TCS Daily

Urge to Merge

By Duane D. Freese - November 8, 2002 12:00 AM

October was a lousy month with the sniper on the loose in the Washington area. Maybe that explains why both Federal Communications Commission and Justice Department antitrust lawyers kept their heads in the sand when each opposed the Echostar-Hughes merger.

Neither agency stood tall and looked over the horizon to the future of telecommunications competition. Instead, they myopically focused on the effect the takeover by No. 2 satellite provider EchoStar, owner of the Dish Network, of No. 1 provider Hughes, the General Motors subsidiary that runs DirecTV, would have on multi-channel video delivery in rural areas.

"Those Americans would be left with only one choice for their subscription video service, now and in the foreseeable future," FCC Chairman Michael Powell intoned on Oct. 10, when the FCC moved to block the merger.

"This merger would create a monopoly in those areas where cable television is not available, thereby eliminating the only competitive choice for millions of households," echoed Charles A. James, assistant attorney general in charge of Justice's antitrust division, at the filing of his department's lawsuit on Oct. 31.

To which the only appropriate response is: "So, what?"

The fact is that our country cousins, if they want any kind of really decent multi-channel video system, must piggy back what they get on the back of the inroads direct broadcast satellite systems can make to the cable franchise in more urban areas.

Look at the figures. There are 105 million television households in America. Cable passes by 96.7 percent of them. Fewer than 7 million households are without cable access.

That is simply not a big enough market to support two vibrant DBS providers, especially as a third of those households don't want or can't afford even a minimal system. (If you think "don't want" doesn't apply, just one word: Amish. To thousands of American families, electricity, much less television, isn't considered a necessity. And there are many more families that simply don't think television is vital.)

Then there is the problem of slots and spectrum space. There are only so many of them to serve the nation.

Satellite dishes that would track satellites are prohibitively expensive, costing several thousand dollars. The fixed satellite system that DirecTV and EchoStar use receives its beams from so-called geosynchronous satellites that orbit at the same velocity the Earth spins about 22,000 miles out in space.

The problem is that there are only so many slots for those satellites at three key positions in outer space, at 101, 110 and 119 degrees. That's why regulators denied Primestar, an early rival of Dish and DirecTV, control of the 110 degree slot. The reason: Primestar was owned by the cable companies, and their ownership of that slot could have squeezed out Dish and DirecTV as competitors. Congress also moved to further satellite ability to compete with cable when in 1999 it gave the companies the right to broadcast local channels - a key selling point in all markets.

But every silver lining in telecommunications is shrouded in a dark cloud.

Congress' General Accounting Office issued a report in October that bluntly stated: "It appears that neither company, at this time, would be able individually to offer all of the local broadcast channels in all 210 television markets while simultaneously maintaining a competitive national subscription service."

"Additionally," the report noted, "the ongoing transition of all broadcast television stations from analog to digital television technologies allows broadcasters to provide high definition television signals, which require more satellite capacity to transmit than traditional analog signals."

Further, cable companies have spent $50 billion in recent years to digitize their systems to carry more channels and match satellite systems' channel delivery.

The satellite companies might individually put up more satellites with better technology. But there is a limit - there are only so many slots for satellites no matter how good the technology. And the technology satellites might use in the future would likely benefit cable providers, too, thus leaving the satellite companies in a competitive disadvantage.

Further, that will leave rural customers with second-rate services. You can forget high-speed Internet in most remote areas of Alaska. Why? Satellite companies may have to choose between delivering local and HDTV to urban areas where they compete with cable, maybe allying themselves with local phone companies who would deliver the high-speed Internet service. But as a separate Internet platform - fuhgeddaboudit!

Indeed, the FCC and Justice Department's actions thwarting the merger demonstrate a ridiculous shortsightedness. The only winners aren't rural folk but cable operators and local phone companies against whom a combined satellite company might compete.

Members of Congress concerned about the quality of rural telecommunications and national competition policy need to call both agencies in, tell them the snipers have been caught, and to get their heads out of the sand.



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