More Hurdles for EchoStar-DirecTV Plan

EchoStar Communications knew it was going to have a tough task getting government approval for its planned $32 billion takeover of DirecTV, a deal that would combine the nation's two largest satellite television systems. Just how hard is now clear.

EchoStar's chief executive, Charles Ergen, received a chilly reception last Tuesday in a hearing by the House Judiciary Committee, as legislators scrutinized the merger's competitive impact on rural America. It was only the beginning of a regulatory review process that is expected to take more than nine months.

Then on Friday, the United States Court of Appeals for the Fourth Circuit in Richmond, Va., issued a unanimous ruling that will force EchoStar and DirecTV, which is owned by General Motors, to each begin broadcasting hundreds of additional local channels by the beginning of next month. Even before their merger agreement, the companies had argued that the requirement was a violation of their free speech rights that would force them to tie up too many of their satellite channels.

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As proposed, the EchoStar and DirecTV merger would control 90 percent of the satellite television market. But EchoStar executives argue that the merger should be judged not simply on the basis of the type of satellite television service it and DirecTV provide, but in the context of the entire pay-TV market which includes cable and providers of large backyard satellite dishes much bigger than the pizza-pan-size dishes used by EchoStar and DirecTV.

That argument, however, was not well received by Representative James F. Sensenbrenner, the Wisconsin Republican who is chairman of the House Judiciary Committee. He noted that in a federal antitrust complaint EchoStar filed against DirecTV last year, EchoStar had maintained that big-dish providers were obsolete and declining, but in his Congressional testimony Mr. Ergen said that such companies could pose legitimate competition to the merged EchoStar-DirecTV.
Looks like one of Ergen's famous lawsuits has come home to roost. If this goes through at all, it is going to be a long drawn-out affair, and one can only speculate at what "concessions" are going to be required. Carrying every local channel is only the start. DBS subs who have been expecting the merged company to begin doing business immediately often seem to think of "cable" as one huge evil monolithic conglomerate, with DBS being just a small, friendly group of folk, hardly a business at all. This view is somewhat innacurate. The cable industry may or may not be totally evil, but it is not one monolithic company. Washington is going to take a very close look at any merger which has the potential to make the merged companies the largest provider, no matter what the good or service is that is being provided. Let the games begin.