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EchoStar-Hughes deal faces FCC scrutiny

The proposed merger would create a satellite TV company bigger than any cable TV rival, which could mean a grueling uphill battle to get government approval.

A top federal regulator said that the merger between satellite TV providers EchoStar Communications and Hughes Electronics will cause "significant consolidation," another sign that the deal will come under close antitrust scrutiny.

"Given the significant concentration that would result from this transaction, it will be rigorously scrutinized by this team and the Commission," Federal Communications Commission Chairman Michael Powell said in a statement.

The proposed $25.8 billion deal announced Monday would create a satellite TV company bigger than any cable TV rival and has grabbed the attention of regulators, lawmakers and consumer advocates.

EchoStar's Dish Network claims about 6.9 million subscribers, while Hughes' DirecTV service reaches more than 10 million customers. By contrast, AT&T Broadband, the largest traditional cable operator, serves about 16 million households.

Most urban areas have three competitors offering similar service: a local cable giant and the two satellite companies. Allowing the two satellite companies to consolidate would drop the number of competitors in many areas to two.

Many analysts believe the fight to get government approval will be a challenge. "Strictly on an antitrust basis, it is a very uphill battle," said president Scott Cleland of the Precursor Group. "Even the most conservative antitrust regulators don't consider duopolies as competition."

The merging parties may try to ease concerns by promising not to unfairly charge consumers in rural areas. These customers are the most vulnerable because most can only receive satellite service. But such agreements can become complex and involve more government intervention than some industry watchers prefer.

Cleland believes that regulators and legislators must decide if they want the government to regulate satellite broadcasting prices, a central question in the debate. While many prefer market solutions, their faith in the free market only goes so far.

"The irony is that EchoStar is arguing for a satellite monopoly to compete against cable," said Cleland. "Some will buy it, some won't. I don't think the government will buy it."