Murdoch is the man to watch in satellite drama

Just before the FCC lowered the hammer last week on his merger proposal with DirecTV, EchoStar chairman Charlie Ergen was asked to describe his backup plan in case of failure. “Go over a cliff,” Ergen snapped, adding that he had no backup plan.

No one believes that Ergen, a crafty entrepreneur prone to such disarming rhetoric, is anywhere near to falling off a cliff. However, if one is to take the FCC at its word, any plan to revise the DirecTV-EchoStar merger is going to be very heavy lifting.

FCC Chairman Michael Powell said the proposed merger is so anticompetitive that it flies in the face of three decades of communications policy. “The very premises upon which this proposed merger rest are themselves without foundation,” Powell said.

Although the two companies said they would offer a revised proposal for reconsideration by the FCC, the review process is certain to take months to conclude. EchoStar and Hughes Electronics, owner of DirecTV, now—by law—must prove to an administrative law judge that a merger is in the public interest. If they lose, they then must begin another round of appeals to the FCC and then to the federal courts.

The odds are the process won’t last that long. Under the terms of the current arrangement, EchoStar will have to pay Hughes a $600 million termination fee if the deal is not approved by Jan. 21, 2003—something that’s now not likely to happen. Another factor is that Hughes’ parent company, General Motors, needs a quick sale to address a shortfall in its pension fund.

As this drama plays out, the spotlight now shifts to Rupert Murdoch and his News Corporation, perhaps the real winner in last week’s FCC decision. After losing out to EchoStar last year, Murdoch began a low key lobbying effort against the DirecTV-EchoStar deal.

Betting is that after a few months he will make another offer to buy DirecTV. The media mogul wants to add DirecTV to his global satellite empire, which includes B Sky B in Britain and Star in Asia.

A sale of DirecTV to Murdoch’s News Corporation would likely face much less antitrust and regulatory resistance because Murdoch currently owns no U.S. satellite business. A straightforward sale of DirecTV might just be what General Motors and Hughes want.

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