Top EchoStar, DirecTV Execs Plead for Merger

[Gregg Lengling]

WASHINGTON -- Leaders of EchoStar Communications Corp. and DirecTV's parent, Hughes Electronics Corp., made a final plea to the Justice Department on Monday to try to salvage their proposed satellite-TV merger, but it may not be enough to save the deal.

EchoStar and DirecTV agreed to offer satellite-TV slots to a new competitor in return for government approval, according to sources familiar with the proposal.

EchoStar and DirecTV are hoping that their plan will win approval from the Justice Department and that the Federal Communications Commission, which rejected the deal this month, will reconsider it.

But the changes may not satisfy officials at the FCC. "None of it appears to add up to creating a viable competitor," said one FCC official close to the matter.

The changes also may not go far enough to satisfy Justice Department officials, who before Monday's meeting were preparing to reject the deal, sources said. The department could rule as early as this week, said sources familiar with the matter.

A rejection by either the FCC or the Justice Department is enough to kill the deal.

The plan discussed Monday at the Justice Department had been submitted a week earlier by EchoStar as part of a hastily arranged deal with New York-based Cablevision Systems Corp. As previously reported, the plan calls for EchoStar to give Cablevision satellite slots that would allow its service to reach West Coast subscribers. Specifically, Cablevision would receive a satellite from EchoStar and a total of 51 satellite frequencies, which would in turn help it launch a nationwide satellite-TV service next year, according to a source familiar with the offer. Originally, Cablevision had been angling for only 17 frequencies.

Three weeks ago, the FCC blocked the $16-billion EchoStar-DirecTV deal, declaring that a merger of the nation's two satellite-TV companies, with more than 18 million customers, would be harmful to consumers.

Serious talks between Littleton, Colo.-based EchoStar and Cablevision began Oct. 14. Top Cablevision executives flew to Colorado to meet with EchoStar Chief Executive Charles Ergen and mapped out terms under which Cablevision could become a serious competitor.

Proponents of the merger said Monday that they remain optimistic that Justice Department officials are seriously considering the offer.

"The whole idea has gotten a lot of traction" with the Justice Department, said a source familiar with the deal. "They're asking the type of questions that are leading us to believe that they're really looking at this."

Representatives of EchoStar, DirecTV and Cablevision declined to comment Monday.

Monday's meeting in Washington included Ergen, DirecTV CEO Eddy Hartenstein and Charles James, the assistant U.S. attorney in charge of the antitrust division. Cablevision executives will meet with Justice Department officials in the next day or two, a source said.

James recently announced that he would leave his post to join Chevron Corp. as general counsel. His decisions on the EchoStar deal and the pending merger between AT&T Corp. and Comcast Corp. are expected to be his last big actions.

If the Justice Department approves the restructured EchoStar-DirecTV deal, it could increase political pressure on the FCC to reconsider its ruling.

Rep. W.J. "Billy" Tauzin (R-La.), who has been supportive of the deal, is urging regulators to closely review the restructuring, which he hopes will improve service and enable the merged company to better compete against cable operators.

An FCC spokeswoman said that the commission's position on the merger has not changed and that the companies have yet to formally present any changes.

EchoStar and El Segundo-based Hughes have until Nov. 22 to submit any proposed changes to the FCC.

Wall Street and regulatory analysts said the deal still faces long odds. Key details have yet to be worked out, including how much Cablevision will have to pay to use the satellite slots.

EchoStar's shares fell 45 cents Monday to $19.80 on Nasdaq, and Hughes, a unit of General Motors Corp., saw its stock close at $10.15, up 3 cents, on the New York Stock Exchange. Cablevision fell 42 cents to $9.83 on the NYSE.

The success of any deal may hinge on whether regulators believe that Cablevision has the financial and technological wherewithal to establish a nationwide satellite provider capable of competing with a merged EchoStar-DirecTV.

For Cablevision, the government's concerns about the EchoStar-DirecTV merger have provided a window of opportunity to create momentum for its own satellite plans and perhaps win some government-mandated assistance. But regulators have been skeptical about whether cash-strapped Cablevision will be able to raise the $300 million it plans to spend next year to launch its service.

Cablevision already is moving to sell assets and slash its work force and is considering selling some of its cable channels, including Bravo.

In rejecting the EchoStar- DirecTV merger, the FCC dismissed the possibility that Cablevision might emerge quickly enough as a rival in the satellite business.


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By Edmund Sanders and Sallie Hofmeister, Times Staff