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85–659 PDF 2003

S. HRG. 107–873

DOMINANCE IN THE SKY: CABLE COMPETITION

AND THE ECHOSTAR–DIRECTV MERGER

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

BUSINESS RIGHTS, AND COMPETITION

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

MARCH 6, 2002

Serial No. J–107–65

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MARIA CANTWELL, Washington 

JOHN EDWARDS, North Carolina 

ORRIN G. HATCH, Utah 

STROM THURMOND, South Carolina 

CHARLES E. GRASSLEY, Iowa 

ARLEN SPECTER, Pennsylvania 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

SAM BROWNBACK, Kansas 

MITCH MCCONNELL, Kentucky 

BRUCE A. COHEN, Majority Chief Counsel and Staff Director 

SHARON PROST, Minority Chief Counsel 

MAKAN DELRAHIM, Minority Staff Director 

SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS, AND COMPETITION

HERBERT KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

MARIA CANTWELL, Washington 

JOHN EDWARDS, North Carolina 

MIKE DEWINE, Ohio 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

STROM THURMOND, South Carolina 

SAM BROWNBACK, Kansas 

VICTORIA BASSETTI, Majority Chief Counsel 

PETER LEVITAS, Minority Chief Counsel 

(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas ....................... 8

DeWine, Hon. Mike, a U.S. Senator From the State of Ohio ............................... 3

Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin ....................... 1

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 37

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 4

WITNESSES

Allard, Hon. Wayne, a U.S. Senator from the State of Colorado ......................... 10

Ergen, Charles W., Chairman and Chief Executive Officer, EchoStar Communications, Littleton, Colorado .............................................................................. 26

Fritts, Edward O., President and Chief Executive Officer, National Association of Broadcasters, Washington, D.C. ............................................................. 51

Hartenstein, Eddy W., Chairman and Chief Executive Officer, DirecTV, Inc., 

EL Segundo, California ........................................................................................ 16

Kimmelman, Gene, Co-Director, Washington, D.C. Office, Consumers Union, 

Washington, D.C. ................................................................................................. 45

Nixon, Jeremiah W., Attorney General, State of Missouri, Jefferson City, 

Missouri ................................................................................................................ 10

Pitofsky, Robert, Former Chairman, Federal Trade Commission, Washington, 

D.C. ........................................................................................................................ 40

QUESTIONS AND ANSWERS

Responses of Charles W. Ergen to questions submitted by Senator Sam 

Brownback ............................................................................................................ 83

Responses of Charles W. Ergen to questions submitted by Senator Maria 

Cantwell ................................................................................................................ 85

Responses of Charles W. Ergen, Edward O. Fritts, Eddy W. Hartenstein, 

Jeremiah W. Nixon, and Robert Pitofsky to questions submitted by Senator 

Orrin G. Hatch ..................................................................................................... 89

Responses of Charles W. Ergen to a question submitted by Senator Ted 

Kennedy ................................................................................................................ 102

Responses of Charles W. Ergen to questions submitted by Senator Herbert 

Kohl ....................................................................................................................... 102

Responses of Charles W. Ergen to questions submitted by Senator Strom 

Thurmond ............................................................................................................. 114

Responses of Edward O. Fritts to questions submitted by Senator Herbert 

Kohl ....................................................................................................................... 118

Responses of Edward O. Fritts to questions submitted by Senator Orrin 

G. Hatch ................................................................................................................ 119

Responses of Edward O. Fritts to questions submitted by Senator Edward 

M. Kennedy ........................................................................................................... 119

Responses of Robert Pitofsky to questions submitted by Senator Edward 

Kennedy ................................................................................................................ 149

Responses of Robert Pitofsky to questions submitted by Senator Strom Thurmond ...................................................................................................................... 149

Responses of Robert Pitofsky to questions submitted by Senator Herbert 

Kohl ....................................................................................................................... 150

Responses of Robert Pitofsky to questions submitted by Senator Orrin G. 

Hatch ..................................................................................................................... 151

Page

IV

SUBMISSIONS FOR THE RECORD

Kirkpatrick, Kirk, President and Chief Executive Officer, MDS America, Incorporated, Stuart, Florida, statement ............................................................... 152

Slocum, Charles B., Strategic Planning Director, Writers Guild of America, 

West, Inc., letter ................................................................................................... 155

(1)

DOMINANCE IN THE SKY: CABLE COMPETITION AND THE ECHOSTAR-DIRECTV

MERGER 

WEDNESDAY, MARCH 6, 2002

U.S. SENATE, 

SUBCOMMITTEE ON ANTITRUST, COMPETITION, 

AND BUSINESS AND CONSUMER RIGHTS, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:35 a.m., in 

room SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, 

Chairman of the Subcommittee, presiding. 

Present: Senators Kohl, Leahy, DeWine, Hatch, Specter, 

Brownback, and Allard [ex officio.]. 

OPENING STATEMENT OF HON. HERBERT KOHL, A U.S. 

SENATOR FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good morning. We are here today to examine 

the proposed merger between EchoStar Communications and 

DIRECTV, the two largest satellite television companies in the 

country. If they merge, they will be the Nation’s largest pay TV 

service, though it may only be a matter of time before they are 

overtaken by AT&T/Comcast, if indeed that deal goes through. 

In the last few years, one of the few bright spots in cable television has been the emergence of satellite TV. For decades, American consumers had to do business with a cable monopoly that offered poor service at ever-increasing prices. To the extent there has 

been any improvement, it is because of companies like EchoStar 

and DIRECTV. 

Now, all that is about to change. These two fierce competitors 

want to merge. They say they will stop fighting one another in 

order to better fight the cable guy, and that only by joining forces 

will satellite be able to keep cable honest. In other words, they say 

they have to become an 800-pound gorilla in order to compete with 

the 800-pound cable gorilla. 

Most consumers today have a choice of three companies for subscription television—these two satellite companies and their local 

cable company. Even with three competitors, prices continue to increase, and in many rural areas not reached by cable these two satellite companies are the only choice. 

Faced with these facts, critics of the deal charge that it will create a duopoly in most of the country and a monopoly in suburban 

and rural areas. It doesn’t take a rocket scientist to be highly skepVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
2

tical of a merger that reduces competition in an industry and creates a monopoly in rural America. 

The parties proposing this merger bear a high burden of proof to 

overcome this skepticism. We are not saying that they cannot meet 

that burden, but these are not companies that need to merge in 

order to survive. EchoStar and DIRECTV are growing businesses 

that compete against one another in cable. That said, their decision 

to merge requires them to prove that they can solve the rural and 

suburban monopoly problem. 

EchoStar and DIRECTV need to be honest about how extensive 

this rural monopoly problem is. They need to demonstrate that duopolies and monopolies do not decrease competition. 

To pitch their deal, EchoStar and DIRECTV have been making 

some pretty alluring promises: a single, uniform national price; 

local-into-local for all markets, no matter how small the market 

might be; broadband to everyone in America, and high-definition 

and interactive television to be rolled out via satellite. We are used 

to companies making promises, saying whatever they need to get 

the deal done. Unfortunately, experience teaches us how quickly 

these promises are often forgotten upon approval, and consumers 

are left holding the bag. 

It is obvious that this merger is being pursued because it is good 

for the companies, good for shareholders, and good for the bottom 

line. We are afraid that if it happens to be good for the consumer, 

it may just be accidental. No one says that businessmen are required to behave any differently. In fact, it would be irresponsible 

for them not to put their shareholders first and the best interests 

of their companies first. 

Call it a case of once bitten, twice shy, but if the antitrust authorities find it appropriate to permit this merger, then they need 

to tightly wrap all these promises into a consent decree. Promises 

made in a press release, of course, are not enough. They need to 

be legally binding, and maybe even overseen and enforced by a special master. 

At a minimum, we need to be certain that, Number one, the companies will deliver local programming into all 210 television markets within a specified time. Number two, the companies will comply with a full, must-carry requirement as required by law. 

Number three, the companies must price service in rural areas 

at the same levels and on the same terms as in competitive markets. Number four, the companies must unroll a competitive 

broadband service. Number five, the companies must offer high-definition TV and interactive television. Number six, the companies 

must not charge consumers for any costs associated with having to 

change equipment as a result of this merger or to receive local 

channels. 

We also need to carefully assess the companies’ claim that carrying local television stations makes satellite TV a much stronger 

competitor to cable. For this reason, Senator DeWine and I are 

today directing the General Accounting Office to study whether 

cable rates are restrained in those markets in which satellite companies offer local stations. 

Far too often, consumers across the country have been told that 

these mergers are in their best interests, only to discover afterVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
3

wards where the real interests lie once the deals, in fact, get done. 

To date, consumers of pay TV have continued to suffer ever-increasing prices and ever greater consolidation. We need to examine 

this merger carefully to ensure that, for a change, the promised 

benefits are truly realized. 

I thank our distinguished panel of witnesses for their attendance 

here today, and now I turn it over to my friend and colleague, Senator Mike DeWine. 

STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM 

THE STATE OF OHIO 

Senator DEWINE. Mr. Chairman, thank you very much for calling 

this hearing and for your very excellent statement. 

Mr. Chairman, this Subcommittee has been very interested in 

competition in the cable and satellite industry and it has had a 

number of hearings on these issues over the years. Today’s hearing, 

which examines the proposed merger between EchoStar and 

DIRECTV, is one of the most important of those hearings. 

The parties argue that they need to merge in order to more successfully battle against the cable industry. In fact, EchoStar and 

DIRECTV are asking us to believe that the best way to increase 

competition is to decrease competition. Maybe this is true, maybe 

it is not. 

I have a lot of concern about this proposed merger, especially 

about its impact on rural consumers. However, I am keeping an 

open mind about this deal because frankly it does offer some tangible benefits. So today we need to look at this carefully and work 

with all of our witnesses to try to figure out what is the best outcome for consumers and for competition. 

To start, as a matter of law, this proposed merger faces some 

very serious hurdles, and I think we all need to understand that. 

Section 7 of the Clayton Act establishes the parameters for impermissible mergers. That law states that a merger is impermissible 

when the merger would ‘‘create a monopoly or substantially lessen 

competition.’’ The courts have generally interpreted this to mean 

that even if a merger were to promote competition in a certain 

market or geographic area, it does not justify the lessening of competition in another market or geographic area. 

While the deal would make EchoStar a larger competitor against 

cable, it also lessens competition by reducing the number of competitors from three to two in most markets and by creating a monopoly in a number of rural markets. Because of this, I am interested to hear from Mr. Ergen and Mr. Hartenstein today on how 

they plan to meet the legal challenges posed by the Clayton Act. 

If the parties can satisfy the legal requirements of the Clayton 

Act, this deal clearly does offer some potential consumer benefits. 

Most important of those benefits is that the newly merged company 

plans to provide local channels to all 210 broadcast media markets 

in the Nation. This certainly is a major improvement over the current situation in which only the top 42 markets receive local satellite service. 

The parties also claim that a combined satellite company would 

be able to offer a less expensive, more price-competitive high-speed 

Internet product. As the country continues to move toward greater 

4

use of broadband services, consumers certainly would be well 

served by an improved satellite option. 

Since this merger will likely enhance local service and could improve high-speed satellite data offerings, it would help EchoStar 

compete with cable. Any enhanced competition could help improve 

customer service and lower prices for cable—two results that this 

Subcommittee always is interested in pursuing. 

The big question, however, is whether this deal actually would 

increase competition in the long run. If these parties merge, most 

consumers would face a duopoly—the local cable company and a 

much larger and stronger EchoStar. But even more importantly, 

millions of rural customers would find themselves with only one option—EchoStar satellite service. EchoStar would dominate satellite 

service for video and broadband, which might also allow it to aggressively fight cable for market share. Or as so often happens in 

duopoly markets, maybe the two remaining competitors might find 

it easier to compete less vigorously. 

I hope that with this hearing today we can get to the bottom of 

who really benefits from the proposed merger. We need to find out 

if consumers would gain the promised benefits. We need to find out 

how rural consumers would be protected, and we need to find out 

what we would be giving up in terms of competition if this deal 

goes forward. 

Mr. Chairman, I am looking forward to the testimony, and I 

again appreciate your calling this hearing. 

Chairman KOHL. Thank you, Senator DeWine. 

We turn now to the Chairman of the Judiciary Committee, Senator Pat Leahy. 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM THE STATE OF VERMONT 

Chairman LEAHY. Thank you very much, Mr. Chairman. I want 

to thank you and Senator DeWine again for these kinds of hearings. You have over the years moved back and forth as Chairman 

and ranking member of this Subcommittee. 

Senator DEWINE. We hope to move again, Mr. Chairman. 

Senator BROWNBACK. Hear, hear. 

[Laughter.] 

Chairman LEAHY. Maybe someday. 

Senator DEWINE. Someday. 

Chairman LEAHY. I have been here many times in the majority 

and many times in the minority over 27 years. I do like the majority better, and I hope many of your wishes come true, but not all. 

The one thing that has happened is, whichever role you played, 

you have both done enormous credit to the Senate and to this Committee. You have held some of the most difficult and important 

hearings and you have done it in a completely non-partisan way, 

and it has been a credit to the Judiciary Committee, to the Senate, 

to yourselves, but more importantly it has been beneficial to the 

Nation and I applaud you both for that. 

If we can bring full satellite service to rural America and help 

to bridge the digital divide, that would fill a very high priority of 

mine for many years. Those goals of bringing that kind of service 

are foremost to me as I look at this issue before us. 

5

I have also advocated the benefits for rural communities that 

local network broadcasting, offering local weather reports, local 

emergency news, and local public interest programming can provide throughout America. Senator Hatch and I addressed those 

goals in March 1998 when we introduced and later won the Committee’s approval of a bill to allow local-into-local television via satellite. 

I worked with Senator Burns and with the Republican Leader, 

Senator Lott, and many others to enact a program to provide a 

Federal loan guarantee of up to $1.25 billion in loans to finance the 

delivery of local-into-local television and high-speed Internet access 

to rural America. That was in 1999 and 2000. 

I worked to help companies which offered promising approaches 

to providing local-into-local TV services, companies that included 

Capitol Broadcasting of North Carolina, and NorthPoint, which 

hopes to offer such service using terrestrial antennas. I worked on 

a provision, which is now law, directing the FCC to give 

NorthPoint an opportunity to demonstrate the viability of their 

technology. 

As a conferee on the farm bill, I am now working to include mandatory funding to cover any Federal risk in implementing that Federal loan guarantee program. I strongly believe in both rural access 

to full satellite service and robust competition to improve rates and 

services in the cable and satellite areas. 

Those of us who might be in an area where we receive cable service and feel it is not adequate, the picture quality is not good, 

wherever that might be, or it is too expensive, should have the ability to have competition. 

In 1999, I congratulated Charlie Ergen for his role in the industry and I told the Senate—Mr. Ergen may recall this—‘‘I want to 

point that the leaders of the satellite industry, such as Charlie 

Ergen of EchoStar who is known for his creative and innovative 

ideas, want to provide this local [TV] service.’’

Now, EchoStar and DIRECTV have a plan on the table and satellites in orbit to cover all 210 markets with local TV and 

broadband access. This crucial question is this: If not this proposal 

to bring full satellite service to rural areas and to help to bridge 

the digital divide, then what? I don’t believe that rural America 

can accept ‘‘no service’’ or ‘‘maybe some possible service in 10 

years’’ as an answer. At that time, with the changes in society and 

economics in this country, 10 years of being on the wrong side of 

the digital divide basically cripples rural America. 

If you look at the market for rural local-into-local television or 

rural high-speed Internet access, in much of rural America there 

is no service, there is no access, cable, satellite, or anything else. 

In much of Vermont and in many other States, rural residents 

have no opportunity to receive local TV stations or high-speed 

broadband access. Mr. Ergen calls this a ‘‘no-opoly,’’ and he is right. 

Just as with rural electric service or rural telephone service, somebody has to be first. Competition requires competitors. 

I remember my grandparents telling me about their excitement 

when rural electrification came to their part of Vermont. I remember my grandfather saying how he would go around—and my mother reminded me of this story, too, as a young woman, and they 

6

would go and turn the light switch on and off just to see the lights 

go on. It is something we take for granted, but think of what it was 

like at that time. 

A solution to local electric and telephone monopolies back then 

was to foster more competition. That is why I hope all Senators 

will join in supporting full funding for the loan guarantee program 

for local-into-local television service which could be offered by competitors of EchoStar and DIRECTV and anybody else. It is a provision in the farm bill and it is going to be back before the Senate 

soon. 

Mr. Kimmelman will point out that we should support efforts, as 

I have done over the last 3 years, to permit other companies such 

as NorthPoint to compete with EchoStar and DIRECTV. If you look 

at urban markets, the merged company could effectively compete, 

as he points out, with local cable monopolies. 

Now, I know that some argue that EchoStar has the capacity to 

offer local-into-local TV to all the market areas today without a 

merger. I have done everything possible to promote local-into-local 

television, including working on two major bills with Senator Hatch 

and one with Senator Burns, which are now law. 

We shouldn’t try to mandate what risks and investments companies should make. I look out here and I see people who have been 

extraordinarily innovative, but have also bet the farm on their innovation. They should be allowed to do that, but I want to make 

sure that we have something. 

We can reward the willingness to take risks and be creative and 

be the first. If a company invents a new computer innovation, for 

example, and patents that, then they get the advantage of being 

first. When local-into-local TV service and Internet access come to 

all rural markets, they will be a boon to rural America, but they 

will also encourage competition because others will try to get into 

that market. 

So I say this not with a magic wand, Mr. Chairman and Senator 

DeWine, but rather that every Senator has a rural area and has 

to be concerned about what happens. I applaud the innovative entrepreneurial spirit of the people who are here. I just want to make 

sure that my part of the world, rural America, whether it is rural 

America in Texas, Vermont, California, or anywhere else, gets the 

benefit of it because we cannot survive, our children cannot look 

forward to jobs, and our people cannot look forward to being full 

participants in this wonderful country if they suffer the digital divide. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Leahy follows:]

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF

VERMONT

Chairman Kohl and Senator DeWine, once again you have been a great credit to 

this committee and the Senate and offered a superb service to the public in the way 

you have worked together to help organize this hearing. 

Bringing full satellite service to Rural America and helping to bridge the digital 

divide have been high priorities of mine for many years, and those goals are foremost to me as I evaluate the benefits and shortcomings of this proposed merger. I 

have also advocated the benefits for rural communities that local network broadcasting, offering local weather reports, local emergency news and local public interest programming, can provide throughout America. 

7

Senator Hatch and I addressed those goals in March 1998 when we introduced 

and later won the committee’s approval of a bill to allow local-into-local television 

via satellite. 

I worked with Senator Burns and with Republican Leader Lott and many others 

to enact a program to provide a federal loan guarantees on up to $1.25 billion in 

loans to finance the delivery of local-into-local television, and high-speed Internet 

access, to Rural America. That was in 1999 and 2000. 

I have also worked with others to help companies which offered promising approaches to providing local-into-local TV service—companies that include EchoStar, 

Capitol Broadcasting of North Carolina, and Northpoint, which hopes to offer such 

service using terrestrial antennas. I worked on a provision, which is now law, directing the FCC to give Northpoint an opportunity to demonstrate the viability of that 

technology. 

As a conferee on the Farm Bill I am now working to include mandatory funding 

to cover any federal risks in implementing that federal loan guarantee program. I 

strongly believe in and have worked for both rural access to full satellite service and 

for robust competition to improve rates and service in the cable and satellite industries. 

I have congratulated Charlie Ergen for his role in the industry, telling the Senate: 

‘‘I want to point out that the leaders of the satellite industry—such as Charlie 

Ergen of EchoStar who is known for his creative and innovative ideas—want to provide this local [TV] service.’’

Now EchoStar and DirecTV have a plan on the table, and satellites in orbit, to 

cover all 210 markets with local TV and broadband access. 

The crucial question is this: If not this proposal to bring full satellite service to 

rural areas and to help bridge the digital divide, then what? Rural America cannot 

accept ‘‘no service,’’ or ‘‘maybe some possible service in 10 years,’’ as the answer. If 

you look at the market for rural local-into-local television, or rural high-speed Internet access, in much of rural America there is no service—neither cable, nor satellite, 

offers it. 

In much of Vermont and in many other states, rural residents have no opportunity to receive local TV stations or high-speed broadband access. Charlie Ergen 

calls this a ‘‘no-opoly’’—and he is right. Just as with rural electric service, or rural 

telephone service, someone has to be first. Competition requires competitors. 

It is easy for me to make this point about being first, because I remember when 

Vermont families first received electric service, and first received telephone service. 

People would walk through their homes and turn the light switches on and off, just 

for the fun of it. 

A solution to local electric and telephone monopolies back then was to foster more 

competition. That is why I hope all senators will join in supporting full funding for 

the loan guarantee program for local-into-local television service which could be offered by competitors of EchoStar and DirecTV—which is a provision in the Farm 

Bill that soon will be back before the Senate. 

In addition, as Gene Kimmelman will point out, we should support efforts, as I 

have done over the last three years, to permit other companies such as NorthPoint 

to compete with EchoStar and DirecTV. 

From another standpoint, if you look an urban markets, the merged company 

could effectively compete, as he points out, with local cable monopolies. 

I know that some argue that EchoStar has the capacity to offer local-into-local TV 

to all the market areas today, without the merger with DirecTV. Indeed, I have 

done everything possible to promote local-into-local television since 1997—including 

work on two major bills with Senator Hatch and one with Senator Burns, which are 

now law. 

But Congress normally does not try to mandate what risks and investments that 

companies should make. I admit that Congress has created an entire system that 

rewards a willingness to take risks and to be creative, and to be first. If a company 

invents a new computer innovation, and patents that invention, our society rewards 

the developer for being first. 

When local-into-local service TV service and Internet access come to all rural markets, they will be a boon to Rural America and they likely will encourage competition. That is a crucial goal and a key test in evaluating this merger.

Chairman KOHL. Thank you, Senator Leahy. 

We turn now to Senator Brownback, from Kansas. 

8

STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR 

FROM THE STATE OF KANSAS 

Senator BROWNBACK. Thank you very much, Mr. Chairman. I 

have got a full statement I would like to put into the record and 

just put forward a couple of thoughts. 

First, thank you to you and the ranking member for holding this 

hearing. I think it is an important subject for us to take a good 

look at, one of which I have a number of questions about. Particularly for me, being from Kansas, the benefits of this merger in my 

mind are murky. In many rural communities where there are no 

local cable systems, this merger will eliminate any choice in the 

multi-channel video market. 

Mr. Ergen, whom I have met with, has committed EchoStar to 

a national pricing policy designed to reassure us that rural consumers will receive the same rates for service that exist for urban 

consumers who benefit from satellite and cable competition. I am 

appreciative of that, but without any specifics about what that national rate will be, I am concerned that this merger may lead to 

rate increases for rural consumers. So I look forward to having that 

fleshed out for us a little bit further in this hearing. 

I am also concerned with the consolidation of spectrum under 

this one company. While I understand the logic to the argument in 

favor of the merger to create efficiencies by eliminating duplication, 

I must pose the question, do we really need all of that spectrum. 

Currently, DIRECTV and EchoStar control 50 percent of all the 

orbital slot bands. These slots are expected to be used for both 

multi-channel video and broadband services, and I would like to 

hear today that the merged company has every intention of deploying satellites in these slots, or else enabling another entity to take 

advantage of them. That is something else that I look forward having discussed by this panel. 

Finally, I am very well aware that this merger also makes possible the first truly national broadband service. This is especially 

important to Kansas, where fast connections to the Internet that 

can increase educational, business, entertainment, and health care 

resources in rural areas and could form the foundation of rural revitalization and help put an end to some rural flight are very important aspects of this bill. I look forward to that discussion as 

well. 

On the whole, Mr. Chairman, this is something that I want to 

hear answers to these particular questions before really determining myself the impact of this on my State. I am appreciative 

to have a hearing like this so that we can get at some of these 

questions a little better. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Brownback follows:]

STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM THE STATE OF KANSAS

I thank the Chairman for holding this important hearing today. The proposed 

merger between Echostar and DirecTV holds out the prospect of many strong consumer benefits, especially in our nation’s urban markets. However, the merger also 

raises the specter of anti-consumer consequences, especially in some of our rural 

markets. 

In urban communities, both Echostar and DirecTV are competing with each other 

and cable television companies in the multichannel video market. Their merger will 

9

reduce the number of competitors available in urban markets by one, but it will also 

create strong efficiencies by eliminating duplication and substantially increasing the 

spectrum resources available for satellite television. Consumers will have access to 

increased programming, reduced costs for satellite equipment, and a powerful service. However, for consumers to realize these benefits satellite TV must remain pricecompetitive with local cable TV companies. 

In our nation’s rural communities—of special interest to a Senator from Kansas—

the benefits of this merger are murky. In many rural communities where there are 

no local cable systems this merger will eliminate choice in the multichannel video 

market. Mr. Ergen has committed Echostar to a national pricing policy designed to 

reassure us that rural consumers will benefit from competition in urban markets 

as if they had a choice in service providers themselves. Without any specifics about 

what that national rate will be, I am concerned that this merger may lead to rate 

increases for rural consumers. 

I am also concerned with the consolidation of spectrum under this one company. 

While I understand the logic of the argument in favor of the merger—to create efficiency by eliminating duplication—I must pose the question: does the merged company really need all of that spectrum? 

Opponents of this merger suggest that either of these companies can offer the 

slate of services that Echostar and DirecTV say are only possible through a merger. 

In addition, DirecTV and Echostar control 50% of all Ka-band orbital slots, yet I am 

concerned that they have no immediate plans to actually use them. I would like to 

hear today that a merged company has plans to deploy satellites and offer services 

using these slots, or else will enable other entities to take advantage of them. 

Finally, I am very aware of this merger’s promise of a national broadband service. 

This is especially important to Kansas where fast connections to the Internet in 

rural areas can increase entertainment, education, health care, and business resources which could form the foundation of a rural revitalization. I look forward to 

hearing more about this aspect of the merger proposal.

Chairman KOHL. Thank you, Senator Brownback. 

I would now like to introduce briefly the members of our panel 

and then call on Senator Wayne Allard to make some remarks before you all begin your testimony. 

Our first witness today will be Jeremiah ‘‘Jay’’ Nixon, who is the 

Attorney General of the State of Missouri. Mr. Nixon is a native 

of Jefferson County, Missouri, and has been involved in State politics for more than 15 years. 

From DIRECTV, we are joined by Mr. Eddy Hartenstein, Chairman and CEO of DIRECTV. Mr. Hartenstein is a technology guru, 

holding degrees in aerospace engineering, math, and applied physics. 

Next to him is Mr. Charles Ergen, who is co-founder, Chairman 

and CEO of EchoStar Communications. Among other things, in his 

career over the past 5 years Mr. Ergen has admirably worked his 

way up Forbes’ 400 List, currently ranking number 22 on the list. 

Also joining us today is Mr. Robert Pitofsky, former Commissioner and Chairman of the Federal Trade Commission, and current professor at Georgetown University Law School. Mr. Pitofsky 

is a noted scholar and writer on both trade regulation and antitrust 

law. 

Representing Consumers Union is Co-Director of the Washington, D.C. Office, Mr. Gene Kimmelman. Mr. Kimmelman is a 

valued regular at this Subcommittee’s hearings, most recently as a 

witness and in the past as chief counsel to former Chairman 

Metzenbaum. 

Our final witness today will be Mr. Edward Fritts, who is president and CEO of the National Association of Broadcasters. Mr. 

Fritts’ broadcasting and production career began during his stuVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
10

dent days at Ole Miss. He was recently inducted into the Broadcasting and Cable Hall of Fame. 

We welcome you all, and before we take your opening statements 

we would like to call on Senator Wayne Allard, from the great 

State of Colorado. 

STATEMENT OF HON. WAYNE ALLARD, A U.S. SENATOR FROM 

THE STATE OF COLORADO 

Senator ALLARD. Mr. Chairman, thank you, and Ranking Member DeWine. I would like to extend my appreciation for allowing me 

to introduce one of your primary witnesses here this morning, who 

is a Coloradan, and he is going to be talking about a Colorado company, EchoStar, which is located in Littleton, Colorado. 

It started in 1980, selling satellite dishes in rural Colorado, and 

then launched the DISH Network in 1996. It is the Nation’s fastest 

growing direct-to-home satellite TV company with over 7 million 

customers, and currently they have 6 satellites orbiting the Earth 

to provide the services to America. 

Charles Ergen has a number of professional honors. The most 

significant includes he was the Rocky Mountain News Business 

Person of the Year in 1996 and 2000, Satellite CEO of the Year in 

the year 2001, and in 1991 was Master Entrepreneur for the Rocky 

Mountain Region according to Incorporated magazine. 

Again, it is with a great deal of pleasure that I introduce to the 

Committee Charles Ergen, Chairman and CEO of EchoStar Communications Corporation. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Allard. 

Now, we will take opening statements. 

Mr. Nixon? 

STATEMENT OF JEREMIAH W. NIXON, ATTORNEY GENERAL, 

STATE OF MISSOURI, JEFFERSON CITY, MISSOURI 

Mr. NIXON. Good morning, Chairman Kohl, Senator DeWine, 

Chairman Leahy, and other members of the Subcommittee. I appreciate the opportunity to appear before you today to discuss this 

matter of great importance to consumers in Missouri and throughout this Nation. 

I am Jay Nixon, serving my third term as Attorney General of 

the State of Missouri. As an official charged with protecting consumer rights in my State, and with authority to enforce antitrust 

laws in both State and Federal court, I have come today to voice 

my concerns about the proposed merger between Hughes and 

EchoStar. 

In my view, the proposed merger between DISH and DIRECTV 

will create an illegal monopoly in rural areas of America and my 

State. Up to one-third of the residents of Missouri currently have 

no access to cable. Those residents have two options for multi-channel video programming—DISH Network or DIRECTV. 

Let me show you a map, centered on Missouri, but also showing 

contiguous States. On this map—and you will see many other 

maps, but on this map census blocks that are not served by cable 

are in white. If this merger is not stopped, consumers represented 

by the white on this map will be faced with a perfect monopoly for 

11

multi-channel programming. In those areas, this is a two-to-one 

merger. 

The proposed monopoly will therefore do away with a vibrant 

and competitive market for rural consumers which can provide 

competitive prices, innovation, and quality service. That competitive market has also substantially reduced the cost of consumer 

equipment and installation. Meaningful choice will disappear if the 

proposed merger is not stopped. 

EchoStar has attempted to address our concerns by offering a national pricing policy and by offering to re-broadcast local stations 

into every local market. Their proposals are a tacit admission that 

the merger is detrimental to consumers, absent a monumental 

amount of governmental intervention. 

Now, I want to make it clear that EchoStar’s concessions attempt 

to address consumer harm and public policy concerns, but they are 

not legal arguments. The Clayton Act specifically prohibits mergers 

to monopoly, and regardless of the short-term benefit a merger to 

monopoly is illegal under Federal law. 

Now, I acknowledge that EchoStar’s attempts to try to combat 

the harm from this proposed monopoly are significant. The promise 

of local-into-local service is a very important step, but local-intolocal service is simply a way to address only one of the aspects of 

a monopoly. It is a concern for today, but what are we to do about 

innovations and programming changes that consumers demand tomorrow? They will have no option but to accept EchoStar’s offerings. In short, the admitted benefits of local-into-local do not justify 

a perfect monopoly. 

The parties’ offer of national pricing addresses the price increases that would inevitably occur if this transaction were to move 

forward. This, too, is an acknowledgement of the effects associated 

with monopoly. National pricing is extremely complicated and problematic. 

How would the new EchoStar compete with cable in various 

areas across the country if it has no flexibility to change its prices 

to meet local special offers? Are we to believe that the new 

EchoStar will not compete with local cable companies that offer 

special promotions, or that local retailers will be prohibited from 

raising prices or lowering prices on equipment or installation? National pricing is fraught with difficulties because it is an artificial 

attempt to regulate price, when history proves that a vibrant, competitive marketplace is, in fact, the best way. 

The bulk of my remarks have addressed the areas where there 

will be an illegal monopoly created by this merger. Even accepting 

the argument that there are areas where DBS competes with cable, 

the merger is still not acceptable. A merger to duopoly has never 

been allowed by any court where it is difficult for new competitors 

to enter the market. The parties have conceded that particular 

point. 

In closing, let me say that this is a very important consumer protection issue. Competition is a great thing for consumers. It allows 

them to vote with their feet when prices get too high or service gets 

too bad. They need that option for DBS. 

Consumers understand the value of competition. They know that 

only having one provider of a service is contrary to sound economic 

12

1FTC v. H.J. Heinz 246 F.3d 708 (D.C.Cir. 2001). 2Sources: Carmel Group, Morgan Stanley 

3 EchoStar v. DIRECTV, Civil Action NO. 00–K–212, Amended Complaint at ¶ 28. 4Wall Street Journal, October 31, 2001. 

5Falling Through the Net: Toward Digital Inclusion; A Report on American’s Access to Technology Tools, October 2000, pg. xviii (rural areas are lagging behind cities and urban areas in 

broadband penetration, 7.3% penetration for rural areas, 12.2% for central cities and 11.85 for 

urban areas). 

principles and contrary to consumer interests. We owe it to those 

consumers to point out the problems with this proposal. 

Thank you very much. 

[The prepared statement of Mr. Nixon follows:]

STATEMENT OF HON. JEREMIAH W. NIXON, ATTORNEY GENERAL , STATE OF MISSOURI, JEFFERSON CITY, MISSOURI

The only two competitors for consumers of multichannel video programming in 

certain markets not effectively served by cable seek to merge into a single entity, 

leaving those consumers at the complete mercy of a perfect monopolist. Even in the 

other parts of the country where consumers may avail themselves of a cable alternative, the result of the proposed merger would be a duopoly. Barriers to entry are 

extremely high. For a new DBS competitor to enter this market to discipline prices 

and encourage better service would require an extraordinary investment of many 

hundreds of millions to build, launch and insure a satellite and more to provide the 

ground systems, advertising and other expenses necessary to begin a DBS business 

from scratch. In addition, any new entrant would be required to obtain all appropriate licenses from the Commission. No court has ever approved a merger to duopoly under similar circumstances.1

In 1998, the U.S. Department of Justice sued to enjoin the transfer of the Full 

CONUS Orbital Slot located at 100° W.L. from ASkyB to PrimeStar, claiming that 

the transaction would reduce the number of competitors in rural MVPD markets 

from four to three, i.e., from EchoStar, Hughes-DIRECTV, PrimeStar and ASkyB to 

just EchoStar, Hughes-DIRECTV and PrimeStar. The Justice Department also 

claimed that the merger was illegal in urban MVPD markets, where Cable Television and satellite services were available, typically reducing the number of MVPD 

competitors from five to four. If a four to three and a five to four merger was wrong 

then, it stands to reason that in the same market just a few years later, a two to 

one and three to two merger is wrong. 

THE PROPOSED MERGER CREATES A PERFECT MONOPOLY IN AREAS OF THE COUNTRY

NOT EFFECTIVELY SERVED BY CABLE—MOSTLY RURAL AREAS. 

Hughes, through its DIRECTV unit, owns 61.7% of the market for direct broadcast satellite (DBS) service, while EchoStar has 38.3% of that market.2 Together, 

they would create a monopoly in DBS. That monopoly extends to MVPD for a significant number of consumers. According to EchoStar ‘‘millions’’ do not have access 

to cable and broadcast.3 For all of these mostly rural households, the options will 

be reduced from two competitors to one. The merger will leave rural Americans with 

only one choice for multichannel video programming distribution (MVPD). Rural 

businesses that depend upon the services provided by satellite will also be subjected 

to a monopolist should the merger go through and the license transfers be approved. 

The perfect monopoly that will be created in many areas of the country and the unavoidable and foreseeable consequences of that monopoly cause me to oppose the 

merger. 

Charles W. Ergen, Chairman and Chief Executive Officer of EchoStar, himself admitted that there is a problem with this deal especially in rural communities. He 

said, as reported in a recent article, ‘‘If the market is satellite only, then I wouldn’t 

approve this deal. It’s going to be a nonstarter.’’ 4 In various rural MVPD markets 

where cable does not pass or effectively serve homes, the relevant MVPD market 

is satellite only and therefore it creates significant antitrust issues, even in the eyes 

of EchoStar’s CEO. 

Another problem associated with this acquisition is the reduction in competition 

in emerging technologies such as broadband Internet. There is a terrific disparity 

between urban and rural areas for this technology.5 Allowing this acquisition would 

leave rural households even further behind urban areas for this increasingly important and popular service. The absence of competition for satellite delivered highspeed Internet service will stymie the development and availability of content for 

13

6See, FTC v. H.J. Heinz Co., at 725. 7 Id at n23, citing Edward Hastings Chamberlin, The Theory of Monopolistic Competition: A 

Re-orientation of the Theory of Value 46–55 (8th ed. 1962). 8 Id. at 725 (‘‘The combination of a concentrated) market and barriers to entry is a receipe 

for price coordination’’). The court further observed that ‘‘Significant market concentration 

makes it easier for firms in the market to collude, expressly or tacitly, and thereby force price 

above or farther above the competitive level’’ and ‘‘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.’’ Citations and internal quotations omitted. 9 Id.

10 Affidavit of Roger J. Rusch filed by the U.S. Department of Justice in Satellite Broadcasting 

& Communications Association of America v. Federal Communications Commission, Civ. Act. 

No. 00–1571–A. 

this emerging service. Increasingly, this technology is used to provide coverage of 

important local, state and federal governmental meetings and information. It also 

provides access to entertainment avenues such as sporting events, music, movies 

and movie trailers. Videoconferencing is an increasingly important way for business 

to be transacted; high-speed Internet access is important for this business tool to 

be available. 

Other technologies cannot be counted on to gain acceptance or penetration in 

order to discipline prices and services through competition. In recent years, there 

has been talk of new technologies that would allow some of these services to be provided through telephone lines and other avenues. These options have yet to materialize with any significant degree of penetration. 

THE PROPOSED MERGER CREATES A DUOPOLY IN THE REST OF THE COUNTRY

Even in areas where cable is an option for MVPD, the acquisition would result 

in only two options where there had once been three. Such a reduction in competition is unacceptable. Three-to-two mergers are nearly always anticompetitive and 

the efficiencies and advantages claimed thus far by the merging parties do little to 

assuage the concerns recognized by federal court precedent and reflected in the 

NAAG Horizontal Merger Guidelines and the FTC and DOJ Horizontal Merger 

Guidelines. 

Moving beyond what may be the effect in rural communities, this merger presents 

difficult issues with regard to the rest of the country. Assuming that DBS competes 

with cable, the proposed merger would create a duopoly for MVPD in areas of the 

country served by cable. In most communities where cable is an option, there is a 

single cable operator and two DBS providers. Post-merger there would be only two 

options for consumers—a duopoly. Mergers to duopoly are rarely, if ever, approved. 

A problem with a duopoly is the presumption that increases in concentration will 

increase the likelihood of tacit collusion.6 In a duopoly there is a real danger of 

supracompetitive pricing at monopolistic levels.7 Where there is a duopoly and high 

barriers to entry, there is the opportunity and every incentive to collude to increase 

prices.8 Therefore, not only is the proposed merger a problem in the markets where 

cable is available but the promise by EchoStar to price nationally based upon its 

price in the areas where it enjoys a duopoly only assures that the potential for 

supracompetitive pricing will extend to the rural areas where it holds a monopoly. 

Merger policy has at its core the goal to ‘‘obstruct the creation or reinforcement by 

merger of such oligopolistic market structure in which tacit coordination can 

occur.’’ 9

ECHOSTAR’S EFFICIENCY ARGUMENTS ARE IRRELEVANT AND FACTUALLY INACCURATE

EchoStar argues that only through this proposed merger can it increase the capacity to the level necessary to provide the services consumers desire, high speed internet access, local-into-local in all markets, and additional programming. The technology exists for such increased capacity today.10 Even so, vigorous competition is 

the most assured way to achieve creative and swift innovation. With only a single 

actor in the market, any technological advances are left to the self interest of the 

monopolist. There is no incentive for the monopolist and only slightly more for the 

oligopolist to invest in the research and development necessary to develop and deploy innovative technological advances. In any event, competition, not consolidation, 

is the best way to achieve the innovation necessary to expand capacity. With more 

than one or two competitors working diligently toward technological advances, they 

are more likely to occur and to occur more rapidly than if only a few are engaged 

in such activity. Consumers then get what they desire, the programming and access 

to technology through several different providers competing for consumers. Without 

such competition, the consumer will have no option when faced with a monopolist 

14

11See FTC and DOJ Horizontal Merger Guidelines § 4. 12SBCA v. FCC, 275 F.3d 337 (4th Cir. 2001). 13 Rusch Affidavit, supra. 14 H.R. Rep. No. 106–79, pt. 1, at 14 (1999); Satellite/Cable Competition: An Examination of 

the EchoStar/MCI Deal. Hearing Before the Subcommittee on Antitrust, Business Rights, and 

Competition of the Senate Committee on the Judiciary, 106th Cong. 40–41 (1999) (1999 Senate 

Hearing) (Statement of Charles Ergen, CEO of EchoStar), as cited in SBCA, 275 F.3d 337 at 

n5. 15 Id. 16 Id. 

or only two duopolists who don’t have the same incentives as they would have in 

a competitive market to provide the lowest price, best service and ever increasing 

technology. 

The parties argue that only through the proposed merger will they be able to provide the high-speed internet access consumers desire. They claim the technology 

does not exist to provide the spectrum needed for broadband services. Yet both companies currently provide such service through EchoStar’s StarBand and DIRECTV’s 

DIRECWay product. Both services are provided on the Ku-Band. In addition, both 

companies include deployment of Ka-Band services in their separate business plans. 

A very significant number of consumers in different sections of the country have 

only satellite providers as their source for broadband services. For these consumers, 

DSL and cable are not an available alternative. If the merger is consummated, one 

company will control the price, quality and technology for this important service. 

EchoStar has advanced several reasons why it believes this proposed merger will 

garner certain efficiencies claimed to be beneficial to consumers that trump any 

competitive concerns. But there is no proof that these efficiencies are merger specific. Under the antitrust laws, when merging parties argue that a merger may result in certain efficiencies, the efficiencies must be merger specific.11 In other words, 

it is not enough to show that there are efficiencies, the efficiencies must be available 

only because of the merger. For instance, when EchoStar announced the merger and 

filed the necessary FCC applications, it argued that only with a perfect monopoly 

in DBS will it be able to expand such service into as many as 100 markets. A similar claim was made in the unsuccessful challenge to the Carry One, Carry All requirement in the Satellite Home Viewer Improvement Act of 1999 (‘‘SHVIA’’).12 In 

that case, the United States relied upon technical analysis that showed that 

EchoStar and DIRECTV each individually could serve all local broadcast channels 

to subscribers in all DMAs using a small portion of their respective current transponder capacity.13 It is interesting that with the motivation to get this deal approved, the executives and their engineers were able to find a way to provide local 

into local into 210 markets. 

It should be noted that all of these claims regarding the ability of the two satellite 

companies to efficiently use their capacity to comply with the Carry One, Carry All 

requirement were fully presented before Congress within the context of hearings on 

the proposed legislation. Congress recognized that satellite technology is improving 

and heard from satellite company executives regarding plans to develop spot beam 

satellites so that spectrum frequencies can be reused in order to increase capacity 

to provide local-into-local in more and more markets.14 With this evidence in hand, 

Congress elected to adopt its regulation knowing the present day limitations and the 

continuing advancements being made in technology. In fact, one reason Congress delayed implementation of § 338 was to allow for some additional time for satellite carriers to develop the new technology about which they had testified.15 With full 

knowledge of the state of competition at the time and after giving full hearing to 

all market participants, Congress determined that despite any capacity constraints 

it would be in the public interest to preserve local stations by enacting SHVIA. Congress knew at the time that not all markets would be fully served at the outset and 

that local-into-local would expand gradually from larger markets to smaller over 

time. Congress enacted SHVIA to stimulate competition along with all its consumer 

benefits.16 It cannot be the subject of rational debate then that Congress intended 

for its Carry One, Carry All to be used as an excuse to reduce the very competition 

it had hoped to advance. 

ECHOSTAR’S PROPOSED FIXES WILL NOT WORK AND CALL FOR UNDESIREABLE

REGULATION

EchoStar’s promises, assurances and alleged commitments are poor substitutes for 

direct and vibrant competition. According to EchoStar’s economist, ‘‘EchoStar is 

committed to providing more diverse programming, and more advanced services.’’ 

and ‘‘New EchoStar has committed to maintaining its policy of uniform national 

15

17Willig ¶¶ 33, 28 18Willig ¶ 36 fn 35. 19Willig ¶¶ 9, 10, 29 and ¶ 10 fn 9 (information regarding pricing policies based on interviews 

with EchoStar and DIRECTV executives). 20 EchoStar’s Amended Complaint and EchoStar’s Request for Rule 56(f) Continuance To Respond to DIRECTV Defendant’s Motion for Summary Judgement and Memorandum of Law in 

support thereof at 12, filed in EchoStar Communications Corporation v. DIRECTV Enterprises, 

Inc., Civ No. 96–4963.

pricing for its programming.’’ 17 EchoStar by presenting these arguments invites the 

government to regulate it indefinitely. In order that consumers can be assured that 

New EchoStar’s commitments will be honored for all time, it will be necessary to 

establish which government agency will regulate, the appropriate measure of the 

competitive price and how terms such as quality, programming, service and equipment are monitored. It is no real assurance that, in the words of EchoStar’s own 

economist, ‘‘rural customers would likely be no worse off following the merger’’ or 

that they ‘‘may benefit from more intense competition between New EchoStar and 

cable companies.’’ 18 It is disheartening that EchoStar’s argument is not that rural 

consumers interests will indeed be advanced but that they may benefit and will be 

no worse off than before. 

EchoStar realizes that there is an especially significant antitrust problem with 

this proposed merger in rural areas not passed by cable or where cable is otherwise 

not a viable option. Attempting to address this concern, EchoStar offers to continue 

a policy of national pricing. Under their proposal, they would consent to offering 

DBS services at the same price to all consumers whether or not cable is a viable 

option. EchoStar argues that this should resolve all concerns about subjecting a significant portion of the population to a monopolist. Not only is this proposal an admission that the merger would create a monopoly in certain parts of the country, 

it fails to address all of the anticompetitive concerns and raises additional problems. 

First, the underlying difficulty is not avoided by the national pricing proposal. Approving the merger and the license transfers would hand a significant portion of the 

country’s consumers over to a monopolist. Second, the proposal assumes that a duopoly price is a competitive price and that there will be no collusion between the 

duopolists. Third, EchoStar’s promise does not account for the fact that prices in 

areas where DBS competes with cable may be artificially increased on the backs of 

the captive rural consumers. Fourth, it further entrenches the way of business that 

focuses technology and programming efforts on urban areas over rural. Since the 

company’s profit margin principally will be determined by the urban price and services provided there, including programming, there will be little incentive to provide 

the type of programming and services desired by consumers residing in the countryside. For example, if rural consumers who only have access to DBS for MVPD, desire program X and program X is not popular in the city, there is no incentive for 

the sole DBS carrier to carry program X at all. However, if there are more than 

one DBS provider trying to attract that rural population, one or both will feel compelled to provide program X. Fifth, EchoStar’s proposal calls for government regulation—for all time. For these reasons, national pricing does not resolve the concern 

that the interests of citizens and businesses in rural communities not adequately 

served by cable will be undercut by this merger to monopoly. 

Not only is a promise of uniform pricing insufficient to assuage legitimate concerns, it will not adequately be constrained by any means. EchoStar’s argument that 

cable rates will constrain New EchoStar’s national pricing 19 is directly contradicted 

by assertions it made in EchoStar Communications Corporation v. DIRECTV Enterprises, Inc., Civ. No. 96–4963. In that case, EchoStar averred that EchoStar is 

DIRECTV’s closest competitor, that consumers do not view cable as an effective substitute for high-power DBS services, that EchoStar and DIRECTV react primarily 

to each other when setting equipment and service prices, and that millions of potential DBS and/or High Power DBS customers live in areas that do not have access 

to cable such that, if there is no competition between DIRECTV and EchoStar, there 

is no competition at all.20 EchoStar’s court-filed statements show that the two DBS 

companies establish prices based upon the competition between them and not so 

much with cable and that consumers in rural areas of the country not passed by 

cable or otherwise not sufficiently served by cable will be subjected to an unrestrained monopoly if one of the two are eliminated from the market. Accepting as 

true EchoStar’s own arguments, there can be no faith that the assurances offered 

today will in any way protect those consumers. That faith is further shaken by Mr. 

Ergen’s own statements about the nature of the national pricing promise. He indiVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
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21 Egen Makes His Case, Satellite Business News, December 21, 2001 at 1. 

Question: So you’re saying you wouldn’t offer a special deal in one part of the country and 

not offer it in another part of the country? 

Ergen: I guess if you’re saying if the cable company came in and offered a rebate in one city, 

would you respond to that? 

Question: And you would be looking for that kind of flexibility in a consent decree on national 

pricing? 

Ergen: Again, this is very premature We certainly haven’t had discussions with any regulators 

about how to do it. But we know that there are past examples of formulas and ways that can 

make this work. 22 U.S. v. Philidelphia National Bank, 374 U.S. 321 (1963). 

cated in response to questions on the subject that his promise would make allowances for New EchoStar to respond to local promotions or rebates by cable.21

It is anathema to the standards of our federal system and the principles of antitrust laws to benefit some fortunate enough to have a cable alternative on the backs 

of those who have been denied access to cable and are therefore captive to a potential perfect monopolist for DBS services. Where there are anticompetitive effects in 

one area of the country, the parties cannot justify the merger by claiming procompetitive effects in another.22

CONCLUSION

I oppose this merger because it would create a monopoly for MVPD for a significant number of Americans. There are now two firms competing for that business 

and after a merger there would be just one. In Missouri, all consumers in one-third 

of our households would have only one option for MVPD and high-speed internet 

access. My responsibility is to enforce the antitrust laws in order to protect all citizens in my state from mergers that would reduce competition. 

The Clayton Act does not allow a merger when the effect ‘‘may be substantially 

to lessen competition, or tend to create a monopoly.’’ We know from years of experience that a lessening of competition equals a lessening of innovation. Prices will be 

higher and there will be lower quality and service. If the merger is allowed, technology advances necessary to drive the same phenomenal increases in capacity we 

have seen in recent years will not be developed. EchoStar wants to get the capacity 

the quick and easy way, from eliminating a competitor, rather than to innovate for 

it. For short term gains in capacity, we would be sacrificing increases in technology 

that will take us beyond new frontiers if we ensure vibrant competition. In addition, 

we would be allowing these short term gains that benefit shareholders on the backs 

of consumers who would be subjected to a monopolist. 

Mr. Ergen’s promises to price nationally and to rebroadcast local-into-local channels across the nation are concessions, but they do not address the core concerns. 

They do not resolve the basic problem with a merger to monopoly or to duopoly 

which is that a significant reduction in competition will inevitably lead to higher 

prices, lower quality, reduced programming options and, perhaps most importantly 

in this industry, slow or no technological innovation. Furthermore, both of the proposals call for undesirable government regulation of a new type that would not be 

necessary if competition is preserved.

Chairman KOHL. Thank you, Attorney General Nixon. 

We now turn to the Chairman and CEO of DIRECTV, Mr. Eddy 

Hartenstein. 

STATEMENT OF EDDY W. HARTENSTEIN, CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, DIRECTV, INC., EL SEGUNDO, 

CALIFORNIA 

Mr. HARTENSTEIN. Thank you, Chairman Kohl, Senator DeWine, 

members of the Subcommittee. I appreciate the opportunity to tell 

you why we believe that consumers will reap tremendous benefits 

from the merger of EchoStar and Hughes, the parent companies of 

DISH Network and DIRECTV. 

I will talk about how, as a direct result of the completion of this 

merger, consumers across the United States will have access to satellite-delivered local broadcast channels with digital-quality teleVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
17

vision picture and CD-quality sound in every one of the 210 television markets covering the country. 

Charlie is going to talk about how the merged company also will 

establish itself as a source of meaningful satellite-based broadband 

competition to cable modem and DSL offerings and will bring affordable high-speed Internet access to all of America, including the 

most rural areas of the country. 

Together, Mr. Chairman, I believe we can address your six points 

of concern about this merger and how to enforce them, and, Senator DeWine, your concerns for rural America and meeting the 

legal aspects of the Clayton Act with the Department of Justice. 

Despite the rapid growth of DBS since 1994, cable clearly is the 

dominant provider of multi-channel pay TV services in the United 

States. As you can see on this map, of the 107 million television 

households, 104 million are located in a cable franchise area. 

Competitive alternatives to the dominant cable operators didn’t 

seriously take form until the launch of DIRECTV in 1994, joined 

by EchoStar’s DISH Network in 1996. DBS offered more channels, 

superior picture and sound quality compared to cable, with one notable exception. Consumers were not able to receive their local 

broadcast channels via satellite. 

In 1999, Congress changed the law, allowing satellite carriers to 

offer local channels. Only at this point did DBS become a viable 

competitive alternative to cable, at least in those markets in which 

DIRECTV and DISH Network began delivering local channels. 

Today, as you can see on this map, only those who live in the 

42 television markets in which DIRECTV and DISH Network offer 

local channels receive local channels. That is about 65 million 

households. They have a fully competitive multi-channel alternative to cable. 

As you can see on the next map, that leaves 42 million households without a true competitive alternative to cable. Customers 

who live in markets in which DBS does not provide local channels 

are forced either to pay additional subscription fees for basic cable 

service to receive their local channels or install an off-air rooftop 

antenna and hope for good reception. Neither DIRECTV nor DISH 

Network alone has sufficient spectrum to provide all local channels, 

as well as the national pay cable networks to viewers in every one 

of the country’s 210 local-channel markets. 

When we first announced this merger in late October, we said 

the merged company could deliver local channels in about 100 television markets. A week ago, however, we announced that the 

merged company will deliver local channels in all 210 television 

markets, including full compliance with the Federal must-carry requirements. 

So what happened between last October and last week? Starting 

in late December, the EchoStar and DIRECTV engineering teams 

began meeting as part of the pre-merger transition process. We 

challenged them to develop a technologically feasible and economically viable plan that will allow the merger company to deliver full 

local-into-local service in all 210 television markets. 

As you can see on this chart, the Local Channels, All Americans 

Plan maximizes the use of combined spectrum in the existing and 

planned satellite fleet of the two companies. It does require the 

18

launch of a new $300 million satellite, and we applied last week 

at the FCC for authority to launch that satellite. This new satellite 

will be the fifth spot beam satellite in what will be a combined fleet 

of 16 satellites. 

Implementation of the Local Channels, All Americans Plan could 

begin immediately following approval of the merger and the rollout 

can be completed as soon as 24 months thereafter. This plan can 

be achieved only because, in addition to combining the companies 

spectrum and satellites, the merger will eliminate the need for 

each company to transmit more than 500 channels of duplicative 

programming. We both carry C–SPAN and C–SPAN 2, for example. 

In addition, the combination of the companies’ subscriber bases 

makes the delivery of local broadcast channels to smaller markets 

commercially feasible. Without the merger, the most markets that 

each company would serve with local channels as a stand-alone 

provider would be about 50 to 70. Needless to say, the local broadcasters I have talked to in the last week are thrilled that they can 

gain satellite carriage as a result of the merger. 

As you can see on this chart, the merged company will continue 

both companies’ current practice of uniform nationwide pricing. 

Consumers across the country will pay the same price for their 

DBS subscription fees, regardless of where they reside. For example, a resident of Milwaukee will pay the same fee for his or her 

local channel package as a customer in Cedarville, Ohio. A resident 

of Burlington, Vermont, will pay the same price for HBO as a customer in Salt Lake City, and a resident of Mountlake Terrace, 

Washington, will pay the same price for the basic 125-channel programming as a customer in New York City. 

We are confident that the merged company can make the Local 

Channels, All Americans Plan a reality. Without the merger, residents of communities such as Rhinelander, Wisconsin—that is 

DMA number 137—Zanesville, Ohio, DMA 202; Watertown, New 

York, DMA number 176; and Kirksville, Missouri, DMA 198, are 

unlikely to see satellite-delivered local channels in our lifetime. 

I appreciate the opportunity to share my views. 

[The prepared statement of Mr. Hartenstein follows:]

STATEMENT OF EDDY W. HARTENSTEIN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 

DIRECTTV, INC., EL SEGUNDO, CALIFORNIA

Chairman Kohl, Senator DeWine, and Members of the Subcommittee, thank you 

for inviting me to appear before the Subcommittee. I appreciate the opportunity to 

tell you why we believe that consumers will reap tremendous benefits from the 

merger of EchoStar and Hughes, the parent companies of DISH Network and 

DIRECTV. I am going to talk about how, as a direct result of the completion of 

this merger, consumers across the United States will have access to satellite-delivered local broadcast channels with digital-quality television picture and CD-quality 

sound in every one of the 210 television markets covering the country. Charlie is 

going to talk about how the merged company also will establish itself as a source 

of meaningful satellite-based broadband competition to cable modem and DSL offerings, and will bring affordable high-speed Internet access to all of America, including the most rural areas of the country. 

When I last appeared before this Subcommittee 11 months ago, I told you that 

despite the rapid growth of direct broadcast satellite (DBS) since 1994, cable clearly 

is the dominant provider of multi-channel pay TV services in the United States. 

19

1 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Eight Annual Report, CS Docket No. 01–129, FCC 01–389 at ¶ 17 and App. B, Tbl. 

B–1 (released Jan. 14, 2002). 2Satellite Home Viewer Improvement Act of 1999, Pub. L. No. 106–113, 113 Stat. 1501, 

1501A–526 to 1501A–545 (Nov. 29, 1999). 3 Nielsen Media Research (Sept. 2001). 

4 Application for Authority to Lunch and Operate New ECHOSTAR 1 (USABBS–16) (filed Feb. 

25, 2002

That remains so today. Of the 107 million U.S. TV households, 104 million are located in a cable franchise area.1 (See Attachment A) 

Competitive alternatives to the dominant cable operators did not seriously take 

form until the launch of DIRECTV in 1994, later joined by EchoStar’s DISH Network in 1996. DBS offered more channels and superior picture and sound quality 

compared to cable, with one notable exception: consumers were not able to receive 

their local broadcast channels via satellite. 

In 1999, Congress changed the law, allowing satellite carriers to offer local channels.2 Only at this point did DBS become a viable competitive alternative to cable, 

at least in those markets in which DIRECTV and DISH Network began delivering 

local channels. 

Today, only those who live in the 42 television markets in which DIRECTV and 

DISH Network offer local channels—about 65 million households—have a fully competitive multi-channel alternative to cable.3 (See Attachment B) 

That leaves 42 million households without a true competitive alternative to cable. 

(See Attachment C) Customers who live in markets in which DBS does not provide 

local channels are forced either to pay additional subscription fees for a basic cable 

service to receive their local channels, or install an off-air rooftop antenna—and 

hope for good reception. Neither DIRECTV nor DISH Network, alone, has sufficient 

spectrum to provide all local channels as well as the national pay cable networks 

to viewers in every one of the country’s 210 local channel markets. 

When we first announced the merger in late October, we said the merged company could deliver local channels in about 100 television markets. A week ago, however, we announced that the merged company will deliver local channels in all 210 

television markets, including full compliance with federal must carry requirements. 

(See Attachment D) 

So what happened between late October and last week? Starting in late December, the EchoStar and DIRECTV engineering teams began meeting as part of the 

pre-merger transition process. We challenged them to develop a technologically feasible and economically viable plan that would allow the merged company to deliver 

full local-into-local service in all 210 television markets. 

The ‘‘Local Channels, All Americans’’ plan maximizes the use of the combined 

spectrum and existing and planned satellite fleet of the two companies. It requires 

the launch of a new spot-beam satellite, and we applied last week to the Federal 

Communications Commission (FCC) for authority to launch that satellite.4 This new 

spot-beam satellite will be the fifth spot-beam satellite in what will be a combined 

fleet of 16 satellites. The plan would require an additional investment by the 

merged company of over $300 million to launch the additional spot-beam satellite. 

Implementation of the ‘‘Local Channels, All Americans’’ plan could begin immediately following merger approval and the rollout can be completed as soon as 24 

months later. 

This plan can be achieved only because, in addition to combining the companies’ 

spectrum and satellites, the merger will eliminate the need for each company to 

transmit more than 500 channels of duplicative programming—we both carry C–

SPAN and C–SPAN 2, for example. In addition, the combination of the companies’ 

subscriber bases makes the delivery of local broadcast channels to smaller markets 

commercially feasible. 

Without the merger, the most markets that each company would serve with local 

channels as a standalone provider, both for technical and economic reasons, would 

be about 50 to 70. Needless to say, the local broadcasters I’ve talked to in the last 

week are thrilled that they will gain satellite carriage as a result of the merger. 

The merged company will continue both companies’ current practice of uniform 

nationwide pricing. Consumers across the country will pay the same price for their 

DBS subscription services, regardless of where they reside. We are one nation, and 

we will offer one rate card. (See Attachment E) For example: a resident of Milwaukee will pay the same fee for his or her local channel package as a customer 

in Cedarville, Ohio; a resident of Burlington, Vermont, will pay the same price for 

HBO as a customer in Salt Lake City; and a resident of Mountlake Terrace, WashVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
20

ington, will pay the same price for a basic 125-channel programming package as a 

customer in New York City. 

We are confident that the merged company can make the ‘‘Local Channels, All 

Americans’’ plan a reality. Without the merger, residents of communities such as 

Rhinelander, Wisconsin (DMA # 137), Zanesville, Ohio (DMA # 202), Watertown, 

New York (DMA # 176), and Kirksville, Missouri (DMA # 198) are unlikely to see 

satellite-delivered local channels in our lifetime. 

I appreciate the opportunity to share my views. 

In connection with the proposed transactions, General Motors Corporation (‘‘GM’’), 

Hughes Electronics Corporation (‘‘Hughes’’) and EchoStar Communications Corporation (‘‘EchoStar’’) intend to file relevant materials with the Securities and Exchange 

Commission, including one or more Registration Statement(s) on Form S–4 that contain a prospectus and proxy/consent solicitation statement. Because those documents will contain important information, holders of GM $1–2⁄3 and GM Class H 

common stock are urged to read them, if and when they become available. When 

filed with the SEC, they will be available for free at the SEC’s website, 

www.sec.gov, and GM stockholders will receive information at an appropriate time 

on how to obtain transaction-related documents for free from GM. Such documents 

are not currently available. 

GM and its directors and executive officers, Hughes and certain of its officers, and 

EchoStar and certain of its executive officers may be deemed to be participants in 

GM’s solicitation of proxies or consents from the holders of GM $1–2⁄3 common stock 

and GM Class H common stock in connection with the proposed transactions. Information regarding the participants and their interests in the solicitation was filed 

pursuant to Rule 425 with the SEC by EchoStar on November 1, 2001 and by each 

of GM and Hughes on November 16, 2001. Investors may obtain additional information regarding the interests of the participants by reading the prospectus and proxy/

consent solicitation statement if and when it becomes available. 

This communication shall not constitute an offer to sell or the solicitation of an 

offer to buy, nor shall there be any sale of securities in any jurisdiction in which 

such offer, solicitation or sale would be unlawful prior to registration or qualification 

under the securities laws of any such jurisdiction. No offering of securities shall be 

made except by means of a prospectus meeting the requirements of Section 10 of 

the Securities Act of 1933, as amended. 

Materials included in this document contain ‘‘forward-looking statements’’ within 

the meaning of the Private Securities Litigation Reform Act of 1995. Such forwardlooking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. The factors that could cause actual results of GM, EchoStar, Hughes, or a 

combined EchoStar and Hughes to differ materially, many of which are beyond the 

control of EchoStar, Hughes or GM include, but are not limited to, the following: 

(1) the businesses of EchoStar and Hughes may not be integrated successfully or 

such integration may be more difficult, time-consuming or costly than expected; (2) 

expected benefits and synergies from the combination may not be realized within 

the expected time frame or at all; (3) revenues following the transaction may be 

lower than expected; (4) operating costs, customer loss and business disruption including, without limitation, difficulties in maintaining relationships with employees, 

customers, clients or suppliers, may be greater than expected following the transaction; (5) generating the incremental growth in the subscriber base of the combined 

company may be more costly or difficult than expected; (6) the regulatory approvals 

required for the transaction may not be obtained on the terms expected or on the 

anticipated schedule; (7) the effects of legislative and regulatory changes; (8) an inability to obtain certain retransmission consents; (9) an inability to retain necessary 

authorizations from the FCC; (10) an increase in competition from cable as a result 

of digital cable or otherwise, direct broadcast satellite, other satellite system operators, and other providers of subscription television services; (11) the introduction of 

new technologies and competitors into the subscription television business; (12) 

changes in labor, programming, equipment and capital costs; (13) future acquisitions, strategic partnership and divestitures; (14) general business and economic 

conditions; and (15) other risks described from time to time in periodic reports filed 

by EchoStar, Hughes or GM with the Securities and Exchange Commission. You are 

urged to consider statements that include the words ‘‘may,’’ ‘‘will,’’ ‘‘would,’’ ‘‘could,’’ 

‘‘should,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘projects,’’ ‘‘potential,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘continues,’’ ‘‘forecast,’’ ‘‘designed,’’ ‘‘goal,’’ or the negative of those 

words or other comparable words to be uncertain and forward-looking. This cautionary statement applies to all forward-looking statements included in this document.

21


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Chairman KOHL. Thank you, Mr. Hartenstein. 

Now, we turn to Mr. Charles Ergen. 

STATEMENT OF CHARLES W. ERGEN, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, ECHOSTAR COMMUNICATIONS, 

LITTLETON, COLORADO 

Mr. ERGEN. Thank you, Chairman Kohl, Senator DeWine, and 

members of the Subcommittee. I am excited to be here today. 

If I had to sum this merger up, I would say there are three major 

benefits to consumers. First, satellite-delivered broadband channels 

will be available for every home in the United States to compete 

against cable. 

Second, truly competitive high-speed data via satellite will be offered everywhere, every square inch of the United States, including 

Alaska and Hawaii. 

Third, we will offer one rate card for both video and broadband 

services so that no matter where you live, all Americans will reap 

the benefits of the competition between satellite and cable TV. That 

means the residents of Wisconsin’s smallest town, Cedar Rapids, 

population 36, will have the same choices at the same price as the 

residents of the State’s largest metropolitan area, Milwaukee, of 

1.5 million people. 

A very important benefit of the EchoStar-Hughes merger is that 

it will eliminate the so-called digital divide that exists in the wire 

world today by making satellite-delivered high-speed Internet access a viable alternative for all Americans. 

Today, about 67 million households have access to high-speed access through DSL or cable. These are the digital ‘‘haves’’ who are 

located, of course, primarily in the metropolitan areas. But in rural 

American today, there is a ‘‘no-opoly.’’ Nobody, not the cable companies, not the phone companies, is ever going to provide that 

broadband service. 

The map that is over here clearly shows the number of digital 

‘‘have nots,’’ approximately 40 million households. It is simply too 

expensive to roll out wired technologies to those homes. I am convinced that in my lifetime we will never see telephone or cable 

companies offer broadband service to rural America. I am equally 

convinced that the digital ‘‘have nots’’ living in rural America 

would welcome the opportunity to choose affordable priced satellitedelivered high-speed access. 

This merger will bridge the digital divide by providing customers 

in every community in America with a competitively priced 

broadband solution. Unlike wired technologies, a satellite 

broadband platform can serve every household in the country, no 

matter how rural. 

Initially, the combined company will have a subscriber base and 

financial means to make current broadband offerings more affordable, but we are committed to building the next generation of satellites to make service a reality for all Americans utilizing a new 

generation of Ka band satellites. We will offer a high-speed Internet service that is not only price-competitive with existing providers in urban areas, but also a tremendous benefit for rural customers with no other options. 

27

In sum, the merger will provide the technical and economic infrastructure to convert every household in the country to a digital 

‘‘have.’’ For both video and broadband services, we will offer uniform nationwide pricing. So a two of 5 or a town of 5 million receives the same price for the same service. 

Mr. Chairman and members of the Subcommittee, bringing local 

channels and broadband services to all consumer households is not 

a simple endeavor. The EchoStar and DIRECTV engineering teams 

have developed a plan that enables consumers to receive their local 

channels, other entertainment services, and high-speed Internet on 

one consumer-friendly dish. New equipment will process signals 

from existing spacecraft as well as advanced satellite the companies will build and launch to deliver the remaining the local broadcast channels. This equipment will be provided at no charge to existing DIRECTV and EchoStar customers. 

When we announced our merger on October 29, we said we needed to merge in order to compete now and in the future with cable. 

Cable companies continue to dominate the pay TV market, with 

over 78 percent of the pay television market. Only a business with 

dominant market power could continue to raise prices 37 percent 

since 1996. Cable already dominates the high-speed Internet market, with a majority of all high-speed lines, and that market share 

continues to increase every year. 

With the ability to offer local channels in 210 television markets 

and to offer price-competitive high-speed Internet access, the 

merged company will be able to achieve a new level of vigorous 

competition to incumbent cable operators. 

Of course, the merger will allow us to compete with cable in 

other ways. By eliminating 500 duplicative channels and combining 

out satellites and spectrum, the merged company will be able to 

offer 12 channels or more of high-definition television, more advanced services, pay-per-view, video on demand, and interactive 

services. Better DBS service means stronger competition to cable, 

and that can only mean good news for American consumers. 

We will offer local channels to all Americans. We are one Nation; 

we will have one rate card. Consumers nationwide will need only 

a single satellite dish to get their video and broadband services and 

we will eliminate the digital divide. 

We believe that once the Department of Justice and the Federal 

Communications Commission have looked at the facts, they will 

conclude that the merger of EchoStar and Hughes will provide 

competition, provide a greater choice of services, and provide much 

needed benefits for all American consumers. 

Thank you for allowing me to discuss this today. 

[The prepared statement of Mr. Ergen follows:]

STATEMENT OF CHARLES W. ERGEN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 

ECHOSTAR COMMUNICATIONS CORPORATION, LITTLETON, COLORADO

Chairman Kohl, Senator DeWine, and Members of the Subcommittee, I appreciate 

the opportunity to tell you about how the merger of EchoStar and Hughes will benefit consumers in every corner of the United States. If I had to sum up what this 

merger means to the average American, I’d say three things. First, satellite-delivered local broadcast channels will be available for the first time in every one of the 

Nation’s 210 television markets. Eddy already gave you the details on that one. Second, truly competitive high-speed data via satellite will be offered everywhere in the 

U.S. Third, we will offer one rate card for both video and broadband services, so 

28

1 Annual Assessment of the Status of Commpetition in the Market for the Delivery of Video 

Programming, Eighth Annual Report CS Docket No. 01–129, FCC 01–389 at ¶ 44 (released Jan. 

14, 2002). 2SkyResearch, VOl. 9, No. 2, at 1, 5–7 (Feb. 2002) 3 Report on Cable Industry Prices, MM Docket No. 92–266, FCC 01–49 at ¶ 25 (released Feb 

14, 2001). 

that no matter where they live, all Americans will reap the benefits of competition 

between satellite and cable TV. That means the residents of Wisconsin’s smallest 

town, Cedar Rapids, with a population of 36, will have the same choices at the same 

price as the residents of the state’s largest metropolitan area, Milwaukee, with a 

population of over 1.5 million. 

A very important benefit of the EchoStar and Hughes merger is that it will eliminate the so-called ‘‘digital divide’’ that exists in the ‘‘wired’’ world today by making 

satellite-delivered high-speed Internet access a viable alternative for all Americans. 

Today, about 67 million households have access to DSL or cable modem service.1

(See Attachment A) These are the digital ‘‘haves’’ who are located primarily in the 

major metropolitan areas. But in rural America today, there’s what I like to call a 

‘‘no-opoly.’’ Nobody—not the cable companies, not the phone companies—is providing 

broadband service. 

This map clearly shows the number of digital ‘‘have nots’’ in the U.S.—the 40 million households with no access to DSL or cable modem service. (See Attachment B) 

It is simply too expensive to roll out ‘‘wired’’ technologies to homes beyond the 

boundaries of urban and suburban markets. I am convinced that in our lifetimes, 

we will never see the telephone or cable companies offer broadband service to rural 

America. I am equally convinced that the digital ‘‘have nots’’ living in rural America 

would welcome the opportunity to choose affordably priced, satellite-delivered highspeed data services. 

The merger will bridge the digital divide by providing consumers in every community in America with a competitively priced high-speed ‘‘broadband solution.’’ (See 

Attachment C) Unlike wired technologies, such as DSL and cable modems, a satellite broadband platform can serve every household in the country, no matter how 

rural. 

Initially, the combined company will have the subscriber base and financial 

means to make our current satellite broadband offerings more affordable. Then, we 

will make next-generation satellite broadband service a reality for consumers everywhere in the United States by deploying a new generation of satellites utilizing Kaband spectrum. We will offer a high-speed Internet service that is not only pricecompetitive with existing providers in urban and suburban settings, but also a tremendous benefit for rural consumers who have no broadband options. In sum, the 

merger will provide the technical and economic infrastructure to convert every 

household in the country to a digital ‘‘have.’’

For both video and broadband services, we will offer uniform, nationwide pricing. 

So if you live in that 36-person town of Cedar Rapids, Wisconsin, you will be able 

to get the same benefits of our head-to-head competition with cable and DSL as a 

person living in New York City. Your child will be able to do research for her term 

paper on the Internet as easily as a child living in the city. And both families will 

pay the same price for their video programming and Internet access service. 

Mr. Chairman and Members of the Subcommittee, bringing local channels and 

broadband services to all consumers’ homes is not a simple endeavor. The EchoStar 

and DIRECTV engineering teams have developed a plan that enables customers to 

receive their local channels, other entertainment services and high-speed Internet, 

all using one consumer-friendly mini-dish. (See Attachment D) The 18 x 22-inch 

dish you see in this photo will enable customers to receive signals from the merged 

company’s three orbital slots. New equipment will process signals from existing 

spacecraft, as well as advanced satellites the merged company will build and launch, 

to deliver the remaining local broadcast channels and high-speed Internet services 

to consumers in all states. This equipment will be provided at no charge to existing 

DIRECTV and EchoStar customers who need it to receive their new local channels. 

When we announced the merger on October 29, we said that we needed to merge 

in order to compete now and in the future with cable. Cable continues to dominate 

the pay TV market, despite the introduction of DBS eight years ago. Seventy-eight 

percent of multi-channel video subscribers still receive their programming from a 

franchised cable operator.2 And only a business with dominant market power could 

continue to raise its rates so dramatically—37% on average since 1996.3 Cable also 

29

4 Annual Assessment of Advanced Services Deployment, Thired Annual Report, CC Docket No. 

98–146, FCC 02–33 at ¶ 44 and App. C, Table 1 (released Feb. 6, 2002) (as of June, 2001, cable 

represented 54% of all high-speed lines, compared to 51% the previous year). 

already dominates the high-speed Internet market with a majority of all high-speed 

lines, and that market share increases every year.4

With the ability to offer local channels in all 210 television markets, and to offer 

a price-competitive, high-speed Internet access service, the merged company will be 

able to achieve a new level of vigorous competition to incumbent cable operators. 

Of course, the merger will allow us to compete with cable in other ways, too. By 

eliminating 500 duplicative channels and combining our satellites and spectrum (see 

Attachment E), the merged company will be able to offer 12 or more national channels of high-definition television programming; more of the very popular pay-perview services; exciting, new interactive and video-on-demand services; expanded national program offerings; and additional educational, specialty and foreign-language 

programming. Better DBS service means stronger competition to cable, and that can 

only mean good news for American consumers. (See Attachment F) 

We will offer local channels to all Americans. We are one nation, and we will have 

one rate card. Consumers nationwide will need only a single satellite dish to get 

their video programming and broadband services. And we will eliminate the ‘‘digital 

divide’’ that exists today, particularly in rural America. 

We believe that once the Department of Justice and the Federal Communications 

Commission have looked at the facts, they will conclude, as Eddy and I did, that 

the merger of EchoStar and Hughes will promote competition, provide a greater 

choice of services and provide much needed benefits for all American consumers. 

Thank you for allowing me to discuss our proposed merger. 

In connection with the proposed transactions, General Motors Corporation (‘‘GM’’), 

Hughes Electronics Corporation (‘‘Hughes’’) and EchoStar Communications Corporation (‘‘EchoStar’’) intend to file relevant materials with the Securities and Exchange 

Commission, including one or more Registration Statement(s) on Form S–4 that contain a prospectus and proxy/consent solicitation statement. Because those documents will contain important information, holders of GM $1–2⁄3 and GM Class H 

common stock are urged to read them, if and when they become available. When 

filed with the SEC, they will be available for free at the SEC’s website, 

www.sec.gov, and GM stockholders will receive information at an appropriate time 

on how to obtain transaction-related documents for free from GM. Such documents 

are not currently available. 

GM and its directors and executive officers, Hughes and certain of its officers, and 

EchoStar and certain of its executive officers may be deemed to be participants in 

GM’s solicitation of proxies or consents from the holders of GM $1–2⁄3 common stock 

and GM Class H common stock in connection with the proposed transactions. Information regarding the participants and their interests in the solicitation was filed 

pursuant to Rule 425 with the SEC by EchoStar on November 1, 2001 and by each 

of GM and Hughes on November 16, 2001. Investors may obtain additional information regarding the interests of the participants by reading the prospectus and proxy/

consent solicitation statement if and when it becomes available. 

This communication shall not constitute an offer to sell or the solicitation of an 

offer to buy, nor shall there be any sale of securities in any jurisdiction in which 

such offer, solicitation or sale would be unlawful prior to registration or qualification 

under the securities laws of any such jurisdiction. No offering of securities shall be 

made except by means of a prospectus meeting the requirements of Section 10 of 

the Securities Act of 1933, as amended. 

Materials included in this document contain ‘‘forward-looking statements’’ within 

the meaning of the Private Securities Litigation Reform Act of 1995. Such forwardlooking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. The factors that could cause actual results of GM, EchoStar, Hughes, or a 

combined EchoStar and Hughes to differ materially, many of which are beyond the 

control of EchoStar, Hughes or GM include, but are not limited to, the following: 

(1) the businesses of EchoStar and Hughes may not be integrated successfully or 

such integration may be more difficult, time-consuming or costly than expected; (2) 

expected benefits and synergies from the combination may not be realized within 

the expected time frame or at all; (3) revenues following the transaction may be 

lower than expected; (4) operating costs, customer loss and business disruption including, without limitation, difficulties in maintaining relationships with employees, 

customers, clients or suppliers, may be greater than expected following the transaction; (5) generating the incremental growth in the subscriber base of the combined 

30

company may be more costly or difficult than expected; (6) the regulatory approvals 

required for the transaction may not be obtained on the terms expected or on the 

anticipated schedule; (7) the effects of legislative and regulatory changes; (8) an inability to obtain certain retransmission consents; (9) an inability to retain necessary 

authorizations from the FCC; (10) an increase in competition from cable as a result 

of digital cable or otherwise, direct broadcast satellite, other satellite system operators, and other providers of subscription television services; (11) the introduction of 

new technologies and competitors into the subscription television business; (12) 

changes in labor, programming, equipment and capital costs; (13) future acquisitions, strategic partnership and divestitures; (14) general business and economic 

conditions; and (15) other risks described from time to time in periodic reports filed 

by EchoStar, Hughes or GM with the Securities and Exchange Commission. You are 

urged to consider statements that include the words ‘‘may,’’ ‘‘will,’’ ‘‘would,’’ ‘‘could,’’ 

‘‘should,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘projects,’’ ‘‘potential,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘continues,’’ ‘‘forecast,’’ ‘‘designed,’’ ‘‘goal,’’ or the negative of those 

words or other comparable words to be uncertain and forward-looking. This cautionary statement applies to all forward-looking statements included in this document.

31


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Chairman KOHL. Thank you, Mr. Ergen. 

Before we turn to Mr. Pitofsky, I would like to call upon the 

ranking member of the Senate Judiciary Committee, Senator Orrin 

Hatch, from Utah. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I welcome all of 

you here. Chairman Pitofsky, we are glad to have you back. 

Mr. PITOFSKY. Thank you. 

Senator HATCH. We appreciate having all of your testimony. 

I thank you, Mr. Chairman, for holding this important hearing. 

We have long shared an interest in the competitive future of the 

satellite television industry. We have worked together cooperatively 

and in a non-partisan manner with other colleagues on the Satellite Home Viewer Improvement Act, which was enacted at the 

end of 1999. That legislation granted a statutory copyright license 

to allow the direct broadcast satellite or DBS industry to carry 

local stations under certain conditions for the first time, allowing 

them to compete head to head with cable television. 

Since then, the DBS industry has continued to grow at a phenomenal rate, finally giving pay television subscribers a real choice, 

and often in places like my own home State of Utah two competitive choices to their local cable company. Satellite competition has 

led to price cuts and service and technology upgrades, and according to many has had an effect on cable service and technology upgrades as well. 

Some credit DBS competition with pushing cable to upgrade to 

digital services and to deploy broadband Internet service more 

quickly. DBS is now offering, as has been explained here, its own 

broadband services. So far, DBS has been an initial success story, 

where congressional policy has actually resulted in a positive, market-driven and competitive industry. 

That brings us to this merger, which will combine the assets of 

the only two DBS providers in the United States into one entity. 

It will hold essentially all the satellite slots that can serve the entire continental United States with traditional DBS service. This 

sort of merger combining both remaining competitors in a market 

and leaving no avenue of entry into the market does raise a host 

of vexing competition policy questions. 

In addition to the traditional antitrust inquiry, I have some concerns about the operation of gatekeeper power over broadband 

Internet services that might limit the options consumers have in 

accessing the information they want from the Internet. This Committee has looked into those policy issues over the past four or 5 

years, and this hearing is important because it provides an opportunity for the proponents of the merger to make their case and to 

give us the facts necessary for the members of this Committee and 

Subcommittee to make up their minds about the merits of this 

merger. 

So I look forward to the testimony today. I apologize for being a 

little bit late, but I will listen today with an open mind, holding 

real concern for the long-term competitive health of this industry 

and its competitors. 

38

From what I have read and heard, the proponents of this merger 

say that such a combination is necessary to be a full competitor to 

cable, offering us a choice between trusting in uncertain competition to roll out services to markets in our respective States or to 

trust their promises of universal services if the merger is allowed. 

This choice is not what we envisioned when we hoped to unleash 

DBS as a local television competitor just over a year ago with the 

Satellite Home Viewer Improvement Act. But this choice is not exactly what the merging parties envisioned when they first announced the merger either. 

Initially, the parties said that the merger was necessary to compete head to head with cable television and broadband in 80 to 100 

of the 210 television markets in the United States. Last week, the 

merging companies announced that if the merger is improved, the 

merged company will be able to serve all 210 local markets with 

television and broadband. I am pleased to learn of this apparent increase in capacity. 

I have to admit, however, that their announcement of finding 

twice the capacity in this merger so suddenly would suggest that 

perhaps they could meet their originally proposed goals separately 

as competitors. I further wonder why, with competition, there 

would not be a market for continued growth in technology capacity. 

In brief, Mr. Chairman, I am concerned for the success of the 

DBS business as a competitive force for the benefit of television 

viewers, broadband Internet subscribers, and creative content developers who need distribution choices to deliver their goods and 

services to consumers. 

I should note the opposition to this merger of the Writers Guild 

of America, which represents the men and women who write virtually all of our national entertainment programming in this country and much of the national news that we see, among others. I received a letter from the Writers Guild late last night expressing 

their view that this merger ‘‘would extend media consolidation to 

an unacceptable degree.’’ This letter outlines their concerns about 

the effect the merger could have on the diversity of programming 

available to American viewers. 

I would ask that a copy of that letter be placed in the record at 

this point. 

Chairman KOHL. Without objection. 

Senator HATCH. Now, Mr. Chairman, I look forward to hearing 

more about this to help my constituents, as well as the constituents 

across the country, get the benefits of increased choice in television 

and broadband services. I look forward to this hearing and to hearing the rest of the witnesses as well to provide better illumination 

by which to see with increased clarity what is best for those we 

serve, those who are watching or surfing at home, and those who 

will live with the effects of this merger as they seek out information and entertainment for themselves and for their families. 

So I am grateful to have all of you here. I am grateful to have 

the knowledge that you are bringing to us on the Committee here 

today and I hope that we can be constructive in resolving some of 

these conflicts and problems in ways that will be beneficial for all 

concerned. 

Thank you, Mr. Chairman. 

39

[The prepared statement of Senator Hatch follows.]

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH

Mr. Chairman, thank you for holding this important hearing. We have long 

shared an interest in the competitive future of the satellite television industry. We 

have worked together cooperatively and in a non-partisan manner with other colleagues on the Satellite Home Viewer Improvement Act, which was enacted at the 

end of 1999. That legislation granted a statutory copyright license to allow the direct broadcast satellite or ‘‘DBS’’ industry to carry local stations under certain conditions for the first time, allowing them to compete head to head with cable television. 

Since then, the DBS industry has continued to grow at a phenomenal rate, finally 

giving pay television subscribers a real choice, and often—in places like my own 

home state of Utah—two competitive choices, to their local cable company. Satellite 

competition has led to price cuts and service and technology upgrades, and according to many, has had an effect on cable service and technology upgrades as well. 

Some credit DBS competition with pushing cable to upgrade to digital services and 

to deploy broadband internet service more quickly. DBS is also now offering its own 

broadband services. So far DBS has been an initial success story, where congressional policy has actually resulted in a positive, market-driven and competitive industry. 

That brings us to this merger, which will combine the assets of the only two DBS 

providers in the United States into one entity. It will hold essentially all the satellite slots that can serve the entire continental United States with traditional DBS 

service. This sort of merger, combining both remaining competitors in a market and 

leaving no avenue of entry into that market, raises a host of vexing competition policy questions. In addition to the traditional antitrust inquiry, I have some concerns 

about the operation of gatekeeper power over broadband internet services that 

might limit the options consumers have in accessing the information they want from 

the internet. This Committee has looked into those policy issues over the past four 

or five years. 

This hearing is important because it provides an opportunity for the proponents 

of the merger to make their case and give us the facts necessary for the members 

of this committee and subcommittee to make up their minds about the merits of this 

merger. I look forward to the testimony today, and I listen today with an open mind, 

holding real concern for the long-term competitive health of this industry and its 

competitors. 

From what I have read and heard, the proponents of this merger say that such 

a combination is necessary to be a full competitor to cable, offering us a choice between trusting in uncertain competition to roll out services to markets in our respective states or to trust their promises of universal service if the merger is allowed. 

This choice is not what we envisioned when we hoped to unleash DBS as a local 

television competitor just over a year ago with the Satellite Home Viewer Improvement Act. But this choice is not exactly what the merging parties envisioned when 

they first announced the merger, either. Initially, the parties said that the merger 

was necessary to compete head to head with cable television and broadband in 80 

to 100 of the 210 television markets in the United States. Last week the merging 

companies announced that if the merger is approved, the merged company will be 

able to serve all 210 local markets with television and broadband. I am pleased to 

learn of this apparent increase in capacity. I must admit, however, that their announcement of finding twice the capacity in this merger so suddenly would suggest 

that perhaps they could meet their originally proposed goals separately as competitors. I further wonder why, with competition, there would not be a market for continued growth in technological capacity. 

In brief, Mr. Chairman, I am concerned for the success of the DBS business as 

a competitive force for the benefit of television viewers, broadband internet subscribers, and creative content developers who need distribution choices to deliver 

their goods and services to consumers. I should note the opposition to this merger 

of the Writers Guild of America, which represents the men and women who write 

virtually all the national entertainment programming and much of the national 

news we see, among others. I received a letter from the Writers Guild late last 

night, expressing their view that this merger ‘‘would extend media consolidation to 

an unacceptable degree’’ and outlines their concern that the effect the merger could 

have on the diversity of programming available to American viewers. I would ask 

that a copy of the letter be placed in the hearing record. 

Mr. Chairman, I very much want to learn more about this transaction and its 

competitive context to help my constituents get the benefits of increased choice in 

television and broadband services. I look forward to this hearing to provide better 

40

illumination by which to see with increased clarity what is best for those we serve, 

those who are watching or surfing at home, those who will live with the effects of 

this merger as they seek out information and entertainment for themselves and for 

their families.

Chairman KOHL. Thank you, Senator Hatch. 

Now, we turn to Mr. Pitofsky. 

STATEMENT OF ROBERT PITOFSKY, FORMER CHAIRMAN, 

FEDERAL TRADE COMMISSION, WASHINGTON, D.C. 

Mr. PITOFSKY. Thank you, Mr. Chairman and members of the 

Committee. As always, it is an unusual pleasure for me to appear 

before this particular Committee. 

I would like to treat this discussion a little differently. I am 

going to be very brief on the question of whether this merger on 

the surface violates the antitrust laws because on the surface it is 

about as illegal as a merger gets to be and I would really like to 

spend my time talking about the fixes that have been proposed. 

Just briefly, in something like 19 or 20 percent of the country it 

is a merger to monopoly, and the statute clearly says that that 

should be prevented. Nineteen States, something over 30 percent 

of subscribers, have no access to cable, so it is a two-to-one merger. 

In areas served by cable, it is still a three-to-two merger, and we 

just had that case in the court of appeals last year when Beechnut 

and Heinz tried to merge, claiming they would be better competitors. Not only did the court turn down that merger, but they said 

in the long history of antitrust we can’t find a single case in which 

that kind of merger was allowed where there are high barriers to 

entry. 

So what is the fix? Well, first, the argument which I don’t hear 

as much today but I have heard: we will lose competition in rural 

America, but that is a price you have to pay; it will prove competition in the rest of the country. Well, that flies in the face of the 

plain language of the statute, which says do not allow a lessening 

of competition in any section of the country. I think 20 States, 20 

percent of the people here in the country, is a section of the country. And the Supreme Court has addressed that question and they 

just won’t do tradeoffs like that; they don’t think it is justifiable. 

Second, here is the real claim: If we can merge, there will be efficiencies and those efficiencies will allow us—monopoly is more efficient than competition and will allow us to do things that competition won’t allow us to do. But, you know, the main point is why 

can’t these two companies do it on their own? 

Senator Hatch just pointed out they suddenly came up with a 

way to serve 210 cities instead of 40 or 100. This merger will be 

permanent if it goes through. Technology is not permanent. These 

companies have gone from 1 million subscribers to 17 million subscribers in just 5 or 6 or 7 years. They have improved the technology of their product enormously. They deserve tremendous credit. 

Why can’t they do that separately? Why do they need the merger 

to monopoly or duopoly to achieve those things? Several witnesses 

before the FCC said, under present technology, they could serve all 

these local markets today. And even if they can’t today, what will 

we see shortly after that, in a year, 2 years, something like that? 

41

Finally, there is this very unusual argument that rural America 

will not be disadvantaged because there will be a national list price 

and people will pay the same price in Montana or Vermont as they 

will in New York and Los Angeles. Well, first of all, there is more 

to competition than list prices. What about service, subsidies, packages, improvements in technology? We are merging to monopoly. 

Usually, one expects that that kind of competition will disappear 

or be diminished. Also, if I lived in rural America and was told I 

will have the benefit of getting the kind of prices that people are 

paying for cable in urban America, I wouldn’t be enthusiastic about 

that. 

We want competition to decide prices and terms and service. We 

don’t want monopolists to do so. I can’t help suggesting the following analogy. After this deal goes through, suppose the airline 

companies come in here and they say all that duplication that 

comes from competition; let United Airlines, American and Delta 

all merge together and we will serve more cities if the three of us 

are together than we can today. I mean, it is almost ludicrous, but 

that is very similar to the argument that is being presented. 

Finally, and briefly, I think there is more to this matter than the 

welfare of consumers in urban or rural America. We have seen incredible deregulation by Congress, by the courts, and by the FCC. 

Much of that is a good thing. Many of those old rules were obsolete 

and outdated. But every time we get rid of one of those rules, the 

argument is, yes, but antitrust is there to take care of preserving 

a diversity of markets, access to those markets, diversity of ideas, 

and so forth. 

If antitrust is asleep at the switch on a merger to monopoly, 

what signal does that send to the other media companies about 

what is acceptable and what can be done as long as the parties say 

we won’t abuse our market power and they claim that monopoly is 

more efficient than competition? That is not the philosophy this 

country has followed. 

Thank you. 

[The prepared statement of Mr. Pitofsky follows:]

STATEMENT OF ROBERT PITOFSKY, FORMER CHAIRMAN OF THE FEDERAL TRADE

COMMISSION, WASHINGTON, D.C. 

Mr. Chairman, Members of the Committee, as in the past I am pleased and privileged to have an opportunity to testify before this Committee. Today I will address 

the question of the application of the antitrust laws to the proposed merger of 

EchoStar Corporation and Hughes Electronics, the parent company of DIRECTV. 

Hearings on this subject before this Committee are most timely since I believe the 

proposed merger raises very important questions about the direction of antitrust enforcement in this country. 

I want to disclose at the outset that I am both a Professor of Law at Georgetown 

University Law Center and Counsel to the Washington law firm of Arnold & Porter. 

That law firm represents Pegasus, a distributor of direct broadcast satellite (‘‘DBS’’) 

services, and a company that has publicly indicated its deep interest in the competitive and economic consequences of the merger. Nevertheless, I appear today in my 

individual capacity and not as a representative of any corporate interest. 

EchoStar and DIRECTV are today the only facilities-based providers of DBS services in the United States. Between them they control all three of the Ku band orbital slots licensed by the Federal Communications Commission that provide DBS 

service to the full continental United States. It seems to be commonly accepted that 

no additional Ku band orbital slots are likely to be available for DBS service in the 

foreseeable future. 

42

1See In re Annual Assessment of the Status of Competition in the Market for the Delivery of 

Video Programming, Eighth Annual Report, ¶ 57 (Jan. 14, 2002). 2 Id.

3See National Telecommunications and Information Administration (NTIA) & Rural Utilities 

Service (United States Department of Agriculture), Advanced Telecommunications in Rural 

America: The Challenge of Bringing Broadband Service to All Americans, at 19 & n.62 (April 

2000). 4See Look, Up in the Sky! Big Bets on a Big Deal, New York Times, Oct. 30, 2001, at C1. 5Moreover, that competition has been extremely valuable to consumers. For example, when 

EchoStar entered the market in 1996, offering serious competition to DIRECTV for the first 

time, DBS systems fell in price from the $600 to $800 range to $200. See Mark Robichaus, Who’s 

News: EchoStar Chief Must Build Link to Murdoch Wall St. J., Feb. 26, 1997. DBS service 

prices, largely as a result of direct competition between 1996 and 2000. See In re Implementation 

of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, Report 

on Cable Industry Prices, 16 FCC Rcd. 4,346 (2001). 6Section 7 reads as follows: 

‘‘No person engaged in commerce or in any activity affecting commerce, shall acquire, directly 

or indirectly, the whole or any part of the stock or other share capital . . . where in any line 

of commerce or in any activity affecting commerce in any section of the country, the effect of 

such acquisition may be substantially to lessen competition, or to tend to create a monopoly.’’ 

15 U.S.C. § 18 (emphasis added).

DIRECTV and EchoStar are thriving companies that have expanded their base 

substantially in recent years. Between them they have a total of 16.7 million subscribers—up from less than a million subscribers in 1994.1 The growth rate of each 

company has been phenomenal—for example, in just the last year, EchoStar’s annual subscriber rate increased by 40% and DIRECTV’s rate increased by 15%.2

Much of that growth rate has been accomplished as a result of fierce competition 

between the two companies and, in parts of the country that have access to cable, 

also between each company and cable. Competition between the two DBS companies 

has occurred through discounts and dealer promotion programs, subsidized equipment, improved service and similar inducements. It is interesting that the key innovations in video programming delivery—such as on demand access to movies and 

comprehensive sports packages—have been driven by DBS competition between 

EchoStar and DIRECTV. 

I find it helpful in thinking about the competitive and consumer effects of this 

proposed merger to consider its impact in different parts of the country. Today in 

many sections of the country cable television is not available. Although the merger 

parties claim that only a small percentage of homes are without access to cable, 

other sources indicate that the percentage of homes without cable access might be 

as high as 19%.3 In Montana, South Dakota, Utah, Mississippi, Arkansas and 

Vermont, it has been reported that 40% to 50% of homes are without cable access; 

in Idaho, Wyoming, New Mexico, Oklahoma, Louisiana, Missouri, Idaho, Alabama, 

Tennessee, Kentucky, Virginia, North Carolina, Maine and Wisconsin, an estimated 

30% to 40% of homes are reportedly without cable access.4 Even in areas where 

cable is available, it is often unsophisticated analog rather than digital cable and 

some subscribers have demonstrated a preference for DBS service over sometimes 

antiquated cable facilities. 

For subscribers located in these non-cable or limited-cable areas, this proposed 

deal is a merger to monopoly, with the predictable higher prices and indifferent 

quality that experience shows will follow in the wake of that level of market power. 

In many rural areas, this merger does not ‘‘lessen competition,’’ it completely eliminates competition.5

I am aware of arguments that it is worthwhile to see a reduction in competition 

for consumers in rural America because it will improve competition in the remaining parts of the country. Specifically, it has been argued that the combined 

EchoStar-DIRECTV will be in a better position to compete with the large cable companies. That is an argument that contradicts the plain language of Section 7 of the 

Clayton Act which outlaws a lessening of competition ‘‘in any section of the country.’’ 6 In one of the earliest cases reviewed by the Supreme Court after Section 7 

was amended in 1950, two large banks in Philadelphia tried to justify a merger by 

arguing that consumers in the local market might be disadvantaged, but that would 

be more than outweighed by the fact that the larger bank, with higher lending limits because of size, could compete with the big New York banks in loans and other 

activities throughout the United States. The Court rejected what it called a concept 

of ‘‘counterveiling power,’’ explaining as follows: 

‘‘If anticompetitive effects in one market could be justified by procompetitive consequences in another, the logical upshot would be that every 

firm in an industry could without violating Section 7, embark on a series 

of mergers that would make it in the end as large as the industry leader.’’ 

43

7 United States v. Philadelphia National Bank, 374 U.S. 321 3790 (1963). 8 Complaint, EchoStar Communications Corp. v. DIRECTV Enters. Inc., Civ. Action No. 00–

K–212 (D. Colo., filed February 1, 2000). 9See Memorandum of Law in Support of Request for Rule 56 Continuance to Respond to 

DIRECTV Defendants’ Motion for Summary Judgment, at 11–12, EchoStar Communications 

Corp. v. DIRECTV Enters. Inc., No. 00–K–212 (D. Colo., filed Nov. 6, 2000). 10Federal Trade Commission v. H.J. Heinz Co., 246 F.3d 708, 717 (DC Cir. 2001).

Let me turn now to a second major argument offered by the sponsors of the 

merger—that DBS competes in a broader market that includes cable television and the merger would strengthen DBS as a competitor of cable.7

That whole approach is an interesting change of strategy for EchoStar since it 

filed a complaint in 2000 against DIRECTV in federal court in Colorado alleging 

that DBS is a relevant market, distinct from cable, and that no firm other than 

EchoStar or DIRECTV was likely to enter the market because of high entry barriers.8 Among the many points cited by EchoStar in arguing that DBS is a separate 

product market from cable was that a significant number of DBS subscribers view 

DIRECTV and EchoStar as closer substitutes than alternative sources of programming, including cable; if not constrained by EchoStar, DIRECTV could raise its 

prices above the competitive level without experiencing a significant constraint by 

cable; and DBS and/or high powered DBS is superior to most cable services in several respects.9

Contrary to EchoStar’s views of just over a year and a half ago, EchoStar now 

asserts that DBS and cable do compete in the same market. If the merger goes 

through, however, that still means that the number of significant competitors will 

be reduced from three to two. Subscribers today who are dissatisfied with their 

cable service have two vigorous DBS competitors to turn to but would have only one 

as a result of the proposed merger. 

The argument that two competitors is better than three if a strengthened number 

two can compete more effectively with the market leader was advanced just a year 

ago by Heinz and Beechnut when their merger, allegedly to put them in a position 

to compete more effectively with the dominant Gerber, was challenged by the Federal Trade Commission. A unanimous District of Columbia Court of Appeals enjoined the merger, noting in passing that it would be unprecedented to permit that 

level of concentration:

‘‘[There have been] no significant entries in the baby food market in decades and . . . [new entry is] difficult and improbable. . . . As far as we can 

determine, no court has ever approved a merger to duopoly under similar 

circumstances.’’ 10

I suggest that the argument that it is acceptable to allow a merger to monopoly 

in some parts of the country, or even that it is acceptable to allow a merger from 

three firms to two where there are high barriers to entry, in order for the combined 

firm to compete more effectively with the market leader, would be a major departure from established law in this country. Moreover, there is no reason to believe 

that given their past success and present trajectory, each company, along with challenging each other, can not continue to take subscribers away from cable. 

To summarize this point, if the proposed merger is permitted, it will be a merger 

to monopoly in areas of the country not presently served by cable—mostly rural 

America. As a result, existing competition on price and service, programming packages and, perhaps most important, in improving technology would disappear. In 

areas of the country served by cable, sources of programming would be reduced from 

three to two, price competition between EchoStar and DIRECTV which has kept 

prices low would disappear, and because of high entry barriers no new players are 

likely to appear. Under well established antitrust principles—recently emphasized 

by a unanimous DC Court of Appeals decision blocking the Beechnut/Heinz merger 

just last year—three to two mergers with high barriers to entry, and when neither 

company is failing, have never been allowed under the antitrust laws. 

The parties recognize the difficulty of justifying this proposed merger and therefore have asserted several additional defenses—one common and the other most unusual—in an effort to justify the transaction. The common claim by sponsors of the 

merger is that it will allow the combined firm to offer efficiencies to consumers and 

with those efficiencies improve service. Most of the efficiencies that have been described, however, really come down to elimination of duplication and overlap. But 

that is just a roundabout way of justifying the elimination of competition. Another 

efficiency that I have heard mentioned is that a broader spectrum would allow satellite carriers to offer more local TV stations in more local markets. But a consultant to the Department of Justice (and now a Pegasus consultant), Roger J. Rusch, 

concluded that EchoStar and DIRECTV, using currently available technology, could 

44

11Mr. Rusch filed an affidavit in support of Pegasus’ opposition to the merger. See Affidavit 

and Report of Roger J. Rusch to Pegasus Communications Corporation’s Petition to Deny, In 

re Consolidated Application of Echostar Cummunications Corp., General Motores Corp., Hughes 

Electronics Corp., Transferors, and Echo Star Communications Corp., Transferee, For Authority 

to Transfer Control (FCC, filed Feb. 4, 2002). 12See, e.g., Petition to Deny of National Association of Broadcasters, at 74–81, In re Consolidated Application of Echostar Cummunications Corp., General Motors Corp., Hughes Electronics 

Corp., Transferors, and EchoStar Communications Corp., Transferee, For AUthority to Transfer 

Control (FCC, Filed Feb. 4, 2002); Petition to Deny By the National Rural Telecommunications 

Cooperative, at 56–60, In re Consolidated Application of Echostar Communications Corp., General Motors Corp., Hughes Electronics Corp., Transferors, and EchoStar Communications Corp., 

Transferee, For Consent For a Proposed Transfer of Control (FCC, Filed Feb. 4, 2002). 13 EchoStar/Hughes Joint Press Release, Merged EchoStar and Hughes will Deliver Local 

Broadcast Channels to All 210 U.S. Television Markets (Feb. 26, 2002). 14 United States Dep’t of Justice and Federal Trade Commission, Revised 1992 Horizontal 

Merger Guidelines, § 4 (rev. 1997), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13, 104. 15See Id. 16See, infra, n.5. 

each, on its own, achieve the same service.11 Other parties submitting petitions to 

the FCC have reached the same conclusion.12 Moreover, just last week the merger 

parties announced that they had developed a new proposal that would allow them 

to deliver local channels to all 210 markets.13 The burden of persuasion that the 

two merging parties could not individually achieve the same services should be very 

great. Finally, even if there are cognizable efficiencies, the Department of Justice/

FTC Revised Merger Guidelines, issued in 1997, explained that mergers that 

produce high concentration can only be justified by exceptional, substantial efficiencies, and that even such efficiencies ‘‘almost never justify a merger to monopoly 

or near-monopoly.’’ 14

There are persuasive reasons why mergers to monopoly should not be justified by 

claimed efficiencies. The law has eased on allowing efficiency justifications for mergers because it is now understood that such efficiencies could be passed on to consumers—not just pocketed by the officers and shareholders of the merging company. 

But if a merger leads to monopoly or near-monopoly, there is no reason for the firms 

to pass along these efficiencies since they no longer compete with each other.15

Finally, advocates of the proposed merger have advanced an unusual argument. 

They suggest that for most of the country the combined DBS company will have to 

compete with cable, and competition with cable will keep the DBS rates competitive. 

They also are willing to commit not to discriminate between rates and terms offered 

in cable and non-cable areas so that subscribers in rural areas, faced with a monopoly, would not have to pay monopoly rates. I suggest that national pricing is no substitute for present vigorous competition. First, it leaves the government in the position of monitoring rates and complicated terms in every community to guard against 

discrimination, a role that the government tries not to play in a free market economy. How would the government monitor different offers in each city in the United 

States that subsidize the purchase of equipment, offer free or discounted installation, and provide promotional pricing and introductory offers? Second, even if price 

terms are worked out, that says nothing about the loss of competition in non-price 

dimensions—competition for programming, offers of programming packages, better 

service and, in particular, technological competition. In a high-tech, dynamic, rapidly developing field like video programming delivery, competition in terms of quality and technology is particularly important. Third, if the merger reduces competition in urban markets, and reducing competitors from three to two certainly suggests such a threat, there is little comfort in pegging prices in rural areas to what 

may turn out to be less-than-competitive prices in urban areas. As noted previously, 

cable prices have increased in this country 7% a year since 1996,16 and have not 

declined despite the presence of two aggressive DBS providers. Why would they 

come down in the future when there is only one competing provider? Should there 

be much satisfaction in rural markets to know that in the future they can have the 

benefit of price levels imposed on cable subscribers in urban markets in recent 

years? Most important, the suggestion that mergers to monopoly and duopoly should 

escape challenge if the merged companies promise not to abuse their market power 

is fundamentally inconsistent with U.S. antitrust enforcement. We depend on vigorous competition among rivals to produce reasonably priced and high quality products—not promises by merging parties or enforcement by government agencies. 

The proposed merger also raises issues in the merging broadband market—that 

is the provision of upgraded high-speed access to the Internet. Wired broadband 

technologies, such as cable and telephone connections (‘‘DSL’’), have been slow to 

emerge in rural areas for many of the same reasons that these areas have limited 

cable penetration. There is not sufficient demand to ensure more rapid wire developVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
45

ment. At least for the foreseeable future, satellite broadband service is the most 

likely technology to provide broadband in rural America. The merger of EchoStar 

and DIRECTV would be a merger to monopoly for millions of rural consumers who 

have no alternative to DBS for broadband Internet access as well as multi-channel 

video service. 

I assume the parties will argue again that they need the merger to eliminate ‘‘duplication’’ and thereby will be able to roll out broadband service more quickly. The 

companies should certainly be pressed to explain why the merger is necessary to 

bring out services that both DIRECTV and EchoStar have promised consumers for 

some time that each would separately provide. 

CONCLUSION 

We see evidence on all sides of the amazing transformation of media in this country—partly a result of advances in technology but also a consequence of deregulation 

by Congress, the courts and the Federal Communications Commission. I agree that 

many regulatory rules are outdated and deserve to be vacated. With respect to the 

loosening of ownership restrictions, however, it is often said that antitrust is adequate to protect the market against undue concentration. Antitrust, it is argued, 

would prevent adverse effects on consumer welfare and preserve a marketplace open 

to a diversity of ideas. 

If antitrust were to falter, media would indeed be a deregulated sector of the economy. This proposed merger of two satellite companies, resulting in monopoly in a 

substantial part of the United States and, at best, duopoly in the remainder, violates all of the established principles of merger review under the antitrust laws. If 

this merger as presently structured is allowed, antitrust will have faltered. An essential condition for continued deregulation will be absent. It would send a clear signal to other media companies that the net is down and almost anything goes—so 

long as the sponsors of the merger claim that their monopoly is more efficient than 

competition, and promise not to abuse their market power.

Chairman KOHL. We thank you, Mr. Pitofsky. 

We turn now to Mr. Gene Kimmelman. 

STATEMENT OF GENE KIMMELMAN, CO-DIRECTOR, WASHINGTON, D.C. OFFICE, CONSUMERS UNION, WASHINGTON, 

D.C. 

Mr. KIMMELMAN. Thank you, Mr. Chairman, Senator DeWine, 

Senator Hatch. On behalf of Consumers Union, the online and 

print publisher of Consumer Reports, I appreciate the opportunity 

to testify once again. 

As you know better than anyone, I believe no one has come before this Committee more often in the last 4 years to complain 

about consolidation and concentration of control in the media and 

telecommunications markets. And I could do this one exactly the 

same way, and both Mr. Nixon and Mr. Pitofsky make important 

antitrust points, and but I believe it would be more fruitful today 

to view this merger from a much broader perspective than just 

antitrust, but I will include antitrust. 

For about 90 percent of consumers, the problem with television 

is cable monopoly. I appreciate that you have asked the GAO to 

study the impact of local broadcast channels added to satellite competing versus cable. We have looked at that and we will talk to the 

GAO, and the answer is quite clear and we have outlined it in 

great detail in our testimony. These are predominantly separate 

markets. 

Even with local broadcasts, you have cable rates up 36 percent 

since 1996, when the Telecom Act was passed, and just since January of this year, from Seattle, to Los Angeles, to Reno, to Austin, 

to St. Louis, to Memphis, to Atlanta, to Syracuse, to Boston, double-digit cable rate increases. Most of those communities have satVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
46

ellite and have local broadcast channels. They do not compete. Mr. 

Pitofsky and Mr. Nixon, with all due respect, are wrong. These are 

separate markets in many respects for antitrust analysis. 

Consumers need competition; they need new entry. As Chairman 

Leahy said, there is an application pending at the FCC we have 

been begging them to move on to allow new players in this market 

so we are not boxed in with three-to-two or two-to-one limitations 

through mergers and we have more players. That is the most important thing we need to see happen as this merger is reviewed. 

Now, the companies argue that they will have efficiencies and 

they will better be able to provide service to local rural areas. I believe they mentioned launching a new satellite to expand their capacity to serve 210 markets as the basis for how they would do 

that. 

What is clear here is that there is a greater potential that more 

consumers could receive local broadcast channels and new highspeed Internet service options if they merge. Is it absolutely clear 

that they wouldn’t get it without it? No, but there are enormous 

incentives and opportunities through cost reductions and through 

the ability to purchase programming at a lower price with a broader customer base if this merger goes through. There are potential 

benefits for consumers. 

The other 10 percent of consumers have a real problem. I don’t 

diminish that. Those are rural consumers throughout the country 

who are not wired for cable. They lose one of the two players in 

the market. That is intolerable and that should not be accepted. 

I believe the conditions that Chairman Kohl described in his 

opening statement are the types of conditions that can be imposed, 

I would suggest not by the antitrust officials but by the Federal 

Communications Commission, the agency with regulatory authority 

to look in detail and make sure that it is not just prices, it is installation, it is equipment available, it is discounts, and it is the same 

prices, terms and conditions available for rural consumers as in adjacent more competitive markets. Those are the kinds of conditions 

that are critical. 

But new entry is the most critical thing for rural America, as 

well, and wireless terrestrial transmission using the satellite spectrum space is totally viable in rural America as well as urban 

America and we want the FCC to move on that. 

Now, the agencies reviewing this obviously have unique roles and 

they are somewhat narrow—antitrust at the Department of Justice 

versus the FCC’s public interest authority. We don’t want them to 

step over each other’s territory, and certainly we don’t want you to 

interfere with their review. 

However, I believe Congress can play a unique role in this situation, take a broader look, urge the agencies to work together and 

combine their oversight efforts. If the FCC moves first in reviewing 

this merger under its public interest standard, it can require provision of local broadcast signals in every community as a condition 

of merger subject to penalty and license revocation. 

It can require opening markets from rural to urban areas to new 

entrants to ensure that we do not diminish the number of players 

in the market. It can require fair prices, terms and conditions, and 

then the Department of Justice can look at this and determine 

47

1 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws 

of the state of New York to provide consumers with information, education and counsel about 

goods, services, health and personal finance, and to initiate and cooperate with individual and 

group efforts to maintain and enhance the quality of life for consumers. Consumers Union’s income is solely derived from the sale of Consumer Reports, its other publications and from 

noncommerical contributions, grants and fees. In addition to reports on Consumers Union’s own 

product testing, Consumer Reports with more than 4 million paid circulation, regularly carries 

articles on health,product safety, marketplace economics and legislative, judicial and regulatory 

actions that affect consumer welfare. Consumers Union’s publications carry no advertising and 

receive no commercial support. 2 Haffmeister, Sallie. ‘‘GM Deal to Create New Pay TV Giant,’’ Los Angeles Times, Oct. 29, 

2001. 3FCC Seventh Annul Assessment of the Status of Competition in the Market for the Delivery 

of Video Programming (CD Docket No. 00–132), January 8, 2001. 

whether there is a further need for structural separation, a split 

of some satellite capacity, divesting some transponders or orbital 

satellites to ensure that rural America is protected. 

In conclusion, Mr. Chairman, this is a unique opportunity not 

just to look at an antitrust issue but to provide both rural and 

urban consumers competition to cable and more choices for both 

Internet and video services. 

Thank you. 

[The prepared statement of Mr. Kimmelman follows:]

STATEMENT OF GENE KIMMELMAN, CO-DIRECTOR , CONSUMER’S UNION, 

WASHINGTON, D.C. 

Consumers Union 1 is extremely concerned about the enormous concentration of 

control over multichannel video distribution systems—predominantly cable and satellite—which has prevented the growth of vibrant competition. Attached to our testimony is an Appendix entitled ‘‘Cable-Satellite Competition (And Other Myths That 

Are Distorting Mass Media Policy),’’ prepared by Dr. Mark Cooper, Research Director for the Consumer Federation of America, which describes in great detail the 

market structure and concentration levels for multi-channel video services. 

Direct broadcast satellite (DBS) stands as the most likely competitor to today’s 

cable monopolies. While further consolidation in the satellite industry could be dangerous to consumers, it also holds the potential to make satellite more competitive 

with cable monopolies. We believe that antitrust issues related to satellite mergers 

should be reviewed in the overall context of policies designed to foster more competition in the multichannel video market. 

It is important to understand that, while antitrust is an excellent tool to prevent 

monopolization or substantial dilution of competition, it may do nothing to create 

new competition or explode existing monopolies. Consumers need both—strong antitrust enforcement and strong pro-competitive policies. 

SATELLITE 

Over the last three years, there has been a great deal of consolidation within the 

satellite TV industry. The number-one provider, DirecTV, bought two of its competitors, PrimeStar and United States Broadcasting. Meanwhile, the number-two company, EchoStar, acquired the assets of American Sky Broadcasting.2

Today, EchoStar and DirecTV serve nearly every home that has a satellite dish.3

And now EchoStar is attempting to buy DirecTV. 

If this merger is approved, it would combine the dominant players in the satellite 

TV market to become the second-largest pay-TV company in America, behind 

AT&T’s combined cable holdings. See Appendix at 35 (describing AT&T’s full and 

partial cable ownership interests, covering as many as 30-40 million households). 

The potential antitrust problems presented by this merger are serious and substantial. Currently, most consumers have three choices for pay-TV services: 

EchoStar’s Dish Network, DirecTV, or their local cable company. This merger would 

reduce their choices from three to two. For rural America, the prospects are even 

grimmer. Approximately 13 million homes in rural areas are not wired for cable 

48

4 Advanced Telecommunications in America, report by Rural Utilities Service and National 

Telecommunications and Information Administration. 5 Beauprez, Jennifer ‘‘Tech Town,’’ Denver Post, November 4, 2001. 

6FCC Seventh Annual Assessment of the Status of Competition in the Market for the Delivery 

of Video Programming (CS Docket No. 00–132), January 8, 2001. 7 Jason B. Bazinet, The Cable Industry (J.P. Morgan Securities, Inc., November 2, 2001), p. 

4. 8 Bureau of Labor Statistics, consumer price indexes, Dec. 2001. 

9 Berkowitz, Harry. ‘‘Cablevision Rates Rising Again,’’ Newsday, November 21, 2001. 10Lillian Martell, ‘‘Cox to Increase Rates for Cable, Internet Service.’’ The Wichita Eagle, (Feb. 

22, 2002). 11 Jerri Stroud, ‘‘Charter Plans to Raise Cable Rates by End of Year.’’ St. Louis Post-Dispatch, (Sept. 26, 2001). 12Tom Walter, ‘‘Time Warner Raising Cable Rates for 6th Year in a Row.’’ The Commercial 

Appeal, (Nov. 21, 2001). 13Monica Collins, ‘‘Boston Subscribers at the Mercy of Cable Rate Hikes.’’ The Boston Herald, 

(Nov. 28, 2001). 14Mike Rogoway, ‘‘Cable TV Rate to Increase 9 Percent.’’ The Columbia, (Nov. 3, 2001). 15 Amy Schatz, ‘‘Time Warner is Upping Cable Rates.’’ Austin American Statesman, (Nov. 28, 

2001). 

TV.4 These consumers can only choose between DirecTV and EchoStar. Thus, the 

merger would leave them with EchoStar as their only option.5

Therefore, Consumers Union believes that this proposed merger poses significant 

antitrust problems and must be rejected, unless the problems are adequately addressed before the merger is completed. Under certain circumstances, we also believe the merger could offer consumers some significant benefits, such as more local 

broadcast channels and better high-speed Internet options available via satellite. We 

believe that government approval should be contingent on specific market-opening 

preconditions and protections against anti-competitive practices. These would involve antitrust consent decree requirements to prevent monopolistic pricing and inferior service, plus Federal Communications Commission (FCC) action to encourage 

competition. 

CABLE 

To understand the full set of trade-offs related to this proposed merger, we believe 

that the issues surrounding satellite concentration should be viewed in the overall 

context of persistent cable monopoly dominating the multi-channel video programming market. 

Sixteen percent of American households have satellite dishes, while about 68 percent have cable.6 A substantial portion of satellite subscribers also purchase cable 

in order to receive local broadcast programming or to satisfy multiple TV viewing 

needs. Thus far, satellite has failed to provide price competition to cable. As one industry analyst writes:

We believe that more than 95% of all cable churn is caused by factors other 

than DBS competition. Competition generated churn rates of just 1.3% per 

year during the past five years, suggesting that former cable customers 

make up less than one-third of DBS’s current customer base. The implication of this finding is significant because it suggests that the vast preponderance of DBS’s growth depended on first-time multi-channel video (MVC) 

subscribers. We believe that growth in the MVC market will drop off in the 

next several years as the potential population of first-time MVC subscribers 

dwindles.7

Every year, cable rates keep going through the roof. In the five years since the 

Telecommunications Act became law, cable subscribers have seen their rates go up 

36 percent. That’s nearly three times the rate of inflation.8 Cablevision recently announced a 7 percent rate hike, two weeks after AT&T announced a 7.4 percent hike. 

In cities all around the country, cable companies are raising rates 9 with an alarming pace. The following are just a sampling of rate increases: Wichita, KS—14%,10

St. Louis, MO—14-26%,11 Reno, NV and Memphis, TN—15%,12 Boston, MA—12%,13

Vancouver, WA—9%,14 Atlanta, GA and Austin, TX—10%.15

Unfortunately, the 1996 Telecommunications Act phased out cable rate regulation. 

It gave consumers the impression that cable competition would expand sooner rather than later, and cable prices would go down, not up. 

The law assumed that the elimination of legal barriers to entering the cable business would unleash a torrent of competition from local telephone companies, electric 

utilities and others. 

49

16FCC Seventh Annual Assessment of the Status of Competition in the Market for the Delivery 

of Video Programming (CS Docket No. 00–132), January 8, 2001. 17See Declaration of Thomas Hazlett, Ph.D (Resident Scholar, American Enterprise Institute 

for Public Policy Research). In the Matter of Applications of Northpoint USA, PDC Broadband 

Corporation and Satellite Receivers, Ltd. To Provide a Fixed Service in the 12.2–12.7 GHz Band.

(ET Docket No. 98–206). See also Margaret Talev, ‘‘Consumers Have Little Recourse on Cable 

Rates.’’ Los Angeles Times (Feb. 4, 2001). 18Patrizio, Andy. ‘‘Ted Turner Laments Cable Mergers,’’ Wired News, November 28, 2001. 19FCC Fifth Annual Assessment of the Status of Competition in the Market for the Delivery 

of Video Programming (CS Docket No. 98–102), December 17, 1998. 20FCC Seventh Video Competition Report at 1002, Table B–6. 21 Id. 22 Id.

Unfortunately, it just hasn’t happened. The local telephone companies have virtually abandoned their efforts to compete with cable,16 and electric utilities have 

had difficulty breaking into the market. Without the benefit of regulations that prevent cable price gouging, only consumers in the few communities where two wireline companies engage in head-to-head competition for cable services are receiving 

the benefits promised in the 1996 Act. FCC data show that head-to-head competition saves consumers 14 percent compared to prices charged by cable monopolies 

(where satellite service is also available), and independent research indicates that 

competition can save consumers as much as 32 percent on their cable bills.17

Unfortunately, two-wire towns are the exception to the rule in today’s marketplace. Large companies that are well-positioned to block competition increasingly 

dominate the cable industry. Currently two companies (AT&T and AOL Time Warner) together own cable systems serving more than 50% of the nation’s cable subscribers and are partially co-owned through Time Warner Entertainment. In most 

places, the local cable company is the only cable company. As cable TV pioneer Ted 

Turner recently said: ‘‘I think it’s sad we’re losing so much diversity of thought and 

opinion. . . . We’re getting to the point where there’s going to be only two cable 

companies left.’’ 18

Cable companies often argue that programming costs and capital outlays account 

for the increase in rates. But these arguments simply do not hold up under scrutiny. 

For one, cable industry data show that a substantial portion of the increase in 

programming costs are offset by corresponding increases in advertising revenue. As 

programming gets more expensive, cable companies get more revenue from advertisers who run commercials during the programming.19

Secondly, the largest cable system operators have financial interests in about onethird of all national and regional programming. So when cable companies complain 

about having to pay more for programming that they partly own, some are simply 

taking money of the right pocket and putting it in the left pocket. 

Even at the local level, the cable industry’s complaint about rising programming 

costs does not hold water. Since the passage of the 1996 Act, cable revenues have 

increased much faster than costs. Since 1996, total revenues have increased by 50 

percent, while operating revenues are up 43 percent.20 Average operating revenues 

(total revenues minus operating costs) have actually increased by 32 percent.21 Most 

notably, the revenues that are associated with the expansion of systems—advertising, pay-per-view and shopping services, advanced services and equipment—are 

up 123 percent.22 The dollar value of revenue increases for new and expanded services since 1997 alone swamps the increase in programming costs. Virtually all of the 

increases in basic and expanded basic service revenues have been carried to cable’s 

bottom line in the form of increases in operating profits. 

COMPETITION 

So how does satellite TV stack up against cable? Cable companies may contend 

that satellite is a serious rival, but evidence shows that, thus far, satellite is not 

an effective competitor to cable. For most consumers, satellite is still more expensive 

and less attractive than cable. Installation and multiple TV hookups make satellite 

significantly more costly than cable. In addition, poor satellite reception is a problem for some consumers in urban areas, and most consumers still cannot get all of 

their local TV stations from satellite. The attached Appendix illustrates how satellite serves a rural, unwired-niche market (about 40% of satellite subscribers, or 

approximately 6 million households) and a mega-service market that cable has just 

entered with digital services, but satellite fails to compete with cable’s 42 million 

basic and enhanced basic ‘‘lunch bucket’’ customers. See Appendix at 13. 

50

23 ‘‘FCC and FTC,’’ Warren’s Cable Regulation Monitor, April 9, 2001. 24See Comments of Consumers Union, et. al., In the Matter of EchoStar Communications 

Corp., General Motors Corp., and Hughes Electronics Corp. for Authority to Transfer Control. 

FCC Docket No. 01–348 (Feb. 4, 2002). 

If satellite can provide local channels in more areas and continue to bring down 

up-front equipment costs, it could be well-positioned to be the most likely competitor 

to cable in the future. 

One of EchoStar’s major arguments for a merger with DirecTV is that combining 

the dominant players of the satellite industry is the only way for them to compete 

head-to-head with the cable monopolies. We do not believe this combination alone 

would guarantee that satellite becomes an effective competitor to cable TV. However, the combined companies would have additional satellite capacity to beam local 

channels into more markets than they do now. They would also be able to reduce 

costs per subscriber and possibly speed up the availability of high-speed Internet 

service in rural areas. Once again, all of these would increase the likelihood that 

satellite could become a price and service competitor to cable. 

Nonetheless, the only way that antitrust and other competitive concerns about 

this merger can be addressed is to require the conditioning of the merger with two 

significant safeguards. 

First, EchoStar should be required to implement a broad array of protections for 

rural subscribers. The company should have to agree to offer the same prices, terms, 

and conditions to consumers in rural areas as it does to consumers in more competitive areas. The same installation options, program packages, promotions, and customer service that EchoStar provides in the closest, most competitive markets would 

then be available where consumers have cable and only one satellite choice. An alternative approach to achieve the same result would require a structural separation 

(divestiture) of enough satellite capacity to serve rural customers through a new satellite competitor that could challenge the combined Echostar/DirecTV. 

The second safeguard we would suggest is aimed at improving competition. If consumers are going to lose one competitor in the multichannel video market, particularly when it means unwired markets will go from two choices to one, the FCC 

should move forward to open the door to another competitor. 

For example, Northpoint/Broadwave is a promising potential competitor to both 

cable and satellite TV. It is trying to secure a license for its service, but it is caught 

in a regulatory morass at the FCC. Two of the companies that have pressed the 

FCC to reject the application are the companies that could see the stiffest competition—EchoStar and AT&T.23

The addition of Northpoint/Broadwave or a comparable firm to the marketplace 

could offset the loss of a satellite competitor as a result of this merger. Therefore, 

we are asking the FCC to approve licensing of Northpoint/Broadwave—if the service 

can be provided without interfering with satellite service—before the antitrust officials complete their review of this merger.24

In conclusion, I would like to recall the last telecommunications merger to receive 

this kind of attention from Congress—the merger of America Online and Time Warner. Some of you probably remember the antitrust concerns that were raised when 

AOL first unveiled its merger plans. 

I know that former FTC Chairman Pitofsky remembers them well. And thanks 

to his insight and leadership at the FTC, that merger was transformed from a potential threat to consumers to a model for the protection of consumers. That merger 

was very different in many ways from the merger under discussion here today. But 

they do have at least two things in common. 

Like the merger of AOL and Time Warner, the merger of EchoStar and DirecTV 

presents serious problems that could be dangerous to consumers. But as the government’s approval of AOL Time Warner demonstrated, problems can be fixed if the 

companies and federal officials are willing to do so. 

Rather than reject this proposal out of hand, we would urge the federal government to seize an opportunity to improve consumers’ standing in the marketplace 

and bring some sorely-needed competition to the multi-channel video market.

Chairman KOHL. We thank you, Mr. Kimmelman. 

Finally, we turn to Mr. Edward Fritts. 

51

STATEMENT OF EDWARD O. FRITTS, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF BROADCASTERS, WASHINGTON, D.C. 

Mr. FRITTS. Thank you, Mr. Chairman, Ranking Member 

Dewine, Senator Hatch. We are delighted to be able to present our 

views as to why the National Association of Broadcasters opposes 

this merger. 

As free, over-the-air local television stations, our members currently serve their communities with a unique blend of local and 

network programming. The areas served by local television stations 

are divided into 210 designated marketing areas, or DMAs, across 

the country, so we have members ranging from No. 1 in New York 

City all the way down to number 210 in Glendive, Montana, and 

all the markets in between. 

The Satellite Home Viewer Improvement Act, which has been 

mentioned here today, says that if a satellite provider carries one 

local TV station in a market, it must carry all local TV stations in 

that market. This is known as the ‘‘carry one, carry all’’ statute. 

In many ways, you and we serve the same constituency. Your 

voters are our viewers, and I am sure you know many of your local 

broadcasters back in your home States. These are the broadcasters 

whose stations will be impacted by this proposed merger. 

EchoStar, in its attempt garner for the support for the merger, 

is making a number of promises, including one that addresses the 

fundamental objective of local television stations, and that is a 

promise to expand local-into-local service into all 210 markets 

across the Nation. Admittedly, this sounds great, but just a few 

months ago, as was pointed out, the company was singing a different song. 

In December, it told the FCC that a combined company would be 

able to serve only 100 markets. Now, with the merger plan appearing endangered, it has suddenly discovered the capacity to carry 

stations in all 210 markets. We have always asserted that that was 

possible independently without a merger. 

Regrettably, our local stations across the country have had less 

than a pleasant experience in dealing with EchoStar. In fact, 

EchoStar has done everything in their power to avoid complying 

with the ‘‘carry one, carry all’’ law. Naturally, we are concerned 

that a company that has systematically broken the law would be 

also willing to break promises. 

Here are some examples of our concerns: First, the FCC rebuked 

EchoStar for using invalid reasons in rejecting scores of carriage 

requests by local stations. Second, EchoStar’s solution to complying 

with Federal law on full carriage is to create a second-class tier of 

disfavored stations, primarily Hispanic, minority-owned, religious, 

and public stations that can be received only with the installation 

of a second receiving dish. The FCC has twice rejected such dish 

schemes. 

Third, in a series of retransmission consent negotiations, 

EchoStar so abused the FCC process that they were cited by the 

FCC for lack of candor. And, fourth, even today as EchoStar promises to carry all 210 markets, they continue a court challenge today 

against the ‘‘carry one, carry all’’ law. 

52

So, Mr. Chairman, with this track record, I think it is ironic that 

EchoStar is saying give us a monopoly forever and we promise to 

give you local-into-local someday, maybe. Please appreciate that 

local stations have many concerns with this so-called promise. 

EchoStar says they may cover all markets within 2 years, but there 

are no specific, definite deadlines. We are also concerned about the 

continuation of the ‘‘two dish’’ scheme. EchoStar’s filing continues 

to reserve the right to discriminate against disfavored stations. 

Another concern is the lack of assurance that all stations in all 

markets that are entitled to carriage will actually be carried. This 

may be an oversight, but we are understandably suspicious. 

The most perplexing is EchoStar’s promise versus performance 

with regard to court challenges. At the same time that EchoStar 

has promised to provide all 210 markets, it is challenging the underlying law on which that promise is tendered. So which is it 

going to be? Is it going to be that they will fulfill the promise of 

carriage in all 210 markets and dismiss the court cases, or will 

they continue to challenge the law in court and admit that the 

promise is hollow? 

Now, we come to the most important part: How are we to ensure 

that EchoStar fulfills its commitments? What is the compliance 

mechanism? Do we rely on the FCC, where EchoStar has consistently ignored and abused the rules? I don’t think so. Is the Department of Justice prepared and capable of regulating EchoStar’s future behavior? Frankly, I don’t have the answer, but I can assure 

you that broadcasters would need an iron-clad enforcement mechanism. 

Broadcasters have built our businesses and served our communities in a competitive environment. Competition brings out the 

best in all companies, so our overriding objective is indeed the 

same as yours to bring our viewers and your constituents their 

local television stations should they subscribe to direct broadcast 

satellite. 

Thank you for this opportunity to present our views and I look 

forward to answering questions. 

[The prepared statement of Mr. Fritts follows:]

STATEMENT OF EDWARD O. FRITTS, PRESIDENT AND CEO , NATIONAL ASSOCIATION

OF BROADCASTERS, WASHINGTON, D.C. 

I. INTRODUCTION 

As President and CEO of the National Association of Broadcasters, I am pleased 

to appear before the Senate Judiciary Subcommittee on Antitrust, Competition and 

Business and Consumer Rights to discuss NAB’s opposition to the pending 

EchoStar/DIRECTV merger. 

EchoStar Chairman, Charlie Ergen, has made several promises to gain favor for 

his anticompetitive merger proposal. As the Committee will recall, three months ago 

Mr. Ergen told the FCC that the merged firm would be able to serve only 100 markets with local-to-local. Now, to try to create a distraction from the fact that his 

merger will end all competition between U.S. DBS firms, EchoStar has announced 

that it has suddenly found the capacity to provide local-to-local in all 210 U.S. television TV markets after the merger. This promise—which is nothing more than 

that—in no way alleviates broadcaster concerns, nor does it diminish the regulatory 

hurdles yet to be cleared by the applicants. 

My written testimony first provides a general overview of the issues concerning 

broadcasters, then goes into greater detail regarding the impact of this merger on 

broadcasters and consumers. 

53

1See Generally EchoStar Communications Corporation, General Motors Corporation, Hughes 

Electronics Corporation and EchoStar Communications Corporation, Consolidated Application 

for Authority to Transfer Control (December 3, 2001) (hereinafter ‘‘Consolidated Application’’). 

A. THE TRANSACTION

EchoStar Communications Corporation (‘‘EchoStar’’) and Hughes Electronics Corporation, a subsidiary of General Motors, Inc., have announced an agreement by 

which General Motors will spin off Hughes, including its Direct Broadcast Satellite 

(‘‘DBS’’) business, DIRECTV, which will then merge with EchoStar. The parties to 

this transaction have filed a Consolidated Application For Authority to Transfer 

Control with the FCC seeking authority to transfer control of satellite, earth station, 

and other authorizations, including licenses to use orbital satellite positions for DBS 

services, into the new company.1 The merger also is under review by the Department of Justice. 

B. NAB’S MEMBERS’ ROLE AS BROADCASTERS AND INTEREST IN MERGER

The NAB is a non-profit trade association that promotes and protects the interests 

of radio and television broadcasters in Washington and around the world. The NAB 

is the broadcaster’s voice before the Commission, Congress, and the courts. The 

NAB is committed to the goal of promoting localism and diversity in television programming throughout the United States. 

The broadcasting industry provides free, over the air programming. As cable 

emerged, grew and thrived through the 70s, 80s and 90s as a Multichannel Video 

Programming Distributor (‘‘MVPD’’), it evolved as the ‘‘gatekeeper’’ of programming, 

particularly local programming, throughout the United States. With the 1999 passage of the Satellite Home Viewer Improvement Act (‘‘SHVIA’’), satellite carriers 

were also granted this gatekeeper role, enabling DBS companies to deliver TV stations within their own markets without paying copyright royalties to the owners of 

the programming carried on those stations. 

As suppliers of programming to local markets, the NAB’s members stand to be 

substantially harmed by the proposed merger of EchoStar and DIRECTV. By combining the only two DBS providers, the merger will create a DBS monopoly, reduce 

the number of MVPDs, eliminate beneficial rivalry between two DBS firms to offer 

local-to-local service in new markets, and enable EchoStar and DIRECTV to exercise 

significant market power in both the purchase and distribution of video programming throughout the country. This reduction in competition will be to the detriment 

of both program suppliers and viewers. 

C. OVERVIEW

EchoStar and DIRECTV, the sole remaining DBS companies with full-CONUS 

spectrum in the United States, propose to merge. Their merger would create a monopoly in large areas of the United States and for many millions of MVPD and 

broadband Internet customers. In most other areas, at best the merger would reduce 

the number of competitors to two, creating a duopoly and ending EchoStar’s frequent role as a ‘‘maverick’’ in the DBS and MVPD industries. The net present value 

of the total consumer welfare loss over the next five years is estimated to be approximately $3 billion or more. 

The anticompetitive effects of this reduction of competition would be felt both by 

consumers and programming suppliers, including the local broadcast stations that 

are members of NAB. Broadcasters would be particularly harmed because they 

would lose the benefit of the DBS rivalry that has led to carriage of local broadcast 

stations in many markets on one or both DBS systems. The merger would also have 

a deleterious effect on broadcasters’ ability to obtain fair compensation for retransmission consent. 

The merger application is particularly audacious because both companies have 

been enormously successful on their own. Today DBS is a $10 billion industry; it 

has grown from zero subscribers in 1994 to over 17 million at the end of 2001. More 

than two out of every three new MVPD subscribers choose DBS over cable. This 

phenomenal growth has accelerated markedly since the passage of SHVIA in late 

1999, which allowed DBS providers to offer local broadcast signals. Since SHVIA’s 

passage, EchoStar’s and DIRECTV’s subscriber numbers have grown 87.6 percent 

and 60.2 percent respectively. 

At the same time as the DBS industry has enjoyed such striking success, it has 

concentrated into a two-firm duopoly, down from five licensees with full-CONUS 

spectrum in 1998. Today, EchoStar and DIRECTV control all 96 available frequencies at the three orbital locations capable of transmitting to the entire lower 

54

2 In a filing with the Federal Communications Commission (FCC) just a few months ago, 

DIRECTV said that its own internal customer surveys showed that 29 percent of its subscribers 

are unable to subscribe to cable. See Comments of DIRECTV, Inc., In the Matter of Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS 

Docket No. 01–129, at 13 (filed Aug. 3, 2001) (only ‘‘71% of DIRECTV customers live in areas 

able to receive television service.’’). 3Pegasus Communications ex parte notice, CS Docket No. 01–348 (Jan. 23, 2002). 4 Credit Suisse First Boston Equity Research, Natural Selection: DBS Should Thrive as the 

Fittest to Serve Rural America, at (Oct. 12, 2001). 

48 states, 101 degrees W.L., 110 degrees W.L., and 119 degrees W.L. Because these 

are the only three full-CONUS orbital slots available to the United States in the 

high-power Ku-band, the barriers to entry into the DBS industry are not merely 

high, they are insurmountable. And because DBS has been the only successful competitive entrant against cable, this means that barriers to entry to an overall MVPD 

market are also extremely high. 

The astounding growth of the DBS industry has been spurred by the direct headto-head market and innovation rivalry between EchoStar and DIRECTV. Because 

DIRECTV was first to market in 1994, EchoStar, since its entry in 1996, frequently 

has played the role of a maverick with lower prices and innovative marketing concepts. Among the areas in which the two have competed fiercely are equipment and 

installation pricing, where EchoStar led the market downward; programming, where 

each service has developed niches, such as DIRECTV’s subscription sports packages 

and EchoStar’s wide array of international programming; technology, where the two 

firms have sought to outdo each other in offering personal video recorders, high definition receivers, and other innovative technologies; and local-to-local, which 

EchoStar first pioneered but where DIRECTV now offers service in more cities and 

in a more consumer-friendly manner. All of this rivalry-spurring innovation would 

be lost if EchoStar and DIRECTV were allowed to merge. 

In terms of competitive effects, the proposed merger will have ill effects whether 

EchoStar’s position is correct that there is a separate DBS market, or whether 

EchoStar and DIRECTV are closest substitutes for one another in an overall MVPD 

market. In either case, this is a merger to monopoly for millions of households 

throughout the United States who are not passed by cable systems, and at best a 

merger to duopoly everywhere else. EchoStar claims that there are only three million households in the former category, but the data it relies on are clearly inaccurate. Perhaps most strikingly, DIRECTV’s own internal survey data show that 

there are more than three million households not passed by cable just among 

DIRECTV’s own 10.7 million subscribers.2 As to the national figures, the NRTC has 

suggested that the percentage of homes passed by cable may actually be only 

around 81 percent, based on a joint report by agencies of the Departments of Commerce and Agriculture. Whatever the exact number, it is clear that in many areas 

large numbers of consumers have no access to cable. For instance, Pegasus reports 

that in 22 states over 30 percent of housing units have no cable access.3 For all of 

these consumers, this merger eliminates their only realistic competitive choice. 

The situation is much the same for consumers who live in rural areas passed by 

financially marginal cable systems. A detailed study by a leading investment banking firm found that 8,270 cable systems, serving roughly 8.2 million predominantly 

rural subscribers, might become extinct within the next five to eight years because 

they cannot justify the investment to upgrade to digital.4 Consumers in these territories will also face a monopoly DBS supplier if the merger is approved. 

In nearly all other areas of the country this will be, at best, a 3-to-2 merger. As 

such, and particularly because it will eliminate EchoStar’s closest competitor, it is 

likely that EchoStar will have the incentive and ability to unilaterally raise its 

prices, without regard to what the cable company may do. Also, with an MVPD duopoly established, it will be much more likely that EchoStar and the cable incumbents will be able to coordinate their pricing behavior. 

Broadcasters, as local program suppliers, will suffer from this elimination of competition. The competitive rivalry between these two companies has spurred technological innovation that has expanded the capacity to provide local-to-local service on 

a cost-efficient basis. A monopoly EchoStar will have much less incentive to innovate and add local stations. The EchoStar and DIRECTV unenforceable ‘‘promise’’ 

to add all 210 DMAs over some undetermined period of time if the merger is approved (while reserving the right to continue a vicious form of discrimination 

against many stations) in no way alters NAB’s opposition to the merger. Given the 

track record of the competition between these companies, the advancements in satellite technology, and the considerable disparity between EchoStar’s promises and 

its performance when left to its own devices, the NAB believes that more markets 

are likely to be carried as a result of competition than if they are at the mercy of 

55

5Multichannel News, DBS Politics is Local, Ted Hearn (Mar. 4, 2002). 

6Declaration of Richard G. Gould ¶ 3(c) (‘‘Gould Decl.’’) (Filed as Appendix C to NAB’s Petition 

to Deny in CS Docket No. 01–348, February 4, 2002). 7 Ergen Makes His Case, Satellite Bus. News, Dec. 31, 2001 at 11 (‘‘Ergen’’). 

an EchoStar monopoly. The Carmel Group subscription-TV analyst Jimmy 

Schaeffler agrees: ‘‘Consumers today probably have a greater chance of getting all 

210 [markets], and getting them sooner, if the deal does not go through. This is one 

of the better examples of the real value of the existing competition between 

DIRECTV and EchoStar in today’s satellite industry.’’ 5 In addition, local broadcasters will be harmed by the reduction in the number of gatekeepers—cable and 

DBS—for local station programming. 

Because of the strong likelihood that a 2-to-1 or 3-to-2 merger creating highly concentrated markets will result in higher consumer prices and reduced output, such 

mergers are universally condemned. Such mergers fail to win approval even when 

(unlike here) they may offer large efficiency gains, as the U.S. Court of Appeals recently ruled in FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001). Here, the parties claim efficiencies would result through the elimination of duplicate carriage, 

principally of local broadcast stations. However, the claimed efficiencies fall far 

short of the ‘‘extraordinary efficiencies’’ required for a merger in a concentrated industry. 

To be cognizable, an efficiency must be merger-specific, i.e., achievable only 

through the merger. In this case, to the contrary, as the Declaration of Richard 

Gould shows, based on DIRECTV’s and EchoStar’s own Engineering Statement each 

party individually easily could offer all local stations in all 210 DMAs.6 And in any 

event, the parties could eliminate duplication by entering into a joint venture agreement regarding as much programming as they find efficient—without the anticompetitive consequences of the merger. 

Finally, recognizing that the merger would adversely impact consumers in noncabled areas (but ignoring the anticompetitive impact elsewhere), EchoStar has proposed to offer a uniform national price, presumably to be enforced by the Commission and/or Department of Justice. Such a national pricing plan would be a giant 

step backward from the goals of the Telecommunications Act of 1996 to promote 

competition and eliminate regulation. Further, it simply would not work because 

there are many more dimensions to competition than a simple national monthly fee: 

prices for equipment and installation, customer service levels, investments in new 

local-to-local markets, and the like. And even as to price, Mr. Ergen himself admits 

that EchoStar would respond to specialized local pricing by cable operators.7

For these reasons, a national programming price fix will not work. But if it did 

work, it would harm, not benefit, competition. The uniform national price would be 

a duopoly price, not a competitive price, and would exacerbate the oligopolistic nature of the market. 

In addition to the merger’s adverse effects in video markets, it will have a similar 

anticompetitive effect in the satellite broadband market. Many millions of consumers who are not passed by an upgraded (or any) cable system, and who live too 

far from telephone company central offices to have Digital Subscriber Line (‘‘DSL’’) 

service available, are totally dependent on DBS for high-speed Internet access. Both 

EchoStar and DIRECTV offer such service today. The merger would eliminate this 

competition, and without any serious claim of an efficiency benefit: since each customer needs his or her own dedicated broadband transmissions, there is no serious 

‘‘avoidance of duplication’’ argument in the first place. 

For all these reasons, NAB strongly opposes the proposed merger between 

EchoStar and DIRECTV. 

II. ECHOSTAR’S TRACK RECORD WITH LOCAL STATIONS: A CONSISTENT 

PATTERN OF ABUSE AND LAWLESSNESS 

In every aspect of their dealings with local TV stations, EchoStar has shown a 

shameful disrespect for obedience to law. Since EchoStar has been perfectly willing 

to openly defy actual statutory mandates in their dealings with local TV stations, 

there is little doubt that they will readily walk away from vague assurances it may 

make today to obtain government blessing for a merger to DBS monopoly. 

A. ECHOSTAR’S AND DIRECTV’S ABUSE OF THE DISTANT-SIGNAL COMPULSORY LICENSE: 

‘‘CATCH ME IF YOU CAN’’

In 1988, with an extension in 1994, Congress created a special compulsory license 

in the Copyright Act to allow satellite carriers to retransmit distant ABC, CBS, Fox, 

and NBC stations—but only to the tiny fraction of households that are ‘‘unserved’’ 

56

8For the first few years of this exercise in lawbreaking, DIRECTV and EchoStar hid behind 

a small, foreign-owned company called PrimeTime 24. See CBS Broadcasting Inc. v. PrimeTime 

24, 48 F. Supp. 2d 1342, 1348 (S.D.Fla. 1998) (‘‘PrimeTime 24 sells its service through distributors, such as DIRECTV and EchoStar . . . [M]ost of PrimeTime’s growth is through customer 

sales to owners of small dishes who purchase programming from packagers such as DIRECTV 

or EchoStar.’’). Starting in 1998 (for EchoStar) and 1999 (for DIRECTV), the two companies 

fired PrimeTime 24 in an effort to dodge court orders to obey the Copyright Act. 9 A Federal Court has ruled that EchoStar unlawfully breached its contract with PrimeTime 

24. See PrimeTime 24 Joint Venture v. EchoStar Communications Corp., 2002 WL 44133 (So. 

Dist. NY, Jan. 11, 2002). 

by local broadcast stations. 17 U.S.C. § 19. This statute is called the ‘‘Satellite Home 

Viewer Act,’’ or ‘‘SHVA.’’

When DIRECTV went into business in 1994, and when EchoStar did so in 1996, 

they immediately began abusing this narrow compulsory license by using it to illegally deliver distant ABC, CBS, Fox, and NBC stations to ineligible subscribers. In 

essence, the DBS companies pretended that a narrow license that could legally be 

used only with remote rural viewers was in fact a blanket license to deliver distant 

network stations to viewers in cities and suburbs.8

As a result of EchoStar’s and DirecTV’s lawbreaking, viewers in markets such as 

Meridian, Mississippi, Lafayette, Louisiana, Traverse City, Michigan, Santa Barbara, California, Springfield, Massachusetts, Peoria, Illinois, and Lima, Ohio were 

watching their favorite network shows not from their local stations but from stations in distant cities such as New York. Since local viewers are the lifeblood of local 

stations, EchoStar’s and DirecTV’s copyright infringements were a direct assault on 

free, over-the-air local television. 

When broadcasters complained about this flagrant lawbreaking, the satellite industry effectively said: if you want me to obey the law, you’re going to have to sue 

me. Broadcasters were finally forced to do just that, starting in 1996, when they 

sued the vendor (PrimeTime 24) that both DirecTV and EchoStar used as their supplier of distant signals. But even a lawsuit for copyright infringement was not 

enough to get the DBS firms to obey the law: both EchoStar and DirecTV decided 

that they would continue delivering distant stations illegally until the moment a 

court ordered them to stop. 

The courts immediately recognized—and condemned—the satellite industry’s 

lawbreaking. See, e.g., CBS Broadcasting Inc. v. PrimeTime 24, 9 F. Supp. 2d 1333 

(S.D. Fla. 1998) (entering preliminary injunction against DirecTV’s and EchoStar’s 

distributor, PrimeTime 24); CBS Broadcasting Inc. v. PrimeTime 24 Joint Venture, 

48 F. Supp. 2d 1342 (S.D. Fla. 1998) (permanent injunction); CBS Broadcasting Inc. v. DIRECTV, Inc., No. 99–0565–CIV–NESBITT (S.D. Fla. Sept. 17, 1999) (permanent injunction after entry of contested preliminary injunction); ABC, Inc. v. PrimeTime 24, 184 F.3d 348 (4th Cir. 1999) (affirming issuance of permanent injunction). 

By the time the courts began putting a halt to this lawlessness, however, satellite 

carriers were delivering distant ABC, CBS, Fox, and NBC stations to millions and 

millions of subscribers, the vast majority of whom were ineligible city and suburban 

households. See CBS Broadcasting, 9 F. Supp. 2d 1333. 

By getting so many subscribers accustomed to an illegal service, DirecTV and 

EchoStar put both the courts and Congress in a terrible box: putting a complete stop 

to the DBS firms’ lawbreaking meant irritating millions of consumers. Any member 

of Congress who was around in 1999 will remember the storm of protest that 

DirecTV and EchoStar stirred up from the subscribers they had illegally signed up 

for distant network stations. 

While Congress properly refused to grandfather all of the illegal subscribers 

signed up by DirecTV and EchoStar, the two firms ultimately profited from their 

own wrongdoing when Congress—having heard an earful of consumer complaints—

enacted legislation in late 1999 providing for limited grandfathering. 

* * * * * * *

Not only did EchoStar and DirecTV ignore the plain requirements of the Copyright Act for years, but also when courts finally ordered their vendor (and them) 

to stop breaking the law, they took further evasive action to enable them to continue 

their lawbreaking.9 In particular, when their vendor (PrimeTime 24) was ordered 

to stop breaking the law, and to ensure that its partners (such as DirecTV and 

EchoStar) stopped doing so, both DBS firms fired their supplier in an effort to continue their lawbreaking. 

When DirecTV tried this in February 1999, a United States District Judge held 

in open court that DirecTV’s claims were ‘‘a little disingenuous’’ and promptly 

squelched its scheme. CBS Broadcasting Inc. et al v. DirecTV, No. 99–565–CIV–

57

10Declaration of Mark Jackson, Senior Vice President, EchoStar Technologies, ¶¶ 17, 19, 20, 

21 (executed Oct. 11, 2000) (‘‘Jackson Decl.’’) (claiming that EchoStar can only terminate 6,000 

to 10, 000’’ per day); Declaration of James DeFranco, Executive Vice President and Director for 

EchoStar Communications Corp. (executed Oct. 11, 2000) (‘‘DeFranco Decl.’’) at ¶¶ 18–21 (describing EchoStar’s proposed time frame and alleged need for lengthy period for shut off process). 1SBCA Comments, In Re Annual Assessment of the Status of Competition in the Market for 

the Delivery of Video Programming, CS Docket No. 00–132 (filed July 2000) (quoting Industry 

analyst). 

Nesbitt (S.D. Fla. Feb. 25, 1999); see id. (S.D. Fla. Sept. 17, 1999) (stipulated permanent injunction). 

EchoStar has played the game of ‘‘catch me if you can’’ with greater success. 

Thanks to a series of stalling tactics in court, EchoStar is continuing today to serve 

large numbers of illegal subscribers. Realizing that broadcasters were about to sue 

it in Florida, for example, in October 1998 EchoStar filed a declaratory judgment 

action in its home district—Colorado—against ABC, CBS, Fox, NBC, and their Affiliate Associations. The District Court in Colorado (Judge Nottingham) granted broadcasters’ request to transfer EchoStar’s lawsuit to Florida, finding that EchoStar had 

engaged in ‘‘flagrant forum-shopping.’’ Hearing Transcript, EchoStar Communications Corp. v. CBS Broadcasting Inc. (D. Colo. Mar. 24, 1999). 

Although EchoStar’s stalling techniques have thus far kept it from being subject 

to any long-term court order to stop its infringements, there is no doubt that 

EchoStar is continuing to break the law. When EchoStar was (briefly) ordered to 

start turning off its illegal subscribers in late 2000, for example, it candidly told the 

Court that it had so many illegal subscribers that it would take a long, long time 

to turn them all off, even if it turned off 5,000 subscribers per day.10

B. THE SATELLITE CARRIERS’ BREACH OF FAITH WITH CONGRESS ON THE LOCAL-TO- LOCAL COMPULSORY LICENSE

Starting in 1997, EchoStar began urging Congress to enact a new compulsory license that would allow satellite companies to carry local TV stations to local viewers 

without paying any copyright fees. DirecTV joined in the call for such a law in 1999. 

In December 1999, Congress granted the DBS companies’ wish in the Satellite 

Home Viewer Act of 1999 (‘‘SHVIA’’): it gave them carte blanche to deliver any TV 

station within its own market, without paying a penny in copyright fees to the owners of the programming carried on the station. Congress wanted to make sure, however, that the new compulsory license would not harm other stations in the market 

by putting a barrier—the DBS firm—between non-carried stations and many of 

their viewers. 

Congress therefore told EchoStar and DirecTV in the SHVIA that if they wished 

to use this special new license, they would need—starting in 2002—to carry all of 

the stations in each market. This simple and equitable principle is called ‘‘carry one, 

carry all.’’

The DBS firms happily accepted the gift that Congress had given them—a localto-local compulsory license. Thanks to that congressional largesse, the DBS firms 

have grown at a blistering pace since then: DirecTV has expanded from 7.86 million 

subscribers in November 1999 to 10.3 million today, while EchoStar has grown even 

more explosively, from 3.25 million in November 1999 to 6.43 million today. 

The DBS industry made no secret of the fact that its phenomenal post-SHVIA 

growth has been largely the result of Congress’ decision to make it easy for them 

to carry local TV stations. The Satellite Broadcasting & Communications Association, for example, said that the industry’s ‘‘40% subscriber addition growth in 2000 

is primarily the result of legislation passed in November 1999 allowing the DBS operators to offer local broadcast channels in markets of their choice.’ ’’ 11

How did EchoStar and DirecTV show their gratitude for this extraordinary gift? 

By brazenly seeking to defeat the will of Congress. 

Only a few months after the SHVIA went into effect, EchoStar, DirecTV, and 

SBCA filed a lawsuit demanding that the Court invalidate the ‘‘carry one, carry all’’ 

principle, on the theory that Congress’ generous (and lucrative) gift to the DBS industry somehow had to be even more generous to satisfy the First Amendment. 

In effect, the DBS firms demanded that the court rewrite the SHVIA to give them 

a sweet deal that Congress had emphatically refused them: the ability to use the 

programming of local TV stations with no copyright fees whatsoever, combined with 

a free hand to cherry pick a few stations while effectively cutting all other local stations off from DBS households. (Just two weeks ago, EchoStar and DirecTV filed 

an emergency motion asking the Court to stay the January 1, 2002 effective date 

of the SHVIA carry-one-carry-all provisions.) 

58

12 EchoStar’s pretense is that its discriminatory treatment of some local stations is justified 

because it supposedly offers to install a second dish ‘‘for free.’’ Even if EchoStar in fact made 

that offer in good faith, it would not remotely solve the problem, because it would not address 

the inconvenience, hassles, and aesthetic undesirability of the two-dish approach. But in reality, 

EchoStar has shown utter bad faith with regard to this ‘‘free offer.’’ Among other things, (1) 

EchoStar’s web site contains no mention of the supposed free offer, (2) as EchoStar itself has 

boasted, the letter to consumers announcing the ‘‘offer’’ buried it in a footnote—which is likely 

to be read by few and understood by fewer, (3) EchoStar has decided to end its ‘‘free offer’’ on 

March 31, 2002, long before most subscribers will even be aware of it. All of this is set forth 

in detail in NAB’s filings with the FCC in Docket No. 00–96. 

Luckily, the courts have thus far brushed aside the satellite industry’s intense effort to thwart Congress’ will. But the lesson is clear: Congress (and the administration) would be foolish to approve a merger to DBS monopoly based on vague promises about future benefits. EchoStar and DirecTV’s track record shows that they are 

perfectly willing to take a government-granted benefit—here, permission to merge 

to DBS monopoly—and then use every available tactic to unravel the terms on 

which the government granted the benefit. 

C. THE SATELLITE CARRIERS’ RELENTLESS GUERRILLA WARFARE AGAINST ‘‘CARRY ONE, CARRY ALL.’’

EchoStar and DirecTV have not only attacked the principle of ‘‘carry one, carry 

all’’ on a wholesale basis in the courts, but have sought to sabotage it in their ‘‘retail’’ dealings with local stations requesting carriage. When local stations sent requests to EchoStar in the summer of 2001 asking for carriage, for example, 

EchoStar sent back crude form letters offering nonsense reasons for rejecting most 

stations, such as absurd claims that the stations didn’t list the city in which they 

are licensed or that TV towers a few miles away did not provide a strong enough 

signal. 

On its own initiative, the FCC sharply criticized EchoStar form-rejection-letter 

tactic for failing to ‘‘comply with the rule or the Report and Order.’’ In re Implementation of the Satellite Home Viewer Improvement Act of 1999: Broadcast Signal Carriage Issues, CS Docket No. 00–96, ¶ 59, 16 FCC Rcd 1918 (Sept. 5, 2001). 

EchoStar’s recalcitrance has continued since then: many station owners have been 

forced to file complaints against EchoStar at the FCC to enforce the carriage rights 

that Congress granted them. See EchoStar, DirecTV Turn Down Dozens Of Requests 

For Carriage, Communications Daily (Oct. 19, 2001). Indeed, as press reports reflect, the FCC has been ‘‘inundated’’ by an ‘‘avalanche’’ of complaints that broadcasters were forced to file after being turned away by EchoStar, DirecTV, or both. 

Id.

D. ECHOSTAR’S BRAZEN DECISION TO DEFY CONGRESS AND THE FCC BY PLACING

DISFAVORED STATIONS IN ‘‘SATELLITE SIBERIA’’

EchoStar and DirecTV have twice asked the FCC to rule that satellite companies 

can ‘‘satisfy’’ the carry-one-carry-all rules by relegating disfavored stations to an outof-the-way satellite that viewers could receive only if they purchased an additional 

dish. In response, the Commission has twice emphatically rejected that proposal. 

See In Re Implementation of the Satellite Home Viewer Improvement Act of 1999: 

Broadcast Signal Carriage Issues, ¶¶ 37–41, CS Dkt. No. 00–96 (released Sept. 5, 

2001) (discussing initial rejection of DBS proposal and reaffirming prior rejection). 

In an extraordinary slap in the face to Congress and to the FCC, EchoStar has 

decided to do exactly what the Commission had twice said would be unacceptable: 

purporting to ‘‘satisfy’’ its carry-one-carry-all obligations by putting disfavored stations on a completely different satellite that requires viewers to obtain new equipment. Specifically, in late December, EchoStar announced that many stations that 

it was required (starting on January 1, 2002) to offer on a local-to-local basis would 

be available only to the tiny fraction of subscribers who obtained a second satellite 

dish capable of receiving signals from EchoStar’s ‘‘wing slot’’ satellites located far 

over the Atlantic or the Pacific. NAB has been forced to file an emergency petition 

with the FCC to halt this outrageous practice, and innumerable broadcasters have 

filed protests with the Commission about it. (Among other things, EchoStar has rendered virtually all local Spanish-language, minority-owned, and religious stations inaccessible to viewers by segregating them on its wing-slot satellites.) 

EchoStar has extensive experience with consumer reactions to obtaining local stations from a second satellite dish—and it knows that consumers view a second dish 

as posing unacceptable costs, even if EchoStar supposedly offers to install the second dish ‘‘for free.’’12 Indeed, EchoStar has previously told the Commission exactly 

that. 

59

13 EchoStar Press Release, DISH Network is the Only One! EchoStar’s DBS Service the First 

and Only to Guarantee Local Channels (Jan. 8, 1998). 14 EchoStar Press Release, EchoStar DISH Network Launches DISH NETS Local Channels in 

Pittsburgh—EchoStar Offers Customers Free Second Dish For Local Channel Access (Sept. 15, 

1998) (emphasis added), www.web.archive.org/web/19991008075007 /www.dishetwork.com/profil/

press/press/press139.htm <visited Feb. 4, 2002>. 

The pertinent background is as follows: from early 1998 until some time in 1999, 

and before the enactment of the SHVIA, EchoStar offered local-to-local transmissions of certain local stations (typically the major network stations) to subscribers in several markets.13 At that time, all of the local stations that EchoStar 

offered were offered as a package, but—because the package was offered from a 

‘‘wing slot’’ satellite—it required use of a second dish. In at least some cities, 

EchoStar offered second dishes for free—just as it purports to be doing now—except 

that it actually announced its free offer, rather than trying to keep it a secret.14

EchoStar ultimately abandoned the two-dish method of offering local stations. Before it did so, however, EchoStar candidly admitted to the Commission that, even 

under ideal conditions—with a free dish, and with the entire local station package 

(as opposed to just a few stations) being offered on a second dish—the two-dish option encountered ‘‘substantial consumer resistance,’’ was ‘‘unfortunate[],’’ and ‘‘not 

an attractive alternative′′:

EchoStar has had to offer a two-dish solution to complement its fullCONUS offering with services from its satellites at 61.5° W.L. and 148°

W.L. . . . EchoStar has encountered substantial consumer resistance to the 

perceived difficulties of installing and maintaining second dishes. . . . [citation omitted] (‘‘As a ’second-best’ solution to this problem of orbital scarcity, EchoStar has been offering limited local-into-local service through the 

use of half-CONUS satellite capacity. This requires the use of multiple 

dishes, and will thereby be more difficult to market as a convenient alternative to cable.’’); [citation omitted] (‘‘EchoStar currently offers local programming through its satellites at 61.5° W.L. and 148° W.L. This arrangement unfortunately, requires customers to install a second dish in order to 

receive local programming. While some customers have embraced the twodish system, others have found it to be cumbersome and difficult, despite 

EchoStar’s offer to install the second dish free of charge. To date, the two 

dish solution has not proven to be a particularly attractive alternative to 

cable.’’) (citations omitted.) 

[EchoStar] Petition to Deny, In Re Tempo Satellite, Inc., File No. SATASB–19990127–00014 at 3 n.4 (filed March 5, 1999) (copy attached as Appendix A) (emphasis added). 

Despite all this, at the FCC right now, EchoStar is aggressively defending its 

‘‘right’’ to discriminate against local stations that it does not like by placing them 

in second-dish Siberia. And as discussed below, EchoStar is reserving the right to 

fulfill its ‘‘210-market’’ promise in this same, grossly discriminatory manner—which 

makes a mockery of the carry-one-carry-all principle that Congress embodied in the 

SHVIA. Given this duplicity, it would be irresponsible to treat EchoStar’s eleventhhour ‘‘210-market’’ promise as though it had any real-world meaning. 

E. ECHOSTAR’S ‘‘ABUSE OF THE COMMISSION’S PROCESSES’’ ABOUT RETRANSMISSION

CONSENT

EchoStar has brought the same abusive approach to the arena of retransmission 

consent—the process by which DBS firms obtain permission from those local stations that the DBS firms do wish to carry. EchoStar’s approach has been simple: 

if it is unable to make a retransmission consent deal with a station, it automatically—as punishment—files an FCC complaint alleging that the station had failed 

to bargain in good faith. 

One broadcaster victimized by this practice was Young Broadcasting, Inc., which 

owns local TV stations in several markets. On August 2, 2001, the FCC’s Cable 

Services Bureau rejected EchoStar’s retransmission consent complaint against 

Young Broadcasting as unfounded. In re EchoStar Satellite Corp. v. Young Broadcasting, Inc., File No. CSR–5655–C, ¶ 32, at 15 (Aug. 6, 2001). Not only did the 

Commission reject EchoStar’s complaint, but the FCC Bureau found that EchoStar 

had engaged in misconduct that the Bureau could not ‘‘excuse.’’ The FCC Bureau 

chastised EchoStar for ‘‘abuse of process’’ and cautioned EchoStar ‘‘to take greater 

care with regard to future filings’’ (id. at 16), finding further that ‘‘EchoStar failed 

in its duty of candor to the Commission’’ by publicly disclosing portions of the docuVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
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15 Notably, the two companies have also admitted that before the merger announcement, 

DIRECTV had already planned to launch spot-beam satellites that would be able to serve 103 

markets—in other words, that their December 2001 ‘‘promise’’ of 100 markets was actually offering nothing beyond what DIRECTV by itself was already planning to be able to do. 16See EchoStar’s Opposition to Petitions to Deny and Reply Comments, CS Docket No. 01–

348 (filed Feb. 25, 2002), at 4. 

ments for which it sought strict confidentiality in Commission proceedings. (Emphasis added.) 

The FCC’s Bureau held that ‘‘EchoStar’s conduct in filing material with the Commission requesting confidentiality, while concurrently engaging in a public debate 

over the issues raised in this proceeding and publicly disclosing selected portions of 

the alleged confidential material, constitutes an abuse of the Commission’s processes.’’ Id. (emphasis added). 

Again, the lesson is clear: it would be foolish to expect a monopoly DBS firm to 

obey the law and comply with legal processes when the company that would own 

the monopoly firm (EchoStar) has never done so in the past. 

III. BROADCASTER CONCERNS WITH THE PROPOSED MERGER 

LOCAL-TO-LOCAL SERVICE

1. EchoStar’s ‘‘promise’’ to provide local-to-local service in all 210 markets does not 

resolve NAB’s concerns 

Perhaps the most perceptive comment about EchoStar’s 11th-hour promise to offer 

local-to-local in all 210 markets has been made by Bob Shearman, the editor of a 

leading trade publication about the satellite industry: EchoStar’s announcement is 

‘‘a very shrewd political Hail Mary with no downside because it’s unenforceable.’’

In one sense, EchoStar’s new ‘‘Hail Mary’’ promise is no surprise—as the NAB has 

always maintained, either company individually has the capacity to serve all 210 

markets, and the combined company would obviously have the ability to do so. But 

what is notable is the lightning speed with which EchoStar has reversed field: as 

of December 2001, EchoStar told the FCC that the combined firm could serve only 

100 markets, but now—facing the prospect that its merger to DBS monopoly will 

be rejected by the authorities—it has suddenly ‘‘found’’ sufficient capacity.15

So what, if anything, has changed with Mr. Ergen’s latest move? We now have 

a paper ‘‘commitment’’ from Charlie Ergen that after EchoStar has gotten what it 

wants—the opportunity to swallow its competitor and become a DBS monopolist—

and after it is much too late to undo the merger, New EchoStar will supposedly offer 

local-to-local in all 210 markets. 

Does it make sense to place any faith in this ‘‘promise’’? The carefully hedged 

manner in which EchoStar has made this ‘‘commitment’’—and broadcasters’ consistent bitter experience with EchoStar’s bad faith maneuvering in the past—shows 

that it does not. 

First, the ‘‘210 markets’’ promise is nothing more—only a promise. It is not a legally enforceable obligation—and even if it were, EchoStar has shown that it will 

exploit every conceivable mechanism to avoid complying with legal obligations that 

it considers inconvenient at the moment. Since EchoStar is perfectly willing to defy 

federal statutes and regulations, there is no reason to expect it to live up to a mere 

unilateral promise, particularly when EchoStar will have achieved the benefit 

(merger approval) that it sought to achieve by making that promise. 

Second, EchoStar has carefully avoided making any commitment about when it 

will offer local-to-local service in all markets. All of its new FCC filings contain ambiguous phrases like ‘‘as soon as two years after approval’’—words intended to give 

it all the wiggle room it needs to delay providing local-to-local in smaller markets 

for as long as the monopoly DBS firm likes, which may be a long, long time. 

Third, and perhaps most significant of all, EchoStar is reserving the right to segregate some local stations on ’’wing-slot’’ satellites that can only be viewed if the 

subscriber obtains a second satellite dish. As discussed below, this tactic completely 

guts the carry-one-carry-all rule that Congress embodied in the SHVIA—and 

EchoStar is aggressively defending its right to use this statute-destroying technique 

as part of its ‘‘210-market’’ promise. 

A careful reading of the DBS firms’ latest FCC filing reveals classic EchoStar 

game playing. Early in the filing—in the part that EchoStar expects to be widely 

read—EchoStar tries to create the impression that it will make all local stations in 

all markets available to customers with ‘‘one consumer-friendly mini-dish.’’ 16 Far 

back in EchoStar’s filing, however, the truth comes out: EchoStar tells the Commission that it ‘‘should reject attempts . . . to impose a special condition on the comVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
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17 Id. at 140. 18DIRECTV Press Release, DIRECTV to Launch Local Channels in 10 New Markets This 

Year—Local Channels will be available in 51 Markets Representing more than 67 percent of 

U.S.TV Households (Jan. 8, 2002). 19 In the carriage lawsuit in the Eastern District of Virginia, the FCC’s expert witness, Dr. 

Jeffrey Rohlfs, provided a detailed spreadsheet showing the number of eligible stations in each 

market as well as a running total of the cumulative number of eligible stations. See Declaratin 

of Jeffrey H. Rohlfs, Satellite Broadcasting & Communications Ass’n of Am. v. FCC, No. 00–

1571–A (E.D. Va. 2001). 20See Gould Decl. at 9–11. 21 Id. 11–15. 

bined company that it carry all its ’must-carry’ stations so that they are received 

on the same dish.’’ 17 That is, EchoStar insists on being able to carry out its ‘‘210-

market’’ promise in a manner that—as discussed in detail above—makes the promise meaningless. 

To sum up: EchoStar has now made an unenforceable promise to carry the local 

television stations in all markets at some indefinite time in the future, and with 

the threat to render many local stations effectively unviewable by stranding them 

on satellites that require consumers to install a second satellite dish. Given the 

emptiness of this ‘‘promise’’—and the many other fatal problems with the merger 

that this promise does not purport to address—NAB remains opposed to the merger. 

2. Capacity for local-to-local without the merger is not an issue. 

Each firm individually could easily do what the two firms say they would do as 

a DBS monopoly—namely, provide local-to-local service in all 210 TV markets. A 

merger is not necessary to produce such a result because currently each provider 

strives to ‘‘leapfrog’’ the other in offering new service to different markets. With a 

merger, this incentive disappears. If the merger does not occur, for example, 

EchoStar will be deeply concerned about the increasingly large number of markets 

that DIRECTV does—but EchoStar does not—serve with local-to-local, and will 

surely take prompt and aggressive countermeasures as it has in the past. It is precisely this competitive ‘‘fear’’ that has led to the current level of local-to-local service.18

(a) Local-To-Local Service In Remaining Markets Will Require Far Less Capacity 

At the outset, we note that, for a reason not discussed by the applicants, future 

local-to-local deployments will be easier in one critical respect than past rollouts. 

The reason is simple: the markets the two firms are already serving are the largest 

markets in the country, which have the greatest number of local TV stations. For 

example, stations in the top 50 markets have an average of 12 stations per market 

(598 eligible stations in 50 markets), while stations in the next 50 markets have 

only an average of eight eligible stations per market (393 eligible stations in 50 

markets).19 With the same amount of channel capacity, therefore, the DBS firms 

will be able to serve significantly more small markets than large markets. 

(b) The EchoStar/DIRECTV Joint Engineering Statement Shows That Each Firm 

Could Separately Provide Local-To-Local In All Markets 

The Joint Engineering Statement of EchoStar Communications Corporation and 

Hughes Electronics Corporation, Attachment B to the parties’ Consolidated Application for Authority to Transfer Control filed with the Federal Communications Commission on December 3, 2001 (‘‘Joint Engineering Statement’’) confirms that 

DIRECTV and EchoStar today have more than enough high-power, Ku-band 

CONUS capacity to offer all local television stations in all markets via satellite. 

As the Joint Engineering Statement explains (at 6), DIRECTV has already found 

a way to design a spot-beam satellite that reuses the same frequency an average 

of 7.33 times when retransmitting local TV stations. And both companies acknowledge that they expect to be able to compress 12 channels into each frequency while 

maintaining acceptable picture quality. Id. at 13. These two statistics, both of which 

come from the applicants themselves, mean that each company—using its 46 (for 

DIRECTV) or 50 (for EchoStar) CONUS Ku-band frequencies—could carry all of the 

eligible local television stations in all 210 U.S. markets, and also carry all of its existing national programming, with ample room to offer still more.20 And by taking 

advantage of readily available technological advances, each company will be able in 

the future to greatly expand its ability to deliver even more television programming.21

(c) Satellite Capacity Is Constantly Increasing Through Technological Innovation 

Although the analysis above shows that the two firms individually have ample capacity to deliver local-to-local in all 210 markets, that analysis is only the beginning 

62

22 Id. at 17. 23Turner Broadcasting Sys. v. Fcc 512 U.S. 622 (1994). 24See Joint Engineering Statement (attached to Consolidated Application) at 6. (hereinafter 

‘‘Eng. Statement’’). 25 Id. 26 Eng. Statement at 5. 

of the story, because ‘‘satellite capacity’’ is not fixed and finite but elastic and expanding, thanks to the relentless ingenuity of engineers and business people. 

NAB’s satellite engineering expert, Richard Gould, provides valuable perspective 

on this point. As Mr. Gould explains: ‘‘I have worked in the field of satellite engineering since the 1960s. At every point during that period, scientists and engineers 

have been finding ways to use satellites more efficiently and intelligently than in 

the past. In this respect, the satellite industry is like the computer industry: past 

performance records are constantly being shattered as engineers design better and 

better hardware and software.’’ 22

Indeed, the Commission should hear a familiar ring to the protestations of the 

satellite industry that present and future capacity constraints will forever limit 

their ability to expand carriage of local television stations. In its decade-long fight 

against carriage of local stations, the cable industry made the same factual claims. 

In 1992, Congress soundly and correctly rejected these self-serving predictions. In 

doing so, Congress made logical and reasonable predictions that cable’s expanding 

capacity would virtually eliminate what were already minimal capacity issues with 

the carriage of local stations. In Turner, the Supreme Court found these predictions 

eminently reasonable, and as history as shown, they were correct.23 The DBS industry’s current effort to contend that technological progress has come to an end are 

no more credible. Consider the following points, which show that the alleged benefit—increased capacity—is not merger-specific, since it will be achieved through 

technical innovation in any event. 

(1) Spot Beams 

EchoStar and DIRECTV have each embarked on launching two satellites fitted 

with spot beams to enhance their ability to offer local-to-local service. These satellites will enable DIRECTV and EchoStar to deliver far more local stations than 

could be retransmitted with CONUS satellites—and illustrate how engineering ingenuity stimulated by competition creates new ‘‘capacity’’ where it did not exist before. 

The Joint Engineering Statement filed by EchoStar and DIRECTV also shows 

that engineering techniques evolve over time, and how engineers—in the spirit of 

rivalry—do better when they compete with each other. As discussed above, one of 

the critical factors that determines how much capacity can be created by using spot 

beams is how many times a single frequency is reused in different parts of the country. On this score, the Joint Engineering Statement shows that DIRECTV (or its 

contractors) have, at least in the first round, been much more successful than 

EchoStar (or its contractors): DIRECTV achieved a reuse rate of 7.33 with its first 

spot-beam satellite 24—which is almost 50 percent higher than the 5.0 reuse rate 

that EchoStar originally planned to achieve with its two spot-beam satellites.25 If 

the two firms continue to compete with each other—as they should—their engineers 

will surely continue to play the game of ‘‘can you top this,’’ to the benefit both of 

themselves and the public. 

(2) Dishes Capable Of Receiving Signals From Two Or Three Orbital Locations 

In addition to use of spot beams, many other techniques are available to enable 

DBS firms to expand their capacity to deliver local stations (or other programming). 

For example, although satellite dishes have traditionally been ‘‘pointed’’ at only a 

single orbital location, both DIRECTV and EchoStar today offer a single dish that 

can receive signals from two or even three different orbital locations (101° W.L, 110°

W.L, and 119° W.L). Simply through use of a single dish that points to multiple satellites, consumers can receive far more programming than with the single-satellite 

dishes that were the only option until recently. 

A few years ago, multi-satellite DBS dishes were unknown, and the prospect of 

‘‘doubling or tripling satellite capacity’’ through their use was hard to imagine. 

Today, for one of the two DBS firms, multi-satellite dishes are ubiquitous: EchoStar 

states that ‘‘[a]pproximately 80 percent of [its] subscribers currently have antenna 

dishes capable of viewing programming from both the 110° W.L. and 119° W.L. orbital locations.’’ 26

(3) Compression Techniques With Existing Equipment 

DIRECTV and EchoStar admit that their ability to squeeze more programming 

onto the same number of frequencies has essentially doubled over the past few 

63

27 Eng. Statement at 13 (‘‘Four to five years ago, compression ratios of 6–08 were achievable 

and the future outlook using existing hardware is only expected to achieve ratios of about 12:1 

with acceptable quality.’’). 28 Id. 29See id. at 7, 8, 14. 30Declaration Under Penalty [of] Perjury of Stephanie Campbell, SBCA v. FCC, No. 00–1571–

A (E.D. Va. Nov. 2, 2000) (DIRECTV carried approximately 500 channels using its 46 frequencies, which amounts to about 11 channels per frequency). 31 Eng. Statement at 13. 32 Harmonic, Inc. Press Release, DIRECTV Signs Contract for Harmonic’s Digital Compression 

Systems—DIRECTV Signs Contract for Harmonic’s Digital Compression Systems—DIRECTV to 

Deploy Hundreds of Harmonic MV50 Encoders by Year’s End May 7, 2001) (‘‘ ‘Harmonic’s technology has played an integral role in our ability to provide the widest offering of channels possible to more then 9.8 million DIRECTV customers across the U.S.,’ said Dave Baylor, executive 

vice president, DIRECTV, Inc.’’). 33See Gould Decl. at 6–7. 34See, e.g.Comments of DIRECTV, Inc., [1998] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 98–102, at 5 (filed 

July 31, 1998; Comments of DIRECTV, Inc. [1999] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 99–230, at 9 filed 

Aug. 6, 1999); Comments of DIRECTV, Inc. [2000] Annual Assessent of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 00–132, at 16 (filed 

Sept. 8,2000); Comments of DIRECTV, Inc. [2001] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 01–129, at 16 (filed 

AUg. 3, 2001). 

years.27 Although the two firms say that they expect to achieve a 12:1 compression 

ratio with existing hardware,28 their Engineering Statement, inexplicably, assumes 

a much too low compression ratio of only 10:1 when calculating how much capacity 

each firm has separately.29 This strange pessimism is unwarranted, for at least 

three reasons. First, DIRECTV told a court more than a year ago that its compression ratio even then was about 11:1, not 10:1.30 Second, both DIRECTV and 

EchoStar now state that they ‘‘expect’’ their own compression ratios to be at least 

12:1.31 It is hard to fathom why the two firms do not accept their own compression 

figure. Third, the company that manufactures compression equipment for 

DIRECTV—a company called Harmonic, Inc.32—has stated that using the type of 

digital compression equipment it has sold to DIRECTV, the compression ratio is actually between 12:1 and 14:1.33 There is no reason to doubt that EchoStar could 

purchase the same equipment (if it has not already done so). And if the manufacturer of the compression equipment is right that a compression ratio of 14:1 is in 

fact achievable, that single change (as compared to the low 10:1 ratio that EchoStar 

and DIRECTV assume in their Engineering Statement) would give DIRECTV four 

extra channels for each of its 46 frequencies, or 184 total extra channels, and 

EchoStar four extra channels for each of its 50 frequencies, or 200 total extra channels. 

When the Commission evaluates whether all progress in compression has come 

to an end—as the DBS firms imply in their Engineering Statement—it should consider this: even as DIRECTV has in fact doubled its compression ratio from around 

6:1 just a few years ago to (by its own admission) 12:1 today, it has again and again 

told the Commission, incorrectly, that it had essentially hit a brick wall as far as 

any further progress in compression technology:

July 31, 1998: ‘‘DIRECTV has substantially reached current limits on digital compression with respect to the capacity on its existing satellites. 

Therefore, the addition of more channels will necessitate expanding to additional satellites. . . .’’

Aug. 6, 1999: ‘‘DIRECTV has substantially reached current limits on digital 

compression with respect to the capacity on its existing satellites.’’

Sept. 8, 2000: ‘‘DIRECTV has substantially reached current technological 

limits on digital compression with respect to capacity on its existing satellites. Although there are potentially very small gains still possible 

through the use of advanced algorithms, such technological developments 

can neither be predicted nor relied upon as a means of increasing system 

channel capacity.’’

Aug. 3, 2001: ‘‘DIRECTV has offered digitally compressed signals from its 

inception, and has substantially reached current technological limits on digital compression with respect to capacity on its existing satellites. Although 

there are potentially very small gains still possible through the use of advanced algorithms, such technological developments can neither be predicted nor relied upon as a means of increasing system channel capacity.’’ 34

64

35 Eng. Statement at 13. 36See Gould Decl. at 14. 37Of curious note is Mr. Ergen’s claim that this is a merger of two ‘‘weak’’ competitiors. As 

was noted by an industry observer, ‘‘[u]ntil he had DIRECTV in his sight, did Charles Ergen 

ever say his company, and DBS as a whole, could not compete with cable?’’ Bob Scherman, A 

Satellite TV Monopoly: Death of Competition and Choics, 13 Satellite Business News, Nov. 7, 

2001, 12. 

In other words, as DIRECTV was—no doubt in good faith—repeatedly telling the 

Commission that further progress was impossible, it (or its vendors) were in fact 

finding ways to double the number of channels that could be delivered with the 

same number of frequencies. The lesson here is plain: just as happened with cable, 

America’s satellite engineers are constantly devising fresh ways to expand the capacity of satellites to deliver television programming, and it would be irresponsible 

to assume that decades of continuous improvements have suddenly, and 

inexplicably, come to an end. 

(4) Expanded Channel Capacity Possible Through 8PSK With New Set-Top Boxes 

Everything that DIRECTV and EchoStar say about channel capacity in their Engineering Statement is premised on what can be done ‘‘using existing hardware’’ 35—

but that limitation makes no sense. First, there is an enormous amount of natural 

turnover as consumers replace old set-top boxes (or buy new ones with new features, 

such as personal video recorders). Second, if the two companies wish to share frequencies, including through a joint venture, they will need to supply many if not 

all of their customers with new set-top boxes. 

If consumers are provided with new set-top boxes, a powerful new capacity-expanding technique becomes available: so-called ‘‘higher-order modulation and coding’’ using a technique called ‘‘8PSK’’ (or potentially 16PSK TCM or 16QAM), which 

would permit DBS firms to transmit substantially more channels than they do today 

with QPSK (Quaternary Phase Shift Keying) modulation. As satellite engineer Richard G. Gould explains, simply moving from the current standard of QPSK to the 

next standard up (8PSK), would by itself result in at least a 30% increase in satellite capacity. For the 50 Ku-band CONUS frequencies controlled by EchoStar, for 

example, this technical improvement alone would result in an increase of at least 

180 channels (50 frequencies x 12 channels/frequency x .3). Of course, because 8PSK 

requires a new set-top box, a satellite carrier might need to phase it in over a period 

of a few years, just as driver-side air bags have gradually become ubiquitous in 

American automobiles. For example, satellite carriers might initially use 8PSK to 

offer local-to-local service in new cities, expecting that (a) new customers will acquire the 8PSK boxes in the first instance and (b) existing customers will acquire 

the 8PSK boxes over time. Alternatively, the DBS firms might offer customers free 

new set-top boxes as part of a production joint venture in which they achieve the 

‘‘anti-duplication’’ benefits of the merger while continuing to compete as separate 

firms. In any event, it would be absurd to ignore this powerful and readily-available 

technical tool, which DIRECTV and EchoStar do not even mention in their Engineering Statement, but that would undoubtedly be used by competent engineers 

seeking to maximize satellite capacity. 

(5) MPEG–4

Finally, there is every reason to expect that the current signal compression technology, known as MPEG–2, will be replaced by more advanced technologies, such 

as MPEG–4 (and no doubt future generations thereafter). With higher compression 

ratios in the future, the number of TV channels that can be supported on a single 

frequency will increase beyond the assumptions set forth above.36

* * * * * * *

Just as anyone who bought a personal computer in 1998 has seen it become a virtual antique today, satellite engineers have a long and unbroken record of making 

last year’s performance standards seem old hat. If the Commission leaves these two 

highly energetic and creative DBS rivals to continue their spirited competition with 

one another, there can be no doubt that satellite ‘‘capacity’’ will continue its long 

tradition of explosive growth for many years to come. 

3. All Of The Benefits Of The Merger Can Be Obtained Today By A Production Joint 

Venture 

EchoStar claims that it must merge with DIRECTV to gain the efficiencies of combining duplicative spectrum capacity in order to offer new services and local channels in more markets.37 However, this is not the case. All of the claimed efficiencies 

(i.e., elimination of duplicative spectrum) can be obtained through a joint venture. 

65

38See 2000 Antitrust Guidelines for Collaborations among Competitors, <http://www.ftc.gov/

bc/guidelin/htm>. See also PPG, 798 F.2d at 1508 (D.C. Cir. 1986) (‘‘cooperation with other market participants could yield similar results without causing the same market concentration.’’). 39See generally, ABA Section of Antitrust Law, Antitrust Law Developments, ch. IV(B)(2) (4th 

ed. 1997). See also In re General Motors Corp., 103 F.T.C. 374 (1984) (production joint venture 

between two largest automobile manufacturers in the world upheld because it was a limited enterprise rather than a merger of two parents). 40 EchoStar Gears Up For Takeover, Communications Daily (Jan. 10, 2002) (‘‘As EchoStar 

gears up for proposed acquisition of Hughes Electronics and DIRECTV, it expects to have settop box (STB) by spring capable of receiving rival’s service. Pro 301 will ship as Echo Star receiver but will contain 4 MB of membory for DIRECTV’s advanced program guide and it will 

be modified to handle its satellite switching, [EchoStar] Senior VP Mark Jackson said at CES 

here. Final detail, should $26 billion deal be approved, would be for DIRECTV to transfer source 

code to box via software download to receiver’s flash memory, Jackson said. . . .’’) (emphasis 

added). 41 Ergen at 11. 42 Indeed, as discussed above, EchoStar has already developed (since the merger announcement) a new set-up box capable of decoding both firms’ signals. 

Antitrust laws do not prohibit competitors from forming joint ventures or other limited arrangements to develop, produce, or market new products.38 Production joint 

ventures are looked upon favorably by the courts because they can allow for the procompetitive effect of integrating functions while at the same time allowing competition between the parties to the joint venture to thrive.39

EchoStar can easily enter into a joint venture with DIRECTV to share channel 

uplinks and downlinks. In fact, EchoStar’s merger filings demonstrate beyond doubt 

that such a joint production venture is plainly feasible: the two parties are already 

planning on taking all the technical steps necessary to such a venture, such as providing their customers with set-top boxes capable of receiving programming from either firm’s satellites. (Strikingly, EchoStar recently announced that it expects to 

have such a box ready by this spring.) 40 If EchoStar and DIRECTV were correct 

about the gains to be achieved by avoiding duplicative backhauls, uplinks, and 

downlinks of television programming, those gains would plainly be sufficient to finance the steps necessary to achieve the same gains through a joint venture—while 

preserving the enormous benefits to the public of rivalry between two DBS firms 

rather than allowing creation of a DBS monolith. 

In a recent interview, EchoStar Chairman Ergen explained why the two firms had 

not yet formed a joint venture: [we] couldn’t. . . get these efficiencies without merging. . . because we had some obstacles to overcome. Whose technology are we going 

to use? That meant one of the companies had to replace all of their boxes, and the 

other company got away without having that cost. . . Second, how would you combine the spectrum? You can’t flip a switch with two incompatible systems today and 

suddenly overnight light up and change out all of those boxes. . . . [Also, who] 

would get what frequencies and how many frequencies [would you] trade off? 41

In other words, Mr. Ergen did not—and could not—dispute that a joint venture 

is technically feasible; the only obstacle is to agree on allocation of costs.42 If the 

benefits of avoidance of duplication were as great as the applicants contend, however, they would have every incentive to go back to the bargaining table—after the 

merger is disapproved—to resolve the cost allocations. 

B. RETRANSMISSION CONSENT

In addition to the concerns regarding local-to-local service, broadcasters would 

also be at a disadvantage with a merged EchoStar/DIRECTV when it comes to negotiating carriage. 

Broadcasters will be harmed because in monopoly markets they will face a monopolist purchaser in retransmission consent negotiations for their local signals. Obviously, broadcasters will not fare as well as they might if they had two rival DBS 

companies with which to negotiate. There will also be an anticompetitive effect on 

retransmission rights negotiations in cabled duopoly markets because of the loss of 

EchoStar’s closest competitor. 

C. THE MERGER WILL HAVE ANTICOMPETITIVE EFFECTS ON CONSUMERS

Consumers in the many local markets where this will be a merger to monopoly 

will experience increased prices and a reduction in output. Post-merger, EchoStar, 

as a profit-maximizing monopolist MVPD, will have the incentive to raise its prices 

and lower the quality (i.e., the costs to EchoStar) of its service in non-cabled areas 

and areas with antiquated cable systems by offering reduced program choice and variety. With no competing MVPD, EchoStar will have the power to control price and 

output in many local markets to the detriment of consumers across the country. In 

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43Sidak Declaration ¶¶ 36–37 and Table 3 (filed as part of NAB’s Petition to Deny is CS Docket No. 01–348, February 4, 2002). 44 ‘‘Consumer welfare loss’’ represent (i) ‘deadweight loss’, u,e,, the loss of value by consumers 

who forego DBS service as a result of the post-merger price increase plus (ii) the incremental 

wealth transfer from consumers who will pay higher prices post-merger. Sidak Decl. ¶¶ 49–50 

Table 3. (Attached as Appendix A). 45 Rule 56(f) Motion, at 7. 46See Competitive Market Study at 30. 47See Appendix A. Sidak Declaration ¶¶ 49–51 and Table 3. 48See Emergency Petition of National Associationof Broadcasters and Association of Local 

Televisio Stations to Modify or Clarify Rule, In the Matter of Implementation of the Satellite 

Home Viewer Improvement Act of 1999 Broadcast Signal Carriage Issues, CS Docket No. 00–

96 (filed Jan. 4, 2002). 49See Declaration of Robert D. Willig on Behalf of EchoStar Communications Corporations, 

General Motores Corporation, and Hughes Electronics Corporation (Nov. 30, 2001) at ¶ 10. 

(hereinafter ‘‘Willig Decl.’’) (‘‘Executives at both EchoStar and DIRECTV confirm that the objective of each firm is to gain market share by luring consumers away from the leading cable providers, and the firms accordingly price their DBS programming services at levels based primarily on the prices charged by cable providers.’’); Id. at ¶ 11 (‘‘it appears based on statements 

by executives of both EchoStar and DIRECTV that a majority of new DBS consumers had previously been cable subscribers.’’). 50Willig Decl. at ¶ 10. 

these predominantly rural monopoly markets the price of DBS is estimated to increase from an average of $46.76 today to $62.35.43 The total consumer welfare loss 

is estimated to be nearly $2.3 billion in rural markets over the next five years on 

a net present value basis.44

Even if a uniform national price were instituted and could be enforced (which it 

could not be), consumers in monopolized MVPD markets will pay somewhere between a monopoly price and a duopoly price. EchoStar will logically sacrifice some 

subscription revenue in markets where it competes with a cable substitute in order 

to raise prices, and reap monopoly profits, in markets with no competition. 

In the rest of the country, where the merger will result in an EchoStar-DBS duopoly, there will be both unilateral and coordinated anticompetitive effects. The unilateral effects will result from the elimination of consumers’ ability to choose 

EchoStar’s closest substitute for MVPD services. As EchoStar recently stated in its 

litigation, ‘‘EchoStar is DIRECTV’s closest competitor.’’45 This position is supported 

by a recent DBS industry study that found that DBS households were more likely 

to switch to a different DBS provider than to any other MVPD provider.46 In such 

circumstances, EchoStar will be able profitably to raise its prices to consumers 

above the premerger level and/or reduce the quality and quantity of its product offerings and customer service to below the premerger level even in markets where 

there is a viable cable competitor. Combining the effects in monopoly and duopoly 

markets, Dr. Sidak—an Economist retained by NAB—has estimated that the acquisition will result in a consumer welfare loss of from approximately $3 billion to $7.6 

billion (assuming perfect collusion with cable providers) over the next five years on 

a net present value basis.47

In addition, the merger will augment the potential harm to consumers that 

EchoStar has constantly sought to inflict on subscribers by limiting their access to 

some stations in local-to-local markets it serves. Virtually since SHVIA was enacted, 

EchoStar has sought through constitutional challenges, bogus claims of inadequate 

signal strength and duplicative programming and, most recently, its two-dish ploy 

to deny consumers access to smaller and niche television station programming in 

their markets.48 Such actions are harmful to consumers who will be denied access 

to this local programming. 

D. THE MERGER PROPONENTS FAIL TO ADDRESS ANTICOMPETITIVE EFFECTS

The merger proponents claim, with no real support, that there will be no anticompetitive effects because of the competition with cable. Neither the parties nor 

their economic expert—Professor Robert D. Willig—provide any empirical data to 

support any of their claims of market definition, the ability of cable to constrain the 

merged firm, or reduced costs. At best, Professor Willig repeats anecdotes he has 

been told by business people at EchoStar and DIRECTV.49

The only ‘‘evidence’’ Professor Willig cites for the proposition that EchoStar and 

DIRECTV do not compete with one another as vigorously as they do with cable is 

an executive’s assertion that DIRECTV failed to respond to an EchoStar promotion. 

According to Professor Willig, DIRECTV’s supposedly failed to respond to EchoStar’s 

‘‘I Like 9’’ pricing strategy under which customers who purchased EchoStar DBS 

equipment (rather than accepting an equipment subsidy) could also purchase its 

‘‘America’s Top 100’’ programming package for $9.99, on a month-to-month basis.50

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51DIRECTV Press Release, DIRECTV Univeils Fall National Promotion and Advertising 

Campaign (July 30, 2001). 52Multichannel News, DISH Kicks Off $9 Monthly Plan (Aug. 6, 2001) (‘‘DIRECTV, Inc. has 

no immediate plans to respond in kind to EchoStar’s aggressive programming pricing strategy. 

‘‘We have a huge differentiator with the NFL in the third quarter,’ DIRECTV CEO Eddy 

Hartenstein said.’’). 53See Reply Comments of EchoStar Satellite Corporation In the Matter of Annual Assessment 

of the Status of Competition in Markets for the Delivery of Video Programming, CS Docket No. 

01–129 (Sept. 5, 2001) at 2. (The only cable response was that AT&T Broadband offered to reduce the price of basic cable to $19.95 per month through the end of the year. Id. at 3.) 54See id. at 2–3 (‘‘EchoStar’s aggressive pricing also exposes as dubious the cable industry’s 

continued incantation of programming costs as justification for high prices’’) and n.5 (‘‘The cable 

industry’s lengthy commentary on its investment in programming and infrastructure also 

sounds like an alternative argument offered to justify or excuse its price hikes’’) (citing Comments of the NCTA (dated Aug. 2, 2001) at 2–3). 55 Consolidated Application, at 36; See also Salomon Smith Barney, DBS Industry Update: 

Valuing the Possiblity of a DISH/GMH Merger (Jan. 17, 2002) at 16 (predicting a decrease of 

20 basis points in the amount of churn faced by the merged company by 2005). 

Professor Willig was apparently not advised that (1) EchoStar itself was responding 

to a DIRECTV promotion announced the previous day,51 and (2) at the time (July/

August 2001) when the two companies were announcing their dueling promotions, 

DIRECTV’s CEO told the press the real reason that DIRECTV would not match the 

specific EchoStar offer: because DIRECTV had a ‘‘huge differentiator’’ with 

EchoStar, the exclusive and extremely popular NFL Sunday Ticket package of all 

Sunday NFL games.52

What is significant about the two firm’s competing August 2001 promotions is 

that cable providers—which did not have the NFL Sunday ticket as a 

‘‘differentiator’’—did not respond to either offer. In Comments filed by EchoStar concerning the Eighth MVPD Competition Report, EchoStar cited cable’s failure to respond to ‘‘I Like 9’’ as evidence that ‘‘[o]n the whole, cable operators are still not 

aggressively competing [with DBS] on price.’’53 In fact, EchoStar’s comments question cable’s positions regarding the causes of its high prices—investment in infrastructure and capacity, as well as programming costs—as hollow and an inadequate 

justification for the rate of its price increases exceeding inflation.54 The only conclusion then can be that falling DBS prices are the result of intense DBS competition. 

Ironically, the parties themselves confirm the anticompetitive effect on consumers 

of the merger in their application where they highlight that their costs will be lower 

because the new company will suffer less ‘‘customer turnover, or ’churn’’’ as the 

EchoStar and DIRECTV customer bases would be consolidated.55 That is simply another way of saying that customer choice will be reduced and that, because consumers will have only one differentiated alternative or no alternative at all, they 

will be effectively captive. 

CONCLUSION 

EchoStar’s proposal to acquire its only DBS competitor would create a monopoly 

MVPD giant for many millions of Americans, would (at best) reduce consumer 

choices from three to two for all other Americans, and would snuff out the headto-head competition between EchoStar and DirecTV that has led to the rapid rollout 

of local-to-local in many markets and would lead to further expansion of local-tolocal in the future. In place of competition, EchoStar, one of the least trustworthy 

companies with which broadcasters have ever dealt, offers only its own unilateral 

promises—which, when read carefully, promises virtually nothing. For all of these 

reasons, NAB remains opposed to the proposed merger of DirecTV and EchoStar.

Chairman KOHL. Thank you very much, Mr. Fritts. 

We will turn now to some questions. I would first like to address 

Mr. Ergen and Mr. Hartenstein, and I will ask five or six different 

questions and ask you to reply one and then the other. 

The first question for you, Mr. Ergen. You have made five or six 

promises. Let’s take them one by one and see if you are willing to 

commit to them in a legally binding and enforceable way. 

Mr. Ergen, first, you have promised to implement a single, uniform national pricing plan so that rural consumers who can’t get 

cable and will face a pay TV monopoly with this merger will indeed 

realize the price benefits of urban competition. Are you willing to 

68

commit here today to be subject to an enforceable and legally binding decree that you will implement this pricing plan if your merger 

is approved? 

Mr. ERGEN. Yes, we are, Senator, and I might point out that we 

already do that at EchoStar; we have for 6 years that we have been 

in business. I would point out that in Alaska, for example, today 

where we are the sole provider outside of Anchorage in the Eskimo 

villages, the sole provider of TV today, they pay exactly the same 

price as they do anywhere else in the United States. 

Chairman KOHL. Well, what would you do, Mr. Ergen, if one of 

those 210 markets, or 2 or 3 or 4 or 5, or 8 or 10 begin offering 

on cable TV enormous price reductions and you feel a need to respond or, in effect, go out of business in a market? What would you 

do? 

Mr. ERGEN. Well, I think that I am not the attorney here, but 

I think that those kinds of conditions can leave some flexibility to 

meet those kinds of challenges. And I think if we work toward solving the problem there, with the tremendous benefits that we get we 

will be able to do that. 

Chairman KOHL. Well, you are getting off of the pledge and the 

promise. Very clearly, you are saying where certain situations arise 

in certain markets, then we need to have the flexibility to respond. 

I understand that is business, but now that is no longer the same 

thing that you have said about offering a uniform national pricing 

policy that would allow all of your customers all across the country 

to get the benefits of competition. 

I mean, that is what you are saying. You are willing to make 

that promise and then when I ask you a simple question which is 

obvious—what do you do when 1 or 2 or 3 or 5 or 10 markets require you to offer lower rates to compete—what do you do with all 

the other markets that you have promised a single, uniform pricing 

policy? 

Mr. ERGEN. Let me try to answer that for you. We are certainly 

willing to live with one single, uniform nationwide pricing. I believe 

that it may be in the consumer’s best interest that there is some 

flexibility that regulators of the Justice Department or the FCC 

can agree to and I have seen many different formulas. We have offered a suggestion of one single nationwide price and we are willing 

to live with that. 

Having said that, there have been other pricing mechanisms that 

I have seen talked about among the people that may offer some 

flexibility that may be better for consumers than our plan. We are 

certainly willing to have those discussions so that when all is said 

and done, customers are protected on their pricing where we may 

be the sole provider. 

Chairman KOHL. I am listening and wanting to understand, and 

what I think I hear you saying is that you need to have that thing 

discussed more fully before you can agree to a single, uniform national pricing policy. 

Mr. ERGEN. I would put it this way: We are willing to agree to 

a single nationwide pricing policy. That is what we have suggested. 

When we suggested that, many people said what about if a cable 

company does this or that? 

Chairman KOHL. Yes. 

69

Mr. ERGEN. We then said, look, if there is flexibility that can be 

built into that consent decree or that condition and that is good for 

consumers, we are certainly willing to discuss that, and we have 

seen lots of different mechanisms discussed among some of the officials. But absent that, absent some better plan than we have suggested, we are willing to live with a single nationwide price, no 

matter what. 

Chairman KOHL. But explain as time unfolds how you will respond when cable companies across the country attempt to cut you 

up and take advantage of your national pricing policy. In New 

York, if the cable company offers a rate which is unbelievably low 

and you either have to respond, in effect, in a few years or get out 

of the market, what will you do? 

Mr. ERGEN. I think that proves our point. New York would be 

such a big market for us we couldn’t afford to leave that market, 

so we would have to meet that competition and the people in rural 

America would get the advantage of that competition in New York. 

Chairman KOHL. But then it is only in New York where your 

competition would suffer that problem. You would suffer that problem all across the country, so they could force you out of business. 

Mr. ERGEN. Well, we believe that to meet competition we not 

only have to be better than cable, we are going to have to be less 

expensive. And satellite, with this merger, is uniquely positioned to 

be a better economic animal, so we would have that decision of forgoing New York, with its some 12 million homes or whatever it is, 

or not being able to compete there. 

Chairman KOHL. But then your competitor in Chicago does the 

same thing and forces you out of Chicago. A competitor in L.A. 

forces you out of L.A. In order to maintain your national uniform 

pricing policy, I would submit to you that there would need to be 

an awful lot of discussion prior to an approval of this merger on 

that particular point. 

Mr. ERGEN. And we have suggested a solution. It is a very simplistic solution, I will admit. People have brought up the same 

point that you have brought up. When they have brought that up, 

other people have come up with mechanisms that solve that problem as well. And, of course, it gets more complicated when you do 

that, but we are certainly willing to discuss those things. I do think 

effort has to be put on that particular issue to make sure that this 

merger does protect those places where we might be a sole provider. 

Chairman KOHL. Mr. Hartenstein, your second promise is you 

promise to offer local broadcast television stations to your subscribers in all 210 television markets in America, compared to the 

40-plus markets that receive this service today. Will you tell us 

today that you will commit to this in the form of a legally binding, 

enforceable obligation, and can you tell us how soon you will be 

able to deliver local broadcast stations into every market in America? 

Mr. HARTENSTEIN. Mr. Chairman, the simple answer to that is, 

yes, we would be willing to be bound by whatever mechanisms that 

the regulators, the Department of Justice and/or the FCC, would 

impose on us. 

70

On the second part of your question as to how quickly we could 

implement it, we believe that beginning immediately, on the day of 

approval of the merger, we could begin expanding beyond the 42 

markets that we together serve today, begin expanding that over 

the first year, growing to about 100-plus markets. And then with 

that final satellite, the 16th satellite of the fleet, the 5th spot-beam 

satellite between our two fleets, we would fill in the holes in those 

roughly 100-plus markets, markets 100 to 210, approximately, and 

that could begin about 24 months after the approval of the merger. 

Chairman KOHL. The third question, Mr. Ergen: You have also 

promised to comply with the full ‘‘must carry’’ provision that went 

into effect for satellite at the beginning of the year. ‘‘Must carry’’ 

means, of course, that you have to pick up all local signals in a 

market, not just the two or three that might be most desired. We 

are pleased to hear this, given the fact that you have sued to have 

this requirement declared illegal. Does this mean that you are 

going to drop your lawsuit? 

Mr. ERGEN. First of all, we will comply with ‘‘must carry’’ on a 

single dish and carry all stations in all markets. Having said that, 

we believe the principle of ‘‘must carry’’ may have some constitutional questions in terms of freedom of speech, and we believe that 

that principle should at least be pursued in the courts. That is why 

we obviously have courts. I might point out that the NAB has on 

14 different occasions over the years pursued legal remedies where 

they haven’t agreed maybe with the Congress or the FCC. 

We have lost that court of appeals case so far, but we do have 

the option to go to the Supreme Court, just as the cable industry 

has done. Notwithstanding that, we are willing to commit to carrying all the channels, but we believe it is a principle that our customers would like us to pursue because they don’t necessarily want 

us to carry 200 home shopping channels that are all identical, with 

no local content, no local news, weather or sports. 

Chairman KOHL. Number 4: Mr. Hartenstein, you have promised 

to offer competitive broadband Internet service to compete with 

cable modem service across the country. Are you willing to commit 

to be subject to an enforceable and legally binding decree that you 

will implement this plan if your merger is approved? 

Mr. HARTENSTEIN. Yes, sir, Mr. Chairman. 

Chairman KOHL. Number 5: Mr. Ergen, you have both said how 

this merger will permit the rollout of HDTV and interactive television via satellite. How soon can we expect to see this service and 

is this something you would agree to as a condition of the merger? 

Mr. ERGEN. We will see expansion of that service immediately 

upon closure of the merger and we are willing to agree to it in a 

consent form. 

Chairman KOHL. Number 6: We understand this merger will require some change-over of consumer hardware, be it an antenna or 

a set-top box. As you promise that there will be no charge to consumers for any equipment change necessary to receive local channels or simply continue service, and you have also promised both 

a free installation and a free service call for this equipment switchover, I assume you can live with putting that promise into a consent decree as well. 

71

Mr. HARTENSTEIN. Yes, sir, we do. We announced that on the day 

that we announced the merger, and we are in the business of customer service and we absolutely would agree to that in whatever 

form the regulatory agencies would ask us to. 

Chairman KOHL. Before I turn to my colleagues, I would like to 

ask you, Mr. Pitofsky, why doesn’t the companies’ willingness to 

agree to be legally bound, as you have heard them say here today, 

solve many of the problems posed by this merger? 

Mr. PITOFSKY. Can I ask just one question of my colleagues here? 

Chairman KOHL. Go ahead. 

Mr. PITOFSKY. Aside from list price, are you prepared to commit 

that there will be a single price throughout the country and that 

there will be no difference in any part of the country with respect 

to equipment subsidies and introductory offers, which it seems to 

me is the way competition is waged in this industry? 

Mr. ERGEN. I think Mr. Pitofsky is a bit misinformed on how the 

industry works today. We sell at a price to retailers and by law 

they set their own price and their own installation price, so that 

with vigorous competition, whether it be your ability to buy a system at Radio Shack or from an independent retailer, maybe in WalMart, maybe in a Circuit City or Best Buys store, there is tremendous competition today once the product leaves for that installation. 

You will notice free installation services across the country, for 

example, promotions, rebates, and so forth. That is done after the 

product leaves us and we don’t think that the merger in any way 

negatively impacts that, and customer and consumer choice and 

competition from a retailer’s perspective. So I think that the market works a little bit differently than that, and that competition 

will always be there, regardless. 

Mr. PITOFSKY. And you don’t support the dealers in their subsidies and discounts and you don’t give any subsidies and discounts 

yourself. Is that right? 

Mr. ERGEN. We support the dealers. Today, we support through 

subsidies, and that subsidy is consistent across all of our retail distribution. 

Mr. PITOFSKY. And you would agree that in every single city, 

county and State in the United States, the subsidies that you give 

to the dealers will be exactly the same? 

Mr. ERGEN. That is what we do today, but we can’t guarantee 

what price to the consumer we will charge because we expect the 

retailers to vigorously compete and we expect that depending on 

which store you might go to, whether you buy it in the Internet, 

whether you buy it in a particular store from a retailer, you will 

probably see some better prices than others, some better installation offers than others. But that competition is external to our company 

Mr. PITOFSKY. Mr. Chairman, to answer your question, this is a 

very, very regulatory order; it is about as regulatory as you get. I 

thought the trend in this country was toward deregulation, toward 

not having the Government sitting in judgment as to every discount, every quality change, every introductory offer, and so forth. 

We leave that to the free market. 

72

The idea of a regulatory order like this, where it is a horizontal 

merger, it is a monopoly or, at best, a duopoly, it just seems to me 

would be a major departure from everything that we have done in 

antitrust for 100 years. 

Chairman KOHL. Thank you. 

Senator DeWine? 

Senator DEWINE. Thank you, Mr. Chairman. 

Mr. ERGEN AND MR. Hartenstein, as I noted in my opening comments, this merger faces some serious legal challenges. The basis 

premise of this merger seems to be more competition by less competition, but the long history of antitrust law would seem to lead 

to a different conclusion. 

Mr. Pitofsky has been, I think, pretty blunt and straightforward 

about what he thinks about the legality of this, but let also quote 

from United States v. Philadelphia Bank a leading Supreme Court 

case in this area, and I quote, ‘‘If anti-competitive effects in one 

market could be justified by pro-competitive consequences in another, the logical upshot would be that every firm in an industry 

could, without violating Section 7, embark on a series of mergers 

that would make it in the end as large as the industry leader.’’

Then the court goes on to say, and again I quote, ‘‘We are clear, 

however, that a merger, the effect of which may be substantially 

to lessen competition, is not saved because on some ultimate reckoning of social or economic debits and credits it may be deemed 

beneficial.’’

This seems like a pretty tough case from your perspective. It rejects the idea of decreasing competition in one market to increase 

it in another, and it also refuses to consider the benefits of a merger if that merger lessens competition. 

Bluntly, it seems to me you have a legal problem. How are you 

going to deal with it? I know you have got good lawyers, but are 

they that good? 

Mr. ERGEN. First of all, I don’t necessarily agree with the assumption that there is less competition, and I will come back to 

that. But in 1997, even when Chairman Pitofsky was at the FTC, 

the FTC and DOJ said that antitrust agencies in some cases will 

consider efficiencies not strictly in the relevant market; i.e., in a 

different market. This was in 1997, so it is an update from the case 

that you———

Senator DEWINE. Excuse me. You are quoting from what? 

Mr. ERGEN. I am quoting from a 1997———

Senator DEWINE. That is not a court case, though? 

Mr. ERGEN. It is not a court case, and again I am going to get 

in real trouble trying to be a lawyer here and I am not going to 

try to do that and we will certainly give some more information on 

that. But there are some cases, but let me tell you why———

Senator DEWINE. I appreciate it. I was quoting from a U.S. Supreme Court case. 

Mr. ERGEN. Let me tell you why I don’t agree with the competition issue. We really have a fundamental issue here, which is today 

our two companies offer these 500 channels, and that is what we 

both do. And you do have two choices from our companies of that, 

but the marketplace where yo don’t have local means neither one 

of us are a choice; only your cable company is a choice. 

73

When we bring local channels, you now will have two choices. 

You are going from one to two choices. In those markets where we 

only broadcast video, with the merger we are still going to be able 

to broadcast video, but now we can do your local channels. We can 

do high-definition television and interactivity; we can do broadband 

Internet. This is what cable does today. 

So, today, where you only have one choice of cable for three-dimensional-type services, you now will have two choices. Even in a 

city, we can’t offer these channels, all these different services. Now, 

we will be able to do that, so we have actually increased choice for 

services to consumers, and that is all on a single dish. So consumers are asking for that and this will enhance competition and 

enhance our ability to compete. This will not lessen competition because we go three-dimensional. 

Senator DEWINE. All right, I appreciate your comments. 

Mr. Kimmelman, thank you for coming back here. You are in a 

little different role today, though, and I want you to help me out 

and explain why you are in this different role and how you came 

to these conclusions. As a non-expert, I have looked through some 

of your charts. I am not sure I understand them, but that is not 

unusual. That is my fault, not yours. 

Walk me through this, though. I am not sure I really understand 

what you are saying. You are telling us that really there are two 

separate markets. Does that mean that DIRECTV is really not 

competing against cable? 

Mr. KIMMELMAN. Yes. 

Senator DEWINE. And are you saying that if these changes are 

made, they will compete? I mean, is that the bottom line? 

Mr. KIMMELMAN. That is a little too strong. When I mentioned 

before the issue of whether local channels offered on satellite had 

changed the whole picture and made them competitive, I suggest 

that it has not if you just look at rate increases. 

The FCC has looked at this carefully. In the few communities 

where there are two wires into the home offering cable television 

and two satellite providers, they found through econometric analysis prices on average are 14 percent lower. Other studies have 

shown that they are as much as 30 percent lower. Everywhere else 

in the country, if you look at where one cable wire is there and two 

satellite providers, those prices are higher. There is no price substitution. 

Senator DEWINE. Why do you think that is? 

Mr. KIMMELMAN. I believe it is because of the up-front costs of 

satellite, the purchase of the dish, multiple hook-ups, in some cases 

the inability to get reception. 

Senator DEWINE. Even with all the deals that are offered? It is 

almost like they will give you one. 

Mr. KIMMELMAN. It is a tremendous story, $1,000 down to $200, 

giveaways if you are willing to pay for the whole year’s programming and what not. The problem is cable is cheaper. Cable installation they can give away for free any time, any day, and when they 

charge you the full price it averages $30. They can do multiple-set 

hook-ups. Most American families have more than one TV hooked 

up to a multi-channel service. They want to watch different programs on different TVs—much cheaper than satellite. 

74

Satellite has made tremendous inroads and yet it still isn’t there, 

and that is what is different from the Beechnut example and that 

is what is different from Philadelphia National Bank. I believe in 

Philadelphia National Bank. 

Senator DEWINE. And you don’t think time will cure this problem the way it is today? In other words, some people might look 

at this market and say, well, when people really get used to buying 

the dish and it reaches a certain saturation point and everyone 

says, yes, you know, that is sort of the way to go—you don’t think 

at that point it tips and becomes really competitive? 

Mr. KIMMELMAN. You and I have been talking about this for 4 

years as those cable rates keep shooting up and up and up, now 

almost 40 percent. How much time? In response to Mr. Pitofsky, 

he is absolutely right. This is totally unorthodox and unusual for 

antitrust. I am suggesting the FCC should do it, but the problem 

here is Congress deregulated cable monopolies before there was 

competition. That is our problem. 

Senator DEWINE. Mr. Pitofsky, I want to give you 30 seconds because my time has run out. I want to give you 30 seconds to respond to that because I think this really gets down to the nuts and 

bolts of this argument with what Mr. Kimmelman said. 

Mr. PITOFSKY. My response is very brief. Mr. Kimmelman is absolutely right. Cable rates have gone up an average of 7 percent 

a year every year since 1996, or thereabouts. DBS rates have only 

gone up about 1 percent. What is the difference between cable and 

DBS? 

The difference is the two DBS companies compete with each 

other and keep the prices down. The difference is cable is a monopoly in every city in which it operates. Why would we change and 

allow DBS to become a monopoly so they, like cable, can raise 

prices 7 percent a year? It doesn’t make any sense to me. 

Mr. KIMMELMAN. I am worried about the 68 million cable subscribers at the same time as I am worried about the 15 million satellite subscribers. That is why I am saying I urge you to step back 

a little bit from antitrust. These gentlemen are absolutely right on 

straightforward, narrow antitrust principles. I would agree with 

them, but we are talking about the need for competition both to 

cable and to satellite. We know we are not going to re-regulate 

cable, from everything I have seen. 

Senator DEWINE. Mr. Pitofsky, do you have an opinion about 

why, as Mr. Kimmelman says, the effect is that people are not 

switching over, so they are seeing their cable rates go up? They 

continue to go up. Yet, they really have the option in many, many 

markets to go over and buy Mr. Ergen’s dish. 

Mr. PITOFSKY. Let’s give these folks credit. They are switching 

over. They have gone from 1 million subscribers to 17 million subscribers in, what, 5 or 6 or 7 years? If they continue that trajectory—I am not sure they can, but if they did, each of them would 

be as large as the combined company which they propose to 

produce as a result of the merger. They are doing very well. They 

deserve all the credit in the world. 

Senator DEWINE. What about that, gentlemen, in about 20 seconds? If you guys are doing so great, what is the problem? 

75

Mr. HARTENSTEIN. The problem simply is this: Neither one of us 

is profitable yet. When you ask a consumer, which is what this is 

all about, why don’t you have satellite versus cable, ask them what 

they watch at six o’clock and at ten or eleven o’clock. It is their 

local news, their local weather, their local sports. We are not able 

to do that in some 42 million homes, and that is what this merger 

is all about, getting the spectrum to do that. 

Senator DEWINE. Let me move to that small number of people 

that are very significant in this country, but it is actually not that 

small, who are going to end up in rural areas with no choice other 

than your merged company. Let’s talk a minute about them. 

In Mr. Kimmelman’s testimony he says, ‘‘A second safeguard we 

would suggest is aimed at improving competition. If consumers are 

going to lose one competitor in the multi-channel video market, 

particularly when it means unwired markets will go from two to 

one, the FCC should move forward to open the door to another 

competitor. For example, NorthPoint/Broadwave is a promising potential competitor to both cable and satellite TV. It is trying to secure a license for its service, but it is caught in a regulatory morass 

at the FCC. Two of the companies that have pressed the FCC to 

reject the application are the companies that could see the stiffest 

competition—EchoStar and AT&T.’’

Do you want to talk a little bit about that and do you want to 

maybe reconsider your position on NorthPoint/Broadwave? 

Mr. HARTENSTEIN. Let me clarify our position, and Charlie can 

do the same for him, Senator. 

Senator DEWINE. All right. 

Mr. HARTENSTEIN. Our issue with NorthPoint has never been 

about competition. Bring it on. I mean, for God’s sake, we are competing with cable in all those areas today. It has been about interference. It is about someone else using the exact same frequency 

spectrum and interfering with the 17 million customers we have 

today. We have suggested alternate frequencies. It is all about interference. It has nothing to do with competition. That is where we 

stand and that is what our position has consistently been about. 

Senator DEWINE. Mr. Ergen? 

Mr. ERGEN. I would just only add to that that we went so far at 

EchoStar as to suggest an alternative band, which we will support 

at the FCC, same amount of spectrum which is right next to the 

DBS band that would not interfere with our customers and would 

allow NorthPoint or someone like NorthPoint to compete. We are 

supportive of that competition without interference. 

Senator DEWINE. Mr. Kimmelman, do you have anything to add 

to that? 

Mr. KIMMELMAN. My understanding is the FCC engineers have 

looked at this. They believe it can be done without interference and 

they believe that the burden ought to be on the new entrant. I say 

let’s go forward and get the new entrant in the market before this 

merger is approved. 

Senator DEWINE. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator DeWine. 

Senator Specter? 

Senator SPECTER. Thank you, Mr. Chairman. 

76

In taking a look at this proposed merger, it is a little hard to understand, notwithstanding the explanations, how competition will 

not be substantially lessened. You have two companies and you are 

going to create one company, and I have heard your theories as to 

how competition would be promoted. 

Mr. Pitofsky, you have been a regulator for a long time. How do 

you evaluate the theories proposed that there would, in fact, not be 

a lessening of competition if these two companies merge? 

Mr. PITOFSKY. Well, I respect the theories. They are innovative, 

they are different, but I can say very simply they have been advanced before in Philadelphia National Bank and elsewhere and 

they have been rejected time and time again by the courts. We 

don’t allow mergers to monopoly and then say monopoly is so efficient that in the long run consumers will be better off. We rely on 

competition and competitive markets. 

Senator SPECTER. Mr. Ergen, what is your response? 

Mr. ERGEN. Well, first, I think each merger is different and has 

to stand or fall on its own merits, and I think that to compare us 

to a baby food case or a bank case or something may be———

Senator SPECTER. We will agree with that. What is your response 

to the basic proposition that if you have two companies, they are 

competitors, and you have one and there isn’t on its face a conclusive lessening of competition? 

Mr. ERGEN. Because this merger will not reduce our incentive to 

compete, but will rather enhance our ability to compete. By that I 

mean if all you believe the market was was cable channels, like 

CNN and HBO, then you have got some points. But the marketplace is much broader than that. It is going to be new services like 

high-speed broadband, which cable does today and is increasing 

their market share and has over 50 percent of that market share 

today. 

It is high-definition television, which the broadcasters are now 

filing for extensions and waivers for and breaking their promise to 

this Congress that they would get it up by this year. That is not 

going to happen unless we can do it. It is video on demand where 

we have to compete with cable that we don’t have today without 

the spectrum. And, of course, it is those local channels that we 

don’t have in 42 million homes. 

So we are going to increase the choices for Americans. When we 

can increase the choice, we can more effectively compete against 

the incumbent cable operators who have almost 80 percent of the 

market today in the pay television market. 

Senator SPECTER. A constituent of mine, Pegasus Communications, has raised a concern that their effort to compete with satellites will be severely impacted adversely because there won’t be 

enough slots available. 

Mr. Hartenstein, you are a proponent of this merger. Does Pegasus have a real concern here, a real point? 

Mr. HARTENSTEIN. I am not certain. You would have to ask counsel or any firms representing them. I am not sure where they are 

going. What we have said is with the existing spectrum up there, 

the most efficient use of it—and this is after a lot of study—would 

be to provide local channels to all markets. That is almost 1,500 

local television stations—and Pegasus comes from a broadcasting 

77

heritage, I do believe—and that is exactly what consumers are 

looking for. 

Pegasus itself does have applications and indeed has been granted Ka band slots to expand that. They are a publicly held company 

capable of, with a viable business plan, fulfilling that. So we have 

made a plan with our merger to fulfill those promises and I think 

address the six concerns, and a willingness to be bound to those six 

points that, Mr. Chairman, you have brought up. 

Senator SPECTER. The principal argument which EchoStar and 

DIRECTV have made here is that their combination would still a 

lot of competition out there with cable. But how about the homes 

which are not serviced by cable? There is a representation that the 

new company would not take advantage of this monopoly position, 

but how can we really rely on that? 

You have changes in corporate management, you have acquisitions, you have mergers again, you have all sorts of corporate 

shifts. How can this Committee rely on such a representation, Mr. 

Ergen? 

Mr. ERGEN. Well, first, fundamentally, the way we run our business is we charge one nation, one price. Both of our companies 

have since our inception, because as the billing systems———

Senator SPECTER. You would have one price. 

Mr. ERGEN. We charge the same price. 

Senator SPECTER. But there is nothing to prevent you from 

changing that. 

Mr. ERGEN. There is nothing to prevent us from changing it. It 

is a structural part of the business that it is just the most efficient 

way for us to do it, to advertise with our billing systems. Our cost 

systems, with 6,000 agents, can’t remember different pricing 

schemes. 

Senator SPECTER. Can’t remember different prices? 

Mr. ERGEN. It would be very difficult for———

Senator SPECTER. You could write them down. 

Mr. ERGEN. No. You would have 6,000 agents who, depending on 

where you are calling from, would have to charge you a different 

price depending on what zip code you are in. So that is the fundamental. But having said that, we are willing to make as a condition 

of merger that we will continue that practice, and the length of 

time is certainly up to the Government to say. 

Senator SPECTER. How many homes would be involved where 

there is no access to cable, where there would be only satellite from 

just the one company. 

Mr. ERGEN. Per the FCC’s most recent study which just came out 

in January of this year, it was about 3 million homes. I think I noticed, in fairness, that Mr. Kimmelman may have a different—I 

think he had about 13 million homes in his testimony, but somewhere in that number. 

Senator SPECTER. Mr. Kimmelman, what is the real number? 

Mr. KIMMELMAN. What we have found from the Federal Government statistics is there may be as many as 13 percent of households that are not wired for cable. 

Senator SPECTER. Which would be how many? 

Mr. KIMMELMAN. There are 100-plus-million households, so 13 

percent of the population. 

78

Now, we have found that of satellite subscribers———

Senator SPECTER. How many, again? 

Mr. KIMMELMAN. Thirteen million. 

Senator SPECTER. Thirteen million? 

Mr. KIMMELMAN. Yes, and we have found in response to questionnaires of subscribers that 40 percent of current satellite subscribers claim that they do not have cable service available. 

Senator SPECTER. Well, what would the enforcement mechanism 

be? Attorney General Nixon, you can answer this question. What 

would the Government do if there were a condition that prices 

wouldn’t be raised, which they could be in a market with a monopoly situation? 

Mr. NIXON. Senator, I wish we were as good as they thought we 

were. If I could hold this up for just a second———

Senator SPECTER. I used to be in your business. I understand the 

limitations. 

Mr. NIXON. Senator, to answer to your question, for the central 

part of the country, the white is the two-to-one area. That is the 

place that is not served by cable, anything that is white on that 

map. That is Missouri in the middle. I found that to be the most 

interesting State to analyze, but clearly the same trend would be 

true in Pennsylvania and others, and I could provide that data to 

you, if necessary. 

I wish we could write the perfect document, but when CEOs 

come in front of Committees like this and say we will be bound by 

whatever restrictions and regulations that you all can draft and let 

the attorneys worry about enforcing them later on, Katie bar the 

door. 

I mean, these are fine men who have done a great job and are 

in an emerging industry. So you are going from 1 million to 17 million households over the last 9 years. All at once, they have figured 

out that if they both work together they can make even a faster 

move. Consequently, the responsibility we all have here is huge. I 

wish I could write that document, Senator. 

Senator SPECTER. Are you saying that competition is a better 

guarantee for the consumers than governmental enforcement? 

Mr. NIXON. Senator, I have practiced law long enough to know 

a leading question when I hear one. 

[Laughter.] 

Mr. NIXON. Yes, sir. 

Senator SPECTER. Mr. Ergen and Mr. Hartenstein, we don’t want 

to pre-judge this matter and we are prepared to listen to you, but 

you have got a high mountain to climb over when you have such 

a basic proposition of combining two into one and some people not 

having the advantage of cable. 

Let me get parochial again for a minute or two about one of my 

constituents, Digital Broadband Applications Corporation, which 

has an application now in to the FCC. Do you have any expectation 

of opposing that, Mr. Ergen or Mr. Hartenstein, or both? 

Mr. HARTENSTEIN. We put in a response to the FCC which was 

one merely for lack of better information to make sure that there 

wasn’t going to be any interference. There was not sufficient information for us to evaluate that. Per se, from a competitive point of 

79

view, we have no problem with it. We just wanted to make sure 

there wasn’t going to be any interference. 

Senator SPECTER. It is OK, per se? 

Mr. HARTENSTEIN. From a purely competitive position, yes. 

Again, the issue, as it was with NorthPoint—and Mr. Kimmelman 

indicated the same thing—was interference. 

Senator SPECTER. So you are saying if there is no interference, 

it is all right with you? 

Mr. HARTENSTEIN. We didn’t see any problems with that, no, sir. 

Senator SPECTER. Would you concur with that, Mr. Ergen? 

Mr. ERGEN. Yes. We did not file against that application and are 

happy to see them come in. Just for record, I believe it is for a Canadian orbital slot, I believe, of which there are at least two, and 

maybe more, to bring high-power DBS service to the United States; 

in other words, a new entrant. We did not have a problem with 

that. We do not believe they will interfere based on our analysis. 

Senator SPECTER. Mr. Fritts, I haven’t had a chance to ask you 

a question. If I may, Mr. Chairman, just to wrap it up, what is 

your view as to the adequacy of protection for those 3 million or 

13 million people who rely upon satellite and don’t have cable competition if this merger were to go through? 

Mr. FRITTS. Senator Specter, I happen to be a satellite subscriber 

and I happen to have———

Senator SPECTER. Do you have access to cable? 

Mr. FRITTS. I do where I live. Indeed, I do, but my wife’s parents 

are also subscribers to satellite and they do not have cable. As we 

discussed their acquisition of a satellite dish, price was important 

because they live on Social Security and that was an important element for them, as the live in a rural area. 

We have taken officially positions on the broadcast portions of 

this, as you know, and that is what we have confined our oral testimony to today on this. And I would just like to respond to Mr. 

Ergen saying that we are reneging on our promises on digital television. To the contrary, only about 600 stations have asked for, 

completely within the guidelines set up by the FCC—if you need 

an extension because of environmental problems, because of tower 

problems, because of equipment problems, because of engineering 

problems or financial problems, you could go before the FCC and 

ask for a 6-month extension. 

The good news is there will be a huge number of stations that 

will be on the air in digital. The question that I guess I can’t ask 

back to my friends on the satellite side is I hope they are going to 

carry us in digital and in high-definition television. 

I have heard them talk about carrying high-definition. I don’t 

know if they are going to carry local stations in high-definition. I 

haven’t heard that discussed here today, but I hope that sort of answers your question and responds to it. 

Senator SPECTER. If the merger goes through, Mr. Ergen, will 

there be enough channels liberated so that C–SPAN can put on 

number 4 and carry hearings like this live? 

[Laughter.] 

Mr. ERGEN. Yes, there will. 

Senator SPECTER. That will be very persuasive on my vote. 

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Mr. ERGEN. Yes, there will, because we eliminate 500 channels 

and that frees up an awful lot of spectrum for C–SPAN 1 through 

400, if we need to, to carry hearings ad infinitum. 

Senator SPECTER. Mr. Chairman, thank you for scheduling this 

hearing. This is a very complicated subject and I think there has 

been substantial additional light shed on it this morning and this 

afternoon. 

Thank you. 

Chairman KOHL. I thank you, Senator Specter. 

We are going to begin to wrap it up. I am going to give each of 

you a chance to say in a minute or two whatever you wish on the 

basis of what you have heard today, but I will express myself, too, 

for a minute or two. 

If this merger went through, as Mr. Pitofsky indicated, the only 

way it could be implemented is with Government oversight. Nobody 

here is disputing the fact that those promises you are making are 

crucial to any consideration of the merger. So, in effect, we would 

have to be inserting the Government in perpetuity to be sure that 

those promises that you are making can be, in fact, implemented. 

It is an argument almost on its face to be very, very apprehensive 

about allowing a merger like this. 

I think all of us are fearful that, given 5 or 10 years, there will 

be you and cable and you won’t compete on price. You will wink 

at each other and they will stop competing with you on price and 

you will stop competing with them on price. You will compete for 

service and in all the other ways except price, and you won’t have 

other competitors to worry about and you will make a fortune and 

the consumer will pay. 

The danger of that happening is so huge that it seems to me that 

there are enormous barriers that you will have to surmount in 

order to get this thing through the Antitrust Division and the Attorney General’s office. So I am very, very concerned about it. I 

don’t want to be mealy mouthed and say on the one hand, on the 

other hand. You know, you all are very strong and determined people. You make decisions and you don’t take half-assed positions. 

You know, you put your money and your future on your idea of 

where things are going, and if it works, it works, and if it doesn’t, 

it doesn’t. But you don’t make your success by being on the one 

hand or on the other hand. You take very strong positions, so 

sometimes you have to hear very strong positions. 

I think this would be great for you and great for your shareholders, which is what you are all about, but I do not believe at 

this point it would be great for the people of America. 

In a minute or two, Mr. Nixon, do you want to recapitulate how 

you feel right now? 

Mr. NIXON. Thank you very much, Senator. I appreciate your interest and the Senate’s interest in this issue. 

There has not been a great deal of discussion about the various 

State and State attorneys general, although I have worked on this 

matter with dozens of my fellow attorneys general and been on the 

phone and in person as early as very early this morning with some 

of them. I myself have been very personally active in antitrust 

issues in my decade as attorney general, although I was not involved in the Microsoft case. 

81

I thought there was an argument to be made that they were improving things in that particular case. And while I stood quietly on 

the sidelines in that regard, I am not in this regard. I think that 

the vast majority of the States and State attorneys general are also 

exceptionally concerned about significant portions of their jurisdictions having competition for a valuable, valid, important used service wiped out. We will be active. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you. 

Mr. Hartenstein? 

Mr. HARTENSTEIN. Mr. Chairman, thank you. We are not competitive, simply put, with cable in those 42 million homes where we 

cannot today provide a consumer the television that they want to 

watch most, and that is their local channels. Neither one of us 

alone can serve all those markets. The best either one of us can do 

is some 50 to 70 markets, which would leave all of those millions 

of homes unserved with a truly competitive alternative. 

I think the underlying economics of both the cable industry and 

the DBS industry are very capital-, very infrastructure-intensive. I 

think competition will be going vigorously as we go forward. The 

consumers obviously here from our perspective are going to benefit, 

those consumers in those 42 million homes. 

In the good State of Missouri, there are some 13 DMAs that 

cover the State of Missouri. Some of them are from outside, other 

States. We are only batting 3 for 13 today. We want to be able to 

deliver to the local broadcasters in Missouri and many of your 

other States 13 for 13, 9 for 9, or whatever the number is. That 

is what we can do with this. We can only do it together. 

Thank you for your time. 

Chairman KOHL. Thank you, Mr. Hartenstein. 

Mr. Ergen? 

Mr. ERGEN. I am disappointed that Attorney General Nixon has 

pre-determined this merger because I think the right process is 

that you get all the facts and we are still providing documents, economic analysis, technical analysis, to the regulatory agencies. So 

there is a lot of information that still has to come out. Certainly, 

there will be interviews with people, and so forth, and I think the 

proper procedure is the State attorneys general should be included, 

and to work with the Justice Department to make sure they see 

all the information before they make a determination. 

I feel bad for the white areas in Missouri that Attorney General 

Nixon has shown because those customers in my lifetime, if this 

merger were not to happen, are not going to get high-speed Internet access. Those kids are not going to have the same educational 

capabilities as kids in the cities. They are not going to get localinto-local, they are not going to get competition. Their rates, as Mr. 

Kimmelman has said, will go up higher because they won’t have 

local-into-local. 

My third and final point is that I think there is a misunderstanding here that going from three to two would be a duopoly and 

that we could suddenly collude with the cable operators. Understand that cable operators are different in every city and we would 

have to collude with dozens of cable operators who have 80 percent 

of the business. 

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Now, I can tell you as a businessman—and I know you are a businessman—you are not going to put a $5 billion asset in outer 

space and not go and try to get the customers—where you have a 

low marginal cost, go get the customers from the cable company 

who has 80 percent of the business. We are certainly not going to 

collude with AT&T, Time Warner, Cox, Comcast, Charter, and the 

other thousands of cable companies across the country. 

This is not a case where you can collude with the guy next door, 

as in some other cases. That is why each individual merger has to 

be looked at on its merits and in its own set of circumstances, and 

ours are materially different. And nobody on any side of the argument has denied the fact that there are huge efficiencies and huge 

benefits to consumers from this merger. And when you can show 

that—and it is a high burden of proof, I will agree with you, but 

when you can show that, mergers like this can be allowed. 

Chairman KOHL. Thank you, Mr. Ergen. 

Mr. Pitofsky? 

Mr. PITOFSKY. Mr. Chairman, three very brief points. One is I 

want to make sure the record is clear. The number of people who 

may be hurt by this merger is not 13 million. They don’t have any 

cable at all. There are many other people in this country who have 

inadequate cable, analog cable, obsolete cable. They could switch to 

satellite. Now, they have two choices. They will also have only one. 

Second, it is not a matter of colluding with all the cable companies. EchoStar itself in a formal court filing a year-and-a-half ago 

said that the reason that satellite prices are so low is because of 

competition between the two satellite providers, and that cable 

competition doesn’t influence those prices. Now, when the competition between the satellite providers is eliminated, I expect that 

prices would drift up. Maybe it will be nationally and they will 

drift up all over the country, but that is not good news either. 

Finally, I don’t want to say that the Government never should 

exercise oversight of the kind that you have described and tried to 

extract from the CEOs here. We have done it, but usually that kind 

of oversight is in vertical mergers, conglomerate mergers. I presided over some of those conduct remedies myself, but I will say 

this: I cannot think of a case in 100 years in which a conduct remedy was relied upon to permit a merger to monopoly or duopoly. 

Thank you. 

Chairman KOHL. Thank you. 

Mr. Kimmelman? 

Mr. KIMMELMAN. I think we should start by looking at what happens if this merger does not go through. These two companies have 

been out there, done wonderful things, but cable rates keep going 

through the roof and I see no signs that they are in a position in 

the foreseeable future to offer what consumers really want—their 

local broadcast stations in every community in the country, packaged with a broad variety of programming, installation costs and 

multi-set hook-ups at a price that is competitive or lower than 

cable. 

Second, for 4 years this property, DIRECTV, has been dangling 

out there, people looking to buy it. The one other potential purchaser is a national television network that owns stations serving 

more than 40 percent of all consumers, owns global properties with 

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satellite capacity throughout the world, and owns more than 20 regional sports stations, studios and newspapers around the world. 

Its economic incentives are quite clear. It makes its money mostly by programming. It has no incentive to compete head-on with 

cable to drop prices. It has an incentive to push cable to raise what 

it spends on programming so that it, News Corp., can make more 

money. That is a lose-lose for consumers—higher prices for programming, no competition from satellite, higher prices on cable. 

I suggest that in this environment we take the unusual step of 

looking beyond antitrust, attempting to remedy what the Federal 

Communications Commission can remedy first and do the regulatory oversight, and leave finally for the Justice Department to 

look at the remaining antitrust issues. 

I suggest at that point, if we have new entry, if we have a pricing 

promise, that antitrust issue is a question of whether you need to 

divest some satellite capacity to serve rural America. I think that 

would be a better result for consumers everywhere. 

Thank you. 

Chairman KOHL. Thank you, Mr. Kimmelman. 

Mr. Fritts? 

Mr. FRITTS. Mr. Chairman, with all due respect to my good 

friend, I thought the merger was about DIRECTV and EchoStar 

that was on the table. 

Just a couple of comments from the trade press that follows satellite television. The satellite TV investment analyst Jimmy 

Schaeffler, when asked about this merger, said that consumers 

today probably have a greater chance of getting all 210 markets 

and getting them sooner if the deal does not go through. 

Let me underscore that all 210 markets’ carriage of local-intolocal is very important for our broadcasters. Bob Sherman, who is 

the editor of Satellite Business News, the industry’s leading trade 

publication, said, and I quote, ‘‘EchoStar’s announcement is a very 

shrewd political Hail Mary with no downside because it is unenforceable.’’

I will let those statements stand on their own and thank you, 

Mr. Chairman, for convening this hearing and for your introspective look at this issue. 

Chairman KOHL. Thank you, Mr. Fritts, and thank you all very 

much for coming. It has been a very enlightening hearing. 

The hearing is closed. 

[Whereupon, at 12:27 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

QUESTIONS AND ANSWERS

Responses of Charles W. Ergen to questions submitted by Senator 

Brownback

Question 1: Broadband

As you know, I have been deeply involved in legislative efforts to spur increased 

access to broadband services for rural consumers. I am interested to hear more 

about the broadband plans for this proposed merger. 

You are saying that, should this merger be approved, EchoStar will offer 

broadband services sometime around 2003 or 2004, and that your broadband service 

will effectively be available to virtually anyone who buys a dish. But EchoStar and 

DirecTV are competing with 2-way broadband services today, are they not, and 

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aren’t these services available nationwide? What would be the difference in these 

services pre and post merger? 

Answer: Please see the response to Senator Kohl’s fifth question.

Question 2: Spectrum 

Mr. Ergen, when we met last year you told me a merged EchoStar/DirecTV, even 

with its combined spectrum resources, could not carry local broadcast signals in all 

210 TV markets. In addition, you were very clear that a merger approval that requires these companies to give up more than a trivial amount spectrum would be 

unworkable. Today, with the same amount of spectrum at issue, you are now promising to carry local broadcast signals in all 210 markets. 

Opponents of your merger continue to insist that you can, using the existing spectrum resources of EchoStar or DirecTV individually, offer all local broadcast signals, 

non-broadcast video programming including pay-per-view, and a competitive national broadband service. 

Given your change of views, do you still believe it is necessary for the proposed 

merger to include all of the spectrum resources of DirecTV and EchoStar? 

Answer: When EchoStar and Hughes announced the merger, we both stated that 

the merger would enable the new firm to provide local channels in over 100 DMAs, 

including one in every state. At that time, the companies lacked the engineering 

proof necessary to make the promise to deliver local channels for all 210 DMAs, and 

we did not wish to promise more than we knew we could deliver. 

Following the merger announcement, engineers from EchoStar and Hughes - 

working together for the first time - studied the feasibility of delivering local channels in all 210 local markets. The combined efforts of the two companies led to our 

exciting announcement on February 26th that the new firm could and would commit 

to deliver local channels to all Americans. 

Our commitment to carry local channels to all 210 DMAs, however, is entirely 

premised on the spectrum made available by the merger. Without all of the spectrum resources of the two firms it would not be possible for New EchoStar to offer 

the full array of programming and services consumers want, including local channels for all 210 DMAs, a broader selection of HDTV programming, video-on-demand, 

more specialty, educational, foreign language, and general interest programming, 

and more. Our decision to carry all 210 DMAs requires the devotion of more spectrum to local programming than previously anticipated, and heightens, not reduces, 

the need for the full compliment of DBS spectrum of the combined companies. 

For a more detailed explanation of our analysis of the 210 issue, and some of the 

technical issues involved, please see my responses to Senator Hatch’s first, eighth, 

and fifteenth questions.

Question 3: Your announced business plan for the proposed merger seems to be 

based on existing DBS orbital slots and satellites already in use, as well as satellites 

expected to be placed in orbit in the near future. However, DirecTV and EchoStar 

also control outright, or have an interest in, 50% of all Ka-band orbital slots. What 

assurances does the Congress have that you will take full advantage of these slots 

to provide service? I would remind you that these slots must be in use in a relatively 

short period of time, or else the ITU will revoke them. Such an outcome would be 

unacceptable. 

Answer: The best way to ensure that the full capacity and benefits of Ka-band are 

put to use, and put to use quickly, is to create an affordable satellite broadband 

internet service. The merger will give the new firm the spectrum capacity, subscriber base and economies of scale necessary to ensure that next-generation satellite residential broadband service becomes a reality everywhere in the United 

States, rapidly and inexpensively, in a reasonable time frame. A lower-cost satellite 

broadband service will drive demand, which will create the capacity demand and 

economic incentives necessary for full and timely deployment of additional satellites. 

In contrast, it is not likely that either company standing alone could deploy on 

a timely basis an advanced residential service of mass scale and appeal at an affordable price. Indeed, without the cost savings and efficiencies created by the merger, 

consumer satellite broadband will continue to suffer from the high infrastructure 

and subscriber acquisition costs that relegate it to niche status today. Again, the 

merger offers the best chance for full utilization of the two firms’ Ka-band licenses. 

EchoStar, Hughes, and the companies in which they have investments control 

considerably fewer than 50% of the orbital slots capable of providing broadband 

Internet service to the United States. Moreover, the fact that EchoStar has minority 

investments in two Ka-band license holders does not enable it to control what those 

firms do with their orbital slots. In any event, there are at least ten other firms, 

with no affiliation whatsoever with EchoStar or Hughes, that hold licenses to operate Ka-band satellites in slots capable of providing broadband service in the United 

85

States. There is ample Kaband capacity for each of those firms to deploy a satellite 

broadband service and to compete, if they are willing to make the commitment to 

do so.

Responses of Charles W. Ergen to questions submitted by Senator Maria 

fCantwell

Question 1: You have publicly indicated that the combined DirecTV-DirecTV 

would serve the 210 designated market areas with ‘‘local-into-local’’ service. You 

have also stated that you would accept a requirement to meet this commitment as 

a condition of the merger. Could you please describe your plan to accomplish this? 

In what timeframe do you plan to complete this service? What impact on the cost 

to consumers do you expect this to have? 

Answer: EchoStar will be able to offer local programming to all 210 DMAs only 

with the merger’s end to the wasteful duplication of programming. In order to create 

space for all of these new local channels, the combined company will have to end 

the transmission of some redundant programming. However, EchoStar and DirecTV 

have formulated plans, described below, to enable the new local programming as 

soon as possible. Of course, these plans are subject to change and revision, as 

EchoStar and DirecTV are working to find ways to improve the process. 

Prior to the merger, EchoStar and DirecTV will jointly develop a ‘‘dual speak’’ receiver capable of receiving programming in both the EchoStar and DirecTV formats, 

and a ‘‘triple head’’ dish capable of receiving signals from all three CONUS orbital 

locations (collectively, ‘‘New Equipment’’). 

As soon as possible after the merger, existing DirecTV Para Todos subscribers will 

receive New Equipment, free of charge, in order to receive New EchoStar Spanish 

language programming, thereby allowing new uses of capacity on three transponders at the 119° W.L. orbital location. 

Also as soon as possible after the merger, DISH subscribers in the top 40 DMAs 

who subscribe to local channels also will be switched to New Equipment, free of 

charge, and will receive their local channels from the 101° W.L. orbital location, 

thereby allowing the EchoStar VII and VIII satellites to serve different DMAs than 

they currently are scheduled to serve. With this change, EchoStar anticipates that 

EchoStar VII and VIII could serve about 60 additional DMAs. It is expected that 

these first two steps would be completed within 8 months after the merger is completed. 

After completing the above steps, subscribers in the 60 markets served by 

EchoStar VII and VIII and who commit to subscribe to local channels would receive 

New Equipment, to the extent required, free of charge. After DirecTV 7S becomes 

operational, a total of about 150 DMAs will receive local channels, and subscribers 

in the additional markets who commit to local service would receive New Equipment, to the extent required, free of charge. DirecTV 7S currently has an anticipated launch date in late 2003, although the merged firm’s progress in its plans to 

offer local programming at that date depends on when the merger is consummated. 

The combined firm also plans to launch a new spotbeam satellite, tentatively named 

New EchoStar 1. After this satellite is operational, about two years after the merger, the remaining DMAs (210 total) would receive local channels. Remaining subscribers in the additional local markets who commit to subscribe to local channels 

would receive New Equipment, to the extent required, free of charge. 

New EchoStar will offer these local programming channels at the same price nationwide, in line with our one nation, one rate card commitment. Local programming will make New EchoStar more competitive in DMAs where we are unable to 

provide local channels currently, and other efficiencies created by the merger—including HDTV programming, interactive services, more national programming, and 

important cost savings—will make New EchoStar more competitive nationwide. Accordingly, we anticipate that cable providers and other MVPD competitors will respond with better pricing and/or expanded services.

Question 2: In some markets in which ‘‘local-into-local’’ service is available, I understand that consumers must use two dishes to receive signals from two satellites, 

one delivering the more popular services and a second delivering certain local signals. Please explain the current circumstances that underlie this situation and explain how the combined companies would manage satellite capacity and resources 

in this regard? Will any consumers continue to be required to have a second satellite 

dish to receive certain local television stations? If not, in what timeframe do you 

86

expect to have the system reconfigured to accommodate single-dish reception of all 

channels received by a subscriber? 

Answer: EchoStar transmits DBS signals from four different orbital locations or 

slots. Two of the slots, 110° W.L. and 119° W.L., because of their placement over 

the middle of the country, serve the entire United States. These are called ‘‘CONUS’’ 

slots (CONtinental United States). The other two slots, 61.5° W.L. and 148° W.L., 

only serve eastern and western portions of the United States, respectively, and are 

called the ‘‘wing slots.’’ A single small satellite dish cannot receive signals from both 

a wing and CONUS slot, because they are too far apart. 

Because of the wasteful duplication of programming between EchoStar and 

DirecTV, EchoStar lacks the satellite and spectrum capacity to carry at the CONUS 

locations all of the local channels required by must-carry provisions of the SHVIA, 

as well as the full complement of national programming that consumers demand. 

Left with the alternative of ending local channel service to some DMAs, EchoStar 

now carries some local-intolocal programming from the 61.5° W.L. and 148° W.L. orbital locations, and offers consumers, free of charge, the second satellite dish required to receive them. In total, almost one million of EchoStar’s current subscribers 

use two dishes to receive their programming. 

The FCC ruled today that we need to modify this ‘‘Two-Dish’’ plan. We are currently reviewing the FCC decision. We will inform the Committee of our plans as 

soon as our review is completed. 

The merger will free up hundreds of channels of satellite and spectrum capacity 

at the CONUS orbital locations, which will allow carriage of all local-into-local 

through a single dish. Under current plans, EchoStar customers in the approximately 40 largest DMAs will receive one-dish local-into-local programming within 

8 months of the consummation of the merger. Approximately 60 DMAs will receive 

new local programming service, on one dish after that, and all consumers will receive one-dish local-into-local programming approximately two years after the merger closes. 

However, there may be a very small number of consumers for whom a single dish 

may not be able to receive programming from multiple orbital locations. For example, a consumer might have a tree or building partially obstructing the view of the 

southern sky, making it impossible to view all the necessary orbital locations from 

any single point on his or her property. For these customers, a second dish may be 

required to receive all the programming from the three CONUS orbital locations.

Question 3: Currently, direct broadcast satellite delivered broadband is not widely 

available. Could you please describe with all possible specificity your plans to expand and improve broadband availability, in general and with particularity as to 

rural communities. Please also indicate when you expect to have bi-directional satellite broadband. Please too describe the data rates you expect to achieve, and in 

what time frame. Please also indicate if and when you expect DBS delivered 

broadband to be competitive with cable and DSL pricing and availability. Finally, 

describe the impact that the merger would have on your company’s ability to expand 

and improve broadband service. 

Answer: Satellite broadband Internet is available throughout the United States, 

to any subscriber who has a view of the southwestern sky. However, satellite 

broadband is still priced too high for most consumers, and too high to compete with 

terrestrial providers like cable modem and DSL, because of high fixed costs and expensive consumer premises equipment, among other factors. EchoStar, through 

StarBand Communications, Inc., and Hughes, through Direcway, have relied on 

leased Ku-band transponders to provide satellite broadband service, an expensive 

and inefficient method of providing service, as well as one that can serve only a limited number of subscribers. 

Consequently, both EchoStar and Hughes have turned to the Ka-band in hopes 

of developing an affordable, competitive satellite broadband service. While use of 

next generation Ka-band satellites would be superior to the current Ku-band offerings, EchoStar and Hughes believe that a Ka-band satellite broadband provider 

would still need at least 5 million subscribers to achieve the scale economies in consumer premises equipment, to spread fixed costs, and to justify the substantial investment necessary to develop a competitive consumer broadband service. Neither 

company standing alone could deploy on a timely basis an advanced residential 

service of mass scale and appeal at an affordable price. 

Although a Ka-band strategy avoids some of the capacity constraints that afflict 

Ku-band service, it requires the upfront investment of hundreds of millions, if not 

billions, of dollars in complex new satellites and technology. The deployment of 

these Ka-band satellites has taken longer, and will require more capital, than many 

Ka-band licensees have been able to sustain. Even Ka-band licensees with experienced and well-financed backers have been forced to scale back or even abandon 

87

their efforts to deploy satellite broadband. Moreover, the use of Ka-band satellites 

does not have any ameliorative effect on the high cost of receiving equipment and 

satellite modems, and indeed will increase that cost at least in the short term. Unless these equipment and subscriber acquisition costs can be reduced significantly, 

satellite Internet will not likely grow out of a smallscale, high-priced niche in the 

consumer market. It is these daunting economic barriers—very large initial investment in expensive satellites coupled with high up front costs to acquire new subscribers—that have stifled continued investment in satellite Internet technology. 

As a result of these substantial obstacles to deployment of a consumer-oriented 

satellite broadband service, along with other factors, HNS has developed Spaceway 

with a focus on the larger commercial, or ‘‘enterprise,’’ customers while EchoStar’s 

Ka-band program has remained modest in scope. Refocusing and integrating these 

Ka-band programs will provide the opportunity to achieve the required economic 

scale for ubiquitous residential true broadband service. Combining the broadband 

services of Hughes and EchoStar will provide efficiencies that 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. 

Because of the high price of satellite broadband, and the failure of DSL and cable 

companies to roll out their networks to serve customers in rural areas, rural communities today do not have any affordable broadband option. The merger will create 

a bridge over the digital divide: competitive, affordable broadband option for rural 

communities. That affordable broadband option promises additional benefits uniquely well suited to rural communities, such as telemedicine programs, connectivity for 

rural doctors, and distance learning. 

Both StarBand and Direcway currently offer two-way satellite broadband service. 

However, because of the capacity constraints associated with the leased Ku-band 

transponders both companies now use, neither service is able to provide uplink 

speeds in excess of 200 kbps, the bi-directional standard that the Federal Communications Commission has set for ‘‘advanced telecommunications services.’’ With the 

introduction of Spaceway sometime in late 2003, Hughes expects that it will be able 

to provide to consumers a two-way satellite broadband service that satisfies the 

FCC’s standard. However, as noted above, the high costs of the infrastructure, consumer equipment, and subscriber acquisition will prevent this two-way broadband 

service from being affordable to most consumers. With the merger, the combined 

firm expects that it will be able to achieve economies of scale that will permit it 

to provide a truly affordable, true broadband service. 

Simply reducing costs will greatly expand both the number and categories of satellite broadband subscribers. A more affordable satellite broadband alternative will 

drive broadband deployment and acceptance in rural areas that cable-modem and 

DSL do not serve. At the same time, it will give consumers who are already served 

by cable-modem or DSL yet another broadband option, forcing those incumbent 

service providers to compete in price, quality of service, and new, innovative products. At the same time, the satellite broadband firm itself will be better able to expand and improve its service. The increased scale and rate of growth for New 

EchoStar not only will allow it to reduce costs, but also will reduce the risk profile 

for what has proven to be a highly uncertain industry. A lower risk profile will permit the merged company to make greater investments in subscriber acquisition 

(such as increased subsidies of consumer equipment), while making it easier for the 

firm to obtain financing for investments in capacity, technology, and new services. 

In addition, the new firm will have available to it sufficient orbital slots, close 

enough together, to provide a one-dish television and broadband service to all subscribers.

Question 4: You have made the commitment to provide nationwide pricing, to 

avoid the potential for discriminatory pricing in rural communities. Although I understand that some competitive features of the direct broadcast satellite are outside 

the control of either EchoStar and DirecTV, and within the control of retailers. But 

as I understand it, your company provides incentives and subsidies to facilitate retail promotions and special packages. In his testimony, Gene Kimmelman of Consumer’s Union recommended that as a precondition for approval, the government 

should require the combined EchoStar and DirecTV to commit to provide the same 

pricing, options, program packages, promotions and customer service that EchoStar 

provides in urban, competitive markets. Would you agree that there are some business practices that can influence the ability of a retailer to offer consumers promotions or special packages, and that in executing this merger, you would agree to 

engage in those practices in a manner that would not treat rural consumers disparately from consumers living in communities with higher population densities. Would 

you commit to assuring practices that do not have disparate impact on rural consumers as a condition of the merger? 

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Answer: EchoStar is committed to carrying forward its existing practice of offering 

nondiscriminatory pricing so that all consumers, whether they have good competitive alternatives or not, receive the benefits of the increased competition that this 

merger will bring. In my response to Senator Kohl’s first question, I elaborate on 

the factors involved in our historical pricing practices and how a consent decree 

could be crafted to ensure that all consumers receive the benefits of the transaction, 

and rather than repeating myself, I respectfully refer you to that answer. 

With regard to retailers specifically, we offer retailers a variety of incentives to 

encourage them to participate in our national promotions, and to offer good deals 

to consumers. Because we need to offer consumers a low up-front cost both to compete against the cable companies, and to induce new users to try our service, we 

subsidize our retailers’ sales of DBS equipment. This need to keep up-front costs low 

will be just as strong after the merger, so this practice will continue after the merger, and we intend to continue to do everything to ensure that consumers can acquire 

our products at competitive prices. This will include ensuring that our retailers receive fair and equitable treatment so that they can continue to compete with each 

other on price and customer service. At EchoStar we believe that our strong network 

of small and independent retailers in rural America has been a significant factor 

in our success in among rural consumers, and coupled with the support of national 

chains, such as RadioShack, that are also strong in rural America, should continue 

to serve those rural consumers well. 

As I said in response to Senator Kohl’s first question, we are willing to commit 

to a broad non-discrimination decree that would prohibit discrimination in terms of 

pricing or terms and conditions of sale against rural consumers, on the basis of the 

potential subscriber’s access or use of competitive alternatives like cable, or on the 

basis of a potential subscriber’s address. We believe that this can be accomplished 

in a way that would allow New EchoStar the flexibility to deal with particular local 

competitive situations, while maintaining the benefits of a competitive national 

price for all consumers, and we would be pleased to discuss with the Department 

of Justice, the state attorneys general, and the Federal Communications Commission how this might be accomplished.

Question 5: Do either EchoStar or DirecTV currently offer DBS broadband Internet access through competitive Internet service providers (Internet service providers 

other than Echo5tar or DirecTV, such as Earthlink or America Online)? If so, could 

you please describe the services offered and the consumer pricing associated with 

each service provider? Will the combined companies offer consumers a choice in 

Internet service providers? Could you please describe the services you plan to offer 

and the pricing you will offer consumers? Will the combined company offer nationwide pricing, options, promotions and customer service for all broadband services? 

Answer: As I noted in my response to Senator Kohl’s sixth question, EchoStar is 

committed to allowing its Internet subscribers to access the entire Internet, freely 

and openly. In fact, Spaceway’s business plan now is to establish interconnections 

with as many Internet portal partners as possible as gateways for its service. Satellite-based broadband service currently accounts for a very small fraction of the 

broadband market. To capture market share, New EchoStar will have to compete 

vigorously with cable modem and DSL service providers. To be sure, the combined 

entity will take the appropriate business decisions to increase its satellite-based 

broadband subscriber base, which may include offering consumers a choice of ISPs. 

But, at this point, it would be inappropriate, in our opinion, to commit to integrate 

other ISPs into our satellite operations due to questions about the technological and 

the business issues involved in such a commitment. 

Until recently, EchoStar offered satellite broadband service through StarBand, 

which acts as its own ISP. EchoStar believes that it would be inappropriate to subject StarBand—or any satellite broadband provider -to ‘‘open access’’ requirements. 

First, the FCC in a recent declaratory ruling found that cable modem service is an 

‘‘information service’’ and therefore is not regulated as a common carrier under federal telecommunications law. See In the Matter of Inquiry Concerning High-Speed 

Access to the Internet Over Cable and Other Facilities (GN Docket No. 00–185), Internet Over Cable Declaratory Ruling, Appropriate Regulatory Treatment for 

Broadband Access to the Internet Over Cable Facilities (CS Docket No. 02–52) (Mar. 

14, 2002). The FCC’s rationale with respect to cable modem broadband Internet applies with even greater force to satellite broadband. It would be counterintuitive at 

best for the federal government to conclude that the cable industry, which currently 

serves almost 70 percent of residential broadband subscribers today, see id. at ¶ 9, 

should not be subject to ‘‘open access’’ or any other type of regulation as a common 

carrier, while the nascent satellite broadband industry, which serves less than 1 

percent of those subscribers, should be subject to such regulation. 

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Second, satellite broadband today is not fully competitive with cable modem service due in part to satellite’s slower download speeds and significantly slower upload 

speeds. An open access requirement imposed on satellite broadband would exacerbate this quality discrepancy between cable and satellite by potentially diminishing 

upload and download speeds even further. 

Finally, given the precarious financial position of certain satellite broadband concerns, imposing regulation on the infant industry, particularly regulation that would 

have an adverse material effect on the product’s quality, almost surely would hobble 

and perhaps kill the potential of satellite broadband to compete. Such a result would 

clearly be at odds with Congress’s directive that the FCC ‘‘encourage the deployment 

on a reasonable and timely basis of advanced telecommunications capability to all 

Americans’’ by ‘‘regulatory forbearance, measures that promote competition. . . . or 

other regulating methods that remove barriers to infrastructure investment.’’ Pub. 

L. No. 104–104, Title VII, § 706, Feb. 8, 1996, 110 Stat. 153, reproduced in the notes 

under 47 U.S.C. § 157. 

The New EchoStar anticipates that the merger will allow it to provide a two-way 

satellite broadband Internet service that competes with cable and DSL in both price 

and quality. Given the dynamic nature of the Internet, as well as the nascence of 

satellite broadband, it is too early to make predictions about the specific services 

that the merged company will offer. However, EchoStar is fully committed to providing nationwide pricing, options, promotions and customer service for basic 

broadband services.

Responses of Charles W. Ergen, Edward O. Fritts, Eddy W. Hartenstein, 

Jeremiah W. Nixon, and Robert Pitofsky to questions submitted by Senf ator Orrin Hatch 

Question 1: The following questions are directed to specific witnesses, but any witness should feel free to respond to any of the questions or amplify the record where 

needed. 

Mr. Ergen and Mr. Hartenstein, when this merger was proposed you announced 

that upon approval of the merger, the New EchoStar would serve approximately 100 

markets with local channels. Now you have announced that you can and will serve 

all 210 markets. What changed with respect to technology and to the marginal economics of offering local channels in the smaller markets that has suddenly allowed 

you to go from 100 markets to 210 markets in less than six months? 

Answer: On October 28, 2001, when EchoStar and Hughes announced the merger, 

both stated that the merger would enable the new firm to provide local channels 

in over 100 DMAs, including one in every state, as well as affordable nationwide 

high-speed Internet access. At that time, the companies had not had an opportunity 

analyze the merger sufficiently to determine whether we could deliver local channels 

for all 210 DMAs, and we did not wish to promise more than we knew we could 

deliver. 

Following the merger announcement, engineers from EchoStar and Hughes—

working together for the first time—studied the feasibility of delivering local channels in all 210 local markets. The combined efforts of the two companies led to our 

exciting announcement on February 25th that the new firm could and would commit 

to deliver local channels to all Americans. The new firm will be able to do what the 

predecessor firms separately cannot do for two important reasons. First, because of 

wasted spectrum, neither firm has sufficient capacity to serve anywhere close to all 

210 DMAs on its own. Each firm now separately beams down approximately 500 

channels of identical programming. With the merger, the new firm will be able to 

consolidate that wasted spectrum, freeing up those 500 channels for more productive 

uses without reducing output to consumers at all. The additional spectrum will be 

put to use serving all 210 designated market areas (DMAs), and offering a great 

deal of additional programming, such as more HDTV, specialty and educational programming and more interactive television services. Second, because the satellite and 

ground costs of collecting and backhauling local programming are substantial for 

each DMA regardless of its size, it would be economically challenging to launch additional satellites (each costing $250–$300 million) to serve smaller DMAs given the 

smaller subscriber bases of EchoStar and DirecTV separately. The merger effectively doubles the size of the subscriber audience for local programming and therefore makes possible the investment necessary to serve local channels to smaller communities. 

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1 Comments of National Cable & Telecommunications Association, In the Matter of Implementation of the Cable Television Consumer Protection and Competition Act of 1992, Development 

of Competition and Diversity in Video Programming Distribution: Section 628(c)(5) of the Communications Act: Sunset of Exclusive Contract Prohibition, CS Docket No. 01–290, (dated December 3, 2001), at 15. 

To accomplish the goal of serving all 210 markets, the new firm will use spotbeam satellites. Currently, EchoStar and DirecTV each have one spot-beam satellite 

in orbit and each plans on launching another in the future. Because the merger will 

end duplicative programming by rationalizing the use of available spectrum, the 

merger will allow these satellites to provide local programming to far more communities than otherwise possible. For example, instead of using two spot-beams to provide duplicate service to a single large city, the merger will allow one spot-beam to 

serve that city and the other spot-beam to serve a smaller nearby community. 

In addition, EchoStar and Hughes have also filed with the Federal Communications Commission for permission to launch a fifth spot beam satellite, which the 

companies expect to cost about $300 million. Utilizing this fifth satellite to take advantage of the spectrum efficiencies and economies of scale created by the merger, 

we will achieve our goal of offering local television channels to every American, no 

matter where they live.

Question 2: Attorney General Nixon, Mr. Fritts, and Mr. Pitofsky, would each of 

you please explain your respective interpretations of the recent announcement by 

DirecTV and EchoStar that they have suddenly found sufficient spectrum to carry 

all stations in all 210 television markets?

Question 3: Mr. Ergen, I have been concerned about gatekeeper controls limiting 

consumers’ access to the information or entertainment they want to access, especially in the internet context. I expressed serious concerns about this problem in the 

context of the America Online merger with Time Warner. Vivendi Universal has 

made a major investment in your company, and some suggest that this gives rise 

to the possibility of the sort of vertical integration issues you initially suggested you 

would avoid. Moreover, you have had some history of dropping channels during carriage disputes. Given that you could control the sole or dominant television and 

internet access provider in many rural areas if this merger is approved, what binding assurances could you give us that consumers will have access to programming 

they have come to expect as well as full and open access to the internet over your 

broadband services? 

Answer: In my response to Senator Cantwell’s fifth question, I elaborate on 

EchoStar’s position with respect to ‘‘open access’’ requirements for satellite 

broadband, and rather than repeat myself, I respectfully refer you to that answer. 

EchoStar and DirecTV have played an important role in providing a launch platform for independent programmers. As the National Cable & Telecommunications 

Association recently commented to the FCC, ‘‘The allure of DBS coverage for new 

networks, vertically or non-vertically integrated, is also strong. Unlike the variety 

of channel positions and system configurations involved in cable system launching, 

a deal with a DBS provider means immediate nation-wide reach to millions of 

homes in the same channel.’’1 EchoStar programming executives add that programmers use DBS carriage to improve their bargaining position with cable systems. The 

programmers assume that DBS carriage will improve their chances, and price, for 

carriage on cable systems, not that DBS carriage alone will necessarily make the 

new programming profitable. The agreement with Vivendi illustrates how a DBS 

firm can facilitate the entry of new programming. As part of the agreement, Vivendi 

Universal will develop five new programming channels and EchoStar has agreed to 

carry them. While EchoStar and Vivendi could legally enter into an exclusive contract, it is important to note that the new programming under the agreement will 

be distributed on a non-exclusive basis: that is, the programming will be available 

to all other MVPD providers. Indeed, far from encouraging exclusivity, EchoStar’s 

agreement provides Vivendi with incentives to distribute the new programming to 

other MVPD providers and in fact gives EchoStar the express right to cease carrying 

Vivendi’s channels if it does not obtain carriage for those channels on other platforms. 

The Vivendi transaction will benefit not only EchoStar, but all independent 

MVPD providers and consumers, by assuring Vivendi a foothold in attempting to establish new networks, provide new and innovative options for consumers, and increase competition with the entrenched incumbents. A few major programmers, such 

as Disney, General Electric/NBC, Viacom, and AOL TimeWamer, now control the 

vast majority of the programming offered by most MVPD providers. These programmers have used this power to steadily raise that price that they charge us and other 

MVPD providers for this programming. It is very difficult for a new provider to 

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2See, e.g., Complaint ¶¶ 59–63, United States v. Primestar, Inc., Civil No. 1:98CV01193 (JLG) 

(D.D.C.) (May 12, 1998). 

break into the MVPD market with a new network, both because of limited capacity 

and the disincentives of the integrated cable MSOs to permit competition with their 

programming interests. That entrenched structure insulates the incumbents from 

competition and preserves their power by limiting the options of independent MVPD 

providers and consumers. 

More specifically, Vivendi will neither have any power nor any incentive to exercise any control or influence over the merged EchoStar-Hughes entity. The economic 

interest that Vivendi has in EchoStar amounts to about 10%, and the voting stake 

is even smaller at about 2%, before the merger with Hughes is consummated. Postmerger, these percentages will decrease to less than 5% equity interest and about 

1% voting interest in New EchoStar. At the same time, a programmer like Vivendi 

could not survive based on New EchoStar’s 17% market share; it needs carriage on 

the major cable MSOs and could not discriminate against them. 

Even with the Vivendi deal, EchoStar will need to supply its customers with the 

‘‘crown jewel’’ programming, like HBO, CNN, and ESPN that is supplied by the 

major incumbent programmers and demanded by its customers. Those entrenched 

incumbents possess an enormous amount of power. In addition to the ‘‘crown jewel’’ 

programming, EchoStar will also need to be able to offer the wide variety of other 

programming that its subscribers expect. The idea that a small investment in some 

of the channels Vivendi develops for EchoStar will either change EchoStar’s incentives or enable it to discriminate against programming providers is not credible. The 

Vivendi deal increases options and competition, consistent with the overall goal of 

the EchoStarHughes/DirecTV merger. 

Finally, you have mentioned disputes that we have had with programmers. In 

fact, in our view these disputes further illustrate the benefits to consumers of expanding programming options and competition through the Vivendi deal. Programming costs are the largest segment of our variable costs and they have been continually rising, putting pressure on us to raise prices to consumers. These disputes 

have generally arisen when we have resisted price increases that we did not believe 

were warranted. We believe that our actions in resisting price increases have benefited consumers.

Question 4: Attorney General Nixon and Mr. Fritts, in your respective opinions, 

are Mr. Ergen’s assurances regarding television carriage and internet open access 

sufficient to safeguard the legitimate interests of consumers and competing ISPs? 

Answer: We are willing to embody our commitments in legally binding consent decrees or other enforceable agreements. As I noted in my response to Senator Kohl’s 

fourth question, I have committed that the merged company would still provide all 

local broadcast channels that offer meaningful programming, and I have offered to 

sign agreements with local broadcasters to confirm this commitment.

Question 5: Attorney General Nixon and Mr. Pitofsky, let me ask you both a question that touches on a couple of different antitrust principles. There has been some 

debate about what the relevant market is and whether choosing one market over 

another really makes a substantive difference in this case. I would note, for example, that EchoStar has taken the position in litigation against DirecTV that DBS 

is the relevant market and that DirecTV is a monopoly in that market, but has 

more recently adopted a different and broader market definition. Also, one argument offered in support of the merger is that better competition to cable in the more 

urban areas, as well as more local television and pay per view offerings by the 

merged company, justify elimination of satellite television and broadband competition nationwide. Moreover, Mr. Kimmelman admitted that your analyses of the antitrust issues were correct, but that a broader view of some sort was required in this 

case, while attempting to argue that while DBS and cable were separate markets 

now, they would somehow become one market if the merger were approved. Could 

you comment in detail on these issues, including the relevant market definition and 

the nature of competition between cable and DBS, and, finally, give us your views 

of whether the antitrust laws allow benefits in one geographical or product market 

to be traded off against harm in another such market? 

Answer: We would like to address the various issues you raise in this question.

Question 1: The Relevant MVPD Market 

Answer: The relevant market for this merger, as the Department of Justice has 

determined in similar cases, is the nationwide Multi-Channel Video Program Distribution (‘‘MVPD’’) market.2 DirectTV and EchoStar provide pay television service 

in this market, offering traditional cable networks like ESPN and CNN, premium 

movie channels like HBO, and in 36 to 41 communities, local broadcast stations. 

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3 As discussed in more detail in our response to your question regarding broadband offerings, 

both DirecTV’ and EchoStar’s current broadband offerings are expensive ‘‘niche’’ products that 

have attracted a minimal number of subscribers, and neither is a competitive product with any 

significant influence in any market. The merger will enable New EchoStar to integrate these 

products and achieve a more competitive price point. 

They compete with cable television providers, who also offer similar mixes of cable 

networks and premium channels, and who offer local broadcast stations in virtually 

every area they serve. 

Other competitors that offer a similar mix of MVPD programming include 

nextgeneration overbuilders like RCN, Satellite Master Antenna Television 

(‘‘SMATV,’’ which offers ‘‘private cable’’ to apartment buildings and single-family 

residential developments), Multipoint Multichannel Distribution Service (‘‘MMDS’’), 

Local Multipoint Distribution Service (‘‘LMDS’’)), and C–Band satellite service, 

which also offers digital service nationwide. Through affiliates, WSNet offers a service including multiple channels, basic and premium programming, for a monthly fee, 

using mediumpower Ku band satellites. National Rural Telecommunications Cooperative (‘‘NRTC’’) affiliates, such as Pegasus Communications, who have rights to 

independently market certain DirecTV programming in defined geographic areas, 

also compete in the MVPD market. A number of nascent providers have also developed plans to compete in the pay TV market, such as Northpoint, which hopes to 

use terrestrial broadcasts on DBS frequencies. Cablevision plans to launch a competing DBS service. BellSouth, Qwest and other Incumbent Local Exchange Carriers 

are deploying fiber to the curb and VDSL technology and have achieved critical 

mass in several cities. Electric and gas utilities are also moving forward with ventures involving video distribution. 

Thus, because of the number and variety of competitors in the MVPD market, the 

EchoStar-Hughes merger will not ‘‘eliminat[e] satellite television and broadband 

competition nationwide,’’ as your question suggests.3 For example, in your home 

state of Utah, C–Band remains a viable option for rural consumers with at least 

27 retailers or dealers selling and installing C–Band equipment and service. 

Other competitors notwithstanding, however, cable companies continue to dominate the MVPD market, and have raised rates an average of over 6 percent in each 

of the last 10 years. By contrast, DBS equipment prices have steadily dropped and 

service prices have remained flat. DirectTV and EchoStar face competitive barriers 

that prevent them from providing consumers with the programming and services 

they desire, and that limit DBS’s effectiveness in provoking a competitive response 

from cable (as demonstrated by cable’s ability to raise prices in the face of low DBS 

prices). These barriers include limited and wasted bandwidth, particularly DBS’s inability due to spectrum constraints to offer local broadcast stations beyond the largest urban areas, the lack of an affordable satellite Internet option, and other costraising inefficiencies of the current market structure. The merger will help break 

down these competitive barriers, and allow New EchoStar to fulfill DBS’s potential 

as a more vigorous competitor to cable, with great consumer benefits. Moreover, the 

merger would be consistent with Congress’s goals in enacting the Satellite Home 

Viewer Improvement Act (SHVIA), because it will promote head-to-head competition 

between satellite and cable and bring that competition into more local markets. 

We would also like to address your reference to issues in previous litigation with 

DirectTV. Although there have been legitimate arguments about the precise contours of the historic market(s) in which DirectTV and EchoStar have operated, it 

is not necessary to resolve these disputes to evaluate the competitive benefits of the 

proposed merger. New technological developments, especially in the rollout of digital 

cable, and the profound effect that the merger will have in promoting competition 

with cable make clear that the appropriate relevant market is MVPD. 

While competition with cable has always been intense, the advent of digital cable 

has increased this competition dramatically. Digital cable reduces the capacity and 

quality advantages that DBS has traditionally enjoyed in distinguishing itself from 

analog cable. It also allows cable to offer products, like high-speed Internet access, 

video-on-demand, and local interactive programming, that DBS cannot match under 

the current market structure. Furthermore, cable companies are targeting the DBS 

firms in ways that they have not done in the past, for example, with national advertising targeted at DBS and ‘‘dish bounties.’’ Under the circumstances, any suggestion that the New EchoStar could reduce its competitive efforts without losing subscribers and revenues to the cable firms simply ignores economic reality. 

It is also true the merger will change the nature of competition in the MVPD market by increasing the output that the newly merged company will produce. By eliminating duplicate programming, the merger will free up scare spectrum and enable 

delivery of more channels, many of local interest, and more advanced services. By 

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4See United States v. E.I. du Pont de Nemours and Co., 351 U.S. 377, 392 (1956). 5See id. at 391; United States v. Syufy Enters., 903 F.2d 659, 664 (9th Cir. 1990). 

removing competitively significant barriers that now prevent DBS from competing 

effectively with cable, the merger will force cable to respond in kind with improved 

product offerings.

Question 2: The Nature of Competition Between Cable and DBS 

EchoStar has always believed that the only way to compete with the cable companies was to offer consumers a better product at a lower price, and that is what 

EchoStar has always done. Nothing about this merger changes that fundamental 

dynamic. New EchoStar will use the spectrum saving and other benefits of the 

merger to compete more effectively with cable. If we have the spectrum to offer a 

better product, we will be able to beat cable with lower prices. If we do not have 

the spectrum to keep up with cable on a technological basis, our ability to exert 

competitive influence on cable will fade. 

New EchoStar will continue to compete aggressively because it needs to grow. The 

cost structure of DBS’s offering and nature of the MVPD marketplace make continued expansion an economic imperative for New EchoStar. • DBS’s High Fixed Costs and Low Marginal Costs. DBS’s satellite and 

uplink infrastructure requires enormous investment. By contrast, the marginal costs of providing additional customers with service are relatively low. 

This structure gives New EchoStar strong incentives to grow in order to 

spread its fixed costs, thus assuring that efficiencies realized by the merger 

will be passed on to consumers. This incentive will increase with its investment in the new spot beam satellite to bring local channels to all 210 

DMAs. To cover the cost of that satellite, it will be imperative for EchoStar 

to compete to acquire subscribers in the less populous, more rural DMAs 

to be served by the new satellite. 

• Expansion’s Upside Potential. The opportunities to grow among customers 

without cable are very small in relation to the opportunities to grow by capturing some of the nearly 70 million cable subscribers. Persuading even a 

small percentage of current cable subscribers to switch to DBS would have 

tremendous upside value. Any strategy that attempted to exploit the small 

number of customers without access to cable at the expense of growth into 

cable’s huge installed base would be grossly counterproductive. 

• Cable s Lock-In. As cable improves its products, DBS will be frozen out 

of potential customers, due to customer inertia and high switching costs 

from cable to DBS. New EchoStar’s incentives will lead it to push expansion 

before cable entrenches further, especially since consumers who commit to 

a digital cable/cable-modem bundle will be even harder to win. 

• Capital Markets’Expectations. The DBS industry’s—and particularly 

EchoStar’s—ability to raise funds in the capital markets, has been premised 

in large part on the potential for continued growth in MVPD market share. 

Any slow-growth strategy would undermine New EchoStar’s relationship 

with a key constituency. 

These market realities provide the motive, and the merger efficiencies provide the 

means, for vigorous competition with cable that will create better prices, more programming choices, and excellent service.

Question 3: The Merger Will Not Trade Off Harms To Any Market 

Answer: Although your question correctly recognizes the benefits of the merger, 

it erroneously assumes that these benefits will be ‘‘traded off’ against harms in 

other markets. 

The merger will not cause antitrust harm in any relevant market. While there 

are consumers in the United States who do not have access to cable television, and 

therefore have fewer alternatives (though by no means no alternatives) than those 

that do, this does not imply that there is monopoly power over those customers in 

the absence of any evidence that the hypothetical monopolist could identify those 

customers and charge them supracompetitive prices.4 For monopoly power to exist, 

the seller must have the power to control prices or exclude competition.5 The New 

EchoStar would be able to do neither. 

As we have explained, both DirecTV and EchoStar, by the nature of their services, 

operate in a national market, and both companies have offered national pricing 

since their inception. Quite simply, it is impossible to for us identify and profitably 

price discriminate against subscribers without good alternatives without risking losing subscribers who do have good alternatives. The reasons for national pricing include the fact that the administrative costs of separately pricing, billing, and marketing to the few rural customers who lack access to good alternatives far outweigh 

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6See Ball Memorial Hospital, Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325 (7th Cir. 1986). 7 Id. at 1331; see also Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1414 

(7‘’’ Cir. 1989) (‘‘Monopoly power has long been defined in the courts as the power to exclude 

competitors or to control price, a definition we have alternately stated in this circuit as ‘power 

over price’ or ‘the ability to cut back the market’s total output and so raise price.’’’) (citations 

omitted). 8See American Academic Suppliers, Inc. v. Beckley-Cardy, Inc., 922 F.2d 1317, 1319 (7th Cir. 

1991).

any speculative returns that might be gained. Further, the reputational injury and 

destruction of consumer goodwill created by a discriminatory pricing policy make 

such a scheme untenable. And, as noted above, there are other competitors besides 

cable currently operating in rural areas, and new entrants into the market are on 

the horizon as well. Under these circumstances, it is clear that rural subscribers 

and other subscribers without access to cable will enjoy the benefits of the increased 

output and increased competition resulting from the merger, and that the New 

EchoStar will not have the power to raise prices or to exclude competitors. (For a 

more detailed description of the benefits of national pricing and its importance to 

EchoStar’s business, please see my response to Senator Kohl’s first question.) 

The merger will not change the competitive dynamics that force DBS to react to 

literally hundreds of competitors, and as you know, in order to ensure fair treatment of all, both companies have committed to continue national pricing after the 

merger. New EchoStar’s continuing need to compete with cable in the national market will restrain New EchoStar’s ability to charge supercompetitive prices in rural 

areas. The same is true of New EchoStar’s continuing need to grow, a need that 

will in fact be enhanced for New EchoStar given (for example) the commitment to 

serve all 210 DMAs. The price charged for its offerings therefore will be determined 

by the areas in which New EchoStar encounters the fiercest competition, not where 

competition is lacking. Under these circumstances, the traditional concerns that consolidation in a marketplace may reduce competition do not apply. 

Furthermore, as noted above, the merger itself will encourage increased competition with cable companies. As you know, courts consider the effect on price and output when evaluating the market power of a firm,6 and define market power by the 

producer’s ability to raise prices substantially above the competitive level through 

a reduction of output.7 Rather than reduce output, however, the merger will have 

precisely the opposite effect, by enabling the delivery of more channels and more 

advanced services. Improved DBS offerings inevitably will force cable companies to 

improve their offerings to the market as well. 

The ultimate purpose of antitrust law is consumer protection.8 Our merger—

which ’ makes all consumers, whatever MVPD product they use and wherever they 

are located, better off than they would be without the merger—serves that purpose. 

Question 6: Attorney General Nixon, it is clear you have serious concerns about 

this merger. Could you give us some sense of what steps you plan to take with regard to the merger?

Question 7: It was reported in the Wall Street Journal on February 4th at—right 

up to the time at which the merger agreement was signed—EchoStar and DirecTV 

had been exploring ways to achieve these same spectrum efficiencies through a joint 

venture, but that effort failed due to control and economic factors. I would be interested in Mr. Ergen and Mr. Hartenstein’s elaboration on why such a joint venture 

is not a feasible alternative to this merger, and in Mr. Pitofsky’s and General Nixon’s analysis of that alternative. Could you both please provide a detailed explanation of the reasons that a joint venture is not a feasible alternative? 

Answer: EchoStar considered, and discussed with DirecTV, the possibility of a 

joint operating agreement (‘‘JOA’’) whereby the firms would share spectrum to eliminate or reduce redundant programming. After careful consideration, during the 

summer of 2001, the parties rejected this option as unworkable and impractical. 

Ultimately, neither EchoStar nor DirecTV could agree to cede control of its crown 

jewel assets, either to the other or to a third entity. The potential risk to the preexisting businesses and the risk that the agreement would fall apart, particularly 

given the magnitude of investment required to bring benefits to joint operation, 

make joint operation too much of a gamble. 

There are only three options for control of a spectrum-sharing arrangement—control by DirecTV, control by EchoStar, or shared control with the potential for deadlock. Without its satellite and spectrum assets, neither EchoStar nor DirecTV has 

a business. Control of core assets by a competitor would be ruinous, as a dispute 

could lead to the controlling party severely prejudicing the other’s business. The 

controlling party would make critical decisions affecting both participants, particularly with respect to which programming was carried at which orbital location, and 

95

thus to which consumers programming would be available. This would leave the 

non-controlling firm vulnerable to a number of risks, including: manipulation of the 

joint programming to favor the controlling party’s customers; manipulation of the 

joint programming to favor content for which the controlling party has more favorable contract terms, thus effectively raising the non-controlling party’s costs; and 

less responsiveness to technical problems that affect the controlling party’s customers less than the non-controlling party’s customers. These problems would come 

to the fore every time a transponder malfunctioned or any other event occurred that 

required realigning programming among satellites. 

‘‘Shared’’ control would create the problems posed by committees made up of representatives of two entities with adverse interests, which would be unable to effectively resolve disputes, vulnerable to brinksmanship by either side, and thus inherently unstable and at constant risk of stalemate or disintegration. (For these reasons, joint ventures with two competitors sharing their crown jewel assets are rare 

in any industry.) Because of the importance of the competitive decisions related to 

the crown jewels, only the stability and certainty of the merger provide an adequate 

foundation for the success of a move to eliminate redundancy. Take, for example, 

the need to adjust the jointly carried programming to meet competition from cable 

and others. Both EchoStar and DirecTV might agree that changes were needed, but 

each might have a starkly different agenda concerning the nature of the changes 

to be made, because of different consumer preferences, differences in contracts with 

programmers, or merely differences in strategy. If they could not agree, then 

changes could not be made and both would suffer serious competitive harm. Alternatively, disagreements or brinksmanship could cause the joint venture to fall 

apart. 

Also, for spectrum sharing involving national channels, the firms would lose a valuable promotional opportunity. As part of their arrangements with some programmers, EchoStar and DirecTV receive blocks of programming time, e.g., a minute on 

CNN, for use in promoting their services. These are a valuable means to communicate with consumers about their business, including promotions and brand-building. 

The control and stability issues would be compounded by the need to avoid sharing competitively sensitive information between EchoStar and DirecTV. The complicated firewalUindependent decision-making system necessary to keep separate 

data on costs, subscribers, and programmer relationships, as well as other key information, would further impede any possibility that the joint operation could be effectively managed. The companies would likely have to coordinate pricing, promotion 

and manufacturing, in ways that may be significantly limited by the antitrust laws. 

On the other side of the equation, the investment required to accomplish such a 

volatile spectrum sharing arrangement would be very high, and would require extensive, costly and time-consuming consumer equipment changes that would be impossible to make absent the certainty of the merger. EchoStar’s and DirecTV’s settop boxes are largely incompatible, and customers of each company generally point 

their satellite dishes to different orbital locations. Thus, the companies would have 

to select the surviving settop box technology, and bear the significant consumer 

switch-out costs associated with the merger. Even if the costs were shared, the decision to replace one firm’s equipment would be harmful to that firm’s brand. The 

firm with legacy equipment also would be required to share highly sensitive conditional access codes. Moreover, both firms might need to offer consumers new satellite dishes, in order to receive signals from the shared orbital location. Also, a variety of circumstances could lead one firm to have very different incentives and abilities to invest in the switch-out process than the other. Given the risks that the arrangement could fall apart, the investment necessary to undertake the transition is 

too much of a gamble without the stability provided by the merger and without the 

assurance that the investor would have long-term unitary control of the fruits of the 

investment. The resources needed to move to a new, third standard would be much 

greater still, making that course impracticable as well absent the assurance provided by a merger. 

Similarly, the decision on how to use each firm’s satellite assets could significantly 

and adversely affect one firm or another in the event the agreement was terminated. Issues such as potential satellite failures and back-up plans would also be 

extremely difficult to address with separately owned satellite fleets. Finally, the 

general instability of such an arrangement would discourage investment in research 

and development needed to move the platform forward. Only the merger can provide 

the stability and decision-making process necessary to overcome these obstacles.

Question 8: Mr. Ergen and Mr. Hartenstein, in recent FCC filings, you stated that 

the Satellite Home Viewer Improvement Act of 1999 has provided you with an important ‘‘opportunity’’ to carry local broadcast stations. Nevertheless, soon after this 

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9 Besides the revenue from potential new subscribers, the larger-than-expected revenues are 

generated by two factors: first, the ability to sell the local service to a larger existing subscriber 

base, and second, the ability to protect a larger subscriber base from switching to cable—that 

is, carrying local channels is an important service to maintain extant subscribers. 

Congress passed that Act, you filed a lawsuit to overturn it, or portions of it. In that 

lawsuit, incidentally, you argued that you did not have the capacity to comply with 

the Act’s must carry requirements for the 40 to 45 markets you now serve, let alone 

to fully serve all 210 local television markets. The government countered with expert testimony that showed how, using existing technology, either company could 

comply with must carry requirements in all 210 markets. Now you have announced 

that the merged company can carry all stations in all 210 markets. Do you now concede that your capacity objections to the Satellite Home Viewer Improvement Act 

are flawed, and do you intend to continue or drop your challenge to that statute? 

Answer 8. For an explanation of how we reached the conclusion that the merger 

would enable us to serve 210 markets after the merger, please see my response to 

your first question above. However, as I have explained, this is only possible if the 

merger is consummated. First, the capacity to carry so many new local channels will 

come from the end to wasteful duplication of approximately 500 channels of programming between EchoStar and DirecTV. The merger will enable the new company to consolidate use of that wasted spectrum and free up those 500 channels for 

more productive uses, such as local channels in all 210 DMAs, as other new programming and services. Second, the merger, by combining the current and potential 

subscriber base of the two DBS firms, raises the returns on the investment in providing local service to smaller DMAs by spreading the fixed cost of providing local 

service over the larger expected revenue that would come from a larger subscriber 

base.9

The technical issues regarding the theoretical capacity of launching ‘‘super satellites’’ that could enable us to serve 210 DMAs without a merger are complex. The 

experts referred to in your question have now submitted declarations to the FCC 

on behalf of private parties, to which EchoStar and Hughes have fully responded. 

The numerous technical flaws in the conclusion that service to 210 DMAs is possible 

without the merger need not be repeated here. (For more detail on some of the specific technical issues, please see my response to your fifteenth question below). More 

importantly, however, these declarations have never attempted to demonstrate that 

taking the steps required to achieve his theoretical plan—scrapping our investments 

in existing satellites, replacing all our consumer premises equipment, and launching 

expensive new satellites using a number of technologies that had never been used 

in a commercial satellite before—made any kind of business or economic sense at 

all. The steps proposed by the government’s expert would have required the expenditure of several billion dollars of shareholders’ money, would have been uncertain 

of success in any event, and could not have been justified under any business rationale. For example, the ‘‘8PSK’’ modulation technology suggested by the government’s 

expert would be completely incompatible with, and would therefore require the replacement of, satellite receivers for each and every existing EchoStar customer. The 

massive transitional effort necessary would be proportionally greater than the merger—which requires replacing some but not all consumer equipment—yet would 

achieve only a small fraction of the benefits of the merger because wasteful duplication of programming would continue. In addition, this 8PSK transition would result 

in none of the other efficiencies of the merger, including the economies of scale that 

reduce the per-subscriber cost of offering local programming, as well as the other 

important merger benefits like affordable satellite broadband Internet service. While 

8PSK technology might be viable for a new entrant in the future as the risks of new 

technology are conquered, its system-wide use is not a practical method for 

EchoStar to increase capacity. 

Thus, we do not concede that our objections to the Satellite Home Viewer Improvement Act are flawed. We believe that programmers should be able to make 

programming decisions based on consumer demand. We also are concerned that, 

even with the merger, the demand for satellite television capacity will be strong 

enough that it will be important not to waste it on programming for which there 

is no consumer demand, for example, the numerous local home shopping channels 

that we would be required to carry, that are identical to nationwide channels we 

already carry. As the cable companies continue to upgrade their systems to offer 

more services, in response to the enhanced competition the merger will create, we 

will also need to keep up. That being said, after the merger and launch of New 

EchoStar One, we fully intend and have committed to provide all local broadcast 

channels that offer meaningful local programming, as I explain more fully in my response to Senator Kohl’s fourth question, above. 

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In addition, our recent challenge to limited portions of the SHVIA is necessary 

as matter of principle to protect the fundamental free speech right of all Americans 

to choose the television programming they want to watch. Current law provides that 

consumers can only have access to their local network channels, and prohibits 

Americans from watching local news and information originating from other areas 

of the country. EchoStar believes that Americans have the right, under the First 

Amendment, to watch satellite television programming of their own choosing in the 

same way that Americans have the right to choose the books or newspapers they 

read or the movies they watch. 

Today, consumers living outside of New York are permitted to subscribe to their 

local newspaper as well as the N.Y. Times, Washington Post or other newspapers 

across the country, yet those same consumers are denied access to New York television news. The technology necessary to make those channels available outside of 

the New York television market exists today, but EchoStar is prohibited by law from 

making that news and information available outside of New York. Even Congressional members are today prevented by this antiquated law from monitoring TV 

news coverage from their home states while working in their offices in Washington, 

D.C. 

Satellite TV technology can provide local TV channels to consumers across the entire United States, rather than the limited reach broadcast channels have today. 

EchoStar has committed, following approval of its pending merger with Hughes 

Electronics Corp., to offer local TV channels in all 210 television markets in the 

United States, including Alaska and Hawaii. By combining this plan with the ability 

to offer distant network TV stations, consumers would have greater choice in what 

news and information they receive.

Question 9: Mr. Ergen and Mr. Hartenstein, is it true that, notwithstanding the 

commitment you made to this Committee at the hearing, that even if the merger 

is approved you do not intend to carry all local channels in all 210 DMAs in the 

event that your challenge to the constitutionality of SHVIA is successful in the Supreme Court? Would you both please state specifically which DMAs and which channels you do not commit to carrying in the event your legal challenge is successful? 

Answer: Please see the response to Senator Kohl’s fourth question, above.

Question 10: Mr. Ergen and Mr. Hartenstein, please provide your estimate of how 

much it would cost each firm for satellites to provide local into local service to all 

210 DMAs without the merger, and then in a separate analysis, with the merger. 

Answer: In order for DirecTV and EchoStar to provide local-into-local programming to all 210 DMAs after the merger, we will use two DirecTV satellites (4S and 

7S) and two EchoStar satellites (VII and VIII). EchoStar VII and DirecTV–4S are 

already in orbit. EchoStar VIII has an anticipated launch date in June, and 

DirecTV–7S is scheduled for launch in late 2003. These satellites are designed to 

devote a total of 20 frequencies to spot beams for local-into-local programming. 

Without the merger, these satellites largely would serve the same DMAs with duplicative service, but with the merger, they will be able to provide complementary service to different DMAs. 

EchoStar does not have access to the detailed cost information for DirecTV’s satellites. In addition, the precise costs of EchoStar’s satellites is confidential and proprietary, not only to EchoStar but also to our vendors. However, industry experience 

is that advanced DBS satellites generally cost approximately $250 million each to 

design, construct, insure, and launch. 

In addition, if the merger is consummated, EchoStar and DirecTV plan to construct and launch a fifth satellite, tentatively named New EchoStar 1. Based on preliminary analysis, this satellite is expected to cost approximately $300 million total, 

and will use 8 frequencies for spot beams. 

Without the merger, it would not be feasible for EchoStar to serve all 210 DMAs. 

It would require the construction of at least three satellites, to duplicate the coverage of the DirecTV 4S and 7S satellites, as well as the New EchoStar 1 satellite, 

and to provide appropriate back-up capability. Based on EchoStar’s experience with 

EchoStar VII and VIII, it estimates that these satellites would cost a total of approximately $750–$800 million dollars, and will need to use approximately 18 DBS 

frequencies. 

Without the merger, in order to free up the 18 additional frequencies needed to 

provide local programming service to all 210 DMAs, EchoStar would have to cut the 

equivalent of approximately 180–200 nationwide standard definition programming 

channels for its service, well over half of what it currently offers. Obviously, 

EchoStar does not consider this a realistic option. Not only would such significant 

cuts in EchoStar’s national programming immediately cause numerous subscribers 

to leave DISH Network service for cable and other MVPD subscribers, but it would 

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prevent EchoStar from attracting new subscribers. This would be true nationwide, 

including in those DMAs where EchoStar added local programming. EchoStar would 

also have to consider the significant on-the-ground costs of providing local programming, including backhaul, which is much more expensive on a per-subscriber basis 

without the combined subscriber base created by the merger. While local programming would, all other things being equal, make EchoStar more competitive in the 

MVPD marketplace, losing such substantial portions of EchoStar’s channel line-up 

in order to provide local programming for more communities would be strong, net 

loss for EchoStar’s competitiveness, and thus would leave consumers more at the 

mercy of the large cable MSOs.

Question 11: Please provide specific bases for the estimates, and any assumptions 

made in those estimates, and supply any supporting documentation. Please list 

every satellite you use in creating each of those estimates, and state the cost of 

each. 

Answer: Please see above.

Question 12: Mr. Ergen and Mr. Hartenstein, please state, for each of you separately, how many DMAs you will and how many you could serve using your current 

and planned satellites not counting the newest satellite you now propose, and when 

each of those satellites will or could begin that service. Please be specific, answering 

for each current and planned satellite and explaining if any of them would be used 

in conjunction with other satellites to achieve that result. 

Answer: EchoStar’s fleet of satellites currently in use, EchoStar I though VI, currently serves 36 DMAs with local-into-local programming. None of these satellites 

has spot-beaming capability. The number of DMAs that could be served by these 

satellites depends on a number of factors, including the number of local channels 

per DMA, and the number of other types of channels carried. Based on these factors, 

EchoStar has struggled to carry local programming to the 36 DMAs it currently 

serves, requiring, among other things, increases in compression that have reduced 

audio and video quality below optimal levels. 

EchoStar VII has already been launched, and is expected to go into service in midApril. EchoStar VII is capable of carrying approximately 250 local channels with its 

spot beams. EchoStar VIII has an anticipated launch date in June 2002, going into 

service in August. EchoStar VIII is also capable of carrying approximately 250 local 

channels with its spot beams. Because of limited spectrum available to EchoStar, 

use of these satellites will require that EchoStar reduce the amount of programming 

that EchoStar’s other satellites carry. However, with these two new satellites in conjunction with existing satellites, EchoStar plans to offer service to the 36 DMAs currently served, plus approximately 14 new DMAs, for a total of about 50. 

The precise number of DMAs served, and how these DMAs will be allocated between EchoStar’s satellites, has not been decided, and will depend on a number of 

factors, including EchoStar’s ability to negotiate retransmission agreements, the 

number of channels in the DMAs served, consumer demand in different DMAs, 

EchoStar’s ability to offer complimentary sports programming, and the outcome of 

regulatory proceedings before the FCC concerning the must-carry rules.

Question 13: Mr. Ergen and Mr. Hartenstein, if you desired, could you change the 

design and construction of certain of your current satellites to carry even more local 

into local stations than stated in the previous response? If so, please explain how, 

the number of additional stations that could be carried, the current cost of each of 

those satellites, and the cost as changed to carry the additional stations that could 

be achieved. 

Answer: It would be impossible to change the design or construction of EchoStar’s 

seven DBS satellites orbiting over 20,000 miles above the earth. 

EchoStar has one DBS satellite, EchoStar VIII, that we hope to launch in June. 

The construction of the satellite is essentially complete, and all that remains is testing, finishing touches, and moving the satellite to its launching facility in 

Kazakhstan. At this stage, it would be impossible to change the design or construction of EchoStar VIII.

Question 14: Mr. Ergen, in press conferences held shortly before the hearing, I understand you and Mr. Hartenstein indicated that you would dedicate 28 of the 

merged company’s frequencies to your Local Channels, All Americans plan, but your 

satellite application for New EchoStar 1 states that those frequencies will also be 

used for ‘‘development and expansion of new services.’’ You also state that ‘‘New 

EchoStar may sell and/or lease a portion of its capacity on a non-common carrier 

basis for complementary business purposes.’’ How many of those 28 frequencies are 

necessary for local channels, and what are these ‘‘complementary business purposes?’’ [In the Matter of EchoStar Satellite Corporation and Hughes Electronics 

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Corporation for Authority to Launch and Operate New EchoStar 1 (USABBS 16), 

Application for Authority to Launch and Operate New EchoStar 1 at 10,13]. 

Answer: It is not possible to predict precisely how many stations will be carried 

on the new platform, because there are a variety of factors outside of our control. 

New stations may begin service, and old ones may go out of business. We also cannot anticipate precisely how many stations will elect for must-carry status, nor the 

progress of negotiations for retransmission agreements. In addition, we cannot determine how many stations will provide a sufficiently strong signal to our local collection facility. 

However, if the merger is approved, we anticipate the broadest possible local programming service to all 210 DMAs. Up to 28 frequencies will be required to provide 

local-into-local programming service to all 210 DMAs in the United States, including 

appropriate backup capability. We have no specific plans for any other uses of New 

EchoStar 1 other than local programming, but we hope to eventually offer other localized programming and services, such as interactive applications or advertising. 

Depending on the number of channels ultimately carried and technological progress 

on compression and other technologies, it may be possible to use a fraction of the 

capacity on New EchoStar for these purposes.

Question 15: Mr. Ergen and Mr. Hartenstein, if you did not merge, would you 

(and answer for each of you separately) employ any technological innovations or improvements in your service over the next 7 years? 

Answer: Since its inception, EchoStar has devoted enormous resources to improving the efficiency of its DBS systems in order to become more competitive, and to 

offer consumers more services and more value. However, EchoStar is aware of no 

technology that would increase substantially the amount of national and local programming (including new services) that EchoStar can offer consumers in a manner 

that makes any business sense. 

8PSK Modulation & Turbo-Coding 

EchoStar has examined the possibility of using 8PSK modulation and turbo-coding to improve spectrum utilization, and has concluded that it would be impractical 

to incorporate these features on a system-wide basis. EchoStar continues to evaluate 

the use of 8PSK modulation and/or turbo-coding on a more limited basis in providing HDTV service. 

System-wide conversion to 8PSK modulation and/or turbo coding is not feasible. 

First, the older satellites in the EchoStar fleet lack the power to transmit 8PSK signals effectively. Second, even for satellites that are powerful enough to broadcast 

8PSK effectively, the capacity gain from converting to 8PSK and/or turbo coding 

would be relatively small. In contrast to these small benefits, transmitting with 

8PSK or turbo-coding would entail enormous transition costs, in that the conversion 

would require that customers’ existing set-top boxes be replaced with new, more 

costly models in order to receive the signals. In light of the limited benefits of 8PSK 

modulation and turbo coding, the cost of a system-wide swap-out of set-top boxes 

and a launch of new, higher-power satellites simply is not practical from a business 

perspective. 

In contrast, EchoStar continues to consider using 8PSK or turbo coding to deliver 

bandwidth-intensive HDTV and possibly Video-on-Demand (‘‘VOD’’). This focused 

application of the technology is more likely to prove practical than a system-wide 

conversion. First, the transition costs would be less than those incurred in a systemwide conversion, as there is today a relatively small number of HDTV subscribers 

with specialized HDTV receivers, which limits the number of customers who would 

need new set-top equipment (HDTV requires a specialized receiver in any event; 

VOD will also require a specialized receiver). In addition, HDTV and VOD could be 

carried on newer, higher-power satellites, and thus the introduction of the new technology solely for HDTV and VOD would not require replacement of the existing 

lower power satellites. At the same time, because of the large amount of bandwidth 

consumed by each HDTV channel, a small percentage gain in capacity might still 

be sufficient to justify these more modest transition costs. If EchoStar decided to 

adopt this measure, it would provide new, 8PSK and turbo-code compatible set-top 

boxes to current HDTV and future VOD subscribers, thereby reducing the amount 

of spectrum that would be used in order to offer HDTV or VOD, and/or it may be 

possible for EchoStar to provide more HDTV or VOD service in the same amount 

of spectrum. 

Compression 

EchoStar has improved its compression system over time to allow for more television channels in its authorized DBS spectrum while maintaining the highest quality audio and video. However, in order to meet regulatory must-carry requirements 

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pending launch and operation of its new spot-beam satellites, EchoStar was required to carry as many as 12 television channels on some transponders. This has 

reduced quality levels below optimum. EchoStar is continuously evaluating new 

technologies and working with its vendors, but it anticipates that near-term improvements will only help to make up for the lost quality; they will not help to increase capacity. 

In addition to EchoStar, a number of independent firms compete to deliver better 

digital video and audio compression technologies for a wide range of applications, 

including DBS service. EchoStar is continually exploring new means of squeezing 

more programming out of its limited bandwidth. Unfortunately, it appears that the 

rate of compression improvements is slowing due to the physics of the problem. 

EchoStar continues to pursue developments in this area but believes that only small 

incremental improvements are likely in the foreseeable future. 

MPEG–4

EchoStar and DirecTV both use the MPEG–2 video encoding standard. Some 

merger opponents have suggested that a newer standard, MPEG–4, could increase 

the capacity of each company’s DBS system. MPEG–4 is not practical for EchoStar 

from a business perspective for several reasons. First, while MPEG–4 may offer significant capacity advantages over MPEG–2 at lower quality levels suitable for 

streaming over the Internet, it does not offer significant capacity advantages over 

MPEG–2 at the higher quality levels necessary for EchoStar and DirecTV to compete with cable. Second, use of MPEG–4 would require new set-top boxes for each 

consumer. A system-wide swap-out of set-top boxes is not practical from a business 

perspective given the limited—if any—consumer benefits. Third, the swap-out would 

be particularly expensive because MPEG–4 compatible hardware is immature.

Question 16: Specifically address whether you would employ turbo coding, 8PSK 

Modulation, MPEG–4 or other compression techniques, personal video recorders, 

spot beams, or any other techniques to use spectrum more efficiently. If your answer 

for any of these technologies is that you do not expect to employ it over the next 

7 years, please explain in detail the reasons for that decision. 

Answer: Please see the response to the question immediately above.

Question 17: Attorney General Nixon and Mr. Pitofsky, I have heard that sensitive competitive information, such as specific programming contract terms, may 

have been disclosed by DirecTV to EchoStar in a manner that is not traditionally 

part of the normal due diligence process of a merger. I have also heard that some 

DirecTV customers have been contacted about needing to switch to EchoStar now, 

in advance of merger approval, to keep uninterrupted television service, reportedly 

by postcard, phone, and advertisement. Mr. Nixon and Mr. Pitofsky, would either 

of these activities, if true, raise concerns in the minds of antitrust enforcers as they 

review this merger? 

Answer: Sensitive terms of programming contracts have not been shared between 

the companies. On the advice of counsel, those economists, consultants, and outside 

lawyers retained in connection with the merger have had access to some competitively sensitive information, as necessary to prepare filings to the FCC and materials for the Department of Justice. For example, it would be impossible to analyze 

cost savings made possible by the merger without access to cost information from 

both companies. Sharing such information with outside lawyers, economists and 

consultants, with appropriate safeguards to prevent inappropriate disclosure of such 

information to the other company, is both common and entirely proper. 

We have investigated the allegations of sales techniques described in your question, and are unaware of any such conduct. EchoStar and DirecTV continue to compete independently as is proper prior to merger consummation, and have established 

safeguards to ensure that we will continue to do so.

Question 18: Mr. Ergen, I am a bit confused about your claim that this merger 

is necessary for you to provide broadband Internet service. In EchoStar’s FCC application, it is asserted that one of the most significant benefits of the merger is that 

it will ‘‘free up’’ the spectrum necessary for broadband Internet provision. In fact, 

Dow Jones News Service reported on March 5th—the day before our hearing—that 

you have stated that you ‘‘won’t keep pumping funds into developing satellite 

broadband unless the merger closes.’’ [′′EchoStar Says Has Talked To Potential 

Broadband Partners,’’ Dow Jones News Service, March 5, 2002]. Confusingly, however, the Wall Street Journal reported—also on March 5th that you are currently 

in negotiations with SES Global to create a joint venture that would be able to serve 

the entire ‘‘anticipated U.S. residential broadband market.’’ [Andy Pasztor, 

‘‘EchoStar, SES Discuss Venture For Internet in U.S.,’’ The Wall Street Journal Europe, March 5, 2002]. Notably, SES already controls the orbital slot proposed to be 

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used by the joint venture. Could you please harmonize for me these seemingly contradictory actions and statements? In particular, if a single satellite in the orbital 

slot controlled by SES will be capable of providing nationwide broadband service, 

doesn’t this completely undercut your arguments that this merger is necessary to 

the deployment of satellite provided broadband? 

Answer: Although spectrum—and more particularly, capacity—constraints do affect the availability of satellite broadband service, the primary obstacle to successful 

deployment of consumer satellite broadband today is cost. To use the available spectrum efficiently, a satellite broadband provider must make enormous upfront investments in complex satellite systems and other technology. After investing the hundreds of millions, even billions of dollars necessary to build such a system, the high 

cost of consumer equipment forces a consumer-oriented satellite broadband provider 

to incur equally substantial subscriber acquisition costs. After making these investments, the consumer business can become economical only if it is able to reach a 

scale of at least five million subscribers. As a result, satellite broadband Internet 

is an expensive, high-risk undertaking. Even well financed satellite broadband ventures with experienced backers have been forced to scale back their plans, or even 

abandon them altogether. For example, Astrolink recently announced that, after 

having built 90% of its first Ka-band spacecraft, and after having spent about $710 

million on its Ka-band system, it was terminating its spacecraft contract with Lockheed Martin, as it found itself unable to finance the remaining cost of implementing 

the Astrolink broadband system. Faced with these same market uncertainties and 

financial pressures, EchoStar thus far has taken a cautious approach to satellite 

broadband. Indeed, EchoStar does not provide the service itself, but rather has invested in StarBand, from which EchoStar purchases the satellite broadband service 

that it then sells to its DBS customers. 

Similarly, EchoStar’s plans in the Ka-band are also modest—EchoStar will deploy 

a hybrid Ka/Ku band satellite later this year, and has not yet determined whether 

it will use that satellite’s limited Ka-band payload for broadband at all. Even these 

cautious steps have been costly. The StarBand business model has proven to be unprofitable for 

EchoStar and for StarBand, and simply is not economically viable today. Without 

the cost savings and efficiencies created by the merger, it is questionable whether 

the enormous investment in satellite infrastructure, research and development, and 

subscriber acquisition necessary for a consumer-oriented satellite broadband service 

can be justified from a business perspective. 

Nonetheless, EchoStar recognizes the importance of a satellite broadband alternative. Cable companies already offer an MVPD/broadband bundle that is attractive 

to consumers, and in particular to EchoStar’s best customers. EchoStar must have 

a similarly attractive service offering to compete. To that end, EchoStar has continued to explore various means of providing broadband service to its DBS subscribers. 

Those efforts have included discussions not only with satellite companies like SES 

Americom, but also with various terrestrial broadband providers. 

All of those negotiations, including any talks with SES Americom, remain very 

tentative. To the extent that it is possible to comment on them at all, it is important 

to note that a joint venture with SES Americom, involving a single orbital slot, 

would not have enough capacity to achieve the economies of scale necessary to provide an affordable consumer broadband service. Only the merger would provide 

EchoStar with the necessary slots to reach that scale. However, a venture with SES 

Americom likely would be an improvement over the current platform, in which 

StarBand leases individual Ku-band transponders on two satellites owned by third 

parties. Consistent with EchoStar’s cautious approach to satellite broadband to date, 

a joint venture with a satellite firm that controls the orbital slot to be used would 

permit EchoStar to continue exploring the viability of satellite broadband, without 

bearing an excessive degree of risk. In the meantime, these smaller scale broadband 

efforts would allow EchoStar to get keep its foot in the door in competing against 

cable, while increasing its own experience with, and consumer acceptance of, satellite broadband Internet. At the same time, however, satellite broadband would remain a high-priced, niche service, beyond the means of most consumers, and still 

not competitive with cable modem or DSL. Only with the merger will it be possible 

to deploy on a timely basis an advanced residential service of mass scale and appeal 

at an affordable price.

Question 19: Mr. Kimmelman, as I understand your position, you claim that 

EchoStar and DirecTV are not in the same antitrust market as cable because even 

where they are all available in a television market DBS competition has not constrained cable prices sufficiently. However, you also appear to argue that one of the 

most substantial benefits of the merger would be increased competition between 

cable and DBS, and the concomitant restraints that would be placed on cable pricing 

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by the DBS service provided by the merged entity. I find this reasoning confusing 

from both a legal and practical perspective. Could you please explain in more detail 

how decreased competition in one market will in increase competition in an allegedly separate market? Additionally, could you please cite any past instances where 

the courts, the Department of Justice, or the FTC has found that such relationships 

between markets do in fact exist or what relevance they have for purposes of antitrust review?

Responses of Charles W. Ergen to a question submitted by Senator Ted 

fKennedy 

Question 1: What impact, if any, would approval of the proposed merger on efforts 

to bridge the digital divide by providing greater high speed internet access to underserved urban and rural communities. 

Answer: The approval of the EchoStar-Hughes merger will have a truly profound 

effect on the availability of broadband service in underserved and rural communities. 

As I mentioned in my testimony before the Committee, approximately 40 million 

households, primarily in rural America, are ‘‘digital have-nots.’’ Because of the enormous expense of rolling out terrestrial technology to wire rural homes, neither cable 

broadband nor DSL is likely to serve those consumers in our lifetime. Satellite 

broadband, in contrast, can be delivered anywhere and everywhere in the country, 

the moment the satellite is deployed. It costs no more to deliver satellite broadband 

to the most rural parts of America than it does to deliver it to Boston. Satellite 

broadband is the best hope to bridge the digital divide in America. 

For that hope to be realized, however, the cost of satellite broadband must be 

brought down considerably. Today, the enormous fixed costs and expensive consumer equipment required for satellite broadband service prevent Hughes’s and 

EchoStar’s offerings from being anything more than high-priced niche services. Neither is competitive, in terms of price or service, with current cable broadband products. The only way for this market to change, and satellite broadband to become 

a meaningful, affordable option for rural and for urban consumers, is by increasing 

satellite broadband to a scale many times the current number of current customers. 

It is not likely that either company standing alone could deploy on a timely basis 

an advanced residential service of mass scale and appeal at an affordable price. 

Thus, Hughes’s planned SPACEWAY Ka band system has been developed with a 

focus on larger commercial, or so-called ‘‘enterprise,’’ customers, while EchoStar’s Ka 

band program has remained modest in scope. 

By contrast, approval of the merger will have a true ‘‘zero to one’’ effect in many 

rural and underserved areas. It will give the merged company the spectrum capacity, subscriber base and economies of scale needed to ensure that next-generation 

satellite residential broadband service becomes a reality everywhere in the United 

States, rapidly and inexpensively, in a reasonable time frame. Given that there are 

large portions of the country that will not be able to receive cable modem or DSL 

service any time soon, deployment of a competitively-priced satellite broadband service will result in enormous consumer benefits. In addition to the obvious benefit of 

simply having the same high speed Internet access that urban consumers currently 

enjoy, the merger promises additional benefits uniquely well suited to rural communities, including local television channels for consumers in remote areas, containing 

local weather, news, and community information, as well as telemedicine programs, 

connectivity for rural doctors, and distance learning.

Responses of Charles W. Ergen to questions submitted by Senator Herbert 

fKohl

Question 1: At the hearing we discussed your intention to implement uniform national pricing so that rural customers are not disadvantaged by the rural pay TV 

monopoly created by this merger, which you promised to implement in an enforceable decree with the government. I asked you if this would prevent EchoStar from 

responding to lowered cable pricing in a few specific urban markets, and you said 

you would try to draft a decree that would permit EchoStar to do so. But if the decree permits you to lower prices (or offer rebates) in a few urban markets because 

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1Our offering in Alaska and Hawaii has historically been somewhat different from our other 

offerings because some signals are sent via satellites that subscribers there could not access. 

Recently, however, America’s Top 100 at its standard national price has been made available 

to new Hawaiian subscribers. This issue will be resolved with the increased capacity resulting 

from the merger. 

of competitive conditions in those markets, then you will no longer offer uniform national pricing, and rural consumers will not fully realize the benefits of competition 

in those urban markets. Alternatively, if you are strictly bound to a national price, 

the fact that you would have to lower prices nationwide might serve as a deterrent 

to competing by lowering prices in one, small super-competitive market. In other 

words, you might choose to lose a small number of customers in one market, rather 

than lower your profits across the board. Please clarify what exactly EchoStar can 

agree to with regards to a national pricing plan. Would you agree to a mandate to 

maintain level pricing in all markets? And if you were to lower prices in one market 

to respond to local competition, would you agree to be required to lower prices in 

all markets you serve? You also mentioned at the hearing alternative pricing systems that you had seen. Could you elaborate on them and explain why and how 

they might address the dilemma I outlined above? 

Answer: In answering this question I need to emphasize three points at the outset. First, EchoStar’s product and our pricing is (and always has been) national in 

nature. As you know, EchoStar’s DBS service is sent from the same satellites to consumers all over the United States, and EchoStar has always charged the same national prices for the same services.1

Second, EchoStar believes that the national price is an important economic feature of the MVPD market, one that EchoStar needs and intends to preserve, and 

one that is valuable and worth preserving. EchoStar believes that the benefits of 

enhanced competition that the merger would generate make the national pricing 

scheme even more valuable as a source of benefit to consumers nationwide. 

Third, EchoStar’s national price itself generates substantial benefits for rural consumers by affording them the benefits of the competitive dynamics in other areas 

of the country. Nevertheless, we believe that the concerns of rural consumers are 

important ones. We have thought through those concerns and are sure that there 

are many solutions that are workable to address them. We will be working on such 

solutions with the Department of Justice, the FCC, and the States and will be 

pleased to present them to Congress following that process. 

There are a number of reasons that EchoStar has always used national pricing 

for this national service. First, it provides for efficient marketing, advertising, and 

retailer relationships, and allows us to emphasize the price/quality advantages we 

have traditionally maintained over cable systems throughout the country. Second, 

there would be significant costs involved in implementing regionally variable pricing, including massive changes to our customer service and billing systems. It would 

be extremely difficult profitably to identify and discriminate against those without 

good alternatives, while not driving away potential subscribers (as well as 

EchoStar’s own customer base) with good alternatives. Because customers in noncable areas make up such a small portion of our subscribers, and an even smaller 

portion of potential subscribers, it would not make economic sense to invest the significant sums needed to implement regional service pricing in order to raise rates 

for those consumers. Third, national retailers prefer to be compensated uniformly 

on a national basis, and therefore, efforts to compensate them differently based on 

whether, for example, a customer is passed by cable are resisted by the national retailers. Local and regional retailers are also very resistant to price discrimination 

schemes that require them to treat certain customers differently, both because it 

makes their advertising, promotion and sales efforts more difficult, and because it 

endangers their goodwill with customers. Fourth, efforts to discriminate against 

rural subscribers would undermine the hard work and dedication we have put into 

earning our reputation for providing value and customer responsiveness. This reputation for fair dealing is extremely important in our efforts to compete for cable 

subscribers, who are repeatedly subjected to price increases and poor service. Finally, such discrimination would also undermine the integrity of the mechanism 

that EchoStar has found is optimal for competing on a nationwide basis: a highly 

competitive national price. 

Because the cable companies control approximately 80% of the pay television subscribers in this country, we naturally have focused on acquiring cable subscribers 

as our biggest growth opportunity. In running special promotions to attract new 

subscribers, we have focused our efforts on nationwide promotions that are available 

to all consumers in the United States. A good example is our ‘‘I Like 9’’ promotion 

that we ran last fall and winter. This program, which we offered both directly and 

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through our retail network, allowed new subscribers to receive EchoStar’s AT 50 

program for only $9 a month for a year with the purchase of a new system. Equivalent discounts were available for purchasers of other packages. This was an effective 

promotion both because it was clearly a better economic deal than any major cable 

system was offering, and because it could be advertised efficiently and supported nationally. The vast majority of our promotional efforts have been devoted to these national programs. EchoStar competes with literally hundreds of different cable systems across the country, each with its own widely varying packages and pricing. 

EchoStar’s philosophy has always been that we need to offer a substantially better 

price/performance offers than every one of these companies in order to overcome 

their advantages of incumbency and to expand our own subscriber base. 

We sometimes target competitors, like particular cable companies, as part of our 

marketing strategy. For example, when a cable company raises its prices, we sometimes respond with a targeted marketing campaign to attract new subscribers that 

uses dissatisfaction with the price increase to focus consumer attention on our product. Almost all of these programs offer the same basic economic terms as our national program, but occasionally we have offered more favorable short term incentives, for example, lower equipment prices or free programming for a limited period 

of time, that were not offered as part of the national package. A narrowly limited 

local program, of course, does not discriminate against rural customers anymore 

than it discriminates against all the urban customers in other areas who cannot 

take advantage of it. The subscribers we gain from these locals promotions amount 

to a very small part of our business. In fact, these promotions are often done simply 

to test a consumer offer on a local basis before rolling out nationally. 

We think that these programs are good for consumers and that they do not discriminate against rural or any other class of consumers. Moreover, while we do not 

believe that a decree is necessary under the competitive circumstances of the MVPD 

industry, we are more than willing to work with the appropriate authorities to create a consent decree that would ensure that all Americans receive the competitive 

benefits of our existing nondiscriminatory pricing practices (along with the increased 

output and other benefits of the merger) while retaining our existing flexibility to 

engage in these kinds of narrowly limited local activities. To be effective a decree 

would not need to do more than confirm our existing procompetitive practices, including the flexibility reflected in them. Such decree would not allow discrimination 

and would not be considered unduly ‘‘regulatory.’’

With regard to the specifics of your questions, the initial issue raised is whether 

allowing EchoStar any flexibility to meet competition in local areas would subject 

rural customers to discrimination in a way that would undermine the benefits of 

the national pricing commitment. EchoStar is confident that it would not. If 

EchoStar engages in particular competitive activity in a particular locality, in order 

to meet competition, take advantage of a cable price increase, or simply test a marketing concept, this activity clearly would not discriminate against rural subscribers 

without access to cable because those subscribers would continue to receive the 

same competitive benefits as all other subscribers outside that particular locality, 

most of whom would not be rural and most of whom would have the option of 

switching to cable. 

As explained above, this is demonstrated by present practice. Over the past several years, EchoStar has been free to engage in such competition in particular local 

areas. While EchoStar has used that freedom to engage in such competition, it has 

only done so on rare occasions - because its business is based on the offering of a 

national price. Whenever EchoStar has engaged in such competition, every EchoStar 

customer outside the narrowly targeted local areas has been treated precisely the 

same. If, for example, EchoStar offered a better-than-national promotion focused on 

the Washington area, rural customers might not be able to take advantage of that 

promotion, but neither would customers in New York or Los Angeles or other major 

DMAs. Because EchoStar must remain competitive in all major DMAs, and needs 

to offer competitive national prices and promotions to do so, rural customers will 

be treated the same as customers in the competitive DMAs, just as they are today. 

Under these circumstances, it is clear that rural consumers would suffer no prejudice for ‘‘discriminatory’’ treatment, and would be much better off due to the additional programming and services that they will have available. 

Nor, importantly, has EchoStar’s present freedom to engage in such competition 

been reflected in other forms of discrimination. Indeed, EchoStar’s principal present 

competition in rural areas, Pegasus, as well as other NRTC affiliates, has long 

charged significantly higher prices than EchoStar - both on a programming/service 

and net effective price to the consumer basis. That is, Pegasus has charged rural 

consumers, some of whom lack the alternative of switching to cable, much higher 

prices than EchoStar does. For example, Pegasus charges $34.99 per month for its 

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‘‘Total Choice’’ package of 105 channels - the same package for which DirecTV 

charges $31.99 - yet EchoStar charges one national price of $31.99 for its equivalent 

100 channel package, regardless of whether it competes against Pegasus or DirecTV. 

EchoStar has never departed from its national pricing principles to exploit that 

large differential and raise its price to consumers in rural areas who lack access to 

cable. There is nothing preventing EchoStar from doing so except the fact that, as 

EchoStar has articulated, it is critically important to EchoStar’s business to maintain a national pricing regime. 

The danger raised by opponents of the merger, that EchoStar could somehow raise 

the national price above competitive levels, while responding to more vigorous competition on a local level, is therefore not a realistic concern given the facts about 

this industry and EchoStar’s historical actions. Every major cable company and 

many if not most of the smaller ones have upgraded and are continuing to upgrade 

their infrastructure to digital, and are increasing their competitive pressure on DBS 

through improved products and services and cable modem bundling. The argument 

that EchoStar could manipulate its national price to exploit the relatively small 

number of consumers without good cable alternatives, while maintaining its competitiveness against these competitors with access to the great majority of its potential audience (as well as EchoStar’s existing customer base) is simply wrong. As described above, due to NRTC’s high pricing in rural areas, EchoStar has the opportunity to engage in that kind of pricing today, and has had the opportunity for some 

time, but has consistently declined to use that opportunity because it would damage 

the core of its business. 

Thus, EchoStar believes that the facts demonstrate that no decree of any form is 

needed to protect the current national pricing regime from being evaded to discriminate against rural customers. Nevertheless, EchoStar is prepared to work with the 

appropriate authorities to fashion an administrable decree if such a decree were 

viewed as helpful reinforcement to continued competitive national pricing. EchoStar 

is agreeable to such a step because it does not seek through the merger to depart 

from its current national pricing practices and, indeed, because it believes that those 

national pricing practices are extremely valuable to competition and consumers. 

The next question posed is whether such a decree, by limiting EchoStar’s flexibility to engage in local promotions, would inhibit EchoStar from engaging in socially and economically valuable competition. EchoStar does not believe that an appropriate decree would need to eliminate all such flexibility; today EchoStar enjoys 

just such flexibility and does not use it to discriminate or otherwise undermine the 

national price even when it is has the clear opportunity to do so, as described above. 

However, the principal point is that EchoStar in the vast majority of instances deals 

with competitive pressures from various providers by factoring them into its overall 

national price. Our analyses suggest that the largest markets are the most competitive, which are also where the cable companies have improved their offerings the 

fastest. EchoStar cannot ignore these important markets in setting its national 

price. Indeed, these highly competitive markets are the ones in which we foresee 

the greatest opportunity for growth; they are also the ones where competition for 

EchoStar’s own customer base is the sharpest. Thus, the economic realities that 

drive EchoStar to competitive national pricing are not a detriment to consumers or 

competition. To the precise contrary, this dynamic ensures that consumers across 

the country will receive through the national price the benefits of some of the most 

competitive dynamics in the more competitive regions in the country. In effect, the 

national price ‘‘exports’’ competition, including to customers in rural areas that lack 

access to cable. By so ‘‘exporting’’ competition, the competitive national price also 

amplifies competition in all areas of the country, for the benefit of cable consumers 

as well as DBS consumers. To the extent that a decree addressed limits on flexibility, it would not detract from competition but instead would simply reinforce this 

overall positive impact on competition nationwide. At the same time, it would be unnecessary to eliminate all flexibility to compete locally, for the reasons stated above.

Question 2: Please provide any data which demonstrates that satellite television 

disciplines cable rates in those markets where local-into-local service is offered. 

Answer: Local-into-local service makes DBS more competitive with cable, and 

therefore allows DBS to exert more price pressure on cable. The Declaration of Dr. 

Robert D. Willig (‘‘Willig Declaration ’’), submitted by Hughes and EchoStar to the 

Federal Communications Commission in support of the proposed merger on February 25, 2002 makes this clear:

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2The Department of Justice concluded that, ‘‘to the extent that DBS cannot offer subscribers 

local broadcast channels, it has a competitive disadvantage relative to cable because many viewers demand local news and weather and popular network programming.’’ See Comments of the 

U.S. Department of Justice, In the Matter of the Application of MCI Telecommunications Corporation and EchoStar Communications Corporation, File No. SAT–ASG–19981202–00093, January 14, 1999, available at http://www.usdoj.gov/atr/public/ comments/2173.htm. 3 Author’s calculation based on Forrester Research, Technographics Survey, January 2000. 4The impact of local service on subscriber growth was estimated after controlling for DMAlevel economic conditions (proxied for by the unemployment rate in those states where the DMA 

is located), the previous month’s penetration rate of each DBS provider, national business cycle 

and other factors that affect all DMAs each month, and persistent differences in DMA-level subscriber growth rates. 

Lack of local channels had placed DBS at a competitive disadvantage to 

cable.2 For example, according to a January 2000 survey by Forrester Research, 47 percent of cable subscribers would not subscribe to satellite television because they do not ‘‘want to lose reception from the major networks 

(e.g., ABC, NBC, CBS).’’ 3 The fact that consumers value carriage of local 

channels as part of a DBS offering has been clearly demonstrated in the 

DMAs in which EchoStar and DirecTV have already offered local channels. 

For example, after launching local service, EchoStar’s DMA-level subscriber 

growth rate increased by an average of 30 percent in the 36 local markets 

it introduced local service. Similarly, when DirecTV rolled out its local service in 41 markets, its subscriber growth rate in those markets rose by an 

average of 17 percent.4 It is important to note that the increase in DBS 

subscriber growth is evidence that the introduction of local channels in particular areas has provided direct benefits to consumers and has additionally 

placed more competitive pressure on cable in those areas. New EchoStar’s 

commitment to expand the provision of local channels to every market will 

therefore introduce additional competitive pressure throughout the country 

to the incumbent cable providers. 

Willig Declaration at ¶ 17.

Similarly, the FCC has highlighted the role that local-into-local service has played 

in promoting competition between DBS and cable services. In its 2000 Report on 

Cable Industry Prices, for the first time, the FCC concluded that DBS puts statistically significant downward pressure on demand for cable services. The report 

states that this ‘‘result is different from our earlier finding reported in the 1999 

Price Survey Report, which showed DBS exerting only a modest influence on the 

demand for cable service. One explanation for the increased importance of DBS as 

a competitor of cable is the passage of the Satellite Home Viewer Improvement Act 

(SHVIA) in November 1999, which eliminated the prohibition on DBS delivery of 

local network signals into their local television markets. The two DBS operators 

have begun offering local signals in many major television markets thus more closely matching services provided by cable operators.’’ See Statistical Report on Average 

Rates for Basic Service, Cable Programming Services, and Equipment, Report on 

Cable Industry Prices, FCC (2001), at ¶ 53. 

Notably, the growth and increased competition described by Professor Willig and 

the FCC occurred at a time when EchoStar still did not offer WB, UPN, PBS, and 

other popular local channels that we now do offer. Moreover, by allowing New 

EchoStar to serve all 210 DMAs with local programming, the merger will enable, 

for the first time, national marketing that touts local channels. National marketing 

can more efficiently and effectively reach the smaller DMAs, even those that may 

experience less significant subscriber increases from local programming. Moreover, 

the national coverage of local programming will accelerate the process through 

which DBS technology becomes more broadly accepted and ubiquitous. As more and 

more consumers come to understand the benefits of this once unfamiliar product, 

the costs incurred in educating them about the product are reduced. 

In addition, in the absence of the merger, the pressure that DBS firms exert on 

cable providers to constrain prices, to innovate, and to invest and increase capacity 

will diminish. The proposed merger will allow New EchoStar to expand its product 

offerings and will likely force cable systems to continue to upgrade their network 

infrastructure. Relative to today’s cable infrastructure, an upgraded cable system 

will exert even more competitive pressure on DBS pricing. In other words, the proposed merger will help to perpetuate the virtuous cycle of competitive innovation.

Question 3: What is EchoStar’s current channel capacity based on the satellites 

currently in deployment? Specifically, how many satellites - and what type of satellite (CONUS or spot-beam)—does EchoStar currently have deployed and at which 

orbital slots? Please indicate how many satellites EchoStar plans to launch in the 

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future and to what degree these additional satellites will increase EchoStar’s channel capacity. Finally, please explain and detail—based upon EchoStar’s current licenses and technological capabilities and not upon capital needs—the full, potential 

channel capacity of EchoStar without a merger. Please explain how capital needs 

and economics alter EchoStar’s technical ability to fully utilize its total channel capacity. 

Answer: EchoStar presently uses six satellites in four orbital locations to provide 

DBS service. Presently, with an array of national channels and 36 DMAs of local 

channels, EchoStar’s capacity is effectively full, and will only be modestly increased 

with the use of two new spot-beam satellites. 

EchoStar’s core services are provided from the CONUS orbital locations at 110°

W.L. and 119° W.L. Currently, EchoStar uses three satellites to fully utilize its 50 

authorized DBS frequencies there. EchoStar’s current transmissions, occupying its 

full capacity, are as follows:

In addition to the CONUS capacity discussed above, EchoStar also currently uses 

three other satellites to provide service to parts of the United States. As the ‘‘wing 

slots’’ at 61.5° W.L. and 148° W.L. are over the Atlantic and Pacific Oceans, each 

wing slot satellite can send signals to only part of the United States. EchoStar uses 

61.5° W.L. to serve the eastern states, and 148° W.L. to serve the western states. 

In order to offer consumers nationwide the same programming, EchoStar carries 

much of the same programming—about 50 international channels, 3 HDTV channels, 1 HDTV pay-perview channel—from each location. 

At the 61.5° W.L. orbital location, EchoStar operates one satellite. EchoStar III 

currently uses more than the 11 DBS frequencies EchoStar is licensed at this location, by use of a Special Temporary Authority (‘‘STA ’’) from the FCC and a transponder lease arrangement with license-holder Dominion. In addition to Dominion’s 

Sky Angel programming, and the duplicated programming discussed above, 

EchoStar III carries about 74 local channels for eastern cities. At the 148° W.L. orbital location, EchoStar uses two satellites, taking advantage of both a license and 

an STA. EchoStar I and II carry about 65 local channels for western cities, as well 

as the duplicate programming discussed above. In addition, EchoStar also uses its 

wing satellites for business television service, and occasionally necessary test signals. 

All together, these uses represent the full capacity of EchoStar’s satellites and 

FCC authorizations. Indeed, in some respects, EchoStar is beyond its capacity. For 

example, EchoStar’s use of spectrum available through STAB is necessarily temporary. In addition, in order to meet must-carry requirements, EchoStar was forced 

to increase compression beyond historical levels, causing reductions in video and 

audio quality below optimum levels. 

However, in addition to the satellites currently in use, EchoStar plans to use two 

DBS spot-beam satellites at the CONUS orbital locations. Currently, EchoStar’s satellites send the channels carried in each frequency down to Earth in one large beam. 

For example, consumers in Salt Lake City and Birmingham receive transmissions 

containing local channels both areas, even though subscribers in Birmingham cannot view local programming from Salt Lake City, and vice versa. EchoStar’s new 

spot-beam satellites will carry local channels on smaller beams, targeted to smaller 

geographic areas. Thus, for example, spot-beams will allow one frequency to be used 

in beams aimed toward Salt Lake City and Birmingham (as well as Alaska and Hawaii). However, the spot-beams must be narrow enough and far enough apart to 

avoid interference, and spot-beams are only suitable for carrying different channels 

to different parts of the country (i.e., for local-into-local programming). Moreover, interference prevents the same frequency from being used in both a national beam 

and a spot beam. 

EchoStar’s spot-beam satellites are scheduled to begin service this year. EchoStar 

VII was launched recently into the 119° W.L. location and should begin service in 

mid-April. EchoStar hopes to launch EchoStar VIII into the 110° W.L. location in 

June, and should start service about two months afterwards. Each of these satellites 

is designed to use five frequencies in spot beams, and to reuse each frequency an 


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average of five times. After both new satellites are operational, EchoStar will have 

the capacity to offer, and plans to offer, local programming to approximately 10–15 

new DMAs. 

EchoStar has no plans for additional spot-beam DBS satellites, other than 

EchoStar VIII, and the New EchoStar I, which, if the merger is consummated, will 

be designed to serve all 210 DMAs. As explained more fully in response to your 

tenth question, unless EchoStar can take advantage of the spectrum efficiencies created by the merger, further spot-beam satellites would require significant reductions 

in national programming capacity, which would reduce EchoStar’s competitiveness 

with cable nationally, including in the DMAs where local channels were added.

Question 4: A day after our hearing, EchoStar filed an appeal with the United 

States Supreme Court to review the must-carry law for satellite that was enacted 

in 1999. This comes as no surprise, for you alluded to the fact that EchoStar would 

indeed pursue its litigation to the very end. Let’s assume the Supreme Court strikes 

down the must-carry law. Would a combined-DirecTV still serve all 210 local television markets? And if so, which channels would you serve in those markets? 

Answer: If the merger is consummated, the merged company will serve all 210 

DMAs with local programming regardless of the outcome of litigation concerning the 

must-carry provisions of the SHVIA. 

If the must-carry provisions of the SHVIA are struck down, then DBS providers 

would be free to make programming decisions based on consumer demand. However, 

I have committed, and stand by my commitment, that the merged company would 

still provide all local broadcast channels that offer meaningful programming. I have 

offered to sign agreements with local broadcasters to confirm this commitment, and 

a copy of my recent letter to broadcasters, making that offer, is attached. I expect 

to have this agreement in final form early next week. Meaningful programming generally means local news, programming, or community information. For example, it 

is possible that we might not carry some local home shopping channels, especially 

those that are redundant to channels carried nationally.

Question 5: Today, there is head-to-head competition in two-way broadband satellite service, DirecTV’s DIRECWAY and EchoStar’ s StarBand. However, you have 

stated that this merger is needed to launch a competitive broadband service in the 

Ka-band; yet, both DirecTV and EchoStar have already obtained Ka-band slots from 

the FCC and devised plans to deploy broadband service separately before this merger was ever announced. Please explain why this merger is necessary to launch a 

broadband service using Ka-band when both EchoStar and DirecTV already offer 

two-way broadband services and made plans to further expand this service separately. Specifically with regards to current and future satellite broadband service, 

please answer the following: 

Answer: Satellite broadband today is unable to compete, in terms of price or quality, with cable modem and DSL service, which have nearly ten million broadband 

subscribers between them. EchoStar, through StarBand Communications, Inc., and 

Hughes, through Direcway, rely on leased Ku-band transponders to provide an inefficient, high-priced satellite broadband service to no more than 100,000 residential 

subscribers combined. The current satellite broadband offerings provide lower transmission speeds than cable or DSL, cost more per month, are not appropriate for certain popular applications, such as online gaming and video-conferencing, and require that the subscriber invest almost one thousand dollars in receiving and other 

equipment that must be professionally installed. Moreover, because of capacity limits of the Ku-band transponders that StarBand and Direcway lease from third-party 

satellite operators, as well as the practical limits on the number of such transponders that are available, it is not possible for StarBand or Direcway to achieve 

sufficient scale to spread fixed costs or realize economies of scale in the manufacture 

of receiving equipment, such that current service offerings could be offered at prices 

that are acceptable to consumers, or competitive with cable or DSL. Put simply, neither firm has a competitive satellite broadband service, and neither is able to exercise power in any market. Thus, to describe the current offerings as ‘‘head-to-head’’ 

competitors is a misnomer, and overstates each firm’s position. 

It is clear that the current services are subject to substantial weaknesses that 

limit their long-term viability. Consequently, both EchoStar and Hughes have 

turned to the Kaband in hopes of developing an affordable, competitive satellite 

broadband service. While use of next generation Ka-band satellites would be superior to the current Ku-band offerings, EchoStar and Hughes believe that a Ka-band 

satellite broadband provider would still need at least 5 million subscribers to 

achieve the scale economies in consumer premises equipment, to spread fixed costs, 

and to justify the substantial investment necessary to develop a competitive consumer broadband service. Neither company standing alone could deploy on a timely 

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5 In addition to its holdings through VisionStar, EchoStar holds licenses to construct, launch, 

and operate Ka-band satellites at 83° W.L. and 121° W.L. The slot at 83° W.L, half of which 

is assigned is assigned to another licensee, Celsat America, Inc., is outside the one-dish arc and 

therefore is not suitable for residential broadband service. The slot at 121° W.L., half of which 

also is assigned to Celsat America, Inc., is intended for EchoStar IX, a hybrid Ku/Ka-band satellite, EchoStar IX. As noted above, EchoStar IX has a modest Ka-band payload that could be 

used for DBS backhaul or a very limited broadband service. EchoStar IX would not permit 

EchoStar to achieve efficiencies of scale in the cost of service or equipment. 

basis an advanced residential service of mass scale and appeal at an affordable 

price. 

Although a Ka-band strategy avoids some of the capacity constraints that afflict 

Ku-band service, it requires the upfront investment of hundreds of millions, if not 

several billions, of dollars in complex new satellites and technology. The deployment 

of these Ka-band satellites has taken longer, and will require more capital, than 

many Ka-band licensees have been able to sustain. Even well-financed Ka-band licensees with experienced backers have been forced to scale back or even abandon 

their efforts to deploy satellite broadband. For example, Astrolink recently announced that, after having built 90% of its first Ka-band spacecraft, and after having spent about $710 million on its Ka-band system, it was terminating its spacecraft contract with Lockheed Martin, as it found itself unable to finance the remaining cost of implementing the Astrolink broadband system. Moreover, the use of Kaband satellites does not have any ameliorative effect on the high cost of receiving 

equipment and satellite modems, and indeed will increase that cost at least in the 

short term. Unless these equipment and subscriber acquisition costs can be reduced 

significantly, satellite Internet will not likely grow out of a small-scale, highpriced 

niche in the consumer market. It is these daunting economic barriers—very large 

initial investment in expensive satellites coupled with high up front costs to acquire 

new subscribers—that have stifled continued investment in satellite Internet technology. 

As a result of these substantial obstacles to deployment of a consumer-oriented 

satellite broadband service, along with other factors, HNS has developed Spaceway 

with a focus on the larger commercial, or ‘‘enterprise,’’ customers while EchoStar’s 

Ka-band program has remained modest in scope. Refocusing and integrating these 

Ka-band programs will provide the opportunity to achieve the required economic 

scale for ubiquitous residential true broadband service. Combining the broadband 

services of Hughes and EchoStar will provide efficiencies that 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.

Question a: What economies of scale are gained by combining EchoStar and 

DirecTV’s satellite and Ka-band resources? 

Answer: The post-merger firm would have a number of advantages that would 

make it more likely that the necessary investment would be made and the necessary 

scale realized to offer competitively priced consumer broadband services. 

Mitigation of capacity constraints. As noted above, EchoStar and Hughes estimate that at least 5 million subscribers would be necessary in the next 

five years to justify the significant up front investment and subscriber acquisition costs associated with actually marketing and deploying a ubiquitous two-way broadband service to residential subscribers. Standing 

alone, neither EchoStar nor Hughes has licenses to operate Kaband satellites in orbital slots close enough together to serve this number of subscribers. HNS holds only two Ka-band licenses that would allow it to serve 

residential broadband and DBS subscribers with a single dish. Including 

the license held by VisionStar, EchoStar also has two such licenses; however, as noted above, the VisionStar license is subject to certain conditions 

that may not be met, and EchoStar consequently cannot be assured that 

the license will be available to it.5 Even a state-of-the-art Ka-band spot 

beam satellite like that contemplated by Spaceway would be unable to 

serve more than 1 million to 1.3 million subscribers. Moreover, as increasing numbers of broadband applications become available, and existing applications become more popular, residential subscribers will make ever-increasing demands on available capacity, reducing the number of subscribers 

who can be served by a single satellite. 

Only the merger will provide the new firm with the orbital slots necessary 

to achieve a scale at which satellite broadband can be priced competitively. 

In addition, an increased number of satellites would allow more efficient allocation of spot beam capacity, and consequently more efficient use of the 

110

capacity that exists. As a practical matter, the merger will increase the 

amount of usable capacity. 

Larger pool of DBS subscribers. The New EchoStar will have the benefit of 

consolidating the DBS subscriber bases of both firms. Current subscribers 

of DBS services are more likely to subscribe to satellite broadband services 

because they know their households have a clear line of sight to the southern skies and because they have a demonstrated willingness to place the 

necessary equipment and antenna dishes on their homes. This larger subscriber pool can in turn be leveraged into significant efficiencies: it reduces 

costs in the manufacture of consumer premises equipment (CPE) by encouraging investment in research and development and manufacturing economies; it spreads fixed costs over a larger base; it allows for more efficient 

use of satellites and spectrum; and it reduces the cost of capital by lowering 

the risk profile of a residential satellite broadband venture. Scale is also important because each of the factors described above allows the firm to grow 

more quickly, and thereby achieve an efficiency feedback loop. 

Lower costs. The new firm will have lower overall costs of providing service 

than two separate firms. It will also make economically justifiable future 

investment in research and development that would likely be needed to 

bring down CPE costs. Consumer equipment costs, a substantial factor that 

differentiates satellite broadband from competing services, remain too high 

(even with the substantial subsidies already offered by the satellite 

broadband firms). Substantially increasing the subscriber base will result 

in manufacturing efficiencies and volume discounts that will reduce these 

consumer equipment costs. EchoStar and Hughes estimate that it will be 

necessary to have volumes in excess of a million terminals sold per year to 

achieve meaningful savings in that area. 

Experience with cable modems illustrates the benefits that real economies 

of scale could bring to satellite broadband CPE. As recently as 1998, cable 

modems cost $300 a piece, shipping approximately 500,000 units that year. 

This year cable modems cost about $75, with anticipated shipments of between 10 and 15 million units. Experience with Ku-band LNBFs shows 

similar economies of scale, with the price of that component falling from approximately $33 in 1993, when only 76,000 units were produced, to approximately $6 in 2001, after cumulative production of between six and seven 

million units. 

Similarly, Ka-band equipment is not yet available in the mass market, and 

is actually more expensive than Ku-band equipment because of its shorter 

production history and lower production volumes. The more quickly Kaband 

service can be introduced, the lower the costs will be. Such higher volumes 

could also lead to decreases in installation costs and dealer/retailer commissions per subscriber as installers, dealers and retailers become more amenable to lower per-subscriber fees. The installation of one dish during a single visit for DBS and broadband services further significantly decreases 

total costs. 

In addition, the merged firm also would need fewer total backup satellites for its 

service; with consolidation, only a single backup satellite might be necessary. The 

merger would also permit rationalization of certain facilities such as billing, gateways, call centers, and network operations centers, all resulting in lower costs, and 

therefore lower prices to consumers. 

Acceptable risk profile. The impediments faced by each company standing 

alone are so high that their investors today would not likely accept the risk 

of deploying a full-scale residential broadband satellite service. Simply stated, today Wall Street will not finance a satellite broadband service catering 

primarily to consumers on a large scale. Illustrating the high-risk profile 

of such projects today is the fact that none has been funded to completion 

and deployment. Meanwhile, even wellfinanced ventures with experienced 

backers have been forced to scale back or even abandon their satellite 

broadband plans. The perceived risk of a Ka-band project can be brought 

down to an acceptable level by virtue of the spectrum and satellite capacity 

efficiencies to be secured by the merger, combined with the cost efficiencies 

that will flow from the larger pool of DBS subscribers to whom a broadband 

service can be marketed. 

Higher rate of growth. The increased scale of the single integrated firm will 

provide an immediate increase in the broadband subscriber base, and an increased rate of growth going forward. Rapid growth is critical to effective 

competition with cable-modem and DSL, both of which are expanding rapidly and are ‘‘sticky products’’ relative to satellite broadband due to the high 

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up-front cost of satellite broadband CPE, as well as the difficulty of changing Internet addresses and reconfiguring one’s system. Thus, satellite 

broadband not only has to achieve the necessary scale, it has to do so in 

direct competition with cable-modem and DSL providers who have the advantage of incumbency and are building market share far more quickly 

than satellite providers are able to do. Rapid growth also means a more 

rapid return on investment, which further reduces costs and mitigates the 

investment risk associated with the development and deployment of satellites well before they will be called into use. 

Enhanced marketing capabilities. New EchoStar would have an enhanced 

ability to introduce DBS users to a truly competitive satellite broadband 

service. Because customers are resistant to having two dishes, a service 

provider would have to supply a single dish that obtains broadband and 

DBS service from spacecraft in an arc that is no greater than 22 degrees 

and includes a slot capable of providing DBS service to the entire United 

States. A single consolidated firm could make more efficient use of the 

available orbital slots within this arc. The ability to effectively offer both 

DBS and broadband service is critical to providing effective competition 

with cable for several reasons. Most significantly, digital cable offers both 

MVPD and broadband services, and DBS will need to match this offering 

and provide cross-product discounts and unified billing. In addition, combining broadband service with MVPD service should result in lower churn, 

which decreases subscriber acquisition costs and allows the firm to take 

more business risk in investing in the customer. 

Elimination of duplicative spectrum use. There is and will be a multicasting 

market on the data side of the business, and consolidation would eliminate 

the wasteful duplication that would occur if both firms were multicasting 

simultaneously the same information.

Question b: When ordered through DIRECWAY or StarBand, how much does the 

service cost per month, for just broadband and then for broadband and DBS as a 

bundle? How much does the equipment cost? Please state your suggested retail 

price, if any, and the actual consumer cost. 

Answer: Until this week, when EchoStar ceased selling the StarBand service directly to retailers, EchoStar sold the StarBand service unbundled for $69.99 per 

month, plus a $5 access fee with a 12-month commitment; installation costs start 

at $199; the receiving equipment, which includes a modem, transceiver, antenna, 

DBS LNBF kit, and mounting hardware, had an MSRP of $549. For a subscriber 

who also signed up for DISH Network Television Programming, installation of the 

television receiving equipment was free; the combined receiving equipment, which 

includes a modem, transceiver, antenna, 2 DBS LNBFs and mounting hardware, 

had an MSRP of $549; and there was no access fee. A subscriber who signed up 

for America’s Top 150 television programming paid $10 less per month for the combined Dish Network and StarBand service. A DISH subscriber also had the option 

to purchase a Dish 301 standalone receiver for $99 (instead of the usual $199).

Question c: How much would such a service cost if your merger is approved? 

Answer: As noted above, EchoStar and Hughes expect that the merger will result 

in significant efficiencies that will allow the new firm to reduce substantially costs 

of service and consumer equipment. With these efficiencies, EchoStar and Hughes 

believe that the merger will allow the New EchoStar to offer a satellite broadband 

service that competes with cable modem and DSL in price and in quality. Because 

the new firm will need to grow its broadband subscriber base as rapidly as possible 

in order to achieve economies of scale, and because the incumbent cable modem and 

DSL broadband providers will continue to have substantial competitive advantages, 

New EchoStar will have to price its service aggressively, passing these merger-created efficiencies and cost reductions on to its subscribers. Moreover, because New 

EchoStar will offer its broadband service at a single national rate, broadband subscribers all across America—rural, suburban and urban—will receive the benefits of 

enhanced broadband competition. 

The lower costs of satellite broadband service promise substantial benefits to consumers. Aside from the obvious benefit of lower prices, an affordable satellite 

broadband alternative will expand the categories of broadband users, much as 

narrowband Internet use has expanded dramatically over the last decade. The increased number and variety of broadband subscribers resulting from ubiquitous, affordable satellite broadband will in turn drive demand for additional broadband content and applications, yielding still greater benefits to consumers.

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Question d: Describe the satellites that each of the services currently uses to provide broadband access. For each of these satellites please state specifically how 

many broadband monthly subscribers that satellite can serve. 

Answer: In order to provide satellite broadband service, EchoStar, through 

StarBand Communications, Inc., and Hughes, through Direcway, lease Ku-band 

transponders on satellite owned by third parties. 

Satellite broadband capacity is subject to a number of factors, including the characteristics of the transponders used, the number of transponders available, whether 

the transponders use spot beams or CONUS beams, the size of any spot beams that 

may be used, the desired data transmission rate, subscriber behavior (e.g., amount 

of time online, the size and frequency of data downloads and uploads, demand 

peaks, etc.), the access scheme and efficiency, and the design of the satellite modem, 

among others. Assuming current service conditions and reliability, the total subscriber capacity of the Ku-band transponders currently leased by both parties combined is well under half a million subscribers. Although it is possible to add capacity 

by leasing additional transponders, there is a limited number of Ku-band transponders available for lease that are suitable for satellite broadband service, and a 

still smaller number that can be used to provide satellite broadband service and 

DBS service without the necessity of a second dish. Moreover, leased capacity on 

Ku-band transponders is both an inefficient and an expensive means of providing 

satellite broadband service, and, moreover, requires that a subscriber invest almost 

one thousand dollars in consumer premises equipment and installation, as I explain 

in greater detail in my response to your question five, above.

Question e: How many Ka-band slots did you ask the FCC for? How many satellites do you plan to deploy into these slots? 

Answer: In the first Ka-band processing round, EchoStar sought and was granted 

licenses to construct, launch, and operate Ka-band satellites in two orbital slots, at 

83° W.L. and at 121° W.L. In each of these slots, EchoStar has the right to only 

half of the available spectrum; the remaining half is licensed to a separate company, 

Celsat America, Inc. EchoStar did not seek any additional slots in the second Kaband processing round. However, the Federal Communications Commission recently 

approved EchoStar’s application to assume control of VisionStar, Inc., a Ka-band licensee in which EchoStar previously held a minority interest. VisionStar holds a license to construct, launch, and operate a Ka-band satellite system at the 113° W.L. 

orbital slot. However, VisionStar’s plans regarding use of that satellite and that orbital slot have changed recently based on a number of factors. In addition, this license is conditioned on completion of construction of the satellite by April 2002, and 

launching the satellite by May 2002. EchoStar expects that VisionStar will not complete construction or launch of the satellite by those dates and will soon ask the 

FCC for an extension of these milestone dates. Consequently, EchoStar is not assured of the availability of the VisionStar satellite. 

EchoStar expects that it would deploy one satellite in each available slot. Later 

this year, EchoStar will launch EchoStar IX, a hybrid Ku/Ka satellite that will be 

the first satellite using Ka-band spectrum in the United States. EchoStar could use 

the two Ka-band transponders on EchoStar IX for a number of purposes, including 

DBS backhaul and/or very limited, broadband Internet service. However, EchoStar 

IX will have only modest Ka-band capacity, and if it were used for Internet service, 

its spot beam configuration would allow for only a noncontiguous regional service 

covering Seattle, San FranciscoSan Jose, Denver-Cheyenne, and Phoenix.

Question 6: If this merger where allowed by the DOJ and the FCC, and if completed, would the merged firm allow unaffiliated Internet Service Providers (ISP) to 

be carried on the resulting broadband service? Would consumers have a choice of 

choose AOL, Earthlink, or any of the thousands of other ISPs? Would you permit 

a broadband content provider to stream full-motion video, or music (consistent with 

any copyright restrictions) to consumers? Would you charge them for that right? 

Would you agree not to discriminate in favor of your own content, the content of 

Vivendi or any other content provider? Please answer all questions in full, and provide all documents in your possession substantiating your answer. 

Answer: EchoStar is committed to allowing its Internet subscribers to access the 

entire Internet, freely and openly. In fact, Spaceway’s business plan now is to establish interconnections with as many Internet portal partners as possible as gateways 

for its service. At this point, however, it is impossible to commit to integrate other 

ISPs into our satellite operations due to questions about the technological and the 

business issues involved in such a commitment. Moreover, as I explain in greater 

detail in response to Senator Cantwell’s fifth question, below, EchoStar does not believe that, under the federal telecommunications laws as recently interpreted by the 

FCC, it or any other satellite broadband provider should be required to provide 

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‘‘open access’’ to unaffiliated ISPs. Indeed, such a regulatory burden, imposed on the 

fledgling and capacity-constrained satellite broadband industry, could hobble its 

progress, a result that would clearly be contrary to Congress’s express goal to ‘‘encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.’’

The issue of unlimited streaming is also a difficult one, because even with the 

multibillion dollar investments in satellites that we intend to make, capacity will 

not be unlimited, and will be shared among our users. Unfortunately, extremely 

high bandwidth-intensive uses, such as downloading a full-length motion picture, 

may have adverse effects on all users of the service (just as they do with cable 

modem users today). Thus, like most high-speed terrestrial services, we will likely 

need to maintain some limits on high-bandwidth uses in order to preserve the quality of service for all users. 

We will not discriminate against any content provider on the Internet and will 

provide our users with access to any provider that they wish to access (consistent 

with any legal restrictions on our ability to do so). We are willing to enter into a 

binding consent decree to confirm our commitment. Of course, we anticipate that 

like all Internet service providers, we will enter into arrangements with other companies to advertise and promote their products, and will advertise and promote our 

own products.

Question 7: You have stated that this merger will allow-DirecTV to offer more 

HDTV channels and interactive television services. Please detail what HDTV and 

interactive television services are currently being offered. What plans did EchoStar 

have to launch these services separate from the merger? What would be the offering 

of HDTV and interactive television services if the merger is approved and would 

these products be an additional cost to the consumer? Finally, how much bandwidth 

does an HDTV channel consume compared to a regular channel? (I realize the answer to this question will probably be a range depending on the nature of programming on the HDTV channel.) 

Answer: EchoStar currently offers a total of four High Definition channels: one 

each from HBO and Showtime, as well as East and West channels of High Definition versions of CBS network programming. EchoStar also offers a High Definition 

Pay-Per-View channel. High-Definition television consumes approximately eight 

times the bandwidth of an ordinary digital channel. EchoStar is always looking for 

new and advanced programming options to offer its customers, but is at the limits 

of its capacity now, and so has no firm plans to offer additional HDTV channels 

without the merger. If the merger is approved, New EchoStar will increase the number of HDTV channels it offers to at least 12. 

Our cable competitors and the DBS firms currently charge consumers separately 

for High Definition television service. We anticipate that new EchoStar will continue 

to charge consumers for this service. EchoStar’s interactive offerings now are limited 

to pay-perview movies and other events. 

With the merger, EchoStar will have additional capacity to provide more and better interactive services. For example, EchoStar could use some of the freed capacity 

to continuously download pay-per-view movies to be cached by a specially designed 

receiver with a large hard drive. This would allow EchoStar to offer true videoondemand (i.e., the user can start the movie at the user’s convenience, rather than 

waiting for a scheduled start time). Another example is interactive news, educational, sports, or weather programming, that would allow a subscriber watching, 

for example, the news, to obtain more information about a particular topic in the 

program by clicking an icon on the screen. Again, this kind of service would be made 

possible by opening enough spectrum capacity that EchoStar could continually 

download information to a specially designed receiver with a hard drive, so that the 

user could access the up-to-date interactive information it requested. Games, jukeboxes, shopping channels, telemedicine and other interactive uses will also be possible with the new capacity.

Question 8: The Department of Justice issued a second request for documents pursuant to the Hart-Scott-Rodino law within the last month. When do you anticipate 

you will fully satisfy that request? 

Answer: EchoStar has devoted significant company resources to responding to the 

Department’s wide range of document requests and interrogatories, as well as to the 

Federal Communications Commission’s separate requests. We have already produced over 270,000 pages of documents to date to both the Department and the 

state attorneys general, and we anticipate that we will have substantially complied 

with the Second Request within the month of April. We further anticipate that, due 

to the importance of the issues raised by the merger, that we will agree to provide 

the Department and the states with additional time beyond the 30 days provided 

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1The Lehman Brothers, Satellite Communications Industry Update, 2/8/02. 

2 In re Application of Direct Broadcasting Satellite Corp., 11 FCC Rcd. 10494 (1996) at ¶ 18. 

for by the Hart-Scott-Rodino Act in order to enable them to complete their review 

of the transaction.

Responses of Charles W. Ergen to questions submitted by Senator Strom 

fThurmond 

Question 1: Mr. Ergen, assuming that a merger between EchoStar and Hughes 

DirecTV would result in enhanced competition between satellite and cable services 

in the short-run, what will be the long-term effects on competition in the multi 

channel video programming market? Are the short-term benefits worth the longterm risks? If the merger takes place, how can we be assured that a competitive 

market will exist ten years from now? 

Answer: The merger between EchoStar and Hughes will improve competition in 

the MVPD marketplace in both the short and long term. 

The short-term benefits include local-into-local programming into all 210 DMAs. 

The inability to receive local programming is significant impediment to consumers 

choosing DBS over cable, and New EchoStar’s nationwide offering of local programming will help put more competitive pressure on cable, both on price and improved 

service. New EchoStar will also be able to offer more nationwide programming, including speciality, educational, general interest, and foreign language programming. 

These will allow consumers broader choice and put more pressure on cable. 

The proposed merger will have an additional benefit: it will perpetuate the virtuous cycle of competitive innovation. The MVPD market is dynamic, with new 

products and services being introduced regularly. The greater geographic coverage 

of local channels, the increased ability to broadcast specialty, ethnic, and foreign 

language programming, the improved interactive television services, and the capacity to offer expanded video-ondemand should help New EchoStar to compete more 

vigorously against the cable industry. Such an improvement of DBS’ product offerings will likely force cable systems to continue to upgrade their network infrastructure. Relative to today’s cable infrastructure, an upgraded cable system will exert 

even more competitive pressure on DBS pricing. This process of competitive responses benefits DBS and cable subscribers. 

The danger is that, in the absence of the merger, the competitive cycle will be 

impeded by the constraints facing the DBS firms. If that were to occur, competition 

in the MVPD would be at risk and both DBS and cable subscribers could suffer. 

For example, digital cable is undercutting DBS’s traditional advantages over cable, 

such as digital video and audio quality and a broader channel selection, 

compounding cable’s incumbency advantage. In addition, digital cable is allowing 

cable to develop new advantages, such as video-on-demand, true interactive services, 

and a bundle of cable service with affordable, high-speed cable-modem internet access. EchoStar is unable, without the merger, to match these offerings, and its ability to competitively threaten cable will be diminished. As a Wall Street report predicted, ‘‘cable will become a far more significant foe, and will likely relegate satellite 

television to a deep second-class status in most urban markets. Today, satellite is 

still doing well in the less penetrated urban markets because cable’s broadband bundling and true video-on-demand services are still in their infancy. 

The benefits of a strengthened DBS video product are the only way to ensure that 

urban America has a choice five years from now.’’ 1

Whether a long or short term view is taken, the merger between EchoStar and 

Hughes will benefit competition and consumers nationwide.

Question 2: Mr. Ergen, has EchoStar taken the position in the past that the Direct 

Broadcast Satellite Market is different from the cable market? If so, please explain 

your reversal on this issue.T3Answer: EchoStar’s belief in a single MVPD market 

is not of recent origin. EchoStar has always held the same view: that there is one 

MVPD market, in which cable is the incumbent and dominating player, and that 

DBS competes, although presently with distinct disadvantages, against cable and 

others within the MVPD market. It has also consistently recognized that certain factors have historically inhibited DBS from robustly competing with cable. EchoStar 

has expressed that view on dozens of occasions, starting as early as 1995. In 1996, 

for example, EchoStar asserted that ‘‘the relevant market includes all multichannel 

video programming distributors, not just DBS service providers.’’ 2 In 1997 EchoStar 

wrote in comments to the Commission: ‘‘Ever since it commenced DBS service in the 

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3 Comments of Echostar Communications Corp., In re Annual Assessment of the Status of 

Competition in Market for the Delivery of Video Programming, CS Docket No. 97–141 (July 23, 

1997) at 2. 4 In re Application of MCI Telecommunications Corp. and Echostar 110 Corp. (Dec. 2, 1998) 

at 7. 5 Id. at ii. 

6 Charles W. Ergen, Testimony Before the Subcommittee on Antitrust, Business Rights, and 

Competition, Committee on the Judiciary, U.S. Senate (Jan. 27, 1999) at 3. 7 Request for Continuance, at 3. 

spring of 1996, EchoStar has viewed cable subscribers as its primary target market. 

Accordingly, EchoStar has priced and structured its offering with the primary purpose of attracting cable subscribers.’’ 3

In December 1998, EchoStar expressed a similar view with respect to the potential impact of its transaction with MCI: ‘‘EchoStar emphasizes that the MVPD market—not any subset of that market—is the relevant market for analyzing the public 

interest impact.4 It also noted that ‘‘DBS service has emerged as the most likely alternative with the potential for introducing full-fledged competition against dominant cable operators in the MVPD market, but is still a long way from realizing 

that potential because of various spectrum-related and regulatory constraints.’’ 5 Appearing before a congressional committee in 1999 regarding EchoStar’s efforts to 

compete with cable systems, EchoStar’s Chief Executive Officer Mr. Ergen testified: 

‘‘The relevant market for our service is the MVPD market. DOJ has found extensive 

evidence of customers switching from cable to DBS, contrasted with the early days 

of DBS, when subscribers most often came from uncabled areas.’’ 6

While this view of the relevant market was certainly the prevalent one in 2000, 

this does not mean that it was free from any doubt. As zealous advocates, 

EchoStar’s lawyers in litigation had the duty to explore fully the extent to which 

any such doubt could be used to bolster EchoStar’s case. Opponents of the merger 

have seized on statements in EchoStar’s request for more discovery to shed additional light on the factual issues. In its Request for Rule 56(f) Continuance to Respond to Defendants’ Motion for Summary Judgment, EchoStar argued that the 

summary judgment requested by DirecTV was inappropriate pending ongoing discovery and in light of the need for additional discovery on highly complex issues 

such as market definition. The statements cited by opponents described only beliefs 

about what the evidence could establish, and they did not purport to be statements 

of proven fact. Indeed, EchoStar explicitly noted that its assertions were based on 

a preliminary understanding of the case, stating that ‘‘expert witnesses will play an 

important role on several issues, including the definition of the relevant market.’’ 7

Finally, even if there were any potential counter-argument about the relevant 

market in 2000, it has been dispelled by developments that were then in their early 

stages and that have since matured decisively. As explained above; these developments include: on the one hand, the fuller extent to which DBS providers have since 

been able to capitalize on the local-into-local opportunity afforded by SHVIA since 

the end of 1999; and, on the other hand, the aggressive roll-out of digital cable. 

Also, within the last year, for the first time, we have seen national television advertising by digital cable companies against DBS, ‘‘dish’’ bounties (e.g., cable companies offering 200 hours of free programming to subscribers who turn in their 

dishes), and cable selling its products through retail stores. Another recent example 

is digital cable’s big push on pay-per-view, lowering prices and instituting more frequent DBS-like schedules. In short, these examples show that the advent of digital 

cable has reduced or eliminated the capacity/quality differential between cable and 

DBS. The ability of digital cable to offer video/Internet bundles is also profoundly 

threatening to DBS. None of this was true a year ago. Thus, to the extent that there 

ever was a submarket for DBS service within the MVPD market, that submarket 

has been eliminated by cable’s aggressive digital rollout and focused competition 

with DBS providers. 

Furthermore, the merger itself will change the nature of competition by making 

DBS substantially more competitive with cable. By increasing channel capacity and 

allowing DBS to offer substantially more channels and other new and enhanced programming and services, the merger will eliminate whatever competitively significant barriers remained preventing DBS from competing with cable in an unrestricted way. This will force cable to respond in kind. History shows many instances 

where cable accelerated its infrastructure upgrades in markets when DBS began offering local stations from those markets.

Question 3: Mr. Ergen, it has been suggested that the ‘‘one nation, one rate card’’ 

will protect rural markets where cable services are not available, thereby preventing 

the new corporation from abusing its monopoly in multi-channel video programming 

116

in those areas. However, if a cable provider in a metropolitan area cuts prices drastically, the new corporation would be unable to lower the rates in that metropolitan 

area without lowering rates everywhere in the nation. Therefore, while rural areas 

would be protected, the new company would be at a competitive disadvantage in the 

metropolitan areas where cable cuts its rates. If this merger is approved, won’t the 

concept of ‘‘one nation, one rate card’’ be a hindrance to vibrant competition in some 

markets. 

Answer: Please see the response to Senator Kohl’s first question. In addition, if 

a cable company decides to cut its prices significantly in an effort to undersell the 

merged firm, this would be a great example of ‘‘vibrant competition,’’ not the end 

of it.

Question 4: Mr. Ergen, if the proposed merger were to occur, would the ‘‘one nation, one rate card’’ apply to high-speed Internet services? 

Answer: Yes, the ‘‘one nation, one rate card’’ policy will apply to New EchoStar’s 

basic highspeed Internet services.

Question 5: Mr. Ergen, at some time in the future, long after these hearings are 

forgotten, will consumers face the possibility of installing more than one dish in 

order to receive local channels? If this were to occur, would the two-dish system relegate some local channels to second-class status? 

Currently, because so much of our capacity is consumed by wasteful duplication 

of programming, EchoStar must transmit some local programming from the ‘‘wing’’ 

orbital locations at 61.5° W.L. and 148° W.L. To receive programming from the primary CONUS orbital locations (101° W.L., 110° W.L. and 119° W.L.) as well as a 

wing slot requires two satellite dishes. EchoStar is providing the second dish for free 

to any local programming subscriber who wants to local channels offered from the 

wing slots. 

If the merger is approved, the combined company will rationalize spectrum usage 

and create significant new capacity at CONUS orbital locations. We will be able to 

provide all local programming channels from the three CONUS orbital locations, so 

that consumers can receive them on one dish. EchoStar and DirecTV are working 

on a new satellite dish that is capable of receiving programming from all three 

CONUS orbital locations. 

However, as explained in response to Senator Cantwell’s second question, there 

may be a very small number of consumers for whom a single dish may not be able 

to receive programming from multiple orbital locations because, for example, of 

physical obstructions on their property.

Question 6: Mr. Ergen, how will the concentration of all the satellite spectrum in 

one company be a benefit to consumers? 

Answer: Currently, DirecTV and EchoStar waste their limited spectrum by duplicating the vast majority, approximately 500 channels, of the programming carried 

by the other DBS system. By ending this duplication, and thereby freeing up spectrum, the combined entity will have roughly twice the capacity for programming as 

each company standing alone. 

With the spectrum efficiencies gained by eliminating duplicative programming between EchoStar and DirecTV, New EchoStar will significantly enhance its video programming offerings. First, by utilizing spectrum efficiencies in conjunction with existing and planned satellites, as well as the launch of a new spot beam satellite, 

New EchoStar will serve all 210 DMAs with local broadcast service, as detailed in 

the New EchoStar 1 satellite application filed with the FCC. Second, New EchoStar 

will be able to expand its offerings of national networks, particularly niche services 

such as foreign language programming and other content that traditionally has not 

gained carriage on cable systems. Third, spectrum efficiencies will allow for expanding the number of HDTV programming channels from the 2–3 channels offered 

today to 12 or more channels (HDTV channels require approximately 8 times the 

bandwidth of an ordinary digital channel). 

Spectrum efficiencies will also translate into new interactive services. These likely 

will include near Video-On-Demand, games, educational interactive programs, television commerce, and other services which create a two-way interactive television 

experience. Such services become more feasible with the advent of additional spectrum capacity, and’ by virtue of its roughly doubled spectrum capacity, New 

EchoStar will be able to implement interactive services while simultaneously carrying more traditional video services. In addition, New EchoStar will be able to offer 

bandwidth-intensive applications such as telemedicine, particularly relevant to the 

rural subscriber base. 

Of course, it would be incorrect to suggest that New EchoStar would control ‘‘all 

satellite spectrum.’’ Numerous other businesses control all of the allocated C-Band 

spectrum, and numerous other firms control Ka-band and medium-power (FSS) KuVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00120 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
117

8See, e.g.,. United States v. Philadelphia National Bank, 370 U.S.321, 356 (1963).

band licenses. With respect to high-power (DBS) Ku-band, R/L DBS and Dominion 

control DBS licenses. In addition, there is unallocated DBS spectrum, and 

Northpoint recently applied for a portion. Furthermore, two firms have applied to 

use orbital locations allocated to Mexico and Canada to provide service to the United 

States.

Question 7: Mr. Ergen, are satellite services currently competitive with digital 

cable services? If so, does this undercut your argument that the merger is necessary 

for satellite to be competitive with cable? As a result of the proposed merger, will 

satellite services be more compatible with standard cable (non-digital) services? 

Answer: EchoStar faces difficult obstacles to effective competition with cable firms, 

including its inability to carry local programming beyond the largest DMAs, the 

need to install satellite dishes on consumers’ homes, more expensive installation and 

consumer equipment, cable’s incumbency, and difficulty obtaining important programming at reasonable rates from the vertically integrated cable MSOs. 

Historically, EchoStar had certain advantages over cable. EchoStar was able to 

offer superior, digital quality video and sound. Moreover, EchoStar was able to offer 

a broader channel selection, including multiplexed premium movie channels, digital 

music channels, and out-of-area sports programming. These advantages, plus significant investment by EchoStar in subsidies for consumer equipment, allowed 

EchoStar to lure some customers from incumbent cable providers, and also exerted 

some competitive pressure against cable, moderating cable’s price increases and encouraging cable’s investment in digital infrastructure. 

Cable’s roll-out of digital service, however, has largely erased EchoStar’s historical 

advantages in many areas. Digital cable offers video and sound quality and broad 

channel selections similar to those offered by EchoStar. At the same time, 

EchoStar’s historical disadvantages remain. Moreover, digital cable is also creating 

new advantages, such as video-on-demand, true interactive services, and a bundle 

of video programming and affordable high-speed Internet access, all of which 

EchoStar cannot currently match. 

The merger will enable EchoStar to become more competitive with both traditional (analog) and digital cable. By enabling the merged DBS firm to offer local programming in all 210 DMAs, DBS will become a much closer competitor to cable in 

the areas that are currently unserved by local programming. In addition, the other 

merger efficiencies—including the expanded selection of HDTV, national, specialty, 

and educational programming, pay-per-view, interactive services, and video-on-demand; significant cost savings; and a bundle of affordable, high-speed, satellite 

Internet access—the merged firm will be better able to compensate for DBS’s inherent disadvantages vis-a-vis cable, as well as meet digital cable’s new competitive 

challenges. In the face of such competitive pressure, cable should respond through 

such measures as more competitive prices and expanded service offerings.

Question 8: Mr. Ergen, irrespective of the potential merits of the proposed merger, 

what are your arguments as to the legality of the merger in view of Section 7 of 

the Clayton Act, which prohibits acquisitions the effect of which ‘‘may be substantially to lessen competition, or to tend to create a monopoly’’ in ‘‘any line of commerce or in any activity affecting commerce in any section of the country. . . .’’? 15 

U.S.C. § 18. Specifically, how do you deal with the fact that a monopoly in multichannel video programming will exist in many rural areas if the merger goes 

through? Because these rural areas should qualify as ‘‘any section of the country,’’ 

won’t the creation of a monopoly directly violate the statute? 

Answer: The Clayton Act’s reference to ‘‘any line of commerce or in any activity 

affecting commerce in any section of the country’’ means a relevant antitrust market.8 As explained more thoroughly in response to Senator Hatch’s fifth question, 

above, the merger will not create monopoly power or cause any antitrust harm in 

any relevant antitrust market. With the merger, consumers in every section of the 

country, including rural areas, can expect more video programming and lower prices 

than possible without the merger. 

Question 9: Mr. Ergen, what are your arguments as to the legality of the merger 

in light of the Supreme Court’s decision in U.S. v. Philadelphia National Bank, 370 

U.S. 321 (1963), wherein the Court refused to justify anticompetitive effects in one 

market because of the procompetitive consequences in another? If there are anticompetitive effects in some rural areas, doesn’t Supreme Court precedent defeat 

your argument that procompetitive effects will occur in those markets where cable 

and satellite services are in direct competition?Answer: Consumers in rural areas 

will benefit from the merger in numerous ways, particularly with local programming 

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petitive pricing. As explained in detail in response to Senator Hatch’s fifth question, 

above, the merger will have procompetitive effects in every relevant market, and 

will have anticompetitive effects in no relevant market. Accordingly, there is no 

anticompetitive effect to ‘‘justify.’’

Responses of Edward O. Fritts to questions submitted by Senator Herbert 

fKohl

Question 1: Please provide the most current list of all 210 United States television 

markets and all of the stations that would qualify for must-carry rights in those 

markets. 

Answer: Attached is a list of all 210 television markets and all of the full-power 

commercial and non-commercial stations in those markets. Under SHVIA, stations 

are eligible for carriage if they can provide a good quality signal to the satellite company, if they properly filed their request for carriage with the satellite company, and 

if they satisfy certain non-duplication requirements. Thus, the attached list contains 

all TV stations in the markets; however, because of the additional conditions required for eligibility for carriage, it is not possible for NAB to state precisely which 

of these stations are eligible at this time.

Question 2: You suggested at the hearing that Mr. Ergen has frivolously filed complaints against broadcasters at the Federal Communications Commission regarding 

retransmission consent negotiations. Specifically, these challenges were brought 

under provisions included in the Satellite Home Viewer Improvements Act of 1999 

that govern good faith negotiations between satellite providers and broadcasters 

during such retransmission consent bargaining sessions. Please detail the various 

complaints filed by EchoStar pursuant to this law and explain why the National Association of Broadcasters believes they were frivolous. 

Answer: There are four instances where EchoStar filed a complaint against a 

broadcast station owner regarding retransmission consent negotiations. See 

EchoStar Satellite Corp. v. Landmark Communications (WTVF–TV), File No. CRS–

5554–C (May 30, 2000); EchoStar Satellite Corp. v. Clear Channel (WFTC–TV), File 

No. CRS–5553–C (May 30, 2000); EchoStar Satellite Corp. v. Chris-Craft (KTVX and 

WWOR–TV), File No. CRS–5555–C (May 30, 2000); and EchoStar Satellite Corp. v. 

Young Broadcasting (KRON–TV, WKRN and KCAL–TV), File No. CSR–5655–C 

(Feb. 2001). 

Each complaint alleged that the broadcast owner failed to negotiate in good faith 

in violation of the SHVIA. NAB believes the complaints were merely used to ‘‘punish’’ broadcasters and as leverage to force retransmission consent agreements. 

The background regarding the complaints against Landmark, Chris Craft, and 

Clear Channel, as NAB believes, is as follows:

• After enactment of the SHVIA, satellite companies were given a 6-month 

‘‘free ride’’ to carry stations that elected to be carried by the satellite companies through a retransmission consent agreement without paying any retransmission fees to stations. This 6-month period was intended to give the 

parties time to complete agreements. 

• This period ended on May 29, 2000. At that time, Landmark, Chris Craft 

and Clear Channel told EchoStar to take their signals off of the satellite 

because an agreement hadn’t been reached. 

• EchoStar responded by filing complaints with the FCC, claiming the companies were negotiating in bad faith. 

• Each complaint was subsequently dismissed (all within 3 months) when 

the parties reached an agreement.

In the case of Young Broadcasting, the complaint was followed through to the end:

• EchoStar filed a complaint in February 2001, after receiving interim permission to carry Young Broadcasting’s signals past the May 29, 2000 cut 

off date. 

• After months of filings—and a request by EchoStar for confidentiality—

the FCC denied EchoStar’s complaint, chastised EchoStar for ‘‘abuse of 

process’’ and found it failed in its duty of candor to the Commission by publicly disclosing the very material it claimed should be kept confidential. See 

EchoStar Satellite Corp. v. Young Broadcasting, Memorandum Opinion and 

Order, File No. CSR–5655–C (Aug. 6, 2001). 

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• The FCC found that Young Broadcasting’s actions in negotiation were 

consistent with competitive marketplace considerations and in line with the 

Responses of Edward O. Fritts to questions submitted by Senator Orrin G. 

requirements of the SHVIA.

fHatch 

Question: Attorney General Nixon, Mr. Fritts, and Mr. Pitofsky, would each of you 

please explain your respective interpretations of the recent announcement by 

DirecTV and EchoStar that they have suddenly found sufficient spectrum to carry 

all stations in all 210 television markets? 

Answer: The announcement that a merged EchoStarADirecTV could offer local-tolocal service in all 210 TV markets was no surprise to NAB. We have always maintained that either company—individually—has the capacity to serve all 210 markets, so plainly the two companies combined could easily do so. 

A closer look at what they’ve said they can do—and when they’ve said it makes 

it clear this is a political ‘‘Hail Mary.’’ When the merger was announced, EchoStar 

and DirecTV were already carrying 36 and 41 markets, respectively. At the end of 

2001, DirecTV somehow found capacity on its own—without a merger—to carry a 

total of 51 markets by the end of 2002, proving that the two companies could expand (and had the incentive to expand) their local-to-local service without merging 

to a monopoly. 

In their FCC application in December 2001, the two companies said that with the 

merger, the two companies would only be able to serve 100 markets. In February 

2002, however, DirecTV finally was forced to admit that before the merger, it had 

already launched or planned to launch spot beam satellites that would enable it to 

serve more than 100 markets. With political pressure against the merger mounting, 

and having been forced to admit that they were already planning to serve more than 

100 markets without the merger, the two firms decided to announce their 

210market plan. Even then, however, their Hail Mary promise was hedged in with 

qualifications, contained no time deadline—and, for the ultimate stinger, did not actually promise to all local stations, but only a cherry-picked selection of local stations, if their continuing legal attack on the SHVIA were to prove successful.

Question: Attorney General Nixon and Mr. Fritts, in your respective opinions, are 

Mr. Ergen’s assurances regarding television carriage and internet open access sufficient to safe guard the legitimate interests of consumers and competing ISPs? 

Answer: At first blush, the announcement to carry all stations in all 210 TV markets might appear to meet NAB’s goal of universal carriage of all stations in all 

markets. However, broadcasters have numerous concerns with the announcement: 

(1) there is no definite deadline—EchoStar says they may cover all markets ‘‘as soon 

as’’ two years from approval; (2) EchoStar has specifically reserved the right in its 

application to the FCC to continue to force consumers to acquire a second dish to 

get some local stations—a completely unworkable, consumer-unfriendly approach; 

(3) EchoStar has appealed the ‘‘carry one, carry all’’ law to the Supreme Court—

it is attempting to overturn the underlying law that requires them to carry any station in any market in which they offer local-to-local using the SHVIA license; (4) 

there is no enforcement mechanism. In short, the promise made by Charlie Ergen 

does not provide assurance that all consumer’s will be served with all their local 

TV channels.

Responses of Edward O. Fritts to questions submitted by Senator Edward 

fM. Kennedy

Question: What impact, if any, would approval of the proposed merger have on 

efforts to bridge the digital divide by providing greater high speed internet access 

to underserved urban and rural communities? 

Answer: NAB generally focuses on the issue of local TV carriage; however, the 

issue of broadband was addressed in our Petition to Deny filed at the FCC. In there, 

NAB notes that currently, both EchoStar and DirecTV offer nationwide satellitebased broadband. Additionally, EchoStar recently announced a joint venture with 

SES Global to provide additional broadband services using SES’s orbital slot. The 

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ellite broadband services, and no spectrum efficiency with regards to broadband is 

gained through the merger. Finally, it is the antitrust laws that govern whether this 

merger is approved—not the alleged benefits resulting from promises.

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Response of Robert Pitofsky to a question submitted by Senator Edward 

Kennedy 

Question: What impact, if any, would approval of the proposed merger have on 

efforts to bridge the digital divide by providing greater high speed internet access 

to underserved urban and rural communities? 

Answer: For many communities in the United States without access to cable or 

DSL, satellite broadband is the most likely option for the foreseeable future for their 

obtaining high-speed Internet access. I have seen no indication, however, that this 

merger is necessary to increase the availability of such satellite broadband services. 

Subsidiaries of both EchoStar and DirecTV are currently providing those services 

and have announced plans to expand those services. Consumers would be better off 

with two providers of satellite broadband services rather than one.

Responses of Robert Pitofsky to questions submitted by Senator Strom 

fThurmond 

Question 1: Mr. Pitofsky, assuming that a merger between EchoStar and Hughes 

DIRECTV would result in enhanced competition between satellite and cable services 

in the shortrun, what will be the long-term effects on competition in the multi-channel video programming market? Are any short-term benefits worth the long-term 

risks? If the merger takes place, how can we be assured that a competitive market 

will exist ten years from now? 

Answer: EchoStar and DirecTV have been doing very well on their own in competing against cable services. They claim they cannot be effective in their competition with digital cable without a merger, but it is hard to see why that would be 

true. Their record of success over the last six years undermines that argument. As 

a result, even in the short term, there is every reason to believe that existing competition between the two satellite providers will continue to serve consumers well. 

With respect to the long term, if the merger is permitted, it is permanent. We 

could see a single satellite company dominating consumer services in this area for 

a long time—with the indifferent service and higher prices that high levels of market power usually produce.

Question 2: Mr. Pitofsky, it has been suggested that the ‘‘one nation, one rate 

card’’ will protect rural markets where cable services are not available, thereby preventing the new corporation from abusing its monopoly in multi-channel video programming in those areas. However, if a cable provider in a metropolitan area cuts 

prices drastically, the new corporation would be unable to lower the rates in that 

metropolitan area without lowering rates everywhere in the nation. Therefore, while 

rural areas would be protected, the new company would be unable to compete in 

the metropolitan areas where cable cuts its rates. If this merger is approved, won’t 

the concept of ‘‘one nation, one rate card’’ be a hindrance to vibrant competition in 

some markets? 

Answer: I believe the premise of your question is exactly right. The concept of a 

national rate card seems appealing only so long as one does not carefully examine 

the consequences. If there is a single rate card and a cable company were to cut 

prices in a particular area, the merged firm will only be able to meet those prices 

if it lowered its national rate card across the entire country. That is unlikely to happen. Also, the concept that competition comes in a single form—a single national 

rate card—is not consistent with experience. The satellite companies have aggressively competed with each other through new subscriber promotions, equipment discounts, and other incentives. Thus, even if the rates in rural areas where the combined company would have a monopoly were the same as elsewhere in the United 

States, the rural areas could be denied all of these inducements and concessions 

that have been so important in the DBS industry. Nor will a national rate card substitute for the loss in competition to offer new services and technological innovation. 

There is also the question of who will monitor this unusual commitment by the 

merged firms. One possibility is just to take their word for it, but antitrust enforcement doesn’t usually work that way. The alternative is for a government agency to 

monitor each and every term of sale in each and every community in the United 

States to ensure that the ‘‘one nation, one rate card’’ concept is being respected. 

That is a form of direct and intrusive government regulation in the media area that 

Congress, the FCC, and the courts have been trying to avoid.

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Question 3: Mr. Pitofsky, if the Department of Justice were to approve the merger, 

what kind of safeguards should be implemented to ensure that prices are kept constant in those rural areas without access to cable? Can these safeguards be effective? 

Answer: As I said in my previous answer, the kind of monitoring that would be 

required may be impractical and ineffective, and certainly is inconsistent with the 

general thrust of antitrust law in relying on the free market to ensure fair and nondiscriminatory prices.

Question 4: Mr. Pitofsky, what safeguards are necessary to prevent the new corporation from requiring consumers to erect two dishes so that they may receive local 

channels? Would these safeguards be effective? If two dishes were eventually required, would many local channels be relegated to second-class status? 

Answer: The question raises the very legitimate concern that the merger may 

produce inefficiencies in the way DBS service is provided. I don’t have the technical 

expertise to know whether it will be necessary for consumers to purchase and own 

two satellite dishes rather than one, but the main point is that either of these companies separately could provide local TV channels. They are doing it now, and they 

are expanding. I see no reason why a merger is necessary to achieve that service—

assuming willing consumers are available to purchase the service.

Question 5: Mr. Pitofsky, will the concentration of all the satellite spectrum in one 

company be a benefit or a detriment to consumers? 

Answer: The theory of antitrust in this country for over 100 years is that monopoly market power in the long run is bad for consumers. That is particularly true 

where the market is barricaded by high entry barriers so that, if the monopolist 

raises prices or reduces service, others cannot enter. That is the situation that consumers would face if the proposed merger goes through.

Question 6: Mr. Pitofsky, are satellite services currently competitive with digital 

cable services? If so, does this undercut the argument that the merger is necessary 

for satellite to be competitive with cable? 

Answer: I believe that satellite services are currently competitive with digital 

cable services in terms of the number of channels, quality of reception, advanced 

services that can be available to consumers and other features. Even if that were 

not true, this is an exceptionally dynamic sector of the economy, and services are 

modified and improved constantly. The real threat to continued competition would 

occur if EchoStar and DirecTV were permitted to merge so that they would amount 

to a satellite monopoly. Then the rivalry between the two, which has led to such 

obvious success in dramatic subscriber growth and expansion and enhancement of 

service in recent years, would disappear.

Question 7: Mr. Pitofsky, a guiding principle in American antitrust policy is the 

effect of a proposed merger on the consumer. How will the consumer of multi-channel video programming be affected by a merger between EchoStar and Hughes 

DirecTV? 

Answer: It is the most fundamental tenet of American antitrust enforcement that 

mergers to monopoly (or even duopoly) will lead to higher prices, poorer service, and 

less innovation than would occur if there were competition. Congress and the courts 

have never wavered from their commitment to a free market protected by competition. I understand that the shareholders of the two companies proposing to merge 

might be enriched, but I simply can’t see how consumers would be any better off.

Responses of Robert Pitofsky to questions submitted by Senator Herbert 

fKohl 

l. Mr. Pitofsky, in most markets, the EchoStar/DIRECTV merger will reduce the 

number of competitors for subscription TV from three—the local cable TV company 

and the two satellite companies—to two. In rural areas not served by cable, the reduction to competition will be even worse—from two to one. Can you identify any 

merger in which a reduction in the number of competitors from three to two benefited consumers? 

Answer: I cannot. Indeed, the Court of Appeals for the District of Columbia could 

not in the proposed merger of Beech Nut and Heinz, where it said it could not find 

a single case in which a merger of three to two under similar circumstances was 

permitted by a court. The result might be different if one of the two companies were 

failing or if barriers to entry into the market in which they operated were extremely 

151

low. Neither of those factors is present in connection with the proposed EchoStar/

DirecTV merger.

Question 2: Mr. Pitofsky, there is no doubt that consumers are upset—and rightfully so—by the seeming unending increases in the price of cable TV. EchoStar and 

DIRECTV claim that, by permitting them to bring local-into-local service into many 

more markets, this merger will greatly strengthen [satellite] as a competitor to cable 

and, in turn, restrain cable rates. What’s your view of this issue? Won’t this merger 

make satellite TV a much stronger competitor to cable, and therefore much better 

able restrain cable rate increases? 

Answer: It is hard to see why any of the alleged advantages of the merger could 

not be achieved by each of these companies separately—continuing to compete vigorously with each other. Experience suggests that where there is a three-to-two merger, the result will be to raise the price of the two smaller companies rather than 

lower the price of the dominant market leader.

Responses of Robert Pitofsky to questions submitted by Senator Orrin G. 

fHatch 

Question 1: Attorney General Nixon, Mr. Fritts, and Mr. Pitofsky, would each of 

you please explain your respective interpretations of the recent announcement by 

DirecTV and EchoStar that they have suddenly found sufficient spectrum to carry 

all stations in all 210 television markets? 

Answer: Of course it would be a welcome development if the DBS providers would 

provide local-into-local service to all consumers throughout the country. But the burden is on the merging parties to make a showing that the merger will result in efficiencies that are not achievable by each company independently, and that any efficiencies outweigh the concerns about extreme increased concentration. I have yet to 

see any persuasive evidence that these companies will not get to full local-into-local 

service on their own. Their essential argument appears to be that they would make 

more money if they didn’t have to compete with each other, and that is a reason 

to allow the merger. That certainly is not a theory that results in consumer benefits.

Question 2: Attorney General Nixon and Mr. Pitofsky, let me ask you both a question that touches on a couple of different antitrust principles. There has been some 

debate about what the relevant market is and whether choosing one market over 

another really makes a substantive difference in this case. I would note, for example, that EchoStar has taken the position in litigation against DirecTV that DBS 

is the relevant market and that DirecTV is a monopoly in that market, but has 

more recently adopted a different and broader market definition. Also, one argument offered in support of the merger is that better competition to cable in the more 

urban areas, as well as more local television and pay-per-view offerings by the 

merged company, justify elimination of satellite television and broadband competition nationwide. Moreover, Mr. Kimmelman admitted that your analyses of the antitrust issues were correct, but that a broader view of some sort was required in this 

case, while attempting to argue that while DBS and cable were separate markets 

now, they would somehow become one market if the merger were approved. Could 

you comment in detail on these issues, including the relevant market definition and 

the nature of competition between cable and DBS, and, finally, give us your views 

of whether the antitrust laws allow benefits in one geographical or product market 

to be traded off against harm in another such market? 

Answer: Let’s examine the relevant market question from two points of view. As 

to the relevant geographic market, it is clear that the market is local. As a result 

of the merger, many subscribers and potential subscribers in rural America who do 

not have access to cable will see their choices reduced from two to one—two satellite 

companies merged to one. That surely is an ominous development for consumers. 

As to relevant product market, I have not done the extensive study necessary to 

reach a firm conclusion. I tend to agree with the position advanced by EchoStar in 

the brief it filed about a year and a half ago that the two DBS companies compete 

most directly and substantially with each other and their prices respond to each 

other rather than to cable. That would make DBS a separate market or a submarket and again the merger would result in monopoly. Another possibility is that 

DBS to some extent competes with cable so that the three are in the same relevant 

product market. Even in that situation, the merger reduces the relevant players 

from three to two, a level of concentration that has invariably been rejected in the 

courts. 

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Finally, you raised the question of whether anticompetitive effects in one section 

of the country can be justified by purported improvements in competition in another 

section. The answer is absolutely not. The relevant statute—Section 7 of the Clayton 

Act—is clear on the point. It says that a merger that lessens competition in ‘‘any 

section of the country’’ is illegal, and the courts have followed that plain meaning 

of the statute ever since it was amended in 1950.

Question 3: It was reported in the Wall Street Journal on February e [th]at—right 

up to the time at which the merger agreement was signed—EchoStar and DirecTV 

had been exploring ways to achieve these same spectrum efficiencies through a joint 

venture, but that effort failed due to control and economic factors. I would be interested in Mr. Ergen’s and Mr. Hartenstein’s elaboration on why such a joint venture 

is not a feasible alternative to this merger, and in Mr. Pitofsky’s and [Attorney] 

General Nixon’s analysis of that alternative. Could you both please provide a detailed explanation of the reasons that a joint venture is not a feasible alternative? 

Answer: I am not familiar with the details of possible arrangements to serve consumers of satellite services through a joint venture. Often, a joint venture is a less 

restrictive alternative to a merger and can be equally efficient; I don’t know if that 

is a possibility here.

Question 4: Attorney General Nixon and Mr. Pitofsky, I have heard that sensitive 

competitive information, such as specific programming contract terms, may have 

been disclosed by DirecTV to EchoStar in a manner that is not traditionally part 

of the normal due diligence process of a merger. I have also heard that some 

DirecTV customers have been contacted about needing to switch to EchoStar now, 

in advance of merger approval, to keep uninterrupted television service, reportedly 

by postcard, phone, and advertisement. Mr. Nixon and Mr. Pitofsky, would either 

of these activities, if true, raise concerns in the minds of antitrust enforcers as they 

review this merger? 

Answer: It is important that parties, in the period leading up to merger approval, 

not ‘‘jump the gun’’ and exchange competitively sensitive information not reasonably 

necessary to negotiations. They should, of course, continue to compete until the proposed merger is approved. I have no independent information as to whether inappropriate actions occurred between EchoStar and DirecTV in negotiations leading 

up to the announcement of their proposed merger.

SUBMISSIONS FOR THE RECORD

f Statement of Kirk Kirkpatrick, President and Chief Executive Officer, MDS 

America, Incorporated, Stuart, Florida 

Mr. Chairman, Senator DeWine, and members of the Subcommittee: 

Thank you for giving me this opportunity to submit written testimony as part of 

the official record of this important hearing examining the proposed merger between 

EchoStar and DirecTV. 

My name is Kirk Kirkpatrick and I am the president and chief executive officer 

of MDS America, Incorporated (‘‘MDS America’’), a company headquartered in Stuart, Florida. MDS America is the North American licensee of MDS International, 

a company based in Lyon, France, that is the leading designer and manufacturer 

of terrestrial broadband transmission equipment in the 12.2 to 12.7 GHz band (the 

‘‘DBS band’’). MDS terrestrial systems utilize a wireless technology capable of transmitting video and high-speed Internet data in the DBS band, without causing harmful interference to satellite services operating at the same frequencies. 

MDS International has been developing wireless terrestrial broadcast systems 

since 1986 and sold its first commercial system to the U.S. Government in 1997 to 

provide AFRTS for American military personnel in Oman. In the intervening time, 

it has deployed many of these systems worldwide in locations such as France, 

Kazakhstan, Cameroon, Gabon, New Zealand, and Greenland. Some of these systems share frequencies with DBS services in their areas. Most recently, the PTT of 

the United Arab Emirates awarded MDS International a pilot system toward a 

multi-million dollar contract to deploy a 300-hundred channel terrestrial system 

that will broadcast video programming throughout the seven emirates of the U.A.E. 

Having achieved a track record of success overseas, MDS International, through 

its North American licensee MDS America, would now like to participate in the 

emerging U.S. market for fixed terrestrial wireless services. The prospect that DBS 

terrestrial spectrum-sharing will become a reality here in the United States is an 

exciting development: Spectrum sharing should increase competition in the multiVerDate Mar 21 2002 07:52 Mar 28, 2003 Jkt 085659 PO 00000 Frm 00156 Fmt 6633 Sfmt 6621 C:\HEARINGS\85659.TXT SJUD4 PsN: CMORC
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channel video and broadband Internet access markets, lower consumer costs, and 

provide new services to consumers in rural and other underserved areas. 

1. MULTICHANNEL VIDEO DISTRIBUTION AND DATA SERVICE WILL ENHANCE

CONSUMER CHOICE. 

The importance of allowing this new terrestrial service-also known as Multichannel Video Distribution and Data Service (‘‘MVDDS’’)—is only heightened by the 

proposed merger between EchoStar and DirecTV. As you well know, many rural 

areas of the United States have no cable infrastructure. Today, consumers in these 

areas have only two choices for pay—TV services—EchoStar’s Dish Network and 

DirecTV. If the merger between EchoStar and DirecTV is in fact consummated, 

there will be only one provider of pay—TV services in these rural communities. 

In such a post-merger world, MVDDS providers like MDS America can step into 

the market, offer choice, and generate the competitive pressures necessary to keep 

consumer costs low and service adequate. While the two DBS operators have voluntarily agreed to maintain a ‘‘uniform nationwide pricing’’ system and to provide local 

programming in all markets once the merger is complete, it is likely to be the competition offered by MDS America and other MVDDS providers that will be the guarantor of these commitments for rural America. 

Furthermore, without the creation of a new MVDDS market, it is unlikely that 

the single merged DBS operator will address in any significant way the so-called 

rain fade problem that has plagued the DBS industry since its inception. Rain fade, 

the loss of hundreds of minutes of DBS signal each year as a result of atmospheric 

conditions, remains a problem today even though EchoStar and DirecTV aggressively compete for market share. I can assure this Subcommittee that rain fade will 

continue to be a serious problem if much of rural America is left with one DBS 

choice and nothing else. However, if the rural consumer is at least given the option 

of migrating to an MVDDS provider that offers a comparable package, in terms of 

both price and service, there will be a competitive incentive to address service issues 

like rain fade. 

In fact, MDS America’s MVDDS system is particularly well suited for deployment 

in rural areas untouched by cable and served exclusively by the DBS operators. 

MDS cells can reach from the tower to the curve of the earth, allowing us to deliver 

signal over thousands of square miles. With their extensive coverage capabilities, 

MDS cells are likely to reach enough of the population in rural areas of the United 

States to actually pay for the deployment of an MVDDS system. This is not an insignificant issue. There is a huge difference between an experimental system that 

works theoretically and a system that can actually be deployed in a way that makes 

it an economically viable venture. 

The potential introduction of MVDDS technology into the United States took a big 

step forward in December 2000 when the Federal Communications Commission 

(‘‘FCC’’) preliminarily concluded that terrestrial wireless broadband services could 

be delivered in the DBS band without causing interference to satellites operating 

in the same range. The FCC has since initiated a rulemaking proceeding to establish technical rules governing such service. Unfortunately, this proceeding has been 

noteworthy for the acrimony it has generated. We are hopeful that the FCC will 

conclude the proceeding in short order and finally give a green light to the deployment of MVDDS systems throughout the United States. 

I might add that, in May 2001, the FCC granted MDS America an experimental 

license to demonstrate that its MVDDS technology, already successful in other parts 

of the world, would not cause harmful interference with DBS transmissions in the 

United States. Pursuant to this license, LCCI International (‘‘LCC’’), an internationally recognized engineering and consulting firm working independently of MDS 

America, conducted a series of tests of the MDS system in 12 separate locations 

around Florida. Testing was conducted under more extreme conditions than would 

be normal during actual deployment of the MDS system in order to ensure that the 

technology will be able to handle the rigors of real-world implementation. 

We are pleased that the LCC tests emphatically prove what we have known all 

along-that MVDDS technology can be successfully deployed without causing harmful 

interference with DBS systems operating at the same frequencies. In its written report, which has been submitted to the FCC, LCC concluded that ‘‘[b]ased on the 

analysis of the collected data, the MDS transmitter can very well co-exist with DBS 

signal in this type of environment with a limited mitigation zone . . . as small as 

100 m around the transmitter.’’ The LCC report has been submitted to the FCC and 

is available in its entirety on our company website at www.mdsamerica.com. Although the LCC report has been publicly available for several months now, it is 

154

noteworthy that neither EchoStar nor DirecTV has publicly challenged its methodology and conclusions. 

2. THE POTENTIAL MVDDS MARKET SHOULD BE OPEN TO COMPETITION. 

Unfortunately, another company claiming to have a commercially viable MVDDS 

system—Northpoint Technology—is attempting to smother competition in the cradle 

of the new MVDDS industry by asking the FCC to waive its rules and grant it and 

its affiliated companies uncontested, monopoly licenses throughout the United 

States for the terrestrial use of the DBS band. If the FCC were to embrace this position, it would constitute one of the largest uncompensated grants of spectral real 

estate to a single company in American history. The cost to the American taxpayers 

would be significant, amounting to hundreds of millions of dollars. 

To justify its monopoly ambitions, Northpoint has claimed that it is the only company in the world with a terrestrial system capable of sharing spectrum with DBS 

services. This claim is simply untrue. Unlike MDS International, Northpoint has 

never, not once, deployed a terrestrial system anywhere in the world. Yet it is 

Northpoint and its affiliated companies, not MDS America, that have asked the 

FCC to grant them licenses for 500 MHz of valuable spectrum for free. 

In addition, Northpoint argues that section 1012 of the ‘‘Launching Our Communities’ Access to Local Television Act of 2000’’ (the ‘‘Local TV Act’’) somehow limits 

the potential award of a license for terrestrial service only to those entities that 

have already filed an application in the ‘‘direct broadcast frequency band’’ and 

whose technology has been tested by the MITRE Corporation, the company selected 

by the FCC to fulfill the technical demonstration requirement outlined in section 

1012(b). This Subcommittee should understand, however, that the FCC has never 

established an application filing window for terrestrial systems in the DBS band. 

The window in which Northpoint filed was established by the FCC to accept applications for non-geostationary satellite systems, not terrestrial systems like those of 

Northpoint and MDS America. The fact that Northpoint filed an application in a 

window for non-geostationary satellite systems does not, and should not, have any 

bearing whatsoever on the proper disposition of the DBS spectrum for terrestrial 

use. A simple reading of section 1012 of the Local TV Act also demonstrates that Congress did not intend to limit the potential universe of MVDDS applicants nor did 

it prohibit—explicitly or implicitly—the auctioning of the DBS band for terrestrial 

use in the event there are mutually exclusive license applications, including applications filed by entities whose MVDDS technology has not been tested by the MITRE 

Corporation. It is also significant that MDS America offered its equipment to the 

FCC for testing by the MITRE Corporation prior to the MITRE testing and was instructed by the FCC that this was not necessary. 

With respect to the provision of MVDDS, MDS America is prepared to compete 

on a level playing field with Northpoint and any other company that may want to 

enter this market. We would hope that this Subcommittee, charged with overseeing 

the administration of our nation’s antitrust laws, would not condone a governmentcreated monopoly in the MVDDS market when there is no legal or policy justification for such a decision. With respect to the terrestrial use of the DBS band, MDS 

America has consistently argued that the FCC should follow its standard procedures 

by a) promptly completing the rulemaking process, establishing rules for MVDDS 

that are flexible and technology-agnostic, b) accepting applications for licenses, and 

c) if there is mutual exclusivity, promptly holding an auction. 

As the members of this Subcommittee may know, Northpoint has attempted to 

circumvent the FCC decisionmaking process by supporting a legislative proposal 

that would prohibit the FCC from auctioning the DBS band for terrestrial use. 

There was speculation last year that this proposal would be attached as an amendment to one of the appropriations bills then pending in Congress. We are very 

pleased that the Bush Administration expressed its ‘‘strong opposition’’ to the 

Northpoint anti-auction approach, stating that it ‘‘would interfere with the efficient 

allocation of Federal spectrum licenses, provide a windfall to certain users, and reduce Federal revenues.’’ See Statement of Administration Policy, Department of Agriculture, Rural Development, Food and Drug Administration, and Related Agencies 

Appropriations Bill, FY 2002 (October 25, 2001). 

3. CARS SPECTRUM IS NOT A VIABLE SUBSTITUTE FOR DBS BAND. 

Finally, in an apparent last-minute attempt to delay the deployment of MVDDS, 

the two DBS operators have recently petitioned the FCC to move MVDDS from the 

12.2 to 12.7 GHz band to the Cable Television Relay Service (‘‘CARS’’) band at 12.7 

to 13.2 GHz. 

155

Though the CARS band may be a valuable supplement to existing DBS spectrum, 

the CARS band already has too many incumbents to be considered a viable substitute for the 12.2 to 12.7 GHz band. Given that thousands of cable companies currently use the CARS band to transmit internal communications, it is unrealistic to 

expect that it would be conducive for rapid commercial distribution of high-speed 

video programming and Internet access services in the short run. If the CARS band 

were the easy answer to facilitating these services, they would have been deployed 

in this band long ago. MDS America hopes and expects that the FCC will reject this 

obvious effort to delay the deployment of MVDDS. 

4. CONCLUSION. 

As this Subcommittee continues its examination of the proposed merger of 

EchoStar and DirecTV, we urge you to take a broadly focused approach: The issue 

is not merely whether the country needs two DBS operators as opposed to one. Nor 

is it simply a question of whether the creation of a single satellite television company is a necessary condition for DBS to be able to compete effectively with cable. 

Our concern is expanding the list of entrants in both the multichannel video and 

Internet access markets and thereby improving competition and consumer choice. 

We believe that the new Multipoint Video Distribution and Data Service, if permitted by the FCC under appropriate service rules, can become a robust competitor 

to both satellite TV and cable. We also believe that the MDS terrestrial system is 

uniquely situated to become an important player in the multichannel video and 

Internet access markets, particularly in rural America. 

Thank you for giving me this opportunity to share my thoughts with you.

fWRITERS GUILD OF AMERICA, WEST, INC. 

LOS ANGELES, CA 90048

March 5, 2002

Hon. Orrin G. Hatch 

Ranking Republican 

Senate Committee on Judiciary 

Dirksen Office Building Room 152

Washington, DC 20510

Dear Senator Hatch:

The Writer Guild of American (West and East, together the ‘‘WGA’’), which represents the 11,500 men and women who write virtually all the national entertainment programming and much of the national news Americans see, believes that the 

television industry has consolidated to a degree harmful to DANA the public interest in a competitive market for television program’s. 

The merger of DirecTV and EchoStar would extend media consolidation to an unacceptable degree. The combined entity would wield unacceptable power over program suppliers, restricting the diversity of voices on American television. The force 

of a sole direct broadcast satellite operator could be exerted directly by threatening 

to remove a program service from distribution. Or, the force could be exerted indirectly, by using market power to pay a below-market license fee, starving the program service of original programming. In either case, the content of the program 

service is diluted and stunted. Original programming gives way to repeats. Original 

points of view give way to common ones. 

It is in the public interest that EchoStar and DirecTV operate separately.

Sincerely,

CHARLES B. SLOCUM

Strategic Planning Director

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