EchoStar shares closed up 20% on Monday to $80.67/share after it revealed that SpaceX would shell out $19 billion for its AWS-4 and H-block spectrum.
It follows AT&T agreeing to pay $23 billion in cash last month to buy certain EchoStar wireless spectrum licenses. And there’s likely more wheelin’ and dealin’ to come, with EchoStar’s spectrum portfolio containing 21 MHz of AWS-3—real estate that might be especially attractive to Verizon and T-Mobile given that they hold AWS-3 spectrum today. AT&T does as well, but we’re assuming they got what they wanted in their previous deal.
The SpaceX deal also seems to make it clear EchoStar won’t be launching its own low-earth orbit satellite service. Instead, the agreement will allow EchoStar’s Boost Mobile subscribers to access SpaceX’s next-generation Starlink Direct to Cell service. “This transaction with SpaceX continues our legacy of putting the customer first as it allows for the combination of AWS-4 and H-block spectrum from EchoStar with the rocket launch and satellite capabilities from SpaceX to realize the direct-to-cell vision in a more innovative, economical and faster way for consumers worldwide,” said EchoStar President/CEO Hamid Akhavan.
Speaking at an investor conference Monday, Verizon CEO Hans Vestberg said he sees the transaction creating more opportunities for Verizon to do direct-to-cell connections with satellites, especially in areas it can’t build in. “It will just create more opportunities in the market and partners for us to go to. It’s a little bit early to say. But clearly this was in the cards after they sold spectrum to AT&T,” he said.
New Street Research figures that the AT&T and SpaceX deals will leave EchoStar with $24 billion in spectrum proceeds after removing debt repayment, taxes, lease exit costs, etc. Both deals are meant to help EchoStar resolve issues with the FCC. But it’s unclear what happens to the AWS-4 buildout obligations that EchoStar faced. New Street Research assumes it will either be waived by the FCC, or SpaceX will lease the wireless licenses to the big three carriers while retaining the satellite licenses, but adds that “the uncertainty is likely to leave investors wondering whether SpaceX has ambitions to become a fourth mobile network operator in the US. This will weigh on the wireless carriers’ equities.”
Meanwhile, MoffettNathanson is wondering if Charlie Ergen really ever intended for EchoStar to compete as a facilities-based wireless operator. “When DISH Network subsequently bought AWS-3 spectrum in 2014-15, it was either the beginning of Ergen’s ambition to start a network… or simply a ploy to create a higher mark-to-market valuation for the AWS-4 he already owned. It was only much later that DISH Network actually began to build anything at all, and even then it was initially just a ‘narrowband IoT’ (internet of things) network that was explicitly just a placeholder to satisfy FCC buildout requirements,” declared a research note in which the analysts mused they may go to their graves never knowing the answer.
The folks over at Bernstein Research are trying to figure out the economics behind the SpaceX deal. “The typical math around mass adoption of satellite connectivity wouldn’t quite add up. But this is Elon Musk we’re talking about–someone anything but traditional. With access to cheap capital, could he actually scale this?” they ask in their analysis. “The ‘traditional’ perspective finds this hard to imagine, especially in the near-term but we leave the possibility open for the long haul. There is a bigger role for satellite connectivity over time as economics improve, driven by technology, scale, and potentially enabled by cheap capital.”
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