Echostar's Spectrum Sale and the Road Forward

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and sixtieth episode of the week with Roger, conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Entner. How are doing, Roger?

Roger Entner 0m22s

Hey. I'm good. How are you?

Don Kellogg 0m24s

Good. So Roger, we're continuing to watch the dissolution of EchoStarDISH and their spectrum assets getting sold off. So far, AWS three and six hundred megahertz were purchased by AT&T. Can you tell us a little bit about what's left and some ideas about who might be doing what?

Roger Entner 0m42s

Well, the most important part is the AWS four, which is like 40 megahertz in the two gigahertz band, which is actually which triggered all of this fight between Elon Musk and Starlink and Charlie Ergen. This kicked off all of that mess by basically Elon Musk saying he's not building this out. Why does he have the spectrum if he's not using it? Right? This kicked all of this mess up.

Roger Entner 1m11s

The most likely buyer of this because it has become so toxic is actually Starlink and Elon Musk. Right? Because who else wants to have a fight with Elon Musk? Like, we're recording this Friday. Last night, there was this tech titan dinner.

Roger Entner 1m29s

Elon was not there, but said that he was invited. So apparently, they're still in he's still back again in the good graces of Donald Trump. I don't know firsthand, but I think he's also in the good graces of Chairman Carr, which also is really critical here, right? So his shadow is like lying over AWS score. Whoever gets this besides him, you know, to deal with his sniping.

Roger Entner 1m57s

And the question is like, do you really wanna do this? When you don't know how this plays out. The other stuff that's still out there is AWS three in some markets and quite a few markets and 700 megahertz in quite a few markets. For AWS three, the most likely buyer is Verizon. And it would be really, really smart for Verizon to buy this.

Roger Entner 2m19s

It would very easily fit into their network and it would close the spectrum gap with AT&T. And then you have the 700 MHz, which somebody will buy, which means somebody either AT&T or Verizon would buy probably to round out the holdings there. And if actually Starlink will buy the AWS for Spectrum, the biggest winner here will be actually T Mobile, because they are the partner of Starlink and they can then create this massive ubiquitous network that runs on 40 MHz AWS and the 10 MHz PCS spectrum. That compares to what AT&T and Verizon are dedicating to AST, which is the guard band of cellular, which is like, what, five MHz, something like that. So it blows like that spectrum commitment completely out of the of the water.

Roger Entner 3m20s

The challenge, as always, is satellite doesn't get into buildings. Right? Or has a really, really hard time getting to building. It gets through the roof, then you need satellite. But if T Mobile comes to like an agreement with Starlink that they are sharing the 40 MHz of AWS-four, that would expand de facto their spectrum portfolio significantly further and cement their spectrum and speed advantage for quite some time.

Roger Entner 3m53s

Interesting. I mean, I think the path forward here with DISH is basically just purely as MVNO now, right? Like doesn't look like they're going to hold

Don Kellogg 4m1s

on to any of their spectrum assets.

Roger Entner 4m2s

Well, the core of the network is AWS four. Without AWS four, they don't have a network. Meantime, they laid off 90% of their engineers. So don't look at what I say, do it as what I do. And if you lay off 90% of your engineering organization, you no longer have an engineering organization and you don't intend to build out a lot more, right?

Roger Entner 4m25s

In a way, that signals to me I'm done. The wild card will be the Department of Justice, but then most importantly, what the state regulators will do. Since this has been basically brokered by President Trump, I doubt that the Justice Department has the gumption to say no. The state AGs, especially from Democratic states, will be the very opposite, right? They will relish the opportunity to put conditions on it, ultimately similar to what they did in the Sprint T Mobile arrangement.

Roger Entner 5m3s

So what we'll probably see is a couple of assurances for consumers, competition. We might see something that protects MVNOs. You know, Peter Arden is very outspoken and I know he's speaking to everybody under the sun about this. And I'm sure they are willing ears to listen to him. But ultimately, you sold a third of your spectrum or something like that.

Roger Entner 5m28s

You laid off your engineering department.

Don Kellogg 5m30s

Well, I didn't realistically I mean, if you look at comparisons across the world, three networks seems to be kind of the sweet spot, right, network operators. And historically here in The US, the fourth operator has always been kind of sickly and, you know, it's it's been different over time. And for a time it was T Mobile was the fourth sickly operator and then it was Sprint was the fourth sickly operator, then it was Boost. It hasn't been a success story for having four network operators for a long long time. And it's not the case that that's a success story in in other parts of the world.

Don Kellogg 5m59s

I mean, there's just an article came out the other day talking about how Rakuten is struggling and Japan is the fourth operator. Right?

Roger Entner 6m5s

Yeah. It's wishful thinking might be a regulatory strategy, but it's certainly not a commercial strategy. And just because academics and quote unquote consumer advocates and regulators want a fourth, and please remember the FCC under Tom Wheeler desperately tried to create a fifth operator. Economics like stare you in the face. You know, economics here is like gravity.

Roger Entner 6m36s

Know, you can argue that gravity doesn't apply to you, jump out of the window and see what happens, right? If you jump a little bit up, then yeah, I can fly, right?

Don Kellogg 6m46s

The only argument here is that

Roger Entner 6m47s

it's just not gonna be fun.

Don Kellogg 6m49s

Spectrum is supposed to be used for public use, it's for public good, right? If you've got a fourth operator that has virtually no subscribers but a significant amount of spectrum, that's not the best utilization of that spectrum for public good as well.

Roger Entner 7m1s

I know we're saying this until we're blue in the face, the network that they built is phenomenal, right? But they couldn't sell their service if their life would depend on it, and their life depended on it. And they lost 2,000,000 customers. It's not like that people were clamoring for this alternative.

Don Kellogg 7m23s

Well, to be fair though, most of those customers were not on the new network.

Roger Entner 7m27s

Well, which was a choice again because they chose not to migrate them over. Right?

Don Kellogg 7m34s

Right. Well, because that would have cost a ton of money to get new devices and all that sort thing. I mean, there's reasons why they did what they did, but I agree with you that it was not a success.

Roger Entner 7m42s

But here's the thing. Most of these customers like recently got activated on AT&T, not on their own network. It's a choice. A lot of these things are choices, expensive choices. People always talk about owner economics.

Roger Entner 7m56s

Yes, owner economics is awesome if you have a full network. It's horrible if you have an empty network. An MNO is high fixed cost, low variable cost. An MVNO is low fixed cost, high variable cost. There is a window where both make sense.

Roger Entner 8m14s

Up to a certain amount of subscribers, it makes a lot of sense to be an MVNO. Is it an easy life? No, not at all. Below a certain point, it doesn't make sense to be an MNO because it doesn't matter if you have one customer or 10,000,000 customers on that network, you know, and Charlie always talked about that he needed 30 or 40,000,000 customers. Well, he got eight on his own and nothing else.

Roger Entner 8m39s

Here's the other thing, This part of the economy and for Charlie, failing means winning. So he owes on EchoStar something like $26,400,000,000.

Don Kellogg 8m50s

Well, I mean, the argument was always that he was spectrum camping and then he was forced to build a network. And now he

Roger Entner 8m55s

has to sell a spectrum and he sells

Don Kellogg 8m56s

it for more than he bought it for. Right? So I mean, it was spectrum camping.

Roger Entner 8m59s

But he didn't he was not forced to build a network. He volunteered to build a network. So let's get this straight. Right?

Don Kellogg 9m5s

Yeah. There were there there were many, many, many many good reasons for him to need to build out a network, right, again public good Yes.

Roger Entner 9m11s

Also it's called, you know, when you buy spectrum, you have a build out requirement. That's kind of the point, right? It's not a financial asset where people should warehouse it and sit on it forever. And in my opinion, and I've said this many times, the build out requirements are too long. Spectrum should be built out in three, four years after auctioning, if even that, right?

Roger Entner 9m32s

Get on with it. And so it's been too long. But here, he's gonna run all the way, laugh all the way to the bank because EchoStar, $26,400,000,000 in debt. He just got 23 from AT&T. The rest of the spectrum is allegedly worth $30,000,000,000.

Roger Entner 9m50s

So you might walk away with $25,000,000,000, right, $26,000,000,000. If I can fail for $26,000,000,000, I would love to fail for $26,000,000,000, right? We're not seeing here a loser unless you think that $26,000,000,000 or whatever $25,000,000,000 is chump change. It's not. Right?

Roger Entner 10m11s

It's life altering wealth. He's a billionaire too. Don't

Don Kellogg 10m14s

think He's already He already has a fair amount of money.

Roger Entner 10m16s

Yeah, I don't think it makes it. I don't think he can it means he will be able to buy a bigger breakfast. I think he can buy the biggest breakfast he wants to buy. But it is what it is. Hopefully the spectrum will go to places where it will be used for the benefit of the American people.

Roger Entner 10m33s

You know, when you listen to what AT&T said at Bank of America and Citi, then you will realize that they said we're going to put this to use as quickly as we can. And that's what we want from Spectrum. Cool. All right, well we'll keep

Don Kellogg 10m49s

an eye on it. I'm sure we'll have another podcast where the sales go through.

Roger Entner 10m53s

Yeah, but our running joke that we will talk again about EchoStar, I think the number of episodes we will talk about EchoStar is numbered.

Don Kellogg 11m2s

Are numbered, yeah, yeah, absolutely.

Roger Entner 11m5s

It is stopping to be the gift that keeps on giving.

Don Kellogg 11m8s

Well, maybe we can start talking about Starlink, we'll see.

Roger Entner 11m12s

That's a good one, yeah.

Don Kellogg 11m14s

All right, my friend, we'll talk to you next week.

Roger Entner 11m16s

Talk to you next week, bye bye.