Lets Play Monopoly

Create a satellite-TV company with 90-plus percent market share? Has Washington lost its mind?

WASHINGTON — Theres a bad idea percolating in this city.

I know, I know, youre thinking thats not possible. Washington is a wellspring of wisdom and a fountain of intelligence. Nonetheless, I assure you its true.

But theres no point in blaming Washington for this idea. Like many bad ideas that emerge here, it was generated somewhere else: In Littleton, Colo., the home of EchoStar Communications, and El Segundo, Calif., the home of DirecTV.

While most of us are worrying about consolidation in the telephone and cable industry, the direct-satellite multichannel-video market is chugging along with only two competitors: EchoStar, with about 6.4 million subscribers, and DirecTV, owned by Hughes Electronics, with about 10.4 million subscribers. Now, EchoStar proposes to buy Hughes, giving it almost the entire satellite-television market.

The proposed merger landed in back-to-back hearings today in the House Judiciary and Commerce committees, with legislators, according to their pronouncements, landing all over the map on whether or not the merger was a good idea.

Its an extraordinarily bad idea, even by the standards of Washington, where were rather discriminating about such things.

To be fair, before making fun of the two companies, lets look at the arguments in favor of the merger. The companies, they say, are forced by the 1999 Satellite Home Viewer Improvement Act to provide whats called local-into-local — showing local channels in the areas in which they are broadcast. The fact that each does it through separate satellites, and spectrum, is wasteful. And the act, EchoStar chairman and CEO Charlie Ergen swears, forces them to show 30 redundant local shopping channels, a major waste of spectrum, and of viewers brain cells.

"I dont think thats what the FCC had in mind for this spectrum," Ergen said today.

Removing the redundancy, Ergen and Eddy Hartenstein, chairman and CEO of DirecTV, say, will allow a merged and dominant EchoStar to fill that spectrum with other things — 12 channels of HDTV, functional Internet access, programming in whatever they speak in Liechtenstein — you name it.

The merger would also give EchoStar deeper pockets to negotiate with the programming cartels that control entertainment and sports programming, the CEOs argued. Thats probably true, although the satellite-TV companies themselves are moving to lock up satellite-only content, behavior that is all-too-reminiscent of the cable cartels they protest.

The main argument for the merger, according to the companies, is that they need to be stronger to compete with cable.

I used to think that cable companies existed to provide, well, cable television. I now know better — they exist to wreck antitrust law. The mere existence of cable, apparently, has destroyed the notion of a relevant market for an antitrust action. The Bells say they dont monopolize DSL because its part of a larger broadband market that includes cable. Now the satellite industry says it doesnt exist as a separate market, only as a minority part of a multichannel video market dominated by cable. Eventually, Microsoft will argue that it doesnt have an operating-system monopoly because it is competing with cable (although Redmonds rumored bid for AT&T Broadband may wreck that argument).

Lets look at the facts: cable and satellite hardly compete. Cable companies, through sales, trades and other fancy footwork, have consolidated their holds over metropolitan areas, where their subscribers vastly outnumber satellite subscribers, and always will.

In many rural areas, by contrast, you cant get cable at any price, and satellite-TV is, and will remain dominant by a huge margin, even if it has only 19 percent of the total multichannel-video market. Theres a reason the satellite dish is called the state flower of West Virginia. Merging EchoStar and DirecTV would leave rural customers at the mercy of monopoly pricing and service. And we know, from the telephone sector, how that story goes.

Ergen and Hartenstein have some valid complaints. But there are other ways around them. Congress could pass an antitrust waiver to allow the two companies to share satellites and spectrum to eliminate redundancy, as long as they continue to compete on the service level. Congress could rewrite SHVIA so that those 30 shopping channels arent necessary (I covered the passage of that law, and I swear I dont remember any such requirement).

Among other lunacies, the merger, under which the two would move to a common platform, would strand users with up to $6 billion in useless equipment, a cost the two companies say they would pay. What a waste, even if that promise didnt have enough built-in wiggle room to fit an elephant through. Opponents say that spot-beam satellites could provide plenty of local-into-local coverage for far less.

"[Customers] have a right to know precisely and exactly what would become of their stranded investment as a result of this merger," Rep. John Dingell (D-Mich.) said. To say the least.

To say the most, If the Department of Justice, Congress and the FCC let this merger through, well know we are witnessing, as Bob Phillips, CEO of the National Rural Telecommunications Cooperative, testified today, the death of antitrust law at the beginning of the 21st century.