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The one that got away

Thu, 10/31/2002 - 7:00pm
Roger Brown, Editorial Director, Telecom Group

Brown
By Roger Brown, Editorial Director, Telecom Group
“A spurned Ergen may be more dangerous to the cable companies”
Charlie Ergen, the scrappy chief of EchoStar, never backs down from a fight. Like a real-life Steven Seagal, Charlie's always been willing to butt heads with virtually anyone–no matter how powerful–in an attempt to get him and his customers a better deal from programmers who always want to raise rates.

That's why it's so surprising that Charlie lost the longest, bloodiest and most important fight of his life when the Federal Communications Commission last month unanimously voted against approving his proposed merger with DBS cousin DirecTV. Although that defeasance didn't officially kill the deal, the chances of it somehow winning approval, even under revised terms, appear virtually impossible.

When Ergen went to Capitol Hill earlier this year to testify, he and DirecTV chief Eddy Hartenstein enumerated the benefits of the merger: EchoStar/DirecTV could use their limited satellite bandwidth more efficiently by eliminating redundancy and offering local channels to more than 100 American cities; they could offer at least 12 HDTV channels; more pay-per-view; tele-medicine and other socially beneficial applications for rural areas; and expedited high-speed Internet access.

And, Ergen noted, a combined company would provide the country with true, effective competition to the cable companies.

He was right about that. In some markets, EchoStar and DirecTV are already giving cable operators fits. Low prices and hammering home the "I'm sick of my cable operator raising rates" message have caused literally millions of people to make the switch. A Goliath EchoStar could apply even more pressure on profit margins.

Unfortunately for Charlie, however, the kingpins on the Hill began thinking he was speaking out of both sides of his mouth. They already thought it odd that he'd want to merge with a company he had sued for anti-competitive behavior. There were fears he would go to programmers for exclusive carriage deals. There were questions about pricing. But perhaps most damaging, he didn't make the rounds on the Hill and press enough of the right flesh.

In the end, the FCC determined that a DBS merger would simply create another monopoly for rural Americans. Fearing that, it put the kibosh on the deal–the first time it's done so in more than 30 years.

Those who know Charlie best suggest that a spurned Ergen is now more dangerous to the cable companies than ever before. Charlie's never been afraid to innovate. He's done a masterful job of adopting new technologies (digital, PVRs) and forced the cable guys to respond or risk losing even more subscribers. He provides the press with wonderful sound bites. He works tirelessly around the clock–and expects his employees to do so, too.

Now, he's no doubt angry. He'll try desperately–but probably fruitlessly–to keep DirecTV from falling into the waiting arms of Rupert Murdoch and/or John Malone. But the scrappy competitor won't go down without a fight. Count on that.

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