(Regrettably) Justifying Spacex’s IPO valuation by looking backwards: The story of McCaw Cellular

Apologies for the Spacex glazing I'm about to do. I'm going to enjoy this even less than you will.

I think to understand Spacex's astronomic valuation, you need to look at the story of McCaw Cellular. In short, in the early 1980s Craig McCaw realized that the way the FCC was allocating cell spectrum licenses to anyone who asked would result in decades of spotty, inconsistent cell coverage that would hamper the adoption of cell phones despite obvious consumer demand. His solution? Buy every single chunk of spectrum he could find and build a working nationwide cellular telephone network, as fast as possible, at literally any cost.

By 1994, McCaw Cellular had cornered nearly the entire American cell market and grown to roughly the same size as Boeing, American Express, and even briefly eclipsed Microsoft in market cap. WITHOUT EVER TURNING A PROFIT. Despite the titanic debt load incurred through their "at any cost" expansionist strategy, investors were willing to justify exponentially higher prices for the stock because the obvious terminal consumer demand for cell phones (literally everyone) always exceeded the debt required to serve them. In late 1994 McCaw essentially forced a merger with AT&T (which had gigantic cash reserves and the established nationwide infrastructure to be able to profitably maintain the McCaw network) through some financial shenanigans, which resulted in AT&T becoming *drumroll* the third largest company on the S&P 500, and creating AT&T Wireless which instantly became the majority of AT&T's business.

The parallels with Spacex are not exact, but I think they are close enough to be illustrative. If you model Starlink, D2C, and the new data center project as operating under the McCaw principle of "expand access at any cost", and you model Spacex's launch business as operating under the 1994 AT&T principle of infrastructural stability, reliability, and monolithic market share, I think the gigantic IPO valuation begins, bizarrely, to justify itself.

Much like cell phones in the 1980s, the terminal consumer demand for uninterrupted global cell, internet, and compute access from a single source is functionally infinite, even (especially?) after the impending collapse of the AI bubble. When you consider that unlike McCaw Cellular, Spacex has thus-far built Starlink while also turning a thin profit, I think the case for its enormous valuation strengthens.

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Postscript: You might be wondering to yourself "What became of Craig McCaw and the rest of the McCaw Cellular team after the merger with AT&T?"

Immediately after the merger, Craig McCaw partnered with Bill Gates to found Teledesic, a company which aimed build the world's first global constellation of broadband internet satellites using a modular, flat-pack satellite design with Ka-band phased array antennas. The venture ultimately fizzled out due to high launch costs.

Several McCaw Cellular executives went on to become early investors and employees at Spacex.