Under the deal which was challenged by the Justice Department in May, Primestar Inc. of Englewood, Colorado, owned by five of the country's largest cable TV companies, would have acquired satellite TV assets held by Rupert Murdoch's News Corp. Ltd and MCI WorldCom.
"This is the right result and a big win for consumers," said the Justice Department's antitrust chief, Joel I. Klein, who announced Wednesday that the companies had abandoned the deal.
"It will ultimately mean lower prices, more innovation, and better service and quality," he added.
The government had moved to block the merger on the grounds that it would crimp competition, and thus the prospect of lower prices.
The $1.1 billion deal would have given the five largest U.S. cable TV companies, which together own Primestar, a major share of the emerging business that beams TV programs from satellites directly to pizza-sized dishes in people's homes.
The deal also would have given Primestar the last of only three national licenses to provide direct broadcast satellite, or DBS, service in the United States.
It was not clear whether News Corp. and MCI would try to find a new buyer for the DBS license and get out of the business, or stay in the business and look for new partners.
"We'll continue to work closely with News Corp. in this matter," said MCI spokeswoman Jamie DePeau.
For months, there had been haggling over whether News Corp. should buy out the cable TV companies, at what price, and whether any new resulting arrangement would satisfy the Justice Department. Unable to agree on a way to revamp the deal, the players decided to abandon it altogether, said a News Corp., official, who spoke on condition of anonymity.
A trial to block the merger was slated to begin in February.
The government had said the deal would have allowed the owners of Primestar, Tele-Communications Inc., Time Warner Inc., Comcast Corp., Cox Enterprises Inc., and US West/MediaOne to protect their monopolies and keep out new competitors using the satellite technology. TCI and Time Warner are the nation's largest and second-largest cable companies.
The deal was opposed by consumer groups led by Consumers Union and by rival DBS companies DirecTV and EchoStar Communications.
Together, the five cable companies that back Primestar serve 60 percent of the nation's 67 million cable TV customers, the Justice Department has said. In contrast, DirecTV and EchoStar together have just over five million customers, most of them former cable TV subscribers.
The DBS business poses the greatest direct threat yet to cable television because it can provide a multitude of channels and crystal-clear picture and sound qualty.
With cable TV rates rising faster than inflation, "it's obvious what we need is more competition, not a merger between cable monopolies and their most likely competitor, a satellite TV company," said Gene Kimmelman, co-director of the Consumers Union's Washington office.
Written By Jeannine Aversa