Stanley also projected that SpaceX’s overall revenue would reach $19 billion in 2025, driven primarily by growth in the number of Starlink subscribers, which the bank predicted would hit 6 million. While Starlink ended last year with 9.2 million subscribers, higher than the projections, SpaceX’s revenue fell short, coming in at around $16 billion. Starlink said it hit 10 million subscribers this month.

Inside Amazon, leaders have been closely watching the Starlink price cuts for consumers over the past few months, according to a person close to Amazon. They’ve interpreted the moves as a play to grab market share before Amazon’s launch of Leo.

Amazon plans to tap its large base of Prime members and other customers to sell consumer subscriptions, the person said, while leaning on existing Amazon Web Services relationships with companies and governments to boost enterprise sales and smooth local licensing approvals globally.

SpaceX did not respond to requests for comment.

Pricing Evolution

SpaceX initially envisioned Starlink as a premium service—Musk told staff it had to be fast enough for serious online gaming—that could command a significantly higher price than traditional wired internet. When the company launched Starlink in 2020 in the U.S., it charged a flat monthly rate of $99 for service, plus hundreds of dollars to buy hardware up-front.

But getting pricing right to drive adoption while using Starlink’s infrastructure as efficiently as possible is a complicated, worldwide undertaking.

Starlink works by surrounding the globe with thousands of orbiting satellites that beam down internet service to customers. That means when one of its satellites is traveling above a part of the world where it doesn’t sell subscriptions, SpaceX is leaving money on the table.

Expanding in as many countries as possible has always been a priority for SpaceX leadership. That requires wooing local regulators and sometimes navigating resistance from powerful telecom companies in order to launch. The company has grown to offer Starlink in more than 150 countries.

But SpaceX has had a tougher time winning over regulators than it initially expected in several large potential markets, according to three former staffers with knowledge of the effort.

That includes India, where SpaceX started taking Starlink preorders in 2021. The government quickly ordered SpaceX to stop taking preorders until it had received license to operate and to issue refunds for any already accepted. Starlink still hasn’t launched there. SpaceX also still hasn’t launched in some major African countries, including Egypt, Ethiopia and South Africa.

And in some regions outside the U.S. where Starlink has launched, initial demand was weaker than expected. SpaceX leadership initially believed the service needed to keep pricing consistent as it entered new markets like Europe, according to one of the former staffers. Otherwise, the thinking went, customers in certain markets would see others paying different rates elsewhere and would feel ripped off.

But Starlink saw lackluster growth in Europe, where it started to launch in 2021, according to two of the former staffers, in part because consumers are generally used to lower internet services prices than in the U.S. In 2022, the company began to slash prices in European countries, starting with cutting subscription prices to 50 euros (around $50 at the time) in France.

That same year, SpaceX hiked Starlink prices in the U.S., to $110 in 2022 and $120 in 2023. But more recently it has reversed course, introducing “lite” U.S. plans with slower speeds at rates as cheap as $50 per month, and offering even deeper discounts for plans in some parts of the country where it has excess capacity.