SATELLITE BROADCASTING AND COMMUNICATIONS ASSOCIATION
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Media Institute Remarks (As Prepared)

Richard DalBello, President, SBCA

May 13, 2004

St. Regis Hotel, Washington, DC

Thank you, Patrick, for that kind introduction. And thank you to the Media Institute for inviting me here today. As you know, I’m only now nearing the completion of my second month with SBCA. 

Industry Overview

As they say on “Marketplace,” one of my favorite NPR programs: First, let’s do the numbers.  And, oh, what numbers they are:

DirecTV, EchoStar, SIRIUS and XM Satellite Radio have all reported incredible numbers for the first quarter of this year.

These numbers show the tremendous demand that the public has for the creative, technologically forward-leaning services being offered by the satellite industry. Customers are not only adopting satellite services in record numbers, but they are staying with these products.

According to the American Customer Satisfaction Index, approximately 71.5% of satellite television consumers are satisfied with their products and services.  By comparison, Comcast, the nation’s largest cable company, had a customer satisfaction rate of only 55% in the first quarter of FY03 – that’s the same satisfaction numbers the U.S. Internal Revenue Service gets.  

Strong growth.  Strong customer satisfaction. What is going on here? 

It’s pretty simple really.  Satellite service providers are offering a great product at a great price.  We are taking one of the world’s more complex technologies and putting it the palm of your hand in a format that’s simple enough for your mother to understand.

But, perhaps most importantly – satellite services provide consumers with what they want most – a choice.  In some markets, that choice reflects a rejection of the “take it or leave it” cable and radio offerings.  In many rural areas, satellite often provides the ONLY medium for television, radio and broadband.

Satellite-Delivered Broadband

Let’s talk about satellite broadband.

There are a couple of important players in the satellite broadband market.  Hughes’ DirecWay and Starband operate here in the U.S.  These businesses have done well and currently serve about 200,000 subscribers nationwide.

However, we believe that things are about to get very interesting this year as the first of a new generation of satellites is launched. 

This year, WildBlue will launch a new satellite service that promises to greatly increase the uplink and downlink speeds of satellite broadband.  WildBlue will also offer service and equipment at prices that are competitive with cable and DSL. This will serve to greatly increase the competitiveness of satellite broadband, making the service a true alternative to other broadband pipes.

The National Rural Telecommunication Cooperative (NRTC) believes that satellite broadband will make a huge contribution to people in rural areas.  And, they are putting their money where their mouth is, as a both an investor and distributor of WildBlue.  As many of you know, NRTC represents the advanced telecommunications and information interests of over 1,100 rural utilities.   Their investment in WildBlue is meant to ensure that satellite broadband services get to those who need it most.

SHVIA Update

This is an eventful legislative year for SBCA. Every five years or so we have the chance to increase the competitive ability of satellite carriers in the multichannel video marketplace through the reauthorization of the Satellite Home Viewer Act, and we stand neck deep in that process today. We are working closely with the Commerce and Judiciary Committees in both the House and the Senate.

Although this process has been complex, we are encouraged by the progress being made. There seems to be a strong interest in both houses in putting satellite on a level playing field with cable.  Specifically, there seems to be consensus that Congress should:

Although we seem to be together in principle, we do have some anxieties about this last issue.  The current House Judiciary Bill would start by raising our rates to reflect a cost-of-living adjustment since 1999, and then require the Copyright Office to convene a Copyright Arbitration Royalty Panel, or CARP, to determine the “fair market value” for the content. 

Our concern stems from the fact that in 1997, a similar mandate increased satellite’s royalty rates by 350%.  These rates then had to be re-adjusted downwards by Congress a year later to make them feasible. This system just doesn’t work. We think adjusting for inflation is appropriate and sufficient.  By comparison, cable rates are evaluated every 5 years and adjusted for inflation only.

Digital Transition

SBCA has been advancing a simple proposal on the so-called “Digital White Areas.”  We think that Congress should broaden the existing copyright license to permit DBS providers to offer network HD digital service to viewers who cannot today receive them.  This would help to create a greater demand for HD sets and HD programming and accelerate the national transition to a HD digital future.

It will also help to accelerate the date at which broadcasters’ analog spectrum must be returned to the government.  Once returned, this spectrum can be auctioned off to wireless companies eager to offer next generation phone and Internet services, and handed over to police and fire agencies who could utilize the spectrum for improved public safety services. 

The primary argument I have heard against this proposal is that if the satellite industry is allowed to serve these unserved households for a year, or 5 years, or a decade, that we won’t give them back.  OK, now, I am the new guy, but I am going to go out on a limb here and offer some sales and marketing advice.  I am not sure that it is a good long-term business strategy to regard your customers as your property. See, in our part of the industry, we have real competition.  To keep our customers, we have to earn their loyalty.  We are willing to sit down to discuss how to manage the transition of these customers back to over the air HD broadcast.

Localism

For the next few minutes I’d like to wade into the deep end of the pool. I would like to talk about satellite technology and the principle of “localism.”

Localism, along with diversity and universality of service, has long been a primary goal of our national communications policy. And this is how is should be.

Localism is immensely important in creating an informed public and building a strong community.  Strong local communities can give voice to diverse viewpoints, engender debate, and prevent the homogenization of our society.  But, I think it is possible to praise the principle of localism and still embrace the broad changes that result from the introduction of new technology.

First of all, localism is a word that seems to mean a lot of different things to a lot of people.  When talking about localism, some people focus on the number of minutes covering community affairs, others focus on the extent to which programming reflects the diversity within the community.  Alternatively, some focus on ownership, or the location of the employees, while others are more concerned about the threat of media consolidation, or vertical integration.  So this is a topic that is hard to get a bead on, but it does raise some questions for us.

I think the hardest issues arise when localism stands as a barrier to personal choice.  I like the Washington Post, but sometimes I find its business reporting a little thin.  So I import a “distant network signal” from New York, in the form of the New York Times.  Or, I may reach out to a “superstation” such as the Wall Street Journal.  These choices are available to me in print media, but not in television.

If I tire of the local radio stations, through the Internet, I can receive thousands of radio stations from around the world.  This choice is available to me when I am on my computer using Starbuck’s wi-fi, but it is not available to me when I am in my car.

I think the view that technology necessarily damages localism is wrong.  For example, through the Internet, I have information about my community that was never available before.  I have state websites. I have local government websites.  I have community listserves.  I have PTA sites and grass roots organizations.  On the Internet I can read my daughter’s student newspaper or check my son’s baseball schedule.    

Prior to the Satellite Home Viewer Improvement Act of 1999, or SHVIA, DBS providers could not deliver local broadcast stations to consumers. This was bad for consumers, bad for local broadcasters and bad for DBS. When Congress realized this, it gave satellite carriers a license to carry local signals, and a partnership between DBS and broadcasters in providing access to local programming developed.  Today, 90 percent of U.S. television households have access to delivery of local broadcast stations from at least one DBS provider. And in some cases, such as more mountainous and rural areas of the country, DBS is the only access consumers have to local broadcast stations.

Recently, we have witnessed a battle brewing between satellite and broadcast with the inception of satellite radio.

The National Association of Broadcasters has asked the Federal Communications Commission to rule that satellite radio providers should not be allowed to provide local traffic and weather reports for several large cities through the satellite radio providers’ nationally-distributed signals. The impetus for this filing was the recent offering by XM and Sirius of traffic and weather reports for cities like Los Angeles, New York and Tampa.

It should be pointed out that satellite radio only provides national signals, so satellite radio subscribers in Los Angeles, for example, receive the same traffic reports as subscribers in New York. It’s hard to imagine how this service is a threat to the principle of localism.

Satellite radio is a subscription service. People across the country tune into their local FM and AM stations for programming that specifically involves their locale, and they do so for free. For this reason there will always be a strong base of listeners of local radio broadcasts. The advertising base that local radio broadcasters depend upon for their survival will not dissipate due to satellite radio.

I think the technology does raise some questions that we need to address:

I think some of the opposition we have heard to satellite radio is misguided.  Localism and consumer choice are not mutually exclusive. By holding true local values – yet understanding that the world of technology is an ever changing place – the satellite and broadcast industries can work together to ensure an established place for both groups in the future.  This process is not simple or neat.

Conclusion

There is a lot to accomplish this year: