EchoStar (SATS 69.78%) has a deal to sell wireless spectrum licenses to AT&T (T -0.64%) for $23 billion, a deal that would clear up a lot of the uncertainty surrounding the telecommunications company. Investors are celebrating the announcement, sending EchoStar shares up more than 75% as of 10 a.m. ET.
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Switching focus as pressure builds
EchoStar is a satellite television and communications company currently focused on growing its Boost Mobile cellular business, the nation's fourth-largest wireless carrier.
The company has been the target of a Federal Communications Commission (FCC) investigation over whether it was using its spectrum, leading to some fears EchoStar could seek bankruptcy protection to avoid having the licenses repossessed.
On Tuesday, EchoStar said it would sell its 3.45 GHz and 600 MHz spectrum licenses to AT&T, a move the company said is "part of EchoStar's ongoing efforts to resolve the FCC's inquiries." EchoStar will now focus on operating Boost as a "hybrid mobile network operator," meaning it will use leased spectrum from AT&T and others in addition to building out its own towers.
"This transaction puts our business on a solid financial path, further facilitating EchoStar's long-term success, and enhancing our ability to innovate and compete as a hybrid network operator," CEO Hamid Akhavan said in a statement. "The proceeds of this transaction will be used for, among other things, retiring certain debt obligations and funding EchoStar's continued operations and growth initiatives."
AT&T will use the spectrum to continue to build out its 5G network.
Is EchoStar stock a buy?
The massive move in the stock price is impressive, but it is more a reflection on how worried investors were prior to this announcement than a sign that the stock is destined for success from here.
EchoStar is clear of near-term danger, and the cash infusion should help the company pay down its debt and eliminate the near-term bankruptcy fears. But the company is a bit player in a massive industry and has a lot of work to do to build out Boost and its satellite businesses.
Therefore, there's less risk here than there was a week ago, but EchoStar is still best suited as a small part of a well-diversified portfolio.
