By Christopher Stern
Washington Post Staff Writer
Monday, October 29, 2001; Page A12

General Motors Corp. agreed yesterday to sell its Hughes Electronics division, which includes DirecTV, the nation's largest satellite television service to EchoStar Communications Corp., in a $26 billion cash and stock deal, sources confirmed last night.

The deal, if passes scrutiny by government regulators, would create the nation's largest subscription-based television company, with 17 million customers. AT&T Corp.'s cable TV division, with about 13.5 million cable TV subscribers, would be its nearest competitor.

GM and EchoStar representatives declined to comment on the deal last night.

The GM board's approval marks a spectacular victory for EchoStar's chief executive Charles Ergen, who beat out Rupert Murdoch's News Corp. for Hughes Electronics and DirecTV. News Corp., based in Sydney, dropped out of the bidding Saturday after the GM board failed to decide which of the two bids it would accept. Murdoch had been negotiating with GM and Hughes Electronics division for 18 months.

The deal would likely make Ergen one of the nation's most powerful media moguls. His ability to distribute programming to millions of subscribers would give him the ability to influence the success of news and entertainment networks seeking national coverage. Ergen is to face a tough regulatory review, however, because the deal calls for the combination of the two major players in the satellite TV industry. The deal would have to be reviewed by the Federal Communications Commission and either the Federal Trade Commission or the Justice Department's antitrust division.

Some consumers in rural areas that are not served by cable TV providers would no longer have a choice of satellite providers if the deal is approved. To counter regulatory concerns, Ergen has said he would be willing to establish a national pricing scale that would offer rural customers the same prices offered to urban and suburban customers where satellite and cable services are in direct competition.

At least one consumer activist said last night that he could support Ergen's bid to become the nation's only satellite TV provider under certain conditions, including uniform pricing for rural areas. Gene Kimmelman, co-director of the Washington office for the nonprofit Consumers Union, also said he would like EchoStar to drop its opposition to earthbound firms, which say they have developed a technology that allows them to use the frequencies controlled by the satellite companies to offer a competing service.

If EchoStar, based in Littleton, Colo., dropped its opposition to those companies and promised to provide equivalent prices to rural and suburban customers, Kimmelman said he could support Ergen's bid. Kimmelman said a single strong satellite TV company could offer vigorous competition to the cable industry, which would provide meaningful benefits to consumers.