Pentagon spars with SpaceX over Starlink price hike during Iran war

As U.S. kamikaze drones guided by Elon Musk’s Starlink network began to make visible gains in the war against Iran, senior SpaceX officials reached a conclusion: The Pentagon should be paying more for access to their satellite Wi-Fi network.

Within weeks of the United States launching its bombing campaign, SpaceX executives met Pentagon officials and argued the military had been paying about $5,000 for connection per terminal while effectively using a higher tier of service worth closer to $25,000, according to two sources familiar with the matter and Pentagon documents reviewed by Reuters.

The disagreement over Starlink’s use on LUCAS suicide drones — a cheap U.S. model comparable to Iran’s Shahed that can circle over a target area before diving to detonate on impact — is part of increasing tensions between SpaceX and the Pentagon over Starlink pricing in recent months, according to interviews with five people familiar with the matter and the documents.

The Pentagon, which is seeking to help Iranian citizens bypass government-imposed communications blackouts, has also been at odds with SpaceX over pricing for a plan to provide the populace direct-to-cell connections with Starlink akin to 5G service, two of the sources said.

The ongoing disputes, which have not previously been reported, underscore how the Pentagon’s growing reliance on SpaceX is handing Musk greater leverage over a critical layer of U.S. national security — at a time when SpaceX is seeking to boost revenue ahead of an IPO next month that could be among the biggest in history.

Unlike consumer Starlink terminals available at stores including Walmart, SpaceX sells a military-specific version called Starshield to the Pentagon under a 2023 agreement. Starshield terminals can connect to both commercial Starlink satellites and a separate, more secure constellation, also called Starshield, according to a person familiar with the matter.

SpaceX argued the LUCAS drones were operating under conditions that aligned more closely with its aviation tier subscription rather than a lower priced land or mobility service. Pentagon officials argued that the $25,000 price tag — a monthly fee — was designed for aircraft, not kamikaze drones that used Starlink connection for a matter of minutes or hours, according to one of the sources.

The Pentagon, which was ramping up strikes on Iran, ultimately agreed to pay SpaceX’s proposed price increase, almost doubling the cost of each LUCAS drone. The Pentagon was initially paying about $30,000 per unit.

SpaceX didn’t respond to a comment request.

The Pentagon declined to comment on Reuters reporting that SpaceX increased its pricing, its decision to pay, or the plan to provide Iranian citizens with Starlink cell service. In a statement, a Pentagon official said the office responsible for acquiring the terminals, the Commercial Satellite Communications Office, is working to find other competitors.

But no other company provides a comparable alternative to Starlink, which has become an increasingly critical tool in modern warfare since Russia’s invasion of Ukraine in 2022. The satellite network provides global coverage, enabling battlefield communications and precision targeting even in remote areas. SpaceX’s constellation of roughly 10,000 satellites accounts for more than 60% of those in orbit - dwarfing the constellations being built by other companies, including OneWeb and Amazon Leo.

The risks of reliance on Starlink were first thrown into sharp focus during the Ukraine war, when Musk ordered Starlink service switched off in parts of the country in 2022 as Ukrainian forces advanced on Russian positions, disrupting a key counteroffensive, Reuters previously reported. More recently, U.S. Navy tests were disrupted last summer when a global Starlink outage cut off connection to unmanned military boats, leaving them bobbing in the ocean.