ECHOSTAR-HUGHES REVIEW TO BE COMPLETE BY SEPT.—ERGEN

“We're disappointed, but the [FCC] clock has stopped,” Ergen said in interview at Satellite Bcstg. & Communications Assn. (SBCA) SkyForum in N.Y.C. Tues. “But we certainly understand the complexity of the issue and think that getting public comment is a good idea. The best-case scenario is September. We're willing to wait until the regulatory agencies have all the information and can make the right decision for the consumer.”

Yet as proposed deal wends its way through federal regulatory agencies, companies are moving ahead with integration plans should it be approved. Thomson will start production of satellite receivers for EchoStar at Juarez, Mexico, factory in June that will be capable of being upgraded via download of program code to add DirecTV service, Ergen said. Thomson currently is sourcing RCA-branded receivers from 3rd party manufacturer for EchoStar’s Digital Sky Highway (DISH) service that’s being sold through RadioShack, Thomson spokesman said. RadioShack started selling DISH in April. Thomson, which also builds DirecTV receiver, signed agreement with EchoStar in Jan. “We are designing and building to the specification that EchoStar provides,” he said. “We're interested in making the customer happy and they're interested in the RCA brand.” Thomson- built receiver will be sold under both RCA and EchoStar brands, he said.

Meanwhile, combined EchoStar-Hughes hq is likely be in former’s home base of Denver if deal is completed, although some operations will remain in L.A. area, Ergen said. Number of combined uplink facilities probably will be cut in half to 6, he said. EchoStar has major uplink centers in Cheyenne, Wyo., and Gilbert, Ariz., while Hughes facilities, which include those for DirecTV, Galaxy Latin America and PanAmSat, are in L.A. area. Combined company also is likely to deploy Nagra’s security system, which currently is being used by EchoStar. DirecTV has used NDS technology in past, but since has moved away. EchoStar and Hughes will work with Nagra to develop joint DirecTV/DISH system, Ergen said. “I'm assuming it’s going to go through,” he said. “And once the deal is approved, we still have a lot of work to do as far as combining the companies.”

While DirecTV and EchoStar have diverged in product strategies -- DirecTV has combo receiver/TiVo personal video recorder, while has EchoStar has similar product using its proprietary technology -- combined company would focus on single platforms, DirecTV Chmn. Eddy Hartenstein said. “We're going to have one flavor of PVRs, home server and a basic box,” he said: “At the end of the day, we'll look at an owned-and-operated system [like EchoStar’s PVR] vs. an outsourced product.” DirecTV also has worked on developing AOLTV/satellite receiver as well as video-on-demand, but both have been tabled pending outcome of proposed deal, company said.

Unclear is whether Moxi Digital, which Diego bought in April, will figure in possible product mix. Paul Allen’s Vulcan Ventures has controlling interest in Digeo and owns Charter Communications, meaning Moxi’s set-top box (STB) design platform for providing PVR, e-mail, Web browsing and other features could be given more of cable bent in future. EchoStar had said it would deploy Moxi’s technology in advanced STB by year-end or early 2003. “We'll have to wait and see what their focus is,” Ergen said. “Obviously we had hoped their focus would be on satellite, but now that Paul Allen owns it, maybe it will be on cable. We certainly don’t mind if they design for cable, but we'd like them to do one for satellite as well.”

On programming front, EchoStar has no plans to carry YES network this year and is likely to offer up to 5 channels from Vivendi Universal’s stable that includes USA Network, Canal Studio and others, Ergen said. Vivendi offerings probably would be transmitted from EchoStar-8 satellite, which is scheduled to launch late this summer to 110 degrees W, he said. Vivendi made $1.5 billion investment in EchoStar in Jan. While DirecTV has agreement with YES, EchoStar was unable to come to terms with network, Ergen said. Adding YES meant increasing price of EchoStar’s basic package that carries $22 monthly fee, he said, and “the economics just don’t make sense.” He said “we'd love to carry the YES network, but it’s just the fundamental way their contracts are structured and with the current people they have they just didn’t understand our business. Our door remains open, but we ran out of innovative ideas.”