Analysts: D.C. OKs No Big Deal

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Washington— SBC Communications Inc.'s potential bid to acquire direct-broadcast satellite provider DirecTV Inc. would have a strong chance of obtaining federal regulatory approval, analysts said here last week.

Legg Mason media and telecom analyst Blair Levin told clients in a research note that an SBC-DirecTV deal would represent a "vertical" merger between noncompeting firms that would likely bypass a battle with antitrust authorities.

It was possible that antirust enforcers might question whether the merger would reduce SBC's incentive to upgrade its network with fiber to provide video in competition with cable, Levin cautioned, or that they might question whether the deal would end any hope that DirecTV would offer broadband service.

But these concerns were unlikely to scuttle the deal, he said.

"The merger would raise some antitrust issues, but none that we find to be a serious obstacle to approval," said Levin, who accurately predicted regulatory trouble for EchoStar Communications Corp.'s failed bid to acquire DirecTV parent Hughes Electronics Corp. last year. EchoStar is DirecTV's chief competitor.

Vertical's easier

News Corp. chairman Rupert Murdoch has been eyeing DirecTV's assets for years. George Reed-Dellinger, a telemedia analyst with Washington Analysis, said regulators would have less trouble approving an SBC-DirecTV deal than a News Corp.-DirecTV merger.

"This deal would be easier to approve that a Murdoch-Hughes deal because the Bells have no content," Reed-Dellinger said. "[Regulators] would fear that Murdoch would favor his programming over [The Walt Disney Co.'s], that Murdoch would not give [EchoStar CEO] Charlie Ergen his programming."

Reed-Dellinger said a Baby Bell like SBC marrying a satellite company would not raise market-concentration concerns that killed the proposed EchoStar-Hughes deal, or a bid by PrimeStar Inc. — the medium-power DBS carrier owned by major cable MSOs — for federal approval to acquire a key satellite license from News Corp. and MCI Communications Corp.

"The Bells and cable can't combine, and cable and satellite can't combine, but I think the Bells and satellites could combine," Reed-Dellinger said.

Depending on the structure of the merger, the Federal Communications Commission and either the Justice Department or the Federal Trade Commission would need to approve the sale of DirecTV to SBC or News Corp.

SBC spokesman Larry Solomon would not comment on merger prospects with DirecTV or Hughes, which is 30 percent owned by General Motors Corp.

"As GM has previously stated, it has several options concerning its ownership stake in Hughes, and it is the process of evaluating its options," Hughes spokesman Bob Marsocci said.

SBC's acquisition would transform the regional phone company into the second-largest pay TV provider in the country, with 11 million subscribers. SBC's 2002 revenue was $43.1 billion, an amount roughly equal to all 2001 cable-industry revenue.

In assessing SBC's DirecTV bid on the cable industry, Levin said it would be a positive in the short run, because it would create more uncertainty about DirecTV's ownership — especially if SBC and News Corp. had to fight for the prize.

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