EchoStar, which on Monday announced it had signed up its 10 millionth subscriber, appears to be losing a legislative battle over the satellite dishes subscribers must use to receive local channels in certain markets, according to recent research from Schwab SoundView.
Like last week's decision by the Bush administration
not to appeal the defeat of certain telephone pricing rules, the situation illustrates how often the fortunes of tech and telecom businesses are guided by decisions made in Washington, D.C.
EchoStar's prospects on this issue reflect, in particular, a battle that the satellite operator is losing to local television station broadcasters -- a loss that doesn't appear to surprise EchoStar chief Charlie Ergen.
Assessing the conflict on a conference call with analysts earlier this year, Ergen commented, "If you want to calculate odds, I don't think we have ever prevailed on an issue with broadcasters in Washington, as a company," according to a CCBN transcript of the call. "So, I don't know that 2004, from an odds perspective, as a betting man, I would bet on us vs. broadcasters," said Ergen.
At issue is legislation working its way through Congress that follows up a 1999 law known as the Satellite Home Viewer Improvement Act, or SHVIA.
That legislation gives EchoStar and rival satellite operator
the right to deliver broadcast TV channels from distant markets to satellite subscribers who can't receive local channels with a broadcast antenna. Because that distant-signal authorization expires this year, Congress has to reauthorize it -- or risk the election-year wrath of satellite customers who stop receiving ABC, Fox, NBC and CBS on their TV, and blame their loss on congressional inactivity.
As far as the reauthorization of distant signals goes, that's good news for EchoStar and DirecTV. The bad news for EchoStar, however, lies in another section of the proposed law, one that applies to the delivery of local broadcast TV signals to satellite TV customers within that local market -- a programming package that is a powerful tool for EchoStar and DirecTV as they compete against cable TV operators.
The version of the bill that exited the House Commerce Committee earlier this month will require EchoStar, within a year of the law's passage, to deliver all of the local channels in any particular market so that each subscriber receives them all via a single satellite dish.
That runs contrary to a common practice that EchoStar has employed in rolling out packages of local broadcast channels to its subscribers. As of the end of May, in 38 of the 127 television markets in which EchoStar offered local subscribers a package of local TV stations, subscribers needed two dishes to receive the complete package of local signals.
Broadcasters complain that the two-dish local channel solution marginalizes certain TV stations in a market, arguing that out of ignorance, inconvenience or esthetic concerns, local subscribers aren't getting that second dish.
EchoStar disagrees. "The second dish is free of charge, entirely invisible to the operation of the service, and has generated no complaints from consumers," the company said in a statement. EchoStar says it would be happy to comply by making all of its markets one-dish markets within four years.
DirecTV, meanwhile, isn't as affected by the two-dish provision. The company's practice has been to offer all of its broadcast channels on a single dish.
"Our primary goal has been certainty as to what the rules are for carriage of local broadcast stations," says Susan Eid, DirecTV's vice president of government affairs. After several congressional hearings, she says, "it became clear that members of Congress believe that certainty should come in the form of requiring that all local broadcast stations be on one dish."
Whoever has the moral high ground, the cost of complying with the one-year rule would be significant, says EchoStar, perhaps exceeding $100 million. The company says it would have to move local channels to new satellites, requiring customers to install second dishes. And EchoStar says it may have to drop local channels in certain markets.
Schwab SoundView analyst John Hill pegs the cost of complying at $110 million, a cost that he believes other analysts haven't completely taken into account. (That being said, Hill has an outperform rating on EchoStar, citing positive factors such as EchoStar's relationship with
and the prospects of higher monthly revenue per subscriber.)
Based on research provided by Paul Gallant, a media analyst with Schwab SoundView's Washington Research Group, Hill assigns "slightly better than even odds" to the possibility that the Senate will pass a similar two-dish provision.
The House and Senate Judiciary Committees will likely be looking at copyright provisions in the SHVIA extension bill this week, says Gallant, but the fate of the two-dish provision now lies with the Senate Commerce Committee.
"People are waiting to see what the Senate Commerce Committee will do," says Gallant. That commitee, he says, "will have a big say in whether the bill goes forward and what it looks like."