ECHOSTAR HIGHLIGHTS CONSUMER BENEFITS OF MERGER IN FCC FILING
GM, Hughes and EchoStar filed applications at FCC for approval to transfer control of licenses to merged company, companies announced late Mon., outlining plans and goals of merger. There wasn’t much new in filings, which presented familiar EchoStar positions for antitrust approval of DBS merger despite opposition from Hill and broadcast industry. Primary factor was much-repeated premise that Hughes-EchoStar merger would provide many benefits for consumers (CD Nov 30 p6), including more choices, better programming, competitive prices and viable alternative to cable. EchoStar also promised improved DBS service to Hawaii and Alaska. “There will be no anticompetitive multichannel video programming distributor market effects with the proposed transaction” filing said.
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EchoStar was chosen by GM as Hughes merger partner because of “extraordinary spectrum efficiencies and cost and revenue synergies,” filing said. Decision should result in reduced subscriber acquisition costs (SACs), improved signal security, reduced programming costs and elimination of duplicative overhead, it said. Merger will liberate bandwidth because duplicative programming will be eliminated, EchoStar said -- EchoStar and DirecTV have 150 channels that offer same programming. Spectrum inefficiency is competitive impediment for DBS providers because of must-carry regulations, filing said. New EchoStar will increase local programming to 100 markets -- 85% of U.S. households compared with 42 served by either DirecTV or EchoStar. EchoStar is in 36 markets and DirecTV 41, with 35 overlapping.
Companies plan to transition to common set-top box platform immediately after merger, they said. New EchoStar would institute exchange program that would be conducted seamlessly and at no cost to existing subscribers. During transition period, satellite signals would be simulcast or simulcrypted so subscribers owning either set-top box platform could continue receiving programming without interruption.
EchoStar-Hughes merger should be evaluated as Multichannel Video Programming Distributor (MVPD) in antitrust review, said Princeton U. economist Robert Willig. Willig, hired by EchoStar and Hughes, said he came to his conclusions after analyzing public documents and interviewing senior officials of Hughes and EchoStar. He said “nature of competition in the MVPD market makes it unlikely a merger would result in higher prices and lower output through either coordinated behavior among participants in the MVPD market or unilateral behavior” by merged company.
DBS prices are directly constrained by cable prices so relevant market for merger must include cable companies, Willig said. EchoStar and DirecTV made marketing decisions based upon efforts to lure consumers away from leading cable providers, not each other, he said. Justice Dept. said cable industry had distinct advantage because it could provide consumers with local broadcast services in local markets, but must-carry had made cable and DBS closer, Willig said. FCC concluded that DBS distributors competed with other MVPDs using different transmission media and that competitors in MVPD market included cable operators, DBS operators and other technologies such as wireless cable. In addition, majority of new DBS customers come from cable. Cable companies have said pricing decisions and advertising strategies are influenced by DBS competition, Willig said.
New EchoStar would redeploy satellite fleet to maximize use, filing said. Under one possible scenario, most national programming could be placed on 32 DBS frequencies at 110 W, with most Western U.S. local and specialty programming moving up to 119 W and most Eastern U.S. local and specialty programming to 100 W. Another option would be to place national programming on 32 DBS frequencies at 100 W, with corresponding local and specialty programming at other CONUS slots. With spectrum freed up by merger, New EchoStar said it would be able to develop new independent programming services and up to 12 channels of high-definition TV.
Meanwhile, Northpoint rejected EchoStar proposal that its service be deployed in CARS band, rather than DBS band. Northpoint called suggestion “cynical anticompetitive proposal that is an attempt to wound both cable and Northpoint with one stone.” It said EchoStar was seeking to ensure its customers were captive to single provider. DirecTV-EchoStar merger bid may be hurt by bankruptcies of Classic Cable and Galaxy Telecom, said satellite analyst Armand Musey of Salomon Smith Barney in research note. He said Classic filing “would appear to illustrate the bleak plight of many rural cable systems and make it somewhat more obvious that the number of areas where DBS is, or will be, the only multichannel option is expanding, particularly in rural areas.” He said if financial troubles of Galaxy and Classic were “the beginning of a trend, the anticompetitive concerns of the regulators will be even greater.”