SpaceX and Pentagon Clash Over Starshield Pricing for Kamikaze Drones Used in Iran

SpaceX and the Pentagon have been locked in a pricing dispute over the use of the company's satellite connectivity on military attack drones deployed during the Iran war, with the Defense Department ultimately agreeing to pay five times the original per-drone rate.

According to Pentagon documents and interviews with people familiar with the negotiations, SpaceX asked the military to pay $25,000 per drone for Starshield satellite access — up from a previous rate of $5,000 per connection. The drones in question are part of the Low-cost Uncrewed Combat Attack System, known as LUCAS, built by defense contractor Spektreworks.

Pentagon officials objected to the increase, arguing that the $25,000 monthly fee was designed for aircraft rather than single-use weapons that rely on a satellite connection for only minutes or hours before detonating on impact. The military ultimately agreed to the higher price.

SpaceX CEO Elon Musk pushed back on the characterization of events, writing on X that the underlying report is "false." But in the same post, Musk appeared to confirm that a violation of SpaceX's terms of service had occurred.

"They made improper use of the Starlink civilian system for military purposes. Direct violation of terms of service," Musk wrote. He later attributed the issue to Spektreworks, saying the contractor "incorrectly used the civilian system, instead of the Starshield."

Starshield is a government-specific satellite network operated by SpaceX and based on Starlink technology. The two networks use separate satellite constellations, and Starlink's commercial terms of service explicitly prohibit use for weapons systems.

Musk first flagged a potential terms-of-service violation on March 1 — one day after the Iran war began — writing that commercial Starlink terminals used on weapon systems are "shut down when discovered."

Despite agreeing to the new pricing, senior Pentagon officials remained uncomfortable with the arrangement. Deputy Secretary of Defense Steve Feinberg was among those who remained uneasy, and Pentagon officials met in April with Terrence O'Shaughnessy, a retired four-star Air Force general who now leads SpaceX's defense business, to revisit the terms.

The Pentagon is currently considering an additional purchase of more than 3,500 Starshield terminal subscriptions, including 100 at the higher-priced aviation tier, according to Pentagon documents. That deal could generate hundreds of millions of dollars in annual revenue for SpaceX, though whether an agreement has been finalized — and at what price — remains unclear.

A separate pricing dispute has emerged over providing Starlink connectivity to Iranian civilians affected by a government-imposed internet blackout. After the US reportedly smuggled 6,000 Starlink terminals into Iran in January, Pentagon officials explored whether SpaceX could provide direct-to-cell service that would work on standard mobile phones without additional hardware. SpaceX reportedly proposed charging as much as $500 million to launch the capability, plus a $100 million monthly operating fee — figures that prompted what sources described as alarm among defense officials.

The Defense Department declined to comment on its negotiations with SpaceX but said in a statement that it "is operating in accordance with the terms and conditions of its contracts." The department added that it is actively seeking alternatives to SpaceX satellite services.

SpaceX's recently filed IPO documents show that revenue from its government connectivity business fell by $175 million in the most recent quarter, even as the company's overall connectivity revenue reached $3.3 billion in Q3 2026 — a year-over-year increase of $782 million driven by consumer, enterprise, aviation, and maritime segments. Starlink generated $11.4 billion in total revenue in 2025.

The friction reinforces a dynamic that has shadowed SpaceX's military relationships since Russia's invasion of Ukraine in 2022: the company occupies a near-monopoly position in low Earth orbit satellite services, leaving the Pentagon with limited leverage and few comparable alternatives as it seeks to renegotiate terms.

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