EchoStar Takes $16.5 Billion Charge, Sells More Spectrum

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(Bloomberg) — EchoStar Corp. reported a $16.5 billion impairment charge and agreed to sell more spectrum licenses to Elon Musk’s SpaceX for $2.6 billion as it works to unwind parts of its 5G wireless network.

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The deal adds to a September agreement that the satellite TV and wireless company inked to sell SpaceX about $17 billion in wireless spectrum. Between that sale and another to AT&T Inc. for $23 billion, which EchoStar brokered under pressure from federal regulators, the company has been forced to give up on becoming a fourth major US wireless carrier as originally envisioned. 

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As a result of the multiple transactions, EchoStar began decommissioning parts of its 5G network that it won’t use, leading to the one-time non-cash charge, the company said in a statement Thursday. 

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The smaller tranche of unpaired AWS-3 spectrum sold to SpaceX, left behind in both of the previous sales, was listed by EchoStar in a previous filing as having a carrying value of $9.8 billion. The sale price was “roughly 28% better than we expected,” at roughly $1 per share of additional after-tax value, Michael Rollins, an analyst at Citigroup Global Markets, wrote in a note. 

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As part of the company’s ongoing transformation, EchoStar co-founder and Chairman Charlie Ergen will step in as chief executive officer. He takes the reins from current CEO Hamid Akhavan, who will head up a new investment unit charged with putting the capital from the spectrum sales to work fueling future growth, the company said.

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“EchoStar will soon be in the unique position of having substantial available capital, vastly changing its scope of opportunities,” Akhavan said. “Through EchoStar Capital we will fuel EchoStar’s growth into new and complementary arenas, beyond its successful pay-TV, wireless and enterprise business units.”

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The shares slid 1.1% in New York as trading got underway on Thursday. The stock has gained more than 200% so far this year. 

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The new capital unit “may reduce the magnitude and extend timing for possible capital returns to shareholders,” Rollins noted. The shares could also “trade lower near-term if there is greater uncertainty or longer duration on the prospects for SATS to return capital to shareholders.”

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After more than a decade and tens of billions of dollars spent trying to build a fourth major US telecom carrier, Ergen abandoned that dream earlier this year under pressure from the Federal Communications Commission to put his spectrum holdings to more intensive use. 

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He’s now refocusing his energy on a more modest vision for his satellite-TV and wireless phone empire. EchoStar has struggled under billions of dollars of debt to meet service rollouts mandated by the US government, touching off an investigation by the FCC. As recently as June, EchoStar was considering a bankruptcy filing. 

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Now, Ergen is focusing on operating EchoStar’s Boost Mobile service, with AT&T as its primary network partner. Boost had 7.36 million subscribers as of late June.