Regulators May Refuse EchoStar Next Week

The Federal Communications Commission is preparing to reject EchoStar Communications Corp.’s proposed $15-billion purchase of satellite rival DirecTV and its parent, Hughes Electronics Corp., perhaps as early as next week, sources said.

Although a formal FCC vote has not occurred, a majority of commissioners, including Chairman Michael K. Powell, have decided that the deal is not in the public interest, sources said. Last week, the FCC staff, led by Media Bureau Chief W. Kenneth Ferree, recommended that the deal be rejected.

The proposed merger, which would combine the No. 1 and No. 2 satellite television providers, was widely viewed as a longshot from the start. In recent weeks, numerous reports have surfaced that the FCC’s staff was balking.

The same signals have come from the Justice Department. The agency is preparing to sue to block the deal that would give the combined company 18 million subscribers.

Assistant U.S. Atty. Charles A. James, who announced this week that he planned to resign in December, is expected to make a final decision by month’s end.

Opposition by the FCC or the Justice Department would make the chances of a EchoStar-DirecTV merger remote, at best. The company’s only recourse would be to file suit against the government, a rare move.

EchoStar has argued to regulators that it and DirecTV were not competitors because few customers drop one satellite service and buy the other.

They said the merger would enable the combined company to become a stronger rival to local cable operators by allowing it to combine satellite slots and offer more channels and services.

But FCC commissioners have concluded that the anti-competitive effects--including a reduction in consumer choice--outweigh the potential benefits.

An EchoStar spokesman said Friday that the firm remains hopeful that the deal will be approved.

. “We believe the merger offers numerous benefits for consumers and should be approved based on its merits,” EchoStar spokesman Marc Lumpkin said.

EchoStar’s shares fell 5 cents to $16.95 on Nasdaq. Hughes’ shares fell 41 cents to $8.99 on the New York Stock Exchange.