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Ergen Sends Stations Mixed Signals

4/07/2002 8:00 PM Eastern

EchoStar Communications Corp. announced two moves last week that appeared to send mixed signals to local broadcasters.

On one front, EchoStar chairman and CEO Charlie Ergen said he would send company executives to this week's National Association of Broadcasters convention in Las Vegas, to sign carriage deals with any local TV station "with meaningful local content."

But Ergen also asked the Supreme Court to toss out a law that bans his company from providing distant network signals — which could threaten hundreds of local network affiliates — to the bulk of his 7 million direct-broadcast satellite subscribers.

"It's definitely a mixed message," Alpert & Associates president Mickey Alpert said.

Ergen has already mounted a Supreme Court challenge to a federal law that requires EchoStar and DirecTV Inc. to carry all local broadcast-TV signals in markets where they elect to carry any such stations.

The court has yet to announce whether it would hear the case.

Were the Supreme Court to strike down the law, the DBS firms — which want to merge — could offer any station with which they could reach a carriage deal.

In an attempt to mollify the local stations, on March 31 Ergen sent a letter to nearly all 1,309 commercial broadcasters and many public outlets, in which he said he'd cut immediate carriage deals anyway.

"Let us reassure you. If must-carry is upheld, we will continue to comply with the law, without question. If must-carry is overturned, the merged EchoStar still intends to carry all local channels with meaningful local content in all 210 U.S. television markets," Ergen's letter said.

The Justice Department and the NAB have until April 12 to file a response to EchoStar's must-carry challenge with the Supreme Court.

Relations between Ergen and the NAB have been sour for years. The trade group is a leading opponent of EchoStar's proposed $25.8 billion merger with DirecTV parent Hughes Electronics Corp.

Four days before Ergen sent his carriage letter, he filed a new appeal with the Supreme Court. He asked the court to toss out a federal law restricting the nationwide distribution of network affiliates via DBS.

DBS carriers are allowed to retransmit the signals of ABC, NBC, CBS and Fox to satellite subscribers in other markets — but only if those subscribers are considered to be in "unserved" households. Unserved households are defined in law as those that cannot receive local network affiliate signals with conventional rooftop antennas.

Network affiliates have been battling EchoStar in court for years, saying distant-network signals are sold to homes that are clearly not unserved.

TIME-SHIFTING OPTIONS

If EchoStar won at the Supreme Court, it could bathe every local market with powerful network affiliates from New York, Chicago and Los Angeles.

Such a package could let consumers "time-shift" network fare, exploiting the differing air times in various time zones.

NAB president Edward Fritts contended that EchoStar's promise to carry local TV stations in all markets was inconsistent with a plan to beam some network affiliates nationwide. "It is inconceivable that EchoStar professes support for local station carriage, while at the same time attempting to undercut the U.S. system of broadcasting. NAB will vigorously defend the territorial integrity of all free, local television stations, and we fully expect the U.S. Supreme Court to reject the EchoStar appeal."

In a 30-page brief, EchoStar asked the Supreme Court to strike down the "unserved" household standard as in violation of the First Amendment.

EchoStar said anyone in the U.S. should be allowed to buy local TV signals and distant network signals, just as anyone in Washington, D.C., can buy The Washington Post
and The New York Times.

"Congress chose to restrict distant satellite retransmissions out of concern that, if given a choice, satellite viewers might prefer distant content over that of their own local stations," EchoStar told the Supreme Court. "Acting out of misplaced paternalism, Congress declined to allow viewers that choice."

EchoStar hired renowned Harvard Law School professor Laurence H. Tribe, who has frequently argued cases before the Supreme Court. He represented former Vice President Al Gore in the case involving the disputed 2000 presidential election.

In a key argument, Tribe maintained the "unserved" household limitation was a content-based restriction because it favored the speech of local networks over the speech of distant networks.

The Supreme Court has rarely upheld content-based restrictions.

If EchoStar could pitch flagship broadcast stations from top markets like New York, Los Angeles and Chicago to subscribers anywhere in the country, that would be a marketing coup.

In the early years of DBS, when "white-area" rules were somewhat more relaxed, subscribers in areas served by local broadcast stations watched distant network feeds to time-shift favorite primetime TV shows or late-night talk shows.

HD POTENTIAL HIGH

Because EchoStar plans to use spot-beam technology to deliver many of its local stations via satellite, subscribers in reality would not be able to pick and choose broadcast stations from any U.S. DMA.

But EchoStar could take high-definition broadcast signals from a limited number of markets and deliver them to subscribers anywhere in the country — even to rural areas not yet served by a local digital broadcaster.

Monica Hogan contributed to this story.

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