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

Elon Musk wants SpaceX (SPCX) to take on America’s largest cell 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 wireless carrier alongside the three traditional telecom and mobile service incumbents: Verizon (VZ), AT&T (T), and T-Mobile (TMUS).

The announcement sent stock in AT&T and T-Mobile falling by as much as 6% on Friday, while Verizon declined by a thinner 1.5%.

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

But breaking into an industry whose dominant players have spent decades building out infrastructure, acquiring spectrum, and cultivating millions of subscribers will be no easy feat.

“It’s not something that gets done overnight,” AT&T CEO John Stankey told analysts on his company’s earnings call Wednesday, before the latest details of SpaceX’s plans emerged. “It takes a lot of years and a huge level of investment to get to the kind of performance levels that customers have become accustomed to in scaled 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 substantial financial and technological barriers facing Musk as he attempts to challenge America’s entrenched telecommunications giants.

The company’s reported target 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 approximately 60,000 to 80,000 US cell towers combined, according to Goldman Sachs analysts, while the country has roughly 175,000 traditional cell towers nationwide, per data from SNL Kagan.

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

That estimate also assumes all 80,000 proposed sites are traditional towers, and it leaves out costs for equipment, backhaul infrastructure, operations, and other investments needed to construct and operate a competitive wireless network.

Even so, the scale of the expense underscores the enormous barriers to entry. Though Musk’s ambitions for mobile coverage have been held up as a major challenge for the three telecom incumbents, industry leaders and analysts see any potential threat coming further down the road.

“Tower lease agreements to support this deployment [are] the next catalyst,” Goldman’s analysts wrote to clients. “Although this is not a lease agreement, this is progression toward that catalyst.”

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

Under the terms of the deal, which remains subject to FCC regulation, Musk’s company has agreed to acquire up to 14 megahertz of paired low-band spectrum in the 800 MHz range. AT&T, Verizon, and T-Mobile, by contrast, already hold extensive low-band spectrum portfolios, giving them an established advantage in providing nationwide coverage. Looking for its own advantage, SpaceX plans to combine its newly acquired spectrum with ground-based 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 metropolitan markets, Stankey said on Wednesday — a network that also includes antenna systems installed inside hospitals, high-rises, 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 specter is likely to be a ways off.

“A Starlink wireless network build remains an overhang [for AT&T], but we believe the multiple will appear increasingly challenging as growth accelerates over the next 12 months and it takes time for Starlink to scale its ambitions,” Hodulik wrote.

All that said, SpaceX’s ambitions arrive as the traditional boundaries of the telecommunications industry are beginning to blur. Cable providers like Comcast, for example, have aggressively expanded into the wireless market without building their own nationwide cellular networks. The company recently added 368,000 wireless lines in the third quarter, bringing its total to approximately 10.6 million, even as its core broadband business lost 144,000 subscribers.

Rather than funding the kind of infrastructure operated by AT&T and Verizon, Comcast relies on wholesale agreements with existing wireless carriers and its extensive residential Wi-Fi network. Approximately 90% of Xfinity Mobile traffic travels over Wi-Fi, Comcast executives said on the company’s earnings call Thursday, 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 simply another competitor fighting to win existing mobile subscribers, as Comcast already partners with Starlink to provide satellite connectivity to enterprise customers, executives told analysts earlier in the week.

The combination of SpaceX’s existing satellite capacity with terrestrial infrastructure could eventually allow the company to serve customers and applications that fall outside the economics of existing wireless networks — even if matching the performance of AT&T or Verizon in major cities proves considerably more challenging.

For the three big telecoms, the immediate threat may be less about a sudden exodus of cellphone subscribers than 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, in conjunction with the wireless trade association CTIA, are now jointly lobbying the FCC to preserve current cell-service spectrum rules, opposing proposed changes that would make it easier for satellite companies such as SpaceX to offer cellular service.

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

The telecom incumbents’ proposals for the FCC include blocking satellite providers from using 5G frequencies used to deliver wireless service and allowing wireless providers to maintain control over licensed spectrums, thereby “protect[ing] 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-based connectivity,” the association wrote. “The Commission can expand the [“supplemental coverage from space”] ecosystem while appropriately continuing to advance licensed terrestrial rights and next-generation deployments, consistent with the hallmarks of licensed services and the secondary nature of satellite services in terrestrial bands.”

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