FOR IMMEDIATE RELEASE NEWS MEDIA CONTACT

January 28, 2004 Michelle Russo (202) 418-2358

**FCC RELEASES TENTH ANNUAL REPORT ON COMPETITION**

**IN VIDEO MARKETS**

Washington, DC -- The Federal Communications Commission ("FCC") released
its tenth annual report on competition in the market for the delivery of
video programming. The report examines the status of competition,
discusses changes that have occurred in the competitive environment over
the last year, and describes barriers to competition that continue to
exist. Today's tenth annual report also examines the status of
competition in the market for the delivery of video programming over the
past decade and at various intervals in between.

The report finds that overall, due, in part, to Congressional efforts
made over the past decade, technological advances, and investment in new
platforms for delivering video programming, the vast majority of
Americans enjoy more choice, more programming and more services than any
time in history. In addition to an increase in the number of video
channels, cable operators and other multichannel video programming
distribution ("MVPD") services also now offer advanced video services
and many non-video advanced services. Cable television remains the
predominant technology for the delivery of video programming. Ten years
ago, cable operators served almost 100% of the nation's subscribers.
Today, cable's share has fallen to approximately 75% of all MVPD
subscribers.

Competitive alternatives to incumbent cable operators have been
available during the past ten years to varying degrees and continue to
develop, although not always as envisioned. For example, Congress and
the FCC previously expected local exchange telephone companies ("LECs")
to launch video systems and become the primary competitors to cable
systems. In 1992, the FCC established the video dialtone framework that
permitted LEC entry consistent with statutory prohibitions.
Subsequently, Congress amended the Communications Act to permit LEC
entry in their telephone service areas under one of four statutory
frameworks. Despite these efforts to foster competition, however,
significant LEC entry into the video marketplace has failed to
materialize.

On the other hand, direct broadcast satellite ("DBS") TV service, which
first became commercially available in 1993, has become the most
significant national competitor to cable. Today, most consumers have the
additional choice of at least two national DBS providers that provide
service similar to that of cable operators, including advanced video and
non-video services. DBS now serves almost 22% of all MVPD subscribers.
Today, other delivery technologies (*i.e.,* overbuilders, wireless cable
systems, private cable systems) only serve small numbers of subscribers
in limited areas with competitive alternatives to cable systems as they
have over the last ten years.

> \-- more \--

The total number of subscribers to both cable and non-cable MVPDs has
increased significantly over the last ten years and continues to
increase incrementally each year. A total of 60.3 million households
subscribed to MVPD services as of year-end 1993. As of June 2003, 94.1
million households subscribed to MVPDs, an increase of more than 56%
over the last ten years. The number of cable subscribers continues to
grow, reaching almost 70.5 million subscribers as of June 2003, up from
the 57.2 million cable subscribers at year-end 1993. In the last several
years, however, cable subscribership has declined such that as of June
2003, there was approximately the same number of cable subscribers as
there were at year-end 1999. The total number of non-cable MVPD
subscribers grew from 3.1 million as of year-end 1993, to 11.23 million
as of June 1998, to 23.7 million as of June 2003, a significant increase
since 1993.

During the period under review, cable rates have risen significantly.
According to the Bureau of Labor Statistics, between year-end 1993 and
the end of June 2003, the Consumer Price Index ("CPI"), which measures
general price changes, increased approximately 25.5%, while cable
prices, also measured as a subcategory of the CPI, rose approximately
53.1%. Between June 2002 and June 2003, cable prices rose 5.1% compared
to a 2.1% increase in the overall CPI. Concurrently with these rate
increases, the number of video and non-video services offered increased,
including a substantial increase in the number of video channels,
increased use of cable (as measured by a substantial increase in cable
viewership), and the addition of advanced service offerings, which are
paid for separately by consumers. Cable operators attribute rising costs
to increased programming costs and higher labor costs that have risen
faster than inflation, as cable operators have increased the size and
proficiency of their customer service workforce. A recent study by the
U.S. General Accounting Office (GAO) also found that programming costs,
infrastructure investments, and increased spending by cable operators on
customer service were putting upward pressure on cable rates.

The tenth annual report details the status of competitors in the market
for the delivery of video programming including: cable systems,
direct-to-home satellite service (DBS and home satellite dishes),
broadband service providers, wireless cable systems, private cable
operators (a.k.a. SMATV), broadcast television, local exchange carrier
(LEC) entry, open video systems, Internet video, home video sales and
rentals, and electric and gas utilities.

The report also examines market structure and competition by evaluating
horizontal concentration in the MVPD marketplace; analyzing vertical
integration between cable television systems and programming services;
and discussing technical issues such as cable modems, navigation devices
and emerging services.

A list of the key findings of the report is attached.

Action by the Commission, January 5, 2004, by Report (FCC 04-5).
Chairman Powell issuing a separate statement; Commissioners Copps and
Adelstein concurring and issuing a joint statement.

\-- FCC\--

MB Docket No. 03-172

Media Bureau contacts: Marcia Glauberman, Anne Levine at (202) 418-2330.

TTY: (202) 418-7172

###  

#### Key Findings of the FCC's Tenth Annual Report on Video Competition

**[Industry Growth:]{.underline}**

In the *2003 Report*, the FCC examines the status of competition in the
market for the delivery of video programming, discusses changes that
have occurred in the competitive environment over the last year and the
past decade, and describes barriers to competition that continue to
exist. Competition provides consumers with choice, better services,
higher quality, and greater technological innovation. Overall, due, in
part, to Congressional efforts made over the past decade, technological
advances, and investment in new platforms for delivering video
programming, the vast majority of Americans enjoy more choice, more
programming and more services than any time in history. In addition to
an increase in the number of video channels, cable operators and other
MVPDs also now offer advanced video services and many non-video advanced
services. Cable television, however, remains the predominant technology
for the delivery of video programming. At year-end 1993, 94.89% of MVPD
subscribers received their video programming from a franchised cable
operator, and by June 2003, 74.87% of MVPD subscribers received their
video programming from a franchised cable operator.

The total number of subscribers to both cable and non-cable MVPDs has
increased significantly over the last ten years and continues to
increase incrementally each year. A total of 60.3 million households
subscribed to multichannel video programming services as of year-end
1993, where as of June 2003, 94.1 million households subscribed to
MVPDs, an increase of more than 56% over the last ten years. This
subscriber growth over the last ten years accompanied 14.2 and 21.26
percentage point increases respectively in MVPDs' penetration of
television households to 85.25% as of June 2003. MVPD penetration of
television households was at its highest in June 2001, when 86.42% of
television households subscribed to an MVPD.

Since our first *Report*, the number of cable subscribers continues to
grow, reaching almost 65.9 million subscribers as of June 2003, up from
the 57.2 million cable subscribers at year-end 1993. In the last several
years, however, cable subscribership has declined such that as of June
2003, there were approximately the same number of cable subscribers as
there were at year-end 1999. The total number of non-cable MVPD
subscribers grew from 3.1 million as of year-end 1993, to 23.7 million
as of June 2003, a significant increase over 1993.

DBS subscribership has grown significantly since its introduction ten
years ago in 1993, and now represents 21.63% of all MVPD subscribers.
Since its introduction, the DBS growth rate has exceeded the growth rate
of cable by double digits in every year except in the past year, when
DBS growth exceeded cable growth by 9.16 percentage points. Between June
2002 and June 2003 alone, the number of DBS subscribers grew from about
18.2 million households to more than 20.4 million households. The
continued growth of DBS is still, in part, attributable to the authority
granted to DBS operators to distribute local broadcast television
stations in their local markets by the Satellite Home Viewer Improvement
Act of 1999 ("SHVIA"), and an increase in the number of markets where
such service is offered. Since its introduction, DBS has attracted
former cable subscribers as well as consumers not previously subscribing
to an MVPD.

Over the last year, the number of subscribers to MMDS and large dish
satellite service ("HSD") continued to decline, the participation of
incumbent local exchange carriers in the distribution of video
programming also continued to decline, and the number of subscribers to
open video systems ("OVS") and private cable has remained relatively
stable, although their market share remains small. Although
subscribership to these services and their relative market share have
been steadily declining over the last several years, the deployment and
use of these services has contributed significantly to the early
acceptance of non-wireline alternatives to traditional MVPD service, and
has inspired current iterations of all-digital, wireless DBS services.

**[Cable Rates:]{.underline}**

During the period under review, cable rates have risen significantly.
According to the Bureau of Labor Statistics, between year-end 1993 and
the end of June 2003, the Consumer Price Index ("CPI"), which measures
general price changes, increased approximately 25.5%, while cable
prices, also measured as a subcategory of the CPI, rose approximately
53.1%. Between June 2002 and June 2003, cable prices rose 5.1% compared
to a 2.1% increase in the CPI. Using a different methodology and
covering a different mix of cable services and a different time period,
the FCC's annual survey of cable industry rates found that the monthly
rate for basic service, the most highly subscribed to cable programming
service tier (expanded basic or CPST), and equipment rose 8.2% between
July 1, 2001, and July 1, 2002.

Concurrently with these rate increases, however, the number of video and
non-video services offered increased, including a substantial increase
in the number of video channels, increased use of cable (as measured by
a substantial increase in cable viewership), and the addition of
advanced service offerings. Cable operators attribute rising costs to
increased programming costs and higher labor costs that have risen
faster than inflation, as cable operators have increased the size and
proficiency of their customer service workforce. In a recent study, GAO
also found that programming costs, infrastructure investments, and
increased spending by cable operators on customer service are putting
upward pressure on cable rates. GAO notes that industry representatives
believe that certain factors related to the nature of ownership
affiliations may also indirectly influence cable rates through their
influence on cable operators' choice of which cable networks to carry.
The FCC also notes that in certain locales, cable operators' pricing
decisions may be affected by direct competition. Available evidence
indicates that when an incumbent cable operator faces "effective
competition," as defined by the Communications Act, 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. In this regard,
GAO's recent study reports that where wire-based competition is
available, cable rates are lower by about 15%. GAO further found that in
markets where DBS companies provide local broadcast stations, rates are
only slightly lower, but cable operators are more likely to improve the
quality of their service in response to DBS competition.

**[Convergence of Cable and Telephone Service:]{.underline}**

Congress and the FCC expected LEC video systems to become the primary
competitors to cable systems. In 1992, the FCC established the video
dialtone framework that permitted LEC entry into the video marketplace
consistent with statutory prohibitions. Subsequently, Congress amended
the Communications Act to permit LEC entry in their telephone service
areas under one of four statutory frameworks, including the open video
system ("OVS") framework. Both efforts were aimed to facilitate
competition between incumbent cable operators and telephone companies.
Despite these efforts to foster competition, significant LEC entry into
the video marketplace has failed to materialize. A few smaller LECs
continue to offer, or are preparing to offer, MVPD service over existing
telephone lines. The FCC first noted in our *1997 Report* that several
cable multiple system operators ("MSOs") were beginning to offer resale,
and in some cases, facilities-based telephone service. The FCC
anticipated that telephone service offered by cable operators would
become a significant source of competition to incumbent LECs. Today some
cable MSOs are offering circuit switched telephony. Most cable MSOs,
however, are waiting for IP technology to become widely available before
accelerating their rollout of telephone service. Some of these cable
operators are currently offering, or continuing to test, IP telephony
products.

**[High-Speed Internet Service:]{.underline}**

The most significant convergence of service offerings continues to be
the pairing of Internet access services with video programming services.
The FCC first reported in our *1997 Report* that cable operators were
beginning to offer a bundle of services to include high-speed access to
the Internet via cable modem. By year-end 1998, there were approximately
500,000 subscribers. Some cable operators offer access to the Internet
through the subscriber's television and a specially designed set-top
box, but the most popular way to access the Internet over cable was, and
still is, through the use of a cable modem and personal computer. Today,
virtually all of the major MSOs offer Internet access services via cable
modems in large portions of their service areas and about half of all
mid-sized and small cable operators provide this service. As of June
2003, there were more than 13.8 million cable modem high-speed Internet
access subscribers. Like cable, the DBS industry is continuing to
develop ways to bring advanced services to their customers. Many MMDS
and private cable operators also offer Internet access services. In
addition, BSPs continue to build advanced systems specifically to offer
a bundle of services, including video, voice, and high-speed Internet
access.

**[Promotion of Entry and Competition:]{.underline}**

Since our first *Report*, non-cable MVPDs have described regulatory and
other barriers to entry that limit their ability to compete with
incumbent cable operators. These non-cable MVPDs continue to report that
many of the same barriers to entry noted in the *1994 Report* are still
experienced today. For example, in our *1994 Report*, the FCC noted that
non-cable MVPDs experienced some difficulties in obtaining programming
from vertically-integrated cable programmers and from unaffiliated
programmers which make exclusive agreements with cable operators. Many
non-cable MVPDs report the same difficulties today. Others described
problems accessing vital sports and regional news programming as a
result of exemptions to the program access rules, most notably, the
terrestrial delivery of programming to distributors. In our *1998
Report*, the FCC noted that in multiple dwelling units ("MDUs")
potential entry was discouraged or limited because an incumbent video
programming distributor has a long-term and/or exclusive contract. This
remains a concern for commenters today. In addition, as described in
previous *Reports*, non-cable wireline MVPDs report problems obtaining
franchises from local governments and difficulties in gaining access to
utility poles needed to build out their systems. These concerns also
remain.

**[Distribution Technologies Findings:]{.underline}**

FCC findings as to particular distribution technologies operating in the
market for the delivery of video programming include the following:

**Cable Systems:** Since the *1994 Report*, subscribership to cable
television services has increased steadily (between year end 1993 and
June 2003, there was a 15.2% increase in subscribership from 57.2
million subscribers to 65.9 million subscribers). In recent years, some
specific cable operators have experienced decreases in subscribership,
but the industry on a whole has experienced average year-to-year
increases of about 2% each year. The industry has also continued to grow
in terms of revenue (an approximate 125% increase between year-end 1993
and year-end 2002), all-day audience shares for cable networks (which
rose from an average 29 share during the 1993-1994 television season to
an average 55 share for the 2002-2003 season), and expenditures on
programming.

Over the last decade, the cable industry has invested more than \$75
billion to upgrade and improve cable plant. As a result, digital
compression technology has been implemented, resulting in significant
increases in channel capacity over the last ten years, as well as the
introduction of such non-video services such as Internet access and
telephony.

**Direct-to-Home ("DTH") Satellite Service (DBS and HSD):** Since 1994,
video service has been available from high power DBS satellites that
transmit signals to small DBS dish antennas installed at subscribers'
premises (DBS service). Video service using low power satellites and
larger antennas (HSD service) has been available since 1979. DBS
currently has over 20 million subscribers, an increase of approximately
11.6% since the *2002 Report*. There are currently a little more than
500,000 subscribers to HSD services, as measured by the number of HSD
users that actually purchase programming packages. This is down
significantly from its peak subscribership of 2.4 million in 1995.
DirecTV and EchoStar are each among the five largest providers of
multichannel video programming service. In 1993, DBS was not available
to consumers. As of June 2003, DBS represented a 21.6% share of the
national MVPD market. Currently HSD represents another 0.53% of the MVPD
market. At its peak, HSD represented almost 3.5% of MVPD service
subscribers.

**Broadband Service Providers:** In our *1994* *Report*, the FCC
identified municipal and independent overbuilders. At that time, video
distribution was the sole focus of overbuilding activity. In our *2001
Report* the FCC addressed a new class of providers called BSPs, entities
that compete with existing cable systems using state-of-the-art systems
that offer a bundle of telecommunications services, including video,
voice, and high-speed Internet access. As of June 2003, BSP served
approximately 1.4 million subscribers, representing approximately 1.5%
of all MVPD households.

**Wireless Cable Systems:** Currently, the wireless cable industry
("MMDS") provides competition to the cable industry in limited areas. At
year-end 1993, there were approximately 400,000 subscribers to MMDS
service. At its peak in mid-1998, MMDS systems provided video service to
approximately one million customers. MMDS subscribership declined over
the last year from approximately 490,000 subscribers in June 2002 to
200,000 subscribers in June 2003. With the advent of digital MMDS and
the FCC's authorization of two-way MMDS service, it appears that most
MMDS spectrum eventually will be used to provide high-speed data
services. Wireless cable represented an approximately 0.66% share of the
MVPD market at year-end 1993, and approximately 0.21% share of the
national MVPD market in June 2003. At its peak, MMDS has represented
only 1.3% of the MVPD market.

**Private Cable Operators:** Private cable operators, also known as
SMATV operators, 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 MDUs. At year-end 1993, there were about one
million subscribers to SMATV services, representing 1.67% of the MVPD
market and today, there are a little more than 1.2 million subscribers,
representing approximately 1.27% of the MVPD market. Subscribership has
declined over the last year, from its peak subscribership in mid-2002,
when there were approximately 1.6 million reported subscribers to SMATV
services, representing 1.78% of the MVPD market.

**Broadcast Television:** Broadcast stations and networks, and
non-broadcast networks alike, must either produce programming or
purchase programming from third-party producers. Broadcast networks and
stations also are suppliers of content for distribution by MVPDs. In
addition, they supply video programming directly to those television
households that are not MVPD subscribers and to television sets in MVPD
households that are not connected to such service. Since the *1994
Report*, the broadcast industry has continued to grow in the number of
operating stations (from 1,518 as of November 1993 to 1,726 as of June
2003), adding about 1.3% more stations on average each year over the
last ten years. Broadcast stations and networks, like MVPDs and
non-broadcast networks, derive revenue from advertising. Advertising
revenues averaged an annual six percent increase since the *1994
Report*, but fell dramatically during the general economic recession of
2001, when advertising revenues declined about 12% from the prior year.
Audience levels continue to decline as they have for many years. During
the 2002-2003 television season, broadcast television stations
collectively (network affiliates, independent stations and public
broadcast stations) accounted for an average 49 share of prime time
viewing for all television households, compared to an average 74 share
ten years earlier. During the 2002-2003 television season, broadcast
television stations collectively accounted for an average 45 share of
all-day viewing for all television households, compared to an average 71
share ten years earlier. Broadcast television stations continue to
deploy digital television ("DTV") service. As of September 2003, all but
two of the 40 stations that make up the top-four network affiliates in
the top ten television markets were broadcasting DTV service. Virtually
all of the more than 1,300 commercial television stations have been
granted DTV construction permits or licenses and 1,038 are on the air
with DTV operation, or nearly 80%.

**LEC Entry:** LEC involvement into the video market over the last ten
years has been lackluster. The FCC previously reported that the largest
incumbent LECs have largely exited the video business. The most notable
exception is BellSouth, which currently operates overbuild cable systems
in 14 franchise areas, passing 1.4 million homes. In addition, a few
incumbent LECs offer, or are preparing to offer, MVPD service over
existing telephone lines. Qwest Communications International (formerly
US West), offers video service in several markets, high-speed Internet
access, and telephone service over existing copper telephone lines using
very high-speed digital subscriber line ("VDSL"). Currently, BSPs, many
of which also operate incidentally as competitive LECs, are the primary
OVS certification holders. In fact, over the last ten years, Ameritech
(now owned by SBC) made the most significant entry of any incumbent LEC
into the video programming distribution market, purchasing and building
facilities-based services such that by 1998, it held 111 cable
franchises with the potential to pass more than 1.7 million homes, and
had nearly 250,000 subscribers. But Ameritech (SBC) eventually sold all
of its interests in video program distribution systems, and no longer
remains involved in the video business.

**Internet Video:** In 1994, Internet video was not yet in use. The
World Wide Web was a nascent technology. As of June 2003, an estimated
59 million Americans subscribed to an Internet access service (with 20
million of those subscribing to a high-speed Internet access service).
Real-time and downloadable video accessible over the Internet continues
to become more widely available and the amount of content is increasing.
Yet, despite the evidence of increased interest in Internet video
deployment and use, the medium is still not seen as a direct competitor
to traditional video services.

**Home Video Sales and Rentals:** The FCC considers the sale and rental
of home video, including videocassettes, DVDs, and laser discs, part of
the video marketplace because they provide services similar to the
premium and pay-per-view offering of MVPDs. In 1994, VCR penetration was
84% of TV households. In 2003, Nielsen Media Research estimates VCR
penetration at 91% of TV households. Our *1998 Report* was the first
*Report* in which the FCC reported that DVD technology, introduced in
1997, would likely replace laser disc technology as another means to
view video programming. The number of homes with DVD players has grown
rapidly since their introduction, and DVDs have made significant impact
on the home video market. In the first half of 2003 alone, equipment
manufacturers sold 10.3 million DVD players. The newest home video
technology is the personal video recorder ("PVR"). Introduced in 1999,
PVRs may be purchased from and subscription obtained through an MVPD or
directly from a PVR service operator. Currently, there are approximately
2.1 million PVRs in use, as measured by PVR subscriptions.

**Electric and Gas Utilities:** In 1994, some utilities were engaged in
the provision of video services through overbuilding incumbent cable
systems, though such activity was very limited. Section 103 of the
Communications Act, enacted as part of the 1996 Act, removed a
significant regulatory barrier that had deterred registered public
utility holding companies' entry into video markets. Today, many
utilities continue to move forward with ventures involving multichannel
video programming distribution. Though their services are still not
widespread, utilities do, provide competition in scattered localities.
Some of their characteristics, such as ownership of fiber optic networks
and access to public rights-of-way, make them competitively significant.
Some utilities offer telecommunications services on their own, while
others partner with broadband service providers, such as Starpower,
RCN's joint venture with PEPCO. It also appears that utilities,
particularly municipal utilities in rural areas, are willing to build
advanced telecommunications networks to offer a full range of services
where incumbent cable operators and telephone companies are not. Reports
indicate that 105 public power entities offer video services.

**[Additional Findings]{.underline}**

-   **Consolidations and Clustering:** Although cable operators continue
    to acquire and trade systems, consolidation of the top cable
    operators appears to have declined slightly over the past year,
    after many years of rapid consolidation and concentration. For
    example, the four largest operators served about 51.7% of all U.S.
    cable subscribers in June 2002, and in June 2003, that number was
    down to about 50.5% of all U.S. cable subscribers. In terms of one
    traditional economic measure, national concentration among the top
    MVPDs has increased since last year as the largest MSOs have grown
    larger over the past year, and current levels are above levels
    reported since the *1994 Report*. DBS operators DirecTV and EchoStar
    rank among the five largest MVPDs in terms of nationwide
    subscribership along with three cable MSOs. As of year-end 2002,
    slightly more than 51 million of the nation's cable subscribers were
    served by systems that are included in 109 regional clusters. At
    year-end 1994, only about 20 million subscribers were served by
    systems that were included in 97 regional clusters.

-   **Programming Networks:** The number of satellite-delivered
    programming networks has increased significantly over the last ten
    years. As of year-end 1994, there were approximately 106
    non-broadcast programming networks available for carriage by MVPDs.
    As of June 2003, there were more than 339 national non-broadcast
    programming networks. During the same period, vertical integration
    of national programming services between cable operators and
    programmers has decreased from 53% at year-end 1994 to 33% as of
    June 2003. As the number of vertically-integrated networks has
    increased, the total number of networks also has increased such that
    the percentage of vertically integrated networks has steadily
    declined (from over 50% in 1994 to 30% in 2002) until this year when
    the percent rose to 33%. In 2003, four of the top six cable MSOs,
    ranked by subscribership, held ownership interests in
    satellite-delivered programming services. In 1994, five of the top
    six cable MSOs held ownership interests in satellite-delivered
    programming services. Sports programming warrants special attention
    because of its widespread appeal and strategic significance for
    MVPDs. The *2003 Report* identifies at least 84 regional networks,
    28 of which are sports channels**,** many owned at least in part by
    MSOs. There are also 37 regional and local news networks that
    compete with local broadcast stations and national cable news
    networks.

-   **Program Access:** The program access rules adopted pursuant to the
    1992 Cable Act, and recently extended by the FCC, were designed to
    ensure that other MVPDs can access vertically-integrated satellite
    delivered programming on non-discriminatory terms. The *2003 Report*
    recognizes that the terrestrial distribution of programming,
    including in particular regional sports programming, remains an
    important issue and could have an impact on the ability of
    alternative MVPDs to compete in the video marketplace.

-   **Advanced Technologies:** In 1994, most technical efforts were
    focused on the development and use of digital compression and
    modulation technologies. The cable industry was just beginning to
    accelerate the upgrade of its wired networks to increase capacity
    and enhance the capabilities of their transmission platforms to
    include such advanced services as voice, data transport (later known
    as Internet access services), and advanced video services such as
    video-on-demand ("VOD"). Today, many advanced services are available
    to subscribers, but many more are still evolving. Many advanced
    services such as telephony and high-speed Internet access services,
    are now in widespread use. MVPDs are now focusing on deployment of
    VOD and other emerging interactive television services.

-   **Cable Modems:** There have been numerous significant technical
    developments regarding cable modems and other technologies used to
    access a wide range of services offered by MVPDs. Although cable
    modems were not available for residential use at the time of our
    *1994 Report*, a group of cable operators, joined together in
    December 1996 to issue a Request for Proposal ("RPF") that resulted
    in the development of the DOCSIS standard. As of September 2003, 365
    DOCSIS modems have received certification and 54 Cable Modem
    Termination Systems ("CMTSs") have gained qualified status under
    DOCSIS. In addition, most operators continue to improve their
    high-speed Internet access service, offering higher speeds and
    special features. PacketCable, another CableLabs project, began in
    1997, and is the standard developed for delivering advanced,
    real-time multimedia services over two-way cable plant. PacketCable
    enables a wide range of services, including IP telephony, multimedia
    conferencing, interactive gaming, and general multimedia
    applications. By June 2003, there were approximately 13.4 million
    cable modem subscribers in the U.S.

-   **Navigation Devices:** There also have been numerous significant
    technical developments regarding the navigation devices used to
    access a wide range of services offered by MVPDs. In 1998, the FCC
    adopted rules, pursuant to Section 629 of the Communications Act, so
    that consumers could obtain "navigation devices" from commercial
    sources other than their cable providers. In 2003, the FCC further
    adopted rules to permit television sets to be built with
    "plug-and-play" functionality for one-way digital cable services,
    without the need for a set-top box. The cable and consumer
    electronics industries continue to work on the development of an
    agreement for two-way "plug-and-play" receivers. The FCC also
    extended the date for the ban on cable operators provision of
    integrated set-top boxes from January 1, 205, until July 1, 2006. In
    addition, the FCC adopted rules to assure that DTV broadcast content
    will not be indiscriminately redistributed. Content marked by the
    descriptor may only be output or recorded through to analog outputs,
    protected digital outputs, and a small class of unprotected digital
    outputs at a lower resolution. Through the OpenCable project,
    CableLabs developed hardware specifications as well as
    specifications for the software interface that a host device needs
    to accommodate these changes.

    \- FCC -