AT&T/T-Mobile: Feds Blocked A Similar Deal Between EchoStar and Hughes in 2002

The decision by the U.S. Department of Justice (DoJ) to block the proposed merger of AT&T and T-Mobile harkens back to a somewhat similar scenario almost nine years ago.

In October 2002, The DoJ filed a civil antitrust lawsuit to prevent the proposed acquisition of Hughes Electronics Corp. by EchoStar Communications Corp., citing that such a merger would “eliminate competition between the nation's two most significant direct broadcast satellite services -- Hughes's DirecTV and Echostar's DISH Network -- and would substantially reduce competition in the multi-channel video programming distribution business to the detriment of consumers throughout the United States.”

These words are quite similar to the statements made by DoJ officials regarding AT&T and T-Mobile.

“We feel the combination of AT&T and T-Mobile would result in tens of millions of consumers across the U.S. facing higher prices, fewer choices, and lower quality products for wireless services, Deputy Aattorney Ggeneral James Cole said during a press conference Wednesday.

EchoStar and Hughes had originally entered into a $26 billion merger agreement in October 2001.

At the time, Echostar's DISH Network served about 7.5 million subscribers, while Hughes' DirecTV direct broadcast satellite television service had approximately 10.9 million subscribers.

Hughes was a subsidiary of General Motors (NYSE: GM).

Charles A. James, Assistant Attorney General in charge of the Antitrust Division at the time, said in a statement: This merger would give EchoStar control of the skies for the provision of video programming by satellite, leaving customers to suffer from the resulting reduction in competition.”

He added: This merger would create a monopoly in those areas where cable television is not available, thereby eliminating the only competitive choice for millions of households. It would leave tens of millions of households -- for whom DirecTV, DISH Network, and cable now compete to provide multichannel video programming distribution service -- with a reduction from three to two competitive choices.”

The head of the FCC at the time, Michael Powell, said the costs of the merger to the public would be “staggering.”

Consumer advocate groups also blasted the proposed merger.

Jeff Chester, executive director of Washington-based Center for Digital Democracy (CDD) called the proposed combination “bad news for consumers and competitors. We are losing competition and some diversity. Now they [consumers and competitors] will have to go through a celestial gatekeeper who will decide what the prices and terms will be for both programmers and content providers.

The substantial magnitude of opposition to the EchoStar-Hughes deal was too much to overcome -- just two months after the DoJ suit, in December 2002, the two companies scrapped the merger.

Under terms of the agreement, EchoStar has to cough up $600-million to Hughes since the merger collapsed.

By February 2004, Hughes changed its name to The DirectTV Group (NYSE: DTV) -- the company had almost 20-million subscribers by 2010.

EchoStar has now become two separate companies, DISH Network Corp. (NASDAQ:DISH), which principally comprises the DISH Network business; and EchoStar Corp. (Nasdaq: SATS), which is involved in technology, including satellites.

Should the DoJ again prevail, AT&T may have no hope of latching onto T-Mobile.