Dish-DirecTV Deal Won't Fool Feds

Prompted by the first subscriber losses at a major U.S. satellite-TV provider, Dish Network(DISH Quote - Cramer on DISH - Stock Picks) could revive a merger attempt with rival DirecTV(DTV Quote - Cramer on DTV - Stock Picks), but industry observers say a potential deal will once again be found to be anticompetitive.

Six years removed from failing at a $16 billion tie-up, Dish Network Chairman and CEO Charles Ergen has said market conditions are more welcoming to a deal, according to a report in The Wall Street Journal. Ergen has reportedly calculated the potential savings of a merger at up to $2 billion a year, and he also harbors hopes of a potent broadband offering from a combined satellite company -- something neither has been done individually.

However, a renewed bid to combine Dish and DirecTV would revisit the same problems that plagued the 2002 attempt -- and would once again fail to pass muster with the Federal Communications Commission and the Justice Department, the government bodies that would again examine the merger.

In its October 2002 decision, the FCC said a combination of Dish Network, then under the umbrella of parent EchoStar(SATS Quote - Cramer on SATS - Stock Picks), and DirecTV, which was then owned by Hughes Electronics, 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.

Three weeks later, the Justice Department agreed that a merger would reduce competition in markets served by cable, and eliminate it in areas served only by direct broadcast satellite.

"That merger was the first in recent memory that the FCC turned down," says Adam Candeub, an associate assistant professor of law at Michigan State University College of Law, who was an attorney-adviser for the FCC and worked on the 2002 deal between Dish and DirecTV. "That's something [Dish and DirecTV] would like to correct and would give it another go-round."

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