# Why Elon Musk wants to sell you cell service | Decoder Decoder with Nilay Patel · 2026-10-17 · 51 min · https://www.youtube.com/watch?v=a9jnh4Vb-GY ## Transcript Walter Piecyk If Gwynne Shotwell has a dollar and she wants to light it on fire, she’ll put it in xAI against some return somewhere that might be $50 trillion, whatever their prospectus said. Or you can put the dollar into Starlink Mobile in the buildout, and you will probably return $1.10. That’s what that business looks like, because they’ll get some customers away from AT&T and Verizon. They’re already running that thing profitably. Nilay Patel When they looked at it, it was just another part of the narrative you build around SpaceX and justifying the valuation. What do all of these things need? Whether it’s robotaxis, data centers in space, or data, they need money, right? And money needs a narrative. It could just be, by the way, what does Elon happen to care about most in that moment? What’s more interesting to him to do? Frankly, isn’t a space computer a little bit more interesting to allocate those dollars to than taking some mobile customers from AT&T? ### Welcome to Decoder Walter Piecyk The man’s addicted to his phone, and everybody hates seeing that AT&T logo in the corner. Nilay Patel Walter Piecyk, you’re a partner, a tech, media, and telecom analyst at LightShed Partners. Welcome to Decoder. Walter Piecyk Thanks for having me. Looking forward to it. ### The Spectrum Shopping Spree Nilay Patel I’m excited to talk to you. I feel like we’ve been tweeting or posting around each other for many years, but I’m a telecom nerd at heart. I’ve been covering the space for ages. SpaceX is going to make a big splash. They’re going to be the fourth major mobile carrier in the United States, and maybe the world. They’ve bought some spectrum to do it. It’s EchoStar spectrum by way of private equity. It’s at once very simple and also very complicated. Give us the state of the state. They bought 800 MHz spectrum for $8 billion. They’ve spent $20 billion already on EchoStar spectrum. What are they trying to do here? Walter Piecyk It’s definitely complicated, but maybe less complicated than trying to figure out how to put a data center in space. Nilay Patel Right. Walter Piecyk Or something on the moon. But I think this is less complicated. They don’t typically want to own spectrum and spend on spectrum. If you think about how Starlink was built, satellite companies don’t typically pay for spectrum. As the business evolved and they saw the opportunity in telecom, they initially purchased some spectrum from EchoStar. I think the feedback they got from investors at that time was very positive. They were like, “Wait a minute, you should do more here. This is a trillion-dollar enterprise-value business in the U.S. alone.” Obviously, they have global aspirations for Starlink as well as for what they’re doing with this mobile telephone service. ### Nextel Spectrum History So they bought more. They went back to EchoStar, and that’s a key thing to pay attention to: they bought some spectrum and then went back and bought some more. I think, like a lot of things Elon does, he learns as he goes. He bought the spectrum, got feedback, talked to people in telecom, and bought some more spectrum. Then we didn’t hear from them for a while, and last week they bought some more spectrum. Some of it was part of—I can go through the history if you care, but it’s long, wonky telecom stuff. This was originally the Nextel spectrum, if you remember that company. Nilay Patel I do. I actually do want you to go through that history, because I think the telecom business is best understood as a bunch of lobbyists trying to make everything more complicated than it should be. Spectrum auctions are complicated, and what spectrum is good for is deeply tied to the physics of the radio spectrum and all that. But here it’s the 800 MHz spectrum from the Nextel service, the old push-to-talk walkie-talkie service that Sprint had to divest as part of the deal to get sold to T-Mobile. They’d been trying to sell it for ages. They sold it to this company, Grain Management, and they’d been sitting on it for years. Then Starlink showed up and Elon bought it. Nobody else wanted it. What did he see in this spectrum that no one else did? Walter Piecyk When you realize that you need to build a terrestrial network to support what you’re doing with satellites, it makes sense. Satellites work fine if you’ve got your dish on top of your house and you’re getting broadband. But when you’re trying to connect with a phone, it doesn’t have the same kind of power. Sirius Satellite also has supplementary towers. There aren’t that many of them, but sometimes when you get out of Sirius coverage, you’ll connect to a tower. I think when they bought that EchoStar spectrum and got FCC approval, if you looked into the details of that approval and what was required, you’d see that they can’t do this by satellite alone. There had to be a terrestrial component. Then SpaceX, as Elon is wont to do, tried to send some diversions: “Oh, we’re going to do femtocells. We’re not going to do macro,” this, that, and the other thing. But I think they realized they were going to build a terrestrial network. So now, when you finally realize, “Hey, if I’m going to offer mobile service, I need some form of a terrestrial network,” and at the same time the telcos aren’t going to help me out or give me a wholesale agreement, what’s the fundamental value you need in a terrestrial network? It’s low-band spectrum. Why? It travels farther, you can get better coverage, and you have that connectivity. Getting this low-band spectrum was important, not to make the satellites work better, but to give them the spectrum access they need to build a terrestrial network. I think that’s why the stocks reacted: people finally came to terms with, “Yeah, he’s actually going to build a terrestrial network.” ### Why SpaceX Needs Terrestrial Nilay Patel I’m less interested in the stock and more interested in the cost structure of how this works. If I remind my brain of being a baby blogger at Engadget 100 years ago, the FCC told all the TV networks they had to stop broadcasting on 700 MHz, and we were going to run an auction. Verizon and AT&T bought big chunks of 700 MHz spectrum, and that’s what 4G is built on. That’s the low-band spectrum you’re talking about. It goes everywhere. This was a big victory: we reallocated 700 MHz. 800 MHz was sitting right there the whole time, right? This is the Nextel spectrum. If it’s so valuable, why wasn’t there a market for it until Elon showed up? Walter Piecyk It was part of this transaction, right? T-Mobile ended up having to sell it because, basically, the government said, “Okay, if we’re going to allow you to take out the fourth competitor, which was Sprint, then, in order to enable another fourth competitor out there, you guys need to give up some of your low-band spectrum.” Part of the deal T-Mobile and Sprint had with the government was that they would sell it to EchoStar. Why? Because Charlie Ergen—or actually, it was Dish at the time; it’s EchoStar now—was going to be the fourth competitor. That was the rationale they gave for approving the transaction. Dish needed low-band spectrum. The problem is, Ergen went about his business always trying to build a network, and then basically just couldn’t afford to buy that. They had the rights to buy it. When Ergen failed to come up with the dollars to buy that spectrum, it enabled T-Mobile—or actually forced them to put it up for auction. Nilay Patel Your question is, why didn’t someone else show up then? From SpaceX’s standpoint, as I mentioned at the start of this podcast, I think its strategy has been evolving over time. The other telcos can’t really use it; there are some limitations. But in hindsight, maybe Verizon or AT&T should have bought this 800 MHz spectrum for whatever it was—let’s call it $8 billion. They’re probably losing more in enterprise value over concerns about what’s happening with SpaceX than it would have cost them to buy the spectrum in a foreclosure. They could just take it, even if they don’t use it, meet whatever build-out requirements they need to, and stop SpaceX from having the necessary assets. I just don’t think these companies were taking Elon seriously and thinking he would actually build a network. ### Dish's Failure vs SpaceX Walter Piecyk Do you think that’s colored by the failure of Dish? We covered Dish Network’s promises to build a fourth wireless carrier in this country so closely. Their attempt was predicated on some amount of technology innovation, right? They were going to build this thing called an O-RAN network, which had a more competitive supplier base instead of just Nokia or Siemens or whoever. They were going to run it on AWS, which was going to reduce costs. Eventually, they supported one Motorola handset in Vegas, and even that was backstopped by AT&T. They just couldn’t do it. They literally could not do it. These promises never came true. Dish is a different company, and Charlie Ergen is a different CEO. Their ability to just throw money at a problem until it’s solved is very different from Elon’s. But if they couldn’t innovate to make a cheaper, faster network, what’s the evidence that Starlink can stand up an entire terrestrial network at a cost basis that lets them compete selling service to consumers while they’re also standing up an entire network in space? That feels like adding up a lot of cost. Nilay Patel I’m going to go back even deeper than that. Remember when Sprint was struggling? Masa from SoftBank was claiming the same thing: they were going to cut their CapEx to nothing, use small cells, and innovate how wireless was going to get delivered. That failed. Obviously, they had to be bailed out through the purchase, when T-Mobile effectively bought Sprint just for the spectrum. That network got completely decommissioned. To your point, Dish got a network built, but they just couldn’t resonate in the market. The difference between Dish and SpaceX is Elon’s ability to get customers. I think that’s where Dish truly failed. They built the network. The network worked fine. They had the wholesale agreements they needed. Nilay Patel I’ll push back on you a little bit there. I have a very funny email from a DISH PR person from several years ago where they said, “We’d like to issue a correction to your story. Our network does exist.” That was the level they were competing at, where they had to insist to us that the network was real, even though we couldn’t find it in our tests in the various cities they claimed to serve. Maybe there was a network. They built some amount of network, but they hadn’t built anything that could compete at a national scale with the big three. Walter Piecyk Absolutely. The phone I was using was an iPhone, and it was mostly going to roam onto the AT&T and T-Mobile wholesale agreements that existed. The theory is you get the customers, have a go-to-market strategy, and then backfill the network. ### T-Mobile's Playbook You can even go back to when John Legere first took over T-Mobile. They had a crappy network, and then he promised, “Hey, we’re going to build it.” He was taking on customers and saying the network was great before it was great. Then it kind of caught up because they finally got the Germans—Deutsche Telekom—to give them the money to invest in the network. I think the same thing can happen here. They’ll sell something that will probably rely on other assets that are out there, even if the telcos themselves are circling the wagons. They have the satellite for certain coverage benefits, and then they can build the capacity over time. The point is, it’s going to take time. You can’t just turn on a network overnight and start selling service on it. Nilay Patel This has always been my framework for how to think about telecom companies. You can try to run the network cheaper, or use some different technology to make it cheaper, or you can just spend and have the best network, which was Verizon’s strategy for years and years. Then you’ve got to acquire and manage your customers, and that was the T-Mobile strategy. That was John Legere. He was just nicer to people than AT&T was, and he picked up a lot of customers, which drove some investment. ### SpaceX's Cost Problem Then you’ve got to get some devices, right? You have to have the iPhone. We can set that aside because it feels like that era of competition is over. We’re not doing exclusive devices anymore. I’m looking at the network here, and it does not seem to me, from the outside, that Starlink is proposing to build a cheaper network. It feels like they’re proposing to build a vastly more expensive network because they need the satellites. They’re going to launch 15,000 more satellites to support this network. Then they’re going to build a terrestrial network by investing in spectrum on the ground and building some set of base stations. They’re going to have to convince one of the big three to let them roam as some sort of mobile virtual network operator, and the big three do not want to do that. They’re going to overcharge them for that. I’m just stuck on the fact that that’s a lot of cost, even if you’re Elon Musk and you can make some set of people buy whatever you’re selling. ### Differentiation & Margins Walter Piecyk The third thing you said is obviously the most challenging. That’s the tent pole that prevents you from launching services sooner rather than later. But without necessarily getting a wholesale agreement, there might be other ways. Roaming agreements exist out there, and there are roaming partners that these telcos still rely on. It’s very expensive. It’s not something you can build a high-margin business on, but it perhaps provides an entry to the market sooner rather than later. The point of differentiation ultimately becomes, not getting—as Apple has pitched in terms of satellite connectivity—some person in the middle of the Utah desert texting because they’re injured. There’s value there, but it’s the soccer field. In the suburbs, there are plenty of areas where the telcos have effectively given up trying to provide coverage because of NIMBYism: people just don’t want these cell sites. Satellite coverage can give you not just the basic text messaging Apple has been doing through the Globalstar constellation, but a true cell phone-type experience. The second differentiation is that these telcos have 60% EBITDA margins. There’s a lot of fat there that can be eaten off of when you’re selling other services. Maybe Elon sells home broadband, or this becomes an entrée for pushing Grok into people’s usage. He doesn’t necessarily need 60% margins to justify building this network. They also talk about other data connectivity that these satellites are going to enable. With the current constellation, you need a lot of power and a dish. But if you don’t need that, if you have cell phone-type power, then IoT and other opportunities become another revenue opportunity. Nilay Patel The IoT story is funny. That’s what all these companies promised us about 4G. That’s what they all promised us about 5G. There’s something about this business that rhymes every time. I’m confident we’re going to hear about self-driving cars and robot surgery when it comes to Starlink, Tesla, and Optimus. These applications for next-generation networks recur, and we hear about them all the time. Then I think about our consumer audience at The Verge. They want long battery life and fast service in all the places they go. I’m not sure how that squares with your phone connecting directly to a satellite in the middle of a soccer field. There’s something about that that also seems challenging. Walter Piecyk I think it’s about the performance. If your phone connects to the satellite on the soccer field and it works, that’s something. A lot of things people said wouldn’t work on Starlink, in terms of airplanes or even getting CPE below a certain price, they’ve delivered on. Obviously, Elon sometimes delivers on them a little later than his initial optimistic promises, but they ultimately get delivered on. I think there’s an ability with these new constellations to give you that type of connectivity in these spaces. Walter Piecyk Is that enough to differentiate with consumers? I don’t know. The telcos have attacked this by saying, “Well, no one cares about our D2D service.” Well, your D2D service is not good, right? It’s just sending basic text messages. What they’re talking about is giving you that blanket coverage where you get what you expect from your cell phone wherever you go. ### Network Build Cost That’s fine, but you still have to give it to the person in the middle of the building, where their cell phone works today, and obviously provide the volume at a cost that’s attractive to that consumer. So those are, again, longer-term things that are going to require some amount of terrestrial network build. Then the question is how much, right? A lot of the attacks out there have referenced $100 billion, $200 billion. I get that. The telcos each spend $10 billion, $15 billion a year, but they’re maintaining massive customer bases. Getting that initial network up, where you have that usage and can use that low-band spectrum to get into buildings, doesn’t require those kinds of numbers. You’re probably talking about $10 billion or $15 billion for that initial build in terms of capex. ### Customer Acquisition Nilay Patel The dynamic there is really interesting. I’m thinking about AT&T when the iPhone came out. The network immediately got overloaded because there was a surge of customer demand that took 4 years to resolve, truly. Part of that resolution was just putting the iPhone on the other carriers. How do you think that will play out for Starlink here? Right now, Starlink customer service isn’t the best in the industry. People love the actual service, but when they need customer service, it’s a bunch of automated systems and people complaining on Reddit. So there’s some challenge there if you’re running a consumer business at this scale. Walter Piecyk A consumer business is—I mean, think about all the advertising, the fulfillment, dealing with the phones, phone subsidies. That’s a big part of the financing. I think it’s just a question of how many customers we’re talking about. For the amount of spectrum they have now, in the network I’m talking about for $10 billion or $15 billion, you’re not taking 50% share overnight. I don’t think that would be the expectation from day one. ### The Bull Thesis The theory of telco is that you do that initial capex build. You have your initial spectrum purchases—$10 billion, $20 billion, maybe $30 billion—and another $10 billion or $15 billion in capex. Then, if you’re successful and get 5 million or 10 million customers, the opportunity to invest more comes along, right? If you go back to the old days, the cable view of wireless was, “Hey, we’re going to get these MVNOs, drive the wireless companies into the dirt, and then just buy them.” I think that happened in at least one European market. That was the cable bull thesis. You could see the same bull thesis emerge from the SpaceX bulls here. They’re going to say, “Hey, we’re going to get those first 5 million or 10 million customers and drive them into the ground. Verizon’s going to be so desperate for any type of revenue, because their revenue declined, that they’re just going to hand them a wholesale deal. Then they’ll start selling spectrum. There’s going to be a spectrum auction with the FCC.” You can see how the narrative can build: the initial capex isn’t that big, you get into the market, and then, if it’s successful, you start investing more. ### Femtocell vs Towers Nilay Patel Let’s talk about the terrestrial network for one more term. I heard you throw a little water on the idea that they’re going to build femtocells. That’s what Elon and Gwynne Shotwell have been saying: they don’t need to build the traditional kind of terrestrial network AT&T, Verizon, and T-Mobile have, with a lot of fiber backhaul and big sites that require all kinds of zoning permits. They can basically put small cell stations next to Starlink dishes, put them anywhere they want, blanket the world with them, and Starlink itself will be the backhaul. I sense some problems with this. Starlink isn’t 100% reliable all the time. If you have a network that isn’t 100% reliable all the time, you’ve got some problems. Maybe you have to back stuff up somehow. But you don’t think that’s what they’re doing. You think they’re going to build a regular terrestrial network. Walter Piecyk I’m sure that’ll be a part of it, but you need macro towers for the kind of coverage, penetration, and power. Not to explain physics to SpaceX—they probably know it better than anybody—but I think what you’ll see, as they talk more about the low-band spectrum they purchased, is that when we get on the conference calls of these tower companies, we’re going to find out that a lot of those antennas show up on towers. It’s just natural. You can talk about femtos, but it’s hard to see the network getting built without macro towers. ### SpaceX's Wireless Ambitions Nilay Patel One of the weirder aspects of the U.S. telecom industry right now is that the cell carriers own some of their towers and operate some of their towers, and then there are these crazy third parties that literally have names like TowerCo and operate a bunch of the other towers. Are those captured? Do you think SpaceX can get deals with those companies? Are they beholden to their big partners? Walter Piecyk These are huge REITs. American Tower is the biggest one. It’s probably one of the largest companies when you consider REITs. There are other companies out there. They have these towers and, in many cases, space where SpaceX can just go and get an additional antenna. It’s a lot easier to do that now than when the wireless companies were initially building this stuff and having to erect their own towers. ### EchoStar Deal? In addition, EchoStar is going through a bankruptcy. It has a lot of radios that could be bought on the cheap and could expedite SpaceX’s entrance into the market. They haven’t shown interest in that yet. The EchoStar bankruptcy process hasn’t concluded, but EchoStar can still be a potential partner by selling them radios that are already on towers. Those radios are using the spectrum SpaceX is purchasing, so it could be a quick fix for them to enter the market. Who knows if they do that? They may have their own view, like Musk did, on how to build this new, cheap network. Nilay Patel Is there a way to read this as them slowly buying EchoStar, or whatever EchoStar tried to do? Walter Piecyk EchoStar has some remaining spectrum that Verizon frankly really needs. At this point, there may be some strategic sense in just buying EchoStar outright, because EchoStar is getting stock that was issued to it at a discount. If you’re buying them, you’re effectively buying in your own stock, right? You don’t have to issue cash to the company, and you’re getting whatever cash proceeds EchoStar gets from some of its spectrum sales. So they can actually get incremental cash on the balance sheet and buy their stock in. We’ll see if that plays out. And by the way, they don’t also have to deal with Dish, which can sometimes be challenging. ### T-Mobile Fallout Nilay Patel T-Mobile is in the mix here. I want to talk about Verizon. You’ve mentioned them several times, but T-Mobile is Starlink’s current partner for direct-to-device cell connectivity. Are they just getting rocked? Are they going to be part of this? How’s that going to work? Walter Piecyk If you think about the start of that, it was Mike Sievert up on stage with Elon announcing this thing. Everyone was very happy. Then I think Deutsche Telekom decided at some point that it needed a different CEO. You had that transition where Mike retired and a new CEO came in. I think there might just be a different view on how that relationship works. ### The Case for Four Carriers I’m sure it’s been very frustrating for SpaceX to deal with them, and SpaceX would certainly want to avoid any exclusivities going forward. But they may need to if they want to sign one of these wholesale agreements we talked about before. Nilay Patel It just seems like, as you mentioned, SpaceX and Starlink went after a little bit of the consumer market here. They bought some spectrum and got a good reaction to it. Now they’re going to go after the whole thing, and their existing telecom partner is thrown by the wayside. If you look at the 3 big telecoms in the United States, they’re circling the wagons. They’re saying this is never going to work, they’re never going to sign the MVNO agreements, and they’re putting together their own satellite pool. There’s something here: they’re panicked by the existence of meaningful competition in a way that doesn’t usually happen in telecom. Walter Piecyk Yeah, I agree with that. I don’t know if it’s SpaceX leaving T-Mobile or T-Mobile leaving SpaceX, but that relationship, which started out so happily with the old CEO, is certainly not positive. T-Mobile executives have been throwing shade at SpaceX incessantly over the past couple of months. They formed a JV together. To me, it’s like when fixed wireless first hit the cable market and Chris Winfrey talked about it derisively as “cell phone internet,” played it down, and ultimately that’s what really bit them. It’s why cable stocks are where they are today, given the number of customers they’re losing to cell phone internet. ### SpaceX Valuation Walter Piecyk There are some similarities now in terms of how these executives are downplaying what they can do. Is it going to be costly? Is it going to be complex? Sure, but so is Terafab. So are so many other things: making an autonomous vehicle or catching a rocket with chopsticks. I think that’s the reality they have to deal with. Investors have seen what this management team has done before in other areas, and they’re applying that here. Whether that’s fair or not, time will tell. Nilay Patel I’m actually very curious about that, because I know you covered the company and the industry. There’s some part of SpaceX that’s just a meme stock, right? People love Elon. There’s some part of Tesla where it’s not valued like a car company; it’s valued like a software company, even though it is very much a car company, and we’ve yet to see where the software multiples might come from for Tesla. I think the same is true of SpaceX, right? We see a huge IPO, but people are buying the physics miracle of the rockets launching and landing. They’re buying the promise of Mars. They’re buying the promise of AI, whatever that promise is, however frothy that market is. Those are valued against hopes and dreams. Telecom is not. It’s well known. You can be a telecom analyst and examine the value of the spectrum. You understand the build-outs. The customers are not confusing. Consumers are going to pay some amount of money, and there are other competitors built in at scale. Why do you think SpaceX would chain itself to a business that’s easy to value when all of its other businesses are dreams? You can’t value dreams. It’s just whatever the biggest number is. Walter Piecyk I don’t think it’s an either-or. When you look at people’s attempts to justify SpaceX’s valuation, a lot of that value is going to land on data centers in space and data centers on the ground. That’s where a lot of the value is, and Starlink to a certain extent. Nilay Patel But that’s not the launch business, which theoretically is their business, right? It’s not even the AI provision business, right? We’re describing them as a hyperscaler. Walter Piecyk Yeah, exactly. Those are other big chunks of it. There are a lot of different stories here, but that doesn’t mean they won’t pursue this if there’s demand for connectivity in constellations. They’re talking about connectivity in space because they believe there’s going to be demand for connectivity between the data centers, theirs or others’, and their constellations. There are already data centers that I think are using their constellation to connect. I think they looked at it as just another part of the narrative you build around SpaceX to justify the valuation. What do all these things need, whether it’s robotaxis or data centers in space? They need money, and money needs a narrative. This is just another narrative to stack on top, to say, “Here’s how we can drive incremental value.” If you look at the enterprise values of the telcos in the United States, you’re talking about around $1 trillion. They’re obviously not going to capture all of that, because part of it is shrinking the telcos while getting whatever that stake is and covering the related CapEx. I think the fair question is: if capital gets scarcer, how do you allocate it among these different things? Don’t you want to push Terafab forward a little more, or get those terrestrial data centers built so you can start monetizing the billions of dollars you’re putting in there, rather than diverting whatever the dollars are here to the telco? I think that’s a reasonable question. The problem for the telcos is that even if that’s happening at SpaceX and this gets delayed a year, that doesn’t help them. The overhang of when it’s going to occur—whether that’s in 1, 2, or 3 years—is always going to be there. They’re not going to say, “Hey, we’re just giving up on going after this.” It’s just going to be a capital allocation issue in the near term that delays when the actual impact hits the telcos in the United States. Nilay Patel How much of this is just Elon needing to supply connectivity to his own cars, factories, and robots, so he’ll just be his own best customer? Walter Piecyk I don’t think that’s it. I think they really want to build a revenue business out of it. They’re, in fact, going to use the cars as hotspots, where they’ll put Starlinks on them and use them as distribution points. That’s going to be part of the play. ### Starlink: The Cash Cow Nilay Patel I do want to end by talking about the existing telcos and what competition might do to them, because I think that’s a fascinating dynamic. They’re clearly not ready for an actually aggressive competitor, but I want to stick with what you just said for a minute. If I pull that apart, it sounds like you’re describing the reality of the SpaceX business: Starlink is the thing that makes profits, and everything else is incinerating money. Investors seem happy with that because the potential payoffs might be huge. Nilay Patel If you take the Starlink profits, you have to decide whether to reinvest them into Starlink and now Starlink’s mobile business, into AI, into the launch business, or into going to Mars. Regardless of how that allocation happens or on what timeline, at some point enough money will go back into Starlink Mobile to pose a real threat to AT&T, Verizon, and T-Mobile. That’s just a matter of time. Walter Piecyk Yeah, I think you nailed it. That is the issue, and capital becomes the biggest benefactor right now for the telecom companies. How does that capital get allocated? In terms of reported results, they’re 100% right. But in terms of the stocks— ### SpaceX Goes Public Nilay Patel Put that in the context of SpaceX being a public company for me. Are we just going to get next quarter’s results from SpaceX and see that xAI is still burning money at enormous rates, but Starlink Mobile made a little more money, and that’s going to keep everybody happy for a minute? Walter Piecyk I don’t think we have enough history yet to know what moves SpaceX stock one way or another. To your point, you have a lot of believers who, regardless of what’s printed, are always going to say, “Well, who cares about this quarter?” Tesla has the same issue, right? Who cares how many cars they actually sell, because it’s all about the robotaxi, and the robotaxi is about to start scaling. Those very positive people won’t care. Then there are going to be negative people who, no matter how much traction you see in Starlink or progress on the build of space compute, are going to say, “Oh, he’s never going to deliver. This is never going to happen.” You’re just going to have those battles back and forth. The primary issue is whether they can raise capital off of that. In what ways could you still need to bring in cash at some point? If these businesses aren’t generating enough cash because you’re consuming it with the other growth initiatives, you still have to figure out ways to continue to raise cash or issue stock to get more cash on the balance sheet. Nilay Patel If I offered the most cynical read, I’d say the only business where they can see that expanding the service will result in more profits to offset the losses elsewhere is Starlink. They don’t have another business that looks like that. Walter Piecyk Just to be clear, Starlink is the broadband business that generates the cash flow. This mobile business would initially be cash-negative before you get to a positive cash position. You have to look at robotaxis: there’s going to be a lot of CapEx initially, but these cars are pretty cheap. That theoretically could be a cash generator. I know they’re two separate companies. I agree with that. But, as I mentioned earlier, maybe it makes buying EchoStar make sense because you’re effectively buying cash in your own stock on the cheap. There are different ways to put cash on the balance sheet in $10 billion or $20 billion chunks. Nilay Patel But just to make it dumber, the structure of these companies is that they’re all Elon’s companies in the end, right? He’s managed them as closely as anyone can manage big public companies. But to make it as dumb as possible: if you have a dollar, and Gwynne Shotwell has a dollar and she wants to light it on fire, she’ll put it in xAI against some return somewhere that might be a $50 hammer, whatever their prospectus said. Or you could put the dollar into Starlink Mobile in the buildout, and you will probably return a dollar ten. That is what that business looks like, because they will get some customers away from AT&T and Verizon. They’re already running that thing profitably. The idea that they need to show some return somewhere feels to me like why they’re making this move. Not because it makes the most financial sense, but because it makes the most financial sense in the context of SpaceX. Walter Piecyk You may be right. The problem with that belief is that it’s going to take time for them to get that dollar of profit out of the mobile business, right? They still have to build the network and sign up customers. You’re going to be negative EBITDA for a while. If you have 2 different businesses and you think the returns are significantly higher, or more interesting to your investors, to get to that next catalyst for space compute or Optimus or whatever it is, I think that’s going to play a role. And look, it could just be what Elon happens to care about most in that moment. What is more interesting to him to do? Frankly, isn’t space compute a little bit more interesting to allocate those dollars to than taking some mobile customers from AT&T? Nilay Patel Yeah, although the man’s addicted to his phone, and I bet he hates seeing that AT&T logo in the corner. There’s just a part of that that’s always with these guys. ### The 5G Letdown Let’s talk about the existing telecoms. They do seem a bit panicked. For a time, they were juggernauts. These were unstoppable businesses as mobile was growing. They poured a bunch of money into the 5G transition. I’ve described the telecom industry as a bunch of lobbyists. Boy, did the lobbyists win the 5G transition. Boy, did they collect all the favors and all the capital they could to build out these networks. And then reality hit them in the face, right? We beat China to some kind of network, and then the thing did not happen, right? We were supposed to win. That was the narrative with 5G: we didn’t beat China to 5G something. Who knows what, but we’ve got to cut all the corners to build this network and spend all the money. It just didn’t pay off. You’re actually an analyst; you’re in the trades. I skim the trades, and boy, are all these CEOs saying, “We’ve got to generate some revenue with these networks now.” You’ve mentioned Mike Sievert’s gone, the old CEO of Verizon’s gone. It just didn’t pay off for these guys. Walter Piecyk Yeah, 5G didn’t deliver. Some of the promises were BS from the beginning. You talked about this earlier: autonomous cars. You’re not going to rely on the network to make that millisecond decision about whether you’re going to hit the car in front of you or not. Remote surgery—how is that a scale business when you’re generating hundreds of billions of dollars of revenue, even if it were a thing? These were all silly. Sievert used to be the guy saying, “Oh, people would say the same thing about LTE. There’s no application.” That wasn’t even true. If you remember, the application was video. We knew that LTE was going to enable video, and that’s exactly what happened. So you’re 100% right. This was basically a way for them to get more spectrum, because they were still going to have data growth on their networks, right? Capturing more spectrum to handle the existing growth is cheaper than trying to build the network for that capacity, even at tens of billions of dollars. Nilay Patel If they had just said, “Look, we’re going to spend all this money, and at the end of it tens of thousands of people will be able to livestream Taylor Swift during the Eras Tour at every one of those stops,” I think Americans would say, “Go faster. Yes, we understand what that is.” That is truly what they enabled. It’s very cool. It’s millimeter wave in stadiums, and that’s cool. I don’t know if there’s another one. ### Verizon's Weakness That said, they are on their back foot, right? They did spend a lot of money. This is around the time when, in my history as a journalist, they would start talking about 6G. And they want to, but they know they shouldn’t, so they don’t. They’re having the meetings, but they are certainly not as loud about the next round of investment as they would normally be in the cycle. Now they have a competitor. Your analysis is that Verizon is by far the weakest here. They have the most to lose. Explain why that is. Walter Piecyk One thing to mention is that you have a very active FCC chair who would like to raise $100 billion from a spectrum auction and put that on his résumé. So you’re right, they’re going to talk about 6G again and have to come up with some type of revenue stream to justify getting this money. It’s going to be a lot harder, though. They’re already pretty levered, right? They’ve got a new competitor. In terms of Verizon, the issue is that AT&T has seen this thing developing for some time. They’ve built a network where it’s fiber, right? There’s only so much wireless can do when a fiber network is ultimately your best connection. Customers who have both fiber and wireless are very high-value, very low-churn customers. That’s been their strategy. They’re plotting along, getting their 2% or 3% revenue growth, paying their dividend and doing their thing. That is the standard telco. T-Mobile didn’t have that. They’ve got the dynamics of a lot of politics right now, between Deutsche Telekom wanting to own it and not wanting to pay a high price, and how that all plays out. Verizon just made a lot of bad strategic bets on spectrum—I mean, media. Obviously, AT&T had its own issues, but at least it got out of DirecTV and Warner quickly enough and turned the ship around. Verizon buying millimeter wave spectrum when it could have bought EchoStar and spectrum is another example. Even now, it’s spectrum-constrained compared with its competitors, and it needs to spend $10 billion or $15 billion on EchoStar spectrum. You have a new CEO in there who’s not really a telco guy, just doing his thing. They’re going to cut costs, so EBITDA is going to look good because they’re firing a bunch of people. There’s going to be an impact from firing that many people in the organization. It may appease investors and make EBITDA look good for the next couple of quarters, but at some point you have to show some strategy for revenue growth. What is Verizon’s differentiation in the market right now? They have none. They’re most in the crosshairs of where SpaceX, and frankly even the cable companies, can continue to eat away at those customers. Nilay Patel That is frankly surprising to me, and it’s just my own history, right? I grew up in the Midwest, I went to college in the Midwest. That was Cingular territory, and it became AT&T. When I moved to New York in 2010, Verizon was the gold-standard network in the Northeast. It was the one everyone had. It cost the most money because it was the best network. The iPhone coming to Verizon a couple of years later was a huge deal. Verizon’s network was so powerful at that time they could try to force the BlackBerry Storm down people’s throats. They were confident enough that their network was the thing holding people to them. That was a worthwhile strategy. Obviously, it didn’t work. They made the wrong bet. You’re saying they made the wrong bet on millimeter wave. They made the wrong bet on other spectrum acquisitions. The one I’m not quite tracking is media, right? They did buy a bunch of dumb stuff. At one point they owned Tumblr, which is one of the most confusing media outcomes of all time. But that stuff was all cheaper and easier for them to flip or shut down than AT&T buying all of Time Warner and putting out a 4:3 black-and-white Justice League movie. How did AT&T survive that, but you’re saying Verizon can’t survive owning Yahoo? Walter Piecyk I think that’s a pushback in that the media impact to Verizon was a lot less than to AT&T, but these were separate businesses. Obviously, it was a capital allocation issue for a period of years. The decisions on the spectrum front and the competitive front, and frankly T-Mobile’s impact—John Legere’s impact in taking away this idea that “Hey, we’ve got the best network”—left Verizon in a spot where they were basically saying, “Hey, we’ll just keep increasing prices on our customers, and we’ll get that 2% or 3% revenue growth.” Then they lost the narrative of what they meant to customers. I don’t really think that, under the new CEO, they’ve regained it. Nilay Patel And you think their ability to say they have the best network is just gone? Walter Piecyk I think that's completely gone. That's the crazy thing about this, right? The networks are effectively commoditized. These networks are basically the same, and they're getting 60% margins. That's the whole thing with Dish Wireless. Even if it wasn't on their network—and you guys tested that it wasn't on their network—you could have been buying AT&T's network at half price. It's crazy, the ARPU and the margins these guys get for what is effectively a commoditized market. That's why the AT&T strategy is interesting, because at least they're trying to bundle that with a high-value fiber network. But for the other guys, it's just commoditized wireless. Nilay Patel I would actually say the other strategic mistake Verizon made along the way was getting away from FiOS. They decided it wasn't worthwhile. It seems like they're trying to reinvest in that now and go after the AT&T strategy. Walter Piecyk Given their lack of spectrum, I think they can only take fixed wireless so far. So you're right: I wouldn't be surprised if they got back to investing in fiber. The difference, obviously, is that with FiOS, you've got union issues and a lot of cost structure issues they were dealing with. But I think the pivot to doing more fiber, and perhaps laying off the fixed wireless, which is straining the network, is probably the right decision for them. We'll see what happens going forward. Nilay Patel I want to end on a big-picture question here. We have covered so many crazy telecom mergers, and it always feels like the right answer is to put more competition in the system. We've mentioned John Legere several times in this conversation. He only got that job, and T-Mobile only got to exist the way it does, because AT&T was prevented from buying T-Mobile. They paid a breakup fee that subsidized a huge portion of that early growth and those early strategic moves Legere was able to make. But that was good for the market, right? Consumers got a CEO who tried to change the market and give them better customer experiences, and reinvested that money in the network. That was good. The existence of Dish Network came from T-Mobile trying to buy Sprint. Instead of blocking the deal, we imposed some wild structural remedies, and Makan Delrahim, who ran antitrust in the first Trump administration, rightly or wrongly, engineered the outcome of Dish Network existing. That was his preferred outcome: “We're going to let this happen, but we need to have four carriers, so Charlie Ergen is going to be the—he's my guy. We're going to stand up a fourth one.” From my perspective, it just seemed obvious that he was never going to do that. Like, he didn't. Maybe I was correct to make that bet, but it just seemed obvious that Dish Network was going to hold on to a bunch of spectrum, watch the prices rise, and then flip it, when it turned out they never built their network. They had to hit targets with the FCC that they just weren't hitting over time. Now we have a true fourth competitor, or at least an aggressive competitor in the market, in Elon, who's probably going to try to actually do this thing, and these companies are running scared. Is this just evidence that we should have four carriers in the United States, and that when inevitably Verizon tries to buy T-Mobile, we should just say no? The right answer is four, and we're not going to go to three again? Walter Piecyk Under Chairman Wheeler, which goes way back, yeah, four was the number. Wheeler and I were buds. You know, if you called him now, he'd be like, “I told you it should have been four,” and he'd go back there. Obviously, in the new administration, they didn't believe that was the case. I think you see Chairman Carr pointing to prices, how he sees them being down, and the competition that's happened in fixed wireless. But I think you always want more competition in a market. It drives innovation and lowers prices, and margins are approaching 60% in the wireless business. I can't say we've had a tremendous amount of innovation. By the way, that gets back to what the telcos are doing in refusing to give them a wholesale agreement. That's their right, right? But at some point, if the FCC's mandate is to act in the public interest, we have a current administration, and who knows who gets in the next administration. If these telcos are going to push back so hard on what the fourth competitor in this case, SpaceX, is going to do, the FCC can probably get involved in some ways. That's the risk they run by being so vocally against this guy in the market. You talk about the ultimate consolidation. It's funny. We should save all these quotes where they're saying, “Oh, Elon can't be a competitor because he only has 80 megahertz of spectrum,” because then when they want to merge with someone, they're going to claim, “Oh no, he's actually a competitor.” They're going to deny that as a competitive threat. ### Future of Mobile Devices Nilay Patel There is nothing funnier than a giant telecom insisting that a thing that is not a competitor is their competitor. They all do it. It's very funny. Last question. Again, this is the big thing rattling around my head. We might be on the cusp of an entire paradigm shift in what mobile devices even are. If you look at Meta, they're going to put out the Muse charm, and maybe we're all going to talk to little cartoon AIs all day that run agents in a data center. Our use of mobile bandwidth to watch video will go down because we're not even carrying phones anymore. Is that a risk here? Is anyone thinking about this? Walter Piecyk We think about this every day at LightShed in terms of all the different ways AI could change how we interact with our information and with commerce, and how we use agents. Muse has obviously been something we've been waiting for from someone, and there are going to be other versions of that. You're right. It's an Apple risk, frankly. It decreases the importance of the status of holding an iPhone if you're just not interacting with your data in the same way—if that happens. That whole paradigm, in terms of the telcos providing the subsidies, changes. Whenever there's change, there's an opportunity for disruption and for margins to contract. So, yeah, it does change things. Maybe SpaceX could play. Elon has been asked about making a device. I know Qualcomm, when you meet with those guys, they're like, “Hey, we have 40 different guys out there making a...” I don't think he's going to add one more thing to his list. But again, let's get back to what we've talked about during this podcast: narrative. Will Terafab happen? Will space data centers happen? It may not happen, but you can talk about building a phone. Then that becomes one more issue the telcos have to deal with in terms of their customers. “Why am I using this iPhone when I should be using this completely different device,” whether it's coming from OpenAI, Anthropic, or maybe SpaceX? Nilay Patel The idea of Elon shipping a mid-range Android phone with the Play Store on it is so deeply funny to me. I truly hope it happens, because that's the product you can make today. Maybe there's a paradigm shift and a different set of products, but right now you need to have Instagram. There's really only one path to getting Instagram, which is shipping an Android phone with the Play Store on it. We just saw Amazon essentially capitulate with their new tablets, right? If you're focused on the future, you have to concede to the present. I truly do not believe we'll see a mid-range Android phone from SpaceX. But you're saying maybe they might start talking about it. Walter Piecyk No, I agree with you. I'm just saying when you're trying to build narratives, why not throw that in the hopper? The bigger issue is that someone is going to build something that may resonate. We've gone a long time spending $1,000 for these phones that give us some basic swipe functionality. They're going to change in terms of how you use them. This is obviously a bigger issue for Apple than anybody, but it does change how the telcos are going to play their role and where that margin should be. They gave up a lot of value to Apple at some point during this continuum of the wireless industry. We're going through another paradigm change, so we'll see how those value splits play out. ### Outro Nilay Patel Walter, we're going to have to have you back soon because it feels like these things are going to happen fast. I was very happy to nerd out about telecom with you. Thanks for being on Decoder. Walter Piecyk I appreciate it. Thank you. Nilay Patel I’d like to thank Walter Piecyk for joining me, and thank you for checking out this episode of Decoder. To get new episodes every Monday and Thursday, subscribe to our YouTube channel at Decoder Pod and find us on TikTok and Instagram under Decoder Pod as well for more fun stuff we put out every day. 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