Hearing on Loan Guarantees and Rural Television Service


Prepared Testimony of Mr. David Moskowitz
Senior Vice President
ECHOSTAR Communications

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

Chairman Gramm, and distinguished members of this Committee, thank you for inviting me here today to testify before you about the provision of local broadcast signals to rural subscribers via direct broadcast satellite.

My name is David K. Moskowitz, and I am Senior Vice President of Legal, and General Counsel, Secretary and Director of EchoStar Communications Corporation, a Direct Broadcast Satellite (DBS) company based in Littleton, Colorado. EchoStar was started in 1980 as a manufacturer and distributor of C-band satellite dishes and grew by the mid-1980s into the largest supplier of C-band dishes in the world. EchoStar's founder and CEO Charlie Ergen had a vision of a dish in every home, school and business in the United States, so that we might provide true, effective competition to cable for customers nationwide. In fulfillment of that vision, we have transitioned into the small dish business and have launched five, high powered, Direct Broadcast Satellites since December 1995, with a sixth to be launched this year.

Our goal has always been to provide direct competition to cable television so subscribers might have an alternative to the high prices and historically poor service of monopoly cable companies. Last year, Congress took in my view, a tentative first step toward giving DBS the right to compete with cable on a more equal footing when it passed the Satellite Home Viewer Improvement Act of 1999. The success of the copyright license given in this bill will turn entirely on its implementation. If implemented properly by the FCC, the law will enable us to provide local signals into the local Designated Market Area (DMA) from which they originate for a sustained period of time (beyond the current 6-month phase-in). The lack of local signals has been the number one reason why consumers, while interested in DBS and displeased with their cable system, have decided against switching from cable to DBS. People want access to their local news, weather and sports, and the technology of satellites allows us to give them that and more.

Although my company will be able to provide over 50% of the population with their local signals, constraints on DBS capacity and prohibitively high costs make it impossible for EchoStar to carry all 1616 television stations nationwide. (1) We currently carry about 100 television broadcast stations and plan to retransmit approximately another 65 before yearend. We would like to be able to serve each of our rural subscribers with their local signals. EchoStar has a substantial number of customers in rural areas living in C & D counties, which are rural areas as defined by the Bureau of the Census.

As you seek to develop, with your colleagues in the Agriculture Committee, the best funding mechanism to support the provision of local signals to rural subscribers, we believe that the policy goals underlying this program should be clearly articulated, and the challenges and obstacles involved in its implementation addressed.

What is the Policy Goal?

Cable television passes 97% of the population nationwide.(2) If the goal of a Government Loan Guarantee is to provide access for rural subscribers to their local television stations, then only 3% of the population would need to be targeted by the loan guarantee. The larger problem, however, is the lack of competitive choice: a much more substantial percentage of Americans, particularly rural consumers, do not have a competitive choice to cable offered on a truly equal footing, even though these viewers may have access to local signals through their cable system. This situation is not satisfactory. With appropriate legislation, and vigilant implementation of the existing laws by the FCC, EchoStar can become a true choice for rural viewers, and a competitor that welcomes competition from all other sources. The rural funding mechanism should accordingly be based on the fundamental policy of ushering in, and bolstering competition to cable and all other incumbents such as the telephone companies. We believe the intention of any federal and Congressional efforts should be to provide subscribers with the same kind of competitive choices that urban and suburban dwellers could enjoy if SHVIA is properly implemented. Without such a choice, cable subscribers in rural areas will surely become victims of even deeper price gouging and poorer service by their local cable company. And the "digital divide" will deepen.

In that respect, we were disappointed to see in the final days of the last Congressional session that the criteria for loan guarantees would have made the incumbent cable and phone companies eligible. This would have allowed them to more deeply ensconce the advantage they have over consumers with no true competitive choice to cable. We believe this would be a mistake, if the ultimate policy goal is to provide equality for rural and city dwellers alike.

Technological Obstacles that Must Be Considered.

We believe one of the primary obstacles Congress faces in seeking to provide equality to rural subscribers is, ironically, the must-carry requirements passed by Congress in the last session as part of the Satellite Home Viewer Improvement Act. No single provision of SHVIA hurts rural subscribers more. With every channel that we must carry because of that requirement, our ability to extend local programming to additional markets is reduced by one channel. While neither EchoStar nor the other DBS provider would, at this time, be able to serve the rest of the country absent the must-carry provisions of SHVIA, many, many, many more of your constituents could receive local channels without these provisions.

For EchoStar, to be more specific, the must-carry provisions of SHVIA mean we serve 33 markets instead of 60. That's the difference between 56% of the population and 72% of the population nationwide (3). When must-carry becomes effective, the additional 30 or so stations we may be required to carry in New York and Los Angeles threaten to deprive consumers in 6 television markets of an effective competitor to cable. Moreover, the additional channel space that would be freed up by not being required to carry the same Home Shopping Network channel in every market, would mean that even more unserved markets would receive their local television stations via satellite.

Must carry is a law that was imposed on cable because of its monopoly status. EchoStar is not a monopoly. Your constituents would be suffering because of a law that, in contrast with cable must-carry, does not resolve any competitive problem.

Technological Obstacles to Serving Rural Subscribers

In addition to the legal hurdles, technological issues must be addressed in the provision of any satellite service that would carry the local broadcast signals of rural areas.

Additional spectrum is necessary to carry all 1616 television stations via satellite. The FCC must identify spectrum in a band that can be used easily in conjunction with the current DBS service, since local signals must be integrated with the other programming offered by DBS services to be of value to rural consumers.

The FCC has proposed allocating another 500 MHz of spectrum in each direction to DBS, but has proposed to defer this allocation until 2007.(4) This is an excessively long period given the urgent need of rural consumers for competition and service. While this proposal is consistent with an International Telecommunication Union timeline for this allocation, there is no reason why the U.S. could not implement that allocation earlier for the benefit of U.S. consumers. In addition, while some of this spectrum is used by the Department of Defense, we understand that this use can be reduced or phased out substantially more quickly. Congress could direct the FCC to allocate that spectrum on a more expedited basis, subject to appropriate conditions relating to servicing rural consumers.

Assuming more DBS spectrum could be allocated for Commercial purposes, the orbital location of such a service is key. There are three, full CONUS (continental United States) locations over the United States and any satellite that plans to carry local stations for rural subscribers must have location compatibility with those satellites. This poses a dilemma for a satellite provider of rural local television stations because there is no one location for that provider that enables compatibility with both EchoStar and DirecTV.

Then there is the issue of the method of encryption a rural satellite service provider might use and its compatibility with the two main service providers. EchoStar and DirecTV have differing, proprietary, encryption formats that cannot communicate with one another. A rural local satellite service provider would either have to find a format that is technically compatible with both EchoStar and DirecTV, or choose one of us over the other. Technological advances may ultimately solve this problem. We believe any service of rural local signals should be compatible with both of the main DBS providers.

After addressing these questions, Congress should tackle the real-life question of economic feasibility that lies at the heart of determining the appropriate level and type of financial support. Subject to overcoming these legal and technical hurdles, DBS would become an excellent conduit for at last bringing local signals and competition to rural subscribers.

From EchoStar's perspective, there is the issue of whether DBS providers can expect to derive enough revenue from providing local signals in rural areas to make a return on their investment. If EchoStar could not answer this question in the affirmative, the investment community would simply refuse to finance the construction of the very expensive additional satellite capacity required to achieve this goal. Added to the satellite costs are the extremely high costs of "backhauling" the signal of each station to the satellite uplink facility. The initial cost of establishing a local loop of fiber in any given television market varies widely--from between $3,000 to $50,000 per local station, depending on the city. It costs between $120,000 and $150,000 per station, per year to maintain that feed at an average range of cost per market of between $480,000 to $600,000. It is difficult to imagine that in some of the most sparsely populated areas of the country, a provider is able to gain enough subscribers to secure a return on its investment.

Summary

We believe service to rural subscribers is an important policy goal. If Government Loan Guarantees are made available, they should not be available to cable companies seeking to further entrench their monopolies. Clearly, the aim of guaranteed loans should be to both serve unserved subscribers and provide a competitive choice for those who currently have no alternative to cable. Satellite is the most efficient method to achieve both universal service and parity for rural dwellers in their ability to have a competitive choice. There are several resource, logistical, technical and economic issues to be addressed in the building and launching of a satellite to provide local signals in rural areas and these issues must be addressed before a provider can move forward. The benefit will come in not only providing video services for rural subscribers, but in providing them with the same kinds of advanced services that, increasingly, will be available via satellite.

Thank you very much for inviting me here to testify before you today, I look forward to answering your questions.


Notes:

1. FCC News Release Broadcast Station Totals as of September 30, 1999 (released November 22, 1999).

2. In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, Sixth Annual Report, CS Docket No. 99-230 (rel. Jan. 14, 2000), at 12.

3. Nielsen Media Research, Local Market Universe Estimates For the 1999-2000 Broadcast Season, http://www.nielsenmedia.com.

4. In the Matter of Redesignation of the 17.7-19.7 GHz Frequency Band, Blanket Licensing of Satellite Earth Stations in the 17.7-20.2 GHz and 27.5-30.0 GHz Frequency Bands, and the Allocation of Additional Spectrum in the 17.3-17.8 GHz and 24.75-25.25 GHz Frequency Bands for Broadcast Satellite-Service Use, Notice of Proposed Rulemaking, 13 FCC Rcd 19923 (1998).



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