FCC Rejects DBS Merger

Following weeks of speculation that the proposed EchoStar-DirecTV merger was doomed, the FCC unanimously rejected the deal, saying the "staggering" cost to consumers exceeded the possible future benefits the companies said would come from combining their assets.

Despite last-minute lobbying by EchoStar CEO Charlie Ergen, the commissioners were not swayed by promises of improved local-into-local service, more high-definition channels and broadband Internet access promised in the $26 billion deal.

"At best, this merger would create a duopoly in areas served by cable; at worst it would create a merger to monopoly in unserved areas," said FCC Chairman Michael Powell. "Either result would decrease incentives to reduce prices, increase the risk of collusion and inevitably result in less innovation and fewer benefits to consumers. That is the antithesis of what the public interest demands."

The companies said they would pursue their administrative options to keep the merger alive, but FCC officials dismissed the possibility of any new information changing the outcome.

EchoStar and DirecTV had maintained that each was a weak competitor to cable, and that without the merger they would not be able to provide local-into-local service in many small markets. But Powell said the facts undermined those claims. DBS has picked up subscribers at a greater rate than cable has, he noted, and each company alone will be able to provide local stations to 80 to 85 percent of American homes soon, using spot-beam satellites slated for launch

The commissioners were not comforted by EchoStar proposals, such as a nationwide pricing scheme, designed to limit the merged company's power and protect rural consumers.

The Department of Justice is also considering the antitrust implications of the merger. But without the FCC's approval of the requested license transfers - using a public-interest standard - the DOJ finding would be moot.

The FCC "rejection" of the merger actually refers the matter to an administrative law judge, which will hold a hearing, consider new evidence and make a recommendation to the commission. But the commission then can reject the judge's finding, and FCC officials doubted anything new would arise to sway the case.

EchoStar and DirecTV have 30 days - until Nov. 8 - to alter their application and request a delay of the administrative hearing.