DirecTV/Dish Not Anticipating Regulatory Opposition -- This Time

Others see the deal facing regulatory headwinds owing to an antipathy to market concentration.

The FCC in 2002 rejected EchoStar's proposed takeover of DirecTV (see 0210110034). In addition, weeks later, DOJ and 23 states sued to stop the transaction, killing the deal (see 021101002). Both the FCC and DOJ cited anticompetitive concerns in the multichannel video programming distributor marketplace.

Today's rural competitive landscape “is very different than [it was] 20 years ago,” DirecTV CEO Bill Morrow told analysts. Third-party research, he said, shows that when DirecTV and Dish customers leave, most head for subscription VOD providers (SVOD). "There is not going to be a loss of competition by merging the two," he said. DirecTV and Dish combined have lost 63% of their pay-TV subscribers since 2016, he said.

"Looking at this through a competitive lens," emailed Jeffrey Westling, American Action Forum director-technology and innovation policy, "it is hard to see why the FCC [today] would object to this merger," given the sizable streaming and cable competition DBS faces. "But ... in this administration, regardless of the competitive effects, any merging parties should be at least prepared for a challenge," he added. The White House's focus on market concentration "broadly means that any merger could draw the ire of regulators." Moreover, Sling's inclusion in the DBS horizontal merger "could set off some alarm bells for the FCC." He said the commission also could object to gain concessions on prices, labor or other practices.

Westling said the companies will likely present a pro-competitive case "strong enough to avoid any major problems here." He added, "Combining the two could not only lead to lower prices or more options for consumers, but also add competitive pressures for cable television providers and big techs’ streaming services."

Pointing to the FCC's speedy approval of 5G network milestones extensions EchoStar sought and received last month (see 2409200049), MoffettNathanson's Craig Moffett noted that the agency seems "committed to giving EchoStar every conceivable chance to emerge as the wireless industry’s fourth facilities-based operator." He said that, plus challenges facing satellite TV, "make it hard for us to imagine that regulators would stand in the way of a merger -- one satellite operator is better than none." However, Moffett said, Dish creditors might be a bigger hurdle than regulators, as at least two-thirds must approve a debt exchange portion of the multistep transaction that also has $2.5 billion coming from investment group TPG Angelo Gordon.

Given the FCC concerns about market concentration in the now-dead Standard/Tegna deal, Jonathan Cannon, R Street Institute technology and innovation policy counsel, told us that likely points to the agency showing caution and concern on DirecTV/Dish.

Cooley's Robert McDowell, in an email, said, “This is a complicated deal in a complicated market." The former FCC commissioner added, "As more details emerge regarding its structure, proposed conditions proffered by the parties, political support, and such, it will be easier to handicap. In the meantime, on paper as-is, it has a steep hill climb to get approved."

While the market has changed since the last attempt at a DirecTV/Dish merger, "many of the same concerns about excessive concentration, particularly in video distribution, remain," emailed Public Knowledge Legal Director John Bergmayer. "While there are more (mostly online) video outlets, enforcers are also much more aware of the dangers of gatekeepers in media and tech markets."

With the widespread deployment of broadband over the past two decades enabling streamers' huge growth, "this transaction must be evaluated in an entirely new context," Free State Foundation Senior Fellow Andrew Long blogged. "Specifically, by providing DIRECTV with the additional scale needed to compete effectively, it seems that it will generate undeniable pro-consumer benefits. And given the relatively dominant position of streaming alternatives, it certainly doesn't appear to present any competition concerns."

Terms

The deal results in an EchoStar focused on growth areas of satellite communications and its terrestrial wireless network, said EchoStar CEO Hamid Akhavan. It also leaves EchoStar with significant spectrum assets, Akhavan noted, including global rights to S-band spectrum, which holds huge promise for direct-to-device communications.

Akhavan said the deal also provides $5.1 billion in spectrum-backed financing for EchoStar, as well as $400 million from a stock transaction, with the $5.5 billion available for its 5G network buildout and corporate purposes. He said the acquisition also would end encumbrances on its 3.45-3.55 GHz spectrum, letting EchoStar access it for strategic financing options. In addition, the deal alleviates the debt coming due in November.

DirecTV's Morrow said the transaction would leave New DirecTV better positioned to compete in a video environment where streaming dominates. The greater scale of New DirecTV would give it leverage needed to negotiate with programmers for smaller video packages at lower price points. Morros said New DirecTV plans on being a video aggregator, offering skinny bundles and SVOD options -- "a simple one-stop shop service to consumers."

Morrow said integration issues remain to be worked out, but New DirecTV doesn't intend to move Dish customers to DirecTV: Dish's satellite constellation "will be in use for some time," with one new satellite in the works and another likely later.

While not cheering the deal, Communications Workers of America indicated DirecTV was a better employer for its members than Dish. Union President Claude Cummings said Dish "is one of the most anti-union employers in the entire telecommunications industry," while DirecTV "has an agreement with CWA to allow workers to freely and fairly choose whether or not to join a union." CWA will take "a close look at the [deal's] impact ... on our members at DirecTV and the industry as a whole and working with DirecTV’s management to ensure that all workers at the company continue to have a voice on the job and strong union contracts," said Cummings.

A Dish/DirecTV combination would be especially bad for smaller broadcasters, because those two companies have historically been some of the most difficult to negotiate retransmission consent agreements with, said longtime broadcast attorney Jack Goodman.