A House bill still in draft form has a nasty surprise for EchoStar Communications Corp.
If enacted, the legislation would give EchoStar no more than one year to stop requiring millions of current and future customers to obtain a second dish in order to view all their local TV signals.
Although local broadcasters support the legislation, EchoStar insists it would inflict commercial harm and frustrate its ability to compete with cable, a longstanding public policy goal of Congress and the Federal Communications Commission.
BOUCHER: IT’S BAD
“Passage of that provision will cause wide disruption of existing service,” said Rep. Rick Boucher (D-Va.), a key direct-broadcast satellite backer in the House.
Since 1999, EchoStar’s Dish Network has been offering local TV signals. In dozens of markets around the country, a subscriber must have two dishes to receive all local signals, because EchoStar employs multiple satellites to retransmit local TV stations.
The two-dish solution, EchoStar has argued, makes efficient use of spectrum and means that dozens of additional markets can be served.
Broadcasters claim the two dishes are discriminatory, accusing EchoStar of relegating religious and Spanish-language stations to the second dish knowing that consumers won’t take the trouble to install a second dish just to see a few local stations.
EchoStar counters that people do without a second dish not because getting one is inconvenient, but because the programming available on the second dish does not always justify the effort. EchoStar points out that if subscribers needed a second dish to get NBC and ABC and a few popular cable networks like ESPN and Cable News Network, the vast majority would have a second dish.
Today, 20% of EchoStar’s 9.4 million subscribers use at least two dishes.
Two years ago, the Federal Communications Commission allowed EchoStar to continue with its two-dish approach, provided the company followed certain marketing practices. For example, EchoStar does not charge to install the second dish.
Broadcasters, frustrated that the FCC has refused to act on its appeal, have turned to Congress for relief.
Rep. Fred Upton (R-Mich.), chairman of the Subcommittee on Telecommunications and the Internet, unveiled the draft bill two weeks ago. He hopes to vote it out of his panel in April.
EchoStar is the bill’s chief target, because DirecTV Inc. does not employ a second-dish strategy.
Under the legislation, EchoStar would have 180 days to comply with a one-dish rule. It would be entitled to a single 180-day extension in any market, but only if it can demonstrate that lack of channel capacity would force it to terminate service in that market.
110 LOCAL MARKETS
EchoStar today offers local TV stations in 110 markets, charging $5.99 per month for the package. EchoStar won’t reveal how many of its 9.4 million subscribers have signed up for local TV signals, but unofficial estimates put the figure at 4 million.
EchoStar senior vice president and general counsel David Moskowitz, testifying April 1 before Upton’s subcommittee, said 42 markets required a second dish. If the one-dish rule were enacted, EchoStar might have to withdraw from those markets and drop plans to expand to 150 markets by the end of the year.
“We hope to be the first people to hit 150 markets if we are not saddled with one-dish as a result of this legislation,” Moskowitz said.
Upton said his bill would allow EchoStar to use a second dish provided all local TV stations were available via that hardware.
That’s not much help to EchoStar in a market like Omaha, Neb., where 10% of local-TV signal subscribers have obtained the necessary second dish.
Had EchoStar decided to put all local TV stations on the second dish, 90% of current local TV subscribers would need to obtain a second dish in less than 360 days.
Sanford Bernstein DBS analyst Craig Moffett predicted “material subscriber losses” for EchoStar if the one-dish mandate becomes law and forces EchoStar to stop providing local TV in a few dozen markets.
“As we had expected, the House draft appears to favor broadcasters over DBS … and it could be especially costly to EchoStar,” Moffett wrote in an April 2 client report.
The House bill goes well beyond companion legislation introduced by Senate Judiciary Committee chairman Orrin Hatch (R-Utah), which would simply extend for five years the DBS license to distribute superstations nationally and broadcast network signals to DBS subscribers who can’t obtain the same programming locally using a conventional rooftop antenna.
Upton’s bill, again addressing concerns raised by the NAB, includes two provisions designed to stop EchoStar and DirecTV from selling distant network signals to ineligible customers.
The first would bar the sale of distant signals to eligible new subscribers if the DBS provider serves the same market with a local signal package.
The second would require current distant network subscribers to drop that service if they elected to purchase the local TV package.