Well, this May 4th article in MarketWatch didn't help much.
Airborne Wireless Network: Will It Soar Or Crash?
May. 4.18 | About: Airborne Wireless (ABWN)
Phil Anthropy
Phil Anthropy
Special situations, options
(285 followers)
Summary
Broadband networking, including both microwaves and lasers, is well understood technology already in use.
This undercapitalized company, which lacks a track record, has immense and well-funded competition through low-Earth orbit satellites, drones, high-altitude balloons and geostationary satellites.
There are substantial risks to early investors from dilution in share price due to future secondary offerings needed to raise capital.
The possibility of a buyout exists but appears remote.
Overview
Airborne Wireless Network (OTCQB:ABWN) has been showing television ads for its supposedly breakthrough technology that will use airplanes in flight as routers for a global broadband network offered to data communications wholesale customers. The underlying concept isn't new, so the question for investors is whether this company is "for real" or is just another startup with the trappings of authenticity that exists primarily to pay its officers.
Let me state my conclusions now. The details given later may be of technical interest, and indeed the research was quite an odyssey, but for investing purposes, the bottom line is the crux.
ABWN's concept will likely work, but unfortunately, ABWN is a sell, in my view. The short version is given in the following bullets. For the longer version, read on after that.
Patents may expire or be challenged.
The competition is fierce, and they have deep pockets.
ABWN appears undercapitalized and will likely need major secondary offerings to raise money. Reverse splits may be necessary in order to bring its stock price to an institutional investment level; this can be disastrous for retail investors.
Although a buyout could bring a substantial premium to the current stock price, the company is not profitable and currently only has some preliminary proofs of concept to show for its previous expenditures.
It isn't evident that a hybrid system of lasers and microwaves will be cost-effective and will actually work as proposed.
Technical Preliminaries
Don't be fooled by link speeds given in GHz. These are the frequencies of the carrier waves, not of the actual bits per second. The carrier wave is modulated in various ways in order to get throughput, which is measured in bits per second (bps) or possibly megabits or gigabits per second (Mbps or Gbps). If someone tells you, "Hey, I've got a 30 GHz link," the actual throughput of that link may be far less, or sometimes even more if a certain percentage of errors is acceptable.
In 2012, Computerworld reported the fastest microwave shot to be about 150 Mbps. That has now increased to 10 Gbps, with 100 Gbps speeds anticipated in the future. By comparison, a single fiber optic strand can carry up to 200 Gbps, and the modulation methods continue to improve. Fiber optic cable bundles can contain hundreds or even over a thousand individual fibers. Currently, nothing in production beats a fiber bundle for data carrying capacity over long distances.
If you're wondering why companies want to use lasers as opposed to the more conventional microwave systems, there are several reasons. Lasers are not regulated in the frequency spectrum and do not require the same kind of expensive and sometimes unavailable licenses as most radio or microwave frequencies. Although laser power can be limited through country-specific or state-specific laws, "harmless" lasers (so-called Type 1) can usually be used freely; sometimes, more powerful ones can also be used. Finally, lasers can carry huge amounts of data. Problems associated with laser use for communications are: weather, distance, and aiming.
The potential for laser communications between satellites was demonstrated by the European Space Agency (ESA) in 2001 at 50 MHz with "extremely high accuracy," clarified further as bit error rate 10-9 to 10-10. This means on average only one bit error in more than a billion bits, which is impressive.
The communications took place while one of the satellites was moving at over a thousand mph. However, since a satellite orbit is predictable, it would be possible to calculate the position of the moving satellite with great precision as an aid to laser beam aiming.
Laser communication between satellites and aircraft has already taken place, in 2006.
Astrium, a wholly owned subsidiary of EADS, developed LOLA, a two-way laser optical link between an airborne aircraft and the Artemis geostationary satellite capable of 50 megabits-per-second transmission with an error rate of less than one error bit per billion.
In 2007, another demonstration took place at the Paris Le Bourget airshow. An aircraft in the south of France communicated with Le Bourget on a path that included a laser link between the aircraft and a satellite.
There is ongoing progress in many aspects of free space optics (FSO). It is difficult to predict whether ABWN will be able to obtain additional patents in this area for its specific concepts.
The Iridium Story
Wireless broadband networking is decades old, so the technology is definitely feasible. A similar albeit more limited model would be the Iridium network of low-Earth-orbit (LEO) satellites. Some of the Iridium patents are likely due to expire soon, as is the initial patent for the ABWN concept, although ABWN (and others) have filed for related patents.
The Iridium satellites are in polar orbits spaced 30 degrees apart, with 11 satellites in each path. The satellites communicate with four "microwave" links in the Ka band: one to the next forward, one to the next aft, and one each to satellites on either side (but only when going in the same direction).
Iridium is a working system, despite a rocky start. Its previous intersatellite link speeds, whatever they were (I was unable to locate that info), are reportedly being enhanced in the next generation. "Cross-link communications occur at a data rate of 12.5Mpbs, half duplex." Half duplex means that each data channel goes in one direction only, with two channels needed for send-receive communications between satellites (just a technical detail).
If the above report is correct, 12.5Mbps is not very fast in the modern world. It's fine for voice communications and limited data transfers, but clearly, this isn't going to be an Internet backbone with streaming video worldwide. Hulu recommends 13 Mbps for 4K Ultra HD streaming, and that's just for one channel.
In most cases, Iridium receives voice or data from the wilderness at a satellite and then promptly passes the communication to an Earth station for onward transport terrestrially. I was unable to discover the current locations of the Earth stations, the average number of "hops" between satellites before the signal goes to Earth, the data rate (bits per second) for communications between satellites and Earth stations, and how many satellites the stations can "see" and communicate with simultaneously. Therefore, I can't estimate how much spare bandwidth might be available in bulk for point-to-point "leased lines." But it's not much.
Iridium has its purposes, but providing wholesale bandwidth across the world isn't one of them, in my view, so there is definitely an unfilled niche in this area. However, the Iridium system has a bushel basket full of patents, and it is not clear whether ABWN's patents - both issued and pending - can withstand intense scrutiny and possible challenges.
Could Iridium buy out ABWN? I consider that unlikely, because the business model is so different. Iridium is basically a retailer of communications between isolated locations and the telephone system or the Internet, or from one isolated location to another. It isn't currently a bulk bandwidth provider.
Competition
Very big players are getting involved in the sky-based Internet arena. Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is experimenting with balloon-based links, known as high altitude platforms (HAP), in a project called Loon. Loon balloons fly in the stratosphere far above the level of most commercial flight paths, but it seems like quite a stretch to envision thousands of HAP balloons spread around the world as a broadband relay system, unless the balloons have propulsion systems to keep them in place. The logistics would be intricate, and there are many safety issues to deal with. I view Loon as having a limited scope that does not compete with ABWN, but I may be underestimating this approach.
Facebook (NASDAQ:FB) has its Aquila project, whereby solar powered drones fly in the stratosphere for months at a time, but the Earth footprint radius is reported as only about 30 miles. The important thing about Aquila is the following, "Our optics team has designed and lab-tested optical transceivers that improve upon the state-of-the-art by approximately 10x, to data rates in the tens of Gbps." The distance these Gbps can traverse is not given, however.
Aquila competes head to head against ABWN in terms of technology, given the envisioned wideband laser inter-drone connections. One difference is that ABWN proposes to sell wholesale bandwidth, while Facebook/Aquila wants to bring Internet to the world. But bringing Internet to the world costs money, and what better way to pay for it than to provide "leased line" capacity as well?
SpaceX and OneWeb already have approval for launches of constellations of LEO satellites like those of Iridium, whose missions may include provisioning of wholesale bandwidth in addition to Internet. The SpaceX Starlink system, is slated eventually to have over 12,000 LEO satellites operating in two separate tranches of altitude, using two different licensed frequency bands. OneWeb proposes about 700 satellites in a similar system.
The initial roll-out of SpaceX (see previous links) projected carrying "up to 50% of all backhaul communications traffic." In theory, this would leave the remaining 50% of backhaul up for grabs by companies like ABWN, but remember that a big chunk of bandwidth travels over terrestrial links (microwave or fiber), that SpaceX now seeks to launch more than twice the original number of satellites, and that there are other companies with proposed LEO and geostationary satellites that are competition to ABWN.
LEO satellites overcome a significant disadvantage of geosynchronous satellites that remain in orbit "stationary" over the same ground, about 22,000 miles up, which is the unavoidable delay in the speed of light transiting a long distance. It takes light about 1/4 second round trip from the Earth to a geosynchronous satellite and back. For transmission protocols that involve acknowledgments, this can be problematic. Although there are various special protocols and methods to mitigate this problem, the unavoidable delay precludes true "real-time" operations needing near-instantaneous exchanges.
You may have sometimes encountered an annoying delay on overseas phone calls, where the other party seems to wait a short time before answering. This usually means that the signal is going through at least one geosynchronous satellite. The delay from these up-down links can even cause problems in certain fax machines, when the "acknowledgment" takes too long to arrive and the transmission times out. Ironically, some older fax machines with lower speeds and longer wait times, would work better.
LEO satellites travel several hundred miles about the Earth, so the time it takes light to reach them is only a small fraction of the geosynchronous delay. LEO delays are acceptable for most applications.
It is possible to envision certain ongoing requirements (apart from multi-player video games) for near-real-time response - such as a doctor in the U.S. performing an operation on a patient in rural Africa via robotic remote control - but these scenarios are rare. If ABWN were trying to compete in this niche alone, it doesn't seem worthwhile financially. To succeed, ABWN must demonstrate that its approach is more cost-effective than its competitors in delivering wholesale bandwidth to big users.
Capacity requirements are increasing at incredible rates, but I don't see enough demand to justify the simultaneous existence of LEO satellites, Loon balloons, Aquila drones, fiber optic cables, terrestrial microwave links and ABWN in the same general market arena. There's too much overlap, and the capital expenditures of each approach are very large. There will be winners and losers.
Leased Lines And Dedicated Bandwidth
The history of the Internet and its current "core" holders is fascinating but is not relevant to ABWN. From a map of major Internet physical links, it appears that much of the United States lacks fiber optic access to bulk data capacity.
It is not easy to unearth estimates of actual and projected demand for dedicated "wholesale" bandwidth in rural areas. Much information of this nature is discussed in scholarly journals with paid subscriptions. It does seem clear from research by Cisco that a large proportion of Internet traffic growth will be video. How recent changes in net neutrality policies will affect video streaming is not yet known; the matter is under litigation.
ABWN History
Many might regard ABWN as similar to Facebook in the context that thought up in a dorm room and destined for greatness. I don't share that view.
ABWN started out a few years ago as a tiny Nevada company in a completely different business: creating an online store for specialty products for the disabled. In its May 2015 quarterly report under the name Ample-Tee (possibly a marketing variant of the term "amputee"), the company made the following disclosures:
We have not earned any revenues from our incorporation on January 5, 2011 to May 31, 2015. We do not anticipate earning revenues unless we fully implement the business plan to distribute ergonomic products. We have not begun the development of our business and can provide no assurance that we will be successful in developing our distribution operations in the future.
As of the fiscal quarter ended May 31, 2015 we had $77 of cash on hand....
We have not attained profitable operations and are dependent upon obtaining financing to our proposed business of on-line ergonomic product retailer. For these reasons our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Our current cash holdings will not satisfy our liquidity requirements and we will require additional financing to pursue our planned business activities....
There is substantial doubt if we can continue as an on-going business for the next twelve months unless we obtain additional capital. No substantial revenues are anticipated until we have completed the financing from this offering and implemented our plan of operations. Our only source for cash to be used to implement our business plan at this time is investments by others in this offering. We must raise cash to implement our strategy and stay in business....
Management believes that if subsequent private placements are successful, we will generate sales revenue within the following twelve months thereof. However, additional equity financing may not be available to us on acceptable terms or at all, and thus we could fail to satisfy our future cash requirements.
Then, the company changed directions and decided to embark "out of the blue" on a grandiose plan for the broadband networking of aircraft in flight. It bought a patent slated to expire soon and began to promote its plans for this network, including buying television ads. A near-poetic description of the company by a third party analysis firm, documented in the ABWN February 2018 quarterly report, is well worth the read:
It was determined that the intellectual property had nominal current value because (i) the patent had fewer than three years left until expiration, (ii) management projections indicated approximately $582.8 million in capital was required to bring the proposed products/services to market, (iii) the Company, as of the valuation date, had no revenues, a limited business plan, no committed source of funding, a limited workforce and other limitations and (iv) the Company had limited or no contracts in place for personnel, customers or vendors to implement its business plan.
Now, I don't question the sincerity of the company principals (although some might). The executives may genuinely believe that they have the market cornered through their patent, and it could well turn out that the big players would prefer to buy out ABWN for a large premium rather than risk a protracted patent dispute. But this latter method is the only way I see ABWN actually making money, and in far too many such cases the big money ends up going to the executives, one way or another: stock options, golden parachutes, jobs with the new company, consulting fees, you name it.
The ABWN Plan
ABWN is now trying to use a "hybrid" method of communications between airlines, a combination of microwaves and lasers. They have partnered with a startup company in Germany, Mynaric (previously Vialight), whose founders have good scientific credentials.
By the way, Mynaric is publicly traded in Europe, and if they succeed in this development effort, their product may have a broad market far beyond just ABWN. However, Mynaric is a small company and faces the same issues with potential secondary offerings and share price dilution as does AWBN. Being early to the investment party with either of them could be an unpleasant experience.
But back to hybrid communications. This is a valid approach. Certain ranges of microwave frequencies can penetrate fog and clouds without undue disruption, and certain lasers can similarly penetrate rain. Moreover, microwaves and GPS locator information could be used for "coarse" targeting between planes, followed by finer manipulations by precision servomechanisms to achieve linkage via lasers. Keep in mind that only the larger planes fly in the stratosphere, above most of the clouds and bad weather, but there are many such aircraft.
USA Today reports that there are about 76,000 flights per day in the U.S. and vicinity. The site has a video of commercial flight paths.
Envision a line of planes going in the same general direction along designated flight paths, either coast to coast or internationally. Although the altitudes may differ somewhat, the relative speeds differences are not enormous. The change in aiming angle of laser links among such planes as they fly is not rapid, so apart from turbulence and maneuvering, aiming a laser with reasonable stability should be feasible. It remains to be seen what distances and data rates are achievable.
Similar to Iridium's approach, it would be possible for planes flying over rural areas to form a relay hop between a rural ground station and a fiber optic gateway, delivering huge data capacity to that ground station without the prohibitive expensive of running fiber for perhaps hundreds of miles. As long as there were planes continuously within sight of each other to prevent any break in service, it could work.
The formula for line of sight distance in miles to the horizon is about 1.2 times the square root of the height in feet. For a plane flying at 30,000 feet that's just over 200 miles to the "horizon." But for two planes flying at 30,000 feet, we can nearly double that distance, although the line of sight over very long distances doesn't stay in the stratosphere as it nears the horizon, so weather becomes a factor.
Clearly, there are enough planes flying at enough times to cover much of the United States, if not through laser links, then certainly through microwaves - assuming licenses could be obtained for the frequencies. Unlicensed frequencies have power restrictions that limit distances.
It all sounds fine, but can it compete effectively with LEO networks? SpaceX has brought costs down by reusing portions of launch vehicles. Economies of scale would dictate that a single large satellite with multiple laser or microwave links could be more cost-effective than multiple smaller units on aircraft. Also, satellites don't have to worry about clouds blocking their lasers on intersatellite links (ISLs). On the other hand, satellite launches are much more costly than putting a laser on a plane.
How much more costly? We don't know at this time, because the ABWN devices aren't yet in production at Mynaric. The only cost information I was able to find is from an analysis by Edison Investment Research that said, "We calculate that a cluster of 250 airborne communications platforms could need €125m of Mynaric’s equipment, a constellation of 100 small satellites - €100m."
If Edison's projections are accurate, which remains to be seen, then we get €125m times the exchange rate of 1.21 dollars per Euro equals about $151 million divided by 250 planes equals around $600k per plane. That's expensive, but could it still be cost-effective?
I don't think so. In my view, the LEO networks win.
Other Issues
A major "unknown" in the analysis is the data capacity of the inter-airplane (and inter-satellite, for that matter) links. It makes a big difference whether we're talking 155 MHz like a recent Google Loon HAP experiment, or the multi-Gbps speeds envisioned by Mynaric and Aquila.
However, even at sub-Gbps speeds, ABWN and its competitors appear to be much cheaper than "leased line" costs for dedicated bandwidth, the monthly cost of which, in one example, is a fixed amount plus a price per mile of about $4 (depending on distance) for a DS3 (aka T3), which is 45 Mbps. Caveat: the cost varies greatly, depending on whether there is available fiber optic or other connectivity in the area. In remote areas, the expense is prohibitive, and this is the market that is most promising for sales of wholesale wireless bandwidth.
Note that Internet "bandwidth" is not the same as dedicated bandwidth. If you have a 25 Mbps download from an Internet provider, this doesn't mean you'll get the full amount all the time. It means that this is the maximum you can get. As long as the demand from the many users is sporadic, you'll likely have good throughput, but if everybody is watching a HD movie at the same time, there might be interruptions. The "backbone" of the Internet is dedicated bandwidth, with the full amount constantly available, and that's what ABWN wants to sell.
Some technical questions arise about the details of the ABWN project. If the planes are supposed to be linked together, doesn't that imply that there will be several small radomes per plane, not just one? Where will they be located? A single radome on a plane can't cover the whole 360 degree span both above and below the aircraft. If the planes link their bandwidth to ground stations, how will that be done? Those earthward signals must go through the cloud cover. These details are important in bringing a prototype concept into production.
Geostationary Satellites Redux
In the grand scheme of bulk data transfer, let's not forget the geostationary satellites. In addition to satellite television carriers, several companies provide satellite Internet, including Viasat (VSAT), a publicly traded firm, with a claim of 140 Gbps of Internet throughput.
That sounds like a whole lot of throughput. It wasn't clear to me initially whether 140 Gbps is the actual continuous pipe capacity or just the amount of shared Internet capacity that can be, or has been, sold to users. If the former, this is a stunning achievement. If the latter, not so much.
However, we see that it is the former, based on the specifications for a similar satellite, the Eutel KASAT, which has 82 Ka-band spotbeams connected to ten ground stations, "taking total throughput to beyond 90 Gbps and making it possible to deliver Internet connectivity for more than one million homes, at speeds comparable to ADSL."
Given this performance by geostationary satellites - the launch of which can be expected to continue until the available orbital "slots" are full - and the impending proliferation of LEO satellites as well, is ABWN's concept both viable and cost-effective? Not in my view.
Miscellany
A tangential aspect of the market is government subsidies for rural broadband development. If available to companies like ABWN and others, such subsidies could be a significant addition to revenues.
There are some potential game changers for broadband awaiting implementation. One of these is the Artemis Research (no relation to the Artemis satellite, mentioned earlier) concept of reworking cellular phone systems to carry vastly more data. If this works, it could mean an abrupt explosion in the demand for broadband links by cellular providers. In major cities, this demand could likely be met by fiber optic infrastructure, but in areas without fiber, there could be enormous opportunity for any wholesale bandwidth provider, including ABWN.
Far-Fetched Possibilities
One option that has not yet been discussed, and in my view is not likely, is that it might make sense for ABWN to partner with SpaceX or OneWeb. If airplanes can communicate with each other and with the ground, they can also communicate with satellites.
One might ask why it would be necessary to have planes involved, since LEO customers will be able to reach the satellites directly. There are several advantages to having aircraft involved.
A major plus is the data rate. A plane can reach a satellite via laser, above the cloud cover. LEO customers will probably be limited to microwaves, with restricted bandwidth and power in the license. In theory, the LEO network could supplement its mesh using the planes - or drones, or balloons, for that matter - so this doesn't apply just to ABWN.
The planes could possibly also use the same microwave frequencies licensed to the satellites, which could increase the LEO satellite network throughput via these airplane-based links. Whether all this is technically feasible, and whether the additional bandwidth would be useful and cost-effective for the LEO company, are open questions.
Now, let's take this one step further, having come this far. Artemis, mentioned above, has a concept called the p-Cell. The p-Cell is a method of greatly increasing cell phone tower capacity and signal quality by using software-defined radio (SDR) controllers with multiple transceivers to synthesize wave patterns that reinforce around each individual smartphone as it moves, creating an individual channel that has far less interference than conventional cell tower signaling methods. Artemis, like ABWN, is a company that is still in the development phase.
Suppose SpaceX were to partner with ABWN and Artemis to have planes participate in p-Cell technology, functioning as moving cell towers. Since p-Cell transceivers can be located anywhere, and since the p-Cell software can adapt to moving customers, it should not be difficult to make that software adapt to transceivers that also move. This would be environmentally friendly; fewer new cell towers would need to be built. Since the concept has now been publicly described, it may no longer be patentable overseas, so other players could enter the arena as well.
Ideas like these may be far-fetched, but it wouldn't be the first time that an unusual twist has changed the financial destiny of a company like ABWN.
Conclusion
The bottom line is that the ABWN concept is feasible, but it is unlikely in my view that this particular company will achieve their goals, regardless of the degree of sincerity of the principals in the firm. The magnitude of this undertaking seems beyond the reach of this small group of entrepreneurs, who plan to design, configure, finance, test and bring to fruition a competitive global communications network on a mammoth scale.
Moreover, even if the company does succeed, the early retail investors may be devastated by future secondary share offerings (leading to dilutions), reverse splits, stock options and warrants given to directors, high salaries for the principals, adverse mergers or other measures which, while legal, might be potentially unfavorable to current shareholders.
If one is inclined to invest anyway, it would seem prudent to wait for what I view as an inevitable massive new round of financing. One might thereafter possibly pick up the stock at a much lower price as money is shifted from share price onto the balance sheet in the form of new equipment and working capital. Do your own due diligence.
Recall that a third party analyst figured ABWN needed half a billion dollars to realize its business plan. A secondary offering for a much smaller amount could be only the first in a sequence of dilutions until enough capital is raised.
ABWN may have come up with a better mousetrap for data communications, but unfortunately, it seems that most of the electronic mice have already been caught in other ways.
Given the complexity of the technical issues surrounding the ABWN's business plan and the ongoing, rapid improvements in communications technology, anyone contemplating more than a small, speculative play on this stock should consult experts in the communications field before investing. ABWN television commercials may be harbingers of a stock "home run," but they may also be a siren song - which in my view, alas, is more likely.
