Cable Competition Faces Hurdles

Television Digest with Consumer Electronics, August 10, 1998

Video competition is increasing but still faces major hurdles, competitive companies told FCC in filings for Commission's annual report to Congress. Unsurprisingly, they were less sanguine about competition's future if agency stands pat and lets rate regulation expire than was NCTA. Problems are "largely familiar," in words of Ameritech New Media, but have "some new and vexing permutations."

Most of competition to cable comes from direct-to-home (DTH) service, according to filings. DTH has 9.28 million subscribers, up 2.05 million (28.4%) from year ago, Satellite Bcstg. Communications Assn. (SBCA) said. DBS continues to grow -- by 44% to 7.25 million subscribers, although C-band services have stalled at 2 million. Among non-DTH competitors that reported subscriber figures, Ameritech had 150,000; RCN Corp. had 187,000 traditional cable customers, as well as 40,860 wireless subscribers and 15,600 for open video system (OVS). Microwave operator OpTel had 200,000.

Competition has become "tale of 2 cities," Ameritech said, with those "relatively few areas" of overbuilds seeing increased services and reduced prices, while "picture is bleak" everywhere else. Ameritech and RCN said DBS service, because it's not comparable and isn't competing on price, doesn't constrain rates. Both competitors said their entry has caused incumbents to improve offerings, although NCTA countered that price wars caused by overbuilds are short term and unsustainable. Ameritech described dismal scenario following end of rate regulation, with MSOs raising rates drastically in areas without competition and using those profits to subsidize deep short-term cuts in competitive areas to drive out newcomers.

In addition to implementing expected program access revisions to expedite complaint process and give rules "teeth," Commission should ask Congress to expand agency's authority to cover programming delivered over fiber as well as that via satellite, many commenters said. Size of that "loophole" is growing, Wireless Communications Assn. said, as MSOs "are reconfiguring their networks" with clustering to cut their need for satellite delivery. Most competitors also urged FCC to strike down exclusive contracts with programmers, even those not vertically integrated with MSOs. Exclusivity "does absolutely nothing to promote competition," Ameritech said. Competitors said even where programming is technically available, that's meaningless if competitors must pay rates for it well above those paid by incumbent operators. Discounts of up to 50% for programming obtained by large MSOs are "unjustified" by any cost analysis, they said, and make competition difficult.

That's just one example of how large incumbents are shutting out competition by leveraging their market power, and problem may get worse in future, Ameritech said, because companies such as TCI are buying into services such as set-top boxes and program guides, giving them leverage over entire industry. It called on FCC and Justice Dept. to "closely monitor" such transactions. Telco also complained about its exclusion from Cable Labs, preventing it from being part of Open Cable standard-setting process. Keeping out competition "raises serious concerns about this process," Ameritech said.

Regulators should fight SBC-Ameritech merger "with every fiber in their being," said Cable Communications Agency (CCA) of Indianapolis, because Ameritech overbuilds are "one of the very few and very best examples of cable TV competition in the world." It said clustering has prevented incumbents from competing with each other and should be carefully examined. Agency also called for rate regulation to continue until effective competition comes to given area.

Among other potential barriers to competition, according to filings: (1) PrimeStar's application for choice satellite location. Having DBS dominated by incumbents is "almost definitionally anticompetitive," Ameritech said. (2) Difficulty in competing for multidwelling units (MDUs). Ability of incumbents to remove their wiring -- leaving MDU with no provider until newcomer finishes installation -- gives them leverage over unit owner, competitors argued. RCN said incumbents won't let it interconnect without boring through MDU walls. (3) "Dysfunction" in Satellite Home Video Act that has caused courts to enjoin satellite providers from offering networks, in words of National Rural Telecommunications Cooperative (NRTC). (4) High satellite copyright fees. (5) Limitations of 18 GHz spectrum, in OpTel's case. Company asked FCC to make available 12 GHz CARS band for video programming. (6) Incumbents' filings of "seemingly unending" stream of objections, in RCN's words. (7) Two-thirds channel availability requirement for OVS, which will cause option to "remain unattractive" for telcos, BellSouth said.

Urge to promote competition has unfairly burdened small operators, Small Cable Business Assn. (SCBA) said. It called on FCC to repeal pole attachment regulation exemption for cooperatives, saying that many electric and phone co-ops now are offering competitive video while levying "spiraling" attachment charges on small operators. SCBA also said DBS should face same public interest obligations as incumbents, and affiliation rules should be loosened somewhat to allow more passive investment in small operators without subjecting them to regulation.