Dish Network in the News

EchoStar Interested in DirecTV

NEW YORK (Reuters) - May 2, 2001 - EchoStar Communications Corp. , the No. 2 U.S. satellite television provider, could be laying the groundwork for a counter bid for its larger archrival DirecTV, a bid that would compete with Rupert Murdoch's News Corp., SG Cowen said in a research report this week.

The SG Cowen report said EchoStar seems poised to make a move on GMH (Hughes Electronics). "EchoStar appears to have laid groundwork for battle over Hughes.''

EchoStar, which declined to comment on the report, had said in November it was interested in DirecTv's parent, Hughes Electronics Corp. , and argued in March that the best move for Hughes would be for the two companies to combine.

Tuesday, General Motors Corp. and its Hughes unit approved further talks for a merger of DirecTV with News Corp's Sky Global Networks.

The proposed deal would combine DirecTV, which has nearly 10 million subscribers in the United States, with News Corp.'s Sky Global, which has satellite operations in Europe, Latin America, Asia and Australia, and create a worldwide satellite network.

But SG Cowen analyst Robert Kaimowitz argued that a bid by EchoStar, which has more than 5 million U.S. subscribers, to combine all or part of their operations would actually be better for Hughes shareholders.

"The problem with a merger with News Corp. is that Hughes shareholders don't know what they're getting,'' he told Reuters. ''No one really knows what Sky Global is worth, whereas with EchoStar it has a definitive value.''

Neither News Corp., nor Hughes would comment.

Kaimowitz also noted in the research report that the signal spectrum for satellite systems was too constrained to compete against digital cable, a growing technology that compresses cable signals, allowing more channels and directly competing with satellite.

A combined satellite platform, such as EchoStar's Dish Network and DirecTV, could better compete against digital cable, he said.

EchoStar said in a filing with the U.S. Securities and Exchange Commission back in November 2000 that it was interested in negotiating with GM if it decided to spin off all or some of Hughes. But EchoStar said in the filing that GM was unwilling to talk.

Rumors of an EchoStar-Hughes combination surfaced in March, when talks between News Corp. and Hughes appeared to stumble on issues of price and control over the combined entity.

The rumors were fanned in part by EchoStar Chief Executive Charlie Ergen saying at an March investor conference that the most economical use for Hughes was to combine with EchoStar, citing reduced subscriber acquisition costs and other factors, according to analysts that attended.

But such a combination would face a number of obstacles.

Since the EchoStar-DirecTV rumors surfaced, News Corp. sweetened its bid by reducing its proposed stake in the DirecTV-Sky Global combination, although it would still maintain control over day-to-day operations.

And Tuesday, GM all but declared News Corp. the front runner in the negotiations.

Also DirecTV and EchoStar, which are fighting each other in court, would have to learn to work together. EchoStar is currently suing DirecTV in a federal district court in Colorado for antitrust violations, accusing DirecTV of threatening economic harm to retailers that offer both services.

DirecTV filed a counter suit accusing EchoStar of false advertising about its right to offer network programming and several other claims.

A hearing was scheduled for Monday, but it was postponed at the request of both sides, raising the possibility that a resolution could be in the near future.

Finally, many analysts have noted that the combination of the top two satellite television providers could raise regulatory issues.

Others argue that the U.S. Federal Communications Commission, with Republican Michael Powell as chairman may be more friendly to such combinations. Powell has has expressed skepticism about ownership limits.

Plus, a federal appeals court in March threw out the FCC's limit that prevents any one operator from serving more than 30 percent of the pay-television market and the agency has indicated it would rewrite the rules instead of appealing the court's decision.