Whose View of Competition is Truer?


Washington-It's become a ritual, and one that requires the belief that two conflicting accounts can both be true.

And though it sounds like a spy novel, it's really just another policy battle at the Federal Communications Commission.

Each fall, the FCC prepares a report for Congress on the status of competition within the cable industry. But before writing the missive, the FCC typically asks cable operators and their competitors to give their side of the story.

And the plot hasn't thickened much in the last few years. Cable operators continue to assert that competition is flourishing, while the fast-growing direct-broadcast-satellite industry counters that cable remains dominant, with unbeatable access to the best programming at the best prices.

The sky is blue and the sky is falling. Can both be true?

In its Sept. 8 comments, the National Cable Television Association told the FCC that cable operators lost more than two points of market share over the last year, ending with 79 percent of the pay TV market, or 68 million subscribers.

The industry, which saw its overall subscriber count remain flat, attributed the decline in share to the booming DBS industry, which grew at a 30-percent clip to reach about 13 million subscribers through first-half 2000.

In the last year, the NCTA added, pay TV subscribership rose from slightly less than 82 million to slightly more than 85 million, with 84 percent of those additions flowing to DBS.

DBS isn't cable's only problem, NCTA said.

Today, many U.S. consumers have a choice between the incumbent cable operator and two DBS providers and, in many cases, an option to sign up with a second wired cable operator. In fact, NCTA said a medley of well-financed overbuilders like RCN Corp. and Digital Access Inc. will soon have facilities in 21 of the top 25 TV markets.

The latest group of overbuilders, NCTA said, is different from the older crop of cream skimmers, which offered plain-vanilla video programming.

The new entrants, NCTA said, were attracting big money-$6.5 billion in RCN's case-because they have a new business model that attacks cable on three fronts: voice, video and high-speed data. They hope to boost per-subscriber revenue from $35 a month under the old approach to between $100 and $150 a month under the new one, the NCTA said.

"Now it is more apparent than ever that consumers will face a larger and larger supermarket of competitive alternatives in their communities," the NCTA said.

But cable competitors said the NCTA's supermarket was more like a 7-Eleven than a Food Lion.

EchoStar Communications Corp., the No. 2 DBS company with 4.3 million subscribers, told the FCC that cable's loss of market share was not tantamount to a loss of market power. It said cable had organized itself into large urban clusters under one or two owners, solidifying its ability to demand the lowest prices for programming and to raise rates with impunity.

"Effective competition has yet to arrive in the [pay TV] markets," EchoStar said.

Cable's power, EchoStar said, has produced high market-entry barriers. There is little evidence that wireline overbuilders were a threat to cable's base, it added.

Citing FCC data, EchoStar said the commission had declared just 171 of 33,000 communities subject to effective competition, which means that cable competitors had at least 15 percent penetration in a given market.

EchoStar said its biggest challenge was access to programming at reasonable rates. DirecTV Inc., the No. 1 DBS company with 8.7 million subscribers, made the same point in its FCC filing.

A key program-access law is set to expire on Oct. 5, 2002, unless the FCC chooses to extend it. Without an extension, EchoStar and DirecTV could be cut off from satellite-delivered networks owned in whole or part by cable operators.

In the past, the DBS companies have advocated extension of the program-access rules. But they would like the FCC to move further and extend those rules to cable networks unaffiliated with cable operators or delivered by means other than satellite.

To date, the FCC has declined to enforce the program-access rules in the manner advocated by EchoStar.

As a footnote to the program-access issue, EchoStar told the FCC it had problems with DirecTV's exclusive "NFL Sunday Ticket" deal with the National Football League, which allows DirecTV subscribers to see 221 out-of-town games a season. Echo-Star urged the FCC to scuttle that deal.

EchoStar said the NFL deal-now in its sixth year, with 850,000 subscribers last season-and other DirecTV sports-distribution deals represented "the most significant impediments to the promotion of stronger competition in the market."

The FCC already has the authority to declare DirecTV's NFL Sunday Ticket an unfair practice, EchoStar said. But the company acknowledged that the commission has previously declined to prohibit exclusive contracts involving distributors that are not incumbent cable operators.

For its part, the NCTA said the FCC should let the exclusivity ban sunset and that there's no need to expand the program-access rules along the lines EchoStar suggested.

Cable and DBS have access to more than 200 networks, "most of which are not vertically owned" by cable operators, the NCTA said.

"There is more than enough programming competing for viewership to ensure that cable's competitors will not fail for lack of available programming," the NCTA said.