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From the newsletter (sign-up if you want it sooner): Elon Musk has set his sights on the US mobile market with a cost-effective Starlink-powered terrestrial network, with talk about small cells attached to ground stations, but analysts argue the economics, spectrum constraints, and infrastructure costs still leave SpaceX with a weak hand – unless it strikes a deal or makes a major acquisition.
Musk’s modus operandi is total disruption, and creaming off the top of it. In between stirring up hate on social media and intervening in politics, including by backing far-right political movements in foreign countries, he is also, lest we forget, a business man with a rare vision: to push the physics and reorder the planet, even if it costs the world. So who ever doubted that he would come for the fusty old telco set? As someone (from Ericsson) said, “going mobile is the only adjacent market large enough” for SpaceX to “move the needle” on revenue within its only profit-making business – to fund the AI buildout for its others. But only last week, RCR cited sensible-sounding analyst commentary from BNP Paribas that said nothing’s-doing so far as a Starlink terrestrial play goes – unless it buys T-Mobile. Verizon’s name has also been variously thrown into the hat.
BNP Paribas wrote (still telling): “SpaceX has a poor hand to play in wireless, and doesn’t have a clear vision to progress; its ability to acquire spectrum for a competitive network through the C-band auction is a non-starter. A network on the spectrum it bought from EchoStar would require 50k-70k sites [to have] a shot at being on par with the big three. A nationwide network on the C-band spectrum it could buy next year would take 120k sites, if not more. Excluding spectrum, this could easily cost $100bn. The only route… is through M&A. T-Mobile would be the clear target.” Our (online) friend at Ericsson references the talk about a team-up with Charter, which spent $464m on PAL licences in the 3.55-3.7 GHz CBRS band in 2020, and otherwise piggybacks on Verizon for mobile access.
But Charter has a vast Wi-Fi network, covering more than 45m access points in the US, apparently; the story goes that Starlink might form a JV with it to bring some capacity density and building penetration. The latter, in particular, is the stick Starlink/D2D is always beaten with. But the argument unravels. “Many analysts think that Wi-Fi alone cannot carry a phone company. If SpaceX is serious, it ends up buying a US mobile operator.” BNP Paribas has written again, since Musk’s plans about a terrestrial play took some kind of shape yesterday evening during a Q2 earnings call – where plans were sketched for a low-cost national small-cell network affixed to Starlink’s existing ground infrastructure. Per ABI’s retort in the write up: “Musk is nuts if he thinks 5G small cells… can offer better (and cheaper) service.”
Which, incidentally, is precisely the claim from SpaceX/Starlink, per the Q2 call (new Echostar spectrum and new V3 satellites will deliver a mobile service that “100 times better” than it is today, it said, which “will be better” than AT&T et al). But back to BNP Paribas, always good; analyst Sam McHugh responded to the SpaceX shenanigans, and returned the discussion back to the start, about MVNO tie-ups and/or a Charter JV. He said: “The credibility of [its] plans in wireless remains questionable… SpaceX seems intent on talking up its ability to disrupt (maybe still angling for an MVNO deal), and we’re unlikely to see any resolution to this debate until the results of the C-Band auction in 2027 – unless SpaceX signs extended D2D terms with the three carriers before, in a deal that puts this risk to bed.”
He added: “Its pitch [about] putting wireless equipment (femtocells) on Starlink broadband dishes sounds eerily like the kind of Wi-Fi offload solution discussed with Charter. The pivot to saying it can do this itself may suggest those talks went nowhere; the standalone strategy here would be even more subscale / inferior than a deal with Charter. Hearing its aggressive ambitions for broadband, Charter (and anyone else looking to collaborate with Starlink in wireless) is likely to be less inclined than ever to help Starlink create a bundled wireless/broadband offer… The idea of a seamless… small cell wireless network seems far-fetched – but looking at it through Elon’s lens, having stated Starlink could have the majority of the world’s internet traffic in 10 years, it is perhaps less of a wild claim.”
McHugh concluded: “In our view, it is highly improbable that Starlink will carry the majority of internet traffic in the US in the next decade; lower Starlink broadband penetration means any femtocell plan is likely to be even further from being a credible solution for wireless… When all is said and done, we continue to believe [SpaceX/Starlink has] a weak hand in trying to generate meaningful revenue / returns from wireless in the US, but it also seems clear it intends to keep talking up its mobile opportunity – presumably with an eye to getting one of the carriers to break and offer an MVNO deal.” And he repeated: “This overhang is likely to persist through to the upper C band auction in 2027, unless SpaceX comes to some wholesale D2D agreement with the three carriers that puts to bed this risk.”
Thing is, as well, no one wants to second-guess Musk – probably because no one can. And also, what’s $100bn for a new-build, or however-many billions for a telco takeover, when you have a trillion knocking about somewhere. None of the naysayers really doubt it will happen, just the new organic small-cell narrative.
