FCC Report: Cable Loses Share to DBS

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Washington -- The cable industry's market share eroded
from 87 percent to 85 percent between June 1997 and June 1998, while direct-broadcast
satellite companies' share rose to 9.4 percent during the same period.

Those figures are from the Federal Communications
Commission's annual report on the status of video competition, which was approved
last Thursday in a 4-to-1 vote.

The report to Congress is required by the 1992 Cable Act,
and it will be the last one issued, assuming that the March 1999 deadline to end
service-tier rate regulation remains in place. FCC officials said the text of the report
won't be available until at least later this week, and possibly not until January.

The DBS and medium-power satellite industry grew from 5
million to 7.2 million subscribers -- a 44 percent increase over the same period last
year. The report also cited studies showing that about two out of every three new
multichannel-video subscribers now choose DBS over cable.

Decker Anstrom, president of the National Cable Television
Association, said the report proves that "cable faces vigorous competition from DBS
and other video providers," which creates "better value" for consumers.
"That's why the government should stick with policies that promote
competition," he added.

In other news, the report concluded that cable rates rose
7.2 percent. It said the increases were attributable primarily to increased spending on
cable upgrades and rising programming costs.

Sports-programming costs "played a fairly minor
role" as far as overall programming costs, the FCC said, accounting for only 5.3
percent of overall rate increases. The program-cost statistics came from a separate study
of the top six MSOs, which was folded into the video-competition report.

In separate statements, some commissioners said that
despite cable's dominance, they were encouraged by the DBS industry's inroads.
"DBS is coming on strong," commissioner Michael Powell said. He added that the
cable industry appears to be holding the line on prices in the face of DBS competition,
saying that criticism that cable companies have raised their rates by four times the rate
of inflation is "meaningless" because it doesn't account for rising
external costs.

Commissioner Susan Ness said DBS competition is a
"positive story," and it's "conceivable" that cable's market
share may have declined even more than the report suggests. That's because many
people are keeping only a basic tier of cable service so that they can receive
local-broadcast stations, and then subscribing to DBS for national networks.

Commissioner Harold Furchtgott-Roth dissented from the
report because he said it only included "multichannel" video providers in its
numerical analysis. Among specific services that Furchtgott-Roth said should have been
factored into the equation were over-the-air broadcast television, video-tape rentals,
movie-theater attendance, theatrical productions and, "at some point in the
not-too-distant future, Internet streaming video."

But Furchtgott-Roth added in his comments at the FCC
meeting that the report gave him "great pleasure" because it showed that
competition "has gotten progressively better every year."

FCC chairman William Kennard and commissioner Gloria
Tristani, however, said the report showed that competition has been slow in coming.
"I don't think that any of us are happy about the state of competition,"
Kennard said.

He added that one way to increase competition would be to
give DBS operators the ability to retransmit local-broadcast stations. "I'm
hopeful that Congress will take this up next year," he said.

Tristani, however, cautioned that while "some
consumers are doing well" in having multichannel-video choices, "there's
another group of consumers who are not doing so well."

She said many consumers must swallow rate increases and
accept channels that they don't want because they have no alternatives. "They
were confronted with a take-it-or-leave-it proposition," Tristani added.

At a press conference following the meeting, FCC Cable
Services Bureau chief Deborah Lathen said the CSB doesn't have a market-share number
in mind that would indicate that the cable industry was no longer the "dominant"
provider.

"You'll know that when customers don't call
and say, 'My rates are too high,'" she said. "I think that we'll
know when consumers tell us."

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