Satellite Merger Orbits Regulators

Broadband pitch could sway FCC

Hidden in the hoopla over the proposed merger of North Americas two satellite broadcasters is a possible pitch that might get the deal past regulators: Combining EchoStar Communications DISH Network with General Motors/Hughes Electronics DirecTV will add momentum to broadband Internet services.

Instead of focusing on the $25.8 billion deal to create the second-largest pay-TV provider, the two companies should position themselves as rivals to the regional Bells for broadband customers and a service provider in the markets the Bells shun, analysts say. That pitch could resonate with the Federal Communications Commission, which is charged with promoting rural access.

"Rolling out landline broadband in some of these markets will take time," said Nihar Shah, senior analyst at satellite and space consulting firm Futron in Bethesda, Md. "These guys can get it to them in a week."

Futron research shows that the number of small businesses and home offices demanding satellite service will grow about 600 percent over the next five years. Some of those businesses will be farms and other rural businesses in need of high-speed connections.

To date, EchoStar and Hughes have barely scratched the surface of broadband Internet service, with offerings such as EchoStars Wild Blue and Hughes Spaceway and DirecPC. With the launch of Hughes satellites in 2003, higher-speed Ka-band spectrum will be available and can be scaled to meet hourly changes in demand through a technology known as spot beaming.

"Importantly, these services would be available in rural areas otherwise far from the information superhighway at rates which the company is prepared to assure regulators would be competitive," said EchoStar Chairman Charlie Ergen.

Through synergies, the two companies think they can begin tapping the business and consumer broadband markets in 100 percent of the areas they serve.

Such ambitions might seem hallucinatory when viewed through the lens of experience. Major space players, including Liberty Media, Lockheed Martin, TRW and a unit of Telecom Italia, last week were preparing to scrap their $3.7 billion venture, called Astrolink. The project, designed to deliver space-based broadband Internet access to corporate customers, hit the rocks due to lack of financing.

But Futrons Shah said EchoStar-Hughes has better prospects for leveraging its satellites because of an installed base of more than 16 million video subscribers.

Hughes fleet of satellites already includes commercial applications for private business networks and global data broadcasting. PanAmSat, one of three Hughes subsidiaries, is the worlds leading provider of commercial satellite services and operates 21 satellites. Hughes owns 81 percent of PanAmSat.

Should the merger pass scrutiny, which many analysts doubt, the new company would retain the EchoStar name, but use the DirecTV brand for consumer offerings; be based in Littleton, Colo.; and employ Ergen as chairman and chief executive.

On Nov.1, FCC Chairman Michael Powell announced that an inter-agency team of FCC officials will review whether the deal is in the public interest. "Given the significant concentration that would result from this transaction, it will be rigorously scrutinized by this team and the Commission," Powell said.