Satellite merger could be dead; Justice ready to block marriage of EchoStar, DirecTV

Wed, 10/30/2002 - 7:00pm
David Lieberman

Copyright 2002 Gannett Company, Inc.

USA TODAY…10/31/2002

From LexisNexis

NEW YORK — The Justice Department will file a lawsuit today to block EchoStar Communications Corp.'s $21 billion merger deal with Hughes Electronics, the parent of DirecTV, according to people familiar with the department's plans.

Antitrust regulators concluded that the merger of the two dominant satellite companies, with 19 million total customers, would reduce consumer choice — particularly for people in rural areas with no access to cable. They also see risks of higher satellite service prices and monopolistic behavior toward programmers and retailers. They decided those drawbacks outweigh the potential benefit of strengthening the toughest competitor to cable, which has 72 million customers.

They also rejected EchoStar CEO Charlie Ergen's last-minute proposal to create competition, if the deal was approved, by turning over satellite capacity and equipment to a service planned by Cablevision Systems or to other aspiring satellite providers. Justice officials consider that too speculative: Cablevision has yet to launch its first satellite and faces financial problems at its core cable business.

Antitrust Division head Charles James indicated in a Monday meeting with Ergen, DirecTV CEO Eddy Hartenstein and others that he was unmoved by the 11th-hour compromise from EchoStar, which operates the Dish Network.

James is eager to wrap up the case quickly. Wednesday is his last day at the job; he becomes ChevronTexaco's general counsel December 9. And Justice officials don't want their important announcement lost in the hubbub of midterm elections next week.

The Justice decision is in line with the Federal Communications Commission. It rejected the merger on October 10, though it gave EchoStar and Hughes until mid-November to amend their proposal.

Ergen could try to keep his deal alive by fighting Justice in court. But Hartenstein has said Hughes likely would take its option in the deal's contract to walk away if it isn't closed by January 21.

If Hughes walks away, industry executives and analysts predict the companies will wrangle over EchoStar's agreement to pay Hughes a $600 million breakup fee and to buy its commercial satellite service, PanAmSat, for about $2.7 billion — well above its current market value.

The Justice Department did not return a call for comment. The companies would not say whether they believe officials are moving to block the deal.

"We haven't received any decision from Justice," Hughes spokesman Richard Dore says.

Cablevision said it is still "optimistic that the government will accept" its proposed side deal with EchoStar as a solution to competition concerns about the larger deal.


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