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Why T-Mobile Stock Just Crashed

The Motley Fool · 1d ago

Key Points

  • SpaceX just signed a deal to buy Grain Management's satellite spectrum.

  • SpaceX says it aims to "become a major mobile carrier in the US."

  • SpaceX was a T-Mobile partner. Soon it may be a T-Mobile competitor.

Elon Musk's Space Exploration Technologies (NASDAQ:SPCX) is buying spectrum for satellite communications service, inking a deal to purchase old T-Mobile (NASDAQ:TMUS), now owned by private equity firm Grain Management (which sounds like an agricultural concern, but apparently isn't) for an undisclosed sum.

T-Mobile (NASDAQ:TMUS) and SpaceX, of course,are currently partners in mobile telephony, with the latter helping to provide emergency cell service in cellphone "dead zones." So you might expect T-Mobile investors to shrug off this week's development as a non-issue.

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They aren't. Instead, T-Mobile stock is down 13% as of 1 p.m. ET.

So why is that?

String of satellites in Earth orbit

Image source: Getty Images.

What's SpaceX up to in orbit?

As CNBC reports, SpaceX is buying "up to 14 megahertz of paired spectrum in the 800 MHz band" to provide Starlink Mobile communications services. Elon Musk calls the agreement a "very big deal."

SpaceX itself says the purchase "will pave the way for Starlink Mobile to become a major mobile carrier in the US."

That's exactly what T-Mobile is worried about.

What this means for T-Mobile

There's a big difference between SpaceX Starlink providing limited coverage to T-Mobile on contract, improving the latter's service, and giving it a competitive advantage over AT&T and Verizon -- and a SpaceX Starlink "major mobile carrier" competingwith T-Mobile, AT&T, and Verizon! Effectively, this announcement serves as a warning to T-Mobile: one of its best friends may soon become a bitter rival.

Having SpaceX as an ally is one reason analysts expected T-Mobile to outgrow its bigger rivals, with 18% annual earnings growth (T-Mobile) versus 10% (AT&T) and 4% (Verizon). Once SpaceX turns into a competitor, it will probably slow T-Mobile's growth instead.

If and when that happens, you can expect T-Mobile’s superior 17.3 P/E ratio to shrink — and T-Mobile’s stock price to fall.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.