Yup. Small cell size is actually a feature for cell phone communications. You have to share bandwidth with everyone in your cell - the smaller the cell, the less crowding.

This is a general starlink issue, which is why I don't understand how is it economically or physically viable in crowded areas, such as cities, where the majority of human population lives.

It's not. They don't have the capacity to cover densely populated areas and it will always be cheaper to build out infrastructure on land in those areas than to launch something into space.