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Why Starlink Is Not A Threat, But A Boon, To Lumen

Mar. 01, 2021 9:15 AM ETLumen Technologies, Inc. (LUMN)STRLK56 Comments


  • After the recent pop, Lumen dropped essentially back to pre-GME squeeze levels again making it attractive.
  • The stock continues to be discounted for reasons of poor past returns and landline decline, with poor coverage of the stock eliminating price discovery.
  • With 5G and work-from-home being important mitigants for the decline of IP transit, there are more reasons to believe that the wireline business model has longevity.
  • Starlink and other satellite internet efforts, evidenced by efforts in emerging markets, will serve to connect more people at the periphery of networks, but will not encroach on telcos.
  • Advancement in satellite internet could actually turn into a tailwind for Lumen's business.

Lumen Technologies (NYSE:LUMN) continues to be an attractive stock due to its high yield and mitigants to the decline of the IP transit business, upon which Lumen substantially relies. With weak past capital return metrics, Lumen remains substantially under-covered by analysts, and the situation in wireline remains poorly understood and evaluated. More connectivity thanks to 5G, streaming and work-from-home are already clear tailwinds for the business.

Some have pointed to advancement in satellite internet technology, now headed by Starlink (STRLK), as a potential threat to the traditional telcos as it reduces the need for fiber infrastructure. While it's true that satellite internet allows for connectivity without terrestrial infrastructure, it will be mainly of benefit to people on the periphery and will not affect the high return markets where telcos like Lumen build out their projects. Satellite internet will be marginal at first, but it will grow the data flows that will eventually travel through the Lumen infrastructure. With Lumen's infrastructure being the largest in the world, the benefit of further connectivity at any periphery is a boon to the stock, and presents a further point for the buy case.

What Satellite Internet Is and Isn't

I became interested in satellite internet first looking into satellite operators in Europe, which had high yields and where I was researching a SoTP thesis. However, a lucky encounter with an emerging markets entrepreneur working on satellite internet projects helped me re-assess. Ultimately, satellite internet as we would have known it a few years ago was a high latency and low speed internet that cost a lot and only really made sense for the most isolated locations. Companies like Eutelsat (OTCPK:EUTLF) which has a marginal satellite internet business, provides this kind of service.

They are constrained primarily by their satellite assets, which are made for broadcasting

This article was written by

The Valkyrie Trading Society is a team of analysts sharing high conviction and obscure developed market ideas that are likely to generate non-correlated and outsized returns in the context of the current economic environment and forces. They are long-only investors.

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Analyst’s Disclosure: I am/we are long LUMN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (56)

A little late to this conversation. I agree that satcom isn't a threat to any existing/possible fiber applications.
Any true satellite experts out there? I just tried to compile a comparison for the competitors. I came up with the below, but not sure whether the numbers I found are a true comparison, apples to apples.
Hughesnet (US/Americas/Brazil/India/some Europe), 1 Terabyte total, 25x3, 6+1(coming)GEO,
Viasat (North America), 500 Mbyte now, maybe 15 Tb like Telesat after LEO launches?, 100Mbps, 5+3GEO 288LEO 2026,
Eutelsat/OneWeb, (above 50 degrees, Europe/Africa), 1.1 Tb, 30-100Mbps, 39GEO, 250/648/7,000 LEO(coming)
Telesat, (Canada/World?) 15 Tb, 15GEO + 298LEO(2024)
Starlink, 50 Terabyte at 12,000 satellites
Gerard Hallaren, CFA profile picture
@mlhutche not an expert, Like any communications system capacity, speed, and latency are the three key metrics. Capacity has mostly to do with the number of transponders and the band. Speed is a function of traffic quantity to capacity, the nature of the traffic, and available technology. Latency is about the distance from the earth. Here is a link that might help www.esa.int/...
@Gerard Hallaren, CFA Thanks for the reply, but I was looking for knowledgeable comments on my findings of the planned relative future throughput of these satellite constellations. The primary information has been about current consumer speeds and latency, rather than future global capabilities. Curious how future competition will play out. It seems to me that there's room for at least a few systems, but that Starlink will have the advantage, partially because of their low launch costs. Perhaps another system will come up with radically better satellites to offset that advantage, but I believe they'll be relegated to the periphery, with Starlink dominant.
All this the thoughts of someone who definitely is NOT a satcom expert.
SPAC lover profile picture
This is from Starlink itself. It should teach stupid people a lesson. Starlink can't compete with wireless operators in metro areas. It never intends to.

"One major obstacle for Starlink, as well as any satellite-based broadband service, is the cost of the user terminals: The equipment on the ground that connects customers to the network.

Shotwell said SpaceX has “made great progress on reducing the cost” of the Starlink user terminal, which originally were about $3,000 each. She said the terminals now cost less than $1,500, and SpaceX “just rolled out a new version that saved about $200 off the cost.”

That means SpaceX is absorbing about two-thirds of the cost of the terminals, as the company is charging beta customers $499 upfront for a user terminal.

Musk said earlier this year that Starlink “needs to pass through a deep chasm of negative cash flow,” a significant portion of which is expected to be due to the cost of the user terminals.

While SpaceX is not charging customers for the full price of the terminals so far, Shotwell said the company expects the cost to come down to “the few hundred dollar range within the next year or two.”

Starlink ‘complementary’ to existing broadband service

Shotwell again emphasized previous comments by SpaceX leadership that Starlink is not looking to replace the service of “giant providers AT&T, Comcast, etc.,” as she noted its satellite internet is “very complimentary to the services that they provide.”

“The Starlink system is best suited to highly distributed rural or semi-rural populations,” Shotwell said.

In the meantime, Shotwell said SpaceX’s challenge is learning how to scale for consumer customers while “making sure we can build a reliable network.” But, she added, none of these are challenges “which we can’t solve.”
Brilliant analysis! Starlink/SpaceX might be the investment of a lifetime.
SPAC lover profile picture
@JCCorn no it shall fail to compete with 5G. it may work for remote areas or cruise ships.
@wit witty The expensive 5G towers will be unnecessary. Watch and see!
SPAC lover profile picture
@JCCorn you obviously don't understand information theory. the channel capacity=Bandwidth * Log (signal to noise ratio). the signal from the satellite will be weak due to the distance. it can't penetrate any building or houses. the delay will be long since the distance is long. the direction of the wireless system is a small cell, not a humongous satellite. when there is a long delay, it won't do well with live video.

It would work well for remote areas. not any metropolitan area.

iridium, Globalstar, star track, star war, star link. anything with satellite, it shall fail in wireless internet.
Gerard Hallaren, CFA profile picture
Sensible, well stated, thank you.
Jamjack profile picture
Great article. I can be wrong so it's good to see confirmation of my thinking based on my research. New follower.
Keekadookie profile picture
I would think there are and will be enough applications and emerging applications for LUMN and also for both NPA (AST+Science) and StarLink to serve an expanding TAM moving forward.
SPAC lover profile picture
The main reason why Satellite will not work for wide band (wide band!) is that the distance from your home, smartphone to the satellite is too far.

C=B*Log(S/N). That is information theory.

Basically, the channel capacity =bandwidth (spectrum) * Log (signal to Noise ratio).

when the distance is too far, Signal to noise ratio would be very very very small.

That is why 5G demands small cell, not super large cell like Satellite.

remember Google's cell in sky? it fails.

Starlink would be fine to serve rural areas, remote areas, or cruise lines, or boats, or ships.
* Satellite did not work for telephone as we witnessed GlobalStar's bankruptcy 20 years ago;
* Sattlite did not work for TV as ATT sold its DirectTV for 1/10 of the purchase price.
Do you believe Satellite will work for Internet, which is interactive, much more dimanding for much more bandwidth and higher speed and latency?
I do not believe it since 90% of Elon Musk's 12,000 satellites will be wasting time flying over the oceans and desert.
Gerard Hallaren, CFA profile picture
@Techioi Latency killed it for telephone. It worked well for linear TV as latency was an acceptable exchange for more channels, a better picture, better audio. T paid too much and was late to the party. Internet Satellite works if you can accept the latency. In places a fiber backhaul will cut the latency a lot. If Elon can mimic IRDM's satellite switching this problem is GREATLY reduced. Maybe he should buy IRDM. It is a powerful passel of technology.
KIA Investment Research profile picture
Fiber internet connection's latency speed is around 17 ms which is a bit faster than cable internet (25-30 ms). Starlink on the other hand is expected to launch its internet latency below 20 ms and eventually reach below 10 ms. www.clubhdtv.com/...
SPAC lover profile picture
@KIA Investment Research more like a pipe dream.. satellite ... latency below 10ms.. BS! it takes time for the radio waves to do a round trip from cell phone to outer space! then it needs to code, mod, de-mod the signal...
Dont forget quantum internet which should be able to create secure network connections using qubit superposition to send, receive, and relay data. Superposition will allow for faster than light data transfer. Data never needs to "move" in a quantum network. The data at one location would cause the same change in another connected location without need for data transmission through space. Long LUMN though
Alohatoyou profile picture
What are your thoughts on disruptive technology like ASTs:
“What we’re doing is launching a space-based satellite network that allows any phone — without any modification of hardware, software, apps, nothing — to be able to connect directly to satellites,” AST chairman and CEO Abel Avellan told CNBC.
Valkyrie Trading Society profile picture
@weballoon an interesting technology, will have to look into it more
Jamjack profile picture
Long NPA and LUMN. As indicated in this article room for both in my portfolio.
Great Article and long LUMN. Its a great dividend player and capital appreciation is right around the corner. Once wall street recognizes them in a positive way , the PPS will double.
Midwest US Value profile picture
Optical backhaul possibilities explained: hackaday.com/... I agree a game changer for developing areas.
This line up with Lumen's thinking during the latest governmental subsidy awards, where they didn't go in strongly. Building out entirely new infrastructure - expensive, low return. Upgrading existing infrastructure - low cost, high return. Let the satellites take over the northwoods, but focus on upgrading the suburbs where low speed copper and conduits are in place but fiber could be quickly strung through it
SPAC lover profile picture
just say No to any kind of Satellite for wireless internet.

it will not work.

Voice call using Satellite would work ok, but not for any kind of smartphone since it needs a special satellite antenna.

Musk does not understand information theory. The direction for 5G is a small cell, not a huge satellite cell.
Valkyrie Trading Society profile picture
@wit witty as little as we think of Musk, im sure he knew whether it was possible before starting on this no?
SPAC lover profile picture
@Valkyrie Trading Society not really. he just wants to feed his re-usable satellite venture. It may work for rural areas or areas with no cable or wireless system. there are about 50 people living in these areas. No scale.

would you pay $100 per month for 10Mbps internet?

T-Mobile is charging $15 per month for an unlimited deal with call, text, and internet web surfing.
Midwest US Value profile picture
@wit witty there are plenty of reviews now of 100+Mbps speeds by people, so it "works" technically that way. But as a business, it depends if enough people with no or worse alternatives will pay enough to run it at a profit. A bit hard to see.
Not so sure about that. I live in a major metro market, but my only choice for broadband is Centurylink copper (not fiber). The product is expensive and provides poor performance. I signed up for Starlink and will switch as soon as I can get it. I don’t think I am a demographic of one, either. I understand that CenturyLink is not really concerned about legacy copper customers, but I can’t help but think competition of any kind to the exclusivity CL has enjoyed in market locations such as mine will serve to further accelerate the loss of that revenue stream, affecting short term results more than originally forecast. I understand the long term case, which is why I was invested. However, I took advantage of the squeeze and exited most of my position in CL @ 16.
Midwest US Value profile picture
@Longfellow1 CL replace my copper with fiber some time ago. Any indication they will do that for you?
Valkyrie Trading Society profile picture
@Longfellow1 weird, youd expect to be on fiber now
@Midwest US Value Not unless you pay them to do so. An upscale neighborhood near mine had fiber running literally through their common area. They made a pitch for CL to run to their houses, but only succeeded after paying $22k extra. HOA did a special assessment. Now they have 1 gig fiber, but it was costly to get it. My neighborhood is of much less means.
Have you read the report that was commissioned by INTC and LUMN on networks and speed vs. latency ? Good read .
taosjet profile picture
thanks for the good article, starlink is proposing 20mpbs for $59 currently I'm paying $59 for 40mpbs and am receiving 46 from earthlink. bandwidth demand might double every year.
Valkyrie Trading Society profile picture
@taosjet it's catching up to be sure, not to be scoffed at anymore
I believe to sign up with starlink is $400-500 for the dish and $90 a month for the service. From what I've read Elon plans on capturing the underserved markets which is worth about 30 billion a year. I can get my internet for $50 a month through my provider.
Jamjack profile picture
Are you on the "fringe"? Bet not. Are you in an area where there is only one provider that says pay this or do without. I bet not. As stated that is a big target market for satellite.
Hope you are right. Also I also hope their dividend is secure and well covered?
Probably true. I wouldn't expect Starlink-style internet access to be any more appealing from a performance perspective than service offered by WISP's. More of a fringe market in well-connected markets, but a game changer for developing nations.
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