SpaceX snags $885M from FCC to serve rural areas with Starlink

The FCC has just published the results of its Rural Digital Opportunity Fund Phase I auction, which sounds rather stiff but involves distributing billions to broadband providers that bring solid internet connections to under-served rural areas “on the wrong side of the digital divide.” Included is $885 million earmarked for SpaceX, whose Starlink satellite service could be a game-changer for places where laying fiber isn’t an option.

Only three other companies garnered more funds: Charter with $1.22 billion; Minnesota and Iowa provider LTD Broadband with $1.32 billion; and utility collective Rural Electric Cooperate Consortium, with $1.1 billion. Those are all traditional wireline-based broadband, and a quick perusal of the list of grantees suggests no other satellite broadband provider made the cut (180 bidders were awarded support in total).

The $9.2 billion auction (though the specifics of the process itself are not relevant) essentially asks for bids on how much a company can provide service to a given area for, ideally with a 100 megabit downstream and 20 up. Local companies can collect the hundred grand necessary to fund a fiber line where there’s now copper, and big multi-state concerns may promise to undertake major development projects for hundreds of millions of dollars.

SpaceX’s Starlink has the advantage of not requiring any major construction projects to reach people out in the boonies. All that’s needed is a dish and for their home to be in the area currently covered by the rapidly expanding network of satellites in low-Earth orbit. That means the company can undercut many of its competitors — in theory anyway.

Starlink has not had any major rollout yet, only small test deployments, which, according to SpaceX, have gone extremely well. The first wave of beta testers for the service will be expected to pay $99 per month plus a one-time $500 installation fee, but what the cost of the commercial service would be is anyone’s guess (probably a bit lower).

In order to secure the $885 billion in the FCC’s auction, SpaceX would need to demonstrate that it can provide solid service to the areas it claims to for a reasonable price, so we can expect the costs to be in line with terrestrial broadband offerings. No other satellite broadband provider operates in that price range (Swarm offers IoT connection for $5/month, but that’s a totally different category).

The FCC doesn’t just knock on Elon Musk’s door with a big check, though. The company must demonstrate “periodic buildout requirements” at the locations it’s promised, at which point funds will be disbursed. This continues for a period of several years, and should help the fledgling internet provider stay alive while undergoing the rigors and uncertainties of launch. By the time the FCC cash dries up the company will ideally have several million subscribers propping it up.

This is “Phase I” of the auction, targeting the areas most in need of new internet service; Phase II will cover “partially-served” areas that perhaps have one good provider but no competition. Whether SpaceX will be able (or want) to make a push there is unclear, though the confidence with which the company has been approaching the market suggests it may make a limited play for these somewhat more hardened target markets.

The push for expanding rural broadband has been a particular focus for outgoing FCC Chairman Ajit Pai, who had this to say about its success so far:

We structured this innovative and groundbreaking auction to be technologically neutral and to prioritize bids for high-speed, low-latency offerings.  We aimed for maximum leverage of taxpayer dollars and for networks that would meet consumers’ increasing broadband needs, and the results show that our strategy worked. This auction was the single largest step ever taken to bridge the digital divide and is another key success for the Commission in its ongoing commitment to universal service. I thank our staff for working so hard and so long to get this auction done on time, particularly during the pandemic.

You can read the full list of auction winners at the FCC’s press release here.