How satellites and mobile networks will compete: Madden

Joe Madden

I saw SpaceX launch 60 Starlink satellites recently… and standing on the ground under the rocket, I could FEEL the power of the rocket. Thrilling! The advances in technology to re-use rocket engines have made rocketry a business, after 80 years as a science project.

So, the rocket business is blasting off, but what about these satellite constellations? I have been skeptical about the market for satellite-based broadband connectivity over the past 25 years because I witnessed firsthand the disasters of the Iridium and Globalstar business plans in the 1990s. The failures of these first systems came down to simple economics: In the late 1980s, when the projects were started, mobile voice connectivity was priced at $1 per minute. But by 1998, when the systems were launched, voice connectivity had dropped below $0.10 per minute.    

If we fast-forward to 2020, we now have people like Elon Musk and Jeff Bezos launching satellites with dozens of innovations to make the launches and the satellites cheaper. Have the economics changed? Can they really compete with Verizon and NTT DoCoMo?

Today, voice connectivity is not the main driver. We have moved on to data connectivity, so the relevant metrics are the cost per GB of data delivered, and the cost per square kilometer of coverage. Our analysis of these costs reveals some interesting comparisons:

  • A satellite constellation can be inexpensive in terms of cost per square kilometer. Where terrestrial systems (using a low-cost Open RAN 5G solution in a remote area of a third-world country) costs roughly $15,000 per square kilometer, a satellite-based system can be much cheaper, at about $1,200 per square kilometer. The ORAN equipment is cheap, so the difference comes mostly from the cost of backhaul, security, and providing power to remote towers.
    Mobile Experts chart 1
  • However, the cost per GB can be a major challenge. Where an ORAN-based network can deliver data at about $1.40 per GB (this is artificially high because of backhaul/power cost in remote areas), the satellites provide data for roughly $5-8 per GB. Satellites spend a lot of time over oceans and uninhabited areas, so the utilization of radio capacity is low…. making each GB very expensive.
    Mobile Experts chart 2

The problem, then, is the cost of the actual data delivered. At $5-8 per GB, it will be very difficult to make money. A $99/month plan will only cover 10-20 GB per month, which is not enough for the video streaming that rural customers want. Looking at it another way, there are not enough worldwide customers at $99 per month to pay for the constellation, because a $10-20 mobile plan works much better for most people worldwide.

In the end, we expect that Starlink, OneWeb, Kuiper and other satellite ventures to declare bankruptcy, just like Iridium and Globalstar. They simply cannot compete in mainstream markets where 5G will deliver data at $0.20 per GB or less.

But bankruptcy is where the story will get interesting. At that point, we will have thousands of satellites orbiting the Earth, effectively free. Keep in mind that bankruptcy will not cause the satellites to immediately crash into the Earth. When you eliminate all of the up-front costs of launch, hardware and software development, and ground station setup, these networks will be much cheaper. I predict that sometime in the 2030 timeframe we will see new owners emerge with these satellites as a great low-cost solution in rural markets.

At the end of the story, we expect to see satellite options as another part of the hetnet. In the “layer cake” that has become so famous, a mobile operator will be able to add a super-coverage layer, finally augmenting their coverage of population centers with full coverage everywhere. We simply have to wait for the bankruptcies to happen first.

If you want to see Mobile Experts publish some analytical research to predict how satellites and terrestrial networks will converge, please get in touch to let me know.

Joe Madden is principal analyst at Mobile Experts, a network of market and technology experts that analyze wireless markets. 

"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.