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'One nation,' under scrutiny

EchoStar Chairman Charlie Ergen last week offered his version of "a chicken in every pot": local stations in every dish. But opponents of EchoStar's proposed $29 billion merger with Hughes Electronics, parent company of DirecTV, were not appeased by the companies' new plan to offer local TV signals in all 210 local TV markets.

While broadcasters were clearly interested in the proposal, which would get every TV station in the country up on a satellite, they remained suspicious of its author.

"Today's announcement appears to be a step in the right direction but needs to be carefully scrutinized to determine its legitimacy," said Eddie Fritts, president of the National Association of Broadcasters. "We would have more confidence in the announcement were DirecTV to be the surviving entity. Broadcasters have had a long and tortured history of bad-faith dealings with EchoStar and its chairman, Charlie Ergen. Accordingly, we continue to oppose the merger."

Ergen and DirecTV Chairman Eddy Hartenstein last week said they had not yet walked broadcasters through the plan but intended to as soon as possible.

On the satellite side of the argument, both the National Rural Telecommunications Cooperative (NRTC) and Pegasus Communications—each of which have exclusive deals to sell DirecTV in rural areas—said the plan doesn't solve any of the proposed merger's antitrust problems. Rural areas unserved by cable will still have only one multichannel-TV provider if the Department of Justice and the FCC approve the merger.

"We believe that today's announcement came as a direct result of the ongoing efforts of NRTC, our members, the House Rural Caucus, the House Western Caucus, influential rural-focused organizations and outspoken rural consumers," said Bob Phillips, president and CEO of NRTC. "We must, however, continue to push to ensure they address the other serious shortcomings in their merger application."

"[The plan] is neither sufficient to make the proposed merger of DirecTV and EchoStar in the public interest, nor does it demonstrate that the merger is necessary," said Pegasus CEO Mark Pagon. "Moreover, the merger parties have yet to address the most important question: Will consumers continue to have a choice of satellite-video and broadband-service providers after consummation of the merger? Without the assurance of choice, consumers, particularly those in rural areas unserved or underserved by cable TV, will be left to the mercy of an unregulated monopoly."

But EchoStar and DirecTV, with backing from their trade association, the Satellite Broadcasting and Communications Association, argue that this merger is exactly what consumers need to bring cable prices down.

"We can't be competitive to cable until we can provide local signals to all Americans," said Hartenstein.

Neither Ergen nor Hartenstein would address questions about the possible political motivation of their plan. They instead repeated that offering local TV signals in all local markets would be good business for the new company, saying they would do it even if the government does not require it.

"If this merger is approved, we're going to do this," Ergen said. "It's a good business for us."

The merged company would charge all U.S. consumers the same rate for local TV signals no matter where they live, under a plan Ergen calls "one nation, one rate card."

The local-TV plan laid out by EchoStar and Hughes, Hartenstein said, would require the new company to use the two spot-beam satellites each company already has launched, two additional spot-beam satellites they plan to launch and one additional spot-beam satellite, which will cost more than $300 million. The new satellite could be built, launched and offering all local TV signals within two years of the merger's approval, the executives said, but only if the merger is approved.

"This makes sense only because we would have the spectrum to do it," Hartenstein added.

Carrying all 1,650 local TV stations will take up approximately 30% of the combined company's satellite spectrum. Currently, EchoStar and DirecTV each dedicate about 20% of their total spectrum capacity to the carriage of local TV signals. EchoStar carries local TV signals in 36 markets, while DirecTV offers local TV signals in 41 markets.