DBS Ops Pan Draft Legislation

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Washington -- The satellite industry, aided by the Clinton
administration, lobbied furiously last week to erase changes in nearly finished satellite
legislation, complaining that the bill leans heavily in favor of the broadcast industry.

As a result, satellite-industry sources said that if the
bill as it stands now becomes law -- something that could happen in a matter of days --
the industry might not offer robust packages of local TV signals for several years.

That would be an ironic result, satellite and Capitol Hill
sources noted, because the entire point of the legislation (S. 247 and H.R. 1554) was to
permit the direct-broadcast satellite industry to offer local TV signals in order to
promote competition with cable.

"Despite the headlines, despite what broadcasters and
Congress are going to tell the American public, this is not a good bill for
consumers," EchoStar Communications Corp. chairman Charlie Ergen told subscribers
last Monday, during a monthly on-air chat.

Although well aware of the DBS industry's
disappointment, Senate Judiciary Committee chairman Orrin Hatch (R-Utah) -- who is also
chairman of the 18-member House-Senate conference committee charged with drafting the
final version of the law -- suggested that the industry was getting a little greedy.

"I think we basically put their language in to begin
with, and now they want more," Hatch said. "I think there comes a time when you
have to say, 'Hey, wait a minute. You know, this is a grand compromise between a lot
of competing interests, and we have to do the best we can.'"

In his on-air customer chat, Ergen called Hatch "one
of the key guys who can turn things around. So far, he has chosen not to, in my
opinion."

Congress hasn't totally ignored the DBS
industry's wishes. It deferred must-carry until 2002, agreed to a reduction in
copyright fees and eliminated a requirement that forced former cable subscribers to wait
90 days before buying distant network signals from DBS.

"None of that was controversial," retorted a
Capitol Hill source.

Broadcasting sources said the bill is balanced and
dismissed suggestions that DBS provision of local TV signals won't happen soon.

"I will bet you one year's salary that if
local-into-local is passed in this bill … the satellite companies will have
local-into-local up in a matter of months, maybe weeks, depending on the markets," a
broadcasting source said.

Under the legislation, EchoStar and DirecTV Inc. are barred
from offering local TV signals until they obtain retransmission consent from TV stations.

This could prove particularly disruptive for EchoStar,
which already provides local broadcast signals in 13 markets. "Because we don't
have a phase-in of retransmission-consent agreements, we may have to take down the 13
cities we have up there and go dark," Ergen told subscribers.

In an attempt to goad subscribers into keeping the pressure
on their congressmen, Ergen added, "For all you guys in Utah, Sen. Hatch is voting
for a bill, potentially, that will force us to turn you off until we can get
retransmission consent for Salt Lake City."

Heading into the legislative homestretch, the DBS industry
insisted on legal protections that would prevent broadcasters from gouging them
financially for access to local signals.

While the bill, in fact, includes that kind of protection,
it would allow broadcasters to seek higher prices from DBS companies relative to cable
companies if they were "based on competitive marketplace considerations."

A Capitol Hill source supportive of the DBS industry on
this issue said the protective language was legally gauzy, and it would take years for the
courts to decide, with the distinct possibility that during that time, no DBS carrier will
offer local TV signals in abundance.

"The problem with it is that the operative phrase,
'competitive marketplace considerations,' has no readily understood meaning in
the law. What I am telling you is that they made it up," a Capitol Hill source said.
"The practical result of that is that there is going to have to be considerable
litigation to thrash out exactly when a term or price that is different is or is not
justified given 'competitive marketplace considerations,' whatever they
are."

Late last week, Commerce Secretary William Daley sent Hatch
a letter insisting that DBS firms have the right to offer local TV signals prior to
completion of retransmission-consent negotiations.

Hatch told a reporter he would review the
retransmission-consent language, saying, "I'll look at this one point and see if
there is some way of resolving that."

Ken Johnson, spokesman for Rep. Billy Tauzin (R-La.), a
longtime supporter of the DBS industry and sponsor of the House bill, said the
retransmission-consent language was not a disaster.

"Once a DBS provider cuts a deal with the first
station in any given market, the other stations are likely to fall in line or run the risk
of losing market share," Johnson said.

EchoStar and DirecTV each already have
retransmission-consent deals with News Corp.

The DBS industry is also upset about the bill's
treatment of dish owners who purchase distant network signals because they reside in
places where they cannot receive quality local broadcast signals using convention rooftop
antennas.

Many DirecTV and EchoStar subscribers buy two packages
containing all four major networks -- one that originates in New York and another in Los
Angeles. Under the bill, a distant network subscriber will lose either New York or Los
Angeles the moment a local-signal package becomes available in the market. The drop occurs
whether or not the dish owner buys the local package.

"Right, wrong or indifferent, satellite consumers
don't like being told arbitrarily that they have to drop a signal that they have
gotten used to viewing. And this is going to force them to do that," a Capitol Hill
source said. "Why are you making consumers aggravated by forcing them to drop a
signal yet again? Why don't you let them keep the two and add the local one?"

A broadcasting source said the migration from distant
signals to local signals was consistent with the overarching goal of the bill. "There
is no reason to have distant network signals," the broadcasting source said.

In his letter to Hatch, Daley said the White House was
concerned about an approach that caused dish owners to see a reduction in the number of
distant network signals they are currently eligible to receive.

Lastly, the DBS industry is upset with provisions
concerning the new standard for determining distant-signal eligibility. The Federal
Communications Commission is charged with establishing a new standard that more accurately
reflects who among dish owners can't receive adequate off-air pictures and, thus, who
can buy distant network signals.

But there's a catch: No matter what standard the FCC
adopts, it cannot shrink a broadcaster's market by more than 3 percent of the
market's TV households.

A Capitol Hill source said the National Association of
Broadcasters insisted on the cap.

"I will tell you that several staffers in that
conference have said point-blank that what went into the bill on this was dictated by the
NAB -- this is what the NAB would live with," the Capitol Hill source said.

Johnson said the legislation was far from perfect, but much
better than the status quo. "Is it everything we wanted? No. Will the satellite
industry be better off under this bill than it is today? Yes."

Ergen tried to reassure subscribers that the bill would not
be devastating to them. "It's not going to make your satellite system any less
valuable," he said. "But it's not going to allow us to do local-to-local in
as many communities as we'd like to and to bring competition to cable."

Monica Hogan contributed to this story.

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