TCS Daily

Springtime for Satellite

By Duane D. Freese - February 28, 2002 12:00 AM

Talk about a turnaround that's good for consumers, take a look at the new environment surrounding the EchoStar-Hughes Electronics merger.

Just a few weeks ago the proposed $28 billion merger uniting the nation's two largest satellite video services, Dish and DirecTV, faced "The Big Chill."

"Winter got even more bleak (for the deal)," wrote Variety writers Justin Oppelaar and Pamela McClintock on Feb. 5, noting a wave of opposition across the political spectrum, from Senate Judiciary Chairman Orrin Hatch, R-Utah, to rent-a-protest specialist Al Sharpton.

But this week even some of the merger's sharpest critics had to confess some admiration for one thing the merger would help quickly achieve - access to local programming by way of satellite throughout the nation.

National Association of Broadcasters CEO Edward Fritts, whose organization has played a leading role to kill the deal, admitted that the promise by EchoStar to beam all 1,600 local TV stations in their respective 210 markets "appears to be a step in the right direction."

And Consumers' Union Gene Kimmelman, who has rarely met a media merger he likes, agreed that expanded local TV offerings have "an enormous potential benefit if satellite can also compete with cable television."

Kimmelman's observation makes the key point about how the deal ought to be considered. It is especially cogent in light of EchoStar CEO Charlie Ergen's commitment that EchoStar will charge one uniform rate across the nation for EchoStar services, so remote rural areas will get the benefit of the most competitive urban areas.

While opponents have alleged that the merger would create a "monopoly" in satellite delivery of video services, the real issue for consumers is competitive pricing produced by a choice not between satellite providers but of providers of services - be they data, audio-video or two-way communication. Whether the competition is between two satellite companies, two cable providers, a satellite and cable provider, a phone company and satellite company, or something else, matters not a whit. It's the services, not the means of their delivery, that do.

Federal Communications Chairman Michael Powell made that point in a recent Business Week online interview: "Right now (for broadband) you have a choice of telephone-based provider - DSL - or a cable provider. ... Both of them have infrastructures that reach over 90% of America. ... Depending on where you live there's probably going to be a satellite company that can deliver high-speed data, too. When we talk about 3G (third generation cell-phone service), when we talk about advanced wireless, we're talking about broadband. We'll see a fourth platform provider. And I'm ready to say there will be a fifth. Somebody is going to ... use the electrical grid as a broadband platform."

Powell's remarks may prove optimistic in regard to broadband, especially if the local Bell phone monopolies are allowed to leverage their connections to customers to knock off competitors quickly.

But for video services, the reality already exists that satellite is a realistic alternative to cable. Nearly 17 million people have signed up for them. That compares with 65 million in cable.

Unfortunately, satellite delivery could quickly become outdated. Cable systems have spent $50 billion upgrading to digital to accommodate high definition television and high-speed telephony. Satellite systems will need to offer not merely more channels but likely more services to stay competitive.

How can they do that? The cost of just launching satellites is tens of millions of dollars while the satellites themselves run upward of $200 million each. And they aren't permanent. Satellite orbits typically decay within 15 years of launch.

Meanwhile, the available broadcast spectrum the satellite companies can use is limited. So how do you affordably provide 1,600 local broadcast station signals, allow for high-definition television delivery and have the capacity to deliver broadband, too?

A big part of the answer is that the satellite networks must avoid redundancy. It just doesn't make much economic sense for both EchoStar and Hughes to spend $2 billion each on new satellites and equipment to deliver broadband, leaving them with less for providing other services.

Indeed, the whole point about satellite systems isn't whether to keep two, but rather who will run one. General Motors, which owns Hughes, wants out of the business. That's why it's on the block. The only other worthy suitor to EchoStar was Rupert Murdoch's News Corp.

If the EchoStar deal falls through, Murdoch will likely be ready to buy up the pieces, which helps explain his opposition to the merger.

Indeed, those who've filed with the FCC against the merger are mostly self-serving. They include the American Cable Association, the members of which would face more vigorous competition from a combined Dish/DirecTV network; the Writers Guild of America, many members of which work for Murdoch's News Corp.; Pegasus Satellite Television, a direct competitor in one small area, and the National Rural Telecommunications Cooperative, which has business deals with Pegasus.

Noteworthy for its silence was the National Association of Regulatory Utility Commissioners, which took a neutral stance on the merger at its meeting in mid-February despite a strong push by opponents to oppose the merger. It instead had its counsel write the FCC, which with the Justice Department must approve the merger, asking it to weigh the effect of the merger on broadband competition in rural markets which can only be positive, because right now there isn't much broadband available in rural America.

It is just that desire for rural broadband that has led several governors, mostly from rural and western states, to write letters supporting the merger.
Those realities seem finally to be dawning on merger critics in the media and in Congress. And as the merger heads into a Senate hearing next week, it means the deal should get a more cordial reception. Much like the coming spring, it's amazing how a little light can lift even the biggest chill.

TCS Daily Archives