The communications regulator voted unanimously against the deal on competition grounds. A combined EchoStar-DirecTV would have served 18.2m subscribers, more than 95% of the US satellite TV market.
FCC chairman Michael Powell said yesterday: "The commission cannot find that this merger is in the public interest. The combination of EchoStar and DirecTV would have us replace a vibrant competitive market with a regulated monopoly."
Echostar and DirecTV-parent Hughes, which is owned by General Motors, made an 11th hour appeal to Powell on Monday asking him to delay making a decision on the deal while the companies negotiated revisions to the proposals with the Justice Department, which also has to approve the merger.
The companies offered to draw up a series of concessions by October 28 in an attempt to address the government's concerns about the deal, including selling enough transmission capacity to allow another competitor into the market.
The FCC's decision will be welcomed by Rupert Murdoch, who was beaten at the last minute after a year's worth of negotiations to buy DirecTV. EchoStar swooped in at the end of last year and effectively scuppered the News Corporation chairman's dream of adding DirecTV and the US market to his global satellite TV business.
Murdoch is now expected to resurrect talks with Hughes about buying DirecTV, which if successful would see it join UK broadcaster BSkyB and form a new company called Sky Global.
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