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December 17, 1998

Separate Statement
Commissioner Susan Ness

Re: In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming

This, our fifth annual report on the status of competition in the market for the delivery of video programming, finds that competition to cable is slowly but steadily growing. The record evidences a consistent trend showing that more people each year perceive that they have more than one multichannel video provider ("MVPD") from which to choose.

As is often the case, readers can interpret the data in this comprehensive report in various ways. In my view, the data tell a positive story about the development of multichannel video competition, particularly from Direct Broadcast Satellite service ("DBS"). From July 1994 to June 1998, DBS subscribership has grown from 70,000 to 7.2 million, which, as of June 1998 represented 9.4% of all MVPD subscribers. In each of the last four years, DBS has experienced impressive growth. Indeed, Paul Kagan reports that 2.2 million of the 3.6 million net new MVPD subscribers in 1998 (or almost two-thirds) are choosing DBS.

Last year, our report identified at least three reasons why potential DBS subscribers declined to sign up: high installation costs, significant costs to hook up additional TV sets, and the lack of broadcast television service. Since last year, the cost of installation has plummeted, although it remains expensive to hook up additional sets. Notably, efforts have been made in the last year to address the legislative and technological prerequisites to enable DBS providers to offer local broadcast signals in their respective local markets. Whether it is 'local into local' or consumer education and assistance with installation of rooftop antennas, the key is cooperation between terrestrial broadcasters and DBS providers. Success on this front could make DBS an even better substitute to cable for many Americans.

The level of competition in the multichannel video market should not be measured solely by whether cable continues to lose market share. If cable operators use competitive responses to retain customers, so much the better. We should not fault the cable industry for beefing up its service quality, for example, in light of growing competition. Some of the data in this report show that the "pie" is getting slightly larger, as the number of total TV households grows and the numbers of multichannel video subscribers grows. For example, the total number of television homes increased from 97 million in 1996 to 98 million today. The total number of households subscribing to MVPDs increased 4.1% from 73.6 million in 1997 to 76.6 million in 1998. The number of cable subscribers also continued to grow, rising about 2% from 64.2 million in 1997 to 65.4 million in 1998. Some subscribers have chosen to retain basic cable for local service while adding DBS for its national programming and picture clarity. Thus, both the number of cable subscribers and non-cable subscribers have grown and may continue to grow.

While I am heartened by the progress made in the development of new competition to cable, some concerns remain. Local cable franchise areas served by a wireline competitor, while growing, are limited. The widespread entry by local exchange carriers (LECs) envisioned by the Congress has not yet developed. Not everyone has access to DBS (it is currently available only throughout the Continental United States), and even with our extension, last fall, of the over-the-air reception device accessibility provisions, many, if not most, residents in multiple dwelling units may not be able to subscribe to DBS. DBS offerings also do not, in general, compete on the basis of price with what is marketed as "basic" cable. For those cable subscribers looking for lower prices, I am hopeful more cable operators will follow the lead of Comcast by offering channel packages at various price points, to the extent such offerings do not impair the launch of new program networks.

The next year or two will be especially dynamic as cable operators enter the voice and data market and broadband data offerings are introduced by cable, DBS, local exchange carriers, and potentially MMDS and others. In addition, as a result of our implementation of statutory provisions enabling the retail market for set top devices to develop, new digital products and services are likely to be offered. The state of competition in the video marketplace could be substantially affected by how these related services are offered, and how they are accepted by consumers.

Practically speaking, competitive markets are evidenced by the availability of choice -- in other words, do people perceive that they have a realistic choice between providers of multichannel video programming? Choices should be available at various prices, should be available to people in various living environments, must be realistic, and must not be transitory.

When markets are fully competitive -- when people have meaningful choices -- the need for government regulation abates and the benefits of competition are manifest: lower prices, new and different service offerings, and better customer service. I am encouraged by the level of competition that has been achieved thus far, and I support efforts by industry and government to attain a fully competitive market for video programming distribution.