Copyright 2002 Gannett Company, Inc.

USA TODAY…09/25/2002

From LexisNexis

Justice Department staff is recommending the agency block a proposed merger of the USA's two main satellite TV providers, EchoStar Communications Corp. and DirecTV, people familiar with the matter say.

The merger would reduce the number of pay TV companies to two from three in most markets served by cable and satellite. In rural markets with no cable, consumers' choices would be narrowed more dramatically, to one satellite company from two.

Prosecutors plan to argue that the merger also would harm the 30 percent of consumers who can't get digital cable. Those who want digital TV would have one choice: the satellite monopoly.

The staff recommendation has not been officially delivered to Justice antitrust chief Charles James, people close to the matter say. But James has been closely monitoring the review and has signaled his apparent agreement.

Asked about the merger at a Senate hearing last week, James said, "At best, it is a 3-to-2 merger," adding, "in some instances a 2-to-1 merger."

The Federal Communications Commission is in the early stages of its review of the merger.

Justice and at least a half-dozen states are expected to announce in several weeks that they are prepared to go to court to block the deal.

That announcement has been delayed as officials review Cablevision's assertion that it could be a new rival to the combined company. Cablevision officials have asked Justice and the FCC to force EchoStar, as a merger condition, to give them some of its orbital transponders for a new satellite service they plan to roll out next year.

The idea is getting little traction at the agencies, where officials doubt the upstart could replace the lost competition, say people familiar with the matter. Cablevision would be "a potential competitor that's 20 million subscribers behind the (satellite) leader," says George Reed-Dellinger of Washington Analysis. Another issue: The transponders Cablevision would get could not serve the western USA, analysts say.

EchoStar and DirecTV argue the merger would enhance competition by forging a bigger satellite company that could challenge cable. The new company, for instance, would have more satellite capacity to offer local broadcast channels, which now can be offered in few markets.

EchoStar also has proposed offering a nationwide price, so rural customers could benefit from the low pricing cable competition brings to urban areas. But former Federal Trade Commission official Marc Schildkraut says regulators prefer that market forces dictate prices.