Morningstar

US Telecom: SpaceX Mobile Comments Should Be Taken With a Grain of Salt

We view SpaceX’s comments as part of its battle with the US wireless carriers for network access rather than a credible threat.

The Comcast logo as seen on the Comcast Center Campus in Philadelphia.
Jeff Fusco via AP
Securities in This Article
Comcast Corp Class A
(CMCSA)
AT&T Inc
(T)
American Tower Corp
(AMT)
Charter Communications Inc Class A
(CHTR)
Verizon Communications Inc
(VZ)

Shares of US wireless carriers and tower firms traded lower after SpaceX SPCX claimed it will use satellite dishes to build a wireless network capable of competing in the US wireless industry. The company also claimed it will launch 10 times as many V3 broadband satellites as V2.

Why it matters: SpaceX’s potential impact on telecom is a key factor in valuations across the industry. We don’t believe the firm’s comments this quarter change the range of potential outcomes for the industry relative to our prior expectations.

  • Several firms have attempted to build hotspot-type wireless networks like the one SpaceX is contemplating. The cable companies have incorporated public hotspots in tens of millions of broadband modems over the past decade, but these networks still deliver fundamentally limited signal coverage.
  • We view SpaceX’s comments as part of its battle with the US wireless carriers for network access rather than a credible threat. To fill areas satellites don’t reach well without this access, SpaceX would likely need to build and manage a massive number of sites, just to attack a market that is well served today and not growing rapidly.

The bottom line: We maintain our fair value estimates and moat ratings for the US telecom and tower firms.

  • Both wireless and broadband markets benefit from efficient scale attributes, but this moat source is most at risk in broadband. We recently cut our Comcast CMCSA and Charter Communications CHTR valuations, in part to reflect incremental Starlink competition. We don’t expect Starlink to threaten the wireless operations of T-Mobile TMUS, Verizon VZ, or AT&T T for the foreseeable future.
  • For US tower firms American Tower AMT, Crown Castle CCI, and SBA SBAC, we believe SpaceX offers more upside potential than downside risk. We don’t factor upside from a SpaceX network buildout into our valuations, but the company would likely need tower sites to provide reliable signal coverage if it chooses to enter the wireless market.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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