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EchoStar Suffers Congressional Loss

By | May 3, 2004

      EchoStar Communications [DISH] was slapped with another stinging defeat in Washington, D.C., when a key House subcommittee marked up a bill to re-authorize the Satellite Home Viewer Improvement Act (SHVIA) last week that would bar the company’s current two-dish solution for providing local channels to its subscribers.

      The re-authorization bill included provisions favored by broadcasters and rival DirecTV, the nation’s largest satellite TV service provider that uses in-orbit capacity above the continental United States (CONUS) to provide local signals with just one satellite dish per household.

      Last week’s vote by the House Energy and Commerce Subcommittee on Telecommunications and the Internet indicated EchoStar’s losing streak has extended from the regulatory arena to Congress. Part of EchoStar’s problem on the Hill was that it was overwhelmed by the political clout of local broadcasters, who were delighted that provisions they sought were included in the bill. The results also show EchoStar needs to try new tactics to gain allies in an attempt to limit the damage that continues to be inflicted upon its business.

      EchoStar officials said flatly that the provision forbidding the use of two dishes to deliver all the local channels in a given market to consumers would limit their ability to provide such services in communities across the country. The use of two dishes enhances capacity for EchoStar to offer more local channels by using two different orbital locations instead of one, said Steve Caulk, a company spokesman. EchoStar officials will seek changes in the bill to address that concern and others as it moves forward, he added.

      “EchoStar rose to the challenge and today provides local channels in 117 markets,” Caulk said. “This would not have been possible without a two-dish solution that is seamless to consumers.”

      However, EchoStar may not be able to find enough lawmakers to support its cause in either the House or the Senate due to determined opposition from the broadcasters and fellow satellite TV operator DirecTV. The best that EchoStar officials could suggest last week was trying to better educate Congress about the company’s ability to offer more markets local signals by using its two-dish approach.

      Special Interests

      “We are disappointed that the powerful broadcaster special interests successfully included a number of provisions in the draft legislation that are bad for competition and bad for consumers,” Caulk said. “The broadcasters also managed to eliminate from the final bill the consumer right to receive HD network channels by satellite where local broadcasters have failed to keep their promise to Congress and provide them off air.”

      That omission also drew the ire of the Satellite Broadcasting and Communications Association’s recently installed President Richard DalBello. The subcommittee’s failure to include the provision allowing satellite carriers to offer a high-definition distant network signal to viewers whose local TV stations currently do not offer digital signals missed a chance to “greatly accelerate” the national transition to digital broadcasting, he said.

      The satellite TV industry also was hamstrung by another provision of the bill that would curb the current delivery of distant network signals to rural viewers. The subcommittee opted to remove a “grandfather clause” that currently allows satellite operators to provide distant network signals to consumers unable to access local channels over the air, DalBello said.

      “The bill has a lot to offer the broadcasters but very little for consumers and the satellite industry,” DalBello said. “It seems to me that Congress is missing a great opportunity to expand consumer choice and increase competition.”

      One encouraging sign from the subcommittee’s action last week was the support expressed by certain members of the panel about the role satellites could play in providing HD and digital services to consumers who live in the so-called “digital white areas,” DalBello said. The digital white areas are places beyond the reach of a local broadcaster’s digital signal. In those communities, consumers cannot receive an over-the-air digital signal without using a satellite TV service, he explained.

      “I hope as we move from the subcommittee to the full committee, discussion on the proposal to allow satellite carriers to offer an HD distant signal to digitally unserved customers will continue to move forward.”

      DirecTV Diverges

      That issue does not appear to be a high priority for DirecTV. The nation’s largest satellite TV service provider issued a statement late Thursday that only offered praise for the bill and the lawmakers.

      Robert Mercer, DirecTV’s director of public relations, said the bill is a step toward enhancing his company’s ability to compete with cable by allowing satellite television services to continue providing local signals to their viewers. That right was given to satellite TV service providers for the first time through passage of SHVIA. The subcommittee’s bill is intended to allow satellite TV operators to retain the same privilege that their cable competitors have enjoyed since their first days of operation.

      DirecTV also praised the lawmakers for prohibiting the two-dish solution its chief satellite TV competitor EchoStar used to good advantage to expand local service to more U.S. communities than any other U.S. satellite TV provider. “We look forward to working with the committees in both houses, and members of the satellite and broadcasting industry on passage of this legislation,” Mercer said.

      Without the support of the largest and most influential U.S. satellite TV operator, DirecTV, the chances of the SBCA and EchoStar making major inroads on their respective priorities seems dim.

      Rep. Joe Barton (R-Texas), chairman of the House Energy and Commerce Committee, said that the bill succeeded in accomplishing the almost universally supported goal of allowing satellite TV providers to offer local channels to many Americans who do not live in areas served by cable TV operators.

      NAB President and CEO Edward Fritts offered unbridled support for the version of the bill approved by the subcommittee. The “important” bi-partisan bill would let consumers continue receiving their local television stations, would decisively end EchoStar’s two-dish practice and would stop the “ill-guided proposal” that allowed satellite operators to provide distant digital signals in limited instances, Fritts explained.

      Fritts promised his association would continue working closely with members of both the House and Senate as the bill moves through the legislative process.

      With that level of commitment from the NAB, EchoStar’s chances of reversing its recent record of Washington, D.C., defeats appear slim at best. Last week’s loss for EchoStar follows a regulatory shellacking absorbed by the company during late 2002 when its proposed acquisition of former Hughes Electronics, now operating as DirecTV Group [DTV], was opposed by both the Federal Communications Commission and the U.S. Department of Justice.

      The 2002 regulatory defeat was costly because EchoStar needed to pay a $600 million break-up fee to Hughes, which ultimately was sold to News Corp [NWS]. EchoStar also had to write off roughly $100 million in expenses related to pursuing the failed merger, which was opposed not only by federal regulators, but by 23 states, the District of Columbia and Puerto Rico.

      –Paul Dykewicz

      (Steve Caulk, EchoStar, 202/262-5213; Richard DalBello, Satellite Broadcasting and Communications Association; U.S. Rep. Jack Barton, U.S. House of Representatives, 202/225- 5735; Robert Mercer, DirecTV, 310/964-4683; Edward Fritts, National Association of Broadcasters, 202/429-5300)

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