Before the

Federal Communications Commission

Washington, D.C. 20554

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | CS Docket No. 99-230         |
|                                  | * |                              |
| Annual Assessment of the Status  | ) |                              |
| of                               | * |                              |
|                                  | * |                              |
| Competition in Markets for the ) |   |                              |
|                                  | * |                              |
| Delivery of Video Programming    | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
+----------------------------------+---+------------------------------+

SIXTH ANNUAL REPORT

**Adopted: December 30, 1999 Released: January 14, 2000**

By the Commission: Commissioner Furchtgott-Roth dissenting and issuing a
statement; and

Commissioner Tristani issuing a statement.

**[Table of Contents]{.underline}**

[Paragraph]{.underline}

I. Introduction 1

A. Scope of this Report 2

B. Summary of Findings 5

II\. Competitors in Markets for the Delivery of Video Programming 17

A. Cable Industry 17

B. Direct Broadcast Satellite Services 69

C. Home Satellite Dishes 84

D. Multichannel Multipoint Distribution Systems 85

E. Satellite Master Antenna Systems 92

F. Broadcast Television Service 101

G. Other Entrants 110

1\. Internet Video 110

2\. Home Video Sales and Rentals 117

H. Local Exchange Carriers 120

I. Electric and Gas Utilities 136

III\. Market Structure and Conditions Affecting Competition 138

A. Horizontal Issues in Markets for the Delivery of Video Programming
138

1\. Competitive Issues in Markets for the Delivery of Video Programming
140

2\. Competitive Issues in Markets for the Purchase of Video Programming
160

B. Vertical Integration and Other Programming Issues 178

1\. Status of Vertical Integration 178

2\. Other Programming Issues 183

C. Technical Advances 206

1\. Deployment of Digital Technology 207

2\. Navigation Devices 210

3\. Cable Modems 212

IV\. Competitive Responses 215

A. New Case Studies 217

1\. Royal Oak, Huntington Woods, and Clausen, Michigan 217

2\. West Point, Georgia 222

3\. Somerville, Massachusetts 227

4\. Various Communities, Vermont 234

5\. Lebanon, Ohio 240

B. Preliminary Findings 244

V. Administrative Matters 249

Appendices

A. List of Commenters

B. Cable Industry Tables

C. Horizontal Issues Tables

D. Vertical Integration Tables

# INTRODUCTION

1.  Section 628(g) of the Communications Act of 1934, as amended
    ("Communications Act"), requires the Commission to report annually
    to Congress on the status of competition in markets for the delivery
    of video programming.[^1] Congress imposed this annual reporting
    requirement in the Cable Television Consumer Protection and
    Competition Act of 1992 ("1992 Cable Act")[^2] as a means of
    obtaining information on the competitive status of markets for the
    delivery of video programming.[^3] This is the Commission's sixth
    annual report ("*1999 Report*") submitted pursuant to Section 628(g)
    of the Communications Act.[^4]

## Scope of this Report

2.  In this *1999 Report*, we update the information in our previous
    reports and provide data and information that summarizes the status
    of competition in markets for the delivery of video programming. The
    information and analysis provided in this report are based on
    publicly available data, filings in various Commission rulemaking
    proceedings, and information submitted by commenters in response to
    a *Notice of Inquiry* ("*Notice*") in this docket.[^5] To the extent
    that information provided in previous annual reports is still
    relevant, we do not repeat that information in this report other
    than in an abbreviated fashion, and provide references to the
    discussions in prior reports.

3.  In Section II, we examine the cable television industry, existing
    multichannel video programming distributors ("MVPDs") and other
    program distribution technologies and potential competitors to cable
    television. Among the MVPD systems or techniques discussed are
    direct broadcast satellite ("DBS") services and home satellite
    dishes ("HSDs"), wireless cable systems using frequencies in the
    multichannel multipoint distribution service ("MMDS") and the
    instructional television fixed service ("ITFS"), private cable or
    satellite master antenna television ("SMATV") systems as well as
    broadcast television service. We also consider other existing and
    potential distribution technologies for video programming, including
    the Internet, home video sales and rentals, local exchange telephone
    carriers ("LECs"), and electric and gas utilities. We include these
    services and providers because they offer, or may offer, video
    programming or video programming in conjunction with nonvideo
    services.

4.  In Section III of this report, we examine market structure and
    competition. We evaluate horizontal concentration in the
    multichannel video marketplace and vertical integration between
    cable television systems and programming services. We also discuss
    competitors serving multiple dwelling unit ("MDU") buildings. We
    further address programming issues and technical advances. In
    Section IV, we examine a limited number of cases where consumers
    have a choice between an incumbent cable operator and another MVPD
    in a specific market and report on the effects of this entry.

## Summary of Findings

5.  In the *1999 Report*, we examine the status of competition in
    markets for the delivery of video programming, discuss changes that
    have occurred in the competitive environment over the last year, and
    describe barriers to competition that continue to exist. Overall,
    the *Report* finds that competitive alternatives and consumer
    choices continue to develop. Cable television still is the dominant
    technology for delivery of video programming to consumers in the
    MVPD marketplace, although its market share continues to decline. As
    of June 1999, 82% of all MVPD subscribers received their video
    programming from a local franchised cable operator, compared to 85%
    a year earlier.

6.  The total number of subscribers to both cable and noncable MVPDs
    continues to increase. A total of 80.9 million households subscribed
    to multichannel video programming services as of June 1999, up 5.5%
    over the 76.6 million households subscribing to MVPDs in June 1998.
    This subscriber growth accompanied a 3.2 percentage point increase
    in multichannel video programming distributors' penetration of
    television households to 81.4% as of June 1999.

7.  Since the *1998 Report*, the number of cable subscribers continued
    to grow, reaching 66.7 million as of June 1999, up almost 2% over
    the 65.4 million cable subscribers in June 1998. The total number of
    noncable MVPD households grew from 11.2 million as of June 1998 to
    14.2 million homes as of June 1999, an increase of 26%.

8.  Much of the increase in the growth of noncable MVPD subscribers is
    attributable to the growth of DBS. DBS appears to attract former
    cable subscribers and consumers not previously subscribing to an
    MVPD. Between June 1998 and June 1999, the number of DBS subscribers
    grew from 7.2 million households to 10.1 million households. DBS
    subscribers now represent 12.5% of all MVPD subscribers. There also
    have been a number of additional cable overbuilds in the last year.
    While the Commission has certified new open video systems, some OVS
    operators have converted portions of their systems to franchised
    cable operations. Over the last year, the number of subscribers to
    and market shares of HSD and MMDS subscribers continued to decline.
    However, the number of SMATV subscribers has increased this year,
    reversing a decline exhibited the previous year.

9.  During the period under review, cable rates rose faster than
    inflation, although the difference between the cable price index and
    the Consumer Price Index ("CPI") is not as great as in the previous
    year. According to the Bureau of Labor Statistics, between June 1998
    and June 1999, cable prices rose 3.8% compared to a 2% increase in
    the CPI, which measures general price changes. Concurrently with
    these rate increases, capital expenditures for the upgrading of
    cable facilities increased (up 13.2% over 1998), the number of video
    and nonvideo services offered increased, and programming costs
    increased (license fees increased by 14.6% and programming expenses
    increased by 16.3%). In addition, the increase in labor costs in the
    communications industry is reported to exceed the increase in labor
    costs for all industries combined by almost 2%. We note that during
    this period, on March 31, 1999, rates for cable programming service
    tiers ("CPSTs") were deregulated by Congress.[^6] We also note that
    cable operators' pricing decisions may be affected where direct
    competition exists. Available evidence indicates that when an
    incumbent cable operator faces head-to-head competition, it responds
    in a variety of ways, including lowering prices or adding channels
    without changing the monthly rate, as well as improving customer
    service and adding new services such as interactive programming.

10. The Telecommunications Act of 1996 ("1996 Act")[^7] removed barriers
    to LEC entry into the video marketplace in order to facilitate
    competition between incumbent cable operators and telephone
    companies. For example, the 1996 Act repealed a statutory
    prohibition against an entity holding attributable interests in a
    cable system and a LEC with overlapping service areas. At the time
    of the 1996 Act's passage, it was expected that local exchange
    telephone carriers would begin to compete in video delivery markets,
    and cable operators would begin to provide local telephone exchange
    service. Since the *1998 Report*, there has been an increase in the
    amount of video programming provided to consumers by telephone
    companies, although the expected technological convergence that
    would permit use of telephone facilities for video service has not
    yet occurred. Ameritech now holds 111 cable franchises and reports
    that it serves approximately 250,000 subscribers. BellSouth has
    received cable franchises in 21 areas with the potential to pass 1.4
    million homes in addition to its right to provide MMDS service to
    approximately 3.5 million homes. Other LECs, including GTE, SNET,
    and U S West, also provide cable television service in a number of
    areas. As reported last year, Bell Atlantic and SBC have joint
    marketing agreements with DirecTV in order to offer video service to
    their telephone customers in some areas. While the 1996 Act created
    the OVS framework as a means of entry into the video marketplace by
    LECs, few telephone companies have sought certification.
    Alternatively, only a limited number of cable operators have begun
    to offer telephone service, and such service uses traditional
    telephone switching equipment rather than cable facilities. However,
    cable operators are beginning to develop and test Internet Protocol
    ("IP") telephony. The potential to provide telephone service
    prompted several large transactions over the past year, most notably
    AT&T's purchase of Telecommunications, Inc. ("TCI").

11. Since the *1998 Report*, the most significant convergence of service
    offerings has been the pairing of Internet service with other
    service offerings. There is evidence that a wide variety of
    companies throughout the communications industries are attempting to
    become providers of multiple services, including data access. Cable
    operators continue to expand their broadband infrastructure that
    permits them to offer high-speed Internet access. Currently, the
    most popular way to access the Internet over cable is through the
    use of a cable modem and personal computer. A small portion of cable
    Internet access is delivered through a television receiver rather
    than a personal computer. Many cable operators also are planning to
    integrate telephony and high-speed data access. Like cable, the DBS
    industry is developing ways to bring advanced services to their
    customers. For example, Hughes Network Systems, Inc., parent of
    DirecTV, offers a satellite-delivered Internet access service
    ("DirecPC") with a telephone return path. EchoStar and OpenTV, Inc.,
    a company that produces interactive television technology, plan to
    offer e-mail, e-commerce, and on-line banking services in the next
    year. SMATV operators are also beginning to offer local and long
    distance telephone service and Internet access along with video
    service. In addition, a few MMDS operators are offering Internet
    service.

12. The data provided in this *Report* suggest that companies comprising
    several different segments of the communications industry are
    seeking to provide combinations of services to consumers, including
    video, voice, and data. In this context, we believe it is
    appropriate to compare the cable industry with other communications
    industry segments that currently provide, or plan to provide, such
    combinations of services. Specifically, we find that the cable
    television industry holds a relatively small market share compared
    to other communications industry segments that offer or intend to
    offer video, voice, and data services. For example, in 1998, the
    total revenue for these segments of the communications industry
    (i.e., cable television, MMDS, DBS, television broadcasting, long
    distance telephone, and local telephone) was \$334 billion. Of this
    total, cable operators represented 12.3% of the communications
    industry's revenues.

13. Noncable MVPDs continue to report that regulatory and other barriers
    to entry limit their ability to compete with incumbent cable
    operators and to thereby provide consumers with additional choices.
    Noncable MVPDs also continue to experience some difficulties in
    obtaining programming from both vertically integrated cable
    programmers and unaffiliated programmers who continue to make
    exclusive agreements with cable operators. In multiple dwelling
    units ("MDUs"), potential entry may be discouraged or limited
    because an incumbent video programming distributor has a long-term
    and/or exclusive contract. Other issues also remain with respect to
    how, and under what circumstances, existing inside wiring in MDUs
    may be made available to alternative video service providers.

14. In addition, consumers have historically reported that their
    inability to receive local signals from DBS operators may negatively
    affect their decision as to whether to subscribe to DBS. The
    Commission previously recommended that legislation be enacted to
    remove barriers to DBS carriage of local broadcast signals. On
    November 29, 1999, a revised Satellite Home Viewer Act ("SHVA") was
    signed into law, permitting satellite providers to distribute local
    broadcast signals within their local television markets.[^8] On that
    date, DBS operators began offering local broadcast stations in some
    markets, and reported plans to provide local broadcast stations to a
    significant portion of U. S. households within the next few months.
    The Commission hopes that the revised SHVA will have a significant
    and positive effect on MVPD competition. We expect that DBS
    operators will now offer a programming package more comparable to
    and competitive with the services offered by cable operators. We
    further believe that increased competition is the best way to keep
    cable rates reasonable and in check. Moreover, the Commission plans
    to aggressively implement the new SHVA in order to facilitate
    consumer choice in the MVPD marketplace.

15. Our findings as to particular distribution mechanisms operating in
    markets for the delivery of video programming include the following:

 Cable Systems: Since the *1998 Report*, the cable television industry
has continued to grow in terms of subscribership (up to 66.7 million
subscribers as of June 1999, a 2% increase from June 1998), channel
capacity (some operators now offer over 170 video channels), number of
national satellite-delivered video programming services (up to 283
services by June 1999 from 245 in June 1998, a 16% increase), revenues
(an approximate 8% increase between June 1998 and June 1999), audience
ratings (non-premium cable viewership rose from a 39 share at the end of
June 1998 to a 42 share at the end of June 1999), and expenditures on
programming (an approximate 15% increase in program license fees paid by
cable system operators).

 The cable industry remains healthy financially, which has enabled it
to invest in improved facilities, either through upgrades or rebuilding.
As a result, there have been increases in channel capacity, the
deployment of digital transmissions that provide better picture quality
than can be offered through analog service, and nonvideo services, such
as Internet access. Cable operators also offer telephony, although the
use of integrated facilities remains primarily experimental with limited
exceptions.

 Direct-to-Home (\"DTH\") Satellite Service (DBS and HSD): Video
service is available from high power DBS satellites that transmit
signals to small DBS dish antennas installed at subscribers\' premises,
and from medium and low power satellites requiring larger satellite dish
antennas. In the last year, DirecTV merged with United States Satellite
Broadcasting Co., Inc. ("USSB") and acquired PrimeStar. There are over
ten million DBS subscribers (EchoStar, DirecTV, and PrimeStar's
subscribers being transitioned to DirecTV's service), an increase of
approximately 39% since the *1998 Report*. Between June 1998 and June
1999, the number of HSD subscribers, measured as the number of HSD users
that actually purchase programming packages, declined from 2 million to
1.8 million, a decrease of 12%, that is likely due to subscribers
switching to DBS. DirecTV and EchoStar are among the ten largest
providers of multichannel video programming service. DBS represented a
12.5% share of the national MVPD market in June 1999 and HSD represented
another 2.2% of that market.

 Wireless Cable Systems: Currently, the wireless cable industry
(\"MMDS\") provides competition to the cable industry in only limited
areas. MMDS subscribership fell from 1.0 million subscribers to 821,000
subscribers between June 1998 and June 1999, a decrease of 17.9%.
Analysts state that the advent of digital MMDS and the Commission's
authorization of two-way MMDS service will make high-speed Internet and
telephony possible and have the potential to foster renewed MMDS growth.
Wireless cable represented a 1% share of the national MVPD market in
June 1999.

 SMATV Systems: SMATV systems use some of the same technology as cable
systems, but do not use public rights-of-way, and focus principally on
serving subscribers living in multiple dwelling units (\"MDUs\"). SMATV
subscribership has increased 54% since the last report, with the
industry representing an approximately 1.8% share of the national MVPD
subscribership as of June 1999. Upgraded facilities, and expanded
service offerings to include DBS programming, Internet access, telephone
service, and security services, have fostered SMATV growth.

 Broadcast TV: Broadcast networks and stations are competitors to MVPDs
in the advertising and program acquisition markets and supply video
programming directly to the approximately 20% of television households
that are not MVPD subscribers. Additionally, broadcast networks and
stations are suppliers of content for distribution by MVPDs. Since the
*1998 Report*, the broadcast industry has continued to grow in the
number of operating stations (from 1583 in 1998 to 1599 in 1999) and in
advertising revenues (\$34.6 billion in 1998, a 6.7% increase over
1997). While audience levels have declined in the last year, the four
major television broadcast networks still account for a 52% share of
prime time television viewing for all television households. Broadcast
television stations continue to deploy digital television ("DTV")
service. There are 111 television stations on the air broadcasting DTV
signals and digital simulcasts of some programming have begun.

 LEC Entry: The 1996 Act expanded opportunities for LECs to enter
markets for the delivery of multichannel video programming. As noted in
previous reports, LECs do not yet represent a national presence in the
MVPD market. The competitive presence of LECs in specific video markets,
however, is growing. In certain areas, especially in the midwest, LECs
are already or are becoming significant regional competitors.
Particularly notable are the efforts of Ameritech as a cable overbuilder
and BellSouth as an overbuilder and MMDS operator. Ameritech has
acquired 111 cable franchises, potentially passing more than 1.7 million
homes. Ninety of these cable franchises are operational, in whole or in
part, and they serve at least 250,000 subscribers. BellSouth has
acquired cable franchises in 18 areas, with the potential to pass 1.2
million homes, and is launching digital MMDS service in a number of
areas. In previous reports, we noted that, while LECs were not yet a
national competitor, their competitive presence was growing. It now
appears that their rate of entry into the MVPD marketplace may be
slowing.

 Open Video Systems: In the 1996 Act, Congress established a new
framework for the delivery of video programming \-- the open video
system (\"OVS\"). Under these rules, a LEC or other entrant may provide
video programming to subscribers, although the OVS operator must provide
non-discriminatory access to unaffiliated programmers on a portion of
its channel capacity. The Commission has certified 13 OVS operators to
serve 28 areas. RCN owns the only operating open video systems and
currently serves areas surrounding Boston, New York City, and
Washington, D.C. In several areas for which it holds OVS certifications,
or portions of these areas, RCN has converted its systems to franchised
cable systems. Between June 1998 and June 1999, the number of OVS
subscribers went from approximately 66,000 to 60,000, a decline
attributed to the conversion of some OVS operations to cable service.
OVS subscribers now represent slightly less than 1% of all MVPD
subscribers. As a result of litigation that was resolved in January
1999, one of the major advantages for an entity choosing the OVS mode of
regulation -- the absence of any need for a traditional cable television
franchise -- may no longer exist.

 Internet Video: By June, 1999 there were an estimated 50 million
households with personal computers and over 100 million Americans were
Internet users. Previously, we reported on the availability of software
technologies that make real-time and downloadable audio and video from
the Internet accessible through a personal computer. We also noted that
there are technologies available for the provision of Internet video
over a television using set-top box Internet access. As of June 1999,
investment and development of Internet video services was continuing,
though video pictures offered by Internet video still remain less than
broadcast quality. Media companies continue to offer increasing amounts
of video over their Web sites in the expectation that the pictures will
be acceptable for the intended use or eventually improve to broadcasting
or VCR quality.

 Home Video Sales and Rentals: Video cassettes, laser discs, and
digital video discs ("DVDs") provide feature films similar to those
distributed by cable operators on premium channels and others involved
in the distribution of video programming. The number of homes with DVD
players has grown rapidly in the two years since this technology was
introduced. About two million homes have DVD players and about the same
number have laser disc players, far less than the 82% of all households
with VCRs. Most new home video programming available for sale or rental,
including movies, documentaries and concerts, is released in VCR, laser
disc, and DVD formats. Recently a new home video technology, the
personal video recorder ("PVR") has been introduced. A PVR can pause,
rewind, and perform slow motion and instant replay of a live program,
thereby allowing a viewer to watch earlier portions of a program while
later portions of the program are still being broadcast. A PVR is
intended for use with a service that provides an onscreen programming
guide service through a telephone connection. This technology can be
used to create a personal menu and can learn to record in accordance
with a viewer's television preferences.

 Electric Utilities: Utilities are not yet major competitors in the
telecommunications or cable markets, but they possess characteristics
that could potentially help them become competitively significant in the
cable market. Some may already possess fiber-optic networks throughout
the public rights-of-way in the areas they serve. In the last year,
several utilities have announced, commenced, or moved forward with
ventures involving multichannel video programming distribution.
Starpower, a joint venture between RCN and PEPCO, has begun to offer
video, telephone, and Internet services in the Washington, D.C. area.
Seren, a wholly-owned subsidiary of Minneapolis-based Northern States
Power, is currently offering cable and high-speed data access as an
overbuilder in several Minnesota communities and plans to expand its
service. Others, including several municipal utilities in Iowa, the
municipal utility in Lebanon, Ohio, and Millennium Telecom, which is
partially owned by Tri-County Electric Cooperative in Texas, have begun
or plan to begin video and other services to their customers.

16. We also find:

     Consolidations within the cable industry continue as cable
    operators acquire and trade systems. The seven largest operators now
    serve almost 90% of all U.S. cable subscribers. However, in terms of
    one traditional economic measure, national concentration among the
    top MVPDs has declined since last year.[^9] DBS operators DirecTV
    and EchoStar rank among the ten largest MVPDs in terms of nationwide
    subscribership along with eight cable multiple system operators
    (\"MSOs\"). As a result of acquisitions and trades, cable MSOs have
    continued to increase the extent to which their systems form
    regional clusters. Currently, 40.4 million of the nation's cable
    subscribers are served by systems that are included in regional
    clusters. By clustering their systems, cable operators may be able
    to achieve efficiencies that facilitate the provision of cable and
    other services, such as telephony.

     The number of satellite-delivered programming networks has
    increased from 245 in 1998 to 278 in 1999. Vertical integration of
    national programming services between cable operators and
    programmers, measured in terms of the total number of services in
    operation, declined from last year\'s total of 39% to 36% this year,
    continuing a five year trend. However, in 1999, one or more of the
    top six cable MSOs held an ownership interest in each of 101
    vertically integrated national programming services. Sports
    programming warrants special attention because of its widespread
    appeal and strategic significance for MVPDs. The *Report* identifies
    75 regional networks, 26 of which are sports channels, many owned at
    least in part by MSOs. There are also 30 regional and local news
    networks that compete with local broadcast stations and national
    cable networks (e.g., CNN).

     The program access rules adopted pursuant to the 1992 Cable Act
    were designed to ensure that alternative MVPDs can acquire, on
    non-discriminatory terms, vertically-integrated satellite delivered
    programming. We recognize that the terrestrial distribution of
    programming, including in particular regional sports programming,
    could eventually have a substantial impact on the ability of
    alternative MVPDs to compete in the video marketplace. We will
    continue to monitor this issue and its impact on the competitive
    marketplace.

     Technological advances 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) continue. 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, on
    reconsideration, the Commission made some modifications to the rules
    and policies adopted to implement Section 629 of the Communications
    Act, which is intended to ensure commercial availability of these
    navigation devices. The cable industry reports that it is making
    steady progress towards the development of specifications to
    separate out security and non-security functions for the
    interoperability of digital set-top boxes by July 1, 2000, as
    required by the rules. Interface requirements and a certification
    process for the high-speed cable modems needed to access data
    services have also been developed. When these processes are
    complete, additional competition in the market for equipment used by
    subscribers should be possible.

# COMPETITORS IN MARKETS FOR THE DELIVERY OF VIDEO PROGRAMMING

## A. Cable Industry {#a.-cable-industry .unnumbered}

17. This section addresses the performance of franchised cable system
    operators[^10] during the past year in five major areas. First, we
    report on general performance in terms of available basic services,
    subscriber levels, and viewership. Second, we discuss the cable
    industry's financial performance including its revenue, cash flow
    status, and stock valuations. Third, in the area of capital
    acquisition and disposition, we examine the amount of funds raised
    and describe how these funds are being used to upgrade physical
    plant and to acquire new systems. Fourth, we consider other
    performance indicators such as system transactions, cable
    overbuilds,[^11] and rates charged by cable operators. Lastly, in
    the area of provision of advanced broadband services,[^12] we review
    the growth of cable data access, digital broadband services, and
    broadband telephony.

### General Performance

18. Since our last report, the cable industry has continued to grow in
    basic cable[^13] subscribership, homes passed,[^14] basic cable
    penetration,[^15] premium service subscriptions,[^16] basic cable
    viewership, and channel capacity.[^17] In addition, during 1998 and
    the first half of 1999, the industry continued to implement expanded
    broadband service offerings including digital video, Internet access
    through cable, interactive cable, and facilities-based broadband
    telephony.

19. ***Cable's Capacity to Serve Television Households***. The number of
    U.S. homes with at least one television (\"TV households\") was
    reported as 98 million at the end of 1997 and June 1998.[^18] At the
    end of 1998 and June 1999, the number of U.S. TV Households was
    reported as 99.4 million.[^19] The number of homes passed by cable
    was 94.6 million at the end of 1997 and 95.6 million at the end of
    1998, an increase of 1.1%.[^20] By the end of June 1999, the number
    of homes passed by cable was 96.1 million.[^21] The number of homes
    passed as a proportion of the number of TV households increased 0.1%
    from 96.5% in December 1997 to 96.6% in December 1998, remaining at
    96.6% of TV households in the first half of 1999.[^22]

20. ***Subscribership.*** Basic cable television subscribership grew
    from 64.9 million subscribers at the end of 1997 to 66.1 million
    subscribers at the end of 1998, an increase of 1.8%. It continued to
    grow to an estimated 66.7 million subscribers by June 30, 1999, a
    six month increase of approximately 0.9%.[^23] Basic cable
    penetration also grew, increasing from 68.6% at the end of 1997 to
    69.1% at the end of 1998. By the end of the first half of 1999, it
    grew to 69.4%.[^24] The percentage of TV households subscribing to
    cable continued to increase, rising to 66.8% of all TV households by
    the end of 1998, and to 67% by the end of June 1999.[^25] The number
    of homes subscribing to premium cable services increased in 1998
    from 31.5 million homes at the end of 1997 to 35.3 million homes, an
    increase of 21.1%.[^26] For the first half of 1999, premium cable
    subscribers increased again, reaching 35.9 estimated subscribers, a
    six month increase of 1.7%. The number of premium services to which
    homes are subscribing (known as \"premium units\") increased from
    57.9 million premium units subscribed to by the end of 1998, to an
    estimated 59.2 million units subscribed to by the end of the first
    half of 1999, a 2.2% increase over six months.[^27]

21. ***Channel Capacity.*** Cable operators continue to make significant
    capital expenditures to upgrade and rebuild cable infrastructure to
    increase channel capacity.[^28] Cable operators are increasing their
    channel capacity by increasing their bandwidths and deploying
    digital technologies.[^29] The increased bandwidth enables them to
    offer additional channels of audio and video services, as well as
    other services (e.g., Internet access and telephony). Cable
    operators indicate that they need to provide additional and advanced
    services to compete with DBS.[^30] For example, Comcast notes that
    DBS operator Echostar recently announced that it will launch a
    satellite that will increase its channel capacity by 150 channels,
    enabling Echostar to offer consumers a 500-channel service.[^31]
    Some cable operators currently provide customers with more than 170
    programming channels. Comcast digital cable now offers over 170
    channels to 60% of its subscribers.[^32] Comcast's digital offerings
    include 35 premium channels, 38 pay per view channels, 40 audio
    music channels, and an on-screen programming guide.[^33] Cox has
    also increased its channel capacity, offering more than 200 video
    and audio channels in some of its service areas.[^34] Through
    digital compression techniques, operators can also offer their
    customers improved reception and resolution quality.

22. According to one source, cable systems with a capacity of 30 or more
    channels accounted for 84.6% of cable systems in October 1998.[^35]
    This represents 8,328 systems nationwide.[^36] Systems with channel
    capacities of 54 channels or more accounted for 20.7% of cable
    systems in October 1998, or 2,040 systems.[^37] In October 1999,
    cable systems with a capacity of 30 or more channels accounted for
    85.4% of cable systems, or 8,236 systems.[^38] Cable systems with
    channel capacities of 54 channels or more accounted for 22.4% of
    cable systems in October 1999, or 2,164 systems.[^39] In addition,
    the same source now reports that 89 systems, or almost 1% of all
    cable systems now have a capacity of 91 or more channels with 8
    systems having over 125 channels.[^40]

23. In October 1998, 98.8% of all cable customers subscribed to systems
    with capacities of 30 channels or more.[^41] Moreover, 61.5% of all
    subscribers were served by systems with capacities of 54 or more
    channels in October 1998.[^42] In October 1999, 98.6% of all cable
    customers subscribed to systems with capacities of 30 channels or
    more, and 64.2% of all subscribers were served by systems with
    capacities of 54 or more channels in October 1999.[^43] In addition,
    4.8% of all subscribers are reportedly served by systems with
    capacities of 91 or more channels.[^44]

24. ***Viewership***. As reported last year, viewership shares of
    non-premium cable networks has grown significantly over the past
    decade, while viewership shares of broadcast television stations has
    steadily declined. This trend has continued over the past year.
    Audience share statistics for Monday through Sunday, 24 hours a
    day,[^45] show that non-premium cable audience shares rose 8.8% from
    an average 38.8 share[^46] from July 1997 through June 1998, to an
    average 42.2 share between July 1998 and June 1999.[^47] Monday
    through Sunday, 24 hours a day, broadcast television audience shares
    decreased 5% from an average 64.1 share from July 1997 through June
    1998, to an average 60.9 share between July 1998 and June 1999.[^48]

25. ***Cable Networks***. In 1998, the number of basic cable networks
    increased from 131 to 139, a 6.1% increase.[^49] During the first
    half of 1999, the number of basic cable networks increased to 141, a
    1.4% half-year increase.[^50] The number of premium networks
    increased from 14 to 18, a 28.6% increase from the end of 1997 to
    the end of 1998, and increased by four channels during the first
    half of 1999, reaching 22, a 22.2% half-year increase.[^51] The
    number of pay-per-view ("PPV") networks increased in 1998 from six
    to ten networks, but in the first half of 1999 PPV networks
    decreased to eight, a half year decrease of 20%.[^52] In the first
    half of 1999, the number of networks classified as combined
    increased from seven to ten, or 42.9%.[^53]

26. ***Programming Costs***. Programming networks incurred expenses of
    \$4.9 billion for producing and acquiring programming in 1998, a
    13.9% increase over 1997. Reported estimates indicate that these
    programming network expenses will total \$5.7 billion in 1999, a
    16.3% increase over 1998.[^54] License fees paid by cable system
    operators to basic cable network programmers increased 14.6%, from
    approximately \$4.8 billion in 1998 to \$5.5 billion in 1999.[^55]
    Analysts estimate that in 2000 fees will increase by an additional
    10.9% to reach \$6.1 billion.[^56] Most cable operators pass
    increased programming costs along to subscribers as allowed under
    the Commission's rules.[^57]

27. Other programming expenses incurred by cable operators include
    copyright fees for broadcast signal carriage pursuant to Section 111
    of the Copyright Act.[^58] As of November 2, 1999,[^59] copyright
    fees paid by cable system operators for broadcast signal carriage
    for the period July 1, 1997, to December 31, 1997, were \$77.8
    million, and for the period January 1, 1998, to June 30, 1998, fees
    collected were \$53.6 million.[^60] For the period July 1, 1998,
    through December 31, 1998, fees collected were \$54 million, and for
    the period January 1, 1999, to June 31, 1999, fees collected were
    \$53.4 million.[^61] The decline in fees collected for the first
    period of 1998 is due largely to the changed status of WTBS from a
    superstation to a cable network. As such, copyright fees can no
    longer be collected for network TBS.

### Financial Performance

28. Data concerning cable industry revenue, cash flow, and stock prices
    indicate that the cable industry remained strong in 1998 and in the
    first half of 1999.[^62]

29. ***Cable Industry Revenue***. Annual cable industry revenue grew
    7.5% in 1998 over 1997, reaching \$32.7 billion. By the end of 1998,
    revenue per subscriber grew 5.5% to \$499.40 per subscriber per
    year, or \$41.62 per subscriber per month. Analysts estimate that
    1999 year-end total revenue will reach \$35.3 billion, an estimated
    8% increase,[^63] and that revenue per subscriber per year will
    reach approximately \$529, or \$44 per subscriber per month.[^64]

30. From June 1997 through June 1998, nationwide cable rates rose more
    than four times the rate of inflation.[^65] Between June 1998 and
    June 1999, cable prices still increased by 3.8% compared to a 2%
    increase in the Consumer Price Index ("CPI"), which is used to
    measure general price changes.[^66] A portion of these rate
    increases is attributable to capital expenditures for the upgrading
    of cable facilities, an increased number of video and nonvideo
    services offered, and increased programming costs. In addition, the
    increase in labor costs in the communications industry exceeds the
    increase in labor costs for all industries combined by 1.9%.[^67]

31. When cable system revenue is classified by source, advanced video
    service revenues (analog and digital) show the greatest amount of
    growth in 1999, as was also the case in 1998.[^68] Revenues for
    advanced video services increased 117.3% in 1998, reaching \$452
    million, as operators continued to roll out new services.[^69]
    Analysts estimate that revenues from advanced services will more
    than double by the end of 1999, reaching an estimated \$1
    billion.[^70] In the more traditional revenue-generating sectors of
    cable, the home shopping sector showed the greatest increase,
    generating \$187 million in annual revenue in 1998, a 23% increase
    over the previous year.[^71] Industry analysts predict that home
    shopping revenue will increase 15% in 1999 to an estimated \$215
    million.[^72] Equipment and installation revenue earned by MSOs
    increased 13.4% in 1998, from \$2.3 billion in annual revenue in
    1997 to an estimated \$2.6 billion in 1998. Industry analysts
    predict this revenue sector will increase to an estimated \$2.8
    billion by year-end 1999.[^73] In 1998, pay-per-view revenue
    declined by 23.8% and local advertising revenue declined by
    3.9%.[^74] Annual revenue from premium channels increased from \$5
    billion in 1997 to \$5.1 billion in 1998, a 2.7% increase, and is
    expected to increase only 2% to \$5.2 billion by year-end 1999.[^75]
    Revenue from the basic service tier ("BST") and from the cable
    programming service tier ("CPST") combined grew from \$20 billion in
    1997 to \$21.8 billion in 1998, a 9.1% increase, and is expected to
    increase to \$23.2 billion by year-end 1999.[^76] On March 31, 1999,
    rate regulation for CPST ceased under the 1996 Act.[^77]

32. ***Cable Industry Cash Flow**.* Cash flow is used to assess the
    financial position of cable firms. Cash flow is generally expressed
    as "EBITDA" (earnings before interest, taxes, depreciation, and
    amortization). Financial analysts reported that industry-wide cash
    flow increased 10.5% between the end of 1997 and the end of 1998,
    from \$13.4 billion to \$14.8 billion.[^78] Cash flow will increase
    an estimated 9.1%, reaching \$16.1 billion by year-end 1999.[^79] In
    1998, the cable industry generated \$225.9 in annual cash flow per
    subscriber, \$17.63 higher than the \$208.24 per subscriber
    generated in 1997.[^80] Analysts estimate that in 1999, cash flow
    per subscriber per year will increase by \$15.81, reaching
    \$241.68.[^81] The ratio of cash flow to revenue ("cash flow
    margin") increased from 44% in 1997 to 45.2% in 1998, and is
    expected to increase to 45.7% in 1999.[^82]

33. ***Stock Prices**.* Between June 1998 and June 1999, stock market
    values of cable MSOs, as represented by the Kagan MSO Index, grew
    steadily.[^83] By comparison, during the same period, the Standard
    and Poor's Index of 500 widely held stocks ("S&P 500")[^84] and the
    Dow Jones Industrial Average ("Dow Jones")[^85] grew more
    modestly.[^86] All three indices grew steadily during each of the
    four quarters beginning July 1, 1998. However, the Kagan MSO Index
    grew more rapidly from the end of the second quarter 1998 through
    the end of the second quarter 1999.[^87] In May 1999, cable stock
    valuations reached historically high levels.[^88]

34. Analysts cite several cable-specific factors that contributed to the
    overall growth of cable stock valuations over the year-ended
    June 1999. Among the most significant were the end of CPST rate
    regulation on March 31, 1999, the transactions involving Paul
    Allen's Charter Communications, and other proposed mergers and
    acquisitions including AT&T-MediaOne, Cox-TCA, and
    Adelphia-Century.[^89] Analysts note that such consolidations can
    offer certain market efficiencies, such as standardization, and
    centralized brand and customer service management.[^90]

35. Several market analysts believe cable stocks are not yet fully
    valued.[^91] Some assert that the stock market is ignoring the
    positive impact of new services such as video on demand, high-speed
    data, telephony, and multiple product packaging.[^92] Other
    analysts, however, indicate that deployment of these new services
    could be the largest single fundamental risk to cable stock
    valuations.[^93] Some analysts assert that the benefits of
    successful deployment of new services will likely drive cable stocks
    in 2000, improving equity values by as much as 20% to 30%.[^94]

### Capital Acquisition and Disposition

36. ***Industry Financing***. The cable industry has typically relied on
    combinations of private and public financing, with the exact
    distribution of these combinations varying greatly from year to
    year. These year to year fluctuations in financing sources appear to
    be based on the availability of acceptable financing rates through
    private investors or capital lending institutions.

37. Between July 1, 1998, and December 31, 1998,[^95] the cable industry
    acquired \$3 billion in private debt financing (i.e., financing
    received from banks, insurance companies, and other institutional
    investors).[^96] In the second half of 1998, the industry acquired
    \$998 million in net new public debt issue.[^97] The industry
    obtained its remaining financing from individuals, private
    corporations, venture capital firms, investment banks, and public
    equity offerings (i.e., stock markets). There was no significant
    financing activity in the private markets in the second half of
    1998, but public markets produced \$250.3 million.[^98]

38. Between January 1999 and June 1999, the industry acquired \$13.6
    billion in private debt, compared with \$1.5 billion for the same
    period in 1998.[^99] Public debt also increased between January 1999
    and June 1999, when compared to the same period in 1998.[^100] Net
    new public debt issued for the first half of 1999 reached
    approximately \$8.8 billion, while debt issued for the same period
    in 1998 reached approximately \$4.4 billion.[^101] Private equity
    generated from January 1999 through June 1999 was \$27.5 million,
    whereas private debt generated during the first six months of 1998
    reached \$135.5 million.[^102]

39. ***Capital Expenditures/Capital Investment***. In 1998, the cable
    industry spent a total of \$7.7 billion on the construction of new
    plant, upgrades, rebuilds, new equipment, and maintenance of new and
    existing equipment.[^103] This represents a 13.2% increase over the
    \$6.8 billion spent in 1997 for investments in plant and equipment,
    and for the expense of maintaining these investments.[^104] Analysts
    expect that in 1999, operators will spend an estimated \$10.8
    billion by year\'s end, an increase of 40.9% over 1998.[^105] Of the
    \$7.7 billion spent in 1998, approximately \$981 million was for
    maintenance expense, \$600 million for new builds,[^106] \$1.8
    billion for rebuilds,[^107] \$2.5 billion for upgrades,[^108] and
    \$1.8 billion for equipment.[^109] Upgrades and rebuilds (i.e., the
    improvement of existing plant) continue to account for most of the
    capital expenditures made in the past few years, including
    projections for year-end 1999. Between 1995 and 1998, investment in
    the improvement of existing plant has increased by an average of 20%
    each year.[^110] Operators invested \$3.7 billion in 1997, and \$4.3
    billion in 1998.[^111] By year-end 1999, analysts expect
    expenditures for rebuilds and upgrades to increase approximately
    67%, to \$7.2 billion.[^112]

40. In 1998, many of the large MSOs spent more than half billion dollars
    each on upgrades and rebuilds. In the case of three of the MSOs,
    some or all of the expenditures in 1998 fulfilled commitments made
    by those MSOs pursuant to social contracts with the
    Commission.[^113] In addition, over the past four years Comcast has
    invested more than \$2 billion in system upgrades, an average of one
    half billion dollars per year.[^114] In 1999, Cox will invest
    approximately \$650 million in upgrades.[^115] Over the past four
    years, MediaOne has invested about \$4.1 billion in upgrading its
    plant, an average of \$1 billion each year.[^116] MediaOne estimates
    that it will have invested in excess of \$7 billion by year-end
    2000.[^117] AT&T states that it has invested billions for network
    upgrades since acquiring TCI for \$48 billion.[^118] Cablevision has
    recently upgraded and rebuilt its systems, investing hundreds of
    millions of dollars.[^119]

41. Expenditures for upgrades have resulted in increased system
    capacity. For example, Cox estimates that by year-end 1999, 65% of
    its plant will be upgraded to 750 MHz with two-way capacity, and an
    additional 11% of its systems upgraded to 550 MHz.[^120] Comcast
    estimates that by year-end 1999, more than 85% of its customers will
    be receiving service at greater than 550 MHz and more than 63% will
    be receiving service at 750 MHz.[^121] In the first half of 1999,
    RCN added an average of 7.1 route miles of fiber optic network
    daily, in addition to other network upgrades.[^122]

### Other Performance Indicators

42. ***Cable System Transactions**.* The number of mergers,
    acquisitions, and exchanges between MSOs has fluctuated over the
    past few years. The number of systems sold increased between 1997
    and 1998 from 110 to 114 systems.[^123] One data source recorded 60
    transactions from January 1999 through June 1999.[^124] Many of
    these transactions are the result of MSOs\' ongoing efforts to
    regionalize, or \"cluster," their operations for the economic
    advantages to be gained by such aggregation.[^125] The total number
    of subscribers affected by system transactions and the average size
    (measured by the number of subscribers per system) of systems sold
    continues to vary greatly from year to year.

43. The average system size increased 74.9% from 112,616 subscribers per
    system sold in 1997 to 197,001 subscribers per system sold in
    1998.[^126] Between January and June 1999, the average number of
    subscribers per system transaction was 258,535, a half-year increase
    of over 31.2%.[^127] The total number of subscribers affected by
    system transactions in 1998 increased 81.3%, from nearly 12 million
    subscribers in 1997 to approximately 22 million subscribers in
    1998.[^128] Between January 1999 and June 1999, about 15 million
    subscribers were affected by system transactions.[^129] The total
    dollar value of transactions increased 191.1% from \$22.2 billion at
    year-end 1997 to 64.6 billion at year-end 1998.[^130] The average
    dollar value per subscriber of transactions was approximately
    \$3,900 between January 1999 and June 1999.[^131]

44. ***Overbuilding***. From 1995, when overbuild activity began to
    increase, to 1999, competing franchises have been awarded covering
    210 communities in 28 states, with the potential to pass 8.3 million
    homes.[^132] However, not all of the franchises awarded are
    currently operational. After a franchise is awarded, it can take a
    significant amount of time for the franchisee to build, or gain
    access to, a network over which to provide video service. For
    example, as of June 1999, Ameritech held 108 franchises but offered
    service in only 90 communities. Ameritech has the potential to pass
    1.7 million homes in these 108 franchise areas. As of August 1999,
    Ameritech had increased its subscribership to 250,000, from 150,000
    subscribers in August 1998.[^133]

45. In addition, BellSouth offers service in all or parts of 12 of its
    21 franchise areas. GTE offers service in three of its nine
    franchise areas. U S West offers service in four of its five
    franchise areas, and SNET offers service in 12 areas covered by its
    statewide franchise in Connecticut. These LEC overbuilders are
    competing with MSOs such as TCI, Time Warner, Jones Intercable,
    Comcast, Cox, MediaOne, and Rifkin.

46. Among the smaller firms awarded competing franchises is KnoLogy
    Holdings, Inc., which holds 21 franchises[^134] in four southeastern
    states.[^135] KnoLogy is competing with incumbent cable operators,
    such as Charter Communications, TCI, Jones Intercable, Comcast, Time
    Warner, and Marcus Cable. It offers its customers "one stop
    shopping" for cable service, high-speed Internet access, and local
    and long distance telephone connections.[^136] Buckeye CableSystem
    (Buckeye) offers service in 17 of its 19 Ohio franchise areas, and
    is constructing systems in the remaining two franchise areas of
    Waterville and Northwood, Ohio. Buckeye is also negotiating for a
    twentieth franchise in nearby Bedford, Michigan. With the
    Waterville, Northwood, and Bedford systems, Buckeye would compete
    head-to-head with incumbent FrontierVision.[^137] Buckeye intends to
    offer cable television service, cable-modem service, and local
    telephone service through cable.

47. Since our *1998 Report,* other planned overbuilds include Intertech
    Private Cable, which will compete head-to-head with Adelphia in
    Kenmore, New York. It will offer ten more channels than Adelphia at
    a rate that is \$5 less than Adelphia's current rate. 21^st^ Century
    has invested \$250 million in fiber network in a portion of Chicago,
    where it offers cable television, Internet access, and telephone
    service.[^138] 21^st^ Century plans to propose overbuilds in other
    portions of Chicago to compete head-to-head with AT&T. As of June
    30, 1999, RCN passed 425,000 homes and served 270,000 OVS and cable
    subscribers. RCN provides service to areas surrounding the City of
    Boston, the New York City metropolitan areas, and the surrounding
    areas of Washington, D.C.[^139] RCN plans to extend its operations
    to San Francisco in late 1999 and to Philadelphia sometime in 2000.
    RCN offers Internet access, and local and long distance telephone,
    as well as video services.[^140]

48. New municipal overbuild activity continues to grow. In Wadsworth,
    Ohio, the city's system had 2,228 customers as of March 1,
    1999.[^141] The city of Lebanon, Ohio, began serving cable
    subscribers on March 8, 1999. Both of these Ohio systems are
    competing with the incumbent cable operator, Time Warner.[^142]
    Among municipalities planning overbuilds are Little Rock, Arkansas,
    and the surrounding communities of North Little Rock, Jacksonville,
    Maumelle, and Sherwood. A municipal consultant has recommended that
    the communities build a state-of-the-art, two-way system that would
    provide 88 analog channels, 28 digital channels, and high-speed
    Internet service. Local government officials report that these
    communities are likely to build such a system to compete with
    incumbent cable operator, Comcast. In addition, they have indicated
    that they plan to compete by providing better service at a lower
    price.[^143] Other communities, such as Palo Alto, California,
    Hastings, Nebraska, and Spencer, Iowa, are also considering
    overbuilding.

49. An indication that an overbuilt system may be in operation occurs
    when an incumbent provider asks the Commission to determine that
    effective competition exists within its service area. Such a
    determination exempts the cable operator from regulation of its
    rates. Since 1995, the Commission has granted 63 petitions for
    determination of effective competition status on the basis of
    overbuild competition. As we have done in recent reports, we again
    provide a study of selected areas where incumbent cable operators
    face head-to-head effective competition.[^144] Our case-by-case
    analysis shows that such competition often results in lower prices,
    additional channels at the same monthly rate, improved services, or
    additional nonvideo services.[^145]

50. Several commenters seeking to overbuild incumbent cable systems cite
    barriers to entry into the video distribution marketplace.[^146] In
    particular, CCC, a coalition of wireline and wireless overbuilders,
    raises a number of issues regarding laws and regulations that it
    claims inhibit its members' ability to introduce competitive cable
    systems.[^147] CCC contends that potential overbuilders have
    inadequate access to programming because of exclusive contracts
    between cable operators and unaffiliated programmers and the failure
    of the program access law to cover programming distributed over
    terrestrial facilities.[^148] It argues that its members face
    discriminatory programming prices because programmers offer
    discounts only to the largest MSOs.[^149] In addition, CCC claims
    that cable operators use a number of tactics to hinder competition
    in MDUs, including: (a) forcing competitors to postwire MDUs with a
    duplicate set of wiring; (b) refusing to remove or relocate lock
    boxes that prevent access to existing home wiring; and (c) securing
    perpetual, exclusive contracts to serve MDUs.[^150]

### Provision of Advanced Broadband Services

51. Since our last report, cable operators have been upgrading their
    networks and offering new services at a rapid pace.[^151] Some
    analysts estimate that most cable plant upgrades will be completed
    over the next two years.[^152] With these improvements to cable
    infrastructure, the marketing of new services such as digital video,
    telephony, and data access, is projected to grow significantly over
    the next several years.[^153]

52. ***Digital Video Services***. Digital signal transmission, as
    compared to the analog signal transmission historically used in
    cable systems, can provide superior video picture quality and
    increased channel capacity through compression techniques.[^154]
    Accordingly, digital consumers can receive clearer video pictures,
    as well as more programming options and advanced service offerings
    such as electronic programming guides and video-on-demand.[^155]
    Some analysts anticipate market trials of video-on-demand through
    digital set-top boxes in late 1999,[^156] but predict that
    video-on-demand will not be offered in commercial rollouts by
    operators until at least 20% of all cable subscribers have digital
    set-top boxes.[^157]

53. Subscriber reception of digital video signals requires a set-top
    device to decompress and decode incoming signals and to translate
    the digital signals into the analog signals used by current
    television sets. Presently, cable operators provide set top devices
    to the consumer for a monthly fee, though these devices will soon
    become available to consumers through retail outlets.[^158]

54. As of December 1998, there were more than 1.2 million digital cable
    subscribers.[^159] Some analysts estimate that by year-end 1999,
    there will be as many as 4.1 million digital cable
    subscribers.[^160] Cox is marketing its digital product in seven
    states and has 144,116 subscribers.[^161] Cox offers three digital
    packages: movie, sports and information, and variety.[^162]
    Customers may purchase one package for \$5.95 or all three for
    \$10.95.[^163] As of August 1999, Comcast served approximately
    285,000 subscribers and expects to serve between 400,000 to 450,000
    by the end of 1999.[^164] Comcast offers digital video service in
    seven states.[^165] Adelphia offers digital video in 25 of its
    systems.[^166] AT&T offers digital video in 22 states.[^167]
    MediaOne offers digital service in ten states, passing more than
    three million homes.[^168]

55. ***Internet and High-Speed Data Services***. Currently, most
    Americans access the Internet using telephone lines at speeds of
    less than 56 kilobits-per-second ("Kbps.")[^169] In January 1999,
    65% of Internet users were using analog telephone dial-up modems
    with an average speed of access of 33 Kbps.[^170] It is projected
    that telephone dial-up will remain the principal means of accessing
    the Internet for at least the next several years.[^171] However, as
    we have reported in the past, broadband technologies[^172] allow
    users to access the Internet at much greater speeds.[^173]

56. The most popular way to access the Internet over cable broadband
    infrastructure is through the use of a cable modem and personal
    computer, with information transmitted over the cable system's
    wires.[^174] Cable broadband infrastructure accessed through cable
    modems allows users to access the Internet at speeds that range from
    fifty to several hundred times faster than telephone dial-up.[^175]
    Cable systems and cable modems are reportedly able to offer speeds
    of up to 27 megabits-per-second (\"Mbps").[^176] However, because
    cable broadband network capacity is shared among users, and because
    of the hardware limitations, most connections are closer to one to
    ten Mbps.[^177]

57. As reported last year, Cable Television Laboratories ("CableLabs")
    was founded in 1988 by a consortium of cable operators in North and
    South America.[^178] Established to provide a clearinghouse for
    technological information, CableLabs created the cable modem
    standard, DOCSIS (Data Over Cable Service Interface Specification),
    in an effort to ensure practicality and accessibility of cable modem
    technologies.[^179] Equipment conforming to the DOCSIS standard is
    eligible to be CableLabs Certified.[^180] On April 22, 1999,
    CableLabs issued the DOCSIS 1.1 specification, defining new
    standards for cable modem functionality that allow cable operators
    to provide guaranteed bandwidth.[^181] This development follows the
    passage of DOCSIS 1.0 on March 18, 1998, which encompassed data
    privacy and service protection and also allowed high-speed modems to
    be certified for retail sale.[^182] There are now thirteen modem
    suppliers whose products have been certified for retail sale.[^183]

58. Internet access via a cable modem enables access to a wide array of
    services including Web browsing, e-mail, streaming audio and video,
    local content, and CD-ROM servers.[^184] Last year, we reported that
    as of August 31, 1998, more than 15 million homes were passed by
    Internet access service through cable modem technology, with
    approximately 300,000 subscribers.[^185] As of July 1999, cable
    modem service was available to 32 million homes in the United States
    and Canada with more than 1 million subscribers by July 1999.[^186]
    More than 90 percent of these subscribers receive "two-way" service,
    meaning that data transmission is carried over cable broadband
    infrastructure in both directions. The remaining 10 percent are
    served by systems that provide data transmission over cable in the
    downstream direction (i.e., to the consumer) and telephone line
    transmission in the upstream direction (i.e., back to the cable
    operator). [^187]

59. Virtually all the major MSOs offer Internet access via cable modems
    in portions of their nationwide service areas.[^188] Unlike
    high-speed access offered through a telephone company, the cable
    Internet service provider ("ISP") is selected on a national basis by
    the individual MSO and offered to customers on a regional basis.
    Road Runner and Excite@Home[^189] are still the leading cable
    ISPs.[^190] As of September 30, 1999, \@Home reported 840,000 cable
    modem subscribers, a 300 percent increase since

60. September 30, 1998.[^191] As of September 30, 1999, Road Runner had
    420,000 subscribers.[^192] Other cable ISPs include High Speed
    Access Corporation, The ISP Channel, and Online System Services
    Inc.[^193]

61. As of June 1999, Cox offered \@Home service to 3.2 million homes,
    and was serving 112,000 subscribers.[^194] Comcast offers \@Home
    service to 2.4 million households, or 43.6 % of Comcast
    subscribers.[^195] As of August 1999, Comcast had 100,000 customers
    with three to five additional markets and 30,000 additional
    customers expected by year-end 1999.[^196] Adelphia offers Internet
    access in nine states, passing more than 425,000 homes.[^197]
    Bresnan offers Internet access in three states, passing over 120,000
    homes with two-way service.[^198] AT&T passes more than 1.6 million
    homes with \@Home service in six states.[^199] MediaOne passes more
    than 5.8 million homes in fifteen states.[^200] Cablevision Systems
    offers \@Home service to over 650,000 homes in Connecticut and Long
    Island, New York.[^201] Charter offers Internet access through
    numerous ISPs, including High Speed Access Corporation, \@Home, and
    Earthlink.[^202] Charter passes over 300,000 homes with Internet
    Access.[^203] RCN offers Internet access service in Massachusetts,
    Pennsylvania, New York City, New Jersey, Maryland, and Washington,
    DC.[^204] Time Warner offers Road Runner Internet access service in
    nine states passing over 3.8 million homes.[^205]

62. Although wireless and satellite broadband technologies exist,
    telephone company xDSL[^206] technologies currently are the most
    significant competitors to Internet over cable broadband.[^207]
    Reported to offer consumers data speeds between 1.5 Mbps and 52
    Mbps, most users experience between only 1.5 and 8 Mbps for ADSL,
    the most widely used form of xDSL.[^208] As we reported last year,
    xDSL technology has several advantages over cable broadband
    technology.[^209] Among the advantages is the ability to offer
    customers simultaneous, high-speed Internet and voice or facsimile
    capabilities over a single telephone line.[^210] Dedicated lines
    that run from the telephone subscriber's home to the central office
    can guarantee the user a constant, high-speed rate of data
    transmission and security.[^211] This means that there is no
    decrease in data transfer speeds as more users get online, unlike
    cable's shared network.

63. Last year, we reported that in addition to the greater availability
    of Internet access over cable, the generally lower price for cable
    Internet access was an important difference between cable and
    high-speed telephone company products.[^212] Currently, the number
    of xDSL subscribers is significantly less than the number of cable
    broadband subscribers.[^213] By June 1999, there were 159,150 xDSL
    subscribers[^214] compared to more than one million cable Internet
    access subscribers.[^215] The rollout of DSL and other broadband
    technologies, however, is accelerating.[^216] Analysts predict that
    over 30 million telephone lines will be able to support xDSL
    services by the end of 1999,[^217] compared to the nearly 32 million
    homes passed by Internet access over cable.[^218] Several telephone
    companies recently announced plans to aggressively expand their xDSL
    service areas.[^219] For example, SBC will increase xDSL
    availability to over 10 million homes by the end of 1999[^220] and
    has committed to make broadband services available to 80% of its
    customers over the next three years.[^221]

64. In the last year, the price difference between cable Internet access
    and xDSL service has narrowed. DSL providers now offer service for
    as low as \$19.95 a month. For example, U S West offers a service
    guaranteeing downstream data transfer rates of 256 Kbps for
    \$19.95.[^222] Bell Atlantic offers a service guaranteeing data
    transfer rates of 640 Kbps downstream and 90 Kbps upstream for
    \$49.95 per month.[^223] It also offers a service delivering a
    guaranteed 1.6 Mbps downstream and 90 Kbps upstream for \$99.95 per
    month.[^224] By comparison, \@Home cable Internet access is priced
    at \$39.95 per month and offers transfer speeds of up to 1.5 Mbps
    downstream and 128 Kbps upstream.[^225] However, because bandwidth
    on cable networks is shared among users, most \@Home users
    experience data transfer rates of approximately 128 Kbps downstream.

65. In addition, as we have reported in the past, a small portion of
    cable Internet access is delivered through a television receiver
    rather than a personal computer.[^226] Such services are provided
    using a dedicated browsing device that communicates with the cable
    set-top box to offer basic applications such as e-mail, Web browsing
    and "hyperlinking" technology.[^227] These services are typically
    priced at

66. approximately \$10 per month.[^228] Providers of such service are
    WebTV and Worldgate.[^229] Wink Communications offers a similar
    product marketed primarily as an interactive tool for the
    enhancement of multichannel video programming.[^230]

67. ***Telephone Services Offered by MSOs***. Opportunities for
    telephony over cable have contributed to the consummation of several
    large transactions over the past year, including AT&T's purchase of
    Tele-Communications, Inc., and its proposed purchase of
    MediaOne.[^231] While operators have the technological ability to
    upgrade cable networks to offer reliable, circuit-switched cable
    telephony, the AT&T-TCI merger promised deployment of IP
    telephony.[^232] An IP telephony voice call and a cable telephony
    voice call both begin with special equipment that connects a
    household\'s twisted pair infrastructure with its cable
    infrastructure.[^233] Cable circuit-switched telephony, however,
    eventually turns the call over to traditional \"circuit switched\"
    processing, while IP telephony eventually turns the call over to the
    network of the Internet for IP processing.[^234] IP telephony
    processes voice telephone calls much like data are processed on the
    Internet; that is, digitized pieces of data are divided into
    discrete packets and are transported over the Internet following the
    path of least resistance.[^235]

68. Rather than offering circuit-switched cable telephony services and
    creating separate telephony and high-speed data architectures, many
    cable operators over the past year have responded to growing market
    demand for high-speed Internet access, with plans to combine both
    telephony and high-speed data access into one integrated
    multi-service communications platform.[^236] However, before IP
    telephony can be deployed, a number of technical hurdles remain.
    Currently, CableLabs is managing a project called PacketCable, aimed
    at identifying, qualifying, and supporting products that support
    Internet over cable-based multimedia services such as IP
    telephony.[^237] On March 12, 1999, the first of a series of
    PacketCable specifications was released.[^238] In September 1999,
    CableLabs participants conducted a series of PacketCable
    interoperability tests, drawing closer to PacketCable standards
    implementation.[^239] Operators like AT&T are beginning to develop
    and test the necessary equipment to provide IP telephony, though no
    plans for deployment have been announced.[^240]

69. While many cable operators are waiting for the development of IP
    telephony, others offer circuit-switched cable telephony. As of June
    1999, Cox's residential telephone service, "Cox Digital Telephone,"
    was available in six markets, passing 870,213 homes and serving
    59,793 subscribers.[^241] Comcast recently announced an agreement
    with AT&T to collaborate on local exchange telephone service through
    AT&T-branded telephony in Comcast markets.[^242] Through its
    controlling interest in Jones Communications, Comcast serves 12,000
    telephone subscribers in Prince George's County, Maryland, and
    Alexandria, Virginia.[^243] Comcast also offers facilities-based
    telephony service on its systems in Ft. Lauderdale, Florida, and
    Baltimore, Maryland.[^244] Comcast anticipates that IP telephony
    will replace current circuit-switched offerings.[^245] MediaOne
    offers telephony in five states passing more than 3.6 million
    homes.[^246] Through its wholly-owned subsidiary, Lightpath,
    Cablevision provides facilities-based telephone services to Long
    Island and Connecticut and plans to offer this service in all of its
    markets.[^247] AT&T provides facilities-based telephony to
    approximately 15,000 subscribers in Fremont, California, Arlington
    Heights, Illinois, Dallas, Texas, and Hartford, Connecticut.[^248]

70. ***Multi-Service Offerings***. Analysts believe that bundling of
    multiple services,[^249] offered either entirely over an operator's
    own network, or over a combination of its own network and a leased
    network, reduces churn,[^250] and increases equity values.[^251] The
    financial impact of bundling video, voice, and data, can lower an
    operator's marginal risk, and provide customers with the convenience
    of "one-stop" shopping.[^252] However, it is believed that ubiquity
    for bundling will not occur for at least several years.[^253]

**B. Direct Broadcast Satellite Services**

71. Direct broadcast satellite (\"DBS\") operators use satellites to
    transmit video programming to subscribers, who must buy or rent a
    small parabolic \"dish\" antenna and pay a subscription fee to
    receive the programming service. There are four companies licensed
    by the Commission to provide DBS service: DirecTV, EchoStar
    (marketed as the DISH Network), Dominion Video Satellite, Inc. and
    R/L DBS Company.[^254] Of these, DirecTV, EchoStar and Dominion
    currently provide service. DirecTV and EchoStar offer up to 350
    channels of video programming and serve more than ten million
    subscribers. Dominion offers religious oriented programming on a
    smaller number of channels than DirecTV or EchoStar. As discussed
    below, PrimeStar, which is now defunct, offered a medium powered
    satellite service that shared many of the attributes of DBS service,
    though PrimeStar service required a larger antenna and had lower
    channel capacity.[^255] DirecTV acquired PrimeStar in May 1999, and
    its subscribers are being transitioned to DirecTV's high-powered DBS
    service.[^256]

72. ***Subscribership**.* DBS remains cable's largest competitor, and
    DBS subscribership shows continued growth. As of June 1999, DBS
    providers had over ten million subscribers, an increase of
    approximately 39% since 1998.[^257] Between June 1998 and June 1999,
    DirecTV added 1,524,000 subscribers and EchoStar added 1,234,000
    subscribers.[^258] DirecTV is the nation's leading satellite
    television service with more than 7.6 million customers as of June
    1999, and a 72% share of the domestic DBS market.[^259] EchoStar had
    almost 2.6 million subscribers and 28% DBS market share as of June
    1999.[^260] Analysts estimate that DBS will have nearly 21 million
    subscribers by 2007.[^261] There is some overlap, however, between
    cable and DBS subscribership. Of the 60% of DBS subscribers with
    access to cable, 24% subscribe to cable in addition to DBS,
    primarily to receive local broadcast signals.[^262]

73. ***DBS versus Cable***. Differences between cable and DBS continue
    to diminish, and some observers assert that consumers perceive DBS
    and cable to be substitutable services.[^263] Both DBS and cable
    operators offer video programming packages to subscribers for a
    monthly fee, and offer premium and pay-per-view services. However,
    DBS subscribers continue to report higher levels of customer
    satisfaction over cable. For example, SBCA cites a DBS study that
    found "consumers who select DTH service find it superior to any
    other video service ... and for DBS subscribers, 90 percent rated
    the overall quality of their satellite system as excellent or
    good."[^264] J.D. Power and Associates rated EchoStar's DISH Network
    number one in customer satisfaction in the pay television industry
    in their 1999 Cable/Satellite TV Customer Satisfaction Study.[^265]

74. According to surveys of DBS subscribers, the primary advantages of
    DBS are superior channel capacity (including the capacity for \"Near
    Video On Demand\" movies on pay-per-view), digital quality picture,
    CD-quality sound, and specialized programming such as exclusive
    sports packages.[^266] Some of these advantages, however, may
    diminish as cable operators offer digital services that allow them
    to match DBS operators in number of channels and signal quality.

75. Differences between cable and DBS prices have declined as the cost
    of DBS service and equipment has decreased. According to a study
    (the "Yankee Group 1999 DBS Study") that compared cable and DBS
    programming prices, DBS's average programming price was \$29.50 per
    month while its sample of large MSO programming prices averaged
    \$30.56 per month.[^267] These figures are consistent with the
    Commission's last *Report on Cable Industry Prices*, which found
    that the average monthly rate charged by cable operators facing
    effective competition was \$28.71 as of July 1, 1998. For those
    cable operators not facing effective competition, the average
    monthly rate was \$30.53.[^268] DBS subscribers, however, generally
    pay additional \"up-front costs" for equipment and installation.
    When examining "price and value differences" between DBS and cable
    services, the study also found that during the first year of
    subscribership, cable has "less than a \$400 overall payment
    required of a consumer, compared to a near \$600 investment by a
    satellite consumer.[^269] These figures include an average hardware
    cost of \$166 for satellite customers, an average installation cost
    of \$66 for satellite equipment, and an average installation cost of
    \$26.53 for cable service. However, discounts offered by DBS
    operators on equipment and installation can minimize the difference
    between cable and DBS prices.

76. ***Availability of Local Broadcast Stations***. Consumers continue
    to report that the primary disadvantage of DBS is the lack of
    network television signals.[^270] On November 29, 1999, a revision
    of the Satellite Home Viewer Act ("SHVA") was enacted.[^271] Under
    the Satellite Home Viewer Improvement Act of 1999 (\"SHVIA\"),
    satellite providers are allowed to retransmit network and network
    affiliate signals into local markets. The original SHVA legislation,
    passed in 1988, granted only a limited exception to the exclusive
    programming copyrights enjoyed by television networks and their
    affiliates. This exception recognized that some households are
    unable to receive network station signals over the air and allowed
    direct-to-home ("DTH") satellite video providers to retransmit
    network signals, but only \"to persons who reside in unserved
    households" (also known as "white areas").[^272] In 1998, several
    federal court decisions that resolved litigation between
    broadcasters and DBS program distributors over violations of SHVA
    resulted in the termination of network signals to approximately 1.5
    million satellite customers.[^273] Subsequently, the House and the
    Senate passed separate bills authorizing DTH providers to retransmit
    network and network affiliate signals into local markets.[^274]
    Immediately after the law was signed, EchoStar began transmitting
    local network packages, selling for \$4.99 a month, to subscribers
    in 13 markets: Denver, New York, Los Angeles, Chicago, San
    Francisco, Boston, Washington, D.C., Dallas/Ft. Worth, Atlanta,
    Miami, Phoenix, Pittsburgh and Salt Lake City.[^275] The local
    channel package consists of the local affiliates of ABC, CBS, NBC,
    and FOX. DirecTV began immediate service to two markets: New York
    and Los Angeles.[^276] In addition to local network channels,
    DirecTV will include a national PBS in each local package, which
    sells for \$5.99 a month. During the six month period beginning on
    the date of the enactment of SHVIA, DBS providers may retransmit
    local signals without consent.[^277] Thereafter, DBS operators will
    be subject to retransmission consent rules similar to those
    established for cable operators.[^278] Prior to the passage of
    SHVIA, DirecTV and Fox Entertainment Group entered into a
    retransmission consent agreement to allow DirecTV to retransmit the
    signals of 22 major market FOX television stations.[^279]
    Subsequently, DirecTV has reached retransmission consent agreements
    with NBC for 13 major market stations, and ABC for its 10 network
    owned and operated stations.[^280] SHVIA further imposes several
    rulemaking and reporting requirements on the Commission.[^281] We
    intend to implement these provisions expeditiously to ensure that
    consumers receive the intended benefits of the Act.

77. ***Changes in Ownership**.* Over the past year, changes in ownership
    and reassignments of orbital slots have altered the DBS landscape.
    On April 1, 1999, the Commission consented to the merger of United
    States Satellite Broadcasting Co., Inc. ("USSB") and DirecTV, and
    authorized the transfer of USSB's direct broadcast satellite
    licenses to DirecTV.[^282] On April 28, 1999, Hughes, the parent
    company of DirecTV, completed its acquisition of PrimeStar's medium
    powered satellite business.[^283] Subsequent to that grant, Tempo
    Satellite, Inc, a former DBS licensee that did not actually commence
    service, was also allowed to transfer its license to DirecTV.[^284]
    These changes give DirecTV increased channel capacity, facilitate
    "local-into-local" broadcast signal carriage and, for the first
    time, allow for DBS service to Hawaii, which has not previously been
    served by DBS.[^285]

78. On May 19, 1999, the Commission granted the application of MCI
    Telecommunications Corporation and EchoStar for transfer of MCI\'s
    license to construct, launch and operate a DBS system at the 110°
    West Longitude location.[^286] On June 16, 1999, EchoStar was
    granted authority to temporarily relocate one of its satellites to a
    new orbital slot in order to improve DBS service to Alaska and to
    initiate service to Hawaii. On May 17, 1999, the Commission granted
    Dominion Video Satellite, Inc. authority to commence operation of a
    DBS service using an EchoStar satellite currently in orbit.[^287]
    This authorization permits Dominion to commence DBS service by
    leasing transponder capacity on an EchoStar satellite. Dominion is
    now offering service.[^288]

79. ***Competitive Barriers***. Commenters identify several barriers to
    the continuing success of DBS as an MVPD competitor. Commenters
    state that access to vertically integrated programming remains a
    "critical issue" for DBS.[^289] According to commenters, when
    vertically integrated cable operators migrate satellite delivered
    programming to a terrestrial delivery mode, they evade program
    access rules, thereby preventing DBS operators from distributing
    valuable programming such as regional sports programming.[^290]
    Similarly, EchoStar asserts that large cable operators, because of
    their size and market share, have "overwhelming buying power in the
    programming market" that restricts access to independent programming
    as well as to vertically integrated programming.[^291]

80. According to SBCA, the inability to fully serve urban areas is
    another barrier to competition faced by DBS operators.[^292] In
    addition, it maintains that DBS is a predominantly rural service and
    faces obstacles to competitive access to the suburban and urban
    markets.[^293] SBCA reports that approximately 40% of DBS
    subscribers do not have access to cable.[^294] DirecTV believes that
    for DBS to effectively serve urban markets, the Commission's rules
    on the use of over-the-air-reception devices ("OTARD") should be
    extended.[^295] OTARD applies to viewers who place video antennas on
    property that they own and that is within their exclusive use or
    control, including condominium owners and cooperative owners who
    have an area where they have exclusive use in which to install the
    antenna. The rule applies to townhomes and manufactured homes, as
    well as to single family homes. On November 20, 1998, the Commission
    amended the rule so that it will also apply to rental property where
    the renter has exclusive use, such as a balcony or patio.[^296]
    Commenters generally agree that the OTARD rules allow more viewers,
    particularly viewers in urban areas, access to DBS.[^297] However,
    other conditions may continue to limit DBS access for some viewers.
    For instance, DBS antennas must face south to receive an acceptable
    quality signal from the satellite, which transmits the video
    programming service. According to DirecTV, renters and property
    owners who do not have south facing exclusive use areas cannot opt
    for DBS service, and therefore must rely on cable operators, who
    have previously obtained exclusive, long term, MDU contracts, as
    their MVPD provider.[^298]

81. Signal interference is also cited as a potential barrier to
    competition. Commenters assert that new services that propose to
    operate on a shared basis in the frequency band allocated to DBS
    service would cause "unacceptable interference."[^299] Finally,
    because DBS service relies on a telephone return path and can
    provide only limited interactivity, commenters assert that DBS is at
    a competitive disadvantage to cable with its broadband conduit to
    and from the home.[^300]

82. On the other hand, some competitive barriers appear to be
    diminishing, as DBS equipment costs fall and broadcast signals
    become available in many markets. Indeed, some assert that the
    advertising for DBS services indicates that DBS is now targeting a
    broader range of consumers.[^301]

83. ***Data and Interactive Services**.* As with cable operators,
    satellite providers are developing ways to bring advanced services
    to their customers. Hughes Network Systems, who owns DirecTV, offers
    a satellite-delivered high-speed Internet access service
    (\"DirecPC\"), with a telephone return path.[^302] DirecDUO, a dual
    functioning DBS antenna, enables consumers to receive both video
    programming and DirectPC services.[^303] America Online and DirecTV
    have partnered to develop a set-top box that will provide
    interactive and "web surfing" Internet services. DirecTV has also
    formed partnerships with the TiVo Company to develop a VCR-like
    set-top box with personalized TV functions and with Wink
    Communications to provide interactive multimedia services.[^304]
    DirecTV recently created two High Definition Television (HDTV)
    offerings -- a nationally available HBO HDTV channel and a
    pay-per-view HDTV channel featuring movies and special events.[^305]
    EchoStar has partnered with Microsoft backed WebTV to provide
    Internet access through television sets. EchoStar and OpenTV, Inc.
    \-- a company that produces interactive television technology \--
    will jointly offer e-mail, e-commerce and on-line banking services
    to its subscribers early next year.[^306] Nevertheless, EchoStar
    contends that the Commission should "demand from merger applicants"
    a commitment to provide access to their broadband networks to MVPDs,
    including DBS, on reasonable terms to be negotiated by the parties
    or prescribed by the Commission upon a failure to agree.[^307]
    Finally, both Motorola and Thompson have announced that they each
    will produce equipment, including DBS systems with Internet access
    capability.[^308]

84. ***DBS Public Interest Obligation**.* On November 19, 1998, the
    Commission adopted rules implementing Section 25 of the 1992 Cable
    Act, which imposed certain public interest obligations on DBS
    providers.[^309] The statute requires DBS service providers to set
    aside a percentage of channel capacity for non-commercial
    programming of an educational or informational nature. DirecTV began
    providing application packets to potential non-commercial and
    educational programmers in June 1999.[^310] The Commission
    anticipates that a variety of new programming could soon become
    available on DBS systems, including children's programming, distance
    learning programs, university research projects shared nationwide,
    and health applications developed for rural America.[^311] DBS
    licensees must also comply with the political broadcasting rules of
    Section 312(a)(7) of the Communications Act which grants candidates
    for federal office reasonable access to broadcasting stations, and
    Section 315 of the Act, which requires that licensees provide equal
    opportunities for those candidates to use broadcast stations at the
    lowest unit charge.

85. The effective date for implementation of the DBS public interest
    obligations was December 15, 1999.[^312] DirecTV began offering such
    programming on that date. On December 10, 1999, Echostar filed a
    motion for a six-week extension to come into compliance. That motion
    was denied and Echostar was ordered to come into compliance by
    January 7, 2000, or face fines.[^313]

## Home Satellite Dishes

86. In contrast to the growth of DBS subscribers, the HSD industry, also
    known as C-Band, is experiencing a steady decline of customers.
    Between June 1998 and June 1999, HSD subscribership fell 12%, from
    2,028,225 to 1,783,411, as many customers move to DBS service with
    its smaller antennas.[^314] For instance, EchoStar announced a
    marketing agreement with TV Guide C-band unit Superstar/Netlink
    Group to convert its 1.4 million current and inactive large dish HSD
    subscribers to EchoStar's DBS service which uses 18 inch "dish"
    antennas.[^315] Despite the steady decline, SBCA expects "C-Band
    service to continue as a viable business for the foreseeable future
    \[as a\] niche distribution medium" serving rural subscribers
    unserved by cable.[^316] SBCA also notes that many existing HSD
    transponder leases extend into the middle of the next decade.[^317]

## Multichannel Multipoint Distribution Service 

87. MMDS systems, often referred to as \"wireless cable,\" transmit
    video programming and other services to subscribers through 2 GHz
    microwave frequencies, using Multipoint Distribution Service
    (\"MDS\") and leased excess channel capacity on Instructional
    Television Fixed Service (\"ITFS\") channels.[^318] An MMDS system
    must have a line-of-sight (\"LOS\") path between the transmitter or
    signal booster and the receiving antenna. When using analog signals,
    because of capacity limitations for the frequencies, MMDS operators
    have a maximum of 33 microwave channels available in each market,
    including 13 MDS channels and 20 ITFS channels. Digital technology
    significantly increases this channel capacity, improves picture and
    audio quality, and makes two-way services, such as high-speed
    Internet access and telephony, possible.

88. The MMDS industry currently provides competition to the cable
    industry only in limited areas. For example, BellSouth provides
    competitive digital MMDS video services in areas in the southeast
    and GTE provides competitive digital MMDS services in Honolulu.
    Sprint Corporation and MCI WorldCom, Inc. have acquired most of the
    larger MMDS operators over the past year, with the intent of using
    the acquired frequencies to provide two-way communication services.
    Since the 33-channel analog capacity of MMDS systems is generally
    not competitive with that of most cable systems, MMDS subscribership
    has declined. One analyst believes that analog MMDS video will
    eventually serve only rural areas, but that digital video
    subscribership will climb moderately and high-speed data access
    through MMDS will grow rapidly.[^319]

89. ***MMDS Households* *and Subscribership***. In 1999, the number of
    homes with a serviceable line of sight to an MMDS operator\'s
    transmission facilities was 62,500,000, and the number of homes
    actually capable of receiving an MMDS operator's signal ("homes
    seen") was 35,750,000.[^320] The total number of MMDS video
    subscribers fell from 1.0 million to 821,000 between June 1998 and
    June 1999, a decrease of 17.9%. Of the 821,000 subscribers in 1999,
    721,000 were analog MMDS subscribers and the other 100,000 were
    subscribers to digital MMDS services.[^321]

90. ***Video Joint Ventures**.* Two MMDS operators, Nucentrix Spectrum
    Resources, Inc. ("Nucentrix"), formerly Heartland Wireless
    Communications, Inc., and Wireless One, Inc., have announced joint
    ventures with DBS operator DirecTV. According to these agreements,
    the MMDS operator will combine its MMDS frequencies with DirecTV's
    satellite video programming so that consumers can receive local
    broadcast and other channels with MMDS frequencies in addition to
    DirecTV's full video service through a DBS dish. The local MMDS
    operator handles installation of and subscription to both services.
    This service is offered to both single-family homes and MDUs.[^322]
    Many MMDS operators view MDUs as underserved by cable operators and
    as a possible source for rapid revenue growth.[^323] Nucentrix
    reports that it has begun offering its joint MMDS-DirecTV service in
    41 markets.[^324]

91. ***Interexchange Carrier ("IXC") Investment***. Over the past year,
    MCI WorldCom and Sprint have purchased a significant number of MMDS
    operators.[^325] Sprint has acquired WBS America, LLC, People's
    Choice TV Corporation, American Telecasting, Inc., Videotron Hollard
    B.V., Wireless Cable of Florida, and Transworld Telecommunications,
    Inc. These properties give Sprint the potential of offering two-way
    communication services to almost 30 million households
    nationwide.[^326] MCI WorldCom has purchased CAI Wireless,[^327]
    which is also majority owner of CS Wireless. MCI WorldCom has agreed
    to acquire Wireless One,[^328] and Southern Wireless Video,
    Inc.[^329] With these acquisitions, MCI WorldCom has the ability to
    offer communication services to over 50 million homes.[^330] Sprint
    and MCI WorldCom intend to use this spectrum as a "last mile"
    connection to homes for the provision of high-speed Internet access.
    It remains unclear whether they will continue to provide analog
    video service, upgrade to digital video service, or discontinue
    multichannel video service.[^331]

92. ***Internet and High-Speed Data Services**.* Last year, the
    Commission adopted new rules that provide flexibility to MMDS and
    ITFS licensees to employ digital technology in delivering two-way
    communications services, including high-speed Internet access, video
    conferencing, and distance learning.[^332] Currently, a few MMDS
    operators offer Internet service. One such system in Phoenix,
    operating under developmental authority, has over 10,000 customers
    for its Internet service and is competing with the local cable
    operator and U S West's advanced telecommunications offering.[^333]

93. ***Barriers to Competition***. WCA has several proposed
    recommendations for Commission action to remove barriers to
    competition for MMDS operators.[^334] First, WCA requests that the
    Commission recommend that Congress amend the program access law to
    cover all cable networks, regardless of ownership or method of
    delivery. WCA notes that the migration of programming networks from
    satellite to terrestrial delivery is accelerating, thereby limiting
    MMDS access to programming under the Commission's program access
    rules.[^335] WCA also contends that the consolidation and clustering
    of cable systems gives cable MSOs leverage vis-à-vis local broadcast
    network affiliates, allowing cable operators to negotiate
    retransmission consent agreements that discriminate against
    competing MVPDs. WCA further reports that broadcast networks have
    signed exclusive distribution agreements with cable operators for
    their cable networks as part of retransmission consent agreements.
    Accordingly, WCA asks that the Commission recommend that Congress
    enact legislation that contains non-discrimination provisions for
    retransmission consent agreements.[^336] WCA also recommends that
    the Commission continue to act quickly on antenna preemption and
    other access to premises issues, and that the Commission request
    clarification of its jurisdiction in those areas where there may be
    doubts as to the scope of the Commission's authority, especially in
    regard to MDUs.[^337] WCA further asks the Commission to seek
    clarification from Congress concerning the Commission's jurisdiction
    over "home run" wiring and its authority to adopt rules concerning
    the disposition of such wiring. WCA generally agrees with current
    rules concerning wiring, but states that the rules should not allow
    a departing cable operator to remove its wiring when it could
    instead sell the wiring at depreciated value to alternative MVPDs.
    According to WCA, MDU owners may deny access to competing MVPDs out
    of concern that cable companies may elect to remove their wiring,
    thus requiring a potentially damaging and disruptive new
    installation by an alternative MVPD.[^338]

## Satellite Master Antenna Television Systems

94. SMATV systems are satellite systems used to distribute television
    signals to households located in one or more adjacent buildings,
    primarily serving urban and suburban MDUs.[^339] SMATV systems do
    not use public rights-of-way, and thus fall outside of the
    Communications Act\'s definition of a cable system.[^340] In
    general, SMATV operators are subject to less regulatory oversight
    than traditional cable systems.[^341] Some SMATV systems use
    microwave transmissions and wires to serve multiple buildings that
    are not commonly owned.[^342] Under the 1996 Act, SMATV operators
    may use wires to connect separately owned buildings, as long as the
    wires do not traverse public rights-of-way.[^343]

95. On July 13, 1999, the Commission adopted a *Notice of Proposed
    Rulemaking* seeking comment on a proposal to allow SMATV operators
    to use Cable Television Relay Service ("CARS") 12 GHz band channels
    to deliver video programming.[^344] The proceeding was initiated in
    response to a petition filed by OpTel, a SMATV operator, on April
    1, 1998. While OpTel sought such authorizations only for SMATV
    systems, the Commission broadened the proceeding to potentially
    include all MVPDs as potential CARS licensees.[^345] The Commission
    also sought comment on whether the CARS band should be expanded to
    include the frequency band segment from 13.20-13.25 GHz, currently
    designated for television broadcast auxiliary service.[^346]

96. ***SMATV Operators***. SMATV operators, also known as private cable
    operators, consist of hundreds of private and public, small and
    medium size firms throughout the nation.[^347] Among the largest
    SMATV operators as of June 1999, were OpTel, Cable Plus, MidAtlantic
    Communications, and OnePoint Communications Corp.[^348] These
    relatively large SMATV operators serve between 45,000 and 216,249
    subscribers each.[^349] Many SMATV operators serve approximately
    3,000-4,000 customers.[^350]

97. ***Growth***. As of December 1997, there were approximately 24.9
    million year-round occupied \"households\" (individual dwelling
    units) located in MDU housing in the United States, compromising
    approximately 25% of the estimated 99.5 million total year-round
    occupied housing units nationwide.[^351] Because SMATV systems
    generally serve MDUs, and since a portion of MDUs are currently
    governed by "perpetual" or long-term exclusive contracts with
    franchised cable operators, SMATV operators' potential residential
    subscriber base is likely somewhat less than 25% of all households
    nationwide.[^352] Last year, we reported that there were 940,000
    residential SMATV subscribers, as of June 1998.[^353] This year, the
    same source estimates that there were approximately 1.5 million
    SMATV subscribers as of June 1999.[^354]

98. ***Advanced and Other Service Offer***i***ngs***. Over the past
    several years, private cable operators offering service over SMATV
    systems have begun to offer many of the same services offered by
    franchised cable operators, including local and long distance
    residential telephone service and Internet access.[^355] In previous
    years, we reported that SMATV providers offer other unique services
    such as closed-circuit security monitoring, voice mail, paging, and
    touch-screen monitor kiosk customer service.[^356] Video services
    generate the most revenue for SMATV operators, followed by Internet
    access service, pay-per-view service, security services, and
    telephony.[^357] OpTel, the nation's largest SMATV provider, offers
    bundled voice, video and data services to MDU residents in 13
    markets.[^358] OnePoint Communications Corp., a leading SMATV
    operator and licensed competitive local exchange carrier ("CLEC"),
    offers telephony and Internet access.[^359]

99. SMATV operators continue to upgrade their systems in order to
    increase channel capacity and service offerings.[^360] According to
    one source, average channel capacity among those responding to a
    recent poll was approximately 89 channels, with a low of 50 channels
    and a high of 200 channels offered.[^361]

100. ***SMATV/DBS Combination Services***. As we reported last year,
     SMATV operators have joined with satellite providers to offer
     flexible, low-cost programming options to MDU consumers.[^362] In
     particular, SMATV operators combine analog antenna and DBS systems
     in order to offer MDU residents analog and digital programming
     without the need for an individual satellite dish.[^363] Such
     systems can offer residents traditional SMATV service alone, or a
     "bulk service" that combines traditional SMATV with select DBS
     feeds.[^364] The bulk offerings can provide local programming and
     non-broadcast networks at a low-cost.[^365] Residents can also
     choose DBS on an a la carte basis and can thereby receive more
     channels than are available from bulk service.[^366] As a partner
     with DBS companies, SMATV operators can receive commissions on DBS
     subscriptions sold or on activation bonuses.[^367] The relationship
     can be beneficial to both the SMATV and DBS industries, and is
     similar to the relationship DBS is building with MMDS
     systems.[^368]

101. ***Uniform Rates and Inside Wiring***. SMATV operator OpTel remains
     concerned about several issues that relate to its efforts to
     compete in the MDU market. Of particular concern is a decision by
     the Commission to allow franchised cable operators to offer "bulk"
     discounts to residents of MDUs on an individual basis.[^369] OpTel
     also raises concerns over the use of existing wiring in an
     MDU.[^370] The Commission continues its review of comments
     submitted in the *Second Further Notice of Proposed Rulemaking* on
     the matter of inside wiring.[^371]

102. ***Real Estate Owners and Property Managers***. The relationship
     between SMATV providers and real estate investment trusts
     (\"REITS\"),[^372] national property management companies and
     ownership groups, has changed. Exclusive rights to a property in
     exchange for a revenue share, as described in last year's report,
     is, according to one report, becoming increasingly rare.[^373]
     Property managers are increasingly aware of MVPD technology issues,
     and are investing in infrastructure in order to gain flexibility of
     choice over video providers.[^374] SMATV operators, on the other
     hand, are focusing on SMATV/DBS combination services and advanced
     services, such as telephony and Internet access, to attract
     property managers.[^375] Many SMATV operators are becoming CLEC
     licensees, while also aligning with third-party providers of
     high-speed Internet access.[^376] One analyst notes that most SMATV
     operators are at least testing the bundling of video, Internet, and
     telephone service.[^377]

## Broadcast Television Service

103. Broadcast networks and stations are competitors to MVPDs
     particularly in the advertising and program acquisition markets.
     Broadcast networks also compete with MVPDs by supplying video
     programming over the air, particularly to those who do not
     subscribe to an MVPD service. Additionally, broadcast networks and
     stations are suppliers of content for distribution directly to
     consumers and to consumers through MVPDs.[^378] Since the *1998
     Report*, the broadcast industry has seen continued growth in the
     number of operating stations and advertising revenues. The number
     of commercial and noncommercial television stations increased to
     1599 as of July 31, 1999, from 1583 as of August 31, 1998.[^379]
     Broadcast total advertising revenues reached \$34.6 billion in
     1998, a 6.7% increase over 1997.[^380] Advertising revenues for the
     seven broadcast networks alone reached \$16.3 billion in
     1998.[^381] In comparison, cable programming networks earned \$6.9
     billion in advertising revenue in 1998, an increase of 18.6% over
     1997.[^382]

104. During the 1998-99 television season, ABC, CBS, Fox, and NBC
     accounted for a combined 52% share of prime time viewing among all
     television households, compared to 55% in the previous year. UPN
     and WB achieved a combined 8% share of prime time viewing, down
     from 9% last year.[^383] The most recent data available for
     households subscribing to cable service indicate that programming
     originating on local broadcast television stations accounted for a
     combined 56% share of 24-hour viewing in the 1997-98 television
     season. Non-premium cable networks and pay cable services achieved
     a combined 57% share of 24-hour viewing, up from 54% the previous
     season. (Reported audience shares exceed 100% due to multiple set
     viewing.)[^384]

105. The Commission has undertaken several rulemakings regarding its
     broadcast ownership and attribution rules. On August 5, 1999, the
     Commission revised its local market television ownership rules (the
     \"TV duopoly\" rule) and the radio-television cross-ownership (or
     \"one-to-a-market\") rule to reflect changes in the media
     marketplace. The revised rules recognize the growth in the number
     and variety of media outlets in local markets, including cable and
     direct broadcast satellite, and reflect the Commission\'s desire to
     permit broadcasters to realize the efficiencies of common
     ownership, consistent with diversity and competition in broadcast
     markets. The changes are intended to improve the ability of
     over-the-air broadcast services to compete, and thereby to continue
     to provide public service benefits.[^385] The Commission also
     revised its broadcast and cable/MDS ownership attribution rules.
     The attribution rules define what constitutes a \"cognizable
     interest\" for purposes of applying the ownership rules.[^386]

106. These changes permit further consolidation in the broadcast
     industry. Two major proposed transactions have been announced. The
     first is the merger of Viacom, Inc., and CBS Corporation.[^387] The
     second is a "strategic investment" by NBC for the purchase of 32%
     of PaxTV. Additionally, NBC has the option to increase its
     ownership up to a total of 49% of PaxTV after February 1, 2002, and
     to have operating control of the company, if Commission rules will
     allow NBC this increase.[^388]

107. National networks have also introduced "repurposing" of content.
     Repurposing generally involves a re-run of broadcast content on a
     cable network shortly after it airs originally on network affiliate
     stations. Repurposing has occurred on both cable networks
     affiliated with the broadcaster (e.g., NBC showing *Today* on
     MSNBC) and on unaffiliated cable networks (e.g., USA showing *Law &
     Order, Special Victim's Unit*, an NBC show).[^389] NBC is also
     reportedly, in relation to the above-mentioned deal with PaxTV,
     considering repurposing some of its programming to PaxTV
     stations.[^390]

108. DTV could potentially enhance the ability of broadcasters to
     compete in the video marketplace. DTV allows broadcasters to
     transmit one very high quality signal (High Definition Television
     or HDTV), several standard definition signals, or ancillary
     services in addition to broadcast signals. As stated in the *1997
     Report*, affiliates of the top four networks in the top ten markets
     were required to air digital signals by May 1, 1999.[^391]
     Thirty-two of these stations are now on the air with DTV
     facilities.[^392] As of December 8, 1999, all of the top ten
     markets had at least one affiliate of the top four networks
     broadcasting DTV service, and five of those markets had all of the
     affiliates of the top four networks broadcasting DTV. One or more
     affiliates in Chicago, Washington, D.C., New York City, Boston, and
     Atlanta have been granted extensions to complete
     construction.[^393] November 1, 1999 was the deadline for the four
     network affiliates in Markets 11-30 (79 stations) to complete
     construction of their DTV facilities and to file license
     applications. As of December 8, 1999, 40 of these DTV permittees
     have filed requests for extension of time to constrict their
     facilities; 36 have completed construction and are on the air; 3
     have special temporary authority to be on the air with DTV pending
     final action on their application. As of December 8, 1999, 267 DTV
     construction permits had been granted, with in excess of 969
     additional applications pending.[^394] At present, 111 stations
     broadcast DTV signals.[^395] In addition, reports from the industry
     indicate that at least 27,000 DTV sets have been sold as of August
     1999,[^396] and the first digital VCR went on sale in July
     1999.[^397] Several cable MSOs and broadcast networks have reached
     agreements for the carriage of broadcast digital signals, including
     HDTV format and any other new services.[^398] Simulcasts of some
     programming are currently available, and the major networks are
     planning more for the current season.[^399]

109. At this point, there are still no "cable-ready" DTV sets. This
     generally means that in order to use a DTV set with a cable system,
     a consumer will need to use a set-top box. The use of set-top boxes
     for all television systems, not just those connected to cable, is
     expected to increase in popularity as consumer interest in the
     other attributes of DTV, including data transmission, increases.
     Consumer electronics manufacturers individually and through the
     Consumer Electronics Association ("CEA"), formerly the Consumer
     Electronics Manufacturers Association, are continuing to meet with
     representatives from OpenCable, individual cable systems, and NCTA
     in FCC-supervised sessions with the goal of reaching agreement on
     the standards necessary to produce a "cable-ready" set. The IEEE
     1394 has become the adopted standard and accepted means of
     connecting the DTV set with a set-top box.[^400] The issue of copy
     protection and adequate protection of digital copying remains an
     issue. (Unlike analog content, digital copies can be replicated
     pristinely and distributed in near-perfect condition.) The 5C
     standard (the Digital Transmission Content Protection "DCTP"
     Standard[^401] has been generally adopted by the manufacturers,
     CableLabs, and the Motion Picture Association of America ("MPAA"),
     but there remain questions about licensing language and
     implementation. There continue to be questions as to how best to
     protect digital content from being copied whether it involves cable
     or satellite movies, over-the-air broadcast, or transmission over
     the Internet. Since consumers' adoption of DTV is contingent upon
     the availability of high-level digital content, the Commission
     continues to supervise and encourage negotiations on copy
     protection issues in the hope of facilitating the adoption of copy
     protection standards.

110. Questions have been raised about indoor DTV reception.[^402] With
     DTV, as with the existing NTSC system, there will continue to be
     locations where reception without an outdoor antenna will be
     problematic. The expectation is, however, that reception will
     continue to improve with the installation of improved chips in next
     generation DTV receivers. In September, the Commission's Office of
     Engineering and Technology ("OET") reexamined the DTV modulation
     standard in response to a request from Commissioner Ness. In its
     report, OET recommended retention of the current 8-Level Vestigial
     Side-Band Standard ("8-VSB") after concluding that the relative
     benefits of changing to Coded Orthogonal Frequency Division
     Multiplex ("COFDM") were unclear and would not outweigh the costs
     of such a revision.[^403]

111. DTV has the potential to allow broadcasters to become more
     effective competitors with cable operators in the MVPD
     market.[^404] Possible new broadcasting services include HDTV,
     multicasting, combination of frequencies to provide packages of
     services, and interactive services such as delivering Internet
     content to computers. For example, Geocast and Hearst-Argyle
     Television recently signed an agreement to allow Geocast to use
     Hearst-Argyle DTV spectrum to deliver Internet content to
     computers. Geocast reports that it anticipates similar agreements
     with larger broadcasters.[^405] Despite these possibilities,
     however, it is not clear how DTV services will develop, or how
     significant a competitor broadcast will be in the changing MVPD
     market.

## Other Entrants

> **1. Internet Video**

112. Since our last *Report*, real-time and downloadable video
     accessible over the Internet ("Internet video") has become more
     widely available.[^406] Access to and use of the Internet is
     increasing, as are the number of products available for accessing
     Internet video.[^407] In addition, media companies continue to
     offer increasing amounts of video over their Websites. However, at
     this time, the quality of most long form programming offered over
     the Internet is an open question and current Internet capacity
     limits the number of viewers who can access long form Internet
     video simultaneously.[^408]

113. Over the past year, Apple Computer and Microsoft began offering
     software for accessing Internet video.[^409] Real Networks,
     however, remains the dominant provider of Internet video
     software.[^410] As of July 1999, it provided service to more than
     80% of the streaming video audience.[^411] Apple's QuickTime[^412]
     and Microsoft's Windows Media and Media Player,[^413] like Real
     Network's RealPlayer,[^414] can be downloaded directly from the
     Internet.

114. There also has been an increase in the number of software products
     designed to enhance the viewing of streaming video. For example,
     Virage and Excalibur Technologies sell software that searches the
     Internet for video, and enables users to access specific visual
     segments.[^415] ChannelSeek and The Media Channel catalogue and
     list available Internet video.[^416] iBEAM Broadcasting has
     developed a technology that allows it to deliver streaming video to
     hundreds of thousands of simultaneous Internet users, promising
     100% stream availability.[^417] As of October 1999, iBEAM had
     entered into partnerships with more than 60 ISPs to deliver its
     product.[^418] Lariat Software offers a product that measures and
     reports the viewership of streaming video.[^419]

115. The amount of Internet video content also has increased over the
     last year. Streaming content has become common on many Web
     pages.[^420] In addition, many Web pages are specifically designed
     to offer Internet audio and video. For example, Broadcast.com,
     which refers to itself as an "Internet broadcast network," expanded
     its offerings in 1998 and the first half of 1999.[^421]
     Broadcast.com offers connectivity to live radio and television
     broadcasts featuring business and sporting events, full-length CDs,
     concerts, news, audio books, and various other audio and visual
     options.[^422] BreakTV.com, iCast, TV on the Web, and Den TV.com,
     also offer numerous content selections.[^423] In October 1999, the
     National Football League Quarterback Club bought equity in Pseudo
     Programs, Inc., whose Pseudo.com began webcasting in December 1999,
     offering live, animated and interactive programming of football and
     other sports.[^424]

116. Broadcast and non-broadcast networks are also offering increased
     amounts of streaming video. On November 17, 1999, ABC webcast a
     portion of *The Drew Carey Show* simultaneously with its television
     broadcast.[^425] On October 9, 1999, Cisco Systems, in conjunction
     with the United Nations Development Program, webcast a live,
     world-wide, all day concert called NetAid, which was also cablecast
     on VH-1 and MTV.[^426] Organizers of NetAid claimed that the
     webcast of the concert was the most watched video streaming event
     ever to occur over the Internet.[^427] In October 1999, ABC news
     launched a thrice-weekly webcast anchored by Sam Donaldson.[^428]
     The advertiser-supported webcast is 15 minutes in duration.[^429]

117. Because of technical demands, broadband networks provide the
     optimal venue for the delivery of streamed video content.[^430]
     While there is much streaming video content available to viewers
     who access the Internet via telephone dial-up connections, some
     companies, such as Like Television, offer content exclusively or
     almost entirely for broadband consumers.[^431] However, access to
     streaming video over cable broadband networks can be limited.
     Online provider \@Home currently reserves the right to limit
     customers to 10-minute streaming segments.[^432]

118. Despite the increase in interest in Internet video, the medium is
     still not seen as a direct competitor to traditional video
     services, and industry observers believe video streaming is in the
     formative stages of development.[^433] Internet video is still used
     primarily for short news segments, sports clips, and other brief
     video excerpts.[^434]

> **2. Home Video Sales and Rentals**

119. The home video marketplace includes the sale and rental of video
     cassettes, laser discs, and digital video or versatile discs
     ("DVDs"). In previous reports, we considered home video sales and
     rentals as part of the video programming market since they provide
     video services[^435] similar to the premium and pay-per-view
     services offered by MVPDs.[^436] We noted that premium and
     pay-per-view cable services are not regulated because they are
     competitive with the home video sales and rental market, and also
     that the home video retail industry is highly competitive.[^437] It
     is estimated that 82% of all U.S. households own at least one
     VCR.[^438] About two million homes have laser disc players.[^439]
     In the two years since being introduced, the number of homes with
     DVD players has reached about the same number.[^440] There are
     between 25,000 and 30,000 video specialty stores selling or renting
     home video programming,[^441] and several of these retailers sell
     video programming through Internet sites.[^442] The largest stores
     carry at least 7,500 titles in video cassette format.[^443] Such
     video programming is also available at a variety of other retail
     outlets, including supermarkets, pharmacies, convenience stores, as
     well as at public libraries.[^444] There are over 25,000 titles
     available in video cassette format.[^445] There are 18,000 titles
     available on laser disc, and about 2,800 titles available on DVD,
     although this number is expected to grow rapidly and could reach
     5,000 by the end of 1999.[^446] The video retail industry is the
     largest source of revenue for movie studios, generating
     approximately \$6.7 billion (or 48.5%) of the estimated \$13.8
     billion domestic studio revenue in 1998.[^447]

120. In the last year, DVD player sales have continued to be strong both
     for low-end models costing about \$300 and for high-end players
     priced over \$1000.[^448] However, unlike VCRs that can cost as
     little as \$120, DVD players cannot record programming.[^449] The
     number of homes with DVD players is expected to grow to 4 million
     this year.[^450] Last year, we reported on Digital Video Express
     ("Divx"), a variation of the DVD format introduced nationwide in
     September 1998 by Circuit City and various partners.[^451] Divx was
     intended to be a pay-per-view alternative for digital discs using a
     Divx-enabled DVD player connected to a telephone line that
     forwarded playing and billing information to a central
     computer.[^452] In June 1999, Circuit City and its partners
     announced that they were abandoning the Divx format.[^453] The
     failure of Divx has been attributed to consumers' resistance to
     having their viewing preferences tracked through the telephone
     billing system, the lack of support of the movie studios, and the
     limited retail availability of Divx players due to the
     unwillingness of Circuit City's competitors to carry its
     product.[^454]

121. A new home video technology, the personal video recorder ("PVR"),
     was recently introduced. PVRs are being developed by two companies,
     TiVo Inc. and Replay Networks Inc.[^455] A PVR is a digital video
     recorder, similar in size to a VCR, which records and stores
     television programming on a disc drive.[^456] Because it uses
     random access technology, a PVR can pause, rewind, and perform slow
     motion and instant replay of a live program. A PVR allows a viewer
     to watch an earlier portion of a program while later portions are
     still being broadcast and, similarly, to leave and return to a live
     program without missing any portion of the show. However, PVRs
     cannot play prerecorded video cassettes or discs. They are intended
     for use with a service that provides an onscreen programming guide
     through a telephone connection. The technology can be used to
     create personal menus, and it can learn a consumer's television
     preferences so that it will record programming in accordance with
     those preferences. PVRs and the onscreen programming guide service
     are available over the Internet and through toll free telephone
     numbers. Since September 1999, TiVo's player, manufactured by
     Philips, has been sold at by a number of retailers.[^457] The price
     of a PVR depends on the amount of storage, ranging from \$499 for
     TiVo's player with 14 hours of storage to \$1500 for ReplayTV's
     player with 28 hours of storage.[^458] A monthly TiVo subscription
     costs \$9.95 and a lifetime subscription is \$199.[^459] Replay has
     no monthly fee and relies solely on advertiser support.[^460]
     According to TiVo, as of June 1999, the number of PVRs sold and
     subscriptions to its service were "limited."[^461]

## Local Exchange Carriers

122. The 1996 Act amended section 651 of the Communications Act in order
     to permit telephone companies to provide video services in their
     telephone service areas. According to the statute, common carriers
     may: (1) provide video programming to subscribers through radio
     communications under Title III of the Communications Act;[^462] (2)
     provide transmission of video programming on a common carrier basis
     under Title II of the Communications Act;[^463] (3) provide video
     programming as a cable system under Title VI of the Communications
     Act;[^464] or (4) provide video programming by means of an open
     video system (\"OVS\").[^465]

123. In previous *Reports*, we noted that while LECs were not yet a
     national competitor in the MVPD market, their competitive presence
     was growing.[^466] Currently, it appears that the rate of entry may
     be slowing by even the most aggressive LECs, and several LECs have
     reduced or eliminated their MVPD efforts. The decline in the rate
     of entry of LECs into the MVPD market may indicate that some LECs
     have already entered the geographic markets they consider most
     profitable, and are now only filling gaps in areas of service.

> **1. Current and Planned LEC Video Delivery**

124. ***MMDS**.* BellSouth remains the largest LEC investor in MMDS
     licenses and systems.[^467] Since the *1998 Repor*t, however,
     BellSouth has not launched digital MMDS services in any additional
     localities.[^468] BellSouth's MMDS service areas cover
     approximately 3.5 million homes in Florida, Atlanta, Louisiana, and
     Kentucky.[^469] As of the third quarter of 1999, BellSouth had
     130,000 MMDS subscribers.[^470] In addition, GTE operates a digital
     MMDS system in Oahu, Hawaii.[^471]

125. ***In-Region Cable Franchises**.* Ameritech continues to be the
     most significant LEC provider of in-region cable service. As of
     November 4, 1999, Ameritech had acquired 111 cable franchises in
     Illinois, Indiana, Michigan, Ohio, and Wisconsin, potentially
     passing more than 1.7 million homes. Ninety-eight of Ameritech's
     cable franchises were operational as of November 4, 1999,[^472] and
     it was the 23rd largest MSO in the country as of June 1999, serving
     250,000 subscribers.[^473] Ameritech continues to encounter
     significant competitive responses by incumbent cable
     operators.[^474]

126. At the time of the *1998 Report*, in addition to its MMDS
     properties, BellSouth had acquired 18 cable franchises in Alabama,
     Florida, Georgia, South Carolina, and Tennessee, giving it the
     potential of passing 1.2 million homes. At that time, BellSouth
     provided service in nine of its franchised areas.[^475] BellSouth
     now reports that it holds 21 franchises with the potential to pass
     1.4 million homes. BellSouth states that it provides service in 12
     of its franchise areas, and that it is negotiating with localities
     for additional franchises.[^476] We previously reported that GTE
     received ten competitive cable franchises, and one non-competitive
     franchise.[^477] GTE's non-competitive franchise in Cerritos,
     California, and the competitive franchises in Ventura County,
     California, and St. Petersburg and Clearwater, Florida, are
     operational.[^478]

127. SNET, which was recently acquired by SBC Communications, holds a
     statewide cable franchise in Connecticut, and currently offers
     service to 14 localities.[^479] On August 25, 1999, SNET applied
     for and received permission from the Connecticut Department of
     Public Utility Control ("DPUC") to suspend construction of its
     statewide Hybrid Fiber-Coaxial ("HFC") network while it considers
     alternative technologies for video deployment, such as digital
     subscriber line ("DSL") technology.[^480] SNET maintains that HFC
     is not an efficient technology for deployment of video services.
     The DPUC required SNET to continue video service where it has
     already begun to do so, and declined to relieve SNET of any of its
     statewide construction obligations. SNET is required to file a
     proposal on new technologies and for statewide construction by
     October 1, 2000.[^481]

128. U S West continues to operate video systems in Omaha, Nebraska, and
     Phoenix, Arizona. In Phoenix, U S West uses very high speed digital
     subscriber line (\"VDSL\") for distribution of video, high-speed
     Internet access, and telephone service over existing copper
     telephone lines, and is still the only company in the country using
     this distribution technology.[^482] In addition, U S West announced
     that it has begun trials of an interactive service that integrates
     customers' telephone, Internet access, and existing television
     service.[^483] This service, delivered over dial-up or DSL
     connections to television sets, allows customers to switch between
     Web surfing and television watching, to do both simultaneously, to
     view caller ID information on their television screens, to answer
     the telephone via a speakerphone on a set-top box, and to check
     e-mail. Full-scale deployment of this service was expected in the
     fall,[^484] but has not yet occurred.

129. Last year, we reported on concerns that SBC, then in the process of
     purchasing Ameritech, might sell or abandon Ameritech's cable
     overbuild efforts, given that SBC previously sold or abandoned
     PacBell MVPD services. In addition, SBC's Chairman Edward Whitacre,
     on May 19, 1998, had declined to commit to maintain Ameritech's
     video efforts.[^485] Recently, Ameritech suspended deployment of
     new cable operations and suspended negotiation of new franchise
     agreements.[^486] An SBC spokesman said that the operations would
     be suspended until a "deep review" of all business operations was
     completed.[^487]

130. ***OVS**.* Although OVS is one of four means for LEC entry into
     video, the OVS rules do not preclude non-LECs from becoming OVS
     operators. Therefore some of the companies certified to provide OVS
     service are not LECs. The Commission has certified 13 OVS operators
     to offer OVS service in 28 areas, with some of the areas
     overlapping.[^488]

131. RCN owns the only operating open video systems and holds OVS
     certifications in nine areas. RCN reports that it currently
     operates open video systems in areas surrounding the City of
     Boston, within the New York City metropolitan areas, and within and
     surrounding Washington, D.C.[^489] RCN has somewhat less than 6,000
     OVS subscribers in the areas around Boston, 50,000 OVS subscribers
     in New York City, and 3,000 OVS subscribers in the Washington,
     D.C., area. These systems also offer subscribers high-speed
     Internet access, and local and long distance telephone
     service.[^490] In several areas for which it holds OVS
     certification, or in subsections of these areas, RCN has negotiated
     cable franchises with local franchising authorities. In these
     areas, RCN will or is already offering cable service instead of OVS
     service.[^491] RCN states that it has experienced significant
     competitive response to its offerings.[^492]

132. RCN reports that negotiation for OVS agreements with local
     authorities typically last three to four months, and proceed far
     more quickly than traditional cable franchise agreements
     negotiation. RCN states that its status as a certified OVS operator
     has allowed it to enter markets rapidly, whether or not it
     ultimately operates a cable or OVS system in those markets.[^493]
     While RCN has had numerous inquiries from unaffiliated video
     program providers concerning access to its OVS systems, no such
     entity has yet elected to seek carriage on one of RCN's OVS
     systems.[^494] Recently Paul Allen, owner of Charter
     Communications, made a \$1.65 billion investment in RCN through
     Vulcan Ventures, Inc. RCN reports that this investment will fully
     fund its network building plans through 2003.[^495] Other
     agreements between RCN and Charter call for a joint venture to
     develop Internet portal services, and for RCN to provide telephony
     services for Charter in Los Angeles.[^496]

133. In the *City of Dallas v. Federal Communications Commission*, the
     Fifth Circuit U.S. Appeals Court remanded a portion of the
     Commission's OVS rules, and struck down or confirmed other
     portions.[^497] Specifically, the court reversed rules that
     preempted Title VI-like local franchise requirements for OVS
     operators. The court also: (a) reversed rules that banned LECs that
     are also cable operators from offering OVS in the absence of
     effective competition; (b) remanded to the Commission the rules
     that allowed OVS operators to decide whether to allow in-region
     cable operators access to the OVS system; and (c) granted
     BellSouth's request to allow companies to begin construction of
     video plant before receiving OVS approval. RCN states that "...the
     decision largely undercuts the regulatory design of, and economic
     viability of, OVS as a alternative mode of providing MVPD services
     and creates delay, uncertainty, and added expense for OVS
     operators."[^498]

134. ***Barriers to Competition***. BellSouth, Ameritech, and RCN report
     that they have experienced difficulties obtaining
     programming.[^499] All mention the actual or potential problem of
     migration of programs from satellite to terrestrial delivery in
     order to avoid the program access rules.[^500] Ameritech and
     BellSouth report difficulty in gaining access to non-vertically
     integrated networks, and to cable networks owned by the
     over-the-air broadcast companies.[^501] These two commenters also
     indicate that the trend in the cable industry toward increased
     horizontal concentration and clustering will continue to exacerbate
     these problems.[^502] Ameritech, BellSouth, and CCC also report
     that incumbent cable operators receive steep discounts for popular
     programming networks, thus putting entrants at a competitive
     disadvantage.[^503] Ameritech reports that these discounts cannot
     be justified by cost-based measures, as Commission rules
     require.[^504] BellSouth states that the Commission has not been
     sufficiently stringent in applying its program access rules,
     particularly in regard to migration of programming to terrestrial
     delivery.[^505]

135. The commenters also report that difficulties associated with
     gaining access to existing MDU inside wiring is disadvantageous for
     cable competitors, and ask that the Commission take further action
     to correct this problem.[^506] RCN also asserts that its
     competitors are using OVS rules to gain access to sensitive
     competitive data, and that Commission rulings requiring RCN to
     disclose this information to cable companies have contributed to
     this problem.[^507] RCN further indicates that it faces increasing
     difficulty accessing local rights-of-way on fair and reasonable
     terms.[^508]

136. Ameritech and BellSouth recommend that the Commission alter the
     program access rules regarding migration to terrestrial delivery,
     access to non-vertically integrated programming, and programming
     fee discounts. If the Commission believes it lacks the statutory
     authority to make the requested changes, they ask that the
     Commission recommend that Congress grant this authority.[^509]
     BellSouth further recommends that the AT&T-MediaOne merger be
     conditioned on a commitment that all AT&T-affiliated programming
     will be made available to alternative MVPDs on nondiscriminatory
     terms and conditions. Finally, BellSouth urges the Commission to
     recommend to Congress that the DBS "local into local" legislation
     prevent broadcast stations from denying retransmission consent to
     any MVPD.[^510]

> **2. Ruling on Effective Competition**

137. The Communications Act provides that a cable operator's rates are
     not regulated if the cable system is subject to effective
     competition.[^511] The 1996 Act amended the effective competition
     provision of the statute in order to address competition from LECs,
     LEC affiliates, or MVPDs using LEC facilities.[^512] In a *Report
     and Order* that implemented the new statutory language, the
     Commission determined that effective competition exists where the
     LEC video service "substantially overlaps" the incumbent cable
     operator's service in the same franchise area.[^513] Potential as
     well as actual LEC service can be considered, and the LEC
     programming service must be comparable to the incumbent cable
     operator's service.[^514] The Commission determined that for a LEC
     service to be "comparable" it must offer at least 12 channels of
     video programming, including at least one channel of non-broadcast
     service.[^515]

## Electric and Gas Utilities

138. Utilities are not yet major competitors in the telecommunications
     or cable markets, but they possess characteristics that could
     potentially help them become competitively significant. Utilities
     own fiber-optic networks in some areas, and generally have access
     to public rights-of-way in the areas they serve. Utilities\'
     provision of non-energy services may increase the value of their
     existing network and non-network assets. In addition, deregulation
     of utilities, accompanied by the advent of competition, is
     prompting more utilities to diversify and find new revenue
     streams.[^516]

139. Since the *1998 Report*, several utilities have announced,
     commenced, or moved forward with ventures involving multichannel
     video programming distribution. Starpower, a joint venture between
     RCN and Potomac Electric and Power Company ("PEPCO") in the
     Washington, D.C. area, reports that it began video service this
     year.[^517] Seren, a wholly owned subsidiary of Minneapolis-based
     Northern States Power, is currently offering cable and high-speed
     Internet access service as a cable overbuilder in St. Cloud and
     Waite Park, Minnesota.[^518] It has also received franchise
     authorizations in Sartell and Sauk Rapids, Minnesota, and Concord,
     California, and has applied for franchises in Walnut Creek,
     Danville, Pleasant Hill, Clayton, and unincorporated Contra Costa,
     California.[^519] In Iowa, several cities have authorized their
     municipal utilities to overbuild the local cable company, including
     Hawarden and Spencer.[^520] In addition, the State Supreme Court in
     Iowa recently found that federal law prevents the state from
     prohibiting city utilities who operate cable systems from also
     offering other telecom services, such as telephone service.[^521]
     In Ohio, an overbuild system run by the municipal utility in
     Lebanon began service,[^522] and the incumbent cable operator, Time
     Warner, responded with lower prices and the addition of channels
     and digital services.[^523] Southlake, Texas, a community of 20,000
     near Fort Worth, granted a cable franchise to Millennium Telecom,
     which is partially owned by Tri-County Electrical Cooperative, an
     area electrical cooperative.[^524] Millennium Telecom is authorized
     to offer cable, high-speed Internet, long distance telephone, and
     security services in Southlake. Millennium Telecom already holds a
     similar authorization in Roanok, Texas, and has a telephone
     franchise in Fort Worth that it is seeking to expand into cable.
     Millennium Telecom is also seeking additional franchises in 13
     other Texas communities.[^525] Voters in Alameda, California, voted
     to grant the municipal electrical utility authority to add video to
     its system's offerings.[^526] Finally, a municipal consultant
     recommended that Little Rock, Arkansas, combine with four
     neighboring communities to use its municipal electric and water
     utilities to overbuild the local cable provider.[^527]

# MARKET STRUCTUrE AND CONDITIONS AFFECTING COMPETITION

**A. Horizontal Issues in Markets for the Delivery of Video
Programming**

140. In this section, we examine two separate but related markets: (a)
     the market for the distribution of multichannel video programming
     to households, and (b) the market for the purchase of video
     programming by MVPDs. As explained in earlier reports, the market
     for the distribution of multichannel video programming is local in
     nature, while the market for the purchase of video programming by
     MVPDs is regional and national in nature.[^528] In the distribution
     market, the buyers are individual households as well as families
     living in multiple dwelling units ("MDUs"), and the sellers are the
     MVPDs including cable operators and other video service providers
     such as DBS providers. In the programming purchasing market, the
     buyers are MVPDs, and the sellers are programming networks, studios
     and programming packagers.[^529]

141. We first review changes in the market for the distribution of video
     programming, including changes in the level of competition in that
     market between July 1998 and June 1999. In our discussion of
     competition for the delivery of video programming to households, we
     also examine developments unique to MDUs, a significant sub-set of
     the market. We then review the market for the purchase of video
     programming by MVPDs, and examine the effects that changes in
     concentration among MVPDs at the regional and national levels have
     had on this market.

### Competitive Issues in Markets for the Distribution of Video Programming 

142. The market for the delivery of video programming to households
     continues to be highly concentrated and characterized by
     substantial barriers to entry.[^530] While competitive alternatives
     to an incumbent "wireline" MVPD, i.e., a cable or OVS operator, are
     developing and attracting an increasing proportion of MVPD
     subscribers, most consumers have limited choice among video
     programming distributors. Generally, homes are passed by one
     wireline MVPD and a "wireless" MVPD, i.e., DBS is likely to be the
     only available alternative.[^531] For example, of the 33,000 cable
     community units nationwide, 157 have been certified by the
     Commission as having effective competition as a result of consumers
     having a choice of more than one wireline MVPD.[^532] In the
     Competitive Responses section of this report, we describe the
     competitive response of both the incumbent and the new entrant in
     several of these communities. Incumbent operators are most likely
     to respond to wireline competition by reducing their monthly charge
     for cable programming services and equipment, by offering
     additional channels, or by offering Internet and other
     telecommunications services.[^533]

143. As of June 1999, Ameritech was the largest overbuilder, offering
     video service to 98 cable communities.[^534] Questions remain
     regarding the long term viability of some of these
     overbuilds.[^535] Overbuilding often requires "deep pockets" to
     withstand competitive responses from incumbents that lower prices
     and increase services.[^536] Some commenters also asserted that
     difficulties obtaining programming and steep discounts enjoyed by
     incumbent cable operators can hinder overbuilders' ability to
     compete effectively in the video distribution market.[^537]

144. Several wireless MVPDs, including MMDS, SMATV, and DBS, also
     deliver video programming to households and MDUs. Although DBS
     service is presumed to be technically available nationwide, DBS
     service may not be available to subscribers living in MDUs or in
     households that are not within the line of sight of a DBS signal.
     Moreover, DBS historically has not been able to deliver local
     television signals and may require higher overall payments during
     the first year of subscribership than cable.[^538] Thus, DBS may
     not be a viable alternative to wireline service for some
     households. Recently, SHVA was amended to authorize DBS providers
     to retransmit network signals into local markets.[^539] Other
     wireless MVPDs, such as SMATV, do not provide service throughout a
     local cable franchise area. MMDS often serves larger areas than
     SMATV, but generally offers fewer channels than cable systems.

145. NCTA asserts that cable's dominance of the market for distribution
     of video is not indicative of absence of competition in that
     market. NCTA states that DBS, cable's primary competitor, has the
     ability to distribute "a good substitute" for cable to consumers in
     any geographic market, thus constraining cable's ability to
     exercise market power.[^540]

146. ***Recent Developments in the MDU Market*.** The MDU market is a
     significant segment of many local MVPD markets. MDUs comprise a
     wide variety of high-density residential complexes, including high
     and low-rise rental buildings, condominiums, and
     cooperatives.[^541] As of December 1997, there were approximately
     24.9 million year-round occupied \"households\" (or individual
     dwelling units) located in MDUs in the U.S., comprising
     approximately 25% of the total 99.5 million year-round housing
     units nationwide.[^542] Historically, cable and SMATV operators
     were the primary providers of MVPD services to MDU
     subscribers.[^543] More recently, however, DBS has begun to supply
     programming to operators that serve MDUs and to MDU residents
     directly.[^544]

147. SMATV operators, also known as private cable system operators,
     deliver an integrated package of services to MDUs using a variety
     of delivery technologies, including one or more microwave
     links.[^545] Traditional cable operators as well as the DBS
     providers (DirecTV and Echostar) also serve this market.[^546]
     Unlike traditional cable operators, private cable operators do not
     use public rights-of-way. Recently, several private cable system
     operators have joined with DBS operators to provide video
     programming to MDUs.[^547] Moreover, DBS operators have formed
     marketing-distribution alliances with several LECs aimed at MDUs
     and the household market.[^548] Such alliances permit the LECs to
     offer "one-stop-shopping" for telecommunications service including
     voice, data, and video.[^549]

148. OpTel, Cable Plus, MidAtlantic Communications, and OnePoint
     Communications are the largest SMATV operators, specializing in
     serving high density local MDU markets.[^550] OpTel reports that it
     is the largest SMATV operator with 217,100 subscribers as of May
     1998.[^551] In addition to video, OpTel provides local telephone
     service to its subscribers in areas where it operates its own
     central office switch.[^552] OpTel also provides long distance
     telephone service to its subscribers through a resale agreement
     with an interexchange carrier ("IXC").[^553]

149. Traditional franchised cable operators appear to be combining
     nonvideo communications services with their multichannel video
     offerings in order to compete more effectively, particularly in the
     MDU market. For example, Cox Communications, the fourth largest
     MSO, offers video programming and local telephone service to MDUs
     in many of its service areas.[^554] Some cable firms offer price
     discounts for MDU service, especially where they face a competing
     provider.[^555] In New York City, for example, Time Warner offers a
     significant discount to subscribers who live in MDUs where RCN is
     the competing provider.[^556] Like other competing providers, cable
     operators often seek to negotiate contracts with MDU owners that
     provide for some form of exclusivity.

150. Several LECs report that they are providing MVPD services to MDUs.
     During the year ending June 30, 1998, Ameritech reached agreements
     to provide cable service to 442 MDUs (with a total of 36,147 units)
     in communities in which it is a franchised cable operator.[^557] Of
     the 620 MDUs (with 62,542 units) in these communities that declined
     Ameritech New Media\'s cable service, 322 MDUs (with 40,912 units),
     or approximately one-half, have cited their exclusive agreements
     with incumbent cable operators as the reason for the denial.[^558]

151. RCN uses a variety of technologies to serve MDUs, including cable,
     OVS, and SMATV systems. In the last year, RCN continued to expand
     in the MDU market in East Coast metropolitan areas. As of June 30,
     1999, RCN had a total of 11,000 subscribers in the Boston
     metropolitan area.[^559] In the New York City metropolitan area,
     RCN had 50,000 subscribers.[^560] The majority of RCN's subscribers
     in the Boston and New York metropolitan areas live in MDUs.[^561]
     Starpower, an RCN affiliate, has 3,000 subscribers in Washington,
     D.C., all of whom live in MDUs.[^562] In all three areas, RCN
     offers a combination of video, high-speed Internet access, and
     local and long distance telephone services.[^563]

152. DBS providers currently offer video programming service directly to
     approximately 75,000 MDU subscribers.[^564] DirecTV and EchoStar
     are expected to increase their combined share of the MDU market
     from less than 1% in 1999 to approximately 9% in 2007.[^565] In
     addition, DirecTV has agreements with some regional Bell operating
     companies ("RBOC"s), whereby the RBOCs market a co-branded DBS
     service to MDUs in their service areas.[^566] DBS operators are
     also combining their service with SMATV operators. For example, in
     a recent survey of private cable operators, 43% of the respondents
     indicated that they plan to add DBS into their SMATV-based
     operation.[^567]

153. ***Competitive Issues in the MDU Market**.* As explained below,
     commenters raise a number of issues that they contend affect their
     ability to serve the MDU market. These include lack of access to
     inside wiring due to MDU owners objections for aesthetic, safety or
     practical reasons, exclusive and/or perpetual contracts between
     incumbents and MDU owners, the Commission's over-the-air-reception
     devices ("OTARD") rules which they contend should be expanded, and
     targeted discounts by incumbent cable operators to subscribers in
     MDUs when the operator faces competition.[^568]

154. Several commenters suggest that exclusive or perpetual contracts
     between incumbent MVPDs and MDU owners hinder entry into the MDU
     market.[^569] According to commenters, exclusive contracts often
     were entered into before the arrival of alternative MVPDs in the
     MDU market, and the continued existence of these contracts prevents
     the MDU owners and their tenants from having an opportunity to
     select among competing providers.[^570] Similarly, BellSouth argues
     that "access to premises" is usually not available to a new entrant
     in the MDU market due to perpetual contracts between the MDU owner
     and the incumbent MVPD.[^571] According to the Independent Cable
     Telecommunications Association ("ICTA"), a significant portion of
     the approximately 25 million MDUs in the U.S. are currently covered
     by perpetual contracts with incumbent franchised cable
     operators.[^572]

155. DirecTV argues that MDU residents have limited choices among MVPD
     providers because exclusive contracts between incumbents and
     property owners either discourage new entrants or make it
     impossible for them to enter the market.[^573] On the other hand,
     OpTel argues that the availability of an "exclusive right-of-entry"
     for any property is a significant factor in a new entrant's
     decision to enter the MDU market. OpTel suggests that exclusive
     agreements between the new entrant and MDU owners are usually
     awarded on the basis of competitive bidding and the result is
     usually beneficial for both the new entrant and the subscribers.
     However, according to OpTel, there are numerous pre-existing
     exclusive contracts between incumbent cable operators and MDU
     owners, which perpetuate the ownership of inside wiring by the
     incumbent and are therefore anticompetitive. OpTel asserts that
     large segments of the MDU market in Southern California, Phoenix,
     and Southern Florida, for example, have been foreclosed to new
     entrants by such agreements.[^574]

156. Several commenters assert that the costs of duplicating inside
     wiring, as opposed to acquiring wiring from an existing provider
     who no longer has a legally enforceable right to remain on the MDU
     premises (using the Commission's inside wiring rules), can be
     costly and discourages potential new entrants.[^575] Ameritech
     asserts that incumbent MVPDs have threatened MDU owners with
     litigation over the ownership of inside wiring in cases where the
     later provided access to competing MVPDs.[^576] RCN states that it
     faced "lockouts" in numerous MDUs based on the incumbent's
     assertion that it owns the inside wiring or that it has the right
     to exercise dominion over the inside wiring under an agreement with
     the owner. RCN also states that incumbents cite state mandatory
     access laws as a legal basis for remaining in an MDU and retaining
     control of wiring.[^577] Ameritech asserts that incumbent MVPDs
     have refused to remove lockboxes that prevent access to inside
     wiring owned by the MDU owner. According to Ameritech, MDU owners
     in such cases are reluctant to remove incumbent's lockboxes for
     fear of litigation.[^578]

157. On October 9, 1997, the Commission adopted a *Report and Order and
     Second Further Notice of Proposed Rulemaking* that amended its
     cable inside wiring rules to enhance competition in the video
     distribution market.[^579] In spite of the changes brought about by
     the rules, some commenters assert the inside wiring rules do not go
     far enough to promote competition in the MDU market.[^580] For
     example, WCA argues that the inside wiring rules do not give MDU
     owners sufficient certainty as to their rights upon termination of
     an incumbent cable operator's service.[^581] WCA further argues
     that the rules allow incumbent operators to remove all inside
     wiring when they leave a building, forcing the new entrant to
     "postwire" or rewire the premises. According to WCA, MDU owners
     prefer to avoid postwiring for aesthetic and safety reasons. WCA
     contends that the Commission should adopt a rule stating that, if
     the MDU owner or successor MVPD wishes to purchase the incumbent's
     home run wiring, it should have the right to do so at a price equal
     to the depreciated book value of the wiring.[^582] DirecTV suggests
     that the Commission should adopt rules that would require cable
     incumbents to allow alternative MVPDs to share cable-owned inside
     wiring in MDUs.[^583]

158. MediaOne, on the other hand, argues that the inside wiring rules
     give SMATV operators an unfair advantage in MDU market by affording
     them access to wiring installed at the expense of the incumbent
     operator.[^584] Similarly, NCTA contends that the rules favor
     cable's competitors because they allow SMATV operators to engage in
     "cream skimming" by entering only the lucrative MDU market, since,
     unlike many cable operators, SMATV operators do not have to serve
     entire communities and comply with expensive franchise
     obligations.[^585] MediaOne further contends that due to a recent
     Commission decision, SMATV operators are now in a position to
     expand their service areas using common carrier video transport
     between service locations.[^586] According to MediaOne, this gives
     SMATV operators the benefits of a cable franchise without
     commensurate regulatory and franchise obligations.[^587]

159. Some commenters assert that the Commission's OTARD rules should be
     expanded to cover common areas for MDU residents.[^588] The OTARD
     rules, adopted on August 6, 1996, generally prohibit governmental
     and nongovernmental restrictions on household installation of
     antennas one meter or less in diameter. On November 20, 1998, the
     Commission extended the OTARD rules to allow renters to install
     antennas within their 'exclusive use' areas, i.e., apartments,
     homes, gardens, patios, terraces, and balconies. The rules,
     however, do not extend to installation of antennas on common
     property or on property to which a viewer does not have a right of
     access.[^589] SBCA states that while the existing OTARD rules have
     contributed to creating a more competitive environment if the
     satellite industry is to offer choice to consumers in MDUs, then
     all MDU residents should have access to satellite
     programming.[^590] Similarly, DirecTV states that while the
     Commission's OTARD rules have encouraged some MDU owners and
     landlords to use a single common dish for reception to prevent
     "dish clutter," the rule should to be extended to renters and
     owners who do not have exclusive use of areas suitable for
     satellite reception.[^591]

160. OpTel argues that as a result of the Commission's new rules
     regarding bulk rates, incumbent operators are better able to
     leverage their advantages when a new entrant seeks to serve an MDU
     or group of MDUs in a franchised area. Specifically, OpTel asserts
     that an incumbent can now respond to the threat of competition by
     offering targeted discounts only to those subscribers that have a
     competitive alternative, while maintaining higher prices for the
     balance of their subscribers.[^592]

161. Many of the concerns discussed above were addressed in the *Report
     and Order and* *Second Further Notice of Proposed Rulemaking* on
     the inside wiring rules.[^593] The Second Further Notice also
     sought comment on several issues including: (a) whether there are
     circumstances where the Commission should adopt restrictions on
     exclusive contracts in order to further promote competition in the
     MDU market; (b) whether the Commission should preempt state and
     local mandatory access laws in order to broaden the applicability
     of the Commission's inside wiring rules enforceable; (c) whether
     the Commission should exempt small MVPDs from signal leakage
     reporting requirements; (d) whether the Commission should extend
     its rules regarding customer access to cable inside wiring before
     termination of service to cover all MVPDs in the same manner that
     they apply to cable operators; and (e) whether to allow MDU owners
     to require that incumbent MVPDs share their wiring with competitive
     MVPDs. The Commission is currently reviewing the comments filed in
     this proceeding.

### Competitive Issues in Markets for the Purchase of Video Programming 

162. As explained in the *1998 Report*, the buyers of video programming
     are MVPDs including cable operators and other video service
     providers, and the sellers are primarily non-broadcast programming
     networks.[^594] This market tends to be regional or national since
     programmers seek to develop networks much broader than local cable
     franchise areas. Also, some programming services are intended for a
     national audience (e.g., CNN, USA) and others for regional
     audiences (e.g., NY1, New England Sports Channel).

#### Regional Market

163. For the past several years, cable operators have engaged in a
     regional strategy called "clustering." Many of the largest MSOs
     have concentrated their operations by acquiring cable systems in
     regions where the MSO already has a significant presence, while
     giving up smaller holdings scattered across the country. This
     clustering is accomplished through purchases and sales of cable
     systems, or by system "swapping" among MSOs.

164. ***Competitive Issues Related to Clustering**.* Clustering of cable
     systems can create greater economies of scale and size.
     Accordingly, it can enable cable operators to offer a wider variety
     of broadband services at lower prices to customers in geographic
     areas that are larger than single cable franchise areas. Clustering
     can thus make cable operators more effective competitors to LECs
     whose local service areas are usually much larger than a single
     cable franchise area. The General Accounting Office, in its report
     on the changing status of competition to cable television, also
     found that ownership ties and clustering strategies may provide
     cost savings and possible competitive advantages.[^595]

165. Several commenters assert harmful effects of clustering and
     regional concentration on program distribution.[^596] BellSouth
     argues that since a programming service cannot be successful
     without access to a critical mass of subscribers, programmers are
     becoming more reliant on large, well clustered MSOs that
     effectively control distribution on a national and regional
     scale.[^597] Commenters also argue that clustering can facilitate
     evasion of the Commission's program access rules. Specifically, it
     is likely that cable systems in a large cluster will be linked
     through a fiber optic network enabling operators to offer
     telecommunications services as well as a cost-efficient means of
     delivering programming to its systems. However, if MSOs have an
     ownership interest in programming, fiber optic networks may give
     them an added incentive to "migrate" programming from satellite
     delivery to terrestrial (fiber optic) delivery because only
     satellite delivered programming is subject to the program access
     rules. Therefore, a vertically integrated incumbent may be able to
     prevent competitors from gaining access to terrestrially delivered
     programming.[^598] For example, Ameritech argues that AT&T is
     creating a large cluster in the Chicago area, a market that
     Ameritech also seeks to serve.[^599] Ameritech contends that
     clustering may lead to an increase in terrestrial delivery of
     programming by AT&T, which could thereby result in the
     circumvention of the Commission's program access rules to the
     detriment of Ameritech.[^600]

166. ***Recent Developments in Clustering**.* Since the previous report,
     cable MSOs have continued to undertake or announce system mergers,
     acquisitions, divestitures, swaps, and joint ventures with the
     objective of creating regional clusters of contiguous cable
     systems. Most of these transactions resulted in the expansion of
     existing regional clusters of cable systems in the southern,
     eastern, and western United States.[^601] Analysts report that in
     1999, MSOs sought to create clusters of regional cable systems
     similar to the telephone systems owned by the regional Bell
     operating companies in order to better enable cable operators to
     provide local telephone and Internet services.[^602] Each of the
     top ten MSOs have significant clusters in major metropolitan areas.
     AT&T, for example, has clusters in Chicago, San
     Francisco/Oakland/San Jose, and Dallas, serving nearly 80% of the
     cable subscribers in these areas.[^603] Similarly, Comcast's major
     clusters are in the Washington/Baltimore, Philadelphia, and Detroit
     areas. Charter is building major clusters in the Los Angeles area
     and in the Pacific Northwest.[^604] Clustering is not limited to
     large systems. Some small systems are also acquiring systems with
     the intent of increasing the size of their existing clusters.
     Recent transactions include Millennium acquisition of Horizon
     Cable's 43,000 subscribers in Michigan and Summit Communication's
     approximately 43,000 subscribers in Baltimore and Seattle.[^605]

167. Between July 1998 and June 1999, there were a total of 129
     transactions having an aggregate value of approximately \$72
     billion and involving 19.7 million subscribers, all intended to
     increase the size of existing cable clusters.[^606] Although the
     total number of clusters declined from 117 at the end of 1997 to
     103 at the end of 1998, the total number of subscribers associated
     with these clusters increased from 34.3 million to 40.4 million
     between the end of 1997 and 1998.[^607] In the largest cluster size
     category (over 500,000 subscribers), the number of clusters
     increased by 31.3% between 1997 and 1998, and the number of
     subscribers in these clusters increased by 64.7%.

168. ***System Mergers and Acquisitions**.* In April 1999, AT&T
     announced its intention to acquire MediaOne and its nearly five
     million subscribers for approximately **\$**69 billion. Century,
     previously the tenth largest MSO, was acquired by Adelphia for
     \$5.2 billion in March 1999. In July 1999, Vulcan Ventures, owned
     by Microsoft co-founder Paul Allen, announced its intention to
     acquire Charter (which had previously acquired Falcon), one of the
     largest cable MSOs. In April 1999, Comcast acquired majority
     interest in Jones Intercable. In May 1999, Cox announced its
     intention to acquire TCA and its 1.8 million subscribers for \$3.6
     billion. In November 1999, Comcast agreed to buy Lenfest
     Communications from AT&T for \$6.71 billion in stock and debt.
     These transactions appear designed to better position the cable
     operators to deliver Internet and telephony services.[^608]

169. ***System Trades**.* As discussed in the *1998 Report*,
     system-for-system \"swaps\" or trades enable MSOs to increase their
     regional clusters while minimizing financial outlays and avoiding
     capital gains taxes.[^609] Since our last report, many of the
     largest proposed swaps, as measured by number of subscribers,
     involved AT&T and Time Warner, the two largest MSOs. For example,
     AT&T recently swapped approximately 656,000 of its subscribers in
     Illinois, New Jersey, Oregon, Pennsylvania, and Wyoming for Time
     Warner's approximately 618,000 subscribers in Florida, Hawaii,
     Maine, New York, Ohio, Texas and Wisconsin.[^610] In a swap
     announced in February 1999, Time Warner will receive 350,000 of
     MediaOne's subscribers in Ohio, California, and Maine in exchange
     for 310,000 subscribers in Massachusetts, New Hampshire, and
     Georgia.[^611]

#### National Market

170. Cable operators may have incentives to coordinate their decisions
     in the market for the purchase of programming on a national level.
     Concentration of ownership among buyers in this market is one
     indicator that coordinated behavior among buyers will be
     successful. Economic theory suggests that the level of competition
     is positively correlated to the number of firms in the relevant
     market, given there are no barriers to enter the market.[^612]

171. ***Competitive Issues.*** Several commenters raise concerns about
     the anticompetitive effects of horizontal concentration of
     ownership on the purchase of programming.[^613] Ameritech, for
     example, cites an economic study by Dertouzos and Wildman that
     indicates that the largest MSOs are able to obtain programming on
     more favorable terms than smaller MSOs, including new
     entrants.[^614] Dertouzos and Wildman report that an MSO's large
     size, rather than its efficiency, explains the lower programming
     price paid by an incumbent cable operator compared to a new
     entrant. According to Dertouzos and Wildman, the ability to obtain
     programming at a lower cost gives the incumbents the ability to
     thwart entry by competitors.[^615]

172. Another concern is that excessive concentration of ownership may
     create "media gatekeepers" that could potentially bar entry of new
     programmers and reduce the number of media voices available to
     consumers.[^616] In the 1992 Cable Act, Congress recognized the
     potential harm of excessive concentration of ownership on new
     programming, and directed the Commission to place limits on the
     concentration of ownership of cable systems at the national level.
     At the same time, Congress also recognized the potential benefits
     to subscribers resulting from the size and scale of MSOs. In 1998,
     the Commission adopted a horizontal ownership limit prohibiting any
     person from having an attributable interest in cable systems that
     in aggregate reach more than 30% of cable homes passed
     nationwide.[^617] The 30% rule was intended to strike a balance
     between: (a) limiting the possibility that large cable MSOs might
     exercise excessive market power in the purchase of video
     programming; and (b) ensuring that cable operators could continue
     to benefit from economies of size in order to encourage investment
     in new video programming delivery technology and the deployment of
     other advanced technologies and services.[^618]

173. Recognizing changes in the MVPD market, the Commission amended its
     horizontal ownership and related attribution rules in October
     1999.[^619] Under the newly adopted rules, calculation of the
     horizontal limit is based on MVPD subscribers served rather than
     homes passed. The actual number of subscribers served is a more
     accurate indicator of market power in the programming market than
     the number of homes passed. In addition, the calculation of
     ownership limits in the new rules is based on all MVPD subscribers
     and not solely on the number of cable subscribers. For example,
     although DBS providers pass almost every home in the country, DBS
     provides service to approximately 12% of all MVPD
     subscribers.[^620] This change reflects the changing nature of the
     national market for the purchase of video programming and,
     specifically, the growing impact of DBS on the market.

174. The Commission's new horizontal ownership rules prohibit any person
     from having an attributable interest in cable systems that in the
     aggregate reach more than 30% of MVPD subscribers (as opposed to
     cable homes passed) in the U.S.[^621] The 30% limit on ownership
     balances the interests of new cable networks and cable operators.
     Although a lower ownership limit would likely reduce the chances of
     collusion among cable operators and thereby increase a new cable
     network's chances of carriage, an ownership limit of 30% permits
     cable operators to cluster systems in order to gain efficiencies
     related to economies of scale and scope in administration,
     deployment of new technologies and services, and extension into
     previously unserved areas.[^622]

175. ***Concentration in the National Market for the Purchase of Video
     Programming.*** Over the past year, non-cable MVPDs continued to
     increase their presence in the program purchasing market. For
     example, DirecTV and Echostar, have become two of the top ten MVPDs
     nationwide.[^623] Nevertheless, cable operators continue to be the
     primary distributors of multichannel video programming, controlling
     82.45% of total MVPD subscribers.[^624]

176. The top four purchasers of video programming for distribution at
     the household or MDU market are AT&T (with a share of 20.5%), Time
     Warner (with a share of 15.95%), DirecTV (with a share of 9.23%),
     and Comcast (with a share of 8.26%).[^625] The share of subscribers
     of these top four MVPDs, has declined slightly over the past year.
     In 1998, the four MVPDs with the largest subscribership served
     54.6% of all MVPD subscribers.[^626] In 1999, the top four MVPDs
     served 53.93% of all MVPD subscribers nationwide.[^627] However,
     the share of the top ten MVPDs increased by more than 3% between
     1998 and 1999.

177. To assess the potential for market power resulting from
     concentration in the market for the purchase of programming, we
     employ the Herfindahl-Hirschman Index ("HHI").[^628] Since MVPDs
     purchase programming on a "per-subscriber" basis, the reported MVPD
     shares can be appropriately translated into HHI figures.[^629] The
     nationwide purchaser MVPD HHI is 923 -- considered
     "unconcentrated\" under the Merger Guidelines.[^630] The HHI is 173
     points lower than the HHI of 1096 reported last year.[^631]

178. The HHI and the market shares reported above are based on number of
     subscribers served by MSOs as of June 30, 1999. Our data on
     concentration in the market for the purchase of programming do not
     include transactions that have been announced but have not yet been
     consummated. For example, MediaOne and AT&T are treated as separate
     entities because their merger has not been consummated.

179. To summarize, our examination of national MVPD concentration
     currently reveals that the market for the purchase of video
     programming by MSOs is less concentrated than the market for
     distribution of video programming to consumers which remains highly
     concentrated. In the regional and national markets for the purchase
     of video programming, a number of large MSOs are consolidating
     their subscriber base, although the share of the two largest MSOs
     (AT&T and Time Warner) has declined during the past year.[^632] For
     example, AT&T's share of MVPD subscribers fell from 26.5% in 1998
     to 20.5% in 1999. Time Warner's share changed slightly from 16% in
     1998 to 15.95% in 1999. This explains for the drop in the HHI
     between 1998 and 1999.[^633] Because programmers have an incentive
     to minimize transaction costs by obtaining carriage on a single
     large MSO, thereby gaining access to the large number of
     subscribers which are needed for viability, larger MSOs have
     significant bargaining power, especially vis-a-vis startup
     programming networks that need to reach a certain critical level of
     subscribership quickly to maintain their viability. However, it
     appears that currently no single MSO or pair of MSOs currently
     control a large enough share of cable subscribers to effectively
     block entry by a new programmer.

**B. Vertical Integration and Other Programming Issues**

**1. Status of Vertical Integration**

180. This section updates the status of vertically integrated video
     programming networks in the MVPD market. Vertical integration
     occurs where a video programming distributor has an ownership
     interest in a video programming supplier or vice versa.[^634] These
     vertical relationships may have beneficial effects,[^635] or may
     deter competitive entry in the video marketplace, and/or limit the
     diversity of programming.[^636]

181. The total number of programming networks has grown and cable
     operators continue to consolidate and develop new ownership
     interests, however the proportion of vertically integrated channels
     continues to decline. In 1999 there were 283 satellite delivered
     national programming networks, up from 245 in 1998, an increase of
     16%. Of the 283 networks, 104 networks, representing 37%, were
     vertically integrated with a cable MSO.[^637] This is a decrease
     from 1998 when 95 of 245, or 39% of national programming networks
     were vertically integrated, and 1997 when 40% (68 of 104)
     programming networks were vertically integrated.

182. One or more of the top six cable MSOs holds ownership interests in
     each of the 104 vertically integrated services.[^638] AT&T, the
     nation's largest MSO, holds ownership interests in 50 programming
     networks, 18% of all programming networks, through its subsidiary,
     Liberty Media.[^639] In 1998, prior to its merger with AT&T, TCI
     was the largest cable MSO and held ownership interests in 67 of the
     242 national programming networks or 28%.[^640] Time Warner has an
     ownership interest in 24, or 8% of all programming networks.
     Cablevision, through its programming subsidiary, Rainbow Media,
     owns 11 programming networks, 4% of all national networks. Cox
     Communications has interests in 23, or 8% of national programming
     networks. MediaOne, with ownership interests in 12 national
     programming networks, controls 4% of national programming. Comcast,
     with its six networks and control over two national networks
     through Jones Intercable, has ownership interests in 3% of all
     national programming networks.[^641]

183. Vertical integration is not only associated with the largest cable
     system operators, but also the programming networks with the
     largest number of subscribers. Currently, eight of the top 20 video
     programming networks ranked by subscribership are vertically
     integrated with a cable MSO.[^642] In 1998, nine of the top 15 were
     vertically integrated, whereas seven of the top 15 services were
     vertically integrated in 1997, and eight of top 15 were vertically
     integrated with a cable system in 1996. However, it appears that a
     significant amount of MVPD programming is controlled by
     approximately twelve companies, including cable MSOs, broadcasters,
     and other media entities.[^643] For example, of the top 50
     programming networks in terms of subscribership, 46 are owned by
     one or more of these 12 companies.[^644] According to Comcast, a
     vertically integrated cable MSO, consolidation in the cable
     industry is not unexpected, parallels consolidation in other
     telecommunications industry segments, and is "a competitive
     response to challenges from DBS, LECs, and others."[^645] In
     addition, currently eight out of the top 15 video programming
     networks ranked by prime time ratings are vertically integrated
     with a cable MSO.[^646]

184. This year we found 72 programming services that have been planned
     but are not yet operational, an 11% increase from the *1998
     Report's* count of 65 planned services. The planned services count
     includes some overlap from previous years because it can often
     takes several years from the announcement of a new programming
     network to launch the network and begin service. In the *1997
     Report,* there were 77 planned services and the *1996 Report*
     reported 63 prospective services.[^647]

> **2. Other Programming Issues**

185. The *Notice*, in addition to requesting information on video
     programming networks, requested comment on a number of related
     programming issues. The Commission sought comment on whether there
     are specific types of programming (e.g., movie, sports, or news
     channels) that an MVPD needs to provide in order to be successful.
     We also requested information on electronic programming guides
     offered by cable operators and other MVPDs. We sought comment
     regarding local and regional programming networks, Public
     Educational and Government (PEG) access channels, and a la carte
     offerings. We also sought comment on the effect of increased
     programming costs on rates, and the effectiveness of the
     Commission\'s program access rules.

186. ***Sports Programming**.* Several commenters maintain that sports
     programming, in particular, regional sports programming, is
     important to the success of MVPDs. Of the 56 regional cable
     channels counted in this year's report, 20, or 36%, are sports
     channels.[^648] Regional sports networks last year generated \$264
     million in advertising revenue and \$525 million in affiliate
     licensing fees.[^649] It is in this context that commenters assert
     that sports programming providers, both vertically integrated and
     non-vertically integrated, act as gatekeepers that allow access to
     sports programming to some MVPDs but not to others.[^650] For
     example, a vertically integrated, regional sports channel may shift
     from satellite to terrestrial distribution and no longer be subject
     to program access requirements.[^651] Where the regional sports
     channel is non-vertically integrated, a cable MSO may enter into an
     exclusive contract with the program provider in order to deprive
     its rivals of the programming.[^652]

187. DirecTV asserts that the current program access rules allow the
     "unfair practice" of "eliminating DBS access to previously
     satellite-delivered regional sports programming."[^653] Similarly,
     RCN, a competitive MVPD, alleges that Cablevision, a vertically
     integrated MSO, shifted its sports programming to terrestrial
     distribution in order to thwart RCN's efforts "to establish a
     competitive foothold in the New York City market."[^654] Hiawatha
     Broadband Communications calls for a blanket prohibition of
     exclusivity agreements for regional sports programming.[^655]

188. Consolidation in the programming industry is also said to have a
     significant impact on the cost of providing sports programming.
     Regional sports programming is dominated by Fox Sports Net, which
     owns 14 of the 20 existing regional sports networks. Last year, Fox
     acquired AT&T subsidiary Liberty Media's half of the Fox Liberty
     Sports networks in exchange for 51.8 million shares of News Corp
     stock. Fox Sports Net, owned by News Corp., and ESPN, owned by
     Disney, reach 68 million and 76 million television households,
     respectively. In addition, both News Corp. and Disney have
     interests in sports teams and sports venues. Commenters assert
     that, with such vast sports assets, these programmers have no
     incentive to constrain their costs and simply pass on increased
     costs to MVPDs. For instance, Cablevision reports that Fox's Sports
     Net affiliates fear a double-digit price increase if Fox obtains a
     programming agreement with a major sports property such as major
     league baseball.[^656] Commenters also note that because most
     sports programming affiliate fees are based on subscriber volume,
     only well clustered, large MSOs can take full advantage of
     discounts on programming.[^657]

189. ***News Programming***. Although sports programming dominates
     regional networks, news is also a growing regional offering. Of the
     56 regional programming networks, 15, or 27%, are regional news
     networks. Unlike sports programming, regional and local news
     networks have a more diverse ownership and serve smaller markets. A
     number of regional news networks are vertically integrated with
     cable MSOs. Cablevision Systems, the sixth largest MSO, owns news
     networks, including MSG Metro Traffic and Weather in New York and
     the News 12 group of regional news services in Connecticut, New
     Jersey, and Westchester County, New York. Time Warner, MediaOne,
     AT&T, and Adelphia, all among the top ten cable MSOs, each own or
     have ownership interests in regional or local news programming
     networks, often in partnership with newspaper or publishing
     companies.[^658] Nine regional or local news networks are
     non-vertically integrated with a cable system operator.

190. News networks are moving into smaller markets with several serving
     a single city, versus a region or group of cities, and providing
     information such as school closings and coverage of high school
     sports.[^659] Regional and local news programming networks are
     considered viable in these smaller markets because they can offer
     lower advertising rates than local broadcast stations. New England
     Cable News ("NECN"), one of the oldest cable news networks, reports
     a 139% increase in national advertising sales between 1997
     and 1998. National advertising now comprises 35% of NECN's total
     advertising sales, compared to no national advertising when the
     network started in 1992.[^660]

191. The use of digital production technology has enabled "hyper-local
     news" to thrive in the MVPD market. Digital production facilities
     enable journalists in the field to do their own camera work,
     resulting in a smaller payroll than a comparable analog news
     production facility.[^661] Consequently, 24-hour local news
     operations can be viable in smaller markets.

192. ***PEG Programming***. Public, educational, and government ("PEG")
     channel set-asides are often required on cable systems by local
     franchising authorities.[^662] Approximately 16% of all cable
     systems actively carry PEG programming.[^663] Cable operators do
     not have ownership interests in PEG access programming, although
     some franchise agreements require that they provide services,
     production facilities, and equipment for the production of local
     programming. PEG programming is not, therefore, considered
     vertically integrated.

193. The Alliance for Community Media, which advocates on behalf of PEG
     access centers nationwide, has raised concerns regarding the use of
     PEG channels by non-access entities and argues that PEG channel
     capacity should remain reserved for use by people in
     communities.[^664] The Alliance also contends that the Portland,
     Oregon, broadband access case[^665] and the arrival of digital
     television will have an impact on PEG channels as "crunches on
     channel capacity" puts pressure on municipalities to turn over
     channel capacity to non-PEG uses.[^666]

194. ***Electronic Programming Guides*.** In the *Notice*, we requested
     information on electronic programming guides (\"EPGs\") offered by
     cable operators and other MVPDs. EPGs generally display text
     information in a grid format indicating which television programs
     are currently showing. This allows viewers to navigate the channels
     offered by MVPDs. EPGs are considered an important technology
     because of their potential to influence channel selection and
     facilitate current and future interactive television functions such
     as e-commerce or Internet access. Gemstar International Group is
     the major provider of EPGs to VCR, television, and set-top box
     manufacturers.[^667] Microsoft, which uses Gemstar technology in
     its WebTV set-top boxes, and America On-Line, which is planning an
     interactive television service with DBS provider DirecTV, are also
     licensees of Gemstar. In October 1999, Gemstar accepted an offer to
     merge with its former rival, TV Guide.[^668] TV Guide had developed
     and marketed its own EPG and had filed a patent infringement suit
     against Gemstar.[^669] The merger is expected to be completed
     during the second quarter of 2000. Competitors to Gemstar include
     Replay Networks and TiVo. Both companies have separately developed
     video recorders that use a computer hard drive, instead of video
     cassette tape, to record television programs. These hard drive
     recorders provide their own on-screen program guides.[^670]

195. In the *1998 Report*, many commenters expressed concern that
     vertically integrated programmers could steer viewers to their own
     programming through the design of their EPGs.[^671] The Commission,
     when implementing Section 629 of the Communications Act in the
     *Navigation Devices Order*,[^672] stated that it is \"committed to
     encouraging the development of the market for electronic
     programming guide services as part of our broader goal of promoting
     consumer choice,\" but noted that the limited record available made
     it impossible to \"adequately address the extent of any obligation
     of MVPDs to make EPG services available pursuant to Section 629 or
     otherwise."[^673] The Commission stated that it would continue to
     monitor developments with respect to the availability of electronic
     program guides in order to determine whether any future action is
     appropriate.[^674]

196. ***Programming Costs**.* The Commission's most recent (May 1999)
     report on cable industry prices *("1998 Price Report")* asked cable
     operators to describe factors which led to changes in their rates.
     Competitive and noncompetitive cable operators attributed much of
     their rate increases to increases in programming costs. According
     to the *1998 Price Report*, increases in existing programming costs
     accounted for an average of 33% of cable operators' rate
     increases.[^675] Within the programming segment of costs,
     competitive cable operators attributed 63% of their programming
     cost increases to general entertainment programming, 4% to
     children's programming, 9% to news programming, and 24% to sports
     programming for the year ending July 1, 1998. Non-competitive
     operators attributed 69% of their programming cost increases to
     general entertainment programming, 3% to children's programming, 6%
     to news, and 22% to sports.[^676] MediaOne states that "sports
     programming currently comprise over 19 percent of all its
     programming costs" and contends that "rising programming
     costs...among all programming categories \[has resulted in\] upward
     pressure of MediaOne's prices, and shrinking profit margins for the
     company."[^677] According to NCTA estimates, cable systems spent
     7.4 billion on programming in 1998, an increase of 16% over the
     \$6.4 billion spent in 1997. This increase is consistent with
     annual increases since 1994.[^678]

197. Commenters assert that programming discounts benefit large MSOs
     more than newer and smaller MVPDs. ACA contends that smaller and
     rural cable systems have higher per-subscriber operating costs than
     larger systems because smaller and rural systems generally do not
     qualify for programming discounts due to the low number of
     subscribers that they serve.[^679] Similarly, Ameritech asserts
     that "cable incumbents are able to negotiate substantial discounts
     for popular programming -- discounts which, because of their size,
     are unavailable to new entrants."[^680] In addition. Ameritech
     cites a study that found "industry discounts ranging from 14 to 91
     percent and a mean discount of 45 percent for cable programming
     networks."[^681] NCTA, however, warns that requiring programmers to
     charge uniform prices would either artificially suppress
     programmers' revenues and expenditures, or artificially raise the
     price paid for programming by more efficient operators, and
     increase rates for cable subscribers.[^682]

198. Finally, the emergence of digital technology has affected
     programming costs. According to Cablevision, it costs a programmer
     between \$150 million and \$200 million to launch an analog channel
     but only \$2 million to \$5 million to augment that existing analog
     channel with a digital channel. In addition, digital channels may
     attract advertisers at a lower audience threshold than analog
     channels (5 million versus 20 million viewers) because of more
     desirable demographics.[^683] Many established programming networks
     base new digital tiers on an existing channel.[^684] For example,
     Discovery offers, in a digital format, Discovery Civilization,
     Discovery Home & Leisure, Discovery Kids, Discovery Science,
     Discovery Wings, Discovery Health and Discovery People.

199. ***A La Carte/Unbundling of Cable Programming Services Tiers**.* In
     the *Notice*, we sought information on the extent to which MVPDs
     offer or plan to offer consumers programming choices on an \"a la
     carte\" or individual channel basis rather than in tiers of
     channels. Currently, the majority of programming networks are
     offered in tiers. Premium channels, such as HBO and Showtime, and
     some sporting events, such as boxing, are offered on an a la carte
     basis.[^685]

200. Unbundling of programming tiers is thought to provide more
     subscriber choice and greater competition among program
     services.[^686] However, operators maintain that tiering enables
     delivery of MVPD programming at the lowest per channel costs. In
     addition, because most cable subscribers do not have
     addressable[^687] set-top boxes, a la carte delivery is not always
     technically feasible. It is also thought that subscribers are more
     likely to view new programming channels that are bundled on a tier
     with established programming.

201. Hiawatha states that it has invested in a technology that allows it
     to provide programming on an a la carte basis. It asserts, however,
     that the pricing and channel placement requirements of some cable
     programmers have prevented Hiawatha from implementing its a la
     carte service offerings.[^688] For example, an affiliate agreement
     between Outdoor Life Network and Speedvision required that the two
     sports channels be offered as part of a package that included at
     least two other programming services, and could not be offered on
     an a la carte basis.[^689]

202. Some industry watchers cite the sunset of cable rate regulation and
     the growth in digital channels as incentives for cable operators to
     be more flexible in their packaging of programming channels.[^690]
     Comcast, for instance, offers its subscribers a low-priced basic
     service tier and several small cable programming tiers, at
     different prices. It contends that by offering these mini tiers,
     subscribers have the ability to tailor their programming purchases
     to their individual tastes.[^691]

203. ***Regulatory Issues Related to Program Access, Carriage Rules***
     The Commission has established rules prohibiting unfair and
     discriminatory practices by vertically integrated cable
     operators.[^692] The program access rules seek to promote
     competition and diversity in the multichannel video programming
     market.[^693] Most commenters focused specifically on concerns
     related to the migration of channels from satellite delivery to
     terrestrial delivery and on price discrimination.

204. As previously noted, several commenters assert that terrestrial
     migration weakens the intent of program access rules and threatens
     the development of a competitive MVPD market.[^694] In 1998, the
     Commission found that the record did not support claims of
     anticompetitive impact from programming being moved from satellite
     to terrestrial delivery. However, the Commission noted that
     terrestrial migration may in the future impact the ability of
     alternative MVPDs to compete in the video marketplace.[^695]

205. Several commenters advocate extending the program access rules to
     non-vertically integrated programmers.[^696] Alternative MVPDs
     indicate that certain programming networks not owned by cable
     operators (e.g. fX, MSNBC) are not available to them. The CCC
     contends that exclusive agreements between unaffiliated programmers
     and incumbent cable operators is a significant barrier to
     competition.[^697] Similarly, EchoStar asserts that cable operators
     are able to use their "overwhelming" buying power in the
     programming market with both vertically integrated programmers, as
     well as independent programmers at the expense of noncable
     MVPDs.[^698] The Commission, in its *1998 Program Access Order*,
     declined to extend the program accesses rules to non-vertically
     integrated programming networks, finding that the record did not
     support such action.[^699]

206. Non-vertically integrated programmers respond that they actively
     seek widespread distribution and audience share and thus have no
     incentive to disadvantage competing distribution outlets.[^700]
     Independent programmers, like Viacom, argue that exclusivity
     agreements allow them to gain distribution, recognition, and the
     subscriber base necessary to successfully launch a start-up network
     and therefore, actually add to program diversity.[^701] NCTA
     disputes that an anticompetitive effect results from the
     unavailability of terrestrially delivered or non-vertically
     integrated networks, and asserts that product differentiation and
     exclusivity are legitimate, pro-competitive strategies that
     increases choices and the amount of programming available to
     consumers.[^702]

207. In a related issue, BellSouth asserts that consolidation and
     clustering can have a "chilling effect on the willingness of
     programmers to sell their product to cable's competitors."[^703]
     NCTA maintains, however, that consolidation and clustering result
     in cost savings and efficiencies that promote competition.[^704]

**C. Technical Advances**

208. In this section, we update the information provided in the *1998
     Report* regarding technical developments, and discuss recent
     activities relating to the commercial availability of the equipment
     used to access video programming and other services.[^705] Cable
     operators and other MVPDs continue to develop and deploy advanced
     technologies, especially digital compression techniques. These
     technologies allow MVPDs 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.\" Navigation devices are television set-top boxes,
     converter boxes, interactive communications equipment, and other
     equipment that a consumer uses to access video programming and
     other services offered by MVPDs. The most common navigation devices
     in use are television set-top boxes that access cable television,
     and which typically include a descrambler and tuner.

> **1. Deployment of Digital Technology**

209. Cable operators continue to deploy digital compression and upgrade
     their facilities to increase the number of video services that they
     can offer.[^706] The manner in which cable operators deploy this
     capability differs among companies.[^707] For example, AT&T's
     Headend In the Sky ("HITS") service and Time Warner's AthenaTV
     offer a mix of advertising supported and subscription supported
     networks on their digital tiers. Alternatively, Comcast and
     MediaOne offer premium channels, multiplexed movie channels and
     pay-per-view programming on their digital services.[^708] As cable
     operators deploy digital compression technology and advanced hybrid
     fiber-coaxial cable architecture, programming networks, such as
     A&E, Nickelodeon, ESPN, BET, and MTV, are developing more channels
     of specialized programming.[^709] Digital compression also permits
     cable operators to provide other digital and data services,
     including cable modem and Internet services, IP telephony, other
     data delivery, and general cable telephony.

210. In addition, MVPDs are beginning to distribute programming in high
     definition television ("HDTV"). Programming networks, including
     HBO, Showtime and Discovery, are now producing programming in HDTV
     or are converting existing programming to this format.[^710] In
     particular, DirecTV now offers the HBO HDTV channel to consumers on
     a national basis[^711] and an HDTV channel featuring pay-per-view
     movies and selected special events including concerts and
     sports.[^712]

211. Last year, we reported that, in addition to deploying digital
     compression to provide increased video channel choices, the cable
     industry was redoubling its efforts to take advantage of its large
     bandwidth capacities from its coaxial and optical fiber cable in
     order to compete with other MVPDs.[^713] Cable operators are
     continuing to upgrade their systems for bandwidth expansion through
     other technical methods, including the electronic component
     upgrading of existing amplifiers which may allow for an incremental
     increase in bandwidth capacity of the coaxial cable plant (e.g.,
     750 MHz to 860 MHz) without physically relocating or installing new
     amplifiers on the existing coaxial cable plant.[^714] This added
     bandwidth capacity permits the cable operator to offer more
     programming channels and other services, including Internet access.

> **2. Navigation Devices**

212. Section 629 of the Communications Act directed the Commission to
     adopt rules to ensure the commercial availability of navigation
     devices in order to expand the opportunities for consumers to
     purchase this equipment from sources other than their service
     providers.[^715] Since the *1998 Report*, the Commission amended
     its rules implementing Section 629[^716] on reconsideration.[^717]
     The revised rules are intended to further the goal of providing
     competition in the telecommunications marketplace by facilitating
     consumers ownership of the equipment used to access video
     programming and other services. Specifically, with regard to analog
     devices, the Commission deferred application of the rules requiring
     a separate security module for analog-only devices.[^718] We
     explained that January 1, 2005, was chosen as a reasonable period
     of time for an MVPD to transition its inventory to unbundled
     equipment. The Commission also stated that it expects that the
     standards developed through the OpenCable process will enable
     manufacturers and designers unaffiliated with MVPDs to build
     devices that can be sold through national retail distribution. In
     addition, we clarified that the components of the security module
     should be closely related to the security functions of the
     navigation device, and enhance, rather than assume, a function of
     the host device.

213. Cable industry groups continue to develop standards consistent with
     the rules and goals of Section 629 through the OpenCable project of
     Cable Television Laboratories, Inc. ("CableLabs"). In particular,
     the rules require that MVPDs must separate security functions from
     non-security functions by July 1, 2000, and make modular security
     components available by that date.[^719] As part of the standards
     setting process, the cable industry is required to file semi-annual
     status reports with the Commission to assure that there is steady
     progress in meeting the schedule submitted by CableLabs for the
     development of specifications for a digital security module and for
     a digital security module interface. The reports also are intended
     to apprise the Commission of CableLabs' efforts to foster the
     retail availability of navigation devices. The first two reports
     were submitted on January 7, 1999, and July 7, 1999, respectively,
     and indicate that CableLabs continues to meet the milestones set
     forth in the proposed schedule.[^720] In accordance with that
     schedule, specifications for the digital security module were
     developed by December 1998. In addition, specifications for the
     digital security module interface were approved by the Society of
     Cable Television Engineers ("SCTE") in December 1998.[^721] In the
     first status report, the cable industry reported that the Motion
     Picture Association of America ("MPAA") and others believed that an
     encryption scheme should be adopted to provide protection of
     digital content across the interface between the module and host
     device.[^722] Since that report, a specification has been advanced
     within an SCTE working group.[^723] Furthermore, a preliminary
     digital security module prototype was completed on June 15, 1999,
     meeting the only milestone established for the January through June
     1999 period.[^724]

### Cable Modems

214. Depending on the services offered by the cable operator, a cable
     modem may allow subscribers high-speed access to data services,
     including the Internet, Internet Protocol ("IP") telephony, video
     conferencing and telecommuting.[^725] Cable modem deployment
     increased substantially in 1999.[^726] Initially, cable operators
     deployed proprietary network equipment and cable modems that
     subscribers leased from their cable operator.[^727] To allow for
     the distribution of cable modems through retail sale, CableLabs
     initiated the CableLabs Certified Cable Modem Project, formerly
     known as Data Over Cable Service Interface Specification or DOCSIS.
     The project defines interface requirements for high-speed cable
     modems. It also provides a method for certifying that cable modems
     are in compliance with the DOCSIS specification.[^728] Cable modem
     equipment suppliers whose cable modems receive DOCSIS certification
     are entitled to denote that this equipment is CableLabs Certified
     when it is sold at retail outlets. CableLabs Certified cable modems
     will communicate with any DOCSIS qualified headend systems.
     CableLabs anticipates wide-scale deployment of DOCSIS certified
     headend equipment.[^729]

215. As of September 1999, CableLabs had certified 11 modems as DOCSIS
     compliant for retail sale.[^730] CableLabs also has qualified three
     suppliers of high-speed cable data headend equipment.[^731] Cable
     operators have brought cable modem service to over 100 television
     markets. Cable operators and consumer electronics retails have been
     conducting retail pilot programs selling DOCSIS certified modems in
     several regions.[^732] However, widespread retail availability of
     DOCSIS certified modems is not expected until well into 2000 for
     several reasons, including prices that are considered too high at
     about \$300 and unresolved issues relating to arrangements between
     retailers and cable operators.[^733]

216. Another CableLabs project is PacketCable, which is intended to
     identify, qualify and support Internet-based voice and video
     products over cable systems.[^734] Approximately 240 cable,
     telecommunications, and computer industry companies are
     participating in PacketCable.[^735] This project is developing
     interoperable interface specifications for delivering advanced,
     real-time multimedia services over two-way cable plant. PacketCable
     will use IP technology to enable a wide range of services, such as
     IP telephony, multimedia conferencing, interactive gaming, and
     general multimedia application. CableLabs is in the process of
     conducting interoperability testing of equipment and protocols
     based on PacketCable specification.[^736]

# COMPETITIVE RESPONSES 

217. During 1999, the Bureau examined a number of cases where the
     incumbent cable operator faced "head-to-head" competition from one
     of a variety of new entrants including municipalities, LECs, public
     utilities, and DBS operators. In communities where head-to-head
     competition is present, the incumbent cable operator has responded
     to competitive entry in a variety of ways, such as by lowering
     prices, providing additional channels at the same monthly rate,
     improving customer service, or adding new services including high
     speed Internet and telephone services.

218. In section A below, we describe the initial response of both
     incumbents and new entrants in several local franchise areas where
     the incumbent cable operator is facing competition from a new
     entrant.[^737] The samples of competitive responses discussed below
     include localities in which an incumbent cable operator was found
     by the Commission to face effective competition from a new entrant,
     as well as communities for which a petition for effective
     competition has been filed and is pending before the Commission.
     These case studies examine situations in which an incumbent is
     faced with effective competition from a single new entrant, and do
     not necessarily reflect potential competitive responses if an area
     was to have more than one effective competitor. In section B we
     summarize our preliminary findings based on the case studies and
     examine the nature and the duration of competitive responses of
     both incumbents and new entrants.

**A. New Case Studies**

### Royal Oak, Huntington Woods, and Clawson, Michigan

219. Ameritech New Media ("Ameritech"), a subsidiary of a LEC, was
     awarded a cable franchise in June 1997 by the City of Royal Oaks,
     Michigan. In July 1997, Ameritech was granted cable franchises by
     the Cities of Huntington Woods and Clawson, Michigan.[^738]
     Ameritech began offering video services to Royal Oaks in December
     1997, to Clawson in March 1998, and to Huntington Woods in April
     1998.

220. TCI Cablevision of Oakland County, Michigan, is the incumbent cable
     operator in all three communities. According to TCI, Ameritech has
     reached penetration levels of 44%, 32% and 40.5% in Royal Oaks,
     Huntington Woods, and Clawson, respectively. TCI's penetration
     rates are 51.8% in Royal Oaks, 66.1% in Huntington Woods, and 52.9%
     in Clawson.[^739]

221. As of June 1998, Ameritech charged \$9.95 per month for its basic
     tier which included primarily local broadcast channels. Its
     "Americast" expanded basic tier had 60 channels and was priced at
     \$29.95 per month. To promote its Americast services, Ameritech
     offered a variety of promotional packages to its new subscribers,
     including free cable service for two months, \$120 worth of grocery
     coupons, a free premium movie channel, and free installation.[^740]

222. In June 1997, prior to Ameritech's entry into the Royal Oaks,
     Huntington, and Clawson areas, TCI had added new channels to its
     "cable plus" package and raised monthly rates by 13%. When
     Ameritech was granted its franchises, TCI reduced its monthly rates
     for the cable plus package from \$32.20 per month to \$28.95 per
     month, a 10% reduction, and moved the Disney Channel from a premium
     service to a basic service tier (Ameritech also offered the Disney
     Channel as a basic service). In addition, TCI offered its
     subscribers in the Royal Oaks area discount coupons worth
     \$10.[^741] TCI offered a free converter box and remotes in Royal
     Oaks and Clawson.[^742] TCI also offered "money back guarantees" on
     premium programming in all three communities.[^743]

223. TCI petitioned the Commission for a determination of effective
     competition in the Royal Oaks, Huntington Woods, and Clawson areas.
     The Cable Services Bureau granted the petition on February 5, 1999.
     The Bureau found that Ameritech had overbuilt TCI's systems in each
     of the affected communities and was competing for subscribers with
     TCI in those areas. Also, Ameritech's extensive marketing efforts
     and press coverage of its construction ensure that potential
     subscribers were aware of the availability of Ameritech\'s service.
     The Bureau also noted that as a result of competition in the above
     communities, cable rates were lower, new channels were added, and
     equipment was provided free of charge.[^744]

### West Point, Georgia

224. On June 1, 1998, ITC Globe, Inc., d/b/a/ KnoLogy ("KnoLogy"), began
     providing its cable service in the City of West Point, Georgia.
     KnoLogy is affiliated with the incumbent LEC, Interstate/Valley
     Telephone Company. Its 750 MHz system is capable of providing video
     and high- speed Internet services.

225. Initially, KnoLogy offered a 17 channel basic service package for
     \$8.75 per month, and a 59 channel extended basic package for
     \$25.95 per month.[^745] Its extended basic package included a
     number of channels that were unavailable on the incumbent cable
     operator's channel line up. KnoLogy later reduced its extended
     basic rate to \$19.95 per month and added six additional channels.
     It also offered free installation and a "30-day money back
     guarantee" to its subscribers.

226. KnoLogy also discounted its "bundled" Internet and cable services.
     Specifically, KnoLogy charged \$29.95 per month to its cable
     customers for its "Olobahn" high-speed Internet access service, but
     charged its non-cable subscribers \$49.95 per month for the same
     service. KnoLogy's subscribers could also opt for a consolidated
     bill for cable, telephone, and Internet services.

227. Marcus, the incumbent cable operator in West Point, responded to
     KnoLogy's entry in a variety of ways. According to Marcus, it
     recently: (a) upgraded its 350 MHz system to a 750 MHz system; (b)
     added six new programming services to its expanded basic package
     and reduced the price for that package; (c) implemented an overall
     price reduction of up to 48% for its basic, extended basic, and
     premium packages; (d) ceased charging customers for its wire
     maintenance protection plan; and (e) implemented various marketing
     and advertising plans detailing its rates and service
     changes.[^746] As of August, 1998, 205 of Marcus' subscribers had
     switched to KnoLogy. Marcus reported that KnoLogy had a subscriber
     base of 214 compared to its own subscriber base of 1,200.[^747]

228. Marcus petitioned the Commission for a determination of effective
     competition in West Point. The Bureau granted the petition on
     January 26, 1999. The Bureau found that KnoLogy had overbuilt
     Marcus' system, and that potential subscribers were aware of the
     availability of KnoLogy's service.[^748] Also, potential
     subscribers were able to receive KnoLogy's service for little or no
     additional investment and without encountering regulatory and
     technical difficulties. The Bureau also noted that cable rates were
     lower and additional services were being provided as a result of
     competition in West Point.

### Somerville, Massachusetts

229. On December 16, 1997, the City of Somerville awarded a cable
     franchise to RCN-BecoCom, L.L.C. ("RCN"). Previously, RCN, a
     telecommunications company, was certified by the Commission to be
     an OVS operator in Somerville. RCN has been providing video and
     other services to Somerville residents since October 1997.[^749]

230. Prior to providing cable services in Somerville, RCN launched a
     \$2.25 million advertising campaign that offered telephone,
     Internet, and cable services at a lower "bundled" rate than
     anywhere else in the country.[^750] In response to RCN's
     advertising campaign and impending entry, Time Warner launched its
     own advertising campaign, offering its subscribers a free
     subscription to *TV Guide,* an additional channel, and lower rates
     for its universal remote control.[^751]

231. RCN offered a standard service consisting of 75 channels for
     \$24.95 per month. Its standard service included channels such as
     the Disney Channel, The History Channel, and the Discovery Channel.
     The monthly charge for RCN's standard service was further
     discounted to \$19.97 per month for subscribers who also bought
     local telephone service from RCN.[^752] RCN also offered unlimited
     high-speed Internet access for an additional \$19.95 per month. The
     monthly charge for Internet access was discounted to \$17.95 if
     subscribers also subscribed to RCN's cable or telephone services.
     Time Warner charged \$26.48 for its 56 channel "standard"\`
     service. RCN offered free standard installation whereas Time Warner
     charged \$30.64 for installation.[^753]

232. In November 1997, Time Warner announced a 10% price increase for
     its standard cable services in 82 Massachusetts communities, but
     did not increase rates in Somerville. In June 1998, Time Warner
     reduced monthly charges for its basic and standard services in
     Somerville by \$0.19 and \$0.09 per month, respectively. As of June
     1998, Time Warner was charging \$26.20 for its 56 channel standard
     service. Time Warner's standard service had 19 fewer channels than
     RCN's. Moreover, unlike RCN, Time Warner's standard service did not
     include Disney Channel, Discovery Channel and The History Channel.
     Time Warner charged \$9.50 a month for the Disney channel and \$.75
     a month for the Discovery and The History channels.

233. After entry by RCN, Time Warner reduced rates for certain premium
     services. For example, prior to RCN's entry, Time Warner was
     charging \$12.55 for three channels of HBO. As of June 1998, Time
     Warner reduced its rate for the three channel HBO package to
     \$11.50, an 8% reduction. RCN charged \$11.95 for two channels of
     HBO.[^754] At the same time, Time Warner offered its subscribers
     more flexibility in selecting programming packages by allowing them
     to buy premium services without having to subscribe to its standard
     service. In early 1999, Time Warner announced that it would freeze
     its rates in Somerville during 1999.[^755]

234. According to one report, as of March 1999, between 2,000 to 2,500
     of the approximately 19,000 Time Warner subscribers in Somerville
     switched to RCN.[^756] A number of RCN's subscribers purchase
     "bundled" services, including Internet access and telephone
     service. Currently, Time Warner does not offer Internet or
     telephone service in Somerville. However, Time Warner is planning
     to swap its Somerville system with MediaOne, and the latter is
     expected to provide Somerville with Internet and telephone service
     in addition to cable services.[^757]

235. Time Warner filed a petition requesting a finding of effective
     competition in the City of Somerville. The petition was granted on
     February 5, 1999, recognizing that potential subscribers were
     reasonably aware of the availability of RCN's services, and that
     subscribers in wired areas were able to receive RCN's cable service
     for only a minimal additional investment and without encountering
     regulatory or technical obstacles.[^758]

### Various Communities, Vermont

236. In May 1999, Adelphia Cable Communications ("Adelphia") filed
     petitions challenging the certification of the Vermont Public
     Service Board to regulate Adelphia's basic cable service and
     equipment rates in ten franchise areas. In the petitions, Adelphia
     argued that its cable systems faced effective competition because
     DBS providers offered comparable programming to at least 50% of
     households in the franchise areas, and the subscriber base of
     competing MVPDs exceeded 15% of households.[^759] In September
     1999, the Bureau granted Adelphia's petitions.[^760]

237. DBS service is presumed to be technically available to all
     subscribers due to its nationwide satellite footprint, and is
     presumed to be actually available if households in a franchise area
     are made reasonably aware that the service is available.[^761]
     Adelphia provided evidence of advertisements in local media about
     the availability of DBS service in each of the affected franchise
     areas.[^762]

238. According to local newspaper advertisements, DirecTV offered three
     months of "Total Choice" programming free to new subscribers. This
     programming package consisted of 85 channels including the Disney
     Channel, Lifetime, ESPN, and A&E Channel.[^763] Also, DBS dealers
     offered free professional installation or a free "do it yourself"
     installation kit.

239. Adelphia, in the affected Vermont localities, offered between 7 and
     15 channels on its basic service tier. Adelphia's "CableValue"
     tier, on average, had 24 channels, including CNN, A&E, Nickelodeon,
     ESPN and the New England Sports Channel. The Disney Channel was
     offered as a premium service in its systems.[^764]

240. In nine of the ten affected franchise areas, DBS penetration rates
     ranged from 16% to 63%. In three of the ten affected franchise
     areas, the penetration rate for Adelphia ranged from 38% to 41%. In
     one of the affected franchise areas, Adelphia's share of
     residential MVPD market was only 11%, smaller than DBS penetration
     in that area.[^765] In Vermont as a whole, Adelphia is the dominant
     cable operator, serving 70% of all households in the state.[^766]

241. Unlike the cases described above, direct evidence of a reduction in
     monthly charges or change in services offered by the incumbent
     cable operator is unavailable. Although Adelphia upgraded a
     majority of its systems in Vermont, it is not clear whether the
     affected franchises were part of that upgrade nor whether the
     upgrade was undertaken as a competitive response or was previously
     scheduled.[^767]

### Lebanon, Ohio

242. In August 1997, the Lebanon Bureau of Telecommunication Services
     (\"LBTS\") was awarded a cable franchise by the city of Lebanon.
     LBTS is a part of the Lebanon Department of Service -- Division of
     Electricity.[^768] LBTS has been providing cable services to
     Lebanon residents since February 1999.[^769] LBTS charges \$5.99
     per month for basic cable service and provides 27 channels on this
     tier. For its combined basic and deluxe cable service, LBTS charges
     \$20.98 and provides 61 channels. In addition to cable service,
     LBTS is also planning to provide dial up Internet access at \$19.99
     per month and cable Internet service at \$39.99 per month. As of
     February 1999, LBTS' cable system passed 70% of the households in
     the City of Lebanon and the remaining 30% were to be wired
     shortly.[^770]

243. Time Warner is the incumbent cable operator in Lebanon. Prior to
     LBTS' entry, Time Warner provided service to nearly 3,000[^771] of
     approximately 7,300 potential subscribers.[^772] Upon LBTS' entry,
     in March 1999, Time Warner started to offer significant discounts
     to retain its subscribers and to win back subscribers who switched
     to LBTS. Time Warner offered a special rate of \$45 per month for a
     service that included all of Time Warner's "standard" services plus
     several premium channels and two set-top boxes. Prior to LBTS'
     entry, Time Warner charged \$57.10 a month for a similar
     package.[^773]

244. By one account, as of July 1999, LBTS had 800 subscribers. A
     significant majority of LBTS' subscribers are former Time Warner
     subscribers.[^774] In June 1999, Time Warner reduced its 23 channel
     limited basic tier rate from \$7.74 per month to \$5.99 per month,
     a reduction of about 23%. Also, Time Warner reduced its 67 channel
     extended basic tier rate from \$28.17 per month to \$20.98 per
     month, a 25% reduction.[^775] In July 1999, Time Warner further
     reduced its extended basic rate to \$14.99 a month. Moreover, Time
     Warner authorized its marketing representatives to offer
     promotional discounts that included free movie channels to
     subscribers who were planning to switch to LBTS.[^776]

245. Time Warner also announced that its Lebanon system would be one of
     the first Time Warner systems to offer a digital package that would
     include channels such as the Golf Channel and the Disney Channel.
     Time Warner also plans to offer high speed cable modem service to
     its Lebanon subscribers for \$39.95 per month. LBTS, in turn, was
     considering reducing its previously announced monthly rate of
     \$39.99 for high-speed Internet service.[^777]

> **B. Preliminary Findings**

246. The case studies suggest that subscribers have benefited from
     "head-to-head" competition. Generally, in the communities studied,
     subscribers: (a) paid lower monthly charges for services and
     equipment; (b) have received additional program offerings; (c) have
     access to alternative sources of telecommunications and Internet
     services; (d) have received new digital services; and (e) may
     expect better customer service from the incumbent cable operator.
     The Vermont case study also suggests an absence of competitive
     response by the incumbent when faced with "non-wireline"
     head-to-head competition such as from DBS. The Vermont case is the
     first instance where the Bureau granted an incumbent cable
     operator's petition for a determination of effective competition
     due to the presence of competition from DBS.

247. It appears that the incumbent operators in the localities described
     above have made greater use of "price" rather than "non-price"
     competitive responses. With the exception of the case in Vermont,
     the incumbents in the above examples have reduced their rates for
     basic or standard and premium services. In the Michigan communities
     studied, the incumbent cable operator also reduced equipment
     charges.

248. The cases described above also indicate that the new entrants in
     West Point and Somerville sought to attract subscribers by
     providing "bundled" cable and high speed Internet access services
     at a discounted price. To counter these service offerings, the
     incumbent operator in West Point responded by significantly
     upgrading its system.

249. The benefits of competition do not appear to accrue to subscribers
     in areas adjoining those communities where head-to-head competition
     is present. For example, reduced prices and additional services
     enjoyed by subscribers in Somerville and Lebanon were not available
     to subscribers in nearby areas. Ameritech notes that subscribers in
     communities adjacent to competitive communities pay more for
     similar services than subscribers in competitive communities.[^778]
     For example, in Independence, Ohio, Cablevision charges a total
     package price of \$50.69 for a channel line-up nearly identical to
     that offered in nearby Brooklyn, Ohio, for \$30.90 where it
     competes with Ameritech. Similarly, in Auburn, Michigan, AT&T
     charges \$45.98 for a package identical to that offered in nearby
     Rochester, Michigan, for \$39.40 where it faces competition from
     Ameritech.[^779]

250. Some of the benefits enjoyed by subscribers in competitive areas
     may be short lived. In our *1998 Report*, we noted that, given the
     economies of scale in delivered video programming services, there
     are few competitive overbuild systems that will be economically
     viable over the long term.[^780] For example, head-to-head
     competition between the incumbent Coaxial and the new entrant
     Ameritech in Columbus, Ohio, discussed in our *1997 Report,* has
     been costly to the incumbent.[^781] Due to mounting losses and
     large sums of required to upgrade, in August 1998, Coaxial sold a
     75% stake in its Columbus operations to Insight Communications
     Company.

# ADMINISTRATIVE MATTERS

251. This *1999 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).

252. It is ORDERED that the Office of Legislative and Intergovernmental
     Affairs shall send copies of this *1999 Report* to the appropriate
     committees and subcommittees of the United States House of
     Representatives and the United States Senate.

253. It is FURTHER ORDERED that the proceeding in CS Docket No. 99-230
     IS TERMINATED.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Magalie Roman Salas
>
> Secretary

[^1]: Communications Act of 1934, as amended, § 628(g), 47 U.S.C. §
    548(g).

[^2]: Pub.L. No. 102-385, 106 Stat. 1460 (1992).

[^3]: The 1992 Act imposed a regulatory scheme on the cable industry
    designed to serve as a transitional mechanism until competition
    develops and consumers have adequate multichannel video programming
    alternatives. One of the purposes of Title VI of the Communications
    Act, Cable Communications, is to "promote competition in cable
    communications and minimize unnecessary regulation that would impose
    an undue economic burden on cable systems." 447 U.S.C. § 521(6).

[^4]: The Commission's previous reports appear at: Implementation of
    Section 19 of the 1992 Cable Act (Annual Assessment of the Status of
    Competition in the Market for the Delivery of Video Programming), CS
    Docket No. 94-48, First Report ("1994 Report"), 9 FCC Rcd 7442
    (1994); Annual Assessment of the Status of Competition in the Market
    for the Delivery of Video Programming, CS Docket No. 95-61, Second
    Annual Report ("1995 Report"), 11 FCC Rcd 2060 (1996); Annual
    Assessment of the Status of Competition in the Market for the
    Delivery of Video Programming, CS Docket No. 96-133, Third Annual
    Report ("1996 Report"), 12 FCC Rcd 4358 (1997); Annual Assessment of
    the Status of Competition in Markets for the Delivery of Video
    Programming, CS Docket No. 97-141, Fourth Annual Report ("1997
    Report"), 13 FCC Rcd 1034 (1998); and Annual Assessment of the
    Status of Competition in Markets for the Delivery of Video
    Programming, CS Docket No. 98-102, Fifth Annual Report ("1998
    Report"), 13 FCC Rcd 24284 (1998).

[^5]: *Annual Assessment of the Status of Competition in the Market for
    the Delivery of Video Programming*, CS Docket No. 99-230, Notice of
    Inquiry ("*Notice*"), 14 FCC Rcd 9617 (1999). Appendix A provides a
    list of commenters.

[^6]: *See* Sections 623(c)(3) and (c)(4); 47 U.S.C § 543(c)(3) and
    (c)(4).

[^7]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (1996).

[^8]: Pub. L. No. 106-113, § 1000(9), 113 Stat. 1501 (enacting S. 1948,
    including the Satellite Home Viewer Improvement Act of 1999
    ("SHVIA"), Title I of the Intellectual Property and Communications
    Omnibus Reform Act of 1999 ("IPACORA"), relating to copyright
    licensing and carriage of broadcast signals by satellite carriers,
    codified in scattered sections of 17 and 47 U.S.C.).

[^9]: Traditional economic measures (*e.g.*, the Herfindahl-Hirschman
    Index or HHI) are based on market shares or the squaring of market
    shares such that large companies are weighed more heavily than small
    companies. The HHI (and apparent levels of concentration) decline
    with rising equality among any given number of companies in terms of
    market shares even if these firms individually have larger shares of
    the markets.

[^10]: A franchise is defined as an authorization supplied by a federal,
    state, or local government entity to own or construct a cable system
    in a specific area. Communications Act §§ 602(9), 602(10), 47 U.S.C.
    §§ 522(9), 522(10). A cable system operator is defined as \"any
    person or group of persons (A) who provides cable service over a
    cable system, and directly or through one or more affiliates owns a
    significant interest in such cable system; or (B) who otherwise
    controls or is responsible for, through any arrangement, the
    management and operation of such a cable system.\" Communications
    Act § 602(5), 47 U.S.C. § 522(5). *See also* 47 C.F.R. § 76.5(cc).

[^11]: An \"overbuild\" occurs when two or more wireline cable
    television systems directly compete for subscribers in a local video
    programming delivery market.

[^12]: The services enabled by advanced telecommunications capability
    are called here "advanced broadband services." These services
    include ". . . high-quality voice \[*e.g.,* cable telephony and
    Internet Protocol ("IP") telephony"\], data \[*e.g.,* Internet
    access through cable modems\], graphics \[*e.g.,* interactive
    guides\], and video telecommunications \[*e.g.,* digital video,
    pay-per-view ("PPV"), video-on-demand ("VOD"), and interactive
    programming\]. . . ." *See Inquiry Concerning the Deployment of
    Advanced Telecommunications Capability to All Americans in a
    Reasonable and Timely Fashion, and Possible Steps to Accelerate Such
    Deployment Pursuant to Section 706 of the Telecommunications Act of
    1996,* CC Docket No. 98-146, Report, 14 FCC Rcd 2398, 2406 ¶ 20
    (1999).

[^13]: We refer to all cable programming networks offered as a part of
    program packages or tiers as \"basic cable networks.\" The primary
    level of cable television service is commonly referred to as \"basic
    service\" and must be taken by all subscribers. The content of basic
    service varies widely among cable systems but, pursuant to the
    Communications Act, must include all local television signals and
    public, educational, and governmental access channels and, at the
    discretion of the cable operator, may include satellite delivered
    cable programming channels carried on the system. One or more
    expanded tiers of service, known as Cable Programming Service
    ("CPS") tiers for purposes of rate regulation and often known as
    expanded basic, also may be offered to subscribers. These expanded
    tiers of service usually include additional satellite delivered
    cable programming channels and are available for additional monthly
    fees. Communications Act §§ 623(b)(7), 623(l)(1), 47 U.S.C. §§
    543(b)(7), 543(l)(2).

[^14]: Homes passed is defined as the total number of households capable
    of receiving cable television service.

[^15]: Penetration is defined as the ratio of the number of cable
    subscribers to the total number of households passed by the system.

[^16]: Premium services are cable networks provided by a cable operator
    on a per channel basis for an extra monthly fee. Pay-per-view
    services are cable networks provided by a cable operator on a per
    program basis. Pay-per-view service is a separate category from
    premium service. Communications Act §§ 623(b)(7), 623(l)(2), 47
    U.S.C. §§ 543(b)(7), 543(l)(2).

[^17]: Channel capacity is defined as the maximum number of video
    channels that a system can carry simultaneously. Video channel
    capacity can be decreased on any given network simply by using
    bandwidth for other services such as Internet.

[^18]: Nielsen Media Research. Nielsen Media Research estimates the
    number of television households annually, and industry practice is
    to use this figure throughout the television broadcast season, which
    begins in September and ends in August of the following calendar
    year. Thus, the figure for TV households in June 1999 is the same as
    the figure for December 1998. In App. B, Tbl. B-1, we report the
    number of television households as of year-end 1998 and June 1999.
    These figures are from Paul Kagan Associates, and we use these
    estimates of television households for consistency with the
    remainder of reported figures in this section.

[^19]: Nielsen Media Research.

[^20]: *See* App. B, Tbl. B-1.

[^21]: *Id*.

[^22]: *Id*.

[^23]: *Id*.

[^24]: *Id*.

[^25]: *Id*.

[^26]: *Id*.

[^27]: *Id*.

[^28]: Traditionally, there is significant difficulty in getting access
    to accurate information with regard to channel capacity. However,
    the Commission has recently adopted a revised Form 325 for obtaining
    channel capacity figures. *See 1998 Biennial Regulatory Review,
    "Annual Report of Cable Television Systems," Form 325, filed
    pursuant to Section 76.403 of the Commmission's Rules*, CS Docket
    No. 98-61, Report and Order, 14 FCC Rcd 4720 (1999).

[^29]: *See 1998 Report*, 13 FCC Rcd at 24294 ¶ 18.

[^30]: Comcast Reply Comments at 1.

[^31]: *Id*. at 10.

[^32]: *Id*. at 2, 10.

[^33]: *Id*. at 16, 17.

[^34]: Cox Communications, Inc., *1998 Summary Annual Report,* Feb. 6,
    1999, at 5.

[^35]: *See* App. B, Tbl. B-3. Use of October to October data is
    consistent with our *1997 and 1998 Reports*, and is the method
    Warren Publishing, Inc., uses to report channel capacity system
    statistics. Warren Publishing reports the percentage of all systems
    polled. For the purposes of this *Report*, the figures have been
    recalculated to report the percentage of systems responding to the
    Warren poll (*i.e.,* we subtract out the number of systems \"not
    available\" for response).

[^36]: *See* App. B, Tbl. B-3.

[^37]: *Id*.

[^38]: *Id*.

[^39]: *Id*.

[^40]: Warren Publishing, Inc. Channel Capacity of Existing Cable
    Systems, Television & Cable Factbook: Services Volume No. 68, 2000
    Edition (to be released). *See also* App. B, Tbl. B-5.

[^41]: *See* App. B, Tbl. B-4. Use of October to October data is
    consistent with our *1997 and 1998 Reports,* and is the method
    Warren Publishing, Inc., uses to report channel capacity system
    statistics. Warren Publishing reports the percentage of all systems
    polled. For the purposes of this *Report,* the figures have been
    recalculated to report the percentage of systems responding to the
    Warren poll (*i.e.,* we subtract the number of systems "not
    available" for response).

[^42]: *See* App. B, Tbl. B-4.

[^43]: *Id*.

[^44]: Warren Publishing, Inc. Channel Capacity of Existing Cable
    Systems, Television & Cable Factbook: Services Volume No. 68, 2000
    Edition (to be released).

[^45]: The audience statistics reported here are Nielsen Media Research
    measurements of television viewing 24 hours a day for an entire week
    (*i.e.,* Monday through Sunday).

[^46]: A share is the percent of all households using television during
    the time period that are viewing the specified station(s) or
    network(s). The sum of reported audience shares exceeds 100% due to
    multiple set viewing.

[^47]: Nielsen Media Research, Nielsen *Television Index: Uasage/Viewing
    Source Share Trends*, Sept. 1999. The *Nielsen Television Index*
    reports non-premium, or basic, cable viewership as \"cable
    origination\" viewing shares and premium cable viewership as \"pay\"
    shares. According to Nielsen, "cable origination" includes basic
    cable service and pay-per-view (defined as payment on a per-program
    basis), and "pay\" includes only the premium tier (defined as
    payment on a per-channel basis for networks, such as HBO and
    Showtime).

[^48]: Nielsen Media Research, *Nielsen Television Index: Usage/Viewing
    Source Share Trends*, Sept. 1999. "Broadcast" shares include network
    affiliates, independent, and public broadcast stations.

[^49]: These statistics regarding types of cable networks are from *NCTA
    Cable Television Developments*, Summer 1999. These totals differ
    from those reported in the Vertical Integration Section of this
    report. In that section, the information on cable networks is from
    *NCTA Developments* and additional sources. *See* App. B, Tbl. B-6.

[^50]: *See* App. B, Tbl. B-5. *See also* App. D, Tbls. D-1 through D-4.

[^51]: *See* App. B, Tbl. B-6.

[^52]: *Id*.

[^53]: *Id*.

[^54]: Paul Kagan Assocs., Inc., *Basic Cable Network Economics
    (1983-2009)*, Cable Program Investor, July 14, 1999, at 4.

[^55]: *Id*. at 4. License fees are the fees charged by a cable network
    to allow an operator to deliver the network\'s programming. License
    fees reported here do not include superstation license fees, common
    carrier payments, and copyright fees.

[^56]: Paul Kagan Assocs., Inc., *Basic Cable Network Economics
    (1983-2009)*, Cable Program Investor, July 14, 1999, at 4.

[^57]: 47 C.F.R. § 76.922(f)(6).

[^58]: Copyright Act, 17 U.S.C. § 111 *et seq.*

[^59]: Copyright fees, though technically due on a specific date, are
    collected on a rolling basis. We report the most current figures
    available.

[^60]: Copyright Office, Library of Congress, *Licensing Division Report
    of Receipts*, Nov. 2, 1999. Date of \"collection\" indicates the
    date the Copyright Office has deposited payments made by cable
    operators. Payments are due within a certain time frame around the
    copyright period, however, operators submit payments on a continuing
    basis.

[^61]: Copyright Office, Library of Congress, *Licensing Division Report
    of Receipts*, Nov. 2, 1999.

[^62]: *See* Paul Kagan Assocs., Inc., *Cable MSO Stocks,* Cable TV
    Investor, Sept. 3, 1998, at 6. As of August 1998, the Kagan MSO
    Index consisted of: Adelphia, Cable Michigan, Cablevision, Century
    Communications, Comcast Communications, Cox Communications, Jones
    tracking stock A, MediaOne Group, TCA Cable, TCI tracking stock A,
    and Canadian MSO Rogers Communications tracking stock B. As of
    November 1998, Cable Michigan was dropped from the Kagan MSO Index.
    As of March 1999, TCI tracking stock A was dropped from the Index.
    In April, AT&T was added to the Index. As of August 1999, TCA was
    dropped from the Index, while Insight Communications was added.

[^63]: *See* App. B, Tbl. B-7.

[^64]: *Id*.

[^65]: Bureau of Labor Statistics, *Consumer Price Index Data,*
    http://stats/bls.gov.

[^66]: *Id*.

[^67]: NCTA Comments at 36.

[^68]: The "advanced video services" category includes both analog video
    services and digital video services. Advanced analog services
    provide users with certain two-way capabilities such as PPV and
    near-video-on-demand ("NVOD"). Digital video services can provide
    superior video picture quality and increased channel capacity. Both
    digital and advanced analog services require the use of a set-top
    box. *See also* fn. 12 *supra*.

[^69]: *See* App. B, Tbl. B-7.

[^70]: *Id*.

[^71]: *Id*.

[^72]: *Id*.

[^73]: *Id*.

[^74]: *See* App. B, Tbl. B-7. Pay-per-view revenue varies from
    year-to-year based on the number and type of events available for
    purchase. While we report that revenue from PPV over cable has
    decreased between 1997 and 1998, one study reporting PPV revenue
    across all technologies (cable, DBS, etc.) states that PPV revenue
    has increased 700% between 1990 and 1999. *See* Showtime Event
    Television, *Pay Per View Decade In Review*, Nov. 30, 1999, at 5.

[^75]: *See* App. B, Tbl. B-7.

[^76]: *Id*.

[^77]: 47 U.S.C. § 543 (c)(3), (c)(4).

[^78]: *See* App. B, Tbl. B-7.

[^79]: *Id*.

[^80]: *Id*.

[^81]: *Id*.

[^82]: *Id*. Cash flow margin is a commonly used financial analysis tool
    for determining a cable operator's operating efficiency,
    profitability, and liquidity.

[^83]: Paul Kagan Assocs., *Kagan Cable Average v. Market Competition,*
    Cable TV Investor Data Roundup*,*Oct. 23, 1998, at 4; Apr. 27, 1999,
    at 3; Aug. 19, 1999, at 4; Paul Kagan Assocs., *Money Market
    Digest*, Cable TV Investor, Aug. 10, 1998, at 16; Sept. 2, 1998, at
    8; Sept. 11, 1998, at 12; Oct. 23, 1998, at 16; Nov. 11, 1998, at
    16; Dec. 18, 1998, at 20; Mar. 3, 1999, at 24; Mar. 29, 1999, at 20;
    Apr. 27, 1999, at 16; May 14, 1999, at 16; June 25, 1999, at 20
    ("Kagan Cable Average Oct 1998 -- June 1999").

[^84]: The Standard and Poor's Index of 500 widely held stocks is a
    stock index that tracks a compilation of 500 industrial,
    transportation, financial, and utility stocks.

[^85]: The Dow Jones Industrial Average is a price-weighted average of
    300 actively traded, nationally known company stocks that have a
    long record of profit growth and dividend payment and a reputation
    for quality management, products, and services. These stocks are
    primarily industrial stocks, but also include service-oriented
    firms.

[^86]: Kagan Cable Average Oct 1998 -- June 1999.

[^87]: *Id*.

[^88]: Paul Kagan Assocs., *The Public Market*, The Cable TV Financial
    Databook 1999, Aug. 1999, at 98; *Marketplace*, Cable World, June
    28, 1999, at 38.

[^89]: Paul Kagan Assocs., *The Public Market*, The Cable TV Financial
    Databook 1999, Aug. 1999, at 98.

[^90]: Raymond Lee Katz, *Cable R&R*: *Investment Risk & Reward in Cable
    Broadband*, Bear Stearns, May 1999, at 8 ("Katz, *Cable R&R*, May
    1999").

[^91]: Katz, *Cable R&R*, May 1999, at 8; Richard Bilotti, Marc Nabi,
    and Gary Lieberman, *Cable Television/Satellites: 1Q99 Review and
    2Q99 Preview,* Morgan Stanley Dean Witter, Apr. 12, 1999, at 1.

[^92]: Katz, *Cable R&R*, May 1999, at 8; Raymond Lee Katz, *The Model
    Is Working*, Bear Stearns, Aug. 1999, at 1, 5 ("Katz, *Model*, Aug.
    1999").

[^93]: Katz, *Model,* Aug. 1999, at 1, 5.

[^94]: Katz, *Cable R&R*, May 1999, at 8.

[^95]: The 1998 data may not agree with data for the same date(s) in our
    *1998 Report* because the data have been revised by the source.

[^96]: Paul Kagan Assocs., Inc., *Cable TV Financing Snapshot*, Cable TV
    Finance, Sept. 9, 1998, at 7; Oct. 13, 1998, at 6; Nov. 20, 1998, at
    5; Dec. 7, 1998, at 9; Dec. 31, 1998, at 6; Dec. 31, 1998, at 5.

[^97]: *Id*.

[^98]: *Id*.

[^99]: Paul Kagan Assocs., Inc., *June 1999 Cable Financing Snapshot,*
    Cable TV Finance, June 30, 1999, at 8.

[^100]: *Id*.

[^101]: *Id*.

[^102]: *Id*.

[^103]: Paul Kagan Assocs., Inc., *Estimated Capital Flows in Cable TV,*
    Cable TV Financial Databook, Aug. 1999, at 149.

[^104]: *Id*.

[^105]: *Id*.

[^106]: \"New builds\" are the construction of new cable plant where
    none existed before.

[^107]: \"Rebuilds\" are improvements to existing systems that do not
    retain much of the old system plant and equipment. Instead, they
    consist of mostly new plant and equipment.

[^108]: \"Upgrades\" are improvements to existing cable systems that do
    not require the replacement of the entire existing plant and
    equipment.

[^109]: Paul Kagan Assocs., Inc., *Estimated Capital Flows in Cable TV,*
    Cable TV Finance, May 28, 1999, at 2.

[^110]: *Id*.

[^111]: *Id*.

[^112]: *Id*.

[^113]: The social contract with Time Warner committed that MSO to spend
    \$4 billion on upgrades over a five-year period and to provide 100%
    of its subscribers with 550 MHz service and 50% of its subscribers
    with 750 MHz service. *Social Contract for Time Warner,* 11 FCC Rcd
    2788 (1995). Time Warner's annual social contract implementation
    report indicates that the MSO is on track, having invested \$2.9
    billion in the first three years of the contract. Letter from Stuart
    F. Feldstein to Deborah A. Lathen, Chief of the Cable Services
    Bureau, March 29, 1999. The social contract with MediaOne commits
    that MSO to spend \$1.7 billion on upgrades over a four-year period
    and also to provide 100% of its subscribers with 550 MHz service and
    50% of its subscribers with 750 MHz service. *Social Contract for
    Continental Cablevision, Inc.* (subsequently MediaOne), 13 FCC Rcd
    11118 (1996). By the end of 1998, MediaOne reported that it
    surpassed its financial commitment under the social contract, having
    spent more than \$2.5 billion during that period, and that it
    expected to fulfill its service levels commitment within the year.
    MediaOne Annual Progress Report to the Commission, April 7, 1999.
    The third MSO, Comcast reported that by March 31, 1999, it also
    fulfilled its social contract commitments of upgrading 80% of its
    subscribers to 550 MHz service and 60% to 750 MHz service. *Social
    Contract for Comcast Cable Communications, Inc.,* 13 FCC Rcd 3612
    (1997); Third Annual Report of Comcast Cable, October 14, 1999.

[^114]: Comcast Reply Comments at 4, 29, 30.

[^115]: Letter from James Hatcher, General Counsel, Cox Communications,
    Inc., to Anne Levine, Federal Communications Commission, Sept. 20,
    1999 ("Hatcher Letter").

[^116]: *Transfer of Control of FCC Licenses MediaOne Group, Inc. to
    AT&T Corp.*, CS Docket No. 99-251, Transfer of Control of
    Applications, July 7, 1999 at 15 ("AT&T/MediaOne Application").

[^117]: MediaOne Comments at 15.

[^118]: AT&T Comments at 22.

[^119]: Cablevision Reply Comments at 2.

[^120]: Hatcher Letter.

[^121]: *Id*.

[^122]: RCN Reply Comments at 2. RCN is a competitive local exchange
    carrier ("CLEC") that provides video primarily as an open video
    system ("OVS") operator in the New York, New Jersey, Philadelphia,
    Boston, and Washington, D.C. areas. RCN also provides cable
    television service in most of its OVS markets. RCN Comments,
    Summary, at i-ii.

[^123]: This includes all systems bought and sold. *See* App. B, Tbl.
    B-9.

[^124]: Some transactions recorded on this table have been announced to
    the public but may not actually take place. Most recorded
    transactions do take place, although a few each year do not. *See*
    App. B, Tbl. B-9.

[^125]: *See* ¶¶ 161-165 *infra*.

[^126]: *See* App. B, Tbl. B-9.

[^127]: *Id*.

[^128]: *Id*.

[^129]: *Id*.

[^130]: *Id*.

[^131]: *Id*.

[^132]: Paul Kagan Assocs., Inc., *Cable TV Franchising Competition,*
    1995-1998 *Franchise Awards*, Cable TV Financial Databook, 1999, at
    87-90.

[^133]: Ameritech Comments at 1.

[^134]: KnoLogy Facts, Oct. 1998.

[^135]: Charles Haddad*, KnoLogy Lays Low, Dreams Big,* Atlanta
    Journal-Constitution, Oct. 21, 1998.

[^136]: John P. McDermott, *Getting Connected,* Charleston Post and
    Courier, Oct. 26, 1998, at 10-D.

[^137]: Joe Estrella, *Buckeye Will Take On FrontierVision,*
    Multichannel News, Feb. 15, 1999, at 1.

[^138]: Linda Haugsted, *Adelphia Has New Rival Near Buffalo,*
    Multichannel News, Apr. 12, 1999, at 22.

[^139]: *See* ¶¶ 129-130 *infra*.

[^140]: Alan Breznick and Joshua Cho, *Vulcan Upsets Cable Paradigm,*
    Cable World, Oct. 11, 1999, at 53.

[^141]: Linda Haugsted, *City Happy with Its System in Wadsworth,*
    Multichannel News, Mar. 8, 1999, at 24.

[^142]: Monica Hogan, *Municipal Overbuild Hits 2^nd^ Ohio Town,*
    Multichannel News, Mar. 8, 1999, at 24.

[^143]: Mike Farrell, *Little Rock Ready to Roll on Cable,* Multichannel
    News, Jan. 4, 1999, at 3.

[^144]: *See* ¶¶ 217-243 *infra.*

[^145]: *See* ¶¶ 244-248 *infra*.

[^146]: *See*, *e*.*g*., ¶¶ 77-80,91,132-134 *infra*.

[^147]: Members of CCC include: Ameritech New Media, Inc.; BellSouth
    Entertainment, Inc.; DTG McLeod USA; Hiawatha Broadband
    Communications; Knology Holdings, Inc.; Lexcom Cable; Mainstreet
    Communications; OmniMedia Associates; RCN Corporation; Seren
    Innovations, Inc.; 21^st^ Century Telecom Group, Inc.; and Unitel
    Communications. *See* CCC Reply Comments.

[^148]: *Id.* at 9-17.

[^149]: *Id*. at 17-23.

[^150]: *Id*. at 23-28.

[^151]: Jessica Reif Cohen and Nathalie Brochu, *Cable Television: Q2
    Preview*, Merrill Lynch, July 16, 1999, at 8 ("Cohen and Brochu, *Q2
    Preview*, July 16, 1999").

[^152]: *Id*.

[^153]: *Id*.

[^154]: *See 1998 Report,* 13 FCC Rcd at 24312 ¶ 48. Digital video is
    more likely to maintain signal integrity than analog video. As video
    signals travel from the cable operator to the subscriber, signals
    risk interference from equipment leaks or other hardware factors.
    Digital signals are composed of discrete codes of information and
    carry error-correcting codes that can regenerate any lost data.
    Analog signals can be amplified, but little can be done to correct
    any distortion that may occur to the signal through transmission. In
    allocating bandwidth to digital video, an operator must determine
    the number of analog or otherwise unused channels to devote to
    digital video. In attempting to maximize the number of digital
    program channels per available bandwidth, operators have tried to
    maximize digital compression ratios.

[^155]: *See* http://www.cox.com/DigitalTV;
    http://www.cablevision.com/cvhome/frame/fcatv_a.htm. *See also*
    Denton Kanouff, *Building a Compelling Digital-Service Offering*,
    Multichannel News, Jan. 18, 1999, at 65.

[^156]: Cohen and Brochu, *Q2 Preview*, July 1999, at 27.

[^157]: Katz, *Cable R&R,* May 1999, at 60.

[^158]: *See Implementation of Section 304 of the Telecommunications Act
    of 1996, Commercial Availability of Navigation Devices*, CS Docket
    No. 97-80, Report and Order, 13 FCC Rcd 14775 (1998). *See also
    Implementation of Section 304 of the Telecommunications Act of 1996,
    Commercial Availability of Navigation Devices*, CS Docket 97-80,
    Order on Reconsideration, 14 FCC Rcd 7596 (1999).

[^159]: Cohen and Brochu, *Q2 Preview*, July 1999, at 25.

[^160]: *Id*.

[^161]: Cox Communications, Inc., *Cox Communications Announces 2Q
    Financial Results for 1999* (press release), June 30, 1999. Cox
    offers service in California, Nebraska, Arizona, Connecticut,
    Virginia, Rode Island, and Louisiana.

[^162]: *Making Sense of Digital TV: Industry Addresses Penetration
    Compression Ratios*, Cable World, Mar. 23, 1998, at 36.

[^163]: *Id*.

[^164]: Comcast Reply Comments at 2, 10, 17.

[^165]: Paul Kagan Assocs., *Digital Deployments*, The Cable TV
    Financial Databook, Aug. 1999, at 84**.**

[^166]: *Id*.

[^167]: *Id*.

[^168]: *Id*.

[^169]: *Broadband Today: A Staff Report to William E. Kennard,
    Chairman, Federal Communications Commission*, Cable Services Bureau,
    Federal Communications Commission, Oct. 1999, at 9 and App. A,
    *Breakdown of Online Universe 1999-2005* ("Broadband Report"). Many
    56.6 Kbps telephone-line modems can be purchased for
    \$29.99-\$159.99. *See* http://www.bestbuy.com/product
    info/products/models.asp?C=39&P=N. The typical cost of service from
    an Internet service providers is under \$6.95-\$26.95 per month
    depending on the features of the service. *See*
    http://register.mindspring.com/cgi-bin/wsisa.dll/signup/signup1.w;
    *see also* http://www.erols.com/promo/ signup.htm.

[^170]: Broadband Report at 23, App. A, Breakdown of Online Universe
    1999-2005.

[^171]: *Id*.

[^172]: Broadband technologies include cable broadband, telephone
    company digital subscriber line ("DSL"), broadband wireless, and
    broadband satellite.

[^173]: *1998 Report,* 13 FCC Rcd at 24313 ¶ 52. Broadband Report at
    16-19.

[^174]: The other means of accessing the Internet over cable broadband
    infrastructure is through the television using special equipment, as
    discussed in ¶ 64 *infra*.

[^175]: Broadband Report at 9, 18.

[^176]: *1998 Report,* 13 FCC Rcd at 24313 ¶ 52.

[^177]: Kinetic Strategies, Inc., *Cable Modem FAQ,* Cable Datacom News,
    http://www.cabledatacomnews.com/cmic/ cmic2.html; Broadband Report
    at 19.

[^178]: *1998 Report*, 13 FCC Rcd at 24318 ¶ 57; Cable Television
    Laboratories, Inc. ("CableLabs"), *What is CableLabs?,*
    http://www.cablelabs.com/start_here/. *See also* ¶¶ 212-214 *infra*.

[^179]: *Id*.

[^180]: CableLabs, *Bukovinsky Selected to Blend CableLab's* *Packet
    Cable and Cable Modem Initiatives* (press release), Sept. 9, 1999.

[^181]: CableLabs, *CableLabs Issues Specifications for DOCSIS
    1.1Modems* (press release), Apr. 22, 1999.

[^182]: CableLabs, *International Telecommunications Union Approves
    DOCSIS Modem Standard* (press release), Mar. 19, 1998; CableLabs,
    *CableLabs Issues Specifications for DOCSIS 1.1 Modems* (press
    release), Apr. 22, 1999.

[^183]: CableLabs, *CableLabs Certifies Best Data and Com 21 Modems,
    Re-certifies GI and RCA Modems, Re-qualifies Cisco CMTs* (press
    release), Dec. 9, 1999.

[^184]: Kinetic Strategies, Inc., *Cable Modem FAQ*, Cable Datatcom
    News, http://www.cabledatacomnews.com/cmic/ cmic2.html.

[^185]: *See 1998 Report,* 13 FCC Rcd at 24316 ¶ 55.

[^186]: Kinetic Strategies, Inc., *Cable Modem Market Stats &
    Projections,* Cable Datacom News, http://www.
    cabledatacomnews.com/cmic/cmic16.html.

[^187]: *Id*.

[^188]: *See* App. B, Tbl. B-10. This list is not exhaustive. The MSOs
    listed here are examples of cable operators currently providing
    Internet access to subscribers in some of their service areas.

[^189]: On May 28, 1999, \@Home completed its merger with media services
    company Excite to form Excite@ Home.

[^190]: As reported last year, Excite@ Home and Road Runner are
    technologically different from other cable ISPs in that each provide
    its own local network and own routing and caching (storage) servers,
    allowing for increased access to popular content. *See 1998 Report*,
    13 FCC Rcd at 24316 ¶ 56.

[^191]: At Home Corporation, *Excite@ Home* *Reports ThirdQuarter 1999
    Results* (press release), Oct. 19, 1999.

[^192]: Time Warner Inc., *Time Warner Businesses Report Record Third
    Quarter* (press release), Oct. 13, 1999.

[^193]: Kinetic Strategies, Inc., *Cable Internet Service Providers and
    Systems Integrators*, Cable Datatcom News,
    http://www.cabledatacomnews.com/cmic/cmic5.html.

[^194]: Cox Communications, Inc., *Cox Communications Announces Second
    Quarter Financial Results for 1999* (press release), June 30, 1999.

[^195]: Comcast Reply Comments at 17, 18; Mike Farrell, *Digital, QVC
    Drive Comcast Results,* Multichannel News, Mar. 1, 1999, at 49.

[^196]: *Id*.

[^197]: Paul Kagan Assocs., *Cable Modem Launches*, The Cable TV
    Financial Databook, Aug. 1999, at 78.

[^198]: *Id*.

[^199]: *Id*.

[^200]: MediaOne Comments at 2, 15.

[^201]: Paul Kagan Assocs., *Cable Modem Launches*, The Cable TV
    Financial Databook, Aug. 1999, at 78.

[^202]: *See* App. B, Tbl. B-10

[^203]: Paul Kagan Assocs., *Cable Modem Launches*, The Cable TV
    Financial Databook, Aug. 1999, at 78.

[^204]: RCN Comments at 3.

[^205]: Paul Kagan Assocs., *Cable Modem Launches*, The Cable TV
    Financial Databook, Aug. 1999, at 78.

[^206]: The acronym \"xDSL\" refers to a general class of digital
    subscriber line technologies. We report on ADSL because it is the
    most feasible for mass market deployment at this time. Another type
    of xDSL technology is VDSL which, unlike ADSL, cannot function over
    sustained distances. VDSL is the fastest of xDSL technologies,
    performing at rates of up to 52 Mbps, but cannot function over
    sustained distances like ADSL.

[^207]: *See generally* Broadband Report at 23-30.

[^208]: Jonathan Atkin and Daniel Ernst, *Bring on the Bandwidth: An
    Investor's Guide to Competitive Broadband Services,* Ferris, Baker
    Watts, Inc., July 1999, at 54 ("Atkin, July 1999").

[^209]: *1998 Report,* 13 FCC Rcd at 24314 ¶ 52.

[^210]: Broadband Report at 21; *1998 Report*, 13 FCC Rcd at 24314 ¶ 52.

[^211]: *Id*.

[^212]: *1998 Report,* 13 FCC Rcd at 24314 ¶ 53.

[^213]: Broadband Report at 9.

[^214]: *Id.* at 28.

[^215]: Kinetic Strategies, Inc., *Cable Modem Market Stats &
    Projections*, Cable Datatcom News, http://www.
    cabledatacomnews.com/cmic/cmic16.html.

[^216]: Broadband Report at 25.

[^217]: *Id.* at 28.

[^218]: Kinetic Strategies, Inc., *Cable Modem Market Stats &
    Projections*, Cable Datatcom News, http://www.
    cabledatacomnews.com/cmic/cmic16.html.

[^219]: *See*, *e*.*g*.,
    http://www.bellsouthcorp.co/proactive/documents/render/30523.vtml;
    http://www.ba.com/nr/1999/ Oct/19991006004.html;
    http://www.cabledatacomnes.com/nov99/nov99-5.html.

[^220]: Broadband Report at 28.

[^221]: SBC Communications, Inc., *SBC First to Surpass 10,000 DSL
    Subscribers* (press release), Nov. 4, 1999. However, it is unclear
    whether any of these xDSL offerings will contain a multichannel
    video component. Currently we are aware of no xDSL offering, other
    than a trial by U S West in Phoenix, that contains a multichannel
    video component.

[^222]: U S West offers a service for \$19.95 per month that delivers
    256 Kbps downstream. *See* U S West, *MegaBit 256 Select: Comparison
    of Dial-up & MegaBit Services*,
    http://www.uswest.com/home/offers/megabit/comparison. html.

[^223]: Bell Atlantic Corporation, *Infospeed DSL and Bell Atlantic.net
    Pricing*, http://www.bellatlantic.com/infospeed/
    more_info/pricing.html.

[^224]: *Id*.

[^225]: At Home Corporation, *Telephone Call to \@Home Customer
    Service,* at 1-888-824-8101. *See also* GTE Corporation, *DSL
    Access*, http://www.gte.net/pands/residential/dslpricing2.html.

[^226]: *1998 Report,* 13 FCC Rcd at 24315 ¶ 54.

[^227]: Atkin, July 1999, at 80; *1998 Report,* 13 FCC Rcd at 24315-6 ¶
    54. Hyperlinking, in this context, is the technology that combines
    broadcast or cable television and telephone Internet connections to
    offer consumers access to supplemental information to television
    shows, one-button ordering, and the ability to play along with
    television shows when applicable.

[^228]: Atkin, July 1999, at 80.

[^229]: For an explanation of how the WebTV and Worldgate services
    operate, *see 1998 Report*, 13 FCC Rcd at 24315-6 ¶ 54.

[^230]: Raymond Lee Katz and Adria Markus, *Wink Communications: Think
    Wink!,* Bear Stearns, Sept. 23, 1999.

[^231]: Richard Bilotti, Marc E. Nabi, and Gary Lieberman, *Cable
    Television/Satellite Communications: 1Q99 Review and 2Q99 Preview*,
    Morgan Stanley Dean Witter, Apr. 12, 1999, at 9.

[^232]: *Id*. Kinetic Strategies, Inc., *Cable IP Telephony Primer*,
    Cable Datacom News, at http://www.
    cabledatacomnews.com/internettv/cmic17.html.

[^233]: *1998 Report*, 13 FCC Rcd at 24320 ¶ 58.

[^234]: *Id*.

[^235]: *Id*. \"The path of least resistance\" refers to the manner in
    which Internet data travels. In order to move important or large
    amounts of data from one location to another quickly, regardless of
    failures or delays in traditional communications networks, data
    packets over the Internet take any path that does not resist
    transfer. The path of least resistance is not always the shortest
    path, but it is the most reliable path for the mass transfer of
    data.

[^236]: Kinetic Strategies, Inc., *Cable IP Telephony Primer*,
    CableDatacom News, http://www.cabledatacomnews.
    com/internettv/cmic17.html.

[^237]: CableLabs, *Bukovinsky Selected to Blend CableLab's* *Packet
    Cable and Cable Modem Initiatives* (press release), Sept. 9, 1999.

[^238]: CableLabs, *CableLabs Issues Specifications for DOCSIS
    1.1Modems* (press release), Apr. 22, 1999.

[^239]: CableLabs, *CableLabs Completes Another Round of Packet Cable
    Interoperability Testing* (press release), Oct. 5, 1999.

[^240]: AT&T/MediaOne Application at 25.

[^241]: Cox Communications, Inc., *Cox Communications Announces Second
    Quarter Financial Results for 1999* (press release), June 30, 1999.

[^242]: Comcast Reply Comments at 21.

[^243]: *Id*.

[^244]: *Id*.

[^245]: Comcast Reply Comments at 20, 21.

[^246]: Paul Kagan Assocs., *Telephony Launches*, The Cable TV Financial
    Databook, Aug. 1999, at 71.

[^247]: Cablevision Comments at 1.

[^248]: AT&T/MediaOne Application at 34.

[^249]: The term "bundling," in this context, may be defined as
    "combining goods and/or services into a single package, often at a
    discounted price."

[^250]: "Churn" occurs when a subscriber to a cable service drops the
    subscription to that service.

[^251]: Katz, *Model*, Aug. 1999, at 15.

[^252]: *Id*.

[^253]: *Id*.

[^254]: R/L DBS holds a permit to construct a DBS system but has not
    launched satellites or begun service. Current subscriber numbers
    from Skyreport, http://www.skyreport.com/skyreport/dth_us.htm.

[^255]: In previous years, we included a discussion of PrimeStar
    Partners, L.P. (\"PrimeStar\"), a medium-powered Ku-band Fixed
    Satellite Service (\"FSS\"), together with our discussion of
    high-powered Ku-band DBS providers. *See* *1998 Report* 13 FCC Rcd
    at 24323 ¶ 61.

[^256]: This service is now called "Primestar by DirecTV." DirecTV has
    converted 20,000 PrimeStar customers to its high powered service and
    has an ongoing marketing plan to transition the remaining medium
    powered satellite service subscribers to DirecTV. *See*
    http://www.primestar.com.

[^257]: SBCA Comments at 7.

[^258]: http://www.skyreport.com.

[^259]: This includes approximately two million PrimeStar by DirecTV
    subscribers.

[^260]: Carmel Group, *Cable versus Satellite: Where's the Beef?*, DBS
    Investor, Sept. 1999, at 4.

[^261]: *21 million by 2007?,* SkyREPORT, July 1999, at 11.

[^262]: SBCA Comments at Appendix B ("1999 DBS Study 6").

[^263]: AT&T Comments at 2. NCTA Comments at 16.

[^264]: SBCA Comments at 12.

[^265]: J.D. Power and Associates, *EchoStar DISH Network Rated Number
    One,* (press release) September 1999.

[^266]: SBCA Comments at Appendix E.

[^267]: Carmel Group, *Cable versus Satellite: Where's the Beef?*, DBS
    Investor, Sept. 1999, at 12.

[^268]: *See* *Implementation of Section 3 of the Cable Television
    Consumer Protection and Competition Act of 1992, Statistical Report
    on Average Rates for Basic Service, Cable Programming Services, and*
    Equipment, MM Docket No. 92-266, Report on Cable Industry Prices
    ("*1998 Price Report*"), 14 FCC Rcd 8331, 8333 ¶ 4 (1999).

[^269]: Carmel Group, *Cable versus Satellite: Where's the Beef?*, DBS
    Investor, Sept. 1999, at 14.

[^270]: SBCA Comments at 11.

[^271]: Pub. L. No. 106-113, § 1000(9), 113 Stat. 1501 (enacting S.
    1948, including the Satellite Home Viewer Improvement Act of 1999
    (\"SHVIA\"), Title I of the Intellectual Property and Communications
    Omnibus Reform Act of 1999 (\"IPACORA\"), relating to copyright
    licensing and carriage of broadcast signals by satellite carriers,
    codified in scattered sections of 17 and 47 U.S.C.).

[^272]: 17 U.S.C. § 119(d)(10). The term \"unserved household" is
    defined by SHVA as a household that:

    \(A\) cannot receive, through the use of a conventional outdoor
    rooftop receiving antenna, an over‑the‑air signal of grade B
    intensity (as defined by the Federal Communications Commission) of a
    primary network station affiliated with that network, and

    > \(B\) has not, within 90 days before the date on which that
    > household subscribes, either initially or on renewal, to receive
    > secondary transmissions by a satellite carrier of a network
    > station affiliated with that network, subscribed to a cable system
    > that provides the signal of a primary network station affiliated
    > with that network.

[^273]: *See* 1998 WL 310683 (S.D.Fla.), 1998 WL 544286 (M.D.N.C.) and
    1998 WL 544297 (M.D.N.C.). *See also* *1998 Report*, 13 FCC Rcd at
    24327-29 ¶¶ 68-70.

[^274]: H.R. 1554 and S. 247.

[^275]: *DISH Network Launches Local Channels to 33 Percent of U.S.
    Households* (press release), November 24, 1999. See
    http://www.dishnetwork.com.

[^276]: *DirecTV Applauds Signing of Satellite TV Bill Into Law by
    President Clinton* (press release), November 29, 1999. See
    http://www.directv.com.

[^277]: *See* 47 U.S.C. § 325(b)(2).

[^278]: *See* 47 U.S.C. § 325(b)(3)(C)(I) directing the Commission to
    establish election time periods for satellite carrier retransmission
    consent consistent with those established pursant to the 1992 Cable
    Act. *See also Implementation of the Satellite Home Viewer
    Improvement Act of 1999*, CS Docket No. 99-363, Notice of Proposed
    Rulemaking, FCC 99-406 (rel. Dec. 22, 1999).

[^279]: *Fox and DirecTV Reach Agreement for Retransmission of Fox-owned
    Stations* (press release) September 29, 1999. See
    http://www.directv.com.

[^280]: *DirecTV Reaches Agreement with NBC for Retransmission of
    Network-Owned Stations* (press release), December 6, 1999. *ABC and
    DirecTV Reach Agreement for Retransmission of ABC Owned Television
    Stations* (press release), December 6, 1999. See also
    http://www.directv.com.

[^281]: *See* SHVIA at §§1008, 1009, 5003, 5008, 2002(a), and 2002(c).

[^282]: United States Satellite Broadcasting Co., Inc. Transferor and
    DirecTV Enterprises, Inc. Transferee*; For Consent to Transfer of
    Control of the United States Satellite Broadcasting Co., Inc. and
    DirecTV Enterprises, Inc. for Consent to Transfer Control of the
    USSB II Authorization to Operate a Direct Broadcast Satellite System
    Using Five Channels at the 101° W.L. Orbital Location; Authorization
    to Construct, Launch, and Operate a Direct Broadcast Satellite
    System Using Three Channels at 110° W.L. Orbital Location; and the
    Related Earth Registration*, (Call Sign E930437); Order and
    Authorization, 14 FCC Rcd 4585 (1999).

[^283]: *Tempo Satellite, Inc., Assignor and Directv Enterprises, Inc.,
    Assignee, Application for Consent to Assign Authorization to
    Construct, Launch and Operate a Direct Broadcast Satellite System
    Using 11 Frequencies at the 119 degrees W.L. Orbital Location, Tci
    Satellite Entertainment, Inc., Transferor And Primestar, Inc.,
    Transferee, Application for Transfer of Control of Tempo Satellite,
    Inc. Echostar Satellite Corporation And Directsat Corporation,
    Applications for Special Temporary Authority to Operate a Direct
    Broadcast Satellite System*, Order and Authorization, 14 FCC Rcd.
    7946 ("Primestar Order") (released May 28, 1999).

[^284]: *Primestar Order,*14 FCC Rcd at 7951 ¶¶ 9-29.

[^285]: DirecTV Comments at 9.

[^286]: *Application of MCI Telecommunications Corporation, and EchoStar
    110° Corporation for Consent to Assignment of Authorization to
    Construct, Launch, and Operate a Direct Broadcast Satellite System
    Using 28 Frequency Channels at the 110° W.L. Orbital Location*, File
    No. SAT-ASG-19981202-0093, Call Sign S2232, Order and Authorization,
    FCC 99-109 (released May 19, 1999).

[^287]: *Dominion Video Satellite, Inc. Application for Minor
    Modification of Authority to Construct and Launch and to Continue
    Construction and Launch of Planned Satellite at 61.5° W.L*. File No.
    12-SAT-ML-97, IBFS File No. SAT-MOD-19961108-00132; *Application for
    Additional Time to Construct and Launch Direct Broadcast
    Satellites*, File No. 13-SAT-MP/ML-97, IBFS File No.
    SAT-MOD-19961108-00133; *Application for Launch Authority*, File No.
    108-SAT-LA-97, IBFS File No. SAT- L/A-19970814-00074, Order and
    Authorization, 14 FCC Rcd 8182 (1999).

[^288]: Dominion was originally issued its DBS construction permit in
    1982. It was expected that, within six years, Dominion would both
    build and launch its own satellite and commence service. Dominion
    was not, however, assigned its final DBS channels until 1995. *See
    Application of Dominion Video Satellite, Inc. for Assignment of
    Direct Broadcast Satellite Orbital Positions and Channels,*
    Memorandum Opinion and Order*,* 10 FCC Rcd 10480 (1995).

[^289]: DirecTV Comments at 10.

[^290]: DirecTV Comments at 10-11; SBCA Comments at 25; EchoStar
    Comments at 2-6.

[^291]: EchoStar Comments at 6.

[^292]: SBCA Comments at 10.

[^293]: *Id*. at 10-11.

[^294]: *Id*. at Appendix B ("1999 DBS Study 6").

[^295]: 47 C.F.R. § 1.4000. As directed by Congress in Section 207 of
    the Telecommunications Act of 1996, the Commission adopted the OTARD
    Rule concerning governmental and nongovernmental restrictions on
    viewers\' ability to receive video programming signals from DBS,
    MMDS, and television broadcast stations. The rule prohibits
    restrictions that impair the installation, maintenance or use of
    antennas used to receive video programming. The rule prohibits most
    restrictions that: (1) unreasonably delay or prevent installation,
    maintenance or use; (2) unreasonably increase the cost of
    installation, maintenance or use; or (3) preclude reception of an
    acceptable quality signal.

[^296]: *Restrictions on Over-the-Air Receptions Devices: Television
    Broadcast, Multichannel Multipoint Distribution and Direct Broadcast
    Satellite Services*, CS Docket No. 96-83, Second Report and Order,
    13 FCC Rcd 23874 (1998); *Restrictions on Over-the-Air Receptions
    Devices: Television Broadcast, Multichannel Multipoint Distribution
    and Direct Broadcast Satellite Services*, CS Docket No. 96-83, Order
    on Reconsideration, FCC 99-360 (rel. Nov. 24, 1999).

[^297]: DirecTV Comments at 10-11, NRTC Comments at 17-18, SBCA Comments
    at 24-25.

[^298]: DirecTV Comments at 7*. See also SBC Signs Strategic Marketing
    Agreement With DirecTV to Offer Television Entertainment Programming
    to Its 18 Million Residential Customers* (press release), July 16,
    1999 (announcing that DirecTV and a local exchange carrier, SBC
    Communications, have extended their marketing alliance to add
    DirecTV to the package of communications services that SBC markets
    to owners of MDUs and single family homes).

[^299]: Broadwave USA, Diversified Communications, and the Northpoint
    Company have proposed to operate terrestrial point-to-multipoint
    microwave service in the DBS uplink band. Skybridge and Virtual
    Geosatellite, propose using the DBS downlink band for new fixed
    satellite services. *See* DirecTV Comments at 4 SBCA Comments at
    23*. See also Amendment of Parts 2 and 25 of the Commission\'s Rules
    to Permit Operation of NGSO FSS systems Co-Frequency with GSO and
    Terrestrial Systems in the Ku-Band Frequency Range, and Amendment of
    The Commission\'s Rules to Authorize Subsidiary Terrestrial Use of
    the 12.2-12.7 Ghz Band By Direct Broadcast Satellite Licensees And
    Their Affiliates,* ET Docket No. 98-206, Notice of Proposed
    Rulemaking, 14 FCC Rcd 1131, (1998).

[^300]: EchoStar Comments at 7-9. DBS was conceived as a one-way service
    (transmissions from a space station for direct reception by an
    individual or a community) modeled on terrestrial television
    broadcasting. *See* 47 C.F.R. § 100.3.

[^301]: *See* Comcast *ex parte* letter, December 21, 1999 (attaching a
    full-page DirecTV advertisement from USA Today featuring Drew Carey,
    star of a television program about an "average guy").

[^302]: DirecPC uses a slightly larger dish antenna to view a FSS
    satellite in addition to the DBS satellite. *See* Hughes Network
    Systems, http://www.direcpc.com.

[^303]: *DirecPC: Out of the Closet*, SkyREPORT, July 1997, at 4.

[^304]: Carmel Group, *Interactivity by Satellite and Cable: The Future
    of TV?*, DBS Investor, Sept. 1999, at 16.

[^305]: DirecTV Comments at 18. *See also DirecTV Launches Second HDTV
    Channel Beginning Nov. 1* (press release), Oct. 28, 1999.

[^306]: Monica Hogan, *EchoStar Plots Interactive Future After OpenTV
    Deal*, Multichannel News, Oct. 19, 1998, at 49 and 52.

[^307]: EchoStar Comments at 8-9.

[^308]: DirecTV, Inc., *DirecTV and Thomson Multimedia To Form Strategic
    Partnership In Digital Television and Services* (press release),
    Aug. 4, 1998. For the Motorola announcement, *see* Dean Takahashi,
    *Motorola to Unveil Set-Top Box That Offers Many Digital Tools*, The
    Wall Street Journal, Sept. 14, 1998, at B8.

[^309]: *Implementation of Section 25 of the Cable Television Consumer
    Protection and Competition Act of 1992, Direct Broadcast Satellite
    Public Interest Obligations*, MM Docket No. 93-25, Report and Order,
    ("*DBS Public Interest Order*"), 13 FCC Rcd 23254 (1998).

[^310]: DirecTV Comments at 16.

[^311]: *See DBS Public Interest Order*, 13 FCC Rcd at 23256 ¶ 3. *See
    also Statement of Chairman William E. Kennard*, 13 FCC Rcd at
    23312-3.

[^312]: *DBS Public Interest Order*, 13 FCC Rcd at 23309-10 ¶136; *see
    also* 47 C.F.R. § 100.5(c)(7).

[^313]: *See* *Petition for Waiver of Direct Broadcast Satellite Public
    Interest Obligation Implementation Date, EchoStar Satellite
    Corporation*, File No. SAT-WAV-19991210-00116, Memorandum Opinion
    and Order, FCC 99-394 (rel. Dec. 17, 1999).

[^314]: Banc of America Securities, *Payload Monthly*, September 1999.

[^315]: CableFAX Daily, November 3, 1999, at1.

[^316]: SBCA Comments at 4.

[^317]: *Id* at 5.

[^318]: *Amendment of Parts 21 and 74 of the Commission\'s Rules with
    Regard to Filing Procedures in the Multipoint Distribution Service
    and in the Instructional Television Fixed Service and Implementation
    of Section 309(j) of the Communications Act - Competitive Bidding*,
    MM Docket. No. 94-131 and PP Docket No. 93-253, Report and Order, 10
    FCC Rcd at 9589, 9593 ¶ 7 (1995); 1996 Report, 12 FCC Rcd at 4386 ¶
    51 n.152.

[^319]: Paul Kagan Assocs., *Wireless/Private Cable Investor*, July 13,
    1999, at 1-2.

[^320]: Paul Kagan Assocs., Inc., *Wireless Cable Sub Count and Revenue
    Projections, 1998-2009*, Wireless/Private Cable Investor, July 13,
    1999, at 4-5. The number of homes with a \"servicable line of
    sight\" counts all homes which an MMDS operator is licensed to serve
    within a particular license area, regardless of technical
    limitations such as signal strength or blockage by terrain. The
    number of \"homes seen,\" on the other hand, is the number of homes
    that MMDS operators have the technical ability to serve. For more
    discussion, *see 1997 Report*, 13 FCC Rcd at 1081 ¶ 74, fn. 272.

[^321]: Paul Kagan Assocs., Inc., *Wireless Cable Sub Count and Revenue
    Projections, 1998-2009*, Wireless/Private Cable Investor, July 13,
    1999, at 4-5.*.*

[^322]: *See* PRNewswire, *Wireless One, Inc. Receives New Financing
    Commitment; \$36 Million Agreement Would Provide Funds Needed To
    Exit Bankruptcy*, May 18, 1999 and
    http://www.heartland-wireless.com/investors/strategic.html. *See
    also* *Heartland Wireless and Wireless One Dropping Video Focus*,
    Comm. Daily, Mar. 22, 1999, at 1.

[^323]: Karen Brown, *Wireless Operators Zero In On MDU Marketplace*,
    Cable World, Sept. 6, 1999, at 32.

[^324]: http://www.heartland-wireless.com/investors/strategic.html.

[^325]: In addition, MCI WorldCom and Sprint have agreed to merge, but
    the merger is still under regulatory review. MCI WorldCom, Inc.,
    *MCI WorldCom and Sprint Create Pre-Eminent Global Communications
    Company For 21^st^ Century* (press release), Oct. 5, 1999.

[^326]: Sprint Communications Company, LP, *Sprint Agrees To Acquire
    Operating Units of WBS America, LLC* (press release), July 27, 1999.

[^327]: MCI WorldCom, Inc., *MCI Worldcom Completes CAI Wireless
    Acquisition* (press release), Sept. 1, 1999.

[^328]: PRNewswire, *Wireless One to Become Wholly-Owned Subsidiary of
    MCI WorldCom*, July 20, 1999.

[^329]: *Comm. Daily Notebook*, Comm. Daily, July 21, 1999. Southern
    Wireless Video, Inc., was formerly known as PrimeOne Tele-TV, which
    purchased and currently operates the digital MMDS system in Southern
    California that was launched by Pacific Bell. *See 1998 Report*, 13
    FCC Rcd at 24354 ¶ 112.

[^330]: Elizabeth Douglass, *MCI-Sprint Merger Could Speed Race for
    High-Speed Access*, Oct. 17, 1999,
    http://www.techserver.com/noframes/story/0,2294,500046516-500076035-500169460-0,00.html.

[^331]: Jim Barthold, *Wireless Stepchildren Becoming Empowered*,
    CableWorld, Aug. 16, 1999, at 38, 41. Kevin Brauer, Sprint's
    President, National Integrated Services, indicated that digital
    video may be part of Sprint's plans. Brauer specifically mentioned
    People's Choice TV's digital MMDS and high-speed Internet access
    services in Phoenix as a possible model. The Phoenix system also
    competes with Cox cable and U S West's VDSL system. Alan Breznick,
    *In Phoenix, Everyone Wants a Piece of the Action*, CableWorld, July
    19, 1999, at 16.

[^332]: *See Amendment of Parts 21 and 74 to Enable Multipoint
    Distribution Service and Instructional Television Fixed Service
    Licensees to Engage in Fixed Two-Way Transmissions, Report and
    Order, Docket No. 97-217, 13 FCC Rcd 19112 (1998); Amendment of
    Parts 21 and 74 to Enable Multipoint Distribution Service and
    Instructional Television Fixed Service Licensees to Engage in Fixed
    Two-Way Transmissions*, MM Docket No. 97-217, Order on
    Reconsideration, 14 FCC Rcd 12764 (1999).

[^333]: *See also* *1998 Report*, 13 FCC Rcd at 24338 ¶ 85, fn. 370.

[^334]: *See* ¶ 132 *infra* (summarizing BellSouth's comments regarding
    barriers to competition).

[^335]: WCA Comments at 5-11.

[^336]: *Id.* at 11-14. WCA specifically cites MSNBC, owned by NBC, and
    FX, owned by Fox.

[^337]: *Id.* at 14-17.

[^338]: *Id.* at 17-20.

[^339]: SMATV providers receive and process satellite signals directly
    at an MDU or other private property with an on‑site headend facility
    consisting of receivers, processors and modulators, and distribute
    the programming to individual units through an internal hard‑wire
    system in the building. Regulatory changes in 1991 made 18 GHz
    technology available for the point-to-point delivery of video
    programming services, allowing operators to free themselves from
    large networks of coaxial or fiber optic cable and amplifiers.
    Operators using this technology are known as enhanced SMATV
    operators, and because of efficiency savings, they are more
    competitive with cable operators than standard SMATV operators.
    *1997 Report*, 13 FCC Rcd at 1085 ¶¶ 82--83; *1998 Report*, 13 FCC
    Rcd at 24339-40 ¶ 88.

[^340]: 1996 Act, sec. 301(a)(2), 47 U.S.C. § 522(7).

[^341]: 1996 Act, sec. 301(a)(2), 47 U.S.C. § 522(7). For example,
    private cable and SMATV operators: (a) are not required to obtain
    cable television franchises; (b) do not face regulatory constraints
    on the geographic areas in which they may offer video services; (c)
    do not pay franchise and Federal Communications Commission
    subscriber fees; (d) are not obligated to pass every resident in a
    given area; (e) are not subject to rate regulation; and (f) are not
    subject to must carry and local government access obligations. *1997
    Report*, 13 FCC Rcd at 1085 ¶ 82, fn. 296.

[^342]: 1997 Report, 13 FCC Rcd at 1085 ¶ 82. The Commission held in
    1991 that microwave transmissions do not \"use\" public
    rights-of-way. *Amendment of Part 94 of the Commission's Rules to
    Permit Private Video Distribution Systems of Video Entertainment
    Access to the 18 GHz Band*, PR Docket No. 90-5, Report and Order, 6
    FCC Rcd. 1270, 1271 ¶10 (1991).

[^343]: 1996 Act sec. 301(a)(2), 47 U.S.C. § 522(7). Prior to the 1996
    Act, to qualify for this exception the buildings had to be under
    common ownership, control, or management. *1997 Report*, 13 FCC Rcd
    at 1085 ¶ 82, fn 297.

[^344]: *Petition for Rulemaking To Amend Eligibility Requirements in
    Part 78 Regarding 12 GHz Cable Television Relay Service*, CS Docket
    No. 99-250, Notice of Proposed Rulemaking, FCC 99-166 (rel. July 14,
    1999).

[^345]: *Id.* at ¶ 4.

[^346]: *Id*. at ¶ 8.

[^347]: *1997 Report*, 13 FCC Rcd at 1085 ¶ 84; *1998 Report*, 13 FCC
    Rcd at 24341 ¶ 90.

[^348]: *Who's Who in Private Cable*, Private Cable & Wireless Cable,
    Dec. 1998, at 18; facsimile from Independent Cable Television
    Association ("ICTA"), Oct. 13, 1999, at 2. On October 28, 1999,
    OpTel, Inc., voluntarily sought protection under Chapter 11 of the
    U.S. Bankruptcy Code.

[^349]: *Who's Who in Private Cable*, Private Cable & Wireless Cable,
    Dec. 1998, at 18; facsimile from ICTA, Oct. 13, 1999, at 2.

[^350]: Facsimile from ICTA, Oct. 13, 1999, at 2.

[^351]: U.S. Census Bureau, *American Housing Survey for the United
    States in 1997*, Table 1A-1: "Introductory Characteristics--All
    Housing Units," Oct. 1999.

[^352]: Facsimile from ICTA, Oct. 13, 1999, at 2. "Perpetual" contracts
    generally provide that they run for the term of a franchise "and any
    extensions thereof."

[^353]: *1998 Report*, 13 FCC Rcd at 24341 ¶ 90.

[^354]: NCTA Comments at 5. Last year, NCTA estimated that there were
    940,000 residential SMATV subscribers as of June 1998. *See* App. C,
    Tbl. C-1. *See also*, *1998 Report*, 13 FCC at 24341 ¶ 90. The
    increase in the number of estimated SMATV subscribers over last year
    may be attributable to the inexact method used for estimating SMATV
    subscribers.

[^355]: OpTel Comments at 3; *1997 Report*, 13 FCC Rcd at 1085 ¶ 84;
    *1998 Report*, 13 FCC Rcd at 24342 ¶ 92.

[^356]: ^?^ *1998 Report*, 13 FCC Rcd at 24342 ¶ 92.

[^357]: *Private Cable Industry Facts*, Private Cable & Wireless Cable,
    Dec. 1998, at 4.

[^358]: *Who's Who in Private Cable*, Private Cable & Wireless Cable,
    Dec. 1998, at 18.

[^359]: *Id*.

[^360]: *1998 Report*, 13 FCC Rcd at 24342 ¶ 91.

[^361]: Facsimile from ICTA, Oct. 13, 1999, at 2. Nineteen SMATV
    operators responded to ICTA's request for SMATV system information.

[^362]: *1998 Report*, 13 FCC Rcd at 24342-3 ¶ 93.

[^363]: Cathy Stephens, *Connect Television's C-Band/DBS Solution*,
    Private Cable & Wireless Cable, Oct. 1999, at 14 ("Stephens, Oct.
    1999").

[^364]: OpTel Comments at 3; Stephens, Oct. 1999.

[^365]: Stephens, Oct. 1999; *see also*
    http://www2.multihousing.com/infocenter/privatecable/index.html.

[^366]: Stephens, Oct. 1999.

[^367]: Paul Kagan Assocs., Inc., *ICTA Show: Echostar Gets Serious on
    MDU Alliances*, Wirelsss-Private Cable Investor, Aug 6, 1999, at 9;
    *DBS Distribution System for MDUs Reduces Costs*, Private Cable &
    Wireless Cable, Sept. 1999, at 40.

[^368]: *See* ¶ 88 *supra*.

[^369]: OpTel Comments at 4-5; *Implementation of Cable Act Reform
    Provisions of the Telecommunication Act of 1996*, CS Docket No.
    96-85, Report and Order, 14 FCC Rcd 5296 (1999); *see* ¶ 158
    *infra.*

[^370]: *See* ¶¶ 154-156 *infra.*

[^371]: *See* ¶ 155 *infra.*

[^372]: A real estate investment trust (\"REIT\") is essentially a
    corporation or business trust that combines the capital of many
    investors to acquire or provide financing for all forms of real
    estate. *1997 Report*, 13 FCC Rcd at 1085 ¶ 89.

[^373]: *1998 Report*, 13 FCC Rcd at 24343 ¶ 94; James Gomez, *Business
    Trends Among MDUs: Looking for Creative Solutions*, Private Cable &
    Wireless Cable, July 1999, at 24 ("Gomez, July 1999").

[^374]: Gomez, July 1999; *see also*
    http://www2.multihousing.com/consulting/techno.html.

[^375]: Paul Kagan Assocs., Inc., *ICTA Show: Echostar Gets Serious on
    MDU Alliances*, Wirelsss-Private Cable Investor, Aug. 6, 1999, at
    10.

[^376]: Gomez, July 1999.

[^377]: Paul Kagan Assocs., Inc., *ICTA Show: Echostar Gets Serious on
    MDU Alliances*, Wirelsss-Private Cable Investor, Aug. 6, 1999, at
    10; *See also*
    http://www2.multihousing.com/infocenter/privatecable/index.html.

[^378]: *See 1995 Report*, 11 FCC Rcd at 2113-15 ¶¶ 112-115.

[^379]: *Compare* Federal Communications Commission, *Broadcast Station
    Totals as of July 31, 1999*, FCC News Release (Aug. 12, 1999) *with*
    Federal Communications Commission, *Broadcast Station Totals as of
    August 31, 1998*, FCC News Release (Sept. 11, 1997).

[^380]: Television Bureau of Advertising, *TVB Releases 1998 TV Ad
    Figures* (news release), Mar. 10, 1999. The percentage growth over
    1997 may be slightly overstated because the PaxTV network was added
    in the third quarter of 1998, but was not yet in existence in 1997.

[^381]: *Id.* This figure represents sales for ABC, CBS, Fox, NBC, UPN,
    and WB; the PaxTV network was added in the third quarter of 1998.

[^382]: NCTA, *Cable Advertising Revenue: 1983-1998 (In Millions)*,
    Cable Television Developments, Summer 1999, at 9 (*citing* Paul
    Kagan Assocs., Inc., *Cable TV Advertising*, May 21, 1999, at 2).

[^383]: *People\'s Choice: Broadcast Network Prime-Time Ratings
    According to Nielsen Media Research, Sept. 13-19*, Broadcasting &
    Cable, Sept. 27, 1999, at 74. Figures were not available for PaxTV.

[^384]: NCTA, *Viewing Shares: Broadcast Years 1987/1988-1997/1998*,
    Cable Television Developments, Summer 1999, at 5 (*citing* Nielsen
    Media Research statistics).

[^385]: *Review of the Commission\'s Regulations Governing Television
    Broadcasting Television Satellite Stations Review of Policy and
    Rules*, MM Docket Nos. 91-221 and 87-8, Report And Order, 14 FCC Rcd
    12903 (1999).

[^386]: *Review of the Commission\'s Regulations Governing Attribution
    of Broadcast and Cable/MDS Interests, Review of the Commission\'s
    Regulations and Policies Affecting Investment in the Broadcast
    Industry, Reexamination of the Commission\'s Cross-Interest Policy*,
    MM Docket Nos. 94-150, 92-51, 87-154, Report And Order, 14 FCC Rcd
    12559 (1999).

[^387]: Viacom, Inc., *Viacom and CBS To Merge In Largest Media
    Transaction Ever* (press release), Sept. 7, 1999. Some divestiture
    may still be required under Commission rules, including the sale by
    Viacom of the UPN network.

[^388]: Paxson Communications Corporation, *NBC Makes Strategic
    Investment In Paxson Communications, Creating Path To Second
    National Distribution Outlet* (press release), Sept. 16, 1999.

[^389]: *See, e.g.,* John Higgins, *Cable's 2nd-Chance Strategy*,
    Broadcasting & Cable, Oct. 25, 1999, at 62 and Mike Reynolds, *NBC
    Gives Viewers Double Dose of Today*, Cable World, Oct. 4, 1999 at 6.
    Analysts report that USA Networks was able to gain the right to air
    *Law & Order, Special Victims Unit* because its studios produce the
    show.

[^390]: Steve McClellan, *The Peacocking of Pax*, Broadcasting & Cable,
    Oct. 11, 1999, at 68.

[^391]: *1997 Report*, 13 FCC Rcd at 1091-92 ¶ 94.

[^392]: National Association of Broadcasters, *Free, Over-the-Air
    Digital Television: Broadcasters Deliver Digital On-Time* (press
    release), Oct. 6, 1998.

[^393]: For an updated list on the status of DTV broadcasts, *see* the
    FCC website http://www. fcc.gov/mmb/vsd/files/dtvsum.html.

[^394]: For a full list of pending and granted DTV construction permits,
    *see* the FCC website, http://www. fcc.gov/mmb/vsd/dtvstatus.html.

[^395]: *Id*.

[^396]: Monica Hogan, *HDTV Feeling the Pains of Slow Growth*,
    Multichannel News, Aug. 9, 1999. Other reports indicate that demand
    for new digital television sets is outstripping supply, creating
    backlogs in retail stores. *See DTV Demand Exceeding Supply in
    Retail Shops*, Comm. Daily, Nov. 29. 1999, at 4.

[^397]: *Mass Media*, Comm. Daily, July 12, 1999. Panasonic manufactures
    the digital VCR, and reports that it is currently compatible only
    with Panasonic television sets. If other companies adopt the same
    copy-protection scheme, however, the digital VCR will also work with
    their television sets. In addition, the VCR is compatible with
    analog VCRs.

[^398]: See, e.g., *AT&T Broadband and Internet Services, NBC and AT&T
    Broadband & Internet Services Enter Into Long-Term Agreement* (press
    release), June 11, 1999.

[^399]: *See, e.g.,* Techweb, *DTV Sails Despite High Costs*,
    http://www.techweb.com/ wire/story/TWB19990420S0006.html and Comm.
    Daily, *Broadcasters Express Confidence in DTV Reception*, Aug. 5,
    1999, at 6.

[^400]: NCTA, *Inter-Industry Consensus Reached on IEEE-1394 Digital
    Interface Specification* (press release), Nov. 2, 1998. In a letter
    to Decker Anstrom, President and CEO of the NCTA, and to Gary
    Shapiro, President of the Consumer Electronics Manufacturers
    Association ("CEMA"), Chairman Kennard had called upon the cable and
    the consumer electronics industries to work together to solve this
    problem. Specifically, Chairman Kennard had proposed that a standard
    be developed by November 1, 1998, so that compatible televisions
    could be available for sale by November 1999. The NCTA and CEMA
    standards agreement was in response to Chairman Kennard\'s letter.
    Letter from William E. Kennard, Chairman, FCC, to Decker Anstrom,
    President and CEO, NCTA and Gary Shapiro, President, CEMA, Aug. 13,
    1998.

[^401]: The "5C" companies are Intel, Toshiba, Sony, Hitachi, and
    Matsushita. *See 1998 Report*, 13 FCC Rcd at 24347 ¶ 100.

[^402]: *See* Petition for Expedited Rulemaking filed by Sinclair
    Broadcast Group, Inc., Oct. 8, 1999, requesting the current 8-VSB
    standard be expanded to include COFDM as well. The Commission has
    not yet acted on Sinclair's petition, and nothing herein is intended
    to prejudge its resolution. *See also* Opposition to Petition for
    Expedited Rulemaking and Motion for Its Immediate Dismissal filed by
    Consumer Electronics Manufacturers Asociation, Oct. 14, 1999.

[^403]: *See* Office of Engineering and Technology, *DTV Report on CODFM
    and 8-VSB Performance*, Sept. 30, 1999, at 5.

[^404]: *1998 Report*, 13 FCC Rcd at 24347-8 ¶ 101.

[^405]: *Geocast to Sign Data Deal With TV*, Comm. Daily, Oct. 7, 1999.

[^406]: Internet video is also known as "streaming video," because data
    are "streamed" over the Internet to provide continuous motion video.

[^407]: By July 1999, there were 42 million households connected to the
    Internet, and it was estimated that there were more than 100.7
    million adult Internet users in the United States. Of all Internet
    users, 17% claim to use the Internet only at work, 40% state they
    use the Internet only at home, and 43% indicate they use it both at
    work and at home. *Internet User Trends: Midyear 1999*, Strategis
    Group, July 1999, at 15, 38, and 53.

[^408]: Internet video still has not reached the quality of traditional
    video because of limited bandwidth and transmission delays of the
    Internet itself. *See* Joyce Slaton, *Prime Time for NetTV?*, Wired
    News, Sept. 27, 1999; New York Times Staff, *A Satellite Model for
    Streaming Media*, The New York Times on the Web, Oct. 11, 1999,
    http://www.nytimes.com/library/tech/99/10/biztech/articles/11data.html.

[^409]: Gary Arlen, *Steam-rolling Into Video Reality*, Multichannel
    News, July 19, 1999, at 112 ("Arlen, July 1999"); Karen Brown,
    *Video Streaming on the Cusp of Reality*, Cable World, June 7, 1999,
    at 104. In the *1998 Report*, we reported that Real Network's
    RealPlayer is a leader in software for Internet video playback. *See
    1998 Report* 13 FCC Rcd at 24349 ¶ 104.

[^410]: *See 1998 Report* 13 FCC Rcd at 24349 ¶ 104.

[^411]: Arlen, July 1999; *See also*
    http://www.real.com/company/index.html.

[^412]: http://www.apple.com/quicktime/.

[^413]: http://www.microsoft.com/windows/windowsmedia/en/default.asp.

[^414]: http://www.real.com.

[^415]: Arlen, July 1999; *See also* http://www.virage.com.

[^416]: Arlen, July 1999; *See also*
    http://www.mediachannel.com/info.htm; http://www.channelseek.com.

[^417]: John Townley, *iBEAM Broadcasting Announces Alliances With 60
    Providers,* Streaming Media News, Oct. 14, 1999,
    http://www.internetnews.com/streamingmedianews/article/0,1087,8161_218231,00.html;
    New York Times Staff, *A Satellite Model for Streaming Media*, The
    New York Times on the Web, Oct. 11, 1999,
    http://www.nytimes.com/library/tech/99/10/biztech/articles/11data.html.

[^418]: *Id*.

[^419]: Arlen, July 1999; *See also* http://www.lariat.com

[^420]: Karen Brown, *Video Streaming on the Cusp of Reality*, Cable
    World, June 7, 1999, at 104.

[^421]: Joyce Slaton, *Prime Time for NetTV?*, Wired News, Sept. 27,
    1999.

[^422]: http://www.broadcast.com.

[^423]: Arlen, July 1999; *See also* http://www.icast.com;
    http://www.tvontheweb.com; http://www.dentv.com; http://
    www.breaktv.com.

[^424]: Reuters, *NFL Quarterbacks Invest In Online TV Programmer*,
    Excite, Inc., Oct. 13, 1999, http://news.Excite.
    com/news/r/991013/01/net-tech-pseudo?printstory=1.

[^425]: *Drew-cam to Simulcast Comedy*, Cable World, Oct. 18, 1999, at
    3. In response to advertisers' concerns, ABC opted not to simulcast
    the full episode.

[^426]: On October 9, 1999, overlapping concerts were held in Giants
    Stadium in New Jersey, Wembley Stadium in London, and the Palais des
    Nations in Geneva, Switzerland. The collective concerts were called
    "NetAid." Jennifer Mack, *NetAid concert delivers 2.38M Streams,*
    zdnet, Oct. 11, 1999, http://www.zdnet.com/filters/
    printerfriendly/0,6061,2351805-2,00.html

[^427]: *Id*.

[^428]: Alan Breznick, *ABC Launches Live Video Newscasts on Web*,
    CableWorld, Oct. 4, 1999, at 10.

[^429]: *Id*.

[^430]: Broadband enables the transfer of data at 300Kbps, the speed at
    which some media players are able to offer full-screen video streams
    of thirty frames-per-second, which is widely considered broadcast or
    cablecast quality video.

[^431]: Joyce Slaton, *Prime Time for NetTV?*, Wired News, Sept. 27,
    1999. *See also* http://www.liketelevision.com.

[^432]: "...a principal cable partner has the right to block access to
    certain content, including streaming video segments of more than ten
    minutes in duration..." At Home Corporation, *Filing 10-K/A for the
    Year Ended December 31, 1998*, Apr. 28, 1999, at 39.

[^433]: Karen Brown, *Video Streaming on the Cusp of Reality*, Cable
    World, June 7, 1999, at 104.

[^434]: *Id*.

[^435]: Programming available for rent or purchase in the various home
    video formats now include theatrically-released movies,
    direct-to-video titles, certain movies originally shown on premium
    channels, documentaries, and concerts. Viacom Inc., SEC Form
    10-K405, March 31, 1999 ("Viacom 10-K").

[^436]: *See*, *e.g*., *Competition, Rate Deregulation and the
    Commission's Policies Relating to the Provision of Cable Television
    Service*, MM Docket No. 89-600, Report, 5 FCC Rcd 4962, 5019-20 ¶¶
    109-110 (1990); 1995 Report, 11 FCC Rcd at 2118-9 ¶ 121; 1998
    Report, 13 FCC Rcd at 24350 ¶106. Viacom states that its Blockbuster
    Video Stores compete with direct-to-home satellite services, cable,
    and broadcast television. Viacom 10-K. See also Hollywood
    Entertainment Corporation, SEC Form 10-K, filed March 31, 1999
    ("Hollywood Entertainment 10-K"); TiVo Inc., SEC Form S-1/A, filed
    September 23, 1999 ("TiVo S-1/A").

[^437]: *1997 Report*, 13 FCC Rcd at 1096-7 ¶¶ 103-4.

[^438]: *U.S. Industry & Trade Outlook '99*, The McGraw-Hill Companies
    and U.S. Department of Commerce/International Trade Administration,
    at 32-5; Hollywood Entertainment 10-K *citing* Adams Media Research.

[^439]: Tom Shales, *Shall We Dance? With DVD, Indeed*, Washington Post,
    June 2, 1999, at C1.

[^440]: *Id*.

[^441]: Hollywood Entertainment 10-K *citing* Video Software Dealers
    Association ("VSDA") statistics.

[^442]: For example, Hollywood Entertainment acquired Reel.com as a
    distribution channel to complement its video stores. Hollywood
    Entertainment 10-K. Best Buy and Blockbuster also have Internet
    sites for purchasing video programming; *see* http://www.bestbuy.com
    and http://www.blockbuster.com, respectively.

[^443]: Hollywood Entertainment 10-K.

[^444]: Hollywood Entertainment 10-K; Viacom 10-K.

[^445]: http://www.cemacity.org/mall/product/video/files/hstryvcr.htm.

[^446]: Tom Shales, *Shall We Dance? With DVD, Indeed*, Washington Post,
    June 2, 1999, at C1.

[^447]: Hollywood Entertainment 10-K *citing* statistics from Paul Kagan
    Associates; *see also* *1997 Report*, 13 FCC Rcd 1096-7, ¶¶ 103,
    105.

[^448]: The NPD Group, Inc., *DVD Sales SoarAs Two ConsumerMarkets
    Evolve, Reports INTELECT ASW* (press release), March 23, 1999,
    http://www.npd.com\\corp\\press\\press_9903233.htm.

[^449]: *Now Playing: DVD/DIVX*, Consumers Reports, July 1999, at 26.

[^450]: http://www.videobusiness.com/news/P3177.asp. As of June 1999,
    more than 2.3 million DVD players had been shipped since their debut
    in early 1997. Daniel Greenberg and Mike Musgrove, *Digital Video
    Disarray*, Washington Post, June 25, 1999, Weekend at 70.

[^451]: *1998 Report*, 13 FCC Rcd at 24352 ¶109.

[^452]: *1997 Report*, 13 FCC Rcd at 1097-8 ¶ 106; *1998 Report*, 13 FCC
    Rcd at 24352 ¶ 109. *See also* Circuit City Stores, SEC Form 10-K,
    filed May 25, 1999.

[^453]: Divx players have been discontinued and the company plans to
    shut down its system on June 30, 2001. Daniel Greenberg and Mike
    Musgrove, *Digital Video Disarray*, Washington Post, June 25, 1999,
    Weekend at 70.

[^454]: Stephanie Stoughton, *Circuit City's Slipped Disk*, Washington
    Post, June 17, 1999, at E1.

[^455]: John Markoff, *2 Makers Plan Introductions of Digital VCR*, New
    York Times, March 29, 1999, at C13. DirecTV is a partner with TiVo.
    DirecTV Comments at 19. Other investors in TiVo include Sony Corp.
    of America, CBS, NBC, Disney, Discovery, Comcast Communications, Cox
    Communications, Philips, and America Online. Glen Dickson, *Sony
    Hops on TiVo Train*, Broadcasting & Cable, September 13, 1999, at
    38.

[^456]: For an additional description of PVRs, *see* DirecTV Comments at
    19; TiVo Internet site, http://www.tivo.com; Replay TV Internet
    site, http://www.replaytv.com; Leslie Walker, *Getting Personal With
    Television*, Washington Post, April 24, 1999, at E1.

[^457]: Sony also plans to manufacture PVRs for TiVo. Glen Dickson,
    *Sony Hops on TiVo Train*, Broadcasting & Cable, September 13, 1999,
    at 38; CableFAX Daily, September 9, 1999, at 2; Circuit City
    advertising supplement to the Washington Post, November 7, 1999.

[^458]: http://www.tivo.com; http://www. replaytv.com.

[^459]: http://www.tivo.com.

[^460]: http://www.replaytv.com; John Markoff, *2 Makers Plan
    Introductions of Digital VCR*, New York Times, March 29, 1999, at
    C13.

[^461]: TiVo S-1/A.

[^462]: 47 U.S.C. § 571(a)(1).

[^463]: 47 U.S.C. § 571(a)(2).

[^464]: 47 U.S.C. § 571(a)(3).

[^465]: 47 U.S.C. § 571(a)(3)-(4).

[^466]: *1995 Report*, 11 FCC Rcd at 2110 ¶ 103; *1996 Report*, 12 FCC
    Rcd at 4394 ¶ 67; *1997 Report,* 13 FCC Rcd at 1099 ¶ 108; *1998
    Report,* 13 FCC Rcd at 24353 ¶ 111.

[^467]: *1998 Report,* 13 FCC Rcd at 24354 ¶ 112.

[^468]: As reported previously, BellSouth serves New Orleans, Atlanta,
    and Orlando, Florida with digital MMDS systems. BellSouth also
    reports that it offers analog MMDS service in Ft. Myers and
    Lakeland, Florida, and Louisville, Kentucky. BellSouth plans to
    launch digital MMDS service soon in Jacksonville and Daytona Beach,
    Florida, and holds the rights to offer this service to Miami,
    Florida. BellSouth Comments at 2. *See also 1998 Report*, 13 FCC Rcd
    at 24354 ¶ 112.

[^469]: BellSouth Comments at 2.

[^470]: William N. Deatherage and Bette Massick Colombo,
    "Telecommunications Services: Opinions, News, & Latest Results,"
    *Equity Research -- Telecommunications*, Bear Sterns & Co., Inc.,
    Nov. 1999, at 173.

[^471]: *1998 Report*, 13 FCC Rcd at 24534 ¶ 112. On October 2, 1998,
    GTE Corporation and Bell Atlantic Corporation filed joint
    applications under Sections 214 and 310(d) of the Communications
    Act, 47 U.S.C. §§ 214 and 310(d), requesting Commission approval of
    the transfer of control of licenses and authorizations controlled or
    requested by GTE or its affiliates or subsidiaries to Bell Atlantic.
    This transfer of control would take place as the result of a
    proposed merger of Bell Atlantic and GTE. This merger is still under
    Commission review. For more information on the merger, *see*
    http://www.fcc.gov/ccb/Mergers/BA_GTE/welcome.html.

[^472]: As of November 4, 1999, the active franchises were located in:
    *Illinois*: Glendale Heights, Naperville, Glen Ellyn, Arlington
    Heights, Elgin, Prospect Heights, Des Plaines, Schaumburg,
    Streamwood, Chicago (Area 5), Crestwood, South Holland, Oak Forest,
    Unincorporated DuPage County, Robbins, Mount Prospect; *Michigan*:
    Canton Township, Plymouth, Plymouth Township, Northville, Fraser,
    Northville Township, Southgate, Garden City, Troy, Wayne, Lincoln
    Park, Sterling Heights, Clinton, Mount Clemens, St. Clair Shores,
    Allen Park, Utica, Melvingdale, Royal Oak, Madison Heights, Warren,
    Trenton, Pleasant Ridge, Ferndale, Huntington Woods, Clawson,
    Berkley, Roseville, Eastpointe, Westland, Riverview, Taylor, Hazel
    Park, Woodhaven, Rochester Hills, Center Line, Harrison Township,
    Rochester, Shelby Township, Grosse Ile, Dearborn Heights; *Ohio*:
    Hilliard, Upper Arlington, North Olmsted, Columbus, Berea, Perry
    Township, Worthington, Clinton Township, Riverlea, Blendon Township,
    Sharon Township, Fairview Park, Franklin Township, Mifflin Township,
    Norwich Township, Marble Cliff, Valleyview, Minerva Park, Madison
    Township, Westlake, Jackson Township, Dublin, Prairie Township,
    Middleburg Heights, New Rome, Brice, Grandview Heights, Whitehall,
    North Royalton, Grove City, Brooklyn, Shaker Heights, Brook Park,
    Strongsville, Linndale, Garfield Heights, Gahanna, Westerville,
    Urbancrest, Bexley, Reynoldsville. The franchises which had not yet
    begun service were located in: *Illinois*: Vernon Hills, Calumet
    City, Glenview, Palos Park, Chicago Heights, Harvey; *Indiana*:
    Hammond; *Michigan*: Malcomb Township; *Ohio*: Canal Winchester,
    Valley View, Brecksville, Independence, Cuyahoga Heights. Ameritech
    New Media, *Ameritech New Media Cable Franchises* (news release),
    Nov. 4, 1999.

[^473]: Ameritech Comments at iii.

[^474]: Ameritech Comments at 1-3 and Exhibit 1.

[^475]: *1998 Report*, 13 FCC Rcd at 24355 ¶ 114.

[^476]: The active franchises are located in: Vestavia Hills, Alabama;
    St. Johns\' County, Dade County, and Pembroke Pines, Florida;
    Counties of Cherokee, Dekalb, and Gwinnett and Cities of Chamblee,
    Duluth, Lawrenceville, and Woodstock, Georgia; and Daniel Island,
    South Carolina. BellSouth Comments at 2.

[^477]: The non-competitive franchise is in Cerritos, California. The
    competitive franchises are: Clearwater, St. Petersburg, Penellas
    County, Safety Harbor, and Dunedin, Florida; Camarillo, Thousand
    Oaks, Port Hueneme, Oxnard, and Ventura County, California. *1998
    Report*, 13 FCC Rcd at 24355 ¶ 114.

[^478]: GTE Corp., http://www.gte.com/products/prods/americas.html. GTE
    reports that it has approximately 102,000 subscribers to its cable
    systems, and that it is offering cable modem service in some of
    those areas. http://www.gte.com/aboutgte/organization/business.html.
    GTE also reports that it offers "mainStreet" interactive television
    in Clearwater, Florida and Thousand Oaks, California.
    http://www.gte.com/products/prods/6-23-97-0.html.

[^479]: SNET Corp, http://www.snet.com/americast/amermain.htm.

[^480]: State of Connecticut, Department of Public Utility Control,
    *Application of SNET Personal Vision, Inc., To Modify Its Franchise
    Agreement*, Docket No. 99-04-02, Aug. 25, 1999.

[^481]: *Id*.

[^482]: *1998 Report*, 13 FCC Rcd at 24356 ¶ 114.

[^483]: U S West, *U S West Begins 3-City Trial of Nation's First
    Service to Integrate Customers' Telephone & Internet With Existing
    TV Service* (news release), June 21, 1999. The service is currently
    in trials with U S West employees in Denver, Minneapolis, and
    Phoenix.

[^484]: *Id*.

[^485]: *1998 Report*, 13 FCC Rcd at 24356-7 ¶ 115.

[^486]: *SBC Reviewing Ameritech Overbuild Plans*, Comm. Daily, Nov. 19,
    1999, at 5.

[^487]: *Id*.

[^488]: ^?^ MFS has withdrawn its two certifications for New York City
    and Boston because it does not plan to operate open video systems in
    those areas. Bell Atlantic, in Dover Township, New Jersey, shut down
    its system in favor of its distribution agreement with DirecTV. For
    a complete listing of approved, pending, and denied applications for
    OVS certification, *see* http://www.fcc.gov/csb/csovscer.html.

[^489]: RCN Comments at 5-8.

[^490]: *Id*.

[^491]: *Id*.

[^492]: *Id*.

[^493]: *Id.* at 9-10.

[^494]: *Id*.

[^495]: RCN Corporation, *Paul G. Allen Invests \$1.65 Billion in RCN
    Corporation* (press release), Oct. 4, 1999.

[^496]: *Id*.

[^497]: *City of Dallas v. Federal Communications Commission*, 165 F.3d
    341 (5th Cir. 1999), recon. den. May 28, 1999. The Commission
    implemented these changes in *Implementation of Section 302 of the
    Telecommunications Act of 1996*, CS Docket No. 96-46, Order on
    Remand, FCC 99-341 (rel. Nov. 19, 1999).

[^498]: RCN Comments at vi.

[^499]: Ameritech Comments at 5; BellSouth Comments at 4; RCN Comments
    at 18. *See also* CCC Reply Comments at 2-3.

[^500]: Ameritech Comments at 7; BellSouth Comments at 10-11; RCN
    Comments at 19-20. The program access provisions of the
    Communications Act require access to vertically integrated
    programming delivered to cable operators via satellite, but not to
    programming delivered via terrestrial means.

[^501]: Ameritech Comments at 5-7; BellSouth Comments at 8-10.

[^502]: Ameritech Comments at 9; BellSouth Comments at 5-8.

[^503]: Ameritech Comments at 10; BellSouth Comments at 12-13; CCC Reply
    Comments at 2-3.

[^504]: Ameritech Comments at 10-13.

[^505]: BellSouth Comments at 14-17.

[^506]: Ameritech Comments at 13-15, 17; BellSouth Comments at 19; CCC
    Reply Comments at 3-4; RCN Comments at 15-17. RCN has sought a
    ruling from the Commission that will compel MDU incumbents to share
    existing wiring with RCN if the MDU owner refuses RCN's request to
    install its own wiring. Commission action on this matter is pending.

[^507]: RCN Comments at 11-15. The OVS rules allow potential
    unaffiliated programmers to gain information about open video
    systems from the system owner. RCN contends that cable operators are
    inquiring about carriage on its open video systems purely to gain
    access to sensitive data.

[^508]: *Id.* at 22-25.

[^509]: Ameritech Comments at 15-17; BellSouth Comments at 18.

[^510]: BellSouth Comments at 18.

[^511]: 47 U.S.C. § 543(l)(1)

[^512]: 47 U.S.C. § 543(l)(1)(D).

[^513]: *Implementation of Cable Reform Act Provisions of the
    Telecommunications Act of 1996*, CS Docket No. 96-85, Report and
    Order, 14 FCC Rcd 5296 (1999).

[^514]: *Id*.

[^515]: *Id*.

[^516]: *See, e.g., 1998 Report*, 13 FCC Rcd at 24360 ¶¶ 120-121.

[^517]: *See* ¶ 129 *supra*.

[^518]: Seren Reply Comments at 1.

[^519]: *Id*.

[^520]: Linda Haugsted, *Iowa Reinstates Municipal Telco Services,*
    Multichannel News, Mar. 15, 1999, at 36; Joe Estrella, *City in Iowa
    OKs Triax, Will Overbuild*, Multichannel News, Mar. 15, 1999, at 18.

[^521]: *Iowa Telephone Association v. City of Hawarden*, 589 N.W.2d245
    (1999). The federal law cited in the case is 47 U.S.C. §
    541(b)(3)(B).

[^522]: Monica Hogan, *Municipal Overbuild Hits 2nd Ohio Town*,
    Multichannel News, Mar. 8, 1999, at 24. This system is in addition
    to the municipal utility cable overbuild that has been operating in
    Wadsworth, Ohio, for two years. Linda Haugsted, *City Happy With Its
    System in Wadsworth*, Multichannel News, Mar. 8, 1999, at 24.

[^523]: Joe Estrella, *Time Warner Cuts Rate to Fight Overbuild*,
    Multichannel News, Jul. 19, 1999, at 38.

[^524]: Joe Estrella, *Texas Electrical Co-op Will Fight Charter*,
    Multichannel News, Dec. 14, 1998, at 40.

[^525]: *Id*.

[^526]: Linda Haugsted, *Alameda Voters OK Municipal System*,
    Multichannel News, Nov. 30, 1998, at 77.

[^527]: Mike Farrell, *Little Rock Ready to Roll on Cable*, Multichannel
    News, Jan. 4, 1999, at 3.

[^528]: *1994 Report*, 9 FCC Rcd at 7541 ¶210; *1995 Report*, 11 FCC Rcd
    at 2123-24 ¶132; *1996 Report*, 12 FCC Rcd at 4419 ¶118; *1997
    Report*, 13 FCC Rcd at 1121 ¶156; and *1998 Report*, 13 FCC Rcd at
    24362 ¶125.

[^529]: *Id.*

[^530]: *Id.*

[^531]: *See* ¶¶ 44-50 *supra.*

[^532]: The number of communities in which a cable operator faces
    wireline competition is determined by the number of communities that
    have been certified by the Commission as having effective
    competition on the basis of the head-to-head or LEC competition
    tests. If a cable operator facing competition from a wireline or LEC
    operator chooses not to file a petition fro a determination of
    effective competition, the community served by the cable operator is
    not included in the count. In addition, if a petition has been filed
    and is pending, that community alsois not included in the count.

[^533]: *See* ¶¶ 215-248 *infra.*

[^534]: *See* ¶ 123 *supra.*

[^535]: *Id*.

[^536]: Jim Barthold, *Customer Retention Tough for Pa. Overbuilder,*
    Cable World, August 18, 1999, at 12. Kent Gibbons, *Competition Is
    Costly In Columbus,* Multichannel News, November 23, 1998, at 16.

[^537]: *See ¶¶* 132-134 s*upra.*

[^538]: *See* ¶¶ 73-74 *supra*.

[^539]: *Id*.

[^540]: NCTA Comments at 8. *See also Use and Limitations of Structural
    Indicia of Market Power*, Economists Incorporated, August 1999, NCTA
    Comments, Attachment.

[^541]: Townhouses and mobile home comunities, nursing homes, hospitals,
    and hotels may also represent consumer segments in some markets.

[^542]: U.S. Bureau of the Census, *American Housing Survey for the
    United States in 1997*, Tables 1A-1: "Introductory Characteristics
    -- All Housing Units," October 1999. These figures exclude nursing
    homes, hospitals, and hotels that are not considered "housing units"
    by the Census Bureau.

[^543]: *See*, *e*.*g*., MediaOne Comments at 12 (MediaOne faces
    competition from more than a dozen SMATV providers in Florida, more
    than 30 in Georgia, a dozen in California, approximately six in
    Illinois, and more than five in New England).

[^544]: Jimmy Schaeffler, *DBS Leaders Set Strategies for Penetrating
    the MDU Market*, Private Cable &Wireless Cable, February 1999
    ("*Schaeffler, February 1999*"), at 28. *See also* ¶ 98 *supra*.

[^545]: OpTel Comments at 9.

[^546]: *Id*. at 28. Although RCN, the largest OVS operator, has
    converted a number of its open video systems to traditional cable
    systems.

[^547]: Jimmy Schaeffler, *DBS Providers Zero in on the Multihousing
    Market*, Private Cable & Wireless Cable, August 1999 ("*Schaeffler,
    August 1999*"), at 22.

[^548]: *Id*.

[^549]: CableDay, July 20, 1999, at 1.

[^550]: OpTel Comments at 9; *Futuretrak International to Purchase
    DirecTV MDU License,* Comm. Daily, August 27, 1999, at 9.

[^551]: Private Cable & Wireless Cable, December 1998, at 18.

[^552]: OpTel Comments at 4.

[^553]: *Id*.

[^554]: *1998 Report*, 13 FCC Rcd at 24369 ¶141.

[^555]: Price discounts to MDUs are permitted under the Commission's
    rules. 47 C.F.F. § 76.984(c)(2); *see also* 47 U.S.C. § 543(d).

[^556]: RCN Comments at 7.

[^557]: *1998 Report,* 13 FCC Rcd at 24369 ¶142.

[^558]: *Id*.

[^559]: RCN Comments at 5.

[^560]: *Id*.

[^561]: *Id*. at 4.

[^562]: *Id*. at 7.

[^563]: *Id*.

[^564]: *Schaeffler, August 1999*, at 22.

[^565]: *Schaeffler, February 1999*, at 28.

[^566]: *Id*.

[^567]: Cathy Stephens, *DBS vs. C-Band: A Business Model Comparison*,
    Private Cable & Wireless Cable, October 1999, at 18.

[^568]: Ameritech Comments at 13-15; BellSouth Comments at 19; DirecTV
    Comments at 7-8; RCN Comments at 15-17; WCA Comments at 18; CCC
    Reply Comments at 24.

[^569]: *Id*.

[^570]: DirecTV Comments at 7; CCC Reply Comments at 26.

[^571]: BellSouth Comments at 19.

[^572]: Facsimile from ICTA, October 13, 1999, at 2.

[^573]: DirecTV Comments at 7.

[^574]: OpTel Comments at 6.

[^575]: WCA Comments at 17; CCC Reply Comments at 15.

[^576]: Ameritech Comments at 14.

[^577]: RCN Comments at 16.

[^578]: Ameritech Comments at 15.

[^579]: *Telecommunications Services Inside Wiring, Customer Premises
    Equipment, Implementation of the Consumer Protection and Competition
    Act of 1992: Cable Home Wiring*, CS Docket No. 95-184 and MM Docket
    No. 92-260, Report and Order and Second Further Notice of Proposed
    Rulemaking ("*Inside Wiring Order*"), 13 FCC Rcd 3659 (1998).

[^580]: RCN Comments at 16; CCC Reply Comments at 23.

[^581]: WCA Comments at 18; CCC Reply Comments at 24.

[^582]: WCA Comments at 19.

[^583]: DirecTV Comments at 7.

[^584]: MediaOne Comments at 15.

[^585]: NCTA Comments at 30.

[^586]: MediaOne Comments at 14 *citing* *Entertainment Connections,
    Inc*., Memorandum Opinion and Order, 13 FCC Rcd 14277 (1998). *See
    also City of Chicago v. FCC*, \_\_\_F.3d\_\_\_(7^th^ Cir. 1999),
    1999 WL 1103446.

[^587]: *Id*.

[^588]: SBCA Comments at 25; DirecTV Comments at 8.

[^589]: *Restrictions on Over-the-Air Reception Devices: Television
    Broadcast, Multichannel Multipoint Distribution and Direct Broadcast
    Satellite Services*, CS Docket No. 96-83, Second Report and Order,
    13 FCC Rcd 23874 (1998); *see also Restrictions on Over-the-Air
    Reception Devices: Television Broadcast, Multichannel Multipoint
    Distribution and Direct Broadcast Satellite Services*, CS Docket No.
    96-83, Order on Reconsideration, FCC 99-360 (rel. November 24,
    1999).

[^590]: SBCA Comments at 26.

[^591]: DirecTV Comments at 8.

[^592]: OpTel Comments at 5. *Implementation of Cable Act Reform
    Provisions of the Telecommunications Act of 1996*, CS Docket No.
    96-85, Report and Order, 14 FCC Rcd at 5317 ¶ 41. *See also* Robert
    D. Primosch, *FCC's Uniform Rates Ruling Puts the Pressure on PCOs*,
    Private Cable & Wireless Cable, June 1999, at 25.

[^593]: *See Inside Wiring Order*.

[^594]: *1998 Report,* 13 FCC Rcd at 24362 ¶ 125.

[^595]: United States General Accounting Office Report to the
    Subcommittee on Antitrust, Business Rights, and Competition,
    Committee on the Judiciary, U.S. Senate; *Telecommunications: The
    Changing Status of Competition to Cable Television;*
    GAO/RCED-99-158, July, 1999.

[^596]: BellSouth Comments at 6; CCC Reply Comments at 10; Ameritech
    Comments at 7; DirecTV Comments at 11.

[^597]: *Id*.

[^598]: BellSouth Comments at 15-16; CCC Reply Comments at 15.

[^599]: Ameritech Comments at 7.

[^600]: *Id.* at 9.

[^601]: Paul Kagan Assocs., Inc., *Swapping is the Name; Clustering's
    the Game,* Cable TV Investor*,* July 26, 1999, at 4-6.

[^602]: David Liberman, *AT&T Bargains for Cable System Swaps,* USA
    Today, June 13, 1999, at 1-B.

[^603]: *Mass Media,* Comm. Daily*,* April 4, 1999, at 8.

[^604]: David Liberman, *Cable Deals Follow Trend Towards
    Regionalization,* USA Today, May 27, 1999, at B1.

[^605]: *See* App C, Tbl C-5. *See also* Cableday, Wednesday, May 5,
    1999, at 1.

[^606]: Paul Kagan Assocs., Inc., *Cable System Sales Summary,* The
    Cable TV Investor*,* August 10, 1998, at 10; March 3, 1999, at 8;
    and September 10, 1999, at 12.

[^607]: *See* App. C, Tbl. C-2.

[^608]: *The Consolidation Craze,* Broadcast & Cable, July 14, 1999, at
    40.

[^609]: *1997 Report*, 13 FCC Rcd at 1118-19 ¶ 147.

[^610]: Paul Kagan Assocs., Inc., *Cable TV News and Data Points*, Cable
    Investor*,* June 1999, at 16.

[^611]: *See* App. C, Tbl. C-5.

[^612]: Concentration alone is not sufficient to determine whether a
    market is noncompetitive. If it is easy for new participants to
    enter the market, for example, highly concentrated markets may
    behave competitively. *See* F.M. Scherer, *Industrial Market
    Structure and Economic Performance*, Rand McNally College Publishing
    Company, 1980, at 56.

[^613]: Ameritech Comments at 10; Bell Atlantic Comment at 12-13; CCC
    Reply Comments at 17-23; EchoStar Comments at 6.

[^614]: James N. Dertouzos and Steven S. Wildman, *Programming Access
    and Effective Competition in Cable Television*, Comments of
    Ameritech, *Implementation of Section 11(c) of the Cable Television
    Consumer Protection and Competition Act of 1992: Horizontal
    Ownership Limits*, Memorandum and Order on Reconsideration and
    Further Notice of Proposed Rulemaking, MM Docket 92-264, 13 FCC Rcd
    14462 (1997) at Attachment 2.

[^615]: *Id*.

[^616]: *Implementation of Section 11(c) of the Cable Television
    Consumer Protection and Competition Act of 1992: Horizontal
    Ownership Limits*, MM Docket No. 92-264, Third Report and Order
    ("*Horizontal Ownership Limits Order*"), FCC 99-289 (rel. October
    20, 1999) at n. 21.

[^617]: The Commission's horizontal ownership rules and the statutes
    were challenged in two different forums. In *Daniels Cablevision,
    Inc. v. United States*, the U.S. District Court for the District of
    Columbia held that Section 613(f)(1)(a) violates the First
    Amendment. Time Warner challenged the horizontal ownership rules in
    the District Court of Columbia. In August 1996, the District of
    Columbia Circuit consolidated the appeals of Daniels with Time
    Warner. *See Daniels Cablevision, Inc. v. United States*, 835
    F.Supp. 1, 10 (D.D.C. 1993), *aff'd in part*; *Time Warner
    Entertainment Co. L.P. v. FCC*, 93 F.3d 957 (D.C.Cir. 1996). The
    appeal is currently pending.

[^618]: *Horizontal Ownership Limits Order* at ¶ 11.

[^619]: *Id.* at ¶ 5.

[^620]: *Id.* at ¶ 29.

[^621]: *Id.* at ¶ 53.

[^622]: *Id*.

[^623]: DirecTV is the fourth largest MVPD with 5.3 million subscribers;
    Echostar is the eighth largest MVPD with 2.6 million subscribers.

[^624]: Subscriber totals for the cable companies are as of June 1999,
    and as reported in Paul Kagan Assocs., Inc., *Top Cable Operators as
    of June 1999,* Cable TV Investor, August 20, 1999, at 10-12. Some of
    these totals may be different from the totals submitted by companies
    to the Commission. For example, AT&T, in their e*x parte* filing in
    Docket CS No. 99-251, November 24, 1999, reports a susbcriber count
    of approximately 21 million which would result in approximately 26%
    share of total MVPD subscribers. S*ee also* App. C, Tbl. C-1.

[^625]: These market shares calculated using available industry data and
    do not attempt to reference the Commission's revised attribution
    rules. *See Implemantation of the Cable Television Consumer
    Protection and Competition Act of 1992, Implementation of Cable Act
    reform Provisions of the Telecommunications Act of 1996: Review of
    the Commission's Attribution Rules,* Report and Order, CS Docket
    Nos. 98-82, 96-85 ("*Attribution Order*"), FCC 99-288 (rel. October
    20, 1999).

[^626]: *1998 Report,* 13 FCC Rcd at 24422, App. C, Table C-3.

[^627]: *See* App. C, Tbl. C-3.

[^628]: *1998 Report,* 13 FCC Rcd at 24363 n. 562*.* The HHI is a
    measure of concentration that is calculated by summing the squared
    market shares of the sellers in the market. It is a measure of
    concentration that takes account of the entire firm size
    distribution. The HHI varies with the number of firms in the market
    and degree of inequality among firm size. Generally, HHI increases
    when there are fewer and unequal sized firms in the market. If the
    firms in the market are similar in size or if there is only one
    firm, the HHI has no advantage over other measures of concentration
    such as four-firm or eight-firm concentration ratio. Thus, in local
    video distribution markets where the incumbent cable operator is the
    only MVPD, the HHI is of limited use. However, in the market for the
    purchase of video programming, where both cable and non-cable MVPDs
    compete, the HHI is sensitive to differences in firm size.

[^629]: That is, the total license fee paid for a program is based, in
    part, on the total number of subscribers served by the MVPD. As the
    subscribership increases, so does the total license fee paid by the
    MVPD.

[^630]: The United States Department of Justice and Federal Trade
    Commission consider markets with HHI below 1000 as "unconcentrated;"
    markets with an HHI between 1000 and 1800 as "moderately
    concentrated;" and markets with HHI above 1800 as "highly
    concentrated." *See 1998 Report*, 13 FCC Rcd at 24363 n. 562.

[^631]: *1998 Report,* 13 FCC Rcd at 24422, App. C. Tbl C-3.

[^632]: *See* App. C, Tbl. C-3.

[^633]: By squaring market shares, the HHI weighs the values for large
    companies more heavily than small companies. Also, the HHI declines
    with rising equality among any given number of companies. *See* F.M.
    Scherer, *Industrial Market Structure and Economic Performance*,
    Rand McNally College Publishing Company, 1980, at 58.

[^634]: The data set forth in this section generally identify vertical
    ownership relationships by reference to the ownership attribution
    standards associated with the Commission\'s horizontal and vertical
    (channel occupancy) rules in effect when the *Notice* was released.
    On October 8, 1999, the Commission revised its horizontal ownership
    rules in two separate Report and Orders: *See Horizontal Ownership
    Limits Order* *supra* at fn. 616 and *Attribution Order supra* at
    fn. 625. *See also 1998 Report*, 13 FCC Rcd 24284 at ¶ 164.

[^635]: Beneficial effects can include efficiencies in the production,
    distribution, and marketing of video programming, and providing
    incentives to expand channel capacity and create new programming by
    lowering the risks associated with program production ventures.
    *See, e.g.,* H.R. Rep. No. 862, 102nd Cong., 2d Sess. 56 at 41-43
    (1992).

[^636]: *See 1995 Report*, 11 FCC Rcd at 2135 ¶ 158; *Implementation of
    Section 11(c) of the Cable Television Consumer Protection and
    Competition Act of 1992 Vertical Ownership Limits*, MM Docket
    92-264, Memorandum Opinion and Order on Reconsideration of the
    Second Report and Order ("*Vertical Ownership Limits*"), 10 FCC Rcd
    7364, 7365 (1995) ¶ 4.

[^637]: In last year's *Report*, we began the practice, continued in
    this *Report*, of counting each unique programming service of a
    multiplexed package separately. We do not, however, count services
    that are not unique, as in a multiplexed programming service that is
    merely time shifted. *See* *1998 Report*, 13 FCC Rcd at 24376, fn.
    661.

[^638]: The top six MSO's are Time Warner Cable, AT&T Broadband &
    Internet Services, MediaOne, Comcast Cable Communications, Cox
    Communications, and Cablevision Systems. *See* App. D, Tbl. D-5.

[^639]: Although Liberty Media is a subsidiary of AT&T, AT&T has raised
    the issue of the extent of control it has over Liberty owned
    programming. *See, e.g.*, *ex parte* filing in CS Docket No. 99-251,
    November 24, 1999.

[^640]: *1998 Report*, 13 FCC Rcd at 24378 ¶ 163.

[^641]: In April 1999, Glenn Jones, founder of Jones International, sold
    controlling interest in cable MSO, Jones Intercable, to Comcast
    Cable Communications. *See Comcast Announces Filing of Registration
    Statement Relating to Partial Exchange Offer for Jones Intercable,
    Inc.* (press release) August 23, 1999. *See also* Frank Witsil,
    *Augusta, Ga.-Based Cable Firm to Adopt Comcast Name*, The Augusta
    Chronicle, September 29, 1999.

[^642]: App. D, Table D-6.

[^643]: The 12 companies are: ABC/Disney, General Electric, CBS, News
    Corp, Time Warner, Viacom, Discovery, Rainbow Media, Liberty Media,
    USA Networks, E.W. Scripps, and Comcast. As noted above (paragraph
    104), CBS and Viacom have announced a proposed merger of their two
    companies. *See* Tom Kerver, *Who's Who: The Program Consolidators,*
    Cablevision, June 29, 1998, at 28.

[^644]: C-SPAN, C-SPAN2, WGN, and The Weather Channel are the four
    unaffiliated programming networks among the top 50 programming
    networks. Cable affiliates provide 95% of the funding for, but have
    no ownership or porgram control interests in C-SPAN and C-SPAN2. DBS
    licensees provide the other 5% of funding, and also have no
    ownership or program control interests. None of the 12 companies
    listed in footnote 643 *supra* have any ownership interest in WGN or
    The Weather Channel. *See* Paul Kagan Assocs., *Network Census:
    September 30*, Cable Program Investor, Dec. 17, 1999, at 8.

[^645]: Comcast Comments at 26.

[^646]: App. D, Table D-7.

[^647]: Compare Table D-4 *infra* with *1998 Report*, 13 FCC Rcd at
    24442, Appendix D, Table D-4, *1997 Report*, 13 FCC Rcd at 1222-25
    App. F, Tbls. F-3, F-4, and *1996 Report*, 12 FCC Rcd at 4517-20
    App. F, Tbls. 3-4.

[^648]: *See* App D, Table D-3.

[^649]: R. Thomas Umstead, *Murdoch Gets His Fix*, Cablevision, April
    26, 1999, at 50.

[^650]: RCN Comments at 19; Seren Reply Comments at 9; CoreComm Reply
    Comments at 20; and CCC Reply Comments at 8 and 15.

[^651]: *See* ¶¶ 201-204 *infra* for a more detailed description of
    program access.

[^652]: Seren Reply Comments at 9.

[^653]: DirecTV Comments at 10.

[^654]: RCN Comments at 19.

[^655]: Hiawatha Comments at 1. *See also* CCC Reply Comments at 13.

[^656]: R. Thomas Umstead, *Murdoch Gets His Fix*, Cablevision, April
    26, 1999, at 50.

[^657]: R. Thomas Umstead, *Consolidation Blues,* Cablevision, June 28,
    1999, at 39.

[^658]: Deborah D. McAdams, *Cable News Nets Go Small*, Broadcasting &
    Cable, September 27, 1999, at 42.

[^659]: *Id.* at 48.

[^660]: *Id.* at 42.

[^661]: *Id*. at 44.

[^662]: Communications Act, § 611, 47 U.S.C. § 531.

[^663]: Local franchise authorities are allowed to establish procedures
    under which the cable operator may utilize unused PEG channel
    capacity for other services. 47 U.S.C. 531 (d)(1). *See also*
    www.alliancecm.org.

[^664]: Alliance for Community Media, *Forum Network Tries Access
    Channel Grab* (press release), March 16, 1999.

[^665]: Cable operator and Internet service provider (ISP) AT&T
    challenged a Portland, Oregon, city ordinance and county resolution
    requiring it to allow competing ISPs to access its cable modem
    platform. The District Court held that: (1) the open access
    requirement was not preempted by Telecommunications Act; did not
    violate AT&T\'s First Amendment free speech rights; did not violate
    Commerce Clause; state or federal Contract Clauses; and did not
    breach franchise agreements. *AT&T Corp v. City of Portland*, 43
    F.Supp.2d 1146, 16 Communications Reg. (P&F) 138 (D. Or. June 3,
    1999) (NO. CV 99-65 PA).

[^666]: *Cable Capacity, U.S. Preemption, Key Issues for Access
    Channels*, Communications Daily, July 9, 1999.

[^667]: *See* *1998 Report*, 13 FCC Rcd at 24385 ¶¶ 182-3 for a full
    description of Gemstar's technology.

[^668]: *Son of Merger of Equals: Gemstar*, TV Guide Make Love, Not War,
    CableFAX Daily, October 5.

[^669]: Gemstar International Group has also filed patent infringement
    suits against AT&T, Scientific-Atlanta, General Instrument and
    Pioneer Electronics. *See* Robert La Franco, *Technology: The Patent
    Terrorist,* Forbes, May 17, 1999, (Forbes Archives) at
    http://www.forbes.com/forbes/99/0517/6310055a.htm.

[^670]: Evan Ramstad, *Digital Guides Vie in TV Power Play \-- Which
    Ones Will Become Television\'s Gatekeepers?*, The Wall Street
    Journal, May 27, 1999, at B1. *See also* ¶ 119 *supra*.

[^671]: *See* Ameritech Comments, *1998 Report*, at 44.

[^672]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices*, CS Docket No.
    97-80, Report and Order (\"*Navigation Devices Order*\"), 13 FCC Rcd
    14775 (1998). *Implementation of Section 304 of the
    Telecommunications Act of 1996, Commercial Availability of
    Navigation Devices*, CS Docket No. 97-80, Order on Reconsideration,
    14 FCC Rcd 7596 (1999).

[^673]: *Navigation Devices Order*, 13 FCC Rcd at 14820 ¶116.

[^674]: *Id*.

[^675]: Inflation, channel additions, system upgrades and miscellaneous
    or "other" costs were also said to account for a large portion of
    rate increases. *See* *Implementation of Section 3 of the Cable
    Television Consumer Protection and Competition Act of 1992,
    Statistical Report on Average Rates for Basic Service, Cable
    Programming Services, and* Equipment, MM Docket No. 92-266, Report
    on Cable Industry Prices ("*1998 Price Report*"), 14 FCC Rcd 8331,
    8345-6 (1999) ¶¶ 33-34.

[^676]: *1998 Price Report*, 14 FCC Rcd at 8346 ¶ 34.

[^677]: MediaOne Comments at 18. *See also* *MediaOne Results Send
    Slowdown Signal*, Multichannel News, Nov. 9, 1998, at 18.

[^678]: *Cable Systems' Programming Expenditures: 1986 -- 1998,* Cable
    Television Developments, Summer 1999, at 7. NCTA estimates are based
    on Paul Kagan Associates, Inc. and US Copyright Office data.

[^679]: ACA Comments at 4.

[^680]: Ameritech Comments at 10.

[^681]: Ameritech Comments at 11. *See also* Ameritech Comments,
    *Vertical Ownership Limits*, MM Docket No. 92-264, Aug. 14, 1998, at
    Attachment 2.

[^682]: NCTA Reply Comments at 11-12.

[^683]: Digital subscribers are almost universally higher-end income
    families. See *Attack of the Monster Programmers,* Cablevision, June
    29, 1998, at 31. *See also* Price Colman and Deborah McAdams, *The
    Digital Jungle.(editorial),* Broadcasting & Cable, August 23, 1999,
    at 22.

[^684]: *Id*.

[^685]: For a discussion of tiering, generally, *see Implementation of
    Section 3 of the Cable Television Consumer Protection and
    Competition Act of 1992: Buy through Prohibition*, MM Docket No.
    92-262, Report and Order, 8 FCC Rcd 2274 (1993).

[^686]: *See* statement of Senator Inouye, S.Rep. No. 102, 102d Cong.,
    2d Sess. 77 (1992).

[^687]: Addressability is the ability of a cable operator to control
    electronically, from a remote centralized location, the selection of
    services received by individual customers.

[^688]: Hiawatha Comments at 10.

[^689]: Price Colman, *Programmers Act Against Action Plus,*
    Broadcasting & Cable, December 14, 1998, at 50.

[^690]: Price Colman and John M. Higgins, *Icy After the Sunset,*
    Broadcasting & Cable, March 22 1999, at 38.

[^691]: Comcast Reply Comments at 20. *See also* Comcast, *ex parte*
    submission, Dec. 3, 1999.

[^692]: The Commission\'s program access rules are set forth at
    47 C.F.R. §§ 76.1000-76.1003, and the program carriage rules are set
    forth at 47 C.F.R. §§ 76.1300-76.1302. *See also* 47 U.S.C.
    § 536(a)(2); 47 U.S.C. § 548.

[^693]: *See* Section 19 of the 1992 Cable Act, Development of
    Competition and Diversity in Video Programming Distribution. *See
    also* 47 U.S.C. § 548. DBS providers are exempt from the program
    access rules and are allowed to enter into exclusive programming
    arrangements.

[^694]: SBCA Comments at 25; DirecTV Comments at 2-3, 10-11.

[^695]: See *Petition for Rulemaking of Ameritech New Media, Inc.
    Regarding Development of Competition and Diversity in Video
    Programming Distribution and Carriage, In the Matter of
    Implementation of the Cable Television Consumer Protection and
    Competition Act of 1992*, CS Docket No. 97-248, RM No. 9097, Report
    and Order ("*1998 Program Access Order*"), 13 FCC Rcd 15822, 15856-7
    (1998) ¶ 71.

[^696]: WCA Comments at 5; Echostar Comments at 6; CCC Reply Comments at
    4.

[^697]: CCC Comments at 2.

[^698]: EchoStar Comments at 6.

[^699]: *1998 Program Access Order*, 13 FCC Rcd at 15856-7 ¶ 71.

[^700]: Disney Reply Comments at 4.

[^701]: Viacom Reply Comments at 7.

[^702]: NCTA Reply Comments at 10-11.

[^703]: BellSouth Comments at 8.

[^704]: NCTA Reply Comments at 11-12.

[^705]: *1998 Report*, 13 FCC Rcd at 24391-4 ¶195-206.

[^706]: *Id*. at 24391-2 ¶ 196-198.

[^707]: Price Colman, *The Digital Jungle*, Broadcasting & Cable, August
    23, 1999, at 22, 26; Deborah D. McAdams, *Dancing into Digital*,
    Broadcasting & Cable, August 23, 1999, at 30.

[^708]: *Id.* *See also* Comcast Reply Comments at 20.

[^709]: Price Colman, *The Digital Jungle*, Broadcasting & Cable, August
    23, 1999, at 23; NCTA Comments at 33.

[^710]: NCTA Comments at 33.

[^711]: DirecTV Comments at 18.

[^712]: DirecTV, DIRECTV *Launches Second HDTV Channel Beginning Nov. 1*
    (press release), Oct. 28, 1999.

[^713]: *1998 Report*, 13 FCC Rcd at 24392 ¶ 198

[^714]: *See*, *e*.*g*., http://www.qrf.com/upgrart1.htm.

[^715]: ^?^ 47 U.S.C. § 549. Section 629 was added to the Communications
    Act by Section 304 of the 1996 Act.

[^716]: ^?^ *Implementation of Section 304 of the Telecommunications Act
    of 1996, Commercial Availability of Navigation Devices*, CS Docket
    No. 97-80, Report and Order, 13 FCC Rcd 14775 (1998).

[^717]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices*, CS Docket No.
    97-80, Order on Reconsideration, 14 FCC Rcd 7596 (1999).

[^718]: 47 C.F.R. § 76.1204.

[^719]: *Id*.

[^720]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices*, CS Docket No.
    97-80, Status Report, filed January 7, 1999 ("January Status
    Report"); *Implementation of Section 304 of the Telecommunications
    Act of 1996, Commercial Availability of Navigation Devices*, CS
    Docket No. 97-80, Status Report, filed July 7, 1999 ("July Status
    Report").

[^721]: July Status Report at 7.

[^722]: January Status Report at 2.

[^723]: July Status Report at 8.

[^724]: July Status Report at 8.

[^725]: *1998 Report*, 13 FCC Rcd at 24939-4 ¶204;
    http://www.cablemodem.com/DOCSIS_Security.html

[^726]: *See* ¶¶ 56-60 *supra.*

[^727]: Kinetic Strategies Inc.,
    http://www.cabledatacomnews.com/cmic/cmic2.html.

[^728]: http://www.cablelabs.com/start_here/cablelabs_initiatives.html.

[^729]: CableLabs, *CableLabs Certifies Terayon Modem, Re-certifies
    Thomson and Toshiba* (press release), Sept. 2, 1999,
    http://www.cablelabs.com/PR/PR_DOCSIS_090299.html.

[^730]: Modem suppliers that have received CableLabs Certified status
    include: 3Com, Arris Interactive, Askey Computer Corp., Cisco
    Systems, General Instrument, Philips Electronics, Samsung
    Information Systems of America, Sony corp., Thomson Consumer
    Electronics, Terayon Communications Systems, Toshiba, Best Data, and
    Com21. CableLabs, *CableLabs Certifies Best Data and Com21 Modems,
    Re-certifies GI and RCA Modems, Re-Qualifies Cisco* CMTS (press
    release), Dec. 9, 1999,
    http://www.cablelabs.com/PR/pr_cw11_120999.html.

[^731]: These three companies are Arris Interactive, Cisco Systems, and
    Motorola. CableLabs, *CableLabs Qualifies Arris and Motorola
    High-Speed Data Headend Equipments* (press release), July 15, 1999,
    http://www.cablelabs.com/PR/PR_DOCSIS_071599.html.

[^732]: MediaOne has started limited rollout of DOCSIS modems with
    Circuit City in New England, Richmond, Atlanta. AT&T and CompUSA ran
    a pilot in Spokane. *MediaOne Sets DOCSIS Retail Strategy*,
    Multichannel News, June 14, 1999; Karen Brown, *Retail Rollout*,
    Cable World, Oct. 25, 1999, at 12. Cablevision recently announced a
    retail modem program through its owned electronics stores, The Wiz.
    The program will begin in Norwalk, Connecticut, and then expand to
    the rest of Connecticut and Long Island. *Mass Media*, Comm. Daily,
    Nov. 2, 1999.

[^733]: Kinetic Strategies Inc.,
    http://www.cabledatacomnews.com/cmic/cmic16.html. *See also* Jim
    Barthold, *No Retail Modems for Holiday Sales*, Cable World, Sept.
    27, 1999, at 1.

[^734]: http://www.packetcable.com.

[^735]: CableLabs, *CableLabs Hosts PacketCable Interoperability
    Testing* (press release), July 8, 1999,
    http://www.cablelabs.com/PR/PR_PC_Interop_070899.html.

[^736]: *Id*.

[^737]: Ameritech Comments at 1-2 and Exhibit 1. In its comments,
    Ameritech, which operatoes as a new entrant in 90 communities in
    Michigan, Illinois, and Ohio, describes several similar examples of
    competitive response by the incumbent cable operator.

[^738]: *Petition of Tribune-United Cable of Oakland County d/b/a TCI
    Cablevision of Oakland County, Inc., For Determination of Effective
    Competition*, CSR 5334-E ("*TCI Petition*"), December 2, 1998, at
    Attachments D and E.

[^739]: *Id*.

[^740]: *TCI* *Petition* at Exhibit F.

[^741]: Catherine Kavanaugh, *Changing Channels*, Daily Tribune,
    September 23, 1997, at 1A.

[^742]: *TCI* *Petition* at 13 and Exhibit B.

[^743]: *Id*.

[^744]: *TCI Cablevision of Oakland County, Inc., Petition for
    Determination of Effective Competition*, Memorandum and Order, CSR
    5334-E, 14 FCC Rcd 2345, 2348-49 ¶¶8-¶11.

[^745]: *Petition of Marcus Cable Associates, LLC., for Determination of
    Effective Competition*, CSR 5297-E ("*Marcus Petition*"), August 31,
    1998, at Exihibit F.

[^746]: *Marcus Petition* at 11-12 and Exhibit M.

[^747]: *Id.* at 8-9.

[^748]: *Marcus Cable Associates, LLC., For Determination of Effective
    Competition*, CSR 5297-E, Memorandum Opinion and Order, 14 FCC Rcd
    2078, 2082 ¶11.

[^749]: *Petition of Time Warner Cable, Supplement to Petition for
    Special Relief*, CSR-5166-E ("*Time Warner Petition*"), August 19,
    1998, at 2 and *Time Warner Entertainment* *Advance/Newhouse
    Partnership d/b/a Time Warner Cable, Petition for Determination of
    Effective Competition*, CSR 5166-E, Memorandum Opinion and Order
    ("*Time Warner Order*"), 14 FCC Rcd 2338, 2340-41 ¶4.

[^750]: Kathleen Powers, *RCN Foments Cable Revolution,* Somerville
    Journal, July 3, 1997; *Time Warner Petition* at Exhibit B.

[^751]: *Time Warner Petition* at 6.

[^752]: *Id.* at Exhibit B.

[^753]: *Id*.

[^754]: *Id.* at Exhibit C.

[^755]: *Cable Competition Wins High Praise,* The Wakefield Daily Item,
    March 16, 1999, at 8.

[^756]: *Id*.

[^757]: *Time Warner Petition* at 8.

[^758]: *Time Warner Order* at ¶ 10.

[^759]: *Mountain Cable Company d/b/a Adelphia Cable Communications,
    Multi-Channel TV Cable Company d/b/a Adelphia Cable Communications,
    Better TV d/b/a Adelphia Cable Communications, Petitions for
    Revocation of the Certification of the Vermont Public Service Board
    to Regulate Basic Cable Service Rates*, Memorandum Opinion and Order
    ("*Adelphia Order*"), DA 99-1749 (rel. September 2, 1999), at ¶ 3.

[^760]: *Adelphia Order* at ¶ 20.

[^761]: *Id*. at ¶ 15.

[^762]: *Id*.

[^763]: *Petition of Adelphia Cable Communications, d/b/a Mountain Cable
    Company, Multi-Channel TV Cable Company, and Better TV, Petitions
    for Revocation of Certification of the Vermont Public Service Board
    to Regulate Basic Cable Service Rates* ("*Adelphia Petition*"), at
    Exhibit B.

[^764]: *Id*.

[^765]: *Adelphia Order* at n. 54.

[^766]: Linda Haugsted, *Adelphia Says Vermont is Competitive*,
    Multichannel News, April 19, 1999, at 16.

[^767]: *Id*.

[^768]: *Petition of Time Warner Cable for Effective Competition,
    Petition for Special Relief*, CSR 5425-E ("*Time Warner Lebanon
    Petition*"), August 31, 1999, at Exhibit F.

[^769]: Steve Bennish, *City Cites Strong Cable Sales,* Dayton Daily
    News*,* June 9, 1999, at 1B.

[^770]: *Time Warner Lebanon Petition* at Exhibit H.

[^771]: Richelle Thompson, *Eyes on Lebanon in Risky Cable War,*
    Cincinnati Enquirer, February 15, 1999, at A1.

[^772]: On December 6, 1999, the Bureau granted Time Warner's petition
    for a determination of effective competition in the Lebanon, Ohio
    franchise area. *See Petition for Revocation of the Certification of
    the City of Lebanon, Ohio to Regulate Basic Service and Equipment
    Rates*, CSR 5425-E, Memorandum Opinion and Order, DA 99-2760 (rel.
    December 10, 1999).

[^773]: Chris Celek, *City Cable System Up and Running*, Dayton Daily
    News, March 11, 1999, at A5.

[^774]: Joe Estrella*, Time Warner Cuts Rates to Fight Overbuild*,
    Multichannel News, July 19, 1999, at 38.

[^775]: *Id*.

[^776]: *Id*.

[^777]: Tim Tresslar, *Time Warner Cuts Prices for Cable*, Dayton Daily
    News, June 30, 1999, at 1A.

[^778]: Ameritech Comments at 2.

[^779]: *Id*.

[^780]: *1998 Report,* 13 FCC Rcd at 24405 ¶ 234.

[^781]: Kent Gibbons, *Competition Is Costly In Columbus,* Multichannel
    News, November 23, 1998, at 16.