The Daily Breeze

December 5, 3002

Satellite TV Giants Grilled on Merger

Copley News Service

WASHINGTON -- The proposed merger of El Segundo-based DirecTV and EchoStar Communications Corp. faced congressional scrutiny Tuesday, with lawmakers appearing split on whether the marriage of the satellite TV titans would be a good deal for consumers.

In two separate hearings on the issue, several lawmakers expressed concern that EchoStar's acquisition of Hughes Electronics Corp., the owner of DirecTV, would reduce competition in the pay TV market by leaving only one major satellite company to compete against cable in most areas. 

Moreover, millions of rural customers who cannot get cable television would have no choice other than EchoStar, they said.

But other lawmakers argued that the merger would benefit consumers by beefing up satellite TV offerings and providing a product better positioned to compete with cable.

Rep. Jane Harman, D-Redondo Beach, worried that the merger could cause even more job losses in the South Bay, which has been battered by the economic downturn following the Sept. 11 terrorist attacks. Hughes employs more than 1,300 workers in the area, she said.

Harman reserved judgment on the deal, however.""My position right at the moment is to express concern,'' she said.

While Congress has no direct say in whether the merger is approved, lawmakers' views carry weight with the regulators who must sign off on the deal.  The hearings before the House Judiciary Committee and the Telecommunications and Internet Subcommittee also provided a glimpse at the arguments that will be weighed by the Justice Department and the Federal Communications Commission.

DirecTV Chairman and CEO Eddy W. Hartenstein and his counterpart at EchoStar, Charles W. Ergen, argued that the merger would create a more formidable competitor for cable television. Duplicate channels could be eliminated, making room for new services like high-speed Internet, high-definition programming and more local channels, they said.

""It became clear to us that the most efficient use of the limited DBS (direct broadcast satellite) spectrum could be achieved by a merger of EchoStar and DirecTV,'' Hartenstein said. He called the deal ""pro-competitive and pro-consumer.''

But foes of the merger said it would lessen the competition that Congress has tried to foster in the pay TV market.

""This merger, if approved without modifications, would create a formidable satellite monopoly,'' said Marshall Pagon, CEO of Pegasus Communications Corp., a small rural satellite provider. ""Such a result would be directly contrary to the central premise of U.S. anti-trust law and policy of the past 100 years.''

Some lawmakers echoed those concerns.

""Because millions of rural homes do not have cable access, a combined company would create a single multi-channel video provider in these areas,'' said House Judiciary Committee Chairman James Sensensbrenner, R-Wis. ""For millions more in urban areas, a merger will create a single provider in the (satellite) market.''

But Ergen said the combined company would have only 17 percent of the multi-channel video market, "hardly a monopoly.'' Cable companies control 80 percent of the market.

He also said EchoStar would adhere to a nationwide pricing policy that would not result in higher prices where there is less competition.
Rep. Rich Boucher, D-Virginia, was convinced by the arguments and the promise of new services.

""In my opinion, this acquisition is definitely in the interest of my constituents and rural Americans,'' said Boucher, who represents a heavily rural district. ""I have no doubt that the merger will benefit consumers by making the new company a stronger competitor to cable TV.''

Colorado-based EchoStar struck a $26 billion deal to acquire Hughes from General Motors in October. On Monday, the companies petitioned the FCC for approval of the plan.

The merger would make EchoStar the single largest pay television provider in the country, with nearly 17 million subscribers. The nation's biggest cable company, AT&T Corp., has 13.7 million subscribers.