Mr. Chairman, Senator Kohl, and members of the Subcommittee, thank you for inviting me to appear before the Subcommittee. I appreciate the opportunity to present our views on the competitive choices in video. The last time I appeared before this Subcommittee in October 1997, DIRECTV had been in business a little over three years and had 2.9 million subscribers nationwide. Today, as we approach our seventh anniversary this summer, we have more than 9.5 million customers. One in every 11 households in the United States has DIRECTV. And 70% of our customer base comes from areas in which cable is available.

Direct broadcast satellite (“DBS”) is the principal competitor to cable, with more than 15 million subscribers. Nevertheless, according to the Federal Communications Commission, cable television still is the dominant technology for the delivery of video programming to consumers with 80 percent of all subscribers to multichannel video services receiving their programming from a franchised cable operator.1 So there remain quite a few cable customers we can target for conversion to satellite. We think the new enhanced products and services we are offering, such as DIRECTV Interactive Powered by Wink, the DIRECTV Receiver with TiVo, and the DIRECTV Receiver with UltimateTV Service from Microsoft, as well as our Spanish-language service, DIRECTV PARA TODOS, will help us attract new subscribers. And this week we are completing our acquisition of Telocity, a leading nationwide provider of high-speed broadband services through DSL technology. Coupled with our forthcoming two-way DirecPC® service, which provides users with nationwide high-speed broadband Internet service via satellite, we will be able to offer our customers a "whole house" entertainment and information solution.

Certainly our recent success is due in part to the passage by Congress of the Satellite Home Viewer Improvement Act (SHVIA). While we did not agree with every provision of that legislation, on balance we viewed it as worthy of our support. Most importantly, the legislation allowed satellite TV companies -- for the first time -- to offer local broadcast channels.

We have moved quickly to bring the benefits of that legislation to consumers. We are offering local network stations in 41 major metropolitan markets, which represent more than 61 percent of the television households in the country. We are very pleased with the rate at which our subscribers are purchasing local channels. In some markets, more than 66 percent of customers are purchasing local channels. Overall, we are seeing a take rate of more than 43 percent for all customers. And for new subscribers, the take rate is more than 59 percent. While it is difficult to differentiate the effect of the availability of local channels from other factors, through the end of 2000, customer acquisition in local channel markets was up about 20 percent compared to similar markets where local channels are not offered.

The ability to deliver local content enables DIRECTV to offer consumers a service that is fully competitive with cable in terms of content and price in the markets in which we are offering local channel service. For example, a DIRECTV subscriber who chooses our most popular programming package, Total Choice, plus their local channel package receives 141 channels for just $37.98 per month. His next-door neighbor in Philadelphia who subscribes to Comcast’s analog and digital tiers receives 124 channels for $45.95 – fewer channels at a higher price. And his friend in Los Angeles who subscribes to Charter’s analog and digital tiers receives 154 channels for $46.95 – 13 more channels, but at an additional cost of $8.98.2

While the ability to offer local channels has certainly been a major advance for us, cable’s continued market dominance requires ongoing oversight, and where necessary, intervention by Congress and the Commission to foreclose attempts by incumbent cable television providers to stifle competition. Moreover, several statutory and regulatory obstacles are inhibiting our ability to compete with local cable operators.

Expansion of Local Channel Service

While the availability of loan guarantees may create incentives for some entities to explore expanded local channel offerings, our ability to broaden the delivery of local channels has not been limited by access to capital. Rather, the biggest impediment to serving additional communities is the "must carry" requirement imposed by SHVIA. Even absent that constraint, we are ultimately limited by the amount of spectrum allocated to us by the FCC. Let me explain.

Unlike cable operators, which have the ability to increase their channel capacity indefinitely, DBS providers face very tangible channel capacity constraints. There are only three DBS orbital slot locations that are "full-CONUS" -- that is, capable of serving the entire continental United States. The FCC has licensed all of the frequencies at those three orbital locations to DIRECTV and EchoStar.

The must carry provision of SHVIA requires us to carry every full-power local broadcast station in a market in which we offer any local channels no later than January 1, 2002. This means that we have to use our limited satellite capacity to deliver stations for which, frankly, there is negligible consumer demand. For example, in both New York and Los Angeles, we could be required to carry up to 23 stations. Many of these stations have, based on their ratings, minuscule audiences. Carrying such a station is a poor use of our limited satellite capacity. The practical implications of this requirement are clear: by imposing must carry, Congress has decided that it is more important for us to carry all 23 stations in New York and all 23 stations in Los Angeles than to offer the residents of cities such as Buffalo, Dayton, Green Bay, Harrisburg, and Wichitaeven a single channel of local content.

We will launch in the fourth quarter of this year a new high-power spot beam satellite. The spot beam satellite will enable us to make the most efficient use of our existing capacity in order to meet the must carry obligation. But I can tell you that we would much rather use that new $275 million satellite to extend our local channel offering to additional, smaller markets than to use that satellite to deliver little-watched channels in markets in which we have already substantially satisfied consumer demand for localism.

Even if we were to get relief from the must carry obligation through the constitutional challenge we have filed in federal court, along with EchoStar and the Satellite Broadcasting & Communications Association (SBCA), we still would not have sufficient available capacity to provide local channels in all 210 television markets in the United States. For direct broadcast satellite to become the full-fledged competitor to cable that Congress desires, we need more spectrum. To achieve this objective, we would urge Congress to direct the FCC to make additional spectrum available to the DBS providers, which could be used to bring local channels to those markets we cannot serve with our existing limited capacity.

Extension of the Program Access Law

Without Congress’ passage of the program access provision of the 1992 Cable Act, I would not be here before you today. That provision allows cable’s competitors to gain access to cable-affiliated programming, such as CNN, Headline News, TBS, TNT, and HBO. Without this programming, we cannot compete. The program access law is scheduled to expire in October of next year, unless the FCC finds, in a proceeding it is required to begin later this year, that the law continues to be necessary to “protect competition.”3 Using recent events as a likely indicator of future cable industry behavior, I can predict with some confidence that the program access provision will continue to be necessary to protect competition after 2002, and to ensure that DIRECTV’s subscribers continue to receive the programming they’ve been enjoying.

In particular, Comcast, the nation’s third largest cable operator, has refused to negotiate with DIRECTV for carriage of Comcast SportsNet, the Philadelphia-area regional sports network. Comcast’s action has disenfranchised tens of thousands of Philadelphia-area DIRECTV subscribers and hundreds of thousands of other DIRECTV subscribers who enjoy out-of-market sports. Comcast has used what it perceives to be a “loophole” in the program access law, claiming that because it has chosen to distribute Comcast SportsNet using terrestrial rather than satellite facilities it does not have to make the regional sports network available to its DBS competitors.

DIRECTV’s experience with Comcast SportsNet is not an isolated one. There is every indication that other cable operators are contemplating similar strategies to attempt to evade the program access law, particularly with regard to regional sports networks. Thus, it is our hope that the FCC will conclude that the program access law continues to be necessary, and that Congress will consider tightening the law to ensure that cable operators cannot evade the law simply by delivering programming by terrestrial means instead of via satellite, as Comcast is attempting to do. The law should be revised to cover programming owned by cable operators, no matter the delivery mechanism they choose.

Improved Access for MDU Residents

Our penetration rates in apartment buildings, condominiums, and other multiple dwelling units (MDUs) continue to lag behind our single-family home rates. The FCC has not yet taken full advantage of the preemptive authority Congress intended to convey in the 1992 Cable Act with respect to restrictive covenants and other impediments, including exclusive, long-term cable contracts, that prevent both MDU owners and renters who do not have exclusive use of areas suitable for antenna installation from subscribing to alternative video services such as DIRECTV. For years, DIRECTV has urged the Commission to amend its rules to require landlords, condominium associations, and other homeowner groups to provide access to at least two multichannel video services to residents who do not have exclusive use of areas suitable for antenna installation. I do not believe Congress ever intended to discriminate against residents of multiple dwelling units (MDUs) by depriving them of the benefits of competition available to single-family homeowners, and we would ask Congress to help rectify this situation.

Ill-Advised Spectrum Sharing Proposals

All of our efforts to bring a robust competitive alternative to cable to the marketplace will be undermined if the primary spectrum used by DBS operators to downlink programming to subscribers across the United States is invaded by terrestrial wireless point-to-multipoint services such as those proposed by Northpoint Technology. One of the top reasons consumers switch from cable to DBS is the greater service reliability of DBS. Millions of U.S. consumers who use and rely upon the DBS service will see increased interference in the form of longer and more frequent service outages if a mass market fixed wireless service is introduced into the DBS band. Today’s happy customers could easily become tomorrow’s unhappy constituents if, as a result of an ill-considered government action, they begin to see increased service interruptions.

Let me assure you that our opposition to the deployment of a terrestrial service in the DBS band has nothing to do with fear of facing another competitor. We compete every day against the cable giants, so it’s ridiculous to say that we’re afraid of competition. And we will compete against these proposed terrestrial services if they’re properly located in a different spectrum band, such as those specifically set aside for similar “wireless cable” services. Our only concern is protecting the level of service our customers have come to expect and which we have spent hundreds of millions of dollars to ensure. The extensive efforts Congress has undertaken to increase cable competition will be undermined if the FCC allows the spectrum intended for DBS use to be shared with terrestrial fixed wireless services.

Public Service Initiative

As a company, we believe in public service. That is why last month we launched DIRECTV GOES TO SCHOOL, a public service initiative that will provide up to 50,000 public and private schools around the country with free access to our SCHOOL CHOICE programming package. Participating schools will receive more than 60 channels of educational programming, including such networks as CNN, Discovery Channel, The History Channel, A&E, The Learning Channel, and of course, C-SPAN2, which teachers can use to enhance their lesson plans. In addition, we will provide free-of-charge to participating schools special issues of DIRECTV--The Guide, which will include feature articles on the educational programming offered in the SCHOOL CHOICE package. We hope that schools in all 50 states and the District of Columbia will participate in the program.

Conclusion

As I mentioned at the outset, we’ve come a long way in the three years since I last appeared before this Subcommittee. While we still have a way to go before we can achieve our goal of a competitive position on par with local cable operators, the next time I appear before this Subcommittee I hope to be able to tell you we’re even closer to that goal.

I appreciate the opportunity to share my views.

1 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Seventh Annual Report, CS Docket No. 00-132, FCC 01-1, at ¶¶ 5, 61 (released Jan. 8, 2001).

2 “Cable Industry Outlook,” Credit Suisse First Boston, Feb. 5, 2001, Table 12, DBS versus Digital Cable Offering Comparisons, at 20.

3 47 U.S.C. § 548(c)(5).