HOUSE JUDICIARY, TELECOM PANELS WEIGH ECHOSTAR-DIRECTV MERGER

Sensenbrenner asked: “Is C-band a competitor to DBS?” Ergen replied: “Yes, in rural America.” Sensenbrenner then urged Ergen to get his facts straight, saying C-band “only has 110,000” subscribers contrasted to millions of DBS customers: “How can you say it’s a competitor… You've called C-band obsolete… I would urge you to figure out which is right.”

Despite his criticism, Sensenbrenner made it clear committee wasn’t looking to sway opinion of federal agencies responsible for antitrust oversight: “The purpose of today’s hearing isn’t to prejudice the outcome of the Administration’s pending antitrust review of the proposed DirecTV-EchoStar merger. We are legislators, not regulators. As legislators we are committed to ensuring that our constituents are provided access to the highest quality products that our free market economy can provide, and today’s hearing is consistent with that commitment.”

Former FTC Chmn. Robert Pitofsky described EchoStar- DirecTV proposal as “merger to monopoly” and rejected Ergen’s contention that deal was justifiable since it would provide new entity with necessary technical and economic efficiencies: “What’s the point of all these efficiencies if you're a monopoly?… What motivation would you have to pass on savings to consumers?” Pitofsky emphasized that merger, if approved, would: (1) Put govt. in position of “doing something it hates to do… price discrimination monitoring in community to community” throughout U.S. (2) Eliminate competition not only in service, but in reliability and technology: “You need technological competition.” (3) Raise “fundamental questions” about govt. antitrust policy: “This deal as proposed has very serious problems.”

National Rural Telecom Co-op Pres. Robert Phillips said merger would be “bad for competition in rural America” since it would eliminate choice and competition and provides no service price guarantees. Despite claims deal would bolster ability of DBS to compete with cable, he said satellite was only option for many rural residents: “The future of delivery of broadband satellite to rural American is threatened by this merger.”

Reps. Boucher (D-Va.) and Goodlatte (R-Va.) separately welcomed prospect that merger could benefit rural America. Boucher said: “This merger is in the interests of my constituents.” He said merger would increase broadcast of local-into-local services and would lead to greater access to high-speed Internet and broadband services, so there were “no disadvantages for rural markets.”

Consumers Union Washington office Co-Dir. Gene Kimmelman said “we need more competition… Satellite just isn’t there yet… They're not price competitive yet.” Although he supports merger, he said it was critical that FCC make decision on Northpoint’s DBS spectrum-sharing proceeding that could allow “secondary use” of limited spectrum: “The FCC has promised to make a decision by the end of the year. We hope that they do.” He also agreed with Boucher that merger would result in distribution of more local programming from freed-up capacity.

Northpoint Pres. Sophia Collier echoed concern similar to Kimmelman’s that FCC must act soon on terrestrial wireless service provider’s docket, she said in testimony submitted to House Telecom Subcommittee later in day. She said her company for 8 years had been prevented from offering “new, facilities- based alternative to cable and DBS service… But rather than invest in the infrastructure of our system, we've invested millions in legal fees… What we do fear is that the new satellite monopoly will leverage its power to ratchet up the satellite industry’s 8-year campaign to keep us out of business.” Now that govt. has determined that spectrum sharing won’t degrade DBS signals, it’s time for Commission to act on Northpoint’s license application and “end the kind of multiyear assault from entrenched incumbents that we've experienced.”

DirecTV Chmn. Eddy Hartenstein told the subcommittee that DBS consumers could see increased service interruptions if “mass market fixed wireless service is introduced into the DBS band.” He rejected accusations that DBS was afraid of competition from Northpoint, saying DBS providers “compete every day against the cable giants.” He also said current prohibition against cable-exclusive programming contracts, which is set to expire Oct. 2002 (see separate story), should be extended: “It is our hope that the FCC will conclude that the cable exclusivity prohibition continues to be necessary, and that Congress will consider tightening the law to ensure that cable operators cannot evade the law simply by delivering programming by terrestrial means, as Comcast is attempting to do.”

Subcommittee Chmn. Upton (R-Mich.) said DBS industry already had “become a competitor” to cable but said it was important to preserve “vitality of that competition” to prevent negative impact on prices and quality in multichannel video service marketplace. Ranking Democrat Markey (D-Mass.) said it was clear that competition in overall communications market hadn’t materialized in significant way since 1996 Telecom Act, but said DBS had become “more realistic and comparable alternative” to cable in largest markets. However, he said, considering pace of industry mergers, hearing should have been titled, “Status Check on Video Consolidation,” rather than “Status of Competition in Multichannel Video Programming Distribution Market.”

House Commerce Committee Chmn. Tauzin (R-La.) said panel must decide whether new company would “survive and thrive” in context of broader video market. Questions of whether it would increase likelihood of being competitor to cable and whether there would be better prices and services must be answered, he said. He agreed with Markey that hearing must explore not just EchoStar-DirecTV merger but competition in general.

Full committee ranking Democrat Dingell (Mich.) didn’t take stance on proposed merger, but criticized DBS industry for challenging full must-carry obligation, which was part of Satellite Home Viewer Improvement Act compromise. He expressed concern that new company also would renege of its promise to cover consumer investments in digital tuners or set-top box: “Will it fight that after approval?

NCTA Pres. Robert Sachs said “prohibition on the ability of vertically integrated programmers was enacted in a very different environment… In 1992, DBS had no subscribers. Today, DBS serves more than 17 million customers… And, in a total turnaround of circumstances, the most valuable exclusive rights in subscription television -- to the NFL’s Sunday afternoon football package -- are held by DirecTV.” He said NCTA didn’t have position on proposed merger. UvisionN Pres. Neal Schnog, representing American Cable Assn., expressed similar concern: “Now, imagine what would happen after the sunset of the program access rules if the combined DirecTV-EchoStar used its huge leverage to buy hundreds of sporting events and other programming on an exclusive basis.”

EchoStar and DirecTV parent General Motors should provide “clear and specific statement of intention to ensure the continuation of competition in the DBS industry,” Pegasus CEO Marshall Pagon said. If before merging they won’t provide assurances that they will take necessary steps to assure that real and viable competition can continue, then regulators should deem merger proposal to be “anticompetitive and unambiguously contrary to U.S. antitrust law and policy.”

Dispatch Broadcast Group Pres. Michael Fiorile, representing NAB, said merger “would harm consumers and broadcasters” in several ways, since it would: (1) End competition between satellite companies, “depriving consumers of future innovations and price battles that competition has otherwise yielded.” (2) Halt expansion of local-into-local TV service in most markets. (3) “Lead to more disruptions in delivery of local stations, just as it has with cable gatekeepers.” WSNet Chmn. Jared Abbruzzese expressed concern with further industry consolidation, but said proposed merger should go forward if small digital video providers such as WSNet were afforded “permanent access to enhanced satellite facilities.”

House Commerce Committee Chmn. Tauzin (R-La.) sees merit in merger of EchoStar and DirecTV, he told Business Software Alliance conference luncheon shortly before subcommittee hearing. Noting that EchoStar founder had been arguing that consolidation in satellite industry could be best way to compete with cable, Tauzin said EchoStar’s “Charlie Ergen’s argument… may have a lot of validity.” Tauzin said broadband was key reason to back merger because combined company’s 16 million video customers would give it leverage in marketing broadband system: “It may be exactly what satellite needs to compete against cable, and maybe telephone companies or wireless providers such as Northpoint.” Only condition he would want on merger would be assurance that potential satellite customers not passed by cable be offered same competitive rates as others, and Tauzin said Ergen seemed receptive to that. Tauzin also revealed that he had personal interest in broadband industry, saying he recently signed up for Comcast’s service, which uses now-bankrupt @Home high-speed provider (CD Dec 4 p1).