FCC SEES DBS GAINING WHILE CABLE RATES STILL OUTPACE INFLATION
To no one’s great surprise, cable TV remains dominant technology for delivering video programming to consumers, according to 7th annual video competition report adopted last week and released by FCC Mon. Commission found that cable industry totaled 67.7 million subscribers in June 2000, up one million (1.5%) from 66.7 million in June 1999. But DBS continued to make steady inroads in cable’s market share, adding almost 3 million subscribers over same period to reach nearly 13 million last June, up 29% from year earlier. Largely as result, cable operators now control 80% of burgeoning pay-TV market, down from 82% year earlier, while DBS providers now command growing 15.4%.
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Latest video competition report, which is required by Congress, also found that cable rates continued to rise faster than inflation. Between June 1999 and June 2000, cable prices increased 4.8%, compared with 3.2% in Consumer Price Index as calculated by Bureau of Labor Statistics. But report said MSOs also were spending more than ever, with plant upgrade costs up 89.3% over 1998, network licensing fees up 12.2% and programming expenses up 16.2%. It also said cable operators had responded to “effective competition” in many markets by cutting rates, adding channels, improving customer service, introducing such new services as interactive TV features.
FCC reported that all noncable multichannel video programming distributors (MVPDs had total of 16.7 million customers last June, up nearly 18% from 14.2 million year earlier. It credited most of increase to rollout of local-into-local service by DBS providers in last year. Commission said total of 40 large markets now received local-into-local service from one or both of DBS operators, with DirecTV active in 38 markets, EchoStar in 34 and both competing in 32. Both DirecTV and EchoStar now rank among top 8 MVPDs in nation, along with 6 biggest MSOs.
However, other cable video rivals were losing ground to both cable and DBS, Commission found. Wireless cable operators saw their subscriber totals slip 14.7% to 700,000 in June 2000, giving MMDS systems just 0.8% of pay-TV market. Similarly, C-band satellite industry fell 17% to 1.5 million as small dishes continued to replace large ones. Finally, LECs largely began leaving video facilities market, with only BellSouth showing intention of hanging onto its alternative cable systems. “Most incumbent local exchange carriers are seeking to sell their MVPD facilities, preferring instead to market DBS service to their customers,” report said.
Although FCC has certified 25 open video system (OVS) operators in 50 markets since Telecom Act’s enactment 5 years ago, new regulatory framework hasn’t proved popular. Commission said RCN owns only operating OVS operations in nation, with service in parts of N.Y.C., Washington, Boston and San Francisco areas. Total OVS subscribers remained constant over last year at mere 60,000, slightly less than 0.1% of all pay-TV customers.
SMATV systems, alone among other cable rivals, did register growth over last year. FCC said SMATV systems, which use some of same technology as cable but not public rights-of-way, increased their customer base 3.5% to 1.5 million in June. SMATV operators, who mainly serve apartment complexes, now account for 1.8% of total MVPD market.
Surprisingly, despite earlier predictions of saturation point being reached, overall market for pay-TV continued to grow briskly. Latest video competition report put total MVPD market at 84.4 million households, up 4.4% from 80.9 million in June 1999. Pay-TV penetration of U.S. TV homes edged up 2.4% to 83.8%.
As total market grows, cable consolidation trend continues unabated. Commission reported that 10 biggest MSOs now served close to 90% of all cable subscribers and regional cable clusters now covered 44 million (2/3) of cable customers. But vertical integration of national programming services with cable operators slipped again, with top 5 MSOs now controlling 35% of all national networks, down from 37% year earlier. Number of satellite- delivered networks also dipped slightly, to 281 from 283.