Is Elon Musk's Starlink Becoming A Threat To Tower REITs?

People rarely think about the massive infrastructure they depend on every time they make a call or receive a text message on their mobile phones or how the massive amounts of data arrive on their devices almost instantly when watching reels on TikTok.

The mobile connections that most of the world now relies on require a global network that consists of millions of towers and nearly enough fiber optic cables to reach Pluto. The global dependence on this network is great for the companies that own the infrastructure, such as American Tower Corp. AMT, a tower real estate investment trust (REIT) with a market cap of almost $78 billion and a portfolio of nearly 226,000 communications sites. 

However, Elon Musk's Starlink has plans to add Direct to Cell capability to its satellites, enabling access to calling, texting and the internet anywhere on the planet. These satellites will act like a cellphone tower in space, effectively eliminating dead zones and providing coverage to even the most remote locations. 

According to the Starlink website, text service is expected to be available in 2024 followed by voice and data in 2025. The service won't require additional firmware or apps because Direct to Cell works with existing long-term evolution (LTE).

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Musk Isn't The Only One With A Horse In The Space Race

Starlink isn't the only satellite operator aiming to provide cellular coverage from space. Last month, AST SpaceMobile Inc. ASTS announced that it made the first-ever 5G connection for voice and data between an unmodified smartphone and a satellite in space. The connection was made from an unmodified Samsung Galaxy S22 located near Hana, Hawaii, in a wireless dead zone.

AST SpaceMobile plans to go to market with mobile operators such as AT&T Inc. and Vodafone Group. The company's first five commercial satellites are slated to launch with SpaceX early next year.

Will Satellites Eliminate The Need For Existing Towers?

Musk and T-Mobile President and CEO Mike Sievert first announced the plan last year to provide satellite coverage to T-Mobile's customers in areas with no cell towers. During this announcement, Musk said that the satellite service was meant to supplement existing towers, not replace them. 

It's unlikely that satellites with today's technology will be able to handle all mobile data needs on their own. Starlink's coverage will provide about 2 to 4 megabits per "cell zone," which translates to 1,000 to 2,000 concurrent voice calls. This coverage may be sufficient in remote regions but is far from being able to replace existing networks in populated areas.

AST SpaceMobile's most recent space-based cellular broadband data session achieved a download rate of approximately 14 megabits per second. While that type of internet connection is impressive in a wireless dead zone, it would be a massive downgrade to most mobile data users. 

For now, it doesn't appear that space-based cell towers will be a threat to tower REITs like American Tower Corp. or Crown Castle Inc. CCI, and neither Starlink nor AST SpaceMobile seem to have plans to replace them. 

Maybe tower REITs will expand their footprint to low earth orbit.

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