EchoStar’s Hughes Purchase Could Lead to Satellite Broadband USF Consensus

EchoStar’s purchase of Hughes could lead to a policy shift by the second company on the Universal Service revamp because the acquiree has voiced different positions on the issue from the acquirer, FCC filings show. Hughes, which has previously said satellite broadband should be left out of the USF and Connect America fund, could change its position if EchoStar takes over. A united satellite broadband front would “be a big positive for the industry and provide a very strong response to the FCC” General Counsel Lisa Scalpone of WildBlue said in an interview.

EchoStar has added its support for satellite broadband during meetings with the FCC as recently as November, a position that was similar to WildBlue’s stance, Scalpone said. Past efforts to convey some positions may have been easier for the agency to dismiss, because the industry was “not unified,” she said. “We recognize that Hughes and EchoStar will be two separate voices for the time being, however.” Hughes declined to comment. EchoStar didn’t respond to a request for comment. The International Bureau issued a public notice on the EchoStar/Hughes deal Friday, with petitions to deny due by April 18, oppositions due April 28 and replies due May 5.

A combined position by the two main providers would be of particular importance for a relatively small industry like satellite broadband that has sometimes had trouble winning respect from regulators, said Maury Mechanick, a satellite lawyer with White & Case. “Given the ongoing difficulties that the satellite industry in general has encountered in the U.S. in portraying satellites as a meaningful player in the delivery of broadband services to remote and underserved regions, the ability to forge a unified position on this issue would be extremely advantageous for the industry.” The FCC recently showed increased recognition of satellite broadband in its effort to connect tribal lands, which “provides the satellite industry with an unique opportunity to aggressively promote” the technology, he said.

Scalpone and WildBlue met with FCC Office of Strategic Policy Chief Paul de Sa last week (CD March 21 p13). The proposed rules appear to incorporate some incorrect assumptions about satellite broadband, Scalpone told us. Under one proposed Connect America Fund scenario, satellite broadband would be limited from participating in auctions, apparently to ensure enough satellite capacity is reserved for the most expensive households. Satellite broadband providers would be required to pay into the fund but prohibited from bidding to serve the areas, although the satellite companies may be able to partner with terrestrial broadband providers.

The FCC envisions “a major role for satellite in providing service to consumers living in areas that are hardest to reach,” said a commission spokesman. The agency has “proposed that satellite providers become eligible for USF support for the first time ever,” he added.

The commission could be looking to solely use satellite broadband for the very most remote areas, preserving the capacity to use it as a “silver bullet” to keep the fund’s cost lower for those areas, said Scalpone. The agency relies on the mistaken assumption that after the launches of WildBlue’s and Hughes’ coming satellites, the companies won’t be able to add more capacity quickly, said Scalpone. This misperception “could end up increasing the cost of the fund if satellite is precluded, and the best scenario is to allow satellite to compete, which will further incent satellite companies to expand their capacity, even before of the actual bidding process,” she said.

The reliance on terrestrial broadband providers to sell the satellite service also causes significant concern, said Scalpone. While satellite broadband providers have partnered with resellers before, the addition of a middleman that doesn’t have any sort of expertise in selling satellite broadband doesn’t add a lot of value, but these resellers will need to be paid some compensation out of the fund, she said. Satellite broadband providers instead should be allowed to bid alongside the terrestrial providers, she said. At the very least, satellite broadband involvement in the bidding process could drive down the costs because satellite has traditionally been the low-cost provider in rural areas that are the target of USF, she said.