Inside SpaceX's $17 Billion Gamble On Starship

Forbes

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Transcript

00:00Today on Forbes, SpaceX's $17 billion Echostar deal won't work without its mega rocket starship.

00:09With two-thirds of the satellites currently in low orbit, SpaceX has become the king of

00:14the heavens, overseeing a growing broadband internet empire on the ground.

00:18But when it comes to the nascent business of using satellites to connect to mobile phones

00:23in remote areas beyond the reach of telecom towers, SpaceX has been far more constrained.

00:29So far, it's been working with a narrow band of T-Mobile's cellular spectrum in the U.S.,

00:34only able to relay text messages.

00:37Billionaire Elon Musk's company took a step to break out in a big way last week, announcing

00:43the purchase of a long-coveted chunk of spectrum from Echostar that's perfect for beaming

00:48signals to mobile phones from space.

00:51The hefty price tag, $17 billion, makes it SpaceX's largest acquisition by far.

00:57The company touted that the spectrum it's buying will allow it to field new satellites

01:01that provide 20 times the throughput and full 5G phone service, complete with video calls

01:07from on top of any scenic mountain you want to climb.

01:11But those promises come with a caveat.

01:14Those new satellites appear to be designed to be launched by the giant rocket it's developing,

01:19Starship.

01:20Caleb Henry, an analyst with Quilty Space, said that if Starship doesn't work as promised,

01:26that would be a giant monkey wrench.

01:28He said that SpaceX's direct-to-sell plans are, quote, dependent on Starship.

01:33Though its most recent test flight went well, breaking a streak of three straight that ended

01:38with spectacular explosions, questions still abound as to the soundness of Starship's design,

01:44and whether it can deliver the drastic reduction in launch costs that Musk has promised.

01:49The rocket is designed to carry 100 tons of payload to low-Earth orbit, more than four

01:54times as much as SpaceX's workhorse, Falcon 9.

01:58To take advantage of that, SpaceX has built a larger, more powerful next-generation broadband

02:03satellite that's too large to be launched in meaningful numbers by Falcon 9.

02:08Henry said that the company is most likely doing the same with the next version of its direct-to-sell

02:12satellites to provide better service.

02:15He said, quote, when you want to close a link with a weak antenna in a phone, you have to

02:20make the satellite a lot more powerful.

02:24SpaceX put 655 of its first generation of direct-to-sell satellites into orbit on Falcon

02:309, but it halted launches in June and is now waiting on Starship.

02:35Musk is promising that the rocket's huge payload capacity, plus making it fully reusable, will

02:41also allow SpaceX to radically decrease launch costs, allowing it to build out service at

02:46an affordable price to customers.

02:49Proving out reusability remains contingent on the rocket not blowing up on a regular basis.

02:54But SpaceX also needs to show that Starship can actually haul 100 tons to low-Earth orbit,

02:59said Henry.

03:01The latest version it's tested is only designed to carry 35 tons.

03:06The deal, itself, isn't as big a lift for SpaceX, even though $17 billion may look like

03:11a big chunk of change for a company that Musk claims is headed for $15.5 billion in revenue

03:17this year.

03:18It could fetch $4 billion to $5 billion from leasing the spectrum for terrestrial use by

03:23cellular companies, according to Philip Burnett, a telecom analyst at New Street Research.

03:29And the $8.5 billion in stock that's part of the deal is essentially, quote, free, given

03:35the enthusiasm of investors for the company.

03:38SpaceX is reportedly in the middle of raising capital at a $400 billion valuation, and it

03:43wouldn't have problems tapping the debt markets to finance the deal, Burnett said.

03:48Nonetheless, analysts were surprised by SpaceX's willingness to pay out as much as it did, given

03:53the uncertain prospects for making it back in the nascent direct-to-sell market.

03:59For full coverage, check out Jeremy Bogasky's piece on Forbes.com.

04:05This is Kieran Meadows from Forbes, thanks for tuning in.

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