If it approves EchoStar Communications' $25 billion buyout of rival DirecTV, a deregulatory-minded Bush administration will likely be placed in the uncomfortable position of having to impose price controls designed to protect rural customers from rate gouging by the satellite provider.
Immediately after the Oct. 28 merger announcement, voices as disparate as Consumers Union co-director Gene Kimmelman and Republican House Energy and Commerce Committee Chairman Billy Tauzin called for price protection.
?A viewer in Chackbay, La., shouldn't be forced to pay more for satellite services than one in metropolitan Atlanta, where competition flourishes,? says Ken Johnson, Tauzin's spokesman.
The anxiety of consumer advocates and lawmakers is easily justified: The merger, after all, would reduce multichannel options for the 6 million rural satellite subscribers from two to one, creating an instant monopoly with no competitive incentive to moderate prices, much less improve customer service or offer technological upgrades. The solution, say merger proponents, is to forbid the merged entity to charge higher rates in rural areas ? where there is no competition from cable ? than in highly competitive suburban and urban markets.
In his statements on the merger, EchoStar CEO Charlie Ergen has expressed a willingness to accept a price-monitoring mechanism as part of an antitrust agreement with the government. The inclusion of pricing considerations in any approval has preoccupied Capitol Hill lawmakers in their sessions with Ergen. According to Johnson, Tauzin told Ergen that the combined company would have to ?make some iron-clad guarantees as far as underserved Americans are concerned.? Ergen reportedly nodded in agreement but has not yet specified what sort of price enforcement he would embrace.
Consumer advocates insist that the company can afford to accommodate the most intrusive price-monitoring regime proposed by government antitrust officials. ?Ergen can give the service away for free to 10% of the country if he needs to,? says Andrew Jay Schwartzman, president of the Washington-based Media Access Project.
EchoStar's acquiescence to price monitoring, though, fills out only part of the picture. The real test is whether laissez-faire FCC chairman Michael Powell will assent to such a market-interventionist device. The 1996 Telecommunications Act ordered the FCC out of the business of cable price regulation, and in March 1999, the agency shut down its price-monitoring shop. According to FCC Cable Services Bureau spokesperson Michelle Russo, nearly 100 employees handled the pricing function.
Shedding price-monitoring jibes nicely with Powell's campaign to shrink the FCC's regulatory footprint. And whenever the notion of re-regulating the price hikes of multichannel providers has popped up, Powell has swatted it down. In a press conference last February, for example, Powell argued that ?rate increases are not in and of themselves a reason? to impose price regulation on the cable industry.
Regulating the prices of one satellite company, of course, entails far less bureaucracy than monitoring an entire industry. But the schemes advocated by Kimmelman and Tauzin would thrust the agency into territory where Powell feels uncomfortable ? namely, making judgments about what constitute fair price increases and crafting other artifices to simulate multichannel TV competition in rural markets.
What looks at first glance like a straightforward device linking rural and urban satellite prices could turn into a bureaucratic mess, spawning litigation between an enormous company and afflicted rural viewers. ?This company would require a DBS-cable bureaucracy to keep track of it,? says an industry source.
Bureaucracy alone, though, won't dissuade Powell from supporting the deal. As a commissioner (before he assumed the FCC chairmanship), Powell signed off on other mergers ? most notably, AT&T-MediaOne and AOL Time Warner ? that carried exacting operating conditions authored by the government. In both cases, Powell publicly deplored the long arm of FCC regulation and favored a more minimalist approach to merger approval.
Under pressure from Tauzin and other Republican lawmakers, however, Powell will have no choice but to insert price monitoring in any FCC-EchoStar consent decree. The presumed pro-consumer dimensions of the deal may make it easier for Powell to swallow the resulting bureaucracy. Advocates of the combination note that the company would be able to provide local broadcast signals in the top 100 TV markets ? as opposed to 40 today ? and together would pose a heftier counterweight to monopoly cable outfits in municipalities across the country.
?They have to take care of the obvious anti-consumer risks, and only the regulator can do that,? says a congressional source. ?The other option is to say no, and they may be unwilling to do that, too.?
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