- The Washington Times - Thursday, December 5, 2002

With the communications industry in meltdown mode, it's worrisome enough that the Department of Justice sued to block the merger between EchoStar's Dish Network and Hughes Electronic Corporation's DirecTV satellite services. But given Federal Communications Commission Chairman Michael Powell's rhetoric before President Bush appointed him the agency's leader in January 2001, the FCC's rejection of the merger is even more troubling than Justice's.
On Nov. 27, EchoStar and Hughes asked the FCC to reconsider its turn-down. In a desperate effort to wrench agency approval for the merger, they now volunteer "remedial proposals," including a promise to spin off some capacity to Cablevision so that it can offer a competing satellite service. Never mind that this "remedy" would diminish the efficiencies the merger proponents envisioned in their original deal. This scenario, a negotiation with EchoStar and Hughes "volunteering" concessions, is a prime example of the FCC's continuing regulatory micromanagement in a dynamic industry undergoing rapid transformation.
Even consumer advocates who typically attack almost any merger blasted the government's action. Gene Kimmelman of Consumers Union and Mark Cooper of Consumers Federation of America both criticized the government's action, arguing that the new entity would be a much stronger competitor to cable television operators.
After all, the new satellite company would control only 20 percent of what the FCC calls the multichannel video market. And EchoStar and DirecTV claim the merger would give them the resources to offer a wider array of services, such as more local TV channels and high-speed Internet access.
But in yet another indication that the agency fails to appreciate how quickly the communications marketplace is changing, the FCC stepped out front to deny the merger application even before the Justice Department acted.
At least when the Justice Department reviews a merger, it does so under relatively well-defined antitrust principles. By law, its charge is to determine whether the merger is likely to "substantially lessen competition."
The FCC, on the other hand, reviews mergers and rejected the EchoStar proposal under a vague "public interest" mandate. Under this standard, the FCC takes as one of its principal tasks the evaluation of the merger's competitive impacts. It also sees its role as ensuring that the merger does not diminish the "diversity" of information outlets, although it is difficult to see how there will be insufficient outlets in a competitive environment.
Even a quick perusal of its EchoStar decision shows the FCC spent ten months largely duplicating the work of the Justice Department. The decision is full of talk of defining relevant markets, market share, and actual and potential competition the traditional tools of the antitrust authorities.
Back in 1998, when Michael Powell was not yet FCC chairman, he urged that where another agency has overlapping jurisdiction the FCC should consider deferring, "rather than exercising our broad public interest jurisdiction" because "it is a waste of time and resources for two agencies to regulate in exactly the same area." Why then is the FCC still duplicating the antitrust authorities' efforts?
It is also fair to ask why the FCC has been so slow to discard old regulatory paradigms that no longer make sense in an industry in the throes of the digital revolution. For many years, the FCC has issued reports concluding that satellite providers compete in the multichannel video market with cable companies, wireless cable providers, and broadcast television stations.
And telephone companies, home video sales and rental concerns and Internet video broadcasters are all existing or potential information competitors, not to mention such old-fashioned pre-digital information outlets as newspapers and magazines. Thus, it is strange that, confronted with the EchoStar proposal, the commission announced it was unable even to determine conclusively that satellite and cable providers are competitors.
This is evidence of the FCC's reluctance to relax its regulatory grip. Also in1998, Mr. Powell declared, "digital … convergence has blurred the lines between all communications media." And there was more: "It is futile to attempt to preserve the balkanized regulatory framework that presently exists. The dramatic evolution of technology will erode and ultimately eliminate the legal, economic and conceptual boundaries that traditionally have separated the various communications media."
So, even conceptualizing a "multichannel video market" is probably too narrow. You don't need to be clairvoyant to see that the market in which EchoStar and DirecTV compete likely soon will come to be known as the "digital multichannel market." It will be a world in which video, voice, high-speed Internet access and data distribution most often will be bundled together in one package by companies competing over different technology platforms.
In this marketplace, regulators who cling to outmoded regulatory paradigms do consumers no service. Indeed, by standing in the way of business combinations which bring efficiency gains necessary to build out competing Information Age infrastructures, they are likely to do consumers harm. Don't hold your breath but if the government were to reverse course on the EchoStar merger, it would be a sign that it is beginning to "get" the digital revolution.

Randolph J. May is senior fellow and director of communications policy at the Progress & Freedom Foundation in Washington.

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