$18bn EchoStar-Hughes Merger Switched-Off by FCC

11 October 2002

Fear of “immediate and substantial” consumer harm has prompted America’s Federal Communications Commission to reject by four vote to nil the proposed merger between the nation’s two largest satellite broadcasters – EchoStar Communications and Hughes Electronics.

Announced FCC chairman Michael Powell: “Based on the record, the commission cannot find that this merger is in the public interest.”

He dismissed EchoStar chairman Charlie Ergen's proposal to create a national pricing plan to protect rural consumers, saying this would replace a competitive market with one dominated by a regulated monopoly. “I decline the invitation to turn our national communications policy back so many years,” Powell ruled.

The decision is a crushing blow for Ergen who believed against all the odds that regulators would turn a blind eye to the massive monopoly such a merger would have created.

Which perhaps they might, had not that well known anti-monopolist Rupert Murdoch campaigned long and hard on Capitol Hill in his crusade to preserve freedom of choice for US satellite viewers [a privilege denied their counterparts in the UK where the Murdoch-controlled BSkyB holds sole sway]. Many believe that Murdoch is now poised to make his play for Hughes, having been out-maneuvred by Ergen first time round.

Ergen had clung to the hope that FCC would accept his argument that a merger would create robust competition for the cable sector rather than stifle it in the satellite market. Onlookers believe it likely that investors will call him to account for his obstinacy at their expense.

And the expense is far from over. The duo are likely to embark on multi-million dollar legal battles in an uphill bid to overturn the FCC’s decision – the first time in thirty years it has voted to block a merger.

Lawyers are also smacking their lips at the prospects of a lucrative dispute between EchoStar and Hughes in the event a deal can't be salvaged. The financial implications of unwinding their relationship are likely to be highly complex.

Data sourced from: The Wall Street Journal Online; additional content by WARC staff