Ergen Sheds Faint Light on Plans for Newly Acquired DBSD

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PARIS — Satellite telecommunications magnate Charlie Ergen said May 2 his $1.4 billion purchase of bankrupt satellite-broadband startup DBSD North America is not the start of a broader plan to use DBSD’s S-band spectrum to create a terrestrial wireless network.

DBSD, Ergen said, should be viewed as an asset whose existing S-band satellite and U.S. operating license are sufficient for Ergen’s Dish Network and EchoStar companies to create a wireless broadband business.

“This is an acquisition of a company out of bankruptcy. We think we can enhance the product for consumers, but it does not require a build-out terrestrially,” Ergen said in a conference call with Dish Network investors. DBSD, the former ICO, has launched a satellite that covers the whole of the United States.

“It’s up to us to create the product that people are willing to pay for that uses their satellite assets today,” he said. “We’re primarily a satellite company. I don’t want to give the impression that we’re in this terrestrial company that’s going to build out a bunch of terrestrial stuff that we don’t understand.”

Ergen’s two Englewood, Colo.-based companies in recent months have concluded several big-ticket purchases that Ergen said ultimately fit together into a strategy that he declined to disclose beyond saying it existed.

Dish Network has purchased the Blockbuster video rental chain and mass of wireless spectrum and DBSD. Through EchoStar, Ergen has purchased established satellite-broadband specialist Hughes Communications of Germantown, Md., and a large piece of TerreStar Networks, which like DBSD has launched a large S-band satellite and more recently filed for Chapter 11 bankruptcy protection from its creditors.

EchoStar had originally sought to purchase TerreStar outright before deciding on the Hughes acquisition.

“Hughes was a more definitive, less speculative [investment] than TerreStar would be,” EchoStar Chief Financial Officer David Rayner said in a May 2 conference call with EchoStar investors. TerreStar decided after the EchoStar bid fell through to proceed with an auction of its assets, but EchoStar will not be bidding. “We do not have any plans to show up at the auction,” Rayner said, stressing that for EchoStar, the TerreStar holdings are a financial asset to be cashed in.

Industry officials, and DBSD/ICO and TerreStar management, have agreed for years that the two companies, and their S-band spectrum, would be much stronger combined than if pursued as separate businesses.

During the call, Rayner and EchoStar Chief Executive Michael T. Dugan refused to be drawn into a discussion of how EchoStar’s plan to cash in its TerreStar stake fits with Dish Network’s strategy of developing DBSD/ICO as a business. Ergen is majority owner of Dish and EchoStar, which was spun off from Dish in 2008. Be that as it may, they are two separate, publicly traded companies that do not necessarily coordinate strategy, Dugan said.

Dugan said EchoStar’s $2 billion purchase of Hughes is expected to close in the coming weeks following approval of the U.S. Federal Communications Commission. Dish’s purchase of DBSD/ICO also awaits FCC authorization.

DBSD and TerreStar have both been “spectrum plays,” meaning companies whose satellite investments were viewed by Wall Street mainly as necessary regulatory detours on the way to the rollout of a terrestrial wireless network in the United States.

It is a strategy being followed by LightSquared of Reston, Va., and its owner, hedge fund Harbinger Capital Partners of New York. But LightSquared, which has a large L-band satellite in orbit, has had difficulty securing the necessary partners to construct the multibillion-dollar network of ground stations needed to offer a mobile broadband service.

LightSquared is being slowed by a debate over whether its ground stations will cause unacceptable interference with GPS positioning, navigation and timing satellite signals. A technical working group is examining the issue and is expected to deliver its assessment June 15.

“We’re watching closely what LightSquared does,” Ergen said during the Dish Network conference call. “I think our spectrum fits nicely with them in terms of how they go about doing it.”

But Ergen stressed that lots of spectrum-focused investments, including Ergen’s purchase of a piece of the so-called 700 megahertz spectrum at auction in 2008, have not immediately led to system build-outs.

Some investments in the area appear to have gone sour, he said. “So we have to be careful about knowing exactly what we’re doing, making sure there is what we believe to be a good return on investment. … To build it out in the wireless space, if that was the decision — I think you would see us work with people who are more expert in the business than we are.”

Ergen is accustomed to doing what he wants with his companies and not spending lots of time explaining his moves to investors. He compared his recent purchases to an episode of the U.S. television comedy “Seinfeld,” in which a series of ostensibly unrelated events occurs for 28 minutes before they are tied together in the show’s final two minutes.

“In terms of what we’re doing strategically, you’ll just have to wait and see,” Ergen said, referring to his recent spate of investments. “It’s a little hard to explain it this early in the show, so to speak. And for you skeptics out there: Of course, ‘Seinfeld’ was a show about nothing. So it could be a strategy about nothing, if you’re skeptical. But … we feel it ultimately fits together.”

Ergen also said that wireless carrier Sprint Nextel’s demand for $100 million in compensation from DBSD/ICO in return for Sprint’s vacating the DBSD spectrum will likely be settled for a much lower amount. “They’re claiming $100 million. We think it’s materially less than that,” he said.