----------------------------------------------------------------- TAP-INFO - An Internet newsletter available from listproc@tap.org ----------------------------------------------------------------- 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 alternative 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) ----------------------------------- 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. ----------------------- 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. ----------------------- 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. ------------ 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 --------------------------------------------------------------- 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 ----------------------------------------------------------------------------- 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 +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ INFORMATION POLICY NOTES is a free Internet newsletter sponsored by the Taxpayer Assets Project (TAP) and the Consumer Project on Technology (CPT). Both groups are projects of the Center for Study of Responsive Law, which is run by Ralph Nader. The LISTPROC services are provide by Essential Information. Archives of TAP-INFO are available from http://www.essential.org/listproc/tap-info/ TAP and CPT both have Internet Web pages. http://www.tap.org http://www.essential.org/cpt Subscription requests to tap-info to listproc@tap.org with the message: subscribe tap-info your name TAP and CPT can both be reached off the net at P.O. Box 19367, Washington, DC 20036, Voice: 202/387-8030; Fax: 202/234-5176 +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++