Why EchoStar Stock Plummeted by Over 16% Today

It's almost never encouraging for an investor to learn of a federal government investigation into one of their companies. That was the news driving down telecom services provider EchoStar (NASDAQ: SATS) on Monday; the market shunned the stock, to the point where it closed the day more than 16% down in price. The S&P 500 (SNPINDEX: ^GSPC), meanwhile, had a banner day with a nearly 3.3% gain.

Static on the line

EchoStar is the company that operates both the Boost Mobile budget telecom brand, and the Dish Network satellite TV service.

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The Wall Street Journal reported Monday that the federal government's Federal Communications Commission (FCC) notified company co-founder and chairman Charlie Ergen that it would investigate the company for compliance in building out a 5G network.

The newspaper quoted a letter written by FCC chairman Brendan Carr to Ergen stating that "The FCC structured the build-out obligations to prevent spectrum warehousing and to ensure that Americans would gain broader access to high-speed wireless services, including in underserved and rural areas."

EchoStar has vaulting ambitions to expand its network, but according to the newspaper's reporting, the project has experienced delays and progress has been slow. Boost's subscriber count has declined over the past five years, the Journal added.

The company claims compliance

Neither the broadcasting company nor Ergen has directly responded to the article. EchoStar has maintained that it has met all regulatory requirements, and that its 5G network covers more than 268 million people in this country.

Although it can't be considered an incumbent telecom services provider, Boost Mobile is an assertive operator that has successfully carved out market share. That FCC action is going to hang over the company and its stock like a cloud, so until that situation approaches a resolution, it might be best to sit on the sidelines with EchoStar.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.