SES PROPOSES NEW CONDITIONS FOR ECHOSTAR TAKEOVER OF DIRECTV

Concerns expressed by SES in filing are similar to those voiced by other opponents of deal, industry analysts and lawyers said, but aren’t expected to have any measurable impact on final DoJ and FCC decision. However, SES filing is significant because it does offer glimpse into regulatory roadblocks that foreign companies face in starting new service in U.S. and of competitive advantage held by EchoStar and DirecTV “with or without merger,” satellite attorney said. Until filing, SES had offered no opinion on deal.

There has been widespread speculation throughout satellite industry that imposition of conditions might be only way deal could be approved (CD Sept 25 p3). “This is much to do about nothing because the deal isn’t going through with or without conditions,” one industry lawyer close to proceedings told us: “It’s a pretty cynical filing. It takes a lot of satellite capacity” to provide local channels, and SES “doesn’t have it, so they are trying to extract” capacity from EchoStar.

SES said it wanted to create open DBS platform in U.S. modeled after SES Astra service in Europe. It filed petition with FCC (CD April 26 p3) seeking authorization for Americom2Home platform that would allow TV program providers and other content owners to lease capacity on SES satellite to transmit programming directly to DBS subscribers. SES also has tried unsuccessfully to force EchoStar and DirecTV to meet to discuss technical issues on SES satellite scheduled to be placed at 105.5 degrees W orbital location between EchoStar and DirecTV DBS satellites at 101 degrees W. and 110 degrees W. SES will use satellite licensed by Gibralter, filings said. Plans call for construction to be completed by late 2004 (CD Aug 27 p1), it said.

FCC should mandate “operator-to-operator” discussions where engineers “can quickly hone in on, and resolve,” important technical issues that are outstanding, SES said: “To thwart any effort by New EchoStar to use purported technical concerns and scheduling difficulties to obstruct or delay market entry by SES,” DoJ and FCC should impose condition that EchoStar complete coordination “quickly as possible.” As FTC did with AOL-Time Warner merger, FCC should appoint Monitor Trustee to make sure there is “good- faith negotiation” SES said.

Other conditions sought by SES include: (1) FCC should assure SES access to customer-premises equipment (CPE). EchoStar has natural monopoly because it controls last mile bottleneck -- satellite antenna and receiver, filing said. FCC should allow SES to replace satellite dishes of New EchoStar with new dish capable of receiving signals from other service providers, SES said. SES Americom said it and other competitors would pay for new dish. (2) FCC should impose open standards on satellite receivers so new receivers would be capable of incorporating multiple conditional access systems. (3) SES and other DBS competitors should have access to EchoStar’s local TV programming at “reasonable, cost-based, wholesale rates,” from New EchoStar 1 satellite, SES said. (4) Access to New EchoStar’s retail distribution chain and content providers should be ensured. EchoStar will have market power to make it “undesirable, or indeed detrimental” to enter into contracts with EchoStar competitors.

“I'm excited about the fact that there are companies such as SES” that want to enter DBS marketplace, CATO Institute Telecom Studies Dir. Adam Thierer told us: “There are certainly many valid concerns about entry into the global satellite marketplace that deserve the attention of public policymakers. It doesn’t mean we should be engaging in infrastructure sharing in outer space as a solution to our problems.”

SES is advocating that same policy used for telephone companies be implemented for satellite systems, Thierer said: “The better alternative would be for SES and other companies to be developing a new satellite constellation to rival EchoStar and DirecTV.” He said “regulators should be concerned with opening up outer space to greater and newer forms of competition. People are willing to put a lot of money on the table if there is a payoff.”

SES plan is “a provocative and interesting way of introducing” new DBS competition, Media Access Project Pres. Andrew Schwartzman told us: “It would seem to be if you are adding licensing of the Northpoint plan and you placed Northpoint on the same dish, you would get a better result. At first glance,” SES plan “is something worth looking at.”

Proposed Americom2Home service will be “a new way of thinking for content provider,” in U.S., satellite consultant Leslie Taylor told us: “Commission did require [open standards] in Digital Audio Radio [DARS] agreement” between XM and Sirius. Taylor said proposal to change equipment and gain access to retailers and local channels was another story. “Considering the staggering investment by incumbent DBS providers, it’s an aggressive position to take,” she said:. “I think a new provider has the burden of establishing their own outlets.”

EchoStar and DirecTV still have “basic problem” of trying to “fix anticompetitive concerns with conditions,” Legg Mason analyst David Kaut told us: “They say they have to merge to compete with cable, but that raises concerns about competition, and if they impose conditions” to allow new entrants such as Cablevision, Northpoint, Pegasus and SES, “then how will those companies compete with the merged EchoStar-DirecTV company and cable? It’s either one or the other. There’s not a lot of room for other serious competitors, just small niche players. That’s the fundamental problem” with deal.

“Any time we can get consumers more choices, it’s a positive thing,” Consumers Union Internet & Telecom Counsel Chris Murray told us: “In every market, it serves consumers to have standardized electronics. The cost for switching service goes down. In Europe this has worked very well and at first blush it seems to be a great model.”

Meanwhile, National Rural Education Assn. (NREA) said in letters to FCC and DoJ that EchoStar-Hughes deal “spells trouble” for rural schools, families with children and small businesses. “In plain and simple terms, that’s a monopoly,” NREA Pres. Bob Mooneyham said: “Monopolies always lead to higher prices and poorer services -- or none -- in smaller, rural communities.”