Starlink stoops to conquer: That's a whole new road for Elon Musk in India

The company's target after getting the licence is to have 200,000 terminals across the country by December 2022, 80% of them in rural locations

Satellite broadband is one of Elon Musk’s first big trysts with India, and competitors say he is already tweaking his strategy. The big change for SpaceX, which incorporated its fully-owned Indian subsidiary Starlink Satellite Communications on November 1, is to shift focus from the initial direct-to-consumer model to a business-to business (B2B) strategy where telcos and government become key partners. That makes him follow a similar line of thinking as his chief rival, Sunil Mittal’s OneWeb.

He has also dispelled any possibility of a price war to which customers are accustomed (and many analysts also hoped for), either against his direct rivals such as OneWeb and the others like Amazon down the line. Or against telcos such as Reliance Jio in the fibre broadband space.  

As part of its initial entry, Starlink advertised directly to customers, offering satellite broadband services for pre-booking (it has 5,000 pre-bookings so far). But that would bring them in direct competition with telcos, which were offering fibre broadband to millions of customers.

The offer, to sell broadband to consumers, is still on, but the goalposts seems to have changed. Musk changed tack during a fireside chat at the Mobile World in Barcelona in June this year, stating that his venture needed to be more cooperative than competitive with mobile operators. His strategy was two-fold: Provide satellite backhaul and enable telcos to meet rural connectivity targets.

Mittal said that OneWeb’s B2B strategy, which entailed collaborating with telcos, fibre broadband players and geo-stationery satellite players, has been vindicated.

Clearly, collaboration is the new buzzword in SpaceX. As Sanjay Bhargava, the company’s India director, outlined, SpaceX “will collaborate with all broadband operators — private and government, to reach 100 per cent broadband in 12 aspirational districts— including telcos.” He, however, did not comment on Mittal's contention or whether they have changed tack.   

Bhargava also pointed out that the company’s target after getting the licence is to have 200,000 terminals across the country by December 2022, 80 per cent, significantly, in rural locations.

In contrast with Tesla’s electric car, where there are differences with the government over manufacturing locally and on import duties, which the company wants New Delhi to reduce before it looks at selling in India, Musk’s Starlink has reached out to the ruling dispensation for collaboration. It is taking Niti Aayog’s help to identify aspirational districts where it can run pilots to test the waters. It has also decided to donate 100 Starlink connections to schools, and the Niti Aayog is helping them identify the institutions —10 in Delhi and others in rural schools.

No price war is imminent either as Starlink and OneWeb prepare to introduce their services by next year. Bhargava said, like Apple Inc, Starlink service would be available at the same price across the world. To be sure, it’s a steep price — $100 a month for unlimited broadband, plus Rs 100,000 annually to access the service. That is ten times the price of unlimited data offerings from competing fixed broadband telecom players. And the one-time installation cost is, again, Rs 40,000 —  many times higher than installing a fixed broadband line at home.

Mittal also suggested that OneWeb services won’t be cheap and installation charges would be similar— which explains why there won’t be millions of customers on satellite broadband, nor would it replace other modes of broadband service.

Bhargava made it clear that this price tag could go up with taxes and if spectrum needed for satellite services has to be bought through auctions rather than through an administered price (a battle on this score has already erupted between the Mittals and other telcos). That cost will be passed on to the customers.  

So is there really a market for what seems to be a very niche service? The answer, surprisingly, is yes. According to a Ficci-Deloitte report, the initial market in India would be around $1 billion, growing by 15 per cent. Others say it will grow much faster.  

Despite the proliferation of mobile services, the government’s attempt to bring fibre broadband connectivity to all 250,000 gram panchayats has faltered many times. As a result, only 25 per cent of  panchayats currently have active fibre broadband. Yet the target can be reached in 12-18 months with satellite broadband, experts said. So companies such as Starlink could tie up with telcos who, in turn, would use the bandwidth to provide services in areas where there is no fibre and no broadband.

Satellite broadband players are also hoping that a part of the Universal Service Obligation fund (a compulsory impost on telcos) that was meant to finance the telecom revolution in rural India will be used to subsidise broadband services, making it more affordable to more consumers.  

Rural India is not the only market. Starlink will also look at connecting schools, police stations, courts and remote areas in the forests, desert or the mountains where there is still no connectivity. Bhargava said India has 1.1 million schools — private and government — but only 15 per cent have broadband connectivity. In the US, 99 per cent of the schools have broadband, so there is a large market to tap in collaboratively. Also, mobile operators can use it for their own backhaul for towers where fibre is not available and VSAT services are very slow.

Clearly, companies see long-term viability for the business. Starlink only has 100,000 connections worldwide currently, but with many companies working on re­ducing terminal costs, the entry price could halve to $500, expanding the market.

Mittal is confident that OneWeb can break even in 24 months in India and the bandwidth will be sold in 12 months. He gives two reasons. One, satellites have high EBITDA margins and low running costs once they are in the sky (no need to build more towers, which is the case for mobile services). Two, being a B2B play, contracts are also long term (with telcos, oil rigs, shipping companies), based on the nature of the solution provided and not average revenue per subscriber. The same model will be relevant for Starlink, too.

For the time being, Starlink is looking at collaborating to build the satellite broadband ecosystem. These could include designing plug-and-play internet manufacturing facilities in the districts, computer labs, rural BPOs, peer-to-peer lending ecosystem and healthcare. That’s a whole new road for Musk in India.