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 Federal  Communications  Commission  FCC  01-  389
 Before  the  Federal  Communications  Commission
 Washington,  D.  C.  20554
 In  the  Matter  of
 Annual  Assessment  of  the  Status  of
 Competition  in  the  Market  for  the
 Delivery  of  Video  Programming
 )  )
 )  )
 )
 CS  Docket  No.  01-  129
 EIGHTH  ANNUAL  REPORT
 Adopted:  December  27,  2001  Released:  January  14,  2002
 By  the  Commission:  Commissioner  Martin  issuing  a  statement.
 Table  of  Contents
 Paragraph
 I.  Introduction  ............  ...................................................................................................  1
 A.  Scope  of  this  Report  .............................................................................................  2
 B.  Summary  of  Findings............................................................................................  5
 II.  Competitors  in  the  Market  for  the  Delivery  of  Video  Programming.....................................  15
 A.  Cable  Industry..  ...................................................................................................  15
 1.  General  Performance................................................................................  16
 2.  Financial  Performance..............................................................................  23
 3.  Capital  Acquisition  and  Disposition..........................................................  30
 4.  Provision  of  Advanced  Broadband  Services  ..............................................  34
 B.  Direct-  to-  Home  Satellite  Services  .........................................................................  55
 1.  Direct  Broadcast  Satellite  Service  .............................................................  55
 2.  Home  Satellite  Dishes  ..............................................................................  67
 C.  Multichannel  Multipoint  Distribution  Service  ........................................................  68
 D.  Satellite  Master  Antenna  Television  Systems  .........................................................  73
 E.  Broadcast  Television  Service  ................................................................................  78
 F.  Other  Entrants  ..  ...................................................................................................  89
 1.  Internet  Video..........................................................................................  89
 2.  Home  Video  Sales  and  Rentals  .................................................................  95
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 Federal  Communications  Commission  FCC  01-  389
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 G.  Local  Exchange  Carriers.......................................................................................  99
 H.  Electric  and  Gas  Utilities.......................................................................................  104
 I.  Broadband  Service  Providers,  Open  Video  System  Operators,  and  Overbuilders.....  107
 III.  Market  Structure  and  Conditions  Affecting  Competition.....................................................  116
 A.  Horizontal  Issues  in  the  Market  for  the  Delivery  of  Video  Programming.................  116
 1.  Competitive  Issues  in  the  Market  for  the  Delivery  of  Video  Programming..  118
 2.  Competitive  Issues  in  the  Market  for  the  Purchase  of  Video  Programming  .  137
 B.  Vertical  Integration  and  Other  Programming  Issues  ...............................................  156
 1.  Status  of  Vertical  Integration  ....................................................................  156
 2.  Other  Programming  Issues  .......................................................................  161
 C.  Technical  Issues  ...................................................................................................  186
 1.  Interactive  Television...............................................................................  187
 2.  Navigation  Devices  ..................................................................................  191
 3.  Cable  Modems.........................................................................................  194
 IV.  Competitive  Responses  .  ...................................................................................................  196
 V.  Administrative  Matters..  ...................................................................................................  210
 Appendices
 A.  List  of  Commenters
 B  Cable  Industry  Tables
 C.  Horizontal  Issues
 D.  Vertical  Integration  Tables
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 I.  INTRODUCTION
 1.  This  is  the  Commissions  eighth  annual  report  (  2001  Report)  to  Congress  on  the  status  of
 competition  in  the  market  for  the  delivery  of  video  programming.  1  Section  628(  g)  of  the
 Communications  Act  of  1934,  as  amended  (  Communications  Act),  requires  the  Commission  to  report
 annually  to  Congress  on  the  status  of  competition  in  the  market  for  the  delivery  of  video  programming.  2
 Congress  imposed  this  annual  reporting  requirement  in  the  Cable  Television  Consumer  Protection  and
 Competition  Act  of  1992  (  1992  Cable  Act)  3  as  a  means  of  obtaining  information  on  the  competitive
 status  of  markets  for  the  delivery  of  video  programming.  4
 A.  Scope  of  this  Report
 2.  The  2001  Report  updates  the  information  in  our  previous  reports  and  provides  data  and
 information  that  summarize  the  status  of  competition  in  the  market  for  the  delivery  of  video
 programming.  The  information  and  analysis  provided  in  this  report  are  based  on  publicly  available  data,
 filings  in  various  Commission  proceedings,  and  information  submitted  by  commenters  in  response  to  a
 Notice  of  Inquiry  (  Notice)  in  this  docket.  5  To  the  extent  that  information  provided  in  previous  annual
 reports  is  still  relevant,  we  do  not  repeat  that  information  in  this  report  other  than  in  an  abbreviated
 fashion,  and  provide  references  to  the  discussions  in  prior  reports.
 3.  In  Section  II,  we  examine  the  cable  television  industry,  existing  multichannel  video
 programming  distributors  (  MVPDs)  and  other  program  distribution  technologies  and  potential
 competitors  to  cable  television.  Among  the  MVPD  systems  or  techniques  discussed  are  direct  broadcast
 satellite  (  DBS)  services  and  home  satellite  dishes  (  HSDs),  wireless  cable  systems  using  frequencies
 in  the  multichannel  multipoint  distribution  service  (  MMDS),  private  cable  or  satellite  master  antenna
 1  The  Commissions  previous  reports  appear  at:  Implementation  of  Section  19  of  the  1992  Cable  Act  (Annual
 Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming),  CS  Docket  No.  94-
 48,  First  Report  (  1994  Report),  9  FCC  Rcd  7442  (1994);  Annual  Assessment  of  the  Status  of  Competition  in  the
 Market  for  the  Delivery  of  Video  Programming,  CS  Docket  No.  95-  61,  Second  Annual  Report  (  1995  Report),
 11  FCC  Rcd  2060  (1996);  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video
 Programming,  CS  Docket  No.  96-  133,  Third  Annual  Report  (  1996  Report),  12  FCC  Rcd  4358  (1997);  Annual
 Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video  Programming,  CS  Docket  No.  97-  141,
 Fourth  Annual  Report  (  1997  Report),  13  FCC  Rcd  1034  (1998);  Annual  Assessment  of  the  Status  of  Competition
 in  Markets  for  the  Delivery  of  Video  Programming,  CS  Docket  No.  98-  102,  Fifth  Annual  Report  (  1998  Report),
 13  FCC  Rcd  24284  (1998);  Annual  Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video
 Programming,  CS  Docket  No.  99-  230,  Sixth  Annual  Report  (  1999  Report),  15  FCC  Rcd  978  (2000);  and  Annual
 Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  CS  Docket  No.  00-
 132,  Seventh  Annual  Report  (  2000  Report),  16  FCC  Rcd  6005  (2001).
 2  Communications  Act  of  1934,  as  amended,    628(  g),  47  U.  S.  C.    548(  g).
 3  Pub.  L.  No.  102-  385,  106  Stat.  1460  (1992).
 4  One  of  the  purposes  of  Title  VI  of  the  Communications  Act  is  to  promote  competition  in  cable  communications
 and  minimize  unnecessary  regulation  that  would  impose  an  undue  economic  burden  on  cable  systems.  47  U.  S.  C.
   521(  6).
 5  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  CS  Docket
 No.  00-  129,  Notice  of  Inquiry  (  Notice),  16  FCC  Rcd  13330  (2001).  Appendix  A  provides  a  list  of  commenters
 and  the  abbreviations  by  which  they  are  identified  herein.
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 television  (  SMATV)  systems  as  well  as  broadcast  television  service.  We  also  consider  other  existing
 and  potential  distribution  technologies  for  video  programming,  including  the  Internet,  home  video  sales
 and  rentals,  local  exchange  carriers  (  LECs),  and  electric  and  gas  utilities.  In  addition,  for  the  first  time
 this  year,  we  address  broadband  service  providers  (  BSPs),  a  new  category  of  entrant  into  the  video
 marketplace.
 4.  In  Section  III  of  this  report,  we  examine  market  structure  and  competition.  We  evaluate
 horizontal  concentration  in  the  multichannel  video  marketplace  and  vertical  integration  between  cable
 television  systems  and  programming  services.  We  also  discuss  competitors  serving  multiple  dwelling
 unit  (  MDU)  buildings.  We  further  address  programming  issues  and  technical  advances.  In  Section  IV,
 we  report  on  the  competitive  effects  in  communities  where  consumers  have  a  choice  between  an
 incumbent  cable  operator  and  at  least  one  other  MVPD  and  provide  several  examples  of  the  incumbent
 cable  operators  response  to  such  competition.
 B.  Summary  of  Findings
 5.  In  the  2001  Report,  we  examine  the  status  of  competition  in  the  market  for  the  delivery  of
 video  programming,  discuss  changes  that  have  occurred  in  the  competitive  environment  over  the  last  year,
 and  describe  barriers  to  competition  that  continue  to  exist.  Overall,  the  Commission  finds  that
 competitive  alternatives  continue  to  develop.  Cable  television  still  is  the  dominant  technology  for  the
 delivery  of  video  programming  to  consumers  in  the  MVPD  marketplace,  although  its  market  share
 continues  to  decline.  As  of  June  2001,  78  percent  of  MVPD  subscribers  received  their  video
 programming  from  a  franchised  cable  operator,  compared  to  80  percent  a  year  earlier.
 6.  The  total  number  of  subscribers  to  both  cable  and  non-  cable  MVPDs  continues  to  increase.
 A  total  of  88.3  million  households  subscribe  to  multichannel  video  programming  services  as  of  June
 2001,  up  4.  6  percent  over  the  84.4  million  households  subscribing  to  MVPDs  in  June  2000.  This
 subscriber  growth  accompanied  a  2.  7  percentage  point  increase  in  MVPDs  penetration  of  television
 households  to  86.4  percent  as  of  June  2001.  6
 7.  Since  the  2000  Report,  the  number  of  cable  subscribers  continued  to  grow,  reaching  almost
 69  million  as  of  June  2001,  up  about  1.  9  percent  from  the  67.7  million  cable  subscribers  in  June  2000.
 The  total  number  of  non-  cable  MVPD  subscribers  grew  from  16.7  million  as  of  June  2000  to  19.3  million
 as  of  June  2001,  an  increase  of  more  than  15  percent.
 8.  The  growth  of  non-  cable  MVPD  subscribers  continues  to  be  primarily  due  to  the  growth  of
 DBS.  DBS  appears  to  attract  former  cable  subscribers  and  consumers  not  previously  subscribing  to  an
 MVPD.  The  continued  growth  of  DBS  is,  in  part,  attributable  to  the  authority  granted  to  DBS  operators
 to  distribute  local  broadcast  television  stations  in  their  local  markets  by  the  Satellite  Home  Viewer
 Improvement  Act  of  1999  (  SHVIA).  Between  June  2000  and  June  2001,  the  number  of  DBS
 subscribers  grew  from  almost  13  million  households  to  about  16  million  households,  which  is  nearly  two
 and  a  half  times  the  cable  subscriber  growth  rate.  DBS  subscribers  now  represent  18.2  percent  of  all
 MVPD  subscribers.  Over  the  last  year,  the  number  of  subscribers  to,  and  market  shares  of,  MMDS,
 6  The  number  of  MVPD  households  reported  here,  and  the  associated  percentages,  may  be  as  much  as  two  million
 households  too  high  because  a  household  that  subscribes  to  more  than  one  MVPD  (e.  g.,  cable  and  DBS)  is  included
 as  a  subscriber  to  both  services.  See  Centris,  Digital  Cable  Subscriber  Order  4x  as  Many  PPV  Movies  and  2x  as
 Many  PPV  Events  as  Analog  Households;  50%  More  Events  than  DBS  Households  (press  release),  Mar.  20,  2001,  at
 http://  www.  centris.  com/  announcements/  re1032001.  htm.
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 SMATV,  and  OVS  have  remained  relatively  stable.  However,  the  number  of  HSD  subscribers  continues
 to  decline.
 9.  During  the  period  under  review,  cable  rates  rose  faster  than  inflation.  According  to  the
 Bureau  of  Labor  Statistics,  between  June  2000  and  June  2001,  cable  prices  rose  4.24  percent  compared  to
 a  3.  25  percent  increase  in  the  Consumer  Price  Index  (  CPI),  which  measures  general  price  changes.
 Concurrently  with  these  rate  increases,  capital  expenditures  for  the  upgrading  of  cable  facilities  increased,
 the  number  of  video  and  non-  video  services  offered  increased,  and  programming  costs  increased.  We
 also  note  that  cable  operators  pricing  decisions  may  be  affected  by  direct  competition.  Available
 evidence  indicates  that  when  an  incumbent  cable  operator  faces  effective  competition,  as  defined  by  the
 Communications  Act,  it  responds  in  a  variety  of  ways,  including  lowering  prices  or  adding  channels
 without  changing  the  monthly  rate,  as  well  as  improving  customer  service  and  adding  new  services  such
 as  interactive  programming.
 10.  The  Telecommunications  Act  of  1996  (  1996  Act)  7  removed  barriers  to  LEC  entry  into  the
 video  marketplace  to  facilitate  competition  between  incumbent  cable  operators  and  telephone  companies.
 At  the  time  of  the  1996  Act,  it  was  expected  that  LECs  would  compete  in  the  video  delivery  market  and
 that  cable  operators  would  provide  local  telephone  exchange  service.  We  previously  reported  that  there
 had  been  an  increase  in  the  amount  of  video  programming  provided  to  consumers  by  telephone
 companies,  although  the  expected  technological  convergence  that  would  permit  use  of  telephone  facilities
 for  video  service  had  not  yet  occurred.  8  This  year,  we  find  that  incumbent  local  exchange  carriers
 (  ILECs)  have  largely  exited  the  video  business,  instead  mainly  reselling  DBS  service.  A  few  smaller
 LECs  offer,  or  are  preparing  to  offer,  MVPD  service  over  existing  telephone  lines.  Some  competitive
 local  exchange  carriers  (  CLECs)  continue  to  pursue  MVPD  entry  and  competition.  Alternatively,
 several  cable  MSOs  offer  telephone  service.  Circuit-  switched  telephony  is  still  the  only  type  of
 commercially  deployed  cable  telephony,  but  trials  continue  for  cable-  delivered  IP  telephony.  MSOs,  such
 as  Cox  and  AT&  T,  continue  to  deploy  circuit-  switched  cable  telephony.  Others,  like  Cablevision  and
 Comcast,  continue  to  offer  cable  telephony  where  it  has  already  been  deployed,  but  generally  are  waiting
 for  Internet  Protocol  (  IP)  technology  to  become  widely  available  before  accelerating  their  rollout  of
 telephone  service.  AT&  T,  AOL  Time  Warner,  Comcast,  and  Charter  currently  are  testing  IP  telephony,
 while  Cox  has  plans  for  IP  telephony  trials  in  2002.
 11.  The  most  significant  convergence  of  service  offerings  continues  to  be  the  pairing  of  Internet
 service  with  other  service  offerings.  There  is  evidence  that  a  wide  variety  of  companies  throughout  the
 communications  sector  are  providing  multiple  services,  including  data  access.  Cable  operators  continue
 to  expand  the  broadband  infrastructure  that  permits  them  to  offer  high-  speed  Internet  access.  The  most
 popular  way  to  access  the  Internet  over  cable  is  still  through  the  use  of  a  cable  modem  and  personal
 computer,  though  a  small  number  of  users  continue  to  access  the  Internet  through  their  television  and  a
 specially  designed  set-  top  box,  rather  than  the  personal  computer.  Virtually  all  of  the  major  MSOs  offer
 Internet  access  via  cable  modems  in  portions  of  their  service  areas.  Like  cable,  the  DBS  industry  is
 developing  ways  to  bring  advanced  services  to  their  customers.  For  example,  DirecTV  currently  offers  a
 satellite-  delivered  high-  speed  Internet  access  service  with  a  telephone  return  path  called  DirecPC.
 EchoStar  now  offers  its  subscribers  a  similar  service,  called  Starband,  in  cooperation  with  a  subsidiary  of
 Gilat.  Many  SMATV  operators  offer  local  and  long  distance  telephone  service,  and  Internet  access  along
 with  video  service.  In  addition,  digital  technology  makes  it  possible  for  MMDS  operators,  who  provide
 7  Pub.  L.  No.  104-  104,  110  Stat.  56  (1996).
 8  2000  Report,  16  FCC  Rcd  at  6009.
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 video  service  in  limited  areas,  to  offer  two-  way  services,  such  as  high-  speed  Internet  service  and
 telephony.  Broadband  service  providers  are  building  advanced  systems  specifically  to  offer  a  bundle  of
 services,  including  video,  voice,  and  high-  speed  Internet  access.
 12.  Non-  cable  MVPDs  continue  to  report  that  regulatory  and  other  barriers  to  entry  limit  their
 ability  to  compete  with  incumbent  cable  operators.  Non-  cable  MVPDs  continue  to  experience  some
 difficulties  in  obtaining  programming  from  vertically  integrated  cable  programmers  and  from  unaffiliated
 programmers  which  continue  to  make  exclusive  agreements  with  cable  operators.  In  MDUs,  potential
 entry  may  be  discouraged  or  limited  because  an  incumbent  video  programming  distributor  has  a  long-term
 and/  or  exclusive  contract.  In  addition,  non-  cable  MVPDs  report  problems  obtaining  franchises  from
 local  governments  and  difficulties  in  gaining  access  to  utility  poles  needed  to  build  out  their  systems.
 13.  Our  findings  as  to  particular  distribution  mechanisms  operating  in  markets  for  the  delivery  of
 video  programming  including  the  following:
 x  Cable  Systems:  Since  the  2000  Report,  the  cable  television  industry  has
 continued  to  grow  in  terms  of  subscribership  (a  1.9  percent  increase  from  June
 2000),  revenues  (an  approximate  3.7  percent  increase  between  1999  and  2000),
 audience  ratings  (non-  premium  cable  viewership  rose  from  an  approximate  46
 share  in  June  2000  to  slightly  over  a  48  share  in  2001),  and  expenditures  on
 programming.  The  number  of  national  satellite-  delivered  video  programming
 services,  which  declined  slightly  last  year,  increased  from  281  to  294,  between
 June  2000  and  June  2001.
 x  The  cable  industry  has  continued  to  invest  in  improved  facilities.  As  a  result,
 there  have  been  increases  in  channel  capacity,  the  deployment  of  digital
 transmissions,  and  non-  video  services  such  as  Internet  access.  Cable  operators
 also  offer  telephony,  although  the  use  of  integrated  facilities  remains  primarily
 experimental.
 x  Direct-  to-  Home  (  DTH)  Satellite  Service  (DBS  and  HSD):  Video  service  is
 available  from  high  power  DBS  satellites  that  transmit  signals  to  small  DBS  dish
 antennas  installed  at  subscribers  premises,  and  from  low  power  satellites
 requiring  larger  antennas.  DBS  has  over  16  million  subscribers,  an  increase  of
 approximately  24  percent  since  the  2000  Report.  Between  June  2000  and  June
 2001,  the  number  of  HSD  subscribers,  measured  as  the  number  of  HSD  users  that
 actually  purchase  programming  packages,  declined  from  1.5  million  to  one
 million,  a  decrease  of  32  percent.  DirecTV  and  EchoStar  are  each  among  the  ten
 largest  providers  of  multichannel  video  programming  service.  In  June  2001,
 DBS  represented  a  18.  2  percent  share  of  the  national  MVPD  market  and  HSD
 represented  another  1.1  percent  of  that  market.
 x  Wireless  Cable  Systems:  Currently,  the  wireless  cable  industry  (  MMDS)
 provides  competition  to  the  cable  industry  in  limited  areas.  MMDS
 subscribership  remained  at  approximately  700,000  subscribers  between  June
 2000  and  June  2001.  With  the  advent  of  digital  MMDS  and  the  Commissions
 authorization  of  two-  way  MMDS  service,  it  appears  that  most  MMDS  spectrum
 eventually  will  be  used  to  provide  high-  speed  data  services.  Wireless  cable
 represented  a  0.8  percent  share  of  the  national  MVPD  market  in  June  2001.
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 x  SMATV  Systems:  SMATV  systems,  also  know  as  private  cable  operators,  use
 some  of  the  same  technology  as  cable  systems,  but  do  not  use  public  rights-  of-way,
 and  focus  principally  on  serving  subscribers  living  in  MDUs.  As  of  June
 2001,  SMATV  subscribership  remained  unchanged  from  last  year  at  1.  5  million
 subscribers,  representing  approximately  1.7  percent  of  national  MVPD
 subscribership.
 x  Broadcast  Television:  Broadcast  networks  and  stations  are  competitors  to
 MVPDs  in  the  advertising  and  program  acquisition  markets.  Broadcast  networks
 and  stations  also  are  suppliers  of  content  for  distribution  by  MVPDs.  In  addition,
 they  supply  video  programming  directly  to  those  television  households  that  are
 not  MVPD  subscribers  and  to  television  sets  in  MVPD  households  that  are  not
 connected  to  such  service.  In  this  regard,  one  study  estimates  that  81  million,  or
 approximately  30  percent  of  the  nations  267  million  television  sets,  receive
 broadcast  signals  over-  the-  air.  Since  the  2000  Report,  the  broadcast  industry  has
 continued  to  grow  in  the  number  of  operating  stations  (from  1,663  in  2000  to
 1,678  in  2001)  and  in  advertising  revenues  ($  41  billion  in  2000,  a  12.  2  percent
 increase  over  1999).  Audience  levels,  however,  continue  to  decline.  During  the
 2000-  2001  television  season,  the  seven  television  networks  accounted  for  a  57
 percent  share  of  prime  time  viewing  for  all  television  households,  compared  to  a
 59  share  a  year  earlier.  Broadcast  television  stations  continue  to  deploy  digital
 television  (  DTV)  service.  Eighty-  three  percent  of  the  more  than  1,300
 commercial  television  stations  have  been  granted  a  DTV  construction  permit  or
 license  and  229  are  on  the  air  with  DTV  operation.
 x  LEC  Entry:  The  1996  Act  expanded  opportunities  for  LECs  to  enter  the  market
 for  the  delivery  of  video  programming.  In  the  2000  Report,  we  noted  that  even
 the  most  aggressive  LECs  were  reducing  or  terminating  their  efforts  in  the  video
 marketplace.  This  year,  we  find  that  ILECs  have  largely  exited  the  video
 business,  instead  mainly  reselling  DBS  service.  The  exceptions  to  this  trend  are
 BellSouth,  which,  in  addition  to  reselling  DBS  service,  continues  to  operate  some
 overbuild  cable  systems,  and  a  number  of  smaller  LECs  that  are  offering,  or
 preparing  to  offer,  MVPD  service  over  telephone  lines.  Some  CLECs,  most
 notably  RCN,  continue  to  pursue  MVPD  entry.  Previously,  Ameritech,  now
 owned  by  SBC,  was  the  most  significant  LEC  provider  of  in-  region  cable  service.
 In  the  past  year,  SBC  sold  these  systems  to  WideOpenWest,  which  we  consider  a
 BSP  and  discuss  below.  Qwest  Communications  International  (formerly  US
 West)  continues  to  offer  video,  high-  speed  Internet  access,  and  telephone  service
 over  existing  copper  telephone  lines  using  very  high-  speed  digital  subscriber  line
 (  VDSL)  in  Omaha  and  Phoenix.  Reports  indicate  that  40  to  50  LECs,  mostly
 small,  also  are  using  VDSL  to  offer  a  bundle  of  services,  including  video,  over
 telephone  lines.
 x  Open  Video  Systems:  In  the  1996  Act,  Congress  established  a  new  framework
 for  the  delivery  of  video  programming  --  the  open  video  system  (  OVS).  Under
 these  rules,  a  LEC  or  other  entrant  may  provide  video  programming  to
 subscribers,  although  the  OVS  operator  must  provide  non-  discriminatory  access
 to  unaffiliated  programmers  on  a  portion  of  its  channel  capacity.  Several  BSPs,
 including  some  that  are  CLECs,  operate  open  video  systems,  hold  OVS
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 certifications,  or  hold  local  OVS  franchises.  RCN  is  by  far  the  largest  OVS
 operator  in  the  country.
 x  Broadband  Service  Providers:  In  this  years  Report,  we  add  a  new  section  to
 recognize  the  growing  importance  of  providers  that  are  overbuilding  existing
 cable  systems  with  state-  of-  the-  art  systems  that  offer  a  bundle  of
 telecommunications  services,  including  video,  voice,  and  high-  speed  Internet
 access.  BSPs  are  carefully  selecting  which  communities  to  serve,  based  on
 factors  such  as  favorable  demographics  and  high  population  density.  Their
 strategy  is  to  increase  per  subscriber  revenue  and  decrease  churn.  Yet,  BSPs  face
 considerable  challenges  inherent  in  entering  markets  with  entrenched
 competitors.  RCN  is  the  largest  BSP,  serving  approximately  443,000  subscribers
 in  New  York  City,  Washington,  D.  C.,  and  surrounding  suburbs,  South  San
 Francisco,  Boston  and  its  suburbs,  Northern  New  Jersey,  and  suburbs  of
 Philadelphia.  WideOpenWest  (  WOW)  recently  became  the  second  largest
 BSP  with  its  acquisition  of  the  former  Ameritech  cable  systems,  which  serve
 about  300,  000  subscribers.  In  addition,  WOW  is  constructing  systems  in  selected
 metropolitan  Denver  communities.  The  third  largest  BSP  is  Knology,  which
 operates  or  is  building  systems  in  the  Southeast,  and  currently  serves  110,000
 subscribers.
 x  Internet  Video:  As  of  July  2001,  58  percent  of  the  U.  S.  population  has  Internet
 access  at  home.  Real-  time  and  downloadable  video  accessible  over  the  Internet
 continues  to  become  more  widely  available  and  the  amount  of  content  also  is
 increasing.  Despite  the  evidence  of  increased  interest  in  Internet  video
 deployment  and  use,  the  medium  is  still  not  seen  as  a  direct  competitor  to
 traditional  video  service.  Broadcast  quality  Internet  video  requires  a  high-  speed
 broadband  connection  at  speeds  which  most  current  broadband  providers  cannot
 guarantee.
 x  Home  Video  Sales  and  Rentals:  We  consider  the  sale  and  rental  of  home  video,
 including  videocassettes,  DVDs,  and  laser  discs,  part  of  the  video  marketplace
 because  they  provide  services  similar  to  the  premium  and  pay-  per-  view  offering
 of  MVPDs.  About  90  percent  of  all  U.  S.  households  have  at  least  one  VCR.  The
 number  of  homes  with  DVD  players  has  grown  rapidly  since  their  introduction,
 with  the  number  of  homes  with  DVD  players  expected  to  reach  25  million  by  the
 end  of  2001.  The  newest  home  video  is  the  personal  video  recorder  (  PVR).
 One  source  reports  that  500,000  PVRs  have  been  sold  since  they  were  introduced
 two  years  ago.
 x  Electric  and  Gas  Utilities:  Several  electric  and  gas  utilities  continue  to  move
 forward  with  ventures  involving  multichannel  video  programming  distribution.
 Some  of  their  characteristics,  such  as  ownership  of  fiber  optic  networks  and
 access  to  public  rights-  of-  way,  make  them  competitively  significant.  Some
 utilities  offer  telecommunications  services  on  their  own,  while  others  partner
 with  broadband  service  providers,  such  as  Starpower,  RCNs  joint  venture  with
 PEPCO.  It  also  appears  that  utilities,  particularly  municipal  utilities  in  rural
 areas,  are  willing  to  build  advanced  telecommunications  networks  to  offer  a  full
 range  of  services  where  incumbent  cable  operators  and  telephone  companies  are
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 not.  Reports  indicate  that  357  public  power  systems  offer  communications
 services.
 14.  We  also  find  that:
 x  Consolidations  within  the  cable  industry  continue  as  cable  operators  acquire  and
 trade  systems.  The  ten  largest  operators  now  serve  close  to  87  percent  of  all  U.  S.
 cable  subscribers.  In  terms  of  one  traditional  economic  measure,  national
 concentration  among  the  top  MVPDs  has  decreased  since  last  year  as  the  largest
 MSOs  have  become  more  equal  in  size,  and  it  remains  below  the  levels  reported
 in  earlier  years.  9  DBS  operators  DirecTV  and  EchoStar  rank  among  the  ten
 largest  MVPDs  in  terms  of  nationwide  subscribership  along  with  eight  cable
 multiple  system  operators  (  MSOs).  As  a  result  of  acquisitions  and  trades,
 cable  MSOs  have  continued  to  increase  the  extent  to  which  their  systems  form
 regional  clusters  whereby  the  largest  MSOs  concentrate  their  operations  in
 specific  geographic  areas.  Currently,  close  to  55  million  of  the  nations  cable
 subscribers  are  served  by  systems  that  are  included  in  regional  clusters.  By
 clustering  their  systems,  cable  operators  may  be  able  to  achieve  efficiencies  that
 facilitate  the  provision  of  cable  and  other  services,  such  as  telephony.
 x  The  number  of  satellite-  delivered  programming  networks  has  increased  by  13,
 from  281  in  2000  to  294  in  2001.  Vertical  integration  of  national  programming
 services  between  cable  operators  and  programmers  remained  at  35  percent  after
 several  years  of  decline.  Although  AT&  T  spun  off  its  Liberty  Media
 programming  interests,  Liberty  Media  is  still  included  in  this  percentage  since  it
 owns  several  cable  systems  in  Puerto  Rico.  In  2001,  four  of  the  top  seven  cable
 MSOs  held  ownership  interests  in  satellite-  delivered  programming  services.
 Sports  programming  warrants  special  attention  because  of  its  widespread  appeal
 and  strategic  significance  for  MVPDs.  The  2001  Report  identifies  80  regional
 networks,  29  of  which  are  sports  channels,  many  owned  at  least  in  part  by  MSOs.
 There  are  also  29  regional  and  local  news  networks  that  compete  with  local
 broadcast  stations  and  national  cable  networks.
 x  The  program  access  rules  adopted  pursuant  to  the  1992  Cable  Act  were  designed
 to  ensure  that  other  MVPDs  can  access  vertically-  integrated  satellite  delivered
 programming  on  non-  discriminatory  terms.  We  recognize  that  the  terrestrial
 distribution  of  programming,  including  in  particular  regional  sports
 programming,  could  have  an  impact  on  the  ability  of  alternative  MVPDs  to
 compete  in  the  video  marketplace.
 x  Cable  operators  and  other  MVPDs  continue  to  develop  and  deploy  advanced
 technologies,  especially  digital  compression  techniques,  to  increase  capacity  and
 enhance  the  capabilities  of  their  transmission  platforms.  These  technologies
 9  Traditional  economic  measures  (e.  g.,  the  Herfindahl-  Hirschman  Index  or  HHI)  are  based  on  market  shares  or  the
 squaring  of  market  shares  such  that  large  companies  are  weighed  more  heavily  than  small  companies.  The  HHI  (and
 apparent  levels  of  concentration)  decline  with  rising  equality  among  any  given  number  of  companies  in  terms  of
 market  shares  even  if  these  firms  individually  have  larger  shares  of  the  markets.
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 allow  MVPDs  to  deliver  additional  video  options  and  other  services  (e.  g.,  data
 access,  telephony,  and  interactive  services)  to  subscribers.  As  reported  last  year,
 MVPDs  are  beginning  to  develop  and  deploy  interactive  television  (  ITV)
 services.  In  particular,  this  year,  cable  operators  and  other  MVPDs  have  devoted
 most  of  their  attention  to  the  development  of  video-  on-  demand  services.
 x  In  the  last  year,  there  have  been  a  number  of  developments  regarding  navigation
 devices  and  cable  modems  used  to  access  a  wide  range  of  services  offered  by
 MVPDs.  Most  notably,  cable  operators  are  favoring  less  powerful  and  less
 expensive  set-  top  boxes.  It  is  unclear  how  these  modified  plans  will  affect
 advance  service  offerings.  CableLabs  is  continuing  its  efforts  to  develop  next
 generation  navigation  devices  with  its  initiative  for  the  OpenCable  Application
 Platform  (  OCAP)  or  middleware  specification.  The  Consumer  Electronics
 Association  maintains  that  until  this  software  standard  is  complete,
 manufacturers  will  not  be  able  to  build  advanced  set-  top  boxes  for  a  retail
 market.  In  another  effort  intended  to  facilitate  retail  availability  of  set-  top  boxes,
 cable  operators  announced  an  initiative  to  encourage  their  set-  top  box  suppliers
 to  make  their  digital  set-  top  boxes  with  embedded  security  available  at  retail.
 II.  COMPETITORS  IN  THE  MARKET  FOR  THE  DELIVERY  OF  VIDEO  PROGRAMMING
 A.  Cable  Industry
 15.  This  section  addresses  the  performance  of  franchised  cable  system  operators  during  the  past
 year.  10  We  address  four  different  areas  of  performance.  First,  we  report  figures  of  general  performance
 including  subscriber  levels,  availability  of  basic  services,  and  viewership.  Second,  we  discuss  the  cable
 industrys  financial  performance,  including  its  revenue,  cash  flow  status,  stock  valuations,  and  system
 transactions.  Third,  we  examine  the  cable  industrys  acquisition  and  disposition  of  capital,  including  the
 amount  of  funds  raised,  and  how  these  funds  are  being  used  to  upgrade  physical  plant  and  to  acquire  new
 systems.  Lastly,  we  address  the  growth  of  advanced  broadband  services,  including  cable  modem  service,
 digital  video  services,  and  broadband  telephony.
 1.  General  Performance
 16.  Since  our  last  Report,  the  cable  industry  has  continued  to  grow  in  terms  of  homes  passed,  11
 basic  cable  subscribership,  12  premium  service  subscriptions,  13  basic  cable  viewership,  and  channel
 10  A  franchise  is  an  authorization  supplied  by  a  federal,  state,  or  local  government  entity  to  own  or  construct  a  cable
 system  in  a  specific  area.  47  U.  S.  C.    522(  9),  522(  10).  A  cable  system  operator  is  "any  person  or  group  of  persons
 (A)  who  provides  cable  service  over  a  cable  system,  and  directly  or  through  one  or  more  affiliates  owns  a  significant
 interest  in  such  cable  system;  or  (B)  who  otherwise  controls  or  is  responsible  for,  through  any  arrangement,  the
 management  and  operation  of  such  a  cable  system."  47  U.  S.  C.    522(  5).
 11  Homes  passed  is  the  total  number  of  households  capable  of  receiving  cable  television  service.
 12  We  refer  to  all  cable  programming  networks  offered  as  a  part  of  program  packages  or  tiers  as  "basic  cable
 networks."  The  primary  level  of  cable  television  service  is  commonly  referred  to  as  "basic  service"  and  must  be
 taken  by  all  subscribers.  The  content  of  basic  service  varies  widely  among  cable  systems  but,  pursuant  to  the
 Communications  Act,  must  include  all  local  television  signals  and  public,  educational,  and  governmental  access
 channels  and,  at  the  discretion  of  the  cable  operator,  may  include  satellite  delivered  cable  programming  channels
 (continued.)
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 capacity.  14  Basic  cable  penetration,  the  ratio  of  the  number  of  cable  subscribers  to  the  total  number  of
 households  passed  by  the  system,  has  declined  slightly  since  our  last  report.  Deployment  of  advanced
 broadband  service  offerings,  however,  continued  during  2000  and  the  first  half  of  2001.  These  services
 include  offerings  of  digital  video,  Internet  access  through  cable,  interactive  cable,  15  and  facilities-  based
 broadband  telephony.
 17.  Cables  Capacity  to  Serve  Television  Households.  The  number  of  U.  S.  homes  with  at  least
 one  television  ("  TV  households")  was  reported  as  100.  8  million  during  the  1999-  2000  television  season.  16
 During  the  2000-  2001  television  season  the  number  of  TV  households  was  reported  as  102.  2  million,  an
 increase  of  1.4  percent.  17  The  number  of  homes  passed  by  cable  was  approximately  96.6  million  at  the
 end  of  1999,  103.  2  million  at  the  end  of  2000,  and  by  the  end  of  June  2001  was  estimated  to  be  104
 million.  18  The  most  widely  used  industry  measurement  of  cable  availability,  however,  is  the  number  of
 homes  passed  expressed  as  a  percentage  of  TV  households.  Based  on  data  from  Paul  Kagan  Associates,
 homes  passed  as  a  percentage  of  TV  households  was  estimated  to  be  97.1  percent  as  of  June  2001.  19  In  its
 comments,  NRTC  once  again  proposes  that  this  figure  is  flawed.  20  This  statistic,  it  notes,  varies
 depending  on  the  estimate  of  homes  passed  and  whether  the  comparison  is  based  on  TV  households,  all
 households,  all  occupied  housing  units,  or  all  housing  units  in  the  United  States,  as  some  have
 (  continued  from  previous  page)
 carried  on  the  system.  One  or  more  expanded  tiers  of  service,  known  as  cable  programming  service  (  CPS)  tiers
 for  purposes  of  rate  regulation,  and  often  known  as  expanded  basic,  also  may  be  offered  to  subscribers.  These
 expanded  tiers  of  service  usually  include  additional  satellite  delivered  cable  programming  channels.  47  U.  S.  C.
   543(  b)(  7),  543(  l)(  2).
 13  Premium  services  are  cable  networks  provided  by  a  cable  operator  on  a  per  channel  basis  for  an  extra  monthly  fee.
 Pay-  per-  view  (  PPV)  services  are  cable  networks  provided  on  a  per  program  basis.  PPV  service  is  a  separate
 category  from  premium  service.  47  U.  S.  C.    543(  b)(  7),  543(  l)(  2).
 14  Channel  capacity  is  defined  as  the  maximum  number  of  6  MHz  video  channels  that  a  system  can  carry
 simultaneously.  Video  channel  capacity  can  be  decreased  on  any  given  system  simply  by  using  bandwidth  for  other
 services  such  as  connectivity  to  the  Internet.
 15  The  interactive  cable  services  discussed  here  include  video-  on-  demand  (  VOD),  interactive  guides,  and
 interactive  programming.
 16  Nielsen  Media  Research,  U.  S.  Television  Household  Estimates  September  2000,  DMA  Rankings.  Nielsen  Media
 Research  estimates  the  number  of  television  households  annually,  and  industry  practice  is  to  use  this  figure
 throughout  the  television  broadcast  season,  which  begins  in  September  and  ends  in  August  of  the  following  calendar
 year.  Thus,  the  figure  for  TV  households  in  June  2001  is  the  same  as  the  figure  for  December  2000.  In  App.  B,  Tbl.
 B-  1,  we  report  the  number  of  television  households  as  of  year-  end  2000  and  June  2001.  These  figures  are  from  Paul
 Kagan  Associates,  and  we  use  these  estimates  of  television  households  for  consistency  with  the  remainder  of
 reported  figures  in  this  section.
 17  Nielsen  Media  Research,  U.  S.  Television  Household  Estimates  September  2001,  DMA  Rankings.  See  also  App.
 C,  Tbl.  C-  1.
 18  See  App.  B,  Tbl.  B-  1.
 19  Id.
 20  See  2000  Report,  16  FCC  Rcd  at  6016-  7.
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 suggested.  21  NRTC  suggests  again  this  year  that  the  number  of  homes  passed  as  a  percentage  of  TV
 households  could  be  as  low  as  81  percent.  22
 18.  Subscribership.  Cable  television  subscribership  grew  from  67.3  million  subscribers  at  the
 end  of  1999  to  68.5  million  subscribers  at  the  end  of  2000,  an  increase  of  1.8  percent.  23  It  continued  to
 grow  to  an  estimated  69  million  subscribers  by  June  2001,  a  six  month  increase  of  approximately  0.7
 percent.  24  Cable  penetration  declined  between  1999  and  2000,  decreasing  from  69.7  percent  at  the  end  of
 1999  to  66.  4  percent  at  the  end  of  2000,  and  66.3  percent  by  June  2001.  25  The  percentage  of  TV
 households  subscribing  to  cable  also  decreased  over  the  last  year,  declining  from  67.3  percent  in  1999  to
 64.4  percent  of  all  TV  households  by  the  end  of  2000  and  June  2001.  26  The  number  of  homes  subscribing
 to  one  or  more  premium  cable  services  increased  from  35.5  million  homes  at  the  end  of  1999  to  36.8
 million  homes  at  the  end  of  2000,  an  increase  of  3.7  percent.  27  For  the  first  half  of  2001,  premium  cable
 subscribers  increased  again,  reaching  37.2  estimated  subscribers,  a  six-  month  increase  of  about  one
 percent.  28  The  number  of  premium  services  to  which  homes  are  subscribing  (known  as  "premium  units")
 increased  4.9  percent  by  the  end  of  2000  to  55.6  units  and  by  June  2001,  to  56.4  units.  29
 19.  Channel  Capacity.  As  part  of  its  consideration  of  issues  relating  to  the  carriage  of  DTV
 stations  by  cable  operators,  the  Commission  conducted  a  survey  of,  among  other  things,  cable  system
 channel  capacity.  30  Preliminary  results  from  the  survey  revealed  that  48.8  million  subscribers,  or
 approximately  87  percent  of  all  subscribers  served  by  cable  MSOs  included  in  the  survey  are  served  by
 systems  that  provided  bandwidth  of  550  MHz  or  higher,  and  more  than  76  percent  are  served  by  systems
 that  provided  bandwidth  of  750  MHz  or  higher.  31  Cable  operators  have  allocated  this  bandwidth  in  a
 21  Id.  See  also  National  Telecommunications  and  Information  Administration,  United  States  Department  of
 Commerce  and  Rural  Utilities  Service,  United  States  Department  of  Agriculture,  Advanced  Telecommunications  in
 Rural  America,  The  Challenge  of  Bringing  Broadband  Service  to  All  Americans  (  NTIA/  RUS  Report),  April  2000.
 22  NRTC  Comments  at  6-  11;  see  also  2000  Report,  16  FCC  Rcd  at  6016-  7.
 23  See  App.  B,  Tbl.  B-  1.
 24  Id.
 25  Id.
 26  Id.  The  percentage  of  TV  households  subscribing  to  cable  is  the  ratio  of  the  number  of  cable  subscribers  to  the
 total  number  of  households  with  at  least  one  television.
 27  See  App.  B,  Tbl.  B-  2.
 28  Id.
 29  Id.
 30  See  Carriage  of  Digital  Television  Broadcast  Signals,  Amendment  to  Part  76  of  the  Commissions  Rules,
 Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  of  1999:  Local  Broadcast  Signal  Carriage  Issues,
 Application  of  Network  Non-  Duplication,  Syndicated  Exclusivity  and  Sports  Blackout  Rules  to  Satellite
 Retransmission  of  Broadcast  Signals,  CS  Docket  Nos.  98-  120,  00-  96,  00-  2,  First  Report  and  Order  and  Further
 Notice  of  Proposed  Rulemaking  (  DTV  Signal  Carriage  Proceeding),  16  FCC  Rcd  2598  (2001).
 31  MSOs  surveyed  included  the  top  twelve  cable  operators,  and  four  other  relatively  large  operators,  comprising
 approximately  90  percent  of  all  cable  subscribers  (AT&  T  Broadband,  Time  Warner,  Comcast,  Charter,  Cox,
 Adelphia,  Cablevision,  Insight,  Mediacom,  CableOne,  RCN,  Armstrong  Cable,  Classic  Communications,  Service
 Electric  Cable  TV,  BellSouth,  and  Northland).  Results  are  based  on  responses  provided  by  twelve  MSOs.  Not  all
 MSOs  were  included  in  the  results  due  to  lack  of  response  or  quality  of  data  submitted.
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 variety  of  ways,  using  a  portion  of  this  bandwidth  for  the  provision  of  analog  video,  and  a  portion  for  the
 provision  of  digital  video,  with  the  remainder  allocated  for  services  such  as  Internet  access  and  telephony.
 For  example,  systems  with  750  MHz  system  capacity  on  average  allocated  478  MHz  or  approximately  80
 channels  to  analog  video.  Also,  on  average,  750  MHz  systems  allocated  140  MHz  for  downstream  digital
 video,  which  may  yield  a  range  of  channels,  depending  on  the  modulation  technique  and  compression
 ratio  employed.
 20.  Viewership.  As  reported  last  year,  viewership  shares  of  non-  premium  cable  networks  have
 continued  to  grow  over  the  past  decade,  while  viewership  shares  of  broadcast  television  stations  have
 steadily  declined.  This  trend  continues.  Audience  share  statistics  for  Monday  through  Sunday,  24  hours
 a  day,  show  that  non-  premium  cable  audience  shares  rose  5.7  percent  from  an  average  45.5  share  32
 between  July  1999  through  June  2000,  to  an  average  48.1  share  between  July  2000  and  June  2001.  33
 Broadcast  television  audience  shares  decreased  4.7  percent  from  an  average  59.6  share  from  July  1999
 through  June  2000,  to  an  average  56.8  share  between  July  2000  and  June  2001.  34
 21.  Cable  Networks.  Although  the  number  of  cable  networks,  on  average,  increased  in  2000,
 several  categories  of  networks  decreased.  For  example,  in  2000,  the  number  of  non-  premium  cable
 networks  decreased  from  147  to  130,  an  11.6  percent  decline.  35  The  number  of  premium  networks  also
 decreased  during  2000,  from  43  at  year-  end  1999  to  40  at  year-  end  2000.  36  These  decreases  were
 coordinated  to  make  room  for  the  addition  of  digital  tier  channels  for  which  there  were,  on  average,  none
 recorded  in  1999,  but  39  reported  for  2000.  37  The  number  of  pay-  per-  view  (  PPV)  services  increased
 4.8  percent  in  2000  from  9  to  11  networks.  38
 22.  Programming  Costs.  Cable  operators  incurred  expenses  of  approximately  $8.  9  billion  for
 producing  and  acquiring  programming  in  2000.  39  Approximately  $6.  4  billion  of  these  expenses  were
 license  fees  paid  by  the  basic  cable  networks  to  obtain  programming,  and  approximately  $2.2  billion  were
 license  fees  paid  by  premium  cable  services.  40  Approximately  $148  million  of  these  expenses  were  for
 the  production  of  original  programming.  41  Programming  expenses  incurred  by  cable  operators  for
 32  A  share  is  the  percent  of  all  households  using  television  during  the  time  period  that  are  viewing  the  specified
 station(  s)  or  network(  s).  The  sum  of  reported  audience  shares  exceeds  100  percent  due  to  multiple  set  viewing.
 33  Nielsen  Media  Research,  Total  Day  24  Hours  6  am  -  6  am:  Total  US  Ratings  By  Viewing  Source  July  2000-  June
 2001,  Oct.  2001.  Nielsen  reports  non-  premium,  basic  cable  viewership  as  "Ad  Supported  Cable"  and  All  Other
 Cable.  Premium  services  are  classified  as  Premium  Pay.
 34  Id.  Broadcast  shares  include  network  affiliates,  independent,  and  public  television  stations.
 35  These  statistics  regarding  types  of  cable  networks  are  from  NCTA,  National  Cable  Video  Networks  By  Type  of
 Service:  1980-  1999,  Cable  Television  Developments  2001,  at  8.  These  totals  differ  from  those  reported  in  the
 Vertical  Integration  Section  of  this  report.  In  that  section,  the  information  on  cable  networks  is  from  NCTA
 Developments  and  additional  sources.  See  App.  B,  Tbl.  B-  3.
 36  See  App.  B,  Tbl.  B-  3.
 37  Id.
 38  Id.
 39  NCTA  Comments  at  20.
 40  Telephone  interview  with  Gregory  Klein,  Senior  Director  of  Economic  and  Policy  Analysis,  NCTA  (Oct.  31,
 2001).
 41  Id.
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 copyright  fees  for  broadcast  signal  carriage  pursuant  to  Section  111  of  the  Copyright  Act  amounted  to
 approximately  $112  million  in  2000.  42  As  of  November  7,  2001,  43  copyright  fees  paid  by  cable  system
 operators  or  broadcast  signal  carriage  for  the  period  January  1,  2000,  to  June  30,  2000,  were  $53.2
 million.  44  For  the  period  July  1,  2000,  through  December  31,  2000,  fees  collected  were  $59.6  million.
 Reported  estimates  indicate  that  these  programming  network  expenses  will  total  $9  billion  by  year-  end
 2001.  45  Thus  far,  for  the  period  January  1,  2001,  to  June  30,  2001,  copyright  fees  collected  were  $53.9
 million.  46
 2.  Financial  Performance
 23.  Data  concerning  cable  industry  revenue,  cash  flow,  and  stock  prices  indicate  that  the  cable
 industry  growth  slowed  significantly  in  the  past  year.  Relative  to  major  market  indices,  cable  stocks,  as
 represented  by  the  Kagan  MSO  Index,  performed  below  average  in  2000  and  in  the  first  half  of  2001.  47
 24.  Cable  Industry  Revenue.  Annual  cable  industry  revenue  grew  3.7  percent  in  2000  over
 1999,  reaching  $38.1  billion.  48  By  the  end  of  2000,  revenue  per  subscriber  grew  almost  two  percent  to
 $561.38  per  subscriber  per  year,  or  $46.78  per  subscriber  per  month.  49  Analysts  estimate  that  2001  year-end
 total  revenue  will  reach  nearly  $44  billion,  an  estimated  15.4  percent  increase  over  2000,  50  and  that
 revenue  per  subscriber  per  year  will  reach  approximately  $637.33,  or  $53.11  per  subscriber  per  month.  51
 25.  When  cable  system  revenue  is  classified  by  source,  home  shopping  revenue  demonstrated  the
 greatest  percent  increase  in  2000.  52  Commissions  from  home  shopping  increased  nearly  30  percent  in
 2000,  from  $185  million  in  revenue  in  1999  to  $239  million  in  2000.  53  Advanced  video  services
 42  Copyright  Act,  17  U.  S.  C.    111  et  seq.
 43  Copyright  fees,  though  technically  due  on  a  specific  date,  are  collected  on  a  rolling  basis.  We  report  the  most
 current  figures  available.
 44  Copyright  Office,  Library  of  Congress,  Licensing  Division  Report  of  Receipts,  Nov.  7,  2001.  Date  of  "collection"
 indicates  the  date  the  Copyright  Office  has  deposited  payments  made  by  cable  operators.
 45  Id.
 46  Id.
 47  Cable  industry  stocks  underperformed  the  NASDAQ  in  2000,  but  performed  slightly  better  in  the  first  quarter  of
 2001.  See  Paul  Kagan  Assocs.,  Inc.,  Kagan  Cable  MSO  Average  vs.  NASDAQ,  The  Broadband  Cable  Financial
 Databook  2001  (  2001  Cable  Databook),  July  2001,  at  83;  Jessica  Reif  Cohen  and  Nathalie  Brochu,  Q2/  Q3
 Preview  (  Merrill  Lynch    Q2/  Q3  Preview),  Merrill  Lynch,  July  30,  2001,  at  9.
 48  See  App.  B,  Tbl.  B-  4.
 49  Id.
 50  Id.
 51  Id.
 52  Id.  The  advanced  video  services  category  includes  both  analog  video  services  and  digital  video  services.
 Advanced  analog  services  provide  users  with  certain  two-  way  capabilities  such  as  PPV  and  VOD.  Digital  video
 services  can  provide  superior  video  picture  quality  and  increased  channel  capacity.  Both  digital  and  advanced
 analog  services  require  the  use  of  a  set-  top  box.
 53  See  App.  B,  Tbl.  B-  4.
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 increased  3.7  percent  in  2000  after  having  experienced  338  percent  growth  in  1999.  54  Analysts  expect
 advanced  video  services  to  grow  nearly  175  percent  in  2001  to  reach  just  over  $5.5  billion  in  revenues  for
 the  year.  55  The  PPV  sector,  typically  volatile,  demonstrated  a  20  percent  decline  in  revenues  in  2000,  but
 analysts  expect  PPV  revenue  to  increase  in  2001,  growing  an  estimated  44  percent,  to  over  $1  billion  in
 annual  revenue.  56  Equipment  and  installation  revenue  declined  over  13  percent  in  2000,  from  $2.8  billion
 in  annual  revenue  in  1999  to  a  little  more  than  $2.4  billion  in  2000.  57  Industry  analysts  predict  this
 revenue  sector  will  increase  slightly  in  2001  to  an  estimated  $2.5  billion.  58  Annual  revenue  from  local
 advertising  increased  from  $2.7  billion  in  1999  to  $3.  2  billion  in  2000,  a  20.7  percent  increase,  and
 analysts  expect  local  advertising  revenue  to  increase  13  percent  over  the  next  year  to  reach  $3.7  billion  in
 revenues  by  year-  end  2001.  59  Revenue  from  the  basic  service  tier  (  BST)  and  from  the  cable
 programming  service  tier  (  CPST)  combined  grew  from  $23.1  billion  in  1999  to  $24.7  billion  in  2000,  a
 6.9  percent  increase,  and  analysts  expect  these  revenues  to  increase  to  $26.1  billion  by  year-  end  2001.  60
 26.  Cable  Industry  Cash  Flow.  Cash  flow  is  often  used  to  assess  the  financial  position  of  cable
 firms.  Cash  flow  is  generally  expressed  as  EBITDA  (earnings  before  interest,  taxes,  depreciation,  and
 amortization).  Financial  analysts  reported  that  industry-  wide  cash  flow  increased  6.5  percent  between  the
 end  of  1999  and  the  end  of  2000,  from  $15.6  billion  to  $16.6  billion.  61  Cash  flow  will  increase  an
 estimated  10  percent,  reaching  $18.3  billion  by  year-  end  2001.  62  In  2000,  the  cable  industry  generated
 $244.64  in  annual  cash  flow  per  subscriber,  $10.76  higher  per  subscriber  than  the  $233.88  per  subscriber
 generated  in  1999.  63  Analysts  estimate  that  in  2001,  cash  flow  per  subscriber  per  year  will  increase  by
 $20.17,  reaching  $264.81.  64  The  ratio  of  cash  flow  to  revenue  (  cash  flow  margin)  increased  from  42.4
 percent  in  1999  to  43.6  percent  in  2000,  and  is  expected  to  decrease  to  41.5  percent  by  year-  end  2001.  65
 27.  Stock  Prices.  After  reaching  its  all-  time  high  in  January  2000,  cable  stock  values,  as
 represented  by  the  Kagan  MSO  Stock  Index,  declined  throughout  2000  and  the  first  half  of  2001.  66
 Unlike  past  years,  when  there  were  many  precipitating  events  causing  the  sell-  off  of  cable  stocks,  cables
 54  Id.
 55  Id.
 56  Id.
 57  Id.
 58  Id.
 59  Id.
 60  Id.  Basic  cable  rates  are  regulated  at  the  local  level.  CPST  rate  regulation  ended  in  March  1999.  See  47  U.  S.  C.
   543  (c)(  3),  (c)(  4).
 61  See  App.  B,  Tbl.  B-  4.
 62  Id.
 63  Id.
 64  Id.
 65  Id.  Cash  flow  margin  is  a  commonly-  used  financial  analysis  tool  for  determining  a  cable  operators  operating
 efficiency,  profitability,  and  liquidity.
 66  See  The  Public  Market,  2001  Cable  Databook,  at  82;  Kagan  Cable  MSO  Average  vs.  NASDAQ,  2001  Cable
 Databook,  at  83.
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 current  downturn  seems  to  be  more  in  step  with  the  overall  trends  of  the  economy.  67  But  despite  currently
 depressed  stock  prices,  analysts  are  optimistic  about  cables  future  as  the  cable  companies  have  proven
 that  they  can  successfully  roll  out  new  services  with  the  synergistic  effects  of  bundling.  68  Even  in  the  face
 of  competition  from  DBS,  analysts  are  encouraged  by  continued  advanced  service  revenue  growth.  69
 28.  Cable  System  Transactions.  Over  the  last  several  years,  the  number  of  acquisitions  and
 exchanges  between  MSOs  has  declined,  though  there  have  been  a  number  of  mergers  among  large
 operators.  The  number  of  systems  sold  decreased  between  1998  and  1999  from  119  to  92  systems.  70
 Between  1999  and  2000,  the  number  of  systems  sold  decreased  from  92  to  47  systems,  and  between
 January  and  June  2001,  there  were  23  transactions.  71  The  total  number  of  subscribers  affected  by  system
 transactions  and  the  average  size  of  systems  sold  (measured  by  the  number  of  subscribers  per  system)
 continues  to  vary  greatly  from  year  to  year.  Smaller  cable  operators,  however,  are  often  unable  to  take
 advantage  of  the  efficiencies  that  come  from  clustering,  and  thus  are  more  susceptible  to  financial
 difficulties.  In  the  past  year,  small  operators  Galaxy  Telecom,  Inc.,  and  Classic  Communications  faced
 such  difficulties  often  seen  among  small  MSOs.  72  The  assets  of  these  operators  were  sold  to  larger
 MSOs,  further  consolidating  the  industry.
 29.  While  the  number  of  subscribers  affected  by  system  transactions  decreased  between  1999  and
 2000,  from  18.3  million  to  10.5  million,  the  average  size  of  traded  systems  increased  from  approximately
 199,000  subscribers  per  system  sold  in  1999  to  approximately  223,000  subscribers  per  system  sold  in
 2000.  73  Between  January  and  June  2001,  the  number  of  subscribers  affected  by  system  transactions
 reached  approximately  four  million,  with  an  average  number  of  subscribers  per  system  transaction  at
 approximately  176,000.  74  The  total  dollar  value  of  transactions  decreased  between  1999  and  2000  from
 $73  billion  at  year-  end  1999  to  $62.1  billion  at  the  end  of  2000.  75  The  total  dollar  value  of  transactions
 between  January  2001  and  June  2001  was  approximately  $15  billion.  76
 3.  Capital  Acquisition  and  Disposition
 30.  Industry  Financing.  The  cable  industry  typically  has  relied  on  combinations  of  private  and
 public  financing,  with  the  distribution  of  these  combinations  varying  greatly  from  year  to  year.  These
 67  Id.
 68  Id.  at  82;  Kagan  Cable  MSO  Average  vs.  NASDAQ,  2001  Cable  Databook,  at  83;  Analysts  Bullish  on  Cable  Stocks
 Despite  Slumping  Prices,  Comm.  Daily,  Dec.  7,  2000,  at  4.  Bundling  in  this  context  merely  means  the  co-  marketing
 and  co-  billing  of  these  products.
 69  Analysts  Bullish  on  Cable  Stocks  Despite  Slumping  Prices,  Comm.  Daily,  Dec.  7,  2000,  at  4.
 70  This  includes  all  systems  bought  and  sold.  See  App.  B,  Tbl.  B-  5.
 71  Id.
 72  Mike  Farrell,  Bondholders  OK  Galaxy  Plan,  Multichannel  News,  Oct.  1,  2001;  Classic  Communications,  Inc.,
 Classic  Communications  to  Restructure  Operations  Under  Chapter  11;  Company  to  Continue  to  Conduct  Business
 as  Usual  (press  release),  Nov.  13,  2001,  at  http://  www.  classic-  cable.  com/  pages/  Framesets/  InvestorFrameset.  html.
 73  See  App.  B,  Tbl.  B-  5.
 74  Id.
 75  Id.
 76  Id.
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 year-  to-  year  fluctuations  in  financing  sources  appear  to  be  based  on  the  availability  of  acceptable
 financing  rates  through  private  investors  or  capital  lending  institutions,  and  the  attractiveness  of  debt  and
 equity  offerings.
 31.  During  2000,  the  cable  industry  acquired  approximately  $380  million  in  public  equity
 offerings  (i.  e.,  sale  of  stock),  $101  million  in  private  equity  (i.  e.,  financing  from  individuals,  private
 corporations,  venture  capital  firms  and  investment  banks),  $2.8  billion  in  private  debt  (i.  e.,  banks  and
 other  borrowings),  and  $4.2  billion  in  public  debt  (i.  e.,  sale  of  public  bonds).  77  Between  January  and  June
 2001,  the  cable  industry  acquired  approximately  $2.5  billion  in  public  equity  offerings,  $94  million  in
 private  equity,  $8.  6  billion  in  private  debt,  and  $8.  1  billion  in  public  debt.  78
 32.  Capital  Expenditures/  Capital  Investment.  In  2000,  the  cable  industry  spent  a  total  of  $15.5
 billion  on  the  construction  of  new  plant,  upgrades,  rebuilds,  new  equipment,  and  maintenance  of  new  and
 existing  equipment.  79  This  represents  a  45.9  percent  increase  over  the  $10.6  billion  spent  in  1999.  80
 Analysts  expect  that  operators  will  spend  an  estimated  $14.7  billion  in  2001,  a  decrease  of  5.2  percent
 over  2000.  81  Of  the  $14.7  billion  to  be  spent  industry-  wide,  approximately  $850  million  will  be  spent  on
 new  builds,  $2.4  billion  on  rebuilds,  $4.4  billion  on  upgrades,  $4.4  billion  on  equipment  and  $2.6  billion
 on  maintenance.  82
 33.  MSOs  continue  to  spend  substantially  on  maintenance,  upgrades,  rebuilds,  and  new  services.
 In  the  case  of  Time  Warner,  AT&  T,  Comcast,  and  Cox,  some  or  all  of  the  expenditures  in  2000  and  the
 first  half  of  2001  were  associated  with  commitments  made  by  those  MSOs  pursuant  to  social  contracts
 with  the  Commission.  83  As  of  June  2001,  AOL  Time  Warner  had  spent  $1.1  billion  and  is  expected  to
 77  See  App.  B,  Tbl.  B-  6.
 78  Id.
 79  Estimated  Capital  Flows  in  Cable  TV,  2001  Cable  Databook,  at  138.  "New  builds"  are  the  construction  of  new
 cable  plant  where  none  existed  before,  primarily  newly  built  homes.  "Rebuilds"  are  improvements  to  existing
 systems  that  do  not  retain  much  of  the  old  system  plant  and  equipment.  Instead,  they  consist  of  mostly  new  plant
 and  equipment.  "Upgrades"  are  improvements  to  existing  cable  systems  that  do  not  require  the  replacement  of  the
 entire  existing  plant  and  equipment.
 80  Id.
 81  Id.
 82  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  CableTV:  Total  Raised  and  Spent  1996-  2001,  Cable  TV
 Finance,  June  28,  2001,  at  2.
 83  The  social  contract  with  Time  Warner  committed  that  MSO  to  spend  $4  billion  on  upgrades  over  a  five-  year
 period  and  to  provide  100  percent  of  its  subscribers  with  550  MHz  service  and  50  percent  of  its  subscribers  with  750
 MHz  service.  Social  Contract  for  Time  Warner,  11  FCC  Rcd  2788  (1995).  Time  Warners  final  annual  social
 contract  implementation  report  indicates  that  the  MSO  has  met  its  commitment  under  the  Social  Contract.  Letter
 from  Arthur  Harding  to  Royce  Sherlock,  Cable  Services  Bureau,  May  3,  2001,  attaching  Time  Warner  Cable  Social
 Contract  Progress  Report  2000.  The  social  contract  originally  agreed  upon  with  Continental  Cablevision,  now
 administered  by  AT&  T  and  Cox,  commits  that  MSO  to  spend  $1.  7  billion  on  upgrades  over  a  four-  year  period
 ending  December  31,  2000,  and  also  to  provide  100  percent  of  its  subscribers  with  550  MHz  service  and  50  percent
 of  its  subscribers  with  750  MHz  service.  Social  Contract  for  Continental  Cablevision,  Inc.  (subsequently
 MediaOne),  13  FCC  Rcd  11118  (1996).  In  its  final  report,  AT&  T  indicates  that  it  met  its  commitment  under  the
 Social  Contract.  Letter  from  Richard  D.  Treich,  Senior  Vice  President,  AT&  T  Broadband,  LLC.  to  Magalie  Roman
 Salas,  Secretary,  FCC,  May  4,  2001,  attaching  Annual  Report  for  In  re  Social  Contract  for  Continental  Cablevision.
 Cox  submits  that  it  has  met  its  commitment  under  the  Social  Contract.  Letter  from  Peter  H.  Feinberg,  Attorney,
 (continued.)
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 spend  $2.2  billion  by  year-  end.  84  Comcast  reported  cable-  related  capital  expenditures  of  $1.2  billion  in
 2000,  and  is  expected  to  spend  approximately  $1.8  billion  by  the  end  of  2001.  85  AT&  Ts  broadband  unit
 reported  capital  expenditures  of  $4.2  billion  in  2000,  of  which  approximately  $1.6  billion  were  related  to
 the  launch  of  new  services  and  $1.3  billion  for  plant  upgrades.  86  AT&  T  Broadband  plans  to  spend  $3.  6
 billion  in  capital  in  2001,  with  the  majority  focused  on  providing  advanced  services  and  plant  upgrades.  87
 Adelphia  reported  capital  expenditures  of  approximately  $1.5  billion  in  2000.  88  As  of  June  2001,
 Adelphia  had  spent  $1.1  billion  and  expects  that  by  year-  end  2001,  it  will  have  spent  a  total  of  $2
 billion.  89  Cox  reported  total  capital  spending  of  $2.  2  billion  in  2000.  90  As  of  June  2001,  Cox  had  spent
 approximately  $1.  1  billion,  and  expects  that  by  year-  end  it  will  have  spent  a  total  of  $2  billion.  91
 Cablevision  reported  capital  expenditures  of  about  $912  million  in  2000  and  is  expected  to  spend  $1.1
 (  continued  from  previous  page)
 Dow,  Lohnes  &  Albertson,  PLLC,  to  Magalie  Roman  Salas,  Secretary,  FCC,  April  2,  2001,  attaching  Annual  Report
 for  Social  Contract  for  Continental  Cablevision.  The  Social  Contract  agreed  to  by  Comcast  commits  the  MSO  to
 provide  free  cable  connections,  Internet,  and  modems  to  schools  and  libraries  for  certain  systems  covered  under  the
 contract.  The  Fifth  Annual  Progress  Report  for  the  Social  Contract  with  Comcast  reports  that  as  of  Apr.  2,  2001,
 Comcast  continues  to  provide  services  and  materials  in  accordance  with  the  terms  of  the  Social  Contract  and  that  it
 has  completed  its  upgrade  obligations  under  the  contract.  Social  Contract  for  Comcast  Cable  Communications,  Inc.,
 13  FCC  Rcd  3612  (1997);  Letter  from  Peter  H.  Feinberg,  Attorney,  Dow,  Lohnes  &  Albertson,  PLLC,  to  Magalie
 Roman  Salas,  Secretary,  FCC,  April  2,  2001,  attaching  Fifth  Annual  Progress  Report  pursuant  to  the  Comcast  Social
 Contract.
 84  AOL  Time  Warner,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2001,  at  15.
 85  Comcast  Reply  Comments  at  13.  As  a  result  of  these  capital  expenditures,  Comcast  reports  that  as  of  June  30,
 2001,  86  percent  of  its  customers  were  served  by  systems  of  550  MHz  or  greater,  and  70  percent  of  its  systems  were
 served  by  750  MHz  or  greater.  It  expects  that  by  year-  end,  94  percent  of  customers  will  be  served  by  550  MHz  or
 greater  and  85  percent  with  750  MHz  or  greater.  Comcast  Reply  Comments  at  13.
 86  AT&  T  Corp.,  AT&  T  Fourth  Quarter  Pro  Forma  Revenue  Increases  2.5  Percent  (press  release),  Jan.  29,  2001.
 AT&  Ts  investments  have  resulted  in  the  upgrade  of  over  71  percent  of  its  cable  plant  to  at  least  550MHz,  with  56
 percent  of  the  network  upgraded  to  750  MHz.  AT&  T  Comments  at  14-  15
 87  AT&  T  Corp.,  AT&  T  Details  Results  and  Outlines  Growth  Plans  for  Broadband  Business  (press  release),  July  24,
 2001.
 88  Adelphia  Communications  Corp.,  SEC  Form10-  K  for  the  Year  Ended  December  31,  2000,  at  31.
 89  Adelphia  Communications  Corp.,  SEC  Form10-  Q  for  the  Quarter  Ended  June  30,  2001,  at  20.
 90  Cox  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000,  at  35  and  44.  These
 expenditures  were  primarily  directed  at  upgrading  and  rebuilding  its  network.  Id.  at  35.  At  the  end  of  2000,  Cox
 had  upgraded  70  percent  of  its  networks  to  a  bandwidth  capacity  of  750  MHz  or  greater  and  anticipates  that
 approximately  83  percent  of  its  networks  will  have  bandwidth  capacity  of  750  MHz  or  greater  by  the  end  of  2001.
 Id.  at  1.
 91  Cox  Communications,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2001,  at  20.  By  the  end  of  2000,
 Cox  had  upgraded  70  percent  of  its  networks  to  a  bandwidth  capacity  of  750  MHz  or  greater.  Cox  expects  by  year-end
 2001,  83  percent  of  its  networks  will  have  bandwidth  capacity  of  750  MHz  or  greater.  Cox  Communications,
 Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2001,  at  1.
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 billion  in  2001.  92  Charter  reported  cable-  related  capital  expenditures  of  almost  $2.83  billion  in  2000,  and
 is  expected  to  spend  approximately  $2.9  billion  during  2001.  93
 4.  Provision  of  Advanced  Broadband  Services
 34.  Advanced  services  continue  to  be  deployed  at  a  rapid  pace.  With  most  systems  able  to
 deliver  digital  video,  and  many  systems  able  to  deliver  cable  modem  and/  or  cable  telephone  service,
 MSOs  are  beginning  to  experiment  with  the  deployment  of  other  advanced  service  offerings  such  as
 video-  on-  demand  (  VOD)  and  Internet  protocol  (  IP)  telephony  over  cable  systems.
 35.  Digital  Video  Services.  Most  major  cable  operators  currently  offer  a  selection  of  digital
 video  packages  offered  on  the  expanded  capacity  of  cable  systems  that  have  converted  to  digital.  The
 basic  digital  tier  typically  includes  about  40  additional  channels  of  audio  and  video.  In  addition,  some
 MSOs  have  chosen  to  offer  digital  tiers  of  different  genres,  such  as  family,  sports,  or  movie  channels.
 36.  As  we  have  discussed  in  past  Reports,  subscriber  reception  of  digital  video  requires  a  set-  top
 device  to  decompress  and  decode  incoming  digital  signals  and  to  translate  the  signals  into  the  signals  used
 by  current  television  sets.  While  its  primary  purpose  is  to  convert  digital  signals  to  analog  form,  these
 digital  set-  top  boxes  can  allow  cable  operators  to  offer  such  additional  services  as  PVRs,  games,  home
 networking,  and  e-  commerce.  94  The  next  generation  set-  top  box  was  scheduled  to  be  deployed  in  2001,
 but  its  release  has  been  delayed  and  analysts  expect  it  will  be  deployed  in  2002.  95
 37.  Cable  operators  are  still  providing  set-  top  boxes  to  the  consumer  for  a  monthly  fee;  though
 the  Commission  has  undertaken  a  proceeding  to  facilitate  retail  availability  of  these  devices  to
 consumers.  96  The  Commission  continues  to  evaluate  its  rules  to  determine  whether  changes  are  required
 to  meet  the  statutory  objective  of  creating  a  retail  market  for  navigation  devices.  97
 92  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2001  Financial  Results  for
 Cablevision  NY  Group  and  Rainbow  Media  Group  (press  release),  Aug.  9,  2001.
 93  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2001,  at  39.  As  a  result  of
 these  expenditures,  more  than  54  percent  of  Charter  subscribers  were  served  by  systems  with  broadband  capacity  of
 750  MHz  or  greater.  Charter  expects  by  year-  end  2001,  nearly  68  percent  of  its  subscribers  will  be  served  by
 systems  with  broadband  capacity  of  750  MHz  or  greater.  Id.  at  15.
 94  Merrill  Lynch  -  Q2/  Q3  Preview,  at  16.
 95  Richard  Bilotti,  Benjamin  Swinburne,  and  Megan  Lynch,  Industry  Review:  An  Early  Look  at  2005  (  Morgan
 Stanley    Industry  Review),  Morgan  Stanley  Dean  Witter,  Jan.  2,  2001,  at  16;  Michael  Lafferty,  Taking  a  Look  at
 the  Thick  and  the  Thin  of  It,  CED,  Sept.  2001,  at  29.
 96  See  2000  Report,  16  FCC  Rcd  at  6026-  7.  Section  629  of  the  Communications  Act  requires  that  the  Commission
 adopt  regulations  to  assure  the  commercial  availability  of  navigation  devices.  In  1998,  the  Commission  adopted
 rules  to  implement  Section  629.  See  47  U.  S.  C.    549;  see  also  Implementation  of  Section  304  of  the
 Telecommunications  Act  of  1996,  Commercial  Availability  of  Navigation  Devices,  CS  Docket  No.  97-  80,  Report  and
 Order  (  Navigation  Report  and  Order),  13  FCC  Rcd  14775  (1998);  Implementation  of  Section  304  of  the
 Telecommunications  Act  of  1996,  Commercial  Availability  of  Navigation  Devices,  CS  Docket  97-  80,  Order  on
 Reconsideration  (  Navigation  Reconsideration),  14  FCC  Rcd  7596  (1999).
 97  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996  -  Commercial  Availability  of  Navigation
 Devices,  CS  Docket  No.  97-  80,  Further  Notice  of  Proposed  Rule  Making  and  Declaratory  Ruling,  15  FCC  Rcd
 (continued.)
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 38.  As  of  year-  end  2000,  it  was  estimated  that  there  were  more  than  8.7  million  digital  video
 subscribers.  98  As  of  June  2001,  there  were  an  estimated  12  million  digital  cable  subscribers  industry-wide.  99
 Some  predict  that  digital  video  subscriptions  will  reach  15.1  million  by  the  end  of  2001.  100
 39.  As  of  year-  end  2000,  Cox  reported  approximately  840,000  digital  video  subscribers.  101  As  of
 June  2001,  Cox  reported  approximately  one  million  digital  video  subscribers.  102  Analysts  estimate  that  by
 year-  end  2001,  Cox  will  have  as  many  as  1.3  million  subscribers.  103  As  of  June  2001,  Comcast  reported
 1.8  million  digital  video  subscribers  and  expects  to  end  the  year  with  as  many  as  2.2  million  digital  video
 subscribers.  104  As  of  June  2001,  Adelphia  had  approximately  1.5  million  digital  video  subscribers  with  a
 target  of  1.8  million  digital  video  subscribers  by  year-  end.  105  As  of  year-  end  2000,  AOL  Time  Warner
 had  more  than  1.7  million  digital  video  subscribers.  106  By  June  2001,  AOL  Time  Warner  had  as  many  as
 2.5  million  subscribers  and  analysts  expect  that  by  year-  end  2001,  AOL  Time  Warner  will  have  more  than
 three  million  digital  video  subscribers.  107  As  of  June  2001,  AT&  T  reported  3.1  million  digital  video
 subscribers.  108  Analysts  expect  AT&  T  will  have  as  many  as  3.5  million  digital  video  subscribers  as  of
 year-  end  2001.  109  Charter  Communications  provided  digital  video  service  to  approximately  1.6  million
 subscribers  as  of  June  2001,  and  analysts  expect  that  by  year-  end  it  will  serve  as  many  as  two  million
 subscribers.  110  As  of  June  2001,  Cablevision  was  only  conducting  technical  trials  of  digital  video  service,
 (  continued  from  previous  page)
 18199  (2000);  Compatibility  Between  Cable  Systems  And  Consumer  Electronics  Equipment,  PP  Docket  No.  00-  67,
 Report  and  Order,  15  FCC  Rcd  17568  (2000).
 98  Richard  Bilotti,  Benjamin  Swinburne,  and  Megan  Lynch,  Industry  Review:  The  Marquis  de  Broadbandbury:
 Parte  Deux,  (  Morgan  Stanley    Broadband  Parte  Deux),  Morgan  Stanley  Dean  Witter,  July  3,  2001,  at  22.
 99  NCTA  Comments  at  26.
 100  Megan  Larson,  Digital  Dollar  Downward,  MediaWeek  Online,  June  18,  2001;  Morgan  Stanley    Industry
 Review,  at  14.
 101  Cox  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000,  at  4.
 102  Cox  Communications,  Inc.,  Cox  Communications  Announces  Third  Quarter  Financial  for  2001  (press  release),
 Oct.  25,  2001.
 103  Merrill  Lynch    Q2/  Q3  Preview,  at  53;  Raymond  Lee  Katz,  Gloria  Radeff,  Bryan  Goldberg,  Cable  TV  &
 Broadband,  Bear  Stearns,  May  2001,  at  145.
 104  Comcast  Comments  at  9;  Comcast  Reply  Comments  at  7.
 105  Adelphia  Communications  Corp.,  Adelphia  Communications  Announces  Second  Quarter  2001  Results  (press
 release),  Aug.  14,  2001.
 106  AOL  Time  Warner,  Inc.,  SEC  Form  10-  K  For  the  Transition  Period  from  July  1,  2000  to  December  31,  2000,  at
 I-  10.
 107  AOL  Time  Warner,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2001,  at  15.
 108  AT&  T  Comments  at  15.
 109  Morgan  Stanley    Broadband  Parte  Deux,  at  22.
 110  Charter  Communications,  Inc.,  Charter  Communications  Exceeds  Revenue,  Operating  Cash  Flow  Guidance
 (press  release),  July  30,  2001.
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 but  it  expects  to  offer  the  service  commercially  by  October  2001.  111  Analysts  expect  that  by  year-  end
 2001,  Cablevision  will  have  as  many  as  50,  000  digital  video  subscribers.  112
 40.  Video-  on-  Demand.  113  VOD  services  allow  subscribers  to  view  movies  at  any  time  or  on  a
 time-  staggered  basis  from  a  library  of  options.  Many  of  the  top  MSOs  are  conducting  trials  of  VOD  or
 have  moved  to  commercial  offerings  in  some  markets.  According  to  one  analysis,  VOD  will  generate
 revenues  of  more  than  $65  million  by  year-  end  2001  and  $420  million  in  2002.  114
 41.  Cox  continues  to  test  VOD  in  its  Hampton  Roads  Market,  and  has  begun  a  market  rollout  in
 its  San  Diego  markets.  115  Comcast  is  currently  conducting  trials  of  VOD  service  in  four  markets  and
 expects  to  offer  VOD  to  as  many  as  two  million  customers  by  year-  end  2001.  116  Adelphia  has  also  been
 testing  VOD  in  its  Cleveland  Heights,  Ohio,  market,  covering  an  initial  1000  suburban  Cleveland  homes,
 with  a  planned  commercial  roll  out  to  all  its  Cleveland  area  systems  encompassing  284,000  cable
 subscribers.  117  Charter  has  deployed  VOD  service  in  several  of  its  major  markets  and  expects  that,  by
 year-  end  2001,  it  should  have  VOD  available  to  almost  40  percent  of  its  customer  base.  118  Charter
 expects  to  complete  VOD  rollout  in  all  its  markets  by  year-  end  2002.  119  Time  Warner  Cable  is  continuing
 the  trials  it  started  last  year  in  Tampa  Bay/  St.  Petersburg,  Florida,  Honolulu,  Hawaii;  and  Austin,
 Texas.  120  The  company  is  also  conducting  a  subscription  VOD  trial  in  its  Columbia,  South  Carolina,
 111  Cablevision  Reply  Comments  at  4.
 112  Morgan  Stanley    Broadband  Parte  Deux,  at  22.
 113  See    187,  188  infra.
 114  Yankee  Group,  Video-  on-  Demand  Will  Generate  Revenues  of  Nearly  $2  Billion  in  2005  (press  release),  June  25,
 2001.
 115  Cox  Communications,  Inc.,  Cox  Communications  Launches  Entertainment-  On-  Demand  in  Hampton  Roads,
 Virginia  (press  release),  Nov.  29,  2001;  Cox  Communications,  Inc.,  Cox  Communications  Launches  Movies--  On-Demand
 Service  in  San  Diego  (press  release),  Sept.  25,  2000;  Merrill  Lynch    Q2/  Q3  Preview,  at  53;  Michael
 Grotticelli  and  Ken  Kerschbaumer,  Slow  and  Steady,  Broadcasting  &  Cable,  July  9,  2001,  at  38-  40  (  Grotticelli).
 116  Comcast  Reply  Comments,  at  15;  NCTA  Comments  at  28;  Andrew  Grossman,  Comcasts  VOD  System  First  to
 Link  With  Gemstar,  Hollywood  Reporter,  Oct.  5,  2001,  at  http://  www.  hollywoodre  display.  jsp?  vnu_  content_  id=  1
 070446;  Craig  Leddy,  Sneaking  a  Peek  at  Comcasts  ITV  Plans,  Multichannel  News,  Aug.  27,  2001.
 117  Morgan  Stanley    Broadband  Parte  Deux,  at  82;  Rigas  and  Sie  Mark  Inaugural  S-  VOD  Launch  for  Adelphia  and
 Starz  Encore,  C-  Net  Investor,  Oct.  9,  2001.
 118  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2001,  at  12;  Cable  Insiders
 Weigh  in  on  ITVs  Promise,  Multichannel  News,  July  23,  2001.  Charter  credits  the  introduction  of  VOD  and  high
 speed  data  in  its  top  markets  to  keeping  customer  churn  low.  See  Charter  Shows  Strong  Growth  but  Trims  Outlook,
 Broadband-  Daily.  com,  Nov.  2,  2001.  As  of  November  1,  2001,  Charter  reported  rolling  out  VOD  to  the  following
 markets:  Glendale,  California;  Birmingham,  Alabama;  Atlanta,  Georgia;  Pasadena  and  Long  Beach,  California;  St.
 Louis,  Missouri;  Fort  Worth,  Texas;  Greenville-  Spartanburg,  South  Carolina;  Hickory,  North  Carolina;  and  Slidell,
 Louisiana.  It  expects  to  bring  VOD  to  two  million  homes  by  the  end  of  2001.  Id.
 119  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000,  at  12;  Cable  Insiders
 Weigh  in  on  ITVs  Promise,  Multichannel  News,  July  23,  2001.
 120  AOL  Time  Warner,  Inc.,  SEC  Form  10-  K  For  the  Transition  Period  from  July  1,  2000  to  December  31,  2000,  at
 I-  10;  NCTA  Comments  at  28;  Grotticelli  at  38-  40.
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 market  featuring  on-  demand  access  to  a  library  of  HBO  programming  for  an  additional  monthly  fee  of
 $3.95.  121  AT&  T  is  test  marketing  VOD  is  certain  markets.  122
 42.  High-  Definition  Television  (  HDTV).  In  October  2001,  Comcast  announced  the  launch  of
 an  HDTV  service  to  more  than  1.  3  million  customers.  123  The  service  will  provide  access  to  high-definition
 broadcasts  of  ABC,  NBC,  CBS,  HBO,  and  Showtime.  Since  most  commercial  television  sets
 do  not  have  built-  in  HDTV  tuners,  Comcast  will  make  set-  top  tuners  available  to  customers.  Comcast
 digital  cable  customers  who  have  HDTV-  ready  sets  will  now  be  able  to  rent  or  purchase  a  set-  top  box
 similar  to  their  current  digital  tuner,  which  will  allow  them  to  view  all  channels  broadcast  in  high-definition.
 Time  Warner  has  agreed  to  carry  HDTV  signals  that  will  be  broadcast  by  television  stations
 owned  and  operated  by  the  ABC,  CBS,  NBC,  and  Fox  networks,  and  also  by  nearly  all  public  television
 stations,  in  Time  Warner  Cables  operating  areas.  Time  Warner  Cable  is  also  carrying  the  HDTV  versions
 of  HBO  and  Showtime  in  certain  areas.  124
 43.  Internet  and  High-  Speed  Data  Services.  Dial-  up  Internet  access  is  the  most  popular  way  to
 access  the  Internet.  As  of  year-  end  2000,  84.  6  percent  of  all  Internet  households  were  accessing  the
 Internet  using  dial-  up  modems.  125  It  is  projected  that  telephone  dial-  up  will  remain  the  principal  means  of
 accessing  the  Internet  until  about  2004,  when  it  is  expected  that  only  44.4  percent  of  Internet  households
 will  use  dial-  up  access,  with  the  remaining  55.7  percent  accessing  the  Internet  through  broadband
 facilities.  126
 44.  While  cable  modem  access  is  the  primary  means  of  accessing  the  Internet  over  broadband
 networks,  cables  share  of  the  broadband  Internet  access  market  continues  to  decrease.  DSL  is  the  most
 significant  broadband  competitor  to  cable  modem  service.  As  of  year-  end  2000,  cable  modem  service
 was  available  to  58.5  million  homes  and  there  were  approximately  3.9  million  cable  subscribers,  whereas
 DSL  was  available  to  37.6  million  homes  and  had  approximately  1.9  million  subscribers.  127  As  of  June
 2001,  cable  modem  service  was  available  to  approximately  67.3  million  homes  and  there  were
 approximately  5.6  million  cable  modem  subscribers,  while  DSL  was  available  to  an  estimated  45  million
 121  This  service  proved  to  be  popular  with  an  11.  5  percent  take  rate  among  328,  000  basic  subscribers,  which  at  times
 created  too  high  a  concurrent  demand  for  programming,  forcing  TWC  to  scale  back  the  trial  in  order  to  improve
 network  traffic  engineering.  See  David  Iler,  VOD  Shining  Brightly  in  Cable  Universe,  Broadband  Week,  Aug.  6,
 2001.  TWC  also  is  extending  the  trial  to  its  systems  in  Summerville  and  Myrtle  Beach,  South  Carolina.  Mass  Media,
 Comm.  Daily,  Nov.  6,  2001.
 122  AT&  T  Comments  at  15.
 123  Comcast  Corp.,  Comcast  Launches  HDTV  (press  release),  Oct.  29,  2001.
 124  AOL  Time  Warner,  Inc.,  SEC  Form  10-  K  for  the  Transition  Period  from  July  1,  2000  to  December  31,  2000,  at
 I  -10.
 125  Morgan  Stanley    Broadband  Parte  Deux,  at  46.
 126  Id.  Broadband  technologies  include  cable  broadband,  telephone  company  digital  subscriber  line  (  DSL),
 broadband  wireless,  and  broadband  satellite.  By  2004,  analysts  expect  28.9  percent  of  households  will  access  the
 Internet  through  cable  broadband,  21.  1  percent  through  DSL  and  5.  7  percent  through  wireless  and  satellite
 broadband  technologies.  Id.  Broadband  technologies  allow  users  to  access  the  Internet  at  much  greater  speeds  than
 is  available  over  traditional  dial-  up  connections.  See  1999  Report,  15  FCC  Rcd  at  1003-  04.
 127  See  Morgan  Stanley    Broadband  Parte  Deux,  at  46.
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 homes  with  approximately  three  million  subscribers.  128  It  is  estimated  that  as  of  year-  end  2001,  cable  will
 be  available  to  more  than  81  million  homes  with  more  than  7.2  million  subscribers,  whereas  DSL  is
 expected  to  be  available  to  as  many  as  51.5  million  homes  with  approximately  4.3  million  subscribers.  129
 Satellite  and  wireless  technologies  currently  have  eight  percent  of  the  market  and  are  not  expected  to
 increase  market  share  over  the  next  several  years.  130
 45.  CableLabs  created  the  cable  modem  standard,  DOCSIS  (Data  Over  Cable  Service  Interface
 Specification)  in  an  effort  to  ensure  the  interoperability  and  retail  sale  of  cable  modem  technologies.  131
 Equipment  conforming  to  the  DOCSIS  standard  is  eligible  to  be  CableLabs  Certified.  132  There  are  now
 193  cable  modems  and  26  cable  modem  termination  systems  that  have  been  certified  by  CableLabs  on  the
 DOCSIS  1.  0  standard.  133  As  of  June  2001,  certification  for  DOCSIS  1.  1  had  begun,  and  as  of  December
 2001,  seven  companies  had  achieved  certification  for  nine  modems  that  comply  with  the  DOCSIS  1.1
 specification,  and  two  more  companies  had  gained  qualification  status  for  their  DOCSIS  1.1  cable  modem
 termination  systems.  134  In  August  2001,  CableLabs  announced  the  establishment  of  DOCSIS  2.  0,  which
 incorporates  standards  to  increase  cable  bandwidth  for  data  transmissions  without  requiring  any  physical
 rebuilding  of  cable  networks.  135  Certification  testing  for  DOCSIS  2.  0  equipment  is  expected  sometime
 next  year.
 46.  Virtually  all  the  major  MSOs  offer  cable  modem  service  in  portions  of  their  nationwide
 service  areas.  As  we  reported  last  year,  unlike  high-  speed  access  offered  over  the  telephone  network
 where  the  customer  can  select  the  Internet  Service  Provider  (  ISP)  of  his  own  choice,  the  cable  ISP  is
 selected  by  the  cable  provider  and  offered  to  customers  in  that  cable  operators  individual  regions.  136
 128  Id.  June  data  for  DSL  homes  passed  are  based  on  year-  end  estimate  by  Morgan  Stanley.  Id.  TeleChoice  Inc.,
 TeleChoice2Q00  DSL  Deployment  Summary,  at  http://  www.  xdsl.  com;  Kinetic  Strategies,  Inc.,  Cable  Modem  Market
 Stats  &  Projections,  Cable  Datacom  News,  at  http://  www.  cabledatacomnews.  com/  cmic/  cmic16.  html.  Of  the
 approximately  3.  3  million  DSL  subscribers,  only  2.  5  million  residential  subscribers,  or  74  percent,  as  compared  with
 nearly  100  percent  of  cable  modem  subscribers.  See  TeleChoice  Inc.,  TeleChoice2Q00  DSL  Deployment  Summary,
 at  http://  www.  xdsl.  com.
 129  NCTA  Comments  at  27  (citing  Morgan  Stanley);  see  Morgan  Stanley    Broadband  Parte  Deux,  at  46.
 130  Id.
 131  See  2000  Report,  16  FCC  Rcd  at  6030.
 132  CableLabs  Certified  means  that  a  modem  complies  with  CableLabs  cable  modem  specifications  which  ensures
 that  it  will  interoperate  with  qualified  cable  systems  worldwide.  CableLabs,  CableLabs  Certifies  More  Modems
 (press  release),  Oct.  20,  2000.
 133  CableLabs,  CableLabs  Certifies  7  More  DOCSIS  1.  1  Modems,  Continuing  Cable  Data  Advances  (press  release),
 Dec.  20,  2001,  at  http://  cablelabs.  com/  news_  room/  PR/  01_  pr_  cw20_  122001.  html.
 134  Id.  See  also    194  infra.
 135  CableLabs,  CableLabs  Creating  Advanced  Modem  Spec  to  Enable  30  Mbps  in  Upstream  (press  release),  Aug  31,
 2001.
 136  Most  cable  providers  hold  interest  in  the  chosen  ISP  and  also  provide  proprietary  content  to  that  ISP.  See  Inquiry
 Concerning  High-  Speed  Access  to  the  Internet  Over  Cable  and  Other  Facilities,  GN  Docket  No.  00-  185,  Notice  of
 Inquiry  (  High-  Speed  Access  Inquiry),  15  FCC  Rcd  19287  (2000).
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 Most  cable  operators  offer  only  one  ISP  to  customers  in  a  given  system,  137  although  there  has  been  a
 move  recently  within  the  industry  to  offer  multiple  ISPs  to  customers  in  a  given  cable  system.  138  For
 example,  pursuant  to  its  merger  obligations  with  the  Federal  Trade  Commission,  AOL  Time  Warner  has
 announced  that,  in  addition  to  Road  Runner,  it  will  carry  the  AOL  Internet  service  as  well  as  unaffiliated
 ISPs  Earthlink  and  Juno.  139  In  September  2001,  AOL  Time  Warner  started  selling  Earthlink  high-  speed
 access  over  its  cable  lines  in  Columbus,  Ohio,  and  Syracuse,  New  York.  140  AOL  Time  Warner  plans  to
 sell  Earthlink  high-  speed  service  in  numerous  additional  Time  Warner  markets  by  year-  end.  141  In
 addition,  AT&  T  voluntarily  conducted  a  technical  and  operational  multiple-  ISP  trial  in  Boulder,
 Colorado,  with  plans  for  the  commercial  rollout  of  multiple-  ISP  service  in  several  major  cable  markets  by
 mid-  2002.  142
 47.  Many  MSOs  have  offered  high-  speed  Internet  access  through  Excite@  Home,  which  filed  for
 bankruptcy  in  September  2001.  143  As  a  result,  in  December  2001,  AT&  T  terminated  its  @Home  service
 and  switched  its  subscribers  to  its  own  network,  while  other  MSOs  will  continue  to  provide  @Home
 service  until  February  28,  2002,  when  they  will  have  transitioned  their  subscribers  to  other  services.  144
 Cox  has  traditionally  offered  high-  speed  Internet  access  service  either  under  the  brand  Cox@  Home,  Road
 Runner,  or  Cox  Express.  145  However,  following  the  bankruptcy  of  Excite@  Home,  Cox  announced  that  it
 plans  to  migrate  all  of  its  current  high-  speed  cable  modem  subscribers  to  Coxs  proprietary  high  speed
 137  For  example,  Adelphia  offers  high-  speed  Internet  access  service  under  the  brands  Adelphia  Power  Link,
 PowerLink@  Home,  the  ISP  Channel  and  Convergence.  com.  Each  system,  however,  offers  only  one  ISP  to  its
 subscribers,  and  in  some  cases,  third-  party  brands  are  re-  branded  under  the  Adelphia  brand  name.
 138  In  this  regard,  the  Commission  released  a  the  High-  Speed  Access  Inquiry  on  September  28,  2000,  to  determine
 what  regulatory  treatment,  if  any,  should  be  accorded  to  cable  modem  service  and  the  cable  modem  platform  used  in
 providing  this  service.  See  2000  Report,  16  FCC  Rcd  6030;  see  also  High-  Speed  Access  Inquiry,  n.  136  supra.
 139  Letter  from  Steven  N.  Teplitz,  Vice  President,  Communications  Policy  and  Regulatory  Affairs,  to  Magalie
 Roman  Salas,  Secretary,  FCC,  Oct.  3,  2001.  AOL  Time  Warners  deal  with  Juno  outlines  that  Time  Warner  will  be
 responsible  for  billing  and  Juno  will  be  responsible  for  customer  service,  except  for  customer  service  that  relates  to
 the  cable  infrastructure.  Both  companies  will  be  free  to  market  the  service  independently.  Juno,  AOL  Time  Warner
 Strike  Open  Access  Pact,  Reuters,  Apr.  26  2001;  Thor  Olavsrud,  Juno  Seals  Open  Access  Pact  with  AOL  Time
 Warner,  InternetNews,  Apr.  26,  2001.
 140  Letter  from  Steven  N.  Teplitz,  Vice  President,  Communications  Policy  and  Regulatory  Affairs,  to  Magalie
 Roman  Salas,  Secretary,  FCC,  Oct.  3,  2001;  AOL  Time  Warner,  Inc.,  Time  Warner  Communications  Columbus
 Offers  Choice  of  ISPs  With  High-  Speed  Cable  Modem  Service  (press  release),  Sept.  26,  2001;  AOL  Time  Warner,
 Inc.,  Time  Warner  Communications  Syracuse  Offers  Choice  of  ISPs  With  High-  Speed  Cable  Modem  Service  (press
 release),  Sept.  26,  2001.
 141  Time  Warner  Cable,  EarthLink  Will  Launch  in  Time  Warner  Cables  Columbus  and  Syracuse  Operations  in
 September  and  Plans  Broad  Deployment  by  Year  End  (press  release),  July  16,  2001.
 142  AT&  T  Comments  in  High-  Speed  Access  Inquiry  at  61-  66;  Letter  from  Joan  Marsh,  Director  Federal  Government
 Affairs,  AT&  T,  to  Magalie  Roman  Salas,  Secretary,  FCC,  Feb.  28,  2001;  AT&  T  Comments  in  High-  Speed  Access
 Inquiry  at  61.
 143  Excite@  Home,  Excite@  Homes  Broadband  Service  to  Be  Acquired  by  AT&  T  (press  release),  Sept.  28,  2001.
 144  Excite@  Home,  Excite@  Home  Announces  AT&  T  Termination  of  Pending  Asset  Purchasing  Agreement  and
 Transition  Agreements  with  Several  Cable  Companies  (press  release),  Dec.  4,  2000.  See  also  Christopher  Stern,  At
 Home  Wont  Try  to  Stay  in  Business,  Washington  Post,  Dec.  5,  2001,  at  E1.
 145  Cox  Communications,  Inc.,  Cox  Communications  Announces  Fourth  Quarter  Financial  Results  for  2000  (press
 release),  Feb.  6,  2001.
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 network.  146  In  addition,  Cox  has  begun  a  technical  trial  with  AOL  and  EarthLink  in  its  El  Dorado,
 Arkansas,  system.  147  Comcast  also  announced  that  it  plans  to  migrate  its  current  Comcast@  Home
 subscribers  to  its  own  high-  speed  network.  148  Additionally,  in  November  2000,  Comcast  announced  that
 it  will  offer  Juno  Express  in  a  trial  to  take  place  in  its  Philadelphia  area  system.  149  In  March  2001,
 Earthlink  announced  that  it  also  would  participate  in  that  trial.  150
 48.  As  of  year-  end  2000,  Cox  had  approximately  480,000  high-  speed  data  subscribers,  and,  as  of
 June  2001,  Cox  had  approximately  668,000  high-  speed  data  subscribers.  151  Analysts  forecast  that  Cox
 could  end  2001  with  as  many  as  880,000  high-  speed  data  subscribers.  152  As  of  June  2001,  Comcast  had
 approximately  675,000  high-  speed  data  subscribers  and  it  expects  to  have  as  many  as  950,000  high-  speed
 data  subscribers  by  year-  end  2001.  153  As  of  June,  2001,  AT&  T  had  approximately  1.3  million  broadband
 data  subscribers.  154  As  of  June  2001,  Cablevision  had  367,800  cable  modem  subscribers  and  expects  to
 have  more  than  475,000  subscribers  by  year-  end  2001.  155  As  of  June  2001,  Charter  had  419,000  high-speed
 data  subscribers  and  it  expects  that  by  year-  end  2001  it  will  have  as  many  as  575,  000  high-  speed
 data  subscribers.  156  As  of  June  2001,  AOL  Time  Warner  had  1.4  million  subscribers  to  its  own  cable
 146  Cox  Communications  reached  an  agreement  with  Excite@  Home  that  will  allow  the  companys  555,000
 Cox@  Home  customers  to  maintain  Internet  access  until  the  company  transitions  to  its  own  high-  speed  network.
 Cox  Communications,  Inc.,  Cox  Communications  Announces  Agreement  to  Avoid  Disruption  of  Cox@  Home
 Internet  Service  (press  release),  Dec.  3,  2001.
 147  Cox  Communications,  Inc.,  Cox  Communications  and  Earthlink  Agree  to  High-  Speed  Cable-  Based  Internet
 Service  Trial  (press  release),  Apr.  24,  2001.
 148  Comcast  also  reached  an  agreement  with  Excite@  Home  that  will  allow  the  companys  Comcast@  Home
 customers  to  maintain  Internet  access  until  the  company  transitions  them  to  its  own  high-  speed  network.  Comcast
 Corp.,  Comcast  Unveils  High-  Speed  Internet  Network  Plans;  Gains  Final  Approval  For  Excite@  Home  Agreement
 (press  release),  Dec.  11,  2001.
 149  Comcast  Corp.,  Comcast  and  Juno  Announce  Multiple  ISP  Trial  (press  release),  Nov.  29,  2000.  See  also
 Comcast  Comments  in  High-  Speed  Access  Inquiry  at  37-  38.  Comcast  has  indicated  that  it  was  considering  adding
 multiple  ISPs  to  this  trial  early  in  2002.  Comcast  Reply  Comments  in  High-  Speed  Access  Inquiry  at  16-  17.
 150  EarthLink,  Comcast  and  EarthLink  Announce  Technical  Trial  of  High-  Speed  Cable-  Based  Internet  Service
 (press  release),  Mar.  27,  2001.
 151  Cox  Communications,  Inc.,  Cox  Communications  Announces  Third  Quarter  Financial  for  2001  (press  release),
 Oct.  25,  2001.
 152  Richard  Bilotti,  Benjamin  Swinburne,  and  Megan  Lynch,  Broadband/  CATV  Industry  Review:  An  Early  Look  at
 2005,  Morgan  Stanley  Dean  Witter,  Jan.  2,  2001,  at  112-  113.
 153  Comcast  Comments  at  9.
 154  AT&  T  Comments  at  15.
 155  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2001  Financial  Results
 for  Cablevision  NY  Group  and  Rainbow  Media  (press  release),  Aug.  9,  2001.
 156  Charter  Communications,  Inc.,  Charter  Communications  Exceeds  Revenue,  Operating  Cash  Flow  Guidance
 (press  release),  July  30,  2001.
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 modem  service.  157  As  of  June  2001,  Adelphia  had  more  than  250,000  cable  modem  subscribers  and
 expects  to  have  as  many  as  375,000  by  year-  end.  158
 49.  As  we  have  reported  in  the  past,  a  small  portion  of  cable  Internet  access  continues  to  be
 delivered  through  a  television  receiver  rather  than  a  personal  computer.  159  These  services  typically  do  not
 provide  complete  access  to  the  Internet,  but  provide  such  basic  applications  as  e-  mail,  Web  browsing,  and
 hyperlinking  technology.  160  Many  of  these  services  are  now  considered  by  industry  analysts  to  be
 interactive  television  (  ITV)  services,  instead  of  Internet  access  services.  161  Nationwide  providers  of
 such  service  include  WebTV,  Worldgate,  and  America  Online  which  provides  AOLTV.  162  Wink
 Communications  offers  a  similar  product  marketed  primarily  as  an  interactive  tool  for  the  enhancement  of
 multichannel  video  programming.  Charter  is  planning  to  roll  out  an  interactive  television  service  called
 Digeo  Broadband  which  will  provide  interactive  television  and  limited  Internet  functionality  including  e-mail,
 chat,  and  news  and  travel  information.  163
 50.  Telephone  Services  Offered  by  Cable  Operators.  Circuit-  switched  telephony  still  is  the  only
 type  of  commercially-  deployed  cable  telephony  available,  but  trials  continue  for  cable-  delivered  IP
 telephony.  164  MSOs,  such  as  Cox  and  AT&  T,  continue  to  deploy  circuit-  switched  cable  telephony,  and
 others,  such  as  Cablevision  and  Comcast,  offer  cable  telephony  where  it  has  already  been  deployed.
 Several  MSOs,  including  AT&  T,  AOLTW,  Comcast,  and  Charter,  are  currently  testing  IP  telephony,
 while  Cox  has  plans  for  IP  telephony  trials  in  2002.
 51.  As  we  reported  last  year,  CableLabs  is  managing  a  project,  called  PacketCable,  aimed  at
 identifying,  qualifying,  and  supporting  products  that  support  Internet  over  cable-  based  multimedia
 services  such  as  IP  telephony.  165  In  May  2000,  CableLabs  announced  the  release  of  the  final  feature  set
 for  PacketCable  residential  IP  voice  service.  166  Following  that,  CableLabs  released  draft  compliance  test
 157  AOL  Time  Warner,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2001,  at  15.
 158  Adelphia  Communications  Corp.,  Adelphia  Communications  Announces  Second  Quarter  2001  Results  (press
 release),  Aug.  14,  2001.
 159  1998  Report,  13  FCC  Rcd  at  24315;  1999  Report,  15  FCC  Rcd  at  1008;  2000  Report,  16  FCC  Rcd  6033-  4.
 160  2000  Report,  16  FCC  Rcd  at  6033-  4.  Hyperlinking,  in  this  context,  is  the  technology  that  combines  broadcast  or
 cable  television  and  telephone  Internet  connections  to  offer  consumers  access  to  supplemental  information  to
 television  shows,  one-  button  ordering,  and  the  ability  to  play  along  with  television  shows  when  applicable.
 161  See  Spencer  Wang,  Interactive  Television,  ING  Barrings  Furman  Selz,  Dec.  2000.
 162  For  an  explanation  of  how  the  WebTV  and  Worldgate  services  operate,  see  1998  Report,  13  FCC  Rcd  at  24315-
 6.
 163  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000,  at  11.
 164  As  we  have  reported  in  past  Reports,  a  circuit-  switched  cable  telephony  voice  call  and  an  IP  telephony  voice  call
 both  begin  with  special  equipment  that  connects  a  household's  twisted  pair  infrastructure  with  its  cable
 infrastructure.  Cable  circuit-  switched  telephony,  however,  eventually  turns  the  call  over  to  traditional  "circuit
 switched"  processing,  while  IP  telephony  eventually  turns  the  call  over  to  the  network  of  the  Internet  for  IP
 processing.  IP  telephony  processes  voice  telephone  calls  much  like  data  are  processed  on  the  Internet;  that  is,
 digitized  pieces  of  data  are  divided  into  discrete  packets  and  are  transported  over  the  Internet  following  the  path  that
 does  not  resist  transfer.
 165  See  2000  Report,  16  FCC  Rcd  at  6034-  5.
 166  Id.
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 plans  for  PacketCable  interface  specifications.  167  In  May  2001,  the  Society  for  Cable
 Telecommunications  Engineers  (  SCTE)  and  the  European  Telecom  Standards  Institute  (  ETSI)
 announced  a  set  of  new  technical  standards  for  offering  IP  telephony  based  on  PacketCable  technical
 standards  established  by  CableLabs.  168  In  March  2001,  leaders  in  the  IP  telephony  market  congregated
 for  the  World  Telecom  Policy  Forum  in  Geneva,  Switzerland  to  discuss  the  future  regulatory  environment
 in  IP  telephony.  169
 52.  As  one  of  the  first  cable  operators  to  offer  a  telephony  product,  Cox  Communications  has
 long  been  regarded  as  the  leader  in  cable  telephony  deployment.  As  of  June  2001,  Cox  provided
 facilities-  based  cable  telephony  services  to  approximately  344,000  subscribers  nationwide.  170  Cox  reports
 an  average  14.5  percent  penetration  in  areas  where  its  local  telephone  service  is  available.  171  Cox  expects
 to  start  testing  IP  telephone  service  in  2002.  172  AT&  T  provided  telephone  services  to  more  than  848,000
 customers,  as  of  June  30,  2001.  173  In  addition  to  circuit-  switched  technology,  AT&  T  has  also  been
 pursuing  Internet  voice  applications  for  cable  telephony.  In  March  2000,  AT&  T  purchased  a  32  percent
 equity  investment  in  Net2Phone  giving  it  a  39  percent  voting  stake.  174  In  January  2001,  it  announced  that
 it  would  expand  its  trial  of  local  Internet  telephone  service  to  the  Rochester,  New  York,  area  from  its
 initial  test  site  in  Portland,  Maine.  175  The  service,  called  Line  Runner,  is  being  marketed  to  Road  Runner
 customers  as  a  second  line  service  only.  176
 167  Id.
 168  CableLabs,  International  Standardization  Achieved  for  Cable  Internet  Protocol  Architecture  (press  release),  May
 23,  2001.
 169  International  Telecommunication  Union,  The  Telecom  Revolution  Brought  About  by  IP  Telephony  to  be  at  the
 Top  of  the  International  Agenda  as  Government  and  Industry  Converge  on  Geneva  (press  release),  Feb.  21,  2001;
 International  Telecommunication  Union,  ITU  World  Policy  Forum  Closes  With  Consensus  on  a  Way  Forward  for
 Internet  Protocol  Telephony  (press  release),  Mar.  9,  2001.
 170  Cox  Communications,  Inc.,  Cox  Digital  Telephone  Scores  High  in  Customer  Satisfaction  (press  release),  Aug.
 14,  2001.
 171  Cable  Telephony  Helps  Drive  Revenue  at  Cox,  TR  Daily,  July  23,  2001,  at  4-  5.  As  of  August  2001,  Cox  reports
 24  percent  total  market  penetration  in  Orange  County,  California,  and  40  percent  penetration  to  telephone-  ready
 homes  in  areas  of  the  Omaha  market.  See  Cox  Communications,  Inc.,  Cox  Digital  Telephone  Scores  High  in
 Customer  Satisfaction  (press  release),  Aug.  14,  2001.
 172  Cox  Communications,  Inc.,  Written  Testimony  of  James  O.  Robbins  CEO,  Cox  Communications,  Inc.  Before  the
 Senate  Judiciary  Subcommittee  on  Antitrust,  Business  Rights  and  Competition  Hearing  on  the  Status  of  Competition
 in  the  Telephone  Local  Exchange  Market  (transcript),  May  2,  2001,  at  5.
 173  AT&  T  Comments  at  15;  AT&  T  Corp.,  AT&  T  Details  Results  and  Outlines  Growth  Plans  for  Broadband
 Business  (press  release),  July  24,  2001.
 174  AT&  T  Corp.,  AT&  T-  Led  Consortium  to  Acquire  39  Percent  Voting  Stake  in  Net2Phone  (press  release),  Mar.  31,
 2001.
 175  AOL  Time  Warner,  Inc.,  Time  Warner  Cable  Expands  Internet  Telephone  Test  to  Rochester  Road  Runner
 Customers  (press  release),  Jan.  31,  2001.
 176  Id.
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 53.  As  a  result  of  its  acquisition  of  Jones  Intercable  in  March  2000,  Comcast  now  has  15,000
 cable  telephony  customers  in  the  Washington,  D.  C.,  metropolitan  area.  177  Comcast  also  offers  telephony
 service  in  Florida  and  Michigan.  178  Although  Comcast  is  not  interested  in  deploying  circuit-  switched
 service  of  its  own,  it  has  chosen  to  maintain  the  service  where  it  has  already  been  deployed.  Cablevision
 offers  limited  facilities-  based  residential  circuit-  switched  telephony  in  New  York  through  its  commercial
 telephone  business,  Lightpath.  179  As  of  June  2001,  Lightpath  reported  almost  12,500  cable  telephony
 customers,  representing  8.2  percent  penetration  of  the  153,000  homes  marketed.  180  Charter
 Communications  is  not  presently  pursuing  commercial  deployment  of  circuit-  switched  cable  telephony.
 However,  since  December  1999,  Charter  has  been  testing  IP  telephony  in  several  field  trials.  181
 54.  Multi-  Service  Offerings.  Over  the  last  several  years,  cable  operators  have  been  upgrading
 their  systems  so  that  they  can  offer  digital  video,  access  to  the  Internet,  and  telephone  services.  Over  the
 past  year,  the  MSOs  have  proven  that  they  can  successfully  deploy  multiple  services,  although  some
 services,  such  as  telephony,  have  not  been  as  profitable  as  once  expected.  However,  MSOs  have  found
 value  in  all  their  advanced  services  as  a  way  to  reduce  basic  cable  video  churn.  For  example,  Adelphia  is
 proposing  to  offer  video-  on-  demand  as  an  adjunct  service  to  premium  service  subscribers,  perhaps  as  a
 means  of  retaining  premium  subscriptions.  In  addition,  several  analysts  note  that  cable  telephony  is
 valuable  as  a  tool  to  increase  video  penetration  and  lower  customer  loss,  especially  to  DBS.  182  While
 individually  some  advanced  services  are  not  considered  particularly  lucrative  to  the  MSOs,  these  services
 appear  to  be  valuable  as  a  package.
 B.  Direct-  To-  Home  Satellite  Services
 1.  Direct  Broadcast  Satellite  Services
 55.  DBS  service  is  a  nationally  distributed  subscription  video  service  that  delivers  programming
 via  satellite  to  a  small  parabolic  "dish"  antenna  located  at  the  viewers  home.  There  are  currently  four
 companies  licensed  by  the  Commission  to  provide  DBS  service:  DirecTV,  EchoStar  (marketed  as  the
 DISH  Network),  Dominion  Video  Satellite,  Inc.  (marketed  as  Sky  Angel)  and  R/  L  DBS  Company.  183  Of
 177  Comcast  Reply  Comments  at  8;  Most  MSOs  Still  Waiting  to  Enter  Residential  Phone  Market,  Comm.  Daily,
 Sept.  20,  2000,  at  5-  6.
 178  Comcast  Reply  Comments  at  9.
 179  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2001  Financial  Results
 for  Cablevision  NY  Group  and  Rainbow  Media  Group  (press  release),  Aug.  9,  2001.
 180  Id.
 181  Charter  Communications,  Inc.,  Charter  Communications  and  High  Speed  Access  Corp.  Announce  Trial  of  True
 IP  Switched  Local  Voice  Service  Over  Cable  (press  release),  Dec.  14,  1999.
 182  Bruce  Roberts  and  Stephen  DeLucia,  Cable  Telephony,  Dresdner,  Kleinwort,  and  Wasserstein,  May  21,  2001,  at
 1;  Dennis  Leibowitz,  Reed  Kenyon,  and  Ryan  Pappas,  MediaWeek,  Credit  Suisse  First  Boston,  Aug.  6,  2001,  at  3
 and  5.
 183  R/  L  DBS  Company,  L.  L.  C.  is  a  joint  venture  of  Rainbow  Media  Holdings,  Inc.,  the  programming  subsidiary  of
 Cablevision  Systems  Corporation,  and  Loral  SpaceCom  DBS  Holdings  Inc.  R/  L  DBS  holds  a  permit  to  construct  a
 DBS  system  but  has  not  launched  a  satellite  or  begun  service.  In  August  1999,  R/  L  DBS  filed  a  petition  requesting
 an  extension  of  its  build-  out  requirements  in  order  to  construct  and  launch  a  satellite  for  DBS  service,  130  SAT-EXT-
 95.  On  December  28,  2000,  the  Commission  granted  a  36-  month  extension  of  time  to  R/  L  DBS.  See  Petition
 (continued.)
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 these,  DirecTV,  EchoStar  and  Dominion  currently  provide  service.  184  General  Motors,  which  owns
 DirecTV  through  its  Hughes  Electronics  subsidiary,  agreed  to  spin-  off  Hughes  from  General  Motors  and
 to  merge  Hughes  with  EchoStar.  185  This  transaction  is  pending  before  the  Commission  and  the  United
 States  Department  of  Justice.  186
 56.  At  present,  DBS  is  the  largest  competitor  to  cable  in  the  MVPD  market,  and  analysts  predict
 continued  growth.  Paul  Kagan  Associates  predicts  that  total  DBS  subscribership  will  increase  to  almost
 26  million  in  2005  and  to  over  28  million  in  2010,  a  compound  annual  growth  rate  of  7.1  percent.  187
 Kagan  also  predicts  that  total  DBS  industry  revenue  will  triple  from  $8.  8  billion  in  2000  to  nearly  $26
 billion  in  2010.  188
 57.  Subscribership.  DBS  is  the  principal  subscription  competitor  to  cable  television  service  with
 16,070,  000  subscribers  as  of  June  30,  2001,  a  gain  of  over  three  million  subscribers,  and  an  increase  of
 over  19  percent  since  June  2000.  189  DBSs  share  of  MVPD  households  has  grown  to  over  18  percent
 nationally.  190  It  is  estimated  that  total  DBS  industry  revenue  for  2001  will  total  $12.1  billion,  a  37.5
 percent  increase  over  2000.  191  DirecTV,  which  reported  revenues  of  $2.  7  billion  for  the  first  six  months  of
 2001,  192  is  the  nations  leading  DBS  service  and  the  third  largest  distributor  of  multichannel  video
 (  continued  from  previous  page)
 of  R/  L  DBS  Company,  L.  L.  C.  For  Extension  of  its  Direct  Broadcast  Satellite  Construction  Permit,  Memorandum
 Opinion  and  Order,  16  FCC  Rcd  9,  10-  11  (2001).
 184  Dominion  was  originally  issued  its  DBS  construction  permit  in  1982.  On  May  17,  1999,  the  Commission  granted
 Dominion  Video  Satellite,  Inc.  authority  to  commence  operation  of  a  DBS  service  using  an  EchoStar  satellite
 currently  in  orbit.  See  Dominion  Video  Satellite,  Inc.  Application  for  Minor  Modification  of  Authority  to  Construct
 and  Launch  and  to  Continue  Construction  and  Launch  of  Planned  Satellite  at  61.  5  q  W.  L.  File  No.  12-  SAT-  ML-  97,  IBFS  File  No.  SAT-  MOD-  19961108-  00132;  Application  for  Additional  Time  to  Construct  and  Launch  Direct
 Broadcast  Satellites,  File  No.  13-  SAT-  MP/  ML-  97,  IBFS  File  No.  SAT-  MOD-  19961108-  00133;  Application  for
 Launch  Authority,  File  No.  108-  SAT-  LA-  97,  IBFS  File  No.  SAT-  L/  A-  19970814-  00074,  Order  and  Authorization,
 14  FCC  Rcd  8182  (1999).  See  also  http://  www.  skyangel.  com.  Dominion  does  not  operate  its  own  satellite,  and
 offers  only  19  video  channels,  as  opposed  to  hundreds  for  DirecTV  and  EchoStar.  Dominion  expects  to  launch  its
 own  satellite  sometime  in  2003.
 185  General  Motors,  GMs  Hughes  Electronics  To  Merge  With  EchoStar  Communications  (press  release),  Oct.  29,
 2001.
 186  See  EchoStar  Communications  Corporation,  General  Motors  Corporation,  Hughes  Electronics  Corporation,
 Transferors,  and  EchoStar  Communications  Corporation,  Transferee,  Consolidated  Application  for  Authority  to
 Transfer  Control,  Dec.  3,  2001.  See  also  EchoStar  Communications  Corporation,  General  Motors  Corporation,  and
 Hughes  Electronics  Corporation  Seek  FCC  Consent  for  a  Proposed  Transfer  of  Control,  CS  Docket  No.  01-  348,
 Public  Notice,  DA  01-  3005  (rel.  Dec.  21,  2001).
 187  Paul  Kagan  Assocs.,  Inc.,  The  State  of  DBS  2001  (  DBS  Databook),  Dec.  2000,  at  5.
 188  Id.  at  6.  Kagan  predicts  that  interactive  television  services  and  advertising  will  be  a  major  factor  in  this  growth.
 189  App.  C,  Tbl.  C-  1.  See  also  SBCA  Comments  at  4,  Table  1.  Current  subscriber  numbers  from  SkyREPORT  at
 http://  www.  skyreport.  com/  skyreport.  com/  dth_  us.  htm.
 190  NCTA  Comments  at  7.  One  study  estimates  that  two  million  households  subscribe  to  both  DBS  and  cable.  See
 Centris,  Digital  Cable  Subscribers  Order  4x  as  Many  PPV  Movies  and  2x  as  Many  PPV  Events  as  Analog
 Households;  50%  More  Events  than  DBS  Households  (press  release),  Mar.  20,  2001.
 191  DBS  Databook  at  6.
 192  DirecTV  Comments  at  11.
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 programming.  193  DirecTV  had  over  10  million  subscribers  as  of  June  2001,  an  increase  of  almost  15
 percent  from  the  8.7  million  customers  reported  as  of  June  2000.  194  As  of  June  2001,  EchoStar  reported  a
 40  percent  increase  in  subscribers,  from  4.3  million  in  June  2000  to  more  than  6  million  subscribers  as  of
 June  2001.  195  EchoStar  is  now  the  sixth  largest  MVPD  in  the  United  States.  196  Dominion,  under  the
 brand  name  Sky  Angel,  is  a  self-  described  Christian  and  family  oriented  DBS  service.  Sky  Angel  offers
 19  video  and  16  radio  channels  for  $9  a  month.  197  Although  Dominions  transponders  are  currently
 located  on  an  EchoStar  satellite,  Sky  Angel  subscribers  must  use  a  separate  antenna  to  receive  DISH
 Network  programming.  198
 58.  SBCA,  the  national  trade  organization  of  the  satellite  television  industry,  states  that  DBS  is
 gaining  over  8,500  subscribers  per  day.  199  Penetration  by  state  varies  from  a  low  of  less  than  two
 percent  200  to  a  high  of  more  than  40  percent.  201  Forty-  five  states  now  have  penetration  of  more  than  10
 percent,  as  compared  to  the  44  states  reported  in  2000;  30  states  have  more  than  20  percent  penetration,
 compared  to  24  states  in  2000;  and  five  states  have  more  than  30  percent  DTH  penetration.  202  According
 to  DirecTV,  its  subscribers  are  distributed  across  the  continental  United  States  with  approximately  50
 percent  residing  in  urban  counties  and  50  percent  living  in  smaller,  rural  counties.  203  As  compared  to
 cable  subscribers,  DirecTV  subscribers  are  more  likely  to  live  in  rural  areas  and  are  more  likely  to  live  in
 single-  family  homes.  204
 59.  Availability  of  Local  Broadcast  Stations.  DirecTV  states  that  the  ability  to  offer  local
 broadcast  stations  continues  to  be  a  significant  factor  in  DBS  subscriber  growth.  DirecTV  reports  that  its
 overall  subscriber  levels  have  increased  by  20  percent  due  to  local  broadcast  channel  service,  and  that  47
 percent  of  its  customers  to  whom  it  is  available  take  a  local  channel  package.  205  As  of  August  2001,
 DirecTV  offers  for  $5.  99  the  local  affiliates  of  ABC,  CBS,  NBC,  and  FOX  in  41  markets,  and  a  national
 193  NCTA  Comments  at  7-  8.
 194  DirecTV  Comments  at  11.
 195  EchoStar  Comments  at  1.
 196  NCTA  Comments  at  8.
 197  http://  www.  skyangel.  com/  HTML%  20Site/  Body%  20Pages/  FAQ/  faq.  htm.
 198  Id.
 199  SBCA  Comments  at  5,  Table  3.
 200  Penetration  is  less  than  two  percent  in  Hawaii.  The  State  of  Hawaii  states  that  DirecTV  service  began  in
 September  2000,  but  that  this  service  is  limited  and  is  not  comparable  to  those  offered  on  the  mainland.  EchoStar
 service  is  closer  to  mainland  service,  but  subscription  to  its  popular  Top  150  service  requires  two  dishes,  raising
 equipment  costs.  Hawaii  Comments  at  4-  8.
 201  SBCA  Comments  at  3-  4  and  App.  A.
 202  Id.  at  4  and  App.  A.
 203  DirecTV  Comments  at  13.
 204  Id.  at  11-  12.  DirecTV  attributes  the  higher  single-  family  home  statistic  to    anti-  competitive  evergreen  and
 exclusive  service  contracts  between  cable  operators  and  multiple  dwelling  unit  (  MDU)  owners  and  other  barriers
 to  MDU  entry.
 205  Id.  at  12-  13.
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 PBS  feed  with  every  local  station  package.  206  DirecTV  indicates  that  it  will  offer  all  required  local
 broadcast  stations  in  these  markets  on  January  1,  2002.  207  Similarly,  EchoStar  transmits  a  local  network
 package  to  its  subscribers  in  35  markets  for  $4.  99  and  offers  the  national  PBS  feed  as  an  option  for  one
 dollar  extra.  208  Another  company,  Local  TV  on  Satellite  (  LTVS),  proposes  to  offer  all  1,600  full-  power
 local  broadcast  stations  to  DBS  subscribers,  first  via  leased  transponders  with  low  bit  rates,  but  eventually
 with  spot  beams  at  high  bit  rates.  209
 60.  This  year,  in  its  implementation  of  the  Satellite  Home  Viewer  Improvement  Act  (  SHVIA),
 the  Commission  reaffirmed  and  clarified  its  prior  rulemakings  in  two  Orders  on  Reconsideration,  dealing
 with  issues  in  relation  to  mandatory  carriage  of  broadcast  signals  (  must  carry)  and  retransmission
 consent.  210  The  satellite  industry  challenged  the  SHVIA  must-  carry  provisions.  211  On  December  7,  2001,
 the  United  States  Court  of  Appeals  for  the  Fourth  Circuit  denied  the  petitions  for  review  and  affirmed  the
 United  States  District  Court  for  the  Eastern  District  of  Virginias  opinion.  212  In  addition,  the  Commission
 has  resolved  20  must-  carry  complaints  filed  against  DBS  operators,  with  an  addition  21  cases  currently
 pending.
 61.  Program  Access.  The  Commission  has  undertaken  a  proceeding  to  determine  whether  the
 exclusivity  provisions  of  the  program  access  regulations  should  be  allowed  to  sunset  on  October  5,
 2002.  213  SBCA  believes  that  the  exclusivity  provisions  should  be  extended.  SBCA  states  that,  if  the
 prohibition  of  exclusive  contracts  is  not  extended,  it  will  harm  DBS  operators  ability  to  continue  to
 compete  effectively  with  cable  operators.  214  SBCA  further  states  that  the  program  access  rules  should  be
 206  Id.  See  also  http://  www.  skyreport.  com/  skyreport/  local.  htm.
 207  DirecTV  Comments  at  12-  13.  See  also  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  1999:
 Broadcast  Signal  Carriage  Issues,  Retransmission  Consent  Issues,  CS  Docket  Nos.  00-  96  and  00-  363,  Report  and
 Order,  16  FCC  Rcd  1918  (2000).
 208  See  http://  www.  skyreport.  com/  skyreport/  local.  htm.
 209  LTVS  Plans  To  Fill  Void  Left  By  DBS  Operators,  Comm.  Daily,  Aug.  29,  2001,  at  3.
 210  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  1999:  Broadcast  Signal  Carriage  Issues,  CS
 Docket  No.  00-  96,  Order  on  Reconsideration,  16  FCC  Rcd  16544  (2001);  Implementation  of  the  Satellite  Home
 Viewer  Improvement  Act  of  1999:  Retransmission  Consent  Issues:  Good  Faith  Negotiation  and  Exclusivity,  CS
 Docket  No.  99-  363,  Order  on  Reconsideration,  16  FCC  Rcd  15599  (2001).
 211  DirecTV,  Echostar,  SBCA  v.  FCC  &  USA,  No.  01-  1151  (Fourth  Circuit).  SHVIA  provides  DBS  carriers  with
 the  opportunity  to  carry  local  stations  in  a  Designated  Market  Area  (  DMA)  pursuant  to  a  statutory  copyright
 license  similar  to  the  one  provided  cable  operators.  If  DBS  carriers  elect  this  option  in  a  DMA,  however,  they  must
 carry  all  the  local  stations  in  the  DMA,  effective  January  1,  2002.  In  this  consolidated  case,  the  satellite  carriers
 sought  review  of  the  Commission's  Order  implementing  the  statute.  They  also  appealed  a  June  19,  2001,  judgment
 of  the  United  States  District  Court  for  the  Eastern  District  of  Virginia,  which  granted  the  government's  motion  to
 dismiss  their  complaint  challenging  the  SHVIA.
 212  See  Satellite  Broadcasting  and  Communications  Association  v.  FCC,  No.  01-  1151  et  al.  (4  th  Cir.  2001).
 213  See  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Development  of
 Competition  and  Diversity  in  Video  Programming  Distribution:  Section  628(  c)(  5)  of  the  Communications  Act,  CS
 Docket  No.  01-  290,  Notice  of  Proposed  Rulemaking  (  Program  Access  NPRM),  16  FCC  Rcd  19074  (2001).  See
 also    162-  170  infra.
 214  SBCA  Comments  at  8-  9.  See  also  DirecTV  Comments  at  9-  10;  EchoStar  Comments  at  13;  NRTC  Comments  at
 18-  21,  and  Reply  Comments  at  3.
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 Federal  Communications  Commission  FCC  01-  389
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 extended  to  cover  all  vertically  integrated  programming,  regardless  of  how  it  is  delivered.  215  NCTA,  in  its
 comments,  on  the  other  hand,  states  that  DBS  is  firmly  entrenched  as  a  competitor  to  cable,  216  and  that
 DBS  is  constraining  cable  prices.  217  Given  the  changes  in  the  MVPD  marketplace,  NCTA  believes  that
 the  program  access  limitations  on  exclusivity  should  sunset.  218
 62.  Broadband  Satellite  Services.  Both  DirecTV  and  EchoStar  now  offer  two-  way  Internet
 access  services  to  their  subscribers.  219  DirecTV  offers  the  service  under  the  brand  name  DirecPC,  and
 consumers  can  receive  video  and  high-  speed  Internet  access  through  one  satellite  dish,  the  DirecDUO.  220
 EchoStar  offers  a  similar  service,  called  Starband,  in  cooperation  with  a  subsidiary  of  Gilat.  221  These
 services  are  available  in  areas  where  other  high-  speed  options  are  not,  but  analysts  question  whether
 higher  monthly  fees  and  equipment  costs  will  limit  satellite  high-  speed  datas  competitiveness  with  cable
 and  DSL.  222
 63.  High-  Definition  Television.  DirecTV  and  EchoStar  provide  subscribers  with  high-  definition
 television  (  HDTV)  programming.  This  year,  DirecTV  premiered  HDNet,  an  HDTV  channel  that  will
 show  Major  League  Baseball  games,  National  Hockey  League  games,  qualifying  events  for  the  2002
 Winter  Olympic  games,  and  other  non-  sports  entertainment  programming.  223  DirecTV  also  carries  Home
 Box  Office  (  HBO)  and  select  pay-  per-  view  movies  in  HDTV  format.  224  EchoStar  carries  HBO,
 Showtime,  CBS,  and  select  pay-  per-  view  movies  in  HDTV  format.  225
 215  SBCA  Comments  at  9.  See  also  DirecTV  Comments  at  8-  10;  EchoStar  Comments  at  1-  4  and  9-  14.  EchoStar
 also  indicates  that  the  Commission  has  not  enforced  its  existing  program  access  regulations  with  sufficient  vigor.  In
 opposition  to  EchoStars  position,  see  NCTA  Reply  Comments  at  8-  11.
 216  NCTA  Comments  at  6-  13.
 217  Id.  at  13-  17.
 218  Id.  at  36-  39.
 219  SBCA  Comments  at  5-  6.
 220  See  http://  www.  direcpc.  com.  DirecTV  also  continues  to  offer  its  one-  way  high-  speed  access  service,  with  a
 telephone  line  return  path.
 221  KaganBroadband,  EchoStar  Adds  HSD,  Promotes  New  Boxes,  Jan.  8,  2001,  at  1.  EchoStar  has  increased  its
 ownership  interest  in  Starband,  and  will  take  a  majority  interest  next  year.  EchoStar  Begins  Takeover  of  Starband,
 Comm.  Daily,  July  12,  2001,  at  3.
 222  See,  e.  g.,  Satellite  Internet  Challenges  Include  Improving  Business  Models,  Comm.  Daily,  May  15,  2001,  at  3,
 and  Yuki  Noguchi,  Slow  to  Take  Off:  Internet  Service  Via  Satellite  Remains  an  Expensive  Choice,  Washington  Post,
 Aug.  8,  2001,  at  E1.
 223  Monica  Hogan,  DirecTV  Readies  HDTV  Sports  Net,  Multichannel  News,  Sept.  4,  2001.
 224  Id.  To  receive  DirecTVs  HDTV  service,  subscribers  must  purchase  either  an  HDTV  set  with  a  built-  in  DirecTV
 receiver,  or  a  separate  decoder  box,  and  a  second  satellite  dish  that  is  capable  of  receiving  the  signals.  See
 http://  www.  directv.  com:  80/  yourservice/  yourservicepages/  0,1125,  384,  00.  html.
 225  Monica  Hogan,  DirecTV  Readies  HDTV  Sports  Net,  Multichannel  News,  Sept.  4,  2001.  To  receive  EchoStars
 HDTV  service,  subscribers  must  purchase  a  second  dish,  use  a  certain  kind  of  decoder  box,  and  pay  an  extra  fee  of
 $5.99  per  month.  See  http://  www.  dishnetwork.  com/  content/  programming/  locals/  cbshd/  index.  shtml  and
 http://  www.  dishnetwork.  com/  ppv/  features/  hdtv/  hdtv.  html.
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 64.  Terrestrial  Reuse  of  DBS  Spectrum.  We  previously  reported  on  Northpoint  Technologies,  Inc.  s  proposal  to  reuse  DBS  spectrum  for  a  terrestrial  service  that  the  Commission  has  termed
 Multichannel  Video  Distribution  &  Data  Services  (  MVDDS).  226  The  Commission  determined  that  it  is
 technically  feasible  for  MVDDS  and  DBS  to  share  spectrum  and  that  such  sharing  can  be  accomplished
 under  an  already  existing  fixed  allocation  in  the  12.2-  12.7  GHz  band.  227  This  allocation  requires  that
 MVDDS  not  cause  harmful  interference  to  incumbent  DBS  services.  228  The  Commission  also  adopted  a
 Further  Notice  of  Proposed  Rulemaking  seeking  comment  on  technical  and  service  rules  for  licensing  the
 new  services.  229  On  April  18,  2001,  Mitre  Corporation  delivered  to  the  Commission  a  Report  titled,
 Analysis  of  Potential  MVDDS  Interference  to  DBS  in  the  12.  2-  12.  7  GHz  Band.  230  The  Mitre  Report
 indicates  that  sharing  of  the  12  GHz  band  is  feasible  and  provides  suggested  mechanisms  to  mitigate
 potential  interference  to  DBS  operations.  231  A  separate  company,  MDS  America,  has  also  proposed
 reusing  these  frequencies,  and  has  conducted  tests  it  claims  show  no  interference.  232  A  third  company,
 PDC  Broadband  Corporation  has  also  filed  for  permission  to  reuse  this  band  for  terrestrial  services.  233
 65.  Northpoint  states  that  the  Mitre  Report  indicates  that  sharing  of  the  DBS  spectrum  is  feasible,
 and  that  the  report  only  points  to  the  threat  of  interference  under  certain  circumstances.  234  Northpoint
 states  that  it  will  provide  more  effective  competition  to  cable  than  DBS  by  offering  local  broadcast
 stations  in  every  market,  and  by  quickly  achieving  economies  of  scale  and  scope.  235  Northpoint  believes
 226  See  2000  Report,  16  FCC  Rcd  at  6043.
 227  Amendment  of  Parts  2  and  25  of  the  Commissions  Rules  to  Permit  Operation  of  NGSO  FSS  Systems  Co-Frequency
 With  GSO  and  Terrestrial  Systems  in  the  Ku-  Band  Frequency  Band;  Amendment  of  the  Commissions
 Rules  to  Authorize  Subsidiary  Terrestrial  Use  of  the  12.  2-  12.  7  GHz  Band  by  Direct  Broadcast  Licensees  and  Their
 Affiliates;  and  Applications  of  Broadwave  USA,  PDC  Broadband  Corporation,  and  Satellite  Receivers,  Ltd.,  to
 Provide  A  Fixed  Service  in  the  12.2-  12.  7  GHz  Band,  ET  Docket  No.  98-  206,  RM-  9147,  RM-  92-  45,  First  Report  and
 Order  and  Further  Notice  of  Proposed  Rulemaking  (  New  Fixed  Satellite  Services  Order),  16  FCC  Rcd  4096
 (2001).
 228  See  47  C.  F.  R.    2.106,  fn.  S5.  490.
 229  See  New  Fixed  Satellite  Services  Order,  n.  227  supra.
 230  The  Mitre  Corporation  report  was  conducted  pursuant  to  Section  1012,  Prevention  of  Interference  to  Direct
 Broadcast  Satellite  Services,  of  the  Commerce,  Justice,  State  and  Judiciary  Appropriations  Act,  (CJSJA  Act),  H.  R.
 5548  (enacted  on  December  21,  2000,  as  part  of  Pub.  L.  106-  553).  FCC,  Comments  Requested  on  The  Mitre
 Corporation  Report  on  Technical  Analysis  of  Potential  Harmful  Interference  to  DBS  from  Proposed  Terrestrial
 Services  in  the  12.  2    12.  7  GHz  Band  (ET  Docket  98-  206),  Press  Release  (Apr.  23,  2001).  In  this  Press  Release,  the
 Commission  requested,  and  subsequently  received,  comments  on  the  report.
 231  Mitre  Corporation,  Analysis  of  Potential  MVDDS  Interference  to  DBS  in  the  12.  2-  12.  7  GHz  Band,  Apr.  18,  2001,
 at  6.1-  6.2.
 232  MDS  America  Says  Test  Show  It  Can  Share  Ku-  Band  Without  DBS  Interference,  TR  Daily,  Oct.  12,  2001.
 233  New  Fixed  Satellite  Services  Order,  16  FCC  Rcd  at  4196-  7.  Satellite  Receivers,  Ltd.  also  filed  an  application  for
 authority  to  provide  terrestrial  services  in  this  band  in  Illinois,  Indiana,  Iowa,  Michigan,  Minnesota  and  Wisconsin.
 234  Northpoint  Comments  at  3-  6.
 235  Id.  at  6-  8.  Northpoint  states  that  DBS  industry  suggestions  to  move  MVDDS  service  to  other  spectrum  bands
 would  reduce  its  effectiveness  as  a  competitor.
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 Federal  Communications  Commission  FCC  01-  389
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 that  the  Commission  should  grant  its  license  application  to  provide  this  service  without  competitive
 bidding.  236
 66.  SBCA  counters  that  interference  harmful  to  DBS  services  is  inherent  to  MVDDS  design,  and
 that  the  mitigation  techniques  suggested  in  the  Mitre  Report  are  untested,  expensive,  and  burdensome,
 and  will  not  be  able  to  eliminate  all  interference.  237  SBCA  proposes  a  solution,  allowing  MVDDS
 services  in  higher  frequency  bands  already  allocated  for  point-  to-  multipoint  video  and  data  services.  238
 EchoStar  and  DirecTV  also  oppose  MVDDS  reuse  of  DBS  spectrum,  stating  that  this  reuse  would
 degrade  and  decrease  reliability  of  DBS  services  and  thus  adversely  affect  DBS  subscribership.  239  NRTC
 also  raises  concerns  about  MVDDS  interference  with  DBS  service.  240
 2.  Home  Satellite  Dishes
 67.  The  home  satellite  dish  (  HSD)  or  C-  band  segment  of  the  satellite  industry  continues  to
 experience  a  decline  in  subscribership.  Between  June  2000  and  June  2001,  C-  band  subscribers  fell  from
 1,476,717  to  1,000,  074,  an  average  loss  of  1,306  subscribers  per  day.  241  SBCA  states,  however,  that  C-band
 remains  the  delivery  vehicle  for  a  core  contingent  of  satellite  subscribers,  242  and  that  satellite
 programmers  remain  committed  to  offering  programming  to  this  sector  of  the  industry.  243  There  are  now
 four  remaining  C-  Band  programming  distributors,  Gemstar-  TV  Guide  Superstar/  Netlink  Group,  DSI
 Distributing,  Satellite  Receivers,  Ltd.,  and  the  NRTC.  244
 C.  Multichannel  Multipoint  Distribution  Service
 68.  Multipoint  and  multichannel  multipoint  distribution  service  (  MDS  and  MMDS)  and
 instructional  television  fixed  service  (  ITFS)  share  spectrum  in  the  2.5-  2.69  GHz  band.  In  addition,
 MDS  entities  license  spectrum  in  the  2.15-  2.162  GHz  band,  primarily  for  upstream  communications  to
 hub  receiving  facilities  in  two-  way  data  communications  systems.  Traditionally,  MDS  spectrum  has  been
 used  to  deliver  multichannel  video  programming  (known  as  wireless  cable  service)  to  residential
 customers.  245
 236  Id.  at  8-  9.
 237  SBCA  Comments  at  10-  13.
 238  Id.  at  14.
 239  EchoStar  Comments  at  14-  15;  DirecTV  Comments  at  5-  6.
 240  NRTC  Comments  at  17-  18;  Reply  Comments  at  5.  NRTC  requests  that  the  Commission  accept  competing
 applications  and  conduct  an  auction  to  provide  the  service.
 241  SBCA  Comments  at  4-  5,  Tables  1  and  3.
 242  For  instance,  Gregory  C.  Jones  and  John  Dowie,  C-  Band  subscribers,  filed  comments  in  this  proceeding,  urging
 the  Commission  to  enact  policies  to  aid  C-  Bands  continued  presence  as  a  competitor  to  cable  and  a  provider  of
 technology  to  rural  America.  See  Dowie  Comments  and  Jones  Reply  Comments.
 243  SBCA  Comments  at  3.
 244  Satellite  Business  News,  Inc.,  Satellite  Receivers  Buys  Disneys  C-  Band  Subscribers,  Satellite  Business  News
 FAXUpdate,  June  15,  2001.
 245  See  2000  Report,  16  FCC  Rcd  at  6045.
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 69.  In  1998,  the  Commission  released  the  Two-  Way  Order  permitting  MDS/  ITFS  licensees  to
 construct  digital  two-  way  systems  that  could  provide  high-  speed,  high-  capacity  broadband  service,
 including  two-  way  Internet  service  via  cellularized  communication  systems.  246  In  the  wake  of  the
 Two-  Way  Order,  WorldCom  and  Sprint  each  invested  over  $2  billion  in  acquiring  MDS  licensees  and  at
 least  another  $1  billion  each  in  system  construction.  An  initial  filing  window  for  two-  way  service  was
 held  in  August  2000.  Following  this  initial  filing  window,  on  April  16,  2001,  the  Mass  Media  Bureau
 commenced  a  rolling  one-  day  filing  window  process,  which  permits  licensees  to  apply  for  authorizations
 on  a  first-  come  first-  served  basis.  247  To  date,  approximately  1,600  of  those  applications  have  been
 granted.
 70.  On  January  5,  2000,  the  Commission  issued  a  Notice  of  Proposed  Rulemaking  that  examined
 spectrum  options  for  third-  generation  wireless  service  (  3G)  and  other  advanced  wireless  services.
 Although  many  different  spectrum  bands  were  discussed  in  that  proceeding,  the  Commission  sought
 comment  on  whether  to  provide  mobile  services  in  the  2.5-  2.69  GHz,  which  is  occupied  by  MDS  and
 ITFS  licenses.  248  On  September  6,  2001,  the  Commission  adopted  a  First  Report  and  Order  and
 Memorandum  Opinion  and  Order  (  First  R&  O/  MO&  O)  in  the  New  Advanced  Wireless  Services
 proceeding.  249  The  First  R&  O  adds  a  mobile  allocation  to  the  2.5-  2.69  GHz  band  to  provide  additional
 near-  term  and  long-  term  flexibility  for  use  of  this  spectrum,  thereby  making  this  band  potentially
 available  for  advanced  mobile  and  fixed  terrestrial  wireless  services,  including  3G  and  future  generations
 of  wireless  systems.  The  Commission  decided  not  to  relocate  the  existing  licensees  or  otherwise  modify
 their  licenses.  In  addition,  the  Commission  recognized  that  it  will  have  to  explore  the  service  rules  that
 would  apply  to  permit  mobile  operations  in  the  2.5-  2.69  GHz  band  in  a  separate  future  proceeding.
 71.  MDS  Households  and  Subscribership.  As  reported  last  year,  the  potential  number  of  homes
 with  a  serviceable  line-  of-  sight  to  an  MMDS  operator's  transmission  facilities  was  about  62  million  and
 the  number  of  homes  actually  capable  of  receiving  an  MMDS  signal  (  homes  seen)  was  about  36
 million.  250  The  number  of  MMDS  subscribers,  however,  continues  to  hover  around  700,000.  251  MMDS
 246  Amendment  of  Parts  21  and  74  to  Enable  Multipoint  Distribution  Service  and  Instructional  Television  Fixed
 Service  Licensees  to  Engage  in  Fixed  Two-  Way  Transmissions,  MM  Docket  No.  97-  217,  Report  and  Order,  13  FCC
 Rcd.  19112  (1998),  recon.,  14  FCC  Rcd  12764  (1999),  further  recon.,  15  FCC  Rcd  14566  (2000).
 247  Mass  Media  Bureau  Provides  Further  Information  Regarding  Grants  Of  ITFS  And  MDS  Two-  Way  Applications;
 Certain  ITFS  Major  Modification  Applications;  And  The  Rolling  One-  Day  Filing  Window  Procedure,  Public  Notice,
 DA  01-  751  (rel.  Mar.  26,  2001).
 248  See  Amendment  of  Part  2  of  the  Commissions  Rules  to  Allocate  Spectrum  Below  3GHz  for  Mobile  and  Fixed
 Services  to  Support  the  Introduction  of  New  Advanced  Wireless  Services,  Including  Third  Generation  Wireless
 Systems,  ET  Docket  No.  00-  258,  Notice  of  Proposed  Rule  Making  and  Order,  16  FCC  Rcd  596  (2000).
 249  See  Amendment  of  Part  2  of  the  Commissions  Rules  to  Allocate  Spectrum  Below  3GHz  for  Mobile  and  Fixed
 Services  to  Support  the  Introduction  of  New  Advanced  Wireless  Services,  Including  Third  Generation  Wireless
 Systems,  ET  Docket  No.  00-  258,  First  Report  and  Order  and  Memorandum  Opinion  and  Order,  16  FCC  Rcd  17222
 (2001).
 250  See  2000  Report,  16  FCC  Rcd  at  6046.  The  number  of  homes  with  a  "serviceable  line  of  sight"  counts  all  homes
 which  an  MMDS  operator  is  licensed  to  serve  within  a  particular  license  area,  regardless  of  technical  limitations
 such  as  signal  strength  or  blockage  by  terrain.  The  number  of  "homes  seen,"  on  the  other  hand,  is  the  number  of
 homes  that  MMDS  operators  have  the  technical  ability  to  serve.  See  1997  Report,  13  FCC  Rcd  at  1081.
 251  NCTA,  Cable  &  Telecommunications  Industry  Overview  2001,  Cable  Television  Developments  2001,  at  11.
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 providers,  such  as  WorldCom  and  Nucentrix,  252  have  continued  to  roll  out  high-  speed  Internet  access  in
 new  markets,  many  of  them  rural.  However,  Sprint,  which  introduced  its  video,  voice,  and  data  service  to
 consumers  and  businesses  in  1998,  recently  announced  that  it  will  terminate  this  service.  253  Pursuant  to  its
 independent  spectrum  management  responsibilities,  the  Commission  recently  undertook  a  study  of  the
 2500-  2690  MHz  band.  An  Interim  Report  regarding  this  band  was  issued  in  November  2000,  254  and  a
 Final  Report  was  issued  in  March  2001.  255  The  following  information  regarding  the  rollout  of  two-  way
 services  by  MDS  providers  was  set  forth  in  the  studies:  Sprint  has  acquired  interests  in  more  than  90
 markets  covering  about  30  million  households.  WorldCom  holds  MDS  licenses  covering  over  31  million
 households  in  78  markets.  Nucentrix  Broadband  Services,  Inc.  currently  offers  two-  way  high-  speed
 Internet  access  service  in  Austin  and  Sherman-  Denison,  Texas,  and  is  conducting  a  trial  of  the  service  in
 Amarillo,  Texas.  At  least  24  other  companies  offer  fixed  wireless  services  in  approximately  33  different
 counties.  Generally,  MDS  providers  are  focusing  on  data  transmission  rather  than  video  service.
 72.  Barriers  to  Competition.  Section  628(  c)(  2)(  D)  of  the  Communications  Act  generally
 prohibits  exclusive  contracts  between,  inter  alia,  vertically  integrated  satellite  cable  programming
 vendors  and  cable  operators.  WCA  states  that  preservation  of  this  statutory  prohibition  is  of  critical
 importance  to  fixed  wireless  providers  of  multichannel  video  programming.  256  WCA  further  contends
 that  the  conditions  that  prompted  the  adoption  of  program  access  rules  are  worse  than  they  were  in  1992.
 Where  cable  programmers  once  had  opportunities  to  sell  their  programming  to  multiple  cable  operators  in
 a  local  market,  in  many  cases  there  is  now  a  single  cable  operator  that  has  consolidated  previously
 independent  systems.  According  to  WCA,  this  exposes  MDS/  ITFS  providers  and  other  terrestrial
 competitors  to  a  risk  that  vertically  integrated  programmers  will  refuse  to  sell  their  programming  to
 alternative  MVPDs  that  do  not  serve  a  critical  mass  of  subscribers.  257  WCA  also  claims  that  cable
 programmers  have  already  withheld  programming  from  competitors  due  in  part  to  the  Commissions
 liberal  interpretation  of  the  terrestrial  distribution  requirement.  258
 D.  Satellite  Master  Antenna  Television  Systems
 73.  SMATV  systems,  also  known  as  private  cable  operators  or  private  communication  operators,
 are  video  distribution  facilities  that  use  closed  transmission  paths  without  using  any  public  right-  of-
 252  Nucentrix  reports  that  it  operates  the  largest  wireless  cable  company,  Heartland  Cable  Television,  Inc.,  which
 provides  33  channels  of  video  programming  to  subscribers  in  57  markets.  See  Nucentrix  Broadband  Networks  at
 http://  www.  nucentrix.  com.
 253  Sprint,  Sprint  to  Terminate  ION  Efforts;  Announces  Additional  Actions  to  Improve  Competitive  Positioning  and
 Reduce  Operating  Costs  in  FON  Group  (press  release),  Oct.  17,  2001,  at
 http://  www3.sprint.  com/  PR/  CDA/  PR_  CDA_  Press_  Releases_  Detail/  1,  1579,  3921,00.  html;  Sprint,  Sprint  History  at
 http://  www.  sprint.  com/  sprint/  ir/  sd/  sh.  html.
 254  See  FCC  Staff  Report,  Spectrum  Study  of  the  2500-  2690  MHz  Band:  The  Potential  for  Accommodating  Third
 Generation  Mobile  Systems,  ET  Docket  No.  00-  232,  Interim  Report,  15  FCC  Rcd  22310  (2000).
 255  See  FCC  Staff  Report,  Spectrum  Study  of  the  2500-  2690  MHz  Band:  The  Potential  for  Accommodating  Third
 Generation  Mobile  Systems,  ET  Docket  No.  00-  258,  Final  Report,  16  FCC  Rcd  10272  (2001).
 256  WCA  Comments  at  1-  2.  See  Program  Access  NPRM,  n.  213  supra.
 257  WCA  Comments  at  3-  4.
 258  Id.  at  4-  5.
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 way.  259  SMATV  systems  usually  are  satellite-  based  and  distribute  television  signals  to  urban  and
 suburban  multiple  dwelling  units  (  MDUs)  as  well  as  commercial  multiple  tenant  units  (  MTUs).  260
 SMATV  providers  receive  and  process  satellite  signals  directly  at  an  MDU  or  other  private  property  with
 an  on-  site  headend  facility  consisting  of  receivers,  processors  and  modulators.  Programming  is
 distributed  to  individual  units  through  an  internal  hard-  wire  system  in  the  building.
 74.  SMATV  operators  are  subject  to  less  regulatory  oversight  than  traditional  cable  systems.  For
 example,  they  are  not  required  to  obtain  cable  television  franchises,  nor  do  they  face  regulatory
 constraints  on  the  geographic  areas  in  which  they  may  offer  video  services.  261  Some  SMATV  systems  use
 microwave  transmissions  and  wires  to  serve  multiple  buildings  that  are  not  commonly  owned.  262  On  July
 13,  1999,  the  Commission  adopted  a  Notice  of  Proposed  Rulemaking  seeking  comment  on  a  proposal  to
 allow  SMATV  operators  to  use  Cable  Television  Relay  Service  (  CARS)  12  GHz  band  channels  to
 deliver  video  programming.  263  Because  SMATV  systems  do  not  use  public  rights-  of-  way,  and  are
 technically  not  cable  operators,  they  have  been  ineligible  for  CARS  licenses.  264  In  addition,  the
 Commission  sought  comment  on  whether  the  CARS  band  should  be  expanded  to  include  the  frequency
 band  segment  from  13.  20-  13.  25  GHz,  currently  designated  for  television  broadcast  auxiliary  service.
 This  proceeding  is  pending.
 75.  SMATV  operators  consist  of  hundreds  of  small  and  medium  size  firms  throughout  the
 nation.  265  Most  SMATV  operators  serve  approximately  3,000-  4,  000  customers,  but  the  larger  ones  serve
 259  47  U.  S.  C.    522(  7).
 260  The  MDU  market  is  comprised  of  an  estimated  20-  25  million  units.  Mor  Allon,  Who  Should  be  in  the  Drivers
 Seat  in  Delivering  Broadband  Services:  Business  or  Technology?,  Private  &  Wireless  Broadband,
 August/  September  2001,  at  32.
 261  1996  Act,  sec.  301(  a)(  2),  47  U.  S.  C.    522(  7).  In  addition,  private  cable  and  SMATV  operators  (a)  do  not  pay
 franchise  and  Federal  Communications  Commission  subscriber  fees;  (b)  are  not  obligated  to  pass  every  resident  in  a
 given  area;  (c)  are  not  subject  to  rate  regulation;  and  (d)  are  not  subject  to  must  carry  and  local  government  access
 obligations.  1997  Report,  13  FCC  Rcd  at  1085.
 262  Id.  at  1085.  The  Commission  held  in  1991  that  microwave  transmissions  do  not  "use"  public  rights-  of-  way  and
 made  18  GHz  technology  available  for  the  point-  to-  point  delivery  of  video  programming  services,  allowing
 operators  to  free  themselves  from  large  networks  of  coaxial  or  fiber  optic  cable  and  amplifiers.  Amendment  of  Part
 94  of  the  Commissions  Rules  to  Permit  Private  Video  Distribution  Systems  of  Video  Entertainment  Access  to  the  18
 GHz  Band,  PR  Docket  No.  90-  5,  Report  and  Order,  6  FCC  Rcd  1270,  1271  (1991).  In  addition,  on  June  22,  2000,
 the  Commission  adopted  a  Report  and  Order  affirming  the  allocation  of  the  18  GHz  band  for  SMATV  providers,
 concluding  that  private  cable  operators  using  the  18  GHz  band,  for  both  current  and  future  operations,  will  not  be
 able  to  compete  effectively  against  franchised  cable  operators  if  we  redesignate  the  18.  3-  18.  55  GHz  band.  See
 Redesignation  of  the  17.  7-  19.  7  GHZ  Frequency  Band,  Blanket  Licensing  of  Satellite  Earth  Stations  in  the  17.  7-  20.  2
 GHz  and  27.  5-  30.0  GHz  Frequency  Bands,  and  the  Allocation  of  Additional  Spectrum  in  the  17.  3-  17.  8  GHz  and
 24.75-  25.25  GHz  Frequency  Bands  for  Broadcast  Satellite-  Service  Use,  IB  Docket  No.  98-  172,  Report  and  Order
 (  18  GHz  Report  and  Order),  15  FCC  Rcd  13430,  13450  (2000).
 263  1999  Report,  15  FCC  Rcd  at  1023;  Petition  for  Rulemaking  To  Amend  Eligibility  Requirements  in  Part  78
 Regarding  12  GHz  Cable  Television  Relay  Service,  CS  Docket  No.  99-  250,  Notice  of  Proposed  Rulemaking,
 14  FCC  Rcd  11967  (1999).
 264  47  C.  F.  R.    78.  13.
 265  For  a  list  of  self-  described  private  communications  operators,  see  the  Web  site  of  the  Independent  Multi-  Family
 Communications  Council  (IMCC),  Private  Communication  Operator  (PCO)  Members  at  http://  www.  imcc-online.
 org/  membership.
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 15,000-  55,000  subscribers  each.  266  As  of  July  2001,  SMATV  subscribership  remained  unchanged  from
 last  year  at  1.5  million  subscribers.  267
 76.  In  terms  of  service  offerings,  private  cable  operators  generally  offer  the  same  basic  service
 tiers  that  are  offered  by  franchised  cable  operators.  268  We  have  previously  reported  that  SMATV
 operators  are  joining  with  satellite  providers  to  combine  analog  antenna  and  DBS  systems  in  order  to
 increase  service  offerings  and  this  trend  continues.  269  Some  private  cable  operators  are  upgrading  their
 systems  with  digital  technology  that  allows  the  operator  to  provide  service  packages  of  up  to  200  channels
 over  their  analog  infrastructure,  plus  pay  per  view  and  digital  music  channels.  270  Private  cable  operators
 also  are  developing  suites  of  service  offerings  to  satisfy  the  increasing  demand  among  MDU  owners  for
 broadband  services  beyond  digital  video  service  or  DBS  programming  services.  271  For  example,  they  are
 seeking  service  suites  that  include  one  or  more  of  the  following:  high-  speed  Internet  access,  community
 portals,  interactive  programming  guides  and  localized  video  information.  272
 77.  Barriers  to  Competition:  Private  cable  operators  ability  to  compete  with  other  MVPDs  is
 based,  in  part,  on  the  degree  of  access  they  have  to  the  MDU  marketplace.  Ongoing  issues  confronting
 private  cable  operators  include  exclusive  and/  or  perpetual  contracts  between  MDUs  and  other  MVPDs.
 The  Commission  has  issued  a  Second  Further  Notice  of  Proposed  Rulemaking  seeking  comments,  among
 other  things,  on  the  advantages  or  disadvantages  of  exclusive  contracts  in  promoting  a  competitive
 environment,  and  whether  there  are  circumstances  in  which  the  Commission  should  adopt  restrictions  on
 266  1999  Report,  15  FCC  Rcd  at  1023.  See  also  Ten  Largest  Private  Cable  Operators/  Multiple  System  Operators,
 Private  Cable  &  Wireless  Cable,  Dec.  1999,  at  4.
 267  NCTA  Comments  at  7.
 268  One  source  indicates  that  the  average  private  cable  operator  offering  SMATV  video  service  usually  delivers
 about  30-  45  channels.  See  Mor  Allon,  How  the  PCO  Can  Improve  the  Bottom  Line  Providing  Bundled  Services  to
 MDUs,  Private  &  Wireless  Broadband,  June  2000,  at  16.  In  1999,  we  reported  that  the  number  of  channels  being
 offered  by  SMATV  operators  responding  to  an  industry  poll  was  approximately  89  channels,  with  a  low  of  50
 channels  and  a  high  of  200  channels  offered.  1999  Report,  15  FCC  Rcd  at  1024.  This  figure  is  derived  from  the
 reports  of  18  operators,  and  likely  includes  SMATV  operators  that  offer  video  over  a  combined  SMATV/  DBS
 system.
 269  1999  Report,  15  FCC  Rcd  at  1024-  25;  2000  Report,  16  FCC  Rcd  at  6048-  9.  See,  e.  g.,  MDTV  to  Provide
 DIRECTV  and  High-  Speed  Internet  Access  to  Ginsburg  Development  Companies  Property,  Private  &  Wireless
 Broadband,  June/  July  2001,  at  52.
 270  Doug  Trukenmiller,  QAM:  Your  Secret  Weapon  for  a  Competitive  Television  Solution,  Private  &  Wireless
 Broadband,  August/  September  2001,  at  52.
 271  According  to  one  analysis,  sales  of  broadband  equipment  and  services  tailored  to  the  MDU  market  will  increase
 from  $370  million  in  2000  to  $4.  8  billion  by  2004.  Cahners  In-  Stat  Group,  Broadband  to  the  MTU  Becoming  More
 Mature:  Market  to  Reach  $4.  8  Billion  by  2004  (press  release),  Jan.  10,  2001.  See  also  What  Went  Wrong:
 Broadband  Delivery  to  the  MDU,  Cahners  In-  Stat  Group  Information  Alert  Newsletter,  Aug.  9,  2001.
 272  See,  e.  g.,  Amy  Helland,  Bringing  Broadband  to  Your  Tenants:  What  Property  Owners  are  Thinking  and  Doing,
 Private  &  Wireless  Broadband,  August/  September  2001,  at  38-  40;  Mark  Sherman,  Increase  Your  Cash  Flow  by
 Delivering  Digital  Service,  Private  &  Wireless  Broadband,  June/  July  2001,  at  26;  Larry  Kessler,  Experiencing  A
 Revolution,  Private  &  Wireless  Broadband,  April/  May  2001,  at  10.  See  also  USOL  Executes  Agreement  to  Provide
 Cable  and  High-  Speed  Internet  Services  to  Concord  at  McGallion  Complex,  Private  &  Wireless  Broadband,
 April/  May  2001,  at  48;  OnePath  Networks  and  NWS  Communications  Collaborate  on  Delivery  of  Broadband
 Services  to  MDUs  (press  release),  July  16,  2001,  at  http://  www.  onepathnet.  com/  newsevents/  index.  html.
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 exclusive  contracts  in  order  to  further  promote  competition  in  the  MDU  marketplace.  273  This  proceeding
 is  pending.
 E.  Broadcast  Television  Service
 78.  Broadcast  networks  and  stations  are  competitors  to  MVPDs  particularly  in  the  advertising
 and  program  acquisition  markets.  Broadcast  networks  also  compete  with  MVPDs  by  supplying  video
 programming  over  the  air  to  those  who  do  not  subscribe  to  an  MVPD  service.  Additionally,  broadcast
 networks  and  stations  are  suppliers  of  content  for  distribution  directly  to  consumers  and  to  consumers
 through  MVPDs.  Since  the  2000  Report,  the  number  of  commercial  and  noncommercial  television
 stations  increased  to  1,678  as  of  June  30,  2001,  from  1,663  as  of  September  30,  2000.  274  Total  television
 broadcast  advertising  revenues  reached  $41  billion  in  2000,  a  12.  2  percent  increase  over  1999.  275
 Advertising  revenues  for  the  seven  most  widely  circulated  broadcast  networks  (ABC,  CBS,  Fox,  NBC,
 PAX,  UPN,  and  WB)  alone  reached  $20.2  billion  in  2000.  276  In  comparison,  cable  programming
 networks  earned  $10.3  billion  in  advertising  revenue  in  2000,  an  increase  of  24  percent  over  1999.  277
 79.  A  Spring  2001  Home  Technology  Monitor  Ownership  Report  prepared  by  Statistical
 Research,  Inc.  (  SRI),  indicated  that  there  are  approximately  46.5  million  television  sets  in  broadcast-only
 homes.  An  additional  34.5  million  television  sets  in  homes  subscribing  to  an  MVPD  service  remain
 unconnected  to  such  service.  Thus,  81  million,  or  approximately  30.3  percent  of  the  267  million  sets  in
 the  U.  S.  receive  broadcast  signals  over-  the-  air.  This  study  estimates  that  20.9  percent  of  all  households
 are  broadcast-  only  homes  and  over  41  percent  of  all  homes  have  at  least  one  broadcast-  only  set.
 Similarly,  Nielsen  estimates  that  20.  7  million,  or  29.  2  percent  of  all  households  are  broadcast-  only
 homes.  278  Moreover,  the  SRI  study  reports  that  approximately  33  percent  of  homes  with  incomes  under
 $30,000  are  broadcast-  only,  compared  to  10  percent  of  the  households  with  incomes  exceeding
 $75,000.  279
 80.  During  the  2000-  2001  television  season,  ABC,  CBS,  Fox,  NBC,  PAX,  UPN  and  WB
 affiliates  accounted  for  a  combined  average  57  percent  share  of  prime  time  viewing  among  all  television
 households,  compared  to  59  percent  in  the  previous  year.  280  For  all-  day  (24-  hour)  viewing,  programming
 273  Telecommunications  Services  Inside  Wiring,  Customer  Premises  Equipment,  Implementation  of  the  Consumer
 Protection  and  Competition  Act  of  1992:  Cable  Home  Wiring,  CS  Docket  No.  95-  184  and  MM  Docket  No.  92-  260,
 Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking  (  Inside  Wiring  Order),  13  FCC  Rcd  3659
 (1998).
 274  Compare  Federal  Communications  Commission,  Broadcast  Station  Totals  as  of  September  30,  2000,  FCC  News
 Release  (Nov.  29,  2000)  with  Federal  Communications  Commission,  Broadcast  Station  Totals  as  of  June  30,  2001
 FCC  News  Release  (July  13,  2001).
 275  Television  Bureau  of  Advertising,  Local  Broadcast  TV  Posts  12.  2%  Gain  in  2000  Over  1999  (press  release),
 Mar.  22,  2001.
 276  Id.
 277  NCTA,  Cable  Advertising  Revenue:  1984-  2000  (In  Millions),  Cable  Television  Developments  2001,  at  11.
 278  In  addition,  broadcast-  only  homes  include  a  higher  proportion  of  racial  and  ethnic  minorities    18  percent  of
 white  households,  24  percent  of  African-  American  households  and  32  percent  of  Hispanic  households.  NAB
 Comments  at  2-  3.
 279  Id.  at  3.
 280  Nielsen  Media  Research,  Viewing  Sources    Primetime,  1984-  85  to  2000-  01.
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 broadcast  on  all  television  stations  (affiliates,  independents  and  non-  commercial  stations)  accounted  for  a
 combined  57  percent  share  of  viewing  in  all  TV  households,  also  down  from  59  percent  last  year.  Non-premium
 cable  networks  and  pay  cable  services  achieved  a  combined  55  percent  share  of  24-  hour
 viewing,  up  from  52  percent  last  year.  Reported  audience  shares  exceed  100  percent  due  to  simultaneous
 multiple  set  viewing.  281
 81.  We  previously  reported  on  consolidation  in  the  broadcast  industry  and  on  repurposing  of
 content.  Repurposing  of  programming  is  becoming  more  common.  We  reported  repurposing  deals
 between  NBC  and  PaxTV,  and  ABC  with  Lifetime  and  VH-  1  in  last  years  report.  282  This  season,  FX  and
 Fox  have  also  agreed  to  rebroadcast,  on  FX,  two  Fox  series  (24  and  Nathans  Choice)  in  the  same  week
 as  the  initial  showing  on  Fox.  283
 82.  As  we  stated  in  previous  reports,  DTV  could  potentially  enhance  the  ability  of  broadcasters  to
 compete  in  the  video  marketplace.  DTV  allows  broadcasters  to  transmit  a  very  high  quality  signal  (High
 Definition  Television  or  HDTV),  several  standard  definition  signals  (  multicasting),  or  ancillary  services
 in  addition  to  broadcast  signals.  As  of  August  1,  2001,  all  but  one  of  the  network  affiliates  in  the  top  ten
 television  markets  were  broadcasting  DTV  service.  284  In  television  markets  11-  30,  70  of  79  stations  were
 broadcasting  DTV  service.  Eighty-  three  percent  of  the  more  than  1,300  commercial  television  stations
 have  been  granted  a  DTV  construction  permit  or  license  and  229  are  on  the  air  with  DTV  operation.  285
 All  commercial  broadcasters  are  required  to  be  on  the  air  with  DTV  signals  by  May  2002.
 83.  Current  use  of  DTV  spectrum  involves  simultaneous  broadcast  of  standard  definition  signals.
 For  instance,  ABC  will  be  broadcasting  its  prime  time  dramas  and  comedies  in  HDTV  this  season.  All  of
 ABCs  scripted  prime  time  shows  will  be  available  to  viewers  in  HDTV,  representing  about  60  percent  of
 the  networks  weekly  schedule.  Reality  programs,  news  shows  and  Monday  Night  Football  (  MNF)  will
 not  be  aired  in  HDTV,  although  ABC  intends  to  add  MNF  to  the  HDTV  lineup  as  soon  as  next  season.
 CBS  is  delivering  its  entire  prime  time  lineup  in  HDTV  in  partnership  with  digital  television  set
 manufacturers  Panasonic  and  Zenith.  This  is  the  third  consecutive  year  that  CBS  has  broadcast  the
 majority  of  its  prime  time  schedule  in  HD  digital  format.  286  NBC  airs  Crossing  Jordan  in  prime  time  and
 The  Tonight  Show  With  Jay  Leno  in  HDTV.  287  PBS  will  also  broadcast  two  or  three  documentaries  per
 month  in  HDTV.  288
 84.  Since  the  2000  Report,  there  has  been  limited  progress  on  broadcast-  cable  compatibility
 issues.  A  February  22,  2000,  agreement  between  the  NCTA  and  the  CEA  addressed  two  issues  -
 281  Nielsen  Media  Research,  NTI  Total  Viewing  Sources  Reports,  1999-  2001.
 282  2000  Report,  16  FCC  Rcd  at  6051.  Repurposing  generally  involves  a  re-  run  of  broadcast  content  on  a  different
 network  (cable  or  broadcast)  shortly  after  it  airs  originally  on  network  affiliate  stations.
 283  Cahners,  FX,  Fox  Reach  Repurposing  Deal,  Multichannel  News,  July  30,  2001,  at  http://  www.  tvinsite.  com.
 284  See  Summary  of  DTV  Applications  Filed  and  DTV  Build  Out  Status  at
 http://  www.  fcc.  gov/  mmb/  vsd/  files/  dtvsum.  html  for  an  updated  list  on  the  status  of  DTV  broadcasts.
 285  Id.
 286  Cahners,  CBS  Putting  all  of  Prime  in  HD,  Broadcasting  &  Cable,  Sept.  7,  2001,  at  http://  www.  tvinsite.  com.
 287  See  Top  of  the  Week,  Digital  Dossier,  Broadcasting  &  Cable,  Oct.  8,  2001,  at  20;  Michael  Grotticelli,  Nets
 Increase  HDTV  Output,  Broadcasting  &  Cable,  Oct.  8,  2001,  at  36-  37.
 288  Id.  at  36.
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 technical  requirements  for  direct  connection  of  digital  television  receivers  to  digital  cable  systems  and
 provision  of  tuning  and  program  schedule  information  to  support  the  navigation  function  of  DTV
 receivers,  including  on-  screen  program  guides.  This  information  is  generally  referred  to  as  "PSIP"
 (  Program  and  System  Information  Protocol)  information.  With  regard  to  the  technical  requirements  for
 direct  connection,  the  Society  of  Cable  Telecommunications  Engineers  (  SCTE)  completed  adoption  of
 the  standard  Digital  Video  Subcomittee  (DVS)-  313  on  April  4,  2001.  CEA  has  a  parallel  standard,
 Electronic  Industry  Association  (EIA)/  CEA-  818-  B,  which  is  being  revised  to  reflect  the  latest  version  of
 DVS-  313.  However,  DVS-  313  alone  is  not  sufficient  for  building  a  device  that  will  permit  access  to
 encrypted  digital  cable  programming  (and  cable  operators  plan  to  encrypt  most  of  their  digital
 programming).  To  access  encrypted  programming  requires  a  point  of  deployment  (  POD)  device.  The
 February  22  agreement  also  set  out  a  seven-  step  PSIP  "Implementation  Plan  designed  to  ensure  that
 DTV  receivers  would  be  able  to  access  certain  PSIP  information  provided  by  program  networks.  The
 cable  and  consumer  electronics  industries  differ  on  the  amount  of  progress  made  on  the  implementation
 plan,  with  the  CEA  suggesting  that  there  has  been  very  little.  289
 85.  The  lack  of  a  comprehensive  copy  protection  regime  has  also  slowed  the  DTV  transition.
 There  has  been  some  progress  on  this  front  since  last  year,  with  two  studios,  Sony  and  Warner,  signing
 copy  protection  technology  licensing  agreements  with  the  "5C"  companies.  290  However,  various  copy
 protection  issues  remain  unresolved,  including  the  degree  of  protection  for  broadcast  programming  and
 how  to  realize  it.  The  2000  Report  noted  that  the  Commission  had  adopted  DTV  receiver  labeling
 requirements  in  order  to  ensure  that  consumers  will  be  fully  informed  about  the  capabilities  of  DTV
 receivers  to  operate  with  cable  television  systems.  291  Two  reconsideration  petitions  are  pending  in  that
 proceeding.
 86.  In  addition,  the  Commission  continues  to  consider  mandatory  carriage  requirements  of  DTV
 broadcast  signals  by  cable  systems.  On  January  18,  2001,  the  Commission  adopted  a  First  Report  and
 Order  and  Further  Notice  of  Proposed  Rule  Making  that  tentatively  rejected  a  dual  carriage  requirement
 for  both  a  stations  analog  and  digital  signals.  It  also  provided  a  framework  for  the  private  resolution  of
 such  signal  carriage  issues  through  retransmission  consent  agreements  for  commercial  stations  and
 through  voluntary  agreements  in  the  case  of  noncommercial  stations.  292  In  the  First  Report  and  Order,
 among  other  things,  the  Commission  clarified  that  a  digital-  only  television  station  could  assert  carriage
 rights  on  local  cable  systems,  afforded  carriage  rights  to  any  station  that  returns  its  analog  spectrum  and
 converts  to  digital  operations  and  resolved  a  number  of  other  related  issues.  In  the  Further  Notice,  the
 Commission  seeks  additional  comment  on  its  tentative  conclusion  regarding  a  dual  carriage  requirement.
 Additionally,  the  Further  Notice  requests  comment  on  the  proper  scope  of  the  requirement  to  carry
 program  related  content  in  this  context  and  the  applicability  of  the  rules  adopted  in  the  First  Report  and
 Order  to  satellite  carriers  under  the  SHVIA  signal  carriage  provisions.
 289  Id.
 290  The  5C  companies  are  Intel,  Toshiba,  Sony,  Hitachi,  and  Matsushita.  See  1998  Report,  13  FCC  Rcd  at  24347:
 1999  Report,  15  FCC  Rcd  at  1029.
 291  See  Compatibility  Between  Cable  Systems  And  Consumer  Electronic  Equipment,  PP  Docket  No.  00-  67,  Report
 and  Order,  15  FCC  Rcd  17568  (2000).
 292  See  DTV  Signal  Carriage  Proceeding,  n.  30  supra.
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 Federal  Communications  Commission  FCC  01-  389
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 87.  Although  initial  consumer  acceptance  of,  and  transition  to,  DTV  has  been  slow,  some  assert
 that  progress  is  being  made.  293  As  a  result,  broadcasters  continue  to  engage  in  tests  of  various  possible
 DTV  products,  such  as  HDTV,  ancillary  services,  or  some  combination.  It  is,  however,  impossible  to
 assess  the  competitive  impact  of  DTV  service  on  the  MVPD  market  at  this  time,  other  than  to  observe
 that  the  potential  for  a  positive  competitive  impact  remains.
 88.  Comments  on  Low-  Power  Competition.  In  addition  to  the  1,304  commercial  television
 stations  the  Commission  licenses,  the  Commission  also  licenses  lower-  power  television  (  LPTV)
 stations.  There  are  currently  over  2,  300  licensed  LPTV  stations.  294  Several  low  power  television  stations
 claim  that  LPTV  stations  need  must-  carry  status  to  survive.  295  WBGT-  LP  argues  that  the  Commission
 should  consider  special  must-  carry  provisions  for  competitors  that  can  show  reasonable  evidence  as  to
 their  desirability  or  consumer  demand,  similar  to  the  significant  viewing  methodology.  296
 F.  Other  Entrants
 1.  Internet  Video
 89.  Since  our  last  Report,  the  availability  of  real-  time  and  downloadable  video  over  the  Internet
 (  Internet  video)  has  increased  greatly.  297  The  number  of  homes  with  access  to  the  Internet  and  the
 number  of  home  users  accessing  Internet  video  have  also  increased  over  the  last  year,  as  has  the  amount
 of  available  content.  As  of  July  2001,  an  estimated  58  percent  of  all  Americans  had  Internet  access  at
 home,  compared  with  52  percent  as  of  July  2000.  298  Additionally,  as  of  July  2001,  41  million  residential
 Web  users  had  accessed  streaming  video.  299  However,  despite  the  evidence  of  continued  interest  in
 Internet  video  deployment  and  use,  the  medium  still  is  not  generally  seen  as  a  direct  competitor  to
 traditional  video  services.  300  As  we  reported  last  year,  broadcast-  quality  Internet  video  service  requires  a
 293  The  Consumer  Electronics  Association  reports  the  sale  of  DTV  products  is  gaining  momentum.  Factory  to  dealer
 sales  of  DTV  units  were  almost  650,  000  units  in  2000,  and  are  projected  to  over  1.  2  million  units  for  2001.  See
 http://  www.  ce.  org/  vision_  magazine/  editions/  2001/  mayjun/  p04b.  asp.
 294  See  Federal  Communications  Commission,  Broadcast  Station  Totals  as  of  June  30,  2001,  FCC  News  Release
 (July  13,  2001).
 295  Pursuant  to  47  U.  S.  C.    534(  h),  low  power  television  stations  qualify  for  must-  carry  status  only  in  limited
 circumstances.
 296  WBGT-  LP  Comments  at  2.  See  47  C.  F.  R.    76.  54.  See  also  WJAN-  CA  and  WQBC-  CA  Comments.
 297  Internet  video  provided  in  real-  time  is  also  known  as  streaming  video.
 298  Amanda  Cantrell,  Growth  of  Internet  Access  Slows  Dramatically  in  U.  S.,  The  Industry  Standard,  Aug.  14,  2001.
 299  Arbitron,  Inc.,  Arbitron/  Edison  Media  Research  Study  Reveals  Most  Streamies  First  Accessed  Webcasting
 within  the  Last  Year  (press  release),  Sept.  5,  2001  (citing  Nielsen//  Net  Ratings  data).
 300  The  Commission  recently  suggested  that,  given  the  nascent  stage  of  the  Internet  video  industry,  it  is  premature  to
 consider  Internet  video  to  be  a  full  competitive  alternative.  Amendment  of  Section  73.  658(  g)  of  The  Commissions
 Rules    The  Dual  Network  Rule,  MM  Docket  No.  00-  108,  Report  and  Order,  16  FCC  Rcd  11114,  11120  (2001).  In
 addition,  industry  sources  believe  that  Internet  video  still  is  substandard  to  broadcast  quality  and  that  hurdles  remain
 to  watching  video  on  a  computer  screen.  Robert  La  Franco,  The  Serious  Game:  Digital  Video  is  Still  Off-  track,  Red
 Herring  Online,  Aug.  22,  2001,  at  http://  www.  redherring.  com/  ind  01&  doc_  id=  170020017&  rh_  special_  report_  id=;
 Alan  Goldstein,  Test  Pattern:  Yahoo  Still  Trying  to  Tune  in  Potential  of  Broadcast.  com,  The  Dallas  Morning  News
 Online,  July  3,  2001,  at  http://  www.  dallas  news.  com/  cgi-  bin/  hnology/  409092_  yahoo_  03bus.  AR.  html;  Dot.  Bomb
 Wont  Slow  Streaming  Media  Growth,  CERF  Predicts,  Comm.  Daily,  Apr.  27,  2001,  at  5-  6;  Chris  Wallace,  Is
 (continued.)
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 Federal  Communications  Commission  FCC  01-  389
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 high-  speed  broadband  connection  of  about  300  kbps  or  higher,  which  most  current  broadband  providers
 cannot  yet  guarantee.  301  In  addition,  high-  speed  Internet  subscribership  still  is  limited,  with  only  a  few
 more  than  ten  million  subscribers.  302  Nevertheless,  there  have  been  a  number  of  significant  legal,
 business,  and  technological  developments  over  the  past  year  to  report.
 90.  Last  year  we  reported  that  some  providers  of  Internet  video  were  facing  difficulties  with  U.  S.
 copyright  laws.  303  We  reported  that  among  others,  Canadian-  based  JumpTV  was  seeking  to  stream  U.  S.
 television  signals  to  Internet  users  in  Canada.  304  Since  our  last  Report,  JumpTV  applied  for  and  then
 recently  dropped  its  bid  for  copyright  clearance  to  retransmit  TV  stations  over  the  Internet.  305  JumpTV
 was  seeking  the  right  to  pay  copyright  license  fees,  similar  to  cable,  satellite  or  wireless  firms,  to  stream
 Canadian  and  U.  S.  television  signals  over  the  Internet.  306
 91.  This  year,  the  most  prominent  webcasting  conflict  has  been  the  contract  dispute  between
 Disney  and  Charter.  In  June  2001,  the  Walt  Disney  Company  and  Charter  Communications  engaged  in  a
 dispute  over  whether  Disney  had  the  right  to  stream  its  own  ESPNews  over  the  Internet  at  the  same  time
 that  Charter  held  distribution  rights  through  license  fees.  307  In  June,  Disney  briefly  revoked  permission
 for  Charter  to  carry  ESPNews.  308  In  turn,  Charter  replaced  ESPNews  in  250,000  homes  with  other
 programming.  309
 92.  Despite  these  obstacles,  Internet  users  continue  to  download  and  use  software  for  accessing
 Internet  video,  and  Web  sites  dedicated  to  streaming  video  continue  to  proliferate.  For  example,  Nielsen//
 Net  Ratings  estimates  that  Microsofts  Windows  Media  Player,  which  recently  overtook  RealNetworks  as
 the  dominant  software  program  for  accessing  Internet  video,  has  over  24.7  million  users.  310  It  also
 (  continued  from  previous  page)
 Streaming  Video  Dead?,  ZDNet,  Mar.  19,  2001,  at  http://  www.  zdnet.  com/  filters/  printerfriendly/  0,6061,  2697806-
 2,00.  html;  Streaming  Media  Poised  for  Big  Growth,  Speakers  Say,  Comm.  Daily,  June  21,  2001,  at  5-  6.
 301  See  2000  Report,  16  FCC  Rcd  at  6054.
 302  See    44  supra.  See  also  Second  Inquiry  Concerning  the  Deployment  of  Advanced  Telecommunications
 Capability  Pursuant  to  Section  706  of  the  Telecommunications  Act  of  1996,  CC  Docket  No.  98-  146,  Second  Report,
 15  FCC  Rcd  20913,  21053-  7  (2000).
 303  See  2000  Report,  16  FCC  Rcd  at  6055-  6.
 304  Id.  at  6056.
 305  JumpTV.  com  Pullout  Doesnt  End  Debate  on  Streaming  TV  Copyright,  Comm.  Daily,  Oct.  15,  2001,  at  3-  4.
 306  Id.
 307  Mass  Media,  Comm.  Daily,  Aug.  28,  2001,  at  6;  Sally  Beatty,  Cable  Operator  Drops  ESPNews,  Escalating
 Dispute  Over  Video  Streaming,  Wall  Street  Journal,  July  2,  2001,  at  B22;  John  Higgins,  ESPNews  Going  Dark  on
 Charter,  Broadcasting  Cable  Online,  July  2,  2001,  at  http://  www.  tvinsite.  com/  broadcasti  print_  page&  doc_  id=  3
 4049&  articleID=;  Laura  Rich,  Kicking  and  Streaming,  The  Industry  Standard  Online,  June  11,  2001,  at
 http://  www.  thestandard  02,  26836,00.html?  printer_  friendly=;  ESPN-  Charter  Dispute  Shows  Cable  Fears  of  Video
 Streaming,  Comm.  Daily,  July  5,  2001,  at  2.
 308  Id.
 309  Id.
 310  RealNetworks  Fuses  Programs  into  Service,  Reuters,  Sept.  23,  2001,  at  http://  news.  cnet.  com/  news/  0-  1005-  200-
 7277594.  html;  RealNetworks  Melds  Audio,  Video  Platforms,  InternetNews.  com,  Sept.  24,  2001,  at  http://  www.
 internetnews.  com/  streaming-  news/  article  /0,,  861_  889  881,00.  html.
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 estimates  that  RealNetworks  RealPlayer  has  more  than  24.4  million  users.  311  The  amount  of  video
 programming  content  on  the  Internet  also  continues  to  grow.  312  In  addition,  traditional  television
 programmers  are  offering  Internet  video  versions  of  their  broadcast  or  cablecast  programming  or
 supplemental  webcast  programming.  For  example,  RealNetworks  and  the  NBA  teamed  up  in  April  2001
 to  offer  a  webcast  of  the  Dallas  Mavericks  versus  the  Sacramento  Kings  basketball  game  in  what  they  say
 was  the  first  live  video  webcast  of  a  professional  sports  league  game.  313  Video-  on-  demand  provider
 Intertainer  and  DSL  provider  ZoomTown.  com  say  they  will  stream  Hollywood  movies  and  other
 entertainment  content  to  ZoomTowns  DSL  subscribers  through  a  video-  on-  demand  service  system.  314
 MTV  plans  to  launch  a  channel  designed  specifically  for  access  via  the  Internet.  315  The  channel  will  be
 called  MTV  Live,  and  will  draw  heavily  from  its  library  of  live  performances  by  various  acts.  316
 Partnerships  and  marketing  agreements  between  Web  sites  and  traditional  programming  providers  also
 continue.  In  August  2001,  five  movie  studios  announced  a  joint  venture  to  distribute  movies  on-  demand
 over  the  Internet.  317
 93.  Technological  firms  and  services  also  continue  to  facilitate  streaming  video  and  address  its
 weaknesses.  Aerocast,  Inc.,  is  creating  methods  to  deliver  high-  speed  streaming  video  content  at  more
 than  500  kbps  with  its  long  term  goal  to  stream  video  directly  to  a  television  set  or  receiver  via  a
 broadband  cable  provider.  318  Arbitron  and  Lariat  continue  to  measure  and  report  the  viewership  of
 streaming  video.  319  In  addition,  The  Media  Channel  continues  to  catalogue  and  list  available  Internet
 video  programming.  320
 94.  Finally,  many  in  the  industry  have  been  pushing  for  Internet  video  standards.  In  December
 2000,  Apple,  Cisco,  Kasenna,  Inc.,  Philips,  Sun  Microsystems,  and  other  companies  launched  the  Internet
 311  Id.
 312  http://  www.  breaktv.  com;  http://  www.  feedroom.  com;  http://  www.  intv.  net;  http://  www.  television.  com;  http://
 www.  broadcast.  com;  http://  www.  tvtaxi.  com;  http://  www.  tvworldwide.  com.
 313  Gwendolyn  Mariano,  RealNetworks  to  Play  NBA  Live,  CNET  News.  com,  Apr.  9,  2001,  at  http://  news.  cnet.  com/
 news/  0-  1005-  202-  5550801.html;  Richard  Alm,  Mavericks  to  Get  First  Shot  at  Web  Broadcast,  Dallas  News.  com,
 Apr.  20,  2001,  at  http://  www.  dallasnews.  com/  technology/  334785_  MavsKings_  10bu.  html.
 314  Gwendolyn  Mariano,  Intertainer  Turns  on  Streaming  in  Cincinnati,  CNET  News.  com,  Mar.  29,  2001,  at
 http://  news.  cnet.  com/  news/  0-  1005-  202-  5381234.  html.
 315  Steve  Gold,  MTV  Europe  to  Launch  its  First  Broadband  Channel,  NewsBytes,  Aug.  15,  2001,  at
 http://  www.  newsbytes.  com/  cgi-  bin/  u  lient.  id=  newsbytes&  story.  id=  169-  61.
 316  Steve  Gold,  MTV  Europe  to  Launch  its  First  Broadband  Channel,  NewsBytes,  Aug.  15,  2001,  at
 http://  www.  newsbytes.  com/  cgi-  bin/  u  lient.  id=  newsbytes&  story.  id=  169-  61.
 317  The  five  movie  studios  are  MGM,  Paramount,  Sony  Pictures,  Universal,  and  Warner.  Disney  is  independently
 pursuing  its  own  video-  on-  demand  service.  Bruce  Orwall,  Five  Studios  Join  Venture  for  Video  on  Demand,  Wall
 Street  Journal,  Aug.  17,  2001,  at  A3;  Rick  Lyman,  Hollywood  Moves  to  Rent  Movies  Online,  New  York  Times,
 Aug.  17,  2001;  Alec  Klein,  Five  Studios  to  Offer  Films  Online,  Washington  Post,  Aug.  17,  2001,  at  E01;  Clearband
 Says  Movie  Studio  Project  Threatens  Cable,  Comm.  Daily,  Aug.  21,  2001,  at  3.
 318  Ann  Donahue,  Aerocast  Goes  Full  Speed  Ahead,  Video  Business  Online,  Aug.  14,  2001,  at  http://  www.
 videobusiness.  com/  news/  081401_  aerocast_  streaming_  video.  asp.
 319  See  http://  www.  lariat.  com;  http://  internet.  arbitron.  com/  webcast_  index.  htm.
 320  See  http://  www.  mediachannel.  com/  info.  htm.
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 Streaming  Media  Alliance  (  ISMA)  to  accelerate  the  market  adoption  of  open  standards  for  streaming
 media  over  IP.  321
 2.  Home  Video  Sales  and  Rentals
 95.  We  consider  the  sale  and  rental  of  home  video,  including  videocassettes,  DVDs,  and  laser
 discs,  part  of  the  video  marketplace  because  they  provide  services  similar  to  the  premium  and  pay-  per-view
 offerings  of  MVPDs.  322  The  home  video  industry  views  cable  television,  direct  broadcast  satellite
 services,  and  broadcast  television  as  its  competition.  323  It  also  expects  that  near  video  on  demand  and
 video  on  demand  services  offered  by  MVPDs,  now  principally  offered  on  a  test  basis,  and  streaming
 video  over  the  Internet  will  provide  additional  competition  in  the  near  future.  324  Moreover,  digital
 compression  technologies,  which  enable  cable  operators,  DBS  providers,  and  others  to  transmit  a  greater
 number  of  movies  to  consumers  at  more  frequent  intervals,  could  provide  additional  competition  to  home
 video  retailers.  325
 96.  Approximately  93  million  U.  S.  households,  or  about  90  percent  of  all  households,  have  at
 least  one  VCR,  with  nearly  46  million  households  owning  at  least  two  VCRs.  326  By  the  end  of  2000,  the
 number  of  homes  with  DVD  players  reached  approximately  14.5  million,  and  it  is  estimated  that  25
 million  homes  will  have  DVDs  by  the  end  of  2001.  327  In  addition,  about  two  million  homes  have  laser
 disc  players.  328  U.  S.  consumers  spent  approximately  $19.04  billion  renting  and  buying  prerecorded  video
 321  John  Townley,  Streaming  Media  Alliance  to  Accelerate  Open  Standards,  InternetNews.  com,  Dec.  12,  2000,  at
 http://  www.  internetnews.  com/  streaming-  news/  article/  0,,  8161_  532681,  00.  html;  Paul  Festa,  New  Streaming
 Standards  Effort  Missing  Market  Leaders,  CNET  News.  com,  Dec.  15,  2000,  at  http://  news.  cnet.  com/  news/  0-  1005-  2
 02-  4157183.html.
 322  See,  e.  g.,  Competition,  Rate  Deregulation  and  the  Commissions  Policies  Relating  to  the  Provision  of  Cable
 Television  Service,  MM  Docket  No.  89-  600,  Report,  5  FCC  Rcd  4962,  5019-  20  (1990);  1995  Report,  11  FCC  Rcd  at
 2118-  9;  1998  Report,  13  FCC  Rcd  at  24350.
 323  See  Viacom  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000  (  Viacom  10-  K);  Hollywood
 Entertainment  Corp.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000  (  Hollywood  Entertainment  10-  K);
 Blockbuster  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2000  (  Blockbuster  10-  K).  In  September
 2000,  Blockbuster  began  selling  DirecTV  equipment  and  programming  packages  and,  in  2001,  it  introduced  a  co-branded
 pay-  per-  view  service  with  DirecTV,  Blockbuster  Ticket,  that  can  be  ordered  over  the  telephone  or  Internet.
 See  DirecTV  and  Blockbuster  at  http://  www.  directv.  com  and  http://  www.  blockbuster.  com,  respectively.
 324  Annual  Report  on  the  Home  Entertainment  Industry  2001,  Video  Software  Dealers  Association  (  VSDA
 Report),  at  25-  26;  Hollywood  Entertainment  10-  K;  Viacom  10-  K;  Blockbuster  10-  K.
 325  Hollywood  Entertainment  10-  K,  Viacom  10-  K;  VSDA  Report  at  26.
 326  VSDA  Report  at  6,  26.  Other  sources  provide  alternative  estimates  of  VCR  penetration  ranging  between
 approximately  87  percent  to  over  93  percent  of  all  television  households.  See,  e.  g.,  Hollywood  Entertainment  10-  K
 citing  Adams  Media  Research  statistics;  Veronis  Suhler,  Communications  Industry  Forecast,  July  2001,  at  191.
 327  VSDA  Report  at  6,  18.  Hollywood  Entertainment  citing  the  DVD  Entertainment  Group  estimates  a  27  percent
 penetration  for  DVDs  by  the  end  of  2001.  The  number  of  DVD  households  is  expected  to  grow  significantly  as
 DVD  player  prices  continue  to  decline.  VSDA  at  6.  The  average  DVD  player  now  sells  for  $193,  down  from  an
 average  price  of  $298  in  1999,  and  compared  to  the  average  VCR  price  of  $73.  Christopher  Stern,  Blockbuster
 Switching  Focus  to  DVDs,  Washington  Post,  Sept.  11,  2001,  at  E1,  12.
 328  Tom  Shales,  Shall  We  Dance?  With  DVD,  Indeed,  Washington  Post,  June  2,  1999,  at  C1.
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 in  2000,  almost  a  10  percent  increase  over  the  $17.36  billion  we  reported  last  year.  329  Total  rental  revenue
 was  $8.25  billion  in  2000,  compared  to  $8.07  billion  in  1999,  an  increase  of  2.2  percent.  330  Total  revenue
 from  video  sales  increased  to  $10.79  billion  in  2000,  up  from  $9.24  billion  in  1999,  an  increase  of  17
 percent.  331  In  the  last  year,  DVDs  have  doubled  their  share  of  both  the  rental  and  sales  markets,
 accounting  for  6.9  percent  of  all  rental  revenue  and  16  percent  of  sales  revenues.  332  The  video  retail
 industry  is  the  largest  source  of  revenue  for  movie  studios,  generating  approximately  half  of  their
 revenues  in  2000.  333  In  this  regard,  we  note  that,  since  1997,  the  largest  video  chains  and  several  movie
 studios  have  shared  rental  revenues.  334
 97.  The  video  retail  industry  is  considered  competitive,  with  about  19,  800  video  specialty  stores
 selling  or  renting  home  video  programming.  335  There  also  are  more  than  8,000  retail  outlets,  primarily
 supermarkets  and  drug  stores,  that  rent  videos.  336  Mass  merchandise  stores  (e.  g.,  Wal-  Mart  and  Target)
 and  electronics  chain  stores  (e.  g.,  Best  Buy  and  Circuit  City)  compete  with  specialty  video  stores  in  the
 sale  of  videos.  337  In  recent  years,  the  home  video  industry  has  undergone  a  period  of  consolidation,  with
 many  independent  operators  selling  to  larger  concerns  or  closing  their  businesses.  338  The  Internet  also  has
 become  a  source  for  video  rentals  339  and  sales.  340
 329  VSDA  Report  at  12,  16;  2000  Report,  16  FCC  Rcd  at  6057-  8.
 330  VSDA  Report  at  12.
 331  Id.  at  16.
 332  Id.  at  12,  16.  Retailers,  both  video  specialty  stores  and  others,  are  allotting  increasing  amounts  of  shelf  space  to
 DVDs.  VSDA  Report  at  16-  18;  Christopher  Stern,  Blockbuster  Switching  Focus  to  DVDs,  Washington  Post,  Sept.
 11,  2001,  at  E1,  12.
 333  See,  e.  g.,  Hollywood  Entertainment  10-  K  citing  Adams  Media  Research  statistics  (the  movie  studios  2000  home
 video  revenues  of  $9.5  billion  represented  54.8  percent  of  their  $17.4  billion  domestic  revenue),  Blockbuster  10-  K
 citing  Paul  Kagan  Associates  statistics  (the  movie  studios  2000  home  video  revenues  of  $7.9  billion  represents  44.3
 percent  of  their  $17.8  billion  domestic  revenue).
 334  VSDA  Report  at  13-  14;  2000  Report,  16  FCC  Rcd  at  6058.
 335  See,  e.  g.,  VSDA  Report  at  8;  Viacom  10-  K.
 336  Id.
 337  VSDA  Report  at  8-  10.  Videos  also  can  be  borrowed  from  public  libraries.  Blockbuster  10-  K;  Hollywood
 Entertainment  10-  K;  Viacom  10-  K.
 338  For  example,  video  superstores  (e.  g.,  Blockbuster,  Hollywood)  have  a  58.  9  percent  share  of  the  video  rental
 business.  VSDA  Report  at  10.  Etna  comments  that  it  is  difficult  for  small  independent  video  businesses  to  compete
 against  the  large  video  chain  stores  because  of  their  revenue  sharing  agreements  with  the  movie  studios.  Etna
 Comment  at  1-  2.
 339  For  example,  for  a  monthly  fee  of  $19.95,  Netflix  allows  consumers  to  rent  DVDs  from  its  Internet  site  with  the
 movies  sent  to  the  consumer  and  returned  to  the  company  through  the  mail.  See  http://  www.  netflix.  com.  In
 addition,  consumers  in  several  markets  can  search  Blockbusters  inventory  over  the  Internet  and  reserve  videos
 online  before  going  to  the  store  to  pick  them  up.  See  http://  www.  blockbuster.  com.
 340  For  example,  Best  Buy  and  Amazon.  com  sell  video  programming  through  their  Internet  sites.  See
 http://  www.  bestbuy.  com  and  http://  www.  amazon.  com.  Express.  com  is  limited  to  the  sales  of  DVDs.  See
 http://  www.  express.  com.  Previously,  Blockbuster  and  Hollywood  Entertainment,  using  its  reel.  com  web  site,  sold
 video  programming  over  the  Internet.  However,  both  companies  now  are  withdrawing  from  e-  commerce  and
 (continued.)
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 98.  Another  home  video  technology  is  the  personal  video  recorder  (  PVR).  341  One  source
 reports  that  500,  000  PVRs  have  been  sold  since  this  technology  was  introduced  two  years  ago.  342
 Currently,  there  are  three  companies  offering  PVRs,  Replay  TV  Inc.,  TiVo,  Inc.,  and  Microsoft.  Last
 year,  we  reported  that  ReplayTV  would  no  longer  sell  PVRs  directly  to  consumers,  but  would  focus  on
 licensing  its  technology  to  cable  and  other  television-  oriented  companies.  343  In  August  2001,  Sonicblue
 acquired  ReplayTV,  and  announced  that  it  again  would  sell  PVRs  over  the  Internet  and  at  select  retail
 outlets.  344  TiVo  is  offered  on  a  subscription  basis  for  approximately  $10  a  month.  345  About  20  percent  of
 its  reported  200,000  subscribers  receive  the  service  through  DirecTV  using  a  set-  top  box  that  combines
 DBS  and  PVR  functions.  346  Recently  introduced,  Microsofts  UltimateTV  is  only  offered  by  DirecTV,
 also  for  a  monthly  fee  of  approximately  $10.  Its  combined  DBS/  PVR  receiver  features  dual  tuners  that
 allow  viewers  to  watch  and  record  two  live  programs  at  the  same  time,  or  to  surf  the  Internet  while
 watching  television.  347  In  addition,  EchoStar  offers  set-  top  boxes,  the  DISHPlayer  and  the  DishPVR,  with
 PVR  capabilities.  348
 G.  Local  Exchange  Carriers
 99.  The  1996  Act  amended  Section  651  of  the  Communications  Act  in  order  to  permit  telephone
 companies  to  provide  video  services  in  their  telephone  service  areas.  According  to  the  statute,  common
 carriers  may:  (1)  provide  video  programming  to  subscribers  through  radio  communications  under  Title
 III  of  the  Communications  Act;  349  (2)  provide  transmission  of  video  programming  on  a  common  carrier
 basis  under  Title  II  of  the  Communications  Act;  350  (3)  provide  video  programming  as  a  cable  system
 (  continued  from  previous  page)
 focusing  on  providing  entertainment  news  and  information  on  their  sites.  See  http://  www.  blockbuster.  com  and
 http://  www.  reel.  com.  See  also  2000  Report,  16  FCC  Rcd  at  6058-  9.
 341  See  2000  Report,  16  FCC  Rcd  at  6059-  69.  See  also  1999  Report,  15  FCC  Rcd  at  1035.
 342  See  Michael  Grotticelli,  Reviving  ReplayTV,  Broadcasting  &  Cable,  Sept.  10,  2001,  at  32.
 343  2000  Report,  16  FCC  Rcd  at  6059-  60.
 344  Natalie  Weinstein,  Sonicblue  Completes  ReplayTV  Acquisition,  CNET  News.  com,  Aug.  2,  2001,  at
 http://  news.  cnet.  com/  newx/  0-  1006-  200-  6762533.  html;  Khanh  T.  L.  Tran,  TiVo,  Sonicblue  Still  See  the  Bright  Side,
 Wall  Street  Journal,  Aug.  31,  2001,  at  B3.  Sonicblue  also  plans  to  provide  Ethernet  capabilities  in  order  to  offer  a
 subscription  service  for  niche  programming.  Michael  Grotticelli,  Reviving  ReplayTV,  Broadcasting  &  Cable,  Sept.
 10,  2001,  at  32.
 345  http://  www.  tivo.  com;  Walter  S.  Mossberg,  Personal  Technology,  SuperSet-  Top  Boxes  Put  Viewers  in  Charge,
 Change  TV  Habits,  Wall  Street  Journal,  Feb.  22,  2001,  at  B1.  See  also  1999  Report,  15  FCC  Rcd  at  1035.
 346  TiVo  Reports  Subscriber  Increases,  Lower  Losses,  Satellite  Business  News  Fax  Update,  May  30,  2001,  at  2;
 http://  www.  directv.  com.
 347  See  http://  www.  directv.  com;  http://  www.  utimatetv.  com.
 348  http://  www.  dishnetwork.  com/  content/  products/  receivers/  index.  shtml.
 349  47  U.  S.  C.    571(  a)(  1).
 350  47  U.  S.  C.    571(  a)(  2).
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 under  Title  VI  of  the  Communications  Act;  351  or  (4)  provide  video  programming  by  means  of  an  open
 video  system  ("  OVS").  352
 100.  ILECs  have  largely  exited  the  video  business.  353  The  exceptions  to  this  trend  are
 BellSouth,  which,  in  addition  to  reselling  DBS  service,  continues  to  operate  some  overbuild  cable
 systems,  and  a  number  of  smaller  LECs  that  are  offering,  or  preparing  to  offer,  MVPD  service  over
 existing  telephone  lines.
 101.  MMDS.  As  previously  reported,  GTE  (now  Verizon)  operated  a  digital  MMDS  system
 in  Oahu,  Hawaii,  354  but  has  since  sold  it  to  Craig  Wireless  Honolulu,  Inc.  355  BellSouth  completed  its
 restructuring  of  its  MMDS  business  by  transitioning  its  MMDS  customers  to  EchoStar  or  other  video
 providers.  356
 102.  In-  Region  Cable  Franchises.  At  one  point,  Ameritech,  now  owned  by  SBC,  was  the
 most  significant  LEC  provider  of  in-  region  cable  service.  357  SBC  sold  the  systems  to  WideOpenWest  in
 May  of  this  year.  358  BellSouth  currently  holds  20  cable  franchises  with  the  potential  to  pass  1.  4  million
 homes,  and  provides  cable  service  in  14  of  its  franchise  areas.  359  We  previously  reported  that  GTE
 operated  competitive  cable  franchises  in  Ventura  County,  California,  and  St.  Petersburg  and  Clearwater,
 Florida,  and  non-  competitive  franchise  in  Cerritos,  California.  360  Verizon,  however,  reportedly  is  seeking
 to  sell  these  assets.  361  SNET,  now  also  owned  by  SBC  Communications,  at  one  point  held  a  statewide
 cable  franchise  in  Connecticut  and  offered  service  to  30,000  subscribers  in  29  localities.  362  Subsequently,
 SNET  filed  with  the  State  of  Connecticuts  Department  of  Public  Utility  Control  (  DPUC)  for
 permission  to  discontinue  cable  television  service  in  Connecticut  and  to  transition  its  subscribers  to
 351  47  U.  S.  C.    571(  a)(  3).
 352  47  U.  S.  C.    571(  a)(  3)-(  4).
 353  1998  Report,  13  FCC  Rcd  at  24331-  2;  2000  Report,  16  FCC  Rcd  at  6061.
 354  1998  Report,  13  FCC  Rcd  at  24534.
 355  Federal  Communications  Commission,  Mass  Media  Bureau,  Instructional  Television  Fixed  Wireless  Service,
 Multipoint  Distribution  Service  Accepted  for  Filing,  Public  Notice  (Sept.  25,  2001).  See  also  Kristin  Sawada,  Craig
 to  Buy  Americast,  PacificBusinessNews,  June  15,  2001.
 356  See  BellSouth  Corp.,  BellSouth  Updates  Plans  for  Restructuring  its  Video  Entertainment  Service  (press  release),
 Dec.  19,  2000.  See  also  Michael  E.  Kanell,  BellSouth  Pulls  the  Plug  on  Wireless  TV,  Atlanta  Constitution,  May  16,
 2001,  at  D1.
 357  1999  Report,  15  FCC  Rcd  at  1036-  37.
 358  SBC  Sells  Americast  Cable  Overbuild  Systems  To  Wide  Open  West,  Comm.  Daily,  May  25,  2001,  at  2-  3.  We
 discuss  WideOpenWest  in  the  Broadband  Service  Providers  section.
 359  Telephone  interview  with  Karen  B.  Possner,  Vice  President-  Strategic  Policy,  BellSouth  Corporation  (Nov.  13,
 2001).  The  active  franchises  are  located  in:  Vestavia  Hills,  Alabama;  St.  Johns  County,  Dade  County,  Davie,  and
 Pembroke  Pines,  Florida;  Counties  of  Cherokee,  Cobb,  Dekalb,  and  Gwinnett  and  Cities  of  Chamblee,  Duluth,
 Lawrenceville,  Roswell,  and  Woodstock,  Georgia.
 360  1998  Report,  13  FCC  Rcd  at  24355.
 361  Verizon  Trying  to  Unload  GTE  Cable  TV  Assets,  TR  Daily,  July  3,  2000.
 362  2000  Report,  16  FCC  Rcd  at  6062.
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 DirecTV  DBS  Service.  363  The  DPUC  granted  this  permission,  with  conditions  to  ease  the  transition  of
 SNETs  cable  subscribers.  364
 103.  VDSL.  Qwest  Communications  International  (formerly  U  S  West)  offers  video,  high-speed
 Internet  access,  and  telephone  service  over  existing  copper  telephone  lines  using  very  high  speed
 digital  subscriber  line  ("  VDSL")  in  Omaha,  Nebraska,  and  Phoenix,  Arizona.  365  An  increasing  number  of
 small  LECs  are  using  VDSL  to  offer  a  bundle  of  services,  including  multichannel  video,  over  phone  lines.
 Reports  indicate  that  40  to  50  LECs,  mostly  small,  are  using  VDSL  technology  for  this  purpose,  that  they
 have  100,000  video  subscribers,  and  that  more  than  280,000  lines  to  households  are  capable  of  delivering
 VDSL  services.  366  Companies  are  also  deploying,  or  investigating  deploying,  video  over  the  lower
 bandwidth  asymmetric  digital  subscriber  line  service  (  ADSL).  Because  of  the  lower  capacity,  video
 over  ADSL  involves  an  IP-  based  video-  on-  demand  service,  rather  than  full-  fledged  multichannel  video.
 Qwest  has  contracted  with  Intertainer,  Inc.,  to  provide  this  service  in  Seattle,  Washington,  Portland,
 Oregon,  Salt  Lake  City,  Utah,  Denver,  Colorado,  Minneapolis,  Minnesota,  and  Phoenix,  Arizona,  367  and
 Verizon  is  investigating  whether  to  offer  the  service  to  MDUs  in  its  territory.  368  Between  5,000  and
 10,000  households  currently  subscribe  to  ADSL  video-  on-  demand  service.  369
 363  State  of  Connecticut,  Department  of  Public  Utility  Control,  Application  of  Southern  New  England
 Telecommunications  Corporation  and  SNET  Personal  Vision,  Inc.,  To  Relinquish  SNET  Personal  Vision,  Inc.  s
 Certificate  of  Public  Convenience  and  Necessity  (  SNET  Application),  Docket  No.  00-  08-  14,  Mar.  14,  2001.  See
 also  SNET,  SNET  Cable  Unit  Seeks  to  Exit  Cable  TV  Business  (press  release),  Aug.  11,  2000.
 364  See  SNET  Application.
 365  2000  Report,  16  FCC  Rcd  at  6062.  See  also  Matt  Stump,  In  Omaha,  Cox  and  Qwest  Wage  Three-  Way  Contest,
 Broadband  Week,  Oct.  1,  2001.
 366  Roger  Bindl,  Next  Level  Communications,  Video  In  Telephony,  Nov.  9,  2001.  According  to  Next  Level
 Communications,  the  companies  offering  VDSL  include  Qwest  Communications,  Wood  County  Telephone,
 Horizon  Exop,  Tri  County,  All  West,  Hutchinson,  New  Ulm,  XIT  Telecommunications  &  Technology,  Inc.,  Pine
 Island  Telephone,  Washington  County,  Halstad,  NEP,  HTC,  PBT  Communications  &  Paul  Bunyan  Rural  Telephone
 Cooperative,  Craw-  Kan  Telephone  Cooperative,  Clear  Lake  Independent  Telephone,  Yadkin  Valley  Telephone
 Membership  Cooperative,  Outreach,  Hickory  Tech,  Chequamegon  Telephone,  Horry  Telephone  Cooperative,
 Mankato,  North  Star,  Sleepy  Eye,  CTC  Communication  &  Chibardun  Telephone  Cooperative,  Brandenburg  LLP,
 Delhi,  Hansol,  Manti  Telephone  Company,  WH-  Link,  Skyline  Telephone,  Membership,  Sherburne  Tele  Systems,
 Inc.,  Piedmont  Telephone  Membership  Corporation,  Iowa  Network  Services,  Century  Telephone,  En-  Tel
 Communications,  LLC,  and  North-  Eastern  Pennsylvania  Telephone  Co.  E-  mail  from  Roger  Bindl,  Director,
 Engineering  &  Consulting  Companies,  Next  Level  Communications,  Oct.  18,  2001.  Some  of  the  other  small  LECs
 deploying  VDSL  are  Wood  County  Telephone  in  Wood  County,  Wisconsin,  Paul  Bunyan  Telephone  in  Bemidji,
 Minnesota,  Hutchinson  Telephone  Company  in  Hutchinson,  Minnesota,  Hart  Telephone  Company  in  Hartwell,
 Georgia,  and  Horizon  Chillicothe  Telephone  in  Chillicothe,  Ohio.  Karen  Brown,  Getting  the  Picture?  Telcos
 Struggle  With  Unfocused  Video  Market,  Broadband  Week,  June  4,  2001.
 367  Karen  Brown,  Getting  the  Picture?  Telcos  Struggle  With  Unfocused  Video  Market,  Broadband  Week,  June  4,
 2001.
 368  Richard  Williamson  and  Bill  Scanlon,  DSL  Video  Service  Goes  Condo,  Interactive  Week,  Apr.  15,  2001.
 369  Roger  Bindl,  Next  Level  Communications,  Video  In  Telephony,  Nov.  9,  2001.
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 H.  Electric  and  Gas  Utilities
 104.  Electric  and  gas  utilities  continue  to  move  forward  with  ventures  involving  multichannel
 video  programming  distribution,  but  are  not  yet  major  competitors  in  the  telecommunications  or  cable
 markets.  Some  of  their  characteristics,  however,  such  as  ownership  of  fiber  optic  networks  and  access  to
 public  rights-  of-  way,  could  make  them  competitively  significant.  370  Some  utilities  seek  to  offer
 telecommunications  services  on  their  own,  while  others  partner  with  broadband  service  providers,  such  as
 RCN,  to  offer  service.  It  also  appears  that  some  utilities,  particularly  some  municipal  utilities  in  rural
 areas,  are  willing  to  build  advanced  telecommunications  networks  offering  a  full  range  of  services  where
 incumbent  cable  operators  and  telephone  companies  are  not.  371
 105.  One  of  the  oldest  municipal  utility  overbuilders,  Glasgow  Electric  Plant  Board,  in
 Glasgow,  Kentucky,  bought  the  competing  incumbent  cable  system  from  Comcast  and  plans  to  upgrade
 the  system  to  provide  high-  speed  Internet  service  to  its  customers.  372  Starpower,  a  joint  venture  between
 RCN  and  Potomac  Electric  and  Power  Company  (  PEPCO)  in  the  Washington,  D.  C.,  area  continues  to
 build  out  its  network  and    increase  penetration  in  its  chosen  markets.  373  We  previously  reported  on
 the  activities  of  Seren,  a  wholly  owned  subsidiary  of  Minneapolis-  based  Northern  States  Power,  374  and
 Sigecom,  funded  by  Blackstone  Capital  and  a  joint  venture  of  Southern  Indiana  Gas  and  Electric  and
 Utilicom.  375  RCN,  Seren,  and  Sigecom  offer  voice,  video,  and  high-  speed  Internet  access  services  over
 integrated  networks.  In  addition  to  the  communities  they  were  serving,  or  had  applied  for  franchises  to
 serve  last  year,  Sigecom  received  a  franchise  to  serve  Louisville,  Kentucky,  376  and  Seren  began  service  in
 St.  Joseph,  Minnesota.  377  Finally,  Braintree,  Massachusetts,  granted  a  franchise  to  the  municipal  electric
 utility,  Braintree  Electric  Light  Department,  which  began  offering  cable  service  in  February  2001.  378
 106.  Newer  reports  of  entry  into  the  market  include  Grande  Communications,  a  Texas-  based
 BSP,  which  is  involved  in  a  strategic  partnership  with  Reliant  Energy  and  plans  to  provide  bundled
 services  to  Houston  beginning  in  2002.  379  In  Scottsboro,  Alabama,  the  Electric  Power  Board  began
 offering  cable  television  service  over  a  municipal  system  in  1999  and,  at  one  point,  captured  90  percent  of
 370  See,  e.  g.,  1999  Report,  15  FCC  Rcd  at  1042.
 371  See,  e.  g.,  Gerry  Blackwell,  Wireless  in  the  Wild,  ISP  Planet,  Aug.  16,  2001  and  Dennis  K.  Berman,  Isolated
 County  Gambles  With  Broadband  Network,  Wall  Street  Journal,  Aug.  17,  2001,  at  B1.
 372  Mass  Media,  Comm.  Daily,  Apr.  12,  2001,  at  8.
 373  RCN  Comments  at  5.
 374  1999  Report,  15  FCC  Rcd  at  1042.
 375  2000  Report,  16  FCC  Rcd  at  6065.
 376  Sigecom,  TOTALink  Granted  Competitive  Cable  Television  Franchise  by  Louisville  Board  of  Alderman  (press
 release),  Nov.  14,  2000.
 377  Seren,  Astound  Broadband  to  Begin  Offering  Service  Today  in  the  City  of  St.  Joseph  (press  release),  Aug.  7,
 2001.
 378  Mass  Media,  Comm.  Daily,  Feb.  23,  2001,  at  10.
 379  Joe  Estrella  and  Linda  Haugsted,  Despite  Some  Losses,  Overbuilds  Persist,  Multichannel  News,  June  11,  2001,
 at  56.
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 the  market.  380  Utilicorp  Communications  Services,  which  is  owned  by  a  natural  gas  and  electricity
 distributor,  has  invested  in  two  BSPs  offering  bundled  services,  Everest  Connections  Corporation
 (  Everest)  and  ExOp  of  Missouri,  Inc.  (  ExOp).  381  Everest  offers  service  in  Lenexa,  Kansas,  a  suburb
 of  Kansas  City,  382  ExOp  entered  Kearney,  Missouri,  as  a  CLEC,  but  Utilicorp  acquired  it  and  added
 digital  cable  television  services  using  VDSL  technology.  383  Utilicorp  reports  problems  as  an  entrant  in
 these  markets,  including  difficulties  in  negotiating  franchises,  negotiating  pole  attachment  agreements,
 entering  MDUs,  and  gaining  access  to  equipment  and  programming.  384  Other  communities  with  video
 service  from  their  utility  companies  include  Grant  County,  Washington,  385  Alameda,  California,
 Gainesville,  Florida,  and  Tacoma,  Washington.  386
 I.  Broadband  Service  Providers,  Open  Video  Systems,  and  Overbuilders
 107.  In  this  years  Report,  we  add  a  new  section,  BSPs,  to  recognize  the  growing  importance
 of  providers  that  are  overbuilding  existing  cable  systems  with  state-  of-  the-  art  systems  that  offer  a  bundle
 of  telecommunications  services.  387  Historically,  overbuilding  incumbent  cable  systems  has  been
 economically  difficult.  BSPs  appear  to  be  attempting  to  overcome  the  difficulties  of  overbuilding  by
 taking  advantage  of  regulation  new  to  the  1996  Act  (most  notably  the  open  video  system  rules),  carefully
 selecting  communities  with  favorable  demographics,  such  has  high  population  density,  and  building
 systems  that  are  more  advanced  than  the  incumbent  cable  operators.  Building  advanced  systems  allows
 BSPs  the  ability  to  offer  a  bundle  of  services,  such  as  video,  voice,  and  high-  speed  Internet  access,  which
 may  increase  per  subscriber  revenue  and  decrease  churn.  388
 108.  Even  with  their  selective  strategy,  BSPs  face  considerable  challenges.  Currently,  in
 addition  to  the  difficulties  inherent  in  entering  the  capital-  intensive  MVPD  industry  against  entrenched
 380  See  Scottsboro  Comments  at  5.  Scottsboro  claims  that  the  incumbent  (formerly  Falcon,  now  Charter)  has
 engaged  in  unfair  practices  to  regain  customers.  See  Scottsboro  Comments,  generally.  Charter  disputes  this  claim.
 Charter  Reply  Comments.
 381  Utilicorp  Comments  at  1.
 382  Id.  at  2-  3.
 383  Id.  at  3-  4.  ExOp  serves  48  percent  of  residential  households  and  94  percent  of  business  customers.
 384  Id.  at  4-  8.
 385  Dennis  K.  Berman,  Isolated  County  Gambles  With  Broadband  Network,  Wall  Street  Journal,  Aug.  17,  2001,
 at  B1.
 386  David  Armstrong  and  Dennis  K.  Berman,  Telecom  Companies  Confront  New  Rival:  The  Municipal  Network,
 Wall  Street  Journal,  Aug.  17,  2001,  at  A1.
 387  Broadband  service  provider  is  the  term  used  by  the  class  of  new  entrants  to  describe  the  range  of  service  they
 offer  and  is  not  intended  to  imply  anything  with  respect  to  Commission  policy  or  other  proceeding  that  might
 involve  broadband  services.  Usually,  these  services  can  be  purchased  separately  as  well  as  in  a  bundle.  We  defined
 broadband  providers  in  the  Notice  as,    newer  firms  that  are  building  state-  of-  the-  art  facilities-  based  networks  to
 provide  video,  voice  and  data  services  over  a  single  network.  Notice,  16  FCC  Rcd  at  13342.
 388  RCN  Comments  at  3-  4.
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 competitors,  BSPs  are  facing  difficulties  in  obtaining  capital.  As  a  result,  many  BSPs  have  scaled  back
 plans,  reduced  capital  expenditures,  reduced  staffs,  or  shut  down  operations  altogether.  389
 109.  RCN  is  the  largest  BSP  in  the  country.  We  previously  reported  on  RCNs  activities,  and
 its  operation  of  facilities  in  New  York  City,  Washington,  D.  C.,  Washington,  D.  C.  suburbs,  South  San
 Francisco,  California,  Boston,  Massachusetts,  and  its  suburbs,  Northern  New  Jersey,  and  suburbs  of
 Philadelphia.  390  RCN  reports  that  it  continues  to  build  out  its  network  and  increase  penetration  in  its
 chosen  markets.  391  Between  the  first  quarter  of  2000  and  the  first  quarter  of  2001,  RCNs  revenue
 increased  by  21  percent,  its  number  of  marketable  homes  doubled  to  1.2  million,  homes  passed  doubled  to
 1.455  million,  and  the  route  miles  of  its  network  doubled.  392  RCN  indicates  that  there  has  been
 substantial  growth  in  the  Boston,  New  York,  Philadelphia,  Washington,  D.  C.,  Chicago,  Los  Angeles,
 and  San  Francisco  venues.  393  RCN  reports  a  total  of  443,011  video  subscribers,  although  some  of  these
 are  subscribers  to  incumbent  cable  systems  it  operates.  394
 110.  WideOpenWest  (  WOW)  recently  became  the  second  largest  overbuilder  with  its
 acquisition  of  Ameritech  New  Medias  cable  systems.  395  WOW  was  founded  in  November  1999,  and
 initially  secured  competitive  franchises  in  Denver  and  Fort  Worth,  Colorado,  Tucson,  Arizona,  St.  Louis,
 Missouri,  and  Minneapolis/  St.  Paul,  Minnesota.  396  As  a  result  of  difficulties  in  acquiring  capital,
 however,  WOW  scaled  back  its  plans,  and  now  is  constructing  systems  only  in  selected  metropolitan
 Denver  communities.  397  The  systems  it  is  purchasing  from  Ameritech  are  all  in  the  Midwest,  398  and
 served,  at  last  report,  approximately  300,000  subscribers.  399
 111.  The  third  largest  BSP  is  Knology,  an  overbuilder  based  in  Knoxville,  Tennessee,  which
 operates  in  the  Southeast.  As  of  June  30,  2001,  Knology  was  the  26  th  largest  MVPD  provider  (excluding
 389  Carolina  Comments  at  5;  RCN  Comments  at  7;  see  also  New  Broadband  Players  Retreat  From  Cable,  Telecom
 Markets,  Comm.  Daily,  Apr.  11,  2001,  at  2-  3.
 390  2000  Report,  16  FCC  Rcd  at  6063.  RCN  is  not  building  within  Philadelphia  itself  because  it  was  unable  to  reach
 a  franchise  or  OVS  agreement  with  the  city.  See,  e.  g.,  Mass  Media,  Comm.  Daily,  Feb.  16,  2001,  at  7.
 391  RCN  Comments  at  5.
 392  Id.  at  5-  6.
 393  Id.  at  6.
 394  Id.  at  App.  B.
 395  WOW,  WOW  Acquires  Ameritechs  310,  000  Cable  TV  Subscribers  (press  release),  Dec.  3,  2001,  at
 http://  wideopenwest.  com/  00_  frame_  news.  html.  See  also  WOW  Comments  at  2.  The  Ameritech  systems  are  not
 technically  BSP  systems  because  they  do  not  provide  a  bundle  of  services,  but  they  do  provide  WOW  with
 connections  to  homes.  One  commenter  indicates  that  WOW  will  begin  offering  high-  speed  Internet  access  on  some
 of  these  systems  in  2002.  NCTA  Comments  at  21.
 396  WOW  Reply  Comments  at  4.
 397  Id.  See  also  NCTA  Comments  at  21.  NCTAs  comments  indicate  that  WOW  is  already  operational  in  Denver,
 but  WOWs  comments  do  not  reflect  this.
 398  For  details,  see  1999  Report,  15  FCC  Rcd  at  1036-  7.
 399  See  n.  395  supra.  See  also  NCTA,  Top  25  MSOs,  Ranked  by  Number  of  Subscribers,  Cable  Television
 Developments  2001,  at  17.
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 satellite)  with  110,100  subscribers,  400  and  served  cities  in  Alabama,  Florida,  Georgia,  Tennessee,  and
 South  Carolina.  401  Knology  has  acquired  or  is  building  systems  in  additional  areas  of  Tennessee  and
 Kentucky,  including  Knoxville  and  Nashville.  402
 112.  Grande  Communications  has  franchises  in  more  than  30  Texas  cities,  and  has  launched
 service  in  Austin,  San  Marcos,  and  San  Antonio,  Texas.  403  Western  Integrated  Networks  (  WIN)
 recently  received  a  franchise  to  build  a  system  to  serve  1.4  million  households  in  Los  Angeles.  404  WIN
 has  franchise  applications  pending  in  Seattle,  Washington;  Portland,  Oregon;  San  Francisco  and  Oakland,
 California;  Las  Vegas,  Nevada;  Phoenix,  Arizona;  and  San  Antonio,  Austin,  Dallas,  and  Houston,
 Texas.  405  Altrio  Communications  secured  $125  million  in  an  initial  round  of  financing  and  seeking
 franchises  serving  Los  Angeles  and  surrounding  communities.  406  Finally,  Carolina  Broadband  has  plans
 to  serve  Charlotte,  Raleigh/  Durham,  and  Winston-  Salem/  Greensboro,  North  Carolina,  and  Columbia  and
 Greenville/  Spartanburg,  South  Carolina.  407
 113.  OVS.  Several  BSPs,  including  some  that  are  CLECs,  operate  open  video  systems,  hold
 OVS  certifications,  or  hold  local  OVS  franchises.  408  RCN  is  by  far  the  largest  OVS  operator  in  the
 country  (and  the  only  operational  one),  both  in  terms  of  certifications  and  in  number  of  subscribers.  RCN
 operates  open  video  systems  in  the  five  boroughs  of  New  York  City,  in  Washington,  D.  C.,  and  in  a  few
 small  communities  around  Boston.  409  RCN  reports  that  speed  to  market  is  crucial  for  it,  so  that  RCN  will
 adopt  the  regulatory  approach  (OVS  agreement,  OVS  franchise,  or  Title  VI  franchise)  most  amenable  to
 400  Paul  Kagan  Assoc.,  Inc.,  Top  Cable  System  Operators  as  Of  6/  30/  01  (By  Basic  Subs),  Cable  TV  Investor,  Aug.
 29,  2001,  at  12.
 401  Knology,  Inc.,  at  http://  www.  knology.  com/  cities/  index.  cfm.  According  to  its  Web  site,  Knology  serves  Gunter
 Air  Force  Base,  Harvest,  Huntsville,  Lanett,  Madison,  Maxwell  Air  Force  Base,  Montgomery,  Pike  Road,  Prattville,
 Redstone  Arsenal,  and  Valley,  Alabama;  Lynn  Haven,  Panama  City,  and  Panama  City  Beach,  Florida;  Augusta,
 Columbus,  Evans,  Forest  Hills,  Grovetown,  Martinez,  Midland,  and  West  Point,  Georgia;  Knoxville,  Tennessee;  and
 Charleston,  Ladson,  Mount  Pleasant,  North  Charleston,  and  Summerville,  South  Carolina.
 402  Id.
 403  Grande  Communications,  Inc.,  About  Grande,  at  http://  www.  grandecomm.  com/  About/  GRD_  Milestones.  pdf.  See
 also  NCTA  Comments  at  23.  See    106  infra  for  information  on  Grandes  partnership  with  Reliant  Energy  to
 provide  service  to  Houston.  The  Commission  has  pending  effective  competition  petitions  before  it  regarding
 Grande  Communications  activities  in  Austin  and  San  Antonio.  See  CSR  5701-  E  and  CSR  5721-  E.
 404  Sallie  Hofmeister,  L.  A.  Council  OKs  Cable  Competition,  Los  Angeles  Times,  July  25,  2001.  WIN  plans  to  begin
 construction  sometime  during  2001,  and  begin  service  12  to  18  months  after  the  start  of  construction.  In  the
 franchise  agreement,  WIN  committed  to  completing  construction  in  one  franchise  area  by  2005  (Los  Angeles  is
 divided  into  many  franchise  areas),  and  to  complete  half  the  system  construction  by  2007.
 405  NCTA  Comments  at  22.
 406  Altrio  Communications,  Altrio  Communications  Enters  the  Los  Angeles  Telecommunications  Market  (press
 release),  Oct.  25,  2000.  See  also  NCTA  Comments  at  22.
 407  Carolina  Comments  at  1.
 408  For  a  complete  listing  of  approved,  pending,  and  denied  applications  for  OVS  certification,  see
 http://  www.  fcc.  gov/  csb/  csovscer.  html.
 409  Telephone  interview  with  Scott  Burnside,  Senior  Vice  President,  Regulatory  &  Government  Affairs,  RCN  (Nov.
 15,  2001).
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 the  local  franchising  authorities.  410  RCN  also  reports  that  it  has  received  numerous  expressions  of
 interest  from  potential  video  programming  packagers,  but  none  has  signed  up  yet  for  service.  411
 114.  Barriers  to  Competition.  Several  BSPs  filed  comments  in  this  proceeding  reporting
 barriers  to  competition  in  the  MVPD  market.  RCN  reports  that  it  still  is  unable  to  gain  access  to
 programming  due  to  migration  to  terrestrial  delivery.  In  particular,  RCN  states  that  it  cannot  access  local
 sports  programming  in  the  New  York  City  and  Philadelphia  markets.  412  RCN  believes  that  the  cable
 industry,  recognizing  the  essential  nature  of  local  sports  programming  for  MVPD  entrants,  has
   adopted  ownership  or  control  of  local  sports  programming  as  a  device  to  capture  or  assure  dominance
 in  local  markets.  413  RCN  further  indicates  that  the  program  access  prohibition  on  exclusivity  is
 absolutely  vital  for  the  future  of  competition.  414
 115.  BSPs  also  noted  problems  in  delivering  programming  to  subscribers.  First,  BSPs  indicate
 that  they  are  having  problems  gaining  access  to  utility  poles  so  that  they  can  build  out  their  systems.  415
 Second,  BSPs  are  having  difficulty  offering  service  to  MDUs,  especially  in  cases  where  cable  operators
 have  exclusive  contracts  with  MDUs.  416  WOW  reports  difficulties  in  obtaining  franchises  due  to
 opposition  from  incumbent  providers.  417  WOW  also  alleges  that  incumbent  cable  operators  engage  in
 predatory  pricing  and  marketing  discrimination  practices.  418  RCN  believes  that    clustering  of  cable
 ownership  is  driven  principally  by  the  desire  to  reinforce  dominance  in  a  particular  market.  419  Finally,
 Carolina  indicates  that,  if  the  Commission  does  not  act  to  remove  these  barriers  to  competition,  BSPs  will
 be  unable  to  gain  access  to  capital  and  thus  compete  against  incumbent  cable  operators.  420
 III.  MARKET  STRUCTURE  AND  CONDITIONS  AFFECTING  COMPETITION
 A.  Horizontal  Issues  in  the  Market  for  the  Delivery  of  Video  Programming
 116.  The  video  programming  market  is  comprised  of  two  separate  but  related  markets:  (a)  the
 market  for  the  distribution  of  multichannel  video  programming  to  households,  and  (b)  the  market  for  the
 410  RCN  Comments  at  23.
 411  Id.  at  24.
 412  Id.  at  9-  12.
 413  Id.  at  12.
 414  Id.  at  13-  16.  RCN  urges  the  Commission  to  establish,  either  in  place  of  or  in  addition  to  the  regular  review  of  the
 exclusivity  prohibition,  some  sort  of  industry  forum  on  the  issue.  See  also  Carolina  Comments  at  10-  12;  WOW
 Reply  Comments  at  7-  10.  In  opposition,  cable  industry  comments  indicate  that  the  exclusivity  prohibition  should  be
 allowed  to  sunset  on  schedule  because  competition  is  well-  established,  and  because  exclusivity  contracts    can
 serve  as  a  spur  to  investment,  creativity,  and  responsiveness  to  emerging  audience  wishes.  Comcast  Reply
 Comments  at  17-  22.  See  also  Cablevision  Reply  Comments  at  6-  7;  NCTA  Comments  at  34-  39.
 415  RCN  Comments  at  16-  20;  Carolina  Comments  at  6-  7.
 416  RCN  Comments  at  21.
 417  WOW  Reply  Comments  at  6-  7.  See  also  RCN  Comments  at  22-  23.
 418  WOW  Reply  Comments  at  10-  12.
 419  RCN  Comments  at  24-  25.
 420  Carolina  Comments  at  5.
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 purchase  of  video  programming  by  MVPDs.  For  purposes  of  assessing  the  impact  of  horizontal
 concentration,  it  is  appropriate  to  examine  both  the  national  programming  market  and  the  local
 distribution  market  because  cable  operators  generally  acquire  programming  on  the  national  level  and
 distribute  it  on  the  local  level  through  their  locally  franchised  systems.  421  In  the  distribution  market,  the
 buyers  are  individual  households  as  well  as  families  living  in  MDUs,  and  the  sellers  are  MVPDs,
 including  cable  operators  and  other  video  service  providers  such  as  DBS  providers.  In  the  market  for  the
 purchase  of  video  programming,  the  buyers  are  MVPDs,  and  the  sellers  are  programming  networks,
 studios  and  programming  packagers.  422
 117.  In  this  section,  we  first  review  changes  in  the  market  for  the  distribution  of  video
 programming,  including  changes  in  the  level  of  competition  in  that  market  between  July  2000  and  June
 2001.  In  our  discussion  of  competition  in  the  distribution  of  video  programming  to  households,  we  also
 examine  developments  unique  to  MDUs,  a  significant  sub-  set  of  the  market.  We  then  review  the  market
 for  the  purchase  of  video  programming  by  MVPDs,  and  examine  the  effects  that  changes  in  concentration
 among  MVPDs  at  the  regional  and  national  levels  have  had  on  this  market  in  the  last  year.
 1.  Competitive  Issues  in  the  Market  for  the  Distribution  of  Video  Programming
 118.  The  market  for  the  delivery  of  video  programming  to  households  continues  to  be  highly
 concentrated  and  characterized  by  substantial  barriers  to  entry.  423  These  barriers  may  include:  (a)
 strategic  behavior  by  an  incumbent  designed  to  raise  its  rivals  costs,  e.  g.,  limiting  the  availability  to
 rivals  of  certain  popular  programming  as  well  as  equipment;  (b)  local  and  state  level  regulations,  e.  g.,
 causing  new  entrants  to  incur  a  delay  in  gaining  access  to  local  public  rights-  of-  way  facilities;  and  (c)
 technological  limitations,  e.  g.,  DBS  and  MMDS  line-  of-  sight  problems.  424
 119.  While  competitive  satellite  alternatives  to  the  incumbent  wireline  MVPDs  are  developing
 and  attracting  an  increasing  proportion  of  MVPD  subscribers,  most  consumers  have  limited  choices
 among  video  distributors.  A  relatively  small  percentage  of  consumers  have  a  second  wireline  alternative,
 such  as  an  OVS  or  overbuild  cable  system.  Among  the  several  wireless  technologies  used  to  provide
 video  programming  service,  DBS  is  the  only  wireless  technology  currently  available  to  a  majority  of
 subscribers  nationwide.  Thus,  homes  are  generally  passed  by  only  one  wireline  cable  operator  and  the
 two  major  DBS  providers,  DirecTV  and  EchoStar.  On  October  28,  2001,  General  Motors  Corp.  and  its
 subsidiary  Hughes  Electronics  (DirecTV)  together  with  EchoStar  announced  the  signing  of  definitive
 agreements  that  provide  for  the  spin-  off  of  Hughes  from  GM  and  the  merger  of  Hughes  with  EchoStar.  425
 421  See  Implementation  of  Section  11(  c)  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,
 Horizontal  Ownership  Limits,  MM  Docket  No.  92-  264,  Memorandum  Opinion  and  Order  on  Reconsideration  and
 Further  Notice  of  Proposed  Rulemaking,  13  FCC  Rcd  at  14477  (1998).
 422  See  1997  Report,  13  FCC  Rcd  at  1107-  8  for  a  description  of  the  relevant  market.
 423  See  Carolina  Comments  at  4-  9,  13;  RCN  Comments  at  16-  21,  24-  25.
 424  See  Carolina  Comments  at  5-  12;  RCN  Comments  at  9-  23;  Utilicorp,  Comments  at  4-  8.  See  also  1994  Report,  9
 FCC  Rcd  at  7550-  56  for  a  description  of  impediments  to  competition.
 425  See  Hughes,  GMs  Hughes  Electronics  to  Merge  with  EchoStar  Communications  (press  release),  Oct.  28,  2001,
 at  http://  www.  hughes.  com/  ir/  pr.
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 Federal  Communications  Commission  FCC  01-  389
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 This  transaction  is  currently  pending  before  the  Commission  and  the  United  States  Department  of
 Justice.  426
 120.  Of  the  33,000  cable  community  units  nationwide,  419,  or  approximately  one  percent  have
 been  certified  by  the  Commission  as  having  effective  competition  as  a  result  of  consumers  having  a
 choice  of  more  than  one  MVPD.  As  we  show  in  the  Competitive  Response  section  below,  incumbent
 operators  are  most  likely  to  respond  to  competition  by  reducing  their  monthly  charge  for  cable
 programming  services  and  equipment,  by  offering  additional  channels,  or  by  offering  Internet  and  other
 telecommunications  services.  427
 121.  Several  wireless  MVPD  technologies,  including  MMDS,  SMATV,  and  DBS,  deliver
 programming  to  individual  households  and  MDUs,  and  provide  consumers  an  alternative  to  incumbent
 cable  systems.  428  While  wireless  technology  in  general  provides  an  alternative  to  some  cable  subscribers,
 SMATV  and  MMDS  may  not  be  able  to  provide  services  similar  to  that  provided  by  an  incumbent  cable
 operator.  For  example,  the  service  area  covered  by  a  SMATV  system  usually  includes  only  a  small
 portion  of  a  cable  systems  franchise  area.  MMDS  systems,  on  other  hand,  often  serve  larger  areas  than
 SMATV  service,  but  offer  fewer  channels  and  require  line-  of-  sight  for  reception.
 122.  The  two  principal  DBS  services  are  presumed  to  be  technically  available  nationwide,
 although  they  may  not  actually  be  available  to  subscribers  in  MDUs  or  in  households  that  are  not  within
 the  line-  of-  sight  of  a  DBS  signal.  429  The  SHVIA,  which  was  enacted  in  1999,  eliminated  the  prohibition
 on  DBS  delivery  of  local  network  signals  into  their  local  television  markets.  Since  then,  DBS  operators
 have  responded  by  offering  local-  into-  local  service  in  many  areas.  For  example,  DirecTV  states  that  it
 currently  offers  local  broadcast  channels  in  41  markets.  430  The  number  of  markets  with  local-  to-  local
 service  provided  by  DirecTV  is  expected  to  increase  after  the  launch  of  its  new  spot  beam  satellite.  431
 NCTA  notes  that  this  launch  together  with  changes  in  the  DBS  operators  sports  programming  line-  up
 and  the  ability  to  offer  Internet  service  are  likely  to  make  DBS  an  even  more  viable  as  a  competitor  to
 cable.  432  DirecTV  claims  that  about  half  of  its  subscribers  were  cable  subscribers  at  the  time  they  first
 subscribed  to  DirecTV,  with  a  majority  of  those  eventually  canceling  their  basic  cable  service.  433
 426  See  n.  186  supra.
 427  We  note  that  for  several  reasons  cable  rates  have  risen  faster  than  inflation.  See    9  supra.
 428  In  November  2000,  the  Commission  concluded  that  MVDDS  can  operate  in  the  12.  2-  12.7  GHz  band  on  a  non-harmful
 interference  basis  with  the  incumbent  broadcasting  satellite  service  and  on  a  co-  primary  basis  with  the  non-geostationary
 satellite  orbit  fixed  satellite  service  providers.  MVDDS  could  be  used  to  deliver  a  wide  array  of  video
 programming,  including  local  television,  and  data  services  in  both  urban  and  rural  areas.  The  Commission  is
 seeking  comments  on  technical  and  service  rules  for  licensing  the  MVDDS.  See  New  Fixed  Satellite  Services
 Order,  n.  227  supra.
 429  In  addition,  consumers  in  Alaska  and  Hawaii  may  not  always  receive  the  same  service  as  those  in  the  48
 contiguous  states.  For  example,  Hawaii  contends  that  DBS  providers  have  failed  to  provide  full  and  competitive
 service  equivalent  to  that  provided  on  the  U.  S.  mainland.  See  Hawaii  Comments  at  2-  3.
 430  DirecTV  Comments  at  12.
 431  Id.  at  2.
 432  NCTA  Comments  at  6-  15;  NCTA  Reply  Comments  at  2.
 433  DirecTV  Comments  at  11.
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 123.  As  of  June  2001,  RCN,  which  operates  a  large  number  of  overbuild  systems,  was  offering
 video  service  to  approximately  460,400  subscribers.  434  In  May  2001,  SBC  reached  an  agreement  to  sell
 its  cable  subsidiary  Ameritech  to  a  startup  WideOpenWest.  435  At  the  time  of  this  transaction,  Ameritech
 was  the  second  largest  overbuilder  with  310,000  subscribers.  Ameritechs  departure  from  the  overbuild
 scene  was  not  an  isolated  case.  Carolina  Broadband  comments  that  the  number  of  facilities-  based
 providers  have  decreased  in  the  past  six  months.  For  example,  McLeodUSA,  WideOpenWest,  Utilicom,
 Seren,  Carolina  Broadband,  American  Broadband,  and  Digital  Access  have  either  stopped  building  new
 facilities  or  postponed  plans  for  expansion.  436  However,  NCTA  contends  that  several  broadband
 overbuilders  and  utilities,  including  RCN,  Knology,  WideOpenWest,  Digital  Access,  Carolina
 Broadband,  Everest  Connection,  and  Grande  Communications,  have  been  able  to  raise  billions  of  dollars
 for  system  development.  437
 124.  Recent  Developments  in  the  MDU  Market.  The  MDU  market  is  a  significant  segment  of
 many  local  MVPD  markets.  MDUs  are  comprised  of  a  wide  variety  of  high-  density  residential
 complexes,  including  high  and  low-  rise  rental  buildings,  condominiums,  and  cooperatives.  438  According
 to  one  estimate,  there  are  currently  21.4  million  MDUs  in  the  U.  S.  That  number  is  expected  to  grow  to
 23.3  million  by  the  year  2005.  439  Historically,  cable  and  SMATV  operators  were  the  primary  providers  of
 MVPD  services  to  MDU  residents.  According  to  one  estimate,  20-  23  percent  of  a  cable  operators
 income  comes  from  MDU  subscribers.  440  More  recently,  however,  DBS  providers  have  begun  to  supply
 programming  to  operators  that  serve  MDUs  and  to  MDU  residents  directly.  441  In  May  2000,  WSNet  of
 Austin,  Texas,  announced  the  launch  of  a  new  satellite  video  service  designed  for  private  cable  and  small
 and  rural  cable  companies.  Unlike  DBS,  WSNet  provides  over  190  digital  channels  only  to  SMATV  and
 other  small  cable  operators  who  in  turn  distribute  these  programming  services  to  their  subscribers.  442
 125.  During  the  late  1990s,  a  number  of  large  SMATV  operators,  including  OpTel,  SkyView,
 and  Cable  Plus,  declared  bankruptcy.  443  According  to  some  analysts,  these  developments  have  weakened
 SMATVs  stature  as  a  viable  competitor  to  franchised  cable  operators  in  the  MDU  market.  444  Analysts
 434  Paul  Kagan  Assocs.,  Inc.,  Top  Cable  System  as  of  July  2001,  Kagan  Cable  TV  Investor,  at  12-  13.
 435  See  The  Private  Market,  2001  Cable  Databook,  at  170.
 436  Carolina  Comment  at  12-  13.
 437  NCTA  Comments  at  20-  21.
 438  Townhouses  and  mobile  home  communities,  nursing  homes,  hospitals,  and  hotels  may  also  represent  consumer
 segments  in  some  markets.
 439  Jason  Marcheck,  MDUs:  Broadbands  Wealth  of  Opportunity,  Private  &  Wireless  Broadband,  Dec.  2000,  at  16.
 440  Larry  Kessler,  Good  Night,  Gorilla  Good  Morning,  Guerilla,  Private  and  Wireless  Broadband,  Mar.  2001,  at  12.
 441  DirecTV  claims  that  approximately  20%  of  its  subscribers  live  in  places  other  than  single  family  homes.  See
 DirecTV  Comments  at  12.  See  also    76  supra.
 442  Joel  Schofield,  WSNet  Launches  Nations  Third  Digital  Satellite  Video  Service,  Private  &  Wireless  Broadband,
 May  2000,  at  12.
 443  Larry  Kessler,  Winning  the  Battle  and  the  War:  What  Does  It  Take?,  Private  &  Wireless  Broadband,  July  2000,
 at  10.
 444  Id.
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 argue  that  among  other  factors,  digital  video  as  well  as  high-  speed  Internet  access  is  essential  to  a
 SMATV  operators  survival  in  the  MDU  market.  445
 126.  A  number  of  SMATV  operators  are  offering  bundled  video,  voice,  and  data  services  in
 order  to  compete  more  effectively  with  traditional  cable  operators  in  the  MDU  market.  For  example,
 OnePath  Networks,  MDU  Communications,  Everest  Broadband  Networks  and  RCN,  are  providing
 broadband  Internet,  telephony,  and  video  services  to  MDU  subscribers  throughout  the  country.  446
 127.  Competitive  Issues  in  the  MDU  Market.  Commenters  raise  a  number  of  issues  that  they
 contend  adversely  affect  their  ability  to  serve  the  MDU  market.  These  include  exclusive  contracts,  access
 to  MDU  inside  wiring,  and  the  Commissions  over-  the-  air-  reception  devices  (  OTARD)  rules.  447
 128.  Exclusive  Contracts.  Commenters  suggest  that  exclusive  contracts  between  incumbent
 MVPDs  and  MDU  owners  represent  a  barrier  to  entry  in  the  MDU  market.  448  According  to  commenters,
 exclusive  contracts  often  were  entered  into  before  the  arrival  of  alternative  MVPDs  in  the  MDU  market,
 and  the  continued  existence  of  these  contracts  prevents  the  MDU  owners  and/  or  their  tenants  from  having
 an  opportunity  to  select  among  competing  providers.
 129.  Carolina  Broadband  contends  that  competitive  broadband  service  providers  cannot  serve
 most  MDUs  because  incumbent  cable  operators  have  established  exclusive  agreements  with  the  owners  of
 these  MDUs.  According  to  a  survey,  80  percent  of  the  MDU  units  in  Charlotte,  North  Carolina,  for
 example,  have  committed  to  long-  term  agreements  with  the  incumbent  cable  operator,  many  of  these
 agreements  taking  place  after  Carolina  Broadband  announced  its  intent  to  serve  the  area.  449  Carolina
 Broadband  contends  that  its  effort  to  build  a  high  capacity  network  is  threatened  by  exclusive  contracts
 between  incumbent  cable  operators  and  MDU  owners  that  exclude  the  company  from  serving  30  percent
 of  its  target  market.  It  also  contends  that  exclusive  contracts  are  similar  to  exclusive  franchise  agreements
 since  both  generally  drive  up  new  entrants  costs  and  distort  supply  and  demand  relationships.  450
 130.  DirecTV  argues  that  MDU  residents  have  limited  choices  among  MVPD  providers
 because  exclusive  contracts  or  exclusive  rights  of  entry  between  incumbents  and  property  owners  either
 discourage  new  entrants  or  make  it  impossible  for  them  to  enter  the  market.  451  DirecTV  argues  that  cable
 operators  are  able  to  thwart  competition  in  the  MDU  market  by  resorting  to  exclusive  service  contracts  or
 exclusive  rights  to  entry  that  prohibit  MDU  property  owners  or  residents  from  obtaining  video
 programming  services  from  an  alternative  service  provider.  452
 445  Larry  Kessler,  The  Pipers  Music:  When  to  Play.  When  to  Pay,  Private  and  Wireless  Broadband,  Aug./  Sept.,
 2001.
 446  See  Industry  News,  Private  and  Wireless  Broadband,  Aug./  Sept.  2001,  at  57  and  Feb.  2001  at  45;  RCN
 Comments  at  5-  6.
 447  Carolina  Comments  at  8-  9;  DirecTV  Comments  at  18-  19;  RCN  Comments  at  21;  Utilicorp  Comments  at  7-  8;
 448  Id.
 449  Carolina  Comments  at  7.
 450  Carolina,  ex  parte  letter,  Telecommunications  Services,  Inside  Wiring,  Customer  Premises  Equipment,  CS  95-  184
 and  WT  99-  127,  May  15,  2001.
 451  DirecTV  Comments  at  19.
 452  Id.
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 Federal  Communications  Commission  FCC  01-  389
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 131.  The  Independent  Multi-  Family  Communications  Council  (  IMCC),  on  the  other  hand,
 contends  that  under  some  circumstances  exclusive  contracts  give  MDU  residents  bargaining  power  to
 collectively  negotiate  with  several  competing  MVPDs  for  a  favorable  deal  in  pricing  and  service.  453
 Moreover,  citing  a  study  it  commissioned,  IMCC  argues  that  there  is  little  risk  of  competitive  harm
 arising  from  the  use  of  exclusive  contracts  by  SMATV  operators.  454  According  to  IMCC,  since  the
 economies  of  scale  associated  with  SMATV  distribution  technology  are  very  low,  use  of  exclusive
 contracts  by  SMATV  operators  would  not  give  them  a  cost  advantage  over  their  rivals  that  would  lead  to
 reduced  competition  and  supra-  normal  profits.  455
 132.  Cablevision  states  that  it  faces  significant  and  sometimes  unfair  competition  from
 SMATV  operators  in  the  MDU  market.  According  to  Cablevision,  since  SMATV  operators  traditionally
 share  revenues  with  building  owners,  the  latter  often  enter  into  agreements  with  SMATV  operators  to
 offer  SMATV  service  to  building  residents  either  at  below  market  rates  or  free  as  part  of  the
 occupants  rent.  Moreover,  for  buildings  under  construction,  sometimes  the  SMATV  facilities  are
 constructed  at  the  same  time,  allowing  SMATV  operators  to  sign  up  customers  before  Cablevision  is  able
 to  offer  service.  456
 133.  Inside  Wiring.  RCN  contends  that  access  to  MDUs  remains  a  serious  barrier  to  entry.
 More  specifically,  RCN  argues  that  the  Commissions  inside  wiring  rules  are  of  limited  value  because  an
 incumbent  could  avoid  them  by  claiming  ownership  or  right  to  control.  457  RCN  further  asserts  that
 delayed  Commission  decisions  regarding  access  to  existing  inside  cable  wiring  have  thwarted  its  entry
 into  this  market.  458
 134.  Carolina  Broadband  argues  that  rules  allowing  equal  access  to  home  run  wiring  must  be
 developed  so  that  consumers  can  choose  among  competing  providers  without  imposing  unreasonable
 requirements  on  property  owners.  459  IMCC  argues  that  the  Commission  could  encourage  competition  in
 MDU  markets  by  determining  value  of  inside  wiring  based  on  depreciated  book  value  of  the  wire  and  not
 on  replacement  costs.  460  Since  the  replacement  cost  is  generally  higher  than  depreciated  book  value,
 453  IMCC,  ex  parte  letter,  Telecommunications  Services,  Inside  Wiring,  Customer  Premises  Equipment,  CS  95-  184
 and  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Cable  Home
 Wiring,  MM  92-  260,  May  8,  2001.
 454  Id.
 455  Id.
 456  Cablevision  Reply  Comments  at  2-  3.
 457  RCN  Comments  at  21.
 458  Id.
 459  Carolina  Comments  at  8.
 460  IMCC,  ex  parte  letter,  Telecommunications  Services,  Inside  Wiring,  Customer  Premises  Equipment,  CS  95-  184
 and  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Cable  Home
 Wiring,  MM  92-  260,  May  8,  2001.  The  Commission  in  a  Report  and  Order  and  Second  Further  Notice  of  Proposed
 Rulemaking,  amended  the  cable  inside  wiring  rules  to  enhance  competition  in  the  video  distribution  market.  See
 Inside  Wiring  Order,  n.  273  supra.
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 Federal  Communications  Commission  FCC  01-  389
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 IMCC  argues  that  a  purchase  price  based  on  replacement  cost  would  discourage  new  entrants  from
 entering  the  MDU  market.  461
 135.  On  October  12,  2000,  the  Commission  adopted  measures  to  enhance  the  ability  of
 competing  telecommunications  providers  to  provide  services  to  customers  in  residential  and  commercial
 buildings  or  other  MTEs.  462  The  adopted  measures  included  a  determination  that  utilities,  including
 LECs,  must  afford  telecommunications  carriers  and  cable  service  providers  reasonable  and
 nondiscriminatory  access  to  conduits  and  rights-  of-  way  located  in  customer  buildings  and  campuses,  to
 the  extent  such  conduits  and  rights-  of-  way  are  owned  or  controlled  by  the  utility.  The  Commission  also
 sought  additional  comments  on  whether  it  should  extend  its  cable  inside  wiring  rules  to  facilitate  the  use
 of  home  run  wiring  by  telecommunications  service  providers  where  an  incumbent  cable  provider  no
 longer  has  a  legal  right  to  maintain  its  home  run  wiring  in  the  building.
 136.  OTARD  Rules.  DirecTV  asserts  that  the  Commissions  OTARD  rules  should  be
 expanded  to  cover  common  areas  for  MDU  residents.  463  On  November  20,  1998,  the  Commission
 extended  the  OTARD  rules  to  allow  renters  to  install  antennas  within  their  exclusive  use  areas,  i.  e.,
 apartments,  homes,  gardens,  patios,  terraces,  and  balconies.  The  rules,  however,  do  not  extend  to  the
 installation  of  antennas  on  common  property  or  on  property  to  which  a  viewer  does  not  have  a  right  of
 access.  464  DirecTV  states  that  while  the  Commissions  OTARD  rules  have  encouraged  some  MDU
 landlords  and  owners  to  use  a  single  dish  for  reception  to  prevent  dish  clutter,  the  rule  should  be
 extended  to  common  areas  so  that  renters  and  owners  who  do  not  have  exclusive  use  of  areas  suitable  for
 satellite  reception  will  also  be  able  to  receive  DBS  service.  465
 2.  Competitive  Issues  in  the  Market  for  the  Purchase  of  Video  Programming
 137.  Buyers  in  the  market  for  the  purchase  of  video  programming  are  MVPDs,  including
 cable  operators  and  other  video  programming  providers,  and  the  sellers  are  primarily  non-  broadcast
 461  IMCC,  ex  parte  letter,  Telecommunications  Services,  Inside  Wiring,  Customer  Premises  Equipment,  CS  95-  184
 and  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Cable  Home
 Wiring,  MM  92-  260,  May  8,  2001.
 462  Promotion  of  Competitive  Networks  in  Local  Telecommunications  Markets,  Wireless  Communications
 Association  International,  Inc.  Petition  for  Rulemaking  to  Amend  Section  1.  4000  of  the  Commissions  Rules  to
 Preempt  Restrictions  on  Subscriber  Premises  Reception  or  Transmission  Antennas  Designed  to  Provide  Fixed
 Wireless  Service,  Implementation  of  the  Local  Competition  Provisions  in  the  Telecommunications  Act  of  1996,
 Review  of  Sections  68.  104  and  68.213  of  the  Commissions  Rules  Concerning  Connection  of  Simple  Inside  Wiring  to
 the  Telephone  Network,  WT  Docket  No.  99-  217,  CC  Docket  No.  96-  98,  CC  Docket  No.  88-  57,  First  Report  and
 Order  and  Further  Notice  of  Proposed  Rulemaking  in  WT  Docket  No.  99-  217,  Fifth  Report  and  Order  and
 Memorandum  Opinion  and  Order  in  CC  Docket  No.  96-  98,  and  Fourth  Report  and  Order  and  Memorandum  Opinion
 and  Order  in  CC  Docket  No.  88-  57.  15  FCC  Rcd  17521  (2000).
 463  DirecTV  Comments  at  19.
 464  Restrictions  on  Over-  the-  Air  Reception  Devices:  Television  Broadcast,  Multichannel  Multipoint  Distribution
 and  Direct  Broadcast  Satellite  Services,  CS  Docket  No.  96-  83,  Second  Report  and  Order,  13  FCC  Rcd  23874
 (1998);  see  also  Restrictions  on  Over-  the-  Air  Reception  Devices:  Television  Broadcast,  Multichannel  Multipoint
 Distribution  and  Direct  Broadcast  Satellite  Services,  CS  Docket  No.  96-  83,  Order  on  Reconsideration,  14  FCC  Rcd
 19924  (1999).
 465  DirecTV  Comments  at  19.
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 Federal  Communications  Commission  FCC  01-  389
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 programming  networks.  466  This  market  tends  to  be  regional  or  national  since  programmers  seek  to  reach  a
 much  broader  audience  than  could  be  provided  by  a  local  cable  franchise  area.  For  example,  some
 programming  services  are  intended  for  a  nationwide  audience  (e.  g.,  CNN,  USA)  while  others  seek  a
 regional  audience  (e.  g.,  New  England  Sports  Channel).
 138.  AT&  T  argues  that  the  Commission  should  include  purchasers  of  all  video  programming,
 and  not  just  multichannel  video  programming,  when  considering  the  market  for  the  purchase  of  video
 programming.  467  AT&  T  argues  that  broadcast  stations  and  networks  compete  with  MVPDs  in  the
 program  purchase  market  as  well  as  in  the  advertising  and  program  distribution  markets.  The
 Commission  has  recognized  AT&  Ts  concern  and  is  addressing  this  issue  in  its  recently  released  Further
 Notice  of  Proposed  Rulemaking  (  Ownership  Further  Notice).  468  In  that  proceeding,  the  Commission
 contemplated  that  over-  the-  air  broadcast  networks  compete  with  MVPDs  for  advertising  revenue,  and
 also  observed  that  they  are  carried  as  content  on  MVPD  systems.  The  Commission  also  sought  comments
 on  its  portrayal  of  the  program  purchase  market  in  that  further  notice.  469
 a.  The  Regional  Market
 139.  For  the  past  several  years,  cable  operators  have  engaged  in  a  regional  strategy  called
 clustering.  Many  of  the  largest  MSOs  have  concentrated  their  operations  by  acquiring  cable  systems  in
 regions  where  the  MSO  already  has  a  significant  presence,  while  giving  up  smaller  holdings  scattered
 across  the  country.  This  strategy  is  accomplished  through  purchases  and  sales  of  cable  systems,  or  by
 system  swapping  among  MSOs.
 140.  Competitive  Issues  Related  to  Clustering.  Commenters  contend  that  clustering  of  cable
 systems  can  create  greater  economies  of  scale  and  scope,  and  enable  cable  operators  to  offer  a  wider
 variety  of  broadband  services  at  lower  prices  to  customers.  In  addition,  commenters  contend  that
 clustering  enables  cable  operators  to:  (a)  spread  costs  over  a  number  of  systems  and  a  larger  subscriber
 base;  (b)  deliver  a  higher  quality  of  signal  to  consumers;  (c)  offer  more  local  and  regional  programming
 for  consumers;  (d)  provide  better  customer  service  and  fewer  outages;  (e)  create  more  efficient
 interconnections  which  enhance  educational  and  governmental  uses;  (f)  develop  more  attractive  joint
 consumer  promotions  and  discounts  with  area  retailers  and  others;  and  (g)  increase  advertising  revenues
 which  can,  in  turn,  be  used  to  offset  a  portion  of  programming  and  system  upgrade  expenses.  470
 141.  In  the  2000  Price  Survey  Report,  using  a  regression  equation,  the  Commission  reported
 that  cable  operators  that  were  part  of  a  cluster  had,  on  average,  higher  monthly  rates  than  operators  that
 466  1998  Report,  13  FCC  Rcd  at  24362.
 467  AT&  T  Comments  at  20.
 468  Implementation  of  Section  11  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,
 Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act  of  1996,  the  Commissions  Cable
 Horizontal  and  Vertical  Ownership  Limits  and  Attribution  Rules,  Review  of  the  Commissions  Regulations
 Governing  Attribution  of  Broadcast  and  Cable/  MDS  Interests,  Review  of  the  Commissions  Regulations  and  Policies
 Affecting  Investment  in  the  Broadcast  Industry,  Reexamination  of  the  Commissions  Cross-  Interest  Policy,  CS
 Docket  Nos.  98-  82,  96-  85,  MM  Docket  Nos.  92-  264,  94-  150,  92-  51  and  87-  154,  Further  Notice  of  Proposed
 Rulemaking,  16  FCC  Rcd  17312  (2001).
 469  Id.,  16  FCC  Rcd  at  17321-  2.
 470  AT&  T  Comments  at  17-  18;  Comcast  Comments  at  12-  13.
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 were  not  part  of  a  cluster  (i.  e.,  a  positive  relationship  was  found  to  exist  between  average  monthly  rates
 and  clusters).  471  This  result  may  have  been  due  to  a  lack  of  data  needed  to:  (a)  distinguish  between
 integrated  and  non-  integrated  systems,  and  (b)  identify  cost  factors  or  the  timing  of  consolidation.  AT&  T
 contends  that,  when  it  applied  the  Commissions  regression  equation  to  its  own  2000  survey  data  (which
 represents  a  small  percentage  of  the  total  data  used  in  the  2000  Price  Survey  Report),  the  results  indicate
 that  a  negative  relationship  exists  between  clustering  and  cable  prices.  472
 142.  Several  commenters  assert  harmful  effects  of  clustering  and  regional  concentration  on
 program  distribution.  473  Specifically,  these  commenters  contend  that  it  is  likely  that  cable  systems  in  a
 large  cluster  will  be  linked  through  a  fiber  optic  network  which  would  enable  operators  to  offer
 telecommunications  services  as  well  as  a  cost-  efficient  means  of  delivering  programming  to  its  clustered
 systems.  However,  if  MSOs  have  an  ownership  interest  in  programming,  fiber  optic  networks  may  give
 them  an  added  incentive  to  migrate  programming  from  satellite  delivery  to  terrestrial  (fiber  optic)
 delivery  because  only  satellite-  delivered  programming  is  subject  to  the  program  access  rules.  Therefore,
 these  commenters  contend  that  a  vertically  integrated  incumbent  may  be  able  to  prevent  competitors  from
 gaining  access  to  certain  programming  because  it  is  terrestrially  delivered.  474
 143.  Recent  Developments  in  Clustering.  Since  the  previous  report,  cable  MSOs  have
 continued  to  undertake  or  announce  system  mergers,  acquisitions,  divestitures,  swaps,  and  joint  ventures
 in  order  to  create  larger  regional  clusters  of  contiguous  cable  systems.  475  Most  of  these  transactions
 resulted  in  the  expansion  of  existing  regional  clusters.  For  example,  Comcasts  Mid-  Atlantic  Super
 Cluster  with  4.4  million  subscribers  includes  clusters  in  Pennsylvania,  Maryland,  Virginia,  the
 Washington,  D.  C.,  metropolitan  area,  and  Delaware.  476  Similarly,  AT&  T  has  large  clusters  in  the
 Chicago,  San  Francisco/  Oakland/  San  Jose,  and  Boston  areas,  with  approximately  five  million  subscribers
 in  those  three  clusters.  477
 144.  Between  July  2000  and  June  2001,  a  total  of  48  transactions  were  announced  having  an
 aggregate  value  of  approximately  $22.5  billion  and  involving  5.8  million  subscribers,  virtually  all
 intended  to  increase  the  size  of  existing  cable  clusters.  478  At  the  end  of  2000,  there  were  108  clusters  with
 approximately  54  million  subscribers  compared  to  114  clusters  and  approximately  44  million  subscribers
 at  the  end  of  1999.  479  In  the  largest  cluster  size  category  (over  500,000  subscribers),  the  number  of
 471  Id.  Implementation  of  Section  3  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,
 Statistical  Report  on  Average  Rates  for  Basic  Service,  Cable  Programming  Services,  and  Equipment,  MM  Docket
 No.  92-  266,  Report  on  Cable  Industry  Prices  (  2000  Price  Survey  Report),  16  FCC  Rcd  4346  (2001).
 472  AT&  T  Comments  at  19-  20.
 473  EchoStar  Comments  at  6-  7;  WCA  Comments  at  2-  3;  DirecTV  Comments  at  9-  10;  RCA  Comments  at  25.
 474  Id.
 475  App.  B,  Tbl.  B-  7.
 476  Comcast  Comment  at  11.  Major  Cable  TV  Systems/  Clusters,  2001  Cable  Databook,  at  36.
 477  Major  Cable  TV  Systems/  Clusters,  2001  Cable  Databook,  at  36.
 478  Paul  Kagan  Assocs.,  Inc.,  Cable  System  Sales  Summary,  Cable  TV  Investor,  Aug.  11,  2000,  at  9;  Feb.  5,  2001,  at
 12;  and  Aug.  29,  2001,  at  9.
 479  See  App.  C,  Tbl.  C-  2.
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 clusters  increased  by  21.4  percent  between  1999  and  2000,  and  the  number  of  subscribers  in  these  clusters
 increased  by  44.1  percent.
 145.  System  Mergers  and  Acquisitions.  Several  notable  mergers  and  acquisitions  occurred
 during  the  period  from  July  2000  to  June  2001.  In  May  2001,  WideOpenWest  with  200  subscribers
 agreed  to  acquire  Ameritech  and  its  310,000  subscribers  in  Detroit,  Chicago,  Columbus,  and  Cleveland.  480
 In  January  2001,  Insight  Communications  and  AT&  T  completed  the  transfer  of  530,000  subscribers  to
 Insight  Midwest  JV  involving  three  transactions  totaling  $1.5  billion.  In  February  2001,  AT&  T
 announced  its  intention  to  sell  another  1.4  million  subscribers  to  Mediacom  and  Charter  for
 approximately  $4  billion.  481
 146.  System  Trades.  System-  for-  system  swaps  or  trades  enable  MSOs  to  increase  the  size
 of  their  regional  clusters  while  minimizing  financial  outlays  and  avoiding  capital  gains  taxes.  482  Since  our
 last  report,  many  of  the  largest  proposed  swaps,  as  measured  by  number  of  subscribers,  involved  AT&  T,
 Comcast,  and  Adelphia.  In  December  2000,  AT&  T  and  Comcast  agreed  to  swap  770,000  subscribers  in
 the  Washington,  D.  C.,  area  and  in  cities  in  Pennsylvania,  New  Jersey,  Florida,  Michigan,  California,  and
 Illinois.  In  January  2001,  Comcast  and  Adelphia  announced  a  swap  of  approximately  450,000
 subscribers  in  Philadelphia,  Los  Angeles,  and  Palm  Beach.  483
 b.  The  National  Market
 147.  Competitive  Issues.  Several  commenters  raise  concerns  about  the  anticompetitive
 effects  of  horizontal  concentration  of  ownership  on  the  purchase  of  programming.  484  EchoStar,  for
 example,  argues  that  large  cable  operators  exert  market  power  on  programmers  enabling  cable  operators
 to  dominate  the  programming  market  and  to  purchase  programming  at  anti-  competitive  terms  and
 conditions.  485
 148.  Recently,  in  Time  Warner  Entertainment  Co.  v.  FCC  (  Time  Warner),  the  United  States
 Court  of  Appeals  for  the  D.  C.  Circuit  reviewed  the  Commissions  cable  television  horizontal  and  vertical
 ownership  limits  and  attribution  benchmarks.  486  In  Time  Warner,  the  D.  C.  Circuit  found  that  the
 Commissions  horizontal  rules  restrict  cable  operators  ability  to  reach  viewers  and  that  the  vertical  rules
 curtail  their  exercise  of  editorial  control  over  a  portion  of  their  channels.  The  D.  C.  Circuit  held  that  the
 Commission  did  not  establish  record  evidence  to  support  the  limits,  did  not  draw  the  necessary
 connection  between  the  limits  established  and  the  alleged  harms  of  concentration  and  integration  the
 limits  were  designed  to  address,  and  did  not  take  into  account  the  changing  industry  market  conditions.
 480  Paul  Kagan  Assocs.,  Inc.,  SBC  Finally  Offloads  Ameritech  Subs,  Cable  TV  Investor,  May  24,  2001,  at  6.
 481  Paul  Kagan  Assocs.,  Inc.,  AT&  T  Sheds  Subs,  Mediacom  Doubles  Its  Size,  Cable  TV  Investor,  Mar.  2,  2001,  at  4.
 482  1997  Report,  13  FCC  Rcd  at  1118-  19.
 483  Paul  Kagan  Assocs.,  Inc.,  Pending  Swaps  Finally  Close,  Cable  TV  Investor,  Feb.  5,  2001,  at  8.
 484  EchoStar  Comments  at  5;  WCA  Comments  at  3-  4;  RCN  Reply  Comments  at  3.
 485  EchoStar  Comments  at  5.
 486  240  F.  3d  1126  (D.  C.  Cir.  2001).
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 The  D.  C.  Circuit  thus  remanded  both  the  horizontal  and  vertical  limits  to  the  Commission  for  further
 consideration.  487
 149.  On  September  13,  2001,  the  Commission  adopted  the  Ownership  Further  Notice  seeking
 to  implement  Section  613(  f)  and  to  respond  to  the  D.  C.  Circuits  concerns,  by  taking  a  fresh  look  at  the
 Commissions  cable  ownership  rules  affected  by  the  Time  Warner  decision.  488  The  Ownership  Further
 Notice  examines  the  requirements  of  Section  613(  f)  and  the  underlying  legislative  history,  reviews  the
 relevant  markets,  as  those  markets  existed  in  and  have  evolved  since  1992,  and  considers  general
 regulatory  approaches.  The  Ownership  Further  Notice  asks  commenters  to  support  or  contradict
 alternative  approaches  with  empirical  or  theoretical  evidence,  as  well  as  address  the  benefits  and  harms
 posed  by  each  approach.  The  objective  of  the  Further  Notice  is  to  develop  a  complete  record  that
 ultimately  will  support  a  regulatory  approach,  which  fully  addresses  and  takes  into  account  cable
 operators  market  power  in  todays  dynamic  communications  marketplace.
 150.  Concentration  in  the  National  Market  for  the  Purchase  of  Video  Programming.  Over
 the  past  year,  cable  operators  continue  to  be  the  primary  purchasers  in  the  national  market  for  the
 purchase  of  multichannel  video  programming.  Cable  operators  controlled  78.06  percent  of  the  total
 MVPD  subscribers.  489  At  the  same  time,  non-  cable  MVPDs  continued  to  increase  their  share  of  the
 MVPD  market  which  translates  into  increased  program  purchasing  in  that  market.  For  example,
 DirecTVs  share  of  the  MVPD  market  increased  from  10.28  percent  in  2000  to  11.38  percent  in  2001.
 Similarly,  EchoStars  share  increased  from  5.  11  percent  in  2000  to  6.87  percent  in  2001.  490
 151.  The  top  four  purchasers  of  video  programming  for  distribution  to  the  household  or  MDU
 market  are  AT&  T  (with  a  share  of  16.  43  percent  of  all  MVPD  subscribers),  Time  Warner  (with  a  share  of
 14.34  percent),  DirecTV  (with  a  share  of  11.38  percent),  and  Comcast  (with  a  share  of  9.53  percent).  491  It
 should  be  noted  that  these  percentages  are  derived  from  publicly  available  data  and  are  not  the  result  of
 application  of  the  Commissions  attribution  rules.  492  For  example,  AT&  T  in  a  recent  letter  to  the
 Commission  states  that  it  has  21,  979,500  MVPD  subscribers  based  on  the  Commissions  attribution
 rules.  493
 152.  The  share  of  subscribers  of  these  top  four  MVPDs  has  declined  slightly  over  the  past
 year.  In  2000,  the  four  MVPDs  with  the  largest  subscribership  served  52.70  percent  of  all  MVPD
 487  Id.  at  1128,  1130.
 488  Ownership  Further  Notice,  16  FCC  Rcd  at  17315-  9.
 489  See  App.  C,  Tbl.  C-  1.
 490  DirecTV  is  the  third  largest  MVPD  with  8.  7  million  subscribers;  EchoStar  is  the  eighth  largest  MVPD  with  4.  3
 million  subscribers.  See  App.  C,  Tbl.  C-  3.
 491  On  December  19,  2001,  AT&  T  and  Comcast  announced  an  agreement  to  combine  their  cable  companies  to  create
 a  new  company,  AT&  T  Comcast  Corporation.  See  AT&  T  Broadband  to  Merge  With  Comcast  in  $72  Billion
 Transaction  (press  release),  Dec.  19,  2001.
 492  For  Commissions  attribution  rules,  see  Implementation  of  the  Cable  Television  Consumer  Protection  and
 Competition  Act  of  1992,  Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act  of  1996:
 Review  of  the  Commissions  Attribution  Rules,  Report  and  Order,  CS  Docket  Nos.  98-  82,  96-  85,  14  FCC  Rcd  19014
 (1999).
 493  AT&  T,  ex  parte  letter,  MM  Docket  No.  92-  264  and  CS  Docket  No.  99-  251,  Oct.  22,  2001.
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 subscribers.  494  In  2001,  the  top  four  MVPDs  served  51.68  percent  of  all  MVPD  subscribers  nationwide.  495
 However,  the  share  of  subscribers  served  by  the  top  ten  MVPDs  increased  slightly  from  83.90  percent  in
 2000  to  84.  30  percent  in  2001.
 153.  To  compare  and  assess  the  potential  for  market  power  resulting  from  concentration  in  the
 market  for  the  purchase  of  programming  over  a  period  of  time,  we  employ  the  Herfindahl-  Hirschman
 Index  (  HHI).  496  We  use  the  reported  MVPD  shares  to  calculate  HHI  figures.  497  The  nationwide
 purchaser  MVPD  HHI  is  905    considered  unconcentrated  under  the  Merger  Guidelines.  498  Since,  the
 larger  firms  in  the  calculation  are  more  equal  in  size,  the  HHI  for  2001  is  49  points  lower  than  the  HHI  of
 954  reported  last  year.  499
 154.  Economist  Incorporated  (  Economists,  Inc.),  in  a  study  commissioned  by  NCTA,
 contends  that  the  Commission  places  undue  emphasis  on  purely  structural  indicia  of  market  power,  i.  e.,
 market  share,  which  leads  to  misleading  results.  500  According  to  Economist  Inc.,  a  firm  with  a  large
 market  share  will  not  be  able  to  exercise  market  power  and  raise  prices  above  competitive  levels  if  the
 smaller  competing  firms  are  able  to  quickly  increase  their  outputs  and  sales  so  that  the  price  increase
 becomes  unprofitable  for  the  large  firm.  Economist  Inc.  further  contends  that,  since  DBS  is  available
 nationwide  and  has  virtually  unlimited  capacity  to  expand  to  a  larger  number  of  customers,  it  has  the
 ability  to  constrain  or  eliminate  market  power  of  larger  cable  MSOs.  501  The  Ownership  Further  Notice
 seeks  comment  on  whether  DBS  can  in  fact  provide  a  constraint  on  cables  market  power  in  the  market
 for  the  purchase  of  programming.  The  further  notice  also  seeks  comment  on  whether  DBS  can  provide  a
 constraint  on  cables  market  power  in  the  markets  for  the  delivery  of  programming.  502
 494  1998  Report,  13  FCC  Rcd  at  24422.
 495  See  App.  C,  Tbls.  C-  3  and  C-  4.
 496  1998  Report,  13  FCC  Rcd  at  24363.  The  HHI  is  a  measure  of  concentration  that  is  calculated  by  summing  the
 squared  market  shares  of  the  sellers  in  the  market.  It  is  a  measure  of  concentration  that  takes  account  of  the  entire
 firm  size  distribution.  The  HHI  varies  with  the  number  of  firms  in  the  market  and  degree  of  inequality  among  firm
 size.  Generally,  the  HHI  increases  when  there  are  fewer  and  unequal  sized  firms  in  the  market.  If  the  firms  in  the
 market  are  similar  in  size  or  if  there  is  only  one  firm,  the  HHI  has  no  advantage  over  other  measures  of
 concentration  such  as  four-  firm  or  eight-  firm  concentration  ratio.  Thus,  in  local  video  distribution  markets  where
 the  incumbent  cable  operator  is  the  only  MVPD,  the  HHI  is  of  limited  use.  However,  in  the  market  for  the  purchase
 of  video  programming,  where  both  cable  and  non-  cable  MVPDs  compete,  the  HHI  is  sensitive  to  differences  in  firm
 size.  In  addition,  a  comparison  of  HHIs  from  previous  years  would  show  a  general  trend  in  ownership
 concentration.
 497  Since  MVPDs  generally  purchase  programming  on  a  per  subscriber  basis,  the  total  license  fee  paid  for  a
 program  is  based,  in  part,  on  the  total  number  of  subscribers  served  by  the  MVPD.  As  the  subscribership  increases,
 so  does  the  total  license  fee  paid  by  the  MVPD.
 498  The  United  States  Department  of  Justice  and  Federal  Trade  Commission  consider  markets  with  HHI  below  1000
 as  unconcentrated;  markets  with  an  HHI  between  1000  and  1800  as  moderately  concentrated;  and  markets  with
 HHI  above  1800  as  highly  concentrated.  See  1998  Report,  13  FCC  Rcd  at  24363.
 499  1998  Report,  13  FCC  Rcd  at  24422.
 500  Economist  Incorporated,  Use  and  Limitations  of  Structural  Indicia  of  Market  Power,  Aug.  6,  1999,  NCTA
 Comments  at  App.  C.
 501  Id.  at  10.
 502  Ownership  Further  Notice,  16  FCC  Rcd  at  17330.
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 155.  To  summarize,  our  examination  of  national  MVPD  concentration  currently  reveals  that
 the  national  market  for  the  purchase  of  video  programming  by  MSOs  is  less  concentrated  than  the  local
 markets  in  which  the  distribution  of  video  programming  to  consumers  takes  place,  which  remains  highly
 concentrated.  In  the  regional  and  national  markets  for  the  purchase  of  video  programming,  a  number  of
 large  MSOs  are  consolidating  their  subscriber  base,  although  the  share  of  the  two  largest  MSOs  (AT&  T
 and  Time  Warner)  has  declined  during  the  past  year.  503  For  example,  AT&  Ts  share  of  MVPD
 subscribers  fell  from  19.07  percent  in  2000  to  16.43  percent  in  2001.  Time  Warners  share  changed
 slightly  from  14.92  percent  in  2000  to  14.34  percent  in  2001.  504
 B.  Vertical  Integration  and  Other  Programming  Issues
 1.  Status  of  Vertical  Integration
 156.  This  section  updates  the  status  of  vertically  integrated  video  programming  networks  in
 the  MVPD  market.  Vertical  integration  occurs  where  a  video  programming  distributor  has  an  ownership
 interest  in  a  video  programming  supplier  or  vice  versa.  These  vertical  relationships  may  have  beneficial
 effects,  505  or  they  may  deter  competitive  entry  in  the  video  marketplace  and/  or  limit  the  diversity  of
 programming.  506
 157.  Since  our  last  Report,  the  total  number  of  programming  networks  has  grown  and  cable
 operators  continue  to  consolidate  and  develop  new  ownership  interests.  This  year,  the  proportion  of
 vertically  integrated  channels  is  the  same  as  last  year,  after  several  years  of  decline.  In  2001,  there  were
 294  satellite-  delivered  national  programming  networks,  an  increase  of  13  networks  since  2000.  Of  the
 294  networks,  104  networks,  representing  approximately  35  percent,  were  vertically  integrated  with  at
 least  one  cable  MSO.  507  Therefore,  the  ratio  of  vertically  integrated  channels  has  remained  unchanged
 since  2000  when  99  of  281,  or  35  percent,  of  national  programming  networks  were  vertically
 integrated.  508
 158.  Four  of  the  top  seven  cable  MSOs  hold  ownership  interests  in  satellite-  delivered  national
 programming  networks.  One  or  more  of  these  companies  has  an  interest  in  52  of  the  104  vertically
 503  See  App.  C,  Tbl.  C-  3.
 504  By  squaring  market  shares,  the  HHI  weighs  the  values  for  large  companies  more  heavily  than  small  companies.
 Also,  the  HHI  increases  with  increasing  inequality  among  any  given  number  of  companies.  See  F.  M.  Scherer,
 Industrial  Market  Structure  and  Economic  Performance,  Rand  McNally  College  Publishing  Company,  1980,  at  58.
 505  Beneficial  effects  can  include  efficiencies  in  the  production,  distribution,  and  marketing  of  video  programming,
 and  providing  incentives  to  expand  channel  capacity  and  create  new  programming  by  lowering  the  risks  associated
 with  program  production  ventures.  See,  e.  g.,  H.  R.  Rep.  No.  862,  102nd  Cong.,  2d  Sess.  56  at  41-  43  (1992).
 506  See  1995  Report,  11  FCC  Rcd  at  2135;  Implementation  of  Section  11(  c)  of  the  Cable  Television  Consumer
 Protection  and  Competition  Act  of  1992  Vertical  Ownership  Limits,  MM  Docket  92-  264,  Memorandum  Opinion  and
 Order  on  Reconsideration  of  the  Second  Report  and  Order,  10  FCC  Rcd  7364,  7365  (1995).
 507  We  count  each  unique  programming  service  of  a  multiplexed  package  separately.  We  do  not,  however,  count
 services  that  are  not  unique,  as  in  a  multiplexed  programming  service  that  is  merely  time  shifted.  See  1998  Report,
 13  FCC  Rcd  at  24376.  See  also  2000  Report,  16  FCC  Rcd  at  6079.
 508  These  figures  are  based  on  the  best  available  information  recently  researched  for  the  2001  Report  and  differ  from
 a  recently  reported  figure  which  was  estimated  based  on  data  from  the  2000  Report.  See  Ownership  Further  Notice,
 16  FCC  Rcd  at  17350.
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 integrated  national  satellite-  delivered  programming  networks.  509  These  four  companies  are  Cox
 Communications,  which  has  interests  in  24,  or  eight  percent  of  all  national  programming  networks;  AOL
 Time  Warner,  which  has  an  ownership  interest  in  39,  or  13  percent  of  all  national  programming  networks;
 Comcast,  which  has  ownership  interests  in  17  networks,  which  account  for  six  percent  of  all  national
 programming  networks;  and  Cablevision,  through  its  programming  subsidiary,  Rainbow  Media,  which
 owns  ten  national  programming  networks,  just  over  three  percent  of  all  national  programming  networks.
 On  August  10,  2001,  Liberty  Media  split  off  from  AT&  T  Corporation  and  is  now  an  independent
 company.  510  However,  through  its  ownership  of  Cablevision  of  Puerto  Rico,  it  remains  a  small  cable
 system  owner.  It  has  interests  in  66  national  networks,  or  23  percent  of  all  programming  networks.  511
 159.  Vertical  integration  is  not  only  associated  with  the  largest  cable  system  operators,  but
 also  the  programming  networks  with  the  largest  number  of  subscribers.  Currently,  nine  of  the  top  20
 video  programming  networks  (ranked  by  subscribership)  are  vertically  integrated  with  a  cable  MSO.  This
 figure  remains  unchanged  from  2000.  512  Additionally,  it  appears  that  a  significant  amount  of  video
 programming  is  controlled  by  only  14  companies,  including  cable  MSOs,  broadcasters,  and  other  media
 entities.  513  Almost  all  (i.  e.,  18)  of  the  top  20  programming  networks  in  terms  of  subscribership  are  owned
 by  one  or  more  of  these  14  companies,  with  nine  of  these  networks  vertically  integrated  with  cable
 MSOs.  514  In  addition,  seven  out  of  the  top  20  video  programming  networks  ranked  by  prime  time  ratings
 are  vertically  integrated  with  cable  MSOs.  515
 160.  This  year  we  found  51  programming  services  that  have  been  planned  but  are  not  yet
 operational,  a  23  percent  decrease  from  the  2000  Reports  count  of  66  planned  services.  516  As  we
 reported  last  year,  analog  channel  capacity  is  increasingly  scarce  and  may  account  for  the  slow  down  in
 the  launching  of  new  programming  networks.  517  The  planned  services  count  includes  some  overlap  from
 509  The  top  seven  MSOs  are  AT&  T  Broadband  &  Internet  Services,  AOL  Time  Warner,  Comcast  Cable
 Communications,  Charter  Communications,  Cox  Communications,  Adelphia  Communications,  and  Cablevision
 Systems.  See  NCTA,  Industry  Overview,  Cable  Television  Developments  2001,  at  17.
 510  Liberty  Media  Corp.,  Liberty  Media  Corporation  Announces  Split  Off  From  AT&  T  Corp.;  Begins  Trading  on
 New  York  Stock  Exchange  Under  the  Symbols  LMC.  A  and  LMC.  B  (press  release),  Aug.  10,  2001.
 511  If  we  did  not  count  Liberty  Media  as  being  vertically  integrated,  the  ratio  of  vertically  integrated  channels  would
 decrease  from  35  percent  in  2000  to  31  percent  in  2001.  See  App.  D.,  Tbl.  D-  5.
 512  App.  D,  Tbl.  D-  6.  See  also  2000  Report,  16  FCC  Rcd  at  6138.
 513  The  14  companies  are:  AOL  Time  Warner,  Cablevision,  Comcast,  Cox,  Disney,  E.  W.  Scripps  Co.,  General
 Electric,  Hearst,  Liberty  Media,  MGM,  Newhouse,  News  Corp.,  Viacom,  and  Vivendi.  See  Paul  Kagan  Assocs.,
 Major  Owners  of  Cable  Networks:  Sept.  2001,  Cable  Program  Investor,  Sept.  11,  2001,  at  4.
 514  C-  SPAN,  C-  SPAN2,  WGN,  and  The  Weather  Channel  are  the  four  unaffiliated  programming  networks  among
 the  top  50  programming  networks.  Cable  affiliates  provide  95  percent  of  the  funding  for,  but  have  no  ownership  or
 program  control  interests  in  C-  SPAN  and  C-  SPAN2.  DBS  licensees  provide  the  other  5  percent  of  funding,  and  also
 have  no  ownership  or  program  control  interests.  None  of  the  14  companies  listed  in  footnote  513  supra  have  any
 ownership  interest  in  WGN  or  The  Weather  Channel.  See  Paul  Kagan  Assocs.  Network  Census:  July  30,  Cable
 Program  Investor,  Sept.  11,  2001,  at  10.
 515  App.  D,  Tbl.  D-  7.
 516  See  App.  D,  Tbl.  D-  4.  See  also  1999  Report,  15  FCC  Rcd  at  1112.
 517  2000  Report,  16  FCC  Rcd  at  6080.  See  also  Andy  Grossman,  High  Stakes  in  Vegas,  Court  TVs  Royal  Analog
 Flush,  Cablevision,  July  9,  2001,  at  8.
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 previous  years  because  it  can  often  take  several  years  from  the  announcement  of  a  new  programming
 network  to  its  launch  and  initiation  of  service.  For  example,  several  of  the  66  planned  services  counted  in
 previous  Reports  have  been  launched  during  the  past  year  and  are  now  operating,  while  others  have  been
 aborted  for  various  reasons.  518
 2.  Other  Programming  Issues
 161.  As  in  previous  years,  this  years  Notice  requested  comment  on  a  number  of  programming
 issues  apart  from  vertical  integration  and  the  status  of  existing  and  planned  programming  services.
 Among  these  issues,  we  asked  about  the  effectiveness  of  our  program  access,  program  carriage,  and
 channel  occupancy  rules  that  govern  the  relationships  between  cable  operators  and  programming
 providers.  We  also  requested  information  about  local  and  regional  channels,  including  sports  and  news
 services,  public,  educational  and  governmental  (  PEG)  access  channels,  packaging  of  programming
 services,  and  electronic  programming  guides  (  EPGs).  In  this  section  we  address  these  issues.
 162.  Regulatory  Issues  Relating  to  Program  Access  and  Carriage  Rules.  The  Commissions
 rules  on  competitive  access  to  cable  programming  prohibit  unfair  and  discriminatory  practices  by
 vertically  integrated  cable  operators.  519  The  rules  seek  to  promote  competition  and  diversity  in  the
 multichannel  video  programming  market  by  preventing  vertically  integrated  programming  suppliers  from
 favoring  affiliated  video  distributors  over  unaffiliated  MVPDs  in  the  sale  of  satellite-  delivered
 programming.  520  The  program  access  rules  apply  to  cable  operators  and  to  programming  vendors  that  are
 affiliated  with  cable  operators  and  deliver  video  programming  via  satellite  to  an  MVPD.  The  rules
 prohibit  any  cable  operator  that  has  an  attributable  interest  in  a  satellite  cable  programming  vendor  from
 improperly  influencing  the  decisions  of  the  vendor  with  respect  to  the  sale  or  delivery,  including  prices,
 terms,  and  conditions  of  sale  or  delivery,  of  satellite-  delivered  programming  to  any  competing  MVPD.
 The  rules  also  prohibit  vertically  integrated  satellite  programming  distributors  from  discriminating  in  the
 prices  or  terms  and  conditions  of  sale  of  satellite-  delivered  programming  to  cable  operators  and  other
 MVPDs.  In  addition,  cable  operators  generally  are  prohibited  from  entering  into  exclusive  distribution
 arrangements  with  vertically  integrated  programming  vendors.  The  Commission  has  declined  to  apply
 the  program  access  requirements  to  terrestrially-  delivered  programming.  521
 163.  The  prohibition  on  exclusive  contracts  in  the  program  access  law  ceases  to  be  effective
 on  October  5,  2002,  unless  the  Commission  finds  that  the  prohibition  continues  to  be  necessary  to
 preserve  and  protect  competition  and  diversity  in  the  distribution  of  video  programming.  522  On  October
 518  Compare,  for  example,  App.  D,  Tbl.  D-  4  infra,  with  2000  Report,  16  FCC  Rcd  at  6131,  1999  Report,  15  FCC
 Rcd  at  1112,  and  1998  Report,  13  FCC  Rcd  at  24442.
 519  47  C.  F.  R.    76.  1000-  76.  1003.  See  also  47  U.  S.  C.    536(  a)(  2);  47  U.  S.  C.    548(  a)(  2).  The  program  access  rules
 apply  to  OVS  operators  and  common  carriers  in  the  same  manner  as  they  apply  to  cable  operators.  47  C.  F.  R.
   76.1004,  76.  1507.
 520  47  U.  S.  C.    548.
 521  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Petition  for
 Rulemaking  of  Ameritech  New  Media,  Inc.  Regarding  Development  of  Competition  and  Diversity  in  Video
 Programming  Distribution  and  Carriage,  CS  Docket  No.  97-  248,  RM  No.  9097,  Report  and  Order  ("  Program
 Access  Order''),  13  FCC  Rcd  15822,  15856-  7  (1998).
 522  47  U.  S.  C.    548(  c)(  5).
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 11,  2001,  the  Commission  adopted  a  Notice  of  Proposed  Rule  Making  to  begin  its  review  of  the  rule.  523  In
 the  Notice  in  this  proceeding,  we  sought  comment  on  the  methods  we  should  use  to  evaluate  whether  this
 provision  still  is  needed,  and  on  other  issues  related  to  the  availability  of  vertically  integrated
 programming.  524
 164.  Cables  competitors,  including  SBCA,  Utilicorp,  and  WCA,  are  opposed  to  the  sunset  of
 the  prohibition  on  exclusivity  and  some  suggest  that  the  program  access  rules  should  be  broadened  to
 include  terrestrially-  delivered  programming.  525  Several  commenters  maintain  that,  despite  the  presence  of
 the  program  access  rules,  lack  of  access  to  programming,  especially  sports  programming,  remains  a
 significant  barrier  to  entry  and  an  impediment  to  the  successful  development  of  a  competitive  MVPD
 business.  526  In  particular,  WCA  maintains  that  the  cable  industrys  conduct  suggests  that  the
 programming  most  in  demand  will  become  unavailable  if  the  ban  on  exclusivity  is  relaxed.  527
 165.  DirecTV  asserts  that  the  program  access  rules  are  more  important  now  than  ever  and  that
 the  Commission  should  make  them  even  more  stringent.  528  It  urges  the  Commission  to  examine  the
 October  5,  2002,  sunset  on  the  prohibition  on  exclusive  contracts  in  the  program  access  rules  in  light  of
 technical  advances  that  have  diminished  the  costs  of  terrestrial  delivery  and  in  light  of  continued  cable
 clustering  which  facilitates  terrestrial  delivery.  529
 166.  Cable  television  operators  oppose  the  extension  of  the  program  access  rules.  NCTA
 disputes  WCAs  assertions  and  points  to  the  success  and  continued  growth  of  DBS  and  the  increase  in
 competition  over  the  past  five  years  to  demonstrate  that  the  program  access  rules  exclusivity  provisions
 have  served  their  purpose  and  should  be  allowed  to  sunset.  530  NCTA  asserts  that  the  current  MVPD
 landscape  is  competitive  and  surpasses  anything  that  Congress  or  the  Commission  could  have  imagined  in
 1992.  NCTA  also  opposes  any  expansion  to  the  scope  of  the  current  rules  and  dismisses  concerns  related
 to  the  terrestrial  migration  of  channels  from  satellite  delivery  to  terrestrial  delivery.  531  NCTA  points  out
 that  DBS  has  had  exclusive  rights  to  some  major  league  sports  packages,  concerts,  and  other
 programming.  It  likens  these  contracts  to  the  development  of  cable  exclusive  terrestrially-  delivered
 programming.  532
 167.  Cablevision  states  that  there  is  a  wide  variety  of  programming  available  and  that  the
 program  access  rules  are  no  longer  necessary.  533  Comcast  asserts  that  the  program  exclusivity  rules
 523  See  Program  Access  NPRM,  n.  213  supra.
 524  Notice,  16  FCC  Rcd  at  13333,  13346.
 525  SBCA  Comments  at  9;  Utilicorp  Comments  at  8;  WCA  Comments  at  4-  8.
 526  Carolina  Comments  at  12;  EchoStar  Comments  at  11-  12;  RCN  Comments  at  9-  13;  SBCA  Comments  at  9.
 527  WCA  Comments  at  5.
 528  Id.  at  9-  10.
 529  DirecTV  Comments  at  10
 530  NCTA  Comments  at  39.
 531  Id.
 532  NCTA  Comments  at  38-  39.
 533  Cablevision  Reply  Comments  at  7.
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 pertain  to  marketplace  conditions  that  no  longer  exist.  It  argues  that  exclusive  contracts  are  commonplace
 in  the  communications  industry,  and  that  such  arrangements  spur  investment,  creativity,  and
 responsiveness  to  consumer  demand.  534
 168.  Comcast  also  suggests  criteria  for  the  Commission  to  apply  in  its  proceeding  to  evaluate
 the  program  access  rules.  These  criteria  are:  (a)  the  marketplace  benefits  of  permitting  program
 exclusivity  for  satellite-  delivered  programming  in  which  a  cable  operator  has  a  financial  interest;  (b)  the
 evolution  of  the  MVPD  marketplace  since  1992;  (c)  the  extent  to  which  exclusive  agreements  have  been
 used  successfully  by  large  non-  cable  MVPDs;  (d)  the  lack  of  any  basis  for  constraining  exclusivity  in
 cable  contracts  for  satellite-  delivered  cable  programming  while  not  constraining  exclusivity  in  DBS
 contracts;  (e)  whether  sufficient  alternative  programming  networks  exist  to  provide  competition  if  certain
 satellite-  delivered  networks  enter  into  exclusivity  agreements;  and  (f)  whether  the  Commission  would
 have  the  tools  to  prevent  discrimination,  unfair  methods  of  competition,  or  other  unfair  acts  by  vertically
 integrated  satellite  programming  networks  against  competing  MVPDs.  535  RCN  suggests  that  the
 Commission  form  an  industry  forum  among  MVPDs,  programming  providers,  and  other  interested  parties
 to  create  an  interactive  dialogue  to  evaluate  program  access  issues.  536
 169.  In  1998,  in  the  Program  Access  Order,  the  Commission  found  no  indications  at  this  time
 that  terrestrial  delivery  of  programming  formerly  delivered  by  satellite  is  a  significant  competitive
 problem.  537  Several  commenters  now  assert  that  access  to  popular  programming,  including  terrestrially-delivered
 programming,  is  vital  and  more  important  than  ever.  538  Carolina  recommends  that  the
 Commission  expand  the  program  access  rules  to  encompass  any  method  of  delivery.  Moreover,  it
 suggests  that  the  rules  should  cover  content  delivered  from  all  platforms,  such  as  the  Internet,  interactive
 program  guides,  VOD,  and  ITV.  539
 170.  Pursuant  to  section  613(  f)  of  the  Communications  Act,  540  the  Commission  also  adopted
 channel  occupancy  rules  that  restricted  the  number  of  channels  on  a  cable  system  that  may  be  occupied  by
 programmers  affiliated  with  the  owner  of  the  system.  541  On  March  3,  2001,  the  United  States  Court  of
 Appeals  for  the  D.  C.  Circuit  reversed  and  remanded  Commissions  channel  occupancy  limits.  542
 Currently,  the  Commission  is  seeking  comment  on,  among  other  things,  how  changes  in  the  MVPD
 market  and  in  the  level  of  vertical  integration  for  cable  MVPDs  may  have  affected  MSOs  ability  to  favor
 affiliated  over  unaffiliated  programming.  543  Given  the  changes  in  the  marketplace,  in  the  Ownership
 Further  Notice,  the  Commission  requests  comment  on  how  to  fashion  meaningful  and  relevant  channel
 occupancy  limits.
 534  Comcast  Reply  Comments  at  17-  18.
 535  Id.  at  21.
 536  RCN  Comments  at  14-  15.
 537  Program  Access  Order,  13  FCC  Rcd  at  15856-  7.
 538  Carolina  Comments  at  11;  DirecTV  Comments  at  9;  RCN  Comments  at  14.
 539  Carolina  Comments  at  11.
 540  Section  613(  f)  was  added  to  the  Communications  Act  as  part  of  the  1992  Cable  Act.  47  U.  S.  C.    533(  f).
 541  47  C.  F.  R    76.  504.  See  1994  Report,  9  FCC  Rcd  at  7521.
 542  Time  Warner  Entertainment  Co.  v.  FCC,  240  F.  3d  1126  (D.  C.  Cir.  2001).
 543  See  Ownership  Further  Notice,  n.  468  supra.
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 171.  Sports  Programming.  Regional  sports  programming  continues  to  be  an  important
 segment  of  programming  for  all  MVPDs.  According  to  RCN,  sports  programming  is  critical  to  the
 success  of  any  cable  television  system.  544  Of  the  80  regional  cable  channels  counted  in  this  years  report,
 29,  or  36  percent,  are  sports  channels.  545
 172.  The  most  widely  distributed  sports  programming  network,  ESPN,  which  is  owned  by
 Disney,  reaches  81  million  television  households  through  a  variety  of  delivery  technologies.  While  ESPN
 dominates  national  sports  programming,  regional  sports  distribution  is  dominated  by  Fox  Sports  Net,
 which  owns  69  percent  (20  of  29)  of  all  regional  sports  networks.  Fox  Sports  Net,  jointly  owned  by  News
 Corp.  and  Cablevision,  reaches  77  million  television  households.  546  Both  News  Corp.  and  Disney  also
 have  interests  in  sports  teams  and  sports  venues.
 173.  Commenters  assert  that  such  vertical  integration,  especially  with  important  sports
 programming,  gives  these  programmers  incentives  to  act  as  gatekeepers  and  engage  in  unfair  methods  of
 controlling  access  to  sports  programming.  547  Commenters  note  that  vertically  integrated  entities  may  have
 an  incentive  to  shift  regional  sports  networks  from  satellite  to  terrestrial  distribution  and  thereby  avoid  the
 ambit  of  program  access  rules.  548  In  addition,  commenters  allege  that  where  a  regional  sports  network  is
 non-  vertically  integrated,  a  video  programming  distributor  may  enter  into  an  exclusive  contract  with  the
 program  provider  which  deprives  rivals  of  the  programming.  549  RCN  also  alleges  that  clustering  has  an
 impact  on  access  to  sports  programming.  550  In  the  1999  Report,  we  noted  that  because  most  sports
 programming  affiliate  fees  are  based  on  subscriber  volume,  only  well  clustered,  large  MSOs  can  take  full
 advantage  of  programming  discounts.  551
 174.  DirecTV  lists  23  regional  sports  networks  (including  17  Fox  Sports  Networks)  that  are
 carried  on  its  system.  552  DirecTV  carries  regional  sports  networks  in  every  regional  sports  market  except
 Philadelphia  where  it  was  refused  access  to  Comcasts  SportsNet.  553  EchoStar  states  that  exclusivity  deals
 544  RCN  Comments  at  13.
 545  See  App.  D,  Tbl.  D-  3.
 546  NCTA,  Regional  Cable  Networks,  Cable  Television  Developments  2001,  at  174  -  200.
 547  RCN  Comments  at  9-  16.
 548  See    162  supra  for  a  more  detailed  description  of  program  access.
 549  Carolina  Comments  at  10-  11;  RCN  Reply  Comments  at  4.
 550  RCN  Comments  at  22-  23.
 551  1999  Report,  15  FCC  Rcd  at  1060.  See  also  R.  Thomas  Umstead,  Consolidation  Blues,  Cablevision,  June  28,
 1999,  at  39.
 552  DirecTV  Comments  at  Exhibit  A.
 553  Id.  See  also  Application  for  Review  of  Orders  of  the  Cable  Services  Bureau  Denying  Program  Access
 Complaints,  CSR  5122-  P  and  CSR  5244-  P,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  at  22802  (2000).  This
 Order  consolidates  several  proceedings  involving  Comcast,  DirecTV,  and  EchoStar.  In  separate  proceedings,
 DirecTV  and  EchoStar  filed  program  access  complaints  alleging  that  Comcast  violated  sections  628(  b)  and  (c)  of  the
 Communications  Act  and  the  Commission's  regulations  by  engaging  in  discrimination  and  unfair  practices  in  the
 distribution  of  satellite  cable  programming.  The  Cable  Services  Bureau  denied  the  complaints.  Subsequently,
 DirecTV  and  EchoStar  each  requested  Commission  review;  the  Commission  consolidated  the  proceedings  and
 denied  the  applications  for  review.
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 between  video  programming  distributors  and  sports  leagues  are  detrimental  to  subscribers  who  cannot
 get  such  sports  programming  from  a  DBS  company.  554  Where  a  regional  sports  channel  is  non-  vertically
 integrated,  a  cable  MSO  may  enter  into  an  exclusive  contract  with  the  program  provider.  Alternatively,
 Comcast  notes  that  DirecTV  is  not  required  to  make  its  NFL  Sunday  Ticket  package  available  to  any  other
 MVPD  provider,  and  that  it  indeed  does  not  make  it  available  to  any  Comcast  cable  system.  555
 175.  News  Programming.  Cable  systems  have  carried  local  news  services  since  at  least  1986,
 when  Cablevision  launched  News  12  Long  Island.  This  year,  of  the  80  regional  programming  networks
 counted,  36  percent  (29  networks)  are  regional  news  networks.  Unlike  sports  programming,  regional  and
 local  news  networks  have  a  more  diverse  ownership.  Some  regional  news  networks  are  vertically
 integrated  with  cable  MSOs,  but  many  are  not.  556
 176.  Most  regional  news  networks  cover  a  single  city  or  other  limited  geographic  market,  or
 subsections  of  that  market.  There  are  at  least  seven  local  news  networks  in  separate  sections  of  the  New
 York  City  area.  557  A  handful  of  regional  news  networks,  however,  have  elected  to  broaden  their  coverage.
 Statewide  news  channels  are  operating  in  Florida,  Massachusetts,  Texas,  and  Ohio.  New  England  Cable
 News  (  NECN)  is  the  oldest  statewide  network  and  the  most  widely  distributed  regional  news  network.
 NECN  reaches  more  than  2.5  million  households,  approximately  64  percent  of  cable  homes  in  the
 six-  state  region  it  serves.  In  the  Boston  market,  the  network  can  be  seen  in  92  percent  of  cable  homes.  558
 However,  not  all  regional  news  networks  are  success  stories.  BayTV  News  Network  in  San  Francisco,
 California,  reached  1.4  million  homes  with  programming  that  featured  local  news,  high-  school  sports,  and
 public  affairs.  However,  viewership  remained  low  and  it  ceased  operating  on  July  31,  2001.  559  Another
 California  news  network,  Orange  County  Newschannel,  which  served  177,000  homes  with  local  news,
 sports,  traffic,  and  weather,  ceased  its  operations  on  September  7,  2001,  due  to  declining  advertising  sales
 and  continued  operating  losses  over  the  past  22  months.  560
 177.  PEG  Programming.  Public,  educational,  and  government  (  PEG)  channel  set-  asides
 often  are  required  on  cable  systems  by  local  franchising  authorities.  561  Approximately  15  percent  of  all
 cable  systems  carry  PEG  programming.  562  Cable  operators  do  not  have  ownership  interests  in  PEG  access
 programming,  although  some  franchise  agreements  require  that  they  provide  services,  production
 554  EchoStar  Comments  at  11.
 555  Comcast  Reply  Comments  at  18.
 556  Cablevision,  the  seventh  largest  MSO,  owns  news  networks,  including  MSG  Metro  Traffic  and  Weather  in  New
 York  and  the  News  12  group  of  regional  news  services  in  Connecticut,  New  Jersey,  and  Westchester  County  and
 Long  Island,  New  York.  See  also  App.  D,  Table  D-  3.
 557  App.  D.  Tbl.  D-  3.
 558  Steve  Sullivan,  NECN  Comes  Into  Its  Own,  Broadcasting  &  Cable,  May  8,  2000,  at  52.
 559  Linda  Haugsted,  AT&  T  Pulls  the  Plug  on  BayTV  News  Network,  Multichannel  News,  July  9,  2001,  at  15.
 560  Linda  Haugsted,  Adelphia  to  Shut  Down  OCN,  Multichannel  News,  July  31,  2001,  at
 http://  www.  tvinsite.  com/  index.  asp  print_  page&  doc  _id=  3931&  articleID=.
 561  47  U.  S.  C.    531.  Local  franchise  authorities  are  allowed  to  establish  procedures  under  which  the  cable  operator
 may  utilize  unused  PEG  channel  capacity  for  other  services.  47  U.  S.  C.    531(  d)(  1).
 562  http://  www.  alliancecm.  org/  about/  info.  htm.
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 facilities,  and  equipment  for  the  production  of  local  programming.  PEG  programming  is  not,  therefore,
 considered  vertically  integrated.
 178.  PEG  channels  are  intended  to  provide  community  specific  information.  Since  the
 September  11,  2001,  terrorist  attacks  in  New  York  City  and  Washington,  D.  C.,  many  PEG  channels  are
 taking  part  in  keeping  the  public  informed  about  recent  events  and  recovery  efforts.  Across  the  country,
 PEG  channels  are  providing  bulletin  boards  on  blood  drives,  church  services,  counseling  sessions,  Web
 sites,  local  school  activities,  call-  in  programs,  civil  liberties  studies,  local  civic  meetings,  and  local
 governmental  activities.  563  In  addition  to  PEG  channels,  some  cable  operators  are  also  providing  local
 and  regional  sports,  weather,  and  news  programming.  564
 179.  In  March  1999,  Cablevision  declined  to  air  a  program  on  its  PEG  channels  in  Oyster  Bay,
 New  York,  when  the  program  American  Defense  Monitor  offered  transcripts  of  the  program  for  $5.  00  or
 tapes  for  $19.95.  Cablevision  required  the  programmer  to  delete  the  25-  second  closing  segment  which
 made  the  offer.  The  producer  complied,  but  later  filed  suit  in  district  court  claiming  that  Cablevision  was
 trying  to  control  programming  content,  thus  violating  the  1984  Cable  Act.  565  The  district  court  found  that
 Cablevision  was  within  its  rights  to  refuse  to  air  a  program  that  included  solicitation  for  its  tapes  of  the
 show.  566  On  August  16,  2001,  the  U.  S.  Court  of  Appeals  for  the  Second  Circuit  vacated  and  remanded  the
 lower  courts  decision.  567  Members  and  representatives  of  the  industry  are  concerned  that  the  Appeals
 Court  decision  will  undermine  the  social  purposes  of  PEG  channels.  568
 180.  Packaging  of  Cable  Programming  Services.  In  the  Notice,  we  sought  information  on  the
 extent  to  which  MVPDs  offer  or  plan  to  offer  consumers  programming  choices  on  an  a  la  carte  or
 individual  channel  basis  rather  than  in  tiers  of  channels.  Currently,  the  majority  of  programming  is
 offered  in  tiers.  Although  some  programming  is  still  being  offered  a  la  carte,  MVPDs  are  not  vigorously
 marketing  such  services.
 181.  In  the  2000  Report,  we  reported  that  the  sunset  of  cable  rate  regulation,  digital  upgrades,
 and  the  resulting  ability  to  deliver  more  channels  of  programming  that  could  enable  greater  flexibility  for
 cable  operators  in  packaging  programming  channels  did  not  result  in  a  trend  to  do  so.  569  Although  digital
 services  are  offering  various  options  for  channel  packages  and  a  la  carte  tiers,  a  trend  toward  more
 flexible  packaging  appears  to  be  in  the  packaging  of  services,  rather  than  the  packaging  of  channels.  For
 example,  in  the  Boston  market,  AT&  T  offers  various  purchasing  plans.  A  customer  can  save  up  to
 $20.90  per  month  by  subscribing  to  standard  video,  digital  video,  cable  Internet  service,  and  local
 563  E-  mail  from  Bunnie  Riedel,  Executive  Director,  Alliance  for  Community  Media,  Oct.  15,  2001.  In  Sacramento,
 California,  volunteers  created  messages  of  sympathy  and  messages  in  honor  of  search  and  rescue  personnel;  in
 Multnomah,  Oregon,  members  of  the  local  Muslim  Community  Center  hosted  a  call-  in  program;  and  in  Summit,
 New  Jersey,  PEG  channels  covered  local  prayer  services  and  ran  an  emergency  bulletin  board.
 564  NCTA  Comments  at  30.
 565  47  U.  S.  C.    531.
 566  Goldberg  v  Cablevision  Systems  Corp.,  69  F.  Supp.  2  nd  398,  399  (E.  D.  N.  Y.  1999).
 567  Goldberg  v.  Cablevision  Systems  Corp.,  No.  99-  9411,  2001  WL913555  (2  nd  Cir.  Aug.  14,  2001).
 568  Joe  Estrella,  Court  Overrules  Cablevisions  PEG  Editing,  Multichannel  News,  Aug.  27,  2001,  at  22.
 569  2000  Report,  16  FCC  Rcd  at  6085.
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 telephone  service;  up  to  $10.95  per  month  by  subscribing  to  standard  video,  digital  video,  and  local
 telephone  service;  or,  up  to  $4.  00  per  month  by  subscribing  to  two  of  the  four  service  offerings.  570
 182.  In  Lexena,  Kansas,  Everest  Connections  Corporation  offers  four  service  packages  to  its
 4,100  plus  subscribers  in  addition  to  its  a  la  carte  offerings.  Basic  cable,  the  digital  tier,  and  one  local
 telephone  line  is  available  for  $49.95  per  month.  The  monthly  rate  for  basic  cable,  the  digital  tier,  a
 premium  channel,  a  local  telephone  line,  and  256  kbps  Internet  downstream  is  $76.95.  Basic  cable,  the
 digital  tier,  two  premium  channels,  a  local  exchange  line,  ten  custom  calling  features,  voice  mail,  and  1.5
 Mbps  Internet  downstream  is  priced  at  $99.95  per  month.  The  fourth  package  consists  of  basic  cable,  the
 digital  tier,  HBO,  Cinemax,  Showtime,  Starz,  Encore,  ten  custom  calling  features,  high-  speed  Internet,
 voice  mail  with  increased  greeting,  message  and  storage  capabilities,  plus  home/  guest  mail  box  features
 for  $129.95  per  month.  571
 183.  Comcast  credits  digitization  for  its  ability  to  provide  a  wide  variety  of  packages  and
 services  to  its  subscribers.  572  It  states  that  today  it  routinely  offers  packages  of  digital  video  channels,
 PPV  channels,  and  VOD  as  well  as  the  analog  packages  that  it  has  historically  provided.  It  states  that
 service  providers  are  able  to  provide  their  customers  with  many  packaged  services  such  as  multichannel
 video  services,  telephone  services,  and  high-  speed  Internet  services  as  a  single  offering,  or  with  prices  for
 any  one  group  of  services  discounted  for  those  who  buy  two  or  more  services.  All  sizes  and  types  of
 MVPDs  are  continuing  to  provide  subscribers  with  bundles  of  services.
 184.  Programming  Costs.  The  Commissions  most  recent  report  on  cable  industry  prices
 (  2000  Price  Survey  Report)  asked  cable  operators  to  describe  factors  that  led  to  changes  in  their  rates.
 Competitive  and  noncompetitive  cable  operators  attributed  44  percent  and  41  percent,  respectively,  of
 their  rate  increases  to  increases  in  programming  costs.  573
 185.  According  to  Comcast,  the  costs  of  acquiring  video  programming  over  the  past  two  years
 has  continued  to  escalate.  Comcast  states  that  its  programming  costs  have  increased  by  13  percent  to  15
 percent  over  the  past  two  years.  It  states  that  some  services  have  increased  by  as  much  as  33  percent.  It
 notes  that  ESPNs  rates  have  increased  at  the  rate  of  20  percent  per  year  for  the  last  four  years.  Comcast
 also  points  out  that  increases  in  sports  licensing  fees  continue  be  a  cause  of  price  increases  for  sports
 channels,  even  though  the  ratings  for  some  sports  channels  are  declining.  574
 C.  Technical  Issues
 186.  Cable  operators  and  other  MVPDs  continue  to  develop  and  deploy  advanced
 technologies,  to  increase  capacities  and  enhance  the  capabilities  of  their  transmission  systems.  575  These
 technologies  allow  MVPDs  to  deliver  additional  video  options  and  other  services  to  their  subscribers.  576
 570  AT&  T  Comments  at  25.
 571  Utilicorp  Comments  at  3.
 572  Comcast  Comments  at  7-  8.
 573  Inflation,  channel  additions,  system  upgrades,  and  equipment  costs  were  also  said  to  account  for  a  large  portion
 of  rate  increases.  See  2000  Price  Survey  Report,  16  FCC  Rcd  at  4346.
 574  Comcast  Comments  at  14.
 575  See  2000  Report,  16  FCC  Rcd  at  6087-  8.
 576  See,  e.  g.,  NCTA  Comments  at  31-  32;  DirecTV  Comments  at  16-  17.
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 In  addition,  cable  operators  continue  to  rebuild  their  cable  plants  and  to  upgrade  their  facilities  for
 bandwidth  expansion  through  other  technical  means,  such  as  the  electronic  component  upgrading  of
 existing  amplifiers,  in  order  to  offer  more  video  programming  and  other  services.  577  In  the  last  year,  there
 have  been  a  number  of  developments  concerning  navigation  devices  and  cable  modems  that  are  used  to
 access  the  range  of  services  offered  by  MVPDs.  Most  notably,  cable  operators  are  favoring  less  powerful
 and  less  expensive  set-  top  boxes,  such  as  Motorolas  DCT  2000  and  Scientific  Atlantas  Explorer
 boxes.  578  These  so-  called  thin  boxes  would  likely  require  more  processing  power  at  the  headend  or
 nodal  sites  to  accomplish  the  same  functionalities  of  the  more  powerful  boxes,  such  as  Motorolas  DCT
 5000  or  the  Scientific  Atlantas  Explorer  5000  boxes  (  thick  boxes).  It  remains  unclear,  however,
 whether  the  industries  have  modified  their  plans  for  advanced  services  around  these  thin  boxes.  In  this
 section,  we  address  interactive  television  technologies  and  update  the  information  provided  in  the  2000
 Report  regarding  navigation  devices  and  cable  modems.  579
 1.  Interactive  Television
 187.  Interactive  television  (  ITV)  services  provide,  or  have  the  potential  to  provide,  a  wide
 range  of  services,  including  VOD,  e-  mail,  TV-  based  commerce  (  e-  commerce),  Internet  access,  PVR
 functionality,  programming-  related  content,  and  electronic  couponing.  580  In  the  last  year,  cable  operators
 have  not  initiated  large-  scale  ITV  service  rollouts,  focusing  instead  on  upgrading  their  systems  to  digital
 service  and  rolling  out  cable  modem  service.  581  One  ITV  service  to  which  MSOs  have  devoted  more
 attention  this  year  is  VOD,  which  qualifies  as  interactive  because  the  consumer  chooses  when  to  buy  the
 programming  and  has  VCR-  like  control  over  the  viewing  experience.  582  A  variation  of  this  service  is
 subscription  VOD,  which  enables  the  impulse  viewing  of  a  library  of  programming  with  full  "VCR-  like"
 functionality,  but  for  a  subscription  fee.  This  model  is  in  contrast  to  the  more  traditional  pay-  per-  view
 requirement  of  ordering  and  paying  for  programming  a  la  carte  with  the  PPV  purchase.  583  According  to
 one  analysis,  VOD  will  generate  revenues  of  more  than  $65  million  by  year-  end  2001;  $420  million  in
 2002;  $970  million  in  2003;  $1.43  billion  in  2004;  and  will  reach  $1.98  billion  by  year-  end  2005.  584
 188.  As  we  discuss  in  detail  above,  585  many  of  the  top  MSOs  are  conducting  trials  of  VOD  or
 have  moved  to  commercial  offerings  in  some  markets.  Several  MSOs  also  have  launched  other
 577  1999  Report,  15  FCC  Rcd  at  1067.
 578  See  Michael  Lafferety,  Taking  a  Look  at  the  Thick  and  the  Thin  of  It,  CED,  Sept.  2001,  at  29-  44.
 579  See  2000  Report,  16  FCC  Rcd  at  6088-  6092.
 580  2000  Report,  16  FCC  Rcd  at  6088.  See  also  Michael  Grotticelli  and  Ken  Kerschbaumer,  Slow  and  Steady,
 Broadcasting  &  Cable,  July  9,  2001,  at  34-  38  (  Grotticelli).
 581  Grotticelli  at  34-  38.  See  also  Andy  Grossman,  GMs  on  Hot  Seat  to  Add  Cash  Flow;  Cable  Executives  Say
 Digital  Cable  and  Highspeed  Data  are  Keys  to  Growth,  Multichannel  News,  June  4,  2001.
 582  Cable  operators  use  VOD  servers  located  at  the  cable  headend  to  manage  VOD  streams.  The  principal  VOD
 server  vendors  are  Concurrent  Computer,  Diva,  SeaChange,  and  nCube.
 583  George  Mannes,  Video  on  Demand  Tests  Begin  as  Cable  Firms  Seek  Growth  Channels,  TheStreet.  com,  June  8,
 2001.
 584  Yankee  Group,  Video-  on-  Demand  Will  Generate  Revenues  of  Nearly  $2  Billion  in  2005  (press  release),  June  25,
 2001.
 585  See    40,  41  supra.
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 interactive  services  in  addition  to  VOD.  In  September  2001,  Cablevision  launched  its  iO:  Interactive
 Optimum  service  in  select  areas  of  western  Long  Island,  New  York,  providing  VOD,  an  interactive
 programming  guide,  expanded  digital  programming,  digital  music,  niche  video  content,  two-  way
 interactive  programming,  and  e-  mail.  586  Insight  Communications  has  launched  VOD  and  an  information
 service  called  Local  Source  throughout  its  Indiana,  Kentucky,  and  Ohio  markets.  587  In  September  2001,
 the  company  launched  its  Insight  Digital  Mall,  an  electronic  mall  of  40  national  and  local  stores,  which,
 once  an  electronic  wallet  account  has  been  established,  allows  Insight  subscribers  to  purchase  select
 goods  and  services  directly  through  their  televisions.  588  Charter  is  incorporating  Microsofts  Advanced
 TV  software  on  Motorola  DCT-  5000  set-  tops  in  order  to  offer  customers  Internet-  based  streaming  audio
 and  video,  e-  mail,  VOD,  interactive  local  and  national  news,  and  high-  speed  Internet  access.  589
 189.  As  we  reported  last  year,  DBS  operators  and  broadcasters  also  have  entered  the  ITV
 market.  590  In  addition  to  rolling  out  interactive  programming  guides,  DBS  operators  are  integrating  PVR
 technology  into  their  subscriber  equipment.  DirecTV  continues  to  add  features  to  its  DirecTV
 Interactive  service  launched  in  October  2000,  including  on-  demand  stock  quotes,  sports  information,  and
 interactive  e-  commerce.  591  In  addition,  DirecTV  has  integrated  TiVo  and  UltimateTV  PVR  platforms  into
 certain  of  its  set-  top  boxes.  EchoStar  has  introduced  an  upgraded  digital  receiver,  which  enables  it  to
 offer  enhanced  programming  as  well  as  digital  video  recording  capabilities.  592  The  four  major  television
 586  Cablevision  Systems  Corp.,  Cablevision  Introduces  iO:  Interactive  Optimum,  Its  Suite  of  New  Digital  Services  in
 Western  Long  Island  (press  release),  Sept.  27,  2001.  Among  the  two-  way  offerings,  the  service  includes  MSG
 Game  Director,  which  allows  subscribers  to  control  their  view  of  live  sporting  events  taking  place  at  Madison
 Square  Garden;  PhotoNeTV,  which  allows  customers  to  create  slide  shows  of  personal  photos  directly  on  the
 television  screen  for  viewing,  retrieval  and  storage;  and  Playjam  interactive  trivia  and  games.  Niche  video  content  is
 offered  through  a  service  called  Mag  Rack,  which  offers  on-  demand  video  magazines  on  a  wide  range  of  topics  and
 VCR-  like  viewing  control.
 587  Insights  interactive  digital  TV  service  was  available  to  809,  000  customers  or  63.  4%  of  the  companys  total
 footprint  at  the  end  of  Q3  2001.  New  Services  Drive  Insights  Revenue  Growth,  Broadband-  Daily.  com,  Nov.  7,
 2001.  Insight  claims  that  digital  cable  penetration  is  30  percent  where  it  has  launched  interactive  services  as
 compared  to  17-  18  percent  digital  penetration  in  markets  where  interactive  services  are  not  available.  Id.
 588  Insight  has  partnered  with  Liberate  for  set-  top  box  software,  CommerceTV  for  the  electronic  mall  and  with
 SourceMedia  for  LocalSource  local  information  services.  See  Insight  Communications,  Insight  Communications
 Launches  Commerce.  TV  in  Lexington  (press  release),  Sept.  17,  2001.
 589  Rebecca  Buckman,  Microsoft  Lands  TV  Software  Agreement  with  Cable  Firm  Charter  Communications,  Wall
 Street  Journal,  Nov.  8,  2001  at  A4.  Charter  expects  to  launch  Microsoft  TV-  based  services  in  early  2002.  Id.
 590  2000  Report,  16  FCC  Rcd  at  6088-  89.
 591  See  DirecTV,  Personalized  On-  Demand  Stock  Quotes  on  TV    Now  a  Reality  with  Bloomberg  Television,
 DirecTV  and  Wink  Communications  (press  release),  Apr.  2,  2001;  DirecTV,  DirecTV,  ESPN  and  Wink
 Communications  Announce  Availability  of  ESPN  Today  on  DirecTV  Interactive  Service  (press  release),  July  17,
 2001;  DirecTV,  Wink  Communications  and  Barnes  &  Noble.  com  Launch  the  First  National  24/  7  Interactive  E-Commerce
 Channel  on  Television  (press  release),  Sept.  18,  2001;  DirecTV,  DirecTV,  Music  Choice  and  Wink
 Communications  Announce  New  Interactive  Television  Commerce  Service  (press  release),  Nov.  5,  2001.  With
 respect  to  the  e-  commerce  offerings,  by  employing  their  remote  control,  DirecTV  customers  can  buy  the  top  100
 best  selling  books  on  Barnes  and  Noble.  com  and  can  buy  CDs  containing  the  song  they  are  listening  to  on  music
 channels.  DirecTV  also  includes  in  its  programming  lineup  ShopNBC  which  offers  click  and  buy  interactivity  via
 Wink  technology.
 592  EchoStar,  EchoStar  Introduces  DISH  Network  PRO  501    Premium  Satellite  Television  Receiver  Featuring
 Digital  Video  Recording,  Interactive  TV  (press  release),  Jan.  8,  2001.
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 networks  continue  to  offer  enhanced  programming  synchronized  with  online  content.  For  example,  ABC
 synchronizes  web-  based  content  with  ESPNs  Sunday  Night  Football  games  and  ABCs  Monday  Night
 Football  games.  593  During  the  2002  Winter  Olympics  in  Salt  Lake  City,  WOW  Digital  TV  and  NBC
 affiliate  KSL-  TV  will  conduct  a  trial  of  a  digital  broadcast  and  interactive  service,  which  will  allow
 customers  to  call  up  data  and  make  purchases  over  their  televisions.  594
 190.  On  January  18,  2001,  the  Commission  released  a  Notice  of  Inquiry  seeking  comment  on
 whether  rules  are  necessary  to  prevent  anticompetitive  behavior  and  to  promote  diversity  and  capital
 investments  in  the  ITV  market.  595  In  this  proceeding,  some  commenters  reiterate  their  concerns  regarding
 the  advent  of  technical  advances  and  the  ability  to  distribute  ITV  and  related  advanced  services.  NAB
 asserts  that  new  technologies,  such  as  ITV  and  EPGs,  will  expand  opportunities  for  cable  operators  to
 disfavor  competing  content  and  service  providers.  596  NCTA  disputes  this,  noting  that  cable  companies
 and  many  other  providers  are  in  only  the  early  stages  of  developing  a  variety  of  services  that  might  be
 described  as  ITV  services.  597  It  further  notes  that  video  content  providers  are  exploring  all  avenues  for
 distribution,  including  DBS,  wireless  transport,  DSL,  digital  broadcasting,  and  telephone  lines  for  both
 the  downstream  and  upstream  components  of  ITV  services.  598
 2.  Navigation  Devices
 191.  Section  629  of  the  Communications  Act  directed  the  Commission  to  adopt  rules  that
 would  allow  consumers  to  obtain  navigation  devices,  such  as  cable  set-  top  boxes,  remote  control  units,
 and  other  equipment,  from  commercial  sources  other  than  their  cable  providers.  599  In  1998,  the
 Commission  adopted  rules  that  require  MVPDs  to  unbundle  security  from  other  functions  of  the
 navigation  device,  and  by  July  1,  2000,  to  make  available  point-  of-  deployment  modules  (  PODs)  to
 perform  this  function.  600  On  reconsideration,  the  Commission  deferred  application  of  the  rules  requiring  a
 593  For  a  description  of  ABC  Enhanced  TV,  see  http://  heavy.  etv.  go.  com/  etvHome/  tour.  shtml.
 594  In  this  trial,  viewers  will  be  able  to  receive  digital  broadcasts  of  Olympics  coverage  on  their  analog  sets  by  using
 a  WOW  Digital  TV  proprietary  set  top  box,  which  will  be  connected  to  a  telephone  line  to  allow  interaction  with  the
 programming.  OpenTV  is  providing  the  interactive-  enabling  software.  Michael  Grotticielli,  Putting  Some  Wow  in
 DTV,  Broadcasting  &  Cable,  Nov.  5,  2001;  WOW  Digital  TV,  WOW  Digital  TV  Formed  to  Deploy  First  Enhanced
 Digital  Broadcast  Platform  for  U.  S.  Broadcasters  and  Viewers  (press  release),  Nov.  5,  2001.
 595  Nondiscrimination  in  the  Distribution  of  Interactive  Television  Services  Over  Cable,  CS  Docket  No.  01-  7,  Notice
 of  Inquiry,  16  FCC  Rcd  1321  (2001).
 596  NAB  Comments  at  4.  NAB  also  states  that  the  delivery  of  digital  ITV  services  will,  unlike  analog,  require  a
 mechanism  for  associating  all  of  the  video,  audio  and  data  elements  comprising  any  interactive  service,  and  cable
 operators  will  control  this  mechanism  in  the  form  of  EPGs,  thus  expanding  the  opportunity  for  cable  operators  to
 discriminate  against  the  offerings  of  unaffiliated  entities  and  other  disfavored  competitors  such  as  broadcasters.  Id.
 at  5.
 597  NCTA  at  13.
 598  Id.  at  14.
 599  47  U.  S.  C.    549.
 600  Navigation  Report  and  Order,  n.  96  supra.  On  August  14,  2000,  the  Commission  adopted  a  Memorandum
 Opinion  and  Order,  which  granted  waivers  of  the  July  1,  2000,  compliance  date  for  a  limited  number  of  cable
 operators  that  use  hybrid  navigation  devices.  The  Commission  established  a  revised  compliance  date  for  each  of  the
 individual  systems  involved,  with  no  waiver  granted  beyond  December  31,  2001.  Charter  Communications,  Inc.,
 AT&  T  Broadband,  L.  L.  C.,  Insight  Communications  Company,  L.  P.,  Cox  Communications,  Inc.,  GCI  Cable  Inc.,
 (continued.)
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 separate  security  module  for  analog-  only  devices.  601  Thus,  an  MVPD  subscriber  will  be  able  to  obtain  a
 set-  top  box  without  the  security  features  (  host  device)  from  retailers  and  only  remain  reliant  on  the
 MVPD  to  provide  a  POD  for  security  functions.  602  Despite  the  availability  of  PODs,  CEA  maintains  that
 retailers  have  not  been  carrying  cable  set-  top  boxes.  603
 192.  Through  the  OpenCable  project,  CableLabs  has  developed  specifications  for  the  POD
 module  as  well  as  the  interface  that  a  host  device  needs  to  accommodate  the  POD.  CableLabs  also
 developed  the  POD-  Host  Licensing  Agreement  (  PHILA)  to  provide  manufacturers  with  the  necessary
 technology  to  make  PODs  work  in  host  devices.  604  Consumer  electronics  manufacturers  contend  that  the
 standards  developed  by  CableLabs  are  not  sufficiently  settled  to  allow  the  manufacture  of  set-  top  boxes
 that  are  competitive  with  the  equipment  supplied  to  subscribers  by  cable  operators.  605
 193.  CableLabs  is  continuing  its  efforts  to  develop  next  generation  navigation  devices  with  its
 initiative  for  the  OpenCable  Application  Platform  (  OCAP)  or  middleware  specification.  This
 specification  includes  a  set  of  Application  Programming  Interfaces  (  APIs)  designed  to  enhance  the
 portability  of  OpenCable  products  across  brands  and  operating  systems.  CableLab  plans  to  release  the
 OCAP  specification  by  February  1,  2002.  606  CEA  maintains  that  until  this  software  standard  is  complete,
 manufacturers  will  not  be  able  to  build  advanced  set-  top  boxes  for  a  retail  market.  607  In  another  effort
 intended  to  facilitate  the  retail  availability  of  set-  top  boxes,  cable  operators  announced  an  initiative  to
 encourage  their  set-  top  box  suppliers  to  make  their  digital  set-  top  boxes  with  embedded  security  available
 at  retail.  608
 3.  Cable  Modems
 194.  A  cable  modem  allows  cable  subscribers  to  access  high-  speed  data  services  and
 interactive  television,  including  the  Internet,  Internet  Protocol  (  IP)  telephony,  video  conferencing,  and
 (  continued  from  previous  page)
 Cablevision  Systems  Corp.,  Adelphia  Communications  Corp.,  MediaCom  Communications  Corp.,  CableAmerica
 Corp.,  Time  Warner  Cable,  Petition  for  Waiver  of  the  Requirement  To  Provide  Point  of  Deployment  Modules
 Contained  in  Section  76.  1204  of  the  Commissions  Rules,  CSR  Nos.  5545-  Z,  5548-  Z,  5558-  Z,  5561-  Z,  5564-  Z,  5566-Z,
 5567-  Z,  5569-  Z,  5570-  Z,  5572-  Z,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  15075  (2000).
 601  47  C.  F.  R.    76.  1204.  See  also  Navigation  Reconsideration  supra  n.  96.
 602  The  POD  requirement  is  intended  to  permit  portability  among  set-  top  boxes,  which  will  increase  the  market  base
 and  facilitate  volume  production.  Navigation  Report  and  Order,  13  FCC  Rcd  at  14793-  4.
 603  CEA  Comments  at  2.
 604  Motorola  and  Scientific  Atlanta  have  signed  the  PHILA  and  CableLabs  is  engaged  in  negotiations  over  the
 PHILA  with  other  manufacturers.  Letter  from  William  A.  Check,  Ph.  D.,  Vice  President,  Science  and  Technology,
 NCTA,  to  Magalie  R.  Salas,  Secretary,  FCC,  Oct.  31,  2001.
 605  Letter  from  Michael  Petricone,  Vice  President,  Technology  Policy,  CEA,  to  Magalie  R.  Salas,  Secretary,  FCC,
 Nov.  6,  2001.
 606  Letter  from  William  A.  Check,  Ph.  D.,  Vice  President,  Science  and  Technology,  NCTA,  to  Magalie  R.  Salas,
 Secretary,  FCC,  Oct.  31,  2001.
 607  Letter  from  Michael  Petricone,  Vice  President,  Technology  Policy,  CEA,  to  Magalie  R.  Salas,  Secretary,  FCC,
 Nov.  6,  2001.
 608  Letter  from  Robert  Sachs,  CEO,  NCTA,  to  Michael  Powell,  Chairman,  FCC,  Oct.  10,  2001.
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 telecommuting.  Cable  modem  deployment  continues  to  increase.  609  As  we  previously  reported,  the
 CableLabs  Certified  Cable  Modem  Project  (formerly  known  as  Data  Over  Cable  Service  Interface
 Specification  or  DOCSIS)  defines  interface  requirements  for  high-  speed  cable  modems  and  provides  a
 method  for  certifying  that  cable  modems  available  for  retail  sale  are  in  compliance  with  the  DOCSIS
 specifications.  610  As  of  December  2001,  CableLabs  had  certified  193  DOCSIS  1.0  modems  and  26  cable
 modem  termination  systems  (  CMTS).  611  CableLabs  also  has  developed  an  enhanced  specification,
 DOCSIS  1.1,  which  provides  for  high-  speed  Internet  service  tiers,  using  techniques  known  as  data
 fragmentation  and  quality  of  service.  Under  this  specification,  which  is  compatible  with  the  existing
 DOCSIS  1.0  specification,  cable  operators  can  deliver  high-  speed  Internet  services  simultaneously  over
 the  same  plant  and  in  a  path  parallel  to  core  video  services.  To  date,  CableLabs  has  certified  nine  high-speed
 cable  modems  that  comply  with  the  DOCSIS  1.1  specification,  and  two  companies  have  received
 qualification  status  for  their  DOCSIS  1.1  cable  modem  termination  systems.  612  Recently,  CableLabs
 announced  the  next  version  of  the  specification,  to  be  called  DOCSIS  2.0,  which  will  significantly
 increase  cable  bandwidth  for  data  transmissions  without  requiring  any  physical  rebuilding  of  cable
 networks.  613  DOCSIS  certified  cable  modems  are  now  being  sold  at  retail  in  some  markets,  although
 widespread  retail  availability  has  not  yet  occurred.  614
 195.  PacketCable,  another  CableLabs  project,  is  intended  to  develop  interoperable  interface
 specifications  for  delivering  advanced,  real-  time  multimedia  services  over  two-  way  cable  plant.
 PacketCable  will  use  IP  technology  to  enable  a  wide  range  of  services,  including  IP  telephony,
 multimedia  conferencing,  interactive  gaming,  and  general  multimedia  applications.  615  In  November  2000,
 CableLabs  announced  that  it  had  completed  the  second  phase  of  the  PacketCable  project  and  had  released
 several  new  interim  specifications  and  technical  reports.  616  These  specifications,  which  build  upon  the
 capabilities  defined  by  the  PacketCable  1.  0  suite  of  specifications,  describe  call  signaling,  quality-  of-service,
 and  event  messaging  extensions  that  will  enable  cable  operators  to  directly  exchange  multimedia
 traffic  over  managed-  IP  backbone  networks.  Future  extensions  to  the  PacketCable  specifications  will
 define  protocols  for  enhanced  capabilities,  such  as  multimedia  conferencing  and  interactive  gaming.
 CableLabs  observes  that  several  vendors  participating  in  this  project  are  developing  products  based  on  the
 PacketCable  specification.
 609  See    44-  8  supra.
 610  2000  Report,  16  FCC  Rcd  at  6092.  See  also  CableLabs  at  http://  cablemodem.  com.
 611  CableLabs,  CableLabs  Certifies  7  More  DOCSIS  1.  1  Modems,  Continuing  Cable  Data  Advances  (press  release),
 Dec.  20,  2001,  at  http://  cablelabs.  com/  news_  room/  PR/  01_  pr_  cw20_  122001.  html.
 612  Id.  See  also  CableLabs,  Certifies  Two  DOCSIS  1.1  Modems  and  Qualifies  Two  CMTS,  Achieving  Breakthrough
 on  Advanced  Devices  (press  release),  Sept.  27,  2001,  at  http://  www.  cablelabs.  com/  news_  room/
 PR/  00_  pr_  cw19_  092701.  html.  Companies  receiving  certification  are  Ambit,  Arris,  Ericsson,  Scientific-  Atlanta,
 Tellabs,  and,  for  two  modems  apiece,  Toshiba  and  Texas  Instruments.  Arris  and  Cadant  gained  qualification  status
 for  their  cable  modem  termination  systems.
 613  CableLabs,  CableLabs  Creating  Advanced  Modem  Spec  to  Enable  30  Mbps  in  Upstream  (press  release),  Aug.  31,
 2001,  at  http://  www.  cablelabs.  com/  news_  room/  PR/  01_  pr_  adv_  phy_  083101.html.
 614  Kinetic  Strategies,  Inc.,  Cable  Modem  FAQ,  at  http://  www.  cabledatacomnews.  com/  cmic/  cmic2.  html.
 615  See  CableLabs  at  http://  www.  packetcable.  com.  See  also  2000  Report,  16  FCC  Rcd  at  6092.
 616  CableLabs,  Cablelabs  Releases  New  Interim  PacketCable  Specifications  (press  release),  Nov.  28,  2000,  at
 http://  www.  cablelabs.  com/  news_  room/  PR/  00_  pr_  pc_  specs_  112800.html.
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 IV.  COMPETITIVE  RESPONSES
 196.  In  this  section,  we  describe  a  number  of  cases  where  the  incumbent  cable  operator  faces
 competition  from  a  new  entrant.  We  report  information  gathered  through  comments  filed  in  this
 proceeding,  petitions  filled  with  the  Commission  for  a  determination  of  effective  competition,  trade  press
 reports,  articles,  and  other  publicly  available  sources.
 197.  Between  July  2000  and  June  2001,  the  Bureau  granted  16  petitions  for  effective
 competition,  representing  240  communities,  based  on  competitive  entry  from  LECs  or  their  affiliates,
 DBS,  and  municipal  operators.  These  communities  represent  approximately  two  percent  of  all  cable
 subscribers.  The  differences  between  competition  and  general  market  responses  based  on  technological
 advances,  improved  marketing,  and  new  service  opportunities  are  not  always  easy  to  distinguish.
 However,  in  communities  where  head-  to-  head  competition  is  present,  the  incumbent  cable  operator  has
 generally  responded  to  competitive  entry  in  a  variety  of  ways,  such  as  by  lowering  prices,  providing
 additional  channels  at  the  same  monthly  rate,  improving  customer  service,  adding  new  services,  or  by
 challenging  the  legality  of  the  entrants  activities.
 198.  For  example,  in  Boston,  Massachusetts,  in  response  to  RCNs  entry,  the  incumbent  cable
 operator  in  Boston,  Cablevision  of  Boston  (  Cablevision),  moderated  its  regional  rate  increase  in  the
 Boston  area  and  agreed  to  improve  its  commitment  to  public  and  educational  channels.  617  RCN,  a  wholly
 owned  subsidiary  of  RCN  Telecom  Services  Inc.,  initially  entered  the  Boston  area  market  in  1996  as  an
 OVS  operator.  618  It  was  granted  a  15-  year  cable  franchise  by  the  City  of  Boston  on  July  27,  1999.  By
 September  1999,  RCN  served  a  total  of  11,000  subscribers  in  the  Boston  metropolitan  area,  including
 5,000  subscribers  in  the  City  of  Boston.  619  By  comparison  Cablevision  serves  about  140,  000  subscribers
 in  Boston.  620
 199.  RCN  contends  that,  because  of  its  entry  to  the  Boston  area,  the  City  of  Boston  was  able  to
 negotiate  a  franchise  renewal  with  Cablevision  that  imposed  obligations  on  the  incumbent  more  favorable
 to  the  public  than  would  otherwise  have  been  possible.  621  The  franchise  agreement  requires  Cablevision
 to  upgrade  its  system  capacity  within  three  years  to  offer  more  channels,  as  well  as  local  telephone  and
 high-  speed  Internet  access.  622  Initially  Cablevision  took  steps  to  prevent  RCN  from  going  forward  by
 filing  a  lawsuit  against  RCN  and  the  city.  623  Furthermore,  RCN  contends  that  Cablevision  created  a
 barrier  to  entry  by  refusing  RCN  access  to  inside  wiring  in  MDUs  in  the  Boston  area.  624
 617  RCN  Comments  at  App.  A.
 618  Cablevision  Petition  for  Special  Relief,  CSR  5048-  E,  Aug.  3,  1999,  at  2.
 619  RCN  Comments  at  5.
 620  On  Jan.  5,  2001,  AT&  T  acquired  the  Cablevision  system  that  serves  the  Boston  franchise  area.
 621  RCN  Comments  at  App.  A.
 622  Bruce  Mohl,  City  Hopes  Cable  Pact  Means  Rate  War,  Boston  Globe,  July  29,  1999,  at  32.
 623  City  of  Boston  Application  for  Review  of  Determination  of  Effective  Competition  In  Re  Cablevision  of  Boston,
 Inc.,  CSR  5048-  E,  Aug.  20,  2001,  at  2.  See  also  Cablevision  of  Boston,  Inc.,  Petition  for  Determination  of  Effective
 Competition,  DSR  5048-  E,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  14056  (2001).
 624  See    133  supra.
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 200.  Lower  monthly  rates  and  added  or  improved  services  were  also  found  in  a  number  of
 other  communities  where  the  incumbent  cable  operator  faced  new  entrants.  For  example,  in  Duluth,
 Georgia,  the  incumbent  Rifkin  &  Associates,  Inc./  Cable  Equities  of  Colorado,  Ltd.  (  Rifkin)  faced
 aggressive  advertising  aimed  at  its  subscribers,  accompanied  by  extensive  press  coverage  in  the  local
 media,  from  new  entrant  BellSouth  Interactive  Media  Services,  Inc.  (  BIMS).  625  In  response  to
 aggressive  competition  from  BIMS,  Rifkin  upgraded  its  system  and  added  19  new  channels  --  nine  new
 expanded  basic  channels,  a  low  priced,  three-  channel  new  product  tier,  and  seven  PPV  channels.  626
 201.  Similarly,  RCN  contends  that  in  Somerville,  Massachusetts,  upon  its  entry,  Time  Warner,
 the  incumbent,  announced  a  rate  freeze  for  only  that  area  where  it  faced  competition.  627  In  suburban
 Philadelphia,  as  a  result  of  RCNs  entry,  Comcast,  the  incumbent,  began  to  offer  rate  locks  and  service
 improvements  in  the  towns  where  it  faced  competition.  628  In  the  Washington,  D.  C.,  area,  as  a  result  of
 entry  by  Starpower,  an  RCN  affiliate,  Comcast,  the  incumbent  cable  operator,  reduced  a  previously
 proposed  rate  increase.  RCN  also  contends  that  in  anticipation  of  its  entry  in  Fairfax  County,  a  suburb  of
 Washington,  D.  C.,  the  incumbent  Cox  announced  an  upgrade  of  its  plant.  629
 202.  In  some  situations  questions  have  been  raised  regarding  the  techniques  used  by
 incumbent  service  providers  to  forestall  competition.  In  Scottsboro,  Alabama,  the  Scottsboro  Electric
 Power  Board  (  Scottsboro)  began  construction  of  a  new,  municipally  owned  cable  television  system  in
 Scottsboro  because  of  widespread  dissatisfaction  with  Falcon  Cablevision  (  Falcon),  the  incumbent
 cable  operator.  630  In  late  1999,  Charter  Communications  (  Charter)  acquired  Falcons  operation  in
 Scottsboro.  After  acquiring  the  system,  Charter  began  to  engage  in  a  course  of  conduct  that,  according  to
 Scottsboro,  is  designed  to  terminate  Scottsboros  efforts  to  compete  in  the  market  and,  moreover,  to
 signal  other  would-  be  competitors  that  attempts  to  enter  other  Charter  markets  would  lead  to  similar
 predatory  practices.  631
 203.  Since  beginning  in  April  2000,  Charter  offered  a  special  rate  of  $19.95  per  month  for  one
 year.  It  then  allowed  some  customers  to  continue  subscribing  at  that  rate  for  a  second  year.  In  May  2000,
 Charter  added  one  month  of  free  service  to  the  $19.95  rate.  632  Scottsboro  contends  that  Charters  special
 rates  are  available  only  to  Scottsboros  customers  and  are  not  available  to  all  potential  subscribers  in
 Scottsboro.  633
 204.  According  to  Scottsboro,  Charter  normally  charges  $24.95  per  month  for  its  expanded
 basic  service,  which  includes  200  channels  comprised  of  16  premium  movie  channels,  45  digital  music
 625  Rifkin  &  Associates,  Inc./  Cable  Equities  of  Colorado,  Ltd.,  Petition  for  Determination  of  Effective  Competition  at
 Exhibits  D  -  F.
 626  Id.  at  10.
 627  See  1999  Report,  15  FCC  Rcd  at  1073.
 628  RCN  Comments  at  App.  A.
 629  Id.
 630  Scottsboro  Comments  at  5.
 631  Id.  at  1.
 632  Id.  at  5.
 633  Id.  at  7.
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 channels,  16  educational  channels,  and  14  PPV  channels.  A  digital  receiver  with  remote  and  Charters
 on-  screen  guide  are  also  included.  Furthermore,  Charter  offers  a  $200  bounty  to  switch  from
 Scottsboro  to  Charter,  and  an  additional  $200  if  subscribers  take  its  Internet  service.  In  addition,  Charter
 established  a  system  under  which  it  retired  subscribers  old  debts.  Scottsboro  states  that  Charters  special
 offerings  have  induced  about  36  percent  of  Scottsboros  customers  to  switch  to  Charter.
 205.  Charter  counters  that  Scottsboro  has  easy  access  to  every  citizen  because  of  its
 advantageous  position  as  a  municipally  owned-  cable  system;  it  also  has  wide  public  support,  low  capital
 costs,  and  the  incumbent  system  against  which  it  formerly  competed  was  in  dire  need  of  an  upgrade.
 According  to  Charter,  it  upgraded  the  system  after  purchasing  it  from  Falcon,  and  the  system  is  now  able
 to  provide  cable  modem  service  and  digital  programming  at  competitive  rates.  634  Charter  admits  that  it
 has  conducted  win  back  campaigns,  but  claims  that  such  campaigns  are  widespread  among  cable
 television  operators.  It  also  denies  that  it  has  set  its  prices  at  predatory  rates  and  maintains  that  its  actions
 and  pricing  policies  have  benefited  subscribers  in  the  community  because  they  now  enjoy  lower  monthly
 charges  for  improved  services.  635
 206.  Knology  submits  that  Charter  has  engaged  in  similar  behavior  against  its  systems  in  West
 Point,  Georgia,  and  Montgomery,  Alabama.  636  Knology  has  provided  cable  service  in  West  Point  since
 1998.  637  In  1999,  Charter  purchased  the  incumbent  cable  system  from  Marcus  Cable.  After  Knology
 entered  the  market,  several  rounds  of  lowering  prices  occurred  until  both  providers  were  charging  about
 $20  for  expanded  basic  service.  Knology  contends  that  Charter  did  not  offer  the  same  discounted  rates  in
 nearby  communities.  According  to  Knology,  in  nearby  communities,  Charters  prices  ranged  to  more
 than  $35  per  month  for  expanded  basic,  more  than  the  national  average  of  $32.25.  638  In  addition,  earlier
 this  year,  Charter  began  offering  a  bounty  of  $200  and  free  installation  to  any  consumers  that  switched
 from  Knology  to  Charter.  Knology  states  that,  for  customers  taking  advantage  of  this  offer,  the  effective
 cost  of  cable  service  was  reduced  to  less  than  $4  per  month.  639  In  Montgomery,  Knology  purchased  an
 existing  competitive  system  in  1997.  640  When  Charter  acquired  the  incumbent  cable  system  in  2001  from
 AT&  T  Broadband,  it  immediately  lowered  the  price  of  its  digital  tier  and  offered  consumers  $300  to
 switch  from  Knology  to  Charter.  According  to  Knology,  Charter  recently  began  to  offer  a  digital
 complete  basic  service  for  less  than  $23  per  month,  which  includes  all  analog  expanded  basic  services,
 50  channels  available  only  on  the  digital  tier,  and  50  channels  of  digital  music.  In  addition,  Charter  will
 forgive  old  debts  to  Charter  or  the  systems  previous  owner.  Knology  alleges  that  Charters  discounts  and
 giveaways  have  reduced  its  prices  below  costs,  even  if  only  programming  costs  are  considered.  Knology
 contends  that  Charter  is  taking  a  significant  loss  on  each  new  customer  it  takes  from  its  competitors,  but  it
 will  be  able  to  recoup  its  losses  once  it  has  driven  its  competitors  out  of  the  market.  641
 634  Charter  Reply  Comments  at  1.
 635  Id.  at  2-  3.
 636  Knology  Comments  at  1.
 637  Id.  at  3-  4.
 638  Id.  at  4.
 639  Id.
 640  Id.  at  5-  6.
 641  Id.  at  6.  See  also  Scottsboro  Comments  at  6-  7.
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 83
 207.  In  previous  Reports,  we  have  examined  responses  to  head-  to-  head  competition.  In
 communities  where  cable  operators  have  faced  competition  for  a  substantial  period  of  time,  the  initial
 competitive  response  generally  gives  way  to  a  more  mature  form  of  competition  that  benefits  both
 subscribers  and  operators.  In  Omaha,  Nebraska,  where  Cox  and  Qwest  have  been  competing  for  the  past
 six  years,  both  offer  a  bundle  of  video,  telephony,  and  high-  speed  Internet  access  services  to  entice  new
 customers  and  retain  old  ones.  642  For  example,  Qwests  phone  customers  pay  $28.95  per  month  for  59
 channels  of  basic  cable  service  and  $39.95  per  month  for  cable  modem  service.  For  its  part,  Cox  charges
 $33.95  per  month  for  its  70  channel  basic  cable  service  and  its  cable  modem  service  is  $5.00  lower  than
 Qwests  charge  for  cable  modem  service.  As  result  of  this  competition,  cable  penetration  in  the  area  has
 increased  and  churn  has  stabilized.  643
 208.  As  the  cases  presented  above  suggest,  subscribers  usually  benefit  from  head-  to-  head
 competition.  In  communities  where  head-  to-  head  competition  has  been  sustained  for  a  long  period  of
 time,  customers  generally  receive  lower  monthly  rates  and  better  service,  while  operators  generally  enjoy
 higher  penetration  rates  and  lower  churn  rates.  Commenters  report  that,  however,  in  some  cases,
 particularly  where  a  new  entrant  may  appear  vulnerable  for  financial  or  other  reasons,  the  initial  response
 of  a  large  incumbent  MSO  to  competition  may  be  motivated  by  anticompetitive  animus  rather  than
 legitimate  business  concerns.  644  Further,  commenters  informed  us  that,  because  of  the  difficulty  and  cost
 of  pursuing  antitrust  remedies,  it  may  be  that  the  target  of  anticompetitive  conduct  is  without  practical
 remedy.  645
 209.  The  allegations  made  in  the  comments  of  Scottsboro  and  Knology  highlight  the
 difficulties  of  new  entrants  that,  for  whatever  reason,  are  capable  of  competing  only  within  a  confined
 geographic  region.  The  vast  resources  of  a  large  MSO  may  simply  prove  too  much  if  brought  to  bear  in  a
 targeted  fashion  against  a  single  system  entrant.  Moreover,  we  are  concerned  about  the  signal  such
 targeting  may  send  to  others  who  would  compete  in  the  MVPD  market,  and  particularly  to  the  financial
 markets  to  which  a  new  entrant  may  well  be  dependent  for  resources.  However,  it  is  not  clear  that  we
 have  specific  statutory  authority  to  address  these  kinds  of  problems  directly.  There  has  been  some
 suggestion  that  our  authority  to  prohibit  anticompetitive  acts  or  unfair  practices  under  section  628  of  the
 Act  would  reach  targeted  and  predatory  competitive  responses.  646  Alternatively,  it  may  be  that  we  would
 have  to  seek  additional  authority  from  Congress  in  order  to  combat  such  practices,  which  tend  to  limit
 competition  and  discourage  new  entry.
 V.  ADMINISTRATIVE  MATTERS
 210.  This  2001  Report  is  issued  pursuant  to  authority  contained  in  sections  4(  i),  4(  j),  403,  and
 628(  g)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  154(  j),  403,  and  548(  g).
 211.  It  is  ORDERED  that  the  Office  of  Legislative  and  Intergovernmental  Affairs  shall  send
 copies  of  this  2001  Report  to  the  appropriate  committees  and  subcommittees  of  the  United  States  House
 of  Representatives  and  the  United  States  Senate.
 642  Matt  Stump,  In  Omaha,  Cox  and  Qwest  Wage  Three-  Way  Contest,  Broadband  Week,  Oct.  1,  2001.
 643  Id.
 644  Knology  Comment  at  6-  8;  Scottsboro  Reply  Comment  at  2-  3.
 645  Cable  Services  Bureau  staff  meeting  with  Scottsboro,  Oct.  17,  2001.
 646  Scottsboro  Comment  at  7-  9;  Knology  Comments  at  6-  7.
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 212.  It  is  FURTHER  ORDERED  that  the  proceeding  in  CS  Docket  No.  01-  129  IS
 TERMINATED.
 FEDERAL  COMMUNICATIONS  COMMISSION
 Magalie  Roman  Salas
 Secretary
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 APPENDIX  A
 List  of  Commenters
 Initial  Comments
 AT&  T  Corp.  (  AT&  T)
 Carolina  Broadband,  Inc.  (  Carolina)
 Comcast  Corporation  (  Comcast)
 Consumer  Electronics  Association  (  CEA)
 DirecTV,  Inc.  (  DirecTV)
 John  Dowie  (  Dowie)
 EchoStar  Satellite  Corporation  (  EchoStar)
 Etna  Video  (  Etna)
 Motorola,  Inc.  (  Motorola)
 National  Association  of  Broadcasters  (  NAB)
 National  Cable  &  Telecommunications  Association  (  NCTA)
 National  Rural  Telecommunications  Cooperative  (  NRTC)
 RCN  Corporation  (  RCN)
 Satellite  Broadcasting  and  Communications  Association  (  SBCA)
 Scottsboro  (Alabama)  Electric  Power  Board  (  Scottsboro)
 State  of  Hawaii  (  Hawaii)
 Utilicorp  Communications  Services,  Everest  Connections  Corporation,  and  ExOp  of  Missouri,  Inc.
 (  Utilicorp)
 WBGT-  LP,  David  Grant  and  Molly  Grant  (  WBGT-  LP)
 WBQC-  CA,  Elliott  B.  Block  (  WBQC-  CA)
 WJAN-  CA,  Sherjan  Broadcasting  Co.,  Inc.  (WJAN-  CA)
 WLOT-  LP,  R.  Anthony  Dimarcantonio  (  WLOT-  LP)
 Wireless  Communications  Association  International,  Inc.  (  WCA)
 Reply  Comments
 AT&  T  Corp.  (  AT&  T)
 Cablevision  Systems  Corporation  (  Cablevision)
 Charter  Communications,  Inc.  (August  20,  2001,  Letter)  (  Charter  Letter)
 Charter  Communication,  Inc.  (Reply  Comment)  (  Charter)
 Comcast  Corporation  (  Comcast)
 DirecTV,  Inc.  (  DirecTV)
 EchoStar  Satellite  Corporation  (  EchoStar)
 Gregory  C.  Jones,  M.  D.  (  Jones)
 National  Association  of  Broadcasters  (  NAB)
 National  Cable  &  Telecommunications  Association  (  NCTA)
 National  Rural  Telecommunications  Cooperative  (  NRTC)
 Northpoint  Technology,  Ltd.  and  Broadwave  USA,  Inc.  (  Northpoint)
 RCN  Corporation  (  RCN)
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 Late-  filed  Comments
 EARN  (Equal  Airwaves  Right  Now)  (  EARN)
 Knology,  Inc.  (  Knology)
 Scottsboro  (Alabama)  Electric  Power  Board  (  Scottsboro)
 WideOpenWest  Holdings,  LLC  (  WOW)
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 APPENDIX  B
 TABLE  B-  1  Cable  Television  Industry  Growth:  1993  -  June  2001
 (in  millions)
 Television
 Households
 ("  TH")
 Homes  Passed
 ("  HP")
 Basic  Cable
 Subscribers
 ("  Subs")
 Year  End
 Total
 %
 Change  Total
 %
 Change  Total
 %
 Change
 HHs
 Passed  by
 Cable
 (HP/  TH)
 HHs
 Subscribin
 g
 (Subs/  TH)
 U.  S.
 Penetration
 (Subs/  HP)
 1993  94.0  1.  0%  90.6  1.  0%  57.2  3.  6%  96.4%  60.9%  63.1%
 1994  94.9  1.  0%  91.6  1.  1%  59.7  4.  4%  96.5%  62.9%  65.2%
 1995  95.9  1.  1%  92.7  1.  2%  62.1  4.  0%  96.7%  64.8%  67.0%
 1996  97.0  1.  1%  93.7  1.  1%  63.5  2.  3%  96.6%  65.5%  67.8%
 1997  98.0  1.  0%  94.6  1.  0%  64.9  2.  2%  96.5%  66.2%  68.6%
 1998  99.0  1.  0%  95.6  1.  1%  66.1  1.  8%  96.6%  66.8%  69.1%
 1999  100.0  1.  0%  96.6  1.  0%  67.3  1.  8%  96.6%  67.3%  69.7%
 2000  106.4  6.  4%  103.2  6.  8%  68.5  1.  8%  97.0%  64.4%  66.4%
 June  01  (e)  107.1  0.  7%  104.0  0.  8%  69.0  0.  7%  97.1%  64.4%  66.3%
 (e)  June  data  is  based  on  year-  end  estimate  by  Paul  Kagan  Associates.
 Sources:  1993  to  1997:  U.  S.  Television  Households:  Paul  Kagan  Assocs.,  Inc.,  Basic  Cable  Network  Economics
 (1983-  2007),  Cable  Program  Investor,  Mar.  13,  1998,  at  2;  Homes  Passed  and  Basic  Cable  Subscribers:
 Paul  Kagan  Assocs.,  Inc.,  History  of  Cable  and  Pay-  TV  Subscribers  and  Revenues,  Cable  TV  Investor,
 Apr.  14,  1998,  at  3.
 1998  and  1999:  U.  S.  Television  Households,  Homes  Passed,  and  Basic  Cable  Subscribers:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (1998-  2009),  The  Cable  TV
 Financial  Databook  1999,  Aug.  1999,  at  10.
 2000  and  2001:  U.  S.  Television  Households,  Homes  Passed,  and  Basic  Cable  Subscribers:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (2000-  2011),  The  Broadband  Cable
 Financial  Databook  2001,  July  2001,  at  10.
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 TABLE  B-  2  Premium  Cable  Services:  1993  -  June  2001
 (in  millions)
 Premium  Cable
 Service  Subscribers  1  Premium  Units  2
 Year  End  Year  End  Total  %  Change  Year  End  Total  %  Change
 1993  26.4  6.  9%  47.0  1.  1%
 1994  28.1  6.  4%  47.4  0.  9%
 1995  29.8  6.  0%  51.6  8.  9%
 1996  31.0  4.  0%  54.6  5.  8%
 1997  31.5  1.  6%  56.0  2.  6%
 1998  35.3  12.1%  57.9  3.  4%
 1999  35.5  0.  6%  53.0  -8.5%  3
 2000  36.8  3.  7%  55.6  4.  9%
 June  2001  (e)  37.2  1.  0%  56.4  1.  4%
 (e)  June  data  are  based  on  year-  end  estimate  by  Paul  Kagan  Associates.
 1  Premium  Cable  Services  Subscribers  refers  to  the  total  number  of  homes  subscribing  to  one  or  more
 premium  services.  Each  home  is  counted  once,  regardless  of  the  number  of  premium  services  to  which  it
 subscribes.
 2  Premium  Units  refers  to  the  total  number  of  premium  subscriptions.  Each  subscription  is  counted
 separately,  thus  may  exceed  the  number  of  premium  subscribers.
 3  The  decrease  in  the  number  of  premium  units  is  due  to  the  migration  of  certain  pay  services  to  other  tier
 categories.  As  such,  the  number  of  units  sold  by  those  services  are  no  longer  counted  here.
 Sources:  1993  to  1997:  Paul  Kagan  Assocs.,  Inc.,  History  of  Cable  and  Pay-  TV  Subscribers  and  Revenues,  Cable
 TV  Investor,  Apr.  14,  1998,  at  3.
 1998  to  1999:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (1998-  2009),  The  Cable  TV  Financial  Databook  1999,  Aug.  1999,  at  10.
 2000  to  2001:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (2000-  2011),  The  Broadband  Cable  Financial  Databook  2001,  July  2001,  at  10.
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 TABLE  B-  3  Growth  By  Network  Type:  1999  -  June  2001
 1999  98-  99  2000  99-  00
 Network  Type  Number  of
 Networks
 Percent  of
 Networks
 Percent
 Change
 Number  of
 Networks
 Percent  of
 Networks
 Percent
 Change
 Basic/  No-  Chg  147  68.7%  5.8%  130  56.2%  -11.6%
 Premium  43  20.1%  138.9%  40  17.3%  -7.  0%
 Pay  Per  View  9  4.  2%  -10.0%  11  4.8%  22.2%
 Digital  -  -  -  39  16.9%  -Other*
 15  7.0%  114.3%  11  4.8%  -26.7%
 Total  214  100%  23.0%  231  100%  7.9%
 *  Other  includes  cable  networks  that  fall  under  more  than  one  service  category.  For  example,  the
 Disney  Channel  is  part  of  the  basic  tier  in  some  systems,  but  is  sold  as  a  premium  service  on  other
 systems.
 Sources:  1999:  NCTA,  National  Cable  Video  Networks  By  Type  of  Service:  1980  -  1999,  Cable  Television
 Developments  1999/  2000,  at  6.
 2000:  NCTA,  National  Cable  Video  Networks  By  Type  of  Service:  1980  -  2000,  Cable  Television  Developments  2001,  at  8.
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 TABLE  B-  4  Cable  Industry  Revenue  and  Cash  Flow:  1997    2001
 1997  1998  1999  2000  2001
 Total  Total
 %
 Change  Total
 %
 Change  Total
 %
 Change
 Estimated
 Year  End
 Total
 %
 Change
 Avg  Basic  Subscribers  (mil)  64.2  65.4  1.  9%  66.7  2.  0%  67.9  1.  8%  69.0  1.  6%
 Revenue  Segments  (mil.)  Basic  Service  and  CPST  Tiers  $20,008  $21,830  9.  1%  $23,135  6.  0%  $24,729  6.  9%  $26,142  5.  7%
 Pay  Tiers  $4,952  $5,084  2.7%  $4,989  -1.9%  $4,648  -6.8%  $4,777  2.8%
 Local  Advertising  $1,925  $1,850  -3.9%  $2,685  45.1%  $3,240  20.7%  $3,661  13.0%
 Pay-  Per-  View  $823  $627  -23.8%  $954  52.2%  $760  -20.3%  $1,096  44.2%
 Home  Shopping  $152  $187  23.0%  $185  -1.1%  $239  29.2%  $260  8.8%
 Advanced  Services  (Ana./  Dig.)  1  $208  $452  117.3%  $1,978  337.6%  $2,051  3.7%  $5,562  171.2%
 Equipment  and  Install  $2,320  $2,631  13.4%  $2,824  7.3%  $2,451  -13.2%  $2,478  1.1%
 Total  Revenue  (mil.)  $30,388  $32,661  7.  5%  $36,750  12.5%  $38,118  3.  7%  $43,976  15.4%
 Revenue  Per  Subscriber  $473.33  $499.40  5.5%  $550.97  10.3%  $561.38  1.9%  $637.33  13.5%
 Operating  Cash  Flow  (mil.)  2  $13,369  $14,602  9.  2%  $15,600  6.  8%  $16,611  6.  5%  $18,272  10.0%
 Cash  Flow  per  Subscriber  $208.24  $225.87  8.5%  $233.88  3.5%  $244.64  4.6%  $264.81  8.2%
 Cash  Flow/  Total  Revenue  44.  0%  45.  2%  2.  7%  42.  4%  -6.  2%  43.  6%  2.  8%  41.  5%  -4.  8%
 1  Includes  advanced  analog,  digital  video,  high-  speed  data,  cable  telephony,  interactive  services,  and  games.
 2  Cash  flow  and  its  proxies  (e.  g.,  EBITDA)  are  often  used  to  value  the  operations  of  a  communications
 firm  without  regard  to  the  firm's  capital  structure.  Cash  flow  from  operations  is  the  net  result  of  cash
 inflows  from  operations  (revenue)  and  cash  outflows  from  operations  (expenses),  thus  ignoring  non-  cash
 charges  to  net  income  such  as  depreciation  and  amortization.  Cash  flow  from  operations  indicates  a
 firm's  ability  to  meet  its  net  finance  and  investment  obligations.
 Sources:  1997:  Average  Number  of  Basic  Subscribers:  Paul  Kagan  Assocs.,  Inc.,  History  of  Cable  and  Pay-  TV
 Subscribers  and  Revenues,  Cable  TV  Investor,  Apr.  14,  1998,  at  3;  Revenue  Segments:  Paul  Kagan
 Assocs.,  Inc.,  Paul  Kagan's  10-  YearProjections,  Cable  TV  Investor,  May  20,  1997,  at  9;  Paul  Kagan
 Assocs.,  Inc.,  Total  Cable  TV  Advertising  Revenue  (1980-  2007),  Cable  TV  Financial  Databook,  Aug.
 1998,  at  15;  Operating  Cash  Flow:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  In  Cable  TV,
 Cable  TV  Finance,  May  31,  1998,  at  1.
 1998:  Average  Number  of  Basic  Subscribers  and  Revenue  Segments:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (1998-  2009),  The  Cable  TV  Financial  Databook  1999,
 Aug.  1999,  at  10-  11;  Operating  Cash  Flow:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  Cable
 TV,  The  Cable  TV  Financial  Databook  1999,  Aug.  1999,  at  149.
 1999:  Average  Number  of  Basic  Subscribers  and  Revenue  Segments:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (1999-  2010),  The  Cable  TV  Financial  Databook  2000,
 Aug.  2000,  at  10;  Operating  Cash  Flow:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  Cable
 TV,  The  Cable  TV  Financial  Databook  2000,  Aug.  2000,  at  150.
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 2000  and  2001:  Average  Number  of  Basic  Subscribers  and  Revenue  Segments:  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections  (2000-  2011),  The  Broadband  Cable  Financial
 Databook  2001,  July  2001,  at  10;  Operating  Cash  Flow:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital
 Flows  in  Cable  TV,  The  Broadband  Cable  Financial  Databook  2001,  July  2001,  at  138.
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 TABLE  B-  5  System  Transactions:  1998  -  June  2001
 1998  1999  98-  99
 %  Change
 2000  99-  00
 %  Change
 Jan-  June
 2001
 Number  of  Systems  Sold  119  92  -22.7%  47  48.9%  23
 Total  Number  of  Subscribers  22,466,  200  18,288,  706  -18.6%  10,494,  290  -42.6%  4,040,046
 System  Size  Average  188,792  198,790  5.3%  223,283  12.3%  175,654
 Number  of  Homes  Passed  36,397,  730  28,345,  972  -22.1%  17,393,  388  -38.6%  6,789,548
 No.  of  Homes  Passed  Avg  305,863  308,108  0.73%  370,072  20.1%  295,197
 Total  Dollar  Value  (mil.)  $64,601  $73,070  13.1%  $62,154  -14.9%  $14,772
 Dollar  Value  (mil.)  Average  $542.9  $794.2  46.3%  $1,322.  4  66.5%  $64.0
 Dollar  Val.  Per  Subscriber  $2,875  $3,995  39.0%  $5,923  48.3%  $3,656
 Dollar  Val.  Per  Home  Passed  $1,775  $2,578  45.2%  $3,573  38.6%  $2,176
 Cash  Flow  Multiple  13.1x  16.7x  27.5%  19.6x  17.4%  14.4x
 Sources:  1998:  Paul  Kagan  Assocs.,  Inc.,  Cable  System  Sale  Summary  (through  December  annually),  Cable  TV
 Investor,  Jan.  29,  2000,  at  7.
 1999  to  2000:  Paul  Kagan  Assocs.,  Inc.,  Cable  System  Sale  Summary  (Annually  through  December),  Cable  TV  Investor,  Feb.  5,  2001,  at  12.
 2001:  Paul  Kagan  Assocs.,  Inc.,  Cable  System  Sale  Summary  (Annually  through  June),  Cable  TV  Investor,  Aug.  29,  2001,  at  9.
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 TABLE  B-  6  Acquisition  of  Capital:  1993  -  June  2001
 ($  in  million)
 Private  Debt  Public  Debt  2  Private  Equity  Public  Equity  Year
 Sum
 Raised
 %  of
 Total  1
 Sum
 Raised
 %  of
 Total
 Sum
 Raised
 %  of
 Total
 Sum
 Raised
 %  of
 Total
 Total
 Capital
 Raised  3
 1993  $(  3,584)  -186.4%  $5,280  274.6%  $62  3.2%  $165  8.6%  $1,923
 1994  $  4,803  87.0%  $155  2.8%  $100  1.8%  $461  8.4%  $5,519
 1995  $(  714)  -8.  5%  $4,495  53.6%  $1,191  14.2%  $3,419  40.7%  $8,391
 1996  $1,287  23.4%  $2,355  42.7%  $49  0.9%  $1,818  33.0%  $5,509
 1997  $103  1.2%  $6,252  73.3%  $1,942  22.8%  $230  2.7%  $8,527
 1998  $194  2.3%  $6,174  72.7%  $200  2.4%  $1,927  22.7%  $8,495
 1999  $(  320)  -1.  1%  $16,115  55.9%  $5,385  18.7%  $7,648  26.5%  $28,828
 2000  $2,766  36.7%  $4,288  56.9%  $101  1.3%  $380  5.0%  $7,535
 June  2001  $8,585  44.3%  $8,156  42.1%  $94  0.5%  $2,540  13.1%  $19,375
 Total:  1993-  June  2001  $13,120  $53,270  $9,124  $18,588  $94,102
 Avg  Raised  Per  Year  $1,544  $6,267  $1073  $2,187  $11,071
 1  Column  entitled  "%  of  Total"  represents  the  percent  of  total  capital  raised  from  financing  sources  for
 that  given  year.
 2  Public  Debt  is  expressed  in  terms  of  net  new  public  debt.
 3  Total  Capital  Raised  equals  private  debt  plus  public  debt  plus  private  equity  plus  public  equity.
 Sources:  1993:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  Cable  TV,  Cable  TV  Finance,  May  31,  1998,
 at  1.
 1994:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  Cable  TV,  The  Cable  TV  Financial  Databook  1999,  Aug.  1999,  at  149.
 1995  to  1999:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  Cable  TV,  The  Cable  TV  Financial  Databook  2000,  Aug.  2000,  at  150.
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 2000:  Paul  Kagan  Assocs.,  Inc.,  Estimated  Capital  Flows  in  Cable  TV,  The  Broadband  Cable  Financial  Databook  2001,  July  2001,  at  138.
 2001:  Paul  Kagan  Assocs.,  Inc.,  June  Cable  Financing  Snapshot,  Cable  TV  Finance,  July  31,  2001,  at  10.
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 APPENDIX  C
 TABLE  C-  1  Assessment  of  Competing  Technologies  (i)
 Technology  Used  June  97  June  98  June  99  June  00  June  01
 (1)  TV  Households
 Percent  Change
 97,000,  000
 0.00%
 98,000,  000
 1.03%
 99,400,  000
 1.43%
 100,801,720
 1.41%
 102,184,810
 1.37%
 (2)  MVPD  Households  (ii)
 Percent  Change
 Percent  of  TV  Households
 73,646,  970
 1.76%
 75.92%
 76,634,  200
 4.06%
 78.20%
 80,882,  411
 5.54%
 81.37%
 84,423,  717
 4.38%
 83.75%
 88,310,  074
 4.60%
 86.42%
 (3)  Cable  Subscribers
 Percent  Change
 Percent  of  MVPD  Total
 64,150,  000
 1.02%
 87.10%
 65,400,  000
 1.95%
 85.34%
 66,690,  000
 1.97%
 82.45%
 67,700,  000
 1.51%
 80.19%
 68,980,  000
 1.89%
 78.11%
 (4)  MMDS  Subscribers
 Percent  Change
 Percent  of  MVPD  Total
 1,100,  000
 -6.78%
 1.49%
 1,000,  000
 -9.09%
 1.30%
 821,000
 -17.90%
 1.02%
 700,000
 -14.74%
 0.83%
 700,000
 0.0%
 0.79%
 (5)  SMATV  Subscribers
 Percent  Change
 Percent  of  MVPD  Total
 1,162,  500
 3.24%
 1.58%
 940,000
 -19.14%
 1.23%
 1,450,  000
 54.26%
 1.79%
 1,500,  000
 3.45%
 1.78%
 1,500,  000
 0.0%
 1.70%
 (6)  HSD  Subscribers
 Percent  Change
 Percent  of  MVPD  Total
 2,184,  470
 -4.10%
 2.97%
 2,028,  200
 -7.15%
 2.65%
 1,783,  411
 -12.07%
 2.20%
 1,476,  717
 -17.20%
 1.75%
 1,000,  074
 -32.28%
 1.13%
 (7)  DBS  Subscribers
 Percent  Change
 Percent  of  MVPD  Total
 5,047,  000
 17.78%
 6.85%
 7,200,  000
 42.66%
 9.40%
 10,078,  000
 39.97%
 12.46%
 12,987,  000
 28.86%
 15.38%
 16,070,  000
 23.74%
 18.20%
 (8)  OVS  Subscribers  (iii)
 Percent  Change
 Percent  of  MVPD  Total
 3,000
 36.99%
 0.00%
 66,000
 2100.00%
 0.09%
 60,000
 -9.09%
 0.07%
 60,000
 0.0%
 0.07%
 60,000
 0.0%
 0.07%
 Notes:  (i)  Some  numbers  have  been  rounded.
 (ii)  The  total  number  of  MVPD  households  is  likely  to  be  somewhat  less  than  the  given  figure  since
 some  households  subscribe  to  the  services  of  more  than  one  MVPD.  See  1994  Report,  9  FCC
 Rcd  at  7480.  However,  the  number  of  households  subscribing  to  more  than  one  MVPD  is
 expected  to  be  low.  Hence  the  given  total  can  be  seen  as  a  reasonable  estimate  of  the  number  of
 MVPD  households.
 (iii)  The  decline  in  OVS  subscribers  since  1998  reflects  the  conversion  of  portions  of  some  OVS
 systems  to  franchised  cable  systems  over  the  last  three  years.
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 Sources:
 (1)  Television  households:  1997  from  Nielsen  Media  Research  as  cited  in  TV  Column,  Washington  Post,
 Aug.  26,  1997,  at  E4;  1998  from  Nielsen  Media  Research  as  cited  in  Broadcasting  &  Cable,  June  29,
 1998,  at  70;  1999  from  Nielsen  Media  Research  as  cited  in  Broadcasting  &  Cable,  June  28,  1999,  at
 26;  and  2000  and  2001  from  Nielsen  Media  Research.
 (2)  Total  MVPD  households:  The  sum  of  the  total  number  of  subscribers  listed  under  each  of  the
 categories  of  the  various  technologies.  See  note  (ii)  above.
 (3)  Cable  subscribers:  1997  from  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry
 Projections,  Cable  TV  Investor,  May  20,  1997,  at  9;  1998  from  Paul  Kagan  Assocs.,  Inc.,  Paul
 Kagans  10-  Year  Cable  TV  Industry  Projections,  Cable  TV  Investor,  Aug.  10,  1998,  at  4;  1999  from
 Paul  Kagan  Assocs.,  Inc.,  Cable  Industry  10-  YearProjections,  Cable  TV  Investor,  June  25,  1999,  at  6;
 2000  from  Paul  Kagan  Assocs.,  Inc.,  Cable  Industry  10-  YearProjections,  Cable  TV  Investor,  June  19,
 2000,  at  6;  and  2001  from  Paul  Kagan  Assocs.,  Kagans  10-  Year  Cable  TV  Industry  Projections,
 Broadband  Cable  Financial  Databook  2001,  July  2001,  at  10.
 (4)  MMDS  subscribers:  1997  from  WCA  Comments  for  the  1997  Report  at  8.  The  1998  and  1999
 subscribers  estimated  by  the  FCC;  2000  subscribers  from  NCTA  Comments  for  the  2000  Report  at  9;
 and  2001  subscribers  from  NCTA  comments  at  7.
 (5)  SMATV  subscribers:  1997  subscribers  were  estimated  by  the  FCC  based  on  data  from  Paul  Kagan
 Assocs.,  Inc.,  Private  Cable  Growth,  Private  Cable  Investor,  July  1997,  at  3;  1998  subscribers  from
 NCTA  1998  Comments  at  6;  1999  subscribers  from  NCTA  Comments  for  the  2000  Report  at  5;  and
 2001  subscribers  from  NCTA  Comments  at  9.
 (6)  HSD  subscribers:  1997  from  DTH  Subscribers,  SkyREPORT,  Nov.  1999,  at  10;  1998-  2000  from
 SkyReport.  com  at  http://  www.  skyreport.  com/  dth_  us.  htm;  and  2001  from  SBCA  Comments,  Table  1
 at  4.
 (7)  DBS  subscribers:  1997  from  DTH  Subscribers,  SkyREPORT,  November  1997,  at  10;  1998  from
 Minal  Damani  and  Jennifer  E.  Sharpe,  U.  S.  DBS  Marketplace:  1998,  The  Strategis  Group,  July,  1998
 at  6;  1999-  2000  from  SkyReport.  com  at  http://  www.  skyreport.  com/  dth_  us.  htm;  and  2001  from  SBCA
 Comments,  Table  1  at  4.
 (8)  OVS  subscribers:  OVS  subscriber  count  for  1997  through  2001  estimated  by  the  FCC.
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 TABLE  C-  2  Number  and  Subscriber  Size  of  Major  Cable  System  Clusters
 (Cumulative  Figures)
 1997  1998  1999  2000  Range  of  Clustered  Subscribers
 (thousands)  Clusters  Subscribers  (millions)  Clusters  Subscribers  (millions)  Clusters  Subscribers  (millions)  Clusters  Subscribers  (millions)
 100-  199  49  6.7  33  4.  6  41  5.4  26  3.  6
 200-  299  33  8.2  25  6.  3  16  4  13  3.  2
 300-  399  11  3.8  20  6.  7  20  6.8  22  7.  4
 400-  499  8  3.  7  7  3.  2  9  3.  9  13  5.9
 >500  16  11.9  21  19.6  28  23.8  34  34.3
 Total  117  34.3  106  40.4  114  43.9  108  54.4
 Sources:
 1997  to  1999:  Paul  Kagan  Assocs.,  Inc.,  Major  Cable  TV  Systems/  Clusters,  The  Cable  TV  Financial  Databook  1997,  July  1997,  at  39-  41;  Paul  Kagan  Assocs.,  Inc.,  Major  Cable  TV  Systems/  Clusters,
 The  Cable  TV  Financial  Databook  1998,  July  1998,  at  42-  44;  Paul  Kagan  Assocs.,  Inc.,  Major  Cable
 TV  Systems/  Clusters,  The  Cable  TV  Financial  Databook  1999,  July  1999,  at  46-  48.
 2000:  Paul  Kagan  Assocs.,  Major  Cable  TV  Systems/  Clusters,  Broadband  Cable  Financial  Databook  2001,  July  2001,  at  36.
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 TABLE  C-  3  2001  Concentration  in  the  National  Market  for  Purchase  of  Video  Programming  (1)
 Rank  Company  Percent  of  Subscribers  (2)
 1  AT&  T  16.44
 2  Time  Warner  14.35
 3  DirecTV  11.32
 4  Comcast  9.53
 Top  4  51.64
 5  Charter  7.35
 6  Cox  6.98
 7  EchoStar6.  87
 8  Adelphia  6.  51
 Top  8  79.35
 9  Cablevision  3.40
 10  Insight  1.  54
 Top  10  84.29
 Top  25  89.70
 Top  50  91.38
 HHI  905  (3)
 Notes:
 (1)  MSO  subscriber  totals  as  of  June  2001,  and  reported  in  Top  Cable  System  Operators  as  of  June  2001,
 Kagan  World  Media,  Cable  TV  Investor,  August  29,  2001,  at  12-  13.  There  is  no  double  counting  of
 subscribers.  If  a  cable  operator  is  partially  owned  by  more  than  one  MSO,  its  subscribers  are
 assigned  to  the  largest  MSO.  Subscribers  for  DirecTV  and  EchoStar  are  based  on  SkyReport.  com  at
 http://  www.  skyreport.  com/  dth_  us.  htm.
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 (2)  The  total  number  of  MVPD  subscribers  used  to  calculate  the  HHI  is  88,310,074  from  Table  C-  1.
 (3)  The  HHI  is  calculated  on  the  basis  of  market  shares  for  the  top  60  companies.  Because  all  of  the
 remaining  MVPDs  have  very  small  shares  of  the  market,  an  HHI  calculation  that  included  all  cable
 system  operators  could  only  be  slightly  higher  (no  more  than  2-  3  points)  than  the  given  HHI.
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 TABLE  C-  4  Concentration  in  the  National  Market  for  the  Purchase  of  Video  Programming
 1998-  2001
 Percent  of  MVPD  Subscribers  Market  Share
 1998  1999  2000  2001
 Top  Share  26.48  20.50  19.07  16.44
 Top  2  42.62  36.45  33.99  30.79
 Top  3  48.94  45.68  44.27  42.11
 Top  4  54.63  53.94  52.70  51.64
 Top  10  71.04  74.95  83.90  84.29
 Top  25  80.99  84.92  89.75  89.70
 Top  50  86.08  89.58  92.14  91.38
 HHI  1096  923  954  905
 Source:
 Data  for  1998  through  2000  were  taken  from  Reports,  1997-  2000.  Data  for  2001  are  from  Table  C-  2.
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 APPENDIX  D
 TABLE  D-  1  MSO  Ownership  in  National  Video  Programming  Services
 Programming  Service  Launch  Date  MSO  Ownership  (%)
 Action  Max  Jun-  98  AOL  Time  Warner  (100)
 American  Movie  Classics  (AMC)  Oct-  84  Cablevision  (75)
 Animal  Planet  Oct-  96  Liberty  Media  (49),  Cox  (19.7)
 @Max  May-  01  AOL  Time  Warner  (100)
 BET  Movies  Feb-  97  Liberty  Media  (100)
 Black  STARZ!  Feb-  97  Liberty  Media  (100)
 Bravo  Feb-  80  Cablevision  (75),  Liberty  Media
 (25)
 Canales    (6  digital  channels)  1  Oct-  98  Liberty  Media  (100)
 Cartoon  Network  Oct-  92  AOL  Time  Warner  (100)
 Cinemax  Aug-  80  AOL  Time  Warner  (100)
 CNN  Jun-  80  AOL  Time  Warner  (100)
 CNN  Espaol  Mar-  97  AOL  Time  Warner  (100)
 CNN  Headline  News  Jan-  82  AOL  Time  Warner  (100)
 CNN  International  Jan-  95  AOL  Time  Warner  (100)
 CNN/  Sports  Illustrated  Dec-  96  AOL  Time  Warner  (100)
 CNN  Money  Dec-  95  AOL  Time  Warner  (100)
 Comedy  Central  Apr-  91  AOL  Time  Warner  (50)
 Court  TV  Jul-  91  Liberty  Media  (50),  AOL  Time
 Warner  (50)
 Discovery  Channel  Jun-  85  Liberty  Media  (49),  Cox  (24.6)
 Discovery  Civilization  Oct-  96  Liberty  Media  (49),  Cox  (24.6)
 Discovery  En  Espaol  Aug-  98  Liberty  Media  (49),  Cox  (24.6)
 Discovery  Health  Jul-  98  Liberty  Media  (49),  Cox  (24.6)
 Discovery  Home  &  Leisure  Oct-  96  Liberty  Media  (49),  Cox  (24.6)
 Discovery  Kids  Oct-  96  Liberty  Media  (49),  Cox  (24.6)
 Discovery  Science  Oct-  96  Liberty  Media  (49),  Cox  (24.6)
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 Programming  Service  Launch  Date  MSO  Ownership  (%)
 Discovery  Wings  Jul-  98  Liberty  Media  (49),  Cox  (24.6)
 E!  Entertainment  Jun-  90  Comcast  (40),  Liberty  Media  (10)
 Encore  Apr-  91  Liberty  Media  (100)
 Encore  Action  Sept-  94  Liberty  Media  (100)
 Encore  Love  Stories  Jul-  94  Liberty  Media  (100)
 Encore  Mysteries  Jul-  94  Liberty  Media  (100)
 Encore  True  Stories  and  Drama  Sept-  94  Liberty  Media  (100)
 Encore  WAM!  America's  Youth
 Network
 Sept-  94  Liberty  Media  (100)
 Encore  Westerns  Jul-  94  Liberty  Media  (100)
 5StarMax  May-  01  AOL  Time  Warner  (100)
 FOX  Sports  Net  (5  channels)  Various  Cablevision  (50)
 GEMS  International  Television  Apr-  93  Liberty  Media  (50)
 Golf  Channel  Jan-  95  Liberty  Media  (10),  Comcast  (90)
 Great  American  Country  Dec-  95  Comcast  (100)
 Hallmark  Channel  (formerly  Odyssey)  Oct-  93  Liberty  Media  (32.5)
 HBO  (Home  Box  Office)  Nov-  72  AOL  Time  Warner  (100)
 HBO  Latino  Nov-  00  AOL  Time  Warner  (100)
 HBO  Plus  Dec-  75  AOL  Time  Warner  (100)
 HBO  Signature  Oct-  93  AOL  Time  Warner  (100)
 HBO  Comedy  May-  99  AOL  Time  Warner  (100)
 HBO  Family  Dec-  96  AOL  Time  Warner  (100)
 HBO  Zone  May-  99  AOL  Time  Warner  (100)
 Home  Shopping  Network  Jul-  85  Liberty  Media  (19.7)
 Independent  Film  Channel  Sep-  94  Cablevision  (75)
 International  Channel  Jul-  90  Liberty  Media  (90)
 MoreMAX  Aug-  91  AOL  Time  Warner  (100)
 MoviePlex  Dec-  79  Liberty  Media  (100)
 MuchMusic  USA  Jul-  94  Cablevision  (75)
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 Programming  Service  Launch  Date  MSO  Ownership  (%)
 Outdoor  Life  Network  Jul-  95  Cox  (33.3),  Comcast  (17),  Liberty
 Media  (15.4)
 OuterMax  May-  01  AOL  Time  Warner  (100)
 Ovation:  The  Arts  Network  Apr-  96  AOL  Time  Warner  (4.  2)
 PIN  (Product  Information  Network)  Apr-  94  Cox  (45)
 Prevue  Channel  Jan-  88  Liberty  Media  (51)
 QVC  Nov-  86  Comcast  (57),  Liberty  Media  (43)
 Sci-  Fi  Channel  Sept-  92  Liberty  Media  (19.7)
 Sneak  Prevue  May-  91  Liberty  Media  (12)
 Starz!  Feb-  94  Liberty  Media  (100)
 Starz!  Action  May-  99  Liberty  Media  (100)
 Starz!  Cinema  May-  99  Liberty  Media  (100)
 Starz!  Family  May-  99  Liberty  Media  (100)
 Starz!  Love  Stories  Feb-  94  Liberty  Media  (100)
 Starz!  MoviePlex  Jan-  95  Liberty  Media  (100)
 Starz!  Mystery  Feb-  94  Liberty  Media  (100)
 Starz!  Theater  Mar-  96  Liberty  Media  (100)
 Starz!  True  Stories  Feb-  94  Liberty  Media  (100)
 Starz!  Wam  Feb-  94  Liberty  Media  (100)
 Starz!  Westerns  Feb-  94  Liberty  Media  (100)
 Style  May-  99  Comcast  (40),  Liberty  Media  (10)
 TBS  Dec-  76  AOL  Time  Warner  (100)
 Telemundo  2  Jan-  87  Liberty  Media  (40)
 TLC  (The  Learning  Channel)  Nov-  80  Liberty  Media  (49),  Cox  (24.6)
 Thematic  Multiplex  SM  Jul-  94  Liberty  Media  (100)
 Thriller  Max  Jun-  98  AOL  Time  Warner  (100)
 TNT  (Turner  Network  Television)  Oct-  88  AOL  Time  Warner  (100)
 Travel  Channel  Feb-  87  Liberty  Media  (49),  Cox  (24.6)
 Turner  Classic  Movies  Apr-  94  AOL  Time  Warner  (100)
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 Programming  Service  Launch  Date  MSO  Ownership  (%)
 USA  Network  Apr-  80  Liberty  Media  (21)
 Viewers  Choice  1-  10  and  Hot  Choice  (11
 multiplexed  channels)
 Nov-  85  Cox  (20),  Time  Warner  (17),  Liberty
 Media  (11.7),  Comcast  (11)
 WE  Jan-  97  Cablevision  (75)
 WMAX  May-  01  AOL  Time  Warner  (100)
 Notes:
 1  Canales  ,  Liberty  Medias  digital  package  of  Spanish-  language  channels,  consists  of  FoxSportsAmericas,
 CBS  Telenoticias,  CineLatino,  BoxTejano,  BoxExitos,  and  Canal  9.
 2  On  October,  11,  2001,  NBC  announced  that  it  would  acquire  the  Telemundo  Network  Group.
 Since  this  sale  is  subject  to  regulatory  approval  by  the  Federal  Communications  Commission  and
 the  Federal  Trade  Commission,  we  list  it  as  vertically  integrated  with  Liberty  Media.  See  Steve
 McClellan,  Lo  Mas  Grande  Deal  De  NBC,  Broadcasting  &  Cable,  Oct.  15,  2001,  at  6.
 Sources:
 NCTA,  Directory  of  Cable  Networks,  Cable  Television  Developments  2001,  at  28-  146.
 Joe  Schlosser,  Fox  Puts  on  Some  Speed,  Broadcasting  and  Cable,  Aug.  6,  2001,  at  4.
 BET.  com,  at  http://  www.  bet.  com/  atBET/  0.,  C-  6-  73-  137584,00.  html.
 Viacom.  com,  at  http://  www.  viacom.  com/  unitbyseg.  tin?  sBusSegmentNickname=  ctv.
 Liberty  Media  Corp.,  at  http://  www.  libertymedia.  com/  our_  affiliates/  video_  programming.  htm
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 TABLE  D-  2  National  Video  Programming  Services
 Not  Affiliated  With  a  Cable  Operator
 Programming  Service  Launch  Date
 A&  E  (Arts  &  Entertainment)  Feb-  84
 ABC  Family  (formerly  Fox  Family  Channel)  Apr-  77
 All  News  Channel  Nov-  89
 America's  Store  Sep-  86
 ANA  Television  Network  Dec-  91
 ART  (Arab  Radio  &  Television)  1999
 Asian  American  Satellite  TV  Jan-  92
 BBC  America  Mar-  98
 BET  Jan-  80
 BET  Action  Pay  Per  View  Sep-  90
 BET  Gospel  Nov-  98
 BET  on  Jazz  Jan-  96
 Biography  Channel  Dec-  98
 Bloomberg  Information  Television  Jan-  95
 Boating  Channel  Nov-  98
 Box  Music  Network  Dec-  85
 Canal  Sur  Aug-  91
 CCTV-  4  (China  Central  Television)  Jan-  98
 CelticVision  Mar-  95
 Classic  Arts  Showcase  May-  94
 CMT  (Country  Music  Television)  Mar-  83
 CNBC  Apr-  89
 CNET:  The  Computer  Network  Jan-  95
 College  Entertainment  Network  Jan-  97
 Crime  Channel  Jul-  93
 C-  SPAN*  Mar-  79
 C-  SPAN2*  Jun-  86
 C-  SPAN3*  Sep-  97
 CTN  (Chinese  Television  Network)  1995
 Deep  Dish  TV  Jan-  86
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 Programming  Service  Launch  Date
 Disney  Channel  Apr-  83
 Do-  It-  Yourself  Channel  Sep-  99
 Dream  TV  Network  Nov-  96
 Ecology  Communications  Nov-  94
 ESPN  Sep-  79
 ESPN  Classic  Sports  (formerly  Classic  Sports  Network)  May-  95
 ESPN2  Oct-  93
 ESPNEWS  Nov-  96
 ESPN  EXTRA  Sep-  99
 ESPN  NOW  Sep-  99
 ETC  (The  Erotic  Network)  Jul-  00
 EWTN:  Global  Catholic  Network  Aug-  81
 Extasy  Feb-  98
 Filipino  Channel  Apr-  94
 Flix  Aug-  92
 Food  Network  Nov-  93
 Fox  Movie  Channel  Nov-  94
 Fox  News  Channel  Oct-  96
 Fox  Sports  World  Espaol  Feb-  99
 Fox  Sports  World  1997
 FoxNet  Jul-  91
 FX  Jun-  94
 Free  Speech  TV  (FSTV)  Jun-  95
 Galavision  Oct-  79
 Game  Show  Network  Dec-  94
 Golden  Eagle  Broadcasting  Nov-  98
 Goodlife  Television  Network  (formerly  Nostalgia  Channel)  Jun-  98
 History  Channel  Jan-  95
 History  Channel  International  Dec-  98
 Home  &  Garden  Television  Dec-  94
 Hot  Choice  Jun-  86
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 Programming  Service  Launch  Date
 Hot  Networks  Mar-  99
 HTV  Aug-  95
 Idea  Channel  Jan-  92
 iN  DEMAND  (Pay  Per  View)  Nov-  85
 Inspirational  Network  Apr-  78
 Interactive  Channel  Nov-  93
 International  Channel  Jul-  90
 Ladbroke  Racing  Channel  Nov-  84
 Lifetime  Movie  Network  Jun-  98
 Lifetime  Television  Feb-  84
 Lightspan  Partnership,  Inc.  Feb-  95
 Locomotion  Channel  Nov-  96
 MBC  Movie  Network  Nov-  98
 Melli  TV  1995
 MSNBC  Jul-  96
 MTV  S  Aug-  98
 MTV  X  Aug-  98
 MTV  Networks  Latin  America  (formerly  MTV  Latino)  Oct-  93
 MTV:  Music  Television  Aug-  81
 MTV  2  Aug-  98
 My  Pet  TV  Sep-  96
 NASA  Television  Jul-  91
 National  Geographic  Channel  Jan-  01
 National  Jewish  Television  May-  81
 Newsworld  International  Sep-  94
 Nick  At  Nites  TV  Land  Apr-  96
 Nickelodeon  Gas-  Games  &  Sports  Network  Mar-  99
 Nick  Too  Jan-  99
 Nickelodeon/  Nick  at  Nite  Apr-  79
 Noggin  Feb-  99
 NUE-  TV  Jul-  00
 Oasis  TV  Sep-  97
107
 Federal  Communications  Commission  FCC  01-  389
 108
 Programming  Service  Launch  Date
 Outdoor  Channel  Apr-  93
 Oxygen  Feb-  00
 Pax  TV  Aug-  98
 Playboy  TV  Nov-  82
 Pleasure  Channel  Jun-  99
 Praise  Television  Dec-  96
 Proto  X  1997
 Puma  TV  1997
 RAI  International  1999
 Recovery  Network  Feb-  97
 Scandinavian  Channel  Oct-  99
 SCOLA  Aug-  87
 Shop  at  Home  Jun-  86
 Short  TV  Jan-  99
 Showtime  Jul-  76
 Showtime  Beyond  Sep-  99
 Showtime  Event  Television  (SET)  1979
 Showtime  Extreme  1998
 Showtime  Family  Zone  Mar-  01
 Showtime  Next  Mar-  01
 Showtime  Women  Mar-  01
 Skyview  World  Media  1992
 SoapNet  Jan-  00
 Speedvision  Jan-  96
 Spice  1  May-  89
 Spice  2  Unknown
 Sun  TV  Aug-  96
 Starnet  Jan-  89
 Sundance  Channel  Feb-  96
 The  Erotic  Network  (TEN)  Aug-  98
 TMC  (The  Movie  Channel)  Dec-  79
 True  Blue  Feb-  98
 TNN  (The  National  Network)  Mar-  83
108
 Federal  Communications  Commission  FCC  01-  389
 109
 Programming  Service  Launch  Date
 Toon  Disney  Apr-  98
 Trinity  Broadcasting  Network  Mar-  83
 TRIO  Sep-  94
 TV  5    USA  Inc.  Jan-  98
 TV  Asia  Apr-  93
 TV  Games  Network  Unknown
 TV  Japan  Jul-  91
 TVN  Entertainment  Corporation  (33  digital  pay-  per-  view  channels)  Feb-  98
 TVR  (TV  Russia  Network)  1995
 TV  Guide  Channel  Jan-  88
 TV  Guide  Interactive  Oct-  96
 TV  Guide  Sneak  Preview  1991
 TVN  Direct  Jan-  96
 Universal  Torah  Broadcasting  Network  Dec-  98
 Univision  Sep-  76
 UVTV/  KTLA  Mar-  88
 UVTV/  WGN  Nov-  98
 UVTV\  WPIX  May-  84
 ValueVision  Oct-  91
 VH1  (Music  First)  Jan-  85
 VH1  (Classic  Rock)  Aug-  98
 VH1  Soul  Aug-  98
 VHI  Country  Aug-  98
 Weather  Channel  May-  82
 Weather  Channel/  Latin  America  Nov-  96
 Weatherscan  April-  98
 Weatherscan  Local  May-  99
 Wisdom  Television  Jul-  97
 Worship  Network  Sep-  92
 X  Cubed  Unknown
 Z  Music  Mar-  93
 ZEE  TV  1999
109
 Federal  Communications  Commission  FCC  01-  389
 110
 Note:
 *  Cable  affiliates  provide  95  percent  of  funding  for  C-  SPAN,  C-  SPAN2,  and  C-  SPAN3,  but  have  no
 ownership  or  program  control  interests.  DBS  licensees  provide  the  other  5  percent  of  funding  and  also
 have  no  ownership  or  program  control  interests.
 Source:
 NCTA,  Directory  of  Cable  Networks,  Cable  Television  Developments  2001,  at  28-  154.
110
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 111
 TABLE  D-  3  Regional  Video  Programming  Services
 Programming  Services  Launch  Date  MSO  Ownership  (%)
 Arabic  Channel  Apr-  91
 Arizona  News  Channel  Nov-  96
 Automotive  Television  Network  (ATN)  Sep-  95
 Bonjour  USA  Sep-  94
 Cable  TV  Network  of  New  Jersey  Jul-  93
 California  Channel  Feb-  91
 Casa  Club  TV  Jul-  97
 Central  Florida  News  13  Oct-  97  AOL  Time  Warner  (50)
 ChicagoLand  Television  News  (CLTV)  Jan-  93
 CN8    The  Comcast  Network  1996  Comcast  (100)
 Comcast  SportsNet  Oct-  97  Comcast  (45)
 Comcast  SportsNet  Mid  Atlantic  Apr-  84  Comcast  (45)
 County  Television  Network  San  Diego  Jul-  96
 Ecumenical  Television  Channel  1983
 Empire  Sports  Network  Dec-  90
 Florida's  News  Channel  Sep-  98
 Fox  Sports  Net  West  Oct-  85  Cablevision  (45)
 Fox  Sports  Net  2  Jan-  97  Cablevision  (45)
 Fox  Sports  Net  Arizona  Sep-  96  Cablevision  (45)
 Fox  Sports  Net  Bay  Area  Apr-  90  Cablevision  (45)
 Fox  Sports  Net  Chicago  Jan-  84  Cablevision  (45)
 Fox  Sports  Cincinnati  1989  Cablevision  (45)
 Fox  Sports  Net  Detroit  Sep-  97  Cablevision  (45)
 Fox  Sports  Intermountain  West  1990  Cablevision  (45)
 Fox  Sports  Midwest  1989  Cablevision  (45)
 Fox  Sports  Net  New  England  Nov-  81  Cablevision  (22.5),  Liberty  Media
 (50)
 Fox  Sports  New  York  1982  Cablevision  (41.5)
 Fox  Sports  Net  North  Mar-  89  Cablevision  (45)
 Fox  Sports  Net  Northwest  Nov-  88  Cablevision  (45)
 Fox  Sports  Net  Ohio  Feb-  89  Cablevision  (45)
111
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 Programming  Services  Launch  Date  MSO  Ownership  (%)
 Fox  Sports  Net  Pittsburgh  Apr-  86  Cablevision  (45)
 Fox  Sports  Net  Rocky  Mountain  Nov-  88  Cablevision  (45)
 Fox  Sports  Net  South  Aug-  90  Cablevision  (45)
 Fox  Sports  Net  Southwest  Jan-  83  Cablevision  (45)
 Fox  Sports  West  2  Jan-  97  Cablevision  (45)
 Hip  Hop  Network  Jan-  97
 Home  Team  Sports  (HTS)  Apr-  84  Liberty  Media  (17)
 International  Television  Broadcasting  (ITV)  Apr-  86
 Las  Vegas  One  News  Apr-  98
 Local  News  on  Cable  Feb-  97
 Lottery  Channel  Nov-  95
 Madison  Square  Garden  Network  (MSG)  Oct-  69  Liberty  Media  (18),  Cablevision  (41.5)
 MediaOne  News  Dec-  95  Liberty  Media  (100)
 MGM  Jul-  97
 Michigan  Government  Television  Jul-  96
 Midwest  Sports  Channel  Mar-  89
 MSG  Metro  Guide  Aug-  98  Cablevision  (100)
 MSG  Metro  Learning  Channel  Aug-  98  Cablevision  (100)
 MSG  Traffic  and  Weather  Aug-  98  Cablevision  (100)
 Neighborhood  News  L.  I.  Unknown  Cablevision  (75)
 New  England  Cable  News  Mar-  92  Liberty  Media  (50)
 New  England  Sports  Network  (NESN)  Mar-  84
 New  York  1  News  Sep-  92
 News  12  Connecticut  Jun-  95  Cablevision  (75)
 News  12  Long  Island  Dec-  86  Cablevision  (75)
 News  12  New  Jersey  Mar-  96  Cablevision  (75)
 News  12  The  Bronx  Jun-  98  Cablevision
 News  12  Westchester  Nov-  95  Cablevision  (75)
 News  8  Austin  Sep-  99
 News  Channel  5+  Sept-  96
 News  Now  53  Jun-  97  Cox  (50)
 News  on  One  Oct-  97
112
 Federal  Communications  Commission  FCC  01-  389
 113
 Programming  Services  Launch  Date  MSO  Ownership  (%)
 News  Watch  15  Oct-  99
 Newschannel  8  Oct-  91
 NGTV  Dec-  87
 Nippon  Golden  Network  Jan-  82
 NorthWest  Cable  News  Dec-  95
 Ohio  News  Network  May-  97
 PASS  Sports  (Pro-  Am  Sports  System)  Apr-  84
 Pennsylvania  Cable  Network  (PCN)  Sep-  79
 Pittsburgh  Cable  News  Channel  (PCNC)  Jan-  94
 Rarities  Exchange  Dec-  98
 San  Diegos  News  Channel  15  Jan-  97
 Six  News  Now  Jul-  95
 South  Florida  News  Channel  1998
 SportsChannel  Florida  Dec-  87  Liberty  Media  (6),  Cablevision  (13.5)
 Sunshine  Network  Mar-  88  Liberty  Media  (34.5),  Comcast  (16),
 Cox  (5.  3)
 Texas  Cable  News  Jan-  99
 TV33  Dec-  95
 WSBK  Feb-  88
 Sources:
 NCTA,  Regional  Cable  Networks,  Cable  Television  Developments  2001,  at  174-  200.
 Cablevision  Systems  Corp.,  at  http://  www.  cablevision.  com/  cvhome/  cvrainb/  rainbow.  htm.
 FoxSports,  at  http://  foxsports.  com/  direct/  index.  sml.
 New  Frontier  Media,  at  http://  www.  noof.  com/  business/  broadcast.  html.
113
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 TABLE  D-  4  Planned  Programming  Services
 Programming  Service  Planned  Launch  Date,  If  Announced
 AACN  2Q02
 American  Legal  Network  TBA
 AMCs  American  Pop  TBA
 American  West  Network  TBA
 Anthropology  Programming  and  Entertainment  TBA
 Anti-  Aging  Network  TBA
 Applause  TBA
 Auto  Channel  2Q02
 Baby  TV  TBA
 Beauty  Channel  4Q02
 BET  Rap/  Hip  Hop  TBA
 BET  World  Music  Beat  TBA
 Black  Womens  Television  4Q01
 Boating  Channel  TBA
 Bravo  World  Cinema  TBA
 Childrens  Fashion  Network  4Q01
 Collectors  Channel  TBA
 Documentary  Channel  4Q01
 Eurocinema  TBA
 Fad  TV  (Fashion  &  Design  Television)  2Q02
 Fashion  Network  TBA
 Fine  Living  1Q02
 G4  April  2002
 GETV  Network  March  2002
 Global  Village  Network  TBA
 Hobby  Craft  Interactive  TBA
 Honey  Vision  TBA
 Investment  TV  4Q01
 Local  News  Network  TBA
 Love  Network  TBA
 Moviewatch  2002
114
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 115
 Programming  Service  Planned  Launch  Date,  If  Announced
 Native  American  Nations  Program  Network  2002
 Noahs  World  International  April  2002
 Orb  TV  TBA
 Performance  Showcase  TBA
 Premiere  Horse  Network  TBA
 Puppy  Channel  February  2002
 RadioTV  Network  4Q02
 Real  Estate  Network  (TREN)  TBA
 Romanceland  TBA
 Seminar  TV  Network  (Seminar  TV)  1Q02
 Senior  Citizens  Television  Network  1Q01
 Si  TV  2002
 Skywatcher  Channel  TBA
 The  Football  Channel  (TFN)  TBA
 The  Gospel  Network  TBA
 The  Military  Channel  TBA
 The  World  Cinema  Channel  TBA
 Theater  Channel  TBA
 The  Tennis  Channel  July  2002
 Youth  Sports  Broadcasting  Channel  TBA
 Sources:
 NCTA,  Planned  Services,  Cable  Television  Developments  2001,  at  155-  173.
 John  M.  Higgins,  Tennis  Anyone,  Broadcasting  &  Cable,  Sept.  3,  2001,  at  12.
 Scripps  Secures  Time  Warner  Carriage,  Multichannel  News,  Oct.  15,  2001,  at  2.
115
 Federal  Communications  Commission  FCC  01-  389
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 TABLE  D-  5  MSO  Ownership  in  National  Programming
 Services  1  Subs.  (mil)  Liberty  Media  AOL  Time  Warner  Comcast  Cox  Cablevision  Systems
 Action  Max  37.0  100.0%
 AMC  75.0  75.0%
 Animal  Planet  54.0  49.0%  19.7%
 @Max  *  2  100.0%
 BET  Movies  10.0  100.0%
 Black  Starz!  *  100.0%
 Bravo  49.4  25.0%  75.0%
 Canales    (6  channels)  *  100.0%
 Cartoon  Network  60.0  100.0%
 Cinemax  100.0%
 CNN  79.7  100.0%
 CNN  Espaol  10.5  100.0%
 CNN  Headline  News  76.2  100.0%
 CNN  International  3  10.0  100.0%
 CNN/  SI  15.4  100.0%
 CNN  Money  13.0  100.0%
 Comedy  Central  69.0  50.0%
 Court  TV  40.0  50.0%  50.0%
 Discovery  81.7  49.0%  24.6%
 Discovery  Civilization  7.  0  49.0%  24.6%
 Discovery  En  Espaol  *  49.0%  24.6%
 Discovery  Health  25.0  49.0%  24.6%
 Discovery
 Home&  Leisure
 7.0  49.0%  24.6%
 Discovery  Kids  10.0  49.0%  24.6%
 Discovery  Science  10.0  49.0%  24.6%
 Discovery  Wings  7.  0  49.0%  24.6%
 E!  Entertainment  65.0  10.0%  40.0%
 Encore  16.0  100.0%
 Encore  Action  *  100.0%
116
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 117
 Services  1  Subs.  (mil)  Liberty  Media  AOL  Time  Warner  Comcast  Cox  Cablevision  Systems
 Encore  Love  Stories  *  100.0%
 Encore  Mysteries  *  100.0%
 Encore  True
 Stories/  Drama
 *  100.0%
 Encore  WAM!  *  100.0%
 Encore  Westerns  *  100.0%
 Fox  Sports  (5  channels)  100.0%
 5Star  Max  *  100.0%
 GEMS  International  TV  6.4  50.0%
 Golf  Channel  29.5  10.0%  90.0%
 Great  American  Country  15.0  100.0%
 Hallmark  Channel  *  32.5%
 HBO  37.0  4  100.0%
 HBO  Latino  *  100.0%
 HBO  Plus  *  100.0%
 HBO  Signature  *  100.0%
 HBO  Comedy  *  100.0%
 HBO  Family  *  100.0%
 HBO  Zone  *  100.0%
 HSN  50.0  19.7%
 Independent  Film
 Channel
 30.0  75.0%
 International  Channel  8.  3  90.0%
 More  Max  *  100.0%
 Movie  Plex  8  100.0%
 Much  Music  USA  19.1  75.0%
 Outdoor  Life  26.0  15.4%  17.0%  33.3%
 Outer  Max  *  100.0%
 Ovation  15.0  4.  2%
 PIN  35.0  45.0%
 Prevue  Channel  *  51.0%
117
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 118
 Services  1  Subs.  (mil)  Liberty  Media  AOL  Time  Warner  Comcast  Cox  Cablevision  Systems
 QVC  74.8  43.0%  57.0%
 Sci-  Fi  66.0  19.7%
 Sneak  Prevue  *  12.0%
 Starz!  13.0  100.0%
 Starz!  Action  *  100.0%
 Starz!  Cinema  *  100.0%
 Starz!  Family  *  100.0%
 Starz!  Love  St.  *  100.0%
 Starz!  MoviePlex  *  100.0%
 Starz!  Mystery  *  100.0%
 Starz!  Theater  *  100.0%
 Starz!  True  Stories  *  100.0%
 Starz!  WAM  *  100.0%
 Starz!  Westerns  *  100.0%
 Style  8.  0  10.0%  40.0%
 TBS  82.0  100.0%
 Telemundo  22.2  40.0%
 TLC  78.0  49.0%  24.6%
 Thematic  Multiplex  SM  24.  5  5  100.0%
 Thriller  Max  *  100.0%
 TNT  81.6  100.0%
 Travel  Channel  52.3  49.0%  24.6%
 TCM  45.0  100.0%
 USA  81.0  21.0%
 Viewers  Choice  1-  10  *  11.7%  17.0%  11.0%  20.0%
 WE  (formerly  Romance)  25.0  75.0%
 Wmax  *  100.0%
118
 Federal  Communications  Commission  FCC  01-  389
 119
 Notes:
 1  In  addition  to  cable,  other  services  such  as  MMDS  (wireless  cable),  SMATV  (satellite  master
 antenna  television),  satellite,  including  DBS  (direct  broadcast  satellite)  and  HSD  (home  satellite
 dish),  broadcast  television,  and  LPTV  (low  power  television)  may  distribute  these  signals.
 Subscriber  figures  may  include  these  non-  cable  services.
 2  Indicates  that  subscribership  count  is  unknown  or  not  available.
 3  CNN  International  subscribership  of  10  million  includes  domestic  US  subscribers  only.  CNN
 International  has  129  million  subscribers  outside  the  U.  S.
 4  HBO  subscriber  numbers  include  HBO  Latino,  HBO  Plus,  HBO  Signature,  HBO  Comedy,  HBO
 Family,  HBO  Zone,  and  Cinemax,  5  Star  Max,  @  Max,  MoreMax,  ActionMax,  Outer  Max,
 Thriller  Max  and  W  Max.
 5  Encores  Thematic  Multiplex  subscriber  numbers  include  Encore  Love  Stories,  Encore
 Westerns,  Encore  Mystery,  Encore  Action,  Encore  True  Stories  and  Encore  WAM.
 Sources:
 NCTA,  Directory  of  Cable  Networks,  Cable  Television  Developments  2001,  at  25-  146.
 GemstarTV  Guide  International,  at  http://  www.  gemstartvguide.  com/  investors/  shareholders.  asp.
 ATT  Broadband,  at  http://  www.  attbroadband.  com/  services/  other/  Partners.  html.
119
 Federal  Communications  Commission  FCC  01-  389
 120
 TABLE  D-  6  Top  20  Programming  Services  by  Subscribership
 Rank  Programming  Network  Number  of  Subscribers  (Millions)  MSO  Ownership  Interest  in  Network  (%)
 1  TBS  82.0  AOL  Time  Warner  (100)
 2  Discovery  Channel  81.7  Liberty  Media  (49),  Cox  (24.6)
 3  TNT  81.6  AOL  Time  Warner  (100)
 4  ESPN  81.0
 5  USA  Network  81.0  Liberty  Media  (21)
 6  Fox  Family  Channel  80.5
 7  A&  E  80.4
 8  TNN  80.1
 9  Lifetime  Television  79.9
 10  Nickelodeon/  Nick  at  Nite  79.8
 11  CNN  79.7  AOL  Time  Warner  (100)
 12  C-  SPAN  79.4
 13  The  Weather  Channel  78.9
 14  TLC  78.0  Liberty  Media  (49),  Cox  (24.6)
 15  MTV  77.3
 16  QVC  77.0  Comcast  (57),  Liberty  Media
 (43)
 17  CNN  Headline  News  76.2  AOL  Time  Warner  (100)
 18  CNBC  76.0
 19  AMC  75.9  Cablevision  (75)
 20  VH1  74.2
 Notes:
 In  addition  to  cable,  other  services  such  as  MMDS  (wireless  cable),  SMATV  (satellite  master
 antenna  television),  satellite,  including  HSD  (home  satellite  dish)  and  DBS  (direct  broadcast
 satellite),  broadcast  television  and  LPTV  (low  power  television)  may  distribute  these  signals.
 Subscriber  figures  may  include  these  non-  cable  services.  Cable  affiliates  provide  95  percent  of
 funding  for  C-  SPAN,  but  have  no  ownership  or  program  control  interests.  DBS  licenses  provide
 the  other  five  percent  of  funding  and  also  have  no  ownership  or  program  control  interests.
 Source:
 NCTA,  Top  20  Cable  Networks,  Cable  Television  Developments  2001,  at  22-  23.
120
 Federal  Communications  Commission  FCC  01-  389
 121
 TABLE  D-  7  Top  20  Programming  Services  by  Prime  Time  Rating
 Rank  Programming  Service  MSO  with  Ownership  Interest  (%)
 1  Lifetime  Television
 2  USA  Network  Liberty  Media  (21)
 3  TNT  AOL  Time  Warner  (100)
 4  Cartoon  Network  AOL  Time  Warner  (100)
 5  TBS  AOL  Time  Warner  (100)
 6  Nick  at  Night
 7  A&  E
 8  Discovery  Channel  Liberty  Media  (49),  Cox  (24.6)
 9  WGN-  C
 10  TNN
 11  History  Channel
 12  ESPN
 13  TLC  Liberty  Media  (49),  Cox  (24.6)
 14  MTV
 15  FX
 16  Sci-  Fi  Liberty  Media  (19.7)
 17  Fox  News
 18  TV  Land
 19  BET
 20  HGTV
 Source:
 Paul  Kagan  Assocs.,  Inc.,  Day  Part  Ratings  Averages,  Prime  Time  (3  rd  Quarter),  Cable  Program  Investor,
 Sept.  11,  2001,  at  6.
121
 Federal  Communications  Commission  FCC  01-  389
 122
 SEPARATE  STATEMENT  OF
 COMMISSIONER  KEVIN  J.  MARTIN
 Re:  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video
 Programming,  CS  Docket  No.  01-  129
 In  1992,  Congress  instructed  the  FCC  to  annually  report  to  Congress  on  the  status  of  competition
 in  the  market  for  the  delivery  of  video  programming.  647  I  support  the  report  we  adopt  today,  but  I  write
 separately  to  express  my  concern  with  some  aspects  of  the  approach  the  report  takes  in  analyzing  market
 structure  and  the  extent  of  concentration.  Specifically,  I  question  whether  the  relevant  product  market  is
 properly  defined.
 The  report  refers  repeatedly  to  the  market  for  the  delivery  of  video  programming,
 acknowledging  that  this  is  the  relevant  market  for  our  analysis.  The  Communications  Act  defines  video
 programming  as  programming  provided  by,  or  generally  considered  comparable  to  programming
 provided  by,  a  television  broadcast  station.  648  Accordingly,  the  report  describes  as  competitors  in  the
 market  for  the  delivery  of  video  programming  entities  such  as  broadcasters,  cable  operators,  and  DBS
 operators.  With  no  explanation,  however,  the  section  addressing  Horizontal  Issues  in  the  Market  for
 Delivery  of  Video  Programming  limits  the  competitive  analysis  to  only  a  subset  of  that  market  the
 market  for  the  delivery  of  multichannel  video  programming.  649  In  so  doing,  the  report  eliminates
 broadcasters  from  the  analysis,  despite  the  fact  that  several  commenters  argued  for  their  inclusion.  650
 It  may  be  true  that  broadcast  is  not  a  statistically  significant  competitor  to  satellite  or  cable  as  a
 distribution  platform,  or  that  broadcasters  and  MVPDs  do  not  compete  in  the  same  economic  market,  and
 thus  the  relevant  market  analysis  should  be  limited  to  multichannel  video  programming.  Nevertheless,
 given  the  plain  language  of  the  statute  and  the  specific  requests  of  commenters  to  consider  broadcasters
 role  in  the  marketplace,  I  would  have  preferred  either  to  analyze  the  market  for  all  video  programming
 (and  therefore  include  broadcasters  as  competitors),  or  to  explain  in  a  direct  fashion  why  an  analysis  of
 only  the  multichannel  video  programming  marketplace  is  more  appropriate.
 647  47  U.  S.  C.    628(  g).
 648  Id.  at    522(  20).
 649  The  Report  states,  The  video  programming  market  is  comprised  of  two  separate  but  related  markets:  (a)  the
 market  for  the  distribution  of  multichannel  video  programming  to  households,  and  (b)  the  market  for  the  purchase  of
 video  programming  by  MVPDs.  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of
 Video  Programming,  CS  Docket  No.  01-  129,  Eighth  Annual  Report,  at    116  (adopted  Dec.  27,  2001)  (emphasis
 added).
 650  See,  e.  g.,  AT&  T  Comments  at  22.
122