Justice Dept. staff advises against satellite TV merger

EchoStar-DirecTV deal is called anti-competitive

September 24, 2002|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - Staff members of the Justice Department have recommended that the government block the proposed $11.2 billion merger of the two largest satellite television broadcasters, DirecTV and EchoStar, because it would be anti-competitive, lawyers involved in the review said yesterday.

If approved by Charles A. James, head of the Antitrust Division, the decision to block the merger will be a major victory for Rupert Murdoch, chairman of News Corp., who had sought unsuccessfully to buy DirecTV.

Companies controlled by News Corp. dominate satellite television in Britain and Asia, and Murdoch has waged an expensive and elaborate political and legal campaign to stop the EchoStar deal so that he can buy DirecTV and add an important piece to his media empire.

A decision to bar EchoStar Communications Corp. from buying its only rival also would reflect a rare instance of opposition to a corporate merger by the Bush administration.

The lawyers said the Antitrust Division had opposed the deal because in many markets it would reduce competition from three companies - the two satellite providers and a cable television company - to two, while in rural areas not served by cable it would eliminate competition.

The satellite companies argued that the deal should be approved because it was the only way to effectively compete against increasingly large cable television companies, which control about 80 percent of the subscription-TV market.

They also said that a merger would enable the combined company to broadcast local programming better.

Charles W. Ergen, EchoStar's chief executive and architect of the merger, has repeatedly predicted that regulators will come to see the deal as a competitive salve in a market that has had significant consolidation since enactment of the Telecommunications Act of 1996.

EchoStar's proposed purchase of Hughes Electronics, DirecTV's parent, from General Motors Corp. would create a company with more than 16 million subscribers, which at the time it was announced would have been the largest paid-TV company in the nation.

Comcast has since moved to buy the cable television assets of AT&T, which would create a cable television company with more than 22 million subscribers.

From the day it was announced, the EchoStar proposal ran into problems, many of them from Murdoch. It has provoked strong protests from lawmakers across the nation.

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