SpaceX demanded a 5× price hike for Starlink on US kamikaze drones during the Iran war — and the Pentagon paid it
Weeks into the US bombing campaign against Iran, SpaceX executives told the Pentagon it was underpaying for Starlink connectivity on LUCAS suicide drones and demanded nearly $25,000 per terminal — a fivefold increase the military ultimately accepted.
The pricing showdown
Within weeks of the US launching its bombing campaign against Iran, senior SpaceX officials met with Pentagon counterparts and argued the military had been paying about $5,000 per 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 dispute centred on the Low-cost Uncrewed Combat Attack System (LUCAS), a cheap US kamikaze drone comparable to Iran's Shahed that can circle over a target area before diving to detonate on impact.
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 countered that the $25,000 monthly fee was designed for aircraft, not one-way drones that use the Starlink connection for only minutes or hours before self-destructing.
The Pentagon's reluctant surrender
Faced with ongoing strike operations and no viable alternative provider, the Department of Defense capitulated and accepted SpaceX's new pricing structure — a concession that pushed the per-unit cost of each LUCAS drone to nearly double the initial figure of approximately $30,000. Deputy Secretary of Defense Steve Feinberg was among the senior Pentagon officials who remained dissatisfied with what had been agreed.
When hostilities paused in April, Pentagon representatives used the ceasefire window to reopen conversations with Terrence O'Shaughnessy, the retired four-star Air Force general who now leads SpaceX's defense division. The Pentagon's Commercial Satellite Communications Office is also working to identify competing providers, though Reuters notes that no other supplier currently offers a comparable alternative.
Musk's response and the terms-of-service dispute
After the Reuters report was published, SpaceX CEO Elon Musk called it "false" on X. Yet in the same post he appeared to confirm a dispute over how the military used SpaceX satellite technology. "They made improper use of the Starlink civilian system for military purposes. Direct violation of terms of service," Musk wrote. He later added that the drones were configured incorrectly by a military contractor: "The company that makes the suicide drones incorrectly used the civilian system, instead of the Starshield."
They made improper use of the Starlink civilian system for military purposes. Direct violation of terms of service.
The Pentagon denied any violation of its agreement with SpaceX. Starshield terminals sold by SpaceX to the military can connect both to the commercial Starlink satellite constellation and to the separate, more secure Starshield constellation, according to a person familiar with the matter.
Broader tensions and the Iran communications plan
The pricing fight over LUCAS drones is part of increasing tensions between SpaceX and the Pentagon 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 claims in the article have no basis in reality and do not reflect the close, effective cooperation between the teams.
Pentagon spokesman Sean Parnell wrote on X that the Reuters report was "incorrect" and assured that SpaceX remains "a strong and valued partner of the Department of War [Defense]."
SpaceX's market dominance and IPO timing
The ongoing disputes underscore how the Pentagon's growing reliance on SpaceX is handing Elon Musk greater leverage over a critical layer of US 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. SpaceX operates the largest satellite constellation in low Earth orbit, with approximately 10,000 active satellites representing over 60 percent of all objects in orbit.
- SpaceX signs 2023 agreement with Pentagon for military-specific Starshield terminals.
- US-Israeli bombing campaign against Iran begins; LUCAS kamikaze drones deployed using Starlink connectivity.
- Within weeks of campaign start, SpaceX executives meet Pentagon officials to demand price increase from ~$5,000 to ~$25,000 per terminal.
- Pentagon ultimately agrees to SpaceX's proposed price hike, nearly doubling per-unit LUCAS drone cost.
- Hostilities pause in April; Pentagon uses ceasefire window to reopen negotiations with Terrence O'Shaughnessy, head of SpaceX defense division.
- Reuters publishes exclusive report on the pricing dispute; Musk calls it false but confirms improper use of civilian Starlink.
Neither of its closest competitors, Amazon's Project Kuiper and Eutelsat OneWeb, is ready to compete at that scale. Unlike consumer Starlink terminals available at retailers including Walmart, SpaceX sells a military-specific version called Starshield to the Pentagon under a 2023 agreement.
