Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming

FEDERAL COMMUNICATIONS COMMISSION

[CS Docket No. 98-102, FCC 98-335]

Annual Assessment of the Status of Competition in Markets for the

Delivery of Video Programming

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: Section 628(g) of the Communications Act of 1934, as amended,

47 U.S.C. 548(g), requires the Commission to report annually to

Congress on the status of competition in markets for the delivery of

video programming. On December 23, 1998, the Commission released its

fifth annual report (``1998 Report''). The 1998 Report contains data

and information that summarize the status of competition in markets for

the delivery of video programming and updates the Commission's prior

reports. The 1998 Report is based on publicly available data, filings

in various Commission rulemaking proceedings, and information submitted

by commenters in response to a Notice of Inquiry in this docket.

FOR FURTHER INFORMATION CONTACT: Marcia Glauberman or Nancy Stevenson,

Cable Services Bureau (202) 418-7200, TTY (202) 418-7172.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 1998

Report in CS Docket No. 98-102, FCC 98-335, adopted December 17, 1998,

and released December 23, 1998. The complete text of the 1998 Report is

available for inspection and copying during normal business hours in

the FCC Reference Center (Room 239), 1919 M Street, NW, Washington, DC,

20554, and may also be purchased from the Commission's copy contractor,

International Transcription Service (``ITS, Inc.''), (202) 857-3800,

1231 20th Street, NW, Washington, DC 20036. In addition, the complete

text of the 1998 Report is available on the Internet at http://

www.fcc.gov/Bureaus/Cable/WWW/csrptpg.html.

Synopsis of the 1998 Report

1. The Commission's 1998 Report to Congress provides information

about the cable television industry and other multichannel video

programming distributors (``MVPDs''), including direct broadcast

satellite (``DBS'') service, home satellite dishes (``HSDs''),

multipoint distribution service (``MMDS''), local multipoint

distribution service (``LMDS''), satellite master antenna television

(``SMATV'') systems, and broadcast television service. The Commission

also considers several other existing and potential distributors of and

distribution technologies for video programming, including the

Internet, home video sales and rentals, local exchange telephone

carriers (``LECs''), and electric and gas utilities. The report

includes as an attachment the results of an inquiry undertaken by the

Cable Services Bureau focusing on cable television programming costs

and related issues.

2. The Commission further examines market structure and issues

affecting competition, such as horizontal concentration, vertical

integration and technical advances. The 1998 report addresses

competitors serving multiple dwelling unit (``MDU'') buildings and

evidence of competitive responses by industry players that are

beginning to face competition from other MVPDs.

3. In the 1998 Report, the Commission concludes that competitive

alternatives and consumer choices are still developing but that cable

television continues to be the primary delivery technology for the

distribution of multichannel video programming and continues to occupy

a dominant position in the MVPD marketplace. As of June 1998, 85% of

all MVPD subscribers received video programming service from local

franchised cable operators compared to 87% a year earlier. There has

been an increase in the total number of subscribers to noncable MVPDs,

most of which is attributable to the continued growth of DBS. However,

there have been declines in the number of subscribers and market shares

of MVPDs using other distribution technologies. Significant competition

from local telephone companies has not generally developed even though

the Telecommunications Act of 1996 (``1996 Act'') removed some barriers

to LEC entry into the video marketplace.

4. Key Findings:

Industry Growth: A total of 76.6 million households

subscribed to multichannel video programming services as of June 1998,

up 4.1% over the 73.6 million households subscribing as of June 1997.

This subscriber growth accompanied a 2.3% increase in multichannel

video programming's penetration of television households from 75.9% to

78.2% in June 1998. Noncable's share of total MVPD subscribers

continued to grow, constituting 15% of all multichannel video

subscribers as of June 1998, up from 13% over the June 1997 figure

reported last year. The cable television industry has continued to grow

in terms of subscribership (up to 65.4 million subscribers as of June

1998, a 2% increase from the 64.2 million cable subscribers in June

1997). The total number of noncable MVPD subscribers grew from 9.5

million as of June 1997 to 11.2 million as of June 1998, an increase of

over 18% since last year's report.

Convergence of Cable and Telephone Service: The 1996 Act

repealed a statutory prohibition against an entity holding attributable

interests in a cable system and a LEC with overlapping service areas.

It was expected that local exchange telephone carriers would begin to

compete in video delivery markets, and cable television operators would

begin providing local telephone exchange service. However, telephone

entry into video markets has been slow to develop. Congress developed

the Open Video System (``OVS'') framework as another means to encourage

telephone company entry into the video marketplace. Thus far, however,

few telephone companies have sought certification to provide video

through OVS.

Promotion of Entry and Competition: The Commission has

continued to take steps to eliminate obstacles to competition,

including the adoption and enforcement of rules that prohibit

governmental and private restrictions that unreasonably interfere with

a consumer's right to install the dishes and other antennas to receive

programming services from (direct-to-home) DBS, wireless cable, and

television broadcast; establish procedures to use internal wiring

installed in an MDU building by the incumbent provider, facilitating

owners' and residents' choice among providers; and increase the amount

of spectrum available for wireless uses and eliminate restrictions on

use, for the benefit of wireless providers. In addition, the Commission

recently strengthened its enforcement procedures for the program access

rules, which are designed to ensure that alternative MVPDs can acquire,

on non-discriminatory terms, vertically-integrated satellite delivered

programming.

Horizontal Concentration: Nationally, concentration among

the top MVPDs has declined since last year. As a result of acquisitions

and trades, cable MSOs have continued to increase the extent to which

their systems form regional clusters. The number of clusters of systems

serving at least 100,000 subscribers is currently 117, down from the

139 reported last year. Although the number of clusters declined, the

trend for clusters to increase in subscribership or size appears to be

continuing, and these

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clustered systems now account for service to approximately 52% of the

nation's cable subscribers.

Vertical Integration: The number of satellite-delivered

programming networks has increased from 172 in 1997 to 245 in 1998.

Vertical integration of national programming services between cable

operators and programmers, measured in terms of the total number

services in operation, declined from last year's total of 44% to just

39% this year, the continuation of a four year trend. However, in 1998,

cable MSOs, either individually or collectively, owned 50% or more of

78 national programming services. A year earlier, cable MSOs owned 50%

or more of 50 national networks.

Technological advances: Technological advances are

occurring that will permit MVPDs to increase both quantity of service

(i.e., an increased number of channels using the same amount of

bandwidth or spectrum space) and types of offerings (e.g., interactive

services). In particular, cable operators and other MVPDs continue to

develop and deploy advanced technologies, especially digital

compression, in order to deliver additional video options and other

services (e.g., data access, telephony) to their customers. To access

these wide ranging services, consumers use ``navigation devices.'' In

the last year, the Commission adopted rules and policies to implement

Section 629 of the Communications Act, which is intended to ensure

commercial availability of these navigation devices.

Programming costs: The report includes as an attachment

the results of an inquiry undertaken by the Cable Services Bureau

focusing on cable television programming costs and related issues. This

inquiry was commenced to follow-up on issues raised in last year's

annual competition report and involved a voluntary questionnaire

distributed to six multiple system operators. The Bureau found that,

other than inflation adjustments, programming cost increases were the

most significant factor contributing to rate increases. The rate of

increase in programming costs between July 1996 and July 1997 was

20.2%. Programming costs for the responding MSOs (for regulated

services) were equal to approximately 24% of regulated revenues for

that period. On average, about one-quarter of an operator's regulated

revenues was used to pay for programming. Sports programming costs (for

the period surveyed) did not increase at a disproportionally higher

rate than other types of programming and played a fairly minor role

(accounting for only 5.3%) in overall rate increases. The inquiry

results do not reflect license fee increases owing to sports

distribution rights agreements announced in late 1997 and 1998.

Ordering Clauses

5. This 1998 Report is issued pursuant to authority contained in

sections 4(i), 4(j), 403 and 628(g) of the Communications Act of 1934,

as amended, 47 U.S.C. 154(i), 154(j), 403 and 548(g).

6. It is ordered that the Office of Legislative and

Intergovernmental Affairs shall send copies of this 1998 Report to the

appropriate committees and subcommittees of the United States House of

Representatives and the United States Senate.

7. It is further ordered that the proceeding in CS Docket No. 98-

102 Is terminated.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 99-1388 Filed 1-21-99; 8:45 am]

BILLING CODE 6712-01-P