- EchoStar elected not to pay an interest payment that was due Friday
- It looks like EchoStar is ready to blame the FCC if it’s forced into bankruptcy
- Is it a game of chicken or a soap opera? Maybe a bit of both
Expect another week of turmoil for EchoStar, which skipped an interest payment that was due Friday because it’s hoping to get relief from the FCC within the next 30 days.
The strife comes from an FCC investigation into EchoStar’s compliance with FCC buildout requirements and its use of spectrum licenses, including the 2 GHz band that Elon Musk’s SpaceX wants to get its hands on.
Clearly, FCC Chairman and Musk buddy Brendan Carr has a beef with EchoStar and its chairman, Charlie Ergen. It’s not looking good for EchoStar, but if the FCC’s action leads to EchoStar’s bankruptcy filing – and Ergen seems to be suggesting that’s the case – that’s not a good look for the FCC chair. Whether Carr cares or not, we don’t know.
EchoStar has a 30-day grace period after May 30 before the missed interest payment turns into an “event of default” and if it’s not paid, that would lead to a Chapter 11 filing, according to a New Street Research report for investors on Friday.
“We assume the company is signaling that if the FCC rescinds the latest extension or forces it to share AWS-4, it will file for bankruptcy,” wrote New Street analyst Jonathan Chaplin.
Last fall, the FCC, under the Biden administration, agreed to give EchoStar more time to reach certain 5G network buildout requirements. Carr is now saying that approval was granted behind closed doors and he’s questioning whether the extension should even have been granted.
If he decides to press on, that would likely bring a June 14, 2025, buildout deadline into effect. Any spectrum licenses that haven’t met buildout requirements will then have to be forfeited, triggering a lengthy court process, Chaplin noted. Given how the FCC works, it’s possible that EchoStar sees Chapter 11 as the more expeditious way to settle these differences.
EchoStar vs. FCC in game of chicken
Analysts at TD Cowen see EchoStar’s decision not to make the $326 million payment as another round in the game of chicken that’s being played between EchoStar and the FCC. They point to Ergen's veiled threat to the FCC last week that followed a veiled threat by the FCC two weeks prior.
They consider EchoStar to be a “concept stock,” which is to say that buying the stock is akin to an endorsement of Ergen’s personality and his ability to monetize the treasure trove of spectrum assets he holds versus a more traditional evaluation of the stock.
Ergen owns about 52% of EchoStar and about 91% of the voting rights; his family estate and legacy are tied to the stock. Most investors are aware of the lore about Ergen, a former professional poker player known for his frugality.
“Money means nothing to him,” the TD Cowen analysts wrote in a May 30 note for investors, noting that he reportedly has second-hand furniture in his office, doesn’t fly first class and at one point insisted on personally signing company checks for more than $100,000. “In other words, Mr. Ergen will not be bullied and the FCC has nothing to threaten him with.”
While the FCC presumably wants to see a fourth wireless carrier succeed after the 2020 T-Mobile/Sprint merger – and Carr voted for the transaction that included Dish Network’s purchase of Boost Mobile – the problem for EchoStar is it may have overplayed its tactics, as policymakers have “written off” EchoStar as the promised fourth carrier, according to the TD Cowen analysts.
“Thus, if EchoStar threatens to impede its own wireless business, and the valuable spectrum will take years to transfer to the Big 3, the FCC may take a stance of ‘at this point who cares.’ After all, the FCC letter two weeks ago was essentially threatening EchoStar’s existence anyway,” the analysts said. “It seems for EchoSar this is ‘cutting your nose off to spite your face.’”
No meeting with Carr
Interestingly, Ergen met with FCC Commissioner Nathan Simington on May 19 to discuss, among other things, how any FCC action to undercut EchoStar’s ongoing Open RAN 5G network deployment would undermine efforts by the Trump administration and the commission to support the American people, according to an ex parte filing.
“Obviously, EchoStar requested a similar meeting with Carr as well and presumably, Carr declined,” noted New Street policy analyst Blair Levin in a May 30 report. “There can be multiple explanations for Carr turning down the meeting request, but the most likely explanation reflects a negative sign for EchoStar in terms of the outcome of the proceeding.”
The TD Cowen analysts noted that EchoStar sits on $5.4 billion of cash and generated $400 million of free cash flow in Q1. It also owns potentially $60 billion worth of spectrum, about $20 billion of which is unencumbered.
“Stating the obvious, EchoStar can very easily make the interest payments and other interest payments in the debt stack, now and for the foreseeable future,” even though EchoStar claims it cannot, they said. Ergo, it’s a negotiating tactic.
“How this saga unfolds remains unclear, but it comes down to who has more to lose, which may be EchoStar at this point, in which interest payments will be made by day 30 but the point [was] made that a default is not a threat to Mr. Ergen,” they concluded.
The next round of FCC comments in the EchoStar proceeding come due Friday, at which time we might have a few more clues as to where this saga is going next.