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

By Emily Bary

Telecommunications stocks see their worst daily drops in over a decade

Verizon and other telecommunications stocks saw their biggest one-day drops in well over a decade on Friday.

SpaceX has become a looming threat over the telecommunications sector, and now it's rearing its head once more - driving the worst one-day drops for major wireless stocks in well over a decade.

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 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," SpaceX COO Gwynne Shotwell said on the company's most recent earnings call.

Shares of Verizon Communications (VZ) and AT&T (T) were each down more than 10% in Friday action, while shares of T-Mobile US (TMUS) were off more than 13%. Verizon shares ended up logging their weakest single-day performance in 24 years, while the stock drops for AT&T and T-Mobile were the steepest in roughly 26 years and 13 years, respectively, according to Dow Jones Market Data.

In a LinkedIn post, T-Mobile Chief Technology Officer John Saw said that there's "a big difference between owning spectrum and delivering a great mobile experience to millions of customers."

Wall Street also weighed in on the competitive threat of SpaceX. "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 (MVNO) agreement that would enable SpaceX to brand its wireless service to customers but leverage the network of an established major mobile provider. Charter Communications (CHTR) and Comcast (CMCSA) 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 noted. 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 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. "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 1707ET