SpaceX is the first of several potential blockbuster initial public offerings (IPOs) expected in 2026. The company is seeking to raise up to $75 billion at what has grown to become a $2 trillion-plus valuation, according to confidential filings ahead of its public debut.
That would be a huge capital raise for the business, giving it lots of cash to invest in its various endeavors, which range from its low-orbit satellite business to plans for putting AI data centers on the Moon. But a well-capitalized SpaceX could be bad news for the three main U.S. wireless carriers: AT&T (T 0.58%), Verizon (VZ 0.01%), and T-Mobile (TMUS +0.49%). That threat became even clearer recently.
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What is SpaceX planning?
SpaceX applied to participate in the Federal Communications Commission's upcoming AWS-3 wireless spectrum auction starting in June.
Telecom companies use wireless spectrum to transmit voice calls and data from devices to cell towers and vice versa. They're absolutely essential for any telecom building a wireless network. Spectrum licenses are controlled by the government, and there is a finite number available. They grant exclusive rights to use a specified band of the available spectrum.
Since wireless spectrum is a finite resource, the addition of a well-capitalized bidder, such as SpaceX, in the upcoming auction could drive prices higher for AT&T, Verizon, and T-Mobile.
We saw the wireless carriers spend tens of billions more than expected on wireless spectrum in the 2014 auction when Dish Network, now owned by EchoStar, spent heavily to acquire those licenses. But considering the importance of spectrum to their businesses, both AT&T and Verizon had no choice but to pay up for licenses. (T-Mobile entered the auction with a strong spectrum portfolio and mostly stayed out of bidding wars.) The result was poor returns on invested capital for AT&T and Verizon.
This time around, SpaceX could play spoiler. T-Mobile and Verizon are in precarious positions with their current holdings if SpaceX decides to bid on the spectrum they need. That said, the Elon Musk-led company might not meaningfully participate in the auction.
It agreed to acquire unused AWS-3 licenses from EchoStar last fall in exchange for $2.6 billion worth of stock. It also agreed to buy EchoStar's AWS-4 and H-block licenses earlier in the year.
But SpaceX's application and its deals with EchoStar suggest it may plan to become a regular participant in future spectrum-license auctions as well. And that would have meaningful effects on T-Mobile, Verizon, and AT&T beyond simply driving up the cost of spectrum.
Is SpaceX a partner or a competitor?
In the near term, SpaceX's wireless-spectrum holdings serve to improve its direct-to-device service, which supplements other wireless carriers' service. In the U.S., T-Mobile is the exclusive partner of SpaceX, which provides SMS, MMS, select app connectivity, and emergency services in T-Mobile dead zones by using SpaceX's satellite connectivity. The addition of spectrum licenses from EchoStar should improve bandwidth and increase speeds, enabling more services once it's put into use.
Over the long run, however, SpaceX could become a competitor to the three major wireless carriers. It already rebranded Starlink Direct to Cell as Starlink Mobile last month, indicating broader ambitions, though management maintained it's merely a complementary service. And while there are a lot of technical and economic hurdles to overcome for providing broad coverage that millions of customers could use at once, it's not out of the question entirely.
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Key Data Points
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 look to acquire smaller companies with valuable spectrum assets and existing infrastructure, enabling it to quickly expand coverage. If the opportunity presents itself for the company to effectively deploy capital and build on top of its satellite business, it wouldn't be a surprise to see SpaceX do so.
That should keep T-Mobile, AT&T, and Verizon investors on their toes and push them to demand a higher margin of safety on stock purchases than in the last five years or so amid a more relaxed competitive environment. We may gain more clarity on SpaceX's intentions once it becomes a publicly traded company or when the spectrum auction concludes later this year.
