If Gwynne Shotwell has a dollar and she wants to light the dollar on fire, she'll put it in XAI against some return somewhere that might be 50 trillion dollars to hammer, whatever their prospectus said. Or, you can put the dollar into Starlink Mobile in the buildout, and you will probably return a dollar ten. Like, that is what that business looks like because they will get some customers away from AT&T and Verizon. They're already running that thing profitably.
When they looked at it, it was just another part of the narrative that you build in terms of SpaceX and justifying the valuation, because what do all of these things need? Whether it's robo-taxi, whether it's, you know, data centers in space or data, they need money, right? And money needs a narrative. And look, it could just be, by the way, what does Elon happen to care about the most in that moment, right? What is more interesting to him to do? And like, frankly, isn't Space Computer a little bit more interesting to you know, to allocate those dollars than than taking some mobile customers from AT&T?
The man's addicted to his phone, and everybody hates seeing that AT&T logo in the corner.
Hello, and welcome to Decoder. I'm Nilay Patel, editor-in-chief of The Verge, and Decoder is my show about big ideas and other problems. Today, I'm talking with Walter Piecyk, a partner and analyst at LightShed Partners, who covers tech, media, and telecom about SpaceX's recently announced plans to become a major wireless carrier. Last week, SpaceX agreed to buy a big chunk of low-band spectrum to expand the Starlink network. That spectrum's been traded around the telecom business for decades now, but SpaceX's ambitious plan is to build, quote, "the world's most advanced mobile network." Combined with the news that the FCC approved the deployment of 15,000 next-gen Starlink satellites, and the company's previous agreement to purchase 20 billion dollars' worth of EchoStar spectrum last year, it's now clear that SpaceX is serious about competing with AT&T, Verizon, and T-Mobile. I've covered the telecom business for a long time, and I've always known these companies can say they want to do something until they run into the harsh reality of how expensive it is to actually do it. The telecom graveyard of pivots, bad ideas, and failed acquisitions is vast. Walt has been closely monitoring SpaceX acquisitions, though, and he's correctly predicted that SpaceX was headed in this direction for months now. So, I wanted to dig in to whether SpaceX can pull this off, why Walt thinks the existing telecom companies have really fumbled their response to SpaceX's growing threat, and what happens when Elon Musk's rocket company jumps headfirst into a business that everyone loves to hate. Before we get going, do me a favor and subscribe to Decoder on YouTube. We put out new episodes every Monday and Thursday. Okay, LightShed Partners, Walter Piecyk on the harsh reality of SpaceX's mobile wireless plans. Here we go. Walter Piecyk, you're a partner, a tech, media, and telecom analyst at LightShed Partners. Welcome to Decoder.
Thanks for having me. Looking forward to it.
I'm excited to talk to you. I feel like we've been like tweeting or posting around each other for many, many years, but I'm a telecom nerd at heart. I've been covering the space for ages. SpaceX is going to make a big splash. They're going to be the fourth major mobile carrier in the United States, and maybe the world. They've bought some spectrum to do it. It's EchoStar spectrum by way of private equity. It is at once very simple and it also very complicated. Give us the state of the state. I mean, they bought 800 MHz spectrum for $8 billion. They spent $20 billion already on EchoStar spectrum. What are they trying to do here?
I mean, it's definitely complicated, but maybe less complicated than trying to figure out how to put a data center out in space. Or something on the moon. But, I think, you know, this they don't typically want to own spectrum and spend for spectrum. If you think about their well, how Starlink was built, satellite companies don't typically pay for spectrum. And then, as the business evolves and as this business, as they saw the opportunity in telecom, they purchased some spectrum initially from EchoStar. And I think the feedback they got from investors at that time was very positive. And they're like, "Wait a minute, you know, you should do more here. Like, this is a trillion-dollar enterprise value business in the US alone." Obviously, they have global aspirations both for Starlink as well as what they're doing, you know, with this mobile telephone service. So, they bought more. They went back to EchoStar and that's a key thing I think to pay attention to in that they bought some spectrum and then they went back and bought some more because I think like a lot of things that Elon does, he learns as he goes, right? So, he bought the spectrum, got feedback, talked to people in telecom, bought some more spectrum. Then we didn't hear from them for a while and then you have this thing that happened last week where they bought some more spectrum, some stuff that was part of I can go through the history of it if you care, but it's a long wonky telecom stuff. This was originally the Nextel spectrum, if you remember that company.
I do. I actually I do want you to go through that history because I think the telecom business is best understood as a bunch of lobbyists trying to make everything more complicated than it should be. And yes, spectrum auctions are complicated and what spectrum is good for what is deeply tied to the physics of the radio spectrum and all that. But here it's the 800 MHz spectrum from the Nextel service, the old push-to-talk walkie-talkie service that Sprint had to divest as part of the deal to get sold to T-Mobile. They've been trying to sell it for ages. They sold it to this company Grain Management. They've been sitting on it for years. And Starlink showed up, Elon bought it. Nobody else wanted it. What did he see in this spectrum that no one else did?
Well, I think when you realize that you need to build a terrestrial network to support, you know, what you're doing with satellites because satellites work fine if you've got your, you know, your dish on the top of your house and you're getting your broadband, but when you're trying to connect with a phone that doesn't have the same type of power. By the way, Sirius Satellite also has supplementary towers. There's not that many of them, but sometimes when you get out of Sirius coverage, you will connect to a tower. So, I think when they bought that EchoStar spectrum and then got FCC approval and if you looked into those details of that FCC approval and what was required, you would see that they can't do this by satellites alone. There had to be terrestrial. Then I think SpaceX, as Elon is wont to do, tries to send some diversions. Like, "Oh, we're going to do femtocells. We're not going to do macro, this, that, and the other thing." But I think they realized that they were going to build a terrestrial network. Okay, so now when you finally realize, "Hey, if I'm going to offer mobile service, I need some form of a terrestrial network." And at the same time, the telcos are not going to help me out. They're not going to give me a wholesale agreement, then when you go back and say the companies that have the lowest churn, what is the fundamental value you need in a terrestrial network? It's low-band spectrum. Why? It travels further, you can get better coverage, and you have that connectivity. So getting this low-band spectrum piece was just an important part not to make the satellites work better, but to actually give them the spectrum access that they need to build a terrestrial network. And I think that's why the stocks reacted because people finally came to terms with, "Yeah, he's actually going to build a terrestrial network."
I'm less interested in the stock and more interested in just the cost structure of how this works. So if I remind my brain to, you know, being a baby blogger at Engadget 100 years ago, you know, the FCC told all the TV networks they had to stop broadcasting on 700 MHz and we were going to run an auction and Verizon, AT&T bought big chunks of 700 MHz spectrum and that's what 4G is built on. And that's the low bandwidth spectrum that you're talking about. It goes everywhere. This was a big victory that we reallocated 700 MHz. 800 MHz was sitting right there the whole time, right? I mean, this is the Nextel spectrum. If it is so valuable, why wasn't there a market for it until Elon showed up just now?
I mean, so it was part of this transaction, right? T-Mobile ended up, you know, having to sell it because, you know, basically the government was like, "Okay, if we're going to allow you to take out the fourth competitor, which was Sprint, then in order to enable another fourth competitor out there, we need to have you guys give up some of your low-band spectrum." So, part of the deal that T-Mobile and Sprint had with the government was that they would sell it to EchoStar. Why? Because Charlie Ergen, or actually it's Dish at the time, right? It's EchoStar now. Dish was going to be the fourth competitor, right? This was the rationale that they gave in terms of the approval of the transaction. So, Dish needed low-band spectrum. The problem is, you know, Ergen went about his business, always trying to build a network, and then basically just couldn't afford to buy that. And so, they had the rights to buy. So, then at that point, when Ergen couldn't, when failed on the bid to come up with the dollars to buy that spectrum, it enabled T-Mobile, or actually forced them to put it up for auction. Now, your question is like, why didn't someone else like show up then? I mean, again, from SpaceX's standpoint, as I mentioned at the start of this podcast, I think their strategy has been evolving over time. In terms of the other telcos, like, they can't really use it. There are some limitations that they have, but like, in hindsight, maybe Verizon or AT&T should have bought this 800 spectrum for whatever it was, let's call it $8 billion. They're probably losing more in enterprise value over the concerns of what's happening with SpaceX than what it cost them just to buy it in what's known as foreclosed, right? Basically, just take it, even if they don't use it, you know, or do whatever they need to to meet those build-out requirements, and stop, you know, SpaceX from having the necessary assets. I just don't think even these companies were taking Elon seriously, and thinking that he would actually build a network.
Do you think that's colored by the failure of Dish? We covered the promises of Dish Network to build a fourth wireless carrier in this country so closely, and their attempt was predicated on some amount of technology innovation, right? They were going to build this thing called an O-RAN network, which had a more competitive supplier base instead of just Nokia or Siemens or whoever, and they were going to run it on AWS and that was going to reduce costs and man, eventually they supported one Motorola handset in Vegas and even that was like backstopped by AT&T. They just couldn't, they literally could not do it. Like these promises never came true.
Dish, you know, they're a different company and Charlie Ergen is a different CEO and their ability to just throw money at a problem until it's solved is very different than Elon.
But if they couldn't innovate to make a cheaper, faster network, what's the evidence that Starlink can stand up an entire terrestrial network at a cost basis that allows them to compete selling service to consumers while they're also standing up an entire network in space? Because that feels like adding up a lot of cost.
I'm going to go even back deeper than that. Remember when Sprint was struggling, Masa from SoftBank was claiming the same thing. They were going to cut their CapEx to nothing and they were going to use these small cells and, you know, they innovated how wireless was going to get delivered. That failed. Obviously, they had to be bailed out through the purchase, you know, when T-Mobile bought Sprint effectively for just the spectrum. That network got completely decommissioned. To your point, you know, Dish, they got network built, but, you know, they just couldn't, they didn't, they couldn't resonate in the market. The difference between Dish and SpaceX is, you know, Elon's ability to get customers. Right? I think that's where Dish truly failed. They built the network. The network worked fine. They had the wholesale agreements that they needed.
Well, I'll push back on you a little bit there. Like I have a very funny email from like a Dish PR person. It's from several years ago where they're like, we'd like to issue a correction to your story. Our network does exist. Right? Like that was the level that they were competing at where they had to insist to us that the network was real even though we could not find it in our tests in the various cities they claim. Like maybe there was a network. They built some amount of network, but they had not built anything that could compete at the national scale with the big three.
Absolutely. It's not like your phone, the phone that I was using, I had an iPhone that it was mostly going to roam onto the AT&T and T-Mobile wholesale agreements that existed, right? And the theory is you get the customers, you have a go-to-market strategy, and then you backfill the network. And I think this is probably going to be something similar. And this is like you can even go back to when John Legere first took over T-Mobile. They had a crappy network, right? And then he promised like, "Hey, we're going to build it." He was taking on customers, saying that the network is great before the network was great, and then it kind of caught up because they actually finally got the Germans to give them the money, Deutsche Telekom, to invest, you know, in the network. And I think the same thing can happen here where they'll sell something that'll probably rely on other assets that are out there, even if they can't, even if the telcos themselves are like circling the wagons. They have the satellite for certain, you know, benefits in terms of coverage, and then just build the capacity over time. But, you know, the point is it's going to take time, right? You can't just turn on a network overnight and start selling service on that.
So, this has always been sort of my framework of how to think about telecom companies. Like you can try to run the network cheaper, or you can run some kind of different technology to make that cheaper, or you can just spend and just have the best network, which was the Verizon strategy for years and years and years. Then you've got to acquire and manage your customers, and that was the T-Mobile strategy. That was John Legere. He was just nicer to people than AT&T was, and he picked up a lot of customers, and that drove some investment. And then you've got to get some devices, right? You have to have the iPhone. And we can set that aside because it feels like that era of competition is over. We're not doing exclusive devices anymore. But those are the two. And I'm just looking at the network here, and it does not seem to me, from the outside, that Starlink is proposing to build a cheaper network. It feels like they're proposing to build a vastly more expensive network because they need the satellites. They're going to launch 15,000 more satellites to support this network. Then they're going to build a terrestrial network by investing in spectrum on the ground and building some set of base stations and then they're going to have to convince one of the big three to let them roam over as some sort of mobile virtual network operator and they don't want, the big three do not want to do that. Right, so they're going to overcharge them for that. I'm just stuck at that's a lot of cost even if you're Elon Musk and you can make some set of people buy whatever you're selling.
The third thing you said is obviously the most challenging and that's the thing that's the kind of the tent in the pole that prevents you from launching services sooner rather than later. But I think there are, without necessarily getting a wholesale agreement, there might be other ways. Roaming agreements exist out there. There are roaming partners that exist that these telcos still rely on. It's very expensive. It's not something you can build a high margin business on, but it perhaps provides an entry to the market sooner rather than later. And then the point of differentiation ultimately it becomes, you know, not getting as Apple has pitched in terms of satellite connectivity, some person in the middle of the Utah desert texting because, you know, they're injured. There's value there, but it's the soccer field. Like we have, you know, maybe not in the cities but in the suburbs there are plenty of areas that the telcos have effectively given up on trying to provide coverage because of NIMBYism, meaning people like just don't want these cell sites, that this satellite coverage cannot just give you this basic text messaging that Apple has been doing through the Globalstar constellation, but a true cell phone type experience. So A, that's a positive, and the second differentiation is the fact that these telcos have 60% EBITDA margins. So there's a lot of fat there that can be eaten off of that when you're selling other services, you know, in terms of Elon like selling home broadband, maybe this becomes an entree in terms of pushing Grok in people's usage. You don't necessarily need 60% margins, you know, in this case for him, you know, to justify building this network. They also talk about, you know, other data connectivity that these satellites are going to enable. Again, the current constellation, you need a lot of power and you need a dish. But, if you don't have that, if you have the cell phone type power, then the kind of IoT and other type of opportunities that exist there become, I think, another thing that they look at as a revenue opportunity.
It's just funny. The IoT story, I mean, that's what all these companies promised us about 4G. That's what they all promised us about 5G. Like, there's something about this business that just rhymes every time. I'm confident we're going to hear about self-driving cars and robot surgery when it comes to Starlink and Tesla and Optimus. Like, there's something about these applications where next-generation networks that just recur and we hear about them all the time. And then, I think about our consumer audience at The Verge, and they want long battery life and fast service in all the places they go. And I'm not sure how that squares with your phone is going to connect directly to a satellite in the middle of a soccer field. Right? Like, there's something about that that also seems challenging.
I think it's just the performance in that if your phone does connect to the satellite on the soccer field and it works, right? I mean, again, a lot of the things that people said wouldn't work on Starlink in terms of airplanes or even getting CPE down below a certain price, they've delivered on. Obviously, Elon sometimes delivers on them a little later than some of his initial optimistic promises, but they ultimately get delivered on. I think there is the ability with these new constellations, you know, to give you, you know, that type of connectivity on these spaces. Is that enough to differentiate with consumers? I don't know. The telcos have attacked this in saying, "Well, no one cares about our D2D service." Well, your D2D service is not good, right? It's just sending basic text messages. What they're talking about is giving you that blanket coverage where you get what you expect from your cell phone wherever you go. That's fine, but you still have to give it to the person in the middle of the building where their cell phone works today and obviously provide the volume at a cost that is going to be attractive to that consumer. So those are again longer term things that are going to require some amount of terrestrial network build. Then the question is how much, right? And I think a lot of the attacks that have been out there have been, you know, referencing 100 billion, 200 billion. I get that. Why? Telcos, they spend each of them 10, 15 billion dollars a year. But they are maintaining massive customer bases. To get that initial network up where you have that usage, where you use that low-band spectrum to get in the buildings, is not those types of numbers. You're probably talking like, you know, 10 billion, 15 billion dollars for that initial build in terms of capex.
The dynamic there's really interesting. I'm just thinking about, I don't know, AT&T when the iPhone came out, right? The network immediately got overloaded because there was a surge of customer demand that took four years to resolve truly, and part of that resolution was just putting the iPhone on the other carriers. How do you think that will play out for Starlink here? Because right now Starlink customer service is not the best in the industry. Their actual service, people love it. And then when they need customer service, it's a bunch of automated systems and people complaining on Reddit. So there's some challenge there, right? If you're running a consumer business at this scale.
Yeah, a consumer business is, I mean, think about all the advertising that's done, the fulfillment, dealing with the phones, phone subsidies, and that's a big part of the financing. I think it's just like how many customers are we talking about? So, you know, for the amount of spectrum that they have now in the network that I'm talking about for 10 or 15 billion dollars, you're not taking 50% share overnight. And I don't think that would be that expectation from day one. But then the theory of telco is you do that initial capex build. You have your initial spectrum purchases, 10, 20, maybe 30 billion, another 10 or 15 billion dollars in terms of capex. And then if you are successful and you do get that 5 or 10 million customers, the opportunity to invest more happens, right? If you go back to the old days, when the cable view of wireless was going to be, "Hey, we're going to get these MVNOs. We're going to drive the wireless companies into the dirt, and then we're just going to buy them." And I think that happened in at least one European market, and that was the cable bull thesis that was occurring. So, you could have the same bull thesis, I think, emerge from the SpaceX bulls here, where they're going to say, "Hey, we're going to just drive, we'll get those first 5 or 10 million customers. We'll drive them into the ground. Verizon's going to be so desperate for any type of revenue, because their revenue declined, they're just going to hand them a wholesale deal, and then they'll start selling spectrum. There's going to be a spectrum auction with the FCC." And you can see how the narrative can build based on, "Hey, initial capex not that big, get in the market, and then if it's successful, we start investing more."
Let's talk about the terrestrial network for one more term. I heard you throw a little water on the idea that they're going to build femtocells. That is what Elon and Gwynne Shotwell have been saying, that they don't need to build the traditional kind of terrestrial network that AT&T and Verizon and T-Mobile have, where you have a lot of fiber backhaul, the big sites that require all kinds of zoning permits and everything, that they can basically just put small cell stations next to Starlink dishes, put them anywhere they want, and blanket the world with them, and Starlink itself will be the backhaul. Now, I sense some problems with this. Like, Starlink is not 100% reliable all the time. If you have a network that is not 100% reliable all the time, you've got some problems. So, maybe you got to back stuff up somehow. But, you don't think that's what they're doing. You think they're going to build a regular terrestrial network.
I mean, I'm sure that'll be a part of it, but you need macro towers for the type of coverage and penetration and power that it's just, I mean, not to explain physics to SpaceX, they probably know it better than anybody, but I think what you'll see is, you know, as they talk more about this low-band spectrum that they purchased, that when we get on the conference calls of these tower companies, that you're going to find out that you're going to see a lot of those antennas show up on towers. It's just natural. I think, you know, you can talk about femtos, but it's hard to see that the network is going to get built without macro towers.
One of the weirder aspects of the telecom industry as it's considered in the United States right now is that the cell carriers own some of their towers and operate some of their towers, and then there are these crazy third parties that literally have names like TowerCo that operate a bunch of the other towers. Are those captured? Do you think SpaceX can get deals with those companies? Are they beholden to their big partners?
These are huge REITs. American Tower is the biggest one. It's probably one of the largest companies in this, you know, when you consider any REITs. There's other companies out there. So, they have these towers. They have space in many cases where, you know, where basically SpaceX can just go and get an additional antenna. So, it's a lot easier to do that now than when the wireless companies were initially building this stuff and having to erect their own towers. In addition, you know, EchoStar is going through a bankruptcy. They have a lot of radios that could be used, that could be bought on the cheap, that could expedite, you know, SpaceX's entrance into the market. They haven't shown interest in that yet. You know, the EchoStar bankruptcy process hasn't yet concluded, but EchoStar can still be a potential partner here by selling them, again, radios that are already on towers. So, you've lifted the amount of time that those radios use the spectrum that SpaceX is purchasing. So, it could be a quick fix for them to enter the market. Who knows if they do that? They may have their own view like Masa did on how to build this new cheap network.
Is there a way to read this as just they're slowly buying EchoStar or whatever EchoStar tried to do?
I mean, EchoStar has some remaining spectrum that Verizon frankly really needs. I mean, at this point if there is some strategic sense just to buying EchoStar outright because EchoStar is getting stock that was issued to them at a discount. So, if you're buying them, you're effectively buying in your own stock, right? You don't have to issue the cash to the company, and you're getting whatever cash proceeds that, you know, EchoStar is getting from some of its spectrum sales. So, they can actually get incremental cash on the balance sheet and buy their stock in. So, we'll see if that plays out. And by the way, they don't have to also deal with Dish, which sometimes can be challenging.
T-Mobile is in the mix here. I want to talk about Verizon. You've mentioned them several times, but T-Mobile is Starlink's current partner for direct-to-device cell connectivity. Are they just getting rocked? Are they going to be a part of this? How's that going to work?
I mean, if you think about the start of that, that was Mike Sievert up on stage with Elon announcing this thing, and everyone's very happy, and then, you know, I think Deutsche Telekom decided that they needed a different CEO at some point. You've had that transition where Mike, you know, retired, and you brought in a new CEO, and I think there might just be a different view on how that relationship works. I'm sure, I'm guessing that it's been very frustrating for SpaceX to deal with them, and certainly would probably want to avoid any exclusivities going forward, but, you know, they may need to if they want to sign one of these wholesale agreements that we talked about before.
It just seems like, as you mentioned, SpaceX and Starlink, they went after a little bit of the consumer market here. They bought some spectrum. They got a good reaction to it. Now, they're going to go after the whole thing, and their existing telecom partner is thrown by the wayside. Like, if you look at the three big telecoms in the United States, they are circling the wagons. They're saying this is never going to work. They're never going to sign the MVNO agreements. They're putting together their own satellite pool. There's something here where they are panicked by the existence of meaningful competition in a way that does not usually happen in telecom.
Yeah, I mean, I agree with that, and I think I don't know if it's SpaceX leaving them or T-Mobile leaving SpaceX, but that relationship which started out so happy with the old CEO is certainly not positive, right? I mean, you know, T-Mobile executives have been throwing shade at SpaceX, you know, incessantly, you know, over the past couple of months and they formed a JV together and like to me, it reminds me of like when cable and fixed wireless first hit the cable market and Chris Winfrey, you know, talked about it derisively as cell phone internet, cell phone internet and played it down and ultimately that's what's really bit them and why cable stocks are in the position they're in today given the amount of customers that they're losing to cell phone internet. There's some similarities now in terms of how these executives are downplaying, you know, what they can do. Is it going to be costly? Is it going to be
Complex? Sure, but like so is Terra Firma, and so are so many other things. So is making an autonomous vehicle or catching a rocket with, you know, chopsticks. And I think that's the reality that they have to deal with. Investors have seen, you know, what this management team has done before in other areas and are just applying it here. Whether that's fair or not, you know, time will tell.
I'm actually very curious about that because I know you covered the company and I know you covered the industry. There's some part of SpaceX that is just a meme stock, right? People love Elon. There's some part of Tesla where it's not valued like a car company, it's valued like a software company even though it is very much a car company, and we've yet to see where the software multiples might come from for Tesla. I think the same is true of SpaceX, right? We see a huge IPO, but people are buying the physics miracle of the rockets launching and landing. They're buying the promise of Mars. They're buying the promise of AI, whatever that promise is, however frothy that market is. Those are valued against hopes and dreams. Telecom is not. It's well known. You can be a telecom analyst and you can examine the value of the spectrum. You understand the build-outs. The customers are not confusing. Consumers are going to pay some amount of money. There are other competitors that are built in at scale. Why do you think SpaceX would chain itself to a business that is easy to value when all of its other businesses are their dreams? You can't value dreams. It's just whatever is the biggest number.
