Starlink Holdup?

Ukraine's military has become heavily dependent on SpaceX's Starlink satellite network for battlefield communications and drone operations. They have invested relationship-specific sunk costs into SpaceX's satellite communications platform. According to a new Wall Street Journal report, Elon Musk ordered restrictions on a military version of the service last week, disrupting Ukrainian offensive and defensive drone operations. The restrictions reportedly followed disagreements over Ukraine's attacks on Russian oil facilities. Regardless of the motivations, the episode illustrates the risks of becoming dependent on a supplier whose services are difficult to replace.

Will this have longer-term repercussions for SpaceX? When my coauthors failed to meet deadlines, I could recover from this disappointment, but I learned I could not trust them in the future. Right now, SpaceX is the only viable satellite based communications option. But there are five others either being deployed, or planning to be deployed, by 2030. Unless there are substantial switching costs, potential customers should consider these alternatives to be more trustworthy. Investors apparently recognized the value of reducing dependence on Starlink: following reports of the restrictions, shares of its European competitor Eutelsat jumped 23% in a single day.