Anpanman - SpaceX / Echostar spectrum transaction strategic implications

[00:00:06] Speaker A: This is the AST SpaceMobile Podcast.
[00:00:09] Speaker B: It will just basically come to your phone and be seamless regardless of where you are. We don't want the user even to know that it's connected by satellite. Listen, the opportunity that we have is very, very, very large. Hi everyone.
[00:00:32] Speaker A: Interesting morning. Um, never a dull day, it seems, with, uh, our favorite company, ST Space Mobile. Um, thanks everyone for joining. If people can gimme a thumbs up, I wanna make sure I don't have kook-like, uh, AV issues. So just wanna make sure that people can hear me before I continue here.
[00:00:50] Speaker B: Yes.
[00:00:53] Speaker A: Just check here. And by the way, I am recording this space. So to the extent there's any people who miss it or come late, you can feel free to listen to this afterwards. But I see some thumbs up, so I'm going to continue. Yeah. So interesting news out today. This was a potential outcome that I think the market was pricing in a relatively low probability. But it came. So let's talk about the implications here. So this morning, EchoStar announced a deal to sell its AWS-4, AWS-3 spectrum to SpaceX, and they also sold their H-block spectrum as well, which I believe neighbors the existing spectrum that they're using for the T-Mobile Direct-to-device service, which is the G Block. But yeah, I think it's important to take a step back. I think most people think, or obviously there was like some selling pressure this morning and obviously people are concerned, you know, oh my gosh, it's SpaceX. They're getting their hands on spectrum. What does this mean for the company? I think it's important to kind of look at, take a step back and look at everything in totality. And draw in a very, you know, take a deep breath and, you know, think about the strategic implications near-term and long-term for what this means. So on the positive side, I think importantly, this validates AST SpaceMobile's business strategy. If, I mean, as many shareholders, long-term shareholders will know that many in the industry, legacy players, whoever, just poo-pooed this market, just didn't think that there was real meat here, that direct-to-device made any economic sense, that, you know, would people be using it? Is the technology going to work? I mean, today you just had SpaceX lay down a $17 billion bet on spectrum specifically for direct-to-device. So I think that kind of puts to bed any notion that this is not a real market or that it's not going to be huge. And this is true validation for the company that created this market back in 2017 and has been working relentlessly away at putting up a constellation and service. And so this is a huge validation. I think it's also clear to the MNOs that just given the backing that AST SpaceMobile has had and some interest around SpaceX, that this is where the growth and investment is going to go for Mobile operators. It's going to be direct-to-device. You're going to have to partner with one of these 2 players, which I think now today's Spectrum acquisition on behalf of SpaceX now solidifies that this is going to basically be a 2-player market. I think for SpaceX, and I'll talk about this a bit more, this is a transaction that they absolutely had to do. And so it was a very strategic move for them and a very smart move for them. But I think it brings them closer to, in terms of future potential, it brings them closer to parity in terms of what AST's doing. Because they'll eventually, I think, you know, in terms of technology, they'll iterate and iterate and they'll eventually get to something that I think is going to be competitive with AST SpaceMobile. The question from that point, of course, is going to be business model and partnerships, which I think is a very critical piece that I think new people to the sector don't fully appreciate, but they will as they peel back layers of the onion. This also underscores and validates the company's spectrum strategy, which I think back in, I mean, it was only a few months ago in January when AST announced the deal with Legato, a lot of people questioned the strategic importance of that and is it pivoting the business? But I think the company is, if you talk with management, This has always been something that they were contemplating for years, that they, in the end, you do want to have your own spectrum and that there's an abundance of S-band spectrum around the world, which is up for grabs. And in the current state of satellite technology, isn't being utilized or couldn't be utilized, but with the advent of these new technologies will be properly utilized and made quite valuable. So I think it was a masterful move by the company to acquire Legato Spectrum out of bankruptcy. The 80-year rights, they got that spectrum, 45 MHz across the US and Canada for what is now really a song. I mean, today's $17 billion transaction, I think conservatively probably puts Legato's value Around $20 billion, just given that it's lower band than the AWS-3 and AWS-4, which is 2 GHz. Ligado's 1.5 GHz. And so I'll talk a bit more about some of the parts value, but I mean, if Ligado's worth $15 to $20 billion and AST SpaceMobile, when it got down to this morning, somebody sold, I don't know who it was, but they sold it down to $36. The enterprise value at that point was basically $12 billion. So it was trading below spectrum value, which is kind of silly. Legato alone is worth more than the current enterprise value of AST SpaceMobile. So if you are a growth, or sorry, a growth at reasonable prices investor or a value investor, then I have a name for you called AST SpaceMobile. And you've seen, for example, some of these other companies that have spectrum, whether it's Globalstar or Viasat, they've all traded up significantly. That's for a reason, because I think now direct-to-device, the underlying satellite technologies are going to be able to really truly unlock the value of S-band spectrum and utilize it in such a way that is going to be quite valuable for Consumers, which is utilizing that spectrum in a form factor that's just your normal mobile phone. It'll be added to chipsets and then, you know, you'll have connectivity everywhere, whether that's in dead spot, current dead spots or over water or even augmenting, you know, bolstering an existing MNO's terrestrial coverage. You'll have that additional capacity of Whether that's from Starlink, which is going to have, I think in the US, I think it's like 50 megahertz of spectrum or AST SpaceMobile, which is 45 megahertz. And that's just spectrum, right? So we'll have to talk about the underlying technologies and what that means for speeds. And SpaceX has made some claims in the press release today that the V3 satellites will have higher capacity, which is good. I mean, they're iterating their technology and it looks like they have also gotten on board with, they're, they're going to be putting together their own ASIC, um, which makes sense, right? You shouldn't be doing this stuff with FPGAs. But anyway, um, but yeah, I think this underscores the importance of AST spectrum strategy, which now has been validated as well. Um, this also, you know, by having spectrum, uh, it gives you an additional tool that you bring It's a carrot and a stick to MNO negotiations that we've got spectrum, so we're going to utilize your terrestrial spectrum, but we can also bolster it with what we bring in the L and S-band. But then also in negotiations, it gives you quite a bit more leverage when you bring spectrum to the table because you're bringing an asset that can be utilized by the carriers. This transaction, And I made this point earlier. This brings MNOs much closer to Space Mobile. So I think it's important to understand that AST is not in the game of becoming a mobile network operator. They do not want to compete with MNOs. They have no ambitions to do so. They are a super wholesaler, and so they will sell their service by their their constellation will be utilizing the MNOs. cellular spectrum, but then the second constellation will be providing service via L and S-band, but that will be in full partnership with MNOs. Whereas I think Starlink is, I don't think Elon has made any, he hasn't hidden his ambitions at all that eventually he wants to go directly to consumers, potentially with his own phone. And so I think Starlink, and we've talked about this, for quite some time now, for years, that just Starlink's business model is incompatible with MNOs. Initially, that's their core business, which is fixed wireless service, the service that provides broadband directly to a dish on top of your home or your vehicle. That is in direct competition with the fixed wireless service that T-Mobile, Verizon, AT&T are providing directly to your home. That's which some of those guys call it 5G internet. So that, and of course that also, by the way, competes with fiber, not as much, but it still is a direct competition to fiber. And so that's the area that all the wireless guys are focused on in terms of their core business. They see growth in subs for fixed wireless and fiber. That's why they're investing more heavily in those areas. But now that Interestingly, now that Starlink has acquired this spectrum, not only are they competing directly for fixed wireless, they're going to start encroaching on the mobile wireless businesses of all these companies, which is why you see T-Mobile down quite a bit. I guess it's recovered a little more, but T-Mobile right now has lost $12.2 billion in market cap. From this deal, whereas I think AT&T's down $7 billion in market cap and Verizon's down like $4 billion. But this is a— and look, this is early days, so it's going to take quite some time to see how these things play out and what T-Mobile's reactions are. But this kind of underscores that I think over the long run, Starlink wants to compete with MNOs. By buying these licenses from EchoStar, they will have the rights in the US, I believe in Canada as well, and a few other select markets. They will have these rights as well in Europe through 2027, but I do think regulators there will probably end up divvying up S-band spectrum when they come up for renewal in 2027. My guess is that they'll split it Between 3 players. One would be Iris, which is their homegrown solution, or that they're attempting to develop this solution. Then you've got the question around whether they renew the license for EchoStar, which will be Starlink. And I think, as we all know, maybe perhaps things will change for Elon in 2026, 2027. Maybe he'll become more friendly with European governments. Which will smooth that process to get those S-band licenses renewed. But then I think the third player would be AST SpaceMobile. I think they'll get licenses as well through the SATTO JV. I guess the wildcard in Europe would be whether or not Starlink is able to get those S-band rights. But for Starlink, it's important because given their technology architecture, they can't operate within borders of small countries because there's just a lot of interference. And the way that the architecture works is that they can't put down very precise beams, although that's probably going to improve over time. But what MSS spectrum does for you is that you don't have to project very precise beams. You can just cover entire areas pretty easily without having to worry about interference because that spectrum goes across various countries and you don't have to respect borders or anything like that, or it's not as much of a problem. So, and that's partially why SpaceX absolutely had to do this deal because given their current technology architecture by owning spectrum, and by the way, this is like a pretty decent amount of spectrum. It's 50 megahertz in the US. And I have to go back and see, how much they actually have access to in Europe. But it gives their service more spectrum and it will boost capacity and it'll allow them to provide more broadband-like services. So again, I think if SpaceX was going to be stuck just using partner terrestrial spectrum, that was always going to be a very, very tough business to get off the ground. Whereas now, I think they will be able to offer eventually in the long term a service that's pretty decent. Let's see here. I just have a few notes here. But yeah, I think for MNOs, like this is a pretty big net negative because I think what was theoretical about Starlink eventually, you know, Starlink's already eating some of your lunch in fixed wireless, but now Starlink's going to be focused on potentially getting some type of mobile wireless service going. I think that is a big net negative for MNOs, which is why, again, going back to the previous point, AST becomes that much more important for MNOs as a counterbalance to Starlink. The other thing I would mention is that for anyone who thinks that Starlink is going to go, you know, become a full-fledged MNO itself, There are a few steps that Starlink has to undertake in order to get there. Most importantly is that Starlink does not have access to low-band spectrum, so the 600 to some 900 megahertz side of their spectrum, and that spectrum's not readily available 'cause it's pretty much owned by carrier, various carriers around the world. But the way that Starlink could get around that is, you know, you could see Starlink partner, for example, T-Mobile's in a tough spot. Starlink says, hey, I want to start my own service. I want to sell phones directly to consumers. Can we work out a virtual network operator partnership? Which is what, for example, Boost Mobile does today, or Mint, or any of these other mobile virtual network operators. So Starlink could partner with T-Mobile, come up with their own branded service where The network, the low band and coverage is offloaded onto T-Mobile, but then Starlink, when it can, it'll try to provide service through its satellites. That's a possibility, but trying to create a new MNO is really tough. I don't think Starlink can do it on their own. They'll have to do it in partnership as a virtual network operator. Or I, this is, and this is like really, really long-term. If Starlink really wanted to get in the business, I guess they could acquire, try to acquire T-Mobile at some point in the future, but that's a lot of money and I'm not sure SpaceX wants to become an MNO, but who knows, right? But if they do that, then they would have to, if they want to compete globally, they would have to buy out network, mobile network operators globally. I think if, as we've all seen over time, I mean, this has been a big T for TMT investors over the long run. There's never been a global mobile network operator. It's just difficult in terms of managing different geographies, regulators, different consumers, but who knows? But maybe that's what Elon wants to do over the long run. And there's a few ways to try to get there. But any of those steps, I think, again, it's really important to understand any of those steps Just basically puts the MNOs more in bed with AST SpaceMobile, right? Because they're going to feel threatened. And I think it's important to reiterate the point that, you know, today AST has over 50 global MNO partnerships. Starlink has 9 that they've disclosed. I think in their press release today, they did say that they're not named, they're working with a few more. I wonder why those others don't You know, aren't comfortable with letting the world know who they are. But I think from what I understand, there's this transaction is probably a sub— I mean, it was a potential outcome, but not a high probability outcome for most in the industry. I think people either thought that T-Mobile would end up with the spectrum or maybe lower probability Verizon would. But now that it's in Starlink's hands, I think There was a Semaphore article that came out, I guess it was last week, where Deutsche Telekom supposedly had told T-Mobile or was uncomfortable with the price being paid for the spectrum. So they had T-Mobile bow out of bidding. But I, as I tweeted before, I think it's pretty interesting that basically SpaceX outbid T-Mobile for the spectrum. So SpaceX, your partner for direct-to-satellite, or satellite direct device, T-Mobile, they just outpaid you for the spectrum. So what does that say for your partnership and what does that mean? Like, because I think ultimately Starlink, the long-term view is that they eventually want to eat T-Mobile's lunch. They want to eat everybody's lunch. I mean, that's just the SpaceX approach and, you know, more power to 'em. Like, all is fair in love and war. This is a competitive market. This is what Brendan Carr wants. Like, he wants more competition. He didn't want to see EchoStar build out, Piscitti constellation, and not have that spectrum utilized properly. He wanted to see it. And as Kasey has pointed out, you know, many times spectrum finds its way to its most efficient uses. And it just took all the spectrum at EchoStar, it took, at Dish, it took over a decade for Charlie to buy it in auctions, you know, and out of bankruptcy for DBSD and TerraStar. It took well over a decade for that spectrum to eventually find its hands into an efficient operator, which is going to be SpaceX. But I think like that, you know, this transaction just underscores that. What I think, you know, if you've heard Scott speak about this or anybody who's familiar with this sector, no one ever said this thing, this was going to be a winner-takes-all, but it was going to be a market that supported multiple players. Just given the size, I think B of A mentioned that the market was going to be, according to them, they think it's going to be around $30 billion annually, and that's just for the consumer market. That's never, that was never going to go to one player, right? But now I think with today's deal, it's going to end up going to 2 players unless something crazy happens, right? But I think You'll have AST SpaceMobile working in partnership with the MNOs with its own spectrum, Ligado, and other S-band rights that it's going to pursue around the world, which also, by the way, SpaceX will be pursuing too. And so I think you'll have those 2 companies going out to regulators around the world asking for an allocation of S-band spectrum because as a reminder, like S-band is not for most parts of the world, it has not been allocated and it's not being used. And so it's pretty much a greenfield opportunity. So the key thing for regulators is that you have credible players who come to you and say, hey, we want to utilize S-band spectrum. We've got a constellation that's coming that can utilize it, and it's going to provide broadband connectivity for nationals in your country, and it's going to provide economic activity and all these wonderful benefits. And so, do you give it to AST SpaceMobile and SpaceX, or do you give it to somebody else? Which I think the answer to me at least seems pretty obvious. Let's see. So as I mentioned before, this was a transaction that SpaceX absolutely had to do. This spectrum, if it were to have fallen in Verizon's hands, I think would've been pretty bad. for SpaceX and T-Mobile, candidly. But I think ideally in T-Mobile's world, they would've liked to have gotten this spectrum and then leased it out or shared it with Starlink. But now Starlink bought it directly. So, you know, the, I mentioned the Faustian bargain that T-Mobile made, the deal with the devil. Now it's manifesting itself, right? So I— It'll be interesting to see how T-Mobile spins this in the coming days and weeks and months. But yeah, I would assume they'll say this is great and it'll enhance their service. The partnership's strong, but I think over the long run, they're going to have some pretty difficult questions to ask themselves about what value this partnership brings and what type of threat does it, you know, It's like a parasite kind of feeding on your body that eventually will take over your body. When do you actually cut bait or how do you limit the damage of the potential competitive implications of feeding a direct competitor, right? So, but yeah, this is a transaction that SpaceX had to do. They have inferior technology, at least for now, which they will continue to iterate and get better. But this spectrum gives them a lot more breathing room in terms of providing a better service. And so the key question is, you know, are they going to be able to get more traction with MNOs? And ultimately in the long run, are they eventually going to try to go direct to consumer? Right. As I mentioned before, regulators, this puts SpaceX in a pretty good position to get some S-band around the world in addition to AST SpaceMobile. So I think it's basically going to be those 2 players. And for S-band, in markets where those rights have not been assigned, I'd assume that they are going to be— I don't know if it's equally, but if you're a regulator in a country, you probably want at least 2, perhaps even more, you know, 3 options for service. And so I think you'll see AST SpaceMobile get licenses and SpaceX. What I think this does as well, Around EchoStar, who, and I had mentioned this before, it was part of their gambit to pretend to build a constellation with MDA Space in order to up their negotiating leverage with all the players who were looking at their spectrum. For EchoStar, they were going to have a tough time building a D2D constellation. And so that was going to be $5 billion evaporated, which then ultimately they would've had to have sold. the spectrum to SpaceX or whoever it was. But that just basically takes out that player. And so I think I see another company today, Globalstar, which is up 70%. I will say there that Globalstar does own some spectrum, but it's pretty limited. I think it's like they have maybe 11 megahertz of L-band and 5 of downlink and 5 megahertz of uplink. I need to go back and look more closely at Globalstar, but I think This deal interestingly puts a lot of pressure on Apple because their global store partnership is somewhat questionable. They've committed to building out a next-generation constellation, which from what I've read on various research for MDA Space, that next-generation constellation isn't going to have much broader capabilities and it's definitely not going to be able to do broadband. So They're kind of in a weird spot, Apple, that is, and Globalstar. So what do they do with that partnership? Globalstar without Apple is pretty much, or prior to Apple's involvement, Globalstar was likely facing bankruptcy again. So as we've seen in the information article that I tweeted out, I guess it was like a few months ago, Apple has no plans or ambitions, at least currently, to become an MNO or compete directly with MNOs. They don't want to directly own spectrum. That's why they made this convoluted structure to invest in Globalstar for 85% of their capacity. But I think this throws into question what Apple does around direct-to-device. For Apple, I think it was always going to be an Internet of Things play where they could do tracking, some low-level data to customers. But then now with this, deal and potential threat from SpaceX, which, you know, Elon has toyed with the idea of coming up with his own mobile phone. I think that's, you know, it's a potential threat, but we'll see, right? Because, you know, I think companies like SpaceX talk and Elon talk about a lot of different things, but it's unclear exactly what they plan on doing. I think for Apple, it's a pretty— today is a net negative. Because there is a potential for Starlink in the long run to come out with their own phone if they want to go directly to consumers. I think for Google, this is probably a positive deal because if indeed Starlink does decide to make their own device, I'd assume— sorry, that's my laser printer going off in the background. I'd assume that they probably end up using Android. As an operating system. But so in that regards, I think Google probably doesn't care. If anything, it would allow them to take more share if indeed Starlink decides to make their own device. But this is like talking about several years out and several strategic steps to get there, which I think it's probably too early to make that type of call. But yeah, you're, that's, I think with Global StarUp, my, my take on the reason why that's up is that it does have global spectrum. And so you're seeing some spectrum value being assigned there. And as I reiterated before, Legato, if you tell me today based off of comps that Legato's worth $20 billion and AST SpaceMobile's current enterprise value is, let's see, $14 billion, then I think AST People who are panicking and having a negative reaction or selling today, I think they're going to be somewhat saddened in whether it's today or in a few days' time when the stock is up nicely. Let's see, this is a really important point, and sorry if this is like I'm rambling here, but there's just a lot of different thoughts that I tried to pull together while trying to take my kids to school this morning, digesting this news. Another key aspect of this deal is that it brings a ton more focus to this market. Someone mentioned to me today that this PM that they knew at one of the big pod shops called them and said, hey, I'm buying this stock because I think the market reaction is wrong. Like there's going to be a ton more focus in this area. And I think that's 100% true. I mean, I think just taking a step back, Elon just put down a massive $17 billion bet that this market is real and it's going to be big. And so every institutional investor is going to be focused on direct-to-device because all of a sudden it's real. SpaceX, you know, the most well-known name in space, and obviously Elon brings a lot of cachet. They're focused on this market globally. And so institutional investors, hedge funds will be asking themselves, okay, well, if he's focused on this, what does it mean? Like for the people who are new, What is it? What is this technology? What, how big is the TAM? Oh, it's actually more than just consumer. It actually has defense and government, you know, applications. I mean, there's going to be a whole host of new investment looking at this area. And I think as a former institutional investor myself, when you play trends, if you play like a market that's really huge, rightly or wrongly, If there's like a handful of players, there'll be a perceived market leader, which I think today that's AST SpaceMobile in my opinion, but in other people's opinion, that will be Starlink. But then you'll have the other players, whether it's the direct players, like as I mentioned before, AST and Starlink, or if it's like derivative plays, right? So there will be people looking at other ways to play it. Like, you know, who's making solar panels, who's making semiconductors, who's doing, you know, making equipment. And so there will be more institutional focus in this area and there's only a few ways to play it, right? And so fortunately one of the market leaders is publicly traded, which is AST. An interesting, I guess, side effect is that I believe EchoStar is getting over $7 billion of SpaceX stock, which I don't know what the I don't know what the restrictions are around that or how they're planning to monetize that. And I believe it looks like it's fixed value. So, you know, for EchoStar shareholders, and I've got to look at the merger agreement if they do have a definitive agreement filed eventually, but if it's fixed value, I would be a little careful because that means like if it's $7 billion and then SpaceX goes out tomorrow and raises another round that's 50% higher, you're getting less shares or higher valued shares, but at the same fixed value. And so I think someone had pointed out that the SpaceX stock is valued at $212 per share, but if SpaceX goes out and raises a higher round, then, and it's at a higher price, then you actually don't get more value. They will just end up issuing less shares to you. So But anyway, I think it is important that it's going to bring more focus to the sector. And for people who thought this was a kind of a sleepy area or just not interested, if you're a TMT specialist or event-driven guy, or of course, you know, some credit guys already know because of their involvement in Elgato, this becomes a much more interesting area of investment. And so I think it will bring more investment dollars to AST and others in the sector, which, you know, today again, you're having a negative reaction. But we'll see once the market digests this and people react, we'll see how, where the stock ends up, which I think, you know, me personally, I bought some stock this morning. I actually started the space a little late because I want to give myself more time to buy stock. But yeah, I think in the 30s, this was a great buying opportunity. And I wouldn't be surprised, like we end the day green or maybe the next day or two. Let's see what, let me look at my notes here. Yeah, I mean, I wrote here, this pretty much makes, I think, the market idyllic. I think Kof captured it quite well where he said, you know, he, I think he tweeted, 3 men walk in, 2 men walk out. I think that's what we're seeing today. It's basically now a 2-horse race between AST SpaceMobile and SpaceX. Obviously SpaceX is a pretty formidable competitor, but AST invented the market and has the MNO partnerships, has a technology lead. And so this will be pretty interesting to watch. And I think importantly, as you've seen in wireless markets, Those markets are ones that eventually end up in an oligopoly of 3 players. The market typically supports that, and given the amount of investment required to deliver wireless service, that's typically the market structure that you see where wireless operators can be highly profitable, but they make the proper investments in order to maintain a great service. But I think here you're seeing what I think will unfold will be a highly profitable duopoly, right? And as I mentioned before, the competitive dynamics are such that I think you're going to have probably a majority of operators continue to do work in business with AST SpaceMobile, unless of course from an execution standpoint, they just can't deliver. But you'll see that versus other MNOs who choose to go down the SpaceX path, which I think, you know, has some strategic and existential type of implications if you decide to go down that path. So, you know, this, I think the transaction today, it definitely, you know, it does dial up the risk overall for AST because I think the competitive dynamics increases to a degree. So, At the same time though, I think it also dials up the value of the company. So it's kind of weird, like you kind of have these 2 things at the same time where from a competitive standpoint, SpaceX is a formidable competitor. For them to have their hands on spectrum, it definitely increases their capability. And in some respects, like by having a better service than what T-Mobile users are experiencing today. Once this transaction goes through and the spectrum can be utilized, they're going to go through a pretty long regulatory process, which I guess I should touch on that. The FCC will have to review this deal and perhaps maybe it gets approved sometime next year at around the same time possibly as Legato. And then SpaceX has to get Starship working. And I think in their press release today, they mentioned that V3 satellites will be able to utilize this spectrum. And so it'll take some time for that, for the spectrum to be utilized, just like, you know, Ligado, it's probably going to be put to use in mid-band Bluebirds sometime in 20— you know, you'll see some satellites start launching at the end of 2026 and the service start coming online sometime in 2027. My guess is that SpaceX probably has a similar type of timeline if this transaction gets approved by the FCC, which I don't know why it wouldn't unless, I don't know, maybe if Elon did something with Trump, which I don't see. I think they probably, it seems like those guys have made up to a degree. And so I'm not sure why the FCC wouldn't approve this deal because I think the FCC wants to see this spectrum utilized and put to use, which clearly if SpaceX is able to do that, then that's a net positive for everybody. Another thing I would mention is that there were event-driven guys, and Kuka mentioned this on the call last night. I guess it was bad timing in terms of calling out the people who had this trade on because they ended up doing pretty well. But the guys who were long EchoStar and short AST SpaceMobile. Those guys are probably unwinding that trade today. So if you're an event-driven guy, you're looking to play the catalyst, which is now materialized, and you were long EchoStar and you were short AST SpaceMobile. I think there were probably by, I think Kruken mentioned maybe it was like 7 or 8 million shares short AST since the beginning of August. So those shares are probably being covered today, or a decent amount of it being covered today. And then the guy, whoever had that trade is selling their EchoStar, which you're seeing. You know, I think EchoStar was trading in volume in the 80s and now it's at 78. At this point, EchoStar is going to be a risk arb trade. And so what does that mean? People, if you're long EchoStar, you're hoping for the transaction to close and that they crystallize value and that there's not a lot of tax leakage. There is some optionality on EchoStar in regards to the pay TV business. So I think there's been some speculation that Perhaps Sling, they'll try to go back to the merger. They'll try to negotiate a merger again with DirecTV. This is Dish TV and DirecTV. It's been a long saga of them trying to get the combination of those 2 satellite pay-TV providers through regulatory approvals, which couldn't happen in the past, but I think maybe it could happen in the near future. It could happen with this administration, especially with where streaming services have gone and have become more competitive with satellite TV. But for people who are playing EchoStar, it's now hoping that the transaction closes and then you've got some optionality on the pay-TV business. But it's basically like a spread trade at this point. And so what you're playing for, I think some of the parts guys post-tax were saying like mid-80s, maybe Maybe high 80s, and so there's not much to play for. So I think people who had that trade are probably selling the EchoStar and covering their AST short. So you're seeing potentially like some support on the AST side there from the dip this morning. But anyway, that's kind of my initial takes. I think as it's going to take the market some time to digest this, and we'll see. how the sell side reacts. But I think this kind of, now you've got a 2-player race, both that are armed with spectrum, you know, one that is working in partnership with MNOs and has a super wholesaler approach to their business. The other one is in competition with MNOs on the fixed wireless side, claims to be in partnership with MNOs, for a directed device. But I think the jury is going to be out on that one. And we'll see, you know, how that unfolds in the coming, coming months and years. But anyway, let me just take a look. I think some comments, I want to see if there's any questions here. Okay, first one for Justin is, in your opinion, how does it affect S-band parity rights purchase AST did a few weeks ago? This, so EchoStar has, EchoStar had first position for S-band priority rights around the world. And so there is S, for the markets where S-band is already allocated, it's not going to matter. So the US, it's not going to matter. And that's fine. Like SpaceX has, or will have when the deal closes, you know, 50 MHz of spectrum here and, and ASI-1 at 45 MHz. But then globally, much of the S-band rights are not allocated. And so it really is going to be up to AST and Starlink when they go to regulators in each of the markets. They're going to present a package. They're going to say, you know, if I'm SpaceX, I'm going to go to the regulators and say, hey, look, I've got, I'm really great at launch and making satellites. I've got a constellation of fixed wireless satellites already up. I work with some of your current MNO partners on fixed wireless. So I assume, I'm guessing that SpaceX is going to have to go to the regulators with an MNO partner to make the case that they should get S-band rights. But maybe they don't. I don't know. We'll see. But they're going to go and present the best possible case as to why they should get S-band rights. And then my guess is that regulators will allocate something to them. whether it's 5 by 5 megahertz or 10 by 10 megahertz. And AST will do the same. AST will go to regulators and say, we've got, by that time we'll have this low-band constellation up. We're planning to roll out this mid-band constellation and we're doing that in close partnership with these local MNOs, which for example, I'll just take Saudi Arabia for, we're working with all the MNOs in Saudi Arabia.
[00:42:14] Speaker B: They're all our partners.
[00:42:16] Speaker A: We want to go roll this out. We're not going to be doing this directly in competition with the MNOs. We're actually going to provide this as an add-on service through the MNOs. And so that's where the regulators will have to decide how they divvy this stuff up. I think the wildcard for EchoStar, which is now going to be Starlink, is the S-band rights in Europe because those come up for renewal in 2027. My guess is that heading into that, Elon could take 2 different approaches. One would be to make amends and be more friendly with Europe and say, hey, I'm sorry for playing politics, but I want to get these S-band rights renewed. Help me out. I'm going to try to give Europe a robust broadband service over S-band through this new constellation that Starlink will be launching through Starship. Or he could take the other path, which would be contentious. He could continue to rattle the cages there, threaten the EU and all the member countries and regulators and try to force his way through, which I think, I'm guessing Elon's going to be smarter than that and he's going to try to make amends, but we'll see. I mean, I don't know I don't know if that bridge has been burned, just given everything around Ukraine and Russia, but we'll see. I mean, it'll be interesting. I think if I'm any global regulator, I would, for the markets where, which are most of them where S-band rights have not been allocated, I would probably allocate some to AST SpaceMobile. I'd allocate some to Starlink and then, yeah. And then if there's another player perhaps who's credible, which I don't, know of one right now. Maybe that's Globalstar if Apple decides to plow more money into it. But that's how I would probably look to allocate S-band. Because you, I mean, and we saw that, we see this with the US government, like you don't ever want to rely on one player. And actually, this is one point that I forgot to make. For governments, you do not want one dominant player. You want at least 2, 2 players out there who you can rely on. And, you know, you don't want, for example, the player, you know, a provider that is providing military service, you know, communication services or other types of services, or on the government side, first responder types of services. You don't want an owner who, or operator that's mercurial, who will shift, who has political interests and will shift their views of the world, which I think for SpaceX, like I'm guessing as they go pursue these rights, they'll probably, I think Elon will probably dial down some of the inflammatory stuff. Or, I mean, that's my speculation, but that would probably be a smart approach. But yeah, for S-band, I think it's going to be a jump ball between these 2 and I don't think it's going to be one player gets all of it. I think it's going to, they're going to get allocated pieces of it. to make the service good in whatever country they approach. Let's see. Steve says, SpaceX just spent $17 billion on a nonexistent market. Yeah, I agree with that. I think this underscores the value of what AST SpaceMobile is doing and obviously the value of Ligado Spectrum. I think people are going to, whether it's investors like I mean, EU institutions or governments, regulators, everybody's sitting up. I mean, the MNOs especially, I think it's probably a big surprise for them that this deal happened. And so they've got to figure out what are their next moves and what does this mean near term and what does it mean long term, right? So it'll be interesting to see if SpaceX signs up more MNOs, which I'd expect them to eventually, you know, to sign 9 MNOs over the last 3 years, you know, there's gotta be more, right? Whether MNOs, if they're uncomfortable, maybe they kind of view SpaceX Starlink as a near-term need solution, but then over the long term, you know, they'll figure it out strategically. Who knows, right? But I'd expect AST to sign more MNOs in the coming Months, quarters, because I think now it's almost like a saber get off the pot moment for MNOs because they've got to figure out where they're going to place their bets, right? And to not place— now that you've got a player that could potentially encroach on some of your business, you probably want to sign up with AST SpaceMobile sooner rather than later in order not to be left out. Or to avoid being forced to work with Starlink. Let's see here. This is a pure D2D play, right? I don't think the spectrum can be used for a fixed wireless business. No, that's not true. It's actually, some of the spectrum can be, is primarily, or I guess it depends. It, this spectrum can be definitely used for fixed wireless. Depending on if the satellites are good enough and they can provide high enough amount or high level of bandwidth, this eventually could be used for fixed wireless. You know, that was part of Ergen's play, was to create a mobile network operator, but at some point, you know, he was potentially gonna offer fixed wireless service. It's not gonna be as robust as, you know, what you're accustomed to if it's like Starlink with a dish or Kuiper with a dish. 'Cause obviously to a mobile phone with a small antenna, it's not going to have the same level of throughput and performance. But could it be a credible fixed wireless alternative? Yeah, it can provide like decent, a decent alternative. Let's see, how does this deal affect EchoStar as an AT&T MVNO? I don't know. That's a really good question. I don't think anyone has thought through this. So for AT&T, They, I mean, they still probably want to serve as Boost Mobile's MVNO. I mean, Boost Mobile in general is losing subs, like to be an MVNO, to provide the backend infrastructure for Boost Mobile subs. That's probably not a bad thing because over time those subs probably, if you're AT&T, you're hoping that those subs just migrate over to your service. But, you know, Contractually, AT&T has to provide service to Boost, and so I don't think this deal impacts that. But you know, if something has to be re-upped in several years, will it impact it? Yeah, probably, but not in the near term. Let's see. Why is AST's purchase price of $67 million so much cheaper than SpaceX's purchase? So I think this person's asking about the S-band rights. AST asked for. So let's separate a few things here. First, EST bought S-band rights globally for $67 million. That's basically like if you're playing poker, that's like your ante, right? Like you have to, they have priority. They're third in line. The first 2 are EchoStar and I believe in some markets, OmniSpace. But that gives you priority to go to the regulator and say, hey, I was here in line first. I want to work out a deal. There's like a, let's say there was a line of 20 people and EchoStar's at the front of the line. When they talk to regulators, they get to have the first conversation, right? So by paying $67 million, we're at the beginning of that line along with EchoStar and OmniSpace. And so that's what they paid for, the rights to that. The $17 billion, most of that purchase price today, or pretty much all of it is really the actual spectrum assignment in the US, which is AWS-4 and AWS-3 and H-block spectrum. And so SpaceX has bought those rights to use that spectrum today. And so that's here in the US, that's already allocated. And so they can use that when the deal closes, or maybe perhaps they could use it prior to they do a closing with, you know, if EchoStar leases that spectrum to them. But that's where they're paying for primarily today. They also have the rights to use, or they own the spectrum in Europe up through 2027 for EchoStar. And so that's what, 2, 1.5, 2 years now. But those rights actually get basically reassigned or they're going to get renewed. And so In Europe, they're going to go through a process where various players, AST SpaceMobile, EchoStar, what now is SpaceX, and then any other players will go to the EU and make a case for getting a spectrum allocation. So I would say most of those, the rights that SpaceX bought today is just for US AWS-4, AWS-3, and H-block spectrum. So that's 17 billion. And so the comparable to that would be AST SpaceMobile's purchase of the 80-year spectrum rights for L-band spectrum in the US and Canada, which is 45 megahertz of L-band, which is 1.5 gigahertz to 1.7 gigahertz. So it's lower mid-band. What SpaceX bought today, AWS-3, AWS-4, is 1.9 to 2 2 GHz, you know, so it's, it's slightly, it's higher mid-band spectrum. But yeah, that's, that's what most of the purchase price is today, or most, if not all, basically all of the purchase price today. So hopefully that answers your questions. Let's see. What are the chances Elon Musk makes his own device? I think, I think the chances now are semi-decent. I think Musk, He's going to, the way that if I was Musk and I'd market the service, I'd say, hey, I've got, this is the new Starlink phone. And the way that it would work is that he would work out some type of MVNO agreement with T-Mobile where T-Mobile is going to provide the low-band spectrum and most of the network for coverage. And Starlink will pay T-Mobile some decent fee for that, but they're going to go to market potentially with their own device. And it will incorporate this spectrum. And so what they'll be able to say is like, hey, in areas where there's bad coverage or even in areas where there's decent coverage, you'll have access to this additional spectrum, which will boost the service and give you some level of broadband connectivity, right? And so I think the chances of him making his own device are higher, but it's not fait accompli because I think as we've all seen, making a, well, I guess Donald Trump made his own mobile phone, right? But you can outsource this stuff and just rebrand it. And especially with the advent of Android, you could probably go to a Chinese supplier and have them put together a decent phone for you and just slap your name Starlink on it and then try to sell it to customers. And then you'd have So for Starlink, they already have a distribution channel, which is they already sell dishes directly to consumers. I mean, they're going to have to get into the whole game of acquiring wireless subscribers, which is not cheap, right? Like to acquire a wireless subscriber is probably a few hundred bucks in marketing. And then you've got to, you know, there's obviously, it's a different business, right? Like you have to manage churn, you have to do promotions and all this other stuff. But then if you make your own handset, you're competing directly with, with, you know, Apple and Samsung and the other players. And so I'm not sure that's a market they want to get into. But if, for example, I don't know if you're a megalomaniac and you think like X is going to provide everything to consumers, like, you know, banking, voice services, payments. any host of applications, AI, hey, maybe I'll solve phone too. So that could be something in the cards further down. But the probability of that, I would put it, put a very low probability of that happening prior to today, but that probably, that's probably, it's gone up significantly, right? Because now the com— Starlink doesn't have to rely on carriers as much because it has access to its own spectrum. So Again, this goes back to the key question, like, are they going to do this in partnership or are they going to compete over the long run with carriers? And then, as I mentioned before, like, where does this put Apple? Because Apple, they're smart guys. Like, interesting. I know the head of M&A there, maybe I should give him a call. Like, I think for those guys, they've got to view this as a shot across the bow that perhaps Starlink eventually And SpaceX will go make their own mobile phone. They'll probably outsource the manufacturing and all that, but they could. And then for the carriers, whether it's AT&T, Verizon, and its partner T-Mobile, what if they decide to start their own service? And it's not going to be, it's not like they can replace the terrestrial network because you can't, you need low-band spectrum to do that and you've got to build out a shitload of towers and it's really expensive. But if they're— there's almost like a prisoner's dilemma here where if Starlink does decide to go down and offer its own service, which MNO enables Starlink to do that, right? And you'll have some near-term benefits in doing that economically by taking share, but then over the long run, if you get hollowed out, like, was it worth it, right? And then on the flip side, For the carriers that view this as a threat, they'll say, they'll talk to AST SpaceMobile and say, hey, that spectrum deal you did, that was really smart. I want you to get your service up. And as we all know, like, you know, there's been delays, but I want your service up yesterday because I want to compete and I want to protect my subscribers from churn. And I also want to show them that we are providing differentiated value. We're providing broadband service directly to phones and we need to differentiate ourselves. And so I think this market, as I mentioned before, it's going to end up being a duopoly between AST and Starlink. And how do you value that, right? Like, this is a market that on the consumer side, B of A said it's going to be $30 billion or more annually. And that's not taking into account government and defense applications. And so the government, they're going to want 2 players at a minimum, ideally probably 3 players, but it is what it is. Like, I think it's just going to be 2 players now. So, you know, how are dollars allocated from the government? You know, do you want to have overreliance on one provider? You probably need to at least dual source everything. Right? So I think it's going to be a huge opportunity for AST SpaceMobile and candidly for SpaceX. Let's see. Can T-Mobile join ASTS? They could. They could. I think their exclusivity ends in a few months. But the problem for T-Mobile though is I don't, I think AT&T and Verizon are happy to let those guys rot, right? So I think if you're AT&T and Verizon, the whole idea was to work together and build a great service that then you can go take share from T-Mobile. So by letting them into the fold, I'm not sure, that's probably counter to what they want to do. But on the flip side, where I could see it happening, I guess there's 2 paths. One would be that the regulators say this service is too important, you have to open it up to everybody. But now that there's a credible, now that Starlink is going to be more credible, I don't know why regulators would force AT&T to do that. The other scenario where I could see T-Mobile joining the fold is if AT&T and Verizon decide, you know, after analyzing this and kind of seeing how things play out, if they decide like, hey, Starlink is potentially long-term an existential threat, why don't we play nice and just let T-Mobile into the fold? And then we'll, you know, we will Go from there. That could be another way to do it. But but yeah, I don't see T-Mobile coming over your term. But but yeah, that's I guess that's how you could potentially see it play out. Let's see. Touch upon what this means. SpaceX is a competitor for MNOs, not a partner for them. I think I already covered this pretty in-depth. So, you know, if you missed it, just go back and listen to that part where I covered it. Let's see. I'm going to look at— oh, a few people are saying good audio.
[00:59:51] Speaker B: Great.
[00:59:52] Speaker A: That's good. Someone mentioned, why did AST drop 3 days before this announcement? Well, that's how the markets work, right? Like people find out, like hedge funds, Other people working close to the deal, things eventually do kind of leak and get out. And yeah, it's material non-public information, but sometimes people get their hands on it in ways that were not intentional or whatever. But, or, you know, you might have, someone may have had a conversation with EchoStar and they might have hinted like, hey, you know, something big's coming. But, you know, there were some tea leaves out there, I think. And this is actually an important point that I forgot to cover. Semafor, which is a news publication that covers business, I guess it was started by former Wall Street Journal reporters, had mentioned that, I guess it was last week, they had mentioned that T-Mobile had looked at buying this spectrum, but then Deutsche Bank, sorry, Deutsche Bank, Deutsche Telekom, which owns just under half of T-Mobile, tapped the brakes because they didn't want they thought the value was too high, and so they ended up not doing the deal, which is a very interesting point that I tweeted out earlier today, which is that T-Mobile is a key partner of Starlink. T-Mobile tried to buy the spectrum, but essentially got outbid by its partner SpaceX. And so if you want to talk about awkward situations, like imagine Mike Sievert calling up Glen Shotwell at SpaceX and being like, hey, I thought we were partners and we were going to go try to buy the spectrum, but then you outbid us for it. What's your long-term plans here? And then SpaceX is probably like, hey, you know, we're just like the press release today. We're partnering with you. It's okay. Like we're going to provide better service. And you know, we're, the partnership's strong, but don't worry, your T-Mobile customers will benefit. And And, um, and just trust us. So I think like that conversation, um, yeah, would, will be quite awkward and interesting where T-Mobile and parent company Deutsche Telekom wanted to buy the spectrum, got outbid by their partner. And so how do you, I guess, how do you walk through the logistical, or sorry, the logical rationale behind that and what it means for your partnership? Over the long term. But who knows, like maybe they'll figure it out, you know, they'll figure it out and T-Mobile will be okay with it and they'll resell Starlink service and just, you know, they'll put trust into SpaceX that they won't do anything beyond that to hurt their business. But yeah, I think just even from those tea leaves, like there was some mention that T-Mobile potentially was bidding together with SpaceX for the spectrum. So, you know, some of the tea leaves were there that this was potentially going to happen. So I think for hedge funds, usually whether it's tracking private jets or having conversations and kind of putting the mosaic together and people, you know, getting little hints in here or there, they could have pieced together that this was going to happen. And so that the fact that AST traded off over the course of last week, I think was the precursor to this deal coming to fruition. Let's see. I think that's it. So I hope this is helpful. Again, I think it's going to take the market some time to digest this news. And for people who aren't as familiar with the story, who own stock, or perhaps don't understand the implications fully, or, you know, want to, you know, sometimes you have people who sell first and ask and then kind of figure out what the situation is and then they'll assess whether or not they want to be involved. I think you're seeing some of the, you know, people get shaken out today, which is perfectly normal, right? This stuff happens. Like, I can't tell you how many times when I was working in, you know, as a hedge fund portfolio manager where The initial market reaction, people panic, stocks go down, stocks go up. And then as people have time to digest and figure what the strategic implications are and what it all means, then you start seeing a move, you know, moves in different directions as people then assess what it means long-term, you know, what the implications are and, you know, where they want to place Place their investment, right? And I think we're probably going to see that over the next few days. And I guess I'd be remiss without saying that we are due for some pretty big catalysts coming up for AST, which the company's working hard on delivering, which obviously the key one is launch network deployment. And then you've got some commercial defender agreements coming. You've got defense contracts that are probably becoming pretty ripe. for expansion by the end of this month, first net 2 potentially. So yeah, there's a lot going on and I think, you know, it's important that for any new market like this that's huge in potential and size and in profitability, like you're going to have things happen that are category changing or cataclysmic, you know, as we might call it. Like, If you look at AI, unfortunately there's not really any public stocks to trade in, but when you see these big moves by companies that are private, just imagine what the public reactions would've been if they were public. But I think here you're seeing, you saw the initial negative reaction this morning from AST, and obviously not just this morning, but last week as people speculated or potentially in the know. Maybe they had non-public information. But as the chips kind of, as the dust settles and people start figuring out what this means on the chessboard, I think it will become increasingly clear that this market is huge. It's going to be now a duopoly, and there are 2 ways to play it. One is a private company called SpaceX. Another one is a public company called AST SpaceMobile. If you line up all the pros and cons of each company, I think there's a compelling investment case for AST SpaceMobile, whether that's from a technological standpoint in terms of the patents that they have, the satellites that they developed, the satellites in terms of their roadmap, also the business partnerships they have and the business model that they've developed. And then of course the spectrum that they've acquired, which is Ligado, which is what SpaceX, I think it's like having some perspective. SpaceX back in 2016, '17, this market didn't exist. Then AST SpaceMobile kicked it off. They started signing partnerships with AT&T and Vodafone. You had like Verizon and T-Mobile in 20— 2019, 2020 complained to the FCC that this shouldn't be allowed, that there would be potential interference. And they were just negative on the whole idea of providing direct-to-device service over cellular spectrum. And then you fast forward to 2022, T-Mobile went from being a naysayer to, hey, we're partnering with Starlink and we're going to go do this. And Starlink, of course, decided that this was a real market too. And they were like, oh, me too, that those guys are doing that. I need to go pursue it as well, which to the industry legacy guys or consult, you know, supposed experts, like this was a market that was unattractive and would never happen. Technology wouldn't work. And so fast forward to the beginning of, or sorry, mid last year, you had again Verizon that was like, complaining about AST SpaceMobile and this market is never going to come to fruition. All of a sudden they partnered with AST SpaceMobile. They also invested money as an addition to Google, Vodafone, AT&T, and others. And then in January this year, AST bought Legato Spectrum out of bankruptcy. And then lo and behold, SpaceX is buying spectrum from EchoStar, which for all intents and purposes prior to the AT&T spectrum transaction was a distressed company. And so yeah, it's interesting. AST has been ahead of the curve. Obviously, whether you've got the moats and all these things, you still need to execute. And so they need to get their satellites up. But I think over the long run, a few weeks, a few months, it's not really going to matter. I think you've got a duopoly, what is now going to be a natural duopoly Between 2 players where cleaning up the constellation from an economic standpoint, there's going to be so much investment that's put into it. It's just going to be really, you know, not only, I, let me step back, not only the investment into the constellation, but also investments into spectrum. That's going to be a tough nut to crack, especially once all that spectrum is allocated. Yeah, I think it's going to be a natural duopoly between AST SpaceMobile and Starlink. And so for anybody else who's kind of contemplating this area, there, as I mentioned before, like there will be some virtual services, whether it's texting or, you know, from GEO satellites using, you know, MSS spectrum that way. But I think, you know, you're going to have these 2 main players that will, for AST SpaceMobile, it's broadband connectivity. For Starlink, they'll eventually get there. As I've always said over the last, I don't know, I guess last 2 or 3 years. And then it's going to be everyone else, right? So yeah, it'll be interesting to see what the MNOs do, what the reactions are. What does Apple do? What do they do with Globalstar? How about some of these other players, like players you were talking about trying to get their own direct-to-device constellations up, like Viasat and A few other players, like what do they do now? You know, like if I'm a shareholder in those companies, I mean, you're pretty much just trying to play a spectrum bet at this point because I just don't know how others will be able to get a credible and yeah, credible direct-to-device constellation up. But anyway, I'm now I'm rambling, but I hope this is helpful and I'll have more thoughts in the coming days and we'll see how things kind of play out. But I think it's important to take a deep breath, take a step back, really think through what does this mean. We went from a niche market, this little tiny company called AC Space Mobile, coming up with this new technology that people said cannot be done, all of a sudden to a market where one of the biggest players in space, SpaceX, is throwing around $17 billion to acquire spectrum to compete with AST, which already has L-band spectrum. So 45 MHz of L-band spectrum versus 50 MHz of S-band spectrum just in the US, right? So I think, yeah, I think we've got a real market here with significant opportunity, and it's going to be very interesting to see how it plays out. competitively from regulatory point of view and also for the MNOs. So anyway, I'll close it there and yeah, maybe we'll have another space in the coming days to talk about more details, if any, that come out. And yeah, hope everyone is okay and we'll talk again soon.
[01:11:55] Speaker B: Take care.
[01:11:55] Speaker A: Thanks for listening to Welcome back to the AST SpaceMobile Podcast. If you enjoyed this episode and you'd like to help support the podcast, please share it with others, post about it on social media, or leave a rating and review. To catch all the latest news about AST SpaceMobile, make sure to subscribe. Thanks again, and I'll see you next time.
[01:12:18] Speaker B: We're doing something very, very big, and I think with this technology we can really really affect a billion lives. AST SpaceMobile is the only company that has proven technology to deliver cellular mobile connectivity directly from space to the everyday smartphone. People will just basically turn on their phone and be seamless regardless of where you are. We don't want the user even to know that it's connected by satellite. Our role is to bring this into reality, always in partnership to the animals. Listen.
[01:13:03] Speaker A: Mmm, waffles.