FCC nixes $14 billion DirecTV merger

WASHINGTON — After approving every major media merger for the past 30 years, the Federal Communications Commission on Thursday resoundingly rejected the $14 billion EchoStar/DirecTV union as a monopoly that could have devastating consequences for the consumer.

The unanimous vote of the Republican-controlled FCC leaves the deal — which would have united the country’s two largest satcasters — gasping for life.

Even if antitrust attorneys at the U.S. Dept. of Justice approve the marriage, which appears unlikely, the companies can’t proceed without the required FCC licenses.

“I decline the invitation to turn our national communications policy back so many years,” Republican FCC chair Michael Powell said. “The combination of EchoStar and DirecTV would have us replace a vibrant competitive market with a regulated monopoly.”

There was no small irony to the FCC vote; it’s supposed to be Democrats who reject mergers, not the GOP. It also was a stinging blow for EchoStar’s Charlie Ergen, the merger’s mastermind.

EchoStar and DirecTV have the next month to decide if they want to appeal the FCC ruling to an administrative law judge, a costly process that could drag on for months, if not several years. Generally speaking, companies caught in the same position have withdrawn their marriage papers.

In a joint statement, the companies said they were “disappointed,” but insisted they weren’t ready to pack their bags and leave the nation’s capital.

“We will continue to work aggressively within the context of this FCC process to achieve approval of the merger. We cannot comment further until we have had an opportunity to evaluate the order, which has not yet been released by the FCC,” the statement said.

But FCC media bureau chief Ken Ferree said he couldn’t imagine a remedy that would make the merger viable.

“They face a very steep uphill battle,” Ferree said. “There is no quick fix.”

When announcing their engagement in December, EchoStar/DirecTV couldn’t have foreseen the fraught path ahead. After all, mergers bigger than theirs had won approval.

The 1990s were witness to one blockbuster deal after the other — Disney and ABC, Viacom andCBS, and the biggest of them all, AOL-Time Warner. Before that, Time Inc. was allowed to merge with Warner Bros., ABC with Capital Cities, and General Electric with NBC.

Not to mention that the FCC and Dept. of Justice are expected to soon sign off on the Comcast-AT&T cable merger.

The last time the FCC nixed a media-entertainment merger was in 1966, when ITT tried to merge with ABC. FCC staffers said they believed that the ITT and ABC did go to the administrative law judge, and that eventually the FCC OK’d the deal. The DOJ, however, did not, so the merger never went forward.

Washington’s review of the EchoStar-DirecTV deal over the past year has been a roller-coaster ride, with Ergen making numerous visits to Capitol Hill, the FCC and DOJ, where he faced many critics.

The chief concern Ergen faced was the issue of rural areas with no access to cable. There was no way to get around the fact that the satellite service would be only pay TV provider in rural regions.

Ergen insisted he would offer a national pricing plan for rural customers.

In all other parts of the country, Ergen said satcasting should be considered a competitor to cable. Thus, there was no reason for Washington to be concerned that it was creating a monopoly.

Ergen also promised to provide local programming in all 210 TV markets.

Conceding that dealings with Ergen hadn’t always been easy, Ferree said there were “questions” about whether the reg agency could depend on the maverick satcasting mogul to keep his word.

Ultimately, the FCC concluded that that a combined EchoStar/DirecTV wouldn’t even drive down cable prices in areas where both offered service. In fact, cable prices could even go up.

“On balance, we found that there would be immediate and staggering harm to the consumer,” Ferree said.

Should EchoStar and DirecTV appeal, Ferree said the burden is on them to prove why the merger doesn’t pose harm to the public interest.

Insiders say Ergen angered Ferree and other FCC toppers earlier this week when asking for additional time, pending further discussions with antitrust attorneys at the DOJ.

“There was no reason for further delay,” Ferree said.

In recent days, Ergen has been pitching various concessions to the DOJ to allay antitrust concerns, including giving up spectrum to smaller satcasters.

Cablevision’s Chuck Dolan has submitted papers with the FCC and DOJ outlining his plan to launch a satcasting service, using spectrum taken from EchoStar.

In a statement issued soon after the FCC’s announcement, Dolan said there is still the opportunity for such a deal.

But Ferree said Ergen never once brought up the issue of giving up spectrum, even in recent days.

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