Yummy Century Egg：Guowei Zhang 关于 EchoStar 与 $SATS 的后续讨论

With me today, I'm happy to have on for the second time—and it's been pretty fast, too. This might be the fastest repeat appearance we've had: Guowei from Yummy Century Stocks. Guowei, how's it going?

Good. How are you? Good to be here.

I'm doing great. Before we start, a disclaimer: nothing on this podcast is investing advice. We're going to be talking about a couple of things today, but particularly SATS. I've got a little position—I don't know Guowei's position—but please do your own work. It's a highly leveraged situation. It's truly the Wild West. Unless there's anything else you want to talk about, let's hop into SATS.

That's cool. That's cool.

Cool. So, go ahead.

I said thank you for the kind words, by the way.

They were well deserved, so there's no need to thank me for them. Look, Guowei, we did a podcast about a month ago on the burgeoning situation over at EchoStar/SATS, whatever you want to call it. They announced a big spectrum sale a week or two ago to AT&T, so I'd love to pause there. It's really worth an update on what happened there and what the go-forward path is. So I'll just pause there and say: spectrum sale to AT&T—what was it? Why is this a big deal? All that type of stuff.

Yeah. So, I mean, just to give a 30-second background, this story has been ongoing for the last 15 years. This portfolio of spectrum was accumulated by Charlie Ergen, and there's always been value there. It's always been trapped inside of SATS and DISH over these 15-year periods, and it's just started to come out. This value started to be realized, so that's why it's so significant.

The update is that AT&T came in and paid $22.7 billion for 2 parts of the spectrum. There's more in the portfolio. I would say that's, in terms of value, about a third of the portfolio. So there's still 2/3 of the portfolio that haven't come out yet, but that's the start. That's a fairly large deal.

It was surprising how quickly it was put together. I was expecting them to take a longer period of time to put that deal together, but AT&T came in and bid a pretty high price for that spectrum without an auction. So they, I guess, outbid everyone's expectations because they wanted to get it first and early, without going into an auction process, and that worked out for Ergen and SATS at the end of the day.

Let's focus just on the spectrum sale itself. To baseline it, AT&T paid, I believe, $23 billion for this. This is the 600 MHz and the 3.45 GHz spectrum. You have done great work on each and every block of spectrum that DISH/SATS owns. What did you think the spectrum was worth? Just the baseline for people.

Yeah. So the 3.45 GHz, I thought that was worth $8 billion. They just bought it in 2022, so it's a pretty recent auction. I didn't give them a lot of premium on that. They paid $7.3 billion for it, so I said, “You know what? $8 billion. I'll just round up.” There's really no transactions other than those auction numbers.

Then the 600 MHz, I had $10 billion for that. They didn't break out how much they paid for each piece in the press release and the call afterward.

Yeah.

I'm assuming if you paid $8 billion for 3.45 GHz, that's, you know, $15 billion for 600 MHz. So that's a 50% premium. If you look at the ranges of expectations, that's at the very high end of the market. People had anywhere between $10 billion to $15 billion or $16 billion for that piece of the spectrum.

What impressed me the most about it—and there were a few things—but, number 1, you mentioned that the 3.45 GHz was purchased in 2022, right?

Yeah. Yeah.

It was a recent bid, and one thing I had always worried about is that, as a longtime DISH bull, the monetization story has been there for 10 years. I've always been like, “Hey, if it hasn't happened now, when?”

The other worry you would have in the back of your mind is, look, every price that you saw happened at an auction where there were 4 players, right? DISH was your 4th player, then Verizon, AT&T, and T-Mobile. You worried that when you pulled the 4th player out and were left with Verizon, AT&T, and T-Mobile, who are all against the spectrum caps, the competitive dynamics fell apart.

So to me, one of the interesting things about this bid is that it was a recent bid where the 4th player was the winner in the 3.45 GHz. It seems that, at minimum, they got cost and probably a premium for that. That was, to me, just one of the most bullish signs because, again, the 4th player's gone and the largest players are saying, “Hey, we need the spectrum so badly we'll pay big premiums for this stuff that just went off.” If you have anything to add, or if you disagree—or agree—I'd love to hear it.

No, I think when DISH bought the 3.45 GHz 3 years ago, they paid a very good price, I thought, because the auction dynamics were such that they benefited from, I guess, slightly reduced competitive pressure. Then AT&T really needed that spectrum because AT&T was the other big winner in that auction. So that fit very well with AT&T. AT&T is short mid-band spectrum. So that deal looked great. I mean, that was what everyone expected. And that just happened.

But the 600 MHz was a little bit strange because AT&T doesn't need that. They paid a big price for it, and on the call they had after the announcement, they said that it would take them several years for that 600 MHz to be put into use, which is shocking to me—that they paid such a big price for that part of the spectrum.

This comes back to your point, which is that the spectrum market has reset based on these 2 transactions, and it's reset higher. I don't know what the competitive dynamics are for the remaining spectrum, but I would say it's better than where we were a month ago.

Let me pause you there, because I agree it's reset higher. It seems like that's the case, and we'll talk about the rest of the spectrum, the other bidders, and all that sort of stuff. But I did have 1 bear who emailed me and said, “Hey, everybody at SATS is celebrating right now.” And rightly so, right? This was a big price.

But when you're starting to think about the rest of the spectrum portfolio or deals, remember: there are a few constants in life. There's death, there's taxes, and there's AT&T wildly overpaying for telecom assets whenever they have the chance. So they were saying, “Look, you had the sucker here. They did the first blowout bid, but as you go to the rest of the stuff, it seems AT&T won't be around to bid for the rest of the stuff just because this was a big deal. This probably takes them out unless the rest of the stuff is going for a real song.”

They're saying, “Look, Verizon and T-Mobile are going to be much more disciplined buyers. Dial back your expectations on those because now they know there are only 2 players. We're the last game in town, and nobody's going to pay AT&T.” I thought that was an interesting zig to zag to the zig. Go ahead, please.

I would push back on 2 points here. One is that Verizon is not a disciplined buyer in the market. I just had to look up who bought Straight Path—AT&T or Verizon—to remember which one. So when you say “not disciplined”—

Yes, yes, yes, yes.

And Verizon was the winner in that bidding process. They way overpaid for that. They went crazy for that one, and they paid a lot for C-band right back in 2021. So I wouldn't say they're conservative by any means. So that's 1 point.

The second point is that AT&T, on their call, said that after paying $23 billion for these 2 pieces of spectrum, the deal is actually accretive to earnings, which is shocking to me, right? Because 2/3 of the price was for 600 MHz, which they won't even put into use. So what they're modeling is using 3.45 GHz for fixed wireless. That's what they said on their call. So that's going to make the deal accretive for them, which to me feels like they underpaid for the spectrum, right? And so, I don't know. I feel like you're right from a competitive standpoint: 1 guy is potentially out of market. But on the other hand, if you look at some of these use cases, there's still value there, right? AT&T could have paid more for that spectrum if they wanted to and still make the case that it's accretive, or not dilutive, to earnings.

I do hear you, though. You do wonder about the fun with math and games of buying spectrum and what they're saying. But let me stick on the AT&T use case for a second. I was going to say this later, but talking AT&T: on the call, AT&T comes out and says, “Hey”—they really started pumping up fixed wireless access, fixed wireless access with this wireless internet, basically, for those who don't know. They really started pumping it up, and it's been interesting to watch their evolution on FWA over the past 5 years.

AT&T historically was the most opposed to it, and over the past couple of years they've warmed up to it. They started saying, “Hey, it's a great bridgeway for places where we have copper.” I would say with this deal, they really warmed up to it, right? They're still not saying it's full speed ahead. They still want to do fiber, but they're really talking about it. I thought that was interesting from a lot of competitive angles. We can talk cable, we can talk anything, but I just love to ask you, at a high level, as you see AT&T buy this big block—and this is really the 3.45 GHz that they're using for FWA—and you see their tone change on fixed wireless, do you think that has any read-through to just across-the-board competitive dynamics?

Oh, absolutely. The first thing that came to my mind was cable.

Yes.

It's been getting killed by fixed wireless. Now you've got a big player coming in who's just going to take more market share from them. So that's a concern for cable. The risk has been there for the last 3 to 4 years, but now you've got a big guy coming.

It's not just that you have a big guy. I mean, you have T-Mobile, who's been doing it—they were the pioneers. Verizon's really started ramping it up, and now you look at it and say it seems like AT&T is going to ramp it up, right? And you've got cable going from a monopoly in every market to a duopoly: cable versus fiber.

And it seems to me like you're going to have cable kind of in a bind, right? It's going to be cable versus a fiber player. And those 2 will probably be converged. I think you and I differ a little bit on the cable, MVNO, and the convergence side. But then you're going to have, in every market, 5% of that market getting really attacked by T-Mobile's fixed wireless. And if AT&T is the fiber, Verizon's fixed wireless; if Verizon's the fiber, AT&T's fixed wireless. So it seems like you go oligopoly, and that's a really tough situation.

Hey, that's like—you know, I'm doing a series on cable. I haven't gotten to the meat of it yet, but the gist of it is, if you look at all these guys and their plans for fiber and fixed wireless for the next 5 years and scratch your head, you say, “Hey, there's like 40 million customers that they need. Where's that going to come from?” It's going to come from cable. So, I mean, this is a big deal for cable, right? Over the next 5 years, you just see AT&T spending a lot of money to try to attack it more.

Look, I'm with you as a longtime cable bull. You see AT&T really adding to that, and you say, “Hey, what is kind of left?” It seems like for years you said, “Hey, once the fiber build-outs happen”—and the fiber build-outs have, it's tough to say they've peaked, but it's not going to get much more competitive, right? Cable is already 60% overbuilt by fiber; it's probably going to 80%, but you've probably seen the impacts. The issue is now you're saying, “Hey, all of our markets are going from zero fixed wireless to 2 players, maybe 3 players.” There's a lot of competition left to come, and it's concerning.

Yeah.

Yeah, yeah. But you do wonder on the other side—and this might tie us back to DISH nicely—if cable is looking at this and saying fixed wireless is coming, we need a competitive response. The response cable has been saying for the past 5 years has been convergence, and that's relied on the Verizon MVNO. If cable wanted to take it a step further, I increasingly think the remaining DISH spectrum—I mean, cable might be the bidder, right? And then you say, “Hey, you get the AWS spectrum, you use that to power it, and then you can still rent the network from Verizon, AT&T, whoever is going to be your MVNO, in more rural places where you need less.” Maybe you're talking about, “Hey, it makes sense for them to go and really start this build-out if it's going to go converged.” I don't know where you fall on that.

You know, I think the 600 MHz deal is a pretty big deal because that's the spectrum they need for coverage if they want to start owning network assets. So with that 600 MHz off the market, cable is put into a tough spot. There's no real major alternative for them to have that low-band coverage.

Do they need low band, though? Because I would think you could still rent it—because low band is mainly voice, right? So I think you could still rent that on decently attractive terms from Verizon, T-Mobile, and AT&T and just offload. Do you really need low band? Can't you rent that?

They could lease it. But, I mean, you see, it's a bit strange, right? I feel like the low band is more important than the mid-band because that's coverage. You need it to work everywhere, right? If you have a blotchy network, then the cable guys are not going to be competitive in this product. So the low band—the coverage—is really important. But you're right, they can lease it from AT&T. It's just a weird deal because AT&T doesn't need it.

I was basically thinking, if you took what cable's doing right now to its most extreme, right? Because right now cable's on the Verizon thing, and they're trying to offload as much as they can in the heaviest spots. I was thinking, basically, “Hey, if you take CBRS and then you buy the DISH spectrum and you run that forward 5 years, and in all the heavy spots you're trying to offload, then you use whether it's Verizon, AT&T, or T-Mobile—you say, ‘Hey, wherever we can't build coverage, we rent the network from you.’” That's kind of what I was thinking.

Yeah, yeah. I mean, it could work if they want to own the network assets. I'm just not—I don't know when they're going to actually make that decision, and whether now is the right time for them to bid, I don't know, $30 billion to $40 billion for the remaining assets that they have. So I hope they're in the process, but I'm not 100% sure.

And if you talk to a lot of cable shareholders, they don't want mobile, right? They're kind of negative on the whole space. And I don't know, from their perspective, they don't view that as a good capital allocation strategy. I don't disagree with that. I think it's a big decision. And if I were a—I'm not—I'm not long cable, but if I were long cable, I would be very concerned if Charter and Comcast go and pay $30 billion to $40 billion for the spectrum.

No, I don't disagree, because it's not just the $30 billion to $40 billion for the spectrum. Then they'd have to go build towers or rent them, too; there's a lot of tack-on to that. Though it is interesting, right? Cable does have a fiber-rich network, as any cable company would say: “Hey, if you get broadband, 90% of your data at this point is going over your broadband subscription, 10% is going over your wireless, but you're probably paying more for your wireless line than your broadband.” That is a natural argument for convergence, and we're sitting here saying, “Hey, fixed wireless access—which is going to take 5% of broadband, plus the mobile—is eating cable's lunch.”

It seems weird that they're in a spot where we're credibly saying, hey, they can't go buy the spectrum to get fully converged, and by the way, they're getting their lunch eaten by 1 fiber player plus the piecemeal fixed-wireless players.

Yeah, it's really no good choice for them, right? I mean, either they pay up for the spectrum and do the buildout, or they get their lunch eaten. But then again, 600 megahertz is gone, and the spectrum and the network assets that EchoStar has are getting shut down.

So I would assume EchoStar has had conversations with cable, and they're not interested. That's why the whole network is getting shut down. That's a lot of money that, basically, is gone.

EchoStar spent $10 billion—probably not, $8 billion—on their network assets at this point. That's a lot of money. I mean, that's gone, basically. Actually, that's a great point to come back to because I want to talk about EchoStar's go-forward and the hybrid MNO and everything.

But I know some people—I think you might have mentioned it—who thought that the endgame for this was the cable operators banding together and just buying Boost, right? There's $10 billion that would get them the fourth network. Now, they would have to pay for the spectrum and everything, but that would get them instantly running on day 1 with a nationwide network that had $10 billion invested in the ground.

Let's say they paid $5 billion for it. Let's say they paid $12 billion, whatever. But are you surprised that this was the endgame versus the cable buying it and going into fourth-player mode?

Yeah, I was surprised by it, mainly because they spent a lot of money and effort and put a lot of technology into this very spanking-new network that's supposedly very valuable, right? No one else had this Open RAN network.

I'm more realistic than a lot of people in the marketplace about this network, but there's still some value there. And they're just literally going to take the radios down. That was shocking to me. That's a lot of wasted capital.

That, to me, must mean that cable is not interested, right? Why give that up?

It's funny to me because if you and I were having this conversation a year ago right now, the conversation would have always centered on the spectrum value, right? But the bulls would say, "Hey, they've got the spectrum value. They've got the spectrum. It's untapped, and they put $10 billion into, as you said, this brand-spanking-new, completely modern network, unburdened by legacy voice and all this sort of stuff, and it's going to the moon because they've got this new network."

And here we are a year later. The network was literally worthless, right? They're shutting it down. They're giving the spectrum over to AT&T. Cable apparently wanted nothing to do with it, and the stock is triple because this spectrum was so valuable.

It's going to cost EchoStar to take everything down, right? Because all the tower leases and stuff—and that's not cheap. That's a very expensive process.

So, I don't know. I mean, that's just a complete waste of capital, right?

Let's go back to EchoStar's go-forward. Let's start with the rest of the spectrum, right? There's an article. This deal gets announced—I think it's on a Monday—the stock screams higher, and then, after market, on the day that the deal is announced, Semafor comes out with an article that says, "Hey, T-Mobile was sniffing around this. SpaceX was sniffing around. There's a lot of spectrum left. Both of those players are very interested in the remaining spectrum."

I'd love to just ask: What do you think the remaining stuff's worth? What do you think the go-forward path here is? Actually, if I can put one more question in, there is an open debate on the go-forward path: Is this a liquidation? Is the candy shop open and we're selling all the spectrum? Or is Charlie going to pursue—I think you put in one of your posts—his white whale? Is Captain Ergen going to pursue his white whale and go build up the D2D satellite business, spend $5 billion, keep the spectrum, and try to build a business?

I threw tons of stuff at you, but I'd love to hear what you think about the go-forward spectrum and this go-forward EchoStar here.

Yeah. So, first of all, I'm very interested in the stock at this point. The stock's risk-reward is a lot better now than before, even though the stock has gone up. The reason for that is I think the stock is worth triple digits at least.

Just from a very simple back-of-the-envelope math perspective, they sold $23 billion of spectrum. There is $11 billion to $12 billion of spectrum outside of AWS-4, right? That's going to get sold one way or another. You add that up, take away taxes, take away debt, and that gets you to the low to mid-$50s in terms of stock price, which is not that far from the current stock price of $62 or $63.

So you've got pretty good downside protection. I mean, this is a liquidation, right? You're going to get, let's call it, $55 back in the next 1 or 2 years. That's pretty good downside protection.

On the upside, you have the crown jewel, the AWS-4 spectrum. That's the 2-gigahertz spectrum. That's worth probably $26 billion to $27 billion on top of that, and that's $80 of value that needs to be realized now.

So the question is: How do you realize that value? My perspective, the base case is that, because they're not running a network, the AWS-4 spectrum is now in limbo with the FCC. The FCC has these buildout requirements for your spectrum, right? You own the permit. You own the license, but that license has conditions—buildout conditions—to it.

Now you don't have the network. You're not running the terrestrial network. Everything else you do in the future with this network has to be approved by the FCC. So the question is, what does the FCC want to do with the spectrum, rather than what Ergen wants to do with the spectrum, to some extent?

I think that the FCC probably wants it sold, right? Auction the spectrum. The other option, like you mentioned, is that the CEO, Hamid Akhavan, said on their 2nd-quarter earnings call that they wanted to go into the D2D LEO satellite business. They're potentially going to spend $5 billion investing in this business, and we're going to be a wholesale provider for the global network operators, basically providing D2D connections in places that don't have cell coverage right now.

The idea is you provide service to the network operators and save them capex because they don't need to have towers in these places anymore. So, it's a good value add for them to offer.

In order to do that business, you need the 2-gigahertz spectrum. Now, there are 2 pieces to that 2-gigahertz spectrum. One is the terrestrial part; the other is the satellite part. So they're authorized to do both.

You can see a scenario where Ergen either sells the terrestrial part or leases it to a mobile operator, and then uses the MSS part—the satellite part—for the company's D2D business. That's 1 scenario. I think that's a good and efficient use of the spectrum, right?

I'd much rather see it being sold and having the cash come back to shareholders than having Ergen lease it. But that's 1 solution. What you don't want to see is the whole spectrum—the terrestrial and satellite parts—stuck in SATS.

Yeah.

Frankly, I don't have very high expectations for Ergen investing in this D2D business. They're competing against SpaceX and Amazon. They're at least 5 years late to the party, and they don't have any know-how in running LEO satellites.

I mean, they do GEO satellites, which is a completely different business, and they don't have the people. Most importantly, they don't have the people that I've seen who can actually operate a LEO satellite constellation that's got hundreds, if not thousands, of satellites globally, right?

Look, this is the worry, right? I think, again, you and I talked the day this happened, and you said, "Hey, once someone starts going down the path of liquidation, they tend to follow through." And I think it was a different chair who told me this. Look at U.S. Cellular. Once they started selling, they followed through.

But the counterpoint to that was, look, Charlie's been building the spectrum for years—over a decade. His hands were basically tied, right? He was forced to sell this because of regulatory pressures, balance-sheet pressures, everything.

But maybe he sees this and says, "Look, if I go build this D2D thing, I've got the cash. I've got the proof. If I do this, these things just get more and more valuable. Why would I sell now when, if I do this D2D thing, maybe I can hit a grand slam? And if not, the spectrum value will be there in 8 years or something."

And while I do hear that, I think as a shareholder, potential shareholder or whatever, that's terrifying, right?

Yeah, I'm fearful all over again.

Yeah. I'm really hopeful that the FCC won't allow him to do that. They don't want this getting stuck for the next 5 years, right? And they've had experience with him withholding the spectrum, building this dream, and it doesn't work because he's late to the party.

He was late to the mobile party, and now he's going to be late to the satellite D2D party. More importantly, it's not efficient for Ergen either, because that whole spectrum is worth, let's say, $26 billion to $27 billion.

You're holding it for 5 years. The holding cost alone is ridiculous, right? I mean, you have it, or you have to sell it.

So, even if you don't assume the cost of holding this spectrum, you need a big business to support $26–27 billion of spectrum, right? You need, I don't know, 8% ROI on that, on an unlevered basis. That's $2 billion of unlevered net income.

And 5 years from now, the cost to build out—I mean, you've got to have line of sight, I'd say, to $5 billion of operating income to justify this. Show me a satellite business that's thrown off $5 billion of operating income. By the way, when you're competing with, as you said, SpaceX and Kuiper, 5 years ahead of you, he can do it because he controls the company, but the worry is he did it once before with the wireless network. It seems insane to me. I have no idea how you can justify it.

Yeah. I'm really hopeful that the FCC doesn't allow him to do that unless there's some sort of a deal where there's a big government contract. There's some defense angle to this constellation that he's building.

That would relate to the overall objective of the administration. There has to be something, right, that would allow that, that would say, “Hey, it's reasonable for Ergen to hold this spectrum and build this thing,” right? And I just—that's not my base case. My base case is continued liquidation, especially because he's not in the terrestrial mobile business anymore, right? And he doesn't have leverage. He can't just go out and say, “Hey, I'm doing this satellite business. I'm holding this spectrum.” No, he can't do that because he has to get approval from the FCC for the future use of the spectrum.

Let me go. The biggest risk that, when I talk to people, they're worried about is that Charlie's going to chase the whale with the satellite business and the spectrum. The spectrum sale emboldens him to burn billions and think that he can just roll a YOLO at the end and turn it up. The second-biggest risk I've heard, which I do think is interesting—and the market, in my mind, is giving zero risk, very little risk, to this—is the DOJ risk. The DOJ has historically said the wireless business needs 4 competitors: AT&T, T-Mobile, Verizon, and then DISH/Boost, whatever it is, is supposed to be your 4th business. That's gone; they're doing a hybrid MNO with AT&T. Whatever it's going to be, the 4th business is gone. The FCC clearly wants the spectrum in other people's hands, but the DOJ could come out and say, “Hey, no, you can't shut Boost down. You can't do the sale because it results in a 3-player marketplace.”

I'd love to ask you. I think you even had a quote from somebody pretty high up at the DOJ 2 months ago saying, “Hey, we need 4 players in this marketplace.” What do you think about the DOJ risk here? The DOJ and FCC—it seems clear they're at odds over what should happen here. What do you think about the DOJ?

Yeah, I think the more I think about the DOJ risk, the less I'm concerned about it. I think the DOJ has no other choice but to approve this deal. That's the thing. They would like to have a 4th functioning network. They would like to have the spectrum sit there, if not for Boost, but for some other 4th network to come along and use the spectrum and provide competition in the mobile market.

But that's just not reality. There's no one out there who's willing to step up other than cable. What else are they going to do, right? If they could block the transaction, EchoStar would just file for bankruptcy and the spectrum would get stuck in court for years. It could be years. When it comes out, if it comes out, the 3 bidders are going to still be the 3 bidders today.

No one is going to come in and say, “Hey, I want to be the 4th network” anymore because, hey, look at what happened to DISH, right? You destroy so much value by blocking this transaction. Now they can't realize value on their assets because of your stupid ideology on this 4th network. It doesn't work.

So the DOJ knows this too, right? I think they really don't have a choice. What they can do is structurally find some ways to save face and provide some support in terms of stronger MVNO agreements, to provide a semblance of additional competition in the market. But as of now, I don't know. What else do they do?

Look, I'm with you. I think now—I will say, I think the DOJ's original sin here was allowing Sprint–T-Mobile to merge. But look, that's in the past. You can't do anything about that. I feel like the DOJ's just completely checkmated. Cool, you want a 4th network? Well, you basically let the country get down to 3. Nobody wants to go build the 4th. There's nothing for you to do.

I do think your behavioral-remedies issue is interesting, to go back to cable. As part of the T-Mobile–Sprint transaction, T-Mobile and Sprint were very heavily arguing, “Hey, cable is here. Cable is a competitive player as well.” I wonder if, as part of the behavioral remedies for this deal, cable gets a new, real sweetheart deal with AT&T on the MVNO side. I think their MVNO with Verizon is pretty good, but I do think Verizon can dial it back if the network's overstrained and stuff. I wonder if they get a very sweetheart deal with AT&T to create some competition there.

Great for them. It's great for them. They would be highly supportive of this deal because I don't think they—I mean, they may be forced into owning network assets, but I don't think they want to at the end of the day. If they get a sweetheart deal from these MNOs, it's perfect. Great.

You and I are recording this. Let me make sure I get the day right: September 3rd.

The Paris show is what everybody's pointing to. You go back to the EchoStar Q2 call. They said, “We're going to have an announcement at the Paris show.” Every SATS bull I talk to says the Paris show is coming. Get ready for the Paris show. I think the Paris show is the week of the 14th. Am I remembering that correctly?

I think so. Yeah.

Yeah. I'd love to ask you: Are you expecting fireworks at the Paris show? Are the fireworks already in the past? How do you think about it? I just know the bulls are always pointing to the Paris show—we might see more. What do you think happens there?

Yeah, I think they will have to announce some sort of resolution on AWS-4 at the Paris show. That's the thing that I'm most focused on: what and how they're going to realize value on AWS-4. With respect to D2D, it doesn't really matter to me. That's the value that may be meaningful in the future, but at this point, I just want to make sure that we get to, I don't know, $100 a share with just the spectrum value that's going to be liquidated, right? That would make me feel comfortable about the near term.

But having said that, I think what they're going to do is announce some sort of partnership on the D2D side. The 2nd-quarter earnings call, they alluded to the Paris show a number of times. They said a couple of times, “Just wait, we're going to have some new stuff coming,” right? So, you would assume that that's going to be some sort of partner on the D2D business.

And then AWS-4, I mean, that's going to be the natural question for everybody: What are you going to do with AWS-4? And I thought it was interesting that they announced that they're going to shut down their network before finding a deal for AWS-4, because that—

But if I were a buyer, I'd be like, “Okay, you've got to sell it anyway.” So there's leverage for me to, I don't know, negotiate a lower price. I would assume they probably have a deal pretty close to being signed at this point, right, in order for them to come out with AT&T and say, “Hey, we're not going to be in the terrestrial business anymore.”

And look, maybe that's part of why AT&T pays the premium, right? They get the first strike. They say, “Hey, look, we're paying a little bit of a premium because we've got to start rejiggering our network now for the 600 megahertz that we're buying, and we'll pay a little bit of a premium because we're hurting your negotiating leverage with AWS-4.”

We realize that, but speed is a factor here, and getting a 3-month head start in the regulatory process and the closing might have been worth it. Unless you have any closing thoughts on SATS, I actually want to talk about 2 other things you've written about quite a bit recently.

Yeah. I just want to say the risk-reward here is fantastic, in my opinion, much better than a month or 2 months ago when we first spoke. And I know that sounds weird, especially for value guys, but it's true. You have this near-term catalyst here, so you're going to know in the next 2–3 months whether this thing works or not. Pretty interesting opportunity.

I'm with you. It's a struggle because it's always a struggle to buy. The stock was $55 last week; it's $65 now. It was $25 a month ago. But, yeah—

One thing you have to factor in is that this is a complicated structure. A lot of the value they've sold—this is a highly leveraged business—but a lot of the value they sold is actually going to pay down holdco notes. So you're actually transporting a lot of cash up to the holdco.

So, as you said, you're really boosting the downside, right? You're protecting the downside because of that holdco note structure. If everything else goes wrong, you're still going to have value because of that cash. You've eliminated—I mean, even at 25 a month ago, after the Trump sit-down, your worry was that Charlie was going to go full speed ahead: “We want more spectrum; we're going to build this out,” right? Those are mainly off the table, so I'm with you. It's very interesting. Let's—

And the spectrum value has gone up.

Another great point. Two other things I quickly want to mention: you've been covering M&A and the broadcasters really extensively. For those who don't know, Nexstar is one of the best-run companies in the business, bar none. Forget broadcasters—just in general, it's one of the best-run companies. It announced a deal to buy Tegna, so broadcaster M&A is back on.

I'd love to get your thoughts, because there are a lot of moving parts around there, right? Sinclair, the night before the Tegna deal broke, was rumored to offer $25 to $30 per share for Tegna. That was stock; it involved a split-off, but Sinclair's looking to dance. Gray, I think, needs a dancing partner. There are a few others out there. I'd love to hear your thoughts on where we're falling in broadcast M&A.

Yeah. It's going to be a really interesting next 12 to 24 months because the broadcasters need to consolidate in order to compete against tech platforms, and the FCC is willing to allow them to do that. You have this mix where people are ready to combine basically right now.

The market is fairly consolidated, but Nexstar is the biggest, and there are 4 other public companies and a handful of smaller guys. I think over the next 12 months, they're all going to come together into 2 big station groups. They're going to own 2 of the large 4 affiliates in any local market: ABC, CBS, Fox, and—what was it?—NBC. Yeah.

I think it's going to be a pretty interesting period because there are going to be a lot of synergies coming from the consolidations. Nexstar is trading at, I think, 6 times EBITDA right now. After their deal with Tegna, they're going to look a lot better, right? On a post-synergy basis, they're still going to trade at 6 times. Because they're paying a premium for Tegna, though, they're much better in terms of their ability to compete in the marketplace with respect to scale.

The thing that I'm focused on in the broadcasting space is local scale. That's highly, highly important. Historically, these broadcasters' competitive advantage has been local news and local content, and this is something that the large tech platforms cannot replicate. It's very special, and no one else has it in the media space, so it's a very, very unique business.

Can I pause you there?

Local news and local sports—all this sort of stuff. They will tell you out the wazoo that this is their special sauce. While I do hear that, I do wonder. My issue with the broadcasters has always been that they get paid huge amounts of money because of this regulatory barrier that was put up, where CBS and ABC—the parent companies—can't own the local broadcaster across the country. They get cut in on YouTube TV and all this sort of stuff.

When I look at local everywhere else, whether it's The Athletic, local newspapers, or whatever you want, it doesn't monetize anywhere close to the rates that you see local broadcasters monetize. My worry with them has always been, look, I get it. They trade for super-cheap valuations. I don't know if the spectrum has as much value as people thought it did 10 years ago. I think it was a one-time thing. There is some value, but I don't think it's that much.

I see the valuations. I see the roll-up story. But I always worry that, as the regulatory landscape changes, if I was ABC and I was doing Hulu or YouTube TV, and I was paying Nexstar $2 a head for the local thing, at some point I should be like, “Why don't we just cut them the fuck out and let them go find their local news elsewhere?”

If that happens, I just don't see local monetizing anywhere close to what these guys get because of the regulatory environment. I'm always worried I'm going to be the chicken that gets its head cut off when, at some point, somebody pulls the trigger and kicks one of these groups out.

Yeah. I'm less concerned about that. I'm more concerned that prices will continue to go up and, at some point, it's consumers who are cutting the cord. You've seen that over the last 5 years, but it's going to get worse and worse, to the point where there isn't going to be enough critical mass for local content.

But are we saying the same thing? Consumers cut the cord, right? The only reason you subscribe to a legacy bundle right now is sports. It's really sports.

And what I worry about is that sports is national.

You're not subscribing to a $100-a-month legacy video product because you want to see the local high school team play football, right? You can find that elsewhere. Nexstar is getting cut in on that because they have access to the ABC sports or the Fox sports.

As the bundle unwinds, at some point doesn't ABC look and say, “Hey, how much is Nexstar taking—a third of our local revenue—for some football games? Why don't we just cut them out?” I think we're saying the same risk in the long term.

Yeah. There's a dynamic where the networks and the affiliates have this kind of love-hate relationship. Over the last 20 or 30 years, the networks have come out ahead of the affiliates because of their ownership of national sports content.

I think going forward, with the consolidation of the affiliates, it's going to be the other way around because now you have 4 networks, right? And then you have 2 of these large superstation groups. If you look at what these 2 sides offer, I would say the more differentiated side is the affiliate side because they have the local news that the networks don't. The affiliates can go and bid for national sports content like the networks. I don't see why that can't be the case.

Yeah.

So, you think Nexstar, with The CW, is going to start bidding? They've already done a little bit. I think Nexstar has tennis, if I remember correctly, or maybe that's—

They have a bunch of sports assets on their CW network. I think 40% of their programming is sports. They're niche and small sports, but you're starting to see that, right? It doesn't even have to be The CW. You can just bid as a group.

My point is that the balance of power is shifting very quickly after this consolidation wave. But I don't want there to be any misunderstanding: I'm not going long on the broadcasters. I'm doing a lot of work on it because it's interesting, and there's a lot of high yield and a lot of credit in this structure that could provide trading opportunities.

I'm not long the structure, and I still think there's a lot of work to get from now to when they close those transactions and realize the synergies. Then you have this big problem, right? You're still competing against large tech platforms, and you're still going to be uncompetitive. So maybe it could be a short after this consolidation.

I mean, that's definitely the other question, right? We're talking about it in a closed ecosystem of the networks, the—let's just call it the cable providers—and the affiliates all pulling at each other.

Netflix is going to do 6 NFL games this year. They've got the WWE now. Paramount's going to—I think they're going to put a lot of the UFC on CBS. Paramount's got the UFC. A lot of the NBA is going online; Amazon's got the third-tier NBA packages. You wonder if you look up 5 years from now and say, “Oh, we were worried about these guys fighting, and all of the sports assets have quietly, quietly left the entire playing field, and then everything rebundles.”

But I worry—to me, the affiliates, if you and I recreated the world today, there would be no place for affiliates, right? They're kind of a leech on the back. I worry that as this bundle breaks, the affiliates are fighting over a small piece of the pie that history tells me goes away or is not as valuable as what they're getting paid for.

I actually think the complete opposite.

No, no, no. I love to hear that.

Yeah. My point is, what the affiliates are doing with respect to local news and content is not replicable by other folks in the media ecosystem. That's actually unique, and I don't think they will go away.

I think it's actually the networks that don't provide differentiated programming, right? They're doing all these shows; anybody else can do them. They can bid on sports content, but everybody else can. So that's not differentiated. The underlying differentiated asset is the local news and local content.

So I do agree. Just to go back to my earlier point, Nexstar is buying Tegna for $6.2 billion, right? I can't remember if that's market cap or EV.

Yeah, it’s EV.

If I looked at Tegna and you said their differentiator is local news and local sports, I wouldn’t disagree with you. But there is not a local news business or local sports business on the planet that monetizes at the rate that Tegna does. The reason they monetize so highly is because of that legacy: ABC, CBS, and they own that legacy station.

If you told me, “Hey, that legacy station is going away, and now we’re just monetizing the local news and local sports and all that sort of stuff,” I’d say, “Good luck.” I’ve seen this movie before, and as it breaks, I think that’s very valuable stuff, but it just doesn’t get paid for.

I think this is why it’s so interesting to do work now, because there could be—I mean, if they lose the national sports content, so be it. To me, that’s not differentiated at all. Someone else can overpay for it, right?

At the end of the day, they could become a lot smaller and just offer local news and local content, and that’s highly, highly valuable. They could get 10–15 times EBITDA for that differentiated content. It’s going to be a much smaller organization that does that, without national sports, but that is the more valuable piece we’ve got to focus on.

From here to there, there’s going to be a lot of pain, so that’s why it’s interesting. I could see a scenario in 3–5 years where these guys all go into bankruptcy, and then when they come out, they’re going to be worth a lot of money, because that—

I actually do kind of agree with you there, but it’s the bankruptcy in between there and here that I worry about.

Right, so that’s the interesting thing. Timing is very important here, but there’s this morsel of value that you see in there, and you’re just trying to figure out, “Okay, how is it coming out?” It’s similar to the EchoStar situation: there’s value there, but how’s it coming out?

The timing is very, very important, because it took EchoStar 15 years. So I don’t know.

To out myself, I’ve been worried about this risk with the affiliates for 8 years. To date—not that any of the stocks, aside from maybe Nexstar, have been screamers—that fear has been, I’m not going to say unfounded, because they’ve obviously all had a lot of troubles.

Just look at Tegna: Tegna is selling to Nexstar, a strategic buyer, for less than they were going to sell to Standard General, backed by Apollo, a financial buyer, 3 years ago. That’s a good exit for them. Go look at the stock of Gray or Sinclair; it’s been really rough for them. But to date, my fears have largely been unfounded.

I want to ask you one last thing before we wrap, unless you have something else on the broadcaster.

Yeah, go ahead.

You had one of my favorite posts of the week—maybe my favorite post of the month. I’m not going to use the terminology, but it was “The Psychology of a—well, people can figure it out.” It was a little over the top, but I just loved it, because sometimes, in my random ramblings, I talk all the time about sucking my thumb.

Value investors have a huge problem: a stock goes down 20%, and you say, “It’s cheaper than when I bought it. Buy when there’s fear in the streets,” or whatever you want to say. Then the stock’s down 80%, and you’re just wrecked.

Many a firm has gone bankrupt by doubling down, doubling down, doubling down, and the stock goes down and down and down. Fortunately, I’ve largely avoided that, though I’ve definitely doubled down on stocks once or twice too many times. It takes your results from great to average to bad real fast when you have one of those.

Anyway, you had this great post talking about that, and I just love to ask you: why did you publish this? What were you thinking of when you published this post?

I just thought I’m writing this series on QVC. QVC is a value investor favorite, and people have lost a lot of money in that investment over the last 10 years. It’s a Malone special, right? There’s a certain attractiveness to this situation for the value-investing crowd.

As I was writing it, some people got in contact with me arguing why this equity is worth anything at all, and I find that interesting, because the senior debt is trading at around 40 cents, and there’s a bunch of debt in between that and the equity. For someone to argue that the equity has value is interesting.

I have a lot of experience with bagholding, okay? So don’t get me wrong, I’m a bagholder to some extent on this as well, because I’m a value investor at heart. I’ve struggled a lot with the psychology of it. It’s interesting: you’re not supposed to do it, but sometimes you still do it.

It’s like, “Don’t touch the fire,” but you still stick your hand in for some reason. So, anyway, it’s the gambling instinct at the end of the day, and I just wanted to put it on paper.

One, I want myself to look back and think about it whenever I’m trying to add to a position when it’s down, just to remind myself, “Hey, dude, you might be right 70% of the time, but that other 30% is when you’re going to lose all your money.” And also, just to make sure that some of the people in the QVC crowd know that—

Well, I love that you called it QVC. John Malone wrote a memoir, and I think it comes out tomorrow, but it’s going to be my book-club book this month. I remember one of the moments I started studying John Malone—I think it was the 2021 or 2022 annual meeting, but I could be mistaken.

He came out, and somebody asked, “What’s your favorite stock in your empire?” He said QVC. I had been long QVC previously. Fortunately, I wasn’t long then; I didn’t do too poorly on it, but I had been long, so I followed it closely.

I was like, “What is this guy talking about? QVC is drawing dead. Your only hope is some type of miracle, some type of operational miracle.”

Yeah. I think QVC kind of got dealt an unlucky hand. You know, they had the distributor fire and all that, but QVC was clearly drawing at the time. I was like, “Hey, he's just looking at free cash flow yield.” And I remember a few years later he was like, “Discovery is a cash flow machine.” And I was like, man, Discovery—as this was before the Warner Brothers merger and even after they have no sports, they have no premium. Like, they are in a really tough position. And it made me wonder, you know, John Malone, for all his legend, was he a product of the time he grew up in, right? He starts putting cable systems together in the late 70s, early 80s, you know, interest rates come from 18 to 4. Guess what? Any long-lived asset's going to do great under that, particularly when you're running it with a levered financial engineering style like Malone runs. And, hey, the dude's 75. Guess what? Everyone starts to lose their fastball at some point, except for maybe Warren Buffett, apparently. But maybe he just kind of lost his fastball.

Yeah. I think my view is that we come in cycles. Malone had a fantastic track record, but this whole internet—and especially mobile—has just been such a big wave over the last 10 to 15 years. It carried a lot of people out.

If you look at the stress in old media, I don’t know, 50% of it is old media and telecom. SATS, unfortunately, is one of those as well. All these old guys in media who were larger than life maybe 15 or 20 years ago have been carried away by internet companies and platforms.

It’s just a wave, and now we have AI coming, so who knows who else gets carried out? You have to think about that. It’s interesting; I think it’s more about the time than anybody being so smart or anybody being so dumb. It was just luck.

It’s one of the tough things. You can point to a lot of people and say, “Hey, this guy got lucky, right? He YOLO’d into Bitcoin and just bought it the whole way.” Maybe there was some genius there, but a lot of it was probably luck—one trade.

But you look at Malone from the 1980s to 2010, and the man could do no wrong. It’s not just cable, right? He also put together the cable networks and everything. But from 2010 on, the man can basically do no right, to be honest.

Formula 1 is a killer, but I hate to say 2010, because that misses the SiriusXM bankruptcy grand slam, which you can’t take away. But go to 2013: Liberty Global, LILAC, all the Discovery mergers, and you kind of look and wonder, “Was this handled—what happened?”

But that’s probably a conversation for another day. Every one of his companies was old media, and they weren’t able to get over the hump with the internet, platforms, and everything. He was an investor in one theme, and that theme unfortunately didn’t—

But that’s when you wonder: was the man a genius, or was he a one-theme lucky guy? It was all one cyclical bet. We might have to do this next time you come on. Forget SaaS; you and I will talk about it. I just loved the post so much.

I sent it to so many people. I was like, “This is what I talk about when I talk about—maybe not quite as explicitly—but this is what I’m talking about when I’m talking about sucking my thumb on value traps.” You just put it so perfectly. The contempt that you felt for bagholding is the contempt that I feel for myself when I baghold.

Oh, first of all, that was written mainly for me, to me. Okay.

Yeah. I wasn’t—

Yes, yes. It wasn’t for the QVC guys or anything. In fact, I wish they made a lot of money. I wish everybody made a lot of money. It’s more me, me. They inspired me to write that for me, not for them.

I’ll have somebody email me all the time and be like, “I’ve ridden this from 100 to 15, but now’s the time, for X, Y, Z reasons.” I’m like, “Dude, this is the reason you were long at 100.” But I’m seeing a lot of the mistakes that I have made in the past in what you’re saying. Anyway, I just love the post. I thought it was a great way.

Thanks so much for coming on for the second time, and I’m looking forward to the third time.

Thank you very much. I enjoyed it.