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CPT on EchoStar and competition in DBS market
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INFORMATION POLICY NOTE - DBS Satellite Spectrum
April 2, 1996
- On March 15, 1996, CPT filed opposition to a request by
EchoStar to acquire additional Direct Broadcast Satellite
(DBS) spectrum. DBS is a technology used to provide
television via small satellite dishes, such is offered by
DirecTV, and it may be used for other multimedia or data
services in the future. EchoStar is currently the largest
owner of DBS licenses, controlling licenses for 68 DBS
frequencies. The firm wants permission to acquire licenses
for another 22 frequencies, for a total of 90, giving
EchoStar control of 35 percent of all available DBS spectrum
licenses. Moreover, according to trade press reports,
EchoStar is actively looking for various partnerships or
alliances with large cable operators - the firms that DBS
services are supposed to compete against.
- CPT has also asked the FCC to adopt rules which would
prohibit any firm from acquiring a DBS license if it already
controls more than 5 percent of all cable services in the
market served by the DBS license. This would limit TCI's
efforts to control more of the DBS spectrum. CPT is also
seeking rules which would limit total ownership of DBS
licenses to 20 percent of available licenses, insuring a
higher degree of competition in the DBS market. We think
these are very reasonable requirements, if DBS is expected
to provide a competitive alterna6tive to cable television
systems.
- To file comments in this proceeding, send a letter and
four copies to:
Acting Secretary, William Caton
Federal Communications Commission
1919 M Street, NW
Washington, DC 20554
Identify the docket as 55-SAT-AL-96, EchoStar/DBSC merger
EchoStar didn't like our petition. They are
represented by Philip Malet of Steptoe & Johnson, at
202/429-3000. DBSC is the company that EchoStar is trying
to acquire. They didn't like our petition either. DBSC is
represented by Sullivan & Worcester, at 202/775-8190. We
are represented by Todd Paglia (202/387-8030,
tpaglia@tap.org).
Here is the CPT petition.
James Love (love@tap.org, 202/387-8030)
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BEFORE THE FEDERAL COMMUNICATIONS COMMISSION
________________________________________
Re Application of )
)
DIRECT BROADCASTING SATELLITE )
CORPORATION, a Delaware Corporation )
)
)
For Assignment of ) File No. 55-SAT-AL-96
Authorization to )
)
)
DIRECT BROADCASTING SATELLITE )
CORPORATION, a Colorado Corporation )
)
To: Chief, International Bureau )
________________________________________)
OPPOSITION TO ASSIGNMENT OF AUTHORIZATION AND
PETITION FOR RULEMAKING
The Consumer Project on Technology ("CPT") was created by
Ralph Nader in 1995 to represent the rights of consumers on
telecommunications and other technology intensive matters. A
more detailed description of our organization can be found on the
Internet at http://www.essential.org/cpt. We oppose the above
captioned assignment on the basis of its possible
anti-competitive effects and the negative impacts this will have
on consumers.
Anti-competitive Impacts and the Loss of Broadcasting Diversity
I. Disproportionate Market Share will Result if Assignment
is Approved
The proposed merger of Direct Broadcast Satellite
Corporation-Colorado ("DBSC-CO") and Direct Broadcast Satellite
Corporation-Delaware ("DBSC-DE") will result in the control of an
inordinate amount of DBS spectrum by a single entity. DBSC-CO is
a wholly owned subsidiary of EchoStar Communications Corporation
("EchoStar"), already a major player in the DBS arena. The
merger, which will provide EchoStar with 22 additional partial-
CONUS frequencies, and a separate pending request by EchoStar for
11 frequencies divided between the 166 W.L. and 175 W.L. orbital
locations, will bring under EchoStar's control 90 out of the 256
available DBS frequencies. This will represent more than 35% of
all DBS frequencies, including 23% of full-CONUS and 43% of all
partial-CONUS frequencies.[1] On a reasonable weighted average
basis, where full-CONUS frequencies are considered more
------------------------
1. See Tables 1 and 2.
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important, one would have to reckon that EchoStar would control
roughly one-third of all usable DBS frequencies, if the merger is
approved.[2]
EchoStar's control of over one-third of all DBS frequencies
would not, as DBSC-Co's merger application claims, be a positive
development for competition in this industry. EchoStar's merger
application, quoting from the FCC's Directsat decision, states
that the consolidation of EchoStar's and Directsat's frequencies
would provide "a greater likelihood of competing effectively in
this emerging service . . . ."[3] While the rationale of
undergirding EchoStar's ability to compete may have been
supportable in the context of gaining control of Directsat's
frequencies in December 1994, there must be a point at which a
DBS licensee goes beyond securing its ability to challenge other
providers for customers, and becomes a hindrance to a more
competitive system. EchoStar has reached and is attempting to go
beyond this point by seeking to obtain a total of 90 DBS
frequencies.
The FCC must prevent EchoStar from pursuing apparently
limitless efforts to "further enhance its competitive
resources."[4] Clearly the acquisition of these additional
frequencies would benefit EchoStar's competitive standing
compared to current rivals and future market entrants, but to
equate this with a more competitive environment for DBS providers
is erroneous. Allowing a single entity to control one-third or
more of all DBS spectrum, a resource ultimately owned by the
public and regulated by the FCC, is unlikely to increase
competition within the industry such that consumers are provided
with the benefits of better service, lower prices, and more
diverse programming. The result will be exactly the opposite and
the FCC must avert the anti-competitive effects by denying the
merger request. EchoStar is not striving to become more
competitive, it is attempting to gain an anti-competitive
advantage.
II. Focus on Full-CONUS Frequencies Incorrectly Infers that
Market Share is Negligible
DBSC-CO also attempts in its merger application to distract
the FCC from considering the total number of frequencies
involved, preferring instead to focus on its control of "only" 22
-------------------------------
2. In actual programming, EchoStar would be able to offer 540
television channels (though not all of them could presently be
received in the full continental United States).
3. Directsat, 10 FCC Rcd 88, at 89 (1995).
4. Directsat, 10 FCC Rcd 88, at 89 (1995).
--------------------------------
full-CONUS frequencies. This converts into 132 actual television
channels (using the FCC's 6 to 1 ratio) by which EchoStar may
offer premium programming, certainly not an inconsequential
number. Full-CONUS frequencies constitute the most valuable
resources for serving the U.S. market, and as noted EchoStar
controls 22 such frequencies or 23% of all full-CONUS
allocations, but it is misleading to imply that partial-CONUS
frequencies are of negligible value or are not to be considered
in evaluating market power. For example, EchoStar's recently
acquired 24 frequencies at 148 W.L. are not full-CONUS; however,
this orbital position is capable of serving most of the U.S.,
with the exception of the East Coast, as well as significant
portions of Australia, Europe, and Africa.
In addition, service to the entire U.S. may be possible by
using EchoStar's 24 frequencies at 148 W.L. in combination with
DBSC-DE's 11 frequencies at 61.5 W.L. or other eastern orbital
locations (when combined these orbital locations cover the entire
U.S. as well as major foreign markets). Other opportunities to
combine DBSC-DE's frequencies with those controlled by EchoStar
exist with the potential for EchoStar to in effect offer over 200
actual channels of programming to the entire U.S. In offering
DBS service to the entire U.S., the anti-competitive effect on
pricing and the erosion of programming diversity is the same
whether a single entity controls over 200 programming channels
that are beamed to consumers using one or two full-CONUS orbital
positions or several orbital positions with partial-CONUS
service. To hold otherwise would elevate form over function.
If it succeeds in aggregating all the frequencies it seeks,
EchoStar will have the distinction of being the only DBS
permittee capable of delivering programming from 5 of the 8
orbital locations. The nearest competitor from this standpoint
is USSB, with a comparatively paltry offering of 3 out of the 8
locations, totaling only 16 frequencies, compared to EchoStar's
possible 90 frequencies. EchoStar's dominance in the number of
frequencies held and delivery sites controlled will be a
tremendous competitive advantage in serving the U.S. and foreign
markets. This fact must not be obscured by any allusions to some
apparent weakness because EchoStar has not yet monopolized the
full-CONUS frequencies; that is not the only way to exert extreme
market power.
III. Petition for Rulemaking[5]
In many areas of the global economy companies are merging in
attempts to reinforce their competitive status, finding strength
in their combined resources. The DBS area is no exception to
this increasingly prevalent practice. It is therefore incumbent
upon the FCC to guard against efforts like EchoStar's to acquire
anti-competitive frequency allocations. In addition to
EchoStar's current design to expand its DBS holdings, several
other companies have been considering mergers or competitive
alliances. For example, speculation has focused upon a possible
alliance in the DBS arena between EchoStar, MCI/News Corp., TCI
(with its interest in Tempo and Primestar), and Microsoft.[6] As
the report stated: "No denials, no confirmations, just smiles
from all involved."[7]
A possible link between MCI/News Corp. and TCI, apparent
competitors in the recent auction of 28 full-CONUS frequencies,
was reported even before the auction began.[8] An MCI
representative stated that "TCI, and not News Corp., was going to
help with MCI's bidding, despite its competitive positions." [9]
As an aside, if these companies failed to note their alliance to
the FCC they violated anti-collusion regulations and the FCC
should inquire as to whether this was in fact the case. [10] In
addition, MCI/News Corp. is considering other avenues of
aggregating DBS frequencies, including discussions with USSB and
Directsat (a wholly owned subsidiary of EchoStar),[11] and AT&T
recently invested $137.5 million to become a partner with
DirecTV.[12] These realignments of DBS providers and the efforts
---------------------------------
5. This is the Consumer Project on Technology's second petition
for rulemaking on this issue. Our previous petition was filed on
January 23, 1996 and is attached as Exhibit A.
6. Partnership: MCI/Microsoft--Maybe DBS Buy Makes Sense,
CableFax, Jan. 30, 1996.
7. Partnership: MCI/Microsoft--Maybe DBS Buy Makes Sense,
CableFax, Jan. 30, 1996.
8. Auction: MCI, TCI Compete Now, May Partner Later, CableFax,
Jan. 24, 1996.
9. Id
10. See Prohibition of Collusion, 47 CFR 100.79 ("Bidders are
required to identify on their short-form applications any parties
with whom they have entered into any . . . agreement or
understandings which relate in any way to the competitive bidding
process.").
11. MCI/News Corp. Confident of Ability to Compete in DBS,
Communications Daily, Jan. 29, 1996.
12. AT&T Buys Stake in DirecTV for Quick DBS Entry, Audio Week,
Jan. 29, 1996.
---------------------------------
being put forth to acquire additional frequencies send a strong
signal that consolidation is the focus of many competitors. This
will lead to high anti-competitive potential as larger and larger
blocks of spectrum are merged.
Specific Rulemaking Requests
A. DBS System Will Lack Diversity of Viewpoints Without
Common Carriage
Because of the huge capital requirements for entry into the
market as a DBS carrier, and the limited number of frequencies,
access to DBS delivery systems will be controlled by a handful of
giant telecommunications companies. In order to promote greater
competition in content markets, and reduce the power of these
companies to act as gatekeepers, who control access to national
video markets, we believe the Commission should explore common
carrier models of access to DBS carrier services. This is
particularly important in a world where the large firms that
control DBS frequencies are also engaged in endless strategic
alliances and joint ventures with the largest firms that control
wireline cable systems.
B. Aggregation Limits
In order to preclude future attempts at aggregating anti-
competitive quantities of DBS spectrum, such as EchoStar's
current efforts, the Consumer Project on Technology respectfully
requests that the FCC formulate preventative rules. The FCC
should place a pro-competitive ceiling on the number of DBS
frequencies that can be held or controlled by a single entity or
group of affiliated entities. This standard should prohibit
aggregations of both full-CONUS and partial-CONUS frequencies
which will encourage competition and allow for some diversity of
viewpoints.
There are 96 full-CONUS DBS channels and no single entity
should be permitted to control more than 20% of this
spectrum.[13] This limitation would insure that there would be
at least five providers of full-CONUS service. We believe that
competition between five or more firms is better for consumers
and independent programmers than is competition between two or
three providers (including alliances or consortiums, like the
DirecTV/USSB offerings).
-----------------------
13. The possibility of grandfathering current DBS providers
exceeding the recommended threshold should be considered in the
FCC's rulemaking.
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As for partial-CONUS frequencies, there are 160 available.
Partial-CONUS services can also be combined to provide service to
the entire continental U.S. In addition, the use of a single
orbital position that covers the vast majority of the U.S.-a
valuable market--also gives the firm an opportunity to serve
important foreign markets. A limitation of 20% in the partial-
CONUS area would serve the public interest by promoting
competition and a diversity of programming.[14] Indeed, it is
difficult to imagine why the FCC would not seek the greatest
amount of competition, in order to protect consumers and
unaffiliated programmers.
C. Cross Ownership
The Consumer Project on Technology previously filed a
petition for rulemaking urging the Commission to prevent TCI, one
of the country's largest cable providers, from bidding on and
acquiring the 28 full-CONUS channels that were recently
auctioned.[15] TCI did not prevail at that auction, but the
problem is not solved. DBS is a competitor to cable systems. To
allow major cable providers, like TCI, to control scarce DBS
spectrum is absurd and contrary to the public interest.
We therefore recommend that the FCC limit cross-ownership
between DBS and major cable companies, including local exchange
telephone companies that operate cable or video Dialtone systems.
An appropriate limit would prohibit any firm from owning or
controlling any DBS frequencies that served an area in which the
company owned or was a significant investor in cable or video
Dialtone services that served 5% or more of the population. This
prohibition is needed to foster a more competitive environment
between traditional video providers and DBS service, resulting in
better service and more reasonable pricing for consumers.
------------
14. The possibility of grandfathering current DBS providers
exceeding the recommended threshold should be considered in the
FCC's rulemaking.
15. Exhibit A.
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IV. Conclusion
The DBS spectrum is a resource owned by the people of the
United States. The FCC is charged with regulating this resource
and it must do so with the public interest, as well as the public
convenience and necessity, in mind. Preventing anti-competitive
effects before they take hold is a prerequisite for the FCC in
fulfilling those duties. By averting a merger which would
aggregate over one-third of all spectrum, and promulgating
simple, clear rules that would prevent similar attempts in the
future, the FCC will be satisfying its statutory mandate of
acting in the public interest. It would be in complete
derogation of the public necessity and convenience for the FCC to
ignore this development which is rife with anti-competitive
potential. Current market trends also make clear that further
attempts at aggregation are on the horizon; the FCC should use
this opportunity to indicate in no uncertain terms that ensuring
competition and avoiding injury to consumers and potential market
entrants is of paramount importance in the emerging DBS arena by
preventing the proposed merger and beginning the rulemaking
process to avert future abuses. In addition, preventing vertical
integration and providing for common carriage are essential to
ensure that DBS service is regulated in accordance with the
public interest.
Todd J. Paglia, Esq.
Consumer Project on Technology
P.O. Box 19367
Washington, DC 20036
Submitted: March 15, 1996
Corrected April 2, 1996
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Table 1
CURRENT ALLOCATIONS OF DBS CHANNELS
---------------PARTIAL CONUS---------------
Orbital/ 175 166 157 148
Position
Operator/ EchoStar/ TCI/Tempo DirecTV EchoStar
Channels Directsat 11 27 24
11
DBSC Continental USSB
11 11 8
Dominion
8
Unassigned Unassigned Unassigned
10 2 5
---------FULL CONUS------------ -PARTIAL-
Orbital/
Position 119 110 101 61.5
Operator/ EchoStar/ MCI DirecTV Continental
Channels Directsat 28 27 11
21
TCI/Tempo USSB USSB DBSC
11 3 5 11
EchoStar/ Dominion
Directsat 8
1
Unassigned
2
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Table 2
Who Owns DBS Channels?
(before merger)
Full-Conus Partial-Conus Total
MCI 28 29% 0 0% 28 11%
DirecTV 27 28% 27 17% 54 21%
EchoStar 22 23% 46 29% 68 27%
TCI/Tempo 11 11% 11 7% 22 9%
USSB 8 8% 8 5% 16 6%
Continental - - 22 14% 22 9%
DBSC - - 22 14% 22 9%
Dominion - - 16 10% 16 6%
Unassigned - - 8 5% 8 3%
IF MERGER IS APPROVED
EchoStar/ 22 23% 68 43% 90 35%
DBSC
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INFORMATION POLICY NOTES is a free Internet newsletter sponsored
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Study of Responsive Law, which is run by Ralph Nader. The
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