Elon Musk’s Starlink: game-changer for China’s Great Firewall and hedge funds

Elon Musk, the founder of SpaceX. Photo: AP

Elon Musk’s Starlink: game-changer for China’s Great Firewall and hedge funds by Neil Newman: https://www.scmp.com/week-asia/opinion/article/3089854/elon-musks-starlink-game-changer-chinas-great-firewall-and-hedge

With everything that’s happened in 2020 already it would be easy to suffer from news fatigue. But I came across something last week in the world of orbital telecommunications that left me speechless – a disruptive game-changer for arbitrage traders, censorship and internet delivery that is about to go live.I’m talking, of course, about Elon Musk’s Starlink project, which aims to provide internet coverage anywhere on the planet through a network of 12,000 small and inexpensive satellites, approximately 60 of which are to be launched on Wednesday.

As most stargazers will be aware, Mr Musk has form when it comes to space. His live-streamed launching of a red sports car and its crash-test dummy into space in February 2018 attracted 2.3 million views on YouTube, the second-largest audience for a live event. More importantly, it showed that launching things into space was no longer the preserve of governments and national space agencies; it is now firmly in the private sector.The aerospace company Musk founded, SpaceX, is just one of several companies pursuing the business of regularly flying stuff into space. Jeff Bezos’ Blue Origin and Richard Branson’s Virgin Atlantic are two others hoping to make a dime by transporting people or objects into orbit on the commission of governments, businesses or individuals.

As of yet, there are precious few holiday destinations in space – an eight-day stay at the International Space Station cost Dennis Tito a cool US$20 million in 2001. So the most lucrative business currently is putting satellites, not sports cars or entrepreneurs, into orbit and, in the future, going deeper into space.

Astronauts arrive at International Space Station on historic mission using private SpaceX rocket

NEW SPACE RACE

Several countries are getting in on the new space race and eyeing the moon. Last year China became the third nation to soft-land a spacecraft on the moon, depositing on the dark side a mini biosphere to grow some vegetables and a rover for exploration. China’s Chang’e-4 lunar lander was the first soft landing on the dark side of the moon, and three scientists from the mission team were awarded the highest accolade of the International Astronautical Federation: the World Space Award. The race is on for who’s next, with Israel, India and Japan trying in earnest. The Americans are planning a permanent space station orbiting the moon and a moon base by 2028.

As private contractors are now reducing the cost of putting stuff into space, Nasa can achieve this with a less bloated budget. The original 1960-72 Apollo flights to the moon cost almost 5 per cent of the US federal budget, and at US$392 million for each seat on a mission, Congress would never pass such a big spend today.

Nasa's budget. Click to enlarge.
NASA’s budget from 1959 to 2020 (inflation adjusted)

Space is interesting at the corporate level too. Apart from developing its own commercial launch systems, the Japanese want to put a car on the surface of the moon. The Japan Aerospace Exploration Agency is actively looking at collaboration with the private sector. Toyota has been quick to promote its hydrogen fuel cell and self-driving car technology to develop a fuel cell-powered lunar minibus to ferry astronauts around and give them a safe place to live – running on Bridgestone tires, of course. The hydrogen would come from lunar water.

A SpaceX rocket launches from Nasa’s Kennedy Space Centre in Florida. Photo: AFP
A SpaceX rocket launches from Nasa’s Kennedy Space Centre in Florida. Photo: AFP

At this point the sceptical reader may ask why we’re doing all of this. After all, what did we get from the moon shots in the 1960s-70s, apart from the joystick, vacuum-sealed food and battery-powered tools? Moon rocks are pretty useless, you can’t eat them, trade them and they’re too expensive to build with. Yet, when space is a business – not just a race with another superpower – and there is money to be made, the purpose of rising to the challenge is different.

This is where Musk comes in. When SpaceX’s Crew Dragon capsule successfully docked with the International Space Station at the end of May and delivered two astronauts for Nasa, it marked a new chapter in public-private cooperation in space which will take us back to the moon and on to Mars.

SpaceX completes first commercial launch to deploy Saudi satellite
SpaceX completes first commercial launch to deploy Saudi satellite:
https://www.youtube.com/watch?v=go1hlKzKYqc (02:16)

INTERNET FOR POOR OR ARBITRAGE FOR RICH?

But SpaceX’s next move – Starlink – is far more ingenious. Since last year the company has been regularly launching reusable Falcon 9 rockets to place a constellation of data satellites in low-earth orbit.

As of the middle of June, 540 Starlink satellites were orbiting at about 550km above the Earth. The plan is to launch 60 more about every two weeks this year, and in time the payload could potentially be increased to 400 per flight. The goal is for around 12,000 of these small, inexpensive satellites to provide internet coverage across the globe as they criss-cross and communicate with each other via lasers. Theoretically, anyone on Earth should be able to get their internet using little more than a flat plate satellite antenna terminal that looks a little like a pizza box.

Musk has sold this idea to regulators as a way for even the world’s poorest nations to get comprehensive internet coverage, as the satellites would be able to provide coverage to every inch of the Earth. It would mean countries in Africa, for instance, wouldn’t face astronomical costs to link up remote villages with cellular towers connected by copper cables – which get stolen along with the batteries.

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In turn, this should improve education and medical services in some of the world’s poorest spots, even though in the earliest stages of the project it may be beyond the budget for many.

There’s another advantage too: speed. The whole Starlink array will provide data transfer at the lowest latency ever achieved by any data transmission method. Whereas geostationary satellites fly at about 36,000km and suffer about 240 millisecond up and downlink speeds, Starlink is flying at 550km with a theoretical latency of about 3.3 milliseconds.

Now, while your average internet browser might not be too worried about a millisecond here or there, there is one group of people to whom every millisecond counts: high-frequency hedge-fund traders.

Sending a data packet from London to the New York Stock Exchange currently takes about 77 milliseconds under the sea. Because data sent via laser through the vacuum of space is about a third faster than through optical fibre and 75 per cent faster than cable, the theoretical latency for Starlink drops to about 43 milliseconds. That would make an enormous difference to arbitrage and high-frequency traders using superfast computers. And the longer the distance, the greater the time advantage. Put simply, traders who did not convert to Starlink would swiftly find themselves unable to compete.

Aerospace startups in China touting to be the next SpaceX
Aerospace startups in China touting to be the next SpaceX
https://www.youtube.com/watch?v=6EKn_5I9XTg (2:27)

The impact of Starlink is potentially staggering:

• High-frequency traders and arbitragers will struggle to make money as Musk will have got there first, taken everything and left nothing for anyone else. So they will have to pay up and buy his super-low-latency service or risk going out of business. And he hates short-sellers.

• It potentially marks the end of internet censorship – or at least makes it very difficult. Starlink’s “pizza box” terminals access the free global internet from anywhere, making it incredibly difficult for governments to block off the bits they don’t want citizens to see. The signals would bypass China’s Great Firewall, for instance, and it would no longer be possible for governments to implement internet shutdowns, as India often does on the grounds of public order.

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How can any government stop it? They may ban the sale of the antennas, but with a 3D printer and some ingenuity people would soon be able to make them. Jamming signals or shooting down thousands of small satellites will be tricky, the only option would be to ask Elon personally to turn it off.

• It is potentially very disruptive for telecoms companies delivering internet by cable, building new cable-connected cellular networks in the developing world and those companies gouging us for in-flight internet access.

The world of satellite broadband is heating up, and high-speed “space internet” is increasingly looking like the future. Expensive, regionally locked yet fast satellite broadband services are incoming; OneWeb – supported by Intelsat, Virgin Qualcomm, SoftBank and Hughes Networks Systems – intends to launch 640 satellites across 21 launches to create global broadband by next year. It launched its first 12 satellites in February. There’s also Amazon, whose “Project Kuiper” could see 3,236 satellites create a global broadband internet service after next year.

SpaceX’s Starlink is hugely ambitious, but it won’t be alone. But being first, it can secure the premium orbits. Starlink is going live in about three months, with public beta testing towards the year end. 2020 just keeps on giving. 

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets