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The Starlink Problem

Things don’t quite look right.

SpaceX is going public in a matter of weeks, which means they have filed an S1, a document that lets us finally see some of the company’s murky financial machinations. There are a tonne of revelations to be found in here — that is, once you get past the painful levels of hollow hype that come across as desperation more than vision. One revelation is about Starlink, as this S1 paints it as the crown jewel of SpaceX, not just because it is the only profitable division of SpaceX, but because it seems to suggest Starlink will dominate the internet provider market. I have even talked to people who want to invest in SpaceX’s ludicrously overvalued IPO just to get a slice of the Starlink pie. But sadly, when you look at the numbers and their actual meaning, this narrative totally falls apart.

Let’s start with the 2026 Q1 figures for Starlink as laid out by this S1 filing. Starlink had a total of 10.3 million paying users, just over double the number they had this time last year, with each paying an average of $66 per month (a sharp fall from $99 a month in 2023), generating $3.26 billion in revenue and $1.19 billion in operational profit.

The fact that Starlink is profitable at all is utterly remarkable. For years, Starlink was wildly unprofitable, and thanks to the fact that its satellites only last a few years, it was set to never reach profitability. There are many experts and non-experts, like myself, who believed Starlink would never reach this point. You have to hand it to the engineers and sales team for pulling off this utter miracle (even though I have my suspicions about this figure). But we will get to that topic in a minute.

The Market

What was almost side-splittingly funny was seeing the projected addressable market, or how much of the internet provider market they believe they can secure for Starlink, which this IPO set at $870 billion. That equates to 67 times their current revenue! Now, the global internet service provider market size was estimated at just $598.70 billion in 2024 and is predicted to rise to $1125.10 billion by 2035. In other words, Musk predicts Starlink will dominate this market with roughly 80% market share!

This is the problem with Starlink, because that is simply not possible.

Let’s start with the fact that in order to take a majority share of the market, Starlink will need to offer better-than-average internet speeds and below-average cost.

The numbers in the S1 suggest that currently, Starlink’s operational cost per user is $50 per month ($2.07 billion in operational costs for 10.3 million users over a quarter). This broadly means that Starlink currently can’t offer its services for less than that per user without operating at a loss. This is a significant problem if Musk wants global market domination. You see, internet in the US is extremely expensive, averaging $68 per month, which makes Starlink a middle-ground option, whereas internet in Europe is significantly cheaper, at just $56.59 per month, making Starlink comparatively expensive. What’s more, the average internet speed in Europe and the US is noticeably faster than Starlink’s maximum speeds, and the average connection is more stable (with more on that in a minute).

In other words, Starlink’s current cost of operation per user prices it out of being a market dominator, because if it dropped its prices to become broadly competitive across the market, it would operate at a loss.

Here is where people will mention that the cost per user will go down, just as it seems to have done over the past few years, which is why Starlink is now profitable when it wasn’t before.

But hold your horses! There are two very significant reasons why that might not be the case: depreciation and the city problem.

Depreciation

Starlink satellites are designed to only orbit Earth for five years before naturally deorbiting and burning up in the atmosphere. SpaceX had to agree to this condition to get permission to launch so many satellites, as this restriction inherently keeps space junk to a minimum. However, it does mean that the entire Starlink internet infrastructure needs to be completely replaced every five years! As a result, the depreciation costs Starlink incurs are enormous!

This is why I am not so sure about that $1.19 billion profit. You see, companies can write off 100% of the first year’s depreciation costs thanks to the Big Beautiful Bill Musk helped get enacted in the US. So, depreciation on a good number of their satellites may not currently be recorded, making their profit margin appear higher than reality.

What’s more, the replacement costs will likely exceed depreciation. The new generation of Starlink satellites (V2 Mini) is about four times as expensive as the previous generation, but it doesn’t appear to support four times as many simultaneous users. So, when they replace all the V1 and V1.5 satellites with new V2 satellites, it could increase the cost of serving each user. Why does this matter? Well, a large portion of the Starlink constellation consists of V1 and V1.5 satellites launched three to four years ago. They are nearing the end of their lives and will be replaced by V2 Mini satellites, which, again, are likely more expensive per user.

In other words, the depreciation cost Starlink will have to absorb per user seems set to increase very soon, once they start replacing older satellites with newer, faster and more expensive ones. Let’s also not forget that, thanks to the Rampocalypse and rising fuel prices, the cost of building and launching these satellites is almost certainly increasing, too, which exacerbates the problem.

But, on top of that, I also suspect that Starlink is, on paper, extending the lifespan of these satellites to artificially lessen their depreciation cost. While this five-year lifespan has been tossed around a lot, we know Starlink has performed premature mass deorbits of satellites and that there is a notable rate of newer hardware failing and deorbiting early, too. As such, the actual average lifespan of a Starlink satellite is likely less than five years. If that is the case, and current or early hardware is depreciating over five years on the books, it may artificially boost the recorded profit margin far above where it actually is by egregiously underreporting the depreciation costs.

When you have a company that has literally billions of dollars worth of annual depreciation on its books for novel hardware, there is ample room for this type of accounting shenanigans. And we all know Musk loves that kind of stuff.

As such, that $1.19 billion profit margin and $50 per customer per month operational costs might be the result of incredibly rose-tinted glasses.

The City Problem

But arguably, the largest problem is cities.

Starlink works great in rural, less densely populated areas, where only a small number of users will connect to a single satellite at a time. But in densely populated areas, tens of thousands of users may be trying to connect to a single satellite, which exceeds the satellite’s capability, causing outages. Indeed, this is why Starlink’s service in cities is consistently very patchy and noticeably slower than advertised.

Why is this a problem? Well, globally, 55% of people live in densely populated cities. Also, most people who can afford Starlink don’t live in rural towns, which tend to be poor, but in developed urban cities. Logically, if Starlink wants to take a majority market share in the internet provider market, as they say they do, they have to solve this bottleneck problem.

This is where Starlink relying on satellites bites it in the ass. Other forms of internet infrastructure, like fibre-optic, can simply deploy more capacity locally, keeping their network utilisation rate high and their operational costs down.

But Starlink’s satellites are orbiting the Earth. You can’t make them exclusively hover over a city. So, to get rid of the city bottleneck, SpaceX has to deploy an oversupply of satellite capacity to ensure that there are always enough satellites above a city to exceed demand. They can’t just increase capacity locally; they have to do so across basically the entire globe! This means the network utilisation rate will decrease, and the number of satellites needed to service each user will increase.

In other words, to solve the bottleneck problem and make Starlink a competitive option for the vast majority of internet users, the per-user operational cost will have to spike dramatically. As we have seen, if that were to happen, Starlink would very rapidly lose its profitability.

I hear those who claim that Starship will bring down the cost to launch Starlink and make larger satellites with far greater capacity possible. But as it stands, Starship is not a viable launch vehicle and is still far from actually launching satellites, let alone doing it regularly and cheaper than the Falcon 9. Based on what SpaceX has actually shown us, not what Elon claims is coming ‘round the mountain, this problem isn’t going to be solved any time soon.

Summary

This is why Starlink’s rapidly growing user base and profitability are so damn impressive. It has demonstrated that it can be a viable, sustainable business in the niche sector of decent internet access in low-population-density areas. That is great and means that, as a standalone business, Starlink is likely worth a few tens of billions of dollars. To what degree this profit is due to accounting shenanigans and timing, I do not know. But simply registering a profit at all is huge! Again, huge kudos to the amazing workers under Musk’s thumb.

Unfortunately, Starlink’s figures and reality do not paint a picture of a company that can get anywhere close to an $870 billion market share. It shows that its recent growth is remarkable, but it is likely approaching the upper limit of its addressable market. I have no doubt that its user base will grow; after all, for many, it is a compelling product. But the fact of the matter is, it is too expensive, slow, and unreliable to be the source for how the majority of humanity connects to the internet, and something drastic will need to happen for that to change. Pretending otherwise, or attempting to claim this is what makes SpaceX worth nearly $2 trillion, is dangerously fanciful thinking.

Thanks for reading! Everything expressed in this article is my opinion, and should not be taken as financial advice or accusations. Don’t forget to follow me here or support me over at Substack.

(Originally published on www.PlanetEarthAndBeyond.co)