Technical problems with the DirecTV/Echostar merger

Thu, 01/31/2002 - 7:00pm
Jeffrey Krauss, Satellite Scholarand President of Telecommunications and Technology Policy

Jefftey Krauss
By Jeffrey Krauss, Satellite Scholar and President of Telecommunications and Technology Policy
Charlie Ergen is touting the benefits of merging DirecTV into Echostar, and number-one on his list is that it will free up transponder capacity for more local-into-local TV distribution. Congressmen are complaining about the loss of competition in rural areas. But if the deal goes through, there are some difficult technical problems that must be faced.


The DBS industry learned that it faced a tremendous marketplace disadvantage by carrying only movies, when cable TV can carry both movies and local TV stations. So Congress enacted a law giving DBS operators the right to rebroadcast local TV stations, by means of a compulsory copyright license. But there were two kickers in the law. First, if a DBS operator carries any local TV station, it must carry them all. And second, it must control access so that a subscriber in one city could not watch a TV station from another city. This has come to be known as the "local-into-local" policy.

Both DirecTV and Echostar have local-into-local packages for $4.99 or $5.99 a month. They don't merely include the commercial networks; they include PBS and all the independent stations as well. Echostar's Web site shows local-into-local packages for 36 cities. For example, Echostar's Albuquerque package contains 26 stations, and Echostar's Washington D.C. package contains 23 stations. DirecTV subscribers in 31 cities have access to local-into-local packages as part of the regular DirecTV movie programming, and viewers in another 12 cities have access if they buy a special receiver and dish.

The point is that local TV programming takes up a large amount of satellite capacity, for both DirecTV and Echostar. And, there is a large amount of duplication—they both must carry all the local stations. So Ergen's logic goes something like this: today, we provide local programming for the largest 36 markets, but if we could combine the Echostar and DirecTV systems and eliminate duplication, we could carry local programming for many more markets.

Unfortunately, it will not be that simple for Ergen and his subscribers. With today's technology, a DirecTV receiver can receive local TV stations on a DirecTV satellite, but not on an Echostar satellite. And vice versa. The technologies are different, and incompatible. The technologies are different because DirecTV started up first, before there were industry standards. Echostar came later, and chose the standards developed in Europe for DVB satellite distribution. Echostar uses MPEG transport packets of 188 bytes, while DirecTV uses 132-byte packets. In addition, the program guide and system information protocols are different, and Echostar uses the MPEG audio coding rather than the U.S. Dolby audio coding. Point your Echostar dish toward a DirecTV satellite, and your Echostar receiver will give you…nothing.

The consequence is that a combined DirecTV/Echostar DBS service will have to migrate more than half of its viewers (probably the DirecTV subs) to new receivers before it can achieve the economies of a combined system. The transition problems are likely to be painful and long-lasting. This is not like a cable system, where the cable operator owns the set-top boxes. Echostar and DirecTV subscribers own their own receivers. And next year, there will be some digital TV sets for sale in stores with built-in Echostar receivers, and others with built-in DirecTV receivers.


So let's do a little back-of-the-envelope calculation. Right now, Echostar carries local programming from 36 cities. A review of its Web site shows that it is actually carrying 679 TV stations to these markets. At a data rate of 2 Mbps, that's a total data rate of 1,358 Mbps. But each HDTV channel takes about 20 Mbps, not 2 Mbps. So instead of an average of 679/36 = 18 standard definition TV stations per market, if it converted that transponder capacity to HD, it could carry less than 2 HD channels per market. That's not nearly enough, is it? Even a merged Echostar and DirecTV could run out of capacity.

Of course, the next generation of DBS satellite technology will use spot beam antennas. This is better for local-into-local than current satellites with full U.S. antenna coverage, because it allows some frequencies to be used over again in different parts of the country. That will increase capacity, maybe enough to carry all local TV stations after they convert to digital. But probably not. If not, then multiple satellites at multiple orbital locations will be needed.

But multiple satellites means a more complex receiver technology, a technology using steerable antennas. One reason DBS receivers have come down in price is that the antenna, which is fixed in one direction, is cheap. Remember C-band backyard dishes? The dish moves, and it can be pointed at any satellite orbital location. Today's DBS dishes don't move, and it seems unlikely that today's DBS price points can be maintained with steerable dishes.

So while the lawyers are arguing about competitive implications of the Echostar/DirecTV merger, and Charlie Ergen talks about benefits, just remember that he has some difficult technical problems ahead if the deal goes through.


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