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Roger J. Rusch may have poked a hole in the strongest antitrust argument in favor of EchoStar Communications Corp.’s $25.8 billion acquisition of DirecTV Inc., though it is too early to know if the deal will sink. As president of TelAstra Inc., a Palos Verdes, Calif., consulting firm, Rusch provided the Department of Justice last year with a sworn statement contending that both Littleton, Colo.-based EchoStar and El Segundo, Calif.-based DirecTV have enough broadcast spectrum to carry all local television signals and their premium programming. The report contradicts arguments raised by EchoStar and DirecTV in favor of the deal. The companies contend their merger benefits competition because it would give them enough spectrum to vie with cable providers in nearly every U.S. market. That is because the companies could consolidate on a single slice of spectrum channels broadcast by both companies, such as ESPN and HBO. That would free up spectrum to carry additional local programs. The results of such consolidation could be dramatic. The companies estimate they would go from serving 35 to 40 markets to upwards of 100 markets. This is not the only antitrust justification for the deal the companies raised, but experts have said the argument has appeal because it separated direct broadcast satellite, or DBS, from other industries where companies could expand by building new factories. The presumption was that, absent a merger, EchoStar and DirecTV were stuck with fewer than 40 markets each. A fixture on the satellite industry conference circuit, Rusch is the founding director of the Direct Broadcasting Satellite Association, was the first program manager for the Intelsat V series of satellites, and managed the construction and launch of the Intelsat IV satellites. Today, Rusch mostly analyzes satellite companies’ business plans on behalf of investors, suppliers and customers. “He was the first analyst to predict the difficulties Globalstar would encounter, and later his research into their distribution problems and underperformance led to the collapse of Globalstar’s stock,” said Robert L. Dean, vice president of program development for ACT Conferences. David Bross, chairman of the Satellite 2002 conference, called Rusch an “iconoclast” who is not afraid to defy conventional wisdom. “I call him the dark knight,” Bross said. “A lot of his forecasts are very gloomy but they turn out right.” Rusch prepared the report as part of the government defense of the Satellite Home Viewer Improvement Act of 1999, which prevents direct broadcast satellite companies from offering only the most popular local stations on their systems. Instead, they must carry all or none. EchoStar and DirecTV have challenged the constitutionality of that law. To bolster its case, the Justice Department hired Rusch to determine if EchoStar and DirecTV are physically capable of carrying all local channels. In a report delivered to the court on May 23, Rusch concludes that the two DBS providers could restructure their systems to provide all local programming and upwards of 300 premium channels. Rusch’s conclusions are not binding on the antitrust division, but they will likely carry weight. “You have a factual question here,” said Blair Levin, an analyst at Legg Mason Inc. “The government has already said no. They could change their mind, but these are the same agencies.” Lawyers for EchoStar and DirecTV described as unrealistic Rusch’s conclusions on how the companies could expand the number of channels they carry. “This is not the way these systems perform,” said Peter Standish, a partner in the New York office of Weil, Gotshal & Manges who represents DirecTV. “He does a mathematical exercise, not an engineering exercise.” In a redacted version of the report released to the public, Rusch promotes a so-called 1475 system. This requires a single satellite that would use 42 narrow beams to get programming to heavily populated areas on both coasts and 16 wide beams to deliver service to less populated regions in the central United States. It would have 112 downlink frequencies, each with 16 channels. That would give the system the capacity to handle 1,792 television channels. To illustrate the 1475 system, Rusch included with the sworn declaration a map showing the areas covered by the 58 narrow and wide beams. He argued that the 1475 system could be implemented with existing technology. He expects a more efficient system for compressing channels into a finite amount of spectrum to be developed in the coming years. Standish said EchoStar and DirecTV long ago rejected Rusch’s conclusions. “If we could do all this stuff on our own, why wouldn’t we be doing it already?” he asked. “The reason is that it does not work.” Standish said engineers at the companies concluded that the various narrow beams serving both national coasts were so close together that they would interfere with the signals being sent to earth. The effect is similar to picking up signals for two radio stations on the same channel. Rusch assumes the satellites will transmit their signals in perfect circles, Standish said. In reality, most satellites orbit above the western half of the United States, which means they produce an oval-shaped beam when they hit eastern states. That aggravates the interference problem. Standish also said Rusch’s plan would require new satellites with greater processing power and new set-top boxes that could decode all the new signals that his system would use. He also said Rusch’s plans had some metropolitan areas being split by two beams, which is not a practical solution. Rusch, reached at his office, said the criticisms are unfounded. “Our conclusion is very clear,” Rusch said. “Those arguments don’t hold water. If they don’t provide all the local stations, that is a matter of their business decisions.” Signal interference is not a problem, Rusch said, because the signals do not directly overlap and there are technical means to mitigate it. The oval rings produced by satellites orbiting over the western U.S. are not an issue because the shape of the beam is determined by the design of the satellites and not their positioning, Rusch said. “They are grabbing at straws,” he said. “Anyone who says it cannot be done is on soft ground.” Copyright (c)2001 TDD, LLC. All rights reserved.

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