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                           Before the
               Federal Communications Commission
                     Washington, D.C. 20554
In the Matter of
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
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MM Docket No. 92-266
                Report on Cable Industry Prices
   Adopted:  February 8, 2001                Released:  February 14, 2001
By the Commission:
     I.   Introduction
1.     Section 623(k) of the Communications Act of 1934 ("Communications Act"), as amended by
the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act," 47 U.S.C. 
521 et seq), requires the Commission to publish annually a statistical report that compares prices charged
by cable operators facing effective competition with those of operators not facing effective competition for
the delivery of basic service, other cable programming services, and equipment. This 2000 Report is issued
in compliance with that statutory obligation.
2.     The information and analysis provided in this Report are based upon the Commission's 2000
survey of cable industry prices ("Survey").  On July 3, 2000, the Commission released an Order directing
cable operators selected as part of a random sample representative of the industry to respond to
Commission data requests, pursuant to Section 623(k) of the Communications Act, no later than August 15,
2000.  The Survey requested data from selected cable operators as of July 1, 1999 and July 1, 2000.
Limited amounts of data were requested as of July 1, 1998.  The Survey collected information about each
operator's regulatory status, monthly charges for the basic service tier ("BST") and cable programming
service tiers ("CPSTs"), monthly charges for equipment, installation fees, reconnect fees, and fees for tier
changes.
3.       The Survey also sought information needed to determine average rates per channel and to
explain changes in rates between the Survey dates.  The Survey enables the Commission to compare the
prices charged by two groups of cable operators:  (1) cable operators that face effective competition as
defined by the Communications Act, referred to as the "competitive group;" and (2) cable operators that do
not face effective competition, referred to as the "noncompetitive group."  Within the noncompetitive group,
information was collected from both operators that were regulated and unregulated.  We also sought to
gather information about the price and availability of services such as digital tiers, Internet access, and
telephony offered by cable operators.  In addition, we sought to gather information and analyze the effect
of clustering (the practice of operating commonly owned cable systems in close proximity on an integrated
basis through the use of shared personnel and/or facilities).  Finally, we sought information on the number
of Direct Broadcast Satellite ("DBS") subscribers in each cable operator's franchise area in order to
determine if DBS penetration has had an effect on the demand for cable as well as on the monthly charges
for cable service.  The major findings of the Survey are summarized below.
     IV.  Summary of findings
5.     Competitive operators increased average monthly rates for BST, CPST, and equipment by 5.8%
during the 12-month period ending July 1, 2000; noncompetitive operators also increased rates by 5.8%,
over the same period.  These increases compared with increases of 4.5% and 5.2% for the competitive and
noncompetitive groups, respectively, for the year ending in July 1, 1999.
6.      For the 12 months ending July 1, 2000, competitive and noncompetitive operators attributed
44.1% and 41.4%, respectively, of their rate increases to higher programming costs.  In order of importance,
other specific factors that reportedly led to price increases were system upgrades, equipment cost increases,
inflation, and increased costs for programming associated with newly added channels.  The competitive
group attributed 21.5%, and the noncompetitive group 7.5%, of their rate increases to unspecified costs.
Competitive and noncompetitive operators also explain that 9.6% and 13.4%, respectively, of their rate
increases were not identified with specific cost changes.
7.      Since their percent price increases were equal, the difference in average monthly rates for BST,
CPST, and equipment (typically a converter and remote) between competitive and noncompetitive operators
(the "competitive differential") also stayed the same at 5.3%. On July 1, 1999, competitive and
noncompetitive cable operators charged $30.63 and $32.25, respectively, a 5.3% differential between the
two groups.  By July 1, 2000, cable operators facing competition were charging, on average, $32.40 while
operators not facing competition were charging $34.11, also a 5.3% differential.
8.     Within the overall average monthly rate, the rates of increase for BST and CPST services were
similar for the competitive group, as BST rates rose 6.1% and CPST rates rose 5.9%.  For the
noncompetitive group, CPST rates rose faster than BST rates.  The average rate for BST service increased
by 2.3% between July 1, 1999 and July 1, 2000, while the average rate for CPST service increased by 8.3%.
9.     Both competitive and noncompetitive groups increased the average number of channels offered
on BST and CPST service during the 12 months ending July 1, 2000.  The competitive group averaged 59.9
channels and the noncompetitive group averaged 54.8 channels as of July 1, 2000, increases in channel
offerings of 4.0% and 5.4%, respectively.   Despite an increased average number of channels, the per
channel rate for the competitive group was unchanged at $0.57 over the 12 months ending July 1, 2000, and
increased for the noncompetitive group from $0.65 to $0.66 per channel over that period.
10.    Many cable operators offered digital and non-video services in 2000.  As of July 1, 2000, the
percentage of surveyed cable operators that offered a digital programming tier doubled from 27% a year
earlier to 54%.  Further, 47% offered Internet services and 7% offered telephone service.  Clustering did not
lead to increases in the availability of Internet or telephony services or a reduction in the average monthly
rate charged for cable services when compared with non-clustered operators.
11.    Revenue from non-video sources increased as a percent of total revenue from 1.5% to 3.5%
between 1999 and 2000.  This may be attributed to the growing importance of these services and the
increasing number of operators offering Internet and telephony services. Of the cable operators surveyed,
52% received revenue from non-video subscriber services during the 12-month period ending July 2000, an
increase from the 32% who reported receiving such revenue during the 12-month period ending July 1999.
12.    Operators also reported that DBS service has captured, on average, an estimated 14.7% share
of television households in their service areas.  In addition, we found that the demand for cable service is
somewhat sensitive to changes in monthly cable rates.
     XIII.     Survey methodology
          A.   Sample
14.    To compare the average prices of the competitive and non-competitive CUIDs, we selected a
sample from each group independently. The competitive CUIDs in our sampling universe consisted of 575
cable operators, including those found by the Commission to face effective competition and the cable
operators that are their competitors.  To gain more precise estimates, we used a stratified sampling
methodology.  The 575 competitive CUIDs were divided into five subgroups (or strata) according to the test
by which effective competition was determined.  The five strata were (1) local exchange carrier ("LEC");
(2) wireline overbuild; (3) DBS overbuild (i.e., where the competitor is a DBS operator); (4) low
penetration; and (5) municipal.
15.     We selected a total of 352 CUIDs among these five subgroups to receive our questionnaire.
Selections included all 15 of the CUIDs in the municipal subgroup in order to have enough observations
within that subgroup for adequate statistical precision. The proportion of subscribers nationwide within
each subgroup determined the division of these selections among the remaining four subgroups. High
proportions of subscribers resulted in 100% sampling of the 193 CUIDs in the LEC subgroup and the 61
CUIDs in the wireline overbuild subgroup.  The remaining selections were divided among the low
penetration and DBS overbuild subgroups.  Sixty-seven out of 176 CUIDs from the low penetration
subgroup, and 16 out of 130 CUIDs in the DBS overbuild subgroup, were randomly chosen.
16.     The noncompetitive group in our sampling universe included 31,006 CUIDs. We divided these
CUIDs into five strata by cable system size. A sample of CUIDs not stratified by system size would have
placed a disproportionately greater emphasis on smaller systems relative to the number of subscribers the
smaller systems serve. CUIDs with 50,000 or more subscribers comprised the very-large stratum. CUIDs
with less than 50,000 subscribers belonging to systems exceeding 50,000 subscribers comprised the large
stratum. The medium-sized stratum consisted of CUIDs in systems ranging from 10,000 through 49,999
subscribers. CUIDs in systems with at least 1,000 subscribers and less than 10,000 subscribers were placed
in the small group.  The very-small stratum was comprised of CUIDs in systems with less than 1,000
subscribers.
17.     We selected a total of 460 noncompetitive CUIDs to receive our questionnaire. Selections
included all 109 CUIDs in the very-large stratum because of the large number of subscribers these CUIDs
serve.  The proportion of subscribers nationwide primarily determined the selections among the remaining
four stratum.  We increased the number of selections in the very-small stratum, however, from 17 CUIDs
(on the basis of proportion of subscribers) to 35 CUIDs.  This was necessary for statistical precision given
the historically high variance in rates among CUIDs in this stratum. The remaining CUIDs were divided and
randomly selected from the small, medium, and large subgroups.  Sixty-seven small CUIDs, 137 medium
CUIDs, and 112 large CUIDs were selected.
18.    Of the 812 survey questionnaires mailed to cable operators from both groups, respondents
returned 762 completed questionnaires to the Commission in time to be included in the analysis.  Of these,
721 met minimum necessary data requirements.  The remaining 41 lacked sufficient information to be
included in the analysis.  As of July 1, 2000, operators serving the 721 CUIDs included in the analysis
served a total of 13.9 million subscribers, or 20.5% of the 67.7 million-cable subscribers nationwide.
19.    Competitive cable operators submitted 318 usable questionnaires.  These 318 respondents
served approximately 2.6 million subscribers, or 3.8% of all cable subscribers.  Of these, 248 respondents
report facing direct competition in their geographic area, with 67 meeting the overbuild test (including both
DBS and wireline overbuilds) and 181 meeting the LEC test.  Of the remaining respondents in the
competitive group, 57 served fewer than 30% of the households in their service area (thereby meeting the
low penetration test) and 13 CUIDs are served by the municipality in their service area (thereby meeting the
municipal test).
20.    Noncompetitive cable operators submitted the remaining 403 usable responses. These
respondents provide service to 11.3 million subscribers, or approximately 16.7% of all cable subscribers.
See Attachment A for further statistical information about the sample.
          A.   Variables
21.    We focused our analysis on six variables, and calculated an average for each variable by
competitive status as well as size.  The variables are:  (1) average monthly rate for BST and CPST
programming services; (2) average monthly charge for equipment; (3) average monthly rate for
programming services and equipment; (4) average number of channels; (5) average monthly rate per
channel; and (6) average monthly rate per satellite channel.  We describe each variable below.
     Average Monthly Rate for Programming Services (BST and CPST).  This variable is the monthly
     rate paid by subscribers for the BST and the most highly subscribed CPST. It excludes premium,
     a la carte, and pay-per-view services, and digital tiers. Additional CPSTs beyond the most highly
     subscribed are also excluded.
     Average Monthly Charge for Equipment.  This variable is the average monthly charge paid by
     subscribers for a converter (either addressable or non-addressable) and remote control unit.  It
     equals the monthly charge for a remote plus the monthly rate for the type of converter purchased by
     the largest number of subscribers.
     Average Monthly Rate (for BST, CPST, and Equipment).  This variable equals the sum of the
     monthly programming service and equipment charges.  It represents the rate that a typical
     subscriber pays for BST, CPST service, and equipment.
     Average Number of Channels (BST and CPST).  This variable is the average number of channels
     a typical subscriber receives on the BST and most highly subscribed CPST.  As with the monthly
     rate, this variable excludes channels devoted to premium, a la carte, and pay-per-view services,
     digital tiers, and additional CPSTs.  We also report the average number of satellite channels, which
     is a subset of all channels and does not include local broadcast, PEG, or other local origination
     channels or services.
     Average Monthly Rate Per Channel (BST and CPST).  This variable is the programming services
     rate divided by the average number of channels offered.
     Average Monthly Rate Per Satellite Channel (BST and CPST).  This variable is the programming
     services rate divided by the average number of BST and CPST satellite channels.
22.    In addition to these variables, we sought information on the availability of digital tiers and non-
video services such as Internet access and telephony.  We also sought information on charges for
installation, reconnection, and tier changes, as well as on the distribution of channels among the major
categories of programming (e.g., news, sports).
          A.   Calculation of Price Averages
23.    As discussed above, we used a stratified sampling methodology to gain more precise estimates
of average prices.  The competitive group was stratified according to the test by which effective
competition was determined, and the noncompetitive group was stratified according to the number of
subscribers in the system to which the CUID belonged.  Price averages were calculated using the following
three steps.
24.    First, we divided the Surveys from competitive CUIDs into five strata by type of competition
including LEC, wireline overbuild, DBS overbuild, low penetration, and municipal.  Surveys from
noncompetitive CUIDs were divided into five strata by system size.  The first size strata (very large)
includes CUIDs serving 50,000 or more subscribers.  The second strata includes CUIDs serving less than
50,000 belonging to systems that serve more than 50,000 subscribers (large).  The remaining three strata
include CUIDs belonging to systems serving at least 10,000 but less than 50,000 subscribers (medium-
sized), at least 1,000 but less than 10,000 subscribers (small), and less than 1,000 subscribers (very small).
Second, we calculated a price average for each of the six primary variables in each stratum.
25.      Third, an overall average for each primary variable was calculated individually for the
competitive and noncompetitive groups.  For each group and primary variable, the average equaled the sum
of the weighted averages of the strata.  The weight given to the average of each stratum was the proportion
of subscribers in that stratum relative to the group, displayed in Attachment 1. Of the subscribers in the
universe of competitive CUIDs, we estimate that 58.5% were served by the LEC subgroup, 22.1% by the
wireline overbuild subgroup, 4.6% by the DBS overbuild subgroup, 13.8% by the low-penetration subgroup,
and 1.1% by operators in the municipal subgroup. For the noncompetitive group, we estimated that 17.8%
of subscribers in our universe were served by the very-large subgroup, 27.8% by the large subgroup, 34.3%
by the medium-sized subgroup, 16.6% by the small subgroup, and 3.5% were served by the very-small
subgroup.  These percentages became the weights used to calculate the overall averages for the competitive
and noncompetitive groups.
     XXVI.     survey results
          A.   Comparison of Competitive and Noncompetitive Groups
27.    Table 1 shows the average monthly rates for the competitive and noncompetitive groups, and
the differential between these two groups, as of July 1, 1998, 1999, and 2000.  Over the three years shown,
average monthly rates (the rate charged for BST, the most highly subscribed CPST, a remote, and a
converter) have increased for both groups and the differential between them widened between 1998 and
1999 and remained constant between 1999 and 2000.  The difference in monthly rates between competitive
and noncompetitive operators was 4.5% in July 1998, widened to 5.3% in July 1999, and remained at 5.3%
in July 2000.  These differentials are statistically significant, as denoted by the asterisks in Table 1.  See
Attachments B-1, B-2, B-3 and B-5 for more detailed information on the differentials between the
competitive and noncompetitive groups.

Table 1.  Comparison of Average Monthly Rates, Competitive and Noncompetitive Groups
                              Date
                          Competitive
                         Noncompetitive
                           Difference
                          % Difference
                             7/1/00
                             $32.40
                             $34.11
                             $1.71
                             5.3%*
                             7/1/99
                             $30.63
                             $32.25
                             $1.62
                             5.3%*
                             7/1/98
                             $29.32
                             $30.65
                             $1.33
                             4.5%*
*An asterisk denotes a statistically significant difference between the competitive and noncompetitive groups at a
                   95.5% level of confidence.
28.    Operators in the competitive group belong to one of five subcategories -- wireline overbuild,
DBS overbuild, low penetration, municipal or LEC -- under the Commission's effective competition
standard. Table 2 reports the average rate for each competitive subcategory compared with the average for
the noncompetitive group.  Attachment B-5 provides a more detailed comparison of these competitive
subcategories as well as the differentials in average monthly rates between each competitive subcategory
and the noncompetitive group along with number of channels and per channel rates over time.
Table 2. Comparison of Averages for Competitive Subcategories with Noncompetitive Group
                              Date
                            Wireline
                            Overbuil
                               d
                              DBS
                           Overbuild
                              LEC
                          Low Penetration
                           Municipal
                         Noncompetitive
                    Average Monthly Charges
                             7/1/00
                             $33.74
                             $33.23
                             $32.21
                             $31.56
                             $22.56
                             $34.11
                             7/1/99
                             $31.49
                             $32.90
                             $30.40
                             $30.17
                             $21.54
                             $32.25
                             7/1/98
                             $29.76
                             $31.40
                             $29.96
                             $28.88
                             $20.58
                             $30.65
                       Number of Channels
                             7/1/00
                              56.5
                              38.6
                              66.3
                              45.9
                              50.3
                              54.8
                             7/1/99
                              53.2
                              35.1
                              64.5
                              43.5
                              48.9
                              52.0
                             7/1/98
                              51.0
                              31.9
                              62.9
                              42.5
                              46.8
                              49.8
                       Charge Per Channel
                             7/1/00
                             $0.62
                             $0.96
                             $0.49
                             $0.74
                             $0.46
                             $0.66
                             7/1/99
                             $0.62
                             $1.02
                             $0.48
                             $0.74
                             $0.46
                             $0.65
                             7/1/98
                             $0.61
                             $1.07
                             $0.48
                             $0.73
                             $0.47
                             $0.65
 See Attachment B-5 for averages, standard errors, the percentage differentials, and the test for statistical
significance.  Although both wireline and DBS overbuilds are a part of the overbuild subcategory, for
  comparison purposes we calculated their averages separately.
29.    Table 2 shows that average monthly rates vary significantly among the competitive
subcategories, from $22.56 to $33.74 as of July 1, 2000.  The average monthly charge for every subcategory
of the competitive group, however, is lower than the average monthly rate of $34.11 for the noncompetitive
group.  The Table also provides the average number of channels and the average monthly charge per
channel for each subcategory of the competitive group and for the noncompetitive group.
30.    We recognize that rates charged by individual cable operators are affected by a number of
factors in addition to competitive status.   Size is one such factor.  In order to determine the extent to which
size influences rates, we calculated the average monthly rate by system size in both the competitive and
noncompetitive groups.  Tables 3 and 4 present the results of these calculations.
31.    The tables show that rates increased across the size categories from small, to medium, to large
for both the competitive and noncompetitive groups.  When compared with the noncompetitive group, the
competitive group has consistently lower rates in all categories.  Attachment B-2 contains additional
information on competitive and noncompetitive differentials by size.  Attachment B-3 also provides detailed
information on the number of channels and per channel rates by size category.
Table 3.  Average Monthly Rates, Competitive Group by Size Category
                         Size Category
                             7/1/98
                             7/1/99
                            % Change
                             7/l/00
                            % Change
                              (a)
                              (b)
                            (a to b)
                              (c)
                            (b to c)
                             Large
                             $30.01
                             $31.46
                             4.8%*
                             $33.47
                              6.4%*
                             Medium
                             $30.21
                             $31.44
                             4.1%*
                             $33.31
                              5.9%*
                             Small
                             $26.31
                             $27.30
                              3.8%
                             $28.35
                              3.8%
 The large category includes the large and very large subgroups as described in Section III, including CUIDs with
50,000 or more subscribers (very large), and with less than 50,000 but belonging to systems with 50,000 or more
subscribers (large).  The medium category includes CUIDs in systems with at least 10,000 but less than 50,000
system subscribers.  The small category includes CUIDs belonging to systems with at least 1,000 but less than
10,000 system subscribers (small) and those with less than 1,000 system subscribers (very small).
*An asterisk denotes a statistically significant change over time at a 95.5% level of confidence.
Table 4.  Average Monthly Rates, Noncompetitive Group by Size Category
                         Size Category
                             7/1/98
                             7/1/99
                            % Change
                             7/1/00
                            % Change
                              (a)
                              (b)
                            (a to b)
                              (c)
                            (b to c)
                             Large
                             $31.61
                             $33.30
                             5.3%*
                             $35.16
                              5.6%*
                             Medium
                             $30.67
                             $32.40
                             5.6%*
                             $34.48
                              6.4%*
                             Small
                             $28.43
                             $29.60
                             4.1%*
                             $31.10
                              5.1%*
*An asterisk denotes a statistically significant change over time at a 95.5% level of confidence.
32.    We further analyzed average monthly rates using a regression equation, the results of which are
shown in Attachment B-4.  We found that, for 2000, competitive operators that meet the LEC test had rates
that were 9.4% lower than the noncompetitive group. For the same year, the regression coefficients for the
wireline overbuild and the low penetration subcategories were not significantly different from zero, which
indicates that that these subcategories charged rates that were statistically indistinguishable from the rates
charged by operators in the noncompetitive group. We also found systems owned by a municipality had
rates that were 20.0% lower than rates charged by the noncompetitive group. Our results also show that
cable operators facing effective competition from DBS providers (the DBS overbuild subgroup) had rates
that were 8.2% higher than the rates charged by the noncompetitive group. The competitive response by this
subgroup, which is made up almost entirely of small operators, may not be representative of the response to
DBS competition generally. Anecdotal evidence shows that the response by large cable operators to
increased DBS competition often includes the offering of new services such as digital tiers and Internet
acc      ess rather than by lowering monthly charges.
33.    Table 5 disaggregates the average monthly rate for the competitive group into three components
-- BST, CPST, and equipment.  It also shows the average monthly rate per channel and per satellite channel.
Between July 1, 1999 and July 1, 2000, the average rates for programming services and equipment rose by
5.8%.  The charge for basic service increased by 6.1% while the charge for CPST service increased by
5.9%.  The monthly charge for equipment, which represents a relatively small portion of the overall monthly
rate, rose by 3.9%.  The number of BST and CPST channels offered by the competitive group increased
overall by 4.0% from 57.6 channels on July 1, 1999 to 59.9 channels on July 1, 2000.  The average rate per
channel, however, remained at $0.57 over this time period.  The average rate per satellite channel declined
by a small amount, 1.3%, during the year ending July 1, 2000.
                                
            Table 5.  Averages for Competitive Group
                             7/1/99
                             7/1/00
                             Change
                            % Change
                         Monthly Charge
                    Basic Service Tier (BST)
                             $11.34
                             $12.03
                             $0.69
                              6.1%
             Cable Programming Service Tier (CPST)
                             $16.44
                             $17.41
                             $0.97
                              5.9%
               Programming Services (BST & CPST)
                             $27.78
                             $29.44
                             $1.66
                              6.0%*
                 Equipment (Converter & Remote)
                             $ 2.85
                            $  2.96
                             $0.11
                              3.9%
               Total: Program & Equipment Charge
                             $30.63
                             $32.40
                             $1.77
                              5.8%*
                       Number of Channels
                Channels (Broadcast & Satellite)
                              57.6
                              59.9
                              2.3
                               4.0%*
                       Charge per Channel
                             $0.57
                             $0.57
                              $0.0
                              0.0%
                   Channels (Satellite Only)
                              42.2
                              44.4
                              2.2
                               5.2%*
                  Charge per Satellite Channel
                             $0.80
                             $0.79
                             -$0.01
                             -1.3%
*An asterisk denotes a statistically significant change over time at a 95.5% level of confidence.  See Attachment
       B-1 for standard errors for the reported averages.
34.    Table 6 reports similar information for the noncompetitive group. The average monthly rate for
programming services and equipment increased by 5.8% from July 1, 1999 to July 1, 2000 (the same rate of
increase as the competitive group).  The BST charge rose 2.3%, while the CPST rate rose by 8.3%.  The
average monthly charge for equipment rose by 5.8%.  Subscribers received 52.0 channels, on average, on
July 1, 1999, and 54.8 channels, on average, as of July 1, 2000, which represents an increase of 5.4%.
Despite the growth in channels, the per channel rate rose between 1999 and 2000 from 65 to 66 cents.  The
average rate per satellite channel, however, declined slightly from 92 cents per channel on July 1, 1999 to
91            cents per channel on July 1, 2000.
          Table 6.  Averages for Noncompetitive Group
                         Monthly Charge
                             7/1/99
                             7/1/00
                             Change
                            % Change
                    Basic Service Tier (BST)
                             $12.55
                             $12.84
                             $0.29
                              2.3%
             Cable Programming Service Tier (CPST)
                             $16.97
                             $18.38
                             $1.41
                              8.3%*
               Programming Services (BST & CPST)
                             $29.52
                             $31.22
                             $1.70
                              5.8%*
                 Equipment (Converter & Remote)
                             $2.73
                             $2.89
                             $0.16
                              5.9%
               Total: Program & Equipment Charge
                             $32.25
                             $34.11
                             $1.86
                              5.8%*
                       Number of Channels
               Channels: (Broadcast & Satellite)
                              52.0
                              54.8
                              2.8
                              5.4%*
                       Charge per Channel
                             $0.65
                             $0.66
                             $0.01
                              1.5%
                   Channels: (Satellite Only)
                              37.9
                              40.5
                              2.6
                              6.9%*
                  Charge per Satellite Channel
                             $0.92
                             $0.91
                             -$0.01
                             -1.1%
*An asterisk denotes a statistically significant change over time at a 95.5% level of confidence.  See Attachment
       B-1 for standard errors for the reported averages.
35.    The Bureau of Labor Statistics ("BLS") publishes a Consumer Price Index ("CPI") for cable
services (the "cable CPI").  The cable CPI increased by 4.7% over the 12 months ending in July 2000. The
cable CPI, however, measures the prices charged for a slightly different mix of services than the Survey and
mak           es adjustments for channels added.
A.             Charges for Other Services
36.    Table 7 provides a comparison of average charges for other cable services that are not included
in the average monthly rate for the competitive and noncompetitive groups. These services include
installation, reconnection, and tier changes. For the most part, prices increased although at a slower pace
than monthly charges for programming and equipment.  These charges are difficult to interpret, however,
since they are subject to frequent promotions, which may result in deep discounts at certain times and steep
inc                  reases at other times.
             Table 7.  Charges for Other Services
                       Competitive Group
                      Noncompetitive Group
                             7/1/99
                             7/1/00
                             Change
                             7/1/99
                             7/1/00
                             Change
                          Installation
                             $26.44
                             $27.65
                               4.6%
                             $37.16
                             $37.76
                              1.6%
                          Reconnection
                             $21.16
                             $21.76
                               2.8%
                             $23.39
                             $24.01
                              2.7%
                          Tier Change
                              $6.13
                             $6.40
                               4.4%
                              $8.49
                              $8.76
                              3.2%
 The average of operators that reported having a non-zero charge.  See Attachment B-6 for standard errors of
                     the reported averages.
A.     Operators' Explanation for Changes in Rates
37.    The Survey asked respondents to explain any changes in their rates between July 1, 1999, and
July 1, 2000, by attributing those changes to increased costs or other factors.  For those respondents who
raised rates, Table 8 shows the percentage by which each factor contributed to the overall price increase.
Both the competitive and noncompetitive groups attributed much of their rate increases to higher
programming costs.  For the 12 months ending July 1, 2000, the competitive group attributed 44.1% and the
noncompetitive group attributed 41.4% of their higher rates to programming cost increases.
38.    For the competitive and noncompetitive groups, system upgrades were the next specific cost
factor cited as contributing most to rate increases (9.0% and 12.4%, respectively).  For the competitive and
noncompetitive groups, respectively, this was followed in importance by increased equipment costs (6.8%
and 10.8%), inflation (5.6% and 9.7%), and increased channel addition costs (3.4% and 4.8%).  In addition,
the competitive group attributed 21.5% of its rate increases to unspecified costs, while the noncompetitive
group attributed 7.5% to this factor.  Finally, respondents reported that 9.6% of the rate changes made by
the competitive group, and 13.4% of the rate changes made by the noncompetitive group, were not
ide           ntified with specific cost changes.
                                
           Table 8.  Explanation for Changes in Rates
                       Competitive Group
                      Noncompetitive Group
                             7/1/99
                             7/1/00
                             7/1/99
                             7/1/00
                       Programming Costs
                             48.9%
                             44.1%
                             49.4%
                             41.4%
                       System Upgrades
                             13.7%
                              9.0%
                             10.6%
                             12.4%
                        Equipment Costs
                             11.4%
                              6.8%
                              6.9%
                             10.8%
                           Inflation
                              7.6%
                              5.6%
                              9.4%
                              9.7%
                       Channel Additions
                              4.6%
                              3.4%
                              4.4%
                              4.8%
                         Franchise Fees
                              0.8%
                              0.0%
                              0.6%
                              0.0%
                       Unspecified Costs
                              3.1%
                             21.5%
                              5.0%
                              7.5%
                   Changes Not Based on Costs
                              9.9%
                              9.6%
                             13.7%
                             13.4%
 Increases in costs on existing programming, including copyright fees.    Includes upgrades pursuant to a social
contract or local franchise agreement.  Includes the cost of programming for newly added channels. For more
           detailed information, see Attachment B-7.
XXXIX.                  other findings
A.   Distribution of Programming by Major Categories
40.    Table 9 shows a breakdown of the average number of satellite channels by major category --
children's, news, sports, and general entertainment -- for the competitive and noncompetitive groups. This
table shows that increases were relatively uniform across all programming categories.  Attachment C-1
provides additional information on the number of channels offered in each category.
Table 9.  Average Number of Satellite Channels by Type of Programming
                       Competitive Group
                      Noncompetitive Group
                             7/1/99
                             7/1/00
                             7/1/99
                             7/1/00
                           Children's
                               3.8
                               4.1
                               3.2
                               3.7
                             News
                               6.4
                               6.7
                               5.9
                               6.3
                             Sports
                               4.3
                               4.8
                               3.6
                               4.0
                     General Entertainment
                              29.5
                              31.7
                              26.9
                              29.1
                     Total Satellite Channels
                              44.0
                              47.3
                              39.6
                              43.1
 Satellite channels reported here include all CPST channels, not just those carried on the most highly-subscribed
CPST, as well as any satellite channels carried on BST.  See Attachment C-1 for other results.
A.               Annual System Revenues
41.    The Survey sought information on annual system-wide revenues from five major sources:  (a)
programming (BST, CPST, premium and pay-per-view), (b) leases and sales of equipment (converters,
remote controls, etc.), (c) non-video services (Internet and telephony), (d) advertising, and (e) other fees
(commissions, launch fees and leased access).  All of the operators reported receiving the bulk of revenues
from programming services.  Table 10 shows, however, that revenue from non-video sources increased as
a percent of total revenue from 1.5% to 3.5% between 1999 and 2000.  This may be attributed to the
growing importance of these services and the increasing number of operators offering Internet and
telephony services. Of the cable operators surveyed, 52% reported receiving revenue from non-video
subscriber services during the 12-month period ending July 2000, an increase from the 32% who reported
receiving such revenue during the 12-month period ending July 1999. Revenue from advertising also
increased as a percent of total revenue between July 1, 1999 and July 1, 2000.
Table 10.  Percent of Annual System Revenues from Various Sources
                         Revenue Source
                             7/1/99
                             7/1/00
                          Programming
                             86.8%
                             84.2%
                           Equipment
                              5.5%
                              5.4%
                       Non-Video Services
                              1.5%
                              3.5%
                          Advertising
                              5.6%
                              6.3%
                           Other Fees
                              0.6%
                              0.6%
A.       System Capacity and Non-Video Services
42.    As of July 1, 2000, 55.5% of operators in our sample reported a capacity of 550 MHz or more,
the vast majority of which report a capacity of 750 MHz.  A total of 46.6% of operators reported offering
Internet access service, and 6.5% offered cable telephony service.
       Table 11.  System Capacity and Non-Video Services
               Operators Reporting a Capacity of:
                             Total
                          Competitive
                         Noncompetitive
                         Up to 330 MHz
                             10.7%
                              9.1%
                             11.9%
                  Between 331 MHz and 550 MHz
                             33.8%
                             24.5%
                             41.2%
                         Above 550 MHz
                             55.5%
                             66.4%
                             46.9%
                        Operators Offering:
                        Internet Access
                             46.6%
                             48.1%
                             45.4%
                        Cable Telephony
                              6.5%
                              7.9%
                              5.5%
A.                     Clustering
43.    We sought to gather information on and analyze the effects of clustering. For the past several
years, cable operators have engaged in a strategy of buying and/or swapping cable systems of various sizes
with the objective of creating clusters of contiguous, commonly-owned and operated, cable systems. Some
of these clusters may consist of large regional groupings involving a million or more subscribers while
others may be made up of a handful of small operators serving a few thousand or less subscribers.  It is
believed that clustering can create greater economies of scale and scope and that it may enable operators to
offer a wider variety of services, including, for example, Internet access and other broadband services, at
low                er prices to consumers.
44.    Analysts report that since 1999, MSOs sought to create larger clusters to better enable cable
operators to provide local telephone and Internet services.  A total of 710 operators provided cluster
information. The Survey found that, of those 710 operators, 493, or 69%, are part of clusters.  Of those 493
clustered operators, only 35 operators, or 7%, offer cable telephony, and 237 operators, or 48%, offer
Internet access service to their subscribers. Similarly, 217 operators of the 710, or 31% do not belong to a
cluster. Of those 217 non-clustered operators, 93, or 43% offer Internet access service and 12, or 6% offer
cab          le telephony to their subscribers.
45.    We also sought to determine whether clustering had a measurable effect on monthly rates.
Table 12 shows a comparison of rates charged by clustered and non-clustered operators.  While clustered
operators charge more, on average, than non-clustered operators, they also offer more channels. On a per
channel basis, monthly rates for these two groups are similar.
Table 12. Averages as of July 1, 2000 for Clustered and Non-clustered Operators
                           Clustered
                         Non-clustered
                        Monthly Charge
                             $33.79
                             $31.73
                       Number of Channels
                              57.8
                              54.2
                   Monthly Charge per Channel
                             $0.63
                             $0.62
46.    We further analyzed the effects of clustering on monthly rates using a regression equation
similar to the Benchmark equation.  We found that operators that were part of a cluster had, on average,
higher monthly rates than operators that were not part of a cluster. See Attachment D-1 for results of this
ana                        lysis.
47.    Our finding of a positive relationship between clustering and monthly rates shown in Table 12
and reflected in the discussion in Attachment D-1 may be due to a variety of reasons. For example, we note
that clustering could involve either a series of systems that are being operated, in effect, as a single system
or a series of systems that are not integrated but are commonly owned in communities that are simply in
close proximity.  Both types of clusters meet our definition and the data collected by our Survey did not
distinguish between these two categories.  This definitional dichotomy may have influenced our findings
since non-integrated systems should not be expected to produce economic efficiencies.  In addition, for
those systems that are integrated, it may take several years for the full benefits of clustering to be realized
as operators go through a process of consolidation and rationalization of disparate systems. Also, higher
costs may be incurred in the early stages of this process.  Our regression equation does not take into account
the difference between integrated and non-integrated systems, cost factors or the timing of consolidation
because that information was not available to us. Therefore, those factors are not represented in the
equ                         ation.
A.                  Digital Services
48.    As of July 1, 2000, the Survey shows that 154 (48%) competitive operators provide digital
service, while 235 (58%) noncompetitive operators offer such service.  Both competitive and
noncompetitive operators offered on average 1.9 digital tiers.  Competitive operators charged $7.46
monthly, at $0.28 per channel, for digital service while noncompetitive operators charged $8.42 monthly at
$0.34 per channel.  These averages represent a continuation of enormous growth in the number of operators
off                 ering digital services.
Table 13.  Digital Tiers, Competitive and Noncompetitive Groups
                          Competitive
                         Noncompetitive
                             7/1/99
                             7/1/00
                             7/1/99
                             7/1/00
          Number of Operators Offering Digital Service
                               56
                              154
                              138
                              234
                         Percent of Sample
                             17.6%
                             48.4%
                             34.2%
                             58.1%
                Average Number of Digital Tiers
                              1.6
                              1.9
                              1.2
                              1.9
                  Number of Channels Offered
                              37.8
                              39.0
                              35.9
                              39.9
                    Average Monthly Charge
                             $8.82
                             $7.46
                             $9.05
                             $8.42
                   Average Price Per Channel
                             $0.36
                             $0.28
                             $0.41
                             $0.34
 Results are reported for the most highly subscribed digital tier.
A.              Commercial Leased Access
49.    Of the surveyed cable operators, 82% reported at least one channel available for lease under the
Commission's leased access rules.   Of those with channels for lease, 57% reported leases at an average of
1.8 channels per operator.  About one-half of those channels were leased part-time and the other half on a
full-time basis.  In over 95% of the cases, purchasers of leased access paid less than one cent per subscriber
per            hour of leased access programming.
A.               Lifeline Basic Service
50.    The Survey asked operators if they offered a tier of service that excluded satellite channels and
carried only signals from local television broadcast stations and PEG channels.  This tier is frequently called
"lifeline" or "limited basic."  In our 2000 Survey, 19 (3%) operators reported that they offered lifeline basic
service at an average monthly rate of $9.29 for an average of 14.4 channels.
A.       Elasticity of Demand for Cable Services
51.    We also analyzed demand for cable services by creating a demand equation model.  A detailed
discussion of the econometrics used in this analysis can be found in Attachment D-2.  The equation
presupposes that changes in demand for cable services are a function of:  (a) average monthly rate for
programming services and equipment; (b) median household income; (c) number of households passed; (d)
ratio of non-urban population to total population; (e) average number of satellite channels offered; and (f)
competitive status.  Based on this analysis, we found that demand for cable service was sensitive in varying
degrees to changes in all but one variable listed above.  Competitive status, non-urban population, and
average monthly rate variables are inversely related to the demand for cable services; as these variables
increase, the demand for cable service decreases.  Conversely, median household income and number of
households passed have a direct relationship to demand, i.e., as these variables increase, the demand for
cable service increases.  However, the number of satellite channels variable had no significant effect on the
demand for cable service since the estimated coefficient for this variable was not significantly different
fro                         m zero.
52.    The demand equation also produced price and income elasticities of demand for cable. The
estimated price elasticity of cable according to this equation is 1.95, which indicates that the demand for
cable services is somewhat price elastic.  This means that a one percent increase in the price of cable
services, for example, would result in a slightly less than two percent decrease in the demand for those
services.  Since our measure of cable price elasticity is greater than one, the equation also suggests that
cable service has substitutes.  The effects of one such substitute, DBS, is discussed below.  With regard to
income elasticity, we found that the estimated income elasticity of cable services was 0.62.  This suggests
that the demand for cable service is not very sensitive to changes in household income.  Results from the
est   imated demand equation are shown in Attachment D-2.
A.   Effects of DBS on the Demand for and Price of Cable Services
53.    In this year's Survey, we again sought to investigate the extent to which DBS penetration may
have had an effect on the demand for cable services.  In the 2000 Competition Report, the Commission
notes that DBS is cable's largest competitor with approximately thirteen million subscribers as of June
2000.  In response to Survey questions, a number of cable operators provided estimates of the number of
DBS            subscribers in their service areas.
54.     Table 14 shows the number of cable and DBS subscribers in the cable operators' service areas
expressed as a percentage of TV households in the same areas, as of July 1, 2000. The data are shown by
size strata and for both competitive and noncompetitive groups.  On average, cable operators responding to
our Survey reported that DBS has a 14.7% share of television households in their franchise areas.
Noncompetitive operators report that their share of TV households is slightly over 61%, on average,
whereas the competitive operators report their share at approximately 45%, as of July 1, 2000. Competitive
operators report a significantly lower level of penetration than noncompetitive operators because the
competitive group includes a large number of operators with relatively low penetration, i.e., those meeting
the                  low penetration test.
55.        The Survey results also indicate that DBS made relatively more progress in acquiring new
subscribers in rural areas than in urban areas. For those operators who provided DBS subscribership
information, we found that those serving areas having less than 25% urban population had an average DBS
penetration (DBS subscribers as a percent of TV households) of approximately 18%. In areas with more
than 75% urban population, the average DBS penetration was approximately 11%.
TABLE 14.  Average Share of TV Households by Size Strata, Cable and DBS, as of July 1, 2000
                          Size Strata
                          Competitive
                         Noncompetitive
                              DBS
                            Large
                             42.5%
                             59.9%
                             11.8%
                             Medium
                             41.7%
                             65.0%
                             17.0%
                            Small
                             50.9%
                             60.3%
                             18.0%
                   Overall (all sizes) Share
                             44.7%
                             61.4%
                             14.7%
 DBS penetration data was reported by cable operators responding to the Survey.  Therefore, size stratification for
the DBS data was based on the size strata of the reporting cable operators and does not represent stratification of
                         DBS operators.
            Combined very large and large size strata.
            Combined small and very small size strata.
56.    The 1999 Competition Report noted that cost differences, notably installation and equipment
costs, between cable and DBS continue to diminish.  As a result, some observers assert that many
consumers now perceive DBS and cable to be substitutable services. In economic terms, the better the
substitute for a particular good or service the greater its price elasticity will tend to be.
57.    In order to measure the effects of DBS on the demand for cable services, we modified our
demand equation to include the effects of DBS.  We hypothesized a negative coefficient for this variable
suggesting that as the number of DBS subscribers increases, the demand for cable services would grow at
a slower pace or decrease.  As hypothesized, the sign for the DBS coefficient is negative and statistically
significant.  Our finding suggests that DBS is a substitute for cable services. This result is different from our
earlier finding reported in the 1999 Price Survey Report, which showed DBS exerting only a modest
influence on the demand for cable service. One explanation for the increased importance of DBS as a
competitor of cable is the passage of the Satellite Home Viewer Improvement Act (SHVIA) in November
1999, which eliminated the prohibition on DBS delivery of local network signals into their local television
markets.  The two DBS operators have begun offering local signals in many major television markets thus
more closely matching services provided by cable operators.  The results and a fuller discussion of the
ana            lysis are shown in Attachment D-2.
LVIII.                    Conclusion
59.    We found that both competitive and noncompetitive operators increased their average monthly
rates by 5.8% for BST, CPST and equipment during the time period surveyed.  We also found that the
competitive differential between competitive and noncompetitive operators remained constant at 5.3%
bet                   ween 1999 and 2000.
60.    Both competitive and noncompetitive cable operators point to increased programming costs to
explain a significant portion of their rate increases.  System upgrades and equipment cost increases are also
cited as factors to explain higher rates.  Competitive and noncompetitive operators have increased system
capacity and, as a result, are now able to offer their subscribers more channels on BST and CPST along with
new services such as digital programming tiers, Internet access, and telephony.
61.    On a per channel basis, the average monthly rate for competitive operators remained constant
for the year ending July 1, 2000, while for noncompetitive operators the average monthly rate per channel
increased by one cent or 1.5% over the same period.  The average monthly rates per satellite channel,
however, decreased by one cent or about one percent for both the competitive and noncompetitive groups
ove                  r the period studied.
62.    Cable operators estimate that DBS service continues to capture market share in their service
areas with greater inroads being felt by small and rural cable operators than by urban systems. Finally, we
found that demand for cable service is somewhat sensitive to changes in cable rates.
63.    This report fulfills the Commission's annual statutory obligation to compare prices charged by
competitive cable operators with those of cable operators not facing effective competition for the delivery
of basic service, other cable programming services, and equipment.
LXIV.                administrative matters
65.    It is ORDERED that this Report be issued pursuant to authority contained in Section 623(k) of
the Communications Act of 1934, as amended, 47 U.S.C. 543(k).
   FEDERAL COMMUNICATIONS COMMISSION
          Magalie Roman Salas
               Secretary
                    
                          ATTACHMENT A
               SURVEY SAMPLE, BY GROUP AND STRATA
                            CUIDs IN
                           UNIVERSE
                           PERCENT OF
                         SUBSCRIBERS
                            CUIDs IN
                             SAMPLE
                             CUIDs
                           RESPONDING
                             USABLE
                          RESPONSES
                          COMPETITIVE
                         GROUP STRATA
                    Local Exchange Carrier
                                   193
                               58.48%
                              193
                              186
                              181
                       Wireline Overbuild
                                    61
                             22.11%
                               61
                               53
                               52
                        Low Penetration
                                  176
                               13.77%
                               67
                               60
                               57
                           Municipal
                                   15
                                1.07%
                               15
                               14
                               13
                         DBS Overbuild
                                  130
                                4.57%
                               16
                               15
                               15
                             Total
                                  575
                                 100%
                              352
                              328
                              318
                         NONCOMPETITIVE
                         GROUP STRATA
                           Very Large
                                 109
                             17.75%
                              109
                              109
                              107
                             Large
                               3,789
                             27.82%
                              112
                              107
                              100
                             Medium
                               7,285
                             34.33%
                              137
                              128
                              113
                             Small
                             10,837
                             16.62%
                               67
                               62
                               57
                           Very Small
                              8,986
                             3.48%
                               35
                               28
                               26
                             Total
                             31,006
                              100%
                              460
                              434
                              403
                          Grand Total
                             31,581
                             -----
                              812
                              762
                              721
 Source:  FCC Form 325 filings. For the noncompetitive group strata, CUIDs serving 50,000 or more subscribers, in
systems serving 50,000 or more subscribers, were placed in the very large category.  CUIDs serving less than 50,000
subscribers, in systems serving 50,000 or more subscribers, were placed in the large category.  CUIDs in systems
serving 10,000 through 49,999 subscribers were placed in the medium-sized category; those serving at least 1,000 and
fewer than 10,000 subscribers were placed in the small category; and those serving less than 1,000 subscribers were
placed in the very small category.  We stratified the competitive group by competitive test, rather than system size.
Had the competitive group been stratified by system size, 157 of the usable CUIDs would have belonged to the large
or very large category, 72 to the medium category, and 89 to the small or very small category.
  These percentages are the weights that were used in this report to compute the overall averages for each group.  Each
percentage equals the number of subscribers in that category divided by the total number of subscribers for the group.
These subscriber counts are for 1994, the latest year that subscriber counts are available for every CUID in the
universe.  Since it is likely that the percentage growth in subscribers has been fairly evenly distributed across all
communities, the 1994 weights serve as a reasonable approximation of year 2000 weights.
   Of the 762 CUIDs responding, 721 were usable.  Of the 41 unusable responses, we eliminated 30 responses that
lacked the requisite 3 years of price data and 11 responses as a result of other incomplete or inconsistent data.
                                                                
                                                 ATTACHMENT B-1
      COMPARISON OF COMPETITIVE AND NONCOMPETITIVE GROUPS
                          COMPETITIVE
                        NON-COMPETITIVE
                        $ DIFFERENCE IN
                             MEANS
                      % DIFFERENCE BETWEEN
                             MEANS
                              2000
                              BST
                             $12.03
                             $12.84
                             $0.81
                              6.7%
                        Standard. Error
                              0.45
                              0.56
                               --
                              ---
                              CPST
                             $17.41
                             $18.38
                             $0.97
                              5.6%
                        Standard. Error
                              0.70
                              0.61
                               --
                              ---
                           Equipment
                             $2.96
                             $2.89
                             -$0.07
                             -2.4%
                        Standard. Error
                              0.15
                              0.12
                               --
                              ---
                      BST,CPST& Equipment
                             $32.40
                             $34.11
                             $1.71
                             5.3%*
                        Standard. Error
                              0.51
                              0.38
                               --
                              ---
                       Charge per Channel
                             $0.57
                             $0.66
                             $0.09
                             15.8%*
                        Standard. Error
                              0.02
                              0.01
                               --
                              ---
                  Charge per Satellite Channel
                             $0.79
                             $0.91
                             $0.12
                             15.2%*
                        Standard. Error
                              0.03
                              0.02
                               --
                              ---
                       Number of Channels
                              59.9
                              54.8
                              -5.1
                             -8.5%*
                        Standard. Error
                              1.22
                              0.92
                               --
                              ---
                  Number of Satellite Channels
                              44.4
                              40.5
                              -3.9
                            -16.3%*
                        Standard. Error
                              0.98
                              0.82
                              ---
                              ---
                             1999
                              BST
                             $11.34
                             $12.55
                             $1.21
                             10.7%
                        Standard. Error
                              0.45
                              0.54
                               --
                              ---
                              CPST
                             $16.44
                             $16.97
                             $0.53
                              3.2%
                        Standard. Error
                              0.67
                              0.58
                               --
                              ---
                           Equipment
                             $2.85
                             $2.73
                             -$0.12
                             -4.2%
                        Standard. Error
                              0.14
                              0.11
                               --
                              ---
                      BST,CPST& Equipment
                             $30.63
                             32.25
                             $1.62
                             5.3%*
                        Standard. Error
                              0.44
                              0.35
                               --
                              ---
                       Charge per Channel
                             $0.57
                             $0.65
                             $0.08
                             14.0%*
                        Standard. Error
                              0.02
                              0.01
                               --
                              ---
                  Charge per Satellite Channel
                             $0.80
                             $0.92
                             $0.12
                             15.0%*
                        Standard. Error
                              0.03
                              0.01
                               --
                              ---
                       Number of Channels
                              57.6
                              52.0
                              -5.6
                             -9.7%*
                        Standard. Error
                              1.20
                              0.90
                               --
                              ---
                  Number of Satellite Channels
                              42.2
                              37.9
                              -4.3
                            -10.2%*
                        Standard. Error
                              0.96
                              0.79
                               --
                              ---
                              1998
                              BST
                              ---
                              ---
                               --
                              ---
                        Standard. Error
                              ---
                              ---
                               --
                              ---
                              CPST
                              ---
                              ---
                               --
                              ---
                        Standard. Error
                              ---
                              ---
                               --
                              ---
                           Equipment
                              ---
                              ---
                               --
                              ---
                        Standard. Error
                              ---
                              ---
                               --
                              ---
                      BST,CPST& Equipment
                             $29.32
                             $30.65
                             $1.33
                             4.5%*
                        Standard. Error
                              0.41
                              0.33
                               --
                              ---
                       Charge per Channel
                             $0.57
                             $0.65
                              0.08
                             14.0%*
                        Standard. Error
                              0.02
                              0.01
                               --
                              ---
                  Charge per Satellite Channel
                              ---
                              ---
                               --
                              ---
                        Standard. Error
                              ---
                              ---
                               --
                              ---
                       Number of Channels
                              55.9
                              49.8
                              -6.1
                            -10.9%*
                        Standard. Error
                              1.17
                              0.94
                               --
                              ---
                  Number of Satellite Channels
                              ---
                              ---
                               --
                              ---
                        Standard. Error
                              ---
                              ---
                               --
                              ---
*An asterisk denotes a statistically significant difference between competitive and noncompetitive groups at a 95.5% level of confidence.
                                
                         ATTACHMENT B-2
COMPARISON OF COMPETITIVE AND NONCOMPETITIVE GROUPS, BY SIZE CATEGORY
                     AVERAGE MONTHLY RATES
                              SIZE
                          COMPETITIVE
                         NONCOMPETITIVE
                          $ DIFFERENCE
                          BETWEEN MEANS
                          % DIFFERENCE
                         BETWEEN MEANS
                              2000
                           Very Large
                             -----
                             $35.75
                             -----
                             -----
                         Standard Error
                             -----
                              0.29
                          Other Large
                             -----
                             $34.79
                             -----
                             -----
                         Standard Error
                             -----
                              0.35
                         Overall Large
                             $33.47
                             $35.16
                             $1.69
                             5.0%*
                         Standard Error
                              0.30
                              0.33
                             Medium
                             $33.31
                             $34.48
                             $1.17
                              3.5%
                         Standard Error
                              0.46
                              0.35
                             Small
                             -----
                             $32.04
                             -----
                             -----
                         Standard Error
                             -----
                              0.46
                           Very Small
                             -----
                             $26.59
                             -----
                             -----
                         Standard Error
                             -----
                              1.03
                         Overall Small
                             $28.35
                             $31.10
                             $2.75
                             9.7%*
                         Standard Error
                              0.61
                              0.56
                              1999
                           Very Large
                             -----
                             $33.66
                             -----
                             -----
                         Standard Error
                             -----
                              0.27
                          Other Large
                             -----
                             $33.07
                             -----
                             -----
                         Standard Error
                             -----
                              0.31
                         Overall Large
                             $31.46
                             $33.30
                             $1.84
                              5.8*
                         Standard Error
                              0.22
                              0.29
                             Medium
                             $31.44
                             $32.40
                             $0.96
                              3.1%
                         Standard Error
                              0.40
                              0.34
                             Small
                             -----
                             $30.47
                             -----
                             -----
                         Standard Error
                             -----
                              0.42
                           Very Small
                             -----
                             $25.46
                             -----
                             -----
                         Standard Error
                             -----
                              0.90
                         Overall Small
                             $27.30
                             $29.60
                             $2.30
                             8.4%*
                         Standard Error
                              0.61
                              0.48
                              1998
                           Very Large
                             -----
                             $31.89
                             -----
                             -----
                         Standard Error
                             -----
                              0.24
                          Other Large
                             -----
                             $31.43
                             -----
                             -----
                         Standard Error
                             -----
                              0.29
                         Overall Large
                             $30.01
                             $31.61
                             $1.60
                             5.3%*
                         Standard Error
                              0.21
                              0.27
                             Medium
                             $30.21
                             $30.67
                             $0.46
                              1.5%
                         Standard Error
                              0.37
                              0.33
                             Small
                             -----
                             $29.24
                             -----
                             -----
                         Standard Error
                             -----
                              0.39
                           Very Small
                             -----
                             $24.58
                             -----
                             -----
                         Standard Error
                             -----
                              0.91
                         Overall Small
                             $26.31
                             $28.43
                             $2.12
                             8.1%*
                         Standard Error
                              0.57
                              0.48
 Average monthly rates include BST, CPST, and equipment (i.e., converter and remote control).
*An asterisk denotes a statistically significant difference between competitive and noncompetitive groups at a 95.5% level of confidence.
                                                                
                                                 ATTACHMENT B-3
COMPARISON OF COMPETITIVE AND NONCOMPETITIVE GROUPS, BY SIZE CATEGORY
        NUMBER OF CHANNELS OFFERED AND PER CHANNEL RATES
                       Number Of Channels
                       Per Channel Rates
                              SIZE
                          COMPETITIVE
                         NONCOMPETITIVE
                          COMPETITIVE
                         NONCOMPETITIVE
                              2000
                           Very Large
                             -----
                              62.9
                             -----
                             $0.58
                         Standard Error
                             -----
                              0.80
                             -----
                              0.01
                             Large
                             -----
                              60.4
                             -----
                             $0.58
                         Standard Error
                             -----
                              0.71
                             -----
                              0.01
                         Overall Large
                              66.5
                              61.4
                             $0.51
                             $0.58
                         Standard Error
                              0.68
                              0.75
                              0.01
                              0.01
                             Medium
                              61.3
                              54.2
                             $0.56
                             $0.66
                         Standard Error
                              1.21
                              0.99
                              0.02
                              0.01
                             Small
                             -----
                              43.9
                             -----
                             $0.76
                         Standard Error
                             -----
                              1.20
                             -----
                              0.02
                           Very Small
                             -----
                              26.9
                             -----
                             $1.09
                         Standard Error
                             -----
                              1.84
                             -----
                              0.08
                         Overall Small
                              44.3
                              41.0
                             $0.71
                             $0.82
                         Standard Error
                              1.45
                              1.31
                              0.03
                              0.03
                              1999
                           Very Large
                             -----
                              60.9
                             -----
                             $0.56
                         Standard Error
                             -----
                              0.85
                             -----
                              0.01
                             Large
                             -----
                              57.9
                             -----
                             $0.58
                         Standard Error
                             -----
                              0.69
                             -----
                              0.01
                         Overall Large
                              64.1
                              59.1
                             $0.50
                             $0.57
                         Standard Error
                              0.76
                              0.75
                              0.01
                              0.01
                             Medium
                              59.3
                              50.6
                             $0.56
                             $0.66
                         Standard Error
                              1.28
                              0.94
                              0.02
                              0.01
                             Small
                             -----
                              41.2
                             -----
                             $0.77
                         Standard Error
                             -----
                              1.04
                             -----
                              0.02
                           Very Small
                             -----
                              25.7
                             -----
                             $1.09
                         Standard Error
                             -----
                              1.69
                             -----
                              0.08
                         Overall Small
                              42.2
                              38.5
                             $0.72
                             $0.83
                         Standard Error
                              1.40
                              1.15
                              0.03
                              0.03
                              1998
                           Very Large
                             -----
                              57.9
                             -----
                             $0.56
                         Standard Error
                             -----
                              0.91
                             -----
                              0.01
                          Other Large
                             -----
                              56.4
                             -----
                             $0.57
                         Standard Error
                             -----
                              0.77
                             -----
                              0.01
                         Overall Large
                              62.3
                              57.0
                             $0.50
                             $0.57
                         Standard Error
                              0.81
                              0.82
                              0.01
                              0.01
                             Medium
                              57.5
                              47.8
                             $0.55
                             $0.67
                         Standard Error
                              1.27
                              0.89
                              0.02
                              0.01
                             Small
                             -----
                              39.6
                             -----
                             $0.77
                         Standard Error
                             -----
                              1.08
                             -----
                              0.02
                           Very Small
                             -----
                              24.9
                             -----
                             $1.09
                         Standard Error
                             -----
                              1.69
                             -----
                              0.08
                         Overall Small
                              40.7
                              37.1
                             $0.72
                             $0.83
                         Standard Error
                              1.37
                              1.19
                              0.03
                              0.03
                                                                
                                                 ATTACHMENT B-4
REGRESSION RESULTS SHOWING THE EFFECTS OF COMPETITIVE STATUS, MSO
AFFILIATION, SYSTEM SIZE, NUMBER OF CHANNELS, AND HOUSEHOLD INCOME
                    ON AVERAGE MONTHLY RATES
                            VARIABLE
                          COEFFICIENT
                     Low Penetration Dummy
                            -0.0203
                            (0.0157)
                           LEC Dummy
                            -0.0984
                            (0.0112)
                        Municipal Dummy
                            -0.3282
                            (0.0601)
                        Overbuild Dummy
                            -0.0177
                            (0.0227)
                           DBS Dummy
                             0.0788
                            (0.0158)
                           MSO Dummy
                             0.1498
                            (0.0355)
               Reciprocal of Avg. Total Channels
                            -9.7460
                            (0.8760)
                 Log of Median Household Income
                             0.0194
                            (0.0181)
                           Intercept
                             3.3672
                            (0.1954)
                       Adjusted R Square
                              .45
                     Number of Observations
                              718
                     Impact of LEC Systems
                            -0.0937
                     Impact of DBS Systems
                             0.0820
Dependent variable is log of average monthly rate. Standard error of coefficient is in parenthesis.
                                
                         ATTACHMENT B-5
COMPARISON OF COMPETITIVE GROUP BY TEST FOR EFFECTIVE COMPETITION
                   WITH NONCOMPETITIVE GROUP
WIRELINE
OVERBUILD
DBS
OVERBUILD
OVERBUILD
LEC
LOW
PENETRATION
MUNICIPAL
NONCOMPETITIVE
GROUP
2000
Monthly Charge
$33.74
$33.23
$33.65
$32.21
$31.56
$22.56
$34.11
Standard Error
0.83
1.22
.91
0.29
0.60
1.55
0.66
% Difference
1.1%
2.6%
1.4%
 5.9%*
8.1%*
51.2%*
--
Number of Channels
56.5
38.6
53.4
66.3
45.9
50.3
54.8
Standard Error
1.79
3.84
2.14
0.61
1.91
3.03
0.92
% Difference
-3.0%
42.0%*
2.6%
-17.3%*
19.4%*
8.9%
--
Charge  per Channel
0.62
0.96
0.68
0.49
0.74
0.46
0.66
Standard Error
0.02
0.07
0.03
0.01
0.03
0.03
0.01
% Difference
6.5%
-31.3%*
-2.9%
34.7%*
-10.8%*
43.5%*
--
1999
Monthly Charge
$31.49
$32.90
$31.73
$30.40
$30.17
$21.54
$32.25
Standard Error
0.70
1.22
0.79
0.23
0.60
1.56
0.35
% Difference
2.4%
-2.0%
1.6%
 6.1%*
6.9%*
49.7%*
--
Number of Channels
53.2
35.1
50.1
64.5
43.5
48.9
52.0
Standard Error
1.81
3.16
20.4
0.65
1.77
3.26
0.90
% Difference
-2.3%
48.1%*
3.8%
-19.4%*
19.5%*
 6.3%
--
Charge  per Channel
0.62
1.02
0.69
0.48
0.74
0.46
0.65
Standard Error
0.02
0.07
0.03
0.01
0.03
0.03
0.01
% Difference
4.8%
-36.3%*
-5.8%
35.4%*
-12.2*
41.3%*
--
1998
Monthly Charge
$29.76
$31.40
$30.04
$29.26
$28.88
$20.58
$30.65
Standard Error
0.62
1.09
0.70
0.21
0.57
1.39
0.33
% Difference
3.0%
-2.3%
2.0%
4.8%*
6.2%*
48.9%*
--
Number of Channels
51.0
31.9
47.7
62.9
42.5
46.8
49.8
Standard Error
1.64
2.70
1.82
0.69
1.77
3.42
0.94
% Difference
-2.4%
56.1%*
4.4%
-20.8%*
17.2%*
  6.4%
--
Charge  per Channel
0.61
1.07
0.69
0.48
0.73
0.47
0.65
Standard Error
0.02
0.07
0.03
0.01
0.03
0.04
0.01
% Difference
6.6%
-39.3%*
-5.8%
35.4%*
-11.0*
38.3%*
--
 Weighted average of wireline and DBS overbuild using weights shown in Attachment A. Average monthly rates are for BST, CPST, and equipment (i.e., a
converter and remote control).
  Percent difference between competitive subcategories and noncompetitive group.
*An asterisk denotes a statistically significant difference between competitive subcategories and noncompetitive group at a 95.5% level of confidence.

ATTACHMENT B-6
          AVERAGE MONTHLY CHARGES FOR OTHER SERVICES
                       COMPETITIVE GROUP
                      NONCOMPETITIVE GROUP
                              1999
                              2000
                              1999
                              2000
                          Installation
                             $26.44
                             $27.65
                             $37.16
                             $37.76
                         Standard Error
                              1.66
                              1.58
                              1.22
                              1.24
                          Observations
                              299
                              299
                              389
                              389
                          Reconnection
                             $21.16
                             $21.76
                             $23.39
                             $24.01
                         Standard Error
                              1.03
                              0.98
                              0.78
                              0.78
                          Observations
                              237
                              237
                              363
                              363
                          Tier Change
                             $6.13
                             $6.40
                             $8.49
                             $8.76
                         Standard Error
                              0.95
                              0.96
                              0.97
                              0.99
                          Observations
                              281
                              281
                              346
                              346
 Represents the stratum-weighted average for operators who reported a non-zero charge in 1999 and 2000.  Data on disconnection charges
were also collected, but are not being reported in this table since so few (less than 1%) operators surveyed reported having such a charge.
                                
                         ATTACHMENT B-7
      OPERATORS' EXPLANATION FOR CHANGES IN MONTHLY RATES
           FOR COMPETITIVE AND NONCOMPETITIVE GROUPS
                              2000
                              1999
                          RATE CHANGES
                           ATTRIBUTED
                              TO:
                          Competitive
                           % of Total
                            NonComp
                           % of Total
                          Competitive
                           % of Total
                            NonComp
                           % of Total
                          Programming
                             $0.77
                             43.5%
                             $0.75
                             40.3%
                             $0.63
                             48.1%
                             $0.78
                             48.8%
                         Standard Error
                              0.06
                              0.07
                              0.07
                              0.07
                         Copyright Fees
                             $0.01
                              0.6%
                             $0.02
                              1.1%
                             $0.01
                              0.8%
                             $0.01
                              0.6%
                         Standard Error
                              0.02
                              0.02
                              0.01
                              0.01
                       Channel Additions
                             $0.06
                              3.4%
                             $0.09
                              4.8%
                             $0.06
                              4.6%
                             $0.07
                              4.4%
                         Standard Error
                              0.02
                              0.04
                              0.03
                              0.03
                            Upgrades
                             $0.16
                              9.0%
                             $0.23
                             12.4%
                             $0.18
                             13.7%
                             $0.17
                             10.6%
                         Standard Error
                              0.06
                              0.05
                              0.04
                              0.05
                           Equipment
                             $0.12
                              6.8%
                             $0.20
                             10.8%
                             $0.15
                             11.4%
                             $0.11
                              6.9%
                         Standard Error
                              0.02
                              0.04
                              0.04
                              0.02
                           Franchise
                             $0.00
                              0.0%
                             $0.00
                              0.0%
                             $0.01
                              0.8%
                             $0.01
                              0.6%
                         Standard Error
                              0.0
                              0.00
                               0
                              0.00
                           Inflation
                             $0.10
                              5.6%
                             $0.18
                              9.7%
                             $0.10
                              7.6%
                             $0.15
                              9.4%
                         Standard Error
                              0.02
                              0.02
                              0.02
                              0.02
                       Unspecified  Costs
                             $0.38
                             21.5%
                             $0.14
                              7.5%
                             $0.04
                              3.1%
                             $0.08
                              5.0%
                         Standard Error
                              0.11
                              0.05
                              0.04
                              0.03
                       Non-Cost Increases
                             $0.17
                              9.6%
                             $0.25
                             13.4%
                             $0.13
                              9.9%
                             $0.22
                             13.7%
                         Standard Error
                              0.04
                              0.07
                              0.05
                              0.05
                        $ Change in Rate
                             $1.77
                              100%
                             $1.86
                              100%
                             $1.31
                              100%
                             $1.60
                              100%
                                
                         ATTACHMENT C-1
AVERAGE NUMBER OF CHANNELS DEVOTED TO EACH CATEGORY OF PROGRAMMING
                       COMPETITIVE GROUP
                      NONCOMPETITIVE GROUP
                    Category of Programming
                              1999
                              2000
                            % Change
                              1999
                              2000
                            %Change
                    Total Number of Channels
                              59.2
                              63.0
                              6.4%
                              53.6
                              57.3
                              6.9%
                          Standard Error
                              1.20
                              1.22
                              0.90
                              0.94
                            Access
                              3.1
                              3.4
                              9.7%
                              3.4
                              3.6
                              5.9%
                          Standard Error
                              0.30
                              0.31
                              0.18
                              0.18
                           Broadcast
                              12.1
                              12.3
                              1.7%
                              10.6
                              10.6
                              0.0%
                          Standard Error
                              0.40
                              0.40
                              0.33
                              0.33
                 Total Satellite Programming
                              44.0
                              47.3
                              7.5%
                              39.6
                              43.1
                              8.8%
                          Standard Error
                              0.96
                              0.98
                              0.79
                              0.82
                       Children's Programming
                              3.8
                              4.1
                              7.9%
                              3.2
                              3.7
                             15.6%
                          News Programming
                              6.4
                              6.7
                              4.7%
                              5.9
                              6.3
                              6.8%
                         Sports Programming
                              4.3
                              4.8
                             11.6%
                              3.6
                              4.0
                             11.1%
                       General Entertainment
                              29.5
                              31.7
                              7.5%
                              26.9
                              29.1
                              8.2%
                   Number of Survey Responses
                              248
                              248
                              ---
                              366
                              366
                              ---
 Includes public, educational, governmental, and commercial leased access.
  Includes children's, news, sports, and general entertainment satellite programming, excluding premium and pay-per-view
                           channels.
Note:  These numbers differ from numbers reported in Tables 5 and 6, and Attachments B-1 and B-3, because the channels in this table
encompass all CPST tiers, rather than the most highly subscribed CPST, as well as satellite channels in the BST.
                                
                         ATTACHMENT C-2
OPERATORS THAT INCREASED ACTIVE ANALOG CHANNELS BETWEEN 1999 AND 2000
                           Responses
                          Competitive
                             Group
                         Noncompetitive
                             Group
                          No Increase
                              383
                              145
                              238
                      Increased Channels:
                       Between 1 and  5
                              229
                              141
                               88
                       Between 6 and  10
                               36
                               7
                               29
                       Between 11 and  15
                               28
                               5
                               23
                      Between 16 and  20
                               18
                               10
                               8
                      Between 21 and  30
                               21
                               9
                               12
                      Between 31 and  50
                               6
                               1
                               5
                      Total Observations
                              721
                              318
                              403
                                                                
                                                 ATTACHMENT D-1
Regression Results Showing The Effects of Clustering, Competitive Status, Median Household Income,
        and Number of Channels on Average Monthly Rates
                            VARIABLE
                          COEFFICIENT
                         STANDARD ERROR
                     Low Penetration Dummy
                            -0.0251
                             0.0157
                           LEC Dummy
                            -0.0992
                             0.0111
                        Municipal Dummy
                            -0.3259
                             0.0600
                        Overbuild Dummy
                            -0.0179
                             0.0225
                           DBS Dummy
                             0.0799
                             0.0154
                           MSO Dummy
                             0.1374
                             0.0360
               Reciprocal of Avg. Total Channels
                            -9.8906
                             0.8682
                 Log of Median Household Income
                             0.0104
                             0.0184
                         Cluster Dummy
                             0.0236
                             0.0090
                            Constant
                             3.4590
                             0.1983
                       Adjusted R Square
                              .47
                     Number of Observations
                              708
                    Notes on Attachment D-1:
This equation is intended to measure the effects of clustering on average monthly rates.  The form
of the equation is analogous to that of the Benchmark equation shown in Attachment B-4 except that a
cluster dummy variable was added to measure the effects of clustering.  We assigned a value of one for each
operator that was part of a cluster and a value of zero for those operators that were not part of a cluster.  The
dependent variable (log of average monthly rates) is the same in both equations.
We expected the clustering variable to have a negative coefficient, i.e., an inverse relationship between
clustering and average monthly rates.  As a positive change is noted in the clustering variable, we would
expect to find lower average monthly rates due to increasing economies of scale.  When we estimated the
equation, we found the opposite effect, the coefficient for the clustering variable was positive.  This means
that as clustering increased, average monthly rates also increased.
We also tested a regression equation estimating the effects of clustering on monthly rates suggested by AT&T
in its comments in response to Notice of Inquiry, CS Docket No. 00-132.  In this "revised cluster regression
equation," log of franchise subscribers, log of average subscriber taking most popular service (e.g., subscribers
taking BST, CPST, remote, and a converter), and  Internet service were added to the variables shown in Table
D-1. The revised regression equation had the following coefficients: 3.4477   .1015 LEC - .0180 low
penetration - .0297 overbuild - .0653 DBS - .3233 municipal   9.2487 reciprocal of average total channels +
.1362 MSO + .0085 log of median household income + .0151 log of subscribers taking most popular service -
 .0150 log of franchise subscribers + .0237 cluster + .0146 telephony service + .0266 Internet service.  We note
that the coefficient for the clustering variable remains fairly constant -- .0237 compared with .0236 in this
                     version of the model.
Since our revised cluster regression equation included subscribers as independent variables, this may have
introduced a simultaneous relationship between average monthly rate (the dependent variable) and the
subscriber variables. For example, the number of subscribers in a franchise are affected by the average monthly
rate charged which in turn is affected by the number of subscribers taking the service. To handle this
simultaneity problem, we replaced subscriber variables in the revised regression equation with number of
households passed in a franchise area, which generally is not directly affected by average monthly rates. The
regression equation using a household passed variable yielded the following relationship: 3.5174   .0966 LEC
- .0243 low penetration - .0297 overbuild - .0666 DBS - .3233 municipal   8.1319 reciprocal of average total
channels + .1404 MSO + .0003 log of median household income   11.9948 log of reciprocal of franchise
household passed  + .0214 cluster + .0156 telephony service + .0291 Internet service. The fact that the
coefficients from both regression equations are similar indicated that no significant simultaneity exists in our
revised regression equation. Since the estimated coefficient for the clustering variable in the revised regression
equation was positive and was statistically significant, we conclude that as clustering increases, average
monthly rates also increase.  A number of studies also found a similar relationship between clustering and
rates. See, for example, Ford, George and John Jackson, Horizontal Concentration and Vertical Integration in
the Cable Television Industry, Review of Industrial Organization, 12: 501-518, 1997; Tasneem Chipty,
Horizontal Integration for Bargaining Power: Evidence from the Cable Television Industry, Journal of
Economics & Management Strategy, Volume 4, Number 2,   375-397, Summer 1995.
                                                         ATTACHMENT D-2
TWO-STAGE LEAST SQUARES REGRESSION COEFFICIENTS FOR DEMAND EQUATION
Dependent Variable
Independent Variables
Log of Franchise
Subscribers
Constant
Competitive
Status
Log  of ratio of
Non-urban
Population
Log of Average
Monthly Rate
Log of Median
Household
Income
Log of Number
of Households
Passed
Log of Number
of Satellite
Channels
Coefficient
0.4684
-0.5799
-0.1275
-1.9470
0.6192
1.0042
0.0065
Standard error
(2.0955)
(0.1085)
(0.0538)
(0.7346)
(0.1262)
(0.0157)
(0.2012)
Adjusted R2 = .94
Number of Observations = 432. The number of observations are based on the number of valid responses that provided complete information
for the variables included in the model.
TWO-STAGE LEAST SQUARES REGRESSION COEFFICIENTS FOR DEMAND EQUATION SHOWING THE EFFECT OF
                               DBS ON DEMAND FOR CABLE SERVICES
                      Dependent Variable:
                     Independent Variables
                        Log of Franchise
                          Subscribers
                            Constant
                          Competitive
                             Status
                         Log  of Ratio
                            of  Non-
                             urban
                           Population
                             Log of
                            Average
                          Monthly Rate
                             Log of
                             Median
                           Household
                             Income
                             Log of
                           Number of
                           Households
                             Passed
                             Log of
                           Number of
                           Satellite
                            Channels
                             Log of
                           Number of
                              DBS
                          Subscribers
                          Coefficient
                            -1.1363
                            -0.6031
                            -0.0996
                            -1.4520
                             0.6148
                             1.1023
                            -0.0301
                            -0.1358
                         Standard error
                            (2.0280)
                            (0.1188)
                            (0.0538)
                            (0.7311)
                            (0.1241)
                            (0.0603)
                            (0.2031)
                            (0.0779)
                       Adjusted R2 = .94
                  Number of Observations = 432
The number of observations are based on the number of valid responses that provided complete information for the variables included in the
                             model.
                                
                    Notes on Attachment D-2:
Attachment D-2 shows our econometric estimates of the demand for cable services.  Estimating a
demand equation provides information about the sensitivity of cable subscriptions to the price of service
and also permits examination of substitutability between cable and other services.  The first table in
Attachment D-2 contains our basic demand equation, and the second table augments that with a DBS
   variable in order to measure the effects of DBS on cable.
Our residual demand equation for cable services uses a set of variables similar to those used in
previous academic studies.  In our demand equation, the number of cable subscribers is the dependent
variable (i.e., the variable determined by the other variables in the equation).  This variable is a function of
several independent variables (i.e., those that determine the dependent variable).  The independent variables
selected for this model are: (a) average monthly rate for programming services and equipment; (b) median
household income; (c) number of households passed; (d) ratio of non-urban population to total population;
(e) average number of satellite channels offered; and (f) competitive status.  We selected these independent
variables for the following reasons.  Economic theory shows that price and consumer income should be
selected as independent variables when constructing a demand equation.  The number of satellite channels
was selected as a quality factor since it represents a proxy for the quality of cable services received by
consumers.  The remaining variables capture demographic and other factors that influence the demand for
cable services.  These variables also serve as a proxy to capture the effects of the prices of competing
services as well as the prices of all other goods and services which were not included in our study.
In general, the coefficients in our estimated demand function were expected to have a positive or
negative influence on the demand for cable service (i.e., signs), as follows.  The average monthly rate for
programming services and equipment was expected to have a negative sign which would indicate a
decreasing demand for cable as the price of cable service rises.  The sign for the coefficient of median
household income was expected to be positive because we would expect the demand for cable services to
increase as consumers' income rises.  The number of households passed was expected to have a positive
sign; as the number of households passed increases the potential market increases and, as a result, we would
expect a larger number of subscribers.  The ratio of non-urban population to total population was expected
to have a negative sign because there is generally a lower penetration of cable service in rural areas and
there may be a greater presence of non-cable video providers (mainly Direct-to-Home satellite providers) in
those areas.  The average number of satellite channels offered was expected to have a positive sign because
we believe that, as more channels are offered, consumers will associate this with a higher quality of service
and, as a result, demand more cable service.  The competitive status of the cable operator was expected to
have a negative sign.  We believe that the presence of competitors in the market will take subscribers away
from the incumbent operator and thus lead to lower cable demand for the incumbent.  All the estimated
coefficients had the expected signs except for the coefficient for number of satellite channels, and all
coefficients were significantly different from zero. The estimated coefficient for average number of satellite
channels had a negative sign and it was not statistically significant.
Some of these variables produce simultaneous (or two-way) relationships.  For example, as
mentioned above, we believe that the demand for cable service is sensitive to changes in average monthly
cable rates and to the number of satellite channels offered.  At the same time, as demand increases, this may
enable cable operators to offer more channels and charge higher rates for their service. To handle this
simultaneity problem, we chose a two-stage least squares ("TSLS") procedure, which addresses this
problem in estimating the demand equation.  The TSLS procedure uses a two-step method to purge the
simultaneous relationship among the variables.  In the first stage, we derive predicted values for certain
variables and then we use those predicted values as independent variables in the second stage.  Specifically,
in the first stage, we estimated predicted values for average monthly rates and number of satellite channels.
Next, in the second stage, we regress our dependent variable (number of cable subscribers) on the predicted
values for these variables and on the actual values of the remaining variables (average household income,
non-urban population, competitive status, and number of households passed in the service area) to estimate
our demand equation for cable service.
The estimated coefficients shown in the first table of Attachment D-2 were derived using this TSLS
procedure.  The predicted values used in the second stage were estimated in separate "first stage"
regressions of the monthly rate and satellite channel variables on a set of instrument variables which served
as independent variables in the equations.  The set of instrument variables included log of median household
income, and a number of demographic and regional variables that affect demand for cable.  The
demographic variables include log of county population density, log of ratio of non-urban population to
total population, log of percent of county families in poverty, log of ratio of county population with a
bachelor's degree, log of county population living in owner occupied housing, log of percent of population
under the age of 16, and log of percent of population living in condominiums. These demographic variables
have been found to be important determinants of cable demand by other researchers in their studies of the
cable industry.  The regional instrument variables included in the model include dummy variables
representing the south-Atlantic, mid-Atlantic, and mountain regions.  These variables were used to account
for regional differences in taste and consumer preferences for cable as well as other services. We also used
MSO affiliation and whether or not the cable system was part of a cluster as additional instrument variables.
Since the data used in our model are taken from a stratified sample, econometric theory indicates
that the estimates will most likely be heteroskedastic.  Hetroskedasticity is a common problem in
econometric estimation of models that use data similar to our data.  Econometric theory assumes that the
differences between the estimated value and the actual value at each data point are independent of one
another.  With heteroskedastic estimates, by contrast, the differences between the estimated values and
actual values vary systematically, e.g., grow larger as one of the variables grows larger.  This problem, if it
is not corrected, will cause some of the statistical characteristics of the model, such as the standard errors,
to be unreliable.  To deal with this influence, we used a procedure suggested by Halbert White that corrects
for the problems introduced by hetroskedasticity.  The estimated standard errors shown in the tables are
hetroskedasticity consistent .
As shown in the first table of Attachment D-2, the coefficient for average monthly rates is minus
1.45.  This suggests that the demand for cable service is somewhat price elastic (i.e., has a price elasticity
of minus 1.45) and suggests that there are substitutes for cable service.  In order to investigate the extent to
which DBS may be one of those substitutes, we added a DBS variable to our demand model.  The
coefficients shown in the second table are based on a demand equation identical to the one discussed above
with the single exception that a DBS variable was added.  Since the price for DBS service does not vary
geographically, we used the number of DBS subscribers as the additional independent variable in this
model.  We hypothesized a negative coefficient for this variable suggesting that as the number of DBS
subscribers increases, the demand for cable service decreases.
Since there may be simultaneity between the number of DBS subscribers and the demand for cable
services, we used a two-stage least squares procedure for this model similar to that explained above.  Also,
since the data used in our model are taken from a stratified sample, which tends to introduce
heteroskedasticity, we used the procedure suggested by White to deal with this influence.  The coefficients
estimated from this model are shown in the second table of Attachment D-2.
As hypothesized, the sign for the DBS coefficient is negative and is significantly different from
zero. This implies that DBS is a substitute for cable service and it exerts a small (shown by the small
magnitude of DBS coefficient) but statistically significant influence on the demand for cable service.