- The Washington Times - Sunday, December 8, 2002

With the communications industry in meltdown mode, it's worrisome enough that the Justice Department sued on the last day of October to block the merger between EchoStar's Dish Network and Hughes Electronic Corp.'s DirecTV service. 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 handling of the merger is even more troubling than Justice's.
On Nov. 27, EchoStar and Hughes asked the agency to reconsider its turndown. In a desperate effort to wrench the government's approval for the merger, they now volunteer "remedial proposals," which include a promise to spin off some of their satellite capacity to Cablevision so it can offer a competing satellite service. Never mind that this "remedy" would diminish greatly the efficiencies that the merger proponents saw in their original deal.
The scenario that has unfolded, which may lead to a negotiation with EchoStar and Hughes coming forward with even more "voluntary" concessions, is a prime example the FCC continuing to try to micromanage regulation in a dynamic industry undergoing rapid transformation.
Even consumer advocates who typically attack almost any merger blasted the government's action rejecting the combination of the two satellite service providers. Gene Kimmelman, senior director for public policy at Consumers Union, and Mark Cooper, research director at Consumers Federation of America, both criticized the DOJ decision, arguing that the new entity would be a much stronger competitor to cable operators.
After all, the new satellite company would control only 20 percent of the multichannel television 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 nationwide high-speed Internet access service.
But the FCC nevertheless stepped out front to deny the merger application three weeks before the Justice Department acted. Its action is another indication that the agency fails to appreciate how quickly the communications marketplace is changing and how it has failed to change its own historical regulatory mindset.
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 merger proposals and rejected the proposed EchoStar/DirecTV combination under its vague "public interest" mandate. Under this standard, the FCC takes one of its principal tasks to be the evaluation of competitive impacts of the merger. 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 media outlets in a truly competitive environment.
Even a quick perusal of its 130-page EchoStar decision shows that the FCC spent 10 months largely duplicating the work of the Justice Department. The decision is full of talk about defining relevant markets, market share, actual and potential competition, and the like the traditional tools of the antitrust authorities.
Back in 1998, when Michael Powell was an FCC commissioner but not yet chairman, he urged that where another agency has overlapping jurisdiction the FCC should consider yielding to it, "rather than exercising our broad public interest jurisdiction." He admonished, "It is a waste of time and resources for two agencies to regulate in exactly the same area." Why then is the FCC still spending so much time duplicating the efforts of the antitrust authorities in evaluating the competitive impacts of proposed business combinations?
It is also fair to ask why has the FCC been so slow to discard old regulatory paradigms that no longer make sense in an industry that is being tossed and turned by the digital revolution? For many years now, the FCC has issued lengthy advisory reports declaring that satellite television providers compete in what the agency calls the multichannel video programming distribution ("MVPD") market. In this marketplace, the agency has recognized media outlet competitors include the 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 distributor competitors, not to mention such old-fashioned predigital information outlets as newspapers and magazines. Thus, it is downright strange that, confronted with the EchoStar/DirecTV proposal, the commission announced it was unable even to determine conclusively that satellite and cable providers are competitors.
This surprising statement is evidence of the difficulty the FCC is experiencing in relaxing its regulatory grip. In another 1998 speech, Chairman Powell declared that, "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, the truth is, as Mr. Powell apparently understood as far back as 1998, even conceptualizing a "multichannel video market" is probably too narrow. You don't need to look far into the future 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 digital marketplace, regulators who cling to static market views and outmoded regulatory paradigms do consumers no service. Indeed, by standing in the way of business combinations that bring efficiency gains necessary to build out competing Information Age infrastructures, they are likely to do consumers more harm than good.
Don't hold your breath but if the government were to reverse course on the EchoStar/Hughes merger, it would be a sign it is beginning to "get" the digital revolution.

Randolph J. May is senior fellow and director of communications policy at the Progress & Freedom Foundation. The views expressed here are his own.

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