Why Starlink Will Fail: 5 Potential Reasons

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Written By Viktor

Product manager by day, Starlink enthusiast by night.

SpaceX and Starlink have defied the realms of what’s possible throughout their existence. It took Starlink a little less than 3 years to amass 2 million subscribers.

Unfortunately, this doesn’t mean that the company is over the hump just yet.

Both SpaceX and Starlink continue to face various headwinds that could potentially even lead to the companies’ demise.

Customers, investors, and most experts alike want to see Starlink succeed. After all, we at Starlink Insider obviously have a vested interest in Starlink’s continuous growth.

Nevertheless, there are a few different risks the firm currently has to cope with.

In summary, Starlink could fail because it does not receive regulatory approval, due to poor speed and a lackluster user experience, increasing competition, not reaching profitability soon enough, and failed launches.

Without further ado, let’s take a closer look at each of those risks in the sections below.

1. Not Receiving Regulatory Approval

While space itself is not owned by a single government, Starlink still can’t just launch rockets as it pleases. In order to launch satellites, it needs to be granted regulatory approval.

So far, regulators have largely played along. Most of the applications that SpaceX has submitted were approved by the various regulatory bodies it deals with. Back in June 2022, for instance, it was granted the ability to provide Starlink services on airplanes, boats, and trucks.

Similarly, in December 2022, the Federal Communications Commission (FCC) granted permission to SpaceX and Starlink, allowing them to deploy 7,500 Gen2 satellites into low-earth orbit (LEO).

However, this just tells part of the story. Starlink actually plans to deploy a constellation totaling 29,988 satellites, with the rest still pending approval.

And receiving FCC approval may not be a certainty as the past has shown. Back in August 2022, the FCC rejected Starlink’s application to receive $885.51 million in broadband funding. And since government-based funding is one of the key pillars to SpaceX reaching profitability, it needs to be able to attract this type of funding going forward.

Customers abroad may also need to be more patient in some instances. Starlink’s coverage map shows that it has received regulatory approval for a multitude of countries, thus launching in both 2023 and 2024.

Unfortunately, some do remain stubborn. For instance, Starlink has tried to operate in India for more than a year now. Back in November 2021, the Indian government even ordered the company to halt presales and return all orders until it received the ok.

Starlink’s initial target was to reach 200,000 paying subscribers by the end of 2022 – a feat it obviously did not achieve since its status in India remains in limbo.

Being granted approval in as many jurisdictions as possible is essential for Starlink to eventually reach profitability. In the past, Starlink representatives projected that it needs 10 million subscribers to become profitable. That number is naturally easier to achieve the more countries it is available in.

After all, Starlink is technically close to providing global internet coverage, so all it takes to start generating income is to send the hardware to subscribers.

Consequently, the fewer countries that allow Starlink to operate, the fewer potential customers it can appeal to, which makes it harder to reach the break-even number of 10 million subscribers. Starlink’s business model is certainly predicated on receiving the necessary regulatory approval.

Another disadvantage is that SpaceX wouldn’t be able to raise as much capital since its projected total addressable market (TAM) is not as high as expected.

2. Poor Speed & User Experience

One of the biggest reasons why customers have chosen Starlink is the promise of high-speed and low-latency internet.

For example, Starlink promises to offer a latency of 20 milliseconds versus the 600+ milliseconds that traditional geostationary satellite operators provide.

As a result, gamers and the like often chose Starlink for the speed that it promises. Unfortunately, that promise has fallen somewhat flat in recent times.

In September 2022, Oakla released a report which highlighted that both speed and latency worsened substantially for customers in high-demand markets like the United States or Canada.

For example, the median download rate for subscribers in the United States dropped from 90.55Mbps in Q1 to 62.53Mbps in Q2 2022. In Q3 2022, the median speed below fell to 53Mbps.

The reason for the worsening speed and latency metrics is due to congestion, meaning the demand for Starlink’s internet service is currently outpacing the capacity of its network.

Increasing data demands by its subscribers may even lead to a so-called congestive collapse, which would mean that the service would stop working altogether. That scenario, at least for now, seems very unlikely, though.

The level of congestion that subscribers suffer from is dependent on where they are located. Here in Germany, for example, we continue to receive blazing speeds, largely because the customer base is still fairly minuscule.

starlink germany speed test

Unfortunately, across the pond, those bandwidth issues have not only led to slower speeds but also limitations imposed by Starlink itself.

In November 2022, Starlink announced that it would cap monthly downloads in the United States to 1 terabyte. Every additional gigabyte would incur costs of $0.25. However, it has to be noted that the cap does not apply to overnight usage between 11 pm and 7 am.

Dissatisfied customers are certainly a huge risk to Starlink going forward. But slower speeds affect the firm’s ability to attract outside funding and regulatory approval, too.

In the above-mentioned rejection, the FFC cited slowing speeds as well as recognized capacity constraints by Starlink as reasons for why it declined the bid.

Starlink needs to reach around 10 million subscribers to become profitable (currently at 1 million), so cleaning up its speed problems remains mission-critical. If speed issues continue to persist, then Starlink’s ability to reach that figure may be at risk.

3. Rising Competition

Starlink, although clearly in the lead, is not the only company that aims to offer internet services powered by LEO satellite constellations.

In fact, there’s a growing list of Starlink competitors that all have received regulatory approval from the FCC to deploy their own constellations.

Furthest ahead is OneWeb, which is close to completing its goal of launching 648 satellites. It aims to provide internet access in remote locations as well as on boats and airplanes.

OneWeb isn’t the only one trying to offer satellite-based internet services, though. Other competitors include Canada-based Telesat (proposed fleet of 1,600 satellites), Astra (13,620 satellites launched in 3 phases), and Amazon’s Project Kuiper (3,236 satellites in LEO by end of the 2020s).

Kuiper Systems, in particular, may become a very formidable competitor considering the deep pockets that Amazon has. Additionally, much like Starlink and SpaceX, it can take advantage of lower launch costs by tapping into Jeff Bezos-owned Blue Origin.

Right now, Starlink still benefits from its first-mover advantage. In the United States, for example, it competes against the likes of HughesNet and Viasat, which are not only more expensive but also provide substantially slower internet services and data allowances.  

This, as well as the popularity of SpaceX and in part its CEO Musk, has enabled Starlink to amass a subscriber base of 1 million in record time.

However, Starlink will have to either adapt its pricing or offer other lucrative services as levels of competition across the globe keep increasing.

Another risk that the rising levels of competition pose are environmental effects. With more and more visible satellites being launched into space, the vision of the night sky could be severely affected.

The FCC may thus decide against additional approvals in an effort to preserve the night sky and astronaut safety. This would not only diminish internet speeds but severely affect Starlink’s path to IPO and profitability, which is critical to achieving SpaceX’s mission of getting people to Mars.

Apart from satellite providers, Starlink may also face additional competition from companies that build their networks using fiber and wireless. If enough of their customers are moving over to Starlink, they would be incentivized to expand their infrastructure into more remote areas.

Some customers have actually said that they cancelled their existing subscriptions or pre-orders because other options, such as Verizon’s 5G Home, became available to them.

As a result, Starlink is in a somewhat delicate spot where it has to continue growing its subscriber base at a rapid clip while ensuring that the service (i.e., speed, data caps, customer support) doesn’t degrade any further.

4. Not Reaching Profitability Early Enough

History is not on Starlink’s side, to say the least. The overwhelming majority of satellite internet providers have either cratered or reorganized during bankruptcy filings.

Take, for example, the previously mentioned Starlink competitor OneWeb. In March 2020, the company filed for bankruptcy only to now be owned by the Government of the United Kingdom, Bharti Global, and previous backers like SoftBank.

SpaceX CEO Musk has said in the past that it would cost between $20 billion and $30 billion to deploy Starlink’s proposed constellation. Break-even is expected to be reached at a cost of $5 billion to $10 billion.

Starlink does profit from SpaceX’s prolific launch capabilities, which means that it can deploy satellites at comparatively lower costs. Additionally, SpaceX continues to raise billions in venture funding at very favorable terms, thus allowing it to continue incurring losses.

However, a huge reason why investors are willing to bankroll SpaceX is the projected revenue that Starlink is expected to reach. The firm aims to generate $36 billion in annual income on profit margins of 50 percent by the mid-2030s.

While a potential bankruptcy would not necessarily mean the end of SpaceX and Starlink (see Chapter 7 vs. Chapter 11 bankruptcy, for example), it could severely impact the firm’s ability to operate for a substantial amount of time.

For example, key employees that hoped to receive a huge payday would lose a significant percentage of their equity value. A majority of them would likely quit their jobs as a result.

Bankruptcies also negatively affect a firm’s ability to raise debt and equity-based funding going forward. And in general, bankruptcy proceedings do last many months during which additional satellite launches may be halted. This, in turn, would allow Starlink’s competitors to catch up.

In the past, CEO Musk warned investors that bankruptcy may be a real risk due to supply chain issues faced by its Starship rocket. However, some indicate that it may just be a scare tactic to attract more government and venture funding (since backers would want to avoid losing their investments as well).

Plus, as I’ll detail in the next chapter, getting Starship to be reusable and launching frequently is mission-critical to Starlink since most of its Gen2 satellites will be transported onboard the rocket. Starlink’s ability to become profitable, at least for now, greatly hinges on the success of Starship.

5. Failed Launches

The last, albeit very unlikely reason why Starlink would not be successful, are continuously failed launches. Starlink satellites are in orbit for around 5 to 6 years, which means that the firm has to replace its entire fleet in that period.

Its satellites can fail to enter earth’s low orbit for a variety of different reasons. Back in February 2022, for example, Starlink lost 40 satellites due to a geomagnetic storm.

Launching one satellite into space costs the company an estimated $500,000, so losing an entire fleet of 40 causes damages worth $20 million.

However, Starlink satellites and their parts generally do not pose a threat to humans. They utilize a propulsion system to deorbit over multiple months, with the individual parts being burned when re-entering earth’s atmosphere.

Another potential launch failure that may occur is the deployment of Gen2 satellites, which is supposed to be carried out by SpaceX’s Starship rocket.

The Gen2 satellites are substantially bigger and heavier, thus requiring the more potent Starship rocket to be launched into space at scale. The first orbital test flight of Starship is still on hold and a date is yet to be announced.

While the existing Falcon 9 has successfully carried Gen2 satellites in the past, it isn’t equipped to transport masses of Gen2 satellites. In fact, SpaceX CEO Elon Musk stated during an event with T-Mobile that the Falcon 9 would only launch a mini version of Gen2 satellites into space.

Deployment of second-gen satellites is crucial for a variety of reasons. For example, the satellites are capable of beaming service directly to smartphones, which would potentially open up a completely new source of revenue for Starlink.

Additionally, the second generation is also more powerful. Current satellites (v1 and v1.5) offer a bandwidth of 18 gigabytes per second while Gen2 satellites are capable of delivering up to 80 gigabytes per second. This could alleviate the speed issues that SpaceX is currently suffering from.

Lastly, the Gen2 satellites are less visible to astronomers as well since they utilize darker coating, among other techniques. SpaceX plans to eventually deploy 30,000 Gen2 satellites, so there’s still a long way to go.

Not getting Starship off the ground (no pun intended) could thus severely impact its ambitions to deliver high-speed internet coverage across the globe.

The Bottom Line

Although Starlink has been able to amass hundreds of millions of dollars in revenue in seemingly no time, it still has a long way to go until it becomes the juggernaut everyone expects it to be.

With that being said, while the highlighted risk are certainly not neglectable, Starlink seems to be well equipped to tackle them given its access to funding and launch capabilities.

And please let us know in the comments: how likely do you think it is that Starlink fails? And what is the biggest risk the firm faces?

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