- SpaceX recently won rights to $885 million in government subsidies for high-speed internet from a Federal Communications Commission program.
- The goal of the $20.4 billion program, called the Rural Digital Opportunity Fund, is to coax companies to bring high-speed internet service to underserved areas of the US.
- SpaceX’s subsidies will go toward Starlink, its growing satellite-internet service. In exchange, the company has to offer service to about 642,000 homes and businesses across 35 states.
- The FCC rules require that SpaceX offer those customers internet service “at rates that are reasonably comparable to rates offered in urban areas.”
- New maps based on RDOF data illustrate which regions Americans could receive Starlink service at “reasonable” prices, per FCC rules.
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Over the next 10 years, the Federal Communications Commission could pay SpaceX $885.5 million to expand its Starlink satellite-internet service.
In exchange, the Elon Musk-founded aerospace company must offer high-speed internet access at competitive rates to more than half a million estimated new subscribers in rural areas. New maps, seen below, illustrate the eligible regions.
The goal of the FCC’s $20.4 billion subsidy program, called the Rural Digital Opportunity Fund (RDOF), is to encourage companies to build out high-speed internet access in US regions where broadband is scarce or unavailable. To that end, the agency launched a $16 billion reverse auction on October 29 and closed it to bids on November 25.
The process began with a US Census Bureau-based map of block groups with the poorest perceived web access, plus data on the estimated number of homes and businesses — what the FCC refers to as locations — inside each one. Internet-service providers then made secret bids on block groups for subsidies they’d like to provide service to; the lowest amounts offered by the fastest services had the strongest bids.
On Monday, the FCC formally announced the 180 companies and consortiums that won rights to $9.23 billion in subsidies for RDOF’s first phase. (The remaining $6.8 billion will likely go toward the program’s second phase.) The money, accumulated through small fees on mobile-phone bills, should provide new broadband access to roughly 5.2 million locations in 49 states and one US territory.
For its part, SpaceX won rights to cover an estimated 642,000 locations across 35 states. Some analysts predicted satellite companies would not get “anything” through RDOF. But J. Randolph Luening, a telecommunications-industry analyst and consultant, said he wasn’t surprised that SpaceX scooped up nearly 10% of RDOF phase-one winnings to provide service to more than 12% of US locations.
“For the American people, this is significant because they’re going to have a really nice solution in very rural areas,” Luening, the CEO of Signals Analytics LLC and founder of CBRS Toolkit, told Business Insider. “For SpaceX, I think this is good for them. It’s an initial market, it’s a big visible win, and it’s something that gives good press in advance of when they actually need to deploy to the public.”
Where SpaceX now has to offer Starlink
In exchange for $88.5 million a year over the next decade, SpaceX must offer Starlink service to the above areas shown in red against a black background — a map created by Luening using FCC data and RDOF Toolkit software.
The states with the most prospective Starlink customers are Pennsylvania, Virginia, Washington, Mississippi, Alabama, Oregon, Florida, Montana, Louisiana, Idaho, and Georgia, according to the program’s summary data, which Business Insider compiled in a public spreadsheet.
Those interested in seeing if SpaceX must offer coverage through RDOF where they live can look up their address with a mapping tool created by Cooperative Network Services, an example of which is below.
Another view of RDOF winnings, below, shows how SpaceX dominated its “above baseline, low latency” tier in the competition, also shown in red. Broadly, the category describes connections that fall between 100 and 250 megabits per second in download speed and 10 and 50 Mbps in upload speed.
SpaceX claimed nearly nine out of every 10 locations in that category, which represented about 14.1% of all locations won in RDOF. More than 85% of all locations are supposed to get 1 gigabyte per second (1,000 Mbps) or better connections, shown in green, or at least five to 10 times as fast as Starlink’s bidding tier.
Most of the 1 Gbps group will get fiber-optic connections, a technology that nearly all analysts consider far more future-proof and resilient than satellites. While fiber can easily meet increasing data demands with relatively minor upgrades, satellite networks can’t be substantially upgraded without launching new spacecraft into orbit and face tough throughput limits because of wireless physics and spectrum-licensing restrictions. (But SpaceX may have the ability to offer premium customers gigabit service, Luening said.)
Despite brewing controversy about RDOF subsidies going to wealthy suburban and urban areas — including roughly 13% of SpaceX’s cash, Free Press reported — Luening said RDOF overall seemed to be a good deal for the US.
“The auction was immensely successful from the commission’s perspective, in terms of what it delivers to the American people: 98.6% of the locations were awarded,” Luening said. “That’s a very, very high ratio. That’s about as good as it gets.”
Per RDOF’s service-milestone rules, any company that won a bid has to provide commercial voice and internet service to 40% of the estimated locations within three years of funding being fully authorized — the FCC expects that to be the end of 2024 — or risk having to pay back subsidies. But the agency also plans to revisit its estimated counts of home and business locations in year six of the program, or 2027, once better data is available.
‘It needs to be competitive with urban pricing’
Another key condition of taking the government’s money is offering that voice and broadband service at what the FCC calls “rates that are reasonably comparable to rates offered in urban areas.”
Here, “reasonable” means close to the average internet cost for a subscriber in an urban area. That data, compiled annually in the FCC’s Urban Rate Survey, serves as a benchmark to track the market and — in this case — prevent price gouging by companies that are already raking in lucrative subsidies.
Luening said all RDOF winners must offer service at rates that are competitive with urban pricing, though it’s not clear how they’ll handle pricing from one region to the next, since urban rates vary widely. In the FCC’s 2021 urban data, for example, the average total charge for a comparable connection in Pennsylvania and Washington — two of SpaceX’s biggest regions by number of estimated locations won — was about $81.16 and $67.55 per month, respectively.
“The commission isn’t saying, ‘Here’s your exact rate.’ It just says it needs to be competitive with urban pricing,” Luening said. “A provider can develop their pricing plan, but if it’s at all aggressive, then they might get pushback from the FCC. They’re incentivized to keep it within the window of what would be considered appropriate for that service bundle in an urban area.”
SpaceX offers beta-test service of Starlink for $100 a month, plus $500 for a starter kit, which includes a high-tech user terminal, or satellite dish. Each user terminal costs about $2,400 to make, a person with knowledge of a manufacturing deal previously told Business Insider — which means SpaceX is eating perhaps $1,900 to $2,000 in cost per connection up front.
SpaceX hasn’t said whether it plans to make RDOF subscribers pay for the starter kit, or if it will use subsidies to defray that cost. The average Starlink subsidy works out to about $1,377 per subscriber, compared with roughly $1,768 in federal support per new internet connection through all of RDOF. But these numbers are low in reality because it will take years to deploy and provide service. It’s also unlikely every home or business will pay for a Starlink subscription.
“The RDOF winner must demonstrate that service, per their specifications, is available and can be quickly provisioned. They must also advertise,” Luening said. “However, if the end user says ‘no thanks’ the provider is still compensated.”
In any case, Luening says the subsidies help SpaceX but aren’t essential to the success of its new internet business.
“With Starlink, it’s global. They’ll have all of Africa, chunks of Europe,” Luening said. “They can probably use the same hardware, too, so that’s a big plus.”
Other analysts question the ease at which Starlink could succeed, saying the company may need 3 million subscribers or more to break even, plus a number of corporate and government contracts to start making the project profitable.
“There are a little over 2 million [satellite-internet] subscribers in the US and very few in other parts of the world. Europe built a satellite that only attracted 190,000 subscribers at the peak and is down to less than 170,000 now,” Roger Rusch, a satellite engineer and communications-industry consultant at TelAstra, previously told Business Insider.
Rusch added: “I would not expect that you could make this work as a business based on what I’ve seen today in the industry and competition in the terrestrial alternatives. … But I will say Elon Musk has the determination to make things happen. He might succeed.”
This story has been updated with new information.