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Starlink Will Be Priced to Be Affordable

Spacex's Starlink User Terminal (SpaceX)

Charging more in affluent markets will increase revenue and tend to reduce the "digital divide" — good business and good karma.

SpaceX is now serving customers (aka beta testers) in the northern United States. They will soon be doing so in Southern Canada and recently announced that Germany, where they have applied for permission and have begun construction on two ground stations, will probably be next. Early customers in the US are paying $499 for their user terminals and $99 per month for Internet service.

But what about the eventual price in Canada, Germany or, say, a poorer nation like Cuba? When discussing the plan for Germany, SpaceX vice president Hans Königsmann said the price was not yet determined and "we will focus on what the local market allows." At first, that sounds like something an arrogant monopolist might say, but on second thought, it is both good business and good karma.

In Econ 101, pricing is simple. In a competitive market, the price or a product or service will be at the point at which the curves for supply and demand as a function of price intersect. A monopolist will set the price at the point where marginal cost = marginal revenue. Things get trickier in a classic oligopoly and even trickier in a dynamic market like satellite Internet service.

The capacity of a satellite constellation increases as technology improves and as new satellites are launched. Today, SpaceX has only around 800 satellites in service, which limits both their coverage area and the number of customers they can serve in a covered area, but they plan to add around 120 satellites per month, have permission for around 12,000, and have requested permission for 30,000 more. Furthermore, the technology deployed in the 12,000th satellite will be more sophisticated and have higher capacity than that in today's satellites. Most of those 12,000 satellites will have inter-satellite laser links, which will further increase coverage and capacity and reduce the need for terrestrial infrastructure.

The fixed cost of a satellite Internet constellation is high — satellites are expensive to make and to launch — but the cost of adding and servicing a new customer is relatively low, and the market is global. SpaceX satellites that fly over the southern US will also fly over Cuba, but at $500 for a user terminal and $99 per month Raúl Castro may be the only Cuban customer. Perhaps Cuba could justify shared links at clinics or schools, but the individual market would be essentially zero, and excess capacity on a satellite, while it is flying over Cuba, would be wasted. The price in Cuba should be lower than that in the US to utilize available capacity fully. Prices may or may not remain a flat fee per month, other factors like the political situation and vested interests of terrestrial Internet service providers will affect pricing decisions, and end-users will not be the only customers in a nation, but in general, SpaceX and the other constellation operators will charge more in affluent markets than in poorer markets — they will try to operate at full capacity everywhere. Charging more in affluent markets will increase revenue and tend to reduce the "digital divide" — good business and good karma.

By Larry Press, Professor of Information Systems at California State University – He has been on the faculties of the University of Lund, Sweden and the University of Southern California, and worked for IBM and the System Development Corporation. Larry maintains a blog on Internet applications and implications at cis471.blogspot.com and follows Cuban Internet development at laredcubana.blogspot.com. Visit Page

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