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EchoStar faces tough anti-trust fight

After besting Rupert Murdoch in their chase to buy DirecTV, EchoStar
Chaiman Charlie Ergen's ability to keep his prize hinges on his ability to sway
anti-trust regulators.

The big issue is that merging EchoStar and DirectTV parent Hughes Communications will combine the only two DBS players into one. That clearly reduces the number of competitors, but the legal question is whether it reduces the amount of competition.

In most local markets there are now three ways to but MTV or ESPN, two DBS services and the local brach of what Ergen likes to call "the cable monopoly". But now there will be a "DBS monopoly", and the number of local outlets will now drop to just two. And some rural markets are served by weak system with 30 channels or less and in around 5-7% of the country there is no cable at all.

Ergen contends that the combination will enhance competition in the video market because it will make EchoStar an even stronger rival to cable operators. With 67 million subscribers, cable operators have about 79% of the multichannel video market. EchoStar and DirecTV combined have about 20%.

"Certainly there are concerns the regulators should have, but we are confident this should be approved," Ergen said. He is also offering to guarantee uniform pricing so rural customers won't have to pay any more for service than those in cities and suburbs.

Washington insiders expect the Department of Justice will review EchoStar's proposed purchase of Hughes Electronics because it reviewed News Corp.'s failed purchase of Primestar in 1998.

When the Justice Department blocked that merger, it said the multichannel video market comprised of both satellite and cable should be viewed as one market.

On Tuesday, Ergen and DirecTV Chairman Eddy Hartenstein will begin a round of Washington visits. The two plan to pay a visit to House Energy and Commerce Chairman Billy Tauzin (R-La.), among others.

Ergen might have more trouble in the Democrat-controlled Senate than in the House, starting with Senate Commerce Committee Chairman Fritz Hollings (D-S.C.): '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. Our committee will continue to look into this and other consolidation-related matters,' Hollings said in a statement.

The deal derails an 18-month campaign by Murdoch's News Corp. to add DirecTV to his international DBS portfolio. The $30 billion deal should take 9-12 months to complete.
- John M. Higgins