Washington Probes DBS Merger
But the proposed $25 billion merger is far from a slam-dunk. In early February, the FCC asked both companies for more details, including information to back up their claim that the merged company would provide more effective competition to the cable industry and provide DBS customers with a wider variety of local television channels than they now enjoy. The Feds also want to make sure the potential partners will make good on their promise to bring broadband Internet access to rural areas of the country.
They also want to insure that rural customers won't be gouged for access fees. EchoStar officials have stated that they would institute a national pricing plan based on competitive rates in cable markets. Representative Christopher B. Cannon (R, UT), after hearing EchoStar's pitch, joined 15 of his congressional colleagues in signing a letter to Attorney General John Ashcroft and FCC Chairman Michael Powell in which they expressed "grave concerns" about the merger. "This merger as proposed is unthinkable and it should not take the Justice Department and the FCC much time to deny it," Representative Cannon stated in a news release.
Federal regulators are looking into private meetings between the two companies that supposedly took place over a number of years prior to the merger proposal, in which they discussed ways to work together for their mutual benefit. Those meetings could now work against them. The FCC and the Justice Department have requested information about the meetings, according to news reports the first week of February. The FCC has also requested more information about Vivendi Universal's $1.5 billion investment in EchoStar, part of an eight-year deal giving the French media conglomerate a 10% stake in EchoStar and five new channels for the distribution of Vivendi films and TV programs.
The merger has generated some strong opposition and some strange bedfellows. Among the opponents are News Corporation chief executive Rupert Murdoch, the Reverend Al Sharpton, and representatives of various rural associations, such as the Missouri Farm Bureau Federation and the National Rural Telecommunications Cooperative, who fear that the deal will eliminate any need to keep subscription costs down.
Proponents of the merger say it is the most efficient way to provide television and high-speed Internet connections to millions of rural homes. If approved, a single DBS service could have as many as 20 million subscribers by the end of the year, a subscription level that would amount to approximately $15 billion in revenue. The fundamental issue facing federal regulators is whether DBS is an industry unto itself or simply an alternative to cable.