FOCUS Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 37 Equity Research Telecommunications | European Telecom Services 12 July 2021 Restricted - Internal AST SpaceMobile Inc Bridging Space and Earth We initiate coverage of AST SpaceMobile with an Overweight rating and a $29 price target. AST SM’s proposition is unique and the addressable market is very significant: extend mobile coverage everywhere via satellite. This promises to address a growing pol icy priority for governments: bridging the digital divide. The investment case does come with elevated risks, but if the technology works as planned and management executes, we see a compelling investment opportunity. A unique proposition. AST SM’s projec t is to extend mobile coverage when out of range of cell towers via its satellite constellations. Key to the project is the fact that there would be no need to modify mobile handsets to connect to the satellites. There are currently 5bn mobile handsets glo bally. As importantly, this will be pursued in cooperation with mobile operators that will market, distribute and bill the service, as well as share their terrestrial spectrum with AST SM, removing many of the hurdles to deploying satellite connectivity to the consumer market. Key investors and partners , experienced management AST SM is supported by strategic investors (Vodafone, ATC , Rakuten) that will collaborate with AST AM to develop the project. In addition, AST has signed a commercial agreement with Vodafone to deliver the service and MOUs with a number of other telecom operators (AT&T, Telefonica, Millicom). This and the experienced and incentivized management team provide confidence in this endeavour despite the many uncertainties High technology, regulatory and execution risks. AST SM is ‘pre’ revenues, and it still has to perform important additional tests for its technology and manufacture the satellites at the ambitious specs and low costs it is expecting. Also , it needs regulatory approval to u se terrestrial spectrum for satellite. So it is conceivable that the whole project does not materialise and the equity value is fully impaired ASTS: Quarterly and Annual EPS (USD) 2020 2021 2022 Change y/y FY Dec Actual Old New Cons Old New Cons 2021 2022 Q1 - 0.01A N/A 0.04A 0.04A N/A N/A N/A 500% N/A Q2 - 0.01A N/A - 1.03E N/A N/A N/A N/A N/A N/A Q3 - 0.01A N/A - 1.03E N/A N/A N/A N/A N/A N/A Q4 - 0.09A N/A - 0.09E N/A N/A N/A N/A 0% N/A Year - 0.12A N/A - 0.27E - 0.11E N/A - 0.72E - 0.30E N/A N/A P/E N/A N/A N/A Source: Barclays Research. Consensus numbers are from Bloomberg received on 09 - Jul - 2021; 12:50 GMT Stock Rating OVERWEIGHT from N/A Industry View NEUTRAL Unchanged Price Target USD 29.00 from N/A Price (09 - Jul - 2021) USD 12.76 Potential Upside/Downside +127.3% Tickers ASTS Market Cap (USD mn) 2316 Shares Outstanding (mn) 181.53 Free Float (%) 76.45 52 Wk Avg Daily Volume (mn) 1.5 Dividend Yield (%) N/A Return on Equity TTM (%) - 0.03 Current BVPS (USD) 11.34 Source: Bloomberg Price Performance Exchange - Nasdaq 52 Week range USD 25.37 - 6.96 Source: IDC; Link to Barclays Live for interactive charting European Telecom Services Mathieu Robilliard +44 (0)20 3134 3288 mathieu.robilliard@barclays.com BBI, Paris Maurice Patrick +44 (0)20 3134 3622 maurice.patrick@barclays.com Barclays, UK Titus Krahn +44 (0)20 7773 0469 titus.krahn@barclays.com Barclays, UK Simon Coles, CFA +44 (0)20 3555 4519 simon.aa.coles@barclays.com Barclays, UK Barclays | AST SpaceMobile Inc 12 July 2021 2 European Telecom Services Industry View: NEUTRAL AST SpaceMobile Inc (ASTS) Stock Rating: OVERWEIGHT Income statement ($mn) 2020A 2021E 2022E 2023E CAGR Price (09 - Jul - 2021) USD 12.76 Price Target USD 29.00 Why Overweight? AST SM’s proposition is unique and the addressable market is very significant: extending mobile terrestrial coverage everywhere via satellite, with no need to change users’ mobile handsets. If the technology works as the company expects and execution foll ows on, the stock could be worth multiples of its current market valuation, in our view. Upside case USD 37.50 The company moves successfully through the initial milestones (gradual regulatory approval in different countries, successful test of BlueWalker 3) and as such the risk of the project diminishes. Downside case USD 0.00 The technology successfully tested with BlueWalker 1 does not scale up or work as expected when tested by BlueWalker 3. Upside/Downside scenarios Revenue N/A 4 5 156 N/A EBITDA - 1 - 46 - 55 86 N/A EBIT - 1 - 68 - 148 - 111 N/A Finance costs - net 1 0 - 25 - 100 N/A Pre - tax income 0 - 66 - 173 - 211 N/A Tax rate (%) 46 25 25 25 - 18.7% Net income - 1 - 49 - 130 - 158 N/A EPS (adj) ($) - 0.12 - 0.27 - 0.72 - 0.87 N/A Diluted shares (mn) 7 182 182 182 195.9% DPS ($) 0.00 0.00 0.00 0.00 N/A Margin and return data Average EBITDA margin (%) N/A - 1,150.0 - 1,100.0 55.1 - 731.6 EBIT margin (%) N/A - 1,694.8 - 2,963.0 - 70.8 - 1,576.2 Pre - tax margin (%) N/A - 1,644.1 - 3,463.0 - 134.9 - 1,747.3 Net margin (%) N/A - 1,233.0 - 2,597.3 - 101.2 - 1,310.5 Operating CF margin (%) N/A - 850.3 - 1,600.0 - 9.0 - 819.8 ROCE (%) - 0.3 - 21.9 - 24.5 - 10.1 - 14.2 RONTA (%) N/A N/A - 56.7 - 10.1 - 33.4 ROA (%) - 0.3 - 21.9 - 23.7 - 9.9 - 13.9 ROE (%) - 17.2 - 986.4 - 34.1 - 62.9 - 275.2 Cash flow and balance sheet ($mn) CAGR Cash flow from operations - 1 - 34 - 80 - 14 N/A Capex and acquisitions 0 - 218 - 714 - 1,034 N/A Free cash flow 0 - 291 - 794 - 1,048 N/A NOPAT - 1 - 51 - 111 - 83 N/A Tangible fixed assets N/A 196 817 1,654 N/A Intangible fixed assets N/A 0 0 0 N/A Cash and equivalents 0 350 56 9 307.7% Total assets 232 468 838 1,680 93.4% Short and long - term debt 0 0 500 1,500 N/A Other long - term liabilities 68 66 66 66 - 1.0% Total liabilities 77 87 587 1,587 174.4% Net debt/(funds) - 232 - 350 444 1,491 N/A Shareholders' equity 5 381 251 93 164.9% Valuation and leverage metrics Average P/E (adj) (x) N/A N/A N/A N/A N/A Prop. EV/EBITDA - 79.5 - 45.5 - 52.5 45.8 - 32.9 Prop. EV/OpFCF - 79.5 - 7.9 - 3.8 - 4.2 - 23.8 Prop. EFCF yield (%) - 0.8 - 10.2 - 32.4 - 42.9 - 21.6 P/BV (x) 17.9 6.1 9.2 24.9 14.5 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Total debt/capital (%) 0.0 0.0 66.6 94.2 40.2 Net debt/EBITDA (x) 0.0 4.8 - 10.4 18.8 3.3 Source: Company data, Bloomberg, Barclays Research Note: FY End Dec Barclays | AST SpaceMobile Inc 12 July 2021 3 The Story in 6 Charts FIGURE 1 A large addressable market FIGURE 2 Satellite constellation: 336 satellites by 2028 e FIGURE 3 AST SM satellite illustration FIGURE 4 How is it expected to work ? FIGURE 5 Wide range of potential valuation s (1) based on DCF FIGURE 6 Wide range of potential valuation s (2) based on DCF Source s : Company data, https://www.worldometers.info/world - population (Figure 1), AST SM (Figures 2 - 4) , Barclays Research estimat es (Figures 5 - 6) 10.0% 15.0% 20.0% 25.0% 30.0% 1.00% 139 66 36 22 14 1.50% 145 68 37 22 14 2.00% 152 69 38 22 14 2.50% 160 71 38 23 14 3.00% 169 73 39 23 14 WACC Terminal g rate Share price ($) Barclays | AST SpaceMobile Inc 12 July 2021 4 Executive Summary We initiate coverage of AST SpaceMobile with an Overweight rating and a $29 PT. AST SM’s proposition is unique and the addressable market is very significant: extending mobile terrestrial coverage everywhere via satellite, with no need to change users’ mob ile handsets (currently 5bn mobile handsets globally). This promises to address a growing policy priority for governments: bridging the digital divide. This will be pursued in cooperation with mobile operators that will market and distribute the service, a s well as share their spectrum with AST SM. If the technology works as the company expects and execution follows on, the stock could be worth multiples of its current market valuation, in our view The investment case does come with elevated risks: AST SM is ‘pre’ revenues, and it still has to perform important additional tests for its technology and manufacture the satellites at the ambitious specs and low costs it is expecting. Also , it needs regulatory approval to use terrestrial spectrum for satellite. So it is conceivable that the whole project does not materialise and the equity value is fully impaired. Importantly , the company is supported by strategic investors (Vodafone, Americ an Tower, Rakuten) that will collaborate with AST AM to develop the project. In addition, AST has signed a commercial agreement with Vodafone to deliver the service and MOUs with a number of other telecom operators (AT&T, Telefonica, Millicom). This provid es confidence in this endeavour despite the many uncertainties. In addition, AST SM has an experienced and incentivized management team. Founder and CEO Abel Avellan has been working in the space industry for more than 25 years. Abel Avellan has a technolo gy background (BS in Electrical Engineering) and is the co - inventor of 24 US patents, some of which are behind the satellite constellation project of AST SM. CFO Thomas Serveson has more than 20 years’ experience in financial management. The CTO, Dr Huiwen Yao, has more than 30 years’ experience in engineering and was involved in building more than 40 GEO satellites. Looking at the remuneration and incentives in place for AST’s senior management and employees, we note a clear focus on aligning incentives wi th the company’s share price performance. This is particularly visible in the relatively low fixed compensation of AST’s CEO, but also in the dominant use of stock - based long - term compensation in the new incentive award plan. It will take some time for the business model to be fully validated , but we see important milestones over the coming years that will provide testing points to the investment case : 1/ Regulatory approval in a growing number of countries 2/ Launch and tests of the technology in space w ith satellite BlueWalker 3 planned for 4Q21 3/ Launch of the first 20 satellites in late 2022 4/ Commercial launch in 2023 Each event , if positively resolved , should enable the stock valuation to grow substantially , in our view, as the high risk that we factor in to our valuation (20% WACC) should reduce. Barclays | AST SpaceMobile Inc 12 July 2021 5 FIGURE 7 Investment case Positives/Opportunities Negatives/Risks Very large market opportunity Early - stage company with limited operating history and no revenues Ad d resses a growing policy priority for governments: brid g ing the digital divide Technology to connect satellite to mobile handset still unproven on a large scale Direct connection to standard/unmodified terrestrial mobile handsets Execution ris k on building, launching and deploying the satellites No need to acquire s pectrum as uses mobile partners ' spectrum No spectrum ownership Distribution, billing and marketing done by mobile partners Regulators may not approve the use of mobile terrestrial spectrum for satellite Agreement with American Tower to use its facilities for the ground network build - out Competitors may challenge the use of mobile terrestrial spectrum for satellite Important and relevant strategic investors: Vodafone, American Tow er, Rakuten Funding risk: At this stage the business plan is not fully funded and we estimate it will need to raise around $1.5bn First mover in integrating satellite communication to terrestrial mobile handsets CEO owns 88% of the voting right s through o wnership of Class C shares (10x voting rights) Not competing with existing or future LEO players (OneWeb, Starlink, Kuiper, etc...) Delays in building and launching fleet are very common in the sector Experienced management team with incentives aligned with minority shareholders Source: Barclays Research Besides the elements we list above that are specific to the AST SM investment case , there are generic risks to the satellite industry: - Launch and in - orbit failure: While not frequent, launch failures h appen. Insurance companies assume a c.5% failure rate in their pricing. Companies are reimbursed by their insurers for the costs of the satellite and the launch, but since it can take up to three years to build and launch a new satellite, this can mean los t revenue opportunities. - Malfunction: Once a satellite is launched, there are currently no repair capabilities in space to rectify any malfunction that leads to a partial or total reduction in capacity. Some companies insure their satellites for their enti re lifetime, but again the risk of lost revenue opportunities remains. - Interference/collision risk: The ITU and national regulators grant orbital positions and spectrum rights, and one of their key objectives is to avoid any interference and collision risk with constellations/satellites that are already operating. In some cases, the decisions are challenged by existing operators and authorisation may in some cases allow for a risk, even if minimal, of such problems occurring. Barclays | AST SpaceMobile Inc 12 July 2021 6 Bridging Telecoms and Satell ite: New P layers The satellite industry generates revenues of around $12bn per year – i.e. less than 1% of the global telecom industry. Historically, its main service was to broadcast video (direct to home or to cable head - ends), which represented c.60% o f revenues. On the data side it has been providing mobility services (communication at sea and in air) but also fixed services (backhauling/business communication) in remote areas to many types of customers (government/military, B2B, telecom operators). We see the industry as set to play a larger role in the telecoms industry owing to sharply declining costs due to technological breakthroughs; rising demand for connectivity ‘everywhere’ from consumers, businesses and military; and governments’ focus on redu cing the digital divide nationally and also globally. There are many players deploying new constellations with fully integrated and closed solutions. More recently , we have seen new projects integrate terrestrial and satellite technology. The technologies are still in development and similar attempts have failed in the past (Terrastar , for example) , but the business opportunity could be very material. Three companies are working on building a dedicated infrastructure (AST SM , Lynk and Omnispace) and Iridium also announced at its I nvestor D ay in May 2021 that it was looking at this opportunity with its existing fleet. Why use satellite? The adoption of mobile telephony has been massive over the past 20 years and it is now estimated by GSMA that there we re around 5 bn mobile phones globally and 3.8bn mobile internet users at YE 2019. In terms of revenues the mobile industry generates around $1 trillion per year of service revenues. There are , however , still important growth opportunities. The coverage of mobile networks represents around 25% of the land mass of the earth and 10% when including the seas. As a reminder the earth ’s surface is 510m square meters. - Among the 5bn mobile phone users , there are at any moment in time around 750m people that cannot o btain a mobile signal as they move outside the range of mobile network coverage - There were still 600m people liv ing in areas not covered by mobile internet in 2019. - Around 50% of the world ’s population remains unconnected to fixed or mobile broadband. Whi le the terrestrial mobile networks continue to expand their coverage , since 95% of the population leaves in 5% of the land the economics become very challenging and this is where satellite can complement terrestrial networks. The unique attribute of the sa tellite industry is that it is an efficient and inexpensive way to cover the whole globe compared to terrestrial solutions. In fact , three satellites in GEO can deliver services to the whole globe (excluding the poles) for less than $2bn. This is why satel lite has been widely used to broadcast TV signals. For two of the three companies looking at integrating the terrestrial and satellite networks , their projects will be based on LEO constellations , so the capex will be higher than using a GEO constellation but still far lower than covering the 75% of land not yet covered with terrestrial infrastructure (which would be in the hundreds of billions of dollars ). The key advantage of a LEO constellation is low latency , which is key to deliver ing good real - time c ommunications (voice, video, interactive social media): latency is >0.5 seconds ( round trip ) on a GEO satellite but drops below 0.05 second s on a LEO constellation as it is orbiting 35x closer to earth. Barclays | AST SpaceMobile Inc 12 July 2021 7 FIGURE 8 Economic activity and population are very concentrated Source: Via S at Three main initiatives As we have established, satellite can complement terrestrial networks to provide better coverage. This is not new in itself as a number of satellite phones already exist (Iridium, Inmarsat). The new projects ’ material innovation is that the satellites would connect w ith existing mobile handsets – i.e. unlike currently available solutions , they would not require dedicated satellite phones or any add - on to terrestrial mobile phones (sleeves, etc). FIGURE 9 New satellite projec ts Direct to terrestrial mobile AST SM Lynk Omnicom Main investors Rakuten, Vodafone , American Towers N/A Fortress IG, Columbia Capital, Greensp r ing Associates, TDF Ventures, Telcom Ventures Satellites planned 3 36 5,000 N/A Satellites in orbit to date 0 0 0 Satellite life expectancy (years) 10 N/A N/A Full launch end (year) 2028 2025 N/A Orbit LEO LEO LEO and MEO Commercial service start 2023 2022 2026 Capex c.$3.3bn >$500m N/A Targeted markets Mobile text/voice /Broadband Mobile text/voice /Broadband Mobile text/voice /Broadband Region Global Global Global Antenna cost (est.) 0 0 0 Spectrum Terrestrial repurposed Terrestrial repurposed S - band Listing ASTS US Source: Compan y data, Barclays Research AST Space M obile and Lynk also indicate that their solution s would not require any change in software: this would solve one of the critical barriers for satellite projects: the cost and deployment of ground antenna s . Also , the issue of distribution is solved by teaming up with mobile op erators that would market and distribute the service to their customer base s . Lastly , AST SM and Lynk will use the spectrum owned by telecom operators , so do not need to get their own spectrum. This will require changes to the current spectrum licences tha t have been Barclays | AST SpaceMobile Inc 12 July 2021 8 granted for terrestrial use , which will clearly be a complex process . However, with the issue of the ‘digital divide’ growing in importance , regulators and public authorities are likely to be well disposed to support these changes. The three co mpanies are at different stages of development , as show n in the table overleaf , and the projects differ in a number of important re spects. AST SpaceMobile : L eading the charge AST SM has developed a unique and proprietary technology to connect mobile phones to satellite with no change in equipment or software required. AST plans to wholesale its capacity to telecom operators leveraging the spectrum, ground infrastructure, distribution and customer bases of telecom players around the globe. The company has already signed commercial agreements with Vodafone and MOUs with seven other mobile operators including AT&T, Telefonica and Tigo. The technology has been tested in space with a nano satellite (BlueWalker 1) in 2019. A second test will be done with th e satellite BlueWalker 3 , which will be much closer to the final design of the satellites (50% smaller) in Q4 2021. AST plans to start launch ing its fleet in 2022 , with the whole fleet exp ected to be in space by 2028 (336 satellites). The satellites are very innovative (see pages 10 - 11 for more details) , each weighing around 3,000kg and constituted of a central ‘bus’ and 20m x 20m of phase array antennas , making them the largest satellite s ever built. Each satellite is expected to cost around $10m. The constellation will operate at 700km altitude around the earth. The life expectancy of the satellite s is 10 years. AST has an impressive list of shareholders , with notably R akuten owning 17%, V odafone 6% a nd American Towers 3%. Each were initial investors and increased their ownership during the capital increase that took place when AST merged with t he SPAC named NPA Providence (deal closed on 6 April 2021) . AST is listed o n the US stock exchang e. Lynk: Smaller ambitions initially US - based Lynk also plans to connect satellite to mobile handsets. The company filed a licence with the FCC in May 2021 to launch and operate an initial fleet of less than 10 satellites by 2022 , but the constellation is planned to grow to 5,000 satellites in LEO. The satellite s will operate at 500 - 550km orbit and weigh 55 - 85 kg , and are expected to cost $100k each once construction reaches critical mass. Lynk has tested the technology on a hosted payload on the Cygnus spacecraft that is in space and was able to transmit text messages to mobile phones on the ground. The company plans to have intermittent text message initially , but will then add voice services and eventually broadband by 2025 when it has enough capacity in space. Lynk plans to partner with mobile operators and use their spectrum, similarly to AST SM . Recently the CEO indicated that the company intended to sign commercial agreements with 12 mobile operators initially in 2022. Lynk has raised about $20 mill ion in several funding rounds. Omnispace: A different approach Omnispace has adopted a different approach from AST SM and Lynk. A key difference is that the company has acquired its own spectrum on S - Band. This spectrum comes with the right to communicate directly with mobile devices. Currently this spectrum band is not used in mobile terrestrial , so mobile device and chipset manufacturers will need to be willing to integrate that spectrum band in future mobile handsets if it is to be used. Positively , how ever , that means that Omnispace will not to have to worry about changing existing licences of terrestrial mobile spectrum for satellite use. Barclays | AST SpaceMobile Inc 12 July 2021 9 Omnispace will provide complementary connectivity to mobile phones in areas where the terrestrial network is absent. It also plans at some point to target the B2B mobility market in maritime, aviation and IOT , competing with the likes of Inmarsat and Iridium. The company will also partner with mobile operators to market and distribute its services. It plans to b e in operation by 2026. The company has disclosed limited information on its satellite fleet: the company indicated that it would not be a large constellation (possibly 200 LEO and 15 MEO) , and its network would be a hybrid one with satellites in space and terrestrial repeaters on the ground. Two satellites are currently being built by Thales Alenia Space and are expected to be launched in 2022. The company has recently raised $60m in equity. Barclays | AST SpaceMobile Inc 12 July 2021 10 AST SpaceMobile: Initiate with Overweight, $2 9 PT We initiate coverage o f AST SpaceMobile with an Overweight rating and a $2 9 PT. AST SM ’s proposition is unique and the addressable market is very significant: extending mobile terrestrial coverage everywhere via satellite , with no need to change users ’ mobile handsets (currently 5bn mobile handsets globally). This promises to address a growing policy priority for governments: bri d ging the digital divide. This will be pursued in cooperation with mobile operators that will market and distribute the service , as well as sh are their spectrum with AST SM. If the technology works as the company expect s and execution follows on, the stock could be worth multiples of its current market valuation , in our view. FIGURE 10 AST SM: Timeline of phases Source: AST SM AST SpaceMobile: A ‘space breaking’ project The technology: what we know so far The founder of the company , Abel Avellan , has been working in the space industry for more than 25 years (see more details on page 13 ). Abel Avellan has a technology background (BS in Electrical Engineering) and is the co - inventor of 24 US patents , some of which are behind the satellite constellation project of AST SM The company has disclosed a number of elements of the technology behi nd its satellite fleet. A patent filed by Abel Avellan in December 2018 discloses some aspects of the technology , but the fleet already looks different from the patent in some aspects. In total , the company has filed 750 patent claims for the technology us ed by AST SM . For one example of the patents see: https://patentimages.storage.googleapis.com/94/81/d4/8fe4c138f5bff0/US20180359022 A1.pdf Barclays | AST SpaceMobile Inc 12 July 2021 11 FIGURE 11 AST SM : S atellite image Source: AST SM Innovative technology still to be fully proven The satellites will be positioned at a LEO of 700km above ground . The satellites are made of a central ‘bus’ of 1.5m x 1.5m , which has the usual electronics. Around this element there will be a vast number of tiles , each with a phase array antenna on one side and a solar panel on the other. The tiles will be connected through cable s and supported by metal hinges. The satellite size will be extremely large , at 20m x 20m. The weight is c.3,000kg per satellite and life expectancy is 10 years. The constellation will be made of 336 satellites , with 20 launched for the equatorial markets in H2 2022/early 2023 and another 90 launched by 2023 to get global coverage. This will then be complemented by 58 satellite s by 2024 , which will add capacity to the fleet. Another 168 satellites will be launched between 2027 and 202 8 to add further capacity. The concept of these satellites is that , b ecause they have massive antennas (400 square meters) , they will beam a powerful signal across a wide area (2,800 square km) that will be enough to reach mobile handsets on the ground , which typically can only get a signal emitted up to 3km away. The conne ctions from the satellite and the mobile handset are then beamed to ground stations. The company indicated that it would require 1 - 3 gateways per country (depending on the country size). The plan is to combine these with the ground infrastructure of their mobile operators or tower company partners (AST SM has signed an agreement with American Tower for that purpose). AST SM satellites are technology - agnostic: i.e. they support 3G/4G/5G. AST SM believes it can deliver speeds of 30Mbps with less than 0.1 sec onds of latency and indoor coverage. One reason that this will facilitate the integration of satellite into terrestrial telephony is the work being done by 3GPP (the wireless industry main standard setting association). 5G is been developed to provide a st andardised environment for the devices/software/hardware of all members of the telecoms ecosystem (e.g. equipment manufacturers, software developers, communication operators). For the first time, the satellite industry has joined this effort, which means t hat its compatibility and interoperability with the terrestrial telecom system stands to be greatly enhanced. This should enable a cost - effective ‘ plug and play ’ satcom s solution for 5G to facilitate accelerate d 5 G deployment by telcos and network vendors in all geographies (allowing for backhaul, rural coverage, redundancy, etc.). At this stage AST SM has tested the concept with a nano satellite named BlueWalker 1 in 2019 that successfully connected to a ground antenna using a 4G - LTE protocol. Lynk has a lso performed a communication between a satellite in space and a mobile handset on the Barclays | AST SpaceMobile Inc 12 July 2021 12 ground , but it was for a text messages so it is much easier to transmit than voice or broadband. In Q4 2021 AST SM expects to launch BlueWalker 3 , which is 50% the size and weight of the final satellite design. By being able to connect directly to existing mobile handsets , AST SM removes a massive hurdle to access to satellite: customer equipment on the ground. Other companies competing on the satellite phone segment (Iri dium, Globalstar, Inmarsat) require specific satellite phon es that can cost up to $1,000 a piece. Low - cost fleet as launch costs coming down The different parts of the satellite will be built by NCE, Safran, Dialog and Nano Avionics (owned by AST SM) and assembled by AST SM in its new facilities in Texas. In terms of launcher, AST SM has not disclosed its choice , but indicated that it would launch satellites in batches of 18 to 20. This represents a payload of 54 to 60 tons and at th is stage there a re a number of options: the Falcon heavy semi - reusable or expendable , the Delta IV heavy or SLS satellites. The satellites will be folded for launch and unfolded after launch tw ice to get to their final configuration. The company expects th e satellites to cost around $14m initially and then drop to c.$10m once it achieves a high run rate. This includes launch costs. If we take current prices for launches to LEO orbit from Falcon heavy launchers (between $2,000 - 3,000 per kg for a launch to LE O) , this implies a cost for satellite plus insurance (5 - 10% of the value of the satellite and launch costs) of $8m million initially ($14m - $2,500*3,000k g ). The drop to $10m reflects assumptions of lower manufacturing costs but also lower launch costs. The $8m cost per satellite (excluding launch) is high when compared to satellites from OneWeb (>$1m per satellite) or Starlink (<$0.5m per satellite) , but AST SM satellites will be much larger and heavier: a OneWeb satellite weighs c.150kg and has a size of 1 m 3 ; a Starlink satellite is around 260kg and is roughly the size of a table. A MEO satellite from the O3b constellations weighs 700kg and costs $80m (although one could argue that technology has evolved since it was first designed at the beginning of the 2 010s). The cost of a typical GEO satellite , which weighs 4,000kg to 5,000kg , is around $150m. AST SM ’s satellite will weigh 3,000kg. So this suggests that AST SM ’s technology is innovative not only because it enables voice and data transmission from a sat ellite to a mobile handset but also because it is particularly inexpensive on a cost per kilogram basis . This is partly explained by the fact that the satellites use identical modules and so there are economies of scale. Once again , it is worth flagging th at this has yet to be proven as the company has to our knowledge not yet buil t the final version of the satellites. Spectrum: Partnering with telecom operators One of the key strength s of AST SM ’s proposition is that AST SM will need to acquire minimal sp ectrum. For communication to and from mobile handsets, AST SM will use the terrestrial spectrum bands of the mobile operators with which it is collaborating. Communication from and to the ground stations will be done on V band. In the US , AST SM has alread y asked the FCC for authorisation. The challenge will be for AST SM and its partners to get regulatory approval as this spectrum was awarded for terrestrial use only. As long as it does not create interference , one might expect regulators to view the requ est favourably as AST SM ’s project could contribute to resolve a growing policy priority for governments and regulators: bridging the digital divide. This will take time and effort as the request will have to be addressed in each country separately. Positively , it is the mobile operators that will manage the process and costs Barclays | AST SpaceMobile Inc 12 July 2021 13 involved in the vast majority of cases. Negatively , one should also expect competitors to challenge the repurposing of terrestrial spectrum to satellite spectrum or raise concern s of interference. In the US, where AST SM is partnering with AT&T, T Mobile US and Verizon have already notified their concern s to the FCC. With regard to the V - band, Amazon’s Kuiper is disputing its use , although we note there is a large amount of spectr um in this band (30GHz) , so it may well be possible to satisfy all the asking parties. With regards to interference, we note that mobile operators are used to managing the many sources of interference on the ground and they will be collaborating with AST S M. We note that Ligado in the US has finally received approval to use L - Band satellite spectrum for terrestrial use after having addressed concerns o ver interference. Globalstar also obtained a similar approval for its S - band spectrum. W hilst the request from AST SM is the reverse (terrestrial spectrum being allowed for satellite use) these examples show that repurposing of spectrum has been approved by regulators in many instances in the US. At this stage, AST SM has already officially received regulator y approval for its project in Nigeria Commercial agreement with a number of operators AST SM has already signed a number of commercial agreements with leading mobile operators. In some instance s, this was associated with an equity investment in AST SM st ock (see next section for more details). - Commercial agreement with Vodafone with mutual exclusivity in all the markets where Vodafone is present for five years after the launch of the first 110 satellites (2023e). AST SM signed a similar deal with Rakut en for the Japanese market for five years after the launch of the first 168 satellites (2024e). - Binding Memorandum of Understanding (MOU) where AT&T will provide technical and commercial resources to develop services and commercial offerings for AST SM in the AT&T coverage areas (US). A commercial agreement is contingent on further agreements. - Non - exclusive MOU with Telefonica, Indosat Ooredoo, Millicom, Telecom Argentina, Telstra, Liberty Latin America and more recently Smart (Philippines) to collabor ate on technology development and implementation of the services. In addition, AST SM has signed a commercial agreement with American Tower to use its facilities for AST SM terrestrial gateways in certain markets. Impressive list of shareholders Before it s merger with the SPAC New Providence Acquisition on 6 April 2021, AST SM was funded by a number of important players. Of the 129.8m Class B shares issued at $10 per share: - Rakuten took 28.5m shares - Invesat (Cisneros family) took 9.9m shares - Vodafone took 9m shares - America Tower took 2.2m shares The merger with the SPAC was combined with the issuance of 51.7m Class A common shares. American Tower bought 2.5m shares, Rakuten 2.5m shares and Vodafone 1m shares. So in total (i.e. combining Class A and B share s) Rakuten owns 17% of the capital, Vodafone 6% and American Tower 3%. Invesat bought 0.2m shares and now owns 6% of the capital. Barclays | AST SpaceMobile Inc 12 July 2021 14 The Class B and C shares can be converted in Class A shares. The Class C shares will continue to exist for voting purposes bu t their voting rights will be reduced by the amount of C shares converted into A shares. FIGURE 12 Shareholder equity Ticker Security Description Par Value Shares Out % Voting Rgt Voting % ASTS US Class A 0.0001 51,729,704 28.50% 1 51,729,704 6 % 1748346D US Class B 0.0001 51,636,922 28.45% 1 51,636,922 6 % 1880711D US Class C 0.0001 78,163,078 43.06% 10 781.630,780 88% Total 181,529,704 884,997,406 Source: Company data , Bloomberg , Barclays Research CEO Abel Avellan got 78.2m Class C common shares. The Class C shares have 10 voting rights and may control a majority of the voting right as long as they represent at least 9.1% of the total common stock (currently they represent 43% of the capita l). In addition , there are: - 17.6m warrants outstanding (11.5m public and 6.1m private) with an $11.5 exercise price that are traded (ticker: ASTSW US). These warrants were issued by the SPAC NPA in September 2019 and are exercisable to purchase one Clas s A share. They expire on April 2026. - 12.794m incentive options granted by AST at an exercise price of $0.84 that are redeemable in one Class A share. All s hareholders prior to the merger with the SPAC have 12 - month lock - up from the date of the deal closure (6 April 2021). Lock - up on the incentive options is 24 months. An experienced management team and BOD – Highly educated workforce The founder of the company , Abel Avellan , has been working in the space industry for more than 25 years. Abel Avellan has a technology background (BS in Electrical Engineering) and is the co - inventor of 24 US patents , some of which are behind the satellite constellation project of AST SM . Before founding AST SM, Abel Avellan founded EMC, a satellite communication service company that he then sold to Global Eagle Entertainment , which he joined as President and Chief Strategy Officer until April 2017. Abel Avellan worked for 25 years in the satellit e industry The CFO , Thomas Severson , previously held the same position at EMC and Global Eagle Entertainment. Thomas Serveson has more than 20 years ’ experience in financial management. T he CTO , Dr Huiwen Yao, has more than 30 years’ experience in enginee ring and was involved in building more than 40 GEO satellites. The BOD includes executives that have an extensive telecommunication industry experience. Among them are Hiroshi Mikitani, founder, Chairman and CEO of Rakuten Inc. ; Edward Knapp CTO of Americ an Tower ; Tareq Amin, Group Executive VP and CTO of Rakuten Inc.; and Luke Ibbetson , who leads the Vodafone Group Research and Development Organisation. In total , the company has 236 full - time employees and 13 - part time employees with more than 24 PhDs. M anagement incentives Looking at the remuneration and incentives in place for AST’s senior management and employees, we note a clear focus on aligning incentives with the company’s share price performance. This is particularly visible in the relatively low fixed compensation of AST’s CEO, Barclays | AST SpaceMobile Inc 12 July 2021 15 but also in the dominant use of stock - based long - term compensation in the new incentive award plan. The two senior managers, Abel Avellan (CEO) and Thomas Severson (CFO) received an annualised base salary of $36k/$225k , res pectively , throughout 2020. Mr Avellan has historically asked not to be paid a base salary in excess of applicable minimum wage requirements. Mr Severson’s salary had been increased in 2020 (from $120k) due to additional responsibilities and individual per formance. As part of the business combination, shareholders (and the BoD) adopted a new long - term incentive plan, called ‘SpaceMobile 2020 Incentive Award Plan’, which comprises compensation for all qualified directors, employees, consultants and affiliate s. A total number of 10.8 million shares ha ve been made available for issuance as part of the incentive plan. Interesting is the clear focus on stock - based compensation in different forms: t hrough stock options, share appreciation rights, restricted stock and incentive units. We note that the company does not provide specific targets that the company might need to reach for these equity awards to vest, which could be in focus going forward. The agreement defines that vesting conditions may apply to each awa rd and can include not only continued service, but also performance and other conditions. However, we note a clear focus on s