StarBand files Chapter 11, blames EchoStar

Satellite-based Internet service provider StarBand filed for Chapter 11 bankruptcy protection yesterday, saying it was forced to file by the actions of minority owner EchoStar Communications.

StarBand, which has 41,000 subscribers, hopes to reorganize and emerge from bankruptcy with restructured debt and new equity. In the interim, the company will continue to sell and commission its service. It has already lined up $2.8 million in debtor-in-possession financing from founding partner Gilat Satellite Networks and is now seeking immediate approval of the financing.

According to StarBand though, the filing would not have been necessary if EchoStar, a 32% shareholder in the company, had lived up to its agreements. As StarBand’s billing agent, EchoStar has not forwarded approximately $2 million fees it has collected, StarBand clamed in a lawsuit filed last week in the U.S. District Court in Alexandria, Va.

As part of the filing, StarBand sought an immediate injunction that would have compelled EchoStar to transfer back StarBand’s customer base and to stop acting as StarBand’s billing agent. The injunction was not granted, however, forcing the issue to a full trial and leading directly to the bankruptcy filing, StarBand said.

Though he wouldn’t directly link its proposed merger with Hughes Electronics as the reason EchoStar hasn’t paid, StarBand’s president and chief marketing officer, David Trachtenberg, does say the relationship between his company and EchoStar began to go bad when the merger was announced.

According to Trachtenberg, EchoStar is trying to make satellite Internet access the focus of the merger. “Their position on high-speed Internet via satellite will not happen unless this deal goes through… Their position is to show it can’t work,” he said.

Citing pending litigation, a spokeswoman for EchoStar declined to comment on the specifics of the situation. She did, however, site the bankruptcy filing as “another indication of how companies are having a difficult time making broadband via satellite economical. We have been saying this for a long time. This is one more example.”