a

GAO

United States Government Accountability Office

Report to the Subcommittee on Antitrust, 

Competition Policy and Consumer 

Rights, Committee on the Judiciary, 

U.S. Senate

April 2005 TELECOMMUNICATIONS

Direct Broadcast 

Satellite 

Subscribership Has 

Grown Rapidly, but 

Varies across Different 

Types of Markets

GAO-05-257
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-257.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Mark L. 

Goldstein at (202) 512-2834 or 

goldsteinm@gao.gov. 

Highlights of GAO-05-257, a report to the 

Subcommittee on Antitrust, Competition 

Policy and Consumer Rights, Committee 

on the Judiciary, U.S. Senate 

April 2005

TELECOMMUNICATIONS 

Direct Broadcast Satellite Subscribership 

Has Grown Rapidly, but Varies across 

Different Types of Markets 

Since 2001, the number of households subscribing to DBS service has grown 

rapidly; thus the percentage of households subscribing to DBS service, the 

DBS penetration rate, has grown to over 17 percent of American households.

Aggregate DBS Subscription and DBS Penetration Rates, 2001-2004 

Year

Subscribers

Penetration rate

Source: GAO.

DBS subscribers

(in millions)

DBS penetration rate

(percent)

0

5

10

15

20

25

0

5

10

15

20

25

2001 2002 2003 2004 

The DBS penetration rate is highest in rural areas, but growing most rapidly 

in suburban and urban areas. Between 2001 and 2004, the DBS penetration 

rate grew 15 percent in rural areas to 29 percent of rural households, 32 

percent in suburban areas to 18 percent of suburban households, and 50 

percent in urban areas to 13 percent of urban households. 

The degree and type of competition influences the DBS penetration rate. In 

areas with no cable service, the DBS penetration rate is about 53 percentage 

points greater than in areas where cable service is available. Where cable 

service is available, cable operators increasingly offer advanced services. 

The DBS penetration rate is approximately 20 percentage points greater in 

areas where cable operators are not providing advanced services, compared 

with areas where these services are available. While relatively few areas 

have more than one wire-based cable operator, in these areas the DBS 

penetration rate is 8 percentage points lower than in areas with only one 

cable operator. 

In addition to the differences in DBS penetration rates across rural, 

suburban, and urban areas, and differences associated with the degree and 

type of cable competition, additional geographic and competitive factors 

also influence the DBS penetration rate. For example, the DBS penetration 

rate is lower in areas with a high prevalence of multiple-dwelling units, such 

as apartments. Additionally, the DBS penetration rate is higher in areas 

where DBS providers offer local broadcast stations (such as ABC and NBC 

affiliates) directly to their subscribers. 

The Federal Communications Commission provided technical comments on 

a draft of this report that we incorporated where appropriate. 

Since its introduction in 1994, 

direct broadcast satellite (DBS) 

service has grown dramatically, 

and this service is now the 

principal competitor to cable 

television service. Although DBS 

service has traditionally been a 

rural service, passage of the 

Satellite Home Viewer 

Improvement Act of 1999 enhanced 

the competitiveness of DBS service 

in suburban and urban markets. 

GAO agreed to examine (1) how 

DBS subscribership changed since 

2001; (2) how DBS penetration 

rates differ across urban, suburban, 

and rural areas; (3) how DBS 

penetration rates differ across 

markets based on the degree and 

type of competition provided by 

cable operators; and (4) the factors 

that appear to influence DBS 

penetration rates across cable 

franchise areas. 

To complete this report, GAO 

prepared descriptive statistics and 

an econometric model using data 

from the Federal Communications 

Commission’s annual Cable Price 

Survey and the Satellite 

Broadcasting and Communications 

Association’s subscriber count 

database. 
Page i GAO-05-257 Telecommunications

Contents

Letter 1

Results in Brief 3

Background 5

Subscription to DBS Has Grown Rapidly Since 2001 6

DBS Has the Greatest Penetration in Rural Areas, but Subscriber 

Growth Has Been Greater in Urban and Suburban Areas Since 

2001 7

DBS Penetration Is Higher Where Cable Service Is Not Available, 

Where Cable Providers Do Not Offer Advanced Services, and 

Where Wire-Based Competitors Are Not Present 9

Several Geographic and Competitive Factors Are Associated with 

Different Levels of DBS Penetration across Cable Franchise

Areas 13

Agency Comments and Our Evaluation 16

Industry Participants’ Comments 16

Appendixes

Appendix I: Scope and Methodology 18

Appendix II: Data Reliability 20

Appendix III: Cable-Satellite Econometric Model 22

Tables Table 1: Explanatory Variables Used in Cable-Satellite Model 20

Table 2: Descriptive Statistics for Variables Used in Cable-Satellite 

Model 25

Table 3: Three-Stage Least Squares Model Results 27

Table 4: Alternative Specification Results 30

Figures Figure 1: Aggregate DBS Subscription and DBS Penetration Rates, 

2001—2004 6

Figure 2: DBS Penetration Rates in Urban, Suburban, and Rural 

Areas, 2001—2004 7

Figure 3: Growth in DBS Subscribers and DBS Penetration Rates, 

2001—2004 8

Figure 4: Percentage of Households Using Different Modes of 

Television Reception, 2004 10

Figure 5: Percentage of Cable Operators Providing Advanced 

Services (Digital Cable, Cable Modem, and Telephone), 

2001—2004 11
Contents

Page ii GAO-05-257 Telecommunications

Figure 6: DBS Penetration Rate and Cable Operators’ Provision of 

Advanced Services (Digital Cable, Cable Modem, and 

Telephone), 2001—2004 12

Figure 7: DBS Penetration Rate in Cable Franchise Areas with and 

without Wire-Based Cable Competition, 2004 13

Abbreviations

2SLS two stage least squares

3SLS three stage least squares

BLS Bureau of Labor Statistics

CUID Community Unit Identification

DBS direct broadcast satellite

DMA designed market area

FCC Federal Communications Commission

MSA metropolitan statistical area

MSO multiple system operator

SBCA Satellite Broadcasting and Communications Association

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-05-257 Telecommunications

United States Government Accountability Office

Washington, D.C. 20548

A

April 6, 2005 Letr

The Honorable Mike DeWine

Chairman

The Honorable Herb Kohl

Ranking Minority Member

Subcommittee on Antitrust, Competition

 Policy and Consumer Rights

Committee on the Judiciary

United States Senate

For many years, cable television operators faced little competition in the 

market for subscription video service. However, in 1994, a new type of 

competitor emerged: direct broadcast satellite (DBS). Subscribers to DBS 

service use small reception dishes to receive television programming 

beamed down from satellites that orbit over the equator. DBS was 

originally most popular in rural areas, where cable service was often 

limited or did not exist. In recent years, DBS has also become popular in 

suburban and urban markets. In particular, the competitiveness of DBS was 

bolstered when the Congress enacted the Satellite Home Viewer 

Improvement Act of 1999, which allows DBS carriers to provide local 

broadcast signals, such as the affiliates of ABC and NBC, directly to 

subscribers.1

 Today, the two primary DBS providers—DIRECTV® and 

EchoStar—provide local broadcast signals in 156 of 210 television markets. 

You asked us to provide information on the extent to which DBS is 

competitive with cable under varied market circumstances. Specifically, 

this report provides information on (1) how DBS subscribership has 

changed since 2001; (2) how DBS penetration rates (that is, the percentage 

of households subscribing to DBS) differ across urban, suburban, and rural 

areas; (3) how DBS penetration rates differ across markets based on the 

degree and type of competition provided by cable operators; and (4) the

1

In late 2004, the Congress passed and the President signed the Satellite Home Viewer 

Extension and Reauthorization Act of 2004. This act may further enhance the 

competitiveness of DBS providers by, for example, permitting DBS providers to deliver 

broadcast signals that are “significantly viewed” within a local market but originate from 

outside that local market.
Page 2 GAO-05-257 Telecommunications

factors that appear to influence DBS penetration rates across cable 

franchise areas.2

To respond to the objectives of this report, we gathered data on DBS 

subscribers from the Satellite Broadcasting and Communications 

Association (SBCA)3

 and cable rates and services from the Federal 

Communications Commission (FCC). For the first and second objectives, 

we calculated the DBS penetration rate at the county level for the years 

2001 to 2004. This allowed us to examine the trend in the DBS penetration 

rate for that period of time. We also classified counties as urban, suburban, 

and rural, based on the location of central cities and designations of 

metropolitan statistical areas (MSA), and calculated the DBS penetration 

rate for each of these geographic categories. For the third objective, we 

used data from Knowledge Network’s 2004 The Home Technology Monitor4

survey to identify responding households that said cable service was not 

available to them, and to then examine the penetration of DBS service 

among these responding households, compared with those who said that 

cable service was available in their area. We also calculated the DBS 

penetration rate for cable franchise areas included in FCC’s 2002 and 2004 

Cable Price surveys.5

 Using data from FCC’s surveys, we classified each 

cable franchise on the basis of (1) whether “advanced services”—such as 

cable modem and digital cable tiers of programming—were provided by 

cable operator and (2) whether there was a second wire-based provider in 

the market. We then calculated the DBS penetration rate for these different 

categories of cable franchise areas. For the fourth objective, we used an 

econometric model we previously developed that examines the 

competitive interaction of cable and DBS providers. Using data from 2004, 

the model considers the effect of various factors (such as the number of 

channels provided by the cable company) on cable rates, the number of 

cable subscribers, the number of channels that cable operators provide to 

2

At the community level, cable operators obtain a franchise agreement under agreed-upon 

terms and conditions from a franchising authority, such as a city, township, or county. The 

franchise agreement permits the cable operator to provide service in the jurisdiction. 

3

SBCA is a national trade association representing the satellite industry. Its members 

include DBS, C-band, satellite radio, and other satellite service providers, among others.

4

Knowledge Networks is a survey research firm that had conducted a consumer survey on 

household television characteristics. The survey provided the responses of 2,471 randomly 

selected American households. 

5

FCC conducts an annual survey of a random sample of cable franchise areas to gather 

information about cable pricing and other related issues.
Page 3 GAO-05-257 Telecommunications

subscribers, and the DBS penetration rate in areas throughout the United 

States.6

 See appendix I for additional information on our scope and 

methodology and appendix II for the steps we took to ensure the reliability 

of the data we used to prepare this report. We found these data to be 

sufficiently reliable for the purposes of this report.

We conducted our review from March 2004 to February 2005 in accordance 

with generally accepted government auditing standards. 

Results in Brief Subscriptions to DBS service have grown rapidly since 2001. In July 2001, 

about 15.5 million American households—about 13 percent of 

households—subscribed to a DBS service. By January 2004, about 21.3 

million households subscribed to a DBS service, or 17.4 percent of 

households. Thus, the number of DBS subscribers increased by 37.8 

percent during this 2-1/2 year time frame.7

DBS penetration rates have been and remain highest in rural areas, but 

since 2001, DBS penetration has grown most rapidly in urban and suburban 

areas, where the penetration rates were originally low. In 2001, DBS 

penetration rates were nearly 26 percent in rural areas, 14 percent in 

suburban areas, and about 9 percent in urban areas. By 2004, DBS 

penetration rates had increased to about 29 percent in rural areas, 18 

percent in suburban areas, and 13 percent in urban areas, indicating a 

consistent pattern of higher DBS penetration rates in rural areas. In short, 

over the 2001 to 2004 time frame, the DBS penetration rate grew about 50 

percent and 32 percent in urban and suburban areas, respectively, 

compared with a growth rate of 15 percent in rural areas. 

DBS penetration rates are affected by the degree and type of competition in 

a local market. Based on survey data, we found that relatively few 

6

This four equation model is an adaptation of a model that GAO developed and discussed in 

three previous reports. See GAO, Telecommunications: The Effect of Competition from 

Satellite Providers on Cable Rates, RCED-00-164 (Washington, D.C.: July 18, 2000); 

Telecommunications: Issues in Providing Cable and Satellite Television Services, GAO-03-

130 (Washington, D.C.: Oct. 15, 2002); and Telecommunications: Issues Related to

Competition and Subscriber Rates in the Cable Television Industry, GAO-04-8

(Washington, D.C.: Oct. 24, 2003).

7

The data cover 2-1/2 years, rather than 3 years, because FCC changed the time frame of its 

survey from July to January in 2004. 
Page 4 GAO-05-257 Telecommunications

American households—less than 9 percent—do not have the opportunity to 

purchase cable television service because it is not available where they 

live.8

 However, in these areas, the DBS penetration rate is about 53 

percentage points greater than it is in areas where cable television service 

is available. In areas where cable television service is available, cable 

operators are increasingly providing advanced services, such as digital 

cable, cable modem, and telephone service. In 2004, the DBS penetration 

rate was approximately 20 percentage points greater in areas where cable 

operators were not providing advanced services, compared with areas 

where these services were available. Finally, in most areas, cable 

companies do not compete with other wire-based competitors, but in 

limited areas there is more than one wire-based provider of cable television 

service. Where more than one cable provider exists, the DBS penetration 

rate is 8 percentage points lower than in areas with only one cable provider.

Using an econometric model to control for the many factors that influence 

the DBS penetration rate, we identified three key geographic factors and 

three key competitive factors that influence the DBS penetration rate. 

Some of these findings confirm the findings discussed above based on 

descriptive statistics, and other findings could only be examined within the 

model. Regarding the geographic factors, we found that (1) the DBS 

penetration rate is lower in markets with a high prevalence of multiple 

dwelling units, such as apartments and condominiums; (2) the DBS 

penetration rate is lower in areas where, in order to face the transmitting 

satellite, the satellite dish must be installed at a relatively low angle, facing 

the horizon more than the sky; and (3) the DBS penetration rate is higher in 

nonmetropolitan areas. Regarding the competitive factors, we found that 

(1) the DBS penetration rate is lower in areas where the cable operator’s 

system has greater system capacity;9

 (2) the DBS penetration rate is lower 

in areas where there is more than one wire-based cable provider; and (3) 

the DBS penetration rate is higher in areas where DBS providers carry local 

broadcast stations, such as an ABC affiliate.

8

The percentage of households with cable service available has been a subject of 

controversy. Different industry participants, using different data sources and different bases 

of comparison, arrive at different figures. Using industry data, FCC noted that the 

percentage of homes with a television passed by cable must be less than 97.8 percent. 

Alternatively, the National Rural Telecommunications Cooperative reports that 22.4 million 

households (or about 20 percent) lack access to cable service. We used a survey of a random 

sample of households to arrive at the 9 percent figure. 

9

System capacity is measured in terms of the system megahertz. Systems with larger 

capacity are able to provide more channels and other services to their subscribers.
Page 5 GAO-05-257 Telecommunications

We provided a draft of this report to the Federal Communications 

Commission (FCC) for their review and comment. FCC staff provided 

technical comments that we incorporated where appropriate.

Background Cable television service emerged in the late 1940s to fill a need for 

television service in areas with poor over-the-air reception, such as 

mountainous or remote areas. At that time, cable operators simply 

retransmitted the signals of local broadcast stations. By the late 1970s, 

cable operators began to provide new cable networks,10 such as HBO, 

Showtime, and ESPN, and the number of cable subscribers increased 

rapidly. Two significant changes occurred in the 1990s and early 2000s. 

First, the Congress passed the Cable Television Consumer Protection and 

Competition Act of 1992 that, among other things, prohibited local 

franchising authorities from awarding exclusive (or monopoly) franchises 

to cable operators, thereby opening the door to wire-based competition. 

Second, cable operators began offering new services, such as digital cable, 

cable modem Internet access, and telephone, in addition to their basic 

video service. Today, many cable operators offer these advanced services 

in bundles with their basic video service.

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

grown dramatically and is now the primary competitor to cable operators. 

Subscribers to DBS service use a small reception dish to receive signals 

beamed down from satellites. Because DBS satellites orbit above the 

equator, a reception dish must point toward the southern sky, and 

households located in the northern part of the United States need to angle 

the dish more toward the horizon than households in the southern part of 

the United States. Unlike cable, which upgraded to digital service in recent 

years, DBS service has been a digital-based service since its inception. DBS 

providers generally offer most of the same cable networks as cable 

operators. However, for many years DBS providers did not offer local 

broadcast stations to their subscribers in most instances because of 

copyright obstacles, obstacles that cable operators did not face. After the 

Congress passed the Satellite Home Viewer Improvement Act of 1999, 

which altered the copyright rules that applied to DBS providers, cable and 

DBS companies were placed on a more equal competitive footing.

10Today, a variety of subscription video providers, in addition to cable operators, deliver 

these networks to their subscribers. For consistency, we refer to these networks as cable 

networks. 
Page 6 GAO-05-257 Telecommunications

Subscription to DBS 

Has Grown Rapidly 

Since 2001

From 2001 to 2004, the aggregate number of U.S. households that subscribe 

to DBS television service grew rapidly. Figure 1 illustrates the growth in 

total DBS subscription and penetration rates for 2001 through 2004. In July 

2001, about 15.5 million households were served by DBS. By January 2004, 

about 21.3 million households were served by DBS—an increase of 37.8 

percent in 2-1/2 years. Similarly, over the same period of time, the overall 

penetration rate of DBS rose from 13 percent in 2001 to 17.4 percent in 

2004—a 33.5 percent increase.

Figure 1: Aggregate DBS Subscription and DBS Penetration Rates, 2001—2004

0

5

10

15

20

25

2001 2002 2003 2004 

Year

Subscribers

Penetration rate

Source: GAO.

DBS subscribers (in millions) DBS penetration rate (percent)

0

5

10

15

20

25

 
Page 7 GAO-05-257 Telecommunications

DBS Has the Greatest 

Penetration in Rural 

Areas, but Subscriber 

Growth Has Been 

Greater in Urban and 

Suburban Areas Since 

2001

DBS penetration rates have been higher in rural areas than in suburban and 

urban areas throughout the last several years, as shown in figure 2. From 

July 2001 to January 2004, DBS penetration has grown steadily in all three 

types of geographic areas. In 2001, penetration rates were highest in rural 

areas at 25.6 percent, followed by 13.9 percent in suburban areas and 8.6 

percent in urban areas. As of January 2004, DBS penetration remained the 

highest in rural areas, growing to about 29 percent, while it grew to 18 

percent of suburban households and 13 percent of urban households. 

Figure 2: DBS Penetration Rates in Urban, Suburban, and Rural Areas, 2001—2004

Although the DBS penetration rate in rural areas has been and remains 

higher than it is in other geographic areas, subscribership has grown more 

rapidly in suburban and urban areas than in rural areas from 2001 to 2004. 

In fact, urban areas have experienced the highest growth in overall DBS 

subscribership. Figure 3 displays the percentage growth in total DBS 

subscribers and the percentage growth in DBS penetration rates in urban, 

0

5

10

15

20

25

30

2001 2002 2003 2004 

Year

Urban

Suburban

Rural

Source: GAO.

DBS penetration rate (percent)
Page 8 GAO-05-257 Telecommunications

suburban, and rural areas. From 2001 to 2004, DBS subscribership grew 55 

percent in urban areas, 37 percent in suburban areas, and 17 percent in 

rural areas. In the same time period, the growth in penetration rates was 

also highest in urban areas, at 50.4 percent, followed by suburban 

penetration growth at 32 percent, and rural penetration growth of 15 

percent.

Figure 3: Growth in DBS Subscribers and DBS Penetration Rates, 2001—2004

0

10

20

30

40

50

60

Urban Suburban Rural 

Geographic area

Subscriber growth

DBS penetration growth

Source: GAO.

Growth percentages
Page 9 GAO-05-257 Telecommunications

DBS Penetration Is 

Higher Where Cable 

Service Is Not 

Available, Where Cable 

Providers Do Not Offer 

Advanced Services, 

and Where Wire-Based 

Competitors Are Not 

Present

Less than 9 percent of American households do not have the opportunity to 

purchase cable television service because it is not available where they 

live. However, in these areas, the DBS penetration rate is about 53 

percentage points greater than in areas where cable television service is 

available. Where cable television service is available, cable operators are 

increasingly providing advanced services, such as digital cable, cable 

modem, and telephone service. In 2004, the DBS penetration rate was over 

20 percentage points greater in areas where cable operators did not provide 

advanced services, compared with areas where these services were 

available. Finally, in some limited areas, cable companies compete with 

other wire-based competitors, and where there is more than one wirebased cable competitor, the DBS penetration rate was 8 percentage points 

lower than in areas without such an additional competitor. 

DBS Penetration Is Much 

Higher in Areas without 

Cable Service

Most households in the United States have access to cable television 

service. Using Knowledge Network’s 2004 survey, we found that less than 9 

percent of responding households reported that cable television service 

was not available. According to FCC, households without access to cable 

television service generally reside in smaller and rural markets.11

Where cable television service is not available, households are far more 

likely to purchase DBS service. In figure 4, we illustrate the percentage of 

households receiving television service through four different modes (overthe-air, cable, DBS, and other) for areas where households report that cable 

television service is available and where it is not available. In areas where 

cable television service is available, 65 percent purchase cable service, 16 

percent use free over-the-air television, and about 15 percent purchase DBS 

service. When cable television service is not available, a significant 

percentage of households—nearly 68 percent—purchase DBS service, 

while nearly all of the remainder—31 percent—rely on over-the-air 

television. 

11Federal Communications Commission, Tenth Annual Report, In the Matter of: Annual 

Assessment of the Status of Competition in the Market for the Delivery of Video 

Programming, FCC-04-5 (Washington, D.C.; Jan. 28, 2004), para. 21.
Page 10 GAO-05-257 Telecommunications

Figure 4: Percentage of Households Using Different Modes of Television Reception, 

2004

DBS Penetration Is Much 

Higher in Areas Where 

Cable Operators Do Not 

Offer Advanced Services

Since 2001, the percentage of cable operators providing advanced services 

(digital cable, cable modem, and telephone services) has increased. In 

figure 5, we illustrate the percentage of cable operators providing no 

advanced services; one or more, but not all, advanced services; and all 

three advanced services based on FCC’s annual survey of cable 

franchises.12 In 2001, over 18 percent of cable operators did not provide 

advanced services, while less than 3 percent did not provide advanced 

services by 2004. At the same time, the percentage of cable operators 

0

20

40

60

80

100

Cable 

available

No cable

available

Availability of cable service

Other

Cable

Over-the-air

DBS

Source: GAO analysis of Knowledge Network's 2004 The Home Technology Monitor survey.

Percentage of households

12Federal Communications Commission, Order, In the Matter of: Statistical Report on 

Average Rates for Basic Service, Cable Programming Services and Equipment, DA 04-35

(Washington, D.C.; Jan. 14, 2004), and DA 02-1285 (Washington, D.C.; May 31, 2002).
Page 11 GAO-05-257 Telecommunications

providing all three advanced services increased from 16 percent in 2001 to 

26 percent in 2004. In 2004, most cable operators (about 66 percent) 

provided both digital cable and cable modem services, but not telephone 

service.

Figure 5: Percentage of Cable Operators Providing Advanced Services (Digital 

Cable, Cable Modem, and Telephone), 2001—2004

In areas where cable operators do not provide advanced services, the DBS 

penetration rate is significantly greater than in areas where cable operators 

provide advanced services. In figure 6, we illustrate the DBS penetration 

rate for 2001, 2002, and 2004 based on the availability of advanced services 

from cable operators. In 2004, the DBS penetration rate was over 36 

percent in areas where cable operators did not provide advanced services, 

compared with approximately 16 percent in areas where cable operators 

provided one or more, but not all, advanced services, and only 14 percent in 

areas where cable operators provided all three advanced services. In fact, 

the DBS penetration rate increased modestly since 2001 in areas where 

0

20

40

60

80

100

2001 2002 2004 

Year

All advanced services

One or more, but not all, advanced services

No advanced services

Sources: FCC 2002 and 2004 surveys.

Percentage of cable operators
Page 12 GAO-05-257 Telecommunications

cable operators provide one or more advanced services. However, the DBS 

penetration rate increased 12 percentage points since 2001 in areas where 

cable operators do not provide advanced services.

Figure 6: DBS Penetration Rate and Cable Operators’ Provision of Advanced 

Services (Digital Cable, Cable Modem, and Telephone), 2001—2004

DBS Penetration Is Lower in 

Areas Where There Is WireBased Cable Competition

Although the Telecommunications Act of 1996 sought to increase wirebased competition, few American households have a choice among 

companies providing television service via wire-based facilities. In a 2005 

report, FCC noted that few franchise areas—about 1 percent—have

0

10

20

30

40

2001 2002 2004 

Year

No advanced services

One or more, but not all, advanced services

All advanced services

Sources: FCC and SBCA.

DBS penetration rate (percent)
Page 13 GAO-05-257 Telecommunications

effective competition based on the presence of a wire-based competitor.13

These competitors include telephone companies, electric and gas utilities, 

and broadband service providers.

In areas with more than one wire-based cable provider, the DBS 

penetration rate is lower compared with areas with only one wire-based 

provider. In figure 7, we illustrate the DBS penetration rate for 2004 in cable 

franchise areas with and without wire-based cable competition. The DBS 

penetration rate is 18 percent in areas without wire-based competition and 

10 percent in areas with wire-based competition.

Figure 7: DBS Penetration Rate in Cable Franchise Areas with and without WireBased Cable Competition, 2004

Several Geographic 

and Competitive 

Factors Are Associated 

with Different Levels of 

DBS Penetration 

across Cable Franchise 

Areas

We found that three key geographic factors and three key competitive 

factors influence DBS penetration rates in cable franchise areas throughout 

the United States. Regarding geographic factors, we found that (1) the DBS 

penetration rate is lower in areas with a high prevalence of multiple 

dwelling units, such as apartments and condominiums; (2) the DBS 

penetration rate is lower in areas where the angle at which the satellite dish 

must be installed is relatively low, such that the satellite points more 

toward the horizon than toward the sky; and (3) the DBS penetration rate is 

higher in nonmetropolitan areas. In terms of competitive factors, we found 

that (1) the DBS penetration rate is lower in areas where the cable 

operator’s system has greater system capacity; (2) the DBS penetration rate 

is lower in areas where there is more than one wire-based cable provider; 

13Federal Communications Commission, Eleventh Annual Report, In the Matter of: Annual 

Assessment of the Status of Competition in the Market for the Delivery of Video 

Programming, FCC-05-13 (Washington, D.C.; Feb. 4, 2005), para. 136.

Sources: FCC and SBCA.

0 5 10 15 20

 

 No wire-based

competition

Wire-based competition

present

DBS penetration rate (percent)

Status of wire-based 

cable competition
Page 14 GAO-05-257 Telecommunications

and (3) the DBS penetration rate is higher in areas where DBS providers 

carry local broadcast stations, such as an ABC affiliate.

Key Geographic Factors 

Influence DBS Penetration 

Rates

Using an econometric model to control for the many factors that influence 

the DBS penetration rate, we identified three geographic factors that 

influenced the DBS penetration rate in cable franchise areas in 2004; see 

appendix III for a full explanation of, and results from, our econometric 

model. 

• The DBS penetration rate is lower in areas with a relatively large 

number of housing units represented by multiple dwelling units (such as 

apartments and condominiums). A 10 percent increase in the percentage 

of housing units represented by multiple dwelling units is associated 

with a 2.5 percent decrease in the DBS penetration rate. One possible 

explanation for this result is that residents of multiple dwelling units are 

more likely to encounter greater difficulty installing a DBS satellite dish, 

since the dish requires a clear line of sight to the southern sky.14

• The DBS penetration rate is lower in areas where, to see the southern 

sky, the satellite dish must be pointed more toward the horizon than up 

at the sky. In general, the farther north one is within the United States, 

the more the dish must be angled toward the horizon to see the satellite 

over the equator. We found that a 1 percent decrease in the angle at 

which the DBS satellite dish must be set at is associated with a 1 percent 

decrease in the DBS penetration rate. A possible explanation for this 

result is that a satellite dish facing the horizon is less likely to have a 

clear line of sight to the southern sky because of interference from 

surrounding buildings or trees.

• The DBS penetration rate is generally higher in nonmetropolitan areas. 

The DBS penetration rate is about 41 percent greater in cable franchise 

areas outside metropolitan areas compared with cable franchise areas 

within metropolitan areas. This result is consistent with the results 

discussed above for 2001 to 2004 and may be attributed to the early 

popularity of satellite service in rural areas.

14To mitigate this problem, DBS providers could negotiate with MDU owners to install a 

single satellite dish on the roof of MDU buildings and subsequently relay the signal to 

residents via internal wiring. 
Page 15 GAO-05-257 Telecommunications

Key Competitive Factors 

Influence DBS Penetration 

Rates

Using the same econometric model, we also identified three competitive 

factors that influence the DBS penetration rate in cable franchise areas in 

2004.

• The DBS penetration rate is lower in areas where the cable operator’s 

system has greater capacity. A 10 percent increase in the cable 

operator’s system capacity is associated with a 2.4 percent decrease in 

the DBS penetration rate. With greater system capacity, a cable operator 

can provide more channels and advanced services, such as digital cable, 

cable modem, and telephone services. Thus, greater system capacity 

allows the cable operator to provide a compelling alternative to DBS 

service that can contribute to lower DBS penetration rates. This result is 

consistent with the lower DBS penetration rate in areas where cable 

operators provided advanced cable services for 2001 to 2004 that we 

discussed above. 

• The DBS penetration rate is lower in areas with wire-based cable 

competition, compared with areas without wire-based competition. In 

particular, we found that DBS penetration rates are about 37 percent 

lower in areas with wire-based cable competition compared with areas 

without wire-based competition. Again, this result is consistent with the 

results discussed above. With wire-based competition, additional 

companies are competing for customers. The addition of a second cable 

operator can attract some customers who might otherwise have 

purchased DBS service, thereby reducing the DBS penetration rate.

• The DBS penetration rate is higher in areas where DBS customers can 

receive local-into-local service. Local-into-local service allows DBS 

subscribers to receive the local broadcast stations in their area (e.g., the 

ABC, CBS, Fox, and NBC affiliates) from the DBS provider, just as cable 

subscribers receive local broadcast stations from their cable operator. 

Since individual programming appearing on broadcast stations generally 

has higher ratings than individual programming appearing on cable 

channels, the ability of DBS providers to offer local broadcast stations 

to their customers remains an important competitive factor. We found 

that where local-into-local service is available, the DBS penetration rate 

is about 12 percent higher than areas where local-into-local is not 

available.
Page 16 GAO-05-257 Telecommunications

Agency Comments and 

Our Evaluation

We provided a draft of this report to the Federal Communications 

Commission (FCC) for its review and comment. FCC staff provided 

technical comments that we incorporated, where appropriate.

Industry Participants’ 

Comments

We provided a draft of this report to the National Cable and 

Telecommunications Association (NCTA) and the Satellite Broadcasting 

and Communications Association (SBCA) for their review and comment. 

NCTA provided no comments. SBCA officials noted that, in addition to the 

factors we discuss in the report, the inability of DBS providers to carry 

certain programming developed by cable operators also influences the DBS 

penetration rate in certain markets. In particular, SBCA noted that FCC’s 

program access rules require that vertically integrated cable operators 

make satellite-delivered programming available to competing subscription 

video providers, such as DBS providers, but that the program access rules 

do not apply to terrestrially delivered programming. SBCA officials note 

that the ability of cable operators to deliver programming terrestrially, 

especially popular programming such as regional sports networks, and 

therefore deny DBS providers access to this programming, negatively 

affects the DBS penetration rate in certain markets. 

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 15 days after the 

date of this letter. At that time, we will send copies to interested 

congressional committees; the Chairman, FCC; and other interested 

parties. We will also make copies available to others upon request. In 

addition, this report will be available at no cost on the GAO Web site at 

http://www.gao.gov. If you or your staff have any questions concerning this 

report, please contact me at (202) 512-2834 or at goldsteinm@gao.gov. 
Page 17 GAO-05-257 Telecommunications

Major contributors to this report include Amy Abramowitz, Stephen 

Brown, Michael Clements, Simon Galed, and Bert Japikse. 

Mark L. Goldstein

Director, Physical Infrastructure Issues
Page 18 GAO-05-257 Telecommunications

Appendix I

Scope and Methodology ApApenednxidexiIs

To respond to the first and second objectives—to provide information on 

how direct broadcast satellite (DBS) subscribership has changed since 

2001 and how the DBS penetration rate differs across urban, suburban, and 

rural areas—we gathered data on DBS subscribers from the Satellite 

Broadcasting and Communications Association (SBCA). SBCA provided us 

with the number of DBS subscribers by ZIP CodeTM 1 for the two DBS 

providers, DIRECTV® and EchoStar. Using information from the Census 

Bureau and a private vendor, we matched the zip codes to counties and 

calculated the number of DBS subscribers in each county throughout the 

United States. We also gathered data on housing unit projections from the 

Census Bureau, which, when combined with the number of DBS 

subscribers, allowed us to calculate the DBS penetration rate by county for 

July 2001 to January 2004. This allowed us to examine changes in the DBS 

penetration rate for that period of time. Further, using data from the Office 

of Management and Budget, we classified counties as urban, suburban, and 

rural, based on the location of central cities and designations of 

metropolitan statistical areas (MSA). This allowed us to calculate the DBS 

penetration rate for each of these geographic categories. 

To respond to the third objective—to provide information on the DBS 

penetration rate based on the degree and type of competition—we used 

two different methodologies. First, to examine the DBS penetration rate in 

areas with and without cable service, we used survey data from Knowledge 

Network’s The Home Technology Monitor: Spring 2004 Ownership and 

Trend Report. Knowledge Networks is a survey research firm that 

conducted a consumer survey on household television characteristics. 

Knowledge Networks interviewed 2,471 randomly sampled telephone 

households, asking questions regarding the household’s ownership of 

television equipment and use of television service; see appendix II for a 

discussion of the steps we took to evaluate the reliability of Knowledge 

Network’s data. The survey included questions regarding whether the 

household had cable service available and which method the household 

used to receive television (e.g., over-the-air, cable, or DBS). We used these 

data to identify the percentage of households receiving DBS service in 

areas with and without cable service. Second, to examine the DBS 

penetration rate in areas with advanced cable services and wire-based 

cable competition, we used data from FCC’s annual Cable Price Survey. We 

used data from FCC’s 2002 and 2004 surveys, which included questions 

1

ZIP CodeTM is a registered trademark of the United States Postal Service. For simplicity, we 

refer these as zip codes. 
Appendix I

Scope and Methodology

Page 19 GAO-05-257 Telecommunications

regarding the availability of digital cable, cable modem, and telephone 

service and the presence of wire-based competition. We matched individual 

zip codes to the cable franchise areas that formed the unit of analysis in 

FCC’s survey. When combined with the count of DBS subscribers by zip 

code from SBCA, we calculated the DBS penetration rate for each cable 

franchise area in FCC’s survey. We used these data, combined with cable 

operators’ responses to FCC’s survey regarding advanced services and 

wire-based competition, to calculate the DBS penetration rate under these 

various scenarios. 

To respond to the fourth objective—to provide information on the factors 

that appear to influence the DBS penetration rate in cable franchise 

areas—we used an econometric model we previously developed that 

examines the effect of competition on cable rates and service and the DBS 

penetration rate.2

 Using data from FCC’s 2004 Cable Price Survey, the 

model considered the effect of various factors on cable rates, the number 

of cable subscribers, the number of channels that cable operators provide 

to subscribers, and the DBS penetration rate for areas throughout the 

United States. See appendix III for a more detailed explanation of, and 

results from, our econometric model. 

2

See, GAO, Telecommunications: Issues Related to Competition and Subscriber Rates in 

the Cable Television Industry, GAO-04-8 (Washington, D.C.: Oct. 24, 2004); 

Telecommunications: Issues in Providing Cable and Satellite Television Services, GAO-03-

130 (Washington, D.C.: Oct. 15, 2002); and Telecommunications: The Effect of Competition 

from Satellite Providers on Cable Rates, GAO/RCED-00-164 (Washington, D.C.: July 18, 

2000). 
Page 20 GAO-05-257 Telecommunications

Appendix II

Data Reliability ApendxiI

To respond to the objectives of this report, we relied extensively on three 

data sets and took steps to ensure the reliability of these data. The data sets 

we relied on include the Federal Communications Commission’s (FCC) 

2002 and 2004 Cable Price surveys, direct broadcast satellite (DBS) 

subscriber counts by zip code from the Satellite Broadcasting and 

Communications Association (SBCA), and Knowledge Network’s 2004 The 

Home Technology Monitor survey. In this appendix, we explain the steps 

we took to ensure that these data were sufficiently reliable for the purposes 

of our work.

FCC’s Cable Price surveys FCC annually surveys approximately 700 cable franchises to fulfill a 

congressional mandate to report on average cable rates for cable operators 

found to be subject to “effective competition”—a legally defined term—

compared with operators not subject to effective competition. In previous 

testimonies and a report, we have noted weaknesses with FCC’s survey, 

including insufficient instructions and inaccuracies in the classification of 

the competitive status of cable operators.1

 In response to our 

recommendations, FCC has taken several steps to improve the reliability of 

its survey, including editing the survey document and correcting inaccurate 

classifications of the competitive status of cable franchises. Additionally, 

FCC conducts follow-ups with survey respondents and edits survey data 

when inaccuracies are apparent.

We used FCC’s 2002 and 2004 Cable Price surveys to identify areas where 

cable operators provided advanced services and also for information on 

price, number of channels, and other operating data necessary for our 

cable-satellite econometric model. Because our use of data from FCC’s 

surveys was important in a comparative manner, rather than an absolute 

sense—that is, our primary concern with cable rates was the relative level 

of rates between cable franchises, rather than the absolute rate in a 

particular cable franchise—it is not important for our use that the data be 

precise. We conducted logic tests to identify any observations with 

apparent inaccuracies in the variables of interest for our work. We 

determined that the data were sufficiently reliable for our analysis.

1

See, GAO, Telecommunications: Data Gathering Weaknesses in FCC’s Survey of 

Information on Factors Underlying Cable Rate Changes, GAO-03-742T (Washington, D.C.: 

May 6, 2003); Telecommunications: Issues Related to Competition and Subscriber Rates in 

the Cable Television Industry, GAO-04-8 (Washington, D.C.: Oct. 24, 2003); and 

Telecommunications: Subscriber Rates and Competition in the Cable Television Industry, 

GAO-04-262T (Washington, D.C.: Mar. 25, 2004). 
Appendix II

Data Reliability

Page 21 GAO-05-257 Telecommunications

SBCA’s DBS Subscriber 

Counts

SBCA possesses data on the number of DBS subscribers by zip code. To 

respond to the objectives of this report, we sent SBCA a letter identifying 

the specific data elements we required. SBCA officials prepared a set of 

data sets consistent with our needs. We conducted logic tests on SBCA’s 

data and identified some inconsistencies, which we discussed with SBCA 

officials. SBCA officials subsequently took steps to resolve these 

inconsistencies. Based on the revised data we received from SBCA and our 

subsequent tests, we determined that the data were sufficiently reliable for 

our analysis.

Knowledge Network’s The 

Home Technology Monitor: 

Spring 2004 Ownership 

and Trend Report

To obtain information on the availability of cable service and types of 

television service used by U.S. households, we purchased existing survey 

data from Knowledge Networks Statistical Research. This survey was 

completed with 2,375 of the estimated 5,075 eligible sampled individuals for 

a response rate of 47 percent; partial interviews were conducted with an 

additional 96 people, for a total of 2,471 individuals completing some of the 

survey questions. The survey was conducted between February 23 and 

April 25, 2004. Because we did not have information on those contacted 

who chose not to participate in the survey, we could not estimate the 

impact of the nonresponse. Our findings will be biased to the extent that 

the people at the 53 percent of the telephone numbers that did not yield an 

interview have experiences with television service or equipment that are 

different from the 47 percent of our sample who responded. However, 

distributions of selected household characteristics (including presence of 

children, race, and household income) for the sample and the U.S. Census 

estimate of households show a similar pattern.

To assess the reliability of these survey data, we reviewed documentation 

of survey procedures provided by Knowledge Networks and questioned 

knowledgeable officials about the survey process and resulting data. We 

determined that the data were sufficiently reliable for the purposes of this 

report. 
Page 22 GAO-05-257 Telecommunications

Appendix III

Cable-Satellite Econometric Model ApendxiI

This appendix describes our econometric model of cable-satellite 

competition. In particular, we discuss (1) the specification of the model, (2) 

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

into a single data set, (4) the descriptive statistics for variables included in 

the model, (5) the estimation methodology and results, and (6) alternative 

specifications. 

Specification of 

Econometric Model of 

Cable-Satellite Competition

We developed an econometric model to examine the influence of various 

factors, including those describing aspects of cable competition at the local 

level, on local DBS penetration rates. Estimating the importance of various 

factors on the DBS penetration rate is complicated by the possibility that 

the DBS penetration rate in an area may help determine, but also be 

determined by, in part, the local cable price in that area. One statistical 

method applicable in this situation is to estimate a system of structural 

equations in which certain variables that may be simultaneously 

determined are estimated jointly. In our previous reports, we estimated a 

four-equation structural model in which cable prices, the number of cable 

subscribers, the number of cable channels, and the DBS penetration rate 

were jointly determined.1

 We use this same general structure again, this 

time using the most recent information available from FCC’s 2004 Cable 

Price Survey and contemporaneous satellite subscriber information 

provided by the Satellite Broadcasting and Communications Association. 

We made some minor modifications because of, for example, changes in 

the subscription video market. 

We estimated the following four-equation structural model of the 

subscription video market: 

• DBS penetration rate in a local market is hypothesized to be related 

to (1) cable prices per channel; (2) the DBS companies’ provision of 

local stations in the franchise area; (3) the size of the television market 

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

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

cable system capacity in terms of megahertz; (7) a dummy variable for 

1

See GAO, Telecommunications: Issues Related to Competition and Subscriber Rates in 

the Cable Television Industry, GAO-04-8 (Washington, D.C.: Oct. 24, 2003); 

GAO-03-130 (Washington, D.C.: Oct. 15, 2002); and Telecommunications: The Effect of 

Competition from Satellite Providers on Cable Rates, GAO/RCED-00-164 (Washington, 

D.C.: July 18, 2000).
Appendix III

Cable-Satellite Econometric Model

Page 23 GAO-05-257 Telecommunications

areas outside metropolitan areas; (8) the percentage of multiple 

dwelling units; (9) the angle, or elevation, at which a satellite dish must 

be fixed to receive a satellite signal in that area; and (10) the presence of 

a nonsatellite competitor. The DBS penetration rate variable is defined 

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

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

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

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

regulatory conditions in the subscription video market that directly 

affect DBS.

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

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

rate, (4) the DBS companies’ provision of local stations in the franchise 

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

television households, (6) horizontal concentration, (7) vertical 

relationships, (8) the presence of a nonsatellite competitor, (9) 

regulation, (10) average wages, and (11) population density. The cable 

price variable used in the model is intended to reflect the total monthly 

rate charged by a cable franchise to the typical subscriber. The 

explanatory variables in the cable price relationship are essentially cost 

and market structure variables.

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

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

broadcast stations, (4) urbanization, (5) the age of the cable franchise, 

(6) the number of homes passed by the cable system, (7) the median 

household income of the local area, and (8) the presence of a 

nonsatellite competitor. The number of cable subscribers is defined as 

the number of households in a franchise area that subscribe to the most 

commonly purchased programming tier. This represents the demand 

equation for cable services, which depends on rates and other demandrelated factors.

• Number of channels is hypothesized to be related to (1) the number of 

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

television market as measured by the number of television households, 

(4) the median household income of the local area, (5) cable system 

capacity in terms of megahertz, (6) the percentage of multiple dwelling 

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

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

channels included in the most commonly purchased programming tier. 
Appendix III

Cable-Satellite Econometric Model

Page 24 GAO-05-257 Telecommunications

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

programming quality and is explained by a number of factors that 

influence the willingness and ability of cable operators to provide highquality service and consumers’ preference for quality. 

Table 1 presents the explanatory variables in the structural model on cable 

prices and DBS penetration rates.

Table 1: Explanatory Variables Used in Cable-Satellite Model 

Explanatory variable Definition of variable

Cable price The monthly rate charged for the Basic Service Tier and Cable Programming Service Tier (the 

most commonly purchased tier).

Number of cable subscribers The number of subscribers to the Basic Service Tier and Cable Programming Service Tier (the 

most commonly purchased tier).

Number of channels The number of channels provided with the Basic Service Tier and Cable Programming Service Tier 

(the most commonly purchased tier).

DBS penetration rate The fraction of housing units in a cable franchise area that have satellite service.

DBS provision of local stations A binary variable that equals 1 if one or both DBS providers offer local broadcast stations in the 

cable franchise area.

Television market size The number of television households in the market.

Horizontal concentration A binary variable that equals 1 if the cable operator providing service in the franchise area is 

affiliated with a multiple system operator (MSO) that serves over 1 million subscribers nationally.

Vertical relationship A binary variable that equals 1 if the cable operator is affiliated with an MSO that has an ownership 

interest in a national or regional video programming service.

Presence of nonsatellite 

competitor

A binary variable that equals 1 if a second wireline company provides cable service (including, for 

example, a broadband service provider) in the franchise area.

Average wage The average weekly wage for telecommunications equipment installers and repairers in the 

metropolitan area, or state, in the case of nonmetropolitan areas, where the cable franchise is 

located.

Population density The ratio of population to square miles in the franchise area.

Number of broadcast stations The number of over-the-air broadcast stations in the television market.

Urbanization The percentage of the county's population that is classified as urban by the Census Bureau.

Age of cable franchise The number of years between when the cable franchise began operation and 2004.

Homes passed by cable system The number of homes passed by the cable system that serves the franchise area, including homes 

outside the franchise area.

Median household income The median household income in the franchise area.

Cable system megahertz The capacity, measured in megahertz, of the cable system that serves the franchise area. 

Percentage of multiple dwelling 

units

The percentage of housing units accounted for by structures with five or more housing units.

Nonmetropolitan areas A binary variable that equals 1 if the franchise area is outside a metropolitan statistical area (MSA).
Appendix III

Cable-Satellite Econometric Model

Page 25 GAO-05-257 Telecommunications

Source: GAO.

Data Sources Used for the 

Econometric Model

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

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

• We obtained data on cable prices and service characteristics from the 

2004 Cable Price Survey that FCC conducted as part of its mandate to 

report annually on cable prices. FCC’s survey asked a sample of cable 

franchises to provide information, as of January 1, 2004, about a variety 

of items pertaining to cable prices, service offerings, subscribership, 

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

used the survey to define measures of each franchise area’s cable prices, 

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

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

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

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

franchises in the same area, (3) regulation—a dummy variable equal to 1 

if the franchise is subject to rate regulation of its Basic Service Tier, (4) 

horizontal concentration—a dummy variable equal to 1 if the franchise 

area is affiliated with one of the largest MSOs with at least 1 million 

subscribers nationally, and (5) the status of nonsatellite competition—a 

dummy variable equal to 1 if the franchise faced competition from a 

second wireline company that provides cable service.

• From the Satellite Broadcasting and Communications Association, we 

obtained DBS subscriber counts as of January 2004 for each zip code in 

the United States. We used this information to calculate the number of 

DBS subscribers in a cable franchise area, which, when divided by the 

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

• We used the most recent data from the Census Bureau to obtain the 

following demographic information for each franchise area: housing 

units, median household income, proportions of urban and rural 

populations, housing units accounted for by structures with more than 

Angle (or “elevation”) of satellite 

dish 

The angle relative to the ground that a DBS subscriber must mount the satellite dish to “see” the 

satellite.

Regulation A binary variable that equals 1 if the cable franchise is subject to regulation of the rate charged for 

the Basic Service Tier.

(Continued From Previous Page)

Explanatory variable Definition of variable
Appendix III

Cable-Satellite Econometric Model

Page 26 GAO-05-257 Telecommunications

five units (multiple dwelling units), population density, and 

nonmetropolitan statistical areas. 

• For average wage, we used May 2003 estimates for Installation, 

Maintenance, and Repair Occupations from the Bureau of Labor 

Statistics’ (BLS) National Occupational Employment and Wage 

Estimates. We used metropolitan area data for most franchise areas, and 

state-level data for those franchise areas located outside of metropolitan 

areas.

• We used data from BIA MEDIA AccessProTM to determine the number of 

broadcast television stations in each television market.

• To define the dummy variable indicator of vertical integration, we used 

information on the corporate affiliations of the franchise operators 

provided in FCC’s survey. We used this information in conjunction with 

industrywide information on vertical relationships between cable 

operators and suppliers of program content gathered by FCC in its 

Tenth Annual Report on the status of competition in the market for 

delivery of video programming. 

• From Nielsen Media Research, we acquired information to determine 

the number of television households in each designed market area 

(DMA), or television market, and the DMA in which each cable franchise 

was located.

• We used information from the two DBS companies (DIRECTV® and 

EchoStar) to identify DMAs in which these companies provide local 

stations and, if local stations are available, when the companies initiated 

this service. We used this to construct a measure of local station 

availability, as well as alternative specifications presented in the final 

section.

• Based on a zip code associated with each cable franchise area, we 

determined the necessary satellite dish elevation for each area based on 

information available from the Web pages of the two DBS companies.
Appendix III

Cable-Satellite Econometric Model

Page 27 GAO-05-257 Telecommunications

Merging Various Data 

Sources into a Single Data 

Set

The level of observation in our model is the local cable franchise.2 Many of 

the variables we used to estimate our model, such as each cable franchise’s 

price, come directly from FCC’s Cable Price Survey. However, we also 

created variables describing competitive, geographic, and economic 

conditions in each franchise area. For these variables, we used information 

from other sources. For example, we obtained median household income 

and the extent of multiple dwelling units from Census Bureau data, and 

derived the DBS penetration rate from information provided by the 

Satellite Broadcasting and Communications Association. Generally, these 

data are reported at other geographic levels, and we describe briefly the 

process by which we merged these different data sources.

Cable franchise areas take a variety of jurisdictional forms, such as city or 

town, or unnamed, unincorporated area. As a consequence, they do not 

correspond in many cases to well-recognized geographical units, such as 

Census places, for which other data are readily available. Our approach to 

identifying the geographic extent of each franchise area and relating 

information processed at different geographic levels to each franchise area 

is similar to that we have used and described in detail in our previous 

reports. In general, we used information in FCC’s survey identifying 

franchise community name and type (such as city or town) to match to 

Census geographic identification codes for particular places or county 

subdivisions that do correspond to Census geography. In particular, we 

used 2000 Census information on the number of housing units in these 

jurisdictions as the basis for our measure of DBS penetration. For other 

franchises, however, the link to Census records was not as direct. For 

franchises in unincorporated unnamed areas, for example, and those 

whose franchise areas represent a section of the associated community 

(which occurs in some large cities3

), we acquired additional information on 

the geographic boundaries of the franchise areas.4

2

We define a cable franchise in terms of its FCC assigned Community Unit Identification 

(CUID) number.

3

Many large cities, such as New York City, Los Angeles, and Chicago, have multiple cable 

franchise areas. 

4

For those jurisdictions for which there were multiple franchises, including counties with 

franchises in unincorporated unnamed areas, we attempted to define more precise 

geographical boundaries for each franchise. Specifically, we contacted local government 

offices responsible for cable franchise oversight and received maps or other descriptive 

information linking the specific franchise areas to zip codes, census tracts, local 

government districts, or some other boundary information. 
Appendix III

Cable-Satellite Econometric Model

Page 28 GAO-05-257 Telecommunications

The satellite subscriber information we obtained was organized by zip 

code. In order to link these subscriber counts to franchise area 

geographies, we determined the zip code or zip codes associated with each 

franchise. Because zip codes often do not share boundaries with other 

geographies, one zip code can be associated with more than one cable 

franchise area. Also, many franchises, particularly larger ones, span many 

zip codes. Therefore, we needed to identify the zip code or codes in each 

franchise area as well as the degree to which each of those zip codes is 

contained in each franchise area to calculate the degree of satellite 

penetration for each franchise area. We accomplished this by using 

software designed to relate various levels of census geography to one 

another.5

 For most franchise areas—that is, those that correspond to 

census places, county subdivisions, or entire counties—we were able to 

use this software to relate census places, county subdivisions, or other 

census geographies directly to the zip codes that corresponded to those 

areas and to calculate the share of each zip code’s population according to 

the 2000 Census that was contained in that area. We used these population 

shares to allocate shares of each zip code’s total DBS subscribers to the 

relevant franchise area, and then summed the resulting subscribers across 

all zip codes in that franchise area.6

 We defined the penetration by dividing 

this subscriber total by an estimate of the housing units in that franchise 

area in January 2004.7

5

In particular, we used the MABLE/Geocorr correspondence engine 

(http://mcdc2.missouri.edu/websas/geocorr2k.html). MABLE is an acronym for Master Area 

Block Level Equivalency file. 

6

As an illustration, assume we have a cable franchise area in the town of Anytown, which 

the MABLE software identifies as served by zip codes 12345 and 12346. Assume further that 

zip code 12345 had a population of 10,000 people in 2000, of which 8,000 were in Anytown 

proper and 2,000 were in the surrounding unincorporated area, and zip code 12346 had a 

population of 12,000 people, of which 6,000 were in Anytown. In this case, 80 percent of the 

12345 zip code and 50 percent of the 12346 populations are associated with Anytown, so that 

our approach would assign 80 percent of the satellite subscribers in zip code 12345 and 50 

percent of those in 12346 to the cable franchise in the town of Anytown. Because we defined 

the DBS penetration rate as the number of subscribers divided by the number of housing 

units, our approach would divide this estimate of the number of DBS subscribers in 

Anytown by the number of housing units reported in the 2000 Census for the town of 

Anytown.

7

We used county-level housing unit projections made by the Census Bureau to adjust the 

2000 housing unit counts to January 2004. This adjustment process assumes that growth 

was uniform within the boundaries of each county.
Appendix III

Cable-Satellite Econometric Model

Page 29 GAO-05-257 Telecommunications

As part of the process of identifying the zip codes associated with each 

franchise area, we identified a key zip code that we used for linking other 

data items. We used Census data organized at the zip code level to assign 

demographic data, such as income and the extent of multiple dwelling 

units, to each franchise area. We also used this key zip code to attach 

information concerning the proper satellite dish elevation.

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

franchise’s county, state, or metropolitan area. We assigned wage data from 

BLS at the metropolitan or state level and we assigned nonmetropolitan 

status, percentage of urban population, and the Nielsen television market 

of each franchise at the county level.8

 Information on the provision of local 

stations by DBS companies, which occurs at the television market level, 

was then assigned to each franchise.

Descriptive Statistics for 

Variables Included in the 

Econometric Model

Table 2 provides basic statistical information on all of the variables 

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

statistics using 624 observations in our data set. We excluded those 

franchises sampled by FCC that were municipally operated or that 

competed directly with municipally operated franchises because we 

believe that these cable franchises are likely to be operated differently from 

the majority of other franchises.

Table 2: Descriptive Statistics for Variables Used in Cable-Satellite Model

8

In the Nielsen data, some counties are split between different television markets. In cases 

where a franchise’s county was not uniquely placed in one television market, we used 

additional information on zip codes to assign the franchise to a television market.

Variable Mean Standard deviation Minimum value Maximum value

Cable price 40.25 5.10 16.99 53.90

Number of cable subscribers 27,497.7 50,744.9 35.0 401,174.0

Number of channels 70.7 11.5 14.0 120.0

Number of local broadcast stations 15.6 6.6 3.0 34.0

DBS penetration rate 16.2 10.6 1.1 77.2

Urbanization 78.6 25.2 0.0 100.0

Age of cable franchise 27.7 10.2 2.0 53.0
Appendix III

Cable-Satellite Econometric Model

Page 30 GAO-05-257 Telecommunications

Source: GAO.

Estimation Methodology 

and Results

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

estimate our model.9 Table 3 includes the estimation results for each 

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

variables,10 are expressed in natural logarithmic form.11 This means 

that coefficients can be interpreted as “elasticities”—the percentage 

change in the value of the dependent variable associated with a 1 

percent change in the value of an independent, or explanatory, 

Homes passed by cable system 233,493.8 265,476.7 190.0 1,368,050.0

Median household income 45.6 16.3 18.7 146.8

Average wage 704.1 66.22 475.19 852.7

Cable system megahertz 730.6 127.2 212.0 870.0

Regulation 0.36 0.48 0.00 1.00

Horizontal concentration 0.83 0.38 0.00 1.00

Vertical relationship 0.64 0.48 0.00 1.00

Percentage of multiple dwelling units 16.04 13.96 0.00 98.12

Presence of nonsatellite competitor 0.22 0.41 0.00 1.00

Television market size 1,685.4 1,842.5 57.0 7,301.0

Nonmetropolitan area 0.21 0.40 0.00 1.00

DBS provision of local stations 0.85 0.36 0.00 1.00

Population density 2,949.6 4,891.9 16.8 66,940.0

Angle (or “elevation”) of satellite dish 40.1 6.5 27.6 57.1

(Continued From Previous Page)

Variable Mean Standard deviation Minimum value Maximum value

9

We preferred 3SLS to Two-Stage Least Squares (2SLS) because 3SLS accounts for the 

contemporaneous relationships among cable rates, cable subscribers, cable channels, and 

DBS penetration by using all available information. Also, we assumed that price per channel 

in the subscriber equation is exogenous because cable providers simultaneously decide how 

many channels to provide and what to charge for a package of channels, rather than 

deciding how much to charge for each channel. 

10A dummy variable takes a value of 1 if a certain characteristic is present and a value of 0 

otherwise.

11The dummy variables in the model include the following: horizontal concentration of cable 

systems, vertical relationship, regulation, presence of nonsatellite competitor, DBS 

provision of local stations, and nonmetropolitan area. Also, because the natural log of 0 is 

undefined, we added 1 to the observed value of any continuous variable that can take the 

value of 0.
Appendix III

Cable-Satellite Econometric Model

Page 31 GAO-05-257 Telecommunications

variable. The coefficients on the dummy variables are elasticities in 

decimal form.

Table 3: Three-Stage Least Squares Model Results 

Variable

Cable prices

equation

Cable subscribers

equation

Cable channels

equation

DBS penetration

equation

Cable price per channel -2.6260

[0.0001]a

0.4582

[0.0002]a

Number of channels 0.3955

[0.0001]a

Number of cable subscribers -0.0131

[0.1692]

0.0340 

[0.0001]a

DBS penetration -0.0476

[0.0152]b

-1.4420

[0.0001]a

0.0419

[0.0586]c

DBS provision of local stations 0.0139

[0.4317]

0.1131

[0.0770]c

Regulation 0.0157

[0.2234]

Number of broadcast stations 0.2838

[0.0366]b

Median household income -0.3974

[0.0358]b

0.0673

[0.0007]a

0.2006

[0.0026]a

Horizontal concentration 0.0133

[0.4591]

Vertical relationship -0.0414

[0.0035]a

0.0163

[0.2815]

Presence of nonsatellite competitor -0.1694

[0.0001]a

-1.4280

[0.0001]a

0.0808

[0.0001]a

-0.4607

[0.0001]a

Nonmetropolitan area 0.3460

[0.0001]a

Urbanization 0.4624

[0.0001]a

Percentage of multiple dwelling units 0.0032

[0.7428]

-0.2485

[0.0001]a

Age of cable franchise 0.2738

[0.0236]b

-0.1332

[0.0011]a

Homes passed by cable system 0.2546

[0.0001]a

Cable system megahertz 0.4654 

[0.0001]a

-0.2406

[0.0118]b

Television market size -0.0067

[0.3588]

0.0267

[0.0001]a

0.0848 

[0.0003]a
Appendix III

Cable-Satellite Econometric Model

Page 32 GAO-05-257 Telecommunications

Source: GAO.

Notes: System-weighted R-square: 0.49.

P-values are in square brackets.

a

Significant at the 1 percent level.

b

Significant at the 5 percent level.

c

Significant at the 10 percent level.

We found that several factors related to the geographical conditions 

influence the DBS penetration rate. Specifically, as shown in table 3, DBS 

penetration rates are likely to be significantly higher in nonmetropolitan 

areas. This could be associated with the historical development of satellite 

service, which had been marketed for many years in smaller and more rural 

areas. Additionally, the DBS penetration rate is higher in areas that require 

a relatively higher angle or elevation at which the satellite dish is mounted 

and is lower in areas where there are more multiple dwelling units. These 

two factors can be associated with the need of DBS satellite dishes to “see” 

the satellite: A dish aimed more toward the horizon (as opposed to aimed 

higher in the sky) is more likely to be blocked by a building or foliage, and 

people in multiple dwelling units often have fewer available locations to 

mount a satellite dish. 

Additionally, we found that several factors related to competitive 

conditions influence the DBS penetration rate. As shown in table 3, our 

model results indicate that in cable franchise areas where local broadcast 

stations are available from one or both DBS providers, the DBS penetration 

rate is approximately 12 percent higher than in areas where local stations

Population density 0.0015

[0.8090]

Average wage 0.0609

[0.3791]

Angle (or “elevation”) of satellite dish 1.0697

[0.0001]a

Intercept 1.9190

[0.0001]a

9.1412

[0.0001]a

-0.1648

[0.5435]

-1.2538

[0.2452]

Sample size 624 624 624 624

(Continued From Previous Page)

Variable

Cable prices

equation

Cable subscribers

equation

Cable channels

equation

DBS penetration

equation
Appendix III

Cable-Satellite Econometric Model

Page 33 GAO-05-257 Telecommunications

are not available via satellite.12 This finding suggests that in areas where 

local stations are available from one or both DBS providers, consumers are 

more likely to subscribe to DBS service and, therefore, DBS appears to be 

more competitive with cable than in areas where local stations are not 

available from a DBS provider. 

We did not find that DBS companies’ provision of local broadcast stations 

is associated with lower cable prices. In table 3, the estimate is, in fact, 

positive, although not statistically significant, and we therefore cannot 

reject the hypothesis that provision of local broadcast stations has no 

impact on cable prices. However, we found that cable prices were 

approximately 16 percent lower in areas where a second cable company—

known as an overbuilder—provides service. Finally, cable prices are higher 

in areas where the cable company provides more channels, indicating that 

consumers are generally willing to pay for additional channels and that 

providing additional channels raises a cable company’s costs. Additionally, 

we found that DBS penetration rates are lower in cable franchise areas 

where a second wire-based competitor is present; in these areas, the DBS 

penetration rate is 37 percent lower compared with similar areas where a 

second wire-based competitor is not present.

Alternative Specifications We considered alternative specifications under which we expanded the 

definition of local broadcast stations to account for (1) whether one or 

both DBS companies offer local stations and (2) the length of time that DBS 

companies have provided local stations. To conduct this analysis, we 

included several additional variables: “Both DBS companies provide” 

equals 1 if both DBS companies offer local stations in the cable franchise 

area, “One DBS company provides” equals 1 if only one DBS company 

offers local stations, “Long-term” equals 1 if either or both DBS companies 

have offered local stations in the cable franchise area for more than 3 years 

as of January 2004, “Short-term” equals 1 if local stations have been 

available for less than 3 years, “Both long-term” equals 1 if both DBS 

companies have offered local stations in the cable franchise area for more 

12This magnitude is less than we found previously; using 2001 data, we found that the DBS 

penetration rate was about 40 percent higher in cable franchises in which local stations 

were offered by both DBS companies. The somewhat smaller impact of local stations could 

be because the DBS companies have introduced this service into many more areas, 

including some smaller television markets.
Appendix III

Cable-Satellite Econometric Model

Page 34 GAO-05-257 Telecommunications

than 3 years as of January 2004, and “Both otherwise” equals 1 if local 

stations have otherwise been available from both DBS companies. 

We report the results of these alternative specifications only for the DBS 

penetration equation because we are primarily interested in their affects on 

DBS penetration and we found little impact on the other equations in the 

model. We present the results for four different specifications in table 4. In 

general, there is evidence that the longer that local stations have been 

available in a local area, the larger will be the increase in the local DBS 

penetration rate, and that the increase in the local DBS penetration rate is 

greater in those areas in which both DBS companies provide local stations.

Table 4: Alternative Specification Results 

Variable

DBS penetration

equation:

main specification

(from table 3)

DBS penetration

equation:

both or one provided

DBS penetration

equation:

long term and short

term

DBS penetration

equation:

duration and number

of providers

Cable price per channel 0.4582

[0.0002]a

0.4646

[0.0002]a

0.4690

[0.0002]a

0.5103

[0.0001]a

DBS provision of local stations 0.1131

[0.0770]c

Both DBS companies provide 0.1562

[0.0409]b

One DBS company provides 0.0862

[0.2127]

0.1106

[0.1135]

Long-term (greater than 3 years) 0.2207

[0.0096]a

Short-term (less than 3 years) 0.0929

[0.1493]

Both long-term 0.2852

[0.0030]a

Both otherwise 0.1347

[0.0793]c

Median household income 0.2006 

[0.0026]a

0.1977

[0.0031]a

0.1919

[0.0040]a

0.1921

[0.0039]a

Presence of nonsatellite competitor -0.4607

[0.0001]a

-0.4646

[0.0001]a

-0.4703

[0.0001]a

-0.4615

[0.0001]a

Nonmetropolitan areas 0.3460 

[0.0001]a

0.3476

[0.0001]a

0.3417

[0.0001]a

0.3417

[0.0001]a

Percentage of multiple dwelling units -0.2485

[0.0001]a

-0.2469

[0.0001]a

-0.2474

[0.0001]a

-0.2448

[0.0001]a
Appendix III

Cable-Satellite Econometric Model

Page 35 GAO-05-257 Telecommunications

Source: GAO.

Notes: P-values are in square brackets.

a

Significant at the 1 percent level.

b

Significant at the 5 percent level.

c

Significant at the 10 percent level.

Age of cable franchise -0.1332 

[0.0011]a

-0.1319

[0.0013]a

-0.1296

[0.0015]a

-0.1322

[0.0012]a

Cable system megahertz -0.2406 

[0.0118]b

-0.2346

[0.0142]b

-0.2341

[0.0140]b

-0.2240

[0.0189]b

Television market size 0.0848 

[0.0003]a

0.0687

[0.0138]b

0.0445

[0.1513]

0.0234

[0.4981]

Angle (or “elevation”) of satellite dish 1.0697

[0.0001]a

1.0514

[0.0001]a

1.0202

[0.0001]a

1.0173

[0.0001]a

Intercept -1.2538 

[0.2452]

-1.114

[0.3054]

-0.8147

[0.4559]

-0.7400

[0.5003]

Sample size 624 624 624 624

(Continued From Previous Page)

Variable

DBS penetration

equation:

main specification

(from table 3)

DBS penetration

equation:

both or one provided

DBS penetration

equation:

long term and short

term

DBS penetration

equation:

duration and number

of providers

(543097) 
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