Ergen Sues FCC Over SportsNet Gripe

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EchoStar Communications Corp. is taking the federal government to court on Feb. 5 over its lack of access to the cable channel that carries most of Philadelphia's pro-sports teams.

But in one sense, the case could be viewed as the legal manifestation of a long-standing feud between two media moguls: EchoStar chairman and CEO Charlie Ergen and Comcast Corp. president Brian Roberts.

Ergen wants to distribute Comcast SportsNet — the cable-TV home of the National Hockey League's Flyers and the National Basketball Association's 76ers, both owned by Comcast, as well as Major League Baseball's Phillies — within the Philadelphia DMA.

Roberts has refused to deal, claiming his terrestrially delivered sports network is immune from the must-sell requirements that Congress imposed on cable-operator-owned, satellite-delivered networks in 1992.

The Federal Communications Commission twice evaluated complaints filed by EchoStar, and twice determined that Comcast had the superior legal argument.

Ergen reacted by suing the FCC, claiming the agency gave short shrift to his charge that Comcast acted in an anti-competitive fashion contrary to law.

CLASH OF TITANS

The case goes before the U.S. Court of Appeals for the D.C. Circuit at a critical time for both companies. It also highlights the high-value distributors place on securing the rights to the highly desirable programming needed to win or retain subscribers.

EchoStar is attempting to gain FCC and Justice Department approval for its merger with DirecTV Inc., which would create a direct-broadcast satellite giant with at least 14.9 million subscribers. Many analysts regard merger approval as a longshot.

Two weeks after EchoStar filed its deal with the FCC in December, Comcast announced a mega-deal of its own: It would join with AT&T Broadband in the biggest-ever cable merger. If that $72 billion transaction is approved, the resultant AT&T Comcast Corp. would control at least 22 million cable subscribers and dominate 17 of the top 20 cable markets.

Few analysts expect that merger to be rejected by the FCC, the Justice Department or the Federal Trade Commission.

The 1997 dispute between EchoStar and Comcast centered on a provision of the 1992 Cable Act designed to ensure that cable operators do not suffocate competition by withholding programming from their rivals.

Under the program-access law, a cable operator is barred from signing exclusive distribution deals with satellite-delivered cable networks owned in whole or in part by any cable operator.

The FCC may issue a waiver, but few have been sought and even fewer granted.

When Comcast launched Comcast SportsNet on Oct. 1, 1997, the MSO insulated the network from the program-access law by opting for terrestrial distribution.

Though it's not required to do so, Comcast agreed to sell SportsNet to microwave and wireline competitors in the Philadelphia market. But it refused to sign distribution deals with either EchoStar or DirecTV.

NO BACK-UP DATA

EchoStar claimed access to Comcast SportsNet was critical to its ability to compete with cable operators in Philadelphia.

Though few doubt the plausibility of that assertion, EchoStar failed to back it up in court filings with data that showed its Philadelphia penetration was below the norm due to its inability to carry Comcast SportsNet.

EchoStar and DirecTV filed similar complaints with the FCC. The DBS firms acknowledged that Comcast SportsNet is not a satellite-delivered network. Nevertheless, the companies demanded the FCC order Comcast to sell SportsNet, arguing that the MSO illegally evaded the must-sell requirement by choosing terrestrial distribution.

The complaints alleged that Comcast — violating a separate provision of the program-access law — had engaged in "unfair methods of competition or unfair and deceptive acts or practices" designed to injure EchoStar and DirecTV.

Comcast told the FCC that SportsNet was a new network that would save hundreds of thousands of dollars a year by eschewing satellite distribution. The decision to choose terrestrial distribution was purely a many-layered business judgment and in no way associated with an evasion of the law, Comcast said.

The FCC first rejected DirecTV's complaint on Oct. 27, 1998. A day later, EchoStar asked the commission to order Comcast to produce more evidence to justify its claim that terrestrial distribution was more economically efficient.

On Jan. 26, 1999, the agency said a Comcast affidavit that enumerated a dramatic cost savings was sufficient and turned down EchoStar's complaint. It also rejected the motion for discovery.

Appeals of that original decision were later rejected by the FCC.

MAGAZINE QUOTES

EchoStar hopes the D.C. Circuit will pay more attention to its argument that Comcast intended to evade the law by keeping Comcast SportsNet off satellite than the FCC did.

EchoStar's exhibit A is a profile of Brian Roberts from the October 1997 issue of Vanity Fair
, which highlighted Comcast's growing dominance of Philadelphia's sports scene.

After referencing the potential benefits of withholding Comcast SportsNet, the article attributed the following quote to Roberts:

"We don't like to use the words 'corner the market,' because the government watches our behavior," Roberts said with a laugh. "Let's just say we've been able to do things before they're in vogue."

EchoStar said the Vanity Fair
article — coupled with July 1998 comments made to the FCC in a private meeting by an unnamed Comcast representative that SportsNet's terrestrial distribution was designed to blunt satellite competition — was sufficient basis to grant EchoStar's motion for discovery compelling Comcast to furnish additional data supporting the economic efficiency of terrestrial distribution.

In its court brief, Comcast said the article was unreliable because, among other things, the reporter erred in stating that the program-access law is in the Telecommunications Act of 1996, not in the 1992 Cable Act.

Also, Comcast said the phrase "corner the market" was the reporter's choice of words. The MSO claimed Roberts denied he ever said "corner the market."

The FCC agreed that the Vanity Fair
article was unreliable and that comments made by the unnamed Comcast official did not alter the FCC's conclusion that the MSO's motive in choosing terrestrial distribution was to save money on the launch of the new network.

The agency said it viewed EchoStar's discovery motion — filed one day after the DirecTV complaint was rejected — as a legal gambit designed to postpone the pending rejection of its complaint.

LAW COULD SUNSET

Even if EchoStar were to win the case, its access to Comcast SportsNet and dozens of other cable networks could be short-lived.

On Oct. 5, 2002, mandatory access to satellite-delivered, cable-owned networks expires, unless the FCC extends that rule. Allowing the rule to lapse would appear to eliminate further complaints based on evasion of the law.

The FCC is reviewing the issue. Comcast has urged the agency to let the law expire, while EchoStar advocates extension.

Were the exclusivity prohibition to sunset, the FCC is also studying whether cable competitors may rely on the ban on "unfair methods of competition" as a means to challenge exclusive contracts between cable operators and vertically integrated, satellite-delivered cable networks.

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