Have you ever been driving cross country -- maybe on a family vacation -- and suddenly discovered your phone had no bars? The podcasts won't load. Spotify won't run. Your texts don't ever quite "send." And just to make you really nervous, "GPS signal not found."
You've entered a cellphone dead zone -- and sure, it will probably pass in a few minutes, and you'll be back in "civilization" again. But what happens, you wonder, if the car breaks down, and you're stuck here with no cell service with which to call for help?
Well, fear no more, because T-Mobile US (TMUS 0.05%) has an app for that -- or more precisely, a new partner that can give you cell-like service even when there's no cell service to be found.
NASDAQ: TMUS
Key Data Points
It's good to have friends in high places -- like, really high
According to T-Mobile, "well over half a million square miles of the U.S." are effectively dead zones lacking any cell service whatsoever "from any provider." But as telecom company T-Mobile announced last week, it's partnering with space company SpaceX to offer cell-like service from space via SpaceX's Starlink broadband communication satellites.
For no additional fee on top of T-Mobile's existing cell service -- and using their existing cellphones -- customers driving through cellphone dead zones should soon have the ability to send short text messages (and later, phone calls, and even later than that, perhaps more bandwidth-hungry data) via SpaceX's satellites, to put them back in touch with "civilization." And as T-Mobile emphasizes, this will be an alternative to paying "exorbitant rates to lug around a sat phone."
What it means to investors
That last point poses a direct threat -- if perhaps not an immediate threat -- to the business models of dedicated satellite phone providers, including Viasat (VSAT 1.67%), Globalstar (GSAT 2.38%), and Iridium (IRDM +0.14%), even if investors don't really seem to have clued into this risk yet. So far, Viasat stock is only down 2.4% since SpaceX and T-Mobile announced their partnership, and Iridium stock is only down 1.5% -- while Globalstar stock is actually up 6.1%.
NASDAQ: GSAT
Key Data Points
To an extent, the muted reaction is understandable.
For SpaceX's and T-Mobile's plan to work, SpaceX needs to first introduce a new second generation of Starlink satellites capable of providing cellphone coverage -- and these new satellites are so large that only the company's new "Starship" launch vehicle is big enough to carry them. Starship hasn't yet entered service. Regardless, SpaceX and T-Mobile expect both Starship and Starlink to perform their assigned roles, enabling T-Mobile to get at least a "beta" version of its new cellphones-from-space service running by late 2023.
Once that happens, investors in satellite phone companies like Viasat, Globalstar, and Iridium may have more reason to worry.
In the meantime, SpaceX's move into the satellite phone business threatens to smother in the cradle the business model of space cell service hopeful AST SpaceMobile (ASTS 5.02%). Shares of AST are already down 13.5% since SpaceX and T-Mobile made their announcement -- and this stock, in particular, may have even further to fall.
NASDAQ: ASTS
Key Data Points
Consider: According to AST, the potential market size for a working cellphone-to-satellite service runs to some five billion customers and could be worth anywhere from "tens of billions of dollars" to even "$1 trillion" in annual revenues. This huge opportunity was almost certainly a factor in attracting Elon Musk's interest to the concept.
Putting a brave face on SpaceX's entry into the market, AST told SpaceNews this week that it sees Musk's interest in cellphones-from-space as "validating" the business concept -- but AST is clearly nervous. Responding to news of the SpaceX-T-Mobile partnership, AST CEO Abel Avellan quickly tweeted that his own company plans to launch another test satellite "within weeks," and AST has promised to have five operational satellites in orbit by late 2023.
Elon and Mike helped the world focus attention on the huge market opportunity for SpaceMobile, the only planned space-based cellular broadband network. BlueWalker 3, which has a 693 sq ft array, is scheduled for launch within weeks! 🌐📶 #5G
-- Abel Avellan (@AbelAvellan) August 26, 2022
And AST should be nervous.
SpaceX already has nearly 3,000 communications satellites in orbit and a demonstrated ability to build and launch more anytime it wants to -- several dozen at a time. Compare that to AST's hopes to be able to build just six of its "BlueBird" comsats per month, and it's clear AST isn't quite in the same league as SpaceX. SpaceX also has a $100 billion-plus market capitalization with which to help finance both the start of this new service and the expansion of the service once it's begun. That's 50x more market cap than AST has to play with.
Adding insult to injury, simply by announcing its partnership with T-Mobile, SpaceX has already blown up AST's biggest claim to fame: the argument that it is "building the first and only space-based cellular broadband network accessible directly by standard mobile phones."
The "only" part of that statement has already gone out the window. Now, there's a real risk AST won't even be the first.
