Denver -- EchoStar Communications Corp. has fired another
legal salvo at DirecTV Inc. in what experts called an increasingly acrimonious battle for
market share.
In a U.S. District Court filing here last week, EchoStar
accused DirecTV of resorting to "illegal monetary enticements, if not bribes,"
to convince its network of distributors not to offer Dish Network equipment or services.
It also said DirecTV used its control over 72 percent of
the direct-broadcast satellite market to block EchoStar from bidding on rights for
National Football League programming.
"[DirecTV's] actions have effectively foreclosed
a substantial amount of competition," according to the filing.
DirecTV said it was reviewing the lawsuit, but it was
"confident that all of our acts are in compliance with all applicable laws." The
Hughes Electronics Corp. unit characterized EchoStar's actions as "an attempt to
litigate its way to market share, rather than competing in the marketplace."
"We compete against all multiservice video providers
without engaging in these so-called illegal acts," said Bob Marsocci, spokesman for
the El Segundo, Calif.-based DBS operator. "We have long-standing relationships with
manufacturers, retailers and sports programmers, and they're sound and they're
legal."
Officials from Littleton, Colo.-based EchoStar declined to
discuss specific allegations contained in the lawsuit.
Analysts called the lawsuit everything from a
"gambit" by EchoStar chairman Charlie Ergen to address long-standing
distribution and programming problems, to a bid to divert attention from the fact that the
company has stopped releasing monthly subscriber numbers -- a possible indication that it
has hit a rough patch.
"It's just another round in your clip,"
Tellus Ventures Associates president Steve Blum said.
In its 78-page filing, EchoStar claimed that DirecTV was
inducing the Best Buy, Circuit City Stores Inc. and SoundTrack chain outlets to
participate in an "illegal campaign of discrimination" designed to ensure that
"the electronic retail supermarkets banned Dish Network from their stores and instead
carried and promoted [DirecTV] equipment and services."
It was doing this through undisclosed cash payments and
featured positioning in national advertising campaigns that amounted to "giving these
retailers economic compensation to boycott Dish Network equipment and services," the
filing said.
Moreover, Thomson Consumer Electronics -- a manufacturer of
DBS receivers and high-definition televisions that has long-standing relationships with
DirecTV and national distributors -- threatened to withhold its products unless retailers
agreed to boycott Dish Network, EchoStar said.
When Sears, Roebuck & Co. refused to go along with
DirecTV's demands, the DBS operator terminated its relationship with the retailer and
withheld payments on previous sales of DirecTV products, according to the lawsuit.
More recently, EchoStar said, SoundTrack decided to
discontinue their relationship because DirecTV had threatened to prohibit the chain from
selling its equipment.
Calls to SoundTrack's corporate headquarters in
Colorado were not returned. But a salesperson at a Denver-area SoundTrack store said
EchoStar equipment was still available as of last Wednesday. "They may make a
switch," the salesperson added, "but as of today, we're still selling
it."
Employees at two Best Buy stores in Denver confirmed that
their stores did not stock EchoStar equipment, but they attributed that to
"noncompetition clauses" that both DBS operators impose on retailers.
"They both do it," one salesman said. "A lot
of retailers used to carry both. But now I guess there's some bad blood, and if you
carry one, you can't carry the other."
Mickey Alpert, president of Alpert & Associates,
speculated that with equipment manufacturers like Thomson (RCA) making DirecTV available
through HDTV sets, Ergen was using the threat of litigation to force the development of a
universal set-top box that would offer EchoStar, as well.
"This is becoming an issue of equipment," Alpert
said. "Maybe because he doesn't have the equipment, this is meant to divert
attention from subscriber numbers."
As for the sports programming, Alpert said, even if Ergen
won he would lose, because cable operators would then also have access to the "NFL
Sunday Ticket" out-of-market package.
Analyst Jimmy Schaeffler, CEO of The Carmel Group, said
DirecTV inadvertently encouraged Ergen to pursue antitrust litigation when it began
entering into exclusive distribution agreements with retailers at the same time its market
share was increasing.
"In other words, they're damned if they do and
they're damned if they don't," Schaeffler said. "As DirecTV's
market share increases, it's just more evidence in Charlie's pocket."
He added that an apparent "siege mentality" has
settled over EchoStar, evidenced by its refusal to issue monthly subscriber numbers and
Ergen's sudden reluctance to publicly press his case against DirecTV at industry
events or allow his top executives to do so.
"It could be a sign of trouble at EchoStar, or it
could just be good business," he said. "There's no rule that says he has to
release monthly subscriber figures. And Charlie could figure, 'I'd rather have
my executives devoting their resources here, rather than spending a day traveling to an
industry event.'"
EchoStar wants DirecTV's agreements with retailers to
be declared a violation of antitrust laws, and it asked the court to enjoin DirecTV, RCA
and Hughes Network Systems from barring EchoStar from selling its equipment to retailers.
Other demands include that DirecTV stop knowingly making
false statements about EchoStar products.
