Echostar offers spectrum in exchange for merger OK

In an effort to get its proposed merger with DirecTV owner Hughes Electronics past regulators, Echostar Communications is reportedly prepared to sell enough spectrum to create a viable satellite television competitor.

In an Oct. 7 letter sent to FCC Chairman Michael Powell, Echostar requested a delay in the Commission’s vote and disclosed that the company is preparing to meet with the Department of Justice to discuss remedies to these antitrust concerns.

The move comes amid speculation that the FCC is on the verge of rejecting the merger on grounds that it would effectively eliminate competition in rural areas where only Hughes and Echostar offer pay-television service.

A spokesman for Echostar said the company is “in the process now of providing proposals to the Justice Department prior to a meeting set for Oct. 28.” He declined to give any details on what those proposals might be however.

According to Michael Goodman, senior analyst with The Yankee Group, whether this proposal sways regulators depends on how many orbital slots the company would be willing to give up.

“I think what we have is a last-ditch effort to see if they can salvage the deal,” he said. “It’s going to have to be a pretty extravagant give-back of spectrum [to allow the merger to go through].”

The offer, he added, seemingly negates Echostar’s argument that a merger is needed in order to create a company with enough spectrum to effectively compete with cable in a variety of services. The Echostar spokesman declined to comment on this, saying the company wasn’t prepared to go into the details of its offers.

In addition, the proposal “sets up the argument that if they give up one or two slots, how is that entity going to compete,” Goodman said.

If regulators do block the merger, Goodman predicted Rupert Murdoch’s News corp., which has discussed merging with Hughes before, would swoop in and buy the company. “He can come in and get [Hughes] at half the price Echostar agreed to,” Goodman said.