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Merger Talk Dominates SkyForum

5/05/2002 8:00 PM Eastern

The merger of EchoStar Communications Corp. and DirecTV Inc. parent Hughes Electronics Corp. could receive the government go-ahead by this fall, leaders from both companies said at the SkyForum conference here last Tuesday.

"We're very confident it will be approved," EchoStar CEO Charlie Ergen said. He added that it would likely take some time for the Federal Communications Commission and the U.S. Department of Justice to review all the documents they had requested. But he predicted there would be an answer within one year of the proposed merger's announcement, which came late last October.

If the merger were approved within that timeframe, DirecTV CEO Eddy Hartenstein said, the companies would be ready to start deploying a new standardized DBS receiver that could take signals from both platforms.

Both CEOs said EchoStar has met its merger-related financial obligations so far, and that Hughes does not have the option of walking away from the deal.

It's too early to speculate which concessions the government might seek in issuing a consent decree for the merger, Hartenstein said. The one deal-breaker would be if the companies were asked to relinquish any of their full-continental U.S. (CONUS) spectrum, he added.

The additional bandwidth that would come from merging the two businesses would help DBS better compete with cable's video-on-demand and high-definition television capabilities.

Amid opposition from the National Rural Telecommunications Cooperative and Pegasus Communications Corp., Ergen continued to argue the merits of the merger.

NRTC CEO Bob Phillips said that rural consumers without access to cable would be dis-served by a DBS monopoly.

"If Mr. Ergen wants to kick off a certain channel, it's gone," Phillips said.

Ergen said the chances of EchoStar's dropping a channel would be reduced after a merger because a combined company would have room for more channels. But bandwidth issues don't always play into EchoStar's decisions to drop certain channels for tactical reasons, during negotiations with programmers.

New DBS competition could also alleviate concerns over a monopoly. Ergen suggested that the NRTC partner with SES Americom in its plans to launch a new DBS service.

"I was here for the last panel [with Wall Street analysts], and heard it would be very difficult to raise the billions of dollars needed to compete with this DBS juggernaut," Phillips said.

When Ergen tried to make the debate personal — calling the NRTC a bunch of whiners who would rather complain than invest in new technology — Phillips responded that the cooperative did make a sizable investment in DirecTV's first satellite, and that without the investment of rural electric cooperatives, many of Ergen's small-town customers would not have the power to turn their satellite dishes on.

Following a merger, Ergen wants to invest in broadband satellite technology that could offer always-on Internet access for as little as $30 to $40 per month, with higher monthly charges for more advanced services.

Pegasus CEO Mark Pagon chastised Ergen for backing away from his investments in broadband via satellite, and then using broadband as justification for the EchoStar-Hughes merger.

Ergen had said he needs the scale of a merged company to justify the high costs of developing a broadband satellite service, noting that companies like WildBlue Communications Inc. and StarBand LLC have not been profitable.

"You put a pretty big hole in both their boats by abandoning them," Pagon told Ergen during an afternoon CEO panel.

Pegasus resells Hughes Network Systems's DirecWay broadband satellite service. StarBand continues to offer its services to rural consumers and small-office workers, but no longer has a distribution partnership with EchoStar.

While Ergen said the rural market would never be served by broadband unless the merger is approved, Pagon argued that additional players would enter the category once they regain access to capital.

"Wall Street is not financing satellite broadband right now, but they're not financing a lot of things," Pagon said. "I don't think you'll see much investing in satellite broadband until there's an answer on whether or not the merger goes through."

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