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X-P Table of Contents ă  X-`(#~Paragraphă  X-I.Introductionp"(#1  X-A.` ` Scope of this Report (#` p"(#2  Xe-XB.X` ` Summary of Findings(#` p"(#5  X7-II.XCompetitors in Markets for the Delivery of Video Programming(#p`"(#11  X -A.` ` Cable Industryp`"(#11 ` `  X-B.` ` DirecttoHome Satellite Servicesp`"(#48 ` `  X!-` ` 1. Direct Broadcast Satellite Servicep`"(#49  X"-` ` 2. Home Satellite Dishesp`"(#61  X#-.  Xh$-C.` ` Wireless Cable Systems(#` p`"(#68   X:&-` ` 1. Multichannel Multipoint Distribution Servicep`"(#68  X#'-` ` 2. Local Multipoint Distribution Servicep`"(#84  X(-D.` ` Local Exchange Carriersp`"(#86"(0*0*0*'"Ԍ X-ԙxE.` ` Satellite Master Antenna Television Systemsp!(#F104 x` `  X-xF.` ` Broadcast Television Servicep!(#F112  X-xG.` ` Other Actual and Potential Distributorsp!(#F118  Xv-III.xMarket Structure Conditions Affecting Competitionp!(#F128  XH-xA.` ` Horizontal Issues in Markets for the Delivery of Video Programmingp!(#F128 x  X -xB.` ` Vertical Integration in the Cable Industryp!(#F148 x  X -xC.` ` Technical Advances (#` p!(#F173  X -IV.XxStatus of Competition in Markets for (# xthe Delivery of Video Programmingp!(#F194  Xy- V.xAdministrative Mattersp!(#F216 Appendices  X-xA.` ` List of Commenters  X-xB.` ` Cable Industry Tables  X-xC.` ` Status of LEC Entry  X-xD.` ` Local Exchange Carrier Proposals  X-xE.` ` Status of VDT Technical and Market Trials  X-xF.` ` Top 20 Satellite Master Antenna Television Operators  X-xG.` ` Horizontal Concentration Tables  X|-xH.` ` Vertical Integration Tables  Xe-xI.` ` Comments on Program Access Issuespp"e0*((}"  X-   I.xINTRODUCTION  X-x1.` ` Section 628(g) of the Communications Act of 1934, as amended, directs the Commission to report annually to Congress on the status of competition in the market for the  X-delivery of video programming.+x X-ԍ Communications Act of 1934 ("Communications Act")  628(g), 47 U.S.C.  548(g). This is the Commission's second report issued in  X-compliance with this statutory requirement.y+x X-ԍ The Commission released its first report pursuant to this statutory requirement on  X -September 28, 1994. Implementation of Section 19 of the 1992 Cable Act (Annual Assessment  X -of the Status of Competition in the Market for the Delivery of Video Programming), First Report, CS Docket No.94-48, 9 FCC Rcd 7442 (1994). This second report ("1995 Report") is based on publicly available data, filings in various Commission rulemaking proceedings, and  Xa-information submitted by commenters in response to a Notice of Inquiry ("NOI") in this  XL-docket.;L+x X-ԍ  Annual Assessment of the Status of Competition in the Market for the Delivery of  X-Video Programming, Notice of Inquiry, CS Docket No. 9561, 10 FCC Rcd 7805 (1995). A list of these submitted comments and reply comments is set forth in Appendix A.;   X -x A.` ` Scope of this Report  X -x2.` ` The purpose of this 1995 Report is to provide data and information that summarizes the status of competition in the market for the delivery of video programming and  X -that updates our Annual Assessment of the Status of Competition in the Market for the  X -Delivery of Video Programming, First Report ("1994 Report").X p +x X-ԍ 1994 Report, 9 FCC Rcd at 7558  253.X We begin this 1995 Report with an examination of the cable television industry, other existing multichannel video programming distribution technologies, and potential competitors to cable television (SectionII). Among the alternative distribution technologies and providers discussed in this section are directtohome ("DTH") satellite services, including direct broadcast satellite ("DBS") services and home satellite dishes ("HSDs"), wireless cable systems using frequencies in the multichannel multipoint distribution service ("MMDS") or local multipoint distribution service ("LMDS"), local exchange telephone carriers ("LECs"), satellite master antenna television ("SMATV") systems, and broadcast television service. We also consider several other existing and potential distributors of video programming, such as electric utilities, and other distribution technologies, including video cassette recorders ("VCRs"), interactive video and data services ("IVDS"), and the Internet.  X-x3.` ` Section III of this 1995 Report examines market structure and competition. We evaluate horizontal concentration in the cable television industry in Section III.A. In SectionIII.B, we evaluate vertical integration between cable television systems and programming services, and report on issues of access to programming. Finally, we address"C# \+))" technical advances in Section III.C.  X-x4.` ` Our assessment of the status of competition in the market for the delivery of video programming is presented in Section IV. In this section, we examine the extent of competition and evaluate market performance. We also report on existing and potential impediments to entry and competition, including strategic behavior that could deter entry and regulatory, legal, and other potential impediments.  XH-x B.` ` Summary of Findings x  X -x5.` ` We conclude that cable television systems remain the primary distributors of multichannel video programming services and continue to enjoy market power in local markets, although some progress has begun toward a competitive marketplace for the distribution of video programming. In the last year, DBS systems have attracted many subscribers to newly available services. MMDS and SMATV systems have also continued to increase in subscribership. Several LECs, however, have modified their plans for wire based video service, including video dialtone ("VDT") service, from the scale of entry reported last year. Some LECs are continuing their deployment of wire based facilities in selected markets, either through VDT or traditional cable systems. In other cases, LECs appear to be focusing their efforts on wireless entry through investment in MMDS facilities. In sum, while subscribership for distributors using alternative technologies has generally increased over the last year, overall subscribership for all distributors using alternative technologies is just 9% of total multichannel video programming distributor ("MVPD") subscribership, whereas cable  X-systems account for 91% of the total.J+x Xh-ԍ Infra Appendix G, Table 1.J Over the long term, it is difficult to predict the extent to which local markets will be characterized by vigorous rivalry among multiple distributors, or the extent to which distributors using alternative technologies may remain essentially "fringe" competitors, with relatively small market shares or offering services largely differentiated from other services, at least from those multichannel packages offered by cable systems. In addition, technological advances, particularly the conversion from analog to digital transmission, may affect the nature and cost of the services provided by cable operators and other MVPDs, and consequently, the extent of rivalry in markets for the delivery of video programming.  X -x6.` ` In this 1995 Report, the Commission makes the following findings:  X-X` hp x (#%'0*,.8135@8: 1.+x X-ԍ Id., Table 6. > Capital expenditures continue to increase, rising 28% to $3.8 billion in 1994. 1+x X-ԍ Paul Kagan Assocs., Inc., The Cable TV Financial Databook 92 (1995) ("1995 Cable  X-Financial Databook").  X -x8.` ` Horizontal Concentration. Since 1994, there has been an increase in the horizontal concentration of cable multiple system operators ("MSOs") nationwide. A number of cable MSO acquisitions and system trades have resulted in increased regional concentration, or "clustering," of cable system ownership. Based on recent reports of additional proposed transactions, it appears that this trend will continue as cable operators consolidate their holdings regionally. Although the cable industry tends to be moderately concentrated nationally, local markets for the distribution of multichannel video programming  Xd-tend to be highly concentrated as measured by subscribership among all MVPDs.A d+x X-ԍ Infra sec. III.A.A  X6-x9.` ` Competitive Entry. The percentage of subscribers choosing competitive alternatives to incumbent cable operators has increased since our last report, although cable subscribership continues to dwarf the combined subscribership of all other MVPDs. In September 1995, cable television systems served 61.7 million households, while all other MVPDs combined (i.e., DBS, HSD, MMDS and SMATV systems) served 5.8 million  X-homes.J 2 +x X"-ԍ Infra Appendix G, Table 1.J Although market share is not dispositive evidence of market power, we cannot conclude that a competitive market currently exists for the delivery of video programming. However, some progress towards a competitive marketplace has begun. In particular, we find:  Xi-x` ` There continue to be only a few scattered areas of the country where local cable systems face direct competition through "overbuilding" (where two franchised cable television systems compete directly with each other), although"; \+))" instances of overbuild competition, particularly from LECs, appear to be increasing;(#`  X-x` ` Directtohome satellite services continue to increase their subscribership. DBS services are now available in all states except Hawaii. The number of subscribers to DBS services has more than doubled since the end of 1994, increasing from 602,000 to approximately 1.7 million subscribers. Prices have declined for some DBS receiving equipment (i.e., satellite dishes and settop decoders) used by those distributors that require subscribers to buy their own equipment. There are currently 2.3 million subscribers to packaged programming services that distribute satellite programming to HSD users compared with 2.2 million in 1994; (#`  X -x` ` Wireless cable systems experienced a 33% growth in subscribers since the end of 1994, and now serve approximately 800,000 subscribers. The first wireless cable trial of digital technology, which will increase a system's coverage area  X-and the number of channels that it can offer, has been successfully completed.@ +x X -ԍ Infra sec. II.C.@ In addition, several LECs have made substantial investments in wireless cable operations. The deployment of wireless video services also has been facilitated by the streamlining of the Commission's application process, adoption of competitive bidding procedures, and expansion of the protected service areas for licensees. The Commission also released a notice of proposed rulemaking seeking comment on its proposal to allocate a portion of the 28 GHz band to  X-LMDS, which can be used for the distribution of video programming;M~{+x X-ԍ Rulemaking to Amend Parts 1, 2, 21 & 25 of the Commission's Rules to Redesignate the 27.5-29.5 GHz Frequency Band, to Reallocate the 29,530.0 GHz Frequency Band, to  X-Establish Rules & Policies for Local Multipoint Dist. Serv. & for Fixed Satellite Services, Third Notice of Proposed Rulemaking & Supplemental Tentative Decision, CC Docket  X-No.92297, __ FCC Rcd ___, FCC95-287 (July 28, 1995), summarized at 60 Fed. Reg.  X-43740 (Aug. 23, 1995) ("Third 28 GHz NPRM"). M(#`  X-x` ` The VDT framework adopted by the Commission in 1992 allows LECs to construct and operate common carrier platforms that can be used by program packagers to provide programming and other services to subscribers in the LEC's telephone service areas. Subsequent court decisions and Commission actions permit LECs to offer video programming in their service areas. The first permanent commercial VDT system is expected to begin operation in Dover Township, New Jersey, by the end of 1995. Additional applications for permanent authorizations and trials, including U S West Inc.'s ("U S West") plan for Omaha, have been approved. The Commission also streamlined the Section 214 process for some LECs to construct stand alone cable systems  X-within their local service areas. Since the 1994 Report, some LECs have"\+))" modified their plans for entry into video distribution markets and, in addition to pursuing VDT deployment, have announced plans to enter the market using either wired cable or wireless cable facilities. A number of LECs also have announced joint ventures to collaborate on the production and acquisition of video programming;(#`  Xv-x` ` SMATV systems have increased their number of subscribers from a combined total of approximately 850,000 to approximately 950,000 since the end of 1994. The industry also appears to be attracting new investment from other sectors, both within and outside the telecommunications industry;(#`  X -x` ` Regulatory changes and technological advances may, at some point in the future, permit existing and potential video technologies broadcast television, low power television ("LPTV"), LMDS to be used to distribute multichannel video programming. Other potential distributors, such as electric utilities, and other technologies, including VCRs, IVDS, and the Internet, also may, in the future, affect the nature of competition; and (#`  Xb-x` ` Technological advances are occurring that will permit MVPDs to increase the quantity of service (i.e., increased number of channels using the same amount of bandwidth or spectrum space) and types of offerings (e.g., interactive services). New system architectures are being developed that combine fiber optic wires and coaxial cables to expand the uses of wired transmission media. Digital compression is currently being deployed, which will enhance the service of both wired and wireless providers by allowing increased channel capacity and the provision of video, voice, and data services that cannot be offered currently. On the basis of the information reported, however, it is unclear which distributors will benefit the most from these technological advances existing cable operators or their existing and potential competitors.(#`  XN-X` hp x (#%'0*,.8135@8: -ԍ Paul Kagan Assocs., Inc., Economics of Basic Network Programming (19851996), Cable TV Programming, July 31, 1995, at 2. At the same time, license fees paid by cable system operators to premium cable network  X1-programmers increased by 5.6% from $1.8 billion in 1993 to $1.9 billion in 1994."1+x X-ԍ Veronis, Suhler & Associates, The Veronis, Suhler & Associates Communications  X-Industry Forecast 164 (1995).  X -x22.` ` Consumer Satisfaction. In an effort to improve consumer satisfaction, the cable industry, through the National Cable Television Association ("NCTA"), launched a new ontime guarantee program on March 1, 1995. Under this program, operators promise that: (1)if an installation appointment is not performed on time, the installation will be done for free, and (2) if a service appointment is not performed on time, the customer will receive a  X-$20 refund.#h +x X-ԍ National Cable Television Assoc., Preliminary OnTime Guarantee Statistics, The Future Is On Cable: Establishing Cable as a Telecommunications Leader, Progress Report, Spring 1995, at 3. This initiative has been adopted by cable systems serving 25 million  X{-subscribers, but the effect of the initiative is unclear.${ +x X-ԍ Jim Forkan, The CablevisionChilton Consumer Poll, Cablevision, May 8, 1995, at 22.  WM<x` `  2. Financial Performance  X6-  X-x23.` ` Cable Industry Revenue. Analysts report that after growing by over 8% in 1993, the industry's revenue remained essentially the same in 1994, growing only from  X-$22.76 billion to $22.79 billion.J%+x XD%-ԍ Infra Appendix B, Table 6.J For the purposes of this report, we estimate the annual," S%\+))"  X-industrywide total revenues from 1992 to 1994.&v+x Xy-ԍ The Commission arrived at its estimate of industrywide revenue by analyzing and extrapolating from publicly available information for 25 of the largest cable MSOs, which served a combined 65.3% of the industry's subscribers at the end of 1994. To the extent that there are significant differences between the average financial performance of these large MSOs and that of smaller MSOs, those differences may affect the reliability of industrywide estimates. Based on these estimates, it appears that the industry generated revenue of over $20.35 billion in 1992, $22.45 billion in 1993, and  X-$22.59 billion in 1994.J'+x X -ԍ Infra Appendix B, Table7.J The 1994 figure represents an increase of 0.1% from 1993, which is consistent with reports by industry analysts.  X-x24.` ` Using the figures produced by industry analysts, it appears that the cable industry generated $389.50 in annual revenue per subscriber served in 1994. This figure was over $5 lower than the $404.89 generated in 1993. When total cable system revenue is broken down by source, between 1993 and 1994, revenue from regulated tiers (referred to by the Commission as the basic service and cable programming service tiers) remained unchanged. It appears that revenue from premium services declined by 2.2%, continuing a downward trend since reaching its alltime high in 1990. Revenue from advertising, payper X -view, and home shopping grew 9.5%, 7.1%, and 12.4% respectively.J( +x XV-ԍ Infra Appendix B, Table 6.J  X -x25.` ` In Table 8 of Appendix B, we present detailed, quarterly revenue results for sixteen publicly held MSOs, including the eight largest. For each quarter of 1994 and the first two quarters of 1995, total revenue growth over the same quarters of the previous year is calculated for these sixteen MSOs based on their filings with the Securities and Exchange Commission ("SEC"). As of December 31, 1994, these sixteen MSOs served over 35.3 million of the industry's 59.7 million subscribers, which accounts for 59.1% of the industry. Based on the combined revenues of these MSOs, an estimate of the total industry's revenue was made and is also presented in the table.  X-x26.` ` As can be seen in Table 8, after showing slow growth in the first quarter of 1994 (1.1%) and decreasing revenue in the second and third quarters of 1994 (1.2% and -0.2% respectively), the industry's revenue increased in each of the following three quarters. In the fourth quarter of 1994, the industry's revenue was 2.8% higher than in the fourth quarter of 1993. The revenues for the first and second quarters of 1995 were 5.6% and  X|-10.4% higher, respectively, than the revenue produced in the same periods of 1994.  XN- x27.` ` Cable Industry Expenditures and Earnings Before Interest, Taxes, Depreciation,  X9-and Amortization. Measurements of earnings before interest, taxes, depreciation, and amortization ("EBITDA"), commonly referred to as "cash flow" by the industry, are often used to value the financial position of cable firms. Analysts report that after growing by"  l (\+))[" 4.1% to $10.1 billion in 1993, industry wide cash flows declined 1.6% in 1994 to $9.94  X-billion.\)+x Xb-ԍ 1995 Cable Financial Databook, supra, at 92.\ For the purposes of this 1995 Report, the Commission has also produced an  X-estimate of annual, industrywide cash flows from 1992 to 1994.y*{+x X-ԍ As with the Commission's industry wide revenue estimate, this cash flow estimate is based on extrapolation from publicly available information for 25 of the largest cable industry  X-MSOs, and is subject to the same caveat about the reliability of industrywide estimates. See  X-supra note 38.y Based on the Commission's estimates, it appears that the industry generated cash flow of $9.35 billion in  X-1992, $10.27 billion in 1993, and $9.93 billion in 1994.J++x XB -ԍ Infra Appendix B, Table7.J The 1994 figure represents a decline of 3.3% from 1993 which, although somewhat larger than the decrease shown by the analysis referred to above, appears to broadly confirm that analysis.   XJ- x28.` ` Using the figures produced by industry analysts, it appears that the cable industry generated $169.85 in annual cash flow per subscriber served in 1994. This figure was nearly $10 lower than the $179.72 generated in 1993, and almost $9 lower than the $178.64 per subscriber generated in 1992. The ratio of cash flow to revenue ("cash flow  X -margin") declined from 46.1% in 1992 to 44.4% in 1993, and again to 43.6% in 1994.<, +x X=-ԍ Id. Table 6.<  X - x29.` ` An analysis of the industry's cash flow for the full year may not provide a complete picture of the trend in the industry's performance during that year. A more informed analysis may be is provided by comparing each quarter of 1994, and the first two quarters of 1995, with the same quarters of the previous year. These quarterly growth rates are shown in Appendix B, Table 9. After exhibiting declining cash flow compared to the same quarter of the previous year for the first three quarters of 1994 (3.8%, 7.2%, and -8.4%, respectively), the industry's cash flow improved in each of the following three quarters. Cash flow for the fourth quarter of 1994 was the same as in the fourth quarter of 1993, and then grew by 3.6% and 6.1%, respectively, in the first and second quarters of 1995 over the first and second quarters of 1994. Analysts are predicting a healthy third quarter financial performance from the cable industry with most MSOs predicted to report double  X-digit average cash flow growth for the quarter.B-Q +x X"-ԍ Reif, supra, at 3.B  W<x` `  3. Capital Acquisition and Disposition  X~-  Xg-x30.` ` Historically, the cable industry has relied on various combinations of private and public financing, with the exact distribution of these combinations varying greatly from year to year. After several years of declines in the issuance of private debt (i.e., debt held by"9  -\+))" banks, insurance companies, and institutional investors), banks displayed an interest in lending to cable operators in 1994, especially the larger MSOs. New private debt financing totalled  X-$4.8 billion in 1994, and public debt financing totaled $1.1 billion.K.+x XK-ԍ Infra Appendix B, Table 10.K The remaining industry financing is obtained through a mixture of private equity (i.e., individuals, venture capital firms, investment banks, limited partnerships) and public equity offerings (i.e., stock markets). New private and public equity offerings totalled $409 million and $461 million, respectively, in 1994. Overall, the cable industry obtained $6.7 billion in new financing in 1994, which  X_-was its highest level since 1989, and an increase of $4.8 billion over the 1993 total.3/_{+x X -ԍ Id.3  X1-x31.` ` Cable Industry Financing: Recent Developments. The growth trend exhibited in 1994 has continued into the first six months of 1995. Cable operators are reported to have raised approximately $5 billion in capital during the first half of 1995. Included in this total  X -was a net redemption of $200 million of privately held debt;j0 .+x X-ԍ Paul Kagan Assocs., Inc., Cable TV Finance, Aug. 31, 1995, at 1.j $3.8 billion was raised in the  X -bond market;31 +x Xg-ԍ  Id.3 $615 million was raised in the privately equity market;2 +x X-ԍ Paul Kagan Assocs., Inc., Cable TV Financing: Public Debt Market Still Popular, Cable TV Finance, July 31, 1995, at 8. and $800 million was  X -raised in the public equity market.03z . +x X-ԍ This figure was calculated from the $1.7 billion reported in Paul Kagan Assocs., Inc.,  X-Cable TV Financing: Public Debt Market Still Popular, Cable TV Finance, July 31, 1995, at8, and adjusted to account for the $900 million stock swap which was part of Cox Communications, Inc.'s ("Cox's") acquisition of Times Mirror's cable systems described in  XE-Paul Kagan Assocs., Inc., Cable Financing: All The New Equity Isn't Just Cash, Cable TV Finance, Mar. 31, 1995, at 5. 0  X-x32.` ` The growth in total financing during 1994 helped increase the cash available to the cable industry for investment (equal to cash flow from operations plus cash from new financing) to its highest level ever. The $16.7 billion available in 1994 was an increase of  XM-39.2% over the $12 billion that was available in 1993.\4Mp+x Xn#-ԍ 1995 Financial Databook, supra, at 92.\ With this increase in funds available for investment in 1994, the cable industry's major MSOs were able to increase internal capital expenditure programs and system acquisition efforts.  X-x 33.` ` Capital Expenditures. In 1994, the cable industry invested $3.8 billion in construction of new plant and equipment (including maintenance, inventory, system upgrades,"#4\+))" converters, the passing of new homes, and the rebuilding of existing systems). This was a 27% increase over the $3 billion spent on construction in 1993. It also represents the second  X-straight year of increases in capital expenditures by the industry.35+x XK-ԍ Id.3 Moreover, at least one analyst predicts that capital investment will continue to increase in 1995 and the large amount of new capital raised in first half of 1995 also points toward a further increase in capital  X-expenditures for 1995.6{+x X-ԍ Kagan is projecting 12% growth in capital expenditures by cable MSOs in 1995. Id. This increased investment may be attributed to several factors,  Xv-including preparing for future competition and general maintenance and system extensions.7v.+x XU -ԍ Richard Bilotti & Marc Nabi, Cable Television Industry: The Financial Scorecard  X@ -Appreciating Depreciation, Morgan Stanley Industry Research, Aug. 1, 1995, at 1, 4.  XH-x!34.` ` Cable System Transactions. Between 1987 and 1993, the number of cable systems being sold each year declined, while the total number of subscribers served by  X -systems sold each year increased.W8 +x X-ԍ 1994 Report, 9 FCC Rcd at 7461  36.W This trend continued through 1994, and appears to be continuing in 1995. In 1994, the number of cable companies and systems that changed hands  X -decreased by 33%,9 +x X-ԍ Infra Appendix B, Table 11. Transactions announced since 1994 are listed infra Appendix G, Table 5. while the number of subscribers to, and homes passed by, systems changing hands increased by 95% and 88%, respectively. In addition, the total dollar value of acquisitions increased 69% between 1993 and 1994. However, the average dollar value per subscriber of these acquisitions decreased by 13% (from $2,160 to $1,869) and the average cash flow multiple decreased by 9% (from 11.3 to 10.3). Overall, transactions announced in  X{-1994 involved more subscribers and higher purchase prices than in any year since 1988.:{ +x XG-ԍ Paul Kagan Assocs., Inc., YearToDate Cable System Sale Summary, Cable TV Investor, Jan.31, 1995, at 8.  XM-x"35.` ` This year, the average size of cable system acquisitions in terms of subscribers, homes passed, and dollar value has remained approximately the same as in 1994. However, the number of acquisitions has increased. For the seven months from January to July of 1995, 63 acquisitions were announced, involving 7.3 million subscribers, 11.4 million homes passed, and purchase prices totaling $13.5 billion dollars, all of which nearly equal the figures  X-reported for all of 1994.K; +x XB%-ԍ Infra Appendix B, Table 11.K "j;\+))"Ԍ W<x` `  4. Status of Overbuilding  X-x#36.` ` The term "overbuild" is used in this Report to refer to a situation in which two  X-or more wireline cable television systems directly compete for subscribers in a local market.W<+x X6-ԍ 1994 Report, 9 FCC Rcd at 7469 54.W  X-The 1994 Report surveyed a substantial body of empirical evidence, obtained by the Commission and academic researchers, which indicated that overbuild competition results in  Xz-lower rates for both basic and pay cable television services.P=z{+x X -ԍ Id. at 747273  5860. P One recent empirical analysis  Xc-of overbuilding also shows a positive correlation between overbuild competition and the  XL-availability of an increased number of cable programming services.>L.+x X+ -ԍ Jennifer Fearing & Charles Lubinsky, Qualitative Differences in Competitive Cable Markets Prior to Rate Reregulation 45 (Southern Economics Ass'n, 1995 Annual Conference). Although the benefits  X5-of overbuild competition are apparent and desirable, the 1994 Report concluded that the  X -extent of overbuilding seems to have remained quite limited."W? +x X-ԍ 1994 Report, 9 FCC Rcd at 7473 60.W  X -x$37.` ` Several planned overbuilds that were reported in the 1994 Report have yet to be constructed. For example, as of February 1995, plans we noted last year by Cablevision Systems Corp. ("Cablevision") to overbuild several cable systems in New Jersey were reported to be "strictly at the drawing board" stage and had not advanced beyond the initial research  X-point.@d +x X-ԍ Michael Burgi, Building Blocks; Cable Companies Battle Over Subscribers, Mediaweek, Feb. 6, 1995 at 14. The 1994 Report also discussed plans by Fibervision, a firm started by former cable executives, to overbuild systems operated by TeleCommunications, Inc. ("TCI") in Hartford, Connecticut, and the status of litigation brought by TCI that delayed construction of the  XU-overbuild.]AU +x X-ԍ 1994 Report, 9 FCC Rcd at 7473  60 n.137.] In August 1995, the Connecticut State Supreme Court rejected TCIs appeal of a lower court decision, which dismissed TCI's challenge to the Connecticut Department of  X'-Public Utility Controls grant of a Hartford cable franchise to Fibervision.B' +x X"-ԍ United Cable Television Services Corp. v. Dep't of Public Utility Control, 663 A.2d 1011 (Conn. Sup. Ct. 1995) (alleged injury to incumbent cable operator resulting from introduction of direct competition through award of second franchise was not within the zone of interests sought to be protected by state franchising statute, and incumbent therefore lacked standing to challenge award). That appeal has been reportedly seen as Fibervision's primary obstacle to obtaining financing and starting" B\+))7"  X-construction.Ce+x Xy-ԍ Susan Kinsman, Court Gives Cable Firm the Green Light; Fibervision Can Build  Xd-Competing Franchise, Hartford Courant, Aug. 22, 1995, at B7. Fibervision has also won the right to provide cable service in six towns in the Bridgeport area that are currently served by Cablevision Systems of Southern Connecticut, and had previously won a franchise in the New Britain area of the state. In addition, an application to provide service in New Haven is  X -pending. Susan Kinsman, Fibervision Wins 15year Cable Franchise, Hartford Courant, Nov.10, 1995, at F2.  X-x%38.` ` In its comments, Home Box Office ("HBO") discusses plans by Liberty Cable Company, Inc. ("Liberty Cable") to overbuild Cablevision's Nassau County, New York  X-systems, which serve 387,500 subscribers.=D+x XJ -ԍ HBO Comments at 19.= According to a July 1994 report cited by HBO, Liberty Cable had started negotiations with the Nassau County Village Officials Association to provide cable service over the network infrastructure of the NYNEX Telephone Company ("NYNEX") and NYNEX planned to spend $150 million to upgrade its network to handle  XH-video transport.PEH +x X-ԍ Comm. Daily, July 1, 1994, at 9.P As of October 21, 1995, those negotiations were reportedly still pending.FHY +x XR-ԍ Letter from Jay Newman, Counsel for Liberty Cable, to Commission Staff (Oct. 21, 1995).  X -x&39.` ` Although several of the planned overbuilds mentioned in the 1994 Report have not yet advanced to the construction phase, new overbuilding activity appears to be occurring. Most notably, Ameritech Operating Companies ("Ameritech"), several other Regional Bell Operating Companies, and a number of smaller LECs, are pursuing the construction of cable  X -systems in their local telephone service areas.@G +x Xd-ԍ Infra sec. II.D.@ In addition, trade press reports indicate that cable operators, either in the midst of or contemplating overbuild situations, are affiliating with noncable companies such as telephone and power companies in order to build systems  X{-capable of offering advanced services.H{+x X -ԍ Debbie Narrod, Overbuilds '95, Cable World, May 1, 1995 at 49 (reporting, among others: (1)the acquisition of the cable operations of Florida Power and Light Co. by Adelphia Communications Corp., a top10 MSO, and the formation of a limited partnership between the two; and (2)a potential partnership between PacTel and Ultronics, operator of overbuild systems in Chula Vista and National City, California). There is also anecdotal evidence regarding the  Xd-activities of existing municipal overbuild ventures involving local utility companies.2ILd+x X'-ԍ Id. For example, Paragould City, Light, Water & Cable, which operates a 63 channel"'H\+))'" system in Paragould, Arkansas, providing 51 channels of basic cable service to 4,250 subscribers for $12.50 per month, plans to offer security services and electricity load management services to its cable subscribers by yearend. In addition, Glasgow Electric, a  X4-municipal cable overbuilder in Glasgow, Kentucky, which we discussed in the 1994 Report,  X-has developed a citywide local area network and, despite its relatively small size of 2,650 subscribers, is planning to offer advanced, ancillary services, including cable Internet links, in  X-the near future. Id. 2"dI\+))h"Ԍ X-ԙx'40.` ` As pointed out in the 1994 Report, the limited extent of overbuild competition  X-may be attributable, in part, to local franchising requirements.AJ+x Xx -ԍ 1994 Report, 9 FCC Rcd 7472  60 n.136. See also Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), Pub. L. No. 102285,  XL -sec.2(a)(2), 106 Stat. 1460 (1992), codified at 47 U.S.C. 521, et seq.A In order to address one of the potential impediments to overbuild competition imposed by the franchising process, Congress amended Section 621(a)(1) of the Communications Act in the 1992 Cable Act to provide that "a franchising authority may not grant an exclusive franchise and may not unreasonably refuse  X-to award an additional competitive franchise."`Kc +x X-ԍ Communications Act 621(a), 47 U.S.C. 541(a).`  Xc-x(41.` ` Since the 1994 Report was released, a split has developed among the federal circuit courts of appeal over the application of Section 621(a) to franchises in existence at the  X7-time the 1992 Cable Act was enacted.bL7+x X-ԍ Compare Cox Cable Communications, Inc. v. United States, 992 F.2d 1178 (11th Cir.  X-1993) (applies to existing exclusive franchises) with James Cable Partners v. City of  X-Jamestown, 43 F.3d 277 (6th Cir. 1995) (applies only to new grants of exclusive franchises).b Commenters disagree whether exclusive franchises are an impediment to competition, and whether Section 621(a) should be applied to existing franchises. James Cable Partners ("James"), the plaintiff in a case in the Sixth Circuit, argues that exclusive contracts are not an impediment to competition, that there are very few  X -exclusive franchises, and the impact on the industry as a whole is thus de minimis.FM +x X)-ԍ James Comments at 12, 1415.F  X -x)42.` ` Other commenters argue that since exclusive franchising is an impediment to the expansion of overbuild competition, Section 621(a) should be applied to prohibit the  X-enforcement of existing exclusive franchises.NN+x X$-ԍ See, e.g., GTE Reply Comments at 1011; Ridgebury Township, Pennsylvania, and the Pennsylvania State Association of Township Supervisors ("Ridgebury") Reply Comments at3-4, 78. GTE Service Corporation ("GTE") argues that existing exclusive franchises prevent prospective entrants from effectively negotiating with"jN\+))h"  X-local franchising authorities for competitive franchise contracts.FO+x Xy-ԍ GTE Reply Comments at 1011.F Likewise, Ridgebury Township, Pennsylvania, and the Pennsylvania State Association of Township Supervisors ("Ridgebury") argue that exclusive franchises "create barriers," and believes that many rural communities, like Ridgebury Township, granted exclusive franchises "at times when few, if  X-any, viable alternatives existed."HPy+x X-ԍ Ridgebury Reply Comments at 4.H Ridgebury attributes certain negative experiences with its exclusive franchisee to its inability to award a competitive franchise. Ridgebury believes that its problems are not unique, and are likely to arise in other communities that have entered into  X_-exclusive franchise contracts with cable operators.9Q_*+x X: -ԍ Id. at 8.9  X1-x*43.` ` BellSouth Telecommunications, Inc. ("BellSouth") argues that the franchising process itself, even absent exclusivity, is a substantial impediment to competition that imposes  X -significant costs on potential competitors.KR +x X-ԍ BellSouth Reply Comments at 14. K It asserts that the cable industry uses the franchising process as a means to impose on potential competitors expensive and burdensome  X -requirements such as universal service.`SP +x X-ԍ Id. at 2. In support of its views, BellSouth submitted an analysis, Report on Cable  X-Franchising as a Barrier to Competition, by Dr. Thomas W. Hazlett. Id., Att. A. Dr. Hazlett attributes limited competitive entry by cable systems to the franchising process, which he argues is inherently anticompetitive because it levies a "large and asymmetric" burden of  X-proof on potential entrants, which skews the process in favor of the incumbent. Id.  7. In addition, according to Dr. Hazlett, the incumbent has the incentive and ability to engage in a variety of protectionist activities that far outweigh what typical potential competitors can  Xy-afford to risk in attempting to obtain a competitive franchise. Id. 9, 14. `  X -x+44.` ` As we have previously recognized, we continue to believe that franchising requirements including the imposition of such requirements as universal service and the  Xy-enforcement of exclusive franchises can be an impediment to overbuild entry.Ty+x X -ԍ 1994 Report, 9 FCC Rcd 7472 n.136; 1990 Cable Report, 5 FCC Rcd at 503537  X!-138142. See also 1992 Cable Act, sec. 2(a)(2), 106 Stat. at 1460 Accordingly, we continue to support clarification of Section 621(a) to make clear that it  XK-applies to enforcement of all exclusive franchises regardless of when they were adopted.fUKD+x X@%-ԍ See 1994 Report, 9 FCC Rcd at 755758, 251.f "4U\+))f"Ԍ W<x` `  5. Cable Systems' Responses to Competition  X-  X-x,45.` ` There is anecdotal evidence of various steps cable operators apparently have taken to retain their share of the MVPD market in response to the increased numbers of consumers choosing to subscribe to the services of competing MVPDs. In Omaha, Nebraska, the incumbent cable operator has modified the pricing of the package of services it provides to its customers, apparently in response to the emergence of competition from a VDT system. According to one report, two days before U S West's tariff for its Omaha VDT market trial went into effect, Cox, one of Omaha's local cable operators, announced that it was offering a  X1-"free" 21channel lifeline service, called Cox Localink.V1+x X -ԍ Cox Offered Free Service Cable Tier To Omaha Customers As US West Looms, Comm. Daily, Aug. 30, 1995, at 1. New subscribers reportedly must pay a $19.95 installation fee, and existing subscribers can switch to the new service for an  X -$8.03 onetime fee.3W d+x X-ԍ Id.3  X -x-46.` ` Jones Intercable, Inc.'s ("Jones") system in Alexandria, Virginia provides another example of a cable operator preparing to compete with a LEC. In September 1995, Jones began connecting subscribers to a new, $35 million hybrid fiber coax ("HFC")  X-network.X+x XX-ԍ Information Access Co., Advanced Jones Fiber Network Poised To Provide Telephony  XC-At No Extra Cost To It, 15 Fiber Optic News No. 38 (1995). The HFC architecture is discussed in more detail below in Section III.C. Initially the network will be used to provide increased channel capacity.3Y+x X-ԍ Id.3 However, Jones reportedly plans to expand its services to include telephony and Internet  Xb-access.ZbQ +x Xd-ԍ Information Access Co., U.S. Cities Turning Into Battle Grounds For Telecom  XO-Competition: Northern Virginia, Omaha, Neb., Subs See Plenty Of Video Choices, 3 Interactive Video News No. 20 (1995). According to Jones's President, James O'Brien, "This system places us firmly in front of the Bell Atlantic Corporation ("Bell Atlantic") in the ability to offer a complete slate  X4-of services to area residents."Z[4 +x X!-ԍ Advanced Jones Fiber Network, supra.Z  X-x.47.` ` Cable operators are also merging and trading systems to create clusters, which has been attributed to a response to competitors and potential competitors that can operate on  X-a regional basis.D\+x X'-ԍ Infra Section III.A.D These regional groupings of cable systems under common ownership could permit operators to offer uniform packages at comparable prices throughout an area and to">\\+))" market their services accordingly. In two recent proposals to resolve rate complaints, cable operators sought provisions that would allow them to offer similar packages at similar prices  X-in contiguous merged systems.]+x XK-ԍ See Social Contract for Time Warner Cable, Memorandum Opinion & Order, __ FCC  X6-Rcd ____, FCC95-336 (Nov. 30, 1995); Cox Communications, Inc. & Times Mirror Cable  X!-Television, Inc. (Rate Complaints), Order, 10 FCC Rcd ____ , FCC 95396 (Sept. 15, 1995) (both of these examples involved migrated product tiers).   X- xB.` ` DirectToHome Satellite Services  Xv-x/48.` ` Directtohome ("DTH") satellite services use satellites to deliver video programming directly to subscribers. There are two different types of DTH services: direct broadcast satellite ("DBS") services and home satellite dish ("HSD") services. Both offer subscribers many of the same satellite delivered video programming services typically provided by cable systems, in addition to some offerings not typically available from cable systems. DBS operators are like other MVPDs in that they are distributors that (1) downlink programming from many different satellites pursuant to contracts with programmers; (2)package the programming into service offerings; and (3) make the programming available to subscribers over a proprietary facility. However, DBS services use satellites instead of broadband wires or terrestrial microwave stations to transmit their programming to subscribers, who generally use relatively small (1824 inch) dishes to receive the programming. By contrast, HSD users employ relatively large (48 foot) dishes to receive unscrambled programming for free, and scrambled programming in a secondary market from program packagers that are licensed to facilitate subscribers' receipt of programming transmitted from various CBand satellites, which is also received by cable operators and other MVPDs. HSD users typically purchase HSDs from equipment dealers, and obtain their programming separately from program packagers, some of which also sell receiving equipment. The program packagers authorize subscribers to use the receivers connected to their HSDs to decode and view the programming.   W<x` `  1. Direct Broadcast Satellite Services   X|-x049.` ` Subscribership. In the past year, subscribership to DBS services has increased rapidly. Between the end of 1994 and the end of September 1995, subscribership increased  XP-from approximately 600,000 to about 1.7 million households.J^P:+x X;"-ԍ Infra Appendix G, Table 1.J During the same time period, the availability of DBS service has expanded from 23 states to all 48 contiguous states and  X"-Alaska._"+x X%-ԍ DIRECTV Comments at 1; State of Hawaii Reply Comments at 1; Satellite and  X&-International, Comm. Daily, Oct. 17, 1995, at 9; DIRECTV Fax, Oct. 20, 1995. The monthly gain in new DBS subscribers slowed during the spring and early"" _\+))k"  X-summer of 1995, but began to increase in August.l`+x Xy-ԍ Numbers Down, Spirits High, SkyREPORT, Sept. 1995, at 1013.l For example, DBS services reported only 100,000 new subscribers in July, after which the number of new subscribers increased to 155,000 in August. The increase in August may reflect lower prices and new financing options for receiving equipment, and the availability of new programming packages, which we  X-will discuss in the paragraphs below addressing individual DBS suppliers.a{+x X-ԍ The smaller gain in subscribers in July may reflect normal seasonal variations in demand.  Xv-x150.` ` DBS service providers and industry observers predict that DBS subscribership growth will continue at a rapid rate. One analyst expects the DBS industry to serve 3 million  XH-subscribers by the end of 1996 and 6 million subscribers by 1999.bH+x X-ԍ John Aronsohn, DBS: Here Today . . . But Is It Here to Stay, The Yankee Group (White Paper), Aug. 1995, at 3. Other estimates of the total number of DBS subscribers at the end of the decade range from a minimum of 4.66 million to a maximum of over 21 million, with a consensus estimate of 10 million  X -subscribers.cg +x Xe-ԍ Tom Kerver, Between the Lines: DBS Disagreements Emerge, Cablevision, Nov.14, 1994, at6. The 4.66 million figure comes from a "conservative" scenario projected by Paul Kagan Associates, Inc. The 21 million figure comes from an "aggressive" scenario presented  X"-by Stanley Hubbard, President of USSB. Id. See also Will DBS Make Dollars and Sense?,  X -SkyREPORT, Nov. 1994, at 1; Richard Bilotti, Marc E. Nabi & Eric G. Takada, Cable  X-Television MetamorphosisThe Arrival of DBS and RBOC Competition, Morgan Stanley Industry Research, Sept. 15, 1995, at 3;  X -x251.` ` Individual DBS Service Providers. Two high power DBS services and one medium power DBS service currently provide programming to subscribers.  X-x` ` DIRECTV offers a high power DBS service to subscribers who have the Digital Satellite System ("DSS"), which uses an 18inch receiving dish in all 48  Xd-contiguous states.dd+x X -ԍ It appears that subscribers in Alaska may have to use larger (i.e., 4' to 8') receiving  X!-dishes. See, e.g., Satellite and International, Comm. Daily, Oct, 17, 1995, at 9; and DIRECTV Fax, Oct. 20, 1995. Subscribership to DIRECTV's services increased from a  XM-total of approximately 300,000 at the end of 1994oeMe+x Xc%-ԍ CBand Shipments Continue to Slide, SkyREPORT, Jan. 1995, at 7.o to 600,000 by June 1995,  X6-and to an estimated 900,000 in September 1995.nf6+x X'-ԍ DTH Industry Continues Fast Track, SkyREPORT, Oct. 1995, at 6.n DIRECTV projects that 1.5"6f\+))H" million households will subscribe to its services by the end of 1995, and 10  X-million by the end of 2000.Eg+x Xb-ԍ DIRECTV Comments at 1, 5. E DIRECTV provides approximately 150 channels of entertainment and informational programming, of which, approximately 50  X-are payperview movie and sports programming channels.hy+x X-ԍ DIRECTV Comments at 6; Satellite Broadcasting and Communications Association of America ("SBCA") Comments at 7.(#`  X-x` ` United States Satellite Broadcasting Company, Inc. ("USSB") offers a high power DBS service to subscribers using the same DSS receiving equipment, and one of the same satellites, as DIRECTV. Because DIRECTV and USSB offer mutually exclusive programming, a customer must subscribe to both services in order to receive all of the most popular cable programming. Nearly  X -all subscribers to one service also subscribe to the other.Zi +x X-ԍ DIRECTV Comments at 5; USSB Reply Comments at 2.Z USSB currently  X -offers twenty channels of movies and other programming.=j +x Xz-ԍ SBCA Comments at 7.=(#`  X -x` ` Primestar Partners, L.P. ("Primestar") offers a medium power DBS service  X -tosubscribers using 36inch or 40inch dishes.k u+x X-ԍ Rich Brown, DBS Duelers Cross Swords in New York, Broadcasting & Cable,  X-Mar.21, 1994, at40; Arietta, New York to Be the Nation's First Digital Town, PR Newswire, Sept.8, 1994. Primestar is a joint venture of  X -five cable MSOs, and GE American Communications, Inc.9l +x XX-ԍ The MSO partners are Comcast, Continental Cablevision, Cox Enterprises, TCI and Time Warner. Together, these MSOs are affiliated with cable systems that serve  X*-approximately 60% of cable subscribers nationwide. E.g., infra Appendix G, Table 2. 9 Using a satellite  X-operating in the Fixed Satellite Service ("FSS"),Bm+x X-ԍ Primestar Comments at 2.B Primestar provides 73 channels of video programming similar to that offered by DIRECTV and USSB. The number of subscribers to Primestar's service increased from about  XO-70,000 in June 1994 to approximately 500,000 in June 1995,3nO2+x X2$-ԍ Id.3 and to  X8-approximately 775,000 in September 1995.qo8+x X&-ԍ DTH Industry Continues on Fast Track, SkyREPORT, Oct. 1995, at 6.q(#` "!o\+))"Ԍ X-x352.` ` Several firms are planning to initiate new DBS programming services:  X-x` ` EchoStar and its affiliate, Directsat, plan to offer approximately 126 channels of programming on satellites that they expect to launch in late 1995 and early  X-1996.p+x X-ԍ Bilotti, Nabi & Takada, supra, at 5; Satellite and International, Comm. Daily, Sept.21, 1995, at 12. Philips Consumer Electronics has announced an agreement to manufacture DBS receivers for EchoStar to be distributed under the Magnavox  Xx-and Philips labels.qxd+x X -ԍ Donaldson, Lufkin & Jenrette, Echostar Communications Corporation, Aug. 17, 1995, at 7. EchoStar expects to price its receiver system at about  Xa-$500.3ra+x X-ԍ Id.3(#`  X3-x` ` AlphaStar, a Canadian DBS firm, is reportedly scheduled to offer service to the continental United States with more than 100 channels of digital video and  X -audio programming services.s +x Xk-ԍ Satellite and International, Comm. Daily, Aug. 22, 1995, at 8; DirecttoHome:  XV-Industry at a Glance, SkyTRENDS, Sept. 1995, at 9. AlphaStar reportedly plans to lease twentyfour transponders on an AT&T Telstar Kuband satellite that was launched in the  X -fall of 1995, and to begin offering service to subscribers in early 1996.tk Q +x X-ԍ AlphaStar Digital Television, AlphaStar Teams With DMX to Offer Digital Satellite  X-TV Subscribers Up to 120 Channels of Pure Digital Music, PR Newswire (Nov. 30, 1995);  X-AlphaStar Television Network, TeeComm Launched AlphaStar, America's New High X-Powered Digital DTH Service (press release), Mar. 4, 1995; Linda Haugsted & Kent Gibbons,  X-Canadian Co. AlphaStar Joins Crowded DBS Field, Multichannel News, Mar.20, 1995, at 3;  Xr-Mary Hillebrand, TeeComm Targets Share of U.S. DBS Market, Sat. Bus. News, Mar.15, 1995, at1. The company currently owns an uplinking facility in Canada. The new service would apparently transmit programming over FSS frequencies to subscribers  X-who purchase or lease AlphaStar's twentyfour inch dishes.3u+x X!-ԍ Id.3(#`   Xf-x` ` Tempo Satellite, Inc. (a whollyowned subsidiary of TCI), is authorized to provide eleven channels of service and is required to be operational by May 1,  X:-1998.\v:7+x X"'-ԍ Tempo Satellite Inc. (Petition for Recon. & Clarification & Assignment of DBS" (u\+))"'"  Xy-Orbital Positions & Channels), Memorandum Opinion & Order, File No. DBS 8804, 7 FCC  Xd-Rcd 6597, 6600 17 (1992) ("Tempo Assignment").\(#` ":Ov\+))H"Ԍ X-ٙx` ` Continental Satellite Corporation ("CSC") has been assigned eleven DBS  X-channels at both the 61.5o and 166o orbital locations.wO+x X-ԍ Continental Satellite Corp. (Assignment of DBS Orbital Positions & Channels), Memorandum Opinion & Order, File No. 8701/49SATTC95, 10 FCC Rcd ___, DA95-1733  44 (Aug. 4, 1995). On November 21, 1995, CSC was granted an extension of its conditional construction permit to August15, 1999, which will allow CSC to construct, launch, and begin  X-operating its DBS system at two orbital locations.x+x X+ -ԍ Continental Satellite Corp. (Applications for Extension of Construction Permit),  X-Memorandum & Order, File No. 130SATEXT95, __ FCC Rcd ___, DA95-2347  4 (Nov.21, 1995). (#`   Xx-x` ` Dominion Video Satellite, Inc. originally held construction permits for DBS  Xc-frequencies and channel assignments at the 119$ orbital position,  XL-but those permits were cancelled by the Commission.yLY +x XV-ԍ Dominion Video Satellite Inc. (Application for Extension of Permit, and Assignment of  XA-Orbital Positions & Channels), Memorandum Opinion & Order, File No. DBS 8108/8405/  X,-92-01MP, 8 FCC Rcd 6680 41 (1993), recon. denied, __ FCC Rcd ____, FCC 95421 (Oct.  X-1995). The Commission assigned the channels to TCI's subsidiary, Tempo. Tempo  X-Assignment, 7 FCC Rcd at 6600 17 Dominion  X5-was recently assigned eight DBS channels at the 61.5$ orbital location, and may  X -be assigned eight additional channels at the 166$ orbital location.z +x X-ԍ Dominion Video Satellite, Inc. (Assignment of DBS Orbital Positions & Channels), Memorandum Opinion & Order, File No. DBS 8108/8405/9201MP, __ FCC Rcd ____, DA95-1734 13 (Aug. 7, 1995).(#`  X -x453.` ` Receiving Equipment. In order to subscribe to services offered by DIRECTV and/or USSB, consumers must purchase DSS receiving equipment. Thomson Consumer  X -Electronics ("Thomson"), under the brand name RCA,{ =+x X"-ԍ Starting in June 1994, Thomson/RCA had an exclusive contract to produce DSS units  X#-for the first eighteen months or one million units, whichever occurred first. E.g., 1994 Report  9 FCC Rcd at 7475 65. It appears that Thomson/RCA shipped its one millionth dish in  Xo%-April 1995. Mary Hillebrand, Thomson Ships Millionth DBS System, Sat. Bus. News, Apr.26, 1995, at 1. was the only manufacturer of DSS" {\+)) "  X-equipment until June 1995, when Sony shipped its first 18inch dish systems.|+x Xy-ԍ DTH Closes in on Four Million, SkyREPORT, Oct. 1994 at 20; The DBS  Xd-Battleground: Jockeying for Position & Paying the Piper, SkyREPORT, June 1995 at 8; Paul  XO-Farhi, Dishing Up the Business Gets Tougher, Washington Post, Sept. 6, 1995 at G1, G3;  X:-May CBand Equipment Sales Rebound; But Questions About Industry's Future Remain, SkyREPORT, Jul. 1995, at 3. The DSS equipment includes the receiving dish, digital receiver and remote control unit. The RCA list  X-price for the basic DSS receiving equipment is $699.S}%+x X -ԍ The DBS Battleground, supra, at 10.S Subscribers either pay $100 to $200  X-for professional installation or purchase the installation equipment for $69.95.]~+x XD -ԍ 1994 Report, 9 FCC Rcd at 7475 65.] The basic DSS unit allows a subscribing household to watch one channel at a time. In order to view different channels simultaneously on different television sets, a subscriber must purchase a  Xv-DSS unit for $899 and then also purchase a $649 decoder for the second television set.3v +x X-ԍ Id.3  XH-x554.` ` Starting in May 1995, Sony was licensed to produce the DSS equipment for the  X1-next six months as the sole competitor to Thomson.R1> +x X -ԍ The DBS Battleground, supra, at 8.R Sony made its first shipments in June  X -1995,X +x X-ԍ May CBand Equipment Sales, supra, at 3.X pricing its basic model at $749.R +x Xo-ԍ The DBS Battleground, supra, at 8.R Retailers have been offering Sony's basic model  X -for $699,7 W+x X -ԍ Although technical problems with some Sony systems were reported in August 1995, it has also been reported that the company hopes to fix the problems using a code sent  X-through a DSS satellite.  A Cure for Red Ink?, SkyREPORT, Sept. 1995, at 4.7 and RCA's receiving system is now available for $597.c +x X-ԍ See, e.g., Washington Post, Nov. 10, 1995, at A21. c The price of DSS  X -receiving equipment is expected to drop further as other manufacturers enter the market.j +x X,"-ԍ The DBS Battleground, supra, at 10; DIRECTV Comments at 8.j Hughes Network Systems plans to begin selling the equipment in early 1996, Uniden in mid X -1996, and Toshiba in mid1996.n B+x X%-ԍ DSS: The Price of Things to Come, SkyREPORT, June 1995, at 10.n  X-x655.` ` DIRECTV now offers its customers a financing plan for DSS receiving equipment. The financing plan is available through consumer electronics dealers in both rural"y\+))" and urban areas. Under the plan, DIRECTV subscribers make equipment payments of $15 per month for 48 months, in addition to their payments for programming packages. The total monthly charge for receiving equipment and programming ranges from about $27 to $45,  X-depending on the programming package chosen.+x X4-ԍ Joe Estrella, DIRECTV to Offer New Financing Program for DSS, Multichannel News, Aug.14, 1995, at 28.  X-x756.` ` Primestar subscribers can lease receiving equipment through a network of more than 400 local distributors, at a total price for equipment and basic programming of about $1  X_-per day,B_d+x Xt -ԍ Primestar Comments at 3.B after payment of a $299 installation charge.\_+x X% -ԍ Primestar Partners, News Release, June 1995.\ Leasing enables subscribers to reduce the large initial expenditure for receiving equipment. In addition, Primestar offers to maintain the subscriber's receiving equipment, and upgrade it to prevent obsolescence as DBS technology advances.   X -x857.` ` Limitations on DBS Services. The number of high powered DBS services in the United States is limited because the Kuband spectrum that is needed to provide these services is limited by international treaty. Only eight orbital positions have been allocated to serve the United States. At each of the eight orbital locations, the spectrum is fully  X-distributed among the 32 available channels.+x X -ԍ See, e.g., Inquiry into the Development of Regulatory Policy in Regard to Direct  X-Broadcast Satellites, Report & Order, 90 FCC 2d 676 (1982). Further, it appears that at most four of the eight orbital locations can be used to provide service to all 48 contiguous states, although the  Xd-Commission recognizes that this number may increase in the future.df +x X{-ԍ Revision of Rules and Policies for the DBS Service, Notice of Proposed Rulemaking,  Xf-IB Docket No. 95168, __ FCC Rcd ____, FCC 95443 (Oct. 30, 1995) ("DBS Auction  XQ-NPRM"). In addition, DBS dishes are not generally equipped to receive signals from different orbital locations. Therefore, when creating packages of video programming, DBS service providers are effectively limited to the use of those frequencies for which they hold permits at a given orbital location.  X-x958.` ` According to Primestar, DBS service is subject to another limitation.B +x Xz$-ԍ Primestar Comments at 6.B Primestar contends that its inability to transmit of local broadcast network affiliate programming to most of its subscribers inhibits the ability of DBS services to become effective competitors to cable. To offset this disadvantage, DIRECTV provides its subscribers with a remote controlled AB switch to obtain local broadcast signals over a broadcast"~\+))2"  X-television antenna.@+x Xy-ԍ DIRECTV Comments at 7.@ DIRECTV also has proposed that cable operators be required to offer a "closed basic tier" consisting only of local broadcast, public, educational, and governmental channels, which would give consumers the option of buying basic programming from a cable  X-operator and satellite programming from DIRECTV.y+x X-ԍ Ted Hearn, FCC Hopes to Get Another Shot At Basic Rates, Multichannel News, Oct.2, 1995, at 32. On the other hand, DBS systems provide subscribers with service attributes that are not generally available on cable systems at  X-present, such as digital video and sound.=+x XS -ԍ SBCA Comments at 6.= DBS systems also offer subscribers programming not available on most cable systems. For example, DIRECTV subscribers can receive nearly all of the games in the schedules of the National Football League, National Basketball  XH-Association or National Hockey League for $139 per season.[H+x X-ԍ DIRECTV Programming Lineup brochure, Aug.1, 1995.[   X -x:59.` ` Proposed Use of DBS Facilities to Provide Programming to MVPDs. TCI has proposed to offer a "headend in the sky" ("HITS") service, which apparently would involve the provision of authorization services and the distribution of Primestar's programming to  X -MVPDs. w+x X-ԍ Tom Kerver, Riding on the Headend in the Sky, Cablevision, Mar. 14, 1994, at 38 The subscribing MVPDs could then combine HITS service with local broadcast channels and transmit the programming package over the MVPDs' networks to their  X -subscribers, who would use set top boxes to receive the service.: * +x X-ԍ Id. at 40.: It has been reported that  X-Primestar has signed an $80 million agreement to use HITS.n +x X -ԍ $80 Million DBS Deal, Electronic Media, Jun. 27, 1994, at 12.n In filings with the Commission, other DBS operators, such as DIRECTV and EchoStar, have suggested that they  Xd-may also use their DBS facilities to provide service to MVPDs.dd +x X-ԍ Echostar Opposition, at 41, Advanced Communications Corp. (Application for  X -Extension of Time), File No. DBS9411E (June 6, 1995); DIRECTV Opposition, at 23,  X{!-Advanced Communications Corp. (Application for Extension of Time), File No. DBS9411E (June 6, 1995).d   X6-x;60.` ` Planned Migration to High Power DBS. Primestar has been planning to migrate its DBS service from the satellite it is now using to a high power DBS satellite and expand its  X -capacity to 94 video and audio channels.w +x X'-ԍ Primestar Adds Viacom Services, Multichannel News, Aug. 7, 1995, at 14.w For its new service, Primestar was planning to use construction permits that had been held by Advanced Communication Corporation (ACC)."\+))E"  X-ACC had agreed to sell the permits to Tempo DBS, Inc. ("Tempo"), an affiliate of TCI.+x Xy-ԍ See, e.g., Advanced Communications Corp. (Application for Extension of Time), Memorandum Opinion & Order, File No. DBS9411EXT, 10 FCC Rcd ____, DA 95944  XM-(Apr. 27, 1995), aff'd, FCC 95428 (Oct.18, 1995), appeal docketed, Advanced  X8-Communications Corp. v. FCC, No. 95551 (D.C. Cir. Oct. 31, 1995). In a decision by the International Bureau, which the Commission has affirmed, ACC's application to extend its permit was denied because ACC failed to exercise due diligence in constructing its DBS system, and the application for assignment of the ACC permit to Tempo  X-consequently was denied as moot.3:+x X -ԍ Id.3 The Commission recently proposed auctioning the  X-channels reclaimed from the former ACC construction permits.^+x X+ -ԍ DBS Auction NPRM, __ FCC Rcd ____, FCC 95443.^  W_<x` `  2. Home Satellite Dishes  X1-x<61.` ` HSD owners have access to more than 400 channels of programming placed on Cband satellites by programmers for receipt and distribution by MVPDs, of which 115 are  X -scrambled and approximately 285 are unscrambled. +x XT-ԍ 1994 Report, 9 FCC Rcd at 747879 71; Crowded Skies? SkyTRENDS DTH Annual Report, Apr. 1995, at 1819. HSD owners can watch the unscrambled channels without paying a subscription fee. To receive scrambled channels, however, an HSD owner must purchase an integrated receiverdecoder ("IRD") from an equipment dealer and pay a subscription fee to an HSD programming packager. Nationwide, approximately thirty program packagers offer packages of scrambled channels to HSD  X-owners.=< +x X}-ԍ SCBA Comments at 4.= Like DBS systems, however, HSD program packagers do not provide local broadcast network affiliate channels, which are generally not available on CBand satellites.  XK-x=62.` ` It has proven difficult to obtain accurate estimates of the total number of HSD users, which includes: (1) viewers who subscribe to a packaged programming service, (2)viewers who receive satellite programming services illegally without subscribing, and (3)viewers who receive only nonsubscription programming. As of October 1994, the  X-estimates of total HSD users ranged from 2.3 million to 4.5 million. +x X#-ԍ The 2.3, 3.0, 3.3, 3.9, 4.5 Million Question: How Many DTH Households Are Out  Xx$-There Anyway? SkyREPORT, Oct. 1994, at 1. It is estimated that there were approximately 2.2 million subscribers to packaged HSD programming services in  X-1994.J+x X'-ԍ Infra Appendix G, Table 1.J Based on this information and reports that almost all recent buyers of HSD systems">\+))"  X-are choosing to subscribe to a programming service,m+x Xy-ԍ Why Do People Buy?, SkyREPORT, First Quarter 1994, at10,11.m SBCA estimated that there were  X-between 3.5 million and 4 million HSD users at that time.3{+x X-ԍ Id.3  X-x>63.` ` Mirroring the success of DBS service in 1994,.+x X-ԍ It was widely reported that the launch of DBS service resulted in increased sales of C X -band equipment. E.g., Early DSS Market Ranks #1 in CBand Growth, SkyREPORT, Jan. 1995, at8-9. HSD users increased by more than 640,000, a record number. The number of subscribers to packaged programming services for HSDs increased from about 1.6 million in 1993 to approximately 2.2 million in  Xv-1994.Jv+x X-ԍ Infra Appendix G, Table 1.J The HSD industry's expansion occurred despite severe module shortages, which may have caused sales in September and October 1994 to drop significantly from the alltime high  XH-of 90,905 units shipped in August 1994.sHf +x X_-ԍ Module Shortages Slash Factory Sales, SkyREPORT, Nov. 1994, at 67.s  X -x?64.` ` HSD system use has grown more slowly in 1995 than it did in 1994. Only 222,000 HSD systems were shipped through August of this year compared with 436,100  X -systems shipped during the same period in 1994.W  +x X-ԍ DTH Equipment & Subs, supra, at 1011. W Similarly, the number of subscribers to HSD packaged programming services grew only from approximately 2.2 million in 1994 to  X -about 2.3 million in 1995.J +x X;-ԍ Infra Appendix G, Table 1.J Channel Master, a major HSD manufacturer, has predicted that growth in HSD purchases will level off to 15,000 to 20,000 new systems per month, as  X-competition from DBS systems takes subscribers away from HSD.+x X-ԍ May CBand Equipment Sales Rebound; But Questions About Industry's Future  X-Remain, SkyREPORT, July 1995, at 23.  Xb-x@65.` ` Several factors may influence the future growth rate of HSD system use. On the one hand, HSD services currently offer more programming options than any other video delivery system. However, as other video providers such as DIRECTV and Primestar increase channel capacity and improve programming selections, they may begin to provide comparable  X-programming choices._+x X&-ԍ See Bilotti, Nabi & Takada, supra, at 12._ On the other hand, HSD receiving equipment is more expensive than the receiving equipment for other video distributors. Consumers pay an average of"\+))E"  X-$2,000 to $2,300 for a complete HSD system,q+x Xy-ԍ DirecttoHome Industry at a Glance, SkyREPORT, Sept. 1995, at 9.q which is significantly greater than the equipment cost of a DBS system. To decrease this cost differential, General Instrument Corporation, Inc. ("GIC"), a major manufacturer of HSD equipment, recently announced its  X-intention to discount the wholesale prices for the HSD system hardware and IRDs.i{+x X-ԍ Numbers Down, Spirits High, SkyREPORT, Sept. 1995, at 11.i In addition, HSD viewers often experience a delay of several seconds when changing channels if the selected channel is on a different satellite than the prior channel. In order to receive the selected channel, the dish must rotate to face the location of its satellite. Viewers of other MVPD's service do not experience similar delays when changing channels  X1-xA66.` ` The growth rates of both HSD and DBS services also may be affected by zoning ordinances that many localities have enacted, which restrict the deployment of  X -receiving dishes.  .+x X-ԍ See, e.g., Preemption of Local Zoning Regulation of Satellite Earth Stations, Notice of  X-Proposed Rulemaking, IB Docket No. 9559, 10 FCC Rcd 6982 (1995) ("Local Zoning  X-NPRM").  SBCA cites zoning ordinances and other local restrictions as a significant  X -impediment to the growth of HSD.> +x XT-ԍ SBCA Comments at 18.> Although the Commission has preempted zoning ordinances that either discriminate against receiving equipment without "a reasonable and clearly defined health, safety or aesthetic objective," or impose "unreasonable limitations" on  X -the use of satellite dishes,@ h +x X-ԍ 47 C.F.R.  25.104.@ SBCA alleges that local authorities continue to enact ordinances  X-that violate these rules.> +x XZ-ԍ SBCA Comments at 18.> SBCA has also contended that homeowners' associations use  Xy-covenants and other restrictions to prohibit HSDs.Wy +x X-ԍ 1994 Report, 9 FCC Rcd at 7481 76.W  XK-xB67.` ` In response to complaints about local restrictions on receiving equipment, we  X4-initiated a rulemaking proceeding to modify its zoning preemption rules.^4}+x Xb"-ԍ Local Zoning NPRM, 10 FCC Rcd at 6995 44.^ To clarify its rules, the Commission proposes a rebuttable presumption against local laws and regulations that restrict relatively small receiving dishes. We also propose procedures by which Commission review of zoning disputes occurs after exhaustion of local administrative  X-remedies.0+x X'-ԍ See, e.g., Town of Deerfield, New York v. FCC, 992 F.2d 420 (2d Cir. 1992) (where the court invalidated the Commission's stricter exhaustion policy). This is a change from previous policy which required exhaustion of all legal"\+))" remedies before appeal to the Commission. The Commission is reviewing the comments that were filed in response to the proposals and will adopt a final rule in the near future.  X-x C.` ` Wireless Cable Systems   W<Xx` ` 1. Multichannel Multipoint Distribution Service  (#  X_-xC68.` ` MVPDs that use microwave frequencies in the multichannel multipoint distribution service ("MMDS") or multipoint distribution service ("MDS") to transmit video programming to subscribers with rooftop antennas are commonly referred to as wireless cable systems. Wireless cable operators have access to a maximum of thirtytwo or thirtythree channels and currently use traditional analog transmission technologies. The thirtythree channels include twenty channels allocated to Instructional Television Fixed Service ("ITFS") that are leased on a parttime basis.     X -xD69.` ` Subscribership. Between the end of 1993 and the end of 1994, the total number of subscribers to wireless cable systems increased by 51%, from 397,000 to 600,000  X{-subscribers.{+x X-ԍ Paul Kagan Assocs., Inc., The 1995 Wireless Cable Databook 23 (1995) ("1995  X-Wireless Cable Databook"). During the same time period, the number of homes capable of receiving a wireless cable operator's signal (commonly referred to as homes seen) rose by 10% to over 27 million homes. The growth of subscribership relative to homes seen has pushed the industry's penetration rate from 1.6% at the end of 1993 to 2.2% at the end of 1994. Apparently, this trend has continued in 1995, as reported by the Wireless Cable Association International, Inc. ("WCAI"), which claims that in June 1995 the industry was comprised of approximately 190  X-systems serving about 800,000 subscribers.f+x X-ԍ This figure represents 45% growth from WCAI's estimate of 550,000 subscribers being served by the wireless cable industry in June 1994. WCAI Comments at 2.  X-xE70.` ` Although few wireless cable systems approach the total size of their wired cable counterparts, the industry has 15 systems with at least 12,000 subscribers, including 7 with over 20,000 subscribers. The largest wireless system, operated by CAI Wireless  X~-Systems, Inc. ("CAI") in Philadelphia, Pennsylvania, has approximately 51,900 subscribers~+x X/!-ԍ James B. Boyle & Andrew W. Marcus, CFA, Alex. Brown & Sons (Media), Wireless Cable SightLines, Aug. 21, 1995, at 5.  Xg-(3.3% of the approximately 1.5 million homes capable of subscribing to CAI's service).g+x X$-ԍ Gerard Klauer Mattison & Co., When It Comes To The Wireless Industry, One  X%-Investment Bank Sends The Right Signals 54 ("Seminal Event In Evolution of Wireless Cable Industry") (July 1995) (Handout distributed at WCAI's WCA '95: Wireless Cable's Annual  Xq'-Convention & Exposition and available from author) ("1995 GKM Databook"). The second largest is Cross Country Wireless, Inc.'s ("Cross Country") system in Riverside,"P \+))"  X-California, which has approximately 42,000 subscribersX+x Xy-ԍ Wireless Cable SightLines, supra, at 2.X (10.8% of the homes capable of  X-subscribing).{+x X-ԍ Wireless Cable SightLines, supra, at 5. As discussed below, significant developments this year in the wireless cable industry included the investment by Bell Atlantic and NYNEX in CAI and the acquisition of Cross Country by the Pacific Telesis Group ("PacBell" which refers to both the Pacific Telesis Group and Pacific Bell, a subsidiary of Pacific Telesis Group, unless otherwise noted).  In general, where a wireless system is competing with an incumbent wired cable system, the wired cable system has substantially greater subscribership. There are only 12 systems with penetration rates over 10%, and we are aware of only one system, operated by Heartland Wireless Communications, Inc. ("Heartland") in Ada, Oklahoma (serving 28.1%  X-of the homes seen)X+x X-ԍ Wireless Cable SightLines, supra, at 2.X that has more subscribers than its wired competitor.X +x X-ԍ Wireless Cable SightLines, supra, at 1.X  X_-xF71.` ` Analysts expect the wireless industry's recent subscriber growth to continue for the next several years. Paul Kagan Associates projects that the industry will grow by over 60% in both 1995 and 1996, and should serve over two million subscribers sometime in  X -1997,a 8 +x X-ԍ 1995 Wireless Cable Databook, supra, at 23.a which is still only a fraction of the wired cable industry's 59.7 million subscribers at  X -the end of 1994.J +x X-ԍ Infra Appendix B, Table 1.J Another observer projects that the industry's average annual  X -subscribership will grow by over 280% between 1995 and 1998. +x X;-ԍ James B. Boyle & Andrew W. Marcus, CFA, Alex. Brown & Sons (Media), Wireless Cable Overview, Mar. 23, 1995, at 31. Commenters have attributed this growth to a combination of price competition, product differentiation, favorable  X -regulatory actions and increased investments by the LECs.n 8+x X-ԍ HBO Comments at 4; WCAI Comments at 7, n.14; NCTA Comments at 1415.n   X-xG72.` ` Consolidation. Several large operators have begun to consolidate systems in major markets across the country. After its acquisition of ACS Enterprises, Inc. ("ACS") and the purchase of systems from Eastern Cable Networks Corporation ("ECN") and American Wireless Systems, Inc. ("AWS"), CAI operates in most of the largest markets in the Northeast, and has lineofsight coverage of over 11 million homes. Its Northeast holdings cover the following markets: New York City, Philadelphia, Pittsburgh, Washington, D.C.,"!\+))G"  X-Baltimore and Boston.+x Xy-ԍ 1995 GKM Databook, at 54 ("Seminal Event In Evolution of Wireless Cable Industry"). People's Choice TV Corporation ("PCTV") has two regional clusters, one in the Midwest and the other in the Southwest. With its acquisition of Preferred Entertainment, Inc. ("Preferred") and the purchase of systems from ECN, PCTV's Midwest cluster encompasses systems in Chicago, Detroit, Milwaukee, Indianapolis, Kansas City and St. Louis. PCTV's southwestern cluster includes systems in Houston, Phoenix and Tucson.  X-Between these two clusters, PCTV has a total of almost 8 million lineofsight homes.bd+x X -ԍ 1995 GKM Databook, at 77 ("People's Choice TV").b   X_-xH73.` ` Digital Trials. According to reports, the Wireless Cable Digital Alliance  XJ-("WCDA")J+x X-ԍ The WCDA's membership includes: American Telecasting Inc., Andrew Corp., California Amplifier, EMCEE Broadcast Products, Microwave Filter Corp., and Zenith Electronics Corp. completed the first field trials of digital technology in Colorado Springs and Chicago in the spring of 1995, which yielded several important results. First, it has been  X -reported that wireless operators should be able to fit three +x Xg-ԍ Leslie Ellis, Digital Tests Hearten Wireless Cable Execs, Multichannel News, Mar.13, 1995, at 6. to nine 6 +x X-ԍ Test Results Positive For Digitally Compressed Wireless Cable, Comm. Daily, Mar. 7, 1995, at2. digital channels into one 6 MHz video channel by combining a digital signal with compression algorithms, which is comparable to the results achieved by other MVPDs. Second, it has been reported that use of a digital signal increased the coverage area of a wireless transmitter, allowing MMDS  X -operators to reach additional homes that were previously unable to receive a clear signal.3 +x XC-ԍ Id.3  X-xI74.` ` Upon receipt of Commission approval, WCDA's continued development of a digital wireless cable system will begin this fall when American Telecasting, Inc. ("American  Xd-Telecasting") will conduct a commercial trial involving 50 homes.d+x X!-ԍ Harry A. Jessell, Wireless Cable Is Going Digital ... Or At Least Trying, Broadcasting & Cable, July 24, 1995, at 30. Operators with systems in urban markets have said that they hope to deploy digital systems by the second half of  X6-1996.6!+x X&-ԍ Dow Jones & Co., Wireless Cable Execs/Analysts Mull Industry Future, Select Fed. Filings Newswires, July 20, 1995. ""\+))G"Ԍ X-xJ75.` ` Independent of the WCDA's efforts, it has been reported that Decathlon Communications, Inc. ("Decathlon") has developed its own digital wireless cable technology  X-based on MPEG 1+ encoding.+x XK-ԍ Denny Weddle, Compression Breakthrough, Private Cable & Wireless Cable, Oct. 1995, at 27. For a full discussion of digital compression technology, see Section III.C below. Transworld Telecommunications Inc. has announced plans to  X-implement Decathlon's technology in its Tampa/St. Petersburg system.d+x X-ԍ Transworld Telecommunications, Inc., Transworld Telecommunications Inc.  X-Announces Deployment of Decathlon Digital Compression System (Business Wire), Aug. 1, 1995. American Telecasting has announced plans to install Decathlon's technology in its Fresno, California  X-system by the end of 1995,+x X) -ԍ American Telecasting, Inc., American Telecasting Announces Agreement To Install  X-Decathlon Digital Compression Technology In Fresno This Year (PR Newswire), July 18, 1995. as has Sky Cable of Omaha.r +x X-ԍ Fred Dawson, Wireless Ops Make Move to Digital, Multichannel News, Aug. 28, 1995, at 3.  X_-xK76.` ` On July 13, 1995, a coalition of ninetynine organizations with interests in the wireless cable industry filed a petition requesting a "declaratory ruling on the use of digital modulation by" stations using MDS and ITFS frequencies. On August 23, 1995, the Commission established a pleading cycle for that petition, with comments filed on  X -September22, 1995 and reply comments filed October 10, 1995.F  +x X-ԍ Pleading Cycle Established For Comments On Request For Declaratory Ruling On The Use Of Digital Modulation By Multipoint Distribution Service And Instructional  X-Television Fixed Service Stations, Public Notice, Report No. MM 9583, DA 951854 (Aug. 23, 1995).F  X -xL77.` ` Financial Performance. The industry's total revenue for 1994 was $203  X -million, a 48% increase from 1993.d ~+x X-ԍ 1995 Wireless Cable Databook, supra, at 2324.d The industry's cash flow (as defined above in paragraph 27) declined during 1994, dropping from a loss of $10.6 million in 1993 to a loss of $14.2 million.   Xd-xM78.` ` Equity Markets. In the ten months prior to June 1994, the wireless cable  XO-industry raised almost $600 million in financing from public markets.pO1+x X1&-ԍ Paul Kagan Assoc., Inc., Wireless Cable Investor, June 30, 1994, at 1.p In the following twelve months, the industry obtained $638 million of additional financing from both public and private sources. There are also $350 million of financing transactions awaiting"!#\+)))" consummation. Of this combined $988 million (excluding investments made by LECs), $725  X-million is in the form of public bond offerings.W+x Xb-ԍ Paul Kagan Assoc., Inc., Wireless Cable Public and Private Funding, June 1994  XM-Through May 1995, Wireless Cable Investor, May 31, 1995, at 1: Paul Kagan Assoc., Inc.,  X8-Wireless Cable Public Bond Offerings, Wireless Cable Investor, June 30, 1995, at 1.W  X-xN79.` ` LEC Investment. An important development in the wireless cable industry this year has been the decision by three LECs to make major investments in two wireless operators. In March, 1995, Bell Atlantic and NYNEX made a substantial investment in CAI. Their initial investment in CAI was $100 million, and included the issuance of warrants, which would give them the opportunity to purchase 45% equity in CAI for an additional $300  XJ-million.JQ+x XL -ԍ 1995 GKM Databook, at 52 ("Seminal Event In Evolution of Wireless Cable Industry"). Helped by this infusion of capital, CAI acquired the systems mentioned above in  X3-paragraph 72.3+x X-ԍ LECs' use of wireless facilities to provide video programming is discussed in more  X-detail infra Section II.D. In April 1995, PacBell acquired Cross Country for $175 million.3 +x Xm-ԍ The acquisition was finalized on July 25, 1995, Pacific Telesis Group, Pacific Telesis  XX-Becomes Nation's First Telco To Offer Wireless Cable Television (News Release), July 25, 1995.  X -xO80.` ` Recent Regulatory Developments. In June 1995, the Commission took several actions to enhance the competitiveness of wireless cable systems and to facilitate the development and rapid deployment of wireless cable services. The Commission adopted streamlined measures to process new applications for MDS spectrum, adopted competitive bidding procedures for the licensing of MMDS spectrum and expanded the protected service  X-area of MDS stations.  +x XU-ԍ Amendment of Parts 21 & 24 of the Commission's Rules with Regard to Filing Procedures in the Multipoint Distribution Service and in the Instructional Television Fixed  X)-Service, Report & Order, MM Docket No. 94131, 10 FCC Rcd 9569 (1995); Amendment of Parts 21, 43, 74, 78, & 94 of the Commission's Rules Governing Use of the Frequencies in the 2.1 and 2.5 GHz Bands Affecting: Private OperationalFixed Microwave Service, Multipoint Distribution Service, Multichannel Multipoint Distribution Service, Instructional  X"-Television Fixed Service, & Cable Television Relay Service, Second Order on Reconsideration, Gen. Docket No. 9054, 10 FCC Rcd 7074 (1995). We note that at least one operator complains that the current MMDS licensing process is said to be designed in a manner that favors LECs with their larger financial resources over the smaller entrepreneurs. Vermont Wireless Cooperative Comments at 12. "}$\+))i"Ԍ X-xP81.` ` Factors Affecting Competition. Despite its recent gains, the wireless cable remains industry a relatively small provider of multichannel video services in terms of market share. As of the end of September 1995, only 0.8% of television households subscribed to wireless cable services, compared to 64.3% of television households subscribing to wired cable systems.  Xx-xQ82.` ` Various factors, including technological limitations (e.g., lineofsight and channel capacity), have been blamed for the relatively low penetration of wireless cable  XJ-systems.VJ+x X -ԍ Wireless Cable Overview, supra, at 12.V Due to their relatively small size, wireless cable systems potentially face higher programming costs persubscriber than many of their larger, wired cable system competitors. According to WCAI, several nonvertically integrated programmers engage in the practice of charging a wireless cable operator more than a similarly situated franchised cable system for  X -programming. {+x X-ԍ WCAI Comments at 18. A similar concern is raised by the Small Cable Business Association (SCBA), which claims that small wired cable operators must pay substantially higher rates for programming than the large MSOs.  Wireless cable operators also have been dealing with increased competition from DBS services, although some analysts believe that such competition has not had a substantial impact on wireless cable operators' subscribership (less than 0.1% of wireless  X -cable subscribers have switched to DBS service).X +x XX-ԍ Wireless Cable SightLines, supra, at 8.X One wireless cable operator alleges that predatory pricing by wired cable operators, including low promotional rates, reduces wireless  X{-cable operators' ability to compete.D{+x X-ԍ Heartland Comments at 13.D  XM-xR83.` ` In addition to the recent progress on the technological front, wireless cable systems may enjoy lower per unit costs than wired cable systems when adding new subscribers. Investment analysts estimate the average investment per subscriber for wireless cable operators is between $330 and $600, compared with $625 to $1300 for traditional wired  X-cable operators.b +x X -ԍ 1995 GKM Databook, at 11 ("Wireless Cable Primer"); Wireless Cable Overview,  X -supra, at 4. Moreover, WCAI believes that the wireless cable industry's cost of digitization will be lower, on a per subscriber basis, than the cost of digitization for the wired  X-cable industry.= +x Xt$-ԍ WCAI Comments at 15= At least one analyst agrees with this view, reporting the investment per  X-digital subscriber to be $900 for wireless operators, and $1500 for wired cable operators.U +x X'-ԍ Wireless Cable Overview, supra, at 4.U "%d\+))"Ԍ W<Xx` ` 2. Local Multipoint Distribution Service  (#  X-xS84.` ` LMDS frequencies are microwave channels in the 28 GHz band that may be used to deliver multichannel video programming. As with distribution using MMDS, LMDS distribution requires subscribers to have a special antenna that is located within a "lineofsight" to the transmitter. The propagation characteristics of the 28 GHz band are such that an LMDS system must operate in "cells" with radii of three to six miles in order to provide service to a metropolitan area that could be covered by a single wireless cable transmitter. With the exception of CellularVision of New York, L.P.'s ("CellularVision") 5,300subscriber  X1-LMDS system in Brooklyn, New York (which has been managed by Bell Atlantic),'z1+x X -ԍ CellularVision USA, Inc., Form S1 3, 12 (Oct. 18, 1995). In a registration statement recently filed with the SEC, CellularVision discloses an "electronic manufacturing flaw in its settop converters which degraded reception quality," and reported an average monthly subscriber cancellation rate of 10% through August 1995. CellularVision states that it has been installing repaired equipment that remedies the problem and has reduced the rate of  X9-cancellations. Id. at 11. ' LMDS  X -frequencies are not currently being used to distribute video programming. +x X-ԍ This operation was authorized by the Commission in 1991 on a waiver basis. Hye  X-Crest Management, Inc. (For License Authorization in the PointtoPoint Microwave Radio  X-Service in 27.5-29.5 GHz Band and Request for Waiver of the Rules), Memorandum Opinion and Order, 6 FCC Rcd 332 (1991). Other applications for LMDS service were subsequently frozen by the Commission.   X -xT85.` ` In July 1995, the Commission issued a Third Notice of Proposed Rulemaking  X -and Supplemental Tentative Decision seeking comment on: (1) a plan to allow both LMDS and Fixed Satellite Service ("FSS") systems to operate in the 28 GHz band; (2) a competitive bidding scheme for awarding mutually exclusive LMDS and FSS license applications by Basic  X-Trading Areas ("BTAs"); and (3) flexible use of the 28 GHz spectrum band.]e +x X-ԍ Third 28 GHz NPRM, __ FCC Rcd __, FCC 95287.] The Commission also sought comment on the number of LMDS licenses that should be made  Xf-available in a particular market, and the amount of spectrum that should be allocated.<f+x X/ -ԍ Id.  79.< Given the potential for competition between LMDS and cable systems, we also requested comment whether to permit cable operators to acquire LMDS systems in their service areas. At this time, it remains unclear whether, and to what extent, LMDS systems might emerge as  X -significant competitors to wired cable systems.   X-x D.` ` Local Exchange Carriers  X- xU86.` ` Local exchange carriers ("LECs") are local telephone companies that operate in local service areas commonly known as local access and transport areas ("LATAs"). In the"&\+))B"  X-1994 Report, the Commission noted an increase in LEC video related activity since the  X-Commission's 1990 Cable Report, spurred by the adoption of the video dialtone ("VDT")  X-framework and technological advances.3+x XO-ԍ 1994 Report, 9 FCC Rcd at 7495505 10320. VDT is a regulatory framework that permits LECs to offer, on a nondiscriminatory basis, a basic common carrier video delivery platform that must accommodate multiple video programmers. First adopted by the Commission in 1992, this regulatory framework provides for LEC participation in the MVPD marketplace consistent with the statutory cable television companylocal telephone company ("cabletelco") crossownership ban. This ban or restriction was enacted by the 1984 Cable Act, and prohibits a common carrier from providing video programming directly to subscribers in its telephone service area, either directly or indirectly through an affiliate owned by, operated by, controlled by, or under common control with the common carrier.  V -See Telephone CompanyCable Television CrossOwnership Rules, Sections 63.5463.58,  Xk -Second Report & Order, Recommendation to Congress, and Second Further Notice of  XT-Proposed Rulemaking, CC Docket No. 87266, 7 FCC Rcd 5781 (1992), ("1992 VDT Order"),  X?-aff'd in part and modified in part, Memorandum Opinion & Order on Reconsideration and  X*-Third Further Notice of Proposed Rulemaking, 10 FCC Rcd 244 (1994), ("VDT  X-Reconsideration Order" and "VDT Third Further Notice"), appeal pending sub nom. Mankato  X-Citizens Tel. Co. v. FCC, No. 921404 (D.C. Cir. filed Sept. 9, 1992).3 In the year since the 1994 Report, LEC plans for entry into the video marketplace have evolved considerably. At present, however, it is difficult to predict the level of future LEC entry into markets for the delivery of video programming over the long run, or the form that entry will take.  We<XxX` ` 1. Commission and Judicial Actions (#`  X7-xV87.` ` Shortly after release of the 1994 Report, the Commission resolved the pending  X" -petitions for reconsideration of the 1992 VDT Order." ,+x X-ԍ See VDT Reconsideration Order, 10 FCC Rcd at 247 1. In the VDT  X-Reconsideration Order, the Commission also clarified and modified certain policies adopted in  X-the 1992 VDT Order, including policies pertaining to ownership and nonownership affiliations, and to crosssubsidization and pricing issues. In the VDT Reconsideration Order, the Commission affirmed its decision to enforce the statutory cabletelco crossownership  X -prohibition, and generally affirmed the regulatory framework for VDT services.5" +x XE!-ԍ The Commission interpreted the statutory cabletelco crossownership ban as restricting LEC participation in the selection, pricing, or packaging of video programming for  X#-distribution to subscribers within its telephone service area. VDT Reconsideration Order, 10 FCC Rcd at 28081 7374. As noted below, this restriction was subsequently eased in response to court orders enjoining the Commission from enforcing the cabletelco cross X%-ownership ban. In the VDT Reconsideration Order, the Commission clarified that, under the VDT framework, a LEC is precluded from acquiring a cable system that operates within its telephone service area, and a LEC cannot engage in joint ventures with inregion cable"(\+))'" operators for purposes of providing video programming to subscribers within its telephone  Xb-service area. Id. at 266 48, 28687 89. In the VDT Third Further Notice, adopted  XM-concurrently with the VDT Reconsideration Order, the Commission sought comment on the viability of multiple wire based competitors in the MVPD marketplace, and on criteria for modifying the restrictions imposed on LEC acquisitions of, and joint ventures with, cable  X -operators. VDT Third Further Notice, 10 FCC Rcd at 37273  27679. The Commission  X-also sought comment on: (1) capacity issues; (2) preferential access; and (3) pole attachment  X-and conduit rights. This rulemaking remains pending before the Commission. Id. at 36875  268285. However," ' \+)) " shortly thereafter two federal circuit courts of appeal held that the statutory cabletelco crossownership restriction was an unconstitutional infringement of telephone companies' First Amendment rights, and upheld lower court orders enjoining the Commission from enforcing  X-the statutory restriction against parties to those cases. +x X-ԍ Chesapeake & Potomac Tel. Co. v. United States, 830 F. Supp. 909 (E.D. Va. 1993),  X -aff'd, 42 F.3d 181 (4th Cir. 1994), cert. granted, 115 S. Ct. 2608 (Jun. 26, 1995); U S West,  X-Inc. v. United States, 855 F. Supp. 1184 (W.O. Wash. 1994), aff'd, 48 F.3d 1092 (9th Cir.  X-1995). See also Pacific Telesis Group v. United States, 48 F.3d 1106 (9th Cir. 1994).  X-xW88.` ` In response to those decisions and a number of similarly decided federal district  Xv-court cases,Xv&+x XM-ԍ See BellSouth Corp. v. United States, 868 F. Supp 1335 (N.D. Ala. 1994), appeal  X8-pending No.947036 (11th Cir. filed Oct. 28, 1994); Ameritech Corp. v. United States, 867  X#-F.Supp 721 (N.D.Ill. 1994), appeal pending No. 947036 (11th Cir.); NYNEX Corp v. United  X-States, No.93-323PC, 1994 WL 779761 (D. Me. Dec. 8, 1994), appeal pending No. 951183  X-(1st Cir).; Southern New England Tel. Co. v. United States, 886 F. Supp. 211 (D. Conn.  X-1995); GTE South, Inc. v. U.S., No. 941588A (E.D., Jan. 13, 1995); United States Tel. Ass'n  X-v. United States, No.1:94CVO1961 (D.D.C. Feb. 14, 1995); Southwestern Bell Corp v.  X-United States, Civ. A. No.3:94V0193D, 1995 WL 444414 (N.D. Tex. Mar. 27, 1995). the Commission took a number of actions to clarify further the manner in which LEC entry into the MVPD and related markets would be regulated. In January 1995, the Commission issued another notice of proposed rulemaking seeking comment on, among other things, whether Title II or Title VI of the Communications Act, or some combination thereof, should apply to a LEC that, directly or indirectly through an affiliate, provides video  X -programming over a VDT platform to subscribers within its local telephone service areas. F+x X"-ԍ Telephone Co.Cable Television CrossOwnership Rules, 63.5463.58, Fourth Further Notice of Proposed Rulemaking, CC Docket No. 87266, 10 FCC Rcd 4617 (1995).  X -xX89.` ` In April 1995, the Commission clarified that it will not enforce the cabletelco crossownership restriction against: (1) any telephone company that is a party to any of the cases in which the Commission has been enjoined from enforcing the statutory crossownership ban; or (2) any telephone company operations that are within the geographic"(\+))j"  X-boundaries of the Fourth or Ninth Circuits, where the ban has been held unconstitutional.+x Xy-ԍ Commission Announces Enforcement Policy Regarding Tel. Co. Ownership of Cable  Xd-Television Sys., Public Notice, DA 95722 (Apr. 3, 1995) (correcting Public Notice, DA95-520 (Mar. 17, 1995)). In May 1995, the Commission determined that it has legal authority to grant waivers of the cabletelco crossownership ban to allow telephone companies to provide video programming  X-on VDT networks in their telephone service areas.O+x X-ԍ Telephone Co.-Cable Television Cross-Ownership Rules, 63.54-63.58, Third Report & Order, CC Docket No. 87266, 10 FCC Rcd 7887 (1995). In August 1995, the Commission streamlined the Section 214 process for LECs to construct stand alone cable systems within  X-their local service areas.]9+x X) -ԍ Telephone Co.Cable Television CrossOwnership Rules, 63.5463.58, Fourth Report & Order, CC Docket No. 87266, __ FCC Rcd ____ , FCC 95357 (Aug. 14, 1995),  X-summarized at 60 Fed. Reg. 44280 (Aug. 25, 1995), petition for review pending, Ameritech  X-Corp. v. FCC, No. 95-1423 (D.C. Cir. filed Aug. 18, 1995) and No. 95-1441 (DC Cir. filed  X-Aug. 25, 1995); GTE Serv. Corp. v. FCC, No. 951488 (DC Cir. filed Sept.22, 1995). The streamlined Section 214 procedures apply only to telephone companies that have obtained injunctions barring the Commission from enforcing the cabletelco crossownership ban. Telephone companies already had blanket Section 214 authority to operate cable systems outside their telephone service areas.] Finally, over the course of the year, the Commission has established many of the reporting and accounting requirements applicable to the provision of  X_-VDT service.n _+x X-ԍ See, e.g., RAO Letter 25, DA 95703, Mar. 31, 1995 (accounting order providing specific guidance on the requirements for accounting classifications, subsidiary records and  X-amendment of cost allocation manuals for LECs that provide VDT service); Price Cap Performance Review for Local Exchange Carriers; Treatment of Video Dialtone Services  X-Under Price Cap Regulation, Second Report & Order and Third Further Notice of Proposed Rulemaking, CC Docket No. 941, __ FCC Rcd ___ , FCC 95394 (Sept. 21, 1995) (specific  Xx-price cap regulations for VDT offerings); Reporting Requirements on Video Dialtone Costs &  Xc-Jurisdictional Separations for Local Exchange Carriers Offering Video Dialtone Services,  XN-Memorandum Opinion & Order, AAD No. 9559, __ FCC Rcd ____ , DA 952026 (Sept. 29,  X7 -1995), summarized at 60 Fed. Reg. 53544 (Oct. 16, 1995) (specifying the content and format of the VDT reports LECs must file when offering VDT service).n  W1<XxX` ` 2. LEC Entry into MVPD and Program Supply Markets (#`  X -xY90.` `  In this section of the 1995 Report, we examine the status of LEC entry into various video markets. First, we report on the status of LEC entry into what may be thought of as the video transport segment of the market for the delivery of video programming the provision by LECs of common carrier video transport services over VDT facilities to customerprogrammers that distribute programming packages to end user subscribers. Second," )\+)) " we address LEC entry into these markets through construction of, or investment in, traditional stand alone cable systems, wireless cable systems, and other integrated proprietary facilities that bundle video transport services with the provision of programming services to subscribers. Finally, we note instances of LEC entry into the video programming supply and packaging market.  Xv-xZ91.` ` Status of VDT Technical and Market Trials. At the time of the 1994 Report, five applications for VDT technical and market trials had been granted, three applications for initial trials were pending, and two applications for expansion of existing trials were also  X3-pending. Since the 1994 Report, no additional applications for VDT technical or market trials have been filed with the Commission. The three applications for new trials that were pending  X -at the time of the 1994 Report have all been granted.d +x X -ԍ See Puerto Rico Tel. Co. (P.R. VDT Trial), Order & Authorization, File No. WPC  Xk -6949, 10 FCC Rcd 156 (1994); BellSouth Telecommunications, Inc. (Chamblee & DeKalb  XV-Cos., Ga. VDT Trial), Order & Authorization, File No. WPC 6977, __ FCC Rcd ___ , DA  XA-95181, 1995 WL 51206 (Feb. 2, 1995, CCB); Carolina Tel. & Tel. Co. (Wake Forest, N.C.  X,-VDT Trial), Order & Authorization, File No. WPC 6999, 10 FCC Rcd 1583 (1995). See also  X-infra Appendix E. d In addition, three applications for  X -expanded or extended trials have been granted.m +x X-ԍ These expansions or extensions are for Bell Atlantic's Northern Virginia trial, Southern New England Telephone Co.'s ("SNET") Connecticut trial, and U S West's Omaha,  X-Nebraska trial. See Chesapeake & Potomac Tel. Co. (No. Va. VDT Trial Expansion), Order  Xr-& Authorization, 10 FCC Rcd 2975 (1995); Southern New Eng. Tel. Co. (W. Hartford VDT  X]-Trial), Order & Authorization, 9 FCC Rcd 1019 (1993); Southern New Eng. Tel. Co.  XH-(Expanded VDT Trial), Order and Authorization, 9 FCC Rcd 7715 (1994); Southern New Eng.  X3-Tel. Co. (W. Hartford & Expanded VDT Trial Synchronization); Order, 10 FCC Rcd 4558  X-(1995); U S West Communications, Inc. (Omaha, Neb. VDT Trial), Order & Authorization, 9  X -FCC Rcd 184 (1993); U S West Communications, Inc. (Trial Modification), Order &  X-Authorization, File No. WPC 6868, FCC 94350 (Jan. 6, 1995),  on recon., FCC 95141 1995 WL 220632 (April 12, 1995).m Information pertaining to the VDT trial participants, the status of the trials, and results of market and technical tests are summarized  X -in Appendix E. +x Xb -ԍ See also the discussion below for more information on architectures and technologies.  XK!-Infra sec. III.C.  X-x[92.` ` Status of VDT Permanent Commercial Applications. At the time of the 1994  X-Report, twentythree applications for permanent commercial VDT authorizations were pending before the Commission and one application to provide permanent commercial VDT service had been granted to Bell Atlantic for service to approximately 38,000 households in Dover"U*\+)) "  X-Township, New Jersey ("Dover").,+x Xy-ԍ See New Jersey Bell Tel. Co. (Application for Authority to Offer VDT Service in  Xd-Dover Township, N.J.), Order & Authorization, File No. WPC 6840, 9 FCC Rcd 3677 (1994).  XO-See also infra Appendices D, E., Those applications represented a potential market for  X-VDT services of over 8.5 million homes.XQ+x X-ԍ 1994 Report, 9 FCC Rcd at 7496 104.X  X-x\93.` ` Since release of the 1994 Report, fifteen of the twentythree applications for permanent commercial VDT authority have been granted (two to NYNEX, four to PacBell, four to GTE, and five to Ameritech); two applications were withdrawn (by Bell Atlantic); the processing of five applications has been suspended (at the request of U S West); and one  Xa-application remains pending (by Bell Atlantic).>a+x X-ԍ The pending Bell Atlantic application is for authority to offer permanent commercial  X-service to 11,700 homes. New Jersey Tel. Co. (Florham Park, New Jersey VDT App. for  X-Permanent Service), File No.WPC 6838 (filed Nov. 16, 1992).> In addition, five new applications to  XJ-provide commercial VDT service have been filed with the Commission since the 1994 Report. Of these five applications, four (filed by U S West) were dismissed by the Commission for  X -insufficient data. *  +x XZ-ԍ U S West, Communications, Inc. (App. to Offer VDT Service in Cedar Rapids, Iowa),  XE-File No. WPC 7024 (filed Nov. 16, 1994) (passing 63,000 homes); U S West  X0-Communications, Inc. (App. to Offer VDT Service in Colo. Springs, Colo.), File No. WPC  X-7025 (filed Nov. 16, 1994) (passing 161,000 homes); U S West Communications, Inc. (App. to  X-Offer VDT Service in Des Moines, Iowa), File No. WPC 7026 (filed Nov.16, 1994) (passing  X-120,000 homes); U S West Communications, Inc. (App. to Offer VDT Service in  X-Albuquerque, N.M.), File No. WPC 7027 (filed Nov. 16, 1994) (passing 214,000 homes). On December 23, 1994, the Commission dismissed these applications for lack of information.  X-See Letter from Kathleen M.H. Wallman, Chief, Common Carrier Bureau, FCC to Lawrence E. Sarjeant, U S West Communications, Inc. (Dec. 23, 1994).  The fifth new application (filed by Southern New England Telephone  X -Company ("SNET")) remains pending. }+x X5-ԍ Southern New Eng. Tel. Co. (Connecticut VDT Application for Permanent Service), File No. WPC 7074 (filed Apr. 28, 1995).  X -x]94.` ` Consequently, a total of sixteen applications for commercial VDT service have been approved, and two applications for commercial VDT service remain pending before the Commission. The status of the approved applications for permanent commercial VDT  X-authorization is as follows:+x X^&-ԍ A chart is provided in the appendices summarizing the current status of all of the VDT applications for commercial service that have been filed with the Commission (omitting"0(\+))]'"  Xy-the four U S West applications that were filed and dismissed since the 1994 Report). Infra Appendix C1."+M\+))"Ԍ X-ԙXxX` ` Bell Atlantic's July 1994 authorization for a VDT system in Dover  X-Township, New Jersey, that will pass 38,000 homes.{M+x X-ԍ New Jersey Bell Tel. Co., 9 FCC Rcd 3677. See also infra Appendix E.{ The tariff for this system was permitted to become effective following a oneday  X-suspension, subject to investigation.+x Xl -ԍ The Bell Atl. Tel. Cos. (Waiver of Part 69 to Offer VDT service in Dover Township,  XW -N.J.), Order, DA 951282 (June 9, 1995). See also Bell Atlantic Tel. Cos., Tariff F.C.C.  XB -No.10, Transmittal Nos. 741, 786, Order Designating Issues for Investigation, CC Docket No.95145, __ FCC Rcd ___ , DA 951928 (Sept. 8, 1995) (rates, terms and requirements for VDT service in Dover Township). This VDT system is scheduled to begin service in 1995, and is expected to become the first permanent  X-commercial VDT system in operation.e[ +x X-ԍ See Launch Delayed, Comm. Daily, Aug. 16, 1995, at 5.e `  X_-XxX` ` NYNEX's March 1995 authorization for two VDT systems, one in Rhode Island that will pass 63,000 homes and one in eastern Massachusetts that will pass 334,000 homes. NYNEX's applications,  X -filed in July of 1994, proposed completion of construction in 2010.  +x X-ԍ New Eng. Tel. & Tel. Co. (VDT Serv. Auth. to Communities in R.I. & Mass.), Order & Authorization, File No. WPC 6982, 10 FCC Rcd 5346, 5349  5 (1995). According to some trade press accounts, NYNEX is proceeding on target with a "cautiously aggressive" strategy with its VDT systems in  X -eastern Massachusetts and Rhode Island. +x X0-ԍ NYNEX Intrigued, but Wary, of VDT Opportunity, Washington Telecom News,  X-Sept.25, 1995, at 5; NYNEX Plans a Common Carriage Model for VDT, Washington Telecom News, June 19, 1995, at 14. Earlier reports suggested, however, that while still pursuing VDT entry, NYNEX had scaled back its deployment plans and may utilize wireless cable in the near term to  X-reach subscribers while constructing its VDT systems.Y1+x Xr#-ԍ 1995 GKM Databook, supra, at 3334.Y `  Xb-XxX` ` PacBell's August 1995 authorization for four VDT systems in California, which will pass 490,000 homes in San Francisco; 360,000 homes in Los Angeles; 259,000 homes in San Diego; and 210,000 homes in Orange County, California. PacBell's applications, originally",\+)))" filed in December 1993, proposed an advanced, wire based video and telephone network that would be constructed sometime in 1996 at an  X-expense of approximately $16 billion.+x XK-ԍ Pacific Bell Co. (VDT Serv. Auth. for Communities in Orange Co., S.F. Bay Area,  X6-L.A. Area & S.D. Area in Cal.), Order & Authorization, File Nos. WPC 6913 et al., __ FCC Rcd ___ , FCC95-302 (Aug. 15, 1995). It appears that PacBell currently plans to pass only 500,000 homes with this advanced network  X-in 1996, increasing to one million homes in 1997.O+x X -ԍ See Pacific Telesis, Pacific Telesis Refines Network & Video Strategy (News Release),  X -Sept.27, 1995; Leslie Cauley, PacTel Puts Off InteractiveVideo Plans, Concentrating Instead  Xz -on Wireless Cable, Wall St. J., Sept. 28, 1995, at A3; John M. Higgins, PacTel Finds Video  Xe -Plans Too Ambitious, Multichannel News, Oct. 2, 1995, at 1, 52. These reports suggest, however, that PacBell is accelerating construction of the VDT network in the San Francisco Bay Area, scaling back its VDT deployment plans in its other authorized areas, and deploying wireless facilities in those areas in the near term while building out the VDT  X1-systems.Y1+x X-ԍ 1995 GKM Databook, supra, at 3334.Y `  X -XxX` ` GTE's May 1995 authorization for four VDT systems that will pass 476,000 homes in Pinellas and Pasco, Florida; 334,000 in Honolulu, Hawaii; 122,000 in Ventura, California; and 109,000 in Manassas,  X -Virginia. v +x X-ԍ Contel of Va., Inc. (VDT Serv. Auth. for Communities in Va., Fla., Ca. & Haw.),  X-Order & Authorization, File Nos. WPC 6955 et al., __ FCC Rcd ___ , DA 951012 (May 5, 1995, CCB). Reportedly, GTE is aggressively moving ahead with its VDT plans. By the end of 1996, GTE reportedly plans to pass a total of 500,000 homes in three markets: Ventura, California; Pasco and Pinellas counties, Florida; and Honolulu, Hawaii. By 1997, GTE reportedly plans to enter the Manassas, Virginia market, increasing its  XK-total homes passed to 900,000 homes in all four markets.K +x X -ԍ GTE to Have Video Dialtone Nets in 3 Markets by Year End, Computergram Int'l,  X!-May 10, 1995; Mark Berniker, GTE's Video Dialtone Gets FCC Green Light, Telemedia Week, May 8, 1995, at 76. GTE states that its goal is to pass seven million homes with VDT in 66 top  X-markets within the next ten years.G+x XR&-ԍ Berniker, supra, at 76.G `  X-XxX` ` The remaining five applications for permanent commercial VDT"-7\+))" authority were granted to Ameritech in January 1995 for five systems that proposed to pass 232,000 homes in Detroit, Michigan; 501,000 homes in Chicago, Illinois; 115,000 homes in Indianapolis, Indiana; 262,000 in homes in Cleveland and Columbus, Ohio; and 146,000  X-homes in Milwaukee, Wisconsin.+x X-ԍ Ameritech Operating Cos. (VDT Serv. Auth. for Communities in Ill., Ind., Mich., Ohio  X-& Wis.), Order & Authorization, File No. WPC 6926, 10 FCC Rcd 4104 (1995). After obtaining these authorizations, Ameritech decided to pursue entry into the MVPD marketplace through stand alone cable systems, rather than VDT  X_-systems.G_f+x Xv -ԍ See infra Appendix C2.G `  X1-x^95.` ` As noted above, seven of the Section 214 applications for permanent  X -commercial VDT authority that were pending at the time of the 1994 Report have been withdrawn or suspended by the applicant. These seven applications represented a potential market of over 4.3 million homes passed by VDT. The disposition of these applications includes the following:  X -XxX` ` On May 24, 1995, Bell Atlantic withdrew two applications for permanent commercial VDT systems that proposed to pass 1.2 million homes in the D.C. LATA and 2 million homes in the midAtlantic  Xd-area.d+x X.-ԍ E.g., Bell Atlantic Co., Bell Atlantic Moves to Deploy Full Service Network with  X-Latest Digital Technology (News Release), May 24, 1995; Bell Atlantic Asks FCC to Suspend  X-2 VDT Reviews, Comm. Daily, Apr. 26, 1995, at 1; Bell Atlantic Drops VDT Applications, Comm. Daily, May 25, 1995, at 2.  Bell Atlantic announced that it was considering new technologies and would submit amended applications at a later date,  X6-after further evaluating the technologies.p6 +x Xr-ԍ Bell Atlantic Moves to Deploy Full Service Network, supra.p Press reports suggest that in the D.C. and midAtlantic regions, Bell Atlantic plans to use wireless technology pending further development of switched digital video  X-("SDV") architecture.> +x X!-ԍ Id.; Bell Atlantic Picks Wireless Cable Video Solution, Comm. Daily, May 18, 1995,  X"-at 4. See the discussion below for more information on SDV. Infra sec. III.C. Notwithstanding its withdrawal of two significant VDT proposals, Bell Atlantic is going forward with VDT in other areas, including the construction of a permanent commercial VDT operation in Dover. `  X~-XxX` ` On May 31, 1995, U S West requested suspension of further Commission consideration of the five applications it filed in January and"g. \+))" March 1994, which proposed permanent commercial VDT service to 1.1 million homes, including 90,000 homes in Boise, Idaho; 357,000 homes in Denver, Colorado; 357,000 homes in Minneapolis, Minnesota; 162,000 homes in Portland, Oregon; and 160,000 homes in Salt Lake  X-City, Utah.i+x X-ԍ See Application of U S West Communications, Inc. (Application for Permanent  X-Commercial VDT Serv. in Denver, Colo.), File No. WPC 6919 (filed Jan. 10, 1994);  V-Applications of U S West Communications, Inc. (Application for Permanent Commercial VDT  X-Serv. in Portland, Or. & Minneapolis, Minn.),File Nos. WPC 6921, WPC 6922 (filed Jan. 19,  X -1994);  Applications of U S West Communications, Inc. (Application for Permanent  X -Commercial VDT Serv. in Boise, Idaho & Salt Lake City, Utah), File Nos. WPC 6944, WPC 6945 (filed Mar. 16, 1994). U S West stated that it wanted time to review results of  X-its Omaha, Nebraska market trial and to study new technologies.+x X7-ԍ See U S West Asks FCC to Suspend Action on VDT Applications Pending Test  X"-Results, Comm. Daily, June 1, 1995, at 1. `  X_-x_96.` ` Thus, in addition to Bell Atlantic's Dover VDT system, the available data indicates that four LECs, Bell Atlantic, PacBell, GTE, and NYNEX, are entering or planning to enter the MVPD marketplace as VDT operators in a total of eleven markets that range in size from 63,000 to 490,000 homes passed. These eleven permanent VDT systems represent potential VDT service to approximately 2.5 million homes passed.   X -x`97.` ` LEC Entry Into the MVPD Marketplace Through Cable and Wireless Facilities. Several LECs have indicated an interest in providing cable service in their telephone service areas. For example, as noted above, Ameritech is pursuing entry through construction of cable systems, and has sought and obtained from local cable franchising authorities and the Commission authority to construct cable systems in Plymouth, Canton and Northville  Xd-Townships in Michigan (near Detroit); d +x X-ԍ On August 14, 1995, the FCC proposed fining Ameritech $200,000 for beginning construction of the Plymouth Township system without prior Section 214 authority.  X~-Ameritech Corp., Notice of Apparent Liability for Forfeiture and Order to Show Cause, File No. ENF 9513, __ FCC Rcd ___ , FCC 95356 (Aug. 14, 1995). On August 16, 1995, in compliance with the Notice of Apparent Liability for Forfeiture and Order to Show Cause, Ameritech sought temporary and permanent Section214 authorizations to construct, operate, own and maintain cable facilities within Plymouth Township, Michigan. The Common Carrier Bureau granted Ameritech's request for Section 214 temporary authority that same  X#-day. Ameritech New Media Enters. (STA to Operate Cable Facilities in Plymouth Twshp.,  X$-Mich.), Order & Authorization, File No. WPC 7099, __ FCC Rcd ___ , DA95-1819 (Aug.16, 1995, CCB). Shortly thereafter, Ameritech appealed, on First Amendment grounds, the Commission's Fourth Report and Order in CC Docket No. 87-266 streamlining the Section214 procedural requirements for a telephone company seeking authority to construct a"(\+))V'"  Xy-cable television system within its service area. See Ameritech Corp. v. FCC, No. 951423  Xd-(D.C. Cir. filed Aug. 18, 1995); Ameritech Corp. v. FCC, No. 951441 (D.C. Cir. filed  XO-Aug.25, 1995). See also United States Tel. Ass'n v. FCC, No. 95533A (E.D. Va. filed July31, 1995) (also challenging the Section 214 requirement on First Amendment grounds). in Columbus, Ohio; and in Glendale Heights, Illinois"d/#\+))"  X-(near Chicago).& #+x X-ԍ Ameritech has received Commission approval of streamlined Section 214 applications  X-to provide stand alone cable service in each of these five areas. See Ameritech New Media  X -Enterps., Order & Authorization, File No. WPC 7099, __ FCC Rcd ___ , DA 951819  X -(Aug.16, 1995, CCB); Ameritech New Media Enters. (Columbus, Ohio), Order, File No. WPC 7106, __ FCC Rcd ___ , DA952067, 1995 WL 574393 (Sept. 28, 1995, CCB);  Vg -Ameritech New Media Enters. (Plymouth Twshp, Canton, Plymouth & Northville, Mich., and  XP -Glendale Heights, Ill.), File Nos. WPC 7099, WPC 7103, WPC 7104, WPC 7105 & WPC  X;-7107, deemed approved, in Federal Communications Commission, Commission Action on  X&-Common Carrier Bureau Domestic Facilities Applications, Report No.D-819-A, Public Notice No. 55978 (Sept. 27, 1995). Ameritech plans to begin offering stand alone cable services in 1996 and  X-to complete its cable systems by early 1997.+x X-ԍ See Plymouth Twp., Mich., Becomes First to Grant Cable Franchise to Ameritech,  X-Comm. Daily, June 29, 1995 at 2; Ameritech's Cable Plans Hit a Snag in Illinois, Cable  X-World, Sept. 30, 1995, at 1, 76; Ted Hearn, Ameritech Takes Cable Plunge, Multichannel News, Nov. 6, 1995, at 3. SBC has received Commission approval for a  X-temporary market trial of cable service in Richardson, Texas.+x X-ԍ Southwestern Bell Video Servs. (Application to Temporarily Provide Cable Service to  X-Richardson, Tex.), File No. WPC 7088, deemed approved, Federal Communications  X-Commission, Commission Action on Common Carrier Bureau Domestic Facilities  X-Applications, Report No.D812A, Public Notice No. 55205 (Aug. 9, 1995). BellSouth has applied to  X-provide cable service in Daniel Island, South Carolina.+x Xc-ԍ BellSouth Co. (Application for Authority Pursuant to 47 C.F.R. 63.01 to Offer  XN-Cable Service in Daniel Island, S.C.), File No. WPC 7093 (filed July 19, 1995). In addition, four smaller LECs-- MebCom Telephone Company, Hargray Telephone Company, Inc., Bluffton Telephone Company, and Kingsgate Telephone, Inc.-- have obtained authority to provide stand alone  Xv-cable service, pursuant to the Commission's streamlined Section 214 review.)iAv+x X"-ԍ See MebCom, Inc. (Application for 63.16 Approval for Cable Facilities to Serve  X#-Mebane, Alamance and Orange Co., NC), File No. WPC 7068, deemed approved, Federal  X$-Communicaions Commision, Commission Action on Common Carrier Bureau Domestic  X}%-Facilities Applications, Report No.D-819-A, Public Notice No. 55978 (Sep. 27, 1995);  Vh&-Hargray Tel. Co. (Application for 63.16 Approval for Cable Facilities to Serve Portions of  XQ'-Beaufort Co. & Jasper Co., S.C.), File No. WPC 7059, deemed approved, Federal":(\+))?'"  Xy-Communications Commission, Common Carrier Network Services Division, Public Notice No.  Xd-60214 (Oct. 16, 1995); Bluffton Tel. Co. (Application for 63.16 Approval for Cable  XO-Facilities to Serve Portions of Beaufort Co., S.C.), File No. WPC 7058, deemed approved  X:-Federal Communications Commission, Common Carrier Bureau Network Services Division,  X%-Public Notice No. 60214 (Oct.16, 1995); Kingsgate Tel. Co. (Application for 63.16  X-Approval for Cable Facilities to Serve Harris Co., Tex.), File No. WPC 7118, deemed  X-approved, Federal Communications Commission, Common Carrier Bureau Network Services  X-Division, Public Notice No. 60287 (Oct. 20, 1995).)"v0 \+))"Ԍ X-ԙxa98.` ` Other LECs are pursuing entry into markets for the delivery of video programming through investments in, and acquisitions of, wireless providers. CAI, in which, as noted above, Bell Atlantic and NYNEX have invested, has wireless systems located in both  X-Bell Atlantic's and NYNEX's local telephone service areas.*L +x X=-ԍ CAI's wireless systems located in Bell Atlantic's local telephone service area include Philadelphia, Washington, D.C., Pittsburgh, Baltimore and Norfolk/Virginia Beach. Bell Atlantic would be able to pass four million households in those markets through CAI's wireless systems. CAI's wireless systems located in NYNEX's local telephone service area include New York, Boston, Long Island, Buffalo, Providence, Albany and Syracuse. In addition, CAI has wireless systems in Cleveland, Hartford, Rochester, Stockton/Modesto and  X-Bakersfield. See CAI Wireless Systems, Inc., Prospectus 5 (Sept. 21, 1995). For more detail  X-on the CAINYNEX/Bell Atlantic transaction, see the discussion above. Supra sec. II.C.1.* Cross Country, which, as noted above, was recently acquired by PacBell, has wireless systems in PacBell's local telephone  X-service area.}+x X#-ԍ See Pacific Telesis Group, Pacific Telesis Becomes Nation's First Telco to Offer  X-Wireless Cable Television (News Release), July 25, 1995. See also supra sec. II.C.1; John M.  X-Higgins, PacTel Finds Video Plans Too Ambitious, Multichannel News, Oct. 2, 1995, at 1, 52. PacBell reportedly expects to reach five million homes with wireless cable by 1997.  X-Leslie Cauley, PacTel Puts Off InteractiveVideo Plans, Concentrating Instead on Wireless  X-Cable, Wall St. J., Sept. 28, 1995, at A3.} The extent to which these LEC's plans are intended to be a transitional means of entering the MVPD market pending development of a wireline distribution system, or are intended to be complementary to or a substitute for such entry, remains unclear.   X1-xb99.` ` LEC Entry into Video Programming. In addition to offering video transport services, LECs have also entered into a number of joint ventures to produce and package  X -video programming. As noted in the 1994 Report, several LECs had already entered into  X -ventures with programmers. -+x X$-ԍ 1994 Report, 9 FCC Rcd at 7498 107 n.305. In September 1993, U S West invested $2.5 billion in Time Warner Entertainment Company L.P. According to U S West, the alliance is to provide information services, telephone, and entertainment over Time  X'-Warner's cable systems in 29 markets outside of U S West's telephone service area. U S"t(\+))'"  Xy-West 1994 Annual Report, 10 (1994). In late 1993, NYNEX invested $1.2 billion in Viacom with the aim of jointly developing video on demand and interactive services. Jennifer L.  XM-Schenker, NYNEX Raised Profile, CMP, Mar. 20, 1995, at 2628." 18\+)) "Ԍ X-ԙxc100.` ` In October 1994, Bell Atlantic, NYNEX, and PacTel announced the formation of a joint venture, since named TeleTV, to provide interactive video networks. One part of the venture will produce content for the LEC's distribution facilities and the other will  X-develop technical systems.$ 8+x X -ԍ Bell Atlantic, Bell Atlantic, NYNEX, and Pacific Telesis Partner to Create Next Generation of Home Entertainment and Information Services; Creative Artists Agency Allied  Xx -with Telephone Companies (News Release) Oct. 31, 1994.$ In April 1995, Ameritech, BellSouth, and SBC announced an alliance with Disney Corporation to develop and package video programming and interactive  X-services. +x X-ԍ SBC Communications Inc., Disney, Ameritech, BellSouth and SBC Launch Home  X-Entertainment Partnership (News Release) April 18, 1995. On August 10, 1995, GTE joined this group. ] +x X-ԍ Ameritech Corp., GTE To Join Disney, Ameritech, BellSouth and SBC in Home  X-Entertainment Partnership (News Release) Aug. 10, 1995.   W_<x` `  3. Conclusions   X1-xd101.` ` When the 1994 Report was released, there had been no actual entry by LECs, beyond VDT trials, into multichannel video programming distribution markets in their local telephone service areas. However, large scale wirebased entry by LECs in the near term, primarily through the construction of VDT systems, was widely anticipated. As noted in the  X -1994 Report, if granted and constructed, the VDT applications pending at that time would have allowed service to approximately 8.5 million houses, which is nearly ten percent of the  X -nation's television households.X  +x XW-ԍ 1994 Report, 9 FCC Rcd at 7496  104.X  X}-xe102.` ` Since the 1994 Report, some LECs appear to be reassessing their options for entry into the MVPD marketplace within their local telephone service areas. While some LECs intend to pursue construction and operation of permanent VDT systems, other LECs are also considering wireless technology and stand alone cable systems. It appears that, in the aggregate, currently authorized VDT facilities of four LECs (Bell Atlantic, NYNEX, GTE, and PacBell) would allow service to approximately 2.5 million homes in eleven markets. However, considering all modes of entry into MVPD markets, LEC plans may have not declined in terms of markets entered and the number of homes passed. At least three LECs (PacBell, NYNEX and Bell Atlantic) appear to have increased their respective overall number of homes passed by adding wireless technologies to their entry plans. Other LECs (including U S West, SBC, Bell South, Ameritech and several smaller LECs) have entered, or are"2 \+))$" entering, MVPD markets as cable operators.  X-xf103.` ` Thus, an examination of LEC activity since the 1994 Report makes it clear that the state of LEC entry into the MVPD marketplace is continuing to evolve, both in terms of the mode and timing of entry. The pace of technological change may affect the speed of LEC entry into the MVPD marketplace, irrespective of which mode of entry the LEC chooses. Both U S West and Bell Atlantic cited the need to further evaluate new technologies as a  Xa-reason for asking the Commission to suspend review of certain Section 214 applications.I a+x X-ԍ See supra notes 240, 249.I GTE and Bell Atlantic acknowledge in their comments a reluctance to commit to a technology  X3-that may become obsolete in the near future.`3{+x X_ -ԍ GTE Comments at 910; Bell Atlantic Comments at 1314.` Moreover, as was the case in 1994, unresolved issues remain that affect the ability of LECs to offer delivered video  X -programming:[ ,+x X-ԍ 1994 Report, 9 FCC Rcd at 750405  120.[ (1)the Commission's regulatory framework for VDT is still developing;  X -telecommunications reform legislation is still pending before Congress; +x X~-ԍ See H.R. 1555, 104th Cong., 1st Sess.  201 (1995); S. 652, 104th Cong., 1st Sess. 202 (1995). and (2)the Supreme Court is expected to decide the constitutionality of the statutory cabletelco crossownership  X -ban sometime next year. {+x X-ԍ United States v. Chesapeake & Potomac Tel. Co., No. 941893 (filed Jun. 26, 1995).  X-x E.` ` Satellite Master Antenna Television Systems  Xd-xg104.` ` SMATV systems are MVPDs that serve residential, multiple dwelling units ("MDUs"), and various other buildings and complexes. A SMATV system generally offers the same type of programming as a cable system, and the operation of a SMATV system largely resembles that of a cable system one or more satellite dishes and antennas receive the programming signals; equipment combines, amplifies and processes the signals; and wires distribute the programming to individual dwelling units. By statute, however, a SMATV  X-system is defined by way of an exception to the definition of a cable system.`. +x X!-ԍ Communications Act  602(7), 47 U.S.C.  522(7).` A system is a cable system if "closed transmission paths" (i.e., wires) are used: (1) to serve buildings that are not commonly owned, controlled, or managed, or (2) to cross a public rightofway. To qualify as a SMATV system, and not be subject to cable system regulation, neither of the two  X~-statutorily defined operational elements for a cable system may exist within the system.~ +x X'-ԍ See Implementation of Sections 11 & 13 of the 1992 Cable Act (Horizontal & Vertical"'\+))'"  Xy-Ownership Limits, CrossOwnership Limitations and AntiTrafficking Provisions), Memorandum Opinion & Order on Reconsideration of the First Report & Order, MM Docket  XM-No. 92264, 10 FCC Rcd 4654, 4659 12 (1995) ("SMATVCable CrossOwnership  X8-Recon.")."~3#\+))P"Ԍ X-ԙxh105.` ` A typical SMATV system is an unfranchised, stand alone system that serves a single building or complex, or a small number of buildings or complexes in relatively close proximity to each other. For this reason, SMATV systems are sometimes referred to as "private cable systems." Recently, SMATV operators have begun using 18GHz microwave  X-facilities to link MDUs that are separately owned or separated by public rightsofway.#+x Xx -ԍ See Amendment of Part 94 of the Commission's Rules to Permit Private Video  Xc -Distribution Systems of Video Entertainment Access to the 18 GHz Band, Report & Order, PR Docket No. 905, 6FCC Rcd 1270 (1991). By using microwave equipment instead of coaxial cable to link their facilities, SMATV operators avoid being regulated as cable operators. This permits them to realize efficiencies associated with using some of the same headend equipment to serve more subscribers.  X1- xi106.` ` Relying upon industry sources, the 1994 Report concluded that there were approximately 3000 to 4000 SMATV systems operating nationwide, and approximately one  X -million SMATV subscribers as of August 15, 1994.[ +x X`-ԍ 1994 Report, 9 FCC Rcd at 748889  92. [ Recently, however, some industry sources have reassessed estimates of SMATV subscribership over the past few years and concluded that the estimates should be revised downward. Thus, rather than the estimated one  X -million subscribers in 1994, and 1.09 million this year, ] +x X-ԍ Paul Kagan Associates, Inc., Marketing New Media, Cable World, Feb. 20, 1995. See  X-also MPAA Comments at 67 (quoting Paul Kagan article); HBO Reply Comments at 2. the current estimates are 850,000  X -SMATV subscribers in 1994, and 950,000 in 1995. +x XU-ԍ Telephone conversation on October 19, 1995 between Commission staff and John  X>-Mansell, Senior Research Analyst with Paul Kagan Associates, Inc.  See also infra AppendixG, Table 1. Both sets of estimates, however, indicate continued SMATV subscriber growth.  Xd-xj107.` ` One analyst representing the industry suggests that particular markets, such as those in Dallas, Texas, Phoenix, Arizona and Florida, are experiencing SMATV system growth, and that this growth has spurred interest by firms such as General Electric Capital,  X-Videotron, and MCI in investing in the SMATV market.+x XP&-ԍ David Dea, The Race is On!, Private Cable & Wireless Cable, Aug. 1995, at 1517. SMATV system growth may also be due in part to the fact that SMATV operators may be able to deliver video programming"43\+))"  X-for less cost than cable operators.O+x Xy-ԍ See Dea, supra, at 1517.O Liberty Cable, for example, states that its video services are attractive to subscribers because it does not charge for additional outlets and its services  X-are offered at half the price charged by the incumbent cable operator.H{+x X-ԍ Liberty Cable Comments at 45.H  X-xk108.` ` A few current examples of SMATV systems follow. Interactive Cable Systems, Inc. provides SMATV service to 700 properties, passes 230,000 households and  Xv-serves 80,000 retail subscribers.v,+x XS -ԍ Paul Kagan Associates, Inc., Leading SMATV Operators, Private Cable Investor,  X> -Dec.31, 1994, at 5.  See also infra Appendix F. OpTel, Inc. ("OpTel") provides SMATV service to more than 350 properties, passes more than 110,000 households, and serves more than 50,000 subscribers in Los Angeles, San Diego, Houston, Phoenix and the DallasFt. Worth  X1-metropolitan areas.31+x X-ԍ Id.3 Liberty Cable serves approximately 28,000 subscribers at approximately  X -150 sites in the New York metropolitan area. }+x XH-ԍ Liberty Cable Comments at 2. Liberty Cable also states that it "provides service to a  X1-handful of MDUs located in Northern New Jersey." Liberty Cable Comments at 4 n.9. See  X-also Liberty Cable Co., Inc. v. City of New York, 60 F.3d 961 (2nd Cir. 1995). Kagan estimated that Liberty Cable served approximately 175 properties and passed approximately  X-30,000 units in December 1994. Infra Appendix F. Cable Plus has approximately 140 SMATV systems in the western United States, passing about 45,500 homes and serving about 18,000  X -retail subscribers. +x Xu-ԍ Paul Kagan Associates, Inc., Leading SMATV Operators, Private Cable Investor,  X`-Dec.31, 1994, at 5. See also infra Appendix F.  X -xl109.` ` The Motion Picture Association of America, Inc. ("MPAA") states that the Commission's decision this year to permit cable operators to acquire SMATV systems within their existing service territories removed a significant barrier to entry into the SMATV  Xy-business.?yv+x X!-ԍ MPAA Comments at 67.? Commenters in that proceeding claimed that potential SMATV operators were hesitant to enter the SMATV business because they did not have the ability to recoup sunk costs by selling their SMATV systems to locallyfranchised cable operators when that operator  X4-was the only potential buyer.G 4'+x X &-ԍ Id. (footnote omitted).G In eliminating the prohibition against cable operators buying SMATV systems operating in their existing franchise areas, the Commission noted that one of the benefits of this decision might be to provide an exit strategy for SMATV operators;"5 \+))F"  X-however, the economic data supporting this contention was inconclusive.o!+x Xy-ԍ  SMATVCable CrossOwnership Recon., 10 FCC Rcd at 4666  31.o  X-xm110.` ` SMATV operators raise concerns about cable operators' use of exclusive contracts and certain zoning restrictions. Liberty Cable and OpTel argue that cable operators are abusing their market power by coercing MDU owners into perpetual exclusive contracts  X-that foreclose competition from new market entrants."{+x X-ԍ Liberty Cable Comments at 22; OpTel Comments at 3; see also Bell Atlantic Comments at11-12. WCAI argues that cable operators have begun to prewire residential units for cable service at no charge to the developer in exchange for deed covenants and other restrictions forever barring the homeowner from  XH-installing rooftop antennas.A#H+x X-ԍ WCAI Comments at 2728.A These commenters urge Congress or the Commission to take action to curb these alleged abuses.  X -xn111.` ` As for the future, SMATV operators, like other MVPDs, are looking to  X -increase their channel capacity though digital technology.$ +x Xe-ԍ NCTA Comments at 2021. See also C. Thomas Veilleux, Home Furnishings Newspaper (HFN), Mar. 20, 1995, at 2 (reporting that Thomson Consumer Electronics has announced that it is testing a version of the DSS system for use in MDUs). At the same time, SMATV operators are trying to keep costs down by connecting systems through 18 GHz microwave  X -facilities.% M +x X-ԍ Paul Kagan Associates, Resurgence to 18 Ghz Microwave Technology, Private Cable Investor, Sept. 30, 1995, at 34. SMATV operators are also penetrating new markets such as colleges and  X -universities.& +x XA-ԍ Paul Kagan Associates, Inc., Private Cable Graduates To A New Campus, Private Cable Investor, June 30, 1995, at4. In addition, SMATV operators are trying to differentiate themselves from cable operators by offering security services and intraMDU communications (or private  Xy-telephone) services together with multichannel video programming services.'y+x X -ԍ Telephone conversation on January 10, 1994 between Commission staff and Deborah Costlow, Esq., Winston & Strawn, who represents several SMATV and MMDS system operators.   XK- xF.` ` Broadcast Television Service  X4-  X- xo112.` ` In assessing the competitive position of broadcast television, it is important to distinguish between broadcast television as a source of programming that is an input to cable service and broadcast television as a transmission medium. As a source of programming,"6'\+)) " broadcast television continues to be the most watched source of video programming. Between  X-1984 and 1994, the number of broadcast signals available to the public increased by 32%. (+x Xb-ԍ R.R. Bowker, A Reed Ref. Pub. Co., Broadcasting & Cable Yearbook 1994, C218. In 1984, there were 1,180 commercial and noncommercial television stations, and in 1994,  X6-there were 1,520. Federal Communications Commission, Broadcast Station Totals as of  X!-September, 1984, FCC News Release (Oct.12, 1984). Federal Communications Commission,  X -Broadcast Stations Totals as of September 30, 1994, FCC News Release (Oct. 12, 1994).  In the last year, the number of operating commercial and noncommercial television stations  X-increased from 1,518 to 1,542.)%+x X -ԍ Federal Comm. Comm'n, Broadcast Station Totals as of August, 1995, FCC News Release (Sept. 8, 1995). In addition, two new networks, United Paramount's UPN and Warner Brothers' WB, commenced program distribution in the 199495 television season.  Xv-xp113.` ` In the 199495 television season, the four major networks (i.e., ABC, CBS, Fox, and NBC) accounted for a combined 66% share of prime time viewing among all  XH-television households; UPN and WB achieved a combined 9% share of prime time viewing.*H+x X-ԍ People's Choice, Broadcasting & Cable, Sept. 25, 1995, at 34. These figures are provided by Nielsen Media Research. The most recent data available for households subscribing to cable service indicates that, even in cable homes, programming originated on local broadcast television stations accounted for a combined 64% share of all day viewing in the 199394 television season, while nonpremium  X -cable networks and pay cable services achieved a combined 45% share of all day viewing.:+ ] +x X-ԍ National Cable Television Association, Viewing Shares Broadcast Years 1983/84 X-1993/94, Cable Television Developments, Spring 1995, at 5 (citing A.C. Nielsen Co. statistics). Reported audience shares exceed 100% due to multiple set viewing.: It appears that broadcast television service continues to satisfy the demand for video programming for a significant number of viewers. Indeed, the importance of broadcast television as a source of programming is reflected in the fact that the inability of certain  X-distribution technologies (e.g., DBS) to carry local stations may affect their competitiveness.  Xy-  Xb-#Xj\  P6G;ynXP#xq114.` ` Moreover, broadcasting continues to be a profitable business, as total  XK-advertising revenues reached $13.5 billion in the half of 1995.8,K+x X!-ԍ Steve McClellan, Broadcast TV Ads Top $13.5 Billion in 1st Half, Broadcasting & Cable, Sept. 4, 1995, at 12. The Television Bureau of Advertising supplied this data, which is based on information gathered from the Competitive Media Reporting's MediaWatch Service.8 Advertising revenues for the four major networks alone reached $6.2 billion in the first half of 1995, an increase of 3%  X-over the first half of 1994.m-R+x X (-ԍ Id.  This figure represents sales for ABC, CBS, Fox, and NBC.m In 1994, advertising revenues for the four major networks"7-\+)) " reached approximately $10.9 billion, while cable programming networks received an estimated  X-$2.3 billion in advertising revenues..+x Xb-ԍ See Trends in Advertising Volume, A TVB Research Report (Television Bureau of  XM-Advertising), May 1995, at "U.S. Advertising Volume" (citing McCannErickson, Inc. statistics). McCannErickson's worldwide United States advertising figures represent all expenditures by advertisers national, local, private individuals, etc., advertising in the United States.  X-xr115.` ` On the other hand, as 96% of the nation's television households are currently  X-passed by cable and basic cable subscribership continues to escalate,/!+x Xv -ԍ Of the 91.6 million homes currently passed by cable, 59.7 million subscribed to basic  X_ -cable services. Supra sec. II.A. the use of the broadcast spectrum as a transmission medium for direct video program delivery has clearly declined. Approximately two thirds of the nation's 95.9 million television households watch local broadcast channels through the facilities of an MVPD, and only one third of the  XH-households rely on overtheair transmissions.L0H+x X-ԍ Infra Appendix G, Table 1. L Accordingly, we continue to believe, as in  X1-the 1994 Report, that broadcast television as a transmission medium is insufficient to constrain  X -cable market power.Y1 p +x X=-ԍ 1994 Report, 9 FCC Rcd at 7494  101. Y  X -xs116. ` ` Several recent developments and technological innovations have the potential to affect the constraining effect of broadcast television as a transmission medium on cable operator conduct. First, the Commission has undertaken a series of proceedings aimed at removing existing regulations that may restrain more efficient and effective use of broadcasting as a video programming and transmission medium, which may prevent a rational,  X{-more efficient organization of the broadcast industry.2 {# +x XO-ԍ E.g., Review of the Prime Time Access Rule, Report & Order, MM Docket  X:-No.94-123, __ FCC Rcd __, FCC 95314 (July 31, 1995), summarized at 60 Fed. Reg. 44773  X%-(Aug. 29, 1995); Review of the Syndication & Financial Interest Rules, Report & Order, MM  X -Docket No.9539, __ FCC Rcd __, FCC 95382 (Sep. 6, 1995), summarized at 60 Fed. Reg.  X -48907 (Sep. 21, 1995); Amendment of Part 73 of the Commission's Rules Concerning the  X!-Filing of Television Network Affiliation Contracts, Notice of Proposed Rulemaking, MM  X"-Docket No.9540, 10 FCC Rcd 5677 (1995); Review of the Commission's Regulations  X#-Governing Broadcast Television Advertising, Notice of Proposed Rulemaking, MM Docket  X$-No.9590, __FCC Rcd __, FCC 95226 (June 14, 1995), summarized at 60 Fed. Reg. 34959  X%-(July 5, 1995); Review of the Commission's Regulations Governing Television Broadcasting,  X}&-Further Notice of Proposed Rulemaking, MM Docket 91221, 10 FCC Rcd 3524 (1995). Second, advances in broadcast technology, such as digital compression and advanced television, could permit multiple programs to be broadcast over a single channel, thereby expanding the number of broadcast"M82\+))I" video signals available in a particular market and strengthening broadcast television as a competitor to cable. Advanced television could also provide a higher quality signal and improve reception in those areas where broadcast television is otherwise unavailable. Depending upon Commission regulatory approval, digital technology could allow each broadcast licensee to send several streams of video programming simultaneously, as well as a  X-mixture of video and nonvideo services.3+x X-ԍ See Advanced Television Systems and Their Impact Upon the Existing Television  X-Broadcast Service, Fourth Further Notice of Proposed Rulemaking and Third Notice of  X-Inquiry, MM Docket No.87268, __ FCC Rcd __, FCC 95315 (Aug. 9, 1995), summarized  X -at 60 Fed. Reg. 42130 (Aug.15, 1995) ("Fourth Advanced Television NPRM"). This technology could also enable the broadcaster  Xv-to send a mixture of subscription and nonsubscription services.34v<+x Xc -ԍ Id.3 The spectrum needed for the transition to digital television could be obtained from the spectrum currently allocated to  XH-broadcasting.5H+x X-ԍ See Advanced Television Systems & Their Impact Upon the Existing Television  X-Broadcast Service, Tentative Decision & Further Notice of Inquiry, MM Docket No.87268, 3 FCC Rcd 6520 (1988). In order to facilitate this transition, the Commission is considering the  X1-appropriate regulatory framework.l61v +x XX-ԍ Fourth Advanced Television NPRM, __ FCC Rcd __, FCC 95315. l However, because advanced television is in its initial planning phase, it is premature to determine its competitive effect in the cable industry. x  X - x t117.` ` Low Power Television. In the 1994 Report, the Commission noted that low power television ("LPTV") stations could offer multichannel video programming services on a  X -subscription basis.7 ) +x X-ԍ 1994 Report, 9 FCC Rcd at 7507  127. See also 47 C.F.R.  73.642(a)(2). At that time, the Commission was aware of at least one LPTV station  X -providing multichannel service in an uncabled rural area of Minnesota.X8 +x X6-ԍ 1994 Report, 9 FCC Rcd at 7508  129.X Construction permits were also issued to a single applicant for another possible LPTV site in Selma,  X{-Alabama.39{+x X -ԍ  Id.3 On the other hand, the allocation of spectrum use for new LPTV stations was frozen for service within 100 miles of the thirtysix largest United States markets in order to  XM-preserve spectrum availability for the implementation of advanced television systems.o:MB+x X@$-ԍ Notice of Limited Low Power Television/Television Translator Filing Window from  X+%-April 1, 1994 through April 15, 1995, Public Notice (MMB Mar. 3, 1994). We note that the application freeze placed on new LPTV stations within 100 miles of the thirtysix largest United States cities remains in effect.o At"M9:\+))"  X-present, we are unaware of any new LPTV stations providing multichannel services,;+x Xy-ԍ We note that Segue Services, a low power television engineering and consulting firm, is currently installing and testing equipment for a 17 channel LPTV system, which will  XK-provide subscription type service in Nebraska. See Segue Installs LPTV System In Nebraska, Private Cable & Wireless Cable, Aug. 1995, at 54. and thus, they do not seem to have a significant competitive impact on the market.  X-  X- xG.` ` Other Actual and Potential Distributors  X-xu118.` ` In this section, we address several other actual or potential distributors of video  Xv-programming and distribution technologies that may affect competition. xx   WH<x` ` 1.  Electric Utilities x  X -xv119.` ` Electric utility companies may be a potential source for the delivery of video  X -programming.< 6+x X-ԍ Electric utilities are defined as investorowned utilities, municipal utility systems, and  X-exempt public utility holding companies.  See 15 U.S.C. 79c. The entry of electric utilities into the video programming market is currently  X -limited by law.== +x Xo-ԍ 15 U.S.C. 79i.= However, if Section 205 of S.652, the telecommunications bill passed by the Senate this year, is enacted as part of a new telecommunications law, the number of  X -electric utilities permitted to provide video service could increase substantially.Y> +x X-ԍ S. 652, 104th Cong., 1st Sess. 205 (1995).Y That provision would permit registered public utility holding companies to diversify into  X-telecommunications and other industries.   Xb-xw120.` ` An electric utility could either provide video service either directly to consumers or serve as a "pipeline" by offering its facilities to video program providers. Such companies already have incurred substantial costs to deploy a network that reaches nearly  X-every household in the countryd?4 +x X -ԍ NOI, 10 FCC Rcd at 7817  62; MPAA Comments at 8.d and, according to one commenter, they have the financial resources and existing rightsofway (e.g., pole attachments) needed to enter the video  X-marketplace.Y@ +x X#-ԍ Next Level Communications Reply Comments at 10.Y Most major utilities already have fiber optic lines for controlling power distribution, and need only additional coaxial cable or fiber to the home to offer competitive  X-wideband telecommunications services.vA+x X '-ԍ Utilities Eye Home Mkt., Electronic Buyers News, Feb. 27, 1995, at 20.v Electric utilities have been experimenting with advanced communications technologies, including demandside management programs that use":KA\+))" twoway communications with customers and fiber optic cable that can carry video  X-programming.WB+x Xb-ԍ MPAA Comments at 89. For example, Detroit Edison reportedly is planning to add telephone service and interactive video over the same equipment it intends to use for  X4-interactive control and monitoring of electricity in the home. Utilities Eye Home Mkt., supra, at 20.W As discussed above, some municipal electric utility companies are actively  X-engaged in or contemplating overbuilding,C6+x X-ԍ See supra sec. II.A.  See also 1994 Report, 9 FCC Rcd at 750809  13133. and have formed joint ventures with cable and  X-telephone companies to provide video service.D+x XU -ԍ See, e.g., Industry Giants Push Into Energy Management Market, Comm. Daily, Feb. 28, 1995, at 8. Over the last year, additional plans have been announced by a few electric companies intending to enter the market for  X-communications services.E +x X-ԍ Utilities Eye Home Mkt., supra, at 20; Daniel J. Murphy, The Roadblocks to  X-Competition, Deregulating Power Monopolies a Slow Process, Investor's Bus. Daily, May 11, 1995, at 1. As stated previously, there is some interest by electric utilities in the provision of video service, although there is no evidence of the extent of their potential entry at this time.   W1<x` ` 2. Video Cassette Recorders  X -  X -xx121.` ` Video cassette recorders ("VCRs") permit viewers to watch television programs at times other than their scheduled times, and allow viewers to view prerecorded tapes. Approximately 85% of all homes own at least one VCR, about the same share of households  X -as a year ago.TF +x X{-ԍ 1994 Report, 9 FCC Rcd at 7510  135; HBO Comments at 20. It is reported that there were approximately 115 million VCRs in use in 1994, an indication that many  XO-households have multiple VCRs. Warren Publishing, Inc., Television & Cable Factbook I3 (1995).T VCRs are used primarily for viewing prerecorded video cassettes.>G |+x X-ԍ HBO Comments at 20. > Although VCRs are not MVPDs, the Commission has recognized that VCRs have at least some effect on cable operator conduct. Previously, the Commission determined that VCRs are best considered competitors to premium and payperview services provided by cable  Xb-operators because both offer movies without commercial interruptions.Hb-+x X@%-ԍ  See Florence Setzer & Jonathan Levy, Broadcast Television in a Multichannel  X+&-Marketplace 108 (Federal Communications Commission, Office of Plans and Policy, OPP Working Paper26, June 1991).  The price charged by video stores for movie rentals appears to have a constraining effect on the charge for pay"K;H\+))v"ԫ X-perview movies from cable operators.\I+x Xy-ԍ Veronis, Suhler & Assocs., supra, at 16667.\ According to industry analysts, consumers are willing to pay a premium for the convenience of payperview service, but the differential  X-between home video rental and payperview prices cannot be too large.;J{+x X-ԍ Id. at 166.; The average payperview movie cost $4.25 in 1994, somewhat higher than the average cost of renting a movie  X-from a video store.=K.+x X -ԍ  Id. at 167. = Currently, the average rental fee for all movies is $2.47 and the average for new movies, most comparable to the offerings of the payperview services,  Xv-is$2.70.MLv+x X -ԍ Video Software Dealers Association.M  XH-xy122.` ` Digital video discs ("DVDs") and digital VCRs are expected to be available by 1996. DVDs feature sharper digital pictures, a vast capacity for audio and data storage, and greater convenience and durability than videotape, although they cannot be used for home recording. Digital VCR tapes are expected to have more than two times the recording capacity of normal tapes. It is predicted that the availability of this technology will enhance competition as consumers will have access to programming not available overtheair or  X -through traditional cable service.=M +x X-ԍ HBO Comments at 21.= However, as with the introduction of conventional VCRs, these new home video technologies may not materially penetrate the market until their prices  X-drop from the expected initial level of $1,000 to approximately $500.NC +x X-ԍ Veronis, Suhler & Assocs., supra, at 181; Lawrence B. Johnson, Videotapes's Best  Xo-Years May Lie in the Future, New York Times, Aug. 20, 1995, Section 2, at 21. On this basis, we expect that VCRs will continue to have some constraining effect for some consumers on the payperview and premium movie services offered by cable systems, even though VCRs cannot provide the full range of services offered by cable systems generally.  W<x` ` 3. Interactive Video and Data Services  X-  X-xz123.` ` The interactive video and data service ("IVDS") is a pointtomultipoint, multipointtopoint, short distance communications service in which licensees may provide information, or services to individual subscribers at fixed locations within a service area, and  X-subscribers may provide responses.DO +x X<%-ԍ 47 C.F.R.  95.803(a).D This radio based interactive service is available for a variety of public uses that may be delivered by, and coordinated with, broadcast television,"< O\+))"  X-cable television, MMDS, DBS, or any other future television delivery technology.P+x Xy-ԍ Amendment of Part 0,1,2, & 95 of the Commission's Rules to Provide Interactive  Xd-Video & Data Services, Report & Order, GEN Docket No. 912, 7 FCC Rcd 1630 (1992). By itself, however, the service is not capable of delivering voice or fullmotion video. Among the types of services that IVDS licensees may offer, in conjunction with video or data  X-delivery systems, are polls, educational classes, home banking, and home shopping.@Qf+x X-ԍ 47 C.F.R.  95.805.@ The Commission is also considering a proposal to allow IVDS licensees to provide ancillary  X-mobile service to subscribers within their service area.rR+x XU -ԍ Amendment of Part 95 of the Commission's Rules to Allow Interactive Video & Data  X@ -Service Licensees to Provide Service to Subscribers, Notice of Proposed Rule Making, WT  X+ -Docket No. 9547, __ FCC Rcd __, FCC 95158 (May 5, 1995), summarized at 60 Fed. Reg. 25193 (May 11, 1995).r  X_-x{124.` ` The Commission awarded 18 IVDS licenses by a lottery held September 15, 1993. Pursuant to new radio spectrum auction authority, the Commission auctioned an  X1-additional 594 licenses on July 28 and 29, 1994.@S1 +x Xk-ԍ 47 U.S.C.  309(j).@ Each license permits service within a specified service area, which is equivalent to a cellular radio service area. Under the rules, an IVDS licensee must make service available within one year to at least ten percent of the population or area that it is licensed to serve. This condition has been waived for 17 of the 18 firms awarded licenses through the lottery process, and the Commission is currently  X -considering a request by a number of auction winners that the requirement be eliminated./T : +x X-ԍ Amendment of Part 95 of the Commission's Rules to Modify Construction  X-Requirements for Interactive Video and Data (IVDS) Licenses, Notice of Proposed Rule  X-Making, WT Docket No. 95131, 10 FCC Rcd 8700 (1995)./ To date, only a few of the licensees have met the ten percent "build out" requirement. Thus,  X-a t this time, it appears that IVDS services are not available to sufficient numbers of consumers to affect the video marketplace.  WK<x` `  4.  Internet x  X-x|125.` ` The Internet is a worldwide network of computer networks operated by governmental, educational, and commercial entities, including entertainment firms. The interconnected computer networks use a common communications protocol, TCP/IP (Transmission Control Protocol/Internet Protocol), which is essentially a common language for  X-interoperation of computer networks that might use a variety of local protocols.U+x X3'-ԍxJeffrey K. MacKieMason & Hal R. Varian, Economic FAQs About the Internet, Internet Address: http://gopher.econ.lsa.umich.edu/FAQs/FAQs.html (June1995)."=]U\+))"Ԍ X-ԙx}126.` ` The portion of the Internet in the United States generally has three levels-- local area networks, regional (midlevel) networks, and backbones. Until recently, NSFnet was the primary backbone for this portion of the Internet, but on April 30, 1995, NSFnet ceased operation and traffic in the United States is now carried on several privately operated backbones. These backbones generally use fiber optic facilities and, by the summer of 1995,  X-there were at least fourteen national and superregional highspeed TCP/IP networks.3V+x X-ԍ Id.3 MCI, which assisted in operating the original NSFnet, is one of the largest carriers of Internet traffic in this country, but the market includes firms such as Sprint, Alternet, PSInet and  XH-UUNet.3WH{+x Xt -ԍ Id.3  X -x~127.` ` Currently, the main categories of Internet activities are: (1) electronic mail; (2) interactive "chats"; (3) information retrieval; (4) remote program execution; and (5) user  X -groups.X .+x X-ԍ See, e.g., John R. Levine & Carol Baroudi, Internet for Dummies 711 (1993); Mark  X-Gibbs & Richard Smith, Navigating the Internet 15, 1314 (1993). As bandwidth increases, these networks may increasingly distribute more complex data types, such as voice and video, as well as more traditional data. The functionalities of these networks can be expected to become increasingly varied and to include home shopping  X -and banking, videoondemand, and video conferencing.Y +x X$-ԍ Price Waterhouse, Technology Forecast: Entertainment, Media, and Communications 235, 248 (1995). Currently, Internet users generally rely upon existing communications facilities to access and use the network, such as standard telephone lines, private lines, integrated services digital network ("ISDN") lines, wireless facilities, or coaxial cable. As a result, the Internet is not a separate local distribution network except for extremely high volume users who access the network via private lines. Cable  X4-access to the Internet currently is being tested,EZ4h +x XM-ԍ  See, e.g., Mark Berniker, Microsoft Sees `Broadcast PC' Evolving Soon, Broadcasting  X8-& Cable, Sept. 8, 1995, at 60; Mark Berniker, TCI's @Home Teams with Netscape for  X#-Internet Access, Broadcasting & Cable, Oct. 2, 1995, at 56.E and through the Digital AudioVisual Council ("DAVIC") the cable industry is working to develop a standard for cable modem and  X-Internet access technology.[ +x X"-ԍ See, e.g., Interoperability, Planning for Next Year Dominates DAVIC Meetings in  X#-L.A., Comm. Daily, Sept. 1995, at 2; Toby Scot, DAVIC Releases First Standards, Broadcasting & Cable, Oct. 2, at5354. Server software that will enable the delivery of live, realtime  X-audio, and video over the Internet is becoming available.y\x+x X'-ԍ Richard Karpinski, Coming: Web TV, Interactive Age, July 31, 1995, at 1.y Consumer and business demand for the commercial, academic, governmental, and entertainment offerings is likely to grow as">+\\+))"  X-the networks connected to the Internet and their capabilities increase.P]+x Xy-ԍ Price Waterhouse, supra, at 235.P Being an open network, the Internet has the potential to affect the video marketplace, perhaps significantly.  X-However, it appears too early to assess its impact.h   X- III.xMARKET STRUCTURE CONDITIONS AFFECTING COMPETITION  Xv- xA.` ` Horizontal Issues in Markets for the Delivery of Video Programming  X_-  XH-x128.` ` In this section of the 1995 Report, we examine several issues concerning rivalry in markets for the delivery of video programming. First, we discuss the market definition that  X -we used in the 1994 Report, and have used again this year. We also consider the extent of concentration among MVPDs in local markets, and the nature of competition among MVPDs. Finally, we document increasing consolidation nationally and regionally among cable MSOs (and other MVPDs) over the past year, and the potential effects of such increased consolidation on rivalry in local markets for the delivery of video programming.  W<x` `  1. Market Definition (#  Xf-x129.` ` To analyze rivalry among providers of video programming services, it is  XO-necessary to define the relevant product and geographic markets. In the NOI, we invited comment on our use last year of the 1992 Cable Act's definition of "multichannel video  X#-programming service" as a starting point for the definition of the relevant product.W^#{+x XO-ԍ 1994 Report, 9 FCC Rcd at 7468  49.W Although few commenters directly addressed this issue, most commenters generally relied on  X-the same definition of the relevant product market.m_.+x X-ԍ NCTA Comments at 5; Time Warner Comments at 5; HBO Comments at 12.m Examples of comments concerning the appropriate product definition include DIRECTV's approval of the Commission's inclusion of  X-all MVPDs in the relevant product market,F`+x XW-ԍ DIRECTV Reply Comments at 5.F and HBO's assertion that subscribers can create their own service comparable to cable by combining overtheair broadcast service with service from a noncable MVPD and "premium" programming obtained from a noncable  X-MVPD or a VCR.@a+x X"-ԍ HBO Comments at 2122.@ Accordingly, we reaffirm here our determination to use definition of an MVPD in the 1992 Cable Act as a starting point, and have considered all reasonable substitutes for the video programming services generally offered by cable systems and other MVPDs.  X-x130.` ` We also sought comment in the NOI on the relevant geographic market the area in which buyers can obtain alternative sources of supply, or in which there are sellers"?A a\+))"  X-who act to restrain the prices charged to those buyers.Tb+x Xy-ԍ United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 359 (1963); Common Carrier  Xd-Services, 95 F.C.C. 2d 554, 573 (1983), rev'd on other grounds, AT&T v. FCC, 978 F.2d 727  XO-(D.C. Cir. 1992), cert. denied, 113 S. Ct. 3020 (1993).T A buyer of multichannel video service may select only from among the firms distributing multichannel video programming in a particular area the subscriber cannot turn to other providers whose services are not available in an area. Accordingly, commenters generally agree that the relevant geographic  X-market is the local franchise area,ZcQ+x X -ԍ  See, e.g., Time Warner Comments at 1315.Z and we continue to believe that the relevant geographic market in which MVPDs compete is essentially local in nature.  W_<x` `  2. Concentration in Local Markets (#  X1-x131.` ` A firm with market power can maintain prices above the level that would prevail if the market were competitive, and the exercise of market power tends to produce a  X -wealth transfer from buyers to sellers.d +x X-ԍxUnited States Department of Justice & Federal Trade Commission, Merger Guidelines,  X- 1.41, 4 Trade Reg. Rep. (CCH)  13,104, at 20,5693 (1992) ("Merger Guidelines"). Sellers with market power can lessen competition in such areas as product quality, innovation and service. Market power among buyers of a product, referred to as monopsony power, can depress the price of the product below competitive levels, thereby reducing output below the optimal level. When potential entrants are unlikely to be able to respond quickly to an exercise of market power, the degree of concentration among competitors, which is referred to as horizontal concentration, can have a significant effect on rivalry and market performance. Market concentration reflects the number of firms a market and their respective market shares, and is particularly relevant  XK-where, as here, a market is characterized by substantial barriers that delay competitive entry.{eK+x X-ԍ E.g. infra. sec. IV.A.3; 1994 Report, 9 FCC Rcd at 7623 App. H.{ In general, as markets become increasingly concentrated, firms have increased opportunities to coordinate their conduct tacitly or overtly, limit competition, and increase their rates of  X-return.6fU +x X -ԍ E.g., Merger Guidelines 2, 4 Trade Reg. Rep. (CCH) 13,104, at 20,5736 to  X -20,573-8; Revision of Rules and Policies for the Direct Broadcast Satellite Service, IB Docket No. 95168, __ FCC Rcd ____, FCC 95443 (Oct. 30, 1995).6  X-x132.` ` Last year, we found that local markets for providing multichannel video programming were highly concentrated, and that most consumers could not choose the  X-services of an MVPD other than the local cable operator.Xg +x X7'-ԍ 1994 Report, 9 FCC Rcd at 7541  201.X Although providers of DBS and MMDS services have increased their subscribership since last year, as shown in Table 1 of"@g\+))~" AppendixG, the combined national market share of noncable MVPDs at the end of September 1995 was slightly less than nine percent. Thus, on average, we expect that most local markets as measured by current subscribership continue to remain highly concentrated. If we used total number of subscribers as a measure of market share, we could calculate the HerfindahlHirschman Index ("HHI") for the market, which is a standard measure of horizontal concentration in an industry that is calculated by summing the squares of the firms'  Xv-percentage shares of the market.hv+x X-ԍ See, e.g., Merger Guidelines,  1.5, 4 Trade Reg. Rep. (CCH)  13,104, at 20,5735. The United States Department of Justice and the Federal Trade Commission generally regard a market with an HHI below 1000 as "unconcentrated," a market between 10001800 as "moderately concentrated," and a market above 1800 as "highly  X1-concentrated."|i1{+x X] -ԍ Id. 1.51, 4 Trade Reg Rep. (CCH) 13,104, at 20,5735 to 20,5736. | Using total numbers of subscribers as a measure of market share, the average HHI in local markets for video programming would be over 8650, or more than four times as high as the threshold at which a market may be considered "highly concentrated."   X -x133.` ` An alternative way to view MVPD concentration may be to assign equal market shares to competing MVPDs with similar capacities for serving subscribers. Such an approach is consistent with the approach taken by the United States Department of Justice and  X-Federal Trade Commission.|j.+x Xo-ԍ Id. 1.41, 4 Trade Reg. Rep. (CCH) 13,104, at 20,5734 to20,573-5.| Assigning equal market shares to firms that have similar abilities to serve new customers may be appropriate because, to the extent competing MVPDs have similar levels of capacity deployed in a market, they may have an equal ability to serve customers. Under such an approach, a local market served by five video distributors of roughly comparable capacity would have an HHI above 2000, and thus would be considered  X-highly concentrated.k+x X-ԍ With five equal sized firms, each would have a market share of 20%, which when squared equals 400. The HHI would therefore equal 5 x 400, or 2000. Only when a sixth MVPD is providing service in a particular local market would the HHI for that market fall below the highly concentrated level, to an HHI of  X-1673.l{+x X-ԍ With six comparable firms, each would have a market share of 16.6%, which when squared equals 277.7. The HHI would therefore equal 6 x 277.7, or 1666. Because less concentrated markets are generally less susceptible to impaired market performance and are, therefore, more likely to benefit consumers, the Commission will continue its efforts to eliminate barriers that delay entry by competitive firms, although issues associated with such conentration are likely to remain a concern for at least several years.   W|<x` `  3. Nature of Competition in Local Markets (#  XN-x134.` ` The extent to which concentration in local markets for the delivery of video programming affects consumer welfare is affected by the degree to which the services of other MPVDs are interchangeable with the services of cable systems. While we continue to believe" A l\+))" that the distribution of multichannel video programming is the relevant market in which cable operators compete, we recognize that MVPDs use different distribution technologies that can each be described by a unique set of attributes, which can be similar to, or significantly different from, the attributes of a typical cable system. For example, products within this market can differ from each other in terms of the number of channels and types of programming offered. Demand for the services of different MVPDs is a function of consumer preferences for the different attributes of the distribution systems.  XH-x135.` ` The extent to which other firms within the multichannel video market provide pricing discipline for cable television, therefore, is dependent on the extent to which the offerings of these other firms differ from the services of cable systems. Cable systems are less able to raise prices above competitive levels, all other things being equal, if consumers are able and willing to choose instead the services offered by other firms. We believe current cable subscribers are more likely to switch to the services of other MVPDs in response to a price increase if those other MVPDs offer bundles of attributes comparable to the attributes  X -offered by the cable operator.m +x X -ԍ See, e.g., Jerry A. Hausman, Gregory Leonard & J. Douglas Zona, A Proposed  X -Method for Analyzing Competition Among Differentiated Products, 60 Antitrust L.J. 889900 (1992).  Xy-x136.` ` Concerns about concentration are also informed by an analysis of the incentives for other MVPDs to engage in product differentiation strategies, which can also affect the competitive interactions among firms within a given market. All other things being equal, firms that offer products with dissimilar attributes are less likely to compete with each other on the basis of price. To a certain extent, MVPDs can choose the attributes of the services they offer. Choosing dissimilar attributes may allow firms to decrease the amount of price  X-competition in the industry.nO+x X-ԍ  See, e.g., Avner Shaked & John Sutton, Relaxing Price Competition through Product  X-Differentiation, 49 Rev. Econ. Stud. 1, 313 (1982). This is especially true to the extent that the firms can commit to their choice of attributes, since this credibly signals their willingness to pursue this  X-strategy.So+x X_-ԍ For a discussion of how actions by firms can be used to signal whether they are likely  XH -to compete aggressively or not, see Drew Fudenberg & Jean Tirole, The Fat Cat Effect, the  X3!-Puppy Dog Ploy and the Lean and Hungry Look, 74 Am. Econ. Rev. 361 (1984).S For example, one MVPD may decide to specialize in the offering of sports programming. Such a strategy could differentiate its services from those offered by most cable systems, which typically provide a variety of programming, including some sports. By differentiating its services, the MVPD might reduce the extent of competition between its services and those offered by cable systems generally. To the extent that this firm signs longterm contracts with sports programmers, it can commit itself to pursue this differentiation strategy for a given period of time.  X -x137.` ` On the other hand, once firms have expended the fixed costs necessary to enter" Bt o\+))[" the video distribution market, they might have an incentive to expand output in order to lower  X-unit costs and to help recoup their fixed investment.p+x Xb-ԍ For a discussion of behavior by firms in the industries with fixed costs, see Jean  XK-Tirole, The Theory of Industrial Organization 30560 (1988). One way to do this might be to position their services as closer substitutes for those of cable systems and compete more strongly with those systems on price terms. To date, some firms, such as cable overbuilders and MMDS firms, appear to have pursued a strategy based on a certain degree of price  X-competition with incumbent cable systems.Qqd+x X -ԍ E.g., supra secs. II.A.4, II.C.1.Q They appear to generally provide programming choices that are very similar to the ones provided by incumbent cable systems and try to draw customers away by offering lower prices. In contrast, it currently appears that DBS operators have tended to pursue more of a product differentiation strategy, with DBS operators focusing on their ability to offer digital programming that includes programming and operational  X -features currently unavailable from most cable systems.r +x X-ԍ The different technological characteristics of, and constraints on, the delivery systems employed by various MVPDs may also affect the extent to which concentration in local  X-markets affects consumer welfare. E.g. supra. secs. II.B.1 (DBS systems), II.B.2 (HSD packagers), II.C.1 (MMDS systems), II.D (LEC entry), II.E (SMATV systems).  X -x138.` ` We continue to believe that efforts to encourage competitive entry and reduce concentration will increase opportunities for rivalry and improve market performance. However, it is difficult to predict the extent to which local markets will be characterized over the long term by vigorous rivalry among multiple distributors, or whether additional MVPDs may remain essentially fringe competitors, with either relatively small market shares or services largely differentiated from those of cable systems.  WK<x ` ` 4. Concentration of Cable Systems Nationally   X4-   X-x139.` ` In addition to our ongoing concern with concentration in local markets, the 1992 Cable Act was concerned with and places limits on the nationwide concentration of cable systems, given the potential effect of this increased national concentration on  X-competition in the provision of multichannel video programming.s;  +x X!-ԍ 1992 Cable Act,  11(c), amending, Communications Act, 613, 47 U.S.C. 613.  X!-The 1994 Report discusses the potential adverse and procompetitive effects of increased  X"-national concentration in the cable industry. See 1994 Report, 9 FCC Rcd at 751821 150-56. Pursuant to Section 11(c) of the 1992 Cable Act, the Commission promulgated horizontal ownership rules, which prohibit any entity from having an "attributable interest" in cable systems that reach more than thirty percent of all homes passed nationwide by cable, or  X&-thirtyfive percent if the additional systems are "minoritycontrolled."  See Implementation of  Xu'-Sections 11 & 13 of the 1992 Cable Act (Horizontal & Vertical Ownership Limits), Second"^(r\+))S'"  Xy-Report & Order, 8 FCC Rcd 8565 (1993) ("Second Ownership Report & Order"); 47 C.F.R. 76.503. After a federal district court ruled that Section 11(c) of the 1992 Cable Act is  XM-unconstitutional, Daniel Cablevision, Inc. v. United States, 835 F. Supp. 1, 10 (D.D.C.),  X8-appeal docketed and pending, Civ. Act. No. 935290 (D.C. Cir. 1993), the Commission stayed  X#-enforcement of its horizontal ownership rules pending appellate review. In addition, the  X -horizontal ownership rules currently are under reconsideration by the Commission.  X-Consumer Fed'n. of Am. (Petition for Reconsideration of Second Ownership Report & Order),  X-MMDocket No. 92264 (filed Dec. 15, 1993) ("Consumer Fed'n Petition for Recon."); Bell  X -Atl. Co. (Petition for Ltd. Reconsideration of Second Ownership Report & Order), MM  X -Docket No.92264 (filed Dec. 15, 1993) ("Bell Atl. Petition for Recon.") . In the 1994 Report, we"C s\+))" found that the four largest cable MSOs accounted for service to 47% of all cable subscribers, with TCI (24.75%), Time Warner (12.53%), Continental (5.08%), and Comcast (4.82%)  X-comprising the four largest cable operators.tg +x X$-ԍ 1994 Report, 9 FCC Rcd at 7589 App. G, Tbl. 2. Those figures were generated using  X-March31, 1994 subscriber totals, Paul Kagan Assocs., Top 100 Cable System Operators as of  X-March31, 1994, Cable TV Investor, Jun. 30, 1994 (Insert), with the MSOs subscriber counts  X-being revised pursuant to the Commission's attribution rules, e.g., 47 C.F.R. 76.501, to account for common interest, including all transactions that had been consummated as of August 31, 1994. As a result, the figures differ from those that would be obtained from generally distributed measurements of subscriber totals. We also calculated an HHI of 898 for cable  X-systems nationally based on transactions consummated at the time of the 1994 Report, which  X-means that a national market would have been considered "unconcentrated."_u+x X'-ԍ 1994 Report, 9 FCC Rcd at 7589 App. G, Tbl. 2. _  Xx-x140.` ` One year later, we find that the four largest MSOs accounted for service to 55% of cable subscribers, with TCI (25.87%) Time Warner (16.21%), Continental (6.85%),  XJ-and Comcast (5.66%) remaining the four largest MSOs.vgJ+x X~-ԍ Infra Appendix G, Table 2. Like the 1994 figures, these figures were generated using  Xi-subscriber totals from March 31 of the year, Paul Kagan Assocs., Top 100 Cable System  XT-Operators as of March 31, 1995, Cable TV Investor, Jun. 30, 1995 (Insert), with the MSOs  X? -subscriber counts being revised pursuant to the Commission's attribution rules, e.g., 47 C.F.R. 76.501, to account for common interest, including all transactions that had been consummated as of August 31 this year. As a result, the figures differ from those that would be obtained from generally distributed measurements of subscriber totals. Greater concentration among the  X3-largest MSOs contributed to an increase in an HHI to 1098,w3+x X%-ԍ Infra Appendix G, Table 2. This calculation is based on subscriber totals including transactions consummated before November 20, 1995. which means that a national cable market would now be considered moderately concentrated. " DNw\+))# "Ԍ X-x141.` ` A number of transactions have been announced since our report last year,  X-including acquisitions by the two largest MSOs.Jx+x Xb-ԍ Infra Appendix G, Table 5.J If all of those transactions are consummated, the top four companies' share of subscribers would increase to 61.3%, and the percentage of subscribers served by the ten largest MSOs would increase from 73.42% to  X-79.89%.Jy{+x X-ԍ Infra Appendix G, Table 3.J The announced transactions include: (1) TCI's pending purchase of cable systems  X-from Viacom, which would add 1.16 million subscribers to its subscriber base;z.+x Xl -ԍ Eben Shapiro, Viacom Agrees to Spin Off, Then Sell Its Cable Systems, Wall St. J., July 26, 1995, at A3. (2) Time Warner's pending acquisition of Cablevision Industries Corporation ("CVI"), which serves 1.4  X_-million subscribers;{_+x X-ԍ Time Warner Crests Cable DealMaking Wave, Buying Cablevision Industries, Comm. Daily, Feb. 8, 1995, at 1. (3)Comcast's announced transaction with Scripps Howard, which has  XH-attributable interests in systems serving over 750,000 subscribers;|Hf +x X_-ԍ Comcast Corp., Comcast Acquires 800,000 Cable Subscribers from E.W. Scripps (News Release), Oct. 29, 1995. and (4) a number of smaller announced transactions. If all of those transactions are consummated, an HHI calculated for cable systems nationally would increase from 1098 currently to 1355, which is well into the range in which a market would be considered moderately concentrated.  W <x ` ` 5. Regional Concentration of Cable Systems "Clustering"  X -   X -x142.` ` Overall, it appears that the desire of cable MSOs to develop local "clusters," is a major factor underlying many of the cable industry transactions, including sales of systems  Xy-and systemforsystem exchanges between MSOs.}y +x X,-ԍ The systemforsystem exchanges identified in this section include transactions in which one party also contributes cash as part of the transaction. In its 1994 annual report to shareholders, Time Warner describes the clustering of its cable systems as the basis both for anticipated  XK-revenue growth from cable service and for entering the market for local telephone service.`~K+x X!-ԍ Time Warner, Inc., 1994 Annual Report 45 (1995).` One analyst estimates that twenty percent of the nation's cable subscribers will have changed hands in 1995, and that nearly all of these transactions are driven by MSOs' interest in  X-clustering systems.O+x X&-ԍ Paul Kagan Assocs., Inc., MSOs Swapping Their Way To ADI Dominance, Cable TV Investor, Sep. 18, 1995, at4. "E\+))6"Ԍ X-x143.` ` The number of clusters of systems serving at least 100,000 subscribers  X-increased from 88 at yearend 1993 to 97 by yearend 1994.=+x Xb-ԍ Id. at 3839.= These 97 clusters accounted for 34% of all cable subscribers. Time Warner had 33 of these clusters, TCI had 12, and Continental had 6. In addition to creating clusters from previously unaffiliated systems, the largest MSOs are increasing the size of their existing clusters. At the end of 1993, there were 6 clusters of systems serving a combined total of over 300,000 subscribers. By the end of 1994, however, the number of such clusters of over 300,000 subscribers had increased to 13, and over 6 million of the nation's subscribers were receiving service from one of those "mega" clusters.   X -x144.` ` In addition to a number of the smaller transactions,J {+x XF -ԍ Infra Appendix G, Table 5.J two of the largest system  X -sales announced since the 1994 Report were apparently motivated, at least in part, by the desire to cluster systems:   X -x` ` TCI's pending purchase of cable systems from Viacom and Chronicle Publishing would result in TCI controlling 1.3 of the 1.45 million cable subscribers in the San Francisco Bay area, and 900,000 of the 1 million  X{-subscribers in Seattle.{.+x XZ-ԍ John M. Higgins, New TCI Deal Worth A Bit Less To Viacom, Multichannel News, July 31, 1995, at 3. (#`  XM-x` ` Time Warner's pending acquisition of Cablevision Industries and its acquisition of KBLCOM would result in Time Warner having clusters of over 1 million subscribers in New York City, 638,000 in central Florida, 512,000 in Tampa  X-Bay, Florida and 249,000 subscribers in Houston.e+x X-ԍ 1995 Cable Financial Databook, supra, at 3839.e(#`  X-x145.` ` Cable MSOs have also sought to create clusters by trading systems. The  X-largest systemforsystem exchange since the 1994 Report occurred on September 11, 1995, when TCI and Cox announced that they had agreed to exchange cable properties involving  X-600,000 subscribers.^}+x X"-ԍ Mass Media, Comm. Daily, Sep. 12, 1995, at 8. ^ Other significant systemforsystem exchanges announced in the past year include Time Warner and Century trading systems that involved a total of 200,000  Xi-subscribers;{i0 +x XJ&-ԍ Century Completes Time Warner Swap, Multichannel News, Aug. 7, 1995, at 45.{ Time Warner and Jones Intercable exchanging a total of 182,000 subscribers on"iF \+))"  X-one occasion,]+x Xy-ԍ Mass Media, Comm. Daily, Aug. 15, 1995, at 6.] and 141,000 in another instance;{+x X,-ԍ Jim McConville, Cable's Summer of Major League Clustering, Broadcasting & Cable,  X-Oct. 2, 1995, at 46.į TCI and Intermedia Partners exchanging  X-systems that served a total of 155,000 subscribers;+x X-ԍ Paul Kagan Associates, Inc., Cable System Sales: Breakthroughs to Come, Cable TV Investor, Mar. 24, 1995, at 5. TCI and PostNewsweek Cable  X-exchanging 102,500 subscribers;]+x X6 -ԍ Mass Media, Comm. Daily, Aug. 14, 1995, at 7.] and TCA and Time Warner swapping systems involving  X-58,000 subscribers.^f +x X -ԍ Mass Media, Comm. Daily, Aug. 30, 1995, at 10.^  X-x146.` ` As we recognized last year, increased regional concentration could have both  Xv-procompetitive and anticompetitive effects.Nv +x X@-ԍ 1994 Report, 9 FCC Rcd at 751821 15056. We also note that Section 202 the telecommunications bill passed by the United States House of Representatives would enjoin the Commission from preventing the transfer of cable systems solely on the basis of  X-geographic location. See H.R. 1555, 104th Cong., 1st Sess. 202 (1995). The committee report accompanying the bill explains that the scale and scope economies associated with system clustering may improve existing cable service and enhance the cable industry's ability  X-to provide local telephone service. See H.R. Rep. No. 204, 104th Cong., 1st Sess., pt. 1, at107 (1995). In its comments this year, Time Warner notes that the economies associated with clustering were an important factor in its decision to make multimillion dollar investments in facilities that will provide the next generation of  X1-telecommunications services.H1/+x X-ԍ Time Warner Comments at 1112.H Time Warner also disagrees with a number of concerns associated with clustering that we discussed last year. In particular, it argues that clustering does not tend to remove any competitive pressure that unaffiliated, adjacent cable systems exert on each other through threats of overbuilding because, according to Time Warner, adjacent cable systems do not exert competitive pressure on each other because adjacent  X -systems cannot compete for each other's subscribers.: +x XO#-ԍ Id. at 14.: Similarly, Time Warner argues that clustering does not send entrydeterring signals to potential rivals, and notes that entry by DBS and LECs into local markets has taken place concurrently with its own substantial  Xy-investment in its systems.=y+x X'-ԍ Id. at 1516.= "bGF\+))"Ԍ X-x147.` ` Finally, as mentioned above in the sections addressing competition to cable systems by MVPDs using various distribution technologies, there has been a significant  X-increase in actual and proposed consolidation among noncable MVPDs since last year.e+x XK-ԍ Supra secs. II.B.1 (DBS), II.C.1 (MMDS), II.D (LECs).e In particular, the largest MMDS system operators have acquired a number of previously unaffiliated MMDS systems, and two of the largest MMDS systems have themselves become  X-partly or wholly owned by LECs providing telephone services in the region.B{+x X-ԍ Supra sec. II.C.1.B The likely overall effect on market performance of these transactions among noncable MVPDs is currently unclear. Such consolidation may make the noncable MVPDs more effective competitors, in particular by combining LEC resources with the operations of other MVPDs. On the other hand, increased consolidation among noncable MVPDs may tend to reduce the number of firms that ultimately offer multichannel video programming in most local markets which, as discussed above, may reduce the potential for sustained and vigorous price competition.   X - xB.` ` Vertical Integration in the Cable Industry  X-x148.` ` In this section of the 1995 Report, we review the status of vertical integration  X{-in the cable industry, and update information provided in the 1994 Report.{.+x XZ-ԍ Vertical integration occurs where a cable system (a video programming service distributor) has an ownership interest in a video programming service supplier or vice versa. We also provide information on the Commission's enforcement and rulemaking activities relating to provisions of the 1992 Cable Act designed to address the potential anticompetitive effects of vertical integration and to foster competitive entry in the video programming supply and distribution  X!-markets the program access, program carriage and channel occupancy rules.!+x X-ԍ Those provisions of the 1992 Cable Act are codified at: Communications Act  628(b)(c), 47 U.S.C.  548(b)(c) (program access); Communications Act  613(f)(1)(B), 47 U.S.C.  533(f)(1)(B) (channel occupancy); and Communications Act  616, 47 U.S.C.  XU- 536 (program carriage). See also 47 C.F.R.  548(b)(c), 533(f)(1)(B), 536.  W<x` ` 1.  Status of Vertical Integration in 1995   X-  X-x149.` ` In the 1994 Report, the Commission found that the percentage of programming services that were affiliated with a cable operator had grown from approximately 50% to 53%  X-since 1990.X6 +x X%-ԍ 1994 Report, 9 FCC Rcd at 7522  161.X In addition, we found that most of the programming services that had been"H \+))B"  X-launched since 1990 were owned in part by one or more cable operators.+x Xy-ԍ 1994 Report, 9 FCC Rcd at 7524  166. However, less than half of all newly  Xd-announced programming services were owned in whole or in part by cable operators. Id., n.450. We further determined that vertically integrated programming services continued to be among the most  X-widely viewed national services.XO+x X-ԍ 1994 Report, 9 FCC Rcd at 7522  162.X  X-  X-x150.` ` Since the 1994 Report, the total number of national programming services has  X-increased from 106 to approximately 129.r+x XB -ԍ Id. at 7522  161, n.434; infra Appendix H, Tables 12. r Of those 129 services, 66, or approximately 51%  Xx-of all national services existing today, are vertically integrated.Mx+x X-ԍ Infra Appendix H, Tables 12.M This represents a slight  Xa-decrease in the level of vertical integration in the industry from last year's figure of 53%.ah +x Xz-ԍ The 1994 Report indicated that the overall number of national programming services  Xe-had grown from 70 national services in 1990 to 106 national services in 1994. 1994 Report, 9 FCC Rcd at7522  161 n.434. The growth in national programming services from 1990 to 1994 was accompanied by a slightly greater increase in cable company investment in  X"-programming services. Id.   XJ-  X3-x151.` ` Based on its analysis of recent data, NCTA states that little has changed with  X -regard to cable MSO ownership or affiliation with programming networks since the 1994  X -Report.> +x X{-ԍ NCTA Comments at 32.> As NCTA points out, a number of cable networks that were launched in the past  X -year have no affiliation with a cable MSO.: t+x X-ԍ Id. at 33.: Five of the twelve national programming services that were launched since September 1994, or approximately 42%, are affiliated with a  X -cable operator .M '+x X -ԍ Infra Appendix H, Tables 12.M In addition, cable operators have thus far invested in only 18 of the 80  X -national programming services that have been announced but not launched since the 1994  X-Report, or approximately 23% of such announced services.@+x X#$-ԍ Id., Tables 34.@ x  Xl-x152.` ` The ten largest MSOs in terms of subscribership have a stake in 65 of the 66  XU- verticallyintegrated services, or in 99% of all such services.=U+x X(-ԍ Id., Table 5.= TCI, the largest MSO, holds"UI@\+))" ownership interests in 38 national programming services, which amounts to approximately  X-30% of the available national programming services.3+x Xb-ԍ Id.3 This represents an increase in TCI's level of vertical integration since last year, when we reported that TCI held interests in 22%  X-of all available national programming services.X{+x X-ԍ 1994 Report, 9 FCC Rcd at 7526  168.X Time Warner, the nation's second largest MSO, holds interests in 18 national programming services, or approximately 14% of those  X-available.J.+x Xl -ԍ Infra Appendix H, Table 5.J This represents a 1% decline from 1994.b+x X -ԍ See 1994 Report, 9 FCC Rcd at 7526  168.b  Xv-  X_-x153.` ` Since the 1994 Report, the number of national programming services in which an MSO holds a 50% or greater interest has increased. Currently, 36 verticallyintegrated national programming services are owned, in part, by an MSO holding a 50% or greater  X -ownership interest.U +x Xa-ԍ Infra Appendix H, Table 1. In the 1994 Report, it was reported that 24 of the 56 vertically integrated services existing at that time were owned, in part, by a single MSO  X5-holding a 50% or greater ownership interest. 1994 Report, 9 FCC Rcd at 7527  169. U Viacom holds a 50% or greater interest in 12 of those 36 services, but,  X -as discussed above, has agreed to sell its cable systems to TCI.G  +x X-ԍ See supra sec. III.A.4.G This would significantly reduce the degree of such ownership interests by cable operators, as well as the overall level  X -of vertical integration in the cable industry.> +x XV-ԍ NCTA Comments at 33.> TCI/Liberty Media and Time Warner hold such interests in 10 and 5 of those 36 services, respectively.  X-x154.` ` Since 1994, there has been a decrease in the number of programming services in which multiple MSOs hold combined interests of greater than 50%. Currently, there are nine programming services that are each owned, in part, by several MSOs whose ownership  XM-interests, if combined, would comprise an interest of 50% or greater in that programmer.fM+x X}!-ԍ Infra Appendix H, Table 1. Last year, it was reported that there were 19 national programming services that were each owned, in part, by several MSOs whose combined  XQ#-ownership interests comprised a 50% or greater interest in that programmer. 1994 Report, 9 FCC Rcd at 7527 170. f There are eight programming services that are each partially owned by several MSOs whose  X-ownership interests, if aggregated, would constitute a minority interest in that programmer.J+x X'-ԍ Infra Appendix H, Table 1.J In addition, there are approximately ten verticallyintegrated programming services in which a"J\+))F"  X-single MSO holds a minority ownership interest.3+x Xy-ԍ Id.3 x  X-x155.` ` Programming services affiliated with an MSO continue to be among the most popular programming services in the country. One exception is the nonvertically integrated  X-ESPN, which remains the top service by subscribership,={+x X-ԍ Id., Table 6.= and is the fifth most popular  X-service based on prime time rating.=.+x Xl -ԍ Id., Table 7.= Of the top 25 programming services in terms of subscribership, 15 are owned in whole or in part by an MSO, and 10 by one of the four  X_-largest MSOs. =_+x X -ԍ Id., Table 6.= Two of those top 25 services, CSPAN and CSPAN II, while not owned in  XH-the usual sense by cable operators, were creations of the cable industry.]H+x X-ԍ Id. CSPAN and CSPAN II, nonprofit cable networks, receive funding through  Xx-system operators and other MVPDs that provide support on a persubscriber basis. 1994  Xc-Report, 9 FCC Rcd at 7528  171. See also id. at 7599, Appendix G, Table 7 n.1. ] Of the top 15 services by prime time rating, 11 are vertically integrated, and 9 are owned, in part, by one or  X -more of the four largest MSOs.J  +x X-ԍ Infra Appendix H, Table 7.J   X -x156.` ` In the last year, there has been little change in the relative rank of verticallyintegrated programming services. Only two of last year's top 25 programming services by  X -subscribership no longer appear on that list. +x X?-ԍ Compare 1994 Report, 9 FCC Rcd at 7599, Appendix G, Table 7 with infra  X*-AppendixH, Table 6. While one of those services, Comedy Central, is vertically integrated, the other service, EWTN: The Catholic Network, is not. However, the two services that replaced them, Home Shopping Network and The Learning Channel, are  Xy-vertically integrated.yl+x X -ԍ Compare 1994 Report, 9 FCC Rcd at 7599, Appendix G, Table 7 with infra  X!-AppendixH, Table 1. Only two services that previously were in the top 15 by prime time rating, MTV and Nickelodeon/Nick at Nite, no longer rank among the 15 highest rated  XK-networks in terms of prime time audience.K+x X%-ԍ Compare 1994 Report, 9 FCC Rcd at 7600, Appendix G, Table 8 with infra  X%-AppendixH, Table 7. Both MTV and Nickelodeon/Nick at Nite are  X4-vertically integrated.J4+x X(-ԍ Infra Appendix H, Table 1.J In addition, both The Learning Channel and E! Entertainment"4KW\+))" Television, which, unlike last year, are now among the top 15 services by prime time rating,  X-are vertically integrated.3+x Xb-ԍ Id.3  W< x` ` 2. Access to Programming  X-x157.` ` As part of the 1992 Cable Act, Congress sought to promote entry into local distribution markets through interim limits on strategic vertical restraints between verticallyintegrated cable operators and programmers. This Congressional policy is embodied in  XH-Section 628 of the Communications Act and the Commission's program access rules.aH{+x Xt -ԍ 47 U.S.C. 548; 47 C.F.R.  76.100076.1003.a These provisions place limitations on the conduct of vertically integrated firms distributing satellite programming and MVPDs, so as to foster competitive entry by competing distribution technologies. In general, the rules prohibit unfair methods of competition and limit  X -discriminatory conduct, including the use of exclusive contracts.Z ,+x X-ԍ Communications Act 628, 47 U.S.C. 548.Z In addition, under the  X -program carriage provision of the Act,f +x Xc-ԍ Communications Act 616(a)(2), 47 U.S.C. 536(a)(2).f competing distributors have standing to challenge  X -exclusive arrangements that are the result of coercive activity.M +x X-ԍ 47 C.F.R. 76.130076.1302.M   X-x158.` ` Although vertical relationships can often have procompetitive effects, under certain market conditions, strategic vertical restraints (achieved by vertical integration, exclusive distribution contracts, or monopsony pressure) can also deter entry into the distribution market for delivered multichannel video programming. Accordingly, the Commission's program access policies balance the likely competitive harm to consumers created by a particular vertical arrangement against its likely efficiency benefits. By targeting  X-those vertical restraints that can impede entry into the distribution market, the program access policy attempts to contribute to the longterm market performance of both the distribution market and the programming market.  X-x159.` ` We note that several parties have set forth general arguments both in favor  X-of,x? +x X#-ԍ SCBA Reply Comments at 46; WCAI Comments at 16; DIRECTV Reply Comments at 3.x and critical of,c +x X&-ԍ Time Warner Comments at 1927; TCI Reply Comments at 23.c the program access regime. In general, we continue to believe that the program access rules, as enforced by the Commission, successfully promote competition from existing and potential competitors in the video programming distribution market, and do not"eL \+))@" unreasonably inhibit efficient integration or restrict the development and distribution of new programming.   V-x` `  a. Commission Activities  X-  X-x160.` ` The Commission's enforcement of the program access provisions appears to be meeting one of the goals of the 1992 Cable Act ensuring access by competing MVPDs to  X_-satellite cable programming from verticallyintegrated programming services.l_+x X-ԍ See 1994 Report, 9 FCC Rcd at 752123 15760.l Commenters generally agree that the program access rules have resulted in decisions that help emerging  X1-competitors to cable obtain access to programming,N1{+x X] -ԍ See, e.g., NCTC Comments at 3.N although some commenters, including the National Rural Telecommunications Cooperative ("NRTC"), still allege that they do not  X -have access to programming, or have access to it at discriminatory rates.v .+x X-ԍ See, e.g., NRTC Comments at 68; Liberty Cable Comments at 45, 1112.v  X -x161.` ` Enforcement Activities. Of the four program access cases that have been  X -resolved since the 1994 Report, two involved petitions for exclusivity and two involved complaints by competing MVPDs. In an exclusivity petition decided in 1995, Cablevision Industries Corp., ("CVI"), a cable MSO, and USA Networks ("USA"), a cable programming vendor (the "Petitioners"), asked the Commission to authorize them to enforce an exclusive  Xf-distribution agreement with the SciFi Channel programming service ("SciFi").Af+x X-ԍ Cablevision Indus. Corp. & SciFi Channel (Petition for Public Interest Determination  X-Relating to the Exclusive Dist. of the SciFi Channel), Memorandum Opinion & Order, 10  X-FCC Rcd 9786 (1995) ("SciFi Exclusivity Order").A In denying the petition, the Cable Services Bureau concluded that limiting access to the SciFi channel would impede the development of competition in local markets by denying a popular programming service to actual or potential competitors in seventyeight communities  X -nationwide.D j +x X%-ԍ Id. at 9790 22.D The Bureau concluded that the exclusive contract was not in the public interest because the harmful effects of exclusivity on the development of competition in local distribution markets, and on competition from competing distributors, outweighed any  X-efficiencyenhancing or procompetitive effects of the requested exclusivity.4 +x X#-ԍ Id. 4  X-x162.` ` In another exclusivity petition resolved in the last year, NewsChannel, a Division of Lenfest Programming Services, Inc. ("NewsChannel"), which is a regional and local news network that is 50% owned by TCI, asked the Commission to authorize it to enter"iM \+))1"  X-into exclusive program distribution agreements with its cable affiliates.S+x Xy-ԍ NewsChannel, a Div. of Lenfest Programming Servs. (Petition for Public Interest Determination Under 47 C.F.R. 76.1002(c)(4) Relating to Exclusive Dist. of NewsChannel),  XM-Memorandum Opinion & Order, 10 FCC Rcd 691 (1994) ("Newschannel Exclusivity Order"). S The Bureau found that NewsChannel had demonstrated that the limited exclusivity would not have a significant limiting effect on competition, and granted the petition based upon consideration of the public  X-interest factors involved set forth in Section 628(c)(4)(A)(E).O+x X-ԍ 47 U.S.C. 548(c)(4)(A)(E); Newschannel Exclusivity Order, 10 FCC Rcd at 696 36.  X-  X- x163.` ` One of the two discrimination cases resolved in 1995 involved a complaint by CellularVision against Prime SportsChannel Network alleging discrimination in the sale of satellite cable programming in violation of Section 628(c)(2)(B) of the Communications Act  XH-and Section 76.1002(b) of the Commission's rules.H+x X-ԍ CellularVision v. SportsChannel Assocs., File No. CSR4478P, 10 FCC Rcd 9273 11 (1995). CellularVision, the nation's sole LMDS licensee, which operates a single system in Brooklyn, New York, alleged that SportsChannel Associates, a programming vendor vertically integrated with Cablevision, refused to provide its SportsChannel New York programming to CellularVision. SportsChannel New York contended that it had not received satisfactory assurances from CellularVision concerning the way the latter would secure the programming services it distributes. The Bureau found SportsChannel's security concerns unpersuasive and held that SportsChannel's refusal to sell  X -its programming to CellularVision constituted an unreasonable refusal to sell.  +x X-ԍ Id. On September 20, 1995, SportsChannel Associates filed a Request For Stay Pending Reconsideration and a Petition For Reconsideration. On October 6, 1995, the Cable  X-Services Bureau released an order denying SportsChannel's Request for Stay. CellularVision  X-v. SportsChannel Assocs., Order, File No. CSR4478P, DA 952134 (Oct. 6, 1995).  Xy-x164.` ` In another discrimination complaint, NRTC filed a price discrimination complaint against EMI Communications Corporation, a fixed service satellite carrier that distributes the signals of satellite broadcast stations WWORTV and WSBKTV to cable operators and HSD users through program packagers such as NRTC. The parties, assisted by  X-Commission staff, settled the matter and the case has been dismissed.l +x X"-ԍ National Rural Telecommunications Coop. v. EMI Communications Corp., 10 FCC  X#-Rcd 9785 (1995). A third price discrimination complaint is pending. See American  X$-Programming Serv., Inc. v. United Video Satellite Group, Inc., File No. CSR4299P (filed July 28, 1994).l   X-x165.` ` Rulemaking Activities. In November 1994, the Commission released an order on reconsideration addressing a number of program access issues that remained after the"Nk\+))"  X-Commission's first report and order concerning program access issues ("Program Access  X-Report and Order")D+x Xd-ԍ Implementation of Sections 12 & 19 of the 1992 Cable Act (Dev. of Competition &  XO-Diversity in Video Programming Dist. & Carriage), First Report & Order, MM Docket  X:-No.92-265, 8 FCC Rcd 3359 (1993) ("Program Access Report & Order").D In that order on reconsideration,?Q+x X-ԍ Implementation of Sections 12 & 19 of the 1992 Cable Act (Dev. of Competition &  X-Diversity in Video Programming Dist. & Carriage), Memorandum Opinion & Order on Reconsideration of the First Report & Order, MM Docket No.92-265, 10 FCC Rcd 1902 (1994). ? the Commission generally affirmed its initial determinations that: (1) a showing of harm is not required for actions brought under Section 628(c); (2) differences in costs at the MVPD level cannot justify pricing differences by a satellite broadcast programming vendor in the sale or delivery of satellite cable programming or satellite broadcast programming among or between cable operators, or other MVPDs; (3) the Commission's rules apply to contracts that were in existence before the effective date of the rules; (4) a 5% attribution standard should be used to assess the existence of vertical integration; and (5) a remedy allowing recovery for injuries from violations of  X5-program access rules is not necessary at this time.5+x X-ԍ In its comments, NRTC argues that the program access rules should include recovery for damages, at least in the amount of demonstrated overpayments. NRTC Comments at 1.  Xy-See also NRTC Reply Comments at 12. But see Time Warner Comments at 27 (stating that "the Commission was flatly wrong to conclude . . . that it can award damages in a program access dispute (even if the Commission has held, for the time being, that it will not do so)").  X -  X - x166.` ` In December 1994, the Commission released another order on reconsideration  X -of the Program Access Report and Order, in which it denied a petition by NRTC to include  X -exclusive contracts between DBS operators and verticallyintegrated MVPDs within the per se  X -prohibition of Section 628(c)(2)(C) and Section 76.1002(c) of the Commission's rules. +x X-ԍ Implementation of Sections 12 & 19 of the 1992 Cable Act (Dev. of Competition &  Xz-Diversity in Video Programming Dist. & Carriage), Memorandum Opinion and Order on Reconsideration of the First Report & Order, MM Docket No.92-265, 10 FCC Rcd 3105  XN-(1994) ("Second Program Access Reconsideration Order"). In its comments, NRTC asserts that the verticallyintegrated cable industry "continues to stifle competition . . . by denying access to DBS programming and by discriminating in price against Cband satellite distributors," NRTC Comments at 12, and argues that "there will not be full competition in the market for . . . video programming until the Commission prohibits exclusive arrangements between vertically integrated programmers and noncable operator distributors in areas unserved by cable." NRTC Reply Comments at 1.  On the basis of the findings and the legislative history of the 1992 Cable Act, which was focused on concerns over exclusive arrangements of cable operators, as well as the language of the"O\+))j"  X-provision, the Commission denied NRTC's petition.+x Xy-ԍ Second Program Access Reconsideration Order, 10 FCC Rcd at 3106 6, 3121 33, 3127 42. The Commission, however, noted that in declining to broaden its rules, it did not preclude the petitioner or any other aggrieved party from seeking relief from such contracts through other provisions of the program access  X-rules.Gd+x X-ԍ Id. at 312627 40.G   X-x167.` ` Issues of Concern to Commenters in 1995. In the NOI, we invited comment  Xx-on additional information we should consider with respect to vertical integration.Px+x X@ -ԍ NOI, 10 FCC Rcd at 7821  88.P This year,  Xa-parties focused their comments on three principal areas: (1) the extension of the program  XJ-access rules to nonvertically integrated programmers;3J+x X-ԍ See, e.g., Satellite Receivers, Ltd., ("SRL") Comments at 12, 5; WCAI Comments at 1718; WCAI Reply Comments at 36; PrimeTime 24 Comments at 56; NCTA Comments at 3336, 38; NCTA Reply Comments at 1112; National Cable Television Cooperative, Inc. ("NCTC") Comments at 34; SCBA Reply Comments at 68; Lifetime Television ("Lifetime") Comments at 1, 6-8; Viacom Comments at 16; Viacom Reply Comments at 45, 712; ESPN Comments at 18; ESPN Reply Comments at 58; Group W Satellite Communications ("GWSC") Comments at 25; CNBC, America's Talking and Canal de Noticias ("CNBC") Comments at 37; Lifetime Reply Comments at2-3; HBO Comments at 2324; HBO Reply Comments at 56. (2) the extension of the program  X3-access rules to nonsatellite delivered programming;3+x X-ԍ See, e.g., Liberty Cable Comments at 1112; Liberty Reply Comments at 911; WCAI Comments at 1819; TWC Reply Comments at 1418; NCTA Reply Comments at 1213. and (3) the application of the program access rules to customers of LEC VDT platforms and to programming services affiliated with  X -LECs. a+x X-ԍ See, e.g., Liberty Cable Comments at 1112; Bell Atlantic Comments at 1416; GTE Reply Comments at 46; NYNEX Comments at 1011; Viacom Comments at 5; Comcast Reply Comments at613. Parties' comments are summarized in Appendix I.  X -  X -x168.` ` In general, commenters raise essentially the same arguments that were raised last year with respect to application of the program access regime to programming services of  X -nonvertically integrated vendors and to nonsatellite delivered programming services. +x X@%-ԍ Compare 1994 Report, 9 FCC Rcd 753034  179186 with infra Appendix I at 13. We note, however, that in support of its comments this year to extend the program access rules to nonvertically integrated programming providers, WCAI includes a 1995 article by"'\+)) '"  Xy-David Waterman, Vertical Integration and Program Access in the Cable Television Industry, 47 Fed. Comm. L.J. 511, 51415 (1994), which concludes that the program access rules should apply to all program suppliers, whether or not they are vertically integrated. As" P6\+)) "  X-we noted last year,U6+x X-ԍ 1994 Report, 9 FCC Rcd 7531 180.U the Commission's program carriage rules provide standing to MVPDs to file complaints alleging that cable operators have coerced programmers, whether vertically  X-integrated or not, into granting them exclusive distribution rights.T+x Xl -ԍ  47 C.F.R. 76.130076.1302.T In addition, apart from the general assertion that nonvertically integrated programmers charge noncable MVPDs  X-higher rates than cable operators,c+x X -ԍ See, e.g., WCAI Comments at 18; NCTC Comments at 6.c as was the case last year, commenters have not presented any specific evidence regarding anticompetitive behavior that would require further action by the Commission at this time.  XH-x169.` ` Regarding commenters' claims about the applicability of the program access regime to VDT platforms, a number of commenters correctly point out that these issues are either already subject to Commission proceedings, or may be affected by pending  X -legislation. M +x X-ԍ See, e.g., Bell Atlantic Comments at 1416; NYNEX Comments at 1011; GTE Comments at45. We also note that application of the Commission's program access rules to customerprogrammers of VDT platforms is the subject of a pending program access  X -complaint. +x Xo-ԍ CAI Wireless Systems Inc. & Connecticut Choice Television, Inc. v. Cablevision Sys.  XZ-Inc., File No. CSR 4479P (filed Feb. 28, 1995). Therefore, we do not address these issues in this Report.  V -x` `  b.` Additional Competitive Issues Relating to Vertical Integration(#  X{-x170.` ` Channel Occupancy and Program Carriage Comments. In the NOI, we sought comments on the channel occupancy and program carriage rules. Time Warner argues that the Commission's channel occupancy and program carriage rules generally constrain the ability of cable operators to produce programming by diminishing economic incentives to do  X!-so.E!+x XY$-ԍ Time Warner Comments at 25.E Time Warner also submits that cable operators are less likely to risk scarce channel capacity on an unproven network if they cannot offer that network on an exclusive basis  X-because of the program carriage rules.38+x X'-ԍ Id.3 Time Warner contends that cable operators are less"Q\+))" likely to produce programming if they are not able to deliver it on their own systems because  X-of the channel occupancy rules.3+x Xb-ԍ Id.3 HBO submits that the channel occupancy rules are of little use in ensuring diversity in programming and "may in fact impede the use of technologies  X-that will benefit consumers."w{+x X-ԍ Home Box Office Comments at 25; see also Time Warner Comments at 1927.w PayPerView Network, Inc. d/b/a Viewer's Choice ("Viewer's Choice") agrees, arguing that the channel occupancy rules are contrary to the public interest because they limit cable subscribers' access to programming they would prefer  Xv-to receive.Ov.+x XU -ԍ PayPerView Network Comments at 56.O TCI sees little evidence that the channel occupancy limits are necessary to  X_-ensure access for nonvertically integrated programmers.B_+x X -ԍ TCI Reply Comments at 2.B  X1-x171.` ` The channel occupancy limits have been the subject of a reconsideration order.  X -In April, the Commission denied petitions for reconsideration filed by the Center for Media Education/Consumer Federation of America ("CME") and Bell Atlantic. We declined: (1) to reduce the number of channels that a cable operator could devote to affiliated programming  X -from 40% to 20% of activated channels;i +x X-ԍ Implementation of Section 11(c) of the Cable Television Consumer Protection &  X-Competition Act of 1992 (Vertical Ownership Limits), Memorandum Opinion & Order on  X-Reconsideration of the Second Report & Order, MM Docket No.92-264, 10 FCC Rcd 7364, 7369 14 (1995).i (2) to reverse the decision to include overtheair broadcast, public, educational and government, and leased access channels when calculating  X -total channel capacity;D  +x XZ-ԍ Id. at 7372 24.D (3) to reverse the decision to exempt local and regional networks  X-from channel occupancy limits;D +x X-ԍ Id. at 7374 30.D (4) to reverse the decision not to apply channel occupancy  Xy-limits beyond a system's first 75 channels;Dyh+x X -ԍ Id. at 7375 34.D and (5) to reverse the decision to grandfather all vertically integrated programming services being carried as of December 4, 1992, the effective  XK-date of the 1992 Cable Act.FK+x X$-ԍ Id. at 736465 2.F In addition, the Commission declined to reconsider its decision to apply channel occupancy limits to cable systems that face actual headtohead  X-competition.D+x X'-ԍ Id. at 7376 46.D Bell Atlantic and Time Warner have appealed the channel occupancy decision"R\+))"  X-to the United States Court of Appeals for the District of Columbia Circuit.+x Xy-ԍ Bell Atlantic v. FCC, Case No. 951335 (D.C. Cir. filed June 30, 1995); Time Warner  Xd-v. FCC, Case No. 951337 (D.C. Cir. filed July 7, 1995). On August 22, 1995, the Court entered an order consolidating the cases and holding them in abeyance, pending resolution of certain attribution issues applicable to channel occupancy pending before the Commission. In general, we find little indication that cable channel occupancy limits have had a significant impact on the video marketplace during the last year.  X-x172.` ` Leased Access. Another means of addressing concerns relating to media  X-diversity is found in the statutory leased access requirements.Z8+x Xx -ԍ Communications Act  612, 47 U.S.C. 532.Z One commenter, ValueVision International ("ValueVision"), believes that commercial leased access could address many of the problems of programmer access to cable systems. However, ValueVision claims "the `implicit fee' provisions of the Commission's initial leased access rules . . . have been relied upon by larger cable operators to effectively eliminate leased access as the kind of tool  X -Congress contemplated to promote such competition."M +x X-ԍ ValueVision Reply Comments at 23. M Petitions for reconsideration of these  X -rules are under review.| +x XP-ԍ Implementation of Sections of the 1992 Cable Act (Rate Regulation, Leased  X;-Commercial Access), 8 FCC Rcd 5631 (1993), recon. pending, Dkt. No. 92266. ValueVision urges the Commission to act on the pending reconsideration petitions (ValueVision Comments at 2), and has filed a petition for a writ of mandamus in the D.C.  X-Circuit, In re ValueVision Int., Inc., Petition for Writ of Mandamus, No. 951564 (D.C. Cir. filed Nov. 6, 1995). Although the leased access rules provide a means of allowing editorial voices other than those selected by the system operator to be heard, a variety of difficult issues remain to be resolved.  X -x C.` ` Technical Advances  X{-x173.` ` Technological developments are likely to have particularly significant effects on competition in communications industries, where technologies, including those used in the distribution of video programming, are evolving rapidly. For example, the simultaneous transmission of twoway voice, video, and data has historically required a separate transport architecture for each type of information. Today, digital technology has evolved to the point where it appears that it may become economically feasible for voice, video, and data to be transported simultaneously over the same network. Digital technology has also paved the way for the development of compression technologies aimed at conserving bandwidth, which among other things, may permit MVPDs to expand offerings. Moreover, many different communications companies are in the midst of deploying new and improved system architectures to increase the bandwidth and efficiency of their distribution facilities. Such upgrades will allow for the introduction of new services that are currently unavailable to"~S\+))" consumers.  X-x174.` ` Advances in digital technology and the deployment of advanced system architectures have the potential to exert a major influence on the structure of the market for the delivery of video programming, but the overall effect of these developments on future industry structure and competition with incumbent cable systems remains unclear. Whether these new technologies result in increased competition largely depends on how competing MVPDs are able to employ them to conserve bandwidth and to develop interactive services.  W1<x` `  1. Background   X -x175.` ` Because the delivery of full motion video requires a large amount of bandwidth relative to other types of communication, the limited supply of bandwidth has always been a barrier to the expansion of video services. For example, a telephone company can use as little as 3 kHz of spectrum to transmit a voice signal, whereas 2,000 times as much spectrum (a minimum of 6 MHz) has historically been needed to transmit a single broadcast channel of  X-analog video.g+x X -ԍ Dr. Walter Ciciora, Cable Television Labs, Inc., An Overview of Cable Television in  X-the United States 4 (1995). Bandwidth is one measure of capacity for communications networks and is measured in cycles per second, or "hertz," typically gigahertz (billions of cycles per second, "GHz"), megahertz (millions of cycles per second, MHz), or kilohertz (thousands of cycles per second, kHz). The bandwidth of different networks varies  X-depending upon the transmission media employed. Harry Newton, Newton's Technical  X-Dictionary 126 (1994).  Thus, networks transmitting analog video channels can reach their maximum capacity very quickly. The point at which MVPDs encounter this barrier, however, differs depending upon the distribution media and technologies they employ.  X4-x176.` ` Cable systems' use of coaxial and fiber optic cable gives them the most bandwidth of all of the currently deployed MVPDs. The electrical characteristics of coaxial  X-cable make it suitable for very high bandwidth transmission, up to one GHz of bandwidth.P+x X-ԍ Price Waterhouse, supra, at 110.P Roughly 15% of total cable plant miles are in systems with 400 MHz to 1 GHz capacity, with  X-offerings ranging from 52 channels to 150 channels. +x X3!-ԍ Most cable systems are operating at capacities from 400 MHz to 550 MHz, with a  X"-single system operating at 1 GHz, and several operating at 750 MHz capacity. Id. Another 75% are in systems with capacities ranging from 330 MHz to 400 MHz, with offerings of between 40 and 52  X-channels.LF +x X%-ԍ Ciciora, supra, at 22.L Capacity continues to increase as operators integrate fiber optic cable into their systems.  Xe-x177.` ` LECs, like cable systems, use spectrum enclosed in wires for the distribution"eT \+))" portion of their networks. The difference is that the majority of LEC local loop plant (the portion of the network between the local central office telephone switch and the customer) currently consists of twisted copper wire pairs, designed for the transmission of narrowband  X-signals, but not as well suited for transmission of broadband signals.+x X4-ԍ Price Waterhouse, supra, at 113; Gerard Klauer & Co., Wireless Cable Primer, April 20, 1995, at 16. Thus, despite the sophisticated switching capability and ubiquitous deployment of their networks, the local portion of the LEC plant is generally limited in terms of bandwidth when compared with that deployed by other MVPDs. These constraints are not likely to apply to video dialtone architectures, which are generally designed with broadband distribution plant.  X1-x178.` ` Many current and potential competitors to cable operators use or plan to use wireless technologies to distribute video programming to subscribers. These competitors include systems using MMDS, LMDS, and DBS distribution technologies. The principal advantage of these wireless technologies is that they can be deployed without the installation  X -and maintenance of a wireline system.U d+x X-ԍ Bilotti, Nabi & Takada, supra, at 75.U A potential disadvantage is that they have been allocated only a comparitively small amount of spectrum.  X-x179.` ` In anticipation of emerging competition in markets for the delivery of video services, many MVPDs are apparently planning enhance their standard services and expand their offerings to include new services such as Internet access, video on demand, and other  XK-interactive services.K+x X-ԍ Dwight L. Allen, Jr., H. William Ebeling, Jr. & Lawrence W. Scott, Deloitte &  X-Touche, Speeding Toward the Interactive Multimedia Age 1, 1417 (1994). Such efforts require increased bandwidth and twoway network capabilities. Two of the primary strategies MVPDs are employing to increase bandwidth are  X-upgrading system architecture and deploying digital compression.+x X-ԍ Gail Bronson, Bandwidth: 1995's Hot Buzzword, Interactive Age, Jan. 30, 1995, at 40. Cable operators and LECs are pursuing both strategies while MVPDs using wireless distribution methods are focusing primarily on digital compression.  W<x` ` 2. Upgrading Wired Architectures  X-x180.` ` A major limitation on cable system capacity is the inability of coaxial cable to carry signals over long distances without the use of amplifiers. On the other hand, fiber optic cable can transmit signals over much longer distances without the use of amplifiers. Fiber optic cable can be deployed in the trunk and distribution portions of cable networks, or extended all the way to the node (the point at which a cluster of individual households connect to the network). From the node, information is transmitted to subscribers' houses over coaxial cable. This combination of fiber optic cable and coaxial cable is referred to as a" UO \+))"  X-hybrid fibercoax ( HFC) architecture.F+x Xy-ԍ Ciciora, supra, at 48.F  X-x181.` ` During the past three years, the cable industrys deployment of fiber optic cable  X-has grown by over 100% annually.{+x X-ԍ Joan Finamore, Corning, Inc., OptoElectronics Group, Guidelines 6 (Summer 1995). Current estimates indicate that over 33% of all cable  X-subscribers are served by cable systems employing an HFC architecture,S.+x X -ԍ Price Waterhouse, supra, at 11112.S and some estimate that the number of subscribers served in this manner will increase dramatically over the next  Xv-five years.3v+x X -ԍ Id.3  XH-x182.` ` LECs are also integrating fiber optic cable into their networks. During 1994,  X1-LECs upgraded over 21,000 route miles of their networks to fiber optic cable.1+x Xv-ԍ Jonathan M. Kraushaar, Federal Communications Commission, Fiber Deployment  Xa-Update End of Year 1994 21 (July 1995). Nonetheless, only 6% of LECs' networks, which total nearly 3.7 million route miles of cable, consist of  X -fiber optic cable. 2 +x X-ԍ Federal Communications Commission, Statistics of Communications Common Carriers 157 (1993/1994 ed.). Furthermore, roughly 60% of this fiber is contained in the interoffice portion of the network (the part of the network that connects local telephone office switches  X -to one another).J +x XT-ԍ Kraushaar, supra at 2829.J Thus, the local loops, which comprise 89% of the LECs networks, are  X -almost entirely comprised of low capacity twisted copper wire pairs.3 +x X-ԍ Id.3 LECs are considering two principal architectures to replace their current architectures dominated by copper wires switched digital video ("SDV") and HFC.  Xb-x183.` ` In its most advanced form, the SDV architecture requires the deployment of  XK-fiber optic cable to an optical network unit ("ONU") serving a small number of homes.K4+x X0#-ԍ Ismini Scouras, New ICs Provide SDV Solution, Electronic Buyers News, Oct. 9, 1995, at 16. The remainder of the distance from the ONU to a subscriber's home would be traversed by a combination of twisted copper wire pairs and coaxial cable. Using this architecture, LECs could provide switched telephony and compressed digital video services without replacing all"V\+))d"  X-of the twisted copper wire pairs connecting homes to their networks.+x Xy-ԍ Richard Karpinski, Up Close: U S West's New Video Strategy, Interactive Age, Nov. 14, 1994, at 53. The transmission of analog video signals, however, may still require a separate coaxial cable connecting  X-subscribers' homes to the ONU.d+x X-ԍ Id. New technologies allow twisted copper wire pairs to carry much increased bandwidth over a short distance, and thus replacement of the twisted pairs may not be required all the way to the home.  X-x184.` ` As described above, the HFC architecture, which connects homes to a shared node using coaxial cable, would allow LECs to deliver analog and digital video signals to subscriber homes both as a broadcast service (i.e., a basic package of channels delivered simultaneously to all homes) and as a "near video on demand" or "video on demand" service,  XH-where individual subscribers can receive specific programming.SH+x X-ԍ Price Waterhouse, supra, at 11011.S Voice and data services could also be offered over the existing twisted copper wire pair or potentially over the coaxial  X -cable.3 +x Xg-ԍ Id.3  X -x185.` ` Proponents of SDV architecture stress its higher capacity, its efficient handling of both voice and video digital signals, the low maintenance costs associated with fiber, and  X -the efficiency of using existing twisted copper wire pairs to connect homes to the network. O +x X-ԍ AT&T Microelectronics, Inc., New Chip Platform for Interactive Services Over  X-Copper Wire (News Release), Oct. 2, 1995. Advocates of HFC architecture, on the other hand, emphasize the cost of the HFC solution relative to that of installing fibertothecurb in an SDV architecture. Currently, the cost of  Xy-deploying SDV is estimated to be about $400 higher per household than HFC,|y +x X-ԍ Nicholas Negroponte, 2020: The FiberCoax Legacy, Wired, Oct. 1995, at 220. | although  Xb-AT&T Microelectronics reportedly has introduced lowpriced SDV chip sets.b+x X -ԍ Leslie Ellis, SetTop Vendors Weigh New Switched Digital Chip Set, Multichannel News, Oct.9, 1995, at 65.  W4<x` ` 3. Digital Compression  X-  X-x186.` ` Digital compression is the process by which analog signals are digitized (converted to streams of 1s and 0s) and then compressed, using an encoding process that extracts only the information necessary for the decompression of the signal at its destination. By transporting only essential information, the amount of bandwidth the signal occupies is"W<\+))" dramatically reduced. Various encoding techniques have been developed to implement this  X-technology with resulting compression ratios as high as 10:1.+x Xb-ԍ Cable Television Labs., Inc., MPEG IPR Backgrounder, Internet Address: http:// www.cablelabs.com/PR/IPR_Backgrounder.html (1995).  X-x187.` ` Industry representatives are working to develop uniform standards for digital transmission, compression and possibly security. This effort is being undertaken by the Digital Audio Visual Council ("DAVIC"), Moving Pictures Expert Group ("MPEG"), and the  Xv-Video and Electronics Standards Association ("VESA").9vd+x X -ԍ In addition, the cable and consumer electronics industries are developing a decoder interface standard to resolve issues relating to the incompatibility between cable systems that use scrambling and consumer electronics equipment (e.g., TVs, VCRs, PCs), which can render inoperable features such as pictureinpicture, time recordings, and the ability to view one  X/-channel while recording another. Implementation of Section 17 of the 1992 Cable Act,  X-(Compatibility Between Cable Sys. & Consumer Elec. Equip.), First Report & Order, 9 FCC  X-Rcd 1981 (1994), recon. pending, ET Docket No. 937. In this context the Commission expressed an interest in examining compatibility issues "relating to digital video technologies  X-and services" in the future. Id. at 2005 144. In a step toward interoperability, a standard developed by MPEG has emerged as the most likely industry standard for digital  XH-compression.>He +x X^-ԍ HBO Comments at 228.> The group has developed several compression standards for different media applications. The standard for digital television is called MPEG2, and consists of video,  X -audio, and systems components for compressing television signals.z +x X-ԍ  MPEG2 FAQ, Internet Address: http://www.cres4.it/~luigi/MPEG/mpeg2.html.z Numerous vendors are in the process of employing MPEG2 in the development of digital encoders and decoders for use by MVPDs and subscribers.  X -x188.` ` DBS providers, including DIRECTV, USSB, and Primestar, are the first MVPDs to implement digital compression technology on a wide scale. Currently, DIRECTV and USSB are broadcasting programming using the MPEG1+ encoding format for audio and video and, according to industry analysts, are in the process of upgrading the video  Xb-component to MPEG2.Pb+x X!-ԍ Price Waterhouse, supra, at 173.P The settop boxes currently in subscribers homes are reportedly compatible with the MPEG2 format, and subscribers will not have to upgrade their  X4-equipment.4|+x Xa%-ԍ Halhed Enterprises, Inc., Video Compression for Broadcasting Including Direct  XL&-Broadcast Satellite, Internet Address: http://www.hei.ca/hei/mpeg2.html, at "A Period of Transition," (1995). Primestar currently uses General Instrument's DigiCipher settop boxes, which employ a compression scheme different from MPEG2. Primestar has announced plans to"X\+)))" upgrade its settop boxes sometime in 1996 to DigiCipher II, which includes an MPEG2  X-decoding option.v+x Xb-ԍ Richard Doherty, Look to the Skies, OEM Magazine, June 1, 1995, at 46.v Digital compression technology, such as MPEG and DigiCipher, allows packagers of DBS programming to deliver four to eight channels of video programming with compact disc quality sound using the same amount of bandwidth required to deliver a single  X-channel of analog programming on satellite systems.[{+x X-ԍ Bilotti, Nabi & Takada, supra, at 75.[ Similarly, as discussed above, MMDS operators are considering digital compression technology to increase the capacity of their  Xv-systems.@v.+x XU -ԍ Supra sec. II.C.@  XH-x189.` ` According to industry sources, cable operators plan to introduce digital services  X1-into their major markets in 1996 or 1997.Z1+x X-ԍ Bilotti, Nabi & Takada, supra, at 9.Z It has been reported that plans to deploy digital technology earlier had been delayed in part by the industrys indecision over an encoding  X -standard.U +x XH-ԍ Mark Berniker, SetTop Chaos: Delays Persist, Standards Remain Elusive,  X3-Broadcasting & Cable, Sept. 25, 1995, at 58.; Carl Weinschenk, Sizing Up the Future:  X-AT&T, Siemens and Other Giants are Primed for Battle, Cable World, Dec. 19, 1994, at 22.U The video portion of this standard appears to have been found in MPEG2.>  +x X-ԍ HBO Comments at 228.> However, there is some question whether issues relating to the implementation of this  X -standardN +x XT-ԍ MPEG2 FAQ, supra, at 3.N may further delay the deployment of digital services by cable operators.  X -x190.` ` The cost of digital settop boxes is another significant factor delaying the implementation of digital technology. As with other new products based on semiconductors, the initial cost of digital settop boxes has been relatively high. Even at high volumes of production, current prototypes of digital settop boxes to be deployed by cable systems are  XK-estimated to cost over $500.CK+x X}!-ԍ GIC Comments at 14, n.22.C According to industry sources, however, MSOs are seeking  X4-settop box prices in the $300 to $400 price range.o 42+x X$-ԍ Paul Kagan & Assocs., Inc., Marketing New Media, Feb. 20, 1995, at 1.o The cost of encoding equipment is also an issue. Such equipment must be installed at the headend so that incoming analog programming can be digitized before it is transmitted to the subscriber. Although, the price of MPEG1 encoders has dropped significantly over time, a state of the art MPEG2 encoder"Y \+))'"  X-is currently priced at about $100,000 per channel of video.P +x Xy-ԍ Price Waterhouse, supra, at 169.P Even as these prices decline over time, systems serving small suburban and rural markets may be unable to afford such equipment and, consequently, unable to take advantage of digital technology to expand their  X-capacity. {+x X-ԍ FCC Holds up Headend in The Sky License, Independent Cable News, June 1995, at 11. TCI's proposed distribution of Primestar's programming to cable operators and other MVPDs, which it calls "Headend in the Sky" service, may provide such systems with access to digital programming, although the extent to which programmers will make their  Xv-services available is unclear. v+x X> -ԍ See supra sec. II.B. See also Karen JP Howes, TCI's Digital Satellite Headend, Via  X) -Satellite, Sept. 1995, at 58, 62.  XH-x191.` ` LEC Plans for Using Digital Compression in ADSL Networks. Given the preponderance of narrowband copper wiring in the local loops of LECs networks, digital compression that uses that plant is being explored. The particular implementation of compression technology that has been under consideration by LECs is called Asymmetric Digital Subscriber Line ("ADSL"). Using ADSL, LECs will be able to offer services such as VHSquality interactive television and video conferencing over their existing copper  X -network.P  +x X$-ԍ Price Waterhouse, supra, at 113.P Some consider ADSL to be an interim strategy to give LECs a foothold in the  X -video distribution market while they upgrade their networks to SDV or HFC architectures. f +x X-ԍ Terry Sweeney, ADSL Enhanced in Bid for Local Loop, Comm. Wk. Int'l, Mar. 20, 1995, at6. On the other hand, ADSL technology also may be used as an adjunct to other distribution  X{-technologies.@{ +x X.-ԍ Infra para. 193.@  XM-x192.` ` Currently, deployment of ADSL technology costs $2,000 to $3,000 per line, although some vendors are promising to decrease the cost to under $600 by the end of  X-1996.3 +x X"-ԍ Id.3 Another limitation of ADSL is the limited distance over which high speed transmissions can be maintained on the copper portion of the network. Currently, ADSL services can transmit data over a single copper pair to subscriber's home at a rate of 6 megabits per second ("mbps") with a 640 kilobits per second ("kbps") return path over a"Zh\+))"  X-distance of about 9,000 feet.+x Xy-ԍ Carol Wilson, Telephone Companies ReEvaluating TwoWay Technology on Copper  Xd-Lines, Inter@ctive Wk., at Internet Address: http://www.zdnet.com/~intweek/print/news/ 950727a.html (July27, 1995). On average, the distance between homes and LEC central  X-offices is about 13,517 feet.HO+x X-ԍ Kraushaar, supra, at 29.H Thus, the implementation of ADSL would require LECs to install fiber optic cable in local loops, but not as much as would be required by a fiber to the  X-curb SDV architecture. Industry vendors are addressing both of these limitations.+x Xn -ԍ See, e.g., AT&T Paradyne, Inc., AT&T Paradyne Unveils Modern Modem Technology (Press Release), Sept. 21, 1995. x  X-x193.` ` According to industry sources, after expressing an initial interest in ADSL technology, many LECs shifted the focus of their upgrade strategies to fiber and HFC  X_-architecture._+x X-ԍ Loring Wirbel, Digital Standards Promise Expansion, EE Times Interactive, Oct. 2, 1995, at43. Recent advances in ADSL technology have at least partially reversed this  XH-trend.3H: +x X3-ԍ Id.3 NYNEX and Bell Atlantic are reported to be interested in using ADSL technology  X1-in concert with their recent investment in MMDS.@1 +x X-ԍ Wilson, supra. @ MMDS would be used to provide oneway broadcasts of multiple cable channels, while ADSL would be employed to provide interactive services such as video on demand and Internet access. U S West is also reported  X -to be considering the deployment of ADSL technology in its networks.E +x X=-ԍ Wirbel, supra, at 43.E   X - IV.XxSTATUS OF COMPETITION IN MARKETS FOR(#  X -xTHE DELIVERY OF VIDEO PROGRAMMING  Xy- xExtent of Competition and Assessment of Market Performance  Xb-  WK< Xx` ` 1. Overview(#  X4-  X-x194.` ` The Commission finds in this 1995 Report that cable television systems remain the primary distributors of video programming. Although competitive pressures from alternative video distributors are increasing, the Commission concludes that markets for the distribution of video programming are not yet competitive. Most video distribution markets continue to be highly concentrated, and incumbent cable operators face direct competition from overbuilders in only a few markets. During the past year, DBS systems have entered"[S\+))" most markets, making service become available to consumers throughout the continental United States, and achieving rapid increases in subscribership. Wireless cable systems have also increased subscribership at a rapid rate. However, the number of subscribers to alternative video distributors remains extremely low relative to the number of subscribers to cable systems.   Xv-x195.` ` The Commission's experience with the "effective competition" provisions of the 1992 Cable Act offers some evidence of the limited extent of competition in the video  XH-programming distribution market. Under the 1992 Cable Act,HH+x X -ԍ 47 U.S.C 543(l)(1).H a cable system is subject to effective competition if it meets any one of the following three tests:  X -Xx(1)X` ` fewer than 30% of the households in the cable system's franchise area subscribe to its service (the "low penetration" test);(#`  X -Xx(2)X` ` the franchise area is (a) served by at least two unaffiliated MVPDs, each offering comparable video programming to at least 50% of the households in the franchise area, and (b) the number of households subscribing to programming services offered by MVPDs other than the largest MVPD exceeds 15% of the households in the franchise area (the "competing provider" test); or(#`  X4-Xx(3)X` ` an MVPD operated by the franchising authority for the franchise area offers video programming to at least 50% of the households in the franchise area (the "franchise authority provider" test).(#`  X-x196.` ` Information about cable systems subject to effective competition comes primarily from two sources: (1) the Commission's survey of cable systems to establish the benchmark rate regulation scheme under the 1992 Cable Act and (2) orders of the Cable Services Bureau in cases to determine whether to certify a local franchise authority to regulate basic service rates. Of the 496 cable systems surveyed, 244 systems met one of the three tests for effective competition, but only 45 (less than 10% of the systems surveyed) satisfied the  XN-competing provider test.N{+x Xz-ԍ See Implementation of Sections of the 1992 Cable Act (Rate Regulation), Second Order on Reconsideration, Fourth Report & Order, and Fifth Notice of Proposed Rulemaking, MM Docket No.92266, 9 FCC Rcd 4119, 428182 (1994). Of the 137 effective competition cases the Bureau has resolved, 130 involved the low penetration test, and the Bureau determined that effective competition existed in 77 of these cases. In the 12 cases involving the competing provider test, the Bureau determined that the system faced effective competition in 4 cases, of which, 3 involved a competing cable system and 1 involved a wireless cable system. The Commission believes that these four cases provide the most convincing evidence of competitive forces at work, because at least 15% of the consumers in these franchise areas actually chose service" \\+))"  X-from a provider other than the largest MVPD.o+x Xy-ԍ No cases have been filed under the franchise authority provider test.o The fact that consumers made this choice in only 4 of 137 cases together with the small percentage of systems surveyed that met the competing provider test suggests that effective competition, as defined by the 1992 Cable  X-Act, remains limited in markets for the distribution of video programming.y+x X-ԍ We note, however, that this analysis does not take into account "effective competition" systems that franchising authorities have not sought to regulate.  X-x197.` ` In a recent order, the Commission proposes to waive, on a temporary and trial basis, certain rules regulating rates charged for cable programming services in Dover Township, New Jersey, upon the initiation there of the first permanent commercial VDT  XH-service by Bell Atlantic.H+x X -ԍ See Waiver of the Commission's Rules Regulating Rates for Cable Services (As  X-Applied to Cable Sys. in Dover Twnshp., N.J.), Order Requesting Comments, CUID No.NJ0213, __ FCC Rcd ____, FCC 95455 (Nov. 6, 1995). The proposed waiver would be effective for a twoyear trial period beginning when Bell Atlantic initiates service within the incumbent cable operators'  X -franchise areas. +x Xe-ԍ Records indicate that at least two cable operators offer cable service within Dover  XN-Township. Id. 8. The Commission believes that, although the statutory definition of effective competition will not yet be met, the beginning of VDT service will ensure that the incumbent cable operators' rates for cable programming services will not be unreasonable. The Commission also believes that the waiver may reduce regulatory burdens on the cable operators.  W<x ` ` 2. Market Performance Indicators (#  Xb-x198.` ` In the 1994 Report the Commission assessed the extent to which the existing level of competition favorably influenced market performance i.e., how well a given market satisfies consumer demand in the least costly manner using several standard market performance indicators. Specifically, the Commission emphasized three indicators of market power, where little or no observed market power is consistent with good market performance:  X-(1) the q ratio, a ratio of the market value of cable assets to the replacement cost of such assets; (2) pricing analysis showing that cable prices were lower in markets with cable system  X-competitors; and (3) the Lerner Index of market power, the percentage difference between price and the marginal cost of production at the profit maximizing level of output. Each of these market performance indicators suggested that cable operators possessed and exerted market power in video programming distribution markets in 1994.  XT-x199.` ` We see no need in this 1995 Report to replicate or update the formal empirical  X?-analysis of market performance indicators provided in the 1994 Report. First, given the concentrated structure of most video programming distribution markets and the persistence of"*]6 \+))"  X-impediments to entry and competition,=+x Xy-ԍ Infra sec. 3.= it is unlikely that the entry and growth of new firms over the past year is extensive enough to change market conduct and, hence, market  X-performance appreciably since last year. By contrast, the 1994 Report updated the empirical  X-market performance indicators last reported in the 1990 Cable Report, a time period of sufficient length that some change in market structure and performance might be reasonably  X-expected. Even then, the 1994 Report still found that the q ratios "...suggest the presence  X|-of substantial market power,"W|{+x X -ԍ 1994 Report, 9 FCC Rcd at 75456 n.541.W although one q ratio estimate was consistent with some  Xg-reduction in market power in the cable industry.O g.+x XF -ԍ Id. at 7545 212, tbl. 5.2.O  X9-x200.` ` Second, the data employed by the Commission in the 1994 Report to derive the market performance indicators preceded for the most part the imposition of price regulation on the cable industry. Given that the conceptual basis of all three of the market performance indicators relies on the assumption that firms are unconstrained in their attempt to maximize profit, the exact meaning of these indicators is unclear in the presence of cable rate regulation. Thus, it may be misleading to compute empirical market performance indicators that could be uncritically compared with earlier estimates that do not reflect the effects of cable rate regulation.  Xl-x201.` ` Although formal empirical indicators of market performance are, therefore, not  XU-provided in this 1995 Report, it is possible to describe measures of market performance that  X@-reflect changes in the economic welfare of cable subscribers since the 1994 Report. Recent data suggest that consumer welfare may be improving in some ways, although not as fast or as much compared to what might be realized if incumbent cable systems faced the ongoing  X-and persistent pressure of fullydeveloped competition. For example, since the 1994 Report, video distributors have continued to expand their capacity to deliver programming to consumers. The cable industry has expanded in terms of the number of homes passed, the number of subscribers, and the number of systems.  X-x202.` ` Distributors using alternative technologies have also expanded their capacity to supply delivered video programming to consumers, as evidenced by the growth in the number of subscribers to DBS, HSD, MMDS, and SMATV services reported above. Continued expansion by such alternative distributors is likely. In addition, LECs plan to enter markets and offer service to millions of households using several distribution methods (MMDS, VDT, and cable).  X- x203.` ` The range of programming choices offered to consumers has expanded, and  X -continued expansion is likely. Since the 1994 Report, cable operators have increased the number of cable networks that they offer, while vertical integration has decreased slightly. Alternative distributors have also increased the number of choices available to consumers. ""^ \+))!" Furthermore, several LECs have entered into ventures relating to the supply and packaging of video programming.  X-x204.` ` Conclusion. Growth in cable network capacity, the number of cable programmers, and the range of consumer choice resulting from new entrants, such as DBS operators, generally have improved the economic welfare of consumers of multichannel video programming. However, the lack of intense competition in most video distribution markets means that further improvements in consumer welfare remain unrealized. While the Commission's cable rate regulation has attenuated the exercise of market power to some degree and provided some improvement in market performance and consumer welfare, further dramatic improvements in market performance will depend on the eventual emergence of intense competitive rivalry between and among multiple suppliers in local video programming distribution markets. Thus, market performance in local markets today remains only mixed, reflecting economic growth that has benefitted consumers, but not reflecting the level of market performance that more intense competitive rivalry may be expected to produce. A particular concern, moreover, is that impediments to entry and competition may delay or prevent future improvements in performance.  Wd< x` ` 3. Existing and Potential Impediments to Entry and Competition  X6-x205.` ` There may be existing and potential impediments that deter entry and prevent increased competition in video programming delivery markets. Some impediments result from the strategic behavior of incumbent firms, and others from legal and regulatory restrictions. These impediments may block potential entrants from entering the market, or increase the entrant's cost, or decrease the attractiveness of the entrant's service, compared with that of the incumbent firms.   V-x` `  a.Cable System Behavior to Deter  V~-x` `  Entry and Eliminate Competition  XP-x206.` ` Much of the cost of constructing a cable distribution network is a sunk cost, i.e., an operator's cable system probably cannot be put to another equally profitable use if  X"-video distribution became unprofitable.!"+x X-ԍxA discussion of sunk costs and related economic concepts is presented in 1994 Report, 9 FCC Rcd at 7604 App. H. The existence of sunk costs creates strong incentives for incumbent cable operators to engage in strategic behavior designed to protect their investments. Alternative distributors must also incur sunk costs to enter the video distribution market and compete with incumbent cable operators. As we discuss below, strategic behavior by cable operators to disadvantage their rivals can create a credible threat that entry will be unprofitable. In that case, because the costs of entering video distribution are sunk, entrants will be unable to shift their systems to some other profitable use. Thus, entrants' need to incur sunk costs may enable incumbent cable operators to deter entry by engaging in strategic behavior. "S%_d!\+))6$"Ԍ X-x207.` ` An incumbent may attempt to disadvantage its rivals by raising their costs or  X-decreasing their access to a needed production input."+x Xb-ԍ See Tom Krattenmaker & Steve Salop, Anticompetitive Exclusion: Raising Rivals'  XM-Costs to Achieve Power Over Price, 96 Yale L. J. 209, 223224 (1986). For example, cable operators may attempt to decrease access to programming by competing video distributors. The Commission's enforcement of the program access provisions of the 1992 Cable Act appears to be ensuring competing video distributors' access to satellite programming from vertically integrated programming services.  X_-x208.` ` An incumbent may also attempt to disadvantage its rivals by strategic nonuniform pricing. In this regard, the Commission has observed that cable systems often offer bulk discounts to subscribers in MDUs, and has expressed a desire that bulk discounts not be used as a means of displacing competition from alternative MVPDs, such as SMATV  X -operators.c# f+x X-ԍ 1993 Rate Report & Order, 8 FCC Rcd 5898  424. c The Commission's desire is thus consistent with the underlying purpose of  X -Section 623(d) of the Communications Act.$ +x X-ԍ 47 U.S.C.  543(a). Section 623(d), which generally requires that a cable operator have a uniform rate structure throughout its franchise area, embodies Congress's concern that a cable operator could injure competition by temporarily offering discounts in part of its franchise area to undercut a competitor. S. Rep. No. 10292, 102d Cong. 1st Sess. 76 (1991). Accordingly, the Commission's regulations require that all similarly sized MDUs in a franchise area receive "the same bulk discount rate structure," and that the cable operator be able to demonstrate that it receives some economic  X -benefit from offering the discount.% +x X-ԍ Id. See also Implementation of the 1992 Cable Act (Rate Regulation & BuyThrough  X-Prohibition), Third Order on Reconsideration, MM Docket No.92262, 9 FCC Rcd 4316 (1994).  Xy-x209.` ` In response to the NOI, commenters complain that cable operators are offering potential MDU customers discounted and nonuniform rates that are not available to other  XM-MDU customers, and are thereby violating the uniform rate structure of the 1992 Cable Act.&M +x X -ԍ Heartland Comments at 13; Liberty Cable Comments at 910; OpTel Comments at4-5; WCAI Comments at 1922. The Commission believes that its current uniform rate rule strikes an appropriate balance between limiting the potential for anticompetitive strategic conduct, and avoiding micromanagement of cable operator marketing decisions. To the extent a competing distributor believes that it has been the target of prohibited nonuniform rates, it may file a  X-uniform rate complaint under the Commission's rules.'~+x X1'-ԍ Indeed, there are three cases pending before the Commission in which overbuilders"(&\+))1'" allege violations of the uniform rate provision and one case pending in which a wireless cable  Xb-operator alleges violations of the uniform rate provision. American Cable Co. v. TeleCable,  XM-Inc., CSR4198, CSR4206, Cross Country Cable, Inc., v. CTec Cable Systems of Michigan,  X8-Inc., CSR4414P, CSR4449, Beach Cable v. Jones Intercable In., CSR4500R, People's  X#-Choice TV Corp. v. Jones Intercable Inc., CSR4578. Ľ We recognize, however, that the"`'\+))"  X-decision of the United States Court of Appeals for the District of Columbia Circuit in Time  X-Warner has narrowed the protection of the uniform rate provision to markets where the cable  X-operator is not subject to effective competition.'(+x X -ԍ See Time Warner Entertainment Co., L.P. v. FCC, No. 931723 (D.C. Cir. 1995). Some commenters are concerned because this decision narrows the scope of the uniform rate  Xi -provision. See, e.g., WCAI Comments at 1922.'  V-x` `  b.Legal, Regulatory and Other Potential Impediments  Xz-x210.` ` In the past year, the Commission and courts eliminated or reduced several  Xc-impediments to entry identified in the 1994 Report. Two federal circuit court decisions have overturned the cabletelco crossownership ban, and the Commission staff clarified that it would not enforce this ban against LECs subject to the court decision. The Commission streamlined its rules on LEC entry through overbuilding. In addition, the Commission recently granted several Section 214 applications to Ameritech to build cable systems. The Commission recently decided to permit cable operators to acquire SMATV systems within their service areas. In the past year, the Commission also has taken actions to promote entry and more rapid expansion of wireless cable, including the adoption of measures to process new applications for MDS spectrum and expanding the protected service area of MDS stations.  Xh-x211.` ` Despite these actions by the Commission and courts, however, several impediments to entry and competition may remain. For example, a number of actual and potential competitors to incumbent cable operators contend that cable operator conduct under the Commission's home wiring rules has a chilling effect on competition. The Commission's  X -home wiring rules require, inter alia, that cable operators provide subscribers with the opportunity to acquire cable home wiring within thirty days after termination of service before  X-the cable operator removes the wiring from the premises.)L +x X&"-ԍ 47 C.F.R.  76.802. The purpose of the cable home wiring rules is to avoid the disruption from having the wire removed after service is terminated and to allow subscribers to utilize the wires with competing MVPDs, thereby facilitating competition from these  X$-entities.  Implementation of the 1992 Cable Act, Cable Home Wiring, Report & Order, 8 FCC  X%-Rcd 1435 (1993), recon. pending, MM Docket No. 92260. The Commission currently has before it a petition to initiate a rulemaking to determine whether and how cable subscribers may have access to existing cable home wiring for the delivery of competing and"((\+))'"  Xy-complementary services. See Joint Petition for Rulemaking on Cable Television Wiring, Public Notice, RM No. 8380, 8 FCC Rcd 8184 (1993). Actual and potential competitors"aM)\+))6" to incumbent cable operators argue that the Commission's definition of home wiring for MDUs does not permit potential competitors to connect subscribers to their systems without damaging the subscriber's premises, since the wiring in many MDUs is embedded in the walls. Several commenters state that this is a significant disincentive for subscribers to switch  X-providers.*M+x X -ԍ Liberty Cable Comments at 1718; Bell Atlantic Comments at 11; OpTel Comments at 56; WCAI Comments at 23; Liberty Cable Reply Comments at 78. Cable operators argue, however, that the Commission's home wiring rules merely permit a cable operator to remove its own property from MDUs, or to terminate its  Xv-own lines.w+v+x X-ԍ Time Warner Reply Comments at 2529; Cablevision Reply Comments at 79.w These issues are the subject of pending petitions for reconsideration.  XH-x212.` ` Commenters also identify local franchise regulation as an impediment to entry  X1-by overbuilding. In the 1994 Report, the Commission discussed Section 621(a) of the  X -Communications Act, which prohibits the unreasonable denial of a competitive franchise. We continue to support clarification of Section 621(a) to make clear that it applies to all exclusive franchises regardless of when they were adopted.  X -x213.` ` Some local laws and regulations may also impede entry. For example, despite limited preemption by the Commission, local zoning regulations may inhibit competition from directtohome programming distributors by preventing home users from installing receiving dishes. As noted above, the Commission has an ongoing rulemaking proceeding to modify its  Xd-zoning preemption rules.?,d+x X-ԍ Supra sec. II.B.?  X6-x214.` ` While legal and regulatory obstacles may delay the spread of competition, the speed of deployment of new competitive technologies also is affected by the business decisions of potential entrants. Decisions regarding the choice of technologies, investment strategies and assessment of risk strongly influence the speed at which competition emerges. Finally, there remains a possibility that new potential entrants may be evaluating the costs and political climates of building an entirely new infrastructure or trying to acquire existing systems. "~bK ,\+))"  W<x` ` 4. Outlook for Competition in Video (#  W<x` `  Programming Distribution Markets  X-  X-x215.` ` In most local markets, a single cable system remains the primary distributor of multichannel video programming services. Despite the growth of DBS and wireless cable subscribership in the past year, competitive rivalry in most local video programming distribution markets is insufficient to constrain the market power of incumbent cable systems. The continued growth of DBS and the entry of additional competitors may exert a significant, favorable longrun effect on market conduct and performance in video programming distribution. In addition, LECs are planning to enter video distribution markets by several means, including VDT, wireless cable and stand alone cable systems. In sum, the market for the distribution of video programming is not yet competitive, although we are cautiously optimistic about the outlook for increased competition. Nevertheless, we believe that it will take some time for entry to have a significant effect on the market power of cable operators.   X - V.xADMINISTRATIVE MATTERS  Xy-x216.` ` This Report is issued pursuant to authority contained in Sections 4(i), 4(j), 403 and 628(g) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 403 and 548(g).  X-x217.` ` It is ORDERED that the Secretary shall send copies of this 1995 Report to the appropriate committees and subcommittees of the United States House of Representatives and the United States Senate. x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhWilliam F. Caton x` `  hhActing Secretary "" L ";c,\+))]"  X-  @-A--@  ) APPENDIX A ĐTP  X- List of Commenters TP  Xv- Comments  XH-1.xBell Atlantic  X1-2.xBellSouth Telecommunications, Inc.  X -3.xCAI Wireless Systems, Inc.  X -4.xCNBC, America's Talking and Canal de Noticias  X -5.xDIRECTV, Inc.  X -6.xESPN, Inc.  X -7.xGeneral Instrument Corporation  X -8.xGroup W Satellite Communications  X-9.xGTE Service Corporation  Xy-10.xHeartland Wireless Communications, Inc.  Xb-11.xHome Box Office  XK-12.xJames Cable Partners, L.P.  X4-13.xLiberty Cable Company, Inc  X-14.xLifetime Television  X-15.XxMETS Fans United/Virginia Consumers for Cable Choice and Fairfax County  0(#(#XCitizens For Cable Competition(#  X-16.xMotion Picture Association of America, Inc.  X-17.xNational Cable Television Association, Inc.  X-18.xNational Cable Television Cooperative, Inc.  X-19.xNational Rural Telecommunications Cooperative  X|-20.xNational Telephone Cooperative Association  Xe-21.xNYNEX Telephone Companies  XN-22.xOpTel, Inc.  X7-23.xPayPerView Network, Inc. d/b/a Viewer's Choice  X -24.xPrimestar Partners L.P.  X -25.xPrimeTime24  X-26.xSatellite Broadcasting and Communications Association of America  X-27.xSatellite Receivers, Ltd.  X -28.xSBC Communications, Inc.  X!-29.xTime Warner Cable  X"-30.xVermont Wireless Cooperative  X#-31.xViacom Inc.  Xh$-32.xVideo Dialtone Association  XQ%-33.xWireless Cable Association International, Inc."Q%d,\+)) $"  X- Reply Comments  X-  X-1.xBellSouth Telecommunications, Inc.  X-2.xCablevision Systems Corporation  X-3.xComcast Cable Communication, Inc.  X-4.xDIRECTV, Inc.  Xv-5.xESPN, Inc.  X_-6.xGroup W Satellite Communications  XH-7.xGTE Service Corporation  X1-8.xHome Box Office  X -9.xJames Cable Partners, L.P.  X -10.xLiberty Cable Company, Inc  X -11.xLifetime Television  X -12.xNational Cable Television Association, Inc.  X -13.xNational Rural Telecommunications Cooperative  X -14.xNetlink USA  X-15.xNext Level Communications  Xy-16.xOpTel, Inc.  Xb-17.xPacific Bell and Pacific Telesis Video Services  XK-18.xPrimestar Partners L.P.  X4-19.xRidgebury Township, Pennsylvania, and the Pennsylvania State Association of  0(#(#XxTownship Supervisors  X-20.xScripps Howard Cable TV Company  X-21.xSmall Cable Business Association  X-22.xState of Hawaii  X-23.xSuperstar Satellite Entertainment  X-24.xTeleCommunications, Inc.  X-25.xTime Warner Cable  X|-26.xTurner Home Satellite, Inc.  Xe-27.United States Satellite Broadcasting Company, Inc.  XN-28.ValueVision International, Inc.  X7-29.Viacom Inc.  X -30.Video Dialtone Association  X -31.Wireless Cable Association International, Inc.  X- Miscellaneous Filings   X!-1.Southwest Missouri Cable TV, Inc. (letter 7/31/95)  a"<  #|\  P6G;_P# ""e,\+))f!"  a< f @-A---B--@SAPPENDIX B ă  a<Ik#Xj\  P6G;ynXP# TABLE 1 ă  X-  Cable Television Industry Growth: 1989 1994  X-`(in millions)  0 ddx!ifXX   @@@@@@@@@@@@@@ .      . BB  aERX` hp x (#%'0*,.8135@8:XX#C\  P6Q ɒP# 5hJ 5F"F           F B B  aEstXX# 6\  P6QمP#Year) XX) }XXYearEnd Total v Change  From W Previous  Year  XX wXXYearEnd &Total MChange R2From KPrevious SBYear {BXX XXYearEnd RTotal  Change From yPrevious Year  XX  XXNational Saturation (HP/TH)  FTV 4Households 5Subscribing 8(Subs/TH)  i U.S. oPenetration r(Subs/HP)F      2sF B B ~rXX% XX% y XX% I %  XX% 0sXX% ^% {BXX% XX % k % XX % XX % L %  .2      . BB XX1989g XXg  XX92.1g  1.9%g  XXg 'XX82.8g S77.3%g {BXXg iXX49.3 g 7.9% g XX g +XX89.9% g @/53.5% g {3 59.5%F      FXX19901 XX1  XX93.11  1.1%1  XX1 +8XX861 S73.9%1 {BXX1 iXX51.7 1 4.9% 1 XX 1 +XX92.4% 1 @/55.5% 1 |3 60.1%F FXX1991 XX OXX 92.1 (*)  ԩ1.1%   XX 'XX88.4 S72.8% {BXX iXX53.4  3.3%  XX  +XX96.0%  @/58.0%  {3 60.4%Fe FXX1992 XX  XX93.1  1.1%  XX 'XX89.7 T71.5% {BXX iXX55.2  3.4%  XX  +XX96.3%  @/59.3%  |3 61.5%F? FXX1993XX XX94.2 1.2% XX'XX90.6T71.0%{BXXiXX57.2 3.6% XX +XX96.2% @/60.7% |3 63.1%F     F aEXX1994XX XX95.4 1.3% XX(XX91.6U71.1%{BXXiXX59.7 4.4% XX +XX96.0% @/62.6% {3 65.2%-     - yO-X( 0 8@H!#X\#C\  P6Q ɒP# (*) Revised penetration figure based on 1990 Census Sources: U.S. Television Households A.C. Nielsen Co. as of January of the following year. Taken from Veronis,  {O-Suhler & Associates, Homes Passed by Cable and Incidence of Subscription, The Veronis, Suhler & Associates Communications Industry Forecast, July 1995, at 145.  {O-ԩ Homes Passed Paul Kagan Assoc., Inc., History of Cable and PayTV Subscribers and Revenues, Cable TV Investor, June 30, 1995, at 5.  {O-ԩ Basic Cable Subscribers Paul Kagan Assoc., Inc., History of Cable and PayTV Subscribers and Revenues, Cable TV Investor, June 30, 1995, at 5.   Xk-kI# Xj\  P6G;ynXP# TABLE 2  XT-  Premium Cable Services: 1993 1994  X=-`(in millions) Đ\ !ifXX   @@@@@@@@@@@@@@A f@@@@@@@ *      * &&  aE  X( 0 8@H!#X#6\  P6QمP#>XX,!XXPremium Cable Service ESubscibersXXkrk?XXPremium UnitsXX*      * && 7 XXYearj>XXj"XXYearEnd ,<Total[Change From ZPrevious Year@XXXXYearEnd pTotalChange From Previous Year*   2* &&  XX>XX6XXw@XXXXD 2   N  && XX19896 >XX6 -SXX23.66 m|5.8%6 @XX6 XX41.16 5.9%*   *XX1990!>XX!-SXX23.9!n|1.3%!@XX!XX41.5!1.0%*Z *XX1991!>XX!1XX24!m|0.4%!@XX!XX39.9!ԩ3.9%*4!*XX1992">XX"-SXX24.7"m|2.9%"@XX"XX40.7"2.0%*"*XX1993#>XX#-SXX26.4#m|6.9%#@XX#XX41.5#2.0%*   "*XX1994x$>XXx$.SXX28.1x$m|6.4%x$@XXx$XX45x$8.4%   # yO$-X( 0 8@H!#X#C\  P6Q ɒP#  yOd%-Source:X(#  {O,&-X© Paul Kagan Associates, Inc., History of Cable and PayTV Subscribers and Revenues, Cable TV Investor, June 30, 1995, at 5.(#"&f,\+))(S%"  X-I#Xj\  P6G;+XP# TABLE 3 ă  X-b  Channel Capacity of Cable Systems: 1993 1994 Đx |A @@@@@@@af@@@@@@@| *       #* &&  aEb X( 0 8@H!#X#G\  P6G;لP#qrtXXq4XX1993*q)XXqu[XX1994*qXXq.XX9394 Change     af@@@@@@@ fPOPP@@@@@@@@@ 2        2 . . XXChannel CapacityKrtXXKXXNumber of ^SystemsOPercent of Systems)XX@9XXNumber of ESystemsvPercent of SystemsXX yO-:I XX#X\  P6G;ɓP#$    2 $ . .  aEc XX#6\  P6QلP#rtXXXX)XX}XX:XX yO-<Y XX#C\  P6QɓP#$2     $ . .  aEWX(X#6\  P6QلP#54 and overrtX(XXX1,30613.1%)XXLXX1,43514.3%XX XX9.9%2    G2X(X30 to 53rtX(XXX6,36464.0%)XXKXX6,37663.7%XX XX0.2%22X(X20 to 29YrtX(XYXX1,197Y12.%Y)XXYMXX1,167Y11.7%YXXY XXЩ2.5%22X(X13 to 19rtX(XXX3643.7%)XXNXX3563.6%XX XXЩ2.2%2i2X(X6 to 12rtX(XXX6977.0%)XXNXX6536.5%XX XXЩ6.3%22X(X5 or less{ rtX(X{ XX22{ 0.2%{ )XX{ RXX17{ 0.2%{ XX{ XXЩ22.7%22X(XNot available1 rtX(X1 XX1,2101 {1 )XX1 MXX1,2121 1 XX1 XX2    2X(XTotal rtX(X XX11,160 { )XX KXX11,216  XX XX$    2 A $ . . c XX rtXX XX  )XX }XX : XX <Y XX$2      $ . . X(XSystems with capcities of 30 or more channels rtX(X XX7,670 77.1% )XX MXX7,811 78.1% XX XX1.84%2        ) 2X(XSystems with capacities of fewer than 30 channels  Channe rtX(XXX2,28022.9%)XXLXX2,19321.9%XXXXЩ3.82% #    # yO)-X( 0 8@H!#X#C\  P6QɓP# * Figures are as of November 1, 1993 and October 1, 1994. Sources:  {O-X© 1993 Warren Publishing, Inc., Channel Capacity of Existing Cable Systems, Television & Cable Factbook: Cable Volume No. 62, 1994 Edition, at F3.(#  {O-X© 1994 Warren Publishing, Inc., Channel Capacity of Existing Cable Systems, Television & Cable Factbook: Cable Volume No. 63, 1995 Edition, at I77.(#  Xm-I#Xj\  P6G;+XP# TABLE 4 ă  XV-f  Channel Capacity for Subscribers: 1993 1994  X?-(in millions) #G\  P6G;لP#  0  fPOPP@@@@@@@@@f@@@@@@@ *        * && b X( 0 8@H!#XrtXX4XX1993*)XXu[XX1994*XX.XX9394 Change    0 f@@@@@@@ fPOPP@@@@@@@@@ 2     \    2 .Y . XXChannel Capacity:rtXX:XX Subscribers:OPercent of DSubscribersY)XXY>XX SubscribersYvPercent of kSubscribersYXXY yO-:I XX#C\  P6QɓP#$\    2 $ .Y .  aEc XX#6\  P6QلP#rtXXXX)XX}XX:XX yO-<Y XX#C\  P6QɓP#$2     $ . .  aE"X(X#6\  P6QلP#54 and overrtX(XXX20.9138.4%)XXKXX23.0241.5%XXXX10.1%2    2X(X30 to 53nrtX(XnXX31.71n58.2%n)XXnKXX30.75n55.4%nXXn XXЩ3.0%22X(X20 to 29$rtX(X$XX1.48$2.7%$)XX$NXX1.37$2.5%$XX$ XXЩ7.4%2~2X(X13 to 19rtX(XXX.120.2%)XXRXX.110.2%XX XXЩ8.3%242X(X6 to 12rtX(XXX.260.5%)XXPXX.240.04%XX XXЩ7.7%22X(X5 or lessFrtX(XFXX.00F0.0%F)XXFPXX.00F0.0%FXXF XX0.0%22X(XNot availablertX(XXX.64{)XXPXX.87XXXX2    V2X(XTotalrtX(XXX55.12{)XXKXX56.36XXXX$    2 $ . . c XXh rtXXh XXh h )XXh }XXh :h XXh <Y XX$2 \    $ .Y . X(XSystems with capcities of 30 or more channelsP!YrtX(XP!YXX52.62P!Y94.8%P!Y)XXP!YKXX53.77P!Y96.9%P!YXXP!Y XX2.2%2\    \    2X(XSystems with capacities of fewer than 30 channels"YrtX(X"YXX1.86"Y3.4%"Y)XX"YNXX1.72"Y3.1%"YXX"Y XXЩ7.5%#\    P! Y# yO"-X( 0 8@H!#X#C\  P6QɓP# x* Figures are as of November 1, 1993 and October 1, 1994. Sources:  {O%-X© 1993 Warren Publishing, Inc., Channel Capacity of Existing Cable Systems, Television & Cable Factbook: Cable Volume No. 62, 1994 Edition, at F3.(#  {O&-X© 1994 Warren Publishing, Inc., Channel Capacity of Existing Cable Systems, Television & Cable Factbook: Cable Volume No. 63, 1995 Edition, at I77.(#"`'\+)))#"  X-I#Xj\  P6G;+XP# TABLE 5 ă  X-A  Growth By Network Type: 1993 1994 #G\  P6G;لP#  0  fPOPP@@@@@@@@@x@@@@@@@ *\       P!* &&  aEG X( 0 8@H!#X#6\  P6QلP#.Wj XX.\XX1993.XX.bXX1994.XX.XX9394 Change    x0 x@@@@@@@ R____@@@@@@@@@ 2         x2 . . XXNetwork TypeS: XXpXXNumber of s7Networks]Percent of Networks XX+`XXNumber of .NetworksPercent of NetworksXXXX2    2R2 . .  o XXxS: XXx2XXxx XXx@XXxxXXxXX$2     $ . . X(XBasic/NoChargeWj X(XXX8079.21% XX<FXX94 73.44%XX0XX17.50%2    2X(XPremiumWj X(XXX98.91% XX<FXX20 15.63%XXXX122.22%22X(XPay Per View^Wj X(X^XX7^6.93%^ XX^>hXX8^*6.25%^XX^0XX14.29%2    2X(XCombinationHWj X(XHXX5H4.95%H XXH>hXX6H*4.69%HXXH0XX20.00%2    22 . . H XX Wj XX 2XX   XX @XX  XX XX$2    l$ . . X(XTotald Wj X(Xd XX101d d  XXd :%XX128d d XXd 0XX26.73%#    # yOx -X( 0 8@H!#X#C\  P6QɓP#  yO@ -xSource:X(#  {O -X© National Cable Television Association, National Cable Video Networks By Type of Service: 1976  {O -1994, Cable Television Developments, Spring 1995, at 7.(#  Xd -I#Xj\  P6G;+XP# TABLE 6 ă  XM-X  Cable Industry Revenue and Cash Flow: 1992 1994  aE6 #G\  P6G;لP#x  R____@@@@@@@@@ !?T   @@@@@@@@@@@ :       : 6 6 8* nG1992G1993i 1994:        : 6 6  yO-8* #G\  P6G;لP##X\  P6G;ɓP#j aEnG#6\  P6QلP#j ~J-X( 0 8@H!#X#I2PQ<P#j aEXX#6\  P6QلP#YearEnd Total% Change From Previous 'Year: ~J-GXX#I2PQ<P#: aE[}XX#6\  P6QلP#Year]End [qTotal:i% Change From Previous Year:iXX :@XXYearlEnd KTotal :(C% Change 1From *rPrevious 2Year(    2 ( 6 6  yO:-8* XX#C\  P6QɓP#EXXXXGXX}XXXX XX =d (2      :( 6 6  aE|XXX#6\  P6QلP#Average Subscribers (mil.)2nGXXX2XX2XX54.32ԩ2AXX2\XX56.223.5%2iXX 2bXX58.5 234.1%:     2l: 6 6  XXnOXXXXAXXeXXiXX XX =d (2     F( 6 6 XXXRevenue Segments (mil.) & (mil. .Regulated Tiers.XXX.JXX$13,436_ .ԩ.AXX.V$XX$15,169 .12.9%.iXX .XX$15,164  .20.0%:    x: XXXXXPay TiersXXXUXX$4,980 ԩAXXV/XX$4,625 ԩ7.1%iXX  XX$4,522  1ԩ2.2%:R: XXXXXAdvertisingXXXXX$852 ԩAXXYbXX$984 15.5%iXX  XX$1,077  29.5%:,: XXXXXPayPerViewXXXXX$404 ԩAXXYbXX$452 11.9%iXX <XX$484  37.1%:: XXXXXHome ShoppingXXXXX$90 ԩAXX[bXX$113 25.6%iXX <XX$127  112.4%:L: 6J 6  XX`XXXMiscellaneous + InstallationsJXXXJUXX$1,282 JԩJAXXJX/XX$1,412 J10.1%JiXX J XX$1,412  J20.0%:L: 6J 6 XXXTotal Revenue (mil.)XXXJXX$21,044_ ԩAXXT$XX$22,755 8.1%iXX XX$22,786  30.1%:    :XXXRevenue Per Sub5XXXXXJXX$387.55_ ԩAXXT$XX$404.89 4.5%iXX XX$389.50  1ԩ3.8%:    2: 6 6  yO-8* XX#C\  P6QɓP#EXXXX5GXX}XXXX XX a!(2     ( 6 6  aEXXX#6\  P6QلP#Cash Flow (mil.) yO-5XXX#C\  P6QɓP#XX aEUXX#6\  P6QلP#$9,700 ԩGXXV$XX$10,100 4.1%XX  XX$9,936  2ԩ1.6%:        :XXXCash Flow per Sub| yO-5XXX#C\  P6QɓP#XX aEJXX#6\  P6QلP#$178.64_ ԩAXXU$XX$179.72 0.1% iXX XX$169.85  1ԩ5.5%:    2: 6 6 XXXF yO-EXXX#C\  P6QɓP#hXXh aEXX#6\  P6QلP#h5hGXXh}XXhhXX hXX ha!(2      ( 6 6 XXXCash Flow/Revenue yO-5XXX#C\  P6QɓP#XX aEvXX#6\  P6QلP#46.1%ԩAXXYPXX44.4%ԩ3.7%iXX *XX43.6% 2ԩ1.8%'      ' yO-X` hp x (#%XX#C\  P6QɓP#  yOt-#X\  P6G;ɓP#Sources:` ` X ,(#  {O< -X© Paul Kagan Assoc., Inc., History of Cable and PayTV Subscribers and Revenues, Cable TV Investor,  {O!-June 30, 1995, at 5 and Paul Kagan Assoc., Inc., Estimated Capital Flows In Cable TV, The Cable TV Financial Databook, July 1995, at 92. ""Q (#  aE"#G\  P6G;لP#""\+))&!"  X-  X` hp x (#%4 <DL!XI#Xj\  P6G;+XP# TABLE 7 ă  X-. Annual Revenue and Cash Flow for Cable System Operators: 1992 1994 :"s yOb-#X\  P6G;ɓP#э The term cash flow is used in Tables 7 and 9 to refer to the measurement of earnings before accounting  yO*-for interest payments, taxes, depreciation and amortization ("EBITDA").#Xw PE37}XP#: #G\  P6G;لP#  0  !?T   @@@@@@@@@@@ Ax@XXX@@@@@@@@@@@@@ B         B > > Q.< .0 .f 1992... y.Cp1993.s . . .1994 .`!B    _    xB >X > d4 <DL!4 OperatorX< 4 X 4Year End  SubsribersXc Cable ]p Revenue e (mil.)jXCable Cash rFlow d(mil.)jX4jXu4Year End BSubscribersjX@[Cable : Revenue B_(mil.)jXt>Cable Cash Flow (mil.) jX4 jX4Year End Subscribers jXCable _Revenue (mil.) jXI Cable Cash VX > Q44 }< 4 }/ 4}oY}}4} q4}L}{ }4 }4 }!H }a!<2< > > 44 TeleCommunications n 4 & 410,165,000eh $3,574.0 U$1,637.0 4S410,672,000D$4,143.8 $1,869.1  Q4 411,593,000 W$4,182.9  \ $1,834.7 BB44 Time Warnery n 4 y' 45,600,000ygh $2,091.0 y$977.0 y4y45,800,000yB$2,208.0 y$1,035.0  yQ4 y46,000,000 yW$2,242.0  ya_!$989.0 BB44 ComcastS n 4 S' 42,583,000Sl $725.7 S$356.3 S4S42,648,000SD$1,092.7 S $552.0  SQ4 S43,307,000 SW$1,065.3  Sc_!$517.5 BB44 Continental9 Cablevision-  n 4 - ' 42,856,000- kh $1,113.5 - $488.3 - 4- 42,895,000- F$1,177.2 -  $527.6  - Q4 - 43,081,000 - W$1,198.0  - c_!$525.1 BB44 Cox Comm.  n 4  ) 41,722,007 n $652.1  $275.1  4 41,784,337 Ik$708.0   $295.6   Q4  41,851,726  $736.3   a_!$268.5 Ba B44 Cablevision Systems  n 4  ) 41,262,000 l $572.5  $247.7  4 41,379,000 Ik$667.7   $252.2   Q4  41,768,000  $837.2   a_!$334.0 B; B44 Times Mirror  n 4  - 41,182,581 n $423.1  $165.0  4 41,208,398 Ik$470.4   $198.1   Q4  41,274,908  $497.7   c_!$205.1 B B44 Viacom  n 4  - 41,116,000 r $411.1  $190.5  4 41,049,000 Kk$416.0   $181.7   Q4  41,139,100  $406.2   c_!$155.2 B B44 Century Comm.o  n 4 o ._ 4920,500o l $294.8 o $172.0 o 4o  4939,500o Mk$311.2 o  $181.5  o Q4 o 41,022,500 o  $321.7  o c_!$174.5 B B44 Cablevision IndustriesI n 4 I._ 4904,648Il $364.0 I$175.7 I4I 4957,508IIk$397.0 I $191.6  IQ4 I41,001,927 I$408.3  Ic_!$189.5 B B44 Adelphia Comm.# n 4 #._ 4845,640#l $296.6 #$169.9 #4# 4868,195#Kk$318.3 # $177.7  #Q4 #N4957,954 #$347.6  #c_!$184.4 B}B44 Providence Journal n 4 ._ 4722,000n $199.7 $78.0 4 4738,000Kk$281.6  $114.1  Q4 N4771,000 $285.0  e_!$112.0 BWB44 Telecable Corp n 4 ._ 4690,000l $268.4 $116.4 4 4717,000Ik$286.7  $123.8  Q4 N4751,000 $302.0  e_!$131.0 B1B44 EW Scripps n 4 0_ 4673,100n $238.1 $101.2 4 4701,000Kk$251.8  $105.3  Q4 N4739,200 $255.4  h!$97.1 B B44 KBLCOM n 4 ._ 4577,000l $235.3 $95.0 4 4605,000Kk$244.1 P$95.7  Q4 N4690,000 $255.8  f!$99.7 BB44 Lenfest Comm.e n 4 e0_ 4477,130ep $166.1 e$83.4 e4e 4550,703eKk$197.6 e $100.5  eQ4 eN4577,377 e $212.8  ec_!$105.7 BB44 Washington Post? n 4 ?._ 4463,000?p $174.1 ?$77.5 ?4? 4482,000?Kk$185.7 ?P$81.9  ?Q4 ?N4498,000 ?"$182.1  ?f!$80.5 BB44 TCA Cable TV Inc n 4 ._ 4442,356p $141.9 $70.4 4 4457,061Kk$154.9 P$77.7  Q4 N4468,662  $166.3  h!$81.9 BsB > > 44 Multimedia Inc n 4 0_ 4410,000n $144.4 $73.1 4 4417,000Kk$164.6 P$85.5  Q4 N4432,000  $165.4  h!$84.1 BMB44 CTEC Corp n 4 0_ 4218,000q$85.3 $40.9 4 4258,000N$93.6 P$44.3  Q4 N4273,000 %$95.1  f!$44.6 B B44 Marcus Cableq n 4 q0_ 4138,274qq$38.3 q$20.0 q4q4141,323qN$52.3 qP$26.8  qQ4 qN4222,735 q#$64.7  qj!$31.1 BB44 Gaylord Entertainment0 n 4 00_ 4166,8000q$78.8 0$32.0 040 4175,8000R$81.1 0P$32.9  0Q4 0N4182,800 0#$85.2  0f!$35.5 BB44 Summit Comm. n 4 0_ 4150,400q$59.6 $35.8 4 4157,000P$61.2 P$37.4  Q4 N4165,000 #$62.9  f!$37.4 BIB44 Insight Comm. n 4 2_ 4133,816q$47.0 $20.5 4 4142,327P$51.0 P$24.5  Q4 N4153,523 #$52.8  f!$25.6 B    B44 Mercom Inc.} n 4 }7 434,118}s$12.0 }A$4.8 }4}?434,714}P$12.6 }$5.1  }Q4 }437,324 }%$12.9  }m!$5.1 B    2B > >  44 , n 4 ,N 4,l,i,4,+4,g , ,Q4 ,4 ,<[  , #,2     , > > 44 Total for Groupn n 4 n" 434,453,370ndQ $12,407.2S nU$5,703.5 n4nS435,777,866nA$14,029.0 .7 n$6,417.5  nQ4 n438,958,736 n@$14,441.6 (0 1.1  nZ $6,348.8 B    B > > 44 Total Per Subscriber8 n 4 8N 48g $374.75 8x$172.27 848+48F($399.51 8$182.75  8Q4 84 8z$386.47  8^!$169.90 B    B44 Cash Flow Margin n 4 N 4l46.0%4+4g O45.7% Q4 4 <[  g!44.0%B    2QB > >  44  n 4 N 4li4+4g  Q4 4 <[   #,2     , > > 44 Total for Industry n 4 " 455,200,000dQ $20,349.1R9 U$9,354.4 4S457,200,000?$22,452.5? d$10,270.8  Q4 459,700,000 @$22,588.9  Z $9,930.6 B        BB > > 44 % Change From Previous Year] n 4 ]N 4]l]Y]4]43.6%]Q10.3%]9.8% ]Q4 ]44.4% ]+B0.1% ]i!ԩ3.3%+    " + yO-44 <DL!x#C\  P6QɓP# Notes: X© Operators are listed in descending order by size according to 1994 year end susbscribers.(#  {O!-X© The companies listed include 15 of the top 20 MSOs (According to Paul Kagan Assoc., Inc., Top 100  {O"-Cable System Operators, The Cable TV Financial Databook, July 1995, at 14) plus 9 of MSOs ranked 21st through 50th. Of the five, top 20 MSOs exlcuded, three (Newhouse Broadcasting, Sammons Communications, and Crown Media) were excluded because they do not provide publicly available information and two (Jones Intercable and Falcon Cable TV) were excluded because their corporate"$ \+))`' " structure make it difficult to find the necessary data.(# X© Except as noted, all data are for fiscal years ending on December 31 of each year. Century Communications' year end subscriber totals, and Adelphia Communications' year end 1992 subscriber totals are estimated. TCA Cable TV's revenue and cash flow data are for the 12 months ending on January 31 of each year. Century Communications's revenue and cash flow data are for the 12 months ending on November 30 of each year. Adelphia Communications revenue and cash flow data are for the 12 months ending on December 31 of each year.(# X© Wherever possible, subscriber totals include both wholly owned and consolidated cable subscribers.(# X© Total for Industry estimates for revenue and cash flow were calculated by multiplying the Total for Group of each figure by the ratio of average industry subscribers to average group subscribers.(# Sources: X© Unless otherwise noted, all company data obtained from the companies' public filings at the United States Securities and Exchange Commission.(#  {O -X© The subscriber totals for Telecable are from: Paul Kagan Assocs., Inc., Top 100 Cable System  {O -Operators, The Cable TV Financial Databook, July 1995, at 14; Paul Kagan Assocs., Inc., Top 100  {O -Cable System Operators, The Cable TV Financial Databook, June 1994, at 14; and Paul Kagan Assocs.,  {ON -Inc., Top 100 Cable System Operators, The Cable TV Financial Databook, June 1993, at 12.(# X© In order to adjust for TeleCommunications, Inc.'s DBS holdings, its revenue and cash flow data for  {O-1993 and 1994 are from: Richard Bilotti, TeleCommunications TCI Group Revenue and Operating  {O-Cash Flow Comparisons, Morgan Stanley, Cable Television Metamosphosis The Arrival of DBS and RBOC Competition, September 15, 1995, at 61.(#  {O<-X© Total for Industry subscribers are from: Paul Kagan Assocs., Inc., History of Cable and PayTV  {O-Subscribers and Revenues, Cable TV Investor, June 30, 1995, at 5.(#"\+)) "  X-I#Xj\  P6G;+XP# TABLE 8 ă  X-;  Quarterly Revenue for Cable System Operators: 1993 1995  X-($ in million) #G\  P6G;لP# 0  Ax@XXX@@@@@@@@@@@@@a @@@@@@@@@@@@@@ F        F BB q- q1993qq|1994 q q+1995F    \    F BYB Operator'- 4 <DL!'K 41st @O QuarterY|2nd tcQuarterY3rd QuarterY 4th QuarterY4Y041st %FQuarterYb2nd ZZQuarter Y3rd vQuarter Y4th Quarter Y4 Y41st  =Quarter YG 2nd ?I QuarterF\    2qF BYB 44 s- 4 sN 4s/sKsgs4s4 4sj& sB s^ s4 s4 sO!.2    . BB 44 TeleCommunications dF Inc 0 4 G0 4$1,018.0# {L$1,042.0g h$1,044.0 t$1,049.0&2 4+'4$1,060.0C cC$1,081.0  _$1,072.0o  k$1,105.0  4 4$1,169.0  E* $1,262.0p F    F44 Time Warner Incs0 4 sHj 4$546.0 s~$560.0 s$551.0 s$551.0 s4s0a4$551.0 sd}$560.0  s$552.0  s$579.0  s4 sX4$578.0  sHd $760.0 FF44 ComcastA0 4 AJj 4$271.6 A~$278.9 A$272.8 A$269.3 A4A.a4$260.6 Ad}$267.0  A$265.6  A$272.0  A4 AX4$347.0  AHd $362.5 FF44 Cox Communications0 4 Hj 4$285.2 ~$295.4 $296.1 $302.6 4.a4$304.3 d}$307.4  $303.5  $319.1  4 X4$313.1  Jd $328.1 FiF44 Continental Cablevision0 4 Hj 4$287.5 ~$297.2 $295.5 $296.9 4.a4$294.4 d}$295.0  $296.2  $312.4  4 X4$318.6  Jd $331.5 F7F44 Cablevision Systems 0 4  Jj 4$157.0  $168.2  $169.6  $172.0  4 2a4$176.1  h}$192.1   $223.5   $245.5   4  X4$245.4   Hd $263.7 F F44 Adelphia Comm.]E Communicationsy 0 4 y M 4$79.3 y $79.7 y $79.4 y $79.9 y 4y 54$80.1 y i$84.0  y $90.8  y $92.7  y 4 y 4$94.0  y M $96.9 F F44 Cablevision IndustriesG 0 4 G M 4$97.5 G $100.4 G $100.5 G $98.6 G 4G 0a4$100.0 G h}$101.7  G $103.0  G $103.7  G 4 G X4$103.6  G Jd $106.4 F F44 Viacom 0 4  Jj 4$104.5  $107.5  $103.7  $100.3  4 0a4$100.7  f}$103.5   $100.4   $101.6   4  X4$106.0   Ld $110.0 Fo F44 Century Comm. 0 4  M 4$74.3  $77.3  $78.5  $81.1  4 34$78.6  i$80.3   $79.9   $82.8   4  4$84.2   M $84.5 F= F44 EW Scripps 0 4  M 4$63.2  $63.7  $62.6  $62.3  4 34$62.4  i$63.3   $63.9   $65.8   4  4$67.0   M $69.8 F F44 TCA Cable TV Inc0 4 M 4$37.8 $38.3 $39.5 $39.3 434$39.8 m$41.1  $42.1  $43.3  4 4$44.0  O $49.1 F F44 Multimedia IncM0 4 MO 4$41.0 M$41.5 M$41.0 M$41.1 M4M54$41.2 Mi$42.0  M$40.9  M$41.3  M4 M4$41.9  MM $43.6 FF44 Marcus Cable0 4 O 4$12.7 $13.3 $13.1 $13.2 454$13.2 k$12.8  $17.7  $20.9  4 4$37.0  M $38.5 FuF44 Summit Comm.0 4 Q 4$15.1 $15.3 $15.3 $15.5 454$15.6 k$15.8  $15.6  $15.9  4 4$16.2  R $0.0 F    CF44 Insight Comm.0 4 O 4$12.7 $12.8 $12.8 $12.7 454$13.0 m$13.1  $13.2  $13.5  4 4$13.8  O $14.3 F    2F BB #d 44 0 4 f4$@\4L4 7 S 4 14 g".2    . BB 44 Total for Group0 4 E0 4$3,103.5S }L$3,191.5 h$3,175.4 t$3,184.7V2 4-'4$3,191.0AC aC$3,260.1  _$3,280.4o  k$3,414.5  4 4$3,578.7N  C* $3,920.8p F    F44 Total for Industry0 4 E0 4$5,512.0S yL$5,667.9 h$5,639.7 t$5,654.4V2 4)'4$5,570.3AC _C$5,599.4  _$5,626.9o  k$5,814.9  4 4$5,883.9N  E* $6,183.3p F\    F BYB 44 % Change From Previous Year's Quarter!Y4 !Yf4!Y$!Y@!YL!Y4!Y=41.1%!Ynԩ1.2% !Yԩ0.2% !Y*2.8% !Y4 !Y45.6% !YP 10.4%-\    Y- H=!i44 <DL!x#,5\  P6G; ),P#  {O-# X\  P6G;ɓP#Notes:X© Operators are listed in descending order by size according to: Paul Kagan Assoc., Inc., Top 100 Cable  {Op-System Operators as of June 30, 1995, Cable TV Investor, August 31, 1995, at 9.(#  {O:-X© The companies listed include 12 of the top 20 MSOs (According to Paul Kagan Assoc., Inc., Top 100  {O-Cable System Operators, The Cable TV Financial Databook, July 1995, at 14) plus four of MSOs ranked 21st through 50th. Of the eight, top 20 MSOs exlcuded, six (Newhouse Broadcasting, Sammons Communications, Crown Media, the Providence Journal, Telecable Corp, and Lenfest Communications) were excluded because they do not provide publicly available quarterly information and two (Jones Intercable and Falcon Cable TV) were excluded because their corporate structure make it difficult to find the necessary data.(# X© Except as noted, all data are for quarters ending March 31, June 30, September 30, and December 31. TCA Cable TV's revenue and cash flow data are for quarters ending April 30, July 31, October 31, and January 31. Century Communications's revenue and cash flow data are for quarters ending February28, May 31, August 31, and November 30. (# X© Total for Industry estimates for revenue and cash flow were calculated by multiplying the Total for Group of each figure by the ratio of the total subscribers for the industry to the total subscribers for the group (not shown).(# X© Cox Communication's data are pro forma data combining Cox Communications and Times Mirror's cable revenue and cash flow.(# X© TeleCommunications, Inc.'s revenue and cash flow data from the second quarter of 1994 to the second quarter of 1995 are for TCI Communications, Inc..(#  H=N%i#,5\  P6G; ),P#  yO%-# X\  P6G;ɓP#Sources: X© All company data obtained from the companies public filings at the United States Securities and Exchange Commission.(#"c' \+))1)"  X-#Xj\  P6G;+XP# ITABLE 9 ă  X-51  Quarterly Cash Flow for Cable System Operators: 1993 1995  X- ($ in million) #,5\  P6G; ),P#  aE# G\  P6G;لP# 0 a @@@@@@@@@@@@@@a @@@@@@@@@@@@@@ F\        F BB , 1993}1994  -1995F        aF BB Operators, 4 <DL!K 41st @M QuarterM|2nd taQuarterM3rd }QuarterM4th QuarterM4M241st 'SQuarterMc2nd [gQuarter M3rd Quarter M4th Quarter M4 M41st  JQuarter MG 2nd ?V QuarterF    2F BB 44 , 4 N 4-Ie454k3 O k 4 4 Q*!.2    q. BB 44 TCI Y0 4 YHh 4$467.0 Y~$472.0 Y$464.0 Y$449.0 Y4Y/n4$450.0 Ye$452.0  Y$423.0  Y$480.0  Y4 Ye4$498.0  YKq $518.0 F    F44 Time Warner Inc#0 4 #Hh 4$255.0 #~$270.0 #$268.0 #$242.0 #4#/n4$244.0 #e$256.0  #$242.0  #$247.0  #4 #e4$256.0  #Kq $319.0 F}F44 Comcast0 4 Jh 4$136.8 $142.0 $137.5 $135.7 41n4$127.0 g$130.0  $129.0  $131.9  4 e4$165.0  Kq $182.6 FWF44 Cox Communications0 4 Jh 4$123.0 $129.4 $125.1 $129.0 43n4$121.8 g$123.4  $109.3  $119.0  4 e4$122.8  Kq $125.5 F1F44 Continental Cable 0 4  Jh 4$129.5  $135.2  $130.2  $132.6  4 1n4$133.2  g$128.8   $127.7   $135.4   4  e4$136.5   Kq $138.4 F F44 Cablevision Systems 0 4  M 4$63.8  $67.2  $68.7  $52.6  4 44$75.9  j$80.9   $93.5   $83.7   4  4$96.4   N $87.9 F F44 Adelphia Comm.e 0 4 e M 4$44.2 e $44.5 e $44.4 e $44.5 e 4e 44$42.2 e j$44.4  e $49.0  e $48.7  e 4 e 4$48.9  e P $51.5 F F44 Cablevision Industries? 0 4 ? M 4$47.3 ? $48.9 ? $49.5 ? $45.9 ? 4? 44$47.4 ? j$47.5  ? $48.2  ? $46.4  ? 4 ? 4$48.0  ? N $49.7 F F44 Viacom 0 4  M 4$48.9  $49.4  $44.1  $39.3  4 44$40.2  j$40.8   $36.5   $37.7   4  4$42.3   N $45.0 Fs F44 Century Comm. 0 4  O 4$41.9  $46.4  $46.4  $46.8  4 44$46.9  j$44.2   $41.5   $41.9   4  4$39.8   N $38.3 FM F44 EW Scripps0 4 M 4$28.0 $27.2 $24.9 $25.1 444$24.3 l$23.1  $24.3  $25.5  4 4$27.2  N $29.0 F'F44 TCA Cable TV Inc0 4 O 4$19.6 $19.4 $19.1 $19.5 484$19.1 j$20.2  $20.8  $21.8  4 4$21.8  P $24.1 FF44 Multimedia Inc0 4 O 4$21.3 $21.3 $21.2 $21.6 464$21.3 l$21.5  $20.2  $21.2  4 4$20.8  N $22.6 FF44 Marcus Cable[0 4 [R 4$6.5 [ $7.0 [&$6.8 [2$6.5 [4[94$6.5 [o$5.8  [,$8.5  [$10.4  [4 [4$18.4  [P $19.3 FF44 Summit Comm.50 4 5R 4$9.3 5 $9.4 5&$9.3 52$9.4 54564$10.7 5o$9.4  5,$9.2  58$8.1  54 54$9.7  5S $0.0 F    F44 Insight Comm.0 4 R 4$6.0  $5.9 &$6.1 2$6.5 494$6.3 o$6.2  ,$6.4  8$6.7  4 4$6.7  S $7.0 F    2iF BB !T 44 0 4 f4">Z4M 4( D ` 4 3 4 i".2    C. BB 44 Total for Group+0 4 +E. 4$1,447.9 +{J$1,495.2N[ +f$1,465.5r) +r$1,406.2 +4+.44$1,416.7 +bP$1,434.2  +l$1,389.2$  +x$1,465.4Ub  +4 ++4$1,558.2n  +F7 $1,657.9 F    uF44 Total for Industry0 4 E. 4$2,571.6 yJ$2,655.4N[ f$2,602.7r) r$2,496.6 4,44$2,473.1 `P$2,463.2  l$2,382.8$  x$2,495.5Ub  4 +4$2,561.9n  F7 $2,614.6 F    OF BB 44 % Change From Previous Year's Quarter4 f4">J474Щ3.8%mԩ7.2% ԩ8.4% 70.0% 4  43.6% V 6.1%-    )- H=i44 <DL!x#,5\  P6G; ),P#  yO.-# X\  P6G;ɓP#Notes:  {O-X© Operators are listed in descending order by size according to: Paul Kagan Assoc., Inc., Top 100 Cable  {O-System Operators as of June 30, 1995, Cable TV Investor, August 31, 1995, at 9.(# X© The companies listedare the same MSOs described in Table 8 above.(# X© Except as noted, all data are for quarters ending March 31, June 30, September 30, and December 31. TCA Cable TV's revenue and cash flow data are for quarters ending April 30, July 31, October 31, and January 31. Century Communications's revenue and cash flow data are for quarters ending February28, May 31, August 31, and November 30. (# X© Total for Industry estimates for revenue and cash flow were calculated by multiplying the Total for Group of each figure by the ratio of the total subscribers for the industry to the total subscribers for the group (not shown).(# X© Cox Communication's data from the first quarter of 1993 to the first quarter of 1995 are pro forma data combining Cox Communications and Times Mirror's cable revenue and cash flow.(# X© TeleCommunications, Inc.'s revenue and cash flow data from the second quarter of 1994 to the second quarter of 1995 are for TCI Communications, Inc..(#  H="i#,5\  P6G; ),P#  yOo#-# X\  P6G;ɓP#Sources: X© All company data obtained from the companies public filings at the United States Securities and Exchange Commission.(#"$ \+))'"  X-#Xj\  P6G;+XP# TABLE 10 ă  X-Y2  Acquisition and Disposition of Capital: 1988 1994  X-($ in million) #G\  P6G;لP#  0 a @@@@@@@@@@@@@@Ta @@@@@@@@@@@@@@@ J          )J FF Year 4 <DL!X XXPrivate DebtXXtXXPublic DebtXXM XXPrivate EquityXX g  XXPublic EquityXX XXTotal Capital Raised From Financing SourcesJ            aJ FF (  XX XXSum  H Raised]D % of C{ Total]oaXX]@XXSum Raised]A% of :Total]!XX]XXSum Raised ]7% of 6Total ]bXX ]}XXSum xRaised ]% of Total ]XX]+XXJ      @J FF 8 ' XX' XX'N 'oaXX'XX''!XX' sXX 'A 'bXX '2XX 'N 'XX'+XX0@      0 FF X(X1988w X(Xw - XX$5,078 wD 67%woaXXwXX$1,789 wL23%w!XXwXX$678  w:.9% wbXX w}XX$68  w1% wXXwXX$7,613 J      JX(X1989A X(XA - XX$6,494 AD 80%AoaXXAXX$840 AL10%A!XXAXX$726  A:.9% AbXX A{XX$108  A1% AXXAXX$8,168 JJX(X1990  X(X  - XX$4,637  E 81% oaXX XX$490  n9% !XX XX$597   8 10%  bXX  XX$0   0%  XX XX$5,724 JuJX(X1991  X(X  ` XX$689  E 16% oaXX XX$912  L22% !XX XX$1,290   7 30%  bXX  xkXX$1,350   32%  XX XX$4,241 JO JX(X1992  X(X  XX ($1,762) Cw  ѩ69% oaXX XX$2,400  L93% !XX XX$1,710   7 67%  bXX  zXX$220   9%  XX XX$2,568 J) JX(X1993  X(X  XX ($3,583) AU  ѩ186% oaXX XX$5,280  +274% !XX XX$62   :.3%  bXX  {XX$165   9%  XX XX$1,924 J       JX(X1994  X(X  - XX$4,772  E 71% oaXX XX$1,089  L16% !XX XX$409   :.6%  bXX  {XX$461   7%  XX XX$6,731 J      @ J FF X(X]  X(X]  XX] N ] oaXX] XX] ] !XX]  sXX ] A ] bXX ] 2XX ] N ] XX] +XX0@       0 FF X(XTotal: 1988 z]1994  X(X " XX$16,325  M  oaXX XX$12,800F   !XX XX$5,472   @  bXX  wkXX$2,372   F  XX XX$36,969 J      h J FhF X(XShare of 7 Year TotalhX(Xh XX44%hM hoaXXh@XX35%hh!XXhXX15% h@ hbXX hXX6% hF hXXh!XX100%Jhh      JX(XAverage Raised Per Yearh X(Xh - XX$2,332 hM hoaXXhXX$1,829 hh!XXhXX$782  h@ hbXX hzXX$339  hF hXXhXX$5,281 /h      9h/ yO-X( 0 8@H!#Xx#C\  P6QɓP# Sources:  {O1-X© 1988 Paul Kagan Assoc., Inc., Estimated Capital Flows in Cable TV, The Cable TV Financial Databook, June 1992, at 88.(#  {O-X© 1989 Paul Kagan Assoc., Inc., Estimated Capital Flows in Cable TV, The Cable TV Financial Databook, June 1993, at 86.(#  {OU-X© 1990 Paul Kagan Assoc., Inc., Estimated Capital Flows in Cable TV, The Cable TV Financial Databook, June 1994, at 92.(#  {O-X© 1991 to 1994 Paul Kagan Assoc., Inc., Estimated Capital Flows in Cable TV, The Cable TV Financial Databook, July 1995, at 92.(#   XA-#Xj\  P6G;+XP# TABLE 11  X*-6 System Transactions: 1993 1994 #G\  P6G;لP#  0 Ta @@@@@@@@@@@@@@@  hxxw@@@@@@@@@ 2h    92 . .  aE,X( 0 8@H!#` X#6\  P6QلP#` XX!XX1993XX"/XX1994_XX{eXX1/95 to 7/95XXrXX9394 Change2 22 . . <` XX%` XX%XX%XX%+XX%_XX%XX%XX%XX$2  $ . . X( XNumber of Systems SoldwX( XwdXX96wXXw&rXX64w_XXwpXX63wXXw,XXЩ33.3%2 22 . . <` XX` XXXXXX+XX_XXXXXXXX$2      w$ . . X( XTotal Number of Subscribers_X( X_XX3,852,668_XX_XX7,504,177__XX_XX7,267,681_XX_BXX94.8%2          2X( XAverage System Size9X( X9XX40,1329XX9XX117,2539_XX9XX115,3609XX9!XX192.2%2     22 . . <` XX ` XX XX XX +XX _XX XX XX XX$2      ]$ . . X( XNumber of Homes PassedE X( XE XX6,616,887E XXE XX12,492,997E _XXE ~XX11,386,320E XXE BXX88.8%2          2X( XAvg. # of Homes Passed!X( X!XX68,926!XX!XX195,203!_XX!XX180,735!XX!!XX183.2%2     2i 2 . . <` XX!` XX!XX!XX!+XX!_XX!XX!XX!XX$2      C!$ . . X( XTotal Dollar Value+"X( X+"XX$8,322.6 +"XX+"XX$14,025.3 +"_XX+"~XX$13,485.8 +"XX+"BXX68.5%2          u!2X( XAverage Dollar Value#X( X#XX$86.7 #XX#XX$219.1 #_XX#XX$214.1 #XX#!XX152.8%2     2O"2 . . <` XX#` XX#XX#XX#+XX#_XX#XX#XX#XX$2      )#$ . . X( XValue Per Home Passed$X( X$XX1,258$XX$"XX1,123$_XX$XX1,184$XX$,XXЩ10.7%2     [#2 . . X( XDollar Value Per Subscriber$X( X$XX2,160$XX$!XX1,869$_XX$XX1,856$XX$,XXЩ13.5%2     $2 . . X( XCash Flow Multiplem%X( Xm%1XX11.3m%XXm%#?XX10.3m%_XXm%_XX9.6m%XXm%MXXЩ8.8%#     $ # yOm%-X( 0 8@H!#Xx#C\  P6QɓP#  {O5&-Source:XX` ` Paul Kagan Assoc., Inc., YearToDate Cable System Sale Summary, Cable TV Investor, January 31, 1995, at 8.(#` "' \+))+_("  a< 3'3'Standard'3'3StandardtHPLAS4SI.PRSXj\      @-B---C--@#C\  P6QɓP##|\  P6G;^P#y! h+\*!*Y7ddflow2.wpg h+\yAPPENDIX C1: Status of LEC Entry# \  P6G;G P#  X -"#XP\  P6Q+XP#Status of LEC Entry Since the 1994 Report  yO-$....!bY0$x#C\  P6QɓP#  {OP-* The cities listed above represent the markets the LECs were planning to enter as VDT operators at the time of the 1994 Report; for some, current plans are different. The table on the following page lists the status of each LEC's plan in regard to the above applications.  {O-** Four additional permanent VDT applications were filed by U S West since the 1994 Report. All were dismissed without prejudice to refile (due to lack of information) and are ignored above.X X _(3bYY0D! *!eX  a<  i#|\  P6G;^P#APPENDIX C2: Status of LEC Entry#X\  P6G;ɓP#  X -#XP\  P6Q+XP# x w  hxxw@@@@@@@@@ ddx t`  w     $ v   X- Company   X- Location of VDT  X-Applications }v  X- Status of VDT Applications }v  X- Mode of Entry: Homes  X-Passed in Current Plan     v+   yO-#C\  P6QɓP#Bell AtlanticY Dover Township, NJY  yO- Approved : System construction near completion; operation to begin before end of year.+  yO- VDT : 38,000  } +  NYNEXY RI; Eastern MAY  yO- Approved : Planning or just beginning VDT system construction; planning to use wireless technology for video delivery in near term.u   yO- VDT : 397,000   E  PAC BELL Y San Fran., Orange Count., L.A., San Diego, CA +  yO - Approved : Will complete San Fran. VDT construction in 1996. Slowing wire based build out in other 3 markets, to be completed in 1997. Will use wireless for video delivery in near term.   yO - VDT : 490,000 in San Fran.by 1996; to pass another 510,000 in other 3 areas by 1997 (total of 1 million, down from 1.3 million in applications).  yO - Wireless : Pass as many as 5 million by 1996.  u  E+  GTEY Manassas, VA; Pinellas/Pasco, FL; Ventura, CA; Honolulu, HI+  yO- Approved : Planning or just beginning system construction.+  yO- VDT : 1,041,000  u +  AmeritechY Detroit, MI; Chicago, IL; Indianapolis, IN; Milwaukee, WI; Columbus/Clev., OHm  yO- Approved : Abandoned granted applications. Signed cable franchise agreements in Plymouth and Canton Townships, Northville, and Plymouth, MI; Columbus, OH; and Glendale Heights, IL. Pursuing additional midwest cable franchises.5  yO- VDT : None; under withdrawn applications, Ameritech was approved to pass 1,256,000.  yOm- Cable : Unknown.    Bell AtlanticY MidAtlantic; Wash., D.C. LATAM+  yO- Withdrawn : Planning to use wireless for video delivery in northeast and midAtlantic markets in near term while studying wire based options.  yO- VDT : None; under withdrawn applications, Bell Atlantic proposed to pass 3.2 million.  yO- Wireless : 4,038,000.   5   U S West-Y Denver, CO; Portland, OR; Minn.St. Paul, MN; Boise, ID; Salt Lake City, UT  yOe- Suspended at Request of Applicant : Studying wire based options and awaiting results from Omaha, NE trial.  yOe- VDT : Suspended applications sought approval to pass 1,126,000. P  Y  Bell Atlantic Y Florham Park, NJ Y  yOE- Pending . Y  yOE- VDT : 11,700P    Y  SNET CT  yO- Pending .  yO- VDT : 1,541,000"  "    X- '3'3StandardtHPLAS4SI.PRSXj\ 3'3'StandardtHPLAS4SI.PRSXj\ (    @-C---D--@    #XP\  P6Q+XP# APPENDIX D   X-Local Exchange Carrier Proposals Đx h ddx t`   ddxH,D h         " "   {M,-#X\  P6G;ɓP#Date First  {M-Filed   {M,-Telephone  {M-Company   {M,-Location   {M,-Homes  {M-Passed   {M,-Type of  {M-Proposal   {M,-Status    " :"  10/21/92Y Bell AtlanticVA+ Northern VA+ 2,000+ technical/  yO-marketk X< -ԍ A technical trial tests the technical feasibility of a VDT network, usually without charging customers for access to the network. A market trial charges either programmercustomers, enduser subscribers, or both for access, and is designed to test customer willingness to pay for that access. Both types of trials may be combined into one.: approved, 3/25/93; expanded, 1/20/95 P  ":Y"  10/30/92 Y NYNEX Y New York, NY Y 2,500 Y technical Y approved, 6/29/93P   "Y+"  11/16/92L Y New Jersey Bell + Florham Park, NJ + 11,700 + permanent + pending    12/15/92d Y New Jersey Bell,+ Dover Township, NJ,+ 38,000,+ permanent,+ approved, 7/18/94    4/27/93|Y SNET|Y West Hartford, CT|Y 1,600|Y technical/ marketD+ approved, 11/12/93  , 6/18/93Y Rochester Telephone\+ Rochester, NY\+ 120\+ technical/ market\+ approved, 3/25/94  D "+ "  6/22/93Y U S WestY Omaha, NEY 2,500 or  yOt-60,000)t4v? X8-#XP\  P6Q+XP#э The technical phase of the trial was authorized to pass 2,500 homes; the market phase of the trial expanded the technical trial and is authorized to pass 60,000 homes (thus far, U S West reports serving 5,000 homes).)<  technical/ market<  approved, 12/22/93  \ " "  12/15/93Y SNET (amended)T+ Hartford & Stamford, CTT+ 150,000T+ technical/ market expansion approved, 11/22/94 R < "Y"  12/16/93lY Bell AtlanticlY Wash., D.C. LATAlY 300,000lY permanentlY  {O-see 6/16/94 filingR P  12/20/93Y Pacific BellY Orange Co., CAY 210,000Y permanentY approved, 7/19/95P  n "Y+"  12/20/93Y Pacific BellY So. San Francisco Bay, CA+ 490,000+ permanent+ approved, 7/19/95 P  "+Y"  12/20/93&Y Pacific Bell&Y Los Angeles, CA&Y 360,000&Y permanent&Y approved, 7/19/95P P  12/20/93vY Pacific BellvY San Diego, CAvY 250,000vY permanentvY approved, 719/95"\+))"P  & "Y+"  1/10/94PY U S WestPY Denver, COPY 357,000PY permanentPY suspended by applicant, 5/31/95   1/19/94hY U S WesthY Portland, ORhY 162,000hY permanenthY suspended by applicant, 5/31/95   1/19/94Y U S WestY Minneapolis/ St. Paul, MNH+ 357,000H+ permanentH+ suspended by applicant, 5/31/95  0 "+"  1/31/94Y AmeritechY Detroit, MIY 232,000Y permanentY approved, 1/4/95; abandoned by applicant, June 27, 1995   H 1/31/94@ Y Ameritech@ Y Columbus & Cleveland, OH + 262,000 + permanent + approved, 1/4/95; abandoned by applicant, June 27, 1995     1/31/94Y AmeritechY Indianapolis, INY 115,000Y permanentY approved, 1/4/95; abandoned by applicant, June 27, 1995    1/31/94Y AmeritechY Chicago, ILY 501,000Y permanentY approved, 1/4/95; abandoned by applicant, June 27, 1995   @ 1/31/948Y Ameritech8Y Milwaukee, WI8Y 146,0008Y permanent8Y approved, 1/4/95; abandoned by applicant, June 27, 1995    "+"  3/16/94Y U S WestY Boise, IDY 90,000Y permanentY suspended by applicant, 5/31/95   3/16/94Y U S WestY Salt Lake City, UTY 160,000Y permanentY suspended by applicant, 5/31/95   4/13/94Y Puerto Rico Tel. Co.+ Puerto Rico+ 250+ technical+ approved, 12/5/94   5/23/94( Y GTE Contel of VA + Manassas, VA + 109,000 + permanent + approved, 5/2/95   5/23/94@"Y GTE FL Inc.@"Y Pinella and Pasco Co., FL#+ 476,000#+ permanent#+ approved, 5/2/95 P   "+Y"  5/23/94X$Y GTE CA IncX$Y Ventura Co., CAX$Y 122,000X$Y permanentX$Y approved, 5/2/95P  # "Y+"  5/23/94%Y GTE HI Tel. Co.p&+ Honolulu, HIp&+ 334,000p&+ permanentp&+ approved, 5/2/95"$\+&&C&%"  X$ "+"  6/16/94PY Bell Atlantic (amended)+ Wash., D.C. LATA+ 1.2 mil.+ permanent+ suspended by applicant, 4/25/95; withdrawn, 5/24/95   6/16/940Y Bell Atlantic0Y MidAtlantic0Y 2 mil.0Y permanent0Y suspended by applicant, 4/25/95; withdrawn, 5/24/95   "+"  6/27/94Y BellSouthY Chamblee & DeKalb Co., GA+ 12,000+ technical/ market+ approved, 2/8/95 P  "+Y"  7/8/94( Y NYNEX( Y RI( Y 63,000( Y permanent( Y approved, 3/6/95P P  7/8/94x Y NYNEXx Y MAx Y 334,000x Y permanentx Y approved, 3/6/95P  (  "Y"  9/9/94 Y Sprint/ Carolina Tel. & Tel. Co.X  Wake Forest, NCX  1,000X  technical/ marketX  approved, 12/28/94 P x  "Y"  11/16/94Y U S WestY Cedar Rapids, IAY 63,000Y permanentY dismissedP P X  11/16/94Y U S WestY Colorado Springs, COY 161,000Y permanentY dismissedP P  11/16/94HY U S WestHY Des Moines, IAHY 120,000HY permanentHY dismissedP P  11/16/94Y U S WestY Albuquerque, NMY 214,000Y permanentY dismissedP `  H "Yh"  4/28/95h SNETh CTh 1.5 mil.h permanenth pending`  'h"\+&&8"  X-#Xj\  P6G;+XP# 3'3'StandardtHPLAS4SI.PRSXj\ 3'3'StandardtHPLAS4SI.PRSXj\ (   @-D---E--@  #XP\  P6Q+XP# APPENDIX Ex  X-so Status of VDT Technical and Market Trials x  X-1.` ` This Appendix summarizes the various LEC filings concerning VDT technical and market trials. These filings include trial applications, trial compliance reports, permanent  Xv-applications, and tariffs. Since the 1994 Report, there have been filed with the Commission two more sixmonth trial reports, three oneyear reports, and four additional tariffs, including Bell Atlantic's tariff for permanent commercial service in Dover Township, New Jersey.  X - Applications and Tariffs for Technical and Market Trials  X -2.` ` Bell Atlantic Northern Virginia Technical and Market Trial. Authority for the first technical VDT trial was granted on March 25, 1993, to Chesapeake and Potomac Telephone of Virginia (now, Bell Atlantic Virginia) for a oneyear technical trial with up to 400 (employee) subscribers in Arlington, Virginia, to test Asymmetric Digital Subscriber Line  X-("ADSL") technology.\ X -#XP\  P6Q+XP#э ADSL permits Motion Picture Experts Group One ("MPEG1") compressed digital video signals to be transmitted on an ondemand basis over existing copper loops. Customerprogrammers will have a 1.5 Megabits per second ("Mbps") channel downstream and a 16  X-Kilobits per second ("Kbps") channel upstream. Bell Atlantic Tariff FCC No. 10, Transmittal  X-No. 742, at 1.0. Chesapeake and Potomac Telephone Company of Virginia, 8 FCC Rcd 2313 (1993). Bell Atlantic has filed two sixmonth reports on its technical trials, as required by its authorization.  X8-3.` ` The first sixmonth report covers the first phase of the technical trial, during which equipment was installed in a limited number of Bell Atlantic employee homes (61) in order to test technical viability and integration of the network. Some problems were experienced with the prototype video decoder, but all such problems were resolved by  X-September 15, 1993. Six Month Compliance Report of Bell Atl. Co., Bell Atl. No. Va. VDT  X-Application, File No. WPC6834 (filed September 23, 1993).  X-4.` ` The second sixmonth report covers phase two of the technical trial. During this phase, 268 Bell Atlantic employees participated in the trial, which tested the participants' reactions to the service and the technical feasibility of the service in a variety of network  XV-environments. Second Six Month Compliance Report of Bell Atl. Co., Bell Atl. No. Va. VDT  XA-Application, File No. WPC6834 (filed October 24, 1994). Bell Atlantic reports that participants averaged 2.6 hours of use of the service per week. It also reports that the number of problems reported increased with the increased number of participants in the trial. However, the report indicates that participants believe that the service is better than comparable media (cable, VCR, and broadcast) and is easy to use. In addition, Bell Atlantic states that the number of technical problems will be reduced with new software and hardware, and with better training of installation technicians. Over the course of the trial, Bell Atlantic"!!\+)) 8"  X-was able to reduce by twothirds the number of problems reported by participants. Id.  X-5.` ` Subsequent to the technical trial grant, Bell Atlantic requested and was granted (on January 20, 1995) permission to extend the technical trial into a market trial and to  X-expand the market trial to 2,000 subscribers.  See Chesapeake and Potomac Telephone  X-Company of Virginia ("Bell Atlantic No. Va. VDT Application"), 10 FCC Rcd 2975 (1995).  X|- For the market phase of this trial, Bell Atlantic filed a tariff with the Commission on January  Xe-27, 1995. Bell Atlantic Tariff FCC No. 10, Transmittal No. 742. The tariff reports that the market trial will last for six months, subject to possible extension, and is designed to test ADSL, the costs associated with it, and the willingness of both customerprogrammers and enduser subscribers to pay for it. Monthtomonth and nonrecurring charges for customer X -programmers and for enduser subscribers are reported.m \ X -#XP\  P6Q+XP#э For instance, customerprogrammers pay a $12.00 monthly connection fee, and enduser subscribers pay $7.50. Bell Atlantic is waiving all nonrecurring charges (such as a $70.00  XV-enduser subscriber charge) during the market trial service period. Id. at 7.5.m  X -6.` ` NYNEX Manhattan Technical Trial. Authority for the second technical trial was granted to New York Telephone ("NYNEX") on June 29, 1993, for a oneyear trial to test an HFC network, video switching technologies and methods for storing and delivering video programming in three multipledwelling unit ("MDU") buildings serving 2,500  X-subscribers in New York City. New York Telephone Co. for Section 214 Auth. to Provide  Xl-VDT Servs. in New York City ("NYNEX New York VDT Application"), 8 FCC Rcd 4325 (1993).  X)-7.` ` NYNEX has submitted two sixmonth reports to the FCC as required by its authorization. The first one reports "spirited competition" between its customerprogrammers,  X-particularly Liberty Cable and Time Warner Cable. Six Month Compliance Report of NYNEX,  X-NYNEX New York VDT Application, File No. WPC 6836 (filed July 15, 1994). The second report states that the VDT platform was successful at delivering programming from customerprogrammers to enduser subscribers, consisting of switchedaccess for delivering live video programming, and analog stored video for interactive programming. Analog stored video  X-allows enduser subscribers to fastforward, rewind, pause, and stop. Second Six Month  Xw-Compliance Report of NYNEX, NYNEX New York VDT Application, File No. WPC 6836 (filed February 10, 1995). NYNEX blames its continued holdup in adding digital capacity to its system on equipment delays. NYNEX hopes to test digital equipment sometime this year.  V4-Id.  X-8.` ` SNET West Hartford and Stamford Areas Technical and Market Trial. Southern New England Telephone Company ("SNET") was granted authorization on November 12, 1993, for a technical and market trial to serve between 200 and 1,600 customers in West Hartford, Connecticut and to test Fiber to the Node ("FTTN") architecture  X"-with coaxial facilities from the node to individual subscribers. Southern New England  X#-Telephone Co. for Section 214 Auth. to Provide CDT Servs. in West Hartford, Conn. ("SNET"#M\+))e"8"  X-West Hartford VDT Application"), 9 FCC Rcd 1019 (1993).  X-9.` ` Shortly after gaining approval for the technical and market trial, SNET  X-requested an authorization to expand the trial to pass 151,000 homes (Southern New England  X-Telephone Company, Order and Authorization, 9 FCC Rcd 7715 (1994)), which was approved on November 22, 1994. A tariff was filed because SNET intends to charge subscribers and customerprogrammers for the service to test interest and willingness to pay for services  Xe-available from the VDT platform. Southern New England Telephone Company, Tariff F.C.C.  XP-No. 40, Transmittal No. 641 (filed June 27, 1995).  X$ - 10.` ` According to the tariff, SNET intends to provide video service to two service areas, northern Connecticut (passing 76,000 homes in the cities of West Hartford, New Britain, Farmington, and Hartford) and southern Connecticut (passing 75,000 homes in the cities of Stamford, Norwalk, Darien, Westport, and Fairfield). Customerprogrammers will be able to request service in either area or both, and will be charged monthly according to the average number of subscribers each month times the Broadcast Connect Rate per 6MHz  X-channel.\ X-#XP\  P6Q+XP#э The Broadcast Connect Rate per 6 MHz channel is $0.10. Customerprogrammers  X-using less bandwidth will be charged according to a pro rata share of the 6 MHz. Southern  X-New England Telephone Company, Tariff F.C.C. No. 40, Transmittal No. 641 (filed June 27, 1995). At first, SNET plans to offer 53 analog channels and 23 channels of analog Enhanced PayperView ("EPPV"). In addition, in the northern service area, SNET proposes to provide VideoOnDemand ("VOD"), which will become available to both service areas when the digital upgrade is deployed. SNET's projection for digital services predicts zero digital channels in year one, 40 digital channels in year two, and 200 digital channels in year  X'-three and beyond. SNET plans to file a digital tariff during the third quarter of 1995. Id.  X- 11.` ` Despite the authorization to build out the system further, SNET's two six X-month trial reports indicate that SNET has not yet expanded the VDT system. First Six  X-Month Compliance Report of SNET, SNET West Hartford VDT Application, File No. WPC  X-6858 (filed December 22, 1994), Second Six Month Compliance Report of SNET, SNET West  X-Hartford VDT Application, File No. WPC 6858 (filed June 1, 1995).  Both report that the system is a Hybrid FiberCoaxial ("HFC") network which offers VOD, payperview, and  Xy-aggregated channel services to 1,250 homes. Id. As of March 31, 1995, 58 video information providers were supplying programming, and 340 enduser subscribers were connected to the system. SNET reports that it is pleased with the operation of the system and that the trial demonstrates that it is feasible to deliver video signals over an advanced  X-telecommunications network. Second Six Month Compliance Report of SNET, SNET West  X -Hartford VDT Application, File No. WPC 6858 (filed June 1, 1995).  X - 12.` ` U S West Omaha, NE Technical and Market Trial. On December 22, 1993, U S West was granted an authorization for technical and market trials in Omaha, Nebraska.  X"-The technical trial lasted six months and passed 2,500 homes. U S West Communications,""8\+))!8"  X-Inc. for Section 214 Auth. to Provide VDT Servs. in Omaha, Neb., 9 FCC Rcd 184 (1993). The market trial will last for the twelve months following the technical trial and will pass 50,000 homes. U S West will use an advanced fibertothecurb/coaxial cable network capable of providing 77 channels of analog video with forwardpathonly signaling, and up to 800 channels of digital video with forward and/or reversepath signalling capability. Sixtyfour analog channels will have interdiction capabilities, which means that the customer Xx-programmers can use them to provide payperview services. U S West Communications,  Xc-Tariff FCC No. 5, Transmittal No. 657 (filed August 8, 1995), at Section 1.3. U S West will  XL-also allow customerprogrammers to offer digital VOD services. Id. at Section 1.5.6. US  X7-West estimates a residential penetration rate of 28% for the trial. Id.  at Section 2.1.2.a7\ X -#XP\  P6Q+XP#э U S West submitted an attachment to its Omaha tariff that reported the results of surveys in the major cities that U S West serves. These surveys indicate "...that in a scenario in which two video providers offered comparable service offerings, 51% of households with access to the two providers would subscribe to the local cable TV provider's offering and 23% would be customers of U S West's video services offerings. Overall, cable penetration of homes with access to two providers would increase from approximately 60% today to  X&-74%." U S West Omaha Tariff, Exhibit A, at page 2.  X - 13.` ` Rochester Telephone Rochester Technical Trial. Authority for the fifth authorized trial was granted on March 25, 1994, to Rochester Telephone Co., for six months, to conduct a tariffed field test to serve up to 120 subscribers using two architectures: a fibercoax system within multiunit and singleunit dwellings, and an ADSL system utilizing  X -Discrete MultiTone technology within a defined twomile area. Rochester Tel. Corp. for  X-Section 214 Auth. to Provide VDT Servs. in Rochester N.Y. ("Rochester Tel. VDT  X-Application"), 9 FCC Rcd 2285 (1994). Rochester Telephone filed a tariff prior to commencement of its trial because it intended to charge both customerprogrammers and end XY-user subscribers for its VDT service. Rochester Telephone Corporation, Tariff FCC No. 3,  XD-Transmittal No. 224 (filed May 17, 1994).uD\ X-#XP\  P6Q+XP#э The tariff expired on June 30, 1995.u  X- 14.` ` Rochester Telephone also filed, on March 1, 1995, a compliance report on the  X-status of the trial. Six Month Compliance Report of Rochester Telephone, Rochester Tel. VDT  X-Application, File No. WPC 6867 (filed March 1, 1995). Rochester Telephone reported that,  X-although it had received pro forma authorization to extend its trial for an additional three X-month period until June 30, 1995 , \ X#-#XP\  P6Q+XP#э See Letter from James D. Schlichting to Michael J. Shortley, III and Charles A. Zielinski (Oct. 11, 1994). it and its sole customerprogrammer, USA Video, had decided that continuation of the trial did not make financial sense. Thus, in January 1995, USA Video ceased providing service to enduser customers, but the VDT platform remained  X{-available for service until the tariff expired. Id. Rochester Telephone also stated that, due to"{> \+))8"  X-technical constraints, it never performed the ADSL portion of its trial.|\ Xy-#XP\  P6Q+XP#э Rochester Telephone required ADSL technology that was capable of transporting a 6 Mps signal, which was still in its prototype stage at the time of the trial. ADSL technology capable of transmitting 1.5 Mps was commercially available (and was used in Bell Atlantic's  X4-Northern Virginia trial, see para. 1, above), but was insufficient for Rochester Telephone's  X-needs. Six Month Compliance Report of Rochester Telephone, Rochester Tel. VDT  X -Application, File No. WPC 6867 (filed March 1, 1995). Despite these difficulties, Rochester reported that the trial was a success in technical terms, and that it had  X-gained substantial knowledge from the trial. Id.  X-15.` ` Puerto Rico Puerto Rico Telephone Company Technical Trial. Authorization for the sixth authorized trial was granted, on December 5, 1994, to the Puerto Rico Telephone Company for a oneyear technical trial authorization to serve 250 homes using FibertotheCurb ("FTTC") and 18 schools and 12 business offices using ADSL network architecture.  XJ-Puerto Rico Telephone Co.., File No. WPC6949 (1994). The trial proposed initial deployment of 64 analog video channels over the FTTC system, with future enhancement through digital compression to 384 channels.  X -16.` ` BellSouth DeKalb County and Chamblee, Georgia Technical Trial. Authorization for the seventh trial was granted, on February 8, 1995, to BellSouth for an 18month trial to pass 12,000 homes in DeKalb County and Chamblee, Georgia for the purpose of testing an HFC network offering both traditional channel service with 60 analog channels and a digital VDT platform with approximately 300 channels utilizing both digital multicast  X}-and digital pointcast. BellSouth, File No. WPC6977 (1995). Digital multicast entails distribution of a digital video signal to everyone who subscribes, while digital pointcast is switched digital distribution. BellSouth reported to the Commission, in an April 28, 1995 letter, that 14 customerprogrammers had requested more channels than the platform's planned 70 analog broadcast channels, 160 digital broadcast channels, and 480 digital switched channels. BellSouth had tentatively decided, instead of expanding the capacity of the platform, to allocate channels to all applicants on a proportional basis and file a tariff for such  X-allocation. See Letter from Michael A. Tanner to Kathleen M. H. Wallman (April 28, 1995).  X-17.` ` Carolina Telephone and Telegraph Company Wake Forest, North Carolina  X-Technical and Market Trial. Authorization for the eighth trial was granted on December 28, 1994 to Carolina Telephone and Telegraph Company for a twoyear technical and market trial  Xm-to 1,000 homes in Wake Forest, North Carolina. Carolina Telephone and Telegraph Co., File No. WPC6999 (1994). In a subsequent letter, Carolina Telephone and Telegraph Company informed the Commission that three customerprogrammers had requested more than the initial 75 analog channel capacity of the system, but that the customerprogrammers were  X-satisfied with dividing the 75 channels. See Letter from Warren D. Hannah to Kathleen M. H. Wallman (May 2, 1995). " \+))8"  a< 3'3'StandardtHPLAS4SI.PRSXj\ 3'3'StandardtHPLAS4SI.PRSXj\ (   @-E---F--@" #|\  P6G;^P#APPENDIX F#Xj\  P6G;+XP#  ZTop 20 SMATV Operators  X- (ranked by number of units passed*) #X\  P6G;ɓP#ѐx w ddxH,D !UxX ,@@@@@@@w $`   e $ &&  yOeX( 0 8@H!# - zNe-" -j'4 < -&4 <4- - zNe-/ -O!4e U |!UxX ,@@@@@@@AxX @@@@@@@| $e U$ &&  zN-RankT 4 <Company(4 <4Number of BPropertiesJ44 Units  zN-Passed4   |AxX @@@@@@@aJxX ,@@@@@@@| $r $ && " {MJ-" "j'4 < "&4 <4" " {MJ-0 " yOJ-O!4 $r J$14 <Interactive Cable Systemsb4 <4700 230,000O!4$$^ 2^ 4 <OpTel^ b4 <4^ 350^  110,000^ O!4$$8 38 4 <Telesat**8 b4 <48 R658 /81,2008 O!4$p $ 4 4 <Cable Plus*** b4 <4 170 /61,291 O!4$J $ 5 4 <ACS b4 <4 225 /54,000 O!4$$ $ 6 4 <Apollo b4 <4 160 /50,600 O!4$ $ 7 4 <MidAtlantic Cable b4 <4 R74 /47,176 O!4$ $z8z4 <Interface Communicationszb4 <4zR60z/35,000zO!4$ $T9T4 <Eastern Cable Networks (formerly AMSAT)****^4 <4TR70T/34,000TO!4 <$$.10.4 <Liberty Cable.b4 <4.175./30,000.O!4$f$114 <Preferred Entertainmentb4 <4190/30,000O!4$@$124 <Ed Rose & Sonsb4 <4R50/26,000O!4$$134 <Future Communicationsb4 <4R46/20,000O!4$$144 <MultiTechnology Servicesb4 <4R65/18,500O!4$$p15p4 <Telecom Satellitepb4 <4pR50p/17,500pO!4$$J16J4 <Wireless Cable of AtlantaJb4 <4JR30J/12,000JO!4$$$17$4 <Superior Cable$b4 <4$R26$/10,736$O!4$\$184 <Sunshine TV Entertainmentb4 <48/10,000O!4$6$194 <Novner Enterprisesb4 <4R237,000O!4$$204 <Coaxial Communicationsb4 <4R225,800O!4$S$ && >4 <b4 <43O!4$S$ yO R  zN-4 <Total&4 <42,559 zN-890,803 yO-O!4  |aJxX ,@@@@@@@xX ,@@@@@@@| $ $ &&   4 < J4 <444  4 4 O!4    X` hp x (#%'0*,.8135@8:# Sub.SwS"Cash y["Flow t,"Mult. + + S-` Clustering#6\  P6QلP#.  . 6 6 %` Sep94` Northland CableCorsicana CableCorsicana, TX` $7.50=5,300>$1,405 7#9.1 $ l-` .L+. 6J 6 %` wOct94w` AdelphiawTeleMedia Investment PartnershipJPAbased MSOJ` $90.00J 63,800JB$1,411 J7#9.6 J$ Jl-` .L. 6J 6 %` Oct94` Century Communications/ Citizens Utilities Foothills Cablevision Chino & Glendora, CA ` $51.90  26,600 @$1,951  7#8.0  $  l-` .L. 6J 6 %`  Oct94 ` Comcast Grosse Pointe Cable (Grosse Pointe Twp.)[ JGrosse Pointe, MI [ J` $32.00[ J 16,600[ J>$1,928 [ J"10.7 [ J$ [ J` Acquired remaining 75% of cable system..L . 6J 6 %`  Oct94 ` Falcon Communications Lost Hills Communications Calabasas, CA ` $2.70 =1,200 >$2,195  "11.9  $  l-` .[ . 6 6 %`  Oct94 ` TCI Heritage Communications (Comcast has 19% ownership PAbased MSO  _` $290.30 184,200 >$1,576  7#8.5  $  l-` . .%` Oct94` WT Acquisition Corp.Time WarnerMooreland & Woodward, OK; Nixon & Flatonia, TX` $8.85=6,200>$1,427 7#8.5 $ l-` . . 6 6 %` Nov94` AdelphiaClear Channels Cable TV, Rifkin/WB Cable Association,Benjamin Terry Family }Kittanning, PA Boca Raton/West Palm Beach, FL;Henderson/Vance Co., NC}_` $122.30} 69,200}>$1,767 }7#8.1 }$ }` West Palm Beach/Boca Raton system adds to Adelphia's existing FL systems with 300,000 subs...%` #Nov94#` Century Communications#ML Media Partners#Anaheim, Fairfield, Hermosa Beach/Manhattan Beach & Rohnert Park, CA_` $286.00135,000@$2,119 "10.5 $ ` Systems increase Century's subs. to 1.1 million..L}. 6J 6 %` Nov94` Charter Communications aJBiJo CablevisionaJStockbridge & Henry County, GAaJ` $5.50aJ=2,500aJ<$2,208 aJ"11.5 aJ$ aJ` Acquired system adds to Charter's Atlanta cluster..L>. 6J9 6 %` Nov94` ContinentalProvidence Journal Cable (Colony Communications) partnership with Kelso & Co. systems also sold MN; RI; MA; Ft. Myers & Miami, FL; Los Angeles, Palm Springs, Riverside County, CA; Catskill Mountains, NY 9` $1,400.009775,0009>$1,806 9"11.1 9$ 9` Systems add to Continental's clusters in MN; Providence, RI/Boston, MA; Ft. Myers & Miami, FL; LA, Palm Springs, Sacramento & Riverside Co., CA; & Catskill Mtns., NY."> a" 69 6 %` ENov94U` CoxUAmerican Cable TV Investors, LP (Ptnrs. 4 & 5)TCI Mgmt.Newport News, VA_` $122.00 48,000<$2,542 7#9.0 $ ` System adds to Cox's Hampton Roads cluster197,000 subs. in Norfolk, Portsmouth, & VA Beach.""" L" 6J 6 %` Nov94` Northland CommunicationsLJAlabama TV Cable Co.LJAliceville & Tuscaloosa, ALLJ` $9.20LJ=6,850LJ>$1,343 LJ7#7.5 LJ$ LJ` Systems add to Northland's adjacent MS cluster with 20,000 subs..L. 6J 6 %` Nov94` NUSHAGAK TelephoneDillingham CablevisionDillingham, AK` $0.40400>$1,000 7#6.0 $ l-` .LL. 6J 6 %` Nov94` Providence JournalKing Cable (50%)CA, WA, & IDbased systems>J_` $265.00>J124,300>J>$2,132 >J"11.7 >J$ >Jl-` .L. 6J 6 %` Dec94` CCT Holdings (Charter Communication Corp./Kelso Co. joint venture)Gaylord Broadcasting (Gaylord Entertainment)Riverside County & Pasadena, CA; NC, & SCbased systems_` $370.00175,000@$2,114 7#9.7 $ l-` .>. 6 6 %` |Dec94|` Galaxy Telecom, LP|Galaxy Cablevision, LP|IL & KYbased MSO|` $18.40| 14,900|>$1,235 |7#8.1 |$ |l-` ..%` "Dec94"` Galaxy Telecom, LP"Vantage Cable"IA & NEbased MSO"` $38.40" 30,500">$1,259 "7#7.9 "$ "l-` .L|. 6J 6 %` Dec94` Sioux Falls Cable/ WT Acquisition CorpnJNew Heritage/Meredith Time Warner nJBismarck & Mandan, ND; Woodward, OKnJ` $48.90nJ 24,000nJ<$2,038 nJ=#n/a nJ$ nJl-` .LL".%`  Jan95 ` Adelphia Henderson Community Antenna JHenderson, Oxford, & Franklin County, NC J` $22.40 J 14,100 J>$1,589  J"10.2  J$  Jl-` .LLn.%` ` Jan95` ` Charter Communications  JCableSouth JALbased systems J` $49.00 J 28,700 J>$1,707  J7#9.0  J$  Jl-` .L . 6J 6 %`  Jan95 ` Continental Cablevision of Chicago Cook & Du Page Counties, IL R J_` $172.00R J 86,000R J<$2,000 R J"11.1 R J$ R J` Acquired systems add to existing Chicago cluster; Continental will have 340,000 subs. in 81 Chicago suburbs..L . 6J 6 %`  Jan95 ` Continental Cablevision of Jacksonville Bradford, Clay, & Nassau Counties, FLDJq` n/aDJ 34,000DJM n/aDJ=#n/a DJ$ DJ` .LL .%` Jan95` Fanch CommunicationsSammons CommunicationsJohnstown, Gloversville & Cortland, NYJ` $32.25J 21,500J>$1,500 J"11.4 J aED$  Jl-` .LLD.%` 6Jan956` Galaxy Management6Chartwell Cable of CO6Larimer & Weld Counties, COJq` n/aJ825JM n/aJ=#n/a J$ Jl-` .LL.%` Jan95` Galaxy Telecom, LPVista CommunicationsAL, GA, FL, LA, & MSbased systems(Jq` n/a(J 30,000(JM n/a(J=#n/a (J$ (J`  .L. 6J 6 %` Jan95` Maclean Hunter Cable (80% ownership)tJCable TV NJ (Arnold McKinnon/Samuel DeLuca20% ownership)Jersey City, NJ q` n/a 31,000M n/a=#n/a $ ` MacLean Hunter now has 100% of system..L(. 6J 6 %` Jan95` MultimediaTCIWichita, KS` $90.63 50,400>$1,798 "10.6 $ ` System acquired through trade of IL & OK systems with 40,600 subs..LL.%`  Jan95 ` OpTel, Inc. International Richey Pac. CableJAZ, CA, & TXbased systemsJ` $17.50J 17,500J>$1,000 J7#8.6 J$ Jl-` .Lf. 6J 6 %` XJan95X` Robert McMillanXTime Warner XFayetteville, et al., ARX` $65.00X 34,300X>$1,895 X"10.8 X$ Xl-` "\ " 6Y 6 %` Jan95` TCIMultimedia, Inc.IL & OKbased systems` $82.60 40,600<$2,035 7#9.9 $ ` Systems acquired through trade of Wichita, KS system with 50,400 subs."KKXX4""\ 0X" 6Y( 6 %` Jan95` Time Warner KBLCom (Houston Industries subsidiary)LJSan Antonio & Laredo, TX; Minneapolis, MN; Portland, OR; Orange County, CA; Paragon Systems (+ 50% ownership)AZ, CA, FL, ME, NH, NM, NY, OR, & TX0(` $2,243.500(Q1,173,5000(@$1,912 0(7#9.5 0($ 0(` Acquisitions add to Time Warner's existing clusters249,000 subs in Houston; San Antonio & Laredo, TX; Minneapolis, MN; Portland, OR; & Orange Co., CA. .0. 6( 6 %` Feb95` CTECHiggins Lake Cable, Inc.Higgins Lake, MI` $4.70=3,200>$1,469 =#n/a $ l-` .L0. 6J 6 %` |Feb95|` Charterhouse Group|Crown Media|KY, NC, & SCbased systems"J_` $112.00"J 63,000"J>$1,778 "J=#n/a "J$ "J` Systems increase Charterhouse to 163,000 subs..LL.%` Feb95` Comcast (acquired 10% interest)nJGarden State nJNJBased MSOnJ` $27.50nJ 19,461nJ@$1,413 nJ7#9.8 nJ$ nJ` Comcast now owns 50% of Garden State..LL".%`  Feb95 ` Greene County Partners, Inc JInterMedia Partners (TCI affiliate) JCentral ILbased systems Jq` n/a Jn/a JM n/a J=#n/a  J$  Jl-` .LLn.%` ` Feb95` ` Greene County Partners, Inc JUnited Video JCentral ILbased systems Jq` n/a Jn/a JM n/a J=#n/a  J$  Jl-` .L . 6J 6 %`  Feb95 ` InterMedia Partners (TCI affiliate)R JTCIR JAthens, GA; Ashville, NC; Cleveland, TNR J_` $163.34R J 85,970R J>$1,900 R J7#8.7 R J$ R J` Acquired systems through trade of systems in Santa Clara, Mountain View et al., CA with 70,000 subs.. .%`  Feb95 ` Jones Intercable Cable TV Fund 12B LP Augusta, GA _` $141.72  66,000 >$2,147  7#9.7  $  ` System will form cluster with existing adjacent system in northern Georgia/Augusta.. .%` Feb95` Lenfest Communications (TCI 50% ownership) (acquired 10% interest)Garden State NJBased MSO` $27.50 19,461@$1,413 7#9.8 $ ` Lenfest now owns 50% of Garden State... 6 6 %` Feb95` TCA CableTime WarnerRussellville, AR` $26.99 14,994>$1,800 "10.3 $ l-` ..%` (Feb95(` TCA Cable(Time Warner (Fayetteville, AR(` $37.10( 19,306(>$1,922 ("10.4 ($ (l-` .. 6 6 %` Feb95` TCIInterMedia Partners (TCI Affiliate)tJSanta Clara, Mountain View et al., CAtJ_` $139.09tJ 70,000tJ>$1,987 tJ7#8.9 tJ$ tJ` Acquired systems through trade of Athens & Milledgeville, GA; Ashville, NC; & Cleveland, TN systems with 86,000 subs." (" 6 6 %` fFeb95v` Time Warner vCablevision Industries (CI)vNYbased MSOv` $2,719.00vQ1,395,750v>$1,948 v7#9.9 v$ v` Acquired systems add to Time Warner's existing clustersCI has 250,000 subs. in NY state; 138,000 subs. in Raleigh/Greensboro, NC; 243,000 subs. in Orlando/Tampa, FL; 95,000 subs. in San Fernando Valley, CA; & 92,000 subs. in Columbia, SC;"KKXX~"" " 6 6 %` Mar95` Century Communications LJRock Associates, Inc.LJSusanville & Burney, CA; Gunnison & Telluride, CO; Coeur d'Alene, Moscow & Bonners Ferry, ID; Libby, MT; Friday, WA` $84.00 47,000>$1,787 7#9.7  aE$  l-` .L. 6J 6 %` Mar95` Classic CableAmerican Cable EnterpriseMO, KS, OK, & TXbased systems0J` $13.300J=9,8000J>$1,362 0J7#8.5 0J$ 0Jl-` .L. 6J 6 %` Mar95` Fanch CommunicationsLeonard CommunicationsBunkie, Ferriday, Jonesville, Oakdale & Sicily Island, LA; Atchison, KS` $17.17 12,100@$1,419 7#8.4 $ l-` .0. 6 6 %` nMar95n` Jones IntercablenCablevision of Manassas (Benchmark Communications) Manassas, Manassas Park, & Prince William County, VA ` $71.00  26,000 >$2,731  7#9.0  $  ` Acquired systems add to Jones Intercable's 125,000 subs. in BaltimoreWashington, DC cluster..L. 6J 6 %` ` Mar95` ` Lenfest Communications (TCI 50% ownership)  JSammons Communications JPAbased systems  J_` $533.26 J293,000 J>$1,820  J"10.6  J$  J` Sammons' PA systems not acquired by Marcus..LL .%`  Mar95 ` Leonard CommunicationsR JFanch CommunicationsR JKS & LAbased systemsR J` $17.20R J 12,100R J>$1,750 R J7#8.4 R J$ R Jl-` .L . 6J 6 %`  Mar95 ` Marcus Cable Sammons Communications CA, TX, IN, & 13 other states  J_` $962.50 J650,000 J@$1,481  J7#9.5  J$  J` Acquisitions add 11 systems to Marcus's 2 TX systems, including 140,000 subs in DallasFt. Worth; & 5 systems to Marcus's 2 IL systems; Marcus largest cluster is 66 systems in WI; remaining Sammons systems scattered in 13 other states..>R . 69 6 %` Mar95` Olympus Communications LP (Adelphia 2/3 ownership; Florida Power & Light 1/3 ownership)9Telesat Cablevision9Leesburg, Citrus, Hillsborough, Orange, & Osceola Counties, FL9_` $127.509 50,0009<$2,550 9=#n/a 9$ 9` Adds 460,000 subs to Adelphia's systems, mostly in Miami & Palm Beach..>L. 69J 6 %` Mar95` Rock Associates, Inc.Century Communications CA, CO, ID, MT & WAbased systemsfJ` $84.00fJ 47,000fJ>$1,787 fJ7#9.7 fJ$ fJl-` .L. 6J 6 %`  Mar95 ` TCA Cable Marcus Cable  San Angelo, Andrews, Ballinger, Miles, & Winters, TX; X` $65.10X 32,800X>$1,985 X"10.3 X$ X` Adds to TCA's San Angelo cluster; TCA now has 540,000 subs..f. 6 6 %` Mar95` TCI/TKR of Houston Cable/Net CommunicationLeague City, TX` $2.61=1,690>$1,543 7#9.5 $ l-` "LX" 6J 6 %` Mar95` TKR Cable/TCI (joint venture)JJSammons CommunicationsJJNJbased systemsJJ_` $267.54JJ147,000JJ>$1,820 JJ"10.3 JJ$ JJ` Systems are those of Sammons not acquired by Marcus."LL"%` Apr95` Adelphia (50%)St. Mary's TVFox, Ridgeway, & Elk County, PAJ` $3.92J=3,350J@$1,169 J7#7.7 J$ Jl-` "JKKXX##""L J" 6J 6 %` Apr95` Bresnan CommunicationsFuturevision of BruceBruce, MS` $1.34=1,165@$1,150 7#8.1 $ l-` " " 6 6 %` \Apr95\` Continental\NCOM Limited Partnership IIJWayne, Oakland, Wastenaw, & Jackson Counties, MI` $90.00 35,820>$2,513 "10.5 $ ` Continental acquires 66% of NCOM it did not already own; acquisition gives Continental MI cluster with 339,000 subs... 6 6 %` Apr95` Galaxy Telecom, LPGalaxy Cablevision, LPCameron, TX` $3.55=3,535>$1,004 7#8.0 $ l-` .LN. 6J 6 %` Apr95` GS CommunicationsPA Classic CableAdams & York Counties, PA@J` $16.70@J 12,850@J>$1,300 @J"10.4 @J$ @Jl-` .L. 6J 6 %` Apr95` TCI of FloridaN & K Industries, Inc.Ft. Pierce, FL` $0.70873CP $800 7#7.2 $ l-` .@.%` Apr95` Telmet of PrestonV. Miller Charitable TrustPreston, IA` $0.60700CP $967 7#9.0 $ l-` .L. 6J 6 %` 2May952` Charter Communications JPeachtree Cable TVJCarrollton & Dublin, GAJ` $24.42J 12,240J>$1,995 J"10.4 J$ Jl-` .L. 6J 6 %` ~May95~` Classic Cable~Time Warner~Chanute, Emporia & Independence, KS; Chillicothe, Kennett, & Marshall, MOp ` $69.88p  32,500p >$2,150 p 7#9.9 p $ p l-` .. 6 6 %`  May95 ` Classic Cable WK Communications KS & MObased systems ` $65.10  31,000 >$2,100  7#9.8  $  l-` .p . 6 6 %`  May95 ` Fanch Communications (Mark Twain Cablevision, LP) Leonard Communications (Delta Cablevision I) MN, MO, MS, & WIbased systems ` $3.36 =3,200 >$1,050  7#8.4  $  l-` . . 6 6 %`  May95 ` Fanch Communications Gold Country Cablevision Cripple Creek, CO ` $0.41 400 >$1,030  7#8.4  $  l-` .L . 6J 6 %` TMay95T` FMTC Mtg. (Fanch Communications)JMark Twain Cablevision, LPJEspanola, NM; CO, MN, & MObased systemsJ` $28.53J 27,300J>$1,045 J7#8.5 J$ Jl-` .LL .%` May95` InterMedia Partners (TCI affiliate)FJTime WarnerFJKingsport, TNFJ` $61.60FJ 31,100FJ@$1,981 FJ"10.1 FJ$ FJl-` .L. 6J 6 %` May95` Jones IntercableColumbia International, Inc.JDale City et al., VA (Prince William County)J_` $123.00J 50,000J<$2,460 J7#9.5 J$ J` Acquired systems add to 125,000 subs to Jones's BaltimoreWashington, DC area cluster. .LF. 6J 6 %` May95` Lenfest Communications (TCI 50% ownership) JTime WarnerJSalem, NJJ` $14.22J=7,400J>$1,922 J7#9.9 J$ Jl-` .LL8.%` *May95*` Mark Twain Cablevision LPJDelta Communication, Inc.JAlma, Buffalo, & Cochrane, WIJ` $0.76J825JEP $918 J7#8.2 J$ Jl-` .LL.%` vMay95v` NewsPress Gazette Co.vCoxvBullhead City & Mohave Co., AZ J` $20.00J 13,000J>$1,538 J"10.1 J$ J` Cox acquired Bullhead, AZ system in Feb. 1995 Times Mirror Cable deal..L. 6J 6 %` May95` OpTel, Inc.Action Cable TVDallas, TX` $2.47=4,000EP $618 7#6.0 $ l-` "L" 6J 6 %` hMay95h` Rapid Communications Partners, LPJGalena CablevisionJGalena & Scales Mound, ILJ` $0.72J700J>$1,023 J7#7.6 J$ Jl-` .LL.%` May95` Rapid Communications Partners, LPZJGreen River CableZJCasey, Lincoln et al., KYZJ` $0.85ZJ=1,440ZJCP $587 ZJ7#4.9 ZJ$ ZJl-` "LL"%` May95` Rapid Communications Partners, LPJRenaissance CATVJAR, KY, & MObased systemsJq` n/aJ=4,600JM n/aJ=#n/a J$ Jl-` "Z KKXX22""L\ Z" 6JY 6 %` May95` Raystay Co.Time Warner Chamberburg & Shippensburg, PA\Y` $32.93\Y 22,400\Y>$1,470 \Y"10.7 \Y$ \Yl-` "\ " 6Y 6 %` May95` TCA CableTime WarnerEl Dorado, AR` $19.40 10,400>$1,865 "10.0 $ l-` .\.%` May95` York CableTime WarnerRankin, MS` $2.66=1,650@$1,612 7#9.1 $ l-` .. 6 6 %` NJun95N` Adelphia/Olympus Communications Corp.JFairbanks Communications, Eastern Telecom, Robinson Cable TV, Leadership/First Carolina Cable TV (New England)FL, PA, & New Englandbased systems_` $177.90108,000>$1,647 7#8.1 $ ` Acquired systems add to Adelphia clustersOlympus Communications (Adelphia/FPL joint venture) owns systems..L. 6J 6 %` 2Jun952` Continental2Consolidated Cable PartnersJReedley, CAJ` $15.20J 12,200J>$1,252 J7#8.4 J$ Jl-` .LL.%` ~Jun95~` Marcus Cable~Cencom of Alabama, LP~Birmingham, Fayetteville et al., AL$ J_` $151.00$ J 83,610$ J>$1,806 $ J7#9.2 $ J$ $ Jl-` .L. 6J 6 %`  Jun95 ` TCI Chronicle Publishing (Western Communications)  Camarillo, Concord, Hemet, Monterey Peninsula, Thousand Oaks, So. San Francisco & Ventura County, CA; Las Cruses, NM; & HI  _` $565.00 328,000 >$1,723  7#8.6  $  ` Acquired CA systems add to TCI's 1,000,000 subs. San Francisco cluster (includes affiliatesLenfest's 118,094 subs. & InterMedia Partners' 66,910 subs.)..$ . 6 6 %`  Jun95 ` TCI  Columbia Associates, LP NV, OR, WAbased systemsTJ_` $304.00TJ147,000TJ<$2,068 TJ"10.0 TJ$ TJ` Columbia's 75,000 subs. in 17 Portland, OR suburbs add to TCI's Portland cluster..L . 6J 6 %` Jun95` Torrence Cablevision USAFJRegional Cable TV USAFJAL & MSbased systemsFJ` $0.81FJ=1,400FJCP $575 FJ7#7.0 FJ$ FJl-` .L. 6J 6 %` Jul95` Cable USA (HH Cable)Classic CableAxtell et al., NE` $1.70=1,300>$1,262 7#8.5 $ l-` .F. 6 6 %` Jul95` Charter Communications 8JUnited Video Cablevision8JSt. Louis Co., MO; Nashoba Valley area, MA` $90.00 45,300>$1,985 7#9.0 $ ` Acquired St. Louis Co. system adds to Charter's MO cluster..L. 6J 6 %` Jul95` Gannett Co., Inc.Multimedia, Inc.KS, IL, IN, NC, & OKbased systems*J_` $861.00*J450,000*J@$1,913 *J7#9.2 *J$ *Jl-` "L" 6J 6 %` Jul95` InterMedia Partners (TCI affiliate)vJTCI vJNashville, TN vJ_` $255.20vJ141,000vJ@$1,810 vJ7#9.2 vJ$ vJ` Acquired system adds to InterMedia 200,000 subs. cluster in eastern TN (deal follows TCI/Viacom merger)..*. 6 6 %` Jul95` PA Educational Employees/ Spectrum Equity (Trust Fund) (25% ownership) Adelphia (75% ownership)PAbased MSO _` $100.00=1,630M n/a=#n/a $ l-` .L. 6J 6 %` ZJul95Z` Sunshine State Cablesystems IIJWildwood PartnersJWildwood, FLJ` $0.40J400JCP $936 J7#8.2 J$ Jl-` "L " 6J 6 %` Jul95` TCIJournal World, TheFt. Collins, CO` $59.60 30,000>$1,987 "10.2 $ l-` "!KKXX"" >" 69 6 %` Jul95` Tele Communications, Inc. (TCI)LJViacomLJCA, WA, OR, TN, & OHbased systemsLJ` $2,250.00LJQ1,159,600LJ>$1,940 LJ"10.0 LJ$ LJ` Acquired systems add to TCI clusters388,000 subs. in San Francisco (90% of subs.); Seattle (90% of subs.); Portland/Salem, OR (60% of subs.); Nashville, TN; & Dayton, OH..>L. 69J 6 %` Jul95` Universal Cable CommunicationsJCable Video EntertainmentJMO, OK, & TXbased systemsJ` $16.00J 12,200JB$1,311 J7#8.5 J$ Jl-` .L>. 6J 6 %` 0Aug950` Bresnan Communications0Bye Cable0Crosby, MN0` $2.900=2,0000>$1,440 07#8.3 0$ 0l-` ..%` Aug95` CTECMercomMSO systems` $6.90n/aM n/a=#n/a $ l-` .0. 6 6 %` |Aug95|` Century Communications "JCentury Venture Corp. (TimeWarner/Century Communications joint ownership)nColorado Springs et al., CO n_` $155.00n100,000n>$1,550 n7#9.7 n$ n` Acquired systems add to Century's Colorado cluster; traded systems in Milwaukee, WI; Owensboro, KY; & Brunswick, GA with 100,000 subs. ..%`  Aug95 ` Century Venture Corp. (TimeWarner/Century Communications Corp. joint ownership) Century Communications  Milwaukee subs, WI; Owensboro, KY; & Brunswick, GA _` $149.60 100,000 >$1,496  7#9.9  $  ` Systems acquired through trade of Colorado Springs, CO system with 100,000 subs..Ln. 6J 6 8`  Aug95 ` Chambers Communications R JCableview, Inc.R JIDbased systemR J` $0.80R J700R JB$1,191 R J7#9.5 R J$ R Jl-` .LL .8`  Aug95 ` Charter Communications  JPremier Cable (Masada subsidiary) JAtlanta, GA J` $36.00 J 18,000 J<$2,000  J7#9.6  J$  J` Acquired system adds to Charter's Atlanta cluster..LLR .%` DAug95D` Fanch CommunicationsDGH Cable ArizonaDColumbia & Foxworth, MSJ` $4.00J=3,200J>$1,280 J7#8.0 J$ Jl-` .LL .%` Aug95` Galaxy Telecom, LPDouglas Cable Communications6JKS, IL, IA, MO, & NEbased systems6J` $65.506J 60,0006J>$1,092 6J7#8.4 6J$ 6Jl-` .L. 6J 6 %` Aug95` Hector CommunicationsLake Cable PartnershipMNbased system` $2.20=1,900@$1,158 7#7.8 $ l-` .6.%` Aug95` Jones IntercableCable TV Fund 12BCDTampa, FL_` $110.40 62,500>$1,766 7#9.1 $ l-` .L. 6J 6 %` (Aug95(` Jones Intercable(IDS/ Jones Growth PartnersJCarmel et al., INJ` $44.20J 18,500J>$2,391 J"10.7 J$ Jl-` "LL"%` tAug95t` Jones IntercabletJones Cable, Inc. Fund 1BtOrangeburg & Cordova, SCJ` $18.30J 12,000J>$1,529 J7#8.8 J$ Jl-` .L. 6J 6 %` Aug95` Jones IntercableTime WarnerPrince George's County, MD & Reston, VAfJ_` $176.50fJ 85,000fJ<$2,076 fJ7#9.0 fJ$ fJ` Acquired systems increase Jones' BaltimoreWashington cluster to 300,000 subs; traded systems in Tampa, FL; Orangeburg & Cordova, SC; & Boone County et al., IN with 93,000 subs. .L. 6J 6 %` Aug95` Lynch Corp.Douglas Cable CommunicationsJJKSbased systemsJJ` $5.20JJ=5,000JJ>$1,037 JJ7#8.9 JJ$ JJ` Acquired KS systems add to Lynch's JBN Telephone Co. cluster."L\ " 6JY 6 %` Aug95` Mark Twain Cablevision LPYGH Cable ArizonaYPayson et al., AZY` $11.80Y=9,300Y@$1,271 Y7#8.0 Y aEJ$  Yl-` "J"KKXX##""\ J" 6Y 6 %` Aug95` PostNewsweekCoxTexarkana, AR & TX` $50.00 24,000<$2,083 "12.3 $ ` System acquired in Times Mirror takeoveradds to PostNewsweek's 573,000 subs. clusters in Midwest, West & South...%` >Aug95>` PostNewsweek>TCI>Biloxi/Ocean Springs, MS; Moorhead, MN; OKbased systems` $89.00 63,100@$1,410 7#8.2 $ ` Systems acquired through trade of Burlingame & Union City, CA & north Chicago, IL suburban systems with 39,400 subs..L. 6J 6 %` Aug95` PostNewsweekTime WarnerPrescott, AZ; Cleveland, MS|J` $70.00|J 41,000|J>$1,707 |J"10.2 |J$ |Jl-` .LL0.%` "Aug95"` TCA Cable"Star Cable Association"WinstonSalem, NC; Columbia, SCJ_` $176.50J 29,000J<$6,086 J"10.1 J$ Jl-` .L>|. 6J9 6 %` nAug95n` TCA CablenTime WarnernAlexandria & Pineville, LA J` $61.00 J 29,000 J>$2,103  J"10.5  J$  J` Acquired systems add to adjacent Natchitoches/Ruston, LA system cluster; traded WinstonSalem, NC & Columbia, SC systems with 29,000 subs..>. 69 6 %`  Aug95 ` TCI Colton Cablevision (American Cable TV Investors, LP) Colton, CA ` $11.90 =7,300 >$1,645  7#9.7  $  l-` . .%`  Aug95 ` TCI PostNewsweek Burlingame & Union City, CA; north Chicago, IL suburbs` $89.00 39,400<$2,259 "10.6 $ ` Systems acquired through trade of Biloxi/Ocean Springs, MS; Moorehead, MN; & OK systems with 63,100 subs." " 6 6 %` Aug95` Time WarnerJones IntercableTampa, FL; Orangeburg & Cordova, SC; Boone, Hamilton, Hancock, & Madison Counties, IN_` $172.90 93,000>$1,859 7#9.4 $ ` Acquired systems increase Time Warner clusters to 700,000 subs. in Tampa; 145,000 subs. in Orangeburg, SC; & 118,000 subs. in Indianapolis, IN; traded Pr. George's Co, MD & Reston, VA systems with 85,000 subs...%` tAug95t` Time WarnertTCA Cable tWinstonSalem, NC; Columbia, SCJ` $59.10J 29,000J<$2,038 J"10.1 J$ J` Part of Time Warner's acquisition of 3 Summit systems, which adds 160,000 subs to Time Warner's WinstonSalem & Atlanta clusters; traded systems in Alexandria & Pineville, LA with 29,000 subs..L. 6J 6 %` XAug95X` Time Warner XAmerican Cable TV Investors, LPJHIbased systemJ` $28.70J 17,000J>$1,688 J7#9.8 J$ J`  .LL.%` Sep95` CTECTwin County TransVideoAllentown/Bethlehem, PA (Lehigh Valley area)JJ_` $100.50JJ 74,000JJ>$1,358 JJ7#8.0 JJ$ JJ` Acquired systems add to CTEC's PA & NJ clusters."L\ " 6JY 6 %` Sep95` CATV Service, Inc.Universal Communications of PAYWhite Deer et al., PAY` $0.60Y600Y>$1,000 Y"10.5 Y$ Yl-` "J#KKXX##""\ J" 6Y 6 %` Sep95` CoxSusquehanna CableEast Providence, RI` $36.40 15,500<$2,346 7#9.2 $ ` Acquired system adds to Cox's existing Providence area; traded system in Williamsport, PA with 24,500 subs... 6 6 %` Sep95` CoxTCIBellevue/LaVista, NE; Chesapeake, VA;Scottsdale, AZ; N.Attleboro/Taunton, MA;Lincoln, RI;St.Bernard, LA;& Council Bluffs, IA; |_` $590.00|295,600|@$1,961 |"10.0 |$ |` Acquired systems are contiguous to Cox's existing clustersadd 57,000 subs. in Phoenix, 17,000 subs. in New Orleans, & 127,000 subs. in MA & RI; traded systems in PA, WA, IL, MI, & IA with 319,200 subs... 6 6 %` "Sep95"` E. W. Scripps (Scripps Howard) JMidTennessee CATVJKnoxville & Chattanooga, TNbased systemsn` $62.50n 34,000n>$1,838 n7#9.0 n$ n` Acquired systems increase eastern TN cluster to 264,000 subs..|. 6 6 %`  Sep95 ` Jones Intercable Jones Spacelink/ Cable TV Wi & OHbased systems ` $51.50  31,100 >$1,659  7#9.4  $  l-` .n. 6 6 8`  Sep95 ` Jones Intercable Time Warner Savannah, GA _` $130.00  63,500 >$1,985  "10.1  $  ` Acquired system through trade of systems in WI, HI, & OH with 77,500 subs. . . 6 6 %`  Sep95 ` "local operator" Airview CATV, Inc. York County, PA ` $3.10 =2,000 >$1,550  7#9.6  $  l-` . . 6 6 %` R Sep95R ` Susquehanna CableR CoxR Williamsport, PAR ` $36.40R  24,500R >$1,484 R 7#9.0 R $ R ` Cox acquired Williamsport, PA system in TimeMirror Cable takeover; traded system in East Providence, RI with 15,500 subs.. . 6 6 %` Sep95` TCIAll Points AssociationKing County, WA` $5.20=3,900@$1,315 7#9.9 $ l-` ">D" 69 6 %` Sep95` TCICoxPittsburgh, PA; Spokane, WA; Springfield, IL; Saginaw, MI; Cedar Rapids & Quad Cities, IAIL(9_` $590.00(9319,200(9>$1,836 (9"10.0 (9$ (9` Systems acquired through trade of NE, VA, AZ, MA, RI, LA, & IA systems with 295,600 subs. .>. 69 6 %` Sep95` Time WarnerJones IntercableKenosha, Lake Geneva, Manitowoc & Ripon, WI; Hilo, HI; & Lodi, OH_` $130.00 77,500>$1,677 7#8.3 $ ` Acquired systems increase Time Warner's existing clusters to 290,000 subs in Milwaukee; 135, 000 subs. in Appleton/Green Bay; 300,000 subs. on Isle of Hawaii; & 225,000 subs. in NE Ohio; traded system in Savannah, GA with 63,500 subs..L(. 6J 6 %` XSep95X` V CableXUS CableXAL, FL, IL, KY, MO, & NCbased systemsJ_` $219.00J252,500JCP $867 J7#6.4 J$ Jl-` .LL.%` Sep95` Vision Communications.Savage CommunicationsLuck & Balsam Lake, WIJJ` $3.20JJ=2,600JJ>$1,257 JJ7#8.4 JJ$ JJl-` "L\ " 6JY 6 %` Oct95` Casco Cable (Susquehanna Cable)YAmerican CablecomYWiscasset et al., MEY` $4.50Y=3,500Y>$1,286 Y7#7.6 Y$ Yl-` "J$KKXX##""\ 0J" 6Y( 6 %` Oct95` ComcastE. W. Scripps (Scripps Howard) LJCA, CO, FL, GA, KY, TN, & WVLJ` $1,575.00LJ798,300LJ>$1,973 LJ"10.9 LJ$ LJ` Merger does not add to Comcast existing clusters (major Scripps Howard clusters230,000 subs. in Sacramento, CA; 252,000 subs. in Knoxville/Chattanooga, TN; & smaller clusters in CO, FL, GA, IN, KY, SC, & VA are not near Comcast's major clusters)..0L. 6(J 6 %` Oct95` ContinentalColumbia International, Inc.|JAnn Arbor & Brighton, MI|J_` $155.00|J 74,000|J<$2,095 |J"11.4 |J$ |J` Adds 16 communities to Continental's MI cluster..LL0.8` "Oct95"` Global Acquisition Partners, LP (Adelphia)JCable TV Fund 11B LP (Jones Intercable)JLancaster, NYJ` $84.00J 39,000J>$2,154 J"11.5 J$ Jl-` .L|. 6J 6 %` nOct95n` Prime CablenInterface CommunicationsnLas Vegas, NVn` $1.60n=1,300n@$1,218 n7#8.2 n$ nl-` .L. 6J 6 %`  Oct95 ` Rapid Communications Partners, LP JCumberland River Cable JWhitley & Knox Counties, KY J` $1.00 J905 J>$1,075  J7#7.0  J$  Jl-` .Ln. 6J 6 %` ` Oct95` ` Raystay Co.` MidSouth Cable` Berkeley Co., WV` ` $4.60` =2,800` >$1,643 ` 7#9.2 ` $ ` l-` . . 6 6 %`  Oct95 ` TCI Prime Cable Ft. Bend, TX (Houston) _` $230.00 125,000 >$1,840  "10.0  $  ` Acquired systems add to existing TCI's 200,000 subs. cluster in Houston metroplex (Ft. Bend & Harris Counties)..` . 6 6 %`  Nov95 ` Charter Communications DJMineral Area Cablevision (Omega Communications subsidiary)South Central MOq` n/a=5,700M n/a=#n/a $ ` Acquisition gives Charter 200,000 subs. in MO.. . 6 6 %` Nov95` Charter CommunicationsOmegaSt. Louis, MO` $7.40=5,700>$1,298 7#6.8 $ l-` .L. 6J 6 8` 6Nov956` Media One(US West)6National Cable Systems AssociationJAtlanta, GAJ` $2.20J=2,900JCP $763 J7#6.0 J$ Jl-` "L" 6J 6 %` Nov95` Summit CommunicationsCascade CablevisionLakebay, WA` $1.10900>$1,248 7#8.0 $ l-` .L. 6J 6 %` (Nov95(` TCI(Woodlands Communications (50%)JWoodlands, TXJ` $18.00J=7,000J<$2,580 J"10.0 J$ J` TCI acquired remaining 50% of Woodlands system..L . 6J 6 %` tNov95` Time WarnerHawaiian CablevisionMaui, HI` $24.20 10,800<$2,244 "11.0 $ l-`    yO-` ` hp x (#%'0*,.#C\  P6QɓP# Sources:  {O-X© Paul Kagan Assocs., Inc., Cable TV Finance: FirstHalf 1995 Anounced/Proposed Cable System Sales Ranked By Price, Jul. 31, 1995, at 45; Oct. 17, 1995, at 10..  {O-X© Paul Kagan Assocs., Inc., Cable TV Investor: The 1994 M&A March: Visions of the Late'80s, Sept. 30, 1994, at 6; Announced/Proposed Cable  {Op-System Sales, Oct. 31, 1994, at 7; Jones Intercable, Spacelink Amend Merger Terms, Nov. 28, 1994, at 4; Cable Deals Gaining Speed Toward the  {O:-New Year, Dec.15, 1994, at 9; Cable System Sales: 1994 was 2ndBest Year; 1995 Could Break Record, Jan. 31, 1995, at 8; Cable System Sales:  {O-The Momentum Builds, Feb. 28,1995, at 8; Cable System Sales: Breakthrough To Come, Mar. 24, at 5; Cable System Sales: $8.75 Bil. in 1st  {O-Quarter, Apr. 30, 1995, at 8; Cable Deal Flow Quickens in June, Jun. 30, 1995, at 8; TCI/Viacom: How Shrewd Financiers Create a WinWin"%KKXX"  {O-Deal, Jul.31, 1995, at 4; Cable System Sales: Record 1st Half; Look What's Next, Jul. 31, 1995, at 6; CTec Swallows Mercom in BelowMarket  {O-Bites, Aug. 31, 1995, at 56; MSOs Swapping Their Way to ADI Dominance, Sept. 18, 1995, at 4; Swap Happy MSOs Lead $2.2 Billion Month,  {O-Oct. 17, 1995, at 10; Announced/Proposed Cable System Sales, Nov. 22, 1995, at 13..  {O^-X© Paul Kagan Assocs., Inc., Cable TV System Sales 1994, The Cable TV Financial Databook, Jul. 1995, at 139143.. X© Paul Kagan Assocs., Inc., Media Mergers & Acquisitions: Feb. 28, 1995, at 4; Mar. 31, 1995, at 4; Apr. 30, 1995, at 4; Jun. 30, 1995, at 4; Jul.31, 1995, at 4; Sept. 30, 1995, at7,10..  {O-X© Broadcasting & Cable: Cable's Summer of Major League Clustering, Cable, Oct. 2, 1995, at 4647; Comcast Buying Scripps System for $1.6  {O-Billion, Nov. 6, 1995, at 98; Continental/Columbia Deal Done, Oct. 23, 1995, at 60; TCI Primes for More Growth, Oct. 30, 1995, at 55..  {OL-X© Time Warner and Cox to Sell 3 Cable Systems, Wall Street Journal, Aug. 9, 1995, at B 5..  {O-X© Post Co. to Pay $120 Million for Three Cable TV Systems, The Washington Post, Aug. 9, 1995, at F 2.. X© 1994 Competition Report, Table 10, at C8.. X© TimeWarner Cable Press Releases: Aug. 1, 1995; Aug. 14, 1995; Sept. 6, 1995; Oct. 4, 1995.. X© Communications Daily, Oct. 4, 1994; Oct. 5, 1995; Oct. 14, 1994; Oct. 19, 1994; Oct. 26, 1994; Nov. 3, 1994; Nov. 7, 1994; Nov. 10, 1994; Nov. 18, 1994; Nov. 22, 1994; Nov. 23, 1994; Nov. 25, 1994; Dec. 5, 1994; Dec. 9, 1994; Dec. 15, 1994; Dec. 21, 1994; Dec. 23, 1994; Dec. 27, 1994; Dec. 28, 1994; Dec. 30, 1994; Jan. 4, 1995; Jan. 12, 1995; Jan. 13, 1995; Jan. 17, 1995; Jan. 19, 1995; Jan. 20, 1995; Jan. 30, 1995; Jan. 31, 1995; Feb. 3, 1995, Feb. 7, 1995; Feb. 8, 1995; Feb. 24, 1995; Feb. 27, 1995; Feb. 28, 1995; Mar. 2, 1995; Mar. 7, 1995; Mar. 14, 1995; Mar. 17, 1995; Mar. 24, 1995; Mar. 27, 1995; Mar. 21, 1995; Mar. 24, 1995; Mar. 28, 1995; Mar. 31, 1995; Apr. 3, 1995; Apr. 4, 1995; Apr. 6, 1995; Apr.19; Apr. 24, 1995; May 4, 1995; May 8, 1995; May 11, 1995; May 17, 1995; May 18, 1995; May 19, 1995; May 23, 1995; May 31, 1995; Jun. 13, 1995; Jun. 28, 1995; Jun. 30, 1995; Jul. 3, 1995; Jul. 7, 1995; Jul. 20, 1995; Jul. 26, 1995; Jul. 28, 1995; Jul. 31, 1995; Aug. 2, 1995; Aug. 8, 1995; Aug. 9, 1995; Aug. 14, 1995; Aug. 15, 1995; Aug. 29, 1995; Aug. 30, 1995; Sept. 1, 1995; Sept. 7, 1995; Sept. 8, 1995; Sept. 12, 1995; Sept. 18, 1995; Sept. 21, 1995; Sept. 26, 1995; Oct. 2, 1995; Oct. 3, 1995; Oct. 4, 1995; Oct. 10, 1995; Oct.13, 1995; Oct. 23, 1995; Oct.24, 1995; Oct. 31, 1995; Nov. 1, 1995; Nov. 2, 1995; Nov. 3, 1995.."x&KKXX:"  a<#Xj\  P6G;+XP#@-G---H--@ '3'3StandardtHPLAS4SI.PRSXj\ 3'3'StandardtHPLAS4SI.PRSXj\ ('     #Xj\  P6G;+XP# #|\  P6G;^P#Appendix H#Xj\  P6G;+XP#ѐx ITABLE 1  X MSO Ownership in National Programming Services  X-@(Rank by Ownership Percentage)  0 | UXX@@@@@@@@@@@ ddx'( dt |    w  " X- Programming Service  w" X- Launch Date  w" X-a Ownership Percentage   P  wY   yO-#X\  P6G;ɓP#Jones Computer Network 1/ Q Y Sept94Q Y Jones (100)P P  Mind Extension University 1/ Y Nov87 Y Jones (100)P P Q  Home & Garden 1/  Y Dec94 Y ScrippsHoward (100)P P   tv! Network 1/A Y Sept94A Y TCI (100)P P   Cinemax 1/Y Aug80Y Time Warner (100)P P A  HBO 1/Y Dec75Y Time Warner (100)P P  Flix! 1/1Y Apr911Y Viacom (100)P P  The Movie Channel 1/Y Dec79Y Viacom (100)P P 1 MTV 1/Y Aug81Y Viacom (100)P P  MTV Latino 1/!Y Oct93!Y Viacom (100)P P  Nick at Nite 1/qY Jul85qY Viacom (100)P P ! Nickelodeon 1/Y Apr79Y Viacom (100)P P q VH1 1/Y Jan85Y Viacom (100)P `   Yh  Showtime 1/qh Jul76qh Viacom (100)`  @ hJ  Encore 1/J Apr91J TCI (90)@P q JY  Encore Love Stories 1/Y Jul94Y TCI (90)P P  Encore Westerns 1/QY Jul94QY TCI (90)P P  Encore Mysteries 1/Y Jul94Y TCI (90)P P Q Encore Action 1/  Y Sept94 Y TCI (90)P `   Yh  Encore True Stories and Drama 1/Q"h Sept94Q"h TCI (90)`    h  Encore WAM! America's Youth Network 1/Y$ Sept94Y$ TCI (90)P Q" Y  Home Shopping Network 1/%Y Jul85%Y TCI (80.4)P `  Y$ Yh  Home Shopping Network II 1/ 'h Sept86 'h TCI (80.4)`  @% hJ  AMC 1/I(J Oct84I(J Cablevision Systems (75)"''0*((2('"@P  ' JY  QVC 1/PY Nov86PY Comcast (57.4) TCI (42.6)P P  Q2 1/Y Sept94Y Comcast (57.4) TCI (42.6)P P P Bravo 1/Y Feb80Y Cablevision Systems (50)P P  Much Music USA 1/@Y Jul94@Y Cablevision Systems (50)P P  GEMS Television 1/Y Apr93Y Cox (50)P P @ Catalog 1 1/Y Apr94Y Time Warner (50)P P  Comedy Central 1/0 Y Apr910 Y Time Warner (50) Viacom (50)P P  All News Channel 1/ Y Nov89 Y Viacom (50)P P 0  SciFi Channel 1/ Y Sept92 Y Viacom (50)P P   USA Network 1/ Y Sept80 Y Viacom (50)P    Y+  E! Entertainment 1/pY Jun90pY Time Warner (50.0) Continental (10.3) Comcast (10.3) Cox (10.3) TCI (10.3) P   +Y  Independent Film Channel 1/Y Sep94Y Cablevision Systems (50)P P 8 Starz! 4/Y Feb94Y TCI (49.9)P `   Yh  The Discovery Channel 2/8h Jun858h TCI (49) Cox (24.7)`  P  hY  Faith & Values 4/Y Jun84Y TCI (49)P P 8 The Learning Channel 2/Y Nov80Y TCI (49) Cox (24.7)P P  The International Channel 4/(Y Jul90(Y TCI (45)P @ YJ  Outdoor Life Channel 2/hJ Jul95hJ Cox (45)Continental (22.5) Comcast (22.5)@P ( JY  Request Television 4/Y Nov85Y TCI (40)P P h Request 2 4/Y Jul88Y TCI (40)P P  Request 35 4/ XY Sept93XY TCI (40)P P  Prime Sports Channel 2/Y Jan89Y TCI (34) Cablevision Systems (25) P  X Y+  Court TV 2/Y Jul91Y TCI (33.3) Time Warner (33.3) Continental (33.3) P  +Y  Sega Channel 2/!Y Dec94!Y TCI (33) Time Warner (33)P P  Newsport 4/`"Y Feb94`"Y Cablevision Systems (25)P  ! Y+  Cartoon Network 3/#Y Oct92#Y TCI (22.6) Time Warner (18.6) Comcast (*) Continental (*)  `" CNN 3/%Y Jun80%Y TCI (22.6) Time Warner (18.6) Comcast (*) Continental (*)"%(0*&&11&%"  x$ CNN International 3/PY Jan95PY TCI (22.6) Time Warner (18.6) Comcast (*) Continental (*) (   +:  Headline News 3/xh Jan82xh TCI (22.6) Time Warner (18.6) Comcast (*) Continental (*)(    :+  TNT 3/Y Oct88Y TCI (22.6) Time Warner (18.6) Comcast (*) Continental (*)  @ Turner Classic Movies 3/Y Apr94Y TCI (22.6) Time Warner (18.6) Comcast (*) Continental (*) X +  Viewers Choice 2/ J Nov85 J Cox (20) Time Warner (17) Continental (12) Comcast (11) Viacom (11) TCI (10) p   Viewers Choice: Continuous Hits1,2,3 2/ X  Feb93X  Cox (20) Time Warner (17) Continental (12) Comcast (11) Viacom (11) TCI (10)  x  +  Viewers Choice: Hot Choice 2/Y Jun86Y Cox (20) Time Warner (17) Continental (12) Comcast (11) Viacom (11) TCI (10) P X  +Y  Cable Health Club 4/Y Oct93Y TCI (18.6)P P p The Family Channel 4/Y Apr77Y TCI (18.6)P P  Action PayPerView 3/`Y Sept90`Y TCI (17.5) Time Warner (15)P P  BET 3/Y Jan80Y TCI (17.5) Time Warner (15)P P ` The Box 4/Y Dec85Y TCI (5.5)P   Y+  The Golf ChannelPY Jan95PY Continental, Comcast, Cablevision Systems, Adelphia, Cablevision Industries (**) P  +Y  Product Information NetworkhY Apr94hY Cox, Jones (**)P (   Y:  Television Food Networkh Nov83h Continental, Adelphia, Cablevision Industries, ScrippsHoward, CTEC (**)(  Bh:x  yOX-#X\  P6G;ɓP#*Denotes ownership percentage of less than 5%.  yO -**Ownership percentage not available.  yO-1/Service is owned by an MSO that holds a 50% or greater interest.  yO-2/Service is owned by multiple MSOs whose combined interests are 50% or greater.  yOx-3/Service is owned by multiple MSOs whose combined interests are less than 50%.  yO@ -4/Service is owned by a single MSO whose interests are less than 50%.  yO!   {O!- Sources: Paul Kagan Assocs., Inc., Cable Network Ownership, Cable TV Programming, Oct. 25, 1995 at 4; Rich  {O"-Brown, The TeleCommunications Inc. Empire: The Long reach of John Malone and TCI, Broadcasting & Cable, Oct. 16, 1995, at 3845."d#)0*&&11$@"  X-#Xj\  P6G;+XP# `  ` `  #|\  P6G;^P# #Xj\  P6G;+XP# TABLE 2 ă  X- ? Existing National Programming Services ă  X-R Without A Cable Operator Holding An Ownership Interest ă  X- O ddx'( dt  x* O (   h w   X- Programming Service w  X- Launch Date   q  wh  National Access Television Network, Inc.h Mar94q q  ` hp x (#%'0*,.X (#%'0*,.8135@8: `h #C\  P6QɓP#N/A Not Available  {O8-  Sources: NCTA Comments, Appendix E, Table 5; A Who's Who of New Nets, Cablevision, Apr. 1995, at 33A {O-47a; Channel Surfing Cable's New Nets, Broadcasting and Cable, Nov. 27, 1995, at 7686; Database:  {O-Announced Services, Cablevision Aug. 21, 1995, at 60. "^00*'' "  X- 3'3'StandardtHPLAS4SI.PRSXj\ '3'3StandardrJet 4SiN$'1 w% #Xj\  P6G;+XP#TABLE 5   X-7 Major MSO Ownership in National Programming  X-! MSO Rank in Order by Subscribers #X\  P6G;ɓP#  > | AMddxl.  addxl1|Xxx | "`     " : :   aE #G\  P6G;لP#  aEServices P  aE`  Subscribers v(in  aE@f Millions)   aEu TCI Đ  aE Time  aEWarner " aE[  aE[=7Continental "  aE Comcast " aEH  aECox   aE Cablevision  aE$JSystems Đ70    aEsb" Adelphia    aEN% Cablevision  aE{%Industries     aE (Jones    aE  aEM*Viacom   . l :, :   aE~#G\  P6G;لP#Action PayPerView 2/$,"w7.0$,"<17.5%$,"15.0%$,[$,"$,"H$,"70 $,"f# $,"& $,  $, . . All News ChannelR ,{*R ,"R , b R ,"[R ,"R ,"HR ,"70 R ,"f# R ,"& R ,  R , S+50.0%. . $AMC ,sX55.0  ,  , b  ,Zt  ," ,"H ,"+75.0% ,"f#  ,"&  ,   , . . R BET  ,}tn43.0 ,"<17.5% ,"15.0% ,"[ ," ,"H ,"70  ,"f#  ,"&  ,   , . .   aE6 The Box  ,un18.7 ,"^5.5% ," x ,"[ ," ,"H ,"70  ,"f#  ,"&  ,   , . .  Bravo ,tn22.8 ,  , b  ,Zt  ," ,"H ,"+50.0% ,"f#  ,"&  ,   , . .  Cable Health Club8,w4.98,"<18.6%8," x8,"[8,"8,"H8,"70 8,"f# 8,"& 8,  8, . .   aECartoon 3/f,tn20.3f,"<22.6%f,"18.6%f,Xixf,"xf,"Hf,"70 f,"f# f,"& f, f)f)$ f, . . 8Catalog 1,{*,","50.0%,[,","H,"70 ,"f# ,"& ,  , . . fCinemax,x8.1,","100%,"[,","H,"70 ,"f# ,"& ,  , . . CNN 3/,tn66.2,"<22.0%,"18.6%,[Xix,"x,"H,"70 ,"f# ,"& , f)f)$ , . . CNN International 3/,{*,<22.6%,"18.6%,[Xix,"x,"H,"70 ,"f# ,"& , $f) , . . Comedy CentralL,tn35.9L, L,"50.0%L,Zt L,"L,"HL,"70 L,"f# L,"& L,  L, S+50.0%. . Court TVz,un23.1z,"<33.3%z,"33.3%z,O33.3%z,"z,"Hz,"70 z,"f# z,"& z,  z, . . LDiscovery 1/,tn65.4,"<49.0%," x,"[,","24.7%,"70 ,"f# ,"& ,  , . . zE!Entertainment ,tn33.0,"<10.3%,"50.0%,"P10.3%,"10.3%,"10.3%,"70 ,"f# ,"& ,  , . . Encore,w5.0,"<90.0%," x,"[,","H,"70 ,"f# ,"& ,  , . >   :,; : Encore Love StoriesB;}{*B;"<90.0%B;" xB;"[B;"B;"HB;"70 B;"f# B;"& B;  B; "1x{">    :; : Encore Westerns{*"<90.0%" x"[""H"70 "f# "&     .  :, : Encore MysteriesL,{*L,"<90.0%L," xL,"[L,"L,"HL,"70 L,"f# L,"& L,  L, . . Encore Actionz,{*z,"<90.0%z," xz,"[z,"z,"Hz,"70 z,"f# z,"& z,  z, .  L :, : Encore True Stories & DramaN{*N"<90.0%N" xN"[N"N"HN"70 N"f# N"& N  N   zEncore WAM! America's Youth Network"{*""<90.0%"" x""[""""H""70 ""f# ""& "  "  . N :, : Faith & Values ChannelP,un24.1P,"<49.0%P," xP,"[P,"P,"HP,"70 P,"f# P,"& P,  P, . . "The Family Channel~ ,}tn62.7~ ,"<18.6%~ ," x~ ,"[~ ,"~ ,"H~ ,"70 ~ ,"f# ~ ,"& ~ ,  ~ , . . PFlix! ,"}q113.3@ ,  ," x ,"[ ," ,"H ,"70  ,"f#  ,"&  ,   , . . ~ GEMS Television ,w3.2 ," ," x ,"[ ," ,"50.0% ,"70  ,"f#  ,"&  ,   , . .  The Golf Channel 4/ ,{* ," ," x ,"[WV4/ ,"4/ ,"H ,"70 34/ ,"2#4/  ,"&  ,   , . .  HBO6,un19.26,"6,"100.0%6,"[6,"6,"H6,"70 6,"f# 6,"& 6,  6, Q*100.0%. .  Headline News 3/d,tn58.2d,"<22.6%d,"18.6%d,"[Xixd,"xd,"Hd,"70 d,"f# d,"& d,  d, . . 6HSN,tn40.9,"<80.4%," x,"[,","H,"70 ,"f# ,"h&4/ ,  , . . dHSN II,tn28.9,"<80.4%," x,"[,","H,"70 ,"f# ,"& ,  , . . Independent Film Channel,w3.0,"," x,"[,","H,"+50.0%,"f# ,"& ,  , . . International Channel ,w7.2,"<45.0%," x,"[[,","H,"70 ,"f# ,"& ,  , . . Jones Computer NetworkJ,x1.2J,"J," xJ,"[J,"J,"HJ,"70 J,"f# J,"& J,  J, . . Learning Channel x,tn40.0x,"<49.0%x," xx,"[x,"x,"24.6%x,"70 x,"f# x,"& x,  x, .   J :, : Mind Extension University\tn25.9\"\" x\"[\"\"H\"70 \"f# \"& \  \    x : : Movie Channelzq112.2@z"z" xz"[z"z"Hz"70 z"f# z"& z  z"Q*100.0%"2x==::3" . \ :, : MTV.,un61.0.,".," x.,"[.,".,"H.,"70 .,"f# .,"& .,  .,"Q*100.0%. . MTV Latino \,{*\,\," x\,"[\,"\,"H\,"70 \,"f# \,"& \,  \,"Q*100.0%. . .MuchMusic,{*,"," x,"[,","H,"+50.0%,"f# ,"& ,  ,"_+. . \Newsport,{*,"," x,"[,","H,"+25.0%,"f# ,"& ,  ,"_+. . Nick at Nite 6/,tn63.6,"," x,"[,","H,"70 ,"f# ,"& ,  ,"Q*100.0%. . Nickelodeon 6/,tn63.6,," x,"[,","H,"70 ,"f# ,"& ,  , Q*100.0%. . Outdoor LifeB,x1.0B,"B," xB,"O22.5%B,"22.5%B,"45.0%B,"70 B,"f# B,"& B,  B, . . Prime Sports Channelp ,un41.5p ,"<34.0%p ," xp ,"[p ,"p ,"Hp ,"+25.0%p ,"f# p ,"& p ,  p , . >  B :,; : Product Information Net ;"{* ;" ;" x ;"[ ;" ;"7/ ;"70  ;"f#  ;"&  ; 2)f) 7/  ; >   p  :; : QVC  "tn53.0 "<42.6% " x "[ "57.4% "H "70  "f#  "&       .   :, : Q2 ,"vn11.9 ,"<42.6% ," x ,"[ ,"57.4% ,"H ,"70  ,"f#  ,"&  ,   , . .  Request Television(,"tn24.5(,<40.0%(," x(,"[(,"(,"H(,"70 (,"f# (,"& (,  (, . .  Request 2V,"{*V,"<40.0%V," xV,"[V,"V,"HV,"70 V,"f# V,"& V,  V, . . (Request 35,"{*,"<40.0%," x,"[,","H,"70 ,"f# ,"& ,  , . . VSci-Fi Channel ,"tn24.6,"," x,"[,","H,"70 ,"f# ,"& ,  , S+50.0%. . Sega Channel,"{*,"<33.0%,"33.0%,"[,","H,"70 ,"f# ,"& ,  , . >   :,; : Showtime;"q113.3@;";" x;"[;";"H;"70 ;"f# ;"& ;  ; Q*100.0%>    :; : Starz!<"x1.8<"<49.9%<" x<"[<"<"H<"70 <"f# <"& <  <  .  :, : TV Food Network 5/j,"un13.3j," j," x#\j,"[WV5/j,"j,"HHj,"70 70 j,"f#2#5/ j,"h&5/ j,  j, . . < aETNT 3/,"tn64.7,"<22.6%,"18.6%,"[Xix,"x,"H,"70 ,"f# ,"& ,  , . I j :,Y : Turner Movie Classic 3/,"w5.6, 22.6%Y"18.6%Y"[XixY"xY"HY"70 Y"f# Y"& Y  Y I .  :Y, : tv! Network 5/,"{*,"<100.%," x,"[,","H,"70 ,"f# ,"& ,  , "i3x==::P". . USA .,"tn65.7.,".," x.,"[.,".,"H.,"70 .,"f# .,"& .,  .,#u,S+50.0%. >   :,; : VH-1 \,"tn52.0\,"\," x\,"[\,"\,"H\,"70 \,"f# \,"& \,  l;"Q*100.0%>  . . :;, : Viewers Choice,"un14.2,"<10.0%,"17.0%,"P12.0%,"11.0%,"20.0%,"70 ,"f# ,"& ,  ,"U+11.0%.   l :, : Viewers Choice: Continuous Hits 1, 2, 3n"{*n"<10.0%n"17.0%n"P12.0%n"11.0%n"20.0%n"70 n"f# n"& n  n"U+11.0%     : : Viewers Choice: Hot ChoiceR"{*R"`10.0%R"17.0%R"P12.0%R"11.0%R"20.0%R"70 R"f# R"& R  R"U+11.0%  An  aER  {O-x#X\  P6G;ɓP#Sources: Subscriber count was obtained from: Paul Kagan Assocs., Inc., Network Census: July 31st, Cable TV Programming, Aug. 31, 1995, at 12.  {O-Ownership percentages were obtained from: MSO public filings at the Securities and Exchange Commission; Mega Media Top 13, Broadcasting and Cable,  {O -Aug. 7, 1995, at 6; Rich Brown, The TeleCommunications Inc. Empire: The Long Reach of Jonhn Malone and TCI, Broadcasting & Cable, Aug. 16, 1995,  {OV -at 45; Paul Kagan Assocs., Inc., Cable Network Ownership, The Economics of Basic Cable Networks: 1994, Nov. 1994, at 4243. Ownership interests reported for earlier periods may not reflect current ownership.  {O -X (#%'0*,.8135@8:hh9p x(08"$&@)+-H024P79d9 x(08"$&@)+-H024P79hh@Subscribers include Movie Channel, Flix, and Showtime..  yOz -* Indicates subscriber amount is not available..  {OB-1/Newhouse Broadcasting interest in the Discovery  have been consigned to Time Warner..  yO -2/A programming service of BET Holdings, Inc. See BET Holdings, Inc., 7/31/94 Annual Report at 34..  yO-3/A programming service of Turner Broadcasting System. Interests marked by an "x" represent other cable companies having 5% or less ownership interest in Turner. See NCTA Comments, Appendix E, Table 8..  {Od-d9 x(08"$&@)+-H024P79wd9 x(08"$&@)+-H024P79hh4/Official ownership percentages in The Golf Channel are not available. However, according to Cablevision, A Who's Who of New Nets, New Network Handbook: A Comprehensive Guide to Tomorrow's Cable Programming, April 24, 1995 at 38A, Adelphia Communications, Cablevision Industries,  {O-Comcast, Continental, and Cablevision Systems hold ownership interests in The Golf Channel..  {O-wd9 x(08"$&@)+-H024P79hd9p x(08"$&@)+-H024P79hh5/Voting partners in Television Food Network & percentages of ownership include Scripps Howard (13.17%) and Landmark (12.00%). Others having less  {O-than 5% interest are: Cablevision Industries, Adelphia Communications, Times Mirror, and CTEC. Percentages provided by Mr. John Davis of Wiley {OT-Rein, Sep 21, 1995..  {O-6/Subscriber counts for Nickelodeon and Nick at Nite are not available separately..  yO-7/Percentage of ownership is not available.."4x==::d"  X-Ԇ '3'3StandardrJet 4SiN$3'3'StandardrJet 4SiN$(15     I #Xj\  P6G;+XP#TABLE 6  u Vertical Integration: Top 25 Programming  X-AServices by Subscribership O~ yO4-ԍ See Table 5 for ownership percentagesO#P\  P6G; P#ѐx  addxl1|Xxx  [ddx5 y  S  n 9   X-# Xj\  P6G;+XP#  X- Rank |X  X-*  Programming Network  X-Z& (Top 25) |X  X- Number of Subscribers  Xl-(Millions ) **e9  X-b MSO Ownership  X-Interest in Network X41Í ÍX41Í ÍS  P  9Y " yO-#X\  P6G;ɓP#1 Y ESPN Y"566.8 Y"NoneP  e Y+ "2 Y CNN Y"566.6 Y"NTCI, Time Warner, & ?others with 5% or less   "3 Y TBS* Y"566.5 Y"NTCI, Time Warner, & ?others with 5% or less P   +Y "45Y USA Network5Y"565.85Y"8ViacomP P  "5Y DiscoveryY"565.8Y"TCI & CoxP  5 Y+ "6Y TNT Y"565.2Y"NTCI, Time Warner, & ?others with 5% or less P  +Y "7Y CSPANY"564.3Y"1/P P "8=Y Nickelodeon/Nick at Nite=Y"563.6=Y"8ViacomP P "9Y TNN (The Nashville Network)Y"563.4Y"NoneP P ="x10Y The Family ChannelY"563.2Y"TCIP P "x11-Y Lifetime-Y"562.6-Y"NoneP P "x12}Y Arts & Entertainment}Y"562.4}Y"NoneP P -"x13Y MTVY"561.0Y"8ViacomP P }"x14Y The Weather ChannelY"558.8Y"NoneP   Y+ "x15mY Headline NewsmY"558.6mY"NTCI, Time Warner, & ?others with 5% or less P  +Y "x16 Y CNBC Y"555.2 Y"NoneP P 5"x17!Y AMC (American Movie Channel)!Y"555.0!Y"Cablevision SystemsP P  "x18%#Y QVC%#Y"553.5%#Y"Comcast & TCIP P !"x19u$Y VH1u$Y"552.0u$Y"8ViacomP P %#"x20%Y BET%Y"543.2%Y"yTCI & Time Warner"$5X0*((%&%"P P u$"x21PY The Learning Channel (TLC)PY"541.1PY"TCI & CoxP P "x23Y  yO-HSNp p $Y"540.9Y" TCIP P P"x24Y Prevue ChannelY"540.8Y"!NoneP `   Yh "x25Ph WGN*Ph"538.9Ph"None`  @ hJ "@PSJ {O- X hd9p x(08"$&@)+-H024P79X` hp x (#%'0*,.8135@8: