[Senate Hearing 106-66]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 106-66

 
  SATELLITE/CABLE COMPETITION: AN EXAMINATION OF THE ECHOSTAR/MCI DEAL

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

EXAMINING THE COMPETITIVE IMPLICATIONS OF ECHOSTAR'S PROPOSED PURCHASE 
                   OF THE MCI ORBITAL SATELLITE SLOT

                               __________

                           Serial No. J-106-1

                               __________

         Printed for the use of the Committee on the Judiciary







                      U.S. GOVERNMENT PRINTING OFFICE
57-581 CC                     WASHINGTON : 1999



                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire

             Manus Cooney, Chief Counsel and Staff Director

                 Bruce A. Cohen, Minority Chief Counsel

                                 ______

      Subcommittee on Antitrust, Business Rights, and Competition

                      MIKE DeWINE, Ohio, Chairman

ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont

             Louis Dupart, Chief Counsel and Staff Director

        Jon Leibowitz, Minority Chief Counsel and Staff Director

                                  (ii)




                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page
DeWine, Hon Mike, U.S. Senator from the State of Ohio............     1
Kohl, Hon Herbert, U.S. Senator from the State of Wisconsin......     3
Leahy, Hon. Patrick J., U.S. Senator from the State Vermont......     3

                    CHRONOLOGICAL LIST OF WITNESSES

Statement of Charles W. Ergen, chief executive officer, Echostar 
  Communications Corporation, Littleton, CO......................     6
Statement of Decker Anstrom, president, National Cable Television 
  Association, Washington, DC....................................    12
Statement of Gene Kimmelman, co-director, Washington Office, 
  Consumers Union, Washington, DC................................    32

                ALPHABETICAL LIST AND MATERIAL SUBMITTED

Anstrom, Decker:
    Testimony....................................................    12
    Prepared statement...........................................    15
DeWine, Hon. Mike: Prepared statement of the National Association 
  of Broadcasters................................................     5
Ergen, Charles W.:
    Testimony....................................................     6
    Prepared statement...........................................     7
Kimmelman, Gene:
    Testimony....................................................    32
    Prepared statement...........................................    33

                                APPENDIX
                  Additional Submission for the Record

Letter to Senator DeWine from the Association of Local Television 
  Stations, dated Feb. 2, 1999...................................    51





  SATELLITE/CABLE COMPETITION: AN EXAMINATION OF THE ECHOSTAR/MCI DEAL

                              ----------                              


                      WEDNESDAY, JANUARY 27, 1999

                           U.S. Senate,    
    Subcommittee on Antitrust, Business Rights,    
                                       and Competition,    
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 8:33 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine 
(chairman of the subcommittee) presiding.
    Also present: Senator Kohl.

OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Senator DeWine. Good morning. Let me welcome all of you to 
the Antitrust Subcommittee hearing, which we have entitled 
``Satellite and Cable Competition: An Examination of the 
EchoStar/MCI Deal.''
    I would like to apologize in advance for the unusual hour. 
At least, this is early by Washington standards. I am not sure 
it is early by the time when most people go to work, but by 
Washington standards, an 8:30 a.m. hearing is pretty unusual. 
As you know, the Senate has been occupied with a few other 
matters, and we will continue that today, so we felt when we 
scheduled this hearing the safest thing to do would be to 
schedule it for 8:30 a.m. We do not anticipate it will last 
much more than an hour, so that will give us plenty of time to 
get back to the other business of the Senate. Even as the trial 
moves forward, we do continue to work on important policy 
issues before this subcommittee.
    As you can tell from the title of the hearing, we are going 
to discuss today the competitive implications of EchoStar's 
proposed purchase of the MCI orbital slot. The satellite 
industry is on its way towards being an important competitor to 
cable television. Technological changes, falling prices for 
satellite dishes, and market consolidation are changing the 
face of this industry and making it a stronger player in the 
video services market.
    Many people, including myself, believe that this proposed 
purchase will enhance EchoStar's ability to compete with cable 
in markets all over our country. We will take the opportunity 
today to explore the details of this transaction and see just 
what opportunities it will provide for EchoStar.
    The backdrop for all of this, of course, is the Satellite 
Home Viewer Act, which will allow the satellite industry to 
provide the so-called local-into-local service which is so very 
important to consumers. As you know, the Satellite Home Viewer 
Act is a joint product of the Judiciary Committee and the 
Commerce Committee, and Senator Kohl and I are pleased to be 
among the original cosponsors of this legislation. We both look 
forward to continuing to work with Senator Hatch, Senator 
Leahy, Senator McCain, and Majority Leader Lott to move this 
legislation forward.
    We will also continue to work with the various industries 
and consumer groups involved in the provision of television and 
video services, and on that point, I would like to thank our 
witnesses who are here today, Charlie Ergen of EchoStar, Decker 
Anstrom of the National Cable Television Association, and Gene 
Kimmelman of Consumers Union. Mr. Ergen has been an industry 
leader for years now, and Mr. Kimmelman has been an important 
voice for consumers, and we know that both will continue their 
hard work in this industry. We are also very grateful for all 
the hard work put in by Decker Anstrom and the National Cable 
Television Association, which has represented the position of 
the cable industry very effectively.
    All legislation is arrived at through a process of 
discussion, negotiation, and give and take. The Satellite Home 
Viewer Act, of course, will be no exception. As we move to mark 
up the bill, I note this same spirit of cooperation will 
continue to prevail. We will work with the broadcasters, with 
the cable and satellite industries to pass legislation that 
will lead to fair and reasonable competitive terms for the 
satellite industry.
    We had hoped to have a representative from the National 
Association of Broadcasters here today, but unfortunately, they 
ran into some scheduling difficulties and decided not to 
attend. They have submitted a statement for the record, which I 
will, in a moment, make a permanent part of the record, and we 
will continue to work with them as this process moves forward.
    Before I turn to the ranking minority member on the 
committee, Senator Kohl, let me just reiterate something which 
I think this subcommittee has made clear many times before. 
Competition is the best way to provide efficient delivery of 
video to consumers. The more video choices that American 
consumers have, the better. We have seen this in my own home 
State of Ohio, where Ameritech has provided competition to 
local cable companies by overbuilding in certain markets. 
Wherever Ameritech has entered the cable market, choice has 
expanded and service has improved for all consumers.
    It is the goal of this subcommittee to ensure that 
consumers all through the country benefit from that sort of 
tough, fair competition, whether it is from satellite 
providers, phone companies, or any other source. The Satellite 
Home Viewer Act will help promote the competition we all want 
to see, and we look forward to hearing from our witnesses today 
whether they think the EchoStar deal is also a step in that 
direction.
    Let me now turn to Senator Kohl, and let me just say that I 
am delighted that Senator Kohl and I will be able to team up 
again for this session of Congress. We have worked very closely 
together in a very bipartisan way. I think we have made some 
great progress, Herb, in the last Congress, and I look forward 
to working with you in this Congress.
    Senator Kohl.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. Thank you, Mr. Chairman. As I begin, let me 
say how delighted I am to begin the 106th Congress just as we 
concluded the 105th, working again with my colleague, Senator 
DeWine, on antitrust issues. It is a tribute to his leadership 
that we have done so much on telecommunications, airlines, 
computers, and other matters. It just goes to show how much 
more we can do when Democrats and Republicans work together.
    That said, as we try to balance our legislative agenda with 
our impeachment obligation, it is good to kick off with a 
significant consumer issue, namely promoting real competition 
to cable. Today, we are looking at EchoStar's proposed purchase 
of MCI's satellite slot. The benefit of this deal is simple and 
straightforward. By gaining MCI's satellite space, EchoStar can 
serve more folks with more programming in more places and do 
this with just one dish, a so-called one-dish solution.
    But in order to make satellite a truly viable competitor to 
cable, we need to pass the Hatch-McCain-Leahy-DeWine-Kohl 
Satellite Home Viewer bills that allow local-to-local 
broadcasting. It is simply unconscionable and anticompetitive 
for Congress to continue the prohibition that bans satellite 
companies from broadcasting local stations to local consumers.
    Ultimately, that is what this hearing and this deal and 
these measures are all about--creating more choice for 
consumers--because if this acquisition is combined with a 
balanced local-to-local bill, one that phases in ``must 
carry,'' we will all have lower prices, improved service, and 
better quality for consumers of both cable and satellite, and 
that is across the Nation, not just in Los Angeles and New York 
but also in places like Milwaukee and Columbus. Finally, we 
will be doing all of this in the best and most politically 
viable way: by promoting competition and not regulating rates.
    Of course, do not take my word for the promise of this 
purchase or the benefits of these bills. Ask Decker Anstrom of 
the National Cable Television Association and Gene Kimmelman of 
the Consumers Union. When these two people agree on something--
and that does not happen very often--it has to be a good idea. 
So we look forward to hearing what they, as well as Charlie 
Ergen, have to say, and it is nice to have you with us today, 
gentlemen.
    Senator DeWine. Senator Kohl, thank you very much.
    Let me invite our panel to come up, and let me ask at this 
point unanimous consent that the opening statement by Senator 
Leahy be admitted into the record, and it will be admitted 
without objection.
    [The prepared statement of Senator Leahy follows:]

 Prepared Statement of Patrick J. Leahy, a U.S. Senator From the State 
                               of Vermont

    I deeply regret that the impeachment trial is continuing. In light 
of my responsibilities in connection with that pending proceeding, I am 
unable to attend today's hearing in person. Accordingly, I ask that my 
prepared written statement be included in the record.
    Over three years ago I started raising serious concerns about the 
need to increase competition between cable and satellite TV providers. 
I felt then, and I feel now, that the best way to reduce the recent 
cable and satellite rate increases is to have satellite television be 
able to compete on a level playing field with cable.
    That does not happen in most of the country under current 
circumstances. The Satellite Television Improvements Act, S. 247 which 
I introduced with Senators Hatch, McCain, Kohl and Lott, leads the way 
to promote head-to-head competition between cable and satellite 
providers--and lower rates and more services for consumers.
    In November of 1997, we held a full Committee hearing on satellite 
issues and Senator Hatch and I agreed to work together on a bill to try 
to avoid needless cutoffs of satellite TV service while, at the same 
time, working to protect the local affiliate broadcast system and 
increase competition.
    In March of last year we introduced a bill, S. 1720, which was 
reported out of the Judiciary Committee unanimously on October 1, 1998, 
and which was designed to permit local TV signals, as opposed to 
distant out-of-state network signals, to be offered to viewers via 
satellite; to increase competition between cable and satellite TV 
providers; to provide more PBS programming by also offering a national 
feed as well as local programming; and to reduce rates charged to 
consumers. Unfortunately, the Senate did not act on our bill before 
adjourning.
    In the meantime, a Federal District Court Judge in Florida (CBS v. 
PrimeTime 24, S.D. Florida) found that PrimeTime 24 was offering 
distant CBS and Fox television signals to over a million households in 
the U.S. in a manner inconsistent with its compulsory license that 
permits such satellite service only to households who do not get at 
least ``grade B intensity'' service.
    Under a preliminary injunction, satellite service to thousands of 
households in Vermont and other states was to be terminated on October 
8, 1998, for CBS and Fox distant network signals for households signed 
up after March 11, 1997, the date the action was filed.
    Mr. Chairman I was pleased that we worked together, along with 
Senators DeWine, Kohl and Lott, to avoid immediate cutoffs of satellite 
TV service in Vermont and other states. The parties agreed to request 
an extension which was granted until February 28, 1999. This extension 
was also designed to give the FCC time to address this problems faced 
by satellite home dish owners.
    In December of last year, I sent a comment to the FCC and 
criticized their proposals on how to define the ``white area''--the 
area not included in either the Grade A or Grade B signal intensity 
areas. My view was that the FCC proposal would cut off households from 
receiving distant signals based on ``unwarranted assumptions'' in a 
manner inconsistent with the law and the clear intent of the Congress. 
I complained about entire towns in Vermont which were to be 
inappropriately cut off when no one could receive signals over the air. 
I am anxiously awaiting for the FCC final rule in this matter.
    The Florida District Court filed a final order which will also 
require that households signed up for satellite service before March 
11, 1997, be subject to termination of CBS and Fox distant signals on 
April 30, 1999, if they live in areas where they are likely to receive 
a grade B intensity signal and are unable to get the local CBS or Fox 
affiliate to consent to receipt of the distant signal.
    Our bill S. 247, sets the stage to avoid all of these complicated 
signal intensity issues, all of this finger pointing and the ``white 
area'' mess. Our bill can avoid all these problems because local 
network affiliate signals will be offered over satellite--along with a 
full range of programming. Home dish owners in Vermont will be able to 
choose what is best for them. If cable is offered in their community 
they would be able to decide which--satellite or cable programming is 
best, and cheapest--for them.
    Thousands of Vermonters, for the very first time, will be offered 
satellite television which will include all the Vermont full power 
stations.
    I look forward to the testimony of Charles Ergen of EchoStar 
regarding how EchoStar can help provide competition. My concern has 
been that EchoStar is unable to offer such ``local-into-local'' service 
to most of the rural United States including Vermont. I am worried that 
much of rural America might be left behind as the more concentrated 
markets are served. I know that many Vermonters would prefer to receive 
local stations rather than imported, distant, signals from other states 
so I am fighting to get them this service.
    I want to note briefly that the Justice Department has been 
generally supportive of EchoStar's acquisition of the MCI/NewsCorp's 
DBS license but I certainly want to see how helpful this proposal will 
be for rural America. I am also interested in the views of Mr. Decker 
Anstrom of the National Cable Television Association on this issue.
    My goal, as I have said many times in the past, is to offer 
Vermonters more choices, more TV selections, but at lower rates. In 
areas of the country where there is this full competition with cable 
providers, rates to customers are considerably lower.
    Thus, over time this initiative will permit satellite TV providers 
to offer a full selection of all local TV channels to viewers 
throughout most of Vermont, as well as the typical complement of 
superstations, weather and sports channels, PBS, movies and a variety 
of other channels. This means that local Vermont TV stations will be 
available over satellite dishes to many areas of Vermont currently not 
served by satellite or by cable.
    To take advantage of the bill, satellite carriers over time will 
have to follow the rules that cable providers have to follow. This will 
mean that they must carry all local Vermont TV stations and not carry 
distant network stations that compete with local stations.
    I want to make clear, as I did in my recent comment to the FCC, 
that I strongly believe in the local affiliate television system. Local 
broadcast stations provide the public with local news, local weather, 
local informational programming, local emergency advisories, candidate 
forums, local public affairs programming, and high quality programs. 
Local broadcast stations contribute to our sense of community.
    I strongly believe that when the full local-into-local satellite 
system is in place, this system will enhance the local affiliate 
television system and provide consumers with more services.

    Senator DeWine. Let me also ask that the statement that was 
submitted to our committee by the National Association of 
Broadcasters be submitted as a part of the record, and it will 
be so without objection.
    [The prepared statement of the National Association of 
Broadcasters follows:]

     Prepared Statement of the National Association of Broadcasters

    Broadcasters have, and continue to, support measures to bring 
competition to local cable monopolies. Broadcasters were among the 
strongest proponents of the 1992 Cable Act, which included the must 
carry law designed to prevent misuse of cable's gatekeeper facilities, 
and the program access provisions that have made the satellite industry 
and other new multi-channel video distributors viable.
    We believe that satellites can also be an effective competitor to 
cable and help to keep cable's ever-spiraling rate increases in check. 
We have supported, therefore, the adoption of provisions authorizing 
local-to-local satellite service by which satellite operators will be 
able to offer program line-ups that are fully competitive with cable.
    The desire to promote competition for cable, however, should not 
lead Congress or the FCC to abandon the fundamental commitment to local 
broadcasting. Thus, satellite operators offering local signals should 
be subject to must carry and retransmission consent, although 
broadcasters have agreed that--because of short-term capacity 
limitations--full must carry obligations can be delayed.
    Just as significantly, making satellite a viable competitor to 
cable should be done at the expense of enforcing the law. Congress must 
not reward satellite operators who have callously disregarded current 
law governing satellite distribution of distant market broadcast 
network signals. Doing so would harm local broadcasters whose audiences 
have been wrongfully diverted, and would create a disincentive for 
satellite operators and others to work for competition to cable that 
strengthens and maintains--rather than weakens--our system of local 
broadcasting.

    Senator DeWine. Charles Ergen is the founder, CEO, and 
chairman of EchoStar Communications Corporation, one of the 
leading satellite television companies in the United States. He 
also cofounded the Satellite Broadcasting Communications 
Association and served on its first board of directors.
    Decker Anstrom is the president and chief executive officer 
of the National Cable Television Association. He joined NCTA in 
1987 and served as executive vice president until becoming 
president and CEO in January 1994. We welcome him back to our 
subcommittee.
    Gene Kimmelman is, of course, the co-director of the 
Washington, DC, Office of Consumers Union, publisher of 
Consumer Reports magazine. He is a recognized expert on 
deregulation and consumer protection issues, particularly in 
the area of telecommunications. He has testified before this 
subcommittee on dozens of occasions, and we welcome him back.
    Let us start from my left to right. We will start with Mr. 
Ergen. Good morning.

    STATEMENT OF CHARLES W. ERGEN, CHIEF EXECUTIVE OFFICER, 
       ECHOSTAR COMMUNICATIONS CORPORATION, LITTLETON, CO

    Mr. Ergen. Thank you, Mr. Chairman, and thank you for 
allowing me to be here. My name is Charlie Ergen and I was 
fortunate enough in 1980 to help start EchoStar Corporation. We 
only had one goal in mind, which was to offer consumers a 
choice in video and compete against cable. Now, back in those 
days, the dishes were 10 feet in diameter and cost over $10,000 
and we were able to sell over a million systems over the next 
16 years. But in 1996, we started a high-powered business with 
very inexpensive dishes. In the last little less than 3 years, 
we now have over two million subscribers. So we have a start in 
competing with cable.
    This is the fifth time I have actually testified in the 
last year in the Senate and on the House side to answer 
questions on how we can create video competition. We have now 
launched four satellites in the last 2 years and invested over 
$2 billion to compete with cable. In late November, we 
announced a deal to invest another $1 billion to acquire the 
assets of MCI/News Corporation, their satellite assets in the 
last remaining full CONUS orbital slot at 110 degrees. That 
spectrum, along with two satellites which we plan to launch 
this year, will allow us to continue to compete and get 
stronger against cable.
    We still need FCC approval and we would encourage this 
committee to encourage the FCC to act very promptly because we 
are ready to go when the FCC approves us.
    We have a history of competing with cable. I think we 
certainly have a reputation of being a very aggressive 
competitor both in the DBS industry and against cable. For 
example, when we entered the market in 1996, we dropped the 
price of a satellite system, to own a system, to below $200 at 
a time when systems were selling for in excess of $700. We 
instituted a low monthly fee option for consumers of less than 
$20 a month, far less than cable companies were charging and 
still are charging.
    We also allowed customers to do something very unique, pick 
any 10 channels, basic channels, they wanted for a low monthly 
fee of $10 to $15 so they did not have to buy channels that 
they did not want. And finally, last year, we guaranteed that 
our prices would not increase until the next millennium, until 
March 2000, something the cable industry has never done in 
terms of a price guarantee.
    The acquisition of the MCI/News Corp. assets, of course, 
will allow us to be more competitive. If approved, it will 
allow us to keep pace with many of the changes that are taking 
place in the telecommunications industry and many of the things 
that cable are now doing to be competitive in the future.
    With the new spectrum, we will be able to solve the biggest 
problem in DBS, which is to offer customers their local network 
channels, which they watch about 65 percent of the time. We 
also plan to offer data services and high-definition 
television. These new services are going to be very critical 
when you see the potential acquisitions of AT&T and TCI in 
terms of merging. We know that video alone is not going to be 
competitive in the future. We are excited about the ability to 
do HDTV because we know on a national basis, we can roll that 
out tomorrow and get that new technology started.
    But all this has not been enough for our industry and our 
company to be truly competitive with cable, as evidenced by the 
fact that cable has raised prices consistently over 300 percent 
to 400 percent the rate of inflation, and that is really 
because current law has not kept up with our technology.
    Current law today, for example, says we cannot provide 
local channels to people who can receive network signals with 
an off-air antenna, our so-called Grade B areas. That 
eliminates about 95 percent of the country. Current law says we 
cannot deliver network signals to people who have subscribed to 
cable in the last 90 days, thus eliminating, from a practical 
point, 65 million people from having the choice of DBS. Current 
law says we cannot broadcast local channels right here in this 
chamber because we are not allowed to broadcast network signals 
through satellite to public places, as cable can do.
    So we cannot compete under these conditions, so we need a 
change to the Satellite Home Viewer Act, and we are very 
pleased that this committee, along with Senator Hatch and 
Senator McCain, have introduced legislation in the last several 
weeks that we think is very encouraging and look forward to 
working with you to pass that legislation.
    We also hope that in your capacity to oversee antitrust 
that you will be sensitive to the overwhelming power that cable 
has on programming. They own most of the programming and 
program access rules and pricing are very, very important to 
us. We also know that we need help in getting retransmission 
consent from the broadcasters on fair and equitable terms.
    But as I said, we are off to a good start and we appreciate 
the hard work that you and your colleagues and committees and 
staff have done to give your constituents a choice over cable 
and make DBS competitive. So we look forward to continuing to 
work with you and answer any questions you might have here 
today.
    Senator DeWine. Mr. Ergen, thank you very much. Your timing 
is within about 10 seconds. You are very concise. Thank you 
very much.
    [The prepared statement of Mr. Ergen follows:]

                 Prepared Statement of Charles W. Ergen

    Mr. Chairman and distinguished members of this Committee, thank you 
for inviting me to testify before you today on competition in the 
subscription video marketplace and the effect our company's pending 
acquisition of the MCI/News Corp. assets will have on competition in 
that market. EchoStar is a Direct Broadcast Satellite (DBS) Company 
that began service in March of 1996. Currently we have 2 million 
subscribers nationwide. Our company led the way to bring down the price 
of a DBS dish to under $200, making it relatively more affordable for 
consumers nationwide. We have taken numerous other measures to make our 
product competitive with cable.
    EchoStar's acquisition of the MCI/News Corp. assets, if approved by 
the Federal Communications Commission (FCC), will make DBS more 
competitive with cable EchoStar seeks authorization to use the 
100}+ W.L. orbital location full-``CONUS'' (Continental 
United States) slot, two satellites to be launched in 1999, and an 
uplink center located in Gilbert, Arizona which will act as backup to 
our existing uplink facility in Cheyenne, Wyoming. For the MCI/News 
Corp. assets, EchoStar will give the two companies non-controlling 
equity stakes.
    The Department of Justice has already provided ``early 
termination'' of the EchoStar/News Corp. deal and has urged the FCC to 
give prompt approval of the deal in order to promote competition in the 
video marketplace. The FCC in its 5th Annual Report on video 
competition, found that there is still not enough competition to cable 
and that cable prices have soared by 7.3 percent compared with an 
inflation rate of only 1.7 percent.
    The additional spectrum, combined with EchoStar's existing full-
CONUS and half-CONUS spectrum, will alleviate the capacity handicap 
that currently hampers DBS and will enable us to compete vigorously 
against cable on a more equal footing. Among other things, consumers 
cite the lack of local signals on DBS packages as the number one reason 
why they choose to stick with cable or not pick DBS. The additional 
spectrum will allow us to offer more local programming in more areas of 
the country.
    While essentially moving forward, we believe that transaction alone 
is not enough to promote competition to cable. Congressional action is 
key to true competition. We must have reform of the Satellite Home 
Viewer Act, giving us an unequivocal and full-fledged copyright license 
to retransmit local signals back into the station's local market. We 
will also need provisions in the law that directs local television 
stations to give us their entrance consent, to the extent needed, on 
fair and equitable terms. And finally, we must have more rigorous 
enforcement by the FCC of the Program Access laws designed to prevent 
vertically integrated cable companies from discriminating against DBS 
and other MVPD providers.
    We look forward to working with you, your staff, the members of the 
full Committee and with the Senate Commerce Committee on the 
legislation introduced by Senator Hatch (S. 247) that would reform the 
Satellite Home Viewer Act. Both proposed bills relieve some of the 
unfair restrictions on DBS.
                               __________
    Mr Chairman. and distinguished members of this Committee, thank you 
for providing me the opportunity to testify before you today on 
competition in the subscription video marketplace and the effect we 
hope our company's pending acquisition of the MCI/News Corp. assets 
will have on competition in that market. We would also like to take the 
opportunity to talk briefly about S. 247, co-sponsored by some of the 
members of this Committee and introduced last week by Senator Hatch. 
Passage of that legislation, combined with Commerce Committee 
legislation, is critical to the success of DBS as a competitor to 
cable.
    My name is Charlie Ergen and I am the founder and Chief Executive 
Officer of EchoStar Communications Corporation, a Direct Broadcast 
Satellite (``DBS'') company based in Littleton, Colorado. I started 
EchoStar in 1980 as a manufacturer and distributor of C-Band satellite 
dishes and grew the company, by the mid-1980's into the largest 
supplier of C-Band dishes worldwide. I realized, however, that my 
vision of a dish in every home, school and business in the United 
States, and true, effective competition to cable, could not be realized 
with large dishes. Consequently, in 1987, EchoStar filed an application 
for a DBS permit with the Federal Communications Commission (the 
``FCC''). EchoStar has launched four DBS satellites since December 1995 
and has invested approximately $2 billion into this technology, working 
to give consumers a choice to cable.
    EchoStar was the first company to drop the price of a dish to below 
$200 when the competition was charging $800 for its product. EchoStar 
was the first to allow subscribers to pay a low monthly fee as they do 
with cable. EchoStar was the first to allow consumers to choose the 10 
channels they watch the most, then pay for those ``a la carte'' without 
having to ``buy through'' programming they did not want, to get 
programming they did want. EchoStar was the first company, this past 
Fall, to say that it guarantees it will not raise prices until the next 
millennium. These are just some of the measures we have taken to 
compete vigorously in the marketplace.

echostar's planned acquisition will make the dbs more competitive with 
                      cable now and in the future

    This past December, EchoStar announced its intentions to acquire 
from MCI/Worldcom and News Corp. an FCC authorization to use the 
100}+ W.L. orbital location (from which a satellite system 
can serve the entire continental United States, or ``full-CONUS''), two 
satellites to be launched in 1999, and an uplink center located in 
Gilbert, Arizona which will act as backup to our existing uplink 
facility in Cheyenne, Wyoming. For the MCI/News Corp. assets, EchoStar 
will give the two companies non-controlling equity stakes.
    The spectrum at the 110 W.L. slot, combined with EchoStar's 
existing full-CONUS spectrum (21 channels at 119 W.L.), and the 
frequencies at our haIf-CONUS locations (11 transponders at 61.5 W.L. 
and 24 transponders at 148 W.L.) will alleviate the capacity handicap 
that currently hampers DBS companies and will enable us to compete 
vigorously against cable on a more equal footing. As I will testify, 
however, while the transaction is necessary to introduce more 
competition in the subscription video marketplace, it is not enough. 
Action by Congress is also necessary in the areas of network signal 
retransmission and program access.
    More specifically, with the new spectrum, we hope our company can 
finally break down what, in the consumer's mind, has been the single 
greatest obstacle to choosing DBS over cable or switching from cable to 
DBS. We plan to offer local-into-local service, on a single dish, to 
between 40 to 50 percent of the U.S. population. Currently, EchoStar 
offers limited local-into-local service in thirteen markets. The local 
service we offer, even if we could make it available to all 
subscribers, is not perfect. It is a tough sell because it requires 
customers to put a second dish on their roof. With the new orbital 
location, consumers in the 20 major or metropolitan centers would 
receive local programming on one dish while consumers in many smaller 
markets (now unserved with local signals) will be offered a two-dish 
solution.
    Of course, our ability to provide full-fledged local-into-local 
service is now inhibited not only by our spectrum limitations, but also 
by regulatory factors--the Satellite Home Viewer Act as it is 
interpreted by some parties. The need for reform of that legislation is 
still acute.
    With the new spectrum, we will also offer access to the Internet 
and other data services. The rollout of cable modems and the cable 
companies' success with this service demonstrates to us that 
convergence is here. If a company is to be a full service provider, it 
is no longer enough to offer only video service. The subscriber expects 
more. The AT&T/TCI merger is a perfect example. AT&T's aim is to be a 
one stop solution for the customer--providing television, telephony and 
data services to the home. While the new spectrum does not allow 
interactivity, and thus we would still be disadvantaged compared to the 
mammoth cable companies, the additional capacity will greatly enhance 
our ability to provide Internet access and data broadband services.
    With the additional spectrum, we will also offer High Definition 
Television (``HDTV'') and believe the broader availability of HDTV from 
satellite will mean a speedier rollout of HDTV service nationwide. The 
spectrum given to broadcasters for HDTV is a valuable resource and the 
quick return of the analog spectrum is a worthy public policy goal 
Congress has set for the nation. DBS is the perfect medium for HDTV. 
Our boxes are already digital thus eliminating the need for the 
consumer to buy or lease a costly digital converter box.

antitrust authorities recognize that this deal would create competition

    On December 17th, just over two weeks after filing the Hart-Scott-
Rodino pre-merger notification, the Department of Justice (``DOJ'') 
provided ``early termination'' of its review of the EchoStar/MCI/News 
Corp. deal, and the license transfer application is now under review 
only by the FCC. Just two weeks ago, in comments filed by the 
Department of Justice Antitrust Division, the DOJ urged prompt approval 
of the deal, saying that approval of our request ``promises to 
facilitate new and potentially significant competition between DBS and 
cable providers, thereby benefiting consumers of MVPD services.''
    The DOJ comments also stated:

   The relevant market for our service is the MVPD market. DOJ 
        has found extensive evidence of customers switching from cable 
        to DBS, contrasted to the early days of DBS, when subscribers 
        most often came from uncabled areas.

   Approval of the EchoStar/News Corp. deal would eliminate 
        capacity restraints that limit EchoStar's ability to compete 
        with cable because our company would be able to offer more 
        programming in the form of local news, weather and popular 
        network programming.

   DOJ emphatically pointed out that EchoStar should not be 
        required to divest of its holdings at 119}+ W.L. 
        because market conditions have changed since the FCC enacted a 
        one time only rule at the time MCI and News Corp. bought the 
        110  deg. W.L. spectrum at auction four years ago.

   DOJ found that EchoStar, which serves 2 million customers, 
        representing a miniscule 2.5 percent of the MVPD market, lacks 
        market power in the market.

    We have requested that the approval process be put on a fast track 
and we are optimistic that the FCC will approve our license transfer 
deal quickly, consistent with DOJ's recommendations. With quick 
approval we can secure an early launch window and put our plan into 
action by the middle of the year. With quick approval we can begin to 
provide the kind of competition the consumer is hungry for. It is 
important to remember, however, that this transaction will not be a 
panacea for all the competitive problems of the subscription video 
market.

          currently there is no effective competition to cable

    In its Fifth Annual Report to Congress, the Federal Communications 
Commission reconfirmed that, despite the efforts of competitors such as 
DBS, cable operators continue to possess bottleneck monopoly power in 
the distribution of multichannel video programming.\1\ Among the 
Commission's findings were the following:
---------------------------------------------------------------------------
    \1\ In the Matter of Assessment of the Status of Competition in 
Markets for the Delivery of Video Programming, in CS Docket No. 98-102 
(rel. Dec. 17, 1998) (``Annual Report'').

   Cable prices soared by 7.3 percent between June 1997 and 
        June 1998. This compares with an inflation rate of only 1.7 
---------------------------------------------------------------------------
        percent.

   85 percent of Multichannel video subscribers continued to 
        grow, reaching 65.4 million.

   The number of cable subscribers receive service from their 
        local franchised cable operator.

   97.1 percent of homes are passed by cable.

   Cable penetration in passed homes grew to 68.2 percent.

   A trend towards regional clustering of cable television 
        operations continued during the course of last year.

   Cable industry ownership remains concentrated at the 
        national level.

   Despite marginal decline in vertical integration in terms of 
        a percentage of cable-affiliated national satellite delivered 
        services, cable MSO's in 1998 owned 50 percent or more of 78 
        networks and had minority stakes in many others.

                    echostar's local into local plan

    I will now give a more detailed account of our local-into-local 
plans. Independent studies and our experience as a company match the 
conclusions of the FCC: 8 of 10 people who walk into a satellite 
dealer's showroom don't buy anything because they cannot get a product 
they really want.\2\ They can't get their local stations. Surveys show 
seventy percent of the time watching television is spent watching local 
TV.
---------------------------------------------------------------------------
    \2\ See In the Matter of Assessment of the Status of Competition in 
the Markets for the Delivery of Video Programming, in CS Docket No. 97-
141 (rel. Jan. 13, 1998) (``Annual Report'') at para. 58 n. 201.
---------------------------------------------------------------------------
    In 1998, EchoStar began offering satellite-delivered local network 
stations to qualified consumers in the Washington, D.C., New York, 
Atlanta, Dallas, Boston and Chicago, Los Angeles, San Francisco, 
Phoenix, Salt Lake City, Denver, Miami, and Pittsburgh markets. With 
the additional spectrum and the two new satellites to be launched in 
1999, we will expand to Sacramento, Portland, Seattle, Las Vegas, St. 
Louis, Minneapolis, and San Diego, as well as offer service to Alaska 
and Hawaii. In each of these markets we offer the four network 
stations, and in some cities a couple of independents as well. While we 
would love to offer even more local signals, we strongly believe our 
plan will serve the public interest by offering for the first time to 
many consumers in those markets a true choice between our service and 
cable. At the same time, while the additional spectrum we propose to 
acquire will allow us to serve many more markets, this would not be 
possible if DBS distributors were to become subject to unreasonable, 
and probably unconstitutional, must-carry obligations.
    How many markets we are able to serve will ultimately depend on how 
and when must-carry rules are implemented. We believe must-carry if 
imposed at all should be pegged to penetration test in each market. 
Must-carry should not apply to a satellite provider until it gains a 
larger share of the MVPD market.
    Of course, we wish we had the capacity to serve all markets and 
carry all local stations in each market. As a business, we would never 
want to exclude a programming channel that would gain us yet another 
subscriber. But even with the additional spectrum, we will not have the 
space. On the other hand, we believe that the service we offer will 
give the customer enough of a choice to allow consumers to consider us 
an adequate substitute to cable. The marketplace will determine whether 
we are right but it cannot determine so until the law makes it fully 
possible.

 shva reform is another critical component to creating competition to 
                                 cable

    Assuming we are successful in winning approval at the FCC, there is 
another key component to DBS's ability to become competitive with 
cable. We need you and your colleagues to take legislative action. A 
single dish solution is no good if only a small fraction of viewers are 
qualified to receive the local channels, as would be the case under 
some parties' interpretation of the law. Indeed, EchoStar's ability to 
retransmit local signals to customers is currently subject to several 
limitations. We wholeheartedly endorse the legislation Senator Hatch 
introduced last week that would give DBS a permanent compulsory license 
to retransmit local signals. That legislation would also eliminate a 
blatantly unfair provision of the current law: that consumers must wait 
until 90 days after they have disconnected cable to subscribe to 
network signals.
    I'd like to take this opportunity to thank you, the members of this 
Committee, and the dedicated staff that serves you for all of the hard 
work you have done to move legislation forward last year. The Senate 
Judiciary Committee, working closely with the Senate Commerce 
Committee, made a valiant effort at the end of last session in the face 
of the intense competing interests of a number of different industries 
and factions within those industries. Early passage of legislation is 
more critical than ever for our industry our company.
    We respectfully urge you to work with Senator McCain and others on 
the Commerce committee on the necessary companion legislation that 
would set out the rules for the local into local license.

          fair retransmission consent agreements are essential

    Our hope is that when we unequivocally win the full-fledged right 
to provide local stations to the local market, the stations we seek to 
carry in each of these markets will give us retransmission consent 
agreements to the extent required. We have been seeking those 
agreements with broadcasters nationwide. We believe the broadcaster 
has, to the extent required, the right to control over its signal, but 
our lack of market power as an industry and a company means 
broadcasters have no incentive to give us fair terms. Conversely, the 
cable industry's market power translates into great leverage over 
whether the broadcasters deal with us enthusiastically or not. In 
seeking agreements with the broadcasters, we have had numerous 
executives tell us that they would like to give us agreements, but they 
have declined because they fear angering the cable companies they deal 
with. We urge you in your capacity as antitrust overseers to make sure 
there are provisions, in any legislation and all legislation passed, 
that will make sure that DBS is able to get retransmission agreements 
on terms that are comparable to those enjoyed by cable operators, terms 
that are fair and equitable.

                        distant network signals

    While EchoStar hopes to serve close to half the population with its 
local-into-local service, consumers who cannot get a signal over the 
air from their local broadcast station will continue to rely on distant 
network signals. The FCC is scheduled to release guidelines on who can 
and cannot receive a signal over the air and we look forward to having 
a more clear delineation of who is eligible for distant network signals 
and who is not. We believe it is very important for these guidelines to 
ensure distant service for every consumer that cannot be confidently 
predicted to receive an adequate signal over the air most of the time, 
and for every consumer who cannot receive such a signal at the 
television set with his/her actual equipment as opposed to an 
extravagant antenna system.

                             program access

    Access to programming is the third leg of the stool critical to the 
support of our business. Without access--on fair and consistent terms--
to the popular channels that are controlled, produced or otherwise 
heavily influenced by cable EchoStar will not have a chance to be 
price-competitive with cable. Unfortunately, problems with the conduct 
of cable-affiliated vendors show no sign of abating, and the 
Commission's enforcement of the program access rules may in fact have 
become even weaker than it was.
    In the six months since I last testified before Congress, and 
shortly after EchoStar and MCI/News Corp. announced this deal, 
Speedvision, a cable-affiliated programmer, withdrew its two 
programming channels from the DISH network and caused the screens of 
23,000 EchoStar subscribers to go dark. Speedvision based its 
withdrawal on the pretext that EchoStar breached its contract with 
Speedvision. EchoStar has sued Speedvision before the Commission, 
requesting access to programming.
    In October, the FCC's Cable Services Bureau ruled, in a proceeding 
brought by another DBS company, that the cable operator, Comcast was 
not subject to the Congressional prohibition on refusal to deal, 
following its decision to switch to Congressional prohibition on 
refusals to deal, following its decision to switch to terrestrial 
transmission of Comcast's valuable Philadelphia sports programming. The 
Commission made a perfunctory determination, without much of the 
necessary evidence, that Comcast's decision to withhold its 
programming, which had been described by Comcast itself as a 
``purposeful decision related to competition,'' was a legitimate 
business decision, not subject to the program access law. Furthermore, 
more than one year after EchoStar had filed a discrimination complaint 
against Fox Sports, the Commission dismissed the complaint on the 
ground that it was ``time-barred.'' The Bureau's decision chose to 
narrow the Commission's rule on the one year statute of limitations and 
made it more difficult for competitors to sue on discrimination, 
particularly when they cannot know the terms enjoyed by cable 
operators.
    We hope the Antitrust Subcommittee and staff will continue to keep 
a watchful eye on program access violations as DBS continues to grow.

                                summary

    DBS as an industry has to be able to say to potential subscribers 
``pull out the cable because we can give you what they can give you.''
    We urge you and your colleagues in the house to tell the FCC it 
must act quickly on the EchoStar/MCI license transfer so competition to 
cable be enhanced this year. We think you should let the consumer 
decide whether our local into local service--limited though it is--is a 
product that makes DBS an adequate substitute to cable. Where local 
signals are not available, customers who cannot get their local 
channels off air must continue to receive distant network signals. And 
finally, please encourage the FCC to enforce the program access laws so 
that the lifeblood of competition, programming, can be offered to 
consumers at a price that is comparable to cable.
    Thank you again for all of your hard work, and that of your staff, 
and for affording me the opportunity to testify before you today.

    Senator DeWine. Mr. Anstrom, good morning.

    STATEMENT OF DECKER ANSTROM, PRESIDENT, NATIONAL CABLE 
             TELEVISION ASSOCIATION, WASHINGTON, DC

    Mr. Anstrom. Thank you, Mr. Chairman and Senator Kohl. This 
morning, I would like to emphasize three points. First, the 
video marketplace is increasingly competitive. Second, we do 
not object to EchoStar's acquisition of MCI's DBS assets. And 
third, as we have said consistently, we do not oppose so-called 
local-to-local legislation that would allow DBS companies to 
retransmit local broadcast signals and we can agree to a 
phased-in ``must carry'' rule in such legislation if there is a 
date certain when full ``must carry'' obligations would take 
effect. These points are discussed in our formal written 
testimony.
    At this point, I would like to focus for a minute on the 
increasingly competitive nature of the video marketplace. 
Today, more than 12.5 million consumers purchase multichannel 
video programming from one of cable's competitors. The FCC 
reported just a few weeks ago these competitors added nearly 
two million customers between June 1997 and June 1998.
    DBS, in particular, has rapidly become a competitive 
substitute for cable. Last year, DBS companies captured two out 
of every three--that is two out of every three--new 
multichannel video customers, and earlier this month, DirecTV 
and EchoStar predicted they will gain another two million or 
more new customers this year, 1999.
    This growth, of course, is easily explained. DBS companies 
offer many channels. Dish prices have plummeted in 5 years, 
from around $700 to as low as zero today in terms of some of 
EchoStar's offerings. DBS offers all the most popular cable 
networks as well as sports programming, like the NFL game 
package, that is not available to cable operators. DBS is 
widely marketed. In many areas, it is now marketed and 
installed by local phone companies, and DBS prices for 
programming are generally comparable with local cable 
operators.
    All of this led the Department of Justice last year to 
reach this conclusion about cable and DBS's relative 
multichannel video programming offerings.

    While the programming services are delivered via different 
technologies, consumers view the services as similar, and to a 
large degree, substitutable.

    Now, EchoStar's agreement to purchase MCI's assets, along 
with DirecTV's acquisition of USSB and PrimeStar, will only 
strengthen DBS companies' competitive position.
    As I indicated, we do not object to EchoStar's plans, and, 
of course, EchoStar already has more than two million customers 
and recently struck a major new alliance with Microsoft. 
EchoStar's MCI deal will increase its channel capacity 
dramatically and make EchoStar even more competitive with cable 
companies, as the Department of Justice just recently 
concluded. Interestingly, Justice was quite clear that this 
enhanced local competition will occur even if EchoStar does not 
begin to retransmit local broadcast signals right away.
    But I want to emphasize again, Mr. Chairman and Senator 
Kohl, we agree with the kind of procompetitive local-to-local 
satellite legislation the Judiciary and Commerce Committees are 
beginning to consider that would stimulate even more 
competition in the video marketplace. That is the right 
approach that will best serve consumers.
    Cable companies are already responding to this increased 
competition by increasing channel capacity, by upgrading 
technology, and by improving customer service. As the 
Department of Justice again observed just last month,

    In short, the views and actions of consumers, statements 
and strategic actions by cable firms, and the views of other 
industry participants convincingly demonstrated that DBS and 
cable compete against each other in local markets throughout 
the country.

    Now, in addition to DBS, as you all know, telephone 
companies, utilities, and others are also entering the video 
marketplace with no legislative or regulatory barriers to slow 
their development. And, of course, fully 25 percent or more of 
American homes rely on free over-the-air television and do not 
subscribe to any multichannel service.
    My fundamental point is this morning, there is no monopoly. 
This is a vibrant, increasingly competitive marketplace. We are 
prepared to compete in this marketplace. We ask for no special 
advantages. We will, however, strongly oppose new intrusive 
government regulatory micromanagement that will surely stifle 
investment and slow innovation.
    So in conclusion, I want to reaffirm what I believe we have 
demonstrated for the past several years, that we in cable are 
prepared to work constructively with you and other Members in 
Congress on procompetitive measures that will encourage 
companies to compete in the marketplace for consumers' loyalty. 
Thank you very much.
    Senator DeWine. Mr. Anstrom, thank you very much.
    [The prepared statement of Mr. Anstrom follows:]
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    Senator DeWine. Mr. Kimmelman, welcome back.

 STATEMENT OF GENE KIMMELMAN, CO-DIRECTOR, WASHINGTON OFFICE, 
                CONSUMERS UNION, WASHINGTON, DC

    Mr. Kimmelman. Thank you. Thank you, Mr. Chairman. I want 
to thank you and Senator Kohl, Chairman Hatch, and Senators 
Leahy and McCain for moving forward on legislation to reform 
the Satellite Home Viewer Act to begin to put satellite on 
equal footing with the cable industry in the law, and I 
appreciate your efforts to work together with the Commerce 
Committee. This is a very important piece of legislation and it 
needs speedy consideration.
    Just listening to Decker, I think we have run out of things 
to agree on real fast here with your introduction, Senator 
Kohl. [Laughter.]
    As you well know, I do not have my tricks here today on 
consolidation, but from my many appearances here, it is very 
unlikely for you to see the consumer movement come before you 
and say it is a good idea to concentrate a market. It may 
surprise you to see our points of view on concentrating 
ownership in the satellite industry involving the EchoStar 
transaction with MCI and News Corp's assets and the DirecTV 
transaction pending with PrimeStar, but there is a very simple 
reason for that. We have no choice.
    This is a result of numerous policy making mistakes, I 
believe, by the Congress and regulators in how the cable 
industry has been dealt with over the years, starting with the 
mistake of not making cable the equivalent of a telephone 
common carrier, subject to the same rules of separating content 
from transmission, which will soon come back to haunt us again 
in the online services area, so stay tuned, and the failed 
effort to deregulate cables rates in a monopolistic situation, 
first in 1984 when rates shot up, and again through the 1996 
Act when we have seen rates shoot up again. Rates are up 21 
percent since passage of that Act.
    I guess, based on Decker's comments, we do not need to be 
here today, but given that where there is another wire 
competing with a cable company, on average, the FCC finds that 
consumers are paying about 10 percent less, it is sort of hard 
to understand these 21 percent rate increases as reflecting a 
truly competitive market. I would suggest they do not.
    So with these policy mistakes, we are left with little 
choice other than to say that the potential dangers of 
concentrating through consolidation ownership of satellite 
assets is substantially less than the potential benefit of 
bringing competition to an adjacent market, the cable market, 
if the satellite companies will truly compete on price and if 
Congress will move swiftly to pass your legislation and 
companion legislation that begins to create common rules, or 
more similar rules under copyright law and similar 
communications laws for cable companies and satellite and other 
potential challengers.
    But I do not believe that is enough, Mr. Chairman. I think 
we have a problem here that will not go away overnight. Mr. 
Ergen has made tremendous efforts to try to reduce the price 
gap between the cost of buying a dish, installing a dish, 
having a second antenna for local signals. Now, hopefully, at 
least in some communities, through this transaction, it could 
be integrated through one dish. But it does not compare in 
price to the average cable installation for the first set and 
the second set that most consumers want and need.
    It is attractive to consumers at the higher end of the 
market who want a lot of channels, who want specialized 
programming like sports and movies. That is where it has been 
most successful. It has not been successful at constraining 
cable on price for the most popular programming services. It is 
not a direct substitute--I just turn you to marketplace 
statistics--and we want it to be.
    Therefore, I urge you to move quickly with your legislation 
to speedily combine efforts with the Commerce Committee to make 
sure satellite has every opportunity to move forward, and in 
conjunction with these transactions, I think we need more. We 
need to exert pressure on the satellite industry to offer 
consumers a price competitive package with cable, to look at 
the installation costs, the dish costs, combine it together, 
take a little more risk--they do a lot already--and provide an 
upfront price that is price competitive with cable and a 
package of programming that is price competitive, and I think 
if they do that and you see them offering what other wire line 
carriers have offered, consumers could get the 10 percent price 
cut that they have seen from other forms of competition. Thank 
you.
    [The prepared statement of Mr. Kimmelman follows:]

                  Prepared Statement of Gene Kimmelman

    Consumers Union \1\ believes that the need to promote more 
competition in the cable industry could not be more obvious. Cable 
rates have risen about 21 percent since passage of the 1996 
Telecommunications Act \2\ and continue to climb three to four times 
faster than the rate of inflation (see Attachment A). Even the chairman 
of the Federal Communications Commission (FCC) admits that rates are 
going up excessively under his agency's ``liberal''--in other words, 
meaningless--regulatory structure (see Attachment B). As a 
Congressionally mandated prohibition on regulating the most popular 
cable channels approaches (March 31, 1999),\3\ now is the time to act. 
As the following massage we received from a cable consumer indicates, 
people are ticked off:
---------------------------------------------------------------------------
    \1\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under laws of the State of New York to provide 
consumers with information, education and counsel about good, 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 noncommercial 
contributions, grants and fees. In addition to reports on consumers 
Union's own product testing, Consumer Reports with approximately 4.5 
million paid circulation, regularly, carries articles on health, 
product safety, marketplace economics and legislative, judicial and 
regulatory actions which affect consumer welfare. Consumers Union's 
publications carry no advertising and receive no commercial support.
    \2\ Public Law 104-104, 110 Stat. 56 (1996).
    \3\ 47 U.S.C. Sec. 543 (c)(4), Public Law 104-104 Section 301.

          What I find truly amazing about the cable industry,'' says 
        Joseph Verduci of Oakland, California, ``is that there is no 
        real competition. Satellite TV is still priced out of the reach 
        of most consumers, and the choice of cable providers is limited 
        to the town's decision board that they should be the sole cable 
---------------------------------------------------------------------------
        providers for that town.''

    So far, despite rapid growth at the high end of the market, 
satellite television has failed to offer true price competition to 
cable. With up-front costs (for the satellite dish and related 
installation charges) running three to five times the cost of 
installing cable, and lacking carriage of local broadcast channels, 
satellite TV has been unable to discipline pricing for the most popular 
cable services.
    In contrast, FCC data show that where cable faces head-to-head 
competition from another transmission ``wire,'' cable rates are about 
10 percent lower than where cable faces only satellite TV 
challenges.\4\
---------------------------------------------------------------------------
    \4\ In the Matter of Annual Assessment of the Status of Competition 
in Markets for the delivery of Video Programming, FIFTH ANNUAL REPORT, 
CS Dkt. No. 98-102, Dec. 23, 1998, at F-4, footnote 18.
---------------------------------------------------------------------------
    The failure of federal policy to ensure reasonable cable rates 
makes it necessary for policymakers to devote greater attention to 
promoting increased competition to the cable industry. Legislation that 
puts cable's potential competitors on the same legal footing as cable 
companies, and appropriate antitrust/regulatory conditioning of 
satellite mergers, could open the door to more choice and lower prices 
in cable TV market.
    Recent deals that combine Echostar Communications Corporation's 
Direct Broadcast Satellite (DBS) business with DBS facilities owned by 
News Corporation and MCI/WorldCom, and DIRECTV's combination with 
United States Satellite Broadcasting and PRIMESTAR, dramatically 
consolidate the satellite industry. However, these deals also could 
offer consumers more choice and lower prices if the consolidated 
satellite companies more aggressively compete against cable.
    We believe it is critical to both enable and require these 
satellite companies to become head-to-head competitors with cable for 
the core TV services that consumers watch the most. This requires:

   Passage of legislation, like Senator Hatch's S. 247, the 
        ``Copyright Compulsory License Improvement Act'' and companion 
        proposals, which begin to give satellite and other potential 
        competitors comparable treatment under our nation's copyright 
        laws;

   Expansion of previous laws designed to hold down cable rates 
        and make popular TV channels available to cable's potential 
        competitors;

   Aggressive regulatory oversight of potential competitor's 
        access to cable-owned programming or programming that cable 
        companies exert monopolistic influenced over; and

   Strong antitrust/regulatory review of satellite mergers to 
        ensure that satellite companies continue to reduce up-front 
        costs and eliminate other market impediments to direct price 
        competition with the cable industry.

    Because of the highly concentrated nature of the cable marketplace, 
policies designed to foster increased competition throughout the market 
require giving potential competitors breathing room as they seek to 
enter the market and expand their businesses. The two largest cable 
companies, Telecommunications Inc. (TCI) and Time Warner, own a 
substantial stake in cable systems serving about one-half of all cable 
customers, and TCI has an ownership stake in 67 national programming 
channels while Time Warner has a stake in 30 national channels.\5\ In 
addition TCI owns about 9 percent of Time Warner. Most importantly, 29 
of the 50 most subscribed-to channels, and nine of the top 15 prime-
time watched channels are substantially owned by the largest cable 
companies.\6\
---------------------------------------------------------------------------
    \5\ FIFTH ANNUAL REPORT, op cit, at Appendixes C and D.
    \6\ Id.
---------------------------------------------------------------------------
    Beginning with S. 247 and other pro-competitive measures, Congress 
can ensure that satellite and other potential cable competitors have an 
opportunity to challenge cable's dominance and gain a large enough 
market presence to offer a mass-market alternative to cable.
    Unfortunately, experience under the 1996 Telecom Act and its 
predecessor, the 1992 Cable Act \7\ demonstrates that market entry does 
not always translate into mass-market competition. The satellite TV 
industry has been enormously successful by focusing on high-end 
consumers who are willing (and able) to pay hundreds of dollars for a 
dish, want hundreds of channels, desire specialized programming (e.g., 
sports, movies) and are interested in higher quality (digital) signals. 
While recent satellite industry efforts to reduce up-front cast to 
consumers are promising, they are not likely to promote rapid price 
competition with cable.
---------------------------------------------------------------------------
    \7\ Public Law 102-385, 106 Stat. 1460 (1992).
---------------------------------------------------------------------------
    Consumers Union therefore believes that, as policymakers open the 
cable market to more competition from satellite TV providers, the 
satellite companies must be responsive to the public's demand for 
competition to the most popular cable offerings. Efforts to promote 
price competition by reducing up-front costs and adding local broadcast 
signals to popular cable programming packages must be encouraged, to 
jump-start mass market rivalry with cable. Only when satellite TV 
offers the vast majority of cable subscribers an alternative that meets 
their needs will cable companies be forced to bring down prices.
    Immediate, forceful public policy measures designed to promote 
mass-market competition to the cable industry and block cable's 
monopolistic practices can offer consumers relief from spiraling cable 
rates. It is time for Congress, antitrust and regulatory bodies to 
ensure that potential competitors like satellite TV companies have a 
fair chance to compete on price with the cable television industry.
[GRAPHIC] [TIFF OMITTED] T7581.018

[GRAPHIC] [TIFF OMITTED] T7581.019

    Senator DeWine. Let me start with Mr. Anstrom. Mr. Anstrom, 
do you want to respond to Mr. Kimmelman's comments, 
particularly in the area of competition? We see continued 
increase. Mr. Ergen is getting a bigger percent of the market, 
or at least his subscribers are significantly going up, and yet 
cable rates are not going down. Do you want to respond to that?
    Mr. Anstrom. Yes, Mr. Chairman. I mean, I think that what 
we see going on in the cable marketplace is what we see in 
other markets from time to time, which is that we are steadily 
increasing the quality of our product, frankly, to compete with 
what Mr. Ergen and DirecTV offer.
    Currently, if one looks at the offerings of the direct 
broadcast satellite companies offering 100 or more channels, 
the average cable system has 61 channels. They have digital 
technology, good pictures. It is a very competitive product.
    And what we have been doing since the 1996 Act is investing 
more than $20 billion in our infrastructure to upgrade, offer 
more channels, more reliability, better picture quality. We 
have been making substantial investments in programming. We 
have been making substantial investments in better people and 
better customer service. All that costs money, and those costs 
are reflected in our prices.
    The important thing, I think, as the FCC observed in its 
competition report just a few weeks ago, is that those 
investments are reflecting higher value for our customers. How 
do we know that? First of all, there has been a major 
transition going on in terms of how people vote with their 
eyeballs every day. People are now voting for cable networks 
and cable programming over broadcast programming. That is a 
direct reflection of the substantial investments that we are 
making in that program. And people, notwithstanding the 
competition we have from Mr. Ergen and others, are also 
continuing to subscribe to cable companies. So we think they 
are voting with their dollars and their eyeballs for the 
investments we are making.
    One other point, if I might, Mr. Chairman. If one looks at 
the range of competitive offerings that are out there, whether 
from an Ameritech or a GTE or an EchoStar or a DirecTV, you 
will find that our prices are very much in the midrange of 
those offerings, and as much as Mr. Kimmelman maybe does not 
want to acknowledge it, the fact is that it may just be that 
the price that we are charging is a very competitive price. We 
really have not known until these competitors have emerged, but 
the facts are that our prices are very competitive and 
comparable to all of our competitors out there in the 
marketplace and we think offering higher value over the last 
several years.
    Senator DeWine. Mr. Ergen, do you want to respond to Mr. 
Kimmelman's comments that, at least so far, you have not been 
able to compete at the lower end of the spectrum or at the 
lower end of the cost, in other words, basically so that you 
all are providing a service at the higher end, if I have higher 
income and I want many, many choices. What about at the other 
end?
    Maybe you could take me through an example and tell me, if 
I want some of your services but I want them on the lower end, 
I do not want to spend a lot of money, what is out there? What 
can you give me today? Let us start with today, what you can 
give me, and then you can project that into the future if this 
bill passes and other things happen.
    Mr. Ergen. Well, Mr. Kimmelman is partly right. I think 
that DBS subscribers tend to be a little higher-income, tend to 
average a little older, but the reason that we have not gotten 
more on the low end, on the middle-income and lower-income 
individuals, again, in my opinion, has been our inability to 
offer local network broadcast signals. It has not been that we 
do not have a compelling offering.
    For example, we do offer a system, the top 40 channels, the 
top 40 cable channels for $19 a month. That would compare very 
favorably with the average cable bill. Maybe this is wrong, but 
it is probably $28, $29, $30, so it is considerably lower.
    Senator DeWine. How does that work? I get my choice of 40, 
or how does that work? Would you give me a package?
    Mr. Ergen. No, we would give you--in that particular 
package, it is the top 40 rated cable channels. The problem is, 
we do not have ABC, NBC, CBS, and FOX and you typically would 
watch that two-thirds of the time or 60 percent of the time. So 
if we do not give you what you are watching two-thirds of the 
time, no matter what our price is on the low end, we are not 
competitive. It does not make sense to charge you $20 for 
channels that you watch 30 percent of the time and not offer 
you--and cable is able to offer the network signal.
    So with this legislation that we are all talking about from 
the committees, from Senator McCain and Senator Hatch's 
committee that you guys have supported, we will be able to 
offer those local broadcast stations in the majority of the 
country on a single dish. That will allow us, then, to compete, 
and then we do not have a problem with the cable industry from 
a regulation point of view as far as we are concerned, because 
if we can compete on a level playing field, the marketplace 
will determine the winners and losers. We may be a winner or we 
may be a loser, but at least the marketplace will decide it and 
not some antiquated laws, legislation that never anticipated 
that a satellite could actually deliver broadcast signals.
    Senator DeWine. Explain to me how the ``must carry'' 
requirement is going to work. I know this legislation is a work 
in progress, but you know what has been introduced. We have a 
phase-in. How is that going to impact, let us say, the consumer 
in Cedarville Township, Greene County, OH, where I live? 
Basically most of the township is a rural area where we cannot 
get cable. You are the option, and today, of course, many 
people are not, as you point out, getting your services, or 
comparable service, because we cannot get the Dayton TV market. 
We are in the Dayton TV market. Where I live, I am 20 miles 
from Dayton, and I am probably 50 miles from Columbus and 
probably 60 miles from Cincinnati. How is that going to impact 
me, people who live in that township?
    Mr. Ergen. Well, the ``must carry'' is where I think the 
Congress has to balance the very problem that you just 
mentioned for a rural constituent versus the rights of a local 
broadcaster. If we had ``must carry'' today for satellite, for 
example, we would be able to carry about five cities on 
satellite from an economic point of view.
    Senator DeWine. Five cities nationwide?
    Mr. Ergen. Nationwide. Today, without ``must carry'', we 
can do about 20 cities with the current capacity that we have. 
So we can----
    Senator DeWine. Wait a minute. Say that again.
    Mr. Ergen. Without ``must carry'', under the current law, 
we could do about 20 cities with the current capacity that 
EchoStar has for satellite. If we had ``must carry'', we would 
only be able to do five or six cities. So you have to balance 
our ability to go to more of the population. It makes no sense 
to us today to carry multiple home shopping channels, multiple 
religious stations that we carry on a national basis but do not 
have local content, do not have local sports, do not have local 
news and weather just to satisfy the needs of the local 
broadcasters.
    Having said that, obviously, a local broadcaster has an 
investment in the community. They certainly have long, hard-
fought battles with cable, where cable opposed the ``must 
carry'' and certainly opposes digital ``must carry''. So you 
balance it out, and I think the compromise that we can live 
with is a phased-in approach that would be 3 years from the 
date of enaction so that we can build a new technology, so-
called spot beam satellite, where we can actually reuse 
frequencies and we can then put spot beams down on every city, 
and in doing so, then with technology, and it takes about 3 
years to build this technology, we can actually go out and 
cover the vast majority of the country with ``must carry'' and 
satisfy most people and give them true competition.
    Senator DeWine. So again, as a practical matter, if I am in 
Toledo, OH, let us say, and I am in a rural area and I want to 
get your service, or if I am not in a rural area and I want to 
get your service, wherever I am, are you telling me that in 3 
years, you are going to be able to deliver to me in Toledo, OH, 
my local Toledo stations?
    Mr. Ergen. We think that technology exists. We might be 
able to start as soon as this legislation is enacted with 
Cleveland, obviously a major city, one of the top 20 cities. We 
could start with Cleveland.
    Senator DeWine. Right.
    Mr. Ergen. But we could not get to Toledo. Toledo might be 
the 50th or 60th or 70th biggest city. We will not have the 
capacity to do it until we can build a spot beam satellite.
    Senator DeWine. OK; but what is your best guess about the 
time to do that? I mean, you are the expert. How long do you 
think that that is going to take, assuming the bill passes, 
assuming that you progress on your technology, just 3 years? I 
mean, in 3 years, you will be able to do it?
    Mr. Ergen. In my opinion, in my best guess, it will take 3 
years to build and launch a so-called spot beam satellite, and 
our company is looking into that. There is another company 
called Capital Broadcasting, which you may be aware also has a 
business plan with the support of many of the broadcasters to 
do a very similar thing----
    Senator DeWine. This is a separate satellite?
    Mr. Ergen. A separate satellite, and Capital Broadcasting 
would launch a satellite not only for EchoStar but for also 
DirecTV, so the entire satellite industry could use their 
satellite for the so-called spot beam. So that is a technology 
cure. It is one of those things where it is not a linear 
progression, where you can just add more channels. It happens 
overnight, where you can perhaps do 20 cities without a ``must 
carry'' with the capacity we have today and then when the spot 
beam satellite is launched, you suddenly can leap-frog to maybe 
60 or 70 cities.
    Senator DeWine. So in Ohio, for example, you are saying the 
first phase of this, without the satellite, you might not have 
any city. You might have Cleveland.
    Mr. Ergen. In Ohio, in my opinion, Cleveland would qualify 
as one of the top 20 cities, but Columbus or Cincinnati would 
not make it.
    Senator DeWine. The rest of them would not, so we are 
looking at 3 years, probably, until we have that option.
    Mr. Ergen. That is correct. I think that our numbers are 
that with the top 20 cities, we can do about 50 percent of the 
country, so about 50 percent of the homes----
    Senator DeWine. Population.
    Mr. Ergen [continuing]. The population homes, we could get 
immediate competition to cable on a fair and equitable basis. 
It would take another 3 years to go out and do the rest of the 
country.
    Senator DeWine. What are your marketing studies, if you are 
willing to share them with us, or your best estimate as far as 
what will happen once you can actually go in and offer that 
local station to me as a consumer? I mean, it seems to me, just 
as a consumer, that it would make a phenomenal difference. I 
just know a lot of people who say, yes, if I could--they do not 
go into all the technology, and they do not know what the laws 
are, but they say, I do not want to purchase this technology 
because I cannot get my local station, and I have got to switch 
back and forth. I have got to have an aerial, or I have got to 
have something. I do not want to fool with it, so I just won't 
buy it. It seems to me it is going to make a phenomenal 
difference once you are able to compete on that basis with that 
local as part of your total package.
    Mr. Ergen. I have not personally done a marketing study, 
but we have certainly seen the marketing studies which show 8 
out of 10 people who look at a satellite dish do not buy it 
because it cannot get local. In my 18 years of experience in 
this industry where I have talked to consumers day in and day 
out, whether it be in a taxicab, an airplane, in a restaurant, 
the conversation always, when I say, why do you not own a dish, 
it inevitably starts out with, because you do not give me my 
local signals. There may be other reasons, but that is always 
the number one reason.
    If we can eliminate that as an obstacle, then we have a 
fair shot at providing competition to cable, and I think cable, 
obviously, as Mr. Anstrom has said, is getting better. They 
have cable modems. They will offer new services and true 
competition will take place and I think the prices will come 
down.
    Senator DeWine. Before I turn to Senator Kohl, let me ask 
one last question and it goes back to something that Mr. 
Kimmelman said in his testimony. What is my startup cost today? 
What does it cost if I want your services and I say, look, I 
want to get by as cheaply as I can. Put me in business. What is 
my cost?
    Mr. Ergen. The absolute least expensive system from us 
today is the whole entire system is free. That would assume 
that you would subscribe to our America's top 100 channels and 
two of our premium services, so you would agree to subscribe 
for $48 a month for 1 year. That would be the least up-front 
cost.
    If you decided to subscribe to our lowest package, which is 
$15 a month, you pick any ten channels for $15----
    Senator DeWine. Fifteen?
    Mr. Ergen [continuing]. That system starts at $149.
    Senator DeWine. So I can walk in, give you $149, buy it for 
$15 a month.
    Mr. Ergen. That is right.
    Senator DeWine. That is your cheap end today.
    Mr. Ergen. That is correct. In fact, I take that back. You 
could actually buy--in the 13 cities where we do local today, 
you could actually buy the local service for $4.99 and $149 for 
the complete system. That is only in 13 cities today that that 
is offered.
    Senator DeWine. Now, on your low option, do I choose my 10 
or do you choose the 10?
    Mr. Ergen. No, you choose your 10.
    Senator DeWine. I choose my 10.
    Senator Kohl.
    Senator Kohl. Thank you. A question for all of you. Let us 
say Congress passed the Satellite Home Viewer legislation that 
permits local-to-local broadcasting by satellite companies and 
includes, let us say, a 3-year phase-in of ``must carry.'' Mr. 
Ergen, overall, would that be good for consumers?
    Mr. Ergen. I think absolutely. Again, I do not know what 
consumers will choose, but we are making our bet with $3 
billion of our own money that at least a fair number of those 
consumers will choose the satellite. The picture quality, the 
audio quality, the on-screen interactive guide, and the number 
of channels and choice of those channels and price that we 
charge, they will choose that over their cable company.
    Senator Kohl. Mr. Anstrom, did you say before you support 
it?
    Mr. Anstrom. Senator Kohl, to respond to both of your 
questions, I think there is no doubt that legislation would 
strengthen both EchoStar and DirecTV's competitive position. I 
think that creates the right kind of incentive in the 
marketplace. We can agree with that legislation, yes, sir.
    Senator Kohl. But why would you agree with it? If it 
strengthens your competition and makes your life more 
difficult, why would you agree with it?
    Mr. Anstrom. Senator, we have taken, beginning in 1994, and 
maybe this comes with having learned the lessons of the 1992 
Cable Act in terms of this industry's behavior and posture with 
the Congress, we have taken this lesson to heart, which is that 
we believe that having the Government managing every detail of 
our business has very predictable results that have been 
demonstrated in the marketplace. It will affect investment, 
innovation, our ability to serve our customers. We very much 
would hope that the Government will reduce its role in the 
video marketplace.
    If we are going to come and ask you to keep the government 
out of managing our business, we cannot come to you and say, 
but keep our competitors shackled. We took that position in the 
1996 Act in which we agreed to allow the phone companies on day 
one, no 14-point checklist, no FCC rules, no barriers when 
competing with us. We supported that legislation. We will 
support this legislation. We believe in the marketplace, 
Senator Kohl.
    Senator Kohl. OK; Mr. Kimmelman, do you agree that this 
will help create competition for cable and that robust 
satellite competition would help to discipline cable rates?
    Mr. Kimmelman. Given that cable rates are going up almost 
four times faster than inflation, there is no question about 
the fact this legislation will help. But I want to reflect on 
how much it would help based on what you just heard from my 
colleagues.
    Even if I leave the price issue aside, which I do not think 
is insignificant, and take Mr. Ergen's comments, I think he has 
done tremendous things to push his industry to bring cost down. 
But we are talking about from date of enactment beginning with 
20 cities to see some competition with local broadcast signals 
coming in, and then we are talking about 3 years to launch, 4 
years, maybe 5 years to be not too optimistic, possibly, before 
everyone else in Dayton and surrounding areas get this option. 
That is a generation-plus in technology in this area. That is a 
long time of cable rate increases in the interim that people 
face.
    So it is definitely movement in the right direction, but it 
is not all there. When 80 percent of people in the surveys that 
Charlie mentioned talk about--these are not people who are 
sitting on the couch responding to a survey. These are people 
who went into Radio Shack, Circuit City, whatever, looking for 
a dish and then did not buy it. It may be mostly because of 
local broadcast signals. I suggest it is partly price, and the 
best deal you can get is still $149 compared to a cable 
installation of, I think, on average around $40 now, and then a 
small channel lineup.
    It is tremendous improvement over where satellite was and 
it should be commended for the entrepreneurial zeal to bring 
these prices down, but we have got a ways to go. It is still 
quite a bit more. And when you get to the second hook-up and 
think about how many people have two TV sets now--they do not 
want multichannel video on just one, they want it on two--the 
price differential is even more enormous. We have a way to go.
    One final comment. Mr. Anstrom reminded me that I should 
maybe go back to the syllogism of your former colleague, 
Senator Bumpers, quoting Mencken. If they say it is not money, 
it is money. If they really want competition, that means they 
do not have competition. I mean, the lack of opposition from 
the cable industry to telephone company entry was pretty much 
signed and sealed with court decisions prior to the 1996 Act.
    I think the desire to have regulation out of the way is 
understandable, but the best of all worlds for the cable 
industry is a regulatory environment in which no one is 
controlling their prices and a competitive environment which is 
not price competing against them.
    I suggest that is about where we are today, and so I do not 
think they are very unhappy with it. But I do not think they 
are really expressing a true zeal for head-to-head price 
competition because whatever Decker says about where he thinks 
his prices lie, the FCC data shows that where there are two 
wires there, the prices of his company go down and the 
challenger's are lower, and that is the deal we want for 
consumers.
    Mr. Ergen. By the way, I think that--I mean, I agree with 
Mr. Kimmelman except that we do not need two wires. It is 
obviously OK, and certainly we do not care if people overbuild, 
but the fact of the matter is that if we have two DBS 
providers, that essentially, from a practical point, have a 
wire to every home in the United States today. So we actually 
have three wires to every home in the United States for video, 
one cable wire and we have two DBS providers that have wires to 
those homes, even though we do it in a wireless manner.
    The problem is, our wires do not carry your network signals 
and theirs do and that is the problem. It has been the problem. 
I have 18 years' experience. I would love to find out what 
happens when we can actually do this on the same competitive 
field that cable can. It is my personal opinion and my personal 
money that says we can be competitive and that cable can be 
deregulated under those circumstances.
    Mr. Anstrom. Senator Kohl, I do not want to belabor this 
discussion, but if I could just add a point here, I think, 
again, to underscore the point you made, there is no doubt that 
if you all passed the Satellite Home Viewer Act and authorized 
DBS companies to retransmit local broadcast signals, that DBS 
companies will become more competitive.
    But I think it is very important to step back and recognize 
what is already happening in this marketplace. There have been 
12.5 million customers who have already subscribed to one of 
our competitors. In the last year, more than two million people 
picked DBS. Two of every three new multichannel homes last year 
picked DBS, not cable. Mr. Ergen and Mr. Hartenstein from 
DirecTV predict they will add another two million new customers 
in 1999, presumably whether you pass the local-to-local bill or 
not. The Department of Justice, with all due respect to Mr. 
Kimmelman, has said quite plainly that DBS is a substitutable 
product for cable.
    So this is already a very competitive marketplace. There is 
no monopoly here, and I think that it is very important to 
recognize that this marketplace will become more competitive, 
but it already has all the manifestations of a marketplace in 
which consumers have lots of choices today that they did not 
have 5 years ago.
    Senator Kohl. As you all know, a main reason for enacting 
the Satellite Home Viewer bill is for the local satellite 
companies to do local-to-local broadcasting. Mr. Ergen, 
assuming a version of Satellite Home Viewer passes, in how many 
markets will you be able to provide local-to-local service and 
how soon?
    Mr. Ergen. Well, as soon as the FCC approves our 
transaction of the acquisition of News Corp./MCI assets, then 
we can launch, and we are ready to launch as soon as they 
approve that transaction, and so it takes about 2 months after 
you launch for your satellite to be ready, so about 2 months 
after we launch, and we launch probably a month after the FCC 
approves it, then we are able to offer local-to-local service 
on a single dish in up to 20 markets, assuming we have a 
phased-in ``must carry''. So about half the country, if we 
could get FCC approval in the next 2 months, we could be up and 
operational by the end of this summer. It will take about 3 
more years to, in my opinion, to provide competition to the 
other part from our company's perspective.
    Now, realize DirecTV, another DBS provider out there, is 
also acquiring additional spectrum with their USSB acquisition 
and potentially a PrimeStar acquisition. I cannot speak for 
them. They may also be able to pick up part of the country.
    Senator Kohl. At the very least, should Congress get rid of 
``must carry'' for home shopping networks?
    Mr. Ergen. I will jump on that one. Yes. I think it is 
ridiculous that you would have ``must carry'' to broadcast the 
same signals, 20 home shopping channels, and then take away a 
channel from a very deserving local broadcaster in another 
city. That, to me, seems ridiculous.
    The Home Shopping Channel--I used to own a TV station in 
Denver. I carried the Home Shopping Channel. I carried no local 
commercials. I had no local news. I had no local presence. I 
just carried advertisements, the Home Shopping Channel 24 hours 
a day and they paid me an hourly rate to do that and it was 
very profitable for me. But I already carried the Home Shopping 
Channel on the dish network nationwide. I carried that exact 
same signal to all 20 cities that I would be doing local, so it 
makes no sense.
    Senator Kohl. Just before I turn it back to Senator DeWine, 
did you make a comment or suggest that sometimes these dishes 
are at no cost? Did you say that, Mr. Anstrom?
    Mr. Anstrom. That is correct. We have a plan where you can 
actually, if you sign up for 1 year to our top 100 channels, 
along with two premium channels, we actually provide the 
satellite system for free, and I know that PrimeStar in the 
past has leased the satellite system to you so there was no 
cost up front.
    Mr. Kimmelman. And that means you pay $600.
    Mr. Anstrom. Well, it makes you competitive with cable in 
terms of the $40 installation fee, on average. That is about 
what it costs up front if you are a credit-worthy customer and 
if you are willing to subscribe to a certain amount of 
programming.
    Mr. Kimmelman. Senator Kohl, I am not critical here of 
this. This is an important step forward. But, I mean, look at 
what is happening here. If we really want to get a straight 
choice for people, you are saying you have to dig in--50 
percent of consumers do not have $1,000 in their bank account, 
50 percent, an astounding number. To dig in and find $600 up 
front, even to get a dish for free, is hard.
    Now, we are talking about multibillion dollar transactions 
here, and I am not saying it is Mr. Ergen's responsibility. I 
am just suggesting that as we go through a policy trade-off 
process here of saying we are going to consolidate power in the 
satellite industry, a lot of public policy concerns get traded 
off, ``must carry'' gets phased in, a lot of values get 
compromised.
    Would it not be nice if we could find some set of 
entrepreneurs who would take that risk up front and say, for 
about the price that you pay up front for cable installation, 
we will offer you the dish, the installation, of course 
incumbent upon Congress to make sure local broadcast signals 
are available, spread it out over time so that the price you 
are looking at, this $15 a month or this $20 for 40 channels 
really is head-on the same alternative you can look at for 
cable, that you do not have to go deep into your bank account 
before you ever get to that price. That is what I am looking 
for, and I think that is what would really spur competition for 
quality, choice, and price.
    Senator DeWine. Mr. Ergen, your written testimony mentions 
that program access is one of your concerns. Although this 
hearing is not meant to focus specifically on that particular 
issue, it is interesting that you raise it because some people 
in the cable industry have expressed concern about the 
possibility that FOX will provide certain programming, such as 
sports programming, to EchoStar and not provide it to certain 
cable systems. I know that you have a nonexclusive agreement 
with FOX News Channel now. Do you have any plans to make any 
exclusive arrangements with FOX?
    Mr. Ergen. No, we do not. In fact, we only have one 
exclusive channel on all of our channels, 250 channels. We have 
something called Charlie Chat, where I actually take questions 
from my customers once a week, and that is exclusive, but----
    Senator DeWine. Charlie Chat?
    Mr. Ergen. It is called Charlie Chat. We let our customers 
call in and ask any questions.
    Senator DeWine. Is that a lot of fun?
    Mr. Ergen. That is a lot of fun. [Laughter.]
    That is one reason we know local legislation, and I am sure 
you have heard from some of our customers from time to time in 
terms of phone calls or letters because they let--we are not 
real sophisticated as a company. We do not have a lot of time 
and money to spend on very sophisticated market studies, but we 
do talk to our customers, listen to our customers, read our 
mail, and they tell us what they want, and they love satellite 
television, they love the quality, and they just want their 
local channels.
    Senator DeWine. Mr. Anstrom, Mr. Ergen and others are 
concerned that cable companies may use their market position to 
negotiate exclusive deals with networks so that companies such 
as EchoStar are prevented from retransmitting broadcast 
signals. First, let me just ask you, do you think that is a 
reasonable concern, and second, does the cable industry as a 
whole have any position on exclusive contracts with broadcast 
stations?
    Mr. Anstrom. Let me say that I read Mr. Ergen's testimony 
and I was a little puzzled by his statement. First of all, I 
cannot look into the future that clear, but we have FCC rules 
currently in place that specifically prohibit a broadcaster 
from having an exclusive retransmission consent agreement.
    Second, I think, as this subcommittee knows, the experience 
certainly that other competitors with the cable industry have 
had, for example, Ameritech or other companies, certainly they 
have had no trouble in getting arrangements with broadcasters 
to retransmit their carriage. So I would assume that once the 
DBS industry is lawfully allowed to retransmit local broadcast 
signals, that broadcasters would want their signals to be 
available to as many homes as possible. That, after all, is how 
the broadcaster maximizes their advertising revenue. But as a 
specific policy question, the FCC rules prohibit exclusive 
retransmission consent agreements.
    Senator DeWine. Mr. Kimmelman?
    Mr. Kimmelman. I think Decker is right, but I think Mr. 
Ergen has a very valid concern here for the very reason that 
Decker just stated. Because local broadcasting is this valuable 
to a potential competitor, to cable, with the retransmission 
arrangements that already exist between broadcast and cable and 
arrangements related to carrying broadcast network channels, 
MSNBC, CNBC, and the like, I think it is a valid concern that 
there could be a financial basis for an exclusive arrangement, 
in the top 20 cities, for example, that are obviously crucial 
to EchoStar's business.
    So I would suggest in your legislative deliberations that 
you would look to basically codify this FCC rule. I will tell 
you that I think the FCC rule is fine except I cannot figure 
where it comes from legally. Maybe the Commission has a valid 
base for it, but I have not found it statutorily. So I think if 
it is fine with the cable industry, if they have no problem 
with it, let us make sure the FCC does have the full legal 
basis. We certainly have seen plenty of litigation around 
telecommunications in terms of what is and is not legal and I 
would hate to see this one end up in court.
    Mr. Ergen. Our concern there----
    Senator DeWine. Mr. Ergen.
    Mr. Ergen [continuing]. Just to follow up, is that while 
the FCC does prevent nonexclusive, they do not specifically say 
they have to sell it to a DBS provider. So what the cable 
industry has done in the past is they may find a wireless 
provider and sell it to them and say, see, we are not 
exclusive.
    They do this in Philadelphia, as a matter of fact, with the 
sports channel in Philadelphia. A company called Comcast 
decided to buy the sports teams in Philadelphia, then decided 
that they would take the signal off of a satellite where the 
law required them to sell it to DBS operators like DirecTV and 
EchoStar and then they said, we are not exclusive. We sell to a 
couple of wireless people. Of course, I think they have since 
gone out of business in Philadelphia. They now are exclusive, 
from a practical point of view, and do not sell to DBS 
operators, and, in fact, in FCC comments have said they did it 
for competitive reasons now.
    So pardon me if I do not have a little skepticism of Mr. 
Anstrom's good naturedness here today. We know that cable will, 
in fact--this is America. They are smart people. They are very 
smart. They have built their businesses. They are not going to 
do things they do not have to do to help their competitors.
    Senator DeWine. Mr. Anstrom.
    Mr. Anstrom. Two things just for the record. First of all, 
the FCC had a very different view of the facts in Philadelphia. 
In fact, just yesterday, they ruled in favor of Comcast and 
against EchoStar.
    And second, just again to come back to the question about 
the broadcasters and the retransmission consent rights, those 
are decisions broadcasters make, not us, in terms of their 
programming, and again, there is a rule on the books, and 
beyond that, I certainly hope that Mr. Ergen and Mr. Kimmelman 
are not suggesting that this Congress should extend the 
regulatory authority of the Congress and, for example, begin 
regulating the contracts of CBS affiliates. Maybe that is where 
they want to go, but I suspect the absent witness at the table 
today would have some things to say about that.
    Mr. Kimmelman. I am just curious if Mr. Anstrom would state 
for the record that the cable industry believes that those FCC 
rules are fully statutorily supported.
    Mr. Anstrom. I am not a lawyer, but we have not challenged 
those rules in court. They have been on the books since 1993, 
as you know.
    Mr. Kimmelman. I think the ruling yesterday vis-a-vis 
Comcast is a legitimate ruling under the telecommunications 
law, because also the FCC has stated an interest in wanting to 
make sure programming is broadly available, the law is quite 
explicit that it is for satellite transmitted programming. So 
this is, in effect, a loophole that has arisen in a new 
transmission mechanism for the programming. I do not think that 
is a statement about the Commission's policy views about 
whether programming should be made more available.
    Senator DeWine. Senator Kohl.
    Senator Kohl. The white area issue, as you know, is 
currently the subject of an FCC proceeding. If you all could 
advise the Commission on the proper course of action, what 
would you recommend?
    Mr. Ergen. Well, we have filed comments, but it has been my 
experience that the current rules as written are not valid in 
reality, that about half the people out there cannot really 
take a traditional off-air antenna, put it on the roof, and get 
a good signal. Rules that were written in the 1950's did not 
take into account multipath and the number of transmitters. 
There are probably 10 times more transmitters than there were 
back then, and all the interference and trees and so forth. So 
it became a technical problem.
    I would advise the FCC that, one, that physical obstacles 
such as trees, mountains, hills, electrical obstacles, and 
multipath obstacles should be taken into consideration to 
determine whether somebody gets a Grade B intensity signal, No. 
1.
    No. 2, that a valid test for those people who then are 
predicted to get a Grade B signal, a test, a standard test 
could be done at the home by qualified engineers, qualified 
installers, and determine whether the person really, in fact, 
does get the Grade B signal, because RF, radio frequencies, one 
side of the street can get a good signal and you could 
literally walk across the street and get no signal at all. So 
it is a very tough problem.
    Mr. Anstrom. Mercifully, Senator Kohl, the cable industry 
does not have a direct interest in that white area dispute. 
That is really a dispute between the broadcasters and the 
satellite companies and consumers, so I will take a pass on 
that one, mercifully. Thank you.
    Mr. Kimmelman. I certainly hope that whatever the 
Commission does and Congress does in overseeing it, that at 
this point in time we do not strip away channels from people 
who are currently getting them on whatever basis it occurred. 
It is a small population. I think the broadcasters have vastly 
overstated the financial impact at this point in time. We are 
moving to a world of digital signals where this should not be 
the same kind of a problem.
    I think we need a commonsense solution here, which if Mr. 
Ergen is anywhere near right, that people want their local 
broadcast signals, it is just illogical to assume that they are 
going out and purchasing satellite transmission to get somebody 
else's local broadcast channel. It just does not make sense 
that people are doing that when they are getting a great 
picture of their local broadcast network. So the whole Grade B 
contour thing has been wrapped around into a big pretzel here 
and I do not think it accurately reflects the reality of what 
pictures people are seeing on their television sets. So I hope 
there is just a commonsense solution to hold harmless current 
subscribers and move forward, given the technological changes, 
with a logical set of rules that ought to be fair to both 
broadcast and satellite providers.
    Senator Kohl. Mr. Ergen, what is the cost of your dish now 
to the consumer?
    Mr. Ergen. It can be as low as free if you subscribe to a 
year of programming at $48 a month, or it can be as low as $149 
and you can subscribe to a package of programming that can be 
as low as $4.99 for your local channels.
    Senator Kohl. You buy these dishes?
    Mr. Ergen. And we buy them, yes.
    Senator Kohl. You buy them? And what do they cost you?
    Mr. Ergen. We subsidize each of our systems approximately 
$300. So the day we put it in your home, we have lost $300, so 
we have to take care of you as a customer and it takes us about 
2 years to break even on you as a customer. So we hope that our 
customers stay with us for the rest of their life. That is the 
only way we can make a profit.
    It is very similar to cable. I do not know exactly, but 
cable builds a lot of plant and equipment and when they hook 
you up for $40, they have subsidized you, as well. Decker, you 
would probably know better than I would.
    Senator Kohl. OK; you founded your company?
    Mr. Ergen. Yes, I did.
    Senator Kohl. Is it a public company or a private company?
    Mr. Ergen. No, we are a public company.
    Senator Kohl. A public company? What were your sales and 
profits last year?
    Mr. Ergen. Well, we have not announced our fourth quarter, 
so through the third quarter, I think we were about a $700 
million company through three quarters and we lost about $200 
million, we lost, and again, that is because we have a $2 
billion investment and all our startup costs to launch 
satellites. So we have to get probably three to four million 
subscribers to break even as a company, and again----
    Senator Kohl. Do you have a cash flow?
    Mr. Ergen. We have a negative cash flow. We have a cash 
flow. It is just negative.
    Senator Kohl. Negative?
    Mr. Ergen. Negative, yes. We spend more each year than we 
take in, and we need about 3 million subscribers to have a 
positive cash flow, and that is the reason that--and again, we 
are very confident of that with local-to-local legislation, and 
while we have been fighting for local-to-local legislation now 
for 3 years, I have never lost hope that, ultimately, 
ultimately, people would look at it from a consumer's point of 
view, and when they do that, they will ultimately be 
successful----
    Senator Kohl. Have you ever made money?
    Mr. Ergen. What is that?
    Senator Kohl. Have you ever made money?
    Mr. Ergen. We did make money when we were selling big 
dishes, before we invested, because in the big dish business, 
we had a very small investment because we only had to buy a 
system for $10,000 and sell it for $12,000. We made probably in 
our first 15 years of existence about $100 million in profit 
over those 15 years, and we took that $100 million and invested 
$2 billion to try to put a dish in every home. So we have two 
million homes now that have our satellite dishes. We have 98 
million homes left to go. [Laughter.]
    Senator Kohl. Thank you.
    Senator DeWine. I want to thank our panel very much. I 
think the testimony has, again, brought home how unfortunate it 
is that the National Association of Broadcasters was not here. 
I think if they would have been at the table, they would have 
been able to engage in this discussion, so I think that is 
unfortunate.
    Let me again thank our witnesses for making this appearance 
to testify on this very important issue. We are seeing 
significant changes in the satellite marketplace and it is 
important to understand those changes as we continue to work 
for video competition.
    Based on the testimony that we have heard today, it appears 
that the EchoStar purchase of MCI's orbital slot will help us 
move towards that goal. We look forward to seeing real progress 
by EchoStar in the near future.
    As we move forward toward passage of the Satellite Home 
Viewer Act, Senator Kohl and I are going to continue to work 
with Senator Hatch and Senator Leahy, Senator McCain, and 
Majority Leader Lott to craft legislation that will give 
satellite providers a fair, competitive opportunity to provide 
video service. This sort of competition will provide better 
prices, better service, and more choices for consumers, which, 
of course, is our ultimate goal.
    Senator Kohl and I both thank you all again very much.
    [Whereupon, at 9:36 a.m., the subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


                  Additional Submission for the Record

                              ----------                              


                  Association of Local Television Stations,
                                  Washington, DC, February 2, 1999.
The Hon. Mike DeWine, Chairman,
Subcommittee on Antitrust, Business Rights, and Competition,
Committee on the Judiciary, U.S. Senate, Washington, DC.

Re: EchoStar--Acquisition of MCI/NewsCorp assets S. 247; S. 303

    Dear Mr. Chairman: We appreciate the opportunity to express our 
concerns regarding EchoStar's ``local-into-local'' plans and pending 
legislation which would allow satellite carriers to retransmit the 
signals of local television stations to subscribers in the stations' 
home markets. The Association of Local Television Stations, Inc. 
(``ALTV''), represents the interests of the competitive edge of the 
broadcast television industry--full service local television stations 
affiliated of the now established Fox Network, the emerging UPN and WB 
networks, and the new family-oriented PaxTV network. Our membership 
also includes independent stations, which often provide innovative and 
unique program services like foreign language and religious programming 
to their communities. More than any of the popular cable networks, 
these stations have stimulated competition and enhanced program 
diversity for all viewers in local markets throughout our country.
    As much as we appreciate the need for more competition in a video 
marketplace still dominated by cable television, we must resist efforts 
which attempt to promote competition in one market via means which 
distort competition and impede new competitors in a critical segment of 
that market. From the perspective of most of our member stations, the 
approach embodied in this legislation offers only a vain hope of 
satellite carriage in their local markets. At this point, only one DBS 
carrier, EchoStar's Dish Network, has begun providing local signals to 
viewers in a small, but growing number of markets. So far, EchoStar 
generally has offered only the signals of local television stations 
affiliated with the ABC, CBS, NBC, and Fox networks.\1\ Stations in 
those markets affiliated with the UPN, WB, and PaxTV networks have been 
excluded, as have the independent stations in those markets. Under S. 
303, which on its face defers any must carry rules for as much as three 
years, these local television stations will continue to suffer from 
lack of access to an increasing number of DBS subscribers in their home 
markets. Meanwhile, their direct competitors, affiliates of the three 
entrenched networks and Fox, will gain a competitive advantage in 
satellite homes.
---------------------------------------------------------------------------
    \1\ We understand that EchoStar also is providing the signals of 
local PBS affiliates in some markets.
---------------------------------------------------------------------------
    This would come at a particularly bad time for emerging networks 
like UPN, WB, and PaxTV. Their struggle to compete with more 
established networks, the affiliates of which benefit from local 
satellite carriage, would be hampered. Excluded stations would enjoy 
none of the benefits of digital picture quality, none of the benefits 
of inclusion in the on-screen program guides, and none of the benefits 
of seamless surfing. Furthermore, they likely also would be subject to 
competition from distant affiliates of their networks, which will enjoy 
all the benefits of picture quality and tuning ease on the satellite 
system.\2\ This would undermine the ability of new networks, their 
affiliates, and innovative independent stations to compete toe-to-toe 
with the ever expanding array of nonbroadcast program networks and 
services, as well as with their entrenched big three network 
competitors in their local markets. Thus, any delay in the imposition 
of must carry requirements on satellite carriers (once the compulsory 
license is amended to permit retransmission of local signals) is likely 
to injure competition and compound the difficulties inherent in 
establishing new competitive broadcast networks.
---------------------------------------------------------------------------
    \2\ A passage from the CARP decision, which EchoStar has cited in 
its recent comments to the Copyright Office, states that:

      Local retransmission of broadcast stations benefits the 
      broadcast station. * * * If a local broadcast station is 
      not available on a satellite carrier service, subscribers 
      to that station are less likely to view that station. The 
      viewer may not wish to install an A-B switch/antenna or 
      additionally subscribe to a cable service or may find the 
      system too inconvenient for regular use.
    Moreover, we are far from confident that must carry rules ever will 
come to their competitive rescue. Under S. 303, the mandatory carriage 
provisions would apply no later than January 1, 2002. Such deadlines 
can slip and often do. For example, when Congress enacted the original 
satellite Home Viewer Act in 1988, it contemplated termination of the 
satellite compulsory license in 1995. However, once the public began to 
receive broadcast television station signals on their satellite 
systems, Congress essentially forfeited the ability to eliminate the 
compulsory license. It was extended in 1994, and no one seriously 
expects Congress to let it expire at the end of this year. The public 
simply would not stand for being deprived of signals they have received 
for years under the compulsory license.\3\ The same result is 
predictable under S. 303. If (we dare say ``when'') satellite carriers 
protest that compliance with must carry requirements would be 
impossible and threaten to withdraw all broadcast signals from their 
services to sidestep the must carry requirements, Congress will find 
itself in the same untenable position.\4\ Indeed, the testimony of 
EchoStar CEO Charles W. Ergen at the hearing last week confirms that 
EchoStar ``will not have the space'' to carry all local stations in 
each market. In the face of readily predictable public outrage at the 
threatened reduction in their satellite program options, Congress, 
rather than adhere to the deadline, would have no choice, but to extend 
it. Meanwhile, the selective and discriminatory exclusion of many ALTV 
member stations would continue unabated. Such a result mocks 
competition by placing the latest entrants into broadcast network 
television at a distinct disadvantage vis-a-vis their established 
network competitors.

    \3\ We distinguish here between the equities in favor of satellite 
subscribers who have long enjoyed superstation and network signals on 
their satellite systems in a manner consistent with the law and those 
that have taken advantage of satellite distributors' willingness to 
blink the restrictions on providing network signals in other than 
unserved areas.
    \4\ Section 337(b) of the bill (page 7, lines 9-10) subjects only 
``satellite carriers retransmitting television broadcast signals'' to 
the must carry requirement. Thus, a satellite carrier could escape the 
must carry rule by carrying no broadcast signals.
---------------------------------------------------------------------------
    We do look forward to supporting legislation which permits 
satellite carriage of local signals, but only if it also requires 
satellite carriers to carry all local signals without delay. ALTV does 
not propose that satellite carriers be forced to carry local signals in 
every market (as is required of cable systems). However, if a satellite 
carrier retransmits the signal of one local television station in a 
market to subscribers in that market, then it should be required to 
carry all local stations in that market or at least provides a 
satellite subscriber with the same local signals a comparably situated 
cable subscriber would have available from its cable system. This would 
maintain parity between competing media by assuring that the satellite 
carrier were subject to no more rigorous obligations than a directly 
competitive cable system. At the same time, independent stations and 
stations affiliated with new and emerging networks would suffer no 
competitive disadvantage in their home markets.
    Satellite carriers may complain that requiring nondiscriminatory 
carriage of local signals might overtax their capacity and impose 
additional unwanted costs on their operations. ALTV respectfully 
suggests that these concerns are overblown and myopic. The practical 
effect of imposing such a requirement on satellite providers would be 
marginal. Again, like cable systems, satellite carriers would be likely 
to carry some local stations voluntarily. Therefore, such a requirement 
typically might require a satellite carrier to add only a few 
additional local signals, such as those of newer stations or stations 
affiliated with newer networks like UPN, WB, and PaxTV. Thus, the 
practical effect often would be not a ``carry one, so carry seven,'' 
but a ``carry four, so carry six or seven'' rule. At worst, under 
current technological limits on capacity, compliance might require a 
satellite carrier to forego local signal carriage in a few markets in 
order to accommodate all local signals in other markets. ALTV submits 
that this result is preferable to a regime which invited and tolerated 
discrimination among local stations in the same market.
    Therefore, we respectfully urge you to reconsider S. 303 and S. 247 
with respect to the delayed must carry provision. Historically--and 
rightly--the cable and satellite compulsory licenses have carried with 
them the complementary obligation to use broadcast signals in a manner 
consistent with preserving the many benefits of free broadcast 
television service. We ask no more than that. Therefore, ALTV must 
oppose the S. 247/S. 303 package in its present form, but does look 
forward to making a positive contribution to efforts to draft and enact 
sound legislation to permit satellite carriers to carry the signals of 
local television stations in their home markets.
            Very truly yours,
                                          James B. Hedlund,
                                                         President.
  

                                
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