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 Federal  Communications  Commission  FCC  02-  338 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the 
 Delivery  of  Video  Programming 


 )  ) 
 )  ) 
 ) 
 MB  Docket  No.  02-  145 


 NINTH  ANNUAL  REPORT 
 Adopted:  December  23,  2002  Released:  December  31,  2002 
 By  the  Commission:  Table  of  Contents 
 Paragraph 
 I.  Introduction  ............  ............................................................................................................  1 
 A.  Scope  of  this  Report......................................................................................................  2  B.  Summary  of  Findings  ...................................................................................................  4 


 II.  Competitors  in  the  Market  for  the  Delivery  of  Video  Programming........................................  15 
 A.  Cable  Television  Service  ..............................................................................................  15 
 1.  General  Performance.......................................................................................  16  2.  Financial  Performance  ....................................................................................  27 
 3.  Capital  Acquisition  and  Disposition...............................................................  32  4.  Provision  of  Advanced  Broadband  Services  ..................................................  35 


 B.  Direct-  to-  Home  Satellite  Services  ...............................................................................  53 
 1.  Direct  Broadcast  Satellite  Service  ..................................................................  53  2.  Satellite-  Based  Advanced  Services  ................................................................  66 
 3.  Home  Satellite  Dishes.....................................................................................  71 
 C.  Wireless  Cable  Systems................................................................................................  72  D.  Private  Cable  Systems  .................................................................................................  75 
 E.  Broadcast  Television  Service  .......................................................................................  79  F.  Other  Entrants  ..  ............................................................................................................  88 


 1.  Internet  Video..................................................................................................  88  2.  Home  Video  Sales  and  Rentals.......................................................................  91 
 G.  Local  Exchange  Carriers  ..............................................................................................  95  H.  Electric  and  Gas  Utilities  ..............................................................................................  99 
 I.  Broadband  Service  Providers,  Open  Video  System  Operators,  and  Overbuilders  .....  102 
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 III.  Market  Structure  and  Conditions  Affecting  Competition.........................................................  112 
 A.  Horizontal  Issues  in  the  Market  for  the  Delivery  of  Video  Programming..................  112 
 1.  Competitive  Issues  in  the  Market  for  the  Delivery  of  Video  Programming  .  113  2.  Competitive  Issues  in  the  Market  for  the  Purchase  of  Video  Programming.  124 


 B.  Vertical  Integration  and  Other  Programming  Issues  ...................................................  134 
 1.  Status  of  Vertical  Integration..........................................................................  134  2.  Other  Programming  Issues..............................................................................  138 


 C.  Technical  Issues  ............................................................................................................  162 
 1.  Cable  Modems  ................................................................................................  163  2.  Navigation  Devices  .........................................................................................  167 
 3.  Emerging  Services  ..........................................................................................  170 
 IV.  Administrative  Matters..  ............................................................................................................  172 
 Appendices 
 A.  List  of  Commenters  B.  Horizontal  Issues  Tables 
 C.  Vertical  Integration  Tables 
 I.  INTRODUCTION 
 1.  This  is  the  Commissions  ninth  annual  report  (  2002  Report)  to  Congress  on  the  status  of  competition  in  the  market  for  the  delivery  of  video  programming.  1  Section  628(  g)  of  the 


 Communications  Act  of  1934,  as  amended  (  Communications  Act),  requires  the  Commission  to  report  annually  to  Congress  on  the  status  of  competition  in  the  market  for  the  delivery  of  video  programming.  2 
 Congress  imposed  this  annual  reporting  requirement  in  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992  (  1992  Cable  Act)  3  as  a  means  of  obtaining  information  on  the  competitive 
 status  of  the  market  for  the  delivery  of  video  programming. 
 A.  Scope  of  this  Report 
 2.  The  2002  Report  updates  the  information  in  our  previous  reports  and  provides  data  and  information  that  summarize  the  status  of  competition  in  the  market  for  the  delivery  of  video 


 programming.  The  information  and  analysis  provided  in  this  report  are  based  on  publicly  available  data,  filings  in  various  Commission  proceedings,  and  information  submitted  by  commenters  in  response  to  a 


 1  The  Commissions  previous  reports  appear  at:  Implementation  of  Section  19  of  the  1992  Cable  Act  (Annual 
 Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming),  (  1994  Report),  9  FCC  Rcd  7442  (1994);  (  1995  Report),  11  FCC  Rcd  2060  (1996);  (  1996  Report),  12  FCC  Rcd  4358  (1997); 


 (  1997  Report),  13  FCC  Rcd  1034  (1998);  (  1998  Report),  13  FCC  Rcd  24284  (1998);  (  1999  Report),  15  FCC  Rcd  978  (2000);  (  2000  Report),  16  FCC  Rcd  6005  (2001);  and  (  2001  Report),  17  FCC  Rcd  1244  (2002). 
 2  Communications  Act  of  1934,  as  amended,    628(  g),  47  U.  S.  C.    548(  g). 
 3  Pub.  L.  No.  102-  385,  106  Stat.  1460  (1992). 
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 Notice  of  Inquiry  (  Notice)  in  this  docket.  4  To  the  extent  that  information  provided  in  previous  annual  reports  is  still  relevant,  we  do  not  repeat  that  information  in  this  report  other  than  in  an  abbreviated 
 fashion,  and  provide  references  to  the  discussions  in  prior  reports. 
 3.  In  Section  II,  we  examine  the  cable  television  industry,  existing  multichannel  video  programming  distributors  (  MVPDs)  and  other  program  distribution  technologies  and  potential 


 competitors  to  cable  television.  Among  the  MVPD  systems  or  techniques  discussed  are  direct  broadcast  satellite  (  DBS)  services  and  home  satellite  dishes  (  HSD  or  C-  Band),  wireless  cable  systems  using 
 frequencies  in  the  multichannel  multipoint  distribution  service  (  MMDS),  private  cable  or  satellite  master  antenna  television  (  SMATV)  systems  as  well  as  broadcast  television  service.  We  also  consider 
 other  existing  and  potential  distribution  technologies  for  video  programming,  including  the  Internet,  home  video  sales  and  rentals,  local  exchange  carriers  (  LECs)  and  electric  and  gas  utilities,  and  broadband 
 service  providers  (  BSPs).  In  Section  III  of  this  report,  we  examine  market  structure  and  competition.  We  evaluate  horizontal  concentration  in  the  multichannel  video  marketplace  and  vertical  integration 
 between  cable  television  systems  and  programming  services.  We  also  address  technical  issues,  including  cable  modems,  navigation  devices,  and  emerging  services. 


 B.  Summary  of  Findings 
 4.  In  the  2002  Report,  we  examine  the  status  of  competition  in  the  market  for  the  delivery  of  video  programming,  discuss  changes  that  have  occurred  in  the  competitive  environment  over  the  last  year, 


 and  describe  barriers  to  competition  that  continue  to  exist.  Overall,  although  competitive  alternatives  continue  to  develop,  cable  television  still  is  the  dominant  technology  for  the  delivery  of  video 
 programming  to  consumers  in  the  MVPD  marketplace.  As  of  June  2002,  76.5%  of  MVPD  subscribers  received  their  video  programming  from  a  franchised  cable  operator,  compared  to  78%  a  year  earlier. 


 5.  The  total  number  of  subscribers  to  both  cable  and  non-  cable  MVPDs  continues  to  increase.  A  total  of  89.  9  million  households  subscribe  to  multichannel  video  programming  services  as  of  June 
 2002,  up  1.8%  over  the  88.3  million  households  subscribing  to  MVPDs  in  June  2001.  This  subscriber  growth  accompanied  a  1.2  percentage  point  decrease  in  MVPDs  penetration  of  television  households  to 
 85.3%  as  of  June  2002.  5 
 6.  Since  the  2001  Report,  the  number  of  cable  subscribers  continued  to  grow,  reaching  almost  68.8  million  as  of  June  2002,  up  about  0.4%  from  the  68.55  million  cable  subscribers  in  June  2001.  6  The 


 total  number  of  non-  cable  MVPD  subscribers  grew  from  19.3  million  as  of  June  2001  to  21.1  million  as  of  June  2002,  an  increase  of  more  than  nine  percent.  Although  industry  data  reflect  continued  growth 
 through  June  2002,  a  number  of  major  cable  system  operators  have  experienced  significant  subscriber  losses  during  this  period  and  calendar  year  2002  may  be  the  first  year  in  which  the  industry  as  a  whole  has 
 had  a  net  loss  of  subscribers. 
 7.  DBS  subscribership  has  grown  significantly  and  now  represents  20.3%  of  all  MVPD  subscribers.  Between  June  2001  and  June  2002,  the  number  of  DBS  subscribers  grew  from  almost  16 


 million  households  to  about  18  million  households,  which  is  significantly  higher  than  the  cable  subscriber 
 4  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  MB  Docket 
 No.  02-  145,  Notice  of  Inquiry  (  Notice),  17  FCC  Rcd  11579  (2002).  Appendix  A  provides  a  list  of  commenters  and  the  abbreviations  by  which  they  are  identified  herein. 


 5  The  number  of  MVPD  households  reported  here,  and  the  associated  percentages,  may  overstate  actual  values 
 because  a  household  that  subscribes  to  more  than  one  MVPD  (e.  g.,  cable  and  DBS)  is  included  as  a  subscriber  to  both  services.  See  2001  Report,  17  FCC  Rcd  at  1247. 


 6  The  source  changed  2001  subscriber  data.  See  Kagan  World  Media,  Broadband  Cable  Financial  Databook,  July 
 2002,  at  10. 
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 growth  rate.  The  continued  growth  of  DBS  is  still,  in  part,  attributable  to  the  authority  granted  to  DBS  operators  to  distribute  local  broadcast  television  stations  in  their  local  markets  by  the  Satellite  Home 
 Viewer  Improvement  Act  of  1999  (  SHVIA),  and  an  increase  in  the  number  of  markets  where  such  service  is  offered.  DBS  attracts  former  cable  subscribers  as  well  as  consumers  not  previously  subscribing 
 to  an  MVPD. 
 8.  Over  the  last  year,  the  number  of  subscribers  to  MMDS  and  large  dish  satellite  service  (HSD)  continue  to  decline.  The  participation  of  incumbent  local  exchange  carriers  in  the  distribution  of  video 


 programming  also  continue  to  decline.  The  number  of  subscribers  to  open  video  systems  (  OVS)  and  private  cable  has  remained  relatively  stable,  although  their  market  share  remains  small. 


 9.  During  the  period  under  review,  cable  rates  continued  to  rise.  According  to  the  Bureau  of  Labor  Statistics,  between  June  2001  and  June  2002,  cable  prices  rose  6.3%  compared  to  a  1.1%  increase 
 in  the  Consumer  Price  Index  (  CPI),  which  measures  general  price  changes.  Concurrently  with  these  rate  increases,  the  number  of  video  and  non-  video  services  offered  increased,  and  programming  costs 
 increased.  We  also  note  that  cable  operators  pricing  decisions  may  be  affected  by  direct  competition.  Available  evidence  indicates  that  when  an  incumbent  cable  operator  faces  effective  competition,  as 
 defined  by  the  Communications  Act,  it  responds  in  a  variety  of  ways,  including  lowering  prices  or  adding  channels  without  changing  the  monthly  rate,  as  well  as  improving  customer  service  and  adding  new 
 services  such  as  interactive  programming.  A  recent  GAO  study  found  that  while  the  provision  of  local  broadcast  channels  by  DBS  companies  is  not  associated  with  lower  cable  prices,  the  provision  of  local 
 broadcast  channels  by  DBS  companies  is  associated  with  non-  price  competition.  In  areas  where  DBS  operators  provide  local  channels,  the  GAO  results  indicate  that  cable  companies  offer  subscribers 
 approximately  six  percent  more  channels.  According  to  GAO,  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.  7 
 10.  The  Telecommunications  Act  of  1996  (  1996  Act)  removed  barriers  to  telephone  company  or  local  exchange  carrier  (  LEC)  entry  into  the  video  marketplace  to  facilitate  competition  between 


 incumbent  cable  operators  and  telephone  companies.  8  At  the  time  of  the  1996  Act,  it  was  expected  that  LECs  would  compete  in  the  video  delivery  market  and  that  cable  operators  would  provide  local  telephone 
 exchange  service.  We  previously  reported  that  the  four  largest  incumbent  local  exchange  carriers  (  ILECs)  have  largely  exited  the  video  business.  This  remains  true  today.  A  few  smaller  LECs  continue 
 to  offer,  or  are  preparing  to  offer,  MVPD  service  over  existing  telephone  lines.  Alternatively,  several  cable  multiple  system  operators  (  MSOs)  continue  to  offer  telephone  service.  Cable  operators  are 
 beginning  to  deploy  Internet  protocol  (  IP)  telephony  solutions  in  addition  to  circuit-  switched  telephony  offerings.  Cable  operators,  such  as  Cox  and  AT&  T,  continue  to  deploy  circuit-  switched  cable  telephony. 
 Others,  like  Cablevision  and  Comcast,  continue  to  offer  cable  telephony  where  it  has  already  been  deployed,  but  generally  are  waiting  for  IP  technology  to  become  widely  available  before  accelerating 
 their  rollout  of  telephone  service.  AT&  T,  AOL  Time  Warner,  Comcast,  Cox,  and  Charter  are  currently  offering  or  continuing  to  test  IP  telephony  products. 


 11.  The  most  significant  convergence  of  service  offerings  continues  to  be  the  pairing  of  Internet  service  with  other  service  offerings.  Cable  operators  continue  to  build-  out  the  broadband  infrastructure 
 that  permits  them  to  offer  high-  speed  Internet  access.  The  most  popular  way  to  access  the  Internet  over  cable  is  still  through  the  use  of  a  cable  modem  and  personal  computer,  though  a  small  number  of  users 
 continue  to  access  the  Internet  through  their  television  and  a  specially  designed  set-  top  box,  rather  than 
 7  U.  S.  General  Accounting  Office,  Issues  in  Providing  Cable  and  Satellite  Television  Services,  GAO-  03-  130 
 (October  2002)  (  GAO  2002  Report)  at  9-  10.  See  also  U.  S.  General  Accounting  Office,  Telecommunications:  The  Effect  of  Competition  From  Satellite  Providers  on  Cable  Rates,  GAO/  RCED-  00-  164  (July  2000). 


 8  Pub.  L.  No.  104-  104,  110  Stat.  56  (1996). 
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 the  personal  computer.  Virtually  all  of  the  major  MSOs  offer  Internet  access  via  cable  modems  in  portions  of  their  service  areas.  Like  cable,  the  DBS  industry  is  developing  ways  to  bring  advanced 
 services  to  their  customers.  For  example,  DirecTV  currently  offers  one-  way  and  two-  way  satellite-delivered  Internet  service  under  the  brand  name  DirecWay.  Many  MMDS  and  private  cable  operators 
 also  offer  Internet  access  services.  In  addition,  broadband  service  providers  continue  to  build  advanced  systems  specifically  to  offer  a  bundle  of  services,  including  video,  voice,  and  high-  speed  Internet  access. 


 12.  Non-  cable  MVPDs  continue  to  report  that  regulatory  and  other  barriers  to  entry  limit  their  ability  to  compete  with  incumbent  cable  operators.  Non-  cable  MVPDs  continue  to  experience  some 
 difficulties  in  obtaining  programming  from  vertically-  integrated  cable  programmers  and  from  unaffiliated  programmers  which  continue  to  make  exclusive  agreements  with  cable  operators.  In  multiple  dwelling 
 units  (  MDUs)  potential  entry  may  be  discouraged  or  limited  because  an  incumbent  video  programming  distributor  has  a  long-  term  and/  or  exclusive  contract.  In  addition,  non-  cable  MVPDs  report  problems 
 obtaining  franchises  from  local  governments  and  difficulties  in  gaining  access  to  utility  poles  needed  to  build  out  their  systems. 


 13.  Our  findings  as  to  particular  distribution  technologies  operating  in  the  market  for  the  delivery  of  video  programming  include  the  following: 
   Cable  Systems:  Since  the  2001  Report,  there  has  been  only  marginal  cable  television  industry  growth  in  terms  of  subscribership  (a  0.4%  increase  from  June 
 2001  to  June  2002),  with  a  number  of  individual  operators  facing  actual  subscriber  declines.  The  industry  has  continued  to  grow  in  terms  of  revenues  (an 
 approximate  15.9%  increase  between  2000  and  2001),  prime  time  audience  shares  (which  rose  from  an  average  51.9  share  between  July  2000  and  2001  to  an 
 average  56.5  share  between  July  2001  and  June  2002),  and  expenditures  on  programming.  The  number  of  national  satellite-  delivered  video  programming 
 services  increased  last  year,  from  287  to  308,  between  June  2001  and  June  2002. 
   The  cable  industry  has  continued  to  invest  in  improved  facilities.  As  a  result,  there  have  been  increases  in  channel  capacity,  the  deployment  of  digital 
 transmissions,  and  non-  video  services  such  as  Internet  access  and  telephony. 
   Direct-  to-  Home  (  DTH)  Satellite  Service  (DBS  and  HSD):  Video  service  is  available  from  high  power  DBS  satellites  that  transmit  signals  to  small  DBS  dish 
 antennas  installed  at  subscribers  premises  (DBS  service),  and  from  low  power  satellites  requiring  larger  antennas  (HSD  service).  DBS  has  over  18  million 
 subscribers,  an  increase  of  approximately  14%  since  the  2001  Report.  Between  June  2001  and  June  2002,  the  number  of  HSD  subscribers,  measured  as  the 
 number  of  HSD  users  that  actually  purchase  programming  packages,  declined  from  one  million  to  700,000,  a  decrease  of  about  30%.  DirecTV  and  EchoStar 
 are  each  among  the  five  largest  providers  of  multichannel  video  programming  service.  In  June  2002,  DBS  represented  a  20.3%  share  of  the  national  MVPD 
 market  and  HSD  represented  another  0.8%  of  that  market. 
   Wireless  Cable  Systems:  Currently,  the  wireless  cable  industry  (  MMDS)  provides  competition  to  the  cable  industry  in  limited  areas.  MMDS 
 subscribership  declined  between  June  2001  and  June  2002  from  approximately  700,000  subscribers  to  490,000  subscribers.  With  the  advent  of  digital  MMDS 
 and  the  Commissions  authorization  of  two-  way  MMDS  service,  it  appears  that  most  MMDS  spectrum  eventually  will  be  used  to  provide  high-  speed  data 
 services.  Wireless  cable  represented  an  approximately  0.6%  share  of  the  national  MVPD  market  in  June  2002. 
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   Private  Cable  Operators:  Private  cable  operators,  also  known  as  SMATV  operators,  use  some  of  the  same  technology  as  cable  systems,  but  do  not  use 
 public  rights-  of-  way,  and  focus  principally  on  serving  subscribers  living  in  MDUs.  Private  cable  subscribership  increased  slightly  from  1.5  million 
 subscribers  last  year  to  1.6  million  subscribers  as  of  June  2002,  representing  approximately  1.8%  of  national  MVPD  subscribership. 


   Broadcast  Television:  Broadcast  stations  and  networks,  and  non-  broadcast  networks  alike,  must  either  produce  programming  or  purchase  programming 
 from  third-  party  producers.  Broadcast  networks  and  stations  also  are  suppliers  of  content  for  distribution  by  MVPDs.  In  addition,  they  supply  video  programming 
 directly  to  those  television  households  that  are  not  MVPD  subscribers  and  to  television  sets  in  MVPD  households  that  are  not  connected  to  such  service. 
 Since  the  2001  Report,  the  broadcast  industry  has  continued  to  grow  in  the  number  of  operating  stations  (from  1,678  in  2001  to  1,712  in  2002).  Broadcast 
 stations  and  networks,  like  MVPDs  and  non-  broadcast  networks,  derive  revenue  from  advertising.  Advertising  revenues  and  audience  levels,  however,  declined 
 for  broadcasters  in  2001,  though  low  advertising  figures  are  partly  attributable  to  the  generally  slow  economy  in  2001.  In  2001,  advertising  revenues  were 
 approximately  $36  billion,  a  12%  decrease  over  2000  when  advertising  revenues  were  $41  billion.  Audience  levels  continue  to  decline  as  they  have  for  many 
 years.  During  the  2001-  2002  television  season,  the  broadcast  television  networks  accounted  for  an  average  59  share  of  prime  time  viewing  for  all  television 
 households,  compared  to  an  average  63  share  a  year  earlier.  Broadcast  television  stations  continue  to  deploy  digital  television  (  DTV)  service.  Ninety  percent  of 
 the  more  than  1,300  commercial  television  stations  have  been  granted  DTV  construction  permits  or  licenses  and  643  are  on  the  air  with  DTV  operation. 


   LEC  Entry:  The  1996  Act  expanded  opportunities  for  LECs  to  enter  the  market  for  the  delivery  of  video  programming.  In  the  2001  Report,  we  noted  that  ILECs 
 have  largely  exited  the  video  business.  BellSouth,  however,  continues  to  operate  some  overbuild  cable  systems,  and  a  number  of  smaller  LECs  that  are  offering, 
 or  preparing  to  offer,  video  service  over  telephone  lines.  Qwest  Communications  International  (formerly  US  West)  continues  to  offer  video,  high-  speed  Internet 
 access,  and  telephone  service  over  existing  copper  telephone  lines  using  very  high-  speed  digital  subscriber  line  (  VDSL)  in  several  markets.  Reports  indicate 
 that  45  LECs,  mostly  small,  also  are  using  VDSL  to  offer  a  bundle  of  services,  including  video,  over  telephone  lines. 


   Open  Video  Systems:  In  the  1996  Act,  Congress  established  a  new  framework  for  the  delivery  of  video  programming    open  video  system  (  OVS).  Under 
 these  rules,  a  LEC  or  other  entrant  may  provide  video  programming  to  subscribers,  although  the  OVS  operator  must  provide  non-  discriminatory  access 
 to  unaffiliated  programmers  on  a  portion  of  its  channel  capacity. 
   Broadband  Service  Providers:  Broadband  service  providers  are  entities  that  compete  with  existing  cable  systems  using  state-  of-  the-  art  systems  that  offer  a 
 bundle  of  telecommunications  services,  including  video,  voice,  and  high-  speed  Internet  access.  RCN  is  the  largest  BSP,  serving  approximately  507,000 
 subscribers.  WideOpenWest  (  WOW)  is  the  second  largest  BSP  with  cable  systems  serving  about  313,  000  subscribers.  The  third  largest  BSP  is  Knology, 
 which  currently  serves  approximately  120,000  subscribers. 
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   Internet  Video:  As  of  June  2002,  an  estimated  54  million  Americans  subscribed  to  an  Internet  access  service,  compared  with  50  million  as  of  June  2001.  Real-time 
 and  downloadable  video  accessible  over  the  Internet  continues  to  become  more  widely  available  and  the  amount  of  content  also  is  increasing.  Despite  the 
 evidence  of  increased  interest  in  Internet  video  deployment  and  use,  the  medium  is  still  not  seen  as  a  direct  competitor  to  traditional  video  service. 


   Home  Video  Sales  and  Rentals:  We  consider  the  sale  and  rental  of  home  video,  including  videocassettes,  DVDs,  and  laser  discs,  part  of  the  video  marketplace 
 because  they  provide  services  similar  to  the  premium  and  pay-  per-  view  offering  of  MVPDs.  About  90%  of  all  U.  S.  households  have  at  least  one  VCR.  The 
 number  of  homes  with  DVD  players  has  grown  rapidly  since  their  introduction,  with  14  million  DVD  homes  by  the  end  of  2001.  The  newest  home  video 
 technology  is  the  personal  video  recorder  (  PVR).  One  source  reports  that  one  million  homes  currently  have  PVRs. 


   Electric  and  Gas  Utilities:  Several  electric  and  gas  utilities  continue  to  move  forward  with  ventures  involving  multichannel  video  programming  distribution. 
 Some  of  their  characteristics,  such  as  ownership  of  fiber  optic  networks  and  access  to  public  rights-  of-  way,  make  them  competitively  significant.  Some 
 utilities  offer  telecommunications  services  on  their  own,  while  others  partner  with  broadband  service  providers,  such  as  Starpower,  RCNs  joint  venture  with 
 PEPCO.  It  also  appears  that  utilities,  particularly  municipal  utilities  in  rural  areas,  are  willing  to  build  advanced  telecommunications  networks  to  offer  a  full 
 range  of  services  where  incumbent  cable  operators  and  telephone  companies  are  not.  Reports  indicate  that  450  public  power  systems  offer  communications 
 services,  up  from  357  offering  service  last  year. 
 14.  We  also  find  that: 
   Consolidation  within  the  cable  industry  continues  as  cable  operators  acquire  and  trade  systems.  The  ten  largest  operators  served  about  85%  of  all  U.  S.  cable 
 subscribers.  In  terms  of  one  traditional  economic  measure,  national  concentration  among  the  top  MVPDs  has  decreased  since  last  year  as  the  largest  MSOs 
 continue  to  become  more  equal  in  size,  and  it  remains  below  the  levels  reported  in  earlier  years.  9  DBS  operators  DirecTV  and  EchoStar  rank  among  the  five 
 largest  MVPDs  in  terms  of  nationwide  subscribership  along  with  three  cable  MSOs.  As  of  June  2002,  slightly  more  than  52  million  of  the  nations  cable 
 subscribers  were  served  by  systems  that  are  included  in  regional  clusters. 
   The  number  of  satellite-  delivered  programming  networks  has  increased  from  287  in  2001  to  308  in  2002.  Vertical  integration  of  national  programming  services 
 between  cable  operators  and  programmers  decreased  to  30%,  after  remaining  steady  at  35%  over  the  last  couple  of  years.  In  2002,  four  of  the  top  six  cable 
 MSOs  held  ownership  interests  in  satellite-  delivered  programming  services.  Sports  programming  warrants  special  attention  because  of  its  widespread  appeal 
 and  strategic  significance  for  MVPDs.  The  2002  Report  identifies  at  least  86 
 9  Traditional  economic  measures  (e.  g.,  the  Herfindahl-  Hirschman  Index  or  HHI)  are  based  on  market  shares  or  the 
 squaring  of  market  shares  such  that  large  companies  are  weighed  more  heavily  than  small  companies.  The  HHI  (and  apparent  levels  of  concentration)  decline  with  rising  equality  among  any  given  number  of  companies  in  terms  of 


 market  shares  even  if  these  firms  individually  have  larger  shares  of  the  markets.  See  fn.  437  infra. 
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 regional  networks,  31  of  which  are  sports  channels,  many  owned  at  least  in  part  by  MSOs.  There  are  also  32  regional  and  local  news  networks  that  compete  with 
 local  broadcast  stations  and  national  cable  news  networks. 
   The  program  access  rules  adopted  pursuant  to  the  1992  Cable  Act,  and  recently  extended  by  the  Commission,  were  designed  to  ensure  that  other  MVPDs  can 
 access  vertically-  integrated  satellite  delivered  programming  on  non-discriminatory  terms.  We  recognize  that  the  terrestrial  distribution  of 
 programming,  including  in  particular  regional  sports  programming,  could  have  an  impact  on  the  ability  of  alternative  MVPDs  to  compete  in  the  video 
 marketplace. 
   Cable  operators  and  other  MVPDs  continue  to  develop  and  deploy  advanced  technologies,  especially  digital  compression  techniques,  to  increase  capacity  and 
 enhance  the  capabilities  of  their  transmission  platforms.  These  technologies  allow  MVPDs  to  deliver  additional  video  options  and  other  services  (e.  g.,  data 
 access,  telephony,  and  interactive  services  such  as  video-  on-  demand)  to  subscribers. 


   There  have  been  a  number  of  technical  developments  regarding  cable  modems  and  navigation  devices  used  to  access  a  wide  range  of  services  offered  by 
 MVPDs.  To  date,  CableLabs  has  certified  over  224  DOCSIS  1.0  compliant  cable  modems  and  48  DOCSIS  1.1  compliant  modems.  CableLabs  continues  to 
 advance  development  of  the  specification,  releasing  version  2.0  in  January  2002.  CableLabs  is  also  continuing  its  efforts  to  develop  next  generation  navigation 
 devices  with  its  initiative  for  the  OpenCable  Application  Platform  (  OCAP)  or  middleware  software  specification.  The  specification,  which  was  introduced  in 
 December  2001,  is  designed  to  enhance  the  ability  of  the  consumer  electronics  industry  to  build  and  market  integrated  DTV  sets,  digital  set-  top  boxes,  and  other 
 navigation  devices  directly  to  consumers.  One  major  television  manufacturer,  Panasonic,  has  signed  the  CableLabs  POD-  Host  Licensing  Agreement 
 (  PHILA),  allowing  it  to  develop,  manufacture,  and  market  digital  televisions  that  will  be  able  to  receive  high  definition  and  other  digital  programs  via  cable, 
 including  premium  services,  without  the  use  of  set-  top  boxes.  COMPETITORS 
8
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 II.  COMPETITORS  IN  THE  MARKET  FOR  THE  DELIVERY  OF  VIDEO  PROGRAMMING 
 A.  Cable  Television  Service 
 15.  This  section  addresses  the  performance  of  franchised  cable  system  operators  during  the  past  year.  10  We  address  four  different  areas  of  performance.  First,  we  report  on  the  general  performance  of 


 the  industry,  including  subscriber  levels,  availability  of  basic  services,  and  viewership.  Second,  we  discuss  the  cable  industrys  financial  performance,  including  its  revenue,  cash  flow  status,  stock 
 valuations,  and  system  transactions.  Third,  we  examine  the  cable  industrys  acquisition  and  disposition  of  capital,  including  the  amount  of  funds  raised,  and  how  these  funds  are  being  used  to  upgrade  physical 
 plant  and  to  acquire  new  systems.  Lastly,  we  address  the  growth  of  advanced  broadband  services,  including  high-  speed  Internet  access  services,  digital  video  services,  video-  on-  demand,  and  cable 
 telephony  that  is  offered  in  conjunction  with,  and  over  the  same  facilities  as,  video  service. 
 1.  General  Performance 
 16.  Since  our  last  Report,  the  cable  industry  has  continued  to  grow  in  terms  of  homes  passed,  11  basic  tier  cable  subscribership,  12  premium  service  subscriptions,  13  basic  tier  cable  viewership,  and 


 channel  capacity.  14  Basic  tier  cable  penetration,  the  ratio  of  the  number  of  cable  subscribers  to  the  total  number  of  households  passed  by  the  system  continues  to  decline.  Deployment  of  advanced  broadband 
 service  offerings  continued  to  increase  during  2001  and  the  first  half  of  2002.  These  services  include  offerings  of  digital  video,  high-  speed  Internet  access  services  through  cable  infrastructure,  interactive 
 cable  services,  15  and  facilities-  based  cable  telephony. 
 17.  Cables  Capacity  to  Serve  Television  Households.  As  we  have  previously  noted,  the  most  widely  used  industry  measurement  of  cable  availability  is  the  number  of  homes  passed  expressed  as  a 


 percentage  of  the  number  of  U.  S.  homes  with  at  least  one  television  (  TV  households).  16  In  its 
 10  A  franchise  is  an  authorization  supplied  by  a  federal,  state,  or  local  government  entity  to  own  or  construct  a  cable 
 system  in  a  specific  area.  47  U.  S.  C.    522(  9),  522(  10).  A  cable  system  operator  is  "any  person  or  group  of  persons  (A)  who  provides  cable  service  over  a  cable  system,  and  directly  or  through  one  or  more  affiliates  owns  a  significant 


 interest  in  such  cable  system;  or  (B)  who  otherwise  controls  or  is  responsible  for,  through  any  arrangement,  the  management  and  operation  of  such  a  cable  system."  47  U.  S.  C.    522(  5). 
 11  Homes  passed  is  the  total  number  of  households  capable  of  receiving  cable  television  service. 
 12  We  refer  to  all  cable  programming  networks  offered  as  a  part  of  program  packages  or  tiers  as  "basic  cable 
 networks."  The  primary  level  of  cable  television  service  is  commonly  referred  to  as  "basic  service"  (  BST)  and  must  be  taken  by  all  subscribers.  The  content  of  basic  service  varies  widely  among  cable  systems  but,  pursuant  to 


 the  Communications  Act,  must  include  all  local  television  signals  and  public,  educational,  and  governmental  access  channels  and,  at  the  discretion  of  the  cable  operator,  may  include  other  video  programming  services.  One  or  more 
 expanded  tiers  of  service,  known  as  cable  programming  service  tier  (  CPST)  for  purposes  of  rate  regulation,  and  often  known  as  expanded  basic,  also  may  be  offered  to  subscribers.  These  expanded  tiers  of  service  usually  include 
 additional  video  programming  channels.  47  U.  S.  C.    543(  b)(  7),  (l)(  2).  13 
 Premium  services  are  cable  networks  provided  by  a  cable  operator  on  a  per  channel  basis  for  an  extra  monthly  fee.  Pay-  per-  view  (  PPV)  services  are  cable  networks  provided  on  a  per  program  basis.  PPV  service  is  a  separate 


 category  from  premium  service.  47  U.  S.  C.    543(  b)(  7),  (l)(  2).  14 
 Channel  capacity  is  number  of  channels  dedicated  to  video  use  based  on  other  use  considerations.  Video  channel  capacity  can  be  decreased  on  any  given  system  simply  by  using  bandwidth  for  other  services,  such  as  high-  speed 


 Internet  access  services  or  cable  telephony.  15 
 The  interactive  cable  services  discussed  here  include  video-  on-  demand  (  VOD),  interactive  guides,  and  interactive  television  (  ITV). 


 16  2001  Report,  17  FCC  Rcd  at  1254;  Nielsen  Media  Research. 
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 comments,  NRTC  again  argues  that  the  widely-  used  measure  of  availability  (homes  passed  as  a  percentage  of  television  households)  is  fundamentally  flawed.  17  NRTC  states  that  not  only  is  the  data  for 
 homes  passed  inflated,  but  that  cables  availability  varies  depending  on  whether  the  comparison  is  based  on  TV  households,  all  households,  all  occupied  housing  units,  or  all  housing  units  in  the  United  States,  as 
 some  have  suggested  might  be  the  better  comparison.  18  NRTC  suggests  that  the  measurement  of  the  availability  of  cable  be  based  on  the  number  of  housing  units  and  not  TV  households.  19  NRTC  states  that 
 cables  availability  could  be  as  low  as  78%.  20 
 18.  As  NRTCs  comments  indicate,  the  calculation  of  cable  availability  has  been  and  remains  a  subject  of  controversy.  21  The  number  of  homes  passed  depends  on  the  data  source  used,  and  the 


 percentage  of  homes  passed  varies  based  on  the  universe  used  for  the  comparison.  In  our  order  designating  the  EchoStar-  DirecTV  merger  application  for  hearing,  we  observed  that  significant 
 discrepancies  can  arise,  for  example,  upon  comparison  of  the  Kagan  2001  homes  passed  figure  with  one  from  Warren  Communications  News.  22  These  differences  suggest  that  the  Kagan  data  should  be  used 
 with  a  good  deal  of  caution  and  that  they  are  most  reliable  as  a  trend  indicator,  rather  than  a  precise  estimate  for  any  one  year.  In  fact,  homes  passed  data  evaluated  in  the  context  of  our  review  of  the 
 proposed  DBS  merger  indicated  that  the  number  of  homes  not  passed  by  cable  in  fact  may  vary  from  the  4%  claimed  by  the  two  DBS  operators  to  21.  28%  using  alternative  estimation  methods.  23  Based  on  the 
 available  data,  however,  the  Commission  was  unable  to  determine  whether  either  of  these  values  or  another  value  correctly  estimates  the  percentage  of  homes  passed.  Thus,  because  of  the  significance  of 
 this  calculation  in  terms  of  the  potential  competitive  harms  posed  by  the  merger  of  the  two  DBS  operators,  the  issue  of  the  precise  measure  of  cable  availability  was  designated  for  hearing.  24 


 19.  Since  we  are  unable  to  resolve  this  factual  question,  for  purposes  of  this  Report,  we  continue  to  use,  as  we  have  in  the  past,  data  derived  from  Kagan  World  Media  and  Nielsen  Media  Research  for 
 historical  consistency.  We  present  these  data  to  indicate  trends,  rather  than  an  absolute  measure  of  cable  availability.  As  shown  in  Table  1  below,  cable  availability  was  estimated  to  be  approximately  97.6%  of 
 TV  households,  as  of  June  2002,  up  0.3%  from  year-  end  2001.  Regardless  of  whether  cable  availability  is  ultimately  determined  to  be  97.5%  or  78%,  it  is  reasonable  for  purposes  of  this  Report  to  conclude  that 
 the  share  of  television  households  passed  by  cable  is  very  high  and  has  been  rising  gradually  over  time. 


 17  NRTC  Comments  at  5-  7;  see  also  2001  Report,  17  FCC  Rcd  at  1254. 
 18  NRTC  Comments  at  5-  7. 
 19  Id. 
 20  Id.,  at  5.  See  also  NRTC  Comments  in  Application  of  EchoStar  Communications  Corporation,  General  Motors 
 Corporation,  and  Hughes  Electronics  Corporation,  Transferors  and  EchoStar  Communications  Corporation,  Transferee,  CS  Docket  No.  01-  348,  Feb.  24,  2002,  at  6-  14. 


 21  2001  Report,  17  FCC  Rcd  at  1254;  See  also  Application  of  EchoStar  Communications  Corporation,  General 
 Motors  Corporation,  and  Hughes  Electronics  Corporation,  Transferors  and  EchoStar  Communications  Corporation,  Transferee,  CS  Docket  No.  01-  348,  Hearing  Designation  Order  (  EchoStar-  Hughes  HDO),  FCC  02-284 


 (rel.  Oct.  18,  2002),    122-  25  (designating  for  hearing  the  issue  of  the  precise  number  of  households  that  are  not  served  by  a  cable  operator,  the  number  served  by  a  low-  capacity  cable  system,  and  the  number  served  by  a  high-capacity 
 cable  system).  22 
 EchoStar-  Hughes  HDO    124  and  n.  356.  23 
 Id.  24 
 Id. 
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 TABLE  1:  Cable  Television  Industry  Growth:  1997  -  June  2002  (in  millions)  25 
 Television  Households  (  TH)  Homes  Passed  (  HP)  Basic  Subscribers  (  Subs) 


 Year-  End  Total  %  Change  Total  %  Change  Total  %  Change 
 HH  Passed  by  Cable 
 (HP/  TH) 
 HHs  Subscribing 
 (Subs/  TH) 
 U.  S.  Penetration 
 (Subs/  HP) 
 1997  98.  0  1.0%  94.  6  1.0%  64.  8  2.0%  96.  5%  66.  1%  68.  5% 


 1998  99.  4  1.4%  96.  0  1.5%  66.  1  2.0%  96.  6%  66.  5%  68.  9% 
 1999  100.8  1.4%  97.  4  1.5%  67.  3  1.8%  96.  6%  66.  8%  69.  1% 
 2000  102.2  1.4%  98.  8  1.4%  68.  5  1.8%  96.  7%  67.  0%  69.  3% 
 2001  105.4  3.1%  102.0  3.2%  68.  6  0.1%  96.  8%  65.  1%  67.  3% 
 June  2002  26  105.4  27  0.0%  102.8  0.8%  68.  8  0.3%  97.  5%  65.  3%  66.  9% 


 20.  Subscribership.  As  shown  in  Table  1,  the  number  of  subscribers  and  the  number  of  homes  passed  are  increasing.  28  Since  its  peak  at  year-  end  2000,  cable  penetration  (i.  e.,  subscribers  as  a 
 percentage  of  homes  passed)  has  declined  because  the  number  of  homes  passed  has  increased  at  a  faster  rate  than  the  number  of  subscribers.  The  percentage  of  TV  households  subscribing  to  cable  also  declined 
 during  2001,  before  increasing  0.2  percentage  points  in  the  first  half  of  2002  because  the  number  of  television  households  grew  at  a  faster  rate  than  the  number  of  homes  subscribing.  29 


 25  Nielsen  Media  Research;  Kagan  World  Media,  Cable  TV  Investor,  May  24,  2002,  at  9;  Kagan  World  Media, 
 Broadband  Cable  Financial  Databook,  July  2002,  at  10.  Historical  data  included  in  this  table  may  differ  from  those  previously  reported  because  some  data  have  been  updated  by  the  source. 


 26  Homes  Passed  and  Subscribers  June  2002  data  are  based  on  a  2002  year-  end  estimate. 
 27  Nielsen  Media  Research  estimates  the  number  of  television  households  annually,  and  industry  practice  is  to  use 
 this  figure  throughout  the  television  broadcast  season,  which  begins  in  September  and  ends  in  August  of  the  following  calendar  year.  Thus,  the  figure  for  TV  households  in  June  2001  is  the  same  as  the  figure  for  December 


 2000.  28 
 The  number  of  subscribers  reported  by  some  MSO  has  been  the  subject  of  recent  controversy.  For  example,  in  June  2002,  Adelphia  revised  its  2001  basic  subscriber  figures  from  5.  81  million  down  to  5.76  million,  citing 


 inaccuracies  in  previously  reported  data.  See  Adelphia  Restates  Results  After  Dismissing  Deloitte,  The  New  York  State  Society  of  CPAs,  at  http://  www.  nysscpa.  org/  home/  2002/  2week/  article14.  htm.  Charter  Communications 
 announced  in  November  2002  that  it  is  participating  in  an  informal  SEC  inquiry  into  how  it  accounts  for  its  customers,  and  is  also  the  subject  of  a  similar  Justice  Department  investigation  involving  a  grand  jury.  Riva  D. 
 Atlas  and  Geraldine  Fabrikant,  Large  Cable  Operator  to  Restate  Its  Results  for  2000  and  2001,  NEW  YORK  TIMES,  Nov.  20,  2002,  at  C1.  In  addition,  some  MSOs  are  reporting  a  decline  in  subscribership  due  to  subscriber  churn. 
 AT&  T  Broadband  reported  13.  6  million  subscribers  as  of  year  end  2001  and  13.  2  million  subscribers  as  of  June  2002.  AT&  T  Broadband,  AT&  T  Group  Earnings  Commentary:  Fourth  Quarter  2001,  Jan.  30,  2002,  at  14;  AT&  T 
 Broadband,  AT&  T  Group  Earnings  Commentary:  Second  Quarter  2002,  July  23,  2002,  at  12.  AT&  Ts  subscriber  loss  is  attributable  to  churn.  See  Letter  from.  Letter  from  James  L.  Casserly,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky 
 and  Popeo,  P.  C.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  MB  Docket  No.  02-  70  (Nov.  13,  2002),  at  1-  2.  29 
 The  increase  in  the  percent  of  TV  households  subscribing  to  cable  after  the  previous  years  decline  could  be  based  on  the  static  measurement  of  TV  households  between  year-  end  2001  and  June  2002. 
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 21.  The  number  of  homes  subscribing  to  one  or  more  premium  cable  services  continues  to  increase,  as  shown  in  Table  2  below.  The  number  of  premium  services  to  which  homes  are  subscribing 
 (also  known  as  "pay  units")  also  continues  to  increase.  In  addition,  the  average  number  of  subscriptions  per  premium  subscriber  is  increasing,  from  an  average  1.66  subscriptions  per  subscriber  at  year-  end  2000 
 to  an  average  1.79  subscriptions  per  subscriber  at  year-  end  2001,  to  an  estimated  average  of  1.82  subscriptions  per  premium  subscriber  as  of  June  2002. 


 TABLE  2:  Premium  Cable  Services:  1997  -  June  2002  (in  millions)  30 
 Premium  Cable  Service  Subscribers 


 (Pay  HH) 
 Premium  Cable  Service  Subscriptions 
 (Pay  Units)  Year  End  Year  End  Total  %  Change  Year  End  Total  %  Change 


 1997  31.7  3.6%  49.1  2.3% 
 1998  32.8  3.5%  49.3  0.4% 
 1999  34.2  4.3%  50.5  2.4% 
 2000  35.6  4.1%  59.9  18.6% 
 2001  36.1  1.4%  64.8  8.2% 
 June  2002  31  36.4  0.8%  66.2  2.1% 


 22.  Channel  Capacity.  Cable  operators  have  invested  substantial  sums  of  money  over  the  past  decade  to  upgrade  channel  capacity,  both  by  expanding  bandwidth,  and  by  employing  digital  compression 
 technologies.  Previously,  channel  capacity  was  reported  as  the  number  of  analog  channels  available  for  use  by  a  cable  system.  32  With  recent  technological  advances,  channel  capacity  is  now  a  function  of  the 
 amount  of  bandwidth  a  cable  operator  chooses  to  use  for  video  services  based  on  a  number  of  considerations.  Thus  in  the  absence  of  information  on  the  number  of  channels  devoted  to  digitally 
 compressed  signals  and  the  precise  compression  ratio  used,  it  is  not  possible  to  infer  from  available  data  the  number  of  video  channels  available  to  cable  subscribers,  even  on  average. 


 23.  The  Commissions  2001  Price  Survey  Report  33  provides  figures  on  the  cable  system  capacity  and  channel  allocation  for  cable  systems  responding  a  Commission  survey,  as  shown  in  Table  3.  It  shows 


 30  Kagan  World  Media,  Cable  TV  Investor,  May  24,  2002,  at  9;  Kagan  World  Media,  Broadband  Cable  Financial 
 Databook,  July  2002,  at  10.  Historical  data  included  in  this  table  may  differ  from  those  previously  reported  because  some  data  have  been  updated  by  the  source. 


 31  June  2002  data  is  based  on  a  year-  end  estimate. 
 32  2001  Report,  17  FCC  Rcd  at  1254. 
 33  Implementation  of  Section  3  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Statistical 
 Report  on  Average  Prices  for  Basic  Service,  Cable  Programming  Services,  and  Equipment,  MM  Docket  No.  92-  266,  Report  on  Cable  Industry  Prices  (  2001  Price  Survey  Report),  17  FCC  Rcd  6301  (2002).  Section  623(  k)  of 


 the  Communications  Act,  as  amended  by  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992  (  1992  Cable  Act),  requires  the  Commission  to  publish  annually  a  statistical  report  on  cable  prices,  or  more 
 specifically,  average  rates  for  the  delivery  of  basic  cable  service,  cable  programming  service,  and  equipment.  Section  623(  k)  was  adopted  as  Section  3(  k)  of  the  1992  Cable  Act,  Pub.  L.  No.  102-  385,  106  Stat.  1460,  codified  at 
 47  U.  S.  C.    543(  k);  See  47  U.  S.  C.    543(  k).  The  1992  Cable  Act  defines  basic  cable  service  as  the  tier  of  service  that  includes  the  retransmission  of  local  television  broadcast  signals.  See  7  U.  S.  C.    543(  b)(  7).  Cable  programming 
 service  is  defined  as  any  video  programming  other  than  video  programming  carried  on  the  basic  service  tier,  and  video  programming  offered  on  a  per  channel  or  per  program  basis.  See  47  U.  S.  C.    543(  k)(  1)(  2).  Equipment  refers 
 (continued....) 
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 that  approximately  two-  thirds  of  the  sampled  cable  systems  (both  competitive  and  non-  competitive  systems)  34  have  facilities  that  provide  bandwidth  of  750  MHz  or  above.  35  The  average  system  capacity  in 
 the  Survey  is  approximately  650  MHz.  As  discussed  above,  capacity  is  allocated  among  the  various  services  that  cable  operators  provide,  including  video  services.  The  average  system  in  the  survey  devotes 
 82.5  channels  or  495  MHz  to  video  delivery  to  be  divided  among  analog  channels  and  digitally  compressed  channels. 


 TABLE  3:  Channel  Capacity 
 Competitive  Group  Noncompetitive  Group  July  2000  July  2001  July  2000  July  2001 


 Average  system  capacity  (MHz)  630  666  623  652 
 Percent  of  systems  with  capacity  of:  330  MHz  and  below  10.0%  8.5%  9.0%  8.3% 


 331  through  749  MHz  31.7%  22.8%  36.9%  28.5%  750  MHz  58.3%  68.7%  54.1%  63.2% 
 Number  of  6  MHz  activated  channels: 
 Devoted  to  analog  service  69.2  72.0  67.7  69.9  Devoted  to  digital  service 
 6.7  11.3  7.  0  11.8  Total  number  of  channels  75.9  83.3  74.4  81.7 


 24.  Viewership.  Viewership,  when  measured  in  audience  shares  of  cable  networks,  36  continues  to  grow,  while  viewership  shares  of  broadcast  television  stations  37  continue  to  decline.  38  Audience  share  39 
 statistics  for  total  day  viewing,  40  show  that  cable  audience  shares  rose  from  an  average  54.2  share 


 (...  continued  from  previous  page)  to  a  converter  box,  remote  control,  and  other  equipment  necessary  to  access  programming.  See  47  U.  S.  C.   
 543(  b)(  3).  34 
 2001  Price  Survey  Report,  17  FCC  Rcd  at  6313,  Table  11.  The  Survey  enables  the  Commission  to  compare  prices  charged  by  samples  of  two  groups  of  cable  operators:  (1)  operators  that  are  deemed  to  face  effective 


 competition  (referred  to  as  the  competitive  group)  and  (2)  operators  that  do  not  face  effective  competition  (the  non-  competitive  group).  Within  the  non-  competitive  group,  information  was  collected  from  both  regulated  and 
 unregulated  operators.  Operators  in  the  competitive  group  are  limited  to  those  operators  that  have  sought  and  obtained  a  Commission  finding  of  effective  competition.  As  a  result,  within  the  non-  competitive  group,  there  may 
 be  operators  that  face  competition  but  have  not  filed  a  petition  with  the  Commission  seeking  a  finding  of  effective  competition.  Similarly,  there  may  be  operators  within  the  competitive  group  that  may  have  met  the  criteria  for  a 
 finding  of  effective  competition  at  the  time  the  finding  was  made,  but  because  of  changed  circumstances,  may  not  meet  the  statutory  criteria  currently.  See  id.  at  6304-  05. 


 35  According  to  NCTA,  approximately  74%  of  all  cable  homes  (or  approximately  51  million  cable  homes)  were 
 passed  by  systems  with  a  capacity  of  at  least  750  MHz,  and  approximately  68%  of  homes  passed  (or  70  million  households)  were  passed  by  activated  two-  way  plant.  NCTA  Comments  at  26.  These  data  differ  from  data  reported 


 in  the  2001  Price  Survey  Report.  This  is  likely  due  to  differing  measurement  methodologies.  36 
 Cable  network  shares  include  basic  (BST  and  CPST),  premium,  and  PPV  cable  networks.  37 
 Broadcast  shares  include  network  affiliates,  independent,  and  public  television  stations.  38 
 See  2001  Report,  17  FCC  Rcd  at  1256.  39 
 A  share  is  the  percent  of  all  households  using  television  during  the  time  period  that  are  viewing  the  specified  station(  s)  or  network(  s).  The  sum  of  reported  audience  shares  exceeds  100%  due  to  simultaneous  multiple  set 


 viewing.  40 
 Total  day  viewing  is  24  hours,  6  am  -  6  am. 
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 between  July  2000  and  June  2001,  to  an  average  58.3  share  between  July  2001  and  June  2002.  41  Broadcast  television  audience  shares  for  total  day  viewing  decreased  from  an  average  56.8  share  from 
 July  2000  through  June  2001,  to  an  average  53.0  share  between  July  2001  and  June  2002.  42  Audience  share  statistics  for  prime  time  43  show  that  cable  audience  shares  rose  from  an  average  51.9  share  between 
 July  2000  and  June  2001,  to  an  average  56.5  share  between  July  2001  and  June  2002.  44  Broadcast  television  audience  shares  for  prime  time  viewing  decreased  from  an  average  63.8  share  from  July  2000 
 through  June  2001,  to  an  average  59.4  share  between  July  2001  and  June  2002.  45 
 25.  Cable  Networks.  As  discussed  in  Section  III.  B.,  the  number  of  nationally  delivered  basic  cable  networks  available  for  delivery  by  cable  operators  increased  over  the  last  year  from  287  networks  as 


 of  June  2001  to  308  in  June  2002.  46  In  addition,  there  also  were  85  regional  cable  networks  available  for  carriage  by  cable  system  operators  as  of  April  2002,  and  about  59  planned  networks.  47 


 26.  Programming  Costs.  Cable  system  operators  spent  nearly  $9.3  billion  on  programming  in  2001.  48  Of  that  $9.3  billion,  more  than  $7  billion  was  spent  to  acquire  basic  cable  network 
 programming.  49  Programming  expenses  incurred  by  cable  operators  for  copyright  fees  for  broadcast  signal  carriage  pursuant  to  Section  111  of  the  Copyright  Act  50  amounted  to  approximately  $121.7  million 
 in  2001.  51  It  is  estimated  that  cable  operators  will  spend  more  than  $10  billion  to  acquire  programming  in  2002.  52 


 2.  Financial  Performance 
 27.  Cable  industry  revenue  and  cash  flow  indicate  increasing  industry  growth  over  the  last  year  and  a  half,  after  several  years  of  slow  growth.  Stock  prices,  however,  continue  to  decline,  signaling 


 investor  apprehension. 


 41  Nielsen  Media  Research,  Total  Day  24  Hours  6  am  -  6  am:  Total  US  Ratings  By  Viewing  Source  July  2000-  June 
 2002,  Oct.  2002.  Last  year,  we  compared  only  non-  premium  cable  viewing  shares  to  all  broadcast  television  station  viewing  shares.  This  year,  we  include  viewing  trends  from  all  cable  network  sources.  For  broadcast  season 


 (September  to  August)  viewing  trends,  see    80  infra.  42 
 Id.  43 
 Prime  time  viewing  is  Monday  through  Saturday  8  pm-  11  pm  and  Sunday  7  pm-  11  pm.  44 
 Nielsen  Media  Research,  Primetime  Monday-  Saturday  8-  11  PM  Sunday  7-  11  PM:  Total  US  Ratings  By  Viewing  Source  July  2000-  June  2002,  Oct.  2002.  For  broadcast  season  (September  to  August)  viewing  trends,  see    80  infra. 


 45  Id. 
 46  See  2001  Report,  17  FCC  Rcd  at  1309-  10.  Last  year,  we  estimated  the  number  of  national  programming  services 
 at  294.  NCTA  notes  in  its  latest  Cable  Developments,  that  there  were  errors  in  this  calculation,  and  that  the  number  of  national  programming  networks  was  actually  287.  See  NCTA,  National  Video  Programming  Services:  1994-2001, 


 Cable  Developments  2002,  May  2002,  at  23.  47 
 See  Appendix  C,  Table  C-  3  and  C-  4.  48 
 NCTA  Comments  at  37.  49 
 Kagan  World  Media,  Basic  Cable  Network  Economics  2002,  at  27;  Kagan  World  Media,  Pay  TV  Newsletter,  July  2002. 


 50  Copyright  Act,  17  U.  S.  C.    111  et  seq. 
 51  Copyright  Office,  Library  of  Congress,  Licensing  Division  Report  of  Receipts,  Nov.  27,  2002.  Copyright  fees,  are 
 due  on  a  specific  date,  but  are  collected  on  a  rolling  basis.  We  report  the  most  current  figures  reported  by  the  Copyright  Office. 


 52  NCTA  Comments  at  37. 
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 28.  Cable  Industry  Revenue.  As  Table  4  shows,  annual  cable  industry  revenue  grew  15.9%  during  2001,  reaching  more  than  $43.9  billion  in  total  revenue,  with  growth  in  every  revenue  segment. 
 Both  video  and  non-  video  advanced  services  constitute  the  greatest  increases  in  revenue  for  cable  operators  during  2001.  Analysts  estimate  that  by  year-  end,  cable  operator  total  revenue  for  2002  will 
 reach  nearly  $50  billion,  with  video  and  non-  video  services  again  estimated  to  constitute  the  greatest  increases  for  cable  operators. 


 29.  Cable  Industry  Cash  Flow.  Cash  flow  (generally  expressed  as  earnings  before  interest,  taxes,  depreciation,  and  amortization,  or  EBITDA)  is  often  used  to  assess  the  financial  position  of  cable 
 firms  and  other  capital  intensive  companies.  Cash  flow  from  operations  is  the  net  result  of  cash  inflows  from  operations  (revenue)  and  cash  outflows  from  operations  (expenses).  Cash  flow  from  operations 
 does  not  include  non-  cash  charges  to  net  income  such  as  depreciation  and  amortization.  Cash  flow  from  operations  indicates  a  firm's  ability  to  meet  its  net  finance  and  investment  obligations.  As  Table  4  shows, 
 cash  flow  from  operations  increased  during  2001,  though  cash  flow  as  a  percentage  of  revenue  (cash  flow  margin)  declined  for  the  second  year  in  a  row.  That  is,  revenues  are  increasing  at  a  greater  rate  than  cash 
 flow,  indicating  that  cable  operator  expenses  have  increased  faster  than  revenues  over  the  last  year. 
 TABLE  4:  Cable  Industry  Revenue  and  Cash  Flow:  1998    2002  53  1998  1999  98-  99  2000  99-  00  2001  00-  01  2002  01-  02 


 Total  Total  %  Change  Total  %  Change  Total  %  Change  Estimated  Year-  End  Total  %  Change 
 Basic  Subscribers  (mil)  66.  1  67.  3  1.8%  68.  5  1.8%  68.  6  0.1%  69.  0  0.6% 
 Revenue  Segments  (mil.) 
 Basic  Service  and  CPST  Tiers  $21,831  $23,135  6.  0%  $24,  729  6.9%  $27,031  9.  3%  $28,492  5.  4% 
 Premium  (Pay)  Tiers  $4,  758  $4,  696  -1.  3%  $5,115  8.  9%  $5,  617  9.  8%  $5,  533  -1.  5% 
 Pay-  Per-  View  $514  $721  40.  3%  $751  4.  2%  $993  32.  2%  $1,  143  15.  1% 
 Local  Advertising  $1,  675  $2,  000  19.  4%  $2,  430  21.  5%  $2,  430  0.0%  $2,  503  3.0% 
 Home  Shopping  $175  $205  17.  1%  $239  16.  6%  $260  8.8%  $284  9.2% 
 Advanced  Analog  and  Digital  Tier  $445  $919  106.5%  $1,  088  18.  4%  $2,  365  117.4%  $3,  379  42.  9% 


 High-  speed  Internet  access,  cable  teleph.  &  interactive  svcs  $133  $542  307.5%  $1,  164  114.8%  $2,  835  143.6%  $5,  602  97.  6% 


 Equipment  and  Install  $2,  631  $2,  424  -7.  9%  $2,  451  1.1%  $2,  463  0.5%  $2,  491  1.1% 
 Total  Revenue  (mil.)  $32,162  $34,642  7.  7%  $37,  967  9.6%  $43,994  15.  9%  $49,427  12.  3% 
 Revenue  Per  Subscriber  $486.  57  $514.  74  5.  8%  $554.  26  7.  7%  $641.  31  15.7%  $716.  33  11.7% 
 Operating  Cash  Flow  (mil.)  $14,900  $15,597  4.  7%  $15,  764  1.1%  $16,683  5.  8%  $18,806  12.  7% 
 Cash  Flow  per  Subscriber  $225.  42  $231.  75  2.  8%  $230.  13  -0.7%  $243.  19  5.  7%  $272.  55  12.1% 
 Cash  Flow/  Total  Revenue  46.  3%  45.  0%  -2.  8%  41.  5%  -7.  8%  37.  9%  -8.  7%  38.  0%  0.  3% 


 30.  Cable  System  Transactions.  Over  the  last  several  years,  as  Table  5  shows,  the  number  of  system  acquisitions  and  exchanges  between  MSOs  has  declined.  Several  mergers  among  large  operators 


 53  Kagan  World  Media,  Cable  TV  Investor,  May  24,  2002,  at  9;  Kagan  World  Media,  Broadband  Cable  Financial 
 Databook,  July  2002,  at  10  and  144.  Historical  data  included  in  this  table  may  differ  from  those  previously  reported  because  some  data  have  been  updated  by  the  source. 
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 which  involve  the  transfer  and  exchange  of  numerous  systems,  however,  are  not  reflected  in  Table  5.  54  In  addition,  the  industry  benchmark  average  value  per  subscriber  has  declined  from  its  peak  of  an  average 
 value  of  more  than  $5,  700  per  subscriber  in  2000,  to  an  average  of  approximately  $2,200  as  of  June  2002.  55 


 TABLE  5:  System  Transactions:  1999  -  June  2002  56 
 1999  2000  99-  00  %  Change  2001  00-  01  %  Change  Jan-  Jun  2002 
 Number  of  Systems  Sold  92  45  -51.1%  36  -20.0%  12 
 Total  Number  of  Subscribers  Sold  18,  288,  706  11,  469,  090  -37.3%  17,  958,  375  56.  6%  388,120 


 Average  Number  of  Subscribers  per  System  Sold  198,790  254,869  28.  2%  498,844  95.  7%  32,  343 
 Total  Number  of  Homes  Passed  Sold  28,  345,  972  18,  990,  621  -33.0%  31,  657,  221  66.  7%  666,216 
 Average  Number  of  Homes  Passed  per  System  Sold  308,108  422,014  37.  0%  879,367  108.4%  55,  518 


 Total  Dollar  Value  (mil.)  $73,070  $66,008  -9.  7%  $87,499  32.  6%  $852 
 Average  Dollar  Value  (mil.)  of  System  Sold  $794  $1,  467  84.  8%  $2,  431  65.  7%  $71 


 National  Average  Dollar  Value  Per  Subscriber  57  $3,  995  $5,  755  44.  1%  $4,  872  -15.3%  $2,  196 
 Dollar  Value  Per  Home  Passed  $2,  578  $3,  476  34.  8%  $2,  764  -20.5%  $1,  281 


 Cash  Flow  Multiple  16.  7x  19.  5x  16.  8%  19.  3  -1.0%  11.  2 


 31.  Stock  Prices.  Cable  stock  prices,  as  measured  by  the  Kagan  MSO  Average,  declined  14.5%  in  2001,  whereas  the  S&  P  500  declined  13%  in  2001,  and  the  NASDAQ  declined  21%.  58  In  the  first  half 
 of  2002,  the  Kagan  MSO  Average  declined  38%  over  year-  end  2001.  The  delisting  of  Adelphia  Communications  in  May  2002  contributed  to  this  decline.  59  Despite  recent  declines,  however,  many  Wall 


 54  Merger  transactions  are  not  reflected  in  Table  5.  Mergers  over  the  last  couple  of  years,  however,  have  involved 
 the  transfer  of  many  cable  systems.  See  e.  g.,  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  from  MediaOne  Group,  Inc.,  Transferor,  to  AT&  T  Corp.,  Transferee,  15  FCC  Rcd  9816 


 (2000);  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  by  Time  Warner  Inc.  and  America  Online,  Inc.,  Transferors,  to  AOL  Time  Warner  Inc.,  Transferee,  16  FCC  Rcd  6547 
 (2001);  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses,  Comcast  Corporation  and  AT&  T  Corp.,  Transferors,  to  AT&  T  Comcast  Corporation,  Transferee,  Report  and  Order  (  AT&  T-  Comcast  Merger  Order),  FCC 
 02-  310,  (Nov.  14,  2002).  55 
 The  value  of  cable  subscribers  is  not  uniform  nationwide,  but  instead  varies  by  system.  Subscribers  in  certain  systems  are  more  valuable  based  on  considerations  such  as  the  capacity  of  the  system,  the  average  number  of 


 services  purchased  by  subscribers  in  a  given  system,  or  the  cash  flow  generated  by  the  operations  of  a  given  system.  System  sale  prices  also  vary  from  year  to  year  based  on  supply  and  demand  factors  as  well  as  industry  access  to 
 capital  and  the  relative  cost  of  such  capital.  56 
 Kagan  World  Media,  Cable  TV  Investor,  Jan.  25,  2002,  at  11;  Kagan  World  Media,  Cable  TV  Investor,  July  18,  2002,  at  9.  Historical  data  included  in  this  table  may  differ  from  those  previously  reported  because  some  data  have 


 been  updated  by  the  source  57 
 See  fn.  55  supra.  58 
 Kagan  World  Media,  Broadband  Cable  Financial  Databook,  July  2002,  at  89.  59 
 Id. 
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 Street  analysts  expect  that  the  cable  industry  will  outperform  the  S&  P  500  and  media  stocks  in  general  in  2002-  2003.  60 
 3.  Capital  Acquisition  and  Disposition 
 32.  Industry  Financing.  The  cable  industry  typically  has  relied  on  combinations  of  private  and  public  financing,  with  the  distribution  of  these  combinations  varying  greatly  from  year  to  year.  These 


 year-  to-  year  fluctuations  in  financing  sources  appear  to  be  based  on  the  availability  of  acceptable  financing  rates  through  private  investors  or  capital  lending  institutions,  and  the  attractiveness  of  debt  and 
 equity  offerings.  Table  6  shows  the  amount  raised  per  year  by  source. 
 TABLE  6:  Acquisition  of  Capital:  1994  -  June  2002  ($  in  millions)  61 


 Private  Debt  Net  New  Public  Debt  Private  Equity  (Pvt.  Placement/  VC)  Public  Equity  (Common/  Preferred) 


 Year  Amount  Raised 
 %  of  Total 
 Raised  in  Year  Amount  Raised 
 %  of  Total 
 Raised  in  Year  Amount  Raised 
 %  of  Total 
 Raised  in  Year  Amount  Raised  %  of  Total  Raised  In  Year 
 Total  Capital 
 Raised  in  Year 


 1994  $7,  454  91.  2%  $155  1.9%  $100  1.2%  $461  5.6%  $8,  170 
 1995  $9,  688  51.  5%  $4,  495  23.  9%  $1,191  6.  3%  $3,  419  18.  2%  $18,  793 
 1996  $5,  837  58.  0%  $2,  355  23.  4%  $49  0.5%  $1,  818  18.  1%  $10,  059 
 1997  $2,  933  27.  4%  $6,  252  58.  4%  $1,292  12.  1%  $230  2.  1%  $10,  707 
 1998  $5,  421  39.  1%  $6,  299  45.  5%  $200  1.4%  $1,  927  13.  9%  $13,  847 
 1999  $34,358  51.  9%  $18,610  28.  1%  $5,  385  8.1%  $7,  799  11.  8%  $66,  151 
 2000  $2,  755  60.  3%  $4,  288  35.  7%  $101  0.8%  $380  3.2%  $12,024 
 2001  $6,  668  31.  4%  $10,  678  50.2%  $623  2.  9%  $3,  282  15.  4%  $21,  251 
 June  2002  $2,  157  19.  9%  $5,  070  46.  8%  $0.0  0.  0%  $3,608  33.  3%  $10,  834 
 Total  Raised:  1994-  June  02  81,  769  $58,  202  8,  941  22,  923  $171,  835 


 Avg  Raised  Per  Year  $9,  620  47.  6%  $6,  847  33.  9%  1,052  5.2%  2,697  13.  3%  $20,216 


 33.  Capital  Expenditures/  Capital  Investment.  Since  1996,  cable  operators  have  invested  more  than  $65  billion  to  upgrade  systems  in  order  to  deploy  higher  quality  television  and  advanced  two-  way 
 broadband  services.  62  The  rebuilding  of  more  than  a  million  miles  of  cable  plant,  which  is  nearly  80%  complete,  has  translated  into  numerous  new  services,  such  as  digital  video,  digital  music,  high-  speed 
 Internet  access,  cable  telephony,  video-  on-  demand,  and  other  interactive  applications.  63  In  2001,  the 


 60  Richard  Bilotti  and  Benjamin  Swinburne,  New  Ratings  System,  Morgan  Stanley,  Mar.  18,  2002;  Adelphia  Aside: 
 Financial  Analysts  Tell  NCTA  Cables  Day  Will  Come  Again,  Comm.  Daily,  May  8,  2002,  at  6;  Spencer  Wang,  John  Blackledge,  and  Thomas  Sheehan,  Media  &  Entertainment:  Media  Mosaic  2002-  A  Manifesto  for  Media  Investing  in 


 2002,  ABN-  Amro,  Jan.  3,  2002,  at  4.  61 
 Kagan  World  Media,  Cable  TV  Finance,  Feb.  8,  2002,  at  8;  Kagan  World  Media,  Cable  TV  Finance,  Aug.  21,  2002,  at  7.  Historical  data  included  in  this  table  may  differ  from  those  previously  reported  because  some  data  have 


 been  updated  by  the  source. 
 62  NCTA  Comments  at  4. 
 63  Id. 
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 cable  industry  spent  a  total  of  $17.8  billion  in  capital  expenditures.  64  Cable  operators  spent  approximately  $850  million  on  the  construction  of  new  plant,  $4.1  billion  on  upgrades,  $2.4  billion  on  rebuilds,  $6.5 
 billion  on  new  equipment,  and  $4.0  billion  on  maintenance  of  new  and  existing  equipment.  65  This  represents  a  14.6%  increase  over  the  $15.5  billion  spent  in  2000.  66  Analysts  expect  that  operators  will 
 spend  an  estimated  $17.6  billion  in  2002,  a  decrease  of  0.9%  over  2001.  67  Of  the  $17.8  billion  to  be  spent  industry-  wide,  it  is  estimated  that  approximately  $823  million  will  be  spent  on  construction  of  new  cable 
 plant,  $2.2  billion  on  rebuilds,  $3.5  billion  on  upgrades,  $7.1  billion  on  equipment  and  $4.0  billion  on  maintenance.  68 


 34.  MSOs  continue  to  spend  substantially  on  maintenance,  upgrades,  rebuilds,  and  new  services,  though  with  industry  upgrade  goals  near  completion,  many  cable  operators  have  already  begun  to  spend 
 less  on  capital  improvements.  69  For  example,  Comcast  reported  capital  expenditures  of  $2.2  billion  in  2001,  and  is  expected  to  spend  approximately  $1.5  billion  in  2002.  70  As  of  June  30,  2002,  Comcast  had 
 spent  about  $789  million.  71  Cablevision  reported  total  capital  expenditures  of  about  $1.3  billion  in  2001  ($  900  million  of  which  was  for  cable  television  services),  and  is  expected  to  spend  $1  billion  in  2002.  72 
 Cox  reports  capital  spending  of  $2.2  billion  on  capital  expenditures  in  2001.  73  As  of  June  2002,  Cox  had  spent  approximately  $1  billion,  and  expects  that  by  year-  end  it  will  have  spent  a  total  of  $2  billion.  74 
 Charter  reported  cable  capital  expenditures  of  $3  billion  in  2001,  and  is  expected  to  spend  approximately  $2.5  billion  during  2002.  75  As  of  June  30,  2002,  Charter  had  already  spent  $1.1  billion  in  capital 


 64  Kagan  World  Media,  Cable  TV  Finance,  June  7,  2002,  at  3;  see  also  NCTA  Comments  at  25.  As  a  result  of  these 
 expenditures,  approximately  74%  of  all  cable  homes  (or  approximately  51  million  cable  homes)  were  passed  by  systems  with  a  capacity  of  at  least  750  MHz,  and  approximately  68%  of  homes  passed  (or  70  million  households) 


 were  passed  by  activated  two-  way  plant.  NCTA  Comments  at  26.  65 
 Kagan  World  Media,  Cable  TV  Finance,  June  7,  2002,  at  3.  "Rebuilds"  are  significant  improvements  made  to  existing  systems  that  do  not  retain  much  of  the  old  system  plant  and  equipment.  "Upgrades"  are  improvements  to 


 existing  cable  systems  that  do  not  require  the  replacement  of  the  entire  existing  plant  and  equipment.  See  also  NCTA  Comments  at  25. 
 66  Kagan  World  Media,  Cable  TV  Finance,  June  7,  2002,  at  3. 
 67  Id.  See  also  NCTA  Comments  at  25. 
 68  Kagan  World  Media,  Cable  TV  Finance,  June  7,  2002,  at  3. 
 69  NCTA  estimates  that  the  rebuilding  of  cable  plant  is  nearly  80%  complete.  NCTA  Comments  at  4.  For  example, 
 Cablevision  envisions  completion  of  the  companys  entire  network  upgrade  to  750  MHz  in  2003.  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Announces  Fully-  Funded  Growth  Plan  (press  release),  Aug.  8, 


 2002.  70 
 Comcast  Corp.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  25  and  41.  Comcasts  merger  with  AT&  T  could  affect  Comcasts  year-  end  expenditures.  See  fn.  78  infra. 


 71  Comcast  Corp.,  SEC  Form  10-  Q  for  the  Quarter-  Ended  June  30,  2002,  at  4. 
 72  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Fourth  Quarter  2001  Financial  Results  for 
 Cablevision  NY  Group  and  Rainbow  Media  Group  (press  release),  Feb.  14,  2002.  Cablevision  expects  completion  of  the  companys  entire  network  upgrade  to  750  MHz  by  year-  end  2003.  Cablevision  Systems  Corp.,  Cablevision 


 Systems  Corporation  Announces  Fully-  Funded  Growth  Plan  (press  release),  Aug.  8,  2002.  73 
 Cox  Communications,  Inc.,  SEC  Form  10-  K405/  A  For  the  Year-  Ended  December  31,  2001,  at  3.  74 
 Cox  Communications,  Inc.,  SEC  Form  10-  Q  For  the  Quarter-  Ended  June  30,  2002,  at  12;  Cox  Communications,  Inc.,  Cox  Communications  Announces  Second  Quarter  Financial  Results  For  2002  (press  release),  July  31,  2002. 


 75  Charter  Communications,  Inc.,  SEC  Form  10-  K405  for  the  Year-  Ended  December  31,  2001,  at  46.  As  a  result  of 
 these  expenditures,  75%  of  Charter  subscribers  were  served  by  systems  with  a  capacity  of  750  MHz  or  greater,  with  34%  of  Charter  subscribers  served  by  systems  with  a  capacity  of  850  MHz,  and  more  than  78%  of  Charter 


 subscribers  are  served  by  systems  with  two-  way  capability.  Charter  expects  by  year-  end  2002,  nearly  85%  of  its  (continued....) 
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 expenditures.  76  AOL  Time  Warner  spent  $2.2  billion  on  cable-  related  capital  expenditures  during  2001,  and  has  spent  $975  million  on  cable-  related  capital  expenditures  during  the  first  half  of  2002.  77  AT&  T 
 Broadband  reported  capital  expenditures  of  approximately  $3.3  billion  in  2001,  of  which  $1.5  billion  was  related  to  the  growth  and  support  of  advanced  services  and  $583  million  was  for  network  construction  and 
 upgrade.  78  As  of  June  2002,  AT&  T  Broadband  reported  capital  expenditures  of  $1.7  billion,  of  which  $695  million  was  related  to  the  growth  and  support  of  advanced  services  and  $482  million  was  for 
 network  construction  and  upgrade.  79 
 4.  Provision  of  Advanced  Broadband  Services 
 35.  Advanced  services  continue  to  be  deployed  at  a  rapid  pace.  With  most  systems  able  to  deliver  digital  video,  and  many  systems  able  to  deliver  cable  modem  and/  or  cable  telephone  service, 


 MSOs  are  beginning  to  commercially  deploy  other  advanced  service  offerings  such  as  video-  on-  demand  (  VOD),  high-  definition  television  (  HDTV),  and  Internet  protocol  (  IP)  telephony  over  cable 
 systems. 
 36.  Digital  Video  Services.  Most  major  cable  operators  currently  offer  a  selection  of  digitally-  compressed  video  channels  to  analog  subscribers  on  a  digital  tier.  80  Digital  compression  technologies 


 allow  anywhere  from  four  to  12  video  channels  to  be  compressed  into  the  capacity  previously  used  to  provide  just  one  standard  six  MHz  analog  channel.  Most  cable  operators  offer  two  tiers  of  digitally 
 compressed  service;  one  that  offers  programming  similar  to  programming  available  on  the  basic  cable  tier,  and  a  second  that  offers  programming  similar  to  programming  on  the  premium  tier  of  service.  This 
 additional  programming  is  offered  in  stand-  alone  packages,  or  in  combination  with  PPV  and  VOD.  81  Currently  there  are  about  90  networks  available  for  carriage  on  cable  systems  digital  tiers,  offering  a 
 wide  range  of  genres,  including  sports,  music,  movies,  childrens,  family,  and  foreign-  language  programming.  82 


 37.  As  of  year-  end  2001,  it  was  estimated  that  there  were  more  than  15.2  million  digital  video  subscribers  industry-  wide.  83  As  of  June  2002,  there  were  an  estimated  16.8  million  digital  video 


 (...  continued  from  previous  page)  subscribers  will  be  served  by  systems  with  broadband  capacity  of  750  MHz  or  greater.  Charter  Communications, 
 Inc.,  SEC  Form  10-  Q  for  the  Quarter-  Ended  June  30,  2002,  at  28.  76 
 Id.  at  27.  77 
 AOL  Time  Warner,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  F-  16.  78 
 AT&  T  Broadband,  AT&  T  Group  Earnings  Commentary:  Fourth  Quarter  2001,  Jan.  30,  2002  at  12.  As  of  December  31,  2001,  59%  of  AT&  Ts  cable  plant  had  been  upgraded  to  a  capacity  of  at  least  750  MHz;  Applications 


 for  Consent  to  the  Transfer  of  Control  of  Licenses,  Comcast  Corporation  and  AT&  T  Corp.,  Transferors,  to  AT&  T  Comcast  Corporation,  Transferee:  Applications  and  Public  Interest  Statement  (  AT&  T-  Comcast  Merger 
 Application),  MB  Docket  No.  02-  70,  Feb.  28,  2002,  at  18.  79 
 AT&  T  Broadband,  AT&  T  Group  Earnings  Commentary:  Second  Quarter  2002,  July  23,  2002  at  11;  AT&  T  Broadband,  AT&  T  Group  Earnings  Commentary:  First  Quarter  2002,  April  24,  2002  at  11. 


 80  The  digital  tier  offers  programming  that  is  digitally  compressed  for  efficient  delivery.  The  programming  is  then 
 demodulated  from  digital  to  analog  format  for  display  on  subscribers  analog  television  receivers.  This  so-  called  digital  tier  does  not  provide  programming  for  display  on  subscribers  digital  receivers  with  16  by  9  format  or 


 high-  definition  resolution.  81 
 NCTA  Comments  at  29.  82 
 Id.  83 
 Id;  see  also  NCTA,  What  is  Digital  Cable?,  at  http://  www.  ncta.  com;  See  also  Kagan  World  Media,  Broadband  Cable  Financial  Databook,  July  2002,  at  78. 
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 subscribers.  84  The  cable  industry  estimates  that  by  2006,  the  number  of  digital  subscribers  will  increase  nearly  three-  fold  over  2002  levels,  to  more  than  48  million  digital  cable  subscribers.  85 
 38.  As  of  year-  end  2001,  Cox  reported  approximately  1.4  million  digital  video  subscribers,  and  more  than  1.6  million  subscribers  as  of  June  2002.  86  As  of  June  2002,  Comcast  reported  nearly  two 
 million  digital  video  subscribers  and  expects  to  end  2002  with  as  many  as  2.7  million  digital  video  subscribers.  87  As  of  year-  end  2001,  AOL  Time  Warner  had  more  than  3.3  million  digital  video 
 subscribers.  88  By  June  2002,  AOL  Time  Warner  had  as  many  as  3.9  million  subscribers.  89  As  of  year-end  2001,  AT&  T  reported  3.5  million  digital  video  subscribers.  90  As  of  June  2002,  AT&  T  reported  3.9 
 million  digital  video  subscribers.  91  Charter  Communications  provided  digital  video  service  to  approximately  2.1  million  subscribers  as  of  year-  end  2001  and  2.4  million  subscribers  as  of  June  2002.  92 
 Charter  expects  to  have  as  many  as  2.7  million  digital  video  subscribers  by  year-  end  2002.  93  Cablevision  began  providing  digital  video  service  commercially  in  September  2001.  94  By  year-  end  2001,  Cablevision 
 had  17,  200  digital  video  subscribers,  and  by  June  2002,  Cablevision  had  42,670  digital  video  subscribers.  95  Cablevision  expects  digital  video  to  be  available  to  as  many  as  3.4  million  subscribers  by 
 year-  end  2002.  96 
 39.  Video-  on-  Demand.  Cable  operators  continue  to  focus  on  video  on  demand  (  VOD)  service  offerings  and  local  content,  with  each  of  the  top  ten  cable  operators  testing  or  offering  a  commercial  VOD 


 service.  97  Unlike  pay-  per-  view  services,  VOD  services  allow  the  subscriber  to  select  at  any  time 


 84  NCTA,  What  is  Digital  Cable?,  at  http://  www.  ncta.  com. 
 85  Id. 
 86  Cox  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  4;  Cox  Communications, 
 Inc.,  Cox  Communications  Announces  Second  Quarter  Financial  Results  For  2002:  Summary  of  Operating  Statistics  (press  release),  July  31,  2002. 


 87  Comcast  Reply  Comments  at  2. 
 88  AOL  Time  Warner,  Inc.,  AOL  Time  Warner  Provides  Update  on  2002  With  Consolidation  of  AOL  Europe; 
 Company  Reports  Preliminary  Results  for  2002  (press  release),  Jan.  7,  2002.  89 
 AOL  Time  Warner,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2002,  at  12.  90 
 AT&  T  Comcast,  Merger  Proposal    Joint  Proxy  Statement/  Prospectus,  May  14,  2002,  at  VII-  28.  91 
 AT&  T  Broadband,  AT&  T  Group  Earnings  Commentary:  Second  Quarter  2002,  July  23,  2002,  at  12.  92 
 Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  13;  Charter  Communications,  SEC  Form  10-  Q  for  the  Quarter-  Ended  June  30,  2002,  at  15. 


 93  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  13. 
 94  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Fourth  Quarter  2001  Financial  Results 
 (press  release),  Feb.  14,  2002.  95 
 Id;  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2002  Financial  Results  (press  release),  Aug.  8,  2002. 


 96  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Announces  Fully-  Funded  Growth  Plan  (press 
 release),  Aug.  8,  2002.  97 
 Jennifer  Lee,  Interactive  TV  is  Finally  Here,  Sort  Of,  NEW  YORK  TIMES,  Apr.  4,  2002,  at  E1.  See  also  Richard  Bilotti,  Broadband  Cable:  Truth,  Lies  and  Truck  Rolls:  Understanding  Product  Profitability,  Morgan  Stanley,  Oct. 


 4,  2002  (  Morgan  Stanley  Oct  4  th  Report),  at  63.  Morgan  Stanley  notes  that  most  of  the  developments  in  the  VOD  space  .  .  .  have  been  content  related  rather  than  deployment  specific  indicating  that  cable  operators  are 
 focusing  on  ensuring  they  have  saleable  popular  content  to  offer  subscribers.  Id.  See  also  Kagan  World  Media,  Broadband  Cable  Financial  Databook,  July  2002,  at  79;  Andrea  Figler,  Movies  Lead,  All  Others  Follow, 
 (continued....) 
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 programming  they  wish  to  view  from  a  large  selection  of  titles  and  categories  stored  on  a  remote  server.  98  VOD  systems  run  on  a  server  located  in  the  cable  operators  headend,  which  delivers  programming  as  it  is 
 demanded  by  individual  subscribers  at  virtually  any  time,  with  VCR-  like  controls  such  as  pause,  rewind,  forward  and  stop,  and  for  an  extended  period  of  time,  usually  24  hours.  Some  operators  are  opting  to 
 offer  VOD  via  the  subscription  model  (  SVOD),  in  which  the  subscriber  pays  one  monthly  fee  for  unlimited  access  to  a  library  of  pre-  selected  programming.  By  2005,  VOD  revenues  are  projected  to 
 range  between  $278  million  and  $3  billion.  99 
 40.  NCTA  comments  that  the  battleground  between  cable  and  DBS  is  moving  into  the  VOD  arena,  but  that  cable  companies  have  differentiated  approaches  to  providing  this  service.  100  EchoStar 


 agrees  with  NCTAs  assessment  regarding  VOD,  but  states  it  cannot  compete  effectively  with  cables  VOD  offerings  because  cable  is  able  to  cache  content  at  servers  throughout  a  franchise  area.  EchoStar 
 states  that  DBS  operators  must  rely  on  limited  bandwidth  on  satellite  frequencies,  with  on-  demand  programming  available  at  staggered  intervals  throughout  the  day.  101  Some  cable  MSOs  report  that  VOD 
 has  contributed  to  increased  demand  for  and  reduced  churn  of  digital  services.  102  Comcast  states  that  its  VOD  deployments  have  provided  consumers  with  increased  control  over  their  viewing  choices  and  have 
 helped  drive  demand  for  digital  services.  103 
 41.  Cox  provides  VOD  in  its  Hampton  Roads  and  San  Diego  markets,  and  announced  the  launch  of  the  first  advertiser-  supported  VOD  channel  in  its  San  Diego  market  in  August  2002.  104  By  the  end  of 


 2002,  Cox  plans  to  have  VOD  capability  deployed  for  30%  of  homes  passed.  105  Comcast  reports  that  it  has  launched  VOD  in  15  markets  covering  over  3.2  million  homes  and  expects  to  make  VOD  available  to 


 (...  continued  from  previous  page)  CABLEWORLD,  Oct.  28,  2002,  at  http://  www.  kagan.  com/  archive/  cableworld/  2002/  10/  28/  cwd02102806.  shtml 
 (visited  Oct.  29,  2002).  98 
 Pay-  per-  view  is  pay  television  programming  for  which  cable  subscribers  pay  a  one  time  fee  for  each  program  viewed.  The  programming  is  generally  available  at  pre-  set  times  and  in  some  cases  is  timeshifted  across  several 


 channels  to  increase  the  opportunity  for  viewing.  Once  initiated,  the  program  cannot  be  paused,  rewound  or  fast-forwarded.  The  programming  is  cablecast  from  the  operators  headend  to  all  subscribers  but  only  descrambled  for 
 those  who  order  the  programming.  See  CableLabs,  at  http://  www.  cablelabs.  com/  news/  glossary.  html#  P  (visited  Oct.  29,  2002). 
 99  See  Emarketer,  Interactive  TV:  Reality  &  Opportunity  (  2002  Emarketer  Study),  March  2002,  at  135. 
 100  NCTA  Comments  at  31. 
 101  EchoStar  Reply  Comments  at  6. 
 102  See  Matt  Stump,  Cable  Ops  Touting  VOD  as  Anti-  Churn  Weapon,  BROADBAND  WEEK,  Mar.  4,  2002,  quoting  a 
 Cox  executive:  VOD  will  drive  digital  penetration;  and  a  Charter  executive:  In  regions  where  weve  launched  VOD  for  over  18  months,  we  see  [digital  churn]  diving  well  below  four  percent  per  month,  compared  to  typical 


 digital  churn  rates  in  the  range  of  6-  8  percent.  Id.  103 
 Comcast  Comments  at  5;  Comcast  Reply  Comments  at  3.  Comcast  believes  that,  although  VOD  is  thought  of  as  a  way  to  deliver  movies  to  consumers  for  a  fee,  Comcast  is  increasingly  focusing  on  delivering  other  VOD  content, 


 including  games,  distance  learning,  how-  to  programs,  and  foreign  language  programming,  at  no  additional  charge  as  a  means  of  driving  sales  of  digital  video.  Id.  at  3-  4. 
 104  Cox  Communications,  Inc.,  Cox  Communications  Announces  Launch  of  First-  Ever  Advertising-  Focused  Video 
 On  Demand  Channel  (press  release),  Aug.  20,  2002;  NCTA  Comments  at  32.  See  Kagan  World  Media,  Broadband  Cable  Financial  Databook,  July  2002,  at  79; 


 105  Staci  Kramer,  Revenue  Good,  Churn  Bad,  CABLEWORLD,  Oct.  28,  2002.  Cox  does  not  yet  offer  SVOD  to  its 
 customers.  Id. 
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 nearly  50%  of  its  homes  passed  by  year-  end  2002.  106  Comcast  charges  customers  $3.95  for  new  releases  on-  demand  and  $2.95  for  library  content,  but  it  includes  SVOD  services  at  no  additional  charge  for  those 
 subscribing  to  premium  programming,  such  as  HBO,  Showtime  and  Starz.  107  Charter  offers  VOD  in  12  markets  and  has  stated  it  will  launch  nine  additional  markets  by  year-  end  2002,  building  a  VOD 
 footprint  of  approximately  1.1  million  customers,  or  40%  of  its  total  digital  base.  108  AOL  Time  Warner  has  launched  VOD  in  32  of  its  34  divisions,  covering  at  least  eight  of  its  markets.  109  In  addition  to 
 offering  HBO,  Starz  Encore,  and  Showtime  SVOD  services  and  HBO  on  Demand,  AOL  Time  Warner  offers  free  content  from  Scripps  Networks,  including  HGTV,  Food  Network  and  the  BBC.  110  AT&  T  has 
 launched  VOD  in  four  major  markets,  and  has  begun  a  trial  in  two  of  those  markets  to  test  StarzEncore  and  Showtime  SVOD  services.  111  Cablevision  offers  VOD  over  its  iO  digital  service  in  select  parts  of  its 
 franchise  area.  112  Approximately  26%  of  Cablevisions  iO  customers  have  signed  up  for  at  least  one  SVOD  service.  113  In  September  2001,  Cablevision  launched  a  VOD  service  called  Mag  Rack,  offering 
 special  interest  video  content  in  the  form  of  video  magazines.  114  Each  selection  from  the  video  magazine  rack  provides  in-  depth  information  and  expert  advice  in  a  specific  field  of  interest.  115  As  of 
 June  2002,  Cablevision  was  offering  27  video  magazines,  and  it  anticipates  having  between  35  and  40 


 106  Comcast  Reply  Comments  at  3;  NCTA  Comments  at  31.  Comcast  has  deployed  Wink  technology  in  systems 
 totaling  1.5  million  Comcast  customer  homes  in  Florida,  Virginia,  Maryland,  and  Delaware,  which  provides  viewers  with  free  interactive  programs  and  advertisements.  Comcast  Reply  Comments  at  5.  Comcast  also  has  deployed 


 Worldgates  ITV  services  in  Huntsville  and  Tuscaloosa,  Alabama,  which  includes  a  variety  of  content  including  updated  weather  forecasts,  horoscopes,  recipes,  stock  quotes,  headline  news  stories,  entertainment  links,  and  sports 
 scores.  Id.  107 
 Comcast  Reply  Comments  at  3;  NCTA  Comments  at  31;  Staci  Kramer,  The  Stakes  Just  Got  Higher,  CABLEWORLD,  Oct.  28,  2002. 


 108  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2001,  at  15;  Staci  Kramer, 
 Ready,  Set,  Launch,  CABLEWORLD,  Oct  28,  2002.  Charter  has  approximately  250  titles  on  VOD  and  SVOD  and  plans  to  roll  out  Mag  Rack  in  January  2003.  Charter  charges  $3.  99  for  new  releases,  $2.  99  for  library  content,  and 


 $3.  99  per  month  for  SVOD.  109 
 NCTA  Comments  at  32;  Kagan  World  Media,  Broadband  Cable  Financial  Databook,  July  2002,  at  79;  AOL  Time  Warner,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2001,  at  10;  Mavis  Scanlon,  Kicking  Into 


 High  Gear,  CABLEWORLD,  Oct.  28,  2002.  AOL  Time  Warner  charges  $3.  95  for  new  programming  releases  and  $1.  95  for  library  content.  The  company  also  offers  subscription  VOD  of  HBO,  Cinemax,  Showtime  and  the 
 Movie  Channel  catalogues  for  $6.  95  per  month.  110 
 Id.  111 
 AT&  T  Broadband,  AT&  T  Broadband  Launches  Trial  of  Subscription  Video-  On-  Demand  in  Los  Angeles  (press  release),  May  1,  2002;  AT&  T  Broadband,  AT&  T  Broadband  To  Launches  Video-  On-  Demand  With  DIVA  (press 


 release),  Oct.  3,  2000.  112 
 Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2002  Financial  Results  (press  release),  Aug.  8,  2002.  Cablevision  offers  over  700  titles  per  month;  30  hours  of  childrens  programming  and 


 movies;  Mag  Rack,  a  collection  of  video  magazines  covering  specific  fields  of  interest;  encores  of  cable  network  programming;  wrestling  and  classic  sports  matches;  and  300  hours  of  ITV  clips,  including  local  news,  movie 
 trailers  and  TechTV  stories.  See  Mavis  Scanlon,  The  Upside  of  Going  Slow,  CABLEWORLD,  Oct.  28,  2002.  Cablevision  charges  $4.95  per  new  release  on-  demand  and  $2.95  for  library  titles;  SVOD  is  $4.95  per  month  and 
 requires  separate  subscription  to  premium  channels.  Id.  113 
 Id.  114 
 Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2002  Financial  Results  (press  release),  Aug.  8,  2002.  Charter  and  Insight  have  also  agreed  to  carry  Cablevisions  Mag  Rack  VOD  service 


 in  several  of  their  systems.  CableFAXDaily,  Sept.  4,  2002,  at  1.  115 
 NCTA  Comments  at  32. 
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 distributed  by  year-  end  2002.  116  Insight  continues  to  build  its  VOD  deployment  in  ten  markets  and  now  has  225,000  subscribers  capable  of  buying  VOD  programming.  117 
 42.  Digital  Television  (  DTV)  and  High-  Definition  Television  (  HDTV).  During  the  past  year,  the  amount  of  digital  and  HDTV  programming  offered  by  cable  operators  has  increased.  Cable 
 operators  are  now  offering  high  definition  digital  programming,  which  is  delivered  to  subscribers  with  digital  receivers  for  display  in  digital  format  and  resolution.  Several  MSOs,  including  Comcast,  AOL 
 Time  Warner,  Cox,  Charter,  AT&  T,  Adelphia,  Cablevision,  Mediacom,  Insight,  and  CableOne  now  offer  HDTV  on  cable  systems  in  selected  markets.  118  In  addition,  the  top  ten  cable  operators  (representing 
 more  than  85%  of  subscribers  nationwide)  will  offer  to  carry  the  signals  of  up  to  five  digital  broadcast  stations  or  other  programming  networks  that  provide  HDTV  during  at  least  50%  of  their  prime  time 
 schedule  or  a  substantial  portion  of  their  broadcast  week  by  January  1,  2003.  119 
 43.  Comcast  offers  HDTV  service  to  more  than  1.3  million  subscribers.  120  In  addition  to  providing  access  to  high-  definition  broadcasts  of  ABC,  NBC,  CBS,  HBO,  and  Showtime  in  selected 


 areas,  Comcast  will  also  offer  HDTV  signals  for  certain  local  PBS  stations  and  its  own  Comcast  SportsNet.  121  AOL  Time  Warner  has  launched  HDTV  in  more  than  40  markets  including  high-  definition 
 broadcasts  of  ABC,  CBS,  NBC,  and  PBS,  as  well  as  HBO  and  Showtime  in  certain  areas.  122  Cox  offers  HDTV  services  in  two  markets  with  seven  additional  market  launches  planned  before  year-  end  2002.  123 
 Coxs  initial  lineup  includes  local  ABC  and  PBS  stations,  as  well  as  HBO  HD,  Showtime  HD  and  Discovery  HD  Theater.  124  Charter  has  announced  that  it  will  provide  HDTV  programming  from  HBO 
 and  Showtime  it  several  of  its  markets.  125 
 44.  Internet  and  High-  Speed  Data  Services.  Dial-  up  Internet  access  is  still  the  most  widely-  used  mode  of  accessing  the  Internet.  As  of  year-  end  2001,  approximately  80%-  82%  of  all  Internet  households 


 116  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2002  Financial  Results 
 (press  release),  Aug.  8,  2002.  117 
 Shirley  Brady,  Getting  Back  in  the  Game,  CABLEWORLD,  Oct.  28,  2002.  VOD  access  is  available  as  part  of  Insights  Digital  Gateway  service.  Insight  charges  $3.  99  for  new  releases,  $2.  99  for  library  titles,  and  $9.  99  for  a 


 childrens  unlimited  programming  package.  118 
 NCTA  Comments  at  33-  35.  Linda  Moss,  Ops  HD  Query:  Can  We  Levy  Fee?,  MULTICHANNEL  NEWS,  Nov.  25,  2002,  at  6. 


 119  See  Letters  from  Michael  K.  Powell,  Chairman,  FCC,  to  The  Honorable  Ernest  F.  Hollings,  Chairman, 
 Committee  on  Commerce,  Science  and  Transportation,  U.  S.  Senate,  and  The  Honorable  W.  J.  Billy  Tauzin,  Chairman,  Committee  on  Energy  and  Commerce,  U.  S.  House  of  Representatives,  Attachment  (Proposal  for 


 Voluntary  Industry  Actions  to  Speed  the  Digital  Television  Transaction)  (Apr.  4,  2002)  (  Voluntary  DTV  Plan);  see  also  Letter  from  Robert  Sachs,  President  NCTA,  to  Chairman  Powell,  May  1,  2002. 
 120  Comcast  Reply  Comments  at  4;  Comcast  Corp.,  Comcast  To  Debut  HDTV  In  Major  Markets  By  End  of  2002 
 (press  release),  Mar  14,  2002.  121 
 Comcast  Corp.,  Comcast  Launches  HDTV  (press  release),  Oct.  29,  2001;  Comcast  Corp.,  Comcast  To  Debut  HDTV  In  Major  Markets  By  End  of  2002  (press  release),  Mar  14,  2002;  AT&  T-  Comcast  Merger  Application,  at  10. 


 122  NCTA  Comments  at  33;  AOL  Time  Warner,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  10. 
 123  Cox  Communications,  Inc.,  Cox  Communications  Launches  HDTV  in  Phoenix  (press  release),  Sept.  4,  2002. 
 124  Id. 
 125  Charter  Communications,  Inc.,  Charter  High  Definition  Service  Debuts  n  Five  Markets  (press  release),  May  29, 
 2002. 
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 were  accessing  the  Internet  using  dial-  up  modems.  126  It  is  projected  that  telephone  dial-  up  will  remain  the  principal  means  of  accessing  the  Internet  until  about  2005-  2006,  when  it  is  expected  that  less  than  50% 
 will  use  dial-  up  access,  with  the  remaining  accessing  the  Internet  through  broadband  facilities.  127 
 45.  Cable  modem  access  is  currently  the  primary  means  of  accessing  the  Internet  over  broadband  networks,  although  cables  share  of  the  broadband  Internet  access  market  has  decreased  over  the  last 


 several  years.  128  DSL  remains  the  most  significant  broadband  competitor  to  cable  modem  service.  As  of  year-  end  2001,  high-  speed  Internet  access  services  provided  over  cable  were  available  to  more  than  50 
 million  homes,  and  there  were  between  approximately  6.9  and  7.4  million  subscribers,  whereas  there  were  between  3  and  3.3  million  residential  DSL  subscribers.  129  At  that  same  time  there  were  about  200,000 
 subscribers  to  other  broadband  technologies,  including  satellite  and  wireless.  130 
 46.  The  Internet  service  providers  (  ISPs)  used  in  cable  modem  service  are  selected  by  the  cable  provider.  131  Some  cable  operators  offer  only  one  ISP  to  customers  in  a  given  system,  132  and  others  offer 


 consumers  a  choice  among  multiple  ISPs.  AOL  Time  Warner  currently  carries  Road  Runner  and  the 
 126  JP  Morgan  estimates  that  as  of  year-  end  2001,  81.  5%  of  Internet  households  used  dial-  up  connections.  Morgan 
 Stanley  estimates  that  as  of  year-  end  2001,  80%  of  Internet  households  used  dial-  up  connections.  Spencer  Wang  and  John  Blackledge,  Media  Markets:  Back  to  Basics,  JP  Morgan  Securities,  Aug.  19,  2002  (  JP  Morgan  Aug.  19  th 


 Report),  at  155;  Richard  Bilotti,  Benjamin  Swinburne,  Megan  Lynch,  and  Scott  Babka,  NUTS!  The  Last  One  Standing  Wins,  Morgan  Stanley,  July  10,  2002  (  Morgan  Stanley  July  10  th  Report),  at  65. 
 127  JP  Morgan  estimates  that  as  of  year-  end  2005,  44%  of  Internet  households  will  use  dial-  up  connections,  while 
 55.  5%  will  use  broadband  connections.  Morgan  Stanley  estimates  that  as  of  year-  end  2006,  48%  of  Internet  households  will  still  use  dial-  up  connections  while  52%  will  use  broadband  connections.  Id.  Broadband 


 technologies  include  cable  modem,  telephone  company  digital  subscriber  line  (  DSL),  broadband  wireless,  and  broadband  satellite.  Broadband  technologies  allow  users  to  access  the  Internet  at  much  greater  speeds  than  are 
 available  over  traditional  dial-  up  connections.  See  1999  Report,  15  FCC  Rcd  at  1003-  04.  128 
 See  Morgan  Stanley  Oct  4  th  Report,  at  46-  7.  Cables  share  of  the  broadband  market  remained  relatively  stable  between  year-  end  2001  and  June  2002,  and  some  analysts  expect  cables  share  will  increase  slightly  at  year-  end 


 2002,  though  it  is  expected  to  remain  over  ten  percentage  points  below  1999  levels.  Id.  129 
 Based  on  information  from  five  top  cable  operators,  Bear  Stearns  estimates  more  than  50  million  marketable  homes  as  of  year-  end  2001.  Cable  modem  service  is  likely  available  to  many  more  homes  than  that.  Raymond  Lee 


 Katz,  Gloria  Radeff,  and  Bryan  Goldberg,  Cable  TV  &  Broadband,  Bear  Stearns,  May  2002  (  Bear  Stearns  May  Report),  at  14.  JP  Morgan  estimates  that  as  of  year-  end  2001,  there  were  6.9  million  cable  modem  subscribers. 
 Bear  Stearns  estimates  that  as  of  year-  end  2001,  there  were  more  than  7.  35  million  cable  modem  subscribers,  and  Morgan  Stanley  estimates  that  as  of  year-  end  2001,  there  were  more  than  7.  38  million  cable  modem  subscribers. 
 Bear  Stearns  May  Report,  at  14;  JP  Morgan  Aug.  19  th  Report  at  155;  Morgan  Stanley  July  10  th  Report,  at  65.  Bear  Stearns  estimates  that  as  of  year-  end  2001,  there  were  3  million  residential  DSL  subscribers,  and  Morgan  Stanley 
 estimates  that  as  of  year-  end  2001,  there  were  more  than  3.  3  million  residential  DSL  subscribers.  Bear  Stearns  May  Report,  at  14;  Morgan  Stanley  July  10  th  Report,  at  65. 
 130  JP  Morgan  estimates  that  as  of  year-  end  2001,  there  were  200,  000  subscribers  to  satellite  and  wireless  broadband 
 technologies.  Bear  Stearns  estimates  that  as  of  year-  end  2001,  there  were  225,000  subscribers  to  satellite  and  wireless  broadband  technologies.  Bear  Stearns  May  Report,  at  14;  JP  Morgan  Aug.  19  th  Report.  at  155. 


 131  Many  cable  providers  offer  cable  modem  service  through  proprietary  ISPs.  See  2001  Report,  17  FCC  Rcd  1266-67; 
 see  also  Inquiry  Concerning  High-  Speed  Access  to  the  Internet  Over  Cable  and  Other  Facilities,  Internet  Over  Cable  Declaratory  Ruling,  Appropriate  Regulatory  Treatment  for  Broadband  Access  to  the  Internet  Over  Cable 


 Facilities,  CS  Docket  No.  02-  52,  GN  Docket  No.  00-  185,  Declaratory  Ruling  and  Notice  of  Proposed  Rulemaking  (  High-  Speed  Access  Declaratory  Ruling  and  NPRM),  17  FCC  Rcd  4798  (2002). 
 132  For  example,  Cablevision  offers  high-  speed  Internet  access  service  under  the  brand  Optimum  Online  only,  and 
 Charter  offers  high-  speed  Internet  access  services  under  the  brand  name  Charter  Pipeline  only.  Cox  offers  high-speed  Internet  access  services  under  the  brands  Cox  Express  and  Cox  High  Speed  Internet,  however,  each  system 


 offers  only  one  ISP  to  its  subscribers. 
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 AOL  Internet  service,  as  well  several  unaffiliated  national  or  regional  ISPs,  including  Earthlink.  133  Comcast,  AT&  T,  and  AT&  T  Comcast  (Comcast)  have  entered  into  an  agreement  with  Microsoft,  134 
 which  provides  that,  for  a  specified  period  of  time,  if  AT&  T  Comcast  offers  a  high-  speed  Internet  service  agreement  to  any  third  party  on  any  of  its  cable  systems,  AT&  T  Comcast  will  be  obligated  to  offer  an 
 Internet  service  agreement  on  non-  discriminatory  terms  with  respect  to  the  same  cable  systems  to  Microsofts  ISP,  The  Microsoft  Network  (  MSN).  135  AT&  T  and  Comcast  have  also  agreed  to  carry  the 
 AOL  ISP  service  on  the  combined  AT&  T  and  Comcast  systems  (Comcast),  serving  up  to  one-  third  of  the  MSOs  subscribers.  136  AT&  T  has  already  entered  into  contracts  with  several  national  or  regional 
 unaffiliated  ISPs  including  EarthLink,  and  Comcast  has  entered  into  a  contract  with  unaffiliated  ISP,  United  Online.  137 


 47.  As  of  year-  end  2001,  Cox  had  approximately  884,000  high-  speed  Internet  access  subscribers,  and  by  June  2002,  had  approximately  1.1  million  subscribers.  138  Analysts  forecast  that  Cox  could  have  as 
 many  as  1.3  million  high-  speed  Internet  access  subscribers  by  the  end  of  2002.  139  As  of  year-  end  2001,  Comcast  had  948,000  high-  speed  Internet  access  subscribers,  and  by  June  2002,  Comcast  had 
 approximately  1.2  million  high-  speed  Internet  access  subscribers.  140  As  of  year-  end  2001,  AT&  T  had  approximately  1.5  million  high-  speed  Internet  access  subscribers,  and  as  of  June  2002  AT&  T  had 
 approximately  1.8  million  subscribers.  141  As  of  year-  end  2001,  Cablevision  had  506,675  high-  speed  Internet  access  subscribers.  142  By  June  2002,  Cablevision  had  610,505  subscribers.  143  As  of  year-  end 
 2001,  Charter  had  607,700  high-  speed  Internet  access  subscribers  and  it  expects  that  by  year-  end  2002  it  will  have  as  many  as  1.25  million  high-  speed  Internet  access  subscribers.  144  As  of  June  2002,  Charter  had 


 133  AOL  Time  Warner  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  10-  11. 
 134  See  AT&  T-  Comcast  Merger  Order,  fn.  54  supra  at  n.  370. 
 135  See  id.  This  obligation  applies  for  a  period  of  five  years  following  the  spin-  off  of  AT&  T  Broadband.  AT&  T-Comcast 
 Merger  Application,  at  8.  AT&  T,  Comcast,  and  Microsoft  also  agreed  to  a  term  sheet  providing  for  a  trial  of  an  ITV  platform  including  set-  top  box  middleware.  Id.  at  8. 


 136  In  connection  with  the  TWE  Restructuring  Agreement,  AT&  T  and  Comcast  will  enter  into  a  three-  year  non-exclusive 
 agreement  with  AOL  Time  Warner  under  which  AOL  high-  speed  Internet  access  service  would  be  made  available  on  AT&  T  Comcast  cable  systems.  AT&  T  Corp.  and  Comcast  Corp.,  AOL  Time  Warner,  AT&  T  and 


 Comcast  Agree  to  Restructure  Time  Warner  Entertainment  Partnership  (press  release),  Aug.  21,  2002.  137 
 Prior  to  its  merger  with  Comcast,  AT&  T  entered  into  third-  party  ISP  agreements  with  Galaxy  Internet  Services,  Earthlink,  Net1Plus,  and  Internet  Central.  See  Letter  from  James  R.  Coltharp,  Senior  Director,  Public  Policy, 


 Comcast  Corp.  and  Betsy  J.  Brady,  Vice  President,  Federal  Government  Affairs,  AT&  T  Corp.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  MB  Docket  No.  02-  70  (Nov.  6,  2002),  at  1.  See  also  Letter  from  A.  Renee  Callahan, 
 Lawler,  Metzger  &  Milkman,  LLC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  MB  Docket  No.  02-  70  (July  2,  2002),  at  19-  20  (responding  to  Document  and  Information  Request  by  the  Chief,  Industry  Analysis  Division,  Media  Bureau, 
 FCC,  (June  11,  2002)).  138 
 Cox  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  5;  Cox  Communications,  Inc.,  Cox  Communications  Summary  of  Operating  Statistics,  at  13. 


 139  Bear  Stearns  May  Report,  at  14. 
 140  Comcast  Reply  Comments  at  5;  AT&  T-  Comcast  Merger  Application,  at  12. 
 141  AT&  T  Broadband,  AT&  T  Group  Earnings  Commentary:  Fourth  Quarter  2001,  Jan.  30,  2002  at  14;  AT&  T 
 Broadband,  AT&  T  Group  Earnings  Commentary:  Second  Quarter  2002,  July  23,  2002,  at  12.  142 
 Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Fourth  Quarter  2001  Financial  Results  for  Cablevision  NY  Group  and  Rainbow  Media  (press  release),  Feb.  14,  2002. 


 143  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Second  Quarter  2002  Financial  Results 
 for  Cablevision  NY  Group  and  Rainbow  Media  (press  release),  Aug.  8,  2002.  144 
 Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year-  Ended  December  31,  2001,  at  14. 
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 905,500  high-  speed  Internet  access  subscribers.  145  As  of  June  2002,  AOL  Time  Warner  had  2.5  million  subscribers  to  its  cable  modem  service.  146 
 48.  As  we  have  reported  in  the  past,  a  few  cable  operators  offer  Internet  access  services  delivered  through  a  television  receiver  rather  than  a  personal  computer.  147  Many  of  these  products  are  available  on 
 a  stand-  alone  basis  and  can  be  used  independently  of  a  cable  television  subscription.  Many,  however,  are  co-  marketed  through  the  cable  television  provider.  148  Nationwide  providers  of  television-  based  Internet 
 access  services  include  Microsoft,  which  provides  MSN-  TV  (formerly  WebTV),  Worldgate,  and  America  Online,  which  provides  AOLTV.  149 


 49.  Telephone  Services  Offered  by  Cable  Operators.  Since  our  last  report,  several  cable  operators  have  begun  to  test  IP  telephony  in  addition  to  the  traditionally-  deployed  circuit-  switched 
 telephony.  150  Most  cable  operators  deploying  IP  telephony,  however,  are  electing  to  deploy  telephony  as  second-  line  service.  Second-  line  service  is  not  self-  powered  and  thus  does  not  guarantee  that  the 
 telephone  will  function  in  the  event  of  a  power  failure.  In  some  cases  second-  line  service  is  not  connected  to  the  customers  existing  telephone  wiring.  Instead,  customers  are  required  to  plug  their 
 telephone  units  into  their  cable  modems  and  run  their  own  wiring  or  elect  to  use  wireless  handset  units  in  their  homes. 


 50.  Cox  and  AT&  T  continue  to  deploy  circuit-  switched  cable  telephony,  and  others,  such  as  Cablevision,  Comcast,  and  Charter  offer  circuit-  switched  cable  telephony  where  it  has  already  been 
 deployed.  Several  MSOs,  including  AT&  T,  AOL  Time  Warner,  Cox,  Comcast,  and  Charter,  are  currently  testing,  or  have  commercially  deployed  IP  telephony.  As  of  June  2002,  cable  operators  served 
 approximately  2.1  million  local  residential  IP  and  circuit-  switched  telephone  customers.  151 
 51.  AT&  T  and  Cox  remain  the  leaders  in  the  provision  of  primary-  line,  circuit-  switched  cable  telephony.  As  of  year-  end  2001,  Cox  provided  residential,  facilities-  based,  circuit-  switched  cable 


 telephony  services  in  nine  markets  to  nearly  500,000  subscribers  nationwide.  152  As  of  June  2002,  Cox  had  578,321  subscribers.  153  In  addition,  Cox  is  running  an  IP  telephony  trial  in  its  Oklahoma  City, 


 145  Charter  Communications,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2002,  at  16. 
 146  AOL  Time  Warner,  Inc.,  SEC  Form  10-  Q  for  the  Quarter  Ended  June  30,  2002,  at  12. 
 147  2001  Report,  17  FCC  Rcd  at  1269. 
 148  For  example,  as  of  year-  end  2001,  Charter  offered  television-  based  Internet  access  using  WorldGate  to 
 approximately  557,000  homes  with  over  9,000  subscribers,  and  offered  advanced  interactive  television  services  using  Diego  to  more  than  558,  000  homes.  Charter  Communications,  Inc.,  SEC  Form  10-  K  for  the  Year  Ended 


 December  31,  2001,  at  15;  Charter  Communications,  Inc.,  Digeo  and  Moxi  Merge  (press  release),  Mar.  29,  2002.  149 
 For  an  explanation  of  how  the  WebTV  and  Worldgate  services  operate,  see  1998  Report,  13  FCC  Rcd  at  24315-  6. 


 150  A  circuit-  switched  cable  telephony  voice  call  and  an  IP  telephony  voice  call  both  begin  with  special  equipment 
 that  connects  a  household's  twisted  pair  infrastructure  with  the  cable  infrastructure.  Cable  circuit-  switched  telephony,  however,  eventually  turns  the  call  over  to  traditional  "circuit  switched"  processing,  while  IP  telephony 


 eventually  turns  the  call  over  to  the  Internet  for  IP  processing.  IP  telephony  processes  voice  telephone  calls  much  like  data  are  processed  on  the  Internet;  that  is,  digitized  pieces  of  data  are  divided  into  discrete  packets  and  are 
 transported  over  the  Internet  following  any  path  that  does  not  resist  transfer.  See  2001  Report,  17  FCC  Rcd  at  1269.  151 
 NCTA,  Telephone  Services,  at  http://  www.  ncta.  com.  152 
 Cox  Communications,  Inc.,  Cox  Communications  Announces  Fourth  Quarter  Financial  Results  for  2001  (press  release),  Feb.  12,  2002;  Cox  Communications,  Inc.,  Cox  Timeline  for  Telephony  (news  release),  Apr.  16,  2002. 


 153  Cox  Communications,  Inc.,  Cox  Communications  Announces  Second  Quarter  Financial  Results  for  2002  (press 
 release),  July  31,  2002. 
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 Oklahoma  system.  154  AT&  T  offers  its  residential,  facilities-  based,  circuit-  switched  telephony  product  in  16  markets,  and  as  of  June  2002,  had  over  1.2  million  subscribers.  155  AT&  T  has  also  been  pursuing  IP 
 telephony  solutions.  As  of  July  2002,  AT&  T  was  conducting  a  hybrid  circuit-  switched-  IP  telephony  trial  in  its  Boulder,  Colorado  system.  156 


 52.  Other  MSOs  are  also  providing  telephony  in  certain  service  areas.  For  example,  Comcast  provides  primary-  line  circuit-  switched  telephony  services  to  more  than  40,000  subscribers  in  several  of  its 
 systems,  continuing  telephone  operations  associated  with  certain  cable  systems  it  acquired  in  the  last  several  years.  157  In  June  2002,  Comcast  announced  that  it  has  begun  to  install  equipment  for  the  initial 
 deployment  of  residential,  primary-  line  IP  telephony  service  in  the  Philadelphia  area,  with  plans  to  begin  service  in  the  second  quarter  of  2003.  158  Comcast  has  also  announced  its  intention  to  deploy  IP  telephony 
 in  Detroit,  though  in  October  2002,  Comcast  said  that  after  consummation  of  its  merger  with  AT&  T,  it  plans  to  temporarily  put  any  additional  cable  telephony  plans  on  hold  so  that  it  can  focus  on  rebuilding 
 AT&  Ts  basic  cable  subscribership.  159  As  a  result  of  its  acquisition  of  certain  AT&  T  cable  systems,  Charter  Communications  provides  circuit-  switched  cable  telephony  to  more  than  17,600  subscribers.  160 
 Charter  has  been  testing  IP  telephony  in  several  field  trials.  161  AOL  Time  Warner  plans  to  launch  IP  telephony  in  2003.  162  Cablevision  offers  limited  facilities-  based,  residential  circuit-  switched  telephony  in 
 New  York  to  approximately  13,400  subscribers.  163 
 B.  Direct-  To-  Home  Satellite  Services 
 1.  Direct  Broadcast  Satellite  Services 
 53.  DBS  service  is  a  nationally  distributed  subscription  video  service  that  delivers  video  and  audio  programming  via  satellite  to  a  small  parabolic  "dish"  antenna  located  at  the  viewers  home.  To 


 date,  the  Commission  has  licensed  four  companies  to  provide  DBS  service:  DirecTV,  EchoStar  (marketed  as  the  DISH  Network),  Dominion  Video  Satellite,  Inc.  (marketed  as  Sky  Angel)  and  Cablevisions 


 154  Morgan  Stanley  July  10  th  Report,  at  69. 
 155  AT&  T  Comments  at  16-  17. 
 156  Morgan  Stanley  July  10  th  Report,  at  69. 
 157  Comcast  Corp.,  Comcast  Announces  Plans  For  Residential  Primary-  Line  IP  Phone  Service  In  Portion  Of 
 Philadelphia  Market  (press  release),  June  27,  2002.  158 
 Id.  159 
 AT&  T-  Comcast  Merger  Application,  at  38;  In  Detroit,  Comcast  is  implementing  a  hybrid  IP-  circuit  switched  approach,  In  this  approach,  IP  technology  is  used  in  the  connection  between  the  customers  home  and  the  headend, 


 after  which  the  signal  is  converted  and  processed  through  Comcasts  existing  switch.  See  Letter  from  James  L.  Casserly,  Mintz,  Levin,  Cohen,  Ferris,  Glovsky  and  Popeo,  P.  C.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  MB  Docket 
 No.  02-  70  (Aug.  20,  2002).  David  Lieberman,  Comcast  Plans  Focus  on  Cable  Subscriptions,  USA  TODAY,  Oct.  29,  2002,  at  B3;  Peter  Thai  Larsen,  Comcast  Pledges  to  Stop  Churn,  FINANCIAL  TIMES,  Oct.  29,  2002,  at  18. 
 160  Charter  Communications,  Inc.,  SEC  Form  10-  Q  for  the  Quarter-  Ended  June  30,  2002,  at  37. 
 161  Charter  Communications,  Inc.,  Charter  Communications  and  High  Speed  Access  Corp.  Announce  Trial  of  True 
 IP  Switched  Local  Voice  Service  Over  Cable  (press  release),  Dec.  14,  1999.  162 
 Peter  Grant,  More  Consumers  Answer  Cables  Call  on  Phone  Service,  WALL  STREET  JOURNAL,  Sept.  5,  2002,  at  B1. 


 163  Cablevision  Systems  Corp.,  Cablevision  Systems  Corporation  Reports  Fourth  Quarter  2001  Financial  Results 
 for  Cablevision  NY  Group  and  Rainbow  Media  Group  (press  release),  Feb.  14,  2002. 
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 Rainbow  DBS.  164  Three  of  these  companies    DirecTV,  EchoStar  and  Dominion  --  currently  provide  service.  165 
 54.  Rainbow  DBS  is  in  the  process  of  constructing  a  DBS  satellite,  Rainbow  1  DBS,  from  which  it  expects  to  initiate  service  in  December  2003.  166  Rainbow  expects  to  deploy  a  spot-  beam  satellite 
 and  eventually  use  high-  compression  MPEG-  4  technology  to  increase  the  amount  of  programming  that  can  be  distributed.  167  Rainbow  states  that  its  11  allocated  channels  168  can  be  used  to  deploy  21  spot  beams 
 capable  of  reaching  143  DMAs,  169  including  76  of  the  top  100  and  67  of  the  remaining  110.  170 
 55.  A  potential  new  U.  S.  entrant,  Compass  Systems,  Inc.,  a  company  100%  owned  by  Northpoint  Technologies,  Ltd.,  has  filed  an  application  for  a  construction  permit  for  a  DBS  system  and 


 164  R/  L  DBS  Company,  L.  L.  C.  (  Rainbow  DBS)  is  a  100%  wholly-  owned  subsidiary  of  Rainbow  Media  Holdings, 
 Inc.,  the  programming  subsidiary  of  Cablevision  Systems  Corporation,  and  holds  the  license  for  11  channels  at  the  61.5  W.  L.  orbital  location.  In  March  2002,  Rainbow  Media  Holdings,  Inc.  acquired  Loral  Space  and 


 Communications,  Ltd.  's  50%  interest  in  R/  L  DBS  Company,  LLC.  This  purchase  increased  Rainbow  Media  Holdings'  ownership  of  R/  L  DBS  to  100%.  See  Cablevision  Systems  Corp.,  SEC  Form  10-  Q  for  the  Quarterly 
 Period  Ended  June  30,  2002,  at  I-  6,  Note  6.  On  December  28,  2000,  the  Commission  granted  a  36-  month  extension  of  time  to  R/  L  DBS  to  construct  and  launch  a  satellite.  See  Petition  of  R/  L  DBS  Company,  L.  L.  C.  For  Extension  of 
 its  Direct  Broadcast  Satellite  Construction  Permit,  16  FCC  Rcd  9,  10-  11  (2001). 
 165  Dominion  is  the  licensee  of  eight  channels  at  61.  5  W.  L.  orbital  location.  Dominion  was  issued  a  construction 
 permit  in  1982.  Under  a  1996  agreement,  Dominion  leased  capacity  on  EchoStars  EchoStar  III  satellite  for  its  eight  licensed  channels,  six  of  which  it  has  sub-  leased  to  EchoStar,  which  uses  them  for  Dish  Network  programming,  and 


 two  of  which  it  uses  to  transmit  its  Sky  Angel  services.  See  Dominion  Video  Satellite,  Inc.  Application  for  Minor  Modification  of  Authority  to  Construct  and  Launch  and  to  Continue  Construction  and  Launch  of  Planned  Satellite  at 
 61.  5    W.  L.;  Application  for  Additional  Time  to  Construct  and  Launch  Direct  Broadcast  Satellites;  Application  for  Launch  Authority,  14  FCC  Rcd  8182  (1999)  (granting  Dominion  authority  to  commence  operation  of  a  DBS  service 
 using  EchoStars  EchoStar  III  satellite  in  the  61.  5  W.  L.  orbital  location).  See  also  http://  www.  skyangel.  com.  Dominion  plans  to  launch  two  satellites  in  the  2004-  2005  timeframe.  See  The  Carmel  Group,  2002  DBS  North 
 America  Databook  (  2002  Carmel  Report),  at  247.  166 
 See  Cablevision  Systems  Corp.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2001,  at  I-  38-  39.  In  December  2000,  the  International  Bureau  granted  an  extension  to  R/  L  DBS  construction  permit,  requiring  it  to 


 commence  service  offerings  no  later  than  December  29,  2003.  See  Petition  of  R/  L  DBS  Company,  LLC  for  Extension  of  its  Direct  Broadcast  Satellite  Construction  Permit,  16  FCC  Rcd  9  (IB  2000). 
 167  See  Letter  from  Howard  J.  Symons,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and  Popeo,  P.  C.  on  behalf  of 
 Cablevision  and  R/  L  DBS  Co.  to  Marlene  H.  Dortch,  Secretary,  FCC,  Attachment  at  3-  7  (Sept.  18,  2002).  168 
 On  March  26,  2002,  Rainbow  filed  an  application  requesting  authorization  to  use  channels  23  and  24  at  61.  5  W.  L.  See  Application  of  R/  L  DBS  Company,  LLC  to  Modify  Existing  DBS  Authorization  to  Add  Channels  23  and24 


 at  61.  5  W.  L.  Currently,  these  channels  are  unassigned,  but  used  by  EchoStar  pursuant  to  a  grant  of  Special  Temporary  Authority  (  STA).  See  also  Direct  Broadcasting  Satellite  Corporation  Application  for  Special 
 Temporary  Authority  to  Operate  a  Direct  Broadcast  Satellite  over  Channels  1-  21  (odd)  and23-  32  (odd  and  even)  at  61.  5  W.  L.,  13  FCC  Rcd  6392  (IB  1998);  Direct  Broadcasting  Satellite  Corporation  Application  Authority  of  a 
 Direct  Broadcast  Satellite,  Application  for  Modification  and  Request  for  Special  Temporary  Authority  to  Test,  13  FCC  Rcd  10080  (IB  1998). 
 169  Designated  Market  Areas  (  DMAs)  are  used  by  Nielsen  Media  Research  to  identify  TV  stations  whose 
 broadcast  signals  reach  a  specific  area.  A  DMA  consists  of  all  counties  whose  largest  viewing  share  is  given  to  stations  of  that  same  market  area.  Non-  overlapping  DMAs  cover  the  entire  contiguous  48  states,  Hawaii,  and  parts 


 of  Alaska.  There  are  currently  210  DMAs  throughout  the  United  States.  See  http://  www.  nielsenmedia.  com/  FAQ/  index.  html. 
 170  Id. 
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 for  authorization  for  a  terrestrial  platform  in  the  DBS  frequencies  (  Southpoint  Application).  171  The  Southpoint  Application  has  four  parts:  (1)  an  application  for  authority  to  construct  a  DBS  system;  (2)  a 
 request  for  the  Commission  to  exercise  its  discretion  to  grant  immediately  an  interim  assignment  of  unassigned  DBS  channels  at  each  of  the  U.  S.  DBS  positions  of  166  W.  L.  and  157  W.  L.  for  the 
 applicants  proposed  DBS  satellites;  172  (3)  a  request  for  immediate  authorization  of  a  multichannel  video  and  broadband  service  through  an  integrated  terrestrial  platform  located  in  the  United  States;  and  (4)  a 
 discussion  of  future  plans  for  providing  DBS  service  to  the  United  States,  Canada,  and  Mexico  and  for  providing  fixed  satellite  service  to  other  nations. 


 56.  Foreign-  licensed  Satellites  Seeking  Access  to  the  U.  S.  Market  for  DBS  and  DTH.  The  Commission  has  several  requests  from  foreign-  licensed  satellite  operators  seeking  access  to  the  U.  S. 
 market  to  provide  DBS  and  DTH  services.  173  On  April  25,  2002,  SES  Americom  filed  an  application  to  provide  service  in  the  United  States  using  a  satellite  licensed  by  Gibraltar  at  the  105.5  W.  L.  orbital 
 location.  174  SES  Americom  states  that  its  service,  Americom2Home,  will  offer  a  platform  on  which  a  variety  of  content  providers  can  lease  capacity  to  offer  programming  directly  to  consumers,  as  opposed  to 
 directly  offering  retail  services  to  consumers.  175 
 57.  There  are  also  two  pending  requests  to  use  a  Canadian-  licensed  satellite  to  provide  DBS  and  DTH  services  in  the  United  States.  The  first  is  Digital  Broadband  Applications  Corp.  (  DBAC). 


 DBAC  filed  its  application  on  January  8,  2002,  for  authority  to  operate  earth  stations  to  communicate  with  the  Canadian-  licensed  DBS  space  stations  Nimiq  at  82  W.  L.  orbital  location  and  Nimiq  2  at  91 
 W.  L.  orbital  location.  DBAC  proposes  to  offer  interactive  two-  way  broadband  video  and  data  services  in  the  United  States.  The  second  applicant  is  WSNet  Holdings,  Inc.  (  WSNet),  which  filed  its  application 
 on  November  21,  2001.  WSNet  requests  authority  to  operate  earth  stations  that  will  communicate  with  both  Nimiq  satellites  to  provide  DBS  in  the  United  States. 


 58.  Subscribership.  DBS  has  become  the  largest  competitor  to  cable  in  the  MVPD  market.  DBS  subscribership  grew  by  almost  13%  from  approximately  16.1  million  subscribers  as  of  June  30, 


 171  See  Application  of  Compass  Systems,  Inc.  for  Authority  to  Construct  an  International  Direct  Broadcast  Satellite 
 System  (filed  Mar.  20,  2002).  172 
 The  157  W.  L.  orbital  position  is  a  non-  full  continental  United  States  (  CONUS)  slot  with  32  unassigned  frequencies.  The  166  W.  L.  orbital  location  is  a  non-  full  CONUS  slot  and  has  32  frequencies,  eight  of  which  have 


 been  assigned  to  R/  L  DBS.  The  101  W.  L.,  110  W.  L.  and  119  W.  L.  orbital  locations  have  32  frequencies  each  and  are  the  only  slots  with  what  the  Commission  considers  full  CONUS  coverage.  Currently,  EchoStar  and 
 DirecTV  have  been  assigned  all  full  CONUS  frequencies.  EchoStar  is  assigned  29  frequencies  at  110  W.  L.  and  21  frequencies  at  119  W.  L.  DirecTV  is  assigned  32  frequencies  at  101  W.  L.,  three  frequencies  at  110  W.  L.,  and  11 
 frequencies  at  119  W.  L.  173 
 These  requests  will  be  evaluated  under  the  framework  established  in  DISCO  II.  See  Amendment  of  the  Commission's  Regulatory  Policies  to  Allow  Non-  U.  S.  Licensed  Satellites  Providing  Domestic  and  International 


 Service  in  the  United  States,  12  FCC  Rcd  24094  (1997)  (DISCO  II).  Because  the  United  States  exempted  DBS  from  its  commitment  in  the  World  Trade  Organization  Basic  Telecommunications  Agreement,  this  evaluation  includes  an 
 analysis  of  the  effective  competitive  opportunities  U.  S.  satellite  operators  have  in  the  country  licensing  the  foreign  satellite  (the  ECO-  SAT  test),  in  addition  to  a  technical/  interference  analysis.  The  United  States  does  not  require 
 the  foreign  DBS  satellite  to  acquire  a  separate  and  duplicative  U.  S.  license  for  the  satellite.  The  Commission  requires  foreign-  licensed  companies  to  file  for  authority  to  land  their  signals  by  seeking  an  earth  station  license  or 
 to  file  a  petition  for  declaratory  ruling  to  provide  service  to  earth  stations  in  the  United  States.  174 
 File  No.  SAT-  PDR-  20020425-  00071.  175 
 SES  Americom  Reply  Comments  at  2.  See  also  SES  Americom,  Inc.,  SES  Americom  Files  FCC  Petition  for  New  Satellite  Television  and  Internet  Platform  (press  release),  Apr.  25,  2002.  According  to  SES,  the  Americom2Home 


 system  could  be  operational  as  early  as  2004.  Id. 
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 2001  to  approximately  18.2  million  subscribers  as  of  June  31,  2002.  176  EchoStar  and  DirecTV  subscribers  comprise  20.3%  of  total  MVPD  households.  177  Analysts  believe  that  DBS  industry  growth  is 
 attributed  to  reductions  in  the  price  of  hardware,  low-  or  no-  cost  installation  promotions,  and  aggressive  program  marketing.  178  Analysts  are  projecting  a  consolidated  annual  growth  rate  for  the  DBS  industry  of 
 7  8%  from  2002  to  2008.  179 
 59.  DirecTV  is  the  nations  leading  DBS  operator,  and  third  largest  MVPD  provider,  reporting  approximately  10.7  million  subscribers  as  of  the  end  of  June  2002,  an  increase  of  just  over  10% 


 from  the  9.6  million  subscribers  reported  as  of  June  30,  2001.  180  EchoStar  is  the  second  largest  DBS  provider,  and  sixth  largest  MVPD  overall,  with  7.6  million  subscribers  as  of  July  30,  2002.  181 
 Dominions  Sky  Angel  service  is  a  self-  described  Christian  and  family-  oriented  DBS  service,  offering  20  video  and  16  radio  channels  for  $9  a  month.  182  Although  Dominions  transponders  are  currently  located 
 on  an  EchoStar  satellite,  Sky  Angel  subscribers  must  use  a  separate  dish  antenna  to  receive  DISH  Network  programming.  183  Sky  Angel  does  not  report  its  subscriber  numbers  on  an  annualized  basis,  but 
 one  analyst  estimates  that  Sky  Angel  is  distributed  to  over  one  million  subscribers.  184 
 60.  According  to  one  study,  in  overall  customer  satisfaction  performance,  DirecTV  ranked  highest  among  14  major  providers  of  satellite  and  cable  TV  services  nationwide,  achieving  a  score  18 


 index  points  higher  than  the  cable  TV  service  average.  185  EchoStar  ranked  second  in  the  study.  186  According  to  the  SBCA,  57%  of  DBS  households  have  subscribed  to  cable  previously,  an  increase  from 


 176  SkyReport,  National  DTH  Counts  July  2001  to  July  2002,  at  http://  www.  skyreport.  com/  dth_  counts.  shtm.  See 
 also  SBCA  Reply  Comments  at  6,  Table  1.  177 
 See  Appendix  B,  Table  B-  1  infra.  178 
 Kagan  World  Media,  Inc.,  The  State  of  DBS  2002  (  DBS  Databook),  Nov.  2001,  at  13.  179 
 See  2002  Carmel  Report  at  8.  See  also  Douglas  Shapiro,  Michael  Savner,  and  Jeffrey  Toohig,  Equity  Research:  Initiating  Coverage  of  DBS  Sector,  Banc  of  America  Securities,  Sept.  19,  2002,  at  3,  Figure  1. 


 180  DirecTV  Comments  at  11.  DirecTV  has  entered  into  an  exclusive  distribution  relationship  in  certain  territories 
 with  the  National  Rural  Telecommunications  Cooperative  (  NRTC)  which  acquires  and  supports  subscribers.  The  NRTC,  its  partner  Pegasus,  and  several  smaller  resellers  are  reported  to  account  for  approximately  1.75  million 


 subscribers  of  the  10.  74  million  total  reported  by  DirecTV.  See  Hughes  Electronics  Corporation,  Hughes  Second  Quarter  2002  Results  Driven  by  Strong  DirecTV  U.  S.  Financial  Performance  (press  release),  July  15,  2002. 
 DirecTV  states  that,  compared  to  cable  subscribers,  DBS  subscribers  are  more  likely  to  live  in  single  family  homes,  and  more  likely  to  live  in  rural  areas.  DirecTV  Comments  at  12.  DirecTV  states  that  approximately  55%  of 
 DirecTVs  subscribers  (including  those  of  distributor  NRTC)  live  in  larger  urban  areas,  defined  by  A.  C.  Nielsen  as  A  counties  (those  counties  in  the  21  largest  metropolitan  areas)  and  B  counties  (all  counties  with  more  than 
 85,  000  households  under  1990  Census  that  are  not  included  as  A  counties),  and  45%  live  in  smaller,  rural  counties.  Id.  at  12  14. 
 181  SkyReport,  National  DTH  Counts  July  2001  to  July  2002,  at  http://  www.  skyreport.  com/  dth_  counts.  shtm. 
 182  Sky  Angel,  at  http://  www.  skyangel.  com/  HTML%  20Site/  Body%  20Pages/  FAQ/  faq.  htm. 
 183  Id. 
 184  2002  Carmel  Report  at  245. 
 185  J.  D.  Power  and  Associates,  J.  D.  Power  and  Associates  Reports:  Satellite  TV  Grows  in  Consumer  Popularity, 
 Cable  Service  Sees  Slight  Decline  (press  release),  Sept.  5,  2002.  DirecTV  ranked  highest  in  all  six  categories  studied:  cost  of  service,  credibility/  billing,  program  offerings,  equipment  and  service  capabilities,  customer  service, 


 and  reception  quality.  186 
 Id. 
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 48%  in  2000.  187  Three  percent  of  DBS  households  also  concurrently  subscribe  to  cable,  the  most  common  reason  being  to  have  access  to  local  broadcast  stations  that  are  not  offered  via  satellite.  188 
 61.  Availability  of  Local  Broadcast  Stations.  DBS  operators  continue  to  expand  their  delivery  of  local  broadcast  television  stations  in  their  local  markets  (  local-  into-  local  service).  189  As  of 
 December  2002,  DirecTV  offered  subscribers  in  51  DMAs  a  $5.99  per  month  package  of  local  broadcast  stations  including  commercial  and  noncommercial  stations.  190  As  of  December  2002,  EchoStar  also 
 offers  a  similar  package  of  commercial  and  noncommercial  broadcast  stations  for  $5.99  per  month  in  52  DMAs.  191  EchoStar  and  DirecTV  also  make  available  to  customers  who  are  not  within  a  DMA  where 


 187  SBCA  Comments  at  6. 
 188  Id. 
 189  As  required  by  the  Satellite  Home  Viewer  Improvement  Act  of  1999  (  SHVIA),  the  Commission  established 
 rules  to  implement  carriage  of  broadcast  signals,  retransmission  consent,  and  program  exclusivity  with  respect  to  satellite  carriage  of  broadcast  stations.  SHVIA  provides  DBS  carriers  with  the  opportunity  to  carry  local  stations  in 


 a  DMA  pursuant  to  a  statutory  copyright  license  similar  to  the  one  provided  cable  operators.  If  a  DBS  operator  selects  this  option  in  a  DMA,  however,  effective  January  1,  2002,  it  must  carry  all  the  local  stations  in  the  DMA  that 
 request  carriage  pursuant  to  the  Commissions  rules.  See  47  C.  F.  R.  76.  66.  See  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  1999:  Broadcast  Signal  Carriage  Issues,  Retransmission  Consent  Issues,  16  FCC 
 Rcd  1918  (2000);  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  of  1999:  Broadcast  Signal  Carriage  Issues,  16  FCC  Rcd  16544  (2001);  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  of  1999: 
 Retransmission  Consent  Issues:  Good  Faith  Negotiation  and  Exclusivity,  16  FCC  Rcd  15599  (2001).  The  satellite  industry  challenged  and  sought  review  of  the  Commissions  Order  implementing  the  statute  and  appealed  a  June  19, 
 2001,  judgment  of  the  United  States  District  Court  for  the  Eastern  District  of  Virginia,  which  granted  the  governments  motion  to  dismiss  their  complaint  challenging  the  SHVIA.  On  December  7,  2001,  the  United  States 
 Court  of  Appeals  for  the  Fourth  Circuit  denied  the  petitions  for  review  and  affirmed  the  District  Courts  opinion.  See  DirecTV,  EchoStar,  SBCA  v.  FCC  &  USA,  No.  01-  1151  (Fourth  Circuit).  See  also  Satellite  Broadcasting  and 
 Communications  Association  v.  FCC,  No.  01-  1151  et  al  (4  th  Cir.  2001).  The  Supreme  Court  declined  to  review  the  4  th  Circuits  opinion.  See  Satellite  Broadcasting  Communications  Assoc  v.  FCC,  275  F.  3d  337  (4  th  Cir.  2001),  cert. 
 denied,  122  S.  Ct.  2588  (2002).  190 
 See  SkyReport,  Local  TV  Channels  Available  by  Satellite:  Available  on  DirecTV  and  EchoStars  DISH  Network,  at  http://  www.  skyreport.  com/  local.  shtm  (visited  Oct.  4,  2002).  DirecTV  consumers  in  Hartford,  Connecticut;  Las 


 Vegas,  Nevada;  Providence,  Rhode  Island;  Buffalo,  New  York;  Grand  Rapids,  Michigan;  Knoxville,  Tennessee;  Norfolk,  Virginia;  Oklahoma  City,  Oklahoma;  New  Orleans,  Louisiana;  and  Jacksonville,  Florida  markets  need  a 
 special  set-  top  receiver  and  an  18  x  24-  inch,  oval  shaped  satellite  dish  to  access  local  channels  from  DirecTVs  satellite  at  the  119  W.  L.  orbital  location.  SBCA  Comments  at  6;  DirecTV,  Inc.,  Local  Channels  Availability,  at 
 http://  www.  directv.  com/  DTVAPP/  LocalChannelsAction.  do.  191 
 See  DISH  Network,  Inc.,  at  http://  www.  dishnetwork.  com/  content/  programming/  locals/  index.  shtml.  EchoStar  uses  its  CONUS  satellites  to  deliver  signals  of  local  commercial  and  noncommercial  broadcast  stations  to 


 subscribers.  Any  remaining  stations  in  a  market  not  carried  on  CONUS  satellites  are  carried  on  EchoStars  secondary  satellites,  operating  from  61.5  W.  L.  and  148  W.  L.  orbital  locations.  In  order  to  receive  these  local 
 stations  from  EchoStars  secondary  satellites,  subscribers  are  required  to  obtain  and  install  additional  equipment,  including  a  second  dish  antenna.  As  of  August  23,  2002,  EchoStar  reported  that  it  had  received  116,348  second  dish 
 requests  from  subscribers,  100,  880  of  which  have  been  installed,  with  15,  468  requests  outstanding.  See  EchoStars  Local  Station  Carriage  Compliance  Plan:  150  Day  Report,  CSR-  5865-  Z  (filed  Sept.  3,  2002).  See  also  National 
 Association  of  Broadcasters  and  Association  of  Local  Television  Stations;  Request  for  Modification  or  Clarification  of  Broadcast  Carriage  Rules  for  Satellite  Carriers  (  Two-  Dish  Order),  17  FCC  Rcd  6065,  6081,  6084  (MB  2002), 
 recon.  pending.  EchoStar  has  launched  two  satellites,  EchoStar  VII  and  EchoStar  VIII,  both  of  which  it  reports  have  allowed  it  to  transition  some  markets  from  a  two-  dish  to  a  single-  dish  local-  into-  local  service  offering  and  to 
 introduce  several  new  markets  with  a  single  dish  solution.  The  lawfulness  of  EchoStars  two-  dish  approach  is  on  review.  See  Applications  for  Review,  Two-  Dish  Order,  filed  by  WLNY-  TV  Inc.  and  Golden  Orange  Broadcasting 
 Co.  (May  3,  2002),  Association  of  Public  Television  Stations  and  the  Public  Broadcasting  Service  (May  6,  2002),  and  Paxson  Communications  Corporation  (May  6,  2002). 
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 EchoStar  carries  local  broadcast  stations  a  Distant  Broadcast  Network  package  including  ABC,  CBS,  NBC,  FOX  and  PBS.  192  Of  the  210  DMAs,  local-  into-  local  service  is  offered  by  at  least  one  DBS 
 operator  in  62  markets.  In  41  of  those  markets,  local-  into-  local  service  is  offered  by  both  EchoStar  and  DirecTV.  SBCA  claims  that,  taken  together,  EchoStar  and  DirecTV  offer  local-  into-  local  service  to 
 approximately  67%  of  U.  S.  television  households.  193  EchoStar  states  that  the  addition  of  local  channels  has  made  DBS  more  competitive  with  incumbent  cable  providers  and  has  led  to  an  increase  in  DBS 
 subscribership  and  a  restraint  on  cable  prices.  194  DirecTV  reports  that,  as  of  June  30,  2002,  over  60%  of  all  residential  customers  took  local  programming  packages  (where  available),  an  increase  of  13 
 percentage  points  from  the  47%  it  reported  last  year.  195 
 62.  EchoStar-  Hughes  Merger.  On  December  3,  2001,  the  Commission  received  the  application  (the  Application)  196  of  EchoStar,  General  Motors  Corporation  (  GM),  and  Hughes 


 Electronics  Corporation  (  Hughes)  (collectively,  the  Applicants)  for  consent  to  transfer  control  of  various  Commission  authorizations,  including  DBS  and  fixed  satellite  space  station  authorizations,  earth 
 station  authorizations,  and  other  related  authorizations  held  by  their  wholly-  or  majority-  owned  subsidiaries  to  EchoStar  (  New  EchoStar).  The  proposed  transaction  involved  the  split-  off  of  Hughes 
 from  GM,  followed  by  the  merger  of  the  Hughes  and  EchoStar  companies.  The  proposed  merged  entity,  New  EchoStar,  would  have  a  new  ownership  structure  and  would  have  continued  to  provide  DBS 
 subscription  television  service  under  the  DirecTV  brand  name.  The  proposed  merger  would  have  combined  operations  of  the  two  major  DBS  providers  in  the  United  States    EchoStar  and  Hughes 
 DirecTV    into  a  single  entity.  197 
 63.  On  October  9,  2002,  the  Commission  declined  to  approve  the  transfer  of  licenses  from  EchoStar  and  Hughes  Electronics  to  New  EchoStar  and  designated  the  application  for  a  full  evidentiary 


 hearing  before  an  Administrative  Law  Judge.  198  The  Commission  found  that  EchoStar  and  Hughes  failed 
 192  See  DISH  Network,  Inc.,  Distant  Broadcast  Networks,  http://  www.  dishnetwork.  com/  content/  programming/ 
 locals/  index.  shtml  (visited  Oct.  4,  2002).  See  DirecTV,  Inc.,  at  http://  www.  directv.  com/  DTVAPP/  learn/  NonLocalFeed.  jsp. 


 193  SBCA  Comments  at  6. 
 194  EchoStar  Comments  at  5. 
 195  DirecTV  Comments  at  13.  See  also  2001  Report,  17  FCC  Rcd  at  1273-  74. 
 196  See  Consolidated  Application  of  EchoStar  Communications  Corporation,  General  Motors  Corporation,  Hughes 
 Electronics  Corporation,  Transferors,  and  EchoStar  Communications  Corporation,  Transferee,  for  Authority  to  Transfer  Control,  Dec.  3,  2001  (  December  2001  Filing);  Letters  to  William  F.  Caton,  Acting  Secretary,  Federal 


 Communications  Commission  from  Pantelis  Michalopoulos,  Counsel  for  EchoStar  and  Gary  Epstein,  Counsel  for  Hughes  providing  information  pursuant  to  Section  1.65  of  Commission  Rules,  filed  Dec.  18,  2001  and  Feb.  21,  2002 
 (  December  2001  Amendment  Letter  and  February  2002  Amendment  Letter).  The  term,  Application,  includes  the  December  2001  Filing,  December  2001  Amendment  Letter,  and  February  2002  Amendment  Letter. 
 197  EchoStar  and  Hughes  also  submitted  a  joint  application  requesting  authority  to  launch  and  operate  NEW 
 ECHOSTAR  1,  a  direct  broadcast  satellite  that  would  be  located  at  the  110  W.  L.  orbital  location  (the  Satellite  Application).  See  EchoStar  Satellite  Corporation  and  Hughes  Electronic  Corporation,  Application  for  Authority  to 


 Launch  and  Operate  NEW  ECHOSTAR  1  (USABBS-  16),  S2435,  File  No.  SAT-  LOA-  20020225-  00023  (Feb.  25,  2002);  Letter  to  William  F.  Caton,  Acting  Secretary,  Federal  Communications  Commission  from  Pantelis 
 Michalopoulos,  Counsel  for  EchoStar,  and  Gary  Epstein,  Counsel  for  Hughes,  providing  supplemental  Technical  Annex  (Mar.  28,  2002);  and  Letter  to  Marlene  H.  Dortch,  Secretary,  Federal  Communications  Commission  from 
 Pantelis  Michalopoulos,  Counsel  for  EchoStar,  and  Gary  Epstein,  Counsel  for  Hughes  (providing  complete  copy  of  supplemental  Technical  Annex)  (May  30,  2002). 
 198  See  fn.  21  supra.  Section  309(  e)  of  the  Communications  Act  provides  that  if  the  FCC  for  any  reason  is  unable 
 to  make  a  finding  under  Section  309(  a)  that  the  public  interest  would  be  served  by  the  granting  of  a  license  transfer  application,  then  it  shall  formally  designate  the  application  for  hearing  on  the  ground  or  reasons  then  obtaining. 


 See  EchoStar-  Hughes  HDO    289  for  list  of  issues  designated  for  hearing. 
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 to  meet  their  burden  of  proof  to  show  that,  on  balance,  the  proposed  merger  is  in  the  public  interest,  and  found  that  the  record  indicates  that  substantial  potential  public  interest  harms  may  result  from  the 
 transaction.  199  In  its  order,  the  Commission  stated  that  the  record  demonstrated  that  the  proposed  transaction  would  eliminate  a  current  viable  competitor  from  every  market  in  the  country,  whether  those 
 markets  are  served  by  cable  systems  or  are  markets  in  which  no  cable  systems  exist,  at  best  resulting  in  a  merger  to  duopoly,  and  at  worst  a  merger  to  monopoly.  200  The  Commissions  analysis  of  the  potential 
 competitive  harms  to  the  MVPD  market  indicated  that  the  proposed  merger  would  significantly  increase  concentration  in  an  already  concentrated  market,  and  thus  the  merger  should  be  presumed  to  create  or 
 enhance  market  power  or  facilitate  its  exercise,  substantially  reduce  competition,  and  harm  consumers.  201  Based  on  these  and  other  conclusions,  the  Commission  was  unable  to  find  that  the  public  interest, 
 convenience  and  necessity  would  be  served  by  approving  the  transfer  of  control  to  New  EchoStar  of  the  licenses  and  authorizations  controlled  by  GM/  Hughes,  DirecTV  and  EchoStar.  202 


 64.  On  October  31,  2002,  the  United  States  Department  of  Justice  filed  a  civil  action  in  US  District  Court  to  enjoin  the  merger  of  EchoStar  and  Hughes.  203  The  Department  of  Justice  alleged  that  the 
 proposed  acquisition  would  cause  significant  harm  to  competition  in  numerous  local  markets  for  MVPD  services  throughout  the  United  States,  creating  a  monopoly  for  millions  of  households,  and  a  duopoly  for 
 tens  of  millions  of  households.  204  DOJ  also  alleged  that  the  merger  would  lead  to  higher  prices  and  lower  service  quality  for  approximately  95%  of  U.  S.  television  households  that  would  be  the  case  absent 
 consummation  of  the  merger.  205 
 65.  On  November  27,  2002,  the  Applicants  submitted  an  amendment  to  their  applications  to  ameliorate  the  competition  concerns  identified  in  the  HDO.  206  The  Applicants  requested  that  the 


 Commission  approve  their  merger  contingent  on  the  execution  of  a  divestiture  agreement  that  would  include  the  divestiture  of  licenses  and  assignment  of  rights  to  certain  frequencies  to  Rainbow.  207  The 
 Applicants  also  requested  that  the  hearing  be  suspended  pending  review  of  the  amended  application.  208 


 199  Id.    275. 
 200  Id. 
 201  Id.    104  187. 
 202  Id.    289. 
 203  United  States  vs.  EchoStar  Communications  Corp,  Hughes  Electronics  Corp.,  General  Motors  Corp.,  and 
 DirecTV  Enterprises,  Inc.,  No.  1:  02CV02138  (D.  C  .  filed  Oct.  31,  2002).  204 
 Id.  at  6.  205 
 Id.  206 
 See  EchoStar-  Hughes  HDO    295.  207 
 See  Application  of  EchoStar  communications  Corporation,  General  Motors  Corporation,  Hughes  Electronics  Corporation,  Transferors,  and  EchoStar  Communications,  transferee,  For  Authority  to  Transfer  Control; 


 Application  of  EchoStar  Satellite  Corporation  and  Hughes  Electronics  Corporation  for  Authority  to  Launch  and  Operate  NEW  ECHOSTAR  1  (USABBS-  16),  Amendment  to  Consolidated  Application  for  Authority  to  Transfer 
 Control  (Nov.  27,  2002).  See  also  EchoStar  Communications  Corporation,  General  Motors  Corporation,  and  Hughes  Electronics  Corporation  File  Amendment  to  Transfer  of  Control,  Public  Notice,  DA  02-  3358  (Dec.  4, 
 2002).  208 
 Application  of  EchoStar  communications  Corporation,  General  Motors  Corporation,  Hughes  Electronics  Corporation,  Transferors,  and  EchoStar  Communications,  transferee,  For  Authority  to  Transfer  Control; 


 Application  of  EchoStar  Satellite  Corporation  and  Hughes  Electronics  Corporation  for  Authority  to  Launch  and  Operate  NEW  ECHOSTAR  1  (USABBS-  16),  Petition  for  Suspension  of  Hearing  (Nov.  27,  2002). 
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 On  December  10,  2002,  the  Applicants  notified  the  Commission  that  they  had  agreed  to  terminate  the  proposed  merger  and  asked  to  have  their  applications  withdrawn  and  the  hearing  terminated.  209 
 2.  Satellite-  Based  Advanced  Services 
 66.  Broadband  Satellite  Services.  Last  year,  we  reported  that  both  DirecTV  and  EchoStar  offered  two-  way  Internet  access  services  to  their  subscribers.  210  DirecTV  offers  one-  way  and  two-  way 


 Internet  service  under  the  brand  name  DirecWay.  211  As  of  June  30,  2002,  DirecWay  had  over  123,000  residential  and  small  office/  home  office  subscribers  in  North  America,  compared  to  74,000  one  year 
 ago.  212  EchoStar  previously  offered  satellite-  based  Internet  services  through  its  investment  in  Starband,  in  conjunction  with  satellite  operator  Gilat,  but,  in  April  2002,  EchoStar  ended  its  joint  marketing  and 
 operations  agreement  with  Starband.  213  Starband  entered  into  bankruptcy  protection  in  June  2002.  214  Starband  has  approximately  40,000  customers.  215 


 67.  According  to  the  SBCA,  economic  conditions  have  hindered  the  development  of  consumer-  based  satellite  high-  speed  services.  216  EchoStar  questions  whether  under  current  economic 
 conditions  any  stand-  alone  DBS  provider  can  realistically  provide  an  affordable,  competitive,  satellite-based,  two-  way  high-  speed  Internet  broadband  service  to  residential  customers.  217 


 68.  High-  Definition  Television.  DirecTV  and  EchoStar  provide  subscribers  with  high-definition  television  (  HDTV)  programming.  DirecTV  offers  three  channels  of  high  definition 


 209  Letter  from  Gary  M.  Epstein,  Counsel  for  Hughes  Electronics  Corporation  and  General  Motors  Corporation  and 
 Pantelis  Michalopoulos,  Counsel  for  EchoStar  Communications  Corporation,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  10,  2002). 


 210  2001  Report,  17  FCC  Rcd  at  1275. 
 211  Hughes  Electronics  Corporation  introduced  one-  way  high-  speed  Internet  access  in  1997  under  the  DirecPC  brand 
 name.  The  return  path  is  provided  via  dial-  up  modem.  It  launched  a  two-  way  version  in  December  2001,  allowing  consumers  to  receive  and  send  data  via  the  dish  antenna.  Hughes  also  sold  DirecDuo,  a  single  dish  antenna  capable 


 of  supporting  high-  speed  Internet  access  and  video  programming  from  DirecTV.  In  August  2002,  Hughes  introduced  the  DirecWay  brand,  folding  one-  and  two-  way  DirecPC  products  and  the  DirecDuo  product  under  this 
 single  brand  name.  Some  retailers  continue  to  use  the  DirecPC  and  DirecDuo  product  names  in  their  marketing  promotions  and  advertisements.  See  http://  www.  hughes.  com/  consumer/  Direcway.  xml  and 
 http://  www.  directv.  Direcway.  comdirecpc.  com.  DirecTV  also  offers  Internet  access  through  its  DirecTV  Broadband  affiliate,  DirecTV  DSL.  See  DirecTV  Broadband,  Inc.,  at  http://  www.  DirecTVdsl.  com. 
 212  SBCA  Comments  at  9. 
 213  See  EchoStar  Communications  Corp.,  SEC  Quarterly  Report  Pursuant  to  Section  13  or  15(  d)  of  the  Securities  Act 
 of  1934  for  the  Period  Ended  June  30,  2002,  at  9.  214 
 Andy  Pasztor,  EchoStar  Will  No  Longer  Offer  Web  Via  Satellite,  WALL  STREET  JOURNAL,  Apr.  5,  2002,  at  B5.  See  also  Starband  Communications,  Inc.,  Starband  Files  for  Chapter  11;  Gilat  Commits  Interim  Financing  (press 


 release),  June  3,  2002.  215 
 Starband  Communications,  Inc.,  Starband  Wraps  Up  2001  as  Americas  Leading  Consumer  Satellite  Internet  Provider  (press  release),  Jan.  7,  2002. 


 216  SBCA  Comments  at  9. 
 217  EchoStar  Comments  at  7. 
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 programming:  HDNet,  218  HBOs  HBO  HD,  and  Showtimes  SHO  HDTV.  219  EchoStar  carries  seven  channels  of  HD  programming:  HBO  HD,  SHO  HDTV,  CBS,  220  Discovery  HD  Theater,  Dish-  On-  Demand 
 Pay-  Per-  View  in  HDTV  format,  and  an  HDTV  demo  channel.  221  According  to  the  SBCA,  DBS  providers  are  working  to  meet  the  voluntary  milestones  set  by  Commission  Chairman  Powell  in  April,  2002.  222 


 69.  Emerging  Services.  In  early  2002,  EchoStar  introduced  a  channel  called  Dish  Home,  which  acts  as  a  portal  for  all  Dish  Network  interactive  channels,  such  as  customer  support  services, 
 including  account  review  and  bill  payment,  entertainment,  games,  sports,  and  news  and  weather  information.  223  All  navigation  is  controlled  by  the  remote  control.  Certain  functions,  such  as  bill 
 payment,  require  a  phone  line  connection.  224  DirecTV  is  conducting  trials  of  SVOD  service  with  StarZ  Encore  Group,  providing  a  small  catalogue  of  programming  accessible  via  a  DirecTV  set-  top  box  with  a 
 TiVo  PVR  built  in.  The  programming  is  automatically  downloaded  to  the  PVRs  hard  drive  and  can  be  accessed  at  any  time  by  the  customer.  225 


 70.  Access  to  Programming.  On  June  13,  2002,  the  Commission  adopted  an  Order  extending  for  five  years,  until  October  5,  2007,  the  statutory  prohibition  on  exclusive  contracts  for 
 satellite-  delivered  cable  or  satellite-  delivered  broadcast  programming  between  cable  operators  and  their  affiliated  programmers.  226  In  the  Order,  the  Commission  rejected  requests  to  expand  the  prohibition  to 
 terrestrially  delivered  programming  or  non-  vertically  integrated  programming.  227  SBCA  states  that, 
 218  HDNet  is  a  national,  all-  high-  definition  television  network  broadcasting  16  hours  a  day,  seven  days  week, 
 offering  a  wide  range  of  entertainment  and  sports  programming.  219 
 To  receive  DirecTVs  HDTV  service,  subscribers  must  purchase  either  an  HDTV  set  with  a  built-  in  DirecTV  receiver,  or  a  separate  decoder  box,  and  a  second  satellite  dish  that  is  capable  of  receiving  the  signals.  See  DirecTV, 


 High  Definition  Television  Programming  from  DirecTV,  at  http://  www.  DirecTV.  com/  DTVAPP/  imagine/  HDTV.  jsp.  220 
 EchoStar  carries  the  high  definition  signal  of  WCBS  in  New  York  and  KCBS  in  Los  Angeles.  To  qualify  to  receive  these  signals,  in  addition  to  subscribing  to  a  local-  into-  local  programming  package,  the  customer  must  live 


 in  one  of  the  17  market  areas  served  by  the  CBS  owned  and  operated  stations  and  the  customer  must  not  be  in  range  of  the  signals  of  a  CBS  affiliate  from  a  nearby  city.  See  EchoStar  Communications  Corp.,  at 
 http://  www.  dishnetwork.  com/  content/  programming/  locals/  cbshd/  index.  shtml.  221 
 EchoStar  Communications  Corp.,  at  http://  faq.  dishnetwork.  com.  EchoStar  subscribers  must  use  certain  set-  top  boxes  and  they  need  a  second  dish  antenna  pointing  to  EchoStars  satellite  at  61.  5  W.  L.  orbital  location.  In 


 addition,  EchoStar  charges  $7.  99  per  month  to  subscribe  to  Discovery  HD  Theater  and  requires  the  use  of  EchoStars  $499  Model  6000  HDTV  receiver,  and  EchoStars  $99  Enhanced  HD  Adapter. 
 222  SBCA  Comments  at  9.  On  April  4,  2002,  Commission  Chairman  Michael  Powell  proposed  that  by  January  3, 
 2003,  DBS  providers  carry  the  signals  of  up  to  five  digital  programming  services  that  are  providing  value-  added  digital  programming  during  at  least  50%  of  their  prime  time  schedule.  See  Voluntary  DTV  Plan,  fn.  119  supra. 


 223  Steve  Caulk,  EchoStars  Portal  Sees  Quiet  Success,  ROCKY  MOUNTAIN  NEWS,  Aug.  19,  2002,  available  at 
 http://  216.239.51.100/  search?  q=  cache:  A3CF4zUnmPcC:  www.  rockymountainnews.  com/  drmn/  technology/  article/  0,1  299,  DRMN_  49_  1333908,  00.  html+  EchoStar%  27s+  Portal&  hl=  en&  ie=  UTF-  8.  Access  to  the  service  is  dependent 


 upon  the  type  of  set-  top  box  used  by  the  customer.  EchoStar  charges  a  fee  for  access  to  certain  content.  For  example,  games  cost  $4.99  per  month  for  unlimited  access.  See  also  EchoStar  Communications  Corp.,  EchoStar  to 
 Launch  New  Interactive  TV  Features  Offering  Games,  Movie  Reviews  and  Customer  Support  for  Dish  Network  Satellite  TV  Customers  (press  release),  Jan.  9,  2002. 
 224  See  EchoStar,  Dish  Home,  at  http://  www.  dishnetwork.  com/  content/  technology/  itv/  dish_  home/  index.  shtml. 
 225  See  DirecTV,  DirecTV  to  Test  Starz  On  Demand  SVOD  Service  on  DirecTV  Receivers  with  TiVO  (press  release), 
 May  23,  2002.  226 
 Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Development  of  Competition  and  Diversity  in  Video  Programming  Distribution:  Section  628(  c)(  5)  of  the  Communications  Act 


 (  Program  Access  Order),  17  FCC  Rcd  12124  (2002).  See    140  infra.  227 
 See  id.  at  12126. 
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 although  the  five  year  extension  on  program  access  rules  will  result  in  increased  competition  and  continued  growth  of  consumer  choice,  by  not  extending  the  prohibition  to  terrestrially-  delivered 
 programming,  vertically-  integrated  cable  companies  will  continue  to  circumvent  the  program  access  rules  by  switching  the  delivery  of  their  programming  away  from  satellite  to  terrestrial-  only  means.  228  SBCA 
 states  that  43%  of  new  DBS  subscribers  named  more  channels  as  an  important  reason  for  choosing  DBS  as  their  multichannel  video  provider,  and,  if  it  were  not  for  vertically  integrated  companies 
 withholding  highly-  desirable  regional  programming,  DBS  could  become  an  even  stronger  competitor  to  cable.  229  DirecTV  argues  that  technological  advances  that  have  diminished  the  costs  of  delivering 
 programming  terrestrially,  coupled  with  the  efforts  of  cable  MSOs  to  cluster  or  trade  their  systems  to  form  broad,  contiguous  service  areas,  have  created  an  environment  in  which  terrestrial  distribution  has 
 become  a  more  viable  method  of  delivering  regional  and  national  programming  from  production  facilities  to  cable  headends.  230  DirecTV  urges  the  Commission  to  monitor  the  effects  of  terrestrial  distribution  of 
 vertically-  integrated  programming  by  cable  operators.  EchoStar  argues  that  the  terrestrial  loophole  be  eliminated  either  by  regulation  or  an  act  of  Congress.  231  NCTA  disputes  the  notion  of  a  terrestrial 
 loophole  and  suggests  that  DirecTV  and  EchoStar  each  have  the  resources  and  subscriber  base  to  develop  their  own  basic  and  premium  programming,  both  for  their  own  use  and  for  sale  to  other 
 MVPDs.  232 
 3.  Home  Satellite  Dishes 
 71.  The  home  satellite  dish  (  HSD)  or  C-  band  segment  of  the  satellite  industry  continues  to  experience  a  decline  in  subscribership.  233  Between  June  30,  2001,  and  June  30,  2002,  C-  band 


 subscribership  fell  from  1,  000,074  subscribers  to  700,641  subscribers,  a  decline  of  over  30%  with  an  average  loss  of  close  to  27,000  subscribers  per  month.  234  SBCA  states  that  the  pace  of  de-  authorizations 
 of  C-  band  service  is  slowing  and  satellite  programmers  are  committed  to  offering  programming  to  this  sector.  235  Motorola  has  introduced  two  new  set-  top  boxes  that  enable  C-  band  subscribers  to  access  up  to 


 228  SBCA  Comments  at  17.  See  also  DirecTV  Comments  at  10;  EchoStar  Comments  at  10-  11. 
 229  SBCA  Comments  at  17.  SBCA  states  that  in  Philadelphia,  Comcast,  which  owns  sports  teams  and  related 
 programming  properties,  uses  terrestrial  delivery  of  that  programming  to  prevent  DBS  companies  from  showing  local  team  sports  programming,  resulting  in  a  less  competitive  market  in  Philadelphia,  where  DBS  penetration  is 


 3.9%,  or  half  of  the  rest  of  the  top  twenty  DMAs  where  it  is  9.3%  on  average.  Id.  at  17-  18;  EchoStar  Comments  at  10-  11  and  n.  24.  Comcast  counters  EchoStar  stating  that:  (1)  as  compared  to  Philadelphia,  DBS  penetration  is  no 
 higher  in  several  other  major  markets  including  San  Diego  and  Boston,  where  there  is  no  terrestrially-  delivered,  cable  affiliated  regional  sports  network,  than  it  is  in  Philadelphia;  (2)  the  two-  year  growth  rate  for  DBS  in 
 Philadelphia  (141%)  is  the  highest  of  any  top  10  market;  and  (3)  the  three-  year  DBS  growth  rate  in  Philadelphia  (217%)  is  the  third-  highest  of  the  top  39  DMAs.  Comcast  Reply  Comments  at  21,  n.  80. 
 230  DirecTV  Comments  at  10. 
 231  EchoStar  Comments  at  11. 
 232  NCTA  Reply  Comments  at  14. 
 233  C-  band  subscribers  generally  have  access  to  approximately  30  satellites,  accessible  using  a  rotational  dish 
 antenna.  Numerous  programmers  offer  varying  packages  of  programming,  but  generally  there  are  over  600  channels  of  video  and  audio  programming,  with  approximately  200  of  them  available  free  of  charge.  For  a  list  of  the  type  of 


 programming  available  via  C-  band,  including  many  of  the  more  popular  cable  networks  as  well  as  national  broadcast  feeds,  see  Motorola  4DTV,  at  http://  www.  4dtv.  com/  Programming/  programming.  html. 
 234  SkyReport,  National  DTH  Counts  June  2001  -  June  2002,  at  http://  www.  skyreport.  com/  dth_  counts.  htm.  See 
 also  SBCA  Comments  at  8,  Table  1.  235 
 SBCA  Comments  at  7.  The  spokesman  for  SuperStar/  Netlink  Group  and  Turner  Vision,  a  major  C-  band  operator,  stated  that  he  believes  that  C-  band  subscriptions  will  bottom  out  between  300,  000  and  400,  000  subscribers, 


 although  he  provided  no  time  frame  for  this  to  happen.  SATELLITE  NEWS,  Big  Dishes  Diminish,  Aug.  12,  2002,  at  http://  www.  tripled.  com/  sattimes/  sattimes.  htm  (visited  Oct.  3,  2002). 
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 200  channels  of  digital  programming  in  addition  to  the  300  or  more  analog  channels  currently  available  to  them.  236  C-  band  subscribers  also  now  have  access  to  high-  speed  Internet  services.  In  September,  2002, 
 Skyvision,  Inc.  and  Internet  Satellite  Platform,  Inc.  announced  the  formation  of  CbandNet,  a  high-  speed  Internet  service,  offering  monthly  service  packages  ranging  in  price  from  $29.95  to  $44.95.  237  There  are 
 now  four  remaining  C-  Band  programming  distributors,  Gemstar-  TV  Guide  Superstar/  Netlink  Group,  DSI  Distributing,  Satellite  Receivers,  Ltd.,  and  the  NRTC.  238 


 C.  Wireless  Cable  Systems 
 72.  Multipoint  distribution  service  (  MDS)  and  instructional  television  fixed  service  (  ITFS)  are  authorized  to  operate  in  the  2.5-  2.69  GHz  band.  In  addition,  MDS  entities  have  licenses  in 


 the  2.15-  2.162  GHz  band.  Wireless  cable  systems  combine  multiple  MDS  (i.  e.,  multichannel  MDS)  frequencies  and  ITFS  frequencies  to  transmit  video  programming  and  high-  speed  Internet  access  to 
 residential  subscribers  in  limited  areas.  This  delivery  technology  is  also  known  as  multichannel  multipoint  distribution  service  (  MMDS). 


 73.  In  1998,  the  Commission  released  the  Two-  Way  Order  permitting  MDS/  ITFS  licensees  to  construct  digital  two-  way  systems  that  could  provide  high-  speed,  high-  capacity  broadband  service, 
 including  two-  way  Internet  service  via  cellularized  communication  systems.  239  In  2001,  the  Commission  adopted  a  First  Report  and  Order  and  Memorandum  Opinion  and  Order  in  the  New  Advanced  Wireless 
 Services  proceeding,  which  made  the  spectrum  used  by  MMDS  services  potentially  available  for  advanced  mobile  and  fixed  terrestrial  wireless  services,  including  third-  generation  (  3G)  and  future 
 generations  of  wireless  systems.  240  The  Commission  decided  not  to  relocate  the  existing  licensees  or  otherwise  modify  their  licenses.  The  Commission  recognized  that  it  would  have  to  explore  the  service 
 rules  that  would  apply  to  permit  mobile  operations  in  the  2.  5-  2.69  GHz  band  in  a  separate,  future  proceeding.  On  October  17,  2002,  the  Wireless  Telecommunications  Bureau  sought  comment  on  an 
 industry  proposal  requesting  further  rule  changes  to  facilitate  provision  of  two-  way  fixed  and  mobile  services,  while  allowing  others  to  continue  to  provide  one-  way  video  services.  241 


 236  Motorola,  Inc.,  Motorolas  4DTV  Digital  Sidecar  Provides  System  Upgrade  for  C-  band  Subscribers  (press 
 release),  Apr.  12,  2002.  See  also  Motorola  4DTV,  http://  www.  4dtv.  com/  Products/  products.  html  (visited  Oct.  3,  2002).  Motorola  offers  a  stand-  alone  set-  top  box  functioning  as  both  analog  and  digital  receiver  and  a  so-  called 


 side-  car  set-  top  box  which  adds  digital  functionality  to  existing  analog  receivers.  In  addition,  4DTV  offers  the  DigiCipher  II  HDD-  200  set-  top  box  which  allows  for  the  receipt  of  high  definition  programming.  Id. 
 237  SATELLITE  NEWS,  High-  Speed  Internet  for  the  Big  Dish,  Sept.  24,  2002,  at 
 http://  www.  tripled.  com/  sattimes/  sattimes.  htm  (visited  Oct.  3,  2002).  See  also  CbandNet,  http://  www.  cband.  net  (visited  Oct.  3.  2002).  The  company  offers  Internet  services,  software,  modems,  satellite  dishes,  low  noise  blockers 


 (  LNB),  dish  movers,  and  accessories.  238 
 Satellite  Receivers  Buys  Disneys  C-  Band  Subscribers,  Satellite  Business  News  FAXUpdate,  June  15,  2001.  239 
 Amendment  of  Parts  21  and  74  to  Enable  Multipoint  Distribution  Service  and  Instructional  Television  Fixed  Service  Licensees  to  Engage  in  Fixed  Two-  Way  Transmissions,  13  FCC  Rcd  19112  (1998),  recon.,  14  FCC  Rcd 


 12764  (1999),  further  recon.,  15  FCC  Rcd  14566  (2000).  240 
 See  Amendment  of  Part  2  of  the  Commissions  Rules  to  Allocate  Spectrum  Below  3GHz  for  Mobile  and  Fixed  Services  to  Support  the  Introduction  of  New  Advanced  Wireless  Services,  Including  Third  Generation  Wireless 


 Systems,  16  FCC  Rcd  17222  (2001).  The  3G  advanced  wireless  services  may  include  new  data  and  broadband  services  such  as  Internet  access,  electronic  mail,  and  short  messaging  services.  Id.  at  17223-  4. 
 241  See  Wireless  Telecommunications  Bureau  Seeks  Comment  on  Proposal  to  Revise  Multichannel  Multipoint 
 Distribution  Service  and  the  Instructional  Television  Fixed  Service  Rules,  Public  Notice,  DA  02-  2732  (WTB  rel.  Oct.  17,  2002).  The  Public  Notice  sought  comment  on  a  paper  entitled,  A  Proposal  for  Revising  the  MDS  and  ITFS 


 Regulatory  Scheme,  filed  by  the  Wireless  Communications  Association  International,  Inc.,  the  National  ITFS  Association  and  the  Catholic  Television  Network  (Oct.  7,  2002). 
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 74.  MMDS  Households  and  Subscribership.  Over  2,650  MDS  and  MMDS  licenses  have  been  issued  in  the  U.  S.  242  Four  companies    Sprint,  WorldCom,  Nucentrix  and  BellSouth    hold  more 
 than  half  of  the  licenses.  243  Collectively,  these  four  companies  can  potentially  reach  75%  of  the  U.  S.  population.  244  The  number  of  MMDS  subscribers,  however,  has  declined  to  approximately  490,000  from 
 700,000  last  year.  245  MMDS  has  never  become  a  significant  competitor  in  the  market  for  the  delivery  of  video  programming,  246  rather  many  MMDS  providers  are  focusing  on  data  transmission  rather  than  video 
 service.  247  Moreover,  the  future  of  these  services  may  depend  on  the  ability  of  these  companies  to  develop  better  technology.  248  Sprint  announced  that  it  has  put  MMDS  deployment  on  hold  until 
 substantial  progress  is  made  on  second-  generation  MMDS  technology.  249  The  future  competitive  impact  of  MMDS  is  further  clouded  by  the  bankruptcy  filings  of  two  of  the  major  companies  (WorldCom  and 
 Nucentrix),  each  holding  about  17%  of  MMDS  licenses.  250  In  March  2002,  Nucentrix  announced  that  it  had  entered  into  agreements  to  convert  the  majority  of  its  video  customers  in  markets  in  Oklahoma, 
 Texas,  and  the  Midwest  to  DBS  programming  provided  by  DirecTV  and  Pegasus,  and  in  central  Texas  to  Time  Warner  Cable,  as  a  replacement  for  its  MMDS  video  service.  251  Nucentrix  plans  to  use  its  MMDS 
 spectrum  to  provide  broadband  Internet  and  other  advanced  wireless  services.  252  WorldCom  has  indicated  that,  as  part  of  its  strategy  to  improve  its  financial  outlook,  it  may  consider  selling  part  or  all  of 
 its  MMDS  business.  253 
 D.  Private  Cable  Systems 
 75.  Private  cable  operators  (  PCOs),  also  known  as  private  communication  operators  or  satellite  master  antenna  television  (  SMATV)  systems,  are  video  distribution  facilities  that  use  closed 


 transmission  paths  without  using  any  public  right-  of-  way.  254  PCOs  receive  programming  via  a  master  satellite  antenna  and  distribute  television  signals  via  terrestrial  wiring  to  urban  and  suburban  multiple 


 242  BIA  Financial  Network,  The  MMDS  Industry:  A  Look  Into  the  Industrys  Most  Significant  Operators,  September 
 2002,  at  5.  243 
 Id.  244 
 Id.  at  6.  245 
 NCTA  Comments  at  12.  246 
 MMDS  subscribers  have  never  represented  more  that  approximately  a  1.5%  share  of  all  MVPD  households.  See  2000  Report,  16  FCC  Rcd  at  6110,  Appendix  C,  Table  C-  1. 


 247  FCC,  OPP  Working  Paper  #37,  Broadcast  Television:  Survivor  in  a  Sea  of  Competition,  September  2002,  at  63. 
 248  BIA  Financial  Network,  The  MMDS  Industry:  A  Look  Into  the  Industrys  Most  Significant  Operators,  September 
 2002,  at  12.  MMDS  must  have  a  line-  of-  sight  path  between  transmitter  and  receiver.  Technical  limitations  include  signal  strength  and  blockage  by  terrain. 


 249  Sprint,  Sprint  to  Terminate  ION  Efforts;  Announces  Additional  Actions  to  Improve  Competitive  Positioning  and 
 Reduce  Operating  Costs  in  FON  Group  (press  release),  Oct.  17,  2001.  Sprint  has  begun  field  trials  of  second  generation  technology  in  its  Houston,  Texas  market.  Kevin  Fitchard,  Sprint  Revives  MMDS  Plans,  TELEPHONY, 


 May  13,  2002.  250 
 BIA  Financial  Network,  The  MMDS  Industry:  A  Look  Into  the  Industrys  Most  Significant  Operators,  September  2002,  at  12. 


 251  Nucentrix  Broadband  Networks,  Nucentrix  Announces  Conversion  of  Video  Subscribers  (press  release),  Mar.  19, 
 2002.  252 
 Id.  See  also  Nucentrix  Broadband  Networks,  Nucentrix  Applauds  MDS/  ITFS  Proposal  for  Next  Generation  of  Broadband  Wireless  Services  (press  release),  Oct.  7,  2002. 


 253  Sue  Marek,  Sidgmore:  All  Wireless  Assets  for  Sale,  WIRELESS  WEEK,  July  3,  2002. 
 254  47  U.  S.  C.    522(  7). 
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 dwelling  units  (  MDUs)  and  commercial  multiple  tenant  units  (  MTUs).  PCOs  are  in  direct  competition  with  franchised  cable  operators.  They  generally  offer  the  same  basic  service  tiers  as  their 
 competitors.  255  PCOs  are  continuing  to  combine  analog  antenna  and  DBS  systems  in  order  to  provide  more  service  offerings.  In  addition,  digital  video  and  high-  speed  Internet  access  offerings  are  becoming 
 increasingly  important  to  landlords  who  are  seeking  new  tenants,  or  are  responding  to  the  demands  of  their  current  tenants.  256 


 76.  PCOs  are  not  regulated  as  traditional  cable  operators.  257  Some  PCOs  systems  use  microwave  transmissions  and  wires  to  serve  multiple  buildings  that  are  not  commonly  owned.  258  Where  a 
 PCO  crosses  public  rights-  of-  way,  that  operator  becomes  a  cable  operator  as  defined  by  the  Communications  Act,  including  the  franchising  obligations  of  Section  621.  259  On  May  16,  2002,  the 
 Commission  adopted  a  Report  and  Order  expanding  eligibility  for  licenses  in  the  Cable  Television  Relay  Service  (  CARS)  to  include  all  MVPDs,  including  private  cable  operators.  The  Order  also  increased  the 
 number  of  frequencies  available  to  PCOs  by  permitting  the  use  of  12.70-  13.  20  GHz  band  (  12  GHz  CARS  band)  by  all  MVPDs  for  delivering  programming  services  to  their  subscribers.  260  In  that 
 proceeding,  several  commenters  contended  that  use  of  the  lower  CARS  band  of  12.70-  31.20  will  help  PCOs  compete  with  cable  MSOs.  261 


 77.  PCOs  consist  of  hundreds  of  small  and  medium-  sized  firms  throughout  the  United  States.  262  During  the  late  1990s,  a  number  of  large  PCOs,  including  OpTel,  SkyView,  and  Cable  Plus, 
 declared  bankruptcy.  263  OpTel,  one  of  the  largest  PCOs,  has  emerged  recently  from  Chapter  11 


 255  Larry  Kessler,  Boring?  Not  Any  More.  Exclusive  and  Perpetual  Contracts,  Private  and  Wireless  Broadband, 
 December  2001,  at  18.  256 
 Jay  Hartz,  Post  Wiring  Properties  for  Broadband  Connectivity:  Keeping  up  With  Resident  Demands,  Broadband  Properties,  April  2002,  at  12. 


 257  1996  Act,  sec.  301(  a)(  2),  47  U.  S.  C.    522(  7).  In  addition,  private  cable  and  SMATV  operators  (a)  do  not  pay 
 franchise  and  Federal  Communications  Commission  subscriber  fees;  (b)  are  not  obligated  to  pass  every  resident  in  a  given  area;  (c)  are  not  subject  to  rate  regulation;  and  (d)  are  not  subject  to  must  carry  and  local  government  access 


 obligations.  1997  Report,  13  FCC  Rcd  at  1085.  258 
 Id.  In  1991,  the  Commission  held  that  microwave  transmissions  do  not  use  public  rights-  of-  way  and  made  18  GHz  technology  available  for  the  point-  to-  point  delivery  of  video  programming  services,  allowing  operators  to  free 


 themselves  from  large  networks  of  coaxial  or  fiber  optic  cable  and  amplifiers.  Amendment  of  Part  94  of  the  Commissions  Rules  to  Permit  Private  Video  Distribution  Systems  of  Video  Entertainment  Access  to  the  18  GHz 
 Band,  6  FCC  Rcd  1270,  1271  (1991).  In  2000  the  Commission  adopted  a  Report  and  Order  affirming  the  allocation  of  the  18  GHz  band  for  SMATV  providers,  concluding  that  private  cable  operators  using  the  18  GHz  band,  for  both 
 current  and  future  operations,  will  not  be  able  to  compete  effectively  against  franchised  cable  operators  if  we  redesignate  the  18.3-  18.  55  GHz  band  .  .  .  .  See  Redesignation  of  the  17.7-  19.  7  GHz  Frequency  Band,  Blanket 
 Licensing  of  Satellite  Earth  Stations  in  the  17.  2-  20.  2  GHz  and  27.  5-  30.0  GHz  Frequency  Bands,  and  the  Allocation  of  Additional  Spectrum  in  the  17.  3-  17.8  GHz  and  24.  75-  25.  25  GHz  Frequency  Bands  for  Broadcast  Satellite-  Service 
 Use,  15  FCC  Rcd  at  13450  (2000).  259 
 Entertainment  Connections,  Inc.,  Motion  for  Declaratory  Ruling,  13  FCC  Rcd  at  14277  (1998).  260 
 Amendment  of  Eligibility  Requirements  in  Part  78  Regarding  12  GHz  Cable  Television  Relay  Service,  17  FCC  Rcd  9930  (2002). 


 261  See,  e.  g.,  OpTel,  Inc.,  Comments,  CS  Docket  No.  99-  250,  at  2-  3;  RCN  Telecom  Services,  Inc.,  Comments  CS 
 Docket  No.  99-  250,  at  i,  3-  4.  262 
 For  a  list  of  private  communications  operators,  see  the  Independent  Multi-  Family  Communications  Councils  web  site  under  Private  Communication  Operator  (  PCO)  at  http://  www.  imcc-  online.  org/  membership. 


 263  Larry  Kessler,  Winning  the  Battle  and  the  War:  What  Does  It  Take?  Private  and  Wireless  Broadband,  July  2000, 
 at  10. 
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 bankruptcy  under  the  name  TVMAX.  264  Many  PCOs  serve  approximately  3,000-  4,000  subscribers,  but  the  larger  operations  serve  as  many  as  15,000-  55,000  subscribers  each.  265  As  of  June  2002,  PCO 
 subscribership  increased  by  100,000  subscribers,  reaching  1.6  million  subscribers,  or  1.7%  of  the  MVPD  market.  266 


 78.  The  Commission  has  issued  a  Second  Further  Notice  of  Proposed  Rulemaking  seeking  comments  on  the  advantages  and  disadvantages  of  exclusive  and  perpetual  contracts  in  promoting  a 
 competitive  environment,  and  whether  there  are  circumstances  in  which  the  Commission  should  adopt  restrictions  on  exclusive  and  perpetual  contracts  in  order  to  promote  competition  in  the  MDU  market.  267 
 In  that  pending  proceeding,  PCOs,  real  estate  interests,  and  some  telecommunications  entities  support  exclusive  contracts  for  video  programming  services,  asserting  that  exclusives  enable  alternative  MVPDs 
 to  gain  a  foothold  in  the  MDU  market,  and  enable  alternative  and  new  MVPDs  to  obtain  financing,  recoup  costs,  and  expand  operations  in  the  MDU  market.  268  The  Independent  Multi-  Family 
 Communications  Council  (  IMCC),  the  trade  organization  representing  PCOs,  states  that  exclusive  contracting  by  PCOs  is  essential  to  their  ability  to  compete  with  franchised  cable  operators  and  should 
 not,  therefore,  be  capped.  269  If  caps  are  adopted,  IMCC  and  other  PCO  advocates  endorse  long-  term  caps  of  ten  to  15  years.  270  IMCC  urges  the  Commission  however,  to  implement  rules  that  would  allow 
 property  owners  to  renegotiate  or  reject  perpetual  contracts  so  that  residents  can  enjoy  the  benefits  of  service  from  competing  providers.  271 


 E.  Broadcast  Television  Service 
 79.  Broadcast  networks  and  stations  supply  video  programming  over  the  air  directly  to  consumers  who  do  not  subscribe  to  an  MVPD  service.  Some  consumers  receive  broadcast  signals  via 


 over-  the-  air  transmission  whereas  others  receive  signals  via  their  cable,  DBS,  or  other  MVPD  service.  Since  the  2001  Report,  the  number  of  commercial  and  noncommercial  television  stations  increased  to 
 1,712  as  of  June  30,  2002,  from  1,678  as  of  June  30,  2001.  272  The  recession  of  2001  affected  total  television  broadcast  advertising  revenues,  which  declined  to  $35.9  billion  in  2001,  a  12%  decrease  from 


 264  Larry  Kessler,  Santa  or  the  Grinch:  Whos  Visiting  You  Next?  Broadband  Properties,  January  2002,  at  18. 
 265  1999  Report,  15  FCC  Rcd  at  1023.  See  also  Ten  Largest  Private  Cable  Operators/  Multiple  System  Operators, 
 Private  Cable  &  Wireless  Cable,  Dec.  1999,  at  4.  266 
 NCTA  Comments  at  12.  267 
 Telecommunications  Services  Inside  Wiring,  Customer  Premises  Equipment,  Implementation  of  the  Consumer  Protection  and  Competition  Act  of  1992:  Cable  Home  Wiring,  Report  and  Order  and  Second  Further  Notice  of 


 Proposed  Rulemaking  (  Inside  Wiring  Order),  13  FCC  Rcd  3659  (1997).  A  perpetual  contract  runs  for  the  term  of  a  cable  franchise  and  any  extensions  thereof.  Exclusive  contracts  specify  that  only  a  particular  MVPD,  and  no  other, 
 may  provide  video  programming  and  related  services  to  residents  of  an  MDU.  268 
 Community  Associations  Institute  Comments  in  CS  Docket  No.  95-  184,  at  2;  Wireless  Cable  Association  Comments  in  CS  Docket  No.  95-  184,  at  1-  8;  Real  Estate  Alliance  Ex  Parte  in  CS  Docket  No.  95-  184,  May  24, 


 2000,  at  1-  3;  Building  Owners  and  Managers  Association  International  Further  Joint  Comments  in  CS  Docket  No.  95-  184,  Intelicable  Ex  Parte  in  CS  Docket  No.  95-  184,  June  16,  2000,  at  1-  3;  OpTel  Comments  at  4-  6;  GTE 
 Comments  in  CS  Docket  No.  95-  184,  at  3.  See    120-  122  infra.  269 
 IMCC  Comments  in  CS  Docket  No.  95-  184  at  4.  270 
 Id.  at  4-  9.  271 
 Id.  at  11.  272 
 Compare  Federal  Communications  Commission,  Broadcast  Station  Totals  as  of  June  30,  2002,  FCC  News  Release  (Aug.  26,  2002)  with  Federal  Communications  Commission,  Broadcast  Station  Totals  as  of  June  30,  2001, 


 FCC  News  Release  (July  13,  2001). 
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 $40.8  billion  in  2000.  273  Advertising  revenues  for  the  seven  most  widely  distributed  broadcast  networks  (ABC,  CBS,  Fox,  NBC,  PAX,  UPN,  and  WB)  fell  8%  from  $20.3  billion  in  2000  to  $18.6  billion  in 
 2001.  274  In  contrast,  cable  programming  networks  experienced  a  3.8%  increase  in  advertising  revenue  in  2001,  earning  $10.7  billion  in  advertising  revenue  compared  to  $10.3  billion  in  2000.  275 


 80.  During  the  2001-  2002  television  season,  276  broadcast  television  stations,  277  accounted  for  a  combined  average  58.9  share  of  prime  time  viewing  among  all  television  households,  278  compared  to  63 
 share  in  the  previous  season.  279  For  total  day  (24-  hour)  viewing,  broadcast  television  stations  accounted  for  a  combined  52.4  share  of  viewing  in  all  TV  households,  also  down  from  a  56.2  share  the  previous 
 season.  During  the  2001-  2002  television  season,  non-  broadcast  networks,  280  accounted  for  a  combined  average  57  share  of  prime  time  viewing  among  all  television  households,  up  from  52.6  share  the  previous 
 season.  For  total  day  (24-  hour)  viewing,  cable  networks  accounted  for  a  combined  58.8  share  of  viewing  in  all  TV  households,  also  up  from  a  54.7  share  last  season. 


 81.  We  previously  reported  on  consolidation  in  the  broadcast  industry  and  on  repurposing,  which  continues  to  become  more  common.  Repurposing  deals  between  NBC  and  PaxTV,  ABC  with 
 Lifetime  and  VH-  1  and  Fox  with  FX  were  reported  in  last  years  report.  281  This  season,  Fox  and  Warner  Bros.  have  struck  repurposing  deals  with  MTV;  Disney  is  repurposing  ABC  sitcoms  on  its  ABC  Family 
 network;  NBC  is  experiencing  success  with  first  run  Law  and  Order  and  Criminal  Intent  rebroadcasts  on  USA  network;  and  Comedy  Central  rebroadcasts  NBCs  Late  Night  with  Conan  OBrien  the  next  day  at  1 
 p.  m.  and  7  p.  m.  282  In  reverse  examples  of  repurposing,  NBC  is  showing  episodes  of  Court  TVs  original  Forensic  Files  and  ABC  is  airing  USA  networks  Monk  on  Monday  nights  after  USA  airs  it  on  Friday.  283 


 82.  As  we  previously  reported,  DTV  could  enhance  the  ability  of  broadcasters  to  compete  in  the  video  marketplace.  DTV  allows  broadcasters  to  transmit  an  HDTV  signal,  several  standard  definition 
 television  (  SDTV)  signals  (  multicasting),  or  ancillary  services  in  addition  to  video  programming.  284  As  of  September  25,  2002,  two  of  the  top-  four  network  affiliates  in  the  top  ten  television  markets  were 
 broadcasting  DTV  service.  285  In  television  markets  11-  30,  75  of  79  stations  were  broadcasting  DTV 


 273  Television  Bureau  of  Advertising,  Local  Broadcast  Revenues  Off  Last  Year  (press  release),  Apr.  17,  2002. 
 274  Id. 
 275  NCTA,  Cable  Advertising  Revenue:  1984-  2001  (In  Millions),  Cable  Television  Developments  2002,  at  12. 
 276  September  2001  to  August  2002. 
 277  Includes  network  affiliates,  independent  stations,  and  public  broadcast  stations. 
 278  See  fn.  39  supra. 
 279  Nielsen  Media  Research,  Primetime:  Total  US  Ratings  By  Viewing  Source  September  2001-  August  2002,  Oct. 
 2002;  Nielsen  Media  Research,  Total  Day  24  Hours  6  am  -  6  am:  Total  US  Ratings  By  Viewing  Source  September  2000-  August  2001,  Oct.  2001. 


 280  Includes  basic  (BST  and  CPST)  networks,  as  well  as  premium  and  PPV  networks,  distributed  by  MVPDs. 
 281  2001  Report,  17  FCC  Rcd  at  1283  (2002).  Repurposing  generally  involves  a  re-  run  of  broadcast  content  on  a 
 different  network  (cable  or  broadcast)  shortly  after  it  airs  originally  on  network  affiliate  stations.  282 
 Paige  Albiniak,  Steve  McClellan  and  Dan  Trigoboff,  A  Season  of  Seeing  Double,  BROADCASTING  &  CABLE,  Sept.  30,  2002,  at  7. 


 283  Id. 
 284  See  2001  Report,  17  FCC  Rcd  at  1283. 
 285  For  an  updated  list  on  the  status  of  DTV  broadcasts,  see  Summary  of  DTV  Applications  Filed  and  DTV  Build  Out 
 Status,  at  http://  www.  fcc.  gov/  mb/  video/  files/  dtvonairsum.  html. 
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 service.  Ninety  percent  of  the  more  than  1,300  commercial  television  stations  have  been  granted  a  DTV  construction  permit  or  license,  and  643  are  on  the  air  with  DTV  operation.  286 
 83.  Current  use  of  DTV  spectrum  involves  HDTV  transmissions  of  programs  that  are  also  broadcast  in  standard  NTSC  analog  format  over  paired  analog  facilities.  287  For  instance,  ABC  is 
 broadcasting  all  of  its  prime  time  scripted  series  and  theatrical  movies  in  HDTV  during  the  2002-  2003  TV  season.  288  CBS  states  that  each  of  its  18  prime  time  dramas  and  comedies  are  broadcast  in  HDTV  in 
 partnership  with  digital  television  set  manufacturers  Samsung  and  Zenith.  289  NBC  broadcasts  ten  prime  time  shows  in  HDTV,  and  PBS  offers  one  or  two  HDTV  programs  per  week.  290  The  WB  network  offers 
 four  HDTV  programs  this  season.  291 
 84.  In  Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment,  the  Commission  directed  the  cable  and  consumer  electronics  industries  to  report  every  six  months  until 


 October  2002  on  the  progress  implementing  the  February  2000  Program  and  System  Information  Protocol  (  PSIP)  agreement  between  NCTA  and  the  Consumer  Electronics  Association  (  CEA).  292  Recently,  an 
 extension  was  granted  for  the  filing  of  the  October  2002  progress  reports  based  on  the  representations  of  the  cable  and  consumer  electronics  industries  that  they  were  engaged  in  constructive  discussions 
 regarding  compatibility  between  cable  systems  and  digital  television  sets,  and  filing  the  reports  would  detract  from  that  effort.  293 


 85.  It  has  been  alleged  that  the  lack  of  a  comprehensive  copy  protection  regime  also  has  slowed  the  DTV  transition.  Since  1996,  an  inter-  industry  group  called  the  Copy  Protection  Technical 
 Working  Group  (  CPTWG)  has  served  as  a  discussion  forum  for  general  copy  protection  issues.  On  November  28,  2001,  the  Broadcast  Protection  Discussion  Subgroup  (  BPDG)  was  formed  under  the 
 auspices  of  CPTWG  in  order  to  specifically  address  digital  broadcast  copy  protection.  The  BPDG  recently  announced  a  consensus  on  the  use  of  a  broadcast  flag  standard  for  digital  broadcast  copy 
 protection.  This  consensus  would  require  use  of  the  Redistribution  Control  Descriptor,  as  set  forth  in  ATSC  Standard  A/  65A  (the  ATSC  flag),  to  mark  digital  broadcast  programming  so  as  to  limit  its 
 improper  use.  Despite  the  consensus  reached  on  the  technical  standard  to  be  implemented,  final  agreement  has  not  been  reached  on  compliance  requirements,  enforcement  mechanisms,  or  criteria  for 
 approving  the  use  of  specific  protection  technologies  in  consumer  electronics  devices.  On  August  8,  2002,  the  Commission  adopted  a  Notice  of  Proposed  Rule  Making  to  explore  whether  it  could  and  should 
 mandate  use  of  the  broadcast-  flag  or  some  other  copy  protection  mechanism  for  DTV  to  protect  digital  broadcast  content  from  unauthorized  copying  and  redistribution.  294 


 286  Id.  While  over  600  stations  are  providing  a  DTV  signal,  many  consumers  within  those  service  areas  are  unable  to 
 view  the  DTV  format  either  because  they  do  not  have  DTV  receivers  or  because  they  are  subscribers  to  a  MVPD  that  does  not  carry  the  DTV  signal. 


 287  In  his  Voluntary  DTV  Plan,  Chairman  Powell  requested  that  the  four  largest  broadcast  networks  (i.  e.  ABC,  CBS, 
 Fox,  and  NBC)  provide  HDTV,  or  other  value-  added  DTV  programming,  during  at  least  50%  of  their  prime  time  schedules  beginning  with  the  2002-  2003  season.  See  fn.  119  supra. 


 288  Mass  Media,  Comm.  Daily,  Aug.  29,  2002,  at  6. 
 289  HD  News,  CableFax  Daily,  Aug.  29,  2002,  at  4. 
 290  See  http://  www.  nbc.  com/  nbc/  footer/  FAQ..  shtml;  see  http://  www.  pbs.  org/  digitaltv/  dtvsched.  htm. 
 291  Networks  to  Air  More  Shows  in  HDTV,  USA  TODAY,  Sept.  29,  2002,  at  D1. 
 292  Report  and  Order,  15  FCC  Rcd  17568  (2000).  See  also  2001  Report,  17  FCC  Rcd  at  1284. 
 293  Letter  from  W.  Kenneth  Ferree,  Chief,  Media  Bureau  to  Michael  Petricone,  Consumer  Electronics  Association 
 and  Neil  Goldberg,  National  Cable  and  Telecommunications  Association,  PP  Docket  No.  00-  67  (Nov.  21,  2002).  294 
 Digital  Broadcast  Copy  Protection,  17  FCC  Rcd  16027  (2002). 
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 86.  In  2001,  the  Commission  adopted  rules  resolving  a  number  of  technical  and  legal  matters  related  to  the  cable  carriage  of  digital  broadcast  signals.  In  its  Report  and  Order,  it  noted  that  MSOs  are 
 currently  undertaking  significant  cable  system  upgrades,  including  digital  build-  outs.  295  It  stated  that  a  commercial  or  noncommercial  digital-  only  television  station  can  immediately  assert  its  right  to  carriage 
 on  a  cable  system.  The  Commission  also  said  that  a  television  station  that  returns  its  analog  spectrum  and  converts  to  digital  operation  must  be  carried  by  cable  systems.  The  Commission  stated  that  Section 
 614(  b)(  4)(  A)  of  the  Communications  Act  of  1934,  as  amended  by  the  1996  Act,  296  requires  that  cable  operators  shall  provide  the  same  quality  of  signal  processing  and  carriage  for  broadcasters  signals  as 
 they  provide  for  any  other  type  of  signal.  A  broadcast  signal  delivered  in  HDTV  must  be  carried  in  HDTV.  297  The  Report  and  Order  also  contains  an  initial  determination  that  the  requirement  for  cable 
 operators  to  carry  primary  video  refers  to  a  single  digital  programming  stream  and  program-  related  content.  298  Petitions  to  reconsider  this  decision  are  currently  before  the  Commission. 


 87.  CEA  reports  the  sale  of  DTV  products  is  gaining  momentum.  DTV  unit  sales  for  the  year  2002  through  September  totaled  near  1.6  million,  83%  higher  than  for  the  same  period  in  2001.  299 
 As  a  result,  broadcasters  continue  to  engage  in  tests  of  various  DTV  products,  such  as  HDTV,  multiple  SDTV  services,  ancillary  services,  or  some  combination.  300  It  is  difficult  to  assess  the  competitive  impact 
 of  DTV  service  on  the  MVPD  market  at  this  time,  other  than  to  observe  that  the  potential  for  a  positive  competitive  impact  remains. 


 F.  Other  Entrants 
 1.  Internet  Video 
 88.  In  addition  to  the  more  traditional  video  services,  video  programming  also  is  provided  over  the  Internet.  In  some  cases,  the  video  is  available  only  for  downloading  onto  a  computer  hard  drive  for 


 later  viewing,  and  in  other  cases,  it  is  provided  in  real-  time  (also  known  as  streaming  video).  Broadcast-  quality  streaming  video  service  requires  a  high-  speed  broadband  connection  of  about  300  Kbps 
 or  higher,  and  high-  speed  Internet  access  still  is  limited,  with  just  over  14  million  broadband  subscribers  as  of  June  2002.  301  Furthermore,  most  Internet  video  content  currently  available  has  been  intentionally 
 degraded  to  facilitate  streaming  at  56  Kbps  or  slower,  so  that  dial-  up  access  users  can  download  it.  302 
 89.  Nevertheless,  the  number  of  homes  with  access  to  the  Internet  continues  to  grow,  and  many  of  those  continue  to  access  video  content  via  the  Internet.  As  of  the  June  2002,  an  estimated  54  million 


 Americans  subscribed  to  either  a  dial-  up  or  a  broadband  Internet  access  service,  compared  with  50  million 


 295  Carriage  of  Digital  Television  Broadcast  Signals  (  DTV  Must  Carry  Order),  16  FCC  Rcd  2598  (2001). 
 296  Id;  see  also  47  U.  S.  C.    534. 
 297  See  DTV  Must  Carry  Order. 
 298  Id. 
 299  CEA,  September  DTV  Products  Sales  Make  New  Record  (press  release),  Oct.  10,  2002.  Factory  to  dealer  sales  of 
 DTV  units  are  projected  to  over  four  million  units  for  2003.  See  http://  www.  ce.  org/  publications/  vision/  janfebmar  2002/  p03b.  asp. 


 300  See  2001  Report,  17  FCC  Rcd  at  1285. 
 301  Richard  Bilotti,  Benjamin  Swinburne,  Megan  Lynch,  Truth,  Lies  and  Truck  Rolls:  Understanding  Product 
 Profitability,  Morgan  Stanley,  October  4,  2002,  at  46-  7.  302 
 Matthew  York,  A  New  Way  to  Share  Video,  Videomaker,  Jan.  2002,  at  http://  www.  findarticles.  com.  The  maximum  speed  of  an  analog  telephone  dial-  up  modem  is  currently  56.  6  kbps. 
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 as  of  June  2001.  303  Additionally,  as  of  July  2002,  approximately  51%  of  those  online  have  accessed  streaming  audio  or  video  at  least  once  before,  and  23%  of  those  online  have  accessed  streaming  audio  or 
 video  within  the  last  month.  304  These  usage  patterns  are  similar  to  those  observed  the  previous  year.  305 
 90.  Today,  most  Internet  video  that  is  widely  distributed  is  shorter  in  length  than  traditional  television  programming.  As  we  have  reported  in  the  past,  many  traditional  television  programmers 


 continue  to  offer  Internet  video  versions  of  their  programming.  306  Sports  and  news  programming  remain  the  most  common  categories  of  streaming  video  programming  currently  available  over  the  Internet,  but 
 other  genres  of  video  programming  (e.  g.,  comedy,  drama,  informational)  are  also  available.  As  the  technology  improves,  and  access  to  such  technologies  increases,  we  expect  the  type  and  amount  of  video 
 available  over  the  Internet  will  increase  as  well. 
 2.  Home  Video  Sales  and  Rentals 
 91.  The  sale  and  rental  of  home  video,  including  videocassettes,  DVDs,  and  laser  discs,  are  part  of  the  video  marketplace  because  they  provide  services  similar  to  the  premium  and  pay-  per-  view 


 offerings  of  MVPDs.  307  As  such,  they  offer  some  level  of  competition  to  DBS,  broadcast  television  and  cable  television  for  the  consumers  time  and  money.  Cable  video-  on-  demand  also  is  an  emerging 
 competitive  service  to  home  video.  308 
 92.  Approximately  93  million  U.  S.  households,  or  about  90%  of  all  households,  have  at  least  one  VCR,  with  nearly  46  million  households  owning  at  least  two  VCRs.  309  By  the  end  of  2001,  the 


 number  of  homes  with  DVD  players  reached  approximately  13.7  million,  and  it  is  estimated  that  over  26  million  homes  will  have  DVD  players  by  the  end  of  2004.  310  In  addition,  about  two  million  homes  have 
 laser  disc  players.  311  U.  S.  consumers  are  expected  to  spend  over  $26  billion  renting  and  buying  prerecorded  video  in  2002,  almost  a  17%  increase  over  the  $22.5  billion  spent  in  2000.  312  Total  rental 
 revenue  is  projected  at  $11.4  billion  for  2002  compared  to  $10.9  billion  in  2000,  an  increase  of  4.4%.  313  Total  revenue  from  video  sales  is  a  projected  $14.8  billion  in  2002,  up  from  $11.6  billion  in  2000,  an 


 303  Richard  Bilotti,  Benjamin  Swinburne,  Megan  Lynch,  Truth,  Lies  and  Truck  Rolls:  Understanding  Product 
 Profitability,  Morgan  Stanley,  October  4,  2002,  at  46-  7.  304 
 Arbitron,  Inc.,  Arbitron  Internet  9:  The  Media  and  Entertainment  World  of  Online  Consumers,  Sept.  5,  2002,  at  http://  www.  arbitron.  com. 


 305  See  2001  Report,  17  FCC  Rcd  at  1285. 
 306  Id.  at  1286-  87. 
 307  See,  e.  g.,  2001  Report,  17  FCC  Rcd  at  1288.  See  also  Competition,  Rate  Regulation  and  the  Commissions 
 Policies  Relating  to  the  Provision  of  Cable  Service,  5  FCC  Rcd  4962,  5019-  20  (1990).  See  also  Comcast  Reply  Comments  at  16  (citing  newspaper  stories  quoting  consumers  who  say  they  use  DVD  subscription  services,  such  as 


 Netflix,  instead  of  buying  pay-  per-  view  movies  from  an  MVPD  or  otherwise  watching  television).  308 
 See    39-  41  supra.  309 
 Mass  Media,  Comm.  Daily,  Aug.  18,  2002  at  7.  Other  sources  provide  alternative  estimates  of  VCR  penetration  ranging  from  approximately  85%  to  95%  of  all  television  households.  See,  e.  g.,  Frank  Ahrens  and  Dina  El 


 Boghdady,  Its  the  Final  Reel  for  the  VCR,  WASHINGTON  POST,  June  21,  2002,  at  A1.  310 
 Veronis  Suhler,  Communications  Industry  Forecast  2001  (  Veronis  Suhler),  at  6,  18,  192,  and  194.  311 
 Tom  Shales,  Shall  We  Dance?  With  DVD,  Indeed,  WASHINGTON  POST,  June  2,  1999,  at  C1.  312 
 Veronis  Suhler  at  192  and  194.  313 
 Id. 
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 increase  of  13%.  314  By  the  end  of  2002,  DVDs  will  have  increased  their  share  of  the  video  rental  and  sales  markets  to  34%,  up  from  about  20%  in  2000.  315 
 93.  As  reported  last  year,  the  home  video  sales  and  rental  industry  is  considered  competitive,  with  almost  20,000  video  specialty  stores  selling  or  renting  home  video  programming.  316  There  also  are 
 more  than  8,000  retail  outlets,  primarily  supermarkets  and  drug  stores  that  rent  videos.  317  In  addition,  mass  merchandise  stores  (e.  g.,  Wal-  Mart  and  Target)  and  electronics  chain  stores  (e.  g.,  Best  Buy  and 
 Circuit  City)  compete  with  specialty  video  stores  in  the  sale  of  videos.  318  In  recent  years,  the  home  video  sales  and  rental  industry  has  undergone  a  period  of  consolidation,  with  many  independent  operators 
 selling  to  larger  retail  outlets  or  closing  their  businesses.  319  The  Internet  also  has  become  a  source  for  video  rentals  320  and  sales.  321 


 94.  Another  home  video  technology  is  the  personal  video  recorder  (  PVR).  322  This  device  is  capable  of  pausing,  recording  and  rewinding  live  TV  in  digital  form  on  an  internal  hard  drive  instead  of 
 videotape.  It  also  has  the  capacity  to  record  as  much  as  60  hours  of  programming,  outperforming  the  average  six-  hour  videotape  tenfold.  323  One  source  reports  that  more  than  one  million  homes  have  PVRs, 
 and  that  number  will  grow  to  15  million  homes  in  five  years.  324  There  are  several  companies  offering  PVRs,  including  SonicBlue,  TiVo,  Inc.,  and  Microsoft.  SonicBlue,  maker  of  the  ReplayTV  line  of  PVRs, 
 is  offering  a  service  option  of  $9.95  monthly  or  a  one-  time  service  fee  of  $250  to  use  its  units.  That  is  in  addition  to  the  box  purchase,  which  ranges  from  about  $400  to  $1300.  325  TiVo,  with  about  460,000 
 subscribers,  326  is  working  on  adding  digital  music  capabilities  and  technologies  that  allow  TiVo  boxes  to  organize  and  display  digital-  photo  collections.  TiVo  plans  to  offer  AOLs  instant-  messaging  service  and 
 TV-  based  party  games.  327  TiVo  service  costs  $12.95  a  month  or  a  $250  lifetime  subscription.  328  PVR  functionality  also  is  included  in  the  set-  top  boxes  of  some  MVPDs.  DirecTV  offers  a  combination  DBS 


 314  Id. 
 315  Id. 
 316  See  2001  Report,  17  FCC  Rcd  at  1289. 
 317  Id. 
 318  Id. 
 319  Id.  at  1290. 
 320  For  example,  for  a  monthly  fee  of  $20,  Netflix  allows  consumers  to  rent  DVDs  from  its  Internet  site,  with  the 
 movies  sent  to  the  consumer  and  returned  to  the  company  through  the  mail.  Over  half  a  million  people  have  signed  up  for  this  service.  See  Leslie  Walker,  Movies  by  the  Mail,  WASHINGTON  POST,  Apr.  11,  2002,  at  E1.  In  addition, 


 consumers  in  several  markets  can  search  Blockbusters  inventory  over  the  Internet  and  reserve  videos  online  before  going  to  the  store  to  pick  them  up.  See  http://  www.  blockbuster.  com. 
 321  For  example,  Best  Buy  and  Amazon.  com  sell  video  programming  through  their  Internet  sites.  See 
 http://  www.  bestbuy.  com  and  http://  www.  amazon.  com.  Express.  com  is  limited  to  the  sales  of  DVDs.  See  http://  www.  express.  com. 


 322  These  devices  also  are  referred  to  as  Digital  Video  Recorders  (  DVRs). 
 323  Daniel  Greenberg,  Giving  Your  Television  a  Brain,  WASHINGTON  POST,  June  6,  2002,  at  H7. 
 324  See  Mass  Media,  Comm.  Daily,  June  23,  2002  at  8. 
 325  See  ReplayTV  Adds  Monthly  Fee  Option,  Multichannel  News  Day,  Aug.  30,  2002,  at  2. 
 326  See  TiVo  Narrows  Loss,  Multichannel  News  Day,  Aug.  23,  2002,  at  1. 
 327  Daniel  Greenberg,  Giving  Your  Television  a  Brain,  WASHINGTON  POST,  June  2,  2002,  at  H7. 
 328  Id. 
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 receiver/  digital  VCR,  based  on  TiVos  digital  technology.  329  In  addition,  EchoStar  offers  set-  top  boxes,  the  DISHPVR  501/  508  and  DishPVR  721,  with  varying  PVR  capabilities.  330  Approximately  40%  of  new 
 EchoStar  subscribers  purchase  a  PVR  capable  set-  top  receiver.  331 
 G.  Local  Exchange  Carriers 
 95.  The  1996  Act  amended  Section  651  of  the  Communications  Act  in  order  to  permit  telephone  companies  to  provide  video  services  in  their  telephone  service  areas.  According  to  the  statute, 


 common  carriers  may:  (1)  provide  video  programming  to  subscribers  through  radio  communications  under  Title  III  of  the  Communications  Act;  332  (2)  provide  transmission  of  video  programming  on  a 
 common  carrier  basis  under  Title  II  of  the  Communications  Act;  333  (3)  provide  video  programming  as  a  cable  system  under  Title  VI  of  the  Communications  Act;  334  or  (4)  provide  video  programming  by  means 
 of  an  open  video  system  ("  OVS").  335 
 96.  As  reported  last  year,  the  four  largest  incumbent  LECs  have  largely  exited  the  traditional  cable  service  business.  336  BellSouth  alone  continues  to  operate  some  overbuild  cable  systems.  337  Thus, 


 LEC-  operated  wireline  MVPD  service  is  not  a  widespread  competitor  to  cable.  A  number  of  smaller  incumbent  LECs,  however,  are  offering,  or  preparing  to  offer,  MVPD  service  over  existing  telephone 
 lines.  Smaller  incumbent  LECs,  in  individual  communities,  may  offer  competition  to  incumbent  cable  providers. 


 97.  In-  Region  Cable  Franchises.  Three  of  the  four  largest  incumbent  LECs  have  shut  down  or  sold  their  in-  region  cable  franchises.  338  The  exception  is  BellSouth,  which  currently  holds  20  cable 


 329  The  unit  sells  for  $199,  and  the  monthly  fee  DirecTV  will  charge  will  be  $4.  99,  or  half  the  regular  TiVo 
 subscription  fee,  for  customers  subscribing  to  Total  Choice  and  Total  Choice  Plus  packages,  $31.  99  per  month  and  $35.99  per  month,  respectively,  and  no  charge  for  customers  subscribing  to  the  Total  Choice  Premier  package, 


 which  is  $81.  99  per  month.  See  DirecTV  Inc.,  at  http://  www.  directv.  com/  DTVAPP/  imagine/  TIVO.  jsp.  See  also  DirecTV  Pushes  Play  on  New  TiVo  Box,  SATELLITE  BUSINESS  NEWS,  Aug.  9,  2002,  at  2. 
 330  See  EchoStar  Communications  Corp.,  at  http://  www.  dishnetwork.  com/  content/  technology/  receivers/  index.  shtml 
 (visited  Nov.  13,  2002).  331 
 Duffy  Hayes,  PVR  in  Satellites  Sights  Is  It  in  Cables?,  CED  MAGAZINE,  July  2002,  available  at  http://  www.  cedmagazine.  com/  ced/  2002/  0702/  id6.  htm. 


 332  47  U.  S.  C.    571(  a)(  1). 
 333  47  U.  S.  C.    571(  a)(  2). 
 334  47  U.  S.  C.    571(  a)(  3). 
 335  47  U.  S.  C.    571(  a)(  3)-(  4). 
 336  2001  Report,  17  FCC  Rcd  at  1291.  Some  of  the  four  largest  LECs  are,  however,  offering  bundles  of 
 telecommunications  service  which  include  resold  DBS  service.  See,  e.  g.,  Jon  Van,  SBC  Looks  for  Joy  in  Bundled  Services,  CHICAGO  TRIBUNE,  Nov.  18,  2002. 


 337  In  the  2001  Report,  the  Commission  reported  that  BellSouth  was  reselling  DBS  service.  BellSouth  was  not  at 
 that  time  nor  is  it  now  reselling  any  DBS  service.  BellSouth  was  merely  transitioning  its  MMDS  customers  to  EchoStar  or  other  video  providers  in  connection  with  the  restructuring  of  its  MMDS  business.  See  2001  Report,  17 


 FCC  Rcd  at  1250,  1291.  338 
 2001  Report,  17  FCC  Rcd  at  1291-  2.  Verizon,  which  inherited  systems  in  California  and  Florida  when  it  purchased  GTE,  is  attempting  to  sell  those  properties.  Verizon  entered  into  purchase  contracts  with  Adelphia  to  sell 


 its  video  properties.  Because  of  Adelphia's  financial  difficulties,  however,  some  of  those  agreements  were  cancelled  and  some  are  now  subject  to  litigation.  E-  mail  from  Clint  E.  Odom  Director,  Federal  Regulatory  Affairs,  Verizon 
 Communications,  Inc.,  Nov.  21,  2002. 
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 franchises  with  the  potential  to  pass  1.4  million  homes,  and  provides  cable  service  in  14  of  its  franchise  areas.  This  is  unchanged  from  last  year.  339 
 98.  VDSL.  Qwest  Communications  International  offers  video,  high-  speed  Internet  access  and  telephone  service  over  existing  copper  telephone  lines  using  very  high-  speed  digital  subscriber  line 
 ("  VDSL")  in  Omaha,  Nebraska;  Phoenix,  Arizona;  and  Boulder  and  Highlands  Ranch,  Colorado.  340  Small  LECs  continue  to  deploy  VDSL,  although  deployment  has  slowed  in  the  face  of  financial 
 difficulties  in  the  telecommunications  industry  and  the  economy  as  a  whole.  Forty-  five  LECs,  mostly  small,  are  using  VDSL  technology  to  offer  video  and  data,  with  roughly  108,  000  video  subscribers,  a 
 growth  of  8,  000  subscribers  in  the  last  year.  341  For  example,  Hometown  Online,  Inc.,  a  subsidiary  of  Warwick  Valley  Telephony  Company,  offers  digital  video  service  using  VDSL  in  several  communities  on 
 the  New  York-  New  Jersey  border.  342  We  previously  reported  on  companies  investigating  deployment  of  video  over  the  lower  bandwidth  asymmetric  digital  subscriber  line  service  (  ADSL),  343  but  this  appears 
 to  remain  in  the  trial  stage.  344 
 H.  Electric  and  Gas  Utilities 
 99.  Electric  and  gas  utilities  possess  some  assets,  such  as  access  to  public  rights  of  way,  existing  telecommunications  facilities,  and  existing  relationships  with  customers,  that  appear  to  make 


 them  potential  entrants  into  the  MVPD  market.  Some  utilities  continue  to  move  forward  with  ventures  involving  multichannel  video  programming  distribution.  As  with  LECs,  however,  utilities  are  not  yet 
 widespread  competitors  in  the  telecommunications  or  cable  markets.  Mainly,  it  appears  that  utilities  will  provide  MVPD  competition  in  scattered  localities.  This  is  potentially  most  beneficial  in  rural  areas  where 
 cable  operators  and  telephone  companies  may  not  be  willing  or  able  to  provide  the  full  range  of  advanced  telecommunications  services.  345 


 100.  Some  utilities  build  systems  on  their  own,  and  others  enter  joint  ventures  with  other  companies.  Starpower,  a  joint  venture  between  RCN  and  Potomac  Electric  and  Power  Company 
 (  PEPCO)  in  the  Washington,  D.  C.,  area,  offers  competitive  cable,  telephone,  and  data  services.  It  serves  23,780  customers  and  reportedly  has  spurred  competitive  responses  from  the  incumbent  cable 


 339  E-  mail  from  Rick  DeTurk,  Manager    Regulatory,  BellSouth  Corp.,  Oct.  21,  2002.  The  active  franchises  are 
 located  in:  Vestavia  Hills,  Alabama;  St.  Johns  County,  Miami-  Dade  County,  Davie,  and  Pembroke  Pines,  Florida;  Counties  of  Cherokee,  Cobb,  Dekalb,  and  Gwinnett  and  Cities  of  Chamblee,  Duluth,  Lawrenceville,  Roswell,  and 


 Woodstock,  Georgia.  340 
 NCTA  Comments  at  22.  See  also  http://  www.  qwest.  com/  vdsl/.  341 
 E-  mail  from  Roger  Bindl,  Director,  Engineering  &  Consulting  Companies,  Next  Level  Communications,  Oct.  6,  2002. 


 342  See,  generally,  Hometown  Comments.  Hometown  reports  difficulty  with  acquiring  programming  and  difficulty 
 dealing  with  local  and  state  regulatory  agencies,  and  states  that  this  indicates  a  need  for  federal  intervention  to  open  the  market  to  competition. 


 343  2001  Report,  17  FCC  Rcd  at  1292-  3. 
 344  E-  mail  from  Roger  Bindl,  Director,  Engineering  &  Consulting  Companies,  Next  Level  Communications,  Oct.  6, 
 2002.  345 
 For  instance,  Kutztown,  Pennsylvania,  is  building  a  fiber-  to-  the-  home  system  to  offer  its  2,230  residents  a  complete  package  of  advanced  telecommunications  services.  The  municipal  utility  states  that  the  efficiencies  that 


 come  from  owning  an  existing  network  and  the  equipment  necessary  to  maintain  the  network  will  allow  the  utility  to  offer  service  where  others  are  unable.  Matt  Stump,  Kutztown,  Pa.,  Muni  Has  Lots  of  Fiber,  Broadband  Week,  Mar. 
 25,  2002.  Cable  competitors  contend,  however,  that  these  municipal  overbuilds  often  achieve  lower  prices  or  offer  more  advanced  services  by  subsidizing  their  rates  with  revenues  from  their  utility  operations.  See,  e.  g., 
 Municipalities  Seek  Greater  Role  in  Rural  Broadband  Rollout,  Comm.  Daily,  Jan.  16,  2002,  at  5-  6. 
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 provider.  346  Siegecom  is  offering  bundled  video,  voice,  and  data  services  in  Evansville  and  Newburg,  Indiana,  as  does  Seren  Innovations  in  St.  Cloud,  Minnesota  and  Contra  Costa  County,  California.  347 
 Everest  Connections  Communications  Corporation  and  Ex-  Op  of  Missouri,  Inc.,  collectively  owned  by  the  energy  company  Aquila,  Inc.,  offer  more  than  300  channels  of  cable  service  and  high-  speed  Internet 
 service  in  Lenexa,  Shawnee,  and  Overland  Park,  Kansas,  and  Kansas  City  and  Kearney,  Missouri.  348 
 101.  The  American  Public  Power  Association  (  APPA)  performed  a  survey  of  its  members  at  the  end  of  2001,  finding  that  450  public  power  systems  offer  some  kind  of  broadband  services.  Of  those, 


 91  offered  video  service,  59  cable  modem  service,  and  29  local  telephone  service.  349 
 I.  Broadband  Service  Providers,  Open  Video  Systems,  and  Overbuilders 
 102.  Last  year  we  addressed  a  new  class  of  providers,  BSPs.  350  BSPs  attempt  to  overcome  the  historical  difficulties  of  overbuilding  by  building  state-  of-  the-  art  systems  in  communities  with  favorable 


 demographics  and  by  offering  bundles  of  services  to  increase  per  subscriber  revenue  and  decrease  churn.  Even  with  this  strategy,  as  we  reported  last  year,  BSPs  face  considerable  challenges.  351  BSPs  cite 
 significant  barriers  to  entry  (discussed  below)  as  well  as  the  current  telecommunications  industry  recession  and  the  limited  capital  markets  as  factors  causing  BSPs  to  curtail  growth  and  investment 
 plans.  352 
 103.  RCN  is  the  largest  BSP  in  the  country,  and  the  13  th  largest  MVPD.  For  the  year  ending  June  30,  2002,  RCNs  revenue  increased  by  22%;  its  number  of  marketable  homes  increased  by  eight 


 percent  to  1.5  million;  and  the  number  of  network  connections  increased  by  22%  to  almost  one  million.  353  At  the  end  of  June  30,  2002,  RCN  reported  a  total  of  506,  700  video  subscribers.  354  This  year,  RCN 
 introduced  a  supercharged  cable  modem  service,  with  download  speeds  of  up  to  three  megabits  per  second,  double  the  speeds  of  standard  cable  modem  and  ADSL  service.  355  Like  all  BSPs,  however,  RCN 
 has  experienced  trouble  acquiring  financing  and,  as  a  result,  has  scaled  back  expansion  plans  and  focused 


 346  BSPA  Comments  at  24. 
 347  NCTA  Comments  at  22. 
 348  Utilicorp  Comments  at  1. 
 349  APPA,  Public  Power:  Powering  the  21  st  Century  with  Community  Broadband  Services  (fact  sheet),  June  2002. 
 350  Broadband  service  provider  is  the  term  used  by  these  new  entrants  to  describe  the  range  of  services  they  offer 
 and  is  not  intended  to  imply  anything  with  respect  to  Commission  policy  or  proceedings  that  might  involve  broadband  services.  Usually,  these  services  can  be  purchased  separately  as  well  as  in  a  bundle.  We  have  defined 


 broadband  providers  as,  newer  firms  that  are  building  state-  of-  the-  art  facilities-  based  networks  to  provide  video,  voice  and  data  services  over  a  single  network.  2001  Report,  17  FCC  Rcd  at  1294. 
 351  2001  Report,  17  FCC  Rcd  at  1295. 
 352  BSPA  Comments  at  iv. 
 353  RCN  Corp.,  RCN  Announces  Second  Quarter  2002  Results  (press  release),  Aug.  7,  2002.  The  number  of 
 marketable  homes  consists  of  homes  passed  minus  households  inaccessible  due  to  other  constraints  such  as  inability  to  enter  an  MDU.  The  number  of  network  connections  counts  each  service  received  as  one  network 


 connection.  Thus,  a  household  that  signs  up  for  video,  local  telephone,  and  high-  speed  Internet  access  service  counts  as  three  network  connections.  Long  distance  service  is  not  counted  as  a  separate  network  connection. 
 354  Id.  The  current  number  of  video  subscribers  is  80,  000  less,  because  RCN  sold  incumbent  cable  systems  it  owned 
 in  August.  RCN  Corp.,  RCN  to  Receive  $245  Million  for  Non-  Strategic  New  Jersey  Cable  Systems  (press  release),  Aug.  27,  2002. 


 355  RCN  Corp.,  RCN  Launches  Super-  Charged  High-  Speed  Internet  Access  Service  in  Companys  San  Francisco 
 and  Los  Angeles  Markets  (press  release),  July  2,  2002. 
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 on  marketing  to  existing  passed  homes.  356  With  these  changes,  RCN  has  been  successful  in  reducing  expenditures  and  is  narrowing  its  losses.  357 
 104.  WideOpenWest  (  WOW)  is  the  second  largest  overbuilder.  358  WOW  is  the  15  th  largest  MVPD  and,  as  of  June  2002,  served  310,000  subscribers.  359  WOW  serves  107  communities  in  Colorado, 
 Indiana,  Illinois,  Michigan,  and  Ohio.  360  WOW  suspended  build-  out  commitments  due  to  financial  difficulties.  361  The  third  largest  BSP  is  Knoxville,  Tennessee-  based  Knology,  which  operates  in  the 
 Southeast.  As  of  June  2002,  Knology  was  the  28  th  largest  MVPD,  and  had  124,700  video  subscribers,  a  12%  increase  over  the  previous  year.  362  As  with  other  BSPs,  Knology  experienced  financial  troubles  in 
 the  last  year,  and  filed  a  pre-  packaged  Chapter  11  bankruptcy  that  allows  it  to  continue  service  uninterrupted.  363  Grande  Communications  merged  with  Clearsource,  another  overbuilder  in  July  2002, 
 and  now  has  42  franchises  in  Texas.  364  Western  Integrated  Networks  (  WIN)  was  serving  Sacramento  and  building  its  system  there,  but  subsequently  suspended  its  activities  in  March  2002.  It  declared 
 bankruptcy  and  was  acquired  by  SureWest  Communications,  which  plans  to  continue  construction  of  the  system.  365 


 105.  In  total,  BSPA  reports  that  its  members  serve  over  one  million  subscribers.  They  compete  with  incumbent  cable  operators,  other  MVPDs,  and  with  incumbent  LECs  and  competitive 


 356  See,  e.  g.,  TR  Daily,  RCN  Corp.  in  Talks  with  Bank  Lenders,  Forecasts  Reined-  In  Business  Plan,  Feb.  8,  2002,  at 
 http://  www.  tr.  com/  online/  trd/  2002/  td020802/  index.  html;  Kathy  Bergen,  RCNs  Cable  Future  Looks  Fuzzy,  CHICAGO  TRIBUNE,  Mar.  15,  2002,  at  http://  www.  chicagotribune.  com/  business/  chi-  0203150373 


 mar15.  story?  coll=  chi%  2Dbusiness%  2Dhed;  TR  Daily,  RCN  Amended  Bank  Lines  Tapped  Out,  But  Cash  Holdings  Still  Total  $650M,  Mar.  26,  2002,  at  http://  www.  tr.  com/  online/  trd/  2002/  td032602/  index.  html. 
 357  RCN,  Corp.,  RCN  Announces  Second  Quarter  2002  Results  (press  release),  Aug.  7,  2002. 
 358  WOW  acquired  many  of  its  subscribers  when  it  purchased  Ameritech  New  Medias  overbuild  systems. 
 Ameritechs  systems  are  not  technically  BSP  systems  because  they  do  not  provide  a  bundle  of  services.  See  WOW,  WOW  Acquires  Ameritechs  310,000  Cable  TV  Subscribers  (press  release),  Dec.  3,  2001. 


 359  Paul  Kagan  Assoc.,  Inc.,  Top  Cable  System  Operators  as  of  June  2002,  Cable  TV  Investor,  Sept.  30,  2002,  at 
 9-  10.  360 
 For  a  full  list  of  communities  served,  see  http://  www.  wideopenwest.  com/  whatwedo_  avail.  html.  361 
 CableFAX  Daily,  In  the  States,  Mar.  11,  2002  at  2.  362 
 Paul  Kagan  Assoc.,  Inc.,  Top  Cable  System  Operators  as  of  June  2002,  Cable  TV  Investor,  Sept.  30,  2002,  at  9-10.  See  also  Knology,  Inc.,  Knology  Reports  Growth  in  Connections,  Revenue  and  EBITDA  (press  release),  Aug. 


 12,  2002.  According  to  its  web  site,  Knology  serves  cities  in  Alabama,  Florida,  Georgia,  Tennessee,  and  South  Carolina.  For  a  complete  list,  see  http://  www.  knology.  com/  services/  cities.  cfm. 
 363  Knology,  Inc.,  Knology  Broadband  Proceeds  with  Reorganization;  Operations  and  Customer  Service  Will 
 Continue  Uninterrupted  (press  release),  Sept.  18,  2002.  364 
 Grande  Communications,  Inc.,  Grande  Communications,  ClearSource  Close  Deal  to  Become  One  Company  (press  release),  July  2,  2002.  Currently,  the  company  serves  parts  of  Austin,  San  Marcos,  and  San  Antonio,  Texas; 


 see  http://  www.  grandecom.  com/  About/  construction.  jsp.  365 
 SureWest  Communications,  SureWest  Communications  Acquires  WINfirst  Assets    U.  S.  Bankruptcy  Court  Order  Issued  Wednesday  for  $12  Million  Acquisition  (news  release),  July  15,  2002.  SureWest  owns  several 


 telecommunications  companies,  including  the  incumbent  LEC  of  a  neighboring  community,  Roseville  Telephone.  WIN  had  been  awarded  a  franchise  in  Los  Angeles,  and  had  franchise  applications  pending  in  Seattle,  Washington; 
 Portland,  Oregon;  San  Francisco  and  Oakland,  California;  Las  Vegas,  Nevada;  Phoenix,  Arizona;  and  San  Antonio,  Austin,  Dallas,  and  Houston,  Texas  (see  2001  Report,  17  FCC  Rcd  at  1296),  but  the  SureWest  web  site  makes  no 
 mention  of  building  beyond  the  Sacramento  area. 
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 LECs.  They  have  franchises  that  authorize  them  to  serve  over  17  million  homes,  and  have  deployed  over  32,000  miles  of  fiber.  366 
 106.  Advanced  Services.  BSPs  are  offering  advanced  services  such  as  VOD.  RCN  offers  VOD  throughout  its  greater  Philadelphia  service  area.  367  In  addition  to  offering  SVOD  content,  Los 
 Angeles-  based  Altrio  Communications  is  using  VOD  technology  to  make  voter  education  information  available  to  residents  of  Los  Angeles  Countys  San  Gabriel  Valley,  including  eight  information  videos  on 
 candidates  running  for  Congress  and  the  California  Assembly,  and  on  two  propositions.  368  Astound  Broadband,  which  operates  in  Concord,  California,  Trevose,  Pennsylvania,  and  St.  Cloud,  Minnesota,  is 
 deploying  WorldGates  ITV  service  to  its  digital  cable  subscribers,  one  feature  of  which  will  be  channel  hyperlinking  that  allows  viewers  to  interact  with  television  programs  by  instantly  linking  to  and 
 presenting  on  the  TV  related  web  content.  369 
 107.  OVS.  BSPs,  primarily  RCN,  continue  to  be  the  only  significant  holders  of  OVS  certifications  or  local  OVS  franchises.  BSPA  reports  that  BSPA  members  typically  provide  service 


 under  traditional  cable  franchises,  although  several  BSPA  members  are  using  OVS  for  a  relatively  few  number  of  systems,  and  others  may  explore  doing  so  in  the  future.  370  BPSA  states  that  the  courts 
 decision  in  City  of  Dallas  v.  FCC  allowing  cities  to  require  local  franchises  for  OVS  operators  reduces  the  attractiveness  of  OVS.  371  BSPA  indicates  that  members  use  whatever  regulatory  regime  offers  the  least 
 resistance  to  market  entry,  but  that  this  is  in  direct  contradiction  to  the  rationale  originally  underlying  the  Commissions  adoption  of  the  OVS  regulations  and  policies.  372 


 108.  Competitive  Responses.  In  the  Notice,  we  requested  case  study  information  concerning  the  effects  of  actual  and  potential  competition  in  local  markets  where  consumers  have  a  choice  among 
 video  programming  distributors.  373  Typically  these  choices  are  among  incumbent  cable  operators,  BSPs  and  other  overbuilders,  and  DBS  operators.  BSPA  described  some  cases  where  the  incumbent  cable 
 operator  faces  competition  from  a  new  entrant. 
 109.  For  example,  BSPA  states  that  in  Washington,  D.  C.,  Starpower  provides  competitive  cable,  telephone,  and  high-  speed  Internet  services  to  23,780  subscribers.  374  BSPA  notes  that  after 


 Starpower  entered  the  market  Comcast  began  providing  programming  which  was  previously  available  only  through  Starpower.  According  to  BSPA,  Comcast  has  invested  $72  million  to  upgrade  its  system, 


 366  BSPA  Comments  at  iii. 
 367  RCN,  RCN  Launches  Video-  On-  Demand  to  Its  Entire  Greater  Philadelphia  Service  Area  (press  release),  Sept. 
 17,  2002.  See  also  Matt  Stump,  RCN  Offers  VOD  on  Comcasts  Turf,  Broadband  Week,  Dec.  24,  2001.  368 
 Cable  Overbuilder,  Altrio,  Offers  Voter  VOD  Service,  InteractiveTV  Today,  Oct.  28,  2002.  See  also  Altrio  Communications,  Altrio  Communications  Becomes  First  Competitive  Broadband  Provider  Committed  to  Deploy 


 Subscription  VOD,  Chooses  StarZ  On  Demand  (press  release),  May  30,  2002.  369 
 Astound  Broadband,  Astound  Broadband  Launches  ITV  (press  release),  Aug.  28,  2002.  370 
 BSPA  Comments  at  22.  The  pace  of  OVS  certification  filing  has  slowed  significantly  this  year.  We  have  received  only  four  in  2002,  compared  to  dozens  in  previous  years.  For  a  complete  list  of  OVS  certifications,  see 


 http://  www.  fcc.  gov/  mb/  ovs/  csovscer.  html.  371 
 BSPA  Comments  at  23.  See  also  City  of  Dallas  v.  FCC,  165  F.  3d  341  (5thCir.  1999)  [No.  96-  60502,  Jan.  19,  1999]. 


 372  BSPA  Comments  at  23. 
 373  Notice,  17  FCC  Rcd  at  11579. 
 374  Subscriber  counts  are  for  the  District  of  Columbia  only.  See  BSPA  Comments  at  24. 
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 and  has  significantly  upgraded  its  customer  service.  375  BSPA  also  relates  that  in  Columbus,  Ohio,  and  Louisville,  Kentucky,  incumbent,  Insight  began  offering  advanced  services  after  competition  from 
 WideOpenWest  and  Knology  entered  the  market,  and  that  it  now  offers  VOD  on  the  lowest  digital  tier,  thus  improving  service  offerings  to  customers.  376 


 110.  Barriers  to  Competition.  In  addition  to  difficulties  with  the  OVS  regime,  BSPs  report  barriers  to  competition  in  the  MVPD  market.  First,  BSPA  alleges  that  cable  operators  are  engaging  in 
 predatory  pricing  to  answer  BSP  entry,  often  in  secret,  thus  purportedly  thwarting  the  Commissions  uniform  rate  regulations.  377  BSPA  also  indicates  that  cable  industry  trends  of  horizontal  concentration, 
 clustering,  and  the  inapplicability  of  the  Commissions  program  access  rules  to  terrestrially-  delivered  programming  increase  the  possibility  that  cable  operators  will  foreclose  access  of  BSPs  to  vital 
 programming  owned  by  cable  operators,  including  essential  regional  programming.  378  BSPA  contends  that  long-  term  exclusive  MDU  contracts  are  pervasive  and  that  this  may  interfere  with  BSPs  ability  to 
 obtain  necessary  economies  of  scale,  possibly  threatening  competitive  entry  into  entire  geographic  markets.  379  BSPA  also  charges  that  incumbent  cable  operators  are  denying  BSPs  access  to  essential 
 inputs,  such  as  VOD  equipment  and  contractor  services  for  installation,  and  have  attempted  to  foreclose  access  to  digital  set-  top  boxes.  380 


 111.  BSPA  also  reports  additional  problems  in  delivering  programming  to  subscribers.  BSPA  indicates  that  its  members  are  having  problems  gaining  access  to  utility  poles  and  to  public  rights  of  way 
 so  that  they  can  build  out  their  systems.  381  Utilicorp,  which  is  both  a  BSP  and  a  utility,  also  reports 


 375  Id. 
 376  Id.  at  25-  26. 
 377  Id.  at  10-  11.  We  reported  on  complaints  of  similar  practices  last  year.  See  2001  Report,  17  FCC  Rcd  at  1297. 
 We  also  have  resolved  or  have  cases  before  us  concerning  predatory  pricing.  See  Altrio  Communications,  Inc.  v.  Adelphia  Communications  Corp.,  DA  02-  3172  (MB  rel.  Nov.  15,  2002)  (dismissing  Altrio's  uniform  pricing  and 


 predatory  pricing  complaint  to  the  presence  of  effective  competition);  and  Everest  Midwest  License,  LLC  d/  b/  a  Everest  Connections  Corporation  v.  Kansas  City  Cable  Partners  d/  b/  a  Time  Warner  of  Kansas  City,  CSR  5845 
 (pending  complaint  for  violation  of  47  C.  F.  R.  Section  76.  984).  Reports  of  alleged  predatory  pricing  have  also  been  made  in  the  press.  See,  e.  g.,  Kirk  Ladendorf,  Time  Warner  Cable  Discounts  Draw  Fire  From  City,  Competitor, 
 AUSTIN  AMERICAN-  STATESMAN,  Feb.  7,  2002,  at  A-  1;  Comm.  Daily,  Localities  Accuse  Cable  On  Predatory  Pricing  Strategy,  Mar.  4,  2002,  at  3-  4.  Press  reports  also  indicate  that  the  Department  of  Justice  is  investigating 
 allegations  of  incumbent  cable  operator  predatory  pricing.  See  Paul  Davidson,  Regulators  Scrutinize  Cable  Costs,  USATODAY,  Sept.  23,  2002,  at  http://  www.  usatoday.  com/  money/  media/  2002-  09-  22-  cable-  probe_  x.  htm.  Comcast 
 disputes  these  charges,  and  states  that  it  is  aware  of  no  evidence  of  such  practices.  Comcast  Reply  Comments  at  19-  20.  See  also  AT&  T  Reply  Comments  at  9;  KCCP  Reply  Comments  at  1-  2.  In  addition,  RCN  raised  the  same  issue 
 in  the  AT&  T-  Comcast  merger  review  proceeding.  See  AT&  T-  Comcast  Merger  Order  fn.  54  supra    117-  119.  378 
 BSPA  Comments  at  11-  16.  Comcast  disputes  these  facts,  stating  that  overbuilders  have  been  able  to  gain  access  to  terrestrially-  delivered  programming,  and  that  there  is  no  evidence  of  a  trend  toward  migration  to  terrestrial 


 delivery.  Comcast  Reply  Comments  at  21-  22.  See  also  NCTA  Reply  Comments  at  7-  14;  KCCP  Reply  Comments  at  2-  3.  BSPA  notes  that  VOD/  SVOD  services  will  be  a  major  part  of  future  revenue  streams,  and  urges  that  the 
 Commissions  program  access  rules  should  apply  to  VOD/  SVOD  services.  BSPA  Comments  at  15-  16.  379 
 BSPA  Comments  at  16-  17.  BSPA  urges  the  Commission  to  prohibit  incumbent  cable  operators  from  entering  into  new  long-  term  agreements,  and  to  review  existing  long-  term  exclusive  agreements.  See  also    120-  122  infra. 


 380  BSPA  Comments  at  17-  19.  Comcast  states  that  charges  like  these  have  been  answered  in  the  record  of  the 
 AT&  T-  Comcast  merger,  and  that  there  is  no  credible  evidence  that  overbuilders  have  been  unable  to  hire  labor  or  gain  access  to  technologies.  Comcast  Reply  Comments  at  20.  See  also  AT&  T  Reply  Comments  at  9. 


 381  BSPA  Comments  at  20-  22.  According  to  BSPA,  these  difficulties  result  from  intransigence,  excessive  fees,  and 
 slow  action  on  the  part  of  pole  owners  and  local  governments. 
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 problems  as  an  entrant  in  these  markets,  including  difficulties  in  entering  MDUs,  gaining  access  to  poles,  and  gaining  access  to  programming.  382 
 III.  MARKET  STRUCTURE  AND  CONDITIONS  AFFECTING  COMPETITION 
 A.  Horizontal  Issues  in  the  Market  for  the  Delivery  of  Video  Programming 
 112.  In  this  section,  we  review  changes  in  the  market  for  the  distribution  of  video  programming,  including  changes  in  the  level  of  competition  in  that  market  between  July  2001  and  June 


 2002.  383  As  we  explained  in  earlier  reports,  the  video  programming  market  is  comprised  of  a  downstream  market  for  the  distribution  of  multichannel  video  programming  to  households,  and  an  upstream  market  for 
 the  purchase  of  video  programming  by  MVPDs.  In  our  discussion  of  competition  in  the  distribution  of  video  programming  to  households,  we  also  examine  developments  unique  to  MDUs,  a  significant  sub-  set 
 of  the  market.  We  then  review  the  market  for  the  purchase  of  video  programming  by  MVPDs,  and  examine  the  effects  that  changes  in  concentration  among  MVPDs  at  the  regional  and  national  levels  have 
 had  on  this  market  in  the  last  year. 
 1.  Competitive  Issues  in  the  Market  for  the  Distribution  of  Video  Programming 


 113.  The  market  for  the  delivery  of  video  programming  to  households  continues  to  be  highly  concentrated.  384  For  most  consumers  the  choices  are  over-  the-  air  broadcast,  cable,  two  DBS  providers, 
 and,  in  limited  cases,  an  overbuilder  or  other  delivery  technology.  385  Several  commenters  point  to  lack  of  competition  in  the  MVPD  market  and  argue  that  true  competition  in  the  MVPD  market  can  emerge  only 
 when  substantial  barriers  to  entry  are  removed.  386  According  to  commenters,  these  barriers  to  entry  include:  (a)  predatory  conduct  including  predatory  pricing;  (b)  strategic  behavior  by  an  incumbent  to 
 raise  its  rivals  costs  by  limiting  the  availability  of  certain  popular  programming  as  well  as  equipment;  and  (c)  local  and  state  level  regulations,  including  delay  in  gaining  access  to  local  public  rights-  of-  way  as 
 well  delay  in  getting  cable  franchises.  387 
 114.  During  the  past  year,  DBS  has  continued  to  make  inroads  in  the  MVPD  market.  DBS,  the  major  wireless  MVPD  technology  that  is  available  to  subscribers  nationwide,  saw  its  share  of  MVPD 


 subscribers  increase  by  two  percentage  points  between  June  2001  and  June  2002.  NCTA  contends  that  competition  between  cable  and  DBS  is  robust  and  highly  viable,  and  that  in  many  states  DBS  penetration 


 382  Utilicorp  Comments  at  6-  10. 
 383  See,  e.  g.,  2001  Report,  17  FCC  Rcd  at  1298.  See  also  EchoStar-  Hughes  HDO  fn.  21  supra. 
 384  See  Appendix  B,  Table  B-  1.  As  of  June  2002,  approximately  77%  of  MVPD  subscribers  were  served  by  cable 
 MSOs.  385 
 Some  sources  indicate,  however,  that  some  percentage  of  households  cannot  receive  one  or  both  DBS  providers  due  to  line  of  sight  issues.  For  instance,  EchoStar  reports  that,  Estimates  are  that  anywhere  from  15%  to  30%  of 


 the  potential  subscribers  in  the  Northeast  cannot  receive  EchoStar  service  due  to  line  of  sight  issues.  Application  of  EchoStar  Communications  Corporation,  General  Motors  Corporation,  Hughes  Electronics  Corporation, 
 Transferors,  and  EchoStar  Communications  Corporation,  Transferee,  For  Authority  to  Transfer  Control;  Application  of  EchoStar  Satellite  Corporation  and  Hughes  Electronics  Corporation  for  Authority  to  Launch  and 
 Operate  NEW  ECHOSTAR  1  (USABBS-  16),  CS  Docket  No.  01-  348,  Amendment  to  Consolidated  Application  for  Authority  to  Transfer  Control  (Nov.  27,  2002)  at  13. 
 386  BSPA  Comments  at  7-  19;  DirecTV  Comments  at  8-  11;  EchoStar  Comments  at  4. 
 387  BSPA  Comments  at  9;  DirecTV  Comments  at  8-  9;  EchoStar  Comments  at  4;  Utilicorp  at  4-  5;  Hometown 
 Comments  at  1-  3;  OPASTCO  Reply  Comments  at  3. 
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 exceeds  15%.  388  DBS,  according  to  NCTA,  has  proven  to  be  an  enduring  competitor  to  cable  by  providing  an  array  of  exclusive  sports  programming,  advanced  and  interactive  services,  and  by  bundling 
 video  and  non-  video  services.  389  Anecdotal  evidence  suggests  that  competition  between  cable  and  DBS  is  having  an  effect  on  cable  prices.  390  The  2001  Price  Survey  Report,  using  a  regression  equation,  however, 
 indicated  that  in  areas  where  there  is  significant  DBS  penetration,  the  presence  of  DBS  competition  had  no  statistically  significant  effect  on  the  demand  for  cable  services  or  on  cable  rates.  391  In  a  recent  study, 
 GAO  found  that  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  in  2001.  392 
 115.  Relatively  small  percentages  of  consumers  have  a  second  wireline  alternative,  such  as  an  overbuild  cable  system.  Of  the  33,246  cable  community  units  nationwide,  671,  or  approximately  two 


 percent  have  been  certified  by  the  Commission  as  having  effective  competition  as  a  result  of  consumers  having  a  choice  of  more  than  one  wireline  MVPD.  Between  June  30,  2001,  and  June  30,  2002,  the 
 Commission  granted  eight  petitions  for  effective  competition,  representing  75  communities,  based  on  competitive  entry  from  LECs  or  their  affiliates  and  DBS  providers.  The  differences  between  the  effect  of 
 competition  and  general  market  responses  based  on  technological  advances,  improved  marketing,  and  new  service  opportunities  are  not  always  easy  to  distinguish.  In  cases  where  incumbent  cable  operators 
 faced  competition  from  a  new  wireline  entrant,  however,  commenters  contend  that  incumbents  have  responded  to  competition  by  reducing  their  monthly  charge  for  cable  programming  services  and 
 equipment,  by  offering  additional  channels,  or  by  offering  Internet  and  other  telecommunications  services.  393 


 116.  Several  wireless  MVPD  technologies,  other  than  DBS,  provide  services  that  are  much  smaller  in  both  scope  and  scale  than  services  provided  by  an  incumbent  cable  operator.  For  example,  the 
 service  area  covered  by  a  SMATV  system  usually  covers  only  a  small  portion  of  a  cable  systems  franchise  area.  MMDS  systems,  on  other  hand,  often  serve  larger  areas  than  SMATV  service,  but  offer 
 fewer  channels  and  require  line-  of-  sight  for  reception.  Thus,  these  services  offer  consumers  alternatives  to  incumbent  cable  services  only  in  limited  areas. 


 117.  As  of  June  2002,  RCN,  which  operates  a  large  number  of  overbuild  systems,  was  offering  video  service  to  approximately  506,700  basic  subscribers.  394  Another  wireline  overbuilder, 
 WideOpenWest,  had  310,000  basic  subscribers  as  of  June  2002.  BSPA  contends  that  its  members  provide  facilities  based  broadband  including  video  services  to  approximately  one  million  subscribers  in 
 all  major  regions  other  than  the  Pacific  Northwest.  395  AT&  T  contends  that  it  faces  competition  from  BSPs  in  over  20  markets  with  approximately  2.2  million  subscribers.  AT&  T  further  contends  that  BSPs 


 388  NCTA  Comments  at  13. 
 389  NCTA  Comments  at  18-  19. 
 390  Peter  Grant,  The  Cable  Guy  Cuts  His  Rates,  WALL  STREET  JOURNAL,  Sept.  25,  2002,  at  D1. 
 391  2001  Price  Survey  Report,  17  FCC  Rcd  6301.  Northpoint  Technology  contends  that  despite  DBSs  18%  share,  it 
 does  not  compete  with  cable  in  terms  of  price.  See  Northpoint  Technology  Comments  at  2;  see  also  DirecTV  Comments  at  1. 


 392  Issues  in  Providing  Cable  and  Satellite  Television,  GAO  Report  to  the  Subcommittee  on  Antitrust,  Competition, 
 Business  and  Consumer  Rights,  United  States  Senate,  October  2002.  393 
 BSPA  Comments  at  25;  Everest  and  Utilicorp  Comments  at  4.  The  2001  Price  Survey  Report  also  supports  this  view,  17  FCC  Rcd  6301. 


 394  Kagan  World  Media  ,  Top  Cable  System  as  0f  June  2002,  Cable  TV  Investor,  Sept.  30,  2002,  at  9-  10. 
 395  BSPA  Comments  at  5. 
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 will  continue  to  be  vigorous  competitors  because  they  have  received  higher  rate  of  customer  satisfaction  than  cable  and  that  BSPs  have  moved  closer  to  financial  stability  and  are  dependent  less  on  venture 
 capital.  396 
 118.  Recent  Developments  in  the  MDU  Market.  A  significant  segment  of  many  local  MVPD  markets  is  multiple  dwelling  units  (  MDUs).  MDUs  are  comprised  of  a  wide  variety  of  high-  density 


 residential  complexes,  including  high  and  low-  rise  rental  buildings,  condominiums,  and  cooperatives.  Historically,  cable  and  SMATV  operators  were  the  primary  providers  of  MVPD  services  to  MDU 
 residents.  According  to  one  estimate,  20%  to  23%  of  a  cable  operators  income  comes  from  MDU  subscribers.  397  More  recently,  however,  DBS  providers  have  begun  to  supply  programming  to  operators 
 that  serve  MDUs  and  to  MDU  residents  directly.  398 
 119.  Competitive  Issues  in  the  MDU  Market.  Commenters  raise  a  number  of  issues  that  they  contend  adversely  affect  their  ability  to  serve  the  MDU  market.  These  include  exclusive  contracts,  access 


 to  MDU  inside  wiring,  and  the  Commissions  over-  the-  air-  reception  devices  (  OTARD)  rules.  399 
 120.  Exclusive  and  Perpetual  Contracts.  Exclusive  contracts  are  those  that  specify  that  video  service  in  an  MDU  will  be  provided  by  a  particular  MVPD  and  no  other.  Perpetual  contracts  are  those 


 which  grant  an  MVPD  the  right  to  provide  service  for  indefinite  or  very  long  periods  of  time.  Some  commenters  suggest  that  exclusive  and  perpetual  contracts  between  incumbent  MVPDs  and  MDU  owners 
 represent  a  barrier  to  entry  in  the  MDU  market.  400  According  to  commenters,  such  contracts  often  were  entered  into  before  the  arrival  of  alternative  MVPDs  in  the  MDU  market,  and  the  continued  existence  of 
 these  contracts  prevents  the  MDU  owners  and/  or  their  tenants  from  having  an  opportunity  to  select  among  competing  providers.  401 


 121.  BSPA  contends  that  competitive  broadband  service  providers  cannot  serve  most  MDUs  because  incumbent  cable  operators  have  established  exclusive  agreements  with  the  owners  of  these 
 MDUs.  402  BSPA  further  argues  that  some  BSPs  will  not  enter  certain  markets  where  MDUs  comprise  a  significant  portion  of  the  franchise  due  to  the  exclusionary  contracts  in  place.  403  DirecTV  argues  that 
 MDU  residents  have  limited  choices  among  MVPD  providers  because  exclusive  contracts  or  exclusive  rights  of  entry  between  incumbents  and  property  owners  either  discourage  new  entrants  or  make  it 
 impossible  for  them  to  enter  the  market.  404  DirecTV  argues  that  cable  operators  are  able  to  thwart  competition  in  the  MDU  market  by  resorting  to  exclusive  service  contracts  or  exclusive  rights  to  entry 
 that  prohibit  MDU  property  owners  or  residents  from  obtaining  video  programming  services  from  an  alternative  service  provider.  405  Comcast  responds  that  most  of  its  MDU  contracts  are  exclusive  marketing 


 396  AT&  T  Comments  at  9-  10. 
 397  Larry  Kessler,  Good  Night,  Gorilla  Good  Morning,  Guerilla,  Broadband  Properties,  March  2001,  at  12. 
 398  DirecTV  claims  that  approximately  20%  of  its  subscribers  live  in  places  other  than  single  family  homes.  See 
 DirecTV  Comments,  2001  Report,  at  12.  See  also    75  supra.  399 
 BSPA  Comments  at  16-  17;  DirecTV  Comments  at  19;  Utilicorp  Comments  at  6.  400 
 Id.  401 
 See  BSPA  Comments  at  10-  11.  See  also    78,  110  supra.  402 
 BSPA  Comments  at  16.  In  particular,  BSPA  cites  a  survey  conducted  by  Carolina  Broadband  that  found  that  at  least  90%  of  all  MDU  residents  living  in  Charlotte  and  Raleigh,  for  example,  are  prohibited  from  choosing  a 


 competitive  wireline  competitor  due  to  exclusive  agreements  between  incumbents  and  MDU  owners.  403 
 BSPA  Comments  at  17.  404 
 DirecTV  Comments  at  19.  405 
 Id. 
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 agreements,  not  exclusive  access  agreements,  and  that  overbuilders  enter  into  the  same  kind  of  exclusive  arrangements.  406  NCTA  argues  that  the  Commission  may  not  abrogate  existing  contracts  unless  it  has 
 clear  statutory  mandate  or  authorization  to  do  so;  and  any  future  restriction  on  exclusive  contracts  should  apply  to  all  MVPDs  on  a  non-  discriminatory  basis.  407  Several  parties  in  the  Inside  Wiring  proceeding 
 suggest  that  exclusive  contracts  may  represent  the  only  way,  because  of  financial  or  other  requirements,  that  competitive  MVPDs  may  enter  an  MDU  market  and  present  an  alternative  to  incumbent  MVPDs  in 
 that  market.  408 
 122.  BSPA  and  Utilicorp  contend  that  incumbent  cable  operators  also  have  agreements  with  evergreen  provisions,  such  that  they  are  automatically  renewed  every  time  the  franchise  is  renewed.  409 


 Since  the  majority  of  franchise  agreements  are  renewed  automatically,  agreements  with  such  provisions  are  commonly  referred  to  as  perpetual  contracts.  IMCC  contends  that  30%  of  all  MDU  properties  in  the 
 U.  S.  fall  under  perpetual  contracts.  410  The  Real  Access  Alliance,  representing  leading  real  estate  trade  organizations,  conducted  a  survey  of  4,795  property  owners  in  an  effort  to  gauge  the  frequency  of 
 perpetual  contracts.  411  The  Real  Access  Alliance  found  that  only  3.8  to  4.8%  of  MDUs  are  subject  to  such  contracts  today  and  that  none  of  them  were  executed  within  the  past  five  years. 


 123.  OTARD  Rules.  412  DirecTV  asserts  that  the  Commissions  OTARD  rules  should  be  expanded  to  cover  common  areas  for  MDU  residents.  413  DirecTV  states  that  while  the  Commissions 
 OTARD  rules  have  encouraged  some  MDU  landlords  and  owners  to  use  a  single  dish  for  reception  to  prevent  dish  clutter,  the  rule  should  be  extended  to  common  areas  so  that  renters  and  owners  who  do 
 not  have  exclusive  use  of  areas  suitable  for  satellite  reception  will  also  be  able  to  receive  DBS  service.  414 
 2.  Competitive  Issues  in  the  Market  for  the  Purchase  of  Video  Programming 
 124.  Buyers  in  the  market  for  the  purchase  of  video  programming  are  MVPDs,  including  cable  operators  and  other  video  programming  providers,  and  the  sellers  are  primarily  non-  broadcast 


 programming  networks.  415  This  market  tends  to  be  regional  or  national  since  programmers  seek  to  reach 
 406  Comcast  Reply  Comments  at  20. 
 407  NCTA  Reply  Comments  at  15;  See  also  KCCP  Reply  Comments  at  2. 
 408  See  Comments  of  the  Community  Associations  Institute  (December  23,  1997)  and  the  Building  and  Managers 
 Association  International  (December  23,  1997)  filed  in  Telecommunications  Services,  Inside  Wiring,  Customer  Premises  Equipment;  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992: 


 Cable  Home  Wiring  (  Inside  Wiring  proceeding),  13  FCC  Rcd  3659  (1997).  409 
 BSPA  Comments  at  16;  Utilicorp  Comments  at  6.  410 
 Larry  Kessler,  One  Fish,  Two  Fish,  Red  Fish,  Blue  Fish,  Broadband  Properties,  April  2002  at  18.  411 
 The  Real  Access  Alliance  submitted  the  results  of  its  surveys,  dated  February  1,  2002,  of  large  and  small  MDUs  to  the  Commission  in  the  Inside  Wiring  proceeding.  The  large  MDU  survey  covered  a  total  of  4,795  MDU 


 properties,  which  represented  a  total  of  1,207,  184  units.  Of  those,  only  241  properties,  which  represented  58,  208  units  or  4.  8%  of  the  total  units  surveyed  were  subject  to  perpetual  contracts.  The  survey  of  small  MDUs  covered  a 
 total  of  74  randomly  selected  properties.  Of  those,  only  two  properties,  or  3.8%,  were  subject  to  perpetual  contracts.  412 
 47  C.  F.  R.    1.4000.  413 
 DirecTV  Comments  at  20.  414 
 Id.  415 
 1998  Report,  13  FCC  Rcd  at  24362.  In  this  section,  we  refer  to  programming  that  is  packaged  as  one  or  more  24-hour  video  programming  network(  s),  rather  than  the  individual  shows  and  series  that  non-  broadcast  networks  and 


 broadcast  networks  purchase  and  package  into  24-  hour  networks.  Purchasing  content  and  packaging  it  into  networks  represent  two  steps  in  the  process  of  delivering  programming  to  consumers  which,  when  combined  with  a 
 means  of  distribution,  result  in  the  programming  choices  consumers  have.  See  Implementation  of  Section  11  of  the  (continued....) 
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 a  much  broader  audience  than  could  be  provided  by  a  local  franchise  area.  For  example,  some  programming  services  are  intended  for  a  nationwide  audience  (e.  g.,  CNN,  USA)  while  others  seek  a 
 regional  audience  (e.  g.,  New  England  Sports  Channel). 
 125.  AT&  T  argues  that  the  Commission  should  include  purchasers  of  all  video  programming,  and  not  just  multichannel  video  programming,  when  considering  the  market  for  the  purchase  of  video 


 programming.  416  AT&  T  argues  that  broadcast  stations  and  networks  compete  with  MVPDs  in  the  program  purchase  market  as  well  as  in  the  advertising  and  program  distribution  markets.  The 
 Commission  is  currently  considering  these  issues  in  its  rulemaking  concerning  cable  horizontal  and  vertical  limits.  417 


 a.  The  Regional  Programming  Market 
 126.  For  the  past  several  years,  cable  operators  have  engaged  in  a  regional  strategy  called  clustering.  Many  of  the  largest  MSOs  have  concentrated  their  operations  by  acquiring  cable  systems  in 


 regions  where  the  MSO  already  has  a  significant  presence,  while  giving  up  other  holdings  scattered  across  the  country.  This  strategy  is  accomplished  through  purchases  and  sales  of  cable  systems,  or  by  system 
 swapping  among  MSOs. 
 127.  Competitive  Issues  Related  to  Clustering.  AT&  T  contends  that  clustering  of  cable  systems  can  create  greater  economies  of  scale  and  scope,  and  enable  cable  operators  to  offer  a  wider 


 variety  of  broadband  services  at  lower  prices  to  customers.  In  addition,  AT&  T  contends  that  clustering  enables  cable  operators  to:  (a)  spread  costs  over  a  number  of  systems  and  a  larger  subscriber  base;  (b) 
 deliver  a  higher  quality  of  signal  to  consumers;  (c)  offer  more  local  and  regional  programming  for  consumers;  (d)  provide  better  customer  service  and  fewer  outages;  (e)  create  more  efficient 
 interconnections  that  enhance  educational  and  governmental  uses;  (f)  develop  more  attractive  joint  consumer  promotions  and  discounts  with  area  retailers  and  others;  and  (g)  increase  advertising  revenues, 
 which  can,  in  turn,  be  used  to  offset  a  portion  of  programming  and  system  upgrade  expenses.  418 
 128.  Several  commenters  assert  harmful  effects  of  clustering  and  regional  concentration  on  program  distribution  with  regard  to  vertically-  integrated  incumbent  cable  operators.  419  Specifically,  these 


 commenters  contend  that  cable  operators  have  migrated  programming,  and  will  to  a  greater  extent  in  the  future,  migrate  programming  from  satellite  delivery  to  terrestrial  (fiber  optic)  delivery  because  only 
 satellite-  delivered  programming  is  subject  to  the  program  access  rules.  420  These  commenters  contend  that  a  vertically-  integrated  incumbent  may  be  able  to  prevent  competitors  from  gaining  access  to  certain 


 (...  continued  from  previous  page)  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Implementation  of  Cable  Act  Reform 
 Provisions  of  the  Telecommunications  Act  of  1996,  the  Commissions  Cable  Horizontal  and  Vertical  Ownership  Limits  and  Attribution  Rules,  Review  of  the  Commissions  Regulations  Governing  Attribution  of  Broadcast  and 
 Cable/  MDS  Interests,  Review  of  the  Commissions  Regulations  and  Policies  Affecting  Investment  in  the  Broadcast  Industry,  Reexamination  of  the  Commissions  Cross-  Interest  Policy  (  Cable  Ownership  Notice),  16  FCC  Rcd  at 
 17312  (2001).  Video  programming  also  is  purchased  from  program  producers  and  suppliers  by  non-  broadcast  networks  as  well  as  broadcast  stations  and  networks,  but  we  do  not  address  that  market  here. 
 416  AT&  T  Comments  at  10-  11. 
 417  See  Cable  Ownership  Notice,  17  FCC  Rcd  at  17326-  7. 
 418  AT&  T  Comments  at  14-  17. 
 419  BSPA  Comments  at  14-  15;  DirecTV  Comments  at  10-  11;  EchoStar  Comments  at  9-  11;  SBCA  Comments  at  17. 
 420  Id. 
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 programming  because  it  is  terrestrially  delivered.  421  NCTA  replies  that  DBS,  at  least,  is  large  enough  to  negotiate  for  carriage  of  virtually  all  satellite-  delivered  networks  and  that  DBS  has  its  own  exclusive 
 arrangements  for  programming.  422  NCTA  also  states  that  requiring  sharing  of  all  cable-  owned  programming  with  competitors  would  remove  incentives  to  invest  in  and  to  create  such  programming.  423 


 129.  System  Mergers  and  Acquisitions.  The  most  important  merger  of  the  past  year  was  that  of  the  largest  MSO,  AT&  T,  with  the  third  largest  MSO,  Comcast.  424  No  other  large  cable  mergers 
 occurred  or  were  proposed  over  the  past  year.  Between  July  2001  and  June  2002,  a  total  of  28  transactions  were  announced  having  an  aggregate  value  of  approximately  $73.3  billion  and  involving  14.3 
 million  subscribers.  425  Removing  the  AT&  T-  Comcast  deal,  the  aggregate  value  of  the  remaining  deals  was  only  $1.2  billion,  and  involved  only  500,000  subscribers.  426  In  addition,  the  price  per  subscriber  in 
 these  deals  dropped  dramatically.  427  At  the  end  of  2001,  there  were  107  clusters  with  approximately  52  million  subscribers  compared  to  108  clusters  and  approximately  54  million  subscribers  at  the  end  of  2000. 
 In  the  largest  cluster  size  category  (over  500,000  subscribers),  the  number  of  clusters  decreased  between  2000  and  2001,  from  34  to  32,  and  the  number  of  subscribers  in  these  clusters  decreased  also.  428 


 130.  System  Trades.  Very  little  system  trading,  or  swapping,  occurred  in  the  last  year.  Between  the  July  2001  and  the  end  of  2001,  none  occurred.  429  In  2002,  three  swaps  have  occurred, 
 between  Mediacom  and  U.  S.  Cable  Corp.,  between  Insight  and  AT&  T,  430  and  between  CableOne  and  Time  Warner.  431 


 b.  The  National  Programming  Market 
 131.  Concentration  Among  Buyers  of  National  Video  Programming.  Cable  operators  still  are  the  primary  purchasers  of  multichannel  video  programming  targeted  to  a  national  audience.  Cable 


 421  DirecTV,  for  example,  notes  that  it  cannot  carry  Comcast  SportsNet  in  Philadelphia  because  Comcast  has  denied 
 access  to  it.  DirecTV  Comments  at  15.  Utilicom  states  that  it  cannot  carry  Metro  Sports,  a  Kansas  City-  area  sports  network,  because  its  owner,  Kansas  City  Cable  Partners,  refuses  to  allow  Utilicom  access.  Utilicom  Comments  at  9. 


 AT&  T  replies  that  only  three  out  of  24  vertically-  integrated  regional  sports  networks  have  been  distributed  terrestrially,  so  there  is  no  basis  for  extending  program  access  rules  to  terrestrially-  delivered  programming.  AT&  T 
 Reply  Comments  at  8-  9.  See  also  Cablevision  Reply  Comments  at  6-  7;  Comcast  Reply  Comments  at  22.  422 
 For  example,  NCTA  cites  DirecTVs  NFL  Sunday  Ticket  football  package.  NCTA  Comments  at  16.  AT&  T  states  that  there  is  no  evidence  that  cable  operators  have  used  clusters  to  act  anti-  competitively.  AT&  T  Comments 


 at  18-  19.  423 
 NCTA  Reply  Comments  at  7.  424 
 See  AT&  T-  Comcast  Merger  Order  fn.  54  supra.  425 
 Kagan  World  Media,  Cable  System  Sales  Summary,  Cable  TV  Investor,  August  29,  2001,  at  8;  January  25,  2002,  at  11;  and  August  29,  2002,  at  8. 


 426  When  announced,  the  AT&  T-  Comcast  deal  involved  13.  8  million  subscribers  at  a  value  of  more  than  $71  billion. 
 427  Id. 
 428  See  Appendix  B,  Table  B-  2. 
 429  Kagan  World  Media,  Cable  System  Exchanges  2001,  Broadband  Cable  Financial  Databook  2002,  July  2002,  at 
 181  430 
 Kagan  World  Media,  Announced/  Proposed  Cable  System  Sales,  Cable  TV  Investor,  July  18,  2002,  at  7;  Oct.  31,  2002  at  9. 


 431  Mass  Media,  Comm.  Daily,  Nov.  15,  2002,  at  13. 
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 operators  served  approximately  76.5%  of  MVPD  subscribers.  432  At  the  same  time,  non-  incumbent  MVPDs  continued  to  increase  their  share  of  the  MVPD  market,  which  translates  into  increased 
 purchasing  in  the  programming  market.  For  example,  DirecTVs  share  of  the  MVPD  market  increased  from  11.38%  in  2001  to  11.99%  in  2002.  Similarly,  EchoStars  share  increased  from  6.87%  in  2001  to 
 8.3%  in  2002.  433 
 132.  Continuing  a  recent  trend,  the  share  of  subscribers  of  the  top  four  MVPDs  has  declined  slightly  over  the  past  year.  434  In  2001,  the  four  MVPDs  with  the  largest  subscribership  served  51.68%  of 


 all  MVPD  subscribers.  435  In  2002,  the  top  four  MVPDs  served  50.48%  of  all  MVPD  subscribers  nationwide.  436  However,  the  share  of  subscribers  served  by  the  top  ten  MVPDs  increased  slightly  from 
 84.29%  in  2001  to  84.44%  in  2002. 
 133.  To  compare  and  assess  the  concentration  in  the  market  for  the  purchase  of  programming  over  a  period  of  time,  we  employ  the  Herfindahl-  Hirschman  Index  (  HHI).  437  We  use  the  reported 


 MVPD  subscriber  shares  to  calculate  HHI  figures.  438  The  HHI  for  the  national  market  for  purchase  of  programming  is  884    considered  unconcentrated  under  the  Merger  Guidelines.  439  Since  the  larger 


 432  See  Appendix  B,  Table  B-  1.  This  year,  NCTA  submitted  a  statement  by  Dr.  Debra  J.  Aron  regarding  cable 
 market  share  and  its  relationship  with  market  power.  NCTA  and  Dr.  Aron  state  that  to  focus  on  market  shares  is  simply  wrong  and  that  what  determines  market  power  is  the  extent  to  which  competitive  alternatives  are  available  or 


 poised  to  be  available,  to  which  customers  could  turn  if  the  firm  attempted  to  raise  price.  NCTA  maintains  that  it  is  the  availability  of  competitive  alternatives,  not  a  competitors  current  market  share,  which  is  relevant  to  assessing 
 competition.  NCTA  Comments  at  7.  See  also  AT&  T  Reply  Comments  at  5-  7;  Comcast  Reply  Comments  at  7;  NCTA  Reply  Comments  at  6-  7.  Dr.  Aron  argues  that  high  rates  of  growth  in  prices  do  not  in  general  create  an 
 economic  inference  of  market  power  and  that  market  share  is  not  determinative  of  market  power,  and  is  not  even  the  primary  determinant.  NCTA  Comments,  Statement  of  Dr.  Aron  at    7-  8  and    25-  26.  In  reply,  EchoStar  argues 
 that  Dr.  Arons  analysis  is  based  on  a  false  premise.  It  contends  that  DBS  has  not  constrained  cable  prices  and  that  cable  price  increases  are  not  simple  cost  pass-  throughs,  consistent  with  economic  theory  that  suggests  that  the  extent 
 to  which  cost  increases  are  passed  on  is  directly  related  to  the  degree  of  market  power  present.  See  EchoStar  Reply  Comments  at  2-  4. 
 433  DirecTV  is  the  third  largest  MVPD  with  10,  775,  000  million  subscribers;  EchoStar  is  the  fifth  largest  MVPD  with 
 7,465,000  million  subscribers.  See  http://  www.  sbca.  com/  mediaguide/  factsfigures.  htm  (visited  Oct.  16,  2002).  See  also    58-  59  supra. 


 434  The  top  four  MVPD  purchasers  of  video  programming  for  distribution  to  the  households  or  the  MDU  market  are 
 AT&  T  (with  a  share  of  14.  75%  of  all  MVPD  subscribers),  Time  Warner  (with  a  share  of  14.  29%),  DirecTV  (with  a  share  of  11.99%),  and  Comcast  (with  a  share  of  9.46%).  These  percentages  are  derived  from  publicly-  available  data 


 and  are  not  the  result  of  application  of  the  Commissions  attribution  rules.  435 
 2001  Report,  17  FCC  Rcd  at  1341,  Appendix  C,  Table  C-  3.  436 
 See  id.  at  1341-  1343,  Appendix  B,  Tables  C-  3  and  C-  4.  437 
 1998  Report,  13  FCC  Rcd  at  24363  n.  562.  The  HHI  is  a  measure  of  concentration  that  is  calculated  by  summing  the  squared  market  shares  of  the  participants  in  the  market.  It  is  a  measure  of  concentration  that  takes  account  of  the 


 distribution  of  the  size  of  firms  in  the  market.  The  HHI  varies  with  the  number  of  firms  in  the  market  and  degree  of  inequality  among  firm  size.  Generally,  the  HHI  increases  when  there  are  fewer  and  unequal  sized  firms  in  the 
 market.  HHI  is  usually  employed  to  examine  concentration  in  markets  in  which  products  are  sold  directly  to  consumers,  not  intermediate  markets  like  the  market  for  cable  programming  networks,  but  a  comparison  of  HHIs 
 from  previous  years  shows  a  general  trend  in  ownership  concentration.  438 
 The  HHI  calculation  is  based  on  the  MVPD  shares  of  cable  companies  serving  over  91%  of  all  subscribers  and  the  two  largest  DBS  operators.  The  addition  of  the  shares  of  other  cable  operators  and  smaller  MVPDs  would  add 


 little  to  the  total  HHI.  We  do  not  include  broadcast  television  or  home  video  in  the  MVPD  HHI  because  comparable  penetration  figures  are  not  available. 
 439  The  United  States  Department  of  Justice  and  Federal  Trade  Commission  consider  markets  with  HHI  below  1000 
 as  unconcentrated;  markets  with  an  HHI  between  1000  and  1800  as  moderately  concentrated;  and  markets  with  (continued....) 
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 firms  in  the  calculation  are  more  equal  in  size,  the  HHI  for  2002  is  21  points  lower  than  the  HHI  of  905  reported  last  year. 
 B.  Vertical  Integration  and  Other  Programming  Issues 
 1.  Status  of  Vertical  Integration 
 134.  Vertical  integration  occurs  where  a  video  programming  distributor  has  an  ownership  interest  in  a  video  programming  supplier  or  vice  versa.  These  vertical  relationships  may  have  beneficial 


 effects,  440  or  they  may  deter  competitive  entry  in  the  video  marketplace  and/  or  limit  the  diversity  of  programming.  441  Since  our  last  Report,  the  total  number  of  national  programming  networks  has  increased 
 and  cable  operators  continue  to  consolidate  and  develop  new  ownership  interests.  The  proportion  of  vertically-  integrated  networks,  however,  has  decreased  since  last  year.  In  2002,  there  were  308  satellite-delivered 
 national  programming  networks,  an  increase  of  21  networks  since  2001.  442  Of  the  308  networks,  92  networks,  representing  approximately  30%,  were  vertically  integrated  with  at  least  one  cable 
 MSO.  443  Last  year,  we  reported  the  proportion  of  vertically-  integrated  networks  as  35%.  444 
 135.  Four  of  the  top  six  cable  MSOs  hold  ownership  interests  in  satellite-  delivered  national  programming  networks.  445  One  or  more  of  these  companies  has  an  interest  in  79  of  the  92  vertically 


 integrated  national  satellite-  delivered  programming  networks.  446  These  four  companies  are  AOL  Time 
 (...  continued  from  previous  page)  HHI  above  1800  as  highly  concentrated.  See  1998  Report,  13  FCC  Rcd  at  24363.  None  of  the  calculations  above 
 include  the  AT&  T-  Comcast  Merger,  which  was  completed  after  June,  30,  2002,  which  is  the  date  we  use.  440 
 Beneficial  effects  can  include  efficiencies  in  the  production,  distribution,  and  marketing  of  video  programming,  and  providing  incentives  to  expand  channel  capacity  and  create  new  programming  by  lowering  the  risks  associated 


 with  program  production  ventures.  See,  e.  g.,  H.  R.  Rep.  No.  862,  102nd  Cong.,  2d  Sess.  56  at  41-  43  (1992).  441 
 See  1995  Report,  11  FCC  Rcd  at  2135;  Implementation  of  Section  11(  c)  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992  Vertical  Ownership  Limits,  MM  Docket  92-  264,  10  FCC  Rcd  7364,  7365 


 (1995).  442 
 In  our  last  report,  we  counted  294  satellite  delivered  national  programming  networks.  We  overstated  that  number  by  seven  networks,  double  counting  between  the  Starz!  and  Encore  channels.  See  2001  Report,  17  FCC  Rcd  at 


 1345,  1346.  443 
 We  count  each  unique  programming  service  of  a  multiplexed  package  separately.  We  do  not,  however,  count  services  that  are  not  unique,  as  in  a  multiplexed  programming  service  that  is  merely  time  shifted.  See  1998  Report, 


 13  FCC  Rcd  at  24376.  See  also  2000  Report,  16  FCC  Rcd  at  6079.  444 
 If  we  had  not  overstated  our  count  of  satellite-  delivered  national  programming  networks  in  our  last  report,  34%  of  the  networks  would  have  been  vertically  integrated. 


 445  We  derive  our  information  concerning  vertically-  integrated  networks  from  various  sources,  such  as  NCTA 
 listings  in  its  Cable  Developments  publication,  comments  filed  in  this  proceeding,  various  publications,  and  SEC  filings.  We  recognize  that  our  calculations  may  not  be  perfectly  accurate  because  the  ownership  issue  is  so 


 complex.  For  example,  our  tables  do  not  reflect  that  Vulcan  Programming,  Inc.,  an  entity  controlled  by  Mr.  Paul  Allen,  owns  approximately  31%  of  Oxygen  Network.  We  also  note,  as  an  example,  that  Liberty  holds  an 
 attributable  interest  in  News  Corporation,  which  is  the  owner  of  cable  networks  operated  by  the  Fox  Cable  Networks  Group  and  Fox  News  Channel.  In  addition,  we  note  that  Charter  Holding  Company  will  receive  unregistered  shares 
 of  Oxygen  Media  common  stock  on,  or  prior  to,  February  2,  2005.  Mr.  William  Savoy,  a  director  of  Charter  and  Charter  Holding  Company  sits  on  Oxygen  Networks  board  of  directors. 
 446  The  top  six  MSOs  are  AOL  Time  Warner,  Comcast  Cable  Communications,  Charter  Communications,  Cox 
 Communications,  Adelphia  Communications,  and  Cablevision  Systems.  See  NCTA,  Industry  Overview,  Cable  Developments  2002,  at  9.  We  have  combined  the  programming  interests  of  AT&  T  Broadband  and  Comcast 


 because  AT&  T  Broadband  combined  with  Comcast  Corporation  on  Nov.  18,  2002.  See  Ted  Hearn  and  Mike  Farrell,  Cleared  for  Takeoff,  Comcast  Seals  Cables  Biggest  Merger,  Multichannel  News,  Nov.  18  at  1. 
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 Warner,  which  has  interests  in  39,  or  13%  of  all  national  programming  networks;  Cox,  which  has  an  ownership  interest  in  25,  or  8%  of  all  national  programming  networks;  Comcast  which  has  ownership 
 interests  in  nine  programming  networks,  which  account  for  3%  of  all  national  programming  networks,  and  Cablevision,  through  its  programming  subsidiary,  Rainbow  Media,  which  owns  five  national 
 programming  networks,  or  2%  of  all  national  programming  networks.  Liberty  Media  is  the  only  other  cable  operator  that  owns  national  programming  networks.  447  It  has  interests  in  41  national  networks,  or 
 13%  of  all  national  programming  networks.  448 
 136.  Vertical  integration  is  not  only  associated  with  the  largest  cable  system  operators,  but  also  the  programming  networks  with  the  largest  number  of  subscribers.  Currently,  eight  of  the  top  20 


 video  programming  networks  (ranked  by  subscribership)  are  vertically  integrated  with  a  cable  MSO.  This  figure  represents  a  slight  increase  from  2001  when  seven  of  the  top  20  networks  were  vertically 
 integrated.  449  Additionally,  it  appears  that  a  significant  amount  of  video  programming  is  controlled  by  14  companies,  including  cable  MSOs,  broadcasters,  and  other  media  entities.  450  Almost  all  (i.  e.,  18)  of  the 
 top  20  programming  networks  in  terms  of  subscribership  are  owned  by  one  or  more  of  these  14  companies,  with  nine  of  these  networks  vertically  integrated  with  cable  MSOs.  451 


 137.  This  year,  we  found  60  programming  services  that  have  been  planned  but  are  not  yet  operational,  a  17%  increase  from  the  2001  Reports  count  of  51  planned  services.  452  The  planned  services 
 count  includes  some  overlap  from  previous  years  because  it  can  often  take  several  years  from  the  announcement  of  a  new  programming  network  to  its  launch  and  initiation  of  service. 


 2.  Other  Programming  Issues 
 138.  As  in  previous  years,  this  years  Notice  requested  comment  on  a  number  of  programming  issues  apart  from  vertical  integration  and  the  status  of  existing  and  planned  programming  services.  453  We 


 sought  comment  about  the  effectiveness  of  our  program  access,  program  carriage,  and  channel  occupancy  rules  that  govern  the  relationships  between  cable  operators  and  programming  providers.  We  also 
 requested  information  about:  local  and  regional  channels,  including  sports  and  news  services;  public, 
 447  We  include  Liberty  Medias  programming  networks  in  our  determination  of  the  share  of  national  programming 
 networks  that  are  vertically  integrated  because  it  is  covered  by  the  provisions  of  the  1992  Act  and  the  Commissions  rules  relating  to  program  access,  channel  occupancy,  and  program  carriage  rules.  See  47  U.  S.  C.    548;  47  C.  F.  R. 


   76.  1000-  76.  1003.  These  rules  apply  to  any  party  that  owns  a  cable  system  and  a  satellite-  delivered  national  programming  network.  Liberty  Media  remains  a  cable  operator  through  its  ownership  of  Cablevision  of  Puerto  Rico 
 and,  as  such,  it  is  appropriate  to  include  its  networks  in  calculating  the  share  of  vertically-  integrated  national  programming  networks. 
 448  If  we  did  not  count  Liberty  Media  as  being  vertically  integrated,  the  ratio  of  vertically  integrated  channels  would 
 decrease  from  34%  in  2001  to  20.  6%  in  2002.  See  Appendix  C.,  Table  C-  5.  449 
 Appendix  C,  Table  C-  6.  See  also  2001  Report,  17  FCC  Rcd  at  1310.  450 
 The  14  companies  are:  AOL  Time  Warner,  Cablevision,  Comcast,  Cox,  Disney,  E.  W.  Scripps  Co.,  General  Electric,  Hearst,  Liberty  Media,  MGM,  Newhouse,  News  Corp.,  Viacom,  and  Vivendi.  See  Kagan  World  Media, 


 Major  Owners  of  Cable  Networks:  Sept.  2001,  Cable  Program  Investor,  Sept.  11,  2001,  at  4.  451 
 C-  SPAN,  C-  SPAN2,  WGN,  and  the  Weather  Channel  are  the  four  unaffiliated  programming  networks  among  the  top  50  programming  networks.  Cable  affiliates  provide  95%  of  the  funding  for,  but  have  no  ownership  or  program 


 control  interests  in  C-  SPAN  and  C-  SPAN2.  DBS  licensees  provide  the  other  5%  of  funding,  and  also  have  no  ownership  or  program  control  interests.  None  of  the  14  companies  listed  in  footnote  450  supra  have  any  ownership 
 interest  in  WGN  or  the  Weather  Channel.  See  Kagan  World  Media,  Network  Census:  July  30,  Cable  Program  Investor,  Sept.  11,  2001,  at  10. 
 452  See  Appendix  C,  Table  C-  4.  See  also  2001  Report,  17  FCC  Rcd  at  1311. 
 453  See  Notice,  17  FCC  Rcd  at  11582-  11584. 
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 educational  and  governmental  (  PEG)  access  channels;  leased  access  programming;  compliance  with  the  DBS  public  interest  programming  obligations;  packaging  of  programming  services;  programming  costs; 
 closed  captioning  and  video  description;  and  electronic  programming  guides  (  EPGs). 
 139.  Regulatory  Issues  Relating  to  Program  Access  and  Carriage  Rules.  The  Commissions  rules  concerning  competitive  access  to  cable  programming  seek  to  promote  competition  and  diversity  in 


 the  multichannel  video  programming  market  by  preventing  vertically-  integrated  programming  suppliers  from  favoring  affiliated  video  distributors  over  unaffiliated  MVPDs  in  the  sale  of  satellite-  delivered 
 programming.  454  The  program  access  rules  apply  to  cable  operators  and  to  programming  vendors  that  are  affiliated  with  cable  operators  and  deliver  video  programming  via  satellite  to  an  MVPD.  The  rules 
 prohibit  any  cable  operator  that  has  an  attributable  interest  in  a  satellite  cable  programming  vendor  from  improperly  influencing  the  decisions  of  the  vendor  with  respect  to  the  sale  or  delivery,  including  prices, 
 terms,  and  conditions  of  sale  or  delivery,  of  satellite-  delivered  programming  to  any  competing  MVPD.  The  rules  also  prohibit  vertically-  integrated  satellite  programming  distributors  from  discriminating  in  the 
 prices  or  terms  and  conditions  of  sale  of  satellite-  delivered  programming  to  cable  operators  and  other  MVPDs.  In  addition,  cable  operators  generally  are  prohibited  from  entering  into  exclusive  distribution 
 arrangements  with  vertically  integrated-  programming  vendors.  The  Commission  has  concluded  that  the  statutory  access  requirements  apply  only  to  satellite-  delivered  and  not  to  terrestrially-  delivered 
 programming.  455 
 140.  Under  the  Communications  Act,  the  prohibition  on  exclusive  contracts  enacted  as  part  of  the  program  access  provision  in  the  1992  Act  was  set  to  sunset  on  October  5,  2002,  unless  the 


 Commission  determined  the  rules  were  still  necessary.  On  June  13,  2002,  the  Commission  adopted  a  Report  and  Order  extending  the  prohibition  until  October  5,  2007.  In  the  Report  and  Order,  the 
 Commission  decided  that  this  prohibition  continues  to  be  necessary  to  preserve  and  protect  competition  and  diversity  in  the  distribution  of  video  programming.  456  In  the  same  proceeding,  the  Commission 
 concluded  that  the  language  of  section  628(  c)  expressly  applies  to  satellite  programming,  and  that  terrestrially-  delivered  programming  is  not  covered.  457 


 141.  Cables  competitors,  including  BSPA,  DirecTV,  and  EchoStar,  suggest  that  the  program  access  rules  should  be  broadened  to  include  terrestrially-  delivered  programming.  458  Several  commenters 
 maintain  that,  despite  the  presence  of  the  program  access  rules,  lack  of  access  to  programming,  especially  sports  programming,  remains  a  significant  barrier  to  entry  and  an  impediment  to  the  successful 
 development  of  a  competitive  MVPD  business.  459  EchoStar  maintains  that  terrestrially-  delivered  programming  is  bound  to  increase  while  demand  for  local  and  regional  programming,  which  cable 
 operators  tend  to  withhold  from  DBS,  will  also  increase.  460 


 454  47  U.  S.  C.    548. 
 455  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Petition  for 
 Rulemaking  of  Ameritech  New  Media,  Inc.  Regarding  Development  of  Competition  and  Diversity  in  Video  Programming  Distribution  and  Carriage,  13  FCC  Rcd  15822,  15856-  7  (1998). 


 456  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Development  of 
 Competition  and  Diversity  in  Video  Programming  Distribution:  Section  628(  c)(  5)  of  the  Communications  Act,  17  FCC  Rcd  12124  (2002). 


 457  Id.  at  12158. 
 458  BSPA  Comments  at  13;  DirecTV  Comments  at  10;  EchoStar  Comments  at  11. 
 459  Utilicorp  Comments  at  9;  SBCA  Comments  at  17-  18. 
 460  EchoStar  Comments  at  10-  11. 
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 142.  DirecTV  expresses  concern  about  the  Commissions  failure  to  apply  the  program  access  rules  to  programming  that  was  formerly  delivered  by  satellite  and  subsequently  was  migrated  to  terrestrial 
 delivery.  It  also  maintains  that  technological  advances,  which  have  lessened  the  costs  of  developing  terrestrially-  delivered  programming,  combined  with  clustering,  have  made  terrestrial  distribution  of 
 programming  a  much  more  viable  method  for  delivery  of  both  national  and  regional  programming.  461  It  urges  the  Commission  to  carefully  monitor  the  effects  of  terrestrial  distribution  of  vertically-  integrated 
 programming  by  cable  operators.  462 
 143.  Cable  operators  are  opposed  to  the  extension  of  the  program  access  rules  to  include  terrestrially-  delivered  programming.  Comcast  states  that  consumers  in  its  service  areas  have  at  least  two 


 and  sometimes  three  or  more  additional  choices  of  MVPD.  It  maintains  that  competition  is  so  robust  that  cable  companies  must  develop  and  deploy  new  technologies  to  support  new  services  or  lose  their 
 subscribers  to  competitors.  463  Comcast  also  disputes  BSPAs  claims  that  incumbent  cable  operators  have  both  the  opportunity  and  the  incentive  to  refuse  their  terrestrially-  delivered  programs  to  competitors. 
 Comcast  states  that  it  has  always  made  Comcast  Sports  Net  available  to  overbuilders,  and  points  out  that  RCN  has  carried  Comcast  SportsNet  since  it  was  launched.  464  AT&  T  takes  issue  with  DirecTVs 
 allegation  that  incumbent  cable  operators  have  begun  to  use  terrestrial  delivery  in  order  to  insulate  themselves  from  the  program  access  requirements.  465  NCTA  denies  EchoStars  assertion  that  there  is  a 
 terrestrial  loophole  in  the  program  access  statute.  It  states  that  Congress  never  intended  to  require  cable  operators  to  share  all  programming  with  competitors  and  deliberately  limited  the  access  requirement  to 
 satellite-  delivered  programming.  466 
 144.  Pursuant  to  section  613(  f)  of  the  Communications  Act,  467  the  Commission  also  adopted  channel  occupancy  rules  that  restricted  the  number  of  channels  on  a  cable  system  that  may  be  occupied  by 


 programmers  affiliated  with  the  owner  of  the  system.  468  On  March  3,  2001,  the  United  States  Court  of  Appeals  for  the  D.  C.  Circuit  reversed  and  remanded  Commissions  channel  occupancy  limits.  469  The 
 Commission  has  sought  and  received  comment  on,  among  other  things,  how  changes  in  the  MVPD  market  and  in  the  level  of  vertical  integration  for  cable  MVPDs  may  have  affected  MSOs  ability  to  favor 
 affiliated  over  unaffiliated  programming.  470 
 145.  Sports  Programming.  Regional  sports  programming  continues  to  be  an  important  segment  of  programming  for  all  MVPDs.  According  to  many  commenters,  local  and  regional 


 programming  holds  high  value  for  subscribers.  471  Of  the  86  regional  cable  channels  counted  in  this  years  report,  31,  or  36%,  are  sports  channels.  472  The  most  widely  distributed  sports  programming  network, 
 ESPN,  which  is  owned  by  Disney,  reaches  almost  86  million  television  households  through  a  variety  of 
 461  DirecTV  Comments  at  10. 
 462  Id.  at  11. 
 463  Comcast  Comments  at  9. 
 464  Comcast  Reply  Comments  at  22. 
 465  AT&  T  Reply  Comments  at  8. 
 466  NCTA  Reply  Comments  at  7. 
 467  Section  613(  f)  was  added  to  the  Communications  Act  as  part  of  the  1992  Cable  Act.  47  U.  S.  C.    533(  f). 
 468  47  C.  F.  R    76.  504.  See  1994  Report,  9  FCC  Rcd  at  7521. 
 469  Time  Warner  Entertainment  Co.  v.  FCC,  240  F.  3d  1126  (D.  C.  Cir.  2001). 
 470  See  Cable  Ownership  Notice,  fn.  415  supra. 
 471  BSPA  Comments  at  14;  EchoStar  Comments  at  10-  11;  Utilicorp  Comments  at  9-  10;  Hometown  Comments  at  1. 
 472  See  Appendix  C,  Table  C-  3. 
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 MVPD  technologies.  While  ESPN  dominates  national  sports  programming,  regional  sports  distribution  is  dominated  by  Fox  Sports  Net,  which  owns  60%  (18  of  30)  of  all  regional  sports  networks.  Fox  Sports 
 Net,  jointly  owned  by  News  Corp.  and  Cablevision,  reaches  50  million  television  households.  473 
 146.  EchoStar  asserts  that  regional  sports  programming  is  the  type  of  programming  that  cable  operators  tend  to  withhold  from  DBS  operators.  474  Commenters  note  that  vertically  integrated  entities 


 may  have  an  incentive  to  shift  regional  sports  networks  from  satellite  to  terrestrial  distribution  and  thereby  evade  the  program  access  rules.  475  In  addition,  BSPA  alleges  that  when  a  regional  sports  network 
 is  not  vertically  integrated,  a  video  programming  distributor  may  enter  into  an  exclusive  contract  with  the  program  provider,  which  deprives  rivals  of  the  programming.  476 


 147.  DirecTV  lists  24  regional  sports  networks  (including  18  Fox  sports  networks)  that  are  carried  on  its  system.  477  DirecTV  carries  regional  sports  networks  in  every  regional  sports  market  except 
 Philadelphia,  where  it  was  refused  access  to  Comcasts  SportsNet.  478  Cablevision  notes  that  DBS  providers  promote  the  advantages  of  their  own  exclusive  sports  programming  and  report  to  analysts  that  it 
 is  because  of  this  advantage  that  cables  market  share  is  declining.  479 
 148.  News  Programming.  Local  news  channels  have  been  on  cable  since  at  least  1986,  when  Cablevision  launched  News  12  Long  Island.  This  year,  of  the  86  regional  programming  networks 


 counted,  37%  (32  networks)  are  regional  news  networks.  Unlike  sports  programming,  regional  and  local  news  networks  have  a  more  diverse  ownership.  Some  regional  news  networks  are  vertically  integrated 
 with  cable  MSOs,  but  many  are  not.  480 
 149.  Most  regional  news  networks  cover  a  single  city  or  other  limited  geographic  market,  or  subsections  of  that  market.  There  are  at  least  seven  local  news  networks  in  separate  sections  of  the  New 


 York  City  area.  481  A  handful  of  regional  news  networks,  however,  have  elected  to  broaden  their  coverage.  Statewide  news  channels  are  operating  in  Florida,  Massachusetts,  Texas,  and  Ohio.  New 
 England  Cable  News  (  NECN)  is  the  most  widely  distributed  regional  news  network.  NECN  reaches  more  than  2.7  million  households,  approximately  69%  of  cable  homes  in  the  six-  state  region  it  serves. 


 473  NCTA,  Regional  Cable  Networks,  Cable  Developments  2002,  at  171-  194. 
 474  EchoStar  Comments  at  10-  11. 
 475  DirecTV  Comments  at  10;  EchoStar  Comments  at  10-  11;  SBCA  Comments  at  17;  BSPA  Comments  at  15. 
 476  BSPA  Comments  at  15. 
 477  DirecTV  Comments  at  14. 
 478  Id.  at  15.  See  also  Application  for  Review  of  Orders  of  the  Cable  Services  Bureau  Denying  Program  Access 
 Complaints,  15  FCC  Rcd  at  22802  (CSB  2000).  This  Order  consolidates  several  proceedings  involving  Comcast,  DirecTV,  and  EchoStar.  In  separate  proceedings,  DirecTV  and  EchoStar  filed  program  access  complaints  alleging 


 that  Comcast  violated  sections  628(  b)  and  (c)  of  the  Communications  Act  and  the  Commission's  regulations  by  engaging  in  discrimination  and  unfair  practices  in  the  distribution  of  satellite  cable  programming.  The  Cable 
 Services  Bureau  denied  the  complaints.  Subsequently,  DirecTV  and  EchoStar  each  requested  Commission  review;  the  Commission  consolidated  the  proceedings  and  denied  the  applications  for  review.  EchoStar  appealed  the 
 Commissions  decision  and  in  EchoStar  Communications  Corporation  v  Federal  Communications  Commission  and  the  Unites  States  of  America,  No.  01-  1032,  2002  (D.  C.  Cir.  Jun.  11,  2002)  the  court  upheld  the  Commissions 
 decision.  479 
 Cablevision  Comments  at  7.  480 
 Cablevision,  the  seventh  largest  MSO,  owns  news  networks,  including  MSG  Metro  Traffic  and  Weather  in  New  York  and  the  News  12  group  of  regional  news  services  in  Connecticut,  New  Jersey,  and  Westchester  County  and 


 Long  Island,  New  York.  See  also  Appendix  C,  Table  C-  3.  481 
 Appendix  C,  Table  C-  3. 
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 150.  Other  Programming.  In  the  Notice,  we  sought  information  regarding  public,  educational  and  government  (  PEG)  channels,  leased  access  programming,  and  programming  provided  by  DBS 
 operators  in  compliance  with  the  public  interest  programming  obligations.  482  Local  franchising  authorities  may  request,  as  part  of  the  franchising  process,  that  operators  devote  a  certain  amount  of 
 channel  capacity  and  equipment  to  PEG  programming.  483  Approximately  15%  of  all  cable  systems  carry  PEG  programming.  484  Larger  cable  systems  tend  to  have  PEG  channels  so  that  the  percentage  of 
 subscribers  that  receive  PEG  channels  is  much  higher  than  the  percentage  of  systems  providing  PEG  channels.  Cable  operators  do  not  have  ownership  interests  in  PEG  access  programming,  although  some 
 franchise  agreements  require  that  they  provide  services,  production  facilities,  and  equipment  for  the  production  of  local  programming.  PEG  programming  is  not,  therefore,  considered  vertically  integrated. 
 Comcast  reports  that  all  of  its  systems  carry  PEG  and/  or  leased  access  programming.  Comcast  states  that  about  2.7%  of  its  channel  capacity  is  devoted  to  local  and  federal  requirements,  not  counting  must-  carry. 
 If  it  includes  digital  channels,  about  1.1%  of  total  channels  is  devoted  to  local  and  federal  requirements.  485 
 151.  DBS  operators  are  required  to  reserve  four  percent  of  their  channel  capacity  for  noncommercial  programming  of  an  educational  or  informational  nature.  486  DirecTV  states  that  it 


 currently  carries  11  channels  pursuant  to  this  requirement  as  well  as  additional  educational  channels  that  it  does  not  include  as  part  of  its  compliance  with  the  rules.  487  EchoStar  states  that  it  currently  carries  21 
 channels  pursuant  to  this  requirement,  as  well  as  additional  educational  channels  that  it  does  not  include  as  part  of  its  compliance  with  the  rules.  488  DBS  providers  are  charging  some  noncommercial 
 programmers  for  carriage  on  their  systems  to  the  extent  allowed  by  the  Commissions  rules.  489 
 152.  Packaging  of  Cable  Programming  Services.  In  the  Notice,  we  sought  information  on  whether  cable  operators  are  changing  the  way  they  package  programming.  We  sought  comment  on  the 


 extent  to  which  cable  operators  are  restructuring  their  programming  tiers  to  offer  lifeline  tiers  and  how  many  customers  subscribe  only  to  the  lifeline  tier.  We  asked  if  operators  are  shifting  services  to  create 
 uniform  program  offerings  across  regions  or  clusters.  We  also  asked  if  cable  operators  are  restructuring  their  programming  tiers  as  a  result  of  actual  or  potential  competition  and  if  such  restructuring  is  intended 
 to  differentiate  cable  service  from  other  MVPD  services.  490 


 482  Notice,  17  FCC  Rcd  at  11583. 
 483  47  U.  S.  C.    531.  Local  franchise  authorities  are  allowed  to  establish  procedures  under  which  the  cable  operator 
 may  utilize  unused  PEG  channel  capacity  for  other  services.  47  U.  S.  C.    531(  d)(  1).  484 
 http://  www.  alliancecm.  org/  about/  info.  htm.  PEG  channels  are  intended  to  provide  community-  specific  information,  such  as  bulletin  boards  for  local  activities,  local  civic  meetings,  and  local  governmental  activities.  In 


 addition  to  PEG  channels,  some  cable  operators  are  also  providing  local  and  regional  sports,  weather,  and  news  programming. 
 485  Comcast  Reply  Comments  at  7  n.  22. 
 486  See  Implementation  of  Section  25  of  the  Cable  Television  and  Consume  Protection  Act  of  1992,  Direct  Broadcast 
 Satellite  Public  Interest  Obligations,  13  FCC  Rcd  23254  (1998).  487 
 This  programming  includes  C-  SPAN,  Trinity  Broadcasting  Network,  PBS  Lifelong  Learning,  WorldLink  TV,  Eternal  Word  Television  Network,  Clara+  Vision,  Inspirational  Life,  NASA-  TV,  RFD-  TV,  The  Word,  and  BYU-TV. 


 It  does  not  count  C-  SPAN2  or  the  PBS  KIDS  channel  towards  this  obligation.  DirecTV  Comments  at  15.  488 
 Letter  from  David  R.  Goodfriend,  Director,  Legal  and  Business  Affairs,  EchoStar  Satellite  Corporation,  to  W.  Kenneth  Ferree,  Chief,  Media  Bureau,  FCC  (Nov.  19,  2002). 


 489  Under  our  rules,  a  DBS  provider  may  charge  no  more  than  50%  of  the  direct  costs  involved  in  making  capacity 
 available  to  carry  a  qualified  noncommercial  programmer  counted  in  satisfaction  of  the  set-  aside  rule.  See  47  C.  F.  R.    25.  701(  c)(  5). 


 490  Notice,  17  FCC  Rcd  at  11582. 
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 153.  Comcast  states  that  over  95%  of  its  cable  systems  have  been  upgraded  to  two-  way,  digital  communications.  It  says  that  its  digital  services  have  been  exceptionally  successful.  Comcast  also  relates 
 that  it  can  now  offer  its  customers  an  array  of  video  content  designed  to  meet  virtually  every  identified  viewing  interest.  491  It  maintains  that  VOD  functionality  will  further  stimulate  the  demand  for  digital 
 services,  and  provides  subscribers  with  even  more  control  over  their  viewing  choices.  492 
 154.  According  to  NCTA,  digital  cable  has  moved  beyond  the  introductory  phase  and  is  now  a  permanent  fixture  in  many  households.  The  expanded  capacity  made  possible  by  digital  compression 


 technology  has  enabled  programmers  to  launch  more  than  90  digital  channels,  offering  a  wide  range  of  genres,  including  sports,  music,  movies,  childrens,  family,  and  foreign  language  programming.  493  Digital 
 services  may  be  packaged  as  stand-  alone  packages  of  digital  video  channels,  or  in  combination  with  pay-per-  view  and  VOD.  NCTA  states  that  most  cable  systems  offer  a  choice  of  two  to  four  analog  and  digital 
 tiers  of  video  programming  consisting  of  broadcast  and  satellite-  delivered  networks.  They  also  offer  multiple  packages  of  premium  service  and  four  or  more  pay-  per-  view  networks.  494  The  transition  from 
 pure  analog  systems  to  combination  analog-  digital  systems  has  resulted  in  some  repackaging  and  re-tiering  of  services  to  provide  more  options  for  customers,  e.  g.,  AT&  T  Broadband  modified  its  digital  tiers 
 by  reconfiguring  its  digital  packages  to  add  more  non-  premium  programming  for  subscribers  who  do  not  want  digital  services.  495 


 155.  The  1992  Cable  Act  generally  prohibits  cable  operators  from  requiring  subscribers  to  purchase  a  particular  service  tier,  other  than  the  basic  service  tier,  in  order  to  obtain  access  to  video 
 programming  offered  on  a  per-  channel  or  per-  program  basis.  496  Cable  systems  that  lack  addressable  set  top  boxes,  or  are  restricted  by  other  technological  limitations,  were  afforded  a  ten-  year  grace  period  to 
 come  into  compliance  with  the  tier  buy-  through  requirement.  497  As  of  October  5,  2002,  cable  operators  are  no  longer  able  to  require  subscribers  to  purchase  cable  programming  service  tiers  in  order  to  access 
 premium  or  pay-  per-  view  channels  because  of  lack  of  equipment  or  technological  limitations.  In  the  absence  of  effective  competition  or  a  waiver,  all  cable  operators  are  now  subject  to  this  tier  buy-  through 
 prohibition. 
 156.  Programming  Costs.  The  Commissions  most  recent  report  on  cable  industry  prices  (  2001  Price  Survey  Report)  asked  cable  operators  to  describe  factors  that  led  to  changes  in  their  rates. 


 Competitive  and  noncompetitive  cable  operators  attributed  50.7%  and  46.1%,  respectively,  of  their  rate  increases  to  increases  in  programming  costs.  498  NCTA  states  that  cable  network  programming 


 491  Comcast  Comments  at  3-  4. 
 492  Id.  at  5. 
 493  NCTA  Comments  at  29. 
 494  Id.  at  30. 
 495  Id.  at  31. 
 496  Some  per  channel  services  are  offered  on  a  multiplexed  basis.  That  is,  the  subscriber  receives  essentially  the 
 same  programming  repeated  on  several  channels  on  a  different  time  schedule.  For  rate  regulation  purposes,  Congress  has  indicated  that  such  multiplexed  services  are  to  be  treated  as  if  a  single  channel  service  were  involved. 


 H.  R.  Rep.  No.  628,  102d.  Cong.,  2d  Sess.  80  (1992)  (  The  Committee  intends  for  these  multiplexed  premium  services  to  be  exempt  from  rate  regulation  to  the  same  extent  as  traditional  single  channel  premium  services  when 
 they  are  offered  as  a  separate  tier  or  as  a  stand-  alone  purchase  option.)  The  Commission  has  indicated  that  the  same  treatment  would  be  appropriate  for  purposes  of  the  tier  buy-  through  prohibition.  See  Implementation  of 
 Section  3  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  8  FCC  Rcd  2274,  n.  9  (1993).  497 
 Reminder  of  Tier  Buy-  Through  Requirements  for  Cable  Operators,  16  FCC  Rcd  17728  (MB  2001).  498 
 Inflation,  channel  additions,  and  system  upgrades,  were  also  said  to  account  for  a  large  portion  of  rate  increases.  See  2001  Price  Survey  Report,  17  FCC  Rcd  at  6311. 
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 expenditures  have  increased.  It  also  indicates  that  the  cable  industry  is  purchasing  higher  quality  programming.  NCTA  also  notes  that  there  has  been  a  phenomenal  growth  in  programming  networks.  499 
 It  is  unclear  from  NCTAs  comments  whether  the  increased  expenditures  are  the  result  of  higher  quality  programming,  increased  programming  purchases,  or  an  increase  in  the  price  of  individual  programming 
 networks.  500 
 157.  Closed  Captioning  and  Video  Description.  In  the  Notice,  we  sought  information  regarding  video  programming  providers  experiences  offering  closed  captioning  and  video  description.  501 


 In  August  of  2000,  the  Commission  adopted  rules  requiring  certain  larger  broadcasters  and  video  programming  distributors  to  provide  video  descriptions  for  some  of  their  programming.  Video 
 descriptions  are  descriptions  of  key  visual  elements  in  a  television  program,  inserted  into  the  natural  pauses  in  the  programs  audio,  distributed  in  the  programs  second  audio  channel.  These  descriptions  are 
 intended  to  make  television  programming  more  accessible  to  people  who  are  blind  or  visually  impaired.  502  ABC,  CBS,  Fox,  NBC,  PBS,  as  well  as  the  top  five  cable  networks,  Lifetime,  Nickelodeon,  TBS,  TNT, 
 and  USA  network,  and  Turner  Classic  Movies,  among  others,  have  been  providing  described  programming  either  on  their  own  or  pursuant  to  these  rules.  Described  programs  include,  for  example, 
 CSI:  Crime  Scene  Investigation  on  CBS,  Boston  Public  on  Fox,  Law  &  Order  on  TNT,  Lifetime  movies,  television  premieres  of  theatrical  films  and  specials  on  ABC  and  USA  Network,  and  Rugrats  and  Blues 
 Clues  on  Nickelodeon.  503  Video  descriptions  are  also  made  available  on  DVD  versions  of  some  feature  films.  On  November  8,  2002,  the  U.  S.  Court  of  Appeals  for  the  D.  C.  Circuit  vacated  the  Commissions 
 video  description  rules  finding  that  they  exceeded  the  Commissions  authority.  504 
 158.  Closed  captioning  requirements  also  exist  and  are  specifically  provided  for  in  the  Communications  Act.  505  Among  the  parties  commenting  in  this  proceeding,  DirecTV  states  that  it 


 provides  closed  captioning  on  every  channel  that  notifies  it  that  it  carries  closed  captioning.  506  DirecTV  states  that  it  has  46  local  channels  for  which  it  has  added  the  Second  Audio  Program  channel  to  carry 
 video  description.  Comcast  reports  that  it  is  in  full  compliance  with  the  closed  captioning  and  video  description  rules.  507  It  notes  that  its  programming  agreements  require  programmers  to  meet  or  exceed  the 
 Commissions  requirements  and  that  each  programmer  must  provide  it  with  quarterly  certifications  demonstrating  that  it  is  complying  with  the  rules.  During  2002,  Discovery  Communications  discovered 
 that  it  had  failed  to  close  caption  the  number  of  hours  of  programming  it  was  required  to  provide  pursuant  to  contracts  with  its  programming  distributors  on  four  of  its  cable  networks.  This  was,  in  part,  a 
 consequence  of  the  rescheduling  of  already  captioned  programs.  Discovery  took  steps  to  both  make  up 


 499  NCTA  Comments  at  37. 
 500  According  to  Kagan  World  Media,  programming  expenses  have  increased  from  $7.  2  billion  in  2001  to  $7.  9 
 billion  in  2002.  See  Economics  of  Basic  Cable  Networks  2002  at  433.  501 
 Notice,  17  FCC  Rcd  at  11584.  502 
 See  Video  Description  of  Video  Programming,  15  FCC  Rcd  15230  (2000).  503 
 See  e.  g.  www.  washear.  org/  dailylogs.  htm.  504 
 Motion  Picture  Association  of  America  v.  FCC,  2002  WL  31487186  (2002).  505 
 47  U.  S.  C    613.  506 
 DirecTV  Comments  at  15.  DirecTV  argues  that  it  faces  ever-  increasing  regulatory  burdens  on  its  system  capacity.  It  mentions  that  it  now  must  provide  video  description  services  for  certain  programming  along  with  closed 


 captioning,  comply  with  political  broadcasting  rules,  and  set  aside  four  percent  of  its  channel  capacity  for  noncommercial  programming  of  an  educational  or  informational  nature.  Id.  at  8-  9. 
 507  Comcast  Reply  Comments  at  7  n.  22. 
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 the  captioning  shortfall  for  each  channel  and  to  substantially  exceed  the  captioning  requirements  in  the  subsequent  quarter.  508 
 159.  Electronic  Programming  Guides.  Several  commenters  report  on  the  use  of  EPGs.  509  Gemstar  provides  two  different  EPGs    Guide  Plus+  and  TV  Guide  Interactive.  510  Guide  Plus+  is 
 available  to  all  television  viewers,  whether  or  not  they  subscribe  to  an  MVPD  because  it  is  transmitted  over  the  vertical  blanking  interval  (  VBI)  of  at  least  one  broadcast  station  in  most  markets.  A  consumer 
 needs  a  TV  receiver  that  contains  the  hardware  and  software  needed  to  receive  and  interact  with  this  guide.  Several  TV  manufacturers  include  this  technology  in  their  TV  receivers  and  about  seven  million 
 such  TVs  have  been  purchased.  511  Gemstars  provides  its  second  EPG,  TV  Guide  Interactive,  to  MVPDs  using  satellite  distribution.  Cable  operators  marketing  TV  Guide  Interactive,  often  under  their  own  brand 
 name,  generally  make  it  available  only  to  digital  tier  subscribers.  512  Gemstar  also  licenses  its  technology  to  competing  EPGs,  including  Ultimate  TV  and  AOL  TV.  Gemstars  revenues  are  generated  though 
 advertising  and  license  fees  from  manufacturers  and  others  using  its  technology.  513 
 160.  Comcast  reports  that  it  has  entered  into  a  long-  term  agreement  with  Gemstar  to  provide  EPGs  to  a  majority  of  its  subscribers.  It  also  uses  TVGateway,  a  joint  venture  of  Comcast  and  other  cable 


 operators,  on  several  systems,  including  Mobile,  Alabama,  and  Lower  Merion  and  Willow  Grove,  Pennsylvania.  514  DirecTV  states  that  all  of  its  subscribers  receive  a  fully  interactive  EPG,  which  is 
 produced  nationally  but  can  be  locally  customized.  515  DirecTVs  EPG  was  developed  by  and  is  owned  by  the  company  and  is  specific  to  its  technology.  DirecTV  does  not  charge  for  its  EPG,  nor  is  it  supported 
 by  advertising.  516  Utilicorp  states  that  it  currently  offers  two  different  EPGs  to  its  subscribers.  517 
 161.  Gemstar  further  addresses  regulatory  issues  related  to  EPGs  and  requests  that  the  Commission  adopt  a  policy  that  will  promote  a  competitive  EPG  market.  518  It  argues  that  incumbent 


 cable  operators  have  the  ability  and  incentive  to  discriminate  against  unaffiliated  EPGs  in  favor  of  their  own  services.  As  it  stated  in  its  comments  in  the  ITV  proceeding,  Gemstar  urges  the  adoption  of  rules 
 that  prohibit  discrimination  by  MVPDs  against  unaffiliated  EPGs  or  the  stripping  of  EPGs  carried  on  the  VBI  of  broadcast  stations.  519  Moreover,  it  contends  that  a  Commission  prohibition  of  interference  with 
 unaffiliated  EPGs  not  only  will  ensure  the  extent  of  competition  in  the  EPG  market,  but  it  also  will  ensure  whether  the  programming  market  is  fully  competitive.  520 


 508  Discovery  Communications,  17  FCC  Rcd  14600  (2002). 
 509  Notice,  17  FCC  Rcd  at  11584. 
 510  Gemstar  Reply  Comments  at  1,  3,  6-  7. 
 511  Id.  at  4. 
 512  Id.  at  4-  5. 
 513  Id.  at  5.  Gemstar  states  that  it  collects  subscriber  fees  from  approximately  17,000  subscribers  who  previously 
 received  EPG  service  from  StarSight,  a  company  Gemstar  purchased.  514 
 Comcast  Reply  Comments  at  5.  See  also  Gemstar  Reply  Comments  at  7.  515 
 DirecTV  Comments  at  18.  516 
 Id.  517 
 Utilicorp  Comments  at  10.  518 
 Gemstar  Reply  Comments  at  8-  12.  519 
 See  Nondiscrimination  in  the  Distribution  of  Interactive  Television  Services  Over  Cable  (  Interactive  Television  Notice),  16  FCC  Rcd  1321  (2001). 


 520  Gemstar  Reply  Comments  at  11-  12. 
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 C.  Technical  Issues 
 162.  In  this  section,  we  update  the  information  provided  in  the  2001  Report  regarding  navigation  devices  and  cable  modems.  521 


 1.  Cable  Modems 
 163.  Cable  modem  service  allows  cable  subscribers  to  access  high-  speed  data  services,  including  the  Internet,  Internet  Protocol  (  IP)  telephony,  and  video  conferencing.  Cable  modem 


 deployment  continues  to  increase,  with  manufacturers  shipping  1.46  million  cable  modems  in  North  America  during  the  first  quarter  of  2002.  522  Cable  modem  prices  have  declined,  ranging  in  price  from 
 $69-$  120,  depending  on  features.  523  The  percentage  of  purchased  modems  has  increased  substantially  relative  to  leased  modems,  with  one  analyst  estimating  that  by  2004,  approximately  32%  of  cable  modem 
 service  customers  will  purchase  rather  than  lease  cable  modems,  up  from  10%  in  2001.  524 
 164.  DOCSIS.  We  continue  to  report  on  the  progress  of  the  CableLabs  Certified  Cable  Modem  Project  (formerly  known  as  Data  Over  Cable  Service  Interface  Specification  or  DOCSIS),  which 


 defines  interface  requirements  for  cable  modems  and  cable  modem  termination  systems  (  CMTS)  used  for  high-  speed  data  distribution  over  DOCSIS  cable  systems.  CableLabs  provides  a  method  for  certifying 
 that  cable  modems  available  for  retail  sale  are  in  compliance  with  the  DOCSIS  specifications.  525  The  DOCSIS  1.0  specification  allows  cable  operators  to  deliver  high-  speed  Internet  services  on  a  best  effort 
 basis  simultaneously  over  the  same  plant  as  core  video  services.  526  CableLabs  has  certified  224  DOCSIS  1.0  modems  and  28  DOCSIS  1.0  CMTS.  527 


 165.  CableLabs  continues  to  improve  upon  DOCSIS  services  for  the  cable  industry.  It  developed  DOCSIS  1.1  to  provide  quality  of  service  (  QoS)  functionality  allowing  operators  to  offer 
 such  products  as  IP  telephony  and  tiered  services,  by  using  techniques  known  as  data  fragmentation,  concatenation,  and  payload  header  suppression.  IP  telephony  (also  called  voice-  over-  IP  or  VoIP)  is 
 expected  to  be  an  important  service  offering  from  cable  operators.  To  date,  CableLabs  has  certified  42  high-  speed  cable  modems  that  comply  with  the  DOCSIS  1.1  specification,  and  it  has  certified  eight 
 DOCSIS  1.1  CMTS.  528  In  January  2002,  CableLabs  completed  specifications  for  DOCSIS  2.0,  the  next 


 521  See  2001  Report,  17  FCC  Rcd  at  1318-  23. 
 522  NCTA  Comments  at  48.  For  example,  Comcast  distributed  cable  modems  though  1,200  retail  outlets  at  the  end 
 of  2001,  and  Cox  distributes  through  498  retail  locations,  including  major  electronics  retailers  CompUSA,  Circuit  City,  Best  Buy,  Office  Depot,  Radio  Shack  and  Gateway.  Some  manufacturers  distribute  their  DOCSIS  certified 


 modems  directly  to  consumers.  Motorola  distributes  cable  modems  directly  to  over  2,000  retail  outlets  throughout  the  United  States.  In  addition,  over  100  on-  line  retailers  sell  cable  modems.  Id. 
 523  Id. 
 524  Id.  at  50. 
 525  2000  Report,  16  FCC  Rcd  at  6092.  See  also  CableLabs,  at  http://  cablemodem.  com. 
 526  Best  effort  is  a  term  for  a  quality  of  service  class  with  no  specified  parameters  and  with  no  assurances  that  the 
 traffic  will  be  delivered  across  the  network  to  the  target  device.  Newtons  Telecom  Dictionary,  17  th  Edition,  at  88.  527 
 CableLabs,  DOCSIS  Certified/  Qualified  Product  Availability  Continues  to  Grow  (press  release),  Sept.  26,  2002.  CableLabs  initiated  certification  testing  of  DOCSIS  modems  in  1999  and  has  since  conducted  23  waves  of 


 certification,  with  the  latest  concluding  September  20,  2002.  528 
 Id.  CableLabs  states  that  equipment  built  to  comply  with  the  DOCSIS  1.  1  specification  is  capable  of  supporting  IP-  based  cable  services  offered  by  cable  providers,  including  home  networking,  packet  telephony  and  multimedia 


 services.  For  a  list  of  DOCSIS  certified  and  qualified  cable  modem  manufacturers,  see  CableLabs,  Certification  &  Qualification,  at  http://  www.  cablelabs.  com/  certqual/  whoiscertified.  html  (visited  Oct.  18,  2002).  For  a  list  of 
 (continued....) 
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 version,  which  builds  upon  the  capabilities  of  DOCSIS  1.0  and  DOCSIS  1.1  by  adding  throughput  and  robustness  in  the  upstream  portion  of  the  cable  plant,  from  the  consumer  out  to  the  Internet,  and  creating  a 
 network  that  has  30  megabit  per  second  (  Mbps)  capacity  in  both  directions.  529  This  increase  in  upstream  capacity  is  achieved  by  use  of  higher-  order  modulation,  improved  protection  from  RF 
 impairments,  higher  symbol  rates,  and  multiple  modulation  and  access  schemes  (  A-  TDMA  and  S-CDMA).  530  Both  DOCSIS  1.1  and  2.0  will  be  compatible  with  all  previous  versions  of  DOCSIS  cable 
 modems  and  CMTS. 
 166.  PacketCable.  PacketCable,  another  CableLabs  project,  is  intended  to  develop  interoperable  interface  specifications  for  delivering  advanced,  real-  time  multimedia  services  over  two-way 


 cable  plant.  Built  on  top  of  the  DOCSIS  cable  modem  infrastructure,  PacketCable  will  use  IP  technology  to  enable  a  wide  range  of  services,  including  IP  telephony,  multimedia  conferencing, 
 interactive  gaming,  and  general  multimedia  applications.  531  In  late  2001,  CableLabs  established  the  PacketCable  test  program  to  begin  qualifying  vendor  equipment  over  the  course  of  four  certification 
 waves  in  2002.  532  More  than  a  dozen  MSOs  are  conducting  technical  trials  based  on  the  PacketCable  specifications,  and  commercial  deployments  are  expected  to  begin  in  late  2002  and  into  2003.  533 


 2.  Navigation  Devices 
 167.  Section  629  of  the  Communications  Act  directed  the  Commission  to  adopt  rules  that  would  allow  consumers  to  obtain  navigation  devices,  such  as  cable  set-  top  boxes,  remote  control  units, 


 and  other  equipment,  from  commercial  sources  other  than  their  cable  providers.  534  In  1998,  the  Commission  adopted  rules  that  require  MVPDs  to  unbundle  security  from  other  functions  of  the 
 navigation  device  and,  by  July  1,  2000,  to  make  available  point-  of-  deployment  modules  (  PODs),  or  other  equipment,  to  separately  perform  the  conditional  access  function.  535  On  reconsideration,  the 
 Commission  deferred  application  of  the  rules  requiring  a  separate  security  module  for  analog-  only  devices.  536  Thus,  an  MVPD  subscriber  will  be  able  to  obtain  a  set-  top  box  without  the  security  features 


 (...  continued  from  previous  page)  DOCSIS-  certified  CMTS  manufacturers,  see  CABLE  DATACOM  NEWS,  DOCSIS  CMTS  Vendors,  at 
 http://  www.  cabledatacomnews.  com/  cmic/  docsiscmts.  html  (visited  Oct.  18,  2002).  529 
 CableLabs,  CableLabs  Completes  DOCSIS  2.0  Specs,  Enabling  More  Advanced  Modems  (press  release),  January  16,  2002.  Under  this  specification,  capacity  is  tripled,  facilitating  enhanced  services  such  as  video-  conferencing  and 


 peer-  to-  peer  applications.  530 
 See  CED  MAGAZINE,  at  http://  www.  cedmagazine.  com/  ced/  2002/  0602/  06wc.  htm  (visited  Nov.  7,  2002).  531 
 See  CableLabs,  at  http://  www.  packetcable.  com  (visited  Oct.  18,  2002).  532 
 CableLabs,  PacketCable  Qualification  Process  Ready  for  2002  (press  release),  Nov.  6,  2002.  More  than  40  vendors  have  submitted  products  for  experimentation  and  assessment.  Id.  CableLabs  has  not  yet  certified  any 


 vendors  equipment.  See  Karen  Brown,  PacketCable  Tests  Firm  Up  Cables  IP-  Telephony  Link,  BroadbandWeek.  com,  at  http://  www.  broadbandweek.  com/  news/  020603/  print/  020603_  telecom_  three.  htm  (visited 
 Oct.  18,  2002).  CableLabs  established  the  specifications  in  late  2000.  See  CableLabs,  Cablelabs  Releases  New  Interim  PacketCable  Specifications  (press  release),  Nov.  28,  2000. 
 533  NCTA  Comments  at  51. 
 534  47  U.  S.  C.    549. 
 535  47  C.  F.  R.    76.  1202  and  76.  1204.  See  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996, 
 Commercial  Availability  of  Navigation  Devices  (  Navigation  Report  and  Order),  13  FCC  Rcd  14775  (1998).  536 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996,  Commercial  Availability  of  Navigation  Devices,  14  FCC  Rcd  7596  (1999);  see  47  C.  F.  R.    76.  1204. 
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 (  host  device)  from  retailers  and  will  need  the  MVPD  to  provide  a  card-  sized  POD  module  for  security  functions.  537 
 168.  Through  the  OpenCable  project,  CableLabs  has  developed  specifications  for  the  POD  module  as  well  as  the  interface  that  a  host  device  needs  to  accommodate  the  POD.  538  CableLabs  also 
 developed  the  POD-  Host  Licensing  Agreement  (  PHILA)  to  provide  manufacturers  with  the  necessary  technology  to  make  PODs  work  in  host  devices.  539  The  Consumer  Electronics  Association  contends  that 
 although  technical  experts  in  the  consumer  electronics  (  CE)  and  cable  industries  have  developed  the  necessary  minimal  standards  for  digital  cable-  compatible  equipment,  there  remain  issues  that  the 
 industries  have  yet  to  resolve,  including  copy  protection,  digital  connectors,  support  for  pay-  per-  view  functions,  certification  process  and  Electronic  Program  Guides.  540  The  CE  industry  proposes  a  non-exclusive 
 agreement  and  suggests  a  number  of  alternative  provisions  to  the  existing  PHILA.  541  One  major  television  manufacturer,  Panasonic,  has  signed  the  PHILA,  allowing  Panasonic  to  develop, 
 manufacture,  and  market  digital  televisions  that  will  be  able  to  receive  high  definition  and  other  digital  programs  via  cable,  including  premium  services,  without  the  use  of  set-  top  boxes.  542 


 169.  CableLabs  is  continuing  its  efforts  to  develop  next  generation  navigation  devices  with  its  initiative  for  the  OpenCable  Application  Platform  1.0  (  OCAP)  or  middleware  specification.  The 
 specification,  completed  on  December  21,  2001,  is  designed  to  enhance  the  ability  of  the  consumer  electronics  industry  to  build  and  market  integrated  DTV  sets,  digital  set-  top  boxes,  and  other  navigation 
 devices  directly  to  consumers.  543  OCAP  1.  0  provides  specifications  for  the  downloading  and  execution  of  applications,  such  as  program  guides  and  interactive  content,  to  any  OCAP-  enabled  devices  by  any  cable 
 system  supporting  OCAP.  544  Six  MSOs  have  indicated  that  their  systems  will  support  CableLabs-certified,  OCAP-  enabled  devices  once  such  equipment  becomes  commercially  available.  545  In  February 
 2002,  major  electronics  manufacturers  including  Panasonic,  Philips,  Samsung,  Sharp,  and  Sony  participated  in  the  OCAP  Developers  Conference.  546  Fourteen  companies  have  indicated  they  will  build 


 537  The  POD  requirement  is  intended  to  permit  portability  among  set-  top  boxes,  which  will  increase  the  market  base 
 and  facilitate  volume  production.  Navigation  Report  and  Order,  13  FCC  Rcd  at  14793-  4.  538 
 See  CableLabs,  at  http://  www.  opencable.  com  (visited  Oct.  18,  2002).  539 
 Set-  top  box  manufacturers  Motorola  and  Scientific  Atlanta  have  signed  the  PHILA,  and  CableLabs  is  engaged  in  negotiations  over  the  PHILA  with  other  manufacturers.  Letter  from  William  A.  Check,  Vice  President,  Science  and 


 Technology,  NCTA,  to  Magalie  R.  Salas,  Secretary,  FCC,  Oct.  31,  2001.  540 
 See  Letter  from  Michael  Petricone,  Vice  President,  Technology  Policy,  CEA,  to  W.  Kenneth  Ferree,  Chief,  FCC  Media  Bureau  (Sept.  11,  2002),  at  1. 


 541  Id. 
 542  Panasonic,  Panasonic  is  First  Major  TV  Manufacturer  to  Sign  PHILA  Agreement  with  CableLabs  (press  release), 
 Oct.  17,  2002.  See  also  Bill  McConnell,  Plug-  and-  Play  is  On  the  Way,  BROADCASTING  &  CABLE,  Oct.  28,  2002,  at  42. 


 543  CableLabs,  CableLabs  Publishes  OCAP  Middleware  Specifications  (press  release),  Jan.  3,  2002.  OCAP  1.0 
 supports  a  JAVA-  based  Execution  Engine  (EE).  544 
 NCTA  Comments  at  44.  545 
 See  Letter  from  William  A.  Check,  Vice  President,  Science  &  Technology,  NCTA,  to  Michael  K.  Powell,  Chairman,  FCC  (Dec.  26,  2001),  Attachment.  Adelphia,  AT&  T  Broadband,  Charter,  Comcast,  Cox,  and  AOL  Time 


 Warner  indicated  their  support.  546 
 CableLabs,  Nearly  90  Firms  Attend  OCAP  Developers  Conference,  Interoperability  Testing  Event  (press  release),  Feb.  27,  2002.  See  also  NCTA  Comments  at  46. 
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 platforms  using  the  specification.  547  In  May  2002,  CableLabs  released  OCAP  2.0,  which  is  designed  to  support  additional  interactive  applications  in  consumer  devices.  548  The  Consumer  Electronics  Retailers 
 Coalition  has  expressed  concerns  that  the  OCAP  specification  contains  technical  requirements  that  are  not  consistent  with  the  Commission  rules  prohibiting  MVPDs  from  precluding  the  addition  of  features  or 
 functions  in  navigation  devices.  549 
 3.  Emerging  Services 
 170.  We  continue  to  monitor  development  of  interactive  television  (  ITV)  technologies  and  services.  The  Commission  has  described  ITV  as  a  service  that  supports  subscriber-  initiated  choices  or 


 actions  that  are  related  to  one  or  more  video  programming  streams.  550  Such  services  may  include  VOD,  551  PVR,  gaming,  e-  mail,  TV-  based  e-  commerce  (  t-  commerce),  interactive  advertising,  Internet 
 access,  and  program-  related  enhanced  content.  552  Cable  MSOs  and  DBS  operators  continue  to  develop  these  services  as  measures  to  increase  subscribership,  develop  new  streams  of  revenue,  and  reduce  churn. 
 We  note  that  to  date  commercial  two-  way  interactive  service  deployments  have  been  very  limited.  553  According  to  one  analysis,  there  were  12.7  million  ITV  households,  or  11.8%  of  total  households 
 (  THH),  at  the  end  of  2001,  and  projected  estimates  of  22.1  million  (20.3%  THH)  by  year  end  2002,  33.4  million  (30.4%  THH)  in  2003,  45.7  million  (41.1%  THH)  in  2004,  and  58.2  million  (51.9%  THH)  in 
 2005.  554  Revenue  projections  for  ITV  vary,  depending  on  the  services  included  in  the  mix,  but  one  analysis  estimates  revenues  increasing  from  $467.8  million  in  2001  to  over  $11.5  billion  in  2005,  with 


 547  CableLabs,  14  Companies  Respond  to  CableLabs  Software  RFP  (press  release),  Sept.  30,  2002.  The  purpose  of 
 the  RFP  was  to  solicit  industry  implementations  of  OCAP  to  hasten  the  ability  of  cable  operators  to  launch  new  services  made  possible  by  OCAP.  Id. 


 548  CableLabs,  CableLabs  Publishes  OCAP  2.  0  Middleware  Specifications  (press  release),  May  6,  2002.  OCAP  2.  0 
 extends  the  specification  by  adding  support  for  web-  based  Presentation  Engines,  such  as  xHTML,  XML,  and  ECMAScript. 


 549  See  Consumer  Electronics  Retailers  Association,  Answers  of  Consumer  Electronics  Retailers  Coalition  to 
 Hoedown  Questions  Regarding  Cable  Industrys  Draft  POD  Host  Interface  License  Agreement,  filed  June  6,  2002  in  CS  Docket  No.  97-  80. 


 550  See  Interactive  Television  Notice  fn.  519  supra.  The  Commission  sought  comment  on  whether  rules  are 
 necessary  to  prevent  anticompetitive  behavior  and  to  promote  diversity  and  capital  investments  in  the  ITV  market.  551 
 See    39-  41,  69,  and  106  supra  for  discussions  of  VOD  developments.  552 
 2000  Report,  16  FCC  Rcd  at  6088.  One  analyst  defines  ITV  as  two-  way  interactive  services  designed  for  the  TV  offered  by  any  type  of  TV  operator    cable,  satellite,  terrestrial  broadcast    with  a  return  path  via  cable,  wireless  or 


 dial-  up.  See  2002  Emarketer  Study,  fn.  99  supra,  at  36.  NCTA  defines  ITV  as  a  combination  of  television  with  interactive  content  and  enhancements,  providing  a  richer  entertainment  experience  as  well  as  information,  blending 
 traditional  viewing  with  the  interactivity  of  a  personal  computer.  ITV  features  can  include  graphics,  Internet  access,  e-  mail,  chat,  instant  messaging,  home  shopping,  home  banking,  interactive  games,  on-  demand  services  such  as 
 weather  and  financial  information,  pay-  per-  view,  and  video  on  demand.  See  NCTA,  Cable  Developments  2002,  Volume  26,  Number  1,  at  239. 
 553  Jennifer  Lee,  Interactive  TV  is  Finally  Here,  Sort  Of,  NEW  YORK  TIMES,  Apr.  4,  2002,  at  E1. 
 554  2002  Emarketer  Study  at  105.  This  forecast  counts  households  using  stand-  alone  PVRs  and  web/  Internet  TV 
 services  as  well  as  interactive  program  guide  services  that  use  a  return  channel.  In  addition,  this  forecast  is  based  on  several  assumptions:  1)  that  the  growth  of  ITV  households  directly  correlates  with  the  growth  of  digital  TV 


 households,  particularly  digital  cable  services;  2)  that  the  demand  for  premium  digital  content  and  a  corresponding  demand  for  interactive  program  guide  and  PVR  functionality  will  drive  digital  TV  and  ITV  services;  and  3)  that 
 cable  companies  will  need  to  offer  additional  interactive  services  in  order  to  raise  the  average  revenue  per  subscriber  and  prevent  churn  to  DBS  providers.  Id. 
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 subscription  services  accounting  for  nearly  half  of  all  revenues,  followed  by  interactive  advertising  and  e-commerce.  555 
 171.  A  number  of  companies  are  involved  in  developing  the  technical  standards,  equipment  and  software  necessary  to  provide  ITV  services.  556  CableLabs  has  recommended  that  cable  operators 
 include  the  European  Digital  Video  Broadcast-  Multimedia  Home  Platform  (  DVB-  MHP)  application  program  interface  in  the  OCAP  specification  in  order  to  support  ITV  software  applications  in  the  United 
 States.  557  In  terms  of  production  of  ITV  content  and  applications,  the  multiple  but  incompatible  platforms  in  use  today  have  slowed  their  development.  In  May  2002,  the  ITV  Production  Standards  Initiative,  led 
 by  GoldPocket,  released  version  1.0  of  its  XML  specification  for  writing  interactive  television  programs.  558  TVXML  Forum  was  formed  in  June  2002,  but  its  focus  is  primarily  on  potential  ITV 
 messaging  applications  and  the  goal  of  unifying  communications  protocols  between  television,  mobile  phone  and  home  PC  platforms.  559  The  group  is  planning  to  release  its  first  specification  sometime  in 
 2003.  560  Over  the  past  year,  there  has  been  consolidation  among  the  major  ITV  middleware  developers.  561  Major  cable  operators,  DBS  operators,  and  some  overbuilders  have  agreements  with 
 companies  such  as  Liberate,  Wink,  Open  TV,  Worldgate,  and  GoldPocket. 
 IV.  ADMINISTRATIVE  MATTERS 
 172.  This  2002  Report  is  issued  pursuant  to  authority  contained  in  sections  4(  i),  4(  j),  403,  and  628(  g)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  154(  j),  403,  and  548(  g). 


 173.  It  is  ORDERED  that  the  Office  of  Legislative  Affairs  shall  send  copies  of  this  2002  Report  to  the  appropriate  committees  and  subcommittees  of  the  United  States  House  of  Representatives 
 and  the  United  States  Senate. 


 555  2002  Emarketer  Study  at  109.  Myers  Mediaenomics  estimates  that  revenues  will  reach  $4.5  billion  in  2005,  from 
 $378  million  in  2001;  McKinsey  Consulting  estimates  revenues  of  $17.5  billion  in  2005  (but  provides  no  forecast  from  2001  2004);  and  ABN-  AMRO  estimates  revenues  of  $20  billion  in  2005,  from  $359.5  million  in  2001.  Id.  at 


 109-  110.  556 
 Major  ITV  middleware  and  content  providers  include  Libertys  OpenTV,  ACTV  and  Wink;  Liberate;  Worldgate;  and  GoldPocket  Interactive. 


 557  CableLabs  Adopts  Set-  top  ITV  Specs,  BROADCASTING  &  CABLE,  Nov.  16,  2001.  CableLabs  believes  that  by 
 adding  this  specification  to  the  OCAP  compliant  digital  set-  top  boxes,  ITV  producers  will  be  able  to  develop  content  in  a  common  format  for  worldwide  distribution.  Id. 


 558  ITV  Standards,  Full  Specification  of  ITV  Content  Production  Standards  Published  at  Cable  2002  Conference 
 (press  release),  May  6,  2002.  According  to  ITV  Standards,  the  production  standards,  based  on  extensible  markup  language  (  XML),  establish  a  method  for  content  production  for  interactive  programs,  by  specifying  a  common 


 nomenclature  and  method  for  describing  the  timing  and  content  of  interactive  assets  such  as  trivia  games,  polls,  interactive  advertising,  leader  boards,  and  other  interactive  content,  across  set-  top  box  middleware  platforms.  See 
 ITV  Standards,  at  http://  www.  itvstandards.  org/  iTVPublic/  overview.  aspx.  559 
 Karen  Brown,  Forum  Seeks  Common  ITV  Message,  BROADBAND  WEEK,  June  3,  2002.  See  also  Duffy  Hayes,  ITV  End  Game,  CED  MAGAZINE,  Aug.  2002  available  at  http://  www.  cedmagazine.  com/  ced/  2002/  0802/  id1.  htm 


 (visited  Nov.  15,  2002).  The  forum  counts  over  100  member  companies  operators,  equipment  vendors,  content  providers,  and  third  party  application  developers. 
 560  Id. 
 561  See,  e.  g.,  Christopher  Saunders,  Liberty-  Backed  OpenTV  Acquires  ACTV,  Wink,  INTERNETNEWS.  COM,  Sept.  26, 
 2002,  available  at  http://  www.  internetnews.  com/  IAR/  article.  php/  1470941  (visited  Nov.  15,  2002). 
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 174.  It  is  FURTHER  ORDERED  that  the  proceeding  in  MB  Docket  No.  02-  145  IS  TERMINATED. 
 FEDERAL  COMMUNICATIONS  COMMISSION 


 Marlene  H.  Dortch  Secretary 
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 APPENDIX  A  List  of  Commenters 
 Initial  Comments 
 AT&  T  Corp.  (  AT&  T)  Broadband  Service  Providers  Association  (  BSPA) 
 Comcast  Corporation  (  Comcast)  DIRECTV,  Inc.  (  DirecTV) 
 EchoStar  Satellite  Corporation  (  EchoStar)  John  Emerson  (  Emerson) 
 Hometown  Online,  Inc.  (  Hometown)  National  Cable  &  Telecommunications  Association  (  NCTA) 
 National  Rural  Telecommunications  Cooperative  (  NRTC)  Satellite  Broadcasting  and  Communications  Association  (  SBCA) 
 South  Dakota  Network,  LLC  (  South  Dakota)  State  of  Hawaii  (  Hawaii) 
 Utilicorp  Communications  Services,  Everest  Connections  Corporation,  and  Ex-  Op  of  Missouri,  Inc.  (  Utilicorp) 


 Reply  Comments 
 AT&  T  Corp.  (  AT&  T)  Cablevision  Systems  Corporation  (  Cablevision) 
 Comcast  Corporation  (  Comcast)  DIRECTV,  Inc.  (  DirecTV) 
 EchoStar  Communications  (  EchoStar)  Gemstar-  TV  Guide  International  (  Gemstar-  TV  Guide) 
 Hometown  Online,  Inc.  (  Hometown)  Kansas  City  Cable  Partners  d/  b/  a  Time  Warner  Cable  KCCP  (Kansas  City  Cable 
 Partners)  National  Association  of  Broadcasters  (  NAB) 
 National  Cable  &  Telecommunications  Association  (  NCTA)  National  Rural  Telecommunications  Cooperative  (  NRTC) 
 Northpoint  Technology  (  Northpoint)  Organization  for  the  Promotion  and  Advancement  of  Small  Telecommunications  (  OPASTCO) 
 Satellite  Broadcasting  and  Communications  Association  (  SBCA)  SES  Americom  (  SES) 
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 APPENDIX  B  TABLE  B-  1 
 Assessment  of  Competing  Technologies  (i) 
 Technology  Used  June  98  June  99  June  00  June  01*  June  02 


 (1)  TV  Households  Percent  Change  98,  000,  000  1.03%  99,  400,  000  1.43%  100,  801,720  1.41%  102,  184,810  1.37%  105,  444,330  3.19% 
 (2)  MVPD  Households  (ii)  Percent  Change 
 Percent  of  TV  Households 
 76,  634,  200  4.06% 
 78.  20% 
 80,  882,  411  5.54% 
 81.  37% 
 84,  423,  717  4.38% 
 83.  75% 
 87,  830,  074  4.60% 
 86.  42% 
 89,  890,  641  1.79% 
 85.  25% 
 (3)  Cable  Subscribers  Percent  Change 
 Percent  of  MVPD  Total 
 65,  400,  000  1.95% 
 85.  34% 
 66,  690,  000  1.97% 
 82.  45% 
 67,  700,  000  1.51% 
 80.  19% 
 68,  500,  000  1.18% 
 77.  99% 
 68,  800,  000  0.00% 
 76.  54% 
 (4)  MMDS  Subscribers  Percent  Change 
 Percent  of  MVPD  Total 
 1,000,000  -9.  09% 
 1.30% 
 821,000  -17.90% 
 1.02% 
 700,000  -14.74% 
 0.83% 
 700,000  0.0% 
 0.80% 
 490,000  -30.00% 
 0.55% 
 (5)  SMATV  Subscribers  Percent  Change 
 Percent  of  MVPD  Total 
 940,000  -19.14% 
 1.23% 
 1,450,000  54.  26% 
 1.79% 
 1,500,000  3.45% 
 1.78% 
 1,500,000  0.0% 
 1.71% 
 1,600,000  6.67% 
 1.78% 
 (6)  HSD  Subscribers  Percent  Change 
 Percent  of  MVPD  Total 
 2,028,200  -7.  15% 
 2.65% 
 1,783,411  -12.07% 
 2.20% 
 1,476,717  -17.20% 
 1.75% 
 1,000,074  -32.28% 
 1.14% 
 700,641  -29.94% 
 0.78% 
 (7)  DBS  Subscribers  Percent  Change 
 Percent  of  MVPD  Total 
 7,200,000  42.  66% 
 9.40% 
 10,  078,  000  39.  97% 
 12.  46% 
 12,  987,  000  28.  86% 
 15.  38% 
 16,  070,  000  23.  74% 
 18.  30% 
 18,  240,  000  13.  66% 
 20.  29% 
 (8)  OVS  Subscribers  (iii)  Percent  Change 
 Percent  of  MVPD  Total 
 66,  000  2100.  00% 
 0.09% 
 60,  000  -9.  09% 
 0.07% 
 60,  000  0.0% 
 0.07% 
 60,  000  0.0% 
 0.07% 
 60,  000  0.0% 
 0.07% 


 *  -  The  source  revised  the  number  used  for  cable  subscribers  as  of  June  2001.  This  column  has  been  modified  accordingly. 
 Notes:  (i)  Some  numbers  have  been  rounded. 
 (ii)  The  total  number  of  MVPD  households  is  likely  to  be  somewhat  less  than  the  given  figure  since  some  households  subscribe  to  the  services  of  more  than  one  MVPD.  See  1994  Report,  9  FCC  Rcd  at  7480. 
 However,  the  number  of  households  subscribing  to  more  than  one  MVPD  is  expected  to  be  low.  Hence  the  given  total  can  be  seen  as  a  reasonable  estimate  of  the  number  of  MVPD  households. 
 (iii)  The  decline  in  OVS  subscribers  since  1998  reflects  the  conversion  of  portions  of  some  OVS  systems  to  franchised  cable  systems  over  the  last  three  years. 
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 Sources: 
 (1)  Television  households:  1998  from  Nielsen  Media  Research  as  cited  in  Broadcasting  &  Cable,  June  29,  1998,  at  70;  1999  from  Nielsen  Media  Research  as  cited  in  Broadcasting  &  Cable,  June  28,  1999,  at  26;  and  2000  -  2002 
 from  Nielsen  Media  Research. 
 (2)  Total  MVPD  households:  The  sum  of  the  total  number  of  subscribers  listed  under  each  of  the  categories  of  the  various  technologies.  See  note  (ii)  above. 


 (3)  Cable  subscribers:  1998  from  Paul  Kagan  Associates,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections,  Cable  TV  Investor,  August  10,  1998,  at  4;  1999  from  Paul  Kagan  Associates,  Inc.,  Cable  Industry 
 10-  YearProjections,  Cable  TV  Investor,  June  25,  1999,  at  6;  2000  from  Paul  Kagan  Associates,  Inc.,  Cable  Industry  10-  YearProjections,  Cable  TV  Investor,  June  19,  2000,  at  6;  2001  from  Kagan  World  Media,  Kagans 
 10-  Year  Cable  TV  Industry  Projections,  Broadband  Cable  Financial  Databook  2001,  July  2001,  at  10;  and  2002  from  Kagan  World  Media,  Kagans  10-  Year  Cable  TV  Industry  Projections,  Broadband  Cable  Financial 
 Databook  2002,  July  2002,  at  10. 
 (4)  MMDS  subscribers:  The  1998  and  1999  subscribers  estimated  by  the  FCC;  2000  subscribers  from  NCTA  Comments  for  the  2000  Report  at  9;  2001  subscribers  from  NCTA  Comments  for  the  2001  Report  at  7;  and 
 2002  subscribers  from  NCTA  Comments  at  12. 
 (5)  SMATV  subscribers:  1998  subscribers  from  NCTA  1998  Comments  at  6;  1999  subscribers  from  NCTA  Comments  for  the  2000  Report  at  5;  and  2001  subscribers  from  NCTA  Comments  for  the  2001  Report  at  9;  and 
 2002  subscribers  from  NCTA  Comments  at  12. 
 (6)  HSD  subscribers:  1998-  2000  from  SkyReport.  com  at  http://  www.  skyreport.  com/  dth_  us.  htm;  2001  from  SBCA  Comments  for  the  2001  Report  Table  1  at  4;  and  2002  from  SkyReport.  com  at  http:// 
 www.  skyreport.  com/  dth_  us.  htm. 
 (7)  DBS  subscribers:  1998  from  Minal  Damani  and  Jennifer  E.  Sharpe,  U.  S.  DBS  Marketplace:  1998,  The  Strategis  Group,  July,  1998  at  6;  1999-  2000  from  SkyReport.  com  at  http://  www.  skyreport.  com/  dth_  us.  htm; 
 2001  from  SBCA  Comments  for  the  2001  Report,  Table  1  at  4;  and  2002  from  SkyReport.  com  at  http://  www.  skyreport.  com/  dth_  us.  htm. 


 (8)  OVS  subscribers:  OVS  subscriber  count  for  1997  through  2002  estimated  by  the  FCC. 
76
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 TABLE  B-  2  Number  and  Subscriber  Size  of  Major  Cable  System  Clusters 
 (Cumulative  Figures) 
 1998  1999  2000  2001  Range  of  Clustered 
 Subscribers  (thousands)  Clusters  Subscribers  (millions)  Clusters  Subscribers  (millions)  Clusters  Subscribers  (millions)  Clusters  Subscribers(  (millions) 
 100-  199  33  4.6  41  5.4  26  3.6  30  4.3 
 200-  299  25  6.3  16  4  13  3.2  17  4.2 
 300-  399  20  6.7  20  6.8  22  7.4  18  6.1 
 400-  499  7  3.2  9  3.9  13  5.9  10  4.4 
 >500  21  19.  6  28  23.  8  34  34.  3  32  33.  3 
 Total  106  40.  4  114  43.  9  108  54.  4  107  52.  3 


 Sources: 
 Paul  Kagan  Associates,  Inc.,  Major  Cable  TV  Systems/  Clusters,  The  Cable  TV  Financial  Databook,  1997,  at  39-  41;  1998,  at  38-  42;  1999,  at  50-  55;  2000  from  Kagan  World  Media,  Major  Cable  TV 
 Systems/  Clusters,  Broadband  Cable  Financial  Databook  2001  at  36;  and  2001  from  Kagan  World  Media,  Major  Cable  TV  Systems/  Clusters,  Broadband  Cable  Financial  Databook  2002  at  38. 
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 TABLE  B-  3  2002  Concentration  in  the  National  Market  for  Purchase  of  Video  Programming  (1) 
 Rank  Company  Percent  of  Subscribers  (2) 
 1  AT&  T  14.75 
 2  Time  Warner  14.29 
 3  DirecTV  11.99 
 4  Comcast  9.46 
 Top  4  50.48 
 5  EchoStar  8.30 
 6  Charter  7.55 
 7  Cox  6.95 
 8  Adelphia  6.07 
 Top  8  79.35 
 9  Cablevision  3.33 
 10  Mediacom  1.76 
 Top  10  84.44 
 Top  25  90.26 
 Top  50  92.05 
 HHI  884  (3) 


 Notes: 
 (1)  MSO  subscriber  totals  as  of  June  2002,  and  reported  in  Top  Cable  System  Operators  as  of  June  2002,  Kagan  World  Media,  Cable  TV  Investor,  Sept.  30,  2002,  at  9-  10.  There  is  no  double  counting  of 
 subscribers.  If  a  cable  operator  is  partially  owned  by  more  than  one  MSO,  its  subscribers  are  assigned  to  the  largest  MSO.  Subscribers  for  DirecTV  and  EchoStar  are  based  on  SkyReport.  com  at 
 http://  www.  skyreport.  com/  dth_  us.  htm. 
 (2)  The  total  number  of  MVPD  subscribers  used  to  calculate  the  HHI  is  89,890,641  from  Table  B-  1. 
 (3)  The  HHI  is  calculated  on  the  basis  of  market  shares  for  the  top  60  companies.  Because  all  of  the  remaining  MVPDs  have  very  small  shares  of  the  market,  an  HHI  calculation  that  included  all  cable 
 system  operators  could  only  be  slightly  higher  (no  more  than  2-  3  points)  than  the  given  HHI. 
78
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 TABLE  B-  4  Concentration  in  the  National  Market  for  the  Purchase  of  Video  Programming 
 1999-  2002 


 Percent  of  MVPD  Subscribers  Market  Share  1999  2000  2001  2002 
 Top  Share  20.50  19.07  16.44  14.75 
 Top  2  36.45  33.99  30.79  29.04 
 Top  3  45.68  44.27  42.11  41.03 
 Top  4  53.94  52.70  51.64  50.48 
 Top  10  74.95  83.90  84.29  84.44 
 Top  25  84.92  89.75  89.70  90.26 
 Top  50  89.58  92.14  91.38  92.05 
 HHI  923  954  905  884 


 Sources: 
 Data  for  1999  through  2001  were  taken  from  Reports,  1998-  2001.  Data  for  2002  are  from  Table  B-  3. 
79
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 APPENDIX  C  TABLE  C-  1 
 MSO  Ownership  in  National  Video  Programming  Services 
 Programming  Service  Launch  Date  MSO  Ownership  (%) 
 Action  Max  Jun-  98  AOL  Time  Warner  (100) 
 American  Movie  Classics  (AMC)  Oct-  84  Cablevision  (60) 
 Animal  Planet  Oct-  96  Liberty  Media  (39.2),  Cox  (19.7) 
 @Max  May-  01  AOL  Time  Warner  (100) 
 Black  STARZ!  Feb-  97  Liberty  Media  (100) 
 Canales    (6  digital  channels)  *  Oct-  98  Liberty  Media  (90) 
 Cartoon  Network  Oct-  92  AOL  Time  Warner  (100) 
 Cinemax  Aug-  80  AOL  Time  Warner  (100) 
 CNN  Jun-  80  AOL  Time  Warner  (100) 
 CNN  En  Espaol  Mar-  97  AOL  Time  Warner  (100) 
 CNN  Headline  News  Jan-  82  AOL  Time  Warner  (100) 
 CNN  International  Jan-  95  AOL  Time  Warner  (100) 
 CNNfn  Dec-  95  AOL  Time  Warner  (100) 
 Comedy  Central  Apr-  91  AOL  Time  Warner  (50) 
 Court  TV  Jul-  91  Liberty  Media  (50)  AOL  Time  Warner  (50) 


 Discovery  Channel  Jun-  85  Liberty  Media  (50),  Cox  (24.6) 
 Discovery  Civilization  Oct-  96  Liberty  Media  (25),  Cox  (12.3) 
 Discovery  En  Espaol  Aug-  98  Liberty  Media  (50),  Cox  (24.6) 
 Discovery  Health  Jul-  98  Liberty  Media  (50),  Cox  (24.6),  Comcast  (20) 


 Discovery  HD  Theatre  Jun-  02  Liberty  Media  (50),  Cox  (24.6).  Comcast  (20) 
 Discovery  Home  &  Leisure  Oct-  96  Liberty  Media  (50),  Cox  (24.6) 
 Discovery  Kids  Oct-  96  Liberty  Media  (50),  Cox  (24.6) 
 Discovery  Science  Channel  Oct-  96  Liberty  Media  (50),  Cox  (24.6) 
 Discovery  Wings:  The  Aviation  and  Adventure  Network  Jul-  98  Liberty  Media  (50),  Cox  (24.6) 


 *  Canales  ,  Liberty  Medias  digital  package  of  Spanish-  language  channels,  consists  of  FoxSportsAmericas, 
 CBS  Telenoticias,  CineLatino,  BoxTejano,  BoxExitos,  and  Canal  9. 
80
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 Programming  Service  Launch  Date  MSO  Ownership  (%) 
 E!  Entertainment  Jun-  90  Comcast  (50) 
 Encore  Apr-  91  Liberty  Media  (100) 
 Encore  Action  Sept-  94  Liberty  Media  (100) 
 Encore  Love  Stories  Jul-  94  Liberty  Media  (100) 
 Encore  Mystery  Jul-  94  Liberty  Media  (100) 
 Encore  True  Stories  Sept-  94  Liberty  Media  (100) 
 Encore  WAM!  America's  Youth  Network  Sept-  94  Liberty  Media  (100) 


 Encore  Westerns  Jul-  94  Liberty  Media  (100) 
 5StarMax  May-  01  AOL  Time  Warner  (100) 
 FoxSports  (2)  channels  Various  Cablevision  (50) 
 Fox  Sports  Latin  America  Nov-  96  Liberty  Media  (50) 
 G4  Video  Gaming  Network  Jun-  02  Comcast  (94) 
 GEMS  International  Television  Apr-  93  Liberty  Media  (100) 
 Golf  Channel  Jan-  95  Comcast  (91) 
 Hallmark  Channel  (formerly  Odyssey)  Oct-  93  Liberty  Media  (32.5) 
 HBO  (Home  Box  Office)  Nov-  72  AOL  Time  Warner  (100) 
 HBO  Latino  Nov-  00  AOL  Time  Warner  (100) 
 HBO  2  Oct-  98  AOL  Time  Warner  (100) 
 HBO  Signature  Oct-  93  AOL  Time  Warner  (100) 
 HBO  Comedy  May-  99  AOL  Time  Warner  (100) 
 HBO  Family  Dec-  96  AOL  Time  Warner  (100) 
 HBO  Zone  May-  99  AOL  Time  Warner  (100) 
 Home  Shopping  Network  Jul-  85  Liberty  Media  (20) 
 iN  Demand  Nov-  85  Comcast  (55),  AOL  Time  Warner  (33),  Cox  (11) 


 Independent  Film  Channel  Sep-  94  Cablevision  (60) 
 International  Channel  Jul-  90  Liberty  Media  (90) 
 MoreMAX  Aug-  91  AOL  Time  Warner  (100) 
 MoviePlex  Oct-  94  Liberty  Media  (100) 
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 Programming  Service  Launch  Date  MSO  Ownership  (%) 
 Much  Music  USA  Jul-  94  Cablevision  (75) 
 Outdoor  Life  Network  Jul-  95  Comcast  (100) 
 OuterMax  May-  01  AOL  Time  Warner  (100) 
 Ovation:  The  Arts  Network  Apr-  96  AOL  Time  Warner  (4.2) 
 PIN  (Product  Information  Network)  Apr-  94  Cox  (45) 
 Prevue  Channel  Jan-  88  Liberty  Media  (51) 
 QVC  Nov-  86  Comcast  (57),  Liberty  Media  (43) 
 Sci-  Fi  Channel  Sept-  92  Liberty  Media  (20) 
 Sneak  Prevue  (TV  Guide)  May-  91  Liberty  Media  (12) 
 Starz!  Feb-  94  Liberty  Media  (100) 
 Starz!  Cinema  May-  99  Liberty  Media  (100) 
 Starz!  Family  May-  99  Liberty  Media  (100) 
 Starz!  Theater  Mar-  96  Liberty  Media  (100) 
 Style  May-  99  Comcast  (50) 
 TBS  Dec-  76  AOL  Time  Warner  (100) 
 TLC  (The  Learning  Channel)  Nov-  80  Liberty  Media  (50),  Cox  (24.6) 
 Thriller  Max  Jun-  98  AOL  Time  Warner  (100) 
 TNT  (Turner  Network  Television)  Oct-  88  AOL  Time  Warner  (100) 
 Travel  Channel  Feb-  87  Liberty  Media  (50),  Cox  (24.6) 
 Turner  Classic  Movies  Apr-  94  AOL  Time  Warner  (100) 
 USA  Network  Apr-  80  Liberty  Media  (20) 
 Viewers  Choice  1-  10  and  Hot  Choice  (11  multiplexed  channels)  Nov-  85  Cox(  20),  AOL  Time  Warner  (17) 


 WE  Jan-  97  Cablevision  (60) 
 WMAX  May-  01  AOL  Time  Warner  (100) 


 Sources:  NCTA,  Directory  of  Program  Services,  Cable  Developments  2002,  at  29-  141. 
 Liberty  Media  Corp.,  at  http://  www.  libertymedia.  com/  our_  affiliates/  video_  programming.  htm 
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 TABLE  C-  2  National  Video  Programming  Services 
 Not  Affiliated  With  a  Cable  Operator 
 Programming  Service  Launch  Date 
 A&  E  (Arts  &  Entertainment)  Feb-  84 
 ABC  Family  (formerly  Fox  Family  Channel)  Apr-  77 
 ACNTV  (Americas  Collectibles  Network)  Oct-  93 
 All  News  Channel  Nov-  89 
 America's  Store  Sep-  86 
 ANA  Television  Network  Dec-  91 
 ART  (Arab  Radio  &  Television)  1999 
 Beauty  Channel  Sep-  02 
 BBC  America  Mar-  98 
 BET  Jan-  80 
 BET  Action  Pay  Per  View  Sep-  90 
 BET  Gospel  Jul-  02 
 BET  Hip  Hop  Jul-  02 
 BET  Jazz:  The  Jazz  Channel  Jan-  96 
 BET  Movies  Feb-  97 
 Biography  Channel  Dec-  98 
 Black  Belt  TV:  The  Martial  Arts  Network  Jun-  02 
 Bloomberg  Television  Jan-  95 
 B  Mania  Nov-  00 
 Boating  Channel  Nov-  98 
 Box  Music  Network  Dec-  85 
 Bravo  Feb-  80 
 Buzztime  Entertainment  1984 
 Canal  Sur  Aug-  91 
 CCTV-  4  (China  Central  Television)  1995 
 CelticVision  Mar-  95 
 Church  Channel  Jan-  02 
 Classic  Arts  Showcase  May-  94 
 CMT  (Country  Music  Television)  Mar-  83 
 CNBC  Apr-  89 
 CNET:  The  Computer  Network  Jan-  95 
 College  Entertainment  Network  Jan-  97 
 Crime  Channel  Jul-  93 
83
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 Programming  Service  Launch  Date 
 C-  SPAN  Mar-  79 
 C-  SPAN2  Jun-  86 
 C-  SPAN3*  Sep-  97 
 Deep  Dish  TV  Jan-  86 
 Disney  Channel  Apr-  83 
 Do-  It-  Yourself  Channel  Sep-  99 
 Dream  TV  Network  Nov-  96 
 Ecology  Communications  Nov-  94 
 Enlace  Nov-  96 
 ESPN  Sep-  79 
 ESPN  Classic  Sports  (formerly  Classic  Sports  Network)  May-  95 
 ESPN2  Oct-  93 
 ESPNEWS  Nov-  96 
 ESPN  EXTRA  Sep-  99 
 ESPN  NOW  Sep-  99 
 ESPN  Today  Jun-  01 
 ETC  (The  Erotic  Network)  Jul-  00 
 EWTN:  Global  Catholic  Network  Aug-  81 
 Extasy  Feb-  98 
 Filipino  Channel  Apr-  94 
 Fine  Living  Mar-  02 
 Flix  Aug-  92 
 Food  Network  Nov-  93 
 Fox  Movie  Channel  Nov-  94 
 Fox  News  Channel  Oct-  96 
 Fox  Sports  World  Nov-  97 
 Fox  Sports  Espaol  Feb-  99 
 FX  Jun-  94 
 Free  Speech  TV  (FSTV)  Jun-  95 
 Galavision  Oct-  79 
 Game  Bank  Nov-  95 
 Game  Show  Network  Dec-  94 
 Golden  Eagle  Broadcasting  Nov-  98 
 Goodlife  Television  Network  (formerly  Nostalgia  Channel)  Jun-  98 
 Great  American  Country  Dec-  95 
 Hispanic  Television  Network  Aug-  01 
84
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 Programming  Service  Launch  Date 
 History  Channel  Jan-  95 
 History  Channel  International  Dec-  98 
 Home  &  Garden  Television  Dec-  94 
 Hot  Choice  Jun-  86 
 Hot  Net  Mar-  99 
 Hot  Zone  Mar-  99 
 HTV  Aug-  95 
 Idea  Channel  Jan-  92 
 Inspirational  Life  Television  (I-  LIFETV)  Jun-  98 
 Inspirational  Network  (INSP)  Apr-  90 
 Interactive  Channel  Nov-  93 
 Liberty  Channel  Sep-  01 
 Lifetime  Movie  Network  Jun-  98 
 Lifetime  Real  Women  Aug-  01 
 Lifetime  Television  Feb-  84 
 Lightspan  Partnership,  Inc.  Feb-  95 
 Locomotion  Channel  Nov-  96 
 MBC  Movie  Network  Nov-  98 
 Meadow  Racing  Network  Nov-  84 
 MSNBC  Jul-  96 
 MTV  Espaol  Aug-  98 
 MTV  Hits  May-  02 
 MTV  Jams  2002 
 MTV  Networks  Latin  America  (formerly  MTV  Latino)  Oct-  93 
 MTV:  Music  Television  Aug-  81 
 Mun2  Apr-  93 
 My  Pet  TV  Sep-  96 
 NASA  Television  Jul-  91 
 National  Geographic  Channel  Jan-  01 
 National  Jewish  Television  May-  81 
 Newsworld  International  Sep-  94 
 Nick  At  Nites  TV  Land  Apr-  96 
 Nick  Too  Jan-  99 
 Nickelodeon  Gas-  Games  &  Sports  Network  Mar-  99 
85
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 Programming  Service  Launch  Date 
 Nickelodeon/  Nick  at  Nite  Apr-  79 
 Noggin  Feb-  99 
 Oasis  TV  Sep-  97 
 Outdoor  Channel  Apr-  93 
 Oxygen  Media  Feb-  00 
 Pax  TV  Aug-  98 
 Playboy  TV  Nov-  82 
 Pleasure  Channel  Jun-  99 
 Power  TV  Zhong  Tian  Channel  1995 
 Praise  Television  Dec-  96 
 Proto  X  1997 
 Puma  TV  1997 
 RAI  International  1999 
 Recovery  Network  Feb-  97 
 Russian  Television  Network  of  America  Aug-  00 
 Saigon  Broadcasting  Network  Feb-  02 
 Scandinavian  Channel  Oct-  99 
 SCOLA  Aug-  87 
 Shop  at  Home  Jun-  86 
 Shop  NBC  Oct-  91 
 Short  TV  Jan-  99 
 Showtime  Jul-  76 
 Showtime  Beyond  Sep-  99 
 Showtime  Event  Television  (SET)  1979 
 Showtime  Extreme  1998 
 Showtime  Family  Zone  Mar-  01 
 Showtime  Next  Mar-  01 
 Showtime  Showcase  Jul-  01 
 Showtime  Too  2001 
 Showtime  Women  Mar-  01 
 Skyview  World  Media  1992 
 SoapNet  Jan-  00 
 Speed  Channel  Jan-  96 
 Spice  1  May-  89 
 Spice  2  Unknown 
86
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 Programming  Service  Launch  Date 
 Sun  TV  Aug-  96 
 Starnet  Jan-  89 
 Sundance  Channel  Feb-  96 
 TechTV  May-  98 
 Telemundo  Cable  Mar-  00 
 Telemundo  Communications,  Inc.  Jan-  87 
 The  Erotic  Network  (TeN)  Aug-  98 
 TMC  (The  Movie  Channel)  Dec-  79 
 True  Blue  Feb-  98 
 TNN  (The  National  Network)  Mar-  83 
 Toon  Disney  Apr-  98 
 Trinity  Broadcasting  Network  (TBN)  May-  73 
 TRIO  Sep-  94 
 TV  5    USA  Inc.  Jan-  98 
 TV  Asia  Apr-  93 
 TV  Games  Network  Unknown 
 TV  Japan  Jul-  91 
 TVN  Entertainment  Corporation  (33  digital  pay-  per-  view  channels)  Feb-  98 
 TVR  (TV  Russia  Network)  1995 
 TV  Guide  Channel  Jan-  88 
 TV  Guide  Interactive  Oct-  96 
 TV  Guide  Sneak  Preview  1991 
 TVN  Direct  Jan-  96 
 Universal  Torah  Broadcasting  Network  Dec-  98 
 Univision  Dec-  98 
 UVTV/  KTLA  Mar-  88 
 UVTV/  WGN  Nov-  98 
 UVTV\  WPIX  May-  84 
 ValueVision  Oct-  91 
 VH1  (Music  First)  Jan-  85 
 VH1  (Classic)  Aug-  98 
 VH1  Soul  Aug-  98 
 VHI  Country  Aug-  98 
 VH1  Megahits  May-  02 
 VH  UNO  Nov-  99 
87
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 Programming  Service  Launch  Date 
 Video  Rola  Jan-  01 
 Vivid  TV  Mar-  99 
 Weather  Channel  May-  82 
 Weather  Channel/  Latin  America  Nov-  96 
 Weatherscan  Apr-  98 
 Weatherscan  Local  May-  99 
 Wisdom  Television  Jul-  97 
 Word  Network  Feb-  00 
 Worship  Network  Sep-  92 
 X  Cubed  Unknown 
 Z  Music  Mar-  93 
 ZEE  TV  1999 


 Note:  *  Cable  affiliates  provide  95%  of  the  funding  for  C-  SPAN,  C-  SPAN2,  and  C-  SPAN3,  but  have  no 
 ownership  or  program  control  interests.  DBS  licensees  provide  the  other  5%  of  the  funding  and  also  have  no  ownership  or  program  control  interests. 


 Source:  NCTA,  Directory  of  Cable  Networks,  Cable  Developments  2002,  at  29-  141. 
88
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 TABLE  C-  3  Regional  Video  Programming  Services 
 Programming  Services  Launch  Date  MSO  Ownership  (%) 
 Arabic  Channel  Apr-  91 
 Arizona  News  Channel  Nov-  96 
 Automotive  Television  Network  (ATN)  Sep-  95 
 Bay  News  9  Sep-  97 
 Bonjour  USA  Sep-  94 
 Cable  TV  Network  of  New  Jersey  Jul-  93 
 California  Channel  Feb-  91 
 Casa  Club  TV  Jul-  97 
 Central  Florida  News  13  Oct-  97  AOL  Time  Warner  (50) 
 ChicagoLand  Television  News  (CLTV)  Jan-  93 
 CN8    The  Comcast  Network  1996  Comcast  (100) 
 Comcast  SportsNet  Oct-  97  Comcast  (78) 
 Comcast  SportsNet  Mid  Atlantic  (formerly  Home  Team  Sports)  Apr-  84  Comcast  (100) 


 Comcast  Sports  South  East  Apr-  84  Comcast  (72) 
 County  Television  Network  San  Diego  Jul-  96 
 Cox  Sports  Television  Oct-  02  Cox  (100) 
 Ecumenical  Television  Channel  1983 
 Empire  Sports  Network  Dec-  90  Adelphia  (67)  Comcast  (33) 
 Florida's  News  Channel  Sep-  98 
 Fox  Sports  Net  Arizona  Sep-  96  Cablevision  (45) 
 Fox  Sports  Net  Bay  Area  Apr-  90  Cablevision  (45) 
 Fox  Sports  Net  Chicago  Jan-  84  Cablevision  (45) 
 Fox  Sports  Net  Cincinnati  1989  Cablevision  (45) 
 Fox  Sports  Net  Detroit  Sep-  97  Cablevision  (45) 
 Fox  Sports  Net  Florida  1989  Cablevision  (45) 
 Fox  Sports  Net  Midwest  Sep-  97  Cablevision  (45) 


 Fox  Sports  Net  New  England  Jan-  88  Cablevision  (50),  AT&  T  (50) 
 Fox  Sports  Net  New  York  1989  Cablevision  (45) 
 Fox  Sports  Net  North  Mar-  89  Cablevision  (22.5),  Liberty  Media  (50) 
 Fox  Sports  Net  Northwest  Nov-  88  Cablevision  (41.5) 
 Fox  Sports  Net  Ohio  Feb-  89  Cablevision  (45) 
 Fox  Sports  Net  Pittsburgh  Apr-  86  Cablevision  (45) 
89
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 Programming  Services  Launch  Date  MSO  Ownership  (%) 
 Fox  Sports  Net  Rocky  Mountain  Nov-  88  Cablevision  (45) 
 Fox  Sports  Net  South  Aug-  90  Cablevision  (45) 
 Fox  Sports  Net  Southwest  Jan-  83  Cablevision  (45) 
 Fox  Sports  Net  West  Oct-  85  Cablevision  (45) 
 Fox  Sports  Net  West  2  Jan-  97  Cablevision  (45) 


 Hip  Hop  Network  Jan-  97 
 International  Television  Broadcasting  (ITV)  Apr-  86 
 Las  Vegas  One  News  Apr-  98 
 Local  News  on  Cable  Feb-  97 
 Madison  Square  Garden  Network  (MSG)  Oct-  69  Liberty  Media  (18),  Cablevision  (41.5) 
 MediaOne  News  Dec-  95  Liberty  Media  (100) 
 Metro  Sports  Channel  AOL  Time  Warner  (50),  AT&  T  (50) 
 MGM  Networks  Latin  America  Jul-  97 
 Michigan  Government  Television  Jul-  96 
 Midwest  Sports  Channel  Mar-  89 
 MSG  Metro  Guide  Aug-  98  Cablevision  (100) 
 MSG  Metro  Learning  Channel  Aug-  98  Cablevision  (100) 
 MSG  Traffic  and  Weather  Aug-  98  Cablevision  (100) 
 Neighborhood  News  L.  I.  Unknown  Cablevision  (75) 
 New  England  Cable  News  Mar-  92  Comcast  (50) 
 New  England  Sports  Network  (NESN)  Mar-  84 
 New  York  1  News  Sep-  92  AOL  Time  Warner 
 News  12  Connecticut  Jun-  95  Cablevision  (75) 
 News  12  Long  Island  Dec-  86  Cablevision  (75) 
 News  12  New  Jersey  Mar-  96  Cablevision  (75) 
 News  12  Bronx  Jun-  98  Cablevision  (75) 
 News  12  Westchester  Nov-  95  Cablevision  (75) 
 News  8  Austin  Sep-  99 
 News  14  Carolina  2002  AOL  Time  Warner 
 News  Channel  5+  Sept-  96 
 News  14  Carolina  AOL  Time  Warner 
 News  Now  53  Jun-  97  Cox  (50) 
 News  on  One  Oct-  97 
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 Programming  Services  Launch  Date  MSO  Ownership  (%) 
 News  Watch  15  Oct-  99 
 Newschannel  8  Oct-  91 
 NGTV  (National  Greek  Television)  Dec-  87 
 Nippon  Golden  Network  Jan-  82 
 NorthWest  Cable  News  Dec-  95 
 Ohio  News  Network  May-  97 


 PASS  Sports  (Pro-  Am  Sports  System)  Apr-  84 
 Pennsylvania  Cable  Network  (PCN)  Sep-  79 
 Pittsburgh  Cable  News  Channel  (PCNC)  Jan-  94  Comcast  (30) 
 Rarities  Exchange  Dec-  98 
 San  Diegos  News  Channel  15  Jan-  97 
 Six  News  Now  Jul-  95 
 Soundtrack  Channel  (STC)  Mar-  02 
 South  Florida  News  Channel  1998 
 SportsChannel  Florida  Dec-  87  Liberty  Media  (6),  Cablevision  (13.5) 
 Sunshine  Network  Mar-  88  Liberty  Media  (34.5),  Cox  (5.3) 
 Texas  Cable  News  Jan-  99 
 Turner  South  (STC)  Mar-  02  AOL  Time  Warner 
 TV33  Dec-  95 
 WSBK  Feb-  88 
 Yankee  Entertainment  Sports  Network  (YES)  Mar-  02 


 Sources:  NCTA,  Regional  Cable  Networks,  Cable  Developments  2002,  at  171-  194. 
 DirecTV  Comments  at  14. 
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 TABLE  C-  4  Planned  Programming  Services 
 Programming  Service  Planned  Launch  Date,  If  Announced 
 American  Legal  Network  TBA 
 America  National  Network  TBA 
 AMCs  American  Pop  TBA 
 American  West  Network  TBA 
 Anthropology  Programming  and  Entertainment  TBA 
 Anti-  Aging  Network  TBA 
 Applause  TBA 
 Auto  Channel  TBA 
 BET  World  Music  Beat  TBA 
 Bingo  TV  TBA 
 Black  Womens  Television  4Q02 
 Booknet  2003 
 Caribbean  Visions  Television  TBA 
 CFN-  Childrens  Fashion  Network  4Q02 
 Chop  TV  TBA 
 Collectors  Channel  TBA 
 CSTV  (College  Sports  Television)  1Q03 
 Diversity  Network  4Q02 
 Documentary  Channel  TBA 
 EXPN  (Action  Sports  on  Demand)  1Q03 
 Fad  TV  (Fashion  &  Design  Television)  2Q03 
 Fashion  Network  TBA 


 Fifth  Avenue  Channel  TBA 
 Fox  Enhanced  TV  TBA 
 GETV  Network  1Q03 
 Global  Village  Network  TBA 
 Gospel  Network  TBA 
 Hobby  Craft  Interactive  TBA 
 Honey  Vision  TBA 
 Investment  TV  TBA 
 Local  News  Network  TBA 
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 Programming  Service  Planned  Launch  Date,  If  Announced 
 Martial  Arts  Action  Network  TBA 
 MEN  (Maverick  Entertainment  Network)  1Q04 
 Military  Network  4Q03 
 Moore  TV  Network  TBA 
 Moviewatch  1Q03 
 Noahs  World  International  2Q03 
 Opportunity  Television  Network  TBA 
 Orb  TV  TBA 
 Outlet  2Q03 
 PCOM  (Native  American  Nations  Network)  1Q03 
 Performance  Showcase  TBA 
 Premiere  Horse  Network  TBA 
 Puppy  Channel  4Q03 
 RadioTV  Network  2Q03 
 Real  Estate  Network  (TREN)  TBA 
 Romanceland  TBA 
 Seminar  TV  Network  (Seminar  TV)  TBA 
 Senior  Citizens  Television  Network  4Q02 
 Si  TV  2Q03 
 Skywatcher  Channel  TBA 
 Sundance  Documentary  Channel  3Q03 
 TeN  BLOX  1Q03 
 TeN  Blue  1Q03 
 The  Football  Channel  (TFN)  TBA 
 The  World  Cinema  Channel  TBA 
 Theater  Channel  TBA 
 The  Tennis  Channel  4Q02 
 UBC  (Urban  Broadcasting  Company)  TBA  TBA 
 U.  S.  Military  Television  Network  TBA 
 World  Cinema  TBA 
 Youth  Sports  Broadcasting  Channel  TBA 
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 Sources:  NCTA,  Planned  Services,  Cable  Developments  2002,  at  151-  170. 
 Operators  Want  Hardcore  Porn,  Multichannel  News  at  http://  www.  tvinsite.  com/  multichannelnews/  index.  asp?  layout=  print_  pate&  doc_  id=  104331,  Oct.  10,  2002. 
 R.  Thomas  Umstead,  Service  Goes  to  Extremes,  Multichannel  News,  Apr.  29,  2002,  at  3.  R.  Thomas  Umstead,  Bedol:  Sports  Tiers  Are  Fine  With  Us,  Multichannel  News,  Nov.  4,  2000,  at  14. 
 Linda  Moss,  New  Nets  Eye  Outlets  for  Men,  Gays,  Multichannel  News,  Nov.  18,  2002  at  3. 
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 TABLE  C-  5  MSO  Ownership  in  National  Programming 
 Services  1  Subs.  (mil)  Liberty  Media  AOL  Time  Warner  Comcast  Cox  Cablevision  Systems 
 Action  Max  *  2  100.0% 
 AMC  82.6  60% 
 Animal  Planet  77.0  39.2%  19.7% 
 @Max  *  100.0% 
 Black  Starz!  *  100.0% 
 Canales    (6  channels)  *  90.0% 
 Cartoon  Network  79.5  100.0% 
 Cinemax  38.1  100.0% 
 CNN  85.6  100.0% 
 CNN  Espaol  10.5  100.0% 
 CNN  Headline  News  81.7  100.0% 
 CNN  International  3  10.0  100.0% 
 CNN  fn  18.0  100.0% 
 Comedy  Central  78.2  50.0% 
 Court  TV  68.1  50.0%  50.0% 
 Discovery  86.0  50.0%  24.6% 
 Discovery  Civilization  7.0  50.0%  24.6% 
 Discovery  En  Espaol  *  50.0%  24.6% 
 Discovery  Health  33.7  50.0%  20.0%  24.6% 
 Discovery  HD  Theatre  *  50.0% 
 Discovery  Home&  Leisure  7.0  50.0%  24.6% 


 Discovery  Kids  10.0  50.0%  24.6% 
 Discovery  Science  10.0  50.0%  24.6% 
 Discovery  Wings  7.0  50.0%  24.6% 
 E!  Entertainment  77.2  50.0% 
 Encore  18.0  100.0% 
 Encore  Action  *  100.0% 
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 Services  1  Subs.  (mil)  Liberty  Media  AOL  Time  Warner  Comcast  Cox  AT&  T  Cablevision  Systems 
 Encore  Love  Stories  *  100.0% 
 Encore  Mystery  *  100.0% 
 Encore  True  Stories  *  100.0% 
 Encore  WAM!  *  100.0% 
 Encore  Westerns  *  100.0% 
 5Star  Max  *  100.0% 
 Fox  Sports  (2  channels)  16.4  50.0% 
 Fox  Sports  Latin  America  10.3  50.0% 
 GEMS  International  TV  6.4  50.0% 
 G4  Video  Gaming  Ntwk  *  94.0% 
 Golf  Channel  35.0  91.0% 
 Hallmark  Channel  43.5  32.5% 
 HBO  38.1  4  100.0% 
 HBO  Latino  *  100.0% 
 HBO  2  *  100.0% 
 HBO  Signature  *  100.0% 
 HBO  Comedy  *  100.0% 
 HBO  Family  *  100.0% 
 HBO  Zone  *  100.0% 
 HSN  74.0  20.0% 
 iN  Demand  28  33.0%  55.0%  11.0%  44.0% 
 Independent  Film  Channel  21.8  60.0% 


 International  Channel  11.8  90.0% 
 More  Max  38.1  100.0% 
 Movie  Plex  8.0  100.0% 
 Much  Music  USA  44.0  75.0% 
 Outdoor  Life  40.0  100.0% 
 Outer  Max  *  100.0% 
 Ovation  5.0  4.2% 
 PIN  35.0  45.0% 
 Prevue  Channel  *  51.0% 
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 Services  1  Subs.  (mil)  Liberty  Media  AOL  Time  Warner  Comcast  Cox  AT&  T  Cablevision  Systems 
 QVC  79.6  42.0%  58.0% 
 Sci-  Fi  75.0  20.0% 
 Sneak  Prevue  34.0  12.0% 
 Starz!  13.0  100.0% 
 Starz!  Cinema  *  100.0% 
 Starz!  Family  *  100.0% 
 Starz!  Theater  *  100.0% 
 Style  17.0  50.0%  10.0% 
 TBS  87.0  100.0% 
 TLC  83.2  50.0%  24.6% 
 Thriller  Max  37.0  100.0% 
 TNT  85.5  100.0% 
 Travel  Channel  60.9  50.0%  24.6% 
 TCM  49.3  100.0% 
 USA  85.6  20.0% 
 Viewers  Choice  1-  10  *  17.0%  20.0% 
 WE  (formerly  Romance)  25.0  60.0% 
 Wmax  *  100.0% 


 Notes:  AT&  T  ownership  interests  are  shown  in  the  Comcast  column  because  Comcast  acquired 
 AT&  T  Broadband  on  Nov.  18,  2002. 
 1  In  addition  to  cable,  other  services  such  as  MMDS  (wireless  cable),  SMATV  (satellite  master 
 antenna  television),  satellite,  including  DBS  (direct  broadcast  satellite)  and  HSD  (home  satellite  dish),  broadcast  television,  and  LPTV  (low  power  television)  may  distribute  these  signals. 


 Subscriber  figures  may  include  these  non-  cable  services. 
 2  Indicates  that  subscribership  count  is  unknown  or  not  available. 


 3  CNN  International  subscribership  of  10  million  includes  domestic  US  subscribers  only.  CNN 
 International  has  129  million  subscribers  outside  the  U.  S. 
 4  HBO  subscriber  numbers  include  HBO  Latino,  HBO  Plus,  HBO  Signature,  HBO  Comedy,  HBO 
 Family,  HBO  Zone,  and  Cinemax,  5  Star  Max,  @  Max,  MoreMax,  ActionMax,  Outer  Max,  Thriller  Max  and  W  Max. 


 Sources:  NCTA,  Directory  of  Cable  Networks,  Cable  Developments  2002,  at  29-  143. 
 http//  foxsports.  lycos.  com/  content/  view?  contentID=  541079 
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 TABLE  C-  6  Top  20  Programming  Services  by  Subscribership 
 Rank  Programming  Network  Number  of  Subscribers  (Millions)  MSO  Ownership  Interest  in  Network  (%) 
 1  TBS  87.0  AOL  Time  Warner  (100) 
 2  Discovery  Channel  86.0  Liberty  Media  (49),  Cox  (24.6) 
 3  ESPN  85.9 
 4  CNN  85.6  AOL  Time  Warner  (100) 
 5  USA  Network  85.6  Liberty  Media  (21) 
 6  TNT  85.5  AOL  Time  Warner  (100) 
 7  Nickelodeon/  Nick  at  Nite  85.3 
 8  C-  SPAN  85.0 
 9  A&  E  85.0 
 10  TNN  84.9 
 11  Lifetime  Television  84.6 
 12  ABC  Family  Channel  84.1 
 13  The  Weather  Channel  83.9 
 14  MTV  83.4 
 15  TLC  83.2  Liberty  Media  (49),  Cox  (24.6) 
 16  AMC  82.6  Cablevision  (75) 
 17  ESPN2  82.6 
 18  CNBC  82.3 
 19  VH1  81.7 
 20  CNN  Headline  News  81.7  AOL  Time  Warner  (100) 


 Notes:  In  addition  to  cable,  other  services  such  as  MMDS  (wireless  cable),  SMATV  (satellite  master 
 antenna  television),  satellite,  including  HSD  (home  satellite  dish)  and  DBS  (direct  broadcast  satellite),  broadcast  television  and  LPTV  (low  power  television)  may  distribute  these  signals. 
 Subscriber  figures  may  include  these  non-  cable  services.  Cable  affiliates  provide  95%  of  the  funding  for  C-  SPAN,  but  have  no  ownership  or  program  control  interests.  DBS  licenses  provide 
 the  other  5%  of  the  funding  and  also  have  no  ownership  or  program  control  interests. 
 Source:  NCTA,  Top  20  Cable  Networks,  Cable  Developments  2002,  at  21-  22. 
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 TABLE  C-  7  Top  20  Programming  Services  by  Prime  Time  Rating 
 Rank  Programming  Service  MSO  with  Ownership  Interest  (%) 
 1  Lifetime  Television 
 2  TNT  AOL  Time  Warner  (100) 
 3  Nick  at  Nite 
 4  TBS  AOL  Time  Warner  (100) 
 5  Cartoon  Network  AOL  Time  Warner  (100) 
 6  USA  Network  Liberty  Media  (20) 
 7  Disney  Channel 
 8  ESPN 
 9  A&  E 
 10  FX 
 11  Fox  News  Channel 
 12  Discovery  Channel  Liberty  Media  (50),  Cox  (24.6) 
 13  MTV 
 14  TNN 
 15  TLC  Liberty  Media  (50),  Cox  (24.6) 
 16  CNN  AOL  Time  Warner  (100) 
 17  ABC  Family  Channel 
 18  History  Channel 
 19  Sci-  Fi  Channel  Liberty  Media  (20) 
 20  Court  TV  Liberty  Media  (50),  AOL  Time  Warner  (50) 


 Source:  Kagan  World  Media,  Day  Part  Ratings  Averages,  Prime  Time  (May),  Cable  Program  Investor,  July  29, 
 2002,  at11. 
99