Direct-to-cell satellite communications company AST SpaceMobile (ASTS 3.55%) enjoyed a modest share price boost Monday after announcing it has secured “up to 45 MHz of Premium Lower Mid-Band Spectrum in the United States” from privately held Ligado Networks.
AST stock is up 3.2% through noon ET.
What AST said
AST currently has rights to low-band spectrum, “which offers superior penetration and coverage characteristics” for its satellites, permitting ordinary, off-the-shelf cellphones to call each other directly via its satellites — just like specialized satellite phones.
“Adding premium lower mid-band spectrum access in the United States,” says CEO Abel Avellan, “gives us long-term access to a large block of a scarce resource, significantly enhancing our planned space-based cellular broadband offering.” It will permit AST to support “peak data transmission speeds up to 120 Mbps” for its U.S. telecom partners, including heavyweights such as AT&T (T) and Verizon (VZ -1.17%).
Image source: Getty Images.
Is this good news for AST?
The additional spectrum will come at a cost. Securing “80+ years” of access to this spectrum will cost AST $550 million initially, plus payment of 4.7 million “penny warrants convertible into AST SpaceMobile Class A shares,” plus annual payments of $80 million.
Assuming “penny warrants” are what they sound like, these will grant Ligado the right to purchase AST stock for one penny per share (so $47,000) one year from now. With AST shares currently costing nearly $25 apiece, this means the total transaction cost rises by another $116.4 million — making the upfront cost closer to $666.4 million, plus the additional $80 million a year, plus the likelihood of AST shareholders suffering 2.3% stock dilution a year from now.
With closing expected in the first half of 2025, AST will need to take on additional debt to pay for this spectrum purchase. With $516 million in cash at last report and $200 million in debt, AST will soon have more debt than cash on its balance sheet.
Investors are buying AST on today’s news, but I view this as a negative for the stock.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
