With the proposed merger of EchoStar and DirecTV parent Hughes last week, the government may finally get the cable competition it has been looking for, if it doesn't suddenly get cold feet.
If this deal passes muster at Justice and the FTC, the FCC should approve it as well.
EchoStar Chairman Charlie Ergen, who was looking like the cat that swallowed a canary named Rupert, pledged to go hard after cable with his new combined company. The success of this merger in terms of increasing competition in the pay-TV marketplace, and in justifying our support for it, depends on his following through with that promise. It's expensive to acquire new customers—a $500-$600 per pop—and there could be a temptation to milk existing subs rather than round up new ones. That way lies trouble.
Fortunately for Ergen, FCC Chairman Michael Powell has shifted the commission's course (B&C, Oct. 1) from one of strict limits and a presumption of monopoly based on an outdated scarcity rationale to a more streamlined review that measures true market power and competition. That should mean this merger won't remain in a holding pattern at the FCC. To that end, we were impressed that Powell has already named a team to review the merger.
Not surprising, Senate Commerce Committee Chairman Fritz Hollings, was chief handwringer last week. "I'm troubled by the prospects of the two largest satellite companies becoming one. That kind of consolidation would leave consumers with few, if any, choices." We think he's got it all wrong.
The DBS industry was nurtured by a Congress concerned that the pay-TV market lacked real competition. The 1992 Cable Act effectively created the DBS business when it handed satellite operators the keys to cable's programming store by guaranteeing nondiscriminatory program access. The Satellite Home Viewer Act added local signals to sweeten the deal. If those are the first two legs of the stool, the merger of DirecTV and EchoStar could be the third. A DBS operator standing toe to toe with cable should lower rates and might even give broadcasters more leverage in retrans negotiations.
But what of Hollings' complaint about few choices? Nonsense. In 1998, Justice said the multichannel video business, cable and satellite, was one market. Well, that one market now has even more players, or soon will. It includes cable, DBS, broadcasters (when the transition to digital allows for ancillary services), and the Internet, which may be the sleeper. For example, we reported last week on a move by National Geographic to digitize its TV programming and market it over the Internet.
So, let's recap. Justice has legitimate concerns that Ergen won't go after cable, but will instead go after cash, but those concerns shouldn't scotch the deal. The Hollings scarcity argument: Forget about it. We say, let DBS heavy up and may the best service(s) win.