Big Telcos Are a Distant Galaxy for SpaceX

Shares of major telecom companies fell off a lunar cliff last week after SpaceX announced a plan that could expand Starlink beyond satellite-connected internet into cellular coverage. AT&T both had their worst day since the early 2000s on Friday, while T-Mobile hadn’t fallen so low since 2013. 

But investors may have jerked their knees too quickly; Citi analysts chimed in Friday to basically say to buy the dip, predicting that SpaceX won’t pose a threat to the Big 3 telcos’ operating profits until at least 2029. 

Keeping the Lines Open

SpaceX plans to buy a portfolio of low-band spectrum licenses from investing firm Grain Management. The move could put its Starlink service, which already connects 12 million customers in more than 160 countries to the internet, in direct competition with major telcos. Starlink already has high- and mid-band spectrum, which work best for fast data transmission — SpaceX bought $17 billion worth of mid-band spectrum from EchoStar last year. Low-band spectrum isn’t as fast but is better at penetrating walls, helping connect devices inside buildings and signaling a move from broadband to cellular service. 

While that sounds like a layup for Starlink, the company won’t turn the Big 3 into a Big 4 overnight:

• Traditional telcos have an infrastructure advantage on the ground. If SpaceX wants to expand beyond its satellites, it’ll need to acquire infrastructure of its own, whether that means building it or partnering with companies that already have it. 
• The process is expected to take years, time that telcos could use to figure out how to keep customers. Citi analysts expect AT&T and other companies to unbundle plans and create more affordable tiers. Telcos could also hang onto customers for longer as shoppers wait longer to buy new phones. 

Today’s Winners: Smaller picks-and-shovels telco companies are seeing shares surge. Cell tower operators, which could soon gain a huge new account in SpaceX, gained momentum last week — shares of Crown Castle, American Tower and SBA Communications all climbed. FCC Chair Brendan Carr told CNBC there’s another beneficiary from SpaceX’s ambitions: American consumers. More competition in the spectrum space could mean more options, wider coverage and cheaper prices.