DirecTV and EchoStar Coy About Merger Speculation

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  Space News Business

DirecTV and EchoStar Coy About Merger Speculation

By PETER B. de SELDING
Space News Staff Writer
posted: 15 August 2006
03:04 pm ET




PARIS — DirecTV and EchoStar officials fed speculation that the two satellite-television giants might make a fresh attempt to merge even as they sought to play down the idea.

In an Aug. 10 conference call on the company’s financial results, EchoStar Vice Chairman Carl E. Vogel did not deny that EchoStar Chairman Charlie Ergen had said a merger would result in annual savings of $3 billion for the two companies.

Ergen reportedly made the estimate July 17 at a media executives’ conference held by Allen & Co. in Sun Valley, Idaho, according to a report in The Los Angeles Times. Vogel said only that he could not confirm the Ergen statement because “I wasn’t there.”

On Aug. 8, DirecTV Chief Executive Chase Carey also gave mixed signals.

In a conference call on the El Segundo, Calif.-based company’s financial results, Carey said the decision by DirecTV and EchoStar to form a joint venture to bid on radio spectrum being auctioned by the U.S. Federal Communications Commission (FCC) should not be interpreted as a prelude to a merger.

DirecTV and EchoStar July 17 made a combined deposit of $972.6 million to the U.S. Federal Communications Commission on behalf of their 50-50 joint venture, Wireless DBS LLC, which is participating in an auction of radio spectrum covering parts of the United States.

Carey cautioned investors not to assume that the spectrum-auction maneuver is the opening act in an eventual merger. But he said the multichannel video distribution market in the United States has changed substantially since 2002, when a proposed EchoStar-DirecTV merger was rejected by the FCC.

“From a regulatory perspective, I think the environment has certainly changed,” Carey said during the conference call. “When you look at consolidation in the telco and cable industry just over the last couple of years — ATT and BellSouth, MCI, Adelphia — on and on. And you have all the speculation about the Internet players from a different angle.

“I’m not saying it would be a slam dunk. There are clearly regulatory issues around it. But from a regulatory perspective it clearly is a changed environment.”

DirecTV operates nine large geostationary satellites, has four more under construction and leases capacity on several other spacecraft. Englewood, Colo.-based EchoStar operates 12 satellites of its own and leases capacity on several other spacecraft. Vogel said EchoStar had some $2.7 billion “in satellite commitments” as of June 30. EchoStar in the past has placed deposits with satellite manufacturers for satellites that were never ordered.

Combining the two companies’ fleets and realizing anywhere near the level of synergies that Ergen allegedly forecast would be immediately unwelcome news for satellite manufacturers and launch-services suppliers. In the longer term, it also could affect several satellite-fleet operators, including SES Global of Luxembourg, whose biggest customer is EchoStar.

EchoStar has more than $1 billion in satellite-lease commitments with SES Global stretching over the next 15 years.

SES Global Chief Executive Romain Bausch on Aug. 7 sought to minimize the impact of a DirecTV-EchoStar merger on his company.

“If such a merger were to occur, we believe there would still be a lot of [satellite] capacity needed for the merged entity,” Bausch said in a conference call with investors. “The switch-off of subscribers would take time and could not be done in a short period. We do not foresee any negative impact.”

SES Global has witnessed first-hand the consequences of satellite-television company mergers in Asia, Europe and South America.

One of the satellites EchoStar is leasing from SES Global, the AMC-14, is being redesigned to make it more flexible and also to permit its use from a Mexican orbital slot at least temporarily. Vogel declined to comment on what specific modifications EchoStar had ordered for the satellite.

In an Aug. 10 filing with the U.S. Securities and Exchange Commission (SEC), EchoStar said its EchoStar 12 satellite, originally called Rainbow-1 and owned by a cable-television company, has suffered additional failures of its solar-array circuits.

The satellite, a Lockheed Martin A2100 AX model launched in July 2003, was designed to operate for 18 years. EchoStar, which purchased the satellite in orbit in 2005, said it had a contracted minimum service life of 12 years and requires that at least 22 of its 24 solar array circuits be operational to carry out its mission. Two of these failed between February and April, bringing to three the number of circuits out of service.

EchoStar said in its FCC filing that “in future years the power loss will cause a reduction in the number of transponders which can be operated. The exact extent of this impact has not been determined.”

EchoStar for several years has declined to purchase in-orbit insurance for its satellites, meaning that they fly without coverage after their first year in orbit.