Small Sats, Big Dreams

Welcome Shareholders,

Every Sunday, we'll highlight one company to do an in-depth breakdown of their business, financial situation, and whether or not it's a worthy investment opportunity - large or small. In today's edition, we'll look at Astranis Space Technologies, a space broadband startup that aims to revolutionize internet connectivity for underserved regions by providing innovative, cost-effective geostationary satellite solutions.

Space broadband startup Astranis Space Technologies recently secured $200 million in funding, effectively valuing the company at $1.6 billion. The financing deal was led by the growth fund of Andreessen Horowitz, with a combination of equity and debt. This round of funding builds on the company's previous $1.4 billion valuation from two years ago, which was backed by funds managed by BlackRock, among other investors. Building on top of the momentum from its recent capital raise, the company is also in the planning to launch its inaugural satellite. This marks a significant milestone for the seven-year-old company, which has dedicated its 300-person staff and millions of dollars over the past four years to build its flagship product.

The satellite, roughly the size of an industrial dishwasher when its arms are folded in, is the first of what Astranis envisions to be a fleet of machines. These machines aim to provide customers with wireless broadband internet access and connectivity services for the US military. As Astranis prepares to launch itself into the highly competitive space broadband market, it faces a multitude of challenges from industry giants such as SpaceX's Starlink and Jeff Bezos's Blue Origin, as well as innovative solutions emerging from smaller players like AST SpaceMobile Inc., Omnispace LLC, and Lynk Global. Will Astranis be able to hold its own against these formidable competitors, and what strategies will it employ to differentiate itself in this rapidly evolving sector?

Bridging The Connectivity Gap

Despite the rapid advancements in internet technology, nearly three billion people around the world still lack access to the internet. A significant portion of this unconnected population resides in developing countries and remote areas, where establishing internet connectivity presents numerous challenges. Currently, there are three primary methods for connecting these areas to the Internet: fiber optic cable networks, point-to-point microwave connections, and satellite links. Each of these approaches has its own set of difficulties. Laying fiber optic cables involves digging trenches, which can be prohibitively expensive, especially in developing countries. In some cases, such as island nations and extremely remote locations, fiber optic networks may never be a feasible option. Point-to-point microwave connections can provide a solution in some instances, but their bandwidth limitations can easily become saturated.

Satellite links are another alternative, but the costs associated with traditional satellites are staggering, often reaching hundreds of millions of dollars. One of the reasons for these high costs is the increasing size and complexity of geostationary satellites. As satellites grow larger, the time and resources required to build them increase, as do the demands on the facilities needed to construct and launch them. Consequently, costs rise exponentially, making satellite-based internet connectivity an impractical solution for many remote and underserved areas. The high upfront costs associated with establishing internet connectivity in remote regions present a significant barrier for regional providers, who often hold licenses for the spectrum but lack the necessary resources to deploy services in areas that are too expensive to connect through other means. Astranis aims to change the status quo and bridge the connectivity gap by offering a more cost-effective and accessible solution.

New Paradigm

Astranis Space Technologies was founded by CEO John Gedmark and CTO Ryan McLinko, with a vision to bring internet connectivity to underserved regions using a groundbreaking approach to satellite technology. Emerging from stealth mode in 2018, Astranis attracted a $13.5 million investment led by Andreessen Horowitz. The venture capital firm recognized the potential of Astranis's innovative satellite technology, which aims to transmit data down to specific terrestrial locations with each satellite launched.

This unique approach persuaded Andreessen Horowitz to make its first investment in the space industry and encouraged additional capital from previous investors, including Y Combinator, 50 Years, and Refactor Capital. Astranis addresses the connectivity challenge by using geostationary positioning and combining it with a new model of smaller-sized satellites—roughly the size of a refrigerator—and cutting-edge software-defined radio technology. The company said that this yielded higher throughput and frequency flexibility, making transmission more efficient and cost-effective compared to massive traditional satellites that transmitted analog signals.

Affordable Connectivity

Astranis is determined to disrupt the satellite broadband industry by addressing the challenges associated with traditional satellites through innovative technological solutions. By rethinking satellite radios and reducing satellite size, the company aims to provide a more affordable and efficient alternative to connect underserved regions of the world.

The cost of Astranis's satellites is estimated to be in the tens of millions of dollars, significantly lower than the hundreds of millions required for traditional satellites. This cost reduction has the potential to bring the price of dedicated bandwidth closer to the industry's target of $75 per megabit per second per month, ultimately making internet access more affordable for a larger population.

Choosing the Right Orbit

There have been many debates about the most efficient, cost-effective ways to build out coverage using satellites, but recent trends have pointed to two main ways for providers to build out their satellite constellation: namely the Low Earth Orbits and Geostationary Orbits. The main difference between LEO and Geostationary Orbit GEO satellites lies in their altitude and coverage. LEO satellites operate at an altitude ranging from roughly 100 to 1,250 miles above Earth, while GEO satellites are positioned approximately 22,000 miles above Earth. This difference in altitude impacts the satellites' coverage, latency, and overall cost. Traditional GEO satellites can provide internet access to remote parts of the Earth and airplanes. However, their connections may experience latency issues, which are not suitable for real-time applications like online gaming or video conferencing.

LEO satellites, like those being deployed by SpaceX's Starlink and OneWeb, can overcome latency problems by operating closer to Earth. However, to provide global coverage, LEO networks require hundreds or even thousands of satellites, significantly increasing the overall system cost. Previous attempts at building LEO networks, such as Teledesic, Globalstar, and Iridium, ended in bankruptcy. Companies like SpaceX and Blue Origin are working to reduce rocket launch costs, but it remains uncertain if they can offer affordable internet access rates to subscribers. Astranis has chosen to focus on GEO satellites to bring down costs and avoid the pitfalls associated with LEO networks. Their MicroGEO satellites are compatible with existing satellite-based internet and communication infrastructure, making it easier to serve customers without the need for deploying numerous gateway dishes around the world, as required by LEO constellations. Moreover, Astranis can launch satellites individually to serve specific regions, allowing them to generate revenue in stages over time. In contrast, LEO networks demand massive up-front capital investments before they can start earning from commercial customers.

Astranis' Arcturus and the Next Generation of Connectivity

Astranis is set to launch its first satellite, Arcturus, on a SpaceX Falcon Heavy ride-share mission. Once operational, the satellite's capacity will be leased exclusively to Pacific Dataport Inc., an Alaskan satellite middle-mile provider. This partnership is expected to triple Alaska's currently available satellite bandwidth while offering more affordable and reliable broadband services. In addition to Arcturus, four more satellites are scheduled to launch on a Falcon 9 mission the following summer. Each satellite has a dedicated customer: one will provide broadband internet access to rural Peru under a $90 million agreement with Latin American telecom company Grupo Andesat, while two others will be leased to Anuvu, a company specializing in internet connectivity for airplanes and cruises.

The fourth satellite's bandwidth will be leased to a yet-to-be-announced customer. These upcoming satellites will incorporate several technical upgrades, including enhancements to the radio payload and propulsion system, extending the spacecraft's lifespan. The first wave of customers highlights Astranis' unique business model, which helps it stand apart from other communications satellite operators. Instead of selling directly to consumers, like Starlink, Astranis leases bandwidth to communication providers who then offer internet connectivity to end users. This approach targets mobile-first users, who primarily rely on smartphones with slow 2G internet connections. By providing extra capacity for cell backhaul, Astranis enables telecom companies to expand their coverage areas and cell tower networks to the most remote locations worldwide.

Addressing Latency and Security

One of the main downsides of using geostationary satellites, like Astranis' MicroGEO platform, is the higher latency due to the significant distance between users and satellites. This latency can amount to 120 milliseconds each way, posing a challenge for applications requiring rapid responses, including cloud gaming and high-frequency trading. As a result, low Earth orbit (LEO) broadband has gained attention for its ability to minimize latency. However, the company insists that its MicroGEO platform is suitable for most applications, including video streaming, as approximately 95% of data traffic is not latency-sensitive. Despite the drawbacks, Astranis' geostationary satellites have caught the interest of the US military. Many government satellites already operate in high orbits, offering protection from enemy eavesdropping and attacks. However, adversaries like China and Russia are now employing spacecraft capable of inspecting and potentially attacking geostationary satellites.

In response, the US Space Force has asked Astranis to demonstrate its spacecraft's ability to perform the same functions as their billion-dollar satellites. If successful, a more cost-effective geostationary satellite that can be quickly replaced may deter adversaries from attacking. In February, the US Space Force awarded Astranis a contract worth over $10 million to integrate a government-developed waveform into the company's software. This integration aims to provide anti-jam capabilities to defend against cyberattacks. The partnership between Astranis and the US Space Force could open new opportunities for the company and showcase its capabilities to other potential clients, further validating its geostationary satellite technology

Space and National Security

Following Astranis' partnership with the US Space Force, it is important to consider the broader context of the space industry and its implications for national security. Astranis, valued at $1.6 billion in its latest funding round, is among a small number of players aiming to operate in the harsh conditions beyond Earth's atmosphere. Notably, it is the first company in the growing private space industry to be backed by venture capital firm Andreessen Horowitz. Venture investors have increasingly recognized the potential of space-related technology, with investments surging to over $6 billion last year, up from less than $2 billion five years ago. Andreessen Horowitz has played a significant role in this trend, expanding its portfolio to include more than two dozen startups that it believes "support the national interest," encompassing public safety, manufacturing, and aerospace.

As tensions between the US and China escalate, and with Russia targeting a geostationary satellite network in the wake of its invasion of Ukraine, satellite companies and other defense-related startups are receiving increased attention. These developments highlight the importance of space technology in the context of national security. Astranis' focus on geostationary satellites and its partnership with the US Space Force underscores its potential role in supporting national security efforts. By providing cost-effective and potentially more resilient satellite infrastructure, Astranis could help strengthen the US's position in space and contribute to the development of more secure communication networks.

A New Prime in Space

Astranis is uniquely positioned to contribute to defending national security interests with its small geostationary communications satellites. As the world's only provider of such satellites, Astranis sees a massive opportunity to help secure space for generations to come. One of the main strengths of this approach is that it is far more challenging for adversaries to degrade or deny multiple, smaller assets in geostationary orbit. Astranis' vision includes becoming a new prime in the space industry, providing resilient, high-throughput communications to the Department of Defense at a lower cost compared to the expenses an adversary would incur to deny such services. This approach would involve deploying dozens of Astranis satellites dispersed across geostationary orbit.

Moreover, Astranis' spacecraft is highly maneuverable. Unlike most high-altitude satellites that use their limited propellant to maintain their position in space, Astranis' smaller spacecraft can relocate up to 30 times, even to the other side of the planet. When combined with the company's software-defined radio technology, which allows the satellites to operate on different radio frequencies as required, these satellites become an even more valuable asset. This adaptability makes Astranis' satellites particularly useful in situations where rapid deployment of communication infrastructure is crucial, such as in war zones or areas affected by natural disasters. By providing emergency connectivity in these scenarios, Astranis can play a vital role in supporting national security interests and humanitarian efforts.

Bottom Line

Astranis Space Technologies has made significant strides in the space broadband market, with a unique approach to geostationary satellite technology and a focus on bridging the connectivity gap for underserved regions. As the world becomes increasingly interconnected, the need for affordable and accessible internet access is paramount. Astranis aims to provide this by leveraging smaller-sized, cost-effective satellites, which offer considerable benefits over traditional large-scale satellites. In addition to the potential benefits for remote and developing regions, Astranis' technology has garnered interest from the US military, highlighting the broader implications of space technology for national security.

As global tensions rise and the role of space in security efforts becomes more critical, companies like Astranis have the opportunity to contribute to the development of secure and resilient communication networks. However, Astranis faces stiff competition from industry giants and smaller players alike, all vying for a share of the lucrative space broadband market. The success of Astranis will largely depend on its ability to effectively differentiate itself and demonstrate the value of its geostationary satellite technology to potential customers, investors, and partners.