This is the accessible text file for GAO report number GAO-03-130 
entitled 'Telecommunications: Issues in Providing Cable and Satellite 
Television Services' which was released on October 31, 2002.



This text file was formatted by the U.S. General Accounting Office 

(GAO) to be accessible to users with visual impairments, as part of a 

longer term project to improve GAO products accessibility. Every 

attempt has been made to maintain the structural and data integrity of 

the original printed product. Accessibility features, such as text 

descriptions of tables, consecutively numbered footnotes placed at the 

end of the file, and the text of agency comment letters, are provided 

but may not exactly duplicate the presentation or format of the printed 

version. The portable document format (PDF) file is an exact electronic 

replica of the printed version. We welcome your feedback. Please E-mail 

your comments regarding the contents or accessibility features of this 

document to Webmaster@gao.gov.



Report to the Subcommittee on Antitrust, Competition, and Business and 

Consumer Rights, Committee on the Judiciary, U.S. Senate:



October 2002:



Telecommunications:



Issues in Providing Cable and Satellite Television Services:



GAO-03-130:



GAO Highlights:



TELECOMMUNICATIONS: 



Issues in Providing Cable and Satellite Television Services:



What GAO Found:



DBS and cable companies compete for subscribers to their video services 

and to their Internet access services, although to date, cable modem 

service is the most popular method of broadband home Internet access. 

On the basis of a random survey of 3,000 individuals, it appears that 

the availability of Internet access services is important for some 

consumers--although not the majority of consumers--when they are 

considering various video service providers.



In 1999, DBS companies began to offer local broadcast channels in 

select television markets across the country. According to results from 

GAOs econometric model, the provision of local broadcast channels by 

DBS companies is associated with significantly higher DBS penetration 

rates, although GAO found no evidence that DBS provision of local 

channels influences cable prices. In general, GAOs model results 

suggest that DBS is able to compete more effectively for subscribers 

with cable in areas where DBS subscribers can receive local broadcast 

channels.



The two DBS companies have stated that if they merge, they will, as a 

combined entity, have sufficient satellite capacity to provide local 

broadcast programming in all 210 television markets and to introduce 

new services. GAOs technical experts review of various documents 

related to the two DBS companies satellite capacity indicates that--

given current technologies and deployed assets--neither company would 

individually be able to offer all of the local channels in all markets. 

However, the decision of whether to introduce more local channels is, 

in the long term, a business decision. Whether the benefits would 

outweigh the costs for the individual companies to eventually offer 

local channels in all 210 television markets is not clear.



Both FCC and the Department of Justice declined to provide comments on 

the substance of this report because of the merger proceedings.



The full report, including GAOs objectives, scope, methodology, and 

analysis is available at www.gao.gov/cgi-bin/getrpt?GAO-03-130. For 

additional information about the report, contact Peter Guerrero (202-

512-2834).



Highlights of GAO-03-130, a report to the Subcommittee on Antitrust, 

Competition, and Business and Consumer Rights, Committee on the 

Judiciary, U.S. Senate.



Why GAO Did This Study:



Direct broadcast satellite (DBS) television service has grown to become 

the principal competitor to cable television systems. In October 2001, 

the two primary DBS companies, EchoStar and DirecTV, proposed a merger 

plan that is pending before the Department of Justice and that the 

Federal Communications Commission (FCC) recently announced that it had 

declined to approve. GAO was asked to examine several issues related to 

competition in providing subscription video services, including the 

competitive impact of the availability of cable modem Internet access, 

and the effects on cable prices and DBS penetration rates of DBS 

offering local broadcast channels. GAO also examined the technical 

capability of the individual DBS companies to expand local channel 

services into more television markets. This report offers no opinion on 

the merits of the proposed merger.



Letter:



Results in Brief:



Background:



For the Majority of Consumers, Internet Access Technologies Do Not 

Appear to Play a Major Role in Their Consideration of Video Service 

Providers:



DBS Provision of Local Broadcast Channels Associated with Higher DBS 

Penetration Rates, but Not with Lower Cable Prices:



Technical Considerations and Business Decisions Can Influence DBS 

Companies Expansion of Local Broadcast Services:



Agency Comments:



Appendixes:



Appendix I: Scope and Methodology:



Consumer Survey:



Econometric Model:



Appendix II: Results of a Consumer Survey on Video Service Choices:



Appendix III: GAO Econometric Model:



Conceptual Development of the Econometric Model:



Data Sources Used for the Econometric Model:



Merging Various Data Sources into a Single Data Set:



Descriptive Statistics for Variables Included in the Econometric Model:



Estimation Methodology and Results:



Alternative Specifications:



Appendix IV: Comments from the Federal Communications Commission:



Appendix V: Comments from the Department of Justice:



Appendix VI: GAO Contacts and Staff Acknowledgements:



GAO Contacts:



Staff Acknowledgments:



Tables:



Table 1: Expected Effects of All Explanatory Variables on Cable Prices 

and DBS Penetration Rates:



Table 2: Descriptive Statistics:



Table 3: 3SLS Model Results:



Table 4: Regression Estimates of Reduced-Form Cable prices and DBS 

Penetration Equations:



Figures:



Figure 1: Extent to Which Respondents Said That Cable Modem Internet 

Access Would Make Them More Likely to Choose Cable Service over 

Satellite Service:



Figure 2: Reported Major Reasons for Selecting or Considering Cable 
or 

DBS Video Services:



Abbreviations:



2SLS: Two-Stage Least Squares:



3SLS: Three-Stage Least Squares:



BLS: Bureau of Labor Statistics:



CUID: Community Unit Identification:



DBS: direct broadcast satellite:



DMA: designated market area:



DSL: digital subscriber line:



DTV: digital television:



FCC: Federal Communications Commission:



HD: high definition:



MABLE: Master Area Block Level Equivalency:



MSA: metropolitan statistical area:



MSO: multiple system operator:



ORC: Opinion Research Corporation:



Letter:



October 15, 2002:



The Honorable Herb Kohl

Chairman

The Honorable Mike DeWine

Ranking Minority Member

Subcommittee on Antitrust, Competition, and Business and Consumer 

Rights

Committee on the Judiciary

United States Senate:



Since its introduction in 1994, direct broadcast satellite (DBS) 

service has grown dramatically as a means of delivering television 

programs to U.S. households and is now the principal competitor to 

cable companies for subscription video services. Subscribers to DBS 

services use small reception dishes to receive signals beamed down from 

satellites in orbit over the equator. As of June 2002, more than 18 

million households were served by DBS. The ability of DBS companies to 

compete against cable was bolstered when DBS companies gained the legal 

right to provide local broadcast channels--that is, to offer the 

signals of local over-the-air broadcast stations (such as affiliates of 

ABC or NBC)--via satellite to their customers.[Footnote 1] In addition 

to video services, DBS and cable also compete for subscribers to their 

broadband (i.e., high speed) Internet access services, which is 

sometimes sold as a package with video services. There are currently 

two primary DBS providers in the United States: Hughes Electronics 

DirecTV and EchoStars DISH Network. In October 2001, DirecTV and 

EchoStar proposed a merger plan that is now pending before the U.S. 

Department of Justice (Justice). On October 10, 2002, the Federal 

Communications Commission (FCC) announced that it declined to approve 

the merger because FCC found that the transaction would not serve the 

public interest, convenience, and necessity. FCC provided for a full 

evidentiary hearing before an Administrative Law Judge.



As agreed with the Subcommittee, this report provides information on 

(1) whether the availability of cable modem Internet access service 

appears to be affecting the competitiveness of DBS companies in the 

provision of video services, (2) whether cable prices and DBS 

penetration rates appear to be affected in areas where the DBS 

companies offer local broadcast channels, and (3) whether the two 

individual DBS companies are technologically capable of expanding local 

broadcast channel services into all 210 television markets in the 

United States.



To address these questions, we developed a telephone survey, 

projectable to the U.S. population, to explore consumers reasons for 

selecting video services. We also updated a prior GAO econometric model 

to examine whether the availability of local channels from a DBS 

company, as well as other factors, influenced the level of cable prices 

and DBS penetration rates (measured as the ratio of DBS subscribers to 

housing units).[Footnote 2] Finally, a GAO senior technologist analyzed 

technical information provided by DirecTV and EchoStar and other 

interested parties on the capacity of the DBS systems. A more detailed 

discussion of our scope and methodology is provided in appendix I. The 

consumer survey questions and responses are contained in appendix II. A 

complete discussion of the econometric model development, including 

data sources, a table of descriptive statistics for all variables, 

estimation design, model results, and alternative specifications, is 

contained in appendix III. We conducted our review from February 2002 

through September 2002 in accordance with generally accepted government 

auditing standards.



Our objectives did not include an assessment of the proposed merger of 

DirecTV and EchoStar and, therefore, this report offers no opinion on 

the merits of the proposed merger.



Results in Brief:



Responses to our consumer survey suggest that the availability of 

Internet access services is important for some consumers--although not 

the majority of consumers--when they are considering various video 

service providers. In particular, just over half of the respondents to 

our survey said that when thinking about purchasing television 

programming service, the availability of cable modem Internet service 

would not make them more likely to consider cable video service over 

DBS video service. However, almost one-third of respondents said that 

when thinking about purchasing television programming service, the 

availability of cable modem Internet service would make them 

moderately more likely or much more likely to consider cable over 

DBS, and these respondents were more likely to have a higher household 

income and to be younger than respondents not influenced by the 

availability of cable modem service. Most respondents (88 percent) said 

they had never considered satellite Internet service.



According to results from our econometric model, the provision of local 

broadcast channels by DBS companies is associated with significantly 

higher DBS penetration rates, although we found no evidence that DBS 

provision of local channels influences cable prices. Specifically, our 

model results indicate that in areas where DBS subscribers can receive 

local broadcast channels from both DBS companies, the DBS penetration 

rate is approximately 32 percent higher than in areas where subscribers 

cannot receive local broadcast channels via satellite. Thus, it appears 

that DBS is able to compete more effectively for subscribers with cable 

in areas where the DBS companies offer local channels than in areas 

where the DBS companies do not offer local channels, although this 

competitiveness had not led to lower cable prices by 2001.



On the basis of our experts review of current DBS technologies and 

deployed assets, it appears that neither company, at this time, would 

be able individually to offer all of the local broadcast channels in 

all 210 television markets while simultaneously maintaining a 

competitive national subscription television service. Over time, 

however, each company could make a business decision to introduce local 

channels in more markets than they currently plan to serve by deploying 

additional assets and new technologies. Whether the business case--the 

costs of deploying additional assets versus the benefits of gaining 

additional subscribers--would justify the individual companies 

introduction of local channels in all 210 television markets is not 

clear. Additionally, the ongoing transition of all broadcast television 

stations from analog to digital television technologies allows 

broadcasters to provide high definition television signals, which 

require more satellite capacity to transmit than traditional analog 

signals. At this time, the DBS companies business decisions about 

local digital broadcast carriage at the completion of the DTV 

transition is also unclear.



We provided a draft of this report to FCC and Justice for their review 

and comment. FCC staff provided minor technical comments that were 

incorporated as appropriate. Both FCC and Justice declined to comment 

on the substance of our report due to the merger proceedings. Letters 

from FCC and Justice are included in appendixes IV and V, respectively.



Background:



According to FCC, as of June 2001, just over 86 percent of television 

households purchased a subscription television service, as opposed to 

relying solely on free, over-the-air broadcast television. Of these 

subscription households, 78 percent received their service from a 

franchised cable operator while 18 percent received their service from 

a DBS company.[Footnote 3] DBS historically has been popular in rural 

areas where cable service is unavailable to many households. Until a 

few years ago, there was a significant difference between the 

programming packages of cable and DBS: cable systems could offer the 

local broadcast channels, while DBS companies generally could not 

because of technological limitations and legal constraints. In 1999, 

following advances in satellite technologies, Congress enacted the 

Satellite Home Viewer Improvement Act[Footnote 4] to, among other 

things, allow DBS companies to offer local broadcast channels via 

satellite. Today, EchoStar and DirecTV, the two primary providers of 

DBS services, each offer local broadcast channels to their subscribers 

in about 45 of the 210 television markets in the United 

States.[Footnote 5]



DBS and cable also compete for subscribers to their broadband Internet 

access services.[Footnote 6] Many cable companies have recently 

upgraded their cable systems and now offer a selection of digital 

services, including cable modem Internet access. Cable modem service is 

generally considered one of the fastest methods for home Internet 

access and is currently the most popular broadband service. DirecTV 

offers a two-way satellite Internet access service called 

DirecWay.[Footnote 7] Few consumers subscribe to the current satellite 

Internet service, although future satellite Internet access 

technologies are expected to be faster and more competitive with cable 

modems.[Footnote 8]



Each DBS company is inherently limited in the number of programming 

channels and other services it can provide by the technical capacity 

constraints of its satellite fleet. Each satellite contains a certain 

number of transponders, or relay equipment, and each transponder can 

transmit a limited amount of information (i.e., video, audio, and 

data).[Footnote 9] DBS companies have increased the capacity of their 

satellites through various technologies, such as digital compression 

and frequency reuse. Compression technologies conserve capacity by 

reducing the number of bits required to send digital information. For 

example, when transmitting video programming, compression eliminates 

the transmission of identical bits from frame to frame. Frequency reuse 

allows different programming to be transmitted over the same 

frequencies in different geographic areas. This is accomplished through 

the use of spot beam satellites that, rather than transmitting a 

signal nationwide, transmit to specific cities or other smaller 

geographic regions. As long as spot beams using the same frequency are 

at least a certain distance apart, interference among signals is 

avoided. Both digital compression and frequency reuse technologies have 

steadily improved since the launch of DBS in 1994. Satellite companies 

are also constrained by the number of orbital slots available for DBS 

services. Currently, DirecTV and EchoStar have the rights to all of the 

allocated frequencies at the three full-CONUS (i.e., the satellite 

footprint covers the entire contiguous United States) DBS orbital 

slots.



In October 2001, the two DBS companies signed an agreement wherein 

EchoStar would merge with DirecTV. One of the main arguments the 

companies put forth in support of the merger is that it would enable 

them to offer local broadcast channels to subscribers in all 210 

television markets, something the companies say they cannot do 

independently. The companies have stated that their main competitor is 

cable--not each other--and that the ability to carry all local 

broadcast channels will make DBS a stronger competitor to cable 

systems. Opponents of the merger have stated that the companies could 

individually offer many more, if not all, local broadcast channels if 

they chose to do so and that the merger would create a monopoly in DBS 

service provision, which is of particular concern to rural consumers 

who do not have access to a cable system. The proposed merger is under 

review by Justice. FCC recently announced that it had declined to 

approve the proposed merger, although DirectTV and EchoStar have 30 

days to file an amended application and to file a petition to delay the 

hearing. Congress has held several hearings on the matter.



For the Majority of Consumers, Internet Access Technologies Do Not 

Appear to Play a Major Role in Their Consideration of Video Service 

Providers:



In our random telephone survey of consumers, we asked all of our survey 

respondents if, when thinking about purchasing television programming, 

the availability of cable modem Internet service would make them more 

likely to choose cable video service over satellite video service (see 

fig. 1). Fifty-one percent of those responding said not more likely 

while 16 percent said much more likely. We also asked all of our 

survey respondents (excluding those few with satellite Internet access) 

if they had considered purchasing Internet service through a satellite 

provider; 88 percent said they had not.



Figure 1: Extent to Which Respondents Said That Cable Modem Internet 

Access Would Make Them More Likely to Choose Cable Service over 

Satellite Service:



[See PDF for image]



Source: GAO consumer survey (May - June, 2002).



[End of figure]



As shown in figure 1, almost one-third of respondents said that the 

availability of cable modem service was moderately more likely or 

much more likely to make them choose cable over satellite service. We 

also found the following:



*Respondents with higher household incomes were more likely to say 

that the availability of cable modem Internet access would influence 

their decision to buy cable video service.



*Respondents who were younger (from 18 to 34 years old) were more 

likely than older respondents to say that the availability of cable 

modem Internet access would influence their decision to buy cable video 

service.



In addition to asking all respondents about the impact of Internet 

access on their video service decisions, we asked respondents who had 

begun purchasing or considered purchasing either cable or DBS service 

within the past 2 years to rate various reasons why they considered or 

purchased these services (see fig. 2).[Footnote 10] Of those who began 

purchasing or considered purchasing cable, 61 percent said the 

availability of cable modem service was not a reason in their 

consideration or purchase of cable video programming services, although 

approximately one-fifth said cable modem service was a major reason 

for considering cable. The responses from those who had begun 

purchasing or considered purchasing DBS within the past 2 years were 

similar: 64 percent said satellite Internet access service was not a 

reason for consideration of DBS video services while 12 percent said it 

was a major reason.



Other factors appeared to be important in consumers consideration of 

video providers. Fifty-seven percent of cable respondents and 61 

percent of DBS respondents said that a major reason for selecting or 

considering a video services provider was because they wanted more 

channels than they were receiving. Those who recently selected or 

considered cable also rated highly the ability to get local broadcast 

channels from the cable company and a better signal quality. Those who 

recently selected or considered DBS often reported that they considered 

satellite service because they believed DBS was cheaper than cable and 

because DBS offered special rates or promotions.



Figure 2: Reported Major Reasons for Selecting or Considering Cable 

or DBS Video Services:



[See PDF for image]



[A] Addition of local channels was not asked of respondents who had 

selected or considered cable in the last 2 years.



[B] Wanted local and cable from the same provider was not asked of 

respondents who had selected or considered DBS in the last 2 years.



Source: GAO consumer survey (May - June, 2002).



[End of figure]



DBS Provision of Local Broadcast Channels Associated with Higher DBS 

Penetration Rates, but Not with Lower Cable Prices:



According to our econometric model, the provision of local broadcast 

channels by DBS companies is associated with significantly higher DBS 

penetration rates. Specifically, our model results indicate that in 

cable franchise areas where consumers can receive local channels from 

both DBS providers, the DBS penetration rate is approximately 32 

percent higher than in areas where consumers cannot receive local 

channels via satellite. Thus, in areas where the DBS companies offer 

local channels, it appears that DBS is more effectively able to compete 

for subscribers.



In addition to using an econometric model to study the competitive 

impact of DBS provision of local channels, we also examined the growth 

in the number of DBS subscribers between 1998 and 2001. This analysis 

was based on the percentage change in the number of DBS subscribers in 

almost all zip codes throughout the country. We found that in areas 

where both DBS companies introduced local broadcast channels, DBS 

subscribership grew by approximately 210 percent over this time period, 

while in areas where local channels were not available, it grew by 174 

percent in the same time frame.



Our model results do not indicate that the provision of local broadcast 

channels by DBS companies is associated with lower cable 

prices.[Footnote 11] In contrast, the presence of a second cable 

franchise (known as an overbuilder) does appear to constrain cable 

prices. In franchise areas with a second cable provider, cable prices 

are approximately 17 percent lower than in comparable areas without a 

second cable provider.[Footnote 12]



Finally, we found that the provision of local broadcast channels by DBS 

companies is associated with nonprice competition. In areas where both 

DBS companies provide local channels, our model results indicate that 

cable companies offer subscribers approximately 6 percent more 

channels. This result indicates that cable companies are responding to 

DBS provision of local channels by improving their quality, as 

reflected by the greater number of channels. In our July 2000 report, 

we also found that cable companies responded to DBS competition by 

increasing the number of channels.



Technical Considerations and Business Decisions Can Influence DBS 

Companies Expansion of Local Broadcast Services:



In 1999, the Satellite Home Viewer Improvement Act provided DBS 

companies with the legal right to provide local broadcast station 

programming.[Footnote 13] To date, DirecTV and EchoStar have each 

introduced local broadcast service in about 45 markets, although 

DirecTV plans to offer local channels in about 70 markets and EchoStar 

plans to offer local channels in about 50 markets. However, providing 

local channels uses a satellites transmission capacity--a limited 

resource on each satellite. Thus, there is an important trade-off that 

DBS companies face in deciding how many markets to target for local 

service. As DBS companies roll out local channels in more markets, 

satellite capacity that could otherwise have been used to provide 

services to all subscribers (such as national cable networks or 

interactive services) would be used to offer local channels to select 

groups of subscribers.



The two DBS companies have stated that one of the reasons they want to 

merge is to engender economies in the provision of local broadcast 

channels. In particular, the companies have stated that if they merge, 

they will, as a combined entity, have sufficient capacity to provide 

local broadcast programming in all 210 television markets and add new 

services, while continuing to provide their current number of cable 

programming channels.[Footnote 14] Several opponents of the merger 

contend that each of the DBS companies on its own has sufficient 

capacity to expand the provision of local broadcast channels into even 

more, if not all, television markets.



Key assumptions about the technical capabilities of the DBS companies 

satellite fleets varied among those with whom we spoke. Opponents of 

the merger made assumptions about key technical factors--such as 

frequency reuse capability and advances in digital compression 

technologies--that were optimistic. The DBS companies held more 

conservative views about the technical capabilities of their fleets 

today and considered some possible enhancements to be based on 

technologies that are not currently available to them nor proven in 

terms of quality. We found that some of the assumptions of the merger 

opponents focused on potential capabilities that could not be readily 

incorporated into satellites already deployed and that would involve 

substantial replacement of consumers DBS equipment.[Footnote 15]



Our examination of various documents related to the two DBS companies 

satellite capacity indicates that--given current technologies and 

deployed assets--neither company would individually be able to offer 

all of the local broadcast channels in all 210 television markets while 

simultaneously maintaining a competitive national subscription 

television service. Were either company to offer local channels in all 

210 markets today, it would have to use much more of its current 

capacity for local channels, thus reducing its ability to offer the 

large numbers of national cable networks, pay-per-view channels, and 

other services that each company currently provides.[Footnote 16] This 

would compromise the competitiveness of a DBS company with cable.



In the long term, however, with the launch of additional satellites and 

the deployment of or transition to new technologies, both DBS companies 

could choose to provide local channels in more television markets than 

they currently plan to serve. Of course, these decisions would involve 

weighing the cost of such satellites or new technologies against the 

number of projected additional subscribers and other benefits that 

increased local broadcast offerings would bring to DBS.[Footnote 17] 

That is, the decision of whether to introduce more local channels is 

essentially a business decision. Whether the benefits would outweigh 

the costs for the individual companies to roll out local channels in 

all 210 television markets is not clear.



Finally, it is also not clear how the transition of all local broadcast 

stations from analog to digital television (DTV) technologies will 

affect the offering of local broadcast channels by DBS 

companies.[Footnote 18] The broadcast DTV transition is under way and 

will eventually culminate in the discontinuation of all analog 

broadcast signals. The DTV transition allows broadcast stations to 

provide high definition (HD) television signals--that is, a sharper 

television picture with roughly twice the lines of resolution of 

traditional analog pictures. However, even with digital compression 

technologies, the transmission of HD signals takes up far more 

satellite capacity than the transmission of traditional analog signals. 

If many of the roughly 1,600 broadcast stations across the country 

provide HD signals at the end of the digital transition (when the 

analog signals have been discontinued), it will take considerably more 

satellite capacity to provide the signals of the digital stations than 

it currently takes to provide the signals of the analog stations. 

However, the DTV transition may take several years, during which time 

advances in satellite technologies might mitigate this need for 

increased capacity. Nonetheless, at this time, the DBS companies 

business decisions about local digital broadcast carriage at the 

completion of the DTV transition is unclear.



Agency Comments:



We provided a draft of this report to FCC and Justice for their review 

and comment. FCC staff provided minor technical comments that were 

incorporated as appropriate. Both FCC and Justice declined to comment 

on the substance of our report due to the merger proceedings. Letters 

from FCC and Justice are included in appendixes IV and V, respectively.



As agreed with your offices, unless you publicly release its contents 

earlier, we plan no further distribution of this report until 30 days 

after the date of this letter. At that time, we will provide copies to 

interested congressional committees; the Assistant Attorney General, 

Antitrust Division, Department of Justice; the Chairman, FCC; and other 

interested parties. We will also make copies available to others upon 

request. In addition, this report will be available at no charge on the 

GAO Web site at http://www.gao.gov. If you have any questions about 

this report, please contact me at (202) 512-2834 or guerrerop@gao.gov. 

Key contacts and major contributors to this report are listed in 

appendix VI.



Peter Guerrero

Director, Physical Infrastructure Issues:



Signed by Peter Guerrero



[End of section]



Appendix I: Scope and Methodology:



Consumer Survey:



To provide information on the impact of the availability of cable modem 

Internet access on consumer video service choice, we contracted with 

Opinion Research Corporation (ORC), a national research firm, to 

include questions on three of its national telephone surveys. The 

survey contained a set of 14 questions that asked people about their 

television and Internet use (e.g., how they access the Internet from 

their home) as well as questions designed to gauge the importance of 

receiving Internet service and video service from the same provider. 

The questions and response options were read to the respondents. A 

total of 3,000 adults in the continental United States were interviewed 

between May 23 and June 2, 2002. The population was taken from the 

contractors random-digit-dialing sample of households with 

telephones, stratified by region.



In order to use the survey results to make estimates about the entire 

population 18 years and older in the continental United States, ORC 

weighted the responses to represent the characteristics of all adults 

in the general public according to four variables: age, gender, 

geographic region, and race. Because our results are from a sample of 

the population, the resulting estimates have some sampling errors 

associated with them. Sampling errors are often presented at a certain 

confidence interval. The percentage estimates we present in this report 

have a 95 percent confidence interval of plus or minus 5 percentage 

points or less. The practical difficulties of conducting any survey may 

introduce nonsampling errors. As in any survey, differences in the 

wording of questions, the sources of information available to 

respondents, or the types of people who do not respond can affect 

results. We took steps to minimize nonsampling errors. For example, we 

developed our survey questions with the aid of a survey specialist and 

pretested the survey questions before submitting them to ORC.



Econometric Model:



We developed an econometric model to examine the influence of direct 

broadcast satellite (DBS) companies provision of local broadcast 

channels, among other factors, on cable prices and the DBS penetration 

rates in a large sample of cable franchise areas across the country in 

2001. In 2000, we developed a similar econometric model to examine the 

impact of DBS penetration rates on cable prices.[Footnote 19] In this 

report, we extended the previous econometric model by adding new 
variables 

to account for the recent emergence of local broadcast channels via 

satellite. In particular, this model sought to determine whether and 

how two categories of key factors affected cable prices and DBS 

penetration rates: (1) factors that relate to subscribers demand for 

cable and DBS services and the companies costs of providing service 

and (2) factors that relate to the degree of competition in the market. 

The availability of local channels via satellite is one variable 

included in the model that can influence both subscribers demand for 

DBS service and the competitiveness of the market. We discussed the 

development of our model with the Federal Communications Commission 

(FCC), the Department of Justice (Justice), and several industry trade 

groups.



There are some important limitations to the interpretation of our model 

results. Generally, econometric models measure statistical 

relationships between explanatory factors and the factor to be 

explained and do not imply causation between these factors. Also, some 

specific limitations of our model relate to the characteristics of the 

sample of cable franchise areas chosen by FCC. We performed our 

statistical analysis on a sample of 722 cable franchise areas included 

in a yearly survey conducted by FCC. The survey included a sample of 

competitive franchise areas (as defined under statute) and a sample 

of noncompetitive franchise areas, selected within several size 

classifications (or strata). Although FCC conducts the survey 

annually, different cable franchises report every year because cable 

franchises are sampled.[Footnote 20] Since data were not available for 

every cable franchise for several continuous years, we conducted a 

cross-sectional analysis, which gave us an observation from 722 

different cable franchises at a single point in time. The cross-

sectional analysis would not allow us to examine dynamic changes that 

occur through time, such as the influence of an increasing DBS 

penetration rate on cable prices. Rather, we were limited to describing 

the nature of the subscription video market in a single time period, 

namely 2001. However, certain limited analyses were conducted that 

incorporated a time-series element.



Appendix III contains (1) a complete discussion of the model 

development, data sources, estimation design, and model results and (2) 

a table of descriptive statistics for all variables included in the 

model.



[End of section]



Appendix II: Results of Consumer Survey on Video Service Choices:



The following results are based on the responses to a random telephone 

survey of 3,000 adults, age 18 and older, in the continental United 

States. After each question, the number of respondents (n) is noted. 

Percentages may not add to 100 percent because of rounding.



Question 1: What method is currently used for viewing on the main 

television in your home? (n=3,000):



Answer: Over the air, through an antenna; Percentage of respondents: 

16.0.



Answer: Cable; Percentage of respondents: 62.0.



Answer: Direct broadcast satellite, such as DirecTV or EchoStars DISH 

Network, for all your channels; Percentage of respondents: 12.4.



Answer: Direct broadcast satellite for all channels except local 

broadcast channels; Percentage of respondents: 4.2.



Answer: Big dish, C-band satellite; Percentage of respondents: 1.4.



Answer: You dont own a television; Percentage of respondents: 1.9.



Answer: Other (Specify); Percentage of respondents: 0.8.



Answer: Dont know; Percentage of respondents: 1.3.



[End of table]



[If respondent answered you dont own a television, other, or 

dont know, the survey was ended for that respondent.]



Question 2: [Only asked of those who answered over the air, direct 

broadcast satellite, or C-band satellite in question 1.] Have you 

considered purchasing cable service for your main television viewing 

within the past 2 years? (n=1,018):



Answer: Yes; Percentage of respondents: 22.7.



Answer: No; Percentage of respondents: 66.5.



Answer: Cable is not available to me; Percentage of respondents: 10.4.



Answer: Dont know; Percentage of respondents: 0.5.



[End of table]



Question 3: [Only asked of those who answered cable in question 1.] 

Did you begin subscribing to your current cable provider within the 

past 2 years? (n=1,854):



Answer: Yes; Percentage of respondents: 29.9.



Answer: No; Percentage of respondents: 69.2.



Answer: Dont know; Percentage of respondents: 0.9.



[End of table]



Question 4: [Only asked of those who answered yes to question 3.] 

What method did you previously use for your main television viewing? 

(n=555):



Answer: Over the air, through an antenna; Percentage of respondents: 

32.3.



Answer: Another cable provider; Percentage of respondents: 49.8.



Answer: A satellite provider; Percentage of respondents: 12.4.



Answer: Other (Specify); Percentage of respondents: 2.7.



Answer: Dont know; Percentage of respondents: 2.8.



[End of table]



Question 5: [Only asked of those who answered yes to question 2 or 

question 3.] I am now going to read you a list of reasons that someone 

may think of when purchasing cable service. For each of these, please 

tell me if it was a major reason, a minor reason, or not a reason in 

why you [considered/purchased] cable. Again, please rate each of these 

as a major reason, a minor reason, or not a reason.[Footnote 21]



Question 5a: Because your area cable company offered special rates or 

other promotions, such as free installation or 3 months free. (n=785):



Answer: Major reason; Percentage of respondents: 32.5.



Answer: Minor reason; Percentage of respondents: 27.8.



Answer: Not a reason; Percentage of respondents: 39.0.



Answer: Dont Know; Percentage of respondents: 0.7.



[End of table]



Question 5b: Because you wanted more channels than you were receiving. 

(n=785):



Answer: Major reason; Percentage of respondents: 57.2.



Answer: Minor reason; Percentage of respondents: 19.8.



Answer: Not a reason; Percentage of respondents: 22.7.



Answer: Dont know; Percentage of respondents: 0.3.



[End of table]



Question 5c: Because you wanted to purchase special features (like 

sports packages, pay-per-view, or movie options). (n=785):



Answer: Major reason; Percentage of respondents: 27.6.



Answer: Minor reason; Percentage of respondents: 24.9.



Answer: Not a reason; Percentage of respondents: 47.3.



Answer: Dont know; Percentage of respondents: 0.3.



[End of table]



Question 5d: Because you heard or saw that the picture and audio 

quality with cable was better than you were receiving. (n=785):



Answer: Major reason; Percentage of respondents: 39.3.



Answer: Minor reason; Percentage of respondents: 22.4.



Answer: Not a reason; Percentage of respondents: 37.4.



Answer: Dont know; Percentage of respondents: 0.9.



[End of table]



Question 5e: Because you were interested in receiving high definition 

television channels. (n=785):



Answer: Major reason; Percentage of respondents: 25.4.



Answer: Minor reason; Percentage of respondents: 24.2.



Answer: Not a reason; Percentage of respondents: 49.9.



Answer: Dont know; Percentage of respondents: 0.6.



[End of table]



Question 5f: Because you thought that cable was cheaper than satellite 

service. (n=785):



Answer: Major reason; Percentage of respondents: 31.3.



Answer: Minor reason; Percentage of respondents: 22.0.



Answer: Not a reason; Percentage of respondents: 44.7.



Answer: Dont know; Percentage of respondents: 2.0.



[End of table]



Question 5g: Because you thought cable offered better customer service 

quality than you were receiving. (n=785):



Answer: Major reason; Percentage of respondents: 30.4.



Answer: Minor reason; Percentage of respondents: 22.8.



Answer: Not a reason; Percentage of respondents: 45.8.



Answer: Dont know; Percentage of respondents: 1.0.



[End of table]



Question 5h: Because you were interested in purchasing your Internet 

service through a cable provider and wanted to purchase television 

service from the same company. (n=785):



Answer: Major reason; Percentage of respondents: 18.6.



Answer: Minor reason; Percentage of respondents: 19.4.



Answer: Not a reason; Percentage of respondents: 61.4.



Answer: Dont know; Percentage of respondents: 0.6.



[End of table]



Question 5i: Because you wanted to get both your local broadcast 

channels and cable channels from the same company. (n=785):



Answer: Major reason; Percentage of respondents: 46.9.



Answer: Minor reason; Percentage of respondents: 20.5.



Answer: Not a reason; Percentage of respondents: 31.9.



Answer: Dont know; Percentage of respondents: 0.9.



[End of table]



Question 5j: Because family and friends recommended cable. (n=785):



Answer: Major reason; Percentage of respondents: 11.6.



Answer: Minor reason; Percentage of respondents: 25.0.



Answer: Not a reason; Percentage of respondents: 62.9.



Answer: Dont know; Percentage of respondents: 0.5.



[End of table]



Question 5k: Because cable was the only television option available to 

you other than over-the-air broadcasting. (n=785):



Answer: Major reason; Percentage of respondents: 33.5.



Answer: Minor reason; Percentage of respondents: 20.2.



Answer: Not a reason; Percentage of respondents: 46.0.



Answer: Dont know; Percentage of respondents: 0.3.



[End of table]



Question 6: [Only asked of those who answered over the air, cable, 

or C-band satellite in question 1.] Have you considered purchasing 

direct satellite service, such as DirecTV or EchoStars DISH Network, 

within the past 2 years? (n=2,375):



Answer: Yes; Percentage of respondents: 25.8.



Answer: No; Percentage of respondents: 72.2.



Answer: Satellite is not available to me; Percentage of respondents: 

1.3.



Answer: Dont know; Percentage of respondents: 0.7.



[End of table]



Question 7: [Only asked of those who answered direct broadcast 

satellite in question 1.] Did you begin subscribing to your current 

direct satellite service within the past 2 years? (n=497):



Answer: Yes; Percentage of respondents: 48.5.



Answer: No; Percentage of respondents: 51.1.



Answer: Dont know; Percentage of respondents: 0.4.



[End of table]



Question 8: [Only asked of those who answered yes to question 7.] 

What method did you previously use for your main television viewing? 

(n=241):



Answer: Over the air, through an antenna; Percentage of respondents: 

24.2.



Answer: A cable provider; Percentage of respondents: 57.6.



Answer: Another direct satellite provider; Percentage of respondents: 

10.7.



Answer: A big dish, C-band satellite; Percentage of respondents: 4.3.



Answer: Other (Specify); Percentage of respondents: 1.3.



Answer: Dont know; Percentage of respondents: 1.8.



[End of table]



Question 9: [Only asked of those who answered yes to question 6 or 

question 7.] I am now going to read you a list of reasons that someone 

may think of when purchasing satellite service. For each of these, 

please tell me if it was a major reason, a minor reason, or not a 

reason in why you [considered/purchased] satellite service. Again, 

please rate each of these as a major reason, a minor reason, or not a 

reason.[Footnote 22]



Question 9a: Because the satellite company offered special rates or 

other promotions, such as free installation or 3 months free. (n=854):



Answer: Major reason; Percentage of respondents: 45.4.



Answer: Minor reason; Percentage of respondents: 27.7.



Answer: Not a reason; Percentage of respondents: 26.3.



Answer: Dont know; Percentage of respondents: 0.6.



[End of table]



Question 9b: Because you wanted more channels than you were receiving. 

(n=854):



Answer: Major reason; Percentage of respondents: 61.4.



Answer: Minor reason; Percentage of respondents: 19.7.



Answer: Not a reason; Percentage of respondents: 18.4.



Answer: Dont know; Percentage of respondents: 0.5.



[End of table]



Question 9c: Because the satellite company added local broadcast 

channels, such as ABC or FOX, in your area. (n=854):



Answer: Major reason; Percentage of respondents: 37.5.



Answer: Minor reason; Percentage of respondents: 23.2.



Answer: Not a reason; Percentage of respondents: 37.8.



Answer: Dont know; Percentage of respondents: 1.4.



[End of table]



Question 9d: Because you wanted to purchase special features (like 

sports packages, pay-per-view, or movie options). (n=854):



Answer: Major reason; Percentage of respondents: 38.8.



Answer: Minor reason; Percentage of respondents: 25.4.



Answer: Not a reason; Percentage of respondents: 35.2.



Answer: Dont know; Percentage of respondents: 0.6.



[End of table]



Question 9e: Because you heard or saw that the picture and audio 

quality with satellite were better than you were receiving. (n=854):



Answer: Major reason; Percentage of respondents: 40.4.



Answer: Minor reason; Percentage of respondents: 25.6.



Answer: Not a reason; Percentage of respondents: 33.1.



Answer: Dont know; Percentage of respondents: 1.0.



[End of table]



Question 9f: Because you were interested in receiving high definition 

television channels. (n=854):



Answer: Major reason; Percentage of respondents: 32.0.



Answer: Minor reason; Percentage of respondents: 23.9.



Answer: Not a reason; Percentage of respondents: 43.0.



Answer: Dont know; Percentage of respondents: 1.2.



[End of table]



Question 9g: Because you thought that satellite was cheaper than cable. 

(n=854):



Answer: Major reason; Percentage of respondents: 46.0.



Answer: Minor reason; Percentage of respondents: 21.9.



Answer: Not a reason; Percentage of respondents: 31.1.



Answer: Dont know; Percentage of respondents: 1.0.



[End of table]



Question 9h: Because you thought that satellite offered better customer 

service quality than you were receiving. (n=854):



Answer: Major reason; Percentage of respondents: 33.9.



Answer: Minor reason; Percentage of respondents: 25.2.



Answer: Not a reason; Percentage of respondents: 39.4.



Answer: Dont know; Percentage of respondents: 1.5.



[End of table]



Question 9i: Because you were interested in purchasing your Internet 

service through a satellite company and wanted to purchase your 

television service from the same company. (n=854):



Answer: Major reason; Percentage of respondents: 11.8.



Answer: Minor reason; Percentage of respondents: 23.0.



Answer: Not a reason; Percentage of respondents: 64.4.



Answer: Dont know; Percentage of respondents: 0.8.



[End of table]



Question 9j: Because family and friends recommended satellite. (n=854):



Answer: Major reason; Percentage of respondents: 18.6.



Answer: Minor reason; Percentage of respondents: 32.7.



Answer: Not a reason; Percentage of respondents: 48.4.



Answer: Dont know; Percentage of respondents: 0.3.



[End of table]



Question 9k: Because satellite was the only television option available 

to you other than over-the-air broadcasting. (n=854):



Answer: Major reason; Percentage of respondents: 26.6.



Answer: Minor reason; Percentage of respondents: 16.1.



Answer: Not a reason; Percentage of respondents: 56.7.



Answer: Dont know; Percentage of respondents: 0.7.



[End of table]



Question 10: [Only asked of those who answered yes to question 6 or 

question 7.] When you considered purchasing direct satellite service, 

which service did you consider? (n=854):



Answer: Both DirecTV and EchoStars DISH Network; Percentage of 

respondents: 17.2.



Answer: DirecTV only; Percentage of respondents: 62.3.



Answer: EchoStars DISH Network only; Percentage of respondents: 9.0.



Answer: Dont know; Percentage of respondents: 11.6.



[End of table]



Question 11: How do you currently access the Internet in your home? (If 

you use more than one method, please tell me which one you use most.) 

(n=2,872):



Answer: Standard phone line modem; Percentage of respondents: 46.4.



Answer: DSL service; Percentage of respondents: 4.8.



Answer: Cable modem service; Percentage of respondents: 10.1.



Answer: Satellite Internet service; Percentage of respondents: 0.5.



Answer: You have a computer, but dont access the Internet; Percentage 

of respondents: 8.5.



Answer: You dont have a computer; Percentage of respondents: 26.6.



Answer: Other (Specify); Percentage of respondents: 0.5.



Answer: Dont know; Percentage of respondents: 2.6.



[End of table]



Question 12: [Not asked of those who answered cable modem service in 

question 11.] Does your area cable provider offer Internet access 

through a cable modem service? (n=2,583):



Answer: Yes; Percentage of respondents: 56.9.



Answer: No; Percentage of respondents: 14.3.



Answer: Dont have an area cable provider; Percentage of respondents: 

5.8.



Answer: Dont know; Percentage of respondents: 22.9.



[End of table]



Question 13: When thinking about purchasing TV programming, would the 

availability of cable modem Internet access make you more likely to 

choose cable service over satellite service? (n=2,872):



Answer: Not more likely; Percentage of respondents: 51.4.



Answer: Slightly more likely; Percentage of respondents: 12.9.



Answer: Moderately more likely; Percentage of respondents: 13.7.



Answer: Much more likely; Percentage of respondents: 16.0.



Answer: Dont know; Percentage of respondents: 6.0.



[End of table]



Question 14: [Not asked of those who answered satellite Internet 

service in question 11.] Have you considered purchasing Internet 

access service through a satellite provider? (n=2,857):



Answer: Yes; Percentage of respondents: 9.2.



Answer: No; Percentage of respondents: 87.8.



Answer: This is not available; Percentage of respondents: 1.0.



Answer: Dont know; Percentage of respondents: 2.1.



[End of table]



[End of section]



Appendix III: GAO Econometric Model:



This appendix describes our econometric model of cable-satellite 

competition. Specifically, we discuss (1) the conceptual development of 

the model, (2) the data sources used for the model, (3) the merger of 

various data sources into a single data set, (4) the descriptive 

statistics for variables included in the model, (5) the estimation 

methodology and results, and (6) alternative specifications.



Conceptual Development of the Econometric Model:



In response to a congressional request, we developed an econometric 

model to examine the influence of satellite companies provision of 

local broadcast channels, along with other factors, on cable prices and 

DBS penetration rates in a large sample of cable franchise areas in 

2001. This request represented a follow-up to a previous report that we 

issued which analyzed the impact of DBS penetration rates on cable 

prices.[Footnote 23] Relying on our previous model, the existing 

empirical literature, and our assessment of the current subscription 

video marketplace, we developed a model that included a variety of 

explanatory variables that were included in our previous model, as well 

as other models, but that also extended those analyses by adding new 

variables to account for the recent provision of local broadcast 

channels by DBS companies as an important factor in competition between 

cable and DBS companies.



Examination of Competitive Effects in the Subscription Video Market:



To examine the influence of the DBS companies provision of local 

channels on cable prices and DBS penetration rates, we employed a model 

that is based on the subscription video market, rather than on the 

narrower market for cable television.[Footnote 24] In 2001, the 

national market share of cable systems (as measured by subscribership) 

in what we call the subscription video market was about 78 percent, and 

the share of the DBS providers was about 18 percent. The remaining 4 

percent of subscription television households obtained service through 

other means such as terrestrial wireless systems, satellite master 

antenna television systems (usually used in apartment buildings or 

other multiple-dwelling units), open video systems, and large C-band 

home satellite dishes.



Cable providers and satellite providers can be regarded as 

differentiated, not so much because they use different technologies 

but because the services they provide are perceived as different by 

subscribers and because these varied providers face different laws and 

regulations that influence their cost structures as well as the type of 

product they provide. For example, in 2001, satellite subscribers in 

only 42 television markets could receive local broadcast signals from 

either DBS provider. Also, cable companies must pay local franchise 

fees and are required to provide capacity for public, educational, and 

government channels. In sum, cable and satellite providers are 

differentiated in consumers perception, in their legal context, and in 

their product offerings.



In our model, cable prices and DBS penetration rates will depend 

broadly on the demand and cost conditions affecting both the cable and 

noncable providers of subscription video services. With the passage of 

the Satellite Home Viewer Improvement Act, DBS providers were granted 

authority to distribute local broadcast television channels in the 

broadcast stations local markets, perhaps allowing DBS providers to 

compete more fully with cable companies. To measure the influence of 

local channels, we used a variable that indicates whether local 

channels were available from both DBS providers in each franchise 

area.[Footnote 25]



Specification of Econometric Model of Cable-Satellite Competition:



Estimating the influence of DBS companies provision of local channels 

on cable prices and DBS penetration rates is complicated by the 

possibility that the DBS penetration rate in an area is itself 

determined, in part, by the cable price in that area and that the cable 

price is determined, in part, by the DBS penetration rate. One 

statistical method applicable in this situation is to estimate a system 

of structural equations in which certain variables that may be 

simultaneously determined are estimated jointly. In our previous 

report, we estimated a four-equation structural model in which cable 

prices, the number of cable subscribers, the number of cable channels, 

and the DBS penetration rate were jointly determined.[Footnote 26] We 

modify this four-equation structural model to incorporate the influence 

of local channels via satellite on cable prices and DBS penetration 
rates.



One implication of this estimation technique is that the estimated 

effects we report for the influence of DBS companies provision of 

local channels on cable prices and DBS penetration rates must be 

interpreted as direct effects on price and penetration. At the same 

time, there are indirect effects of local channels on cable prices and 

DBS penetration rates wherein these effects on cable prices and DBS 

penetration rates work through their effects on other endogenous 

variables. For instance, a DBS companys provision of local channels 

may influence a cable operators decision about the number of channels 

to include in programming packages, which can, in turn, affect its 

cable price and the DBS penetration rate. We later present a table with 

results from reduced-form cable price and DBS penetration rate 

equations to show how the exogenous variables in the system of 

equations affect, both directly and indirectly, cable prices and DBS 

penetration rates.



We estimated the following four-equation structural model of the 

subscription television market:



* Cable prices are hypothesized to be related to (1) the number of 

cable channels, (2) the number of cable subscribers, (3) the DBS 

penetration rate, (4) the DBS companies provision of local channels in 

the franchise area, (5) the size of the television market as measured 

by the number of television households, (6) horizontal concentration, 

(7) vertical relationships, (8) the presence of a nonsatellite 

competitor, (9) regulation, (10) average wages, and (11) population 

density. The cable price variable used in the model is defined as the 

total monthly rate charged by a cable franchise to the typical 

subscriber, including the fees paid for the most commonly purchased 

programming tier and rented equipment (a converter box and remote 

control).[Footnote 27] The explanatory variables in the cable price 

relationship are essentially cost and market structure variables.



* Number of cable subscribers is hypothesized to be related to (1) 

cable prices (per channel), (2) the DBS penetration rate, (3) the DBS 

companies provision of local channels in the franchise area, (4) the 

size of the television market as measured by the number of television 

households, (5) the number of broadcast channels, (6) urbanization, (7) 

the age of the cable franchise, (8) the number of homes passed by the 

cable system, (9) the median income of the local area, and (10) the 

presence of a nonsatellite competitor. The number of cable subscribers 

is defined as the number of households in a franchise area that 

subscribe to the most commonly purchased programming tier. This 

represents the demand equation for cable services, which depends on 

rates and other demand-related factors.



* Number of cable channels is hypothesized to be related to (1) the 

number of cable subscribers, (2) the DBS penetration rate, (3) the DBS 

companies provision of local channels in the franchise area, (4) the 

size of the television market as measured by the number of television 

households, (5) the median income of the local area, (6) cable system 

capacity in terms of megahertz, (7) the percentage of multiple-dwelling 

units, (8) vertical relationships, and (9) the presence of a 

nonsatellite competitor. The number of cable channels is defined as the 

number of channels included in the most commonly purchased programming 

tier. The number of cable channels can be thought of as a measure of 

cable programming quality and is explained by a number of factors that 

influence the willingness and ability of cable operators to provide 

high-quality service and consumers preference for quality.



* DBS penetration rate in a television market is hypothesized to be 

related to (1) cable prices (2) the DBS companies provision of local 

channels in the franchise area, (3) the size of the television market 

as measured by the number of television households, (4) the age of the 

cable franchise, (5) the median income of the local area, (6) cable 

system capacity in terms of megahertz, (7) a dummy variable for areas 

outside metropolitan areas, (8) the percentage of multiple-dwelling 

units, (9) the angle--or elevation--at which a satellite dish must be 

fixed to receive a satellite signal in that area, and (10) the presence 

of a nonsatellite competitor. The DBS penetration rate variable is 

defined as the number of DBS subscribers in a franchise area expressed 

as a proportion of the total number of housing units in the area. As 

hypothesized, the DBS penetration rate is expected to depend on the 

prices set by the cable provider as well as on the demand, cost, and 

regulatory conditions in the subscription video market that directly 

affect DBS.



Many of the explanatory variables appeared in our 2000 report as well 

as in previous studies of cable prices prepared by others.[Footnote 28] 

The explanatory variables included in these studies fall into two 

general categories: (1) demand and cost factors and (2) market 

structure and regulatory conditions. Table 1 presents the expected 

effects of all the explanatory variables in the structural model on 

cable prices and DBS penetration rates.



Table 1: Expected Effects of All Explanatory Variables on Cable Prices 

and DBS Penetration Rates:



Explanatory variable: Cable price; Definition of variable: The monthly 

rate charged for the Basic Service Tier, Cable Programming Service 

Tier (the most commonly purchased tier), and rental of a converter 

box and remote control.; Included in previous GAO report: Yes; 

Expected effect on cable prices: Not applicable.; 

Expected effect on DBS penetration rates: We expect that higher cable 

prices should encourage more customers to choose DBS service instead of 

cable service, thereby increasing the DBS penetration rate.



Explanatory variable: Number of cable subscribers; 

Definition of variable: The number of subscribers to the Basic Service 

Tier and Cable Programming Service Tier.; Included in previous GAO 

report: Yes; 

Expected effect on cable prices: Costs per subscriber of providing 

cable services can increase or decrease with the number of subscribers, 

depending on scale economies.; 

Expected effect on DBS penetration rates: If cable and DBS service are 

substitute services, we expect a lower DBS penetration rate where there 

are more cable subscribers.



Explanatory variable: Number of cable channels; 

Definition of variable: The number of channels provided with the Basic 

Service Tier and Cable Programming Service Tier.; Included in previous 

GAO report: Yes; 

Expected effect on cable prices: Consumers should be willing to pay 

more for a greater number of channels. Also, costs should be greater 

for the cable operator to provide more channels.; 

Expected effect on DBS penetration rates: In areas where cable 

companies offer more channels (a measure of quality), we expect lower 

DBS penetration rates.



Explanatory variable: DBS penetration rate; 

Definition of variable: The fraction of housing units in a cable 

franchise area that have satellite service.; Included in previous GAO 

report: Yes; 

Expected effect on cable prices: We expect the presence of DBS to 

restrain cable prices if cable and satellite were close substitutes in 

2001.; 

Expected effect on DBS penetration rates: Not applicable.



Explanatory variable: DBS provision of local channels; 

Definition of variable: A binary variable that equals 1 if both DBS 

providers offer local channels in the cable franchise area.; Included 

in previous GAO report: No; 

Expected effect on cable prices: If local channels make DBS service a 

closer substitute for cable service, we expect the presence of local 

channels to be associated with lower cable prices.; 

Expected effect on DBS penetration rates: If local channels make DBS 

service a more attractive alternative for subscribers, we expect the 

presence of local channels to be associated with higher DBS penetration 

rates.



Explanatory variable: Homes passed by cable system; 

Definition of variable: The number of homes passed by the cable sysem 

that serves the franchise area, including homes outside of the 

franchise area.; Included in previous GAO report: Yes; 

Expected effect on cable prices: As the number of homes passed 

increases, the costs of operation could increase or decline depending 

on the scale economies.; 

Expected effect on DBS penetration rates: DBS providers will be more or 

less competitive with cable franchises, depending on the cable 

companies costs of operation.



Explanatory variable: Age of cable franchise; 

Definition of variable: 2001 minus the year that the cable franchise 

began operation.; Included in previous GAO report: Yes; 

Expected effect on cable prices: Subscribers could have a higher demand 

in franchise areas with older cable franchises because they are more 

likely to be aware of the availability and quality of the cable system. 

Therefore, cable prices could be higher.; 

Expected effect on DBS penetration rates: Because consumers are more 

likely to be aware of the availability and quality of cable, we expect 

lower DBS penetration rates in areas where the cable franchise is 

older.



Explanatory variable: Cable system megahertz; 

Definition of variable: The capacity, measured in megahertz, of the 

cable system that serves the franchise area.; Included in previous GAO 

report: Yes; 

Expected effect on cable prices: Higher-megahertz systems may enable 

the provider to offer more channels and to bundle services, such as 

video, voice, and broadband Internet access, together. This could 

increase demand for cable, leading to higher prices. Alternatively, 

cable prices may be discounted to attract consumers to the other (new) 

services.; 

Expected effect on DBS penetration rates: We expect more capacity to be 

associated with a lower DBS penetration rate if cable providers are 

able to offer more channels and bundled services, such as telephony and 

broadband Internet services.



Explanatory variable: Horizontal concentration; 

Definition of variable: A binary variable that equals 1 if the 

franchise area is served by 1 of the 10 largest national multiple 

system operators (MSO).; Included in previous GAO report: Yes; 

Expected effect on cable prices: If large MSOs have some cost 

advantages, rates could be lower; if MSO ownership imposes a 

competitive disadvantage to potential entrants, cable prices could be 

higher.; 

Expected effect on DBS penetration rates: If MSO ownership imposes a 

competitive disadvantage on DBS providers, DBS penetration rates could 

be lower.



Explanatory variable: Vertical relationships; 

Definition of variable: A binary variable that equals 1 if the cable 

operator is affiliated with an MSO that has an ownership interest in a 

national or regional video programming service.; Included in previous 

GAO report: Yes; 

Expected effect on cable prices: A vertical relationship could lower 

cable system costs if programming costs are reduced or efficiencies are 

gained, but vertical relationships could signify market power that 

would tend to lead to higher cable prices.; 

Expected effect on DBS penetration rates: If a vertical relationship 

imposes a competitive disadvantage on DBS providers, DBS penetration 

rates could be lower.



Explanatory variable: Presence of nonsatellite competitor; 

Definition of variable: A binary variable that equals 1 if a second 

wireline company provides cable service (including, for example, a 

local exchange telephone carrier offering video services) in the 

franchise area.; Included in previous GAO report: Yes; 

Expected effect on cable prices: Cable prices should be lower where a 

nonsatellite competitor provides service.; 

Expected effect on DBS penetration rates: The presence of a 

nonsatellite competitor increases the number of firms providing 

multichannel video service, possibly implying a lower DBS penetration 

rate.



Explanatory variable: Regulation; 

Definition of variable: A binary variable that equals 1 if the cable 

franchise is subject to regulation of the rate charged for the Basic 

Service Tier.; Included in previous GAO report: Yes; 

Expected effect on cable prices: Regulation may be associated with 

lower cable prices when compared with prices that would prevail under 

profit-maximizing pricing by monopoly cable systems. However, cable 

prices could be higher under regulation if the unregulated cable 

systems were more competitive.; 

Expected effect on DBS penetration rates: DBS penetration rates could 

be higher or lower, depending on how regulation influences the 

competitiveness of the cable company.



Explanatory variable: Television market size; 

Definition of variable: The number of television households in the 

market.; Included in previous GAO report: No; 

Expected effect on cable prices: In larger markets, more alternative 

forms of entertainment compete with cable, which should lead to lower 

cable prices.; 

Expected effect on DBS penetration rates: In larger markets, more 

alternative forms of entertainment compete with DBS, which should lead 

to lower DBS penetration rates.



Explanatory variable: Number of local broadcast channels; 

Definition of variable: The number of over-the-air broadcast stations 

in the television market.; Included in previous GAO report: Yes; 

Expected effect on cable prices: Consumers would pay more for a greater 

number of broadcast channels on the cable system. Alternatively, over-

the-air television could be more competitive with cable in areas where 

there are many stations.; 

Expected effect on DBS penetration rates: Over-the-air television could 

be more competitive with DBS in areas where there are many stations.



Explanatory variable: Average weekly wage; 

Definition of variable: The average weekly wage for telecommunications 

equipment installers and repairers in the state where the cable 

franchise is located.; Included in previous GAO report: Yes; 

Expected effect on cable prices: Areas with higher average wages should 

have higher costs of operation, which would make cable prices higher.; 

Expected effect on DBS penetration rates: Cable franchises in areas 

with relatively high average wages would be less competitive with 

national DBS providers.



Explanatory variable: Median household income; 

Definition of variable: The median household income in the franchise 

area.; Included in previous GAO report: Yes; 

Expected effect on cable prices: As consumers incomes rise, demand for 

cable services should increase, which would increase cable prices.; 

Expected effect on DBS penetration rates: As consumers incomes rise, 

demand for DBS service should increase, implying a greater DBS 

penetration rate.



Explanatory variable: Nonmetropolitan area; 

Definition of variable: A binary variable that equals 1 if the 

franchise area is outside of a metropolitan statistical area (MSA).; 

Included in previous GAO report: Yes; 

Expected effect on cable prices: We expect the competitive impact of 

DBS on cable prices to be stronger in franchise areas that lie outside 

of MSAs.; 

Expected effect on DBS penetration rates: We expect nonmetropolitan 

status to be associated with higher DBS penetration rates if DBS is a 

closer substitute for cable in nonmetropolitan areas.



Explanatory variable: Population density; 

Definition of variable: The ratio of population to square miles in the 

franchise area.; Included in previous GAO report: No; 

Expected effect on cable prices: Because more customers can be served 

per mile of cable, areas with higher population density should have 

lower costs of operation and therefore lower cable prices.; 

Expected effect on DBS penetration rates: Cable franchises in more 

densely populated areas would be more competitive with DBS providers 

because of possible lower costs and line-of-sight problems for DBS 

subscribers.



Explanatory variable: Urbanization; 

Definition of variable: The percentage of the countys population that 

is classified as urban by the Census Bureau.; Included in previous GAO 

report: Yes; 

Expected effect on cable prices: Because consumers in more urban 

settings have many alternative forms of entertainment competing with 

cable, their demand for cable services would be lower, which would lead 

to lower cable prices.; 

Expected effect on DBS penetration rates: We expect lower demand for 

DBS service in urban areas because consumers have alternative forms of 

entertainment and are less likely to have the necessary line-of-sight 

to the satellite because of obstructions.



Explanatory variable: Percentage of multiple-dwelling units; 

Definition of variable: The percentage of housing units accounted for 

by structures with five or more housing units.; Included in previous 

GAO report: Yes; 

Expected effect on cable prices: Where there are more multiple-dwelling 

units, the market has been found to be more naturally competitive 

because cable systems may face greater actual or potential competition, 

which would lead to lower cable prices.; 

Expected effect on DBS penetration rates: We expect lower DBS 

penetration rates where there are more multiple-dwelling units because 

consumers line-of-sight is more likely to be blocked and consumers may 

face more restrictions on where they can mount the dish at their 

residence.



Explanatory variable: Dish angle or elevation; 

Definition of variable: The angle relative to the ground that a DBS 

subscriber must mount the satellite dish to see the satellite. A more 

vertical mounting is defined to be a lower angle.; Included in 

previous GAO report: No; 

Expected effect on cable prices: If satellite dishes must be mounted in 

a more vertical position, we expect that DBS providers will be less 

competitive with cable companies.; 

Expected effect on DBS penetration rates: In markets in which a 

satellite dish must be set in a more vertical position, we expect lower 

DBS penetration because of the greater likelihood that obstacles would 

block the line-of-sight to the satellite.



Source: GAO (2002).



[End of table]



Data Sources Used for the Econometric Model:



We required several data elements to build the data set used to 

estimate this model. The following is a list of our primary data 

sources:



* We obtained data on cable prices and service characteristics from a 

2001 survey of cable franchises that FCC conducted as part of its 

mandate to report annually on cable prices. FCCs survey asked a sample 

of cable franchises to provide information about a variety of items 

pertaining to cable prices, service offerings, subscribership, 

franchise area reach, franchise ownership, and system capacity. We used 

the survey to define measures of each franchise areas cable prices, 

number of subscribers, and number of cable channels as described above. 

In addition, we used the survey to define variables measuring (1) 

system megahertz (the capacity of the cable system in megahertz), (2) 

homes passed by the cable system serving the franchise area and perhaps 

other franchises in the same area, (3) competitive status--a dummy 

variable equal to 1 if the franchise faced nonsatellite competition 

from an unaffiliated subscription video company (or overbuilder) or 

from a local telephone company, (4) regulation--a dummy variable equal 

to 1 if the franchise is subject to rate regulation of its Basic 

Service Tier, and (5) horizontal concentration--a dummy variable equal 

to 1 if the franchise is affiliated with 1 of the 10 largest MSOs.



* From SkyREPORT, we obtained an estimate of DBS subscriber counts as 

of year-end 2001 for each zip code in the United States. We used this 

information to calculate the number of DBS subscribers in a cable 

franchise area, which, when used in conjunction with the number of 

housing units, was used to define the DBS penetration rate.



* We used the most recent data from the U.S. Census Bureau to obtain 

the following demographic information for each franchise area: median 

household income, proportions of urban and rural populations, housing 

units accounted for by structures with more than five units (multiple-

dwelling units), population density, and nonmetropolitan statistical 

areas.



* For average wage, we used year 2000 state estimates for 

Telecommunications Equipment Installers and Repairers from the Bureau 

of Labor Statistics (BLS) Occupation and Employment Statistics Survey.



* We used data from BIA MEDIA AccessPro to determine the number of 

broadcast television stations in each television market.



* To define the dummy variable indicator of vertical integration, we 

used information on the corporate affiliations of the franchise 

operators provided in FCCs survey. We used this information in 

conjunction with industrywide information on vertical relationships 

between cable operators and suppliers of program content gathered by 

FCC in its 2001 annual video report.



* We used information from the National Association of Broadcasters to 

identify in which television markets local channels were available from 

both DBS companies.



* From Nielsen Media Research, we acquired information to determine the 

number of television households in each designated market area (DMA) 

and to determine in which DMA each cable franchise was located.



* On the basis of a zip code associated with each cable franchise, we 

were able to determine the necessary satellite dish elevation for each 

cable franchise area from information available on the Web pages of 

DirecTV and EchoStar.



Merging Various Data Sources into a Single Data Set:



The level of observation in our model is a cable franchise.[Footnote 

29] Many of the variables we used to estimate our model, such as each 

cable franchises price, came directly from FCCs survey of franchises. 

However, we also created variables for each franchise from information 

derived from other sources. For example, median income and the extent 

of multiple-dwelling units were obtained from Census data, and the 

number of DBS subscribers was provided by SkyREPORT.



The assignment of these variables to each franchise required 

identifying the geographic extent of each franchise area because Census 

and DBS data are reported within geographic definitions that differ 

from cable franchise areas. Census data can be obtained at several 

geographic levels, including communities or counties. Additionally, 

some information--most notably DBS subscriber counts--is at a zip code 

level. FCCs survey and other FCC data on cable franchises contain 

information on the franchise community name, type (such as city or 

town), and county, which can be used to link franchises to Census 

areas. One complicating factor in using community names to assign non-

survey-derived information to each franchise is that some cable 

franchises are in areas, such as unnamed, unincorporated areas, that do 

not correspond to geographic areas for which Census or other data are 

readily available. Another complicating factor is that FCCs 2001 

survey did not contain information on the zip codes served by 

particular franchise areas.



We first attempted to determine the geographic area associated with 

each cable franchise. Our general approach was to combine each 

franchises community name field with an indicator of community type, 

such as city or town, and then match these names to census place or, 

alternatively, county subdivision[Footnote 30] (minor civil division) 

files. Since many of the franchises in our sample correspond to

recognizable local entities-such as cities, towns, and townships--we 

were able to make the link directly to Census data sources and assign 

demographic and other census data gathered at the level of the 

associated community. Of the 722 franchises used in the model, 442 

were linked to census place files, and 126 were linked to census county 
subdivision files. For other franchises, however, the link to Census 

records was not as direct. For franchises in unincorporated, unnamed 

areas and those whose franchise areas represent a section of the 

associated community (which occurs in some large cities),[Footnote 31] 

we acquired additional information on the geographic boundaries of the 

franchise areas.[Footnote 32] For purposes of assigning demographic 

and other census data to each of these franchises, we identified a key 

zip code that we used to link to census data organized at the zip code 

level. Of the 722 franchises used in the model, 28 were in large cities 

with multiple franchises, 94 were in unincorporated areas of counties 

for which we obtained more specific boundary information, and 32 were 

in unincorporated areas for which we did not obtain more specific 
boundary information.



The satellite subscriber information we obtained was organized by zip 

code. In order to match these counts to franchises, we determined the 

zip code or zip codes associated with each franchise. Because zip codes 

often do not share boundaries with other geographies, one zip code can 

be associated with more than one cable franchise area. Also, many 

franchises, particularly larger ones, span many zip codes. Therefore, 

we needed to identify the zip code or codes in each franchise area as 

well as the degree to which each of those zip codes is contained in 

each franchise area to calculate the degree of satellite penetration 

for each franchise. We accomplished this by using software designed to 

relate various levels of census geography to one another.[Footnote 33] 

For most franchise areas--that is, those that correspond to census 

places, county subdivisions, or entire counties as well as some of 

those franchises in multiple-franchise jurisdictions--we were able to 

use this software to relate census places, county subdivisions, and in 

some cases, census tracts or whole counties, directly to the zip codes 

that corresponded to those areas (places, etc.) and to calculate the 

share of each zip codes population according to the 2000 Census that 

was contained in that area. We used these population shares to allocate 

shares of each zip codes total DBS subscribers to the relevant 

franchise area.[Footnote 34] For some franchise areas in unincorporated 

areas, we used the zip code or codes we identified as part of our 

investigation of the geographic extent of these franchises, and we used 

the software to estimate the proportion of the population in those zip 

codes living in unincorporated areas and to allocate DBS subscribers on 

the basis of these population proportions.[Footnote 35] For some other 

franchise areas in unincorporated areas, we approximated DBS 

penetration using population proportions in the unincorporated portions 

of all zip codes in the relevant counties.



We assigned other information to each franchise on the basis of the 

franchises county, state, or the key zip code that we identified. Wage 

data from BLS were assigned at the state level; nonmetropolitan status, 

percentage of urban population, and the Nielsen television market of 

each franchise were assigned at the county level.[Footnote 36] As part 

of the process used to match zip codes to franchises, we defined a key 

zip code for each franchise as that zip code with the largest franchise 

area population. We used this zip code to assign dish elevation for 

each franchise.



Descriptive Statistics for Variables Included in the Econometric Model:



Table 2 provides basic statistical information on all of the variables 

included in the cable-satellite competition model. We calculated these 

statistics using all 722 observations in our data set.



Table 2: Descriptive Statistics:



Variable: Cable price (dollars per month); Mean: 35.89; Standard 

deviation: 5.31; Minimum value: 14.00; Maximum value: 47.84.



Variable: Number of cable subscribers; Mean: 21,008.5; Standard 

deviation: 43,256.2; Minimum value: 4.0; Maximum value: 302,964.0.



Variable: Number of cable channels; Mean: 58.0; Standard deviation: 

14.1; Minimum value: 10.0; Maximum value: 99.0.



Variable: DBS penetration rate (percentage); Mean: 15.8; Standard 

deviation: 11.2; Minimum value: 1.6; Maximum value: 63.6.



Variable: DBS provision of local channels; Mean: 0.51; Standard 

deviation: 0.50; Minimum value: 0.00; Maximum value: 1.00.



Variable: Homes passed by cable system; Mean: 177,114.4; Standard 

deviation: 233,678.7; Minimum value: 30.0; Maximum value: 1,260,734.0.



Variable: Age of cable franchise (years); Mean: 23.9; Standard 

deviation: 9.6; Minimum value: 2.0; Maximum value: 50.0.



Variable: Cable system megahertz; Mean: 637.6; Standard deviation: 

172.3; Minimum value: 216.0; Maximum value: 870.0.



Variable: Horizontal concentration; Mean: 0.83; Standard deviation: 

0.37; Minimum value: 0.00; Maximum value: 1.00.



Variable: Vertical relationships; Mean: 0.54; Standard deviation: 0.50; 

Minimum value: 0.00; Maximum value: 1.00.



Variable: Presence of nonsatellite competitor; Mean: 0.14; Standard 

deviation: 0.35; Minimum value: 0.00; Maximum value: 1.00.



Variable: Regulation; Mean: 0.35; Standard deviation: 0.48; Minimum 

value: 0.00; Maximum value: 1.00.



Variable: Television market size (households in thousands); Mean: 

1,432.1; Standard deviation: 1,655.3; Minimum value: 50.0; Maximum 

value: 7,301.0.



Variable: Number of local broadcast channels; Mean: 11.9; Standard 

deviation: 5.7; Minimum value: 1.0; Maximum value: 25.0.



Variable: Average weekly wages (dollars); Mean: 788.38; Standard 

deviation: 101.80; Minimum value: 575.38; Maximum value: 1,045.58.



Variable: Median household income (dollars in thousands); Mean: 43.7; 

Standard deviation: 16.1; Minimum value: 13.5; Maximum value: 140.0.



Variable: Nonmetropolitan area; Mean: 0.26; Standard deviation: 0.44; 

Minimum value: 0.00; Maximum value: 1.00.



Variable: Population density; Mean: 2,843.9; Standard deviation: 

7,066.2; Minimum value: 2.3; Maximum value: 87,139.8.



Variable: Urbanization (percentage); Mean: 72.8; Standard deviation: 

28.4; Minimum value: 0.0; Maximum value: 100.0.



Variable: Percentage of multiple-dwelling units; Mean: 14.28; Standard 

deviation: 13.57; Minimum value: 0.00; Maximum value: 98.12.



Variable: Dish angle or elevation (degrees); Mean: 40.3; Standard 

deviation: 6.6; Minimum value: 27.2; Maximum value: 57.3.



Source: GAO (2002).



[End of table]



Estimation Methodology and Results:



We employed the Three-Stage Least Squares (3SLS) method to estimate our 

model.[Footnote 37] Table 3 includes the estimation results for each of 

the four structural equations. All of the variables, except dummy 

variables,[Footnote 38] are expressed in natural logarithmic 

form.[Footnote 39] This means that coefficients can be interpreted as 

elasticities--the percentage change in the value of the dependent 

variable associated with a 1 percent change in the value of an 

independent, or explanatory, variable. The coefficients on the dummy 

variables are elasticities in decimal form. Most of our results are 

consistent with the economic reasoning that underlies our model as well 

as with the results from several previous studies, including our 2000 

report.



Table 3: 3SLS Model Results:



Variable: Cable price; Cable prices equation: [Empty]; Cable 

subscribers equation: [Empty]; Cable channels equation: [Empty]; DBS 

penetration equation: -0.2335 [0.6076].



Variable: Cable price per channel; Cable prices equation: [Empty]; 

Cable subscribers equation: -2.1239 [0.0001][A]; Cable channels 

equation: [Empty]; DBS penetration equation: [Empty].



Variable: Number of cable subscribers; Cable prices equation: 0.0166 

[0.0816][C]; Cable subscribers equation: [Empty]; Cable channels 

equation: 0.0544 [0.0001][A]; DBS penetration equation: [Empty].



Variable: Number of cable channels; Cable prices equation: 0.2030 

[0.0001][A]; Cable subscribers equation: [Empty]; Cable channels 

equation: [Empty]; DBS penetration equation: [Empty].



Variable: DBS penetration rate; Cable prices equation: -0.0340 

[0.2060]; Cable subscribers equation: -2.0759 [0.0001][A]; Cable 

channels equation: -0.0245 [0.4237]; DBS penetration equation: [Empty].



Variable: DBS provision of local channels; Cable prices equation: 

0.0002 [0.9930]; Cable subscribers equation: 0.3175; [0.1753]; Cable 

channels equation: 0.0567; [0.0240][B]; DBS penetration equation: 

0.2772 [0.0001][ A].



Variable: Homes passed by cable system; Cable prices equation: [Empty]; 

Cable subscribers equation: 0.2211 [0.0001][A]; Cable channels 

equation: [Empty]; DBS penetration equation: [Empty].



Variable: Age of cable franchise; Cable prices equation: [Empty]; Cable 

subscribers equation: 0.3870 [0.0052][A]; Cable channels equation: 

[Empty]; DBS penetration equation: -0.1253 [0.0062][A].



Variable: Cable system megahertz; Cable prices equation: [Empty]; Cable 

subscribers equation: [Empty]; Cable channels equation: 0.5073 

[0.0001][A]; DBS penetration equation: -0.3134 [0.0014][A].



Variable: Horizontal concentration; Cable prices equation: 0.0661 

[0.0001][A]; Cable subscribers equation: [Empty]; Cable channels 

equation: [Empty]; DBS penetration equation: [Empty].



Variable: Vertical relationships; Cable prices equation: -0.0051 

[0.6753]; Cable subscribers equation: [Empty]; Cable channels equation: 

-0.0399; [0.0116][B]; DBS penetration equation: [Empty].



Variable: Presence of nonsatellite competitor; Cable prices equation: -

0.1837 [0.0001][A]; Cable subscribers equation: -1.4497 [0.0001][A]; 

Cable channels equation: 0.0221 [0.3852]; DBS penetration equation: -

0.4989 [0.0001][A].



Variable: Regulation; Cable prices equation: 0.0008 [0.9564]; Cable 

subscribers equation: [Empty]; Cable channels equation: [Empty]; DBS 

penetration equation: [Empty].



Variable: Television market size; Cable prices equation: 0.0085 

[0.3074]; Cable subscribers equation: -0.2599 [0.0887][C]; Cable 

channels equation: -0.0060; [0.5989]; DBS penetration equation: -0.1025 

[0.0018][ A].



Variable: Number of local broadcast channels; Cable prices equation: 

[Empty]; Cable subscribers equation: 0.6181 [0.0050][A]; Cable channels 

equation: [Empty]; DBS penetration equation: [Empty].



Variable: Average weekly wages; Cable prices equation: 0.0033 [0.9408]; 

Cable subscribers equation: [Empty]; Cable channels equation: [Empty]; 

DBS penetration equation: [Empty].



Variable: Median household income; Cable prices equation: [Empty]; 

Cable subscribers equation: -0.5452 [0.0100][A]; Cable channels 

equation: 0.0788 [0.0005][A]; DBS penetration equation: 0.1278 

[0.0404][B].



Variable: Nonmetropolitan area; Cable prices equation: [Empty]; Cable 

subscribers equation: [Empty]; Cable channels equation: [Empty]; DBS 

penetration equation: 0.4555 [0.0001][A].



Variable: Population density; Cable prices equation: -0.0098 [0.0819][ 

C]; Cable subscribers equation: [Empty]; Cable channels equation: 

[Empty]; DBS penetration equation: [Empty].



Variable: Urbanization; Cable prices equation: [Empty]; Cable 

subscribers equation: 0.0817 [0.2982]; Cable channels equation: 

[Empty]; DBS penetration equation: [Empty].



Variable: Percentage of multiple-dwelling units; Cable prices equation: 

[Empty]; Cable subscribers equation: [Empty]; Cable channels equation: 

-0.0148 [0.1555]; DBS penetration equation: -0.2286 [0.0001][A].



Variable: Dish angle or elevation; Cable prices equation: [Empty]; 

Cable subscribers equation: [Empty]; Cable channels equation: [Empty]; 

DBS penetration equation: 0.5883 [0.0001][ A].



Variable: Intercept; Cable prices equation: 2.6627 [0.0001][ A]; Cable 

subscribers equation: 14.6489 [0.0001][ A]; Cable channels equation: -

0.3877; [0.2350]; DBS penetration equation: 3.2390 [0.0180][B].



Variable: Sample size; Cable prices equation: 722; Cable subscribers 

equation: 722; Cable channels equation: 722; DBS penetration equation: 

722.



Notes:



System-weighted R-square: 0.63.



P-values are in brackets.



[A] Significance at the 1 percent level.



[B] Significance at the 5 percent level.



[C] Significance at the 10 percent level.



Source: GAO (2002).



[End of table]



We found that DBS companies provision of local channels is associated 

with significantly higher DBS penetration rates. As shown in table 3, 

our model results indicate that in cable franchise areas where local 

channels are available from both DBS providers, the DBS penetration 

rate is approximately 32 percent higher than in areas where local 

channels are not available via satellite.[Footnote 40] This finding 

suggests that in areas where local channels are available from both DBS 

providers, consumers are more likely to subscribe to DBS service, and 

therefore DBS appears to be more able to compete effectively for 

subscribers than in areas where local channels are not available from 

both DBS providers. Several additional factors also influence the DBS 

penetration rate. Our model results indicate that the DBS penetration 

rate is greater in nonmetropolitan areas and in cable franchise areas 

that are outside the largest television markets, as measured by the 

number of television households in the market. These two factors can be 

associated with the historical development of satellite service, which 

had been marketed for many years in more rural areas. Additionally, the 

DBS penetration rate is higher in areas that require a relatively 

higher angle or elevation at which the satellite dish is mounted and is 

lower in areas where there are more multiple-dwelling units. These two 

factors can be associated with the need of DBS satellite dishes to 

see the satellite: a dish aimed more toward the horizon (as opposed 

to being aimed higher in the sky) is more likely to be blocked by a 

building or foliage and people in multiple-dwelling units often have 

fewer available locations to mount their dish.



We did not find that DBS companies provision of local broadcast 

channels is associated with lower cable prices. In table 3, the 

estimate for this variable is not statistically significant, and we 

therefore cannot reject the hypothesis that provision of local channels 

has no impact on cable prices. However, we found that cable prices were 

approximately 17 percent lower in areas where a second cable company--

known as an overbuilder--provides service. Additionally, cable prices 

were higher when the cable company was affiliated with 1 of the 10 

largest MSOs. This result indicates that horizontal concentration could 

be associated with higher cable system prices. Finally, cable prices 

are higher in areas where the cable company provides more channels, 

indicating that consumers generally are willing to pay for additional 

channels and that providing additional channels raises a cable 

companys costs.



We also found several interesting results in the cable subscriber and 

cable channel equations. In the cable subscribers equation, we 

obtained an estimate of the price elasticity of demand for cable 

services that was lower (in absolute value) than the estimate in our 

previous report.[Footnote 41] In the cable channels equation, our model 

results indicate that local service is associated with improved cable 

quality, as represented by an increase in the number of channels 

provided to subscribers. In areas where both DBS companies provide 

local channels, we found that cable companies offer subscribers 

approximately 6 percent more channels. This result indicates that cable 

companies are responding to DBS provision of local channels by 

improving their quality, as reflected by the greater number of 

channels. Also, cable franchises offered fewer channels (approximately 

4 percent fewer) when the company was vertically integrated with a 

programming network.



Finally, we present reduced-form cable price and DBS penetration 

equations (see table 4) in which the exogenous variables in the system 

are included to show the net effects on cable prices and DBS 

penetration rates of the exogenous variables. In the reduced-form 

equation, the estimates for local broadcast service include both the 

direct effects--as measured in the 3SLS system of structural equations-

-and indirect effects. Consistent with the 3SLS system, local channels 

are associated with significantly higher DBS penetration rates. Where 

local channels are offered by both DBS providers, DBS penetration rates 

are approximately 33 percent higher than in areas where local channels 

are not available. Also, DBS penetration rates are higher in 

nonmetropolitan areas, smaller television markets, and places where the 

dish elevation is at a greater angle. Again, we cannot reject the 

hypothesis that provision of local channels via satellite has no impact 

on cable prices. But cable prices are approximately 15 percent lower in 

franchise areas where a second cable company provides service, while 

prices are approximately 6 percent higher when the cable company is 

affiliated with 1 of the 10 largest MSOs.



Table 4: Regression Estimates of Reduced-Form Cable prices and DBS 

Penetration Equations:



Variable: DBS provision of local channels; Cable prices equation: -

0.0118 [0.5011]; DBS penetration equation: 0.2827 [0.0001][A].



Variable: Homes passed by cable system; Cable prices equation: 0.0190 

[0.0001][A]; DBS penetration equation: -0.0515 [0.0001][A].



Variable: Age of cable franchise; Cable prices equation: 0.0368 

[0.0012][A]; DBS penetration equation: -0.1144 [0.0046][A].



Variable: Cable system megahertz; Cable prices equation: 0.1321 

[0.0001][A]; DBS penetration equation: -0.3025 [0.0001][A].



Variable: Horizontal concentration; Cable prices equation: 0.0589 

[0.0005][A]; DBS penetration equation: 0.2493 [0.0001][A].



Variable: Vertical relationships; Cable prices equation: -0.0293 

[0.0192][B]; DBS penetration equation: -0.0718 [0.1066].



Variable: Presence of nonsatellite competitor; Cable prices equation: -

0.1613 [0.0001][A]; DBS penetration equation: -0.4329 [0.0001][A].



Variable: Regulation; Cable prices equation: -0.0020 [0.8610]; DBS 

penetration equation: -0.0784 [0.0574][C].



Variable: Television market size; Cable prices equation: 0.0230 

[0.0661][C]; DBS penetration equation: -0.1274 [0.0043][A].



Variable: Number of local broadcast channels; Cable prices equation: -

0.0079 [0.6928]; DBS penetration equation: 0.1823 [0.0103][B].



Variable: Average weekly wages; Cable prices equation: -0.0004 

[0.9931]; DBS penetration equation: 0.0106 [0.9535].



Variable: Median household income; Cable prices equation: -0.0036 

[0.8407]; DBS penetration equation: 0.1646 [0.0096][A].



Variable: Nonmetropolitan area; Cable prices equation: -0.0157 

[0.3294]; DBS penetration equation: 0.3090 [0.0001][A].



Variable: Population density; Cable prices equation: -0.0068 [0.1473]; 

DBS penetration equation: -0.0973 [0.0001][A].



Variable: Urbanization; Cable prices equation: 0.0069 [0.3246]; DBS 

penetration equation: -0.0680 [0.0068][A].



Variable: Percentage of multiple-dwelling units; Cable prices equation: 

0.0079 [0.1951]; DBS penetration equation: -0.1095 [0.0001][A].



Variable: Dish angle or elevation; Cable prices equation: -0.0329 

[0.3917]; DBS penetration equation: 0.9525 [0.0001][A].



Variable: Intercept; Cable prices equation: 2.4292 [0.0001][A]; DBS 

penetration equation: 1.3639 [0.4397].



Variable: Sample size; Cable prices equation: 722; DBS penetration 

equation: 722.



Notes: 



Adjusted R-square: 0.40 for price equation and 0.57 for DBS penetration 

equation. 



P-values are in brackets.



[A] Significance at the 1 percent level.



[B] Significance at the 5 percent level.



[C] Significance at the 10 percent level.



Source: GAO (2002).



[End of table]



Alternative Specifications:



We considered an alternative specification under which we expanded the 

definition of local channels to include markets where only one DBS 

provider offered local channels. In 2001, there were seven markets 

where only one DBS provider, but not both, offered local 

channels.[Footnote 42] By expanding our definition of local channels to 

include markets where either DBS company offered local channels, our 

data set contained an additional 35 observations (4.9 percent of all 

observations) defined to have local channels. The results are generally 

consistent with our primary specification. In both the 3SLS system of 

structural equations and the reduced-form equation, DBS provision of 

local channels is associated with significantly higher DBS penetration 

rates. Further, the estimate for the local channels variable is not 

statistically significant in the cable price equation, and we therefore 

cannot reject the hypothesis that provision of local channels has no 

impact on cable prices.



We considered another alternative specification using 3 years of cable 

rate and channel data in a single-equation specification. As part of 

its annual survey, FCC requested that cable companies report their 

cable rates and number of channels provided for 1999 to 2001. Using 

these data, we regressed cable rates on the number of cable channels 

provided, dummy variables for DBS provision of local broadcast channels 

(on the basis of the amount of time the service was available), and 

year and cross-section (i.e., cable franchise) dummy variables. In this 

panel model, we found that DBS provision of local broadcast channels 

was associated with higher cable rates. Because we lacked DBS 

penetration rate data for the 3-year period, we were unable to examine 

the impact of local channels on DBS penetration rates.



[End of section]



Appendix IV: Comments from the Federal Communications Commission:



FEDERAL COMMUNICATIONS COMMISSION:



Washington, D. C. 20554:



OFFICE OF MANAGING DIRECTOR:



October 2, 2002:



Mr. Peter Guerrero, Director:



Physical Infrastructure Issues U.S. General Accounting Office 

Washington, DC 20548:



Dear Mr. Guerrero:



Thank you for offering the Commission the opportunity to comment on 

GAOs draft report TELECOMMUNICATIONS: Issues in Providing Cable and 

Satellite Television (GAO-03-130).



Commission staff have reviewed the draft report. To the extent the 

Report describes the cable and DBS industries and presents industry 

statistics, there is nothing in the Report that is inconsistent with 

the information gathered by the Commission through a variety of 

rulemaking proceedings and research projects. Because the Commissions 

review of the proposed merger of EchoStar and DirecTV is pending, it 

would not be appropriate for Commission staff to comment on the draft 

report beyond providing the technical edits that we have already 

submitted.



Sincerely,



Andrew S. Fishel Managing Director:



An official signed for Andrew S. Fishel



[End of section]



Appendix V: Comments from the Department of Justice:



DEPARTMENT OF JUSTICE Antitrust Division:



CHARLES A. JAMES, Assistant Attorney General:



Main Justice Building:



950 Pennsylvania Avenue, N.W. Washington, D.C. 20530-0001



OCT 3, 2002:



Mr. Peter Guerrero:



Director, Physical Infrastructure Issues United States General 

Accounting Office:



Dear Mr. Guerrero:



Thank you for providing us with a draft of the GAO report entitled, 

Issues in Providing Cable and Satellite Television. Because the 

proposed acquisition of DirecTV by Echostar Communications Corporation 

is currently under review by the Antitrust Division, and your report 

touches on issues directly relevant to our investigation, we decline 

the offer to comment on your report at this time.



Sincerely:



Charles A. James



Signed by Charles A. James



[End of section]



Appendix VI: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Amy Abramowitz, (202) 512-4936

Faye Morrison, (202) 512-6448:



Staff Acknowledgments:



In addition to those named above, Wendy Ahmed, Stephen M. Brown, 

Michael Clements, Michele Fejfar, Rebecca L. Medina, Hai Tran, and 

Mindi Weisenbloom made key contributions to this report.



FOOTNOTES



[1] This is often referred to as the provision of local-into-local 

because the signals of broadcasters within a specific television market 

must be transmitted up to the satellite for transmission back down into 

that same television market.



[2] See U.S. General Accounting Office, Telecommunications: The Effect 

of Competition From Satellite Providers on Cable Rates, GAO/RCED-00-164 

(Washington, D.C.: July 18, 2000).



[3] The remaining 4 percent of subscription television households 

obtained service through other means, such as terrestrial wireless 

systems, satellite master antenna television systems (usually used in 

apartment buildings or other multiple-dwelling units), open video 

systems, and large C-band home satellite dishes.



[4] P.L. 106-113, 113 Stat. 1501, 1501A-526 to 1501A-545 (Nov. 29, 

1999).



[5] The market for a broadcast station is known as its designated 

market area (DMA). According to Nielsen Media Research, DMAs are used 

to identify television stations whose broadcast signals reach a 

specific area and attract the most viewers. Nonoverlapping DMAs cover 

the entire contiguous United States, Hawaii, and parts of Alaska.



[6] Digital subscriber line, or DSL, broadband Internet access and 

terrestrial wireless Internet access are also available in some areas.



[7] EchoStar previously offered an Internet access service called 

StarBand.



[8] Several companies are currently planning to introduce Ka-band 

satellite systems for broadband Internet access services for use by 

both consumers and businesses.



[9] A transponder will receive a signal, amplify it, change its 

frequency, and send it back to earth. Individual DBS transponders 

typically have a bandwidth capacity of 24 MHz.



[10] Respondents were asked to rate a series of possible reasons as 

either a major reason, a minor reason, or not a reason in why 

they considered or selected either a cable or DBS provider. See 

appendix II for the detailed questions and responses.



[11] In some areas, cable companies have begun offering promotions to 

entice current DBS subscribers to switch to cable. For example, DBS 

subscribers in one area who turn in their satellite equipment to the 

cable company receive free cable installation and an approximately $25 

per month reduction in their cable price for 1 year. Although these 

promotions can be thought of as a form of price discounting by cable 

operators, we do not know the extent to which such programs were in 

place during the time of our study.



[12] This was a larger effect than that found by FCC in its 2002 Report 

on Cable Industry Prices (FCC 02-107). Using an econometric model, FCC 

found that cable prices were about 7 percent lower in franchise areas 

when there was an overbuilder. One possible explanation for the 

difference in results is that we conducted further analysis of the 

competitive status of franchises that were reported by FCC to have an 

overbuilder. We found several instances where overbuilding may not have 

existed although FCC reported the presence of an overbuilder, and we 

found a few cases where overbuilders appeared to exist although FCC had 

not reported them. We adjusted our measurement of overbuilder status 

accordingly.



[13] DBS companies have a requirement somewhat analogous to cables 

must-carry requirement. The Satellite Home Viewer Improvement Act 

allows DBS companies to provide local broadcast signals but requires in 

most circumstances that if they do so, they must provide subscribers 

with all of the local broadcast signals in that market, including 

stations affiliated with smaller networks and independent and public 

stations.



[14] Currently, the two DBS providers offer much of the same 

programming, such as the same national cable networks (e.g., CNN and 

MTV), and offer local broadcast channels in most of the same markets. A 

merger would allow the new company to increase its current capacity by 

ending this duplication of services.



[15] EchoStar and DirecTV acknowledge that a proportion of DBS 

subscribers will also need to replace their equipment if they merge.



[16] Additionally, DBS companies have contracts with national cable 

networks. Dropping these networks to expand local channels could prompt 

legal challenges by the cable networks.



[17] Our model results indicate that there are benefits such as 

increased penetration rates in areas where local channels are offered. 

EchoStar and DirecTV have noted other reasons that the companies desire 

to serve all 210 markets, such as the ability to market their service-

-including local channels--nationally.



[18] For more information on the DTV transition, see U.S. General 

Accounting Office, Telecommunications: Many Broadcasters Will Not Meet 

May 2002 Digital Television Deadline, GAO-02-466 (Washington, D.C.: 

Apr. 23, 2002). We expect to release a second report on the DTV 

transition in November 2002.



[19] See U.S. General Accounting Office, Telecommunications: The Effect 

of Competition From Satellite Providers on Cable Rates, GAO/RCED-00-164 

(Washington, D.C.: July 18, 2000).



[20] Some cable franchises are selected with a probability of one, 

therefore continuous yearly data are generally available for these 

franchises. However, in the 2001 survey, only 297 cable franchises were 

selected with a probability of one.



[21] Questions 5a through 5j were read in a random order. Question 5k 

was always read as the last question of the set.



[22] Questions 9a through 9j were read in a random order. Question 9k 

was always read as the last question of the set.



[23] GAO/RCED-00-164.



[24] This is consistent with FCCs approach to analyzing the market. 

See Federal Communications Commission, Annual Assessment of the Status 

of Competition in Markets for the Delivery of Video Programming, CS 

Docket No. 01-129, Eighth Annual Report, FCC 01-389 (Washington, D.C.: 

Jan. 14, 2002).



[25] We also considered a variable that indicates whether either DBS 

provider offered local broadcast channels. There were seven markets 

where only one DBS company offered local channels. We discuss the 

results of this specification in the last section of this appendix.



[26] In previous studies that defined the market more narrowly to be 

cable television, equations for cable rates, the number of cable 

subscribers, and the number of cable channels were estimated jointly. 

For example, see Ford, G. S. and J. D. Jackson, Horizontal 

Concentration and Vertical Integration in Cable Television Industry, 

Review of Industrial Organization, 12(4) (1997), pp. 501-518; and 

Rubinovitz, R. N., Market Power and Price Increases for Basic Service 

Since Deregulation, RAND Journal of Economics, 24(1) (1993), pp. 1-18.



[27] The cable price does not reflect special introductory monthly 

rates, such as those offered to current DBS subscribers when they 

switch to cable service.



[28] For example, see Goolsbee, A. and A. Petrin, The Consumer Gains 

from Direct Broadcast Satellite and the Competition with Cable TV (Feb. 

26, 2002); Crandall, R. W. and H. Furchtgott-Roth, Cable TV: Regulation 

or Competition? (Washington, D.C.: Brookings Institution, 1996); Emmons 

III, W. M. and R. A. Prager, The Effects of Market Structure and 

Ownership on Prices and Service Offerings in the U.S. Cable Television 

Industry, RAND Journal of Economics, 28(4) (Winter 1997), pp. 732-750; 

Ford and Jackson (1997); Mayo, J. W. and Y. Otsuka, Demand, Pricing, 

and Regulation: Evidence from the Cable TV Industry, RAND Journal of 

Economics, 22(3) (1991), pp. 396-410; and Rubinovitz (1993).



[29] We define a cable franchise in terms of its Community Unit 

Identification (CUID) number.



[30] Places consist of what are known as census-designated places and 

places that are incorporated according to the laws of their respective 

states. Generally, incorporated places can be thought of as cities, 

boroughs, towns, townships, and villages. However, towns and townships 

in some states are not considered places in terms of census reporting, 

even though they might both serve some local government purpose and 

have large populations. Census data for many franchise areas designated 

as towns in FCCs master file of franchises are found in the county 

subdivisions file rather than the places file.



[31] Many large cities, such as New York City, Los Angeles, and 

Chicago, have multiple cable franchise areas.



[32] For those jurisdictions for which there were multiple franchises, 

including counties with franchises in unincorporated unnamed areas, we 

attempted to define more precise geographical boundaries for each 

franchise. Specifically, we contacted local government offices 

responsible for cable franchise oversight and received maps or other 

descriptive information linking the specific franchise areas to zip 

codes, census tracts, local government districts, or some other 

boundary information. When local governments did not directly provide 

zip code or census tract information, we used the information they did 

provide in conjunction with zip code overlay maps to assign zip codes 

to the franchise areas. For some franchises in unincorporated unnamed 

areas, we were unable to approximate the franchise area with any more 

geographic specificity than the unincorporated portion of the county.



[33] Specifically, we used the MABLE/Geocorr correspondence engine 

(http://mcdc2.missouri.edu/websas/geocorr2k.html). MABLE is an acronym 

for Master Area Block Level Equivalency file.



[34] As an illustration, assume that we had a cable franchise area in 

the town of Anytown, which the MABLE software identifies is served by 

zip codes 12345 and 12346. Assume further that zip code 12345 had a 

population of 10,000 people in 2000, of which 8,000 were in Anytown 

proper and 2,000 were in the surrounding unincorporated area, and zip 

code 12346 had a population of 12,000 people of which 6,000 were in 

Anytown. In this case, 80 percent of the 12345 zip code and 50 percent 

of the 12346 populations are associated with Anytown, so that our 

approach would assign 80 percent of the satellite subscribers in zip 

code 12345 and 50 percent of those in 12346 to the cable franchise in 

the town of Anytown. Because we defined the DBS penetration rate as the 

number of subscribers divided by the number of housing units, our 

approach would divide this estimate of the number of DBS subscribers in 

Anytown by the number of housing units reported in the 2000 Census for 

the town of Anytown.



[35] As another illustration, suppose there is a cable franchise in an 

unincorporated area that we identified as being near the town of 

Anytown. In this case, we would treat the franchise area as being the 

unincorporated portion of zip code 12345. In the case where there is 

only one zip code involved, we would approximate the DBS penetration 

rate for this franchise as the number of DBS subscribers in the zip 

code divided by the number of housing units in the zip code as reported 

in the 2000 Census. In other cases where more than one zip code is 

involved, we would approximate the DBS penetration rate on the basis of 

the shares in all of the identified zip codes.



[36] In the Nielsen data, some counties are split between different 

television markets. In cases where a franchises county was not 

uniquely placed in one television market, we used additional 

information on zip codes to assign the franchise to a television 

market.



[37] We preferred the 3SLS to Two-Stage Least Squares (2SLS) because 

the 3SLS accounts for the contemporaneous relationships among cable 

rates, cable subscribers, cable channels, and DBS penetration by using 

all available information. Also, we assumed that price per channel in 

the subscriber equation is exogenous because cable providers 

simultaneously decide how many channels to provide and what to charge 

for a package of channels, rather than deciding how much to charge for 

each channel.



[38] A dummy variable takes a value of 1 if a certain characteristic is 

present and a value of 0 otherwise.



[39] The dummy variables in the model include the following: horizontal 

concentration of cable systems, vertical relationship, regulation, 

presence of nonsatellite competitor, DBS provision of local channels, 

and nonmetropolitan area. Also, because the natural log of 0 is 

undefined, we added 1 to the observed value of any continuous variable 

that can take the value of 0.



[40] For dummy variables (those variables that can take a value of 0 or 

1 depending on the presence of a condition (e.g., DBS providers 

offering local broadcast channels)), we report the percentage change 

arising from a discrete change from 0 to 1. We calculated this 

percentage change as: [exp(parameter estimate)-1] times 100.



[41] The price elasticity of demand is estimated to be -2.12, which is 

elastic; this means that a 1 percent decrease in cable rates results in 

a 2.12 percent increase in the quantity demanded of cable. In our 

previous study, we found the price elasticity of demand to be -3.22.



[42] These television markets were Albuquerque, Baltimore, Columbus, 

Greensboro, Memphis, Milwaukee, and West Palm Beach.



GAOs Mission:



The General Accounting Office, the investigative arm of Congress, 

exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability 

of the federal government for the American people. GAO examines the use 

of public funds; evaluates federal programs and policies; and provides 

analyses, recommendations, and other assistance to help Congress make 

informed oversight, policy, and funding decisions. GAOs commitment to 

good government is reflected in its core values of accountability, 

integrity, and reliability.



Obtaining Copies of GAO Reports and Testimony:



The fastest and easiest way to obtain copies of GAO documents at no 

cost is through the Internet. GAOs Web site ( www.gao.gov ) contains 

abstracts and full-text files of current reports and testimony and an 

expanding archive of older products. The Web site features a search 

engine to help you locate documents using key words and phrases. You 

can print these documents in their entirety, including charts and other 

graphics.



Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as Todays Reports, on its 

Web site daily. The list contains links to the full-text document 

files. To have GAO e-mail this list to you every afternoon, go to 

www.gao.gov and select Subscribe to daily E-mail alert for newly 

released products under the GAO Reports heading.



Order by Mail or Phone:



The first copy of each printed report is free. Additional copies are $2 

each. A check or money order should be made out to the Superintendent 

of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. 

Orders should be sent to:



U.S. General Accounting Office



441 G Street NW,



Room LM Washington, D.C. 20548:



To order by Phone: 	



Voice: (202) 512-6000:



TDD: (202) 512-2537:



Fax: (202) 512-6061:



To Report Fraud, Waste, and Abuse in Federal Programs:



Contact:



Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov



Automated answering system: (800) 424-5454 or (202) 512-7470:



Public Affairs:



Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.



General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.



20548: