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The following segment was excerpted from this fund letter.
NextNav Inc. (NASDAQ:NN) is our owner of wireless spectrum that is building a next-gen GPS system which is presently not economically viable.
In April, NextNav filed a petition with the FCC asking to swap their existing owned spectrum for similar but contiguous spectrum, and then to repurpose this spectrum for use with 5G. This 5G spectrum could then be monetized by some sort of partnership or lease agreement. It is impossible to handicap how this process will play out, but examining the pieces on the chess board suggests that it is highly likely that NextNav’s petition will be granted in one way or another in the not-too-distant future.
In brief, the present GPS system has serious shortcomings. This has been known for years, but has become a higher priority issue as the conflicts in Ukraine and Israel/Gaza have demonstrated that the existing, satellite-based GPS system can be easily hacked, spoofed, or otherwise tricked. Additionally, it is no secret that Russia and China have been developing “satellite killing” missiles that could destroy the global GPS system – or that part of it covering the U.S. – in a conflict.
The GPS system is not only responsible for powering Waze and other apps that make daily driving easier. It also powers the clocks that tie together the power grid and the financial system, allows for precision agriculture and weather forecasting, and is the backbone of emergency response systems. Essentially, every agency that relies on GPS is anxious to see the development of a backup system, but – unsurprisingly – none of these agencies want to pay for this system.
As such, it is my belief that all of these government agencies are leaning on the FCC to engage in a horse-trade with NextNav whereby the FCC will grant NextNav 5G spectrum which can be monetized in exchange for NextNav continuing to develop their next-gen GPS system. This appears to be a win-win-win as the assorted Government agencies get an alternative to GPS, the FCC would be able to take a step toward its goal of freeing up 5G spectrum, and NextNav would have the cash flow and/or balance sheet to continue developing its next-gen GPS.
Between the unknowable timeline of the FCC process and the unknowable form of a future NextNav monetization / partnership plan, there is a lot of uncertainty here. However, two things do appear certain:
- the laws of physics say that nobody is inventing more spectrum
- as long as the world consumes more data, the value of spectrum will go up over time. According to Ericsson’s (ERIC) Mobility Report, in 2023 the average North American smartphone used 26 GB of data per month versus 17.4 GB in 2022, and mobile data traffic will triple between 2023 and 2029.v
Spectrum is typically valued on a MHz-pop basis, where the value of the spectrum is determined by multiplying the size of the spectrum by the covered population. Assuming NextNav’s FCC petition is granted and the company is able to monetize 95% of the spectrum, at present the Company trades at approximately $0.25 MHz-pop. Past transactions have taken place at many multiples of this number, and at $1.00 Mhz-pop NN stock would be worth ~$30, suggesting that being patient here will be worth it.
Of note, insider and veteran of many spectrum battles Joe Samberg bought shares during the quarter.
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