Why T-Mobile US Stock Dropped Today
Key Points
SpaceX bought extra cellphone spectrum for its satellites earlier this month.
Now Bloomberg reports that SpaceX wants to lease cellphone towers on Earth.
SpaceX is building a fourth cellphone network to compete with T-Mobile, Verizon, and AT&T.
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T-Mobile US (NASDAQ:TMUS) stock fell 5% through 11:15 a.m. Friday as investors panicked over a new report from Bloomberg:
Space Exploration Technologies (NASDAQ:SPCX) -- already the leading player in satellite-based communications -- is angling to lease 80,000 cellphone towers on the ground, and plans to build a fourth major mobile telecommunications company to compete with T-Mobile, Verizon, and AT&T.
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What's Elon Musk up to this week?
You've heard the first part of this story already. Two weeks ago, SpaceX announced it's paying $8 billion to buy "up to 14 megahertz of paired spectrum in the 800 MHz band" from private equity firm Grain Management (which sounds like an agricultural concern, but apparently isn't). SpaceX predicted this purchase would "pave the way for Starlink Mobile to become a major mobile carrier in the U.S."
Now, SpaceX is taking the next logical step, leasing cellphone towers to bolster its telecom presence on the ground. Assuming the rumors are true, these towers will supplement the 15,000 direct-to-cell Starlink satellites that SpaceX is asking the FCC to let it launch. Once complete, SpaceX will have a robust ground game to cover cell calls in metropolitan areas, plus a globe-spanning satellite constellation to eliminate dead zones and give its network global reach.
What it means for SpaceX -- and for T-Mobile
It's pretty clear why SpaceX is doing this. Judging from the numbers we saw in its most recent earnings report, SpaceX is earning 45% operating profit margins from its Starlink "Connectivity" business, versus less than a 6% margin in artificial intelligence -- and negative profits in space launch.
It makes sense SpaceX would double down on the business that's working best for it.
The bad news for T-Mobile: Its operating margins are only 22% today. With new competition from SpaceX, you can expect T-Mobile's margins to fall even further.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
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