- SpaceX’s plans to compete with AT&T, T-Mobile and Verizon didn’t rattle Wall Street too much – at least, not much more than it already did
- Analysts are skeptical Starlink Mobile can make a sizable dent in the U.S. mobile market despite big talk by SpaceX management
- Nobody’s underestimating the power of Elon Musk, but analysts continue to question the physics and economics of some of the stuff he's talking about
Wall Street doesn’t appear to be completely buying into the way Elon Musk intends to compete in the mobile phone industry, but who knows? It’s still early days, in some ways.
To recap: During SpaceX’s first earnings conference call on Tuesday, SpaceX President Gwynne Shotwell said: “We definitely intend to build out terrestrial” using the spectrum it’s buying from EchoStar, cementing speculation about how, exactly, SpaceX’s Starlink Mobile will compete in the U.S. mobile industry.
Shares in T-Mobile and Verizon were trading down about 2% this morning, to $173.11 and $45.77, respectively. AT&T was trading at $22.92, down less than 2%.
So, not a huge sell-off, although analysts say the SpaceX overhang has been hovering over these stocks for a while now and likely will continue to do so, potentially through the upper C-band auction next year.
That’s when SpaceX will have a chance to enhance its spectrum position beyond the 65 MHz it’s acquiring from EchoStar. That could give Starlink Mobile some more firepower to add to its spectrum position and try to play catch up with the Big 3 and their spectrum war chests – and/or at least drive up prices in the upper C-band spectrum auction.
However, based on SpaceX management’s comments during their earnings call, they won’t need hundreds of megahertz of spectrum if they succeed in their femtocell strategy. The idea is to house femtocells on the same gear that holds a Starlink broadband dish on houses and buildings across the country.
That way, “you don’t have to necessarily spend, you know, 10 or many billions of dollars in low-band spectrum all up front before you deploy your system,” Shotwell told investors.
Fierce reached out to AT&T, T-Mobile and Verizon for comment. None of them had a direct comment about Tuesday’s revelations but pointed to historical references their CEOs and upper management made at recent earnings and investment events. Some of those comments can be found here, here and here.
Analyst: “Elon Musk is nuts”
Overall, SpaceX’s plans for Starlink Mobile drew a good amount of skepticism from industry analysts.
Some were blunt: “Elon Musk is nuts if he thinks 5G small cells with Starlink backhaul can offer better (and cheaper) service than AT&T, Verizon and T-Mobile,” wrote Dimitris Mavrakis, senior research director at ABI Research, on LinkedIn, where it generated some commentary about the history of small cells in the wireless industry (spoiler alert: not so great).
“Sure, if they deploy millions, then perhaps. But connecting them is not the biggest problem; getting power to them and finding the optimal location are the biggest problems. Let alone economics, ROI etc. Unless they are thinking of existing Starlink locations, which is not correlated with cellular coverage requirements,” Mavrakis added.
Joe Madden, founder of Mobile Experts, similarly was skeptical of the network architecture proposed by SpaceX.
“They plan to place large numbers of small cells using satellite backhaul to create a network. This will be extremely challenging, not from a technical point of view but on the business side,” he told Fierce.
“We’ve been tracking companies that deploy small cells indoors for fifteen years, and it’s clear that getting access to large numbers of buildings is a challenge. They’ll have to negotiate with each building owner, one at a time. That makes it a very slow process,” Madden said.
He reiterated a number of well-known challenges in network capacity and coverage, including that the satellite network doesn’t work indoors and each small cell will only cover a small area of one building.
Starlink playing the long game
For a while now, analysts at MoffettNathanson have been highly doubtful that, absent an MVNO deal, Starlink will be able to compete in the U.S. mobile phone market.
Nothing in Tuesday’s earnings call commentary – including floating the “relatively well-worn idea” of a mesh network of rooftop femtocells – changes that assessment, according to an August 4 report by analyst Julie Zhu, referring to one of the firm’s earlier reports.
“Starlink is playing the long game. It will continue to negotiate, cajole, and, if necessary, coerce, in an effort to secure an MVNO agreement with one of the Big Three. It is clear, however, that the Big Three fully understand the clear and present danger that would be posed by Starlink’s market entry as another cable-like hybrid MNO/MVNO. We simply do not know how this story will end,” MoffettNathanson analyst Craig Moffett concluded in a July 20 report for investors.
Harkens back to earlier reports
Reading between the lines, SpaceX’s pitch about putting femtocells on Starlink broadband dishes sounds eerily like the kind of Wi-Fi offload solution that had been discussed in the press with Charter Communications, said BNP Paribas Equity Research senior analyst Sam McHugh in a note for investors today.
“The pivot to saying they can do this themselves may suggest those talks went nowhere; the standalone strategy here would be even more subscale/inferior than a deal with Charter. Hearing their aggressive ambitions for broadband, Charter (and anyone else looking to collaborate with Starlink in wireless) are likely to be less inclined than ever to help Starlink create a bundled wireless + broadband offer,” he said.
As evidence that SpaceX’s wireless ambitions are “highly embryonic” and not yet fully fleshed out/credible, McHugh noted that Shotwell on the earnings call estimated the aggregate wireless revenue of the Big 3 wireless carrier at $600 billion, whereas the actual figure is closer to $220 billion.
SpaceX’s AI factory advantage
However, Madden said there’s one technical advantage that SpaceX has over everyone else: They will have their “AI factory” tightly integrated with their network, so SpaceX will be in a better position than many operators to address the opportunity that Madden laid out in a recent report, The Economics of Kinetic Tokens.
“For outdoor robots like drones, food delivery robots, security robots, construction equipment and self-driving cars, SpaceX will be able to offer guaranteed latency, AI inferences for the robots, and a complete service – while terrestrial operators are still fiddling around with pilot projects,” he said.
“It’s possible that SpaceX could take this $250B opportunity away from the American telcos. (In other countries like South Korea, the local operators are doing much better at creating their own AI inference infrastructure). All in all, I don’t expect much success for SpaceX in the traditional telco business in terms of smartphone subscribers,” Madden concluded.
Read more about SpaceX and Starlink:
SpaceX lays out plan to compete with Big 3 wireless carriers
Now SpaceX is talking to Charter about a mobile offer: report