Filed by General Motors Corporation
Subject Company - General Motors Corporation
and Hughes Electronics Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Commission File No.: 001-00143
SPECTRUM AND SATELLITE EFFICIENCIES
FROM THE ECHOSTAR/HUGHES MERGER
RESPONSE TO THE "RUSCH DECLARATION"
This memorandum addresses the Committee's request that EchoStar
Communications Corporation and Hughes Electronics Corporation respond to the
analysis set forth in the so called "Rusch Declaration."(1) Any analysis of the
Rusch Declaration must begin with the simple fact: if the single orbital slot
super-satellite envisioned by Mr. Rusch were practical, then EchoStar, Hughes
Electronics, and the other DBS firms in the world would have every reason to
build it, yet, whatever the theoretical technical merit of Mr. Rusch's
satellite, no one anywhere in the world has ever deployed anything like it.
Ultimately, his theoretical conclusion simply restates the truism that, with
enough time and enough money, almost anything is possible on paper.
The more important question in terms of assessing the merger is whether
the scenario described in the Rusch Declaration would be likely to occur in the
real world if the merger is not approved. For many technical and economic
reasons, the answer to this question is no, not in any time frame that is
relevant to the pending merger.
SHORTCOMINGS OF THE RUSCH ANALYSIS
The Rusch Declaration suffers from two primary shortcomings: (1) it
makes a number of incorrect, unwarranted, or unproven assumptions about the
technical feasibility of the novel single orbital slot satellite it proposes,
and (2) it disregards entirely the question whether such a system is
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(1) The Rusch Declaration is an analysis written by an engineer named
Roger J. Rusch for litigation purposes in a matter unrelated to the proposed
merger between EchoStar and Hughes. The substantive conclusions of the Rusch
Declaration have never been accepted by any court or regulatory agency.
commercially feasible and thus likely to be deployed in the foreseeable future
under real-world conditions. As recognized in the Department of Justice merger
guidelines, proper antitrust analysis is limited to alternatives that are
"practical in the business situation faced by the merging firms" and should not
rely on alternatives that are "merely theoretical" (Horizontal Merger
Guidelines, ss. 4).
TECHNICAL FLAWS:
o by focusing solely on the goal of maximizing carriage of local
broadcast signals, Mr. Rusch theorized a single orbital slot
all spot-beam satellite and disregards completely the
different considerations involved in increasing capacity for
new national programming, such as HDTV, pay-per-view,
video-on-demand, interactive and educational channels;
o Mr. Rusch's proposed super-satellite would push beyond the
mass and power limits of commercial satellite technology,
exceeding the capabilities of any currently available,
pre-designed satellite and therefore (unlike most commercial
satellites) requiring an entirely new design;
o the Rusch design would require a super-size antenna and a
significant advance in antenna design and deployment;
o the powerful on-board computing power necessary to process
digital signals has never before been attempted with any DBS
satellite;
o the proposed satellite would use a new (for DBS) modulation
scheme (8PSK modulation) that is significantly more
susceptible to interference, compounding the antenna design
issues and requiring new set-top boxes for millions of
customers seeking to receive local channel service; and
o the Rusch design poses significant risks of failures and poor
service quality, particularly due to potential spot beam
overlap and the fact that the spot-beams are not aimed at the
communities that would want the local channels they would
carry.
LACK OF COMMERCIAL VIABILITY:
o Mr. Rusch does not attempt to estimate the cost of the
proposed single orbital slot super-satellite and its
associated ground facilities, nor does he analyze at all
whether a commercially viable service could be established in
light of the projected costs;
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o given its unproven technologies , it could well be
prohibitively expensive - or even impossible - to insure the
satellite, leaving the satellite carrier at risk for any
catastrophic failure;
o in addition to the super-satellite itself, Mr. Rusch's scheme
would require elaborate new ground facilities - including six
new uplink facilities - at costs that could equal or exceed
those of the satellite;
o implementation of the Rusch proposal would render existing
investments in spot-beam satellites largely redundant;
o no system like Mr. Rusch's has been implemented anywhere in
the world;
o Mr. Rusch's proposed system - even if determined to be
feasible - would require between 34 and 44 months to build,
launch, test and place in service;
o Rusch does not address - and his expensive system would
compound - the economic difficulty posed by small subscriber
bases in some DMAs and the high on-the-ground costs of
carrying local channels, such as collecting the local
broadcasts and transmitting them to a satellite uplink center;
and
o even if implemented, Mr. Rusch's proposal would not eliminate
the current wasteful duplication of spectrum use, thus denying
substantial benefits to consumers.
THE BENEFITS OF THE PROPOSED ECHOSTAR-HUGHES
MERGER FOR EXPANDED CHANNEL CARRIAGE
In contrast, the proposed merger will result in many efficiencies and
cost savings. Specific spectrum-related benefits of the merger will include:
o the merger will end redundant broadcasts, creating hundreds of
new channels of capacity useful for both national and local
programming;
o the combined firm will be able to expand significantly --in an
economically viable manner--the number of television markets
which receive local programming;
o the merger will provide the unified firm with a more stable
and better utilized satellite fleet; and
o the merger will lower the costs of providing DBS service,
which will enable the merged firm to offer a better value to
consumers and better compete with cable.
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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 SEC's website,
www.sec.gov, and GM stockholders will receive information at an appropriate time
on how to obtain transaction-related documents for free from General Motors.
Such documents are not currently available.
General Motors 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 and by each of GM and Hughes on November 16, 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,
Hughes, EchoStar, 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
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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.
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