Audio Video News

Opposition from the Federal Communications Commission (FCC) wasn't enough to keep EchoStar and Hughes Electronics' DirecTV from seeking a merger, but a lawsuit launched by the US Department of Justice (DOJ) may be.

On October 31, the DOJ and a coalition of attorneys general from 23 states initiated a suit in a District of Columbia federal court that would block the merger, variously valued at $17 to $24 billion. Led by Missouri Attorney General Jay Nixon, the plaintiffs maintain that the proposed acquisition of DirecTV by EchoStar would create a monopoly, causing "significant harm to competition in numerous local markets for video services throughout the country."

Combining the two direct broadcast satellite services (DBS) would "substantially lessen competition" and "lead to higher prices and lower service quality," the suit claims. The DBS services have approximately 17 million subscribers, most in rural parts of the country where cable service is unavailable.

Proponents of the merger had pitched it as a way to provide more competition to cable. The DOJ and the states' top attorneys don't see it that way. "Even in those areas served by cable, consumers would have their programming options reduced to a duopoly of one cable provider and one DBS provider," Nixon stated.

EchoStar chief Charlie Ergen, speaking for his Hughes Corporation colleagues, said he was "disappointed" at failing to convince regulatory officials "to share our vision." The would-be partners will continue to seek a solution that will satisfy regulators, he added. They have one month to respond to the lawsuit.

Market analysis firm Forrester Research predicts that the blocked merger will prompt a new era of development for the DBS industry, with both companies "investing in new technology." Among the potential developments are new satellite personal video recorders, video-on-demand services, and increasing competitive pressure on cable companies. Rupert Murdoch's News Corporation will likely acquire Hughes once EchoStar is out of the picture, projects analyst Josh Bernoff.