EchoStar Faces More Antitrust Scrutiny

Vivendi Universal’s agreement to buy a 10% stake in satellite television operator EchoStar Communications Corp. is raising new antitrust concerns about EchoStar’s proposed merger with rival DirecTV, a deal that already faces tough regulatory scrutiny.

The French media giant said last week that it would follow the lead of rivals such as AOL Time Warner Inc. and purchase a distribution outlet for its movies, music, interactive programming and other entertainment content. The $1.5-billion investment in EchoStar will give Vivendi five channels on the satellite operator’s Dish Network.

Wall Street analysts praised Vivendi’s investment as a shrewd way to secure a distribution platform, but the deal also presents antitrust regulators with some new issues as they review the proposed merger of EchoStar and DirecTV.

“This merger was already in serious trouble,” said Scott Cleland, regulatory analyst at Precursor Group in Washington. “This raises the temperature.”

The Vivendi investment probably will spur increased opposition to the EchoStar-DirecTV deal, particularly from broadcasters, programmers and consumer groups that had hoped satellite television would remain a neutral programming platform, rather than link up with large content providers.

“This raises the specter of a further reduction in the number [of programming] gatekeepers,” said Jeff Chester, executive director of Center for Digital Democracy, an advocacy group in Washington. “Regulators need to take a very close look at this deal.”

Though he acknowledged that Vivendi’s 10% stake is relatively small, Chester said he worries that EchoStar will give preferential treatment to Vivendi’s content over independent programmers and reduce choices for customers.

Similar concerns were raised last year during the review of the AOL Time Warner merger, which brought together a stable of entertainment and media products with the No. 1 Internet provider and No. 2 cable operator. To win regulatory approval, AOL Time Warner had to vow not to discriminate against rival programming on its cable systems.

EchoStar officials dismissed concerns that the Vivendi deal would result in a reduction in programming options for its customers and vowed to continue working with a variety of content providers.

“This doesn’t affect our ability to serve as an independent platform or hurt our ability to offer other innovative programming,” said EchoStar spokeswoman Judianne Atencio.

She said Vivendi’s stake in the company will not be large enough to give it control over programming decisions and, under the terms of the agreement, Vivendi officials will not be privy to sensitive information about competing content companies.

Officials at Vivendi could not be reached for comment Sunday.

Mark Cooper, research director of the Consumer Federation of America, said Vivendi’s investment in EchoStar has strengthened his resolve to seek concessions from EchoStar, including a commitment to keep prices affordable in rural areas and to offer high-speed Internet service.

But even with the Vivendi investment, consumer advocates still see the EchoStar-DirecTV deal as “the lesser of two evils” when compared with Rupert Murdoch’s unsuccessful proposal to buy DirecTV for his News Corp. Consumer groups opposed that deal for many of the same reasons relating to programming diversity that now have been raised--albeit to a lesser degree--by Vivendi’s investment.

Cleland doubted Vivendi’s 10% investment in EchoStar would be large enough to cause serious problems for the Bush administration’s antitrust regulators. But it will add to existing concerns about the EchoStar-DirecTV deal.

The proposed merger will combine the No. 1 and No. 2 players in satellite television, effectively ending competition in the market. The new company would serve 90% of the satellite market, with nearly 17 million subscribers. As of Sept. 30, EchoStar has 6.4 million subscribers and DirecTV, which is owned by General Motors Corp., has 10.3 million.

The American Antitrust Institute recently urged antitrust regulators to reject the EchoStar-DirecTV deal, saying it would create a satellite television monopoly.

EchoStar lobbyists are urging antitrust regulators to consider the entire pay-television market and say the merger will enable them to better compete for customers against the cable industry.

Officials at the Federal Communications Commission, which is reviewing the deal along with the Justice Department, could not be reached Sunday.