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Lawmakers reviewing the proposed merger of Littleton, Colo.-based EchoStar Communications Corp. and El Segundo, Calif.-based DirecTV expressed reservations Tuesday about the proposed $26 billion deal, but stopped short of outright opposition. “The market dominance and potential anti-competitive consequences of such a merged company raises important questions that this committee must address,” said Rep. F. James Sensenbrenner Jr., R-Wis., chairman of the House Judiciary Committee, adding that the merger required close scrutiny. The satellite giants, which together would have about 90 percent of satellite pay-TV subscribers, defended the tie-up in congressional hearings before the House Judiciary Committee and House Energy and Commerce telecommunications subcommittee. House Energy and Commerce Committee Chairman Billy Tauzin said he may support the merger if the companies can show that the new EchoStar will remain a fierce rival to cable, that consumers will benefit, and that the paid television marketplace will remain open to entry by a new competitor. “It is absolutely vital to have a vibrant [digital broadcast satellite] industry to provide head-to-head competition with the incumbent cable industry,” Tauzin said at a separate hearing held Tuesday afternoon by the House Commerce telecommunications subcommittee. That means the government may have to accept a merger if it is the only way for EchoStar to remain a strong challenger to the rapidly consolidating cable industry, said Tauzin, whose committee oversees the telecommunications sector. “As the cable industry continues to undergo its own consolidation — indeed, a number of cable companies want to acquire AT&T’s cable unit — this committee must consider whether or not the satellite industry needs this merger if it is going to survive and thrive as one of several competitors for video services in the future,” Tauzin said. The Louisiana Republican also said a merger could speed deployment of broadband services. “A merged DBS entity, with more financial strength, may indeed be more capable of developing and providing competitive broadband product,” he said. But Tauzin never fully endorsed the deal. He expressed worry that rural customers would be hurt because they are not served by cable and thus would be reliant solely on EchoStar. Rep. Richard Boucher, D-Va., said the deal would help his rural constituents gain access to high-speed Internet services and a wider selection of programming. “A combined EchoStar-DirecTV deal would provide a major investment in high-speed Internet technology to rural America,” he said. Yet Rep. Tammy Baldwin, D-Wis., said many consumers in rural America who lack access to cable services would be stuck with a monopoly because the two satellite companies were previously their only two options for pay-TV. “This merger will have a major impact on my constituents because most Wisconsin cities are not in the top 100 markets serviced by the satellite companies,” Baldwin said. House Judiciary Committee ranking member John Conyers, D-Mich., expressed concern about the risk of the merger collapsing and the possibility that another huge broadcast concern, such as Rupert Murdoch’s News Corp., could make a play for DirecTV. “Suppose if instead of EchoStar acquiring DirecTV, a company with a monopoly control of satellite TV in Asia and Europe and one of the largest content providers in the U.S., plus owning numerous movie stations and magazines, were to acquire DirecTV?” Conyers asked. At the House Judiciary hearing, EchoStar CEO Charles W. Ergen reiterated what observers say is the company’s strongest argument for the merger: that a combination of the firms is the only way satellite companies can compete against cable firms. “We can’t compete against cable companies if we can’t provide a local broadcast option,” he said. Although Ergen agreed that consumer choice will suffer in rural markets, he denied assertions the merger would create a monopoly. “Our combined company would only have a 17 percent of the pay-television market after the deal,” he said. “This hardly makes us a monopoly.” But another witness at the House Judiciary hearing, former Federal Trade Commissioner Chairman Robert Pitofsky, said the costs to rural Americans would go beyond mere price hikes. Competition between DirecTV and EchoStar has improved the quality and reliability of pay-TV services and fostered technological innovation in the sector, he said. He added that both companies have made inroads against cable companies. EchoStar and DirecTV propose a “universal pricing” scheme under which the combined company would offer its pay-TV services at the same price in rural markets as in urban markets. According to Pitofsky, however, a combined EchoStar-DirecTV would push prices up in both rural and urban markets. “EchoStar talks about eliminating duplication,” Pitofsky said. “But duplication is competition which keeps prices down. No one asks Kmart and Wal-Mart to merge because they offer copies of the same product.” Bob Phillips, president and CEO of the National Rural Telecommunications Cooperative, said the costs of combining two companies with “incompatible” technologies would range from $2 billion to $6 billion, with the high price ultimately harming consumers. “Does anyone really think that consumers will not be charged for these multibillion-dollar merger-related costs?” Phillips asked. Copyright (c)2001 TDD, LLC. All rights reserved.

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