SpaceX Takes Another Step Forward With Low-Band Spectrum Purchase

Key Morningstar Metrics for SpaceX

• Fair Value Estimate
  : $62
• Morningstar Rating
  : ★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Very High

Shares of US wireless carriers are trading lower after SpaceX SPCX agreed to purchase low-band 800 MHz spectrum licenses from Grain Capital, which Grain recently acquired from T-Mobile T. SpaceX also says Starlink will build a terrestrial wireless network to supplement satellite with indoor coverage.

Why it matters: SpaceX’s potential impact is a key factor in valuations across the telecom industry. This latest development increases the odds that SpaceX will build a rival terrestrial network, but it still has a long way to go to assemble the assets needed to credibly do so.

• T-Mobile was forced to sell these 800 MHz licenses as part of its Sprint acquisition. The licenses cover about 6% of the low-band spectrum allocated to the US wireless industry. Verizon, which has the weakest low-band position among the Big Three carriers, holds more than three times the low-band spectrum depth in most areas.
• SpaceX will need to continue acquiring spectrum across all bands and build out thousands of sites to match the coverage of the major wireless carriers. We believe this would be a poor use of capital given the wireless market’s maturity and SpaceX’s other investment needs, but it has very deep pockets.

The bottom line: We are maintaining our fair value estimates on US telecom firms. Our base case remains that Starlink will not threaten T-Mobile TMUS, Verizon VZ, or AT&T’s T wireless operations. However, SpaceX’s latest move has widened the range of potential outcomes and skewed it to the downside.

• We move our Uncertainty Ratings to High from Medium for each of the three major US carriers. While SpaceX entering the wireless market is the worst-case scenario, it could also hurt the carriers in other ways, like driving up spectrum prices.
• We believe SpaceX remains in a battle with the wireless carriers for network access. All three have remained resolute that they will not provide wholesale network capacity to a satellite rival.