SpaceX spectrum deal weighs on Telstra and TPG shares

Shares of Telstra and TPG Telecom fell on Monday following the announcement of SpaceX’s spectrum acquisition in the US, which created doubts about satellite competition for mobile operators.

On Monday, shares of the leading telecommunications firms of Australia witnessed a drop after investors took note of SpaceX’s purchase of a nationwide low-band spectrum portfolio in the US.

The share price of Telstra Group (ASX: TLS) dipped by 2.5% to A$4.65, the lowest in about six weeks. The share price of TPG Telecom (ASX: TPG) plunged by close to 5% to A$3.69, posting its biggest single-day fall in almost two months. The overall S&P/ASX 200 index was up by 0.76% on the day. Shares of New Zealand’s Spark were also down by 1.8%, while smaller Australian telecoms such as Superloop and Aussie Broadband were down by about 2%.

This came after the reports revealed that SpaceX had made an agreement to buy last week the nationwide 800 MHz spectrum assets of Grain Management. This portfolio includes up to 14 megahertz of paired low-band spectrum. The financial details were not officially disclosed but according to the reports, the cash component was around US$8 billion.

What the SpaceX deal involves

Low-band spectrum can travel greater distances and can also penetrate through buildings and other structures compared to high-frequency spectrums. SpaceX currently owns the mid-band spectrum that can handle capacity requirements. This combination of the two would enable Starlink Mobile to provide both outdoor and indoor services using an integrated satellite and terrestrial solution.

This purchase has been said to have bridged the technological chasm which would be required for Starlink Mobile to operate as a major mobile service provider in the US. The majority of current handsets are already compatible with 800 MHz frequencies, which makes it unnecessary to have specialized handsets.

The share prices of US telecommunications companies have also been hit hard following the announcement, with some major providers seeing more than a 10% plunge in their share prices.

Why Australian stocks reacted

Investors seem worried that any gains made in the US by satellite-based mobile services may soon have repercussions for incumbents in other parts of the world, such as Australia. Coverage has always been a competitive strength for incumbents like Telstra, especially in regional and remote locations.

One commentator said that investors are worried about how the United States might be the first country where the incumbents' competitive strength of coverage starts to wane. Risks faced by Australian operators in the near term will probably focus more on regional pricing leverage rather than loss of subscribers.

Analysts at Citi remarked that whereas the SpaceX deal would most certainly be bad news for Telstra's share price in the short term, it also highlights the significance of having terrestrial spectrum. Citi maintained its Buy rating on Telstra and noted the upside to Telstra’s guidance for 2027.

Australian satellite spectrum backdrop

The US developments arise amid ongoing controversy in Australia regarding spectrum for satellite-to-mobile communications.

The Australian Communications and Media Authority has been assessing ways of allocating 2 GHz spectrum for mobile satellite communication.

In Australia, Telstra already has a partnership with SpaceX offering satellite-to-mobile messaging in areas where traditional networks do not reach.

SpaceX had expressed its desire to have direct access to the spectrum instead of partnerships with carriers. Mobile operators in Australia have tended to support competition-based allocations.

These deliberations are part of larger policymaking about universal outdoor mobile obligations and improving regional Australia connections.

Market context and what comes next

Some of the issues that Telstra and TPG have had to contend with in recent months include cost associated with renewal of their spectrums, competition in fixed broadband, and mobile technologies as they keep changing. This latest SpaceX development created more uncertainty in the competitive environment regarding services dependent on coverage.

There is still the need for regulatory approval in the U.S. regarding the Grain Management deal. Any extension of Starlink mobile services into other markets such as Australia will have to depend on local spectrum decisions, regulatory approvals, and business considerations.

Changes in share prices depend on the anticipated future competitive risks in the market. Traditional operators still own vast terrestrial networks, spectrums, and customer base, which is important in-service delivery.

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