Audio Video News

Opposition from the US Justice Department, the Federal Communications Commission (FCC), and a consortium of consumer advocate groups drove the final nail in the coffin for a deal that would have combined the two major direct broadcast satellite services into one mega-provider in the sky. EchoStar will pay DirecTV parent corporation Hughes Electronics (a unit of General Motors) a "breakup fee" of approximately $600 million. A fourth-quarter write-off of about $700 million will handle that nicely.

EchoStar will still have around $3.7 billion in cash reserves to "continue to seek alternative, innovative ways to provide competition to the rapidly consolidating cable industry and to provide more choices for all consumers," in the words of chairman Charlie Ergen.

DirecTV, meanwhile, has begun shutting down its DirecTV Broadband high-speed Internet subsidiary. The terrestrial broadband operation, based in Cupertino, CA, will be dismantled within approximately 90 days. DirecTV is already sending its 160,000 customers to alternative service providers.

Ergen and DirecTV chairman Eddy Hartenstein had campaigned tirelessly for the merger, insisting that one of its biggest benefits would be the delivery of high-speed Internet service to rural customers. DirecTV will continue to offer the satellite service, but is abandoning landlines. "DirecTV Broadband cannot operate profitably now or in the foreseeable future," Hartenstein stated. The broadband industry has changed in ways unforeseen when Hughes entered the business two years ago.

Hughes CEO Jack Shaw explained that with the merger now dead, his company needs to attend to shoring up its bottom line. "Hughes and its subsidiaries have worked steadily over the past months to improve our businesses in anticipation of the merger with EchoStar," he said, "When the merger agreement was terminated, we promised our shareholders and customers that we would move quickly to strengthen the profitability and efficiency of our company. This decision by DirecTV Broadband is the first of those moves."