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 Federal  Communications  Commission  FCC  02-  284
 Before  the  Federal  Communications  Commission
 Washington,  D.  C.  20554
 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
 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
 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
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 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
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 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
 I.  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
 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.
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 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
 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.
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 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.
 II.  DESCRIPTION  OF  THE  PARTIES
 A.  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,  EchoStars  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.  EchoStars  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
 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  Vivendis  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.
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 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  119  W.  L.  location,  EchoStar  is  authorized  to  operate  21  frequencies  17  and  at  the  110  W.  L.  location,  29  frequencies.  18  In  the
 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.  More  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  175,  166,  157,  148,  119,  110,  101,  and  61.5.  See  Appendix  30  to  the  ITU  Radio  Regulations.  Three  of  these  eight  locations,  101
 W.  L.,  110  W.  L.,  and  119  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  (Intl  Bur.  1992);  Letter  from  Donald  H.  Gipps,  Chief,  International  Bureau,  Federal
 Communications  Commission  to  EchoStar  Satellite  Corporation,  11  FCC  Rcd  16468  (Intl  Bur.  1996);  Letter  from  Donald  H.  Gipps,  Chief,  International  Bureau,  Federal  Communications  Commission,  to  DirectSat  Corporation,  11
 FCC  Rcd  16465  (Intl  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
 (Intl  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  (Intl  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  (Intl  Bur.  1999)  (  MCI-  EchoStar  Order);  EchoStar  Satellite  Corporation  Application  for  Modification  to  Direct  Broadcast  Satellite  Authorization  and  for
 Operation  Authority,  15  FCC  Rcd  6727  (Intl  Bur.  1999)  (  1999  EchoStar  Mod).
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 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  148  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  61.5  W.  L.  20  In  addition,  at  the  61.5  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
 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  (Intl  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  (Intl  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,  see  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  (Intl  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  (Intl  Bur.  1998).  See  also  Dominion  Video  Satellite,  Inc.,  14  FCC
 Rcd  8182  (Intl  Bur.  1999);  Petition  of  R/  L  DBS  Company,  L.  L.  C.  For  Extension  of  its  Direct  Broadcast  Satellite  Construction  Permit,  16  FCC  Rcd  9  (Intl  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  (Intl  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  (Intl  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  83  W.  L.  and  121  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  (Intl  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  (Intl  Bur.  2002).  EchoStars  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.
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 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
 B.  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
 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  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  73  W.  L.  and  109.  2  W.  L.  orbital  locations,  and  KaStarCom.  World  Satellite,  LLC.,  which  holds  Commission  authorizations  for  500  MHz  of  Ka-  band  spectrum
 at  the  73  W.  L.  and  109.  2  W.  L.  orbital  locations  and  1000  MHz  at  the  111  W.  L.  orbital  location.  See,  Assignment  of  Orbital  Locations  to  Space  Stations  in  the  Ka-  Band,  Order,  13  FCC  Rcd  1030  (Intl  Bur.  1997)  (  First  Round
 Assignment  Order),  revised,  Assignment  of  Orbital  Locations  to  Space  Stations  in  the  Ka-  Band,  Order,  12  FCC  Rcd  22004  (Intl  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  (Intl  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  (  Intl  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  systems  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.
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 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  GMs  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  GMs  $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  101  W.  L.  orbital  location,  three  frequencies  at  the  110  W.  L.  orbital  location,  39  and,  11  frequencies  at  the  119  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
 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.  see  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  (Intl  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  (Intl  Bur.  1999)  (  Tempo-  DirecTV
 Order);  see  also  DirecTV  Enterprises,  Inc.,  7  FCC  Rcd  2728  (Intl  Bur.  1992)  and  7  FCC  Rcd  6597  (Intl  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.
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 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  101
 W.  L.,  99  W.  L.,  49  W.  L.,  54  E.  L.,  101  E.  L.,  111  E.  L.,  164  E.  L.,  and  25  E.  L.  49  In  addition,  HNS  holds  Ka-  band  authorizations  at  the  131  W.  L.,  30  E.  L.,  7.5  W.  L.,  and  103  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  PanAmSats  largest  customers  are  its  affiliates,  HNS,  DirecTV  Latin  America,  and
 43  In  1994,  NRTC  and  Hughes  Communications  Galaxy,  Inc.  (DirecTVs  predecessor-  in-  interest)  entered  into  a
 Distribution  Agreement  wherein  NRTC  received  exclusive  program  distribution  rights  to  market  DirecTVs  DBS  service  in  rural  areas  of  the  United  States.  NRTC,  its  members  and  affiliates  currently  distribute  DirecTV  to
 approximately  1.  9  million  rural  households.  NRTCs  largest  affiliate,  Pegasus  Communications  Corporation,  distributes  DirecTV  programming  to  approximately  1.5  million  of  NRTCs  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.  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  (Intl  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  PanAmSats  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.
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 DirecTV.  54  PanAmSat  holds  Commission  authority  to  launch  and  operate  Ka-  band  satellites  at  13  orbital  locations:  103  W.  L.,  36  E.  L.,  40  E.  L.,  48  E.  L.,  124.5  E.  L.,  149  E.  L.,  173  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
 C.  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
 1.  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  GMs  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
 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  (Intl  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  (Intl  Bur.  1997)  and  12  FCC  Rcd  22004  (Intl  Bur.  1997)(  reassigning  PanAmSats  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.
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 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
 2.  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
 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).
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 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
 3.  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
 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.
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 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  PanAmSats  GSO  FSS
 C  and  Ku-  band  operations,  and  the  authorizations  held  by  HNS,  one  of  PanAmSats  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
 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).
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 4.  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  Commissions  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  Congresss  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  cables  bundled  offering
 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.
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 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.
 III.  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
 EchoStars  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  Commissions  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
 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  EchoStars  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  (continued....)
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 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
 Commissions  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  Commissions  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
 (...  continued  from  previous  page)  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)  affd  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.
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 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
 IV.  COMPLIANCE  WITH  COMMUNICATIONS  ACT  AND  COMMISSION  RULES  AND  POLICIES
 A.  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  EchoStars  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
 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  EchoStars  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
 (Intl  Bur.  1998).
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 U.  S.  C.    119.  123  In  a  1998  lawsuit  against  PrimeTime  24,  a  United  States  district  court  found  that  PrimeTime  had  simply  ignored  the  Commissions  standard  for  retransmission  and  enjoined
 PrimeTimes  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
 EchoStars  argument  that  its  two-  dish  approach  complied  with  SHVIA  and  the  Commissions  rules.  131
 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  24s  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  EchoStars  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  Commissions  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  EchoStars  compliance  with  must-  carry  obligations);  NPIT  Reply  Comments  at  1-  2  (same);  Satellite  Receivers
 Reply  Comments  at  3  (same).  The  Commission  criticized  EchoStars  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  EchoStars  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  EchoStars  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
 (continued....)
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 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  operators  present  state  of  compliance  with  SHVIA  and  the  Commissions  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
 (...  continued  from  previous  page)  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  Bureaus  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  Commissions  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).
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 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  EchoStars  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  mergers  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.  EchoStars  record  with  respect  to  compliance  with  SHVIAs  must-  carry  provisions  and  our  rules  suggests  a  resistance  to  taking  steps  to
 serve  the  public  interest  that  do  not  also  serve  the  companys  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.
 B.  Impact  of  the  Transaction  on  Diversity
 1.  Background
 37.  As  stated  above,  the  Commissions  public  interest  evaluation  includes  an  evaluation  of  the  proposed  mergers  affect  on  the  quality  and  diversity  of  communications  services  to  consumers.  141  In
 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.
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 this  respect,  various  parties  have  raised  issues  concerning  the  proposed  mergers  impact  on  program  diversity,  viewpoint  diversity,  and  employment  diversity.  These  issues  are  discussed  below.
 38.  Program  diversity.  One  of  the  Commissions  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  Applicants  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  Commissions  program  diversity  policies.  145  The  National  Council  of  LaRaza  also  asserts  that  the  proposed  merger  would  reduce  program  diversity  and  points  to  EchoStars  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  EchoStars  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
 142  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,  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  EchoStars  practices.
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 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  Commissions  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  Commissions  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  courts
 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  FCCs  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).
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 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
 2.  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
 158  Review  of  the  Commissions  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  Commissions  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.)
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 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  Networks  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  Networks  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  Unions  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
 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  EchoStars  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  Commissions  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.
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 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  Commissions  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  Commissions
 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  Commissions  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
 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,  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.
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 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  courts  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  years  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  Commissions  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.
 179  The  Commissions  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  Commissions  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).
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 C.  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  Commissions  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.
 1.  Spectrum  Efficiency
 a.  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,  EchoStars  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
 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.
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 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
 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.
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 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  EchoStars  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  transitions  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  companys  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)
 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  transitions  goal  is
 to  quickly  recover  spectrum  used  in  order  to  provide  local  programming  to  all  210  DMAs  within  36  months  of  the  mergers  approval.  As  a  result,  all  new  customers  following  the  mergers  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  Applicants  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.
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 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.
 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.
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 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
 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.
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 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  Applicants  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  EchoStars  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
 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.
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 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  EchoStars  set-  top  box.  236  Although  the  two  systems  use  different  encryption  systems,  NAB  notes  that  EchoStar  and  DirecTVs  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
 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.
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 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
 242  EchoStar  May  16  Ex  Parte  at  4,  Attachment  at  24-  26.  The  Applicants  argue  that  the  mergers  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  DirecTVs  total  capacity  of  46  frequencies  and  EchoStars  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.
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 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
 b.  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
 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  ex  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
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 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
 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.
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 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.
 2.  Spectrum  Policy  Concerns
 a.  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
 Commissions  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
 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  Commissions  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  62  W.  L.  to  135  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.
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 inconsistent  with  the  Commissions  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  Commissions  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  Commissions  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  Commissions  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
 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.
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 (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.
 b.  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,
 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  Commissions  Rules  Relative  to  Cellular  Communications  Systems,  Report
 and  Order,  86  FCC  2d  469,  476,  478  (1981).  276
 See  Amendment  of  the  Commissions  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.
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 leading  to  the  Commissions  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
 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.
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 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
 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.
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 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  Commissions  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  Unions  (  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
 290  See  e.  g.,  Rulemaking  to  Amend  parts  1,  2,  21,  and  25  of  the  Commissions  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  companys  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  (Intl  Bur.  1995)  (  ACC  Order);  Morning  Star  Satellite  Company  LLC,  15  FCC  Rcd  11350  (Intl  Bur.  2000)  affd,  16  FCC
 Rcd  11550  (2001)  (  Morning  Star  Order).  See  also  Norris  Satellite  Communications,  Inc.,  12  FCC  Rcd  22299  (Intl  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.
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 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
 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  Commissions  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.
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 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  Commissions  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  Commissions  pro-  competitive
 spectrum  policy  in  our  balancing  of  the  potential  public  interest  harms  and  benefits  of  the  proposed  transaction.
 V.  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
 303  See  Id.
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 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.
 A.  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  courts  denial  of  the  governments  request  for  a  preliminary  injunction,  rejected  the  district  courts  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  courts  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
 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).  Cf.  IV  PHILLIP  E.  AREEDA,  HERBERT  HOVENKAMP  &  JOHN  L.  SOLOW,  ANTITRUST  LAW    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.).
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 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.
 B.  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.
 1.  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.
 a.  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
 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  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.
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 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  NRTCs  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
 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.
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 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
 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  281  (2d  ed.  1991).
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 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
 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
 (continued....)
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 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.
 b.  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
 Courts  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
 (...  continued  from  previous  page)  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)
 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.
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 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
 343  NAB  Petition  at  34-  35,  Pegasus  Petition  at  14;  Duke  Law  Reply  Comments  at  12.  In  addition,  NAB  contends
 that  the  variation  in  EchoStars  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  Bell  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).
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 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  DirecTVs  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  EchoStars  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  Commerces  National  Telecommunications  and  Information  Administration  (  NTIA)  and  the  Department  of  Agricultures  Rural  Utilities  Service,  NRTC  and
 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,  NRTCs  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.
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 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.
 c.  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
 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  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  (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.
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 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  61.5  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  DirecTVs  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.
 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  .
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 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
 d.  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
 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.
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 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
 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.
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 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
 e.  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
 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.
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 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  todays  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  105.5  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  4.5  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
 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.  5  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.  5  W.  L.,  File  No.  SAT-  MOD-20020408-  00062,  DBS8701.  Cablevision  states  that  the  new  satellite  would  use  13  transponders  at  the  61.  5  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.
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 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  applicants  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
 386  Letter  form  Pat  Strachan,  UK  RA  to  Thomas  Tycz,  FCC  (May  7,  2002),  and  letter  form  Kathryn  OBrien,  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.
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 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.
 2.  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  firms  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.
 391  For  example  RCN,  a  leading  cable  overbuilder,  reported  to  the  SEC  that  As  a  response  to  the  severe  slowdown
 in  the  telecommunications  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.  at    2.1.
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 a.  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  firms  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  firms  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  EchoStars  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  others  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
 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  DirecTVs  lack  of  response  to
 EchoStars  I  like  9  pricing  campaign.  In  August  2001,  new  EchoStar  customers  who  purchased  a  system  for  $199  or  more,  received  EchoStars  Americas  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.
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 price  and  track  each  others  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  EchoStars  and  DirecTVs  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  EchoStars  and  DirecTVs
 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.
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 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.  EchoStars  Americas  Top  100  and  DirecTVs  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  years  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  Applicants  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
 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.
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 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
 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).
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 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  models  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.
 b.  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  participants  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
 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  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).
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 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,  NABs  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  others  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
 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  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)  (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.
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 remaining  MVPD  operators  did  not  collude,  may  understate  the  harms  that  would  actually  result  from  the  merger.
 3.  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  EchoStars  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.
 4.  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  EchoStars  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,
 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.
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 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  EchoStars  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
 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  subscribers  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.
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 driven  by  competition  with  cable  companies,  since  the  majority  of  New  EchoStars  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.
 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,  December  21,  2001,  at  p.  1  (Mr.  Ergen  quoted  as  stating  that  I  guess  if  youre  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.
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 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  EchoStars  own-  elasticity  of  demand  to  decline  in  all  relevant  markets  and  New  EchoStars  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.
 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  EchoStars  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.
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 C.  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  firms  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
 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  mergers  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  firms  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.).
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 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.
 1.  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
 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  firms  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.
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 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  companys  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  Commissions  public  interest  analysis,  however,  the  relevant  question  is  not  how  much
 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.
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 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  firms  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
 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  providers  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.
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 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  entitys
 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
 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  (continued....)
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 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.
 2.  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
 (...  continued  from  previous  page)  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  119  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.
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 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,  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,
 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.
 503  Applicants'  July  5  ex  parte  at  20.
 504  Id.
 505  Id.  at  17.
 506  Id.  at  11.
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 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  per  gross  add  in  the  first  year  and
 REDACTED  per  gross  add  in  each  year  thereafter,  for  a  total  savings  of  REDACTED  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
 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).
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 and  can  offset  the  reduction  in  competition,  rather  than  whether  the  merged  entity  will  achieve  a  lower  cost  structure  as  a  per  se  matter.
 3.  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  DBSs  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
 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.
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 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.
 D.  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  Commissions  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
 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  Commissions  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
 (continued....)
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 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
 (...  continued  from  previous  page)  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  (mergers  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  DirecTVs  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.
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 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,
 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).
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 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  --  DirecTVs
 DirecWay  service  and  EchoStars  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
 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.  See  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  (EchoStars  StarBand  and  DirecTVs  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  Commissions  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.
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 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  EchoStars  customers  accessing  the  eastern  and  western
 DBS  locations  at  61.5  W.  L.  and  148  W.  L.  do  not  have  a  one-  dish  solution  for  bundled  DBS/  broadband  service.  Several  firms  including  two  merger  Opponents,  NRTC  and  Pegasus    resell  DirecTVs
 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  EchoStars  control
 would  be  particularly  well-  suited  to  providing  a  bundled  DBS/  satellite  broadband  service  over  a  single
 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);  EchoStars  pending  Petition  for  Reconsideration  seeks  reinstatement  of  its  Ka-  band  authorizations  at  83  W.  L.  and  121  W.  L.,
 which  were  canceled  for  failure  to  meet  milestones.  See  n.  23,  supra.
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 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  WildBlues  plans  have  been  slowed  due  to  funding  difficulties.  544  The  license  for  Motorolas  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
 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  (mergers  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  (Intl  Bur.  2002);  File  Nos.  182  through  186  SAT-  P/  LA-  95  and  SAT-  MOD-  19971222-  00200
 (waiving  Astrolinks  Ka-  band  construction  commencement  milestone,  contingent  upon  Astrolinks  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  (Intl  Bur,.  2002).
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 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
 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.)
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 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,  DirecTVs  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
 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  99  W.  L.  and  101  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  121  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.")
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 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
 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  (continued....)
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 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  NRTCs  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  EchoStars  funding  and  subscriber  base  together  with  the  flexibility  to  provide  a  one-  dish  solution  that
 EchoStars  DBS  orbital  slots  would  provide.  EchoStars  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
 (...  continued  from  previous  page)  been  unable  to  collect  revenue  from  about  31,000  of  its  41,000  customers,  according  to  [StarBands  bankruptcy
 filing.]).  According  to  StarBands  President,  David  Trachtenberg,  EchoStar,  which  had  control  of  StarBands  board,  was  creating  obstacles  to  StarBands  growth  by  stymieing  funding  efforts  and  business  plans.  Id.  At  the
 time  of  its  bankruptcy  filing,  StarBand  claimed  that  remained  operational.  Id.  ([  StarBands]  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  StarBands  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  Starbands  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  Commissions  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  Ameritechs  portrayal  is  self-serving.)
 (citing  id.,  Appendix  B  (Summary  of  Confidential  Information  and  Conclusions)).  573
 One  industry  observer  noted  that  Starbands  bankruptcy  filing  had  potentially  important  implications  for  the  satellite  industry  because  its  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  Starbands  silence  in  this  (continued....)
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 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.  NRTCs
 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
 (...  continued  from  previous  page)  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.).
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 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
 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  Spaceways  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  DirecTVs  public  statement,  after
 the  merger  application  was  filed,  that  Spaceways  Ka-  band  system  would  far  exceed  the  FCCs  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.
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 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
 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  (continued....)
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 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.
 VI.  OTHER  ISSUES
 A.  Vertical  Effects
 1.  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.
 (...  continued  from  previous  page)  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  $20  million  in  grants  that  are  available,  through  the  Department  of  Agricultures  Rural  Utility  Service  (RUS)  Broadband  Pilot  Grant  Program  for  broadband  transmission  service  in
 rural  America.  See,  e.  g.,  Notices,  Dept.  of  Agriculture,  Forest  Serv.  Siuslaw  Resource  Advisory  Comm.  Meeting,  Monday,  July  8,  2002,  67  Fed.  Reg.  45079,  2002  WL  1446457  ($  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  Commissions  Cable  Horizontal  and  Vertical  Ownership  Limits  and  Attribution  Rules,  Review  of  the  Commissions  Regulations
 Governing  Attribution  of  Broadcast  and  Cable/  MDS  Interests,  Review  of  the  Commissions  Regulations  and  Policies  Affecting  Investment  in  the  Broadcast  Industry,  Reexamination  of  the  Commissions  Cross-  Interest  Policy,  16  FCC
 Rcd  17312  (2001)  (  Ownership  Further  Notice).  592
 Id.  at  17321-  22.  593
 Id.
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 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
 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  CWAs  argument  to  mean  that  program  producers  and  distributors  will  receive  less  for  their  programs  money  after
 the  merger  because  of  New  EchoStars  market  power.  602
 Id.  603
 NAB  Petition  at  57-  58.
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 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  subscribers  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
 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  countrys  largest  MVPD  provider.
 611  We  have  addressed  Applicants  claims  about  the  extent  of  their  lower  programming  costs,  supra.
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 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  EchoStars  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  EchoStars  rivals,  and  New  EchoStar  discriminating  against  Vivendis  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  Vivendis  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  EchoStars  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  Vivendis  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
 612  See  Ownership  Further  Notice,  16  FCC  Rcd  at  17335  (discussing  Commissions  horizontal  ownership  limit,
 under  review,  that  bars  cable  operators  from  owning  systems  that  reach  more  than  30%  of  MVPD  subscribers  nationwide).
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 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  Vivendis.  613
 Moreover,  EchoStar  has  no  incentive  not  to  make  its  other  channels  available  to  Vivendis  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  EchoStars  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.
 2.  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.
 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.  5  W.  L.  to  155.5  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.
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 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.
 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  PanAmSats  and  Hughes  assets  with  those  of  EchoStar  would  have  little  effect  on  the
 Ka-  Band  or  FSS  as  a  whole.
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 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  EchoStars  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  firms  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  EchoStars  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  EchoStars  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  EchoStars  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  PanAmSats  licenses  to  New  EchoStar.  626
 B.  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
 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.
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 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
 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).
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 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.
 VII.  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
 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.
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 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  Commissions  public  interest  standard,  as  is  consistency  with  Communications
 Act  policy  and  the  Commissions  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  transactions  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
 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.
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 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  Acts  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
 entitys  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
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 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  Applicants  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  Acts  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.
 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.
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 VIII.  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  transactions  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  transactions  effect  on  viewpoint  diversity  (see  paras.  42-  43,  49-  51  and  55);  and
 (b)  the  proposed  transactions  effect  on  the  Commissions  spectrum  policies  (see  paras.  83  -  96).
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 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  transactions  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.
 IX.  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  Commissions  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.
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 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  Commissions  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  Commissions  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  Commissions  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  Commissions  Rules  or  be  accompanied  by  a  deferral  request  pursuant  to  Section  1.1117  of  the  Commissions  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  Commissions  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  Commissions  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
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 APPENDIX  A
 PETITIONS  TO  DENY  AND  COMMENTS
 I.  Submissions  in  Response  to  the  December  21,  2001,  Public  Notice
 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)
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 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
 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)
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 F.  Responses  filed  June  4,  2002
 National  Council  of  La  Raza  (  NCLC)  SES  Americom,  Inc.  (  SES)
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 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**
 119  W.  L.  DBS  88-  01  DBS  88-  02  EchoStar  7,  EchoStar  6,  EchoStar  4  567  MHz  (21  frequencies)
 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,  EchoStar  2  648  MHz  (24  frequencies)
 II.  Ku-  Band  Space  Station  Authorizations
 EchoStar  Satellite  Corporation  (Licensee)  Orbital  Location  FCC  Id.  Authorized  Spectrum*
 83  W.  L.  S2142  1000  MHz  121  W.  L.  S2143  1000  MHz
 III.  Ka-  Band  Space  Station  Authorizations
 EchoStar  VisionStar  Corporation  (Licensee)  Orbital  Location  FCC  Id.  Authorized  Spectrum*
 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
 E950252  E950253
 E950287  E950288
 E970394  E980005
 E980047  E980081
 E980082  E980118
 E980127  E980128
 E980142  E980143
 E980174
 Temp  T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 E980178  E980180
 E990138  E990139
 E990309  E990310
 E980117  E010240
 E010241  E010242
 E970395  E970396
 E101240  E010241
 E010242  E010266
 E020233
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R
 E860008  E920003
 E920242  E950308
 E980109  E980147
 E000165  E950177
 E980095  E980096
 E980097
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T/  R
 T/  R  T
 T  T
 T
 *  Authorized  Spectrum  assumes  2  times  frequency  re-  use.  **  DBS  authorized  spectrum  is  based  on  27  MHz  channel  bandwidth,  guard  band  not  included.
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 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  FCC  Id.  Satellites  In  Use  Authorized  Spectrum**
 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  FCC  Id.  Authorized  Spectrum*
 77  W.  L.  (STA)  KS39  (SBS-  4)  1000  MHz
 III.  Ka-  Band  Space  Station  Authorizations
 Hughes  Network  Systems,  Inc.  (Licensee)  Orbital
 Location  FCC  Id.  Authorized  Spectrum*  Orbital  Location  FCC  Id.  Authorized  Spectrum*  Orbital  Location  FCC  Id.  Authorized  Spectrum*  101  W.  L.  S2132  2000  MHz  101  E.  L.  S2187  2000  MHz  131  W.  L.  S2338  2000  MHz
 99  W.  L.  S2133  2000  MHz  111  E.  L.  S2188  2000  MHz  30  E.  L.  S2339  2000  MHz  49  W.  L.  S2185  2000  MHz  164  E.  L.  S2189  2000  MHz  7.5  W.  L.  S2340  2000  MHz
 54  E.  L.  S2186  2000  MHz  25  E.  L.  S2190  2000  MHz  103  E.  L.  S2341  2000  MHz
 IV.  Earth  Station  Authorizations  (Listed  by  Licensee,  Call  Sign  and  Type)
 DirecTV  Enterprises,  LLC  Hot  Telecom,  Ltd.  Hughes  Network  Systems,  Inc.  E950423  R  E000362  T/  R  E880970  T/  R  E881112  VSAT
 E950424  R  E010187  T/  R  E881109  T/  R  E890426  VSAT  E980170  R  E020205  T/  R  E890425  T/  R  E890427  VSAT
 E980341  R  E020206  T/  R  E890627  T/  R  E890428  VSAT  E930229  T  E020207  T/  R  E900013  T/  R  E890628  VSAT
 E930304  T  E020208  T/  R  E910612  T/  R  E890629  VSAT  E930191  T/  R  USSB  II,  Inc.  E920556  T/  R  E890630  VSAT
 E980285  T/  R  E930437  R  E940460  T/  R  E891001  VSAT  E980338  T/  R  E930485  T/  R  E940478  T/  R  E891002  VSAT
 E980340  T/  R  Hughes  Global  Services,  Inc.  E861092  Temp  T/  R  E900192  VSAT  E980473  T/  R  E990024  T/  R  E873438  Temp  T/  R  E900682  VSAT
 E990159  T/  R  E990055  Temp  T/  R  E000166  VSAT  E940455  VSAT  E950349  T/  R  E880787  VSAT  E950471  VSAT
 E010129  T/  R  Hughes  Communications  Satellite  Services,  Inc.  E880788  VSAT  E950472  VSAT  E010130  T/  R  E960001  R  E880789  VSAT  E950473  VSAT
 E990545  Temp  T/  R  E970079  R  E881110  VSAT  E990170  VSAT  DirecTV  Latin  America,  LLC  E970094  R  E881111  VSAT  E970067  VSAT
 E99023  T/  R  E900013  T/  R  E000166  VSAT
 V.  Wireless  Licenses  (Listed  by  Licensee,  Call  Sign  and  Type)  Hughes  Electronics  Corp.  Hughes  Communications  Satellite  Services,  Inc.
 Call  Sign  Type  Call  Sign  Type  Call  Sign  Type  Call  Sign  Type  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.
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 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
 Location  Band  Authorized  Spectrum*  Orbital  Location  Band  Authorized  Spectrum*  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
 Location  FCC  Id.  Authorized  Spectrum*  Orbital  Location  FCC  Id.  Authorized  Spectrum*  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  E.  L.  S2225  2000  MHz
 40  E.  L  S2425  2000  MHz  72.7  E.  L.  S2226  2000  MHz  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  Carrier  Services,  Inc.  (Licensee)  PanAmSat  Comm.  Carrier  Services,  Inc.  ITC-  214-  19980102-  00004/  ITC-  98-  052  Section  214  ITC-  85-  221  Section  214
 FCN-  NEW-  20000515-  00033  Section  214  ITC-  85-  069  Section  214  ITC-  93-  236
 *  Authorized  Spectrum  assumes  2  times  frequency  re-  use
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 APPENDIX  E
 MERGER  SIMULATIONS  OF  THE  ECHOSTAR-  DIRECTV  MERGER
 A.  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
 2.  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.
 3.  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.
 4.  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.
 5.  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.
 647  See,  e.  g.,  Carl  Shapiro,  Mergers  with  Differentiated  Products,  10    SPG  ANTITRUST  23  (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.  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.  363,  377-  81  (1997);  Jith  Jayaratne  and  Carl  Shapiro,  Simulating
 Partial  Asset  Divestitures  to  'Fix'  Mergers,  7  INTERNATIONAL  JOURNAL  OF  THE  ECONOMICS  OF  BUSINESS  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.
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 Under  Cournot  competition,  a  firm  chooses  to  produce  the  amount  of  output  that  maximizes  its  profits.  Equilibrium  is  reached  when  the  level  of  each  firms  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
 6.  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
 B.  MacAvoys  and  Sidaks  Merger  Simulation
 7.  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.
 8.  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
 9.  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
 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  Bertrands  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.  Sidaks  estimated  pre-  merger  price  is  based  on  data,  supplied  by  Pegasus,  concerning  its  average  revenue  per  customer.
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 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.
 C.  Applicants  Merger  Simulation  Analysis
 13.  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
 1.  Description  of  the  Applicants  Model
 14.  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  consumers  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
 (...  continued  from  previous  page)  price.  The  deadweight  loss  can  be  approximated  by  the  formula  for  the  area  of  a  triangle:    (P1    P0)  (Q0  Q1).  See,
 W.  KIP  VISCUSI,  JOHN  M.  VERNON  &  JOSHEPH  E.  HARRINGTON,  JR.,  ECONOMICS  OF  REGULATION  AND  ANTITRUST  86-  88  (3d  ed.  2000);  F.  M.  SCHERER,  INDUSTRIAL  MARKET  STRUCTURE  AND  ECONOMIC  PERFORMANCE  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.  242  (1994).
 672  The  three  equations  are  the  cable  equation:  C  C  C  A  C  p  X  S  S        +  +  =    )  ln(  )  ln(  ,
 (continued....)
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 17.  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.
 18.  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.
 19.  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.
 20.  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.
 21.  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.
 22.  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
 678  The  addition  of  the  area  not  served  by  cable  brings  the  number  of  markets  included  in  the  simulation  to  4,  985.
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 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
 2.  Critique  of  Applicants  Merger  Simulation  Analysis
 23.  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.
 24.  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.
 25.  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
 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,  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.
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 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.
 26.  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.
 27.  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.
 28.  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
 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.  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.
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 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.
 29.  In  summary,  we  find  the  Applicants  model  to  be  severely  flawed  and  their  results  highly  suspect.  At  the  most  fundamental  level  the  Applicants  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  Applicants  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  consumers  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  Applicants  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.
 3.  Staff  Merger  Simulation  Sensitivity  Analysis:
 30.  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.
 688  We  note  that  we  are  unable  to  rely  definitively  on  either  Mr.  Sidaks  or  Dr.  MacAvoys  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.  MacAvoys  use  of  regional  variation  in  average  revenue  per  customer  as  a  proxy  for  price
 variation.  NRTC  Comments,  MacAvoy  Declaration  at  42.
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 REDACTED  TABLE
 31.  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.
 32.  The  Commission  staffs  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.  MacAvoys  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.
 33.  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.
 34.  We  begin  our  analysis  of  consumer  welfare  with  prices  for  the  most  popular  services  of  the  present  DBS  competitors.  EchoStars  most  popular  service  is  Americas  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  EchoStars  Americas  Top  100
 and  DirecTVs  Total  Choice.  The  pre-  merger  price  of  Americas  Top  100  submitted  was  REDACTED  689  and  Total  Choice  is  REDACTED.  690
 35.  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.
 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  EchoStars  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)
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 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  Commissions  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.
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 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  Commissions  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.
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 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  peoples  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  peoples  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.
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 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  EchoStars  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  Commissions  rules.  However,  I  believe  that
 it  would  be  more  appropriate  for  the  Commission  to  address  the  issues  raised  by  EchoStars  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  EchoStars  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  Bureaus  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  publics  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.
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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.  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
 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).
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 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.  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.  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  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
 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
 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).  697
 Order  at    115.
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 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  dont  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
 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.
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 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  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.  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.
 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.  705  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.  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
 704  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.).  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.
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 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.  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  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.
 *  *  *
 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.
 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.
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