Closing Bell - Manifest Space: Space’s First Phone Call with AST SpaceMobile CEO Abel Avellan 6/8/23

Episode Date: June 8, 2023

With Amazon reportedly pursuing the wireless service business, big tech is turning to broadening broadband services. As giants like Amazon and Apple invest in big satellite constellations, smaller players such as AST SpaceMobile stand to benefit. The AT&T-backed satellite company recently conducted the first-ever phone call from space to everyday mobile devices using its prototype satellite. Chairman and CEO Abel Avellan joins Morgan to discuss the recent milestone and what it means for the broader satellite industry.

Reports have suggested Amazon may be getting into the wireless service business, a prospect that initially sent the stocks of Verizon, AT&T, and T-Mobile lower. Amazon has since batted down that prospect, quote, at this time, at least. But the tech giant is also spending billions of dollars on its broadband satellite service, Project Kuiper. As the world becomes more digital, that means more demand for more reliable and expansive network connectivity. It's something I asked former AT&T Mobility CEO Glenn Lurie about just recently. You know, satellite is going to, and is today playing a role, is going to play an even bigger role down the road. A lot of the deals that got announced,

it was also the Apple Global Star deal that was announced as well. And I think what you're seeing is, is that the expectation of the end user is that their device never goes off network. And I think that's what we're talking about today, the IoT business, where the IoT business is going. The fact that if I take my truck and I want to go way off roading, I'll still want to have E911 services to start. And I think that's where we're beginning. And there's a whole bunch of people playing in the space, Amazon included, that I believe down the road, we're going to see these things come together. And you're going to have the ability in your car on that smartphone to not only use terrestrial services, but to also be able to utilize services, obviously, like a global star or like these other players that Amazon's building here to actually make your service more valuable.

And I think that's absolutely happening. I do believe it's going to happen in the IoT space first, but I do think there's going to be partnerships happening down the road for sure. Amazon, SpaceX, OneWeb and many others are investing big bucks into big constellations in a race to fit into this broader broadband landscape. For AST Space Mobile, that means working with AT&T and others to offer service directly from space to cell. Our technology, our patented technology, is the ability to connect to any phone without requiring any change to the phone. You don't need an app. You don't need a special chipset.

You don't need a special frequency. You don't need anything other than your regular phone. So that's what makes us very, very unique. On this episode, Abel Avalon, founder, CEO, and chairman of AST Space Mobile, discusses the publicly traded startup's big milestone, a phone call from Texas to Japan using AST's prototype satellite, which is apparently the first time anyone has ever achieved a direct voice connection from space to everyday mobile devices. I'm Morgan Brennan, and this is Manifest Space. Yes, Morgan, as you know, we are in the mission of enabling people to connect wherever they work and live using their standard cell phone, using their cell phone, whatever, the everyday phone,

the one that you had in your pocket. And we recently were able to complete initial phone calls using standard devices. The particular first one was a Samsung phone that connected to our satellite and using AT&T Airways and being able to provide connectivity from a space to a regular device using our technology. And so what's so unique about your technology is the fact that you don't require the ground, same type of ground infrastructure and hardware that some of the other space-based connectors, communications companies require.

How are you able to do that? Well, yes, that's correct. We're very unique. Our technology, our patented technology is the ability to connect to any phone without requiring any change to the phone. You don't need an app. You don't need a special chipset. You don't need a special frequencies.

You don't need anything other than your regular phone. So that's what makes us very, very unique. And the other part is that we can do that at broadband speeds. We can do that in a way that doesn't matter where you work or live, you will get roughly the same experience that you will get if you are in a major city or in a metropolitan area. That's very, very unique. And we had over 2,600 patents to do that. And we are the only satellite demonstrating this technology in orbit. And as you asked me earlier, making the first connections ever done from space directly to regular cell phones.

This is your first satellite that's on orbit. Your Blue Walker 3, I believe it's called. It's a prototype, right? Yes. I mean, we're building an additional five. They are in production right now. They are slotted to be launched early next year in the first quarter that will provide initial services, commercial services with production satellites. I mean, we have taken

all the learnings and all the development that we did with Blue Walker 3 into that production, and we are slotted to be launching early in the year. And so you can begin to actually start offering service next year? Yes, there will be non-continuous service, but initial services with initial satellite, yes. Do you already have customers signed up? We do have over 40 agreements with global operators around the globe. Some of them are investors in our technology. And yes, we were ready to start commercializing

as we launch more satellites. And AT&T is one of those. And you mentioned that this test that you ran was actually on the AT&T network. So how does this business model work with the Telcos? Do you become an extension of service for them in places where traditional, you know, more earth-based cellular connections are harder to come by? That's right. I mean, we are an extension to the mobile network operator. We complement the

network. We get to places where they cannot get for economic reasons, geographical reasons, or simply where the system, where the rest of the network doesn't work well enough. So it's a complementary. It's typically an add-on service to your monthly bill. You get your monthly bill. You have your regular service. And in addition to that, there's a service charge for getting access to our network. I mean, one thing that is important for this is that it is something affordable, it's global,

and it is to provide broadband. And so you're actually working with other companies and, for example, telcos themselves. You're not necessarily going to offer the service directly to consumers? That is correct. This is strictly our strategy is to partner with the mobile network operators, complement them. We don't plan to go retail and sell the service directly to end users. The operators have 5 billion force in circulation.

They are in every country. They have spent billions and billions of dollars in airwaves, in the spectrum. So our business model is very clear. We partner with them. They invest on us. And then we also bring a solution for them that is very unique. I mean, the operator that get this service is the operator in a country that can offer universal service everywhere. And that's something obviously very unique. Crazy question here. But what is,

as a service like yours begins to roll out, what does it do to, because Spectrum is so expensive, it's such an expensive, highly competitive market. What does it do to that market? Does it help to sort of make the demand for more traditional types of spectrum go away? Because with space, it's more unlimited. I mean, maybe I'm understanding the science of it wrong, but how does that work? No, no. I think basically the one thing that does is use the spectrum more efficiently. I mean, you have the global operators that have gigahertz of a spectrum, tons of a spectrum. And that spectrum is deployed in the area where we typically live or work, where we humans live.

That is only 10 percent of the air surface where we don't live, in oceans, in deserts, in national parks, or in areas where the regular spectrum doesn't work that well. I mean, when you are driving from New York to the Hamptons, there are areas where the cellular system doesn't work well. So this makes the spectrum usage much, much more efficient. So allow us, our technology, allow the operators to reuse it. So they massively use it in their terrestrial areas, in the regular areas where we typically are as people, but they can reuse it in national parks, in oceans, in areas where the service is not good enough, or simply where these people that live or work without good broadband connectivity. So you're making it

much more efficient. And that's something that regulators support. And that's something that MNOs, mobile network operators, really, really great for because they have this very expensive asset. They want to maximize it. Well, there's a lot of competition out there when we talk about this new wave of satellite communications offerings, whether it's Starlink or whether it's Amazon's Project Kuiper that's being worked on or OneWeb or Astranis or some of the others that I can just sort of go down the list. How do you think about the competitive landscape? Yeah, I mean, listen, we see ourselves as the first and only broadband system from space.

So there is new capabilities like SOS, maybe emergency techs, but our technology is the only one in the foreseeable future that we see with the real capability to provide broadband from space. So in that sense, we're set very different than anything else that is out there. And also the fact that we are partnering with the operators, that we reuse their spectrum, that we also can offer broadband to them, be something that without requiring any change on the phone and without requiring any special equipment. So some of the projects that you mentioned, you require an antenna, you need to put an antenna in your house or wherever you want to be connected.

So our project is any phone, no changes to the phone. We recently announced in our last earning calls all the phones that we're having compatibility with, which is the vast majority of the market. So that would make us very different. So we are getting out of that niche service that satellite had been historically providing connectivity using special terminals, special devices, to basically making every phone a satellite phone. So a phone that can connect you regardless where you are without doing any change to the phone.

That's what it make us completely different to everybody else. What does that mean from a security standpoint? And I ask that because a lot of times what you see with space-based communications operators is that it's the hardware and the ground-based infrastructure that actually ends up being the least secure and the most vulnerable to, for example, cyber attacks. So if you take that out of the equation, what does that do?

Yes, I mean, that's a very, very interesting point. I mean, for our system, actually, the architecture is exactly the same as terrestrial. We have the Inovis, the cord, all the infrastructure that the operators need to put on the ground. It remains the same. The infrastructure, the connectivity, the security, the interconnectivity to the rest of the network, that is all done the way that the operators that do it today. So all the security features, all the security measurements that they need to take to enable the service is already there.

We're not reinventing the wheel that way. The satellite, our satellite, the way to think about then is like a huge repeater in a space bouncing back that signal back to Earth. But all the processing, all the security, all the billing, all the interconnectivity, all that is on the ground without changing the way that the operators do it today. Very interesting. Are you manufacturing the satellites yourself in-house? Absolutely. We are very very very vertically integrated I used to say we start with metal with aluminium and we composite materials and if you go to our factory that's the input of the factory the output of the factory are full satellites so that's why you see we have so much intellectual

property I mean we had over 2,600 patents and patent claims. This is, you know, we are as vertically integrated as you can be on the manufacturing of our satellites. How many satellites are you planning to build, at least for this rollout of full coverage initially? Yeah, we're starting, and as a way of background, we don't need that many satellites. With 90 satellites, we have global services all over the world. And the reason for that is because the size of the satellites are the architecture that we have in our patented

technology. We have now the, we have done the investments and we have now the capability to do around, provided that we had enough parts and material, we can do two satellites per month. We are planning to upgrade that to six satellites per month, six to seven satellites per month. Our goal is to be able to do around 72 satellites per year. You went public back in almost two years, a little over two years ago now, 2021. You raised almost half a billion dollars when you did go public via SPAC. Do you have enough money to have this vision actually see through while you await the ability to more regularly generate revenue? Yeah, we had raised around three quarters of a billion dollars,

$750 million roughly in that range. We did that publicly, but also we did it together with our partners. I mean, our network operator partners, they have funded part of what we have done so far. Yes, we're fully funded to the next launch and to the next phase. We are constantly working with the wireless ecosystem to continue the funding of our system. Morgan, we're solving something very big.

We're solving something that's safe, enabled, differentiates significantly the cellular operators, the manufacturers, the whole wireless ecosystem. They're investors today. They have repeated investments in our company. And as I said, we're funded for the next wave, which allowed us to start generating revenue.

But we're always in the process of raising capital. But to do it very, very carefully and to do it in the most efficient way for us and for our investors. When we do talk about space and we talk about a business, for example, like yours, very capital intensive, take some time, as you mentioned, solving a really big problem and something that could change the world very dramatically from a connectivity standpoint. But what is it like to actually navigate the public markets and have to check in with investors quarter to quarter when your timeline and your vision is so much longer than that? It is very interesting. I mean, in a way, this is a project, as you said, it will change the world. It will change where people can live and work. It will make freedom for where you decide to be and be productive. But also, we lift a lot of people out of poverty and, you know, there's nothing like democratizing knowledge and information for billions. So that's the core of what we're doing.

Doing that on the public market, I have advantages and disadvantages. One advantage is to give you visibility. People know what you're doing. And we had a very, very, very loyal set of people that follow what we're doing. We're very grateful to them. And they are part of what we're doing every day. So, you know, and also give you access to the capital markets when that is needed. So that's, if you overall say it,

I don't regret that we went public. So it had allowed us to get to this point, to make history, to make the first phone call ever done using a space, to set up our manufacturing. So we had all our manufacturing investments completed at this point, mostly completed at this point. We have sites, two sites in Texas with over 185,000 square feet of manufacturing facility. We have the largest ever spacecraft ever launched of this size.

So the largest ever made for, for communications, you know, is given enough to get the first batch of satellites they get out to revenue. So we would have been able to do that without raising the capital that we had raised to this point. Yeah. And of course, just the announcement recently that you're set to join the Russell 2000 and the Russell 3000 indexes, which I would imagine is going to raise your profile as well. And based on the release, it looks like this could potentially be good for improving liquidity in the stock as well. Absolutely. We see that as a recognition of where we are and how we continue to grow into solving this very, very large

opportunity. Okay. So just a little bit of background. How did all of this come together? You mentioned 2,000 plus patents. How long have you been working on this? Where did the idea come from? Well, they have been a long journey. I mean, this is a very, very hard problem. And I always say, what we're doing is a combination of two things, a very, very hard problem. And I always say, it's a combination. What we're doing is a combination of two things. A very, very difficult problem to solve technically, which we have done. We have cracked the code. We have done it. I mean, that's what we have in the space operating.

And together with a very, very large market. So we are the conjunction of all of that. So we have been at this for, I think, close to seven years now. It has been a journey to partner with the operators, to basically do this in a way that we are very deep into how they do business and how they plan their network. And, you know, we are now in that tipping point where we're starting, you know, launching our production satellites, agreements with everybody around the globe. Basically, that matters for us. 40 of the top telcos around the globe with access to billions of subscribers.

So there has been a journey, but on this journey, we feel very, very well of where we are and what is coming next. Okay. And next things that we should be watching for in terms of major milestones? Well, we will continue to announce more results with the operators. We will be also supporting 4G and 5G. We have already publicly announced that we support it. We have the signal strength to support 4G and 5G, but we have not announced yet the data rates that we will be supporting together with our partners. So that's one milestone coming.

Another one is the next launch of satellites, which is early in the quarter. And then more commercial agreements and more strategic relationships that we continue, constantly continue to explore. And we have demonstrated in the past, we're working with the best of the best. We're working with Vodafone, with American Tower, with Rakuten, which have been with us from the beginning.

And we plan to continue to expand the roster of strategic partners that we have. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Bradley.