There’s no denying the two companies could work together as one. T-Mobile’s (TMUS +2.63%) mobile phone service doesn’t just serve voice customers. These subscribers also use their mobile devices to wirelessly connect to the internet. T-Mobile even offers stand-alone at-home wireless broadband service, as does Space Exploration Technologies’ (SPCX +2.69%), or SpaceX’s, Starlink. The two brands are already working together to offer their common customers constant wireless internet access where it isn’t readily available from a more mainstream provider. The counterargument, of course, is cost
and complexity. SpaceX is already a satellite-based broadband service, an artificial intelligence infrastructure company, and a space-launch solutions provider. It may also soon own Elon Musk-led electric vehicle maker Tesla (TSLA 7.35%), which is now developing AI-powered robots. Adding a mobile phone brand to the mix will only further loosen its focus. Never mind that acquiring T-Mobile would cost SpaceX in the ballpark of $180 billion, or more. Germany’s Deutsche Telekom (DTEGY +3.82%) still owns a little more than half of T-Mobile, and these two
outfits are in talks of their own about a 100% tie-up that would create a true international telecom titan. Still, less reasonable mergers have worked out well enough. Pros and cons of a T-Mobile merger SpaceX’s founder and chief executive, Elon Musk, didn’t float the idea. It was actually TD Cowen’s Gregory Williams and Wolfe Research’s Peter Supino that suggested the possibility at separate times last month. Both analysts cited the obvious: These two companies’ offerings are complementary. T-Mobile can provide terrestrial broadband access when
and where it’s possible and cost-effective, and when it’s not, Starlink’s satellite-based broadband connectivity could take over. Starlink, of course, can do so anywhere on the planet where its satellites are positioned above. It simply needs the permitted bandwidth, which T-Mobile (and Deutsche Telekom) could both chip in for. Nevertheless, such a pairing faces a handful of significant stumbling blocks that might make it not worth it. Forcing potential partners into becoming competitors Chief among these potential pitfalls is the competitive conflict that would likely
arise. Both AT&T (T +0.49%) and Verizon (VZ +1.37%) are already working with Starlink rival AST SpaceMobile (ASTS 1.13%) to build satellite-driven mobile broadband businesses. Should SpaceX become a direct rival to these two mobile network operators, the prospect of either partnering with Starlink as a wholesale/infrastructure service provider in the future drops dramatically, limiting SpaceX’s access to the roughly one-third of the domestic mobile broadband market currently served by T-Mobile. Presume a similar dynamic exists in and around Deutsche Telekom’s service market, too, if
it’s in play. It would be better to remain a neutral party, hoping that carriers will eventually look beyond AST SpaceMobile. Not the connectivity quality most U.S. consumers are accustomed to Then there’s the matter of marketability. It is possible for a mobile device to automatically switch from a terrestrial broadband network to a satellite-managed one. The quality and functionality of these two forms of connectivity are very different, though. Sending and receiving digital data between a satellite and the surface uses low-band spectrum. It
works, but it lacks the bandwidth, capacity, and speed that modern terrestrial 5G networks offer, even with Starlink’s current (and ever-growing) network of more than 10,000 satellites. And worse, the more people who use this satellite broadband network, the slower it becomes. That’s not the case for most terrestrial networks. Oh, it’s fine when there’s no other option. This remote market opportunity, however, is small by definition, simply because most U.S. residents live in well-covered areas and don’t need a subpar secondary connection. Moreover, as
of the latest tally, Starlink holds only about 6% of the nation’s total FCC-licensed spectrum. From this perspective, the proposed acquisition would be brilliant for SpaceX, as T-Mobile offers exposure to the consumer mobile broadband market. But Starlink doesn’t bring much to the table that T-Mobile needs or wants . including spectrum. This strategic disadvantage would raise the overall cost of acquiring the telecom outfit, if only by giving T-Mobile and/or Deutsche Telekom some additional negotiating leverage. Likely regulatory roadblocks It would also be naïve
to believe regulators would even allow such an acquisition in the first place. The legal arguments against a merger of Starlink and T-Mobile aren’t particularly strong. The FCC’s licensing of bandwidth and spectrum to the highest bidder(s) is still intended to be fair and equitable, and combining T-Mobile and Starlink doesn’t necessarily eliminate or discourage competition. Nevertheless, the Department of Justice has recently successfully argued against such mergers based on little more than their size and dominance of a business, no matter how deserved or
fairly earned that dominance is. Then there’s Elon Musk himself. While once hailed as a sociocultural hero for mainstreaming electric vehicles, he’s fallen out of favor on several fronts. Regulators could make things personal, even if not officially so. The doomed legal battle would be a distracting use of time, money, and resources in the meantime. Just not enough upside So, no — if the idea is truly on the table, SpaceX arguably shouldn’t make its operations even more complicated by entering the mobile service
market with limited growth potential just to deepen its roots in a mobile/stationary satellite-broadband business that’s already up and running. With more than 12 million paying direct-to-device customers already on board after adding 4.6 million last year alone, Starlink is already achieving some pretty impressive organic growth on its own. It doesn’t need to outright own T-Mobile, too. It may even be better served by holding on to its chance to partner with Verizon and AT&T domestically and their counterparts overseas in the future, which
would at least partially sidestep its problem with a lack of spectrum Mostly, though, such a deal invites headaches with little upside for plowing through or paying for them.
SpaceX, T-Mobile, Starlink, Deutsche Telekom, AT&T, Verizon, AST SpaceMobile, direct-to-device, FCC spectrum, merger risk, Elon Musk