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The first week of April was a tumultuous one for EchoStar. On April 3, the Littleton, CO–based direct broadcast satellite (DBS) service abruptly announced that it would terminate any further effort to promote Internet access via StarBand Communications, Inc. The next day, the FCC ruled that EchoStar was in violation of federal regulations with its "two-dish" system for delivering local television signals. The week's one bright spot for the service was a settlement with Walt Disney Company that will keep Disney and ABC programming on EchoStar's menu.

The StarBand debacle began in April 2000, when EchoStar signed a joint venture with Israel's Gilat Satellite Networks, Ltd. to offer satellite-based high-speed Internet access to EchoStar customers. Backed by EchoStar, StarBand began marketing its service to residential customers in November of that year, but by March 2001 had signed up only 25,000 subscribers. In September, EchoStar increased its share in the Internet experiment to $100 million, and assumed most of the marketing duties. The effort paid off, but not well enough, with a total of only about 40,000 subscribers signed on by December 2001. In April 2002, two years into the venture, EchoStar announced that it was abandoning its alliance with StarBand, citing crushing costs and poor subscriber growth. The DBS informed dealers that if they wished to continue offering the service they would have to arrange independent dealings with StarBand.

The development was interpreted by some observers as a grandstand play by EchoStar chairman Charlie Ergen, who for months has been courting favor with lawmakers and regulators in Washington over his company's proposed acquisition of Hughes Electronics and its subsidiary DirecTV, EchoStar's only competition. Ergen has asserted that only a merged DBS service could afford to offer Internet service. His company's abandonment of StarBand may serve to underscore this argument. Gilat is said to be in financial trouble; the EchoStar announcement will only aggravate that situation. Susan Irwin, head of a satellite consulting firm in the capitol, said EchoStar's move away from StarBand was intended to prove that the merger is "the only answer" to providing high-speed Internet service for citizens in rural parts of the nation. A StarBand subscription is about $70 per month, roughly comparable to the cost of an Internet service provider with DSL. Ergen has complained that the subscription fee is too low to be profitable.

On Thursday, April 4, the Federal Communications Commission ruled that EchoStar's "two-dish" system for receiving local television stations was a violation of federal regulations. EchoStar requires many subscribers who wish to receive local television stations to install a separate dish antenna, oriented to a secondary ("wing") satellite. Menus describing programming on the local channels won't appear unless the second dish is installed—an unnecessary financial burden on EchoStar subscribers, the FCC decided. Commissioners also ruled that local stations are being discriminated against in an arbitrary manner by the two-dish system.

FCC rules require cable and satellite services to offer all local stations "in a nondiscriminatory manner" on electronic program guides (EPG) and menus. EchoStar's system doesn't do this. It also violates a regulation that all channels be available in contiguous placement. EchoStar customers can't find stations without the second satellite, because the stations aren't listed on the EPG unless the second dish is installed.

"EchoStar's two-dish plan was implemented in such a way as to make some stations unavailable to subscribers as a practical matter," said the agency's media bureau chief Ken Ferree. "The bureau expects that the remedial steps outlined in the order will address this discrimination and that EchoStar will quickly and completely comply with the letter and spirit of the (law) as intended by Congress and upheld by the courts." The FCC has ordered EchoStar to come into compliance "immediately" and to file a progress report within one month. Follow-up reports are required 90 and 150 days after the order. The FCC's ruling was in response to a plea from the National Association of Broadcasters and the Association of Local Television Stations, which claimed that the two-dish system violated the Satellite Home Viewer Improvement Act of 1999.

In a separate development, EchoStar has settled a legal dispute with Walt Disney Company that began in December 2001 over carriage of ESPN Classic and ABC Family programming. EchoStar dropped ESPN Classic in January when its contract expired. In December, the satellite service dropped ABC Family programming, claiming that Disney's acquisition of Fox Family Worldwide voided an affiliate agreement signed in 1995. Disney obtained a temporary restraining order to keep the channel on the satellite while the dispute was mediated. The two former adversaries have signed a multiyear agreement that will keep Disney programming prominent among EchoStar's offerings.