Well, it wasn’t $20 billion — but it’s not nothing.
In January 2020, the U.S. Federal Communications Commission announced it was creating a Rural Digital Opportunity Fund,or RDOF, to subsidize internet service providers willing and able to bring high speed internet to rural America. Initially, the FCC would distribute $16 billion, payable over 10 years, to help set up “gigabit speed broadband networks in unserved rural areas.” An additional $4.4 billion would be doled out later to expand access even further.
Elon Musk immediately threw his hat in the ring, promising that for the right price, Starlink — the new SpaceX satellite broadband internet service — could provide gigabit-speed internet access from space with just 20 milliseconds of latency (i.e. lag timescomparable to terrestrial cable internet). Although initially hesitant to believe SpaceX’s claims, the FCC ultimately agreed to let SpaceX enter the competition — and now, SpaceX has won.
Sadly for investors hoping to profit from an eventual Starlink IPO, SpaceX didn’t win all the marbles — but it did win more than a fair share. As the SEC announced on Monday, SpaceX has been awarded $885.5 million to provide satellite internet service to 642,925 rural homes and businesses spread across 35 states over the next 10 years.
SpaceX wasn’t the only winner (although it was the only provider to win by offering fast, low-latency satellite internet from Low Earth Orbit). In total, the FCC awarded $9.2 billion in contracts to 180 separate ISPs, servicing 49 of the 50 U.S. states. (Alaska gets covered by a separate FCC program.)
In addition to SpaceX, other notable winners include privately held LTD Broadband (winning the biggest award at $1.3 billion), Charter Communications (NASDAQ:CHTR) (with a $1.2 billion contract), and the Rural Electric Cooperative Consortium (which got $1.1 billion).
If you’re in the market for satellite internet, by the way — or if you’re simply curious — the states SpaceX will be servicing include Alabama, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.
(It’s a curious collection to be sure, and when you consider that states such as Louisiana and Florida made the cut, while North and South Dakota did not, it’s apparent that SpaceX’s allotted territories were not limited to the latitudes that Starlink is currently able to service. Clearly, the FCC expects SpaceX to expand and grow its Starlink business.)
So $885.5 million for SpaceX to subsidize internet service for more than 640,000 homes, over 10 years. That works out to just under $138 in subsidies per customer, per year — not enough to pay outright for the cost of Starlink (which currently retails at $99 per month for service, plus $499 for equipment).
It could, however, help SpaceX cut the cost of Starlink for these rural customers by more than 11% monthly (should SpaceX choose to spend the money that way), helping the company win business away from slower and more expensive internet providers. Or SpaceX might simply use the FCC’s money to accelerate the deployment of Starlink, which recently went active in very northern latitudes of the United States and Canada, but hasn’t expanded far into the Lower 48 just yet.
What’s more, this probably isn’t the end of the money train for SpaceX. If you noticed, Phase 1 of the “$16 billion”RDOF program actually ended up handing out only $9.2 billion worth of subsidies, a fact the FCC attributed to “the reverse auction [format yielding] significant savings” as bidders competed against each other to offer the best price. But that still leaves $6.8 billion in funding left over from Phase 1 that can still be spent to expand rural internet access — plus the $4.4 billion initially reserved for Phase 2.
Combined, that’s $11.2 billion government dollars that can still be doled out in later years — and you can bet your bottom dollar SpaceX will want its fair share of that loot, too, just as soon as it comes up for grabs.
The more money SpaceX wins, the hotter its IPO prospects will get.