ECHOSTAR DEAL FACES STIFF OPPOSITION ON HILL

Fritts called merger a “political hail Mary.” He said EchoStar in attempt to gain support was making promises, including local service to all 210 markets, that he doubted company would keep. “Admittedly that sounds great, but just a few months ago, the company was singing a different tune,” Fritts said. He said EchoStar told FCC last Dec. combined EchoStar-DirecTV would be able to serve only 100 markets: “Now, with the merger plan endangered, it has suddenly discovered the capacity” to carry local stations. “We have always asserted that was possible” without deal, he said. Fritts said local stations “have had less than pleasant experience” in dealings with EchoStar: “Naturally, we are concerned that a company that has systematically broken the law will be willing to break a promise.” Bottom line, Fritts said, is that competition brings out best in all companies and deal will eliminate competition. Hartenstein promised that companies would have local service available in all local markets within 24 months following approval.

Kohl said only way he could support deal was with unprecedented govt. oversight: “Unfortunately, experience teaches how quickly these promises are forgotten upon approval and consumers are left holding the bag.” Kohl said he was “very apprehensive and fearful” of approving transaction and 5-10 years later merged EchoStar would decide not to compete on price with cable companies: “Consumers would pay.” Kohl told Ergen deal was “great for you, great for your shareholders, but it won’t be great for America.” Spector said companies had “high mountain to climb.” He said it was “hard to understand, notwithstanding the explanations, how competition” wouldn’t be harmed by deal. DeWine said it faced “some very serious hurdles.”

Former DoJ staffer said senators usually didn’t go after witnesses as they did Ergen and Hartenstein. He said if they had reservations, “they usually keep it to themselves.” Former staffer told us Kohl seemed perturbed by answers of Ergen when asked about national pricing plan and what he would do if local cable companies “lowered rates” to point he couldn’t make profit. However, ex-staffer said hearing probably wouldn’t affect Justice’s final decision because it wasn’t governed by politics.

Witnesses were nearly unanimous in opposition to deal. Pitofsky called it “merger to monopoly” that would “lead to higher prices and indifferent quality that experience shows will follow in the wake of that level of market power.” He said Clayton Act “outlaws a lessening of competition” in U.S. Pitofsky said EchoStar argument that stronger 2 competitors in market was better than 3 weaker ones was rejected in Heinz-Beechnut case, where 2 companies wanted to combine to compete with industry leader Gerber. Merger was challenged by FTC and U.S. Appeals Court, D.C., enjoined it. Pitofsky said national pricing was no substitute for competition. Deal violates all established antitrust law, he said. If approved, he said, “it would send a clear signal to other media companies that the net is down and almost anything goes.”

EchoStar should be required to “implement wide range of protections” for consumers, Kimmelman told committee. He said company should agree to offer same prices, terms and conditions to consumers in rural areas as it did in more competitive areas. He also suggested structural separation (divestiture) of enough satellite capacity to serve rural customers through new satellite competitor. “Rather than reject this proposal out of hand, we would urge the federal government to seize an opportunity to improve consumers’ standing in the marketplace and bring some sorely needed competition” to multichannel video market, Kimmelman said. He also suggested FCC approve Northpoint-Broadwave application that was “caught in regulatory morass” at FCC. He said EchoStar and DirecTV had opposed licensing for Northpoint. Ergen countered that opposition was based on interference, not competition as Kimmelman said.

Despite opposition and tough questioning, Ergen projected confidence merger would be approved. He stuck to his guns throughout hearing, promising lower prices and better service, particularly for rural America. “I don’t think we have an uphill battle,” he told us afterward: “The facts are on our side. The burden of proof is on us. They may require oversight, but that’s not a problem.” Ergen said he didn’t feel questioning was unfair: “We don’t feel we got beat up. A lot of good give-and-take. The questions were fair. The questions were insightful.” Ergen also said during hearing that EchoStar and DirecTV would move forward with appeal of must-carry rules to U.S. Supreme Court. Companies have 2 days to file final appeal of decision by 4th U.S. Appeals Court, Richmond. EchoStar has argued must-carry rules are unconstitutional. “We have an obligation to consumers to exercise our constitutional rights,” Ergen said.