STATEMENT OF COMMISSIONER KEVIN J. MARTIN

Re: Application of EchoStar Communications Corporation, General Motors
Corporation, and Hughes Electronics Corporation (Transferors) and
EchoStar Communications Corporation (Transferee), Hearing Designation
Order, CS Docket No. 01-348 (adopted October 9, 2002)

I support the Commission's decision to designate this merger for
hearing. Generally, I believe market forces are the most effective means
of delivering choice, innovation, and affordability to consumers. The
Commission nevertheless must be cautious when market transactions would
decrease, rather than increase, competition. Based on the current record
in this proceeding, I believe the potential harm to competition
outweighs the potential benefits, particularly for consumers in rural
America. I therefore cannot conclude that the merger as proposed is in
the public interest.

As I explain below, however, I have two concerns with the Hearing
Designation Order. First, I believe the record and our precedent support
a conclusion that at least some cable operators and DBS providers
compete in the same market. Second, I believe EchoStar's violation of
its statutory and regulatory must-carry obligations is sufficiently
important and relevant to this merger that the issue should have been
designated for hearing.

[The Relevant Market for Video Services]{.underline}

As part of its examination of whether a merger is in the public
interest, the Commission traditionally has conducted a competitive
analysis of the impact that the merger would have on the marketplace.
The first step in this endeavour is to define the relevant product
market (or markets) to be studied. The Applicants argue that DBS
services compete with cable services (where available), and thus the
relevant product market is the multichannel video programming
distribution ("MVPD") market.[^1] This position is consistent with
Commission precedent and policy.

The Commission repeatedly has recognized the existence of a MVPD market
in which DBS and cable operators compete. As early as 1994, the
Commission identified the "relevant product market" for our annual video
competition reports as the MVPD market. The Commission concluded that
"the relevant product market contemplated in the 1992 Act --
multichannel video programming service -- is the appropriate starting
point for assessing the status of competition in the market for delivery
of video programming."[^2] Indeed, in our most recent competition
report, the Commission concluded:

> Overall, the Commission finds that competitive alternatives continue
> to develop.... The growth of non-cable MVPD subscribers continues to
> be primarily due to the growth of DBS.... Between June 2000 and June
> 2001, the number of DBS subscribers grew from almost 13 million
> households to about 16 million households, which is nearly two and a
> half times the cable subscriber growth rate.[^3]

Similarly, the Commission discussed the significant competition that has
developed between DBS and cable operators in our Further Notice on the
cable horizontal ownership limit:

> \[A\]lthough cable continues to be the dominant player in the MVPD
> market, its market share has diminished somewhat with the emergence
> and continued growth of competing MVPD providers. Perhaps the most
> important difference between the industry in 1992 and today is that in
> 1992 there was no clear nationwide substitute for cable. Today, on the
> other hand, DBS has a national footprint.... DirecTV now is the third
> largest MVPD operator, after AT&T and Time Warner, and EchoStar is the
> eighth largest.[^4]

Notably, this Further Notice was issued pursuant to the D.C. Circuit's
remand, in which the Court rejected our rule in part because the
Commission had failed to adequately consider cable/DBS competition in
setting the ownership limit. Indeed, the Court observed "it seems
*clear* that in revisiting the horizontal rules the Commission will have
to take account of the impact of DBS on \[cable's\] market power."[^5]

Finally, in each of the last three cable mergers, the Commission
assessed the competitive impact not on a "cable services" market, but on
the MVPD market.[^6]

In this Hearing Designation Order, however, the majority is unwilling to
conclude that cable and DBS services compete. To the contrary, this
Order states, "\[i\]n fact, the relevant product market may be limited
to just DBS services."[^7] This conclusion seems to contradict prior
Commission precedent. Defining the relevant product market as DBS
services would mean that in urban areas served by cable, our analysis
would exclude cable operators as a viable alternative. Such an approach
is not reflective of the actual competitive landscape in urban areas and
diminishes the real challenges faced by rural consumers to obtain
comparable services. Indeed, I am disappointed that the Commission seems
to be taking a step away from the conclusion that at least some cable
operators and DBS providers compete, despite having repeatedly reached
that decision in the past.

The Order justifies its departure from the Commission's past discussions
of a MVPD market by noting that although the relevant product market for
a cable operator contains cable and DBS services, the relevant product
market for a DBS provider might include DBS services and only *some*
cable services.[^8] Specifically, the Order hypothesizes that DBS
providers compete with low capacity cable operators, but low capacity
cable operators do not compete with DBS providers. I find this
proposition confusing at best. First, even if true, it would lead to a
conclusion that the relevant product market is only high capacity cable
and DBS services. Thus, the hypothesis would not support the contention
that, "in fact, the relevant product market may be limited to just DBS
services."[^9]

Moreover, I have concerns with the assertion that some products may be
substitutes or "interchangeable," but only unilaterally. I question the
conclusion that DBS services compete with low capacity cable services,
but that low capacity cable services do not compete with DBS services.
If the Commission were to say these services do not compete at all, I
may or may not agree, but I would understand the argument. One might
argue, for instance, that a Ford and a BMW do not compete in the same
"car" market because there actually are *two* product markets: the
"economy car" market and the "luxury car" market. But can you really
claim that BMWs compete with Fords, but that Fords don't compete with
BMWs? It seems highly unlikely that consumers would view some products
as true substitutes -- *i.e.*, "reasonably interchangeable"[^10] -- but
only in one direction.

The majority argues that this seemingly odd conclusion is a result of
the "hypothetical monopolist" procedure used to define the market:

> The relevant product that results from this procedure depends
> significantly on the products with which one started.... \[I\]t is
> entirely possible that we might derive different relevant product
> markets, given the different starting points.[^11]

I understand that the hypothetical monopolist test might produce such an
atypical result. But that does not mean it is a reasoned analysis to
rely on that tool to conclude that cable competes with DBS but that DBS
does not compete with cable. Some higher threshold of proof should be
met to justify such a conclusion. We must not let our fascination with
economic modelling tools, or our appreciation of the "hypothetical
monopolist" test, cloud our judgement of what we are really attempting
to evaluate: the extent to which consumers view products or services as
interchangeable or substitutes.[^12]

Ultimately, the Order states that the Commission is "unable to
conclusively resolve the product definition at this time."[^13] I find
this hesitancy troubling and confusing, particularly in light of our
previous conclusions about cable and DBS competition. Moreover, over the
course of the last eleven months, the Commission has developed a
voluminous record consisting of thousands of pages of documentary
evidence. Many of these documents---including economists'
affidavits---address directly the issue of whether and to what extent
DBS and cable service compete at least to some degree. I found this
evidence sufficient to conclude that these two services do compete, at
least to some degree. The Order, however, designates this issue to be
resolved by an Administrative Law Judge and concludes that, in fact, the
relevant product market may be limited to just DBS services. I am not
sure what new evidence would come to light during the hearing process
that would make the Commission rethink its precedent and direction.
Regardless, I believe the Commission should have used its expert
judgement to make a conclusion based on the record we have before us.

Finally, I fear that the Order's reluctance to identify the relevant
product market and to conclude unequivocally that DBS providers and at
least high-capacity cable operators compete indicates a step back from
our recognition in several recent proceedings of the growing importance
of intermodal or "platform" competition.[^14]

Although the Order does not identify the relevant product market, it
proceeds with the competitive analysis by hypothetically assuming that
the relevant market is the MVPD market, as the Applicants propose.
Accordingly, I concur in the competitive analysis of this Order.

[EchoStar's Must-Carry Obligation]{.underline}

It is a basic tenet of our regulatory system that FCC licensees must
comply with the Communications Act and our rules. In a license transfer
context, we should consider whether the transferee is in compliance with
the statute and our rules. Compliance with statutory provisions and FCC
rules that are directly related to merger benefits should be
particularly important.

Moreover, the Commission's public interest inquiry includes a
determination that the applicant has the requisite character to hold a
license.[^15] As the attached Order explains, "violations of provisions
of the Act, or of the Commission's rules or polices have a bearing on an
applicant's character qualifications."[^16]

As I explained in a detailed press statement last April, I believe
EchoStar is violating the must-carry provisions of the Satellite Home
Viewer Improvement Act ("SHVIA") and our rules by placing some
broadcasters' signals on a second dish.[^17] I continue to be concerned
about the burden this practice places on consumers and the impact this
discrimination may have on some broadcasters---particularly public
broadcasters.

I believe EchoStar's ongoing violation of its must-carry obligations is
critical to our evaluation of the pending merger. As a preliminary
matter, compliance with statutory and regulatory must-carry obligations
is central to the provision of DBS service to consumers. It is therefore
not surprising that several parties have cited this violation as a
reason to deny or condition the merger.[^18] Moreover, as the Order
acknowledges, this violation "lies at the heart of the realization of
the proffered public interest benefits claimed to flow from the merger
-- provision of additional local-into-local service pursuant to the
must-carry rules."[^19] EchoStar's violation of those rules is therefore
both merger-specific and indicative of the applicant's future behavior.

Accordingly, I believe EchoStar's compliance with its must-carry
obligations should be included in the issues designated for hearing
before an ALJ. I therefore dissent in part, on the majority's decision
not to include this issue among those designated for hearing.

\* \* \*

In conclusion, I agree with my colleagues that the record does not
support a determination that the merger of EchoStar and DirecTV is in
public interest. I note that the Order provides the companies 30 days to
amend their application to include major revisions designed to address
the anti-competitive impact of their proposed merger. For example, some
parties have suggested that the applicants could divest some of their
spectrum in a manner that would enable a *new* DBS provider with more
efficient technology to compete nationally against a merged
EchoStar/DirecTV. These two new DBS providers, it is argued, could
provide all consumers with their local broadcast stations and thus serve
as stronger competitors to cable than EchoStar and DirecTV do today.
This idea is interesting, but the applicants have made no such proposal.
If the applicants were to request such a structural remedy, it could
merit further review as to its technical and economic feasibility.
Failing to fully explore such options could be a missed opportunity to
bring more competitive choices to consumers.

[^1]: I appreciate that many rural consumers do not have access to
    cable. Cable availability in a given location, however, is not at
    issue in the "product" market definition. A conclusion that the
    relevant product market is MVPD would not harm such rural consumers.
    In areas not served by cable, the "market" would still be MVPD, but
    the only "players" would be the two DBS providers.

[^2]: *Implementation of Section 19 of the Cable Television Consumer
    Protection and Competition Act of 1992,* First Report, 9 FCC Rcd
    7442, ¶ 49 (1994).

[^3]: *Annual Assessment of the Status of Competition in the Market for
    the Delivery of Video Programming*, Eighth Annual Report, 17 FCC Rcd
    1244, ¶ 5, 8 (2002).

[^4]: *Implementation of Section 11 of the Cable Television Consumer
    Protection and Competition Act of 1992*, Further Notice Of Proposed
    Rulemaking, 16 FCC Rcd 17,312, ¶ 22-23 (2001) (internal citations
    omitted).

[^5]: *Time Warner Entertainment Co. v. FCC*, 240 F.3d 1126, 1134 (D.C.
    Cir. 2001) (emphasis added). The Court further elaborated, "If an
    MVPD refuses to offer new programming, customers with access to an
    alternative MVPD may switch. The FCC shows no reason why this logic
    does not apply to the cable industry. Indeed, its most recent
    competition report suggests that it does. According to the
    Commission, several very small and rural cable systems have used a
    variety of schemes to add digital channels, expand their program
    offerings, and take preemptive action against aggressive DBS
    marketing.\" *Id.* (quoting *Annual Assessment of the Status of
    Competition in the Market for the Delivery of Video Programming,*
    Seventh Annual Report, 16 FCC Rcd 6005, ¶ 67 (2000).

[^6]: *Se*e *Applications of AT&T Corp. and Tele-Communications, Inc.
    for Transfer of Control of Tele-Communications, Inc. to AT&T Corp.*,
    CC Docket No. 98-178, Memorandum Opinion and Order, 14 FCC Rcd 3160,
    ¶ 20-22 (1999); *Applications For Consent To The Transfer Of Control
    Of Licenses and Section 214 Authorizations From MediaOne Group,
    Inc., Transferor, To AT&T Corp., Transferee,* Memorandum Option and
    Order, 15 FCC Rcd 9816, ¶ 36 (2000); *Applications for Consent to
    the Transfer of Control of Licenses and Section 214 Authorizations
    by Time Warner Inc. and America Online, Inc., Transferors, to AOL
    Time Warner Inc., Transferee*, Memorandum Opinion and Order, 16 FCC
    Rcd 6547, ¶244 (2001).

[^7]: Order at ¶ 115.

[^8]: *See* Order at ¶ 109 and note 331.

[^9]: *Id.* at ¶ 115.

[^10]: *United States v. E.I. du Pont de Nemours & Co.*, 351 U.S. 377,
    395 (1956) ("commodities reasonably interchangeable by consumers for
    the same purposes" are in the same market) ("*E.I. du Pont*").

[^11]: *Id.* at ¶ 109.

[^12]: *See E.I. du Pont*, 351 U.S. at 395.

[^13]: *Id.* at ¶ 114.

[^14]: *See, e.g.*, *2002 Biennial Regulatory Review, Review of the
    Commission's Broadcast Ownership Rules and Other Rules Adopted
    Pursuant to Section 202 of the Telecommunications Act of 1996*,
    Notice of Proposed Rulemaking, MB Docket No. 02-277, FCC 02-249, ¶
    53 (rel. Sept. 23, 2002) (discussing "robust" competition among
    broadcasting, cable television and DBS); *Inquiry Concerning
    High-Speed Access to the Internet Over Cable and Other Facilities,
    Internet Over Cable Declaratory Ruling, Appropriate Regulatory
    Treatment for Broadband Access to the Internet Over Cable
    Facilities*, Declaratory Ruling and Notice of Proposed Rulemaking,
    17 FCC Rcd 4798, ¶ 6 (2002) ("\[R\]esidential high-speed access to
    the Internet is evolving over multiple electronic platforms,
    including wireline, cable, terrestrial wireless and satellite.");
    *In The Matter Of Appropriate Framework For Broadband Access To The
    Internet Over Wireline Facilities*, Notice of Proposed Rulemaking,
    17 FCC Rcd. 3019, ¶ 37 (2002) ("\[T\]he technological evolution ...
    enabled cable, wireless and satellite providers to begin to compete
    with the telephone network. In the broadband arena, the competition
    between cable and telephone companies is particularly
    pronounced....").

[^15]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from Southern New England
    Telecommunications Corporation, Transferor*, Memorandum Opinion and
    Order, 13 FCC Rcd 21292, 21305 ¶ 26 (1998)).

[^16]: Order at ¶ 28 (citing *Policy Regarding Character Qualifications
    In Broadcast Licensing Amendment of Rules of Broadcast Practice and
    Procedure Relating to Written Responses to Commission Inquiries and
    the Making of Misrepresentations to the Commission by Permittees and
    Licensees,* Report, Order and Policy Statement, 102 FCC 2d 1208-9
    (1986)).

[^17]: *See* Statement of Commissioner Kevin J. Martin and Commissioner
    Michael J. Copps Re: National Association of Broadcasters and
    Association of Local Television Stations Request for Modification or
    Clarification of Broadcast Carriage Rules for Satellite Carriers,
    Declaratory Ruling and Order, CSR-5865-Z (Media Bureau, April 4,
    2002), April 10, 2002.

[^18]: *See, e.g.* Comments of the Association of Public Television
    Stations and the Public Broadcasting Service, Feb. 4, 2002, at 5-10.
    *See also* Order at note 130 (briefly describing the filings of
    seven parties who raised this issue).

[^19]: Order at ¶ 35.