For years, top Alaska and Hawaii officials have been quite sour about the quality of direct-broadcast satellite service that DirecTV Inc. and EchoStar Communications Corp. have provided to their remote states.
Officials in the 49th and 50th states have voiced concern on a range of issues. High among them: the number of channels offered, the available programming choices, equipment costs and the type of hardware needed.
Now, with EchoStar and DirecTV planning to merge, Alaska and Hawaii appear to be in a position to see their concerns addressed. In the end, it might not involve much of a fight with the DBS firms.
In fact, the merger could free up satellite channels, allowing Alaska and Hawaii to receive many more national cable networks. And as consolidation makes more slots available, the new company could also be prompted to provide local TV signals in the Anchorage and Honolulu markets.
"Post-merger, we are able to guarantee full core service and local-into-local to Alaska and Hawaii," said EchoStar chairman and CEO Charlie Ergen.
"Local-into-local" service is the ability to deliver over-the-air TV signals to select home markets, probably Anchorage and Honolulu.
On Oct. 29, EchoStar agreed to merge with DirecTV Inc., creating a DBS giant with at least 14.9 million subscribers, or about 17 percent of the pay TV market.
Both the Federal Communications Commission and the Justice Department need to approve the transaction. Lawyers and other representatives for Alaska and Hawaii either would not speak for the record or could not be reached to discuss whether they want the merger conditioned on beefed-up DBS service in their states.
PARITY, AND MORE
At a press breakfast last week, Ergen promised that the merger would produce parity between Alaska, Hawaii and the lower 48 states. He also pledged to provide local TV stations, high-speed Internet access and other satellite-delivered services.
"It's what we want to do," Ergen said. "We want everybody to be able to have access to our service. Alaska and Hawaii can be good markets for us.
"They are not economical because they are away from the continental United States, but we want to be able to be a ubiquitous service in all 50 states."
The Carmel Group subscription-TV analyst Jimmy Schaeffler said he expects DBS service to improve in Alaska and Hawaii with or without the merger.
"This is because DBS is enhanced across the board if it stays two competitors or if it becomes one," Schaeffler said. "With one, efficiencies will greatly improve bandwidth and satellites available for Alaska and Hawaii. If two stay in the DBS business, DirecTV is still likely to sell and its successor will spend lots, bring in lots of new ideas, and make EchoStar and the cable industry that much better.
"Either way, these two 'distant-signal states' and their inhabitants win," Schaeffler said.
In the past, EchoStar and DirecTV have resisted regulatory mandates to upgrade service to Alaska and Hawaii, citing a host of technological difficulties. But the efficiencies expected to be produced by the proposed merger might be all that's needed for Alaska and Hawaii to realize its long-term ambitions.
DBS satellites, with their hundreds of programming networks, stare directly at the lower 48 states. Alaska and Hawaii are not so geographically fortunate. They're located at the edges of those signals, which translates to fewer programming choices in those states.
As a result, DBS penetration is quite low in Alaska and Hawaii — 14 percent and 2 percent, respectively. Not surprisingly, cable has 88 percent penetration in Hawaii, the highest among the 50 states. Cable penetration in Alaska is 60 percent, which is about 8 percentage points below the industry's national average.
EchoStar's service in Hawaii is illustrative of the problem. A Dish Network subscriber in Hawaii essentially has line of sight to one satellite; that bird does not carry the full complement of networks.
Because EchoStar's signal is stronger in the lower 48 states than in Hawaii, an EchoStar subscriber there also needs a bigger dish and, in some cases, two dishes — adding to the cost to acquire the service.
NO CNN, ESPN, USA
Just five days before the EchoStar-DirecTV merger was announced, Washington lawyers representing Hawaii filed a letter with the FCC. They complained that "DBS offerings in the state are still not comparable with the programming that is available in the rest of the country and is not competitive with cable television services in Hawaii."
The letter explained that DirecTV's "Hawaii Choice" package includes 44 channels and retails for $21.99 a month, but the package does not include such cable hits as CNN, Headline News, The Weather Channel, Discovery Channel, ESPN, ESPN2, TBS, TNT, and USA Networks. Nor does DirecTV provide access to NFL Sunday Ticket, the exclusive a la carte service of pro football games.
"It does not appear to be competitive with terrestrial cable services in Hawaii," the FCC letter said.
Last week, Ergen said his company has tried to bring quality service to Alaska and Hawaii.
"I've got to defend EchoStar. We have gone above and beyond the call of duty to service Alaska and Hawaii today," he said. "We redesigned our satellites; we spent tens of millions of dollars to do it at a time when we weren't even required to do it."
DBS service in Alaska and Hawaii isn't a backwater issue that's been ignored by Capitol Hill lawmakers.
Sen. Ted Stevens, a Republican who holds a top position on the Appropriations and Commerce committees, represents Alaska; Hawaii's senator is Daniel Inouye, a Democrat who also ranks highly on the same panels. Both have monitored the progress of DBS back home.
In a September 2000 letter, Stevens and Inouye urged then-FCC chairman William Kennard to require EchoStar and DirecTV to improve service in their states.
"The promise of a competitive choice will remain illusive if DBS licensees are permitted to engage in systematic structural discrimination against residents in our states," the lawmakers said. "[The FCC] certainly should not support a position that allows residents of Alaska and Hawaii to be disadvantaged in comparison to consumers in the rest of the country."
Once the merger is approved, Ergen said, subscribers in Alaska and Hawaii can gain access to all services, though perhaps with a slightly larger dish than the one used elsewhere in the U.S.
"I believe you may need a 24-inch dish, once we complete this merger, probably because of rain more than anything else," Ergen said. "It's not going to be a four-foot dish."
