Three-Way Deal Boosts EchoStar's Potential
Two new satellites, 28 new digital broadcasting frequencies, and a new broadcast-operations center are among the trophies EchoStar Communications Corporation will take home in a stock-swap agreement with Rupert Murdoch's News Corporation and MCI WorldCom. The agreement with News Corp. brings litigation between the two companies to an end, and it is expected to substantially strengthen EchoStar's position as a leader in direct broadcast satellite (DBS). DirecTV and USSB are the only other serious contenders in the North American DBS market.
The pact looks like a sweetheart deal for all three companies. News Corp. will receive more than 24 million shares of EchoStar Class A common stock, and EchoStar will carry the Fox News Channel, a News Corp. feature. MCI WorldCom will receive 5.97 million EchoStar shares and bundle EchoStar service with its telephone service. News Corp. will also purchase a half-million set-top converter boxes from EchoStar by December 31, 2002.
EchoStar's DISH network, which boasts 1.7 million subscribers, gains a broadcast-operations center in Gilbert, Arizona, and two new satellites to be positioned in geosynchronous orbit at 110°W longitude---an ideal location for beaming signals throughout North America. It presently has one at 119°W.
An additional 28 channels of digital-broadcasting frequencies will beef up the company's offerings to more than 500 channels of digital video and "CD-quality" audio programming. EchoStar presently offers more than 300 channels, and it sells and leases MPEG-2 hardware. Through its Satellite Services subsidiary, EchoStar operates SKY VISTA, a DBS service that reaches viewers in Alaska, Hawaii, and the Caribbean.
"This agreement provides EchoStar with an opportunity to offer consumers an alternative to rising cable prices and poor cable service," according to Charlie Ergen, CEO and chairman of EchoStar. "It also strengthens EchoStar's efforts to provide local network channels for consumers who live in areas that don't get a reliable picture from a conventional off-air antenna. EchoStar will step into the 21st century by offering consumers choices among HDTV, interactive television, the Internet, 500 channels of television, all delivered direct to homes through an 18" satellite dish. EchoStar will continue to provide a real choice in television viewing."
The three-way agreement, already approved by EchoStar's board of directors, will give News Corp. and MCI WorldCom ownership of approximately 37% of EchoStar's diluted equity. The deal is subject to approval by federal regulators and EchoStar's shareholders. EchoStar is engaged in an ongoing court battle in Miami with the National Association of Broadcasters over its provision of network signals to areas covered by terrestrial TV stations.