[ Text Version ]

fcclogo NEWS

Federal Communications Commission
1919 - M Street, N.W.
Washington, D.C. 20554
News media information 202 / 418-0500
Fax-On-Demand 202 / 418-2830
Internet: http://www.fcc.gov

This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CS 98-1 CABLE SERVICES ACTION January 13, 1998


The Commission has adopted its fourth annual report to Congress on the status of competition in the markets for the delivery of video programming. As of June 1997, cable operators served 87 percent of households that receive multichannel video programming, down two percent from September of 1996. While this represents a decrease, it shows the cable industry continues to occupy the dominant position in the multichannel video marketplace. It remains difficult to predict the extent to which competition will constrain cable systems' position as the dominant multichannel video provider in the future.

The Commission finds a growing but still limited number of instances where incumbent cable system operators face competition from wired multichannel video programming distributors (MVPDs) offering similar services. For example, the Commission does find direct broadcast satellite (DBS) providers have made subscribership gains. MVPDs using other distribution technologies, such as multichannel multipoint distribution service (MMDS), have not posted comparable increases in subscribership, but are in the process of testing digital technology that has the potential to improve the competitiveness of their services. In addition, while the Telecommunications Act of 1996 (1996 Act) eliminated restrictions on entry by telephone companies into cable, the Commission found such entry has been uneven.

The 1997 Report provides information about structural issues affecting competition, such as horizontal concentration, vertical integration, and technological advances. It further identifies steps the Commission has taken to spur competition, and obstacles to the emergence of additional competition. The report also describes competitive responses by cable operators that are beginning to face competition from other MVPDs.

A list of key findings of the report is attached.

Action by the Commission December 31, 1997, by Report (FCC 97-423). Chairman Kennard, Commissioners Ness, Furchtgott-Roth, Powell and Tristani, with Chairman Kennard and Commissioners Ness, Furtchgott-Roth and Tristani issuing separate statements.

-- FCC--

Key findings of the 1997 report on video Competition include:

Industry Growth:

A total of 73.6 million households subscribed to multichannel video programming services as of June 1997, up 2.8% over the 71.6 million households subscribing as of September 1996. This subscriber growth accompanied a 2.9% increase in multichannel video programming's penetration of television households to 75.9% in June 1997. Noncable's share of total MVPD subscribers continued to grow, constituting 13% of all multichannel video subscribers as of June 1997, up from 11% over the September 1996 figure reported last year.

The cable television industry has continued to grow in terms of subscribership (up to 64.2 million subscribers as of June 1997, a 1% increase from September 1996), revenues (a 12.2% increase between September 1996 and June 1997), and audience ratings (an 8.6% increase between September 1996 and June 1997, to an average 38 share for cable programming services), among other measures. Rates for cable services have increased over the last year. A Commission survey of cable industry prices indicates that the average monthly rate for a package consisting of the programming services offered on the basic and most popular cable programming service (CPS) tiers and a converter and a remote increased from $26.57 on July 1, 1996 to $28.83 on July 1, 1997, an increase of 8.5%.

Horizontal Concentration:

Local markets for the delivery of video programming generally remain highly concentrated and characterized by barriers to both entry and expansion by competing distributors. DBS service is available in almost all areas and constitutes the most significant alternative to cable television. DBS's major advantage is its ability to offer digital service that is significantly different from cable service with better signal quality and more programming options. Its major disadvantages are its inability to provide local broadcast programming and the upfront expense of its equipment and installation. It remains difficult to determine whether or when competition from closely substitutable multichannel video programming services will affect currently non-competitive markets or will constrain cable systems' ability to exercise market power in the future.

Competitive overbuilding by franchised cable operators remains minimal but is increasing (particularly by local exchange carriers (LECs)) and appears, to varying degrees, to improve service and/or pricing where it exists. Video distribution competition within and for multiple dwelling unit buildings (MDUs) appears to be developing as a distinct market separate from neighboring areas. Competitors for this market face different economics, technical applications and regulatory issues.

Vertical Integration:

The proportion of national programming services that are vertically integrated with cable operators declined slightly from last year's total of 46% to 40% this year. Eight of the 16 national programming services launched since the 1996 Report have been vertically integrated with a cable multiple system operator. In local and regional markets, system operators are increasingly distributing local non-broadcast news channels, some of which are programmed by affiliates of the operator and a significant number of which are programmed by unaffiliated local television stations.

Promotion of Entry and Competition:

The Commission has continued to take steps to eliminate obstacles to competition, including the adoption and enforcement of rules: prohibiting governmental and private restrictions that unreasonably interfere with a consumer's right to install the dishes and other antennas to receive programming services from (direct-to-home) DBS, wireless cable, and television broadcast; establishing procedures to use internal wiring installed in an MDU building by the incumbent provider, facilitating owners' and residents' choice among providers; and increasing the amount of spectrum available for wireless uses and eliminating restrictions on use, for the benefit of wireless providers. Last month, the Commission adopted a Notice of Proposed Rulemaking that seeks comment on proposals to improve the efficiency of the rules requiring access to cable programming attributable to programmers that are vertically integrated with cable operators. The Commission has also initiated a proceeding to adopt rules pursuant to Section 304 of the 1996 Act, to assure the commercial availability of navigation devices from manufacturers, retailers and other vendors not affiliated with any MVPDs. The Commission is encouraging the development of digital television.

Technological Advances:

Advances in and development of digital technology will permit all distributors of video programming to increase the delivered quantity of service. Digital technology increases the number of programming channels that may be communicated over a given amount of bandwidth or spectrum space. MVPDs and broadcasters continue to pursue improved digital compression ratios and deployment of digital technology. In addition CableLabs recently announced it "open standards" initiative supporting development of advanced set-top boxes. The industry shift from proprietary technology to an open standard may lead to more manufacturers of the boxes, may spur a retail distribution market, and may prompt new high speed data and internet service providers.

Convergence of Cable and Telephone Service:

At the time of the 1996 Act's passage, members of the local telephone industry indicated that they would begin to compete in video delivery markets, and cable television operators indicated that they would begin providing local telephone exchange service. The expectation was that there would be a technological convergence that would permit use of the same facilities for provision of the two types of service. This technological convergence has yet to take place. Almost all of the video service provided by LECs uses conventional cable television technology or wireless cable operations that stand alone from the provider's telephone facilities. The provision of telephone service by cable firms over integrated facilities remains primarily at an experimental stage. The one area in which many cable operators appear poised to compete head-to-head with local telephone companies is the provision of Internet access. Technology in this area appears to be rapidly advancing and service is being deployed on a commercial basis in a large number of cable systems.

Additional findings include the following:

Subscribership to DBS services increased 43.2% from 3.5 million homes at the end of September 1996 to 5.1 million homes at the end of June 1997. Home satellite dish (HSD) subscribership decreased from 2.3 million homes at the end of September 1996 to 2.2 million at the end of June 1996. Direct-to-home satellite services (DBS and HSD) represent approximately 9.8% of national MVPD subscribership as of June 1997. Satellite master antenna television (SMATV) service subscribership increased 10.7%, from 1.1 million homes at the end of September 1996 to 1.2 million, or 1.6% of all MVPD homes, at the end of June 1997. MMDS subscribership decreased 8.8%, from 1.2 million homes at the end of September 1996 to 1.1 million, or 1.5% of all MVPD homes, at the end of June 1997.

Broadcast television service continues to serve as both a transmission medium for many households, and the primary source of programming for most viewers regardless of distribution media. Regulatory changes and technological advances may, at some point in the future, permit the use of broadcast television and other existing and potential video technologies for distributing multichannel video programming.

LEC entry into video programming distribution has proceeded sporadically and been highly dependent on the business strategies of the individual companies involved. Some LECs have continued to expand franchised cable operations within their telephone service areas or to acquire in-region MMDS systems. Other LECs have minimized or abandoned further activities in multichannel video programming within their regions. Two joint ventures organized by LECs to provide original video programming and packaging have significantly scaled back their operations.

The Annual Report "on the status of competition in the market for the delivery of video programming" is prepared each year in compliance with Section 628(g) of the Communications Act.


Cable Services Bureau News Media contact: Morgan Broman at (202) 418-2358.
Cable Services Bureau contacts: Marcia Glauberman or Mark Menna (202) 418-7200, TTY (202) 418-7172.