MUMBAI: The Federal Communications Commission (FCC) has rejected the proposed $ 18.5 billion merger between the two largest satellite-television companies in the US, EchoStar Communications Corp. and Hughes Electronics Corp, a subsidiary of General Motors.

In 4-0 ruling issued yesterday, the FCC said the two companies, who together make up 90 per cent of the satellite television market in the US, "have not demonstrated that approval of the transaction will serve the public interest, convenience, and necessity."

In an order designating the application for a full evidentiary hearing before an administrative law judge, the FCC ruled that the likelihood of the merger harming competition in the multichannel video program distribution (MVPD) market outweighs any merger-specific public interest benefits. The FCC found that such a loss of competition within the MVPD market is likely to harm consumers by: (1)eliminating an existing viable competitor in every market; (2)creating the potential for higher prices and lower service quality; and (3) negatively impacting future innovation.

The FCC said the combination of EchoStar and DirecTV would eliminate existing facilities-based intramodal competition and replace it with a proposed "national pricing" plan, which would have to be enforced by regulatory authorities. The FCC said the effect would be to replace facilities-based competition with regulation, which is not consistent with either the Communications Act or with long-standing policy, both of which aim at replacing regulation with free market competition.

The 4-0 vote by the FCC marks a significant defeat for EchoStar chairman Charlie Ergen who had campaigned long and hard to push the deal through.

And waiting in the wings to make another possible run at Hughes's DirecTV unit is News Corp boss Rupert Murdoch whose offer was rejected in favor of Ergen's bid. Murdoch has outmanoeuvred Ergen on all fronts, whether it be lobbying on Capitol Hill or working with key groups across the US to ensure the merger was scuttled.

Just how determined Murdoch has been can be gauged from the meticulously planned grass-roots campaign that he stage-managed covering consumer and minority-interest groups, religious broadcasters and rural educators.

The Wall Street Journal reported that in February, Murdoch, accompanied by two News Corp executives, travelled to the National Religious Broadcasters (NRB) convention in Nashville, Tennesee, to meet group leaders.

The WSJ has quoted Glenn Plummer, chairman of the group as saying that Murdoch, a frequent target of religious broadcasters himself, wanted to impress upon the (NRB) that the pending merger between EchoStar and DirecTV was a monopoly and not in their best interest.

The WSJ reported that before the one-hour meeting broke up, one of the NRB leaders suggested a prayer. The dozen people in the room, including Murdoch, gathered their chairs in a circle and held hands. A prayer was said for Murdoch. Three months later the NRB announced that it was opposing the merger between EchoStar and DirecTV.

However, when quizzed by reporters after the News Corps' annual general meeting on Wednesday whether he would launch a second bid for Hughes' DirectTV if the merger was blocked, Murdoch was quoted as saying: "We have not thought about it, we are certainly undecided."

Still, the merger isn't completely dead. The FCC now must send its opinion on the merger to an administrative law judge for review, and EchoStar and Hughes have said they plan to file an amended proposal within a 30-day window.

And interestingly, an indication of the kind of lobbying at work is the reaction of the Consumer Union which has slammed the ruling. The consumer advocate body has supported the merger the deal in the expectation it would rein in rising cable rates. "It's really startling that the FCC wouldn't lift a finger to help cable customers," Gene Kimmelman, the co-director of Consumer Union's Washington office has been quoted as saying.

The FCC will send its findings to an administrative law judge, before whom EchoStar and DirecTV can make their case. The judge's ruling would then be sent back to the commission for a final vote.