Opening Remarks

• The Honorable John McCain
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  Opening Remarks

  The Honorable John McCain

  · Today the Committee reexamines its previous work: The Satellite Home Viewers Improvement Act of 1999, commonly known as SHVIA (shu-VEE-uh). Portions of SHVIA are set to expire at the end of this year, and efforts to reauthorize this legislation have begun in both the House and the Senate. · In 1999, Congress’ goal in enacting SHVIA was to place satellite operators on equal footing with cable operators. Congress’ attempt at achieving regulatory parity for these two providers of video subscription services has produced mixed results. · Five years after the enactment of SHVIA, cable companies remain the dominant providers of subscription video services. According to the Federal Communications Commission, these companies have more than 75% of the market for delivering video programming, and continue to press forward each year with rate increases considerably above the rate of inflation. · Unfortunately, the General Accounting Office has found that the presence of a satellite operator in a local market has no competitive effect on the rates a cable operator charges. A February USA Today article noting recent rate hikes aptly stated, “So much for predictions Rupert Murdoch and News Corp. would start a cable/satellite TV industry price war after taking over DirecTV, the top U.S. satellite service.” · There is good news, however. Satellite operators are now offering more consumers the ability to receive their local broadcast stations. In 2000, approximately 19% of satellite subscribers were able to receive local signals. By the end of 2003, that number increased to 86% of the U.S. households. The General Accounting Office has found that DBS operators have 40% higher subscribership in markets where local broadcast stations are offered. · In 1999, I voted against SHVIA, not only because it was included as part of an appropriations bill, but also because I did not feel the legislation went far enough in promoting regulatory parity and encouraging the growth of satellite delivered television programming against the entrenched cable monopoly. As we now look to reauthorize SHVIA, I believe we must keep the goal of real regulatory parity in mind. · This time around Congress must ensure satellite operators have the right tools to bring robust competition to the video subscription market, which will lead to more programming options and lower prices for consumers. Additionally, Congress must review SHVIA in light of the looming transition to digital television and ensure that cable and satellite operators can provide consumers with outstanding high definition digital television content to facilitate this transition.

Testimony

• Mr. Eddy Hartenstein
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  Testimony

  Mr. Eddy Hartenstein

  Chairman McCain, Senator Hollings, and members of the Committee, my name is Eddy Hartenstein and I am the Vice Chairman of The DIRECTV Group, Inc. It is my great honor and pleasure to be here today and I thank you for allowing me to testify on behalf of DIRECTV regarding the reauthorization of the Satellite Home Viewer Improvement Act (“SHVIA”). This is a return visit for me, as I testified in front of this Committee in 1999 when Congress was deliberating SHVIA. I am pleased to return to report on the progress that the Direct Broadcast Satellite (“DBS”) industry has made as a competitor to cable since that time. The members of this Committee deserve a great deal of credit for their role in creating competition in the subscription television industry. SHVIA, which you helped enact, extended a compulsory copyright license to the retransmission of local television signals within each station’s local market (known as “local-into-local”). This, combined with improved technology such as high power DBS satellites, digital signal compression and small receive dishes, has allowed satellite operators to offer a programming service more comparable to that offered by cable, unleashing for the first time real competition in the subscription television market. In particular, the ability to offer local-into-local service has enabled satellite operators to offer a full slate of quality programming comparable to cable offerings. With this morning’s successful launch of our DIRECTV 7S spot beam satellite we will soon provide local-into-local service in just over 100 DMAs nationwide. We also have pending before the FCC other proposals that will give us the capacity to reach 130 DMAs by the end of this year – and maybe even as soon as this summer. At that time we will be offering local broadcast channels in markets serving 92% of American television households. In coming years, we plan to continue rolling out local-into-local service in as many markets as we possibly can. The results have been nothing short of astounding. When SHVIA was enacted in 1999, the DBS industry had 10 million subscribers. In the last five years, that number has more than doubled, reaching 22 million subscribers, of which DIRECTV serves over 12 million. The result is that, while cable still has about 66 million subscribers, DBS has played at least some small part in limiting cable price increases and forcing cable companies to provide better customer service, improved content, and digital services. We believe that none of this would have been possible without more robust DBS competition, and that DBS competition in turn would not have been possible without SHVIA. In other words, SHVIA has been an extraordinary success. And we hope Congress will build on its success. But we know that SHVIA is a difficult and complex issue, and we also know that, in this busy legislative session, Congress does not have a lot of time to act. With this realization in mind, we have been meeting with representatives of the broadcast industry over the last month or so to see if we could reach common ground on some of the issues associated with SHVIA reauthorization. We thought that, if we could reconcile our differences on these issues, the end result would likely represent sound and reasonable public policy. These discussions are still ongoing. But we have been able to find some common ground, at least conceptually, on several basic SHVIA issues. Among these issues are the following: · Legislation should extend satellite operators’ ability to import distant signals for five years. · Legislation should allow, subject to some limitations, satellite operators to offer the same out-of-market “significantly viewed” stations that cable operators already offer. · Legislation should extend for five years the existing satellite carrier retransmission consent exemption for distant signal stations. · Legislation should extend for five years the existing statutory provision prohibiting television stations from entering into exclusive retransmission consent agreements. · Legislation should extend the good faith negotiating requirement to all multichannel video providers. · Legislation should provide some sort of mechanism for “grandfathered” distant signal subscribers (also known as “Grade B Doughnut” subscribers) to choose between distant and local-into-local signals. · Legislation should gradually implement a “no-distant-where-local” concept, whereby satellite operators cannot offer new subscribers distant signals where local-into-local signals are available. In doing so, however, legislation must ensure that existing subscribers with both distant and local-into-local service get to keep both. · Finally, legislation should clarify that “carry one carry all” means that satellite carriers may not “split” local analog or local digital signals, respectively, in one market between two dishes. Do these principles reflect everything DIRECTV would want from SHVIA reauthorization? Of course not. We still think, for example, that Congress should reauthorize the distant signal compulsory license on a permanent basis, so that we don’t find ourselves once again discussing these same issues in five years. But all in all, we think that these principles represent a reasonable compromise between two parties that entered these discussions with very different points of view. We think these principles represent a modest improvement over current law. Yet I must point out that – although the issue is outside of this Committee’s jurisdiction – any SHVIA reauthorization that includes a satellite-specific royalty fee hike would not represent an improvement over current law. Others, perhaps including some at this table, have their own ideas, and will doubtless submit their own proposals if they have not already done so. That is as it should be. Their ideas – like ours – must stand or fall on their own merits. DIRECTV looks forward to working through these issues with the Committee to craft the best possible legislation to continue SHVIA’s pro-competitive legacy. Conclusion In conclusion, Chairman McCain and members of the Committee, I would like to thank you for all that Congress has done to nurture the satellite television industry as a vibrant competitor in the subscription television market. With your help, we will continue to provide the highest quality, best-priced competitive service to consumers. I am happy to take your questions.

• Mr. Charlie Ergen
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  Testimony

  Mr. Charlie Ergen

  Thank you Chairman McCain, Senator Hollings, and distinguished members of the Committee, on behalf of EchoStar Communications Corporation, I want to thank you for inviting our company to discuss with you the Satellite Home Viewer Improvement Act. My name is Charles Ergen, and I am Chairman and Chief Executive Officer of EchoStar Communications Corporation. The reauthorization of the Satellite Home Viewer Improvement Act (“SHVIA”) offers Congress an excellent opportunity to preserve and extend the pro-competitive measures in the current Act, as well as to improve regulatory parity between cable and satellite TV providers. While SHVIA helped create a more level playing field for cable and satellite TV providers in the multichannel video programming distributor (“MVPD”) market, there are still many significant differences in the regulatory treatment of cable and satellite that affect their relative attractiveness to consumers. In reauthorizing and revising SHVIA, Congress should take steps to eliminate these regulatory differences and ensure that satellite carriers can continue to compete vigorously with cable in the MVPD market. At the same time, care should be taken not to impose new requirements on satellite carriers that further disadvantage them relative to their primary MVPD competitors, the dominant cable industry. Reauthorization of Section 119 – Carriage of Distant Network Signals Under Section 119 of the Copyright Act, which is set to expire on December 31, 2004, satellite carriers are allowed to make distant network programming available to “unserved households.” Satellite carriers’ ability to provide distant signals is of crucial importance to millions of consumers, mostly in rural areas, who cannot receive an adequate, over-the-air local broadcast signal. One of the reasons there are so many unserved households is because the cost to broadcasters of serving these additional households often exceeds the advertising revenue that the broadcasters hope to generate. To ensure that such households continue to have access to distant network signals from their satellite providers, we urge you to reauthorize Section 119 and to make the statutory license permanent. Cable operators currently enjoy a permanent license with respect to distant signals. Satellite carriers should enjoy the same right. Broadcasters have asked you to limit our ability to provide distant signals in markets in which we provide local-into-local service. We oppose this change to the distant signal license. Consumers who do not have access to an over-the-air signal, and who have to pay for their television service, should have a choice as to whether to watch their local broadcaster or a distant broadcaster on their satellite platform. Just as a consumer in Kalamazoo, Michigan can purchase either the Kalamazoo Gazette or the Los Angeles Times, satellite subscribers who qualify under the current law should continue to have this same basic choice. It is not right to penalize satellite carriers for making the substantial investments necessary to provide local-into-local service by taking away their distant signal rights. Nor is it right to penalize consumers by taking away an option they have today merely because a satellite carrier has worked to make available to them an additional option. By reauthorizing the distant signal license, you will also be providing a spur to broadcasters to improve and extend their over-the-air signal to reach as many households as possible. In contrast, taking away that license would remove any such incentive for broadcasters who find it less costly to serve unserved households by cable or satellite than to improve their signals. Section 119 also permits satellite carriers to retransmit non-network broadcast stations (i.e. superstations) to satellite subscribers. Superstations are a staple of cable line-ups and their availability on satellite systems has been a key driver of growth in the satellite television industry. Reauthorization of Section 119 will ensure that satellite carriers will continue to have the same opportunity as cable to offer such popular programming to satellite subscribers. Also, Congress should extend the “grandfather” clause in Section 119 so that households that subscribed to distant network signals prior to October 31, 1999 can continue to receive such signals. We have hundreds of thousands of satisfied, long-term subscribers that have come to rely on this provision. There is no reason to disenfranchise them now. And Congress should not place a new deadline on eligible consumers’ ability to receive distant stations. Congress has now had long enough experience with the distant station license to appreciate its benefits. The license should become permanent. Transition to Digital Television The reauthorization of SHVIA also offers Congress an opportunity to broaden the existing definition of “unserved household” so that consumers who cannot receive a digital television (DTV) signal from their local broadcaster will have the ability to receive it from their satellite TV provider. This will spur the transition to digital TV broadcasting, which has lagged to date despite the statutory deadline of December 31, 2006 for the relinquishment of analog TV spectrum. Specifically, a significant number of viewing households (as of February 2004, all except 17 out of 210 markets) still lack access to a full complement (ABC, CBS, NBC, FOX, and PBS) of full-power digital broadcasts from the networks serving their areas. And while the broadcasters have told Congress that only a handful of network stations have failed to build DTV stations that operate at full power, a study the NAB recently presented to the FCC contradicts this claim – even according to that partisan study, more than half the operational DTV stations are not operating at their licensed power level. Consumers cannot reasonably be expected to make the investment in DTV equipment if they cannot even receive DTV signals. By allowing satellite TV providers to offer DTV programming to households that are not served with a local over the air digital signal, Congress would increase demand for digital television sets among satellite TV subscribers. With more digital TV sets in the market, broadcasters will have increased incentives to make their digital signals available to more households sooner. To a significant extent, the rate of DTV adoption has been slow because consumers are not willing to buy DTV sets until there is more DTV programming, while broadcasters are not willing to provide DTV programming until more consumers have DTV sets. Allowing satellite carriers to beam distant DTV signals to unserved households would help cut this Gordian knot by leveraging the deployment of DTV in one part of the country into other parts of the country that have no such service. By accelerating the rate of DTV adoption in this way, the vicious cycle that impedes DTV deployment may at last be broken. To achieve this, however, it is not enough to ask the FCC to submit a report to you about an appropriate predictive model. First of all, this is a “death by committee” approach: it would ensure that nothing happens to expedite the DTV transition until after the deadline for the transition has elapsed. Second, no model is necessary in cases where the local broadcaster has not built any DTV facilities whatsoever. In those cases, there is no need for a prediction – all of the households that the broadcaster was supposed to reach with a DTV signal are certainly unserved. Consequently, Congress should allow immediate distant HDTV service to those DTV unserved households for which no prediction is necessary, and should require the FCC to establish a DTV predictive model by expedited rulemaking for all other cases. Not surprisingly, this plan is vehemently opposed by broadcast interests. But these same broadcasters are busily developing lots of creative ideas for extracting all the benefits offered by digital spectrum, including a plan to use their DTV spectrum to set up wireless cable systems to compete with satellite and traditional cable systems. At the same time, they are failing to hold up their end of the bargain with the American public by providing full power DTV and returning the analog spectrum on a timely basis. The broadcasters should not be permitted to reap all of the benefits of digital, while shirking their obligations. Congress should adopt our proposal to hasten the digital transition. Determining Which Households are “Unserved Households” Congress also has an opportunity to improve the process for determining which households are “unserved households” under Section 119 in the following ways. First, it can improve the model used to predict whether a household can receive a local network signal of grade B intensity so as to take into account interference conditions and “multi-path” transmission problems. Currently, the Individual Location Longley Rice (“ILLR”) model predicts many households to be served when in fact they cannot receive an adequate signal because local interference conditions have weakened the signal. In addition, even when the signal strength is adequate, a household may receive an unwatchable picture as a result of “ghosting” caused by multi-path transmissions. Such households should be treated as unserved. Congress should also consider directing the FCC to increase the grade B intensity threshold to reflect modern consumer expectations about picture clarity. The current standard was adopted in the 1950s and based on consumer quality expectations from that era of hazy TV reception. Modern consumer expectations are considerably higher. Second, Congress could improve SHVIA’s waiver and signal strength testing process, which is not working as envisioned. Five years of experience with this process shows us that it often leads to a bad customer experience. In some instances, the law is unclear; in other cases consumers have unrealistic expectations; and in still other cases, DBS providers and their customers are subject to the whims of broadcasters. We recommend narrowing the waiver process to permit only consumers predicted as receiving weak Grade B signals to request a signal strength test. We also recommend an explicit clarification of what we believe to be the current law: that broadcasters may not revoke waivers once given so long as a subscriber receives continuous service from the DBS provider – the customer should not be victim to whimsical rescissions of previously granted waivers. Further, the rules should be clarified to eliminate consumer confusion when a subscriber is predicted to receive the same network signal from two local network affiliates in different DMAs. In those cases, a waiver should be required only from the network station in the subscriber’s DMA. This will eliminate the need for customers to get multiple waivers from affiliates of the same network. Third, Congress should clarify that where there is not the full complement of four network stations in a given DMA (e.g. ABC, CBS, NBC are present, but not Fox), then satellite providers can import a distant signal of the missing network into that DMA, even though some households in the DMA might be predicted to be served by an affiliate of that network in a neighboring DMA. Carriage of Broadcast Stations Significantly Viewed Stations. We encourage the Senate to improve regulatory parity between cable and satellite by giving satellite TV providers the ability to retransmit “significantly viewed” stations within a community, and afford the same market modification opportunities that cable systems have. Significantly viewed signals should also be exempted from network nonduplication, syndicated exclusivity and sports blackout rules in the communities where those stations are significantly viewed. We note that, even with these changes, cable operators will still enjoy a broader copyright license than the license of Section 119, but these adjustments will help lessen the gap. Retransmission Consent. The Committee should also eliminate the sunset on the non-exclusivity and good faith requirements for retransmission consent. Currently, for local stations that elect retransmission consent rather than must-carry, Section 325(b)(3)(C)(ii) of SHVIA and the Commission’s rules prohibit exclusive retransmission consent agreements and require the local station to negotiate retransmission agreements in good faith. These requirements sunset on January 1, 2006. EchoStar considers these limitations on broadcasters’ ability to negotiate retransmission consent agreements to be essential for the preservation of a competitive MVPD market and for keeping video programming prices low. Exclusive retransmission consent agreements not only can result in limiting the distribution of a local station’s signal to a single MVPD (rather than all of the providers that choose to carry that signal), but may even give that unfair advantage to an affiliate of the local broadcaster. In addition, elimination of the good faith requirement might further encourage troublesome current practices such as bundling of programming networks. Many local broadcast stations are now controlled by conglomerates with many other video programming properties. EchoStar’s experience has been that retransmission consent negotiations provide such companies with the opportunity every three years to renegotiate video programming deals or to foist on MVPDs additional video programming that consumers do not want as a condition of retransmission consent for important local broadcast stations. While the good faith requirement has not been very effective in preventing such practices and may need to be strengthened, EchoStar believes that it does have an influence on the bargaining behavior of broadcasters and should, at a minimum, be preserved. Also, Congress should resist the “symmetry” of imposing “reciprocal” requirements on distributors. Such restrictions make sense only when the negotiating party has market power that it can use as leverage in the negotiations. This is true of broadcast stations that elect retransmission consent versus must-carry, and it may also be true of the dominant MVPDs – cable systems. But it is not true of all MVPDs, and Congress should not impose such obligations across the board on all distributors. To do so would only give broadcasters a negotiating tool that would neutralize the discipline Congress intended to impose on broadcasters by making provision for a unilateral good faith obligation in 1999. Local-into-local and Two-dish EchoStar is a pioneer of local-into-local service. We knew that it was essential to provide such service if we were to compete effectively with cable. We lobbied Congress in the late 1990s for the rights to be able to retransmit such signals, and were pleased when Congress passed SHVIA to give satellite providers such rights. We then invested billions of dollars in satellite technology to launch local markets as quickly as possible. Today, EchoStar offers more local broadcasters’ signals within their local communities than any other cable or satellite TV provider. DISH Network was the first satellite TV provider to offer local channels with a roll-out of 13 markets. In less than five years since passage of SHVIA, EchoStar’s DISH Network has launched local-into-local service in 119 television markets, serving more than 86% of the country. Early on, in order to make maximum use of scarce spectrum resources, we began providing local-into-local service in a number of markets using a 2-dish solution. Under this solution, subscribers who want local stations in certain markets are provided with a second dish completely free of charge so that they can receive all of their local stations. Once the second dish is installed, the fact that the local stations are being provided through two dishes instead of one is completely transparent to the consumer – all the local channels are listed contiguously on our electronic program guide. The use of the 2-dish solution has allowed us to deliver local-into-local into more markets, more quickly than would otherwise have been possible. Notably, our two dish solution is no different conceptually from the requirement, in many locations, of multiple over-the-air antennas to receive all local stations. The multiple antennas are necessitated by the fact that all broadcasters in a market seldom use the same transmitter tower, or even locate their individual towers in the same area. Where transmitter towers are located in different areas, multiple reception antennas pointed in the direction of the different transmitters are necessary. Ironically, while broadcasters have decried EchoStar’s two-dish solution, broadcasters appear to expect consumers to accept the need for multiple over-the-air antennas as a fact of life. Nevertheless, the broadcasters are asking Congress to outlaw our company’s specific plan for complying with must-carry and require its abolition within one year. The wiser course is to resist these misguided calls and let consumer preferences be the guiding criterion that will lead to optimal carriage of local broadcast stations. There are many good reasons for this. First of all, it is important to recognize that a “same dish” requirement for all broadcast stations does not necessarily mean a “single dish” for all consumers. If our two dish plan were prohibited, compliance with the new rule would still require many two-dish markets, albeit with all broadcast stations on the same dish. In those two-dish markets, all subscribers that want even one network station will need a second dish. Furthermore, compliance with the rule will likely require some current single-dish markets to be converted to two-dish markets, as shown by DIRECTV’s own attempt at remapping EchoStar’s system. Second, prohibiting our plan would cause massive disruption and possibly loss of local service for our subscribers in 15 to 30 markets. This is because moving a market A station from a wing slot to a “full-CONUS” spot beam that now provides some local stations from markets A, B and C will require the displacement of markets B and/or C from the spot beam. This in turn means that the subscribers whose stations are displaced will need a second (or different) dish. To illustrate, take our EchoStar 7-11 spot beam. That beam currently provides more fully effective competition to cable, and more choice for consumers, in Chicago, Indianapolis, St. Louis and Grand Rapids. It has the physical capacity to carry a total of 24 channels. Some have suggested that we should increase the compression ratio of our signals to squeeze more channels onto the spot beam. We have concluded, however, that increasing the compression ratio above current levels would degrade signal reception quality to a level we are unwilling to impose on our customers. We do not compress our signal to a greater extent on any of our satellites, whether spot beam or full CONUS. Consequently, the entire capacity of that spot beam is consumed by four channels from Chicago, seven channels from Indianapolis, six channels from St. Louis and seven channels from Grand Rapids. In order to be able to serve all of these markets, five channels from Chicago, two channels from Indianapolis and two channels from St. Louis were placed on the wing satellite located at 61.5 degrees in compliance with existing law. If the law is now changed, the five wing channels from Chicago could be placed in the spot beam, but since the capacity of the spot beam is limited to 24 channels, in order to comply with a single dish edict this would necessitate that all of the channels from Indianapolis, St. Louis and Grand Rapids which are currently in the spot beam be relocated to the 61.5 degree location, or to a satellite located at some other orbital position in order to make all markets in this spot beam “same dish” markets. Equally important, the number of subscribers that will need second or new dishes will overwhelm EchoStar’s capacity to install them. The result? With a one-year time frame, many subscribers will lose their local service. Third, there are many misconceptions circulating about our two dish solution. For example, the argument that no one is willing to install dishes to watch programming from two locations is just plain wrong. Almost two million of our customers have had dishes installed to view programming from our 61.5 or 148 degree locations. While the “look angle” from those locations has been cited as a problem by detractors, in fact with respect to most of our 61.5 degree two dish markets, the angle for a dish pointed at EchoStar III, located at our 61.5 degree orbital location, is better than the angle of a dish pointed at the spot beam satellites located at our 119 and 110 degree orbital locations, where the remaining local channels are carried. That is, a consumer is actually more likely to be able to view programming from the 61.5 degree wing location, than from the 119 degree “core” location. Simple math, and the help of a map, confirms the mid-point of 119 and 61.5 degrees longitude to be approximately 90 degrees, a longitudinal line running approximately through Madison, Wisconsin, to Springfield, Illinois and Memphis, Tennessee, to Jackson, Mississippi and New Orleans, Louisiana in the southern United States. From any location east of that line, the look angle to the 61.5 degree satellite is empirically better than is the look angle from a dish which must view programming from a satellite located at 119 degrees. Another common misconception is that EchoStar charges more for channels located at wing slots, or charges for the dish required to view those channels. Again, this is simply not accurate. The second dish necessary to view those channels, together with professional installation of the second dish and the channels themselves, are in all cases offered absolutely free to the customer. While the cost to EchoStar to provide the second dish and installation is substantial, we absorb that cost, having concluded that it is more important to be able to offer the local channels in the greatest number of markets. Detractors also have complained that EchoStar does not inform customers of the availability of the wing channels free of charge, and that we discriminate against the wing channels in channel guide location. These assertions are inaccurate. Channels at a wing location are located in our program guide in a fully integrated manner with the channels located at other locations. Channel numbering – regardless of location - is contiguous, with each local channel assigned the channel number it carries off air (with the exception of older EchoStar boxes where off air channel numbering is not possible for any local channels, but all local channels are in that event offered with contiguous numbering). Scrolling through the on screen channel guide, a consumer who has installed a second dish has no visibility to the existence of that second dish and can not in any way distinguish between channels being delivered from satellites located at different orbital positions. Importantly, where a consumer decides not to take local channels from the wing satellite, the on screen guide boldly advertises the availability of the second dish and installation free of charge. Tuning to the wing channel produces the following bold message: “YOU MUST HAVE A SECOND DISH TO VIEW THIS CHANNEL. DISH NETWORK WILL PROVIDE THE DISH FREE OF CHARGE. CALL 1-800-333-DISH”. Clearly, we give our customers notice and the choice of getting the wing slot stations for free, if they want them. Fourth, it is important to recognize that we have reduced the number of two-dish markets to only 38 out of 119 markets currently being served with local stations. Overall, we now carry a total of 895 of local broadcast stations. Of those, only 106 are offered from one of our wing satellites. Economics has been the driving force for this reduction. Economically, it is in our best interest to offer a single-dish solution where possible simply because we offer the second dish and related hardware, and a professional installation, free to every consumer who wants a second dish. The cost to EchoStar is well over $100 for each second dish installed, a significant incentive to offer channels from a single dish wherever possible, and eliminating the need for governmental intervention. In fact, over the last year we have already transitioned eight two dish markets to a single dish solution (Charlotte, Cincinnati, Ft. Myers, Grand Rapids, Kansas City, Lexington, Miami and Raleigh), and based on the focus on this issue provided in recent weeks, we are pleased to advise that effective this week we have also been able to transition Albuquerque, Phoenix, San Antonio and Tucson from two dish, to one dish solutions. We are also moving a total of 27 channels from wing satellites to spot beams over the next week. As stated, this reduces our two dish markets from 42 to 38 and reduces the number of wing satellite channels from 133 to 106. In fact, I am prepared to commit to you today that, barring changes in channel configurations in local markets, we do not intend to add any more 2-dish markets beyond the 38 that currently exist. We will continue to migrate existing 2-dish markets to single dish as we are able to find or create additional spectrum capacity to do so. We hope to be able to complete that process entirely within four years. But if we are required to complete the transition on an artificially compressed time schedule (such as the one-year time frame being mentioned), the result will be a lose-lose for consumers and competition. That deadline is both unrealistic and, in any case, unnecessary because EchoStar plans on migrating all of its subscribers to a same-dish solution for local-into-local service within four years anyway. Legislation is simply not necessary to address this transitory issue. Conclusion In conclusion, in reauthorizing SHVIA, I urge you to lessen the gap that still separates DBS providers from cable operators, create greater parity between the two competing modes, and resist the creation of obstacles that would further hamper our efforts to compete.

• Mr. Jim Yager
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  Testimony

  Mr. Jim Yager

  Ever since Congress crafted the original Satellite Home Viewer Act of 1988 (“SHVA”), it has worked to ensure both (1) that free, over-the-air network broadcast television programming will be widely available to American television households, and (2) that satellite retransmission of television broadcast stations will not jeopardize the strong public interest in maintaining free, over-the-air local television broadcasting. Those two goals remain paramount today. There can be no doubt that delivery of local stations by satellite is the best way to meet these twin objectives. The first two times Congress considered the topic -- in 1988 and 1994 -- delivery of local stations by satellite seemed far-fetched. Congress therefore resorted to a considerably less desirable solution: permitting importation of distant television stations, although only to households that could not receive their local network stations over the air. When Congress revisited this area in 1999, the world had changed: local-to-local satellite transmission had gone from pipe dream to technological reality. And in response, in the 1999 Satellite Home Viewer Improvement Act (“SHVIA”), Congress took an historic step, creating a new “local-to-local” compulsory license to encourage satellite carriers to deliver local television stations by satellite to their viewers. At the same time, Congress knew that allowing satellite carriers to use the new license to “cherry-pick” only certain stations would be very harmful to free, over-the-air broadcasting and to competition within local television markets. Congress therefore made the new “local-to-local” license available only to satellite carriers that deliver all qualified local stations. Congress’ decision to create a carefully-designed local-to-local compulsory license has proven to be a smashing success. Despite gloomy predictions by satellite carriers before enactment of SHVIA that the “carry-one-carry-all” principle would sharply limit their ability to offer local-to-local service, the nation’s two major DBS companies, DirecTV and EchoStar, today deliver local stations by satellite to the overwhelming majority of American television households. Thanks to the wise decision by the FCC and the Department of Justice to block the proposed horizontal merger of DirecTV and EchoStar, the two DBS firms continue to compete vigorously against one another in expanding their delivery of local stations. While EchoStar predicted when it sought to acquire DirecTV that it would never be able to serve more than 70 markets without the merger, EchoStar now serves 119 Designated Local Markets (“DMA’s”) that collectively cover more than 85% of all U.S. TV households. Nor is there any sign that EchoStar’s expansion of local-to-local service has stopped. The story with DirecTV is even more dramatic. With the launch of a new satellite (set for this week), DirecTV expects to serve 100 DMAs covering 85% of all U.S. TV households. By the end of 2004, DirecTV has committed to providing local-to-local in an additional 30 markets, for a total of at least 130 DMAs covering 92% of all TV households. And as early as 2006 and no later than 2008, “DirecTV will offer a seamless, integrated local channel package in all 210 DMAs.” In Re General Motors Corporation and Hughes Electronics Corporation, Transferors and The News Corporation Limited, Transferee, for Authority to Transfer Control, 332, MB Docket No. 03-124 (released Jan. 14, 2004) (emphasis added). The local-to-local compulsory license is the right way -- and the distant-signal compulsory license is the wrong way -- to address delivery of over-the-air television stations to satellite subscribers. If Congress wishes to do anything other than briefly extend the expiration date of Section 119, it should – as a matter of simple logic -- limit the distant-signal compulsory license to markets in which the satellite carrier does not offer local-to-local service. It makes no sense, for example, to treat a satellite subscriber as “unserved” by its local CBS station when the subscriber’s DBS firm offers that station as part of its satellite-delivered package, with what the satellite industry describes as “a 100 percent, crystal-clear digital audio and video signal.” And even if Congress elects to allow certain subscribers who are technically considered “unserved” today to retain distant network signals, Congress should not allow any new signups for distant signals in local-to-local markets. Although the rapid rollout of DBS local-to-local service has vindicated the actions that Congress took in SHVIA in 1999, there is one major blemish on the success story: an outrageous form of discrimination that EchoStar has inflicted on some local stations. EchoStar’s method of discrimination is simple, but devastating. While placing what it considers the most “popular” stations in a market on its main satellites, EchoStar relegates certain stations (particularly Hispanic and foreign-language stations) to a form of satellite Siberia -- placing them on remote “wing satellites” far over the Atlantic or Pacific, which can be seen only if one obtains a second satellite dish. Very few subscribers actually do acquire a second dish, thereby rendering many local stations invisible to their own local viewers. As DirecTV has acknowledged, this practice violates the “carry one, carry all” principle of the SHVIA. The FCC has thus far tolerated this grossly improper practice, imposing only minor restrictions on this form of discrimination. Congress should step in to halt this misconduct. While the local-to-local compulsory license has (with the exception of EchoStar’s two-dish abuse) generally worked well, the history of the distant-signal compulsory license (codified in Section 119 of the Copyright Act) has been just the opposite. For the first ten years after this law was enacted, satellite carriers systematically ignored the clear, objective definition of “unserved household” and instead delivered distant signals to anyone willing to say that they did not like their over-the-air picture quality. Only through costly litigation -- culminating in a 1998 ruling against PrimeTime 24 and a 1999 ruling against DirecTV -- were broadcasters able to bring a halt to most of this lawlessness. Even after those rulings, however, EchoStar has continued to serve hundreds of thousands of illegal subscribers, forcing broadcasters to spend years chasing it through the courts to obtain relief. Last June, a United States District Court found (after a ten-day trial) that EchoStar willfully or repeatedly violated the distant-signal provisions of the Copyright Act and, in the process, broke a sworn promise to the court to turn off large numbers of illegal subscribers. This finding was only the latest in what has been a long string of instances in which courts and the FCC have found EchoStar to have violated statutes and rules -- and abused legal processes -- for its own private benefit. Startlingly, EchoStar, having engaged in this widespread pattern of misconduct, and having been content to violate the distant-signal license until ordered by a court to stop breaking the law, now urges Congress to radically expand the distant-signal compulsory license. In particular, EchoStar now asks to be allowed to import ABC, CBS, Fox, and NBC programming from New York and Los Angeles stations to millions of households that can receive the same programming from their local stations over the air – and in most cases, can also get their local stations in superb quality, by satellite, from EchoStar and DirecTV as part of their local-to-local package. Although these homes are unquestionably “served” by their local stations, EchoStar proposes to be allowed to deliver the same programming from New York or Los Angeles if the household is – in their view -- “digitally unserved.” The EchoStar proposal – by a company with a long track record of lawlessness -- is a recipe for mischief. As this Committee has repeatedly recognized, the distant-signal compulsory license is a departure from marketplace principles that is appropriate only as a “lifeline” for households that otherwise cannot view network programming. It would make no sense to override normal copyright principles for households that can readily view their own local stations. It would give the DBS firms a government-provided crutch that would set back for years what would otherwise be a market-driven race between DirecTV and EchoStar – further spurred by competition with cable -- to deliver digital signals on a local-to-local basis. And when local stations later sought to reclaim their own local viewers from the distant digital transmissions, there would be a consumer firestorm much like what occurred when two major satellite carriers were required to turn off (illegally-delivered) distant analog signals to millions of households in 1999. Finally, given the rapid pace of technological and economic change, Congress should again specify that Section 119 will sunset after a limited, five-year period, so that Congress can decide then if there is any reason to continue this government intervention in the free market for copyrighted television programming. I. THE PRINCIPLES OF LOCALISM AND OF RESPECT FOR LOCAL STATION EXCLUSIVITY ARE FUNDAMENTAL TO AMERICA’S EXTRAORDINARILY SUCCESSFUL TELEVISION DELIVERY SYSTEM As Congress has consistently stressed -- going back to 1988, when it originally crafted the rules governing satellite importation of distant broadcast stations -- the principles of localism and of local station exclusivity have been pivotal to the success of American television. A. The Principle of Localism is Critical To America’s Extraordinary Television Broadcast System Unlike many other countries that offer only national television channels, the United States has succeeded in creating a rich and varied mix of local television outlets through which more than 200 communities -- including towns as small as Glendive, Montana, which has fewer than 4,000 television households -- can have their own local voices. But over-the-air local TV stations -- particularly those in smaller markets such as Glendive -- can survive only if they can generate advertising revenue based on local viewership. If satellite carriers can override the copyright interests of local stations by offering the same programs on stations imported from other markets, the viability of local TV stations -- and their ability to serve their communities with the highest-quality programming -- is put at risk. The “unserved household” limitation is simply the latest way in which the Congress and the FCC have implemented the fundamental policy of localism, which has been embedded in federal law since the Radio Act of 1927. / In particular, the “unserved household” limitation in the SHVA implements a longstanding communications policy of ensuring that local network affiliates -- which provide free television and local news to virtually all Americans – do not face importation of duplicative network programming. The objective of localism in the broadcast industry is “to afford each community of appreciable size an over-the-air source of information and an outlet for exchange on matters of local concern.” Turner Broadcasting Sys. v. FCC, 512 U.S. 622, 663 (1994) (Turner I); see United States v. Southwestern Cable Co., 392 U.S. 157, 174 & n.39 (1968) (same). That policy has provided crucial public interest benefits. Just a few years ago, the Supreme Court declared that Broadcast television is an important source of information to many Americans. Though it is but one of many means for communication, by tradition and use for decades now it has been an essential part of the national discourse on subjects across the whole broad spectrum of speech, thought, and expression. Turner Broadcasting Sys. v. FCC, 117 S. Ct. 1174, 1188 (1997). Thanks to the vigilance of Congress and the Commission over the past 50 years in protecting the rights of local stations, over-the-air television stations today serve more than 200 local markets across the United States, including markets as small as Presque Isle, Maine (with only 28,000 television households), North Platte, Nebraska (with fewer than 15,000 television households), and Glendive, Montana (with fewer than 5,000 television households). This success is largely the result of the partnership between broadcast networks and affiliated television stations in markets across the country. The programming offered by network affiliated stations is, of course, available over-the-air for free to local viewers, unlike cable or satellite services, which require substantial payments by the viewer. See Turner I, 512 U.S. 622, 663; Satellite Broadcasting & Communications Ass’n v. FCC, 275 F.3d 337, 350 (4th Cir. 2001) (“SHVIA . . . was designed to preserve a rich mix of broadcast outlets for consumers who do not (or cannot) pay for subscription television services.”); Communications Act of 1934, § 307(b), 48 Stat. 1083, 47 U.S.C. § 307(b). Although cable, satellite, and other technologies offer alternative ways to obtain television programming, tens of millions of Americans still rely on broadcast stations as their exclusive source of television programming, Turner I, 512 U.S. at 663, and broadcast stations continue to offer most of the top-rated programming on television. The network/affiliate system provides a service that is very different from nonbroadcast networks. Each network affiliated station offers a unique mix of national programming provided by its network, local programming produced by the station itself, and syndicated programs acquired by the station from third parties. As Congress recognized in drafting the original SHVA in 1988, “historically and currently the network-affiliate partnership serves the broad public interest.” H.R. Rep. 100-887, pt. 2, at 19-20 (1988). Unlike nonbroadcast networks such as Nickelodeon or USA Network, which telecast the same material to all viewers nationally, each network affiliate provides a customized blend of programming suited to its community -- in the Supreme Court’s words, a “local voice.” The local voices of America’s local television broadcast stations make an enormous contribution to their communities. In Appendix A, we list just a few examples of television broadcasters’ commitment to localism in the form of help to local citizens -- and local charities -- in need. It is through local broadcasters that local citizens and charities raise awareness and educate members of the community. Community service programming -- along with day-to-day local news, weather, and public affairs programs -- is made possible, in substantial part, by the sale of local advertising time during and adjacent to network programs. These programs (such as “Alias,” “CSI,” “American Idol,” and “Friends”) often command large audiences, and the sale of local advertising slots during and adjacent to these programs is therefore a crucial revenue source for local stations. A variety of technologies have been developed or planned -- including cable, satellite, open video systems, and the Internet -- that, as a technological matter, enable third parties to retransmit distant network stations into the homes of local viewers. Whenever those technologies posed a risk to the network/affiliate system, Congress or the Commission (or both) have acted to ensure that the retransmission system does not import duplicative network programming from distant markets. A recent example is the threat of unauthorized Internet retransmissions of television stations, which was quickly halted by the courts (applying the Copyright Act) and condemned by Congress as outside the scope of any existing compulsory license. / In the case of cable television, for example, the FCC has since the mid-1960’s imposed “network nonduplication” rules on cable systems. 47 C.F.R. §§ 76.92-76.97 (1996). As the Commission explained when it strengthened the network nonduplication rules in 1988: [I]mportation of duplicating network signals can have severe adverse effects on a station’s audience. In 1982, network non-duplication protection was temporarily withdrawn from station KMIR-TV, Palm Springs. The local cable system imported another network signal from a larger market, with the result that KMIR-TV lost about one-half of its sign-on to sign-off audience. Loss of audience by affiliates undermines the value of network programming both to the affiliate and to the network. Thus, an effective non-duplication rule continues to be necessary. / 2. Protecting the Rights of Copyright Owners to License Their Works in the Marketplace is Another Principle Supporting a Highly Circumscribed Distant-Signal Compulsory License By definition, the Copyright Act is designed to limit unauthorized marketing of works as to which the owners enjoy exclusive rights. See U.S. Constitution, art. I, § 8, cl. 8 (“The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”); Mazer v. Stein, 347 U.S. 201, 219 (1954) (“The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ‘Science and useful Arts.”). While Congress has determined that compulsory licenses are needed in certain circumstances, the courts have emphasized that such licenses must be construed narrowly, “lest the exception destroy, rather than prove, the rule.” Fame Publ’g Co. v. Alabama Custom Tape, Inc., 507 F.2d 667, 670 (5th Cir. 1975); see also Cable Compulsory License; Definition of Cable Systems, 56 Fed. Reg. 31,580, 31,590 (1991) (same). The principle of narrow application and construction of compulsory licenses is particularly important as applied to the distant-signal compulsory license, because that license not only interferes with free market copyright transactions but also threatens localism. 3. In Enacting the SHVA and the SHVIA, Congress Reaffirmed the Central Role of Localism and of Local Program Exclusivity When Congress crafted the original Satellite Home Viewer Act in 1988, it emphasized that the legislation “respects the network/affiliate relationship and promotes localism.” H.R. Rep. No. 100-887, pt. 1, at 20 (1988). And when Congress temporarily extended the distant-signal compulsory license in 1999, it reaffirmed the importance of localism as fundamental to the American television system. For example, the 1999 SHVIA Conference Report says this: “[T]he Conference Committee reasserts the importance of protecting and fostering the system of television networks as they relate to the concept of localism. . . . [T]elevision broadcast stations provide valuable programming tailored to local needs, such as news, weather, special announcements and information related to local activities. To that end, the Committee has structured the copyright licensing regime for satellite to encourage and promote retransmissions by satellite of local television broadcast stations to subscribers who reside in the local markets of those stations.” SHVIA Conference Report, 145 Cong. Rec. H11792 (daily ed. Nov. 9, 1999) (emphasis added). The SHVIA Conference Report also stressed the need to interfere only minimally with marketplace arrangements -- premised on protection of copyrights -- in the distribution of television programming: “[T]he Conference Committee is aware that in creating compulsory licenses . . . [it] needs to act as narrowly as possible to minimize the effects of the government’s intrusion on the broader market in which the affected property rights and industries operate. . . . [A]llowing the importation of distant or out-of-market network stations in derogation of the local stations’ exclusive right--bought and paid for in market-negotiated arrangements--to show the works in question undermines those market arrangements.” Id. The Conference Report also emphasized that “the specific goal of the 119 license, which is to allow for a life-line network television service to those homes beyond the reach of their local television stations, must be met by only allowing distant network service to those homes which cannot receive the local network television stations. Hence, the ‘unserved household’ limitation that has been in the license since its inception.” Id. (emphasis added). Finally, the SHVIA Conference Report highlighted “the continued need to monitor the effects of distant signal importation by satellite,” and made clear that Congress would need to re-evaluate after five years whether there is any “continuing need” for the distant signal license. Id. That time, of course, is now. II. PROPERLY IMPLEMENTED, THE LOCAL-TO-LOCAL COMPULSORY LICENSE IS A WIN-WIN-WIN FOR CONSUMERS, BROADCASTERS, AND SATELLITE COMPANIES Unlike the importation of distant network stations, which can do grave damage to the network/affiliate relationship, delivery of local stations to the stations’ own local viewers -- e.g., San Antonio stations to viewers in the San Antonio area -- is a win-win-win for consumers, local broadcasters, and DBS firms alike. As Congress explained in 1999 when it created a new local-to-local compulsory license in Section 122 of the Copyright Act, the new Act “structures the copyright licensing regime for satellite to encourage and promote retransmissions by satellite of local television broadcast stations to subscribers who reside in the local markets of those stations.” 145 Cong. Rec. H11792 (daily ed. Nov. 9, 1999) (emphasis added). A. Satellite Firms Have Enjoyed Extraordinary Growth, Thanks In Major Part To the Local-to-Local Compulsory License As the FCC recognized in its January 2004 Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, the Direct Broadcast Satellite (“DBS”) industry is thriving -- and offering potent competition to cable. The DBS industry, which signed up its first customer only decade ago, grew to more than 20 million subscribers as of June 2003. Annual Assessment, MB Dkt. No. 03-172, 8 (released Jan. 28, 2004). The growth rate for DBS “exceeded the growth of cable by double digits” in every year between 1994 and 2002, and in 2003 exceeded the cable growth rate by 9.2%. Id. Just in the 12 months between June 2002 and June 2003, the DBS industry added 2.2 million net new subscribers, surging from 18.2 million to 20.4 million households. Id. DirecTV is currently the second-largest multichannel video programming distributor (“MVPD”), behind only Comcast, while EchoStar is the fourth-largest MVPD. Id., 67. The DBS firms take many subscribers away from cable: “according to [DirecTV] internal data, approximately 70% of its customers were cable subscribers at the time that they first subscribed to DirecTV.” Id., 65. The growth of the DBS industry has far outstripped even optimistic predictions made just a few years ago. In its January 2000 Annual Assessment, for example, the FCC quoted bullish industry analysts who predicted that “DBS will have nearly 21 million subscribers by 2007.” 2000 Annual Assessment, 15 FCC Rcd. 978, 70. As the statistics quoted above show, DBS reached that level not in 2007, but in 2003 -- four years earlier than predicted. As the FCC has repeatedly pointed out, delivery of local stations by satellite has been a major spur to this explosive growth. E.g., 2004 Annual Assessment, 8. In June 1999, just before the enactment of the new local-to-local compulsory license in the SHVIA, the DBS industry had 10.1 million subscribers. 2000 Annual Assessment, 8. Only four years later, the industry had more than doubled that figure to 20.4 million subscribers. 2004 Annual Assessment, 8. That this growth has been spurred by the availability of local-to-local is beyond doubt: the DBS industry’s own trade association, the Satellite Broadcasting & Communications Association, stressed just a few months ago that “[t]he expansion of local-into-local service by DBS providers continues to be a principal reason that customers subscribe to DBS.” SBCA Comments at 4, Dkt. No. 03-172 (filed Sept. 11, 2003) (emphasis added). B. Contrary to the DBS Industry’s Pessimistic Predictions, Satellite Local-to-Local Service is Now Available to the Overwhelming Majority of American Television Households Over the past few years, EchoStar and DirecTV have repeatedly claimed that capacity constraints will severely limit their ability to offer local-to-local service to more than a small number of markets. The DBS firms used that argument -- unsuccessfully -- in 1999 in attempting to persuade Congress that it should permit DBS companies to use a new compulsory license to “cherry-pick” only the most heavily-watched stations in each market. They used it again in arguing -- again unsuccessfully -- in 2000 and 2001 that the courts should strike down SHVIA’s “carry one, carry all” principle as somehow unconstitutional. And they trotted out the same claims as a justification for the proposed horizontal merger of the nation’s only two major DBS firms, DirecTV and EchoStar. As recently as 2002, for example, the two DBS firms claimed that unless they were permitted to merge, neither firm could offer local-to-local in more than about 50 to 70 markets. EchoStar, DirecTV CEOs Testify On Benefits of Pending Merger Before U.S. Senate Antitrust Subcommittee, www.spacedaily.com/news/satellite-biz-02p.html (“Without the merger, the most markets that each company would serve with local channels as a standalone provider, both for technical and economic reasons, would be about 50 to 70.”) (quoting DirecTV executive). Contrary to these pessimistic predictions, the two DBS firms already offer local-to-local programming to the overwhelming majority of U.S. television households. Although the DBS firms claimed they would never be able to serve more than 70 markets unless they merged, EchoStar already serves 119 Designated Local Markets (“DMA’s”), which collectively cover more than 85% of all U.S. TV households. / Nor is there any sign that EchoStar’s expansion of local-to-local service has stopped. DirecTV’s plans are still more ambitious. As of November 2003, DirecTV offered local-to-local to 64 markets covering more than 72% of all U.S. television households. With the launch of a new satellite in the next few months, DirecTV expects to serve 100 DMAs covering 85% of all U.S. TV households. By the end of 2004, DirecTV has committed to providing local-to-local in an additional 30 markets, for a total of at least 130 DMAs that collectively include 92% of all U.S. TV households. / And as early as 2006 and no later than 2008, “DirecTV will offer a seamless, integrated local channel package in all 210 DMAs.” / In other words, DirecTV alone will soon offer local-to-local service to virtually all American television households -- even though EchoStar told Congress and the FCC just two years ago that this result was unthinkable unless the two firms merged. C. EchoStar And DirecTV Boast About The Excellent Technical Quality Of Their Current Local-To-Local Service -- Which Retransmits “Digitized” Analog Signals As discussed below, the satellite industry now demands that Congress expand the distant-signal compulsory license -- which EchoStar has systematically abused over the past eight years -- by creating a new category of households that are “digitally unserved.” But any suggestion that EchoStar and DirecTV have difficulty attracting customers under the current law is belied by the following facts. First, both DirecTV and EchoStar can now -- or will within a few months -- each be able to deliver local television stations by satellite to nearly 90% of U.S. television households. Second, both DBS firms obtain excellent-quality analog signals from the stations, often working with the stations themselves to obtain a direct feed from the station’s studios. Third, after receiving a high-quality analog signal, the DBS firms then “digitize” the signals and retransmit them in digital format to their customers. See www.dishnetwork.com/content/programming/ index.shtml (“DISH Network now has your digital local channels.”) (emphasis added). While these signals do not equal the quality of a signal originating from a digital broadcast, or particularly of a high-definition broadcast, the result, according to the DBS industry’s trade association, is that DBS “always delivers a 100 percent, crystal-clear digital audio and video signal,” even if the original source is an analog broadcast. SBCA Web site, www.sbca.com/mediaguide/faq.htm (emphasis added). In other words, consumers who receive an excellent-quality “digitized” analog signal from a local station from a DBS firm -- as opposed to an imported digital station -- are scarcely in a “hardship” position. Of course, it has never been the case that “obtaining the best-quality signal” would justify abandoning the principles of localism and free market competition. The principle behind the long-standing “Grade B intensity” standard for determining which households are “unserved” is that Grade B intensity is an objective proxy for an acceptable signal, not for the optimal signal. If localism could be so easily sacrificed, Congress would not have adopted -- and twice reaffirmed -- the Grade B intensity standard. / Finally, these local channel offerings have made DBS so attractive to consumers that it is gaining millions of new subscribers every year while the number of cable subscribers is actually shrinking. 2004 Annual Assessment, 8 (“In the last several years . . . cable subscribership has declined such that as of June 2003, there were approximately the same number of cable subscribers as there were at year-end 1999.”) While delivery of local digital signals by DirecTV and EchoStar would be a highly desirable development, there is no basis for suggesting that DirecTV and EchoStar need to import distant digital signals to serve their customers. D. DirecTV and EchoStar Have Many Options For Continuing To Expand Their Ability To Deliver Local Signals, Including Local Digital Signals As discussed above, DirecTV and EchoStar have brilliant engineers who constantly find ways to deliver more programming in the same spectrum. Nevertheless, in policy debates in Washington, the two firms regularly assure Congress (and the FCC) that no further technological improvement can be achieved. To mention one other example: even as DirecTV was doubling its “compression ratio” between 1998 and 2001 – enabling it to carry twice as many channels in the same amount of spectrum – it repeatedly told the FCC that it had hit a brick wall as far as any further progress in compression technology: · July 31, 1998: “DIRECTV has substantially reached current limits on digital compression with respect to the capacity on its existing satellites. Therefore, the addition of more channels will necessitate expanding to additional satellites ….” · Aug. 6, 1999: “DIRECTV has substantially reached current limits on digital compression with respect to the capacity on its existing satellites.” · Sept. 8, 2000: “DIRECTV has substantially reached current technological limits on digital compression with respect to capacity on its existing satellites. Although there are potentially very small gains still possible through the use of advanced algorithms, such technological developments can neither be predicted nor relied upon as a means of increasing system channel capacity.” · Aug. 3, 2001: “DIRECTV has offered digitally compressed signals from its inception, and has substantially reached current technological limits on digital compression with respect to capacity on its existing satellites. Although there are potentially very small gains still possible through the use of advanced algorithms, such technological developments can neither be predicted nor relied upon as a means of increasing system channel capacity.” / This year, the Committee can expect to hear from EchoStar yet again that it has no hope of significantly expanding their capacity. For example, we can expect to hear from EchoStar that it will never be able to carry the digital signals of local television stations, and that it should instead be given a crutch by Congress to help it compete with cable. In fact, the satellite firms have available to them a wide range of potential new techniques for massively expanding their capacity, including: o spectrum-sharing between DirecTV and EchoStar; o use of Ka-band as well as Ku-band spectrum; o higher-order modulation and coding; o closer spacing of Ku-band satellites; o satellite dishes pointed at multiple orbital slots; o use of a second dish to obtain all local stations; / and o improved signal compression techniques. If Congress allows the power of American technical ingenuity to continue to move forward, we can expect to see DirecTV and EchoStar continue to make tremendous progress in doing more with the same resources. Just as today’s desktop computers are unimaginably more powerful than those available just a few years ago, we can expect similar quantum improvements from America’s satellite engineers – if Congress leaves the free market to do its magic, and leaves necessity to continue to be the mother of invention. E. If The FCC Does Not Act, Congress Will Need To Step In To Correct A Major Abuse Of Local-To-Local By Echostar In crafting the SHVIA, Congress was well aware that if a DBS firm were permitting to select only some -- but not all -- local stations for retransmission, the stations left off the service would have little chance of reaching viewers who obtain their TV service from the satellite company. In the same spirit as the requirement in the 1992 Cable Act that cable systems carry all qualified local stations in each market in which they operate, the SHVIA specifies that if a satellite carrier chooses to use the local-to-local license to carry signals in a particular market, it must carry all qualified local stations. 47 U.S.C. § 338(a)(1). That requirement has been upheld against constitutional attack by EchoStar, DirecTV, and their trade association. Satellite Broadcasting and Communications Ass’n v. FCC, 275 F.3d 337 (4th Cir. 2001). The purpose of the “carry one, carry all” principle is, of course, to ensure the continued availability of a wide variety of different over-the-air channels, and to prevent the local-to-local compulsory license from interfering with existing vigorous competition among all of the broadcast stations in each local market. Since late 2001, EchoStar has egregiously violated the requirement that it carry all stations in a nondiscriminatory manner: in many markets, EchoStar forces consumers to acquire a second satellite dish to receive some -- but not all -- local stations. Here in the Washington, D.C. area, for example, EchoStar enables its customers to see the ABC, CBS, Fox, and NBC stations (and a handful of other local stations) with a single satellite dish, pointed at EchoStar’s main satellites. See EchoStar web site, www.dishnetwork.com/content/programming/ locals/index.shtml. On the other hand, viewers wishing to see Channel 14 (Univision), Channel 32 (WHUT -- PBS), Channel 53 (WNVT -- International), Channel 56 (WNVC -- International), or WJAL (Channel 68 --Independent) are forced to obtain a second satellite dish aimed at a satellite far over the Atlantic. Id. (In this and other markets, EchoStar targets public television, Hispanic, and other foreign-language stations for this discrimination.) Because few viewers will go to the time and trouble of obtaining a second dish -- e.g., a long wait at home for an installer the net result is that only a tiny percentage of EchoStar subscribers can actually view all of their local stations. To date, the FCC has taken only ineffective steps to address this egregious form of discrimination, / even though EchoStar’s fellow DBS company, DirecTV, has told the FCC that EchoStar’s two-dish ploy “is inconsistent with the language of the Satellite Home Viewer Improvement Act. ” See Letter from Merrill S. Spiegel to Marlene H. Dortch, Dkt. No. 00-196 (Jan. 16, 2003). The Commission has recently indicated that it plans to take action soon to address EchoStar’s two-dish practices,. / but it remains uncertain when it will act on pending petitions for review. Should the Commission fail to take prompt action, Congress should step in to ensure that EchoStar can no longer thumb its nose at Congress’ unmistakable directive that DBS firms that local-to-local means carriage of all local stations, without relegating many of the stations to an inaccessible electronic ghetto. III. THE DISTANT-SIGNAL COMPULSORY LICENSE HAS BEEN EGREGIOUSLY ABUSED BY SATELLITE CARRIERS, AND THE NEED FOR IT IS RAPIDLY DIMINISHING WITH THE GROWTH OF LOCAL-TO-LOCAL America’s free, over-the-air television system is based on local stations providing programming to local viewers. When satellite carriers began delivering television programming in the 1980’s, however, retransmission of local television stations by satellite was not yet technologically feasible. In 1988, Congress therefore fashioned a stopgap remedy: a compulsory license that allows satellite carriers to retransmit distant network stations, but only to “unserved households.” 17 U.S.C. § 119. The heart of the definition of “unserved household” is whether the residence can receive an over-the-air signal of a certain objective strength, called “Grade B intensity,” from an affiliate of the relevant network. Id., § 119(d)(10) (definition of “unserved household”). In 1994, Congress extended the distant-signal license for another five years, although it expressly placed on satellite carriers the burden of proving that each of their customers is “unserved.” 17 U.S.C. § 119(a)(5)(D). In 1999, Congress again extended the distant-signal license as part of the SHVIA, and statutorily mandated use of the FCC-endorsed computer model (called the “Individual Location Longley-Rice” model, or “ILLR”) for predicting which households are able to receive signals of Grade B intensity from local network stations. 17 U.S.C. § 119(a)(2)(B)(ii). In the SHVIA, Congress also classified certain very limited new categories of viewers as “unserved,” including (1) certain subscribers who had been illegally served by satellite carriers but whom Congress elected to “grandfather” temporarily, see 17 U.S.C. § 119(e), and (2) qualified owners of recreational vehicles and commercial trucks, see id., § 119(a)(11). By its terms, grandfathering will expire at the end of 2004. 17 U.S.C. § 119(e). Unlike in 1999, when Congress saw grandfathering as a way to reduce consumer complaints by allowing certain ineligible subscribers to continue receiving distant signals, the end of grandfathering will have little impact in the marketplace. This special exception should therefore be allowed to expire routinely. / A. Delivery Of Distant Signals Is A Poor Substitute For Delivery Of Local Television Stations From a policy perspective, there is no benefit -- and many drawbacks -- to satellite delivery of distant, as opposed to local, network stations. Unlike local stations, distant stations do not provide viewers with their own local news, weather, emergency, and public service programming. Nor does viewership of distant stations provide any financial benefit to local stations to help fund their free, over-the-air service. To the contrary, distant signals, when delivered to any household that can receive local over-the-air stations, simply siphon off audiences and diminish the revenues that would otherwise go to support free, over-the-air programming. Members of Congress and other candidates for election are uniquely injured by distant signals: a viewer in Phoenix, for example, will never see political advertisements running on local Phoenix stations if he or she is watching New York or Los Angeles stations from EchoStar or DirecTV instead. Such viewers become virtually unreachable by political advertising, unless (for example) a candidate in Phoenix wishes to purchase advertising on stations in the costliest media markets in the United States – New York and Los Angeles. B. Satellite Carriers Have Grievously Abused the Distant-Signal Compulsory License Satellite carriers -- most egregiously EchoStar -- have systematically abused the distant-signal compulsory license since its creation. To the extent that satellite carriers have complied with the limitations placed by Congress on the distant-signal license, it is solely as a result of litigation that broadcasters were forced to undertake to halt satellite carrier lawbreaking. From 1988 until 1998, satellite carriers simply ignored the objective “Grade B intensity” standard and instead signed up anyone willing to say that they were dissatisfied with their over-the-air picture. Starting in the mid-1990s, when the large “C-band” dishes began to be replaced by the hot-selling 18-inch dishes offered by DirecTV and EchoStar, the carriers’ distant-signal lawbreaking quickly became a crisis. When DirecTV went into business in 1994, and when EchoStar did so in 1996, they immediately began abusing the narrow distant-signal compulsory license to illegally deliver distant ABC, CBS, Fox, and NBC stations to ineligible subscribers. In essence, the DBS companies pretended that a narrow license that could legally be used only with remote rural viewers was in fact a blanket license to deliver distant network stations to viewers in cities and suburbs. / As a result of EchoStar’s and DirecTV’s lawbreaking, viewers in markets such as Meridian, Mississippi, Lafayette, Louisiana, Traverse City, Michigan, Santa Barbara, California, Springfield, Massachusetts, Peoria, Illinois, and Lima, Ohio were watching their favorite network shows not from their local stations but from stations in distant cities such as New York. Since local viewers are the lifeblood of local stations, EchoStar’s and DirecTV’s copyright infringements were a direct assault on free, over-the-air local television. When broadcasters complained about this flagrant lawbreaking, the satellite industry effectively said: if you want me to obey the law, you’re going to have to sue me. Broadcasters were finally forced to do just that, starting in 1996, when they sued the distributor (PrimeTime 24) that both DirecTV and EchoStar used as their supplier of distant signals. But even a lawsuit for copyright infringement was not enough to get the DBS firms to obey the law: both EchoStar and DirecTV decided that they would continue delivering distant stations illegally until the moment a court ordered them to stop. The courts recognized — and condemned — the satellite industry’s lawbreaking. See, e.g., CBS Broadcasting Inc. v. PrimeTime 24, 9 F. Supp. 2d 1333 (S.D. Fla. 1998) (entering preliminary injunction against DirecTV’s and EchoStar’s distributor, PrimeTime 24); CBS Broadcasting Inc. v. PrimeTime 24 Joint Venture, 48 F. Supp. 2d 1342 (S.D. Fla. 1998) (permanent injunction); CBS Broadcasting Inc. v. DIRECTV, Inc., No. 99-0565-CIV-NESBITT (S.D. Fla. Sept. 17, 1999) (permanent injunction after entry of contested preliminary injunction); ABC, Inc. v. PrimeTime 24, 184 F.3d 348 (4th Cir. 1999) (affirming issuance of permanent injunction). By the time the courts began putting a halt to this lawlessness, however, satellite carriers were delivering distant ABC, CBS, Fox, and NBC stations to millions and millions of subscribers, the vast majority of whom were ineligible urban and suburban households. See CBS Broadcasting, 9 F. Supp. 2d 1333. By getting so many subscribers accustomed to an illegal service, DirecTV and EchoStar put both the courts and Congress in a terrible box: putting a complete stop to the DBS firms’ lawbreaking meant irritating millions of consumers. Any member of Congress who was around in 1999 will remember the storm of protest that DirecTV and EchoStar stirred up from the subscribers they had illegally signed up for distant network stations. Even when the courts ordered the DBS firms to stop their massive violations of the Copyright Act, they took further evasive action to enable them to continue their lawbreaking. In particular, when their vendor (PrimeTime 24) was ordered to stop breaking the law, both DBS firms fired their supplier in an effort to continue their lawbreaking. When DirecTV attempted this in February 1999, a United States District Judge promptly stopped it from doing so. CBS Broadcasting Inc. et al v. DirecTV, No. 99-565-CIV-Nesbitt (S.D. Fla. Feb. 25, 1999); see id. (S.D. Fla. Sept. 17, 1999) (stipulated permanent injunction). EchoStar has played the game of “catch me if you can” with greater success, thanks to a series of stalling tactics in court. But in 2003, a United States District Court judge for the Southern District of Florida held a 10-day trial in a copyright infringement case brought by broadcast television networks, and trade associations representing local network affiliates, originally filed against EchoStar in 1998. / In June 2003, the District Court issued a meticulously-documented 32-page final judgment, holding EchoStar liable for nationwide, willful or repeated copyright infringement by violating the distant-signal compulsory license. CBS Broad., Inc. v. EchoStar Communications Corp., 276 F. Supp. 2d 1237 (S.D. Fla. 2003). EchoStar had the burden of proving that each of its subscribers receiving distant ABC, CBS, Fox, and NBC stations is an “unserved household.” 17 U.S.C. § 119(a)(5)(D). Yet the District Court found that EchoStar had failed to prove that any of its 1.2 million distant-signal subscribers is in fact “unserved.” That is, EchoStar did not prove that any of its subscribers is unable to receive a Grade B signal, is grandfathered, or is eligible on any other basis. Id., 82. Worst of all, the District Court found that EchoStar had deliberately sought to mislead the court about what it did with the vast pool of illegal subscribers it accumulated between 1996 and 1999. Most important, EchoStar made -- and then deliberately broke -- a sworn pledge (in a declaration by its CEO, Charles Ergen) to turn off the many ineligible subscribers it signed up using the unlawful do-you-like-your-picture method. Id., 46. Far from turning off its accumulated illegal subscribers, EchoStar knowingly continued delivering distant signals to many hundreds of thousands of customers that it knew -- from a study EchoStar itself ordered to be ineligible. Id, 38-47. EchoStar’s decision to continue its highly profitable lawbreaking was the height of cynicism: as the District Court found, “EchoStar executives, including Ergen and [General Counsel] David Moskowitz, when confronted with the prospect of cutting off network programming to hundreds of thousands of subscribers, elected instead to break Mr. Ergen’s promise to the Court.” Id., 46 (emphasis added). Nor is EchoStar’s abuse of the distant-signal compulsory license the only example of its flouting of laws and regulations and misuse of legal processes. Appendix B is a list of other violations by EchoStar of substantive legal rules, and of instances in which EchoStar has abused judicial and administrative procedures. / This is, of course, the same EchoStar that now asks Congress to expand the distant-signal compulsory license -- and to do so in ways that would allow EchoStar to offer highly profitable programming packages to millions of subscribers, at virtually no cost to EchoStar, but at great cost to broadcasters, program suppliers, and the principle of localism. C. With The Widespread Availability Of Local-To-Local Service, The Number Of Truly “Unserved” Households Is Minimal Unlike the local-to-local compulsory license, the distant-signal compulsory license threatens localism and interferes with the free market copyright system. As a result, the only defensible justification for that compulsory license is as a “hardship” exception -- to make network programming available to the small number of households that otherwise have no access to it. The 1999 SHVIA Conference Report states that principle eloquently: “the specific goal of the 119 license . . . is to allow for a life-line network television service to those homes beyond the reach of their local television stations.” 145 Cong. Rec. at H11792-793. (emphasis added). / Today, more than 80% of all U.S. television viewers have the option of viewing their local network affiliates by satellite -- and that number is growing all the time. Even satellite dish owners in local-to-local markets who cannot receive Grade B intensity signals over-the-air (e.g., a household in a remote part of the Washington, D.C. DMA) are obviously not “unserved” by their local stations: they can receive them, with excellent technical quality, directly from their satellite carrier, just by picking up the phone. And they can do so without any need to obtain a waiver, and without regard to what the ILLR model predicts about the over-the-air signal strength at their home. The widespread availability of local-to-local network affiliate retransmissions means that, as a real-world matter, there are no unserved viewers in areas in which local-to-local satellite transmissions of the relevant network are available, because it is no more difficult for viewers to obtain their local stations from their satellite carriers than to obtain distant stations. There is therefore no policy justification for treating satellite subscribers in local-to-local markets as “unserved” and therefore eligible to receive distant network stations. The distant-signal compulsory license is not designed to permit satellite carriers to sabotage the network/affiliate relationship by delivering to viewers in served households -- who can already watch their own local ABC, CBS, Fox, and NBC stations -- network programming from another source. Yet satellite carriers have aggressively advertised the benefits to served households of obtaining distant signal programming, including most notably: Ø time-shifting (e.g., Mountain and Pacific Time Zone viewers watching network programming two or three hours earlier from East Coast stations) Ø out-of-town sports: because TV networks often show different sports events (such as NFL games) in different cities, a subscription to an out-of-town network station enables viewers to see sports events that are not televised locally. These abuses of the compulsory license damage both the network/affiliate system and the free market copyright regime. Consider, for example, a network affiliate in Sacramento, California, a DMA in which there are today no DBS subscribers who are genuinely “unserved” because both DIRECTV and EchoStar offer the local Sacramento ABC, CBS, Fox, and NBC stations by satellite. Nevertheless, for any Sacramento-area viewer who is technically “unserved” under the Grade B intensity standard, DIRECTV and EchoStar can scoop the Sacramento stations with the stations’ own programming by offering distant signals from East Coast stations. The Sacramento station -- and every other station in the Mountain and Pacific Time Zones that has local-to-local service -- therefore loses badly needed local viewers, even though the viewers have zero need to obtain a distant signal to watch network programming. Similarly, the ability of satellite carriers to offer distant stations that carry attractive sports events is a needless infringement of the rights of copyright owners, who offer the same product -- out-of-town games -- on a free market basis. For example, the NFL has for years offered satellite dish owners (at marketplace rates) a package called “NFL Sunday Ticket,” which includes all of the regular season games played in the NFL. The distant-signal compulsory license creates a needless “end-around” this free-market arrangement by permitting satellite carriers to retransmit distant network stations for a pittance through the compulsory license. The House Energy & Commerce Committee has approved a bill that would bar any new signups for distant network stations in local-to-local markets and create transitional procedures for existing distant network customers. In the spirit of compromise, on the understanding that other important reforms (such as elimination of the two-dish scam) will be implemented, and that other ill-advised proposals (such as the so-called “digital white area” and “ILLR reform” proposals) are not adopted, NAB believes that such an approach is reasonable. D. For the Small Number of Markets in Which The DBS Firms Do Not Now Offer Local-to-Local, The FCC Has Repeatedly and Recently Reaffirmed that the Grade B Standard and the ILLR Model Are the Best Tools for Determining Which Households are “Unserved” For the ever-shrinking number of markets in which the DBS firms do not offer local-to-local (which will encompass no more than 8% of U.S. television households by the end of 2004 for DirecTV), the Grade B intensity standard, implemented via the FCC-endorsed Individual Location Longley-Rice (“ILLR”) model, continues to be the logical method for predicting which households are unable to receive local stations over the air. For years, the satellite industry simply ignored the objective signal intensity standard that Congress established in 1988, and instead used a meaningless subjective standard (“are you satisfied with your picture quality?”) that was effectively no standard at all. As discussed above, in 1998, the courts found that the satellite industry had broken the law by signing up millions of subscribers using this illegal method. Rather than coming into compliance, the satellite industry raced to the FCC to demand that the Commission alter (in the satellite industry’s favor) what the DBS firms characterized as an “antiquated,” “1950’s-era” Grade B standard. The FCC carefully considered the engineering data and other evidence presented by the satellite industry, but concluded that, in fact, there was no basis for changing the Grade B standard. In Re Satellite Delivery of Network Signals to Unserved Households for Purposes of the Satellite Home Viewer Act, 32-43, Dkt. No. 98-201 (released Feb. 2, 1999). Although the Grade B standard was originally established in the 1950’s, the Commission pointed out that it had repeatedly re-evaluated the standard during the intervening decades and found it to be still sound. Id., 42. As the Commission observed, many of the changes that have occurred since the 1950’s have made it easier to obtain a picture of acceptable quality with the same strength signal: for example, the “low cost noisy tubes and . . . components” of the 1950s have been replaced by “modern solid state components that produce lower set noise.” Id., 41. Overall, the FCC found that the “environmental and technical changes that have taken place” since the Grade B standard was first established have moved “in opposite directions and tend to cancel each other out.” Id., 42. Despite this exhaustive review by the Commission in 1998 and 1999, when Congress approved the SHVIA, it directed the Commission to conduct yet another proceeding to evaluate whether Grade B intensity is an appropriate standard. After carefully evaluating the submissions by all interested parties, including engineering data submitted by the satellite industry, the Commission recommended that the Grade B standard remain unchanged in virtually all respects. In Re Technical Standards for Determining Eligibility For Satellite-Delivered Network Signals Pursuant To the Satellite Home Viewer Improvement Act, ET Dkt. No. 00-90 (released Nov. 29, 2000). Similarly, the FCC’s ILLR predictive model, first announced in 1999, grew out of years of Commission experience with the Longley-Rice model in other contexts. In Re Satellite Delivery of Network Signals to Unserved Households for Purposes of the Satellite Home Viewer Act, at 61-88. In response to Congress’ directive in the SHVIA, and after reviewing all of the satellite industry’s submissions, the Commission made further refinements to the ILLR model in May 2000 and reaffirmed that ILLR is an accurate and reliable model. In Re Establishment of an Improved Model for Predicting the Broadcast Television Field Strength Received at Individual Locations, ET Docket No. 00-11 (released May 26, 2000). In doing so, the Commission considered how ILLR predictions fared when compared to actual signal intensity measurements at the same location, and found that in many cases ILLR actually underpredicts the actual signal strength available at particular households -- precisely the opposite of the satellite industry’s claims. Id. IV. THE DBS INDUSTRY’S PROPOSAL TO EXPAND THE DISTANT-SIGNAL COMPULSORY LICENSE DEFIES LOGIC AND WOULD SET BACK LOCAL-TO-LOCAL CARRIAGE OF DIGITAL SIGNALS FOR YEARS Having elected to deliberately violate the limits that Congress imposed on the existing compulsory license unless and until ordered by a federal court to obey them, EchoStar now demands that Congress radically expand the distant-signal license they have abused. The Committee should reject this irresponsible proposal out of hand. In essence, EchoStar asks the Committee to create a brand-new compulsory license to permit them to deliver the digital broadcasts of the New York and Los Angeles ABC, CBS, Fox, and NBC stations to millions of households nationwide, even though (a) the households can receive the same programming over the air from their local station’s analog signal and (b) in the overwhelming majority of cases, EchoStar and DirecTV already deliver the same programming via what SBCA describes as “a 100 percent, crystal-clear digital audio and video signal” retransmitted from the local station’s analog broadcasts. The simple greed behind this proposal is clear, and the tactic is familiar. In the 1990s, the DBS industry sought to offer network broadcast programming “on the cheap” by delivering the analog broadcasts of New York and Los Angeles stations nationwide -- completely bypassing the network/affiliate system that Congress and the FCC have worked so hard to foster. (Indeed, in the 1990’s satellite companies urged Congress to eliminate the “unserved household” restriction entirely and to permit universal distribution of New York and Los Angeles stations in return for payment of a “surcharge.”) This Committee, and Congress as a whole, blocked those maneuvers, instead insisting on localism and on marketplace solutions. By standing its ground against the “quick fix” urged by the DBS industry, Congress has fostered the win/win/win result described above: DirecTV and EchoStar (and their contractors) dug deep to find technical solutions to enable them to offer local-to-local broadcast programming to the overwhelming majority of U.S. television households -- and soon to all of them. (They found these solutions, of course, only after repeatedly telling Congress and the FCC that the technical problems were unsolvable.) EchoStar’s current proposal is equally self-serving. EchoStar would enjoy a tremendous financial benefit from being able -- again “on the cheap” -- to deliver the digital broadcasts of New York and Los Angeles ABC, CBS, Fox, and NBC stations to many millions of viewers nationwide. Instead of investing in delivering local digital broadcasts, as cable systems are gradually beginning to do, EchoStar could use a single, inexpensive national feed (e.g., of WCBS in New York) to deliver digital programming of a particular network around the country. Although this gambit would cost the DBS firms virtually nothing, they would gain enormously, both in additional customers (at $40, $50 or more per month) and in selling additional network packages (at $6 per month) to both old and new customers. While the “distant digital” proposal would be a tremendous windfall for EchoStar, it would be a disaster for Congress, the public, and broadcasters. As discussed in detail below, the supposed “factual” basis for this proposal -- that the broadcast television industry has not been diligent in pushing the digital transition -- is palpable nonsense. And as also described below, this gift to the DBS industry would come at a crippling cost in terms of Congress’ public policy objectives. A. The Broadcast Industry Has Spent Enormous Sums and Dedicated Extraordinary Efforts to Implementing the Transition to Digital Broadcasting -- With Tremendous Success in Rolling Out Digital to the Vast Majority of American TV Households Contrary to the satellite industry’s ill-informed accusations, broadcasters have worked tirelessly to implement the transition to digital broadcasting. Thanks to the expenditure of billions of dollars and millions of person-hours, broadcasters have built – and are on-air with -- digital television (“DTV”) facilities in 203 markets that serve 99.6% of all U.S. TV households. / Midway through the transition, almost three-quarters -- 73.7% -- of U.S. television households have access to at least six free, over-the-air digital television signals. / Nationwide, 1411 television stations in 203 markets are delivering free, over-the-air digital signals today. / More than 70 million households receive six or more DTV signals; 49 million households receive nine or more DTV signals; and a full 30 million households receive 12 or more DTV signals. More digital stations are resolving their obstacles and going on the air almost daily. The digital transition is working and moving ahead quickly, and the claims of the satellite industry to the contrary are empty rhetoric, not fact. In the top ten markets, covering 30% of U.S. households, all top four network affiliates are on-air – 38 with licensed full-power digital facilities and two New York city stations with Special Temporary Authority (“STA”) currently covering a significant chunk of their service areas and with plans to expand even more. In markets 11-30 (representing another 24% of U.S. households), all 79 top four affiliated stations are on-air – 72 with full-power licensed digital facilities and seven with STAs. Thus, all ABC/CBS/Fox/NBC affiliates in the top 30 markets, representing 53.5% of all U.S. households, are on-air with DTV -- 110 stations with full power licensed digital facilities and nine with STAs. / Even as to smaller stations in these markets and stations in smaller markets – which have far fewer resources but equally high costs -- 1292 of 1524 stations are on air with digital, / having overcome enormous challenges and in many cases mortgaging their stations to do so, despite having no immediate prospect of revenues to offset these huge investments. Those who do not understand the digital transition sometimes claim that DTV stations operating with STAs broadcast with very low power. That is simply wrong. Many stations, particular

• Ms. Gigi B. Sohn

  President and Co-Founder

  Public Knowledge
  Read statement

  Testimony

  Ms. Gigi B. Sohn

  Chairman McCain, Senator Hollings and distinguished members of the Committee, my name is Gigi B. Sohn. I am the President and Co-Founder of Public Knowledge, a nearly three-year old nonprofit public interest organization that seeks to ensure that citizens have access to a robust public domain, an open Internet and flexible digital technology. Previously, I worked on digital television issues for nearly a decade as the Executive Director of the Media Access Project and as a member of the Advisory Committee on Public Interest Obligations of Digital Television Broadcasters. I want to thank the Committee for inviting me to give a public interest perspective on the reauthorization of the Satellite Home Viewer Improvement Act (SHVIA). Public Knowledge has two core interests in SHVIA. Our first and foremost interest is that SHVIA remains a bill that addresses only the carriage of local broadcast and network signals by satellite providers. As discussed below, we are concerned that because SHVIA must pass by December 31, 2004, it may become a vehicle for other intellectual property-related legislation, some of which proposes radical changes to copyright law. Public Knowledge’s second interest in SHVIA involves its potential to speed the transition to digital television. As discussed in detail below, it is both in the public interest and in the interest of many communications industries, including the wireless, telecommunications, cable and broadcast industries, to complete the transition to digital television as close to the FCC’s original December 31, 2006 deadline as possible. Completion of the transition and the subsequent return of the spectrum now used for analog television service will permit an explosion in new wireless broadband, public safety and cellular telephone services that will benefit the public in a myriad of ways. One way to encourage greater adoption of digital television by consumers would be to permit satellite providers to import distant digital network television signals into markets where viewers cannot receive such a signal locally. This “digital white areas” plan will allow satellite customers to see the benefits of digital television and hopefully encourage them to purchase the equipment they need to make the switch. I. SHVIA SHOULD REMAIN A “CLEAN” BILL. As this Committee knows, the current SHVIA expires at the end of this year. SHVIA and its predecessor, the Satellite Home Viewer Act of 1988, have been key drivers in ensuring that satellite TV providers can compete with cable TV providers. Indeed, in just ten years since the inception of direct broadcast satellite service (DBS), viewership has grown to almost 20.4 million households representing nearly 22% of the multichannel video provider (MVPD) market. This competition has benefited the public with lower prices and more programming when they choose an MVPD. It is for this core reason that Congress should reauthorize SHVIA without delay. But in doing so, it should be wary of attempts to turn this proposed law into something that it is not and should not be: a vehicle for other copyright and trademark legislation. Some of these bills would make radical changes to copyright and trademark law, some are more benign, and some Public Knowledge supports. In any event, these copyright and trademark bills should be debated separately on their merits, and not simply attached to SHVIA. As of today, there are no fewer than four copyright and trademark-related bills pending in the Senate and nine pending in the House that Public Knowledge believes their sponsors may wish to attach to SHVIA. The bill that we are most concerned about is H.R. 4077, “The Piracy Deterrence and Education Act of 2004.” Among other things, this bill would lower the legal standard for criminal copyright infringement from one of “willfulness” to one of “reckless disregard,” making felons out of people who accidentally make copyrighted works available over computer networks. H.R. 4077 would also require Internet Service Providers to share personal information about their customers with the government and the content industries, in contravention to the D.C. Circuit’s recent ruling in Recording Industry Association of America v. Verizon Internet Services, 351 F.3d 1229 (C.A.D.C. 2003). A coalition of Internet Service Providers, web-based email providers, software providers, tech companies and public interest groups oppose this measure. Thus, we urge the Committee to reject any and all attempts to turn SHVIA into a Trojan Horse for those who would like to change copyright and trademark law. SHVIA should be kept to its intended purpose -- as a means by which satellite TV providers are permitted to carry local and network television signals under certain conditions. II. RAPID COMPLETION OF THE TRANSITION TO DIGITAL TELEVISION IS IN THE PUBLIC INTEREST Whenever the beginning of the transition to digital television is discussed in this country, three government actions are inevitably mentioned: 1) passage of the Telecommunications Act of 1996, which required the FCC to give broadcasters an extra six Mhz block of broadcast spectrum “if the Commission determines to issue additional licenses” for digital television services; 2) the FCC’s 1997 Fifth Report and Order, which set out the schedule for the digital television transition, including the December 31, 2006 deadline for the return of the “analog” spectrum, and 3) passage of the Balanced Budget Act of 1997, which permits broadcasters to keep their extra channel until, among other things, no less than 85% of household’s in a broadcaster’s market are a) capable of receiving digital television broadcasts using either a digital television set or an analog set equipped with a digital-to-analog set-top box or b) able to receive at least one digital programming channel of each broadcaster in a market from an MVPD. If we view the digital television transition in this light -- as a mere seven year process imposed by the government on an unwilling broadcast industry, then there might be a colorable argument to be made that the transition is moving apace and that broadcasters should be commended for their diligence in promoting digital television irregardless of the costs. Unfortunately, that vision is revisionist history. As journalist and author Joel Brinkley recounted in his book “Defining Vision: How Broadcasters Lured the Government into Inciting a Revolution in Television,” the transition to what we know now as digital television actually started a full decade before the 1996 Act was passed, and as the book’s title indicates, was promoted by the broadcast industry itself. In 1986, as the FCC was on the brink of giving the spectrum to the “land mobile” industry for use in two-way radios, the National Association of Broadcasters embarked on a campaign to convince the government to let it keep the spectrum because each broadcaster needed two channels to broadcast in analog high definition television. The NAB argued that ignoring their request would allow the Japanese, who had just started broadcasting in analog high definition, to beat out U.S. industry again, as it had several times in the 1970’s and 1980’s. The NAB was victorious and the FCC took billions of dollars of unused “beachfront” spectrum off the market, where it has lain largely underutilized for eighteen years. Much has changed during that time. Analog high definition television gave way to digital television, but the extra spectrum was still needed to ensure that viewers did not lose broadcast television during the transition. Cable and satellite television both grew tremendously during that time (indeed, DBS services did not exist until 1993), so much so that almost 90% of households subscribe to an MVPD. And perhaps most important, new wireless telephone and broadband technologies have proliferated to such an extent that the extra spectrum that broadcasters are holding is preventing these industries from realizing their full potential. So now, perhaps more than any other point over the past two decades, completing the transition to digital television is vitally important for the economic and social well being of this country. While some have derided calls to speed the transition to digital television as a mere spectrum reclamation project, reclaiming that spectrum has undeniable and very palpable public interest benefits. These benefits include the ability to vastly improve current licensed and unlicensed wireless telephone and wireless broadband services, including: · permitting interoperability among local and national public safety and law enforcement personnel and enabling end users to send and receive video, pictures, data and phone calls; · filling in cellphone “dead zones” where signals routinely get dropped; and · providing wireless “last mile” Internet connections that can compete with copper-based DSL and coax-based cable modem services. These more powerful and lower cost connections would improve Internet access for health care agencies, schools and people in underserved areas such as rural and poor communities; Improvements in these services will undoubtedly speed broadband deployment in the U.S., which lags behind far countries like South Korea and Japan. Moreover, and equally as important, the reclamation of this prime spectrum will permit great future innovation -- the creation of new technologies and services that will redound to the public’s benefit. But for now, as it has been for nearly two decades, this public “beachfront” is occupied by just one industry. What can be done to move the transition to its completion so that the public can benefit from these new uses of spectrum? One way is to repeal the 85% cap and reinstate the December 31, 2006 deadline. Another way, as some FCC staff have proposed, is to interpret the 85% threshold to include all MVPD households regardless of whether those households are receiving a real digital television signal or a digital television signal that is down-converted to analog. These proposals may be controversial for broadcasters, but would ensure that the transition would be completed close to or at the deadline. In the absence of those two solutions, the 85% threshold will be met only if people are educated about, and can see the benefits of, digital television. The consumer electronics industry has done a fine job educating retail sales staff and the public about digital television, and as a result, sales have increased enormously over the past several years. By contrast, there is little evidence that the vast majority of broadcasters have used the power of their local stations to embark on a similar campaign. Confusion about digital television is rampant. A recent Consumer Electronics Association study showed that nearly a quarter of digital television consumers are confused about some aspect of the purchase -- and these are the people that wanted to buy a digital television set! The ability to actually see digital television is in part hampered by the fact that many broadcast stations are not operating at full transmission power. There may be sound technological or other reasons why this not the case, but these do not argue for Congress to stand idly by while these problems eventually get resolved. As discussed in the next section, there is a small fix that Congress can make that will ensure that millions of viewers without access to digital television can see and enjoy it. III. CONGRESS SHOULD PERMIT SATELLITE PROVIDERS TO CARRY DISTANT DIGITAL NETWORK SIGNALS IN AREAS WHERE VIEWERS CANNOT RECEIVE THEM. In the absence of a hard deadline for the transition, this country is caught in a vicious cycle -- viewers don’t buy digital television sets because there is little compelling digital programming and broadcasters don’t provide digital programming because viewers don’t have the equipment. The only way to break this cycle is to ensure that viewers do have access to the kind of programming that would encourage them to buy digital television sets. One way that Congress can help ensure that viewers have access to digital television programming is to permit satellite TV companies to provide distant digital TV signals to those viewers who cannot receive a digital television signal from their local broadcaster. Congress can do this simply by broadening SHVIA’s definition of “unserved household” to include those viewers. This “digital white area” proposal would not only encourage the purchase of digital television sets, but would provide local broadcasters an incentive to provide a full-power digital signal. Predictably, the broadcast industry is opposed to this plan. Their arguments can be grouped into three categories: 1) the change is not necessary because most of the country’s television viewers do receive digital television signals; 2) importation of distant signals would harm localism; and 3) Echostar, the main proponent of the plan, is a bad actor whose intention is to provide distant signals in perpetuity. As to the first argument, if we assume that the broadcasters’ numbers for what percentage of television viewers are served by digital signals are correct, then one must ask, “where is the harm?” The broadcasters claim that on-air digital television facilities are serving 92.7% of population served by corresponding analog stations. If that is indeed the case, then it is curious why they are so bitterly opposed to a plan that would, by their own estimation, affect not even eight percent of television households. The broadcasters’ second argument is equally suspect, and is just one of the many times that broadcasters have hidden under the cloak of “localism” to stave off competition. To the extent that local broadcasters provide excellent local news, weather, public affairs and other programming, importation of a signal from New York or Los Angeles cannot begin to compete with their programming. And if importation of a distant digital network signal compels a local broadcaster to transition to digital faster, shouldn’t such a policy be applauded? As to the third argument, Public Knowledge believes that it is up to Congress and the FCC to set guidelines to ensure that bad actors are prevented from providing distant digital signals in perpetuity. The fact that some satellite providers have in the past ran afoul of the law does not diminish the positive effect that permitting digital white areas could have on the transition to digital television. In short, there are no good reasons why Congress should not permit satellite providers to import distant digital TV signals to those households who cannot receive them. To the extent that the ability to view distant digital television signals gets viewers hooked on the technology, the public interest is served. To the extent that the importation of distant signals propels local broadcasters to complete the transition and broadcast their digital stations in full power, the public interest is served. To the extent that these two actions lead to the completion of the digital television transition, which then frees up valuable “beachfront” spectrum for critical public uses, the public interest is served. But it is not in the public interest for Congress to shield broadcasters from competition and thereby extend the digital television transition when there are so many important economic and social reasons to complete it at or near the 2006 deadline. CONCLUSION I want to again thank the Committee for permitting me to present a public interest perspective on SHVIA. That perspective is uncomplicated. First, it is in the public interest for Congress to ensure that the reauthorization of SHVIA remains a vehicle for permitting satellite television providers to carry local and network broadcast signals under certain circumstances, and not also for non-germane intellectual property matters. Second, it is in the public interest for Congress to accelerate the transition to digital television by broadening the definition of “unserved households” to permit the importation of distant digital network signals to those viewers who cannot receive such digital signals from their local broadcasters. The sooner the digital television transition is concluded, the sooner the American public can benefit from better and new wireless broadband and telecommunications services that have been unavailable because of the spectrum that has been tied up for nearly two decades.

• Ms. Araceli De Leon
  Read statement

  Testimony

  Ms. Araceli De Leon

  Chairman McCain, Senator Hollings, and Members of the Senate Commerce Committee. My name is Araceli DeLeon, and I am Vice President and General Manager of Station KDRX-TV (Telemundo Channel 48) in Phoenix, and KHRR-TV (Telemundo Channel 40) in Tucson. It is an honor and a privilege to appear before you today to address an issue of vital importance to Telemundo, Spanish-language broadcasters generally, and our nation’s growing Hispanic population: the need to ensure that DBS providers do not discriminate against Spanish-language broadcasters and their predominantly Spanish-speaking audiences by requiring these viewers to use a second dish, reserved for “less popular” programming, all too often translated to include local Spanish language broadcast programming. This discriminatory practice is a direct threat to media diversity and to the imperative of serving the rapidly growing Spanish-speaking population, especially in states such as my home state of Arizona. It has no place under our communications laws or in our society. Unfortunately, this is not just a theoretical concern; it is a real problem that I have encountered personally. In providing local-into-local service under the Satellite Home Viewer Improvement Act (“SHVIA”), EchoStar has adopted a “two-dish” policy for local television stations in many Designated Market Areas (“DMAs”). Under EchoStar’s two-dish plan, subscribers who want to view all local television stations in a DMA must obtain and install two receive dishes. To date, most subscribers have installed only the single main dish, which is the dish that receives signals from EchoStar’s continental United States (“CONUS”) satellites. The CONUS satellites carry all local English-language commercial broadcast network affiliates (ABC, CBS, NBC, Fox, UPN and WB) in the Station’s DMA, as well as other EchoStar non-broadcast programming, including basic cable programming networks, premium services such as HBO and sports packages, and pay per view and adult content services. In contrast, Echostar carries local television stations that EchoStar deems “less popular” on secondary “wing” satellites. Relatively few subscribers have the capability to receive signals from the “wing” satellites, because subscribers who wish to receive these signals must first obtain a second receive dish. EchoStar’s practice of requiring subscribers to obtain a second dish to receive local Spanish-language programming that they already pay to receive discriminates against local Spanish-language broadcasters and Spanish-speaking subscribers in violation of SHVIA’s nondiscriminatory principles, as well as the “carry one, carry all” requirement. The 2000 Census revealed that 12.4 percent of the U.S. population is Hispanic, an increase of almost 60 percent from 1990. The Census Bureau estimates that by 2020, the U.S. Hispanic population will grow to represent 17.8 percent of the U.S. population, and by 2050 Hispanics will account for 24.4 percent of our nation’s population. As our nation’s Hispanic population continues to grow, local Spanish-language television is becoming an increasingly important source of news and information nationally. Telemundo is responding to this growing need. Telemundo was launched in 1987 as a national Spanish-language broadcast network, providing original programming and vitally important local news to Spanish-speaking viewers across the United States. Telemundo’s owned and operated stations currently serve 59% of all Hispanic households in the United States, and provide 150 hours of local news weekly to our local communities. In Arizona, I manage both the Phoenix and Tucson Telemundo Stations. Our stations are relatively new, and we are working hard to make them premier outlets for Spanish-language programming, news, and information in the Tucson and Phoenix communities. I am pleased to tell you we have had great success to date. Not only do our Tucson and Phoenix Telemundo stations provide daily local news programming, but we also provide a strong commitment to public service in the form of public service announcements, and we continue to increase our participation in our local communities by supporting important community activities and initiatives. For instance, in Phoenix, Telemundo 48 continues to sponsor the Summer Safety Campaign, where, working with Phoenix Fire Fighters, we are combating summer-time increases in incidents of drowning by promoting awareness among our Hispanic viewers of the dangers posed by swimming pools for children during the summer. We give our viewers weekly tips in order to keep this problem from becoming even more widespread. In Tucson, Telemundo 40 partners with the Tucson Police Officer’s Association to increase awareness about missing children, and to educate parents about the steps they can take to help protect their children by fingerprinting them and taking their picture. Both stations participate in numerous community and cultural events throughout the year. As a network formed in 1987, Telemundo is still young, but growing, just like the U.S. Hispanic population. Our ratings continue to grow, our popularity continues to grow, and we are proud of the work we have done to improve and increase Telemundo’s reach within the Hispanic community. Echostar’s “popularity” practices, however, utterly ignore Telemundo’s growth and increasing popularity and undermine Telemundo’s efforts to serve Spanish-speakers by effectively closing off satellite subscribers to our programming. Until just last week, EchoStar had placed almost all of Telemundo’s Stations, including our Tucson station, on wing satellites, along with virtually every other Spanish-language station in that station’s DMA. Echostar has just switched several Telemundo stations from its second dish to its primary dish. Unquestionably, this is a welcome development for which we commend Echostar. However, this is far too important a matter to be left to the discretion of a DBS provider. Congress must ensure that DBS operators provide nondiscriminatory treatment to all local broadcast stations carried as part of their local-into-local service. SHVIA requires satellite carriers to carry local broadcast signals in a nondiscriminatory manner. The essence of Telemundo’s concern with EchoStar’s two-dish policy, ostensibly based on EchoStar’s assessment of a station’s popularity, is that it has an unlawful discriminatory effect on Spanish-language stations and Spanish-speaking subscribers. As the Federal Communications Commission itself has recognized, in SHVIA, Congress prohibited satellite carriers from requiring subscribers to obtain a second dish to receive some local signals if such a requirement would have a discriminatory effect on local broadcasters. The issue is whether the de facto segregation of local television stations on the basis of language is a prohibited “discriminatory effect.” The answer is obvious. EchoStar’s satellite-assignment policy has a disparate adverse effect on Spanish-speaking stations and Spanish-speaking subscribers, because it results all too frequently in the placement of Spanish-language stations on satellites that require separate receive dishes, while all English-language ABC, CBS, NBC, Fox, UPN and WB affiliates remain accessible to all subscribers via their single main satellite dish. Spanish-speaking subscribers, who are overwhelmingly Hispanic, are required to obtain and install a second dish to receive local Spanish-language television programming. This policy has a discriminatory effect because all subscribers in a market have the reception equipment necessary to access the “more popular” English-language network affiliates, but only those subscribers that request and install an additional dish are able to access Spanish-language broadcast stations, such as Telemundo’s Stations. The discriminatory effect is particularly pernicious because it affects a group—Spanish-speaking subscribers—more likely to encounter language barriers while navigating EchoStar’s obscure and cumbersome process of arranging for the installation of a second dish. Putting aside for the moment the discriminatory effect of Echostar’s two-dish policy on Spanish-speaking subscribers, the more general notion that it is permissible to discriminate between local television stations on the basis of popularity is also inconsistent with the very purpose of SHVIA. SHVIA includes what is referred to as the “carry one, carry all” rule, which requires a satellite carrier carrying one station in a market to carry all stations in that market. The purpose of the “carry one, carry all” rule is to prevent satellite carriers from carrying only the most popular local stations, and depriving other less popular stations with access to potential viewers in their service areas. By adopting the “carry one, carry all” rule, Congress intended to “preserve free television for those not served by satellite or cable systems and to promote widespread dissemination of information from a multiplicity of sources.” Congress determined that without such a rule (1) satellite carriers would continue to deny carriage to significant numbers of independent stations in markets where they choose to offer local-into-local service, and (2) non-carried stations in those markets would be harmed by losing access to parts of their potential audiences. Telemundo’s complaint against Echostar’s two-dish policy thus goes to the essence of the “carry one, carry all” rule. Telemundo’s stations, which broadcast Spanish-language news, information, and entertainment programming for a largely Spanish-speaking audience, are the very type of broadcast stations that Congress intended to preserve and to promote with SHVIA. EchoStar’s two-dish policy, however, intentionally and pervasively deprives the stations of access to parts of their potential local audiences. It harms consumers because subscribers who do not have a second dish are unable to receive the programming of all local broadcast stations, and subscribers who wish to receive all such local stations must go through the trouble of contacting EchoStar to order the second dish with the attendant burdens and confusion that entails. Congress, in adopting SHVIA’s “carry one, carry all” rule, recognized that subscribers might as a practical matter not be willing to endure the burden of installing the requisite additional equipment to receive local channels if not carried by satellite carriers: “Although the conferees expect that subscribers who receive no broadcast signals at all from their satellite service may install antennas or subscribe to cable service in addition to satellite service, the Conference Committee is less sanguine that subscribers who receive network signals and hundreds of other programming choices from their satellite carrier will undertake such trouble and expense to obtain over-the-air signals from independent broadcast stations.” By analogy, it is overly optimistic to expect that subscribers will obtain second dishes if they can receive all local English-language network signals and hundreds of other programming choices using the main dish alone. In enacting SHVIA, Congress intended to ensure that satellite carriers provide all local stations in a market without discrimination. Requiring subscribers to install additional equipment to receive local Spanish-language stations but not local English-language stations constitutes illegal discrimination against alternative media and this country’s growing Hispanic population. Such discrimination is unacceptable, and has no place in a carriage scheme carried out by a company utilizing the public’s spectrum. Telemundo is striving to provide Spanish-language programming to our nation, and to Spanish-speakers eager for the additional content, news, and information that a unique service like Telemundo and local Spanish-language broadcasting generally can provide. Echostar is frustrating our efforts by closing off large swaths of the satellite subscriber base to our signal in a discriminatory manner. Last week the House Energy and Commerce Committee’s Subcommittee on Telecommunications and the Internet approved SHVIA reauthorization legislation that will eliminate this discriminatory practice. That legislation, the Satellite Home Viewer Extension and Reauthorization Act of 2004 (“SHVERA”), requires satellite carriers offering local-into-local service in a market to make all local broadcast stations in that market available to subscribers through one receive dish. Echostar would be free to use another dish if essential to accommodate capacity constraints, but it will no longer be permitted to discriminate against some local broadcasters, including local Spanish-language broadcasters. Telemundo respectfully urges this Committee to advance the same one-dish policy for local broadcast signals in Senate SHVIA reauthorization legislation. Thank you, and I look forward to answering any questions you may have.