Starlink's Charter Deal a Desperate Power Play

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[00:01:22] Speaker D: Thanks for joining. Thought I'd fire up an impromptu space. I'm currently walking outside the house. I need to go get my car, and I figured I'd just use this time to talk about the news that was reported by Bloomberg overnight. So for those that saw the article there, this is run by Bloomberg. There were reportedly talks between Starlink and Charter Communications. And so for those folks who are not in the US, Charter is a cable internet company, pretty large company. It used to be a high flyer when the— after cable consolidation and of course the transition away from cable TV, they became a very important internet provider. Most Americans get their home internet through a cable company. For example, I rely on Spectrum internet, but Charter is one of the largest internet providers here in the US. The issue with Charter is that over time they focused on financial engineering and raised a ton of debt, bought back stock, 'Cause they thought things were going to be great forever. And so they find themselves in a pretty difficult hole right now because the company has about $100 billion of debt and the equity value is only $18 billion. And so Charter is pretty much a distressed company right now. They have been, from a competitive standpoint, they've been facing pressure from wireless carriers who have moved into Their markets with one of two products. One is 5G Home. So leveraging the wireless network, but providing, instead of sending internet directly to your mobile phone, they're using the terrestrial network to access homes by providing 5G internet, which is okay. It's not the greatest speed. So I think Verizon offers 5G Home at a speed of around, I think, 150 50 megabits per second. But the more competitive side, so that actually has pretty decent coverage depending on where you are, but the more competitive business is fiber. And so Verizon, AT&T, and T-Mobile have been, especially AT&T, have been moving very aggressively into fiber. And so fiber is a superior product to cable because fiber has symmetrical down Download and uplink speeds. So if you get 1 gigabit fiber, it's typically 1 gigabit down, 1 gigabit up. Whereas cable has in the past was always geared towards consumption. And so it's asymmetric. Like if you get service with, I have Charter, sorry, I have Spectrum and it's 500 megabits downlink and then like 15 megabits uplink, which is, which has been fine. But as people create more content, that having asymmetric download and upload is actually a bottleneck versus fiber. But anyway, but the other constraining force that these guys have been facing is this company called Starlink. And so cable has always had a dominant share in rural areas and suburban areas, but then along came Starlink and And they've been pressuring cable companies too. And so cable has been facing a threat from wireless companies. They've also been facing threat from Starlink. And so they've been eroding, you know, they've been losing customers over time. And so the other interesting thing is that I think back in 2014, '15, was that the route?
[00:05:18] Speaker B: Yeah.
[00:05:18] Speaker D: Around that time is when cable had contemplated the idea of entering into the wireless market. And so years prior, some of the cable companies had bought spectrum and had planned to deploy it. But then once they realized, you know, if you can imagine, cable already has network infrastructure around the country, they would just have to rent towers and then light up spectrum, and then they could run all the traffic on their networks, which ultimately they decided that that was too expensive. And so For example, Charter went into partnership with Verizon. Charter gave Verizon the spectrum that they had accumulated over the years, and then they entered into an agreement where Verizon would allow Charter to become an MVNO in exchange for the contribution of that spectrum. And so from Charter's perspective, they actually utilize Verizon towers and spectrum, but then they run a decent amount of the network fabric on Charter's network. So anyway, so that's kind of the landscape. Each one of these cable companies use Verizon, T-Mobile, AT&T, and various combinations to provide mobile service. And so I think Charter has maybe around 10 million subscribers or so, which as I explained yesterday, I could go and get Spectrum internet our wireless internet through my provider. However, and they offer like a $20, $30 discount, but like most Americans, I'd rather not buy my mobile service through a cable company because cable companies are notorious for having awful customer service. And so the last thing I want to do is have something go down in my service and then have to deal with cable company support. Just a big no-no. But anyway, so it's interesting. There's a few things that I wanted to talk about the article that popped up on Bloomberg. I guess the first thing is whenever you do read these types of articles where things are leaked, and it's important to understand that whenever Starlink and SpaceX are doing something, oftentimes it gets leaked to the press. You have to ask yourself, well, why is it getting leaked? Because these things don't happen I mean, they do happen from time to time where a journalist is able to dig up and piece together a mosaic or talk to people and get an indirect look in what's going on. And then they find out what it is and then they break the story. But oftentimes company principals or bankers or lawyers are tasked with leaking this stuff. And you might leak things for a number of reasons. One would be to float a trial balloon. So if you're contemplating some type of deal, You might leak it and then see what the public reaction is, investor reaction, regulatory reactions. That's one thing. Or you might leak something to tip the scales one way or the other, right? You might try to force people to do something, or you might try to force people not to do something. Like if there's a very sensitive deal that's happening and people are very, they don't want it to be leaked, and you don't want that deal to happen, you might leak it in the hopes that it gets blown up, right? Or vice versa. If a company is unwilling to sell itself, but you have advisors amongst the buyers who leak it because they want to put the company in play, that's another thing. Or you might, in a situation where there's a negotiation going on and you think you could get a better price, but you're under exclusivity and you can't really talk to other parties, then one of the bankers, I mean, it's a high-risk gambit. One of the bankers on the sell side might try to go leak it and draw more interest without formally breaking the confidentiality agreement. And so here I think it's important to understand, you know, what, who would leak this and what is the intention of doing so, right? And so from the charter's perspective, they might leak it because they're obviously in financial distress. Maybe they're trying to show equity and bondholders that they've got some ability to salvage the business, maybe partner up with Starlink, and then as a result, they'll get some kind of economic benefit. However, there are issues with that because Starlink, on the one hand, maybe they can get additional mobile subscribers if— now remember, they're using Verizon and T-Mobile as their backbone for the MVNO service. And so I'm not sure what agreements are there or what the parameters are that would allow them to still use that network, but then somehow graft on T-Mobile— sorry, somehow graft on Starlink mobile service. But never say never. Maybe there's a legal way around it. But the issue with Charter leaking this is that Starlink is actually One of the reasons why Charter is distressed, right? Because Starlink is one of the factors that has been taking subs from their cable internet business. You know, Starlink fixed wireless services is taking subs from cable. So that's an issue. But I think if you kind of step back, I think probably the biggest—
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[00:11:14] Speaker D: Aim of whoever's leaking this is probably from Starlink. Like, I think they're leaking this because they're trying to show that they've got options. And someone astutely pointed out yesterday, this is probably them pushing the button, trying to show that they've got options and put some pressure on T-Mobile not to walk away from their agreement because they're like, hey, well, we've got options. And they're also telling the market they have options, right? Like, if they lose T-Mobile as a, essentially as a reseller, then maybe Charter, which is a really large company, it has a bunch of subscribers, maybe they'll step up. And so this leak seems quite desperate. And I think for Starlink, they've done a number of strategic blunders and this is just another one. I mean, if you leak this information and you say you're working with Charter and you're going to really go after deploying the Starlink mobile business in competition with the carriers. Now, someone with a wrong-way view might say, well, if we leak this and we use the stick, we can really threaten the mobile carriers, and then they'll acquiesce and they'll bow down and work with us. That's one way to think about it. Or the other way, which is my view, is you leak this and the carriers view this as even a bigger threat. And they, it galvanizes them. They're like, okay, we know where this is going. If Starlink tries to work with the cable companies, then we certainly will not enable them as an MVNO because it's an existential threat. And then on top of that, these MVNO agreements with the cable companies, we need to reevaluate those, right? Because if there's an end around, then we're not going to let that happen. And by the way, like there's been some suggestions that maybe Starlink could buy one of these MVNOs and just take over their contracts, meaning like some of these smaller carriers. That's not— most of these MVNOs are, I would assume these MVNO contracts, there has to be some type of clauses in them where if there's a change of control, then the carrier, the MNO gets to evaluate whether or not the new party that's stepping into the shoes of that contract is someone they want to work with, right? And so they'll have the ability to terminate those agreements if they're not comfortable. So anyway, it's not as simple as just buying an MVNO and then taking over. It's a bit more complicated than that. So I think all this stuff is a big load of bricks. I mean, you know, the The FT article coming out, I think, helps prompt this Bloomberg article where it got a reaction from obviously people like us in the press. And then that probably prompted Bloomberg to then go searching for some more information. And then these charter talks came up, which I'm, you know, I looked at the reporter, it's a telecom reporter, so maybe it is a little bit on the charter side, but My guess is that for Starlink, it seems most likely that Starlink leaked this to the press because they want to control the narrative, right? So yes, we're hitting the mobile market and yes, if the carriers are unwilling, we could work with the cable companies. And if Starlink did want to build a business, a terrestrial business, they could try to buy some. There's very few pieces, but there are some. Low-band spectrum out there, you could go buy that and then leverage the cable company to provide the infrastructure, which then you could put towers on top of and then kind of try to piece it together that way. But it's a difficult process and would be very expensive. But I wouldn't put it past SpaceX. Like they're, as I said before, they've got the gumption and are willing to take big bets. But I covered this yesterday. I won't go into it again. It doesn't make sense for them to buy a mobile network operator because then that just makes their valuation derate. Regulators wouldn't allow it. And then on top of that, it just would galvanize all the MNOs against them because it's clear that they're coming to eat their lunch anyway. Those are some thoughts about the Charter article overnight. I do think the MNOs are seeing all this stuff and Starlink Mobile is just becoming day by day more toxic. Like there's just no way these guys can work with them. And I look back fondly at Tim Ferriss. I think it was May 14th when he, right after the JV was formed between AT&T, Verizon, T-Mobile. He tweeted, well, clearly this JV was put together so that they can provide a united front to then access Starlink's next generation service. What an absolutely idiotic take. I mean, that's what happens when you're myopic. You have no ability to see beyond your own bias of just being negative about AST. And granted, I'm biased about being positive, but I also see facts and understand that things can change, right? And this guy, he has no ability to do that. And I think he, like a few other analysts in the space industry, they're going to take that to the grave, right? And so that JV, I mean, all the pieces line up, like the T-Mobile Starlink exclusivity ending in June/July. I think it's July. Then you've got The JV forming just on the cusp of that. And then you've got now Starlink becoming very vocal about going direct to consumer, which I'm sure they told T-Mobile all this, or T-Mobile found out. And then now you've got Starlink trying to chat up cable companies. Like you'll see another article probably in the coming days about Starlink talking to Spectrum. spectrum internet. It all pieces together. And so the key takeaway is that AST's strategic value continues to go up by the day, and the Street hasn't recognized it. But when they do and they catch up to where we are, you're going to see the stock massively re-rate higher because it will become— AST SpaceMobile service will become a critical strategic calendar for every MNO on the planet, for every tech company that is not in the Tesla slash SpaceX vertical stack, our, our strategic value just goes up. So anyways, hope everyone's having a good weekend and maybe we'll do another space later, but until next time, thanks everyone.
[00:18:04] Speaker C: Bye. Thanks for listening to the AST SpaceMobile Podcast. If you enjoyed this episode and you'd like to help support the podcast, please share it with others, post about it on social media, or leave a rating and review. To catch all the latest news about AST SpaceMobile, make sure to subscribe. Thanks again, and I'll see you next time.
[00:18:37] Speaker A: Bye. Listen.
[00:18:40] Speaker C: Mmm, waffles.