Could HDTV Be Ergen's Achilles Heel?

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For the direct-broadcast satellite industry, regulation and technology could be on a collision course that winds up producing a new business model for the delivery of local TV signals.

In the weeks ahead, the Federal Communications Commission is expected to rule on an issue that has festered for at least two years, but has gone largely unnoticed in the media glare radiated by the rejected merger of EchoStar Communications Corp. and DirecTV Inc. parent Hughes Electronics Corp.

What the FCC must decide is this: Should DBS carriers be required to carry local TV stations in high-definition, or may they "down res" the HDTV signal to standard definition in order to husband bandwidth?

Some broadcasters are reluctant to cut DBS a break.

"We are committed to HDTV here at Belo," said Regina Sullivan, vice president of government and public affairs of Belo Corp., the Dallas-based owner of 19 local TV stations. "We are asking cable to carry us in HDTV. How can we say to the satellite guys it's OK to carry it in a different fashion?"

Palm beachhead

Some said that because HDTV is still a marketplace zygote, talk that federal mandates would have a dramatic impact on the DBS industry is premature.

Although that might be true, battle lines have already formed in West Palm Beach, Fla., where the only TV station in the country providing round-the-clock HDTV programming has demanded high-definition carriage from EchoStar.

Earlier in the year, EchoStar initiated local TV station service in West Palm. Under federal law, the DBS provider is required to carry every station in a market where it has elected to carry any station.

EchoStar's opponent in the dispute, WHDT-DT in Stuart, Fla., is a new station that provides only digital service. For now, that makes WHDT unique because nearly every other TV station in the U.S. is providing analog TV service, while making the transition to digital-only broadcasting.

The EchoStar-WHDT dispute is now before the FCC. The satellite carrier has made it clear that if forced to carry WHDT in HDTV, it will discontinue providing local TV signals to the West Palm Beach market.

In terms of bandwidth consumption, EchoStar said one HDTV signal is the equivalent of eight analog stations, when converted to standard-definition digital transmission.

FCC sources indicated that the issue is one of many involving the digital-television transition that needed to be resolved.

If it's no bluff...

They did not indicate which way the four FCC commissioners are leaning on the EchoStar-WHDT dispute.

Perhaps EchoStar is bluffing about abandoning markets to escape HDTV mandates. But if the company is sincere, FCC regulators have to consider the possibility that an HDTV carriage mandate on DBS carriers could cause the satellite firms to discontinue delivery of over-the-air television stations into their local markets.

Such a move might anger consumers and Congress, which passed the Satellite Home Viewer Improvement Act in 1999 to allow DBS to provide such local-into-local service for the first time — and to offer subscribers a video package comparable to cable.

"In ordering EchoStar to dedicate the equivalent of eight channels to the carriage of a single television station, the dual important state interests in protecting over-the-air television and expanding local-into-local service are now at loggerheads," EchoStar said in an Oct. 15 filing at the FCC.

HDTV policy and politics could ensnare cable, according to some observers.

"There will also be a serious bandwidth [problem] on cable, too," noted DBS analyst Mickey Alpert, president of Alpert & Associates.

But cable systems already allocate 6 MHz to a local TV station. MSOs are expected to be able to provide two HDTV channels in the same amount of space that one analog signal occupies.

The conversion to digital — or even HDTV — should allow cable operators to conserve channel capacity. But, unlike DBS carriers, cable operators that might experience HDTV-induced bandwidth constraints are not permitted to drop local TV service in a market while continuing to provide non-broadcast programming services.

Alpert and other DBS analysts assert that advances in signal-compression technology are likely to alleviate satellite providers' concerns about HDTV's bandwidth consumption.

"If you used 8-PSK [phase shift key] modulation, you may be able to get additional efficiencies in bandwidth," Alpert said, adding that a transponder's standard definition capacity is 10 to 12 channels.

Rob Robinette, CEO of Menlo Park, Calif.-based satellite-compression technology maker Modulus Video Corp., said a new technology on the horizon — called H.26L — should allow DBS carriers to offer 8 HDTV signals per transponder. That's double the number of HDTV signals beamed via 8-PSK.

"Using this new technology should allow EchoStar and DirecTV to offer HDTV programs," Robinette said.

Satellite subscribers would need a new set-top box compatible with the H.26L standard, he said.

Opting for off-air

EchoStar chairman and CEO Charlie Ergen is not sanguine that compression technology would perform any miracles. Instead, EchoStar has developed a set-top box that will integrate local HDTV signals received with an off-air antenna.

Two weeks ago, Ergen told Wall Street analysts that his plan is to offer national HDTV programming via satellite. He hopes customers buy off-air antennas to receive local high-definition programming for free rather than buy it from cable.

"Cable will have an advantage on local HD over us, except if the traditional rabbit ears and off-air antenna make a comeback," Ergen said. "It's going to be interesting to see how that all shakes out. There clearly will be people that can't put up an antenna, that can't get HD and their only alternative for local [HDTV] will be cable."

That approach would drastically alter EchoStar's current business plan, which is to sell local TV stations in a package for $5.99 a month. EchoStar provides local TV in 50 markets and about half of all new eligible Dish Network subscribers sign up for the service, the company has said.

Ergen's idea of an off-air/satellite HDTV hybrid won support from an unlikely quarter: Guenter Marksteiner, owner of the Florida station demanding HDTV carriage from EchoStar.

Marksteiner said that he and EchoStar are both right: His station is entitled to HDTV carriage and EchoStar can abandon the market if it wants to preserve channel capacity.

He called Ergen's HDTV antenna proposal "a wonderful solution" because it likely means access to EchoStar subscribers for his station and allows EchoStar to concentrate on distributing national HDTV channels via satellite.

Ergen's approach also would address concerns raised by local TV stations that plan to use their digital spectrum to provide not just HDTV, but also multiple digital programming services. If EchoStar subscribers are picking up local TV signals with antennas, the stations no longer need the FCC to force DBS to carry multicast services.

"All the issues go away. Everybody's problems go away," Martsteiner said.

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