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FCC Nixes DBS Merger

Rupert Murdoch may get another shot at DirecTV. On October 9, the News Corp. CEO won a second chance to acquire the direct broadcast satellite operation from General Motors' Hughes Electronics division when the Federal Communications Commission (FCC) declined to approve a proposed $13 billion acquisition of DirecTV by Littleton, CO–based EchoStar Communications.

Citing concerns that cropped up repeatedly during EchoStar's prolonged campaign to acquire its larger competitor, FCC chairman Michael Powell said his agency denied the merger because it would restrict innovation, raise prices, lower the quality of service, and eliminate competition. The resulting market would become a "duopoly," giving most consumers a choice of either cable or satellite service. He also said that the merger would impair the market for multichannel video, with a "uniform national pricing plan" that would have to be "enforced by regulatory authorities." Combined, the two DBS services deliver 12 channels of high definition programming.

Of particular concern to Powell was the loss of choice for rural residents, who rely on satellite services. The certainty of eliminating choice for them made the denial of the merger "particularly compelling," Powell said. EchoStar CEO Charlie Ergen had promised to deliver broadband Internet service to rural areas as part of the merger, something he claimed was feasible only if the deal were approved. The FCC did not agree.

An EchoStar/DirecTV merger isn't completely finished. The two would-be partners have 30 days to file an amended application addressing the FCC's concerns, including what Ergen called, in a SkyForum press conference the day before the FCC announced its decision, "structural remedies" for the deal. The two DBS services have until January 21 to complete their deal.

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