Senators wary of proposed satellite merger

Robert Gehrke

Thursday, March 7, 2002 | 11:07 a.m.

WASHINGTON -- Executives proposing a merger of the nation's two largest satellite television providers were met with skepticism Wednesday from senators fearful the union would hurt rural consumers.

Sen. Herb Kohl, D-Wis., said the two companies -- EchoStar Communications Corp. and Hughes Electronics -- would create a monopoly in the satellite market and leave rural areas where cable lines don't reach with only one way to get pay-TV.

"You'll make a fortune and the consumers will pay," Kohl said. "The danger of that happening is so large that it seems to me you have enormous barriers you will have to surmount" to have the merger approved.

EchoStar, which offers Dish Network, and Hughes, the parent of DirecTV, are seeking Federal Communications Commission and Justice Department approval for a $26 billion merger that would create the largest pay-TV service in the country with about 17 million subscribers.

A decision is expected late this summer.

EchoStar Chairman and CEO Charles W. Ergen said the combined strength of the two companies could offer the first real challenge to cable television, which dominates the market.

Gene Kimmelman of Consumers Union, which publishes Consumer Reports magazine, said that satellite is now too small to compete with cable companies. As a result, cable rates have gone up 36 percent since 1996.

But the merged company may be able to compete, Kimmelman said. "I'm as worried about the 68 million cable subscribers as I am about the 16 million satellite subscribers," he said.

But Sen. Arlen Specter, R-Pa., questioned how the merger could be approved without violating a federal law prohibiting any market from seeing decreased competition.

"It's a little hard to understand how competition will not be substantially lessened," Specter said. "You have two companies, you create one company."

Robert Pitofsky, a law professor at Georgetown University and former chairman of the Federal Trade Commission, agreed. "On its surface, it's about as illegal as a merger can be," he said.

The companies have proposed one nationwide price to ensure rural consumers pay the same as urban subscribers and aren't gouged by a new satellite monopoly.

Ergen said the merger would also expand high-speed Internet access for rural residents, whose high-speed access lags behind urban areas.

Last month, the companies announced they would be able to deliver local programming in each of the 210 markets nationwide, twice as many as they originally said they could reach. The change addressed a criticism of the merger -- that small-town residents won't get their local channels.

Eddy Hartenstein, chairman and CEO of DirecTV, said residents want to be able to see their local programs, and the move was done so satellite could compete with cable.

It will take about two years and $300 million to get the satellites in place to deliver local programming to all 210 markets.

Despite promises that the merged company will carry local programming, Ergen said EchoStar will ask the Supreme Court to decide if a law forcing providers that carry one local channel to carry all local channels violates free speech protections.