Sunday, August 23, 2020

SpaceX Starlink Has Big Ambitions

The SpaceX Starlink home broadband service illustrates one important fact about new markets for internet service providers, namely that the amount of new revenue is more limited than one might think, at a time when a shift of just a few points of market share arguably has greater financial impact than most new revenue streams put together. 

Assume the U.S. consumer broadband market--mobile and fixed--is close to $200 billion in annual revenue by about the time Starlink is able to sell gigabit service. A shift of just one percent market share is $2 billion. If the market is mostly a zero-sum game, then when one competitor gains a point of share, the market change actually is two percent (plus one for the winner, negative one for the ISP that loses the share). 


For competitors in the U.S. home broadband market, the impact of losing one market share point is arguably greater than all new service revenues put together. In other words, in the short term, it is rational to defend legacy market share as “job one,” since that has the most telling impact on revenues and profits. 


Attackers have a different problem. Taking market share in an existing large market is a time-tested recipe for growth. 


SpaceX expected in 2017 that by 2022, Starlink revenue would account for roughly 75 percent of all SpaceX revenue. By 2023, Starlink satellite internet access was projected to represent more than 80 percent of total SpaceX revenue, reaching 85 percent by 2025.


If Starlink gets anywhere close to those numbers, it likely will be because Starlink has become a significant presence in the U.S. home broadband business, partly by connecting rural customers whose choices are restricted to satellite service, but also many rural customers who have access to cable TV, telco, fixed wireless or mobile internet access. 


Starlink believes it could get as many as five million U.S. households connected if it can put enough satellites into orbit, allowing it to boost speeds up to around a gigabit per second. At $80 per month, that could generate as much as $4.8 billion in annual revenue. 


That implies Starlink takes about 2.5 percent share of the U.S. home broadband business. Of course, revenue is one issue. The cost of launching the full constellation is the other key issue. Ability to deliver gigabit speeds might require something closer to 42,000, compared to the 800 or so satellites Starlink will need to provide commercial service at speeds up to 60 Mbps or so. 


The capital investment for the full constellation is three orders of magnitude larger than the initial constellation. 


Back to legacy providers: most of Starlink’s gains will come at their expense. In other words, mobile and fixed consumer internet providers will lost nearly $5 billion if Starlink gains that much. The global multi-access edge computing market might range between $1.5 billion and $5 billion by about 2025, when Starlink might hope to have increased its fleet closer to 42,000 satellites. 


source: STL Partners


The point is simple: incumbents have more to lose from lost home broadband market share than they have to gain from multi-access edge computing, and that likely is true even adding in all other new revenue streams such as the internet of things and private networks. If the global MEC business ranges between $1 billion and $5 billion, U.S. suppliers could not hope to gain more than $500 million to $2 billion of that revenue, even if the U.S. market represented half the global market. 


To be sure, it is not hard to find estimates of global connectivity revenues approaching $40 billion per year, across all platforms. And there are lots of alternatives for IoT connections. 


source: Markets and Markets


To be sure, a brand new revenue stream generating $1 billion or more is a wonderful thing. But those types of new businesses are hard to create. If attacking firms such as SpaceX and T-Mobile are able to achieve their stated objectives, defending firms looking to edge computing, internet of things and private networks for growth might find the new revenues only replacing what they lose to attackers in the home broadband business. 


Gross revenue from new sources is essential, for attackers and incumbents. Net revenue change might be underwhelming, in the near to medium term. 


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