Prediction: SpaceX Starlink Will Compete With AST SpaceMobile

If you know anything at all about SpaceX and its Starlink program, you probably know that it's Elon Musk's master plan to bring satellite internet service to everyone on Earth -- and magnify SpaceX's profits in the process, so as to fund his plan to colonize Mars.

If you know just a little more about Starlink, you know it's already evolved beyond this original plan. The U.S. military and others are already starting to throw money at SpaceX, as the company offers to build military versions of Starlink (called Starshield) for national security missions.

But here's something you may not know at all about Starlink: It might soon let you place phone calls from your cellphone to your friend's cellphone ... via space.

Image source: Getty Images.

SpaceX: 911 provider to the world

SpaceX bills this newest service as "Starlink Direct to Cell," and recently added a page to its website advertising "seamless access to text, voice, and data for LTE phones across the globe." The company plans to use Starlink satellites, tweaked to enable cell service, to empower ordinary, non-satellite phones to place calls to other cell phones via satellite even in areas with no cell tower coverage.

The company plans to begin offering cellphone-to-cellphone text service later this year -- perhaps as early as Q3 2024 -- with voice and data service coming in 2025.

In a letter to the Federal Communications Commission (FCC) last week, requesting accelerated licensing, SpaceX advised that it is collaborating with T-Mobile US (NASDAQ: TMUS) to offer "satellite direct-to-cellular service that closes mobile 'dead zones' everywhere." To date, SpaceX has put 130 Starlink satellites with this capability in orbit "with more launches on the way."

SpaceX does observe that certain telecom rivals oppose its licensing request, citing worries about signal interference with other communications. (And SpaceX is asking the FCC to waive requirements for proof of non-interference.) In what appears to be an effort to bolster its case, SpaceX also offered to facilitate "emergency" phone calls "for free."

SpaceX versus the competition

But direct-to-cell, or DTC, is not an idea original to SpaceX.

To the contrary, over the past few years, space communication companies like Globalstar (NYSEMKT: GSAT) and AST SpaceMobile (NASDAQ: ASTS) have taken the lead in DTC communication, in which off-the-shelf cellphones can be used like old-style satellite phones, calling anyone from anywhere on Earth by bouncing signals directly off satellites.

AST in particular gained fame this year by signing partnerships with (and commitments for financial support from) both AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). Earlier this month, AST also announced that the FCC has approved it to begin commercial service via its first five BlueWalker satellites, which are scheduled to launch from Cape Canaveral later this month.

Globalstar announced a similar licensing win last week, when the FCC extended the validity of its own license by 15 years, and allowed Globalstar to add 17 new communications satellites to its constellation.

But while these companies have taken the lead in this market, SpaceX has proven adept at outcompeting first-movers in profitable markets.

SpaceX the competition-quasher

As arguably the most important player in space, launching more rockets carrying more satellites for more kinds of businesses than anyone else on Earth, SpaceX is uniquely positioned to identify which space businesses are most lucrative -- and shifting its business model to take over those industries.

This happened first in the heavy lift rocket market, where SpaceX started as an upstart, but quickly underpriced incumbents like United Launch Alliance and Arianespace, and became the largest large rocket launcher on the planet.

It happened next in small launch, where SpaceX noticed companies like Spaceflight Inc. making good money buying Falcon 9 rockets, bundling multiple small satellites aboard, and launching the satellites en masse. Surprise! SpaceX announced its own Transporter service that did exactly the same thing but at cut-rate prices. In a matter of months, Spaceflight sold its own bundling business to Japan's Mitsui and exited the business.

We're seeing similar dynamics all across space, in fact, as SpaceX explores new fields of space business, from space "tugboats" to space tourism to Earth observation satellites. And now it appears SpaceX has its crosshairs fixed on the nascent business of DTC cellphone service.

The upshot for investors

It remains to be seen whether SpaceX will succeed, of course, but given SpaceX's track record to date, I wouldn't bet against it. Moreover, the size of SpaceX's satellite constellation -- only 130 DTC satellites, but 6,000-plus satellites overall, and being constantly refreshed with new, upgraded comsats that could support DTC -- already dwarfs anything its competitors can boast.

On top of everything else, SpaceX has an almost unlimited war chest to draw upon as it invests in this new business. Even without the DTC market, Starlink is expected to rake in between $6.6 billion and $6.8 billion in revenue this year from selling broadband internet service alone, and it generates a free-cash-flow margin of nearly 10% on that revenue. Meanwhile, both Globalstar and AST are still burning cash.

Given the company's numerous advantages, competition from a committed price-undercutter like SpaceX is a risk that investors in Globalstar and AST SpaceMobile cannot afford to ignore.

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