Spectrum Race in Space: What LOIs Mean for Satellite Small Caps

When Europe's Telecom Giants Want to Redraw the Sky

One shared document, four signatures, and a share price rise of around four per cent for a US satellite stock: when Deutsche Telekom, Orange, Telefónica and Vodafone signed a letter of intent (LOI) for a possible European Direct-to-Device satellite programme, markets reacted swiftly. AST SpaceMobile (Nasdaq: ASTS) gained notably — despite the company not being named anywhere in the declaration.

This moment illustrates a fundamental dynamic in satellite small caps: geopolitical and regulatory signals can trigger price movements that arrive well ahead of any confirmed contract or commercial operations. For investors seeking to understand this sector, it is worth examining precisely what such a letter of intent actually means — and what it does not.

Direct-to-Device: Why the Spectrum Race Is So Decisive

Direct-to-Device (D2D) is a technology that enables satellites to communicate directly with standard smartphones — without any specialist receiving equipment. That may sound technical, but it carries far-reaching economic and geopolitical consequences. Whoever controls the spectrum controls the infrastructure for universal connectivity, including in remote regions, during disasters, or in areas without mobile mast coverage.

SpaceX, with its Starlink network, has built a considerable lead in this field. The company already operates a live satellite constellation and has obtained or applied for D2D spectrum licences in several countries. The European carriers view this as a strategic dependency they wish to reduce through their own programme.

In their letter of intent, the four telecoms groups stated their intention to take on the ground infrastructure, while a satellite partner — not yet named — would provide the constellation in orbit. It is precisely this open question that catches the attention of investors in companies such as AST SpaceMobile: who will that partner be?

From Spectrum Application to Commercial Use: A Long, Costly Road

The path from a letter of intent to actual Direct-to-Device operations in Europe is complex and capital-intensive. Several stages must be completed:

1. Spectrum coordination and regulation: In Europe, the International Telecommunication Union (ITU) issues frequency licences jointly with national regulatory authorities. A shared spectrum application by multiple carriers is regulatorily unusual and raises competition-law questions that must first be resolved.

2. Partner selection and constellation build-out: A satellite constellation for D2D comprises dozens to hundreds of objects in low Earth orbit (LEO). Construction takes years and consumes capital in the billions. Existing constellations such as Starlink, or the planned European Riviera project, illustrate how high the barriers to entry are.

3. Standardisation and device certification: For ordinary smartphones to be able to use D2D services, chip manufacturers and device makers must be brought on board. This process runs through international standardisation bodies such as 3GPP and requires close coordination with companies such as Qualcomm or MediaTek.

4. Commercial rollout: Revenue generation only begins once licences have been granted, the constellation is operational, and devices have been certified — typically reaching a low single-digit percentage of the total population per month.

For comparison: AST SpaceMobile has announced initial commercial services after years of development and multiple capital increases, but remains far from profitable operations. The company has repeatedly addressed its cash runway — the period for which its liquid assets suffice at the current burn rate — in published company communications. Every new funding round carries the risk of diluting existing shareholders.

Why Price Reactions So Often Precede the Event

The fact that AST SpaceMobile rose by around four per cent despite not being named in the LOI illustrates a typical mechanism in speculative small-cap markets: the market prices in probabilities, not certainties. Investors anticipate that an unnamed satellite partner is being sought — and speculate on the likely beneficiaries.

Similar patterns are well documented in other technology sectors. When the EU announced its Chips Act in 2021, various European semiconductor suppliers rose without any concrete contracts in place. Or in the hydrogen space: every public funding award moved share prices long before a single euro was actually disbursed. The reaction is rational, if sometimes exaggerated — because an LOI does genuinely shift the probability distribution of future scenarios, even if it guarantees nothing.

For investors, this means: the price reaction has already happened. Anyone entering after the announcement pays a premium for the expectation — not for secured value. This phenomenon is known as an "event-driven premium" and is particularly pronounced in satellite small caps, because the sector is structurally capital-intensive and heavily dependent on regulatory outcomes.

There is also a geopolitical dimension to consider: the European push carries strategic significance. Governments have an interest in reducing dependence on US infrastructure providers — a motive reinforced by the war in Ukraine and debates about Starlink's role in that conflict. Political backing can accelerate spectrum allocation, but it can also bring government intervention, data sovereignty requirements, or country-specific regulations.

What This Constellation Means for Satellite Small-Cap Investors

Letters of intent from major carriers are not a guarantee, but they are not mere noise either. They mark a directional decision in a market that is currently undergoing structural realignment. For investors in satellite small caps, several observations can be drawn:

Spectrum is scarce and political: Those who secure frequency licences early hold an advantage that is almost impossible to close through technological development alone. Companies with existing spectrum approvals are structurally better positioned.

Partnerships do not replace balance sheet metrics: An LOI or a cooperation agreement is not revenue, not ARR, and not order intake. Investors should keep these categories clearly separate and examine how long a company's cash will last at its current burn rate — without any fresh capital injection.

Dilution risk remains high: Satellite small caps regularly pass through capital-intensive phases financed by share issuances. Every new share issue reduces existing shareholders' percentage stake in the company — an effect that can be substantial over long development periods.

Total loss of capital is a real scenario: Companies such as AST SpaceMobile are still operating well below the profitability threshold. If funding rounds fail, regulators deny licences, or a strategic partner walks away, the value of a holding can fall to zero. This is not a theoretical extreme scenario but a realistic possibility that must be factored into position sizing.

The European D2D initiative is a relevant signal for the sector's development — no more, but no less. As with any LOI, the rule applies: the gap between intention and execution is wide, and it is in that gap where the question is decided — whether a price momentum translates into genuine fundamental value.

Key Terms for Satellite Investors

Letter of Intent (LOI)

A non-binding document recording the intention of multiple parties to jointly explore or pursue certain steps. An LOI commits no party to anything and is not a contract.

Direct-to-Device (D2D)

Technology enabling satellites to communicate directly with standard mobile devices — without relay stations or specialist equipment. Requires compatible spectrum licences and device standards.

Spectrum licence

A government-issued authorisation to use specific radio frequencies. Spectrum is a scarce resource; licences are granted by national and international authorities and can require years-long approval processes.

Cash runway

The period for which a company's available liquid assets will last at its current monthly expenditure rate (burn rate) — without any fresh capital. A short runway increases pressure to carry out further capital increases.

Dilution

When a company issues new shares, existing shareholders' percentage stake decreases. For capital-intensive small caps in the development phase, dilution across multiple rounds can be substantial.

LEO (Low Earth Orbit)

Low Earth orbit at approximately 200–2,000 km altitude. LEO constellations offer low signal latency but require many satellites for global coverage and are correspondingly capital-intensive.

Book-to-bill ratio

A metric used in the defence and aerospace sector: order intake divided by revenue. A value above 1 indicates that more orders are being received than fulfilled — a growth signal. Letters of intent are not included in this figure.

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Educational content only, not investment advice. Small caps are highly speculative and total loss is possible.