Winter got even more bleak for the EchoStar/DirecTV merger Monday, as several high-powered foes cranked up their opposition to the deal in Washington and Wall Street gave the would-be partners a poor prognosis.
In another ominous sign, a key Capitol Hill solon told antitrust toppers at the Dept. of Justice that he fears the deal poses a monopolistic threat. In a Jan. 25 letter to Attorney General John Ashcroft, Sen. Orrin Hatch (R-Utah) said he has serious concerns about clearing the merger. Deal must be blessed by both Justice and the Federal Communications Commission. Hatch is the ranking Republican member of the Senate Judiciary Committee, which has oversight of the Justice Dept.
“I have long been concerned about competition in digital environment and information services, and the harm that can befall consumers when gatekeepers limit consumer choices by limiting access in anti-competitive ways. This concern has arisen in a number of contexts recently, from the Microsoft case to the AOL Time Warner merger, and appears to be presented squarely by this merger,” Hatch wrote.
Criticism comes as EchoStar’s regulatory battle hits a fever pitch, with many satcasting industry watchers giving the deal a 50/50 chance — at best — of clearing. Compared to the EchoStar/DirecTV deal, there was never serious speculation that the AOL Time Warner deal would be rejected in Washington.
NAB in opposition
The National Assn. of Broadcasters, one of several power brokers filing comments with the FCC on Monday opposing the deal, said the agency should reject the merger. The NAB warned that the pricing power of a combined EchoStar-Hughes could cost consumers more than $3 billion over the next five years.
Deal, which would whittle the field down to just one player in the fast-growing direct-broadcast satellite market, also bodes ill for rural TV watchers, the org said.
“The merger would create a monopoly ‘gatekeeper’ in large numbers of local markets across the United States that do not have cable service or that have limited analog cable systems not competitive with cable,” the NAB said.
Even in markets where cable is available, it added, consumers would be subjected to a “gatekeeper duopoly between EchoStar and the cable incumbent.”
Also stacking up against EchoStar and Hughes, which if combined would have roughly 17 million satellite subscribers nationwide, were the National Rural Telecommunications Cooperative and Pegasus Communications, which sells satellite TV hardware.
“Tens of millions of rural homes have no access to multichannel television programming except through the satellite television services offered by DirecTV and EchoStar,” NRTC prexy-CEO Bob Phillips said. “And each of these consumers will be trapped in a monopolistic vise if the commission approves the merger.”
Also filing comments Monday was the Regulatory Commission of Alaska, which said it doesn’t support the deal unless certain pricing conditions are established.
EchoStar topper Charlie Ergen has insisted that the combined company would institute a single nationwide pricing plan to prevent discrimination from market to market. But opponents were skeptical, claiming that Ergen has backed away from similar commitments in the past.
Carmel Group senior analyst Sean Badding hesitated to give odds on the merger’s passage through the regulatory gauntlet, but did say that the outlook has been darkening steadily for months.
“What seems at one time like a deal that was almost sure of going through now seems quite the contrary, primarily because Charlie hasn’t been able to drum up the industry support he so desperately needs,” Badding said. “That makes it a much more difficult sell.”
Supporters line up
Deal did find some fans among the batch of Monday’s FCC filings, including the Washington, D.C.-based Competitive Enterprise Institute, which said there is no good argument against the merger. The institute said satcasting should not be considered a standalone industry and DBS provides necessary competition to the cable biz.
“In addition, were the FCC or the Dept. of Justice to disapprove of the merger, there is no guarantee that both companies, or either, would remain viable,” said Institute senior fellow James V. DeLong.
Several state legislatures endorsed the merger, saying it would speed the deployment of broadband services to rural areas.
Notably absent from filing comments was News Corp., which lost out on its own bid to buy up DirecTV. Behind the scenes, News Corp. execs are fighting the deal, especially on the grounds that the merger would create a programming monopoly. News Corp. and other entertainment congloms are likely communicating their concerns with antitrust toppers at the Dept. of Justice.
Still, EchoStar has made a habit of overcoming daunting odds and formidable opponents like News Corp. chief Rupert Murdoch, Badding said.
“You don’t ever want to rule Charlie out; he has an uncanny ability to pull deals out of nowhere,” he said. “That said, let’s face it: He’s got a lot of formidable opponents lined up against him right now.”