Posted on: Tuesday, October 30, 2001
EchoStar touts DirecTV deal
By Jon Sarche
Associated Press
DENVER — EchoStar Communications Corp.'s planned $25 billion takeover of rival DirecTV should be seen not as creating a satellite television monopoly but rather as boosting competition in the overall pay TV market, executives said yesterday.
"The government in 1980 set up the direct broadcast spectrum to compete with cable," EchoStar chairman and CEO Charles Ergen said Monday. "Finally, for the first time, the government can see that vision come to fruition with the combination of these companies."
On Sunday, EchoStar, which runs the Dish Network, announced plans to buy Hughes Electronics and its DirectTV unit from General Motors Corp. If regulators approve, EchoStar would control 91 percent of the U.S. digital satellite TV market and 17 percent of the pay-television market.
At a New York news conference, Ergen told reporters and analysts yesterday that the deal would create "a true competitor to cable," which continues to hold local monopolies.
Ergen also said the new company would be able to drive down costs by combining satellite assets, bargaining for lower programming costs and having a single standard for set-top boxes. It would also accelerate delivery of high-speed Internet access, he said.
Ergen estimated the merger would save the combined companies $5 billion per year by 2005.
EchoStar spokesman Mark Lumpkin in Littleton said no breakdown was available yet on how the savings would be achieved. He also would not say whether there would be job cuts.
The Federal Communications Commission had no comment on the deal.
Richard Doherty, a cable and broadcast analyst with the Envisioneering Group, called the deal a "godsend" for rural Americans, strengthening TV and Internet offerings for them.
He said it would also "turn up the heat on local cable operators and local telephone companies."
EchoStar will propose a nationwide flat rate as a way to ease regulators' concerns, Ergen said, but he did not elaborate. However, he said, the company has no choice but to make its pricing competitive with cable.
"Cable has a huge advantage in incumbency," he said. "Consumers won't change unless you have a compelling new product, and by putting together these two companies we have the opportunity to provide a better service at a lower price."
But some antitrust specialists were skeptical.
Garret Rasmussen of the Washington, D.C., law firm of Patton, Boggs, gave the merger a 25 percent chance of winning regulatory approval.
"They're making the argument that this will allow them to be more effective against cable TV, but that argument gets made all the time in these kinds of mergers," he said.
With 10 million subscribers, DirecTV is the largest provider of home satellite television service in the United States. EchoStar's Dish Network is a distant No. 2 to with 6.7 million. The combined 16.7 million subscribers would be slightly fewer than those of AT&T Corp., the leading cable TV provider.
The National Rural Telecommunications Cooperative, which resells DirecTV programming and equipment through a company called Pegasus, has the remaining 9 percent of the home satellite television market.
Ergen estimated it would take up to six months to achieve GM shareholder approval, and up to a year to win regulatory approval. EchoStar shareholders have already approved the merger.
The chairman and ranking member of the Senate Judiciary subcommittee on antitrust said they anticipate hearings in the current congressional session.
"While it clearly raises serious antitrust concerns, they are not necessarily fatal to the deal," said Sens. Herb Kohl, D-Wis., and Mike DeWine, R-Ohio, said in a joint statement.
Ergen said EchoStar will do what it takes to ensure approval. He and DirecTV chairman Eddy Hartenstein planned to meet Tuesday with House Energy and Commerce Committee Chairman Rep. Billy Tauzin, R-La., to discuss the merger.
"The question we have to answer is how do you define competition in today's evolving marketplace," said committee spokesman Ken Johnson. "Is it satellite vs. satellite, or satellite vs. cable. Simply put, will this deal leave consumers with fewer choices or better choices?"
The deal was struck Sunday after News Corp. chairman Rupert Murdoch abruptly pulled a long-standing offer for Hughes off the table. Ergen then pledged some of his personal EchoStar shares as collateral after one bank backed away from the deal.
Under terms of the deal, GM would spin off Hughes and merge it with EchoStar.
EchoStar is offering 0.73 EchoStar shares for each share of Hughes.
Ergen would remain chairman and CEO of the new company. The board of directors would consist of nine members, five of whom would be independent directors.
