United States General Accounting Office

GAO Report to the Subcommittee on

Antitrust, Business Rights, and

Competition, Committee on the

Judiciary, U.S. Senate

July 1999 TELECOMMUNICATIONS

The Changing Status of

Competition to Cable

Television

GAO/RCED-99-158

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-281027 

July 8, 1999

The Honorable Mike DeWine

Chairman

The Honorable Herb Kohl

Ranking Minority Member

Subcommittee on Antitrust, Business Rights

 and Competition

Committee on the Judiciary

United States Senate

Despite congressional efforts to constrain cable television rates and

promote competition in the subscription television market,1

 the average

bill for cable television has risen faster than the rate of inflation in recent

years.2

 There is also continuing concern that competition in the market is

developing more slowly and in different ways than was expected after the

1996 Telecommunications Act and that shaping public policy in

telecommunications markets has become increasingly difficult as

technology rapidly redefines the industry. Consequently, you asked us to

provide information on (1) the status of competition in the subscription

television market, (2) the extent to which ownership ties between cable

companies and program suppliers (such as CNN) may be affecting the

development of competition, and (3) key factors that may influence the

development of competition in the future.

In order to evaluate these issues, we interviewed companies and trade

associations representing cable companies, their competitors, and

television programming networks. In addition, we convened a panel of

experts to discuss issues concerning competition in the market. The panel

included government officials, academic experts, and a representative of a

consumer group. Our methodology is discussed in more detail in appendix

I. Appendix II lists the names of the companies we interviewed, and

appendix III lists the experts who participated in our panel.

Results in Brief The cable industry maintains a high share of the subscription television

market nationally and is currently not very competitive. However, the

satellite industry competes against cable companies throughout the United

1

This market comprises firms offering multiple channels of television programming for a subscriber

fee, such as that provided by cable and satellite companies.

2

Although average cable bills have been rising, the average number of channels offered to subscribers

has also been increasing during recent years.

Page 1 GAO/RCED-99-158 Status of Competition to Cable Television
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States, and its market share has increased considerably since the

introduction of a new generation of satellite television service, known as

direct broadcast satellite (DBS) service, in 1994. Satellite’s share of

customers purchasing subscription television service grew from 4 percent

in 1994 to 12 percent by mid-1998. During that same time period, the

market share of the cable industry declined from 93 percent to 85 percent.

Despite expectations of rapid entry into the subscription television

market, telephone companies have progressed more slowly and are

providing only limited competition to cable. Competitors to incumbent

cable companies are pursuing strategies to compete more effectively

through pricing, the number of channels offered, and customer service.

Partly in response to competition, cable companies are upgrading their

systems; improving service; and introducing new services, such as Internet

access. These behaviors by both incumbent cable companies and other

providers may indicate that the market is becoming more competitive

despite the continued high market share held by the cable industry.

However, some of these behaviors may have occurred even in the absence

of increased competition from other subscription television providers.

While many cable companies provide television programming throughout

the United States, the four largest cable companies as of June 1998

accounted for 55 percent of all television subscribers. In addition, the six

largest cable companies at that time had significant ownership interests in

program suppliers (that is, owners of subscription channels, such as HBO

and CNN). Most cable companies are following strategies to cluster their

operations geographically so that they operate most of the cable systems

in a particular city or region. These companies realize benefits from their

size, ownership interests, and clustering. Some industry participants have

expressed concerns about competitive advantages that the ownership

relationships may create for incumbent cable companies. For example,

some of our panel of experts noted that ownership relationships may

enable large cable companies to get more favorable terms when buying

programming and to restrict their competitors’ access to programming.

The likely future development of competition in the subscription television

market is difficult to predict, but certainly several key factors will

influence it. For example, the satellite companies’ continued growth will

be affected by their ability to provide subscribers with local network

programming (by ABC, NBC, CBS, etc.). Additionally, there is great

uncertainty about how the broadcasting industry will transition to a new

digital format because traditional television stations have a good degree of

flexibility in how they can use the increased capacity they have been

Page 2 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

granted for providing digital television. More broadly, the subscription

television market could be affected by developments in the larger

telecommunications market because other telecommunications

companies, such as telephone companies, are attempting to provide

consumers with “one-stop shopping”–that is, seeking to provide an array

of services including telephone service, subscription television service,

and Internet access. If several different types of companies—cable

companies, telephone companies, electric companies, and companies

using different kinds of “wireless” technologies—are successful in

bringing a “bundle” of telecommunications services to consumers,

competition among alternative delivery mechanisms—a cable wire, a

telephone wire, an electric wire, and wireless—may develop. However, if

one of the technologies that uses a wired connection to homes and

businesses emerges as the most efficient, it could become the dominant

means of delivering various telecommunications services, and greater

competition for subscription television and other telecommunications

services may not develop.3

Background About 98 percent of U.S. homes have at least one television set, and

television service is delivered to the home in several ways. Currently, there

are three technologies4

 that deliver most television service to individual

homes: over-the-air broadcasting, cable television, and satellite, each of

which is covered under a unique regulatory framework.5

 Additionally, the

channels that viewers watch on television fall primarily into two

categories—broadcast channels (which include the broadcast networks

and independent local channels) and subscription channels.

The Over-The-Air

Broadcast Industry

The broadcast industry has two key components. The first is composed of

local television stations. All television stations in this country must be

licensed by the Federal Communications Commission (FCC). The FCC

license gives a station the right to use a specified portion of the radio

3

If a wireless technology is the most efficient for providing a bundle of services, monopolization is less

of a concern because of the potential for allocating additional spectrum to allow for additional

providers. However, there is a limited amount of spectrum, and spectrum is not fully flexible across

uses.

4

In addition, “wireless cable” systems provide competition in limited areas. Wireless cable systems use

microwave frequencies to transmit programming to receiving antennas.

5

Under the Communications Act of 1934, as amended, the Federal Communications Commission

(FCC) has the authority to regulate all interstate and foreign communication by wire or radio. (See 47

U.S.C. 151). The Department of Justice or the Federal Trade Commission conducts antitrust reviews of

certain mergers involving the telecommunications industry. FCC also reviews telecommunications

mergers.

Page 3 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

spectrum to transmit video signals in a particular geographic area—that is,

all TV stations have a license to operate in a particular local market.

Because the video signal from a local TV station is broadcast through

radiowaves or “over the airwaves,” this method of providing television is

called “over-the-air,” or broadcast, TV. Figure 1 shows how a household

can receive television signals over the air through a rooftop antenna.6

Figure 1: the Delivery of Television

Over the Air

Transmitter

for TV

station 1

Television antenna

Transmitter

for TV

station 2

Roughly 78 percent of the commercial television stations in the United

States are owned by or affiliated with a broadcast network—the second

component of the broadcast industry. There are seven major commercial

broadcast networks today.7

 These networks purchase and produce an

array of programs such as news, situation comedies, dramas, sports

shows, soap operas, and so forth. Broadcast networks themselves do not

distribute the television programming they produce to individual

households; it is the local TV stations that are owned by or affiliated with

6

Even an antenna on the back of a TV set—so-called “rabbit ears’’—may be sufficient to pick up

over-the-air stations in many cases.

7

The seven networks are ABC, CBS, Fox Broadcasting Company, NBC, PaxTV, United Paramount

Network (UPN), and Warner Brothers (WB).

Page 4 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

the networks that distribute the programs via the airwaves.8 Many TV

stations, whether affiliated with a network or not, also produce

programming, such as local news and other local-interest programming.

The broadcast industry is largely funded through the national, regional,

and local advertisements that are aired along with other programming on

local TV stations. Households that receive only over-the-air TV pay no

subscription fee for access to the signals of the TV stations in their

area—they need only to have a TV set and an adequate antenna. In most

cities, a typical home would be able to receive several over-the-air

stations: the local TV stations affiliated with the broadcast networks, a

public television station, and perhaps other independent local television

stations. Approximately 22 percent of all households in the United States

do not subscribe to cable or any other subscription television service but

rely exclusively on over-the-air technology for their television

programming.

The Cable Industry Cable television originally developed as a means of providing the signals of

local television stations to rural and mountainous areas that could not get

adequate reception of those signals through conventional over-the-air

antennas. Early cable systems used large antennas to capture the signals

of nearby television stations and then retransmitted those signals to homes

through special wires (coaxial cables) owned by the cable companies.

Cable companies obtain a franchise license under agreed-upon terms and

conditions from a local authority, such as a county or township that grants

them the right to operate in a specified area and run cables along public

rights-of-way.9

 Many aspects of cable companies’ operations are regulated

by the FCC. Additionally, a 1976 copyright law grants to cable companies a

permanent license allowing them to transmit over-the-air television signals

through their cable systems.10

During the 1970s, developments in satellite technology enabled video

signals to be transmitted economically via satellites, opening the door for

8

Some of the broadcast networks also have divisions that produce channels designed for distribution

solely on subscription television, such as CNBC and FOXNEWS.

9

In some cases, cable franchises are administered at the state level.

10Under this copyright license scheme (17 U.S.C. 111), commonly referred to as a compulsory cable

copyright license, copyright owners are required to license their works to users at government-set

prices, terms and conditions. Generally, cable operators pay little or no copyright fees to carry local

signals. In the Cable Act of 1992, the Congress adopted statutory “must-carry” rules coupled with

“retransmission” consent provisions. Under these provisions, a cable operator may not carry a

broadcast station’s signal if the station has not elected must-carry status or if the station has not

granted prior consent (retransmission).

Page 5 GAO/RCED-99-158 Status of Competition to Cable Television
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the development of new networks, such as HBO and CNN, designed

primarily for the distribution of programming via satellite to cable systems

throughout the country. Unlike the broadcast networks, which gain

revenues largely through advertising, these subscription networks are

supported through both advertising and fees paid by cable operators.

Figure 2 illustrates how a household can receive television service from a

typical cable system. The cable plant primarily receives two kinds of

signals: (1) signals broadcast by local TV stations from TV towers in the

area and (2) signals via satellite from subscription networks.11 These

signals are all provided to subscribers through the cable system’s wires.

Figure 2: the Delivery of Television Via Cable

Cable

Cable plant

Subscription network

via satellite

Over-the-air

local TV

Once subscription networks were added to cable companies’ channel

offerings, consumers faced the choice between having access to only the

available over-the-air stations for free or paying a fee to obtain the

broadcast stations as well as several new subscription networks over a

cable system. Today, about 97 percent of homes in the United States have

11Cable plants may also receive terrestrial (land-based) microwave transmissions.

Page 6 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

access to a cable system, and approximately 66 percent of these

households subscribe to a cable service.

The Satellite Industry Satellite subscription television service emerged in the early 1980s as an

alternative to cable service in rural areas where over-the-air broadcast and

cable systems were inaccessible. Satellite systems obtain authorization

from FCC to place satellites in specific orbital locations from which they

can transmit video signals to all or much of the continental United States.12

Satellite companies transmit their programming directly to subscribers’

homes where satellite reception dishes (which subscribers purchase or

rent) are installed to capture the video signals and transmit them through a

wire to television sets. In 1994, a new type of satellite technology called

Direct Broadcast Satellite (DBS) was introduced that uses pizza-sized

satellite reception dishes that can be mounted on rooftops or window

sills.13 Satellite television is available nationwide, and each DBS company

generally offers the same programming packages and price throughout the

country. Since the introduction of DBS, satellite delivery of television has

become more popular in urban settings. The majority of satellite

subscribers today receive DBS from one of a few national companies

offering such service. Figure 3 shows how a household can receive

television service from a satellite company. Subscription television

networks transmit to a satellite (for example, CNN transmits much of its

programming from Atlanta, where it is produced), and then all

programming is transmitted directly to the subscriber’s satellite dish.

12The International Telecommunications Union, an intergovernmental organization through which

countries coordinate the use of radio frequencies, apportions, on a global basis, radio spectrum and

orbital locations for DBS service. The United States was assigned eight orbital locations for these

satellites, three of which reach the entire continental United States.

13Some households receive programming through a “home satellite dish,” which is similar to DBS

delivery but requires the use of a larger satellite dish. Home satellite dish delivery accounted for

approximately 2 million subscribers as of June 1998; however, its number of subscribers and market

share have been declining. The satellite association attributes this decline to households’ switching

from home satellite dish delivery to DBS delivery.

Page 7 GAO/RCED-99-158 Status of Competition to Cable Television
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Figure 3: the Delivery of Television Via

Satellite

Transmitter

Satellite

Satellite

reception

dish

Because DBS uses a digital technology, these systems currently have a

higher channel capacity and transmit clearer pictures and sound than

many cable systems.14 However, there are some current legal limitations

on when DBS companies may transmit network broadcast signals,15 which

the Congress is seeking to address. As discussed later in this report, bills

have passed both the House of Representatives and the Senate that would

allow DBS companies to provide local broadcast signals to all customers

within local broadcast areas.

14Digital technology more efficiently uses radio spectrum, so more services can be provided with a

given amount of radio spectrum. Also, because of the way that digital signals are transmitted, less

degradation of the signals occur.

15In particular, the Satellite Home Viewers Act establishes a copyright license allowing satellite carriers

to provide network programming only to homes where the subscriber’s television reception of local

broadcast stations via a standard rooftop antenna is not adequate (does not meet a certain signal

intensity standard). In these cases, and if certain other conditions are met, the households are

considered “unserved,” and the DBS operator can provide network broadcasts (usually from faraway

markets) under its copyright license.

Page 8 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Cable Maintains a

High Market Share,

but New Entrants Are

Becoming

Increasingly

Competitive

The cable industry continues to serve 85 percent of the customers

purchasing subscription television services. However, DBS companies

compete against cable operators throughout the United States, and their

subscriber base has increased considerably since the service was launched

in 1994. Local telephone companies, expected to begin providing

subscription television service after the enactment of the 1996

Telecommunications Act, have entered the market slowly and are

providing only limited competition to cable. DBS companies and other

competitors to cable companies are pursuing strategies to compete with

incumbent cable firms on the basis of price, the channels and other

services offered, and customer service; cable companies are responding to

this increased competition.

Cable Continues to

Maintain a High National

Market Share

According to June 1998 data reported by FCC, over 65 million households,

or 85 percent of all the households that have a subscription television

service use cable television. Although its number of subscribers continues

to grow, the cable industry’s market share of subscribers has declined

slightly in each of the last 4 years, from a level of 93 percent of subscribers

in December 1994. Nearly all of the participants on our panel of experts

stated that although competition in this industry is beginning to develop in

earnest, the subscription television market is currently not very

competitive. Figure 4 shows cable’s and its competitors’ market shares of

households that pay for their television programming.

Page 9 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Figure 4: Subscription Television

Providers’ Market Shares, June 1998 Satellite

3%

Other providers

Cable

12%

85%

Source: FCC, Dec. 1998.

Despite the high national market share of the cable industry, competition

in this industry really plays out in local markets. At the local level,

competition varies more than the national data suggest. According to our

discussions with industry participants, it appears that the degree of

competition in the local markets varies on the basis of several factors

related to the nature of each market.

Satellite Television Is a

National Competitor to

Cable and Is Growing in

Popularity

DBS service has enjoyed very rapid growth since 1994, when the service

first went on the market. Within the 12-month period between June 1997

and June 1998, there were more than 2 million new DBS subscribers

added—a 43-percent increase over the prior year’s total number of

subscribers—and as of June 1998, the market share of DBS companies and

other satellite television providers together had grown to 12 percent of all

households that have a subscription television service.16 DBS industry

analysts told us they foresee continued growth in the DBS market.

There are some aspects of DBS service that are very attractive to some

subscribers. First, through the use of digital technology, DBS’ picture and

sound quality is considered to be state-of-the-art, and surveys have found

16According to a satellite industry association, 28 percent of DBS customers also subscribe to a cable

service.

Page 10 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

these factors to be important to many. Second, DBS firms currently offer a

greater number of channels than most cable systems.17 For subscribers

who are interested in movies or sports, DBS may offer a more attractive

package of channels than most cable systems.

Although satellite systems offer a national service, their market

penetration varies significantly by local area. In particular, as figure 5

shows, DBS has enjoyed much greater penetration in more rural states. This

pattern of development may be due to the lack of cable systems in such

areas, to less channel capacity on the cable systems in some rural

locations, or simply to the early marketing strategies of satellite

companies.

17As cable systems upgrade to digital technology DBS’ advantage of a greater channel capacity over

cable will diminish.

Page 11 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Figure 5: Satellite Subscribership, by State as of January, 1999

Percentage of TV households

Source: Data from SkyTRENDS, 1999, a market research and data collection organization for the

satellite industry.

Competition to Cable From

Telephone Companies and

Other Providers Is Limited

Nationally but Significant

in Some Local Markets

As figure 4 indicates, subscription television service offered by telephone

companies, electric utilities, and other providers constitutes a relatively

small percentage of the national market. According to our discussions

with industry participants, it appears that despite the small national

market share held by these competitors, their presence is important in

some local markets. Moreover, according to FCC, where cable companies

face direct competition in local markets, consumers often receive benefits,

Page 12 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

including lower prices, additional channels at the same monthly rate,

improved customer service, and new services such as interactive

applications.

The 1996 Telecommunications Act eliminated a restriction on telephone

companies’ provision of television programming within their telephone

service areas. While telephone companies providing programming are not

generally using their telephone networks to compete with cable

companies, they have entered the market using other distribution

systems.18 One regional telephone company, Ameritech, has built a second

cable system in several cities that competes against the incumbent cable

operator’s system. Bell Atlantic has entered into a joint marketing

arrangement with a DBS company within its territory under which the

telephone company markets the DBS system under the telephone

company’s brand name. BellSouth has purchased some “wireless cable”

systems that use microwave technology to transmit television signals to

homes. Overall, FCC reports that telephone companies are not yet a

national presence in the subscription television market, but their

competitive presence is growing, and in certain areas, such as the

Midwest, they are already becoming significant regional competitors. FCC

has reported that Ameritech and BellSouth have acquired cable franchises

which give them potential access to more than 2.7 million homes.

The 1996 Telecommunications Act also contains provisions that effectively

allow public utility holding companies to enter telecommunications

markets, so these and other companies have also entered the subscription

television market in some local areas. FCC states that utilities have the

potential to become major competitors but thus far are not significant or

nationwide competitors in the subscription television market.

Additionally, some companies have focused their operations on the

multiple-dwelling-unit market, which includes apartment buildings and

condominiums. FCC also reports that investment in and the development of

Internet video service is continuing, and some video service is being

offered over the Internet, although the pictures are not of the quality

provided by subscription television.

The availability of free over-the-air broadcast television may also influence

the competitiveness of the subscription television market. For example,

some cable firms we spoke with noted that they feel competitive pressure

from the availability of free over-the-air television. In fact, some studies

have found that in addition to other factors, a greater number of free

18US WEST is using its telephone infrastructure to deliver video programming in Phoenix, Arizona.

Page 13 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

over-the-air TV channels in a particular city tends to reduce cable

subscriptions and rates.19 On the other hand, some members of our expert

panel noted that the small number of channels available through

over-the-air technology, as compared to a subscription service, does not

meet the needs of many consumers who currently choose to buy a

subscription service.

Competitors Are Adopting

Various Strategies to

Attract Subscribers

To attract subscribers to their services, competitors to incumbent cable

firms are pursuing a variety of strategies to compete for subscribers,

including (1) offering competitive pricing, (2) offering a greater number of

channels and expanding services, and (3) providing quality customer

service.

• DBS companies are competing on price by reducing the up-front costs of

purchasing necessary equipment, such as satellite reception dishes,20 as

well as maintaining their programming package prices. According to one

DBS company, its programming package price has not changed in the past

few years, and in 1998 the company guaranteed its subscribers that no

price increase would take effect before 2000. In addition to offering

packages with extensive programming, DBS companies also offer

programming packages with fewer channels for reduced monthly

payments.21 Other competitors, operating second cable systems or

wireless cable systems, also told us that they have attracted subscribers by

offering their services at prices that are competitive with those of

incumbent cable companies.

• Another means by which providers are seeking to compete with

incumbent cable systems is through the number of channels offered and

services provided. These competitors are seeking to attract new customers

with expanded channel selection, better picture quality and enhanced

sound. DBS providers said that they offer over 200 channels of digital video

and audio programming, which is a much larger selection than most cable

operators can provide. One of the wireless cable systems of a telephone

company is offering subscribers 160 channels of programming, also

19Robert W. Crandall and Harold Furchtgott-Roth, Cable TV: Regulation or Competition? (Washington,

D.C.: Brookings Institution, 1996), p. 55; Mark M. Bykowsky and Timothy Sloan, “Competitive Effects

of Broadcast Signals on the Price of Basic Service,” NTIA Staff Paper (Apr. 6, 1990); James N.

Dertouzos and Steven S. Wildman, “Competitive Effects of Broadcast Signals on Cable,” paper

prepared for the National Cable Television Association, (Mar. 1, 1990).

20Some DBS promotions require subscription to particular programming packages. Also, subscribers

incur additional equipment costs to be able to view programming on more than one television set.

21These include DBS programming packages such as 18 video channels and 31 audio channels for

$14.99 per month and 40 video channels for $19.99 per month.

Page 14 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

considerably more than most cable systems’ programming, and a

representative of an electric utility whom we interviewed told us that its

system currently offers subscribers more channels than the cable

competitors it faces. Additionally, many of these providers are offering

other services along with subscription television service, such as Internet

access.

• Many providers also told us that they compete with cable operators

through their customer service operations. For example, DBS companies

told us they seek to provide quality customer service, and one company

said that its customer service switchboard is open 24 hours per day, 7 days

per week. Both telephone company and electric utility representatives we

spoke with noted that one of their competitive advantages is the customer

service reputation associated with their brand name.

Nearly all cable operators we spoke with told us that they view the

competition from new providers as significant and are pursuing strategies

to retain and increase their subscriber base. Among these strategies are

pricing modifications, an expansion of programming, new services, and

improved customer service. Although cable companies have increased

their prices, some cable companies told us that they price their

programming packages to be competitive and, because of competition,

have not increased their prices as much as they might have otherwise.

Cable companies also told us that they have increased their prices because

of the increased costs of programming, costs for upgrading, and the

general increases in their business costs. Many cable companies explained

that they are upgrading and rebuilding their systems to offer subscribers a

greater number of channels. Also, most of these cable companies pointed

out that their system upgrades are enabling them to offer new services,

such as Internet access and telephone service. Cable infrastructure

investments have totaled more than $20 billion during the period 1996

through 1998. Although the cable industry maintains a high market share

of television subscribers, the responsiveness of these firms in upgrading

their systems and expanding services may indicate that the market is

becoming more competitive than the data on market shares alone may

indicate. Alternatively, it is also possible that these firms may have

upgraded their services and expanded their service offerings in the

absence of increased competition from other subscription television

providers.

Page 15 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Cable Operators’

Extensive Ownership

Ties Result in Some

Clear Efficiencies, but

Ownership

Relationships May

Adversely Affect

Competition

Although there are more than 10,000 cable franchises throughout the

nation, the ownership of cable operations is fairly concentrated. In

addition, there are ownership ties between cable systems and program

suppliers, or subscription networks. Also, nearly all cable companies are

trying to cluster their operations in order to own most of the cable systems

in particular geographic areas. We found that ownership ties and

clustering strategies provide important cost savings as well as possible

competitive advantages to cable companies. To address concerns about

the effect that large cable companies might have on the terms competitors

receive when buying programming and the availability of programming to

the competitors, many companies we spoke with, as well as some of our

expert panelists, stated that additional steps to ensure competitors’ fair

terms for and access to programming should be considered.

Extensive Ownership Ties

Exist Among Cable

Operators and Between

Cable Operators and

Program Suppliers

The cable industry is a fairly concentrated industry and is also

characterized by significant ownership ties among cable companies and

related firms. There are three ownership issues that characterize the cable

industry: “vertical” relationships between cable operators and program

suppliers, or subscription networks; “horizontal” concentration and

relationships among cable operators; and clustered cable systems,

whereby cable operators consolidate ownership within geographical

areas.

The largest cable companies have ownership interests in subscription

networks, which create vertical ownership ties in the industry. Five of the

16 cable companies we interviewed have ownership interests in

subscription networks. In 1998, FCC reported that 95 of 245 subscription

networks were vertically integrated with some minimum ownership

interest by at least one cable operator. Cable companies, either

individually or collectively, owned 50 percent or more of 78 subscription

networks. Moreover, cable companies’ ownership interest in programming

included 29 of the top 50 most popular subscription networks. Figure 6

shows cable companies’ ownership interests in popular subscription

programming, as of July 1998.

Page 16 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Figure 6: the Six Largest Cable Companies’ Ownership of Popular Subscription Programming

Programming 

in which 

more than 

one cable 

company has 

ownership

Animal Planet (49%)

Court TV (50%)

Discovery

Channel (49%)

E! Entertainment 

(10%)

QVC (43%)

The Learning

Channel (49%)

Travel Channel

(49%)

Court TV (50%)

Food Network (1%) 

E! Entertainment 

(10%)

Food Network (5%) 

Golf Channel (14%)

E! Entertainment 

(40%)

Golf Channel (43%)

QVC (57%)

Animal Plant (25%)

Discovery

Channel (25%)

Food Network (1%) 

The Learning

Channel (25%)

Travel Channel

(25%)

Programming 

in which only 

one cable 

company has 

ownership

Black Entertainment 

Television (35%)

Box Worldwide 

(78%)

FX (50%)

Home Shopping 

Network (19%)

Odyssey Channel 

(33%)

Prevue Channel 

(12%)

Sci-Fi Channel 

(19%)

Sneak Prevue 

(12%)

USA Network (19%)

Cartoon Network 

(100%)

Cable News 

Network 

(CNN)(100%)

CNN Headline 

News (100%)

Comedy Central 

(50%)

Turner Broadcast 

System (100%)

Turner Network 

Television (100%)

Turner Classic 

Movies (100%)

American Movie 

Classics (75%)

Bravo (75%)

Independent Film 

Channel (75%)

TeleCommunications,

Inc. (TCI)

Media One Comcast Cablevision Cox Time

Warner

(Figure notes on next page)

Page 17 GAO/RCED-99-158 Status of Competition to Cable Television
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Notes: In addition, Jones Intercable has a 97-percent ownership interest in Knowledge TV.

Since the date of the data used in this figure, several changes have occurred in the industry. For

example, on March 9, 1999, AT&T announced that its merger with TCI was complete and that TCI

would become the AT&T business unit, AT&T Broadband & Internet Service. In addition, on

May 6, 1999, AT&T and MediaOne Group announced that it had entered into a definitive merger

agreement.

Source: FCC’s data as of Mar. 1998.

FCC’s data also reveal an industry that is fairly concentrated horizontally; in

particular, the top four cable companies as of July 1998—

Tele-Communications, Inc. (TCI), Time Warner, Media One, and

Comcast—accounted for 55 percent of all television subscribers.22 In

addition, some cable companies have ownership ties with other cable

companies. For example, in 1998, TCI owned 10 percent of Time Warner

Inc.; Media One owned 25 percent of Time Warner Entertainment (a

limited partnership of Time Warner Inc., which includes cable systems and

other entertainment business interests); and Comcast, the fourth largest

cable company, owned a controlling interest in Jones Cable, the eighth

largest cable company at that time.23 In addition, several of the smaller

cable companies we interviewed told us that larger cable companies hold

an ownership interest in them. While these companies generally do not

compete against each other in local markets—that is, consumers rarely

have a choice of cable operators—this level of concentration has more

significance for the market for program acquisition.

In recent years, cable companies have engaged in a clustering strategy in

order to consolidate their systems in and around particular cities or

regions, which have then become dominated by one company. FCC reports

that 34 million subscribers are located in clusters of 100,000 or more

subscribers in 1998. Figure 7 provides an illustration of how a cable

company might develop a cluster of systems in and around a particular

city. Before the clustering, cable systems’ ownership is geographically

22Industries are considered concentrated when a few firms account for most of the production of a

particular product. One common measure of concentration is the four-firm concentration ratio, which

measures the portion of the industry accounted for by the four largest firms. Therefore, measured by

subscribership, the national four-firm concentration ratio for the cable industry was 55 percent at the

time of these data, which would constitute a fairly concentrated industry. Since cable companies

typically have even higher market shares in local markets, experts believe that in many cases the

relevant concentration of the industry is higher than the national concentration indicates.

23Currently there are proposed mergers in the industry that would change the individual companies’

relative sizes.

Page 18 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

dispersed in this hypothetical city, but in the second panel, one cable

company has come to have most system franchises in this area.

Figure 7: Hypothetical Illustration of Geographic Clustering by a Cable Company

Cable company 1

Area Before Clustering Area After Clustering

Cable company 2

Cable company 3

Cross-Ownership Among

Market Participants

Creates Efficiencies

The various ownership ties that exist in the cable industry provide

efficiencies to cable operators that help to decrease their cost of providing

cable service. Our discussions with industry participants and the

comments made by our expert panel revealed important efficiencies

resulting from vertical integration, horizontal concentration, and the

clustering of cable systems.

One of the most important efficiencies of vertical integration between

cable operators and program suppliers—that is, companies that develop

programming and own subscription networks—comes from the reduced

risk of program development. Developing new and innovative

programming is costly and risky. Not only does the vertical relationship

help to reduce costs of negotiating and enforcing long-term contracts

Page 19 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

between cable companies and program suppliers, but the relationship also

helps to ensure an outlet for newly developed programming. For program

suppliers, this minimizes the risk that programs will be developed but not

be marketable. From the cable operators’ perspective, ownership ties to

program suppliers help guarantee the continued availability of

programming. Several of the companies we interviewed told us that

subscription networks were largely developed through investments by the

larger cable companies. Even competitors to cable agree that the cable

companies’ vertical ties to program suppliers are largely responsible for

the development of the varied programming that now exists. All of the

expert panel members agreed that vertical relationships in this industry

have promoted efficiencies in the cable industry.

Benefits are also gained by the large size of some cable companies and

from horizontal relationships with other cable companies. Larger cable

companies may enjoy reduced programming costs and also have costs

savings in management and other overhead functions. For smaller cable

companies, an ownership link to a larger company may allow the smaller

company to obtain programming at reduced rates.24 Several of the smaller

cable companies we interviewed noted that even small ownership links to

larger cable companies could enable them to purchase programming at

reduced rates.

Finally, nearly all the cable companies we spoke with said that they had

engaged in clustering in order to consolidate their cable franchises in

specific geographic areas. The companies noted that they could obtain

greater economies of scale from doing this as compared to having cable

systems that were noncontiguous and more geographically spread out. In

particular, the clustering strategy enables firms to consolidate facilities for

receiving and transmitting programming, reduce the number of repair

crews, have regional customer service centers, reduce management, and

compete more effectively for local advertising dollars. In addition, the

companies said that clustering provides the critical mass of subscribers

necessary to support the huge capital investment needed to make system

upgrades designed to enable companies to enter other lines of

telecommunications services, such as Internet access and local phone

service.

24Smaller cable companies may also reduce the rates they pay for programming by purchasing through

a buying cooperative.

Page 20 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Ownership Ties May Have

Adverse Competitive

Effects

Although there are efficiencies realized from the ownership relationships

in the cable industry, there is also the potential for adverse market effects

from these relationships. Certain federal laws and FCC rules have been

designed to ensure that vertically integrated cable companies make their

programming available to other market participants and to limit the extent

of horizontal concentration in the industry. Despite these safeguards,

several market participants we spoke with, as well as most of our expert

panel members, expressed concerns about potential harmful effects of

ownership ties and the concentration within the cable industry.

The Cable Television Consumer Protection and Competition Act of 1992

includes provisions aimed at, among other things, enhancing competition

in the subscription television market. As required by the act, FCC

developed rules—commonly referred to as the program access

rules—designed, in part, to ensure that vertically integrated cable

operators generally make their satellite subscription programming

available to competitors. Many of the firms we spoke with, as well as our

expert panel, noted that the program access rules were very important in

helping new competitors—particularly, the DBS firms—to get a foothold in

the subscription television market. Despite the success of the program

access rules, most of the “noncable” providers and competing cable

companies (who are “overbuilding” a cable system where an incumbent’s

system exists) we spoke with expressed concerns about access to

reasonably priced subscription networks that are owned by cable

companies.25 Such concerns include a perceived “loophole,” whereby

programs owned by cable companies that are delivered to cable systems’

facilities through means other than satellite, such as through fiber wires,

are not covered under the current program access rules. Although there

have only been a few complaints filed with FCC on this issue, there is

concern that such delivery of programs may become more widespread,

particularly as the clustering of cable systems increases. FCC has recently

agreed that this practice needs to be monitored, but the Commission noted

that the program access rules26 as written would need to be clarified to

provide clear authority to FCC over programming delivered in this manner.

Most of our expert panelists said that the rules requiring access to

25Several of the noncable providers and smaller cable companies we spoke with also noted that they

believe significant price differentials exist for programming across subscription television providers of

different sizes and that, if true, these price differences are particularly problematic for new entrants

who are just beginning their operations. Current laws and regulations allow price differentials in some

cases. See our report, Telecommunications: Sports Programming Costs and Cable TV Rates

(GAO/RCED-99-136, June 22, 1999) for additional information on programming price differentials.

26See 13 FCC Rcd 15822, 15856 P 71 (1998). The program access rules are found at 47 C.F.R. 76.1000

–76.1004.

Page 21 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

programming should be broadened to include cable-owned programming

delivered to cable systems through means other than satellite.

The 1992 Cable Act directed FCC to place limits on the concentration of

ownership of cable systems nationwide. Under the limit that FCC has set,

generally no person or entity can own or have an attributable interest in a

cable system that reaches more than 30 percent of the homes with access

to cable nationwide.27 FCC has stated that with this limit, it is unlikely that a

cable company, or a combination of two cable companies acting together,

could thwart entry by a new subscription network. Some of the companies

we interviewed, however, expressed concerns that dominant cable

operators are winning price concessions and may have significant

bargaining power vis-à-vis subscription networks even when there is no

ownership link. According to these companies, a subscription network

needs its product to be carried by at least one of the two largest cable

companies in order to be economically viable—thus creating a dependence

on the larger cable companies and giving them significant influence over

the subscription network. In fact, most of our expert panel members

stated that program suppliers that are not vertically integrated (such as

MTV, A&E Network, and the Weather Channel) may be very dependent on

large cable companies. Some of the expert panel members stated that

programming of suppliers that are not vertically integrated should

generally be required to be made available to all competitors, as is

currently the case for programming owned by vertically integrated

suppliers.

Several Key Factors

Could Affect Future

Competition in the

Subscription

Television Market

Market participants, expert panel members, and others with whom we

spoke identified several issues that could affect the future development of

competition in the subscription television market. These key factors

include (1) DBS companies’ provision of network broadcasts, (2) rules

governing access to households in multiple dwelling units (e.g.,

apartments and condominiums), and (3) the broadcast industry’s

transition to a digital TV format. In addition, the subscription television

market could be affected by developments in the broader

telecommunications market. Because other telecommunications providers

are seeking to provide a bundle of services—telephone service,

subscription television, and Internet access—consumers may someday

have the choice of diverse providers and delivery mechanisms for the

many different telecommunications services they buy. However, if one

27FCC is currently not enforcing this rule, pending the outcome of a court case in which the

constitutionality of the enabling statute and rules are being challenged. Meanwhile, FCC is reviewing

its rules and the method by which horizontal ownership is calculated.

Page 22 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

technology proves to be the most efficient means of providing bundled

services, it may become dominant and thwart competition in the

subscription television market.

DBS Faces Challenges in

Providing Network

Broadcasts

DBS represents the single largest competitor to the cable industry, and its

growth is expected to continue. However, the DBS providers we spoke to,

as well as others, stated that DBS companies are disadvantaged by their

lack of network broadcasts in their DBS package. While the 1988 Satellite

Home Viewers Act grants a copyright license allowing satellite companies

to include television station signals (usually with so-called “distant

networks”—i.e., those from faraway markets) in their package,28 this

license is limited to providing these signals to “unserved” households.29

According to officials we spoke with, the purpose of limiting satellite

companies’ provision of network broadcasts to only unserved households

is to protect the local broadcast television stations from losing viewers,

which could happen if “served” households received network broadcasts

from faraway markets via satellite.

At the time that this act was passed, it worked well in helping satellite

providers fill in gaps in service for people in more rural locations.

However, since DBS was launched in 1994, new issues have arisen. With the

smaller DBS dish (compared to that for earlier satellite systems), DBS

providers have marketed their service towards more urban areas. As a

result, the lack of local broadcast networks has become a competitive

impediment for DBS firms. Given the current status of the law, satellite

providers have concerns about (1) how their subscribers can receive local

network broadcasts and (2) how an unserved household is defined.

• Local Network Broadcasts. Market participants and our panel of experts

told us that DBS carriers would be more viable competitors to cable firms if

they provided network broadcasts from local television stations into local

markets across the country. Similarly, FCC reported in 1998 that a survey

conducted by an association of DBS providers showed that for 55 percent

of the shoppers who considered but chose not to purchase a DBS system,

the lack of local television station broadcasts was the reason cited for not

purchasing the system. In fact, 28 percent of DBS customers also subscribe

28The act was amended in 1994 and 1997 and will expire at the end of 1999, unless extended by the

Congress.

29An unserved household is defined as one that cannot receive adequate over-the-air television

reception (according to certain measures) and has not received cable service within the previous 90

days.

Page 23 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

to a cable service, indicating that DBS is not a fully competitive alternative

to cable for some subscribers.

Currently, DBS providers encourage their subscribers to obtain their local

network broadcasts by using an over-the-air antenna, if possible. One DBS

provider is attempting to include local network broadcasts by bundling,

along with the DBS dish, an over-the-air television reception antenna. This

will enable the firm to provide consumers with the subscription network

channels transmitted to the dish while the over-the-air stations are

transmitted to the standard antenna. No changes in current law are

necessary to allow consumers to receive local network broadcasts along

with DBS service in this fashion.

At the time the Satellite Home Viewers Act was passed, satellite providers

did not possess the technology to transmit the local signals in many

markets throughout the country. Because of technological advances, it is

now feasible for a DBS provider to transmit the local network broadcast

signals in many markets, and DBS providers want to provide local network

broadcasts using their satellites. Currently, one DBS provider offers local

network broadcast packages for customers in 20 metropolitan areas, but it

does so only for subscribers who qualify as unserved households in these

areas. A bill, H.R. 1554, which passed the House of Representatives on

April 27, 1999, would expressly provide DBS carriers a copyright license to

carry local broadcast signals into local markets for all subscribers there,

regardless of whether they can obtain network broadcasts using an

over-the-air antenna.30 The Senate passed similar legislation (i.e., a

different version of the House bill) on May 20, 1999.31

• The Definition of an Unserved Household. The DBS providers we

interviewed told us that the definition of unserved needs to be clarified

and broadened. In particular, there is concern that the manner used to

determine whether reception is “adequate” is not sufficient and that some

households might be deemed to have adequate reception by this definition

even if the viewers do not find the quality of the reception to be of high

enough quality. In response to such concern, FCC recently adopted an

30One of the most difficult policy debates surrounding DBS companies’ provision of local signals

relates to whether the DBS carriers would be required to carry all local broadcast stations in the

markets where they chose to provide local signals. Cable companies are generally required, depending

on the capacity of their systems and other factors, to carry all broadcast signals in each local market

under a provision of the 1992 Cable Act. An FCC official told us that this provision is generally

interpreted as having been designed to help protect the economic viability of over-the-air television by

ensuring that consumers who receive television through a cable wire will have access to all the local

over-the-air stations.

31Both the House and Senate versions of the bill would extend the copyright license by 5 more years.

Page 24 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

order, which according to the Commission, should foster more accurate

methods for determining the intensity of broadcast signals—the primary

element used in determining if a consumer is unserved—by providing a

uniform method of measuring signals’ strength at individual households.

Additionally, according to the companies, the requirement that a

household not receive cable service for at least 90 days to be considered

unserved is anticompetitive. In fact, both the House and Senate passed

bills would eliminate the 90-day waiting period.

Greater Choice for

Occupants May Increase

Competition in Multiple

Dwelling Units

Multiple dwelling units, such as apartments and condominiums, represent

a profitable submarket for subscription television providers. First,

multiple dwelling units are a densely populated market, where many

households may live in one building or housing complex, so serving

multiple dwelling units enables a provider to access many potential

customers. Second, serving the multiple-dwelling-unit market can, in some

cases, involve relatively low costs because companies can serve selected

buildings without any obligation, such as a cable company would have

under its franchise agreement, to invest in a broader infrastructure outside

the building or serve the broader community. This market also represents

a significant part of the overall market—FCC reports that multiple dwelling

units constitute 28 percent of U.S. households and that the cable industry

currently dominates this market.

FCC issued two orders in 1998 to help ease entry and access by competitors

into the multiple-dwelling-unit market and to provide individual

consumers with more choices with respect to their television

programming provider. One of the orders attempts to clarify the control of

the wires necessary to reach each unit in a building and may allow

noncable or other entrant firms, under certain conditions, to have access

to the existing wires. This access gives building owners and customers

more discretion in choosing a subscription television provider. The other

FCC order allows individual renters to install satellite dishes within the

space they rent that is under their exclusive control.

In its proceedings, FCC received several comments expressing concerns

about how effective these FCC orders will be in making the

multiple-dwelling-unit market more competitive. For example, because

existing contracts between incumbent cable companies and

multiple-dwelling-unit owners sometimes have no explicit expiration date,

potential entrants may never have an opportunity to serve the residents of

such buildings. Also, even when entrants have an ability to access a

Page 25 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

building, laying additional wires within multiple dwelling units is costly

and disruptive, so building owners may not be willing to allow it in order

to change subscription television providers. Finally, the expansion of rules

allowing renters to install satellite dishes may not benefit all renters

because DBS transmissions require a clear line of sight from the reception

dish to the southern sky where the satellites are located.

Digital Broadcasting May

Create Competitive

Opportunities for

Broadcasters

The broadcast industry has recently begun to transition to a new digital

broadcast format. Local television stations across the country have been

given additional radio spectrum over which they are expected to begin

transmitting digital video signals that will provide better-quality pictures

and sound than traditional over-the-air TV. The transition to digital

broadcasting is currently scheduled to take until 2006, at which time

broadcasters are expected to return to the federal government that portion

of the radio spectrum that had previously been used to transmit traditional

over-the-air television signals.

The new digital technology opens up a variety of options to television

broadcasters. The additional capacity offered by the technology enables

broadcasters to either transmit one “high-definition” digital television

signal—a very high quality digital signal—or to transmit several channels of

standard-definition digital television, which will still constitute a

considerable improvement over the quality of traditional television. The

new system will also support the delivery of other services simultaneously

with television and audio programming, such as digital data services. FCC

has expressed a willingness to allow television broadcasters these flexible

uses of the new system (as long as the station broadcasts one free

over-the-air digital channel), and many industry representatives and

experts we spoke with indicated that if broadcasters use the spectrum to

transmit multiple channels, they may become more competitive with cable

television and other subscription television services. In fact, one of the

expert panel members noted that if broadcasters choose to focus only on

providing high-definition TV, this would “basically exclude . . . [them]

from being competitive.” At the same time, some of the panel members

noted that even if digital television poses a competitive threat to cable

companies, it is in the long term—perhaps 10 years from now.

Page 26 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Changes in the Broader

Telecommunications

Market Will Affect

Competition to Cable

Television

The future status of competition in the subscription television market

depends not only on the regulation of the market and the business plans

and strategies of the current players, but also on larger market forces. In

particular, the subscription television market is part of the broader

telecommunications industry, which is experiencing considerable

diversification, consolidation, and technological advances. Markets for

video, voice, and data services are rapidly converging, as firms in

previously distinct industry segments are merging, deploying new

technologies and infrastructures, and introducing new communications

applications and services. These changes are evident from some recent

mergers, such as the recently approved merger between AT&T and TCI

(the largest cable company). The primary goal of this merger, according to

the companies, is to combine voice, television, and data services. Many of

the cable firms we spoke with are already providing or positioning

themselves to provide new services, such as high-speed Internet service

and telephone service, in addition to their subscription television service.

As with the subscription television market, a multitude of technological,

legal and regulatory, as well as economic issues are at the crux of the

transformation in the larger telecommunications industry. Therefore, the

convergence taking place among industry segments; the outcome of

technological and legal and regulatory changes; and the underlying

economics of the industry at large will likely have as much of an effect on

the subscription television market as the outcome of the issues within this

market. These larger changes may bring about a more competitive

subscription television market, as providers throughout the

telecommunications industry begin to provide packages of services that

may include television service. Ultimately, consumers may have a choice

of packages of services provided via many pathways to the home. At the

same time, if one technology—particularly if it is a “wired” technology32

—is most efficient at providing these telecommunications services, it may

become the dominant pathway to the home for delivering communications

services (voice, data, and video services), and greater competition in the

market may not develop.

32If a wired technology becomes dominant, this can create a “bottleneck” in which providers of

telecommunications services can access homes and businesses only by transmitting through the wire

of another company. However, if a wireless technology is an efficient means of providing services,

concerns about a bottleneck may be reduced because there is less physical infrastructure needed to

access homes. Monopolization of the market is less of a concern because additional spectrum could be

allocated to allow for additional providers. At the same time, however, there are some limits on the

availability and flexibility of additional spectrum.

Page 27 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

Observations The dynamic nature and the many different technologies that constitute

the telecommunications market present a challenge to lawmakers and

regulators. It is difficult to foresee or predict what will develop in these

markets. Recent examples of developments that were not fully foreseen

include the significant growth in DBS and the importance of the Internet as

a communication and commerce tool. Also, some expected developments,

such telephone companies’ entry into the subscription television market in

a significant way, have not always happened, or at least not always in the

expected time frame. Our discussions with industry participants and

experts highlighted that markets often develop in unexpected ways, with

new competitors or new services coming on the scene seemingly out of

“left field.” In the long term, the subscription television market will

probably be most affected by how technologies converge and by how

many pathways to the home become viable means of delivering bundled

telecommunications services. The best hope for greater competition in this

and related telecommunications markets is for multiple means of

delivering bundled services to be feasible and economically viable.

Agency Comments We provided a draft of this report to the Federal Communications

Commission (FCC), as well as to the members who participated in our

expert panel (see app. III). FCC provided technical comments that we have

incorporated, where appropriate. In its written reply, FCC said that our

conclusions are not inconsistent with those found in the Commission’s

own research (see app. IV for FCC’s complete reply). Five of the seven

expert panelists reviewed the draft and also provided comments that we

considered and incorporated, where applicable. These expert panelists

generally agreed with the overall findings of the report. In addition, four of

the five panelists agreed with the overall message of the report. One

panelist took issue with what he described as an overly optimistic view of

the level of competition in the market. In response to this concern and to

highlight our findings on the current status on competition in the industry,

we added into the “Results in Brief” material that appeared only later in

the draft report.

We conducted our review from July 1998 through May 1999 in accordance

with generally accepted government auditing standards.

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

earlier, we plan no further distribution of this report until 14 days after the

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

Page 28 GAO/RCED-99-158 Status of Competition to Cable Television
B-281027 

interested congressional committees, the Chairman and Commissioners of

the Federal Communications Commission, the Federal Trade Commission,

the Department of Justice, and others who participated in this study.

Copies of this report will also be made available to others upon request. If

you or your staff have any questions about this report, please contact me

at (202) 512-7631. Key contributors to this report are listed in appendix V.

Judy A. England-Joseph

Director, Telecommunications Issues

Page 29 GAO/RCED-99-158 Status of Competition to Cable Television
Contents

Letter 1

Appendix I 

Scope and

Methodology

32

Appendix II 

Market Participants

GAO Interviewed

34

Appendix III 

Members of the

Expert Panel GAO

Convened

36

Appendix IV 

Comments From the

Federal

Communications

Commission

37

Appendix V 

GAO Contacts and

Staff

Acknowledgments

38

Figures Figure 1: The Delivery of Television Over the Air 4

Figure 2: The Delivery of Television via Cable 6

Figure 3: The Delivery of Television via Satellite 8

Figure 4: Subscription Television Providers’ Market Shares,

June 1998

10

Figure 5: Satellite Subscribership, by State as of January, 1999 12

Figure 6: The Six Largest Cable Companies’ Ownership of

Popular Subscription Programming

17

Page 30 GAO/RCED-99-158 Status of Competition to Cable Television
Contents

Figure 7: Hypothetical Illustration of Geographic Clustering by a

Cable Company

19

Abbreviations

DBS direct broadcast satellite

FCC Federal Communications Commission

GAO General Accounting Office

Page 31 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix I 

Scope and Methodology

To respond to the objectives of this report—to provide information on

(1) the status of competition in the subscription television market, (2) the

extent to which ownership ties between cable companies and program

suppliers may be affecting the development of competition, and (3) key

factors that may influence the development of competition in the

future—we gathered information from a variety of sources.

We interviewed officials and obtained documents from the Federal

Communications Commission, the Department of Justice, and the Federal

Trade Commission. We also interviewed officials from the following

industry trade associations: the National Cable Television Association; the

Cable Telecommunications Association; the Small Cable Business

Association; the Satellite Broadcasting and Communications Association;

the National Association of Broadcasters; the Association of Local

Television Stations; the Wireless Communications Association; the

American Public Power Association; and the Edison Electric Institute.

In addition, we designed a structured interview to obtain information from

the relevant market participants: cable companies, direct broadcast

satellite (DBS) companies, telephone companies, wireless cable companies,

electric utilities, broadcast networks, and subscription networks. We

completed 41 interviews with representatives from the various companies

(see app. II). Of the 41 interviews, 16 were with cable companies.33 In

order to obtain a diverse sample of cable companies representing a

number of different views, our criteria for selection were based on the size

of the cable firm-–large, medium-sized, small—as defined by the number

of subscribers. Specifically, we selected the two largest cable companies,

each of which had over 10 million subscribers. In addition, we selected

four more large cable companies, which each had over 1 million

subscribers. We also selected five medium-sized cable companies with

71,000 to 905,000 subscribers and five smaller cable companies with 8,000

to 70,000 subscribers. In addition, we conducted structured interviews

with three DBS companies; five telephone companies (four Regional Bell

Operating Companies and one competitive local exchange carrier); three

wireless cable companies; two electric utilities; six broadcasters; five

subscription networks; and one provider of private cable (specializing in

service to multiple dwelling units). We analyzed the data collected from

the structured interviews by industry and compared responses across

industries.

33We interviewed all of the cable companies using the structured questionnaire. Because of time

constraints, we interviewed one of the remaining companies without the structured questionnaire.

Page 32 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix I 

Scope and Methodology

Furthermore, we convened an expert panel of seven individuals. The panel

included government officials, academic experts, and a representative of a

consumer group. (The names and affiliations of the panel members are

listed in app. III.) We held an all-day meeting with the panel at our offices

in Washington, D.C. Prior to the meeting, we provided each panel member

with a set of nine discussion questions. At the end of each discussion, we

asked the panelists to respond to a set of questions using an anonymous

ballot. We recorded and transcribed the meeting to ensure that we

accurately captured the panel members’ statements.

To accomplish our assignment, we also received assistance from Professor

Douglas Gomery of the College of Journalism, University of Maryland,

College Park, who specializes in media studies. Professor Gomery

reviewed and commented on our overall methodology and provided

background on the telecommunications market and market participants.

He also reviewed and commented on our final report.

Page 33 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix II 

Market Participants GAO Interviewed

Cable Companies Anderson-Eliason Cable Group

Cable America

Charter Communications

Comcast Communications, Inc.

Eagle Communications

Jones Intercable

Intermountain Cable

Massillon Cable TV, Inc.

MediaOne

Raystay Co.

Renaissance Media Partners

TCA Cable TV, Inc.

Tele-Communications, Inc.

Telemedia

Time Warner Inc.

Triax Telecommunications Company, L.L.C.

Direct Broadcast Satellite DIRECTV, Inc.

Echostar Communications Corporation

PRIMESTAR, Inc.

Telephone Companies Ameritech New Media, Inc.

Bell Atlantic Video Services

BellSouth

Southwestern Bell Video Services, Inc.

Multipoint Multichannel

Delivery System (Wireless

Cable) Companies

American Telecasting

Heartland Wireless

People’s Choice TV

Electric Utilities Boston Edison Company

Cedar Falls Utilities

Competitive Local

Exchange Carrier

RCN Telecom Services, Inc.

Page 34 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix II 

Market Participants GAO Interviewed

Private Cable (Focusing

Mostly on Serving Multiple

Dwelling Units)

Optel

Broadcasters ABC, Inc.

CBS Worldwide, Inc.

FOX Broadcasting Company

National Broadcasting Company (NBC)

Sinclair Broadcasting Group, Inc.

Tribune Company (WB)

Programmer Suppliers A&E Television Networks

The Golf Channel

The Military Channel

The Weather Channel

MTV Networks

Page 35 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix III 

Members of the Expert Panel GAO

Convened

Dale Hatfield, Chief Office of Engineering and Technology, Federal

Communications Commission

Thomas Hazlett, Professor and Director of Telecommunications Policy,

University of California at Davis, and Resident Scholar, American

Enterprise Institute

Gene Kimmelman, Co-Director, Washington Office, Consumer’s Union

Robert Pepper, Chief, Office of Plans and Policy, Federal Communications

Commission

Donald Russell, Chief, Telecommunications Taskforce, Antitrust Division,

Department of Justice

David Waterman, Associate Professor, Department of

Telecommunications, Indiana University

Steve Wildman, Director, Telecommunications Science, Management and

Policy Program, Northwestern University

Page 36 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix IV 

Comments From the Federal

Communications Commission

Page 37 GAO/RCED-99-158 Status of Competition to Cable Television
Appendix V 

GAO Contacts and Staff Acknowledgments

GAO Contacts Judy A. England-Joseph, (202) 512-7631

Amy Abramowitz, (202) 512-4936

Acknowledgments In addition to those named above, Dennis Amari, Carol Bray, Harold

Brumm, Venkareddy Chennareddy, Karin Lennon, Daniel Meyer, Lynn

Musser, and Mindi Weisenbloom made key contributions to this report.

(385749) Page 38 GAO/RCED-99-158 Status of Competition to Cable Television
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