The $16bn (�10bn) deal was scrapped after the communications regulator, the Federal Communications Commission (FCC), blocked the merger.

The FCC said the deal would hamper competition in the industry and create a monopoly.

"The companies have reached a settlement to terminate the proposed merger of Hughes and Echostar, effective immediately," the two companies said on Tuesday.

Regulatory blow

Hughes Electronics operates the satellite TV provider DirecTV, the main provider in the US with 10 million subscribers.

Echostar owns the number two service with 6.7 million viewers.

In October, the FCC voted unanimously against the proposed merger of the two satellite companies, saying it was not in the public interest.

And, at the time the deal was blocked, an FCC spokesman warned that the companies would find it difficult to find a solution to the regulator's concerns.

Murdoch interest?

Announcing the collapse of the deal, the companies said that Echostar had paid $600m in cash, while Hughes retained its 81% stake in PanAmSat.

Echostar said it would also write off about $700m in the fourth quarter of the financial year to cover the "merger break-up fee and other related merger expenses".

The collapse of the deal could be good news for Rupert Murdoch's News Corporation.

Echostar beat off competition from News Corp to win the battle for Hughes last year.

News Corp had hoped to merge the DirecTV service with its Sky Global network.