SpaceX Confirms Plans for Terrestrial Mobile Network, Sending Telecom Stocks Lower

Shares of major U.S. wireless carriers fell in after-hours trading Tuesday after SpaceX confirmed its ambition to build a terrestrial mobile network, a move that would pit its Starlink service directly against industry giants Verizon, AT&T, and T-Mobile.

A Shift to Terrestrial Service

In a post-earnings call, SpaceX President Gwynne Shotwell stated the company will use its recently acquired spectrum to build out ground-based infrastructure for a "true mobile service." The remarks represent the company's most direct confirmation of its plans to compete in the mainstream consumer wireless market, moving beyond its current satellite-based direct-to-device services for remote areas.

SpaceX's entry into the market is backed by a significant investment. The company acquired 65 megahertz of wireless spectrum licenses from EchoStar in two deals last year for a total of $19.6 billion. "The spectrum that we purchased from EchoStar does have terrestrial components, so we definitely intend to build out terrestrial," Shotwell said, adding that SpaceX expects to win "quite a few" customers from the Big Three carriers.

Market Impact and Analyst Debate

Investors reacted swiftly to the news, sending shares of Verizon, AT&T, and T-Mobile down between 2.2% and 4% in after-hours trading. However, analysts are divided on the immediate threat posed by SpaceX's nascent wireless ambitions.

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Some experts caution that building a competitive nationwide network is a monumental task that has cost incumbent carriers hundreds of billions of dollars over decades. Craig Moffett of MoffettNathanson noted it is "extraordinarily challenging to imagine a direct-to-consumer service from Starlink that could be competitive with carrier services in the next five years" without an agreement to lease network capacity from an existing provider.

Other analysts, including David Barden from New Street Research, pointed to SpaceX's relatively small spectrum holdings. "It makes no sense for SpaceX to try to replicate what terrestrial players have built over 30 years with 1000 MHz between them, with 65 MHz," Barden said.

Potential for Disruption

Despite the hurdles, some investors believe the market may be underestimating SpaceX's potential. David Wagner, a portfolio manager at Aptus Capital Advisors, suggested that traditional carriers risk being outmaneuvered by SpaceX's innovative approach. "I definitely think what Elon said on the call about investors undervaluing that side of the business is absolutely correct in my mind," Wagner commented.

Shotwell acknowledged the significant costs involved but said the company has "great and new ideas" for a capital-efficient network build-out, though she did not provide specific details. This strategy contrasts with SpaceX's existing partnership with T-Mobile, where Starlink satellites complement the carrier's network by providing connectivity in areas with no cellular coverage.