Bloomberg News

EchoStar Loses at High Court, Must End Some Service (Update3)

August 22, 2006

U.S. Supreme Court Justice Clarence Thomas refused to block a ruling requiring EchoStar Communications Corp. to halt some network television signals to hundreds of thousands of subscribers.

The 11th U.S. Circuit Court of Appeals ordered the halt in May, saying EchoStar engaged in a pattern of offering those signals to customers who aren't eligible under federal law. Today's rejection is a victory for News Corp. (NWSA:US)'s Fox Network and stations affiliated with the four major networks. News Corp. is the parent of EchoStar's rival, DirecTV Group Inc.

EchoStar, the nation's second-largest satellite service, said in court papers filed in Washington it faces ``irreparable harm.'' The Englewood, Colorado-based company asked Thomas, who handles emergency requests from the 11th Circuit, to block the lower-court decision from taking effect while the justices consider whether to hear the company's appeal.

``Large numbers of subscribers who will be deprived of access to network broadcasting programming are likely to cancel their remaining EchoStar satellite services,'' EchoStar argued. Those customers ``are unlikely to resubscribe even in the event the 11th Circuit's decision is reversed by the Supreme Court.''

EchoStar said in an Aug. 9 regulatory filing that service shutoffs ``could have a material impact'' on its third-quarter results. The company says it will try to shift customers to local network signals.

In a statement today. EchoStar said the Supreme Court ruling was ``not unexpected.''

10 Percent Affected

``Less than 10 percent of EchoStar's subscribers would be impacted, but we will continue to explore every possible option available to avoid unnecessary disruption to our customers who watch distant network channels,'' the company said.

Shares of EchoStar fell 27 cents to $31.67 at 4 p.m. New York time in Nasdaq Stock Market composite trading. They have gained 17 percent this year.

The U.S. Satellite Home Viewer Improvement Act lets satellite companies provide network signals from faraway markets to subscribers who can't get high-quality local reception through an antenna. Both EchoStar and its larger rival, DirecTV, have battled broadcaster claims that they regularly provide the service to ineligible customers, violating station copyrights.

The 11th Circuit said EchoStar engaged in ``a pattern and practice of violating the act in every way imaginable'' and probably provides illegal service to more than 20 percent of its subscribers. The panel said that when a satellite company reaches that threshold, a judge must issue an order barring any transmission of distant network signals.

Judge Overturned

The ruling overturned a federal trial judge who had issued a narrower order requiring EchoStar to revamp its system for determining subscriber eligibility for distant network signals.

EchoStar previously reached settlements with stations owned by Walt Disney Co.'s ABC, General Electric Co. (GE:US)'s NBC and CBS Corp. (CBS:US) Fox pressed ahead with the case, along with the independent station groups.

``We continue to negotiate with the broadcasters who have not yet settled,'' EchoStar said in its statement.

EchoStar had 12.5 million customers at the end of the second quarter. DirecTV reported 15.5 million customers.

The case is EchoStar v. CBS Broadcasting, 06A198.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Don Jeffrey in New York at djeffrey1@bloomberg.net

To contact the editors responsible for this story: Ken Fireman at kfireman1@bloomberg.net; Emma Moody at emoody@bloomberg.net


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