DIRECTV 2005 Annual Report Download - page 33

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THE DIRECTV GROUP, INC.
AT&T recently announced an agreement to acquire BellSouth, one of the RBOCs that sells the
DIRECTV service. AT&T has a similar arrangement with EchoStar. If the AT&T acquisition of
BellSouth is completed, our arrangements with BellSouth might be adversely affected.
As a result of these and other factors, we may not be able to continue to expand our subscriber
base or compete effectively against cable television or other MVPD operators in the future.
We depend on the Communications Act for access to cable-affiliated programming and changes
impacting that access could materially adversely affect us.
We purchase a substantial percentage of our programming from programmers that are affiliated
with cable system operators. Currently, under certain provisions of the Communications Act governing
access to programming, cable-affiliated programmers generally must sell and deliver their programming
services to all multi-channel video programming distributors on non-discriminatory terms and
conditions. The Communications Act and the FCC rules also prohibit certain types of exclusive
programming contracts involving programming from cable-affiliated programmers.
Any change in the Communications Act or the FCC’s rules that would permit programmers that
are affiliated with cable system operators to refuse to provide such programming or to impose
discriminatory terms or conditions could materially adversely affect our ability to acquire programming
on a cost-effective basis, or at all. The Communications Act prohibitions on certain cable industry
exclusive contracting practices with cable-affiliated programmers are scheduled to expire in
October 2007 and may not be renewed or extended.
In addition, certain cable providers have denied us and other MVPDs access to a limited number
of channels created by programmers with which the cable providers are affiliated. The cable providers
have asserted that they are not required to provide such programming due to the manner in which that
programming is distributed, which they argue is not covered by the program access provisions of the
Communications Act. Challenges to this interpretation of the Communications Act have not been
successful, and we may continue to be precluded from obtaining such programming, which in turn
could materially adversely affect our ability to compete in regions serviced by those cable providers.
Carriage requirements may negatively affect DIRECTV U.S.’ ability to deliver local broadcast stations,
as well as other aspects of its business.
In implementing SHVIA, the FCC has required satellite carriers to delete certain programming,
including sports programming, from the signals of certain distant stations. The FCC’s interpretation,
implementation and enforcement of other provisions of SHVIA and SHVERA, as well as judicial
decisions interpreting and enforcing these laws, could hamper DIRECTV U.S.’ ability to retransmit
distant network and superstation signals, reduce the number of DIRECTV U.S.’ existing or future
subscribers that can qualify for receipt of these signals, impose costs on DIRECTV U.S. in connection
with the process of complying with the rules, or subject DIRECTV U.S. to fines, monetary damages or
injunctions. Also, the FCC’s sport blackout requirements, which apply to all distant network signals,
may require costly upgrades to DIRECTV U.S.’ system. Further, a recent FCC order interpreting the
requirement that satellite carriers retransmit local digital signals with ‘‘equivalent bandwidth’’ of
significantly viewed digital signals may constrain DIRECTV U.S.’ ability to deliver such significantly
viewed digital signals.
DIRECTV U.S. has limited capacity, and the projected number of markets in which it can deliver
local broadcast programming will continue to be constrained because of the must carry requirement
and may be reduced depending on the FCC’s interpretation of its rules in pending and future
rulemaking and complaint proceedings, as well as judicial decisions interpreting must carry
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