SpaceX is buying up spectrum for its Starlink Mobile service and tower stocks are loving it. American Tower Corporation , Crown Castle Inc. , and SBA Communications were all trading at least 6% higher Friday morning with Crown Castle leading the way, up around 12% in mid-morning trading. Their gains are in stark contrast to AT & T , Verizon Communications , and T-Mobile , all down sharply on prospects of SpaceX becoming a formidable rival in mobile broadband; of the three, T-Mobile was down the most with a roughly 10% decline. SpaceX’s mobile broadband ambitions are well known. But its purchase of Grain Management’s nationwide 800 MHz spectrum portfolio for an undisclosed amount indicates that SpaceX’s is getting closer to providing robust terrestrial coverage, which still need cell-towers for dense urban areas and penetration in buildings. The new spectrum “will provide a coverage layer that ensures Starlink Mobile’s signal penetrates through obstacles, such as walls, and can provide service to customers’ devices even when they are in buildings,” SpaceX said in a release . That’s a double whammy of good news for tower stocks, analysts say. “It chips away at the ‘towers are obsolete in a [direct to device] world’ narrative, with which we have long vehemently disagreed,” Madison Rezaei at Bernstein wrote in a Thursday note. “And it lends credibility to a potential new buyer of tower capacity, whether the eventual build is large scale or more selective.” A sagging sector Tower stocks, whose assets are often structured as REITs, have sagged amid higher interest rates and increased prospects for satellite connectivity. American Tower is down more than 30% over the past five years; SBA Communications is down about 45%, and Crown Castle is down about 55%. AMT 5Y mountain American Tower, 5 years Some analysts think that SpaceX’s push into spectrum may be a pump-and-fake designed to secure a cheap network capacity deal with a traditional wireless carrier. “SPCX may be bluffing to keep wireless down and get an [mobile virtual network operator agreement], but needs to be taken seriously,” Gregory Williams at TD wrote on Thursday. “We believe the spectrum news takes a back seat to the press release that intentionally used words like ‘an advanced terrestrial deployment’; ‘to become a major mobile carrier’; penetrate ‘through walls, and…in buildings.'” Starlink tower expansion? However, most analysts see the spectrum move as a sign that SpaceX is getting closer to providing robust service in cities and other urban areas, opening up new markets for Starlink. While that would be a negative for traditional wireless carriers, it could help make tower assets more valuable. Some analysts say SpaceX may snap up more spectrum to fulfill that ambition. “We would not be surprised to see SpaceX pursue additional low-band assets over time, with Anterix’s 900 MHz spectrum, which we value at $2.6 billion, uniquely positioned to fit this need,” Petti at JPMorgan wrote. Analysts also see SpaceX potentially amassing its own network of ground-based towers, which could push up the value of the sector’s assets. “The transaction is consistent with our view that … SpaceX would likely need to build a terrestrial network using macro towers to deliver a user experience on par with traditional wireless carriers,” Sebastiano Petti at JPMorgan wrote in a Thursday note. Bernstein’s Rezaei concurred, saying her preliminary read was that “SPCX is keeping the terrestrial network build option very much alive.” Dividend investors should applaud the SpaceX move too. Tower REITs pay above average yields with Crown Castle at the higher end, offering a 5.5% yield at recent prices around $77. Assuming SpaceX comes through with tower contracts, those dividends should be more secure.
