WSI NET WANTS ECHOSTAR SLOT IN EXCHANGE FOR SUPPORT

WSI Net will ask EchoStar to give up one prime Conus slot in exchange for support at FCC for its merger with DirecTV (CD Oct 30 p1), CEO Jared Abbruzzese told us. It would be part of negotiated deal designed to gain support from rural operators for EchoStar-DirecTV deal. EchoStar spokesman said he couldn’t comment until he saw parameters of offer. WSI Net based in Austin, Tex., provides wholesale services to cable operators and consumers in rural areas. “We're concerned that all of the high-powered DBS capacity will be in the hands of one company,” Abbruzzese said. “The merger can make sense [if there] is real competition. If one could access one of these high-powered Conus slots, then there would be competition, but under current circumstances there is going to be none.” He said merger would further “stifle investment in advanced services in rural areas.”

EchoStar spokesman said merger had lots of positives for consumers. He said “there will be all kinds of new additions” to programming. “We're going to evaluate” programming packages “over next 9 months” before making decisions. “We want to look at how we can make use of efficiencies that are good by eliminating redundancy. We both broadcast the same channels.” He said there would be increase of HDTV offerings. Markets where local channels are offered would increase to 60 from 36, spokesman said. He said no decisions had been made on what would happen to undetermined number of subscribers who used both DBS companies.

Most industry analysts agreed rural providers could hold key to gaining antitrust approval from FCC and Dept. of Justice. Pegasus Communications markets DirecTV services in rural areas and has more than 1.5 million subscribers. Pegasus and WSI officials are keeping close tabs on EchoStar- Hughes regulatory process, officials said. Currently, DirecTV cannot sell service in rural areas where Pegasus offers service.

“It’s not clear what their intentions are and we need to know because it could have significant impact on our customers,” Pegasus Vp Cheryl Crate said. She said it was “significant transaction” that had “complex, commercial, legal and policy implications that are going to require a lot of thoughtful evaluations” from regulators. Crate said Pegasus executives would “review terms of merger” before deciding whether it was in best interests of rural consumers her company serves.

EchoStar could acquire Pegasus to round out holdings, some analysts said, but former wouldn’t comment whether that option was under consideration. Sale “might make sense” for Pegasus since it’s “working hard to become independent” and “get from beneath DirecTV’s shadow,” analyst said: “They are doing a lot of things with broadband and if the price is right, it’s possible something could happen.” For now, Pegasus should benefit slightly from because EchoStar will be on hook for disruption costs, said William Kidd of Lehman Bros.

Meanwhile, “first and easiest step” for EchoStar regulatory battle may be at FCC. Satellite attorney said entire process probably would take at least 6 months and be simultaneous with DoJ review. Licensing procedure is likely to include: (1) Application to transfer and assign DirecTV satellite licenses and Earth Stations to EchoStar. (2) Comments on proposal along with petitions to deny. (3) Opposition to petitions to deny. (4) Reply comments. (5) Final rulemaking. “I've had one case where the entire proceeding took 2 months, but that was highly unusual,” attorney said.

Abbruzzese said new DirecTV-EchoStar company would control each of 3 full Conus slots and 2 semi-Conus slots in U.S. Result would be 4 full-Conus slots would be in hands of EchoStar with “nothing available” for rival companies, he said: “There is one minor slot left, but no other competitor is in place to compete.” He said company planned to join with rural providers such as Pegasus in effort to stop merger if EchoStar refused to turn over slot.

Bottom line is level of competition in marketplace, Abbruzzese said: “It’s one thing to compete against a satellite company with 50 transponders and another to compete against an entity with 100-plus transponder capacity plus high-powered DBS service.” He said WSI would be left to mount challenge using medium-powered Ka-band slot that provided service through 36” dish vs. 18” DBS dish.