Justice Sues to Block DBS Merger

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The Department of Justice filed a civil suit Thursday in U.S.
District Court in Washington, D.C., to block the proposed satellite-TV merger between EchoStar
Communications Corp. and DirecTV Inc. parent Hughes Electronics Corp.

Charles James, chief of the DOJ's antitrust division, said the merger would
create a satellite monopoly for millions of American households and
substantially lessen competition for millions more.

The direct-broadcast satellite merger would have given the new firm at least 90 percent of the
satellite market with about 18 million subscribers, as well as about 20 percent of
the broader 90 million-subscriber pay TV market.

"We think consumers potentially will be injured substantially by the
lessening of competition that is caused by this transaction," James told
reporters on a conference call.

"I don't think there is any sense in which this action could be
characterized as picking on a little guy," he added.

A total of 23 states, as well as Puerto Rico and the District of Columbia, joined the
suit, which James said had been assigned to U.S. Judge Ellen Segal Huvelle.

In a statement, EchoStar chairman and CEO Charlie Ergen did not declare his
next move, although some observers expect him to meet the DOJ in
court.

"We are obviously disappointed that at this time, we have not been able to
convince regulatory officials to share our vision. EchoStar will continue to
explore all possible means to be allowed to compete against the cable giants and
for more choice for all consumers," Ergen said.

On Oct. 10, the Federal Communications Commission rejected the merger and
referred it to an administrative law judge. EchoStar has until Nov. 22 to file a
restructured merger with the commission.

In a bid to salvage the merger, EchoStar reportedly proposed to transfer
satellite assets to Cablevision Systems Corp., a cable operator with plans to
provide local TV signals nationally in combination with dozens of high-definition-TV channels.

After careful review, the DOJ concluded that the Cablevision proposal was
insufficient to counter the merger's anticompetitive effects within a reasonable
period of time -- typically less than two years.

"It didn't sway us," James said. "The legal standard is timely, likely and
sufficient. We went though the analysis and ultimately concluded that
Cablevision did not meet that standard."

James has already announced his departure to join ChevronTexaco Corp. as vice
president and general counsel.

He is leaving the DOJ Nov. 22.

James said he was unsure of the status of his review of the cable merger
between AT&T Broadband and Comcast Corp.

The FCC is expected to approve that merger within days, although the agency is
debating whether to require Comcast to produce its Internet-access agreement
with AOL Time Warner Inc.

Asked to explain why the government appeared ready to approve a cable merger
that is larger than the rejected DBS merger, James said his job was not to
compare the two deals, but to examine the impact of each one on competition.

"We look at one merger at a time. If I am speeding down the highway and the
policeman pulls me over, I don't get to point to the other car and say, `Give
him the ticket and not me,'" James added.

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