Why Verizon Stock Just Crashed
Key Points
SpaceX just signed a deal to buy Grain Management's satellite spectrum.
SpaceX says it aims to "become a major mobile carrier in the US."
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Elon Musk's Space Exploration Technologies (NASDAQ:SPCX) announced a major deal to buy spectrum for satellite communications services yesterday. SpaceX investors seem pleased with the news, and its stock is up 1.3%. But Verizon (NYSE:VZ) investors aren't at all happy.
Verizon stock is down 9.3% as of 12:15 p.m. ET.
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What did SpaceX do yesterday?
As CNBC reports, SpaceX signed a deal to license "up to 14 megahertz of paired spectrum in the 800 MHz band" to provide Starlink Mobile communications services to its customers. Elon Musk calls the agreement to buy the spectrum from private equity firm Grain Management (which sounds like an agricultural concern, but isn't) a "very big deal."
SpaceX itself predicts the purchase "will pave the way for Starlink Mobile to become a major mobile carrier in the US."
So you can understand why Verizon investors are nervous.
What this means for Verizon
SpaceX currently provides Starlink Mobile services to U.S. customers of T-Mobile (NASDAQ:TMUS). The limited spectrum available, plus SpaceX's relatively small number of direct-to-cell-capable satellites, limits Starlink Mobile primarily to emergency and supplemental service in cellular "dead zones."
As SpaceX adds spectrum, however, it will be able to extend Starlink D2C service to more customers and provide increasing levels of text, talk, and broadband capability, putting it into competition with incumbent cell providers such as Verizon. Indeed, SpaceX says this straight out: It intends "to become a major mobile carrier" in its own right.
Good news for SpaceX? Investors think so. I wouldn't abandon Verizon stock because of it, however. America's mobile phone market is big -- $350 billion big, according to IBISWorld -- with room for multiple players. SpaceX may take some market share, but Verizon is still the largest provider in the country -- and at under 9 times forward earnings, it's a lot cheaper than SpaceX stock!
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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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