Skip to main content

Ergen-omics under attack

It pays to have friends in Washington. Charlie Ergen wants as many as possible. A few extra allies would come in handy as the EchoStar chairman fends off the army of lobbyists lining up to kill his planned $26.8 billion purchase of Hughes and its DirecTV subsidiary.

Last week, his foes presented the FCC with voluminous economic studies they say show that the merger of the country's two DBS providers would turn the TV industry on its head by giving one company unprecedented leverage to determine rates that programmers pay for carriage and to set subscription prices for rural consumers.

Comments on the deal were due at the FCC last week, some delivered on the point of rhetorical knives a long time in the sharpening.

Behind the scenes, the merger has even bigger problems. Rather than weighing in at the FCC, major broadcast and cable networks were said to be working the Justice Department, which is conducting a separate review of the deal and, sources say, will lead the government's investigation. Heading the attack are News Corp., which had been angling to buy DirecTV, and The Walt Disney Co., according to sources following the deal.

Ergen has made some enemies among TV programmers by converting nearly every EchoStar carriage negotiation into a duel of brinkmanship and by fighting the government's effort to require "carry-one, carry-all" of local TV channels. But the accompanying deal to buy Hughes's PanAmSat generates nearly as much fear among the nets. Nearly all contract with PanAmSat for a variety of transmissions, including relaying programming overseas and transmitting signals to stations and cable systems across the country. "He would have a monopoly on the carriage of programming," said one Washington attorney.

Ergen recognizes how hard a job it will be to persuade regulators to put DBS, the bright spot in their decade-long battle to create competition for local cable monopolies, in the hands of a single company. Consequently, he has volunteered what could be called "rate regulation lite" by offering a single national rate, even in rural areas, where consumers traditionally face higher pay-TV prices. Ergen also insists that putting DBS technology into one set of hands will allow him to combine spectrum and offer local channels in more markets. What's more, he pledges to roll out broadband access in rural markets neglected by cable companies.

Opponents find Ergen's promises hollow, and they deride his claim to need more spectrum.

The National Association of Broadcasters and National Rural Telecommunications Cooperative (NRTC), which sells DBS equipment and DirecTV service in rural markets, proffered detailed analyses debunking the public benefits EchoStar says will come with the merger.

According to NRTC, both EchoStar and DirecTV can expand local carriage to the top 80 and 110 markets, respectively, with existing capacity. With one additional satellite, they could reach the top 160 and 187. With digital compression and other signal-massaging techniques, each could reach all 210 DMAs without merging, NRTC says.

Even more damning, it says, EchoStar has no plans to expand service beyond the top 100 markets and, without competition as a spur, it probably never will enter smaller markets.

EchoStar aimed to debunk those claims in data submitted to the House Judiciary Committee last week, which will be made public Feb. 25 when a reply to its critics is due at the FCC. "After the FCC reviews the facts," said EchoStar spokesman Marc Lumpkin, "we're confident the commissioners will conclude the merger is in the public interest."

The American Antitrust Institute, a think tank for academics studying merger regulation, scoffed at EchoStar's national pricing plan, which is supported by Consumers Union as a way to ensure that rural customers receive the benefit of the competition between DBS and cable in other markets.

Univision charged that Ergen's efforts to stall carriage of low-rated local stations amounted to "illegal discrimination" that would only get worse if the sole DBS competitor is eliminated.

The silent-partner role among likely opponents last week was played by the states' attorneys general, who are rumored to be considering their own suit to stop the deal.

Ergen did have enthusiastic friends last week, including the American Farm Bureau Federation and the United States Internet Industry Association, which predict EchoStar will make good on promises to rural markets.

Another supporter, Vivendi Entertainment, is a recent investor with guaranteed carriage of new programming networks and might have a hard time wrapping its business interest in the public interest.

Groups seeking government approval under certain conditions—Consumers Union and public-television groups—have more leverage, but it's unclear how willing EchoStar will be to go along.

If his lawyers' stance is any indication, Ergen is loath to saddle the deal with additional conditions. Donald Russell, a former Justice Department attorney, lauded a new determination among regulators to focus on harms posed rather than on "some independent wish list unrelated to the merger."