FCC Study Shows Cable Losing Share


Washington -- In a new report to Congress, the FederalCommunications Commission last week said the cable industry is gaining subscribers butlosing market share as consumers are turning to alternative providers led bydirect-broadcast satellite carriers.

For the second year running, the FCC's cablecompetition study found that traditional cable operators' near-total command of themarket is slipping. As of last June, cable industry market share fell from 89 percent to87 percent.

FCC chairman William Kennard used the study to declare thatcable was still dominant, consumers largely had no alternatives to cable and the agencyhad to consider tightening its rate rules.

<p> </p><p> <strong id="d9e19-7-b">June '97</strong> </p><p> <strong id="d9e24-10-b">June '96</strong> </p>

Non-cable Share of MVPD+ Subs



Average Rate*



DBS Subscribers









* Rates for 'basic and most popular cable programming service (CPS)' tiers,converter and remote. Period compared was July 1 to July 1.

# Period compared was end of September 1996 to end of June1997.
Source: FCC

Cable operators balked at Kennard's assessment,although direct-broadcast satellite companies were applauding it.

'We are mystified by the view that a double-digit lossof market share by the cable industry is unsatisfactory, while incumbent phone companiescontinue to control 99 percent of the residential telephone marketplace,' said SheilaA. Mahoney, senior vice president of Cablevision Systems Corp., in a statement.

According to FCC sources, cable market share declined evenmore than indicated in the study because the subscriber totals of phone companies -- suchas Ameritech New Media -- that have overbuilt incumbent cable operators were included inthe 87 percent.

The 138-page study said cable operators managed to addabout 1 percent to their subscriber base, ending with 64.2 million subscribers as of lastJune. The overall multichannel video subscriber universe grew by 2.8 percent, ending with73.6 million households.

While cable's growth rate trailed that of the overallmarket, competitors scored impressive gains: DBS carriers, wireless cable systems andsatellite master-antenna television operators combined posted a 17 percent increase,growing from 8.1 million to 9.5 million subscribers as of last June from the previousyear.

The bulk of the growth was generated by the DBS companies,which account for 9.8 percent of the market controlled by cable competitors.

For the year ending last September, the report saidEchoStar Communications Corp.'s subscribership rocketed 331 percent, from 190,000 to820,000. DirecTv Inc.'s subscriber count soared by 50 percent, from 1.9 million to2.9 million. PrimeStar Partners L.P., the cable-backed medium-power DBS service, reporteda 22.6 percent gain, ending with 1.8 million customers.

The FCC study cautioned that while competition is growing,it has not matured to the point where cable rates in the aggregate are going down. Infact, the report said regulated cable rates rose 8.5 percent even as competitionintensified.

In specific markets, particularly those communities beingserved by cable systems built by Ameritech and GTE Corp., the FCC said consumers havereaped a cornucopia of benefits, including free programming services on a trial andlong-term basis, free installations, customer loyalty programs and rate reductions forbasic and expanded basic.

While satellite service is popular in states like Montana(22 percent penetration) and Vermont (20 percent), the study questioned whether DBS can beviewed as a robust substitute to cable if DBS failed to offer local-broadcast signals,required upfront equipment and installation payments and required subscribers to obtainadditional equipment to receive service on more than one TV set.

DBS provider DirecTv praised the report, but Steve Cox, thecompany's senior vice president for new ventures, said the local signal issue may beoverstated.

'We think the DBS industry is doing a good job ofovercoming the disadvantage that in some ways is more perception than reality, andit's a perception that's been fueled by cable,' Cox said.

DirecTv has been aggressive in marketing off-air antennasand is a strong proponent of mandating that cable sell low-cost broadcast basic packagesso people could afford to buy both that and DBS service.

'The FCC and Congress will ultimately realize asatellite solution to local signals will never deliver a solution to more than a limitednumber of consumers in a limited number of markets,' Cox added.

Overall, Cox said 'we're extremely pleased withthe report, that the Commission realizes there still remain regulatory impediments to theDBS industry being able to compete more aggressively against cable.'

On program access, he called on the law to be extendedbeyond 2002 and asked that the FCC put 'more teeth' into enforcing accesscomplaints, especially in respect to ordering monetary damages.

The study, the fourth of its kind since passage of the 1992Cable Act, did not contain specific legislative proposals for Congress. However, it saidthe FCC could use stronger laws regarding the disposition of cable wiring in apartmentbuildings and could use additional authority to allow apartment renters to place antennasatop buildings.

In other findings, the study said:

* The cable industry became less vertical integrated,noting that cable operators had an attributable interest in 68 -- or 40 percent -- ofnational satellite-delivered networks, down from 46 percent in 1996. The number ofnational cable networks increased 17 percent, from 147 to 172.

* The cable industry remains 'moderatelyconcentrated' in terms of MSO market share, with Tele-Communications Inc., TimeWarner Cable, MediaOne and Comcast Corp. serving 62.3 percent of subscribers and the top10 MSOs serving 80 percent.

The FCC measures horizontal integration using theHerfendahl-Hirschman Index, which is calculated by summing the squares of the marketshares of cable operators. Cable's HHI was 1,379. Markets with HHIs between 1,000 and1,800 are considered moderately concentrated.