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FCC Denies EchoStar, DirecTV Merger

10/14/2002 02:00:00 AM Eastern

Ignoring last-minute requests from the nation's two largest satellite TV providers for a decision delay, the Federal Communications Commission unanimously rejected the $13 billion merger of EchoStar Communications and DirecTV.

The FCC said the combination of the satellite providers "would eliminate existing facilities-based intramodal competition and replace it with a proposed national pricing plan, which would have to be enforced by regulatory authorities."

In a statement on the decision, FCC Chairman Michael Powell said the merger "would have us replace a vibrant competitive market with a regulated monopoly. This flies in the face of three decades of communications policy that has sought ways to eliminate the need for regulations by fostering greater competition."

He said the elimination of choice from rural Americans who are not served by a cable operator made the denial "particularly compelling."

The FCC statement also said the record "does not support a conclusion that the combined spectrum resources of EchoStar and Hughes/DirecTV are necessary for deployment of viable satellite-delivered broadband services."

The FCC gave the satellite providers "30 days to file an amended application to ameliorate the FCC's anti-competitive concerns and to file a petition to delay the hearing."

EchoStar released a statement saying, "EchoStar, Hughes and General Motors are disappointed that the FCC has designated the matter for administrative hearing. We will continue to work aggressively within the context of this FCC process to achieve approval of the merger. We cannot comment further until we have had an opportunity to evaluate the order, which has not yet been released by the FCC."

The chairmen of both satellite networks spoke a day earlier at the SkyForum seminar in New York.

EchoStar CEO Charlie Ergen said the companies asked the FCC for a delay in its decision, while they submitted "structural remedies" to address some of the concerns raised by the Justice Department (DOJ) on the merger proposal.

Ergen pleaded with the FCC to hold off on the decision until it had received a complete record on the issue resulting from the amendments prepared for the DOJ. He said the companies had received very little feedback from the FCC to that date, but were hopeful the commission would consider the full record.

"We don't want to be in a situation where cable rates go up at three times the rate of inflation next year, and the FCC had a chance to stop that from happening," he said.

Ergen said both companies agreed the arrival of digital cable has changed the competitive landscape significantly and independent companies would be hard pressed to compete for all of the nation's 100 million households without combining resources — particularly their satellite spectrum.

The companies planned to make efficient use of their satellite transponders located at three full CONUS orbital slots to provide full local-into-local TV channel carriage across the country, offer satellite delivered broadband Internet services and carry up to 12 high definition TV networks.

During the seminar both satellite CEOs dodged questions on how they thought federal regulators would ultimately rule, but Ergen used the opportunity to jab rival Rupert Murdoch's News Corp., which has opposed the merger and has received the support of various religious broadcasters. Murdoch has denied lobbying against the plan.

Murdoch is considered a likely candidate to step in and attempt a purchase of Hughes/DirecTV from parent General Motors if the proposal is ultimately denied.

DirecTV chairman Eddy Hartenstein indicated that the deadline for a decision is Jan. 21, 2003 — the contractual breakup date for the deal.

If a deal is not in hand by that date "it's a fair assumption that both companies would go our separate ways and move on," he said. He said DirecTV is at a better stepping off point to continue on along than it was a year ago. He acknowledged the merger contract is clear that EchoStar would owe DirecTV a $600 million breakup fee and would have to purchase its struggling Panamsat operation if the January 21st date was passed without a merger.

Ergen dodged the breakup fee issue, stating that the contract also lists conditions under which DirecTV would owe EchoStar a $600 million breakup fee. He also dodged a question asking if DirecTV had fully lived up to its agreement to give the merger its full support and cooperation.

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