Tauzin's Query: What About 6M Rurals?

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House Energy and Commerce Committee chairman Billy Tauzin (R-La.) was instrumental in securing access to cable programming for the fledgling direct-broadcast satellite industry in 1992. Nine years later, the DBS industry is on the verge of consolidating into one giant company with more subscribers than the largest cable company, the 14-million-subscriber AT&T Broadband. In a Nov. 1 interview with
Multichannel News Washington news editor Ted Hearn, Tauzin discussed at length the benefits and costs of the EchoStar Communications Corp. deal with DirecTV Inc. and potential merger conditions that may be necessary to ensure affordable DBS service to millions of consumers not served by cable operators.

MCN: Let's talk about the EchoStar-DirectTV merger. Do you support the merger or do you have problems with it?

Billy Tauzin:
Well, I can't say yet whether we support it or not. I can tell you that I've had a chance to meet with [DirecTV chairman and CEO] Eddy [Hartenstein] and with [EchoStar chairman and CEO] Charlie [Ergen], who came by yesterday, I guess it was, to give me a synopsis of the arguments in favor of the merger. I've had a chance to speak with [News Corp. chairman Rupert] Murdoch and his representatives, who were obviously disappointed that they didn't win the bidding process with GM [General Motors Corp.].

I've had a chance to sit down with Rick Wagoner, chairman of GM. In fact, I was with him in Dearborn [Mich.] the night before the announcement. So I got a good sense from all the parties as to the background on the agreement.

But that's less significant, of course, than what the terms of the agreement mean and what they signify. So I've got staff doing an in-depth analysis right now on the effects of this proposed merger and any questions it might raise in terms of competitiveness, which is the test under which we would agree either to support or, in some way, complain about this merger.

Let me give you some insight as to what we're seeing so far. One of our main concerns about this merger, as opposed to the proposed merger with Murdoch [News Corp.] and DirecTV, is that this is obviously a combination of two satellite companies, both of whom serve approximately 6 million customers who do not have any cable service.

If allowed to merge without any protections for those 6 million customers, they're left without choice. The whole battle for satellite television was to create choice for consumers, and, obviously, that's a question that has to get answered: Does this merger help or hurt choice in American competition and, therefore, the marketplace in video services?

There are several ways that might get answered, however. If, for example, Charlie Ergen and EchoStar were to agree that this merged company would continue to provide services to those 6 million Americans at terms and conditions comparable to those terms and conditions offered to other citizens who do have choice, so that they got the benefits of competition and a guarantee of national pricing, if you will, and national comparabilities and services and offerings, that probably would satisfy that concern.

I put that question to Charlie when he was here, and am anxious to see what happens in the filings they make to the Justice Department on that question.

The second concern we had was the question of other competitors, such as the Northpoint [Technology Ltd.] potential competitor and Pegasus [Communications Inc.] — the question of whether [EchoStar and DirecTV] are going to be in a position to unfairly dominate the satellite market and, therefore, hinder their entry and their competitiveness in the marketplace. That's a question that's going to have to get answered. Because, obviously, a combination of EchoStar and DirecTV will be the dominant satellite player in the marketplace.

So far, EchoStar and DirecTV have opposed Northpoint because of the concerns of interference. If that's the only objection to other competitors coming in, it's a fair objection and it ought to get addressed. But, you know, we're going to be watching to see that there are no attempts to defeat the entry of other competitors on the basis of their size in the marketplace now.

MCN: Charlie Ergen said that this shouldn't be viewed as a merger that creates a monopoly in the satellite industry. Rather, it should be viewed as a merger that creates a very strong player in the multichannel-video programming market.

Tauzin:
And he may be right.

MCN: And that includes cable, so any calculus that is used to gauge this merger should take into account that cable has 70 million subscribers and DBS has 16 million. Do you think that that's a plausible reading?

Tauzin:
Well, first of all, he's right on that point, and the courts have so ruled. But it's even more interesting than that. If this merger were being proposed at a time when cable companies were competing against each other in the same community, and cable companies were not as consolidated as they currently are, and cable companies were not as advanced as they are in terms of offering you broadband services and some awfully good services in that area, it would be one thing.

But, cable has, in fact, consolidated. It has, in fact, exchanged properties so that there's only one cable company in Los Angeles and one in Chicago. You know, it literally has gone through a process in the last decade in which it's become a stronger and stronger player on the ground.

So Charlie's point — that if satellite is going to survive as one of several competitors for video services, that it needs to be a stronger player, that maybe this merger creates strength that will enable the satellite option to survive and to be offered to consumers — may be correct. It may be that this merger is exactly the answer to cable consolidation and cable expansion.

There's another thing: There's several other features to that, where his arguments make a lot of sense. One of them is that by combining 10 [million] and 6 million customers, the size of the customer base then entitles satellite to some of the deep discounts in program services that cable now gets. So it makes them more comparable, perhaps, in price.

Additionally, the size of the satellite merger may enable it to make more investments in satellite slots for more local-into-local [TV service]. It may allow for compatibility of platforms so that [Capital Broadcasting Co.'s] concept of offering more local-into-local might be much more feasible. What I'm saying is satellite may become a more complete competitor to cable as a result of this merger. If that's true, that's good.

Finally, Charlie makes the point — and it's certainly a real one — that if satellite is going to be a competent competitor in the broadband world, when it isn't just a question of video services, but video services mixed with data services and interactive Internet services at high speed, that obviously satellite's got to do a better job in proving broadband than it currently does. Cable has a much better product, and that's true. Again, a merged entity, with more financial strength, may have a capability of developing broadband products that separate entities may not possess.

So there are some arguments about the strength of this merger and its capacity to remain a viable competitor in the long run against cable. Those arguments make a lot of sense. I give him credit for those.

MCN: About those 6 million homes that are not served by cable: Couldn't one plausibly argue that if they have only one DBS choice, and they feel like they're getting gouged, might cable and other wireline players have an incentive to actually start serving those homes?

Tauzin:
Yeah.

MCN: It wouldn't happen overnight.

Tauzin:
That's correct. I mean the likelihood is that would not happen right away. Cable has tended to extend broadband to its most lucrative markets first, and they're going to continue to do that. The markets we're talking about here are rural, dispersed, they're at places where the density of population is very low. So they're not likely to be targets of opportunity for cable broadband anywhere in the near future. In fact, that's why I'm pushing the broadband bill for telephones.

I think telephones are more likely to be the broadband competitor in those rural areas, particularly now that we have a provision in the bill that requires a telephone company to put a DSLAM [digital-subscriber-line access multiplexer], a broadband-capable remote terminal, at every central station throughout the country within the next five years.

So, I really think you've got to see competition coming to satellite in those areas more likely from telephone companies than from cable companies, initially.

MCN: One point on the merger is, amazingly, you have two companies coming together here that, I believe, will form the largest multichannel video-programming distributor in the country — it'll be bigger than any cable company, yet it won't be vertically integrated. It will not own any programming. Which brings me to an issue near and dear to your heart, program access. Does the FCC need to extend the exclusivity ban beyond Oct. 5, 2002, so that if EchoStar and DirecTV are one company by that time, or two, that they can get access to cable-owned programming?

Tauzin:
Whether they're one company or two, the arguments are the same. Obviously, by the time we get to the year 2002, we need to look at the state of competition for them to make that decision, but that's certainly an argument for them to extend it.

MCN: Do you want to see it extended?

Tauzin:
I don't want to judge that right now. I think we've got to get closer to the state of competition on that date and see what it looks like. It may well be that they need to, but I don't want to judge that right now.

I do know, obviously, that program access was critical to the creation of satellite television. We never assumed it would always be critical. Once it became a strong enough player that they had their own leverage to go into the marketplace and buy programming, at some point, they would be as fully capable as cable to go make, you know, deals. But the lack of vertical integration, the lack of connectivity to the inside track, if you will, to the programming, is a real problem.

If that remains in the year 2002, it may well be that the commission may want to at least temporarily extend that date. But, you know, I want to wait until that date before I make a decision on it.

MCN: One last thing on the merger, and that is, mergers under the prior administration and the prior leadership at the FCC tended to take a long time. Do you have any message for the FCC today and the Justice Department or Federal Trade Commission about prolonging this process for eight months, nine months, a year, whatever?

Tauzin:
The message is very simple. DOJ needs to look at the antitrust competitiveness issues here. If they find a problem with the lack of competition, such as with the 6 million viewers, they can and should be willing to insist upon a condition of service to those customers. I would have no problem with that. In fact, I may be in the position of recommending that.

Once DOJ makes a decision — if they have done so, and they decide the competitive issues are settled — then my message to the FCC is, 'For heaven's sake, don't replicate those same proceedings over again, like the old commission used to do.'

We took away merger authority from the FCC for a reason. We recognized that the Justice Department was going to fulfill that responsibility. The last thing we needed was for the FCC to duplicate that same review or to place innumerable conditions upon the applicants, the same way the old FCC used to do. I would urge this FCC not to follow that pattern, and, for heaven's sakes, avoid any closed-door negotiations where the public can't even see what's going on and where parties are locked in there until they agree to do whatever the FCC wants in order to come out. I would hope we don't see that pattern repeated.

In short, I would hope the DOJ does its job and does it well, and makes sure that there aren't competitive issues that aren't addressed. But then, once that's done, the FCC literally limits its review to the questions of licensing that we intended them to review rather than replication of all the issues that were before the DOJ.

MCN: Turning to the digital-television transition, the National Association of Broadcasters released a statement basically saying that it would be more flexible on dual must-carry. Basically, it was going to trade that off in exchange for interoperability, a DTV tuner mandate, and full carriage of the digital signal until after the transition. What do you think?

Tauzin:
That's an excellent offer. I suspected that they would reach that point at some time. In the meetings we have had with all the parties, where we've discussed with all of them the hang-ups to an efficient, smooth transition to digital TV, it was apparent to us that those three things were much more important than dual carriage and that they needed to get addressed real quickly. I think NAB is taking the right approach here. I don't know whether they will get that, but I think they're making the correct offer.

MCN: Recently, You had a meeting with all the principal players. To what extent are you thinking about legislating in this arena? All commercial broadcasters have to be on the air next May. Only two hundred are on the air now. Thirty percent are expected to miss the deadline, and basically, they have no audience. It's just red ink as far as the eye can see because there's no cost recovery. Are you concerned that broadcasters with only one revenue stream are going to see that eroded by the financial commitment they have to make to DTV?

Tauzin:
Yes. I'm more concerned that the timetables that we've established for the transition to digital are going to be missed so badly that the whole scheme we put together for the return of the analog spectrum, and for consumers to have made an easy transition into this new technology, will have been disruptive.

Of course, I'm very sympathetic to the broadcasters' concerns that they're going to also lose money in that process. That should not have happened. We should not have caused that. So, it's a reason why we're having these meetings. What we're trying to do is literally find out where the pressure points are, where are the things that have to be settled now, have to be agreed upon now, so that that transition can be back on track, and so that, in fact, an audience can be built for the new services.

MCN: Are you hearing anything on cable rates? Is there a measurable volume of complaints?

Tauzin:
No.

MCN: What are the chances of the Tauzin-Dingell bill [deregulating Baby Bell high-speed data businesses] getting a vote in the House this year and getting through the Senate at some point in the near future?

Tauzin:
Well, obviously, Sept. 11 upset all of our schedules. Were it not for Sept. 11, I'd have had my vote already. I mean, we were prepared to go to the floor and we're still prepared to get to the floor. We're preoccupied now by so much of the airport security, and we're about to engage in the process of producing another bioterrorism package that includes a massive new section on food safety, imported food. So, we've been certainly distracted by the fact that our nation is at war and that the war front is even at home.

But we have entered into agreements for amendments to the bill, and we are prepared to go to the floor anytime the leadership is willing to take it up. The Speaker [Illinois Republican J. Dennis Hastert] last week, at some function, announced that he thought it was time for the broadband bill to come up, particularly since the mail is now compromised. Even if you start radiating the mail, people are going to feel strange about the mail. More and more people are going to want to go to data transmission, whether it's the Blackberrys or the e-mails or the faxes or what have you, or the voice transmissions.

Secondly, [House Majority Leader] [Rep.] Dick Armey (R-Texas), yet last night, announced at some meeting that, if we're here obviously long enough, that the broadband will come up this year on the House floor. I met with him just a little while ago and he confirmed that — that, assuming that we have the right timing for it, he's prepared to bring it up this year.

After that, I mean, let's face facts, [Sen.] Fritz Hollings (D-S.C.) is a problem and he's announced that he's not at all interested in the measure. I've talked to him and assured him that we were making some important changes in the bill, asked him to keep an open mind, and he assured me he would, but he's still a problem. But let me say something. I really think that there is a very strong support base in the Senate for this bill. We've sensed it, our supporters have talked with an awful lot of supporters on the Senate side.

I really think if the House acts on this bill, whether we act now or early next year, that there's a strong chance that there will be a comparable bill filed in the Senate. You know the Senate rules over there. You can attach anything to anything if you have the muscle to do it. If there is enough of a support base in the Senate, this thing has life over there. If we can bring it to a point where it has some momentum and some life in the Senate, despite the problems that Mr. Hollings has with it, it's very conceivable that we can get everybody into a grand compromise and end this thing.

MCN: If you listen to FCC chairman Michael Powell, he's talking about a new emphasis on facilities-based competition and light broadband regulation. Do you sense that he could accomplish much of what you want to do in the Tauzin-Dingell bill in a regulatory way?

Tauzin:
Absolutely. The only problem is, it's going to take a certain amount of time. And the question is, 'Is it quicker to legislate than it is to wait for the regulatory process to complete itself?'

Look, one way or the other there will be broadband competition in this country, and telephone companies are going to be broadband competitors across these stupid LATA [local access and transport area] lines. Americans are going to have some choice between cable companies and telephone companies, instead of just one choice.

It's either going to happen because Michael Powell makes sure it happens or because we in the Congress have the wisdom to make it happen. But we are not going to live forever with 8 percent of our people connected. That's intolerable. Sooner or later, this logjam is going to break. And if I can't break it legislatively, I'm delighted that Michael Powell has clearly said that he's prepared to break it administratively.

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