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DOJ Sues to Block EchoStar Merger

The proposed merger between EchoStar and Hughes Electronics received a second major blow in a month Thursday afternoon when the Department of Justice (DOJ) filed a civil antitrust lawsuit to block the combination of the nation's two largest satellite broadcasters. The DOJ action follows an Oct. 10 decision by the Federal Communications Commission (FCC) to reject the deal once valued at $26 billion.

The DOJ said if the merger were allowed to proceed, it would eliminate competition between the nation's two most significant direct broadcast satellite services -- Hughes's DirecTV and Echostar's DISH Network -- and would substantially reduce competition in the multi-channel video programming distribution business to the detriment of consumers.

"This merger would give Echostar control of the skies for the provision of video programming by satellite, leaving customers to suffer from the resulting reduction in competition," said Charles A. James, assistant attorney general in charge of the Antitrust Division. "This merger would create a monopoly in those areas where cable television is not available, thereby eliminating the only competitive choice for millions of households. It would leave tens of millions of households -- for whom DirecTV, DISH Network, and cable now compete to provide multichannel video programming distribution service -- with a reduction from three to two competitive choices."

Last October, the Littleton, Colo.-based EchoStar reached an agreement with Hughes' parent company, General Motors, to buy Hughes in a deal that would have created the nation's largest pay-television service. Echostar's DISH Network has approximately 7.5 million subscribers, and Hughes's DirecTV has approximately 10.9 million subscribers.

Both companies have experienced significant subscriber growth in the last several years and they control the only orbital slots allocated for direct broadcast satellite service that cover the entire continental United States.

Echostar and Hughes contend the promise of offering broadband and advanced digital media services to underserved rural markets, at potentially lower costs, would have presented serious competition to cable and regional bell companies' ambitions to offer broadband and digital media entertainment to their subscribers, arguments rejected by both the DOJ and the FCC.

According to the DOJ complaint, Hughes and Echostar compete vigorously against each other, and this competition leads to substantial benefits to consumers including reduced programming prices, more attractive programming packages, reduced equipment costs, and typically free installation. The DOJ said the proposed merger would eliminate that competition.

James said the Justice Department gave serious consideration to the efficiencies and new services that EchoStar and Hughes claimed would result from the transaction but concluded the parties could not demonstrate any efficiencies likely to result from the merger were sufficient to outweigh the substantial adverse impact of the transaction on competition and consumers.

Last Friday, EchoStar officials met with the DOJ in hopes of salvaging the deal. To deal with the anti-competitive concerns of both the DOJ and the FCC, EchoStar said it would sell or lease its satellites to Cablevision in order to create a competitor to a merged EchoStar-Hughes.

James said that proposal was unlikely to become a sufficient replacement for the "vigorous competition" that now exists between Hughes and Echostar.

The DOJ was joined in its lawsuit by the Attorneys General of 23 states, the District of Columbia and the Commonwealth of Puerto Rico. The suit was filed in the U.S. District Court in Washington, D.C.