The FCC's latest assessment of competition in the multichannel TV market offers mixed news for the cable industry.

Cable subscribers represented 78% of the pay television universe by June 2001, a drop of two percentage points over a 12-month period, according to a study released by the commission last week.

Noncable multichannel subscribers, meanwhile, grew from 16.7 million as of June 2000 to 19.3 million a year later, an increase of more than 15% that the report directly attributes to inroads made by direct broadband satellite (DBS) companies. DBS subscribers represented 18% of the multichannel market by last June, about 3% higher than a year earlier.

?Cable television is still the dominant technology for the delivery of video programming to consumers, although its market share continues to decline,? the report says, adding that ?alternatives [to cable] continue to develop.?

But the size of the overall TV market also grew. The number of cable subscribers rose 1.9% ? to nearly 69 million, or 1.28 million new subs ? in the year ended June 2001. DBS, in comparison, grew by almost 24% ? to 16.07 million, or more than 3 million additional subs ? during the same period.

Despite the threat from DBS, however, cable operators still posted a 15.4% increase in revenues, to almost $44 billion, last year ? presumably through rate increases and rollouts of advanced services ? while revenue per cable subscriber grew 13.5%, to reach $637.33 by year-end.

And in a boost for programmers, cable networks continued slicing into broadcasters' share of the television audience: The audience share for basic cable networks grew 4.3% in the 12 months prior to June 2001, while broadcasters' share slipped 3.4%.

Some cable executives ? eager to show that cable has left behind its reputation as a sanctioned monopoly ? hailed the report as evidence of a competitive marketplace.

?The FCC's report clearly shows that consumers have choices in the market for subscription video services and are exercising them,? National Cable and Telecommunications Association president Robert Sachs commented last week.

Michael Willner, CEO of Insight Communications and chairman of the NCTA board of directors, agrees but acknowledges: ?The bad news ? and we've understood this for five years ? is that in our historic core business we are going to lose market share when it's opened to competition, which was the goal of the 1996 Telecom Act.?

?Cable won't lose market share at the same pace going forward as we've seen since 1994,? says Larry Gerbrandt, chief content officer at Kagan World Media, the databook and newsletter publisher that, like Cable World, is a subsidiary of Media Central. ?One of the reasons DBS's growth has not hurt cable as much as the pure numbers would imply is that a sizable number of households [maybe 25% to 35% of DBS homes] have kept at least a lifeline cable service for all local signals and to serve extra sets in the home.?

HIGHLIGHTS FROM THE FCC ANNUAL REPORT

category % change		june 2000	june 2001
Total TV households	100.1 mil	102.2 mil	1.37%
MVPD: Total number of subscribers (cable and noncable)	84.4 mil	88.3 mil	4.6%
MVPD penetration of television households	83.7%	86.4%	2.7%
Cable: total number of subscribers	67.7 mil	68.98 mil	1.89%
Cable subscribers as % of all MVPD subscribers	80%	78%	-2% pts.
Total number of noncable MVPD subscribers	16.7 mil	19.3 mil	15.6%
DBS: total number of subscribers	12.99 mil	16.07 mil	23.74%
DBS subscribers as % of all MVPD subscribers	15.38%	18.2%	18.3%
Est. year-end revenues (in $mil. for 2001 vs 2000)	$38.12 bil	$43.98 bil	15.4%
Est. annual revenue per subscriber (2001 vs 2000)	$561.38	$637.33	13.5%
Cable viewership ratings (nonpremium cable)	46 share	48 share	4.3%
Broadcast viewership ratings (broadcast networks)	59 share	57 share	-3.4%
MVPD: MULTICHANNEL VIDEO PROGRAM DISTRIBUTOR
SOURCE: FCC ANNUAL ASSESSMENT OF THE STATUS OF COMPETITION IN THE MARKET FOR THE DELIVERY OF VIDEO PROGRAMMING (RELEASED JAN. 14, 2002)

Gerbrandt also sees satellite having a tough time going forward. ?DBS helped get multichannel services into more households, so it increased the overall size of the market,? he says. ?However, multichannel services are now in more than 80% of the homes, and the closer we get to 90%, the more difficult it is to increase that market. This means the low-hanging fruit is pretty much gone for DBS. The next battle then becomes both cable and DBS going after each other's customers, and that could become an expensive proposition.?

Attorney Nick Miller of Miller & Van Eaton, a Washington, D.C.-based law firm specializing in city-related telecom issues, points out that plant upgrades that allow operators to offer new services such as digital video tiers and high-speed data have stemmed the defections to DBS somewhat. Moreover, most of DBS's growth continues to come from noncabled areas, which is one reason a merger between EchoStar Communications and DirecTV is gaining opposition, especially among congressmen serving rural areas.

As for the perennially sensitive subject of cable rates, the FCC report suggests that prices are being held in check due to the competition from DBS providers, says one Washington, D.C.-based lawyer who works with several MSOs on various telecom issues. The FCC report cites figures from the Bureau of Labor Statistics showing that cable rates increased 4.24% in the 12 months leading up to last June, compared with the 3.25% rise in the Consumer Price Index over that period.

?Rate hikes that are 1% [higher than] the rate of inflation at the same time when costs are up as much as they were are nothing,? the lawyer says. ?Hikes used to average three or four times the rate of inflation a decade ago ? that's why Congress chose to reregulate the industry in 1992. The industry knows that it can't raise rates like that anymore.?

But consumer advocates such as Mark Cooper, director of research at the Consumer Federation of America, aren't buying that argument.

?Why are they raising my rates above the rate of inflation?? Cooper asks. ?MSOs complain they're paying more than ever for programming, but that's a tired argument. They own and invest in a bunch of cable programmers, so they're complaining about themselves.?

Additional reporting by K.C. Neel.

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