One Year Later, DBS Law Has Big Impact

11/26/2000 7:00 PM Eastern

WASHINGTON -One year ago, President Clinton put pen to paper at a Rose Garden ceremony and handed the direct-broadcast satellite industry a critical legislative victory that was three years in the making.

Clinton never mentioned the legislation in his remarks that nippy Nov. 29, probably because the DBS measure was buried in a $400 billion catch-all spending bill that Capitol Hill lawmakers slapped together before heading home for the year.

The satellite industry pushed hard for the legislation, which for the first time allowed DirecTV Inc. and EchoStar Communications Corp. to provide local-TV signals along with national satellite networks to compete directly with cable operators.

The DBS industry used to complain loudly that the chief reason consumers refused to buy satellite systems was their inability to obtain local TV signals. After passage of the Satellite Home Viewer Improvement Act, that barrier was gone.

As Congress debated the bill, House Commerce Committee chairman Rep. Tom Bliley (R-Va.), who advocated competition to cable, rather than imposing new layers of regulation, called the satellite bill "our insurance policy against cable rate increases."

Adding to the bipartisan bonhomie, cable-regulation proponent Rep. Edward Markey (D-Mass.) said if Congress passed the bill, he could not "imagine a bigger moment in this video revolution."

Judging from the performance of the two DBS firms in the last 12 months, the new satellite law has been a raging success, reinforcing for many the belief that the benefits of deregulation can show up in the marketplace in an instant.

In the last year, DirecTV added 1.2 million subscribers, with 50 percent of its new customers signing up for the $4.99-per-month local signal package that typically includes the affiliates of ABC, CBS, NBC and Fox. DirecTV now serves 9 million subscribers and offers local-TV signals to about 60 percent of U.S. households in 38 markets.

Except for AT&T Broadband and Time Warner Cable, DirecTV is the single largest provider of multichannel video programming in the country. That's a startling development, considering the company began service only six years ago.

"We can definitively say that the ability to offer local channels has been nothing but a positive for us," said DirecTV spokesman Bob Marsocci. "We are seeing record growth."

The last year was equally rewarding for EchoStar, which added 1.6 million subscribers to bring its total subscriber base to 5 million. EchoStar offers local-TV signals in 34 markets that include about 60 percent of the U.S. population.

"It's kind of hard to argue that it hasn't been successful to date," said Justin Lilley, a Bliley aide who recently became vice president of government relations for News Corp., owner of the Fox network and 23 local TV stations.

Preston Padden, vice president of federal relations at The Walt Disney Co., called the law "wildly successful," noting that it had the unanticipated benefit of helping Disney gain leverage over Time Warner Cable during the two companies' ugly retransmission consent dispute in May.

"We found ourselves in position, in some of our markets, to give away satellite dishes to consumers to make sure they continued to have access to our stations," Padden said. "For the first time, both consumers and broadcasters were no longer at the mercy of one single retransmission pipeline, and I think that's good for everybody."

Rep. Billy Tauzin, the Louisiana Republican who blocked killer amendments pushed by TV station lobbyists, fought for a bill that would give the DBS industry a clean shot at cable at a time when reregulation sentiment was building among lawmakers. On some occasions, Tauzin himself fretted that cable rates would soar after the Federal Communications Commission lost the power to cap rates on March 31, 1999.

In the days leading up to the White House signing ceremony, the satellite bill came under assault from Sen. John McCain (R-Ariz.), Gene Kimmelman of the Consumers Union, and EchoStar chairman and CEO Charlie Ergen.

Instead of viewing the law as a deregulatory approach to improving DBS competition with cable, the three decided to paint it as a lop-sided, anti-consumer victory for broadcasters, who had secured the right to demand compensation for their signals starting six months after the law took effect.


McCain, an original sponsor of the law who ended up voting against his creation, complained the compensation provisions would cause DBS carriers to drop local signals in the face of stiff monetary demands, which in turn would infuriate DBS subscribers that had just signed up for local TV signals. Kimmelman and Ergen expressed the same view.

McCain's warning of a train wreck within 180 days never materialized.

As it turned out, EchoStar had to drop just four out of 121 local TV signals when compensation talks blew up. But deals for all four stations eventually were reached.

For DirecTV, the results were even better: No local TV stations were dropped.

"When the bill was passed, we made it very clear that the critics were absolutely wrong in predicting doom and gloom for the satellite industry," said Tauzin spokesman Ken Johnson. "In the end, our promise that new competition would be good for everyone proved to be right on the money."

Although cable rates have been rising in the aggregate (though they remain flat on a per-channel basis), cable operators are feeling the heat from DBS. Some operators have launched well-promoted bounty programs that require satellite subscribers to surrender their dishes in exchange for repatriating with the local cable system on generous terms.

DBS competition has also forced cable operators to press the accelerator on system upgrades to provide digital-cable programming to match the hundreds of channels offered by satellite. Cable so far has signed up 7.8 million digital subscribers.

The upgrades have also allowed cable to push into new markets, including broadband Internet access and local phone service. Through Sept. 30, cable counted 2.9 million cable-modem subscribers and 568,000 local phone customers.

In another sign the law gave DBS a serious lift, DirecTV has become such a valuable asset that its owner-General Motors Corp.-may sell the company for $45 billion or more. A bidding war could attract the team of News Corp. and Liberty Media Group and individual bids from Viacom Inc., Comcast Corp. and Disney.

DBS analyst Jimmy Schaeffler of the Carmel Group said Congress hit "a home run" by passing the law.

"I think the legislation has been absolutely, fantastically successful," he said. "Retransmission consent was a blip on the radar screen."


It might be premature to evaluate the results of SHVIA after only one year. Starting in 2002, satellite carriers will be required to carry all local TV signals in each market where they choose to retransmit just one broadcaster. In September, the Satellite Broadcasting & Communications Association, joined by DirecTV and EchoStar, filed suit to have DBS must-carry tossed out as unconstitutional. Should the law survive,

DirecTV and EchoStar insist they will not have the channel capacity to drive local-TV service deeper into secondary markets, which would mean the benefits of SHVIA would be limited to the country's most populous regions.

"One of the main issues in the bill was must-carry," said EchoStar spokesman Marc Lumpkin. "Must-carry was left in the bill and we wanted it taken out."

By the end of the year, DirecTV plans to offer local TV signals in 41 markets. It plans to launch a spot-beam satellite late next year that could extend service to an additional 30 markets. But the company will stay at 41 markets if must-carry remains law.

"We hope to get a resolution to that suit quickly," DirecTV's Marsocci said

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