Is your satellite television service going to be run by a monopoly?
In a bold $25.8 billion purchase of its main competitor, EchoStar Communications Corp. is attempting to become the dominant satellite television provider in the United States. But the merger could run into antitrust problems, if the government thinks the new company would stifle viewers' choices and raise costs.
According to the terms of the deal, EchoStar, the nation's second-largest satellite television company with more than 6 million subscribers nationwide, would acquire Hughes Electronics, operator of DirectTV, the biggest satellite company in America with 10 million subscribers.
Hughes is a subsidiary of General Motors, which would retain a substantial financial interest in the new company, still to be called EchoStar. The General Motors board accepted the EchoStar bid over a long-standing offer from Rupert Murdoch's News Corp., which does not currently have a U.S. satellite television presence.
"It's a powerful combination," said EchoStar chairman Charles Ergen during a televised press conference today, announcing the merger.
It’s the Rural Thing
But the new EchoStar could be a little too powerful, say some consumer watchdogs, anticipating that millions of viewers would have their programming decisions made for them by one company.
"From an antitrust viewpoint, it's very hard to make this one fly," says Albert Foer of the American Antitrust Institute in Washington. "What the deal does not do, is provide any choice."
Some say the effects of the merger could be especially pronounced in rural areas, many of which are not wired for cable and rely on satellite television to access a broad range of channels.
"If EchoStar becomes the sole provider, it would have absolute monopoly power over those living in rural America for multi-channel TV services," said Linda Golodner of the National Consumers League in Washington, in a recent letter to Federal Trade Commission chairman Timothy Murris. "This would almost certainly lead to reduced competition, higher prices and poorer services for millions of consumers."
But Ergen today said EchoStar "just economically can't compete" for rural viewers without the deal. The deal, he added, will allow the company to "reduce programming costs and hopefully pass those savings along to consumers."
Consumer advocates also say the new company would simply select cheap programming in an effort to increase profits, limiting the available content. A National Consumers League statement warns that "EchoStar's ability to leverage monopoly power over the creators of programming" would be unchecked.
Currently as much as 20 percent of the country does not have cable, according to some industry estimates. The merger is subject to review from the Federal Communications Commission and either the Justice Department or the Federal Trade Commission.
Competing with Cable … Or Not?
But EchoStar claims that even with a dominant position in the satellite television business, it will still be in the thick of a fierce competitive battle with the cable television business to attract viewers.
"We've always had a vision at EchoStar of trying to compete with cable," said Ergen today. "Now we believe we can compete on an equal level playing field." He added: "I think finally for the first time the government and the FCC can see that vision come to fruition … we can be a competitor to the cable industry."
Ergen made a point today of listing some specific reasons why he thinks consumers will benefit, claiming EchoStar has "always been rated higher in customer service" than cable companies, and "can provide broadband [Internet service] to every single home in the U.S. at a cost competitive with what they get from cable or DSL."
But Foer, for one, rejects the argument that competition between satellite and cable outlets will benefit consumers — especially since most cable companies have local monopolies.
"For most Americans, it's a merger from three competitors to two," Foer says, meaning that instead of two satellite companies pitted against cable companies, it will just be EchoStar versus the cable providers. "In rural markets, it's not even a duopoly, it's a monopoly."
With two competing satellite companies, he says, "The costs will keep coming down … but if you've got one competitor going against cable, they'll just price a little bit lower than cable."
Foer adds: "We tend to think that the country's going to be better off if you have two satellite systems going after each other."
It is not certain how long the federal antitrust review process will take, but with entry into the satellite arena by a new company considered unlikely in the near future, the potential coupling of the industry's two giants means the matter will almost certainly be scrutinized closely.