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Must-Carry Buys Net Onto DBS

EchoStar Communications Corp. is coming under scrutiny regarding possible noncompliance with federal rules designed to reserve direct-broadcast satellite channels for nonprofit educational programmers at affordable rates.

One claim is that EchoStar allocated one of its public-interest set-aside channels only after the programmer agreed to forfeit lucrative must-carry rights held by several TV stations.

As such, the swap might have represented a form of excess compensation to EchoStar that violates federal regulations.

Combined, EchoStar and DirecTV Inc. carry nearly three dozen so-called public-interest channels, pursuant to Federal Communications Commission rules adopted in late 1998. Under the program, the DBS carriers each must set aside at least 4% of channel capacity.

By most accounts, the program has been a success.

There hasn't been much public fuss between DBS carriers and non-profit programmers, nor has the FCC been forced to adjudicate a raft of complaints leading to numerous trips to federal court, an FCC source said.

But in recent months, EchoStar has become embroiled in a controversy regarding carriage of Christian programmer Daystar Television Network. Based in Dallas, Daystar is a 24-hour network controlled by the Word of God Fellowship Inc. and run by Marcus D. Lamb.

EchoStar's carriage of Daystar, which commenced last December, triggered a federal lawsuit that is expected to be decided soon. The FCC has also been dragged into the fight, but it is not clear when or how the agency will rule.

The lawsuit was filed by Dominion Video Satellite, a DBS operator that shares capacity on an EchoStar-owned satellite.

Based in Naples, Fla., and run by founder and CEO Robert Johnson, Dominion distributes 20 Christian programming networks under the Sky Angel brand. The video service has fewer than 500,000 subscribers.

Dominion sued EchoStar under a 1996 contract clause that bars EchoStar from providing Christian programming in competition with Dominion's Sky Angel.

In June, a federal judge agreed with Dominion and issued a preliminary injunction bumping Daystar from EchoStar's lineup, but the decision was stayed pending appeal. The U.S. Court of Appeals for the 10th Circuit heard oral arguments two weeks ago.

Precisely how Daystar obtained EchoStar carriage was revealed in court discovery, some of which was later placed in the record at the FCC.

Daystar owns 10 full-power, FCC-licensed TV stations entitled to mandatory carriage from EchoStar.

Court records reveal EchoStar agreed to allocate Daystar a public-interest channel — with access to all 9 million EchoStar Dish Network subscribers — if Daystar agreed to renounce its mandatory carriage rights.

In e-mails and letters to EchoStar chairman and CEO Charlie Ergen and other EchoStar officials, Daystar's Lamb volunteered the trade and described it as a win for both sides.

On Dec. 9, 2002, the deal was cemented in a side-letter agreement.

In an interview last week, Lamb said Daystar agreed to a similar swap with DirecTV, bringing the network an additional 11 million subscribers.

Neither EchoStar nor DirecTV would comment about carriage of Daystar for this story.

Dominion has complained to the FCC that agency rules bar Daystar from using its must-carry rights as barter to jump to the head of the line and secure a public-interest channel from EchoStar.

FCC rules cap the price of a public-interest channel at "50% of the total direct" cost of making the channel available to consumers.

Court records show that under the FCC price formula, EchoStar charges each public-interest programmer about $10,000 a month.

Dominion told the FCC that the Daystar-EchoStar swap freed up satellite bandwidth with a value far in excess of $10,000 a month, and represented a level of payment that no other public-interest programmer could hope to match.

"Must-carry trades for set-aside channels are excessive compensation," said Dominion's Johnson, a DBS pioneer who was among the first to receive a high-power DBS license from the FCC in early 1980s.

Dominion also has claimed that Daystar engages in commercial activity that should disqualify it as a noncommercial broadcaster and as an eligible entity under the DBS set-aside program.

Ironically, one of Sky Angel's programming networks is Daystar.

"We haven't taken them off. We probably should," Johnson said.

Andrew Jay Schwartzman, president of the public-interest law firm Media Access Project, said the EchoStar-Daystar agreement appeared to violate the FCC's compensation limits on public-access channels.

"If the satellite carrier is trying to leverage the set-aside so they are just not getting the regular rate, but they are also getting an additional benefit, they are violating the statute. [EchoStar is] charging more than they ought to be charging. That's how I view it," Schwartzman said.

Daystar hasn't remained on the sidelines. It has asked the FCC to invalidate the Dominion-EchoStar programming contract on the basis that the exclusivity provision prevented EchoStar from carrying Daystar, frustrating EchoStar's ability to comply with the 4% quota.

"[Dominion] is trying to silence or control or diminish their competitor," Daystar's Lamb said in an interview. "The FCC rules trump a private contractual clause of a contract."