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Just 18 months ago, US satellite TV company EchoStar was on the verge of a messy bankruptcy. Now, it is literally riding a rocket ship. On Monday, EchoStar agreed to sell $17bn of mobile phone spectrum to Elon Musk\u2019s aerospace company SpaceX, with half the payment in SpaceX\u2019s unlisted shares. A once shaky investment just became an unlikely way for regular investors to bet on Musk\u2019s interstellar ambitions.<\/p>\n
EchoStar, founded by telecoms wildcatter Charlie Ergen, had only recently dumped another large chunk of spectrum via a sale to telecoms company AT&T. That reflected Ergen\u2019s realisation that there was little point trying to take on the giant US operators, who have been more adept at creating large-scale mobile offerings. Capitulation has proved incredibly profitable: at $23bn, EchoStar\u2019s market capitalisation has nearly tripled in two weeks and its tens of billions of dollars in once-distressed debt now trades around face value.<\/p>\n
The politics of the deal aren\u2019t simple: it will require the sign-off of the US Federal Communications Commission. That agency chastised EchoStar earlier this year for being tardy in turning its $40bn of spectrum purchases, amassed over decades, into a viable mobile network. Back then, Musk was a close ally of the White House, something that no longer looks to be the case.<\/p>\n
Still, the SpaceX founder and Tesla boss has the will, and the sway with outside providers of capital, to put his new prize to work. The specific type of spectrum sold to SpaceX ought to enable the company\u2019s satellites to deliver connectivity direct to customers\u2019 cell phones in places where service isn\u2019t otherwise available. The goal, according to SpaceX president Gwynne Shotwell, is to \u201cend mobile dead zones\u201d. <\/p>\n
For Ergen, it must be slightly galling to spend a lifetime in pursuit of revolutionising US telephony, and then end up ceding the commanding heights to a next generation entrepreneur like Musk. Still, it\u2019s the latter who now looks best positioned to challenge the oligopoly consisting of AT&T, Sprint and T-Mobile. <\/p>\n
And while EchoStar the mobile network may have failed to gain traction, EchoStar the spectrum wheeling-and-dealing machine has at least paid off financially. Ergen\u2019s next move might be to revive the expected merger of EchoStar\u2019s dying satellite-TV unit Dish Network with rival DirecTV.<\/p>\n
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Meanwhile, EchoStar will partially become a publicly traded proxy for SpaceX, which is likely to bring in a new class of Musk-chasing investors. In return for its spectrum it will receive shares in the rocket maker for a price equivalent to $212 each, slightly below where they trade on the Forge private exchange. EchoStar is still Ergen\u2019s creation, but as a way of betting indirectly on the world\u2019s biggest \u201cunicorn\u201d<\/a>, it\u2019s Musk\u2019s plaything now.<\/p>\n