EchoStar should be allowed to buy Hughes Electronics and its crown jewel, DirecTV, because the $26 billion merger creates efficiencies that allow the new company to compete head-to-head with cable.
At least that's the argument EchoStar CEO Charlie Ergen made before the House Judiciary Committee and Telecommunications and Internet Subcommittee last week. Only one member—Rep. Rick Boucher (D-Va.)—was clearly in favor of the merger, but many others were open to the possibility. Mostly they wanted to know whether the merger would give their constituents access to reasonably priced multichannel programming and other services. Not surprisingly, Ergen said yes.
His pitch: Let EchoStar merge with Hughes, and the new company will bring local TV signals to the top 100 TV markets as opposed to the 42 markets EchoStar offers now. It will immediately offer 12 channels of HDTV nationwide and expand from there. And it will bring two-way broadband Internet access to every person in America, including hard-to-reach rural areas.
"Without this merger, we won't see broadband access in rural America in my lifetime," Ergen said. Rural America is the linchpin in Ergen's plan.
If he can convince the government that this merger allows him to better serve rural areas, he has a shot at approval. But the Justice Department is expected to look closely at the fact that the merger of the No. 1 and No. 2 satellite-TV companies will leave many rural markets with one multichannel video provider instead of two. That's cause for concern, said Robert Pitofsky, former chairman of the Federal Trade Commission and currently professor at Georgetown University Law Center and of counsel at the Washington law firm of Arnold & Porter, which is representing Pegasus Communications in opposing the deal.
"Mergers that lessen competition in any market are illegal," Pitofsky told the House Judiciary Committee.
Although Ergen has said he is willing to adhere to some sort of national pricing scheme, Pitofsky said that won't solve the antitrust problems. Forging such an agreement would put the government in a position it doesn't want to be in, forcing it to monitor EchoStar for price discrimination and other potential abuses of power. "This deal as proposed has very serious problems," Pitofsky said.
Agreeing with Pitofsky are the National Association of Broadcasters, the National Rural Telecommunications Cooperative, Pegasus Communications and the American Cable Association, all of whom testified last week. Most agree, though, because they fear that an EchoStar-DirecTV combination will be bad for business. NCTA is taking no position on the merger.
NAB, for one, was not jumping at Ergen's offer to extend local-into-local TV service into the top 100 markets. Instead, said Dispatch Broadcast Group President Michael Fiorile, "the merger would end any hope of expanding local-into-local television services in the majority of television markets," of which there are 210. NAB also is concerned that allowing one huge satellite-TV company will lessen broadcasters' leverage during carriage negotiations.
Rural multichannel-TV providers also strongly oppose the deal. Small cable operators are concerned that less competition in rural markets will allow EchoStar to exert greater control over programming, said Neal Schnog, president of Uvision in Stayton, Ore., representing the American Cable Association.
Schnog also is concerned that the FCC will permit rules to expire that require vertically integrated cable operators to sell their programming non-exclusively. That would allow EchoStar to sign exclusive programming deals.