Pegasus: FCC Should Halt DBS Merger Review

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Pegasus Communications Corp. wants to slam the brakes on federal review of the EchoStar Communications Corp.-DirecTV Inc. direct-broadcast satellite merger until EchoStar offers greater detail about its alliance with Vivendi Universal S.A.

Last month, Vivendi agreed to invest $1.5 billion in EchoStar, which in return pledged to launch five Vivendi channels on a non-exclusive basis under a broad alliance between the two companies.

The alliance was announced less than two weeks after EchoStar and DirecTV had submitted their merger for Federal Communications Commission approval. The companies' filing said one of the public benefits of the deal was that the new entity did "not intend to pursue a strategy of vertical integration with programmers post-merger."

In a Jan. 14 FCC filing, Pegasus asked the agency to suspend review of the DBS merger because the EchoStar-Vivendi agreement contradicted that post-merger commitment.

Both the FCC and the Justice Department must approve the merger. Initial public comments are due by Feb. 4. Pegasus asked the FCC to suspend the Feb. 4 comment deadline for at least 45 days.

Among other things, Pegasus resells DirecTV's service to 1.5 million subscribers in 41 states under an exclusive marketing deal. If the merger were approved, Pegasus would be in the position of competing against its sole supplier.

On Dec. 4, Pegasus CEO Marshall Pagon said the EchoStar-DirecTV merger should be quickly rejected as anti-competitive if the partners failed to ensure the viability of Pegasus as a competitor.

An EchoStar spokesman declined to comment. An FCC spokeswoman said the agency's staff was reviewing the filing.

Meanwhile, the Federal Trade Commission gave quick approval to Vivendi's investment in EchoStar. On Jan. 14, the FTC announced that the deal had cleared under its early-termination process, which typically runs about 30 days. The agency made the announcement over a call-in phone line.

If the DirecTV merger fails to win approval, EchoStar would have to pay $600 million to its corporate parent, Hughes Electronics Corp.

The Vivendi deal calls for EchoStar to pay Vivendi a maximum of $225 million within three years if the DirecTV deal is completed and a maximum of $525 million within 30 months if the DirecTV merger is not completed.

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