To build a fourth national carrier, SpaceX needs a cellular network
SpaceX has made no secret of its ambitions to build a fourth major cellular network in the U.S.
SpaceX, in a bid to launch a fourth national wireless carrier, has reportedly landed on a potential acquisition target: Boost Mobile, the struggling service owned by EchoStar.
Elon Musk, the SpaceX (SPCX) CEO, has been in talks with EchoStar (ECHO) and Chairman Charlie Ergen over either acquiring or otherwise gaining access to Boost Mobile and its network, the Washington Post reported. This would mark another move by Musk to develop a rival to AT&T (T), Verizon Communications (VZ) and T-Mobile $(TMUS)$, which have banded together against the SpaceX threat.
Musk had approached all three major telecoms providers with requests for network access, but was rebuffed, the Washington Post reported. The SpaceX satellite network doesn't have the low-spectrum coverage or other infrastructure necessary to offer a comprehensive mobile service.
That's why Musk has been moving quickly to grow SpaceX's capabilities, piece by piece. It plans to buy spectrum from at least three companies, including EchoStar. Just over a week ago, Musk was reported to be in talks to buy access to cell towers operated by Crown Castle $(CCI)$, while American Tower $(AMT)$ CEO Steven Vondran implied on an earnings call last week that his company was also in discussions with SpaceX.
BNP Paribas analyst Sam McHugh said that "the thrust of the article seems to be a slight shift" from the idea that SpaceX is talking with tower companies. While the company may pursue both courses, the Washington Post report "seems to suggest an MVNO is still their preferred route," the analyst said in a note. An MVNO, or mobile virtual network operator agreement, is when a company leverages spare capacity from an existing wireless provider but brands the service to customers as its own.
SpaceX could push even further and attempt to acquire a telecommunications company, a tall order, but one that could cut Starlink Mobile's time to market by a few years, according to Citi analyst Michael Rollins. The analyst has named EchoStar and several tower-operator stocks as possible targets amid SpaceX's mobile push.
While the competitive threat posed by SpaceX has discouraged the three major national carriers from helping Musk, buying into Boost Mobile could be a back door. Boost Mobile leases its network from AT&T and T-Mobile, according to the Washington Post.
"If SpaceX did do this, and built their own network, AT&T would have the most to lose given that Boost MVNO represents an estimated 1% of their mobile service revenue," McHugh wrote.
That said, AT&T could try to cancel the deal, he added.
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Another route would be an outright acquisition of EchoStar. That would give SpaceX access to EchoStar's remaining spectrum and Dish Wireless assets, according to a blog post from technology consultant Tim Farrar.
EchoStar's satellite-television provider, Dish DBS, emerged from bankruptcy protection last month, while Dish Wireless is still undergoing Chapter 11 proceedings. Crown Castle, American Tower and SBA Communications (SBAC) sued Dish Wireless last year over unpaid lease obligations. Bankruptcy proceedings have been paused as the parties undergo court-appointed mediation through Wednesday morning, according to a court filing.
On an earnings call in August, EchoStar's Ergen discussed the company's track record with Boost Mobile and wireless in general. He admitted that the company hasn't "cracked the code on how to be successful to the level we'd like" and likened its performance to treading water.
"We're disappointed that we haven't done better in it," Ergen said, adding that EchoStar has a "fair amount of flexibility" to improve the wireless business, including through partnerships or a merger. In addition to Boost, EchoStar operates the Gen Mobile brand.
SpaceX shares are up 4% on Monday and trading just above their initial public offering price of $135.
EchoStar shares rose 2% in morning action on Monday. Wall Street primarily views EchoStar as a way to get additional exposure to SpaceX, since EchoStar is owed stock as part of its deal to sell it spectrum.
-Jules Rimmer -William Gavin
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