DOJ Blocks Satellite TV Merger

EyesWideOpen writes "The Justice Department filed a lawsuit to block a merger between EchoStar Communications and Hughes Electronics that would have created the nation's largest pay-television service, stating that 'This merger would give EchoStar control of the skies for the provision of video programming by satellite, leaving customers to suffer from the resulting reduction of competition'. The FCC had already voted unanimously to oppose the merger because it would create a monopoly that would have 'adverse' effects for consumers."

Comments

What?

[Quasar1999]

Adverse effects??? Someone care to tell me where the hell these people were when Cable companies took root in my town??? Oh, did I say companies? I meant company... Adverse effects of that don't seem to bother these idiots... so much for affordable broadband via satellite throughout the country... so much for local tv service in real digital quality (not the digital BS cable has)... Ick... At first glance this seems like a great victory against monopolies... but what does it really mean???

Re:What?

[stever00t]

Cable companies and phone companies are often allowed to have a monopoly in a certain area of a town - it's perfectly legal when the town enters a contract with the cable/phone company.

For instance, in my town of about 200,000 people, we have one cable company and one phone company - because we let them have a monopoly here in exchange for them laying down wire for the city (city owns it once they've laid it) and also making them push price changes, policy changes, important things like that before our city government - or risk losing their monopoly.

I forget the name of the type of monopoly this is, but it's perfectly legal and (arguably) better for the population of a smaller city to have a company come in and wire the entire city just for being allowed a monopoly AND for the population to have relative control over the price and content offered.

Re:What?

[SacredNaCl]

Almost universally I've been against big company mergers that decrease competition. This wasn't one of them.

I'm extremely disappointed with the FCC's decision in this matter, one that I feel was probably influenced by back door dealing at the behest of the current cable conglomerates.

This was a deal that made sense for consumers, and made good business sense for the companies involved. It's also unfortunate that consumers are being denied Canadian competition in this market as well. (Maybe...but I doubt it, a NAFTA challenge will correct that last item.)

I had a friend that a few years ago bought a house on the edge of what in 10 years will be suburbia, but it isn't yet. They are still getting things like water treatment, gas service, and the like wired up. Every year for 10 years the cable company here has promised to connect this community. Every year for 5 years the phone company has said "we're going to roll out DSL in your area soon". Every year the federal government gives them a ton of money in subsidies to 'wire up rural areas'. Nothing happens.

Echostar has done more for rural communities in terms of offering service than cable ever has. At least they provide a choice. This deal would of allowed them to combine resources, have the bandwidth to offer additional services (and local channels) to just about every area of the US. It would of lowered the cost bar for the service as well. This is a slap in the face to every American living in rural communities and in communities that cable will never be available in.

Re:What?

[ZoneGray]

Apparently, the concept of a "natural monopoly" is a myth that just won't die. Sorry, don't mean to pick on you personally, but this one just gets under my skin.

Theoretically, a "natural monopoly" was supposed to occur when a business experiences reduced marginal costs with increased production. Normally, when production increases, marginal costs increase. This, supposedly, creates a situation that would allow the company to defeat all of its competitors. For example, once the electric company has run a wire to your neighbor's house, then it's cheaper for them to run a wire to your house than it is for a competitior to do so.

Well, duh. But this doesn't lead to monopoly.

There's a lot more to electric service than a wire, and the electric company will still experience increased marginal costs in all of their other areas, whether it be power generation, transmission from generation sources, customer service, billing, etc. Yes, their average cost MIGHT decrease, but the marginal cost, the one that supposedly leads to the natural monoply, does not decrease.

Even if their marginal cost did decrease, if they tried to use that advantage to jack up prices, then they would simply make themselves more vulnerable to competitors. Despite the simplistic arguments that might fool a freshman economics student (and most Ivy League professors), there is no such thing as a natural monopoly.

But, this myth has been used to create all sorts of REAL monopolies. Wonder why there's only one electric wire coming to your house? Or only one phone line? Or only one cable line? It's because this "natural monopoly" myth has been used as an excuse to encode these monopolies into law. So now, the electric company can raise your rates, but all they have to fear is the politicans, who can be bought off much more cheaply than millions of consumers.

In some cases, I think creating public utilities has had good effects; electricity costs more than it should, but it's probably more reliable than it would be if it were delivered by market mechanisms. This shows up most after storms and other natural disasters, when repair people are dispatched far in excess of what could be justified by lost revenue. The increased costs aren't as bad as they might be in other industries, because the product is pretty simple, and it's pretty much the same thing that's deleivered to all customers.

Cable, telephone, and Internet are another story entirely, though. There's absolutely NO REASON that a second cable or local telco company couldn't be profictable in many situations, but they're prohibited from running a wire to your house in the name of protecting competition.

We've seen multiple phone companies wire the whole nation for wireless telecom over the last decade. Likewise for upcoming 3G/1XRTT services. If the "Natural Monopoly" theory were even remotely true, this wouldn't have been possible.

Business perspective

[Daikiki]

I work at a large electronics retailer, and I've noticed many times that customers have difficulty distinguishing between the competing products, Dish and DirectTV. Prices and products are similar. On the other hand, I also see the two constantly respond to the other's promotions and price changes. Pricing of both products have reached the point where setup, installation, and the required hardware is essentially free. I'm sure that wouldn;t have been the case for long had the merger been apprived. It's also nice to see the likes of AT&T be forced to respond to the competetive pricing of the sat. providers. They're still expensive by comparison, but imagine how much worse it would be without these competitors.

Seriously

[El Pollo Loco]

I agree. Where I live, it's AT&T for cable, and that's all. Up until recently, it was USWEST/QWEST for phone service. I guess the satellite companys just didn't bribe enough politicans.

Clearly the DOJ doesn't care

[tcd004]

How dare the government regulate where I get my media! What are they socialists???

They don't care about my rights as a consumer to have ALL my services charged on one convenient bill, all my services installed and fixed by one courteous, prompt repairman!

My life is so convenient when I can get all this stuff from one, homogenous provider! Maybe the government would like to provide all these services, oh, wait a minute, maybe it's not so socialist afterall. /Satire, or, at least something like it.

See Richard Gere's Ass Zoo

tcd004

Right result, wrong reason

[coltrane679]

Opposing this merger on antitrust grounds is a no-brainer. It would mean the entire US would have but one satellite provider, which would be a total monopoly in those areas not served by cable. (Actually, there are ways for US residents to get Canadian satellite service from ExpressVu, like http://www.global-cm.net/).

However, this sudden affection from the Bush administration for strictly enforcing antitrust law is obvious horseshit. Dish won a bidding war for Direct by outbidding Rupert Murdoch's Fox conglomerate. Murdock, a renowned political conservative (he of Fox News, and the NY Post, among other things) figured (correctly, as it turns out) that the politicans his lobbyists bought over the years--primarily Republicans--could be counted upon to do his bidding. And so they have.

Re:Right result, wrong reason

[evilviper]

Phew... Thank's for clearing that up.

When I initally read it, I was under the mistaken impression that they did the right thing for the right reasons. That goes against everything I've seen the government ever do, so I was so confused my mind coped by convincing me I'd traveled several decades back in time, when the government still cared about the people.

Thank you for clearing up any mistaken impressions that the government cares about the people, and reinforcing the (obviously correct) view that our government is up for sale to the highest bidder.

Re:Right result, wrong reason

[Ded Bob]

However, this sudden affection from the Bush administration for strictly enforcing antitrust law is obvious horseshit.

Or maybe it is because the Clinton administration is not being bought by Turner to allow cable companies (namely Turner's) to grow into monopolies?

See. I can also pull reasons out of thin air.

Before I get marked down as flamebait, Ded Bob's political affiliation is none.

What's the hidden agenda here?

[loggia]

Everything the FCC has been doing under Michael Powell is pro-merger, pro-consolidation, anti-consumer.

So, I say, what's the frequency, Michael? What's the hidden agenda here - because there obviously must be one.

Good Move

[Evil Adrian]

A good move, especially considering that the barrier for entry to that industry is so insanely high that only Microsoft would dare attempt it.

With that said, how much do you want to bet that Microsoft tries to buy one of them?

Think of the hackers!!!

[CySurflex]

Satellite hackers around the US and Canada are outraged at this move by the FCC. Rob Mishka, a long time connoisseur of free (read: stolen) satellite TV, was quoted as saying "We are just sick of having to deal with two different encryption keys every damn week. If they merged we would only have to deal with one!". Rob then spit out the tobacco he was chewing and went to work on the Trans-Am that has been raised on 8 bricks in his front yard since 1998.

duh

[Lord Omlette]

Someone obviously forgot the hookers and blow.

They come BEFORE the merger, not after.

It's all a sham.

[cryptochrome]

I'm sure it seems like this is a great thing, having prevented a satellite TV monopoly, but look again: unlike cable, which is limited only by the expense of laying and lighting cable, satellite has severe constraints on expansion of their service. It's really expensive (and risky) to launch a satellite, there are limited orbits for them to use, and limited frequencies for them to use. A merger would have meant that the two companies could have pooled their resources and offered local channels throughout the country. Instead there's a huge duplication of effort, neither of which is adequate. So instead of less populous areas being subject to a monopoly (whose prices could have been controlled by other means, namely a single nationwide pricing scheme), they're subject to NO decent service. Cable, meanwhile, enjoys an effective monopoly in all those areas, at whatever price it feels like, assuming it feels like serving them at all.

(BTW: another brain-dead, protectionist aspect of the legalities surrounding satellite TV - unless you're in a particular local broadcast market, you're not allowed to receive channels in it - even if the equivalent channel doesn't exist in your area, or no local service is available for your area! I.E. I can't get UPN nor WB via satellite, despite the fact that they are actually broadcasting it off the same bird I would receive from. )

And the stocks went up.

[Animats]

Amusingly, when Justice Department opposition to the merger was announced, both stocks went up. That indicates what investors think of the deal.

Most mergers don't do much for the shareholders. In fact, most M&A activity is counterproductive. You'd think otherwise, but, in fact, making the company formed by a merger work properly is hard.

This merger has been dead for a while...

[doormat]

The biggest point is that in most areas (in temrs of geography) of the country, this reduces multi-channel tv systems from two to one company, and it cities with cable, from 3 to 2.

When the merger first came out it didnt seem so bad, because both satellite companies had stagnated for a while in terms of adding content and local markets (aka local-in-local, or LiL). But in the past year, three spot-beam satellites have become operational, and one more is scheduled to come online. Both Dish network and DirecTV have (or will have soon) the capability to serve the top 100 or so television markets (there are around 220 DMA, or designated viewing areas). Dish Network actually has the capability to serve all 220 DMAs using other oribtal locations for satellites that can see half the country (at 61.5 degrees Wests and 148 degrees West, where as the current satellites that can see all of the CONtinental US are located at 101, 110, and 119 degrees west, aka the three CONUS slots).

The only thing that the merger would have helped is HDTV offerings. Right now, each provider has 4-5 HD channels. As more come online, there will be a bandwidth crunch (since each HD channel will take up the space of 4-6 regular channels). Maybe at the maximum, there will be room for about 20 HD channels for each provider, but there is not enough bandwidth to provide more than that.

Also, Charlie Ergan (the CEO of Echostar, the owner of Dish Network), has done a number of things to piss off the FCC (like challenging the law that says if a provider carries any number of local channels from a city, it must carry all of the channels for that city, regardless of how popular the station is). After he lost the appeal for this law, he tried to do an end-run around the law, and put the most popular networks (the big four plus WB and UPN and in some cases PBS) on the main satellites, and require users to put up a second dish for the smaller stations. The FCC got pissed and told Echostar to do a number of remedies to fix the situation. They have come into compliance of the recomendations, but its still very iffy.

All and all, its a good thing this merger was rejected. The downside is that now Rupert Murdoch will now be the likely owner for DirecTV. Which is better, the devil you know, or the devil you dont?

Missing information

[ctr2sprt]

I didn't see it in the two articles, but... the merger was proposed, and voted down, once already. This new one has a provision which gives some cable company (Cablevision?) rights to use parts of the combined company's satellites. Cablevision, or whatever company it is, is not currently in the satellite TV game. Apparently the owner of the company is planning to sell some assets (like the channel AMC) to fund investment. The idea here is that Hughes et al. were offering a potential competitor even after the merger is done. This is described in detail in an op-ed piece in the Wall Street Journal. Apparently the FCC's concerns with the new proposal are that Cablevision might not have the financial backing to last in the satellite TV business. The WSJ cynically observes that they are trying to learn the lesson they got from the telco deregulation nightmare, where the Baby Bells just outspent their smaller challengers and snapped up the remains when they went bankrupt. But the FCC is also running the danger of preventing mergers of financially-insecure companies, with the possible result that they'll all go bust.

There are some other interesting tidbits in the piece, like that the potential satellite competitor is interested in offering some 40 HDTV channels. The WSJ is unabashedly free-market, so they support the revised merger, apparently with the opinion that neither company can combat cable companies independently.

Remember when,.....

[Anonymous Coward]

Remember when having cable tv meant you had pretty much commericial free tv? The big 3 had to
have commericials to pay for the shows. Cable TV is something you HAVE to pay for. Now there are
as many or more commericials on CABLE TV. So I not only pay the %$#^@'s for the cable, but also
have to endure #$(#^(# commericals.

I would let them have their monopoly if they would promise to get rid of the commericials.

Re:That's good

[mc6809e]

When the government allows companies to merge into huge monopolies, they are only laying the foundations for socialism -- and that's the last thing we ever want in America.

The terms "fascism" and "socialism" get thrown around here all the time. Please review their definitions.

From Marriam-Websters:

Main Entry: socialism
Pronunciation: 'sO-sh&-"li-z&m
Function: noun
Date: 1837
1 : any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods
2 a : a system of society or group living in which there is no private property b : a system or condition of society in which the means of production are owned and controlled by the state
3 : a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done

Main Entry: fascism
Pronunciation: 'fa-"shi-z&m also 'fa-"si-
Function: noun
Etymology: Italian fascismo, from fascio bundle, fasces, group, from Latin fascis bundle & fasces fasces
Date: 1921
1 often capitalized : a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition
2 : a tendency toward or actual exercise of strong autocratic or dictatorial control

In both cases, society or nation is emphasized over the individual.

Half the country may never get locals via sat

[Slashdolt]

In land mass, it's probably more than half, but in population, it's only about 15%.

If you read the FCC's decision (available from www.fcc.gov), they repeatedly mention that without the merger the two companies can still provide local into local service for 100 of the roughly 200 DMA's in the country. Had the merger been accepted, it would have been all 200.

I really don't see how satellite can possibly COMPETE EFFECTIVELY against cable, when they're only provide local-into-local service for the larger metropolitan areas, which may even have multiple cable companies also competing!

The DOJ could easily make sure that the New Echostar keeps its promise of uniform pricing, and make no mistake, They're not making a whole lot of money from us people in Farm Country (as I am), so it wouldn't make sense for them to create "uniformly high pricing", unless they wanted to just roll over and die.

The FCC generally makes decisions that are friendly to broadcasters. Look at their decisions against satellite over the last few years. They (and Congress) regard satellite companies as essentially wanting to steal television from Over The Air broadcasters.

I quit watching the major networks (ABC/NBC/CBS/FOX) about 3 years ago, when I couldn't get a decent signal over-the-air. I get UPN and WB via satellite superstations, and I watch those quite a bit. Broacasters should have been fighting tooth and nail for this, but instead they generally opposed it, probably out of habit. I might actually start watching network TV again, if I could get it on sat.

I'm very angry at Rural TV, and other "rural" groups that opposed this merger. As a rural person in a DMA that will likely never get locals via satellite, I am very angry at these people that are supposedly representing me. They don't speak on my behalf.