SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among the companies expanding 5G and fiber infrastructure. We look at why they are compelling and why each could be a fit for a blank-check merger.
Wherever the money is headed, SPACs like to get out in front of it. In the case of telecom infrastructure, a wave of investment is headed into expanding access and improving existing networks, particularly in 5G and fiber optic lines.
While these two technologies, which each bring internet, television and other data access to customers, compete in some aspects, they are also complimentary as each has gaps in who they can serve efficiently. For the moment, fiber broadband has set the mantle for the speediest internet access, but 5G in theory can bring similar speeds with lower investment in infrastructure.
5G has its own limitations, however. Each 5G station has a range of about 330 feet but can be blocked by obstructions like buildings, trees or large moving vehicles. On the other hand, fiber can reliably provide coverage to areas once installed, and legacy lines with slower speeds can be somewhat cheaply upgraded as compared to greenfield expansion.
In the end, 5G is cheaper upfront, but operational costs for fiber, once installed, are five times lower than 5G, meaning they’ll both probably be around in some form. The companies doing the installing are hardly going to be footing the whole bill in any case. The FCC has pledged to grant $20 billion to companies expanding broadband access to rural areas in the US and both the EU and UK are pouring similar largesse into paying network companies to expand themselves.
But, while the focus among urban planners and conspiracy theorists alike have been on the terrestrial installations of this technology, 5G and fiber are expanding on land, water and in space.
Because it is frankly the most fun, let’s start in the cosmos.
Omnispace is working to put a constellation of non-geostationary satellites into orbit to provide a blanket of 5G over the world. This makes it in some ways a direct competitor to SPAC-listed AST SpaceMobile (NASDAQ:ASTS), which is set out on a similar vision. AST provides a positive comparable in terms of valuation and price performance – it has glided mostly above $10 since the transaction’s April close and closed Thursday at $11.03
But, the two also seek to serve very different markets. While AST aims to bring cheap orbit-based broadband to the world with an early focus on the developing world, Omnispace has a few big clients in mind. Headquartered in Tysons, Virginia, Omnispace has remained close to the halls of US power and is vying for a number of government and defense contracts.
Its orbital 5G network has successfully supported tactical military communications in tests and it is collaborating with Lockheed Martin (NYSE:LMT) to create a dual-use civilian and government orbital 5G network. This could make for a similar path that the GPS system took in its own deployment and a global 5G network could take on the same vital nature as that system for the operation of all sorts of commercial, civil and military applications.
For SPACs the pitch to investors would be fairly simple, “Would you like to get in early on the next GPS?” Omnispace will not be without competitors, but the player that gains the most forceful US government-backing will have a mighty wind at its back.
But, as Major Tom reaches out to Ground Control, infrastructure needs and opportunities can be found there as well.
Since its founding in 2010, Gigaclear has rapidly expanded its infrastructure through 22 of England’s 48 counties, focusing on delivering fiber connections to rural areas in the south of the country. It aims to reach 500,000 premises by 2024 and offers both homes and businesses just under 1 gigabit of speed including in some areas that have no broadband alternatives.
It has focused on a model that sees it build the infrastructure which can be wholesaled out under a number of different brands. However, its own direct customer service sees it offer 900Mbps connections for £49 (about $67) including wifi hardware, which would make for a competitive price in US markets.
The company’s rollout has been boosted by the UK subsidies, but it has also not raised outside capital since 2018 and could potentially put SPAC cash to work filling out the rest of the geographical white space in Britain more rapidly. Its 2018 raise saw private equity firm Infracapital expand its position to a majority stake and now three years in would likely pick up the phone for offers.
There are likely to be a fair amount of SPACs on the other end of the line with Rocket Internet Growth Opportunities Corp. (NYSE:RKTA) likely to be among them. It is backed by Berlin-based venture capital firm Rocket Internet whose 200-company portfolio of internet technology companies has reached a cumulative valuation of about €30 billion.
Fiber infrastructure is not just a land-based concern, however. Going back as far as the telegraph, there has been a need for undersea connections to bridge continental networks.
Subcom manages enough underwater fiber optic cabling to stretch around the world 17 times serving markets on every continent. This is the sort of infrastructure that will be necessary to support broader fiber adoption on the ground and a number of strategic investors have taken a part in pushing further deployments.
For its part, SubCom has partnered with Google (NASDAQ:GOOGL) for a number of intercontinental cable connections. The New Jersey-based company has previously worked in collaboration with TE Connectivity (NYSE:TEL) and Ciena (NYSE:CIEN) before being acquired by Cerberus Capital Management in 2018 for $325 million.
Since then, the demand for higher speeds and better internet infrastructure has only increased and the underwater cable operators are set to collect lucrative tolls now that their high initial capex has already been spent.
As SPAC partners go, there are obvious partners in its backer’s own vehicle Cerberus Telecom Acquisition Corp. II (NYSE:CTII.U), which has filed to IPO but not yet listed. But, the firm also has plenty of other contacts among SPACs that may be want to take first crack as well. Cerberus’ first SPAC completed its combination with KORE Wireless in September, which hit a post-transaction low of $6.28 in the wash phase but has since recovered to a Thursday close at $7.29.