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Research firm MoffettNathanson flags a host of challenges for SpaceX's small cell plan, arguing the 'bull case' hinges on SpaceX locking down an MVNO deal.
SpaceX may have a legion of smart, top-notch engineers, but industry analysts remain unconvinced that the company's stated plan to build a terrestrial wireless network comprised of satellite-backhauled small cells will work without an MVNO agreement.
While SpaceX's plan faces a litany of technical and operational hurdles (more on that below), it may simply be an effort by the company to secure the leverage needed to get one of the Big Three US MNOs to capitulate and carve out an MVNO deal. When MoffettNathanson initiated its coverage of SpaceX, the research firm held that the company would "continue to negotiate, cajole, and, if necessary, coerce, in an effort to secure an MVNO agreement with one of the Big Three." The SpaceX small cell plan fits the theme: "SpaceX is surely researching and experimenting with alternative service delivery models. But our assessment of the viability of what we heard from SpaceX last week suggests that this could also be the first of what may be many broadsides launched against the carriers to land a partnership," MoffettNathanson analysts Nick Del Deo, Craig Moffett and Julie Zhu explained in a new report (registration required) that takes a deep dive into SpaceX's terrestrial ambitions.
On a broad level, the analysts don't view SpaceX/Starlink as very credible, given the high bars that the plan to build out a network of rooftop Starlink dishes (with a direct-to-device, or D2D, overlay) would face.
Some of those challenges include the lower deployment heights and power levels, zoning and permitting, ongoing maintenance and spectrum access. And even if SpaceX could overcome those, the analysts argued that the company would be hard-pressed to deliver customer experience equivalent to that provided by the Big Three carriers.
One inherent advantage in the plan is that SpaceX would use Starlink for backhaul. If that works well, it's possible that SpaceX could bypass the traditional towers and backhaul methods while also reducing costs, the analysts pointed out in their report.
"Zoom out and the bigger picture issue is that small cells are suitable for pinpoint off of traffic, not for broad coverage," they said. "Ideally, they work in tandem with macrosites. But the concept strikes us as a non-starter for use as the backbone of a wireless network."
That's due in part to the coverage and propagation issues that a small cell network would face, given that they would be deployed much lower than macrocells. Plus, small cell deployment would face greater permitting and zoning challenges when compared to macrocells.
In addition, SpaceX's proposed network – and the upgrades that would surely follow – would also have to manage the impact of customer churn for small cells that are built on rooftops. It's not clear if the small cells would use a self-install model or what kind of resistance could come from homeowners associations and municipalities.
"We presume that introducing new spectrum bands over time would therefore require a gradual (organic) swap out of old rooftop equipment for new, a process that, based on churn characteristics for the broadband business, could take many, many years," the analysts reckoned.
Instead, they see satellite-backed small cells as a good way to complement a traditional terrestrial network and an interesting alternative to fiber and microwave backhaul.
The MoffettNathanson analysts also pointed out that SpaceX isn't exactly spectrum rich, with only about one-fifth of the spectrum that AT&T, T-Mobile and Verizon each possess today.
That said, the analysts expect SpaceX to acquire more spectrum, perhaps looking at the 800MHz spectrum that T-Mobile recently sold to Grain Management, or the possibility that some spectrum used today by broadcasters could be sold/auctioned.
Tim Farrar, principal at TMF Associates, has suggested that SpaceX could try to snap up EchoStar's CBRS spectrum and possibly connect with a cable partner. SpaceX and Charter Communications reportedly have held talks on how SpaceX could run phone traffic via Charter's terrestrial networks. In addition to deploying CBRS in high-traffic areas, Charter also has looked into ways to run CBRS signals on its wireline networks.
And additional opportunities for SpaceX to acquire licensed spectrum are on the horizon. The FCC, for example, is preparing to auction a swath of upper C-band spectrum, with plans to auction some 2.7GHz midband spectrum in 2028 and possible auctions in two other bands.
The MoffettNathanson analysts also acknowledged that they would be remiss to discount SpaceX's engineering talent, and offered some thoughts on what Starlink might try to do differently.
The firm forecasts that Starlink will have about 10 million subscribers in about five years, which could yield a similar number of small cells. It then follows that Starlink's network could manage 20,000 towers outfitted with low-frequency spectrum, hundreds of thousands of rooftop antennas and "fill-in" from D2D satellites.
The result "would still be far from competitive with the Big Three carriers' networks," the analysts pointed out, adding, however, that it could represent "a solid start towards a credible network."
But MoffettNathanson believes the "bull case is even simpler" in that SpaceX is essentially creating leverage to strike a critical MVNO deal.
"With an MVNO agreement from one of the Big Three to provide coverage, a mesh of tens or hundreds of thousands of rooftop small cells for offload would suddenly flip from being insufficient to potentially being radically cost advantaged (that is, again assuming the rooftop antennas could be produced at a reasonable cost and the other challenges we noted could be addressed)," the analysts explained. "Granting a carrier partner access to such a network of small cells could also be offered as part of the consideration for an MVNO agreement."