Here's How SpaceX Could Save Europe a Lot of Money

SpaceX Starlink internet is taking the world by storm -- and making some countries nervous.

Nowhere near the size of terrestrial networks yet (on Earth, Comcast alone generates more than $80 billion annually as an internet service provider, according to data from S&P Global Market Intelligence), Starlink is growing faster than any terrestrial rival. Over the space of just five years, it's grown from nil revenue as it built out its satellite constellation in 2019 and much of 2020 to a projected $6.8 billion in revenue in 2024.

And Starlink isn't bound by lines on a map. Unlike most telcos, Starlink boasts the ability to provide internet services anywhere on the globe, beamed down from its constellation of nearly 6,000 orbiting satellites.

That's pretty convenient for consumers. Certain countries, however, aren't 100% sure they like the idea of their satellite communications capabilities potentially being run by a single eccentric American billionaire. In Europe, for example, they've decided to build an "Infrastructure for Resilience, Interconnectivity and Security by Satellite," or IRIS2 project to compete with SpaceX Starlink.

Earth surrounded by an image representing an Internet satellite network.

Image source: Getty Images.

What is IRIS2, and who is building it?

The European Union first announced IRIS2 in November 2022, with the goal of getting a Starlink competitor up and running by 2027. The EU invited bids from local companies to do the work -- and offered 2.4 billion euros in financing to jump-start the project, which was estimated to cost 6 billion euros to complete.

A consortium of nearly a dozen businesses, ranging from space companies Eutelsat and Airbus (OTC: EADSY) to telecommunication providers Deutsche Telekom and Orange, quickly formed to bid on the contract. The problem was that they bid as a group -- meaning there was no competition among bidders that might work to restrain the cost.

Eighteen months later, that's still the case.

In March, the EU European Commission delayed its award of IRIS2. The Commission didn't give a reason -- or say when it wants to delay the award to. But late last month, Germany's Handelsblatt newspaper reported that cost estimates for what it calls Europe's "Starlink-Alternative" project had ballooned to 12 billion euros -- 100% over budget. You have to figure that the lack of competition, combined with the tight deadline for getting the constellation built and launched, had something to do with it, creating a perfect seller's market for the single, albeit hydra-headed, bidder.

For this reason, as well as reasons of Franco-German politics hinted at by the paper, German Economy Minister Robert Habeck went so far as to tell French Internal Market Commissioner Thierry Breton he wants to start all over and rebid the entire IRIS2 project -- presumably to attract more bidders and, with luck, a better price.

It's not clear yet if the Germans will get their wish. But there may be a solution to their cost problem -- if they can stomach it.

SpaceX to the rescue?

Consider: The EU hopes to use Arianespace's new Ariane 6 rocket (which hasn't yet flown) to launch its new IRIS2 satellites (which haven't yet been built). Caveats aside, Ariane 6 has another problem: The hopes of building the rocket for half the cost of Ariane's older Ariane 5 model have proven overoptimistic. At last report, each single Ariane 6 launch was estimated to cost about $115 million. By comparison, SpaceX Falcon 9 launches are advertised at barely half the cost -- just $67 million.

IRIS2 is said to require about 170 satellites to function. It's unknown how large these satellites will be, or how many Ariane 6 can carry at a time. That being said, given that SpaceX's Falcon 9 rocket has a payload capacity roughly equal to that of Ariane 6, it seems likely that switching launch providers alone -- from Ariane to SpaceX -- could cut the EU's launch costs in half.

Granted, launch cost is only part of the equation; there's also the cost of building the IRIS2 satellites to consider. But here again, SpaceX builds satellites as well as rockets now -- both Starlink satellites and military-grade Starshield satellites. Whether SpaceX's satellite prices are as cheap as its rockets isn't known. But if they are, then theoretically at least it seems likely that SpaceX could both build and launch Europe's hoped-for "Starlink-Alternative" cheaper than its European rivals could.

It might even be able to build an alternative to Starlink for the original target price of 6 billion euros, then hand over the entire project to Europe turnkey-style. Abracadabra, Europe would have its Starlink-Alternative -- built by the same company that built Starlink-Classic!

The real alternative to SpaceX, it turns out, would be a satellite communications system that costs more than it should and arrives years behind schedule. When it comes to doing business in space, SpaceX remains the low-cost leader.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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