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Rural Telecoms Dish Proposed EchoStar-DirecTV Merger

With the Senate Judiciary Committee poised to hold a hearing Wednesday on the proposed EchoStar-Hughes merger, the National Rural Telecommunications Cooperative (NRTC) has come out against the deal, claiming the two dominant satellite TV companies "have failed to demonstrate how their proposed merger is in the public interest." EchoStar is the country's number one satellite television provider while Hughes, which delivers DirecTV, is the nation's number two provider.

In October, General Motors, the parent company of Germantown, Md.-based Hughes Electronics, agreed to sell Hughes to the Littleton, Colo.-based EchoStar for $26.1 billion. The deal would combine the nation's number one and number two satellite television providers and faces anti-trust scrutiny from both the Justice Dept. and the Federal Communications Commission (FCC).

EchoStar Chairman Charles Ergen contends that the proposed merger should not be viewed in the light of creating a satellite monopoly. Ergen is urging Washington's anti-trust cops to define the market as the entire universe of pay television services, making a combined EchoStar-Hughes entity just another player in the pay-TV realm competing against the cable giants.

The Herndon, Va.-based NRTC, a leading advocate for rural consumers, strongly disagrees with Ergen. NRTC supports more than 1,000 rural utilities in delivering telecommunications and information technology solutions to their communities. Its members and affiliates provide direct broadcast satellite equipment and DirecTV programming services to more than 1.8 million subscribers.

In extensive comments filed Thursday with the FCC, the NRTC urged the agency to reject the proposed merger citing "severe implications for consumers."

The NRTC contends that the merger is nor necessary for the health of either EchoStar or Hughes, claiming that since 1997 satellite TV subscribership has tripled while cable's penetration rate has dropped by 9 percent. The organization also quotes a DirecTV executive, in comments to shareholders, as saying that if the merger were denied, his company, even without the merger, would continue to be "a very strong company with many new strategic options."

"The number and frequency of contradictory, inaccurate statements made by these companies on core issues is simply astonishing," said NRTC President and Chief Executive Officer Bob Phillips. "These statements were made at various times to various audiences, but regulators should not be fooled. The FCC should take this pattern of behavior into consideration when it decides whether this merger should be permitted. NRTC has pointed out repeatedly the numerous problems this merger poses for rural consumers including higher prices, less service, no choices and less innovation."

The centerpiece of the NRTC document is a six-page "Flip-Flop Chart" that purports to document at least 22 occasions on which the companies made conflicting statements about material issues central to the merger. Among them are:

  • Local TV channels. In their Feb. 25 filing to the FCC, and again in a March 6 news conference and Congressional hearing, the companies pledged to deliver local broadcast TV channels in all 210 designated market areas (DMAs) in the United States. But on March 7, EchoStar and allied groups filed a brief with the U.S. Supreme Court seeking to overturn the local carriage requirement and stating in a footnote that "the merged entity does not intend to carry all channels in every market" unless the law is upheld
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  • Monopoly pricing power. EchoStar and DirecTV have promised a "national pricing plan" to allay concerns about their monopoly pricing power in areas without cable TV. But, according to the NRTC, the companies have also openly acknowledged they need "flexibility" in pricing at the local level
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  • Availability of cable TV. EchoStar and DirecTV argue the merger will not create a monopoly for multi-channel TV service, claiming that nearly 100 percent of television households have access to a cable TV option. The NRTC quotes the New York Times as estimating the number of American homes without cable at 25 million, and in August, DirecTV itself estimated the number at 35 million
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    A copy of NRTC's comments is available at http://www.nrtc.org. The FCC Web site on the merger can be found at http://www.fcc.gov/csb/echoditv/.