OPPOSITION LINES UP AGAINST DBS DEAL
As expected, NAB and NRTC filed opposition against EchoStar acquisition of DirecTV, in first round of comments (CD Feb 4 p7). Both said deal in any form would hurt consumers and service, particularly in rural areas, because of lack of viable competitor. NAB and NRTC comments were first filings in proceeding that was expected to attract wide range of opinions from interest groups, individuals, trade associations and lobbying groups, FCC sources and industry lawyers said.
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Opponents include NAB, Pegasus, up to 27 states, screenwriters’ union, some civil rights organizations and News Corp., which lost out in bidding for DirecTV. “If things work out, Rupert Murdoch could end up getting Hughes for just pennies on the dollar,” satellite analyst said: “It’s in his best interests to keep pushing for rejection” and widespread opposition. Another industry source predicted “if either merger doesn’t go through, [CEO] Charlie Ergen and EchoStar will survive. He is in a win-win position. The only loser is going to be GM.”
Pegasus said applicants were advancing audacious proposition that exercise of unchecked monopoly power would serve public interest. “The merger is manifestly antithetical” to public interest, it said. Pegasus said cost savings from elimination of competition would be passed on to stockholders in form of $4.2 billion dividend if transaction were approved. It said companies didn’t need deal to compete effectively and provide broadband services.
EchoStar picked up support from Satellite Bcstg. & Communications Assn. (SBCA), several grass-roots organizations and from SES Americom, which decided not to file comments but instead opted to work out differences with EchoStar privately. SES had been expected to file against deal because of concerns about programming and vertical integration, industry sources said. “We had issues, but we aren’t filing,” SES attorney Phil Spector told us: “A lot of other parties will file around our issues. Americom will not be in this fight.” Spector said company still might file in reply comment period if it couldn’t reach suitable agreement with EchoStar.
Deal will result in consumer welfare loss of $3 billion over next 5 years, NAB said. Growth of DBS has been marked by intense head-to-head rivalry, with broadcasters and consumers beneficiaries of competition, it said. Deal would create “monopoly gatekeeper” in large number of local markets across U.S. that didn’t have cable service or had limited analog cable systems. Relentless rivalry has led to local- into-local carriage in 51 markets, but takeover would result in reduction of Multichannel Video Programming Distribution gatekeepers for local programming. NAB said said companies could provide local service into all 210 markets based on engineering reports provided to FCC by EchoStar and DirecTV, and capacity constraint is no longer issue.
NRTC said acquisition would leave rural U.S. consumers vulnerable to increased costs, decreased innovation and lower quality of service. Deal would affect DBS and broadband services for tens of millions of rural households that lacked access to cable or DSL Internet service, group said. EchoStar and DirecTV own satellite broadband carriers Starband and DirecWay, respectively. Consumers would be “trapped in monopolistic vise,” NRTC Pres. Robert Phillips said. Proposed deal indirectly already has stopped development of Ka-band satellite broadband Internet projects, NRTC said.
NRTC said merger would leave 110 markets unserved by DBS and would give EchoStar complete control over all programming available to satellite consumers. Recent $1.5 billion investment by Vivendi in EchoStar raised concerns about vertical integration, along with failure to fully disclose all activities materially related to proposed takeover, NRTC said. Claim by economist hired by EchoStar that company didn’t compete with DirecTV was “unbelievable” and contradicted EchoStar’s statements in court in recent litigation, group said.
Meanwhile, report that EchoStar and Hughes held talks in 1999-2001 to discuss ways to work together while remaining independent may create another obstacle to deal. Wall St. Journal reported Mon. that Dept. of Justice and FCC requested information about meetings and why they fell through. DoJ and FCC officials refused comment. EchoStar spokeswoman said 2 companies did meet, but “didn’t feel it was viable” and 2 companies “couldn’t come to a conclusion.” During that time Ergen was adamantly opposed to deal, spokeswoman said. Idea behind talks was to find ways to pool satellite resources in space while competing on ground. “Friction between the 2 was just too much for an agreement to be made,” satellite analyst said.