Thread by @steve_larrison

1/68 AST SpaceMobile and the impact of competition entering the market - a thread

2/68 $ASTS
#SpaceMob

3/68 OK, it's the weekend.

Most know what has transpired over the past few days.

$ASTS was continuing it's pre-launch ramp on Wednesday. It was up around 7%, and then a couple of tweets came out.

SpaceX announced a press conference with T Mobile

4/68 and Elon tweeted that the press conference was big news

5/68 Oh, that's not quite all that happened - the gains in ASTS reversed and the stock ended up being mildly down on Wednesday before falling 9.3% on Thursday.

After the news on Thursday evening came out, the stock price recovered 8.11% on Friday.

6/68 Meanwhile, people interested in AST were going nuts on various social media outlets.

7/68 Just to set the record straight, prior to the press conference, my best guess was that StarLink and T Mobile were going to announce a deal similar to the Kuiper/Verizon deal to use satellite internet services to provide data for remote cell towers without access to a fiber…

8/68 …backbone.

While the possibility of a future StarLink powered backbone for remote cell towers was strongly hinted at during the press conference, that wasn't the main topic.

9/68 Therefore, I was wrong in thinking that StarLink wasn't going to be entering the satellite Direct to Device market so soon.

But I have speculated that StarLink would eventually become a competitor.

10/68 And at the risk of freaking #SpaceMob out, I'm pretty certain that they won't be the only competitor to enter the market.

But that's alright.

If an idea is worth forming a business around, it will attract competition.

11/68 While you could say that AST SpaceMobile already has competition in the satellite cellular phone business from Iridium and GlobalStar, given the price of phones and time on the network, the competition isn't that worry some.

12/68 You could also count Lynk Global and OmniSpace as competition, but both are startup companies, and fund raising hasn't gone as well for either company as it has for AST.

13/68 Also, if I am not mistaken, OmniSpace communicates over S-Band, and therefore requires the proper chipset to be present in cellular handsets.

But SpaceX inspired a level of fear unlike any of the existing competition has been able to create.

14/68 While people calmed down when they realized that though the SpaceX powered service through T Mobile won't be available until late 2023, and that the initial offering will be limited to text and select messaging applications - no voice, no data, it would be a mistake for…

15/68 …anyone to think that what we heard on Thursday is the entirety of the SpaceX response to SpaceMobile.

You can count on SpaceX improving the capabilities of their satellites and their service offering over time.

But AST has probably a 5 year head start on SpaceX.

16/68 And a portfolio of 2,400 patents that grows every time we hear an earnings call.

And they aren't standing still.

Which is good, because not only will SpaceX improve over time, but there will be other entrants into the marketplace.

17/68 It is well known that Elon Musk and Jeff Bezos aren't exactly good friends. I wouldn't be surprised to see Kuiper announce a Direct to Device cellular service at some point in the future.

And Apple has long been rumored to be interested in satellite based data services.

18/68 I am sure that everyone has seen this ad somewhere online.

19/68 It is rumored that at the unveiling of the iPhone 14 on September 7th, Apple is going to announce an emergency text service with data handled by GlobalStar.

20/68 While a far cry from what SpaceMobile will be offering in a matter of months, this demonstrates growing interest in making cellular data coverage global.

And that's nothing but a good thing for ASTS shareholders.

21/68 First of all, as my friend @CatSE___ApeX___ likes to say, cellular data is capacity constrained, not demand constrained.

In other words, not only is there room for more than one provider in the marketplace, there is pent up demand for companies to fill the unmet demand.

22/68 But just like it would be a mistake to fear entry of any one participant into the marketplace, it would also be a mistake to assume that a rapidly growing marketplace with unmet demand will support any company that comes along.

23/68 The companies that offer the best solution to this problem will dominate the market. It won't matter to the customer (MNOs, not end users) how charismatic the CEO of a company is, what will matter is who provides the best solution.

24/68 Make no mistake about it - more competition is coming. So with that in mind, here are some guidelines to judge just how much of a threat any new competition poses for AST.

25/68 While the term "best solution" is often subjective, I believe that in the case of being a towerless cellular data provider, there are ways that who is best can be objectively evaluated.

26/68 It's the kind of perspective that comes from spending decades evaluating similar, yet different software and hardware platforms for use in enterprise systems.

I believe that the first thing we need to look at is flexibility of the solutions.

27/68 Prior to Thursday evening, I had not planned on writing this thread this weekend. Therefore I am going to borrow a drawing from CatSE that contains some original work that he did and also includes a drawing of SpaceMobile that @NomadBets created.

28/68 As you can see from the diagram of SpaceMobile (top drawing with black background), the terrestrial processing (aka Radio Access Network (or RAN) logic takes place in ground stations that serves as a gateway to a the telephone network and internet backbone of the host…

29/68 …country.

Each country that SpaceMobile operates in will require between one and three ground stations depending on the (geographic) size of the country.

30/68 If you recall from watching the David Marshack video, the satellite in the SpaceMobile network functions as a "bent pipe". In satellite terminology, that means the satellite receives a signal from the ground and simply redirects it to some other place.

31/68 In the architecture that StarLink is building, the Radio Access Network functionality is contained within the satellite itself.

This gives AST a clear advantage in flexibility of the overall system.

32/68 When 3GPP comes up with a standard for 6g, or 7g, if if enhancements are made to the 5g standard, or even if there are just improvements to hardware or software that can positively impact performance or scalability of the system, with SpaceMobile, you would need to deploy…

33/68 …those hardware/software improvements to the ground stations.

With the network that SpaceX is designing, you would need to deploy those improvements to the satellites.

34/68 Since it is not currently possible to make improvements to the hardware of satellites orbiting the earth at 17,000 miles per hour, that means that upgrades can only happen through replacement of the expensive part of the system.

Advantage AST SpaceMobile.

35/68 Next - business models

I have commented before about the business model and how being a wholesaler on a revenue sharing model aligns MNO interests with AST interests.

36/68 Lack of full detail about the SpaceX/T Mobile deal makes a direct comparison of the business models difficult. The announcement last Thursday was about a partnership between SpaceX and T Mobile.

37/68 Under that partnership, T Mobile would utilize a cellular service being designed by SpaceX to provide a satellite based offering to their customers.

38/68 T Mobile is looking to form reciprocal data sharing agreements with MNOs throughout the world so that the satellite service will extend beyond the borders of the United States.

If T Mobile owned the Intellectual Property, there wouldn't be much to worry about.

39/68 Any enhancements to the service would have to be funded from T Mobile's own pocket, and it would be difficult to keep up with what is expected to be rapid growth in this new market.

40/68 We have to assume that SpaceX owns the Intellectual Property and will continue to evolve the technology and improve the service offering.

41/68 Though T Mobile is their only announced MNO partner, given the capital intense nature of this endeavor, it is difficult to imagine that SpaceX doesn't have bigger plans.

A look at their home internet portion of the business may or may not prove to be instructive.

42/68 In the home internet business, the StarLink division of SpaceX is functioning as a "full stack" Internet Services Provider.

43/68 When SpaceX created the StarLink business model, the decision to make StarLink a full stack ISP meant they had to incur certain startup costs.

44/68 Among these costs was the acquisition of spectrum to transmit data from space to end users, but also less exotic things like customer support personnel, sales and marketing people, accounting people, and a host of other things that are necessary to do if you are a full…

45/68 …service provider.

If SpaceX has plans to grow this initial product offering into a full stack MNO, we should all wish them luck.

46/68 Not only would doing so increase startup expenses, but it will pit them directly against some of the largest and most powerful companies in the world.

The genius of AST isn't just in creation of the technology behind SpaceMobile.

47/68 The business model that @AbelAvellan created aligns the interests of AST with the interests of MNOs (

https://twitter.com/steve_larrison/status/1424054291396927501

)

Of course it's always possible that SpaceX will pivot and become a cellular data wholesaler with this new technology.

48/68 Doing so certainly is a good idea.

But making that pivot creates questions for SpaceX that doesn't exist for AST.

Home internet offerings are pretty common among MNOs. It's close enough to their primary business that it is a logical way to grow revenue bases.

49/68 While AST has always been "just a cellular data wholesaler", SpaceX/StarLink is in direct competition with the home internet portion of their business.

Will MNOs view this as a potential conflict of interest and avoid doing business with StarLink?

I really don't know.

50/68 If I had to guess, I would assume that some will avoid doing business with StarLink if there is a viable alternative from a company that isn't in competition with them, while others won't avoid doing business with them.

But only time will ultimately tell.

51/68 Advantage AST SpaceMobile

52/68 Manufacturing capability

This is going to be a short section - I am only going to focus on the satellite capabilities of the company. Experience designing and building rockets doesn't help SpaceX in the design or build of this new system.

53/68 Though the version 1 StarLink satellites are significantly smaller and less complicated than anything that AST is building, the fact is that StarLink has built (and launched) some 2,800 satellites.

54/68 Though I don't have intimate knowledge of their manufacturing facilities, given the fact that Elon Musk has experience with Tesla and the rocket portion of SpaceX, I am fairly certain that the kinds of automation that AST is building into their second facility in Midland…

55/68 …are well established in the StarLink facility in Redmond, Wa.

For now, it is only fair to say that StarLink has more sophisticated manufacturing capabilities.

56/68 But just like technical capabilities of the satellites themselves are not frozen in time, it would be a mistake to think that StarLink will always enjoy more advanced manufacturing capabilities.

57/68 Before I go on, let me state that because SpaceX IS NOT a public company (yet), certain numbers are difficult to verify. The numbers I am about to quote may be wrong.

With that out of the way, a quick look at the SpaceX page on LinkedIn shows over 10,500 employees

58/68 A look at the corresponding page on LinkedIn shows 260 employees

59/68 Note: Not everyone keeps their LinkedIn profiles up to date. Also, in past earnings calls, Abel has quoted a head count of over 500 people - but that number includes contractors.

60/68 When you see the differences in the size of the company, you may wonder how AST can possibly compete - even though they have a 5 year head start on SpaceX.

Keep in mind that the mission statement of only one of these companies is "connecting the unconnected".

61/68 The other company wants to go to Mars.

62/68 Just in case my point wasn't clear, not all 10,500 SpaceX employees are focused on designing and building this new cellular data service.

63/68 While I am unable to find published numbers on how many people work for the StarLink division of SpaceX, we can use LinkedIn to get a rough idea.

We know that the StarLink division is located in Redmond, Wa.

64/68 And if we look at where the LinkedIn employees of SpaceX live, we see the following histogram:

65/68 And remember, unlike AST, StarLink is full stack. They provide customer support, billing, marketing and other services.

Suddenly the head count differences sound a lot less disparaging.

66/68 Still, if we are weighing the score card fairly, at present time I would have to say that StarLink has the advantage in manufacturing capability because they have been building and launching satellites for years.

67/68 I could go on, but I think that the point of this thread is clear.

Competition was always inevitable. But competition shouldn't be feared, it should be embraced. Competition helps give people the motivation to excel.

So let the competition come.

68/68 I believe that AST is prepared for this.