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 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  Commissions  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  EchoStars  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 
 As  part  of  its  examination  of  whether  a  merger  is  in  the  public  interest,  the  Commission  traditionally  has  conducted  a  competitive  analysis  of  the  impact  that  the 

 merger  would  have  on  the  marketplace.  The  first  step  in  this  endeavour  is  to  define  the  relevant  product  market  (or  markets)  to  be  studied.  The  Applicants  argue  that  DBS 
 services  compete  with  cable  services  (where  available),  and  thus  the  relevant  product  market  is  the  multichannel  video  programming  distribution  (  MVPD)  market.  1  This 
 position  is  consistent  with  Commission  precedent  and  policy. 
 The  Commission  repeatedly  has  recognized  the  existence  of  a  MVPD  market  in  which  DBS  and  cable  operators  compete.  As  early  as  1994,  the  Commission  identified 

 the  relevant  product  market  for  our  annual  video  competition  reports  as  the  MVPD  market.  The  Commission  concluded  that  the  relevant  product  market  contemplated  in 
 the  1992  Act    multichannel  video  programming  service    is  the  appropriate  starting  point  for  assessing  the  status  of  competition  in  the  market  for  delivery  of  video 

 1  I  appreciate  that  many  rural  consumers  do  not  have  access  to  cable.  Cable  availability  in  a  given 
 location,  however,  is  not  at  issue  in  the  product  market  definition.  A  conclusion  that  the  relevant  product  market  is  MVPD  would  not  harm  such  rural  consumers.  In  areas  not  served  by  cable,  the  market  would 

 still  be  MVPD,  but  the  only  players  would  be  the  two  DBS  providers. 
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 programming.  2  Indeed,  in  our  most  recent  competition  report,  the  Commission  concluded: 
 Overall,  the  Commission  finds  that  competitive  alternatives  continue  to  develop.  The  growth  of  non-  cable  MVPD 
 subscribers  continues  to  be  primarily  due  to  the  growth  of  DBS.  Between  June  2000  and  June  2001,  the  number  of 
 DBS  subscribers  grew  from  almost  13  million  households  to  about  16  million  households,  which  is  nearly  two  and  a 
 half  times  the  cable  subscriber  growth  rate.  3 
 Similarly,  the  Commission  discussed  the  significant  competition  that  has  developed  between  DBS  and  cable  operators  in  our  Further  Notice  on  the  cable 

 horizontal  ownership  limit: 
 [A]  lthough  cable  continues  to  be  the  dominant  player  in  the  MVPD  market,  its  market  share  has  diminished  somewhat 

 with  the  emergence  and  continued  growth  of  competing  MVPD  providers.  Perhaps  the  most  important  difference 
 between  the  industry  in  1992  and  today  is  that  in  1992  there  was  no  clear  nationwide  substitute  for  cable.  Today,  on  the 
 other  hand,  DBS  has  a  national  footprint.  DirecTV  now  is  the  third  largest  MVPD  operator,  after  AT&  T  and  Time 
 Warner,  and  EchoStar  is  the  eighth  largest.  4 
 Notably,  this  Further  Notice  was  issued  pursuant  to  the  D.  C.  Circuits  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  [cables]  market  power.  5 

 2  Implementation  of  Section  19  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992, 
 First  Report,  9  FCC  Rcd  7442,    49  (1994). 
 3  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming, 
 Eighth  Annual  Report,  17  FCC  Rcd  1244,    5,  8  (2002). 
 4  Implementation  of  Section  11  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992, 
 Further  Notice  Of  Proposed  Rulemaking,  16  FCC  Rcd  17,  312,    22-  23  (2001)  (internal  citations  omitted). 
 5  Time  Warner  Entertainment  Co.  v.  FCC,  240  F.  3d  1126,  1134  (D.  C.  Cir.  2001)  (emphasis  added).  The 
 Court  further  elaborated,  If  an  MVPD  refuses  to  offer  new  programming,  customers  with  access  to  an  alternative  MVPD  may  switch.  The  FCC  shows  no  reason  why  this  logic  does  not  apply  to  the  cable 

 industry.  Indeed,  its  most  recent  competition  report  suggests  that  it  does.  According  to  the  Commission,  several  very  small  and  rural  cable  systems  have  used  a  variety  of  schemes  to  add  digital  channels,  expand 
 their  program  offerings,  and  take  preemptive  action  against  aggressive  DBS  marketing."  Id.  (quoting  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming, 
 Seventh  Annual  Report,  16  FCC  Rcd  6005,    67  (2000). 
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 Finally,  in  each  of  the  last  three  cable  mergers,  the  Commission  assessed  the  competitive  impact  not  on  a  cable  services  market,  but  on  the  MVPD  market.  6 
 In  this  Hearing  Designation  Order,  however,  the  majority  is  unwilling  to  conclude  that  cable  and  DBS  services  compete.  To  the  contrary,  this  Order  states,  [  i]  n  fact,  the 
 relevant  product  market  may  be  limited  to  just  DBS  services.  7  This  conclusion  seems  to  contradict  prior  Commission  precedent.  Defining  the  relevant  product  market  as  DBS 
 services  would  mean  that  in  urban  areas  served  by  cable,  our  analysis  would  exclude  cable  operators  as  a  viable  alternative.  Such  an  approach  is  not  reflective  of  the  actual 
 competitive  landscape  in  urban  areas  and  diminishes  the  real  challenges  faced  by  rural  consumers  to  obtain  comparable  services.  Indeed,  I  am  disappointed  that  the 
 Commission  seems  to  be  taking  a  step  away  from  the  conclusion  that  at  least  some  cable  operators  and  DBS  providers  compete,  despite  having  repeatedly  reached  that  decision  in 
 the  past. 
 The  Order  justifies  its  departure  from  the  Commissions  past  discussions  of  a  MVPD  market  by  noting  that  although  the  relevant  product  market  for  a  cable  operator 

 contains  cable  and  DBS  services,  the  relevant  product  market  for  a  DBS  provider  might  include  DBS  services  and  only  some  cable  services.  8  Specifically,  the  Order 
 hypothesizes  that  DBS  providers  compete  with  low  capacity  cable  operators,  but  low  capacity  cable  operators  do  not  compete  with  DBS  providers.  I  find  this  proposition 
 confusing  at  best.  First,  even  if  true,  it  would  lead  to  a  conclusion  that  the  relevant  product  market  is  only  high  capacity  cable  and  DBS  services.  Thus,  the  hypothesis 
 would  not  support  the  contention  that,  in  fact,  the  relevant  product  market  may  be  limited  to  just  DBS  services.  9 

 Moreover,  I  have  concerns  with  the  assertion  that  some  products  may  be  substitutes  or  interchangeable,  but  only  unilaterally.  I  question  the  conclusion  that 
 DBS  services  compete  with  low  capacity  cable  services,  but  that  low  capacity  cable  services  do  not  compete  with  DBS  services.  If  the  Commission  were  to  say  these 
 services  do  not  compete  at  all,  I  may  or  may  not  agree,  but  I  would  understand  the  argument.  One  might  argue,  for  instance,  that  a  Ford  and  a  BMW  do  not  compete  in  the 
 same  car  market  because  there  actually  are  two  product  markets:  the  economy  car 

 6  See  Applications  of  AT&  T  Corp.  and  Tele-  Communications,  Inc.  for  Transfer  of  Control  of  Tele-Communications, 
 Inc.  to  AT&  T  Corp.,  CC  Docket  No.  98-  178,  Memorandum  Opinion  and  Order,  14  FCC  Rcd  3160,    20-  22  (1999);  Applications  For  Consent  To  The  Transfer  Of  Control  Of  Licenses  and  Section 

 214  Authorizations  From  MediaOne  Group,  Inc.,  Transferor,  To  AT&  T  Corp.,  Transferee,  Memorandum  Option  and  Order,  15  FCC  Rcd  9816,    36  (2000);  Applications  for  Consent  to  the  Transfer  of  Control  of 
 Licenses  and  Section  214  Authorizations  by  Time  Warner  Inc.  and  America  Online,  Inc.,  Transferors,  to  AOL  Time  Warner  Inc.,  Transferee,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  6547,  244  (2001). 

 7  Order  at    115. 
 8  See  Order  at    109  and  note  331. 
 9  Id.  at    115. 
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 market  and  the  luxury  car  market.  But  can  you  really  claim  that  BMWs  compete  with  Fords,  but  that  Fords  dont  compete  with  BMWs?  It  seems  highly  unlikely  that 
 consumers  would  view  some  products  as  true  substitutes    i.  e.,  reasonably  interchangeable  10    but  only  in  one  direction. 

 The  majority  argues  that  this  seemingly  odd  conclusion  is  a  result  of  the  hypothetical  monopolist  procedure  used  to  define  the  market: 
 The  relevant  product  that  results  from  this  procedure  depends  significantly  on  the  products  with  which  one 
 started.  [I]  t  is  entirely  possible  that  we  might  derive  different  relevant  product  markets,  given  the  different 
 starting  points.  11 
 I  understand  that  the  hypothetical  monopolist  test  might  produce  such  an  atypical  result.  But  that  does  not  mean  it  is  a  reasoned  analysis  to  rely  on  that  tool  to  conclude  that  cable 

 competes  with  DBS  but  that  DBS  does  not  compete  with  cable.  Some  higher  threshold  of  proof  should  be  met  to  justify  such  a  conclusion.  We  must  not  let  our  fascination  with 
 economic  modelling  tools,  or  our  appreciation  of  the  hypothetical  monopolist  test,  cloud  our  judgement  of  what  we  are  really  attempting  to  evaluate:  the  extent  to  which 
 consumers  view  products  or  services  as  interchangeable  or  substitutes.  12 
 Ultimately,  the  Order  states  that  the  Commission  is  unable  to  conclusively  resolve  the  product  definition  at  this  time.  13  I  find  this  hesitancy  troubling  and 

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

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

 11  Id.  at    109. 

 12  See  E.  I.  du  Pont,  351  U.  S.  at  395. 
 13  Id.  at    114. 
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 Finally,  I  fear  that  the  Orders  reluctance  to  identify  the  relevant  product  market  and  to  conclude  unequivocally  that  DBS  providers  and  at  least  high-  capacity  cable 
 operators  compete  indicates  a  step  back  from  our  recognition  in  several  recent  proceedings  of  the  growing  importance  of  intermodal  or  platform  competition.  14 

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

 EchoStars  Must-  Carry  Obligation 
 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  Commissions  public  interest  inquiry  includes  a  determination  that  the  applicant  has  the  requisite  character  to  hold  a  license.  15  As  the  attached  Order 

 explains,  violations  of  provisions  of  the  Act,  or  of  the  Commissions  rules  or  polices  have  a  bearing  on  an  applicants  character  qualifications.  16 

 As  I  explained  in  a  detailed  press  statement  last  April,  I  believe  EchoStar  is  violating  the  must-  carry  provisions  of  the  Satellite  Home  Viewer  Improvement  Act 

 14  See,  e.  g.,  2002  Biennial  Regulatory  Review,  Review  of  the  Commissions  Broadcast  Ownership  Rules 
 and  Other  Rules  Adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  Notice  of  Proposed  Rulemaking,  MB  Docket  No.  02-  277,  FCC  02-  249,    53  (rel.  Sept.  23,  2002)  (discussing  robust 

 competition  among  broadcasting,  cable  television  and  DBS);  Inquiry  Concerning  High-  Speed  Access  to  the  Internet  Over  Cable  and  Other  Facilities,  Internet  Over  Cable  Declaratory  Ruling,  Appropriate  Regulatory 
 Treatment  for  Broadband  Access  to  the  Internet  Over  Cable  Facilities,  Declaratory  Ruling  and  Notice  of  Proposed  Rulemaking,  17  FCC  Rcd  4798,    6  (2002)  ([  R]  esidential  high-  speed  access  to  the  Internet  is 
 evolving  over  multiple  electronic  platforms,  including  wireline,  cable,  terrestrial  wireless  and  satellite.);  In  The  Matter  Of  Appropriate  Framework  For  Broadband  Access  To  The  Internet  Over  Wireline  Facilities, 
 Notice  of  Proposed  Rulemaking,  17  FCC  Rcd.  3019,    37  (2002)  ([  T]  he  technological  evolution    enabled  cable,  wireless  and  satellite  providers  to  begin  to  compete  with  the  telephone  network.  In  the 
 broadband  arena,  the  competition  between  cable  and  telephone  companies  is  particularly  pronounced.). 
 15  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  from 
 Southern  New  England  Telecommunications  Corporation,  Transferor,  Memorandum  Opinion  and  Order,  13  FCC  Rcd  21292,  21305    26  (1998)). 

 16  Order  at    28  (citing  Policy  Regarding  Character  Qualifications  In  Broadcast  Licensing  Amendment  of 
 Rules  of  Broadcast  Practice  and  Procedure  Relating  to  Written  Responses  to  Commission  Inquiries  and  the  Making  of  Misrepresentations  to  the  Commission  by  Permittees  and  Licensees,  Report,  Order  and  Policy 

 Statement,  102  FCC  2d  1208-  9  (1986)). 
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 (  SHVIA)  and  our  rules  by  placing  some  broadcasters  signals  on  a  second  dish.  17  I  continue  to  be  concerned  about  the  burden  this  practice  places  on  consumers  and  the 
 impact  this  discrimination  may  have  on  some  broadcasters  particularly  public  broadcasters. 

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

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 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. 

 17  See  Statement  of  Commissioner  Kevin  J.  Martin  and  Commissioner  Michael  J.  Copps  Re:  National 
 Association  of  Broadcasters  and  Association  of  Local  Television  Stations  Request  for  Modification  or  Clarification  of  Broadcast  Carriage  Rules  for  Satellite  Carriers,  Declaratory  Ruling  and  Order,  CSR-  5865-  Z 

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

 19  Order  at    35. 
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