With Hughes in Hand, EchoStar Uninterested in TerreStar

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PARIS — Satellite television pioneer Charlie Ergen on Feb. 24 said his EchoStar Corp. is no longer interested in buying bankrupt mobile satellite services provider TerreStar Networks now that EchoStar has purchased satellite broadband provider Hughes Communications.

Ergen said Englewood, Colo.-based EchoStar, whose Dish Network sister company just weeks ago said it was willing to buy mobile satellite services provider DBSD out of Chapter 11 bankruptcy for $1 billion, was rebuffed in its bid by TerreStar’s minority debt holders, which would have delayed the purchase, if not making it impossible. 

More importantly for EchoStar, he said, is the fact that Hughes offers an immediate payoff on the EchoStar investment, whereas TerreStar was a longer-term, and speculative, play on the value of radio spectrum.

“If you had a dollar to spend, Hughes was a much better fit for us,” Ergen said in a conference call with investors. “It is a more strategic fit, a better fit and a more immediate return than spectrum. We still hold a lot of TerreStar debt and we hope to be able” to monetize it once TerreStar and its debtors figure out how to proceed and emerge from bankruptcy protection.

Asked whether his interest in TerreStar was more for its terrestrial-wireless potential or its satellite system, Ergen said EchoStar was interested in the satellite element as its own value and did not consider it as a mere key to unlock regulatory approval of the terrestrial spectrum.

EchoStar and Germantown, Md.-based Hughes agreed to their transaction on Feb. 13. They expect regulatory approval in the coming months.

Ergen did not specifically say that Dish Network, the satellite-television provider that he also controls, has ended its interest in DBSD, another mobile satellite services company that is in Chapter 11 bankruptcy.

Industry officials had speculated that only a combination of DBSD and TerreStar, both of which have U.S. licenses to use S-band radio spectrum for a combined satellite and terrestrial mobile broadband business, would provide enough radio frequency to assure business success.

With EchoStar now out of the running for TerreStar, it appears that someone else will need to complete the long-speculated task of merging the two struggling mobile satellite operators.

By apparently taking himself out of the running for TerreStar, Ergen has removed what might have become a serious competitive threat to the other wireless broadband project now seeking investors: LightSquared of Reston, Va., which has stitched together significant L-band spectrum for a similar satellite-terrestrial mobile broadband project.

Ergen said EchoStar likely would be investing in growth at Hughes, whether the growth comes from expanding Hughes’ consumer broadband satellite service in the United States, or in starting similar services abroad.

The new generation of Ka-band satellites that Hughes and rival ViaSat of Carlsbad, Calif., plan to launch in 2012 and mid-2011, respectively, are so much better than previous generations that they vastly broaden the market for satellite broadband in the United States, he said.

Ergen said his earlier investment in first-generation satellite consumer broadband systems WildBlue and StarBand of the United States, in which Ergen lost around $150 million, “had left a craw in my throat.”

In addition to the changes in technology, he said, EchoStar’s ownership of Hughes will allow EchoStar to steer Hughes in the right direction, if it should need it, in technology choices. This was not the case with Ergen’s minority investments in WildBlue, which is now owned by ViaSat, and in StarBand. “We had no control there,” he said.

Ergen said he assumed that Hughes ultimately would end some of its leases of Ku-band satellite capacity with other satellite fleet operators in favor of taking unused EchoStar satellite bandwidth, an example of synergies in the purchase of Hughes.

 

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