Judge Could Zap Dish's Local Package

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As early as Monday afternoon, a federal judge in Miami could issue an order that cuts off local over-the-air TV stations for millions of EchoStar Communications Corp.'s Dish Network customers, as a result of finding repeated copyright violations by the satellite carrier.

An injunction terminating EchoStar's hugely successful local TV service would be a shocking, little-anticipated outcome to the five-year-old case.

But both satellite and broadcasting sources last week said U.S. Judge William P. Dimitrouleas might have no other option under the Satellite Home Viewer Improvement Act of 1999.

Wide whiplash

Dimitrouleas could stay an injunction pending appeal. But if he decides to give EchoStar only 30 or 60 days to shut down all local-TV transmissions, a firestorm could erupt on Capitol Hill, causing damage to both EchoStar and broadcasters with lawmakers who'd find themselves trapped between angry dish owners and longtime business supporters.

Thus, it's just not EchoStar that could be hurt.

"We do not intend to do anything that would be anti-consumer in this process," a broadcast industry source said.

The case involves allegations by CBS, Fox and their affiliates (plus ABC and NBC affiliates) that EchoStar illegally sold network signals to thousands of satellite customers who were ineligible to purchase them.

Federal law restricts reception of distant-network signals to homes located in so-called white areas, or places where the signals of local network affiliates can't be picked up with a conventional rooftop antenna.

DirecTV settled

The law contains complex methods for determining eligibility, and whether EchoStar played fast and loose with processing would-be customers is apparently at the heart of the case.

Because local affiliates do not want to lose audience (and, ultimately, advertising revenue) to their out-of-market brethren, they have been pressing the federal courts to crack down on EchoStar and DirecTV Inc.

DirecTV settled and dropped out of the case. EchoStar settled with ABC and NBC, but not with CBS or Fox — and not with any of the powerful network-affiliate groups.

EchoStar's settlement with Fox has evidently been complicated by News Corp.'s bid to buy DirecTV parent Hughes Electronics Corp. A court victory for Fox could give News Corp. chairman Rupert Murdoch significant leverage over longtime rival EchoStar chairman and CEO Charlie Ergen.

CBS parent Viacom Inc. is reportedly interested in acquiring EchoStar in the wake of Murdoch's bid in April to spend $6.6 billion for a controlling stake in Hughes and about 11 million satellite subscribers.

Lawyers and others close to the Miami case noted that SHVIA contains a "death penalty," in that if EchoStar is guilty of "willful and repeated" distant signal violations, the law states a court "shall order a permanent injunction" barring EchoStar from retransmitting "any television broadcast station."

The death penalty, then, doesn't just apply to illegal distant-signal customers, but to all subscribers to broadcast-TV signals, both local and distant.

Cutting off EchoStar would also hurt local TV stations carried via satellite until subscribers could find an alternative — perhaps DirecTV. Sources said that in court last week, broadcast attorneys made it clear to Dimitrouleas that they knew the "death-penalty" provision to be an unavoidable remedy.

"We are aware of the language in the legislation," a broadcasting source said.

106 markets eyed

A DBS source said the vast majority of EchoStar's 4 million subscribers to local or distant signals take the local package. Since entering local markets in late 1999, as authorized for the first time under SHVIA, EchoStar has entered 64 local markets and announced plans last Thursday to enter 42 more by the end of the year. A judicial cutoff of EchoStar's local TV service would raise serious financial and competitive issues, sources said.

"Clearly, that would be to EchoStar's significant competitive detriment, if the judge were to go that route, rightly or wrongly. I think they are staking their competitiveness on their ability to provide local signals," said Howard J. Barr, a DBS attorney with Womble Carlyle Sandridge & Rice here.

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