The Advent of the LEO Satellite Wars: Amazon Enters the Fray

 Amazon announced yesterday it is launching its Kuiper constellation service in 2025. The UK will be the first country to go live. Up to now Starlink, which has 4.6 million customers, has faced no competition. But the huge buzz around Starlink is not really warranted. Yes, it is a great technical achievement particularly given that a customer is being handed off from one service satellite to another approximately every 30 minutes. However, what ultimately matters are financial results. Undoubtedly, Starlink is bleeding lots of cash. There is no way one can build a massive network prior to significant sales and avoid it. Satellites cannot be upgraded. So they must be fully loaded from day one which sharply increases the capex. Furthermore, the key metrics determining profitability and net cash flow are unknown. These metrics include customer acquisition costs. The American CLECs mostly went under during the dotcom era because it cost too much to acquire customers. Starlink has also been plagued by poor customer service which means disconnects and churn could be quite high.

Amazon's LEO service has big advantages over Starlink. It can piggyback on Amazon's well developed, high performance, and lower cost terrestrial network. Amazon is also famous for good customer service. Its brand is a huge advantage as it delivers goods and service extremely quickly via well honed automation for both its retail and Cloud divisions. Most importantly, Amazon has 230 million customers to whom it can market at very low incremental cost. This is an important point. When the regional US incumbent local phone companies entered AT&T's long distance voice market, they seized huge market share simply by marketing to their existing customers. Amazon will do the same. Other advantages include a higher throughput service. According to Starlink, most of their customers get slightly over 100 megabits per second down loads. In contrast, Amazon is likely to be significantly faster as the residential customer base stations have 400 megabit throughput. The other factor is that Amazon can offer Cloud services to remote customers. In fact, it has a one gigabit speed base station designed for business customers. This is ideal for ISP in places like Africa. They can run VPN tunnels over the Layer 3 to their European POPs. One of my clients is doing this today via Starlink in West Africa. It is likely that Amazon will target the higher margin LEO prospects leaving Starlink with lower margin customers. 

It seems clear that Amazon is much better positioned than Starlink to build a successful business for the reasons detailed above. I forecast that Starlink will struggle to compete against Amazon and that it will bleed cash for the next several years. Failure is quite possible. For Amazon, much less likely. For more details on the UK announcement. The 1 gigabit base station is below. 

Picture of Amazon's One Gigabit LEO Base Station




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