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My enemy is my friend. Donald Trump’s phrase in America is catchy, sometimes true, and perhaps an investment strategy. A possible example of this comes from telecom magnate Charlie Ergen.
Echostar, a satellite operator Ergen, founded in 1980, is currently attempting to build a mobile phone network using a specific band of radio spectrum purchased from the US government. Last month, the chairman of the Federal Communications Commission wrote to Ecostal that the regulator planned to consider whether the company is complying with its obligation to provide 5G services.
In the weeks since the letter was sent, Echostar stock has lost almost a third of its value, a decline of about $2 billion. However, FCC reviews may be good news for Echostar rivals who may stand to buy the coveted spectrum if the regulator tries to get it back. Chief among those friends: Starlink, a satellite internet business run by Elon Musk’s SpaceX.
The Trump administration has so far had nothing, if not a deal. So it’s not at all surprising that Echostar’s shares jumped 17% on June 5th. Stocks of Tesla, the mask’s electric car maker, fell 14% with the same token.
Certainly, even independent FCCs could have cases where they challenge Ecosal. Despite receiving the $43 billion spectrum and associated spending, its Boost Mobile service has just 1.3 million subscribers. I’m about to take on AT&T, Verizon, and T-Mobile.
For years, Ergen had hoped that his pay-TV Division Dish Network, part of Ecostal, would spit out enough cash to buy him for a while. However, the satellite video business slowly collapsed. Last year, the total company completed a raise to help complex billions of dollars refinance and capital end the battle with bondholders.
Ergen says current regulatory uncertainty is refrigerating its willingness to continue investing in ecoasters. As a result, he stopped any mandatory payments that were fixed to bondholders. Echostar takes the position that the FCC cannot regain the spectrum the company has acquired quite a bit. If you don’t pay about $500 million in interest by the end of June, that could be something that a bankruptcy court judge would sort it out.
This will determine the company’s property and stock price, largely by what the FCC will do next. The reality is that it’s only an indirect link between Trump and Musk’s friction, but investors were clearly betting last week that Trump’s open hostility towards Starlink owners is positive for his problematic rivals. For at least now, Echostar’s inventory looks like one way to trade in a very unusual White House drama.
sujeet.indap@ft.com
