DBS Operators Divided on Bill

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While direct-broadcast satellite operators awaited
congressional legislation that would allow them to deliver local broadcast channels, top
DBS providers were divided on the bill's overall merits.

The legislation -- which passed the House by a wide margin
late last Monday, but which is still awaiting Senate and White House approval -- was
deemed more positive than negative by most DBS interests, especially industry-leader
DirecTV Inc.

"We think it's critically important that this
legislation gets enacted into law this year, so it enables us to launch local channels
during the busiest [selling] season of the year," DirecTV spokesman Bob Marsocci
said.

But EchoStar Communications Corp. continued its public
opposition to the bill, asking subscribers through on-air and Web-site messages to voice
their concerns to senators before the bill is signed.

In a prepared statement last Monday, EchoStar CEO Charles
Ergen called the bill "anti-consumer, anti-competitive to cable and a sellout to the
special interests of network broadcasters."

Ergen was especially critical of three points: failure to
act quickly to update the "grade-B" signal standard that determines who can
receive distant network signals; weak language directing broadcasters to negotiate
retransmission-consent agreements with DBS providers on a nondiscriminatory basis; and the
imposition of local must-carry requirements by 2002.

Once the new bill is signed into law, Marsocci said,
DirecTV is prepared to start offering local channels within two days in its first two
markets, Los Angeles and New York. The company would then add other cities on a
market-by-market basis. "We want to have a systematic approach to this," he
added.

EchoStar already offers local signals in 13 markets to
subscribers in so-called white areas beyond the reach of off-air signals. Service to New
York and Los Angeles is from the company's core Dish Network. In another seven
cities, subscribers need the new "Dish 500" hardware platform, with a slightly
larger dish. Customers in other markets currently need second dishes.

Some observers think Ergen's tough anti-broadcast
stance could hurt him as he tries to firm up retransmission-consent deals over the next
six months, as required.

DirecTV already has retransmission consent for Fox
owned-and-operated stations, and Marsocci said other agreements would likely follow soon.
EchoStar also has a retransmission agreement with Fox as part of the settlement of a
breach-of-contract suit against Fox parent News Corp.

Retransmission terms could affect pricing and profitability
on the local broadcast packages, which sources estimated would cost roughly $5 per month
for consumers.

The legislation movement pushed up stock prices for
EchoStar, DirecTV parent Hughes Electronics Corp. and DirecTV reseller Pegasus
Communications Corp. early last week. But the stocks dropped again last Thursday on news
that the Senate had not voted on the bill.

Even before the local-into-local issue gets settled, DBS
operators are gaining ground on cable. DirecTV, EchoStar and Pegasus each reported their
strongest Octobers on record last week.

EchoStar said last month was its strongest acquisition
month to date. It added 141,000 net new customers in October, for a total subscriber count
of 3.113 million.

DirecTV hit a total of 7.8 million customers last month
between its high-power and medium-power services. The company added 140,000 net new
customers and transitioned 75,000 more from the PrimeStar by DirecTV service to
high-power.

"November and December will be even better,"
Pegasus CEO Marshall Pagon predicted, because of holiday sales and publicity about DBS
legislation.

Tellus Ventures Associates president Steve Blum, an
analyst, said it would take time for DBS providers and retailers to get the message across
to consumers that they can get local signals over satellite.

Cable operators could continue to "muddy the
waters," he added, by publicizing the facts that consumers can't get local
signals in all markets and that they can't get all channels even in the markets where
some local signals will be available by satellite.

Rich Cozzi, vice president of marketing for Time Warner
Communications' Los Angeles region, said the operator would continue to point out
cable's advantages relative to DBS, such as the cost of providing service to
additional sets and the number of local channels DBS doesn't offer, including
regional network Orange County News.

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