SpaceX is the first of several potential blockbuster initial public offerings (IPOs) expected in 2026. The company is seeking to raise $75 billion in an increase to its $2 trillion-plus valuation, according to confidential filings ahead of its public debut.
This would be a huge capital boost for the business, giving it more cash to invest in its various endeavors, which range from its low-orbit satellite business to plans to put AI data centers on the moon. But a well-capitalized SpaceX could be bad news for the three main US wireless carriers: AT&T(NYSE: T ), Verizon(NYSE: VZ )and T-Mobile(NASDAQ: TMUS ). That threat has become apparent recently.
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SpaceX applied to participate in the Federal Communications Commission’s upcoming AWS-3 wireless spectrum auction that begins in June.
Telecom companies use the wireless spectrum to transmit voice calls and data from devices to cell towers and vice versa. They are absolutely essential for building any telecom wireless network. Spectrum licenses are controlled by the government, and there is a limited number available. They grant exclusive rights to use a specified band of available spectrum.
Since wireless spectrum is a finite resource, adding a well-capitalized bidder like SpaceX to an upcoming auction could drive prices higher for AT&T, Verizon, and T-Mobile.
We saw wireless carriers spend tens of billions more than expected on wireless spectrum in the 2014 auction, which Dish Network now owns. EchostarIt costs heavily to get those licenses. But considering the importance of spectrum to their businesses, both AT&T and Verizon had no choice but to pay for the licenses. (T-Mobile entered the auction with a strong spectrum portfolio and mostly stayed out of the bidding war.) The result was a poor return on invested capital for AT&T and Verizon.
This time around, SpaceX can play spoiler. T-Mobile and Verizon are in a precarious position with their current holdings if SpaceX decides to bid on the spectrum they need. That said, the Elon Musk-led company may not meaningfully participate in the auction.
It agreed to acquire unused AWS-3 licenses from Echostar last fall in exchange for $2.6 billion in stock. It also agreed to buy Echostar’s AWS-4 and H-block licenses earlier this year.
But SpaceX’s application and deal with EchoStar could mean it plans to become a regular participant in future spectrum-license auctions. And that will have a significant impact on T-Mobile, Verizon, and AT&T, raising the cost of spectrum.
In the near term, SpaceX’s wireless-spectrum holdings will serve to improve its direct-to-device service, which will complement the services of other wireless carriers. In the US, T-Mobile is an exclusive partner of SpaceX, providing SMS, MMS, select app connectivity and emergency services in T-Mobile dead zones using SpaceX’s satellite connectivity. The addition of spectrum licenses from EchoStar should improve bandwidth and increase speed, enabling more services once it is put into use.
In the long run, however, SpaceX could become a competitor to the three major wireless carriers. It has already rebranded Starlink Direct to Cell as Starlink Mobile last month, signaling wider ambitions, although management has maintained it is only a complementary service. And with so many technical and financial hurdles to overcome to provide broad coverage that millions of customers can use at once, it’s not entirely out of the question.
SpaceX could be a meaningful participant in future spectrum auctions, such as the C-band auction, which has a July 2027 deadline. It could also see it acquire smaller companies with valuable spectrum assets and existing infrastructure, enabling it to rapidly expand coverage. If the opportunity presents itself for the company to effectively mobilize capital and build on top of its satellite business, it would not be surprising to see SpaceX do so.
That should keep T-Mobile, AT&T, and Verizon investors on their toes and push them to demand higher margins on stock purchases amid a relaxed competitive environment over the past five years or so. We may get more clarity on SpaceX’s intentions once it becomes a publicly traded company or once the spectrum auction ends later this year.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. Motley Fool has a disclosure policy.
SpaceX Just Delivered Bad News to AT&T, Verizon, and T-Mobile Investors was originally published by The Motley Fool.
