SpaceX threat may weigh on AT&T shares for an extended period

what happened

MarketWatch reports that Bernstein analyst Laurent Yoon lowered AT&T (T) to market-perform from outperform, a roughly neutral rating. AT&T had been the last major telecommunications stock that Yoon recommended to clients. He now rates the five large wireless and cable companies at market-perform, based on his views of AT&T, Charter Communications (CHTR), Comcast (CMCSA), T-Mobile US (TMUS) and Verizon Communications (VZ).

The downgrade does not signal a sharply weaker assessment of AT&T’s near-term financial outlook. Instead, Yoon expects investors to engage in a “prolonged debate” about how much of a threat SpaceX (SPCX) could pose to AT&T and established internet providers. AT&T and its peers fell heavily on Friday after SpaceX announced a purchase of some low-band spectrum. Yoon said that transaction alone was not enough to change the competitive landscape in the foreseeable future; the more important questions concern SpaceX’s next moves and its ultimate intentions.

SpaceX already operates the Starlink residential satellite internet service and has indicated broader ambitions in telecommunications. Pursuing those goals would require costly network construction in addition to satellite capabilities. Potential steps include buying more spectrum, arranging an MVNO partnership or building a network. Under an MVNO agreement, a company uses another provider’s network while selling the service under its own brand. Yoon cited strong momentum for Starlink but said it is not a direct threat to AT&T’s fiber offering. He is more concerned that pressure on lower-end internet products could spread to higher-end services, intensifying competition over value, prices and subscriber numbers.

why it matters

The issue adds another source of uncertainty for telecom equities. Even without an immediate change in AT&T’s financial outlook, investors may have to weigh the possibility of new competition and the challenge of balancing pricing with subscriber growth as SpaceX develops its plans.

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