For decades, America's satellite-building industry has been dominated by a handful of well-known names: Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), Orbital Sciences, and a few others. Now, a new name has appeared on the horizon, aiming to disrupt America's satellite industry -- and potentially bring satellite Internet service to the masses. The company?
Late last week, The Wall Street Journal reported that billionaire tech investor and SpaceX founder Elon Musk -- who's already disrupting the satellite launch industry with a new, cheap, and soon-to-be-reusable line of Falcon rockets -- will soon begin building satellites as well. Working with start-up WorldVu Satellites Ltd, Musk was hatching plans to build a constellation of hundreds of small, cheap-to-build and cheap-to-launch mini-satellites. With these, SpaceX and WorldVu could deliver satellite Internet service to anywhere on Earth, from space.
If the rumors are to be believed, Musk's new satellite Internet constellation would dwarf the size of the current biggest satellite fleet (owned by Iridium). Launched over a number of years, the new satellite Internet constellation would number as many as 700 satellites. Each would weigh less than half what the smallest comm sats currently in use do, and cost as little as $1 million apiece to produce.
And Musk would only need $1 billion to get the ball rolling.
Rumor become fact
As I say, up until last week, WSJ's report was still only a rumor, questionably confirmed only by anonymous "people familiar with the matter." But this week, rumor became fact when Musk confirmed that he is indeed working on the satellite Internet project:
The question now becomes: What does this mean for investors -- and for consumers?
What it means for the cable industry
This week's SpaceX announcement holds any number of implications for SpaceX's competitors. For example, Musk's tweet didn't specifically confirm the Journal's assertion that the satellites will provide Internet service. But if that's Musk's goal, then cheap, ubiquitous satellite Internet service from SpaceX could threaten the expensive terrestrial Internet businesses built up over years by Comcast (NASDAQ:CMCSA) and other Internet giants.
What it means for the space industry
Elsewhere, SpaceX's entry into the satellite-building industry threatens to deprive Boeing and Lockheed of revenues in at least two ways: First, by attracting communications company customers away from the larger satellites that Boeing and Lockheed build, as SpaceX begins offering cheaper alternatives. Second, by starving Boeing and Lockheed of satellite launch revenues.
You see, according to the Journal report -- and according to logic -- SpaceX intends to launch its Internet satellites aboard its own rockets. United Launch Alliance, the satellite launching near-monopoly jointly run by Boeing and Lockheed, would get no part of these revenues, either.
Such a business model would jibe perfectly with what we've already seen at Musk's business ventures here on Earth. Musk's Tesla (NASDAQ:TSLA) electric car factory works hand in glove with Musk's SolarCity (NASDAQ:SCTY.DL) solar panel leasing business. Both companies aim to free Americans from dependence on foreign oil by shifting our emphasis away from oil and gas and toward electricity. And Musk's plan is to use the same batteries that power Tesla electric cars to store excess solar energy from SolarCity's solar panels for use when the sun is down.
What's more, by joining the two companies at the hip in this manner, Musk will be able to spread out the risk of investing $10 billion to build a new rechargeable battery factory in the Nevada desert. By turning SolarCity's solar panels into a customer, in addition to Tesla's car batteries, Musk instantly doubles the size of his Gigafactory's customer base.
Second verse, same as the first
How does this business model translate into space?
Well, if SpaceX both launches satellites, and also builds them, then this gives the company's launch business a built-in customer. Simultaneously, it diversifies SpaceX's business. In addition to existing revenue streams from rocket building and rocket launching, SpaceX will add a third revenue stream from satellite building -- and potentially from satellite Internet streaming as well.
The addition of one (or two) new revenue streams will significantly strengthen SpaceX's viability as a company. It will also make SpaceX stock much more attractive to own when the company finally does its IPO. Which we're still waiting for, by the way.
Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Orbital Sciences, SolarCity, and Tesla Motors. The Motley Fool owns shares of Lockheed Martin, SolarCity, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.