Shares in MDA Space Ltd. MDA-T plunged 25 per cent on Monday after the company said it had lost a $1.8-billion satellite contract with U.S. telecommunications company EchoStar Corp. SATS-Q, announced in August, following a “sudden change” to EchoStar’s business strategy and a U.S. regulatory spat involving Elon Musk’s SpaceX.
EchoStar changed its plan following discussions about spectrum allocation with the U.S. Federal Communications Commission, and it has now agreed to sell its AWS-4 and H-block spectrum licences to SpaceX, Brampton, Ont.-based MDA said in a news release Monday morning.
The stock closed at $32.99 on the Toronto Stock Exchange.
The contract would have been for more than 100 5G satellites to extend EchoStar’s low Earth orbit (LEO) satellite constellation connectivity to remote regions. Without spectrum on which satellites run, the company now has no need to contract MDA’s services.
SpaceX will pay EchoStar US$17-billion for the licences to expand its own LEO constellation, as well as potentially growing its cellphone offerings.
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In a release, MDA said it would be “compensated for all related termination costs and fees as per the EchoStar contract,” and that the development is unrelated to MDA performance, products and services.
The related amount hasn’t yet been disclosed. In a call with analysts Monday morning, MDA chief executive officer Mike Greenley said the company had “put extra effort” into ensuring its protection while negotiating the contract, given that EchoStar had recently experienced some financial challenges.
“We’re comfortable that we will be properly compensated,” he said.
MDA’s stock jumped 18.4 per cent on Aug. 1, the day it announced the deal. It was the fourth in a series of similar contracts won by MDA in a little over three years.
EchoStar’s about-face follows months of regulatory scrutiny from the FCC over whether the company was meeting its obligations to deploy its 5G wireless spectrum, the airwaves that carry telecommunications signals, after SpaceX suggested EchoStar was not fulfilling its requirements.
In April, SpaceX pressed the U.S. government to force EchoStar to share its spectrum, arguing to the FCC in an April letter that EchoStar’s subsidiary, DISH, was not adequately deploying its assets.
David Goldman, SpaceX vice-president of satellite policy, alleged that DISH was using less than 5 per cent of what would be expected from wireless network operators, “despite years of false promises and dubious technical showings.”
“The Commission should expeditiously welcome new entrants into the band and in parallel initiate a rulemaking to establish a modern, efficient sharing framework,” he wrote.
EchoStar replied in its own letter to the FCC days later that SpaceX’s methodology was “completely nonsensical,” calling it an attempt to “hijack” competition and obtain more spectrum.
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“Perhaps SpaceX is confused because it has never publicly filed a detailed deployment report for the 15,000 MHz of spectrum it received free of charge from the Commission,” wrote Jeffrey Blum, EchoStar’s executive vice-president of external and regulatory affairs.
The FCC subsequently launched two probes to evaluate EchoStar’s spectrum use, and FCC chairman Brendan Carr told EchoStar it was not effectively competing with telecom operators, threatening to strip it of its spectrum.
U.S. President Donald Trump also weighed in, telling the companies in June to reach “an amicable resolution,” according to an EchoStar filing to the Securities and Exchange Commission. Mr. Trump told EchoStar’s chairman, Charlie Ergen, and Mr. Carr that he wanted to ensure a major American company did not go bankrupt, according to a report by Bloomberg.
EchoStar is carrying about US$25-billion in debt. Earlier this year, the company said it was not making some interest payments worth hundreds of millions of dollars in light of the pending regulatory review, and even considered a Chapter 11 bankruptcy filing, according to The Wall Street Journal.
The company sold some spectrum to telecom company AT&T Inc. T-N in August to alleviate those concerns.
Mr. Trump previously worked closely with Mr. Musk, giving him substantial power to make decisions on behalf of the U.S. government as Mr. Musk led the Department of Government Efficiency, slashing regulation and expenditures. But the pair broke their political partnership in June after Mr. Musk publicly criticized Mr. Trump’s policy and left his role the administration.
However, Mr. Musk’s company stands to gain substantially from its acquisition of the spectrum, a finite and valuable asset that will allow SpaceX to build on its cellphone offerings. The company is currently providing direct-to-cell service through a partnership with T-Mobile US Inc. TMUS-Q in the United States, but in the future SpaceX could launch its own independent cell service business.
In Canada, SpaceX is working with Rogers Communications Inc. RCI-B-T to offer the same direct-to-cell service.
The MDA contract included an option for EchoStar to expand its order to more than 200 satellites to fill out its initial constellation, which would have increased the contract value to $3.5-billion.
MDA says it continues to have a $4.6-billion pipeline of additional LEO constellation opportunities.
With files from Pippa Norman