Following news that SpaceX is in talks to access as many as 80,000 cell sites in a bid to gain market share from the Big Three telecoms, some Wall Street analysts are drawing a key distinction that may shed light on the company’s strategy: separating cell towers from the cell sites on which those towers operate, a distinction that could open up new real estate for SpaceX.
“Although the term ‘cell site’ and ‘cell tower’ is often used interchangeably, cell sites include cell towers, but may also include rooftops, billboards, water tanks, distributed antenna systems, and small cells,” Michael Ng at Goldman Sachs said in a Friday note to clients following the Bloomberg news report.
Analysts at Citi also questioned the specific forms of coverage that SpaceX is pursuing, suggesting that a smaller cell tower may be part of the plan. “Our scenarios interpret the press report as 80,000-plus macro sites on colocation structures, while we recognize that a portion of these sites may reflect other forms of coverage or capacity, such as small cells,” Michael Rollins at Citi said in a Friday note.
The reported discussions about cell sites could offer a glimpse into SpaceX’s ambitions. “Entering into large-scale tower lease agreements would reinforce what recent spectrum acquisitions have already suggested—that SpaceX appears increasingly willing to pursue owner economics rather than depend on partners,” wrote Bernstein analyst Laurent Yoon in a Friday note.
Tower stocks have risen this month, gaining a tailwind after Grain Management announced it would sell its nationwide spectrum portfolio to SpaceX. The cell-site development is the latest step the company is taking as it positions itself against the telecommunications industry.
On Friday, American Tower gained 4%, while Crown Castle—the company SpaceX is reportedly in talks with over cell-site access—jumped 9%. Meanwhile, the telcos are facing pressure as investors consider the prospect of greater competition from SpaceX. AT&T slid almost 8%, and T-Mobile fell more than 7%.
However it chooses to do so, SpaceX may intend to develop its outdoor networks from its residential Starlink wireless networks, some analysts on Wall Street believe. In the deal announced earlier this month with Grain Management, SpaceX agreed to buy low-band, 800 MHz spectrum that penetrates windows and walls.
“The bulk of call and text traffic can ride the 800 MHz coverage layer, and for the fixed household, be heavily offloaded onto Starlink WiFi inside the home,” Jeffrey Wlodarczak at Pivotal Research Group wrote in a note earlier this month. Wlodarczak noted an observation in his analysis that he attributed to Comcast about how its customers already use the company’s WiFi in their homes for data rather than through its virtual network agreement with Verizon.
“For the Starlink fixed customer, the same dynamic applies: most phone use never leaves the WiFi off the dish,” he said.
Despite the stock moves resulting from SpaceX’s recent telecommunications activity, it will not be easy for SpaceX to dislodge the Big Three telcos. “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,” AT&T CEO John Stankey said during his company’s earnings call on Oct. 21.