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Poor reception to new plan; Analysts not sure of Cablevision's visions of satellite

Mon, 10/28/2002 - 7:00pm
Harry Berkowitz

Copyright 2002 Newsday, Inc.

Newsday (New York, NY)…10/29/2002

From LexisNexis

A plan for EchoStar Communications Corp. to help Cablevision Systems become a satellite TV provider is unlikely to win over government regulators, according to antitrust lawyers and Wall Street analysts.

In what top executives of EchoStar and DirecTV parent Hughes Electronics see as a last effort to salvage their merger, officials discussed that plan yesterday with the Justice Department.

The executives hope the plan to give satellite TV capacity, cooperation and facilities to help Cablevision will overcome the antitrust concerns of the Justice Department and the Federal Communications Commission.

"Cablevision is the only shot that the merger deal has, but it's not a very good shot because there are so many different economic, business and technology pieces of the puzzle that have to come together very quickly for the antitrust guys to say yes," said Blair Levin, a media analyst at Legg Mason in Washington, D.C., and former FCC chief of staff.

The FCC blocked the merger Oct. 10, saying the plan would replace two existing satellite competitors with one combined satellite monopoly. The commission also said that Cablevision could not become a strong competitor quickly enough to change that assessment.

Under the latest proposal, Cablevision would gain control over 62 satellite TV frequencies, covering all of the United States, instead of just 11 frequencies it already has, which would have trouble reaching the West Coast, a source familiar with the details said.

Even without such a boost from an EchoStar-DirecTV merger, Cablevision plans to launch a satellite service next year.

In FCC filings, Cablevision has said that with expanded capacity, it could reach all 210 major TV markets across the country, rather than just 143. It would include 40 high-definition channels nationwide as well as 320 standard-definition channels, plus local channels in all 210 markets.

Cablevision is spending $300 million on the venture this year and says it could cost up to $2 billion. At the same time, Cablevision is trying to close a financing gap of up to $1 billion in its operating budget, including the possible sale of various assets.

Some critics said the EchoStar-Cablevision plan would especially pose a problem in the parts of the New York City metropolitan area where Cablevision provides cable TV service to 3 million homes. The only rivals providing cable or satellite TV service in those areas would be Cablevision and the new EchoStar-DirecTV, which has more than 18 million customers nationwide.

"This is probably a lost cause," said Stephen Axinn, an attorney in Washington, DC, and former Justice Department antitrust lawyer. "I'm very skeptical that within two or even three years Cablevision would mount a serious competitive threat."

EchoStar, which has until Nov. 22 to present revisions of its merger plan to the FCC and appeal the ruling, is trying to convince legislators that the revised plan at least deserves a chance to be reviewed.

"Clearly this is a different deal than the one considered by the FCC," said Ken Johnson, a spokesman for Rep. W.J. "Billy" Tauzin, the Louisiana Republican who chairs the House Energy and Commerce Committee. "If the proposed new deal results in local channels being offered in every market in America, clearly it changes the equation for regulators."

Marc Lumpkin, an EchoStar spokesman, said, "We have been working very hard with regulatory officials and continue to work with them to propose structural remedies."

Meanwhile, Cablevision said a group that according to published reports is seeking investors for the company's satellite venture has nothing to do with Cablevision.

"We find it very curious that an investment solicitation document we have never seen nor been party to, circulated by an alleged investment group we have never heard of, found its way into media reports regarding the EchoStar-DirecTV merger," said Cablevision spokesman Charles Schueler. "We are moving swiftly to ensure that Skyway Capital Partners, or whoever else may be behind this unauthorized activity, cease and desist immediately."

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