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GM hands off DirecTV to EchoStar

Fri, 11/30/2001 - 7:00pm
Staff

Following months of negotiations, EchoStar Communications Corp. finally emerged as the winner of the DirecTV Inc. sweepstakes.

In another deal in which Charlie Ergen appeared to have gotten the best of News Corp. Chairman Rupert Murdoch, EchoStar is set to merge with General Motors Corp.'s Hughes Electronics Corp., which owns DirecTV, for the lofty sum of $28.5 billion.

In a deal that will merge DirecTV's business and broadband assets, EchoStar, provided it passes regulatory muster, will likely come out of the deal with more than 16.7 million subscribers—about 3 million more than the nation's largest MSO, AT&T Broadband, which has about 13.7 million subs.

While cable operators cover 80 percent of the U.S. pay TV market, a combined EchoStar-DirecTV would provide service to about 17 percent.

EchoStar's Ergen claimed the combined company would become a strong cable competitor. "This is the first time we can put a company together to do that at all levels," he said during a press conference when the deal was announced.

The fused company will retain the EchoStar name, but adopt the DirecTV brand for services and "related products." Upon closing, Hughes shareholders will own 53 percent of the merged giant, EchoStar shareholders will own 36 percent and GM will own 11 percent.

On the technical front, questions remain as to how the companies will integrate the service components such as satellite slots, receivers and conditional access systems. However, the companies will have plenty of time to iron that out, since the deal will likely take several months to close.

On the high-speed data side of the equation, both EchoStar and DirecTV are marketing broadband satellite services. EchoStar today offers services from Ku-band-based Starband, and has a vested interest in WildBlue, a Ka-band service provider. DirecTV, meanwhile, has marketed its DirecPC product for several years, and has its feelers into the DSL space via its DirecTV Broadband Inc. division, which recently inked a "last-mile" carrier deal with Verizon to gain access to markets such as Dallas, Los Angeles, Portland, Seattle and Tampa. DirecTV Broadband, which came into being following Hughes' acquisition of Telocity, also has similar agreements with Qwest Communications and other incumbent phone companies.

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