U.S. Seeks to Block Deal for Satellite Slot

Moving to stop the cable industry from extending its television dynasty skyward, the Justice Department on Tuesday sued to block the nation’s five largest cable operators from buying a key TV satellite slot from Rupert Murdoch’s News Corp. and MCI Communications Corp.

The 35-page lawsuit, filed in U.S. District Court in Washington, seeks to quash a $1.1-billion deal that would have given cable giants Tele-Communications Inc., Time Warner Inc., Comcast Corp., Cox Enterprises Inc. and US West/MediaOne a major share of the red-hot direct-broadcast satellite, or DBS, business. Those companies are partners in a satellite joint venture, Primestar Inc.

DBS, which uses high-powered satellites to transmit TV programs to bicycle-wheel-sized receiving dishes mounted on homes, has become one of the fastest-selling consumer electronic products, with more than 5 million subscribers in less than four years. Leading DBS operators DirecTV Inc. and EchoStar Communications Corp. offer 100 or more channels of crystal-clear pictures and compact-disc-quality sound to viewers nationwide.

But the number of DBS viewers is still only a fraction of the 67 million cable TV subscribers nationwide. And the deal would have given Primestar the last of only three national DBS licenses, on top of the 2 million satellite subscribers Primestar already serves. That alarmed Justice Department officials, who feared Primestar would use its satellite juggernaut to extend its TV monopoly.

“This merger is not good,” said Joel I. Klein, assistant attorney general in charge of the Justice Department’s antitrust division. “Cable is one of the most powerful and durable monopolies in this country.” Allowing Primestar to own the last orbital broadcast TV satellite slot would be “like having the fox guarding the chicken coop,” Klein said.

The Justice Department move is also the latest setback for Murdoch’s ambitious plan to build a satellite TV system in the U.S. modeled on the one he operates in Britain. Murdoch had originally planned to merge his fledgling domestic satellite business, ASkyB, with start-up service EchoStar to offer local broadcast networks that satellite services don’t carry now.

He scuttled that plan, however, when it became clear that the plan was too costly. As a backup plan, Murdoch agreed to merge ASkyB, and the key slot it controls with MCI, with Primestar.

In a hastily arranged news conference Tuesday, Primestar President Dan O’Brien said his company had been trying to work out a settlement with the Justice Department and did not expect the government to file suit.

“It was absolutely a surprise and a shock,” O’Brien said. He also accused the department of not acting in good faith.

If Klein prevails in court, he could face a number of nettlesome new issues, not the least of which is how to dispose of the satellite slot that MCI acquired for $682.5 million at a government auction in 1996.

Presumably, the government could pay for the DBS slot and auction it again. But any transfer of the asset would postpone the launch of a new DBS operation by at least a year, said Ted Henderson, a satellite analyst at Janco Partners Inc., an Englewood, Colo., investment company.

“I don’t see how that’s in the consumers’ interest,” Henderson said.

What’s more, any effort to find a new buyer might be constrained by a separate $5-billion lawsuit EchoStar has filed in federal court, alleging that Murdoch breached his 1996 agreement to sell his DBS satellite to EchoStar.

Nevertheless, the Justice Department’s civil antitrust lawsuit was applauded by Gene Kimmelman, co-director of the Washington office of Consumers Union.

“We are very pleased,” Kimmelman said. “This is an important first step in protecting consumers against the cable monopoly coming into the satellite business. If Justice hadn’t blocked this, the five largest cable companies [that own Primestar] would have dominance in the satellite industry.”

A source at the Federal Communications Commission said the agency is continuing its nearly yearlong investigation of the Primestar deal. The FCC has a broader mandate than the Justice Department to determine whether the transfer of the satellite slot is in the “public interest, convenience and necessity.”

Klein said he has been in close touch with FCC officials, advising them about the Justice Department’s lawsuit.

*

Times staff writer Sallie Hofmeister contributed to this report.