Commercial Right or Extortion.. Musk Doubles Cost of Pentagon Drones in Iran War

With the start of American booby-trapped drones guided by Elon Musk's Starlink network achieving tangible gains in the war on Iran, senior officials of SpaceX reached a conclusion that the US Department of Defense (Pentagon) must pay more for access to the satellite internet network provided by the company.

Two informed sources and Pentagon documents reviewed by Reuters indicated that SpaceX officials met with their counterparts from the department within weeks of the US launching the war and told them that the military is paying about $5,000 per connection for each terminal, while it is actually using a higher level of service worth nearly $25,000.

Growing Tension

Interviews with five informed individuals and the documents concluded that the dispute over using Starlink service in the Low-Cost Attack Drone System (LCAS) is one of the reasons for the growing tension between SpaceX and the Pentagon over Starlink prices in the past few months.

LCAS is a cheap American model similar to the Iranian drone (Shahed) that can loiter over a target area before swooping down to explode on impact.

Two sources mentioned that the Pentagon is also in dispute with SpaceX over pricing for a plan to provide residents with direct-to-cellphone communications using Starlink, similar to 5G service.

The Pentagon seeks to help Iranian citizens bypass communications blackouts imposed by the government.

The persistence of the disputes, which have not been previously disclosed by any media outlet, highlights how the Pentagon's increasing reliance on SpaceX gives Musk greater influence at a critical level of US national security at a time when SpaceX is seeking to increase its revenues ahead of an initial public offering next month, which could be one of the largest in history.

Unlike Starlink terminals available to consumers in stores, including Walmart, an informed source clarified that SpaceX sells a military-specific version called Starshield to the Pentagon under an agreement concluded in 2023.

Starshield terminals can connect to both commercial Starlink satellites and a separate, more secure satellite constellation, also called Starshield.

SpaceX says that LCAS drones operate under conditions closer to its aviation subscription tier, not the cheaper land transport or mobility service.

One source mentioned that Pentagon officials said the price of $25,000, a monthly fee, was designed for aircraft, not for booby-trapped drones that use Starlink connection for minutes or hours.

The Pentagon, which was intensifying its strikes on Iran, eventually agreed to pay the price increase proposed by SpaceX, nearly doubling the cost of each LCAS drone. The Pentagon was initially paying about $30,000 per unit.

A Pentagon official said in a statement that the office responsible for purchasing terminals, the Commercial Satellite Communications Office, is working to find other competitors.

The official added, "The Department of War is committed to fostering a competitive environment for commercial space communications."

Musk described the Reuters report as "misleading" without providing any additional details in a post on X. He added that the civilian Starlink system was used improperly "for military purposes."

He said in a separate post that the fault lies with the "company," not the Pentagon.

A spokesperson for Spectroworks, the manufacturer of the LCAS drone, referred all inquiries to the Pentagon.

Pentagon spokesperson Sean Parnell said in a post on X that the Reuters report is "incorrect" without providing any additional information.

He wrote that SpaceX "remains a strong and valuable partner for the Department of War."

But no other company offers a similar alternative to Starlink, which has become a critically important tool in modern warfare since Russia's invasion of Ukraine in 2022.

The satellite network provides global coverage, enabling battlefield communications and precise targeting even in remote areas. SpaceX's constellation of nearly 10,000 satellites represents over 60% of satellites in orbit, far surpassing constellations built by other companies like OneWeb and Amazon LEO.

At the start of the war with Iran, Starlink was already an essential part of US military operations. During tests and early deployments, it supported a range of systems, from attack drones like LCAS to uncrewed ships used in maritime surveillance and strike missions.

A source familiar with the matter said that when the US launched the aerial bombing campaign, Starshield terminals were used in more than a dozen drone systems.

But tension between the Pentagon and SpaceX emerged quickly after the US launched its attack on Iran on February 28.

Musk Enters the Crisis Line

On March 1, Elon Musk, head of SpaceX, responded on platform X to a user's post that included an image of the LCAS drone, saying it "apparently has a Starlink terminal integrated."

Musk wrote, "Using the terminal in weapons systems is a violation of Starlink's commercial terms of service. This applies to all users and service is terminated upon detection... There is a separate network called Starshield operated by the US government."

A Pentagon official denied in a statement to Reuters any violation of the agreement with SpaceX.

Two informed sources mentioned that SpaceX officials met with Pentagon officials in the following days and said the military is underpaying for the service.

One of the two sources said that although the Pentagon initially agreed to higher fees for the satellite internet connections used by attack drones, senior officials, including Deputy Secretary of Defense Steve Feinberg, remained uncomfortable with the arrangement.

Pentagon officials met during the ceasefire in April to reconsider prices with Terrence O'Shaughnessy, a retired four-star Air Force general who now leads SpaceX's defense business.

However, Pentagon documents reviewed by Reuters indicate it is currently considering purchasing more than 3,500 Starshield terminal subscriptions, including 100 subscriptions in the highest-priced aviation tier. The deal could generate annual revenues of hundreds of millions of dollars for SpaceX, but Reuters could not determine whether the agreement has been finalized or the price being negotiated.

Discontent in the Pentagon

The Starlink network has also proven critically important in other operations. The Wall Street Journal reported that the Trump administration smuggled more than 6,000 Starlink devices to provide internet service to Iranians after Tehran suppressed protests in January, killing thousands of people.

But as the conflict intensified, an informed source said Iranian authorities confiscated these devices and deployed jammers in major cities to disrupt communications.

Two informed sources said Pentagon officials began discussions with SpaceX within a week of the conflict's start to deploy a direct-to-cellphone service that could bypass this jamming.

This technology, similar to 5G communications, allows users to connect to the network without needing ground devices.

One of the sources and Pentagon documents indicated that SpaceX, which generated $11.4 billion in revenue from Starlink in 2025, proposed charging up to $500 million to launch this service, plus a monthly fee of $100 million to operate it, which raised concern among defense officials about this high cost.