Broadband giant faces threat from billionaire that it didn’t see coming

As the repressive regime in Iran closed down the internet, it came to the rescue. It has become a vital tool for Ukrainians in their battle against the Russians. And more mundanely, it allows you to send a couple of WhatsApps while you are flying across the Atlantic, if you’re on the right airline.

We typically think of Elon Musk’s satellite-based broadband provider Starlink as only being useful in a handful of limited circumstances. But that is starting to change. Musk is about to park his formidable tanks on the lawns of BT and the rest of Britain’s internet companies – and not before time, the whole market could easily be blown apart.

After a dreadful few years, 2025 was a lot better for Britain’s largest telecoms business, BT. The shares rose by almost 30pc over the last year, and the threat of a takeover attempt receded as its performance improved. Its huge capital spend on upgrading its broadband network is nearing completion, allowing it to generate lots of easy profits, while smaller rivals were starting to go under. Only last week, the “vulture fund” FitzWalter Capital applied to put G Network, which provides high-speed broadband in London, into administration.

Allison Kirkby, BT’s chief executive, is probably hoping for a decent year. But broadband incumbents like BT are now facing a new threat that none of them saw coming: Musk.

Sure, he has plenty of critics, and the Government led by Sir Keir Starmer is shamefully trying to hustle Musk out of the country. But there is no denying that Musk is the greatest entrepreneur of his generation. As well as building Tesla into a major force in cars and transforming the social media site X, he has turned SpaceX and its Starlink unit into a company now worth $800bn (£600bn).

One reason why investors are putting such a huge value on the company is becoming clear. It is becoming a viable domestic broadband provider. In the UK, Starlink has just started offering high-speed internet for as little as £35 a month, down from £55, in certain areas. That is cheaper than BT’s equivalent £40 service and the £36-a-month Virgin Media offer. Even once the connection fee is taken into account, it still works out cheaper than BT over a two-year contract. It is starting to become a player.

The mainstream view in the telecoms industry is that satellite broadband will never be a mass market proposition. “In fixed broadband, satellite costs are still a multiple of the average costs of traditional networks, only becoming competitive for a proportion of the hardest 1pc of households to reach,” argued a note from Enders Analysis. Well, perhaps. For now, it is certainly true that providing broadband access via satellite is much more expensive than via a fibre-optic cable running along your street. It will struggle to attract more than a handful of customers living in very remote areas.

But that is not necessarily the whole story. Musk has deep, deep pockets. SpaceX is already worth more than 40 times BT’s entire market value, and once it completes an expected Initial Public Offering later this year, Musk is likely to become the world’s first trillionaire. He has the money, and we know from his record that he doesn’t mind spending it if he needs to build a business. Nor does he care very much about what his shareholders think. If he has to make some losses for a few years to build a position in the British, or indeed the wider European broadband industry, he will be perfectly willing to do so. It will pay off soon enough, and even if it doesn’t, the losses will hardly break him.

SpaceX can raise vast sums of fresh capital whenever it wants, at virtually zero cost. If he needs money to expand, it will be available. That certainly is not true of BT or any of the other incumbents. One point is surely clear. Musk is the most restlessly hyper-competitive tycoon on the planet, and he builds businesses mainly for the satisfaction of it. If he sees an opportunity, he will seize it and bulldoze aside any obstacles.

For consumers, of course, that is very welcome. The broadband market has been characterised by high prices and often very poor service. An analysis by Uswitch, published only this week, found that millions of households face an 11pc rise in broadband prices this year, or more than three times the rate of inflation, as fixed-price deals come to an end. Meanwhile, anyone who has been stuck on the phone for hours talking to what is optimistically called a “helpline” – probably an AI chatbot – won’t need much persuading to switch to a cheaper offering, especially if it has a faster or more reliable service.

To put this politely, broadband is not a business with a great deal of brand loyalty. All the major players have focused on cutting costs and ramping up profits rather than keeping their customers happy. That works fine so long as there isn’t much competition. When a rival appears, however, it can quickly prove very costly.

Right now, the major broadband players view Starlink as a peripheral provider serving a small niche market. So, probably, do most customers. But the auto giants thought that about Tesla, and we all know how that worked out for them. In reality, Musk can build a whole new market in less time than it takes traditional businesses such as BT to organise a “strategy awayday”. They underestimate him at their peril. Starlink is parking its tank, or rather its satellites or their lawns. BT needs to come up with a response and fast – no one should bet against Musk blowing the competition away.