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EchoStar Pledges One Rate After Merger

EchoStar chairman Charlie Ergen told CES showgoers he is prepared to “sign in blood” that a combined EchoStar/DirecTV satellite operation will continue to offer a uniform national subscription rate for both rural and urban markets if necessary to have the merger pass federal regulatory approvals.

Ergen said that DISH Network has always charged rural subscribers the same rate as subscribers in other markets for TV services, and would do the same for local TV services in new markets as new cities are added after the merger is approved.

EchoStar and DirecTV executives estimate the merger would provide enough satellite capacity to offer local channel services to markets covering 85 percent of U.S. households.

Consumer groups, the NRTC and others have attacked the merger with DirecTV for reducing competition for subscription TV services. Critics feel the deal could lead to, among other things, rural customers being charged higher rates for services than the rest of the country, with no alternative platform to turn to. Many rural markets do not have access to cable or clear over-the-air TV programming.

At the same time, Ergen said he was prepared to risk the whole deal and drop the ESPN Classic and Family Channel services from his DISH Network rather than pay Disney “hush money” through exorbitant price increases on those services.

“At least I can look at myself in the mirror,” Ergen said, in explaining why he decided not to give in to a 15 percent price increase on the ESPN Classic service. He said Disney asked for an unwarranted price increase for the service in exchange for its support of the satellite merger. He said if EchoStar refused to pay, Disney suggested it would use its powerful influence with government and regulatory leaders to fight the deal.

Ergen conceded that Disney has a legal right to pressure his company to pay the higher rate, but questioned the ethics of such a move instead of negotiating an increase on the actual value of the services. He said ESPN Classic has a relatively small viewership on his platform, and added that ratings on the Family Channel have steadily declined since ownership passed from Pat Robertson’s organization to FOX management several years ago.

EchoStar recently pulled ESPN Classic from its programming lineup after the prior contract with ESPN parent Disney expired. Ergen is also looking to drop the Family Channel, which recently passed from FOX to Disney ownership, but is under a court order to keep the channel on until a settlement or ruling is reached on the matter.

As a result of cost increases from channel providers, EchoStar announced it would raise subscription rates $1 a month for all basic-programming services, effective March 1. The increase is about a 3 percent hike, which is about half of what most cable operators have recently assessed their customers, Ergen said. The increase will not be applied to local TV services or to customers who signed up under the one-year “I Like 9” program.

Regarding broadband access to rural markets, Ergen said he doesn’t think there will be any feasible way to provide a successful satellite-based broadband Internet service to rural consumers if the DirecTV/EchoStar merger is not approved.

The expanded capacity afforded by the merger will bring efficiencies of scale that would allow the company to profitably deliver broadband services, but the current broadband programs offered by the separate companies and their partners are not profitable at current $70 a month rates. Federal regulators have said they are particularly interested in providing broadband services to homes across the country.

Currently, many rural areas lack broadband access from cable or DSL and broadband satellite services may be their only option.

Meanwhile, EchoStar introduced its DISH PVR721 Home Entertainment Gateway — a combination DISH Network satellite receiver, hard drive video recorder and interactive TV-Internet access device. The unit was slated to ship in the first quarter at a $499 suggested retail, and includes a massive 160GB hard drive to store television programs as well as information and content downloaded from the Internet over its dual USB connectors. EchoStar will not charge a subscription fee for the DVR services.

Users can attach digital cameras to the USB port to store images and play them back on a television screen. Additionally, PC printers can be attached to the 721 to make color prints of digital still shots or freeze frame video pictures. The ports will also connect with high-speed broadband modems, including those used by the StarBand satellite service or DSL services to access the Internet to download music and video programming. A jukebox application will enable playback of MP3 music files and will enable storage for files to CD-R/RW discs using a connected USB-CD burner. For those without broadband access, the DISH PVR721 incorporates a 56.K V.90 dial-up modem.

EchoStar also demonstrated here a next-generation PVR that will record HDTV programming. It is tentatively slated for a late 2002 or early 2003 introduction.