Modeling The Addressable Market for Starlink
By: Sam Korus
Tags: Spacex, Satellite, Space, Starlink

Satellite constellations are complicated. Hopefully, this series will dimension the opportunity in an easy-to-follow fashion and garner constructive input. In this first article, we walk through a top-down approach for modeling the addressable market of Starlink’s low earth orbit broadband satellite constellation and provide the model so anyone can adjust the assumptions.

The problem with most total addressable market (TAM) analyses, in our view, is that in the early days, at a given price point, only a fraction of the market is addressable. At maturity, the TAM assumes that much of the service is free. In the satellite internet market, the high end of the market will have to evolve and drive down costs, enabling access at lower price points.

The high-level takeaway from this model is that two market segments will be equal in value but composed of a small number of high-paying customers relative to the large number of lower-paying customers, as shown below.

Source: ARK Investment Management LLC (Note these graphs assume 12,000 satellites in orbit. SpaceX is seeking to launch 42,000 satellites longer-term.)

These numbers are representative but will change as the Starlink constellation grows.

We have developed the model so that anyone can change assumptions and see their impact on the addressable market.

The key inputs for this model are:

The number of satellites in the constellation. The bandwidth of each satellite, measured in megabits per second — Mbps. The oversubscription ratio (not everyone in the same area is online at the same time). The acceptable cost of broadband, measured as a percent of monthly GDP. The minimum bandwidth in Mbps Starlink will provide.

The supply side models how much broadband the satellite constellation can provide, and the demand side how many people are willing to pay for the service. Lastly, a sanity check shows the potential number of paying customers relative to the total and rural populations.

The Supply Side

An assumption is that the satellite constellation is distributed evenly. To calculate the broadband accessible by country, we calculate the percentage of world surface area that the country represents multiplied by the number of satellites in the constellation. This calculation provides us with the number of satellites over a country at any given time. We then multiply the number of satellites by the bandwidth per satellite to calculate the bandwidth available to each country.

The Demand Side

We pulled data for the average broadband price per month by country, the mean download speed in Mbps, and the cost of 1 gigabyte of data on a mobile plan. The average broadband price per month is skewed, particularly in developing countries where few people are willing to pay exorbitant prices for broadband. To normalize this skew, we calculated the percent of monthly GDP that people are willing to pay for broadband and mobile data. Apparently, at 2% of monthly GDP, Starlink would be competitive in the mass market.

To calculate the number of customers per country, we assume Starlink either will match existing download speeds or will provide the minimum bandwidth if the mean download speed is below the minimum. We then divide the available bandwidth by the mean download speed and multiply it by the oversubscription ratio. To calculate available annual revenue, we multiply the number of customers by 2% of monthly GDP.

Sanity Check

We calculate Starlink’s implied rural penetration and flag countries in which it seems unreasonably high. Model users also can exclude countries that might not permit Starlink to offer its service.

Conclusion

This model is simple but should be constructive in thinking about the addressable market for Starlink. Worth noting, this model estimates residential demand only. Given landmass as a percent of surface area, the mobility market should make use of the majority of satellites that will be over the ocean at any given moment. The mobility market also provides a unique commercial opportunity because terrestrial internet providers will not be able to compete.

Please find the link to the open-source model here and stay tuned as we analyze Starlink’s potential adoption curve, antenna cost decline, and net present value.