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The enemy of my enemy is my friend. A phrase that is catchy, sometimes true, and perhaps, in Donald Trump’s America, an investment strategy. A possible example of this comes from telecoms mogul Charlie Ergen.
EchoStar, the satellite operator Ergen founded in 1980, is in the middle of trying to build out a mobile telephone network, using a particular band of wireless spectrum it purchased from the US government. Last month, the chair of the US Federal Communications Commission sent EchoStar a letter saying the regulator planned to review whether the company was complying with its obligations to provide a 5G service.
In the weeks after that letter was sent, EchoStar shares lost almost one-third of their value, a decline of about $2bn. But the FCC review could be good news for EchoStar’s rivals, who might stand to buy the coveted spectrum should the regulator try to take it back. Chief among those peers: Starlink, the satellite internet business operated by Elon Musk’s SpaceX.
The Trump administration has so far been nothing if not transactional. So it’s not totally surprising that EchoStar’s shares leapt 17 per cent on June 5, the day that Musk and Trump, hitherto close allies, engaged in a dramatic online fallout. Shares in Musk’s electric-car maker Tesla, by the same token, fell 14 per cent.
True, even an independent FCC could have a case for challenging EchoStar. Despite taking on $43bn of spectrum and associated expenditures, its Boost Mobile service has just 1.3mn subscribers. It is trying to take on AT&T, Verizon and T-Mobile, which collectively have hundreds of millions of users.
For years, Ergen hoped his pay-TV division Dish Network, part of EchoStar, would spit out enough cash to buy him some time. But the satellite video business has slowly collapsed. Last year, the combined company completed a complex multibillion-dollar refinancing and capital raise to head off a fight with bondholders.
Ergen has said that the current regulatory uncertainty has chilled his willingness to keep investing in EchoStar. As a result, he has stopped making fixed, mandatory payments to bondholders. EchoStar has taken the position that the FCC can’t take back spectrum the company fairly acquired. If it doesn’t pay around $500mn of interest by the end of June, that might be something for a bankruptcy court judge to sort out.
That leaves the company’s fortunes, and share price, decided in large part by what the FCC might do next. In reality, that has only an indirect connection to Trump and Musk’s frictions, but investors were clearly betting last week that Trump’s open hostility towards the owner of Starlink would be positive for his troubled rival. For now, at least, EchoStar’s stock looks like one way to trade on a highly unusual White House drama.
sujeet.indap@ft.com
