Even 10 years ago, when I asked small satellite specialists for a price quote, they would tell me $5 million to $10 million — and were proud of this “low cost.”

While everybody is rightly celebrating recent successes in commercial space, some long-term trends are just beginning. It is still early days, and significant growth and new opportunities are just around the corner. Perhaps the largest near-term opportunity for commercial space is bridging the digital divide and providing affordable connectivity to the last 2.5 billion on this planet without a phone.

Thirty years ago, when I joined the commercial space industry, government was still the dominate player in space in many ways. Starting with Rene Anselmo and Panamsat in the 1980s, continuing with Walter Scott and DigitalGlobe in the 1990s, and accelerating with Elon Musk and SpaceX in the 2000s, commercial space methods have taken over sector after sector, and will continue to take over new sectors in the future. For those sectors where commercial space now dominates, innovation has accelerated, large increases in capital efficiency have lowered costs, and new applications have emerged. These trends will continue, particularly driven by the parallel revolutions in smaller, lower-cost satellites and reusable launch vehicles. Commercial space has provided convincing proof that it is much more effective as an approach to solve problems, and it is only a matter of time for additional sectors to make the transition as well.

Private-sector innovation in the industry has already created an environment that is more friendly to space startups than even a decade ago. The perception of commercial space has altered, in part because the cost of building, launching and operating satellites has become much lower than the past. For these reasons, large amounts of private money are being invested in the space industry.

Even 10 years ago, when I asked small satellite specialists for a price quote, they would tell me $5 million to $10 million — and were proud of this “low cost.” Today, companies like OneWeb are targeting $500,000 for a 200-kilogram satellite. Planet reportedly builds nanosatellites for under $100,000, and is likely to drive their costs even lower with new mass production capability that can build 40 spacecraft per week. Nanoracks has lowered the cost of launching and testing new satellite technology from space to under $100,000, and has reduced the lead time for launching to under a year.

Nanosats and microsats are opening great opportunities for new space technology applications. These factors have made it much easier to build startups in this industry. The cost dynamics for smallsats will continue to disrupt and drive new use cases. As in other tech verticals, the applications, platforms and services that can serve many different customers will win the day over unique one-off products or siloed services that are designed for one customer.

In parallel, SpaceX has disrupted the global launch industry, which will only accelerate in the next few years when Blue Origin’s New Glenn and Boeing’s Phoenix Express partially reusable launchers come online. Companies with lower-cost reusable systems with high flight rates are changing market dynamics.

As part of this trend, we are seeing a lot of investments in small launch vehicles. Rocket Lab, Virgin Orbit, Firefly, and Vector Space have all raised at least $100 million in private capital. I am more of a skeptic here as economics tends to work against small launchers.

As an example, the Falcon 9 was 10 times more expensive per launch than the $6 million-per-launch Falcon 1 but it was three to five times cheaper on a cost-per-kilogram-to-orbit basis than the Falcon 1. Which metric is more important? After SpaceX made the Falcon 1 work, the market did not want to buy Falcon 1s at a sustainable price. SpaceX canceled the Falcon 1 and has become a dominant commercial launch provider with Falcon 9.

Northrop Grumman Innovation Systems’ Pegasus rocket has experienced the same market dynamics as SpaceX. The Pegasus was originally offered at roughly $6 million in the 1990s, which assumed maybe a dozen launches per year. But the market for a small launcher at that price never emerged. Today, the Pegasus is offered at roughly $35 million for commercial customers and $55 million for government customers. There were not enough customers to sustain a $6 million price point, so the only way for Pegasus to stay in business was to cover the fixed costs of the venture by charging much more per launch.

The true challenge of small launch vehicles is not technical. Both Pegasus’ and Falcon 1’s inventors succeeded at this technical challenge. The real challenge — after you make the small launcher work — is signing up enough launches per year to keep prices down while making an adequate return on investment. While many of these companies describe the large growth in small satellites as justification, well over 90 percent of the projected demand for small satellites will only be launched on larger launchers such as the Falcon 9, Soyuz or New Glenn. The key metric for low Earth orbit satellite constellations is cost-per-kilogram, not cost-per-launch. The small launch vehicle companies need a good answer to this economic challenge.

For this reason, the future of the launch business is likely with the SpaceX partially reusable Falcon 9s, the Blue Origin partially reusable New Glenn, perhaps Boeing’s partially reusable Phantom Express, and their follow-on fully reusable derivatives. This might mean investments in some of the small launch service startups will not work out. I hope they solve this economic challenge. If they do, these investments could still play a critical role in the industry, and will make commercialization of space much faster.

Investors are rapidly learning about space, and updating how they think about opportunities in our industry. Besides market size, they are increasingly looking at the ratio of market opportunity to capital investment needed, and gross margins driven by the business model. While the early investments are great for our industry, investors are getting smarter and learning which startups have higher potential margins, and which ventures are targeting sectors with larger potential markets.

Based on these factors, small satellites targeted at satellite communications almost certainly will gain increasing attention from the investment community. Satellite communications is by far the largest market in the global space industry. The Satellite Industry Association’s 2018 report shows that the market for satellite communication services is $126.5 billion a year, or more than a third of the $348 billion-a-year global space economy.

Satellite communications is also a high-profit-margin business for those firms that get the business model right. Satcom operators have economics that are similar, in many ways, to software companies — high capital expenditures and low operating costs. After covering fixed costs, most of the revenue for satcom providers goes directly to the bottom line. The three leading satcom providers — Intelsat, SES and Eutelsat — have earnings before interest, taxation, depreciation and amortization of 77 percent, 65 percent and 78 percent of total revenues, respectively. Owning and operating a satellite communications firm, and selling services that people want and need, is where the real money is in space.

Of all the business opportunities in space, one future opportunity dwarfs them all. Bridging the digital divide and truly connecting everybody in the world is a huge economic opportunity. According to the GSM Association, the global wireless industry today is a $1 trillion-per-year market. The mobile network operators of the world produce this revenue based on providing coverage to less than 10 percent of the planet.

Cell towers have hit their economic limit. Cell tower coverage is not expanding in first-world economies, and expansion is rapidly slowing in emerging economies.

The reason is economics. Every cell tower needs to close its own business case, or it is not built. When new revenue in a specific uncovered area falls below a certain point, industry will not pay to build the tower. In the United States, the cost to build a cell tower is $25,000 per square mile of coverage, and the annual cost to operate a cell tower is $18,000 per square mile.

Because the economics for expanded coverage do not close, the world’s cellular network operators are focusing the majority of their investments on faster coverage for people who already have coverage, such as 5G and densification. But small LTE cells are even more expensive to build ($36,800 per square mile) and operate ($33,900 annually per square mile.) Even fewer people will receive the benefit of these investments. You could argue that with 5G, and the focus on densification and edge computing, the digital divide between the haves and have-nots will only expand.

This a big problem in a $1 trillion market, and a big opportunity for satellite. I estimate that the total addressable market opportunity for providing connectivity for the remaining 90 percent of the planet that terrestrial wireless cannot economically serve is approximately $300 billion to $400 billion per year.I segment this market opportunity in two parts: 1.) existing users who need more coverage, and 2.) new users who don’t have a phone because of poor coverage.

Existing phone users: Based on proprietary data, we estimate the average phone user in the world is out of connection about 15 percent of the time. This is an average; those in cities generally have less down time and those in rural areas will have more. The ability to provide coverage an additional 15 percent of the time, on average, for the 5.2 billion existing phone users in the world in a $1 trillion market suggests that $150 billion per year in revenue is being left on the table. New users who don’t yet have a phone: Cellphone penetration has peaked and leveled off at 95 percent adoption in the United States. This suggests that about 5 percent of people who could own a phone, don’t want one. On a global basis, this implies that about 375 million people of the approximately 7.5 billion people on Earth would choose to not have a phone even if they had affordable phones and good coverage. About 2.5 billion people currently do not have a phone, from which we can conclude that about 2 billion more people would buy a phone if it was affordable and they were connected. Assuming a long-term price for connectivity at $5 to $10 per month, on average, this suggests providing connectivity to these last 2 billion is a $120 to $240 billion-per-year opportunity.

The cost of phones is not the barrier — it’s the lack of affordable coverage where people live and work. A refurbished 2G feature phone costs about $2 in emerging markets, which is within reach of most citizens. LTE-based smartphones are constantly getting cheaper and now can be acquired for under $30 in emerging countries. Meanwhile, Reliance Jio in India has recently demonstrated there is a large demand for low-cost LTE/4G feature phones.

The key is to get the price of connectivity low enough.

Low-cost satellites and low-cost launch is only part of the economic challenge for lowering the cost of connectivity. The high cost of the ground “user terminal” that connects to the satellite has become the largest remaining challenge that the satellite industry must solve. If the satellite user terminal costs thousands, or even hundreds of dollars, the service is irrelevant to the clear majority of the 2 billion people who can afford to buy a $2 feature phone or a $25 smartphone. Even if the cost of connectivity is “free,” most of them cannot afford to pay a couple of hundred dollars for the user terminal.

The first two problems (low-cost nanosatellites and low-cost launch) are already being solved.

Someday a company will solve the last problem of a low-cost user terminal that connects phones everywhere. This is a $300 billion to $400 billion market opportunity for the company that gets it right.

Charles Miller is a co-founder of Nanoracks, the world leader in nanosatellite launch, an adviser to leadership at NASA, U.S. Air Force and DARPA on commercial space partnerships, and the CEO of UbiquitiLink, a startup focused on last-mile connectivity.