As AT&T, Verizon and T-Mobile shares fall, Wall Street assesses the growing SpaceX threat

By Emily Bary

SpaceX still has a ways to go before it can seriously challenge the three major wireless operators, but it's making moves to grow its capabilities

Verizon and other telecommunications stocks are dropping on Friday.

SpaceX has become a looming threat over the telecommunications sector - and now it's rearing its head once more.

Wireless investors have found fresh reason to fret about SpaceX's (SPCX) ambitions after Elon Musk's rocket-launch and satellite-technology company said Thursday that it was buying low-band spectrum in a deal that would "pave the way for Starlink Mobile to become a major mobile carrier in the U.S."

Over the last few months, SpaceX has been teasing bigger moves in the wireless market. The company offers satellite-based Starlink internet service currently, but SpaceX has noted that it wants to pair that with terrestrial or land-based technologies.

"You will have not only the capacity from the satellites themselves, but you will have a build-out of the terrestrial, basically the hardware and systems necessary to make a true mobile service exactly what you want it to be," Chief Operating Officer Gwynne Shotwell said on SpaceX's last earnings call.

Shares of Verizon Communications (VZ) are down 6% in Friday morning action, while shares of AT&T (T) and T-Mobile US (TMUS) are both off about 9%. AT&T's stock could see its worst day in over three years, according to Dow Jones Market Data.

Wall Street is weighing in on the competitive risk once more. "We believe a 'someday' Starlink Mobile network is not priced into telecom stocks, and that Thursday's news increases the probability and potential speed of that scenario," wrote Peter Supino of Wolfe Research.

Admittedly, SpaceX has a ways to go before it can be a credible player in the U.S. wireless market.

"To be sure, SpaceX management is correct in noting that low-band spectrum is necessary for coverage and in-building penetration," MoffettNathanson's Craig Moffett wrote. "But SpaceX is still far from having the assets needed to offer a service that would be competitive with the services offered by the Big Three carriers."

Right now, SpaceX's specialty is satellites. Building a terrestrial wireless network - one that relies on cell towers and other related infrastructure - is a different proposition, and a highly expensive one at that. The spectrum that SpaceX just said it plans to acquire from Grain Management wouldn't actually enable the company to build a nationwide network.

Rather, according to Moffett, the transaction seems like a step toward trying to secure a mobile virtual network operator agreement that would enable the company to brand its wireless service to customers but leverage the network of an established major mobile provider. Charter Communications and Comcast each have an agreement like this with Verizon.

"It is only clearer now, however, that none of the Big Three has any intention of enabling Starlink as a competitor by giving it such an agreement," Moffett wrote.

Walter Piecyk of LightShed Partners called some of the fear "premature," although he said the telecommunications companies "haven't done themselves any favors."

"They've spent years dismissing SpaceX as a competitive threat while passing on opportunities that might have worked in their favor," he added. For instance, he called it odd that Verizon still hasn't bought EchoStar's (ECHO) AWS-3 spectrum, which he thinks would give the company "much-needed capacity" without requiring too much more capital spending.

Evercore's Kutgun Maral still called the latest development "incrementally negative" for the three major U.S. wireless companies.

"It weakens the 'no low-band' rebuttal management teams have leaned on," Maral wrote. Plus, "it shows SpaceX will pay for terrestrial spectrum, which supports our view that its presence pushes up clearing prices at coming auctions whether or not it wins."

-Emily Bary

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10-09-26 0959ET