Satellite merger sends mixed signals to consumers

The proposed merger between the nation's two largest satellite-TV providers is the starkest evidence yet that satellite services could soon rival communication behemoths such as AT&T and AOL TimeWarner in name recognition and consumer subscriptions.

Last October, EchoStar announced plans to buy out Hughes Electronics, which owns DirecTV. The merger would spawn a single satellite TV company with more than 16 million customers nationwide.

The customer base would exceed that of even the largest cable company, AT&T, which currently has about 14.5 million subscribers.

Both satellite companies grew considerably over the past decade as consumers sought alternatives to local cable companies. Cable subscribers who switched to satellite TV complained about cable's inattentive service and steady price hikes.

In the past six years, the ranks of satellite subscribers jumped from 2.7 million to 16 million. In 2001 alone, the two broadcasters added 3 million new customers, while cable drew only 1 million.

As the satellite-TV giant emerges, regulators and consumers alike are questioning whether a merger of the formerly competitive providers into one company would truly benefit consumers or simply leave them with fewer alternatives and, perhaps, larger bills.

For the most part, the merger - the legality of which is likely to be decided by federal regulators later this year - hinges on how regulators define the landscape of subscription TV.

"The question comes down to whether satellite television providers are competing with each other, or whether they are in a market that includes cable providers," says Robert Winikoff, a top media lawyer who heads the New York office of Sonnenschein, Nath & Rosenthal.

For the 25 million US homes without cable access (primarily in rural states), the deal would reduce service options from two to one, leaving that slice of the population with one choice for subscription TV.

Critics say that down the road those customers should expect price hikes. Also, programmers looking to reach a satellite-TV audience would unfortunately be limited to one provider to get their message out, according to Linda Golodner, president of the National Consumers League.

But rural customers could benefit from the deal as well, particularly with a few assurances. A merger might help the satellite-TV colossus streamline billing and marketing costs, with the savings likely to be passed on to consumers. Second, the government might simply ask the company to promise that it will not raise subscription fees for rural customers. Period.

Many observers believe the merger will be approved, largely because of the Bush administration's proclivity to keep its hands off the market.

But they also cite compelling consumer interests in allowing the deal to pass. The real consumer threat, according to some experts, isn't an overbearing satellite provider, but unaccountable cable services that hold local monopolies and increase prices almost at will.

A large satellite competitor, they argue, would give consumers a viable alternative, and possibly prompt cable providers - such as Comcast, Charter Communications, and AOL TimeWarner - to cut their prices.

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