A Heavenly Battle for Your Cellphone: Satellite Networks Compete for Connectivity
In the race to eliminate dead zones for cellphone users, a battleground is unfolding high above us. Competitors like Elon Musk’s SpaceX alongside tech giants like Apple and newer players, such as AST SpaceMobile, are staking their claims in the emerging satellite-tower space that promises to enhance mobile connectivity globally.
The Quest for Global Connectivity
Since its IPO in 2021, AST SpaceMobile has attracted significant investor attention for its mission to provide worldwide 5G-quality voice, data, and video coverage, directly to everyday cellphones. As the only pure public stock play dedicated to direct-to-cell service, AST’s stock surged over sixfold after securing partnerships with major telecommunications companies—Verizon and AT&T, to name a few. With agreements in place with 45 mobile network operators globally, AST aims to cater to approximately 2.8 billion wireless subscribers.
Challenges Ahead
Despite the impressive stock surge and ambitious projections, AST SpaceMobile faces substantial challenges. The history of satellite phone ventures has been fraught with failures. Early pioneers like Motorola’s Iridium declared bankruptcy shortly after launching. The lack of subscribers for the expensive dedicated phones at around $2 per minute highlights potential trouble ahead, especially when rival services might provide better, often cheaper, options.
The competition looms large, particularly from SpaceX, which boasts a fleet of over 6,000 Starlink satellites already providing robust home internet services to subsidize its cellular operations. Recently, during the Super Bowl, T-Mobile US announced that its newly launched direct-to-cell messaging service in collaboration with SpaceX is now available to any mobile user in the U.S., extending even to Verizon and AT&T customers.
Capital Investments Required
AST SpaceMobile’s future hinges not only on gaining users but also on financing its ambitious satellite launch plans. The company recently moved its satellite licenses to the U.S. and is preparing for its first five commercial satellites set to launch in September 2024. These investments are substantial—with costs reaching from $19 million to $21 million each. AST’s President Scott Wisniewski indicates that to turn a profit, at least 40 to 50 satellites must be operational for consistent coverage.
As it stands, AST’s current cash runway exceeds $1 billion. However, to deploy its nearly 250-satellite fleet, estimates suggest costs could reach upwards of $4.9 billion, not including operational expenses. Furthermore, shareholder dilution is possible as the company seeks additional financing to support such capital-intensive projects. Investors reacted to a recent announcement of a $460 million convertible note offering by selling off shares, demonstrating the sensitivity to potential equity dilution.
Market Potential
Market analysts maintain a cautious optimism towards AST, with Deutsche Bank’s Bryan Kraft issuing a buy rating and setting a price target of $53 per share. He forecasts up to $5 billion in yearly revenues by 2030, anchoring this on the assumption that millions will subscribe to supplemental satellite services at an estimated $10 monthly fee. However, AST’s potential pricing power may face hurdles and fierce competition.
Threat of Competition
While AST’s plans sound promising, they coincide with escalating competition in the direct-to-cell space. Apple, for example, introduced its own satellite service, allowing iPhone 14 users to send SOS messages for free through Globalstar’s network. Furthermore, SpaceX is continually expanding its Starlink service, offering attractive subscription tiers that undercut potential satellite service costs.
Recent approvals from the FCC for T-Mobile signal another game-changer, as Starlink is expected to offer free coverage in upper-tier plans, while lower-tier plans may feature satellite access for an additional fee. The numbers add urgency, with Starlink ambitious to expand its services, propelled by the launch of hundreds of new satellites, making them formidable competition.
Technical and Market Considerations
Technically, delivering seamless satellite service concurrent to thousands of mobile users remains a challenge that AST will need to address. As highlighted by industry experts, a modern cellphone may not perform effectively as an underpowered antenna for expansive satellite-based networks. The market’s dynamics may also limit price elasticity due to existing affordable terrestrial service in developed regions like the U.S. and the U.K.
As the retail investment landscape shifts, some institutional players remain wary, with 27% of AST’s free-trading shares sold short. Nevertheless, the company’s track record thus far, including successful satellite launches and partnerships with major carriers, paints a picture of potential despite lurking uncertainties.
Conclusion
The celestial battle for cell coverage is heating up, with each player working diligently to secure their place in a lucrative market. With AST SpaceMobile attempting to carve out a niche in the burgeoning sector, its ability to execute on its plans while confronting competitive and financial challenges will be closely watched by investors and consumers alike. In this ever-evolving market of connections, the stakes couldn’t be higher.