ERGEN READY FOR REGULATORS’ EVALUATING ECHOSTAR-DIRECTV MERGER

Ergen said companies would file paperwork with FCC and DoJ within 2 weeks. He expects strong opposition from broadcasters and News Corp., saying former, which one day may offer subscription TV services, have financial incentive to block deal. “Our biggest competition in the future may come from broadcasters,” Ergen said: “We have a lot of work to do. We have a lot of powerful, powerful enemies.”

FCC Cable Bureau Chief Kenneth Ferree told reporters that bureau officials would meet EchoStar and DirecTV executives Thurs. on what agency expects to see in application and what questions needed to be answered. “On first blush,” he said, “there are some real serious concentration issues there when you're talking about all of the prime DBS slots being held by a single entity. That is a concern.”

“Historical precedent is not going to change in this case,” Ergen said. He said most people made comparisons to Sprint-WorldCom, but real comparison would be PrimeStar transition to DirecTV. He said WorldCom-Sprint merger combined largest and 3rd largest companies in market that offered same services with no “material efficiencies. Our case is entirely different.” DirecTV-EchoStar combines largest and 6th-largest multichannel companies, he said, but they have only 17% of video market. Deal also offers vastly more benefits to consumers, including wide range of broadband services to rural areas, lower prices and local-to-local, he said. “Those things aren’t going to happen without this merger,” he said. “For knowledgeable people, there isn’t a lot of debate” on whether merger is within regulatory guidelines.

Ergen said he made “$600 million bet” by putting up EchoStar and giving up control of company “without any regulatory certainty” for what he called “compelling transaction” that he said would be “good for American consumers.” He said if merger were rejected, both companies would be “severely weakened.” Ergen admitted companies might lose ground to cable during regulatory process, but “the risk of not doing this is greater.” He said “cable is licking their chops” because of its advantages, but once DirecTV- EchoStar was operating as single unit, playing field would be evened. “No way would I give up control of EchoStar if we didn’t end up with an advantage,” he said.

Biggest advantage will be standardized platform and ability to meet must-carry requirements with local-into-local service in 100 markets instead of 40, Ergen said. He said DBS operators had tough choice whether to provide local-into- local to cities such as Atlanta, Columbia, S.C., Louisville and Memphis. Instead of choosing between Memphis and Atlanta, both cities will now be able to receive local service, Ergen said. Hawaii and Alaska also will receive better service in “postmerger environment,” he said, and “if must-carry is struck down, we can provide service in 150 markets.”

Transition involving companies and equipment won’t be difficult, Ergen said. Customers will receive either new equipment or free upgrade once companies decide how service will be offered after merger: “The industry has never made sense with 2 standards.” He also called Satellite Bcstg. & Communications Assn. “valuable voice to our industry and not just DBS.” He said organization’s role as primary lobbying group would continue despite industry speculation that its role would be diminished if merger were approved.

EchoStar has no interest in acquiring Pegasus “at this point,” Ergen said, and he believes 2 companies and NRTC will be able to continue to work together to provide service in rural areas despite litigation involving carriage and contract rights in rural areas where Pegasus believes it has exclusive contracts with DirecTV. “Our contracts with Pegasus will continue,” he said. “There will be no change in control. Our interpretation is the contracts are slot- specific,” not area-specific. Ergen said Pegasus had no rights to EchoStar and DISH network name because of pending merger. “Pegasus and NRTC have a role to play in the DBS market. Hopefully, they will continue to play that role.” Pegasus and EchoStar each has more than one million rural subscribers.

News Corp. CEO Rupert Murdoch was noncommittal on whether company would take formal action in opposition to EchoStar acquisition of DirecTV, or whether News Corp. would again try to acquire DirecTV if controversial deal fell through. He made comments in answer to reporters’ questions in Wed. teleconference on News Corp.’s first quarter financial report (see separate story, this issue). “We think [merger] is against the public interest,” particularly in rural areas, because it would form U.S. monopoly of satellite programming providers to American homes, Murdoch said.

He predicted a “very long rough ride” for merger to receive govt. approval: “A lot of Hollywood companies may be looking for reassurances [on program carriage from EchoStar] so it wouldn’t surprise me to see lawsuits coming… There'll be a lot of action [in opposition] developing in the next few months and there'll be a long time before it’s [govt. approval] done if it’s done.” Murdoch said he didn’t see News Corp. making another attempt to acquire DirecTV if EchoStar deal fell through “now or in the foreseeable future.” But, he said, “we were disappointed in that outcome” when his attempt to acquire DirecTV failed because it would have been “a great fit” for other News Corp. properties and for its shareholders. Both DBS companies carry Fox cable channels and he said he wasn’t worried about any being dropped even if EchoStar takeover were successful.