Hearing on Loan Guarantees and Rural Television Service

Prepared Testimony of Mr. Steven Cox
Senior Vice President

10:00 a.m., Tuesday, February 1, 2000 - Dirksen 628

I want to thank you, Mr. Chairman, for inviting me to appear before the Committee. I appreciate the opportunity to present DIRECTV's views on the issue of federal loan guarantees to promote satellite delivery of local television signals to rural areas.

DIRECTV has experienced tremendous growth since its inception five years ago, and is the leading provider of direct broadcast satellite ("DBS") service in the United States with more than 8 million subscribers, including customers subscribing to the PRIMESTAR By DIRECTV medium-power DBS service. Today, one in every 12 households in the United States has DIRECTV.

Before I begin, I'd like to thank Congress for passing the "Satellite Home Viewer Improvement Act." While we did not agree with every provision of that legislation, on balance we viewed it as worthy of our support. Most importantly, the legislation allows satellite TV companies -- for the first time -- to offer local broadcast network channels. The ability to deliver local content enables DIRECTV -- again for the first time -- to offer consumers a service that is fully competitive with cable television.

We have moved quickly to bring the benefits of that legislation to consumers. We have publicly stated our commitment to serve at least half of the nation's TV households -- about 50 million households -- with local channels. As of today, we are offering local network stations, together with a national PBS feed, in 19 major metropolitan markets. Additional markets will be added in the coming weeks. By the end of the first quarter, we will substantially have met our commitment to serve half of the nation's TV households with local channels.

This hearing today is focused on those communities we are unlikely to serve with local channels, and the potential role of federal loan guarantees in expanding this critical element of satellite television. I would like to be clear about DIRECTV's position on the specific issue of loan guarantees. Our ability to broaden the delivery of local channels will not be limited by access to capital. So while the availability of loan guarantees may create incentives for some entities to explore expanded local channel offerings, the ultimate deployment of a widespread, satellite-based local channel solution requires the reexamination of much more fundamental legislative and regulatory objectives. Unfortunately, despite the tremendous consumer response we have already received in the areas where we have launched our local channel offering, our ability to expand the benefits of competition to additional communities is being hampered by both statutory and regulatory obstacles. Specifically, the biggest impediment to serving additional communities is the "must carry" requirement imposed by the Satellite Home Viewer Improvement Act (SHVIA). Even absent that constraint, we are ultimately limited by the spectrum allocated to us by the Federal Communications Commission (FCC). Let me explain.

Unlike cable operators, which have the ability to increase their channel capacity indefinitely, DBS providers face very tangible channel capacity constraints. There are only three DBS orbital slot locations that are "full-CONUS" -- that is, capable of serving the entire continental United States. All of the frequencies at those three orbital locations have been licensed by the Federal Communications Commission (FCC)FCC to DIRECTV and Echostar. Using digital compression, today we are delivering about 210 channels of programming to subscribers nationwide. That includes entertainment programming, such as CNN, A&E, Discovery, and Nickelodeon, and of course, C-SPAN; sports programming, such as ESPN and regional sports networks; ethnic programming; public interest programming we are required to carry;and pay- and pay-per-view movies and special events. In addition, today we are retransmitting more than 75 local broadcast stations to subscribers in the stations' local markets.

The must carry provision, enacted into law last November as part of the SHVIA, requires us to carry every full-power local broadcast station in a market in which we offer any local channels no later than January 1, 2002. This means that we have to use our limited satellite capacity to deliver stations for which, frankly, there is negligible consumer demand. For example, in both New York and Los Angeles, we could be required to carry up to 23 stations. Many of these stations have, based on their ratings, minuscule audiences. Carrying such a station is a poor use of our limited satellite capacity. The practical implications of this requirement are clear: by imposing must carry, Congress has decided that it is more important for us to carry all 23 stations in New York and all 23 stations in Los Angeles than to offer the residents of cities such as Buffalo, Harrisburg, Louisville, Mobile, Omaha, and Providence even a single channel of local content.

In order to maximize the local channel opportunity, we have ordered a new high-power spot beam satellite. A spot beam satellite will enable us to make the most efficient use of our existing capacity. I can tell you that we would much rather use that new satellite to extend our local channel offering to additional, smaller markets than to use that satellite to deliver little watched channels in markets which we have already substantially satisfied consumer demand for localism.

Even if we were to get relief from the must carry obligation, we still would not have sufficient available capacity to provide local channels in all 210 television markets in the United States. For direct broadcast satellite to become the full-fledged competitor to cable that Congress desires, we need more spectrum. To achieve this objective, we would urge Congress to direct the FCC to make additional spectrum available to the DBS providers, which could be used to bring local channels to those markets we cannot serve with our existing limited capacity. Because of the substantial costs associated with the delivery of local channels, the only way to make this concept economically workable is for the additional spectrum to be made available to the DBS providers at no cost. In addition, the DBS providers must be able to use the spectrum both for providing local channels, and for other more financially remunerative services. The hundreds of millions of dollars required to build, launch and operate satellites to use the additional spectrum could not be justified if those satellites could only be used to provide services from which we would never see a profit, or even break even. But if we were in essence allowed to underwrite the cost of bringing local channels to rural markets by providing other services with the spectrum, we believe it could be a financially viable proposition.

I would point out that over two and one-half years ago, DIRECTV filed a petition for rulemaking seeking additional spectrum to expand our channel capacity pending before the FCC since June 5, 1997 -- a period of more than two and a half capacity. Unfortunately, that petition has sat at the Commission without action. If that petition were to be granted, it would allow both DIRECTV and EchoStar to gain access to additional spectrum that could be used to serve additional markets with local channels.

As I indicated at the outset, the presence or absence of federal loan guarantees will not impact DIRECTV's incentive or ability to expand the delivery of local channels. Should Congress decide, however, that a federal loan guaranty program is desirable, I would offer the following comments. First, I think Members of Congress should clearly identify the problem that they are attempting to address. Is it to ensure that the three percent or so of U.S. households that today do not have access to local broadcast channels either via an over-the-air antenna or cable can gain access to their local channels? Or is it to ensure that consumers in rural areas will have the same choice of a fully competitive DBS provider as their friends who happen to reside in the most populous cities? The program should be tailored to address the problem identified by Congress.

Additionally, to the extent that Congress is trying to ensure that rural and urban consumers have the same choices when it comes to selecting a multichannel video provider, I would suggest that a terrestrial or other non-satellite based provider of local channels does not meet that goal. A fundamental premise of the recently enacted local-into-local legislation is that consumers do not find the delivery of local channels via a separate delivery mechanism, such as an over-the-air television antenna, to be the equivalent of a single delivery mechanism -- such as that used by cable operators -- to deliver both local channels and cable programming. Thus, only the satellite delivery of local channels, in a manner that is compatible with the existing DBS services, will meet the expectations of consumers who are unwilling or unable to put up an over-the-air television antenna and will ensure that rural and urban consumers have equivalent video delivery choices.

Finally, to the extent that Congress decides to create a federal loan guarantee program, we believe that taxpayer funding should be used to complement, rather than compete with, service being provided without the benefit of taxpayer subsidies. In other words, those who obtain federal loan guarantees should be permitted to provide local channel service only in markets where that service is not being provided by the commercial DBS providers.

We look forward to working with Congress to advance these important objectives. Thank you again for the opportunity to testify.

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