Cable Operators

GAO: Cable’s Urban Fort Under DBS Assault

4/21/2005 10:14 AM Eastern

The U.S. Government Accountability Office released a report Thursday confirming what cable operators have known for a long time: Direct-broadcast satellite providers are invading their urban fortress.

According to the 40-page report, EchoStar Communications Corp. and DirecTV Inc. have grown “most rapidly in urban and suburban areas” since 2001. However, the report noted, DBS penetration remains highest in rural markets.

Cable operators have reacted to urban DBS growth by filing numerous petitions at the Federal Communications Commission seeking total price deregulation. The GAO’s finding that urban markets are increasingly contestable could help Comcast and Time Warner Cable to blunt concerns that their merger with Adelphia Communications Corp., also announced Thursday, would help them to erect impenetrable urban clusters.

The GAO report was requested by Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.), respectively the chairman and ranking member of the Senate Judiciary Subcommittee on Antitrust, Competition, Business and Consumer Rights. The GAO is the investigative arm of Congress.

In the report, the GAO found that from 2001-04, satellite’s growth rate was 15% in rural areas, 32% in suburban areas and 50% in urban areas. It also found that DBS served 29% of rural, 18% of suburban and 13% of urban homes.

The GAO ascribed below-average DBS urban penetration in part to a “high prevalence of multiple-dwelling units.” Apartment dwellers have a tougher time signing up for DBS if they can’t install a dish with a clear line of sight to satellites hovering 22,000 miles above the equator.

In examining other trends, the GAO found that DBS providers were less successful in picking up subscribers in markets where they do not offer local TV signals and where cable companies have upgraded their networks.

In 1999, Congress gave DBS providers the right to offer local TV signals in their home markets. DirecTV provides local-into-local service to about 130 markets, covering more than 90% of all TV households. EchoStar launched its 158th market Thursday and now reaches 95% of TV households with a local-signal package.

The GAO found that DirecTV and EchoStar have also been struggling in so-called overbuild markets, where the cable incumbent goes head-to-head with another wire-line pay TV provider.

“While relatively few areas have more than one wire-based cable operator, in these areas, the DBS penetration rate is 8% lower than in areas with only one cable operator,” the GAO said.

Satellite providers are most successful in areas that lack a cable provider. In those markets, the DBS penetration rate is “50 percentage points greater than in areas where cable service is available,” the GAO said.

Cable operators serve 73 million subscribers and pass more than 97% of occupied homes with TV sets, according to the National Cable & Telecommunications Association. EchoStar and DirecTV combined serve about 24 million subscribers.

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