FCC Blocks EchoStar-DirecTV Deal

Updated from 1:56 p.m. EDT

The Federal Communications Commission has declined to approve the merger of EchoStar Communications (DISH Quote - Cramer on DISH - Stock Picks) and Hughes Electronics (GMH Quote - Cramer on GMH - Stock Picks).

The decision, released at noon EDT Thursday, appears to kill a $16 billion deal intended to combine the nation's two big direct broadcast satellite services.

The announcement raises questions about whether EchoStar and Hughes will propose a revised deal that might pass muster with the FCC and the Justice Department, the other government body examining the deal. The deal also makes investors focus once again on the companies' prospects if they continue separate operation.

The FCC says a merger of EchoStar's Dish Network and Hughes' DirecTV would likely harm consumers by eliminating a viable competitor in every market, creating the potential for higher prices and lower service quality, and hurting future innovation.

Though the commission declined to release full details of its economic analysis of the proposed deal's effect, an FCC official said at a Thursday press conference that projected "consumer welfare losses" of the deal were "staggering."

Contradicting contentions of EchoStar and Hughes, the FCC says the record doesn't support the conclusion that combining their spectrum resources is necessary for deployment of "viable satellite-delivered broadband services."

The merger would have the effect of replacing facilities-based competition with regulation, a move "which is not consistent with either the Communications Act or with long-standing policy," the FCC says in a statement.

If the deal doesn't get done, EchoStar and Hughes -- traded as a tracking stock of General Motors (GM Quote - Cramer on GM - Stock Picks) -- may encounter turbulence as they go their separate ways. Under the terms of the deal, EchoStar must pay Hughes a $600 termination fee if the merger is blocked by "a permanent injunction or final and nonappealable order prohibiting the merger in an action brought by a United States federal, state or local authority under United States antitrust laws or FCC regulations," or if Hughes calls off the deal because EchoStar can't get approval within a certain time period.

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