Policy

Congress OKs Key Media Bills At the Buzzer

11/28/2004 7:00 PM Eastern

Washington — Congress, a body that often tests positive for procrastination, gets a lot of grief for being all talk and no action.

The 108th Congress certainly played up to the wheel-spinning stereotype. Petty disputes, more so than partisan differences, tied up media and telecommunications bills for months — until lawmakers decided that the penalty for inaction would likely be severe.

The Republican-controlled Congress, expected to wrap up work last week, used the closing moments to pass new satellite legislation and extend the ban on taxing Internet-access providers or their subscribers.

New satellite legislation was essential because if current law had been allowed to expire on Dec. 31, about 2 million direct-broadcast satellite subscribers would have lost access to network programming of ABC, CBS, NBC and Fox, and their anger would have been felt on Capitol Hill.

The Internet tax bill was another must-pass measure. The old tax moratorium expired Nov. 1, 2003. Had Congress failed to adopt a new one, it would have left the door open for states and local governments to tax any provider of Internet access, including cable and phone companies.

Congress missed hitting the trifecta. The collapse of intelligence-reform legislation (which might be revived in early December) also meant the demise of a plan by Senate Commerce Committee chairman John McCain (R-Ariz.) to take some analog spectrum from TV stations and give it to public-safety groups with inadequate wireless-communications networks.

The DBS legislation passed on Nov. 20. A key provision gives EchoStar Communications Corp. just 18 months to ensure that consumers need only one dish to receive all local TV stations in a market.

The DBS bill was included within a 1,000-page, $388 billion spending bill that funds Cabinet departments and dozens of federal agencies, including the Federal Communications Commission, for the current fiscal year.

On balance, the DBS bill gave the edge to the National Association of Broadcasters, which pushed for the two-dish ban to protect its TV station members.

EchoStar chairman and CEO Charlie Ergen did not come away empty-handed. He secured the right to beam HDTV versions of ABC, CBS, NBC and Fox network programming to eligible subscribers around the country. But the number of households that would actually qualify as residing in so-called digital white areas was much smaller than EchoStar had wanted.

Nevertheless, Ergen viewed the provision as giving his company an adequate chance to provide HDTV where local stations aren't.

The old law was called the Satellite Home Viewer Improvement Act. The new one is called the Satellite Home Viewer Extension Reauthorization Act (SHVERA) or the W.J. (Billy) Tauzin Satellite Television Act.

There could be one snafu: According to published reports, House aides inserted a provision in the spending bill that would allow agents of the chairmen of the House and Senate appropriations committees to review private tax returns.

The Senate quelled the uproar by dropping the tax provision. It also blocked sending the bill to the White House until the House did the same thing last Wednesday.

EchoStar offers local signals in about 150 markets, but customers in 38 of them need second dishes to view all of their local broadcasters.

DISH CHURN ISSUE

EchoStar has said that complying with a two-dish ban within one year — as House-passed legislation in July would have required — would cost $100 million.

“We estimate it will cost roughly half that,” said Sanford C. Bernstein analyst Craig Moffett. “The real cost is likely to come from higher churn in those markets, given the inevitable disruption.”

Ergen could fight the two-dish ban in court, but company spokesman Steve Caulk declined to comment on possible litigation.

DirecTV Group Inc. does not require subscribers to obtain second dishes to view all local stations in a market.

In other provisions, the new law extended for five years direct-broadcast satellite operators' right to transmit ABC, NBC, CBS and Fox stations in New York and Los Angeles to subscribers around the country who can't receive the same programming locally.

Under the new law, the Federal Communications Commission has nine months to conduct a study on the impact of retransmission-consent, network-nonduplication, syndicated-exclusivity and sports-blackout rules on competition in the pay TV distribution market, with particular emphasis on rural cable systems, according to industry and congressional sources.

The National Cable & Telecommunications Association had sought immediate statutory changes, but had to settle for an FCC study, a congressional source said.

TAX MORATORIUM

In the Internet tax bill, Congress extended the moratorium until Nov. 1, 2007. About eight states had enacted Internet-access taxes before 1998 and were exempt from the first moratorium. The new law requires them to stop collecting those levies on Nov. 1, 2007, at which time Congress would have to decide whether to extend the moratorium once again.

The House bill imposed a permanent tax ban, but it ran into problems in the Senate. A four-year moratorium was established as the compromise, retroactive to Nov. 1, 2003.

Sen. Lamar Alexander (R-Tenn.) argued that the Internet tax ban would drain hundreds of millions of dollars from state coffers. If that were the result, Congress was obligated to find a new revenue source for the states.

VoIP AT ISSUE

Alexander, in a Senate floor statement, agreed to support the Internet-tax ban because he said it would allow states to apply sales tax to voice-over-Internet protocol (VoIP) revenue as if VoIP were traditional phone service.

“We did not change that with the temporary legislation that we passed this year,” Alexander said.

Sen. John Sununu (R-N.H.) disagreed that the new legislation affirmatively authorized the states to tax VoIP revenue.

“The Internet-tax legislation that we passed was silent on this issue. It doesn't allow or disallow, per se, the taxation of Internet protocol, IP voice service, of broadband voice service,” Sununu said.

Like the old law, the new Internet tax ban allows cities to impose franchise fees on cable-modem service, to the extent that it is classified as a cable service.

Given that the FCC has classified cable-modem service as an information service, the franchise-fee exemption is moot.

Local governments say their inability to collect cable-modem franchise fees is costing about $500 million per year in lost revenue.

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