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October 31, 2002

Miller: Block Satellite TV Merger that Would Harm Rural Customers and Reduce Choice for Iowans

DES MOINES. Attorney General Tom Miller said today that Iowa is joining 22 other states and the U.S. Department of Justice in a lawsuit seeking to block a proposed merger between the only two nationwide direct broadcast satellite television providers.

"We argue that the proposed merger would cause significant harm to competition in many areas and lead to higher prices and lower-quality service," Miller said. "We ask the court to block the merger because it would substantially lessen competition, in violation of the Clayton Act."

EchoStar Communications Corp. is seeking to acquire Hughes Electronics Corp., which owns DirecTV. The suit notes that EchoStar and DirecTV are the only two nationwide multi-channel satellite services, and that no serious satellite TV competition is on the horizon. EchoStar operates the Dish Network direct satellite broadcast service.

Miller said: "The proposed merger would leave most consumers with only two choices -- EchoStar satellite broadcast, or their local cable TV service. Even worse, consumers in rural areas without cable service would have only one choice, the EchoStar satellite monopoly. We believe that kind of loss of competition is a recipe for higher prices and lower-quality service. The court should prohibit the merger." It is estimated that about a third of Iowans do not have access to cable TV.

The lawsuit against EchoStar Communications Corp. and Hughes Electronics Corp. was brought by Miller's Office, the Antitrust Division of the U.S. Department of Justice, and the Attorneys General of 22 other states, the District of Columbia, and Puerto Rico.

The suit alleges the merger of EchoStar and Hughes would violate the Clayton Act, a federal law that prohibits anti-competitive practices, by taking away consumer options and placing the market for direct broadcast satellite service into the hands of one corporation.

EchoStar (or the Dish Network) and DirecTV have competed vigorously against each other throughout the country in recent years, and with cable companies in areas that have cable. The competition has benefitted customers in many ways, including lower prices for programming and equipment, better programming packages, availability of local broadcast channels, and special promotions.

"The proposed acquisition of Hughes [DirectTV] by EchoStar would cause significant harm to competition in numerous local markets," the suit alleges.

"For millions of households this merger would create a monopoly," the suit says. "For tens of millions of household in the United States, this merger would create a duopoly," with competition only between existing cable service and the merged EchoStar satellite service. "For the roughly 95% of U.S. television households that currently have three or fewer options," i.e., cable and the two satellite services, "this merger would lead to higher prices and lower service quality" than if the merger is blocked, the suit says.

The lawsuit was filed today in U.S. District Court in the District of Columbia. Defendants named are EchoStar Communications Corp.; General Motors Corp. and its wholly-owned subsidiary, Hughes Electronics Corp.; and Hughes' wholly-owned subsidiary, DirecTV Enterprises Inc. EchoStar offers direct broadcast services through Dish Network.

Miller noted that EchoStar's Dish Network and DirecTV compete with each other on many levels to attract consumers to switch from cable, including offering special packages of channels, and discounts on services, installation and equipment. Without the competition of two satellite providers, the incentive to offer lower prices and better customer service is gone, he said. In recent years the two satellite services have added about a million subscribers a year and now total over 18 million customers.

The suit notes that it would be extremely difficult and expensive for any new direct broadcast satellite competitors to enter the market, and that there are no satellite broadcast frequencies available that cover the entire continental United States so a competitor could offer a nationwide service.

On Oct. 10 the FCC announced that it would object to the application of EchoStar and Hughes for a license transfer. That objection was based on FCC regulations and is a separate action from the lawsuit using federal antitrust law brought by the Department of Justice and the States. An FCC hearing on the matter is scheduled for November.

The group of states named in the lawsuit who are opposing the Echostar/Hughes merger includes AR, CA, CT, HI, ID, IL, IA, KY, ME, MA, MS, MO, MT, NV, NY, NC, ND, OR, PA, TX, VT, WA, WI, in addition to DC and the Commonwealth of PR. Missouri led the States.

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