EchoStar Ramps Up Wireless War With $17 Billion Deal With SpaceX. The Stock Soars.

A SpaceX Falcon 9 rocket is seen after launch, carrying 26 Starlink internet satellites in June. The company is disrupting wireless communications. (Getty Images)

EchoStar and SpaceX sent shock waves through the wireless communications business Monday with an announcement of a $17 billion deal.

Shares of EchoStar popped. Other telecom stocks took it on the chin.

In a statement, EchoStar said it reached a $17 billion cash-plus-stock agreement to sell the company’s AWS-4 and H-block spectrum licenses to SpaceX.

Spectrum—the frequencies that wireless calls travel over—is a finite resource that every mobile company needs. Just as two radio stations in the same city can’t broadcast on the same frequency, companies such as AT&T, Verizon Communications, and T-Mobile US need spectrum for their customers’ calls and data.

SpaceX will pay up to $8.5 billion in cash and up to $8.5 billion in stock in the transaction. As part of the deal, SpaceX and EchoStar will enter into a long-term commercial agreement that will enable EchoStar’s Boost Mobile subscribers to access SpaceX’s next-generation Starlink Direct-to-Cell service.

SpaceX is developing a service that essentially would let any cellphone user connect to its network, somewhat like smartphone users do when sitting in a coffee shop. SpaceX’s network, of course, is space-based—using its 8,000-plus satellites orbiting Earth to handle data requests.

EchoStar stock rose 19.9%, closing at $80.63. The S&P 500 and Dow Jones Industrial Average rose 0.2% and 0.3%, respectively.

AST SpaceMobile traded as low as $36.50 before recovering to $40.77, down 3.9%. It’s a Starlink competitor, developing space-based broadband with direct-to-cell connectivity.

Shares of Verizon Communications, T-Mobile US, and AT&T fell 2.4%, 3.90%, and 2.4%, respectively. Spectrum prices are skyrocketing, and Boost Mobile is now a better competitor than it was before the deal.

SpaceX has an agreement with T-Mobile for satellite-to-cell service. “We wonder about the T-Mobile/SpaceX relationship considering both the spectrum and [Echostar’s] ownership,” wrote New Street Research analyst Blair Levin on Monday. “We think it will proceed as anticipated in the near term, but wonder whether the longer-term ambitions of both companies will conflict.”

That’s one reason for T-Mobile stock weakness. The wireless trio is also competing more closely with a behemoth. SpaceX is valued at some $400 billion in private markets, making it the most valuable aerospace and defense company in the world.

Coming into Monday, EchoStar had climbed 194% so far this year. Gains were catalyzed by the company’s $23 billion sale of spectrum to AT&T.

The purchase price was $9 billion more than the amount EchoStar paid for the spectrum, and $5 billion more than its appraised value, according to New Street Research analyst Philip Burnett. EchoStar was at risk of losing the spectrum it wasn’t using, and the cash helped repair the company’s balance sheet, which had about $30 billion in debt.

EchoStar has a market value of roughly $25 billion, excluding debt. Its balance sheet repair looks to be done. Burnett notes that the company should have more cash than debt when all the transactions are complete. That process has left it with a stake in SpaceX and is remaking the wireless communications industry.

Write to Nate Wolf at nate.wolf@barrons.com and Al Root at allen.root@dowjones.com