SpaceX vs SpaceMobile?

Readthroughs to AST SpaceMobile After the T-Mobile/SpaceX Partnership Announcement

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s opinions only. Please do your own research before investing. Case owns shares of ASTS, PL, and SPIR at the time of this post, 8/26.

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SpaceX’s disruption of the satellite communications industry has begun a new chapter.

Last night T-Mobile and SpaceX announced a partnership to provide nationwide cellular service, “ending mobile dead zones” for T-Mobile subscribers by connecting existing smartphones directly to SpaceX’s Starlink satellite constellation in areas with limited or nonexistent cell service.

Rather than summarize the announcement (see ArsTechnica, The WSJ, or CNBC), I am more interested in considering the readthroughs from this event for AST SpaceMobile (ASTS)—the space SPAC promising satellite-to-phone 5G connectivity (note: the end of this report includes more detail on the controversy surrounding ASTS for readers not familiar with the company).

This announcement matters for ASTS investors primarily because:

1. T-Mobile and SpaceX validated that there is a real opportunity for providing space-based connectivity directly to existing smartphones. Elon Musk went as far as to say this “revolutionary technology” is a “profound development” for the telecommunications industry (coming from the man who has already disrupted the launch and auto industries).

   • For ASTS shareholders it is simultaneously reassuring to have an industry-leading executive agree that it is possible to do what you are aiming to do + state that there is a market for the service…but it is also anxiety-inducing to think that ASTS is now going to be compared to SpaceX in terms of competition and performance (with SpaceX setting the bar for success at texting vs ASTS setting the bar at 5G connectivity).

2. SpaceX is the most formidable opponent in the space industry—when Elon enters a new market you pay attention, and it is at your own risk to be dismissive.

   • Some may argue that ASTS and SpaceX will not be direct competitors given that they will partner with different wireless carriers across the world to augment traditional wireless service (i.e. in the US ASTS is partnered with AT&T and SpaceX is partnered with T-Mobile).

   • However, ASTS and SpaceX will be competing to sign deals with the top carriers in each country where they hope to operate—in this sense, competition definitely just got more intense.

3. ASTS investors should pause to consider why SpaceX (a company known for technological innovation) is only promising text and voice service vs ASTS promising 5G service.

   • I don’t have a technical background and couldn’t begin to tell you why the two companies have different bars for success in delivering space-based mobile connectivity, other than to say “Elon said big antennas are good for this type of service and ASTS satellites will have bigger antennas :)”

   • Having said that, this now makes two direct-to-phone satellite connectivity companies (SpaceX and Lynk) that only expect to be able to provide text, voice, and maybe limited data service via their LEO satellites—this stands in contrast to ASTS’ promise of 5G service.

   • Given that Elon typically over-promises and under-delivers, it is seemingly bearish for ASTS that SpaceX only anticipates being able to provide limited data services—however, differences in antenna size may help explain the difference in planned levels of service.

Overall, I see this announcement as a net-positive for ASTS shares.

• SpaceX’s pursuit of space-based mobile connectivity endorses ASTS’ business and technology, and the partnership with T-Mobile validates that there is a market for this type of service.

• This announcement will likely drive increased analyst and media coverage of the space-based mobile connectivity opportunity, which will undoubtedly include coverage of ASTS, including its compelling risk-reward profile and multiple near-term catalysts (coming up as soon as early-mid September).

  • Given that ASTS has a head-start on SpaceX and it represents a pure-play for getting exposure to space-based mobile connectivity, I believe this greater awareness could benefit ASTS shares.

• Additionally, while competition has increased, given ASTS’ head-start with acquiring wireless carrier partnerships and the fact that these two companies aren’t going head-to-head for customer acquisition, I don’t see heightened competition as a material negative for ASTS.

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ADDITIONAL READTHROUGHS

The following section contains additional key points and readthroughs for ASTS following the T-Mobile/SpaceX event.

• T-Mobile will allow SpaceX to utilize a portion of T-Mobile’s PCS spectrum to provide satellite-to-phone wireless connectivity.

  • Given that ASTS is taking the same approach of partnering with carriers in a given market and utilizing their spectrum to provide space-based service, SpaceX’s technology approach validates ASTS’ strategy.

    • Note: Every country has its own set of wireless spectrum ownership rights, and therefore ASTS and SpaceX will need to partner with wireless carriers in every country they want to operate in in order to use their spectrum for space-based wireless connectivity.

  • However, ASTS is ahead of SpaceX in this regard having already signed partnership agreements with ~20 mobile network operators across the globe, accounting for 1.8B subscribers.

• Elon emphasized that connecting to cell phones from satellites “500 miles away and moving 17k mph” requires a large antennas, and noted that the v2 Starlink satellites will have 25 sq. meter dedicated cellular antennas.

  • If large antennas are the key to providing LEO satellite connectivity, then it makes sense why Starlink can only provide limited data vs ASTS’ promise of 4G/5G service—ASTS commercial satellites are expected to have 360 sq. meter antennas.

• The Starlink v2 satellites can only be launched via Starship, which is still in development. SpaceX will consider launching an interim solution of v2-mini satellites via Falcon 9 if Starship delays endanger the promise of a late 2023 beta debut.

  • While ASTS and Starlink Mobile are not direct competitors, ASTS is on the verge of launching its next test satellite in the coming weeks while SpaceX likely won’t launch its 1st v2 Starlink satellite (mini or regular) before late 2023—speed to market will likely matter for competing for partnerships with top wireless carrier in countries across the globe.

• SpaceX is currently constrained by regulatory approvals before it can utilize T-Mobile’s PCS spectrum for space-based cellular service.

  • ASTS has been working with the FCC for two years to acquire the necessary approvals related to using AT&T’s spectrum for its service—thus far, it has only come up with an experimental authorization for its BlueWalker-3 test satellite.

  • While recent communication from the FCC has indicated a willingness to streamline space-based regulatory approvals to ensure the US remains a leading space-power, there is definite uncertainty that SpaceX can acquire the approvals needed to launch its mobile service in 2023.

AN UNANSWERED QUESTION

• I couldn’t reconcile SpaceX’s planned 2-4Mbps per cell (which I assume matches the Starlink fixed broadband service cell of 24km diameter) with what we know about ASTS’ satellite throughput of 9-13Gbps per satellite (with a service cell diameter of 2,800km).

  • Hopefully someone with an engineering degree can help out here!

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BACKGROUND ON AST SPACEMOBILE

ASTS is arguably the most controversial space SPAC. While some might argue that the title belongs to Astra (more like dis-Astra, right?) which is now trading <$1/share, I think the upside potential for ASTS makes it an even more interesting company to discuss.

Since late 2020, investors have been able to buy stock in AST SpaceMobile—a company promising 5G mobile connectivity delivered to existing, unmodified smartphones via low-earth-orbit (LEO) satellites. While ASTS would not be the 1st company to deliver connectivity from LEO, its promise of 5G-quality service provided directly to existing handsets would be a 1st—existing LEO connectivity operators either deliver service to specialized/non-standard mobile phones or to expensive fixed receivers.

ASTS’ service claims have generated controversy due to the massive size of its LEO satellites, and the expected low cost of producing such revolutionary technology. Satcom experts point to the relationship between expected performance, power required to deliver said performance, and cost required to build the technology—their conclusion being that either ASTS won’t be able to deliver 5G service given the low production cost of its satellites, or the service will work as expected, but at a higher production cost than originally forecast.

Meanwhile financial analysis across the spectrum of Wall Street analysts (link), institutional investors (link), and Reddit retail investors (link) suggests that ASTS has a risk/return profile that is highly skewed to “reward” if the company executes upon the plan outlined in its announcement of going public (see here).

Competition in the area of space-based mobile connectivity had previously been limited to just ASTS and Lynk (another startup that has just one satellite in orbit)…until yesterday.

With SpaceX having thrown down the gauntlet and joining the fray, the race is on to see 1) who can provide a working space-based cellular network 1st, and 2) what level of service can actually be delivered?

Coincidentally, ASTS will be launching a test satellite to test the next iteration of its technology sometime between September 7-15, with launch service provided by none other than…SpaceX!

However, 1) is not uncommon for SpaceX to launch satcom competitor satellites, 2) the Falcon 9 is arguably the safest and most reliable launcher operator in the market today, 3) and I anticipate SpaceX is more focused on the fixed broadband opportunity vs mobile…so I don’t foresee this launch (or the scheduled future launches that ASTS already has booked with SpaceX) being an issue for either company.