One week after vowing to carry every local TV station in the country, EchoStar Communications Corp. made a legal move that has the potential to fundamentally alter the substance of that promise.
Last Thursday, EchoStar asked the U.S. Supreme Court to strike down a law that requires DBS carriers to offer every local TV station in a market where they retransmit any over-the-air signals.
If it succeeds in convincing the high court to strike down the "carry-one, carry-all" rule, EchoStar would be free to serve any market with only those signals the company could get at the bargaining table — a stark change from carrying every local TV signal in every market.
The Satellite Broadcasting & Communications Association, the Alexandria, Va.-based DBS trade group, joined EchoStar in its appeal. DirecTV Inc. dropped out of the case.
EchoStar is attempting to gain regulatory approval to merge with DirecTV parent Hughes Electronics Corp., creating a DBS firm with at least 14.9 million subscribers, or 90 percent of the home-satellite market.
The appeal was designed to defend EchoStar's First Amendment right to manage access to the satellite platform, said chairman and CEO Charlie Ergen.
"We didn't abandon our principles for the merger," said Ergen. "We believe the principle of must-carry is a fundamental freedom-of-choice issue."
'HOLLOW' RING: NAB
Broadcasters, who have a bitter history with Ergen, viewed the Supreme Court appeal as another instance in which Ergen failed to keep his word.
"This proves again that Charlie's promises often ring hollow," said National Association of Broadcasters spokesman Dennis Wharton.
The NAB has asked the Federal Communications Commission to stop EchoStar from requiring subscribers in dozens of markets to obtain a free second dish to receive some, but not all, local-TV signals. The trade group has a long-standing legal battle with EchoStar over the importation of distant network signals into local markets.
Not surprisingly, Ergen said he didn't factor the NAB's view into his decision to file the Supreme Court appeal.
"I don't think I can further anger broadcasters," Ergen said.
EchoStar and DirecTV claim the merger would free up 500 channels. With those new channels, the merger partners pledged to provide all local TV signals to 100 markets. Today, EchoStar and DirecTV combine to serve 42 local TV markets.
Two weeks ago, the companies decided to up the ante. They sought FCC permission to launch a new satellite after the merger, which would provide all local TV signals — a total of 1,600 channels, both commercial and public — in all 210 TV markets.
But the Supreme Court case looms as a potential windfall for the company, which will use the EchoStar name once the merger is complete.
If the high court takes the case and voids carry-one, carry-all as a violation of the First Amendment, EchoStar could execute its preferred plan to serve selected markets with those local TV stations with which it can cut deals.
Under one scenario, EchoStar could keep its promise of serving every local TV market, but just offer affiliates of ABC, CBS, NBC and Fox. That plan would use up 840 channels, leaving 469 TV stations, scattered among dozens of markets, without access to DBS.
The EchoStar-SBCA appeal to the Supreme Court comes after a panel from the U.S. Court of Appeals for the 4th Circuit held in December that carry one, carry all was consistent with the First Amendment because it prevented DBS carriers from "cherry-picking" local TV markets, or carrying the most desirable stations and ignoring the rest.
DirecTV dropped out of the court case, explaining that the litigation was a distraction.
"DirecTV is focused on expanding and growing its business in the near-term, and has decided not to dilute that focus by continuing with this legal challenge," spokesman Bob Marsocci said in a statement.
Even though DirecTV left the case, a Supreme Court victory for EchoStar and the SBCA would benefit DirecTV, assuming it's still unaffiliated with EchoStar when the decision is handed down.
If the Supreme Court takes the case, it would likely hear oral arguments in the fall and issue a decision no later than July 2003.
By providing local TV service in every market, EchoStar told the FCC and the Justice Department that the post-merger DBS firm would represent a more robust competitor to cable operators.
Both EchoStar and DirecTV have argued that a lack of local TV stations has been the chief reason why consumers leave electronics stores without buying a DBS system.
The leaders of the Senate Subcommittee on Antitrust, Business Rights, and Competition — Sens. Herb Kohl (D-Wis.) and Mike DeWine (R-Ohio) — want to put that theory to the test.
GAO CALLED IN
Last week, the lawmakers asked the General Accounting Office, the investigative arm of Congress, to study how cable rates are affected in markets where DBS offers local TV signals, and in markets where it doesn't.
"We … need to carefully assess the companies' claim that carrying local television stations makes satellite TV a much stronger competitor to cable," Kohl said at hearing on the merger last Wednesday.
Many senators — Kohl in particular — raised strong concerns about the deal.
"I don't believe at this point it would be great for the people of America," Kohl said.
EchoStar and DirecTV assert the merger would create the efficiencies needed not just to provide local TV signals throughout the U.S., but to roll out a dozen high-definition TV channels and high-speed Internet access to millions of Americans unlikely to be served by cable or phone companies.
"I get calls every day: 'Why do I have 40 channels of home shopping? Why don't I have my local [cities]. Why don't I have high-definition TV. Why don't I have C-SPAN 3?' " Ergen asked.
The only supporter of the deal to speak out at the hearing was Sen. Patrick Leahy, a Vermont Democrat whose state has the highest DBS-penetration level in the country, at 42 percent. Leahy said that without a merger, rural America would be denied advanced services for years.
"Mr. Ergen calls this a no-opoly, and he's right," said Leahy, chairman of the Senate Judiciary Committee. "Every senator has a rural area and has to be concerned about what happens. Ten years of being on the wrong side of the digital divide basically cripples rural America."
The EchoStar-DirecTV merger encountered some bureaucratic problems at the FCC last week.
The commission suspended review of the merger, saying the companies failed to meet a March 6 deadline to surrender requested business information.
In a March 7 letter, FCC Cable Services Bureau chief W. Kenneth Ferree told the companies that the 180-day clock on the merger review had been stopped, and wouldn't resume until the agency receives the information.
"We expect the [companies] to submit the requested documents and information as soon as possible," Ferree's two-page letter said.
Said EchoStar spokeswoman Judianne Atencio, "We turned in thousands of comments [Wednesday], as we had promised, and we will continue to work as quickly as possible to answer the FCC's information request."
The FCC issued the information request on Feb. 4. On March 5 — one day before the data reply was due — EchoStar and Hughes sought an extension until March 21.
"The request for the extension of time is denied," Ferree said, adding that the FCC is committed to acting on mergers within 180 days.
Ferree warned the companies that they also failed to comply with agency rules by waiting until March 5 to file a notice of a meeting with FCC officials that occurred on Feb. 21. Under agency rules, the notice was due the next business day.
The companies could be fined if they violate that rule again, Ferree said.