EchoStar pays $26 billion to buy DirecTV

EchoStar has put cable television on notice that it’s about to have some serious competition raining down from the skies. The parent company of the DISH Network is paying $26 billion to acquire its biggest rival, and the nation’s leading direct broadcast satellite provider--General Motors’ Hughes Networks and its DirecTV brand--to create a monstrous DBS entity with a laser-like focus on defeating cable.

“The transaction is going to create a true competitor to cable television, both in digital and broadband,” said Charlie Ergen, EchoStar’s chairman-CEO. “We have an opportunity now to provide effective competition to 100 million homes.”

The merged entity will begin with 16.7 million subscribers, including 1.8 million from the National Rural Telecommunications Cooperative [NRTC] and affiliates. It will also increase the slice of satellite spectrum available for such bandwidth-hungry applications as must-carry requirements and increasing the number of local channels available to rural customers, as well as broadband data services, said Ergen.

Right now, Ergen said, the two companies share satellite spectrum, which is “a very limited resource in outer space. There’s no more for us to get, yet we have customers who demand more and more services. We have to be able to consolidate to get efficiencies,” he said.

A consolidated company also will be able to drive down costs for programming and standardize set-top boxes--again with the idea of reducing costs for customer premises equipment--Ergen said. GM will spin off Hughes and merge it with EchoStar, which will be the parent company. Consumers will continue to see and purchase the DirecTV brand.

As recently as several months ago, it appeared any deal by EchoStar to buy Hughes or DirecTV was dead, but officials continued to work behind the scenes. The deal was finalized Sunday, when Rupert Murdoch’s News Corp. withdrew its longstanding offer for Hughes.

EchoStar is offering 0.73 shares for each share of Hughes and a $600 million break-up fee if regulators reject the deal--something many industry observers question, as the pact combines the two top satellite TV providers. When finalized in the second half of 2002, Hughes will control 54% of the stock, and EchoStar shareholders will maintain a 36% interest in the new company.

While GM will “maintain a significant investment in the merged company … it will enable our management team to devote its full efforts to focusing on our core automotive business,” said GM President-CEO Rick Wagoner.