Billionaire Charlie Ergen conjures the magic of mergers and acquisitions to save his empire
(Bloomberg) -- Billionaire media mogul and former professional blackjack player Charlie Ergen is known for keeping "feng shui water" in his office for good luck. These days, Wall Street is wondering if it's finally running out.
A week ago, Ergen averted a financial crisis by announcing plans to merge two of his cash-strapped businesses -- pay-TV provider Dish Network Corp. and satellite operator EchoStar Corp. But within months, there is a very real possibility that the satellite TV empire that is so desperate to reinvent itself as a wireless carrier will face another showdown.
Ergen must meet federal deadlines to build Dish's wireless network or risk losing its broadcast licenses. But the business isn't generating enough cash to pay for it. Meanwhile, punishingly high interest rates have slammed the door on the credit market. Dish also had $9.5 billion in outstanding debt as of Aug. 11, making it the largest issuer of such debt in the media and telecommunications sector, according to data compiled by Bloomberg.
Ergen, 70, has proved the doomsayers wrong time and time again over the course of a four-decade career famous for making scorched-earth deals and wizard-caliber financial wizardry. But it's not clear that Dish's merger with EchoStar will be enough to keep his empire intact.
Ergen's mobile strategy began to take shape four years ago, when he convinced U.S. regulators to secure enough airwaves, prepaid customers and network access from T-Mobile and Sprint to help establish Dish as a fourth wireless competitor. The move was crucial for the government because it allowed officials to point to a new mobile carrier and justify the combination of T-Mobile and Sprint.
There were conditions. Under a deal with the feds, Ergen had to serve a growing percentage of the population by certain dates. The Federal Communications Commission, eager to succeed and "establish America's leadership in 5G," gave him considerable relief by pushing back his staggered completion dates to 2023, 2025 and 2027.
But creating a national carrier is expensive, and Verizon Communications Inc., AT&T Inc. and T-Mobile US Inc. are already completing their 5G networks. Dish's traditional TV business has been losing subscribers for 13 years and creating a cash deficit.
In June, after several delays, Dish launched Boost Infinite, its first wireless service designed to directly compete with the Big Three carriers. So far, signups are thin at best, according to analysts who say Dish is likely to lose more than 200,000 wireless customers this year, or nearly 3% of its total cell phone subscribers. It doesn't help that Boost Infinite debuted with a limited number of stores, a meager sales and retail staff and very little advertising, according to Roger Entner of Recon Analytics LLC.
"Infinity was like a tree that fell in the forest," he said. “Nobody heard it.
Which brings us to the merger of Dish and EchoStar, two companies that were once corporate siblings before Ergen spun off EchoStar in 2008 to separate the TV service from the satellite equipment division. The deal to combine the two units may be strategically contentious, but it gives Ergen nearly $2 billion in extra cash and expanded debt capacity for more space.
Ergen also hopes to silence the doubters by suggesting that it is dramatically expanding its satellite Internet business. EchoStar operates a fleet of communications satellites that provide a variety of services, including in-flight Wi-Fi for airlines. Last month, the company launched Jupiter 3, the world's largest commercial communications satellite.
Ergen's goal is to provide improved satellite broadband service to the Americas, a very ambitious goal that would put Dish in direct competition with Elon Musk's Starlink, along with Amazon.com Inc.'s planned Kuiper project.
Even with the new satellite, "Starlink still has excellent capacity and is better positioned to take advantage of these opportunities," said Tim Farrar, an analyst at TMF Associates in Menlo Park, California. "And do you really want to compete with SpaceX, a company that is not so urgently focused on making a profit on its satellite projects?"
Even as Ergen talks about the merger and the prospect of a Starlink-style business at EchoStar, he's trying to fix what ails Dish. In an effort to cut costs and pay down debt, it has slashed its capital spending budget by 28% below analysts' expectations for the next two years -- just as it seeks to complete the company's wireless network.
Time is not on Ergen's side. Under the deal with the FCC, Dish has until June 2025 to extend 5G network coverage to 75% of the US population – or risk losing its broadcast licenses. Dish said in June that it had met its original deadline of covering 70% of the population. Extending networks to provide signals beyond major cities is more difficult and expensive.
During a call with reporters last week, Ergen pledged that "we will do what we have to do to secure our spectrum." But even if it meets the FCC deadline, some analysts say the cost reduction suggests Dish's network won't be as robust or technologically advanced as competing systems. This, in turn, could dampen consumer sign-ups and further reduce revenue.
Some analysts question whether Dish has missed its moment. "The company is decades late in a cash-intensive industry, and I'm not sure Charlie's dreams will pan out the way he hopes," said Tammy Parker, an analyst at GlobalData.
With his empire on the brink and his fortune reduced to about $4 billion from a peak of $21 billion in 2015, Ergen is in a familiar place — his back is against the wall. "We're always in trouble," he said a few years ago, comparing his business to Indiana Jones. "We always get over it." With help from Erin Hudson and Jack Witzig.
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