**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | CS Docket No. 01-348         |
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| Application of                   | ** |                              |
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| EchoStar Communications          | *  |                              |
| Corporation, (a Nevada           | *) |                              |
| Corporation), General Motors     | ** |                              |
| Corporation, and                 |    |                              |
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| Hughes Electronics Corporation   | *) |                              |
| (Delaware Corporations)          | ** |                              |
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| (Transferors)                    | *  |                              |
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| EchoStar Communications          | *  |                              |
| Corporation (a Delaware          | *) |                              |
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**HEARING DESIGNATION ORDER**

**Adopted: October 9, 2002 Released: October 18, 2002**

By the Commission: Chairman Powell andCommissioners Abernathy and Copps
issuing separate statements; Commissioner Martin approving in part,
concurring in part, dissenting in part, and issuing a statement.

**[TABLE OF CONTENTS]{.underline}**

I. INTRODUCTION 1

II\. DESCRIPTION OF THE PARTIES 4

A. EchoStar Communications Corporation 4

B. General Motors and Hughes Electronics Corporation 10

C. The Proposed Transaction 14

1\. GM/Hughes Separation Transactions 15

2\. Hughes/EchoStar Merger 18

3\. Scope of the Proposed Transaction 20

4\. Claimed Benefits of the Proposed Transaction and

Joint Satellite Application 22

III\. STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK 25

IV\. COMPLIANCE WITH THE COMUNICATIONS ACT AND

COMMISSION RULES AND POLICIES 28

A. Licensing Qualifications 28

B. Impact of the Transaction on Diversity 37

1\. Background 37

2\. Discussion 45

C. Impact of the Transaction on Spectrum Policy and Rules 56

1\. Spectrum Efficiency 58

2\. Spectrum Policy Concerns 83

V. POTENTIAL HARMS AND BENEFITS IN THE PROVISION OF

MVPD AND BROADBAND SERVICES 97

A. Relevant Antitrust Precedent 99

B. Potential Competitive Harms -- MVPD Market 104

1\. Structural Factors Affecting Likelihood of Competitive Harm 105

2\. Analysis of Potential Adverse Effects on Competitive Behavior 151

3\. Reduction in the Magnitude of Future Innovation and in

the Quality of Service 175

4\. National Pricing 178

C. Potential Public Interest Benefits -- MVPD Market 188

1\. New Services 194

2\. Cost Savings 206

3\. Enhanced Ability to Compete with Digital Cable 214

D. Potential Competitive Harms and Public Interest Benefits --

Broadband Market 218

VI\. OTHER ISSUES 248

A. Vertical Effects 248

1\. Potential Harms in the Video Programming Market 248

2\. Transfer of Control of PanAmSat 260

B. Proposed Merger Conditions 269

VII\. BALANCING POTENTIAL PUBLIC INTEREST HARMS AND BENEFITS 275

VIII\. ISSUES TO BE DETERMINED AT HEARING 284

IX\. ORDERING CLAUSES 290

Appendix A List of Commenters

Appendix B List of FCC Authorizations and Licenses Held by

EchoStar Communications Corporation

Appendix C List of FCC Authorizations and Licenses Held by

Hughes Electronics Corporation

Appendix D List of FCC Authorizations and Licenses Held by

PanAmSat Communications Corporation

Appendix E Merger Simulations of the EchoStar-DirecTV Merger

# INTRODUCTION

1.  In this Order, we consider the application (the "Application")[^1]
    of EchoStar Communications Corporation ("EchoStar"), General Motors
    Corporation ("GM"), and Hughes Electronics Corporation ("Hughes")
    (collectively, the "Applicants") for consent to transfer control of
    various Commission authorizations, including direct broadcast
    satellite ("DBS")[^2] and fixed satellite space station
    authorizations, earth station authorizations, and other related
    authorizations held by their wholly- or majority-owned subsidiaries
    to EchoStar Communications Corporation ("New EchoStar"). The
    proposed transaction involves the split-off of Hughes from GM,
    followed by the merger of the Hughes and EchoStar companies. The
    proposed merged entity, New EchoStar, would have a new ownership
    structure and would continue to provide DBS subscription television
    service under the DirecTV brand name. If approved, the proposed
    merger would combine operations of the two major DBS providers in
    the United States -- EchoStar and DirecTV Holdings, LLC ("DirecTV"),
    a wholly-owned subsidiary of Hughes,[^3] into one single entity. In
    addition to acquiring the significant DBS operations of EchoStar and
    DirecTV, New EchoStar would acquire other significant satellite
    operations of Hughes, including Hughes Network Services, Inc.
    ("HNS"), a leading facilities-based provider of very small aperture
    terminal ("VSAT") network systems, and PanAmSat Corporation
    ("PanAmSat"), a leading global facilities-based provider of
    geostationary-satellite orbit ("GSO") fixed satellite services
    ("FSS").[^4]

2.  We also consider the joint application submitted by EchoStar and
    Hughes requesting authority to launch and operate NEW ECHOSTAR 1, a
    direct broadcast satellite that would be located at the 110° W.L.
    orbital location (the "Satellite Application").[^5] In the Satellite
    Application, EchoStar and Hughes propose, subject to and contingent
    upon grant of the Application, to launch and operate a spot beam
    satellite with other existing and planned satellites at the 110°
    W.L. orbital location on frequencies currently authorized to
    EchoStar and DirecTV.[^6] The Applicants claim that grant of the
    proposed Satellite Application would ultimately allow New EchoStar
    to offer local broadcast channels in all 210 U.S. Designated Market
    Areas ("DMAs").[^7]

3.  Based on the record before us, we find that Applicants have not met
    their burden of demonstrating that approval of the Application is in
    the public interest. As discussed more fully below, we are concerned
    that ownership of all satellites in the full-CONUS orbital locations
    by one entity, New EchoStar, could likely undermine our goals of
    increased and fair competition in the provision of DBS service. We
    are also concerned that the claimed benefits of efficient and
    expeditious use of spectrum are outweighed by the potential harms
    associated with the concentration of ownership of key DBS spectrum
    licenses in a single licensee. Further, we are not convinced that
    such concentration of ownership of the DBS spectrum licenses would
    result in more effective competition in the multichannel video
    programming distribution ("MVPD") market or that the combined
    spectrum resources of the Applicants are necessary for deployment of
    viable satellite-delivered broadband services. Accordingly, pursuant
    to Section 309(e) of the Communications Act of 1934, as amended (the
    "Communications Act" or the "Act"), we hereby designate the
    Application for hearing. In addition to the specific issues we
    designate for hearing, we also direct that the review of Applicants'
    proposed Satellite Application be undertaken within the context of
    the hearing proceeding.

# DESCRIPTION OF THE PARTIES

## EchoStar Communications Corporation

4.  EchoStar is a publicly traded company incorporated in Nevada and
    headquartered in Littleton, Colorado.[^8] EchoStar currently has
    three classes of issued and outstanding shares: Class A common,
    Class B common, and Series D convertible preferred stock.[^9] All of
    the outstanding shares of Class B common stock are held of record by
    a trust controlled by Charles W. Ergen, EchoStar's Chairman and
    Chief Executive Officer, and all the Series D convertible preferred
    shares are held by a wholly-owned subsidiary of Vivendi Universal,
    S.A., ("Vivendi"),[^10] a French media, communications, and
    environmental services company with its principal office in Paris,
    France.[^11] The Class A common stock is held by approximately 6,000
    shareholders including institutional and private investors. There
    are two shareholders that currently own or control ten percent or
    more of EchoStar shares -- Charles Ergen, who holds a 44.8% equity
    and an 89.0% voting interest, and Vivendi, which holds a 10.7%
    equity and a 2.2% voting interest.[^12]

5.  EchoStar's core business, the delivery of DBS service, is offered to
    consumers through two interrelated business units: the Digital Sky
    Highway (DISH) Network, which provides service in the United States,
    and EchoStar Technologies Corporation, which is engaged in the
    design, development, distribution and sale of EchoStar receiver
    systems.[^13] EchoStar, with more than seven million customers
    nationwide,[^14] offers its DISH Network customers multichannel
    video and audio programming, and also provides limited interactive
    and two-way high-speed Internet access services.[^15]

6.  EchoStar, through its wholly-owned direct and indirect subsidiaries,
    holds several Commission DBS authorizations to operate in orbital
    locations that are capable of serving customers in all contiguous 48
    states (*i.e.*, the continental United States or \"CONUS\").[^16] At
    the 119º W.L. location, EchoStar is authorized to operate 21
    frequencies[^17] and at the 110º W.L. location, 29 frequencies.[^18]
    In the western CONUS DBS orbital locations, which are capable of
    providing service to the Western United States, EchoStar holds
    authorization to operate 24 frequencies at the 148º W.L.[^19] and in
    the eastern DBS orbital location, which is capable of providing
    service to the Eastern and Central United States, EchoStar holds
    authorization to operate 11 frequencies at 61.5º W.L.[^20] In
    addition, at the 61.5º W.L. location, EchoStar holds a Special
    Temporary Authority to operate 13 frequencies, and also subleases
    six frequencies from Dominion Video Satellite, Inc.[^21]

7.  EchoStar also holds Commission authority to launch and operate a
    Ku-band FSS system at the 83° W.L. and 121° W.L. orbital
    locations,[^22] and has controlling interest in VisionStar
    Corporation, which holds authorization to launch and operate a
    Ka-band satellite at the 113° W.L. orbital location.[^23] In
    addition, EchoStar has submitted an application to the Commission
    for authority to launch and operate a global satellite system to
    operate in the extended Ku-band.[^24]

8.  In conjunction with its satellite operations, EchoStar holds
    authorizations for numerous transmit/receive and receive-only earth
    stations which are licensed to transmit and receive frequencies in
    the C, Ku and DBS bands.[^25] EchoStar also wholly-owns Kelly
    Broadcasting Systems, Inc., which holds authorizations for seven
    transmit/receive earth stations that operate in the C and Ku-bands,
    and four transmit-only earth stations that operate in the
    C-band.[^26]

9.  EchoStar has ownership interests in other satellite service
    providers as well. EchoStar holds an approximately 32% interest in
    StarBand Communications, Inc., ("StarBand") which offers two-way,
    high-speed Internet access service.[^27] It also holds an
    approximately 20% interest in WildBlue Communications, Inc., which
    has plans to offer high-speed Internet service from Ka-band
    satellites,[^28] and Celsat America, Inc., which has plans to
    provide service in the 2 GHz Mobile-Satellite Service ("MSS")
    band.[^29]

## General Motors and Hughes Electronics Corporation

10. GM is a publicly traded company incorporated in Delaware and
    headquartered in Detroit, Michigan.[^30] GM is engaged in the
    automotive and, through its wholly-owned Hughes subsidiary, the
    telecommunications industries.[^31] Hughes' telecommunications
    operations are comprised of three business segments: Direct-To-Home
    Broadcast, Network Systems, and Satellite Systems.[^32] GM currently
    has issued and outstanding shares of GM \$1 2/3 par value common
    stock and Class H common stock or "Hughes Tracking Stock."[^33] The
    Hughes Tracking Stock is a publicly-traded tracking stock designed
    to provide holders with financial returns based only on the
    financial performance of GM's wholly-owned Hughes subsidiary, and
    not on the financial performance of the whole of GM.[^34] Currently,
    two shareholders own ten percent or more of GM stock -- State Street
    Bank and Trust Company, a Massachusetts corporation, acting as
    trustee for various trusts and employee benefit plans, which
    beneficially owns 14% of GM's \$1 2/3 par value common stock, and
    U.S. Trust Corporation, a New York corporation, which beneficially
    owns approximately 20% of the Hughes Tracking Stock.[^35]

11. Hughes' Direct-To-Home Broadcast business segment consists of the
    operations of DirecTV Holdings, LLC ("DirecTV") in the United
    States,[^36] DirecTV Latin America, LLC in Latin America and the
    Caribbean Basin,[^37] and DirecTV Broadband, Inc. (formerly Telocity
    Delaware, Inc.).[^38] Through its wholly-owned subsidiaries, DirecTV
    holds DBS authorizations to operate 32 frequencies at the 101º W.L.
    orbital location, three frequencies at the 110º W.L. orbital
    location,[^39] and, 11 frequencies at the 119º W.L. orbital
    location.[^40] Through its wholly-owned subsidiaries, DirecTV also
    holds authorizations for numerous transmit/receive, receive-only,
    and transmit-only earth stations which are licensed to transmit
    and/or receive frequencies in the C, Ku, and DBS-bands.[^41] In the
    United States, DirecTV provides DBS service consisting of
    multichannel video and audio digital entertainment channels to more
    than 10 million subscribers,[^42] including subscribers who receive
    DirecTV services from members of the National Rural
    Telecommunications Cooperative ("NRTC") pursuant to a contract
    between DirecTV and the NRTC.[^43] DirecTV Broadband, Inc. offers
    terrestrial high-speed DSL service, which it purchases from
    wholesale providers, to customers across the country where digital
    subscriber line technology ("DSL") is available.[^44]

12. Hughes' Network Systems business segment includes the operations of
    HNS.[^45] HNS holds a number of authorizations for transmit/receive
    earth stations and VSAT networks for use of frequencies in the C and
    Ku-bands.[^46] Through leased Ku-band satellite transponders, HNS
    offers broadband satellite services to private business networks,
    and offers two-way high-speed, satellite-based Internet access
    service to consumers under the DirecPC and DirecWay brands.[^47] HNS
    also manufactures subscriber equipment for DirecTV satellite
    television receivers and set-top boxes.[^48] HNS holds Commission
    authorization for the construction, launch and operation of a
    Ka-band satellite system, the SPACEWAY Satellite System, which
    consists of satellites assigned to eight orbital locations at 101º
    W.L., 99º W.L., 49º W.L., 54º E.L., 101º E.L., 111º E.L., 164º E.L.,
    and 25º E.L.[^49] In addition, HNS holds Ka-band authorizations at
    the 131º W.L., 30º E.L., 7.5º W.L., and 103º E.L. orbital
    locations.[^50]

13. Hughes' Satellite Services business segment consists primarily of
    the operations of PanAmSat, a publicly traded corporation of which
    Hughes owns approximately 81%.[^51] PanAmSat holds Commission
    authorizations to operate FSS systems using the C and Ku-bands and
    currently owns and operates a satellite fleet of 21 satellites.[^52]
    PanAmSat leases transponder capacity on its satellites and delivers
    entertainment and information to cable television systems,
    television broadcast affiliates, direct-to-home television
    operators, Internet service providers, telecommunications companies
    and other corporations.[^53] PanAmSat's largest customers are its
    affiliates, HNS, DirecTV Latin America, and DirecTV.[^54] PanAmSat
    holds Commission authority to launch and operate Ka-band satellites
    at 13 orbital locations: 103º W.L., 36º E.L., 40º E.L., 48º E.L.,
    124.5º E.L., 149º E.L., 173º E.L, 133° W.L., 58° W.L., 45° W.L.,
    68.5° E.L., 72.7° E.L., 166° E.L.[^55] In addition, PanAmSat holds
    authorizations for numerous earth stations which are licensed to
    transmit and receive frequencies in the C and Ku-bands, and also
    holds Section 214 authorizations for telecommunications
    services.[^56]

## THE PROPOSED TRANSACTION

14. The transaction proposed by EchoStar and Hughes, and set forth in
    various interrelated agreements,[^57] involves two principal
    components: the GM/Hughes separation transactions[^58] and the
    Hughes/EchoStar merger.[^59] These transactions, some of which
    require GM stockholder approval in order for the proposed merger to
    take place, are described in more detail below.[^60]

### GM/Hughes Separation Transactions

15. The proposed GM/Hughes separation transactions are designed to
    prepare Hughes to complete the proposed merger with EchoStar by
    separating the Hughes business from GM by means of a split-off. The
    GM/Hughes separation transactions consist of two parts -- the Hughes
    recapitalization, which will result in the creation of HEC
    Holdings,[^61] and the HEC Holdings split-off.

16. Under the proposed Hughes recapitalization, Hughes will distribute a
    dividend of up to \$4.2 billion to GM and GM's retained economic
    interest in Hughes will be reduced by an amount that reflects the
    dividend.[^62] Upon receipt of the \$4.2 billion dividend, GM will
    contribute all of the outstanding stock of Hughes to HEC Holdings,
    Inc., a newly formed subsidiary created for purposes of the proposed
    merger transaction. As a result, HEC Holdings will become the parent
    company of Hughes. In exchange for the contribution of Hughes' stock
    to HEC Holdings, which at that point will consist of all the
    outstanding Hughes Tracking Stock, GM will receive HEC Holdings
    Class C common stock and thus, will hold all of the issued shares of
    HEC Holdings.[^63]

17. To accomplish the split-off of the Hughes business from GM, GM will
    distribute to each stockholder of Hughes Tracking Stock, one share
    of HEC Holdings Class C common stock in redemption of and in
    exchange for each share of Hughes Tracking Stock.[^64] Thus, holders
    of Hughes Tracking Stock will become holders of HEC Holdings Class C
    common stock.[^65] As a result of this exchange, all outstanding
    shares of Hughes Tracking Stock will be redeemed and cancelled.[^66]
    In this way, HEC Holdings would be split-off from GM and would
    become an independent, publicly owned company, which would own the
    entire Hughes business.[^67]

### Hughes/EchoStar Merger 

18. Following the recapitalization and split-off, Hughes and EchoStar
    propose to combine their businesses pursuant to a merger of HEC
    Holdings and EchoStar.[^68] While HEC Holdings would be the
    surviving corporation, the merged entity would be renamed EchoStar
    Communications Corporation and incorporated in Delaware ("New
    EchoStar").[^69] New EchoStar proposes to issue three classes of
    common stock, New EchoStar Class A, Class B, and Class C common
    stock.[^70] Holders of EchoStar Class A common stock would receive
    1.3699 shares of New EchoStar Class A common stock in exchange for
    each share of EchoStar Class A common stock; holders of EchoStar
    Class B common stock would receive 1.3699 shares of New EchoStar
    Class B common stock in exchange for each share of EchoStar Class B
    common stock;[^71] and the holders of HEC Holdings Class C common
    stock distributed in the GM/Hughes separation transactions would
    have their shares reclassified as New EchoStar Class C common
    stock.[^72] Except as to voting rights, the New EchoStar Class A and
    C common stock would be identical.[^73]

19. It is anticipated that the New EchoStar board of directors would
    initially consist of 11 members, eight of whom are current directors
    and/or officers of EchoStar[^74] and three of whom are currently
    directors and/or officers of Hughes.[^75] For the three years
    following the merger, at least six of the members of the New
    EchoStar board of directors would be "independent" directors as
    determined under the New EchoStar certificate of incorporation and
    bylaws.[^76] Charles W. Ergen, the current Chairman and Chief
    Executive Officer of EchoStar, would be the Chairman and Chief
    Executive Officer of New EchoStar[^77] and David K. Moskowitz, the
    current Senior Vice President, General Counsel and Secretary of
    EchoStar would continue as the Senior Vice President, General
    Counsel and Secretary of New EchoStar.[^78] The other officers of
    New EchoStar would be determined by a management transition
    committee prior to the completion of the merger.[^79]

### Scope of the Proposed Transaction

20. The proposed transaction would bring the various Commission
    authorizations and licenses held by EchoStar and Hughes, including
    the full-CONUS DBS authorizations now held separately by EchoStar
    and DirecTV, under control of one new entity, New EchoStar. Approval
    of the proposed transaction would combine the two largest providers
    of DBS service into a single provider of DBS service in the United
    States, which would serve over 18 million subscribers.[^80]
    Moreover, the merged entity would hold authorizations for all of the
    current U.S. DBS frequencies at the full-CONUS orbital
    locations.[^81] The proposed merger would also include the transfer
    of Ka-band authorizations held by EchoStar, Hughes, and its
    subsidiary PanAmSat, to New EchoStar,[^82] as well as PanAmSat's GSO
    FSS C and Ku-band operations, and the authorizations held by HNS,
    one of PanAmSat's largest customers.[^83] A list of FCC
    authorizations and licenses held by each of the Applicants that are
    subject to transfer under the proposed transaction are provided in
    Appendices B, C, and D of this Order.[^84]

21. In addition, the Applicants have proposed, subject to and contingent
    upon approval of the proposed merger, to launch and operate a DBS
    spot beam satellite in order to provide additional local broadcast
    channel programming capacity.[^85] Specifically, EchoStar and Hughes
    filed their conditional joint Satellite Application seeking approval
    to launch and operate NEW ECHOSTAR 1 at the 110° W.L. orbital
    location with other existing and planned satellites in that orbital
    location currently authorized to EchoStar and DirecTV.[^86] Through
    the reuse of eight of the thirty-two DBS frequencies at 110° W.L.,
    the Applicants propose to form 28 distinct spot beams to provide
    delivery of local broadcast channels to DMAs not previously served
    by either EchoStar or DirecTV.[^87] The Applicants claim that the
    NEW ECHOSTAR 1 satellite, when combined and integrated with the
    other satellite and spectrum assets of New EchoStar, would enable
    New EchoStar to provide access to local broadcast programming in all
    210 DMAs in the United States, including Alaska and Hawaii.[^88]

### Claimed Benefits of the Proposed Transaction and Joint Satellite Application

22. The Applicants claim that numerous public interest benefits would
    result from approval of the proposed merger transaction and the
    Satellite Application. They contend that one of the most important
    benefits of the proposed merger will be the elimination of what they
    characterize as "a major restraint" on the ability of DBS operators
    to compete with cable systems in the MVPD market. That restraint,
    according to the Applicants, is their duplicative use of DBS
    spectrum to provide "overlapping programming services."[^89] The
    Applicants claim that EchoStar and DirecTV currently deliver over
    500 identical channels of programming and that elimination of this
    duplication would promote the Commission's long-standing policy in
    favor of efficient and non-duplicative use of the spectrum.[^90]
    This in turn, they contend, would provide concrete benefits to
    consumers as New EchoStar would be able to use the increase in
    available DBS capacity to offer significantly more local-into-local
    programming and to expand its offerings of high-definition
    television ("HDTV") programming, pay-per-view ("PPV"),
    video-on-demand ("VOD") and other niche programming, as well as
    interactive services, such as interactive television ("ITV") and
    broadband satellite Internet services.[^91] The Applicants also
    claim that approval of the Satellite Application would enable New
    EchoStar to provide consumers with access to local broadcast
    channels in all 210 DMAs in the United States ("local-into-local
    programming"), thus implementing Congress's goal of broad-based
    local television service by satellite, as reflected in SHVIA.[^92]

23. The Applicants claim that the merger would have no anti-competitive
    effects in the relevant market, which they claim is the multichannel
    video programming distributor ("MVPD") market,[^93] but rather would
    have significant pro-competitive effects as New EchoStar would be
    better able to compete with other MVPD providers, particularly cable
    operators, by offering new and expanded programming choices to
    consumers. This in turn would ultimately result in improved
    products, prices and overall quality to consumers.[^94] The
    Applicants also claim that their commitment to price DBS service on
    a uniform nationwide basis will provide benefits to customers in
    both urban and rural areas since competition in the most densely
    populated and heavily contested areas will require that New EchoStar
    set the national price low enough to compete for new subscribers in
    these urban areas, consequently providing competitive prices to
    customers in rural areas.[^95]

24. The Applicants additionally claim that the proposed merger would
    allow New EchoStar to provide "true" broadband Internet access
    service to all regions of the country.[^96] The Applicants claim
    that the combined Ka-band authorizations held by EchoStar, Hughes,
    and PanAmSat, along with the FSS resources of PanAmSat, would enable
    New EchoStar to proceed timely with efforts to deploy satellite
    broadband Internet services nationwide, and thus, more effectively
    compete with cable's bundled offering of high-speed Internet access
    and MVPD products and telephone companies' DSL offerings.[^97] The
    Applicants contend that the creation of New EchoStar would resolve
    the inefficiencies and uncertainties that would exist if each
    company separately were to offer broadband services, and would
    dramatically maximize the timely introduction of nationwide
    competition in the broadband markets, including rural and
    underserved areas.[^98] In addition, the Applicants claim that all
    consumers would benefit from vigorous competition between New
    EchoStar and cable systems in urban areas as lower prices resulting
    from "intermodal" broadband competition in these areas would also
    benefit rural and underserved users with lower prices.[^99] Thus,
    the Applicants conclude that due to spectrum efficiencies, cost
    savings and revenue synergies,[^100] the proposed merger would
    produce tangible benefits for all Americans, and request that the
    Commission grant approval of the Application.

# STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK

25. Pursuant to sections 214(a) and 310(d) of the Act, the Commission
    must determine whether the Applicants have demonstrated that the
    proposed transfer of control of Hughes' and EchoStar's licenses and
    authorizations will serve the public interest, convenience and
    necessity.[^101] In making this determination, we first assess
    whether the proposed transaction complies with the specific
    provisions of the Act,[^102] other applicable statutes, and the
    Commission's rules. The public interest standards of sections 214(a)
    and 310(d) involve a balancing process that weighs the potential
    public interest harms of the proposed transactions against the
    potential public interest benefits.[^103] The Applicants bear the
    burden of proving, by a preponderance of the evidence, that the
    proposed transaction, on balance, serves the public interest.[^104]
    If we are unable to find that the proposed transaction serves the
    public interest for any reason, or if the record presents a
    substantial and material question of fact, Section 309(e) of the Act
    requires that we designate the application for hearing.[^105]

26. Our public interest evaluation necessarily encompasses the "broad
    aims of the Communications Act,"[^106] which includes, among other
    things, preserving and enhancing competition in relevant markets,
    ensuring that a diversity of voices is made available to the public,
    and accelerating private sector deployment of advanced
    services.[^107] The Supreme Court has repeatedly emphasized the
    Commission's duty and authority under the Communications Act to
    promote diversity and competition among media voices: It has long
    been a basic tenet of national communications policy that "the
    widest possible dissemination of information from diverse and
    antagonistic sources is essential to the welfare of the
    public."[^108] Our public interest analysis may also entail
    assessing whether the merger will affect the quality of
    communications services or will result in the provision of new or
    additional services to consumers.[^109] In conducting this analysis,
    the Commission may consider technological and market changes, and
    the nature, complexity, and speed of change of, as well as trends
    within, the communications industry.[^110]

27. In determining the competitive effects of the merger, our analysis
    is not limited by traditional antitrust principles.[^111] The
    Commission and the Department of Justice ("DOJ") each have
    independent authority to examine communications mergers, but the
    standards governing the Commission's review differ from those of
    DOJ.[^112] DOJ reviews mergers pursuant to Section 7 of the Clayton
    Act, which prohibits mergers that are likely to substantially lessen
    competition in any line of commerce.[^113] The Commission, on the
    other hand, as stated above, is charged with determining whether the
    transfer of licenses serves the broader public interest. In the
    communications and video programming industries, competition is
    shaped not only by antitrust rules, but also by the regulatory
    policies that govern the interactions of industry players.[^114] In
    addition to considering whether the merger will reduce existing
    competition, therefore, we also must focus on whether the merger
    will accelerate the decline of market power by dominant firms in the
    relevant communications markets.[^115] We also recognize that the
    same consequences of a proposed merger that are beneficial in one
    sense may be harmful in another. For instance, combining assets may
    allow the merged entity to reduce transaction costs and offer new
    products, but it may also create market power, create or enhance
    barriers to entry by potential competitors, and create opportunities
    to disadvantage rivals in anticompetitive ways.[^116]

# compliance with Communications ACT and commission rules and policies

## Licensing Qualifications

28. Section 310(d) of the Communications Act provides that no station
    license may be transferred, assigned, or disposed of in any manner
    except upon a finding by the Commission that the "public interest,
    convenience and necessity will be served thereby."[^117] Among the
    factors that the Commission considers in its public interest inquiry
    is whether the applicant for a license has the requisite
    "citizenship, character, financial, technical, and other
    qualifications."[^118] The Commission has previously determined
    that, in deciding character issues, it will consider certain forms
    of adjudicated, non-FCC related misconduct that includes: (1) felony
    convictions; (2) fraudulent misrepresentations to governmental
    units; and (3) violations of antitrust or other laws protecting
    competition.[^119] With respect to FCC related conduct, the
    Commission has stated that violations of provisions of the Act, or
    of the Commission\'s rules or polices have a bearing on an
    applicant\'s character qualifications.[^120] The Commission has used
    its character policy in the broadcast area as guidance in resolving
    similar questions in transfer of common carrier authorizations and
    other license transfer proceedings.[^121]

29. A number of Opponents raise concerns about EchoStar's past conduct
    in FCC proceedings and question whether it is qualified to be the
    "sole DBS gatekeeper."[^122] In addition, several Opponents have
    alleged that EchoStar has failed to adhere to its must-carry
    obligations. Specifically, they claim that EchoStar, from at least
    1998, offered local-into-local stations absent agreement to do so,
    as a distributor for PrimeTime 24, a satellite carrier, in violation
    of the Satellite Home Viewer Act of 1994 ("SHVA"), 17 U.S.C. §
    119.[^123] In a 1998 lawsuit against PrimeTime 24, a United States
    district court found that PrimeTime had "simply ignored" the
    Commission's standard for retransmission and enjoined PrimeTime's
    retransmission of certain stations.[^124] Although PrimeTime 24 came
    into compliance with the court order, EchoStar and DirecTV simply
    terminated their contracts with PrimeTime 24 and allegedly continued
    to distribute local broadcast stations, claiming that they were not
    bound by the injunction.[^125] DirecTV eventually came into
    compliance.[^126] Paxson, however, alleges that EchoStar continues
    to provide illegal network signals."[^127]

30. Numerous merger Opponents and other commenters claim that EchoStar
    evaded its must-carry obligations under Satellite Home Viewer
    Improvement Act of 1999 ("SHVIA")[^128] by delaying or refusing
    carriage on frivolous grounds, responding to carriage requests with
    form letters, or by demanding stations to make unreasonable
    demonstrations of their signal quality before carrying them.[^129]
    EchoStar also placed certain local programming on non-CONUS
    satellites, requiring customers who wish to receive such programming
    to obtain additional equipment.[^130] The Media Bureau addressed the
    matter, rejecting EchoStar's argument that its two-dish approach
    complied with SHVIA and the Commission's rules.[^131] The Media
    Bureau required EchoStar to remedy the unlawful discrimination
    identified in the *Second Dish Order* as expeditiously as possible
    and also required the operator to file Compliance Reports on a
    periodic basis that describe both its plan and complete actions to
    bring its carriage of broadcast stations into compliance.[^132]
    EchoStar has filed the requested Compliance Plans and its efforts
    are currently subject to evaluation in terms of the operator's
    present state of compliance with SHVIA and the Commission's must-
    carry rules.[^133]

31. In addition, CWA alleges that the DISH Network "has refused to
    engage in serious collective bargaining" and raises other labor law
    concerns.[^134] Finally, Pegasus alleges that EchoStar employees
    and/or its agents have used "false and misleading statements" about
    the proposed merger to deceive Pegasus subscribers into believing
    that they must switch to the Dish Network at this time.[^135]

32. In response, the Applicants describe the foregoing issues as
    "private grievances" relating to "contractual or regulatory
    disputes, and the alleged quality of customer service."[^136] They
    maintain that the merger opponents have failed to demonstrate that
    this merger proceeding is the appropriate forum for resolving such
    issues.[^137] Instead, Applicants point out that the proceedings
    that deal with these matters provide the appropriate forum for such
    complaints.

33. We conclude that none of the foregoing allegations provides a
    sufficient basis for finding that EchoStar lacks the fitness to
    acquire the licenses and authorizations currently held by
    Hughes/DirecTV. While certain past behavior by EchoStar has raised
    concern, we do not find such a pattern of conduct that would
    seriously erode our ability to trust EchoStar as a Commission
    licensee.[^138] None of the matters cited by the Opponents has led
    to a finding that EchoStar fails to have the requisite "citizenship,
    character, financial, technical or other qualifications" to be a
    licensee. In addition, none of the allegations raised in this
    proceeding, whether considered singly or as a whole, provides a
    basis for finding that EchoStar lacks the fitness and requisite
    character to hold or acquire licenses and authorizations. Our
    processes remain available for rule violations that aggrieved
    parties may wish to raise in the future, and the Applicants may be
    subject to further enforcement actions, including forfeitures
    arising from any failure to comply with the statute or our rules.
    Outstanding allegations regarding rule violations are best handled
    in proceedings arising under the affected rule or policy because, in
    such proceedings, the Commission would have a complete record to
    review the relevant facts.[^139] Similarly, un-adjudicated non-FCC
    violations, like those alleged by CWA, should be resolved by the
    governmental agency with proper jurisdiction.[^140]

34. We recognize that some of the points raised by Opponents with
    respect to EchoStar's qualifications may be pertinent to our
    evaluation of the potential harms and benefits of the proposed
    transaction. For example, Applicants have made certain claims
    regarding prospective public interest benefits from the merger,
    including the provision of local-into-local broadcast television
    service in all 210 markets, the ability to bring "true" broadband
    services to rural areas, as well as promises to remedy the merger's
    potential anticompetitive effects in areas not served by cable
    competitors with a "national pricing plan" that extends to both MVPD
    and broadband services. Applicants have also asserted that the
    swap-out of set-top boxes necessary for all current DBS subscribers
    to receive the combined service of the merged entity will be free of
    charge to subscribers.

35. Realization of these claimed benefits, as well as the effective
    operation of the proffered national pricing "remedy," depends in
    large part on the likelihood that EchoStar has correctly predicted
    how New EchoStar will implement certain business strategies.
    EchoStar's record with respect to compliance with SHVIA's must-carry
    provisions and our rules suggests a resistance to taking steps to
    serve the public interest that do not also serve the company's view
    of its own private economic interest. Moreover, one of the prime
    subjects of the alleged prior misconduct 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. Accordingly, this history
    of past conduct will be taken into account in assessing the
    likelihood that potential beneficial conduct will occur in the
    absence of private economic incentives.

36. In summary, we find no reason on this record to conclude that
    Applicants' behavior to date precludes our find that the Applicant
    possesses the requisite "citizenship, character, financial,
    technical or other qualifications" to be a licensee. Accordingly we
    do not refer this issue to hearing.

## Impact of the Transaction on Diversity

### Background

37. As stated above, the Commission's public interest evaluation
    includes an evaluation of the proposed merger's affect on the
    quality and diversity of communications services to consumers.[^141]
    In this respect, various parties have raised issues concerning the
    proposed merger's impact on program diversity, viewpoint diversity,
    and employment diversity. These issues are discussed below.

38. *Program diversity.* One of the Commission's goals in the area of
    media policy is program diversity, which refers to the availability
    of a variety of programming formats such as comedy, drama, and
    newsmagazines, as well as specific content categories such as
    health, business, food and content targeted to ethnic or racial
    groups.[^142] The Applicants assert that the proposed merger would
    increase program diversity because operational and spectrum
    efficiencies that would result from combining the two separate
    companies would permit the merged firm to add channels and thus
    offer more independent and diverse programming.[^143] Several
    Members of Congress support the Applicant's position on this
    issue.[^144]

39. A number of parties, however, disagree that the proposed merger
    would promote the program diversity policies of the Commission.
    Consumers Union asserts that the proposed merger would reduce
    program diversity because it would reduce the number of DBS firms
    available for the Commission to "benchmark" regarding compliance
    with the DBS public interest set-aside obligations. Consumers Union
    claims that putting EchoStar, a company that has been clearly
    "recalcitrant" in complying with the public interest set-aside
    obligations, in charge of an even larger number of public interest
    channels, would clearly jeopardize the Commission's program
    diversity policies.[^145] The National Council of LaRaza also
    asserts that the proposed merger would reduce program diversity and
    points to EchoStar's unwillingness to commit to carrying
    Latino-themed, English language programming post-merger.[^146] The
    Congressional Hispanic Caucus ("CHC"), similarly contends that
    EchoStar "has not committed itself to utilize its increased
    programming potential to provide content that targets ...
    specifically 35 million Americans of Latino descent."[^147] The CHC
    asserts that approval of the proposed merger would harm program
    diversity because New EchoStar "has not made any commitment to
    ensure that local Latino broadcasters ... will be carried regardless
    of must-carry laws."[^148]

40. Univision and The Word Network express concerns about EchoStar's
    prior practices and how those practices are likely to be reflected
    by New EchoStar, thus creating future difficulties for consumers,
    programmers and the Commission.[^149] According to these parties,
    although both have obtained carriage on DirecTV, neither has been
    able to obtain carriage on the channels EchoStar has reserved for
    non-commercial educational programming.[^150] Univision contends
    that approval of the proposed merger would allow one entity to
    exercise absolute monopoly control over the flow of programming, in
    particular to minority audiences, especially in areas where the
    minority population is insufficient to support any cable or
    broadcast. Univision claims that allowing one entity to exercise
    absolute monopoly control over the flow of programming to such
    vulnerable audiences would be an enormous public interest
    error.[^151] The Word Network contends that a merger giving one MVPD
    such life-or-death power over a programmer would violate the
    Congressional goal expressed in the 1992 Cable Act that no single
    operator should be so large as to be capable of dealing a "death
    blow" to a programmer.[^152]

41. Consumers Union states that if the Commission were to approve the
    proposed merger, the Commission must take additional actions to
    ensure preservation of its program diversity goals. In this respect,
    Consumers Union recommends that the Commission create a separate
    board that would select public interest programming for the public
    interest channels on New EchoStar. In addition, Consumers Union
    recommends that the Commission restructure the public interest
    set-aside obligations by increasing from four to seven percent the
    number of channels required to be set aside by New EchoStar for the
    carriage of public interest programming. Consumers Union also
    recommends that if the proposed merger is approved, the Commission
    require that contract terms between New EchoStar and public interest
    channels be reported to the Commission.[^153]

42. *Viewpoint diversity.* Another of the Commission's goals in the area
    of media policy is viewpoint diversity. To promote this goal, the
    Commission has restricted ownership of media outlets in certain
    ways. The Commission's rationale has been that the public would be
    exposed to wide variety of viewpoints if ownership of media outlets
    were diffused among more rather than fewer firms, a rationale that
    has been sustained in court.[^154]

43. The ACA and Consumers Union contend that approval of the instant
    license transfer application would diminish viewpoint diversity by
    reducing the two "voices" of EchoStar and DirecTV to one.[^155] In
    addition, the ACA asserts that the combined firm would have
    sufficient economic power to drive many small cable operators out of
    business, thereby eliminating another voice in the media market.

44. *Employment diversity*. The Commission has attempted to increase
    minority employment in broadcasters and MVPDs through its equal
    employment opportunity rules.[^156] These rules were invalidated
    last year by the Court of Appeals for the District of
    Columbia.[^157] In response to the court's decision, the Commission
    issued a Notice of Proposed Rulemaking last year proposing new EEO
    rules that would apply to DBS operators and other FCC-licensed media
    companies.[^158] With regard to minority involvement in EchoStar,
    the CHC states that "EchoStar lacks sufficient minority
    representation and influence with no explicit practice or plan to
    outreach within its executive or other senior-level ranks." [^159]

### Discussion

45. *Program diversity.* Although the Commission has not directly
    addressed the impact of DBS license transfers on program
    diversity,[^160] the Commission has found that, in some cases, more
    concentrated media market structures may promote the availability of
    diverse program fare than would a more diffused market
    structure.[^161] For instance, the Commission has found that the
    ownership of two broadcast television networks by a single company
    may increase incentives for that company to serve more diverse
    audiences over its combined media outlets.[^162] In this case, if
    the proposed merger were approved, Applicants have claimed that
    operational and spectrum efficiencies would enable New EchoStar to
    add channels with independent and diverse offerings.[^163] The
    potential availability of such additional capacity, all else
    remaining equal, would therefore increase, not decrease, the
    likelihood that the merged company will offer a more diverse array
    of programming than either company would separately. Therefore, it
    is far from certain that approval of the proposed merger would, as
    some commenters argue, diminish program diversity.

46. We also disagree with claims that the merger would contravene
    Congressional intent by reducing the number of DBS operators subject
    to the channel set-aside for non-commercial programming. The
    set-aside was established for the specific purpose of "assur\[ing\]
    public access to diverse sources of information."[^164] Because
    Congress defined this obligation in percentage terms, there is no
    necessary connection between the number of DBS operators and the
    total number of channels set aside for non-commercial programming.
    The appropriate measure is the total number of channels operated by
    the universe of DBS firms. No evidence has been presented in this
    proceeding that the proposed merger would reduce the number of
    channels in use by the New EchoStar for non-commercial programming.

47. We also reject the claim by The Word Network that approval of the
    proposed merger would violate the 1992 Cable Act by allowing the
    merged firm potentially to deal it a death blow by excluding it from
    the DBS market. In support of its position, The Word Network cites
    language from a decision by the D.C. Circuit Court of Appeals in
    *Time Warner Entertainment Co., L.P., v. FCC.*[^165] The provision
    of the 1992 Cable Act that gave rise to the *Time Warner* decision,
    however, applies only to cable television operators, not DBS
    providers.[^166] Further, The Word Network fails to explain how the
    possible denial of carriage by the New EchoStar would in fact deal
    it a "death blow" when it could reach consumers through other
    delivery systems. The Word Network's own comments state that its
    programming currently is carried on cable systems serving four
    million customers and on over-the-air television stations reaching
    six million homes.[^167] In view of the availability of cable
    television systems and broadcast television stations to distribute
    The Word Network's programming -- and considering their current use
    of those very platforms -- its claim that the merger could deal it a
    death blow is not persuasive.

48. Finally, we disagree with Consumers Union's recommendation that this
    license transfer proceeding is the appropriate vehicle to
    restructure the public interest set-aside obligations for the
    proposed New EchoStar. We established the current channel set-aside
    obligations, including the specific channel percentages, and the
    complaint process based on a well-developed record.[^168] The
    conditions requested by Consumers Union raise issues that have
    application on an industry-wide basis.[^169] Accordingly, we find
    that the specific recommendations made by Consumers Union with
    respect to public interest set-aside issues are properly addressed
    in the rulemaking setting rather than a subset thereof in the
    context of a merger application.

49. *Viewpoint diversity.* Although the Commission has not directly
    addressed the issue of the impact of a DBS license transfer on
    viewpoint diversity, the Commission has considered the role of DBS
    operators as contributors to viewpoint diversity. In 1999, the
    Commission adopted a rule limiting the number of radio and
    television stations one entity could own in a single market.[^170]
    The ownership limit varies depending on the number of media "voices"
    in a particular market. The Commission determined that television
    stations, radio stations, daily newspapers, and the incumbent cable
    operator in the market would each count as one voice for purposes of
    the TV-Radio Ownership rule.[^171] The Commission declined, however,
    to count a DBS operator as a voice for purposes of the TV-Radio
    rule. The Commission explained that DBS operators did not appear to
    serve the same role in promoting diversity as cable operators
    because DBS operators did not carry local news and public affairs
    programming, due in part to their inability, at the time of that
    decision, to retransmit local broadcast signals.[^172] It appears
    the Commission also relied on cable operators' duty to carry public,
    educational, and governmental channels in reaching its decision
    regarding DBS operators and the voice test.[^173]

50. For purposes of our review of the proposed transaction in this
    proceeding, however, we find that DBS operators do contribute to
    viewpoint diversity and that the loss of one such provider would
    diminish the diversity available to American consumers. In the area
    of media ownership policy, the Commission has long emphasized the
    importance of market structures that promote viewpoint diversity.
    Where the Commission has not already adopted market structure rules
    that incorporate diversity goals, the Commission must evaluate the
    impact of a proposed transaction on its diversity goals. Given that
    the Commission has not adopted market structure rules affirmatively
    aimed at promoting competition and diversity for DBS firms, proposed
    transactions involving DBS licenses must undergo case-by-case
    analysis to determine their impact on these policy goals.[^174]

51. Courts have found that, by exercising their editorial discretion to
    select the programming channels carried on their distribution
    systems, both cable operators and DBS providers are engaged in
    speech entitled to First Amendment protection.[^175] This gatekeeper
    role clearly affects which entertainment and news programming that
    millions of Americans can view. The aggregation of the vast majority
    of current DBS channels by one such editor reduces the potential for
    different editors to deliver a variety of news and current affairs
    to Americans through the carriage of different news and public
    affairs channels. This development harms viewpoint diversity by
    reducing the number of MVPD editors in all markets, and leaving only
    one in some markets. The recent dispute between Cablevision and the
    Yankee Entertainment Sports ("YES") Network in New York illustrates
    this point with respect to sports and entertainment
    programming.[^176] Two MVPDs (Cablevision and EchoStar) decided not
    to carry the YES channel, but a third MVPD (DirecTV) elected to
    carry that channel.[^177] The presence of DirecTV in the market, in
    this instance, clearly affected the programming that was made
    available to several million households.

52. Our finding that the proposed merger of EchoStar and DirecTV would
    diminish viewpoint diversity is not inconsistent with the
    Commission's decision to deny "voice" status to DBS operators in the
    context of the TV-Radio rule. The TV-Radio proceeding answered a
    narrow question -- whether DBS operators should be considered a
    "voice" for purposes of that rule. The Commission's answer in that
    context does not mean that DBS plays no role in promoting diversity.
    In fact, the principal rationale for the Commission according cable
    a voice in the first place -- that "most programming is either
    originated or selected by the cable system operator"[^178] -- is
    fully applicable to DBS operators. Moreover, while DBS operators in
    1999 were unable to retransmit local broadcast signals to their
    subscribers, they are able to do so today. Thus the factual
    underpinning of the Commission's original decision regarding DBS
    operators has changed. Consequently, for purposes of this merger
    application and on the facts before us, we find that DBS operators
    play a role in promoting viewpoint diversity. The loss of the
    editorial function provided by one DBS operator diminishes viewpoint
    diversity by reducing the number of such editors available to
    American consumers.[^179]

53. *Employment diversity*. The Commission has historically obligated
    broadcasters and other FCC-licensed media companies to comply with
    rules requiring equal employment opportunity ("EEO"). Those rules
    were applied to broadcasters in 1969,[^180] cable operators in
    1984,[^181] and MVPDs (including DBS operators) in 1992.[^182] After
    the D.C. Court of Appeals struck down the EEO rules last year, the
    Commission initiated a proceeding to propose a new EEO rule
    consistent with the court's decision.[^183] That Notice proposed
    rules prohibiting discrimination in hiring as well as an EEO
    outreach program. In so doing, the Commission explained that it
    "remain\[s\] committed to prohibiting discrimination in employment
    and requiring broad and inclusive outreach in recruitment" by
    broadcasters and MVPDs."[^184]

54. CHC asserts that the Commission should reject the merger application
    because, *inter alia*, EchoStar today has inadequate representation
    of minorities in its executive ranks and has failed to commit the
    merged firm to "outreach within its executive and other senior-level
    ranks."[^185] The Commission suspended enforcement of the outreach
    program requirements of the rules for both broadcasters and MVPDs
    following last year's D.C. Court of Appeals decision.[^186] Thus,
    currently there are no outreach requirements. The issue of minority
    and female outreach, however, is under consideration in our pending
    EEO rulemaking, and any rules adopted in our EEO proceeding will
    apply to EchoStar and DirecTV irrespective of the outcome of their
    proposed merger.

55. *Conclusion*. In summary, we do not find that approval of the
    proposed merger would inevitably lead to a loss of program
    diversity. Nor do we believe that approval of the proposed merger
    would stand at odds with our commitment to employment diversity. In
    contrast, we do find that the elimination of one nationwide DBS
    editor through this merger, without any cognizable evidence of
    offsetting enhancement of viewpoint diversity, would disserve the
    Commission's policy goal of viewpoint diversity. The potential harm
    that would result from this elimination must be weighed against any
    potential benefits of a combined entity. Thus, these conclusions
    will be included in the overall balancing of the potential public
    interest harms and benefits of the proposed merger.

## Impact of the Transaction on Spectrum Policy and Rules

56. Our public interest analysis requires a broad consideration of
    another key component of federal communications policy -- the deeply
    rooted preference for competitive processes and outcomes, as shaped
    by Congress and reflected in various specific Commission
    policies.[^187] Our public interest analysis in this proceeding,
    then, must consider the impact that the proposed merger would have
    on implementation of Congress' pro-competitive, deregulatory
    policies aimed at developing and encouraging competitive markets, as
    well as the Commission's well-established policies intended to carry
    out these Congressional mandates. The proposed merger would result
    in New EchoStar acquiring control of 100 percent of the available
    U.S. allotted full-CONUS DBS orbital locations. In addition, New
    EchoStar would acquire control of approximately 39 percent of the
    Commission authorized GSO FSS Ka-band orbital locations, and
    approximately 33 percent of the Commission authorized orbital
    locations with operational satellites in the GSO FSS C- and Ku-
    bands.[^188] The nature of this Application, thus requires that we
    consider the impact of the proposed merger on long-standing federal
    spectrum policies, which are designed to promote spectrum efficiency
    and encourage competition in the radio communications markets.

57. As discussed below, we find that the Applicants' claims of improved
    spectrum efficiency have some validity. The record indicates that
    Applicants would clearly realize a private benefit from eliminating
    duplicative carriage of programming channels and that alternative
    means of achieving comparable efficiencies appear to have
    significant operational and economic disadvantages. Nonetheless, the
    record does not support Applicants' assertions that these private
    efficiencies will result in cognizable public interest benefits
    under our merger review standard. We also find, based on the record
    before us, that grant of the proposed merger appears to be
    inconsistent with well-established federal pro-competitive spectrum
    policies.

### Spectrum Efficiency

#### Position of the Parties 

58. *Applicants' Claims of Spectrum Efficiency*. Generally, the
    Applicants claim that the efficiencies gained from the combination
    of spectrum resources of EchoStar and Hughes will provide numerous
    public interest benefits in the MVPD markets.[^189] They contend
    that one of the most important benefits will be the increase in
    spectrum efficiency that would result from the elimination of
    duplicative use of DBS spectrum.[^190] Specifically, the Applicants
    claim that approval of the proposed merger would allow for the
    elimination of over 500 duplicative local and national program
    channels. According to the Applicants, EchoStar provides 709
    channels of video programming, while DirecTV offers 739 channels of
    video programming, 588 channels of which are duplicative.[^191] Of
    these, EchoStar's Dish Network provides approximately 235 national
    programming channels, while DirecTV provides approximately 179
    national programming channels, 150 of which are being duplicated by
    the companies.[^192]

59. The Applicants contend that elimination of duplicative local
    broadcast and national programming will allow the combined company
    to offer more niche national and local programming, expand offerings
    for HDTV programming, PPV, VOD, educational, specialty and foreign
    language programming, and offer other new and improved product
    offerings, including interactive services.[^193] For example, the
    Applicants claim that currently, each company alone has only enough
    satellite capacity to offer two to three full-time HDTV channels.
    While technological advances may at best allow this capacity to
    double,[^194] the Applicants claim that approval of the merger,
    which would make available newly-freed spectrum, would enable New
    EchoStar to offer at least 12 HDTV channels from one or more of its
    full-CONUS orbital locations.[^195] In addition, the Applicants
    claim other benefits will result from the elimination of duplicative
    programming including the provision of significantly more new and
    diverse independent programming as well as more national programming
    networks and better quality DBS service to Americans living in rural
    areas, Alaska and Hawaii than could be achievable by each company
    operating independently.[^196]

60. The Applicants also claim efficiencies will be realized from the
    ability of the two companies to combine their satellite fleets.
    According to the Applicants, redeploying their combined satellite
    fleets would "significantly improve the utilization of the DBS
    spectrum and satellite resources." Through the use of spot beam
    satellites at all three full-CONUS locations, the Applicants assert
    that New EchoStar could provide approximately 540 national channels
    and 940 local channels. Thus, the Applicants contend that
    combination of the satellite fleets would eliminate the
    inefficiencies of splitting up the 32 DBS frequencies at the 110°
    W.L. and 119° W.L. orbital slots between EchoStar and DirecTV and
    would allow New EchoStar to align the combined satellite fleet to
    the dictates of market efficiency.[^197] Applicants claim that
    operational efficiencies will result from consolidating the two
    companies' duplicative ground station complexes, which are used to
    backhaul national and local programming, uplink that programming to
    satellites, and provide primary and backup telemetry, tacking and
    command for satellites.[^198]

61. The Applicants also claim that the joint Satellite Application,
    which was filed subject to, and contingent upon, the grant of the
    Application, will also provide public interest benefits.[^199] In
    the Satellite Application, the Applicants jointly seek authority to
    operate a new spot beam direct broadcast satellite, "NEW ECHOSTAR
    1," at the 110° W.L. using eight of the thirty-two DBS frequencies
    currently authorized separately to EchoStar and DirecTV.[^200] The
    Applicants claim that the proposed "Local Channels, All Americans"
    plan, which will utilize the NEW ECHOSTAR 1 satellite in conjunction
    with the DIRECTV 4S, DIRECTV 7S, ECHOSTAR 7, and ECHOSTAR 8
    satellites, will allow for operation of a total of 28 spot-beam
    frequencies, and thereby provide approximately 1,500 broadcast
    channels to the 210 DMAs with required back-up and service expansion
    capabilities.[^201] Thus, Applicants claim that NEW ECHOSTAR 1,
    which would operate only as a result of Commission approval of the
    proposed merger and Satellite Application, will permit the combined
    company to fill local coverage gaps while maintaining existing
    national programming.

62. The Applicants additionally maintain that if the proposed merger is
    approved, New EchoStar would transition to a common set-top box
    platform. Currently, DirecTV and EchoStar use different transmission
    formats, which require different set-top boxes.[^202] These boxes
    have different conditional access systems, transport streams, and
    descrambling structures. The Applicants claim that the transition to
    a common set-top box platform would enable the combined company to
    achieve substantial manufacturing efficiencies, lowering the overall
    research and development costs as well as the per-unit cost of
    building receivers for a larger subscriber base.[^203] A common
    format set-top box would allow each subscriber to receive the
    maximum programming that New EchoStar's fleet of satellites and
    ground stations could offer. The Applicants assert that this common
    format set-top box would also foster a more level playing field with
    cable operators, who have used common technology and have shared
    research and development costs for cable set-top boxes for some
    time. The Applicants claim that the transition to new set-top boxes
    would begin almost immediately after the merger, and the
    transition's duration would occur over a three-year period. The
    Applicants assert that an exchange program would be done as
    seamlessly as possible at no cost to existing subscribers, and that
    during the transition satellite signals would be simulcast or
    encrypted so that subscribers owning either existing set-top box
    platform could continue to receive programming.[^204]

63. *Opponents Challenges to Applicants' Claims of Spectrum Efficiency.*
    Merger Opponents argue that spectrum efficiency claims put forth by
    the Applicants do not necessitate the consolidation of all the
    current U.S. allotted full-CONUS DBS frequencies. They claim that
    there is no evidence that spectrum scarcity has been a constraint on
    competition between EchoStar and DirecTV to the detriment of the
    public interest and that any claimed benefits that would result from
    combining all full-CONUS DBS spectrum could be achieved by less
    anti-competitive means. For instance, some Opponents propose that
    the individual companies could form a joint venture to share channel
    uplinks and downlinks, and by using compatible set-top boxes, permit
    customers to receive programs from either company's
    satellites.[^205] Opponents also argue that any claimed benefits
    that would result from the proposed merger could be achieved by each
    company alone without need of the merger.[^206] Generally, the
    parties claim that each company alone has enough Ku-band CONUS
    capacity to offer local-into-local television broadcasting service
    to 100 markets, and possibly all 210 markets.[^207] They generally
    argue that this can be accomplished through a variety of technical
    means such as (a) increased use of spot beam satellites, (b)
    improved modulation, (c) improved video compression techniques,
    and (d) other technical improvements.[^208]

64. *Spot beam satellites.* Many Opponents assert that without the
    merger, both EchoStar and DirecTV are capable of providing local
    channels to a significant number of DMAs. In particular, NRTC states
    that assuming that the only satellites that will be used are those
    currently in orbit or on order and that current plans for use of
    spot beams will be implemented by the two companies, DirecTV would
    be able to provide local channels to approximately 110 DMAs[^209]
    and EchoStar would be able to provide local channels to
    approximately 80 DMAs.[^210] Similarly, Pegasus suggests each
    company could serve 100 DMAs with their existing and planned spot
    beam satellites.[^211] Pegasus claims that, with the use of DBS spot
    beam satellites, both companies individually are capable currently
    of providing local service to 100 DMAs, and ultimately either
    company could serve 150-210 DMAs while still providing national
    programming, PPV and other digital services to subscribers.[^212]
    NAB notes that DirecTV launched its first spot-beam satellite in
    November 2001, and contends that this satellite re-uses frequencies
    an average of 7.33 times.[^213] NAB notes that DirecTV has ordered
    another spot-beam satellite, which is scheduled to be launched in
    the second half of 2003, and also notes that EchoStar has ordered
    two spot beam DBS satellites.[^214] NAB argues that frequency re-use
    factors of 10 or higher are practical,[^215] and thus, EchoStar and
    DirecTV each will be capable of providing local channels to a
    significant number of DMAs.[^216]

65. *Improved modulation techniques.* NAB contends that with more robust
    modulation methods, such as 8PSK, at least a 30% increase in
    capacity can be attained,[^217] yielding roughly 15-18 NTSC channels
    per transponder, as compared to 12-14 NTSC channels using standard
    methods of modulation and coding.[^218] In addition, NAB claims that
    these numbers are likely to increase with future advances.[^219] NAB
    references "Turbo Trellis Coded Modulation" ("Turbo TCM") as an
    emerging technology that achieves improvements in efficiency by the
    combination of modulation and coding. According to NAB, improvements
    in decoding techniques and increases in processing capabilities
    speed have facilitated Turbo TCM, which achieves significantly
    higher data rates using the same bandwidth and power.[^220] Pegasus
    also asserts that "turbo coding" could increase channel capacity or
    throughput. According to NAB, such coding is currently being used on
    some satellites services to improve the signal robustness by as much
    as a factor of two, which could double the effective channel
    capacity.[^221]

66. *Improved video compression.* The merger Opponents argue that
    efficiency can be improved by using a higher compression ratio than
    the 10:1 ratio used predominantly today. Pegasus contends that
    compression algorithms have been improving along with the ongoing
    improvements in computational processing power and states that
    superb quality pictures at lower data rates can be expected in the
    near future as well as continued improvements going forward, without
    any changes to consumer equipment. Pegasus also asserts that the
    recently adopted "MPEG-4" standard can provide a reduction in data
    rates for the same program transmissions by a factor of two or three
    as compared to "MPEG-2." Pegasus notes that although use of MPEG-4
    would require upgrade of transmission equipment and a new class of
    set-top boxes, those changes could be implemented
    incrementally.[^222] Cablevision Systems Corporation, on behalf of
    Cablevision and R/L DBS Company, LLC ("Rainbow DBS") represents that
    it intends to use MPEG-4 for standard definition programming and
    MPEG-2 for high definition programming in its soon-to-be launched
    "Rainbow 1" DBS satellite.[^223] NAB similarly notes the benefits of
    digital compression and claims that compression ratios significantly
    higher than 10:1 are now technically, economically, and
    operationally feasible. Specifically, NAB asserts that both DirecTV
    and EchoStar have stated that they expect compression ratios to be
    12:1 with existing hardware.[^224] Further, NAB observes that
    Harmonic, Inc., the manufacturer of the MPEG-2 encoders most widely
    used for DBS in the United States, now states that their current
    hardware, the "MV-50," allows compression ratios of up to 14:1 with
    the same high quality and high availability of DBS systems in
    operation now.[^225]

67. *Other technical improvements.* Pegasus and NAB also cite other
    technical improvements that could be made by DirecTV and EchoStar.
    For instance, Pegasus notes that currently pay-per-view movies and
    theatrical events are transmitted on dedicated transponders. With
    new mass media storage devices, Pegasus claims that many of these
    productions could be downloaded in advance and released on demand by
    means of controlled access features. Pegasus suggests that, by
    equipping set-top boxes with technology that permits customers to
    capture programming and watch it on their own schedule, both DirecTV
    and EchoStar can avoid repetitive programming, thereby freeing up a
    substantial amount of spectrum without a merger.[^226] NRTC
    additionally suggests that EchoStar could use Ka-band (18.35-18.8
    GHz and 19.7-20.2 GHz) technology to provide local-into-local
    service. It notes that EchoStar is authorized to construct and
    launch satellites for two full-CONUS Ka-band orbits, and recently
    received authorization to acquire control of another unconstructed
    CONUS orbital Ka-band authorization.[^227] To the extent the
    capacity is not used for broadband, NRTC claims EchoStar can use the
    satellites to provide additional local-into-local service.[^228] NAB
    states that either firm could use satellite dishes that receive
    signals from two or three different orbital locations, instead of a
    single location, allowing consumers to receive more
    programming.[^229]

68. *Implementation*. Pegasus maintains that, using current design
    practices, EchoStar and DirecTV each could support full-CONUS
    local-into-local coverage of all 210 DMAs using a total of 16
    frequency blocks divided between two satellites, while retaining
    their existing QPSK set-top boxes.[^230] Pegasus claims that one
    such system would use two satellites at two orbital positions, with
    each satellite having 29 spot beams carrying approximately one-half
    the local television signals, plus a CONUS-coverage antenna for
    national signals. Alternatively, Pegasus maintains that CONUS
    coverage could be provided by a third satellite, including one that
    is already in service. These satellites, according to Pegasus, would
    utilize only technology already launched or under construction by
    the Applicants, and only about one-third of each Applicant's total
    spectrum would be devoted to local-into-local service.[^231] Pegasus
    contends that, if the merger proceeds, implementation of
    local-into-local service would require two or three years for
    design, construction, and launch of appropriate new satellites, at a
    cost of approximately \$250 million each (satellite, launch vehicle,
    and insurance). In addition, Pegasus contends that there would be a
    need for four to six additional uplink earth stations that would
    cost approximately \$30 million in total capital costs. However,
    Pegasus maintains that some of the spot beam satellites currently
    under construction by DirecTV and EchoStar could be modified for
    full local-into-local service at a cost of only \$10-\$20
    million.[^232]

69. NAB asserts that DirecTV and EchoStar each have ample capacity,
    using the techniques that one or both companies are already using,
    to offer all eligible TV stations in all local markets in the United
    States while continuing to deliver all of the national programming
    they currently deliver from their full-CONUS Ku-band slots. In
    addition, NAB claims that each company could further add substantial
    amounts of new national programming from those same slots. NAB
    claims that, using available techniques that apparently neither
    DirecTV nor EchoStar have yet exploited such as 8PSK, the two firms
    could separately deliver still more programming using the CONUS
    frequencies.[^233]

70. Pegasus also contends that, regardless of the merger, efforts to
    expand local-into-local service and to develop new technology to
    maximize the efficient use of the spectrum will require substantial
    resources such as time and money.[^234] For instance, Pegasus claims
    that making the spectrum efficiency benefits of the merger available
    to all subscribers, as proclaimed by the Applicants, would require
    that customers be provided with a dish and set-top boxes that are
    capable of receiving programming from all three DBS orbital slots.
    Further, many of the alleged improvements that would result under
    the proposed merger would require modifications to existing set-top
    boxes, and New EchoStar would need to integrate its customer base on
    a common platform because EchoStar and DirecTV use different
    compression standards. Pegasus also claims that many of New
    EchoStar's customers would require new antennas for local-into-local
    service, depending on how the New EchoStar system is configured.
    Pegasus asserts that it is not clear that there are any additional
    upgrade cost efficiencies for a merged company because the costs and
    processes are essentially the same with or without a merger.[^235]

71. NAB observes that EchoStar reported recently that it has already
    designed a set-top box that will enable its subscribers to receive
    DirecTV programming; the one remaining step is for DirecTV to
    download certain software by satellite to EchoStar's set-top
    box.[^236] Although the two systems use different encryption
    systems, NAB notes that EchoStar and DirecTV's Joint Engineering
    Statement indicates that the two companies are considering
    transmitting programming using "simulcryption," which -- without the
    need for a uniform set-top box across all customers -- would enable
    subscribers owning either set-top box to receive their existing
    programming. According to NAB, a joint venture could also employ
    this technique.[^237]

72. NAB notes that the Applicants have failed to disclose how many
    markets each company individually could serve with its own satellite
    fleet, or proposed fleet. NAB contends that without further
    information on how many markets each company alone can serve with
    local-into-local programming, it is impossible to tell whether the
    local-into-local benefits are merger-specific. According to NAB, the
    Applicants have failed to disclose how many markets each company
    separately could serve with their own satellite fleets, or proposed
    fleets. [^238] It notes that prior to the merger, DirecTV already
    launched its first spot beam satellite, DIRECTV 4-S, and had plans
    to launch a second spot-beam satellite, DIRECTV 7-S. It states that
    EchoStar also had pre-merger plans to build and launch two spot-beam
    satellites, ECHOSTAR 7 and 8, both to provide local-into-local TV
    broadcasting service. The State of Alaska claims that it is not
    clear that the merger will result in the claimed benefits to the
    residents of Alaska given that the Applicants propose to shift
    programming from satellites located at 119° W.L. to 101° W.L.
    According to the State of Alaska, it has been its experience that
    eastward shifts degrade service in some parts of Alaska and
    eliminates programming to other parts altogether.[^239]

73. *Applicants' Response to Opponents' Claims.* In response, the
    Applicants claim that the proposed merger would achieve spectrum
    efficiencies necessary to facilitate the delivery of local
    programming to smaller markets that neither EchoStar nor DirecTV
    alone could serve. They claim that increased spectrum efficiencies
    would change the economics of providing local service by spreading
    the costs over a larger subscriber base, thus enabling New EchoStar
    to provide local programming service to these smaller markets that
    neither company alone could serve.[^240] The Applicants also assert
    that the proposed merger would result in the provision of more
    reliable service. Such reliability, they claim, can be attributed to
    two primary factors -- the increased redundancy associated with more
    in-orbit satellites that can deal with unexpected satellite
    failures, and the ability to use additional capacity, where
    available, to increase the amount of error correction applied to the
    DBS signal.[^241]

74. The Applicants argue that the technological solutions to the
    capacity problems proposed by the parties are technically and
    economically unrealistic. The Applicants claim that new compression
    techniques would result in only limited capacity efficiency gains
    with significant costs, including, but not limited to, replacing all
    current set-top boxes.[^242] Similarly, the Applicants argue that
    the Opponents' call for the launching of high-capacity "super
    satellites" would entail significant costs, risks, and technical
    difficulties.[^243] The Applicants also dispute the Opponents'
    proposals for new modulation and video coding schemes to improve
    capacity. The Applicants claim that these schemes would result in
    signal interference and decreased service quality, and that they
    would require costly new set-top boxes. In addition, they claim that
    current and planned DBS satellites lack sufficient power to
    accommodate the adoption of these modulation schemes.[^244] Finally,
    the Applicants contend that the Opponents' claims with regard to the
    Applicants' individual capabilities to provide local programming
    fail to take into account the need for future expansion of national
    programming and new or increased services -- such as HDTV, new
    national networks, additional PPV, VOD, ITV, and educational
    television.[^245]

75. The Applicants state that without the merger, DirecTV will be able
    to serve approximately 70 DMAs and EchoStar will be able to serve 50
    DMAs.[^246] The Applicants also state that the Opponents ignore the
    economic realities in assessing how many DMAs each company could
    serve individually and they reiterate that absent the merger,
    expanding local service into all 210 DMAs would not be
    profitable.[^247] Satellite companies must assess "the net present
    value of adding local channels, and only decide to expand local
    channel coverage that will bring them a sufficient return."[^248]
    The Applicants state that the ability to increase revenue decreases
    as the size of the DMA decreases,[^249] and argue that the Opponents
    have not factored in such things as the opportunity cost of forgoing
    national programming to make room for local channels and the cost to
    launch and operate a new spot beam satellite.[^250] The Applicants
    contend that, despite future technological developments in spectrum
    efficiency that would enable the companies to increase satellite
    capacity (such as improved digital compression techniques),
    increased demands for satellite bandwidth (such as satellite
    must-carry requirements and HDTV carriage) will more than consume
    available satellite capacity.

76. With respect to the possibility of a joint venture in lieu of a
    merger, the Applicants disagree with the Opponents that such a
    venture could produce efficiencies comparable to a merger. The
    Applicants contend that, absent a merger, neither DirecTV nor
    EchoStar would be willing to give up control of its core satellite
    and spectrum resources. The Applicants note that standardization of
    equipment would require one of the two companies to replace its
    equipment, putting it at an economic disadvantage.[^251] More
    specifically, the Applicants, contend that there are technical
    differences between the EchoStar and DirecTV system architectures
    that effectively preclude the implementation of any type of joint
    venture to share spectrum and orbital resources. The Applicants also
    contend that there are numerous operational risks and
    control-related difficulties associated with a joint venture, even
    if the technical difficulties could be overcome. The Applicants
    highlight piracy countermeasures and broadband deployment as two
    areas in which a joint venture would be unworkable because, they
    contend, the costs and complexities associated with such a venture
    would far exceed the benefits.[^252] With respect to broadband
    deployment, the Applicants contend that a joint venture could not
    reach the five million customers that are needed for scale.[^253]
    The Applicants conclude that only a merger can create new DBS
    capacity and output, intensify competition with cable, and generate
    benefits for consumers.[^254]

#### Discussion

77. There can be little doubt that the proposed merger offers technical
    benefits in terms of improving the overall current efficiency of use
    of the DBS spectrum by eliminating carriage of duplicative video
    programming. It also is evident that increased spectrum efficiency
    would make available satellite system resources that could be used
    for other purposes. For example, the resource savings could be used
    to offer local-into-local service on a broader scale to a greater
    number of DMAs, increase the diversity of program offerings, or
    implement advanced services such as HDTV.

78. We agree, however, with the Opponents that even absent the merger,
    it is reasonable to assume that each company would likely offer
    local-into-local broadcasting service to at least 80 to 100 DMAs
    within the next one to two years based on the new and planned
    satellites that will soon go into service. As the Opponents point
    out, the latest satellites offer significant improvements in
    spectrum efficiency through use of spot beams.[^255] These new
    satellites effectively double the capacity to offer local channels
    for each company. Therefore, given that EchoStar and DirecTV each
    currently provide local service to approximately 40 markets, we
    believe it is reasonable to anticipate that, without the merger,
    company would be able to offer local broadcasting service to 80 to
    100 DMAs within the next one to two years. This would permit the
    Applicants to serve about 80-85% of TV households with
    local-into-local service without the merger.[^256]

79. The technical improvements that would be required for each company
    to offer local-into-local broadcast television service to the
    remaining 15-20 percent of TV households (in the unserved 130 to 110
    DMAs) and expansion of service offerings such as HDTV to these
    customers are extensive and more difficult to predict. The
    Opponents' arguments that each company could provide service to all
    or close to 210 DMAs are based largely on anticipated technological
    advances or very aggressive use of currently developed technologies.
    For example, some Opponents argue that it is now feasible to use
    spot beam satellites that re-use spectrum much more intensively than
    the satellites currently used or planned by the Applicants.[^257] We
    agree with the Applicants, however, that the spot beam satellites on
    which the Opponents base their claims may not be technically and
    economically viable at this time. We also find that the Applicants
    have raised legitimate technical issues relative to a possible shift
    to more efficient modulation techniques, such as the availability of
    satellite on-board processing and adequate power, as well as
    interference concerns. In addition, changes in the modulation
    methods would require replacement of existing subscriber set-top
    boxes and it is not clear that each company on a stand-alone basis
    would have an economic incentive to make such an extensive change,
    all other factors being equal. This is not to say that these
    technologies would not be economically feasible today in a
    "greenfield" application where equipment replacement is not
    required. While the Opponents claim that improved video compression
    ratios of 12:1 or better are feasible, we accept the Applicants'
    assertions that such video compression levels are not satisfactory
    today for all programming, particularly programming having a high
    degree of motion, such as sports.

80. It is also noteworthy that, under the Applicants' proposal, it would
    take a full three years to achieve the full efficiency improvements
    that would enable New EchoStar to expand local-into-local service to
    most areas. The record indicates that the great majority of
    television households will receive local-into-local service from
    both DirecTV and EchoStar within this timeframe even absent the
    merger. Therefore, any merger-specific benefits that the merger
    might produce with respect to local-into-local service would, at
    best, accrue to a small percentage of potential viewers. Further, we
    have every reason to believe that technological advances that will
    increase the efficiency of DBS will continue to be developed as they
    have in the past. We simply do not know what specific techniques may
    become economically and technically feasible, and in what
    timeframes. In such a case, the gap between the expanded service
    that may be provided under the merger and what might be achieved
    through normal technological advances would not be significant. In
    any event, any expanded service offerings that may result from
    improvements in spectrum efficiency, such as increased carriage of
    HDTV and ITV services, must be weighed against the non-technical
    drawbacks of the merger, which include the elimination of an
    existing DBS provider in every market.

81. With regard to whether similar spectrum efficiencies might be
    achieved through a joint venture, we find that the Applicants have
    not demonstrated that this is technologically infeasible. The
    Applicants' criticisms of a joint venture are based largely on
    business issues. They present no immutable reason why these issues
    could not be addressed through appropriate business arrangements. As
    to the claimed benefit of increased service to Alaska and Hawaii,
    the Applicants have not demonstrated that the merger is necessary
    for this purpose. Finally, with regard to the Opponents' claim that
    Ka-band satellites could be used to provide DBS service, we find
    that such claims are not relevant because this use of frequencies
    would require new equipment for each subscriber irrespective of the
    merger. In addition, we do not expect that Ka-band satellites would
    be used for DBS service within the next two to three years.

82. In sum, we find that the proposed merger would offer technical
    benefits in terms of improving the overall current efficiency of use
    of the DBS spectrum by eliminating carriage of duplicative channels
    of video programming, and that the increased spectrum efficiency
    would make available satellite system resources that could be used
    for other purposes. The central question whether the competitive
    structure that results from a combination of the only two full-CONUS
    DBS operators is likely to result in cognizable public interest
    benefits, such as reduced prices or the addition of new and
    innovative services, is analyzed in Section V.C. below.

### Spectrum Policy Concerns

#### Positions of the Parties

83. As we noted above, approval of the proposed merger would place a
    significant amount of spectrum resources under the control of a
    single entity, most notably placing all the full-CONUS DBS
    authorizations under the control of the newly merged company.
    Several merger Opponents object to the proposed merger claiming that
    placing all of the U.S. assigned full-CONUS DBS orbital locations
    under the control of a single entity would violate Commission policy
    and rules on spectrum concentration and concentration of control of
    orbital positions.[^258] They contend that the approval of the
    proposed merger would allow an extraordinary combination of scarce
    resources creating a monopoly in the provision of DBS service and
    eliminating substantial MPVD and satellite broadband competition
    throughout the country.[^259]

84. Specifically, the merger Opponents argue that the Commission has
    never previously approved an action that led to a spectrum monopoly,
    and refer to a number of proceedings, such as the Commission's
    determination to license two Digital Audio Radio Satellite ("DARS")
    and the adoption of the Commercial Mobile Radio Services ("CMRS")
    spectrum caps, as examples where the Commission used spectrum
    policies to promote competition.[^260] Opponents also assert that if
    the license transfers are granted, New EchoStar would control as
    much as one-third to one-half of the U.S. authorized Ka-band
    satellites capable of serving the CONUS.[^261] The Opponents contend
    that this spectrum, along with all the full-CONUS DBS frequencies,
    and the substantial C-band and Ku-band FSS capacity that would be
    controlled by New EchoStar post-merger, would completely eliminate
    competition in the satellite broadband market.[^262] The Applicants
    have not, according to the Opponents, demonstrated that all this
    capacity is necessary to offer a viable broadband satellite
    service[^263] and that such results are clearly inconsistent with
    the Commission's policies against warehousing of spectrum and
    orbital slots[^264] and in violation of Section 25.140(e) and (f) of
    the Commission rules.[^265]

85. The Applicants respond that the proposed merger is not contrary to
    Commission spectrum policies. Particularly, they claim the proposed
    merger would allow for the elimination of duplicative use of the
    spectrum, clearly one of the Commission's key spectrum
    objectives.[^266] They contend that the proposed merger will have
    pro-competitive, not anti-competitive, effects in the MVPD market
    and assert that the Commission's competitive analysis should not be
    based on a "band-by-band" market definition, but on competition
    available in the entire market.[^267] In this respect, Applicants
    contend that the proposed merger would not preclude other companies
    from opportunities to use satellite spectrum and orbital locations,
    as well as other technologies, to introduce competition in the MVPD
    market.[^268]

86. Further, the Applicants claim that the proposed merger is necessary
    to create a "true" competitive broadband service alternative.[^269]
    The Applicants assert that approval of the proposed merger will not
    result in spectrum warehousing or in precluding additional entrants
    from providing high-speed and advanced services,[^270] but rather
    will help fulfill several of the Commission's stated broadband
    principles and policy goals.[^271] The Applicants claim that 11
    other entities not affiliated with either EchoStar or Hughes have
    Ka-band authorizations for orbital locations capable of serving all
    CONUS locations, and contend that this demonstrates that there are
    more than enough prime Ka-band slots controlled by others to ensure
    that the merger will not stifle competition in providing broadband
    services.[^272] Finally, the Applicants assert that the Commission
    has never applied Section 25.140(e) and (f) to a merger and has
    explicitly waived these rules with respect to the Ka-band license
    applications.[^273] Thus, Applicants claim that the merger does not
    conflict with any Commission satellite orbital position rules or
    spectrum concentration policy.

#### Discussion

87. One of our foremost concerns in reviewing the proposed merger is the
    impact that concentration of 100% of the current U.S. allotted
    full-CONUS DBS spectrum in a single company would have on
    competition in the overall MVPD market and on our spectrum policies
    generally. As we discuss elsewhere in this Order, based on the
    record before us, we have concerns that permitting these two DBS
    competitors to merge would have a negative impact on competition in
    the MVPD market to the ultimate detriment of consumers. As discussed
    below, we have further concerns that the proposed merger would run
    counter to well-established federal pro-competitive spectrum
    policies.

88. This Commission has a long-standing policy of promoting competition
    in the delivery of spectrum-based communications services and has
    implemented numerous measures to foster entry and ensure the
    availability of competitive choices in the provisioning of such
    services. For instance, in the DARS proceeding, the Commission
    established a licensing approach that provided for two DARS
    licensees because it determined that more than one DARS licensee was
    necessary "to ensure competitive rates, diversity of programming
    voices, and other benefits of a competitive DARS environment."[^274]
    Similarly, in the initial provisioning of the radio cellular
    service, the Commission determined that the licensing of two systems
    for every cellular service area would best serve the public interest
    as it would "foster important public benefits of diversity of
    technology, service and price, which should not be sacrificed absent
    some compelling reason."[^275] Consistent with this policy, the
    Commission determined that a competitive market was also the best
    way to introduce personal communication services ("PCS") to the
    public and adopted various measures to ensure that PCS licenses
    would be disseminated to a wide variety of applicants.[^276] Later,
    the Commission took actions to further its competitive policies by
    establishing a spectrum cap for CMRS.[^277] In doing so, the
    Commission found that such action would promote pro-competitive ends
    in the CMRS markets and "discourage anticompetitive behavior while
    at the same time maintaining incentives for innovation and
    efficiency."[^278] The initiatives adopted by the Commission in the
    CMRS markets have resulted in a strong growth of competition in
    those markets, leading to the Commission's recent action to sunset
    the spectrum cap rule, and rely instead on case-by-case analysis of
    the competitive effects of particular transactions to protect the
    public interest.[^279]

89. The Commission has also employed measures to ensure competition in
    the provision of DBS service. For instance, in the DBS spectrum
    auction in 1995, the Commission limited applicants to having an
    attributable interest in no more than one full-CONUS orbital
    location.[^280] The Commission recognized that reducing
    concentration of full-CONUS DBS resources would promote competition
    and thereby benefit the public. Thus, the Commission implemented a
    one-time auction rule to ensure that each of the three full-CONUS
    DBS orbital locations would initially be controlled by entities that
    did not share interests with DBS operators at the other two orbital
    locations, and thus, permit the development of fully competitive DBS
    services.[^281] Since that time, the Commission has carefully
    considered changes in DBS ownership, and has fashioned an approach
    which has resulted in no fewer than two DBS licensees to operate in
    the full-CONUS DBS spectrum.[^282] Under this approach, competition
    between the two licensed facilities-based DBS providers, both with
    roughly balanced DBS spectrum resources, has resulted in significant
    consumer benefits, including increased satellite-delivered
    programming and services, competitive prices, innovative advanced
    technologies and improvements in overall quality of service to
    consumers.

90. We have recently taken additional steps to promote intermodal
    competition in the *2002 DBS Report and Order*.[^283] In that
    proceeding, we adopted a number of streamlining measures and other
    rule changes designed to facilitate the ability for DBS to become a
    more competitive service.[^284] For instance, our decision relaxed
    the rule for non-conforming use of DBS spectrum at all DBS orbital
    locations.[^285] We found that, consistent with our spectrum
    management policies, a flexible use policy would promote greater
    spectrum efficiency by allowing DBS operators to determine specific
    services to be offered and would enable DBS operators to better
    compete with MVPD providers who have no similar restrictions.[^286]
    We believe the adoption of the flexible use policy will result in
    efficiencies that are conducive to the public benefit. We disagree
    with Applicants' claim that only by combining all full-CONUS DBS
    frequencies in a single provider would spectrum efficiencies be
    gained to the benefit of customers. The recent reforms to our DBS
    rules and policies were intended to accelerate competition in the
    MVPD market and provide DBS providers with appropriate flexibility
    to compete in the MVPD market in a manner that benefits consumers.
    These changes are only now being implemented and their impact is not
    yet known. We believe, however, that these measures will achieve our
    stated goals of a competitive DBS service without the risks to
    competition, discussed more fully below, that are associated with
    consolidating all full-CONUS DBS spectrum with one service provider.

91. In the *2002 DBS Report and Order*, we addressed the issue of
    whether any ownership restrictions on DBS licensees were necessary
    to promote our goal of full and fair competition in the MVPD market
    and our goal of spectrum efficiency.[^287] Although we found that
    *per se* restrictions on the number of full-CONUS orbital locations
    that one satellite company can control were not necessary, we
    specifically left open for consideration, on a case-by-case basis,
    whether ownership by one entity of all satellites located in all the
    full-CONUS orbital positions would be appropriate.[^288] In this
    case, the record indicates that allowing one satellite company to
    control all current U.S. allotted full-CONUS DBS orbital locations
    is not consistent with the public interest. The record demonstrates
    that significant benefits in the MVPD market have been brought about
    by the competition between EchoStar and DirecTV in all portions of
    the United States. The record also shows that consolidating all
    full-CONUS DBS spectrum with one provider would likely eliminate
    these benefits to the detriment of consumers, without providing
    adequate off-setting public interest benefits. Thus, we do not find
    the proposed transaction to be consistent with our long-standing
    policies that have brought about competition in the provision of DBS
    service, as well as competition between DBS and cable service.

92. Based on the record before us, we believe the proposed merger may be
    inconsistent with other long-standing Commission spectrum assignment
    and allocation policies as well. For instance, when establishing
    requirements for assignments and allocations of spectrum for use in
    a particular satellite service, our decisions are generally guided
    by a policy that promotes optimal use of spectrum for entry by
    multiple service providers.[^289] In establishing requirements for
    operating in the Ka-band, we adopted a band segmentation plan that
    we found would "promote\[s\] spectrum efficiency and facilitate\[s\]
    the deployment of diverse, interactive, competitive services for
    consumers."[^290] Numerous applications have been received and
    authorized by the Commission, including applications from each of
    the Applicants, proposing Ka-band satellite systems that have the
    "potential to provide a wide variety of broadband interactive,
    direct-to-home, and digital services to all areas of the United
    States, including under-served and rural areas."[^291] The
    Applicants now claim in this proceeding that the combination of all
    full-CONUS DBS frequencies with the combined Ka-band frequencies and
    other spectrum resources that would result if the proposed merger is
    approved is necessary to produce a more competitive market place for
    broadband services.[^292] As we discuss *infra*, the record before
    us fails to support the Applicants' claim. Instead, the record
    raises concerns that the proposed merger would concentrate these
    substantial spectrum resources in one entity, resulting in
    disproportionate power in both the U.S. MVPD and satellite broadband
    markets to the disadvantage of consumers. We do not believe that
    such concentration of spectrum resources is necessary to create a
    competitive satellite-based broadband service, and as proposed,
    appears contrary to our spectrum assignment policies.

93. With respect to claims by some parties that the proposed merger
    would violate the Commission's policies against the warehousing of
    spectrum and orbital slots, we find that it is not appropriate, in
    this proceeding, to make such a determination at this time. The
    milestone schedules, which are included as part of each Ka-band
    authorization, are designed to ensure that licensees will proceed
    with construction and launch of their satellites in a timely manner,
    and that the orbit location and spectrum resources are not held by
    licensees unable or unwilling to proceed with their plans.[^293] In
    addition, the Ka-band milestones were designed to meet critical
    'bring-into-use' dates which the United States committed to under
    the International Telecommunications Union's ("ITU") coordination
    procedures.[^294] While there are claims on the record in this
    proceeding suggesting the possibility that future milestone
    requirements would not be met by New EchoStar, resulting in
    potential warehousing of scarce Ka-band spectrum resources, we find
    these claims are premature. [^295] The Commission has in place a
    separate milestone review process which it undertakes of each
    authorization to verify that the licensee is committed to proceeding
    with implementation of its proposal. Because it is in the public
    interest to protect against warehousing of scarce spectrum resources
    and to ensure that scarce spectrum resources are being used
    efficiently, we strictly enforce these milestone requirements.[^296]
    Our strict enforcement policy will be employed in each Ka-band
    authorization milestone review -- regardless of whether, in this
    case, the companies proceed as a new merged entity or separately --
    where a complete and full record can be developed to more
    appropriately and timely address these issues.

94. Finally, we address Opponents' arguments that the proposed merger
    should be denied because it would violate Sections 25.140 (e)
    and (f) of our rules. These rules place limits on the number of
    orbit locations that a qualified FSS applicant may be assigned
    initially for a new system and for expanding a previously licensed
    system using the same frequency bands.[^297] The rules were designed
    to avoid prematurely assigning an excessive number of orbit
    locations to an existing licensee for expansion of its domestic
    system, and to promote entry opportunity in the bands.[^298] In the
    first and second Ka-band processing rounds, the Commission
    determined that a waiver of these rules was in the public interest
    and would not undermine the policy objectives of the rules.[^299] In
    the first Ka-band processing round, the Commission waived
    application of the rules because it found that the applicants had
    agreed to an arrangement that accommodated all pending applications
    for space stations, and left room for additional assignments.[^300]
    In the second Ka-band processing round, the Commission determined
    that because the assignment plan it developed could accommodate all
    pending requests for space stations, with room for additional entry,
    it would again waive application of the rules.[^301] Particular
    emphasis was placed on the benefits of not applying the rules in
    these initial assignments because application of the rules would
    have neither promoted geographic diversity nor increased the number
    of suppliers in the market.[^302]

95. In our recent order to update and reflect revisions to the Ka-band
    assignment plan, we noted that a number of orbital locations remain
    available for additional entry by other Ka-band applicants.[^303]
    The availability of sufficient orbital locations was one of the key
    facts that justified our waiver in the first and second Ka-band
    assignment rounds. We also note that there are a number of potential
    providers that have been assigned orbital locations capable of
    providing service to geographically dispersed areas. Thus, the
    circumstances that justified a waiver in the first and second
    Ka-processing rounds may also justify a waiver of the Sections
    25.140(e) and (f) to accommodate this proposed transaction. As no
    request for waiver is before us at the present time, and in light of
    the procedural posture of this case, we make no conclusive
    determination under Sections 25.140 (e) and (f) at the present time.

96. In summary, we find that the proposed transaction is not consistent
    with this Commission's long-standing spectrum policies, the bulk of
    which have been aimed at creating competitive spectrum-based
    communications services within and among the voice, video and data
    services markets. We have consistently found that from the
    perspective of spectrum policy, the public interest is better served
    by the existence of a diversity of service providers wherever
    possible. Today we have such diversity in the DBS service, and
    Applicants have presented no compelling reason, from a spectrum
    policy standpoint, why we should approve license transfers that
    would effectively replace facilities-based intramodal DBS service
    competition with a monopoly on full-CONUS DBS licenses. This is
    particularly true given our assessment of the likely significant
    competitive harms the merger poses to the MVPD market. We will take
    account of this inconsistency with the Commission's pro-competitive
    spectrum policy in our balancing of the potential public interest
    harms and benefits of the proposed transaction.

# Potential Harms and Benefits in the provision of MVPD and broadband services

97. In this section we analyze the potential harms and benefits of the
    proposed merger on competition in the relevant product markets that
    include DBS and satellite Internet access services. In general,
    competition depends on consumers having choices between products
    that are fairly good substitutes for each other. If consumers have
    such choices, a single provider cannot raise its prices above the
    "competitive" level because consumers will switch to a substitute.
    The level of competition depends on what products are substitutes
    (product market), where these substitute products are available
    (geographic market), what firms produce them (market participants),
    and what other firms might be able to produce substitutes if the
    price were to rise (market entry). To evaluate the impact of a
    merger on competition, we examine the characteristics of competition
    in the markets of the merging firms and determine the impact of the
    merger on these characteristics. Mergers raise competitive concerns
    when they reduce the availability of substitute choices (market
    concentration) to the point that the merged firm has a significant
    incentive and ability to engage in anticompetitive actions (such as
    raising prices or reducing output) either by itself, or in
    coordination with other firms. Economic theory describes both how
    such anticompetitive actions can harm consumers and how the
    magnitude of the harm can be measured.

98. In Section A, we review existing antitrust precedent concerning
    mergers that significantly increase concentration in relevant
    markets. The decisions suggest that a merger that reduces the number
    of competitors to two or one would generally be found to violate the
    antitrust laws, regardless of any potential benefits it might
    confer. Section B then considers the possible anticompetitive
    effects that might result from the proposed combination of EchoStar
    and DirecTV in the relevant market that includes DBS. We first
    perform a structural analysis considering the relevant product and
    geographic markets, identifying the market participants, and then
    examining various structural factors that affect the likelihood of
    competitive harms. Because our structural analysis suggests that the
    merger is likely to result in substantial anticompetitive effects,
    we next examine how the merger is likely to affect competitive
    behavior. We consider both whether the merger is likely to lessen
    competition through unilateral actions by the merged entity or
    through coordinated interaction among market participants. Section C
    addresses the potential benefits that may result from the merger,
    including possible cognizable efficiencies. We consider whether the
    Applicants have sufficiently documented their claimed efficiencies
    or whether they are merely speculative, and whether the cost savings
    will likely pass through to consumers. Finally, in Section D
    examines the Applicants' claims regarding potential benefits of the
    merger in the provision of satellite-based broadband services.

## Relevant Antitrust Precedent

99. As discussed in greater detail below, this proposed transaction
    raises significant concern, because, for the vast majority of
    consumers, it would result in a reduction in the number of
    competitors from three to two or from two to one, depending on
    whether the consumer today has access to cable service. Such a
    drastic reduction in the number of competitors and concomitant
    increase in concentration create a strong presumption of significant
    anticompetitive effects.

100. As NAB observes, courts have generally condemned mergers that
     result in duopoly, and have been even more hostile to those that
     result in monopoly.[^304] In *FTC v. H.J. Heinz Co*., for example,
     the United States Court of Appeals for the District of Columbia
     Circuit, reversing a district court's denial of the government's
     request for a preliminary injunction, rejected the district court's
     finding that the merger of the second and third largest firms in a
     three-firm baby-food market would increase the ability of the
     merged firm to compete with the number one firm.[^305] Noting the
     district court's finding that "there had been no significant
     entries in the baby-food market in decades and that new entry was
     'difficult and improbable,'" the court of appeals stated that
     "\[a\]s far as we can determine, no court has ever approved a
     merger to duopoly under similar circumstances."[^306]

101. In *FTC v. Staples*, the district court enjoined the merger of two
     competing office supply superstores where the merger would have
     left only one superstore competitor in 15 metropolitan areas and
     only two competing superstores in 27 other areas.[^307]
     Specifically noting the markets where the merger would result in
     monopoly, the court concluded that the "direct evidence shows that
     by eliminating Staples' most significant, and in many markets only,
     rival, this merger would allow Staples to increase prices or
     otherwise maintain prices at an anticompetitive level."[^308]
     Likewise, in *Franklin Electric Co.*, the district court enjoined a
     joint venture involving the only two domestic producers of
     submersible turbine pumps, where there were no foreign
     manufacturers with competitive products and numerous barriers to
     entry were present.[^309]

102. Finally, where a merger is likely to result in a significant
     reduction in the number of competitors and a substantial increase
     in concentration, antitrust authorities generally require the
     parties to demonstrate that there exist countervailing,
     extraordinarily large, cognizable, and non-speculative efficiencies
     that are likely to result from the merger. For example, the
     *DOJ/FTC Merger Guidelines* state that "\[w\]hen the potential
     adverse competitive effect of a merger is likely to be particularly
     large, extraordinarily great cognizable efficiencies would be
     necessary to prevent the merger from being anticompetitive."[^310]
     The *Guidelines* go on to state that "\[e\]fficiencies almost never
     justify a merger to monopoly or near-monopoly."[^311] Similarly, in
     the *Heinz* decision, the court of appeals stated:

> \[H\]igh market concentration levels . . . require, in rebuttal, proof
> of extraordinary efficiencies. . . . Moreover, given the high
> concentration levels, the court must undertake a rigorous analysis of
> the kinds of efficiencies being urged by the parties in order to
> ensure that those 'efficiencies' represent more than mere speculation
> and promises about post-merger behavior.[^312]

103. More generally, Professors Areeda, Hovenkamp and Solow, in their
     authoritative antitrust treatise, observe that mergers that
     significantly increase concentration in already highly concentrated
     industries "should carry a strong presumption of illegality that
     can be defeated only by a showing of extraordinarily easy entry or
     truly extraordinary efficiencies. . . "[^313] Thus, existing
     antitrust doctrine suggests that a merger to duopoly or monopoly
     faces a strong presumption of illegality. Moreover, where a
     proposed merger would result in a significant increase in
     concentration in an already concentrated market, parties advocating
     the merger will be required to demonstrate that claimed
     efficiencies are particularly large, cognizable and
     non-speculative.

## Potential Competitive Harms -- MVPD Market

104. In this section, we examine the potential competitive effects of
     the merger in the relevant markets that include DBS services. We
     find, based on the record evidence, that there is a significant
     likelihood that the proposed merger will substantially increase
     concentration in an already concentrated market, substantially
     reduce competition and harm consumers.

### Structural Factors Affecting Likelihood of Competitive Harms

105. Consistent with the *DOJ/FTC Guidelines* and Commission precedent,
     we first perform a structural analysis of the merger to examine if
     it would create conditions conducive to anticompetitive
     behavior.[^314] We begin with an analysis of the relevant product
     and geographic markets. We next identify market participants,
     examine market concentration and how concentration will change as a
     result of the merger, and consider whether entry conditions are
     sufficiently easy that new competitors could likely defeat any
     attempted post-merger price increase.

#### The Relevant Product Market

106. Under our analytical framework and the principles established by
     the *DOJ/FTC Guidelines,* our first step in analyzing a proposed
     merger is to define the relevant product and geographic markets.
     The *Guidelines* define the relevant product market as the smallest
     group of competing products for which a hypothetical monopoly
     provider of the products would profitably impose at least a "small
     but significant and non-transitory price increase," presuming no
     change in the terms of sale of other products.[^315] In other
     words, when one product is a reasonable substitute for the other in
     the eyes of consumers, it is to be included in the relevant product
     market even though the products themselves are not identical. Thus,
     the relevant product market includes "all products 'reasonably
     interchangeable by consumers for the same purposes.'"[^316]

107. The parties in this proceeding disagree as to the exact boundaries
     of the relevant product market that includes DBS service, though
     all appear to agree that it includes video programming services
     provided by at least some identifiable subset of MVPDs. The
     Applicants submit that the relevant product market in this case is
     "no narrower than the MVPD market, and may be broader than
     that."[^317] The Applicants' expert witness, Dr. Willig, states
     that the MVPD market includes cable and DBS services. In addition,
     Dr. Willig notes that other available MVPD services include home
     satellite dishes ("HSD" or "C-Band"), multichannel multipoint
     distribution service ("MMDS"), and private cable or satellite
     master antenna television ("SMATV") systems.[^318] Dr. Willig also
     asserts that the market in which DBS providers compete with cable
     operators may be expanding to include DSL providers, incumbent
     phone companies, and cellular phone providers, "as bundled packages
     with digital television, high speed Internet access, and
     video-on-demand become relatively more important in the MVPD
     market."[^319]

108. Although some merger Opponents and others agree that the relevant
     product market is MVPD services,[^320] most contend that the
     relevant product market is narrower and includes only cable and DBS
     services.[^321] Moreover, several distinguish between low-capacity
     and high-capacity cable services, and argue that only the latter is
     a viable substitute for DBS.[^322] These merger Opponents assert
     that many low-capacity cable systems fail to offer the channel
     capacity, programming choices, and additional services, such as
     pay-per-view movies and interactive television, required to compete
     effectively with DBS.[^323] NRTC's expert, Dr. MacAvoy, suggests
     that analog cable systems, which generally have fewer channels and
     poorer quality, do not "discipline the pricing of high-capacity
     cable and/or DBS service."[^324] Moreover, others claim that more
     than 8,000 low-capacity cable systems, serving 8.2 million
     subscribers, primarily in rural areas, are at risk of business
     failure in the next five years,[^325] a risk that they claim will
     be greatly exacerbated by the proposed merger. NAB and Pegasus
     claim that SMATV and C-Band should not be included in the relevant
     product market because the market shares of these services are
     declining, and because consumers do not perceive these services to
     be good substitutes for DBS.[^326]

109. At the outset we recognize that, in the *Video Competition
     Report*,[^327] we have defined a relevant product market as
     "multichannel video programming service," provided by MVPDs.[^328]
     While such a market definition may be appropriate in considering
     competitive services that are sufficiently substitutable so as to
     constrain the ability of cable companies to raise price,[^329] this
     market definition may not be appropriate for evaluating the
     competitive effects of a merger between two DBS providers. In
     particular, in defining the relevant product market for merger
     analysis, one starts with the products supplied by the merging
     firms and ask whether a monopolist, supplying those products, would
     profitably impose "a small but significant and non-transitory price
     increase." If the monopolist would not be able to impose such a
     price increase, then one adds in the next closest substitute to the
     products of the merging firms and repeats the experiment.[^330] The
     relevant product that results from this procedure depends
     significantly on the products with which one started. Thus, since
     the *Video Competition Report* starts with cable services in
     defining the relevant product market, while in this proceeding, we
     must start with the products of the merging firms -- *i.e.,* DBS
     service -- it is entirely possible that we might derive different
     relevant product markets, given the different starting points. For
     example, customers of low capacity cable systems might find DBS
     service to be sufficiently attractive that they would switch from
     cable to DBS if the low capacity cable system attempted to raise
     its price. On the other hand, customers of DBS service might find
     the low capacity cable systems to be sufficiently inferior to DBS
     service that they would not switch to cable in response to a DBS
     price increase. Thus, while DBS would constrain price increases by
     low capacity cable systems, low capacity cable systems might not be
     able to constrain price increases by DBS providers.[^331]

110. The evidence in the record is sufficient for us to draw several
     conclusions. First, the evidence is clear that the relevant product
     market that includes DBS services involves differentiated
     products.[^332] While all MVPDs transmit video programming networks
     to customers for a fee, there are clear, and significant,
     differences in the specific product characteristics of the service
     bundles offered by different MVPDs and between service bundles
     offered by the same MVPD. This product differentiation, combined
     with the fact that EchoStar and DirecTV appear to be closer
     substitutes for each other than for services of cable systems or
     other MVPDs means that the unilateral incentive to raise prices
     after the merger is likely to be a significant problem.

111. Thus, although both cable and DBS operators typically offer several
     packages of services, some of which may include premium movie
     channels (*e.g*., HBO and Cinemax) and pay-per-view movies, cable
     operators and DBS providers frequently differ in the specific
     characteristics of the service packages and in the total number of
     channels of programming that they offer. For example, EchoStar and
     DirecTV both have the capacity to offer as many as 300 channels,
     while many cable operators have much lower channel capacity, in
     some cases fewer than 30 channels.[^333] In this case, the proposed
     merger eliminates the closest competitor and so removes the most
     effective source of price discipline.

112. Second, the evidence in the record suggests that high-capacity
     cable systems are a closer substitute for DBS service than
     low-capacity cable systems.[^334] For example, staff analysis of
     churn data supplied by the Applicants indicates a statistically
     significant higher churn rates from DirecTV to EchoStar in areas
     with low-capacity cable systems compared to areas with high
     capacity cable systems.[^335] In addition DBS has significantly
     higher market penetration in areas served by low capacity cable
     systems than in areas served by high capacity cable systems.[^336]
     Again, this suggests that the merged entity is likely to have a
     greater incentive and ability to raise price after the merger in
     areas served by low-capacity cable systems than it would in areas
     served by high-capacity cable systems.

113. Third, as discussed in greater detail below, the evidence in the
     record strongly indicates that the services offered by the
     Applicants are closer substitutes to each other than are cable
     services offered by either high-capacity or low-capacity cable
     systems. Moreover, the evidence further suggests that each of the
     Applicants views the other as its closest rival.[^337]

114. Although the record strongly suggests that the relevant product
     market is considerably more narrow than all MVPD services, we are
     unable to conclusively define the relevant product market at this
     time. To conclusively resolve this issue, we would need additional
     evidence, either in the form of econometric demand analyses or
     other evidence of substitutability. It is, however, necessary to
     adopt a tentative relevant product market in order to proceed with
     the structural analysis.

115. For purposes of this analysis, will adopt the Applicants' proposal
     of an MVPD product market. We recognize that this proposed market
     definition is the broadest of any proposed in the record, and
     because of this, it will tend to *minimize* any anticompetitive
     effects predicted by a structural analysis. Based on the evidence
     in the record, we find that the relevant product market that
     includes DBS is no broader than the entire MVPD market, but may
     well be narrower. In fact, the relevant product market may be
     limited to just DBS services, as EchoStar itself argued in its
     antitrust lawsuit against DirecTV.[^338] We refer to hearing the
     question whether the relevant product market is in fact all MVPD
     services, or is a smaller subset of MVPD services. For example, the
     administrative law judge will consider whether the relevant product
     market includes services provided by all cable companies, or just
     by high-capacity cable systems, or neither.

116. As noted, because we are tentatively adopting such a broad product
     market definition, our structural analysis may underestimate
     potential competitive harms.[^339] Nevertheless, even adopting the
     Applicants market definition, we find, as discussed below, that the
     structural characteristics suggest that the merger is likely to
     result in significant anticompetitive effects.

#### The Relevant Geographic Markets 

117. DOJ identifies a relevant geographic market as the region where a
     hypothetical monopolist that is the only producer of the relevant
     product in the region would profitably impose at least a "small but
     significant and nontransitory" increase in the price of the
     relevant product, assuming that the prices of all products provided
     elsewhere do not change.[^340] This approach is consistent with the
     Supreme Court's definition of the relevant geographic market as the
     region "in which the seller operates, and to which the purchaser
     can practicably turn for supplies."[^341]

118. The Applicants contend that the relevant geographic market is
     national in scope, because both Applicants have national pricing
     plans for monthly subscription and programming fees.[^342] Several
     merger Opponents and others disagree. They contend that the
     relevant market is local because the competitive alternatives
     available to consumers differ substantially across cable franchise
     areas. In particular, cable prices, service offerings, and
     installation charges vary across franchise areas.[^343] NAB
     identifies the Designated Market Area ("DMA") as the relevant
     geographic market, on the ground that cable operators distribute
     programming through their local franchises and consumers can only
     receive programming from sources available in their local
     area.[^344] Pegasus and NRTC, in contrast, claim that the relevant
     geographic market is the local cable franchise area, because that
     is the area in which consumers have similar choices regarding a
     defined set of services.[^345]

119. Consistent with past practice and the record before us, we conclude
     that the relevant geographic market for MVPD service is
     local.[^346] Although the Applicants offer service nationwide,
     consumers make decisions based on the MVPD choices available to
     them at their residences. Technically, the relevant geographic
     market, therefore, is the residence of each customer, since it
     would be prohibitively expensive for a customer to change his
     residence to avoid a "small but significant and nontransitory"
     increase in the price of MVPD service. Because it would be
     administratively impractical and inefficient to analyze a separate
     relevant geographic market for each individual customer, however,
     we will aggregate relevant geographic markets in which customers
     face similar competitive choices.[^347] Consistent with our
     precedents in this area, we thus conclude that the relevant
     geographic market should be presumed to be the franchise area of a
     local cable operator, since customers within that franchise area
     have the choice between the incumbent franchised cable company and
     the two DBS providers. [^348]

120. To further simplify the analysis, it appears reasonable to
     aggregate relevant geographic markets that exhibit similar
     competitive conditions. In particular, we find it reasonable to
     classify relevant geographic markets into three broad
     categories: (1) markets not served by any cable system; (2) markets
     served by a low-capacity cable system; and (3) markets served by
     high-capacity cable systems.[^349]

121. As discussed below, the welfare effects on consumers may vary among
     the three categories of relevant geographic markets that we have
     identified. In particular, if the proposed merger appears likely to
     generate anticompetitive unilateral effects, the magnitude of those
     effects will increase, other things being equal, as the degree of
     substitutability between DBS and the incumbent cable company
     decreases in a particular relevant geographic market. Moreover, if
     the merged entity sets a single nationwide price, the price level
     it sets will depend not only on the elasticities of demand in the
     three types of markets, but also on the relative proportion of
     total households that each category represents.[^350] Thus, it is
     critical to determine the number of consumers, or households, that
     reside in each of the three relevant geographic markets.

122. Unfortunately, the evidence concerning the precise number of
     households that fall into each of the three categories is
     conflicting. For example, the Applicants and Opponents disagree on
     the total number of consumers that do not have access to cable
     service. The Applicants claim that over 96% of all television
     households in the United States are passed by cable.[^351] In
     addition, they contend that the total number of homes not passed by
     cable is irrelevant because in the course of their business they
     cannot isolate homes not passed by cable for discriminatory
     treatment.[^352]

123. Opponents, on the other hand, contend that the number of homes not
     passed by cable is relevant to the analysis of the likely
     competitive effects of the merger and that the Applicants
     underestimate the number of households not passed by cable. NAB
     cites DirecTV's internal data showing that three million, or 29%,
     of its approximately ten million subscribers have no access to
     cable.[^353] Assuming that a similar percentage of EchoStar's
     customers lack access to cable (approximately two million), NAB
     estimates that over five million DBS subscribers have no cable
     access.[^354] Citing data compiled by the Department of Commerce's
     National Telecommunications and Information Administration ("NTIA")
     and the Department of Agriculture's Rural Utilities Service, NRTC
     and NRECA claim that cable only passes approximately 81% of U.S.
     housing units, or alternatively that 23 million housing units are
     not passed by cable.[^355]

124. Our estimate of the relative welfare losses resulting from the
     proposed merger depends on the relative percentage of households in
     each of the three categories of markets, since the incentive and
     ability of the merged firm to raise price after the merger is
     likely to vary among the three areas. Unfortunately, we find that
     the evidence in the record is inadequate to develop a reliable
     estimate of the number of homes that do not have access to cable.
     More specifically, Warren Communications, which publishes data on
     the number of homes passed by cable, does not clearly define what
     it means by "homes passed by cable." Accordingly, it is not clear
     what data should be used to develop an estimate of "total homes."
     Depending on the data set used to estimate total homes, the number
     of homes not passed by cable may vary from the 4% claimed by the
     Applicants to 21.28%.[^356] Thus, the issue of the number of
     households not passed by cable will have to be determined at
     hearing.

125. In summary, we conclude that the relevant geographic market is
     local, and that it is reasonable to aggregate the relevant
     geographic markets into three broad categories of (1) markets not
     served by and cable operator; (2) markets served by low-capacity
     cable systems; and (3) markets served by high-capacity cable
     systems. We refer to hearing the issue of the number of households
     in each of the three categories of relevant geographic markets.

#### Market Participants

126. Next we identify market participants in the relevant markets. We
     include as market participants not only the firms that currently
     participate in the relevant markets,[^357] but also any
     "uncommitted entrants" (i.e., firms that are likely to enter the
     relevant markets "within one year and without expending significant
     sunk costs of entry and exit in response to a small but significant
     and non-transitory increase in price.")[^358]

127. As discussed below, the record indicates that the primary providers
     of MVPD services in the vast majority of relevant local markets are
     the two DBS operators and cable operators. As previously indicated
     the Applicants, who are the two primary providers of DBS service,
     each provide service nationwide. In the vast majority of areas in
     which cable service is available, there is a single, franchised
     cable provider. Thus, in areas where cable is available, the three
     main competitors are the franchised cable provider and the two DBS
     operators, while in areas where cable is unavailable, the only two
     major competitors are the Applicants themselves.

128. We recognize that there are other, smaller DBS providers, such as
     NRTC members (including Pegasus), which have exclusive agreements
     to resell DirecTV service within their service territories, and
     Dominion Video Satellite, Inc., which is a licensee of eight
     transponders at 61.5º W.L. Currently, Dominion leases six of its
     transponders to EchoStar and has an agreement to lease satellite
     capacity from EchoStar to transmit religious programming to
     customers. We do not find these providers would exert a significant
     competitive constraint on the merged entity. NRTC members do not
     pose a significant competitive threat because they act as resellers
     of DirecTV's programming and therefore are unlikely to exert any
     significant price discipline on the merged entity, at least in the
     longer run. Moreover, NRTC argues that the merged entity will have
     the incentive to terminate the existing contract. Dominion, on the
     other hand, does not appear to pose a significant threat because it
     is not a facilities-based competitor, at this time, and only offers
     special interest programming.

129. In addition, under the Applicants' proposed market definition,
     which we have tentatively adopted, other MVPD providers, including
     MMDS, SMATV, open video systems, direct-to-home analog and digital
     satellite offerings, and cable overbuilders would also be included
     as market participants.[^359] We agree with the Applicants that
     these other MVPD providers offer multichannel video programming
     services. We further agree that these other MVPDs compete in at
     least some relevant geographic markets. At the same time, however,
     it is not certain whether the services offered by these MVPDs will
     ultimately be found to fall within the relevant market that
     includes DBS service.

130. More importantly, the record suggests that, even if these MVPDs
     provide services that fall within the relevant product market,
     these other MVPDs are not a significant competitive presence in the
     vast majority of relevant geographic markets. The majority of these
     other MVPD providers serve only a relatively few local geographic
     areas and have little or no impact on relevant customer
     alternatives in the majority of markets. For example, in a limited
     number of franchise areas, an overbuilder or MMDS operator also
     offers service. Overbuilders offer service only in limited areas,
     however, and the growth of overbuilding has slowed substantially in
     recent years.[^360] Similarly, MMDS operators also offer service
     only in limited areas. Furthermore, many MMDS license holders have
     shifted focus toward providing data transmission services rather
     than video services.[^361] SMATV providers, which can offer service
     in any setting in which a public right-of-way is not crossed, tend
     to focus on providing service to high-density multi-dwelling units,
     and generally do not provide competition throughout a local
     franchise area.[^362] Finally, although C-Band operators provide
     service in most geographic regions, several factors prevent the
     service from imposing significant competitive discipline on DBS.
     Most notably, C-Band service requires the purchase of expensive
     equipment and the placement of a large satellite dish that takes up
     a significant amount of space.[^363] These relative competitive
     disadvantages of C-Band service appear to be reflected in the fact
     that C-Band subscribership has dropped steadily in recent years,
     and now stands at less than one million homes.[^364] C-Band,
     therefore, is unlikely to exert significant competitive discipline
     on DBS pricing.

131. Because of this, we find that these alternative MVPDs are limited,
     either technically or in terms of geographic footprint, and
     accordingly conclude that these other MVPDs impose little
     competitive constraint on DBS operators. Given this, we believe it
     is reasonable, in our preliminary competitive analysis, to focus
     primarily on the impact of the merger on competition between cable
     operators and DBS providers, as have the Applicants and the merger
     Opponents.

132. Finally, there is no evidence in the record that suggests that
     there are other firms that would likely to enter the market within
     one year and without expenditure of significant sunk costs in
     response to a "small but significant and nontransitory" price
     increase, and that would therefore qualify as uncommitted entrants.
     Rather, it appears that, for new entry to occur, prospective
     entrants would have to incur significant sunk costs and would not
     be able to enter within the twelve month period indicated in the
     *DOJ/FTC Guidelines.*[^365] Thus, we do not find any \"uncommitted
     entrants\" that should be counted as market participants.[^366]

#### Market Shares and Concentration 

133. Having adopted a provisional definition of the relevant markets and
     identified current market participants, we next consider whether
     there is a substantial likelihood that the merger will result in
     anticompetitive effects, such as higher prices, lower quality, or
     reduced incentives for innovation. Following the *DOJ/FTC
     Guidelines*, as well as antitrust and Commission precedent, we
     first examine the post-merger market concentration and the change
     in market concentration that is likely to result from the
     merger,[^367] since concentration in the relevant markets is one
     indicator of the likely competitive effects of a proposed merger.

134. Under the *DOJ/FTC Guidelines*, a market with a Herfindahl
     Hirschman Index ("HHI") [^368] that exceeds 1800 is considered
     highly concentrated. Moreover, where the post-merger HHI exceeds
     1800, and the merger produces an increase in the HHI of more than
     100 points, the *Guidelines* presume that the merger is "likely to
     create or enhance market power or facilitate its exercise."[^369]

135. The Applicants claim that the post-merger HHI for MVPD industry is
     below 1000 and so well below the safe harbor threshold specified in
     the *DOJ/FTC Guidelines.*[^370] Their analysis is fatally flawed,
     however. In particular, as discussed above, the Applicants define
     the geographic market as a national market, and in their HHI
     calculations they attribute a separate national market share to
     each cable operator. This HHI calculation is meaningless. It
     presumes, for example, that a Charter customer in Pasadena,
     California, could switch service to Cablevision in New York without
     moving his household.

136. Commission staff calculated HHIs for a sample of 4,984 relevant
     geographic markets using data submitted by the Applicants.[^371] We
     note that the Applicants' disaggregated data only includes
     incumbent cable providers and the two DBS providers, and does not
     take into account other MVPDs, such as overbuilders and C-Band
     providers. We do not believe that the lack of data on these other
     MVPDs causes a significant distortion, however, because their
     market shares are so small.[^372] We also note in this regard that,
     although the Applicants have argued that the relevant product
     market includes all MVPD services, in their merger simulation
     analysis they examine only competition between the cable and DBS
     products. This appears to indicate that, when it comes to analyzing
     the likely competitive impacts, the Applicants acknowledge that
     cable systems and DBS providers are the only significant market
     participants.

137. The Commission staff analysis shows that the *mean* post-merger HHI
     for all markets to be 6043 and the *mean* increase in HHI to
     be 1163. The analysis also yields a *median* post-merger HHI for
     all markets of 5653, and a *median* increase in HHI of 861.

138. Commission staff also calculated the mean and median post merger
     HHIs and increase in HHIs for markets with high-capacity cable
     systems, with low-capacity cable systems,[^373] and with no cable
     system. For markets with high-capacity cable systems, the staff
     analysis shows the *mean* post-merger HHI be 6704 and the mean
     increase to be 450, while the *median* post-merger HHI is 6693 and
     *median* HHI increase is 206.[^374] For markets with low-capacity
     cable systems, the staff analysis shows the *mean* post-merger HHI
     be 5938 and the mean increase to be 1276, while the *median*
     post-merger HHI is 5556 and *median* HHI increase is 1003.[^375]
     Finally, using a different data set, staff calculated HHIs for
     areas not served by cable. The analysis naturally generated a
     post-merger HHI of 10,000 (since the two DBS firms are the only
     firms in the market) and a HHI increase of **REDACTED.**

139. Thus, as this analysis indicates, the proposed transaction will
     increase concentration significantly in a market that is already
     highly concentrated. In fact, all the estimates exceed the
     threshold specified in the *DOJ/FTC Guidelines*, where mergers are
     "presumed . . . to create or enhance market power or facilitate its
     exercise."[^376]

#### Barriers to Entry

140. As the *Guidelines* indicate, the level of concentration and the
     change in the level of concentration are not the only factors that
     can affect the competitive significance of a merger. Thus, where
     market share and concentration data suggest that a particular
     transaction is likely to have anticompetitive effects, we then
     examine other structural factors that may affect the likely
     magnitude of any competitive effect, including in particular, entry
     conditions. If entry is sufficiently easy, new entrants will likely
     render unprofitable any attempted post-merger price increase. The
     *Guidelines* explain that entry is sufficiently easy to deter
     post-merger price increases "if entry would be timely, likely, and
     sufficient in magnitude, character, and scope to deter or
     counteract the competitive effects of concern."[^377] The
     *Guidelines* explain that entry will be considered "timely" only if
     it "can be achieved within *two years* from initial planning to
     significant market impact." [^378] The record in this proceeding
     suggests, however, that barriers to entry into the relevant market
     are high and that additional competitors are unlikely to be able to
     enter within two years in response to an attempted price increase
     by the merged entity.

141. Applicants contend that new entry is possible into this market.
     They argue that there are several orbital locations allotted by the
     ITU that could be used for domestic DBS service.[^379] In addition,
     they claim that it is technologically feasible for entry to occur
     through various terrestrial platforms, including multichannel video
     distribution and data service ("MVDDS").[^380]

142. While entry may be possible, we find that there appear to be
     several significant barriers to timely competitive entry in the
     MVPD market, which makes it unlikely that any new competitor could
     enter and achieve a significant market presence within two years
     following the merger. For potential entrants that seek to provide
     video services via satellite, there are two major barriers to
     entry. First and foremost, there is a limited amount of spectrum
     that is both available and suitable for the provision of
     satellite-delivered video services.[^381] Currently, there are only
     two potential entrants that possess licenses that could be used to
     provide competing DBS service, R/L DBS Company, LLC ("Rainbow
     DBS"), a wholly-owned subsidiary of Rainbow Media Holdings, Inc.,
     which in turn is controlled by Cablevision Systems Corporation
     ("Cablevision"), a major cable multiple system operator ("MSO"),
     and SES Americom. Second, there are no additional full-CONUS slots
     available for the provision of high-power DBS service.

143. Pursuant to the *DOJ/FTC Guideline* test of whether entry is
     sufficiently easy, we consider whether "entry would be timely,
     likely, and sufficient in magnitude, character, and scope to deter
     or counteract the competitive effects of concern" and likely to
     occur within two years.[^382] Of the two potential entrants with
     satellite licenses, Rainbow DBS currently has licenses for 11 DBS
     transponders at 61.5° W.L.[^383] Cablevision states that Rainbow
     DBS is in the process of constructing a DBS satellite, "Rainbow 1
     DBS," and that it intends to launch Rainbow 1 DBS in March 2003 and
     initiate service in December, 2003[^384] Nonetheless, based on the
     record before us, we cannot include Rainbow DBS within the category
     of potential entrants for purposes of our competitive analysis.
     Even if Rainbow 1 DBS is successfully launched on schedule, it is
     highly unlikely that the operator could roll-out this new service
     and acquire a significant customer base sufficient to off-set the
     likely competitive harms of the proposed merger within two years.
     There are simply too many uncertainties associated with the launch
     of a new satellite, operation of associated ground facilities,
     acquisition of distribution agreements with local equipment
     retailers and installers, and deployment of a new DBS service to
     assume that Rainbow DBS could have a significant competitive impact
     within the relevant two-year timeframe. This may be particularly
     true under today's difficult market conditions.

144. The second potential entrant, SES Americom, filed an application on
     April 25, 2002, to provide service in the United States using a
     satellite licensed by Gibraltar at the 105.5º W.L. orbit location,
     which is currently pending.[^385] SES Americom plans to offer
     satellite capacity on a wholesale basis for third party
     direct-to-home services to consumers in the United States.
     Specifically, SES Americom proposes to operate a DBS system at
     105.5° W.L. (12.2-12.7 GHz bands 17.3-17.7 GHz feeder links), using
     an open platform approach (which is used by its affiliate, Astra,
     in Europe). SES Americom currently holds an FCC license for the
     105° W.L. orbit location in both the Ku and Ka-bands. The 105.5°
     W.L. location is, however, only 4.5º away from each of two U.S. DBS
     orbital locations -- 101° W.L. and 110° W.L. The Commission has
     never licensed DBS satellites less than 9° apart before. EchoStar
     and DirecTV are opposing the SES Americom proposal because of
     potential interference concerns. In response to a request from the
     Radiocommunications Agency of the United Kingdom, we accepted a
     proposal to permit operator to operator negotiations on these
     issues.[^386] SES Americom reports that as of August 2002 neither
     EchoStar nor DirecTV has met with it for the required technical
     discussions.[^387] Even assuming that negotiations commence in a
     timely manner, it appears unlikely that SES Americom, EchoStar, and
     DirecTV will have resolved all technical issues, and that SES
     Americom will have received regulatory approval, launched a
     satellite and have had a significant market impact on the retail
     MVPD market within two years.

145. Compass Systems, Inc., a company 100% owned by Northpoint
     Technologies, Ltd., has filed an application for a construction
     permit for a DBS system and for authorization for a terrestrial
     platform in the DBS frequencies ("SouthPoint Application").[^388]
     The SouthPoint Application has four parts: (1) an application for
     authority to construct a DBS system; (2) a request for the
     Commission to exercise its discretion to grant immediately an
     "interim assignment" of 32 DBS channels at each of the two vacant
     U.S. DBS positions of 166° W.L and 157° W.L. for the applicant's
     proposed DBS satellites; (3) a request for immediate authorization
     of a multichannel video and broadband service through an
     "integrated terrestrial platform" located on the ground in the
     United States; and (4) a discussion of future plans for providing
     DBS service to the United States, Canada, and Mexico and for
     providing FSS to other nations.[^389] To date, we have not yet
     taken action on this application. Thus, similar to the situation
     with respect to SES Americom, it is also unlikely that Compass
     Systems could resolve all outstanding regulatory issues, launch a
     DBS system, construct its proposed terrestrial platform and have a
     significant market impact within two years.

146. WSNET Holdings, Inc. ("WSNet") does not currently hold an FCC
     license, but has filed an application for a transmit/receive earth
     station in Cohoes, New York, near Albany.[^390] WSNET proposes to
     uplink programming from the earth station in New York to two
     Canadian DBS satellites located at 91°W.L. and 82° W.L. for
     distribution to the million customer premises receiving terminals
     in the U.S. Because this application has yet to be approved, the
     competitive entry and impact of WSNET in the MVPD market is also
     unlikely to occur within the relevant timeframe.

147. For the reasons stated above, we find that none of these potential
     entrants utilizing satellite-based technologies are likely to be
     able to enter the domestic retail MVPD market and achieve a
     significant market impact within two years.

148. A second class of potential entrants consists of cable
     overbuilders. Currently, overbuilders have a small market share
     with one million customers nationwide and a presence in franchise
     areas that cover only 17 million homes. A potential wireline MVPD
     entrant, such as a cable overbuilder, faces several major barriers
     to entry. First, an overbuilder would have to make a significant
     up-front investment in order to deploy its network, before it could
     begin acquiring a significant market presence. In the current
     financial markets, finding funding to support these sunk
     investments has become increasingly problematic. Indeed, existing
     overbuilders have been scaling back their plans to enter markets
     rather than accelerating them.[^391] Second, the incremental costs
     of serving a new customer are likely to be higher for an
     overbuilder than they would be for a satellite provider.[^392]
     Third, it generally takes a significant amount of time to enter a
     local market through construction of a new wireline MVPD system
     over public rights-of-way due to the need to satisfy local
     permitting, franchising and other requirements.

149. Finally, with respect to terrestrial MVDDS providers, we note that
     petitions for reconsideration of our spectrum allocation and
     service rules are pending. In addition, the Commission plans to
     assign licenses by auction, and the licensees will have flexibility
     as to the specific services they may offer. Consequently, it
     appears unlikely that any MVDDS licensee will be able to enter the
     MVPD market and achieve a significant market impact within two
     years.

150. It, therefore, appears that the proposed merger will not only
     significantly increase concentration in a market that is already
     highly concentrated, but that potential entry that could defeat any
     attempt by the merged entity to raise prices is unlikely. Thus,
     under traditional structural antitrust analysis, there appears to
     be a substantial likelihood that the proposed merger will
     significantly increase concentration in an already concentrated
     MVPD market, that barriers to entry into this market are high, and
     that proposed merger will therefore have a significant adverse
     effect on competition.

### Analysis of Potential Adverse Effects on Competitive Behavior.

151. Because the foregoing structural analysis suggests that the merger
     is likely to have an adverse effect on competition, it is necessary
     to examine in more detail whether, and how, the merger may affect
     competitive behavior. As the *DOJ/FTC Guidelines* make clear,
     competition may be harmed either through unilateral actions by the
     merged entity or through coordinated interaction among firms
     competing in the relevant market.[^393]

152. Unilateral effects arise when the merging firm finds it profitable
     to alter its behavior following the merger. Examples of unilateral
     effects include a merging firm's raising its price or reducing the
     quantity it supplies.[^394] Coordinated effects, in contrast, arise
     when competing firms, recognizing their interdependence, take
     actions "that are profitable for each of them only as a result of
     the accommodating reactions of others."[^395] Because coordinated
     effects generally are more likely the smaller the number of firms
     in a market, mergers may significantly increase the likelihood of
     coordinated effects by reducing the number of firms. Examples
     include explicit collusion, tacit collusion, and price leadership.
     We will discuss each of these in turn.

#### Unilateral Effects

153. It is generally recognized that, as a result of a merger, the
     merging firms "may find it profitable to alter their behavior
     unilaterally . . . by elevating price and suppressing
     output."[^396] A merger may lead to particularly strong increases
     in the merged firm's ability to affect market performance
     unilaterally when the merging firms compete in a differentiated
     products market, and the firms' products are close substitutes for
     each other. "A merger between firms in a market for differentiated
     products may diminish competition by enabling the merged firm to
     profit by unilaterally raising the price of one or both products
     above the pre-merger level. . . . The price rise will be greater
     the more the buyers of one product consider the other product to be
     their next choice."[^397] Therefore, if the services offered by
     EchoStar and DirecTV are viewed as close substitutes by significant
     numbers of customers, the merger of the two firms can remove the
     strongest constraint on the acquiring firm's ability to raise
     prices. Similarly, if high-capacity cable systems are viewed as a
     closer substitute for DBS than low-capacity cable systems, then the
     merged entity will have an incentive to raise price more in areas
     that are served by low-capacity systems.

154. The Applicants and Opponents disagree concerning the relative
     substitutability between EchoStar service and DirecTV service on
     the one hand, and between DBS service and cable service on the
     other. There is also conflicting evidence as to the relative
     substitutability of low-capacity cable systems and DBS compared
     with high-capacity cable systems and DBS. Although the Applicants
     concede that the two DBS companies compete to some extent, they
     contend that "this competition is dwarfed in comparison to DBS
     competition with cable."[^398] The Applicants' expert, Dr. Willig,
     argues, for example, that EchoStar and DirecTV do not compete
     intensely against each other, and so their merger is unlikely to
     produce any substantial increase in DBS prices.[^399] Dr. Willig
     further claims that the primary objective of EchoStar and DirecTV
     is to gain market share by luring consumers away from the leading
     cable providers and not from each other. Thus, according to Dr.
     Willig, both firms price their DBS programming services at levels
     based primarily on the prices charged by cable providers.[^400] Dr.
     Willig also contends that, while EchoStar and DirecTV each monitor
     the pricing of the other firm, DBS pricing plays little (if any)
     role in their own pricing decisions.[^401] Dr. Willig also suggests
     that a unilateral price increase by New EchoStar is unlikely
     because the merger would reduce New EchoStar's marginal cost, in
     part by reducing its per-subscriber programming costs.[^402]

155. Opponents challenge the Applicants' claim that EchoStar and DirecTV
     do not compete vigorously with each other. NRTC, Pegasus and NAB
     submit evidence that EchoStar and DirecTV are currently each
     other's closest competitors and that loss of intra-DBS competition
     would have substantial detrimental effects on consumers.[^403] NAB
     and Pegasus argue that the companies compete fiercely on price and
     track each other's program offerings.[^404] Dr. MacAvoy and Mr.
     Sidak, on behalf of NRTC and NAB respectively, submit evidence that
     the two DBS companies price competitively with each other, and
     thus, they claim that elimination of the competition will produce
     price increases.[^405] NAB also contends that EchoStar and DirecTV
     compete intensely for the retail distribution of their
     products.[^406] NRTC and NAB suggest that the nearly simultaneous
     launch of local-into-local television broadcast service in major
     markets by EchoStar and DirecTV reflects the intense, direct
     competition between the two DBS operators.[^407]

156. Opponents also contend that EchoStar's and DirecTV's services are
     closer, in terms of product characteristics, than are DBS and cable
     services. NAB, for example, asserts that EchoStar and DirecTV are
     the closest substitutes for one another "as the only significant
     satellite providers" of MVPD programming. It further argues that
     DBS is significantly differentiated from cable in terms of price,
     number of channels of programming, quality, and additional
     technical features such as pay-per-view options.[^408]

157. Finally, Pegasus claims that certain low capacity cable systems are
     not effective competitors to DBS.[^409] It claims that older,
     low-capacity cable systems fail to offer the services, channel
     capacity, and technological advances to compete with DBS.
     Similarly, NAB claims that New EchoStar will have the incentive and
     power to raise prices and reduce service quality in areas served by
     low capacity cable systems.[^410]

158. *Merger Simulations Estimating Unilateral Effects.* In this
     proceeding, both parties opposing the merger and the Applicants
     submitted merger simulations that estimated the likely economic
     loss or gain to consumers from the merger. Dr. MacAvoy, on behalf
     of NRTC, estimates an annual consumer welfare loss of between \$120
     million and \$700 million in areas not served by cable, while Mr.
     Sidak, on behalf of NAB, projects an annual consumer welfare loss
     of approximately \$700 million for the entire United States.[^411]
     To rebut these studies, the Applicants submitted their own merger
     simulation which projected annual consumer benefits of
     **REDACTED**. In addition, Commission staff performed a sensitivity
     analysis to determine how sensitive the merger simulation estimates
     are to variations in demand and cost parameters.

159. As discussed below, and in greater detail in Appendix E, we find
     fundamental flaws in, and have numerous unanswered questions
     concerning, the Applicants' merger simulation. More specifically,
     we find that the Applicants' claim that the merger will result in
     lower MVPD prices (despite the significant increase in market
     concentration) depends largely on the validity of their assumptions
     (or estimates) concerning: (1) the low cross-price elasticity of
     demand for EchoStar's and DirecTV's services;[^412] (2) the high
     own-price elasticities of demand for EchoStar and
     DirecTV;[^413] (3) current marginal costs; and (4) projected
     marginal cost savings. We find these assumptions and estimates to
     be flawed or unsupported or both. We discuss each of these issues
     in turn.

160. First, as discussed in Appendix E, the methodology the Applicants
     use to compute the cross-price elasticities of demand is fatally
     flawed, and their estimate of a low degree of substitutability
     between EchoStar and DirecTV service is simply not credible. In
     addition, the conclusion that EchoStar and DirecTV do not really
     compete against each other is inconsistent with the characteristics
     of the DBS services offered by the Applicants, contradicted by
     documents submitted by the Applicants, and undercut by the
     allegations contained in the antitrust suit EchoStar filed against
     DirecTV.[^414]

161. As Dr. Sidak explains in his testimony, the Applicants are "....
     asking the Commission to believe that (1) EchoStar is a substitute
     for cable television service, and (2) cable television is a
     substitute for DirecTV, but (3) EchoStar is not a substitute for
     DirecTV and DirecTV is not a substitute for EchoStar."[^415] We
     agree with NAB on this point and find that these premises make
     little sense given the close similarities between the service
     packages offered by EchoStar and DirecTV, and the much greater
     differences between those service packages and services offered by
     cable companies.

162. Indeed, the similarity of their product offerings is at the very
     heart of the Applicants rationale for merging. The Applicants claim
     that of the 286 national channels carried by EchoStar, 240, or 84%
     are duplicated by Direct TV, and of the total 709 channels carried
     by EchoStar, 588 or 83% are also carried by DirecTV.[^416]
     Moreover, the degree of overlap is even more pronounced in their
     most popular packages. EchoStar's "America's Top 100" and DirecTV's
     "Total Choice" packages both offer over 80 channels of video and
     over 30 channel of audio. Furthermore, none of the non-shared
     channels accounted for more than 0.08 all-day Nielsen share.[^417]
     The prices that EchoStar and DirecTV charge are also remarkably
     similar. Currently, the Applicants each offer promotions, in which
     the total price of a one year contract, including installation,
     activation fee and a year's programming is \$456.88 for EchoStar
     and \$446.83 for DirecTV.[^418] Thus, the Applicants are selling
     virtually identical products at almost the same price. If, as the
     record suggests, EchoStar and DirecTV services are close
     substitutes in the eyes of MVPD consumers, then the post-merger
     prices of EchoStar and DirecTV as well as cable subscription prices
     will be significantly higher than those predicted by the
     Applicant's model.[^419]

163. In addition, the record is replete with evidence that EchoStar and
     DirecTV do indeed compete vigorously with each other and that this
     competition effectively constrains prices. For example in their
     lawsuit challenging the validity of the SHVIA must carry rules, the
     Applicants stated that "Satellite carriers are in competition both
     among themselves and with local and regional cable systems across
     the United States for subscribers."[^420]

164. Most tellingly, the allegations made by EchoStar in the context of
     the antitrust suit it filed against DirecTV undercut the
     Applicants' arguments here that their main competitor is cable and
     not the other DBS provider.[^421] For example, in its Amended
     Complaint, EchoStar alleged that "\[n\]o other product duplicates
     or fully substitutes for . . . the high-power DBS subscription TV
     programming service."[^422] EchoStar further alleged:

> Without high-power DBS customers cannot receive the same approximate
> number, types and variety of television channels or quality. Thus,
> customers do not consider either over-the-air broadcast or cable TV
> service to be effective substitutes for high-power DBS equipment and
> service.[^423]

Thus, EchoStar itself, in sworn legal pleadings filed in its antitrust
suit against its now merger partner, DirecTV, contended that the
services offered by itself and DirecTV were closer substitutes than were
services offered by cable companies or over-the-air broadcasters.

165. Second, we find the estimated current marginal costs generated by
     the Applicants' merger simulation model to be inconsistent with
     other data submitted by the Applicants in the record. As discussed
     in Appendix E, the Applicants' merger simulation implies a marginal
     cost per customer that is inconsistent with the cost data on the
     record. Data submitted by the parties in response to our data
     request suggests, however, that the actual marginal cost per
     customer is approximately **REDACTED** less.[^424]

166. Third, based on the above observation, we are highly skeptical of
     the Applicants' estimated own-price elasticity of demand of
     **REDACTED.**[^425] First, the Applicants did not obtain these
     estimates directly from DBS demand data. In addition, the estimates
     differ significantly from past estimates of MVPD elasticities. If
     these estimates are more negative than the true values, then the
     Applicants analysis will underestimate the extent to which
     post-merger prices will rise.

167. Finally, as discussed below in our analysis of the claimed merger
     benefits, we have serious questions and doubts concerning the
     Applicants' projected cost reductions, which they claim will result
     from the merger.

168. Given the apparent flaws in the Applicants' analysis, Commission
     staff undertook a sensitivity analysis of the merger simulations in
     order to determine how sensitive changes in consumer welfare were
     to variations is demand elasticities and marginal cost estimates.
     The staff analysis, which is discussed in greater detail in
     Appendix E, found that estimated welfare gains or losses from the
     merger will vary significantly depending on the assumed demand
     elasticities and marginal cost savings. Estimates of the consumer
     welfare losses can range as high as **REDACTED** per year. This
     sensitivity analysis indicates that the issue of whether the merger
     will generate a net benefit or harm to consumers and the magnitude
     of that benefit or harm will depend critically on the values of the
     model parameters. In particular, the results will vary with the
     estimates of the own-price and cross-price elasticities of demand
     and the estimated efficiencies resulting from the merger.

169. With respect to these key parameters, we find the Applicants' model
     to be severely flawed and the model's results of net consumer
     benefits to be highly suspect. These findings are discussed more
     fully in Appendix E. We can give little credence to the Applicants'
     model parameters, particularly estimates of the demand elasticities
     for DBS and the pre-merger marginal costs of the Applicants.
     Moreover, because the data in the record are insufficient to
     determine with precision estimated own-price and cross-price
     elasticities of demand or projected savings in marginal costs, we
     can not determine independently and conclusively, the precise level
     of likely consumer harm that the proposed merger will cause.
     Nevertheless, the record suggest that the services provided by
     DirecTV and EchoStar are significantly closer substitutes than
     those offered by cable systems. This strongly suggests that, in the
     absence of any significant savings in marginal cost, the merger
     will result in a large increase in post-merger equilibrium prices.
     Given this likelihood, we cannot find that the Applicants have met
     their burden of demonstrating that the proposed merger will produce
     merger-specific public interest benefits of the magnitude the
     Applicants allege.

#### Coordinated Behavior

170. Both economic theory and empirical economic research have shown
     that firms in concentrated, oligopoly markets[^426] take their
     rivals' actions into account in deciding the actions they will
     take.[^427] When market participant's' actions are interdependent,
     noncompetitive collusive behavior that closely resembles cartel
     behavior may result -- that is, high and stable prices.[^428] Such
     collusion or "conscious parallelism" may arise not because of any
     explicit agreement between the sellers ". . . but solely through a
     rational calculation by each seller of what the consequences of his
     price decision would be, taking into account the probable or
     virtually certain reactions of his competitors."[^429] Economists
     have further recognized that mergers that cause significant
     increases in concentration may increase the likelihood of
     coordinated effects.[^430]

171. The view that increased market concentration may increase the
     likelihood of anticompetitive, coordinated conduct has also been
     recognized by the Courts. For example, in the *Heinz* case
     discussed above, the court observed that "\[m\]erger law 'rests
     upon the theory that, where rivals are few, firms will be able to
     coordinate their behavior, either by overt collusion or implicit
     understanding, in order to restrict output and achieve profits
     above competitive levels.'"[^431] The court went on to state that
     "\[i\]ncreases in concentration above certain levels are thought to
     'raise\[\] the likelihood of interdependent anticompetitive
     conduct.'"[^432]

172. A number of merger Opponents contend that, because of the nature
     and characteristics of the DBS industry, coordinated
     anticompetitive effects are likely to result from the merger.[^433]
     NAB, for example, suggests that no market is more conducive to
     coordinated interaction than duopoly, and that coordinated effects
     will be exacerbated in the MVPD market for two reasons: (1) there
     will be no full-CONUS slots from which another DBS competitor could
     compete against the merged entity, thereby creating a substantial
     barrier to entry into the MVPD market; and (2) a firm that might
     currently be viewed as a relatively small "maverick firm" in a
     market with only three major participants will no longer serve that
     role post merger.[^434] Mr. Sidak, NAB's economic expert, further
     suggests that the uniform national pricing policy could facilitate
     collusion between New EchoStar and cable operators because the
     uniform pricing policy would penalize, and thus limit, selective
     price reductions below an agreed-upon level by New EchoStar.[^435]

173. Economists have identified several factors, which tend to increase
     the possibility of collusion. Collusion appears more likely, other
     things being equal, when: (1) there are few firms in the
     market; (2) there are high barriers to entry; (3) products are
     relatively homogeneous; (4) contracts are for relatively short
     periods, and the prices and terms are observable by other sellers;
     and (5) market conditions are relatively stable.[^436] These
     factors suggest that the Applicants\' proposed merger will increase
     the likelihood of coordinated anticompetitive behavior. First, even
     where consumers have access to cable, the merger would reduce the
     number of major MVPD operators to two -- New EchoStar and cable --
     in most franchise areas. Second, as previously discussed, the
     market exhibits high barriers to entry. Third, cable and DBS
     operators would be able to observe each other's marketing and
     pricing behavior, and so would be able to monitor whether implicit
     parallel prices were being maintained.[^437] Fourth, MVPD operators
     generally do not enter into long-term contracts with their
     subscribers. Consequently, if one operator were to deviate from an
     implicit pricing agreement, the other operator would be able to
     respond quickly in an effort to win back the customers, thereby
     rendering unprofitable any deviation from the established parallel
     prices. The merger would exacerbate some of these conditions by
     reducing the number of firms in the market, increasing market
     concentration.

174. In sum, basic economic principles and the characteristics of the
     market suggest that the proposed merger may increase the likelihood
     of collusion among MVPD providers. This would result in harms
     accruing to the vast majority of MVPD service consumers in the
     nation. Consequently, the consumer harms resulting from unilateral
     effects discussed above, which were estimated assuming the
     remaining MVPD operators did not collude, may understate the harms
     that would actually result from the merger.

### Reduction in the Magnitude of Future Innovation and in the Quality of Service

175. The MVPD market since the introduction of DBS competition is
     replete with examples of how competition has spurred innovation.
     Certain merger Opponents contend that the merger would reduce
     future innovation in DBS or result in a degradation in the quality
     of service. NAB, for example, claims that competition between
     EchoStar and DirecTV has spurred tremendous technological
     innovation, as evidenced by the introduction of dual-feed dishes,
     interactive multimedia programming, Personal Video Recorders
     ("PVRs") built into set-top boxes, and spot beam satellites.[^438]
     NRTC argues that innovation in set-top box is best driven by
     competition, and that a monopolist would retard product innovation
     in set-top boxes.[^439] NAB also claims that competition between
     DirecTV and EchoStar "has resulted in significant consumer
     benefits, including: aggressive marketing and pricing; diverse
     programming packages; expanded local-to-local service; and
     innovative advanced technologies\[,\]" which will be jeopardized as
     a result of the merger.[^440] AAI argues that EchoStar and DirecTV
     are strong, direct competitors, and that continued DBS competition
     will help to ensure ongoing competitive discipline of DBS and cable
     operators.[^441] The Applicants respond that the proposed merger
     will enable the merged entity to be more innovative and to better
     compete with cable.[^442]

176. The evidence in the record suggests that the merger would likely
     reduce innovation and service quality. In recent years, the
     Applicants have improved their services, increased the variety of
     programming and non-programming options that they offer, and
     enhanced the technical capabilities of their equipment. At least
     some of these changes appear to have been motivated by the
     competitive pressure that each operator exerts on the other. The
     evidence further suggests that the two operators compete directly
     with each other for new customers and that the benefits of this
     competition would be lost if the merger were consummated. Thus,
     although the Applicants claim that they do not compete with each
     other, the record and our analysis appear strongly to contradict
     this assertion.

177. The lessened competitive pressure from the combination of the two
     DBS firms might well reduce New EchoStar's incentive to improve
     services and quality. This would be particularly true in areas
     where subscribers are unserved or underserved by cable operators.
     We therefore find that this is a potential harm from the proposed
     merger.

### National Pricing 

178. The harms that consumers are likely to suffer from the higher
     prices likely to result from the post- merger market structure
     depend, at least in part, upon New EchoStar's ability to set
     different prices in different geographic regions. Responding to
     concerns that New EchoStar would be able to raise price and exploit
     its dominant position in geographic regions not served by cable
     systems, the Applicants early on proposed their own remedy. Noting
     that they currently set monthly recurring prices on a nationwide
     basis, the Applicants committed New EchoStar to "pricing its DBS
     services on a uniform, nationwide basis."[^443] The Applicants
     state that they will begin implementing this uniform nationwide
     pricing plan immediately upon regulatory approval of the merger,
     and that it will become "fully operational as soon as 24 months
     thereafter."[^444] Dr. Willig, the Applicants' economic expert,
     claims that, as a result of this commitment, "prices for rural
     customers will be driven by competition in urban areas."[^445] Dr.
     Willig further argues that the nationwide "monthly service prices"
     are unlikely to rise as a result of the merger, because these
     prices are "generally driven by prices set by the major cable MSOs
     throughout the country, which often face competition from
     overbuilders and other MVPD providers."[^446] As discussed below,
     the Applicants' commitment does not appear to preclude the
     possibility that customers in areas without access to cable will
     not be subject to price or quality discrimination or to a
     post-merger price increase. In fact, the Applicants admit that the
     uniform price guarantee would only apply to monthly programming
     fees, but not to the price of equipment or installation, and they
     appear to want to retain the ability to charge different
     programming prices in order to meet competition. Moreover, such a
     commitment, if implemented, may dampen competition between New
     EchoStar and cable operators.

179. Opponents criticize the uniform pricing proposal on a number of
     grounds. First, they argue that it is likely to be ineffective,
     since, even if New EchoStar set uniform monthly fees for
     programming services, it could discriminate against customers
     lacking access to cable though other means, including: (1) charging
     different prices for equipment and/or installation; (2) offering
     fewer free months of programming to such customers than it offers
     to customers with cable alternatives; (3) varying the number of
     channels available in various programming packages; and/or varying
     the number of local channels; and (4) providing different levels of
     customer service.[^447] Quoting statements by EchoStar's Chairman
     and CEO, Mr. Ergen, Opponents further suggest that New EchoStar
     will insist on retaining the ability to respond with targeted
     promotions to promotions offered by local cable companies.[^448]
     Second, Opponents argue that, even if it were possible to enforce a
     uniform national price, that single price would exceed the
     pre-merger prices for both customers that have access to cable and
     those that do not.[^449] Finally, NAB contends that a uniform price
     policy would reduce the incentive of New EchoStar to cut prices in
     order to better compete with a particular cable system, since it
     would then have to cut prices nationwide.[^450]

180. In response to the criticism that, despite the commitment to charge
     uniform monthly rates, New EchoStar could still discriminate
     against customers in areas without cable, the Applicants first note
     that the national pricing commitment is consistent with the
     Applicants' past pricing practices. They further argue that,
     because of the difficulty in identifying customers that lack access
     to cable, it would be impractical to discriminate against such
     customers.[^451] With respect to the criticism that the post-merger
     national price would exceed the pre-merger prices, the Applicants
     respond that DBS pricing decisions are driven by competition with
     cable companies, since the majority of New EchoStar's customers
     have access to cable, and New EchoStar would have to attract cable
     subscribers in order to expand its subscriber base. Accordingly,
     the Applicants claim that New EchoStar is unlikely to have the
     incentive or ability to raise its national price because it would
     not want to lose customers to cable.[^452]

181. Based on the evidence in the record, we cannot find that the
     national pricing plan proposed by the Applicants is likely to be an
     adequate or effective remedy for the competitive harms that are
     likely to flow from the proposed merger. The plan does not preclude
     price or quality discrimination, particularly against customers
     that have no access to cable systems. The Applicants' claim that
     such discrimination is "implausible" is contradicted by the record.
     For example, as recently as July 1, 2002, it was reported that
     DirecTV was using targeted promotions to win customers in the Los
     Angeles area residing within the franchise area of one particular
     cable operator.[^453] In addition in filings submitted in the
     record and in public comments by Mr. Ergen, Chairman and CEO of
     EchoStar, the Applicants leave open the possibility that New
     EchoStar will offer "local promotions for installation and
     equipment" in response to promotions by competing cable
     companies.[^454] Moreover, the Applicants admit that the uniform
     pricing commitment only applies to recurring monthly programming
     service fees, but not to the price of equipment or installation. To
     the extent that New EchoStar is able to discriminate in the price
     charged for equipment and installation, it could effectively charge
     different customers different amounts for the same DBS
     service.[^455] Contrary to the Applicants' contention, it does not
     appear that difficulties in distinguishing between customers that
     have access to cable from those that do not would prevent such
     discrimination. Rather, the record indicates that the Applicants
     have each implemented promotions that target customers in
     particular cable service areas in the past and there is no reason
     to believe that they could not do so again in the future.[^456]
     Moreover, as explained below, it is far from apparent that the
     national pricing plan will prevent substantial increases in
     post-merger prices.

182. In addition, it appears that the Applicants could discriminate in
     terms of service quality. For example, even if New EchoStar were to
     offer local-to-local television broadcast programming in all 210
     DMAs and charge a uniform price for that option, the fact that the
     number of channels varies from DMA to DMA means that the
     per-channel cost of local-to-local programming could vary. Since
     rural DMAs tend to have fewer local channels, this means that rural
     customers will effectively pay a higher price for local
     programming. In addition, the Applicants may be able to implement
     quality discrimination in other ways. For example, they could
     design programming packages, such as regional sports programming,
     to appeal more to customers in urban areas than in rural areas.
     Similarly, they might charge more for and/or take longer to
     complete, necessary equipment repairs in rural regions.

183. Finally, we note that, while it is rational for the Applicants to
     want to retain the ability to respond to competition in particular
     local markets, this very incentive suggests that the Commission
     would need to monitor and enforce any uniform national pricing
     commitment. It would be costly and difficult for the Commission to
     perform such monitoring and enforcement, and it is unclear how
     effective its enforcement efforts would, or could, be.

184. Moreover, even if the Applicants committed to implement uniform
     national pricing on every element of their service, for the
     Commission to effectively enforce this commitment it would have to
     engage in intensive regulatory oversight, extending to tens of
     thousands of equipment retailers .The resources used in this
     oversight are a social cost that should be taken into
     consideration. Simply stated, replacing head-to-head competition
     with regulatory oversight not only would impose significant
     regulatory costs, but would also conflict with the goal of allowing
     competition to replace regulation, that both Congress and this
     Commission have long sought to achieve.

185. Furthermore, even if one assumed that regulatory monitoring could
     absolutely insure uniform national pricing, the merger nevertheless
     might well produce higher prices than prevailed before the merger.
     As the Applicants' expert, Dr. Willig, points out, the
     profit-maximizing uniform price-cost margin is inversely related to
     the weighted average own-price elasticity of demand, where the
     weights are the share of DBS customers in each market.[^457] If the
     merger causes New EchoStar's own-elasticity of demand to decline in
     all relevant markets and New EchoStar's marginal cost does not
     decline sufficiently, then the profit maximizing uniform price-cost
     margin will rise, and thereby result in higher prices for all DBS
     customers.[^458]

186. Finally, it is not clear whether a uniform national pricing policy
     would tend to facilitate or discourage collusive pricing, which
     could raise prices even higher. On the one hand, a national pricing
     policy facilitates information exchange among competitors, which
     generally promotes coordinated pricing behavior. In addition, the
     uniform national pricing policy may make the Applicants less likely
     to cheat on collusive agreements and undercut particular cable
     companies, because they would have to make the price cut
     nationwide. Thus, in some respects, the national pricing plan may
     make such agreements more likely. On the other hand, a national
     pricing policy might increase the incentive of cable companies to
     reduce prices, because they would know that it would be more
     expensive for New EchoStar to respond to, or attempt to punish, any
     such price reduction. Which of these tendencies is likely to
     dominate will be influenced by the exact nature and terms of the
     uniform pricing policy, which are unclear. Even if we knew the
     exact terms, however, it is not clear whether the uniform pricing
     policy would increase or decrease the likelihood of collusive
     pricing. In either case, however, the uniform pricing policy would
     not remedy any unilateral price increase that the New EchoStar
     would have the incentive to implement as a result of the merger.

187. For all of these reasons, we conclude that the Applicants' proposed
     uniform national pricing policy is unlikely to remedy the
     anticompetitive effects that are likely to result from the merger
     in both rural and urban markets, and could, in fact, exacerbate the
     harms.

## Potential Public Interest Benefits -- MVPD Market

188. We next consider evidence of efficiencies and other public interest
     benefits that Applicants claim will result from the proposed
     merger. Under Commission precedent, the burden of persuasion is on
     the parties proposing the transfer of a license or authorization to
     show that the potential public interest benefits of the transfer
     outweigh the potential public interest harms.[^459] "Efficiencies
     generated through a merger can mitigate competitive harms if such
     efficiencies enhance the merged firm's ability and incentive to
     compete and therefore result in lower prices, improved quality,
     enhanced service or new products."[^460]

189. There are several criteria the Commission applies in deciding
     whether a claimed benefit should be considered and weighed against
     potential harms. First, claimed benefits must be *merger specific*
     -- *i.e.,* the claimed benefits must be likely to be accomplished
     as a result of the merger but unlikely to be realized by other
     means that entail fewer anticompetitive effects.[^461] As the
     Commission explained in the *Bell Atlantic/NYNEX Order*:
     "Efficiencies that can be achieved through means less harmful to
     competition than the proposed merger . . . cannot be considered to
     be true pro-competitive benefits of the merger.[^462]

190. Second, claimed benefits must be *verifiable.* Because much of the
     information relating to the potential benefits of a merger is in
     the sole possession of the merging parties, those parties must
     provide sufficient support for any benefit claims so that the
     Commission can verify the likelihood and magnitude of each claimed
     benefit.[^463] In this regard, the magnitude of benefits must be
     calculated net of the cost of achieving them.[^464] Moreover,
     speculative benefits that cannot be verified will be discounted or
     dismissed. Thus, for example, benefits that are to occur only in
     the distant future may be discounted or dismissed because, among
     other things, predictions about the more distant future are
     inherently more speculative than predictions about events that are
     expected to occur closer to the present.

191. Third, benefits are generally counted only to the extent that they
     can mitigate any anticompetitive effects of the merger.[^465]
     Since, in general, reductions in marginal cost are more likely to
     result in lower equilibrium prices. We will more likely find
     marginal cost reductions to be cognizable than reductions in fixed
     cost.[^466]

192. Finally, the Commission applies a sliding scale approach to
     evaluating potential benefits, under which it will require
     applicants to demonstrate that claimed benefits are more likely and
     more substantial, the greater the likelihood and magnitude of
     potential harms. More specifically, "\[a\]s the harms to the public
     interest become greater and more certain, the degree and certainty
     of the public benefits must also increase commensurately in order
     for us to find that the transaction on balance serves the public
     interest. This sliding scale approach requires that where, as here,
     potential harms are indeed both substantial and likely, the
     Applicants' demonstration of claimed benefits also must reveal a
     higher degree of magnitude and likelihood than we would otherwise
     demand."[^467]

193. As discussed below, the Applicants claim that the merger will
     generate three basic benefits relating to the MVPD market. First,
     they argue that the merger, by eliminating duplicative use of the
     limited DBS spectrum, will permit New EchoStar to use that spectrum
     more efficiently, thus permitting it to offer new and improved
     services to consumers, including local programming services in all
     210 DMAs and other new video services, more HDTV channels and more
     VOD services. Second, they claim that the merger will generate
     efficiencies and other cost savings that will result in lower
     prices to consumers. Finally, because of its lowered costs and
     larger effective spectrum capacity, the Applicants claim that New
     EchoStar will be a stronger competitor to cable than either
     EchoStar or DirecTV could be on its own.

### New Services

194. As previously discussed, the Applicants argue that the merger will
     greatly improve spectrum efficiency by eliminating substantial
     duplication of programming, which will allow the merged entity to
     offer new and better services to consumers.[^468] According to the
     Applicants, these spectrum efficiencies will permit New EchoStar to
     offer local programming in all 210 DMAs.[^469] In addition, they
     claim that with the spectrum liberated from duplicative carriage,
     they will be able to offer at least 12 HDTV channels (compared with
     the two to three HDTV channels that DirecTV and EchoStar
     individually can offer currently),[^470] as well as greatly
     expanded PPV, VOD, educational, specialty and foreign language
     programming, and other new and improved product offerings,
     including interactive services.[^471]

195. Applicants project a discounted present value of free cash flow
     from new services of **REDACTED**.[^472] These new services include
     the provision of local-into-local television programming in the
     DMAs where EchoStar and DirecTV currently do not provide local
     programming, VOD and PPV, HDTV, and interactive services. The
     Applicants acknowledge that they will incur certain costs in moving
     customers over to a single set-top box platform, which is necessary
     for the realization of these new services. The Applicants estimate
     that it will cost an average of **REDACTED** per customer for each
     customer transitioned, or a total of **REDACTED** in expenditures
     over three years to perform the box-swap.[^473] Deducting the cost
     of the box-swap, yields an estimated net increase in revenues (in
     present value terms) of **REDACTED**.[^474]

196. Opponents, while conceding that the merger could eliminate
     duplicative programming, respond that consolidating channel
     delivery and eliminating duplicative programming could be achieved
     through less anticompetitive means. For example, some Opponents
     suggest that DirecTV and EchoStar could form a joint venture to
     share channel uplinks and downlinks and use compatible set-top
     boxes that could receive programming from either company's
     satellites,[^475] and that the spectrum efficiencies are therefore
     not merger specific.

197. Several Opponents of the merger claim that nationwide
     local-into-local service could be achieved through less
     anti-competitive means, because, as discussed in Section IV.C.1
     *supra*, each of the Applicants individually has enough Ku-band
     CONUS capacity to offer local television broadcasting service to
     significantly more markets that they do today (at least 100
     markets, and possibly all 210 markets.[^476] Opponents contend
     that, using existing or planned spot beam satellites, the
     Applicants individually could increase the number of markets in
     which they provide local channels to as many as 100 DMAs.[^477]
     Opponents also contend that improved modulation and compression
     techniques can yield at least a 30% increase in transponder
     capacity, while replacing existing MPEG-2 encoders with MPEG-4
     would increase efficiency by a factor of two or three. [^478]

198. NAB notes that the Applicants have failed to disclose how many
     markets each company individually could serve with its own
     satellite fleet, or proposed fleet, and argues that, without this
     information, it is impossible to determine what proportion of the
     benefits arising from providing local programming in all 210 DMAs
     is merger-specific.[^479]

199. *Discussion.* As discussed, the merger offers certain technical
     efficiencies by reducing the amount of duplicative programming that
     is currently carried by both DirecTV and EchoStar. For purposes of
     the Commission's public interest analysis, however, the relevant
     question is not how much spectrum will be conserved, but rather
     whether and how those spectrum savings will translate into new or
     improved products or lower costs. We find, as discussed below, that
     the Applicants have failed to satisfy their burden of demonstrating
     that these spectrum efficiencies will result in cognizable,
     merger-specific public interest benefits.

200. We note at the outset that the Applicants essentially present their
     efficiencies case by comparing the free cash flow that they claim
     will result from services that the merged entity will offer after
     the merger[^480] with the free cash flow that each of the
     Applicants receives today from the services each currently offers.
     This is the wrong basis for comparison. First, it is a measure of
     the Applicants private benefit, not the public interest. Second,
     even if one wanted to determine the private benefits of the merger
     to the Applicants, the appropriate comparison is to contrast the
     present discounted value of the stream of profits that the merged
     entity is likely to receive from services it is likely to offer
     after the merger with the present discounted value of the stream of
     profits that DirecTV and EchoStar individually would likely earn
     from services each would likely offer absent the merger. For
     example, if, absent the merger, the Applicants individually would
     offer local programming in the top 100 DMAs, then the incremental
     revenues attributable to local programming that can be said to
     result from the merger are only the revenues from the additional
     DMAs that would not be served, but for the merger.

201. An additional problem with the Applicants' efficiency claims is
     that they ignore the possibility that, because the merged entity
     will possess more spectrum, it will use it less efficiently than
     would EchoStar and DirecTV individually absent the merger. In
     particular, the merger may affect the incentive of the merged
     entity to adopt new, more productive technology, which in turn
     could affect how efficiently the spectrum will be used. The reason
     that the merged entity may be less willing to invest in
     productivity-enhancing technology is that the marginal value of a
     firm's spectrum will decline as the total amount of spectrum it
     controls increases. [^481] This suggests that, if as a result of
     the merger, New EchoStar doubles the amount of spectrum it
     controls, it will have a reduced incentive to invest in
     productivity-enhancing technology. We note, in this regard, that
     the Applicants themselves have acknowledged the diminishing
     marginal value of the recovered spectrum.[^482] Thus, from a social
     welfare point of view, the merged entity may select a technology
     that is less efficient than it would select if each separate DBS
     competitor controlled less spectrum resulting in a public interest
     harm rather than a benefit.

202. Another problem with the Applicants' efficiency showing is that
     many of the claimed benefits appear highly speculative. For
     example, the Applicants claim that, with the launch of NEW ECHOSTAR
     1 in 30 months, they will be able to offer local programming in all
     210 DMAs. This claim, however, is premised on a number of
     assumptions that may not prove true. For example, the prediction
     assumes that NEW ECHOSTAR 1 can be launched in 30 months and put in
     operation within six months after launch, but both these dates may
     slip. Indeed, Applicants' claimed timeline and costs are
     inconsistent with guidance given to the financial community that
     the box-swap could cost \$2.5 billion and take four years.[^483]
     The prediction also assumes that the 1500 local television channels
     that New EchoStar will transmit will be in standard definition
     format. If, however, broadcast HDTV is introduced in local markets
     more quickly and more broadly than the Applicants assume, then the
     merged entity may have inadequate transponder capacity to carry all
     the local channels in HDTV format.[^484] If this proves true, then
     this may undermine the Applicants' estimates of the incremental
     revenues that they expect will flow from providing local television
     programming in all 210 DMAs, thus undercutting their projected
     efficiencies and benefits. More generally, many of the Applicants'
     efficiency claims are inherently speculative because they are not
     projected to occur until three or more years after consummation of
     the merger.[^485]

203. In addition, many of the claimed merger benefits do not appear
     credible. For example, we are skeptical of the Applicants'
     financial projections concerning the planned expansion of local
     programming into all 210 DMAs. Specifically, the Applicants'
     acknowledge that **REDACTED.**[^486] Purely from an economic
     standpoint, we are not persuaded that the private benefits of being
     able to claim that New EchoStar provides local programming into all
     210 DMAs outweigh the economic losses that it is likely to incur in
     serving those markets. If it appears likely that the New EchoStar
     will lose money on providing local programming in some number of
     the smaller DMAs, then we need to be skeptical that it will
     actually carry out this strategy, and we must therefore discount
     the associated claimed benefits. Indeed, DMAs 101-210 have 600
     local channels that would be carried to reach only an additional
     14% of the population.[^487] Similarly, the Applicants have not
     presented sufficient convincing evidence that they will actually
     use the entire amount of spectrum held by New EchoStar.
     Particularly, if the marginal return from such spectrum is low
     enough, the Applicants may simply choose to "warehouse" the
     spectrum, even though the spectrum would be of much greater value
     to another entity.

204. Finally, we are not persuaded by the Applicants' attempt to
     quantify the benefits of many of the new services that they claim
     they will offer. Although the Applicants have submitted what they
     characterize as a "synergies presentation" that attempts to
     estimate the free cash flow and EBITDA gains from these new
     services, we find this presentation flawed in a number of respects.
     First, we note that the Applicants do not attempt to estimate
     specifically the incremental profit that is likely to be generated
     by these new services, even though profit is the economically
     meaningful measure of the merged entity's private gain or surplus.
     In addition, however, even if they were accurately estimating their
     expected incremental profit, this would not necessarily provide a
     clear indication of the net gain in social welfare. In particular,
     if the incremental cash flow results from customers' switching from
     cable, then that incremental cash flow may well exceed the
     incremental increase in social surplus, since it may come at the
     expense of cable companies that suffer correspondingly lower
     profits.[^488]

205. More generally, the Applicants provide aggressive revenue estimates
     for many of the new services that they claim the merged entity will
     provide, but they fail to provide detailed evidence supporting
     those revenue projections. For example, the Applicants project
     incremental revenues of **REDACTED.**[^489] The Applicants provide
     no economic model or any other empirical evidence to support these
     projections, however.

### Cost Savings

206. The Applicants claim that the merger will generate significant cost
     savings of **REDACTED** per year or **REDACTED**.[^490] First, they
     assert that the merger will result in a reduction of **REDACTED**
     in subscriber acquisition costs ("SAC"), which represents a
     reduction in the cost of adding an additional customer of
     **REDACTED.**[^491] The Applicants break down the reduction in SAC
     into the following categories: reduced piracy costs of **REDACTED**
     (resulting from increased signal security made possible by the
     shift to a single DBS service platform),[^492] increased efficiency
     of installation for a savings of **REDACTED**, incremental volume
     discounts from hardware manufacturers and suppliers amounting to
     **REDACTED**, and savings in marketing, advertising and
     distribution of **REDACTED.**[^493] Second, the Applicants also
     claim that the availability of local programming, plus other
     enhancements, will reduce customer churn and save a total of
     **REDACTED**.[^494] Third, they claim that by merging, the parties
     will be able to realize a **REDACTED** reduction in programming
     costs which will amount to a total savings of **REDACTED.**[^495]
     Fourth, the Applicants claim savings of **REDACTED** resulting from
     reductions in general and administrative expense.[^496] Finally,
     they assert that the merger will permit them to reduce capital
     expenditures by **REDACTED**.[^497] Opponents dispute these
     projected cost savings and the claim that they will be passed on to
     consumers. NAB suggests that the high post-merger concentration
     makes it unlikely that the merged entity will pass any cost savings
     on to consumers.[^498] NRTC and Pegasus further claim that the
     additional costs associated with the merger make it unlikely that
     the merged entity will pass along any cost savings to
     consumers.[^499] NRTC and Pegasus also argue that reduced customer
     churn should not be considered an efficiency, because it is the
     result of the elimination of competition.[^500] NAB claims that the
     Applicants failed to include any empirical data to support their
     claims and that the efficiency gains would be in fixed costs, which
     are less likely to off-set the competitive harms resulting from the
     merger.[^501] In response to the Applicants' July 5, 2002 *Ex
     Parte* presentation*,* NRTC questions the Applicants' claimed
     reduction in programming costs. NRTC claims this is not a true
     economic efficiency and, even if realized, might not even represent
     volume discounting. **REDACTED**.[^502]

207. *Discussion:* We find a number of issues and problems with the
     Applicants' efficiencies showing. These issues and problems cause
     us to conclude that the Applicants have failed to adequately
     support their claims that the merger will result in significant
     cost savings. We discuss each of these issues in turn.

208. First, the Applicants have claimed several efficiencies that do not
     appear to be merger-specific, and therefore are not cognizable. For
     example, the Applicants claim that the merged firm will require
     over 30 million new set-top boxes, and that the cost per box will
     decline significantly **REDACTED** due to economies of scale in
     production. They then claim that the reductions in the cost of the
     set-top boxes represent an efficiency of the merger. To demonstrate
     that claimed volume-based cost savings are merger-specific,
     however, the Applicants must demonstrate that the cost savings
     result from the increased demand of the single merged entity,
     rather than from any increase in the entire industry demand. The
     Applicants have made no such demonstration. Moreover, they have not
     even alleged that the cost savings could not result absent the
     merger, because the components used by EchoStar and DirecTV
     individually are not sufficiently similar. Thus, for example, if
     set-top box manufacturers would use the same computer chips and
     hard drives, regardless of whether the parties merged, then any
     volume-related cost savings resulting from the growth in total
     market demand would not be deemed merger specific. Similarly, the
     Applicants cite several factors for the reduced churn that
     contributes significantly to their total projected costs savings.
     It is not clear, however that one of the factors contributing to
     reduced churn -- the adoption of \"best practices at call centers,
     service centers, and on installations" -- is merger specific.[^503]
     Likewise, the Applicants claim that churn will be reduced because
     the merged entity will be able to offer a bundled MVPD/broadband
     product.[^504] As discussed below, however, it is not clear that
     the ability to bundle broadband service with DBS service is
     merger-specific.

209. Second, many of their other claimed cost savings appear to be
     either speculative or lacking in credibility. For example,
     according to the Applicants' own estimates, a significant
     percentage of the claimed cost savings will not accrue before
     2006.[^505] As previously indicated, benefits that are projected to
     occur only in the relatively distant future are normally discounted
     because they are inherently less certain. This speculative nature
     of future benefits becomes particularly problematic if it is
     claimed, as Applicants do here, that certain benefits will continue
     into perpetuity. Specifically, the Applicants apply a terminal
     multiple of **[REDACTED]{.smallcaps}**, which is intended to
     measure the "going forward" value of cash flow for all benefits
     efficiencies that are present in year 2007.[^506] By applying this
     terminal multiple, Applicants are basically claiming that the year
     2007 efficiencies will continue forever.[^507] Claiming perpetual
     cost savings would always raise credibility issues, but those
     concerns are increased here, since some of the claimed cost savings
     appear to be of a limited duration. For example, the Applicants
     assumed that the merger would yield a reduction in piracy costs of
     **[REDACTED]{.smallcaps}** per gross add in the first year and
     **[REDACTED]{.smallcaps}** per gross add in each year thereafter,
     for a total savings of **[REDACTED]{.smallcaps}** in piracy costs.
     The projected reduction in piracy costs, however, is premised on
     changes in the conditional access software that will be implemented
     with the box swap. While this change in conditional access may
     initially reduce piracy, it is not at all clear that the incidence
     of piracy will not begin to rebound.[^508]

210. In other cases, the Applicants either have clearly exaggerated the
     likely cost savings or have simply failed to provide adequate
     justification for their efficiency estimates. For example, the
     Applicants have not adequately substantiated their claimed savings
     in programming costs. In particular, they have not demonstrated
     that programming costs will necessarily fall to the extent they
     predict based on the merged entity\'s larger subscriber base. We
     note in this regard that the record indicates that **REDACTED**.
     Similarly, they have not provided sufficient evidence to support
     their claimed installation efficiencies and distribution
     efficiencies or the claimed cost reductions associated with reduced
     churn. In addition, the Applicants frequently fail to distinguish
     claimed cost savings that would result in a reduction in marginal
     cost from cost savings that would result in a reduction in fixed
     cost. For example, it is not clear whether the Applicants\'
     projected savings in advertising, marketing, and distribution,
     which it claims will contribute to a significant reduction in SAC,
     represent savings in marginal cost or fixed cost.

211. In addition, the Applicants' analysis of cost savings takes the
     form of a business case analysis, rather than a welfare analysis
     that specifically considers whether claimed cost reductions result
     in net increases in social surplus, which can be balanced against
     any anticompetitive effects of the merger. Certain of the
     Applicants' claimed efficiencies appear to represent no true cost
     savings, but rather only a transfer of surplus. For example, it
     appears that a portion of the claimed reduction in SAC costs
     actually relate to a reduction in the subsidy DirecTV and EchoStar
     currently provide to retailers and new subscribers to cover part of
     the cost of equipment and installation. Since a reduction in the
     subsidy simply means that the retailer or customer will pay more,
     there is no cognizable efficiency gain from this portion of SAC.
     Reductions in these "expenses," rather, may be indicative of the
     emasculation of competition and the resulting consumer harms.
     Similarly, we agree with NRTC and Pegasus that reductions in churn
     may more accurately be considered as indicative of the reduction in
     consumer choice and so cannot be counted as a public benefit.
     Finally, any savings in programming costs that result from a change
     in bargaining power represent a shift in surplus between
     programming providers and DBS operators, but not necessarily an
     increase in total surplus.

212. To summarize, as described above, the Applicants have failed to
     demonstrate that certain of the claimed efficiencies are
     merger-specific. Other claimed cost savings appear too speculative,
     while others simply are not credible. Finally, other alleged cost
     savings do not appear to be not true efficiencies but rather
     represent a shift in surplus between parties without any necessary
     increase in social welfare. Again, as discussed above, what is
     important is the extent to which these lower costs lead to lower
     prices and can offset the reduction in competition, rather than
     whether the merged entity will achieve a lower cost structure as a
     *per se* matter.

### Enhanced Ability to Compete with Cable

213. The Applicants claim that one of the most compelling benefits of
     the proposed merger is that New EchoStar, as an integrated,
     full-service DBS provider, will be able to compete better with
     cable systems to the benefit of consumers. The Applicants claim
     that DBS spectrum inefficiency has precluded the Applicants
     individually from effectively competing with cable systems,
     particularly given existing must-carry obligations.[^509] The
     Applicants argue that as separate companies, neither EchoStar nor
     DirecTV has been able to discipline cable companies' prices and
     that only through the merger will DBS be able to provide effective,
     price-reducing competition. The Applicants note that cable
     companies have been continuing to raise their prices in excess of
     the consumer price index. [^510]

214. Opponents disagree that the merger is necessary for DBS to compete
     effectively with cable. Pegasus and others claim that DBS's current
     excellent ability to compete effectively with cable is evident by
     DBS subscriber growth rate. In 2000-2001, Pegasus states that DBS
     subscribers have increased by 24%, while cable subscribership
     increased by only 1.9%.[^511] ACA notes that the DBS subscriber
     growth rate is 2.5 times that of cable.[^512] ACC Satellite claims
     that the current competitive MVPD marketplace with its two DBS
     providers benefits consumers because it provides for increased
     customer services, products, features, channel selections, and
     competitive prices.[^513]

215. As an initial matter, we note that it is not entirely evident how
     this argument differs from the Applicants\' other efficiency claims
     -- *i.e.,* that the merger will lower New EchoStar\'s costs and
     allow it to offer new and innovative services. In particular, since
     it is not the Commission\'s role to pick winners and losers in
     competitive markets, it is not clear why any net increase in DBS
     market share resulting from the merger, by itself, should be
     treated as a public interest benefit.

216. One possible interpretation of the Applicants\' argument, though
     the Applicants themselves do not articulate it, is that absent the
     merger, EchoStar and DirecTV would be driven from the market or
     marginalized by cable competitors. If the Applicants are implicitly
     making such a "failing firm" argument, we do not find it to be
     persuasive. As Pegasus and other merger Opponents note, the
     relative market share of DBS compared with cable has been one of
     steady and impressive growth. Furthermore, there is no evidence in
     the record that suggests that this growth will suddenly terminate,
     markedly decrease, or that DBS will suddenly begin to lose
     customers to cable.

217. A second interpretation would be that the merger will force cable
     competitors to cut prices and improve their cable offerings in ways
     they would not have attempted absent New EchoStar\'s assumed more
     competitive offerings. The problem with this argument is that the
     merger simulations, discussed above, already take into account the
     possibility that cable companies will cut price. If the Applicants
     are arguing that the merger simulations, in some way, underestimate
     the extent of the competitive reaction by cable companies, then
     they would need to explain the reasons for this underestimation.
     This, they have not done. Indeed they have not demonstrated that
     such a potential decrease in cable prices could overwhelm the
     likely negative effect of the merger with respect to increased MVPD
     market concentration. Thus, while the merged entity might be a more
     capable single competitor, that does not necessarily mean more
     effective competition in the MVPD market place, and therefore
     better results for consumers To the contrary, our analysis
     demonstrates that the proposed merger would likely leave New
     EchoStar a more capable, but less effective, competitor, a
     situation that is more likely to harm than benefit consumers, and
     therefore the public interest.

     A.  **Potential Public Interest Benefits---Broadband Market**

218. *Introduction.* Applicants assert that the merger will benefit the
     public because it will "allow New EchoStar to deploy a true
     broadband alternative that is competitive in all major respects to
     DSL and cable modem services," *and* that is able to compete
     effectively with the "bundled video, broadband and interactive
     service . . . that is being rolled out by those cable companies
     offering digital cable service."[^514] By "true broadband" the
     Applicants mean a competitively-priced residential Internet access
     service meeting the Commission's definition of "advanced services"
     -- *i.e.*, providing Internet connection speeds in excess of 200
     kilobits per second (Kbps) in both directions of transmission --
     and that is provided primarily through the use of next-generation
     satellite systems employing Ka-band spectrum.[^515] The Applicants
     argue that capturing the alleged benefits turns on the deployment
     of Ka-band systems because "Ku-band two-way broadband satellite
     services, such as those implemented by Starband and Hughes, will
     struggle to achieve sufficient economies of scale to effectively
     compete with terrestrial DSL and cable broadband services."[^516]
     The Applicants argue they must combine their Ka-band licenses and
     individual DBS subscriber bases in order to deploy a competitive
     satellite broadband service in time to challenge cable and digital
     subscriber line technologies ("DSL") and to prevent cable from
     locking in its dominant position in the provision of bundled
     video/Internet access service.[^517] The Applicants allege that the
     merger will enhance competition in the delivery of broadband
     Internet access services in urban areas and offer such services, at
     the same low price and high quality, to areas that are unlikely to
     be served by cable modem or DSL in the near future (if at
     all).[^518] The Applicants assert that merger-related efficiencies
     would allow them to deploy satellite broadband to an alleged
     "critical mass" of five-million satellite broadband customers
     within five years.[^519]

219. Opponents contend that the Applicants' competitive satellite
     broadband service is possible without the proposed merger.[^520]
     Moreover, Opponents argue that the merger will in fact *harm*
     competition for satellite broadband services in rural America by
     thwarting competition in the anticipated market for enhanced
     broadband Internet access services and will also eliminate
     competition in the market for existing, Ku-band Internet
     services.[^521] NRTC argues that the Applicants "'target' a \$35
     monthly charge---but they offer no definition of 'target' or any
     hint of when (or if) they will meet the 'target'" and that "the
     Applicants propose their target price for a 'basic monthly
     broadband service' -- but they fail to define what 'basic' service
     is and what kinds of services would constitute 'broadband.'"[^522]
     As NRTC further asserts, "basic" broadband "may mean the slowest of
     speeds or a level of service that few would want, leaving the door
     wide open for price discrimination for 'non-basic' broadband
     service." As a monopolist, NRTC contends, "New EchoStar would have
     every incentive to set a high national price for 'basic' broadband;
     it would have a limited desire to compete against DSL and cable
     modem in the areas where those services enjoy a huge head start,
     and instead would have every incentive to overcharge rural
     Americans who have no other choices."

220. For the reasons set forth below, we find that the record fails to
     support Applicants' broadband services claims. We are particularly
     concerned that, as NRTC argues, the Applicants have provided too
     little detail about the price and nature of their proposed
     satellite broadband service for us to conclude that the proposed
     transaction will produce a non-speculative, merger-specific benefit
     with respect to broadband services. Based on the record before us,
     we cannot conclude that the proposed merger is necessary to allow
     New EchoStar to directly and effectively compete with DSL-based and
     cable modem services *or* with cable providers' bundled
     MVPD/Internet services. Additionally, on the record before us, we
     cannot conclude that the merger will speed the deployment of
     satellite broadband services to the millions of Americans in rural
     (and other underserved areas) who are unlikely to receive
     terrestrial broadband services in the foreseeable future. The
     record indicates that, to the contrary, the merger may impede the
     provision of any form of satellite Internet service, particularly
     to rural Americans.

221. *Background.* While most residential Internet access service is
     provided over narrowband connections, Americans are increasingly
     subscribing to broadband Internet access services.[^523] Such
     services today are predominantly provided by cable operators using
     cable modem technology, and secondarily by telecommunications
     carriers utilizing DSL.[^524] By contrast, current
     satellite-provided Internet access services constitute only a small
     percentage of all Internet access service accounts.[^525]

222. Despite the large number of subscribers to terrestrially-provided
     Internet access services, millions of residential consumers may not
     have access to broadband Internet access services in the
     near-term.[^526] Although MMDS, third generation wireless (3G) and
     other wireless technologies have the potential to significantly
     expand the availability of broadband Internet access to consumers
     in rural areas, they have yet to do so to any significant
     degree.[^527] Thus, satellite-provided broadband Internet access
     services may provide one of the best potential options for millions
     of rural subscribers in the near term.[^528]

223. Existing satellite-provided Internet access service is provided
     using Ku-band spectrum similar to, but with service rules different
     from, that used for DBS service.[^529] Ku-band systems have been
     optimized for the delivery of the DBS point-to-multipoint MVPD
     service. The evolution of Ku-band FSS systems with CONUS coverage
     beams and two-degree spacing requirements renders such systems less
     than optimum for ubiquitous point-to-point services like
     residential Internet access service.[^530] Current Internet access
     services provided with the Applicants' Ku-band systems may exceed
     200 Kbps only in the downstream direction---upstream transmissions
     are advertised as approximately 128 and 150 Kbps.[^531]

224. At the time the Merger Application was filed, the Applicants owned
     or controlled the only two Ku-band Internet access services
     available nationally in the United States \-- DirecTV's DirecWay
     service and EchoStar's Starband service.[^532] The Applicants
     provide Ku-band service by leasing transponders from third parties,
     at an annual cost of \$2 million per transponder.[^533] Both use
     satellite dishes somewhat larger than DBS dishes and both offer a
     way to access some of the full-CONUS DBS orbital locations using a
     single dish.[^534] EchoStar's customers accessing the eastern and
     western DBS locations at 61.5º W.L. and 148º W.L. do not have a
     one-dish solution for bundled DBS/broadband service. Several
     firms---including two merger Opponents, NRTC and Pegasus -- resell
     DirecTV's existing satellite-provided Internet access
     services.[^535]

225. It appears that next-generation Ka-band satellite systems will be
     better-suited than existing Ku-band systems to provide "true"
     broadband Internet access because Ka-band technology will achieve
     higher bandwidths in both directions through more extensive use of
     spot beams and the frequency reuse that can be achieved with spot
     beams.[^536] Anticipating the benefits of Ka-band technology for
     satellite broadband services, the Commission has licensed several
     entities to provide Ka-band service.[^537] With respect to
     anticipated Ka-band services, the Applicants combined would control
     six of about 25 full-CONUS Ka-band orbital locations, depending on
     the results of other proceedings before the Commission.[^538] The
     Ka-band orbital locations that the merger would place under New
     EchoStar's control would be particularly well-suited to providing a
     "bundled" DBS/satellite broadband service over a single dish. Such
     a "one-dish" service would be akin to the bundled service offering
     increasingly provided by the larger cable operators.[^539]

226. *Applicants' Claimed Benefits*. The Applicants claim that the
     merger will result in "many efficiencies" that "allow New EchoStar
     to deploy a true broadband alternative that is competitive in all
     major respects to DSL and cable modem services."[^540] The
     Applicants contend that "\[t\]he merged company will combine the
     resources and subscriber bases of both \[Applicants\] which will
     result in substantial cost and service advantages over any possible
     individual Ka-band offering of EchoStar or Hughes."[^541] Such
     enhanced broadband service will, the Applicants allege, be "akin to
     an increase in the number of broadband competitors from "zero to
     one" in most areas and 'one-to-two' or 'two-to-three' in other
     areas of the country."[^542] This increase in competition would,
     they allege, in turn force cable operators to further improve their
     systems.[^543]

227. *Verifiable, Non-Speculative in Nature.* The Applicants' predicted
     benefits primarily are based on the deployment of new satellites
     using spot beam technology over the Ka-band spectrum. Although
     licenses for the use of this spectrum have been issued and some
     satellites are currently scheduled, none have been deployed.
     Despite the potential for providing broadband Internet access
     services using Ka-band spectrum, several would-be providers have
     recently delayed further deployment of their systems due to a lack
     of funding. For example, Astrolink suspended construction of its
     system following a significant investment; PanAmSat has given low
     priority to its Ka-band development; and WildBlue's plans have been
     slowed due to funding difficulties.[^544] The license for
     Motorola's Ka-band Millennium System was declared null and void
     because construction was not commenced by January 31, 2002, as
     required.[^545] Spaceway, the Ka-band system planned by DirecTV,
     however, is scheduled to launch its first satellite by 2003.[^546]
     Clearly, the nascent state of this potential future service raises
     questions and uncertainties both as to the timing and scope of its
     implementation and as to the quality and price that will be
     achieved that cannot reasonably be answered at this time. Thus, it
     is highly speculative whether this alleged merger benefit will come
     into fruition within a reasonable timeframe.

228. *Merger Specificity*. The Applicants allege that the merger is
     necessary to allow them to "achieve the necessary economies of
     scale and scope" to offer satellite broadband services over Ka-band
     facilities at "price points" competitive with terrestrial broadband
     alternatives.[^547] In order to capture such economies, the
     Applicants claim that "one company must have access to a sufficient
     number of state-of-the-art satellites in relatively close proximity
     to one another and must have enough spectrum to sustain a critical
     mass of subscribers" sufficient to "recover the significant up
     front investment and subscriber acquisition costs associated with
     launching and marketing \[a competitive\] two-way broadband
     satellite service."[^548] The Applicants "estimate" the necessary
     "critical mass" to be "at least" five million subscribers in five
     years.[^549] According to the Applicants, this critical mass "would
     significantly increase the ability of \[New EchoStar\] to make the
     investments necessary to develop advanced services, such as
     price-competitive high-speed Internet access, and to achieve the
     scale necessary to spread the fixed costs among a sufficient number
     of subscribers."[^550] Opponents contend that Applicants have
     sufficient spectrum and subscriber base to achieve their alleged
     benefits without the merger.[^551] NRTC raises the most
     technically-detailed challenge to the Applicants' five million
     subscribers "critical mass" argument.[^552]

229. Based on the record evidence, we find that the Applicants have
     failed to demonstrate that the merger will result in cognizable
     public interest benefits related to satellite broadband service.
     More specifically, as discussed below, we find that Applicants\'
     benefit claims are speculative and not credible and do not appear
     to be merger-specific.

230. First, even if we were to accept the Applicants\' \"critical mass\"
     argument, it is not clear that the ability to combine customers and
     facilities is a merger-specific benefit. In particular, it is not
     clear that the benefits of consolidation could not be achieved by
     other means, such as a joint venture, that would be less likely to
     have anticompetitive effects.[^553]

231. Second, we find that the merger would generate fewer spectrum
     efficiencies in satellite Internet access service than it would for
     DBS service. Because DBS service is a broadcast service sent to all
     subscribers, the merger will reduce the need to broadcast
     duplicative channels. Satellite Internet access service, in
     contrast, requires the use of at least some dedicated spectrum to
     transmit data and content to and from a particular subscriber.

232. Third, it appears that, absent the merger, DirecTV's Spaceway
     system could have adequate infrastructure to achieve the "critical
     mass" of five million residential subscribers in the five years
     assumed by the Applicants as a requirement for a viable satellite
     broadband business. [^554] It also appears that EchoStar could
     potentially approach this assumed critical mass.[^555] This is
     particularly true when one takes into account the opportunity that
     each of the Applicants will have in marketing their broadband
     Internet access service to the 40 million households that they
     claim currently lack access to DSL and cable modem services.[^556]

233. Fourth, we are not convinced by the Applicants\' claim that they
     must achieve a critical mass of five million customers. For
     example, in calculating the minimum critical mass, the Applicants
     assumed that the average monthly broadband service fee would be
     **REDACTED**.[^557] The Applicants, however, present no convincing
     evidence that this is the likely market rate. If the actual monthly
     revenue were higher, the minimum critical mass would be less than
     five million. In addition, in estimating revenue, the Applicants
     include **REDACTED** Making this adjustment would likewise lower
     the critical mass below five million. Thus, the minimum viable
     customer base is likely to be significantly below five million
     subscribers for an integrated MVPD and broadband operator.

234. Finally, we give little credit to the Applicants' claims that the
     merger will generate efficiencies due to the consolidation of
     "advertising and promotion budgets and . . . distribution
     channels," as well as the "customer service centers, uplink
     facilities, network operating centers, trunking facilities and
     billing functions."[^558] We discount these efficiencies arguments
     because the efficiencies alleged here relate to fixed rather than
     variable costs, and therefore are unlikely to counteract any
     anticompetitive effects of the merger.[^559]

235. In summary, the record does not support the Applicants' claim that
     the provision of satellite broadband services should be considered
     a public interest benefit of the merger. We cannot emphasize
     strongly enough the potential value of broadband Internet access
     services to every community and citizen in the country. Applicants,
     however, have failed to demonstrate that their proposed merger is
     either more likely than not to hasten the delivery of satellite
     broadband services, or is necessary to achieve this important
     public interest benefit. Specifically, they have failed to
     demonstrate that this claimed benefit is non-speculative and
     incapable of being achieved through other means.

236. *Potential Public Interest Harms*. Although Applicants argue that
     the merger will benefit competition in the Internet access service
     market, Opponents contend that the merger will instead harm
     competition in that market by eliminating existing Ku-band
     competition, particularly in rural areas where satellite-provided
     Internet access services are the only option for residential
     consumers,[^560] and limiting competition in the provision of
     next-generation, Ka-band satellite-provided broadband Internet
     access service. Under Commission precedent, the burden of
     persuasion is on the parties proposing the transfer of a license or
     authorization to show that the potential public interest benefits
     of the transfer outweigh the potential public interest harms.[^561]
     On the record before us, we cannot find that the Applicants have
     met this burden.

237. *Ku-band Internet Access Services*. Opponents argue that the merger
     will eliminate competition in the current market for Ku-band
     satellite Internet access service by combining the only two
     facilities-based providers of that service -- Starband and
     DirecWay.[^562] Such a monopoly, Opponents claim, would result in
     higher prices, degraded service, and decreased innovation,
     particularly in rural areas where no alternative to Ku-band
     Internet access service exists.[^563]

238. Applicants argue that the Ku-band Internet access service market is
     not viable without the merger, and, in any event, harm to that
     market will be prevented by the Applicants' promise to impose the
     same monthly fees nationally.[^564] For example, the Applicants
     note that the \$60 to \$70 monthly fee for existing
     satellite-provided broadband Internet access service, is
     "significantly" higher than monthly fees for cable modem and
     standard DSL service, which can be as low as \$30 and \$45,
     respectively.[^565] They claim that the same is true for equipment
     and installation costs, which are more than \$700 for
     satellite-provided broadband Internet access services, compared to
     less than \$200 or \$250 for some cable modem and DSL providers,
     respectively.[^566] The Applicants note that some DSL service
     providers charge no installation fees at all.[^567]

239. The record indicates that harm to existing Ku-band Internet access
     service will primarily occur in areas not served by cable modem or
     DSL facilities because such service may not be "reasonably
     interchangeable" with cable modem or DSL broadband Internet access
     services.[^568] Our ability to conclusively evaluate the impact of
     the proposed merger on the provision of satellite Internet access
     service using Ku-band spectrum, however, was complicated by
     EchoStar's announcement on April 4, 2002, that it was withdrawing
     its support from and surrendering its control of Starband's Ku-band
     project because it judged that service not viable.[^569] NRTC
     argues that EchoStar's actions were intended to promote the
     merger.[^570] Similarly, after the Merger Application had been
     filed, DirecTV stated that it "is unlikely to continue to fund its
     residential satellite broadband service without the merger."[^571]
     We view such self-serving statements with skepticism, however,
     particularly in the absence of objective supporting evidence.[^572]
     Applicants have done nothing to rebut NRTC's claims that their
     actions with respect to Ku-band Internet access service are no more
     than self-fulfilling prophesies that continued provision of the
     service is not possible without the merger. The Applicants' actions
     and statements could well be designed to bolster their claims that
     satellite Internet services are not viable absent the merger. In
     sum, the single most potent harm to Ku-band Internet services may
     be the pendency of the merger itself.

240. Finally, to the extent that the Applicants are correct concerning
     the importance of a larger subscriber base and the ability to
     bundle video and broadband services on a single satellite dish,
     then Starband may have difficulty in the future competing
     effectively with DirecWay, due to the loss EchoStar's funding and
     subscriber base together with the flexibility to provide a
     "one-dish" solution that EchoStar's DBS orbital slots would
     provide. EchoStar's actions toward Starband following announcement
     of the merger arguably raise questions whether different actions
     might have been, or might be, taken if the merger does not go
     forward.[^573] Thus, we find that the record indicates that the
     proposed merger appears more likely to harm existing competition in
     the provision of Ku-band Internet access market than it is to
     benefit this market.

241. *Ka-band Broadband Internet Access Services.* The anticipated
     broadband Internet access services to be provided over
     next-generation, Ka-band facilities present somewhat different
     issues. On the one hand, the gestational character of these as yet
     un-deployed services, combined with rapidly developing technology
     in this area, make it difficult to define markets or market
     participants with any confidence, and thus to predict the existence
     or magnitude of any alleged harms or benefits to consumers as a
     result of the merger. At the same time, the record suggests that
     the merger could have significant anticompetitive effects.

242. Opponents argue that the merger will harm future competition in the
     provision of Ka-band broadband Internet access services.[^574] NRTC
     argues that the merger will stifle anticipated competition in such
     Ka-band services by *adding* barriers to entry faced by potential
     entrants.[^575] Opponents further allege that giving the Applicants
     the most valuable Ka-band orbital slots will deter competitive
     entry.[^576] Applicants contend that Opponents are mistaken that
     the merger "will 'stifle' Ka-band competition, or 'prevent Ka-band
     competition from emerging in rural areas.'"[^577] The Applicants
     maintain that this is the case because "there are more than enough
     prime Ka-band slots controlled by others to ensure that the merger
     will not "stifle" competition in providing broadband services."
     Further, they argue that, in any event, "the Commission has
     observed that new entrants using several different technology
     platforms have already begun, or are poised to begin, playing a
     significant role in providing high-speed and advanced services to
     many areas of the country including smaller markets."[^578]

243. We consider the competitive effects of anticipated next-generation
     Ka-band services to better assess Applicants' claims about
     benefits, but our discussion of potential harms in this area is
     necessarily limited by the fact that Ka-band broadband Internet
     access services are not currently on the market. Thus, our
     analysis, like the claimed broadband benefit itself, is somewhat
     speculative. NRTC's alleged harm of additional barriers to entry,
     however, appears even more likely to occur if we assume, for
     purpose of this analysis, that a bundled MVPD/broadband service is
     as important to consumers as the Applicants claim.[^579] Indeed, if
     the ability to offer a bundled MVPD/broadband service proves
     important to consumers, then Pegasus may be correct that "the
     creation of a DBS video monopolist -- New EchoStar -- would result
     in a de facto satellite broadband monopolist as well."[^580]

244. However, we cannot make this ultimate determination on the record
     before us. For example, we do not know whether Ka-band broadband
     Internet access service will actually be reasonably interchangeable
     with terrestrially-provided alternatives.[^581] Similarly, the
     fluid state of broadband Internet access service technologies
     prevents our determining whether potential entrants, beyond the
     field of anticipated Ka-band broadband Internet access service
     providers, would challenge what Opponents claim would be the
     unassailable dominance of New EchoStar with respect to the
     broadband Internet access market in many areas of rural America.

245. Moreover, for reasons similar to those discussed in connection with
     the MVPD market, the Applicants have not demonstrated that the
     likely potential harms to existing or future Internet access
     service competition can be ameliorated through a national pricing
     scheme.[^582] The Applicants have provided scant evidence of what
     they mean by "national" pricing for satellite broadband services.
     For example, the Applicants have not defined the difference between
     "basic" broadband Internet access services---for which a \$35
     monthly fee is predicted -- and "non-basic" broadband Internet
     access services.[^583] Nor have they explained the dramatic drop
     from current to future predicted pricing levels for
     satellite-delivered Internet access service. Moreover, as NRTC
     points out, the Applicants have left "many unanswered questions
     about the implementation, governance and enforcement of a national
     broadband pricing plan."[^584]

246. Finally, the record and Applicants' own submissions suggest that
     the proposed merger may not in fact result in the Applicants'
     increased ability to offer a bundled satellite MVPD/broadband
     service capable of competing head to head with the voice/video/data
     bundle of services being deployed by some of the largest cable
     MSOs, or the video/data bundled being deployed by the vast majority
     of cable MSOs. For example, the Applicants have noted that
     "\[c\]able systems that have gone to 100% digital programming have
     an effective throughput of 4.47 Gbps, and when they upgrade from
     750 MHz transmissions to 1250 MHz transmissions they will have an
     effective throughput to the home of 8.94 Gbps."[^585] In response
     to such anticipated digital cable capacity, the Applicants argue
     that "\[t\]he merger will help address this competitive
     disadvantage by . . . providing the merged entity with an aggregate
     throughput of approximately 2.9 Gbps for all national programming,
     and a satellite "pipe" to the home of approximately 2 Gbps after
     accounting for capacity dedicated to local broadcast
     channels."[^586] We find it unlikely that the merger will result in
     spectrum efficiencies (from avoiding duplication) similar to those
     alleged in the MVPD context, because the spectrum used for
     broadband Internet access service is finite and must be apportioned
     to individual subscribers individually. [^587] We note that cable
     modem service "typically delivers information to end users at
     speeds in excess of 2 Mbps."[^588] Moreover, by emphasizing a
     benchmark for "advanced services" of *at least* 200 Kbps in both
     directions, the Applicants essentially ignore that "in future
     years, the appropriate definition of broadband service may change
     as technology improves and consumer demand grows for more features
     and functions from residential broadband service."[^589] In other
     words, we have no way of discerning whether the appropriate
     benchmark for "true" broadband connection speeds will exceed that
     proposed by the Applicants before the end of the five-year period
     alleged as crucial for obtaining a "critical mass" of five million
     subscribers.

247. *Conclusions*. We therefore conclude that the Applicants have not
     demonstrated that the claimed broadband service benefits are likely
     to occur and that the merger is necessary to realize them.
     Applicants' position that the merger will result in increased
     deployment of satellite broadband services is based primarily on
     the projected provision of broadband Internet services using
     Ka-band spectrum. Such services, however, are not only nascent, in
     nearly every case they are months, if not years, away from public
     availability. The facilities to provide broadband Internet access
     service using Ka-band spectrum are not yet deployed. Substantial
     uncertainties remain as to the likely quality and prices of such
     service. Moreover, Applicants have failed to demonstrate that the
     promised benefits, even if technically and economically achievable,
     could not be achieved without the merger. It is not clear that one
     or both of the Applicants would not be able to individually fund
     their satellite broadband projects without the merger, or that the
     cost savings and efficiencies alleged by the Applicants could not
     be achieved through other means, for example by the adoption of
     open technological standards or by recovering capital costs through
     revenues from enterprise broadband Internet access services.[^590]
     Finally, Applicants have not demonstrated that the potential harms
     to broadband markets from additional concentration of important
     assets and inputs resulting from the merger would either be
     insubstantial or could be cured by a national pricing commitment.
     Thus, in our overall balancing of potential public interest harms
     and benefits, we will afford little weight to this alleged merger
     benefit, even absent our determination that the proposed
     transaction appears more likely to harm than to benefit the markets
     for both narrowband and broadband satellite-delivered Internet
     services.

# Other issues

## Vertical Effects

### Potential Harms in the Video Programming Market

248. *Introduction*. In this section, we consider the effects of the
     merger on the market for the sale of video programming, delivered
     via satellite or terrestrial technologies, in the form of networks.
     We have described the video programming market extensively in our
     previous orders.[^591] Companies that own programming networks both
     produce their own programming and acquire programming produced by
     others.[^592] These companies then package and sell this
     programming as a network or networks to MVPD providers for
     distribution to consumers.[^593] MVPDs purchase programming and
     combine it with transport on their cable, satellite, or wireless
     distribution networks to provide delivered video services to
     subscribers.

249. Participants in the market for the packaging of video programming
     consists of entities of various sizes, from unaffiliated packagers
     that own one programming network to large corporations, such as AOL
     Time Warner and Viacom, that own many 24-hour networks.[^594] We
     understand that the video programming networks sell programming to
     MVPDs based on contracts generally lasting several years.[^595]
     Video programmers are compensated in part through license fees that
     are based on the number of subscribers served by the MVPD. These
     license fees are negotiated based on "rate cards" that specify a
     top fee, but substantial discounts are negotiated based on the
     number of MVPD subscribers and on other factors, such as placement
     of the network on a particular programming tier.[^596] Most video
     programmers also derive revenue by selling advertising. Advertising
     time on programming networks is generally split between the
     programmer and the MVPD.[^597]

250. Some programming networks offer programming of broad interest and
     depend on a large, nationwide audience for profitability; others
     also seek large nationwide audiences but offer content that is more
     focused in subject; yet others still seek nationwide distribution,
     but offer narrowly tailored programming, focusing on a "niche
     within a niche."[^598] Some programming networks do not seek a
     national audience but are regional or even local in scope,
     including regional sports and news networks. Some programming
     networks likely can survive with distribution to a few million
     subscribers within a certain region, while others may need
     nationwide distribution to a large percentage of MVPD homes in
     order to remain viable.[^599] Program packagers seek to reach the
     widest range of subscribers for their type of programming on a
     regional or national basis to increase the value of their
     programming to advertisers, and to build brand recognition that
     will in turn spur other MVPDs to carry their programming and allow
     them to reach yet more subscribers.[^600]

251. If the transaction is approved, New EchoStar will be the only major
     DBS purchaser of video programming, one of the largest MVPD
     purchasers, and the only major MVPD purchaser with a national
     footprint. CWA states that, as a result, prices will increase for
     program providers and program distributors.[^601] It argues that
     program providers and distributors will have no alternative but to
     sell to New EchoStar, since it will be the largest national
     distributor of MVPD programming, with more than 17 million
     customers.[^602] NAB claims that broadcasters will be harmed
     because they will have weakened power to negotiate retransmission
     consent terms.[^603]

252. ACA claims that New EchoStar will exert bottleneck control over
     programming, thereby allowing it to harm small cable systems with
     which it competes. ACA states that today EchoStar refuses to
     negotiate with small cable systems regarding program distribution,
     although DirecTV does enter into "dish-overlay" arrangements on a
     limited basis. Under these arrangements, the small cable company
     installs a DBS dish on a subscriber's home. The subscriber then
     receives some programming via cable and some via the satellite
     dish. In markets where DBS does not deliver broadcast signals, and
     where low density of cable subscribers cannot support a system
     upgrade, such an arrangement enables rural consumers to receive
     expanded programming.[^604] ACA argues that New EchoStar, which
     will be the only major provider of DBS services, will be able to
     refuse to enter these overlay arrangements, or do so on onerous
     terms, in order to drive small cable systems out of business and
     achieve a monopoly.

253. Applicants respond that, contrary to the Opponents' arguments, the
     proposed merger will enhance performance in the programming market
     because the additional spectrum made available through the
     elimination of their duplicate programming carriage will allow New
     EchoStar to serve as an outlet for new programming services. [^605]
     Applicants disavow any intent to pursue a strategy of vertical
     integration with programmers and claim that the merged entity will
     serve as an important outlet for promoting the development of new
     independent programming services.[^606] Regarding retransmission
     consent, the Applicants disagree with NAB, and insist that
     broadcasters can always rely on must-carry and can use the
     existence of competitive cable systems as a bargaining tool.[^607]
     Moreover, the Applicants claim that the merger is necessary to
     promote competition among MVPD providers for programming in light
     of cable and broadcast consolidation, such as the proposed
     AT&T--Comcast merger.[^608]

254. *Discussion*. Opponents raise two areas of concern. The first is
     the exercise of monopsony buying power. The second is the
     possibility of vertical foreclosure (*e.g.*, refusing to provide
     programming to a rival cable system). We address each in turn.

255. With regard to monopsony power in the market for programming, the
     economic literature does not identify a single point at which
     monopsony power becomes likely. In general, large purchasing power
     delivers both benefits and potential costs to consumers. The
     benefits come from the fact that large MVPDs that receive
     programming discounts may pass on some of these reduced costs to
     subscribers (for example, in the form of lower prices). The
     potential cost to consumers comes from the fact, discussed further
     in the next paragraph, that these discounts may discourage or
     preclude competitive entry, and thereby result in higher prices or
     reduced service quality.[^609] If we were to approve the
     transaction, New EchoStar would become either the first or the
     second largest purchaser of video programming,[^610] and, according
     to the Applicants, would pay less for programming costs than before
     the merger.[^611] The new entity, however, would only represent
     slightly more than 20 percent of the total purchases of video
     programming. Twenty percent is well below levels of concentration
     at which the Commission historically has had cause for
     concern.[^612] Also, with regard to both national and regional
     programming, there are several other large and many smaller venues
     (chiefly other MVPD providers) through which programmers can
     distribute their programming. We therefore find no basis on this
     record to conclude that New EchoStar would be able to exercise
     monopsony power over national and regional programmers.

256. The situation would be different, however, with regard to
     programmers attempting to reach some niche audiences, those who
     live in low density areas, many of which are rural. As described
     above, such viewers would have few choices of MVPD providers and
     many would be reduced to a single provider if we were to approve
     the transaction. New EchoStar would effectively be the only MVPD
     provider to between 4% and 21% of the population. It would face
     competition only from low-capacity cable systems for another
     substantial segment of the population. Such cable systems, because
     they have low capacity that is already filled by established
     networks, would be unlikely to carry new program networks. Thus, if
     there were programmers that wished to focus on audiences in low
     density areas, New EchoStar would effectively provide the only
     outlet for their programming. For these niche programmers, New
     EchoStar would indeed be able to exercise monopsony power and could
     be the "gatekeeper" that some commenters have described. On the
     other hand, it may also be true that without the capacity freed up
     by the consolidation of the Applicants' satellites, neither DirecTV
     nor EchoStar would carry these niche programs, instead using their
     resources to carry programs with broader reaches. Moreover, it may
     be that the audience that lives in low density geographic areas do
     not form an identifiable niche. For example, there may be many
     "rural" viewers who live in areas served by high capacity cable
     systems, and thus a programmer attempting to reach "rural"
     audiences may have alternative outlets from which to choose. The
     record contains insufficient evidence for us to determine the
     precise impact of the transaction on the niche programmers
     described in this paragraph, and accordingly, we designate this
     question for hearing.

257. The second concern involves the possibility of vertical
     foreclosure. As described in the Background section, Vivendi, an
     owner of programming networks, will own approximately five percent
     of New EchoStar if the merger occurs. In return for its investment,
     Vivendi has secured five of EchoStar's channels. The agreement
     between EchoStar and Vivendi is non-exclusive, *i.e.,* EchoStar is
     not contractually prohibited from carrying networks that compete
     with Vivendi, and Vivendi is not prohibited from being carried by
     other MVPD providers. Vertical foreclosure concerns in this case
     therefore involve two possibilities: Vivendi discriminating against
     New EchoStar's rivals, and New EchoStar discriminating against
     Vivendi's rivals.

258. In theory, Vivendi could deny its programming to rivals of New
     EchoStar in order to induce consumers to switch to New EchoStar. In
     order for this strategy to be profitable, the profits Vivendi would
     lose by discriminating against other MVPD providers would have to
     be more than offset by the increase in Vivendi's share of the
     profits that New EchoStar would earn from the new customers it
     would gain as a result of the discrimination. However, Vivendi
     would bear the full cost of the reduced revenues from MVPD
     providers but would gain only five percent of New EchoStar's
     increased profits. We conclude that this type of vertical
     foreclosure is therefore highly unlikely to be profitable in this
     case.

259. Alternatively, New EchoStar could act in an anticompetitive manner
     against other programming providers in order to benefit its five
     percent shareholder, Vivendi. For example, New EchoStar could
     provide Vivendi's competitors with less desirable channel
     locations, or charge those programmers rates higher than it would
     if they did not compete with Vivendi. EchoStar, however, has a
     responsibility to the other 95% of its shareholders. It is
     therefore doubtful that New EchoStar would take actions that would
     decrease the profits of its other shareholders in order to increase
     Vivendi's.[^613] Moreover, EchoStar has no incentive not to make
     its other channels available to Vivendi's closest competitors if
     EchoStar otherwise finds it profitable to do so. Vivendi is a
     part-owner of EchoStar; EchoStar is not a part-owner of Vivendi;
     thus, New EchoStar would receive no part of any additional profits
     Vivendi might make because of New EchoStar's discrimination against
     other programmers, and New EchoStar therefore has no incentive to
     favor Vivendi (apart from complying with the terms of its
     contract).[^614] In short, other than providing it with five
     guaranteed channels, New EchoStar has no reason to discriminate in
     favor of Vivendi. We therefore do not find any problem in the area
     of vertical foreclosure.

### Transfer of Control of PanAmSat

260. *Background*. Part of the Application before us involves the
     transfer of control of the licenses of PanAmSat from Hughes to New
     EchoStar. PanAmSat is a major provider of fixed satellite services
     ("FSS") in the United States and is currently 81% owned by Hughes.
     Most distribution of video programming to MVPD service providers
     (and to over-the-air television broadcasters) is carried over FSS.
     Upon consummation of the planned transaction, New EchoStar would
     both be a DBS provider and an FSS provider.

261. In delivering video services to consumers, MVPD operators typically
     retransmit programming received from distant points, rather than
     originate programming at the locale where transmission takes place.
     To obtain these signals, the MVPD operators rely primarily on FSS
     provided over a number of GSO satellites.[^615] For national
     distribution of video programming within the United States, a full
     CONUS satellite "footprint" is needed.[^616] Roughly 70% of the
     capacity on FSS satellites in the United States is dedicated to
     video distribution; only seven percent is unused.[^617]

262. Information from various sources indicates that there are three
     major FSS operators licensed by the United States, with about \$2
     billion in revenues per year.[^618] SES ASTRA and PanAmSat are the
     two dominant operators, with Loral Space a distant third. In
     addition, there are fringe providers, such as New Skies, Anik, and
     various Latin American satellites partly available for North
     American use. PanAmSat controls about 35% of FSS satellite
     transponder capacity and carries about the same amount of national
     video programming, as measured by transponder usage. SES ASTRA
     controls about 42% of FSS satellite transponder capacity and
     provides about the same amount of national video programming. One
     market observer describes the FSS market to have an "oligopoly-like
     market structure of highly profitable players in the longer
     term."[^619]

263. The Applicants state that the acquisition of PanAmSat will provide
     significant benefits to consumers from the combination of FSS
     resources of DirecTV (Hughes) and EchoStar to bring broadband
     satellite services to market faster. The Applicants also state that
     the transaction will not create any significant overlap in the
     provision of FSS services that should raise any concern, given that
     EchoStar does not currently provide any telecommunications services
     of the same type as PanAmSat in the United States or elsewhere.

264. Duke Law argues that the merger would result in the largest MVPD
     provider, New EchoStar, having control over the most popular and
     heavily-used commercial satellite programming distribution network,
     PanAmSat.[^620] According to Duke Law, the acquisition of PanAmSat
     would allow New EchoStar to use its gatekeeper role in the
     commercial programming distribution market to obstruct the
     availability of public interest DBS programming.

265. *Discussion*. Although Hughes controls 35% of the FSS market
     through its ownership of the PanAmSat satellites, EchoStar does not
     operate any FSS satellites. Thus, post-merger, New EchoStar would
     have approximately 35% of the FSS market. With respect to the MVPD
     market, as of June 2002, DirecTV reported approximately 10.75
     million subscribers,[^621] approximately 11.5% of all MVPD
     subscribers,[^622] and EchoStar reported approximately 7.5 million
     subscribers,[^623] or approximately 8% of all MVPD subscribers.
     Thus, Hughes currently controls approximately 35% of the FSS market
     and 11.5% of the MVPD market, and after the merger, New EchoStar
     would control approximately 35% of the FSS market[^624] and 19.5%
     of the MVPD market.

266. We find it unlikely that the transfer of PanAmSat to New EchoStar,
     if the transaction ultimately were to be approved, would create any
     harms in the FSS and MVPD markets. First, because EchoStar today
     does not own any FSS satellites, the transaction does not increase
     the concentration in the FSS market. Second, PanAmSat is already
     under common control with a DBS provider -- DirecTV -- and the
     proposed transaction would not change that situation. Duke Law has
     suggested no reason why New EchoStar's ownership of PanAmSat, as
     compared to Hughes,' would affect the availability of public
     interest DBS programming

267. The economic literature describes certain scenarios in which it
     would be profitable for an integrated firm to act strategically
     against downstream rivals that use the firm's good or
     services.[^625] Thus, this literature suggests that New EchoStar
     might have an incentive to use its market power in the FSS market
     (assuming, arguendo, that it would have any) to competitively harm
     cable rivals, who use FSS. For instance, New EchoStar could degrade
     the quality of the FSS service provided to rivals, restrict supply,
     or raise price of FSS, all in an attempt to gain additional share
     (and earn additional profits) in the MVPD market.

268. Although possible, we find that such an attempt is unlikely to
     occur and even more unlikely to succeed. With 35% of the FSS
     market, it is doubtful that New EchoStar would have sufficient
     market power to carry out such a scheme. Further, there appears to
     be sufficient excess capacity in the FSS market at present so that
     if PanAmSat attempted to raise rates, it would likely lose
     customers to the other FSS providers. Thus, unilateral restriction
     of FSS supply would likely be very costly to New EchoStar and would
     achieve little. Moreover, as mentioned above, New EchoStar would
     have only a slightly stronger percentage of the MVPD market than
     Hughes does currently. Based on the similarity between New
     EchoStar's post-merger market shares and Hughes' current market
     shares in both the FSS market and the national MVPD market, there
     is little reason to believe, and no evidence in the record to
     suggest, that New EchoStar would have a significantly greater
     ability to act anticompetitively than Hughes does now in the FSS
     market. Moreover, it is hard to imagine that New EchoStar's
     strengthened presence in the MVPD market would enable it to
     increase the price of FSS service, as Duke Law suggests. We
     therefore conclude that New EchoStar's acquisition of PanAmSat
     would be unlikely to cause competitive harm in the FSS or MVPD
     markets. Accordingly, we are not designating for hearing any issues
     regarding the transfer of control of PanAmSat's licenses to New
     EchoStar.[^626]

## Proposed Merger Conditions

269. Several merger Opponents and other commenters suggest that if the
     Commission were to approve the proposed merger, New EchoStar should
     be subject to one or more conditions. A number of parties propose
     conditions that they contend will increase competition.
     Cablevision, through its wholly-owned subsidiary, R/L DBS ("Rainbow
     DBS"), holds an authorization to provide DBS service over 11 DBS
     channels at the half-CONUS 61.5° W.L. orbital location, and plans
     to initiate DBS service by late August 2003. Cablevision proposes
     as a condition to merger approval that EchoStar be divested of 17
     transponders from the 61.5° W.L. to "a new DBS entrant" (itself) in
     order to provide effective competition to New EchoStar.[^627]
     Cablevision also requests that the Commission require EchoStar to
     lease capacity on its EchoStar-3 satellite to Cablevision for not
     less than three years.[^628] WSNet recommends that the Commission
     condition the merger on a requirement to provide WSNet, or some
     similarly situated entity, with permanent access to full-CONUS
     enhanced satellite facilities.[^629] Satellite Receivers proposes
     that the Commission should condition the merger upon the licensing
     of MVDDS providers, and require New EchoStar to enter into a
     consent decree agreeing to share the 12.2-12.5 GHz spectrum.[^630]

270. SES Americom is seeking Commission authorization to initiate a new
     DBS service known as AMERICOM2Home.[^631] It argues that, unless
     certain conditions are imposed, New EchoStar will have the market
     power and incentive to prevent the development of this new
     service.[^632] SES Americom thus proposes that the approval of the
     merger be conditioned on the Commission requiring
     operator-to-operator discussions of interference concerns. It also
     requests that New EchoStar be required to provide open access to
     customer premises equipment, including the satellite dish and
     receiver to competing satellite service providers, and to make its
     local television transmissions available on a wholesale basis at
     reasonable rates for resale to competitors' customers. SES Americom
     also requests that the Commission forbid anticompetitive
     arrangements between New EchoStar and its retail distributors and
     content providers. Northpoint also suggests that the Commission
     condition the approval of the merger on the creation and
     implementation of an open standard for DBS receivers that would
     allow DBS customers to access services from competing wireless MVPD
     providers using their DBS receivers.[^633]

271. Several proposals for conditions concern the provision of
     local-into-local service. Consumers Union, APTS, Eagle, Family, and
     Paxson propose that the Commission condition merger approval with
     various requirements and timetables for the carriage of local
     broadcast television stations by New EchoStar.[^634] APTS also
     suggests that New EchoStar be required to display all local
     broadcast stations on its electronic program guide in a
     non-discriminatory manner within 30 days of the consummation of the
     merger.[^635] Family suggests that the Commission waive or modify
     Section 76.66(c)(1) to stop New EchoStar from denying carriage
     based on technicalities relating to the timing or content of
     carriage requests and that we open a new carriage request
     window.[^636] In addition, Paxson proposes that the Commission
     require New EchoStar to comply with all notice, carriage and
     election procedures set forth in SHVIA and to carry all local
     broadcast stations on a non-discriminatory manner, with respect to
     cost, receiving equipment, signal quality, digital and multicast
     signals, interactive capabilities, and program-related
     information.[^637]

272. Consumers Union proposes that the Commission should (1) increase
     the set-aside requirements pursuant to Section 25(b) of the Cable
     Act from four percent to seven percent from DBS operators to
     off-set the loss of editorial diversity, (2) require that an entity
     other than the DBS operator select the programming for the
     set-aside channels, and (3) impose additional reporting and
     enforcement obligations.[^638] The Local and State Government
     Advisory Committee ("LSGAC") proposes that New EchoStar make
     channel capacity available for PEG access and contribute PEG
     capital comparable to that contributed by cable operators. LSGAC
     and Paxson also recommend that the Commission impose specific
     enforcement mechanisms and penalties in case any of the conditions
     are not met.[^639]

273. The State of Alaska proposes conditions relating to the provision
     of broadband service in Alaska to ensure that Alaska receives
     satellite Internet services within a reasonable time period and the
     next generation satellite broadband Internet services at the same
     time as they are offered in the contiguous United States.[^640] The
     State of Alaska, the Regulatory Commission of Alaska ("RCA") and
     LSGAC suggest that New EchoStar be required to offer the same
     national pricing guarantees for broadband services as it proposes
     for DBS, and offer broadband equipment and installation prices in
     Alaska at prices equal to the prices offered to customers in the
     continental United States.[^641] Similarly, Consumers Union suggest
     that the Commission obtain an enforceable guarantee that New
     EchoStar will offer non-discriminatory pricing, rates, terms, and
     conditions in rural areas that are comparable to those offered in
     competitive markets, including the same equipment subsidies,
     promotions and service options. [^642]

274. In light of our decision to designate the Applications for hearing,
     we do not address the merits of any of these proposed conditions.

# balancing potential public interest harms and benefits

275. The Applicants have failed to meet their burden of proof to show
     that, on balance, the proposed merger is in the public
     interest.[^643] In this case, the record indicates that substantial
     potential public interest harms may result from the transaction,
     which in turn creates the need for Applicants to demonstrate that
     substantial and cognizable merger-specific public interest benefits
     will flow from the combination. The record before us irrefutably
     demonstrates that the proposed transaction would eliminate a
     current viable competitor from every market in the country, whether
     those markets are currently served by cable systems or are markets
     in which no cable systems exist, at best resulting in a merger to
     duopoly, and at worst a merger to monopoly. It would combine two
     DBS competitors who are currently fairly evenly balanced in terms
     of the assets necessary for effective competition in the MVPD
     market. Each has, over a number of years, at great expense,
     acquired the necessary spectrum licenses, developed and deployed
     the necessary equipment (satellites, earth stations, and consumer
     premises equipment), developed the necessary resources for
     marketing and consumer support, and acquired a substantial base of
     customers. Perhaps most significantly, each holds licenses for
     approximately half the total available orbital slots that allow
     broadcast to the entire continental United States -- licenses they
     seek in this proceeding to transfer to a single new entity.
     Accordingly, the barrier to entry for any entity seeking to compete
     in the market for satellite provision of MVPD service would be
     enormous. Sufficient widespread entry into MVPD markets via
     terrestrial wireless and wireline platforms, at least within the
     next two years, is not substantially easier in any respect.

276. As noted above, case law under the antitrust laws is generally
     quite hostile to proposed mergers that would have these impacts on
     the competitive structure, because such mergers are likely to
     increase the incentive and ability to engage in anticompetitive
     conduct.[^644] Competitive impacts are an important aspect of the
     Commission's public interest standard, as is consistency with
     Communications Act policy and the Commission's rules. The landmark
     Telecommunications Act of 1996 set forth a "procompetitive,
     de-regulatory national policy framework" that opened "all
     telecommunications markets to competition" with the aim of
     accelerating "rapidly private sector deployment of advanced
     telecommunications and information technologies."[^645] Competition
     in the communications industries is the cornerstone of our modern
     communications policy because it is well recognized that
     competition, rather than regulation of monopoly providers, has the
     greatest potential to bring consumer welfare gains of lower prices
     and more innovative services. Accordingly, a proposed transaction's
     consistency with the Act, our rules and competition policy in
     general is an integral part of our public interest review.

277. This Commission has a long history of establishing spectrum-based
     commercial services with no fewer than two participants per
     service, with the aim of creating competitive markets for
     spectrum-based voice, video and data services. The Applicants have
     cited no example where we have permitted a single commercial
     spectrum licensee to hold the entire available spectrum allocated
     to a particular service.

278. With respect to MVPD services, our public interest standard also
     includes a consideration of the impact on program and viewpoint
     diversity, and the record indicates that elimination of an
     alternative MVPD provider in every market in the country is
     problematic with respect to at least one measure of diversity --
     viewpoint diversity.

279. The Applicants attempt to meet their burden by defining the only
     relevant competitive struggle as that between the dominant cable
     operators on the one hand and DBS service providers on the other.
     They assert that little competitive harm will result from the
     consolidation of the DBS industry, because the cable operators will
     provide a sufficient competitive check on DBS where cable is
     available, and a national DBS programming pricing commitment will
     extend this protection to areas not served by cable systems. They
     argue that competition in the MVPD marketplace will be more
     vigorous if their assets are combined into a single entity that
     will be better equipped to compete with cable than either of
     existing stand-alone DBS providers today.

280. Our analysis of the potential competitive harms to the MVPD market
     indicates that the proposed merger would significantly increase
     concentration in an already concentrated market, and thus the
     merger should be presumed to create or enhance market power or
     facilitate its exercise. In addition, because competitive entry
     that could defeat any attempt by the merged entity to raise prices
     is unlikely to occur within the relevant timeframes for both
     committed and uncommitted entrants, there appears to be a
     substantial likelihood that the proposed merger will have
     significant adverse impact on competition in the MVPD market. Our
     analysis of the likelihood that competition may in fact be harmed
     either through unilateral actions by the merged entity or through
     coordinated interaction among firms in the relevant market
     indicates that the proposed merger could result in substantial
     consumer welfare losses, even assuming realization of all of the
     cost savings alleged by the Applicants. Such a loss of competition
     within the MVPD market is likely to harm consumers by eliminating a
     viable service provider in every market, creating the potential for
     higher prices and lower service quality, and negative impacts on
     future innovation.

281. Thus, the record before us indicates that the combination of
     EchoStar and DirecTV would eliminate the viable facilities-based
     intramodal competition that exists in a market with high barriers
     to entry. In its place of this viable competition, the Applicants
     offer a scheme of national pricing, to be administered by
     regulatory authorities. Our analysis, however, indicates that the
     Applicants' proposed national pricing plan is unlikely to be an
     adequate or effective remedy for the competitive harms likely to
     flow from the proposed merger. National pricing does not mean low
     pricing and the plan as proposed would leave Applicants free to
     price discriminate on a targeted basis, particularly with respect
     to promotions, installation and equipment offers and to
     discriminate with respect to service quality. The degree of
     regulatory oversight that would be needed to monitor such a plan to
     ensure against abuse would be substantial.

282. Thus, even if the national pricing plan were likely to be an
     effective competitive safeguard, its implementation would not be
     consistent with the Communications Act or with our overall policy
     goals. In essence, what Applicants propose is that we approve the
     replacement of viable facilities-based competition with regulation.
     This can hardly be said to be consistent with either the
     Communications Act or with contemporary regulatory policy and
     goals, all of which aim at replacing, wherever possible, the
     regulatory safeguards needed to ensure consumer welfare in
     communications markets served by a single provider, with free
     market competition, and particularly with *facilities-based*
     competition. Simply stated, the Applicants' proposed remedy is the
     antithesis of the 1996 Act's "pro-competitive, de-regulatory"
     policy direction. The merger would likely produce a more capable,
     but less effective, competitor to cable and would totally eliminate
     what appears to be a very healthy level of intramodal competition
     among the two facilities-based DBS providers.

283. The Applicants claim that the primary benefit from the combination
     would be in terms of the spectrum efficiencies gained by
     eliminating of the present duplicative carriage of identical
     national and local programming channels on each DBS system. The
     Applicants propose to "reclaim" the spectrum from this duplication
     over a period of several years and to use it to expand the combined
     entity's provision of carriage of to all local broadcast television
     stations in all 210 DMAs. They also claim that they will provide
     additional new services such as niche programming, HDTV, VOD and
     other forms of interactive television. Although recent statistics
     on new subscribers indicate that both Applicants continue to add
     subscribers at a far more rapid rate than the cable systems,
     Applicants predict that this additional spectrum will become
     increasingly critical to their ability to compete with cable as
     cable operators upgrade their systems and add advanced products
     that will counter the advantages that DBS has historically had in
     terms of product offerings and technical quality. The other primary
     alleged benefit derives from combining the subscribers of the two
     DBS systems into a single unit to take advantage of economies of
     scale and bargaining power with suppliers, particularly programming
     providers.

284. As we have stated in the foregoing sections, upon careful
     examination, the bulk of the Applicant's promised benefits with
     respect to MVPD services appear to be either inadequately supported
     by the data supplied; not merger-specific; achievable through means
     other than monopoly control over all available full-CONUS DBS
     spectrum; or are otherwise not cognizable under our public interest
     standard. Moreover, the Applicants have not demonstrated that their
     proposed merger is *necessary* to achieve many, if not all, of
     their claimed public interest benefits -- they merely allege that
     it will provide them the means with which to provide these
     benefits. Our central concern, however, is that with the resulting
     high degree of concentration in all MVPD markets, the Applicants'
     incentives to carry through on their promises of enhanced
     competition will be decreased, rather than increased. Thus,
     although we fully recognize the value of having free over-the-air
     broadcasting service in all 210 DMAs, we do not believe that the
     merger is more likely to bring satellite delivery of such service
     than the status quo. If the provision of local-into-local service
     is as important to the Applicants' competitive ability as they
     claim, then we fully believe that market forces will impel them to
     each find a way to bring that service to as many markets as
     possible. Accordingly, based on the record before us, we cannot
     give very much weight to Applicants' claimed MVPD benefits.

285. Insofar as the broadband market is concerned, encouraging the
     development and provision of broadband service over competing
     platforms is an objective of the Communications Act and has been
     given special priority by the Commission.[^646] The Applicants'
     promises of a future Ka-band broadband satellite product that is
     competitive on both service quality and price with cable and DSL
     products would be a significant advance, if these promises were to
     be realized. The potential harms, however, are equally significant.
     Allowing combination of the assets of the two companies with the
     strongest incentive and ability to compete in offering satellite
     broadband services would offend the Communication Act's strong
     overall preference for competition unless it were demonstrated
     convincingly that another significant objective could not be
     achieved except through such a combination.

286. Moreover, the Applicants' claimed benefit here is weaker than in
     the MVPD market, since each broadband customer uses up additional
     spectrum, regardless of the number of providers. Instead, the
     Applicants rely on an economies of scale argument -- that the
     merger is necessary to provide the minimum number of potential
     customers that will justify the investment necessary to create a
     competitive product. Parties have raised substantial issues with
     respect to both the need for the merger to create the necessary
     scale and the harm to competition that will result from combining
     the spectrum, customers, equipment, and support services of the two
     strongest existing potential entrants.

287. On balance, we cannot find that the Applicants have made a
     sufficient showing at this point either that the harms from the
     proposed transaction will be insubstantial or that the alleged
     benefits will outweigh them. Despite our efforts to obtain
     additional information and data from the Applicants in support of
     their claims, serious questions remain as to whether the proposed
     transaction would do significant and irreversible damage to
     competition in several markets without sufficient offsetting and
     cognizable public interest benefits. Consequently, it appears that
     the Applicants will be able to justify the proposed transaction, if
     at all, only after the more comprehensive fact-finding capabilities
     available in an administrative hearing.

288. The framework for analysis contained in this Order should ensure an
     expedited hearing. We identify below the principal factual issues
     that must be resolved with respect to both the harms the merger may
     produce and the benefits that may flow from it.

# ISSUES TO BE DETERMINED AT HEARING

289. For the reasons stated above, we are unable to find that the public
     interest, convenience and necessity would be served by approving
     the transfer of control to New EchoStar of the licenses and
     authorizations controlled by GM/Hughes and DirecTV and EchoStar. We
     have concluded, based on the evidence before us that Applicants
     have failed to demonstrate that the proposed transaction would not
     cause anticompetitive and other harms, and have failed to
     demonstrate that the potential public interest benefits resulting
     from the transaction would outweigh those harms. Accordingly,
     pursuant to Sections 309(e) and 409(a) of the Act, and taking into
     consideration the conclusions set forth in this Order, we designate
     the above-captioned Applications for an evidentiary hearing before
     an Administrative Law Judge ("ALJ"), and we direct the ALJ to
     prepare an Initial Decision on the issues set forth below. These
     issues have been designated for hearing because they reflect
     findings and conclusions that have been made based on the record we
     have compiled thus far, which prevent us from making a
     determination that the grant of the Applications will serve the
     public interest, convenience and necessity.

     *Issue 1*: Whether the proposed transaction is likely to cause
     anticompetitive harm. In reaching a determination on this issue, as
     outlined above, the following should be considered:

     \(a\) the product market (*e.g.*, whether the relevant product
     market is MVPD service, DBS service, or some other subset of MVPD
     service) (*see* paras. 106 -116);

     \(b\) the geographic market (*e.g.*, whether the proper geographic
     market is local, and whether, for purposes of analysis, the
     relevant geographic markets should be aggregated into three
     categories -- markets not served by any cable system; markets
     served by low-capacity cable systems; markets served by
     high-capacity cable systems; and the relative number of households
     in each of these categories) and the number of subscribers per
     market (*see* paras. 117 - 125);

     \(c\) the market participants, market shares and concentration
     (*see* paras. 126 - 139);

     \(d\) the timeliness, likelihood, and sufficiency of entry to
     offset any potential adverse competitive effects that may result
     from the proposed transaction (*see* paras. 140 - 150);

     \(e\) the effects of the proposed transaction on price, quality and
     innovation (considering the likelihood of coordinated behavior
     among competing firms and the ability of the Applicants to
     unilaterally take anticompetitive actions) (*see* paras. 151 -
     177);

     \(f\) the efficacy, potential harms, and potential benefits of
     Applicants' proposed national pricing plan (*see* paras. 178 -
     187);

     \(g\) the proposed transaction's effect on the ability of
     multichannel video programmers to reach certain niche audiences
     (*see* paras. 248 - 256); and

     \(h\) any conditions proposed by the Applicants.

     *Issue 2*: Whether the proposed transaction is likely to cause
     other public interest harms. In reaching a determination on this
     issue, the following should be considered:

     \(a\) the proposed transaction's effect on viewpoint diversity
     (*see* paras.42-43, 49-51 and 55); and

     \(b\) the proposed transaction's effect on the Commission's
     spectrum policies (*see* paras. 83 - 96).

     *Issue 3*: Whether the proposed transaction is likely to yield any
     public interest benefits. In reaching a determination on this
     issue, as outlined above, the following should be considered:

     \(a\) whether the cost savings and other benefits claimed by
     Applicants are non-speculative, credible and transaction-specific
     and are likely to flow through to the public (*see* paras. 188 -
     217); and

     \(b\) whether the proposed transaction's impact on the provision of
     Internet access service via satellite is likely to be beneficial or
     harmful. (*see* paras. 218 - 247).

     *Issue 4*: On balance, whether the public interest, convenience and
     necessity would be served by the grant of the above-captioned
     application and the joint application submitted by EchoStar and
     Hughes requesting authority to launch and operate NEW ECHOSTAR 1, a
     direct broadcast satellite that would be located at the 110° W.L.
     orbital location.

# ORDERING CLAUSES

290. Accordingly, IT IS ORDERED, That, pursuant to Section 309(e) of the
     Communications Act, the application for consent to transfer control
     of various Commission authorizations, including DBS and fixed
     satellite space station authorizations, earth station
     authorizations, and other related authorizations (as set forth in
     Appendices B, C and D) held by wholly- or majority-owned
     subsidiaries of EchoStar Communications Corporation (a Nevada
     corporation), General Motors Corporation, and Hughes Electronics
     Corporation to EchoStar Communications Corporation (a Delaware
     corporation); and the joint application submitted by EchoStar and
     Hughes requesting authority to launch and operate NEW ECHOSTAR 1, a
     direct broadcast satellite that would be located at the 110° W.L.
     orbital location (File No. SAT-LOA-20020225-00023) ARE DESIGNATED
     FOR HEARING. The Hearing shall be at a time and place and in front
     of an ALJ to be specified in a subsequent Order, on the issues set
     forth in paragraph 289.

291. IT IS FURTHER ORDERED, That pursuant to Section 309(e) of the
     Communications Act, the burden of proof with respect to the
     introduction of evidence and the burden of proof with respect to
     the issues specified in this Order shall be upon GM, Hughes, and
     EchoStar, the applicant parties in this proceeding.

292. IT IS FURTHER ORDERED, That the Commission's Consumer and
     Government Affairs Bureau, Reference Information Center, SHALL SEND
     copies of this Order to all parties by certified mail, return
     receipt requested.

293. IT IS FUTHER ORDERED, That the Chief, Enforcement Bureau, shall be
     a party to the designated hearing.

294. IT IS FURTHER ORDERED, That a copy of each document filed in this
     proceeding subsequent to the date of adoption of this Order SHALL
     BE SERVED on the counsel of record appearing on behalf of the
     Chief, Enforcement Bureau. Parties may inquire as to the identity
     of such counsel by calling the Investigations and Hearings Division
     of the Enforcement Bureau at (202) 418-1420. Such service SHALL BE
     ADDRESSED to the named counsel of record, Investigations and
     Hearings Division, Enforcement Bureau, Federal Communications
     Commission, 445 12th Street, S.W., Room 3-B431, Washington, D.C.
     20554.

295. IT IS FURTHER ORDERED, That within 30 days of the mailing of this
     Order pursuant to Paragraph 292 above, the parties may file an
     amended application with the Commission to ameliorate the
     competition concerns identified in this Order and may also file a
     petition to suspend the hearing pending review of the amended
     application.

296. IT IS FURTHER ORDERED, That, to avail themselves of the opportunity
     to be heard, GM, Hughes, and EchoStar, pursuant to Sections
     1.221(c) and 1.221(e) of the Commission's Rules, in person or by
     their respective attorneys, SHALL FILE in triplicate, A WRITTEN
     APPEARANCE, stating an intention to appear on the date fixed for
     the hearing and present evidence on the issues specified in this
     Order. Such written appearance shall be filed within 20 days of the
     mailing of this Order pursuant to Paragraph 292 above. Pursuant to
     Section 1.221(c) of the Commission's rules, if the parties fail to
     file an appearance within the specified time period, the assignment
     application will be dismissed with prejudice for failure to
     prosecute.

297. IT IS FURTHER ORDERED, That National Rural Telecommunications
     Cooperative; American Cable Association; Northpoint Technology,
     Ltd.; National Association of Broadcasters; Pegasus Communications
     Corp.; The Word Network; Johnson Broadcasting, Inc. and Johnson
     Broadcasting of Dallas, Inc.; Family Stations, Inc. and North
     Pacific International Television, Inc.; Communication Workers of
     America; Paxson Communications Corp.; Carolina Christian
     Television, Inc. and LeSea Broadcasting Corporation; Univision
     Communications, Inc.; Eagle III Broadcasting, LLC; and Brunson
     Communications, Inc., are made parties to the proceeding pursuant
     to Section 1.221(d) of the Commissions rules. To avail themselves
     of the opportunity to be heard, pursuant to Sections 1.221(e) of
     the Commission's rules, each of these parties, in person or by its
     attorneys, SHALL FILE in triplicate, A WRITTEN APPEARANCE, stating
     its intention to appear on the date fixed for the hearing and
     present evidence on the issues specified in this Order. Such
     written appearance shall be filed within 20 days of this Order
     becoming effective pursuant to Paragraph 292 above. Such written
     appearance must also be accompanies by the fee specified in Section
     1.1107 of the Commission's Rules or be accompanied by a deferral
     request pursuant to Section 1.1117 of the Commission's Rules. If
     any of these parties fails to file an appearance within the time
     specified, it shall, unless good cause for such failure is shown,
     forfeit its hearing rights.

298. IT IS FURTHER ORDERED, That, pursuant to Section 1.223 of the
     Commission's Rules, any person seeking to participate as a party in
     the hearing may file a petition to intervene. Such petition shall
     be filed within 30 days of the full text or a summary of this Order
     being published in the Federal Register. Such petition to intervene
     must either establish, under oath, that a person is a party in
     interest, in which case the petition shall be granted; or such
     petition must set forth the interest of petitioner in the
     proceedings, show how such petitioner\'s participation will assist
     the Commission in the determination of the issues in question, set
     forth any proposed issues in addition to those already designated
     for hearing, and be accompanied by the affidavit of a person with
     knowledge as to the facts set forth in the petition, in which case
     the ALJ may grant or deny the petition to intervene, and may limit
     intervention to a particular stage or stages of the proceeding, in
     his or her discretion. Pursuant to Section 1.225 of the
     Commission's Rules, no person shall be precluded from providing any
     relevant, material and competent testimony at the hearing because
     he or she lacks sufficient interest to justify intervention as a
     party.

299. IT IS FURTHER ORDERED, That the application for transfer of control
     of the licenses and authorizations at issue in this proceeding WILL
     BE HELD IN ABEYANCE PENDING THE OUTCOME OF THIS PROCEEDING.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch
>
> Secretary
>
> **APPENDIX A**
>
> **[PETITIONS TO DENY AND COMMENTS]{.underline}**

**I. [Submissions in Response to the December 21, 2001, Public
Notice]{.underline}**

**A. Petitions to Deny filed February 4, 2002**

American Cable Association ("ACA")

Brunson Communications Inc. ("Brunson")

Carolina Christian Television Inc. and LeSea Broadcasting Corporation
("Carolina")

Communications Workers of America (CWA")

Eagle III Broadcasting, LLC ("Eagle")

Family Stations, Inc. Family Stations of New Jersey, Inc. and North
Pacific International

Television, Inc. ("Family")

Johnson Broadcasting, Inc. and Johnson Broadcasting of Dallas, Inc.
"Johnson")

National Association of Broadcasters ("NAB")

National Rural Telecommunications Cooperative ("NRTC")

Northpoint Technologies, Ltd. ("Northpoint")

Paxson Communications Corporation ("Paxson")

Pegasus Communications Corporation ("Pegasus")

Univision Communications Inc. ("Univision")

The Word Network ("Word")

**B. Comments filed February 4, 2002**

ACC Satellite TV ("ACC")

Aiken Electric Satellite TV Inc. ("Aiken")

The American Antitrust Institute ("AAI")

Association of Public Television Stations and the Public Broadcasting
Service ("APTS")

Circuit City Stores, Inc. ("Circuit City")

Competitive Enterprise Institute ("CEI")

Consumers Union, The Consumer Federation of America, and the Media
Access Project

("Consumers Union")

Intelsat Global Service Corporation ("Intersat")

National Consumers League, the National Farmers Union and the National
Grange ("National

Consumers League")

National Rural Electric Cooperative Association ("NRECA")

Pappas Telecasting Companies ("Pappas")

PrimeTime 24 Joint Venture ("PrimeTime 24")

Progress and Freedom Foundation ("PFF")

Public Communicators, Inc. ("Public Communicators")

Regulatory Commission of Alaska ("Alaska Regulators")

Satellite Receivers, Ltd. ("Satellite Receivers")

State of Alaska ("Alaska")

Third Millennium Communications & Electronics Co., LLC ("Third
Millennium")

United States Internet Industry Association ("USIIA")

Vivendi Universal, S.A. ("Vivendi")

World Satellite Network, Inc. ("WSNet")

Writers Guild of America, Inc. ("WGA")

**C. Opposition filed February 25, 2002**

EchoStar Communications Corporation, General Motors Corporation and
Hughes Electronics

Corporation ("Applicants")

**D. Reply Comments filed February 25, 2002**

American Cable Association ("ACA")

Law and Communications Policy Seminar at Duke Law School ("Duke Law")

National Consumers League, The National Grange of the Order of Patrons
of Husbandry and

Organizations Concerned with Rural Education ("National Consumers
League")

The National Farm Union ("NFU")

The National Grange of the Order of Patrons of Husbandry ("National
Grange")

North Pacific International Television, Inc. ("NPIT")

National Rural Telecommunication Cooperative ("NRTC")

National Rural Utilities Cooperative Finance Corporation ("CFC")

Paxson Communications Corporation ("Paxson")

RFD Communications, Inc. ("RFD-TV")

Satellite Receivers, Ltd ("Satellite Receivers")

US Action ("US Action")

**II. [Submissions in Response to the April 19, 2002, Public
Notice]{.underline}**

**A. Petition to Deny and Motion to Dismiss filed May 20, 2002**

National Council of La Raza ("NCLR")

**B. Petition to Dismiss filed May 20, 2002**

National Rural Telecommunications Cooperative ("NRTC")

**C. Comments filed May 20, 2002**

SES Americom, Inc. ("SES")

**D. Opposition and Reply Comments filed May 30, 2002**

EchoStar Satellite Corporation and Hughes Electronics Corporation
("Applicants")

**E. Reply Comments filed May 30, 2002**

National Association of Broadcasters ("NAB")

**F. Responses filed June 4, 2002**

National Council of La Raza ("NCLC")

SES Americom, Inc. ("SES")

**Appendix B**

**EchoStar Communications Corporation**

**Licenses and Authorizations Subject to Transfer**

**I. DBS Space Station Authorizations**

***EchoStar Satellite Corporation (Licensee)***

[*Orbital Location* *FCC Id.* *Satellites In Use Authorized
Spectrum*\*\*]{.underline}

+-------------+-----------+--------------------+---------+--------------+
| 119° W.L.   | DBS 88-01 | EchoStar 7,        | 567 MHz | (21          |
|             |           | EchoStar 6,        |         | frequencies) |
|             | DBS 88-02 | EchoStar 4         |         |              |
+-------------+-----------+--------------------+---------+--------------+
| 110° W.L.   | S2232     | EchoStar 5         | 783 MHz | (29          |
|             |           |                    |         | frequencies) |
+-------------+-----------+--------------------+---------+--------------+
| 61.5° W.L.  | DBS 88-08 | EchoStar 3         | 297 MHz | (11          |
|             |           |                    |         | frequencies) |
+-------------+-----------+--------------------+---------+--------------+
| 148° W.L    | S2231     | EchoStar 1,        | 648 MHz | (24          |
|             |           | EchoStar 2         |         | frequencies) |
+-------------+-----------+--------------------+---------+--------------+

**II. Ku-Band Space Station Authorizations**

***EchoStar Satellite Corporation (Licensee)***

*[Orbital Location FCC Id]{.underline}. [Authorized
Spectrum]{.underline}*\*

  ------------------------- ------------------ ---------------------------
  83° W.L.                  S2142              1000 MHz

  121° W.L.                 S2143              1000 MHz
  ------------------------- ------------------ ---------------------------

**III. Ka-Band Space Station Authorizations**

***EchoStar VisionStar Corporation (Licensee)***

*[Orbital Location]{.underline}* *[FCC Id.]{.underline} [Authorized
Spectrum]{.underline}*\*

  ------------------------- ------------------ ---------------------------
  113° W.L                  S2210              2000 MHz

  ------------------------- ------------------ ---------------------------

**IV. Earth Station Authorizations *(Listed by Call Sign and Type)***

EchoStar Satellite Corporation (Licensee) Kelly Broadcasting Systems,
Inc.

+----------+----------+---+----------+-------+-----+-----------+-----+
| E890631  | Temp T/R |   | E980178  | T/R   |     | E860008   | T/R |
|          |          |   |          |       |     |           |     |
| E950252  | T/R      |   | E980180  | T/R   |     | E920003   | T/R |
|          |          |   |          |       |     |           |     |
| E950253  | T/R      |   | E990138  | T/R   |     | E920242   | T/R |
|          |          |   |          |       |     |           |     |
| E950287  | T/R      |   | E990139  | T/R   |     | E950308   | T/R |
|          |          |   |          |       |     |           |     |
| E950288  | T/R      |   | E990309  | T/R   |     | E980109   | T/R |
|          |          |   |          |       |     |           |     |
| E970394  | T/R      |   | E990310  | T/R   |     | E980147   | T/R |
|          |          |   |          |       |     |           |     |
| E980005  | T/R      |   | E980117  | T/R   |     | E000165   | T/R |
|          |          |   |          |       |     |           |     |
| E980047  | T/R      |   | E010240  | T/R   |     | E950177   | T   |
|          |          |   |          |       |     |           |     |
| E980081  | T/R      |   | E010241  | T/R   |     | E980095   | T   |
|          |          |   |          |       |     |           |     |
| E980082  | T/R      |   | E010242  | T/R   |     | E980096   | T   |
|          |          |   |          |       |     |           |     |
| E980118  | T/R      |   | E970395  | T/R   |     | E980097   | T   |
|          |          |   |          |       |     |           |     |
| E980127  | T/R      |   | E970396  | R     |     |           |     |
|          |          |   |          |       |     |           |     |
| E980128  | T/R      |   | E101240  | T/R   |     |           |     |
|          |          |   |          |       |     |           |     |
| E980142  | T/R      |   | E010241  | T/R   |     |           |     |
|          |          |   |          |       |     |           |     |
| E980143  | T/R      |   | E010242  | T/R   |     |           |     |
|          |          |   |          |       |     |           |     |
| E980174  | T/R      |   | E010266  | T/R   |     |           |     |
|          |          |   |          |       |     |           |     |
|          |          |   | E020233  | T/R   |     |           |     |
+----------+----------+---+----------+-------+-----+-----------+-----+

\* Authorized Spectrum assumes 2 times frequency re-use.

\*\* DBS authorized spectrum is based on 27 MHz channel bandwidth, guard
band not included.

**Appendix C**

**HUGHES ELECTRONICS CORPORATION**

**Licenses and Authorizations Subject to Transfer**

**I. DBS Space Station Authorizations**

***DirecTV Enterprises, LLC and USSB II, Inc. (Licensees)***

*[Orbital Location]{.underline} [FCC Id]{.underline}. [Satellites In
Use]{.underline} [Authorized Spectrum]{.underline}\*\**

  ------------- ----------- ------------------------ -------- --------------
  101° W.L.     DBS 8402    DIRECTV 2, DIRECTV 3,    864 MHz  (32
                                                              frequencies)

                DBS 8402    DIRECTV 1R, DIRECTV 4S            

                S2369,                                        
                S2430                                         

                DBS 81-07                                     

  110° W.L.     DBS 8402    DIRECTV 1                81 MHz   (3
                                                              frequencies)

                DBS 81-07                                     

  119° W.L.     DBS 8804    DIRECTV 5, DIRECTV 6     297 MHz  (11
                                                              frequencies)

                S2417                                         
  ------------- ----------- ------------------------ -------- --------------

**II. Ku-Band Space Station Authorizations**

***Hughes Global Services, Inc. (Licensee)***

*[Orbital Location]{.underline}* *[FCC Id.]{.underline} [Authorized
Spectrum]{.underline}*\*

  ----------------------- ----------------------- -----------------------
  77º W.L. (STA)          KS39 (SBS-4)            1000 MHz

  ----------------------- ----------------------- -----------------------

**III. Ka-Band Space Station Authorizations**

Hughes Network Systems, Inc. (Licensee)

<table style="width:100%;">
<colgroup>
<col style="width: 10%" />
<col style="width: 8%" />
<col style="width: 12%" />
<col style="width: 2%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 11%" />
<col style="width: 2%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 11%" />
</colgroup>
<tbody>
<tr class="odd">
<td><em>Orbital <u>Location</u></em></td>
<td><em><u>FCC Id</u>.</em></td>
<td><p><em>Authorized</em></p>
<p><u><em>Spectrum</em>*</u></p></td>
<td></td>
<td><em>Orbital <u>Location</u></em></td>
<td><em><u>FCC Id</u>.</em></td>
<td><em>Authorized <u>Spectrum</u></em><u>*</u></td>
<td></td>
<td><em>Orbital <u>Location</u></em></td>
<td><em><u>FCC Id.</u></em></td>
<td><em>Authorized <u>Spectrum</u></em><u>*</u></td>
</tr>
<tr class="even">
<td>101° W.L.</td>
<td>S2132</td>
<td>2000 MHz</td>
<td></td>
<td>101° E.L.</td>
<td>S2187</td>
<td>2000 MHz</td>
<td></td>
<td>131° W.L.</td>
<td>S2338</td>
<td>2000 MHz</td>
</tr>
<tr class="odd">
<td>99° W.L.</td>
<td>S2133</td>
<td>2000 MHz</td>
<td></td>
<td>111° E.L.</td>
<td>S2188</td>
<td>2000 MHz</td>
<td></td>
<td>30° E.L.</td>
<td>S2339</td>
<td>2000 MHz</td>
</tr>
<tr class="even">
<td>49° W.L.</td>
<td>S2185</td>
<td>2000 MHz</td>
<td></td>
<td>164° E.L.</td>
<td>S2189</td>
<td>2000 MHz</td>
<td></td>
<td>7.5° W.L.</td>
<td>S2340</td>
<td>2000 MHz</td>
</tr>
<tr class="odd">
<td>54° E.L.</td>
<td>S2186</td>
<td>2000 MHz</td>
<td></td>
<td>25° E.L.</td>
<td>S2190</td>
<td>2000 MHz</td>
<td></td>
<td>103° E.L.</td>
<td>S2341</td>
<td>2000 MHz</td>
</tr>
</tbody>
</table>

**IV. Earth Station Authorizations *(Listed by Licensee, Call Sign and
Type)***

<table>
<colgroup>
<col style="width: 1%" />
<col style="width: 9%" />
<col style="width: 2%" />
<col style="width: 7%" />
<col style="width: 1%" />
<col style="width: 2%" />
<col style="width: 2%" />
<col style="width: 1%" />
<col style="width: 1%" />
<col style="width: 12%" />
<col style="width: 8%" />
<col style="width: 2%" />
<col style="width: 1%" />
<col style="width: 2%" />
<col style="width: 9%" />
<col style="width: 11%" />
<col style="width: 3%" />
<col style="width: 10%" />
<col style="width: 7%" />
<col style="width: 2%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="6"><em><strong>DirecTV Enterprises, LLC</strong></em></td>
<td colspan="2"></td>
<td colspan="3"><em><strong>Hot Telecom, Ltd.</strong></em></td>
<td colspan="2"></td>
<td colspan="6"><em><strong>Hughes Network Systems,
Inc.</strong></em></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td>E950423</td>
<td colspan="3">R</td>
<td colspan="4"></td>
<td>E000362</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E880970</td>
<td>T/R</td>
<td></td>
<td>E881112</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E950424</td>
<td colspan="3">R</td>
<td colspan="4"></td>
<td>E010187</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E881109</td>
<td>T/R</td>
<td></td>
<td>E890426</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E980170</td>
<td colspan="3">R</td>
<td colspan="4"></td>
<td>E020205</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E890425</td>
<td>T/R</td>
<td></td>
<td>E890427</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E980341</td>
<td colspan="3">R</td>
<td colspan="4"></td>
<td>E020206</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E890627</td>
<td>T/R</td>
<td></td>
<td>E890428</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E930229</td>
<td colspan="3">T</td>
<td colspan="4"></td>
<td>E020207</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E900013</td>
<td>T/R</td>
<td></td>
<td>E890628</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E930304</td>
<td colspan="3">T</td>
<td colspan="4"></td>
<td>E020208</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E910612</td>
<td>T/R</td>
<td></td>
<td>E890629</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E930191</td>
<td colspan="3">T/R</td>
<td colspan="3"></td>
<td colspan="4"><em><strong>USSB II, Inc.</strong></em></td>
<td colspan="2"></td>
<td>E920556</td>
<td>T/R</td>
<td></td>
<td>E890630</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E980285</td>
<td colspan="3">T/R</td>
<td colspan="4"></td>
<td>E930437</td>
<td colspan="2">R</td>
<td colspan="2"></td>
<td>E940460</td>
<td>T/R</td>
<td></td>
<td>E891001</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E980338</td>
<td colspan="3">T/R</td>
<td colspan="4"></td>
<td>E930485</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E940478</td>
<td>T/R</td>
<td></td>
<td>E891002</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E980340</td>
<td colspan="3">T/R</td>
<td colspan="2"></td>
<td colspan="7"><em><strong>Hughes Global Services,
Inc.</strong></em></td>
<td>E861092</td>
<td>Temp T/R</td>
<td></td>
<td>E900192</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E980473</td>
<td colspan="3">T/R</td>
<td colspan="4"></td>
<td>E990024</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td>E873438</td>
<td>Temp T/R</td>
<td></td>
<td>E900682</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E990159</td>
<td colspan="3">T/R</td>
<td colspan="4"></td>
<td>E990055</td>
<td colspan="2">Temp T/R</td>
<td colspan="2"></td>
<td>E000166</td>
<td>VSAT</td>
<td></td>
<td>E940455</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E950349</td>
<td colspan="3">T/R</td>
<td colspan="2"></td>
<td colspan="7" rowspan="2"><p><em><strong>Hughes
Communications</strong></em></p>
<p><em><strong>Satellite Services, Inc.</strong></em></p></td>
<td>E880787</td>
<td>VSAT</td>
<td></td>
<td>E950471</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E010129</td>
<td colspan="3">T/R</td>
<td colspan="2"></td>
<td>E880788</td>
<td>VSAT</td>
<td></td>
<td>E950472</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td></td>
<td>E010130</td>
<td colspan="3">T/R</td>
<td colspan="4"></td>
<td>E960001</td>
<td colspan="2">R</td>
<td colspan="2"></td>
<td>E880789</td>
<td>VSAT</td>
<td></td>
<td>E950473</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td>E990545</td>
<td colspan="3">Temp T/R</td>
<td colspan="4"></td>
<td>E970079</td>
<td colspan="2">R</td>
<td colspan="2"></td>
<td>E881110</td>
<td>VSAT</td>
<td></td>
<td>E990170</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="even">
<td colspan="9"><em><strong>DirecTV Latin America,
LLC</strong></em></td>
<td>E970094</td>
<td colspan="2">R</td>
<td colspan="2"></td>
<td>E881111</td>
<td>VSAT</td>
<td></td>
<td>E970067</td>
<td colspan="2">VSAT</td>
</tr>
<tr class="odd">
<td></td>
<td colspan="2">E99023</td>
<td>T/R</td>
<td colspan="5"></td>
<td>E900013</td>
<td colspan="2">T/R</td>
<td colspan="2"></td>
<td></td>
<td></td>
<td></td>
<td>E000166</td>
<td colspan="2">VSAT</td>
</tr>
</tbody>
</table>

V.  ***Wireless Licenses (Listed by Licensee, Call Sign and Type)***

  -------------------- ------------- -------- ---------------------- ---- -- -------------------- ---------------------- ---- -- -------------------- ---------------------- -- -- -- ---------------- -------------------- ---------------------- -- --------- --
                       ***Hughes                                                                                                                                                      ***Hughes                                                                 
                       Electronics                                                                                                                                                    Communications                                                            
                       Corp.***                                                                                                                                                       Satellite                                                                 
                                                                                                                                                                                      Services,                                                                 
                                                                                                                                                                                      Inc.***                                                                   

  *[Call                                      *[Type]{.underline}*           *[Call               *[Type]{.underline}*           *[Call               *[Type]{.underline}*                             *[Call               *[Type]{.underline}*                
  Sign]{.underline}*                                                         Sign]{.underline}*                                  Sign]{.underline}*                                                    Sign]{.underline}*                                       

                                     21AM                            AC      KE4524                                      IG      WNIU649              IG                                               WPKJ833              IG                                  

                                     21AX                            AC      KXU919                                      IG      WNEP883              MG                              ***Hughes                                                                 
                                                                                                                                                                                      Network Systems,                                                          
                                                                                                                                                                                      Inc.***                                                                   

                                     KE2356                          IG      WNIR536                                     IG      WNEU909              MG                                               WB2X1X               STA (EX)                            

                                                                                                                                                                                                       WPLT306              IG                                  
  -------------------- ------------- -------- ---------------------- ---- -- -------------------- ---------------------- ---- -- -------------------- ---------------------- -- -- -- ---------------- -------------------- ---------------------- -- --------- --

\* Authorized Spectrum assumes 2 times frequency re-use.

\*\* DBS authorized spectrum is based on 27 MHz channel bandwidth, guard
band not included.

**Appendix D**

**PANAMSAT COMMUNICATIONS CORPORATION**

**(Subsidiary of Hughes Electronics Corporation)**

**Licenses and Authorizations Subject to Transfer**

**I. C and Ku-Band Space Station Authorizations**

PanAmSat Licensee Corporation (Licensee)

+--------------+------+-----------+---+-------------+------+----------+
| *[Orbital]{  | *[Ba | *Au       |   | *[Orbital   | *[Ba | *Aut     |
| .underline}* | nd]{ | thorized* |   | Location]{. | nd]{ | horized* |
|              | .und |           |   | underline}* | .und |          |
| *[Location]{ | erli | *[Spectr  |   |             | erli | *[       |
| .underline}* | ne}* | um]{.unde |   |             | ne}* | Spectrum |
|              |      | rline}*\* |   |             |      | ]{.under |
|              |      |           |   |             |      | line}*\* |
+--------------+------+-----------+---+-------------+------+----------+
| 133° W.L     | C    | 1000 MHz  |   | 58° W.L     | C/Ku | 2000 MHz |
+--------------+------+-----------+---+-------------+------+----------+
| 127° W.L.    | C    | 1000 MHz  |   | 45° W.L     | C/Ku | 2500 MHz |
+--------------+------+-----------+---+-------------+------+----------+
| 125° W.L.    | C    | 1000 MHz  |   | 43° W.L.    | C/Ku | 3000 MHz |
+--------------+------+-----------+---+-------------+------+----------+
| 123° W.L.    | C/Ku | 2000 MHz  |   | 43° W.L.    | Ku   |          |
+--------------+------+-----------+---+-------------+------+----------+
| 99° W.L.     | C/Ku | 2000 MHz  |   | 68.5°E.L    | C/Ku | 3600 MHz |
+--------------+------+-----------+---+-------------+------+----------+
| 95° W.L      | C/Ku | 2500 MHz  |   | 68.5°E.L    |      |          |
|              |      |           |   | (STAs)      |      |          |
+--------------+------+-----------+---+-------------+------+----------+
| 91° W.L      | C/Ku | 2000 MHz  |   | 72° E.L     | C/Ku | 1500 MHz |
+--------------+------+-----------+---+-------------+------+----------+
| 74° W.L      | C/Ku | 2000 MHz  |   | 166° E.L    | C/Ku | 2000 MHz |
+--------------+------+-----------+---+-------------+------+----------+
|              |      |           |   | 169° E.L    | C/Ku | 2000 MHz |
+--------------+------+-----------+---+-------------+------+----------+

**II. Ka-Band Space Station Authorizations**

PanAmSat Corp. (Licensee)

+-------------+---+-------+----------+---+-----------+--------+----------+
| *[Orbital   | * |       | *Aut     |   | *[Orbital | *[FCC  | *Au      |
| Location]{. | [ |       | horized* |   | Loca      | Id]{.  | thorized |
| underline}* | F |       |          |   | tion]{.un | underl | [        |
|             | C |       | *[       |   | derline}* | ine}.* | Spectrum |
|             | C |       | Spectrum |   |           |        | ]{.under |
|             | I |       | ]{.under |   |           |        | line}*\* |
|             | d |       | line}*\* |   |           |        |          |
|             | ] |       |          |   |           |        |          |
|             | { |       |          |   |           |        |          |
|             | . |       |          |   |           |        |          |
|             | u |       |          |   |           |        |          |
|             | n |       |          |   |           |        |          |
|             | d |       |          |   |           |        |          |
|             | e |       |          |   |           |        |          |
|             | r |       |          |   |           |        |          |
|             | l |       |          |   |           |        |          |
|             | i |       |          |   |           |        |          |
|             | n |       |          |   |           |        |          |
|             | e |       |          |   |           |        |          |
|             | } |       |          |   |           |        |          |
|             | . |       |          |   |           |        |          |
|             | * |       |          |   |           |        |          |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 103° W.L.   |   | S2191 | 2000 MHz |   | 133° W.L. | S2223  | 2000 MHz |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 124.5° E.L. |   | S2427 | 2000 MHz |   | 166° E.L. | S2224  | 2000 MHz |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 149° E.L.   |   | S2428 | 2000 MHz |   | 45° W.L.  | S2221  | 2000 MHz |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 173° E.L.   |   | S2429 | 2000 MHz |   | 58° W.L.  | S2220  | 2000 MHz |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 36° E.L.    |   | S2192 | 2000 MHz |   | 68.5°     | S2225  | 2000 MHz |
|             |   |       |          |   | E.L.      |        |          |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 40° E.L     |   | S2425 | 2000 MHz |   | 72.7°     | S2226  | 2000 MHz |
|             |   |       |          |   | E.L.      |        |          |
+-------------+---+-------+----------+---+-----------+--------+----------+
| 48° E.L     |   | S2426 | 2000 MHz |   |           |        |          |
+-------------+---+-------+----------+---+-----------+--------+----------+

**IV. Earth Station Authorizations** - *(Listed by Licensee, Call Sign
and Type)*

***PanAmSat Licensee Corp (Licensee)***

  --------- ----- --- --------- --------- ------------- --------- ----- -- --------- -----
  E950067   T         E980460   T/R                     E970080   R        E980501   T/R

  E000048   T/R       E980467   T/R                     E970051   T        E980503   T/R

  E000049   T/R       E980502   T/R                     E000063   T/R      E990091   T/R

  E000274   T/R       E990092   T/R                     E000363   T/R      E990323   T/R

  E000364   T/R       E990093   T/R                     E010113   T/R      E990334   T/R

  E000488   T/R       E990214   T/R                     E010131   T/R      E990364   T/R

  E010019   T/R       E990223   T/R                     E010133   T/R      E990365   T/R

  E010112   T/R       E990224   T/R                     E4132     T/R      E2178     T/R

  E7465     T/R       E990363   T/R                     E900089   T/R      E3943     T/R

  E881286   T/R       E990433   T/R                     E920340   T/R      E860175   T/R

  E890530   T/R       KA244     T/R                     E920377   T/R      E881304   T/R

  E940333   T/R       KA245     T/R                     E930088   T/R      E900621   T/R

  E940532   T/R       KA391     T/R                     E940368   T/R      E900757   T/R

  E950267   T/R       KA450     T/R                     E950502   T/R      KL92      T/R

  E950307   T/R       E950267   T/R                     E950508   T/R                

  E970352   T/R       E010118   Temp T/R  ***PanAmSat                                
                                          Comm.                                      
                                          Services,                                  
                                          Inc*.**                                    

  E970391   T/R       E010280   T/R                     E5702     T/R                

  E970392   T/R       KA71      T/R                                                  
  --------- ----- --- --------- --------- ------------- --------- ----- -- --------- -----

**V. Section 214 Authorizations**

  --------------- --------- -- ------------------------- -- -- ------------- ---------- -- ------------------ --
  ***PanAmSat                                                  ***PanAmSat                                    
  Carrier                                                      Comm. Carrier                                  
  Services, Inc.                                               Services,                                      
  (Licensee)***                                                Inc.***                                        

                  Section      ITC-214-19980102-00004/                       Section       ITC-85-221         
                  214          ITC-98-052                                    214                              

                               FCN-NEW-20000515-00033                        Section       ITC-85-069         
                                                                             214                              

                  Section      ITC-93-236                                                                     
                  214                                                                                         
  --------------- --------- -- ------------------------- -- -- ------------- ---------- -- ------------------ --

\* Authorized Spectrum assumes 2 times frequency re-use

**APPENDIX E**

#  {#section .unnumbered}

# Merger Simulations of the EchoStar-DirecTV Merger {#merger-simulations-of-the-echostar-directv-merger .unnumbered}

## The Role of Merger Simulation in Estimating Unilateral Effects

1.  In recent years, the evaluation of mergers in differentiated product
    industries has focused increasingly on possible unilateral
    effects.[^647] At the same time, a technique known as "merger
    simulation" has emerged as a frequently used tool for assessing the
    magnitude of possible unilateral affects in differentiated products
    mergers.[^648]

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300. Merger simulations can take on varying degrees of complexity. All
     simulations need knowledge or assumptions about demand, marginal
     costs, prices, and firm behavior in the relevant product and
     geographic markets. With information on the current values of these
     variables and assumptions about any merger-related changes that may
     occur, the simulation will predict the change in consumer welfare
     likely to result from the merger.

301. A thorough understanding of demand for the merging products and
     their substitutes is required for a realistic merger simulation. An
     understanding of how consumers respond to changes in the prices of
     products in the relevant markets is of prime importance. This
     information is conveyed by the price elasticities of demand. At a
     minimum, the simulation requires values for the own-price
     elasticities of demand for the merging products.[^649] A richer
     model can be used if cross-price elasticities of demand are
     available as well.[^650] Price elasticities for the products in the
     relevant markets can either be assumed or estimated using
     econometric techniques. They can also be inferred if reliable
     information on prices and marginal costs are available, as well as
     tractable assumptions about firm behavior.

302. Merger simulations also require knowledge of the marginal costs of
     production before and after the merger. These costs can be obtained
     in a number of ways. They can be estimated using econometric
     techniques or accounting data. In merger simulations, the
     pre-merger marginal costs are commonly inferred using the values of
     the price elasticities, prices, and assumptions about firm
     behavior. Information on cost reductions likely to result from the
     merger can be developed from engineering and business case
     analyses. Alternatively, simple assumptions about cost reductions
     can be made.

303. Finally, assumptions must be made about the nature of competition
     between the firms. One of two forms of competition is generally
     assumed. These forms are "Bertrand" competition and "Cournot"
     competition, named after the 19^th^ Century French economists who
     developed the theory. Under Cournot competition, a firm chooses to
     produce the amount of output that maximizes its profits.
     Equilibrium is reached when the level of each firm's output is such
     that it could not earn higher profits by changing its output
     decision when taking its competitors' output decisions as
     fixed.[^651] Under Bertrand competition, firms compete by setting
     prices that maximize the firms' individual profits. Equilibrium
     under Bertrand competition is reached when no firm could earn
     higher profits by changing its prices when it takes its competitors
     prices as fixed.[^652]

304. Once these four pieces of information have been obtained, they can
     be applied to the simulation to predict the prices that would
     result from the merger. The pre- and post-merger prices, along with
     the information about demand, are then used to determine the change
     in consumer welfare due to the merger.[^653]

## MacAvoy's and Sidak's Merger Simulation 

305. Dr. MacAvoy and Mr. Sidak, on behalf of NRTC and NAB respectively,
     provide merger-simulation analyses in support of their argument
     that the merger will result in unilateral effects that will harm
     consumers through increased prices. Following standard practice,
     their respective calculations of the predicted loss in consumer
     surplus are accomplished in three broad steps: (1) estimating (or
     assuming) demand elasticities; (2) determining pre- and post-merger
     marginal cost; and (3) predicting post-merger prices based
     assumptions about firm behavior and market structure.

306. Dr. MacAvoy uses merger simulation to develop an estimate of the
     loss in consumer welfare that the merger s likely to cause in
     relevant geographic markets not served by cable. Using linear
     regression analysis, Dr. MacAvoy first estimates an elasticity of
     demand for DBS of -1.55.[^654] Then, using average cost per unit as
     a proxy for marginal cost and assuming that in areas not served by
     cable the merged entity will price as a monopolist, Dr. MacAvoy
     predicts a post-merger price of \$75.75 in those markets not served
     by cable.[^655] Based on these estimates of pre- and post-merger
     prices for DBS, Dr. MacAvoy derives a projected loss in consumer
     surplus of between \$120 million and \$700 million per year for
     areas not served by cable.[^656]

307. Mr. Sidak, in contrast, estimates welfare losses not only for areas
     not served by cable, but also for areas that have access to cable.
     Mr. Sidak does not attempt to use econometric analysis to estimate
     the relevant demand elasticities, however, but rather simply
     assumes elasticities, which, he claims, are reasonable. For areas
     *not* served by cable, Mr. Sidak uses an estimate of the pre-merger
     price of DBS based on average revenue per customer[^657] and an
     assumed own-price elasticity of demand for DBS of -2.5 to calculate
     an implied marginal cost of \$37.40.[^658] Then using the monopoly
     pricing rule, Mr. Sidak derives a predicted post-merger price of
     \$62.35, which represents a markup of price over marginal cost of
     approximately 40%.[^659]

308. For areas served by cable, Mr. Sidak uses both the Cournot and
     Bertrand oligopoly models to estimate post-merger prices and
     associated consumer welfare losses. [^660] Using the Cournot
     pricing rule, an assumed own elasticity of demand for DBS of -2.75
     and estimates of pre-merger prices derived from average revenue per
     customer, Mr. Sidak calculates an implied marginal cost for DBS. He
     then derives a post-merger price for the combined DBS provider of
     \$52.85. This represents a price-cost markup of 18.1% and an
     increase of 7.28 % over current EchoStar prices.[^661]

309. Mr. Sidak then uses the Bertrand model to calculate an alternative
     estimate of the loss in consumer surplus. Under this alternative
     scenario, Mr. Sidak first assumes own price elasticities of demand
     of -3.0 for EchoStar and DirecTV and -1.95 for cable. [^662] He
     then derives estimates of the cross elasticity of demand between
     EchoStar and DirecTV. These estimates are based on the relationship
     between the diversion ratio and market shares. For market share
     data, Sidak uses the FCC's 2001 *Video Competition Report*.[^663]
     For comparative price and estimates of marginal cost, Sidak relies
     on Morgan Stanley Dean Witter's estimate of average revenue per
     unit for DirecTV and EchoStar. Using these estimates of the
     own‑price and cross‑price elasticities of demand and estimates of
     market shares and marginal costs for each of the three MVPD service
     providers, Mr. Sidak concludes that the prices for EchoStar and
     DirecTV offerings would increase by 4.0% and 1.4%,
     respectively.[^664] He further concludes that the number of
     EchoStar subscribers would fall by 8.0%.[^665]

310. Based on these calculations, Mr. Sidak estimates that the total
     annual deadweight loss[^666] from the proposed merger would be
     \$397 million under the Cournot pricing rule and \$383 million
     under the Bertrand pricing rule.[^667] Under the Cournot framework,
     the total annual consumer welfare loss is \$691.1 million. Using
     the Bertrand model, annual consumer welfare losses are \$704.1
     million.[^668] Finally, Mr. Sidak estimates that, under a perfectly
     collusive outcome, the deadweight loss would rise to \$1.16 billion
     per year.

## Applicants' Merger Simulation Analysis 

311. To rebut allegations that the merger will result in substantial
     consumer harms, the Applicants' present their own merger simulation
     analysis. Their merger simulation projects that the proposed merger
     is likely to offer **REDACTED** of net benefits to consumers. This
     benefit consists of two components. First, the benefits from the
     extension of local-into-local service to all DMAs are estimated to
     be **REDACTED** per year. Second, the projected reduction in
     marginal costs lowers MVPD prices which increase consumer surplus
     by **REDACTED** per year.[^669] The Applicants' merger simulation
     is described and evaluated below.[^670]

### Description of the Applicants' Model

312. The Applicants develop the four pieces of information required for
     the simulation through a combination of econometric estimation,
     calibration, and inference. The Applicants undertake to estimate
     the functional form of demand rather than assume or infer values
     for the price elasticities. To model MVPD demand, the Applicants,
     following the work of Steven Berry, adopt a discrete choice model
     known as the "nested logit."[^671] In this model a consumer's
     decision process can be thought of as a series of sequential steps.
     In the first stage, the Applicants assume that a consumer chooses
     between over-the-air television, cable service, and the DBS product
     group, or "nest," containing EchoStar and DirecTV service. If the
     consumer chooses the DBS product group, he then must select between
     DirecTV or EchoStar service. In addition, the econometrician must
     select one of the goods as the outside good. The outside good is
     the good by which the "quality" of all the other goods is compared.
     The Applicants treat over-the-air television as the outside good.
     The functional form, along with the choice of the outside good,
     determines the parameters that must be estimated. Three categories
     of parameters must be estimated: the nest strength parameters, the
     price parameters, and the mean utility parameters. The
     specification used by the Applicants requires the estimation of
     three equations.[^672]

313. One problem that arises when using market-level data to estimate
     the nested logit model is that it is not possible to obtain
     consistent estimates of the nest strength and price parameters
     using simple regression methods.[^673] A technique known as
     instrumental variables estimation is required to ensure that the
     estimated parameters are consistent. Ideally, one would jointly
     estimate the values of all of the parameters of demand using a
     systems instrumental variable approach.[^674] Application of an
     instrumental variables technique, however, can be difficult since
     it requires the existence of other variables, referred to as
     instruments, with distinct characteristics.[^675] The Applicants
     report they are unable to find appropriate instruments to allow
     consistent estimation of the nest strength parameter. [^676]
     Instead, they use the underlying functional form of demand in the
     nested logit model to develop a relationship between the nest
     strength parameter, market shares, and the diversion ratio.[^677]
     The value of the nest strength parameter is inferred from this
     relationship. The Applicants also encounter difficulties when
     estimating the parameters on price in the system of demand. They
     report that they are unable to develop sufficient variation in the
     price of their own products to accurately estimate the effect of
     DBS prices on consumer choice. The Applicants resort to estimating
     the parameter on the price of cable and assume that the parameter
     value also holds for the two DBS products.

314. The final sets of parameters necessary to fully specify demand are
     the mean utility levels for each product in each market. If certain
     measurable aspects of product quality are expected to change
     following the merger, the impact of these quality elements on mean
     utility can be estimated at this stage. The Applicants propose that
     their merger will lead to a wider deployment of satellite delivery
     of local broadcast stations. Given the difficulties in estimating
     the other parameters describing demand for the DBS products, the
     Applicants simply calculate the value of mean utility for each
     product in each market that makes the market shares predicted by
     the demand system equal to those observed. The effect of the
     expansion of DBS local-into-local service is estimated at a later
     stage.

315. The Applicants next estimate the marginal costs of the products and
     adjust for post-merger efficiencies. This stage incorporates the
     estimated demand parameters with assumptions about the competitive
     interaction of the firms to infer current marginal costs. The
     Applicants assume Bertrand competition, *i.e*., that all firms in
     all markets set prices that maximize profits. This behavioral
     assumption implies a unique set of marginal costs that would
     generate the prices and quantities observed in the marketplace. The
     Applicants calculate this set of marginal costs and assume that
     these are the current costs of the firms. The Applicants also
     introduce the reductions to marginal cost that are expected to
     result from the merger at this stage. These reductions are applied
     to the current marginal costs to obtain an estimate of the marginal
     costs of the firms following the merger.

316. Once the demand and the marginal costs of the products are fully
     specified, the post-merger behavior of the firms can be simulated
     to predict the prices and quantities that are likely to result from
     the merger. This calculation involves the estimated demand
     functions as well as the estimated post-merger marginal costs. The
     differences in the post-merger world must also be accounted for at
     this stage as well. One change is that a single firm will now set
     the national prices for the two DBS products. The merged firm will
     set national prices of the two DBS products so that the sum of
     profits from the two products is maximized. The other change is
     that the marginal cost of the two DBS products is lower due to
     merger efficiencies. Up to this point, the analysis has only
     examined the 4,984 cable franchise areas in the sample. At this
     stage, the areas where no cable is available must be accounted for.
     This additional market must be included in the profit-maximizing
     decision process of the firms as well.[^678] Given this structure,
     a set of prices and quantities that will hold in each market
     following the merger can be calculated. The changes in prices are
     then converted into changes in welfare in each of the markets.

317. In a standard merger simulation analysis, the analysis would be
     completed at this stage. However, due to some of the problems with
     estimating the demand system, the Applicants must make further
     adjustments. The Applicants account for the effect of the expansion
     of local-into-local service into DMAs ranked 71-210. Two specific
     effects are measured -- the direct effect of an increase in the
     quality of DBS on DBS consumers, and the indirect effect the
     increased quality will have on cable consumers through the pricing
     reactions of cable companies.

318. Estimating the direct effect proceeds in two steps. In the first
     step, the Applicants use the past history of the introduction of
     local-into-local service to predict the likely increases in DBS
     market shares that would result from the introduction of
     local-into-local service in new markets. In step two the Applicants
     convert this into a dollar value by calculating the equivalent
     decrease in DBS prices that would generate a similar increase in
     DBS market shares. The Applicants claim this represents the value
     the average consumer places on the introduction of local-into-local
     service.

319. According to the Applicants, the indirect effect of expansion of
     local-into-local service occurs because cable companies must
     compete more vigorously against the higher quality DBS competitor.
     As in measuring the direct effect, the Applicants measure the
     indirect effect by observing the outcomes in markets where
     local-into-local has already been introduced. The outcome to be
     measured here is a reduction in the cable rates relative to what
     they would have been in the absence of local-into-local service.
     Once the predicted cable rate "reduction" has been obtained, this
     dollar value is assumed to benefit all cable subscribers in DMAs
     ranked 71-210, as well as those who switch to cable as a result of
     the lower price.

320. The Applicants estimate the benefits from the extension of
     local-into-local service to all DMAs to be **REDACTED** per year.
     This amount is combined with the Applicants' claimed net benefits
     of **REDACTED** per year due to the reductions in marginal costs to
     obtain an overall estimated net benefit from the merger of
     **REDACTED** per year.[^679]

### Critique of Applicants' Merger Simulation Analysis

321. Our most serious reservations about the Applicants' merger
     simulation lie with their demand estimation and resulting estimates
     of elasticity. The Applicants estimate the own-price elasticity of
     demand for EchoStar to be **REDACTED** and **REDACTED** for
     DirecTV, and further estimate that the cross-price elasticities of
     demand for DirecTV and EchoStar are respectively **REDACTED** and
     **REDACTED** with respect to the prices the other DBS
     provider.[^680] These firm-level elasticities imply a price
     elasticity of demand for DBS of **REDACTED** and a price elasticity
     of demand for MPVD of **REDACTED**.

322. As we noted earlier, the Applicants have used over-the-air
     television to be the "outside good" in their nested logit model of
     MVPD demand. The model requires that the mean utility, or
     "quality," of the outside good be constant across all
     markets.[^681] However this basic assumption clearly fails to hold
     here because the "quality" of over-the-air television exhibits
     substantial variation across different markets. In the Glendive
     Montana DMA there is one full-power television station, while the
     Los Angeles DMA has twenty-four. Very few consumers would consider
     over-the-air television to be equal in those two DMAs. The end
     results of this misspecification is that the calibrated mean
     utilities of cable and DBS service are biased downwards in markets
     with higher quality over-the-air television and upwards in markets
     with lower quality broadcast television. Since markets with higher
     quality over-the-air television tend to have larger populations, we
     believe the aggregate effect is to underestimate the value
     consumers place on cable and DBS services, and therefore an
     underestimation of the market power possessed by MPVD producers.

323. The nested logit structure used by the Applicants is generally
     preferred over the "flat logit," that is the choice model where the
     consumer only makes a "one step decision" rather than the
     sequential choice process outlined above. This is because it
     imposes fewer restrictions on the cross-price elasticities of
     demand between the products. However, the nested logit form does
     impose the same restrictions as the flat logit at each step of the
     decision process. It is only when moving between steps that these
     restrictions are relaxed.[^682] The implication for the decision
     process chosen by the Applicants is that customers choosing to
     leave the DBS product group following a price rise must move into
     cable and over-the-air television in proportion to the existing
     market shares of cable and over-the-air television. The nesting
     structure thus imposes the constraint that **REDACTED** of the
     customers leaving the DBS market must shift to over-the-air
     television, while the remaining **REDACTED** will choose
     cable.[^683] This is substantially different from information
     presented by the Applicants which suggests that the econometric
     model will overstate the number of persons leaving DBS for
     over-the-air television by **REDACTED**.[^684] This forces us to
     question the appropriateness of the nesting structure chosen by the
     Applicants. If the basic structure chosen by the Applicants is
     mis-specified, the estimated parameters will bear no relationship
     to the true population parameters that govern the behavior of
     consumers and be useless in predicting how consumers will respond
     to changes in the prices and qualities of the products in this
     market.

324. The Applicants claim that they were unable to find an appropriate
     instrument for estimating the nest strength parameter, instead
     calibrate it. Using information on the percent of customers
     switching from DirecTV to EchoStar due to price and cost reasons,
     the nest strength parameter is calibrated based upon the diversion
     ratio. We find this procedure questionable for a number of reasons.
     Calibration in merger simulation models is traditionally done
     following estimation of the demand parameters, not prior to the
     estimation.[^685] To the extent that this calibration is limiting
     the responses of consumers to price, it is inappropriate and
     prejudges the results. The diversion ratio is derived from
     interviews DirecTV conducts with customers that have, voluntarily
     or involuntarily, dropped service. The Applicants have chosen to
     use **REDACTED** to calibrate the nest strength parameter. This
     ratio reflects the percent of DirecTV customers switching to
     EchoStar for claimed price and cost reasons in the survey. The
     Applicants reason that the diversion ratio can be directly related
     to price elasticities. We note that the diversion ratio for all
     surveyed customers between July 1999 and December 2001 was
     **REDACTED**, and for those customers that voluntarily left DirecTV
     it was **REDACTED**. The diversion ratio was over **REDACTED**
     among households in non-cabled areas that voluntarily left DirecTV
     in 2001.[^686] A higher diversion ratio implies that EchoStar and
     DirecTV are closer substitutes and that post-merger prices are
     likely to be higher than those estimated by the Applicants.

325. The next step in the demand estimation stage is to estimate the
     parameter on price. The Applicants did not use variations in DBS
     pricing or variations in the equipment and installation charges to
     estimate this parameter. Instead, the price parameter is estimated
     solely on information about the cable systems and cable prices.
     Material submitted by the Applicants clearly indicates that this
     assumption may be appropriate when price is normalized to be per
     unit of volume or weight or other appropriate measure of quantity,
     however that is not the case with these data.[^687] In fact, the
     Applicants appear to disregard the self-imposed constraint as well.
     When estimating the price parameter using cable system data, they
     separate the sample in two, one group of cable systems offering
     expanded basic tiers and the other group not offering those tiers.
     Estimation of the price parameter is done separately for each
     sub-sample. The resulting estimates are then averaged to get a
     final value which is used in the model. This procedure is highly
     questionable. While one might wish to argue that cable systems
     without expanded basic tiers offer substantially different
     products, this differentiation is exactly the sort that the Berry
     model, used by the Applicants is intended to address. If the
     Applicants believe that the price elasticities in areas served by
     cable systems without an expanded basic tier are significantly
     different, then the full simulation, including calibration of the
     nest strength parameter, should be performed separately for each
     sub-sample. These issues with the estimation and application of the
     price parameter lead us to question whether the Applicants
     estimated parameter bears any relationship whatsoever to the
     influence of price on the decision to purchase DBS services.

326. In order to simulate the post-merger MPVD industry, the Applicants
     adjust the calibrated pre-merger marginal costs for the
     merger-specific cost reductions that they anticipate. We have
     numerous concerns with their hypothesized cost reductions. For
     example many of the benefits seems to affect fixed costs and so it
     is unlikely that there would be any benefit to consumers. Moreover
     some of the cost savings such as reduced subscriber acquisition
     costs may reflect a lowering of the subsidy in equipment and
     installation that the Applicants now offer, and so harm consumers.
     Other benefits were too speculative or lacked credibility. These
     concerns were addressed in detail in our discussion of the
     Applicants claimed benefits in Section V.C. *supra*.

327. In summary, we find the Applicants model to be severely flawed and
     their results highly suspect. At the most fundamental level the
     Applicant's nested logit model is a complete misspecification of a
     model for individuals not served by cable. Consumers without access
     to cable have the choice between DirecTV, EchoStar, and
     over-the-air. In fact, the most critical step in the construction
     of any discrete choice model is the accurate delineation of the
     choice set of individuals in the market. The Applicant's model
     fails to reflect the actual choices of consumers without access to
     cable. This failure results in flawed model that cannot be
     corrected on an ad hoc basis. The correct modeling of consumer's
     choices of MVPD services requires separate models for both
     consumers without access to cable and consumers with access to
     cable. Moreover, the Applicants use of churn data is an additional
     failure to recognize that consumers without access to cable cannot
     churn to cable. Use of the Applicant's churn data and nested logit
     model is incorrect and cannot represent the choices of consumers
     without access to cable or the sensitivity to price of consumers
     without access to cable. As a result we find that we can give
     little credence to their estimates of the demand for MPVD products
     or the projected consumer benefits that the Applicants claim will
     result from the merger.

### Staff Merger Simulation Sensitivity Analysis: 

328. The Commission staff also undertook a sensitivity analysis of the
     Applicants' merger simulation.[^688] We estimated the range of
     magnitudes of harm that MVPD consumers are likely to experience if
     the proposed merger is approved. Our measure of consumer welfare
     loss is the loss in consumer surplus. The central question is by
     how much consumer surplus decreases when price increases. As
     explained above, the record suggests that the two DBS services are
     closer substitutes to each other than DBS is to cable. In the
     Applicants' model this degree of substitutability is affected by
     the "nest strength" parameter. Table 1 below indicates the
     magnitude of consumer losses that result in the Applicants model
     for modest increases in the nest strength parameter. It
     demonstrates that for small increases in this parameter above those
     assumed by the Applicants, consumer harms are likely to be
     significant. If most consumers view the two services as close
     substitutes, then the nest strength parameter would be very close
     to one. This appears likely given the similar product offerings,
     similar pricing, and the similar technology for delivery (satellite
     transmission, satellite dish and set-top box) used by the
     Applicants. In such a case, estimated consumer losses in the
     Applicants' model would be significantly greater.

     **REDACTED TABLE**

329. The above described sensitivity analysis used the Applicants' model
     assumes that : (1) consumers have a choice of over-the-air
     television, cable, or either DBS provider; (2) that the competitors
     engage in Bertrand competition; and (3) that the DBS providers
     charge a single national price. In reality, however, many
     customers, particularly in rural areas, do not have access to
     cable. In addition, as discussed above, we find that New EchoStar
     would have the incentive to price discriminate across geographic
     regions and therefore the profit maximizing prices would differ in
     different geographic regions. In order to address these unrealistic
     assumptions in the Applicants' model, the Commission staff
     undertook a further sensitivity analysis that assumed Cournot
     behavior and took account of the fact that some customers lacked
     access to cable.

330. The Commission staff's merger simulation found that the estimated
     elasticities of demand used by the Applicants to be unrealistic and
     overly sensitive to questionable assumptions. Staff also questioned
     the usefulness of the simulation developed by Mr. Sidak on behalf
     of NAB. Mr. Sidak simply assumes a value for the elasticity and
     proceeds from there. This is not an approach that we are willing to
     pursue. Our preference is for a simulation that relies as much as
     possible on actual observation of consumer behavior rather than
     broad assumptions. Similarly, staff found that we cannot use the
     simulation provided by Dr. MacAvoy on behalf of NRTC. MacAvoy's
     simulation only examines the impact of the merger on areas lacking
     access to cable television. We believe that a reasonable simulation
     must examine a broader spectrum of areas served by the Applicants.

331. Actual price and cost data are available to us from the record.
     These data and the equilibrium conditions of the Cournot model of
     firm behavior are used in our analysis to infer an elasticity. We
     tentatively use this elasticity to evaluate possible effects of the
     merger until additional verifiable and reliable econometric
     evidence is presented in hearing.

332. We begin our analysis of consumer welfare with prices for the most
     popular services of the present DBS competitors. EchoStar's most
     popular service is "America's Top 100." The most popular service
     offering of DirecTV is "Total Choice." We assume that DBS firms
     maximize their profit both before and after the merger. The
     pre-merger prices are known for EchoStar's "America's Top 100" and
     DirecTV's "Total Choice." The pre-merger price of America's Top 100
     submitted was **REDACTED**[^689] and "Total Choice" is
     **REDACTED.**[^690]

333. Given marginal costs of firms in the market and the number of firms
     in the market (2), we calculate a composite price (average price)
     and a composite marginal cost (average cost). Then, an implied
     market elasticity is calculated. Our calculated implied market
     elasticity is **REDACTED** a year. In addition the Commission staff
     examined the likely impact of the merger in the Cournot model
     considering both, price discrimination between cabled and uncabled
     areas, and a uniform national price. These estimates of losses are
     based on the actual costs of firms, prices of the firm, and implied
     own-price elasticites of demand. Thus, we again find that the
     likely magnitude of the harms is significant. Moreover, the value
     of the efficiencies necessary to counterbalance these harms
     significantly exceed the Applicants' own claimed benefits, which,
     as we discuss above, are not supported by the record.

     **STATEMENT OF CHAIRMAN MICHAEL K. POWELL**

Re*: Application of EchoStar Communications Corporation (EchoStar);
General Motors Corporation and Hughes Electronics Corporation (DirecTV)*

Today, the Commission has declined to approve the merger of EchoStar and
DirecTV. The record in this case compels this result. The combination of
EchoStar and DirecTV would have us replace a vibrant competitive market
with a regulated monopoly. This flies in the face of three decades of
communications policy that has sought ways to eliminate the need for
regulation by fostering greater competition. I decline the invitation to
turn our national communications policy back so many years.

The record before us irrefutably demonstrates that the proposed merger
would eliminate an ***existing viable competitor in every market in the
country***. The case against approving the transfer application is
particularly compelling with respect to residents of rural America who
are not served by any cable operator. Those Americans would be left with
only one choice for their subscription video service, now and in the
foreseeable future. But that alone is not the cornerstone of our
decision. At best, this merger would create a duopoly in areas served by
cable; at worst it would create a merger to monopoly in unserved areas.
Either result would decrease incentives to reduce prices, increase the
risk of collusion, and inevitably result in less innovation and fewer
benefits to consumers. That is the antithesis of what the public
interest demands.

DirecTV and EchoStar propose a "national pricing" condition, to
alleviate the competitive harms of this transaction. Under this plan,
EchoStar and DirecTV would have us replace healthy competition with a
monopoly governed by a scheme of regulated pricing. The Communications
Act and the Commission's overall policy goals aim at replacing regulated
monopoly service providers with free market competition among multiple
service providers. If economic history has taught us anything, it is
that healthy competitive markets, not regulated monopolies maximize
consumer welfare.

The Merger Application rests on the following claims; (1) EchoStar and
DirecTV only compete with cable but not with each other; (2) Standing
alone they are weak competitors to cable; (3) Absent the merger, the
applicants cannot provide "local into local" broadcast services.

The facts undermine these claims. First, the record shows that EchoStar
and DirecTV compete vigorously, not only with cable, but with each
other. Second, neither operator is failing in its efforts to compete
against cable. DBS subscriber growth rates are 2.5 times larger than
those of cable. Cable is attempting to respond to the DBS threat by
increasing channel capacity and adding new services for consumers.
Third, the record shows that each company standing alone will be capable
of offering local broadcast stations to 80-85% of American homes in a
very short period of time. They have the economic incentive to do so,
since both EchoStar and DirecTV are much stronger competitors to cable
in markets where they offer "local into local" service.

In short, the very premises upon which this proposed merger rest are
themselves without foundation.

The DBS story so far is one of successful, intra-modal, facilities-based
competition. This competition has led to more innovation, more
programming, and more subscribers; exactly the benefits one would
expect. For those who believe, as I do, that these benefits flow from
competition between DBS providers, the elimination of that competition,
absent a more compelling showing, cannot be squared with the public
interest.

**­SEPARATE STATEMENT OF**

**COMMISSIONER KATHLEEN Q. ABERNATHY**

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

> I am unable to find, based on the record before me, that the proposed
> transaction serves the public interest, convenience, and necessity and
> I therefore support designating this application for hearing. I start
> with the premise that a proposed merger generally creates efficiencies
> for the combined entity and those efficiencies may ultimately benefit
> consumers. But the inquiry cannot end there. We must determine what
> effect the merger will have on the state of competition in the
> relevant market and whether the efficiencies created by the merger
> will be passed on as benefits to consumers in the form of better
> services and lower prices. The Commission must then balance the
> potential benefits against the potential harms of the merger. The
> Commission's review goes beyond traditional antitrust considerations
> to encompass a broader public interest analysis.
>
> The record developed thus far demonstrates that this proposed merger
> will likely harm consumers by eliminating a viable competitor in every
> market, driving up prices, and decreasing innovation and quality of
> service. The Applicants have not demonstrated any merger-specific
> public interest benefits that outweigh these harms. More specifically,
> the proposed merger will substantially increase the level of
> concentration in an already highly concentrated market. It would at
> best be a merger to duopoly in markets where cable is available, and
> at worst a merger to monopoly in markets where there are no other
> competitive multichannel video programming providers. It does not
> appear that the Applicants' commitment to a national pricing plan,
> coupled with competition from cable in certain areas, will provide a
> sufficient competitive check on the merged entity. Furthermore, the
> high level of concentration resulting from the merger will likely
> reduce, rather than increase, the Applicants' incentives to carry
> through on many of the conceivable merger benefits, such as expanding
> local-into-local programming into all markets.
>
> I have no doubt that business combinations in the multichannel video
> market may be pro-consumer, and it would be a mistake to equate
> bigness with badness. But our task is to review only the application
> in front of us and to weigh the potential benefits against the threats
> to competition. On this record, I am forced to conclude that the
> public interest would not be served by granting the application.

**SEPARATE STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS**

*Re: In the Matter of Application of EchoStar Communications Corporation
(a Nevada Corporation), General Motors Corporation, and Hughes
Electronics Corporation (Delaware Corporations), Transferors, and
EchoStar Communications Corporation (a Delaware corporation),
Transferee, CS Docket No.01-348*

I support the decision to set this proposed merger for hearing. Based on
the evidence presented, I simply cannot see how the consumer benefits
that Applicants claim will flow from the merger would actually be
realized, much less guaranteed. In particular, I have heard from many
rural stakeholder groups concerning this proposed merger, and the
overwhelming majority have either opposed it or been highly skeptical
that this combination would bring the benefits Applicants claim.
Furthermore, it would be an enormous risk to approve a transaction that
results, at best, in the merger of a duopoly into a monopoly in a
critical sector of multi-channel video programming.

Many people's first reaction -- certainly mine -- to this proposed
merger was to think of its monopoly implications. Nevertheless, I have
said many times that every proposed combination coming before this
Commission deserves to be looked at on it own merits and within its own
particular factual and contextual situation, absent ideological
judgments or predetermined conclusions of how some idealized marketplace
should look. I have attempted to apply this approach here.

But the threat of monopoly kept coming back at me as I examined the
proposal. We are asked to take a lot on faith to approve this agreement,
yet at the end of the day we can be certain of only one thing: we are
eliminating whatever exists of competition in this sector in favor of
something that walks and talks and looks very much like a monopoly.
While some speak at this late date of altering the agreement again so as
to encourage the development of a second player, the facts are these:
(1) a second player exists now, unless we approve the merger; and (2)
expecting a new, unformed entity to come in and compete successfully
with a merged EchoStar and DirecTV is to dream the impossible dream,
especially in light of the capital starvation that continues to stalk
this sector. Were this merger to proceed as presented, the likelihood of
another satellite provider entering the market in the near future -- and
being able to compete effectively with the huge merged entity Applicants
seek to create -- would be so tiny as to be almost invisible.

At the end of the day, the Applicants are asking us to find that
eliminating a current, viable competitor from every market in the
country would somehow serve the public interest. Congress instructed us
to encourage ***competition***. The people's representatives recognize
the power of competition to give choices to consumers -- choices of
services, choices of technology, choices of providers, choices of
sources of content. This proposed merger raises such significant
concerns because, for the vast majority of consumers, it would result in
a ***reduction*** in competition, reducing the number of multi-channel
video programming providers for many consumers from three to two, or
from two-to-one, depending on whether the consumer today has access to
cable service.

Moreover, even if the Applicants were required to implement their
proposed uniform national pricing scheme -- which they claim would
ameliorate some of the competitive concerns raised in this *Order* --
effective enforcement of such a commitment would require significant
levels of regulatory oversight. I am not persuaded that this particular
Commission has the appetite for such extensive regulatory oversight.

Lately we are told that this proposed merger could ***potentially***
bring benefits to consumers by forcing cable rates down. It is an
interesting but unproven theory. One could as easily argue, with better
historical factuality, that instead of cable prices being forced down,
monopoly DBS prices would in the end go up. Moreover, I cannot agree
with those who argue that the only way to fight one entrenched industry
is to create a monopoly in a closely related industry. Competition in
the media industry should really be something more than two guys from
High Noon facing off in the street to see who is left standing after the
gunsmoke clears.

The overwhelming input I have received from rural America -- by no means
uniform but certainly preponderant -- is that this agreement has the
potential to wreak great havoc across our towns and farms and valleys.
"Not necessarily so," some say, but the future of rural America must
never be subject to a roll of the dice from the Commission because a few
believe that somehow such an unprecedented combination of commercial
power will be dedicated to rural development. That is playing fast and
loose with too many Americans whose future is challenging enough without
our foisting upon them a monopoly that could further erode their
well-being and independence. I am simply not convinced that the evidence
in the record before us supports a finding that allowing the transaction
to proceed ***would*** bring those benefits. And therefore, based on my
analysis of the evidence that has been presented, I do not believe that
the Applicants have met their burden to demonstrate that this merger
would serve the "public interest, convenience and necessity."

With respect to the concerns raised about EchoStar's two-dish policy and
its compliance with the terms of the Satellite Home Viewer Improvement
Act of 1999 ("SHVIA") and our rules, I wish to make it perfectly clear
that I remain wholeheartedly supportive of the finding that EchoStar
violated the nondiscrimination provision of SHVIA and § 76.66(i) of the
Commission's rules. However, I believe that it would be more appropriate
for the Commission to address the issues raised by EchoStar's two-dish
policy in a separate proceeding dedicated specifically to that issue.
EchoStar has had some time to take steps to come into compliance with
SHVIA and our rules, but the Commission has not yet had an opportunity
to weigh in on this matter. As this *Order* points out, the matter of
EchoStar's compliance with our rules and SHVIA is currently subject to
decision by the full Commission, pursuant to three applications for
review filed in response to the Bureau's Order. I hope and expect that
these proceedings will be moved along expeditiously. Once we review this
matter, our findings could be incorporated into the hearing proceeding
on the proposed merger.

Reviewing this proposal has been a challenge. Even now, parties are
preparing new ideas and alterations. I continue to believe that the
public's business can be more expeditiously and effectively transacted
when applicants present their best possible deal up front, keeping
changes to an absolute minimum, and not waiting until the last possible
moment to change the terms of play. Our review process should not have
to include sitting across the table from applicants trying to anticipate
last minute changes in strategy.

That being said, our rules do not preclude Applicants from proffering
conditions or making amendments to their application that could address
the competitive and public interest concerns we have with the proposed
merger. I believe that the designated hearing process is capable of
addressing the concerns, old and new, of the Applicants and arriving at
a determination in the public interest.

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.[^691] 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."[^692] 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.[^693]

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.[^694]

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."[^695]

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.[^696]

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."[^697] 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.[^698] 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."[^699]

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"[^700] -- 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.[^701]

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.[^702]

Ultimately, the Order states that the Commission is "unable to
conclusively resolve the product definition at this time."[^703] 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.[^704]

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.[^705] 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."[^706]

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.[^707] 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.[^708] 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."[^709] 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]: *See Consolidated Application of EchoStar Communications
    Corporation, General Motors Corporation, Hughes Electronics
    Corporation, Transferors, and EchoStar Communications Corporation,
    Transferee, for Authority to Transfer Control,* December 3, 2001
    ("*December 2001 Filing*"); *Letters to William F. Caton, Acting
    Secretary, Federal Communications Commission from Pantelis
    Michalopoulos, Counsel for EchoStar and Gary Epstein, Counsel for
    Hughes providing information pursuant to Section 1.65 of Commission
    Rules,* filed December 18, 2001 and February 21, 2002 ("*December
    2001 Amendment Letter*" and "*February 2002 Amendment Letter*"). The
    term, "Application," includes the *December 2001 Filing, December
    2001 Amendment Letter*, and *February 2002 Amendment Letter*. The
    Commission placed the Applicants' filing on public notice December
    21, 2001, DA 01-3005, CS Docket No. 01-348,establishing a comment
    cycle for this proceeding. *See* Appendix A for a list of parties
    filing in this proceeding and the abbreviations by which they are
    identified herein.

[^2]: DBS is the acronym used in the United States to describe the
    domestic implementation of the satellite service known
    internationally as the broadcasting satellite service ("BSS").

[^3]: The Commission granted *pro forma* transfer of control
    applications to Hughes' DBS licensees, DirecTV Enterprises, LLC and
    USSB II, Inc., authorizing the transfer of control to DirecTV
    Holdings, LLC, a wholly-owned subsidiary of Hughes. The *pro forma*
    transfers of control were part of an internal corporate
    reorganization by Hughes for tax and other business considerations
    and did not affect the ultimate ownership of the licensees, which
    remain indirect, wholly-owned subsidiaries of Hughes. *See* Letters
    from Jennifer Gilsenan, Chief, Policy Branch, Satellite Division to
    James H. Barker, counsel for Hughes Electronics Corporation, dated
    August 19, 2002, File No. SAT-T/C-20020618-00091 and File No.
    SAT-T/C-20020618-00092.

[^4]: The Applicants also state that EchoStar has agreed to purchase
    Hughes' interest in PanAmSat in the event the proposed transfer of
    Hughes and EchoStar to New EchoStar is terminated under certain
    circumstances. *See* Application at 2, and Application Vol. II, Tab
    4 (*PanAmSat Stock Purchase Agreement*). Although the Application
    includes a description of the *PanAmSat Stock Purchase Agreement*
    and although it was referred to in the public notice relating to the
    entire transaction, the Applicants did not request, nor did the
    Commission specifically notice or seek comment on, a separate, stand
    alone transaction to transfer control of Hughes' interest in
    PanAmSat to EchoStar. *See* 47 U.S.C. §§ 308, 309 and 310. Thus, we
    do not consider as part of this proceeding, the separate transfer of
    control of Hughes' interest in PanAmSat to EchoStar.

[^5]: *EchoStar Satellite Corporation and Hughes Electronic Corporation,
    Application for Authority to Launch and Operate NEW ECHOSTAR 1
    (USABBS-16)*, S2435, File No. SAT-LOA-20020225-00023 (Feb. 25, 2002)
    ("*February 2002 Application*"); *Letter to William F. Caton, Acting
    Secretary, Federal Communications Commission from Pantelis
    Michalopoulos, Counsel for EchoStar, and Gary Epstein, Counsel for
    Hughes,* *providing supplemental Technical Annex* (Mar. 28, 2002)
    ("*March 2002 Technical Annex*"); and *Letter to Marlene H. Dortch,
    Secretary, Federal Communications Commission from Pantelis
    Michalopoulos, Counsel for EchoStar, and Gary Epstein, Counsel for
    Hughes,* *providing complete copy of supplemental Technical Annex*
    (May 30, 2002) ("*May 2002 Technical Annex*"). The term, the
    "Satellite Application," includes the *February 2002 Application,
    March 2002 Technical Annex*, and *May 2002 Technical Annex.* The
    Commission placed the Applicants' joint filing on public notice
    April 19, 2002, CS Docket No. 01-348, DA 01-922 ("*Satellite
    Application* *Public Notice*"), and established an additional
    comment cycle in this proceeding. Parties filing in response to this
    public notice are listed in Appendix A.

[^6]: In the *Satellite Application* *Public Notice*, we noted that the
    Satellite Application, *inter alia*, related to merger-specific
    effects, and thus, expanded our review of the Application to include
    consideration of the Applicants' Satellite Application. *See*
    *Satellite Application* *Public Notice* at 3.

[^7]: DMAs are used by Nielsen Media Research to identify TV stations
    whose broadcast signals reach a specific area. A DMA consists of all
    counties whose largest viewing share is given to stations of that
    same market area. Non-overlapping DMAs cover the entire contiguous
    48 states, and also, Hawaii and parts of Alaska. There are currently
    210 DMAs throughout the United States. *See*
    http://www.nielsenmedia.com/FAQ/index.html.

[^8]: *See* EchoStar Communications Corp., Securities and Exchange
    Commission ("SEC") Form 10-K, Annual Report for the fiscal year
    ended December 31, 2001 ("*EchoStar 10-K 2001 Annual Report"*).

[^9]: *EchoStar 10-K 2001 Annual Report* at 5, 36.

[^10]: *Id*. On January 22, 2002, EchoStar issued 5,760,479 shares of
    Series D convertible preferred stock valued at approximately
    \$260.40 per share, in exchange for a \$1.5 billion equity
    investment by Vivendi. *See* *EchoStar 10-K Annual Report* at 5, and
    EchoStar Communications Company, SEC 8-K Filing, January 23, 2002
    ("*EchoStar 8K January 2002 Filing*"). The Series D convertible
    preferred stock is convertible, at any time, into 10 shares of
    EchoStar Class A common stock, at the option of the holder, and will
    automatically convert under certain conditions. *See* EchoStar
    Communications Corporation, Amendment No. 1 to Schedule 14C, filed
    May 29, 2002 ("*EchoStar May 29,2002 Preliminary Information
    Statement"*) at 291.

[^11]: In December 2001, EchoStar and Vivendi announced an eight-year
    strategic alliance in which Vivendi will develop and provide
    EchoStar DISH Network with a variety of programming and interactive
    television services. EchoStar and Vivendi also announced their
    intention to work on a programming initiative to develop new
    non-exclusive satellite-delivered broadband channels featuring
    interactive games, movies, sports, education, and music. Further, as
    part of the alliance, EchoStar will integrate Vivendi's advanced,
    interactive middleware technology, MediaHighway, a Canal+
    Technology, as a non-exclusive middleware solution that will provide
    DISH Network customers using personal video recorders unique
    interactive television services, such as movies from Vivendi, and
    music from Universal Music Group. *See* SEC Form 10-Q, Quarterly
    Report for the period ending March 31, 2002 (*EchoStar 10-Q March
    2002 Report)* at 34.

[^12]: *See* *February 2002 Amendment Letter* at Attachment D.

[^13]: *EchoStar 10-K 2001 Annual Report* at 2.

[^14]: According to recent SEC filings, as of June 30, 2002, EchoStar
    has 7.46 million subscribers. *See* EchoStar Communications Company,
    SEC Form 10-Q, Quarterly Report for the period ending June 30, 2002
    ("*EchoStar 10-Q June 2002 Report"*) at 18.

[^15]: *See e.g*., Application at 10. According to EchoStar, its DBS
    satellites enable it to offer over 500 video and audio channels,
    together with limited data services and high definition and
    interactive TV services. *EchoStar 10-K 2001 Annual Report* at 5.
    EchoStar offers limited interactive digital receivers with
    programming storage capacity that permits customers to pause and
    record live programs. In addition, EchoStar offers set-top boxes
    capable of providing interactive television services and
    applications. *Id*. at 9. EchoStar also offers customers two-way,
    high-speed satellite Internet access along with its DISH Network
    satellite television programming -- initially through an alliance
    with StarBand Communications, Inc. ("StarBand"); *see* n.27*, infra.
    M*ore recently, in connection with alliances with SBC Communications
    Corp. and EarthLink Communications, Inc. *See EchoStar, Earthlink
    Announce Strategic Marketing Alliance; EchoStar to Offer DISH
    Network Customers Bundled DSL Internet Service, Digital Satellite
    Television* (press release)*, April 19, 2002 at*
    http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=dish&script=410&layout=-6&item_id=281421.
    *See also* *SBC, EchoStar Announce Strategic Marketing Alliance*
    (press release), *April 17, 2002 at*
    http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=dish&script=410&layout=-6&item_id=286371.

[^16]: The United States has been allocated eight DBS orbital locations
    by the International Telecommunication Union ("ITU"). The eight U.S.
    orbital positions, proceeding from west to east (all West
    Longitude), are 175º, 166º, 157º, 148º, 119º, 110º, 101º, and 61.5º.
    *See* Appendix 30 to the ITU Radio Regulations. Three of these eight
    locations, 101º W.L., 110º W.L., and 119º W.L., are full-CONUS
    orbital locations, capable of serving customers across the
    contiguous 48 states, and also Hawaii and Alaska. *See Revision of
    Rules and Policies for the Direct Broadcast Satellite Service*, 11
    FCC Rcd 9712, 9762 (1995) ("*1995 DBS Report and Order*"); *Policies
    and Rules for the Direct Broadcast Satellite Service* 17 FCC Rcd
    11311, 11340 (2002)*,*(*"2002 DBS Report and Order*"). The spectrum
    allotted for DBS service at each of the eight CONUS orbital
    locations can support 32 analog channels (or transponders) with 24
    MHz of usable bandwidth per transponder. Thus, a total of 96 analog
    channels, each with a 24 MHz bandwidth, are capable of providing
    service from the three U.S. allocated full-CONUS locations. Recent
    advances in digital compression have enabled expansion of analog
    channels to multiple digital channels, with compression ratios of at
    least 10 to 1, based on technology predominately used today, and
    higher. *See infra*, ¶ 66. For instance, certain DirecTV satellites
    are capable of providing a total of 328 digital channels (9 clear
    and 319 encoded) per 32 analog channels. *See 2002 DBS* Order,
    *supra*. To better reflect the expanded capacity now available from
    each DBS orbital location, throughout this Order, we use the term
    "frequencies" instead of "channels" or "transponders."

[^17]: *See EchoStar Satellite Corporation For Assignment of Direct
    Broadcast Satellite Orbital Positions and Channels*, 7 FCC Rcd 1765
    (Int'l Bur. 1992); *Letter from Donald H. Gipps, Chief,
    International Bureau, Federal Communications Commission to EchoStar
    Satellite Corporation*, 11 FCC Rcd 16468 (Int'l Bur. 1996); *Letter
    from Donald H. Gipps, Chief, International Bureau, Federal
    Communications Commission, to DirectSat Corporation*, 11 FCC Rcd
    16465 (Int'l Bur. 1996); *EchoStar Satellite Corporation, et. al,
    Application for Authority to Make Minor Modifications to Direct
    Broadcast Satellite Authorizations, Launch, and Operational
    Authority,* 13 FCC Rcd 8595 (Int'l Bur. 1998) ("1998 EchoStar Minor
    Mod."); *EchoStar Satellite Corporation Application for Authority to
    Make Minor Modifications to Direct Broadcast Satellite
    Authorizations, Launch, and Operation Authority,* 15 FCC Rcd 23636
    (Int'l Bur. 2000) ("2000 EchoStar Minor Mod.").

[^18]: *See Application of MCI Telecommunications Corporation, and
    EchoStar 110 Corporation for Consent to Assignment of Authorization
    to Construct, Launch, and Operate a Direct Broadcast Satellite
    System Using 28 Channels at the 110°W.L. Orbital Location*, 16 FCC
    Rcd 21608 (Int'l Bur. 1999) ("*MCI-EchoStar Order*"); *EchoStar
    Satellite Corporation Application for Modification to Direct
    Broadcast Satellite Authorization and for Operation Authority*, 15
    FCC Rcd 6727 (Int'l Bur. 1999) ("1999 EchoStar Mod").

[^19]: *See* *Application of EchoStar DBS Corporation For Authority to
    Construct Launch and Operate a Direct Broadcast Satellite System at
    148° W.L.*, 12 FCC Rcd 11946 (Int'l Bur. 1996); 1998 *EchoStar Minor
    Mod.; 2000 EchoStar Minor Mod.*

[^20]: *See Application of Direct Broadcasting Satellite Corporation for
    Assignment of Direct Broadcast Satellite Orbital Positions and
    Channels*, 8 FCC Rcd 7959 (Int'l Bur. 1993).

[^21]: At this orbital location, EchoStar holds authorizations for 11
    frequencies, R/L DBS Company, LLC ("R/L DBS") holds authorizations
    for 11 frequencies, and Dominion Video Satellite, Inc. ("Dominion")
    holds authorizations for 8 frequencies; the remaining 2 frequencies
    are unassigned. The International Bureau granted Special Temporary
    Authority to EchoStar to operate over all frequencies at this
    location, s*ee Direct Broadcasting Satellite Corporation Application
    for Special Temporary Authority to Operate a Direct Broadcast
    Satellite over Channels 1-21 (odd) and 23-32 (odd and even) at 61.5
    W.L.*, 13 FCC 6392 (Int'l Bur. 1998); *Direct Broadcasting Satellite
    Corporation Application Authority of a Direct Broadcast Satellite,
    Application for Modification and Request for Special Temporary
    Authority to Test*, 13 FCC Rcd 10080 (Int'l Bur. 1998). *See also
    Dominion Video Satellite, Inc.*, 14 FCC Rcd 8182 (Int'l Bur. 1999);
    *Petition of R/L DBS Company, L.L.C. For Extension of its Direct
    Broadcast Satellite Construction Permit*, 16 FCC Rcd 9 (Int'l Bur.
    2000) ("*R/L DBS Petition*"). R/L DBS is not yet using its assigned
    frequencies to provide service and Dominion uses two of its
    frequencies for its religious programming and subleases six of its
    frequencies to EchoStar.

[^22]: *See Application of EchoStar Satellite Corporation for Authority
    to Construct, Launch and Operate Space Stations in the Domestic
    Fixed-Satellite Service*, 11 FCC Rcd 20446 (Int'l Bur. 1996).
    EchoStar failed to meet the milestone requirement for this
    authorization, and its request for extension of milestone dates is
    pending.

[^23]: *See Application of VisionStar, Inc., Licensee, Shant Hovnanian,
    Transferor and EchoStar VisionStar Corporation, Transferee*, 16 FCC
    Rcd 19187 (Int'l Bur. 2001). On April 30, 2002, VisionStar filed a
    Request for Extension of Time to Complete Construction and to Launch
    Fixed Satellite Service, which is currently pending. EchoStar also
    received Ka-band authorizations at the 83º W.L. and 121º W.L.
    orbital locations, *see EchoStar Satellite Corporation Application
    for Authority to Construct, Launch and Operate a Ka-Band Satellite
    System in the Fixed-Satellite Service,* 13 FCC Rcd 5664 (Int'l Bur.
    1997), however, the International Bureau canceled these
    authorizations for failure to satisfy the initial mandatory
    implementation milestone, *see EchoStar Satellite Corporation,
    Application for Authority to Construct, Launch, and Operate a
    Ka-band Satellite System in the Fixed-Satellite Service*, 17 FCC Rcd
    12780 (Int'l Bur. 2002). EchoStar's petition for reconsideration is
    pending before the Commission.

[^24]: EchoStar KuX Corporation, a direct wholly-owned subsidiary of
    EchoStar, has submitted an application for use of extended Ku-band
    frequencies. *See Application For Authorization to Launch and
    Operate Satellites in the Extended Ku-Band*, Public Notice, File
    Nos. 82/83-SAT-P/LA-96 and 84-SAT-P-96, (Mar. 20, 1996).

[^25]: *See* Application, Attachment C; *see also* Appendix B.

[^26]: *See* Public Notices, Satellite Communications Services
    Information, Actions Taken, Report No. SES-00383, April 8, 2002 and
    Report No. SES-00387, April 24, 2002.

[^27]: *See* Application at 11. In April 2002, EchoStar terminated its
    wholesale distribution agreement with StarBand, and in June 2002,
    surrendered its voting interest in StarBand, but continues to retain
    its equity holdings in StarBand. *See*
    HREF=\"http://dc.internet.com/news/article.php/1369411\"(visited
    June 27, 2002). *See EchoStar SEC 10-Q March 2002 Report* at 7.

[^28]: *See* Application at 11. WildBlue Communications is the parent
    company of WB Holdings 1 LLC, which holds Commission authorizations
    for 500 MHz of Ka-band spectrum at the 73º W.L. and 109.2º W.L.
    orbital locations, and KaStarCom. World Satellite, LLC., which holds
    Commission authorizations for 500 MHz of Ka-band spectrum at the 73º
    W.L. and 109.2º W.L. orbital locations and 1000 MHz at the 111º W.L.
    orbital location. *See,* *Assignment of Orbital Locations to Space
    Stations in the Ka-Band*, Order, 13 FCC Rcd 1030 (Int'l Bur. 1997)
    ("*First Round Assignment Order*"), *revised*, *Assignment of
    Orbital Locations to Space Stations in the Ka-Band*, Order, 12 FCC
    Rcd 22004 (Int'l Bur. 1997) ("*First Round Reassignment Order*");
    *Second Round Assignment of Geostationary Satellite Orbit Locations
    to Fixed-Satellite Service Space Stations in the Ka-Band*, 16 FCC
    14389 (Int'l Bur. 2001) ("*Second Round Assignment Order"*),
    revised, *Second Round Assignment of Geostationary Satellite Orbit
    Locations to Fixed Satellite Service Space Stations in the Ka-Band*,
    17 FCC Rcd 14400 ("Int'l Bur. 2002) ("*Second Round Reassignment
    Order*") ("*Ka-Band Assignment Orders*").

[^29]: EchoStar holds 17.6% interest in Celsat America, Inc., which
    holds Commission authorization to construct and launch a
    two-satellite GSO mobile-satellite system to serve the United States
    using service links in the 2 GHz MSS band. *Celsat America, Inc.*,
    Order and Authorization, 16 FCC Rcd. 13712 (2001). The Commission
    authorized Celsat to operate its MSS system's feeder links using 500
    MHz of uplink spectrum in the Ka-band at the 121° W.L and 83° W.L.
    orbital locations. *Celsat America, Inc.*, Order and Authorization,
    16 FCC Rcd. 14278 (2001).

[^30]: *See* General Motors, Inc. SEC Form 10-K, Annual Report for the
    fiscal year ended December 31, 2001 (*GM 10-K 2001 Annual Report*).

[^31]: *GM 10-K 2001 Annual Report* at I-1. GM also has financial and
    insurance operations and, to a lesser extent, is engaged in other
    industries. *See also* Hughes Electronics Corporation, SEC Form
    10-K, Annual Report for the fiscal year ended December 31, 2001
    (*Hughes 10-K 2001 Annual Report*).

[^32]: The three business segments are differentiated by their products
    and services: the Direct-To-Home Broadcast segment is engaged in
    acquiring, promoting, selling and/or distributing digital
    entertainment programming via satellite to residential and
    commercial customers and providing land-based DSL services; the
    Satellite Services segment is engaged in the selling, leasing and
    operating of satellite transponders and providing services for cable
    television systems, news companies, Internet service providers and
    private business networks; and the Network Systems segment is a
    provider of satellite-based private business networks and broadband
    Internet access, and a supplier of DirecTV receiving equipment
    (set-top boxes and dishes). *See* Hughes Electronics Corporation,
    SEC Form 10-Q, Quarterly Report for the period ending June 30, 2002
    (*Hughes 10-Q March 2002 Report*) at 21.

[^33]: GM also had issued and outstanding 2.7 million shares of GM
    Series H 6.25% automatically convertible preference stock.
    Application at Vol.1, Tab E. On June 24, 2002, the 2.7 million
    shares of GM Series H 6.25% automatically convertible preference
    stock held by America Online, Inc., a wholly owned subsidiary of AOL
    Time Warner Inc., converted into 80 million shares of GM Class H
    common stock (*i.e*., Hughes Tracking Stock) as provided for in the
    terms of the Series H stock. GM originally issued the GM Series H
    preference shares to AOL in connection with a strategic alliance
    between AOL and Hughes Electronics Corp. in 1999. As a result of the
    conversion, GM no longer has any shares of preference stock
    outstanding (*see* Hughes Electronics Corporation, SEC Form 8-K,
    filed June 24, 2002) and AOL Time Warner Inc. now holds 8.4% of the
    Hughes Tracking Stock. *See* GM SEC Form 13-G, filed June 24, 2002
    at 3.

[^34]: Holders of Hughes Tracking Stock have no direct rights in the
    equity of assets of Hughes, but rather have rights in the equity and
    assets of GM. *See GM 10-K 2001 Annual Report,* cover page.

[^35]: Application at Vol.1, Tab E.

[^36]: The Commission recently approved *pro forma* transfer of control
    applications that resulted in the transfer of numerous holdings of
    various Hughes companies into DirecTV Holdings, LLC. s*ee* n.3,
    *supra*.

[^37]: The Applicants state that DirecTV Latin America LLC, which is
    licensed by a foreign country, is not part of this Application.
    *See* Application at n.30.

[^38]: *See Hughes 10-K 2001 Annual Report* at 3. On April 3, 2001,
    Hughes acquired Telocity Delaware, Inc. ("Telocity"), a company that
    provides land-based digital subscriber line ("DSL") services.
    Telocity is now operating as DirecTV Broadband. *Id.* at 41. *See
    also Hughes 10-Q June 2002 Report* at 20.

[^39]: *See* *United States Satellite Broadcasting Co., Inc. and DirecTV
    Enterprises, Inc.*, 14 FCC Rcd 4585 (Int'l Bur. 1999)
    ("*USSB-DirecTV Order*"); *Hughes Communications Galaxy, Inc.,* 99
    FCC 2d 1369, 1371, 1387, 1388 (1984).

[^40]: *See Tempo Satellite Inc. and DirecTV Enterprises, Inc.*, 14 FCC
    Rcd 7946 (Int'l Bur. 1999) ("*Tempo-DirecTV Order*"); *see also
    DirecTV Enterprises, Inc.*, 7 FCC Rcd 2728 (Int'l Bur. 1992) and 7
    FCC Rcd 6597 (Int'l Bur. 1992).

[^41]: *See* Application, Attachment C.

[^42]: According to recent SEC filings, DirecTV has 10.7 million
    subscribers, 1.7 million of whom are customers of NRTC. *See* Hughes
    Electronics Corporation, SEC Form 10-Q, Quarterly Report for the
    period ending June 30, 2002 ("*Hughes 10-Q June 2002 Report"*) at
    38.

[^43]: In 1994, NRTC and Hughes Communications Galaxy, Inc. (DirecTV's
    predecessor-in-interest) entered into a Distribution Agreement
    wherein NRTC received exclusive program distribution rights to
    market DirecTV's DBS service in rural areas of the United States.
    NRTC, its members and affiliates currently distribute DirecTV to
    approximately 1.9 million rural households. NRTC's largest
    affiliate, Pegasus Communications Corporation, distributes DirecTV
    programming to approximately 1.5 million of NRTC's customers. *See*
    NTRC Comments at 3.

[^44]: *See* Application at 14; Hughes 10-K 2001 Annual Report at 26.
    See also "Hughes Successfully Completes Acquisition of Telocity;
    Offers First Nationwide Portfolio of Digital Entertainment and
    Internet Access Via DSL and Satellite" (press release), April 3,
    2001 at
    http://www.directvbroadband.net/press/releases/2001_04_03.asp. See
    also "Telocity Adopts 'DIRECTV DSL' as New Service Name; DSL
    Division of HUGHES (NYSE: GMH) Incorporates Well Known DIRECTV Brand
    into Service and Company Name (press release), June 12, 2001
    [http://www](http://www/).
    directvbroadband.net/press/releases/2001_06_12.asp.

[^45]: *See* Application at 14; *Hughes 10-K 2001 Annual Report* at 3.

[^46]: *See* Application, Attachment C.

[^47]: *See Hughes 10-K 2001 Annual Report* at 3. *See also*
    Application, Attachment C.

[^48]: *See Hughes 10-K 2001 Annual Report* at 3.

[^49]: *See Hughes Communications Galaxy, Inc. Application for Authority
    to Construct, Launch, and Operate a Ka-band Satellite System in the
    Fixed-Satellite Service*, 16 FCC Rcd 2470 (Int'l Bur. 2001).

[^50]: *See Ka-Band Assignment Orders*, n.28, *supra*.

[^51]: The remaining stock in PanAmSat is held approximately 10% by the
    original founders and approximately 9% is publicly traded. *See
    http://wwe.panamsat.com/company/invester.asp* (visited Sept. 23,
    2002).

[^52]: *See PanAmSat 10-K 2001 Annual Report* at 12.

[^53]: PanAmSat's customers for video services include AOL Time Warner
    (*e.g*., HBO, CNN); the BBC, News Corp (Fox family of channels),
    Sony, Viacom, Walt Disney Company (*e.g*. ABC, ESPN); its customers
    for direct-to-home services include DirecTV-Latin America,
    MultiChoise (Africa), Sky Mexico, Sky Latin America, Sky Brazil,
    Television and Radio Broadcasting Services (Asia and Australia); and
    its customers for network services include HNS, Telstra and
    WorldCom. *See PanAmSat 10-K 2001 Annual Report* at 8.

[^54]: *See PanAmSat 10-K 2001 Annual Report* at 3.

[^55]: *See PanAmSat Corporation, Application for Authority to
    Construct, Launch, and Operate a Ka-band Satellite System in the
    Fixed-Satellite Service*, Order and Authorization, 16 FCC Rcd 2490
    (Int'l Bur. 2001). Hughes assigned a portion of its Ka-band
    authorization, comprising seven orbital locations to PanAmSat. *See
    Assignment of Orbital Locations to Space Stations in the Ka-Band*,
    13 FCC Rcd 1030 (Int'l Bur. 1997) and 12 FCC Rcd 22004 (Int'l Bur.
    1997)(reassigning PanAmSat's satellite at 67° W.L. to the 103° W.L.
    orbit location). *See also Ka-Band Assignment Orders*, n.28,
    *supra*.

[^56]: *See* Application, Volume IV.

[^57]: *See* *Id.* Volume II, Tabs 1-4. The principal transaction
    agreements include the *Merger Agreement* (Tab 1); the
    *Implementation Agreement* (Tab 2); the *Separation Agreement* (Tab
    3); the *PanAmSat Stock Purchase Agreement* (Tab 4); and certain
    other ancillary agreements contemplated by the agreements listed
    above.

[^58]: *See* *Id.* Volume II, Tab 3, *Separation Agreement*.

[^59]: *See Id.* Volume II, Tab 1, *Merger Agreement*.

[^60]: The proposed merger has already been approved by the stockholders
    of EchoStar, however, approval by GM common stockholders for certain
    aspects of the proposed transactions are still required. If the GM
    \$1 2/3 par value common stockholders and GM Class H (Hughes
    Tracking Stock) common stockholders, each voting separately as a
    class and voting together as a single class based on their
    respective per share voting power, do not approve the GM/Hughes
    separation transactions (recapitalization and split-off), Hughes
    will remain a wholly owned subsidiary of GM and neither the
    GM/Hughes separation transactions nor the Hughes/EchoStar merger
    will occur. *See Amendment No. 2 to Schedule 14-A (GM Preliminary
    Proxy Statement)*(July 11, 2002).

[^61]: See Application, Tab 2, *Implementation Agreement.* Pursuant to
    the terms of the *Implementation Agreement*, GM and Hughes may elect
    to internally reorganize by inserting a holding company above Hughes
    and below GM. *See* *Id. at* § 5.1(l). GM and Hughes have
    implemented such a reorganization so that a new company, HEC
    Holdings, Inc., incorporated in Delaware ("HEC Holdings"), is now
    the immediate parent of Hughes and a wholly owned subsidiary of GM.
    *See GM Preliminary Proxy Statement.*

[^62]: Separation Agreement at 5; Application at 17.

[^63]: The amount of the dividend from Hughes and the number of shares
    of HEC Holdings Class C common stock that GM will receive in the
    transactions cannot be definitively determined until the time of the
    completion of the separation transactions because each will depend
    upon certain factors that will not be known until that time. *See*
    EchoStar Communications Corporation, Amendment No. 3 to Schedule
    14-C, (August 12, 2002) at 2, 19, 83, 220-222. *See GM Preliminary
    Proxy Statement* at 2.

[^64]: *See* Application at 17.

[^65]: GM may achieve additional liquidity with respect to a portion of
    its retained economic interest in Hughes and thus, may receive
    shares of HEC Holdings Class C common stock as part of the GM
    distribution of HEC Holdings Class C common stock. *See* General
    Motors Corp., SEC Form 10-Q, for period ending June 30, 2002 (*GM
    June 2002 10-Q*) at 25.

[^66]: Following the redemption of the Hughes Tracking Stock, GM intends
    to amend and restate its Certificate of Incorporation to eliminate
    such class of stock. *See* *Implementation Agreement* §§ 1.4(b)(iv),
    1.5(d), 1.8, 1.13. As a result of these transactions, GM will have
    only one class of common stock, GM \$1 2/3 par value common stock.

[^67]: A majority of holders of the outstanding shares of GM \$1-2/3
    Common Stock and Hughes Tracking Stock must approve the
    recapitalization and split-off. *See* *Implementation Agreement* §
    1.2. In addition, the parties would not agree to complete the
    proposed merger unless the Hughes split-off would be tax-free to GM
    and its stockholders for federal income tax purposes. *See* *May 29,
    2002 Preliminary Information Statement* at 85. On July 11, 2002, GM
    received a favorable ruling from the Internal Revenue Service
    confirming that the merger of its Hughes subsidiary with EchoStar
    would be tax free to GM and its shareholders for U.S. federal
    income-tax purposes. *See* General Motors Corporation, SEC Form
    10-Q, Quarterly Report for the period ending June 30, 2002, ("*GM
    10-Q June 2002 Report*") at 25.

[^68]: *See* Application at 18.

[^69]: *See Id.* at 2.

[^70]: *Merger Agreement* § 2.1(d)-(e).

[^71]: *See* *EchoStar May 29, 2002 Preliminary Information Statement*
    at 85.

[^72]: The EchoStar Series D convertible preferred stock held by Vivendi
    is automatically convertible into 10 shares of EchoStar Class A
    common stock immediately prior to the effectiveness of the merger.
    Post-merger, Vivendi will hold less than 5% of the equity and about
    1% of the voting interests in New EchoStar. *See December 2001
    Amendment* at 2. Vivendi also has contingent value rights as
    downside protection for the price of the Class A common stock to be
    issued upon conversion of the Series D Preferred Stock. The maximum
    payment under the rights is \$225 million if the merger with Hughes
    is completed, or \$525 million if the merger is not completed. *See*
    Contingent Value Rights Agreement between EchoStar Communications
    Corporation and Vivendi Universal, S.A. (Dec. 14, 2001). *See also*
    *EchoStar May 29, 2002 Preliminary Information Statement* at 291.

[^73]: *See EchoStar* *May 29, 2002 Preliminary Information Statement*
    at 85. The New EchoStar B common stock would have special voting
    rights, would be convertible into New EchoStar Class A or C common
    stock, and would be subject to certain transfer restrictions.
    However, in all respects other than voting rights, convertibility,
    and transfer restrictions, the New EchoStar Class B common stock
    would be substantially the same as the New EchoStar Class A and B
    common stock.

[^74]: The eight directors and/or officers of EchoStar who would serve
    as directors of New EchoStar are O. Nolan Daines, Peter A. Dea,
    James DeFranco, Michael T. Dugan, Charles E. Ergen, Jean-Marie
    Messier, David K. Moskowitz, and Steven B. Schaver. *See* Amendment
    No. 3 to Schedule 14C, August 12, 2002, filed by EchoStar, at
    292-293.

[^75]: The three directors and/or officers of Hughes who would serve as
    directors of New EchoStar are Peter A. Lund, Harry J. Pearce, and
    Jack A. Shaw. *See* Amendment No. 3 to Schedule 14C, August 12,
    2002, filed by EchoStar, at 292-293.

[^76]: *Id.*

[^77]: *See* Application at 15.

[^78]: *See* Amendment No. 3 to Schedule 14C, August 12, 2002, filed by
    EchoStar, at 294.

[^79]: *Id*.

[^80]: According to recent SEC filings, as of June 30, 2002, EchoStar
    has 7.46 million subscribers (*see* *EchoStar 10-Q June 2002 Report*
    at 18) and DirecTV has 10.7 million subscribers (*see* *Hughes 10-Q
    June 2002 Report* at 38. *See* n. 14, 43, *supra*.

[^81]: As a result of consolidation in the DBS industry since the
    Commission first began authorizing use of the DBS spectrum, EchoStar
    and Hughes, through its DirecTV subsidiary, have emerged as the two
    dominant providers of DBS service in the United States. Combined,
    EchoStar and DirecTV hold Commission authorizations to operate from
    all three full-CONUS orbital locations using all 96 frequencies
    allotted to these locations for full-CONUS DBS service.

[^82]: *See* *PanAmSat 10-K 2001 Annual Report* at 1-2. PanAmSat, which
    is 81% owned by Hughes, provides video and data network service to
    major broadcasting companies, DTH providers, and telecommunications
    companies. PanAmSat also provides satellite services directly to
    network suppliers for development and operation of private business
    networks in the United States.

[^83]: *See* *PanAmSat 10-K 2001 Annual Report* at 8.

[^84]: Appendix B lists the FCC authorizations and licenses held by
    EchoStar. Appendix C and D lists the FCC authorizations and holdings
    of Hughes, with Appendix D listing separately the authorizations and
    licenses held by PanAmSat.

[^85]: We found that the issues raised and the claims made by the
    Applicants in the Satellite Application were directly relevant to
    the issues under consideration in our review and evaluation of the
    proposed merger Application. Thus, we treated the Satellite
    Application as a major amendment to the Applicants' proposed
    transaction and sought comment from interested parties on the
    proposed Satellite Application in this proceeding. *See* n.5,
    *supra*.

[^86]: *See Satellite Application* at 3-4. The Applicants state that the
    proposed Satellite Application is conditioned upon approval of the
    proposed merger transaction. *Id*. at 5.

[^87]: *Id*. at 21. The Applicants propose to use five DBS frequencies
    that currently are licensed to EchoStar and three DBS frequencies
    that are currently licensed to DirecTV. *Id*. at 8.

[^88]: The Applicants claim that approval of the Satellite Application
    will allow the merged entity to vigorously compete with incumbent
    cable operators as New EchoStar would be in a position to offer a
    complete substitute to incumbent cable system video offerings, and
    thus, in this regard, truly implement Congress' vision under
    Satellite Home Viewers Improvement Act of 1999, 47 U.S.C. § 338
    ("SHVIA").

[^89]: *See* Application at 3-4, 27; Satellite Application at 3, 7-8.
    Applicants claim that this spectrum inefficiency "has become a
    potentially debilitating competitive impediment for DBS providers
    due to a combination of factors, including the imposition of
    satellite mandatory carriage obligations, the advent of digital
    cable services, and the new bandwidth that "going digital" gives to
    cable operators." *Id.* at 4.

[^90]: *See* Application at 25; Satellite Application at 1, 7.

[^91]: *See* Application at 27-35.

[^92]: *See* Satellite Application at 4.

[^93]: 47 U.S.C. § 602(13).

[^94]: In addition, the Applicants claim that the increase of available
    spectrum would provide more diversity in the provision of
    independent programming voices. *See* Application at 34-35.

[^95]: *See* Applicants' Reply Comments at vi.

[^96]: *See* Application at 25.

[^97]: *See Id.* 6-8, 47-49

[^98]: *See Id.* at 6-8, 47. According to the Applicants, the deployment
    of broadband satellite systems by each company alone would face
    significant obstacles as such systems are highly capital-intensive
    requiring a critical mass of broadband subscribers to achieve an
    offering that combines a competitive price and a reasonably short
    time to market. *See Id.* 7, 47.

[^99]: *See Id.* at 47.

[^100]: *See Id.* at 36. The Applicants contend that New EchoStar would
    achieve cost savings that include reduced subscriber acquisition
    costs, reduced customer turnover, or churn, improved signal security
    as a result of moving to a standardized DBS platform, reduced
    programming costs as a result of a larger subscriber base, and
    elimination of duplicative overhead.

[^101]: 47 U.S.C. §§ 214(a), 310(d).

[^102]: Section 310(d) requires that we consider the applications as if
    the proposed transferee were applying for the licenses directly
    under section 308 of the Act. 47 U.S.C. § 310(d). Thus, we must
    examine New EchoStar's qualifications to hold licenses. *See* 47
    U.S.C. § 308.

[^103]: *See, e.g., Applications of VoiceStream Wireless Corp.,
    Powertel, Inc. and Deutsche Telekom AG*, 16 FCC Rcd 9779, 9789
    (2001); *AT&T Corp., British Telecommunications, plc, VLT Co.
    L.L.C., Violet License Co. LLC, and TNV \[Bahamas\] Limited
    Applications For Grant of Section 214 Authority, Modification of
    Authorizations and Assignment of Licenses in Connection with the
    Proposed Joint Venture Between AT&T Corp. and British
    Telecommunications, plc*, 14 FCC Rcd 19410 (1999).

[^104]: *See, e.g., Applications for Consent to the Transfer of Control
    of Licenses and Section 214 Authorizations from Telecommunications,
    Inc., Transferor to AT&T Corp., Transferee,* 14 FCC Rcd 3160,
    3168-70 (1999) (*"AT&T-TCI Order*").

[^105]: 47 U.S.C. § 309(e). Section 309(e)'s requirement applies only to
    those applications to which Title III of the Act applies, *i.e.*,
    radio station licenses. We are not required to designate for hearing
    applications for the transfer or assignment of Title II
    authorizations when we are unable to find that the public interest
    would be served by granting the applications, *see ITT World
    Communications, Inc. v. FCC*, 595 F.2d 897, 901 (2d Cir. 1979), but
    of course may do so if we find that a hearing would be in the public
    interest.

[^106]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from MediaOne Group, Inc.,
    Transferor, to AT&T Corp., Transferee,* 15 FCC Rcd 9816, 9821 (2000)
    ("*AT&T-MediaOne Order*"); *AT&T-TCI Order,* 14 FCC Rcd at 3168-69.

[^107]: *See* 47 U.S.C. §§ 157 nt, 254, 332(c)(7), Telecommunications
    Act of 1996, Preamble; *AT&T-MediaOne Order*, 15 FCC Rcd at 9821;
    *cf*. 47 U.S.C. §§ 521(4), 532(a).

[^108]: *Turner Broadcasting System, Inc. v. FCC*, 512 U.S. 622, 663
    (1994) (quoting *United States v. Midwest Video Corp.*, 406 U.S.
    649, 668 n.27 (1972)).

[^109]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9821.

[^110]: *Id*.

[^111]: *See Satellite Business Systems,* 62 F.C.C.2d 997, 1088 (1977)
    *aff'd sub nom United States v. FCC*, 652 F.2d 72 (DC Cir., 1980)
    (*en banc*); *Northern Utilities Service Co. v. FERC*, 993 F.2d 937,
    947-48 (1^st^ Cir. 1993) (public interest standard does not require
    agencies "to analyze proposed mergers under the same standards that
    the Department of Justice . . . must apply").

[^112]: *AT&T-TCI Order*, 14 FCC Rcd at 3168-69.

[^113]: 15 U.S.C. § 18.

[^114]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9821.

[^115]: *Id*.

[^116]: *See*, *e.g., Applications for Consent to the Transfer of
    Control lo Licenses and Section 214 Authorizations by Time Warner,
    Inc. and American Online, Inc. Transferee,*16 FCC Rcd 6547, 6553
    (2001) ("*AOL-Time Warner Order*"); *Bell Atlantic-NYNEX Order*.

[^117]: 47 U.S.C. § 310(d).

[^118]: *See* *Applications for Consent to the Transfer of Control of
    Licenses and Section 214 Authorizations from Southern New England
    Telecommunications Corporation, Transferor to SBC Communications,
    Inc., Transferee, ,*13 FCC Rcd 21292, 21305 (1998) ("*SBC-SNET
    Order*").

[^119]: *Policy Regarding Character Qualifications in Broadcast
    Licensing*, 102 FCC 2d 1179, 1209-10 (1986) ("*Character
    Qualifications Policy Statement")*, *modified*, 5 FCC Rcd 3252
    (1990), *recon. granted in part*, 6 FCC Rcd 3448 (1991), *modified
    in part*, 7 FCC Rcd 6564 (1992) (collectively "*Broadcast Licensing
    Character Qualifications")*.

[^120]: *Character Qualifications Policy Statement*, 102 FCC 2d at
    1208-9.

[^121]: *See* *Broadcast Licensing Character Qualifications supra*; *MCI
    Telecommunications Corp*., 3 FCC Rcd 509, 515 n.14 (1988) (stating
    that character qualifications standards adopted in the broadcast
    contest can provide guidance in the common carrier context).

[^122]: Univision, Petition at 12-14; CWA Petition at 2-5; Northpoint
    Technology Petition at 12-14. The Opponents cite instances where (i)
    the Commission described EchoStar's argument to delay carriage of
    public interest programming as "disingenuous," *Petition for Waiver
    of DBS Public Interest Implementation*, 15 FCC Rcd 1814, 1817
    (1999); (ii) the Cable Bureau admonished EchoStar for failure to
    timely disclose that information it was treating as confidential had
    been publicly disclosed, thus failing in its "duty of candor" to the
    agency, *EchoStar Satellite Corp. v. Young Broadcasting*, 16 FCC Rcd
    15070 (Cable Bur. 2001); and (iii) the International Bureau
    justified imposing EchoStar the maximum allowable fine for operating
    satellites from unauthorized orbital positions based on "the degree
    of misconduct, lack of voluntary disclosure and continuing
    violation." *EchoStar Satellite Corp.*, 13 FCC Rcd 16510 (Int'l Bur.
    1998).

[^123]: *See* *also* Paxson Petition at 7 (citing 17 U.S.C. §§ 119,
    325(b), and 47 C.F.R. § 76.64); Primetime 24 Comments at 7-9.

[^124]: *CBS, Inc. v. PrimeTime 24 Joint Venture*, 9 F. Supp.2d 1333,
    1344 (S.D. Fla. 1998) ("PrimeTime 24 has simply ignored the grade B
    test. . . . This evidence demonstrates that PrimeTime 24 knew of the
    governing legal standard, but nevertheless chose to circumvent it.
    Accordingly, the Magistrate Judge correctly rejected PrimeTime 24's
    protests of 'good faith.'").

[^125]: PrimeTime 24 Comments at 8-9.

[^126]: *CBS Broadcasting Inc. v. DirecTV*, No. 99-565-CIV-Nesbitt, 2000
    WL 426396 (S.D.N.Y. Feb. 25, 1999).

[^127]: Paxson Petition at 8.

[^128]: 47 U.S.C. § 338.

[^129]: Family Petition at 2-3 (complaining that EchoStar disregarded
    its must-carry obligations by denial of carriage to local and public
    broadcasters); Johnson Petition at 3-4 (alleging that EchoStar's
    discriminatory implementation of its must-carry obligations);
    Telecasting Comments at 4-5 (EchoStar displays conduct that reflects
    a pattern of evading its carriage obligation, contravening SHVIA and
    the Commission's regulations by denying or impeding the rights of
    broadcasters to have their programming carried); Univision Petition
    at 8 (EchoStar "cherrypick\[s\]" the local service and often refused
    to carry Spanish-language stations); Paxson Reply Comments at 8
    (expressing concern about EchoStar's compliance with must-carry
    obligations); NPIT Reply Comments at 1-2 (same); Satellite Receivers
    Reply Comments at 3 (same). The Commission criticized EchoStar's
    carriage policy of requiring broadcasters "to prove signals." *See*
    *Implementation of the Satellite Home Viewer Improvement Act of
    1999: Broadcast Signal Carriage Issues*, 16 FCC Rcd 16544, 16572
    (2001).

[^130]: Brunson Petition at 4-8 (complaining that EchoStar's two-dish
    policy violates must-carry obligations); Carolina Petition at 5-4
    (EchoStar places a vast majority of independent and niche stations
    on a second satellite, for which a second, uninstalled dish is
    needed for reception by customers); Eagle Petition at 4-8
    (complaining that EchoStar's two-dish policy violates must-carry
    obligations ); Johnson Petition at 3-4 (complaining that EchoStar
    has failed in its must-carry obligations and its two-dish policy
    unreasonably burdens carriage of local broadcasters); Pappas
    Comments at 11 (EchoStar relegated broadcasters to "wing slot"
    satellites that require special dishes to receive such stations and
    deterred customers from having the extra dish installed.); Paxson
    Petition at 6-7, 12-13 (EchoStar has openly defied its obligations
    to carry qualified television signals by refusing must carry demands
    on indefensible grounds and using two-dishes); Univision Petition at
    9-16 (EchoStar has used secondary non-CONUS satellites that require
    an additional dish to transmit disfavored channels, including most
    Spanish language programming).

[^131]: *See* *National Association of Broadcasters and Association of
    Local Television Stations; Request for Modification or Clarification
    of Broadcast Carriage Rules for Satellite Carriers*, 17 FCC Rcd 6065
    (Med. Bur. 2002) ("*Second Dish Order"*). Four Petitions for
    Reconsideration of that decision are pending. *See* Joint Petition
    for Partial Reconsideration or Clarification filed by Hardy, Carey &
    Chautin, LLP, LeSea Broadcasting Corp., Christina Television, Inc.,
    and Carolina Christian Broadcasting (Apr. 18, 2002), Petition for
    Partial Reconsideration filed by Brunson Communications Inc. (May 3,
    2002), Petition for Clarification or Partial Reconsideration filed
    by Maranatha Broadcasting Company, Inc. (May 6, 2002), and Petition
    for Reconsideration, filed by EchoStar Satellite Communications (May
    6, 2002). In addition, three Applications for Review of the Bureau's
    decision by the full Commission are pending. *See* Applications for
    Review filed by WLNY-TV Inc. and Golden Orange Broadcasting Co. (May
    3, 2002), Association of Public Television Stations and the Public
    Broadcasting Service (May 6, 2002), and Paxson Communications
    Corporation (May 6, 2002).

[^132]: *Second Dish Order*, 17 FCC Rcd at 6081.

[^133]: The question of whether EchoStar is presently in violation of
    SHVIA and the Commission's rules is subject to decision by the full
    Commission in the pending applications for review. See n.17,
    *supra*. The Commission will address the issue in that proceeding
    rather than in the instant Order. If the Commission determines on
    review that EchoStar is not in compliance with the statute or its
    rules, appropriate action will be taken.

[^134]: CWA Petition at 4.

[^135]: *See* Letters from Patrick J. Grant, Counsel for Pegasus, to
    Marlene H. Dortch, Secretary, Federal Communications Commission
    (Aug. 27, 2002, Sept. 6, 2002, and Sept. 24, 2002) (providing
    examples of such practices and related correspondence between
    Pegasus and EchoStar). *See also* Letter from David R. Goodfriend,
    Director, Legal and Business Affairs, EchoStar (Sept. 12, 2002)
    (stating that EchoStar is investigating these allegations and that
    Pegasus is attempting to involve the Commission in a private
    commercial dispute).

[^136]: Applicants' Reply Comments at 146.

[^137]: *Id*. at 147.

[^138]: *Compare, e.g., Applications of Leslie D. Brewer*, 17 FCC Rcd
    2804, 2804 (2002) (licensee lacked character qualifications because
    he "had been broadcasting without a license . . . and was marketing
    and selling unauthorized FM broadcast transmitting equipment");
    *Kevin David Mitnick,* 16 FCC Rcd 22740, 22740 (2002) (license
    applicant was "a convicted felon whose illegal activities have
    included the interception of electronic communications, computer
    fraud, wire fraud, and causing damage to computers"); *Mario
    Loredo,* 11 FCC Rcd 18010, 18010 (1996) (permit applicant
    misrepresented nationality).

[^139]: *See Applications of Ameritech Corp., Transferor, and SBC
    Communications Inc., Transferee, for Consent to Transfer Control of
    Corporations Holding Commission Licenses and Lines Pursuant to
    Section 214 and 310(d) of the Communications Act of Parts 5, 22, 24,
    25, 63, 90, 95 and 101* 14 FCC Rcd 14712, 14949-50 (1999) ("*SBC-
    Ameritech Order*"), (quoting *SBC*-*SNET Order*, 13 FCC Rcd at
    21306). In addition, Commission precedent often requires past FCC
    rule violations to be coupled with legitimate "evidence in the
    record to contravene the Applicants'" assertions that they are
    currently running their businesses in a "responsible matter" in
    order to raise a real character issue. *See SBC*-*SNET Order*, 13
    FCC Rcd at 21306-07 (1998).

[^140]: *See* CWA Petition at 5.

[^141]: *See* Section III, *supra*.

[^142]: *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, Cross-Ownership
    of Broadcast Stations and Newspapers, Rules and Policies Concerning
    Multiple Ownership of Radio Broadcast Stations in Local Markets,
    Definition of Radio Markets*, MB Docket No. 02-277, MM Docket Nos.
    01-235, 01-317, 00-244, Notice of Proposed Rulemaking ("*Biennial
    Review NPRM*") FCC 02-249 ¶ 38 (rel. Sept. 23, 2002)

[^143]: Applicants' Reply Comments at 124.

[^144]: Letter from the Hon. Dick Armey, Majority Leader, U.S. House of
    Representatives (Apr. 16, 2002); Letter from Hon. Charles F. Bass,
    U.S. House of Representatives, to Chairman Michael Powell, FCC (May
    28, 2002); Hon. Mike Doyle, U.S. House of Representatives, to
    Chairman Michael Powell, FCC (July 22, 2002).

[^145]: Consumers Union Comments at 16-19.

[^146]: LaRaza Comments at 9.

[^147]: Letter from Congressional Hispanic Caucus to Chairman Michael
    Powell, FCC (June 6, 2002) (Letter signed by Rep. Nydia Velazquez,
    Rep. Jose Serrano, Rep. Grace Napolitano, Rep. Solomon Ortiz, Rep.
    Ed Pastor, Rep. Lucille Roybal-Allard, Rep. Robert Menendez, Rep.
    Ciro Rodriguez, Rep. Joe Baca, Rep. Luis Gutierrez, Rep. Charlie
    Gonzalez, Rep. Loretta Sanchez, Rep. Ruben Hinojosa, Rep. Anibal
    Acevedo-Vila, and Rep. Hilda Solis) ("CHC Letter").

[^148]: *Id*. at 2.

[^149]: Univision Petition at 12-14; Word Petition at 5-7. These parties
    set out various corrective actions that the Commission has taken
    with respect to EchoStar's practices.

[^150]: Univision Petition at 5, 7-11; Word Petition at 5-6. The 1992
    Cable Act requires DBS providers to allocate between four and seven
    percent of their channel capacity for "non-commercial programming or
    an educational or informational nature." 47 U.S.C. § 335(b)(1).

[^151]: Univision Petition at 16. For instance, Univision claims that
    geographically scattered Hispanic minority viewers have no other
    choice but to rely on DBS providers for access to Spanish-language
    programming especially in areas where broadcast or cable
    Spanish-language programming is not available.

[^152]: *Id.* at 6-7.

[^153]: Consumers Union Comments at 16-19.

[^154]: *See, e.g.*, *F.C.C. v. N.C.C.B.*, 436 U.S. 775 (1978)
    (upholding the FCC's prohibition on the common ownership of
    broadcast stations and daily newspapers in the same market).

[^155]: ACA Petition at 7. Consumers Union Comments at 17-18.

[^156]: 47 C.F.R. §76.71(a).

[^157]: *MD/DC/DE Broadcasters Association v. FCC*, 236 F.3d 13 (D.C.
    Cir. 2001), *rehearing denied* 253 F.3d 732 (D.C. Cir. 2001), *cert.
    denied*, 122 S.Ct. 920 (2002).

[^158]: *Review of the Commission's Broadcast and Cable Equal Employment
    Opportunity Rules and Policies*, 16 FCC Rcd 22843 (2001) ("*EEO
    NPRM*").

[^159]: CHC Letter at 2.

[^160]: The Commission has previously ruled on transfer applications
    involving DBS licenses but none of those decisions addressed the
    impact of the proposed transfer on program diversity. *See, e.g.
    USSB- DirecTV Order, Tempo-DirecTV Order* , n. 39-40*, supra*.

[^161]: *Amendment of Section 73.658(g) of the Commission's Rules -- The
    Dual Network Rule*, 16 FCC Rcd 11114, 11131 (2001).

[^162]: *Id*.

[^163]: Applicants' Reply Comments at 124.

[^164]: Word Petition at 3.

[^165]: 240 F.3d 1126, 1132 (2001) ("the government must ensure that a
    programmer has at least two conduits through which it can reach the
    number of viewers needed for viability.")

[^166]: 47 U.S.C. § 533(f)(2)(A) (directing the FCC to establish limits
    on the number of subscribers any one cable system operator may
    serve).

[^167]: Word Petition at 2.

[^168]: *See Implementation of Section 25 of the Cable Television
    Consumer Protection and Competition Act of 1992; Direct Broadcast
    Satellite Public Interest Obligations*, 13 FCC Rcd 23254 (1998).

[^169]: Consumers Union Comments at 20-21. For example, Consumers Union
    recommends that the Commission require New EchoStar to report on its
    contractual terms with programmers for the purpose of allowing the
    Commission to monitor New EchoStar's compliance with the public
    interest obligations. It would seem anomalous for the Commission to
    require such disclosure by New EchoStar without requiring such
    disclosure by other DBS operators, particularly where the purpose
    would be to facilitate "benchmarking" of all DBS operators by the
    Commission.

[^170]: *Review of the Commission's Regulations Governing Television
    Broadcasting; Television Satellite Stations Review of Policy and
    Rules*, ("*Local Ownership Order")* 14 FCC Rcd 12903 (1999).

[^171]: *Id.* at 12953.

[^172]: *Id.*

[^173]: *Id.*

[^174]: *2002 DBS Report and Order*, n.16, *supra*.

[^175]: *Turner Broadcasting System v. F.C.C.*, 512 U.S. at 636.

[^176]: *See e.g.,* Bob Scherman, *More Thoughts on the Road to
    Monopoly*, [Satellite Business News]{.smallcaps}, Vol. 14, No. 9,
    May 8, 2002 at 6. The article highlights the YES Network dispute in
    New York as a good example of why a third provider in the MVPD
    market is essential. According to the article, the number of DBS
    service providers is the sole factor in determining how many
    alternatives consumers will have to their cable provider. As
    individual companies, EchoStar or DirecTV are the only "third
    choices" to the cable provider and it is this third choice "that
    affords consumers a modicum of protection against being victim to
    distributors who would become gatekeepers with more raw market power
    than ever before." *Id*. In the YES Network case, if the New York
    market had only one cable provider and one satellite service
    provider, both providers could have easily held out against the YES
    Network to the detriment of a large number of home-team New York
    Yankee viewers.

[^177]: *Id.*

[^178]: *Local Ownership Order*, 14 FCC Rcd at 12953.

[^179]: The Commission's decision regarding the role of DBS operators in
    promoting viewpoint diversity is made on the information before us.
    It does not affect the validity of the "voice" component of the
    TV-Radio rule or any other media ownership rule, nor does it
    prejudge future media ownership decisions. The Commission recently
    initiated a comprehensive proceeding aimed at measuring the impact
    of various media outlets, including DBS, on viewpoint diversity.
    *See Biennial Review NPRM*, n.141, *supra*. That proceeding will
    thoroughly address the weight appropriately accorded DBS operators
    in connection with the Commission's media ownership rules. For
    purposes of the instant license transfer application, we find that
    DBS operators contribute to viewpoint diversity.

[^180]: *Nondiscrimination in Employment Practices*, 18 FCC 2d 240
    (1969).

[^181]: Cable Communications Policy Act of 1984, Pub. L. No. 98-549, 98
    Stat. 2779 (1984).

[^182]: Cable Television and Consumer Protection and Competition Act of
    1992, Pub. L. No. 102-385, 106 Stat. 1460, 1498 (1992).

[^183]: *See EEO NPRM,* n.158, *supra.*

[^184]: *Id.* at 22859.

[^185]: CHC Letter at 2.

[^186]: *See Suspension of the Broadcast and Cable Equal Employment
    Outreach Program Requirements*, 16 FCC Rcd 2872 (2001).

[^187]: *See* *AT&T-TCI Order,* n.103, *supra*; *MCI-EchoStar Order*,
    n.18, *supra*.

[^188]: Combined, New EchoStar would hold 26 out of 67 Ka-band
    authorizations and 19 out of 56 C/Ku-band authorizations. *See*
    Appendix B,C, and D*.*

[^189]: *See* Section I.C.4, *supra*.

[^190]: *See* Application at 3-4, 27; Satellite Application at 3, 7-8.

[^191]: Letter from Gary M. Epstein, Counsel for DirecTV, and Pantelis
    Michalopoulos, Counsel for EchoStar, to Marlene H. Dortch, FCC,
    dated May 16, 2002 ("EchoStar May 16 *Ex Parte*") at 3, Attachment,
    "Technical Presentation: DBS Spectrum/ Capacity Issues," at 17.

[^192]: Application, Eng. Statement at 9.

[^193]: *Id.* at 8-10.

[^194]: *Id.* at 10. *See also* Applicants' Reply Comments, Attachment
    B, Barnett Decl. at 4.

[^195]: *Id.*

[^196]: Application at 5.

[^197]: Application at 36; Eng. Statement at 4-7.

[^198]: *Id*. at 7-8.

[^199]: *See* Satellite Application*, n.5, supra.*

[^200]: *Id.* at 8.

[^201]: *Id*. at 8, 21. *See also* Applicants' Reply Comments at 4-5.

[^202]: Application, Eng. Statement at 2.

[^203]: *Id.* at 4-7.

[^204]: *Id.* at 3. While the Applicants do not specify the duration of
    the transition, they note that the transition's goal is to quickly
    recover spectrum used in order to provide local programming to all
    210 DMAs within 36 months of the merger's approval. As a result, all
    new customers following the merger's approval would receive
    "dual-speak" set-top boxes and satellite receiver dishes capable of
    receiving all DirecTV and EchoStar signals. EchoStar May 16 *Ex
    Parte* at 5-6, Attachment at 42.

[^205]: Duke Law Reply Comments at 16-17; NAB Petition at 73; Pegasus
    Petition at 61; NRTC Petition at 63-64. Because antitrust laws do
    not prohibit "competitors from forming joint ventures or other
    limited arrangements to develop, produce, or market new products,"
    NAB claims the Applicant's claimed efficiencies could not be
    considered "merger specific" in any event. NAB Petition at 89-90.

[^206]: *See e.g.,* Duke Law Reply Comments at 18-22; NAB Petition at
    76-82. Although most Opponents agree that the merger could eliminate
    duplicative programming, they contend that consolidating channel
    delivery and eliminating duplicative programming could be achieved
    through less anticompetitive means.

[^207]: NAB Petition at 81; Pegasus Petition at 40-46; National
    Consumers League Comments at 2; NRTC Petition at 56-59.

[^208]: Pegasus Petition, Rusch Aff. At 4-11; NAB Petition at 84-89;
    Duke Law Comments at 22.

[^209]: NRTC Petition, Morgan Declaration at 2-4. NRTC asserts that if
    DirecTV launches just one additional satellite beyond those on
    order, with spot beam technology on only three frequencies, DirecTV
    will be able to serve a total of 187 DMAs, leaving only 23 unserved.
    NRTC suggests that the 23 unserved DMAs could be served by using
    spot-beam technology with additional frequencies, by rearranging the
    spot-beams, or by other means. *See* NRTC Petition, Morgan Decl. at
    2-3.

[^210]: NRTC Petition, Morgan Declaration at 2-4. NRTC asserts that if
    EchoStar launches just one additional satellite beyond those on
    order, with spot-beam technology on only three frequencies, it will
    be able to serve a total of 160 DMAs, leaving only 50 DMAs unserved.
    NRTC suggests that the 50 unserved DMAs could be served by using
    spot-beam technology with additional frequencies, by rearranging the
    spot-beams, or by other means. NRTC Petition, Morgan Declaration at
    2-3.

[^211]: Pegasus Petition, Rusch Aff. at 10.

[^212]: Pegasus Petition at 44-46.

[^213]: NAB Petition, Gould Decl. at 3.

[^214]: *Id.*.

[^215]: *Id.* at 4-5.

[^216]: *Id.* at 8.

[^217]: *Id.* at 7. Mr. Gould states that, as compared to QPSK, 8PSK in
    principle permits a 50 percent increase in data rate, but for
    analytical purposes assumes only a 30% increase would be achieved in
    actual practice.

[^218]: *Id.* at 7-8. Therefore, all other factors being equal, NAB
    asserts that the transponder channel capacity would increase to the
    same extent and will become 15-18 NTSC channels.

[^219]: *Id.* at 9.

[^220]: *Id.* at 13.

[^221]: Pegasus Petition, Rusch Aff. at 10.

[^222]: *Id.* at 11.

[^223]: Letter from Howard J. Symons, Mintz Levin on behalf of
    Cablevision and R/L DBS Co. to Marlene H. Dortch, Secretary, FCC
    (Sept. 18, 2002) ("Cablevision Sept. 18 *ex parte*") at 7, 9.
    Rainbow DBS, a venture of Cablevision Systems Corporation
    ("Cablevision"), is the licensee of 11 frequencies at 61.5 W.L., the
    easternmost of U.S. DBS orbital slots. *See* R/L *DBS Petition*,
    n.21, *supra*.

[^224]: NAB Petition, Gould Decl. at 6.

[^225]: *Id.* at 7.

[^226]: Pegasus Petition, Rusch Aff. at 12.

[^227]: *See* n.23, *supra*.

[^228]: NRTC Petition at 59-60.

[^229]: NAB Petition at 84.

[^230]: Pegasus Petition, Rusch Aff. at 8.

[^231]: *Id.*

[^232]: *Id*.

[^233]: NAB Petition, Gould Decl. at 18.

[^234]: Pegasus Petition, Rusch Aff. at 13-14.

[^235]: *Id.* at 14.

[^236]: NAB Petition, Gould Decl. at 15-16.

[^237]: *Id.* at 16.

[^238]: NAB Petition at 77-79.

[^239]: State of Alaska Comments at 10.

[^240]: *See e.g.,* Applicants' Reply Comments at 19-24.

[^241]: *Id.* at 11.

[^242]: EchoStar May 16 *Ex Parte* at 4, Attachment at 24-26. The
    Applicants argue that the merger's Parties have made unrealistic
    assumptions with regard to compression ratios, noting a 10:1 ratio
    is realistic in light of current technology and acceptable
    television picture quality, while the Parties' proposed 12:1 ratio
    could only be used under very limited circumstances at present and
    would certainly not be feasible to achieve the Parties' goals in a
    current DBS operational system. Applicants' Reply Comments, Barnett
    Decl. at 9-12.

[^243]: EchoStar May 16 *Ex Parte* at 4-5, Attachment at 29. EchoStar
    contends that the proposed satellite designs are superficial,
    untested, and in error to the point of being infeasible. Applicants'
    Reply Comments, Barnett Decl. at 1, 8-9, 21-36.

[^244]: EchoStar May 16 *Ex Parte* at 4, Attachment at 22, 27-28;
    Applicants' Reply Comments, Barnett Decl. at 13-16.

[^245]: Applicants' Reply Comments, Barnett Decl. at 2, 8. The
    Applicants argue that the allocation of 16 and 19 full-CONUS DBS
    frequencies to local programming as suggested by the Parties is
    unacceptable given DirecTV's total capacity of 46 frequencies and
    EchoStar's total capacity of 50 frequencies and future demand for
    expansion of national programming. In contrast, the Applicants argue
    that the merger would realistically allow for the allocation of
    16-19 frequencies out of a combined pool of 96 frequencies in order
    to provide coverage for all 210 DMAs. *Id.*

[^246]: See EchoStar May 16 *Ex Parte,*, Attachment at 33.

[^247]: Applicants' Reply Comments at 7.

[^248]: *Id*. at 15-16.

[^249]: Applicants' Reply Comments, Willig Decl. at 10-11.

[^250]: *Id*. at 10-11.

[^251]: Applicants' Reply Comments at 30.

[^252]: Letter from Pantelis Michalopoulos, Esq. on behalf of EchoStar
    to Marlene Dortch, Secretary, FCC (July 11, 2002),(submitted by
    transmittal letter dated July 12, 2002) at 1-2 ("EchoStar July 11
    e*x parte*").

[^253]: *Id*., Attachment at 17.

[^254]: *Id*., Attachment at 19.

[^255]: We note that DirecTV recently deployed DIRECTV-4S, which uses 26
    spot beams with 6 transponders. Further, in 2003 DirecTV plans to
    launch DIRECTV-7S, which apparently will have characteristics
    similar to DIRECTV-4S. EchoStar recently deployed ECHOSTAR-7S, which
    uses 5 spot beams. Further, EchoStar recently successfully launched
    ECHOSTAR-8S, but that satellite is not yet in service.

[^256]: *See* "Nielsen Media Research Local Universe Estimates:"
    http://www.nielsenmedia.com/DMAs.html. We note that some relatively
    large DMAs are not served by both DirecTV and EchoStar. For example,
    EchoStar does not serve the Baltimore DMA, which ranks 24^th^ in the
    number of TV households. *See*
    wysiwyg://20/http://www.dishnetwork.com/content/programming/locals/index.shtml

[^257]: Mr. Morgan, for NRTC, contends that both EchoStar and DirecTV
    could increase capacity sufficiently to serve all 210 DMAs by adding
    a single satellite using 46 to 50 spot beams with a frequency reuse
    of 17:1 for EchoStar and 15:1 for DirecTV. We observe that this is
    nearly twice as many spot beams as are used on the current
    generation of DBS spot beam satellites. For example, DIRECTV-4S and
    DIRECTV-7S each use 26 spot beams and ECHOSTAR-8S uses 25 spot
    beams. All of the existing spot beam satellites achieve frequency
    reuse between approximately 5:1 and 10:1.

[^258]: *See e.g.,* NAB Petition at 105-111; Pegasus Petition at 63-68;
    Duke Law Reply Comments at 23, 25-26. *See also* NRTC Petition at
    38-41, asserting the merger violates the Commission's long-standing
    policy to promote facilities-based competition as it would eliminate
    facilities-based competition in the high-powered DBS market.

[^259]: *See e.g*., Pegasus Petition at 8.

[^260]: *See e.g.,* NAB Petition at 107-110; Sidak Decl. at 17-18;
    Pegasus Petition at 61-62, 66-67; Duke Law Reply Comments at 25.

[^261]: *See e.g.,* NTRC Petition at 52, NAB Petition at 103, Pegasus
    Petition at 70-71. Pegasus states that full CONUS coverage could be
    achieved from 62º W.L. to 135º W.L. and that of the total 35 orbital
    locations assigned in that range, 8 Ka-band orbital locations would
    be under the control of New EchoStar, as well as 3 Ka-band orbital
    locations that are assigned to affiliates of Wildblue
    Communications, in which EchoStar holds a 20% voting interest.

[^262]: *See e.g*., NAB Petition at 103, NRTC Petition at 50, Pegasus
    Petition at 63, 69-71.

[^263]: *See e.g.,* Pegasus Petition at 72; NRTC Petition at 55; Duke
    Law Reply Comments at 23.

[^264]: *See e.g*., Pegasus Petition at 71; NRTC Petition at 52-53, 55;
    Duke Law Reply Comments at 23. NTRC, for instance, asserts that
    little progress has been made by either EchoStar or Hughes/PanAmSat
    in launching a Ka-band business. They point out that EchoStar and
    Hughes' announcements of delays in launching, failed plans of other
    Ka-band licensees, and the high capital costs required to build
    Ka-band satellites, as acknowledged by both parties, raises
    substantial questions about whether all the Ka-band satellites will
    be constructed. Allowing the merger would aggravate the problem by
    tying up valuable orbital locations to the disadvantage of potential
    competitors.

[^265]: *See e.g.,* NAB Petition at 110; NRTC Petition at 52-53; Pegasus
    Petition at 71-72. The parties assert that the proposed merger would
    violate Sections 25.140(e) and (f) of the Commission rules which
    state that applicants for FSS licenses may only initially be
    assigned two orbital locations in a frequency band, and that an
    applicant with two authorized but unused orbital locations in a band
    may be assigned no more than one additional orbital position in that
    band. *See* 47 C.F.R. §§ 25.140(e) and (f). They claim that New
    EchoStar would obtain additional Ka-band orbital locations even
    though neither EchoStar nor Hughes has yet constructed and brought
    into operation previously authorized Ka-band satellites.

[^266]: *See* Application at 27; Applicants' Reply Comments at 30-31;
    Letter from Pantelis Michalopoulos, Esq. on behalf of EchoStar and
    Gary M. Epstein on behalf of Hughes to Marlene Dortch, Secretary,
    FCC (October 8, 2002) Vol. 1, Attachments 2, 5 (Applicants Oct. 8
    *ex parte*).

[^267]: The Applicants claim that the product market is the MVPD market,
    not three DBS slots, not even satellites only. *See* Applicants'
    Reply Comments at 32-33.

[^268]: *Id.* at 49, 109.

[^269]: *See* *Id.* at 81. Applicants contend that neither EchoStar nor
    Hughes alone could timely deploy an affordable satellite broadband
    service to consumers and that the merger is necessary to enable such
    timely deployment. *Id*. at 96.

[^270]: *Id.* at 50, 109.

[^271]: *Id.* at 82. For instance, Applicants claim approval of the
    proposed merger will encourage ubiquitous availability of broadband
    access to the Internet to all Americans, promote competition across
    different platforms, and ensure that broadband services exists in a
    minimal regulatory environment that promotes investment and
    innovation. *Id*.

[^272]: *Id.* at 109-110.

[^273]: *Id.* at 110.

[^274]: *See* *Establishment of the Rules and Policies for the Digital
    Audio Radio Satellite Service in the 2310-2360 MHZ Frequency Band*,
    12 FCC Rcd 5754, 5786 (1997).

[^275]: *See An Inquiry Into the Use of the Bands 825-845 MHz and
    870-890 MHz for Cellular Communications Systems; and Amendment of
    Parts 2 and 22 of the Commission's Rules Relative to Cellular
    Communications Systems*, Report and Order, 86 FCC 2d 469, 476, 478
    (1981).

[^276]: *See Amendment of the Commission's Rules to Establish New
    Personal Communications Services*, 9 FCC Rcd 4957 (1994). The
    Commission stated that its actions were designed "to enable PCS
    providers to compete effectively with each other and with other
    wireless providers so that the American public can enjoy the
    greatest benefit from the delivery of these new services." *Id*. at
    4960.

[^277]: *Implementation of Sections 3(n) and 332 of the Communications
    Act, Regulatory Treatment of Mobile Services, Third Report and
    Order, 9* FCC Rcd 7988, 8100-01 (1994). To ensure that competition
    would shape the development of the CMRS market, the Commission took
    a number of steps, including adoption of a rule to cap at 45 MHz the
    total amount of combined broadband PCS, cellular, and Specialized
    Mobile Radio (SMR) spectrum in which an entity may have an
    attributable interest in any geographic area. *Id*. at 7995.

[^278]: *Id.* at 8105, 8100.

[^279]: *See 2000 Regulatory Review of Spectrum Aggregation Limits for
    Commercial Mobile Radio Services*, Report and Order, FCC 01-328, 67
    Fed Reg 1626 ("*CMRS 2000 Biennial Review*"). The Commission found
    that the spectrum cap had achieved its purpose as consumers have
    realized the benefits of competition in the form of increased
    output, lower prices, and increased diversity of service offerings.
    *Id*. at ¶ 35. Thus, the Commission has determined to replace
    spectrum caps with other regulatory mechanisms, including
    case-by-case review of spectrum aggregation and enforcement of other
    safeguards applicable to such carriers based on evidence of
    misconduct, to ensure that absent the spectrum cap, the benefits of
    competition in CMRS markets continue to be realized. *Id*. at ¶ 6.

[^280]: *See* *1995 DBS Report and Order*, 11 FCC Rcd at 9723.

[^281]: *Id*.

[^282]: In April and May of 1999, the Commission issued three decisions
    that resulted in placing all current U.S. allotted full-CONUS DBS
    authorizations under the control of two DBS operators:
    *USSB--DirecTV*; *MCI--EchoStar;* and *Tempo--DirecTV,* n.39, 40*,
    supra.*. In doing so, the Commission recognized that such
    consolidation would improve the ability of the DBS operators to
    compete in the MVPD market stating that additional full-CONUS
    spectrum would increase both companies' channel capacity, which was
    necessary for DBS operators to remain competitive, particularly with
    cable operators, in the MVPD market. *See Tempo- DirecTV*, 14 FCC
    Rcd at 7955. In none of these cases was it necessary for the
    Commission to analyze the competitive effects of a merger of the
    only two full-CONUS DBS providers. As the Commission recognized, the
    two DBS providers would compete with each other, and thus, the only
    relevant issue to resolve was whether allowing each individual DBS
    competitor to become a stronger competitor against other providers
    in the MVPD market would be in the public interest. *Tempo -
    DirecTV*, 14 FCC Rcd at 7955.

[^283]: *See 2002 DBS Report and Order,* n.16, *supra*.

[^284]: *Id.* The Commission revised its rules and policies governing
    DBS service by, *inter alia*, incorporating its DBS service rules
    (Part 100) into other satellite service rules (Part 25) to eliminate
    inconsistencies, reduce confusion and uncertainty for users, lessen
    regulatory burdens on licensees, and simplify the development of
    advanced services. *Id*. at 11341-43. The Commission took these
    steps in an effort to promote competition in the MVPD market and
    thereby benefit the public by maximizing consumer choice, as well as
    better quality of service to the public, and to promote efficient
    and expeditious use of spectrum and orbital resources while
    maximizing flexibility for DBS operators. *Id*. at 11322.

[^285]: *See* *2002 DBS Report and Order*, n.16 *supra* at 11399-11402.

[^286]: *Id*. at 11400, 11401-02. Our flexible use policy allows DBS
    operators to provide enhanced services including data access and
    high-speed Internet access using downlink frequencies (*i.e*. from
    the DBS operator to the customer). We did not adopt, however, the
    same flexibility with respect to the use of uplink frequencies
    (*i.e*., from the customer to the DBS provider). *Id.* at ¶ 11402.

[^287]: *See Id.* at 11332, 11398-99.

[^288]: *Id.*

[^289]: *See*, *1997 DARS Order*, 12 FCC Rcd at 5786. In the DARS
    proceedings, our review noted that "\[w\]hile we are not sure of the
    optimal amount of spectrum necessary for satellite DARS, it is our
    goal to try to determine spectrum block sizes and geographic areas
    that are most closely suited to provide for efficient provision of
    the most likely expected use. In this case, because this is a
    satellite service, the license areas should be nationwide and we
    have evaluated the evidence about the minimum spectrum block sizes
    necessary to economically provide satellite DARS. We begin our
    analysis of determining how much spectrum a single satellite DARS
    provider will require by considering what the record reveals about
    how many channels are necessary to operate an economically viable
    satellite DARS system."

[^290]: *See e.g*., *Rulemaking to Amend parts 1, 2, 21, and 25 of the
    Commission's Rules to Redesignate the 27.5-29.5 GHz Frequency Band,
    to Reallocate the 29.5-30.0 GHz Frequency Band, to Establish Rules
    and Policies for Local Multipoint Distribution Service and for Fixed
    Satellite Services*, Third Report and Order, 12 FCC Rcd 22310 (1997)
    ("*Ka-Band Rules Order*").

[^291]: *See e.g. Ka-Band Assignment Orders*, n.28, *supra*.

[^292]: While the Applicants now assert that neither of the company's
    stand-alone Ka-band satellite systems would result in timely
    deployment of affordable satellite broadband services to residential
    customers, the record indicates that it is more likely the current
    economic climate, and not spectrum constraints, that would prevent
    such deployment. *See e.g*., Applicants' Reply Comments at 96-101.

[^293]: Requiring licensees to adhere strictly to a milestone schedule
    prevents orbital locations from being warehoused by licensees to the
    exclusion of qualified entities that are prepared to implement
    systems immediately, and ensures that the scarce orbit spectrum
    resource is being used efficiently. *See, e.g.,* *MCI Communications
    Corporation*, 2 FCC Rcd 233 (Common Carrier Bur. 1987); *Advanced
    Communications Corporation,* 10 FCC Rcd 13337 (Int'l Bur. 1995)
    ("ACC Order"); *Morning Star Satellite Company LLC*, 15 FCC Rcd
    11350 (Int'l Bur. 2000) *aff'd*, 16 FCC Rcd 11550 (2001) ("*Morning
    Star Order*"). *See also Norris Satellite Communications, Inc*., 12
    FCC Rcd 22299 (Int'l Bur. 1997).

[^294]: Failure to meet the ITU 'bring-into-use' date would result in
    the loss of U.S. priority in that orbital location, thus, allowing
    other countries to obtain coordination "priority" at that location.
    *See*, *Ka-Band Assignment Orders,* n.28, *supra.*

[^295]: *See e.g.* Pegasus Petition at 72-73. If New EchoStar failed to
    meet the milestones for its Ka-band authorized satellite systems,
    the orbital locations associated with these milestones could be
    reassigned by the Commission to a new licensee. The new licensee,
    however, would be subject to the existing ITU "bring-into-use" date.
    The amount of time involved in such a re-assignment process makes it
    unlikely that any new licensee could meet the current ITU dates,
    thus, resulting in the loss of U.S. ITU coordination priority at
    these orbital locations.

[^296]: *Morning Star Order,* n.292, *supra*.

[^297]: *See* 47 C.F.R. § 25.140(e), (f).

[^298]: The rule was originally adopted in 1983 based on a 1980 Orbit
    Assignment Order. In 1983, given the newness of the satellite
    industry, the Commission was concerned about allowing any one
    company to acquire too many satellite licenses in the absence of any
    demonstrated demand for satellite traffic. According to the
    Commission, "... two orbital locations were reasonable under the
    circumstances and more than sufficient to establish a reasonably
    competitive market presence when the satellite operator had little
    or no firmly demonstrated traffic commitments." *Rulemaking on the
    Licensing of Space Stations in the Domestic Fixed-Satellite Service
    and Related Revisions of Part 25 of the Rules and Regulations*, CC
    Docket No. 81-704, Report and Order, 54 RR 2d 577 (1983), *See also
    Licensing Space Stations in the Domestic Fixed-Satellite Service*,
    50 Fed. Reg 36071 (Sept. 5, 1985).

[^299]: Section 1.3 of the Commission rules provides that waivers may be
    granted when good cause is shown. *See* 47 C.F.R. § 1.3. According
    to criteria delineated by the Court of Appeals a waiver is
    appropriate only when it is found in light of special circumstances
    presented in the case at hand that granting such relief would not
    undermine the underlying purpose of the rule requirement in question
    and would better serve the public interest than insisting on strict
    compliance. *See WAIT Radio v. FCC*, 418 F.2d 1153, 1157 (D.C. Cir.
    1969), *cert. denied*, 409 U.S. 1027 (1972); *Northeast Cellular
    Telephone Co., L.P. v. FCC*, 897 F.2d 1164, 1166 (D.C. Cir. 1990).

[^300]: *Rulemaking to Amend parts 1, 2, 21, and 25 of the Commission's
    Rules to Redesignate the 27.5-29.5 GHz Frequency Band, to
    Reallocate* the *29.5-30.0 GHz Frequency Band, to Establish Rules
    and Policies for Local Multipoint Distribution Service and for Fixed
    Satellite Services*, Third Report and Order, 12 FCC Rcd 22310, 22320
    (1997) ("*Ka-Band Rules Order*").

[^301]: *See* *Ka-Band Assignment Orders*, n.28, *supra*.

[^302]: *See Id.* The International Bureau noted that impending ITU
    deadlines for operating satellites at the available Ka-band orbit
    locations would be difficult to meet if further processing rounds
    were required for assigning new applications to extra orbital
    locations.

[^303]: *See Id.*

[^304]: NAB Petition at 64-70.

[^305]: *FTC v. H.J. Heinz Co.*, 246 F.3d 708 (D.C. Cir. 2001).

[^306]: *Id*. at 717.

[^307]: *FTC v. Staples*, 970 F. Supp. 1066, 1081 (D.D.C. 1997)

[^308]: *Id.* at 1082. *See also FTC v. Swedish Match*, 131 F. Supp. 2d
    151 (D.D.C. 2000) (enjoining proposed merger of first and third
    largest producers of loose-leaf tobacco).

[^309]: *United States v. Franklin Elec. Co*., 130 F. Supp. 2d 1025
    (W.D. Wis. 2000). C*f.* IV [Phillip E. Areeda, Herbert Hovenkamp &
    John L. Solow, Antitrust law]{.smallcaps} ¶ 911 at 54-55 (Rev. ed.
    1998) ("No merger threatens to injure competition more than one that
    immediately changes a market from competitive to monopolized.").

[^310]: Horizontal Merger Guidelines, issued by the U.S. Department of
    Justice & Federal Trade Commission, April 2, 1992, revised April 8,
    1997 ("*DOJ/FTC Guidelines*"). § 4.

[^311]: *Id.*

[^312]: *Heinz*, 246 F.3d at 720-21. *See also* *Swedish Match*, 131 F.
    Supp. 2d at 171 (finding, with respect to proposed merger of first
    and third largest manufacturers of loose-leaf tobacco, that the
    efficiency defense is "inappropriate in this particular case, in
    which the acquisition would generate undue market share and increase
    concentration").

[^313]: IV [Areeda]{.smallcaps} ¶932 at 160.

[^314]: Structural merger analysis, as the name suggests, considers
    structural characteristics of the merging firms and the relevant
    markets to make predictions about the likely competitive effects of
    a proposed merger.

[^315]: *DOJ/FTC Guidelines* §§ 1.11, 1.12.

[^316]: *United States v. E.I. du Pont de Nemours & Co.* 351 U.S. 377,
    395 (1956) (The relevant product market is composed of products that
    have reasonable interchangeability); *see also United States v.
    Microsoft,* 253 F.3d 34, 52 (D.C. Cir. 2001), *cert. denied*, 122 S.
    Ct. 350 (2001) (in determining reasonable substitutes, the court
    excluded "middleware" software from the definition of the relevant
    product market because of its present non-interchangeability with
    Windows notwithstanding its long-term future potential).

[^317]: Application, Willig Decl. at 4.

[^318]: *Id.* at n.1.

[^319]: *Id.* at 10-11.

[^320]: ACC Comments at 4; AAI Comments at 2.

[^321]: *Id*.; Circuit City Comments at 2; Intelsat Comments at 4 -5;
    Pegasus Petition at 14.

[^322]: *See, e.g.,* NRTC Petition at 20; Consumers Union Comments at
    6-8. Frequently Commenters use the label "analog" to denote low
    capacity systems and "digital" to denote high capacity systems.

[^323]: NRTC Petition at 20.

[^324]: *Id*., MacAvoy Decl. at 6.

[^325]: *Id*. at 22. ACA Petition at 8-10. ACA suggests that New
    EchoStar will use its market power to eliminate independent cable
    competitors. *Id.*

[^326]: NAB Petition, Sidak Decl. at 8 and Pegasus Petition, Rubinfeld
    Aff. at 9.

[^327]: *Annual Assessment of the Status of Competition in the Market
    for the Delivery of Video Programming*, 17 FCC Record 1244 (2002)
    ("*Video Competition Report"*).

[^328]: *See, e.g., Implementation of Section 19 of the Cable Television
    Consumer Protection and Competition Act of 1992*, First Report, 9
    FCC Rcd 7442, 7467 (1994) ("For purposes of this Report, 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. A primary focus of this Report, and a central
    concern of the 1992 Cable Act, is the extent to which MVPDs that use
    alternative technologies are emerging as significant competitors to
    cable operators.").

[^329]: *See, e.g., id*. at 7462 (For purposes of this Report, the
    Commission draws upon the relevant market concept in order to
    identify those distribution technologies that will potentially have
    a constraining effect on cable operator conduct.).

[^330]: Gregory J. Werden, *The 1992 Merger Guidelines and the Ascent of
    the Hypothetical Monopolist Paradigm*, at
    http://www.usdoj.gov/atr/hmerger/11256.htm (visited Sept. 20, 2002).
    This approach has been referred to as the "smallest market
    principle."

[^331]: Under this example, in evaluating a merger of two cable
    companies, DBS would be included within the relevant product market,
    but in evaluating the merger of two DBS providers, the relevant
    market would not include low capacity cable systems.

[^332]: Differentiated products are products whose characteristics
    differ and which are viewed as imperfect substitutes by consumers.
    *See* Dennis W. Carlton & Jeffrey M. Perloff, [Modern industrial
    organization]{.smallcaps} 281 (2d ed. 1991).

[^333]: Seventy-two percent of cable systems have less than 53 channels.
    These low-capacity systems serve 24% of cable subscribers in the
    U.S. according to Warren Communications News' Data by Design.

[^334]: There are alternative ways that one could distinguish between
    high-capacity and low-capacity cable systems. Some of the commenters
    distinguish between analog and digital systems, though their
    comments appear to focus on the number of channels and other
    services that can be provided over a particular cable system. Since
    digital cable systems do not necessarily have the capacity to offer
    more channels, we find that this is not the best way to distinguish
    low-capacity systems from high-capacity systems. Another way to
    distinguish low-capacity system from high-capacity systems is to
    classify cable systems based on the maximum number of video channels
    that they can offer. Under this approach one might define
    low-capacity systems as having a maximum capacity of less than 53
    channels and a high capacity system as having a capacity of 53 or
    more channels. Unfortunately, the evidence in the record is not
    sufficient to determine which definitional approach is more
    meaningful economically or where to draw the line between
    low-capacity and high-capacity systems. This is one of the many
    issues that will have to be referred to, and resolved at, the
    hearing.

[^335]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("churn1201data.zip"), transmitted by letter from the
    Applicants to Marlene Dortch (July 12, 2002) and Letter from
    Applicants to Marlene Dortch, Secretary, FCC, Attachment
    ("monthly_zip_code_data.zip"), transmitted by letter from Applicants
    to Marlene H. Dortch, Secretary, FCC (July 25, 2002).

[^336]: In addition, analysis of the merger simulation model submitted
    by the Applicants suggests that low capacity cable systems do not
    pass the Merger Guidelines "smallest relevant market test."

[^337]: **REDACTED.** In this Order, "**REDACTED**" indicates
    confidential or proprietary information, or analysis based on such
    information, submitted pursuant to the First and/or Second
    Protective Orders. *See* *EchoStar Communications Corporation,
    General Motors Corporation, and Hughes Electronics, Order Adopting
    Protective Order*, DA 02-27 (rel. Jan. 9, 2002); *EchoStar
    Communications Corporation, General Motors Corporation, and Hughes
    Electronics, Order Adopting Second Protective Order*, DA 02-964
    (rel. Apr. 25, 2002). The unredacted version of this Order is
    available upon request only to those parties who have executed and
    filed with the Commission signed acknowledgements of the Second
    Protective Order. Qualified representatives, including those
    designated as parties to the hearing (*see* para. 297 *infra*) who
    have not yet signed the required acknowledgement may do so in order
    to obtain the unredacted Order.

[^338]: Amended Complaint, *EchoStar Communications Corp.* *v. DirecTV
    Entertainment Corp.,* No. 00-I-212 (D. Colo. 2000).

[^339]: Because market definition plays such a critical role in
    structural merger analysis, plaintiffs typically try to define the
    narrowest possible relevant markets, while defendants favor the
    broadest possible market. *See, e.g.,* Gregory J. Werden,
    *Simulating the Effects of Differentiated Products Mergers: A
    Practical Alternative to Structural Merger Policy,* 5 [Geo. Mason L.
    Rev. 363, 369 (1997)]{.smallcaps}

[^340]: *DOJ/FTC Merger Guidelines* § 1.21.

[^341]: *United States v. Grinnell Corp.*, 384 U.S. 563, 588-89 (1966);
    *see also FTC v. Elders Grain, Inc.*, 868 F.2d 901 (7^th^ Cir.
    1989).

[^342]: Application, Willig Decl. at 11.

[^343]: NAB Petition at 34-35, Pegasus Petition at 14; Duke Law Reply
    Comments at 12. In addition, NAB contends that the variation in
    EchoStar's service offerings across local areas undermines its claim
    of a national geographic market. NAB Petition, Sidak Decl. at 10.

[^344]: NAB Petition at 34, Sidak Decl. at 12.

[^345]: Pegasus Petition at 14; Rubinfeld Decl. at 10; NRTC Petition,
    MacAvoy Decl. at 7, 9.

[^346]: *See, e.g., AT&T-TCI Order*, 14 FCC Rcd at 3160, 3172**;** *Time
    Warner-AOL Order*, 16 FCC Rcd at 6553.

[^347]: *See* B*ell Atlantic-NYNEX Order*, 12 FCC Rcd at 19985,
    *AT&T-MediaOne Order*, 15 FCC Rcd at 20016-17.

[^348]: We recognize that competitive choices may not be identical
    throughout the franchise area. For instance, the local cable
    operator may not offer service to all households. Moreover, cable
    overbuilders and SMATV providers may offer service only to selected
    areas within the local cable franchise area. Thus, to be rigorous we
    would need to define a separate and narrower relevant geographic
    market wherever cable does not actually provide service, and a
    separate relevant geographic market wherever other MVPDs, such as
    overbuilders, do provide service. As a practical matter, however, we
    do not believe such precision is necessary for purposes of our
    analysis. In particular, we note that there are only approximately
    64 cable systems that have overbuilders and 129 cable systems that
    have a wireless cable provider out of a total of 9667 cable systems
    Warren Communications News, Inc., Data-by-Design. Moreover, even in
    the few cable franchise areas where there is an overbuilder, that
    overbuilder will generally not serve the entire cable franchise
    area. Thus, although overbuilders provide significant and effective
    competition to local cable operators in those areas in which they
    operate, the scope of their operations is geographically limited and
    likely to provide less competitive discipline on the prices of the
    DBS services, with their national footprint. *See Implementation of
    Section 3 of the Cable Television Consumer Protection and
    Competition Act of 1992, Statistical Report on Average Rates for
    Basic Service, Cable Programming Service, and Equipment*, 17 FCC Rcd
    (2002). *See also, e.g.*, *Time Warner
    Entertainment-Advance/Newhouse Partnership, d/b/a Time Warner
    Company, Petition for Determination of Effective Competition in
    Conway, South Carolina (CUID No. SC0023)*, 15 FCC Rcd 9540 (CSB
    2000); *Time Warner Cable, Petition for Determination of Effective
    Competition, Atlanta, Georgia*, 15 CC Rcd 10808 (CSB 2000); *Falcon
    Cable Systems Company II, L.P. d/b/a Charter Communications,
    Petition for Determination of Effective Competition in Various
    California Communities*, DA 02-2442 (MB, rel. Sept. 30, 2002);
    *Marcus Cable Associates, LLC d/b/a Charter Communications, Petition
    for Determination of Effective Competition in Various Wisconsin
    Communities*, DA 02-2424 (MB, rel. Sept. 30, 2002).

[^349]: As discussed above, we find it reasonable to distinguish between
    low-capacity cable systems that offer relatively few channels and
    high capacity systems that offer many more channels, since we find
    that the latter are closer substitutes to DBS service than the
    former. We note that distinguishing between high-capacity and low
    capacity cable systems is consistent with the arguments of those
    commenters who contend that DBS faces significantly less competition
    from cable in areas served by analog cable systems than in areas
    served by digital cable systems. NRTC Petition at 20 (and MacAvoy
    Declaration at 6); Pegasus Petition at 19-20; Consumers Union
    Comments at 6-8, NAB Petition at 48. For example, NRTC's expert, Dr.
    MacAvoy, suggests that analog cable systems, which generally have
    fewer channels and poorer quality, do not "discipline the pricing of
    digital cable and/or DBS service." MacAvoy Decl. at 6. Similarly,
    NAB claims that New EchoStar will have the incentive and power to
    raise prices and reduce service quality in areas served by analog
    cable systems. NAB Petition at 58. In addition, as previously
    indicated, staff analysis of churn data submitted by the applicants
    show that there is a statistically significant difference in churn
    rates for cable systems having less than 53 channels and those
    having more than 53 channels, *see* Appendix E.

[^350]: As the Applicants' expert, Dr. Willig, points out, the
    profit-maximizing uniform price-cost margin is inversely related to
    the weighted average own-price elasticity of demand, where the
    weights are the share of DBS customers in each market. Applicants'
    Reply Comments, Willig Declaration at 27.

[^351]: Application at 39.

[^352]: *Id*. at 60.

[^353]: NAB Petition at 47.

[^354]: *Id.*

[^355]: NRTC Petition. at 8-14; NRECA Comments at 4-5.

[^356]: As NAB and NRTC point out, there are three different measures
    that could be used in developing an estimate of the total number of
    U.S. homes: (1) housing units (as defined by the Census); (2)
    occupied housing units (or households) (again as defined by the
    Census); and (3) television households (as defined by the A.C.
    Nielsen Company). Unfortunately, these three measures yield widely
    different estimates for the number of homes that do not have access
    to cable. The differences in resulting estimates can be seen as
    follows. Warren Communications News' [Television and Cable
    Factbook]{.smallcaps} reports that, as of year-end 2001, cable
    systems passed approximately 90,772,025 homes. According to Census
    2000 data, there were approximately 115,904,641 *housing units* in
    the United States in the year 2000, and approximately 105,480,101
    *occupied housing units*, or households, *see* [U.S. Census Bureau,
    U.S. Summary 2000 2 (]{.smallcaps}July 2002). When measured against
    the Warren data on homes passed, we find that approximately
    24,668,135 *housing units*, or 21.28%, are not passed by cable, and
    approximately 13,789,834 *occupied housing units*, or 13.07%, are
    not passed by cable. Finally, A.C. Nielsen Company reports that
    there were approximately 102,184,810 *television households* as of
    year-end 2001. Compared to cable homes passed, approximately
    10,075,153 television households, or 9.86%, are not passed by cable.
    Thus, by these measures, the number of homes not passed by cable can
    vary from 9.86% to 21.28% depending on the data used in the
    comparison.

[^357]: *DOJ/FTC Guidelines* §1.3

[^358]: *Id.* §1.32. We will discuss "committed entrants," also known as
    "potential entrants," *infra*.

[^359]: *Id.* at 40; Application, Willig Decl. at 10-11.

[^360]: *Video Competition Report*, 17 FCC Rcd at 1294-1297.

[^361]: *Id.* at 1277-79.

[^362]: *Id.* at 1279-81.

[^363]: *See also EchoStar v. DirecTV,* Amended Complaint ¶ 30, where
    EchoStar asserts that C-band technology is largely obsolete.

[^364]: *Video Competition Report*, 17 FCC Rcd at 1277 .

[^365]: *DOJ/FTC Guidelines* § 1.32.

[^366]: Cablevision is in the process of constructing a DBS satellite,
    "Rainbow 1 DBS," that it intends to launch in March 2003, and plans
    to begin service no later than December 31, 2003. Therefore we
    consider Rainbow DBS in the discussion of committed or potential
    entrants below.

[^367]: *See, e.g., Id.* § 1.51 ("In evaluating horizontal mergers, the
    Agency will consider both the post-merger market concentration and
    the increase in concentration resulting from the merger."); *Coastal
    Fuels of P.R., Inc. v. Caribbean Petroleum Corp.*, 79 F.3d 182,
    196-97 (1^st^ Cir. 1996) ("monopoly power" "may be proved
    circumstantially by showing that the defendant has a dominant share
    in a well-defined relevant market and that there are significant
    barriers to entry in that market."); *Application of WorldCom, Inc.
    and MCI Communications Corp. for Transfer of Control of MCI
    Communications Corp. to WorldCom, Inc.*, 13 FCC Rcd at 18048 ("We
    begin our analysis of the competitive effects of the merger by
    assessing both the current market concentration and the likely
    increase in market concentration resulting from the merger...").

[^368]: The Herfindahl-Hirschman Index is calculated as the sum of the
    squares of the market shares of each firm participating in a
    relevant market. The HHI can range from nearly zero in the case of
    an atomistic market to 10,000 in the case of a pure monopoly.
    Because the HHI is based on the squares of the market shares of the
    participants, it gives proportionately greater weight to carriers
    with larger market shares. Changes in market concentration are
    measured by the change in the HHI. *See DOJ/FTC Guidelines,* § 1.5.

[^369]: *Id.* at § 1.51.

[^370]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("Analysis of the EchoStar-Hughes Merger: Competitive
    Effects and National Pricing"), transmitted by letter from the
    Applicants to Marlene Dortch (June 27, 2002) at 18-19.

[^371]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("3_year_mvpd_data.dta"), transmitted by letter from
    Applicants to Marlene H. Dortch, Secretary, FCC (July 25, 2002) and
    Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachments ("3_year_mvpd_data_prep.do" and "logit_regressions.do"),
    transmitted by letter from Applicants to Marlene H. Dortch,
    Secretary, FCC (July 12, 2002). The Applicants' data were submitted
    as part of their simulation analysis, which calculated the impact of
    cable prices on MVPD market shares. These data specified the
    relative market shares for cable, over-the-air television, and each
    of the two DBS operators for 4,984 "local cable systems." Because we
    concluded that over-the-air television was not in the relevant
    product market, staff excluded over-the-air customers from the HHI
    calculation.

[^372]: According to the *Video Competition Report*, cable systems and
    DBS providers accounted for 96.3% of all MVPD subscribers. This
    indicates that other MVPDs currently do not constitute a significant
    competitive force.

[^373]: The staff analysis defined a low-capacity cable system as one
    offering less than 53 channels of video programming and a
    high-capacity system as one offering at least 53 channels.

[^374]: The staff also ran the analysis using weights supplied by the
    Applicants. Using these weights generated a *mean* post-merger HHI
    of 7391 and *mean* HHI increase of 194, while the *median*
    post-merger HHI was 7502 and the *median* HHI increase was 101 in
    markets with high capacity cable systems.

[^375]: The analysis using weights supplied by the Applicants yielded a
    *mean* post-merger HHI of 6661 and *mean* HHI increase of 675, while
    the *median* post-merger HHI was 6522 and the *median* HHI increase
    was 280 in markets with low capacity cable systems.

[^376]: The *DOJ/FTC Guidelines* specify that mergers that produce a
    post-merger HHI above 1800 and an increase in the HHI of greater
    than 100 points will be presumed to have an anticompetitive effect.
    *Id.* at § 1.51.

[^377]: *Id.* § 3.0.

[^378]: *Id.* § 3.2.

[^379]: Applicants Reply Comments at 49.

[^380]: *Id.* at 53. In the Matter of Amendment of Parts 2 and 25 of the
    Commission\'s Rules to Permit Operation of NGSO FSS Systems Co
    Frequency with GSO and Terrestrial Systems in the Ku Band Frequency
    Range; Amendment of the Commission\'s Rules to Authorize Subsidiary
    Terrestrial Use of the 12.2 12.7 GHz Band by Direct Broadcast
    Satellite Licensees and Their Affiliates; and Applications of
    Broadwave USA, PDC Broadband Corporation, and Satellite Receivers,
    Ltd. to Provide A Fixed Service in the 12.2 12.7 GHz Band, 17 FCC
    Rcd 9614 (2002).

[^381]: EchoStar appeared to agree with this view when, in its antitrust
    complaint against DirecTV, it alleged that "\[e\]ntry into the
    high-power DBS market is fundamentally constrained by the small
    number of orbital slots." *EchoStar Communications Corp. v. DirecTV
    Entertainment Corp.*, Amended Complaint ¶ 81.

[^382]: *DOJ/FTC Guidelines* §§ 3.0, 3.2.

[^383]: As a condition to the merger, Cablevision requests that EchoStar
    transfer 17 transponders from the 61.5º W.L. in order to provide
    effective competition to New EchoStar. Cablevision also requests
    that the Commission require EchoStar to lease capacity on its
    EchoStar-3 satellite to Cablevision for not less than three years.
    *See* Letter from Benjamin J. Griffin, Counsel for Cablevision and
    R/L DBS Co., to Marlene H. Dortch, Secretary, FCC, (July 11, 2002)
    (Cablevision July 11 *ex parte*).

[^384]: *See* Cablevision Sept. 18 *ex parte*; Application of R/L DBS
    Company, LLC for Modification of Direct Broadcast Satellite
    Authorization to Launch and Operate its DBS Satellite, Rainbow 1, at
    61.5º W.L., File No. SAT-MOD-20020408-00062, DBS8701. Cablevision
    states that the new satellite would use 13 transponders at the 61.5º
    W.L, including the 11 transponders licensed to Cablevision and two
    "unallocated" transponders. It states that it will allocate
    transponders to either spot beams (regional programming) or CONUS
    beams (national programming) and, using a 21 spot-beam
    configuration, could reach 143 DMAs. Cablevision asserts that this
    new satellite system will employ the latest and most efficient
    technologies, including advanced compression, set-top boxes, and
    allocation of frequencies for either spot-beams or CONUS beams.
    *Id.* at 5-7. Cablevision sets forth a table showing programming
    configuration options with 8PSK modulation and MPEG-2 and MPEG-4
    compression. Cablevision has also requested, as a condition of our
    approval of the proposed transaction, that we order the divestiture
    of 17 DBS channels at 61.5 W.L. so that Rainbow DBS could provide
    an enhanced DBS product from its satellite located in this
    partial-CONUS slot. *See* Letter from Howard J. Symons, Mintz Levin
    on behalf of Cablevision and R/L DBS Company to Marlene H. Dortch,
    Secretary, FCC (Sept. 12, 2002).

[^385]: File no. SAT-PDR-20020425-00071.

[^386]: Letter form Pat Strachan, UK RA to Thomas Tycz, FCC (May 7,
    2002), and letter form Kathryn O'Brien, FCC to Pat Strachan, UK RA
    (June 28, 2002).

[^387]: *See* *SES AMERICOM Inc. Petition for Declaratory Ruling
    SAT-PDR-20020425-00071,* August 23 2002, at ¶2.

[^388]: *See* Application of Compass Systems, Inc. for Authority to
    Construct an International Direct Broadcast Satellite System (filed
    March 20, 2002).

[^389]: The applicant discusses other operations but these operations
    are not covered by the application and are not before the Commission
    at this time. For instance, the applicant indicates that the
    spacecraft at 166° W.L. will provide service to Alaska, Hawaii, and
    the Continental United States (CONUS) except for the East Coast,
    using the 32 DBS channels at this position. The applicant also
    indicates that a steerable beam using FSS frequencies will be
    included for potential coverage of a selected area in the Eastern
    Pacific. The applicant indicates that the spacecraft at 157° W.L.
    will provide service to Canada, Mexico, and the CONUS except for the
    East Coast using the 32 DBS channels at this position.

[^390]: File nos. SES-LIC-20011121-02186 and SES-LIC-20020111-00075.

[^391]: For example RCN, a leading cable overbuilder, reported to the
    SEC that "As a response to the severe slowdown in the
    telecommunication's industry and economy, the limited available
    capital resources for our industry,....we revised our growth plan
    accordingly during the second quarter 2002....Under the revised
    plan, the Company has substantially curtailed future capital
    spending and network geographic expansion in all existing markets,
    focuses on continuation of customer acquisition growth and has
    reduced operating expenses." RCN Corp *"Quarterly Report (SEC form
    10-Q)"* August 14, 2002 at 24.

[^392]: For a satellite provider, the incremental cost of an additional
    customer is the cost of the dish and set-top box. In contrast, the
    incremental cost of an additional customer for an overbuilder,
    entering a new area would involve deploying MVPD facilities to
    residential areas, which could be significant.

[^393]: *DOJ/FTC Guidelines* § 2.

[^394]: *Id.* at § 2.2.

[^395]: *Id. a*t § 2.1.

[^396]: *Id.* § 2.2.

[^397]: *Id.* §2.21.

[^398]: Applicants' Reply Comments at 38.

[^399]: *Id*., Willig Decl. at 43-44.

[^400]: *Id* at 38, Willig Decl. at 6.

[^401]: *Id.,* Willing Decl. at n. 5. **\[**In support of their
    argument, the Applicants note DirecTV's lack of response to
    EchoStar's "I like 9" pricing campaign. In August 2001, new EchoStar
    customers who purchased a system for \$199 or more, received
    EchoStar's "America's Top 100" programming package for \$9.00 per
    month for one year. EchoStar usually charges \$30.99 per month.
    Willig Declaration at n. 6.

[^402]: *Id.* at 22.

[^403]: *See, e.g.* Pegasus Petition at 14, NRTC Petition at 31-35; NAB
    Petition at 15-31.

[^404]: NAB Petition at 16-19; Pegasus Petition, Rubinfeld Aff. at 9.
    NAB claims that direct head-to-head competition is evident in sports
    programming, movies, and international programming decisions,
    because when one company offers a new type of programming, the other
    follows suit. NAB Petition at 24-28.

[^405]: NAB Petition, Sidak Decl. at 68-70, NRTC Petition, MacAvoy Decl.
    at 31-33.

[^406]: NAB Petition at 31.

[^407]: NRTC Petition at 34; NAB Petition at 19-24.

[^408]: NAB Petition at 53.

[^409]: Pegasus Petition at 18.

[^410]: NAB Petition at 58.

[^411]: NAB Petition, Sidak Decl. at 29, NRTC Petition, MacAvoy Decl. at
    51. For more detail on the merger simulation technique see Appendix
    E.

[^412]: The *cross price elasticity of goods A and B* is the percentage
    change in demand for good A that results form a percentage change in
    the price of B.

[^413]: The *own price elasticity of good A* is the percentage change in
    demand for good A that results form a percentage change in the price
    of A.

[^414]: *See* n.337, *supra*; *See also EchoStar Communications Corp. v.
    DirecTV Entertainment Corp.,* Complaint ¶¶ 5-6, 26-85.

[^415]: NAB Petition, Sidak Decl at 44.

[^416]: EchoStar May 16 *ex parte* at 17.

[^417]: Of the non overlapping channels, only Travel Channel earned a
    rating, see Kagan World Media, "*Cable Program Investor,"* (July 29,
    2002) at 11.

[^418]: EchoStar offer through Sears, offer code: JVCDHP, August 2002.
    DirecTV offer through American Express, offer code: AMEX, June 2002.

[^419]: For example, Dr Sidak, for NAB, performs a similar merger
    simulation to the Applicants assuming a higher elasticity of
    substitution and finds that prices would rise 7.3% for EchoStar and
    3.5% for DirecTV. NAB Petition, Sidak Decl. at 28.

[^420]: *See* Nov 6 2000 Memorandum in Support of Plaintiffs Motion for
    Summary Judgment as to First Amendment Issues in Satellite
    Broadcasting Communications Association of America et al v. F.C.C.
    et al.

[^421]: *EchoStar Communications Corp. v. DirecTV Enterprises, Inc*.,
    Civ. Action No. 00-K-212 (D. Colo. 2000).

[^422]: *EchoStar Communications Corp. v. DirecTV Entertainment Corp* ,
    Amended Complaint at ¶78.

[^423]: *Id.* at ¶ 79.

[^424]: *See* Appendix E.

[^425]: Presentation by A. Joskow and R. Willig at 49 (July 2, 2002).

[^426]: An oligopoly market is a market in which only a small number of
    firms compete. *See, e.g.*, [Dennis W. Carlton & Jeffrey M. Perloff,
    Modern Industrial Organization]{.smallcaps} 7-8 (2d ed. 1994)

[^427]: Viscusi, Vernon and Harrington, *Economics of Regulation and
    Antitrust* MIT Press 2000, at 107.

[^428]: Douglas F. Greer, *Industrial Organization and Public Policy,*
    MacMillan 1992, at 269.

[^429]: D.F. Turner, *The Definition of Agreement Under the Sherman Act:
    Conscious Parallelism and Refusals to Deal,* Harvard Law Review
    (February 1662) at 661.

[^430]: *See* John Kwoka, Jr., "The Effect of Market Share Distribution
    on Industry Performance," *The Review of Economics and Statistics,*
    at 101-9, Feb. 1979.

[^431]: *FTC v. H.J. Heinz Co*., 246 F.3d 708, 715 (D.C. Cir. 2001)
    (quoting *FTC v. PPG Indus*., 798 F.2d 1500, 1503 (D.C. Cir. 1986).

[^432]: *Id*. at 175-16 (quoting *U.S. v. General Dynamics*, 415 U.S.
    486, 497 (1974).

[^433]: Pegasus Petition at 21, 30-31.

[^434]: NAB Petition at 54-55. NAB cites the DOJ Merger Guidelines which
    discuss maverick firms in relationship to coordinated behavior: "In
    some circumstances, coordinated interaction can be effectively
    prevented or limited by maverick firms -- firms that have a greater
    economic incentive to deviate from the terms of coordination than do
    most of their rivals (e.g., firms that are unusually disruptive and
    competitive influences in the market.) *Merger Guidelines* § 2.12.

[^435]: NAB Petition, Sidak Decl. at 34-35. Salop has shown that an
    identical posted price is similar to "most-favored-nation" clause in
    a sales contract that provides the buyer with protection against any
    price discrimination i.e., when seller offers discounted price to
    another buyer. Using standard oligopoly models, Salop shows that
    most-favored-nation causes rival firms to act co-operatively. *See,*
    Steven Salop, "Practices That (Credibly) Facilitate Oligopoly
    Coordination," in Joseph E. Stiglitz and G. Frank. Mathewson, eds..
    *New Developments in Analysis of Market Structure,* MIT Press,
    265-290.

[^436]: *See, e.g.,* Alexis Jacquemin & Margaret Slade, *Cartels,
    Collusion, and Horizontal Merger*, in 1 [Handbook of Industrial
    Organization]{.smallcaps} 415 (19989); F.M. Scherer "*Industrial
    Market Structure and Economic Performance*," Houghton Mifflin, 1980
    at 199-200. *See also* T.F. and Peter C. Reiss, "Entry and
    Competition in Concentrated Markets," *Journal of Political
    Economy*, (1991) at 977-1009. [Jean Tirole, The Theory of Industrial
    Organization 245- 253 (1988) (]{.smallcaps}discussing factors
    facilitating coordinated effects).

[^437]: As discussed in section V.B.4. *infra*, this factor may be
    exacerbated by the proposed national pricing plan.

[^438]: NAB Petition at 28-20.

[^439]: NRTC Petition at 66.

[^440]: NAB Petition at 15.

[^441]: AAI Comments at 2-3.

[^442]: Applicants\' Reply Comments at 20-30.

[^443]: Application at 42. *See also* Applicants' Reply Comment at ii
    ("Consumers across the country will pay the same price for this DBS
    service, *i.e.,* one nation, one rate card, regardless of a
    subscriber's location."). The Applicants further note that
    "\[n\]ational pricing is the most practicable and efficient method
    of DBS pricing." Application at 34.

[^444]: Applicants' Reply Comment at 2.

[^445]: Application, Willig Decl. at 25.

[^446]: *Id*.

[^447]: *See, e.g.*, NRTC Petition, MacAvoy Decl. at 53; NAB Petition,
    Sidak Decl. at 31 & 36; Pegasus Petition, Rubinfeld Aff.. at 13.

[^448]: NRTC Petition, MacAvoy Decl. at 53.

[^449]: NAB Petition, Sidak Decl. at 31-34; NRTC Petition, MacAvoy Decl.
    at 52.

[^450]: NAB Petition, Sidak Decl. at 34-35.

[^451]: Applicants' Reply Comments at 68-70.

[^452]: *Id.*, Willig Decl. at 25-26, 32.

[^453]: Letter from Stephen E. Coran, Manatt, Phelps & Phillips, LLP,
    Counsel to NRTC, to Marlene H. Dortch, Secretary, FCC (Sep. 4, 2002)
    ("NRTC Sep. 4 *ex parte*") at Exhibit A; *See also* Applicants' Oct
    8 *ex parte*, Attachment 2, 5.

[^454]: *See, e.g.,* Applicants' Reply Comment at 69 ("The ability to
    offer local promotions for installation and equipment will not
    undermine the effectiveness of national pricing as a constraint.");
    *See also Ergen Makes His Case*, [Satellite Business
    News]{.smallcaps}, December 21, 2001, at p.1 (Mr. Ergen quoted as
    stating that "I guess if you're saying if the cable company came in
    and offered a rebate n one city, would you respond to that? I think
    you could make allowances for that."); In this regard, we note that
    Professor Willig only claims that "*monthly* service prices" are
    unlikely to rise as a result of the merger. Application, Willig
    Decl. at 25.

[^455]: For example, when DBS was first offered, providers charged a
    minimum of \$699 for equipment and \$150 for installation. Assuming
    that these charges are amortized over a one-year period and the
    discount rate is 7%, a difference of \$100 in up-front,
    non-recurring costs translates into a difference of \$8.65 in
    amortized monthly costs. *Annual Assessment of the Status of
    Competition in the Market for the Delivery of Video Programming*, 9
    FCC Record 7002 (1994) at paragraph 65.

[^456]: **REDACTED.**

[^457]: Applicants' Reply Comments, Willig Decl. at 27.

[^458]: It is technically possible that, despite an increase in the
    profit-maximizing price-cost margin, DBS prices could fall if the
    merger resulted in a sufficiently large decline in New EchoStar's
    marginal cost of providing DBS service. As discussed below, however,
    the Applicants have not presented sufficient specific and verifiable
    evidence to demonstrate that the merger will result in a
    sufficiently large reduction in marginal cost to effectuate such a
    decline in consumer price.

[^459]: *See, e.g., Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063
    ("Applicants bear the burden of showing both that merger-specific
    efficiencies will occur, and that they sufficiently offset any harms
    to competition such that we can conclude that the transaction is
    pro-competitive and therefore in the public interest.");
    *SBC-Ameritech Order*, 14 FCC Rcd at 14825 (same).

[^460]: *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063; *see also
    DOJ/FTC Guidelines* § 4 ("The Agency will not challenge a merger if
    cognizable efficiencies are of a character and magnitude such that
    the merger is not likely to be anticompetitive in any relevant
    market. To make the requisite determination, the Agency considers
    whether cognizable efficiencies likely would be sufficient to
    reverse the merger's potential to harm consumers in the relevant
    market, e.g., by preventing price increases in that market.").

[^461]: *See, e.g., Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063
    ("Pro-competitive efficiencies include only those efficiencies that
    are merger-specific, *i.e.,* that would not be achievable but for
    the proposed merger."); *SBC-Ameritech Order*, 14 FCC Rcd at 14825
    ("Public interest benefits also include any cost saving efficiencies
    arising from the merger if such efficiencies are achievable only as
    a result of the merger. . . "); *see also* *DOJ/FTC Guidelines* § 4
    ("The Agency will consider only those efficiencies likely to be
    accomplished with the proposed merger and unlikely to be
    accomplished in the absence of either the proposed merger or another
    means having comparable anticompetitive effects.")

[^462]: *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063.

[^463]: *See, e.g., id.,* at 20063 ("These pro-competitive benefits
    include any efficiencies arising from the transaction if such
    efficiencies . . . are sufficiently likely and verifiable. . . ");
    *SBC-Ameritech Order*, 14 FCC Rcd at 14825, (same); *see also*
    *DOJ/FTC Guidelines* § 4 ("\[T\]he merging firms must substantiate
    efficiency claims so that the Agency can verify by reasonable means
    the likelihood and magnitude of each asserted efficiency, how and
    when each would be achieved (and any costs of doing so), \[and\] how
    each would enhance the merged firm's ability to compete. . . \").

[^464]: *DOJ/FTC Guidelines* § 4 ("Cognizable efficiencies are assessed
    net of costs produced by the merger or incurred in achieving those
    efficiencies.").

[^465]: *See, e.g., Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063
    ("Efficiencies generated through merger can mitigate competitive
    harms if such efficiencies enhance the merged firm's ability and
    incentive to compete. . .\").

[^466]: *See, e.g., DOJ/FTC Guidelines* § 4 (noting that marginal cost
    reductions may lessen the likelihood or effectiveness of coordinated
    interaction (by enhancing the incentive of a maverick to lower price
    or by creating a new maverick firm) and also may reduce a merged
    firm\'s incentive to initiate a unilateral price increase.)

[^467]: *SBC-Ameritech Order, 14* FCC Rcd at 14825 *Cf. DOJ/FTC
    Guidelines* § 4 ("The greater the potential adverse competitive
    effect of a merger . . . the greater must be cognizable efficiencies
    in order for the Agency to conclude that the merger will not have an
    anticompetitive effect in the relevant market. When the potential
    adverse competitive effect of a merger is likely to be particularly
    large, extraordinarily great cognizable efficiencies would be
    necessary to prevent the merger from being anticompetitive.").

[^468]: Application, Eng. Statement at 8-9.

[^469]: Applicants\' Reply at 3-5.

[^470]: Application, Eng. Statement at 10.

[^471]: Application, Eng. Statement at 11.

[^472]: Letter from Pantelis Michalopoulos, Esq. on behalf of EchoStar
    and Gary M. Epstein, Esq. on behalf of Hughes to Marlene Dortch,
    Secretary, FCC (July 5, 2002) at 7 ("Applicants July 5 *ex parte*")

[^473]: *Id.* at 28. The Applicants claim that customers will bear none
    of the costs of this transition, however. *Id.*

[^474]: Applicants' July 5 *ex parte* at 28.

[^475]: Duke Law Reply Comments at 16-17; NAB Petition at 75-76; Pegasus
    Petition at 61; NRTC Petition at 63-65.

[^476]: Pegasus Petition at 41-42; NAB Petition at 84-89; and Duke Law
    Comments at 22.

[^477]: *See, e.g.,* NRTC Petition*,* Morgan Decl. at 2; Pegasus
    Petition, Rusch Aff. at 10.

[^478]: NAB Petition, Gould Decl. at 6-7; Pegasus Petition, Rusch Aff.
    at 11.

[^479]: NAB Petition at 77-79.

[^480]: The Applicants estimate future cash flow for the years 2002
    through 2007. They then calculate the earnings before interest,
    taxes, depreciation, and amortization ("EBITDA") for 2007, and then
    apply a "terminal multiple" of **REDACTED** to the year 2007 EBITDA
    to obtain an estimate of future EBITDA from 2008 in perpetuity.
    Applicants' July 5 *ex parte* at 11.

[^481]: The following illustrates this point. Since channels differ in
    popularity, a DBS provider, with limited capacity will initially
    choose the most valuable channels to transmit and will add less
    popular channels only as its capacity increases. The DBS provider
    can increase capacity either by adding spectrum or adopting new,
    more productive technology. But, the channels transmitted as a
    result of this increase in capacity will nevertheless be less
    valuable than the provider's most popular channels.

[^482]: In Letter from Pantelis Michalopoulos, Esq. on behalf of
    EchoStar and Gary M. Epstein , Esq. on behalf of Hughes to Marlene
    Dortch, Secretary, FCC (August 2, 2002) ("Applicants' Aug. 2 *ex*
    parte"), the Applicants state: **REDACTED**.

[^483]: *See* Douglas S. Shapiro, Michael L. Savner and Jeffrey R.
    Toohig, *Initiating Coverage of DBS Sector,* (Equity Research, Bank
    of America Securities, Sept. 19, 2002) at 6.

[^484]: According to the Applicants, each HDTV local channel uses as
    much as ten times as much spectrum as a SDTV channel. Application,
    Eng. Statement, at 13-14.

[^485]: *Cf. DOJ/FTC Guidelines* § 4, n. 37 ("Delayed benefits from
    efficiencies (due to delay in the achievement of, or the realization
    of consumer benefits from, the efficiencies) will be given less
    weight because they are less proximate and more difficult to
    predict.")

[^486]: Applicants' Aug. 2 *Ex Parte*.

[^487]: Shapiro et al. at 37-38.

[^488]: Similarly, in estimating the gain in free cash flow from
    providing local programming in all 210 DMAs, the Applicants assume
    that the introduction of the local programming will increase their
    market share in all geographic markets by the same percentage. We
    find this assumption to be highly unrealistic. Particularly for
    those geographic markets where customers do not have access to cable
    and where current DBS penetration rates are already high, we would
    not expect market share to rise as much as it would in markets where
    customers have access to cable and DBS penetration is consequently
    lower.

[^489]: Applicants Jul. 5 *ex parte* at 40.

[^490]: *Id*. at 17.

[^491]: *Id.* at 18.

[^492]: Application at 36; Applicants July 5 *ex parte* at 18.

[^493]: Applicants July 5 *ex parte* at 18.

[^494]: *Id*. at 20.

[^495]: *Id.* at 22.

[^496]: *Id.* at 24.

[^497]: *Id.* at 26. Part of the reduction in capital expenditures,
    according to the Applicants, will result from the ability of the
    merged entity to "utilize all 32 DBS transponders at 119º W.L.
    orbital location using just two satellites instead of the four that
    are slated to operate there." Application, Eng. Statement at 12. The
    Applicants acknowledge, however, that they will incur additional
    capital expense in launching spot beam satellites to provide local
    programming into more DMAs. *Id.* at 27.

[^498]: NAB Petition at 73-75. *See also* Duke Law Comments at 17.

[^499]: Pegasus Petition at 53. For example, NRTC estimates that the
    set-top box change-out will cost the merged company more than \$5
    billion, not the "couple of billion dollars over a period of three
    or four years" stated in the Application. NRTC Petition at 66-67.

[^500]: NRTC Petition at 67-68; Pegasus Petition at 56-57.

[^501]: NAB Petition, Sidak Decl. at 59-60.

[^502]: *See* NRTC Sept. 4 *ex parte*[.]{.smallcaps}

[^503]: Applicants\' July 5 *ex parte* at 20.

[^504]: *Id.*

[^505]: *Id*. at 17.

[^506]: *Id.* at 11.

[^507]: We note that the Applicants' choice of multiplier is
    inconsistent with the discount rate they employ. Specifically, the
    Applicants' choice of a terminal multiple of **REDACTED** implies a
    discount rate of **REDACTED** In their business case analysis,
    however, the Applicants generally employ a discount rate of
    **REDACTED**, such as when they compute the present value of the
    terminal value and the present value of the synergies in years
    2003-2007. *Id.* at 11. Applying a consistent, ten percent discount
    rate in calculated the terminal multiple would reduce the multiple
    to 10, which would significantly reduce the calculated benefits.

[^508]: *See Id.* at 18. *See also Satellite Business News,* 10 (Aug.
    14, 2002) (discussing the view that any security system could be
    compromised given enough time, and that the only way to prevent
    piracy is to continue to upgrade the core security system).

[^509]: Application at 24.

[^510]: Applicants' Reply Comments at 45-47, 67.

[^511]: Pegasus Petition at 37. *See also* Carolina Comments at 3; NRECA
    Comments at 6.

[^512]: ACA Petition at 12.

[^513]: ACC Satellite Comments at 6.

[^514]: Applicants' Reply Comments at 106, 83 (true broadband
    alternative) (bundled service by digital cable). *See also*
    Application at i ("The merger will allow New EchoStar to provide
    meaningful broadband competition with cable and telephone companies
    as a virtual third line into the home *for a bundle of
    video/data/Internet services.*") (emphasis added).

[^515]: *Id*. at 83, n.198 (citing *Inquiry Concerning the Deployment of
    Advanced Telecommunications Capability to All Americans in a
    Reasonable And Timely Fashion, and Possible Steps To Accelerate Such
    Deployment Pursuant to Section 706 of the Telecommunications Act of
    1996*, 17 FCC Rcd 2844, 2847-51 (2002) ("*Third 706 Report*")
    (defining alleged "true broadband" benefit as meeting Commission's
    definition of "advanced telecommunications capability")). For
    purpose of our analysis, we refer to such enhanced Internet access
    services as "satellite broadband service" unless the context
    requires otherwise. We note that the terms "broadband" and
    "broadband services" have come to mean many different things to many
    different people, and has been used to refer to 'high-speed'
    Internet access services---i.e., in excess of 200 Kbps in at least
    one direction---in addition to "advanced services." *Appropriate
    Framework for Broadband Access to the Internet over Wireline
    Facilities Universal Service Obligations of Broadband Providers*,
    Notice of Proposed Rulemaking, 17 FCC Rcd 3019, 3019 (2002)
    ("*Wireline Broadband NPRM"); See also* *Inquiry Concerning
    High-speed Access to the Internet Over Cable and Other Facilities;
    Internet Over Cable Declaratory Ruling; Appropriate Regulator
    Treatment for Broadband Access to the Internet Over Cable
    Facilities*), 17 FCC Rcd 4798, 4802-03 (2002) ("*Cable Modem
    Declaratory Order & NPRM"*).

[^516]: Application, Eng. Statement at 15.

[^517]: *Id*. at 47-48 ("Time to market is of the essence. If
    next-generation satellite broadband services reach the market only
    after cable and DSL have commanded 60% of potential broadband
    customers, it is not clear whether any late-coming service would be
    able to attract enough of the remaining customers to become
    viable."); *id.* at 48 ("\[O\]nly a narrow window of opportunity is
    presented for imposing heightened pressure on cable before cable is
    able to lock in its dominant position.")

[^518]: *Id.* at 43 (proposed merger "will have a profoundly positive
    effect on the deployment of facilities-based, advanced, two-way,
    broadband services via satellite to all Americans, especially in
    rural areas"); *id.* at 47 (merger will "promote exponentially the
    efforts of both companies to implement truly competitive
    next-generation broadband systems in a fashion that, absent the
    merger, would likely be significantly less beneficial to the
    public."); Applicants' Reply Comments at 96 ("\[T\]he efficiencies
    flowing from the merger will enable New EchoStar to deploy a
    competitive true broadband satellite offering for the benefit of all
    U.S. consumers, rural, suburban and urban alike."); *id.* at 106-109
    (merger's efficiencies will allow deployment of competitive, "true"
    broadband alternative to cable modem and DSL); NRTC Petition at 42
    (summarizing Applicants' claims).

[^519]: The Applicants contend that with this critical mass, they can
    "recover the significant up-front investment and subscriber
    acquisition costs associated with launching and marketing a new
    two-way broadband satellite service." Applicants' Reply Comments at
    101. *See also* Application, Eng. Statement at 15 (estimating that
    "at least 5 million subscribers would be necessary to recover the
    significant up front investment and subscriber acquisition costs
    associated with launching and marketing \[a competitive\] two-way
    broadband satellite service").

[^520]: *See*, *e.g*., NRTC Petition at 54-55, Morgan Decl. at 2-3,
    36-39; Pegasus Petition at 47 ("\[I\]t is clear that both EchoStar
    and DIRECTV already are at the forefront in offering competitive
    broadband services, and that each can and would continue to develop
    enhanced broadband services on a competitive basis without the
    merger."); *id.* at 49 ("Both EchoStar and Hughes each have
    sufficient spectrum (both in the Ku FSS and Ka FSS bands) to offer a
    competitive broadband service. Moreover, both have existing customer
    bases accustomed to using satellite services, vast distribution
    networks, and formidable financial resources necessary to support
    satellite broadband through the growth phase."); NAB Petition at
    104-105 (noting Applicants planned Ka-band projects and DirecTV's
    "optimistic" statements about future of satellite broadband).

[^521]: *See, e.g.*, NRTC Petition at 50-51 (merger would cause Ku-band
    merger-to-monopoly in areas not served by cable modem or DSL); NRTC
    *ex parte* Reply Comments (April 4, 2002) ("NRTC Reply Comments") at
    30, n.75 (cause broadband monopoly in areas not served by cable
    modem or DSL); *id.* at ¶ 42 (cause broadband monopoly in rural
    America); NAB Petition at ii ("Consumers in \[areas without other
    broadband options\] will be at the mercy of a monopolist for
    broadband Internet access."); *id.* at 102-03 (merger will "snuff
    out existing competition" for existing service in rural America);
    Pegasus Petition at 30 ("This merger will eliminate current choices
    in satellite broadband.").

[^522]: See NRTC Sept. 4 *ex parte*, Attachment (Ex Parte Comments
    (Redacted)) at 35-36.

[^523]: We have recognized analysts' predictions concerning the likely
    increase in broadband connections. *Third 706 Report*, 17 FCC Rcd at
    2870-71 ("Currently, the vast majority (80.0 percent) \[of on-line
    households have\] narrowband connections, but the percentage of
    high-speed connections should increase, so that in the next five
    years, 55.7 percent of access connections are projected to be
    high-speed or advanced."). Broadband Internet access services are
    approximately four times as fast as the less than 56 Kbps achieved
    by dial-up, or "narrowband," Internet access technologies. *See
    Inquiry Concerning the Deployment of Advanced Telecommunications
    Capability to All Americans in a Reasonable And Timely Fashion, and
    Possible Steps To Accelerate Such Deployment Pursuant to Section 706
    of the Telecommunications Act of 1996*, 14 FCC Rcd 2398 (1999) (rate
    of 200 Kbps is "approximately four times faster than the Internet
    access received through a standard phone line at 56 kbps," and was
    chosen "because it is enough to provide the most popular forms of
    broadband---to change web pages as fast as one can flip through the
    pages of a book and to transmit full-motion video."). We anticipate
    that our measure of advanced services may change as technology
    continues to evolve. *See Third 706 Report*, 17 FCC Rcd at 2851.

[^524]: *See* Applicants' Reply Comments at 87-88; *Third 706 Report*,
    17 FCC Rcd at 2864-66. Throughout this discussion we refer to "DSL
    services," even though there are several classes of xDSL service.
    *See, e.g.*, *Deployment of Wireline Services Offering Advanced
    Telecommunications Capabilities, Third Reconsideration Order*, 16
    FCC Rcd 2101, 2104; *GTE Telephone Operating Cos*., 13 FCC Rcd
    22466, 22471 (1998) ("The 'x' in xDSL is a placeholder for the
    various types of DSL services, such as . . . ADSL (asymmetric
    digital subscriber line), HDSL (high-speed digital subscriber line),
    UDSL (universal digital subscriber line), VDSL (very-high speed
    digital subscriber line), and RADSL (rate-adaptive digital
    subscriber line)").

[^525]: *See, e.g.*, *Third 706 Report*, 17 FCC Rcd at 2859; 2869, App.
    C, Table 1; Applicants' Reply Comments at 88.

[^526]: *See* Applicants Reply Comments at iii ("The 'digital divide' in
    the United States is real: as many as 40 million households in the
    United States today do not have access to high-speed Internet and
    data services . . . ."); *id.* at 86 ("A report cited by the
    Commission puts the number of homes that may never have \[cable
    modem or DSL\] access at 20 to 30 million.") (citing *Third 706
    Report*, at 2877, n.196 (in turn, citing studies by Salomon Smith
    Barney and Merrill Lynch)); NRTC Petition at 44 ("According to a
    recent FCC report, 75% of U.S. zip codes have at least one
    high-speed line, but 49.5% of U.S. zip codes are served by one or no
    providers.") (citing *High Speed Services for Internet:
    Subscribership as of December 31, 2000* (rel. Aug. 9, 2001)); *id.*
    at 45 ("A recent Congressional report stated that cable modem
    service is potentially available to an estimated 64 million
    households, leaving 40 million households without such access.")
    (citing Lennard G. Kruger, *Broadband Internet Access and the
    Digital Divide: Federal Assistance Programs,* CRS Report for
    Congress (Jan. 14, 2002) at CRS-2); NAB Petition at 100 ("One
    industry study indicates that in 2002, 28 percent of the U.S. will
    be without terrestrial broadband access. In the very near future,
    according to other industry observers, there will be approximately
    20 to 30 million U.S. households that will be unserved by cable
    modem or DSL").

[^527]: *See* NRTC Petition at 49 (MMDS yet to emerge as major
    competitor to cable modem and DSL, and MMDS broadband access
    providers have scaled back service deployment); *Third 706 Report*,
    17 FCC Rcd at 2878 (discussing potential of third generation
    wireless (3G) systems); NRTC *ex parte* Reply Comments at 32 (use of
    unlicensed technologies not competitive). *But see* Applicants'
    Reply Comments at 111 ("The Commission has recently observed that
    new entrants using several different technology platforms have
    already begun, or are poised to begin, playing a significant role in
    providing high-speed and advanced services to many areas of the
    country including smaller markets."); *id.* at 111-114 (discussing
    prospects of broadband deployment by MMDS, several Ka-band
    providers, 3G systems, advanced DSL technologies, and small cable
    companies).

[^528]: *See, e.g.*, NRTC Petition at 49 ("Regardless of which
    statistics are more accurate, it is indisputable that a very large
    number of rural Americans do not have access to cable modem or DSL
    services, leaving satellite as their only available choice.").

[^529]: Currently, Ku-band Internet access service is provided in the
    fixed-satellite service (FSS) band, 11.7-12.2 GHz with the uplink
    portion of two-way service in the 14.0-14.5 GHz band. While the DBS
    ancillary service policy could facilitate one-way satellite Internet
    access service in the BSS band, 12.2-12.7 GHz, two-way service would
    not be feasible in the BSS band. S*ee 2002 DBS Report and Order*.
    This is because the BSS feeder link band, 17.3-17.8 GHz, is limited
    to feeder link operation by both international and domestic
    footnotes to the tables of frequency allocations,. *See* 47 C.F.R.
    §2.106, n.US271; International Radio Regulations, RR5.516. In
    addition, the BSS uplink is also allocated to BSS downlink effective
    April 1, 2007 rendering the band incompatible with the ubiquitous
    customer-premised two-way earth stations required for two-way
    satellite-provided Internet access service. *See* 47 C.F.R. § 2.106,
    n.NG163; International Radio Regulations, RR5.517.

[^530]: *See* Applicants' Reply Comments, Friedman Decl. at ¶ 15 (unlike
    Ku-band systems, Ka-band systems better for broadband Internet
    access service because, "\[a\]mong other things, the use of many
    small spot beams \[by Ka-band systems\] facilitates the provision of
    point-to-point service by many different users with a high rate of
    efficient frequency reuse."); Douglas S. Shapiro, *EchoStar
    Communications Corp., Initiating Coverage with a Strong Buy*, Banc
    of America Securities (Equity Research) (Sep. 19, 2002) at 5
    ("\[W\]hile we believe the DBS business is the most efficient
    broadcast architecture, it is also the most inefficient
    point-to-point architecture, making two-way services such as
    high-speed data, VOD, true interactivity and voice impractical or
    technologically impossible.").

[^531]: *See, e.g.*, NRTC Petition at 45-46 (EchoStar's StarBand and
    DirecTV's DirecWay services provide upload/download speeds of
    150/500 and 128/400 Kbps, respectively); Applicants' Reply Comments
    at 90 ("\[C\]urrent satellite offerings do not meet the Commission's
    definition of 'advanced services' because the satellite offerings
    are not capable of providing transmission speeds in excess of 200
    kbps in both directions.")

[^532]: As discussed further below, after the merger application was
    filed, EchoStar withdrew its support of Starband and relinquished
    its voting interest. *See, e.g.*, *EchoStar Stops Backing StarBand
    After \$100 Million Investment*, Satellite Week (Apr. 8, 2002);
    *StarBand Accepts Registration of EchoStar Board Members*,
    Communications Daily (May 8, 2002) (noting May 5, 2002, resignation
    of four EchoStar-appointed members from seven-person board).

[^533]: *See* Applicants' Reply Comments at 91.

[^534]: *See, e.g.*, Randy Sukow, *Satellite Internet: Another Piece in
    the Last-mile Broadband Puzzle*, Rural Telecommunications (Jul./Aug.
    2001), *available at*
    http://www.ruraltelecom.org/julaug01/satellite-b-full.html (noting
    that the Internet-capable satellite dishes associated with
    Applicants' satellite Internet access services are "somewhat larger
    than dishes designed to receive TV service only.")

[^535]: Pegasus has announced that it will discontinue its Internet
    access service. *See* Pegasus Satellite Communications, Inc., 10-Q
    For Period Ending June 30, 2002 (filed Aug. 14, 2002) at 11
    ("Because our Pegasus Express two way satellite internet access
    business no longer fits into our near term strategic plans, we
    entered into an agreement with an unaffiliated party in June 2002 to
    sell our Pegasus Express subscribers and the Pegasus Express
    equipment inventory for cash.") *available at*
    http://www.shareholder.com/Common/Edgar/1015629/1135338-02-25/02-00.rtf.

[^536]: *See, e.g.*, Pegasus Petition at 40-41 (explaining Applicants'
    deployment of spot beams for MVPD services) ("Because the television
    signal \[retransmitted with multiple spot beams\] is transmitted to
    a small area, the same frequency may be re-used in other geographic
    areas without the interference that would result if two signals were
    transmitted nationally on the same frequency. This means that a
    single satellite can supply a large number of local television
    channels with relatively little spectrum usage."). *See also*,
    WildBlue, *WildBlue Corporate Backgrounder*, *at*
    http://www.wildblue.com/me/backgrounder.html (visited Sep. 16, 2002)
    (WildBlue system designed to "use a large number of small 'spot
    beams' pointed at different geographic regions instead of using one
    single U.S. beam," that such "\[s\]pot beams allow a large degree of
    frequency re-use (i.e. multiple beams can re-use the same frequency
    as long as they are aimed at different parts of the country), and
    should facilitate "up to 4 - 6 times as much bandwidth per dollar as
    a Ku-band satellite").

[^537]: Although spot beam technology could be used in the Ku band to
    provide point-to-point services such as broadband Internet access
    service, the service rules in the Ku FSS band require a satellite
    longitudinal spacing of two degrees. *See Licensing of Space
    Stations in the Domestic Fixed-Satellite Service*, 54 Rad. Reg. 2d
    (P&F) 577, 589 (1983). This requires that the use of small
    subscriber antennas be coordinated with the neighboring satellites
    in order to minimize interference between the co-channel services.
    Typically, small-antenna services on one satellite are only
    compatible with large-antenna services on the neighboring satellite,
    rendering it essentially impossible to commit an entire Ku-band FSS
    satellite to broadband Internet access services. Thus, Ku-band FSS
    satellite broadband services are implemented on a transponder basis
    rather than a satellite basis. On the other hand, the Ka-band
    service rules, while also requiring two-degree spacing, still allow
    for antennas in the two-foot range to be deployed ubiquitously on a
    co-channel basis on neighboring satellites with acceptable
    interference levels.

[^538]: The combined locations of EchoStar and Hughes would satisfy the
    "one-dish" solution criterion of the Applicants. *See*, Appendix
    B-D. *See also,* Letter from Gary M. Epstein, Latham & Watkins,
    Counsel for Hughes Electronics Corporation and General Motors
    Corporation, and Pantelis Michalopoulos, Steptoe & Johnson LLP,
    Counsel for EchoStar Communications Corporation, to Marlene H.
    Dortch, Secretary, FCC (June 13, 2002) ("Applicants Jun. 13 *ex
    parte*"), Attachment at 38 ("Broadband Presentation"); EchoStar's
    pending Petition for Reconsideration seeks reinstatement of its
    Ka-band authorizations at 83º W.L. and 121º W.L., which were
    canceled for failure to meet milestones. *See* n.23, *supra*.

[^539]: *See* Applicants' Reply Comments at 82, n.146. More generally,
    we have previously recognized the importance of bundled video and
    Internet access service. *Accord, Annual Assessment of the Status of
    Competition in the Market for the Delivery of Video Programming*,
    Eighth Annual Report, 17 FCC Rcd 1244, 1248 (2002) ("The most
    significant convergence of service offerings continues to be the
    pairing of Internet service with other service offerings.")

[^540]: Applicants' Reply Comments at 106.

[^541]: *Id.* at 106.

[^542]: *Id.* at 81.

[^543]: *Id*., Willig Decl. at 36-37 (merger's effect on competition in
    the broadband Internet access services market generally would be to
    "likely pressure cable providers to upgrade their infrastructure so
    that connection speeds do not deteriorate as the subscriber base
    increases," thereby "increase\[ing\] the speed at which extant cable
    modem subscribers connect to the Internet or allow more broadband
    users at any given connection speed").

[^544]: *See, e.g*., Applicants' Reply Comments at 93 ("Just recently,
    Astrolink reported that it had terminated its Ka-band spacecraft
    contract with Lockheed Martin, after having built 90% of its first
    spacecraft, and after spending about \$710 million on its Ka-band
    system and finding itself unable to finance the remaining cost of
    implementing the Astrolink broadband system."). *But see,* *In re
    Astrolink International LLC, Application for Authority to Construct,
    Launch, and Operate a Ka-band Satellite System in the
    Fixed-Satellite Service*, Memorandum Opinion and Order, 17 FCC Rcd
    11267 (Int'l Bur. 2002); File Nos. 182 through 186 SAT-P/LA-95 and
    SAT-MOD-19971222-00200 (waiving Astrolink's Ka-band construction
    commencement milestone, contingent upon Astrolink's entering
    construction contract by January 2003); Letter from Jack Richards,
    Keller and Heckman LLP, Counsel to NRTC, to Marlene H. Dortch,
    Secretary, FCC (Jul. 25, 2002) Attachment at 2 ("The
    EchoStar/DIRECTV Merger Would Be Disastrous For Rural America")
    (suggesting that EchoStar "chose to cease funding its WildBlue
    Ka-band project" apparently to thwart development of
    satellite-delivery broadband, and thereby promote the merger).

[^545]: *See* Application of Motorola, Inc. and Teledesic, LLC for
    Extension of Time Allowed for Commencement of Construction, File No.
    SAT-MOD-20020131-00012, 17 FCC Rcd 16543 (Int'l Bur,. 2002).

[^546]: *See, e.g.*, Letter from John P. Janka, Hughes Electronic Corp.
    to Magalie Roman Salas, Secretary, FCC, at 16 (Jan. 14, 2002) (file
    Nos. SAT-MOD-20011221-00135 & 00136); Pegasus Petition at 31-32.

[^547]: Application, Eng. Statement at 15. *See also* Applicants' Reply
    Comments at 101 ("As explained in the Application, EchoStar believes
    that it must achieve at least 5 million broadband subscribers within
    a five year period in order to recover the significant up-front
    investment and subscriber acquisition costs associated with
    launching and marketing a new two-way broadband satellite
    service."); Applicants Jun. 13 *Ex Parte* at 2 ("Without the merger,
    neither firm will likely have a large pool of subscribers to attain
    the scale---about 5 million broadband subscribers---required to
    reduce the price to the consumer and thereby effectively compete
    with cable and DSL broadband offerings.").

[^548]: Application, Eng. Statement at 15 ("ECC and Hughes estimate that
    at least 5 million subscribers would be necessary in the next 5
    years to recover the significant up front investment and subscriber
    acquisition costs associated with launching and marketing such
    two-way broadband satellite service."). *See also* Application at 47
    ("Time to market is of the essence. If next generation satellite
    broadband services reach the market only after cable and DSL have
    commanded 60% of potential broadband customers, it is not clear
    whether any late-coming service would be able to attract enough of
    the remaining customers to become viable."); NRTC Petition, Morgan
    Decl. (disputing Applicants' 5 million subscriber "critical mass"
    argument).

[^549]: Application, Eng. Statement at 15; Applicants' Reply Comments at
    101; Applicants Jun 13 *ex parte* at 2.

[^550]: Application, Willig Decl. at ¶ 25; Application, Eng. Statement
    at 16 (merged entity will be "able to achieve scale in manufacturing
    to significantly reduce subscriber terminal costs"); *id.* ("\[B\]y
    combining the investments of both companies and standardizing the
    product, the fixed costs for the system will be reduced by 50%,
    providing a more competitive and compelling product to the American
    consumer."); *id*. at 15-16 (noting efficiencies concerning "ground
    stations and access gateways, both primary and redundant, as well as
    the provision of customer support facilities," and concerning
    "consumer terminals required for the provision of satellite
    broadband services").

[^551]: NRTC Petition at 54-55. (Applicants own statements and "simple
    multiplication" show each Applicant can serve from 4.5 to six
    million subscribers standing alone); NRTC Petition, Morgan Decl., at
    2-3, 36-39 (without merger, DirecTV and EchoStar can provide Ka-band
    broadband service to approximately 7.6 to 14.5 million and 6.6 to
    12.7 million subscribers, respectively); NRTC *ex parte* Reply
    Comments at 9 (noting EchoStar "flip-flop" on ability to provide
    Ka-band service); Pegasus Petition at 31 (Applicants' claim
    "inconsistent with the statements that they have been making to the
    Commission for several years now---including very recently---that
    the are each, separately, committed to deployment of broadband
    satellite systems and have been building separate Ka-band satellites
    for several years."); *id.* at 47 ("\[I\]t is clear that both
    EchoStar and DIRECTV already are at the forefront in offering
    competitive broadband services, and that each can and would continue
    to develop enhanced broadband services on a competitive basis
    without the merger.")

[^552]: *See generally,* NRTC Petition, Morgan Decl. at 36-39, Table 14.

[^553]: *See, e.g.*, *DOJ/FTC Guidelines* § 4 (efficiencies will not be
    considered "merger specific" if they could be accomplished by other
    means).

[^554]: Staff analyses based on the Applicants' stated capacity suggest
    that Spaceway could accommodate over 5 million broadband residential
    subscribers on its two Ka-band satellites at the licensed 99º W.L.
    and 101º W.L. locations. This is based on the 8.5 frequency reuse
    factor associated with a processing satellite and the assumption
    that Spaceway would find a way to exploit the full 720 MHz of
    bandwidth allocated to FSS for blanket-licensed earth stations at
    Ka-band, 18.58-18.8 & 19.7-20.2 GHz (space-to-Earth) and 28.35-28.6
    & 29.5-30.0 GHz (Earth-to-space). *See* Applicants Jun. 13 *ex
    parte*, Attachment at 9.

[^555]: There are currently pending before us two petitions concerning
    Ka-band licenses held by EchoStar that could be used for broadband
    services. In addition, under the Merger Agreement, EchoStar has the
    option to purchase PanAmSat from Hughes if the merger is terminated
    under certain circumstances. Favorable action on the pending
    petitions, together with the PanAmSat assets, would, according the
    FCC staff analyses, leave EchoStar able to serve close to 4 million
    residential subscribers on these three satellites. This is based on
    the frequency reuse factor of 4 associated with bent pipe satellites
    and the assumption that the full 720 MHz Ka blanket-license band
    would be exploited for the two satellites that could do so (only 500
    MHz of bandwidth is licensed to EchoStar at 121º W.L.). *See also*
    n.23, *supra*; Applicants Jun. 13 *ex parte*, Attachment at 9.
    Additional residential subscribers could be served through joint
    ventures with other Ka-band licensee like WildBlue, KaStar, or
    others.

[^556]: *See, e.g.,* Applicants Jun. 13 *ex parte*, Attachment at 44
    (\"About 40 million households currently unserved by cable modem or
    DSL.\")

[^557]: Letter from Pantelis Michalopoulos, Esq. on behalf of EchoStar
    and Gary M. Epstein, Esq. on behalf of Hughes to Marlene Dortch,
    Secretary, FCC (July 30, 2002) Tab A, at 2 ("Applicants July 30 *ex
    parte*").

[^558]: Applicants' Reply Comments at 107.

[^559]: *See DOJ/FTC Guidelines §*4.

[^560]: *See, e.g.,* NRTC Petition at 42-56; NRTC *ex parte* Reply
    Comments at 15-16, n.35; NAB Petition at ii, 98-104 (merger will
    reduce rural consumers' only choice for broadband services now and
    in the future); NRTC Response at iv, 2-3 (same effect for estimated
    25 million rural consumers); Pegasus Petition at 30 (merger will
    eliminate satellite broadband competition by removing current rural
    broadband choices and reducing future choices).

[^561]: *See, e.g.*, *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063
    ("Applicants bear the burden of showing both that the
    merger-specific efficiencies will occur, and that they sufficiently
    offset any harms to competition such that we can conclude that the
    transaction is pro-competitive and therefore in the public
    interest."); *SBC-Ameritech Order*, 14 FCC Rcd at 14825 (same).

[^562]: NRTC Petition at 50 ("For these existing Ku-band services, the
    combination of EchoStar and Hughes would constitute a merger to
    monopoly \[in areas not served by cable modem or DSL\]."); *id.* at
    51 (For foreseeable future, Starband and DirecWay are the only
    choices for many rural markets without cable modem or DSL service,
    and therefore merger will "eliminate competition entirely in these
    markets, leading to monopoly pricing for the only technology capable
    of meeting demand for rural broadband services."); NRTC *ex parte*
    Reply Comments at 30-31, n.75 (Arguing that "combined New EchoStar
    would, as a rural broadband monopoly . . . increase\[e\] prices, as
    there would be no competitor to constrain prices in \[ \] areas
    \[without competition\]."); *id.* at 32-33 ("For rural America, New
    EchoStar would enjoy a broadband monopoly."); NAB Petition at ii
    ("Consumers in \[areas without other broadband options\] will be at
    the mercy of a monopolist for broadband Internet access."); *id.* at
    102 ("DIRECTV/Hughes and EchoStar through its equity interest in
    StarBand control the only two satellite broadband products
    available today."); *id.* at 103 ("\[T\]he merger will actually
    snuff out existing competition" for existing service in rural
    America); Pegasus Petition at 30 ("This merger will eliminate
    current choices in satellite broadband.")

[^563]: For example, NAB notes that competition between the Applicants
    must "flourish" in order to "provide rural America with the most
    cost-effective and up-to-date broadband service." NAB Petition at
    101.

[^564]: *See* Applicants' Reply Comments at 118.

[^565]: *Id*. at 93.

[^566]: *Id.* at 93-94.

[^567]: *Id.* at 94.

[^568]: *See, e.g.*, Applicants' Reply Comments at iv ("The two
    companies' current broadband offerings are expensive 'niche'
    products that are hampered by several constraints, do not even
    satisfy the Commission's definition of an 'advanced service,' and
    have attracted fewer than 150,000 subscribers combined."); *id.* at
    85 ("\[S\]atellite broadband today is not fully comparable to cable
    modem and DSL, leaving many Americans without a true broadband
    alternative."); *id.* at 90-95; NRTC *ex parte* Reply Comments at 24
    (noting the Applicants' complaint "that their Ku-band service
    offerings are subject to constraints on transmission speeds,
    capacity and overall costs," but arguing that "\[w\]hile this may or
    may not be true, the Merger is not the right vehicle to correct
    these purported shortcomings.").

[^569]: *See EchoStar Stops Backing StarBand After \$100 Million
    Investment*, Satellite Week (Apr. 8, 2002). *See also*, *StarBand
    Accepts Registration of EchoStar Board Members*, Communications
    Daily (May 8, 2002) (noting May 5, 2002, resignation of four
    EchoStar-appointed members from seven-person board). In the wake of
    EchoStar's withdrawal, StarBand filed for Chapter 11 bankruptcy
    protection, a move that StarBand claimed was necessary because
    EchoStar was withholding StarBand's customer records. *See* Yuki
    Noguchi, *StarBand Files for Chapter 11; Firm Drops Suit Against
    EchoStar*, Wash. Post (June 1, 2002) at E1 ("Since \[February,
    2002\], StarBand has been unable to collect revenue from about
    31,000 of its 41,000 customers, according to \[StarBand's bankruptcy
    filing.\]"). According to StarBand's President, David Trachtenberg,
    "EchoStar, which had control of StarBand's board, was creating
    obstacles to StarBand's growth by stymieing funding efforts and
    business plans." *Id.* At the time of its bankruptcy filing,
    StarBand claimed that remained operational. *Id.* ("\[StarBand's\]
    network is up and running, customers are getting service, dealers
    can order products, and employees are still getting paid."). On June
    20, 2002, StarBand announced that it had reached a settlement with
    EchoStar, pursuant to which "EchoStar will pay StarBand \$710,000
    and hand over service records for 16,000 retail StarBand customers,"
    and will "pay StarBand a \$35-a-month fee for each of the 15,000
    customers it sold service to under a previous wholesale agreement."
    *See* Yuki Noguchi, *StarBand, EchoStar End Their Dispute; Fight
    Over Billing Settled Out of Court*, Wash. Post (Jun. 21, 2002) at
    E5. The settlement also requires EchoStar to give up its right to
    block or veto any future funding or business decisions for StarBand.
    *Id.* In return, StarBand agreed not to publicly disparage EchoStar
    and issued an apology to EchoStar chairman and CEO Charles Ergen for
    posting his email on StarBand's website. *Id.* The settlement was to
    become effective upon approval by a bankruptcy judge. Before the
    settlement, EchoStar was expected to lose its 30 percent ownership
    of StarBand during the course of the bankruptcy proceeding. *See
    supra*, Noguchi, *StarBand Files for Chapter 11*.

[^570]: Letter from Jack Richards, Counsel for NRTC, to Marlene H.
    Dortch, Secretary, Federal Communications Commission (July 23,
    2002), Attachment at 2. After withdrawing its support, EchoStar
    initially withheld Starband's customer records, thereby preventing
    Starband from collecting revenue from about 31,000 of its 41,000
    customers. This action led Starband to sue EchoStar, but the lawsuit
    was subsequently withdrawn when Starband filed for bankruptcy on
    July 31, 2002 *See* Yuki Noguchi, *StarBand Files for Chapter 11;
    Firm Drops Suit Against EchoStar*, Wash. Post (June 1, 2002) at E1.
    See *also* Andy Pasztor, *StarBand Files For Bankruptcy, Blaming
    EchoStar*, Wall St. Journal (June 3, 2002) at B5.

[^571]: *See* Applicants Jun. 13 *ex parte* at 6.

[^572]: *See, e.g.*, *In re Applications of Ameritech Corp., Transferor,
    and SBC Communications Inc., Transferee, For Consent to Transfer
    Control of Corporations Holding Commission Licenses and Lines
    Pursuant to Sections 214 and 310(d) of the Communications Act and
    Parts 5, 22, 24, 25, 63, 90, 95 and 101 of the Commission's Rules*,
    14 FCC Rcd 14712, 14750 (1999) ("Although Ameritech minimizes the
    competitive significance of its own independent entry absent the
    merger, the preponderance of the evidence demonstrates that
    Ameritech's portrayal is self-serving.") (citing *id.*, Appendix B
    (Summary of Confidential Information and Conclusions)).

[^573]: One industry observer noted that Starband's bankruptcy filing
    had "potentially important implications for the satellite industry
    because it's the first time a federal court will hear claims that
    EchoStar used unfair and even illegal tactics to boost its proposed
    takeover of Hughes Electronics Corp., parent of DirecTV." Andy
    Pasztor, *Starband Files For Bankruptcy*. Further exacerbating our
    inability to predict how Starband will fare in competition with
    DirecWay post-merger is the fact that EchoStar may have effectively
    purchased Starband's silence in this proceeding. *See* Yuki Noguchi,
    *StarBand, EchoStar End Their Dispute; Fight Over Billing Settled
    Out of Court*, Washington Post (June 21, 2002) at E5 ("Starband also
    agreed not to publicly disparage EchoStar . . . .").

[^574]: *See* NRTC Petition at 53-54 (merger would "stifle competition,
    squander scarce and valuable spectrum resources and deter any new
    competition in the foreseeable future").

[^575]: *See Id.* at 54. Commenters also argue that the merger will
    remove the Applicants' motivation to continue to innovate with
    regard to these services. *See* NAB Petition at 61 ("The loss of an
    innovation incentive also will significantly affect the development
    and deployment of advanced services, like interactive video
    programming and broadband Internet, via satellite---a primary goal
    of the Telecommunications Act of 1996.")

[^576]: *See Id.* at 52-56; 55 (potential competitors "will not be able
    to raise funding in the face of the EchoStar/Hughes/PanAmSat
    six-pack of satellites.").

[^577]: Applicants' Reply Comments at 109; *id.* at 109-114. Applicants
    further argue that the merger is preferable to a "complicated web of
    regulations" that the Applicants allege will be required to achieve
    universal broadband deployment absent the merger. *Id.* at 115.

[^578]: *Id.* at 109-10 (sufficient "prime" Ka-band slots) & 111 (new
    entrants with alternative technologies).

[^579]: *See, e.g.*, Application at 6-7; Pegasus Petition at 34 (since
    consumers increasingly demand "bundled package of video and
    broadband," the "inability of other firms to offer satellite video
    services would inhibit new broadband entry.").

[^580]: Pegasus Petition at 34-35. *Accord*, NRTC *Ex Parte* Reply
    Comments at 36 (MMDS operators unlikely to "bundle MVPD and
    broadband" and "\[m\]ore fundamentally, no MMDS operator has
    announced plans to provide bundled services using the MMDS
    spectrum.").

[^581]: Estimated timelines for the deployment of Ka-band broadband
    Internet access services have slipped before. *See, e.g.*,
    *AT&T-MediaOne Order*, 15 FCC Rcd at 9868-69 (noting Spaceway's
    expectation to begin operations in 2002).

[^582]: *See supra* Section V.B.4.

[^583]: *See* NRTC Ex Parte Reply Comments at ¶ 17 (no definition of
    "basic" and "non-basic" broadband services); Applicants Reply
    Comments at 118 ("New EchoStar will commit to a nationwide pricing
    policy for basic broadband services that will translate effective
    competition in urban areas into benefits to all households for
    broadband service, just as it will for MVPD services."); Applicants
    Jun. 13 *Ex Parte* (promising a "target price of \$35 or lower for
    basic monthly broadband service, *uniformly applied throughout the
    nation.*") (emphasis added). The Applicants' failure to specify
    uplink and downlink speeds for its "basic" service is inconsistent
    with DirecTV's public statement, after the merger application was
    filed, that Spaceway's Ka-band system would "far exceed the FCC's
    standard for advanced services" by providing "super-fast download
    speeds of starting at 30 Mbps and uplink rates from 512 Kbps for the
    smallest earth terminals for *individual users*, and from tens of
    Mbps for *businesses* and hubs." National Telecommunications &
    Information Administration, Deployment of Broadband Networks and
    Advanced Telecommunications, Docket No. 011109273-1273-01, Late
    Filed Comments of Hughes Network Systems, *available at*
    http://www.ntia.doc.gov/ntiahome/broadband/.

[^584]: NRTC *ex parte* Reply Comments at 21-22.

[^585]: EchoStar May 16 *ex parte* at 3.

[^586]: *Id.*, Attachment, "Post-Merger Bandwidth Comparison: Fat Pipe
    Model."

[^587]: *See, e.g.*, NAB Petition at 106 ("The information each consumer
    requests via the Internet is unique, and the information downloaded
    as a result is equally unique."). As NAB observes, "\[t\]he
    broadband capacity needed to offer this 'programming' to each
    consumer will not change whether the merger takes place or not." NAB
    Petition at 106. Although the merger may result in some fixed cost
    savings to the Applicants, such savings (unlike variable costs) are
    less likely to be cognizable in the context of competition analysis.
    Moreover, the Applicants have not demonstrated that any cost savings
    in the provision of satellite-provided broadband Internet access
    services will inure to the benefit of residential subscribers.

[^588]: *Third 706 Report* at 2865. *Id.,* Appendix B at 2917-18 ("Under
    optimal conditions, an upgraded cable system can provide maximum
    downstream speeds of 27 Mbps and maximum upstream speeds of 10 Mbps,
    more than sufficient to qualify as advanced telecommunications
    capability.422 In practice, however, cable transmission speeds
    typically range from 500 kbps to 1.5 Mbps.").

[^589]: *Third 706 Report* at 2850. In the *Third 706 Report* we noted
    our belief that "services at speeds over 200 Kbps *and 2 Mbps* are
    currently available through traditional wireline offerings---though
    most often deployed to businesses---and we concluded that the
    information we require respondents to report \[with respect to these
    benchmark connection speeds\] will enable us to detect the
    *evolution of supply and demand for such future generations of
    broadband*.") (emphasis added). *See also* Gartner Dataquest,
    *Gartner Dataquest Says Implementation of "True" Broadband Could
    Bolster U.S. GDP by \$500 Billion a Year* (Aug. 26, 2002) ("While
    many consumers associate the term broadband with the typical 384
    kbps downstream that service providers offer today, Gartner
    Dataquest defines 'true' broadband as broadband to the home with
    aggregate downstream capability of a minimum of 10 Mbps.").

[^590]: *See, e.g.*, Peter J. Brown, *Two-Way Service But No Standards,
    No Interoperability*, Broadband Week (Jan. 22, 2001) *available at*
    http://www.broadbandweek.com/news/010122/010122_wireless_return.htm
    (visited Sep. 10, 2002) ("Proprietary system have to disappear from
    the satellite industry in order to build scale. Scale means volume,
    and volume means lower costs. . . . DVB-RCS is available, and
    numerous other companies are building to it.") (quoting Robert
    Bucher, President, Canadian company Norsat International); EMS
    Technologies, Inc., 2001 Annual Report at 5 ("The intent of an open
    standard is to speed market growth by lowering the cost of broadband
    service to customers, service providers and hardware suppliers.")
    *available* at http://www.elmg.com/investors/
    annual_report_2001/AnnRpt.pdf. EMS has noted that a number of
    companies developing next generation systems had sponsored Digital
    Video Broadcast -- Return Channel System (DVB-RCS) standard, "in an
    attempt to arrive at an open standard." *See EMS Technologies*,
    Satellite Broadband *at*
    http://www.ems-t.com/STG/broadband/dvb-rcs.asp. EMS notes that
    "\[t\]he intent of an open standard is to accelerate economies of
    scale, thereby generating lower-cost solutions and opening the
    market in a shorter timeframe than could be possible with competing
    proprietary solutions," including that used by HNS and Gilat. *Id.*
    The Applicants note that "\[s\]erving the enterprise sector provides
    the opportunity for \[Spaceway\] to recover more quickly the
    enormous capital cost of deploying this system; conversely, focusing
    on a ubiquitous residential service is a far riskier endeavor that
    would take far longer to recover such costs." Applicants' Reply
    Comments at 98. The Applicants do not explain, however, what mix of
    enterprise/residential service would allow Spaceway to recoup
    capital costs while still providing service to a significant number
    of residential subscribers. Moreover, the Applicants do not explain
    why Ka-band spectrum could not be reasonably apportioned between the
    peak hours for enterprise and residential, since they differ.

    The Applicants might also take advantage of the \$20 million in
    grants that are available, through the Department of Agriculture's
    Rural Utility Service (RUS) Broadband Pilot Grant Program for
    broadband transmission service in rural America. *See, e.g*.,
    *Notices, Dept. of Agriculture, Forest Serv. Siuslaw Resource
    Advisory Comm. Meeting, Monday, July 8, 2002*, 67 Fed. Reg. 45079,
    2002 WL 1446457 (\$20 million available for fiscal year 2002 for
    proposals to provide broadband transmissions on a \"community
    oriented connectivity basis.\"), *available at* http://w
    ww.rurdev.usda.gov/rd/nofas/2002/bbpgp070802.pdf.

[^591]: *See, e.g., Implementation of Section 11 of the Cable Television
    Consumer Protection and Competition Act of 1992, Implementation of
    Cable Act Reform Provisions of the Telecommunications Act of 1996,
    the Commission's Cable Horizontal and Vertical Ownership Limits and
    Attribution Rules, Review of the Commission's Regulations Governing
    Attribution of Broadcast and Cable/MDS Interests, Review of the
    Commission's Regulations and Policies Affecting Investment in the
    Broadcast Industry, Reexamination of the Commission's Cross-Interest
    Policy*, 16 FCC Rcd 17312 (2001) ("*Ownership Further Notice*").

[^592]: *Id*. at 17321-22.

[^593]: *Id*.

[^594]: *Id*.

[^595]: *Id*. at 17322.

[^596]: *Id*.

[^597]: *Id*.

[^598]: *Id.* at 17322-23. Examples of the first type of programming
    include TNT and USA; examples of the second type include ESPN for
    sports and CNN for news; and examples of this third type of
    programming include Discovery Health, the Golf Network, and Home and
    Garden.

[^599]: *Id*. at 17323.

[^600]: *Id*.

[^601]: CWA Petition at 2. Although CWA argues that program distributors
    will pay an increased price to New EchoStar, we note that almost all
    program distributors are paid by DBS and other MVPD providers. We
    take CWA's argument to mean that program producers and distributors
    will receive less for their programs money after the merger because
    of New EchoStar's market power.

[^602]: *Id*.

[^603]: NAB Petition at 57-58.

[^604]: ACA Petition at 16-18.

[^605]: Applicants' Reply Comments at 118-119. *See also* Application at
    6, 29.

[^606]: *Id*. at 6.

[^607]: Applicants' Reply Comments at 129.

[^608]: *Id*. at 125-26.

[^609]: *See generally* Chipty, Tasneem, "Horizontal Integration for
    Bargaining Power: Evidence From the Cable Television Industry,"
    *Journal of Economics & Management Strategy*, Vol. 4, Summer 1995.
    At 375-397; Ford, George S. and John D. Jackson, "Horizontal
    Concentration and Vertical Integration in the Cable Television
    Industry, *Review of Industrial Organization*, Vol. 12, at 501-518;
    Waterman, David and Andrew A. Weiss, *Vertical Integration in Cable
    Television*, The MIT Press and The AEI Press, 1997, *especially*
    Chapter 7 ("Waterman and Weiss (1997)"); and Shooshan, Harry M.,
    "Cable Television: Promoting a Competitive Industry Structure," in
    *New Directions in Telecommunications Policy: Volume 1, Regulatory
    Policy: Telephony and Mass Media*, Paula R. Newberg, ed., Duke
    University Press, 1989, at 222-246.

[^610]: If we approve the license transfers involved in the pending
    merger between AT&T Corp. and Comcast Corp., MB Docket No. 02-70,
    AT&T Comcast Corp. will become the country's largest MVPD provider.

[^611]: We have addressed Applicants' claims about the extent of their
    lower programming costs, *supra*.

[^612]: *See* *Ownership Further Notice*, 16 FCC Rcd at 17335
    (discussing Commission's horizontal ownership limit, under review,
    that bars cable operators from owning systems that reach more than
    30% of MVPD subscribers nationwide).

[^613]: We note that no competitor of Vivendi has filed comments making
    a vertical foreclosure argument, perhaps because, for the reasons
    expressed above, the possibility of vertical foreclosure seems
    remote.

[^614]: A different analysis might apply if Vivendi controlled of
    EchoStar or was a very significant shareholder, but that is not the
    case here.

[^615]: FSS is defined as satellite service between fixed, as opposed to
    mobile, points and excluding broadcast satellite service such as
    DBS. Non-geostationary FSS also exist, but because of cost and other
    considerations, video distribution is carried primarily by GSO
    satellites operating in the C- and Ku-Bands. In the rest of this
    issue paper, when we refer to FSS satellites, we mean GSO FSS
    satellites exclusively.

[^616]: This corresponds to orbital slots from about 61.5º W.L. to
    155.5º W.L.

[^617]: *See* ING Barings' *Satellite Communications Industry*, March
    2000, p. 149.

[^618]: *See* data filed with the Commission in July 2001, together with
    data from LyngSat.com and ING Barings' *Satellite Communications
    Industry*, March 2000. Worldwide FSS had \$7.2 billion in 2000,
    according to SSB with 5,235 transponders and 82 percent utilization,
    with North America having 1,504 of those transponders (29 percent)
    with 88 utilization.

[^619]: *See* Merrill Lynch, *Eye in the Sky*, 1Q02 Preview***,*** April
    12, 2002. The Hirschman-Herfindahl Index (HHI) of market
    concentration resulting from the market shares in the FSS market is
    between approximately 2,989 and 3,518. The DOJ-FTC Merger Guidelines
    describes such a market as highly concentrated. Typically, the
    Merger Guidelines contemplate a two-year time horizon in assessing
    whether market concentration could lead to anti-competitive effects.
    Most of our understanding of the future of the FSS industry relies
    on forecasts by Wall Street market analysts. *See, e.g.,* Merrill
    Lynch (April 12, 2002); Salomon Smith Barney**,** *Satellite
    Communications and Towers***,** Jan. 3, 2002. They generally believe
    that supply and demand will be in balance for the foreseeable
    future. This forecast is, however, subject to considerable
    uncertainty. On the supply side, new digital compression technology
    is generating a quantum leap in the amount of programming that can
    be transmitted over a single transponder. Preparations are under way
    for development of Ka-Band satellite services that could result in a
    substantial expansion of FSS capacity. The first launches of Ka-Band
    satellites are, however, about three years away. On the demand side,
    market watchers anticipate that Internet broadband applications
    (*e.g.*, streaming video) and the transition to HDTV, will
    eventually place great demands on FSS. The speed with which these
    nascent applications develop, however, is uncertain. As a result,
    there could be short-term shortages or gluts of FSS capacity. Such
    short-term imbalances are, however, typical in any market
    characterized by dynamic growth and technological innovation.

[^620]: Duke Law Reply Comments at 27-28.

[^621]: *Hughes Second Quarter 2002 Results Driven By String DirecTV
    U.S. Financial Performance*, Hughes Elec. Corp. Press Release (July
    15, 2002).

[^622]: There are approximately 94 million MVPD subscribers nationwide.

[^623]: *EchoStar Reports Second Quarter 2002 Financial Results*,
    EchoStar Corp. Press Release (Aug. 15, 2002).

[^624]: Although EchoStar does not currently operate any FSS satellites,
    it does have licenses for the deployment of three Ka-Band
    satellites. This, however, is a small percentage of the total
    Ka-Band licenses, many of which are held by PanAmSat and Hughes
    Communications Galaxy, as well as other companies. Thus even if
    Ka-Band development proceeds smoothly, merger of PanAmSat's and
    Hughes' assets with those of EchoStar would have little effect on
    the Ka-Band or FSS as a whole.

[^625]: *See, e.g.,* S. Salop and D. Scheffman, *Raising Rivals' Costs*,
    73 Am. Econ. Rev. 267 (1983); T. Krattenmaker and S. Salop,
    *Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power
    over Price*, 96 Yale L. J. 209, 293 n.73 (1986) (citing articles).

[^626]: As indicated *supra*, the Applicants have also stated that
    EchoStar has agreed to purchase Hughes' interest in PanAmSat in the
    event the proposed transfer of Hughes and EchoStar to New EchoStar
    is terminated under certain circumstances. *See* Application at 2,
    and Application Vol. II at Tab 4. We cannot now predict either the
    outcome of the issues we designate for hearing or whether the
    circumstances described in the Applicants' agreements will come to
    pass. As no standalone application for the transfer of control of
    PanAmSat to EchoStar is pending before us, we do not address the
    question whether such a transfer would be in the public interest
    pursuant to Section 310 at the present time.

[^627]: *See* Cablevision Sept. 18 *ex parte*, Attachment, "Rainbow DBS,
    Opportunities to enhance DBS MVPD competition in connection with the
    EchoStar/DirecTV merger," at 2.

[^628]: *See* Cablevision July 11 ex parte.

[^629]: WSNet Comments at 3. *See also* Letter from Jared Abbruzzese,
    Chairman WSNet, to Marlene Dortch, Secretary, FCC (May 28, 2002) at
    2. WSNet proposed specific language to require that New EchoStar
    provide control and use of a minimum of 24 channels of high-powered
    capacity on one of its existing DBS satellites to an unaffiliated
    wholesale provider of DTH and digital programming services
    nationwide at cost to ensure that alternative multichannel video
    programming services are offered in smaller markets and rural areas.

[^630]: Satellite Receivers Comments at 4. In this regard, Consumers
    Union requests request that the Commission begin now to license
    MVDDS providers. Consumers Union Comments at 21-22.

[^631]: *See* *SES AMERICOM Inc.*, SAT-PDR-20020425-00071, Aug. 23,
    2002.

[^632]: *See* Letter from Phillip L. Spector, Attorney for SES Americom,
    Inc., to Marlene H. Dortch, Secretary, FCC (Sept. 27, 2002).

[^633]: Northpoint Petition at 9-10. *See also* Consumers Union Comments
    at 24 (the Commission should impose open access requirements similar
    to those in the AOL-Time Warner consent decrees).

[^634]: Consumers Union Comments at 14 (carriage of all stations where
    technically feasible); APTS Comments at 5, 7 (carriage of local
    stations in 110 DMAs within 120 days of consummation of the merger);
    Eagle Petition at 4 (carriage of all local stations in a
    non-discriminatory manner); Family Petition at 5 (carriage of all
    local stations); Letter from Richard Swift, Esq., counsel for RYF
    (April 15, 2002) (require local-into-local service in Puerto Rico);
    Paxson Petition at 19-20 (carriage of local stations in the top 75
    DMAs within 90 of the consummation of the merger, in the top 150
    DMAs within 180 days and in all DMAs within one year).

[^635]: APTS Comments at 7.

[^636]: Family Petition at 5.

[^637]: Paxson Petition at 18-19.

[^638]: Consumers Union Comments at 15.

[^639]: Letter from Kenneth Fellman, Chairman, Local and State
    Government Advisory Commission (April 12, 2002) ("LSGAC Letter") at
    4.

[^640]: State of Alaska Comments at 8-9.

[^641]: *Id*. at 9; RCA Comments at 6; LSGAC Letter at 4.

[^642]: Consumers Union Comments at 22-23. In the alternative, they
    suggest that the Commission consider a structural condition such as
    requiring New EchoStar to divest a certain amount of satellite
    capacity. *Id*. at 23.

[^643]: *See* *Time Warner‑AOL Order,* 16 FCC Rcd at 6547,
    *AT&T‑MediaOne Order,* 15 FCC Rcd at 9816, *AT&T‑TCI Order*, 14 FCC
    Rcd at 3160.

[^644]: *See Heinz*, supra; *Staples, supra.*

[^645]: *See* Pub. L. No. 104-104, 110 Stat. 56 (1996), S. Conf. Rep.
    No. 104-230, at 1 (1996). The Telecommunications Act of 1996 Act
    amends the Communications Act of 1934.

[^646]: *See* §706, Pub. L. 104-104, Title VII, Feb. 8, 1996, 110 Stat.
    153, reproduced in the notes under 47 U.S.C. §157.

[^647]: *See, e.g.,* Carl Shapiro, *Mergers with Differentiated
    Products,* [10 -- SPG Antitrust 23]{.smallcaps} (1996) ("It is fair
    to say that economic analysis of differentiated-products mergers at
    the Division typically focuses on unilateral effects, unless there
    are structural factors facilitating collusion following the merger
    or there is a history of collusion in the industry."); Jerry A.
    Hausman & Gregory K. Leonard, *Economic Analysis of Differentiated
    Products Mergers Using Real World Data*, 5 [Geo. Mason L.
    Rev.]{.smallcaps} 321 (1997) ("Economic analyses of the competitive
    effects of mergers in differentiated product industries typically
    concentrate on the potential for so-called unilateral effects.").

[^648]: *See, e.g.,* Gregory J. Werden, *Simulating the Effects of
    Differentiated Products Mergers: A Practical Alternative to
    Structural Merger Policy*, 5 [Geo. Mason L. Rev.]{.smallcaps} 363,
    377-81 (1997); Jith Jayaratne and Carl Shapiro, *Simulating Partial
    Asset Divestitures to \'Fix\' Mergers*, 7 [International Journal of
    the Economics of Business]{.smallcaps} 179-200 (2000).

[^649]: The own-price elasticity of demand for a product is defined as
    the percentage change in the demand for the product in response to a
    percentage change in its price.

[^650]: The cross-price elasticity of demand for a product *i* is
    defined as the percentage change in the demand for that product in
    response to a percentage change in price of product *j*.

[^651]: Sometimes the equilibrium is referred to as a "*Cournot-Nash
    Equilibrium,"* after John Nash, the American mathematician and
    economist who generalized both Cournot and Bertrand's models. See
    Jean Tirole, *The Theory of Industrial Organization.* Cambridge: The
    MIT Press, 1988 at 218-23.

[^652]: *Id.* at 209-12.

[^653]: Consumer surplus or welfare is the difference between the total
    value that consumers derive from consuming a product, which is the
    areas under the demand curve, and the amount they pay for the
    product, which is equal to the rectangle whose height is equal to
    the price and whose width is equal to the total quantity consumed..
    As prices increase, consumer surplus decreases. See Robert S.
    Pindyck and Daniel L. Rubinfeld, *Microeconomics.* New York:
    Macmillian Publishing Company, 1992. (p. 114).

[^654]: Dr. MacAvoy adopts a DMA as his unit of observation and uses
    average revenue per subscriber in the DMA as a proxy for price. NRTC
    Comments, MacAvoy Declaration at 42.

[^655]: NRTC Comments, MacAvoy Declaration, Table Six.

[^656]: Declaration of Paul W. MacAvoy on Behalf of the National Rural
    Telecommunications Cooperative, at 51.

[^657]: Mr. Sidak's estimated pre-merger price is based on data,
    supplied by Pegasus, concerning its average revenue per customer.

[^658]: Mr. Sidak bases his estimate of pre-merger prices on an estimate
    of DirecTV's average revenue per unit. The Cournot pricing rule and
    an assumption of two firms is used to back out the marginal cost.
    NAB Comments, Sidak Declaration at 20-21.

[^659]: *Id*. at 22.

[^660]: In the case of Cournot competition, the structural equation is:
    $\frac{(p - c)}{p} = \frac{\text{HHI}}{- \text{10000} \cdot \eta}$,
    where *p* is the market price, *c* is the industry average marginal
    cost, HHI is the Herfindahl Hirschman Index, and *η* is the market
    elasticity of demand. In the case of Bertrand competition, the
    structural equation for each firm *i, is*:
    $pi = \frac{ci\eta i}{(\eta i - 1)}$ where *p~i~* is the price of
    the good set by firm *i, c~i\ ~* is the marginal cost of firm *i,
    and* η~i\ is~ the own price elasticity of demand for good *i.*

[^661]: NAB Comments, Sidak Declaration at 23-24.

[^662]: Mr. Sidak calculates a cross-price elasticity of demand between
    EchoStar and DIRECTV of 0.184, and a cross‑price elasticity of
    demand between DirecTV and EchoStar 0.298. *Id.* at 28.

[^663]: *Annual Assessment of the Status of Competition in the Market
    for the Delivery of Video Programming*, 17 FCC Record 1244 (2002).

[^664]: In performing this calculation, Mr. Sidak assumes that, after
    the merger, New EchoStar will chooses two prices ‑the price for
    EchoStar and the price for DirecTV -- so as to maximize the joint
    profits of the merged entity. *Id*. at 26.

[^665]: *Id*. at 28.

[^666]: The deadweight loss is the loss in *total* surplus, including
    both consumers' surplus and producers' surplus that results from a
    rise in price. Broadly speaking, it is the triangular area under the
    demand curve whose height represents the change in price and whose
    base is the change in quantity demanded that results from the
    increase in price. The deadweight loss can be approximated by the
    formula for the area of a triangle: ½ (P~1~ -- P~0~) (Q~0~ --Q~1~).
    *See,* [W. Kip Viscusi, John M. Vernon & Josheph E. Harrington, Jr.,
    Economics of Regulation and Antitrust 86-88]{.smallcaps} (3d ed.
    2000); [F.M. Scherer, Industrial Market Structure and Economic
    Performance]{.smallcaps} 24-25 (1990).

[^667]: *Id.* at 29. Mr. Sidak further claims that the majority of the
    deadweight loss would occur in areas not passed by cable television
    systems, where both the increase in price and the decrease in the
    number of DBS subscribers would be higher than in areas passed by
    cable television systems. *Id.*

[^668]: *Id.* at 29. The consumer welfare loss is the sum of the
    deadweight loss plus any surplus that is transferred from consumers
    to producers. The consumer welfare loss thus will always exceed the
    deadweight welfare loss associated with an increase in market power.

[^669]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("Analysis of the EchoStar-Hughes Merger: Competitive
    Effects and National Pricing"), transmitted by letter from the
    Applicants to Marlene Dortch (June 27, 2002) at 53. ("Applicants
    June 27, 2002 Competitive Effects Ex Parte").

[^670]: An evaluation of the claimed benefits of increases
    local-into-local service is contained in Section V.C *supra.*

[^671]: Steven T. Berry, *Estimating Discrete Choice Models of Product
    Differentiation,* 25 [Rand J. Econ.]{.smallcaps} 242 (1994).

[^672]: The three equations are the cable
    equation:$\text{ln}(S_{C}) - \text{ln}(S_{A}) = X_{C}\beta + {\alpha p}_{C} + \xi_{C}$,

    the EchoStar equation:
    $\text{ln}(S_{E}) - \text{ln}(S_{A}) = X_{E}\beta + {\alpha p}_{E} + \sigma\text{ln}(\frac{S_{E}}{S_{E} + S_{D}}) + \xi_{E}$,
    and

    the DirecTV equation:
    $\text{ln}(S_{D}) - \text{ln}(S_{A}) = X_{D}\beta + {\alpha p}_{D} + \sigma\text{ln}(\frac{S_{D}}{S_{E} + S_{D}}) + \xi_{D}$,

    where S~A~, S~C~, S~E~, and S~D~ are the market shares of
    over-the-air television, cable, EchoStar, and DirecTV. The mean
    utility parameters are Xβ and ξ, the price parameter is α, and the
    nest strength parameter is σ.

[^673]: A consistent estimator is one for which the parameter estimate
    converges to the parameter value of the population as sample size
    increases. See Takeshi Amemiya, [Advanced Econometrics]{.smallcaps},
    Harvard University Press, 1985 at 95.

[^674]: [Jeffrey M. Wooldridge]{.smallcaps}, [Econometric Analysis of
    Cross Section and Panel Data]{.smallcaps}, MIT Press, 2002, Chapter
    8.

[^675]: The instruments must be correlated with the within-group shares,
    $\text{ln}(\frac{S_{D}}{S_{E} + S_{D}})$and
    $\text{ln}(\frac{S_{E}}{S_{E} + S_{D}})$, and uncorrelated with ξ.

[^676]: Technically, the Applicants were unable to estimate the nest
    strength parameter with any precision. The Applicants' results
    indicate that the nest strength parameter lies between -4.2 and 4.0
    with a probability of 95%. See Letter from Applicants to Marlene
    Dortch, Secretary, FCC, Attachment ("IVs_for_sigma.log"),
    transmitted by letter from the Applicants to Marlene Dortch (August
    19, 2002).

[^677]: The diversion ratio is defined as the fraction of sales lost due
    to a price increase by one of the merging products that would be
    captured by the other merging product.

[^678]: The addition of the area not served by cable brings the number
    of markets included in the simulation to 4,985.

[^679]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("Analysis of the EchoStar-Hughes Merger: Competitive
    Effects and National Pricing"), transmitted by letter from the
    Applicants to Marlene Dortch (June 27, 2002) at 53. ("Applicants
    June 27, 2002 Competitive Effects Ex Parte").

[^680]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("Scaled_div13-17.6_Simulation.nb"), transmitted by
    letter from the Applicants to Marlene Dortch (August 19, 2002).

[^681]: Berry (1994) at 253.

[^682]: Greene, [Econometric Analysis]{.smallcaps}, 4th Edition, New
    Jersey: Prentice Hall, 2000 at 870.

[^683]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("logit_regressions.log"), transmitted by letter from the
    Applicants to Marlene Dortch (July 12, 2002).

[^684]: Applicants June 27, 2002 Competitive Effects Ex Parte at 8.

[^685]: Werden (1997) at 376.

[^686]: Letter from Applicants to Marlene Dortch, Secretary, FCC,
    Attachment ("churn 1201 data.zip"), transmitted by letter from the
    Applicants to Marlene Dortch (July 12, 2002).

[^687]: Gregory J. Werden & Luke M. Froeb, *The Effects of Mergers in
    Differentiated Products Industries: Logit Demand and Merger Policy,*
    10 [J. L., Econ. & Org.]{.smallcaps} 407 (1994) at fn. 5. Also see
    Margaret E. Slade, *Market Power and Joint Dominance in UK Brewing*,
    Working Paper, Department of Economics, University of British
    Columbia, May 2002 for an application that does not assume the
    parameters on price are equal.

[^688]: We note that we are unable to rely definitively on either Mr.
    Sidak's or Dr. MacAvoy's welfare calculations, because we lack
    confidence in the demand elasticities they use for their
    calculations. In particular, Mr. Sidak assumes that the DBS own
    price elasticity is equal to the cable price, elasticity, -2.5, in
    areas with cable and somewhat higher, -2.75 in areas with cable. NAB
    Comments, Sidak Declaration at 24. Thus, these elasticity estimates
    are merely informed guesses rather than econometric estimates. We
    also have concerns with the elasticity estimates used by Dr.
    MacAvoy. In particular, while we recognize the difficulties in
    obtaining data, we are concerned about Dr. MacAvoy's use of regional
    variation in average revenue per customer as a proxy for price
    variation. NRTC Comments, MacAvoy Declaration at 42.

[^689]: This calculation is based on confidential information on
    programming, churn, and equipment costs supplied by the Applicants.
    *See* Response to Feb 4^th^ 2002 EchoStar's Data Request
    Interrogatories Tab 14-20 Exhibit VII-1, Exhibit VIII-2, Exhibit
    8-c, Exhibit IV (A) -1 and Exhibit V(B) (1), Exhibit VI(A)(2) .

[^690]: This calculation is similarly based on confidential information
    on programming, churn, and equipment costs supplied by the
    Applicants. *See* Response to Feb 4^th^ 2002 DirecTV Data Request
    Interogatory Schedule VIII(a). Latham and Watkins July 18 2002 ex
    parte Schedule VI.B.a.(i)

[^691]: 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.

[^692]: *Implementation of Section 19 of the Cable Television Consumer
    Protection and Competition Act of 1992,* First Report, 9 FCC Rcd
    7442, ¶ 49 (1994).

[^693]: *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).

[^694]: *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).

[^695]: *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).

[^696]: *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).

[^697]: Order at ¶ 115.

[^698]: *See* Order at ¶ 109 and note 331.

[^699]: *Id.* at ¶ 115.

[^700]: *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*").

[^701]: *Id.* at ¶ 109.

[^702]: *See E.I. du Pont*, 351 U.S. at 395.

[^703]: *Id.* at ¶ 114.

[^704]: *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....").

[^705]: *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)).

[^706]: 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)).

[^707]: *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.

[^708]: *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).

[^709]: Order at ¶ 35.