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US Telecoms Slide On Starlink Mobile Threat; Bernstein Sees It As A "Jab, But No Knockout Yet"

Tyler Durden's Photo
by Tyler Durden
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U.S. telecom stocks fell in premarket trading after SpaceX, during its first earnings call as a publicly traded company on Tuesday evening, outlined its vision for Starlink to challenge Verizon, T-Mobile, and AT&T.

SpaceX President & COO Gwynne Shotwell told investors about its future impact on big telecom: "Roughly, between them, $600 billion a year. I anticipate us to be able to acquire quite a few of their customers. Our service will be better. We will eliminate dead zones leveraging the satellites in orbit. It will be better during any natural disaster. I'm quite excited about Starlink Mobile."

For readers, the emergence of Starlink Mobile and Musk taking on the big three U.S. wireless operators- Verizon, AT&T, and T-Mobile - is nothing new.

One of the clearest signals was SpaceX's $17 billion deal for EchoStar wireless spectrum last year, followed by a recent trademark filing for "Starlink Mobile."

Our note from June:

For more color on Starlink Mobile and its implications for US telecom operators, Bernstein analysts titled their latest note "US Telecom: Starlink Jabs... No Knockout Yet," offering clients a clearer view of what may come next.

US Telecom stocks traded lower in after-hours trading following SpaceX's Q2 results and earnings call (covered by Harned), with Telecom investor attention focused on management's comments regarding Starlink's BB and wireless ambitions. While much of what was said was not new, the call offered clearer articulation of SpaceX's long-term vision and the various building blocks underpinning it. Management reiterated those ambitions at a time when Starlink is scaling subs, enterprise revenue, spectrum holdings, and satellite capacity simultaneously, making their comments more interesting.

To us, the incremental takeaway was not that Starlink is suddenly becoming a threat to broadband and wireless incumbents. Rather, it was a reminder that SpaceX continues to invest toward that outcome, and that the debate could remain an overhang on the sector for years rather than quarters.

What was said? More than a jab.

On broadband, management's central message remains unchanged: a major capacity and performance inflection is coming with V3 satellites. They are roughly an order of magnitude more capable than V2 satellites in orbit today and that SpaceX expects to launch roughly an order of magnitude more of them, implying a roughly 100x increase in delivered bandwidth over time. Management repeatedly described V3 as a step-function increase in Starlink's addressable opportunity and revenue potential.

The company also continued to emphasize the growing importance of enterprise and government customers. Management noted that the segment has the potential to eventually match or exceed the consumer business in terms of revenue, and highlighted continued traction in aviation, government contracts, and enterprise connectivity, areas that generally carry higher revenue quality and stronger economics.

On wireless, management outlined a vision that extends well beyond the D2D services currently being introduced with carrier partners. The strategy appears to consist of four components: (1) satellite-based D2D coverage; (2) recently acquired 65MHz of spectrum from EchoStar; (3) Some form of terrestrial radio infrastructure; and (4) a distributed small-cell architecture leveraging installed Starlink CPEs. While each component is insufficient, the collective strategy is... interesting.

Our view: BB, yes. Wireless? Not so fast.

We continue to view Starlink BB as a credible and growing long-term competitive threat to incumbent operators, particularly at the lower-end of the market where "good enough" BB is often sufficient. In our view, that risk remains higher for FWA and value-oriented BB subs, segments where Cable operators generally have greater exposure (vs. Fiber). We can debate the extent of the potential impact, but the overhang will continue as Starlink continues to expand its capacity and price their products more competitively. As capacity expands and operating leverage grows, the company should become increasingly capable of competing aggressively on price while simultaneously improving service quality. The rapid growth of higher-value enterprise and government revenues coupled with global scale only reinforces that advantage.

Wireless is where our view diverges somewhat from the market reaction. We continue to see D2D satellite service, whether offered by Starlink or others, primarily as a complementary service to incumbent nationwide cellular networks rather than a substitute for them in the foreseeable future. The fundamental use case remains coverage enhancement, not replacement. D2D has yet to solve the indoor unlink challenge. While additional spectrum may improve capacity and performance, it does not eliminate the fundamental physics associated with transmitting from a handheld device to a satellite, particularly indoors.

Likewise, the distributed small-cell concept described on the call is intriguing, but we remain skeptical regarding practical deployment. Such a network would require a dense concentration of Starlink installations in precisely the areas where consumers live, work, and travel: urban cores, suburbs, and major transportation corridors. In many respects, the concept resembles prior visions of a facilities-based wireless network leveraging a broad Wi-Fi APs. Interesting in theory, but considerably more difficult in practice.

For now, we continue to believe Starlink BB represents the more immediate and credible long-term competitive risk. While Starlink wireless ambitions will likely remain an overhang on the sector, we do not believe Starlink Mobile is poised to take meaningful share from incumbent wireless operators anytime soon.

Professional subscribers can read more on SpaceX, Starlink, and Musk here at our new Marketdesk.ai portal.

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