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II. WITHOUT WIRELINE COMPETITION, CABLE RATES WILL CONTINUE
TO RISE.
Two studies, one conducted by the GAO at the request of this Committee,
and a second study done by the FCC, have independently documented
that cable rates are lower in areas where a competing cable service
is available from a second wireline provider. The GAO study found
cable rates to be 17% lower, and the FCC found rates were 8% lower.
The challenge arises in that according to the FCC, only 2% of the
33,246 cable communities have overbuild cable competition, and it
appears that the cable industry intends to keep it that way.
The GAO found that the seven largest cable operators serve 83.8%
of all cable subscribers and the top seven do not compete against
each other in any market. These numbers take on even greater meaning
when the size of incumbent MSO and competitors are compared. The
total subscriber counts of the three largest overbuild/competitive
cable operators combined serve only slightly more than half the
number of subscribers of Mediacom, the seventh largest MSO. The
competitive cable operators together serve less than four percent
of the number of subscribers Comcast serves. Comcast is the nation’s
largest cable operator with over 21 million subscribers.
The National Association of Telecommunications Officers and Advisors,
the association that represents local cable regulators, testified
before the Senate Judiciary Subcommittee on Antitrust, Competition
and Business and Consumer Rights on February 11, 2004. In that testimony,
NATOA ratified the findings of the FCC and GAO, described in detail
various problems that have prevented the success of cable overbuilds,
and pointed to specific legislative changes that might open the
door to more overbuilders. However, experience with overbuilding
makes local government believe that competition will continue to
be scarce.
- Direct Broadcast Satellite (DBS) Service Does Not Constrain
Cable Rates.
While the cable industry has touted the threat posed by DBS, both
the GAO and FCC in their research failed to conclude that DBS
competition has a limiting effect on cable rates. The National
Cable Television Association (“NCTA”) claimed otherwise
to the FCC, stating that cable's market power is restrained to
the extent that there are competitive alternatives available to
customers if a cable operator attempted to raise its prices. Local
governments believe there are several factors that prevent DBS
from being a true “competitive alternative” for major
television market cable customers and thus from restraining cable
prices:
- Non-Interchangeable Equipment. It is easier for customers
to switch between wireline competitors using cable modem and
set-top boxes than it is for customers to switch between dish
systems and cable boxes.
- No High-Speed Two-way Service. DBS does not offer
two-way high-speed data services comparable to DSL or cable
modem. This means a DBS subscriber must still subscribe to
a wireline service.
- Provision of Local PEG and Broadcast Channels. In
the GAO study, 47% of respondents cited the ability to receive
local broadcast and cable channels from the same provider
as a major reason for selecting cable, and DBS providers confirm
that provision of local broadcast channels increases subscription
rates. Yet local broadcast channels are offered by DirecTV
or Echostar in only 62 of 210 television markets and local
channels are offered by both providers in only 41 markets.
In addition, DBS does not carry local Public, Educational
and Government Access (PEG) programming.
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