[Federal Register Volume 67, Number 25 (Wednesday, February 6, 2002)]
[Notices]
[Pages 5600-5601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2869]


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FEDERAL COMMUNCIATIONS COMMISSION

[CS Docket No. 01-129, FCC 01-389]


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

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: This document is in compliance with the Communications Act of 
1934, as amended, which requires the Commission to report annually to 
Congress on the status of competition in the market for the delivery of 
video programming. On December 27, 2001, the Commission adopted its 
eighth annual report (``2001 Report''). The 2001 Report contains data 
and information that summarize the status of competition in markets for 
the delivery of video programming and updates the Commission's prior 
reports.

FOR FURTHER INFORMATION CONTACT: Marcia Glauberman or Anne Levine, 
Cable Services Bureau, (202) 418-7200, TTY (202) 418-7172.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 2001 
Report in CS Docket No. 01-129, FCC 01-389, adopted December 27, 2001, 
and released January 14, 2002. The complete text of the 2001 Report is 
available for inspection and copying during normal business hours in 
the FCC Reference Center, 445 12th Street, SW., Washington, DC 20554, 
and may also be purchased from the Commission's copy contractor, Qualex 
International, Portals II, 445 12th Street, SW., Room CY-B402, 
Washington, DC 20554, telephone (202) 863-2893, facsimile (202) 863-
2890, or e-mail at [email protected]. In addition, the complete text of 
the 2001 Report is available on the Internet at http://www.fcc.gov/csb.

Synopsis of the 2000 Report

    1. The Commission's 2001 Report to Congress provides information 
about the cable television industry and other multichannel video 
programming distributors (``MVPDs''), including direct broadcast 
satellite (``DBS'') service, home satellite dishes (``HSDs''), wireless 
cable systems using frequencies in the multichannel multipoint 
distribution service (``MMDS'') and instructional television fixed 
service (``ITFS''), private cable or satellite master antenna 
television (``SMATV'') systems, as well as broadcast television 
service. The Commission also considers several other existing and 
potential distribution technologies for video programming, including 
the Internet, home video sales and rentals, local exchange telephone 
carriers (``LECs''), and electric and gas utilities. In addition, for 
the first time, this year, the Commission addresses broadband service 
providers (``BSP''), a new category of entrant into the video 
marketplace.
    2. The Commission also examines the market structure and 
competition. We evaluate horizontal concentration in the multichannel 
video marketplace and vertical integration between cable television 
systems and programming services. In addition, the 2001 Report 
addresses competitors serving multiple dwelling unit (``MDU'') 
buildings, programming issues, technical issues, and examines 
communities where consumers have a choice between an incumbent cable 
operator and another MVPD and reports on the incumbent cable operator's 
response to such competition in several cases. The 2001 Report is based 
on publicly available data, filings in various Commission rulemaking 
proceedings, and information submitted by commenters in response to a 
Notice of Inquiry (66 FR 35431) in this docket.
    3. In the 2001 Report, the Commission finds that competitive 
alternatives and consumer choices continue to develop. Cable television 
still is the dominant technology for the delivery of video programming 
to consumers in the MVPD marketplace, although its market share 
continues to decline. As of June 2001, 78 percent of all MVPD 
subscribers received their video programming from a local franchised 
cable operator, compared to 80 percent a year earlier. There has been 
an increase in the total number of subscribers to non-cable MVPDs over 
the last year, which is primarily attributable to the growth of DBS 
service. However, generally, the number of subscribers to, and market 
shares of, MVPDs using other distribution technologies (i.e., MMDS, 
SMATV, and OVS) have remained stable, although the number of HSD 
subscribers continues to decline. Significant competition from local 
telephone companies has not generally developed even though the 
Telecommunications Act of 1996 (``1996 Act'') removed some barriers to 
LEC entry into the video marketplace.
    4. Key Findings: 
     Industry Growth: A total of 88.3 million households 
subscribed to multichannel video programming services as of June 2001, 
up 4.6 percent over the 84.4 million households subscribing to MVPDs in 
June 2000. This subscriber growth accompanied a 2.7 percentage point 
increase in multichannel video programming distributors' penetration of 
television households to 86.4 percent as of June 2001. The number of 
cable subscribers continued to grow, reaching 69 million as of June 
2001, up about 1.9 percent over the 67.7 million cable subscribers in 
June 2000. The total number of non-cable MVPD households grew from 16.7 
million as of June 2000 to 19.3 million homes as of June 2001, an 
increase of more than 15 percent. The growth of non-cable MVPD 
subscribers continues to be primarily attributable to the growth of 
DBS. Between June 2000 and June 2001, the number of DBS subscribers 
grew from almost 13 million households to about 16 million households, 
which is nearly two times the cable subscriber growth rate. DBS 
subscribers now represent 18.2 percent of all MVPD subscribers, up from 
15.4 percent a year earlier.
     Convergence of Cable and Other Services: The 1996 Act 
removed barriers to LEC entry into the video marketplace

[[Page 5601]]

in order to facilitate competition between incumbent cable operators 
and telephone companies. It was expected that local exchange telephone 
carriers would begin to compete in video delivery markets, and cable 
operators would begin to provide local telephone exchange service. The 
Commission previously reported that there had been an increase in the 
amount of video programming provided to consumers by telephone 
companies, although the expected technological convergence that would 
permit use of telephone facilities for video service had not yet 
occurred. This year, we find that incumbent local exchange carriers 
(``ILECs'') have largely exited the video business, instead mainly 
reselling DBS service. A few smaller LECs offer, or are preparing to 
offer, MVPD service over existing telephone lines. Alternatively, a few 
cable operators offer telephone service, but their strategies for 
deployment remain varied, with some companies deploying circuit-
switched cable telephone service and others waiting until Internet 
Protocol (``IP'') technology becomes available and continuing to test 
such service. The most significant convergence of service offerings 
continues to be the pairing of Internet service with other services. 
There is evidence that a wide variety of companies throughout the 
communications industries are attempting to become providers of 
multiple services, including data access.
     Promotion of Entry and Competition: Noncable MVPDs 
continue to report that regulatory and other barriers to entry limit 
their ability to compete with incumbent cable operators and to thereby 
provide consumers with additional choices. Non-cable MVPDs also 
continue to experience some difficulties in obtaining programming from 
both vertically integrated cable programmers and unaffiliated 
programmers who continue to make exclusive agreements with cable 
operators. In MDUs, potential entry may be discouraged or limited 
because an incumbent video programming distributor has a long-term and/
or exclusive contract. Other issues also remain with respect to how, 
and under what circumstances, existing inside wiring in MDUs may be 
made available to alternative video service providers.
     Horizontal Concentration: Consolidations within the cable 
industry continue as cable operators acquire and trade systems. The ten 
largest operators now serve close to 87 percent of all U.S. cable 
subscribers. In terms of one traditional economic measure, the 
Herfindahl-Hirschman Index or HHI, national concentration among the top 
MVPDs has decreased since last year, and remains below the levels 
reported in earlier years. DBS operators DirecTV and EchoStar rank 
among the ten largest MVPDs in terms of nationwide subscribership along 
with eight cable multiple system operators (``MSOs''). As a result of 
acquisitions and trades, cable MSOs have continued to increase the 
extent to which their systems form regional clusters. Currently, 55 
million of the nation's cable subscribers are served by systems that 
are included in regional clusters. By clustering their systems, cable 
operators may be able to achieve efficiencies that facilitate the 
provision of cable and other services, such as telephony.
     Vertical Integration: The number of satellite-delivered 
programming networks has increased by 13 from 281 in 2000 to 294 in 
2001. Vertical integration of national programming services between 
cable operators and programmers, measured in terms of the total number 
of services in operation, remained at 35 percent after several years of 
decline. The 2001 Report also identifies 80 regional networks, 29 of 
which are sports channels, many owned at least in part by MSOs, and 29 
regional and local news networks that compete with local broadcast 
stations and national cable networks.
     Technological Issues: Cable operators and other MVPDs 
continue to develop and deploy advanced technologies, especially 
digital compression techniques, to increase the capacity and enhance 
the capabilities of their transmission platforms. These technologies 
allow MVPDs to deliver additional video options and other services 
(e.g., data access, telephony, and interactive services) to their 
subscribers. As reported last year, MVPDs are beginning to develop and 
deploy interactive television (``ITV'') services. In particular, this 
year, cable operators and other MVPDs have devoted most of their 
attention to the development of video-on-demand services. In the last 
year, there have been a number of developments regarding navigation 
devices and cable modems used to access a wide range of services 
offered by MVPDs. CableLabs is continuing its efforts to develop next 
generation navigation devices with its initiative for the OpenCable 
Application Platform (``OCAP'') or ``middleware'' specification. The 
Consumer Electronics Association maintains that until this software 
standard is complete, manufacturers will not be able to build advanced 
set-top boxes for a retail market. In another effort intended to 
facilitate retail availability of set-top boxes, cable operators 
announced an initiative to encourage their set-top box suppliers to 
make their digital set-top boxes with embedded security available at 
retail

Ordering Clauses

    5. This 2001 Report is issued pursuant to authority contained in 
sections 4(i), 4(j), 403, and 628(g) of the Communications Act of 1934, 
as amended, 47 U.S.C. 154(i), 154(j), 403, and 548(g).
    6. The Office of Legislative and Intergovernmental Affairs shall 
send copies of the 2001 Report to the appropriate committees and 
subcommittees of the United States House of Representatives and United 
States Senate.
    7. The proceeding in CS Docket No. 01-129 IS TERMINATED.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 02-2869 Filed 2-5-02; 8:45 am]
BILLING CODE 6712-01-P