Filed by Echostar Communications Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Companies: Hughes Electronics Corporation
Commission File No. 0-26035
General Motors Corporation
Commission File No. 1-00143
Date: November 30, 2001
On November 30, 2001, EchoStar Communications Corporation distributed the documents set forth below.
EchoStar Communications Corporation (EchoStar) and Hughes Electronics Corporation (Hughes) have agreed to combine their satellite television businesses – the DISH Network and DIRECTV. This combination will allow the new EchoStar to offer better services to consumers and to become a stronger competitor to cable companies. Among other things, consumers will gain:
Hughes, through its subsidiary DIRECTV, Inc., and EchoStar, through its DISH Network, are providers of high-powered Direct Broadcast Satellite (DBS) services in the United States. On October 28, 2001, EchoStar and Hughes reached agreement on a merger. After regulatory approval and other conditions are satisfied, Hughes will be spun off from its corporate parent General Motors, then combined with EchoStar. The name of the surviving corporation will be EchoStar Communications Corporation (New EchoStar), and services will be provided under the DIRECTV brand name.
The transaction will be subject to thorough and comprehensive reviews by the Federal Communications Commission (FCC) to ensure that it is in the public interest, and by federal and state antitrust authorities to ensure that the transaction does not violate the antitrust laws. EchoStar and Hughes fully understand the importance of resolving any concerns about the merger’s potential impact on competition and are committed to working with the relevant government agencies to provide all of the information needed for a careful and thorough review.
To the extent permitted by the antitrust laws, EchoStar and Hughes have begun the process of planning for the implementation of the merger. While many of the technical aspects of the transition have not yet been resolved, both companies have agreed that none of their current customers will need to buy new equipment in order to continue to receive their satellite service.
EchoStar and Hughes are confident that after a thorough evaluation, the relevant authorities will find that the proposed merger does not violate any antitrust law, is in the public interest, and in fact will result in substantial benefits to consumers.
The FCC and the Department of Justice have described the market in which DIRECTV and the DISH Network compete as the market for Multi-Channel Video Programming Distribution (MVPD) services. DIRECTV and the DISH Network, like their competitors in this market, provide pay television service, including traditional cable networks like ESPN and CNN, premium movie channels like HBO, and, in approximately 40 communities, local broadcast stations. They compete with cable television providers, who also offer mixes of cable networks and premium channels, and who offer local broadcast stations in virtually every area they serve. Other competitors that offer a similar mix of programming include SMATV, which offers “private cable” to apartment buildings and single-family residential developments, Multipoint Multichannel Distribution Service (MMDS) or “wireless cable,” and C-Band satellite service, which recently began to offer digital service nationwide. National Rural Telecommunications Cooperative (NRTC) affiliates, such as Pegasus Communications, who have rights to independently market certain DIRECTV programming in defined geographic areas, also compete in the MVPD market. Several other companies have developed concrete plans to enter this market using a variety of technologies.
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Cable companies continue to dominate the MVPD market, and cable rates have steadily increased over the last 10 years.1 By contrast, DBS equipment prices have dropped steadily and its service prices have remained flat. While cable and content prices have increased steadily, DIRECTV did not raise its service prices from the launch of its service in 1994 until 2000, and EchoStar did not raise its prices from its launch in late 1995 until 2001 (and then only by $2 a month in both cases).
DIRECTV and DISH Network are the nation’s third and sixth largest MVPD providers, with about 15 million combined subscribers. By contrast, the incumbent cable firms control approximately 80% of the MVPD market, with nearly 70 million subscribers. The largest cable firms are AT&T (14.4M subscribers), AOL-Time Warner (12.7M), Comcast (8.4M), Charter (6.9M), Cox (6.2), Adelphia (5.8M), and Cablevision (3.0M).
The two DBS firms have made some headway against the cable incumbents, and consumers are better off for it. However, Hughes and EchoStar face competitive barriers which prevent them from providing consumers with the programming and services they desire, and which limit DBS’s effectiveness in provoking a competitive response from cable (as demonstrated by cable’s ability to continue to raise prices in the face of low DBS prices). The merger will help break down these competitive barriers, and allow New EchoStar to fulfill DBS’s potential as a more vigorous competitor to cable, with great consumer benefits.
Currently, EchoStar and Hughes waste much of their most valuable asset -- broadcast spectrum -- because each must duplicate the other’s transmissions of programming. Using separate frequencies, each separately broadcasts, for example, CNN, ESPN, as well as hundreds of other channels, including the local stations for each of the communities where the firms carry local stations. With the merger, those channels would only need to be broadcast once, instead of twice, to reach all consumers. This would permit New EchoStar to rationalize this use of spectrum, freeing that space for hundreds of channels of additional programming that cannot be transmitted today. With the merger, consumers will have far more programming choices, including:
1Source:Kagan World Media
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with new federal must-carry rules (which will require a DBS provider to carry, upon request, all broadcast stations from those local markets in which the provider offers any local station). By contrast, with re-claimed spectrum and a doubling of potential customers in smaller markets, New EchoStar could carry local broadcast stations in approximately 100 metropolitan areas, serving over 80% of the nation’s television households, even after compliance with the new must-carry requirements. DBS’s limited ability to offer consumers their desired local broadcast channels has long been a major competitive disadvantage against cable companies. |
The merger would help bridge the urban/rural digital divide by facilitating the development of affordable, high-speed, satellite-based Internet access. Hughes and EchoStar’s affiliate, StarBand, each offer satellite Internet access to consumers nationwide, but the services are in their infancy and are costly. Only after maturing to a scale of many times the number of
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current customers can the service be price and quality competitive to cable modem and DSL. The merger is critical to moving the industry toward that goal in several respects.
The benefit of a new, price/quality competitive, nationally available broadband option is difficult to overstate. Because of technological and economic limitations, cable modem and DSL services are not likely to be available to many rural customers in the foreseeable future. Therefore, the proposed merger may provide the only opportunity for rural consumers to have an affordable high-speed Internet access option in the foreseeable future. Further, absent the merger, and with DSL experiencing less than hoped for take rates, cable threatens to extend its market dominance of the video market to the high-speed Internet access market, as well.
In addition to the extraordinary bandwidth and Internet access efficiencies, the merger will generate important cost-savings which will allow New EchoStar to offer a greater value to MVPD consumers. These cost savings include:
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These benefits will be used by New EchoStar to compete more effectively with cable. The cost structure of DBS’s offering and nature of the MVPD marketplace make continued expansion an economic imperative for New EchoStar. Aggressive competition with cable will be necessary because:
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These market realities provide the motive, and the merger efficiencies provide the means, for vigorous competition with cable that will create better prices, more programming choices, and excellent service.
Moreover, the benefits of competition between cable and DBS will not be limited to consumers in areas with cable service. DBS service is, by necessity, a nationwide product, and will continue to be offered at uniform nationwide prices. Accordingly, New EchoStar’s pricing and programming decisions will be driven by competition with the most competitive cable firms, including those that face significant other competition such as cable overbuilders or local MMDS systems, allowing consumers nationwide to reap the rewards.
It would be logistically unthinkable - and strategically foolish - to attempt to charge different consumers different prices for the same DBS programming depending on the level of competition for those customers. The infrastructure costs alone of attempting to impose such pricing - the rebuilding of New EchoStar’s billing, authorization, and customer service systems - would swamp the minimal incremental revenue, if any, that could be generated by such a strategy. Price discrimination would also damage DBS’s hard-earned reputation for better customer responsiveness than cable.
New EchoStar will also face tough competition in non-cabled areas. C-Band, including a new digital service driven by Motorola and others, is especially strong in rural America. Cablevision and Dominion also have licenses for DBS service and are expected to enter. MMDS and other proposed terrestrial technologies will offer additional options for rural customers.
Also, the new firm will retain the existing dealer networks, which have proven extremely effective at serving rural America. Continued competition among these firms will ensure competitive service levels throughout the country.
This merger will result in substantially enhanced competition in the markets for video and Internet access services and will provide consumers with a variety of programming and services that they would not receive in the absence of the merger. The merger will benefit all consumers, no matter where they live in the United States, and should be approved.
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In connection with the proposed transactions, General Motors Corporation (GM), Hughes Electronics Corporation (Hughes) and EchoStar Communications Corporation (EchoStar) intend to file relevant materials with the Securities and Exchange Commission, including one or more Registration Statement(s) on Form S-4 that contain a prospectus and proxy/consent solicitation statement. Because those documents will contain important information, holders of GM $1-2/3 and GM Class H common stock are urged to read them, if and when they become available. When filed with the SEC, they will be available for free at the SECs website, www.sec.gov, and GM stockholders will receive information at an appropriate time on how to obtain transaction-related documents for free from GM. Such documents are not currently available.
GM and its directors and executive officers, Hughes and certain of its officers, and EchoStar and certain of its executive officers may be deemed to be participants in GM’s solicitation of proxies or consents from the holders of GM $1-2/3 common stock and GM Class H common stock in connection with the proposed transactions. Information regarding the participants and their interests in the solicitation was filed pursuant to Rule 425 with the SEC by EchoStar on November 1, 2001. Investors may obtain additional information regarding the interests of the participants by reading the prospectus and proxy/consent solicitation statement if and when it becomes available.
This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Materials included in this document contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. The factors that could cause actual results of GM, EchoStar, Hughes, or a combined EchoStar and Hughes to differ materially, many of which are beyond the control of EchoStar, Hughes or GM include, but are not limited to, the following: (1) the businesses of EchoStar and Hughes may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected benefits and synergies from the combination may not be realized within the expected time frame or at all; (3) revenues following the transaction may be lower than expected; (4) operating costs, customer loss and business disruption including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers, may be greater than expected following the transaction; (5) generating the incremental growth in the subscriber base of the combined company may be more costly or difficult than expected; (6) the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; (7) the effects of legislative and regulatory changes; (8) an inability to obtain certain retransmission consents; (9) an inability to retain necessary authorizations from the FCC; (10) an increase in competition from cable as a result of digital cable or otherwise, direct broadcast satellite, other satellite system operators, and other providers of subscription television services; (11) the introduction of new technologies and competitors into the subscription television business; (12) changes in labor, programming, equipment and capital costs; (13) future acquisitions, strategic partnership and divestitures; (14) general business and economic conditions; and (15) other risks described from time to time in periodic reports filed by EchoStar, Hughes or GM with the Securities and Exchange Commission. You are urged to consider statements that include the words may, will, would, could, should, believes, estimates, projects, potential, expects, plans, anticipates, intends, continues, forecast, designed, goal, or the negative of those words or other comparable words to be uncertain and forward-looking. This cautionary statement applies to all forward-looking statements included in this document.
ECHOSTAR/HUGHES MERGER BENEFITS FOR RURAL AMERICA
The pending merger of EchoStar and Hughes announced on October 28, 2001, will provide significant, tangible benefits to American consumers by providing an effective and viable alternative to cable companies, which continue to have monopoly power in virtually every market they serve. Efficiencies resulting from the merger will enable the new company, which will be named EchoStar and use the DirecTV brand, to provide stronger competition to the entrenched cable firms that now control more than 80% of U.S. pay television households.
Providing More Local TV Channels, High Speed Internet: By eliminating programming, such as Disney, HBO, local channels and hundreds more, that is duplicated by both companies today, significant amounts of the companies’ most precious resource – bandwidth – will be available to offer services much more in demand by rural Americans, such as local channels in more communities and a faster rollout of high speed Internet services via satellite. By having more capacity, the new company can offer these services at more competitive prices, regardless of whether or not the consumer has access to cable.
More Rural Americans Will Receive Local Network TV Via Satellite: A substantial number of consumers will not switch from cable without having access to their local network channels via satellite. Limited by bandwidth constraints, EchoStar’s DISH Network and Hughes’ DirecTV can only provide local television stations to 35 to 40 U.S. communities today. After the merger, the new company will have the necessary satellite bandwidth to serve approximately 100 communities across the nation, reaching more than 85 percent of American households.
Bridging the “Digital Divide” Between Urban and Rural Residents: The merger will allow EchoStar to provide meaningful competition with cable and telephone companies as a virtual third line into the home for a bundle of video/data/Internet services. Competitively priced, high-speed Internet access via satellite will particularly benefit those in rural areas, especially businesses and schools, that do not have access to cable modem service or DSL. The merger will also help bridge the digital divide without the need for government loans that are currently being requested by various cable and telephony providers.
Delivering HDTV, Interactive TV and Educational Programming to Rural America: The increase in available bandwidth will enable the new company to offer greatly expanded high-definition television programming, interactive television, pay-per-view and near video-on-demand services, as well as educational and foreign-language programming. Without the merger, the two individual satellite TV companies will not have the satellite bandwidth and cost efficiencies in the foreseeable future necessary to expand these services.
Competitive, Nationwide Pricing to Rural America: Since its inception, direct broadcast satellite TV providers have offered uniform, nationwide pricing structures, and EchoStar has guaranteed that it will continue this practice. Nationwide pricing offers customers in rural America the full benefits of the rigorous competition occurring in urban and suburban areas. The combined company will also generate economies of scale and other efficiencies, such as lower costs for programming, administration and operations, that would reduce overall operating costs. By increasing competition with cable, the merger will force other video providers to increase their competitiveness – in price, quality, and service – to the benefit of consumers across the country.
Merger Is Necessary for Rural Americans: Without the merger, neither EchoStar nor Hughes will have the satellite bandwidth or economies of scale in the foreseeable future necessary to expand high speed Internet services and local network TV channels to rural America. However, by combining the EchoStar and Hughes’ customer bases and satellite resources, the new company can spread the cost of offering these services over the entire subscriber base. This reduces the company’s multi-billion dollar financial investments, and with these costs savings, the new company can offer more competitive, uniformly priced services.
In connection with the proposed transactions, General Motors Corporation (GM), Hughes Electronics Corporation (Hughes) and EchoStar Communications Corporation (EchoStar) intend to file relevant materials with the Securities and Exchange Commission, including one or more Registration Statement(s) on Form S-4 that contain a prospectus and proxy/consent solicitation statement. Because those documents will contain important information, holders of GM $1-2/3 and GM Class H common stock are urged to read them, if and when they become available. When filed with the SEC, they will be available for free at the SECs website, www.sec.gov, and GM stockholders will receive information at an appropriate time on how to obtain transaction-related documents for free from GM. Such documents are not currently available.
GM and its directors and executive officers, Hughes and certain of its officers, and EchoStar and certain of its executive officers may be deemed to be participants in GM’s solicitation of proxies or consents from the holders of GM $1-2/3 common stock and GM Class H common stock in connection with the proposed transactions. Information regarding the participants and their interests in the solicitation was filed pursuant to Rule 425 with the SEC by EchoStar on November 1, 2001. Investors may obtain additional information regarding the interests of the participants by reading the prospectus and proxy/consent solicitation statement if and when it becomes available.
This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Materials included in this document contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. The factors that could cause actual results of GM, EchoStar, Hughes, or a combined EchoStar and Hughes to differ materially, many of which are beyond the control of EchoStar, Hughes or GM include, but are not limited to, the following: (1) the businesses of EchoStar and Hughes may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected benefits and synergies from the combination may not be realized within the expected time frame or at all; (3) revenues following the transaction may be lower than expected; (4) operating costs, customer loss and business disruption including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers, may be greater than expected following the transaction; (5) generating the incremental growth in the subscriber base of the combined company may be more costly or difficult than expected; (6) the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; (7) the effects of legislative and regulatory changes; (8) an inability to obtain certain retransmission consents; (9) an inability to retain necessary authorizations from the FCC; (10) an increase in competition from cable as a result of digital cable or otherwise, direct broadcast satellite, other satellite system operators, and other providers of subscription television services; (11) the introduction of new technologies and competitors into the subscription television business; (12) changes in labor, programming, equipment and capital costs; (13) future acquisitions, strategic partnership and divestitures; (14) general business and economic conditions; and (15) other risks described from time to time in periodic reports filed by EchoStar, Hughes or GM with the Securities and Exchange Commission. You are urged to consider statements that include the words may, will, would, could, should, believes, estimates, projects, potential, expects, plans, anticipates, intends, continues, forecast, designed, goal, or the negative of those words or other comparable words to be uncertain and forward-looking. This cautionary statement applies to all forward-looking statements included in this document.