Englewood-based EchoStar gives up wireless network independence for enough cash to survive

Loaded down with $30 billion in debt and struggling to make interest payments as revenues from its pay television business declined and costs to build out its new wireless network accumulated, Englewood-based EchoStar Corp., owner of Dish TV and Boost Mobile, has been in a financial tough spot for months.

Compounding matters, the Federal Communications Commission under the Trump administration has pressured the company to deploy its large and valuable stash of wireless spectrum licenses, built carefully over multiple years, in a case of use it or lose it.

And it didn’t help when a deal to sell the Dish Network to rival DirecTV, an AT&T subsidiary at the time, for the assumption of $9.8 billion in debt plus the payment of $1 fell apart in late November after bondholders balked at the $1.6 billion discount that would be required of them.

AT&T came to EchoStar’s rescue once again on Tuesday, offering to pay $23 billion in cash to purchase a third of the company’s wireless licenses — located in the 3.45 GHz and 600 MHz range and representing a total of 50 MHz of nationwide spectrum.

That spectrum, however, was something EchoStar needed to build out its Boost Mobile wireless network, which was designed to be a competitor to AT&T, Verizon and T-Mobile. Boost Mobile will now rely on AT&T’s wireless towers rather than its own radio network, making it a hybrid Mobile Network Operator (MNO) rather than an independent wireless carrier.

“EchoStar and Boost Mobile have met all of the FCC’s network buildout milestones. However, this spectrum sale to AT&T and hybrid MNO agreement are critical steps toward resolving the FCC’s spectrum utilization concerns,” said EchoStar chairman Charlie Ergen in a release.

EchoStar remained steadfast in its belief that it could use its wireless licenses, accumulated over multiple years, to build a wireless business, but it has mostly failed to do so, tying up capital and leaving its finances in “tatters,” said Michael Hodel, a stock analyst following the company with Morningstar, in a research note Tuesday.

“However, the decision to sell licenses to AT&T quickly realizes value for shareholders, dramatically reduces balance sheet risk, and opens a new chapter in EchoStar’s development,” said Hodel, who called the move a “step in the right direction.”

Investors breathed a huge sigh of relief, pushing shares of EchoStar from just under $30 to above $55, before the price settled back down to $50.87 at the end of trading. The final gain was 70.25% and the stock, which dipped below $15 a share in June, is now at levels last seen in early 2018.

Even more important, the company’s bonds, which were deeply discounted to allow for a possible default, rebounded strongly as well. Fears of a default have diminished, and the company has bought itself more time.

“This transaction puts our business on a solid financial path, further facilitating EchoStar’s long-term success, and enhancing our ability to innovate and compete as a hybrid network operator. The proceeds of this transaction will be used for, among other things, retiring certain debt obligations and funding EchoStar’s continued operations and growth initiatives,” said Hamid Akhavan, EchoStar CEO and president in a release.

Potential Boost Mobile subscribers who wanted to try the company’s state-of-the-art network but feared coverage gaps or a financial collapse will have more certainty. But they likely won’t get all the bells and whistles that Boost Mobile had hoped to provide as part of a larger deal that paved the way for T-Mobile to acquire Sprint.

“EchoStar’s move from being the 4th independent network operator to a hybrid MNO effectively ends the government’s post-Sprint merger mandate to create a new national competitor. It’ll be up to the cable MSOs (multiple system operators) like Comcast and Charter to take up the mantle as the challengers to the Big Three in the market,” said Roy Chua, founder of AVIDThink, a research and advisory firm specializing in telecom infrastructure technologies.

Chua said the AT&T agreement provides a much-needed cash infusion and gets the FCC off the company’s back. But it marks a setback for market diversity and innovation in Open RAN, a newer and more flexible wireless technology that Boost Mobile was deploying.

“It’s possible that the additional spectrum provides AT&T with enhanced capacity to deploy its Open RAN strategy. However, the large ecosystem of vendors that Boost/DISH had brought together to build its nationwide cloud-native multi-vendor Open RAN network will lose a lighthouse customer,” Chua said.