Hablemos de $ASTS

Introduction to AS

Overview of the Video

• The speaker introduces the topic of AS, expressing a long-standing desire to create this video, which was delayed due to an injury.

• Despite challenges, the speaker is now able to write and share insights about AS.

Contextual Understanding

• In Umantia, most companies are perceived as unexciting; 80-90% are expected to double in value over 6-7 years with a return of 10-12% annually.

• There exists a probability cone for predicting future stock prices, indicating that predictions become increasingly difficult over time.

Investment Thesis Development

Concept of Asymmetric Seeds

• The speaker discusses the idea of "asymmetric seeds," where some investments may have high potential returns despite being risky.

• The goal is not just to present a thesis but to provide tools for analyzing the company from various perspectives.

Company Overview

• AS aims to launch satellites that will enable mobile broadband without modifications.

• They currently have 13 satellites in orbit and plan to increase this number significantly by early 2027.

Technical Challenges and Developments

Initial Perceptions and Risks

• Initially viewed as a high-risk investment with significant operational and regulatory uncertainties surrounding satellite-to-mobile connections.

Progress Over Time

• By November 2022, they successfully launched Blue Walker 3, demonstrating capabilities for satellite communication.

Financial Projections and Expectations

Future Goals

• The company has set ambitious targets: achieving full constellation deployment by 2033 while generating substantial revenue by then.

Analysis of Past Predictions

• Reflections on previous financial projections highlight discrepancies between expectations and actual outcomes regarding costs and timelines.

Critical Evaluation of Assumptions

Importance of Accurate Forecasting

• Emphasizes the need for realistic assumptions in investment theses; past predictions must be scrutinized against current realities.

Current Market Insights

• Highlights other successful investment theses that should be considered when evaluating AS's potential.

Subscriber Projections

Misleading Metrics

• Discusses how initial subscriber estimates can lead investors astray if based solely on partnerships rather than actual market conditions.

Reassessing Business Models

Need for Grounded Analysis

• Stresses starting analysis from fundamental principles rather than inflated subscriber numbers or optimistic projections.

Identifying Target Markets

Defining 'Unconnected' Populations

• Identifies approximately 300 million people globally without mobile broadband access; focuses on regions like Africa and Pakistan where coverage gaps exist.

Economic Viability of Satellite Solutions

Cost-Benefit Analysis

• Discusses why connecting remote populations via satellite makes economic sense compared to traditional towers due to low population density in those areas.

Regulatory Landscape in the U.S.

Coverage Gaps

• Examines how major U.S. carriers report coverage while many rural areas remain underserved or lack reliable service agreements among providers.

Collaborative Efforts Among Carriers

Addressing Coverage Issues

• Describes how major telecom companies form consortia for satellite solutions targeting underserved regions instead of competing directly in these markets.

Real vs Reported Coverage

Discrepancies in Data

• Analyzes how reported coverage statistics often do not reflect true user experiences or accessibility issues faced by consumers across different regions.

Technical Fundamentals

Understanding Frequency Use

• Explains basic concepts such as frequency ranges used in telecommunications, emphasizing their importance for effective signal transmission over varying distances.

Understanding Sinusoidal Waves in Electromagnetic Fields

The Nature of Sinusoidal Waves

• Sinusoidal waves are not mandatory in electromagnetic fields, but they often represent the natural oscillation of electric fields due to charge movement.

• Analogies with physical systems like springs and swings illustrate how charges oscillate, creating similar wave patterns when electrons jump between energy levels.

• Most waves encountered in physics can be expressed as sums of sinusoidal functions, a concept supported by Fourier transforms.

Importance of Sinusoidal Waves

• The sinusoidal wave is fundamental because it remains unchanged under differentiation and integration, preserving frequency even when amplitude changes.

• This property allows for effective transmission of information without losing signal integrity over distances.

Transmission Through Electromagnetic Fields

Mechanism of Signal Transmission

• Charges transmit signals through the electromagnetic field rather than through physical mediums like cables or air; this field is an inherent property of space.

Spectral Efficiency

• Spectral efficiency is crucial for transmitting information effectively, measured in bits per hertz. It involves sending symbols that represent binary data using variations in amplitude and phase.

Modulation Techniques

Basics of Modulation

• Simple modulation techniques can encode binary data (zeros and ones) using different amplitudes or phases represented on constellation diagrams.

Handling Noise

• Noise complicates signal reception; thus, electronic circuits must discern transmitted symbols amidst uncertainty circles created by noise interference.

Enhancing Data Transmission

Increasing Bits Per Hertz

• To increase data transmission rates while minimizing noise impact, points representing binary states must be spaced apart adequately on constellation diagrams to avoid confusion from noise.

Power Considerations

• Higher power levels improve signal clarity and allow for more bits per hertz to be transmitted efficiently; however, increasing density leads to diminishing returns due to noise limitations.

Understanding Decibels

Decibel Measurement System

• Decibels measure relative power levels logarithmically; for instance, a 10 dB increase indicates a tenfold increase in power compared to a reference level.

Application in Telecommunications

• In telecommunications, decibels help manage complex calculations involving signal loss and gain across various components within communication systems.

Direct-to-Mobile Satellite Communication

Design Decisions for Mobile Communication

• Mobile devices emit low-power signals due to health regulations; typically around 200 mW (23 dBm), which limits their range but allows them to connect effectively with satellites.

This structured summary captures key concepts from the transcript while adhering strictly to the timestamp rules provided. Each bullet point links back directly to its source material for easy reference.

Mobile Communication and Satellite Technology

Power Emission Comparison

• Mobile devices of class 3 emit only 200 mW, which is significantly lower than Starlink terminals that consume between 20 to 40 W, indicating a power difference of up to 100 times.

• Unlike mobile phones that emit signals in all directions without knowing the satellite's location, Starlink terminals have higher power output and gain (20 to 30 dB), leading to better signal quality and speed.

User Convenience vs. Technical Challenges

• Using existing mobile phones for satellite communication minimizes user friction since people already own these devices, eliminating the need for additional equipment or batteries.

• The challenge lies in maintaining signal strength over long distances; a satellite at 700 km is much farther than a tower at just 2 km.

Signal Loss and Noise Considerations

• Signal strength diminishes with distance squared; thus, signals from satellites are approximately 122,500 times weaker than those from nearby towers.

• Overcoming noise generated by natural phenomena on Earth is crucial; this noise can be likened to static on old televisions when not tuned into a channel.

Understanding Electromagnetic Noise

• All moving objects generate electromagnetic waves as noise due to their temperature; this phenomenon was quantified in the 1920s using formulas relating energy and temperature.

• The simplified formula K * T * B calculates noise levels based on Boltzmann's constant (K), temperature (T), and bandwidth (B).

Calculating Noise Levels

• The average planet temperature used for calculations is around 290 K, leading to an estimated noise level of -174 dBm per Hertz.

• For mobile communications operating within packages of 180 kHz bandwidth, the effective noise threshold becomes -121.4 dBm.

Signal Propagation Analysis

Antenna Design Considerations

• A simple antenna design must account for wavelength propagation; at frequencies like 850 MHz, optimal antenna length is about half the wavelength (~17 cm).

• When calculating how much signal reaches a satellite from a mobile device emitting at low power (0.2 W), it spreads across an enormous surface area (~6 billion m²).

Power Reception Calculations

• The received signal strength can be calculated using basic electrical formulas: voltage multiplied by current gives power output.

• In space, impedance affects how signals are received; the vacuum impedance is approximately 377 ohms.

Effective Voltage Measurement

• Received voltage can be derived from electric field strength and antenna size; practical measurements yield around 0.39 microvolts for small antennas receiving weak signals.

Radiation Resistance and Antenna Efficiency

Energy Loss Mechanisms

• As antennas receive signals, they also radiate energy back into space due to radiation resistance measured consistently at around 73 ohms across various frequencies.

Optimizing Antenna Performance

• To maximize reception efficiency, matching antenna resistance with radiation resistance ensures optimal power transfer during signal reception.

Final Signal Strength Assessment

Adjusting for Ideal Conditions

• After accounting for ideal conditions with perfect antennas receiving maximum possible signals leads to estimates of received power around -15 dBm under optimal circumstances.

Real-world Limitations

• In reality, actual mobile devices perform worse due to design limitations resulting in them being approximately -68 times weaker than ambient noise levels.

Critique of Current Technologies

Addressing Expert Opinions

• Some experts argue that achieving reliable coverage requires more powerful antennas rather than simply relying on existing technology improvements alone.

Evaluating Feasibility Claims

• Previous claims regarding large antenna sizes were deemed impractical by engineers who highlighted challenges associated with deploying such systems effectively in real-world scenarios.

Evaluating Mobile Satellite Efficiency

Spectral Efficiency and Data Limitations

• The discussion begins with the activation of 240 mobile devices, each receiving approximately 500 kbps, highlighting skepticism about achieving true broadband speeds.

• A study from a Madrid university indicates an average spectral efficiency of 0.61 bits per Hertz and a median of 0.52 bits per Hertz, estimating download speeds around 3 Mbps for satellite connections.

Signal-to-Noise Ratio Comparisons

• The signal strength is noted to be only slightly above noise levels (1.1 times), contrasting Starlink's weaker signals against terrestrial signals which are significantly stronger.

• The relationship between signal-to-noise ratio (SNR) and spectral efficiency is explained using a bar analogy, emphasizing that higher noise reduces effective communication.

Practical Communication Challenges

• Real-world communication scenarios yield fewer words transmitted per minute due to low SNR; practical adjustments must account for inefficiencies in data transmission.

• Not all bits transmitted carry information; some are control or coordination bits, necessitating further reductions in expected performance metrics.

Adjustments for Realistic Performance Estimates

• Analyzing the average SNR reveals it to be just over the noise level at 1.1 times, indicating limited capacity for effective communication under real conditions.

• Variability in user experiences is discussed; small increases in signal can lead to significant improvements for users with weak signals compared to those already receiving strong signals.

Technical Adjustments and Measurements

• Starlink's measured signal strength is reported at 1.1 dB above noise; however, larger antennas provide advantages that need consideration when comparing systems.

• Distance impacts signal quality significantly; Starlink satellites operate at lower altitudes (350 km), providing better performance than higher-altitude systems.

Power Output Comparisons

• Differences in maximum power output between competing systems are analyzed, revealing slight advantages for one system over another based on antenna specifications.

Frequency Utilization Challenges

• Lower frequency bands penetrate obstacles better but may result in poorer performance due to resonance effects caused by mobile devices themselves.

Adjusting Measurements and User Experience

Measurement Methodology Considerations

• Adjustments made during measurements account for how equipment was utilized during testing phases; ensuring accurate comparisons requires standardizing conditions across different technologies.

User Device Positioning Impact

• Studies indicate that holding a mobile device affects reception quality significantly; adjustments are made based on typical usage patterns observed among users.

Realistic Capacity Projections

Expected Performance Metrics

• With realistic adjustments applied from actual measurements taken by UPM regarding Starlink’s capabilities, projected average SNR reaches about 5.9 dB under varied user conditions.

Polarization Techniques

Enhancing Transmission Efficiency

• Utilizing dual polarization techniques could potentially enhance throughput by up to 1.8 times compared to single-polarization methods used by competitors.

Spectrum Allocation Complexities

Regulatory Framework Implications

• Discussion shifts towards spectrum allocation issues faced by satellite operators like Starlink within regulatory frameworks established decades ago affecting operational bandwidth availability.

Bandwidth Distribution Issues

• In the U.S., low-band frequencies were allocated regionally since the '80 s , complicating continuous nationwide coverage necessary for satellite operations .

• Each county has specific frequency allocations leading to potential interference issues if neighboring counties have conflicting licenses .

• Operators must navigate complex regulations where they cannot interfere with existing services while trying to establish their own networks .

Operational Scenarios

• Different operational scenarios arise depending on whether partnerships exist with local carriers , impacting available bandwidth significantly .

• For example , if a partner holds both blocks A & B , access might be granted only to smaller segments of spectrum otherwise unavailable without cooperation .

Coverage Gaps

• Users often experience reduced service quality when outside declared coverage areas despite being within proximity of other carrier towers .

• This discrepancy highlights challenges faced by consumers relying on advertised coverage maps versus actual service availability .

International Licensing Issues

• Outside the U.S., licensing remains fragmented as countries individually regulate spectrum use creating additional barriers for global operations .

Speed Limitations Under Current Conditions

• Given current limitations imposed by available bandwidth , achievable speeds remain modest averaging around 1.6 Mbps under optimal conditions .

Discussion on Frequency Allocation and Licensing Issues

Chip Manufacturers and Mobile Frequencies

• The frequencies in question are not currently available on mobile devices; manufacturers need to agree to include them.

• ST has already paid $420 million for the rights, with a potential refund if the deal does not proceed.

Opposition from Iridium

• Iridium opposes the agreement between AST and Ligado, arguing that it violates licensing terms meant for geostationary satellites.

• Concerns arise over whether Ligado's use of these frequencies constitutes a covert change of control.

Regulatory Challenges

• Some Samsung Galaxy models are beginning to incorporate L-band frequencies, but S-band frequencies remain unutilized in mobile devices.

• A small company was acquired for $64 million, which had rights to certain frequency bands but lacks operational satellites.

Priority Rights and Competition

Licensing Queue Dynamics

• Critics argue that AST is not first in line for frequency allocation; Ecostar (owned by SpaceX) holds priority.

• AST's licenses are limited to equatorial orbits, complicating their operational scope compared to competitors.

Coordination Difficulties

• Historical data suggests coordination among secondary licensees is often challenging or nearly impossible.

Spectrum Availability and Misleading Presentations

Presentation Analysis

• AST presents an image suggesting ample spectrum availability, but this may be misleading as actual usable bandwidth varies significantly by location.

Access vs. Ownership

• The distinction between having access to spectrum versus owning it is crucial; many see AST’s agreements as less valuable than outright ownership.

Band S Rights and Market Positioning

Limited Rights Overview

• AST claims priority rights over S-band frequencies, yet these rights have been diminished due to regulatory decisions in the U.S. market.

Future Projections

• CEO mentions potential plans for selling 1 GB/month plans per satellite, indicating optimistic revenue projections based on current capabilities.

Capacity Calculations and Realistic Expectations

Usable Data Estimates

• Calculations suggest that under optimal conditions, each satellite could theoretically support close to 813 TB/month of data usage.

Market Share Insights

• Current estimates indicate that even with maximum capacity utilization, AST would only capture a tiny fraction of global traffic (0.02%).

Satellite Coverage Considerations

Geographic Distribution

• Coverage maps show significant portions of satellites positioned over water or regions with low population density like China.

Simulation Limitations

Operational Feasibility

• Simulations reveal challenges in maintaining consistent service levels across varying orbital altitudes and configurations.

Investor Perceptions

Speed Claims Scrutiny

• Investors may misinterpret speed records achieved under ideal conditions as indicative of general performance across all scenarios.

Conditions Affecting Performance Metrics

Ideal Testing Environments

• Achieving high-speed metrics often occurs under controlled conditions such as international waters where regulatory limits do not apply.

Signal Quality Factors

• High signal-to-noise ratios can lead to temporary spikes in performance metrics during testing phases.

Business Model Implications

Service Differentiation Challenges

• The business model primarily serves emergency services rather than mass consumer markets due to inherent limitations in coverage reliability.

Competitive Landscape Analysis

• Other companies like Amazon are entering the market with similar offerings aimed at enhancing connectivity options through partnerships with existing platforms like Apple’s iPhone service.

The Role of Engineering in Telecommunications

Satellite vs. Tower Infrastructure

• Discussion on the perceived risks satellites pose to telecommunications towers, concluding that satellites cannot compete with towers except during outages or when towers become unprofitable.

• Investment rationale in AST (a satellite company) was to gain insight into its development, emphasizing that satellites are complementary rather than competitive to terrestrial networks.

Long-term Business Viability

• American Tower sold half of its investment in AST, maintaining only a seat on the board, reinforcing the belief that satellites do not threaten long-term business viability.

• Emphasis on investing in telecommunications towers as they remain the most cost-effective method for delivering data content.

Financial Dynamics of Towers

• Explanation of how having multiple tenants on a tower significantly increases profit margins; more tenants lead to higher profitability due to fixed costs being spread across them.

• Reference to successful investors who have profited from tower investments over two decades, highlighting the unique economic model of telecom towers.

Historical Context and Market Dynamics

Past Challenges and Recovery

• Overview of past financial struggles faced by tower companies during market downturns in the early 2000s and their subsequent recovery through consolidation and international expansion.

• Mention of SBA Communications' challenges during this period and how many companies nearly went bankrupt but later emerged stronger.

Current Market Conditions

• Analysis of current market conditions where few clients dominate negotiations, leading to potential pricing pressures for tower operators.

Revenue Models and Pricing Pressures

Data Growth vs. Revenue Generation

• Clarification that while data usage is increasing, revenue does not directly correlate since operators charge per tenant rather than per gigabyte transmitted through their infrastructure.

Competitive Landscape Among Operators

• Discussion about fierce competition among telecom operators leading to aggressive pricing strategies and customer retention efforts.

Customer Retention Strategies

Churn Rates and Competitive Responses

• Examination of high churn rates among telecom customers prompting operators to engage in price wars and promotional offers as retention strategies.

The Impact of Internet Companies

Shifts in Market Power Dynamics

• Insight into how internet service providers began acquiring spectrum for mobile use, creating new competitive dynamics against traditional telecom operators.

Strategic Partnerships

Joint Ventures with Satellite Providers

• AT&T's collaboration with satellite constellations aims at providing coverage during gaps but raises concerns about market pricing stability due to increased competition among satellite providers.

Defense Contracts and Market Positioning

Government Contracts

• Discussion around AST's involvement in defense contracts but caution against overestimating their significance given numerous competitors also vying for these contracts.

Patent Portfolio Evaluation

Misconceptions About Patents

• Clarification regarding AST’s patent portfolio; despite claims of thousands of patents, actual enforceable patents are limited which diminishes perceived competitive advantages.

CEO's Financial Maneuvering

Executive Compensation Structures

• Analysis of CEO Abellan’s financial strategies involving options agreements with banks allowing him liquidity without selling shares directly impacting stock prices negatively.

Corporate Structure Insights

Ownership Distribution

• Explanation about AST's corporate structure where shareholders do not own operational assets directly affecting financial reporting transparency.

Financial Projections and Cash Flow Analysis

Projected Stock Price in 2036

• The stock is currently priced at $8, with a required return of 12%, projecting a future price of $211 per share by 2036.

• Cash flow analysis shows an initial negative cash flow of -1500 in 2027, turning positive by 2030 with earnings reaching $100 by 2083.

Accumulated Cash and Shares

• Total cash accumulation is projected to reach approximately $28.7 billion by 2036, considering total shares including employee options and convertibles.

• The free cash flow of $5800 million multiplied by a factor of 12 results in an estimated valuation close to $70 billion, leading to nearly $99 billion when combined with accumulated cash.

Key Assumptions for Valuation

• For the projected value of $68 today, assumptions include launching 248 satellites generating revenue from contracts across multiple countries.

• Average monthly payments are estimated at $6.66 per line in the U.S., with global averages significantly lower.

Revenue Streams and Cost Structure

Institutional Revenues

• Expected institutional revenues include around $355 million from FirstNet and additional defense-related income totaling over $400 million.

Fixed Costs and Margins

• Fixed costs are analyzed alongside variable expenses, yielding a margin of approximately 78% after accounting for corporate taxes.

Comparison with Competitors

Crossroads' Subscriber Estimates

• Crossroads estimates only a 10% conversion rate among potential subscribers in the U.S., leading to inflated revenue projections based on unrealistic subscriber numbers.

Discrepancies in Valuation Models

• Differences arise due to varying assumptions about satellite replacement costs and multipliers applied to EBITDA calculations.

Challenges in Market Predictions

Realistic Customer Demand

• Current customer demand projections suggest that selling usable GB data would exceed feasible consumption levels within the U.S. market.

Errors in Competitor Calculations

• Notable calculation errors were identified regarding expected customer counts versus actual revenue figures presented by competitors.

Investment Strategy Insights

Risk Assessment

• The investment strategy emphasizes understanding potential risks rather than viewing it as merely optional; optimistic scenarios could yield values up to $108 per share but carry significant downside risks as well.

Portfolio Management Decisions

• Recent transactions have generated realized gains totaling nearly €14 million; however, there’s acknowledgment that deeper analysis was needed earlier on for better risk assessment.

Future Considerations

Adjusting Assumptions Based on New Data

• Investors should remain flexible with their assumptions based on new studies or reports that may impact market dynamics or regulatory environments affecting satellite operations.

Importance of Realistic Projections

• Emphasis is placed on ensuring all financial models adhere strictly to physical laws and contractual realities while remaining adaptable to changing market conditions.