Remarks By Kevin J. Martin
Commissioner
Federal
Communications Commission
To The Carmel
Group’s
Satellite
Entertainment 2002: TV and Radio From Space
Thank you, Jimmy, for
inviting me to join you at this conference.
I've enjoyed being here these last two days to hear about exciting
opportunities and challenges for the satellite entertainment industry and I am
honored to have the opportunity to speak to you today.
Some of you may have read
about my concerns with EchoStar’s two-dish policy. I’d like to mention that, as a gesture of
good will, I’ve asked the waiter to give Charlie Ergen two dishes for
lunch.
I thought today I’d share
some thoughts on a few issues we’re grappling with at the FCC that might be of
most interest to you and your industry.
They are: spectrum sharing, Northpoint, the EchoStar-DIRECTV merger,
program access, and must carry.
First, though, I’d like to
say a few words about what an exciting time this is for the satellite
industry. You have a long history of
creating and using cutting-edge technology to introduce innovative new
services—including the ubiquitous deployment of digital video programming long before your competitors. And it is that history that has resulted in
DBS’s success—from less than 600,000 subscribers in 1994 to more than 20
million today.
Now you are rolling out
national satellite radio and two-way satellite services, such as broadband Internet access and interactive
television. These technologies offer
significant benefits for consumers, providing them with exciting new
entertainment options and potentially changing the way they communicate and
learn. These services also create new
revenue streams and productivity gains, which could provide a boost to the
economy, as well.
Satellite digital audio
radio services have taken off this year.
Analysts expect almost 1 and a half million subscribers to sign up by
next year, and almost five million
subscriptions by the end of the following year, 2004. That is a rate of growth most entertainment
services only dream of. SDARS have far
exceeded expectations, and it’s no wonder.
Satellite radio is truly revolutionary,
injecting new energy into an industry has seen little change in 40 years. One hundred stations, many commercial-free,
with the high quality you’d expect from digital technology, and with more
variety than most consumers ever imagined getting from their radio. Now that’s exciting. And the last thing we at the FCC should do is
put up unnecessary roadblocks to consumers’ ability to access these services
from wherever they are.
We currently are drafting
permanent service rules for this technology (which operates now pursuant to
special temporary authority), and a few issues do remain. Most notably, we need to establish power
levels for the terrestrial repeaters that enable the service to be truly
nationwide without inhibiting the deployment of services in adjacent
bands. We are working with the
interested parties and expect to reach a reasonable compromise in the near
future.
Two-way satellite services
may not have the rollout “splash” that satellite radio has enjoyed, but the
services truly are the future of home entertainment. Much has been said about the promise of
broadband and interactive television, with the multitude of new revenue streams
that these services could produce. And I
agree with Leo Hindery’s remarks yesterday morning that video on demand and
digital video recorders may be the most exciting of the new services on the
horizon.
But most of that talk about
the promise of broadband capabilities – particularly at the FCC – has focused
on cable and DSL. True, these
technologies have led the broadband migration, but we should not forget about
satellite. Satellite broadband could be
a high-speed on-ramp for almost every American household. Its ubiquitous nature means that distance and
geography no longer determine which Americans can join the digital
revolution.
Indeed, in many,
particularly rural, areas, satellite technology is uniquely capable of providing
consumers with an economical option for broadband and interactive
services. And where cable and DSL are deployed, two-way satellite services
provide the facilities-based competition so essential to promoting competitive
pricing, service quality, and the incentive to innovate. These two-way services also enable DBS
providers to offer service bundles, with the accompanying pricing flexibility
and increased revenues.
The potential benefits of
satellite broadband are clear—which is why some analysts have estimated that
satellite broadband could reach 5 million subscribers by 2005. Now, I recognize that some in the industry
are less optimistic. I’ve heard claims
that both the technological problems (both latency and strained capacity) and
the economic problems (finding a competitive price point) are insurmountable –
at least in the near term. But I have
faith in the industry. I think you will
find a way.
And importantly, we at the
FCC should not stand in your
way. As you continue to make rapid advances
in satellite technology, the FCC should facilitate your ability to implement
it. That includes minimizing the
regulatory burden to the extent consistent with the Communications Act and
designing innovative spectrum sharing methods that allow more providers to
operate in a given band without compromising the integrity of existing
services. And that leads me to my next
topic, spectrum sharing.
I. Spectrum Sharing
As one of 5 children, it was
impressed upon me early on that – like it or not – sometimes we simply have to
share. This fundamental life lesson, more so than ever before, is particularly
relevant to spectrum.
As more and more players vie
to use the same frequencies, it is becoming increasingly difficult to find
unencumbered spectrum. As a result, industry has been forced to respond with
creative ways to enhance spectral efficiency. These more recent technological
changes allow spectrum sharing to be taken to new levels.
Take, for example, satellite
and terrestrial sharing scenarios, which I will discuss in more detail in a few
moments. Advances in software-defined
radios permit increases in efficiency by allowing quick modification to
transmit and receive on any frequency and in any desired transmission format. DoD’s "XG" program – which focuses on Next
Generation communications devices to support military deployment - seeks to
produce even further advances in spectrum assignment technology through dynamic
use of frequency, time and space.
We are also seeing
incredible innovations in the unlicensed spectrum arena – the "wild
west" of the spectrum landscape and arguably the epitome of adaptation in
the face of forced sharing. Bluetooth and 802.11 applications will allow users
to set up flexible short-range wireless networks. Sophisticated ultrawideband
technology – promising to deliver data at faster speeds and lower power – can
potentially co-exist with spectrum users in any frequency.
These examples illustrate
how industry is adapting to make more and better use of the spectrum currently
available, and harness spectrum once considered unusable. The Commission must
adapt as well. To the extent that technology is outpacing regulation, we should
at the very least ensure that the Commission does not act in a way to
discourage or stand in the way of innovation.
But I also think we should
proactively seize opportunities to encourage, and even insist on, more
efficient use of current spectrum, particularly through sharing. A basic focus
on sharing can guide the Commission in helping to respond to the growing demand
for spectrum.
Indeed, the Commission
should move toward policies that make sharing easier, and even desirable. For
example, a robust secondary market for spectrum and flexible allocations (that
are technology and service-neutral) can create strong incentives for making use
of excess capacity. Allowing priority access permits flexibility for a higher
valued use some of the time, without having to dedicate specific frequencies to
those uses all of the time.
In summary, our spectrum
management objective should be to create incentives for the efficient
utilization of spectrum at every given point in time, by both established users
and new entrants. I am optimistic that
future technological developments will provide the Commission with more and
more opportunities to insist on sharing. Ultimately, the amount of available
spectrum and our ability to use it is perhaps limited only by technology.
Today, however, we must act rationally to make the best choices within the
spectrum constraints that face us now, and that will lead to the marketplace
developments we would like to see tomorrow.
Consistent with that
philosophy, I note that the Commission adopted an Order a week ago today that
provides an excellent example of a flexible, innovative and efficient spectrum
sharing method. The Order establishes
service rules for non-geostationary satellite systems (NGSOs) to operate in the
shared Ku-band frequencies, providing advanced services that could include data,
video, and telephony services.
The Order allows each of the
seven applicants to use the entire band of allocated spectrum a majority of the
time by segmenting the band only when an in-line interference event occurs—and
then, only if the parties involved in the interference event have not negotiated
another means of addressing the interference.
This method thus allows licensees maximal flexibility to design their
systems. The Commission avoids picking
winners and losers, relying instead on competition to determine success. I am optimistic that this Order will spur
exciting new services while maintaining the integrity of the services provided
by existing licensees—including, of course, DBS providers.
As the Commission tries to
emphasize sharing, however, it must continue to respect the rights of existing
licensees to be free from harmful interference.
As most of you probably know, the Commission recently adopted another item that will allow
for spectrum sharing—the applications by Northpoint and other potential MVDDS
licensees to provide terrestrial service in the 12 GHz band. Unfortunately, I am less confident that this
item will respect the rights of existing licensees. For this reason, I dissented from the
spectrum sharing / interference sections of that item.
I strongly support
facilitating the deployment of new technologies and services. Northpoint approached the Commission with a
plan to share the 12GHz band with DBS providers to provide a terrestrial
service that would compete in the delivery of multichannel video programming. In theory, this service would both make more
efficient use of spectrum and create another competitor against cable.
But as I’ve said, spectrum
sharing is “good” only when it protects the rights of existing licensees and
their customers, as well. The Commission
has spent a considerable amount of time determining what the service rules
should be for this new MVDDS technology.
After several years and
several thousand pages of debate, the Majority of the Commission adopted a
licensing scheme for MVDDS. Under their
approach, the Majority determined that a 10% increase in unavailability or
service outage for DBS subscribers was an appropriate burden to place on DBS
customers. The Majority tried to apply
this 10% limit by developing an interference measure called an “EPFD” limit—a
technical parameter with which the MVDDS licensee must comply in order to keep
interference to DBS to a 10% increase in signal outage. I think this amount of additional outage time
is too high and I would have preferred a lower limit. But what is particularly troubling about the
Majority’s licensing approach is that it undermined even this 10% limit.
First, the interference test
completely excluded signals sent from several DBS orbital slots. Second, the tests were conducted in only 32
television markets—so whole regions and entire states were excluded. Third, the Majority averaged these
interference limits with neighboring cities to create an interference measure
for each of 4 regions of the country.
This complex methodology
significantly distorts the service outage DBS customers actually will
experience in several ways. First, if
you live in one of the 32 markets that were tested, the actual interference you
receive could by higher than 10% because your city may have been above the
“average” for your region. So even if
MVDDS licensees comply with the regional interference limit, the increase in
your actual outage time could be significantly higher than 10%.
Second, if you live in one
of those markets and receive service from one of the excluded DBS orbital
slots, the actual interference you receive could by higher than 10% because the
Commission didn’t even test what interference limits would be appropriate for
your DBS transmitter. So the
interference limit that the MVDDS licensee must comply with in your region
could result in significantly more than 10% more signal outage.
Third, if live outside those
32 markets, there is no indication of how much interference you may suffer as
DBS customer. What is particularly
disturbing about this approach is that the amount of DBS signal outage
resulting from MVDDS signals varies greatly due to weather and terrain, yet the
regional interference limit was reached without regard to such variations in
many instances. For instance, in
calculating the interference limit for the Northwest region, no tests were
conducted to measure interference to DBS service in Montana, Idaho, North
Dakota, Alaska, or Hawaii, states with climates and terrain dramatically
different from each other, and certainly different from Seattle and Sacramento,
two of the cities on which the regional interference limit was based.
Fourth, the Majority further
undermined the purported limit on interference by restricting the limit’s
application to one year. After the first year of MVDDS service, there
is no limit to the amount of
interference that a MVDDS licensee may cause to a DBS customer. Fifth, the rule does not apply to existing
DBS customers if they move locations. So
if a DBS customer moves across the street, he loses his right to suffer no more
than a 10% increase in signal outage.
Indeed, there is no limit on
the amount of interference this customer could suffer.
Finally, this interference
limit does not apply to new customers at
all. That’s right: the majority’s
licensing approach tells the providers of the only service that has ever
provided a viable alternative to cable that any future customers could be
subject to limitless interference from a competing service.
What is even more odd about this approach is that it is inconsistent with
the expert report by Mitre, which assumed the interference standard adopted
would apply in each service area and to new customers, as well.
This morning Charlie Ergen
noted that, in addition to the interference levels allowed, the other key
element of the Order would be the mitigation techniques allowed – and who would
pay for them. Again, I believe the
Majority places too much of a burden on DBS providers. Specifically, in the Joint Statement by two
members of the Majority, they claim that the “outage increases are also easily
avoidable at most consumer receiver sites through a variety of mitigation
techniques that are available to DBS providers.” Thus, it is the DBS consumers who will bear
the burden of mitigation techniques, and the DBS providers who will have to pay
for it.
In summary, while enabling a
new service to launch and new competition to develop is exciting, allowing its
launch by forcing some existing DBS customers, and all new DBS customers, to
suffer potentially limitless service outage strikes me as placing the burden of
deploying a new service on the backs of DBS consumers—and on an industry that
has proven to be the only significant competitor to the cable industry that we
have ever seen. The lack of clarity with
regard to what is or is not harmful interference adds only further complication
and confusion. I cannot, and did not,
support this approach. Fundamental
fairness, lawful decision making, and good policymaking all dictate in favor of
establishing appropriate interference limits in each service area that MVDDS
licensees must meet with respect to all DBS subscribers.
III. FCC Review of EchoStar-DIRECTV Merger
There’s been a lot of
discussion at this conference about whether DOJ and the FCC will approve the
EchoStar/DIRECTV merger, and if they do, what concessions might be extracted
from the parties, and what the impact would be on the satellite and related
industries. We are still collecting a
record on the merger, and I certainly haven’t decided yet whether I think the
merger would be in the public interest.
I sense it would be a glaring absence, however, if I spoke about pending
regulatory issues affecting DBS and didn’t mention our review of this
merger.
I thought it might be useful
to you, yet not compromise the FCC’s process or provide the appearance that I
have prejudged any issue, if I were to spend a few minutes just highlighting
what I view as some of the critical issues.
First, how do you define the
product market? Is it satellite-delivered
video programming or DBS, digital multichannel
video programming, all multichannel
video programming, or all video
programming (that is, including broadcast)?
This issue is critical, because it determines the number of parties that
would remain post-merger to compete with the combined entity. The more narrowly you define the market, the
more difficult it is for the Commission to approve the merger. This is because a more narrowly defined
market results in more geographic markets in which the number of competitors
decreases from two to one. And a merger
to a monopoly is hard to approve.
I would note that whatever
we decide, we must be cognizant that the D.C. Circuit told us to take into
account cable/DBS competition when it remanded our ownership rule limiting how
big a cable operator could get.
Another important issue is
the extent to which a national pricing plan would remedy the harm that could
result from the creation of a monopoly in many rural and other underserved
areas. On one hand, these consumers
could benefit significantly from the price competition that keeps subscription
fees low in urban areas. On the other, a
better price wouldn’t address consumers’ concerns about service quality and customer
support. Some also have argued that the
merged entity might actually raise rates in urban areas rather than lower them
where it doesn’t face competition.
Another detail we would need to iron out is how this policy would be
enforced—I, for one, am generally hesitant to enter the rate regulation
business.
A third issue is how to
weigh the potential benefits—particularly the provision of two-way broadband
Internet access and the commitment to carry local broadcast signals in all 210
To focus on broadband for a
second, would the parties stop providing two-way broadband to consumers if this
merger doesn’t go through? Is it true
that an economically viable business plan for the provision of satellite
broadband service can be achieved only through this merger—that is, through the
additional capacity that would be obtained by one entity controlling all the
CONUS slots and eliminating duplicative programming? This is as much a technical (e.g., capacity) issue as a business
one. As I noted earlier, analysts have
predicted that by 2005, there will be 5 million satellite broadband
subscribers.
Regarding local
broadcasting, the say they would not rollout local-into-local in all DMAs
(which would account for approximately 1600 channels) absent this merger or
some other cooperative arrangement. And
access to their local channels certainly would greatly benefit many of the same
consumers who would suffer the most loss of competition by this merger. I am still deciding, however, how much weight
to place on this issue.
Finally, the Commission must
find that EchoStar has good character as a statutory precondition to finding
that the transfer of licenses to EchoStar is in the public interest. When the transferee is a current licensee, as
is the case with EchoStar, the Commission will look at how the licensee has
complied with the statute and our rules.
IV. Program Access
The program access rules
have been among the most successful rules in the media regulatory
framework. I think you all would agree
that these rules have been instrumental to the growth of DBS. As many of you probably know, Congress
provided that one aspect of these rules—the prohibition against exclusive deals
between cable operators and cable-owned satellite programming—would expire on
October 5 of this year unless the Commission makes a specific determination
that retaining this rule is “necessary to preserve and protect competition and
diversity in the distribution of video programming.”
Last October, we initiated a
rulemaking to investigate this issue. By
our October deadline (and hopefully well before), I expect that the Commission
will close this proceeding. As we debate
what action to take, one issue is at the forefront of my mind. That is whether we can demonstrate
“necessity.” The D.C. Circuit has been
reviewing our decisions with increasing scrutiny, demanding both adherence to
statute and consistent, reasoned decisionmaking. Specifically, the Court recently interpreted
the statutory requirement to prove a rule is “necessary” as being quite a high
burden. Thus, if the Commission
determines that the exclusivity rule should be retained, we will need to
articulate a complete and coherent analysis based on evidence demonstrating
that the rule is, indeed, necessary in today’s marketplace.
I believe this can be
done. I also believe the exclusivity
rule has been instrumental to promoting a vibrant MVPD market and enabling DBS
to entice customers away from the competition.
But I am cognizant that our burden of proof will be a high one.
V. Must Carry
Finally, I’d like to say a
word about must carry. The “carry one,
carry all” provision enacted in SHVIA is the
law. DBS providers get to choose
whether to carry any local broadcast signals, but if they do carry any, they
must carry all local signals on contiguous channels, at a nondiscriminatory
price, and in a nondiscriminatory manner on the EPG.
I believe that there are
circumstances under which a two-dish policy could meet these statutory
requirements. But I am very concerned
about the burden that is being placed on consumers to obtain special equipment
to see some local stations. Indeed, as
two of four Commissioners (including me) have stated, we believe that a discriminatory
two-dish policy does not become legal if the provider merely provides
subscribers better notice about the need to get that extra equipment.
But I also believe that the
local carriage requirements ultimately will prove good for business, too. DBS providers may not like the must carry
provisions, but consumers do. It is the
carriage of local broadcast signals that will enable DBS to compete fully with
cable. In fact, prior to SHVIA, some DBS
subscribers retained a subscription to basic cable in order to receive these
local stations.
Moreover, as a panelist
noted yesterday, where DIRECTV has rolled out local-into-local, it has seen an increase in subscription rates. Simply put, carrying local signals is good
for consumers and good for business.
* * *
I hope these thoughts have
provided you with a bit of insight into what is going on at the FCC. I’m now happy to take any questions you might
have.