Speaker 1Great meeting. Who took notes?
Speaker 2Anyone? With Monday Notetaker, the meeting ends and the plan already exists. Action items, owners, deadlines. Go to monday.com, the AI workspace platform.
Speaker 3Hello and welcome to Decoder. I'm Neil Apatow, Editor-in-Chief at The Verge, and Decoder is my show about big ideas and other problems. Today I'm talking to Walter Pysik, 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. And 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 worth of Echo Star 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, while 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, Trump's head first into a business that everyone loves to hate. Before we get going, do me a favor and subscribe to Decoder on YouTube, where we put out new episodes every Monday and Thursday. Okay, LightShed Partners' Walter Pysyk on the harsh reality of SpaceX's mobile wireless plans. Here we go. Walter Pysyk, your partner, a tech, media, and telecom analyst at LightShed Partners. Welcome to Decoder.
Speaker 4Thanks for having me. Looking forward to it.
Speaker 3I'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, maybe the world. They've bought some spectrum to do it. It's Echo Star Spectrum by way of private equity. It is at once very simple and also very complicated. Give us the state of the state. I mean, they bought 800 megahertz spectrum for $8 billion. They spent $20 billion already on Echo Star Spectrum. What are they trying to do here?
Speaker 4I mean, it's definitely complicated, but maybe less complicated than trying to figure out how to put a data center out in space and making that work or something on the moon. But I think, you know, they don't typically want to own spectrum and spend for spectrum. If you think about how Starlink was built, satellite companies don't typically pay for spectrum. And then as the business evolves and as this, this business, as they saw the opportunity in telecom, they purchased some spectrum initially from Echo Star. 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 U S alone. Obviously they have global aspirations, both for Starlink as well as what they're doing, you know, with the, with this, you know, mobile telephone service. So they bought more, they went back to Echo Star. 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. Cause I think like a lot of things that Elon does, he learns as he goes, right? So he bought the spectrum, got feedback, talk 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, um, where they bought some more spectrum, um, 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,
Speaker 3I do, I actually do want you to go through that history because, I, 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 megahertz 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 the, this company grain management. They've been sitting on it for years and Starlink shut up. Elon bought it. Nobody else wanted it. What did he see in the spectrum that no one else did?
Speaker 4Well, I think when you realize that you need to build a terrestrial network to sub 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, serious satellite also has supplementary. So there's not that many of them, but sometimes when you get out of serious coverage, you will connect to a tower. So I think when they bought that echo star spectrum and then got FCC approval, and if you looked, 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. And then I think space X as, as Elon is want to do tries to send some diversions like, Oh, we're going to do femto cells. 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 had the lowest term, what do you, 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 a important part, not to, to, to make the satellites work better, but to actually give them the spectrum assets 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.
Speaker 3I'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 a hundred years ago, you know, the FCC told all the TV networks they had to stop broadcasting on 700 megahertz. And we were going to run an auction. And I know Verizon, AT&T bought big chunks of 700 megahertz 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 read reallocated 700 megahertz, 800 megahertz was sitting right there the whole time, right? I mean, this is the next tell spectrum. If it is so valuable, why wasn't there a market for it until Elon showed up just now?
Speaker 4I 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, and then in order to enable another fourth competitor out there, we need to have you guys give up some of your low bandwidth 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 I say 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, the approval of the transaction. So Dish needed low bandwidth spectrum. The problem is, you know, Ergen went about his business or he's trying to build a network and then basically just couldn't afford to buy that. 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 and 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 the, whatever it was, let's call it $8 billion. You're probably losing more in enterprise value over the concerns of what's happening with SpaceX than what it costs them just to buy it. And what's known as foreclose, right? Basically just take it even if they don't use it or do whatever they need to meet those build out requirements and stop, you know, SpaceX from having a necessary assets. I just don't think even these companies were taking taking Elon seriously and thinking that he would actually build the network.
Speaker 3Do you think it'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, they're a different company and Charlie Irving's a different CEO and their ability to just throw money in a problem until it's solved is very different than Elon. But if they couldn't, 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? Cause that, that feels like adding up a lot of cost.
Speaker 4I'm going to go even back deeper than that. Remember when Sprint was struggling, Masa from SoftBank was, 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, innovated how wireless was going to get delivered, that failed. Obviously, that to get bailed out through the purchase when T-Mobile bought Sprint, effectively for just the spectrum. That network got completely decommissioned. To your point, DISH, they got network built, but they couldn't resonate in the market. The difference between DISH and SpaceX is Elon's ability to get customers. I think that's where DISH truly failed. They built the network. The network worked fine. They had the wholesale agreements that they needed.
Speaker 3Well, I'll push back on you a little bit there. I have a very funny email from a DISH PR person from several years ago where they're like, we'd like to issue a correction to your story. Our network does exist. 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 claimed. Maybe there was a network. They built some amount of network, but they had not built anything that compete at the national scale with the big three.
Speaker 4Absolutely. It's not like the phone that I was using, I had an iPhone, that it was mostly going to roam on T-Mobile. It was going to roam on T-Mobile. They had the AT&T and T-Mobile wholesale agreements that existed. The theory is you get the customers, you have a go-to-market strategy, and then you backfill the network. I think this is probably going to be something similar. You can even go back to when John Ledger first took over T-Mobile. They had a crappy network. Then he promised like, hey, we're going to build it with taking on customers, saying that the network is great before the network was great. Then it caught up because they actually finally got the Germans to give them the money, Deutsche Telekom, to invest. In the network. 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 the telcos themselves are circling the wagons. They have the satellite for certain benefits in terms of coverage, and then just build the capacity over time. The point is, it's going to take time. You can't just turn on a network overnight and start selling service on that.
Speaker 3This has always been my framework of how to think about telecom companies. 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. That was the T-Mobile strategy. That was John Ledger. He was just nicer to people than AT&T was. He picked up a lot of customers, and that drove some investment. Then you've got to get some devices. You have to have the iPhone. We can set that aside because it feels like that era of competition is over. We're not doing exclusive devices anymore. Those are the two. I'm just looking at the network here. 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. Then they're going to have to convince one of the big three to let them roam over. Some sort of mobile virtual network operator. The big three do not want to do that. They're going to overcharge them for that. 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.
Speaker 4The third thing you said is obviously the most challenging. That's the tent in the pole that prevents you from launching services sooner rather than later. 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 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. Then the point of differentiation ultimately becomes not getting, as Apple has pitched in terms of satellite connectivity, some person in the middle of the Utah desert texting because they're injured. There's value there, but it's the soccer field. 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 just don't want these cell sites. This satellite coverage cannot just give you this basic text messaging that Apple has been doing through the global star constellation, but a true cell phone type experience. A, that's a positive. The second differentiation is the fact that these telcos have 60% EBITDA margins. There's a lot of fat there. There's a lot that can be eaten off of that when you're selling other services, 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 in this case for him to justify building this network. They also talk about 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.
Speaker 3It's just like the IOT story. I mean, that's what all these companies promised us about 4G. That's what they all promised us about 5G. 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. There's something about these applications for next generation networks that just don't make sense to me. I don't think it's going to make sense. 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 and 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.
Speaker 4I 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 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 to give you that type of connectivity on these spaces. Is that enough to differentiate with consumers? I don't know. The telcos have attacked this and saying, well, no one cares about our DDD service. Well, your DDD 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 attracted 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 referencing $100 billion, $200 billion. I get that. Why? Telcos, they spend each of them $10, $15 billion 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 $10 billion, $15 billion for that initial build in terms of CapEx.
Speaker 1At T-Mobile, the new iPhone 18 Pro is here with a big leap in battery life, and you can get it for nothing up front. With so many reasons to choose T-Mobile, you'll want to talk about it.
Speaker 2I heard at T-Mobile, you can get iPhone 18 Pro for nothing up front and get $1,000 off. Pass it on. Pay nothing today. No taxes, no fees, nothing down. Pass it on. Hey, Mickey, pass it on. iPhone 18 Pro, has the most advanced iPhone camera ever. Pass it on.
Speaker 5At T-Mobile, you can get iPhone 18 Pro for nothing up front. Pass it on.
Speaker 1At T-Mobile, get $1,000 off the amazing iPhone 18 Pro with no trade-in needed.
Speaker 5With 36 monthly bill credits when you switch to T-Mobile on a qualifying plan, if you cancel entire account before receiving all bill credits, credit stop and balance on required finance agreement is due. Example 119999, iPhone 18 Pro, 256 gigabytes. Bill credits in if you pay off device early. Qualifying credit, new line, port in, and service. $85 more per month with auto pay plus taxes and fees required. The dynamic there is really interesting.
Speaker 3I'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 in the other carriers. How do you think that will play out for Starlink here? Because right now, Starlink customers 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.
Speaker 4Yeah, consumer businesses. 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 for the amount of spectrum that they have now talking about for $10 or $15 billion, 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 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, the cable was going to be, "Hey, we're going to get these MVNOs. 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 five 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.
Speaker 3Let'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 Gwen 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. 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. 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've got to backstop it somehow. But you don't think that's what they're doing. You think they're going to build a regular
Speaker 4terrestrial network. I mean, I'm sure that'll be a part of it, but you need macro towers for the 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. And 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.
Speaker 3One of the weirder aspects of the telecom industry as it's constituted 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
Speaker 4big partners? I mean, 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, Echo Star 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 in the market. They haven't shown interest in that yet. You know, the Echo Star process hasn't yet concluded, but Echo Star 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 those radios use the spectrum that SpaceX is purchasing. So it can 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. Yeah.
Speaker 3Is there a way to read this as just they're slowly buying Echo Star or whatever tried to do?
Speaker 4I mean, Echo Star has some remaining spectrum that Verizon frankly really needs. I mean, at this point, there is some strategic sense just to buying Echo Star outright because Echo Star 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, Echo Star 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, if that plays out. And by the way, then you don't have to also deal with DISH, which sometimes can be challenging. T-Mobile
Speaker 3is 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. What, are they just getting rocked? Are they going to be a part of this? How's that going to work?
Speaker 4I 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, you know, there's, 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 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.
Speaker 3It just seems like, as you mentioned, SpaceX and Starlink, they went after a little bit of the market here. They bought SunSpectrum. 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. 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 MVO 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.
Speaker 4Yeah, 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 when fixed wireless first hit the cable market and Chris Winfrey, you know, talked about it to rice of Lee 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 terror fab, like, and so are so many other things. So is making a autonomous vehicle or catching a rocket with, with, you know, chopsticks. And I think, that's the reality that they have to deal with. Investors have seen, you know, what this, 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.
Speaker 3I'm actually very curious about that. Cause I know you cover the company and I know you cover 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? 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, 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 customer experience, the customer experience, the customer experience, the customer 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, you can't value dreams. It's just whatever is the biggest number.
Speaker 4I mean, I don't think it's an either or, and I would think that when you, when you look at people's attempts to justify the valuation of, of SpaceX, a lot of that value is going to land on, you know, a data center, in space and, you know, the data centers on the ground. And that, and that's where a lot of the values and Starlink to a certain extent.
Speaker 3But I just, but that's not the launch business, which theoretically is their business, right? It's not even the AI provision business, right? We're, we're, we're describing them as a hyperscaler.
Speaker 4Yeah, exactly. And well, the AI, those are other big chunks of it. There's a lot of different stories here, but it doesn't mean that they don't pursue this. If constantly is having connectivity and constellations, and they're talking about connectivity in space, right? Cause they believe, right? That there's going to be a demand for connectivity between the data centers, whether it's theirs or others and their constellations. There are already data centers that I think are using, you know, their constellation to, to connect. So I think they, when they looked at it, it was just another part of the narrative that you build in terms of SpaceX and justifying the valuation. Cause what, what do all of these things need? Whether it's RoboTaxi, whether it's, you know, data centers in space or data, they need money, right? And money needs a narrative. And this is just a, another one of the narrative to, to stack on top to say, here's how we can drive, you know, incremental value. And, and the, and the, the value is, you know, if you look at the enterprise values of these telcos in the United States, you're talking about like a trillion dollars, right? So that's a trillion dollars of enterprise value. They're obviously not going to capture a trillion dollars, right? Because part of it is shrinking the telcos down at the same time at getting whatever that stake is and the CapEx related to it. I think the fair question is, you know, if, you know, capital gets more scarce, like how do you allocate between these different things? Like, are you, don't you want to push TerraFab forward a little bit more or get those terrestrial, you know, data centers built so that you can start monetizing the billions of dollars that you're getting there versus diverting, you know, whatever the dollars are here for the telco. And I think that, that is a reasonable thing. The problem for the telcos is even if that's happening at SpaceX and this gets delayed a year, that doesn't help them, right? That, that, that, you know, the, the overhang of when that's going to occur, whether that's a year, two years, three years is always going to be there. They're not going to say, hey, we're just giving up on going after this. It's just going to be a capital allocation issue in the near term that's going to delay when the actual impact hits the telcos in the United
Speaker 3States. How much of this is just Elon needs to supply connectivity to his own cars and his own factories and his own robots, and he'll just be his own best customer?
Speaker 4I don't think that's it. I think they really want to build a revenue business out of it. In fact, they're going to use the cars as hotspots, where they'll put Starlinks on there and then use them as distribution points. That's going to be part of the play.
Speaker 3I do want to end by talking about the existing telcos and what competition might do to them, because I think that's a fascinating dynamic. They are clearly not ready for an actual aggressive competitor. But I want to stick with what you just said for a minute. If I pull that apart, it sounds like what you're describing is the reality of the SpaceX business, which is that Starlink is the thing that makes profits. Everything else is incinerating money, but investors seem happy with that because of the technology. Potential payoffs might be huge. So if you take the Starlink profits, you have to make a decision about whether to reinvest them into Starlink and now Starlink's mobile business, or into AI, or into the launch business, or into going to Mars. And regardless of how that allocation happens on what timeline, at some point, enough money will go back into Starlink mobile to pose a real threat to AT&T, Verizon, and T-Mobile. And that is just a matter of time. Yeah. And that's.
Speaker 4I think you nailed it. And that is the issue. And capital becomes the biggest benefactor right now to the telecom companies. How does that capital get allocated? Again, that's in terms of reported results. They're 100% right on that. But in terms of the stocks, that concern is not going to go away because there will be incremental data points. Maybe one of these telcos has a problematic quarter or two. These are not founder CEOs and they have to do something quick. It's easy to get a lot of wholesale revenue on. The books by doing a deal with SpaceX, these are the types of things that they're going to have to deal with in terms of that long-term risk. Cable's got this. Look at Uber. Uber's got the same issue, right? The threat of Waymo and RoboTaxi is what keeps that stock where it is. It's not that Waymo with their 3,000 or 4,000 cars, they're obviously not impacting the 2 million drivers that Uber has in the United States. But the threat of where Waymo is going to be two years from now, three years from now, or Tesla, RoboTaxi, that's going to be a big problem. And that's going to be a big problem. That's what investors care about, and that's going to obviously impact these companies.
Speaker 3Put that in the context of SpaceX being a public company for me. Is it just that we're going to get next quarter's results of SpaceX, and we're going to see that XAI is still burning money at enormous rates, but Starlink Mobile made a little bit more money, and that's going to keep everybody happy for a minute?
Speaker 4I don't think we have enough history yet in terms of what moves SpaceX stocks one way or another. I think to your point, you have a lot of believers, regardless of what's printed. They're going to always look to say, well, who cares about this quarter? Tesla's got the same issue, right? Who cares how many cars that they actually sell, because it's all about the RoboTaxi, and the RoboTaxi's about to start scaling. So I think those very positive people won't care, and then there's going to be the negative people, no matter how much traction you see them get in, whether it's Starlink or progress on the build of space compute, that they're going to be like, oh, he's never going to deliver. This is never going to happen. I think you're just going to have those fighting battles back and forth, and the primary issue is going to be, can they raise capital off of that, right? In what ways? Because if you're burning cash, at some point, you need to bring in cash at some point, right? If these businesses aren't generating enough cash because you're consuming it with the other growth initiatives, you still have to figure out ways to continue to issue stock to get more cash on the balance sheet.
Speaker 3If I was going to offer that most cynical read, I would say the only business where they can see expanding the service will result in more profits to offset the losses elsewhere is Starlink. They don't have another business that looks like
Speaker 4that. And just to be clear, Starlink is the broadband business that's generating the cash flow. This mobile business would be cash negative initially before you get into that positive cash position. You've got to look at RoboTaxi. There's going to be a lot of CapEx initially, but these cars are pretty cheap. That theoretically could be a cash generator. And the reason I keep, I agree that. But we know that there will be, just like I mentioned earlier, maybe it makes buying EchoStar make sense because you're buying effectively cash in your own stock on the cheap. There's different ways to put cash, obviously, on the balance sheet in 10 or $20 billion chunks. But
Speaker 3just to make it dumber, obviously, the structure of these companies, they're all Elon's companies in the end, right? And he's managed them as closely as anyone can manage big public companies. But- To make it as dumb as possible, if you have a dollar and if Gwen 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 dam or whatever their prospectus said. Or you could put the dollar into Starlink Mobile in the build out and you will probably return $1.10. 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. So, the idea that they need to show some return somewhere, to me, it feels like that's why they're making this move. Not because it makes the most financial sense. It just makes the most financial sense in the context of SpaceX.
Speaker 4You may be right that the problem with that belief is that it's going to take time for them to get that dollar of profit out of the mobile business, right? They have to still build the network. They still have to sign up customers. You're going to be negative EBITDA for a while. So, if you have two- Two different businesses and you think their returns are significantly higher or more interesting to your investors to get to that next catalyst for a space compute or optimist or whatever it is, that I think is going to play a role. 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 frankly, isn't space compute a little bit more interesting to allocate those dollars than- Yeah. Yeah. Yeah. Than taking some mobile customers from AT&T?
Speaker 3Yeah. Although the man's addicted to his phone and I bet he hates seeing that AT&T logo in the corner. Like there's just a part of that that's always with these guys.
Speaker 6business needs evolve. Plus, on-demand resources help level up operations at every stage. That's the trusted service you've come to expect. Built to simplify, designed to scale. This is Amex Corporate.
Speaker 3Let's talk about the existing telecoms. They do seem a bit panicked. You know, for a time, they were juggernauts. These were unstoppable businesses as mobile was growing. They poured a bunch of money into the 5G transition. I've described the telecom industry as a bunch of lobbyists. Boy, did the lobbyists win the 5G transition. Boy, did they collect all the favors and all the capital they could to build out these networks. And then reality hit them in the face, right? We beat China to some kind of network, and then the thing did not happen, right, that we were supposed to win. And now we're doing it again AI. That's a different conversation. But that was the narrative with 5G, is that we didn't beat China to 5G something. Who knows what, but we've got to cut all the corners to build this network and spend all the money. It just didn't pay off. You're actually an analyst. You're in the trades. I skim the trades, and boy, are all these CEOs being like, we've got to generate some revenue with these networks now. You've mentioned Mike Sievert's gone. The old CEO of Verizon's gone. It just didn't pay off for these guys.
Speaker 4Yeah, 5G didn't deliver. Some of the promises were BS from the beginning. Yeah. You talked about this earlier, autonomous cars. You're not going to rely on the network to make that millimeter-second decision of whether you're going to hit the car in front of you or not. Remote surgery, even if that was a thing, how is that a scale business when you're generating hundreds of billions of dollars of revenue? So it was like, these were all silly. And Sievert used to be the guy, oh, people would say the same thing about LTE. There's no application. That was not even true. If you remember, the application was video, and we knew that LTE was going to enable video, and that's what exactly happened. So you're 100% right. This was just basically a way for them to get more spectrum because they were going to still have data growth on their networks, right? So capturing more spectrum to be able to handle the existing growth, and that's cheaper to get spectrum, even at tens of billions of dollars than it is to try and build the network for that capacity.
Speaker 3If they had just said, look, we're going to spend all this money, and at the end of it, tens of thousands of people will be going to be able to do it. I think Americans are like, go, go faster. Like, yes, we understand what that is. That is truly the thing they enabled. It's very cool. It's millimeter wave in stadiums, and that's cool. I don't know if there's another one. That said, they are on their back foot, right? They did spend a lot of money. This is around the time when, in my history as a they know they shouldn't, so they don't, right? Like, they're having the meetings, but they are certainly not as loud about the next round of investment as they would normally be in the cycle. Now they have a competitor, your analysis is that Verizon is by far the weakest here. They have the most to lose. Explain why that is.
Speaker 4And also, one other thing to mention is you have a very active FCC chair that would like to raise and put on his resume $100 billion from Spectrum Auctions. So you're right. They're going to talk about 6G again and have to come up with some type of revenue stream to basically justify getting this money. It's going to be a lot harder, though. They're already pretty levered. They've got a new competitor. Now, in terms of Verizon, I mean, the issue is that AT&T has kind of seen this thing developing for some time. So they've built a network where it's fiber. So there's only so much that wireless can do where a fiber network is ultimately your best connection. So if you think about customers that own fiber and wireless, very high value, very low churn customers. That's been their strategy. They're plotting along. They're going to get their 2% or 3% revenue growth and just kind of pay their dividend and do their thing, right? That is the standard telco. T-Mobile didn't have that. They've got the dynamics, like a lot of politics right now between Deutsche Telekom wanting to own it and like not wanting to pay a high price and how that all plays out. Verizon just made a lot of bad strategic bets on Spectrum. I mean, media, I mean, obviously AT&T had their own issues, but at least they got out of DirecTV, you know, and Warner quick enough and have turned the ship. The media, buying millimeter wave spectrum, they could have bought Echo star and bought and bought Spectrum. Even now they're Spectrum constrained compared to, you know, their competitors and they need to go out and spend 10, $15 billion on the Echo star spectrum. And you have a new CEO in there that, you know, not really a telco guy. That's just kind of doing his thing of like, you know, Hey, we're just going to cut costs, right? The EBITDA is going to look good because they're just firing a bunch of people and there's going to be a result. You know, there, there is going to be a, a, an impact of firing that many people in the organization. It may appease investors to make the EBITDA look good for the next couple of quarters, but at some point you have to show and have a strategy for some type of revenue growth. What is Verizon's, you know, differentiation in the market right now? They have none, right? So they're the most, I think in the crosshairs of where SpaceX and frankly, even the cable companies continue to can, can continue to eat away at those customers.
Speaker 3That is frankly surprising to me. And it's just my own history, right? I grew up in the Midwest. That was singular territory and it became AT&T. When I moved to New York, 2010, Verizon was the gold standard network in the Northeast. It was the one everyone had. It costs the most money because it was the best network. The iPhone coming to Verizon a couple of years later, huge deal. Verizon's network was so powerful at that time that they could try to force the BlackBerry storm down people's throats. And like they were confident enough that their network was the thing holding people to them, that that was a worthwhile. Strategy obviously didn't work. They made the wrong bet. You're saying they made the wrong bet on millimeter wave. They made the wrong bet on other spectrum acquisitions. The one that I'm not quite tracking is media, right? They did buy a bunch of dumb stuff. At one point they owned Tumblr, which is just one of the most confusing media outcomes of all time. But that stuff was all cheaper and easier for them to flip or shut down than AT&T buying all of Time Warner and putting out like a four, three black and white Justice League movie. How did, how did AT&T survive that? But you're saying Verizon can't survive owning Yahoo.
Speaker 4I mean, I think that's a fair pushback in that, you know, the media impact to, to Verizon was a lot less than, than AT&T, but these again were separate businesses. Obviously it was a capital allocation issue for a period of years, but the decisions on the spectrum front, um, and the competitive front, and frankly, the T-Mobile's impact, John Ledger's impact in taking away this, hey, we've got the best network, you know, left them in a, in a, in a, in a spot where, you know, they were basically like, Hey, we'll just keep increasing price on our customers and we'll get that two or 3% revenue growth. And did they just kind of lost the narrative of what they meant, um, to customers. And I don't really think, um, you know, under the new CEO that's been regained. And do you think their, their ability to say they have the best network is just gone? I think that's completely gone. That's the crazy thing about this, right? The networks are effectively commoditized. These networks are basically the same, right? And they're getting 60% margins. That's, that's what the whole thing with dish wireless, even if it wasn't on their network. If you guys tested, it wasn't on their network. You could have been buying ATT's network at half price, right? It's crazy. The, the ARPU and the margins that these guys get for what is effectively a commoditized market. That's why the ATT strategy is interesting. Cause at least they're trying to bundle that with a high value fiber network. But for the other guys, like it's just commoditized
Speaker 3wireless. I would actually say the other strategic mistake Verizon made along the way was they got away from fires, right? They decided it wasn't worthwhile. It seems like they're trying to reinvest in that now and go after that. Yeah. I mean, I think
Speaker 4given their lack of spectrum, I think they can only take fixed wireless so far. So you're right. I wouldn't be surprised if they got back to, um, you know, investing in fiber, the difference, obviously they've, you know, Fios, you know, you've got union issues and, and a lot of cost structure issues that they were dealing with. But I think the pivot to doing more fiber and perhaps laying off the fixed wireless, which is straining the network is, is probably the right decision for them. What you'll see happen going forward.
Speaker 3I want to end on just a big picture question here. We, we have covered so many crazy telecom mergers and it always feels like the right answer is put more competition in the system. We've mentioned John ledger several times in this conversation. He only got that job and TMO only got to exist the way it does because ATT was prevented from buying T mobile and they paid a breakup fee, which subsidized a huge portion of that early growth and those early strategic moves that ledger was able to make. But that was good for the market, right? Consumers got a CEO who tried to change the market and have better customer experiences, reinvested that money in the network. That was good. The existence of dish network is T-Mobile trying to buy sprint. And instead of blocking the deal, we impose some wild structural remedies and McCombe del Rahim who ran antitrust in the first Trump administration, rightly or wrongly, like engineered the outcome of dish network existing, right? That was his preferred outcome was we're going to let this happen, but we need to have four carriers. And so we'll, Charlie Ergen's going to be, he's my guy. We were going to stand up a fourth one. And from my perspective, it just seemed obvious that he was never going to do that. Like, and he didn't, and maybe, maybe I was correct to make that bet, but it just seemed obvious. The dish network was going to hold onto a bunch of spectrum, watch the prices rise and then flip it. When it turned out, they never built their network and they were on a, they had to hit targets with the FCC that they just weren't hitting over time. Now we have a true fourth competitor, right? Or at least an aggressive competitor of the market in Elon, who's probably going to try to actually do this thing. And these companies are running scared. Is this just evidence that we should have four carriers in the United States? And that when inevitably Verizon tries to buy T-Mobile, we should just say, no, the right answer is four. And we're not going to go to three
Speaker 4again. Well, under chairman Wheeler, which is goes way back. Yeah. Four was the number that up wheels. And I were buds that, you know, if you called him now, he'd be like, I told you it should have been four. And it's going to go back there. Obviously in the new administration, they didn't believe that that was the case. And I think you see chairman Carr, you know, pointing to prices, how he sees them being down and the competition that that's happened in fixed wireless. But I think you always want more competition in a market, right? It drives innovation and it lowers prices and margins are, you know, approaching 60% in the wireless business. I can't say we've had a tremendous amount of innovation, which by the way, it gets back to this, you know, what the telcos are doing in the fear, refusing to give them a wholesale agreement. That's the right, right. But at some point, like if the FCC is mandate to act in the public industry interest, like the F we have a new current administration, who knows who gets in the next administration. If these telcos are going to push back so hard on what the fourth competitor in this case, SpaceX is going to do the FCC can probably get involved in some ways. And, you know, that, that is the risk that they run at being so vocally against, you know, you know, this, this guy in the market, by the way, you talk about the ultimate consolidation. It's funny. We should save all these quotes now where they're saying, oh, you know, Elon can't be a competitor because he only has 80 megahertz of spectrum. Cause then, then when they want to merge with someone, they're going to claim, oh no, he's actually a competitor, right? They're going to deny, deny that as a competitive threat.
Speaker 3There is nothing funnier than a giant telecom insisting that a thing that is not a competitor is their competitor. They all do. It's very funny. Last question. Again, this is just the big thing rattling on my head. We might be on a cusp of an entire paradigm shift in what mobile devices even are, right? If you look at meta, they're going to put out the muse charm and maybe we're all going to talk to little cartoon AIs all day that run agents in a data center and our use of mobile bandwidth to watch video will go down because we're not even carrying phones anymore. Is that, is that a risk here? Is that, are any, anybody thinking about that?
Speaker 4I mean, we think about this every day at LightShed in terms of all the different ways that AI and how we interact with our information and how we interact with commerce and using agents and muse has obviously been something we've been waiting for from someone. And there's going to be other versions of that, but you're, you're right. And it, and it decreases, frankly, it's an Apple risk, right? It decreases the importance of the status of holding an iPhone. If you're just not, you know, in a, you know, interacting with your data in the same way, if you, if that happens, right, that whole paradigm in terms of the telcos and providing the subsidies and like the, the, whenever there's change, change, right? There's an opportunity for disruption and for margins to be contracted. So yeah, it does change things. And maybe SpaceX could play. Look, Elon's been asked about making a device. I know Qualcomm, when you meet with those guys, they're like, hey, we have 40 different guys out there making it. I don't think he's going to add one more thing to his list. But again, let's get back to what we've talked about during this podcast and narrative, right? Will TeraFab happen? Will space, you know, whatever, space data centers happen? It may not happen, but you can maybe talk about building a phone. And then that becomes one more issue that the telcos have to deal with in terms of dealing with their customers. Why am I using this iPhone when I should be using this completely different device, whether it's coming from OpenAI or Anthropic or maybe SpaceX?
Speaker 3The idea of Elon shipping a mid-range Android phone with a Play Store on it is so deeply funny to me. I truly hope it happens because that's the product you can make today. And maybe there's a paradigm shift and there's a different set of products. But right now, you need to have Instagram. And there's really but one path to getting Instagram, which is shipping an Android phone with a Play Store on it. We just saw Amazon essentially capitulate with their new tablets, right? If you're focused on the future, you have to concede to the present. I truly do not believe we will see a mid-range Android phone from SpaceX. But you're saying they might start talking about it.
Speaker 4No, I agree with you. And I'm just saying, like, when you're trying to build narratives, like, you know, why not throw that in the hopper? The bigger issue is someone, you know, someone's going to build something that may resonate with, I mean, we've gone a long time. We're spending $1,000 for these phones that are giving us some basic, you know, swipe functionality. They're going to change in terms of how you use them. So, you know, this is a bigger, obviously, issue, again, for Apple than anybody, but it does change, you know, how the telcos are going to, you know, the role that they're going to play and where that margin should. They gave up a lot of value to Apple at some point during this and at the continuum of the wireless industry. We're going through another paradigm change, so we'll see how those valuation or those value splits, you know, play out.
Speaker 3Walter, we're going to have to have you back soon because it feels like these things are going to happen fast. And I was very happy to nerd out about Telecom with you. Thanks for being on Decoder.
Speaker 4Appreciate it. Thank you.
Speaker 3I'd like to thank Walter Pycich for joining me, and thank you for checking out this episode of Decoder. To get new episodes every Monday and Thursday, subscribe to our YouTube channel @DecoderPod, and find us on TikTok and Instagram under @DecoderPod as well. For more, visit us at DecoderPod.com. For more fun stuff, we put out every day. If you'd like to let us know what you thought about this episode or really anything else at all, drop us a line. You can email us at [email protected]. We really do read every email. Or hit me up directly on Threads or Blue Sky. If you like Decoder, please share it with your friends and subscribe wherever you get podcasts. Decoder is a production of The Verge and part of the Vox Media Podcast Network. Show's producers are Greg Ott, Kate Cox, and Nick Stat. This episode was edited by Eileen Felix. Our editorial director is Kevin McShane. Decoder music is by Breakmaster Cylinder. We'll see you next time. Speaker 7Hank joined BJ's Wholesale Club the way he became a father of 30. I coach football. Now, Coach Hank saves up to 25% off grocery store prices, 30 pounds of pasta, three cases of protein bars, 75 sports drinks. And that's just pregame. He knows teamwork, and BJ's knows savings. This is your home, Coach. Home of the Save. Join for just $20 at BJs.com/Mosquite and save 10 cents per gallon for six months. Open soon. Limited time offer, new members only. BJ's, home of the save.
PodcastTranscript AI