- The $8 billion purchase of 800 MHz spectrum has intensified speculation that Elon Musk will build a terrestrial mobile network rather than settle for an MVNO deal
- But the prospect of an MVNO remains open – and the 800 MHz deal could be another crafty move to get one of the Big 3 wireless carriers to cave
- Analysts remain divided: A partnership with an established carrier would be faster and cheaper, but building from scratch would give Musk control of the customer, network and data
Even after SpaceX’s deal to buy 800 MHz spectrum from Grain Management, some analysts continue to speculate that SpaceX and Elon Musk would prefer to strike an MVNO agreement with a facilities-based mobile network operator (MNO) rather than build his own network.
Recon Analytics founder Roger Entner is not among them.
“He’s going to build it,” he said. “It’s a connectivity layer between everything else he builds.”
That’s one view of the many emerging as Musk’s SpaceX sets out to upend the mobile industry.
Increasingly, it’s one held by investors as well, if a recent online poll by New Street Research (NSR) is any indication. During a conference call with investors, the firm on Monday asked: Is SpaceX serious about building out a terrestrial network? Of about 100 respondents, 70% said “Yes” and 30% said “No.”
Slowly but surely, the market is coming around. “Not often are 70% of investors in agreement about much, let alone an event surrounded by as many unknowns as this one. The market widely believes SpaceX is not kidding around,” wrote NSR analyst David Barden in an October 14 research note.
800 MHz: Nail in the coffin?
While the wireless industry has been contemplating Musk’s moves for what seems like an eternity, last week’s revelation about SpaceX buying low-band 800 MHz spectrum appeared to put the proverbial nail in the coffin.
“It was interesting that this 14 megahertz of low-band was the straw that broke the camel’s back. This was the thing that made everyone assume that well, this is all now very real,” Barden said, noting that it generated a far bigger reaction than the ~$20 billion that SpaceX decided to spend on EchoStar’s 2 GHz spectrum last year.
The Big 3 wireless stocks lost tens of billions of dollars in market value after SpaceX announced the 800 MHz deal.
Others felt it, too: AST SpaceMobile, the direct-to-device (D2D) business backed by AT&T and Verizon, saw its shares plummet 10%.
MVNO or no MVNO?
That said, not everyone is convinced that SpaceX wants to build a terrestrial mobile network from scratch.
“While this is a step in the right direction towards building a network, we still suspect that SpaceX would much prefer to get an MVNO agreement,” wrote TD Cowen analyst Gregory Williams in an October 9 report. “All said, we lean towards a view that SpaceX … is going through the motions of building a terrestrial network to keep wireless multiples down so that they either cave on an MVNO deal or get taken out by SpaceX.”
If “get taken out” means selling out to SpaceX, there’s no shortage of opinions on that front, either. While it seems the least likely of the possible scenarios, even Musk acknowledged at the All-In Summit more than a year ago that buying Verizon was “not out of the question.”
Barden, for one, doesn’t think buying a wireless carrier will accomplish Musk’s goals – and it’s not in his character.
“I would argue that buying a carrier would be the opposite of what you would be wanting to do because you’d be buying everyone else’s legacy problems that … they think they can solve by doing it the Tesla way, the SpaceX way,” Barden said during the conference call with investors.
The deal that perhaps makes the least amount of sense, regulatory and otherwise, is an acquisition of T-Mobile. It’s majority owned by Germany’s Deutsche Telekom, which needs T-Mobile US for its earnings growth and value proposition. It's highly doubtful that DT wants to sell its best asset to Elon Musk.
“Elon could have bought GM instead of building Tesla, right? That’s not what he wanted to do,” Barden said.
What is SpaceX’s potential market share in mobile?
It will take Musk a few years to line up everything he needs to compete on a national scale – towers, distribution, back-end support and more – but assuming that all happens, how much market share of the U.S. mobile market is SpaceX likely to get?
Estimates are hard to come by, but Pivotal Research Group figures SpaceX could capture 13% of the U.S. mobile device market. That’s based on estimates that Starlink Mobile could attract about 160 million subscribers worldwide by 2036, including 50 million in the U.S. and 110 million internationally. That would translate into about 1.5% of the international market, excluding China, according to the firm.
Joe Madden, founder and chief analyst at Mobile Experts, said he isn’t forecasting market share because the possible combinations on the business side make any prediction wrong.
“I don’t think that quoting a percentage of the smartphone market is the right way to measure success for SpaceX. For them, success will depend on enterprise use of their AI models, in many cases using robots or other automation on the ground. The new revenue that doesn’t exist today will be the real story,” Madden told Fierce.
Prior attempts to take market share from the established U.S. mobile carriers haven’t been wildly successful. Most recently, Dish Network’s attempt to be the No. 4 facilities-based carrier – with help establishing it via the U.S. Department of Justice and the T-Mobile/Sprint transaction – collapsed.
Even after nearly a decade in mobile, cable companies, via MVNO relationships, have grabbed about 8% of the U.S. postpaid phone market, Barden noted.
Because it's Elon Musk
Barden said he keeps struggling with one thing that permeates every single conversation and the other end of it goes something like this: “I don’t know exactly how he’s going to do it, but he is Elon Musk, and he is a genius. He’s a great engineer and hires the best people and I don’t know how it’s going to happen, but boy, he’s going to be the one that figures it out.”
That’s kind of where the bull case comes from. No one can point to any other player that’s ever existed in the U.S. market that has had long-term success battling the Big 3. However, Musk will be able to do it.
It all leads to another question. What is the secret sauce that he’s bringing to the market?
T-Mobile has been working with SpaceX to offer its T-Satellite D2D service for a while now, and it’s not exactly brimming with new customers. On the contrary, T-Mobile CEO Srini Gopalan says its D2D service accounts for only about 0.0003% overall network usage even during the busiest summer months.
So if adding satellite to terrestrial coverage is nice to have but not essential, what’s the big deal?
Maybe it’s just the sexiness of Starlink – despite the adverse feeling a certain segment of the population has against Department of Government Efficiency (DOGE) champion and political donator Elon Musk.
“It’s new, it’s shiny, it’s interesting and you know people might go there for exactly that,” Barden surmised.
Musk’s long-term motive
That speaks to the real prize, which could be to use a mobile network to establish a new revenue stream for SpaceX while creating a communications network that supports Tesla, autonomous vehicles and robotics.
Barden also suggested that by circumventing the existing mobile carrier, Musk can reconstruct what a network looks like and own the relationship with customers – soup to nuts, so to speak – so that he oversees the consumers’ mobile usage, in-home broadband, AI consumption and the data centers that create AI, both terrestrial and in space.
Entner agreed that getting revenue from mobile phone service isn’t the end game.
From the perspective of a wireless carrier, the network is the foundation that supports their entire ecosystem. “They define their meaning around providing the connectivity. For them, it’s the world. For Musk, it’s the ampersand in a long sentence,” Entner said.
Put another way: “He’s the new Sam Walton,” he said. Whereas Walmart competed with small mom and pop stores across the country – and ultimately put many of them out of business – Musk’s Starlink Mobile is taking aim at AT&T, T-Mobile and Verizon, as well as MVNOs like Comcast and Charter Communications.
“Is he going to take something out of them? Yes. Is he going to kill them? Of course not. Verizon, AT&T and T-Mobile are sitting up on a hill in a fortress. He’s not going to run up that hill,” he said.
Read about SpaceX and the mobile industry on Fierce Network
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