Posted on 10/10/2002 11:17:03 AM PDT by HAL9000
WASHINGTON (Reuters) - EchoStar Communications Corp. was dealt a potentially fatal blow on Thursday in its $16.2 billion bid to acquire rival satellite television provider Hughes Electronics when U.S. communications regulators moved to block the deal.The Federal Communications Commission unanimously voted to refer the deal to an administrative law judge for review -- a process that could take months -- and gave little hope that any remedies proposed by the companies would resolve their concerns.
"Based on the record, the commission cannot find that this merger is in the public interest," FCC Chairman Michael Powell said at a news conference. "The combination of EchoStar and DirecTV would have us replace a vibrant competitive market with a regulated monopoly."
EchoStar and Hughes, which owns DirecTV, have argued the deal would increase competition in the pay-television market, reduce inefficient use of spectrum to deliver programming, and give consumers more local channels and high-speed Internet service.
But Powell said the benefits claimed by the companies were not borne out and instead competition would be harmed, prices would rise and future innovation would be hampered. If the nation's two biggest pay satellite television operators merged, the combined company would have about 18.2 million subscribers.
"The record before us irrefutably demonstrates that the proposed merger would eliminate an existing viable competitor in every market in the country," Powell said.
The U.S. Justice Department's antitrust division is still reviewing the deal and plans to interview EchoStar Chief Executive Charlie Ergen later this month after the companies promised to make major revisions to their deal.
In recent years, the Justice Department typically goes first in deciding whether to allow a merger to go forward. Often times, if the antitrust authorities sue to block a deal, the companies withdraw their proposal before the FCC can rule.
MUM'S THE WORD
The companies could fight before the judge, but analysts have long-predicted the FCC would not approve the deal. It has been at least three decades that the agency has moved to block a major deal.
Spokespeople for the two companies were not immediately available for comment. Before the FCC officially unveiled its decision, a source familiar with the situation said the two firms would submit a revised proposal to the FCC for review.
However, one top FCC official who led the review team for the deal, said that it would be tough for EchoStar and Hughes to overcome the harms outlined.
"There are some significant public interest harms here that require remedy, and as said earlier, it's not clear to me that there is any quick or easy fix to that," Kenneth Ferree, chief of the FCC's media bureau, said at the press conference. "They have quite a hill to climb at this point."
Entertainment conglomerate Cablevision Systems Corp., the No. 7 U.S. cable operator, has suggested the deal could be made acceptable to regulators if EchoStar promised to divest some of its satellite slots to Cablevision.
News Corp., which was in negotiations for years with Hughes before losing a bidding war to EchoStar, has said it would consider carefully resuming its effort to acquire Hughes' DirecTV property if the EchoStar deal falters.
Under the terms of the deal, EchoStar is obliged to pay Hughes a breakup fee of $600 million if the deal does not get FCC approval by early January.
And, despite the FCC opposition, EchoStar is still on the hook to acquire Hughes' 81 percent stake in PanAmSat Corp., which operates 22 satellites for $2.7 billion in cash or a combination of stock and debt.
Shares of Littleton, Colo.-based EchoStar dropped 7 cents, to $16.94 on Nasdaq. Shares of Hughes were down 2.7 percent, or 23 cents, to $8.17 on the New York Stock Exchange.
Does anyone know how this will affect High Definition TV?
Yes, the only the All Mighty State should have that power.
It will be very negative on the satellite companies ability to provide more HDTV channels. HDTV requires a lot of bandwidth and the new merged company was going to provide many additional HDTV channels immediately after the merger.
The new merged company would have also been able to provide local network coverage for virtually the entire USA.
This merger would have allowed the new company to better compete with cable TV companies and would have been very positive for consumers IMHO. Cable would be forced to lower prices or risk losing customers to the lower priced satellite service.
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