‘It’s not something that happens overnight’: SpaceX’s telecom ambitions will be hard-won, CEOs and analysts say

Elon Musk wants SpaceX (SPCX) to take on America’s biggest cellular service providers, but matching the telecom giants’ vast wireless networks could take years and billions of dollars, executives and analysts warned this week.

SpaceX, which already operates the world’s largest commercial satellite network with Starlink, is in talks with major telecommunications infrastructure companies to secure access to at least 80,000 cell sites across the United States, Bloomberg reported. The move would advance Musk’s ambitions to establish a fourth nationwide mobile carrier alongside the three incumbents of traditional telecommunications and mobile phone services: Verizon (VZ), AT&T (T) and T-Mobile (TMUS).

The announcement sent shares of AT&T and T-Mobile down as much as 6% on Friday, while Verizon fell 1.5%.

Satellite launches through Starlink and spectrum acquisitions “will pave the way for Starlink Mobile to become a major mobile operator in the United States,” Musk said during SpaceX’s earnings call.

But breaking into an industry whose dominant players have spent decades building infrastructure, acquiring spectrum and cultivating millions of subscribers won’t be an easy task.

“It’s not something that happens overnight,” AT&T CEO John Stankey told analysts on his company’s earnings conference call Wednesday, before the final details of SpaceX’s plans were revealed. “It takes many years and a huge level of investment to achieve the kind of performance levels that customers have become accustomed to in large-scale networks.”

SpaceX’s tower negotiations, which reportedly include cell tower operator Crown Castle (CCI), represent one of the clearest indications yet of the scale of SpaceX’s ambitions. They also illustrate the significant financial and technological hurdles Musk faces as he tries to challenge entrenched U.S. telecom giants.

The company’s announced goal of 80,000 cell sites would put its planned network on a scale comparable to that of the three incumbents. Verizon, AT&T and T-Mobile each lease space on about 60,000 to 80,000 U.S. cell towers combined, according to Goldman Sachs analysts, while the country has about 175,000 traditional cell towers nationwide, according to SNL Kagan data.

The cost of such construction would be immense, even for a company with the capitalization and balance sheet of SpaceX. The average cellular network tenant pays about $50,000 a year to rent space on a cell tower, according to Goldman Sachs analysts led by Michael Ng. At that rate, a network of 80,000 towers could generate about $4 billion in annual rentals, or between $20 billion and $40 billion over a typical five- to 10-year rental period.

This estimate also assumes that the proposed 80,000 sites are traditional towers and does not take into account the costs of equipment, backhaul infrastructure, operations and other investments required to build and operate a competitive wireless network.

Still, the scale of the spending underscores the enormous barriers to entry. Although Musk’s mobile coverage ambitions have been presented as a major challenge to the three telecom incumbents, industry leaders and analysts see a potential threat looming down the road.

“Tower leases to support this deployment (are) the next catalyst,” Goldman analysts wrote to clients. “While this is not a lease, it is a progression toward that catalyst.”

SpaceX recently made its first real foray into space in early October with the reported $8 billion purchase of a national portfolio of low-spectrum wireless licenses. Low-band frequencies can travel longer distances and penetrate buildings more effectively than higher frequency spectrum, making them particularly useful for extended wireless coverage.

Under the terms of the deal, which remains subject to FCC regulation, Musk’s company agreed to acquire up to 14 megahertz of coupled low-band spectrum in the 800 MHz range. AT&T, Verizon and T-Mobile, on the other hand, already hold large portfolios of low-band spectrum, giving them an established advantage in national coverage. Seeking its own advantage, SpaceX plans to combine its newly acquired spectrum with ground antennas and cell towers alongside Starlink satellites, creating a hybrid terrestrial and satellite network.

AT&T alone operates between six and eight low-band spectrum carriers in metro markets, Stankey said Wednesday — a network that also includes antenna systems installed inside hospitals, skyscrapers, stadiums and other buildings, an important distinction for dense metropolitan areas. While SpaceX may represent competition for companies like AT&T, UBS analyst John Hodulik recently wrote to clients that the specter is likely far away.

“Building a Starlink wireless network remains an obstacle (for AT&T), but we believe this multiple will look increasingly difficult as growth accelerates over the next 12 months and it will take time for Starlink to expand its ambitions,” Hodulik wrote.

That said, SpaceX’s ambitions come as the telecommunications industry’s traditional boundaries begin to blur. Cable companies like Comcast, for example, have aggressively expanded into the wireless market without building their own national cellular networks. The company recently added 368,000 wireless lines in the third quarter, bringing its total to about 10.6 million, even as its core broadband business lost 144,000 subscribers.

Rather than financing the kind of infrastructure operated by AT&T and Verizon, Comcast relies on wholesale deals with existing wireless carriers and its vast residential Wi-Fi network. About 90% of Xfinity Mobile’s traffic travels over Wi-Fi, Comcast executives said Thursday during the company’s earnings conference call, allowing Comcast to avoid much of the expense associated with traditional cellular operations.

Comcast’s less traditional model raises the possibility that SpaceX could become more than just a competitor struggling to capture existing mobile subscribers, since Comcast already partners with Starlink to provide satellite connectivity to enterprise customers, executives told analysts earlier in the week.

Combining SpaceX’s existing satellite capacity with ground infrastructure could eventually allow the company to serve customers and applications that fall outside the economics of existing wireless networks — although matching the performance of AT&T or Verizon in large cities proves considerably more difficult.

For the big three telecoms operators, the immediate threat may lie less in a sudden exodus of cellphone subscribers than in the gradual emergence of an alternative connectivity network backed by one of the world’s most valuable technology companies.

Verizon, AT&T and T-Mobile, along with wireless trade association CTIA, are now jointly lobbying the FCC to preserve current cellular service spectrum rules, opposing proposed changes that would make it easier for satellite companies like SpaceX to offer cellular service.

“The Commission’s strengthening decisions have real consequences for consumers who rely on ever-increasing wireless capacity to access the modern economy and support their daily lives,” the trade association wrote in a letter to the FCC on Thursday.

Incumbent telcos’ proposals for the FCC include blocking satellite providers from using 5G frequencies used to provide wireless services and allowing wireless providers to retain control of licensed spectrum, “thus protecting the exclusive rights of terrestrial licensees.”

“CTIA commends the Commission for expanding opportunities for American consumers and businesses to benefit from next-generation terrestrial and space connectivity,” the association wrote. “The Commission may expand the ecosystem (“additional coverage from space”) while appropriately continuing to advance licensed terrestrial rights and next-generation deployments, consistent with the characteristics of the licensed services and the secondary nature of satellite services in the terrestrial bands.”

Follow Jake Conley on X @byjakeconley or email him at jake.conley@yahooinc.com.