[Federal Register Volume 67, Number 218 (Tuesday, November 12, 2002)]
[Notices]
[Pages 68599-68602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28581]


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FEDERAL COMMUNICATIONS COMMISSION

[CS Docket No. 01-348; FCC 02-284]


Application of EchoStar Communications Corp. (a Nevada Corp.), 
General Motors Corp., and Hughes Electronics Corp. (Delaware Corps.)

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: In this document, the FCC designates for hearing the 
application of EchoStar, General Motors and Hughes (collectively, the 
``Applicants'') to transfer control of Commission authorizations, 
including direct broadcast satellite and fixed satellite space station 
authorizations, earth station authorizations, and other related 
authorizations to EchoStar Communications Corp. (``New EchoStar''). The 
Commission concludes that the Applicants have failed to demonstrate 
that the proposed transaction would not cause anticompetitive and other 
harms, and have failed to demonstrate that the potential public 
interest benefits resulting from the transaction would outweigh those 
harms. Accordingly, pursuant to 47 U.S.C. 309(e) and 409(a), the 
Commission designates the application for hearing to determine whether 
the public interest, convenience, and necessity will be served by its 
grant.

DATES: See Supplementary Information section for document filing dates.

ADDRESSES: Please file documents with the Investigations and Hearing 
Division, Enforcement Bureau, Federal Communications Commission, Room 
3-B431, 445 12th Street, SW., Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Charles W. Kelley, Chief, 
Investigations and Hearing Division, Enforcement Bureau, at (202) 418-
1420.

SUPPLEMENTARY INFORMATION: This is a summary of the Federal 
Communications Commission's Hearing Designation Order, CS Docket No. 
01-348, adopted on October 9, 2002, and released on October 18, 2002. 
The full text is available for inspection and copying during normal 
business hours in the FCC Reference Information Center, Room CY-A257, 
445 12th Street, SW., Washington, DC 20554. It may also be purchased 
from the Commission's copy contractor, Qualex International, Room CY-
B402, 445 12th Street, SW., Washington, DC 20554, telephone (202) 863-
2983, facsimile (202) 863-2898, or via e-mail at [email protected], or 
may be viewed via the internet at: http://www.fcc.gov/ Document--
Indexes/Media/2002--index--MB--Order.html. Alternative formats are 
available to persons with disabilities by contacting Martha Contee at 
(202) 418-0260 or TTY (202) 418-2555.

Synopsis of the Order

    1. In the Hearing Designation Order (``Order''), the Commission 
considers the application (the ``Application'') of EchoStar 
Communications Corporation (``EchoStar''), General Motors Corporation 
(``GM''), and Hughes Electronics Corporation (``Hughes'') for consent 
to transfer control of various Commission authorizations, including 
direct broadcast satellite (``DBS'') and fixed satellite space station 
authorizations, earth station authorizations, and other related 
authorizations held by their wholly- or majority-owned subsidiaries to 
EchoStar Communications Corporation (``New EchoStar''). The proposed 
transaction involves the split-off of Hughes from GM, followed by the 
merger of the Hughes and EchoStar companies. The proposed merged 
entity, New EchoStar, would have a new ownership structure and would 
continue to provide DBS subscription television service under the 
DirecTV brand name.
    2. The merger proposes to combine the two major DBS providers in 
the United States-EchoStar (marketed as the Dish Network) and DirecTV 
Holdings, LLC (``DirecTV''), a wholly-owned subsidiary of Hughes, into 
one single entity. The proposed merged entity, New EchoStar, would have 
a new ownership structure and would continue to provide DBS 
subscription television service under the DirecTV brand name. New 
EchoStar would also acquire Hughes Network Services, Inc. (``HNS'') and 
PanAmSat Corp. EchoStar and Hughes also filed a joint application 
requesting authority to launch and operate NEW ECHOSTAR 1, a direct 
broadcast satellite that would be located at the 110[deg] W.L. orbital 
location (the ``Satellite Application''). The Applicants claim that 
grant of the Satellite Application would allow New EchoStar to offer 
local broadcast channels in all 210 U.S. Designated Market Areas 
(``DMAs''). Based on the record, the Commission is unable to find that 
the public interest, convenience and necessity would be served by the 
grant of the Merger Application and Satellite Application.
    3. The Applicants claim that one of the most important benefits of 
the proposed merger is the increased ability of DBS operators to 
compete with cable systems in the multichannel video programming 
distribution (``MVPD'') market by eliminating current duplicative 
programming. They contend the merger would benefit consumers by 
increasing available DBS capacity to offer significantly more local-
into-local programming, and to expand its offerings of high-definition 
television (``HDTV'') programming, pay-per-view (``PPV''), video-on-
demand (``VOD''), interactive television (``ITV''), and broadband 
satellite Internet services. They claim the merger would ultimately 
result in improved products, prices and overall quality to consumers. 
The Applicants also claim that their commitment to price DBS service on 
a uniform nationwide basis will provide benefits to customers in both 
urban and rural areas since competition in the most densely populated 
and heavily contested areas will require that New EchoStar set the 
national price low enough to compete for new subscribers in these urban 
areas, consequently

[[Page 68600]]

providing competitive prices to customers in rural areas.
    4. The Applicants claim that the proposed merger would allow New 
EchoStar to provide broadband Internet access service to the country 
and, thus, more effectively compete with cable's bundled offering of 
high-speed Internet access and MVPD products and telephone companies' 
DSL offerings. The Applicants contend that the merger would allow for 
the timely introduction of nationwide competition in the broadband 
markets, including rural and underserved areas.
    5. Sections 214(a) and 310(d) of the Communications Act of 1934, as 
amended (the ``Communications Act''), 47 U.S.C. 214(a) and 310(d), 
require the Commission to find that the public interest, convenience 
and necessity would be served by grant of the Merger Application. We 
first assess whether the proposed transaction complies with the 
specific provisions of the Act, other applicable statutes, and the 
Commission's rules. The public interest standards of 47 U.S.C. 214(a) 
and 310(d) involve a balancing process that weighs the potential public 
interest harms against the potential public interest benefits. Our 
public interest evaluation encompasses the ``broad aims of the 
Communications Act,'' which includes, among other things, preserving 
and enhancing competition in relevant markets, ensuring that a 
diversity of voices is made available to the public, and accelerating 
private sector deployment of advanced services. In determining the 
competitive effects of the merger, our analysis is not limited by 
traditional antitrust principles. The Commission also focuses on 
whether the merger will accelerate the decline of market power by 
dominant firms in the relevant communications markets.
    6. We find that elimination of one nationwide DBS competitor, 
without any cognizable evidence of offsetting enhancement of viewpoint 
diversity, would disserve the Commission's policy goal of viewpoint 
diversity. In reviewing spectrum policy concerns, we find that allowing 
one satellite company to control all current U.S. allotted full-CONUS 
DBS orbital locations is inconsistent with the public interest. The 
record demonstrates that significant nationwide benefits in the MVPD 
market have been brought about by the competition between EchoStar and 
DirecTV. The record shows that consolidating all full-CONUS DBS 
spectrum with one provider would likely eliminate these benefits to the 
detriment of consumers, without providing adequate off-setting public 
interest benefits.
    7. The Commission analyzed the potential harms of the proposed 
merger on competition in the relevant product markets. We first 
performed a structural analysis considering the relevant product and 
geographic markets, identifying the market participants, and then 
examining structural factors that affect the likelihood of competitive 
harms. The structural analysis suggests that the merger, which reduces 
the number of competitors from three to two in some markets, and two to 
one in other markets, would likely result in substantial 
anticompetitive harms. Under traditional structural antitrust analysis, 
there appears to be a substantial likelihood that the proposed merger 
will significantly increase concentration in an already concentrated 
MVPD market.
    8. We find that the merger is likely to lessen competition through 
unilateral actions by New EchoStar and/or through coordinated 
interaction among market participants which could result in substantial 
consumer welfare losses, even assuming realization of all of the cost 
savings alleged by the Applicants. The record suggests that the 
services provided by DirecTV and EchoStar are close substitutes, and 
that in the absence of significant savings in marginal cost, such a 
loss of facilities-based intramodal competition is likely to harm 
consumers by eliminating a viable service provider in every market, 
creating the potential for higher prices and lower service quality, and 
negatively impacting future innovation.
    9. Our analysis indicates that the Applicants' proposed national 
pricing plan will unlikely remedy the likely competitive harms. 
National pricing does not mean low pricing and the proposed plan would 
leave the Applicants free to price discriminate on a targeted basis, 
particularly with respect to promotions, installation and equipment 
offers and to discriminate with respect to service quality. In 
addition, the plan proposes that we approve the replacement of viable 
facilities-based competition with regulation inconsistent with the 
Communications Act and our policies and goals. The Act and our policies 
and goals aim to replace, wherever possible, the regulatory safeguards 
needed to ensure consumer welfare in communications markets served by a 
single provider, with free market competition, and particularly with 
facilities-based competition.
    10. We considered the evidence of efficiencies and other public 
interest benefits that the Applicants claim will result from the 
merger. We cannot find that the benefits are merger specific, 
verifiable, or will be able to mitigate anticompetitive effects of the 
merger. We find that the bulk of the Applicants' promised benefits with 
respect to MVPD services appear to be either inadequately supported by 
the data supplied; not merger-specific; achievable through means other 
than monopoly control over all available full-CONUS DBS spectrum; or 
are otherwise not cognizable under our public interest standard. 
Moreover, the Applicants have failed to show that the proposed merger 
is necessary to achieve many, if not all, of their claimed public 
interest benefits--they merely allege that it will provide them the 
means with which to provide these benefits. Our central concern is that 
with the resulting high degree of concentration in all MVPD markets, 
the Applicants' incentives to carry through on their promises of 
enhanced competition will be decreased, rather than increased. Thus, 
although the Commission fully recognizes the value of having free over-
the-air broadcasting service in all 210 DMAs, we do not believe that 
the merger is more likely to bring satellite delivery of such service 
than the status quo. Therefore, we cannot give very much weight to the 
Applicants' proposed benefits.
    11. The Applicants' promises of a future Ka-Band broadband 
satellite product that is competitive on both service quality and price 
with cable and DSL products would be a significant advance, if these 
promises were to be realized. However, the proposed merger of the two 
companies with the strongest incentive and ability to compete for 
satellite broadband services contradicts the Communications Act's 
preference for competition. The Applicants' reliance on an economies of 
scale argument fails to support its claimed benefits arguments.
    12. On balance, we cannot find in the record that the Applicants 
have made a sufficient showing either that the harms from the proposed 
transaction will be insubstantial or the alleged benefits will outweigh 
them. Serious questions remain as to whether the proposed transaction 
would do significant and irreversible damage to competition in several 
markets without sufficient offsetting and cognizable public interest 
benefits.
    13. We direct the Administrative Law Judge (``ALJ'') to prepare an 
Initial Decision on the following issues:

    [sbull] Issue 1: Whether the proposed transaction is likely to 
cause anticompetitive harm. In reaching a determination on this 
issue, the following should be considered: (a) The product market 
(e.g., whether the relevant product market is MVPD service,

[[Page 68601]]

DBS service, or some other subset of MVPD service); (b) the 
geographic market (e.g., whether the proper geographic market is 
local, and whether, for purposes of analysis, the relevant 
geographic markets should be aggregated into three categories--
markets not served by any cable system; markets served by low-
capacity cable systems; markets served by high-capacity cable 
systems; and the relative number of households in each of these 
categories) and the number of subscribers per market; (c) the market 
participants, market shares and concentration; (d) the timeliness, 
likelihood, and sufficiency of entry to offset any potential adverse 
competitive effects that may result from the proposed transaction; 
(e) the effects of the proposed transaction on price, quality and 
innovation (considering the likelihood of coordinated behavior among 
competing firms and the ability of the Applicants to unilaterally 
take anticompetitive actions); (f) the efficacy, potential harms, 
and potential benefits of Applicants' proposed national pricing 
plan; (g) the proposed transaction's effect on the ability of 
multichannel video programmers to reach certain niche audiences; and 
(h) any conditions proposed by the Applicants.
    [sbull] Issue 2: Whether the proposed transaction is likely to 
cause other public interest harms. In reaching a determination on 
this issue, the following should be considered: (a) the proposed 
transaction's effect on viewpoint diversity; and (b) the proposed 
transaction's effect on the Commission's spectrum policies.
    [sbull] Issue 3: Whether the proposed transaction is likely to 
yield any public interest benefits. In reaching a determination on 
this issue, the following should be considered: (a) whether the cost 
savings and other benefits claimed by Applicants are non-
speculative, credible and transaction-specific and are likely to 
flow through to the public; and (b) whether the proposed 
transaction's impact on the provision of Internet access service via 
satellite is likely to be beneficial or harmful.
    [sbull] Issue 4: On balance, whether the public interest, 
convenience and necessity would be served by the grant of the Merger 
Application and the Satellite Application.

    14. Pursuant to 47 U.S.C. 309(e), the application for consent to 
transfer control of various Commission authorizations, including DBS 
and fixed satellite space station authorizations, earth station 
authorizations, and other related authorizations held by wholly-or 
majority-owned subsidiaries of EchoStar Communications Corporation (a 
Nevada corporation), General Motors Corporation, and Hughes Electronics 
Corporation to EchoStar Communications Corporation (a Delaware 
corporation); and the joint application submitted by EchoStar and 
Hughes requesting authority to launch and operate New Echostar 1, a 
direct broadcast satellite that would be located at the 110[deg] W.L. 
orbital location (FCC File No. SAT-LOA-20020225-00023) are designated 
for hearing. The Hearing shall be at a time and place and in front of 
an ALJ to be specified in a subsequent Order.
    15. Pursuant to 47 U.S.C. 309(e), the burden of proof with respect 
to the introduction of evidence and the burden of proof with respect to 
the issues specified in this Order shall be upon GM, Hughes, and 
EchoStar, the applicant parties in this proceeding.
    16. The Commission's Consumer and Government Affairs Bureau, 
Reference Information Center, shall send copies of this Order to all 
parties by certified mail, return receipt requested.
    17. The Chief, Enforcement Bureau, shall be a party to the 
designated hearing.
    18. A copy of each document filed in this proceeding subsequent to 
the date of adoption of this Order shall be served on the counsel of 
record appearing on behalf of the Chief, Enforcement Bureau. Parties 
may inquire as to the identity of such counsel by calling the 
Investigations and Hearings Division of the Enforcement Bureau at (202) 
418-1420. Such service shall be addressed to the named counsel of 
record, Investigations and Hearings Division, Enforcement Bureau, 
Federal Communications Commission, 445 12th Street, S.W., Room 3-B431, 
Washington, D.C. 20554.
    19. Within 30 days of the mailing of this Order pursuant to 
paragraph 16 above, the parties may file an amended application with 
the Commission to ameliorate the competition concerns identified in 
this Order and may also file a petition to suspend the hearing pending 
review of the amended application.
    20. To avail themselves of the opportunity to be heard, GM, Hughes, 
and EchoStar, pursuant to 47 CFR 1.221(c) and 1.221(e), in person or by 
their respective attorneys, shall file in triplicate, a written 
appearance, stating an intention to appear on the date fixed for the 
hearing and present evidence on the issues specified in this Order. 
Such written appearance shall be filed within 20 days of the mailing of 
this Order pursuant to paragraph 16 above. Pursuant to 47 CFR 1.221(c), 
if the parties fail to file an appearance within the specified time 
period, the applications will be dismissed with prejudice for failure 
to prosecute.
    21. The National Rural Telecommunications Cooperative; American 
Cable Association; Northpoint Technology, Ltd.; National Association of 
Broadcasters; Pegasus Communications Corp.; The Word Network; Johnson 
Broadcasting, Inc. and Johnson Broadcasting of Dallas, Inc.; Family 
Stations, Inc. and North Pacific International Television, Inc.; 
Communication Workers of America; Paxson Communications Corp.; Carolina 
Christian Television, Inc. and LeSea Broadcasting Corporation; 
Univision Communications, Inc.; Eagle III Broadcasting, LLC; and 
Brunson Communications, Inc., are made parties to the proceeding 
pursuant to 47 CFR 1.221(d). To avail themselves of the opportunity to 
be heard, pursuant to 47 CFR 1.221(e), each of these parties, in person 
or by its attorneys, shall file in triplicate, a written appearance, 
stating its intention to appear on the date fixed for the hearing and 
present evidence on the issues specified in this Order. Such written 
appearance shall be filed within 20 days of this Order becoming 
effective pursuant to paragraph 16 above. Such written appearance must 
also be accompanied by the fee specified in 47 CFR 1.1107 or be 
accompanied by a deferral request pursuant to 47 CFR 1.1117. If any of 
these parties fails to file an appearance within the time specified, it 
shall, unless good cause for such failure is shown, forfeit its hearing 
rights.
    22. Pursuant to 47 CFR 1.223, any person seeking to participate as 
a party in the hearing may file a petition to intervene. Such petition 
shall be filed within 30 days of the full text or a summary of this 
Order being published in the Federal Register. Such petition to 
intervene must either establish, under oath, that a person is a party 
in interest, in which case the petition shall be granted; or such 
petition must set forth the interest of petitioner in the proceedings, 
show how such petitioner's participation will assist the Commission in 
the determination of the issues in question, set forth any proposed 
issues in addition to those already designated for hearing, and be 
accompanied by the affidavit of a person with knowledge as to the facts 
set forth in the petition, in which case the ALJ may grant or deny the 
petition to intervene, and may limit intervention to a particular stage 
or stages of the proceeding, in his or her discretion. Pursuant to 47 
CFR 1.225, no person shall be precluded from providing any relevant, 
material and competent testimony at the hearing because he or she lacks 
sufficient interest to justify intervention as a party.
    23. The application for transfer of control of the licenses and 
authorizations at issue in this proceeding will be held in abeyance 
pending the outcome of this proceeding.


[[Page 68602]]


Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 02-28581 Filed 11-8-02; 8:45 am]
BILLING CODE 6712-01-P