Around 20,000 Starlink satellite units have been donated to Ukraine since the Russian invasion in February, playing an important role in battlefield communication for Kyiv’s forces. On Friday, Musk said the operation had cost SpaceX $80 million, adding it will “exceed $100M by end of year.”
On Wednesday Ukrainian Vice Prime Minister Mykhailo Fedorov described Starlink as an “essential part of crucial infrastructure” for his country.
However, CNN has reported SpaceX wrote to the Pentagon in September, saying it would no longer be able to foot the bill for Ukraine’s Starlink access and requesting that the U.S. military take over.
That was from a Newsweek article, “Elon Musk Criticized for Ukraine Starlink Stance Despite SpaceX’s Billions.” The article had a largely negative tone, as the title suggests. But the fact of the matter is that the Starlink capability simply would not exist in Ukraine if SpaceX didn’t finance and develop it.
Risk Taking
It is interesting that people are wagging their finger at Elon Musk when he asks for compensation, yet no one expects Raytheon to build Stingers or Lockheed to build HIMARS for free.
Moreover, SpaceX took risk to pursue the demand ahead of a military requirement and funding. That’s why the capability exists rather than being some unfunded requirement. Traditional defense industry will not take risk to contract ahead of need, buy long-lead materials, invest in tooling and capital, until the government pays for it. As a Raytheon executive recently said of what it would take for them to ramp up production:
We need insight into the demand, and once we understand the insight into the demand and we understand the willingness of the government to pay for additional capacity … that then helps us go plan for what it will take for us to actually increase production.
Monopoly Position
The Space Force recently expressed concern that SpaceX was too far ahead of its competitors. By using its own proprietary interfaces, Starlink may not integrate with the Space Force architecture and data transport. Perhaps they could be price gouged. But what is price gouging really if Starlink provides a service that DoD couldn’t field otherwise even with ten-times the funding.
In price gouging, scarcity or urgent demand can lead to a rapid increase in price. In the case of Ukraine, it was connectivity that became scarce. Yet SpaceX donated terminals, provided free service, diverted resources to stop electronic warfare attacks, and is even taking risk that satellites will be lost.
Charging a price for such services is not immoral. It makes sure that incentives and resources are aligned to eliminate scarcity as quickly and robustly as possible. Prices incentive companies to act in the social interest, or deliver goods and services where governments and other actors cannot — whether that is due to their inefficiency, lack of foresight, or lack of will-power.
The Newsweek article claimed that SpaceX raised $2 billion since June of 2022 alone, and was valued at $125 billion. It implied that servicing Ukraine was pennies to SpaceX. Yet that money wasn’t free. Investors expect a return. And that massive valuation isn’t real. It is based on expectations of future profits. Starlink is most certainly a loss-leader and is not yet throwing off cash like Google or Facebook. It is not like SpaceX has $100 billion in capital reserves.
Future
The Starlink situation brings up a larger trend. As technology advances and is increasingly led by the commercial sector, private individuals will have a greater capacity to influence military outcomes. This can be seen as a risk, or it can be seen as an inevitability of a free society. To some degree, it should be encouraged because these capabilities increase DoD’s options and capacity to win wars.
Certainly DoD still has Defense Production Act authorities that can force SpaceX to provide Starlink services. Usually the DPA rates orders for manufacturing so a company has to divert production capability to the government first. But I’m sure the authorities also apply to digital services. Emergency powers can even result in commandeering of private property.
I think what really worried people was the fact that Elon Musk, using his prestigious position, inserted himself into diplomacy. He advocated for some kind of settlement rather than complete ejection of Russian interests. That led to criticism of Musk in Ukraine and Musk’s reaction. Thus, Musk moved beyond the commercial realm and his competencies by entering politics. Perhaps he was extorting Ukraine, and really DoD who is the bill payer, to achieve his own political ends.
The conjecture is interesting, but again we circle back to the fact that SpaceX cannot extort Ukraine or DoD. SpaceX isn’t putting a gun to anyone’s head. It created something from nothing, which is it’s own private property. Withholding that creation unless it is payed for is not extortion, that is mutually beneficial exchange. Ukraine and DoD would be extorting SpaceX by demanding free service.
A precedent such as that would make it easier for US companies to keep their innovations away from militarization, like Boston Dynamics. You might remember that Henry Ford refused any war production until after Pearl Harbor. Basically, Ford had no choice after that.
Prices and profits help align the private and social interests. It is folly to assume anything else. But that doesn’t mean leaders of powerful companies cannot have a negative impact on the national security, whether by transferring technologies to the enemy, denying service to allies, or interfering in politics. There are extra-market processes for handling that.
I don’t think Musk and SpaceX have yet risen to a threat level the level of such a threat that requires illiberal and coercive policies. But I am concerned with Tesla’s investment in China, and what all that could mean down the road.
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