EchoStar goes all-in on satellite broadband as EchoStar 19 nears service
February 3, 2017
PARIS — EchoStar Corp. on Feb. 1 said a cash-free transaction with sister company Dish Network will give EchoStar full ownership of the Hughes satellite consumer broadband business in return for giving Dish the low-growth, low-margin satellite television set-top box division.
Without lifting the veil on a long-promised strategic transaction, EchoStar Chief Financial Officer David J. Rayner said the company still has $3 billion in cash that could be used for one or more satellite-related acquisitions.
“Any transaction would be in the satellite space,” Rayner said. “We could acquire assets, or intangibles in terms of orbital slots, satellite technology, customers and productions, or some combination of all that in multiple transactions or one big one. Or we could be acquired. Where we end up is yet to be seen.”
EchoStar had been rumored to have been studying a global Ka-band consumer satellite broadband network, meaning at least three large geostationary-orbit satellites. That would counter competitor ViaSat Inc.’s plans to ring the globe with three terabit-per-second satellites, two of which are on order and scheduled to launch by the end of the decade.
EchoStar’s hesitation might in part be due to the company’s long experience with regulatory roadblocks that have blocked its access to markets in certain regions, especially India.
EchoStar has taken a small equity stake in the OneWeb constellation of small Internet-delivery satellites, to be put into service between 2018 and 2020. Landing rights in India, China, Russia and elsewhere will be key to OneWeb’s business model.
EchoStar bought Hughes in 2011, becomes Hughes in 2017
What is clear is that EchoStar has become a company whose growth prospects are almost entirely driven by the Hughes division. EchoStar purchased Hughes in 2011 for $2 billion including Hughes’s debt.
Rayner and EchoStar Chief Executive Michael T. Dugan said in a conference call that they are counting on the EchoStar 19 satellite, to enter service in March or April, to provide a renewed growth spurt for the Hughes business.
EchoStar 19, which like EchoStar 17 was built by Space Systems Loral, has more than double the EchoStar 17 throughput and will allow EchoStar/Hughes to capture subscribers who have been turned away because many of the EchoStar 17 beams are full.
The confusion about the divided ownership of the consumer broadband business and the reduced near-term prospects for the set-top-box business had put EchoStar’s stock under pressure.
A satellite broadband play to end ‘personal affront’ on market valuation
“We recognize, and take it almost as a personal affront, that our multiple is so low, and we understand the reasons why,” Rayner said. “Part of it is a low-growth, low-multiple [set-top-box and related assets, now moving to Dish], and there’s a discount for the [Hughes consumer broadband] tracking stock,” which is now being transferred to EchoStar. “By clearing hose two drags on the multiple, we do expect the multiple to go up.”
Dish had an 80 percent interest in the Hughes broadband service’s retail operations through a tracking stock.
The market’s first reaction was positive; EchoStar stock rose about 10 percent in the two trading days following the announcement.
With EchoStar 19 healthy and expected to enter service imminently — and several months before competitor ViaSat’s ViaSat-2 is commercially available — EchoStar’s most urgent need is for a break on launch-service availability.
The EchoStar 23 satellite, to be operated from 45 degrees west as part of a Brazilian license to broadcast Ka-, S- and, most importantly, Ku-band, has been delayed as service provider SpaceX comes off a September failure. The satellite is now expected to launch in late February or March on a SpaceX Falcon 9.
EchoStar is under a Brazilian regulatory deadline to operate the Ku-band service by mid-year. The company had planned to test EchoStar 23 at one orbital slot for three months before moving to 45 degrees. Whether that is compatible with a mid-year in-service date over Brazil is uncertain.
The Echostar 21 S-band, to provide mobile satellite services in Europe under a European Commission license, was under a December 2016 regulatory deadline for the start of service.
Recent indications from the Russian government are that Proton, after the discovery of motor defects, will not be ready to launch until May.
Peter B. de Selding