*Pages 1--151 from Microsoft Word - 47618.doc* Federal Communications Commission FCC 05- 13 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming ) ) ) ) ) MB Docket No. 04- 227 ELEVENTH ANNUAL REPORT Adopted: January 14, 2005 Released: February 4, 2005 By the Commission: Chairman Powell issuing a statement; Commissioners Copps and Adelstein concurring and issuing a joint statement. TABLE OF CONTENTS Paragraph I. INTRODUCTION ..................................................................................................................................... 1 A. Scope of this Report.................................................................................................................. 2 B. Summary of Findings .............................................................................................................. 4 1. The Current State of Competition: 2004 ................................................................... 4 2 General Findings ......................................................................................................... 7 II. COMPETITORS IN THE MARKET FOR THE DELIVERY OF VIDEO PROGRAMMING...... 16 A. Cable Television Service ....................................................................................................... 16 1. General Performance................................................................................................. 17 2. Capital Acquisition and Disposition......................................................................... 33 3. Provision of Advanced Services............................................................................... 36 B. Direct- to- Home Satellite Services......................................................................................... 53 1. Direct Broadcast Satellite ......................................................................................... 53 2. Home Satellite or Large Dish Service ...................................................................... 64 3. Satellite- Based Advanced Services .......................................................................... 66 C. Broadband Service Providers ................................................................................................. 70 D. Broadcast Television Service ................................................................................................. 76 1. General Performance................................................................................................. 76 2. Digital Television...................................................................................................... 80 E. Wireless Cable Systems........................................................................................................ 104 F. Private Cable Systems .......................................................................................................... 108 G. Other Entrants ....................................................................................................................... 113 1. Internet Video.......................................................................................................... 113 2. Home Video Sales and Rentals............................................................................... 120 H. Local Exchange Carriers ..................................................................................................... 124 I. Electric and Gas Utilities ..................................................................................................... 131 1 Federal Communications Commission FCC 05- 13 2 III. MARKET STRUCTURE AND CONDITIONS AFFECTING COMPETITION........................ 135 A. Horizontal Issues................................................................................................................... 135 1. Competitive Issues in the Market for the Distribution of Video Programming.... 136 2. Competitive Issues in the Market for the Purchase of Video Programming......... 140 B. Vertical Integration and Other Programming Issues ........................................................... 145 1. Status of Vertical Integration.................................................................................. 145 2. Other Programming Issues...................................................................................... 153 C. Competitive Issues in Small and Rural Markets.................................................................. 186 D. Technical Issues .................................................................................................................... 187 1. Navigation Devices ................................................................................................. 187 2. Emerging Technologies .......................................................................................... 191 3. Cable Modems ........................................................................................................ 205 IV. FOREIGN MARKETS..................................................................................................................... 212 V. ADMINISTRATIVE MATTERS.............................................................................................................. 224 APPENDICES Appendix A List of Commenters Appendix B Horizontal Issues Tables Appendix C Vertical Integration Tables I. INTRODUCTION 1. This is the Commission’s eleventh annual report (2004 Report) to Congress on the status of competition in the market for the delivery of video programming. 1 Section 628( g) of the Communications Act of 1934, as amended (Communications Act), requires the Commission to report annually to Congress on the status of competition in the market for the delivery of video programming. 2 Congress imposed this annual reporting requirement in the Cable Television Consumer Protection and Competition Act of 1992 (1992 Cable Act) 3 as a means of obtaining information on the competitive status of the market for the delivery of video programming. A. Scope of this Report 2. We report on trends in the market and on the factors that have facilitated or impeded changes in the competitive environment over the past year. Further, we offer information and analysis regarding changes in the market since the 2003 Report, and we describe how those changes affect the current state of the market. The information and analysis provided in this Report are based on publicly available data, filings in various Commission proceedings, and information submitted by commenters in response to a 1 The Commission’s previous reports appear at: Implementation of Section 19 of the 1992 Cable Act (Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming), 1994 Report, 9 FCC Rcd 7442 (1994); 1995 Report, 11 FCC Rcd 2060 (1996); 1996 Report, 12 FCC Rcd 4358 (1997); 1997 Report, 13 FCC Rcd 1034 (1998); 1998 Report, 13 FCC Rcd 24284 (1998); 1999 Report, 15 FCC Rcd 978 (2000); 2000 Report, 16 FCC Rcd 6005 (2001); 2001 Report, 17 FCC Rcd 1244 (2002); 2002 Report, 17 FCC Rcd 26901 (2002); and 2003 Report, 19 FCC Rcd 1606 (2004). 2 Communications Act of 1934, § 628( g), 47 U. S. C. § 548( g). 3 Pub. L. No. 102- 385, 106 Stat. 1460 (1992). 2 Federal Communications Commission FCC 05- 13 3 Notice of Inquiry (Notice) in this docket. 4 We do not require data submissions nor do we audit data provided. We report data and other information as submitted by the commenters. 5 We did not receive any information on a number of issues raised in the Notice (e. g., information on video delivery in foreign markets, technical issues, cable horizontal ownership, delivery method of programming networks), and very limited information on other issues (e. g., ownership of nonbroadcast networks, private cable operators, locally and community- oriented programming). If we continue to find that we do not get the necessary data from industry participants, we may pursue additional mandatory data collection processes to ensure that we have appropriate information to fulfill our statutory mandate to provide Congress with an annual assessment of the status of competition in the video marketplace. 3. In Section II, we examine the cable television industry, existing multichannel video programming distributors (MVPDs) and other program distribution technologies and potential competitors to cable television. Among the MVPDs discussed are direct broadcast satellite (DBS) services and home satellite dishes (HSD), broadband service providers (BSPs), broadcast television service, wireless cable systems using frequencies in the multichannel multipoint distribution service (MMDS), and private cable operators (PCOs). We also consider other existing and potential distribution technologies for video programming, including local exchange carriers (LECs) and utilities, home video sales and rentals, and the Internet. In Section III of this report, we examine market structure and competition. We evaluate horizontal concentration in the multichannel video marketplace, vertical integration between programming services and distribution systems, and competitive issues in small and rural markets. We also address numerous technical issues regarding navigation devices, emerging services, and cable modems. Finally, we review briefly several developments in foreign markets. B. Summary of Findings 1. The Current State of Competition: 2004 4. In the 2003 Report, the Commission recognized that competition provides consumers with increased choice, better services, higher quality, and greater technological innovation. The 2003 Report found that, overall, the level of competition among video providers had increased dramatically since our first Report in 1994. Most notably, cable operators served almost 100 percent of the nation’s MVPD subscribers a decade ago, but by June 2003, cable’s share of MVPD subscribers declined to 74 percent. 6 As of June 2004, cable operators served approximately 72 percent of all MVPD subscribers. Today, almost all consumers have the choice between over- the- air broadcast television, a cable service, and at least two DBS providers. In some areas, consumers may also choose between other traditional (e. g., broadcasting, cable, DBS) and emerging (e. g., use of digital broadcast spectrum, fiber to the home, video over the Internet) delivery technologies as well. Increased competition in the market for the delivery of video programming since our first Report has led to improvements in cable television services, including more channels of video programming and more service options, but generally not lower prices. 7 In addition, through the use of advanced set- top boxes and digital video recorders, consumers are now able to maintain more control over what, when, and how they receive information. 4 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, 19 FCC Rcd 10909 (2004) (Notice). Where possible, we requested data as of June 30, 2004. 5 Appendix A provides a list of commenters and the abbreviations by which they are identified herein. 6 See Appendix B, Table B- 1. We have revised data for the number of cable subscribers for June 2003 to use a consistent source. 7 See Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, Statistical Report on Average Rates for Basic Service, Cable Programming Service, and Equipment, MM Docket No. 92- 266, FCC 05- 12 (adopted Jan. 14, 2005) (2004 Price Survey); See also paras. 26- 27 infra. 3 Federal Communications Commission FCC 05- 13 4 5. The 2004 Report discusses changes that have occurred in the competitive environment over the last year. Overall, we find that cable subscribership is remaining relatively stable as the MVPD market grows; thus, cable’s share of the MVPD market is declining. In contrast, DBS subscribership continues to increase at nearly double- digit rates of growth, and its share of the marketplace is increasing. The second and fourth largest MVPDs are both DBS operators. In addition, other delivery technologies continue to serve small numbers of subscribers in limited areas. LECs, who have partnered with DBS providers to offer video service over the last year, have recently announced plans to enter the video distribution market with fiber facilities. Market Share of Competing MVPDs 95% 85% 80% 78% 76% 74% 72% 3% 12% 16% 19% 21% 23% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% June1993 June1998 June2000 June2001 June2002 June2003 June2004 Share of the Market % Cable % Satellite % Others Sources: Table B- 1 infra ; 2003 Report , Table B- 1, 6. Based on the information presented in this Report, we find that consumers today have viable choices in the delivery of video programming, and they are exercising their ability to switch among MVPDs. 8 We do not believe that the fact that large numbers of consumers continue to subscribe to cable service indicates a lack of choice. Cable operators in response to the growth of DBS have made upgrades and advances in their offerings. 9 The number of cable subscribers selecting digital tiers and advanced services not offered by DBS continues to grow. In addition, consumers are more likely to consider switching from cable to DBS when they change their residences, indicating a convenience factor and the cost of switching, rather than a lack of choice, is an important consideration in remaining a cable subscriber. 8 See also Time Warner Says Price Cuts Possible, FINANCIAL TIMES, Oct. 5, 2004; Cable’s Competition, CABLEFAX DATABRIEFS, Sept. 20, 2004; David Lieberman, Study: Cable Losing Steam, USA TODAY, Aug. 24, 2004, at 1B; David Lieberman, Cable Companies’ Subscriber Base Sinks, While Satellite Firms Soar, USA TODAY, Aug. 11, 2004, at 3B; Ken Belson, Two Big Cable Companies Report Losses Amid Competition, NEW YORK TIMES, Aug. 10, 2004, at C4; Peter Grant, Cable Trouble: Subscriber Growth Stalls as Satellite TV Soars, WALL STREET JOURNAL, Aug. 4, 2004, at B1; Cable Penetration Slips, DBS Rises, BROADCASTING & CABLE TV FAX, Aug. 5, 2004, at 2; Chris Walsh, Comcast Fighting Back: Growing Competition Spurs Strategy of New Services, Innovation, ROCKY MOUNTAIN NEWS, July 1, 2004; Ronald Grover and Tom Lowry, Satellite’s Hot Pursuit of Cable, BUSINESS WEEK ONLINE, May 24, 2004, at http:// www. businessweek. com/@@ 3Be8T4QQU* TiBhkA/ magazine/ content/ 04_ 21/ b3884059. htm (visited Jan. 14, 2005). 9 See fn. 299 infra; U. S. General Accounting Office, Issues Related to Competition and Subscriber Rates in the Cable Television Industry, GAO- 04- 8 (Oct. 2003) at 10 (2003 GAO Report). 4 Federal Communications Commission FCC 05- 13 5 2. General Findings 7. Most MVPD subscribers continue to receive their video programming from a franchised cable operator, but cable’s market share continues to decline. In June 2003, 73. 6 percent of MVPD subscribers received their video programming from a franchised cable operator, and by June 2004, 71.6 percent of MVPD subscribers received their video programming from a franchised cable operator. At the same time, DBS’s share increased from 22.7 percent of MVPD subscribers in June 2003, to 25.1 percent of MVPD subscribers in June 2004. The number of MVPD subscribers choosing all other delivery technologies represented 3.3 percent of all subscribers in June 2004, as compared with 3.7 percent in June 2003. 8. While the number of subscribers to cable television has increased slightly since the 2003 Report, the total number of subscribers to MVPD services generally has increased at a more rapid pace. A total of 89.8 million households subscribed to multichannel video programming services as of June 2003, compared to 92.3 million households subscribing to MVPDs in June 2004, an increase of about 2.8 percent. This subscriber growth represents slightly less than a one percentage point increase in the percent of television households subscribing to an MVPD, from 84.2 percent as of June 2003 to 85. 1 percent as of June 2004. 10 9. Last year we reported a decline in the number of cable subscribers. This year we report that cable subscribership has increased only slightly, but now constitutes a smaller portion of the video programming market. As of June 2003, there were 66. 05 million cable subscribers, representing 73.6 percent of all MVPD subscribers. As of June 2004, there were 66.1 million cable subscribers, representing 71.6 percent of all MVPD subscribers. 10. During the same period, the total number of noncable MVPD subscribers grew from 22.3 million in June 2003 to 26.2 million in June 2004, an increase of 17. 7 percent. DBS subscribership, in particular, continues to grow at double digit rates. Between June 2003 and June 2004, the number of DBS subscribers grew from about 20.4 million households to about 23.2 million households. DBS’s continued growth is due in part to the continued increase in the number of markets where local broadcast television stations are distributed by DBS under the authority granted to them by the Satellite Home Viewer Improvement Act of 1999 (SHVIA). 11 11. Over the last year, subscribership to large dish satellite service (HSD) continued to decline. In June 2004, subscribers to HSD services represented only 0.36 percent of all MVPD subscribers, compared to June 2003, when 0.56 percent of all MVPD subscribers received their service via HSD. Although the participation of LECs has been limited in recent years, several LECs have announced their intent to re- enter the video distribution market in the next several years using fiber facilities. The number of subscribers receiving their video programming from a wireless (MMDS) operator remained steady over the past year at about 0.22 percent of MVPD subscribers, and MVPD subscribers served by private cable operators (PCOs) has declined slightly over the last year, from a 1.3 percent to 1.2 percent of all MVPD subscribers. 12. Cable multiple system operators (MSOs) and other MVPDs continue to offer nonvideo advanced services. Some cable operators continue to offer access to the Internet through the subscriber’s television and a specially designed set- top box, but the most popular way to access the Internet over cable is through the use of a cable modem and personal computer. As of June 2003, there were more than 13.7 10 The number of MVPD households reported here, and the associated percentages, may overstate actual values because a household that subscribes to more than one MVPD (e. g., cable and DBS) is included as a subscriber to both services. See 2003 Report, 19 FCC Rcd at 1610 n. 8. 11 Pub. L. No. 106- 113, 113 Stat. 1501, 1501A- 526 to 1501A- 545 (1999). 5 Federal Communications Commission FCC 05- 13 12 For example, basic cable viewership 19 increased, as did premium service subscriptions 20 and subscriptions to digital video programming. 21 Although basic cable penetration decreased in 2003, homes passed increased during the same period. Channel capacity 22 also increased during 2003 and the first half of 2004, as did deployment of video- on- demand, 23 digital video recorders, 24 and high- definition programming. 25 Deployment of nonvideo advanced services, such as high- speed Internet access service and telephone service also increased during this period. 18. Cable’s Capacity to Serve Television Households. A widely used industry measurement of cable availability is the percentage of homes with a television that are passed by a cable system. The calculation of cable availability has been a subject of controversy. 26 The number of homes passed depends on the data source used, and the percentage of homes passed varies based on the universe used for the comparison. 27 NCTA estimates that at the end of 2003, 102.9 million homes with a television were passed by a cable system and there were 108.4 million homes with a television. 28 Thus, NCTA estimates that at the end of 2003, 95 percent of homes with a television were passed by a cable system. 29 NRTC contends that NCTA estimates are flawed and overstate cable availability. 30 NRTC maintains that the numerator for the NCTA’s 95 percent estimate includes all occupied households (not just TV households), while the denominator is limited to just TV households. 31 Our analysis of NCTA’s numbers 19 Basic cable viewership is the combined audience share of all nonbroadcast networks on the BST and CPST tiers. 20 Premium service subscriptions are the number of premium services to which homes are subscribing (also known as pay units). 21 Digital video programming refers to digitally- compressed video channels offered on digital service tiers. Subscribers to digital video programming must also subscribe to basic cable service. 22 Channel capacity is bandwidth dedicated to video use. Video channel capacity can be increased or decreased on any given system simply by using more or less bandwidth for other services, such as high- speed Internet access services or cable telephony. 23 Video- on- demand (VOD) allows subscribers to select at any time movies and other programming they wish to view from a selection of titles stored on a remote server. 24 Digital video recorders (DVRs) use a hard disk drive to record video programs. 25 High- definition (HD) programming is a television signal with greater detail and fidelity than provided by the National Television Systems Committee (NTSC) system. The high- definition picture has approximately twice the visual resolution as NTSC. High- definition programming also provides CD- quality audio. 26 See Application of EchoStar Communications Corporation, General Motors Corporation, and Hughes Electronics Corporation, Transferors and EchoStar Communications Corporation, Transferee, 17 FCC Rcd 20559, 20611- 12 ¶¶ 122- 25 (2002) (EchoStar- Hughes HDO) (designating for hearing the issue of the precise number of households that are not served by a cable operator, the number served by a low- capacity cable system, and the number served by a high- capacity cable system). 27 Homes passed data evaluated in the context of our review of the EchoStar- DIRECTV merger application indicated that the number of homes not passed by cable may vary from four percent to 21. 28 percent depending on the estimation methods. EchoStar- Hughes HDO, 17 FCC Rcd at 20612 ¶ 124 and n. 356. 28 NCTA, Cable Developments 2004, at 7; and Kagan World Media, Broadband Cable Financial Databook, Aug. 2004 (Cable Databook) at 11. 29 NCTA, Cable Developments 2004, at 7. NCTA calculated the 95 percent figure as follows: 102. 9 million/ 108. 4 million = 0.949. 30 NRTC Comments at 6. 31 Id. 12 Federal Communications Commission FCC 05- 13 13 shows that NCTA actually used TV households in both the numerator and denominator. 32 NRTC also argues that housing units, not TV households, should be used to determine the universe of homes passed by cable. 33 NRTC contends that the Census Bureau’s total household estimates are more accurate than the TV household estimates produced by Nielsen Media Research and used by NCTA. 34 NRTC alleges that NCTA’s count of TV households must overstate the actual number of TV households because the count is larger than the Census Bureau’s estimate of total households in 33 states. 35 NRTC maintains that a “full and fair accounting” will show that 22.4 million households lack access to cable services. 36 19. For purposes of this Report, we continue to use, as we have in the past, data derived from Kagan World Media (homes passed by cable systems) and Nielsen Media Research (total TV households) for historical consistency. We present these data to indicate trends, rather than an absolute measure of cable availability. Kagan estimates that at the end of 2003, there were 108.4 million TV households, and 106.0 million occupied homes passed by cable systems (not all of them with a television). 37 Thus, at the end of 2003, the percentage of occupied homes with a television that were passed by a cable system must be less than 97.8 percent. 38 As noted above, NCTA estimates that at the end of 2003, 95 percent of occupied homes with a television were passed by a cable system. 20. Section 612( g) of the Communications Act provides that at such time as cable systems with 36 or more activated channels are available to 70 percent of households within the United States and are subscribed to by 70 percent of those households, the Commission may promulgate any additional rules necessary to promote diversity of information sources. 39 Current Census Bureau data indicate that there are 105,842,000 occupied housing units. 40 According to Warren Communications News (Warren), there are 84,415,707 occupied homes passed by cable systems with 36 or more channels and 58,177,885 of those households subscribe to cable systems with 36 or more channels. 41 Thus, based on this data source, 32 NRTC’s conclusion is based on data from NCTA’s website which reports that the 95 percent figure is occupied homes passed as a percentage of TV households, but NCTA’s Cable Developments 2004 publication reports that the 95 percentage figure is occupied TV homes passed as a percentage of TV households. See http:// www. ncta. com/ Docs/ PageContent. cfm? pageID= 86 (visited Nov. 16, 2004). 33 NRTC Comments at 6. 34 Id. 35 Id. at 6 and Exhibit 1. 36 Id at 5. 37 Cable Databook at 11. Occupied homes passed by cable systems equals total cable homes passed times percent of total housing units that are occupied (106. 0 million = 117. 9 million x 109. 9 million/ 122. 2 million). Cable Databook at 11 and 13. 38 We calculate the 97. 8 percent figure as follows: 106. 0 million/ 108. 4 million = 0. 978. Since the numerator includes homes that may not have a television, the calculation overstates cable availability. 39 47 U. S. C. § 532( g). 40 U. S. Census Bureau, The 2003 American Housing Survey (revised Aug. 16, 2004), Table 2- 1. See http:// www. census. gov/ hhes/ www/ housing/ ahs/ 03dtchrt/ tab2- 1. html (visited Oct. 19, 2004). Last year, according to Warren Communications News, there were 82, 506, 311 homes passed by cable systems with 36 or more channels and 56, 859, 607 of those homes subscribed to cable. We compared those figures with the Census Bureau’s data that indicated that there were 119,300,000 households in the United States. We have now clarified that the Warren data are based on the number of occupied households and, thus, the appropriate Census Bureau figure is occupied households, not total households. 41 Warren Communications News, Custom Report: From Television and Cable Factbook Online Datasets, Oct. 19, 2004. Warren defines homes passed as the total number of homes passed by cable systems having the potential of being served promptly. Specifically, the homes passed have to be occupied and are assumed to have a television. 13 Federal Communications Commission FCC 05- 13 14 cable systems with 36 or more channels are available to 79.8 percent (84,415, 707/ 105, 842, 000) of occupied households. Of the occupied homes passed by cable systems with 36 or more channels, 68.9 percent (58,177,885/ 84,415,707) subscribe to these systems. 42 Warren reports that there are 66,241,805 cable subscribers. Thus we conclude that there are 8,063,920 current subscribers to cable systems with fewer than 36 channels. Although they do not represent the universe of cable systems, the sample data from the 2004 Price Survey and the Annual Report of Cable Television Systems (Form 325) can be used to estimate the second prong of the 70/ 70 benchmark; neither of which indicate that the second element of the test has been met. From the Price Survey sample, we estimate that the subscribers to systems with 36 or more channels as a percent of the homes passed by such systems is 58.8 percent. Based on the Form 325 sample, we estimate that this figure is 54.7 percent. 21. Subscribership. The number of basic cable subscribers changed little from 66.1 million in 2002 to 66.0 million in 2003, as shown in Table 1 below. The number of basic cable subscribers is projected to change little in 2004. Kagan projects 66.2 million basic subscribers at year- end 2004. 43 TABLE 1: Cable Television Industry Growth: 1998 - June 2004 (in millions) 44 TV Households (TH) 45 Homes Passed (HP) 46 Basic Subscribers (Subs) 47 Year Total % Change Over Prior Yr Total % Change Over Prior Yr Total % Change Over Prior Yr HH Passed by Cable (HP/ TH) HHs Subscribing (Subs/ TH) U. S. Penetration (Subs/ HP) 1998 99. 4 1.4% 95. 6 1.7% 65. 1 1.4% 96. 2% 65. 5% 68. 1% 1999 100.8 1.4% 97. 6 2.1% 65. 9 1.2% 96. 8% 65. 4% 67. 5% 2000 102.2 1.4% 98. 9 1.3% 66. 6 1.1% 96. 8% 65. 2% 67. 3% 2001 105.4 3.1% 100.6 1.7% 66. 9 0.5% 95. 4% 63. 5% 66. 5% 2002 106.7 1.2% 103.4 2.8% 66. 1 -1. 2% 96. 9% 61. 9% 63. 9% 2003 108.4 1.6% 106.0 2.5% 66. 0 -0. 2% 97. 8% 60. 9% 62. 3% June 2004 108.4 0.0% 48 107.1 1.0% 66. 1 0.2% 98. 8% 61. 0% 61. 7% 42 See also Letter from Daniel L. Brenner, Senior Vice President, Law & Regulatory Policy, NCTA, to Marlene H. Dortch, Secretary, FCC, Dec. 17, 2004 (providing estimates using Warren, Nielsen, and Kagan homes passed and subscriber statistics). 43 Cable Databook at 11. 44 Historical data in this table may differ from those previously reported because some data have been updated by Kagan. See Cable Databook at 8, 11. 45 The 2003 and estimated June 2004 TV Household numbers are reported by Kagan World Media as total U. S. TV households. The numbers are derived from Nielsen Media Research and Kagan estimates. Id. at 11. 46 The 1998 through 2003 homes passed numbers are reported by Kagan as residential cable homes passed. The June 2004 homes passed estimate is an average calculated from the actual 2003 and the projected 2004 numbers for occupied cable homes passed. Id. at 9, 11. 47 The 1998 through 2003 basic subscriber numbers are reported by Kagan as basic subscribers. The June 2004 basic subscriber estimate is an average calculated from the actual 2003 and the projected 2004 numbers for total basic cable subscribers. Id. According to NCTA, there were 71. 1 million cable subscribers at the end of April 2004. NCTA Comments at 7. NCTA’s estimate of cable subscribers is more than the number of basic subscribers reported in Table 1 above. 48 Percentage change columns in this row are from December 2003 to June 2004. 14 Federal Communications Commission FCC 05- 13 15 Basic subscriber losses for the second quarter of 2004 were larger than expected and some companies have revised their projections for 2004 from slight increases to no growth in the number of basic subscribers. 49 For example, Comcast added 140,000 basic cable subscribers in 2003. 50 These gains were followed by losses in the first six months of 2004. 51 By year- end 2004, Comcast expects net additions of less than 0.5 percent to the number of basic cable subscribers. 52 For 2003, Cox added 57,000 basic cable subscribers (a 0.9 percent increase). 53 These gains were followed by a loss of 75,000 basic cable subscribers in the first six months of 2004. 54 For the year 2004, Cox expects basic cable subscriber growth to be just under one percent. 55 For 2003, Time Warner reported a 0.1 percent increase in the number of basic cable subscribers. 56 Time Warner, however, reported a loss of 21,000 basic cable subscribers in the second quarter of 2004. 57 Cablevision lost 19, 600 basic cable subscribers in 2003 but added 7,800 in the first six months of 2004. 58 By year- end 2004, Cablevision expects an increase of approximately 0.5 percent in the number of basic video subscribers. 59 Charter lost 147,500 basic cable subscribers in 2003. 60 Charter lost another 67,300 basic cable subscribers in the first six months of 2004. 61 22. Cable penetration (i. e., subscribers/ homes passed) declined in 2003, as the number of subscribers decreased, and the number of homes passed increased. Cable penetration is estimated to decline further in the first half of 2004. The ratio of cable subscribers to television households also declined in 2003, as the number of subscribers decreased, and the number of television households increased. 62 49 See Kagan World Media, Cable TV Investor: Deals & Finance, Aug. 18, 2004, at 1- 2. 50 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 51 Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004. 52 Id. 53 Cox Communications Inc., Cox Communications Announces Fourth Quarter and Full- Year Financial Results for 2003 (press release), Feb. 2, 2004. 54 Cox Communications Inc., Cox Communications Announces Second Quarter and Year- to- Date Financial Results for 2004 (press release), July 29, 2004. 55 Id. 56 Time Warner Inc., Time Warner Reports Results for 2003 Full Year and Fourth Quarter (press release), Jan. 28, 2004. 57 Time Warner Inc., Time Warner Inc. Reports Second Quarter 2004 Results (press release), July 28, 2004. 58 Cablevision Systems Corp., Cablevision Systems Corporation Reports Fourth Quarter and Full Year 2003 Results (press release), Mar. 2, 2004; Cablevision Systems Corp., Cablevision Systems Corporation Reports Second Quarter 2004 Results (press release), Aug. 9, 2004. 59 Cablevision Systems Corp., Cablevision Systems Corporation Reports Fourth Quarter and Full Year 2003 Results (press release), Mar. 2, 2004. 60 Charter Communications Inc., Charter Reports Fourth Quarter and Year 2003 Financial and Operating Results (press release), Feb. 19, 2004. Charter reports that the number of analog video subscribers declined from 6. 6 million at year- end 2002 to 6.4 million at year- end 2003. Analog video subscribers include all subscribers who receive video services. Id. 61 Charter Communications Inc., Charter Communications Reports Second Quarter 2004 Financial and Operating Results (press release), Aug. 9, 2004. 62 From the end of 2003 to the end of June 2004, the ratio of cable subscribers to TV households is calculated to increase slightly from 60.9 percent to 61. 0 percent. This calculation is the result of holding the number of TV (continued....) 15 Federal Communications Commission FCC 05- 13 16 23. For the second year in a row, the number of homes subscribing to premium cable services declined from 35.3 million in 2002 to 34.8 million in 2003, as shown in Table 2 below. At the end of 2003, approximately 53 percent of cable’s 66.0 million subscribers also subscribed to premium services. 63 The number of premium services to which homes are subscribing (also known as pay units) increased from to 80.9 million in 2002 to 83.4 million in 2003, but the size of the increase was smaller than the prior year’s increase. 64 Although the cable industry sold more premium services, the total revenue received from premium services declined 1.2 percent in 2003. 65 Cable systems sold premium cable services to fewer homes, but the average number of subscriptions per premium subscriber increased slightly, from an average 2.3 subscriptions per subscriber in 2002 to an average 2.4 subscriptions per subscriber in 2003. 66 TABLE 2: Premium Cable Services: 1998 - 2003 (in millions) 67 Premium Cable Service Subscribers (Pay HH) Premium Cable Service Subscriptions (Pay Units) Average Number of Subscriptions Year Total % Change Over Prior Year Total % Change Over Prior Yr Pay Units/ Pay HH 1998 32.9 3.5% 58.6 6.0% 1.8 1999 34.3 4.3% 60.2 2.7% 1.8 2000 35.7 4.1% 66.8 11.0% 1.9 2001 36.0 0.8% 75.6 13.2% 2.1 2002 35.3 -1.9% 81.1 7.3% 2.3 2003 34.8 -1.4% 83.4 2.8% 2.4 24. Channel Capacity. Data from the Commission’s 2004 Price Survey 68 provides figures on cable system bandwidth and the number of analog and digital video channels being delivered by surveyed (... continued from previous page) households constant at 108. 4 million over the entire 2003- 2004 season and assuming that the number of basic subscribers will increase from 66. 0 million to 66. 1 million from January 2003 to June 2004. At year- end 2004, Kagan projects 66. 2 million basic subscribers. Cable Databook at 11. We assumed that half of the projected growth would occur by the end of June 2004. As such, we assumed that there would be 66. 1 million basic subscribers by the end of June 2004. 63 Cable Databook at 9. 64 Id. at 9. 65 Id. at 8. 66 Id. at 9. 67 Historical data included in this table may differ from those previously reported because some data have been updated by Kagan. See Cable Databook. The 1998 through 2003 premium cable service subscribers (Pay HH) numbers are reported by Kagan as pay subscribers. Id. at 9. The 1998 through 2003 premium cable service subscriptions (Pay Units) numbers are reported by Kagan as the sum of premium units and mini- pay units (defined as a service or pay TV that programs less than 8 hours per day). Premium units include HBO, Cinemax, Showtime, Movie Channel, Starz, and Playboy. Mini- pay units include Sundance, Flix, and Encore. Id. at 9. 68 The 2004 Price Survey (Survey) requested data from cable operators pertaining to monthly cable rates in communities selected as part of a random sample. We received 641 Survey responses. We requested data as of January 1, 2004, and limited amounts of data as of January 1, 2003 and January 1, 2002. In addition to monthly (continued....) 16 Federal Communications Commission FCC 05- 13 17 cable systems (see Table 3). 69 It shows that approximately 85.7 percent of the sampled cable systems (both competitive and noncompetitive systems) 70 have facilities with bandwidth of 750 MHz or above. 71 The average bandwidth of systems in the Survey is approximately 734 MHz. Cable system bandwidth may be allocated among video and nonvideo services. We calculate that the average system in the Survey used 513 to 588 MHz of bandwidth to provide video service. 72 Cable operators are choosing to provide, on average, approximately 73 analog video channels and 150 digital video channels, with enough additional bandwidth to provide high- definition television, video- on- demand, and Internet access services. From January 2003 to January 2004, the total number of video channels (analog plus digital) carried by the average cable system in the Survey increased from approximately 210 to 223. (... continued from previous page) cable rates, the Survey sought information on the number of channels in order to determine how much subscribers pay on a per channel basis. The Survey also gathered information at the cable system level on other factors that may affect cable rates and competition in the multichannel video programming market, including: (1) number of cable subscribers; (2) number of digital cable service subscribers; (3) number of cable Internet access subscribers; (4) number of cable telephony subscribers; (5) cable system capacity in MHz; and (6) cable programming revenues; (7) cable programming costs; and (8) system operating costs. 69 Section 623( k) of the Communications Act requires the Commission to publish annually a statistical report on cable prices, or more specifically, average rates for the delivery of the BST, the CPST, and equipment. See 47 U. S. C. § 543( k). The BST includes local television broadcast signals and public, educational, and governmental access channels. See 47 U. S. C. § 543( b)( 7). The CPST includes any video programming other than video programming carried on the basic service tier, and video programming offered on a per- channel or per program basis. See 47 U. S. C. § 543( k)( 2); see also fn. 16 supra. Equipment refers to a converter box, remote control, and other equipment necessary to access programming. See 47 U. S. C. § 543( b)( 3). 70 The Survey enables the Commission to compare prices charged by samples of two groups of cable operators: (1) operators that are deemed to face effective competition (referred to as the competitive group) and (2) operators that do not face effective competition (the noncompetitive group). Within the noncompetitive group, information was collected from both regulated and unregulated operators. Operators in the competitive group are limited to those operators that have sought and obtained a Commission finding of effective competition. As a result, within the noncompetitive group, there may be, and likely are, operators that face competition but have not filed a petition with the Commission seeking a finding of effective competition. Similarly, there may be operators within the competitive group that may have met the criteria for a finding of effective competition at the time the finding was made, but because of changed circumstances, may not meet the statutory criteria currently. 71 According to NCTA, by year- end 2003, nearly 95 million homes were passed by systems with 750 MHz or higher capacity, and more than 95 million households were passed by systems that provided two- way services, such as cable modem service, interactive television, and IP telephony. NCTA Comments at 29. Kagan reports that by the end of 2003 there were 106 million occupied households passed by cable systems. Cable Databook at 11. Thus, NCTA’s reported numbers for year- end 2003 indicate that nearly 89. 6 percent (95 million/ 106 million = 89. 6 percent) of these homes had access to cable systems with 750 MHz or higher and more than 89. 6 percent (95 million/ 106 million = 89. 6 percent) of these homes had access to activated two- way plant. NCTA’s calculation for homes passed by 750 MHz cable systems is slightly higher than the 85. 7 figure derived from the 2004 Price Survey data. This is likely due to differing data and measurement methodologies. 72 Each analog channel requires six MHz bandwidth, thus it takes approximately 438 MHz of bandwidth to deliver the 73 analog channels. Multiple digital channels, however, can be delivered on six MHz of bandwidth. Depending on the modulation, type of content, and other factors that vary from one cable operator to another and one system to another, a range of six to 12 digital channels can be delivered on each six MHz of bandwidth. The average number of digital channels in the survey is 150, so it takes from 75 to 150 MHz of bandwidth to deliver the 150 digital channels (150/ 12 x 6 MHz = 75 MHz to 150/ 6 x 6 MHz = 150 MHz). Because cable operators are delivering high-definition television (HDTV) programming, and it takes more bandwidth to deliver HDTV programming, our estimate of the bandwidth used for video programming may understate the actual bandwidth cable operators are using to provide video programming. 17 Federal Communications Commission FCC 05- 13 18 TABLE 3: January 2004 Channel Capacity 73 25. Viewership. During the 2003- 2004 television season, the combined audience share 75 of all nonbroadcast networks 76 was higher than the combined audience share of all broadcast television stations 77 for both all day viewing and prime time viewing. 78 For all day viewing, the combined audience share of all nonbroadcast networks was 56, and the combined audience share of all broadcast television stations was 44. For prime time viewing, the combined audience share of all nonbroadcast networks was 52, and the combined audience share of all broadcast television stations was 48. According to NCTA, the seven national commercial broadcast networks (ABC, CBS, NBC, FOX, UPN, WB, and PAX) accounted for a 38 share of all day viewing in 2003, and all nonbroadcast networks accounted for a 63 share of all day viewing. 79 According to NCTA, the 2003– 2004 television season (September 2003– May 2004) was the first time that the combined nonbroadcast networks’ share of prime time viewing was greater than the combined national broadcast networks’ share of prime time viewing. 80 26. Cable Rates. The Commission’s 2004 Price Survey 81 finds that the average monthly cable rate increased by 5.6 percent for the noncompetitive cable operators surveyed (cable systems in communities without an effective competition finding) over the twelve months ending January 2004, and the average price per channel increased by 1.2 percent. The average monthly cable rate increased by 3.6 percent for the competitive cable operators surveyed (cable systems in communities where effective competition was found to be present) over the twelve months ending January 2004, and the average 73 Derived from 2004 Price Survey data. 74 In previous years, we have reported the total number of channels in terms of the bandwidth (specifically, the estimated number of six MHz channels) needed to carry the analog and digital channels. See fns. 22, 71 supra. 75 A share is the percent of all households using television during the time period that are viewing the specified station( s) or network( s). Due to simultaneous multiple set viewing, Nielsen reports audience shares that exceed 100 percent when totaled. We have normalized audience shares to equal 100 percent. 76 Nonbroadcast network shares include basic (BST and CPST) networks, premium networks, and PPV networks distributed by MVPDs. 77 Broadcast shares include network affiliates, independent, and public television stations. 78 Prime time viewing is Monday through Saturday, 8 p. m.- 11 p. m., and Sunday, 7 p. m.- 11 p. m. Nielsen Media Research, Broadcast Calendar (TV Season) Share of Audience Report, Prime time and Total Day, Sept. 2004. See also NCTA Comments at 45– 46. The most popular nonbroadcast networks continue to receive a lower audience share for all day viewing and prime time viewing than any of the major broadcast television networks. Nielsen Media Research. 79 NCTA Comments at 45. NCTA’s numbers do not include PBS and independent commercial broadcast stations. 80 Id. at 46. 81 See fn. 68 supra. Competitive Group Noncompetitive Group Average system capacity (MHz) 734 734 Percent of systems with capacity of: 212 to 749 MHz 14. 5% 14. 3% At 750 MHz 62. 4% 59. 3% 751 to 870 MHz 23. 1% 26. 4% Total number of channels 74 232.4 222.6 Total number of analog channels 74. 7 73. 2 Total number of digital channels 157.7 149.4 18 Federal Communications Commission FCC 05- 13 19 monthly price per channel decreased by 0.3 percent. 82 Thus, the competitive differential in monthly cable rates (the percentage difference between the noncompetitive group and the competitive group) was 7.3 percent over the twelve months ending January 2004, and the competitive differential in the price per channel was 11.0 percent. The degree of difference varied by competitive subgroup. The highest differentials were associated with wireline overbuild competition. For communities in this subgroup, the average monthly cable rate and price per channel were, respectively, 15.7 percent lower and 27.2 percent lower than those averages for the noncompetitive group. 27. The Bureau of Labor Statistics (BLS) publishes a Consumer Price Index (CPI) that measures price inflation related to all goods and services for all urban consumers. By this measure, inflation increased by 1.1 percent over the 12 months ending January 2004. BLS also publishes price indices for many components of the overall CPI, including a price index for a basket of cable services (cable CPI). 83 The cable CPI increased by 3.8 percent over the year ending January 2004. Because it covers a different mix of services, however, the cable CPI cannot be compared directly with the results of the Commission’s Price Survey. 84 28. Cable Industry Revenue. Total revenue grew to $54.3 billion in 2003, as shown in Table 4 below. This represents an 11.5 percent increase over 2002. Cable revenue is projected to grow 10.8 percent in 2004 to $60.2 billion. Much of the increase in revenue comes from growth in demand for advanced services, especially high- speed Internet service and digital cable services, and from higher basic cable rates. Average monthly residential revenue per subscriber grew from $59.87 in 2002 to $66.22 in 2003 and is projected to increase to $72.60 in 2004. 85 All revenue categories increased, except revenue from premium tiers, which decreased 1. 2 percent in 2003. 29. Cable Industry Cash Flow. Cash flow (generally expressed as earnings before interest, taxes, depreciation, and amortization, or EBITDA) is often used to assess the financial position of cable firms and other companies in capital intensive industries. 86 Cash flow from operations is the net result of cash inflows from operations (revenue) and cash outflows from operations (expenses). Cash flow from operations indicates a firm's ability to meet its net finance and investment obligations and thus does not include non- cash charges to net income such as depreciation and amortization. As Table 4 shows, cash 82 See 2004 Price Survey at ¶¶ 9- 11. The Survey found that there is only a slight difference in the overall average and the average for the noncompetitive group because the noncompetitive group is much larger than the competitive group - an estimated eight percent of the total nationwide) Id. 83 This index predominately reflects cable service, although it includes elements of satellite television and radio service. See http:// www. bls. gov/ cpi/ home. htm (visited Jan. 14, 2005). 84 For example, the Cable CPI includes all cable television services, while the monthly cable rate consists of basic service, expanded basic, and equipment. Also, because the CPI measures change in what consumers pay for a fixed basket of goods and services, BLS adjusts the cable CPI to reflect estimated changes in cable services. See http:// www. bls. gov/ cpi/ home. htm (visited Jan. 14, 2005). 85 Cable Databook at 4. 86 The cable industry has long used a cash flow valuation model. Cash flow valuation is an effective tool for valuing companies that have negative net income because they are building out capital infrastructure and accruing significant long- term debt early in their life- cycle. The traditional measurement of cash flow, a measure of operating profit, has evolved into EBITDA, which ignores the expenses of interest, taxes, depreciation and amortization, whereas the standard valuation model, net income, includes them. In the past year, free cash flow (FCF) has largely replaced EBITDA as a critical valuation metric of choice among industry analysts. Although a standardized definition of FCF does not exist, FCF essentially takes into account the periodic interest that must be paid on debt. Some analysts more recently have suggested that the cable industry should be valued on the traditional net income model, and not cash flow or its various proxies (EBITDA or FCF) because the industry has now reached a stage of maturation that would justify use of more traditional valuation metrics. See 2003 Report, 19 FCC Rcd at 1627 ¶ 28 and n. 72. 19 Federal Communications Commission FCC 05- 13 20 flow from operations increased during 2003. 87 Table 4 also shows that the average annual revenue for residential and business subscribers combined is expected to grow from $824 in 2003 to $910 in 2004. 88 In addition, cash flow as a percentage of revenue (cash flow margin) increased over the same period. That is, cash flow increased at a greater rate than revenue, indicating that revenues grew faster than operating expenses during 2003. TABLE 4: Cable Industry Revenue and Cash Flow: 2002 – 2004 89 2002 2003 02- 03 2004 03- 04 Total Total % Change Est. Total % Change Basic Subscribers (mil.) 66. 1 66. 0 -0. 2% 66. 2 0.3% Revenue Segments (mil.) Basic Service and CPST Tiers $27,690 $29,000 4.7% $30,336 4.6% Premium (Pay) Tiers $5,963 $5, 891 -1. 2% $5, 871 -0. 3% VOD/ Pay- Per- View 90 $793 $976 23. 1% $1, 134 16. 2% Local Advertising $2, 978 $3, 239 8.8% $3, 676 13. 5% Home Shopping $289 $307 6.2% $330 7.5% Total Digital Tier $2, 693 $3, 396 26. 1% $4, 008 18. 0% High- speed Internet $4, 525 $6, 761 49. 4% $8, 886 31. 4% Digital Video Recorder $4 $36 800.0% $149 313.9% Circuit Switch and VoIP $1, 261 $1, 524 20. 9% $1, 732 13. 6% Installation 91 $426 $443 4.0% $458 3.4% Miscellaneous 92 $2, 173 $2, 821 29. 8% $3, 669 30. 1% Total Revenue 93 (mil.) $48,795 $54,394 11. 5% $60,249 10. 8% Revenue Per Subscriber $738. 20 $824. 15 11. 7% $910. 11 10. 4% Operating Cash Flow (mil.) $18,201 $20,371 11. 9% $22,670 11. 3% Cash Flow per Subscriber $275. 36 $308. 65 18. 9% $342. 45 11. 0% Cash Flow/ Total Revenue 37. 3% 37. 5% 0.5% 37. 6% 0.3% 87 Kagan World Media reports that it was high- margin, high- speed data service that drove operating cash flow growth in 2003. Cable Databook at 7. 88 Revenue from residential subscribers is expected to grow from $794. 64 ($ 66. 22 per month x 12 = $794. 64) in 2003 to $871.20 ($ 72. 60 x 12 = $871. 20) in 2004. Revenue from business subscribers is expected to grow from $991. 32 ($ 82. 61 x 12 = $991. 32) in 2003 to $1040.88 ($ 86. 74 x 12 = $1040. 88) in 2004. Id. at 13. 89 Pay- per- view and home shopping data for 2001 come from the 2002 Report. All other data come from the Cable Databook at 8- 13 and 154. Historical data included in this table may differ from those previously reported because some data have been updated by Kagan. See Cable Databook. 90 Includes VOD, subscription- video- on- demand (SVOD), near- video- on- demand (NVOD), and PPV. 91 Includes basic installation and pay installation. 92 Miscellaneous revenue includes revenues derived from high- definition television, interactive games, home networking, business services, and equipment charges. We note that there is often no additional cost for the standard definition version of HDTV channels. In many cases, MSOs charge for HDTV channels that are not offered in a standard definition version. Some MSOs do not charge higher prices for an HD set- top box, but most apply a professional installation fee. See Time Warner Cable, http:// www. timewarnercable. com/ corporate/ products/ digitalcable/ hdtv. html (visited Jan. 14, 2005); Cablevision Systems Corp., http:// www. io. tv/ index. jhtml? page Type= hdtv (visited Jan. 14, 2005); Comcast Corp., http:// www. comcast. com/ Benefits/ CableDetails/ Slot4PageOne. asp? LinkID= 120 (visited Jan. 14, 2005); Charter Communications, http:// www. charter. com/ products/ hdtv/ hdtv. aspx (visited Jan. 14, 2005). 93 Total revenue includes both residential and business revenue. Business revenue was $1, 036 million for 2002, $1, 911 million for 2003, and a projected $2, 647 million for 2004. 20 Federal Communications Commission FCC 05- 13 21 30. Programming Costs. Cable operators’ combined program expenditures reached $11.46 billion in 2003. 94 This represents expenditures for existing nonbroadcast networks and expenditures for new nonbroadcast networks. 95 In addition to expenditures for national nonbroadcast networks, cable companies produced or acquired local and regional programming, including cable news and public affairs networks. 96 Included in the $11.46 billion in program expenditures are copyright fees of $129.2 million in 2003 for broadcast signal carriage pursuant to Section 111 of the Copyright Act. 97 31. Cable System Transactions. The aggregate value of cable systems sold in any year depends on the number of transactions, the size of the cable systems involved, and the price paid. As shown in Table 5 below, there were 34 cable transactions in 2003, representing an aggregate value of $1.52 billion. 98 A few transactions accounted for most of the dollar value. 99 Most of the transactions, however, involved small rural cable systems and non- upgraded cable systems. 100 For the smallest transaction, the price was $1,259 per subscriber. 101 For the largest transaction, the price was $3,225 per subscriber. 102 The average value per subscriber in 2003 was $2,321. 103 In the first six months of 2004, there were nine cable system transactions, representing an aggregate value of $293 million. According to Kagan, this is the smallest number of transactions since it started tracking cable transactions in 1982. 104 Mergers, which involve the transfer and exchange of numerous systems, are not reflected in Table 5. 94 NCTA Comments at 44. NCTA’s calculation of programming expenditures includes license fees, copyright fees, and investments in local programming. 95 In 2004, we have identified 388 nonbroadcast networks. See para. 145 infra. According to NCTA, there were 339 nonbroadcast networks by year- end 2003, including new networks such as NFL Network, Pentagon Channel, Si TV, and TVOne. NCTA Comments at 45. 96 Id. at 46- 47. 97 Copyright Act, 17 U. S. C. § 111 et seq. Copyright Office, Library of Congress, Licensing Division Report of Receipts, Oct. 28, 2004. Copyright fees are due on a specific date, but are collected on a rolling basis. 98 Cable Databook at 175. 99 The two largest transactions, Comcast’s acquisition of 30, 000 cable subscribers from U. S. Coastal Cable in April 2004 and Cebridge’s acquisition of 41, 000 cable subscribers from USA Media Group in March 2004, accounted for approximately 63 percent of the aggregate value of cable systems sold. Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 18. See also Kagan World Media, Cable TV Investor: Deals and Finance, Mar. 31, 2004, at 12; Kagan World Media, Cable TV Investor: Deals & Finance, May 28, 2004, at 13. 100 Cable Databook at 175. See also Kagan World Media, Cable TV Investor: Deals & Finance, Feb. 29, 2004, at 6- 7. 101 Cable Databook at 175. 102 Id. 103 Id. Analysis of transactions over the past five years shows that smaller systems sold for an average of $1, 731 per subscriber and larger systems sold for an average of $4, 466 per subscriber. Id. 104 Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 18. 21 Federal Communications Commission FCC 05- 13 22 TABLE 5: System Transactions: 2001 - June 2004 105 2001 2002 2003 Jan- Jun 2004 Number of Systems Sold 36 23 34 9 Total Number of Subscribers Sold 17, 958, 375 607,446 654,759 130,391 Average Number of Subscribers 498,844 26, 411 19, 258 14, 488 Total Number of Homes Passed Sold 31, 657, 221 1,158,765 1, 132, 772 233,147 Average Number of Homes Passed per System Sold 879,367 50, 381 33, 317 25, 905 Total Dollar Value (mil.) $87, 499 $1, 432 $1, 520 $293 Average Value (mil.) of System Sold $2, 431 $62.3 $44.7 $43.7 National Average Dollar Value Per Subscriber $4, 872 $2, 357 $2, 321 $2, 249 Dollar Value Per Home Passed $2, 764 $1, 236 $1, 341 $1, 258 Cash Flow Multiple 19. 3 11. 6 9. 4 10. 5 32. Stock Prices. Cable stock prices, as measured by the Kagan Cable MSO Average, 106 fell 8.2 percent from June 2003 to June 2004, whereas the S& P 500 rose 16.4 percent, and the NASDAQ rose 25.2 percent. 107 At the end of June 2004, cable stocks were trading at a historic low of 8.5 times cash flow. 108 One analyst reported that cable stocks had fallen because of investor worries regarding competition from DBS and reports of facilities- based entry of telephone companies into the video delivery market. 109 2. Capital Acquisition and Disposition 33. Industry Financing. Table 6 shows the amount of financing raised per year by source. Cable companies reduced total debt in 2003. Kagan reports that 2003 was the first time net public debt was negative since it began keeping records in 1988. 110 Cable companies continued to reduce net public debt in the first half of 2004. 105 Data for 2003 come from Kagan World Media, Cable TV Investor: Deals & Finance Jan. 31, 2004, at 11. Data for January to June 2004 come from Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 19. The numbers for January to June 2004 include all announced and proposed deals. Historical data included in this table may differ from those previously reported because some data have been updated by Kagan. See Cable Databook. 106 The Kagan MSO Average includes the following companies (stock symbol): Gannett (GNCMA), Washington Post (WPO), Comcast A (CMCSA), Comcast Special (CMCSK), Cox (COX), Cablevision (CVC), Time Warner (TWX), Insight Communications (ICCI), Mediacom (MCCC), Charter Communications (CHTR), RCN Corporation (RCN), and Adelphia (ADELQ). 107 Kagan World Media, Cable TV Investor: Deals & Finance, July 30, 2003, at 23; Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 23. 108 Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 1. 109 Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 3. See also Peter Grant, Coming to Cable: Payback Time, WALL STREET JOURNAL, July 27, 2004. 110 Cable Databook at 153. 22 Federal Communications Commission FCC 05- 13 23 TABLE 6: Acquisition of Capital: 1998 - June 2004 ($ in millions) 111 Private Debt Net New Public Debt Private Equity (Pvt. Placement/ VC) Public Equity (Common/ Preferred) Year Amount Raised % of Total Raised in Year Amount Raised % of Total Raised in Year Amount Raised % of Total Raised in Year Amount Raised % of Total Raised In Year Total Capital Raised In Year 1998 $5, 421 39. 1% $6, 299 45. 5% $250 1.8% $1, 927 13. 9% $13,897 1999 $34,358 51. 9% $18,610 28. 1% $5, 385 8.1% $7, 799 11. 8% $66,152 2000 $7, 255 60. 3% $4, 288 35. 7% $101 0.8% $380 3.2% $12,024 2001 $6, 668 31. 4% $10,678 50. 2% $623 2.9% $3, 282 15. 4% $21,250 2002 $2, 545 25. 2% $3, 942 39. 0% $15 0.1% $3, 608 35. 7% $10,110 2003 $1, 791 -641. 9% -$ 2,240 802. 9% $116 -41.6% $54 -19.4% -$ 279 Jan- June 2004 $6, 165 173.3% -$ 2,733 -76. 8% $125 3.5% $0 0% $3, 557 34. Capital Expenditures/ Capital Investment. Over the last decade, cable companies have invested heavily to rebuild and upgrade cable systems. 112 These investments enable cable operators to offer more channels of basic and digital cable services, premium movie services, pay- per- view programs, high- definition programming, high- speed Internet access services, CD- quality music, cable telephony, and more personalized programming options. 113 NCTA estimated that the rebuilding and upgrading of cable systems to 750 MHZ or greater capacity with two- way capability would be 91 percent complete by July 2004. 114 At year- end 2003, nearly 95 million homes were passed by cable systems with capacity of 750 MHz or higher and two- way capability. 115 With the rebuilding and upgrading of cable systems nearing completion, capital expenditures for most cable operators are being reduced. Capital expenditures were $10.3 billion in 2003 and are estimated to fall to $9.5 billion in 2004. 116 35. Comcast reported capital expenditures of $4.1 billion in 2003, with approximately $1.4 billion for upgrading cable systems and approximately $1.6 billion for upgrading customer premise equipment. 117 Comcast expects capital expenditures to reach $3.3 billion to $3.4 billion in 2004, an approximate $750 million decline from 2003. 118 For the first six months of 2004, Comcast reported $1.7 111 Data for 2003 come from Cable Databook at 158. Data for January to June 2004 come from Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 15. Historical data included in this table may differ from those previously reported because some data have been updated by Kagan. See Cable Databook. 112 Rebuilds are significant improvements made to existing systems that do not retain much of the old system plant and equipment. Upgrades are improvements to existing cable systems that do not require the replacement of the entire existing plant and equipment. 113 NCTA Comments at 30. 114 Id. at 29. 115 Id. at 29. 116 Id. at 29, and Cable Databook at 4. 117 Comcast Comments at 23. 118 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. Comcast has been upgrading the AT& T Broadband systems acquired in 2002. Prior to the acquisition of AT& T Broadband in 2002, over 95 percent of Comcast’s systems were upgraded to 750 MHz or greater. When Comcast acquired the AT& T Broadband systems, only 66 percent of those systems were upgraded. At year- end 2003, 93 percent of the acquired systems were upgraded. Id. See also 2003 Report, 19 FCC Rcd at 1634 ¶ 38. 23 Federal Communications Commission FCC 05- 13 24 billion in capital expenditures. 119 Comcast expects to complete the upgrade of its cable systems in 2004. 120 By year- end 2003, 95 percent of Comcast’s cable systems were upgraded to deliver two- way digital cable and high- speed Internet services. 121 At the end of the first quarter of 2004, Comcast had upgraded 96 percent of its cable plant. 122 At the end of June 2004, 97 percent of Comcast cable systems were upgraded to provide advanced services. 123 Cox reported capital expenditures of $1.6 billion in 2003, with $206.4 million for upgrading and rebuilding cable systems and $606.3 million for customer premise equipment. 124 Cox expects a slight decline in expenditures to $1.4 billion in 2004. 125 For the first six months of 2004, Cox reported capital expenditures of $617.9 million. 126 Time Warner reported cable capital expenditures of $1.6 billion in 2003, with $175 million for upgrading and rebuilding cable systems and $715 million for customer premise equipment. 127 For the six months ended June 30, 2004, Time Warner reported $718 million in cable capital expenditures. 128 Last year, Time Warner announced that it had upgraded virtually all of its cable architecture with hybrid fiber- coax cable plant capable of supporting two- way, digital communications. 129 Cablevision reported cable capital expenditures of $715.2 million in 2003, with $139.1 million for upgrading and rebuilding cable systems and $448.5 million for customer premise equipment. 130 During 2003, Cablevision completed a system- wide upgrade of its nonbroadcast network. 131 For the first six months of 2004, Cablevision reported cable capital expenditures of $278.0 million. 132 Charter reported cable capital expenditures of $854 million in 2003, with $132 million for upgrading and rebuilding cable systems and $380 million for customer premise equipment. 133 For the six months ended June 30, 2004, Charter reported $390 million in cable capital expenditures. 134 This is a 48 percent increase from the first half of 2003, when cable capital expenditures 119 Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004. In the second quarter of 2004, Comcast spent $893 million in capital improvements compared with $1. 0 billion in the second of the prior year. Id. 120 Comcast Corp., Comcast Provides Financial Outlook for 2004 (press release), Feb. 11, 2004. 121 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 122 Comcast Comments at 24. 123 Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004. 124 Cox Communications Inc., Cox Communications Announces Fourth Quarter and Full- Year Financial Results for 2003 (press release), Feb. 2, 2004. 125 Id. 126 Cox Communications Inc., Cox Communications Announces Second Quarter and Year- to- Date Financial Results for 2004 (press release), July 29, 2004. 127 Time Warner Inc., Time Warner Reports Results for 2003 Full Year and Fourth Quarter (press release), Jan. 28, 2004. 128 Time Warner Inc., Time Warner Inc. Reports Second Quarter 2004 Results (press release), July 28, 2004. 129 2003 Report, 19 FCC Rcd at 1635 ¶ 38. 130 Cablevision Systems Corp., Cablevision Systems Corporation Reports Fourth Quarter and Full Year 2003 Results (press release), Mar. 2, 2004. 131 Id. 132 Cablevision Systems Corp., Cablevision Systems Corporation Reports Second Quarter 2004 Results (press release), Aug. 9, 2004. 133 Charter Communications Inc., Charter Reports Fourth Quarter and Year 2003 Financial and Operating Results (press release), Feb. 19, 2004. 134 Charter Communications Inc., Charter Communications Reports Second Quarter 2004 Financial and Operating Results (press release), Aug. 9, 2004. 24 Federal Communications Commission FCC 05- 13 25 totaled $264 million. The increase resulted from increased purchases of customer premise equipment, primarily for high- definition television and digital video recorders, and increased expenditures on “scalable” infrastructure 135 related to the deployment of advanced services. 136 3. Advanced Services 36. In addition to traditional analog video services, most cable operators offer subscribers advanced video services, including digital video, video- on- demand, digital video recorders, and high-definition television, and nonvideo advanced services, including high- speed Internet access and telephony (circuit- switched telephony and/ or voice over Internet protocol telephony). 137 Mid- sized and smaller cable operators also are deploying advanced services. 138 A December 2002 survey of mid- sized and smaller cable operators shows that more than half were providing digital cable and high- speed cable Internet service, and most of the other half planned to launch the services in the near term. 139 Our review of six mid- sized and smaller cable operators shows that all offer digital cable service and high- speed Internet service but not all offer video- on- demand, digital video recorders, high- definition television, and telephone service. 37. Digital Video Services. Cable operators offer digitally- compressed video channels to cable subscribers. Digital compression technologies allow anywhere from six to 12 video channels to be compressed into the capacity previously used to provide just one standard six MHz analog channel. Digital cable subscribers obtain programming by selecting one or more digital service tiers. Digital tiers may include a movie tier, a variety tier, a sports tier, and a non- English- language tier. Digital cable 135 Scalable infrastructure includes costs, not related to customer premise equipment or the nonbroadcast network, to secure growth of new customers, revenue units and additional bandwidth revenues or provide service enhancements (e. g., headend equipment, high- speed data access equipment, host digital terminals, video and telephony transport, advertising insertion equipment, and telephone switches). 136 Charter Communications Inc., Charter Communications Reports Second Quarter 2004 Financial and Operating Results (press release), Aug. 9, 2004. 137 Subscription data for advanced services shown in this Report are primarily for residential service, but may also include some small business service. For example, Comcast offers a business Internet service for teleworkers called Comcast Teleworker, and a business Internet service for small to medium businesses called Comcast Workplace. Similarly, Time Warner also offers a business Internet service called Road Runner Business Class to small and medium- sized businesses, home offices, and telecommuters. Subscribers to these services are included in the reported numbers. Cable companies also sold $1. 9 billion in services to business in 2003 under separately- run subsidiaries. For example, Cox Business Services offers high- speed Internet access, local and long distance telephone, advanced voice and data transport; Cox Enterprise Connectivity Solutions connects businesses to branch locations and remote workers; Charter Business offers high- speed Internet access services and video services to small and large businesses; and Time Warner’s Road Runner Business Class offers high- speed Internet access to small and mid- sized businesses. Small operators also offer advanced services to business customers. Bresnan, for example, provides high- speed Internet access, voice and data transport and video to large and small businesses under its Bresnan Business Services subsidiary; Susquehanna Communications offers businesses advanced communications services, including local and long distance telephone services, high- speed Internet access, and data transport and video; and Sunflower Broadband offers Sunflower Broadband Business Services providing high- speed Internet, telephone service, and professional IT service. Cable Databook at 13; See Cox Communications, Inc., http:// www. coxbusiness. com (visited Dec. 28, 2004); Charter Business, http:// www. charter- business. com (visited Dec. 28, 2004); Time Warner, Inc., http:// www. rrbiz. com/ Road Runner/ index. asp? sid= 1 (visited Dec. 28, 2004); Bresnan Communications, http:// www. bresnan. com/ unst/ products/ business (visited Dec. 28, 2004); Susquehanna Communications, http:// www. suscom. com/ home/ business. php (visited Dec. 28, 2004); Sunflower Broadband, http:// www. sunflowerbroadband. com/ business (visited Dec. 28, 2004). 138 See ACA Comments at Exhibit 2. 139 Id. 25 Federal Communications Commission FCC 05- 13 26 subscribers may obtain additional programming by selecting one or more premium digital tiers, such as HBO, Showtime, Cinemax, The Movie Channel, Starz!, and international programming. 140 In addition, digital cable subscribers may choose programming from a high- definition digital tier. 141 In addition to digital cable, cable operators are also deploying interactive digital services, such as single tuner or dual-tuner digital video recorders, and video- on- demand. 142 The cable industry reported that the number of digital cable subscribers increased from 20. 6 million at the end of June 2003 to 22.9 million at the end of March 2004. 143 38. In 2003, Comcast ended the year with nearly 7.7 million digital cable subscribers, representing a penetration rate of nearly 36 percent of basic cable subscribers. 144 At the end of June 30, 2004, Comcast offered digital cable service to all of its 21.4 million subscribers and had 8.1 million digital cable subscribers, representing 37.5 percent of basic video cable subscribers. 145 Comcast also offers a Spanish- language tier that includes ten digital TV networks and eight audio channels. 146 In addition to premium movie channel tiers, Comcast offers premium sports packages to its digital cable subscribers, including NASCAR IN CAR, MLB Extra Innings, Major League Soccer Direct Kick, ESPN GamePlan (collegiate sports), NHL Center Ice, and NBA League Pass. 147 During 2003, Cox added 82,967 digital cable subscribers and ended the year with over 2.1 million digital cable subscribers, representing 34 percent of its basic video subscriber base. 148 As of June 30, 2004, Cox digital cable was available to 99 percent of its 6.3 million basic cable subscribers, and it had 2.3 million digital cable subscribers, representing 36 percent of basic cable subscribers. 149 In 2003, Time Warner added 602,000 net digital video subscribers to reach a total of 4.3 million digital video subscribers, representing 40 percent of basic cable subscribers. 150 By June 30, 2004, the number of Time Warner’s digital video subscribers had grown to 4.6 million, representing 42 percent of basic video cable subscribers. 151 At year- 140 The premium digital tiers require subscription to the digital service. To receive a digital premium channel, a subscriber must subscribe to the premium channel. For example, to receive digital HBO, a subscriber must subscribe to HBO. 141 The high- definition tier of programming requires subscription to the digital service and a high- definition set- top box. Some high- definition programming is available at no additional charge. For example, the high- definition programming of the broadcast networks is often available at no additional charge. In addition, high- definition programming from the premium channels is often included with a subscription to the premium movie channels. Other high- definition programming may require additional fees. For example, Discovery HD Theater may require additional fees. 142 NCTA Comments at 34. These interactive services offered by a cable company require subscription to the digital service. The digital video recorder service offered by cable operators also requires a DVR set- top box. 143 Id. at 33- 34; 2003 Report, 19 FCC Rcd at 1637 ¶ 41. 144 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 145 Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004. 146 Comcast Comments at 26. 147 Id. at 27. 148 Cox Communications Inc., Cox Communications Announces Fourth Quarter and Full- Year Financial Results for 2003 (press release), Feb. 12, 2004. 149 Cox Communications Inc., Cox Communications Announces Second Quarter and Year- to- Date Financial Results for 2004 (press release), July 29, 2004. 150 Time Warner Inc., Time Warner Reports Results for 2003 Full Year and Fourth Quarter (press release), Jan. 28, 2004. 151 Time Warner Inc., Time Warner Inc. Reports Second Quarter 2004 Results (press release), July 28, 2004. 26 Federal Communications Commission FCC 05- 13 27 end 2003, Cablevision had 905,495 subscribers to its Interactive Optimum (iO) digital video service, representing a penetration rate of 30.8 percent of basic subscribers. 152 Charter provided digital video service to approximately 2.7 million subscribers as of year- end 2003, representing 42 percent of basic video subscribers. 153 Over the six months ending June 2004, Charter lost both basic video subscribers and digital video subscribers. As of June 2004, Charter had approximately 2.6 million digital video subscribers, representing 43 percent of basic video subscribers. 154 39. In 2003, the Commission adopted rules based on an agreement between consumer electronics companies and cable operators that will enable television sets to be built with “plug and play” functionality for one- way digital cable services, which include typical cable programming services and premium channels like HBO and Showtime. 155 For these services, consumers will be able to plug their cable directly into their digital television set without the need of a set- top box. Consumers, however, will have to obtain a security card (often called a CableCARD), from their local cable operator, to be inserted into the television set. Consumers still need a set- top box to receive two- way services (e. g., video- on-demand), and the cable and consumer electronics industries continue to work on an agreement for two-way “plug and play” functionality. 156 Consumer electronics manufacturers have already begun selling digital cable ready television sets with over- the- air integrated DTV tuners as well as cable tuners. 157 40. Video- on- Demand (VOD). VOD allows subscribers to order video programming from a central server at any time of day, and to fast- forward, rewind, and pause the programming. 158 In most cases, subscribers receive unlimited viewing of a VOD program for 24 hours. Some cable operators also offer subscription video- on- demand (SVOD) where subscribers pay a monthly fee for unlimited access to a library of pre- selected programming. Other cable operators offer near video- on- demand (NVOD) which typically features a schedule of popular movies and events offered on a staggered- start basis (e. g., every 15 to 30 minutes). Cable companies view VOD as a competitive service to DVD/ VHS rentals. Most of the major cable companies have deployed VOD services. 159 In 2003, there were 12.6 million digital 152 Cablevision Systems Corp., Cablevision Systems Corporation Reports Fourth Quarter and Full Year 2003 Results (press release), Mar. 2, 2004. 153 Charter Communications Inc., Charter Reports Fourth Quarter and Year 2003 Financial and Operating Results (press release), Feb. 19, 2004. 154 Charter Communications Inc., Charter Reports Second Quarter 2004 Financial and Operating Results (press release), Aug. 9, 2004. 155 Implementation of Section 304 of the Telecommunications Act of 1996, Commercial Availability of Navigation Devices, Compatibility Between Cable Systems and Consumer Electronics Equipment, 18 FCC Rcd 20885 (2003). 156 See para. 187 infra. 157 CEA Comments at 8. With most cable systems, use of the digital cable ready television set requires that cable subscribers obtain a CableCARD containing security and other circuitry for particular local cable systems. As we reported last year, the CableCARD is a removable security module which, when inserted into an OpenCable certified device, enables delivery of digital video programming and other services. CableCARDs are provided directly by the cable operator to customers who request them. CableLabs, at http:// www. cablelabs. com/ news/ glossary. html# C (visited Oct. 5, 2004). See para. 187 infra. 158 VOD differs from PPV. PPV is pay television programming for which cable subscribers pay a one time fee for each program viewed. The programming is generally available at pre- set times and in some cases is time shifted across several channels to increase the opportunity for viewing. Once initiated, the program cannot be paused, rewound or fast- forwarded. 159 NCTA Comments at 23. Cablevision, Charter, Comcast, Cox, Insight, Mediacom, and Time Warner offer VOD service. 27 Federal Communications Commission FCC 05- 13 28 subscribers with VOD capability, 10.0 million digital subscribers with NVOD capability, and 8.2 million homes with SVOD capability. 160 41. Comcast’s ON DEMAND service allows digital cable subscribers to choose from a library of movie, sports, and news, and start them at any time. In addition to programming from established content providers, such as Discovery Networks, CBS, BET, and MTV, Comcast’s VOD service also includes programming from new, and less well known, content providers. 161 At the end of 2003, Comcast’s VOD service was available to 50 percent of its cable subscribers. 162 Comcast expects to make ON DEMAND available to 85 percent of its subscribers by the end of 2004. 163 Cox’s Entertainment on Demand gives subscribers in selected markets access to hundreds of movies and other programming with full VCR- like functionality. 164 Digital cable subscribers can access Entertainment on Demand with their existing Cox cable box, which communicates with Cox’s servers to stream and control movies. 165 Time Warner maintains that it leads the industry in deploying VOD and SVOD services. 166 Time Warner offers these services to all of its 31 cable operating divisions. 167 Time Warner provides two VOD services: Movies on Demand allows Time Warner digital cable subscribers to select among hundreds of movies, and Premiums on Demand allows Time Warner digital cable subscribers unlimited instant access to movies offered on the premium movie channels (i. e., HBO, Showtime, Cinemax, and the Movie Channel) for a monthly fee. 168 Cablevision’s Interactive Optimum (iO) digital cable service provides a VOD and SVOD. 169 Cablevision’s SVOD service includes HBO, Cinemax, Anime Network, Showtime, Disney Channel, and IFC Uncensored which offers independent films and original series. 170 Charter OnDemand offers a near VOD service that allows digital cable subscribers to pause, rewind, and fast- forward movies offered at multiple start times, rather than instant access. 171 42. Digital Video Recorders (DVRs). DVR service allows subscribers to record programming onto a hard drive located in a set- top box, which can then be played back at any time. DVR features include fast- forward, pause, and the ability to pause live television. Cable operators are integrating DVR functionality into digital set- top boxes and are expected to have approximately 1.4 million DVR 160 Cable Databook at 12. 161 Comcast Comments at 31. 162 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 163 Louis Chunovic, The Success Story Wall Street Ignores, BROADCASTING & CABLE, Aug. 30, 2004, at 28. 164 For a description of Entertainment on Demand, see http:// www. cox. com/ digitalcable/ eod/ faq. asp (visited Sept. 10, 2004). 165 Id. 166 For an overview of Time Warner Cable, see http:// www. timewarner. com/ companies/ time_ warner_ cable_ index. adp (visited Sept. 10, 2004). 167 Id. Each of Time Warner’s cable operating divisions is a cluster of cable franchises, see http:// www. timewarner. com/ companies/ clusters. adp (visited Sept. 10, 2004). 168 For an overview of Time Warner’s VOD and SVOD offerings, see http:// www. timewarnercable. com/ corporate/ products/ digitalcable/ moviesondemand. htm and http:// www. timewarnercable. com/ corporate/ products/ digitalcable/ premiumsondemand. html (visited Sept. 10, 2004). 169 For an overview of Cablevision’s VOD and SVOD services, see http:// www. io. tv/ index. jhtml? pageType= on_ demand (visited Sept. 10, 2004). 170 Id. 171 For an overview of Charter’s VOD service, see http:// www. charter. com/ services/ ondemand/ ondemand. aspx (visited Sept. 10, 2004). 28 Federal Communications Commission FCC 05- 13 29 subscribers by the end of 2004. 172 Most cable operators are offering dual tuner DVRs that allow a subscriber to record one or more programs while watching another program. 173 Comcast’s DVR service enables subscribers to record between 30 and 50 hours of programming and most of its DVRs include dual tuners that allow a subscriber to record at least two programs at once while watching a third program. 174 At the end of 2003, Comcast’s DVR service was available to 10 percent of basic subscribers. 175 By June 2004, Comcast’s DVR service was available to 50 percent of its digital cable subscribers, and by year- end Comcast expects DVR service to be available to 100 percent of its digital subscribers. 176 Cox offers DVR service to 35 percent of its basic cable subscribers. 177 Cox has announced that 95 percent of its markets will have access to DVR service by the end of 2004. 178 Cox’s DVR subscribers have dual tuner recording capabilities and an enhanced interactive guide. 179 The dual tuner software, which is automatically downloaded to the subscriber’s set- top box, allows subscribers to record two programs simultaneously while watching a previously recorded program, or watch a live program while recording an additional program. 180 The enhanced DVR navigation service will allow subscribers to set preferences to store first- run episodes of a favorite show; a favorite show on any channel where it appears; or a favorite show only in its prime time slot. 181 Viewers search for programs using an on- screen keyboard and find programs by entering keywords such as actor, director or subject. 182 Comcast DVR service is generally $9.95 per month in addition to the cost of the digital tier of service. 183 Cox’s DVR service is available for $4.95 per month, plus the lease price of a DVR set- top box, which is $9.95 per month. 184 Time Warner offers DVR service in 30 of its 31 divisions and had 458,000 subscribers at the end of March 2004. 185 Charter offers DVR service in a limited number of its service 172 NCTA Comments at 35. 173 Television sets and products with one- way plug- and- play functionality through a CableCARD currently are not able to offer similar dual- tuner DVR functionality unless the device is equipped to receive and the subscriber orders two or more CableCARDs. The Commission will monitor progress in making multistream CableCARDs available to subscribers as quickly as possible. See para. 39 supra, para. 187 infra. 174 Comcast Comments at 33. See Comcast Corp., http:// www. comcast. com (visited Jan. 14, 2005). 175 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 176 Comcast Comments at 33. Comcast’s DVR service is available in Albuquerque, New Mexico; northern Virginia; Montgomery County, Maryland; selected systems in New Jersey; Charleston, South Carolina; and Panama City, Sarasota and Fort Myers/ Naples, Florida. NCTA Comments at 36. 177 Id. at 35. Areas where Cox currently provides DVR service include Gainesville, Florida; Fairfax, Virginia; San Diego, California; Las Vegas, Nevada; and Cleveland, Ohio. Id. 178 Cox Communications Inc., Cox Communications’ Digital Video Recorder Service Soon Available in More Than 95 Percent of Markets (press release), July 27, 2004. 179 Cox Communications Inc., Cox Digital Video Recorder Service Enhancements Bring Customers a Superior Viewing Experience (press release), Sept. 8, 2004. 180 The dual tuner software is available in markets where Cox uses Motorola DVRs. Cox’s current Motorola DVR markets include Kansas; Orange County, California; Middle America Cox (Arkansas, Kansas, Louisiana, and East Texas); Omaha, Nebraska; Roanoke, Virginia; New England; Baton Rouge, Louisiana; Hampton Roads, Virginia; Middle Georgia; New Orleans, Louisiana; and Tulsa, Oklahoma. Id. 181 Id. 182 Id. 183 See Comcast Corp., at http:// www. comcast. com/ Support/ Corp1/ FAQ/ FaqDetail_ 1824. html (visited Jan. 14, 2005). 184 Id. 185 NCTA Comments at 35. 29 Federal Communications Commission FCC 05- 13 30 areas. In late 2003, Charter announced an agreement with Scientific- Atlanta Inc. to purchase digital set-top boxes for the initial rollout of DVR service in the Los Angeles area, the first of Charter’s DVR deployments. 186 In the spring of 2004, Charter announced the commercial launch of a dual- tuner DVR service using a Motorola digital set- top box in the Rochester, Minnesota market. 187 Insight offers DVR service in all its systems, and Cablevision, Mediacom, Bright House, and Adelphia have announced plans for DVR deployment in 2004. 188 43. High- Definition Television (HDTV). Cable operators are deploying HDTV nationwide. Cable companies initiated HDTV service in early 2003, and by the end of that year it was available to approximately 37 million cable subscribers. 189 At the end of June 2004, HDTV service was available in 155 markets, including 99 of the top 100 markets, making it the fastest rollout of any service launched by the cable industry. 190 By late September 2004, HDTV over cable was available to subscribers in 177 markets, including all of the top 100 markets, and 90 million television households were passed by a cable system offering HDTV programming. 191 HDTV is part of the digital video service, requires an HD set- top box, and typically includes a mix of broadcast, basic cable, and premium nonbroadcast networks. 192 Fifteen nonbroadcast networks offer HDTV programming. 193 These include HBO, Showtime, Cinemax, The Movie Channel, Starz!, and iN Demand. In addition to its HD Theater, Discovery plans to produce Atlas HD, a series of 30 two- hour, HDTV documentary specials on countries around the world. 194 HDNet produces sports, news, and entertainment 24 hours a day. MSG Network, Comcast SportsNet, Fox Sports Net NY, and ESPN also produce HDTV programming. In addition to the nonbroadcast networks, cable operators are carrying the digital signals of 454 broadcast stations. 195 Cox has agreements with the Public Broadcasting Service and the Association of Public Television Stations to carry digital signals, including the HDTV programming, of 70 PBS stations. 196 Public broadcasters have similar company- wide agreements with Time Warner and Insight, and market- specific agreements with Comcast, Adelphia, Cablevision, and Bright House. 197 44. Comcast offers HDTV in 54 markets, including all of the top 100 designated market areas (DMAs) served by Comcast, as well as smaller markets like Eugene, Oregon; Salisbury, Maryland; and 186 Charter Communications Inc., Charter Communications Gives Video Control to California Customers (press release), Dec. 19, 2003. 187 Charter Communications Inc., Charter Deploys Motorola’s Broadband Media Center with Moxi Service (press release), Apr. 26, 2004. 188 NCTA Comments at 36. 189 Id. at 31. The high- definition tier of programming requires subscription to the digital service and a high-definition set- top box. To obtain the full visual effect of HDTV, a cable subscriber also needs an HDTV set. 190 Id. 191 NCTA, Consumers in 177 Markets Across the U. S. – Including all of the Top 100 – Can Now Receive HDTV Over Cable (press release), Sept. 27, 2004. 192 NCTA Comments at 31. 193 Id. at 32. 194 Id. 195 NCTA, Cable’s HDTV Deployment at http:// www. ncta. com/ images/ HDTVkit- Deploy- final2. pdf (visited Nov. 4, 2004). Data as of September 15, 2004 include some digital signals that may be DTV and not HDTV. See also NCTA Comments at 32. 196 NCTA Comments at 31. 197 Id. at 32. 30 Federal Communications Commission FCC 05- 13 31 Panama City, Florida. 198 At the end of June 2004, Comcast had approximately 600,000 subscribers to its HDTV service and offered HDTV service to more than 91 percent of its basic cable subscribers, up from 84 percent at the end of 2003. 199 Comcast charges a one- time fee for HDTV service and an additional $5 monthly charge for the HDTV set- top box. 200 Comcast offers as many as 14 program services in HDTV, including the major broadcast networks, PBS, ESPN, iNHD1, iNHD2, HBO, Showtime, Starz!, and Cinemax. 201 Comcast has also entered an agreement with Discovery Communications to offer Discovery HD Theater in selected markets. 202 In addition, Comcast offers Comcast SportsNet in HDTV in some markets and is working with independent programmers, such as New England Sports Network, to create HDTV programming. 203 Most of Time Warner Cable’s 31 divisions offer HDTV. 204 To access Time Warner Cable’s HDTV service, subscribers must subscribe to the digital service and have an HDTV television and an HDTV set- top box. 205 All of Time Warner’s HDTV subscribers receive, at no additional charge, HDTV programming from networks that have standard definition counterparts, including ABC, NBC, CBS, FOX, PBS, WB, UPN, TNT, Discovery HD Theater, HBO, and Showtime. 206 For an additional $6.50 per month, Time Warner offers a second HDTV tier that includes ESPN HD, HDNet, HDNet Movies, iNHD1, and iNHD2. 207 In San Diego, 14 percent of Time Warner’s digital cable subscribers also subscribe to the HDTV service, the highest HDTV penetration of any Time Warner cable division. 208 Cablevision offers 15 HDTV channels to more than 70,000 HDTV subscribers. 209 For iO subscribers with HDTV television sets, Cablevision offers HD set- top boxes at no additional charge over the standard box rental fee. 210 Currently, there is no additional charge for the HDTV programming provided the subscriber subscribes to a programming package that offers the standard definition version of each channel. 211 Cablevision’s HDTV subscribers may view in high- definition CBS, PBS, FOX, NBC, MSG Network, Fox Sports Net New York, Bravo, HBO, Showtime, Cinemax, Starz!, The Movie Channel, iN Demand’s INHD, and the industry’s first HDTV VOD offering, featuring more than 20 new release movies and programs originally seen in IMAX theaters. 212 Charter offers HDTV service in over 33 of its markets. 213 Charter offers the following HDTV channels: ABC, CBS, NBC, FOX, Discovery, 198 Comcast Comments at 28. 199 Id.; Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004; Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 200 See Comcast Corp., at http:// www/ comcast. com/ Buyflow/ default. ashx (visited Jan. 10, 2005). 201 Comcast Comments at 28. 202 Id. 203 Id. at 29. 204 See, Time Warner Cable, at http:// www. timewarnercable. com/ CustomerService/ FAQ/ TWCFaqs. ashx? faqID= 30 &MarketID= 10& CatID= 58 (visited Sept. 17, 2004). 205 Time Warner Inc., Time Warner Cable Launches ESPN HD (press release), Sept. 14, 2004. 206 Id. 207 Id. 208 Time Warner Inc., Time Warner Cable San Diego Offers ESPN in High- definition (press release), Sept. 13, 2004. 209 Cablevision Systems Corp., Cablevision and ESPN Reach Agreement to Add ESPN HD to Cablevision’s Comprehensive High- Definition Programming Slate (press release), June 7, 2004. 210 Id. A professional installation fee applies. 211 Id. 212 Id. 213 See Charter Communications, Inc., http:// www. charter. com/ help/ faqs/ hdtv_ faqs. aspx (visited Sept. 17, 2004). 31 Federal Communications Commission FCC 05- 13 32 ESPN, HDNet, HDNet Movies, HBO HD to HBO subscribers, and Showtime HD to Showtime subscribers. 214 Charter’s HDTV set- top box costs $3 more a month than its standard digital set- top box. 215 45. High- Speed Internet Access Service. In 2004, high- speed Internet access service is projected to generate approximately 15.4 percent of total cable industry revenue. 216 According to one analyst, cable’s high- speed Internet service is currently available to over 98 million homes, and by year- end 2005, it will be available to more than 102 million homes. 217 NCTA maintains that the numbers indicate that the cable industry is close to completing the systems upgrades necessary to offer high- speed Internet service and other advanced services to every home passed by cable. 218 46. Cable provided high- speed Internet access service to 63.2 percent (16.4 million subscribers) of the total 26 million high- speed Internet access residential and small business subscribers, as of year-end 2003. 219 DSL accounted for 34.3 percent. 220 Approximately 2.5 percent of high- speed Internet subscribers use other wireline and wireless technologies. 221 From June 2003 to June 2004, the number of cable modem subscribers grew from 13.7 million to 18.5 million. 222 Over the same period, the number of DSL subscribers increased from 6.4 million to 10.8 million. 223 47. Comcast’s high- speed Internet access service is available to 37.3 million homes, or 96.6 percent of homes passed by Comcast’s systems. 224 At year- end 2003, Comcast had 5.3 million subscribers to its high- speed Internet access service, representing a penetration rate 225 of 15.2 percent. 226 By the end of June 2004, the number of subscribers to Comcast’s high- speed Internet access service had 214 Id. 215 Id. 216 Cable Databook at 4- 5. See Table 4, supra. 217 NCTA Comments at 38. 218 Id. at 39. 219 FCC, High- Speed Services for Internet Access: Status as of June 30, 2004 (WCB, rel. Dec. 22, 2004) (High-Speed Services Report) at Table 3. NCTA estimates that cable operators have 17. 3 million subscribers of high-speed Internet service. NCTA Comments at 30. 220 High- Speed Services Report at Table 3. 221 Id. 222 High- Speed Services Report at Table 3; 2003 Report, 19 FCC Rcd at 1642 ¶ 53. Kagan estimates that the number of cable modem subscribers grew from 13. 8 million in June 2003 to 18. 6 million in June 2004. Kagan World Media, Cable TV Investor: Deals & Finance, Aug. 18, 2004, at 3. See paras. 115, 206 infra. 223 High- Speed Services Report at Table 3; 2003 Report, 19 FCC Rcd at 1642 ¶ 53. Kagan estimates that the number of DSL subscribers grew from 6.5 million in June 2003 to 9.8 million in June 2004. Kagan World Media, Cable TV Investor: Deals & Finance, Aug. 18, 2004, at 3. 224 Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004. 225 Although there is no standard method for reporting penetration rates for advanced services, high- speed Internet service penetration rates are usually calculated by dividing the number of high- speed Internet subscribers by the number homes passed where high- speed Internet service is available. This is the method often used when high-speed Internet services are not yet available to every home passed by a cable system. Cablevision, however, has completed its system upgrade and makes high- speed Internet service available to all homes passed by its cable systems. As such, Cablevision calculates its penetration rate for high- speed Internet service by dividing the number of high- speed Internet service subscribers by the number of homes passed by its cable system. 226 Comcast Corp., Comcast Full Year and Fourth Quarter Results Meet or Exceed All Operating and Financial Targets Setting Stage for Continued Growth in 2004 (press release), Feb. 11, 2004. 32 Federal Communications Commission FCC 05- 13 33 grown to over 6 million, representing a penetration rate of 16.1 percent. 227 Comcast reported that the average monthly revenue per high- speed Internet subscriber was $43.52 in the second quarter of 2004. 228 Cox ended 2003 with nearly 2 million high- speed Internet access subscribers. 229 At the end of June 2004, the number of subscribers to Cox’s high- speed Internet subscribers had grown to 2.2 million, representing a 21.7 percent penetration rate. 230 Time Warner had 3.2 million high- speed Internet subscribers at year-end 2003, representing a penetration rate of 17 percent. 231 The number of Time Warner’s high- speed Internet subscribers had grown to 3.5 million by the end of June 2004, representing a penetration rate of 19 percent. 232 Cablevision reported 1.1 million subscribers for its high- speed Internet and a penetration rate of 24 percent for year- end 2003. 233 By the end of June 2004, Cablevision had 1.2 million high- speed Internet subscribers and the highest penetration rate (26.7 percent) in the cable industry for this service. 234 Charter had nearly 1.6 million high- speed Internet subscribers at the end of 2003, representing a penetration rate of 15 percent. 235 The number of subscribers to Charter’s high- speed Internet service had grown to more than 1.7 million, a penetration rate of 16 percent, at the end of June 2004. 236 48. Cable operators are increasing the speed of their high- speed Internet services, 237 and are beginning to offer high- speed Internet tiers, increased storage capacity, multiple e- mail accounts, and home networking for multiple devices. 238 Comcast offers two high- speed options: 4 Mbps for $52.95 per month and 3 Mbps for $42. 95 per month. 239 Subscribers select their speed then choose between standard service (one connection) and Comcast Home Networking (up to five devices), at no additional monthly service cost. 240 In addition, Comcast offers subscribers up to seven e- mail accounts with storage capacity of 250 MB for each account. 241 In most of its markets, Cox offers three high- speed Internet access tiers: a value package providing 256 Kbps downstream and upstream for $24.95 per month; a preferred package providing 4 Mbps downstream and 512 Kbps upstream for $39.95 per month; and a premier package 227 Comcast Corp., Comcast Reports Second Quarter 2004 Results (press release), July 28, 2004. 228 Id. 229 Cox Communications Inc., Cox Communications Announces Fourth Quarter and Full- Year Financial Results for 2003 (press release), Feb. 12, 2004. 230 Cox Communications Inc., Cox Communications Announces Second Quarter and Year- to- Date Financial Results for 2004 (press release), July 29, 2004. 231 Time Warner Inc., Time Warner Reports Results for 2003 Full Year and Fourth Quarter (press release), Jan. 28, 2004. 232 Time Warner Inc., Time Warner Inc. Reports Second Quarter 2004 Results (press release), July 28, 2004. 233 Cablevision Systems Corp., Cablevision Systems Corporation Reports Fourth Quarter and Full Year 2003 Results (press release), Mar. 2, 2004. 234 Cablevision Systems Corp., Cablevision Systems Corporation Reports Second Quarter 2004 Results (press release), Aug. 9, 2004. 235 Charter Communications Inc., Charter Reports Fourth Quarter and Year 2003 Financial and Operating Results (press release), Feb. 19, 2004. 236 Charter Communications Inc., Charter Reports Second Quarter 2004 Financial and Operating Results (press release), Aug. 9, 2004. 237 See NCTA Comments at 40- 41. 238 See paras. 195, 210 infra. 239 Comcast Corp., Comcast Adds New 4Mbps (‘ 4Meg’) Speed Option to High- Speed Internet Service Offering (press release), July 27, 2004. 240 Id. 241 Id. 33 Federal Communications Commission FCC 05- 13 34 providing 5 Mbps downstream and 768 Kbps for $54. 95 per month. 242 Time Warner’s core Road Runner package provides 3 Mbps downstream and 384 Kbps upstream for $44.95 per month. 243 Time Warner has announced plans to introduce a Road Runner Premium high- speed Internet package providing 6 Mbps downstream and 512 Kbps upstream for between $64.95 and $84.95 per month, depending on the package or bundle of other services the subscriber takes from Time Warner Cable. 244 Cablevision’ Optimum Online high- speed Internet service provides 3.5 Mbps downstream and 1 Mbps upstream for $44.95 per month and can be purchased through the television set using only the remote control and on- screen prompts. 245 In more than 85 percent of Charter’s markets, high- speed Internet subscribers receive 3 Mbps downstream and 256 Kbps upstream for $39.99 per month. 246 49. Most cable operators provide high- speed Internet service with one proprietary ISP specifically created and owned by the cable operator. 247 For example, Cablevision offers high- speed Internet service under the brand Optimum Online, Charter offers the service under the Charter High-Speed brand, and Cox offers the service under the Cox High Speed Internet brand. Some cable operators, however, permit their high- speed Internet service to be used with non- affiliated ISPs. For example, Time Warner Cable offers its subscribers multiple ISPs including its own Road Runner Internet access service, AOL for Broadband, Earthlink, Big Net and other regional ISPs. 248 50. Telephony Offered by Cable Operators. Although some cable companies have been providing traditional circuit- switched telephony for years, the cable industry is now using digital technology, the bandwidth provided by their fiber/ coaxial network, and the Internet to provide voice-over- Internet protocol (VoIP) services. 249 This is a new product that is not yet widely available, but cable 242 Cox Communications Inc., Overnight, Cox Turns up the Speed on High- Speed Internet Service (press release), Aug. 10, 2004. The service is available to nearly two million Cox high- speed Internet subscribers. The service is not yet available in Cox’s Las Vegas, Nevada; Gainesville, Florida; and Middle America markets. Id. 243 Time Warner Cable, Time Warner Cable Rolls Out Even Faster Version of Road Runner as New Option for Gamers and Other Intensive Bandwidth Users (press release), July 26, 2004. 244 Time Warner announced that most of Time Warner Cable’s 31 operating divisions would begin offering the Premium Road Runner high- speed Internet service in August 2004. Id. 245 Cablevision Systems Corp., Cablevision Launches Groundbreaking Sales Channel for Optimum Online (press release), June 17, 2004; and Cablevision Systems Corp., http:// www. cablevision. com/ index. jhtml? pageType= ool_ product (visited Sept. 21, 2004). 246 Charter Communications Inc., Charter Increases Internet Access Download Speed by 50 Percent (press release), Apr. 6, 2004. 247 See 2001 Report, 17 FCC Rcd at 1266- 67 ¶¶ 46- 47 and n. 136; see also Inquiry Concerning High- Speed Access to the Internet Over Cable and Other Facilities, Internet Over Cable Declaratory Ruling, Appropriate Regulatory Treatment for Broadband Access to the Internet Over Cable Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798 (2002) (High- Speed Access Declaratory Ruling and NPRM). In the High- Speed Access Declaratory Ruling and NPRM, the Commission concluded that “cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service.” High- Speed Access Declaratory Ruling and NPRM, 17 FCC Rcd at 4802 ¶ 7. See AT& T v. City of Portland, 216 F. 3d 871 (9th Cir. 2000). See also Brand X Internet Services v. FCC, 345 F. 3d 1120 (9 th Cir. 2003) [No. 02- 70518, Oct. 6, 2003], cert. granted, F. C. C. v. Brand X Internet Services, 125 S. Ct. 655 (mem), 73 USLW 3146, 73 USLW 3331, 73 USLW 334 (U. S. Dec. 3, 2004) (NO. 04- 281). 248 See Time Warner Cable, at http:// www. timewarnercable. com/ corporate/ aboutus/ (visited Sept. 23, 2004). 249 A circuit- switched cable telephony voice call and an IP telephony voice call both begin with special equipment that connects a household's twisted pair infrastructure with the cable infrastructure. Cable circuit- switched telephony, however, eventually turns the call over to traditional "circuit- switched" processing, while IP telephony eventually turns the call over to the Internet for IP processing. IP telephony processes voice telephone calls much (continued....) 34 Federal Communications Commission FCC 05- 13 35 companies and analysts consider VoIP to be a major source of revenue in the years ahead. 250 Although telephone companies are subject to a patchwork of state regulations, the Commission recently decided that a type of VoIP service offered by Vonage Holding Corporation, called DigitalVoice, is not subject to traditional state public utility regulation. 251 The Commission also stated that other types of IP- enabled services, such as those offered by cable companies, that have basic characteristics similar to DigitalVoice would not be subject to traditional state public utility regulation. 252 One of the unsettled issues is whether VoIP service will be a primary service with back- up powering in case of a power outage, or a secondary line service without back- up powering. At the end of 2003, there were 2.8 million subscribers to cable telephone service, with 2.7 million subscribers being served by circuit- switched service. 253 At the end of 2004, Kagan projects there will be 3.5 million subscribers to cable telephone service, with 3.1 million subscribers being served by circuit- switched service and 400, 000 being served by VoIP service. 254 51. In late 2003, Time Warner announced partnerships with MCI and Sprint for the nationwide deployment of Digital Phone, Time Warner Cable’s residential VoIP service. 255 Time Warner’s Digital Phone subscribers can connect to existing telephone jacks in the home, keep their existing telephone numbers, and retain their directory listings. 256 Digital Phone’s standard features include 411 directory assistance, 611 service calls, Enhanced 911 service, operators assisted calls, call waiting, caller ID and voice mail. 257 The service includes unlimited local, in- state and domestic long distance calling starting at $39.95 per month. 258 Time Warner launched Digital Phone in February 2003 in Portland, Maine. Currently, Time Warner offers Digital Phone in 20 markets nationwide and plans to offer the service in all of its markets by the end of 2004. 259 Time Warner’s digital phone service does not include back- up power and will not function during a power outage. 260 Although Cox has more than one million (... continued from previous page) like data are processed on the Internet; that is, digitized pieces of data are divided into discrete packets and are transported over the Internet following any path that does not resist transfer. 250 For example, Dallas Clement of Cox Communications says that cable industry VoIP revenue will exceed $1 billion by 2006 and grow to $8 billion by 2010. Tania Pancayk- Collins, NAMIC Notebook, COMM. DAILY, Sept. 21, 2004, at 6. In addition, Merrill Lynch estimates that the cable industry’s share of all phone lines will grow from 1. 9 percent in 2003 to 12. 6 percent in 2008 with all of the growth coming from VoIP. Louis Chunovic, Dialing for Dollars, BROADCASTING & CABLE, Aug. 30, 2004, at 28. 251 Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, WC Docket No. 03- 211, FCC 04- 267 ¶ 1 (rel. Nov. 12, 2004) (Vonage Order). 252 Vonage Order, FCC 04- 267, at ¶ 46. 253 Kagan World Media, Cable TV Investor: Deals & Finance, July 29, 2004, at 8- 9. 254 Id. 255 Time Warner Cable, Time Warner Cable Partners with MCI and Sprint for Nationwide Rollout of Digital Phone (press release), Dec. 8, 2003. 256 Id. 257 Id. 258 See Time Warner Cable, http:// www. timewarnercable. com/ corporate/ products/ digitalphone/ landingpagephone. html (visited Sept. 24, 2004). 259 Kathryn Balint, Time Warner Joins Phone Fray, SIGNONSANDIEGO. COM, Sept. 23, 2004, at http:// www. signonsandiego. com/ news/ business/ 20040923- 9999- 1b23phone. html (visited Sept. 24, 2004). 260 See Time Warner Cable http:// www. twcnc. com/ dp/ faq. cfm# Can% 20I% 20call% 20911% 20using% 20Digital% 20 Phone% 20Service (visited Oct. 25, 2004). 35 Federal Communications Commission FCC 05- 13 36 residential telephone subscribers in 13 markets, 261 Cox has been using, and plans to continue to use, circuit- switched technology for its service. 262 In late 2003, however, Cox used VoIP technology to provide telephony service in Roanoke, Virginia, and Cox is preparing to launch additional VoIP markets in 2004. 263 Cox provides back- up power so that its digital phone service continues to work during a power outage. 264 Cablevision Optimum Voice service offers unlimited local, regional, and long- distance calling within the United States and Canada for $34.95 a month. 265 The service includes: voicemail, call waiting, caller ID, caller ID blocking, call return, three- way calling, call forwarding, 911 service, and direct- dial international calling. 266 Optimum Voice has 115,000 subscribers and is available to nearly 4.4 million homes. Optimum Voice calls are carried over Cablevision’s own network, not the public Internet, and voice packets are prioritized. 267 Cablevision does not provide back- up power for its VoIP system, so the service will not function during a power outage. 268 Charter offers VoIP service to 31,000 subscribers in Madison and Wausau, Wisconsin, and St. Louis, Missouri. 269 Charter plans to make its telephone service available to one million of its cable subscribers by the end of 2004. 270 Charter recently announced agreements with Level 3 Communications, Sprint Communications, and Accenture which will enable the company to increase VoIP deployment in each of its markets in 2005. 271 Charter’s VoIP service provides local and long- distance service within the United States and Canada and costs $39.95 per month. 272 Charter plans to provide back- up power for its VoIP service. 273 In 2004, Comcast’s VoIP service will be tested in Philadelphia, Pennsylvania; Indianapolis, Indiana; and Springfield, Massachusetts; half its infrastructure will be VoIP- ready by the end of 2004; and 95 percent of its infrastructure will be VoIP- 261 Markets include: Phoenix and Tucson, Arizona; Orange County and San Diego, California; Wichita, Kansas; Omaha, Nebraska; Meriden, Connecticut; Rhode Island (statewide); New Orleans, Louisiana; Oklahoma City, Oklahoma; and Hampton Roads, Roanoke and Northern Virginia, Virginia. Cox Communications Inc., Cox Communications Brings Digital Telephone Service to Northern Virginia (press release), April 30, 2004. 262 Cox Communications Inc., Cox Communications VoIP Whitepaper: Voice Over Internet Protocol: Ready for Prime Time, May 2004, at 3. 263 Id. at 4. 264 See Jeff Baumgartner, Dialing Out, Powering Up, CED, July 2004, at http:// www. cedmagazine. com/ ced/ 2004/ 0 704/ 07f. htm (visited Oct. 25, 2004). 265 Cablevision Systems Corp., Direct- Dial International Calling Now Available With Cablevision’s Optimum Voice (press release), Sept. 13, 2004. 266 Id. 267 Id. 268 David Pogue, When Is An Internet Phone Company Not An Internet Phone Company? When It’s A Cable Company, NEW YORK TIMES, April 8, 2004. See Cablevision Systems Corp., http:// www. optimumvoice. com /index. jhtml? pageType= ny_ times_ 04082004 (visited Oct. 25, 2004). 269 Jerri Stroud, Charter’s Phone Service is on Fast Track, STLTODAY, Sept. 1, 2004, at http:// www. stltoday. com/ stltoday/ business/ stories. nsf/ Business/ story/ D0284558FD9B775386256F020005CC49? OpenDocument& Headline= MORNING+ BRIEFING (visited Sept. 24, 2004). 270 Id. 271 Charter Communications Inc., Charter Taps Three Telephony Partners; Level 3 Sprint and Accenture to Enhance, Expedite Charter Telephone (press release), Aug. 30, 2004. 272 Dan Hinkel, Charter Offers Internet Telephone Capability, GAZETTEXTRA, Sept. 15, 2004, at http:// www. gazetteextra. com/ charter091504. asp (visited Sept. 24, 2004). 273 Alan Breznick, More Major MSOs Unveil VoIP Rollout Plans, CABLE DATACOM NEWS, Mar. 2004, at http:// www. cabledatacomnews. com/ sitesearch/ results. php? q= Charter+ Communications+ Power+ Back+ up (visited Oct. 25, 2004). 36 Federal Communications Commission FCC 05- 13 37 ready by the end of 2005. 274 Comcast plans to offer VoIP service to more than 40 million households by 2006. 275 Comcast’s network has a built- in emergency back- up power that will provide telephone service for up to 10 hours. 276 52. Mid- sized and Smaller Cable Operators. In addition to reporting on the advanced services provided by the largest cable companies, this year we examined six mid- sized and smaller cable operators to identify the advanced services they provide. 277 All provide high- speed Internet service. All provide digital video service but not all offer HDTV, VOD, and DVR service. Some provide telephone service, but not VoIP. Bresnan Communications serves over 300,000 subscribers in Colorado, Montana, Wyoming, and Utah. 278 Bresnan Communications offers a full range of advanced services that include digital video service, VOD, HDTV, DVR, high- speed Internet service, and circuit- switched telephone service. 279 Service Electric Cable TV & Communications serves approximately 290,000 subscribers in Pennsylvania and New Jersey. 280 Service Electric offers digital video service, HDTV, high- speed Internet, and circuit- switched telephone service. 281 Service Electric does not offer VOD and DVR service. Susquehanna Communications serves over 230,000 subscribers in Pennsylvania, New York, Illinois, Indiana, Maine, and Mississippi. 282 Susquehanna Communications offers digital video service, HDTV, and will soon offer VOD and DVR service. 283 Susquehanna Communications also offers high-speed Internet service and will soon offer digital telephone service. 284 Buckeye CableSystem serves approximately 149,000 subscribers in Ohio, Michigan, and New York. 285 Buckeye CableSystem offers digital video service, HDTV, VOD, and high- speed Internet service. 286 Buckeye CableSystem does not offer DVR or telephone service. US Cable Group serves 145,000 subscribers in Minnesota, Wisconsin, South Carolina, Georgia, Florida, Missouri, Texas, New Mexico, Colorado, and New Jersey. 287 US Cable Group offers digital video service, and high- speed Internet service. 288 US Cable Group does not offer HDTV, VOD, DVR, or residential telephone service. Sunflower Broadband operates cable systems in 274 Comcast Corp., Presentation to UBS 32 nd Annual Media Conference, Dec. 9, 2004, at 20. See also Wesley Brown, Internet Phone Service for Every Home Not Far Off, ARKANSAS NEWS BUREAU, June 27, 2004, at http:// www. vonage. com/ corporate/ press_ news. php? PR= 2004_ 06_ 27_ 1 (visited Sept. 24, 2004). 275 Id. 276 See Comcast Corp., http:// www. comcast. com/ Support/ Corp1/ FAQ/ FaqDetail_ 1719. html (visited Oct. 25, 2004). 277 The six mid- sized and smaller cable companies include: Bresnan Communications, Service Electric Cable TV & Communications, Susquehanna Communications, Buckeye CableSystem, US Cable Group, and Sunflower Broadband. See also Availability of Advanced Telecommunications Capability in the United States (Fourth 706 Report), 19 FCC Rcd 20540, 20570 (2004). 278 See Bresnan Communications, at http:// www. bresnan. com/ unst/ about (visited Oct. 28, 2004). 279 See Bresnan Communications, at http:// www. bresnan. com/ unst/ products/ offers (visited Oct. 28, 2004). 280 See Service Electric Cable TV & Communications, at http:// www. sectv. com/ comp. shtml (visited Oct. 27, 2004). 281 See Service Electric Cable TV & Communications, at http:// www. sectv. com/ prod. shtml (visited Oct. 27, 2004). 282 See Susquehanna Communications, at http:// www. suscom. com/ about/ pfaltzgraff. php (visited Oct. 28, 2004). 283 Id. 284 Id. 285 NCTA, Cable Operators, Cable Developments 2004, at 28. 286 See Erie County Cablevision Inc., at http:// www. buckeyecablesystem. com/ erie_ html/ indexpages_ html/ ourc ompany. html (visited Oct. 28, 2004). 287 See US Cable Group, at http:// www. uscablegroup. com/ operating_ companies. htm (visited Oct. 28, 2004). 288 See US Cable Group, at http:// www. uscable. com (visited Oct. 28, 2004). 37 Federal Communications Commission FCC 05- 13 38 Kansas and offers digital video service, HDTV, high- speed Internet service, and circuit- switched telephone service. 289 Sunflower Broadband does not offer VOD and DVR service. B. Direct- to- Home Satellite Services 1. Direct Broadcast Satellite 53. DBS operators provide service to most of the continental U. S., and they generally provide service to Alaska and Hawaii. 290 While companies are not required to charge a direct fee for their service, in the U. S. all the current DBS companies provide a subscription service that is presently limited to video and audio programming although under the Commission’s rules DBS providers are also allowed to provide other “nonconforming” services as well. DBS service is provided via satellite to small parabolic “dish” antennas located at the individual residences of consumers or at business or educational organizations. 291 Currently, four operators hold licenses to provide DBS service: EchoStar (marketed as the DISH Network), DIRECTV, Dominion Video Satellite, Inc. (marketed as Sky Angel), 292 and Cablevision’s Rainbow DBS Company LLC (marketed as VOOM). 293 On December 19, 2003, the Commission approved the joint application of General Motors Corporation, Hughes Electronics Corporation (Hughes) and The News Corporation (News Corp) to transfer control of various Commission licenses and authorizations, including its DBS authorizations held by Hughes, to News Corp. 294 54. Subscribership. As of June 30, 2004, approximately 23.16 million U. S. households subscribed to DBS services. 295 This represents an increase of 13 percent over the 20.4 million DBS 289 See Sunflower Broadband, at http:// www. sunflowerbroadband. com (visited Oct. 28, 2004). 290 Under the geographic service rules, DBS operators must provide service to Alaska and Hawaii unless they can demonstrate that such service is technically infeasible. This requirement does not apply to satellites operating at 61.5º W. L. See 47 C. F. R. § 25. 148( c). See also State of Hawaii, Petition for Administrative Sanctions of the State of Hawaii, MB Docket No. 03- 82 (filed Feb. 6, 2003); MICROCOM, Request for Declaratory Ruling on DBS Service to Hawaii from 101 Degrees W. L., MB Docket No. 03- 82 (filed Mar. 19, 2003). 291 In our rules we define the Direct Broadcast Satellite Service as “A radiocommunication service in which signals transmitted or retransmitted by space stations, using frequencies specified in § 25.202( a)( 7), are intended for direct reception by the general public. For the purposes of this definition, the term direct reception shall encompass both individual reception and community reception.” 47 C. F. R. 25.201. 292 Dominion holds licenses for eight channels at 61. 5° W. L. orbital location. Under a 1996 agreement, Dominion leased capacity on EchoStar’s EchoStar III satellite for its eight licensed channels, six of which it has sub- leased to EchoStar, which uses them for Dish Network programming, and two of which it uses to transmit its Sky Angel services. See Dominion Video Satellite, Inc., 14 FCC Rcd 8182 (1999). 293 Cablevision recently cancelled its planned spin off of its Rainbow Media Enterprises, which includes VOOM and several programming networks. See Peter Grant, Cablevision Won’t Spin Off Voom, WALL STREET JOURNAL, Dec. 22, 2004, at B10. 294 See General Motors Corporation and Hughes Electronics Corporation, Transferors, and The News Corporation Limited, Transferee, For Authority to Transfer Control (News Corp Order), 19 FCC Rcd 473 (2004), recon. pending. News Corp owns the Fox Television Network; 35 broadcast television stations; news, sports and general entertainment cable networks; movie and television studios; print publications; and conditional access system provider NDS. For a complete listing of News Corps holdings, see News Corp., at http:// www. newscorp. com/ index2. html (visited Jan. 14, 2005). In addition, Liberty Media Corporation holds a sizable interest in News Corp. See Geraldine Fabrikant, Liberty Media Accelerates Swap of News Corp. Shares, NEW YORK TIMES, Dec. 21, 2004, at C4. Moreover, News Corp. has announced plans to launch a several new channels in coming years through DIRECTV. See Joe Flint, News Corp. Plans Reality Channel Aided by DirecTV, WALL STREET JOURNAL, July 14, 2004, at B2. 295 SBCA Comments at 5. 38 Federal Communications Commission FCC 05- 13 39 subscribers we reported last year. 296 DBS comprises approximately 25 percent of all MVPD subscribers. 297 Several reasons account for DBS’ continued subscriber growth, including offers of free set- top box equipment, increased availability of local broadcast stations, and an increase in niche programming, such as EchoStar’s Armenian, Urdu, Tagalog, and Portuguese- language channels, and DIRECTV’s CricketTicket sports network, and Hindi, Vietnamese, and Tamil- language channels. 298 One analyst states that changes in the market share of total new subscribers between cable and DBS indicates a change in consumer preference between cable and DBS service, but one primarily confined to consumers in the midst of switching their physical residence. 299 DBS operators continue to rank high in customer satisfaction surveys. In its annual ranking of cable and satellite providers, J. D. Power and Associates found consumers ranked EchoStar first and DIRECTV second among the largest 13 MVPDs. 300 55. DIRECTV retains its position as the leading DBS provider and second largest MVPD with 13.04 million subscribers as of June 2004, an increase of 12.4 percent from the 11.6 million subscribers as of June 2003. 301 EchoStar is the second largest DBS operator and fourth largest MVPD, with 10.12 million subscribers as of June 30, 2004, an increase of 15 percent over the 8.8 million subscribers as of June 2003. 302 Last year we reported the entry of DBS provider VOOM in October 2003, and, as of June 30, 2004, VOOM reported that it had approximately 25,000 subscribers. 303 Sky Angel continues to provide 20 channels of family- oriented programming, but does not publicly disclose its subscriber numbers on an annualized basis. 304 296 See 2003 Report, 19 FCC Rcd at 1650 ¶ 65. 297 See Table B- 1 infra. 298 See, e. g., Peter Grant, Cable Trouble: Subscriber Growth Stalls as Satellite TV Soars, WALL STREET JOURNAL, Aug. 4, 2004; David Lieberman, Cable Companies’ Subscriber Base Sinks, While Satellite Firms Soar, USA TODAY, Aug. 11, 2004, at 3B; Douglas Shapiro and W. Joseph Fersedi, What Changed in the Cable- DBS Dynamic in 2Q?, Banc of America Securities, Aug. 27, 2004. In addition to free equipment and local- into- local service penetration, Shapiro posits that several changes in how DIRECTV conducts its business led to “astounding” gross subscriber additions for the provider. Specifically, DIRECTV moved away from selling its equipment in a retail environment to direct sales, with many retailers selling a certificate and then contacting DIRECTV directly to ship and install the system. Id. at 10. Shapiro also believes that DIRECTV’s use of a new security stream for its programming, which has not yet been hacked, accounted for a “significant number” of DIRECTV’s gross subscriber additions during the second quarter of 2004. Id. at 11. 299 Douglas Shapiro, What Changed in the Cable- DBS Dynamic in 2Q?, Banc of America Securities, Aug. 27, 2004, at 7. This analyst still perceives a high switching cost between the two platforms, but one that disappears when a consumer moves. Id. In addition, one study found that for basic cable services, consumers subscribe to DBS as a substitute for cable when facing large quality- adjusted cable price increases. When faced with small quality-adjusted cable price changes, switching costs deter customers from subscribing to DBS service. See Andrew S. Wise and Kiran Duwadi, Competition Between Cable Television and Direct Broadcast Satellite – Its More Complicated Than You Think, Media Bureau Staff Research Paper, International Bureau Working Paper, MB 2005-1, IB- 3, January 2005. 300 See J. D. Power & Associates, As Satellite TV Penetration Grows, Overall Customer Satisfaction Among Satellite Subscribers Continues to Top Cable (press release), Aug. 18, 2004. 301 DIRECTV Group, Inc., SEC Quarterly Report Form 10- Q Pursuant to Section 13 of 15( d) of the Securities Act of 1934 for the Quarterly Period Ended June 30, 2004, at 37. 302 EchoStar Communications Corp., SEC Quarterly Report Form 10- Q Pursuant to Section 13 of 15( d) of the Securities Act of 1934 for the Quarterly Period Ended June 30, 2004, at 24. 303 Cablevision Systems Corp., SEC Quarterly Report Form 10- Q Pursuant to Section 13 of 15( d) of the Securities Act of 1934 for the Quarterly Period Ended June 30, 2004, at 23. 304 In previous reports we have estimated that Sky Angel serves approximately one million subscribers. See 2002 Report, 17 FCC Rcd at 26930 ¶ 59. 39 Federal Communications Commission FCC 05- 13 40 56. Service and Equipment Pricing. Both DIRECTV and EchoStar instituted price increases since our last report. 305 EchoStar raised its prices on average $2 per month. 306 DIRECTV instituted its fourth price increase in 10 years, with prices for packages increasing between $1 and $3 per month. 307 VOOM has experimented with varying pricing strategies for its service. 308 57. Subscribers to DBS service need a satellite dish and a set- top box. Over the last few years, both major providers have offered heavily discounted or free equipment in exchange for annual service contracts. Recently DIRECTV and EchoStar have moved away from offering free equipment and are instead promoting equipment leasing on a monthly basis. 309 In addition, DBS operators are offering multiple set- top boxes to new customers for free or at reduced cost in their standard promotions. 310 According to DIRECTV, lowering the price of its equipment is a critical factor in its ability to attract new 305 Todd Wallack, Satellite TV Companies Raising Prices Again, SFGATE. COM, Jan. 29, 2004; Michael McCarthy, Satellite, Cable Operators Get Ready to Raise Rates, USA TODAY, Feb. 10, 2004. 306 EchoStar made the following changes to its packages and pricing: changed the name of its America’s Top 100 package to America’s Top 120 package to reflect increased number of channels and raised its price from $33. 99 per month to $34.99 per month; changed the name of its America’s Top 150 to America’s Top 180 to reflect increased number of channels and raised the price from $42.99 to $44. 99; and raised the price of its America’s Everything package from $74.99 to $77. 99 per month. EchoStar changed the name of its America’s Top 50 package to America’s Top 60, but maintained the price at $29.99 per month. See EchoStar Slates Rate Increases on Some Packages, SATELLITE BUSINESS NEWS, Jan. 14, 2004. See also EchoStar Communications Corp., New DISH Network Package Eliminates Equipment Cost, Commitment; Low Price Includes Local Channels, Free Installation (press release), Jan. 8, 2004. EchoStar’s last price increase occurred in January 2003 when it raised its average subscriber’s monthly fees four percent. See EchoStar Communications Corp., DISH Network Increases Basic Rates by $2; Average Customer to Receive Approximate Four Percent Increase (press release), Jan. 9, 2003. 307 DIRECTV raised the price of its Total Choice package with 130 channels from $33.99 to $36.99 per month; Total Choice package with local stations increased from $38.99 to $39. 99; Total Choice Plus package with 150 channels was raised from $37. 99 to $39. 99; Total Choice Plus with local stations increased from $39. 99 to $42.99; Total Choice Premier package with 210 channels increased from $85. 99 to $87.99; and Total Choice Premier with local stations increased from $87. 99 to $90. 99. DIRECTV Slates Price Increases, SATELLITE BUSINESS NEWS, Jan. 23, 2004. 308 See, e. g., Voom Tries New Lease Offer, Lower Purchase Price, SATELLITE BUSINESS NEWS, Feb. 16, 2004; Voom Plans To Keep Current Promotion, SATELLITE BUSINESS NEWS, May 28, 2004. Presently, VOOM has two programming packages. “VOOM Package” includes 21 HD channels available only from VOOM, 50- plus standard definition channels, 18 digital music channels, three non- exclusive HD channels, and a “SportsPack” with five sports- related channels for $49.90 per month. The second package is “Va Va VOOM package, which includes everything offered in the standard VOOM Package plus HBO, Cinemax, Showtime Unlimited, and STARZ!, marketed as “PlusPacks” for $89. 90 per month. Subscribers to the VOOM Package have the option of buying individual “PlusPacks” for $19.90 each per month. See Voom Ups Price and Fees; Rainbow DBS Details Spin- Off Plans, SATELLITE BUSINESS NEWS, Aug. 2, 2004; Rainbow DBS Company LLC, at http:// www. voom. com/ index. jsp (visited Jan. 14, 2005). 309 EchoStar Increases Focus on Lease Program, SATELLITE BUSINESS NEWS, July 12, 2004. For example, EchoStar ran a promotion in 2004 called Digital Home Advantage, which provided subscribers with free equipment and installation for up to four rooms. The customer paid a one- time $49 activation fee, which was credited on the first monthly bill, and a fee of $5 per month per receiver. The second offer, called Free- For- All, required purchase of the set- top box and satellite dish for $199 for a two- room installation, or $149 for a one- room installation, and then receiving 20 or 15 monthly credits of $10 per month, respectively, for the total equipment cost. 310 One analyst finds that the move from offering two receivers free to three or more per subscriber served to surmount cost- of- ownership concerns for consumers deciding between DBS and cable service. Douglas Shapiro, What Changed in the Cable- DBS Dynamic in 2Q?, Banc of America Securities, Aug. 27, 2004, at 9. 40 Federal Communications Commission FCC 05- 13 41 subscribers. 311 DIRECTV and EchoStar continue to offer a wide range of equipment with advanced features, including dual- tuner DVR and HDTV. 312 VOOM offers its equipment for sale and for lease. 313 58. Availability of Local Broadcast Stations. DBS providers continue to increase the number of markets where they deliver local broadcast television stations (local- into- local service). 314 As of December 2004, local- into- local service is offered by at least one DBS operator in 155 of 210 television markets (i. e., designated market areas, or DMAs), which cover 95 percent of all U. S. television households. EchoStar leads DBS providers in offering to subscribers a package of local broadcast stations including commercial and non- commercial stations in 150 DMAs and Puerto Rico. 315 DIRECTV offers local- into- local service in 130 DMAs. 316 DIRECTV received Commission approval to relocate the DIRECTV 5 satellite to a Broadcasting Satellite Service orbital location assigned to Canada at 72.5° W. L. 311 DIRECTV Comments at 9. 312 See e. g., The DIRECTV Group, Inc., DIRECTV Selects TiVo For Next Generation Digital Satellite Receiver with DVR (press release), Feb. 21, 2002. 313 VOOM’s “Base Offer” monthly leasing plan includes one receiver and dish installed for $199 and a lease fee of $9.50 per month, with the option of adding five additional receivers, each $50 installed and $14.50 per month per receiver. For subscribers signing an annual leasing contract, the cost is $49 for one receiver, with an option to lease up to five additional receivers, for $50 each installed and $14.50 per month per receiver. For those buying VOOM equipment, the cost is $499 for one receiver, and for up to five additional receivers, the cost for each is $299 installed and $5. 00 per month. For those buying equipment and committing to an annual contract, the initial receiver cost is $349, and additional receivers are $299 installed and $5.00 per month. In addition, subscribers taking the more expensive of VOOM’s programming packages can receive a $50 discount on the price and installation cost of each additional receiver. VOOM requires that its equipment be installed by a VOOM certified installer and has thus built the cost of installation into its equipment prices. See Rainbow DBS LLC, at http:// www. voom. com/ get_ it/ offers. jsp (visited Jan. 14, 2005). 314 As required by the Satellite Home Viewer Improvement Act of 1999 (SHVIA), the Commission established rules to implement carriage of broadcast signals, retransmission consent, and program exclusivity with respect to satellite carriage of broadcast stations. SHVIA provides DBS carriers with the opportunity to carry local stations in a Designated Market Area (DMA) pursuant to a statutory copyright license similar to the one provided cable operators. If a DBS operator selects this option in a DMA, however, it must carry all the local stations in the DMA, effective January 1, 2002. See Implementation of the Satellite Home Viewer Improvement Act 1999: Broadcast Signal Carriage Issues, Retransmission Consent Issues, 16 FCC Rcd 1918 (2000); Implementation of the Satellite Home Viewer Improvement Act of 1999: Broadcast Signal Carriage Issues, 16 FCC Rcd 16544 (2001); Implementation of the Satellite Home Viewer Improvement Act of 1999: Retransmission Consent Issues: Good Faith Negotiation and Exclusivity, 16 FCC Rcd 15599 (2001). 315 EchoStar Communications Corp., DISH Network Satellite Television Brings Local Channels to Clarksburg-Weston, W. VA (press release), Sept. 23, 2004. Historically, EchoStar required that consumers obtain a second satellite dish to receive all local stations in some markets. Presently, according to EchoStar, 62 of its local- into- local markets require the use of a “SuperDish” to receive all local channels and some additional programming, such as international channels. EchoStar’s SuperDish allows subscribers to receive signals from three orbital locations. See EchoStar Communication Corp., at http:// www. dishnetwork. com/ content/ programming/ locals/ index. shtml (visited Jan. 14, 2005). 316 Letter from Susan Eid, The DIRECTV Group, to Marlene H. Dortch, Secretary, FCC, filed in MB Docket No. 03- 124 (Dec. 22, 2004). As a condition of approval of News Corp. ’s acquisition of DIRECTV, it was required to offer local broadcast television services in an additional 30 DMAs beyond what had previously been funded, projected, or planned. See News Corp. Order, 19 FCC Rcd at 617, 627 ¶¶ 334, 369. See also DIRECTV Group Inc., at http:// www. directv. com/ DTVAPP/ see/ LocalChannels_ markets. dsp (visited Nov. 19, 2004). 41 Federal Communications Commission FCC 05- 13 42 and to provide local- into- local service in 24 markets in the U. S. from that location. 317 VOOM does not presently retransmit local- into- local programming. 318 59. Spectrum Auctions. In 2002, the Commission established the Multichannel Video Distribution and Data Service (MVDDS) in the 12.2- 12.7 GHz band (12 GHz band), which is allocated to DBS on a primary basis. 319 MVDDS consists of 500 MHz of contiguous spectrum that is licensed across 214 service areas. MVDDS spectrum may be used to facilitate the delivery of new video and broadband communications services, such as local television programming and high- speed Internet access. 320 The technical rules reflect a balance in which the Commission affords protection to the DBS service and the non- geostationary satellite orbit (NGSO) fixed- satellite service (FSS) while allowing the entrance of MVDDS. 321 60. In establishing MVDDS, the Commission concluded that another platform operator in the MVPD marketplace would provide significant public interest benefits through lower prices, improved service quality, increased innovation, and increased service to unserved or underserved rural areas. 322 In this connection, the Commission found that “open eligibility for in- region cable operators [would] pose[] a significant likelihood of substantial competitive harm” because “cable operators have a strong incentive to prevent entry by new MVPD providers.” 323 Therefore, cable operators and entities holding attributable interests in cable operators must divest any attributable interest within ninety days of the grant of an MVDDS license whose geographic service area significantly overlaps the cable operator’s service area. 324 61. On January 27, 2004, the Commission completed the auction of the 214 MVDDS licenses (Auction No. 53), raising (in net bids) a total of $118,721,835. In this auction, ten winning bidders won a 317 See Application of DIRECTV Enterprises, LLC, 19 FCC Rcd 15529 (2004). See also DIRECTV Reply Comments at 6. DIRECTV states that customers in these markets will access all local channels from 72. 5° W. L. with the addition of a second 18- inch satellite dish, which DIRECTV states that it will provide and install free of charge to customers who agree to a one- year programming commitment. Id. 318 All of VOOM’s equipment packages include a separate antenna capable of receiving over- the- air local digital broadcast channels. The antenna will not pick up analog local broadcast signals. See Rainbow DBS Company LLC, at http:// www. voom. com/ see_ it/ local. jsp (visited Jan. 14, 2005). 319 Amendment of Parts 2 and 25 of the Commission’s Rules to Permit Operation of NGSO FSS Systems Co-Frequency with GSO and Terrestrial Systems in the Ku- Band Frequency Range, 17 FCC Rcd 9614, 9680 (2002) (MVDDS Second R& O). 320 MVDDS licensees may use the 12. 2– 12.7 GHz band for any digital fixed nonbroadcast service (broadcast services are intended for reception of the general public and not on a subscribership basis) including one- way direct-to- home/ office wireless service. See 47 C. F. R. § 101.1407 (permissible operations for MVDDS). 321 See generally 47 C. F. R. Part 101, subpart P. 322 MVDDS Second R& O, 17 FCC Rcd at 9680 ¶ 165. 323 Id. 324 47 C. F. R. § 101. 1412( a). “Cable operator” means a company that is franchised to provide cable service, as defined in 47 C. F. R. § 76. 1000( e), in all or part of the MVDDS license area, id. § 101. 1412( b). “Significant overlap” occurs when a cable operator’s subscribers in the MVDDS license area make up 35 percent or more of the households in that MVDDS license area which subscribe to one or more Multichannel Video Program Distributors (MVPDs), as defined in 47 C. F. R. § 76. 1000( e). See 47 C. F. R. §§ 101.1412( c) and (e). The winning bidder for the MVDDS license of the New York service area (MVD001), inter alia, requested and received a 270- day extension of the 90- day divestiture deadline, see 47 C. F. R. § 101. 1412( g)( 4), of the Commission’s MVDDS/ cable cross-ownership rule. See DTV Norwich, LLC, Application for Multichannel Video Distribution and Data Service License, MVD001- New York, Request for Waiver of Section 101.1412( g)( 4) of the Commission’s Rules, Order, File No. 0001618606- MVD001, DA 04- 3044 (rel. Sept. 23, 2004) (DTV Norwich Waiver Order). 42 Federal Communications Commission FCC 05- 13 43 total of 192 MVDDS licenses, which the Commission issued later in 2004. 325 MVDDS licenses are issued for a ten- year term beginning on the date the initial authorization is granted. 326 Licensees must provide “substantial service” within five years of the grant, which must be documented at license renewal time. 327 As of the third quarter 2004, MVDDS equipment is still under development. 62. On July 19, 2004, the Commission completed the auction of three licenses to use the DBS service allocation in the 12. 2- 12.7 GHz band and Associated Feeder Links in the 17.3- 17.8 GHz band (Auction No. 52), raising (in net bids) a total of $12.2 million. 328 The licenses are for unassigned channels at orbit locations of 175° W. L. (32 channels), 166° W. L. (32 channels), and 157° W. L. (29 channels). Cablevision’s Rainbow DBS Company LLC paid $3.2 million for the license at the 175° W. L. orbital location and $3.2 million for the license at the 166° W. L. orbital location. 329 EchoStar paid $5.8 million for the license at the 157° W. L. orbital location. 330 63. Expanding Satellite Fleets and Video Capacity. In May 2004, DIRECTV successfully launched DIRECTV 7S, a spot beam satellite designed to deliver local broadcast stations in their local markets. 331 In September 2004, DIRECTV announced it would spend $1 billion to launch four new satellites capable of providing local- into- local service, national high- definition channels, and interactive programming. 332 DIRECTV announced that two (Ka- band) satellites, Spaceway 1 and Spaceway 2, already under construction and originally slated to support Spaceway’s two- way satellite Internet service, are being converted to provide 500 local HD channels as well as broadband Internet service. 333 DIRECTV expects to launch Spaceway 1 and 2 in early 2005, and anticipates that they will become 325 See Wireless Telecommunications Bureau Grants Multichannel Video Distribution and Data Service Licenses, Public Notice, DA 04- 2331 (rel. July 27, 2004) (granting 154 licenses); Wireless Telecommunications Bureau Grants Multichannel Video Distribution and Data Service Licenses to South. Com LLC, DA 04- 2547, Public Notice, (rel. Aug. 18, 2004) (granting 37 licenses); and DTV Norwich Waiver Order (granting license for MVD001). All of the grants are subject to conditions. 326 47 C. F. R. § 101. 1413( a). 327 47 C. F. R. § 101. 1413( b) and (c). The substantial service requirement is defined as a service that is sound, favorable, and substantially above a level of mediocre service which might minimally warrant renewal. At the end of five years into the license period and ten years into the license period, the Commission will consider factors such as: (1) whether the licensee’s operations serve niche markets or focus on serving populations outside of areas serviced by other MVDDS licensees; (2) whether the licensee’s operations serve populations with limited access to telecommunications; and (3) a demonstration of service to a significant portion of the population or land area of the licensed area. 328 See Direct Broadcast Satellite Service Licenses Auction Closes, Public Notice, DA 04- 2158 (rel. July 19, 2004). The Commission recently decided that the eligibility for the fourth license originally slated for Auction No. 52, which authorizes use of the last two available channels at the eastern DBS orbit location – 61. 5º W. L. – should be restricted. See Auction of Direct Broadcast Satellite Licenses, AUC- 03- 52, FCC 04- 271 (rel. Dec. 3, 2004). 329 Id. at Attachment A. 330 Id. 331 DIRECTV Group, Inc., DIRECTV 7S Successfully Delivered on Sea Launch Vehicle (press release), May 5, 2004. According to DIRECTV, the satellite is designed to deliver local programming to an additional 42 markets and to transmit local channels to 19 existing local- into- local markets. Id. 332 Paul Bond, DIRECTV Channels $1 Billion HD Plan, HOLLYWOOD REPORTER, Sept. 9, 2004; Andy Pasztor, DIRECTV Spends on Satellites, WALL STREET JOURNAL, Sept. 9, 2004. 333 DIRECTV Group, Inc., DIRECTV Announces Plan to Launch Next Generation Satellites to Provide Dramatic Expansion of High- definition and Advanced Programming Services (press release) (DIRECTV Release), Sept. 8, 2004. See also Andy Pasztor, DIRECTV to Write Down Value of Internet- Via- Satellite Effort, WALL STREET JOURNAL, Oct. 25, 2004. 43 Federal Communications Commission FCC 05- 13 44 operational by mid- 2005. DIRECTV also plans to launch two more (Ka- band) satellites – DIRECTV 10 and DIRECTV 11 – in 2007, which will have the capacity to carry 1,000 local HD channels, up to 150 national HD channels, and a range of interactive and enhanced programming. 334 Further video capacity enhancements will come from a gradual migration to advanced transmission codecs such as MPEG- 4, higher order modulations such as 8PSK, and the use of new frequency bands. 335 In June 2004, VOOM leased 16 Ku- band transponders aboard SES Americom’s AMC- 6 satellite, which VOOM refers to as "Rainbow 2”. 336 In addition, VOOM has contracted with Lockheed Martin for the construction of five Ka- band satellites to be operated at orbital locations of 62° W. L., 71° W. L., 77° W. L., 119° W. L. and 129° W. L. 337 2. Home Satellite or Large Dish Service 64. The home satellite dish (HSD) or large dish segment of the satellite industry is the original satellite- to- home service offered to consumers, and involves the home reception of analog signals transmitted by satellites operating generally in the C- band frequency. 338 As of June 30, 2004, there were 335,766 households receiving HSD service, a decrease of 33 percent from the 502,191 we reported as of June 2003 last year. 339 Overall, HSD subscribership is decreasing by 12,000 to 20,000 subscribers per month. 340 Nevertheless, several companies continue to sell programming in packages or on an a la carte 334 DIRECTV Release. See also Letter from William Wiltshire, Harris, Wiltshire & Grannis LLP, to Marlene H. Dortch, Secretary, FCC, Attachment (Digital Television Carriage Issues for DBS Operators) at 3, transmitted by letter from William Wiltshire to Marlene Dortch, Secretary, FCC (Oct. 12, 2004). 335 DIRECTV Ex Parte in CS Docket No. 98- 120 (filed Oct. 8, 2004). 336 SES Partners with VOOM, Sky Report, June 10, 2004. VOOM expects to use the additional capacity to increase its channel capacity from a total of 130 channels to over 350 channels; high definition channels are expected to increase from 39 to more than 70, and standard definition channels from 90 to approximately 280. See VOOM Plans Big Expansion, Sky Report, Nov. 23, 2004. VOOM owns and operates a high power Ku- band satellite at 61. 5° W. L. orbital location. 337 VOOM anticipates that in combination these satellites will provide spot beam coverage of the entire Untied States including Alaska and Hawaii, increasing its channel capacity to more than 5, 000 high definition channels. The first of these satellites is expected to be launched in 2008. See Rainbow Media Enterprises, VOOM Satellite Service to Dramatically Increase Channel Capacity (press release), Nov. 22, 2004. 338 Satellites in the C- band frequency are primarily used to transmit programming to cable operators via C- band receiving dishes at the cable operator’s central technical facility or “headend.” To be “authorized” to receive one or more scrambled channels, an HSD owner must purchase an integrated receiver- decoder from an equipment dealer and then pay a monthly or annual subscription fee to a program packager. HSD systems are typically designed to receive programming from several different satellites at several different orbital locations. Most HSDs include motors that permit the receiving dishes to rotate and receive signals from these many satellites. Space considerations and zoning regulations restrict many viewers’ ability to install the large antenna needed for HSD reception. 339 SBCA Comments at 6. 340 Frank Ahrens, Channels A La Carte; Big Dish Customers, A Dying Breed, Choose What They Pay For, WASHINGTON POST, Apr. 15, 2004, at E1; C- Band Deauthorizations Slow Down, SATELLITE BUSINESS NEWS, July 2, 2004; C- Band Deauthorizations Drop Again, SATELLITE BUSINESS NEWS, Aug. 4, 2004. 44 Federal Communications Commission FCC 05- 13 45 basis to home satellite dish owners. 341 In April 2004, EchoStar purchased Superstar/ Netlink Group, LLC, one of the largest distributors of home satellite dish service and equipment. 342 65. A digital home satellite dish solution has been introduced called 4DTV, which enables C-band customers to receive digital only satellite channels in addition to available analog programming. 343 4DTV allows customers to receive four types of programming: (1) free, unscrambled analog channels and so- called “wild feeds;” (2) VideoCipher II Plus subscription services; (3) free DigiCipher II services; and (4) subscription- based DigiCipher II channels. The 4DTV digital receiver retails for approximately $800, but that price is often significantly discounted with the purchase of a programming package. 3. Satellite- Based Advanced Services 66. Broadband Satellite Services. 344 DIRECTV offers high- speed Internet access to consumers via its two- way DIRECWAY service, for $60 per month plus equipment costs. 345 DIRECTV states that this service is not competitive with terrestrial high- speed Internet offerings because it costs almost twice as much as available DSL and cable modem service. 346 EchoStar does not presently offer satellite- based broadband Internet service, and states that a successful rollout of satellite broadband nationwide will require spectrum resources in excess of what is now available to it. 347 EchoStar states that it will likely offer a satellite- based broadband Internet access product, using its current spectrum capacity, targeting selected areas beginning in early 2005. 348 67. DBS providers continued to align themselves with local exchange carriers (LECs) to offer DSL services. 349 Both EchoStar and DIRECTV co- market their video services with these telephone 341 See, e. g., National Programming Service, LLC, at http:// www. callnps. com/ default. htm (visited Jan. 14, 2005); Satellite Programming Service, Inc., at http:// www. satelliteprogramming. com/ new/ cgi- bin/ sps_ home. asp (visited Jan. 14, 2005). 342 GemStar- TV Guide International, Inc., GemStar- TV Guide Completes Previously Announced Sale of Assets to EchoStar (press release), Apr. 6, 2004. Superstar/ Netlink previously maintained a joint venture with EchoStar under which Superstar customers were given the opportunity to switch to EchoStar’s DBS service. See EchoStar Communications Corp., EchoStar Announces Exclusive Marketing Alliance with Superstar/ Netlink Group (press release), Nov. 2, 1999. Under the terms of the agreement, in exchange for an upfront $10 million fee, EchoStar was given the exclusive opportunity to convert approximately 1. 4 million existing and inactive C- band customers to its DBS service. 343 4DTV is Motorola’s proprietary digital television receive- only communications satellite receiver box and uses the Motorola DigiCipher II, or DCII, standard of signal encryption and compression. 4DTV receivers are also capable of receiving analog satellite transmissions. See Motorola, Inc., at http:// www. 4dtv. com/ (visited Jan. 14, 2005). VideoCipher is the conditional access system used by most C- band receivers to decode subscription based and premium satellite TV channels. DigiCipher II, or DCII, is Motorola’s proprietary video distribution system that is used by most digital satellite channels. 344 See Fourth 706 Report, 19 FCC Rcd at 20562. 345 DIRECTV Comments at 23. DIRECTV is reported to be in talks to sell Hughes Network Systems, the parent company of DIRECWAY. See DIRECTV Group, Apollo Near HNS Deal, SATELLITE BUSINESS NEWS FAX UPDATE, Nov. 19, 2004. 346 Id. 347 EchoStar Comments at 16. See also SES Comments at i- ii. 348 EchoStar Comments at 18. EchoStar states that the location, pricing and packaging of this service have not been established. 349 See, e. g., Almar Latour and Peter Grant, Bells Fight Cable With Satellite- TV Deals, WALL STREET JOURNAL, Feb. 8, 2004. One analyst believes that LEC and DBS alliances are not temporary but are likely to be long- term as the LECs’ ability to offer video services over DSL and fiber- to- the- home present technical and regulatory issues. See (continued....) 45 Federal Communications Commission FCC 05- 13 46 providers’ data and voice services, at a discount and usually on a single bill. EchoStar has agreements with SBC, Sprint, and CenturyTel, in addition to Internet service provider Earthlink. 350 DIRECTV has agreements with SBC, Verizon, BellSouth, and Cincinnati Bell. 351 68. Advanced Services. DIRECTV continues to offer satellite receivers with TiVo’s dual tuner DVR functionality. 352 In 2005, DIRECTV expects to introduce a second DVR system made by another News Corp. subsidiary, NDS Group. 353 Of TiVo’s 1.9 million total subscribers, approximately 1.11 million, or 60 percent, are DIRECTV customers. 354 DIRECTV’s DVR receivers range in price from $79 to $999. EchoStar has developed its own DVR system for its satellite receivers. It offers two models with “standard” DVR functionality, meaning VCR- like ability to control programming being viewed. It also offers what it terms “DISH Player DVRs,” which, in addition to supporting typical VCR- like functionality, also support EchoStar’s video- on- demand service. 355 VOOM does not presently offer set-top boxes with built- in DVR functionality but has announced its intention to offer a set- top box capable of recording both high- definition and standard definition channels. 356 (... continued from previous page) Scott Cleland and Patrick Brogan, Bells Need DBS Long- Term; Bells Face Big Regulatory Obstacles to Offer Video Over DSL/ Fiber, Precursor Group, Sept. 13, 2004. 350 EchoStar recently ended its relationship with Qwest, the incumbent local exchange operator serving 14 states in the upper Midwest United States. Qwest had marketing relationships with EchoStar and DIRECTV. QWEST has stated that it will continue to offer bundles that include DBS, data services, and local and long distance phone service. DIRECTV has indicated it will pursue a stronger relationship with Qwest in the near future. See EchoStar Ends Qwest Expansion Plans, SATELLITE BUSINESS NEWS, Sept. 20, 2004. With respect to SBC, in July 2003, as part of a strategic partnership, SBC invested $500 million in EchoStar in exchange for options to purchase 3 percent of EchoStar. SBC has not yet exercised those options. See SkyReport, SBC, EchoStar Devise New Relationship, July 22, 2003; SBC Communications, Inc., SBC Communications, EchoStar Forge Strategic Partnership, Will Offer “SBC DISH Network” Television Service (press release), July 21, 2003. As of the end of June 2004, SBC reported that it had 121,000 DISH Network subscribers, with 100, 000 added in the second quarter. Sky Report, DISH Raises the Roof with Altitude Deal, July 23, 2004. With respect to CenturyTel, the agreement covers CenturyTel’s 22 state telephone and data services territory, and an investment by CenturyTel in EchoStar of $25 million in convertible notes. EchoStar Gets New Phone Partner, SATELLITE BUSINESS NEWS, Aug. 27, 2004. 351 DIRECTV Comments at 23. DIRECTV states that consumers purchasing these bundles are eligible for pricing discounts, the amount of which depends on the amount of telecommunications services purchased. Id. See also DIRECTV Group, Inc., Cincinnati Bell and DIRECTV Form New Marketing Alliance to Offer Consumers a Bundled Suite of Services that Include Calling, Internet and Digital Television Entertainment (press release), Nov. 8, 2004. 352 DIRECTV and TiVo established a business relationship in October 2000, and in February 2002, DIRECTV chose TiVo to integrate its Series 2 DVR platform into DIRECTV’s next generation receivers. See DIRECTV Group, Inc., DIRECTV Selects TiVo For Next Generation Digital Satellite Receiver with DVR (press release), Feb. 21, 2002. The present agreement runs through 2007. 353 Stuart Elliott and Ken Belson, Stop Me If You’ve Seen This One Before, NEW YORK TIMES, Aug. 9, 2004. 354 TiVo Readies for NDS Competition, SATELLITE BUSINESS NEWS, Aug. 27, 2004. TiVo states that in the second quarter of 2004, it added 288,000 new customers, of which 225,000, or 78 percent, were DIRECTV customers. 355 See EchoStar Communications Corp., at http:// www. dishnetwork. com/ content/ products/ receivers/ dvr/ index. Shtml (visited Jan. 14, 2005). The DISH Player- DVR 510 retails for $299; the DISH Player- DVR 921 retails for $999. EchoStar also offers on a lease- only basis the DISH Player- DVR 522. The standard DVR receivers 501/ 508 retails for $299, and the DISH 721 receiver retails for $549. 356 Rainbow DBS Company LLC, at http:// www. voom. com/ see_ it/ future. jsp (visited Jan. 14, 2005). VOOM does not provide an expected date for introduction of this equipment. 46 Federal Communications Commission FCC 05- 13 47 69. DIRECTV continues to offer an HD programming package, which includes ESPN HD, Bravo HD+, Discovery HD Theater, HD Net and HDNet Movies. 357 In July, DIRECTV and NBC Universal Cable announced a long- term, multi- platform carriage agreement, which will allow the distribution of NBC network programming in HD format. 358 EchoStar offers an HD programming package that consists of five HD nonbroadcast channels, including TNT HD, ESPN HD, Discovery HD Theater, HDNet, and HDNet Movies, and offers a distant CBS HD network feed to qualified subscribers. 359 VOOM’s primary sales and marketing focus is HD programming, and VOOM offers a total of 35 HD channels, including 21 HD channels only available to VOOM subscribers as well as nonexclusive channels, such as ESPN HD, Bravo HD+, TNT in HD, Discovery HD Theater, and Fox Sports Net Florida. 360 With respect to VOD, DBS operators do not presently offer real- time on- demand programming because they lack capacity on their satellites to store programming and provide feeds to individual subscribers. DIRECTV and EchoStar use their DVR set- top boxes to stream a limited number of programs to the DVR ahead of official broadcast date to allow playback on demand. In addition, EchoStar reserves a channel for its “Dish Home” service, through which a customer can access a number of interactive channels, such as news, weather, sports, games, and customer care features. EchoStar downloads updated information on a regular basis to the set- top box. 361 C. Broadband Service Providers 70. In our 2001 Report, we addressed a new class of providers called BSPs. 362 We now recognize overbuilders (municipal, independent, and CLEC overbuilders alike) as BSPs because most, if not all, operate state- of- the- art networks capable of providing bundles of services (i. e., voice, advanced video, and data services). 363 As we have noted previously, however, BSPs continue to face considerable 357 DIRECTV Group, Inc, at http:// www. directv. com/ DTVAPP/ imagine/ HDTV_ package. dsp (visited Jan. 14, 2005). The DIRECTV HD Package costs $10.99 per month. A customer requires an HD ready television set, a DIRECTV HD receiver and multi- satellite dish, and, in order to receive local HD broadcasts, an off- air HD antenna. According to DIRECTV’s website, a DIRECTV HD receiver and multi- satellite dish retail for $299.00, but requires a one year commitment to any DIRECTV Total Choice programming package. An HD television is not included in the package. DIRECTV also sells an HD DVR receiver, which retails for approximately $999. 358 David Lieberman, NBC, DIRECTV Reach Deal on Fees, High- Definition Shows, USA TODAY, July 28, 2004; DIRECTV Group, Inc., NBC Universal Cable and DIRECTV Reach Long- Term Multi- Platform Agreement (press release), July 28, 2004. 359 EchoStar Comments at 21. EchoStar customers subscribing to HBO The Works and Showtime Unlimited also receive HBO HD and Showtime HD, respectively, for no additional cost. EchoStar also offers one HD PPV event channel. Id. 360 VOOM’s exclusive HD programming includes HD News (24- hour news channel), six channels of HD Cinema, HD Classic Movies, HD Epic movies, HD Gunslinger (western movies), Divine HD (gay and lesbian programming), HD Monsters (horror movies), Equator HD (world geography), WorldSport HD (world sporting events), Rush HD (extreme action sports), Rave HD (music videos), Ultra HD (fashion, beauty, and style programming), Auction HD (auction news, previews, and live auctions), Gallery HD (art, architecture and theater performance), MOOV HD (original non- narrative video art), and Animania HD (animation). 361 According to EchoStar, the service is provided free to all of its subscribers, although subscribers must have a set-top box embedded with Open TV software to use the feature. See EchoStar Communications Corp., Dish Network Launches New Interactive TV Programs: Buzztime’s Trivia, Fantasy Cup Auto Racing (press release), Apr. 12, 2004. See also at http:// www. dishnetwork. com/ content/ products/ itv/ index. shtml (visited Jan. 14, 2005). 362 We define broadband service providers (BSPs) here as, “newer firms that are building state- of- the- art facilities-based networks to provide video, voice and data services over a single network.” The term BSP is not intended to imply anything with respect to Commission policy or proceedings that might involve broadband services. Usually, the services of a BSP can be purchased separately as well as in a bundle. 2001 Report, 17 FCC Rcd at 1296- 97 ¶ 3. See also 2002 Report, 17 FCC Rcd at 26948- 52 ¶¶ 102- 11. 363 2003 Report, 19 FCC Rcd at 1658- 59 ¶ 78. See also NATOA Comments at attachments. 47 Federal Communications Commission FCC 05- 13 48 challenges, many of which are discussed below. As a result, competition to cable from BSPs is limited to very few markets. 364 71. OVS. In 1996, Congress established the open video system (OVS) framework, one of four statutorily- recognized options for the provision of video programming services by LECs. 365 BSPs are the only significant holders of OVS certifications or local OVS franchises. 366 Among BSPs, however, those operating under the OVS framework are in the minority. BSPA reports that approximately eight percent of the 4.2 million homes passed by its members, or 336,000 homes, are passed by systems operating with an OVS certification. 367 72. BSP Overbuilders. RCN Corporation is the nation’s largest broadband overbuilder supplying voice, video, and high- speed Internet access services to residential subscribers over its own network in the Boston, New York, Chicago, San Francisco, Los Angeles, Washington, D. C, and Philadelphia and Lehigh Valley, Pennsylvania markets. 368 Currently, RCN is the 11th largest MVPD with 436,700 subscribers as of September 2003. 369 RCN filed for Chapter 11 bankruptcy in May 2004 as part of “a consensual balance sheet restructuring.” 370 On December 21, 2004, RCN announced that it had consummated its reorganization plan and emerged from bankruptcy. 371 WideOpenWest (WOW) is the second largest overbuilder. WOW is the 15th largest MVPD and, as of September 2003, served 288,000 subscribers. 372 The third largest BSP is Knoxville, Tennessee- based Knology, which operates mainly in the Southeast. Knology has experienced significant growth since June 2003, primarily through acquisition of Verizon’s overbuild properties in California and Florida, 373 although Knology later sold the Cerritos, California 364 2003 GAO Report at 3- 4. 365 47 U. S. C. § 571( a)( 3)-( 4); 1996 Report, 12 FCC Rcd at 4395- 98 ¶¶ 68- 71. Open video systems are subject to reduced regulation under Title VI. Among other things, an open video system’s carriage rates are entitled to a presumption that they are just and reasonable where one or more unaffiliated video programming providers occupy channel capacity on the system at least equal to that of the open video system operator and its affiliates. We are not aware of any OVS operator carrying programming offered by an unaffiliated program packager. Open video systems are subject to, among others, the Commission’s rules governing must carry, retransmission consent, program access, sports exclusivity, network nonduplication, syndicated exclusivity, and public, educational and governmental (PEG) access channels. Id. When it authorized the OVS framework, Congress abolished the Commission’s video dialtone (VDT) framework under which LECs previously had offered video services. 366 For a complete list of OVS certifications, see Current Filings For Certification of Open Video Systems, at http:// www. fcc. gov/ mb/ ovs/ csovscer. html (visited Jan. 14, 2005). 367 BSPA Comments at 6- 7. BSPA reports that its members represent two- thirds of the BSP industry segment, so this constitutes a lower- bound estimate of homes passed by OVS- certified. Id. at 7. Comparing the list of BSPA members to OVS certifications indicates that an even higher percentage of OVS operators are represented by BSPA. 368 RCN Comments at i and 1. RCN agreed to buy out from Pepco Communications a 50 percent share of its Washington, D. C. system. RCN partnered with Pepco to launch in the Washington, D. C. market. See RCN, RCN Elects To Acquire Remaining 50% Stake Of Washington, D. C. Operations (news release), Oct. 19, 2004. 369 NCTA, Cable Developments 2004. 370 RCN Comments at 4. See RCN Corp., at http:// www. rcntomorrow. com (visited Jan. 14, 2005) for details about the restructuring. On October 13, 2004, RCN filed a letter describing its Plan of Reorganization and informing the Commission that it has filed or is in the process of filing applications with the Commission to obtain those approvals necessary to implement the plan. See Letter from Jean L. Kiddoo and Edward S. Quill, Jr., Counsel for RCN Corporation, to Marlene H. Dortch, Secretary, FCC (Oct. 13, 2004). See also RCN Corporation, RCN Corporation Announces Emergence From Bankruptcy (press release), Dec. 21, 2004. 371 Id. 372 NCTA, Cable Developments 2004. 373 Knology, Inc., Knology Announces Agreement To Purchase Broadband Assets (press release), July 18, 2003. 48 Federal Communications Commission FCC 05- 13 49 system. 374 As of June 2004, Knology was the 20th largest MVPD, and had 174,957 video subscribers, up from 132,163 video subscribers one year earlier. 375 Grande, which operates systems in several cities in Texas, experienced substantial growth over the past year, with video connections increasing from 49,000 to 78,000, and high- speed data increasing from 23,000 to 47,000, between June 2003 and June 2004. 376 73. Last year we reported that many overbuilders were experiencing financial difficulties. These difficulties continued this year, and perhaps intensified with RCN’s bankruptcy. The parent company of Seren Innovations, which operates in Minnesota, is now seeking to sell the BSP. 377 An additional trend in the past year is some consolidation among BSPs. As we reported above and last year, Knology acquired Verizon’s overbuild systems. Additionally, Champion, which was formed when the founder of WideOpenWest left the company and purchased WideOpenWest’s Denver system, 378 acquired Altrio, which serves more than 7,000 subscribers in Pasadena, Arcadia, and Monrovia, California. 379 Consolidation may help BSPs in financial difficulty improve their prospects, although the wide dispersal of BSP systems limits opportunities for clustering that have provided cost savings for incumbent cable operators. 74. Competitive Responses. BSPA and RCN highlight a 2004 General Accounting Office (GAO) study that examined overbuild video systems. 380 The report states that communities with overbuild competition experience lower rates (an average of 23 percent lower for basic cable) and higher quality service. 381 The Commission’s Annual Survey of Cable Industry Prices reported similar findings, although it found smaller price differentials (6.4 percent in 2002) studying a larger sample and looking at the combined rate for the basic and most popular CPST. 382 Comcast notes that several BSPs have emerged, or soon will emerge, from bankruptcy with strengthened balance sheets. 383 75. Barriers to Competition. As in previous years, 384 BSPs continue to report barriers to competition in the MVPD market. BSPA states that discrimination in access to and pricing of video programming and other digital content constitute a threat to BSP entry and competition. 385 Comcast 374 Knology Inc., Knology Reports Second Quarter Results (press release), July 27, 2004. Knology states that it will use proceeds from the sale to fund capital improvements to the Florida system acquired from Verizon. 375 Knology Inc., Knology Reports Second Quarter Results (press release), July 27, 2004. For a full list of communities served, see Knology, Inc., http:// www. knology. com/ services/ cities. cfm (visited Jan. 14, 2005). 376 Grande Communications Holdings, Inc., Grande Communications Holdings, Inc. Announces Results for the Second Quarter Ending June 30, 2004 (press release), Aug. 12, 2004. 377 Xcel Energy, Inc., Xcel Energy To Market Subsidiary Seren Innovations (press release), Sept. 27, 2004. 378 2003 Report, 19 FCC Rcd at 1660- 61 ¶ 81. 379 Champion Broadband, Altrio Communications Sells Assets to Champion Broadband (press release), Apr. 6, 2004. 380 BSPA Comments at 7- 9; RCN Comments at 7- 9. See also SBC Comments at 2. 381 GAO, Telecommunications: Wire- Based Competition Benefited Consumers in Selected Markets, Feb. 2004 (GAO 2004 Report). 382 RCN Comments at 8, citing FCC, FCC Releases Report on 2002 Cable Industry Prices (FCC News Release), July 8, 2003. RCN also cites a report with similar information by the U. S. Public Interest Research Group, The Failure of Cable Deregulation: A Blueprint for Creating a Competitive, Pro- Consumer Cable Television Marketplace, Aug. 2003. 383 Comcast Comments at 17- 18. See also NCTA Reply Comments, an attachment entitled, “Survey of Incumbent Cable Operators in Overbuild Communities,” for a list of communities in which overbuilding has occurred. 384 See, e. g., 2003 Report, 19 FCC Rcd at 1662- 63 ¶ 84. 385 BSPA Comments at 12- 14 and Reply Comments at 7- 12; RCN Comments at 9- 10. Comcast, conversely, holds that competition has expanded to the point that the Commission should review its recent decision to extend the (continued....) 49 Federal Communications Commission FCC 05- 13 50 disputes these allegations, noting that exclusive access to content is common in other industries, and stating that competition would be enhanced by the elimination of regulations that prohibit exclusive carriage agreements between vertically- integrated programmers and cable operators. 386 BSPA also claims that cable operators are engaging in discriminatory pricing strategies, characterized as “targeted” or “predatory” pricing, and recommends that the Commission require cable operators to disclose all rates and promotions offered to any customer in a local franchise area. 387 BSPA also identifies exclusive long-term MDU access contracts as a barrier to entry. BSPA states that such contracts can lock MDU residents into receiving service from an incumbent MVPD provider with a less modern network, and urges the Commission to revisit its 2003 decision concerning perpetual and long term agreements for MDU access. 388 Finally, BSPA notes that difficulties remain for BSPs and other wireline MVPDs gaining access to utility poles at reasonable rates. 389 D. Broadcast Television Service 1. General Performance 76. Broadcast networks and local stations supply video programming directly over the air to consumers. Consumers who do not subscribe to an MVPD service rely solely on over- the- air transmission of local broadcast television signals. Other households receive broadcast television programming over the air on those television receivers that they have chosen not to connect to an MVPD service. In addition, many consumers receive broadcast signals via their cable, DBS, or other MVPD service. 77. As we reported last year, broadcast television stations’ audience shares have continued to fall as cable and DBS penetration, the number of cable channels, and the number of nonbroadcast networks continue to grow. For the 2003- 2004 television season, broadcast television stations accounted for a combined average 48 share of prime time viewing among all television households, compared to a 49 share in the previous season. 390 Similarly, broadcast stations achieved a 44 share of all- day (24- hour) viewing during the 2003- 2004 season, down from a 45 share the previous season. In contrast, nonbroadcast channels’ collective audience share continues to grow. In the 2003- 2004 television season, nonbroadcast channels 391 accounted for a combined average 52 share of prime time viewing among all (... continued from previous page) program access rules for another five years, and either eliminate the prohibition against exclusive contracts between vertically integrated programmers and cable operators, or modify it so that it cannot be invoked by any MVPD with more than 10 million customers. Comcast Comments at 42. 386 Comcast Reply Comments at 17- 20. See also NCTA Reply Comments at 12- 15. 387 BSPA Comments at 14- 18 and Reply Comments at 7. See also RCN Comments at 10. Comcast and NCTA dispute these allegations, and Comcast notes that aggrieved parties are free to seek remedial relief from the Department of Justice. Comcast Reply Comments at 20- 23; NCTA Reply Comments at 10- 12 (specifically responding to NATOA’s allegations of “anticompetitive practices”). 388 BSPA Comments at 19- 20; RCN Comments at 10. 389 BSPA Comments at 20- 22; RCN Comments at 10. 390 Nielsen Media Research, Broadcast Calendar (TV Season) Share of Audience Report, Prime Time and Total Day, Sept., 2004. Nielsen reports audience shares that exceed 100 percent when totaled due to simultaneous multiple set viewing. We have normalized audience shares to equal 100 percent. 391 Includes basic (BST and CPST) networks, as well as premium and PPV networks, distributed by MVPDs. 50 Federal Communications Commission FCC 05- 13 51 television households, up from the 51 share in the previous season. 392 For all day viewing, nonbroadcast channels accounted for a 56 share of all- day viewing, up from a 55 share in the previous season. 78. Since the 2003 Report, the number of commercial and noncommercial television stations increased from 1,726 as of June 30, 2003, to 1,747 as of June 30, 2004. 393 Total television broadcast advertising revenues generally remained steady, increasing from $42.1 billion in 2002, to $42.4 billion in 2003. 394 Advertising revenue for the seven most widely distributed broadcast networks (ABC, CBS, Fox, NBC, PAX, UPN, and WB) was estimated at $22.8 billion in 2003, a 3.6 percent increase over the $22.0 billion earned in 2002. 395 In contrast, cable programming networks experienced a 15.6 percent increase in advertising revenue in 2003, earning $14.0 billion in advertising revenue compared to $12.1 billion in 2002. 396 In the Notice, we asked to what extent broadcasters receive additional revenues such as payments for retransmission consent. 397 79. In the Notice, we asked to what extent cable television and DBS retransmission consent negotiations are providing broadcasters with an additional revenue source, either through direct compensation or through indirect benefits, such as, for example, contracts for the carriage of affiliated programming. If the compensation is not direct, how is it accounted for? 398 In response, Paxson states that for most local broadcasters, advertising revenue remains the primary revenue source and alternative revenues sources are non- existent. 399 Other broadcasters confirm, however, that through the retransmission consent process, broadcasters receive cash or consideration comparable to cash and thus partake of the two revenue streams traditionally associated with the cable television market. Thus, according to a paper filed on behalf of the Walt Disney Company it offers cable systems the right to carry its owned station for approximately $0. 70 to $0. 80 per subscriber per month, but that a retransmission consent transaction may involve a variety of “currencies.” 400 According to this filing: “The outcome of [retransmission consent] bargaining may result in a complex agreement. Cable operators often choose to provide alternative consideration such as carriage of nonbroadcast networks that are affiliated with the broadcaster in lieu of cash payment. Because the details of each negotiation vary from one cable operator to another, and because the specific details of these agreements are generally confidential, a market price for retransmission consent rights is not transparent.” 401 392 We note that individual broadcast networks generally attract higher audience shares than individual nonbroadcast networks. For example, during the 2003- 2004 television season, six of the seven broadcast networks attained average prime time audience shares greater than the average prime time audience share of the highest rated nonbroadcast networks. Nielsen Media Research. 393 Compare Federal Communications Commission, Broadcast Station Totals as of June 30, 2003 (FCC News Release), July 22, 2003, with Federal Communications Commission, Broadcast Station Totals as of June 30, 2004 (FCC News Release), Aug. 20, 2004. 394 Television Bureau of Advertising, 2003 TV Ad Revenue Figures, at http:// www. tvb. org/ rcentral/ adrevenuetrack /revenue/ 2003/ ad_ figures (visited Sept. 17, 2004). 395 Id. 396 Robert J. Coen, U. S. Advertising Volume 2000- 2004, Universal McCann, June 22, 2004. 397 See Notice, 19 FCC Rcd at 10927 ¶ 57. 398 Id. 399 Paxson Comments at 4. 400 Disney Reply Comments, Attachment 1, Exhibit 2, at 5. Disney includes The Walt Disney Company, ESPN (80 percent owned by Disney), Disney ABC Cable Networks Group (including The Disney Channel, ABC Family, Toon Disney and SOAPnet), The ABC Television Network and the ABC- owned television stations. 401 Id. at 3. 51 Federal Communications Commission FCC 05- 13 52 2. Digital Television 80. Digital television (DTV) could enhance the ability of broadcasters to compete in the video marketplace. 402 DTV allows broadcasters to transmit a high- definition television (HDTV) signal, several standard definition television (SDTV) signals (multicasting), or ancillary services in addition to video programming. 403 As of September 2004, all of the 40 stations that make up the top- four network affiliates in the top ten television markets were broadcasting DTV service. 404 In television markets ranked 11- 30, 79 stations were broadcasting DTV service. 405 More than 1,468 stations are on the air with DTV operation. 406 CEA notes, however, that despite the wide availability of DTV signals, some viewers still cannot receive many digital signals, because most stations are using less power than authorized for digital service. 407 81. Analysts estimate that as of July 2004, 15.99 million households, or 14.75 percent of U. S. households, rely exclusively on over- the- air television for video programming. 408 As of year- end 2003, there were between 7.0 and 8.7 million households with DTV monitors, and by year- end 2004, there could be as many as 13 or 14 million. 409 NAB estimates that 88.8 percent of U. S. television households are in markets that have access to at least five over- the- air digital television signals, and 71.1 percent have access to at least eight or more digital television signals. 410 NCTA estimates that as of September 15, 2004, 90 million homes were passed by a cable system that offers programming in HD format, broadcast and/ or nonbroadcast, and cable operators nationwide were carrying more than 454 digital broadcast stations. 411 402 2003 Report, 19 FCC Rcd at 1670 ¶ 96. 403 Id. 404 Summary of DTV Applications Filed and DTV Build Out Status, at http:// www. fcc. gov/ mb/ video/ files/ dtvonairsum. html (visited Jan. 14. 2005). Two stations in New York, WABC and WNBC, are not operating at full power with licensed DTV facilities, but instead are broadcasting with Special Temporary Authority (STAs) after their facilities were destroyed on September 11, 2001. STA File No. BMDSTA- 20040419ACL and BEDSTA-20040614AHC. 405 Summary of DTV Applications Filed and DTV Build Out Status, at http:// www. fcc. gov/ mb/ video/ files/ dtvonairsum. html (visited Jan. 14, 2005). 406 Id. 407 CEA Comments at 6- 7. 408 Nielsen Media Research. In MB Docket No. 04- 210, commenters note that as many as 19 percent, and as few as 13 percent, of U. S. households could be relying solely on over- the- air television for video programming. See NAB/ MSTV Comments in MB Docket No. 04- 210 at Appendix A at 7; CEA Comments in MB Docket No. 04- 210 at 2- 3. 409 Kagan World Media, Digital TV, Media Trends 2004, at 104; Adam S. Parker, Colin McGranahan, Dupree, Jonathan Feldman, Digital TVs- On Your Market, Get Set, Go, Bernstein Research, Feb. 6, 2004, at 21. DTV monitors do not necessarily contain DTV tuners. It is estimated that less than two million households have DTV sets with integrated tuners. The remaining households must purchase a DTV tuner to receive digital television over the air or subscribe to an MVPD that provides digital signal. 410 Telephone Conversation with Brian Savoie, Manager Television Membership, NAB (Nov. 12, 2004). See also NAB Reply Comments at 3; NAB, NAB Legislative Issue Paper, Mar. 2004, at 8. 411 NCTA, Cable's HDTV Deployment at http:// www. ncta. com/ images/ HDTVkit- Deploy- final2. pdf (visited Jan. 14, 2005); see also NCTA Comments at 31. This includes standard- definition and high- definition format programming. 52 Federal Communications Commission FCC 05- 13 53 a. Programming 82. Programmers are also offering an increasing amount of programming in high- definition (HD) format. 412 Analysts estimate that ABC, CBS, NBC, and WB currently offer most of their prime time programming in HD format, while Fox and UPN currently offer about 50 percent of their prime time programming in HD format. 413 Fox will soon begin offering substantial amounts of HD as well. 414 From May 30, 2003, to June 13, 2003, 921 programs were offered in HD format, as tracked daily by Titan TV. com. 415 An estimated 87 percent of those HD programs were originated by nonbroadcast networks; 802 programs were offered by nonbroadcast programmers HDNet, DiscoveryHD, HBO, DIRECTV HD PPV, and Showtime HDTV; 119 programs were offered by broadcast networks CBS, ABC, NBC, PBS, and WB. 416 (i) Multicasting 83. Multicasting is the process by which multiple channels of standard definition television (SDTV) programming are transmitted at the same time over a single frequency. In its comments, Disney states that it offers ABC News Now, a 24/ 7 news channel offered to its local broadcast affiliates for transmission over their digital television signal as a multicast channel. 417 Launched in July 2004, ABC News Now was developed to provide expanded coverage of the Presidential election. 418 ABC News Now is currently still available and Disney has made no final decision to terminate the service. 419 All ten ABC-owned stations carry the service. 420 (ii) Datacasting and Subscription Services 84. DTV also allows broadcasters to use part of their digital bandwidth for subscription multichannel video programming services and datacasting. These services can be provided simultaneously with HD or SD DTV programs in the same transmission, and can provide delivery of virtually any type of data, audio or video, including text, graphics, software, web pages, video- on-demand, and niche programming. 421 412 The Commission has established a website to provide programming and other information on DTV. See What’s on DTV?, at http:// www. dtv. gov (visited Jan. 14, 2005). See also http:// www. checkhd. com/ programming/ (visited Jan. 14, 2005). 413 Richard Bilotti, Benjamin Swinburne, and Megan Lynch, Building for HD: How Cable & Satellite Stay Ahead of the Bells, Morgan Stanley, July 8, 2004, at 4. 414 NAB Reply Comments at 4. 415 Kagan World Media, Digital TV, Media Trends 2004, at 7, 110, 112. See also http:// www. titantv. com (visited Jan. 14, 2005); see also http:// www. checkhd. com/ programming/ (visited Jan. 14, 2005). 416 Kagan World Media, Digital TV, Media Trends 2004, at 7, 110, 112. Some cable and DBS HD channels provide full- time 24- hour HD service. CEA Comments at 6. 417 Disney Reply Comments, Attachment 4, at 5. 418 Id. 419 See ABC News Now, at http:// abcnews. go. com/ Video/ VideoLive and http:// www. real. com/ partners/ abcnews/ (visited Jan. 14, 2005). 420 Disney Reply Comments, Attachment 4, at 5. 421 See NAB, Destination Digital TV, Sept. 2002. 53 Federal Communications Commission FCC 05- 13 54 85. Several companies are using broadcast spectrum for subscription video distribution via DTV streams. 422 U. S. Digital Television, Inc. (USDTV) uses local over- the- air DTV spectrum to offer a digital subscription service of broadcast and nonbroadcast programming for a monthly service fee of $19.95. 423 USDTV is currently available in Salt Lake City, Las Vegas, and Albuquerque, with additional deployments by the end of 2004. 424 As of September 2004, USDTV had more than 10,000 subscribers. 425 Emmis Communications has announced an initiative to develop an over- the- air multichannel video programming service using DTV spectrum and is seeking participation by other broadcasters in this effort. 426 Disney uses digital spectrum to offer its data- cast movie service, MovieBeam, which provides a set- top box installed with 100 movies which are updated with ten new selections weekly via datacast. 427 Disney rents digital spectrum primarily from ABC and PBS affiliated stations to transmit movies weekly. 428 86. iBlast and dotcast are two distribution networks that use the digital broadcast spectrum of local TV stations to distribute digital media content directly to home computers, set- top boxes, DVRs, vehicle entertainment systems, game consoles, PDAs and MP3 players. 429 Such media content includes video, games, music, and software. 430 b. DTV Equipment. 87. The sale of DTV consumer electronics continues to accelerate. During 2003, more than four million DTV sets and displays had been shipped to retail outlets, nearly double the number that had been shipped in 2002. 431 During 2004, an estimated seven million DTV sets and displays will be shipped to retail outlets, and during 2005 it is expected that nearly 11 million DTV sets and displays will be shipped to retail outlets nationwide. 432 Pursuant to the Commission’s tuner mandate, manufacturers now offer more than 100 models of HD- ready television sets with DTV tuners inside (integrated sets). 433 The tuner mandate phase- in plan requires 50 percent of all new DTV sets with screen sizes 36 inches and above to 422 Elisa Batista, Datacasting Refuses to Die, WIRED, Oct. 7, 2004, at http:// www. wired. com/ news/ print/ 0,1294, 6071 6,00. html (visited Jan. 14, 2005); Multicasting, Datacasting Give Local Broadcaster Expanded News Coverage, BROADCAST ENGINEERING, Feb. 4, 2004, at http:// www. broadcastengineering. com/ news/ broadcasting_ multicasting _datacasting_ give/ (visited Jan. 14, 2005). 423 U. S. Digital Television, Inc., USDTV Company Information, at http:// www. usdtv. com/ company_ info. php (visited Jan. 14, 2005). 424 U. S. Digital Television, Inc., USDTV Availability, at http:// www. usdtv. com/ why_ usdtv- reception_ maps. php (visited Jan. 14, 2005). 425 U. S. Digital Television, Inc., USDTV Surpasses 10, 000 Subscriber Milestone (press release), Sept. 22, 2004. 426 Emmis Communications, Television Broadcasters Initiative Unveiled (press release), Apr. 20, 2004, at http:// www. emmis. com/ press/ home. aspx? pn= 2 (visited Jan. 14, 2005). 427 MovieBeam Entertainment, at http:// www. moviebeam. com/ flashindex. jsp (visited Jan. 14, 2005). 428 Id. 429 See iBlast Inc., What is iBlast?, at http:// www. iblast. com/ what. php3 (visited Jan. 14, 2005); see also Dotcast, Inc., at http:// www. dotcast. com/ htdocs/ home. htm (visited Jan. 14, 2005). 430 Id. 431 U. S. Consumer Electronics Sales & Forecasts, CEA Market Research, June 2004, at 3; Washington Insider Series: The HDTV Transition, CEA, Apr. 2004, at 1. Not all DTV sets and displays can display HD format programming. No separate figures are available for HDTV- ready sets. 432 U. S. Consumer Electronics Sales & Forecasts, CEA Market Research, June 2004, at 3. 433 CEA, DTV Product Guide, HDTV Summit, 2004. 54 Federal Communications Commission FCC 05- 13 55 include DTV reception capability by July 1, 2004; 100 percent of DTV sets 13 inches and above must include DTV tuners by July 1, 2007. 434 88. In its comments, Paxson Communications states that the Commission may need to revisit its tuner mandate 435 to enact more exacting specifications for the rule- compliant over- the- air DTV tuners. 436 It indicates that the quality and quantity of over- the- air DTV reception tuners seriously threatens local broadcasters’ ability to compete. 437 It asserts that high quality over- the- air tuners must be available in sufficient numbers and at a low enough price to provide DTV reception that is equivalent to today’s analog reception. 438 Paxson indicates that its transition to DTV is nearly complete, but it cannot attract viewers because few consumers have purchased DTV sets with over- the- air tuners. 439 c. DTV Transition. 89. In our 2003 Report, we noted several rulemaking orders and notices that the Commission adopted during 2003 towards accelerating or promoting the transition to DTV. 440 Among them were an inquiry regarding rules for digital low power television and television translator stations; the Digital Broadcast Copy Protection rules (also known as Broadcast Flag), including a second Notice; and the second Report and Order on the Commercial Availability of Navigation Devices, Compatibility Between Cable Systems and Consumer Electronics Equipment (also known as the Plug and Play Rules), including a second Notice on navigation devices and compatibility issues. 441 These proceedings were a first step toward advancing the DTV transition. This year, we report on the numerous Commission actions and industry efforts aimed at accelerating and improving the DTV transition. 90. Plug and Play. In December 2002, the cable and consumer electronics industries put forth an agreement for a standard for integrated, unidirectional (i. e., one- way) digital cable television receivers and digital cable products. In October 2003, the Commission adopted the Plug and Play Rules. 442 Since our last Report, the cable and consumer electronics industries, along with other interested parties, continue to work on the development of an agreement for two- way “plug and play” receivers that would eliminate the need for a set- top box to receive two- way advanced cable services. 443 434 Review of the Commission’s Rules and Policies Affecting the Conversion To Digital Television, 17 FCC Rcd 15978, 15995- 96 ¶¶ 39- 40 (2002). 435 Id. 436 Paxson Comments at 16- 17; Digital Broadcast Copy Protection, 18 FCC Rcd 23550 (2003) (Broadcast Flag Order); Implementation of Section 304 of the Telecommunications Act of 1996, Commercial Availability of Navigation Devices, Compatibility Between Cable Systems and Consumer Electronics Equipment, 18 FCC Rcd 20885 (2003) (Plug and Play Rules) recon. pending. 437 Paxson Comments at 16- 17. 438 Id. 439 Id. at 8- 14. 440 2003 Report, 19 FCC Rcd at 1671- 2 ¶¶ 98- 102. 441 Id. at 1671- 2 ¶¶ 99- 101. Plug and Play Rules, 18 FCC Rcd 20885; Amendment of Parts 73 and 74 of the Commission’s Rules to Establish Rules for Digital Low Power Television, Television Translator, and Television Booster Stations and to Amend Rules for Digital Class A Television Stations, 18 FCC Rcd 18365 (2003). 442 See Plug and Play Rules, 18 FCC Rcd at 20886- 7 ¶ 2. See also TiVo Reply Comments at 1- 3; Gemstar Reply Comments at 6; and Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 11- 13, 18- 22, 24- 27, 29- 30. 443 See SBCA Comments at 17. See also para. 39 supra, para. 187 infra. 55 Federal Communications Commission FCC 05- 13 56 91. Broadcast Flag. In its August 2004 Broadcast Flag Order, the Commission adopted digital copy protection rules to assure that DTV broadcast content will not be indiscriminately redistributed over the Internet, while protecting consumers' ability to view and record video content in a manner to which they have become accustomed. 444 In a related Order, the Commission approved thirteen digital output protection technologies and recording methods under the evaluative criteria established in the Broadcast Flag Order, subject to certain conditions. 445 The certification Order reiterates that the Commission’s goal is to prevent the indiscriminate redistribution over the Internet of digital broadcast television content, while preserving the use and enjoyment of broadcast content. 446 The certification Order finds that each technology, as approved, is appropriate for use in DTV reception equipment to give effect to the broadcast flag. 447 92. DTV Periodic Review. Also in August 2004, the Commission completed the first part of its Second Periodic Review of its rules and policies affecting the conversion to digital television. 448 The Report and Order implements several steps necessary for continued progress in the conversion to DTV. 449 Among them are channel election procedures; deadlines for replication and maximization; requirements that stations provide PSIP information to facilitate closed captioning, V- chip, channel numbering and other functionality; elimination of the simulcast requirement to permit the transmission of additional innovative programming on broadcast digital channels; clarification of interference protection measures for broadcasters; clarification of digital closed captioning rules; and agreement to consider individual deployments distributed transmission technologies on a case- by- case basis in the interim to a proceeding on the issue. 450 The Commission continues to work on matters related to the expiration of all broadcast licenses for analog television service on December 31, 2006, and the requirement in the Act that the Commission reclaim the spectrum unless certain conditions set forth in Section 309( j)( 14)( B) are met. 451 In order to minimize the disruption to consumers when the switch- over to digital broadcasting occurs, the Media Bureau issued a Public Notice in May 2004, seeking comment on the number of households that rely exclusively on over- the- air broadcasting for their television service, and on potential options for minimizing the impact of the switch- over on these and other consumers. 452 93. Public Interest Obligations. The Commission continues to work on public interest matters related to a 1999 Notice of Inquiry on public interest obligations in the digital era, as well as a 2000 Notice of Proposed Rulemaking on standardized and enhanced disclosure, both of which were addressed in the Second Periodic Notice. 453 444 Broadcast Flag Order, 18 FCC Rcd 23550. 445 Digital Output Protection Technology and Recording Method Certifications, 19 FCC Rcd 15876 (2004). See Broadcast Flag Order, 18 FCC Rcd 23550. 446 Digital Output Protection Technology and Recording Method Certifications, 19 FCC Rcd 15876. 447 Id. 448 Second Periodic Review of the Commission’s Rules and Policies Affecting the Conversion to Digital Television, 19 FCC Rcd 18279 (2004) (Second Periodic Review Report and Order). 449 Id. 450 Id. at 18355- 7 ¶¶ 174- 178. 451 47 U. S. C. § 309( j)( 14). This issue will be addressed in the second part of the Second Periodic Review. See Second Periodic Review Report and Order, 19 FCC Rcd 18285- 6 at ¶ 6. 452 Media Bureau Seeks Comment on Over- The- Air Broadcast Television Viewers, 19 FCC Rcd 9468 (2004). 453 Public Interest Obligations of TV Broadcast Licensees, 14 FCC Rcd 21633 (1999) (Broadcast Public Interest NOI); Standardized and Enhanced Disclosure Requirements for Television Broadcast Licensee Public Interest Obligations, 15 FCC Rcd 19816 (2000) (DTV Public Interest Form NPRM). 56 Federal Communications Commission FCC 05- 13 57 94. Children’s Programming. In September 2004, the Commission resolved a number of issues regarding the obligation of television broadcasters to serve children in their audience. 454 The Report and Order addresses the obligation of television broadcast licensees to provide educational and informational programming and to protect children from excessive and inappropriate commercial messages. Although some of the rules and policies adopted apply to both analog and digital broadcasters, the Report and Order focuses on the application of children’s television obligations to DTV broadcasting. 455 95. Low- Power Television and Television Translators. In September 2004, the Commission established rules to allow for the digital conversion of low power television (LPTV Rules) and television translator systems. 456 The Report and Order adopts definitions and permissible use provisions for DTV translator and LPTV stations to mirror the analog operation of these stations. 457 The Report and Order furthers progress in the nationwide DTV transition, as LPTV and translator stations deliver over- the- air television service to millions of viewers in rural areas and discrete urban communities. 458 96. Ancillary and Supplementary Services. In 2003, the Commission also released a Public Notice relating to the requirement that each commercial and noncommercial educational DTV broadcast station licensee to annually report whether its station provided ancillary or supplementary services at any time during the twelve- month period preceding September 30, 2003, using Form 317 (Annual DTV Ancillary/ Supplementary Services Report for Digital Televisions Stations). 459 Form 317 was created pursuant to the statutory guidelines set forth in Section 336 of the Communications Act, which among other things, requires that the Commission ensure that licenses for advanced television services are consistent with the public interest, convenience and necessity; that the Commission collect fees from providers of ancillary or supplementary services to “recover for the public, a portion of the value of the public spectrum resource made available for commercial use. . .”; and to report to Congress on the implementation of the program required by Section 336( e). 460 d. Educational Efforts 97. In addition to undertaking rulemaking actions to speed the digital transition, the Commission is undertaking a concerted consumer education effort. As of May 2004, only about 37 percent of all adults were somewhat or very familiar with HDTV, while about 87 percent of all adults in TV households were vaguely aware of HDTV. 461 To increase public awareness, on October 4, 2004, the Commission announced a DTV consumer education initiative. 462 The campaign is designed to inform the public about the DTV transition, and provide resources regarding the availability of HD and other digital programming, as well as to provide information on consumer equipment and retail outlets. A new FCC 454 Children’s Programming Obligations of Digital Television Broadcasters, 19 FCC Rcd 22943 (2004). 455 Id. 456 Amendment of Parts 73 and 74 of the Commission’s Rules to Establish Rules for Digital Low Power Television, Television Translator, and Television Booster Stations and to Amend Rules for Digital Class A Television Stations, 19 FCC Rcd 19331 (2004) (LPTV Report and Order). 457 Id. 458 Id. 459 Filing of FCC Annual DTV Ancillary/ Supplementary Services Report, 18 FCC Rcd 23972 (2003). 460 47 U. S. C. § 336 (a), (e). 461 CTAM, HDTV: Consumers Getting the Picture, CTAM Pulse, May/ June 2004, at 2. 462 Chairman Powell Announces Major DTV Consumer Education Initiative (FCC News Release), Oct. 4, 2004; Chairman Powell to Kickoff Consumer Education Initiative on Transition to Digital (press release), Sept. 28, 2004. 57 Federal Communications Commission FCC 05- 13 58 Internet web portal was created to serve as a one- stop source of information on the transition. 463 The announcement of the web portal was followed by a public forum that discussed HD content that is now, or soon will be available to consumers, and how consumers access this content. 464 98. The Commission also announced a joint effort with CEA and Consumer Electronics Retail Coalition (CERC) on the creation and distribution of a DTV Tip Sheet that describes digital television equipment and provides a glossary of common DTV terms. 465 The tip sheet also explains that TV sets with only analog tuners will need a separate converter box in the future to receive over- the- air signals after broadcast stations turn off their analog signals. 99. In addition to its efforts with the Commission, CEA is working by itself and with retailers and cable companies to improve retailer and public knowledge of the transition. In its comments to this Report, CEA urges that more efforts throughout the industry are needed. 466 On its websites, CEA offers a wide range of information for consumers, retailers, and industry participants. 467 CEA also publishes numerous educational brochures and leaflets for consumers and retailers alike. 468 Among the materials CEA offers are several point- of- sale brochures that retailers can customize and distribute to consumers; a two- sided reference sheet for sales persons to use as a pocket guide when conversing with consumers; several direct- to- consumer print guides including: HDTV: A Consumer’s Guide to the Wonderful World of HDTV; a TV Guide insert called TV Guide Advetorial, both of which explain HDTV to consumers; and HDTV Guide, which provides lists of DTV products, programming and cable carriage currently available. 469 CEA also produces educational DVDs jointly with Comcast for use by retail outlets to educate employees, as well as nationally pre- packaged video and radio news releases on the issue of DTV, and an online training program for DTV retailers. CEA also convenes conferences with local retailers, broadcasters and cable executives to discuss the DTV transition. This program has visited more than 25 television markets and four major buying groups. 470 CEA is also an exhibitor at home and trade shows, and conducts a “Media Tour” which visits 75 cities each year. 471 100. CERC and its board member companies, Best Buy, Circuit City, Radio Shack, and Tweeter, conduct joint HDTV promotions with MVPDs and the Discovery Channel to educate consumers about DTV. CERC and its members also distribute materials directly to consumers, including advertising supplements, educational brochures, home theater product catalogs, and web portals. For example, Best Buy has issued information on DTV and HDTV, including a product primer and product descriptions. 472 Best Buy, Tweeter and Circuit City all offer “research guides” on their websites that provide basic 463 Digital Television, http:// www. dtv. gov. 464 Chairman Powell Announces Major DTV Consumer Education Initiative (FCC News Release) Oct. 4, 2004. 465 Id. 466 CEA Comments at 6. 467 Id. See CEA, at http:// www. ce. org/ about_ cea/ cea_ initiatives/ viewInitiativesOverview. asp? title =Transition %20to% 20Digital% 20Television& name= 269 (visited Jan. 14, 2005). 468 CEA Comments at 7. 469 See CEA, at http:// www. ce. org/ about_ cea/ cea_ initiatives/ viewInitiativesOverview. asp? title= Transition% 20to% 20Digital %20Television& name= 269 (visited Jan. 14, 2005). 470 Id. 471 Id. 472 Best Buy, Best Buy Simplifies High- Definition For Consumers (press release), Feb. 5, 2004. 58 Federal Communications Commission FCC 05- 13 59 information on HDTV, DTV, and the different types of video monitors currently available to consumers. 473 101. NCTA offers information on its website regarding cable operator offerings of DTV, and an overview on digital cable that explains the difference between digital cable and HDTV. 474 CTAM, the cable industry marketing association, conducts a consumer awareness study annually to examine consumer awareness and familiarity with HDTV, products and features of DTV sets and HDTV sets, knowledge of HDTV programming, and HDTV programming preferences. 475 NAB operates a website called Digital Zone, dedicated to providing consumers access to information about the broadcast DTV transition. 476 The site includes tips for purchase of a digital set, diagrams explaining the difference between analog and digital television, information on DTV in local markets, and information on legislative and regulatory issues. In addition there is a Frequently Asked Questions section, and a Station Guide. NAB also publishes a newsletter entitled Destination Digital which is available on its website as well. 477 102. SBCA indicates that the DBS industry is promoting HD through the offering of HD receivers and HD TV set packages and by offering special equipment packages to upgrade current customers to HD. 478 SBCA says that it has worked with members of Congress to be able to provide distant DTV signals to consumers in areas not served by DTV. 479 It has also worked with retailers to educate them on HDTV over DBS, and runs an advertising campaign to explain the benefits to consumers of HD. 480 103. Individual companies are also taking steps to educate the public. Comcast says it heavily promotes HDTV through print ads, advertising availabilities on its own cable systems, and through a joint marketing campaign with CTAM, the cable industry’s marketing association. 481 Comcast also has a team traveling throughout the United States, visiting retail stores to work with retailers at the point of sale and place advertisements in the stores. 482 Sony and Cox recently conducted a joint demonstration of HDTV at San Diego’s baseball park, and Sony sponsored the HD broadcast of the Olympics. 483 EchoStar says it 473 Best Buy, HDTV Information Center, at http:// www. bestbuy. com/ site/ olspage. jsp? id= pcmcat8400050000 &type= category (visited Jan. 14, 2005); Tweeter Home Entertainment Group, at http:// www. tweeter. com/ info /index. jsp? categoryId= 1198415& infoPath= 1139222 (visited Jan. 14, 2005); Circuit City Stores, Inc., at http:// www. circuitcity. com/ rpsm/ cat/- 12867/ edOid/ 105585/ rpem/ ccd/ lookLearn. do (visited Jan. 14, 2005). 474 NCTA, http:// www. ncta. com/ Docs/ PageContent. cfm? pageID= 91; http:// www. ncta. com/ Docs/ PageContent. cfm? pageID= 101; http:// www. ncta. com/ Docs/ PageContent. cfm? pageID= 104; http:// www. ncta. com/ images/ HDTVkit-Programming- Final3. pdf (visited Jan. 14, 2005). 475 CTAM, HDTV: Consumers Getting the Picture, at http:// www. ctam. com/ research/ (visited Jan. 14, 2005). 476 NAB, http:// www. digitaltvzone. com/ hdtv_ programs_ on_ air/ index. html (visited Jan. 14, 2005). 477 NAB, http:// www. nab. org/ Newsroom/ Issues/ digitaltv/ DDTV/ ddtv. asp; http:// www. nab. org/ Newsroom/ Issues/ digitaltv/ default. asp (visited Jan. 14, 2005). 478 SBCA Comments at 12. 479 Id. 480 Id. 481 Comcast Corp., at http:// www. comcast. com (visited Jan. 14, 2005). 482 Id. 483 Cox , Sony, and Padres Play Ball, Show Biz Data. com, July 6, 2004. The Padres have installed 250 Sony HDTV sets throughout Petco Park, while Cox has bought dozens of additional Sony sets to give away during Padres games. In addition, under an arrangement between Sony and Cox, San Diego consumers who buy a Sony HDTV set, receive (continued....) 59 Federal Communications Commission FCC 05- 13 60 uses mailers, commercials on its systems, and its website to disseminate information. It also utilizes an information truck at major events, and run seminars and workshops in retail locations to educate sales associates. Sinclair Broadcast Group Inc. has developed a series of public service announcements promoting HDTV on free television. 484 E. Wireless Cable Systems 104. Wireless cable systems use Multipoint Distribution Service (MDS) and Instructional Television Fixed Service (ITFS) frequencies in the 2 GHz band to transmit video programming and provide broadband services to residential subscribers. 485 While these services were originally designed for the delivery of multichannel video programming, over the past several years licensees have focused their operations instead on providing two- way high- speed Internet access services. The number of wireless cable subscribers has declined steadily from a peak of 1.2 million in 1996 to approximately 200,000 as of April 2004. 486 Thus, wireless cable systems provide video competition to incumbent cable operators only on a limited basis. 105. In July 2004, the Commission issued a Report and Order and Further Notice of Proposed Rulemaking (MDS/ ITFS Order) making several significant changes to the rules governing the MDS and ITFS bands, in order to provide greater flexibility and a more efficient band plan. 487 The new band plan for 2495- 2690 MHz eliminates non- contiguous channel use by MDS and ITFS licensees and creates distinct band segments for operations such as video transmission and two- way fixed and mobile broadband applications. The MDS/ ITFS Order also renamed the MDS and ITFS services the Broadband Radio Service (BRS) and Educational Broadband Service (EBS), respectively. In addition, the MDS/ ITFS Order modified the original MDS- ITFS band plan by adding four MHz of spectrum at 2496- 2500 MHz in order to provide room for the relocation of the MDS Channels 1 and 2, currently located in the 2.1 GHz band. The MDS/ ITFS Order also established simpler and more flexible rules for licensees, including geographic area licensing and the ability to deploy the technology of their choice. The MDS/ ITFS Order also lifted all non- statutory eligibility restrictions on BRS licenses, including those applicable to cable operators; however, cable operators are still prohibited from providing multichannel video programming distribution services using BRS licenses. In addition, the rules limiting EBS licenses to qualified educational institutions remain in effect. EBS licensees may continue to lease their spectrum to BRS licensees. Finally, the MDS/ ITFS Order established a three- year plan for transitioning to the new band plan. 106. BRS and EBS licensees continue to focus their operations on delivering wireless broadband services rather than multichannel video service. Of the three largest BRS licensees - Nextel, Sprint, and BellSouth - BellSouth continues to provide video programming in the areas where it holds MMDS/ BRS and ITFS/ EBS licenses. 488 These three BRS licensees also have significant mobile wireless (... continued from previous page) 12 months of free HDTV programming from Cox. Sony, in turn, has purchased ads on Cox's high- definition channel, which carries 104 Padres games. Id. 484 Sinclair Launches HDTV PSA Campaign, BROADCASTING & CABLE TV FAX, Aug. 27, 2004, at 1. 485 This delivery technology also is known as multichannel multipoint distribution service (MMDS). 486 NCTA Comments at 7. 487 Amendment of Parts 1, 21, 73, and 74 of the Commission’s Rules to Facilitate the Provision of Fixed and Mobile Broadband Access, Educational and Other Advanced Services in the 2150- 2162 and 2500- 2690 MHz Bands, 19 FCC Rcd 14165 (2004). 488 BellSouth Comments at 2. BellSouth currently provides cable service in 14 franchise areas in Alabama, Florida and Georgia. Comments of BellSouth Corp. and BellSouth Wireless Cable, Inc. in Amendment of Parts 1, 21, 73, (continued....) 60 Federal Communications Commission FCC 05- 13 61 operations in the cellular, broadband PCS, and Specialized Mobile Radio (SMR) bands. Nextel completed its acquisition of BRS licenses held by WorldCom in April 2004, and, in January 2004, filed applications with the FCC to acquire BRS licenses held by Nucentrix. 489 In April 2004, Nextel began offering wireless broadband service in Raleigh- Durham, North Carolina. 490 While the company is reportedly using broadband PCS spectrum for the Raleigh deployment, Nextel has stated that it may use its BRS licenses to deploy service to additional markets in the future. 491 Finally, in June 2004, a new wireless broadband company, Clearwire, announced plans to provide mobile broadband service in Jacksonville, Florida during 2004 using equipment and spectrum leased from EBS licensees. Clearwire plans to launch the mobile broadband service in additional U. S. markets over the next year. 492 107. While BRS and EBS licensees continue to focus on delivering high- speed Internet access, Sprint is now offering two different video services on its mobile telephones. For about $10 a month, Sprint customers can receive either real- time programming from a variety of networks on “MobiTV” or, specially produced short clips from major networks on the “Sprint TV” service. 493 MobiTV was offering news content, including the first presidential debate, on three different channels, ABC News Now, C-SPAN and C- SPAN2. 494 These mobile telephones do not actually have traditional television receivers in them. The television programs are “streamed” onto the phones via the Internet from servers that first convert the television signals into digital files. 495 Both services display video at six to 15 frames per second. 496 Sprint plans to rollout a much faster mobile telephone technology called EV- DO, which will be as fast as some wired home DSL connections. 497 F. Private Cable Systems 108. Private cable operators (PCOs), also known as satellite master antenna television (SMATV) systems, are video distribution facilities that use closed transmission paths without using any public right- of- way. 498 PCOs acquire video programming and distribute it via terrestrial wiring in urban (... continued from previous page) and 74 of the Commission’s Rules to Facilitate the Provision of Fixed and Mobile Broadband Access, Educational and Other Advanced Services in the 2150- 2162 and 2500- 2690 MHz Bands, 19 FCC Rcd 14165 (2004). 489 Applications to Assign Wireless Licenses from WorldCom, Inc. (Debtor- in- Possession) to Nextel Spectrum Acquisition Corp., 19 FCC Rcd 6232 (2004); Nucentrix Spectrum Resources, Inc. (Debtor- in- Possession) Seeks FCC Consent to the Assignment of Licenses to Nextel Spectrum Acquisition Corp., 19 FCC Rcd 2893 (2004). See also 2003 Report, 19 FCC Rcd at 1664 ¶ 87. 490 Nextel Corp., Nextel Expands Successful Broadband Trial to Include Paying Customers and Larger Coverage Area (press release), Apr. 14, 2004. 491 Wireless, COMM. DAILY, Feb. 9, 2004; Transcript, Event Brief of Nextel Communications Earnings Conference Cal - Final, FD (FAIR DISCLOSURE) WIRE, July 21, 2004 (quoting Barry West, Executive Vice President and Chief Technology Officer, Nextel Communications). 492 Clearwire Corp., Wireless Pioneer Craig McCaw Launches Clearwire; Broadband Wireless Venture to Improve the Availability and Consumer Satisfaction of Residential Phone and Data Services (press release), June 2, 2004. 493 Walter S. Mossberg, Watching TV on Your Cellphone, WALL STREET JOURNAL, Sept. 1, 2004, at D7. 494 Debates Make Way to VOD, Cell Phones, MULTICHANNEL NEWS, Sept. 30, 2004, at 1. 495 Walter S. Mossberg, Watching TV on Your Cellphone, WALL STREET JOURNAL, Sept. 1, 2004, at D7. 496 Video is best viewed at 24- 30 frames per second. Id. 497 Id. 498 1996 Act, sec. 301( a)( 2), 47 U. S. C. § 522( 7). In addition, private cable and SMATV operators: (a) do not pay franchise and Federal Communications Commission subscriber fees; (b) are not obligated to pass every resident in a (continued....) 61 Federal Communications Commission FCC 05- 13 62 and suburban multiple dwelling units (MDUs), such as apartments and condominiums, and commercial multiple tenant units (MTUs), including hotels and office buildings. Traditionally, PCOs received nonbroadcast programming from resellers called aggregators using satellite master antenna systems atop the buildings they serve. PCOs usually combine this nonbroadcast video programming with local broadcast television signals that they receive using master antennas. Thus, the packages PCOs provide their subscribers are comparable to those of cable systems, and they directly compete with franchised cable operators. 109. Some PCOs are now partnering with DIRECTV and EchoStar to offer their customers a hybrid analog and digital video product. 499 Recent reports indicate that MDU builders and owners want more control over the design and operation of their communities, and PCOs provide an approach to MDUs that franchised cable operators cannot or will not provide, including revenue sharing. Franchised cable operators do not generally provide a bundled video, data, and voice service to a specific MDU property because the large cable operators tend to use uniform business models to serve all of their subscribers across the nation, while a PCO can almost always create a service to satisfy MDU demand. 500 110. Currently, there are approximately 135 members in the Independent Multi- Family Communications Council (IMCC), the trade association that represents PCOs and MDUs. 501 This year, the PCO industry has begun rebounding from a recent economic downturn. New capital is available to PCOs, and interest in IMCC has increased. 502 PCOs range in size from large operators serving customers throughout the entire United States, to small operators that serve MDUs in as few as three communities. PCOs currently serve 1.1 million customers, down 100,000 subscribers from last year. 503 111. In January 2003, the Commission issued the Second Report and Order on inside wiring, which made four revisions to its cable inside wiring rules. 504 The Order specified that: (1) wiring located behind sheet rock is “physically inaccessible” for purposes of the home run wiring rules; (2) incumbent providers must allow access to their wiring before the termination of services; (3) incumbent operators must share space in molding with competitors; and (4) the rules apply to all programming providers, including both franchised cable operators and PCOs. As a result of this decision, wiring installed behind sheet rock that runs from the customer’s unit to the demarcation point is “inside wiring”, and is under the customer’s control, instead of “home run wiring” which is under the provider’s control. The customer may use this wiring to receive service from another provider. 505 The rules governing the unit- by- unit disposition of inside wiring can be invoked when the MSO has no legally enforceable right to maintain the wiring dedicated to a particular subscriber’s residence in an MDU. Under this scenario, a competing (... continued from previous page) given area; (c) are not subject to rate regulation; and (d) are not subject to must carry and local government access obligations. 1997 Report, 13 FCC Rcd at 1085 n. 296. 499 Don Kent, USDTV: Are They A Competitive Threat to Private Cable Operators?, BROADBAND PROPERTIES, May 2004, at 6. 500 Rich Muller, Outside the Box: It’s Back! The MDU Biz Returns To Satellite, SKYREPORT, June 23, 2004, at 4. 501 In 2003, we reported that IMCC had 250 members operating throughout the United States. See 2003 Report, 19 FCC Rcd at 1666 ¶ 90. For a list of members, see Independent Multi- Family Communications Council’s website at http:// www. imcc- online. org/ membership (visited Aug. 18, 2004). 502 Telephone conversation with Bill Burhop, Executive Director, IMCC, Oct. 5, 2004. 503 NCTA Comments at 7. 504 Telecommunications Services Inside Wiring, Customer Premises Equipment, Implementation of the Cable Television Consumer Protection and Competition Act of 1992; Cable Home Wiring, 18 FCC Rcd 1342 (2003) (Cable Home Wiring). 505 Id. at 1362 ¶¶ 52, 53. 62 Federal Communications Commission FCC 05- 13 63 video provider may use the existing (home run) wiring to provide service to subscribers who choose a competitor’s service over that of the incumbent MSO. 506 On February 17, 2004, the D. C. Circuit Court of Appeals held that the Commission’s modification of the rules was not supported by substantial evidence and the case was remanded. 507 In response to the court’s decision, the Commission issued a Further Notice of Proposed Rulemaking to examine the issue raised by this remand. 508 112. There have been several recent challenges to the inside wiring rules. In October 2002, a New York District Court ruled that so long as the incumbent MSO retains at least one subscriber in an MDU, the owner may not invoke the FCC’s unit- by- unit inside wiring rule to allow a competing PCO access to home run wiring (CSC Holdings). 509 In August 2003, a Kansas District Court rejected the CSC Holdings decision in Time Warner Entertainment Co., L. P. v. Everest Midwest Licensee, L. L. P. and held that the fact that the incumbent MSO has at least one subscriber in the building does not bar a competing PCO from using home run wiring dedicated to MDU residents who choose the PCO’s service. 510 On August 21, 2003, in CoxCom v. Picerne Real Estate Group, the Rhode Island Superior Court ruled that the fact that the MSO retains subscribers in the MDU does not block the MDU owner from allowing a PCO to use the existing wiring to serve other residents. 511 G. Other Entrants 1. Internet Video 113. Over the past year, video provided over the Internet has grown and promises to become an increasingly strong participant in the market for the delivery of video programming. 512 In addition to video provided over the web, video is now being provided to subscribers’ televisions set using Internet Protocol (known as IPTV). 114. Streaming Video. Most instances of video streamed over the web (sent from the content provider to the subscriber in real- time) however, are still not of broadcast quality. 513 Streaming video is 506 47 C. F. R. § 76.804( a)( b). 507 National Cable & Telecommunications Association v. F. C. C., 89 Fed. Appx. 743, 2004 WL 335201 (D. C. Cir. Feb. 17, 2004) (NO. 03- 1140). 508 See Telecommunications Services Inside Wiring, Customer Premises Equipment, 19 FCC Rcd 1498 (2004). 509 CSC Holdings, Inc. v. Westchester Terrace, 235 F. Supp. 2d 243 (S. D. N. Y. 2002). 510 Time Warner Entertainment Co., L. P. v. Everest Midwest Licensee, L. LC., 381 F. 3d 1039 (10 th Cir. (Kan.), Aug. 27, 2004) No. 03- 3005. 511 CoxCom, Inc. v. Picerne Real Estate Group, 2003 WL 22048781 (R. I. Super. Aug. 21, 2003) (NO. CIV. A. PB 02- 1537). 512 Internet TV on the Way, Powell Says, BROADCASTING AND CABLE, Sept. 20, 2004, at 26; Tom Wolzien, Mark Mackenzie, Disney, AOL Show Broadband Video Progress, Bernstein Research, Mar. 5, 2004. A panel of streaming media companies attending the annual convention of the National Association of Broadcasters insists that streaming media is not currently competing with over- the- air broadcasters. New Technologies, COMM. DAILY, Apr. 23, 2004. Comcast indicates in its comments that the MVPD service delivered by video streaming provides consumers with additional options and, therefore, adds to competition. Comcast Reply Comments at 4- 5. 513 Video viewed on a personal computer, while larger in size and better in quality than a few years ago, is still confined to a relatively small portion of the screen, and still offers a very low quality picture as compared with traditional broadcasting. Lee Gomes, Web TV Is Changing The Way Programming Is Watched and Sold, WALL STREET JOURNAL, May 10, 2004, at B1; see also Net TV: Next Killer Ap?, BROADCASTING AND CABLE TV FAX, Sept. 16, 2004, at 3; Future Gazing: IPTV High on Powell’s Radar, CABLEFAX DAILY, Sept. 16, 2004, at 1; Paul Andrews, Web’s Video Progress is Slow Motion, SEATTLE TIMES, July 26, 2004; John Borland and Jim Hu, A Life-Saving Technology, CNET NEWS. COM, July 26, 2004. 63 Federal Communications Commission FCC 05- 13 64 currently most viable when delivered over broadband networks, but some industry watchers believe that it will only become a fully competitive consumer application if connection speeds significantly increase over those achieved over cable and DSL broadband. 514 Today, some high- quality streaming applications are being transmitted over the Internet2 network, which can achieve very high speeds of transfer. 515 Internet2 was developed by a consortium of universities and technology companies in 1996 to provide higher connection speeds and a backbone of 10 Gbps. 516 By comparison, most of the public Internet today uses 2.5 Gbps links. 517 Many technologists believe Internet2 has the high- bandwidth, low- latency and high- reliability needed for such applications as distance learning and telemedicine where high quality is necessary. 518 The commercial deployment of applications over Internet2 has been slow because limitations remain in the connection between the home and the provider’s central office. 115. Nevertheless, the overall number of homes with access to the Internet continues to grow, as does the number of Americans who access the Internet via a high- speed broadband connection as well as those who access streaming video content via the Internet. As of June 2004, there were approximately 30 million high- speed Internet access subscribers out of a total of about 64 million residential Internet subscription households. 519 In addition, as of January 2004, an average of 12 percent of all Americans watched some form of streaming video in the past month and approximately 23 percent of Americans had accessed streaming IPTV content at least once before. 520 116. RealPlayer continues to offer a variety of streaming video products, including news clips and music videos. 521 RealNetworks has been providing ABCNews content to its subscribers since 2002, and recently signed a deal with ABC. com to provide video clips of ABC television shows to RealNetwork’s SuperPass subscribers. 522 Comcast offers ABC News. com and children’s programming content to its high- speed Internet subscribers for no additional cost. 523 MSN signed a deal with CinemaNow to provide movie information, reviews and trailers to its subscribers. 524 America Online (AOL) and CNN have an agreement that provides AOL subscribers with free access to streaming service, 514 Future Gazing: IPTV High on Powell’s Radar, CABLEFAX DAILY, Sept. 16, 2004, at 1; see May Wong, Internet Video Headed for Homes, ROCKY MOUNTAIN NEWS, Aug. 30, 2004. Some industry participants insist that Internet video will need speeds of 100 Mbps or more to the home before it will impact consumers. John Borland and Jim Hu, A Life- Saving Technology, CNET NEWS. COM, July 26, 2004. In Asia, connection speeds are such that the web can be used for standard, full- screen viewing. In Hong Kong, in particular, web- television providers offer subscribers a service similar to cable and satellite television services. Lee Gomes, Web TV Is Changing The Way Programming Is Watched and Sold, WALL STREET JOURNAL, May 10, 2004, at B1. 515 John Borland and Jim Hu, A Life- Saving Technology, CNET NEWS. COM, July 26, 2004. 516 Marguerite Reardon, Internet2: 2004 and Beyond, CNET NEWS. COM, Aug. 24, 2004. 517 Id. 518 Id. 519 See High- Speed Services Report at Table 3. 520 Arbitron, Inc., Internet and Multimedia 12: The Value of Internet Broadcasting Advertising, Sept. 3, 2003, at 5. 521 Comcast Comments at 14- 16. 522 Jim Hu, ABC. com to Air on RealNetworks’ SuperPass, CNET NEWS. COM, Aug. 12, 2004; RealNetworks, MSN sign VOD Deals, CTAM SMARTBrief, Aug. 13, 2004. 523 Frank Aherns, Comcast Starts Disney Delivery Via Internet, WASHINGTON POST, July 21, 2004, at E1; Reuters, Comcast and Disney in High- Speed Internet Adventure, NEW YORK TIMES, July 21, 2004; Peter Grant, Comcast, Disney Team Up on Internet Deal, WALL STREET JOURNAL, July 21, 2004, at B1. 524 RealNetworks, MSN sign VOD Deals, CTAM SMARTBRIEF, Aug. 13, 2004. 64 Federal Communications Commission FCC 05- 13 65 CNN NewsPass, which provides access to dozens of video clips and reports. 525 AOL also made a deal with Warner Brothers TV to have the WB’s new fall series Jack and Bobby premiere on the Internet to AOL’s broadband subscribers. 526 In the summer of 2004, NBC offered archived video of the 2004 Olympics, where users were able to sort through hours of footage by sport and view highlights from the games, as a complement to their broadcast of the games. 527 Two major broadcast networks, CBS and ABC, provided full coverage of both the Democratic and Republican political conventions over the Internet. 528 CBS provided feeds of 37 NCAA basketball tournament games to be included in AOL’s basic Internet service, and as a stand- alone subscription. 529 Similarly, SportsLine. com offered live webcasts of early- round NCAA basketball tournament games for a $9.95 subscription fee; the service allowed subscribers to watch multiple games simultaneously, though viewers are prevented from having access to games broadcast on their local CBS affiliate. 530 As we have reported in the past, Major League Baseball makes its video content available on the Internet. 531 117. AOL announced its intent to provide closed captioning for select streaming media content. 532 SnapStream Media offers a product called Beyond TV 3 which provides software and hardware for a personal computer that allows for its use as a DVR. 533 America Online updated its instant messaging software in 2004 to include video conferencing on its IM client; in an agreement with Apple Computer, AOL and iChat users will be able to video conference interoperably. 534 118. Downloadable Video. Because most Internet connections do not yet reliably support data speeds needed to view broadcast- quality video as it is streamed, technologists expect that most near term use of the web to provide video will be for downloadable video. 535 As we reported last year, Movielink 525 Tom Wolzien and Mark Mackenzie, Disney, AOL Show Broadband Video Progress, Bernstein Research, Mar. 5, 2004. 526 Tom Wolzien and Mark Mackenzie, Internet Bypass Alternative to Cable’s Content- Delivery Bundle, Bernstein Research, Apr. 23, 2004. 527 Kendra Mayfield, Olympics: Coming to a PC Near You, WIRED NEWS, July 12, 2004. 528 Tom Wolzien, Michael Nathanson, Craig Moffett, Mark Mackenzie, Drew Borst, and Amelia Wong, Weekend Media Blast #29: Networks Play Shrewd Politics With Internet Bypass, Bernstein Research, July 16, 2004. 529 Tom Wolzien and Mark Mackenzie, Internet Bypass Alternative to Cable’s Content- Delivery Bundle, Bernstein Research, Apr. 23, 2004. 530 Carl Bialik, SportsLine to Offer Webcasts In ‘March Madness’ Package, WALL STREET JOURNAL, Mar. 16, 2004, at D4. 531 See 2003 Report, 19 FCC Rcd at 1675 ¶106; Comcast Comments at 14- 16; Lee Gomes, Web TV Is Changing The Way Programming Is Watched and Sold, WALL STREET JOURNAL, May 10, 2004 at B1; Jim Hu, Microsoft, America Online to Play MLB Games, CNET NEWS. COM, Mar. 22, 2004; Tom Wolzien and Mark Mackenzie, Internet Bypass Alternative to Cable’s Content- Delivery Bundle, Bernstein Research, Apr. 23, 2004. 532 New Technologies, COMM. DAILY, Oct. 10, 2003, at 9. 533 Walter S. Mossberg, Cheaper Than TiVo: Souping Up Your Computer, WALL STREET JOURNAL, Apr. 14, 2004. Picture quality is not considered to be comparable to broadcast quality video. 534 Jim Hu, AOL Links With Apple on Video IM, CNET NEWS. COM, Feb. 5, 2004. Microsoft also announced a deal that will allow users of its corporate instant- messaging software to communicate with services from competitors AOL Instant Messenger and Yahoo Messenger. Daniel Nasaw, Microsoft to Link Message System With Yahoo, AOL, WALL STREET JOURNAL, July 15, 2004, at B5. 535 See John Markoff, New Service by TiVo Will Build Bridges From Internet to TV, NEW YORK TIMES, June 9, 2004. 65 Federal Communications Commission FCC 05- 13 66 allows users to download movies to computer hard drives and store it for as long as 30 days, for a fee. 536 In late 2003, SBC joined Movielink to create a co- branded website of video downloads for subscribers to SBC Yahoo DSL. 537 America Online teamed up with Movielink in January 2004 for a promotion that offered its members full- feature film downloads through Movielink for 99 cents each. 538 In May 2004, Charter made an agreement with Movielink that offers movies to Charter’s broadband subscribers. 539 Real Networks and Starz Encore Group launched an Internet movie subscription service called Starz! Ticket on Real Movies, which gives monthly subscribers access to about 100 movies available for download onto their computer hard drives. 540 Similarly, Disney’s ESPN offers a service available for free through ESPN. com called ESPNMotion, which automatically downloads video using Microsoft’s Media Player, including commercials, into the user’s computer, and then advises the user when the video is ready. 541 In addition, portable devices have become available that download content stored on the personal computer and in some cases record programs directly from a television or VCR. 542 Among those offering the devices are Samsung, Creative Labs, RCA, Archos and Microsoft. 119. Internet Protocol Television (IPTV). In addition to streaming and downloadable video provided over the web, video also is becoming available for download through a high- speed Internet connection directly to a set- top box to be viewed over the television, similar to MVPD video- on- demand services. 543 Some industry analysts call this technology “Internet Bypass” or “client- based server players.” 544 In July 2004, TiVo introduced a new set of Internet- based services that allows users to 536 Antitrust Probe Clears Studios’ Online Venture, LOS ANGELES TIMES, June 4, 2004; see also 2003 Report, 19 FCC Rcd at 1674 ¶ 106. Since our last Report, CinemaNow, a similar service to Movielink, joined the online rental market. Rob Pegoraro, You Can Rent Movies Online, But Should You?, WASHINGTON POST, Apr. 4, 2004, at F7. 537 Stefanie Olsen, SBC Calls Action for Movielink Rentals, CNET NEWS. COM, Nov. 24, 2003. 538 Comcast Comments at 14- 16. 539 Media & Marketing, Movielink Sets Deal With Charter, WALL STREET JOURNAL, May 24, 2004. 540 Allison Linn, Online Movie Service To Debut, WASHINGTON POST, June 14, 2004, at A8; Comcast Comments at 14- 16. In past Reports, we noted that to view video over the Internet, the video must be played using a media player. New Java technology now gives browsers the ability to play videos directly on a web page and run from regular servers, obviating the need for a separate media player. Stefanie Olsen and Mike Yamamoto, Microsoft Just One Factor in Net Pioneer’s Chaotic History, CNET NEWS. COM, Mar. 4, 2004. See 2003 Report, 19 FCC Rcd 1674-5 ¶¶ 106- 107; see also 1998 Report, 13 FCC Rcd 24349- 50 ¶ 104. 541 Tom Wolzien, Mark Mackenzie, Disney, AOL Show Broadband Video Progress, Bernstein Research, Mar. 5, 2004. Full- screen video is deemed VCR- quality. Id. 542 Michael Marriott, Is Portable Video Ready For Its Close- Up?, NEW YORK TIMES, Sept. 2, 2004; David Colker and Jon Healey, Portable Video Player Sales in Slow Motion, LOS ANGELES TIMES, Sept. 2, 2004; Andy Sullivan, PluggedIn: ‘Video iPods’ Bring Seinfeld on Subway, YAHOO! NEWS, Aug. 3, 2004; John Gartner, Movie, TV Fans Ogle Video To Go, WIRED NEWS, July 13, 2004; Richard Shim, Will Consumers Tune into Portable Video?, CNET NEWS. COM, July 20, 2004. Computers with TV tuner cards or home networks connecting their computer with other home entertainment devices can record TV programs off the air and then download the programs to the portable device. 543 Comcast Reply Comments at 6. Mike Landberg, Forget A La Carte Cable Idea; The Future Is In Internet TV, SAN JOSE MERCURY NEWS, July 23, 2004; Future Gazing: IPTV High on Powell’s Radar, CABLEFAX DAILY, Sept. 16, 2004, at 1; Lorenza Munoz, Netflix and TiVo Shares Climb, LOS ANGELES TIMES, Sept. 8, 2004. 544 Tom Wolzien, Media: Shift to Client- Server- Based Internet Bypass Player Could Offset PVR Losses, Bernstein Research, May 25, 2004. A client- server player is a system for the streaming, downloading, recording and playback of content which may be stored locally on the devices but allows some central control by the provider, such as content updates or software updates. Video content can be downloaded or streamed to the subscriber through a high- speed connection to the Internet. Some industry analysts also call this system of client- server players, “Internet Bypass” or “IB Video.” Id. 66 Federal Communications Commission FCC 05- 13 67 download movies to the hard drives of their TiVo video recorders. 545 TiVo and Netflix currently are near an agreement that would allow consumers to download movies from Netflix. 546 SBC and EchoStar are jointly developing their own set- top box with DVR capabilities that will allow users with broadband Internet connections to download movies for a fee. 547 Akimbo also plans to offer a DVR- like box that plugs into a television set and downloads video programming through a high- speed Internet connection. 548 Microsoft also is involved in the development of Internet video and other Internet- enhanced MVPD services. 549 In September 2004, it unveiled the MSN TV Internet receiver for accessing Internet content via the television, including content from sites like Movielink. 550 In addition to enabling consumers to download content from the Internet, several firms, including TiVo, plan to introduce technology that will allow subscribers to send recorded television shows over the Internet to as many as nine playback devices, provided all of the devices share the same TiVo customer account. 551 2. Home Video Sales and Rentals 120. The sale and rental of home video, including videocassettes and DVDs, are considered part of the video marketplace because they provide services similar to the premium and pay- per- view offerings of MVPDs. 552 As such, they offer some level of competition to broadcast television, cable television and DBS for the consumer’s time and money. Likewise, video- on- demand services provided by cable, DBS, and Internet providers also have emerged as competitive services to home video. 553 121. VCR penetration is estimated at 91 percent of TV households in 2004. 554 DVDs also have made a significant impact on the home video market. As of July 2004, nearly 100 million DVD 545 Comcast Comments at 14- 16. Mike Landberg, Forget A La Carte Cable Idea; The Future Is In Internet TV, SAN JOSE MERCURY NEWS, July 23, 2004. 546 Future Gazing: IPTV High on Powell’s Radar, CABLEFAX DAILY, Sept. 16, 2004, at 1; Lorenza Munoz, Netflix and TiVo Shares Climb, LOS ANGELES TIMES, Sept. 8, 2004; John Markoff, New Service by TiVo Will Build Bridges From Internet to TV, NEW YORK TIMES, June 9, 2004. Tom Wolzien and Mark Mackenzie, Internet Bypass Alternative to Cable’s Content- Delivery Bundle, Bernstein Research, Apr. 23, 2004. See paras. 122- 123 infra. 547 Almar Latour, Andy Pasztor, and Peter Grant, SBC, EchoStar Plot Online Movie Venture, WALL STREET JOURNAL Aug. 19, 2004, at B1; In Cahoots, CableFAX Daily, Aug. 20, 2004, at 2. SBC and EchoStar have not yet decided which movie- download service to partner with. Id. 548 Comcast Comments at 14- 16. Mike Landberg, Forget A La Carte Cable Idea; The Future Is In Internet TV, SAN JOSE MERCURY NEWS, July 23, 2004. 549 Stefanie Olsen and John Borland, Microsoft Video Tech Aims for Prime time, CNET NEWS. COM, July 13, 2004. 550 Convergence, Yet Again, BROADCASTING & CABLE, Sept. 20, 2004, at 10. 551 Jube Shiver Jr., FCC Approves TiVo Technology, LOS ANGELES TIMES, Aug. 5, 2004; Jube Shiver Jr., FCC Lets TiVo Send Shows Via Internet, CHICAGO TRIBUNE, Aug. 5, 2004; Paul Davidson, FCC Lets TiVo Users Send Shows ‘Anywhere They Go’, USA TODAY, at B3. TiVo Inc. ’s TiVo Guard is among 13 technologies certified by the Commission to protect digitally transmitted television shows recorded off the air. TiVo says its system can electronically track subscriber activity to ensure that digital content is not widely distributed. Digital Output Protection Technology and Recording Method Certifications, 19 FCC Rcd 15876 (2004). See Broadcast Flag Order, 18 FCC Rcd 23550 (2003). See also para. 91 supra. The Commission’s broadcast flag anti- piracy rules cover not just television tuners, but also personal computers and information technology products that are used for off- air digital reception. See Broadcast Flag Order, 18 FCC Rcd 23550 (2003). 552 See 2003 Report, 19 FCC Rcd at 1675 ¶ 108. 553 See paras. 40- 41, 52, 68- 69, 118- 119 supra. 554 Television Bureau of Advertising citing Nielsen Media Research, at http:// www. tvb. org/ nav/ build_ frameset. asp (visited Jan. 14, 2005). 67 Federal Communications Commission FCC 05- 13 68 players had been sold and approximately 70 percent of TV households have a DVD player. 555 The average cost of a DVD player is $120, a decline of 13 percent from the previous year. 556 More than 30,000 titles are available in DVD format for rental or sale, with nearly 30 titles exceeding sales of over five million copies in 2003 alone. 557 Home video sales significantly exceed movie ticket sales, as households spent $22.5 billion annually on purchasing and renting DVDs and video cassettes compared with $9.2 billion at movie theaters. 558 Sales of DVDs and video cassettes accounted for about 63 percent and rentals accounted for 37 percent of the $22.5 billion spent on home video. 559 122. The influence of DVDs is growing. For example, Netflix continues to be the leading online DVD movie rental service with just over two million subscribers as of June 2004, an 80 percent increase over last June. 560 Other companies, however, have entered the online movie rental business, such as Wal- Mart, which established a similar DVD- by- mail system in June 2003. Blockbuster Online will give subscribers two free rentals each month at its stores as well as access to 25,000 DVDs via the mail. 561 Other DVD mail- delivery upstarts struggle to breakout: DVDBarn in Scottsdale, Arizona; QwickFliks in Rancho Santa Fe, California; and, DVDOvernight. com in Philadelphia. 562 123. Another home video technology gaining popularity is the digital video recorder (DVR). 563 Introduced in 1999, this device is capable of pausing, recording and rewinding live TV in digital form on an internal hard drive instead of videotape. 564 DVRs allow users watching recorded programs to fast forward through commercials. About two million DVRs have been sold to date. 565 Cable and DBS operators have incorporated DVR functionality into their set- top boxes. 566 For example, Comcast launched DVR service in its New Jersey, Pennsylvania, and Delaware systems, offering subscribers Motorola’s single tuner. The service is available for $9.95 per month. 567 Cox Cable subscribers will have access to DVR service in more than 95 percent of its markets by the end of 2004. 568 The largest DVR maker, TiVo, has over one million DIRECTV subscribers and about 800,000 stand-alone customers. 569 TiVo’s DVR is currently offered at $99 plus a monthly service fee of $12.95, and is 555 See CEA Comments at 5. Other commenters have submitted DVD penetration levels lower than 70 percent. NCTA Comments at 21 project a 65 percent DVD penetration level and Comcast Comments at 16 indicates a 47 percent penetration level. 556 See NCTA Comments at 21. Much of the sales of pre- recorded DVDs are a result of the market for ownership of entire prior seasons of broadcast and cable programming. 557 Id. 558 Id. 559 Comcast Comments at 16. 560 Id. at 17. Customers go online to rent a movie and the DVD is sent to the home for viewing and then returned through the mail. 561 David Lieberman, Blockbuster to Bust into Rent- by- Mail DVD Business, USA TODAY, Aug. 11, 2004, at B1. 562 NCTA Comments at 22. 563 These devices also are referred to as personal video recorders (PVRs). 564 See 1999 Report, 15 FCC Rcd at 1035 ¶ 119. 565 CEA Comments at 5. 566 See paras. 42, 52, 62- 69 supra. 567 See DVR, CABLEFAX DAILY, Aug. 24, 2004, at 1. 568 See Cable, COMM. DAILY, July 28, 2004, at 6. 569 See Stuart Elliot and Ken Belson, Stop Me If You’ve Seen This One Before, NEW YORK TIMES, Aug. 9, 2004, at C1. 68 Federal Communications Commission FCC 05- 13 69 available at retail chains and websites, such as Amazon. com and Target. com. 570 TiVo and NetFlix subscribers will soon be able to download digital movies from the Internet directly to their TiVo set-tops. 571 H. Local Exchange Carriers 124. The 1996 Act amended Section 651 of the Communications Act to permit local telephone common carriers to provide video services in their telephone service areas. The statute permitted common carriers to: (1) provide video programming to subscribers through radio communications under Title III of the Communications Act; 572 (2) provide transmission of video programming on a common carrier basis under Title II of the Communications Act; 573 (3) provide video programming as a cable system under Title VI of the Communications Act; 574 or (4) provide video programming by means of an open video system (" OVS"). 575 125. Incumbent LEC entry into the MVPD industry remains limited, but recent developments show new signs of LEC interest in providing video services. 576 In recent months, for example, several major LECs -- Bell South, Qwest, SBC, and Verizon -- have launched joint service with DBS service providers. These services were planned and announced last year. In addition, several LECs have recently reported plans to provide video service via asymmetric digital subscriber line (ADSL), very high- speed digital subscriber line (VDSL), or fiber to the home (FTTH). 577 These new developments may indicate an acceleration of LEC entry into video services. 126. Cable Franchises. Until recently, BellSouth was the only remaining large incumbent LEC to offer video service over franchised cable systems using traditional cable architecture. 578 It holds 20 cable franchises with the potential to pass 1.4 million homes and provides cable service in 14 of its franchise areas. 579 Verizon has announced that it has received two franchises to provide cable service in Beaumont, California, and Sachse, Texas, and that it plans to roll out cable services in other areas in 2005. 580 127. VDSL, ADSL, FTTP, and FTTN. Qwest, SBC, and a number of smaller incumbent LECs are offering, or preparing to offer, MVPD service over existing telephone lines using very high- 570 Id. See also TiVo, at http:// www. tivo. com/ 0. 0. asp (visited Oct. 27, 2004). 571 See New Technologies, COMM. DAILY, Sept. 9, 2004, at 13. See para. 119 supra. 572 47 U. S. C. § 571( a)( 1). 573 47 U. S. C. § 571( a)( 2). 574 47 U. S. C. § 571( a)( 3). 575 47 U. S. C. § 571( a)( 3)-( 4). See also para. 71 supra. 576 2003 Report, 19 FCC Rcd at 1678 ¶ 114. See also Letter from Stephen Pastorkovich, Director of Business Development, OPATSCO, to Marlene H. Dortch, Secretary, FCC, Nov. 10, 2004, at 2- 4, 6- 9. 577 See Fourth 706 Report, 19 FCC Rcd at 20555- 57. Some LECs are not deploying full FTTH, but instead are deploying fiber- to- the node (FTTN), which provides fiber facilities to the neighborhood node, and coaxial cable from the neighborhood node to the residence. 578 BellSouth Comments at 1- 2. 579 2003 Report, 19 FCC Rcd at 1678 ¶ 116. See also 2002 Report, 17 FCC Rcd at 26946 ¶ 96 n. 338. Subsequently, Verizon sold these systems to Knology, Inc., a broadband service provider. See Knology, Inc., Knology Announces Agreement To Purchase Broadband Assets (press release), July 18, 2003. 580 Almar Latour, Showdown of the Giants, WALL STREET JOURNAL, Nov. 8, 2004, at B1; Franchise Score, CABLEFAX DAILY, Nov. 10, 2004, at 3; Verizon Franchise, CABLEFAX DAILY, Dec. 10, 2004, at 2. 69 Federal Communications Commission FCC 05- 13 70 speed digital subscriber line (VDSL) or asymmetric digital subscriber line (ADSL) technologies. 581 Qwest offers video, high- speed Internet access and telephone service over existing copper telephone lines using VDSL in the Phoenix, Arizona, metropolitan area and in Denver and Boulder, Colorado, and over a hybrid fiber- coaxial system in Omaha, Nebraska. 582 Small LECs also continue to deploy VDSL for the purpose of video service delivery. At least 307 rural LECs provide video using coaxial cable, hybrid networks, DSL, or fiber to the premises. 583 Small LECs indicate that discriminatory practices, such as exclusive programming contracts, higher prices for programming, and discriminatory pricing, by incumbent cable operators and programmers impede competition in small, rural markets. 584 128. In June 2004, SBC announced plans to develop both Fiber to the Node (FTTN) and Fiber to the Premises (FTTP) IP networks to deliver video and other services to small business and residential customers. 585 SBC plans to deliver its video programming to customers using a DSL- based service it calls “Lightspeed.” 586 SBC will not offer the service commercially until year- end 2005, but it is currently testing the service in field trials. 587 SBC hopes to eventually reach as many as 18 million homes nationwide. 588 BellSouth has built a fiber network that passes 1.1 million homes with the hopes of offering video services, and it expects to add 200,000 more homes by the end of 2004. 589 Verizon is currently building an FTTP IP network, and expects to pass one million homes by the end of 2004 and an additional two million homes by the end of 2005, offering a variety of broadband services. 590 Verizon comments that it supports a deregulatory national broadband policy, and the Commission should adopt open standards that do not favor any particular technology. 591 In this regard, Verizon filed two petitions with the Commission regarding its deployment of fiber- to- the- premises (FTTP) infrastructure. 592 The first petition requests that the Commission either issue a declaratory ruling regarding broadband service provided via FTTP or, alternatively, waive its common carrier and Title II rules for an interim period in the same manner as currently applied to cable modem services. 593 In its second petition, Verizon requests that, in the absence of a declaratory ruling, the Commission should exercise its forbearance 581 See Fourth 706 Report, 19 FCC Rcd at 20555- 57. 582 Qwest Communications International, Inc., http:// www. qwest. com/ residential/ products/ tvservices/ index. html, (visited Sept. 24, 2004). 583 OPASTCO Reply Comments at 3. 584 Id. at 4- 6. 585 SBC Communications Inc., SBC Communications Announces Advances In Initiative To Develop IP- Based Residential Network For Integrated Video, Internet, VoIP Services (press release), June 22, 2004; See also Fourth 706 Report, 19 FCC Rcd at 20555- 57. 586 Ken Belson and Matt Richtel, SBC to Start Project to Send TV Over Lines, NEW YORK TIMES, Nov. 17, 2004, at C1; Matt Stump, Lightspeed Ahead for SBC, MULTICHANNEL NEWS, Nov. 11, 2004; Leslie Cauley, SBC to Offer Net TV, Phone Service, USA TODAY, Nov. 16, 2004, at B1. 587 Id. 588 Id. 589 Ken Belson, A Stodgy Style, but BellSouth Starts to Loosen Its Top Button, NEW YORK TIMES, Sept. 13, 2004 590 Verizon Communications, Verizon Signs TV Exec to Guide Video Projects (press release), Sept. 15, 2004 591 Verizon Comments at 5- 17. 592 See Pleading Cycle Established for Comments on Verizon’s Petition for a Declaratory Ruling or, Alternatively, Interim Waiver and Verizon’s Conditional Petition for Forbearance Under 47 U. S. C. 160( c) with Regard to Broadband Services Provided via Fiber to the Premises, 19 FCC Rcd 12262 (2004). 593 Petition of the Verizon Telephone Companies for Declaratory Ruling or, Alternatively, for Interim Waiver with Regard to Broadband Services Provided via Fiber to the Premises (filed June 28, 2004). 70 Federal Communications Commission FCC 05- 13 71 authority 594 and provide interim regulatory relief for such services until an appropriate regulatory framework for broadband services has been established. 595 129. Joint Ventures with DBS. In the past year, several LECs have entered into joint ventures with DBS operators to offer packages of video programming service. While these agreements and services do not represent new, facilities- based competition, they may allow both LECs and DBS operators to become more competitive with cable operators’ bundled offerings. SBC claims that partnering with DBS accounts for much of the admittedly limited progress that LECs have made in attempting to enter the video market. 596 130. BellSouth, SBC, Qwest, and Verizon sell DBS service as part of a telecommunications package. In March 2004, SBC and EchoStar jointly launched a service throughout SBC’s service area that they co- branded as "SBC DISH Network," with DISH prices starting at $29.99 per month for SBC telephone customers. This service allows SBC customers to receive a package of high- speed Internet, local and long distance telephone, wireless telephone, and EchoStar video service on one bill with one order. 597 As of October 2004, SBC indicated that it had 226,000 DISH Network customers. 598 In August 2004, BellSouth and DIRECTV launched a similar joint service that allows Bell South customers to receive a bundle of high- speed Internet, local and long distance telephone, wireless telephone, and DIRECTV video service on one bill with one order. 599 As of September 2004, BellSouth served over 90,000 DIRECTV customers. 600 In January 2004, Verizon and DIRECTV introduced a service in Rhode Island that packages DIRECTV with Verizon by offering discounts on DIRECTV to Verizon customers. 601 In March 2004, Verizon and DIRECTV expanded this service to their New England and New York regions, 602 and in August 2004 they expanded this service to their Mid- Atlantic region. Verizon and DIRECTV expect to have coordinated billing later this year. 603 Finally, Qwest announced agreements with both DIRECTV and EchoStar to offer packaged services in separate markets. 604 As of September 2004, customers of Qwest’s Choice DSL with MSN Premium service in 14 states could receive a $5 per month discount on satellite television services from their choice of either DIRECTV or 594 See 47 U. S. C. § 160( c) et seq. 595 Conditional Petition of the Verizon Telephone Companies for Forbearance Under 47 U. S. C. 160( c) with Regard to Broadband Services Provided via Fiber to the Premises (filed June 28, 2004). 596 SBC Comments at 4. 597 SBC Communications Inc. and EchoStar Communications Corporation, SBC Communications Adds New 'DISH' To The Menu, Launches 'Quadruple Play' Bundle With Satellite TV (press release), Mar. 3, 2004. 598 SBC Communications, Inc., SBC Communications Reports Strong Third- Quarter Results, Accelerates DSL Gains Delivers Second Consecutive Quarter of Revenue Growth (press release), Oct. 21, 2004; see also SBC Hails EchoStar Marketing Performance, SATELLITE BUSINESS NEWS, July 23, 2004. 599 BellSouth Corp. and DIRECTV, Inc., BellSouth Launches DIRECTV® Service Across The Southeast In Money Saving Bundles (press release), Aug. 3, 2004. 600 BellSouth Corp, BellSouth Reports Third Quarter Earnings (press release), Sept. 30, 2004. 601 Verizon Communications and DIRECTV, Inc., Verizon Adds DIRECTV Programming, Creating the Most Comprehensive, Top- Quality Service Bundle in the Market (press release), Jan. 29, 2004. 602 Verizon Communications and DIRECTV, Inc., From Marblehead to Tonawanda to Orient Point -- Verizon Adds DIRECTV's Programming to Calling Services, Internet Packages in New England and New York (press release), Mar. 8, 2004. 603 Verizon Communications and DIRECTV, Inc., Verizon Invites Mid- Atlantic Customers to Cut the Cable and Integrate Calling, Internet and DIRECTV Programming (press release), Aug. 5, 2004. 604 Qwest Communications International, Inc., Qwest Forges Agreement with EchoStar to Offer Satellite Services as Part of Communications Bundle (press release), July 21, 2003. 71 Federal Communications Commission FCC 05- 13 72 DISH Network if they ordered these services from Qwest. 605 In June 2004, Sprint announced that customers in its local- telephone operating territory could receive a $5 per month discount from DISH Network if they also subscribe to Sprint DSL and/ or telephone services. 606 In August 2004, CenturyTel and EchoStar announced a strategic partnership that would allow CenturyTel to package DISH Network service as part of its telecommunications offerings in exchange for a $25 million investment in EchoStar by CenturyTel in the form of a convertible note. CenturyTel expects to be able to offer these services as part of a single- bill, single- point- of- contact service by the end of the year. 607 I. Electric and Gas Utilities 131. Electric and gas utilities possess certain assets that have long made them good candidates as entrants into the MVPD market, including access to public rights of way, ownership and operation of various infrastructures amenable to the provision of network services, and well- established relationships with customers. 608 Some utilities continue to move forward with ventures involving multichannel video programming distribution, though their services are still not widespread in either the telecommunications or video distribution markets. Utilities do, however, continue to provide competition in scattered localities, most beneficially in rural areas. 609 132. As previously reported, utilities provide voice, video, and data services by overbuilding incumbent cable systems with fiber optic networks. Some utilities have built systems on their own, but the most prominent utilities involved in the video distribution market are engaged in joint ventures with other companies. 610 We previously reported on Starpower, a joint venture between RCN and Potomac Electric and Power Company (PEPCO) operating in the Washington, D. C., area. 611 In December 2004, the companies announced that RCN had completed its previously- announced acquisition of PEPCO’s share of the system. 612 Cinergy Broadband, a Cincinnati- based utility, and Current Communications, have formed a joint venture that aims to bring broadband over power lines to 20 million customers. Municipalities, in some cases, also provide voice video and high- speed Internet access services in competition with incumbent cable operators, or when others are unwilling to provide such services. 613 For example, municipal utilities in Glasgow, Kentucky; Lebanon, Ohio; Ashland, Oregon; Paragould, 605 Qwest Communications International, Inc., http:// www. qwest. com/ residential/ products/ tvservices/ index. html (visited Sept. 24, 2004). 606 Sprint Corp., Sprint Expands Portfolio with DISH Network Satellite TV Service (press release), June 1, 2004. 607 CenturyTel, Inc. and EchoStar Communications Corporation, CenturyTel and EchoStar Sign Strategic Partnership Agreement to Offer CenturyTel | DISH Network Satellite TV Services (press release), Aug. 26, 2004. 608 See 1996 Report, 12 FCC Rcd at 4410- 11 ¶¶ 95- 96. 609 See paras. 72- 73 supra. See also NATOA Comments at attachments. 610 See 2003 Report, 19 FCC Rcd at 1606 ¶ 119. 611 Id. 612 See RCN, RCN Elects to Acquire Remaining 50% Stake of Washington, D. C. Operation (press release), Oct. 19, 2004; RCN, RCN Corporation Announces Emergence From Bankruptcy (press release), Dec. 21, 2004. See also paras. 72- 73 supra. 613 See Glasgow EPB, at http:// www. glasgow- ky. com/ epb/ faq01. htm (visited Jan. 12, 2005); City of Lebanon, at http:// www. ci. lebanon. oh. us/ departments/ service. html (visited Jan. 12, 2005); Ashland Fiber Network, at http:// www. ashlandfiber. net (visited Jan. 12, 2005); City Light Water and Cable, at http:// www. clwc. com/ profile. htm (visited Jan. 12, 2005); Grant County Public Utilities District, at http:// www. gcpud. org (visited Jan. 12, 2005); Click Networks, at http:// www. cityoftacoma. org (visited Jan. 12, 2005); Cedar Falls Utilities, at http:// www. cfu. net; Newnan Utilities, at http:// www. newnanutilities. org/; Hometown Utilicom, at http:// www. hometownutilicom. org (visited Jan. 12, 2005); See also NATOA Reply Comments at 6. 72 Federal Communications Commission FCC 05- 13 73 Arkansas; Grant County and Tacoma, Washington; Cedar Falls, Iowa; Newnan, Georgia; and Kutztown, Pennsylvania, all provide voice, video, and Internet access services for their residents. 614 The American Public Power Association (APPA), an association of municipalities, surveyed its members at the end of 2003, finding that 570 public power entities offer some kind of broadband services. Of those, 109 offered video service, 76 offered high- speed Internet access, and 43 offered local telephone service. 615 133. Broadband Over Powerline. 616 Several utility companies have been experimenting with a technology called “broadband- over- power- line (BPL)” service, which uses power lines to carry high-speed data signals the “last mile” to the home. 617 BPL uses fiber optic lines or another traditional medium to deliver data to the power line. While the primary objective of this technology is to provide high- speed Internet access services, some companies have expressed plans to offer video streaming services, but not traditional video services. 618 Four utilities, the City of Manassas, Virginia; Cinergy in Cincinnati, Ohio; Pennsylvania Power & Light; and Central Virginia Cooperative, have implemented commercial BPL this year. 619 The Comcast Corporation and the National Cable and Telecommunications Association have filed comments citing examples of growing sources of video competition through BPL. 620 NATOA has cited Cedar Falls, Iowa, as an example where an advanced municipal communications system has stimulated economic development. 621 134. On October 14, 2004, the Commission adopted a Report and Order to encourage the development of BPL. 622 The Commission stated that this new medium offers the potential for the establishment of a significant new medium for extending broadband access given that power lines reach virtually every home and business. III. MARKET STRUCTURE AND CONDITIONS AFFECTING COMPETITION A. Horizontal Issues 135. The video programming market is comprised of a downstream market for the distribution of multichannel video programming to households, and an upstream market for the purchase of video programming by MVPDs. 623 In this section we review changes in the market for the distribution of video programming, including changes in the level of competition in that market between June 2003 and June 2004. We then review the market for the purchase of video programming by MVPDs, and examine the 614 Officials: Broadband Investments Pay Off For Localities, TR DAILY, Sept. 26, 2003. 615 APPA, Public Power: Powering the 21 st Century with Community Broadband Services (fact sheet), May 2004, at http:// www. appanet. org/ files/ PDFs/ TelecomFlyer1204. pdf? sn. ItemNumber= 9965& tn. ItemNumber= 10000 (visited Jan. 14, 2005). See also NATOA Comments at 3. 616 See Fourth 706 Report, 19 FCC Rcd at 20561- 62. 617 Ken Brown, The Web’s New Outlet, WALL STREET JOURNAL, Mar. 2, 2004. 618 For example, Cinergy Broadband and Current Communications Group have formed a joint venture that aims to bring broadband over power lines to 20 million customers. This BPL initiative would include voice, data, and eventually video. See BROADBAND DAILY, Aug. 16, 2004. See also paras. 113- 117 supra. 619 In Broadband Over Power Lines Gains Steam, PCWORLD, Aug. 23, 2004. 620 See Comcast Comments at 18; NCTA Comments at 43. 621 NATOA Comments at 3. 622 Amendment of Part 15 Regarding New Requirements and Measurement Guidelines for Access Broadband Over Power Line Systems, Carrier Current Systems, Including Broadband Over Power Line Systems, ET Docket Nos. 04- 37, 03- 104, FCC 04- 245 (rel. Oct. 28, 2004). 623 See, e. g., 2003 Report, 19 FCC Rcd at 1681 ¶ 123. 73 Federal Communications Commission FCC 05- 13 74 effects that changes in concentration among MVPDs at the regional and national levels have had on this market in the last year. 1. Competitive Issues in the Market for the Distribution of Video Programming 136. DBS, the major wireless MVPD technology that is available to subscribers nationwide, saw its share of MVPD subscribers increase between June 2003 and June 2004, from 22.7 percent of the market to 25.1 percent. 624 Relatively few consumers, however, have a second wireline alternative, such as an overbuild cable system. 625 Of the 33,760 cable community units nationwide, 1,241, or approximately 3.7 percent, have been certified by the Commission as having effective competition 626 as a result of consumers having a choice of more than one wireline MVPD, or because DBS penetration was above 15 percent. 627 In cases where incumbent cable operators face competition from a new wireline entrant, BSPs report benefits to consumers, such as restraint in cable price increases and increased access to advanced services, citing several studies. 628 A 2003 GAO study found that where wire- based competition is available, cable rates are lower by about 15 percent. GAO further found that in markets where DBS companies provide local broadcast stations, cable rates are only slightly lower, but cable operators are more likely to improve the quality of their service in response to DBS competition. 629 NCTA, on the other hand, submitted a white paper concluding that the price drops resulting from overbuilding are not sustainable. 630 Several other MVPD technologies, such as private cable systems and wireless cable systems, offer consumers alternatives to incumbent cable services, but only in limited areas. 624 See Appendix B, Table B- 1. See also NCTA Comments at 8. Previous year numbers in Table B- 1 have been revised due to improved data sources. 625 See New Jersey Comments at 8. 626 Under Section 76. 907, a cable operator (or other interested party) may petition the Commission for a determination of effective competition pursuant to Commission’s procedural rules in Section 76. 7. See 47 C. F. R. §§ 76. 7, 76. 907. In its petition, a cable operator must provide evidence that it meets one of the statutory tests for the existence of effective competition. See 47 U. S. C. § 543 (l)( 1)( A)-( D). See also 47 C. F. R. § 76. 905( b). Based on the evidence provided in the petition and any opposition received, the Commission determines whether to grant effective competition status within a franchise area. Where effective competition exists, a local franchising authority (LFA) may not regulate basic service rates. See 47 C. F. R. § 76. 905 (a). If an LFA believes that a Commission finding of effective competition is no longer valid, it may file a petition for recertification pursuant to Section 76. 916 of the Commission’s rules. 47 C. F. R. § 76. 916. If the Commission grants the petition, the LFA’s certification to regulate basic service tier rates will be reinstated. 627 Of the 1,241 communities where effective competition status was granted, 936 were based on DBS competition. We note that there may be more communities that meet this test of effective competition; grants of effective competition are made at the request of the provider to a community, so the Commission does not have information about communities in which the provider has not sought designation that effective competition exists. We note further that, according to NCTA, in 41 states, DBS penetration exceeds the 15 percent threshold that is the first part of one of four statutory tests for the existence of effective competition in a local market. The entire test is that at least two MVPDs serve 50 percent or more of households and at least 15 percent of those households take service other than from the largest MVPD. See 47 U. S. C. § 543( l)( 1)( B). In most, if not all areas, at least 50 percent of households can receive DBS service. 628 See para. 74 supra. 629 See 2003 GAO Report, at 3- 4. See also U. S. General Accounting Office, Telecommunications: The Effect of Competition From Satellite Providers on Cable Rates, GAO/ RCED- 00- 164 (July 2000). 630 NCTA Reply Comments at Attachment A. 74 Federal Communications Commission FCC 05- 13 75 137. The percentage of MVPD subscribers served by cable operators has dropped steadily, both in national percentages, as well as in most local markets. 631 Most consumers may choose between over- the- air broadcast, one cable provider, at least two DBS providers, and, in limited cases, an overbuilder or other delivery technology. 632 Nonetheless, according to some commenters, certain barriers to full competition exist, including: (a) cable operator exclusive access to programming, especially sports programming; (b) anti- competitive “predatory pricing”; (c) limited access to MDUs; (d) limited access to utility poles; and (e) consumer electronics standards that create a disparity among delivery technologies. 633 NCTA and Comcast dispute these allegations. 634 Comcast responds that competition from DBS and other sources constitutes effective competition and thus all regulations established pursuant to the 1992 Cable Act should be reviewed and removed as appropriate. 635 138. Competitive Developments in the MDU Market. Multiple dwelling units (MDUs) comprise a separate segment of the MVPD market because alternative video providers may have difficulty offering service in MDUs in competition with an incumbent provider. 636 Non- incumbent MVPD commenters raise a number of issues that they contend adversely affect their ability to serve the MDU market. 637 139. Exclusive contracts are those that specify that video service in an MDU will be provided only by a particular MVPD. Perpetual contracts are those which grant an MVPD the right to provide service for an indefinite or very long period of time, or which have automatic renewal provisions (sometimes referred to as “evergreen” clauses). Competitive entrants into the MVPD market have raised concerns with these kinds of contracts for the past several years. As it did last year, BSPA states that these kinds of contracts block potential entry into MDUs, and lock tenants and building owners into outdated networks and services. 638 BSPA alleges that incumbent cable operators use long- term contracts as “an anticompetitive weapon,” by responding to impending competitive entry through negotiating exclusive contracts with MDU owners. 639 DIRECTV reiterates its comment from last year that the over-the- air- reception devices (OTARD) rules should be extended to renters and owners who do not have exclusive use of areas suitable for satellite reception. 640 631 See Appendix B, Table B- 1. As of June 2004, approximately 72 percent of MVPD subscribers were served by cable operators. In June 2003, approximately 74 percent of MVPD subscribers were served by cable operators. 632 Some sources indicate, however, that some percentage of households cannot receive one or both DBS providers due to line of sight issues. See 2002 Report, 17 FCC Rcd at 26952 ¶ 113 n. 385. 633 BSPA Comments at 12- 22 and Reply Comments at 7- 12; RCN Comments at 9- 10; SBCA Comments at 16- 19; DIRECTV Comments at 9- 11 and Reply Comments at 4- 5; ACA Comments at 3- 6; EchoStar Comments at 10- 13; Verizon Comments at 16- 20 and Reply Comments at 5- 6; NTCA Comments at 3- 4. 634 Comcast Reply Comments at 12- 29; NCTA Reply Comments at 10- 15. 635 Comcast Comments generally. NCTA Comments at 6- 28. 636 The incumbent provider is not necessarily the incumbent cable operators. Often private cable operators are incumbents for many MDUs. 637 Inside wiring is an important issue for MVPDs serving the MDU market. For a discussion of inside wiring, see paras. 111- 112 supra. 638 BSPA Comments at 19. See also Weston Comments at 2, 4, 5- 7; Advocate Reply Comments at 1- 3. 639 Id. 640 DIRECTV Comments at 10. See also SBCA Comments at 19 (adding that DBS MDU penetration is much lower than DBS penetration to single- family homes. The OTARD rules prohibit restrictions that impair the installation, maintenance or use of antennas used to receive video programming. The rule applies to video antennas including direct- to- home satellite dishes that are less than one meter (39.37") in diameter (or of any size in Alaska), TV antennas, and wireless cable antennas. The rule prohibits most restrictions that: (1) unreasonably delay or prevent (continued....) 75 Federal Communications Commission FCC 05- 13 76 2. Competitive Issues in the Market for the Purchase of Video Programming 140. Buyers in the market for the purchase of video programming are MVPDs, including cable operators and other video programming providers. The sellers are primarily nonbroadcast programming networks. 641 This market tends to be regional or national since programmers seek to reach a much broader audience than could be provided by a local franchise area. For example, some programming services are intended for nationwide audiences (e. g., CNN, USA) while others seek a regional audience (e. g., New England Sports Channel). a. The Regional Programming Market 141. Cable operators continue to pursue a regional strategy of “clustering” their systems. Many of the largest MSOs have concentrated their operations by acquiring cable systems in regions where the MSO already has a significant presence, while giving up other holdings scattered across the country. 642 This strategy is accomplished through purchases and sales of cable systems, or by system “swapping” among MSOs. 142. System Mergers and Acquisitions, and Clusters. Between July 2003 and June 2004, a total of 22 transactions were announced. Together these transactions were valued at approximately $1.4 billion and affected 616,402 subscribers. 643 At the end of 2003, there were 108 clusters with approximately 53.6 million subscribers compared to 109 clusters and approximately 51 million subscribers at the end of 2002. 644 In the largest cluster size category (over 500,000 subscribers), the number of clusters remained constant at 29 between 2002 and 2003. 645 b. The National Programming Market 143. Buyers of National Video Programming. Cable and DBS operators are the primary purchasers of multichannel video programming targeted to a national audience. 646 As of June 2004, cable (... continued from previous page) installation, maintenance or use; (2) unreasonably increase the cost of installation, maintenance or use; or (3) preclude reception of an acceptable quality signal. Effective January 22, 1999, the Commission amended the rule so that it also applies to rental property where the renter has an exclusive use area, such as a balcony or patio. See 47 C. F. R. § 1. 400. 641 In this section, we refer to programming that is packaged as one or more 24- hour video programming network( s), rather than the individual shows and series that nonbroadcast networks and broadcast networks purchase and package into 24- hour networks. Purchasing content and packaging it into networks represent two steps in the process of delivering programming to consumers which, when combined with a means of distribution, results in the programming choices consumers have. Video programming also is purchased from program producers and suppliers by nonbroadcast networks as well as broadcast stations and networks, but we do not address that market here because this report is focused on the MVPD market. 642 See New Jersey Comments at 8. 643 Kagan World Media, Cable System Sales Summary, CABLE TV INVESTOR, Aug. 18, 2004, at 13; Jan. 31, 2004, at 11; and Aug. 28, 2003, at 13. 644 See Appendix B, Table B- 2. We note that merging clusters can cause the total number of clusters to drop. 645 See id. 646 In this context that Congress adopted Section 613( f) of the Communications Act as part of the 1992 Cable Act to address the consequences of horizontal concentration and vertical integration in the cable television industry. Section 613( f) was adopted as Section 11( c) of the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102- 385, 106 Stat. 1460, codified at 47 U. S. C. § 533( f). In Time Warner Entertainment Co. v. FCC (240 F. 3d 1126 (D. C. Cir. 2001)), the United States Court of Appeals for the D. C. Circuit reversed and remanded the Commissions rules implementing Section 613( f). The Commission has an ongoing proceeding to (continued....) 76 Federal Communications Commission FCC 05- 13 77 operators served approximately 71. 6 percent of MVPD subscribers. 647 Other MVPDs, however, have continued to increase their share of the MVPD market. For example, the two largest DBS providers now serve 25 percent of the total market. While inter- modal competition has been growing, the market share of the largest MVPDs has decreased slightly since our last report. 648 In 2004, the four MVPDs with the largest subscribership served 58 percent of all MVPD subscribers, 649 while in 2003, the top four served 59 percent of all subscribers. 650 The share of subscribers served by the top ten MVPDs also decreased from approximately 86 percent in 2003 to 84 percent in 2004. 144. To compare market concentration for the purchase of programming over a period of time, we have traditionally used the Herfindahl- Hirschman Index (HHI). 651 We recognize that the HHI is not an indicator of “competition” in the market for purchase of video programming, and that it is not being used in the same way that it would be for purposes of antitrust analysis. For purposes of this report, however, the HHI is a useful tool to follow trends in the dispersion of MVPD size from year to year. We use the reported MVPD subscriber shares to calculate HHI figures. In March 2004, the HHI for the national market for the purchase of programming was 1097. This represents a marginal decline from the revised June 2003 MVPD HHI of 1134. 652 This declining HHI reflects the fact that the DBS providers grew more quickly than the largest cable providers, thereby decreasing the difference in the market shares of the largest providers. (... continued from previous page) respond to the ruling of the court. See Implementation of Section 11 of the Cable Television Consumer Protection and Competition Act of 1992, 16 FCC Rcd 17312 (2001). 647 See Appendix B, Table B- 1. 648 See id. at, Tables B- 3, B- 4. The percentages reported in these tables are derived from publicly available data and are not the result of application of the Commission’s attribution rules. There is no double counting of subscribers. If a cable operator is partially owned by more than one MSO, its subscribers are assigned to the largest MSO in terms of subscribership and may not include subscribers that are affiliated with the entity either through equity, debt, or other such investments or management duties. For example, Comcast holds investments in Time Warner Cable, Bresnan Broadband Holdings LLC, Insight Midwest LP, Texas Cable Partnerships, Kansas City Cable Partners, Parnassos Communications LP, Midcontinent Communications, US Cable of Costal Texas LP, and Century- TCI Communications LP, all of which were acquired in its purchase of AT& T, which had previously obtained these assets when it purchased TCI Communications. Cox Communications holds an investment in TCA Cable TV. Charter Communications holds investments in Renaissance Media, Avalon Cable, Falcon Cable Communications, and Fanch. In addition, Cablevision has investments in various cable television subsidiaries in New York, Connecticut, and New Jersey. 649 See Appendix B, Table B- 4. In this section, reported statistics for 2004 are based on March data since June data comparable to that used in previous years were unavailable. 650 Id. 651 1998 Report, 13 FCC Rcd at 24363 n. 562. The HHI is a measure of concentration that is calculated by summing the squared market shares of the participants in the market. It is a measure of concentration that takes account of the distribution of the size of firms in the market. The HHI varies with the number of firms in the market and degree of inequality among firm size. Generally, the HHI increases when there are fewer and unequal sized firms in the market. HHI is usually employed to examine concentration in markets in which products are sold directly to consumers, not intermediate markets like the market for cable programming networks, but a comparison of HHIs from previous years shows a general trend in ownership concentration. The HHI calculation is based on the MVPD shares of cable companies serving over 91 percent of all subscribers and the two largest DBS operators. The addition of the shares of other cable operators and smaller MVPDs would change the HHI only a small fraction. 652 In the 2003 Report, we reported a 2003 HHI of 1031. See 19 FCC Rcd at 1689- 90, 1721 ¶ 140, Appendix B, Table B- 3. We have revised the 2003 HHI for this Report due to a revision of previous years’ cable industry and MVPD subscribers to allow for use of a consistent data source in the tables in Appendix B. 77 Federal Communications Commission FCC 05- 13 78 B. Vertical Integration and Other Programming Issues 1. Status of Vertical Integration 145. Our examination of vertical integration in the MVPD industry focuses on ownership affiliations between video programming distributors and video programming suppliers. These vertical relationships may have beneficial effects, 653 or they may deter competitive entry in the video marketplace and/ or limit the diversity of programming. 654 Since our last Report, the total number of national networks has increased. In 2004, we identified 388 satellite- delivered national programming networks, an increase of 49 networks over the 2003 total of 339 networks. Of the 388, 89 networks (23 percent) were vertically- integrated with at least one cable operator in 2004. 655 Last year, 110 networks were vertically-integrated (33 percent) of the 339 total. 656 146. Four of the top six cable operators (i. e., Comcast, Time Warner, Cox, and Cablevision) hold ownership interests in satellite- delivered national programming networks. If we count iN Demand as one network, one or more of these companies has an interest in the 54 vertically- integrated satellite-delivered national programming networks. 657 Comcast has an ownership interest in ten national programming networks; Time Warner has an ownership interest in 29 national programming networks; Cox has an ownership interest in 16 national programming networks; and Cablevision, through its programming affiliate Rainbow Media, has an ownership interest in five national programming networks. 658 147. In the Notice, we sought information regarding the ownership of national satellite-delivered programming networks by media entities other than cable operators. 659 We specifically requested information to identify programming networks owned by DBS or other MVPD operators, broadcast networks, broadcast stations, and newspapers. 660 We have identified 103 programming 653 Beneficial effects can include efficiencies in the production, distribution, and marketing of video programming, and providing incentives to expand channel capacity and create new programming by lowering the risks associated with program production ventures. See, e. g., H. R. Rep. No. 862, 102nd Cong., 2d Sess. 56 at 41- 43 (1992). 654 Possible detrimental effects can include unfair methods of competition, discriminatory conduct, and exclusive contracts that are the result of coercive activity. See 1995 Report, 11 FCC Rcd at 2135 ¶ 157; Implementation of Section 11( c) of the Cable Television Consumer Protection and Competition Act of 1992 Vertical Ownership Limits, 10 FCC Rcd 7364, 7365 ¶ 4 (1995). See also Consumers Union Reply Comments at 1. 655 We count each unique programming service of a multiplexed package separately. We do not, however, count services that are not unique, as in a multiplexed programming service that is merely time shifted. See 1998 Report, 13 FCC Rcd at 24376, n. 661. See also 2000 Report, 16 FCC Rcd at 6079, n. 579. See also Appendix C, Table C- 1. 656 2003 Report, 19 FCC Rcd at 1690 ¶ 141. The drop in the percent of vertically integrated networks is explained, in part, by Liberty Media spinning off its ownership interest in Liberty Media International, Inc. (LMI) and no longer holding an interest in Cablevision of Puerto Rico. Liberty Media Corporation, Liberty Media Corporation Completes Spin Off of Liberty Media International, Inc. (press release), June 7, 2004. 657 Traditionally, the Commission has counted each channel of several multiplexed networks separately (e. g., 35 channels for iN Demand and 33 channels for TVN Entertainment Corporation) for the total number of networks and for these calculations. See Appendix C, Table C- 1. 658 In addition, Advance Newhouse, owner of the Bright House Networks cable systems, has ownership interests in 13 national nonbroadcast networks and Insight Communications owns one programming network, Source Suite. See Appendix C, Table C- 1. 659 Notice, 19 FCC Rcd at 10914 ¶ 15. 660 Id. With respect to newspaper ownership of programming networks, we find that the newspaper owners we have identified also are broadcast television station licensees. 78 Federal Communications Commission FCC 05- 13 79 networks that do not have cable ownership interests, but that are owned by one or more of these media entities. 661 These networks represent 27 percent of the 388 total networks identified, and 34 percent of the 299 networks that are not affiliated with a cable operator. Thus, we have identified 196 national nonbroadcast networks, representing 51 percent of the total of 388 networks, which are not affiliated with any cable operators, or other media entities identified above. 662 148. There are 89 national satellite- delivered nonbroadcast networks, not also owned by a cable operator, that are owned by one or more national broadcast networks (i. e., Fox, ABC, CBS, NBC-Universal, Univision). 663 These networks represent 23 percent of the 388 total networks identified, and 30 percent of the 299 networks that are unaffiliated with a cable operator. With respect to national broadcast network ownership of nonbroadcast networks, News Corporation, which holds a 34 percent interest in DIRECTV, has ownership interests in 12 national nonbroadcast networks, or three percent, through its Fox subsidiary, which also operates the Fox television network. 664 ABC, through its parent company Disney, has ownership interests in 20 national networks, or five percent of all national programming networks, including 16 in partnerships with other media entities. 665 Viacom, the parent company of the CBS and UPN broadcast networks, has ownership interests in 39 national nonbroadcast networks, or ten percent of all national programming networks. 666 NBC- Universal, through its parent company, General Electric, has ownership interests in 17 nonbroadcast networks, or four percent of all national programming networks, including five networks owned jointly with Disney and Hearst and one with Paxson Communications. 667 Univision, a Spanish language network and station licensee, has ownership interests in eight networks, representing two percent of the 388 total networks. 668 We also have identified programming networks affiliated with broadcast television station licensees. Hearst, in joint ventures with Disney and NBC- Universal, has ownership interests in 14 programming networks. 669 E. W. Scripps holds ownership interests in six national programming networks. The Trinity Broadcasting Network owns four programming networks. Landmark Communications owns The Weather Channel and Weatherscan. The New York Times has a 50 percent interest in Discovery Times and an interest in 661 See Appendix C, Table C- 3. 662 There are 192 networks affiliated with either a cable operator or other media entity (89+ 103= 192). Thus, there are 196 networks that are unaffiliated (388- 192= 196). See Appendix C, Tables C- 1, C- 3. 663 The WB network, through its parent company Time Warner, has ownership interests in 63 national nonbroadcast networks, or 16. 5 percent of the 388 total networks. See Appendix C, Table C- 1. UPN (United Paramount Network) is owned by Viacom, also the parent of CBS. See Viacom, http:// www. viacom. com/ business. tin (visited Dec. 16, 2004). 664 Fox Comments at Attachment A; DIRECTV Comments at Exhibit E. 665 Disney Reply Comments at 1- 3. Disney’s has ownership interests in two networks with Comcast (E! Entertainment and Style), five networks with NBC- Universal and Hearst (A& E, Biography, History, History Channel in Español, and History International) and nine with Hearst (six ESPN- branded networks and three Lifetime- branded networks). 666 Viacom Comments at 4- 5. 667 NBC- Universal, http:// www. nbcuni. com/ AboutNBC_ Universal/ Company_ Overview/ overview02. shtml (visited Dec. 16, 2004). The networks jointly owned with Disney and Hearst are A& E, Biography, History Channel, History Channel in Español, and History International. 668 Univision Communications Inc., http:// www. univision. net/ corp/ en/ mp/ jsp (visited Dec. 16, 2004); TuTv, http:// tutv. tv/ tutv/ en/ our_ company. jsp (visited Dec. 16, 2004). 669 See fn. 665 supra. 79 Federal Communications Commission FCC 05- 13 80 Ovation. 670 The Tribune Company, Paxson Communications, and Daystar Television Network each have ownership interests in one programming network. 671 DBS operator EchoStar holds an interest in G4techTV, along with Comcast. In addition, Liberty Media, which has an ownership interest in News Corp., is affiliated with 34 national programming networks (counting Starz! Superpack as one network), including 12 networks it owns jointly with one or more cable operators (i. e., the Discovery- branded networks with Cox and Advance Newhouse and Court TV with Time Warner). 672 149. In 2004, we found 96 regional networks, an increase of 12 networks over the 84 regional programming networks in 2003. 673 Many, but not all, are satellite delivered. These networks provide programming of local or regional interest and are distributed to subscribers of one or more MVPDs in an area. A significant number of regional networks offer local news or sports programming, but some provide more general programming, such as religious or ethnic programming. Of the 96 regional networks, 46 networks, or 48 percent, were vertically- integrated with at least one MSO. Cablevision has ownership interests in 16, or 17 percent, of the regional networks. Time Warner has ownership interests in 12, or 12.5 percent, of the regional networks. Comcast also has ownership interests in 12, or 12.5 percent, of the regional networks. Cox also has ownership interests in five, or five percent, of the regional networks. In addition, Charter and Adelphia each have ownership interest in one, or one percent, of the regional networks. Fox, an affiliate of News Corporation, has ownership interests in 22, or 23 percent of the regional networks. 674 150. Vertically- integrated programming networks tend to attract the largest number of subscribers. Currently, seven of the top 20 nonbroadcast video programming networks (ranked by subscribership) are vertically- integrated with a cable operator. 675 Of the remaining 13 networks, one is C- SPAN, which is funded but not directly owned or controlled by MVPDs, and the other 12 are affiliated with non- cable media entities. This figure represents a slight decrease from 2003 when nine of the top 20 networks were vertically- integrated. 676 Additionally, it appears that there is diverse ownership of the most popular networks: 10 different entities own all or part of the top 20 programming networks in terms of subscribership. 677 151. Vertically- integrate networks also tend to be the most highly rated. 678 Three of the top 15 prime time non- broadcast video networks are vertically- integrated with a cable operator (Time Warner owns 100 percent of TNT and TBS while Cox and Advance Newhouse each owns 25 percent of The 670 Discovery Times is a joint venture of the New York Times and Discovery Communications (owned by Cox, Advance Newhouse, and Liberty Media). See New York Times Company, http:// www. nytco. com/ subsites/ nyttv/ about- dtc. html (visited Jan. 14, 2005); Ovation, http:// www. ovationtv. com (visited Jan. 14, 2005). 671 See Appendix C, Table C- 3. See also FCC, Broadcast Radio and Television Electronic Filing System, http:// www. fcc. gov/ e- file/ support_ table. html (visited Jan. 14, 2005); Daystar Television Network, http:// daystar. com/ about. htm (visited Jan. 14, 2005). 672 See Appendix C, Table C- 3. 673 2003 Report, 19 FCC Rcd at 1732- 1734, Appendix C, Table C- 4. 674 Fox Comments at Appendix A. 675 See Appendix C, Table C- 6. 676 See 2003 Report, 19 FCC Rcd at 1741, Appendix C, Table C- 6. 677 They include: Time Warner, Cox, Disney, General Electric (NBC- Universal), Hearst, Liberty Media, Advance Newhouse, Viacom Landmark Communications, and C- SPAN (National Cable Satellite Corporation). See http:// www. cjr. org/ tools/ owners (visited July 20, 2004). 678 See Consumers Union Reply Comment at 2 (stating that of the 90 most popular networks, broadcasters have majority ownership of 40 percent and cable operators have interests in an additional 20 percent). 80 Federal Communications Commission FCC 05- 13 81 Discovery Channel). 679 The remaining 12 networks are owned by other media entities. Disney has ownership interests in The Disney Channel, ESPN, Toon Disney, Lifetime, The History Channel, and A& E. Hearst has ownership interests in ESPN, Lifetime, The History Channel, and A& E. NBC has ownership interests in The History Channel, A& E, and USA Network. Viacom has ownership interests in Nickelodeon, Nick At Nite, and MTV. Fox has ownership interests in Fox News Channel and FX. 152. This year, we found 78 programming services that have been planned but are not yet operational, an increase of 17 over last year. 680 The planned- services count includes some overlap from previous years because it can often take several years from the announcement of a new programming network to its initiation of service. Moreover, we include in this list programming networks that have been announced, but which are in various stages of development. 681 2. Other Programming Issues 153. In this section, we discuss a number of programming issues apart from vertical integration and the status of existing and planned programming services. These issues include comments we received about the effectiveness of our program access, program carriage, and channel occupancy rules that govern the relationships between cable operators and programming providers, and issues relating to the carriage of local broadcast stations pursuant to must carry and retransmission consent. We also address other matters related to programming, including local and regional channels, public education and governmental (“ PEG”) channels; compliance with the DBS public interest programming obligations; locally- originated programming, children’s, news and community affairs programming; programming in languages other than English; packaging of programming; and access to video programming by persons with disabilities. a. Regulatory Issues 154. Program Access and Carriage Rules. The Commission’s rules concerning competitive access to cable programming seek to promote competition and diversity in the multichannel video programming market by preventing vertically- integrated programming suppliers from favoring affiliated video distributors over unaffiliated MVPDs in the sale of satellite- delivered programming. 682 The program access rules apply to cable operators and to programming vendors that are affiliated with cable operators and deliver video programming via satellite to an MVPD. The rules prohibit any cable operator that has an attributable interest in a satellite cable programming vendor from improperly influencing the decisions of the vendor with respect to the sale or delivery, including prices, terms, and conditions of sale or delivery, of satellite- delivered programming to any competing MVPD. The rules also prohibit vertically- integrated satellite programming distributors from discriminating in the prices or terms and conditions of sale of satellite- delivered programming to cable operators and competing MVPDs. 683 In 679 See Appendix C, Table C- 7. 680 See Appendix C, Table C- 5. See also 2003 Report, 19 FCC Rcd at 1735, Appendix C, Table C- 4. 681 See 1995 Report, 11 FCC Rcd at Appendix H, Tables 3 and 4; 1996 Report, 12 FCC Rcd at Appendix G, Tables 3 and 4; 2003 Report 19 FCC Rcd at 1693 ¶ 146. 682 47 U. S. C. § 548. 683 As a condition of the News Corp.- Hughes transaction, News Corp. is required to offer its existing and future cable programming services on a non- exclusive basis and on non- discriminatory terms and conditions, for as long as the Commission’s program access rules are in effect. See News Corp Order, 19 FCC Rcd at 523- 4, 525- 6, 531- 2 ¶¶ 107- 108, 113- 115, 127. These conditions also extend to any broadcast station that News Corp. owns or operates, or on whose behalf it negotiates retransmission consent. See News Corp Order, 19 FCC Rcd at 572- 575 ¶¶ 218-222. For MVPDs with fewer than 5000 subscribers, News Corp. is required to either elect “must- carry” status or negotiate retransmission consent for its owned and operated stations without any requirements for cash (continued....) 81 Federal Communications Commission FCC 05- 13 82 addition, cable operators generally are prohibited from entering into exclusive distribution arrangements with vertically- integrated programming vendors. The Commission has concluded that the statutory access requirements apply only to satellite- delivered programming and not to terrestrially- delivered programming. 684 155. As in previous years, a number of commenters address the statutory exemption for terrestrially- delivered programming in the existing program access rules. 685 Several commenters again express concerns over incumbent cable operators’ ability to restrict competing MVPDs’ access to programming due to the terrestrially- delivered exemption in the existing program access rules, which puts competing MVPDs at a competitive disadvantage. 686 DIRECTV and EchoStar argue that the terrestrial exemption continues to be used by cable- affiliated programmers to foreclose noncable MVPDs’ access to popular programming, such as regional sports networks. 687 Verizon also states that the terrestrial exemption in the program access rules hampers effective competition in video services because, without access to “must have” networks that are terrestrially delivered, new entrants are at a serious disadvantage when competing against incumbent cable companies. 688 Comcast states that neither DIRECTV nor EchoStar have provided any evidence that the terrestrially- delivered exemption has prevented them from competing successfully. 689 We are not aware of any comprehensive source for determining the delivery mode for each of the national and regional networks. In light of the entry of providers using fiber, this is an issue of interest, and we believe such information is necessary to monitor the use of terrestrial delivery. 690 156. A number of commenters, including ACA, Verizon, RCN, and NATOA recommend changes to the program access requirements. 691 RCN and Verizon ask the Commission to inform (... continued from previous page) compensation or carriage of programming other than the broadcast signal. See News Corp. Order, 19 FCC Rcd at 575 ¶ 224. 684 See Implementation of the Cable Television Consumer Protection and Competition Act of 1992, Petition for Rulemaking of Ameritech New Media, Inc. Regarding Development of Competition and Diversity in Video Programming Distribution and Carriage, 13 FCC Rcd 15822, 15856- 7 ¶¶ 70- 71 (1998). 685 We did not receive comments on the program carriage and channel occupancy rules. 686 See e. g., SBCA Comments at 18; Verizon Comments at 16- 17; DIRECTV Comments at 18- 19; EchoStar Comments at 11- 12. 687 EchoStar Comments at 11; DIRECTV Reply Comments at 4- 5. EchoStar cites the refusal of Comcast to make the Philadelphia sports programming it controls available to DBS operators. It also states that the detrimental effect of this conduct on MVPD competition is well documented as evidenced by the below national average market penetration of DBS providers in areas where such programming is withheld. Id. DIRECTV states that C- SET, a sports network serving North and South Carolina, will be carried exclusively on Time Warner cable systems and will not be made available via satellite services. DIRECTV argues that Time Warner has offered C- SET a “premium” to grant it exclusive rights to C- SET programming, otherwise C- SET would not forgo satellite affiliate fees and additional advertising revenue. DIRECTV believes the arrangement with C- SET is indicative of Time Warner’s market power in the North and South Carolina MVPD market. See DIRECTV Reply Comments at 5. We note that C- SET’s corporate website indicates that C- SET will only be available on Time Warner cable systems in North and South Carolina, that the company is in negotiations with other cable operators for carriage, and that C-SET will not be available on satellite systems. See C- SET, at http:// www. c- set. tv/ faqs. asp (visited Jan. 14, 2005). 688 Verizon Comments at 16- 17. 689 Comcast Reply Comments at 19- 20. 690 See paras. 125, 127- 128 supra. 691 See, e. g., ACA Comments at 18- 19; Verizon Comments at 16- 17; RCN Comments at 10; NATOA Comments at 23. 82 Federal Communications Commission FCC 05- 13 83 Congress of the need to expand the program access rules to include terrestrially- delivered programming. 692 SBCA also advocates expansion of the rules to include such programming. 693 In addition, DIRECTV requests that the Commission closely monitor cable operators’ use of the terrestrial-delivery exemption and be prepared to redress any competitive distortion in the marketplace. 694 RCN states that the Commission should strictly enforce its program access rules and, where necessary, make changes that will ensure competitors nondiscriminatory access to critical programming under reasonable rates, terms, and conditions. 695 Comcast states that only one program access complaint has been filed in the last four years, with the Commission finding that complaint to be without merit, thus suggesting that few parties believe they have meritorious complaints about program access violations. 696 157. Commenters also address other matters related to access to programming. For example, NATOA states that competitive operators face the danger of being unable to access essential programming due to clustering of cable systems, which increases an incumbent cable operator’s ability to secure exclusive distribution of programming. 697 DIRECTV also contends that clustering has enabled MSOs to concentrate their subscribers and achieve market share levels throughout many of the largest DMAs that they previously enjoyed only in their individual franchise areas, thus becoming virtually indispensable to local and regional programmers seeking distribution. 698 BSPA states that fair access to content means that all competing distributors should have the same access to content as cable incumbents at the same prices. 699 BSPA states that BSPs are dependent on program suppliers that are either partially or fully owned by the incumbent cable operators with which BSPs compete for customers, thus giving these suppliers the incentive to discriminate against BSPs and other non- cable operators with respect to providing fair and equal access to programming and content. 700 BSPA and RCN argue that the ability to compete effectively is not limited to access to video programming but should extend to all forms of content, in particular digital content. 701 692 RCN Comments at 9- 10; Verizon Comments at 16- 17. 693 SBCA Comments at 4. 694 DIRECTV Comments at 23. 695 RCN Comments at 9. 696 Comcast Reply Comments at 19, citing Complaint by Everest Midwest Licensee, L. L. C. v. Kansas City Cable Partners, DA 03- 4077 (Dec. 24, 2003). On October 8, 2004, Rainbow DBS Company LLC, operating as VOOM, filed a program access complaint against iN DEMAND, LLC. In its complaint, VOOM accuses iN DEMAND of unfair competitive practices by a satellite cable programming vendor in which cable operators have an attributable ownership interest, the result of which prevents VOOM from providing HDTV programming to its satellite customers on commercially reasonable terms. The complaint is under review. See Program Access Complaint, Rainbow DBS Company LLC, filed Oct. 8, 2004. 697 NATOA Comments at 19- 21. 698 DIRECTV Reply Comments at 3. DIRECTV provides approximate market shares for the dominant cable operator in nine DMAs: Philadelphia (Comcast) – 79 percent; San Francisco/ Oakland (Comcast) – 78 percent; Seattle/ Tacoma (Comcast) – 80 percent; St. Louis (Charter) – 87 percent; Raleigh/ Durham (Time Warner) – 71 percent; Milwaukee (Time Warner) – 74 percent; West Palm Beach (Adelphia) – 77 percent; Norfolk/ Portsmouth (Cox) – 80 percent; and Las Vegas (Cox) – 90 percent. Id. 699 BSPA Comments at 13. 700 Id. 701 Id. at 12- 14. BSPA cites as an example of “digital content” a movie that can be delivered as part of a broadcast schedule, as a pay- per- view option, as part of a cable operator’s video- on- demand offering, as streaming video on the Internet, or as a downloadable file for later viewing on a computer. See also BSPA Reply Comments at 9- 11; RCN Comments at 10. 83 Federal Communications Commission FCC 05- 13 84 158. Comcast states that differentiating program offerings is a legitimate competitive response and enhances competition among producers and distributors, and it urges the Commission to acknowledge that competition in the MVPD marketplace would be enhanced by allowing the marketplace to operate freely without the constraints of rules prohibiting exclusivity. 702 Indeed, DIRECTV notes that it uses its agreement for the NFL Sunday Ticket programming to differentiate its service from incumbent cable operators. 703 Comcast argues that the Commission should consider eliminating the prohibition on exclusive contracts for satellite cable or broadcast programming between vertically integrated programming vendors and cable operators because of the significant and accelerated growth of DBS and its use of exclusive programming to attract subscribers. 704 159. Commenters also suggest several regulatory changes they contend would ensure fair access to programming. ACA recommends that the Commission undertake regulation of programmers’ distribution agreements with MVPDs and prohibit non- cost- based pricing. ACA also proposes that the Commission require programmers to report on prices, terms, and conditions of wholesale pricing agreements regularly. In turn, it states that the Commission should report to Congress on prices, competition, and diversity in the provision of wholesale programming. 705 According to EchoStar, despite the significant growth in its subscriber base, there are still discrepancies in the terms and conditions under which vertically- integrated programmers make programming available to EchoStar and to cable operators, but the discrepancies are not founded upon legitimate competitive factors. 706 Explaining its concerns, EchoStar states that the Commission should penalize discriminatory tying of programming services and the imposition of penetration requirements by vertically- integrated programmers. 707 160. In the Notice, we asked for comment on the experiences of new networks and their ability to successfully launch. 708 The America Channel, an independent programming network that is currently trying to obtain carriage on MVPDs, describes reasons it believes account for its inability to secure carriage. It states that these reasons include the practice of tying carriage of one network to carriage of several other networks; the market power of large cable operators, which lessens the incentive for these carriers to strive to find new and diverse content; the penetration requirements, preferential dispensations from so- called “delete rights” provisions, 709 and unfavorable contractual terms imposed by large programmers. 710 The America Channel suggests that the Commission request periodic reports from cable operators on the criteria used to determine whether to provide carriage to an independent programmer, an MSO- owned network, and a conglomerate- owned network, and to submit semi- annual reports describing 702 Comcast Reply Comments at 17- 18. 703 DIRECTV Comments at 20- 21. DIRECTV notes that exclusive programming arrangements are not per se disfavored. In the case of the NFL Sunday Ticket, an unaffiliated programmer sells its programming on an arms’ length basis, and the MVPD in turn uses exclusivity to differentiate itself from entrenched competitors. 704 Comcast Comments at 42 (referring to the Commission’s extension of this prohibition until Oct. 5, 2007, in Sunset of Exclusive Contracts, 17 FCC Rcd 12124 (2002)). 705 ACA Comments at 18. 706 EchoStar Comments at 13. 707 Id. at 8- 9. 708 Notice, 19 FCC Rcd at 108914- 15 ¶ 17. 709 “Delete rights” refers to contractual rights maintained by an MSO to terminate all distribution of an independent network at any time for any reason. The America Channel argues that all networks should be subject to delete rights and not just independent networks. The America Channel Comments at 7. 710 Id. at 6- 7. The America Channel does not describe how penetration requirements hurt its ability to obtain carriage, nor does it detail what contractual terms cause it to be disadvantaged vis- à- vis other nonbroadcast networks. 84 Federal Communications Commission FCC 05- 13 85 new distribution inquiries cable operators receive from independent networks and the status of such inquiries. 711 It believes these reports will allow the Commission to determine how many independent networks have received carriage and to develop a “scoreboard” measuring the ease or difficulty with which independent programmers gain access to MSO platforms. 712 Comcast disagrees, stating that there is no statutory basis for these proposed reporting requirements, and notes that cable operators do not routinely discriminate in favor of affiliated networks and against independent networks. 713 161. Must Carry and Retransmission Consent. Under Sections 614 and 615 of the Communications Act, cable operators must set aside up to one third of their channel capacity for the carriage of commercial television stations and additional channels for noncommercial stations depending on the system’s channel capacity. 714 Pursuant to the SHVIA, DBS operators may provide local- into- local broadcast television service. 715 Unlike cable operators, which are required to carry local television stations in every market they serve, a DBS operator must carry all stations in any market where it chooses to carry any local television station (“ carry- one, carry- all”). 716 In both the cable and DBS contexts, commercial broadcasters may elect to be carried pursuant to must- carry status or retransmission consent. 717 Where a station elects must- carry it is generally guaranteed carriage, but it is prohibited from receiving compensation for this carriage. 718 Under retransmission consent, the broadcaster and cable or DBS operator negotiate an agreement that may involve compensation in return for permission to retransmit the broadcast signal. The current rules apply to the carriage of analog television stations only. 162. Several commenters address the issue of retransmission consent agreements that require MVPDs to carry certain nonbroadcast networks in return for the right to carry local broadcast signals (i. e., tying). EchoStar states that its ability to negotiate for retransmission consent of local broadcast network affiliates is often hampered by tying requirements imposed by entities that control these stations as well as nonbroadcast programming. 719 EchoStar urges the Commission to strictly enforce the retransmission consent rules and to closely examine disputes involving MVPDs that lack market power. 720 163. Fox disagrees with MVPDs that complain about retransmission consent agreements that require carriage of nonbroadcast programming. Fox states that, in the initial retransmission consent negotiations, the cable industry made clear that it would not pay cash for the carriage of broadcast signals. Therefore, many broadcasters negotiated instead for cable systems to carry the broadcasters’ affiliated nonbroadcast programming. 721 Similarly, NAB states that cable systems and satellite carriers often choose the tying option because such agreements provide substantial benefits to local stations at relatively modest out- of- pocket costs to MVPDs. 722 In particular, Fox asserts, tying arrangements maximize 711 Id. at 1. 712 Id. 713 Comcast Reply Comments at 27. 714 47 U. S. C. §§ 534( b), 535( b). See also 47 C. F. R. § 76. 56. 715 Pub. L. No. 106- 113, 113 Stat. 1501, 1501A- 526 to 1501A- 545 (Nov. 29, 1999). 716 47 C. F. R. § 76.66. 717 47 C. F. R. § 76.64. 718 47 C. F. R. § 76.60. 719 EchoStar Comments at 10. 720 Id. at 10- 11. EchoStar does not provide specific examples where the Commission has failed to enforce the retransmission consent rules. 721 Fox Comments in MB Docket No. 04- 207 at 21- 22 (Fox A La Carte Comments). 722 NAB Reply Comments at 12. 85 Federal Communications Commission FCC 05- 13 86 consumer, programmer and cable system welfare, and demonstrate that benefits accrue when government permits the marketplace to determine the most efficient and cost- effective way to distribute video programming. 723 Fox also contends that MVPDs’ carriage of broadcasters’ affiliated programming networks have led to tangible public interest benefits by contributing additional content to the marketplace and fostering an environment in which new content can emerge and thrive. Fox indicates that broadcasters continue to offer cable systems multiple options in exchange for retransmission consent, maintaining that marketplace negotiations have led to the creation of a number of vibrant, diverse, and new nonbroadcast programming networks. 724 164. On December 8, 2004, the Satellite Home Viewer Extension and Reauthorization Act of 2004 (SHVERA) was enacted. 725 SHVERA extended certain provisions of the SHVIA, primarily pertaining to the distant signal copyright license and retransmission consent negotiations for five years and added some new provisions to the law pertaining to the retransmission by DBS of distant broadcast signals. 726 In particular, SHVERA: (1) extends and revises the rules governing DBS retransmission of distant analog broadcast stations; (2) establishes terms and conditions under which DBS operators can retransmit distant digital broadcast signals; (3) imposes on DBS and cable a good faith retransmission consent negotiation obligation comparable to the existing obligation imposed on broadcasters and extends until 2010 the sunset of these reciprocal good faith negotiations provisions and the ban on exclusive retransmission consent agreements; (4) gives satellite carriers 18 months to phase out its practice of requiring two dishes to receive a full complement of local broadcast stations; and (5) allows satellite carriers to offer “significantly viewed” stations out of market. SHVERA also subjects DBS to the same subscriber privacy rules that currently apply to cable and adds several new notice provisions. 165. In the pending DTV Must- Carry Proceeding, the Commission is considering issues relating to the carriage of digital television signals. 727 Reiterating previously filed comments, Paxson argues that the Commission should adopt multicast must- carry rules that would require cable operators to carry multiple streams of programming offered over a single digital channel. 728 Cable and satellite providers oppose mandatory carriage of broadcasters’ digital multicast streams of programming. Comcast states that channel capacity remains constrained, and decisions regarding the carriage of multicast programming should be left to the cable operator, who is capable of deciding which programming will best serve its customers’ needs. 729 SBCA argues that multicast must- carry should never be forced upon DBS due to its limited spectrum resources, which could require DBS to cease transmission of large amounts of local- into- local programming. 730 NAB disputes the DBS commenters’ 723 Fox A La Carte Comments at 22. We note that as a condition of its acquisition of DIRECTV, for MVPDs with fewer than 5000 subscribers, News Corp. is required to either elect “must- carry” status or negotiate retransmission consent for its owned and operated stations “without any requirements for cash compensation or carriage of programming other than the broadcast signal.” See News Corp. Order, 19 FCC Rcd at 575 ¶ 224. See also fn. 683 supra. 724 Id. at 21- 24. 725 Pub. L. No. 108- 447, 118 Stat. 2809 (2004). SHVERA was enacted as Title IX of the Consolidated Appropriations Act, 2005. 726 Local- into- local service is affected only in that the two- dish carriage approach used by EchoStar in some markets must be discontinued within 18 months, and local- into- local service in Alaska and Hawaii is revised to phase in dual must carry over 30 months. Several commenters addressed issues relating to the pending re- authorization of SHVIA in this proceeding. See, e. g., SCBA Comments at 14; NAB Reply Comments at 1. 727 Carriage of Digital Broadcast Signals, 16 FCC Rcd 2598 (2001). 728 Paxson Comments at 5. See also 2003 Report, 19 FCC Rcd at 1699 ¶ 157. 729 Comcast Comments at 28. 730 SBCA Comments at 3. 86 Federal Communications Commission FCC 05- 13 87 claims of capacity constraints, stating that many options exist for DBS operators to expand their capacity to deliver local signals, including local digital and HD signals. 731 b. Sports Programming 166. We continue to monitor the availability of sports programming, which is an important segment of programming for all MVPDs. 732 There are 38 regional networks devoted to sports programming, an increase from the 27 we identified last year. 733 Regional sports networks now represent approximately 40 percent of the 96 regional networks. 734 Fox continues to be the leader in the distribution of regional sports networks, owning or holding an ownership interest in 19, or 50 percent, of all regional sports networks. 735 This year several professional sports franchises and organizations created regional sports and entertainment networks. In March 2004, the parent company of the NBA Denver Nuggets, NHL Colorado Avalanche, and other Denver- area professional and amateur sports teams created a regional television network called Altitude, which will provide exclusive sports coverage of those teams throughout the Rocky Mountain States. 736 Prior to the debut of this network, those teams’ games were telecast on News Corp. ’s Fox Sports Net Rocky Mountain, which is available on cable and DBS systems. In October 2004, The New York Mets, Time Warner Cable and Comcast announced the creation of a new regional sports network providing coverage of Mets’ regular- season games throughout the New York metropolitan area beginning in 2006. 737 On October 1, 2004, Comcast launched a new sports network featuring the games of local Chicago teams The Cubs, The White Sox, The Blackhawks and The Bulls. 738 731 NAB Reply Comments at 9. 732 See General Motors Corporation and Hughes Electronics Corporation, Transferors, and The News Corporation Limited, Transferee, For Authority to Transfer Control, 19 FCC Rcd 473 (2004). 733 2003 Report, 19 FCC Rcd at 1700 ¶ 158. 734 See Appendix C, Table C- 3. 735 The Commission remains cognizant that Fox’s ownership of numerous regional sports programming networks may pose a public harm when combined with DIRECTV’s nationwide distribution platform. The Commission imposed conditions on News Corp. requiring it to enter into arbitration where negotiations fail to produce a mutually acceptable set of prices, terms and conditions. In addition, News Corp. cannot offer any existing or future regional programming services on an exclusive basis to any MVPD and shall make such services available to all MVPDs on a non- exclusive basis. See News Corp Order, 19 FCC Rcd at 531- 2, 543, 552- 555, 626, ¶¶ 127, 147- 48,172- 79, 366. 736 NHL. com Network, KSE Regional Sports Network Named Altitude Sports & Entertainment, Mar. 11, 2004; Chris Walsh, Kroenke Sports Network Signs First Deal, ROCKY MOUNTAIN NEWS, May 13, 2004. As of November 7, 2004, Altitude had carriage agreements with Comcast, DIRECTV, EchoStar, Adelphia Communications in Colorado Springs and several smaller cable operators, for a total of 250,000 subscribers. See Jason Blevins, Altitude Takes Shot at Comcast Talks, DENVER POST, Oct. 4, 2004; DIRECTV Group, Inc., DIRECTV and Altitude Sports & Entertainment Reach Multi- Year Carriage Agreement (press release), Oct. 29, 2004; Comcast Corp., Comcast Adds Altitude Sport & Entertainment to Lineup (press release), Nov. 7, 2004. 737 Richard Sandomir, Mets Decide the Time is Right for a Cable Network of Their Own, NEW YORK TIMES, Oct. 13, 2004. Carriage on Time Warner Cable and Comcast provides the network with distribution to approximately 3.1 million cable households. The Mets had a television broadcast rights agreement with Cablevision’s MSG Network and Fox Sports New York, but paid a termination fee of $54 million to be released from that agreement. The Mets are reported to own 60 percent of the network, Time Warner 40 percent, and Comcast will operate the network. Peter Grant, New York Mets, Cable Operators Launch Network, WALL STREET JOURNAL, Oct. 13, 2004. 738 The network will be available initially on Comcast’s Chicago system, which covers approximately 1. 5 million homes. Comcast stated its intention to negotiate carriage agreements with other cable and satellite providers. See Comcast Corp., Comcast SportsNet Chicago to Launch October 1, 2004 (press release), Dec. 2, 2003. Comcast shares ownership of the network with the teams’ owners. Jeremy Mullman, Comcast SportsNet Expands Reach, CHICAGO BUSINESS, Oct. 1, 2004. In addition to SportsNet Chicago, Comcast serves customers in the Philadelphia (continued....) 87 Federal Communications Commission FCC 05- 13 88 It also announced plans to launch similar networks in Detroit and in California. On October 16, 2004, Carolina Sports Entertainment Television Network (C- SET) launched on Time Warner cable systems serving North and South Carolina. 739 Time Warner will offer C- SET as a digital basic channel. 740 A notable exception to the growth of new regional networks is the short life of Victory Sports One. In October 2003, the owners of the Minnesota Twins Major League Baseball team launched Victory Sports One, which would provide exclusive distribution of Minnesota Twins baseball games as well as other local sports franchises. Victory Sports One, which was unaffiliated with any distribution company, signed carriage agreements with 30 small cable operators serving Minnesota, but it could not reach agreement with EchoStar, DIRECTV, Charter, Comcast and Time Warner, the largest MVPDs operating in Minnesota, and it ceased operations in May 2004. 741 167. In February 2004, Time Warner Cable of Kansas City and Kansas City broadcaster KCTV initiated an agreement whereby Time Warner would replace KCTV’s sports department with programming from its own Metro Sports Channel. 742 Under this arrangement, Metro Sports functions as a separate cable channel on Time Warner’s systems, with a full range of programming, and during KCTV’s regular evening newscasts, Metro Sports delivers a sports newscast originating from Metro Sports studios. Time Warner has an agreement with Comcast to distribute Metro Sports to areas not served by Time Warner Cable, but Time Warner has not made the channel available to DBS operators. 743 168. This year, cable operators continue to package sports networks into sports tiers or packages. 744 Comcast states that it offers several optional sports packages to its digital cable subscribers, including NASCAR IN CAR, MLB Extra Innings, Major League Soccer Direct Kick, ESPN GamePlan, NHL Center Ice, and NBA League Pass. 745 Small cable operators state that sports channels are the most costly services they distribute, with annual wholesale rate increases in excess of inflation. According to ACA, contractual distribution restrictions and tie- ins with what it terms “weaker channels” increase the (... continued from previous page) region with Comcast SportsNet, which reaches 2.9 million subscribers, and in the Baltimore/ Washington, D. C. region with Comcast SportsNet Mid- Atlantic, which serves 4.5 million customers. In addition, Comcast has partnered with Charter Communications to offer regional sports programming to 11 million subscribers in southeastern states on Comcast/ Charter Sports Southeast. See Comcast Comments at 27. 739 Tim Whitmire, Bobcats Launch New TV Network; C- SET Offers More Than NBA to Fans in the Carolinas, SUN-NEWS (Myrtle Beach, South Carolina), Oct. 16, 2004. C- SET is owned by Robert Johnson, who owns the professional men’s basketball team The Charlotte Bobcats and professional women’s basketball team the Charlotte Stings. The network will operate 24- hours- a- day, seven days a week and feature these teams’ games as well as regional college football games and will develop original programming See also, R. Thomas Umstead, Carolinas on Their Minds, MULTICHANNEL NEWS, Aug. 9, 2004. 740 C- SET, at http:// www. c- set. tv/ faqs. asp, and at http:// www. c- set. com/ about. htm (visited Jan. 14, 2005). According to C- SET, Time Warner has approximately 600,000 digital basic subscribers in North and South Carolina. 741 Cold Minnesota Shoulder for Twins Baseball, SKYREPORT, Apr. 26, 2004; Mike Reynolds and R. Thomas Umstead, Twins Rights Victory for Fox, MULTICHANNEL NEWS, May 17, 2004. The team’s owners signed a multi-year carriage agreement with Fox Sports Network. Id. 742 Aaron Barnhart, KCTV5 to Outsource Its Sports; Metro Sports Will Handle Coverage on Telecasts, KANSAS CITY STAR, Nov. 7, 2003. The programming is delivered via a fiber optic line from Metro Sports’ studios to KCTV’s broadcasting facility. 743 Time Warner Cable, at http:// www. kcmetrosports. com/ info/ faq. asp (visited Jan. 14, 2005). 744 See 2003 Report, 19 FCC Rcd 1706- 7 ¶¶ 175- 76. 745 Comcast Comments at 27. 88 Federal Communications Commission FCC 05- 13 89 aggregate cost of sports channels. 746 DIRECTV maintains that clustering is the reason that obtaining exclusive arrangements for valuable regional sports networks has become an increasingly viable and attractive proposition for cable operators. 747 c. News Programming 169. We requested comment on the extent to which MVPDs provide local news and community affairs programming. 748 This year, of the 96 regional programming networks identified, 40, or 42 percent, are regional news networks. 749 In July 2004, Time Warner Cable and Belo Corp., a broadcast station owner, dissolved their joint venture that operated 24- hour cable news channels in Houston and San Antonio, Texas, and Charlotte, North Carolina. 750 In September, Belo announced that it was assessing whether to discontinue its Texas Cable News channel, citing an inability to obtain analog carriage on Time Warner’s cable systems in Houston, San Antonio and Austin, Texas, or any carriage at all from other cable systems operating in Texas, in particular those owned by Cox Communications. 751 d. Other Programming 170. PEG Programming: Local franchising authorities may request, as part of the franchising process, that operators devote a certain amount of channel capacity and equipment to PEG programming. 752 PEG channels are intended to provide community- specific information, such as bulletin boards for local activities, local civic meetings, and local governmental activities. There are approximately 5,000 public, educational and government access channels in the United States, which are divided among 1,500 access operations with some cable systems providing as many as twelve channels for PEG programming and others providing one channel for all three purposes. 753 Approximately 85 percent of all PEG channels are not operated by cable companies, but instead are operated by non- profit entities, government agencies and educational institutions. 754 Comcast reports that it carries more than 2,400 PEG channels across the country and spends $100 million in direct support for PEG channels. 755 171. DBS Public Interest Programming: DBS operators are required to reserve four percent of their channel capacity for “noncommercial programming of an educational or informational nature.” 756 To qualify as a public interest channel on a DBS system, programmers must be organized for a non-commercial, non- profit purpose, be a national educational programming supplier, and be responsible for 50 percent of the direct costs incurred by the DBS operator in making the channel available. 746 ACA Comments at 23. 747 DIRECTV Reply Comments at 4. 748 See Notice, 19 FCC Rcd 10916 ¶ 21. 749 See Appendix C, Table C- 3. 750 Time Warner Cable, Belo Dissolve Venture, ASSOCIATED PRESS, July 23, 2004. The joint venture had been formed in September 2000. 751 Belo Corp., Belo Updates Investment Community on Operating Strategy (press release), Sept. 29, 2004. 752 47 U. S. C. § 531. Local franchise authorities are allowed to establish procedures under which the cable operator may utilize unused PEG channel capacity for other services. 47 U. S. C. § 531( d)( 1). 753 NATOA Comments at 30. 754 Id. 755 Comcast Comments at 24. 756 See Implementation of Section 25 of the Cable Television Consumer Protection and Competition Act of 1992, Direct Broadcast Satellite Public Interest Obligation, 19 FCC Rcd 5647 (2004). 89 Federal Communications Commission FCC 05- 13 90 Furthermore, the programming offered by such programmers must contain no advertisements, be of an educational or informative nature, and be available on a regular schedule. 757 DIRECTV provides 12 public interest channels. 758 EchoStar provides 21 channels of public interest programming. 759 To ensure that the programming is commercial- free and educational or informational in content, EchoStar claims that it conducts a limited review of the content, but given the constraints of reviewing hundreds of programs and the desire to avoid interfering with programmers’ rights to editorial control, EchoStar does not undertake an in- depth review. 760 172. Although DBS providers are subject to the public interest channel reservation requirements discussed above, NATOA asserts that they should have additional access requirements. NATOA argues that even though DBS can deliver local- into- local signals, in order for public interest programmers to gain access to DBS, they are required to pay to be carried. NATOA argues that DBS providers should be held to the same standards as cable operators and provide public interest programming to the local community. 761 173. Non- English Programming: SBCA states that the DBS industry provides international and non- English speaking households with programming offerings in other languages including Spanish, Chinese, Korean, Urdu, Arabic, and Polish. 762 DBS operators have long focused on international programming. EchoStar added an additional 14 Chinese channels to its Chinese programming lineup to create the Great Wall TV Package featuring 17 total channels. 763 EchoStar also introduced a new Arabic programming package called Arabic Elite Super Pack, which is offered on a mini- tier basis for $39.99 per month. 764 This year, DIRECTV introduced Vietnamese language programming to its lineup. 765 Comcast reports that it reorganized its digital cable package targeting Hispanic viewers in the United States, offering ten digital networks and eight audio channels that are targeted to Hispanic audiences. Comcast 757 See 47 U. S. C. § 25. 701. 758 DIRECTV Comments at Exhibit H. DIRECTV states that when faced with a capacity constraint, it must choose the most qualified programming, which will make its overall service offering as attractive and compelling for viewers as possible. DIRECTV attaches a copy of its instructions to programmers applying for access to its channel capacity. See DIRECTV Comments at Exhibit I. 759 EchoStar Comments at 14. EchoStar segments its programming into the following categories: seven educational, one arts, one multicultural, two news, three religious, one family, two social/ political/ cultural, one workplace learning, one Spanish educational, one NASA channel, and one health. In terms of how it selects its public interest programming, EchoStar states that a committee comprised of five or six EchoStar employees reviews all applications and make recommendations, which result in final selections by senior management. Id. 760 Id. at 14- 15. 761 NATOA Comments at 31- 32. According to NATOA, the most cost effective solution to accomplish funding of public interest programming by DBS operators is to subject them to the same regime cable operators are subject, by which local cable franchise authorities collect five percent of gross revenue receipts which are then directed to funding public interest programming facilities. Id. at 32. 762 SBCA Comments at 12. 763 Programming: DISH Grows Chinese Programming, SKY REPORT, Oct. 4, 2004. The service costs $29. 99 per month and is available as an a la carte offering. The package requires customers to use EchoStar’s SuperDISH system, which is capable of processing medium- power Ku- band and high- power DBS signals. 764 EchoStar Adds International Channels, SATELLITE BUSINESS NEWS, Oct. 1, 2004. The package includes Al Arabiya, NBN, New TV, Noursat, Iqraa, Al Jazeera, ART America and MBC. 765 International: DIRECTV Adds Vietnamese Content, SKYREPORT, Oct. 7, 2004. The channel is called VietnameseDirect and is the result of a joint venture involving International Channel Networks and Saigon Broadcasting Network. Most content is produced in the United States and consists of news, talk shows, sports, children’s programs, cultural, history, and general entertainment programs. 90 Federal Communications Commission FCC 05- 13 91 adds that it plans to introduce Hispanic VOD content. 766 In addition, Comcast offers five international specialty channels. 767 In July 2004, in a move designed to counter DBS operators’ strong international programming fare, Comcast assumed ownership of The International Channel. 768 Other cable operators offering non- English language programming include Time Warner, which offers programming in Spanish, Chinese, Hindi and several other South Asian languages. 769 Cox offers programming in Spanish, Arabic, Korean, Vietnamese, Filipino, and other South Asian languages. 770 Cablevision offers programming in Russian, Chinese, Korean, German, Portuguese, Indian/ Southeast Asian, Japanese, Italian, and Polish on certain systems in New York City. 771 Additionally, in May 2004, the History Channel launched a U. S. Spanish- language version of the History Channel. 772 174. Locally- Originated and Community- Oriented Programming: We requested information on the extent to which locally- originated programming is delivered to consumers by broadcasters and MVPDs, and the factors affecting production of and availability of locally- originated programming. 773 NCTA states that cable operators are active in promoting local and regional programming ventures that provide coverage of state and local events. 774 Distribution includes dedicated cable television channels, shared cable television channels, over- the- air broadcasting, and Internet streaming and archived media, but public affairs and government networks rely principally on cable distribution. 775 Approximately 20 766 Comcast Comments at 26. The ten networks include Discovery en Espanol, CNN en Espanol, Fox Sports Espanol, Toon Disney Espanol, MTV Espanol, VH Uno, TVE Internacional, Cinelatino, Utilisima, and HTV Musica. 767 Comcast Comments at 27. The channels include TV5, an international French language channel; RAI, an Italian network; CTI Zhong Tian, a 24- hour Mandarin- Chinese channel; Zee TV, an Indian satellite channel; and RTN, a 24- hour Russian language network. Comcast also reports that it now provides WKTV- Korean American Television to subscribers served by the MSO’s Maryland systems. Id. at 28. 768 Seth Arenstein, Q& A With International Channel Networks’ Steve Smith; Comcast Battles Satellite With Ethnic Programming, CABLEWORLD, Oct. 7, 2004. Comcast stated that it would direct The International Channel’s programming at Asian demographic groups. In June 2004, The International Channel also made an investment in Television Korea 24, which planned to launch in Los Angeles in the fourth quarter of 2004. The channel is a Korean- language digital basic cable or satellite network featuring news, dramas, movies, sports, business, health, music, children’s programming, and game shows, with selected shows subtitled in English. Korean Channel to Launch in L. A., BROADCASTING AND CABLE TV FAX, June 2, 2004. 769 See Time Warner Cable, at http:// www2. twcnyc. com/ index2. cfm? c= dtv/ channel (visited Jan. 7, 2005). 770 See Cox Communications, at http:// www. cox. com/ fairfax/ digitalcable/ digitalchannellineup. asp (visited Jan. 7, 2005). 771 See Cablevision Systems Corp., at http:// www. io. tv/ index. jhtml? pageType= international (visited Jan. 7, 2005). 772 History Readies Spanish- Language Version, BROADCASTING & CABLE TV FAX, Feb. 24, 2004. 773 See Notice, 19 FCC Rcd at 10916 ¶ 21. 774 NCTA Comments at 46. State public affairs networks in California, Michigan, and Pennsylvania are funded almost entirely by the cable television industry and receive wide scale distribution within those states. The California Channel is available in 5.6 million households, or 89 percent of all California cable households; Pennsylvania Cable Network is available in 3 million homes, or 85 percent of cable television households; and Michigan’s MGTV reaches 1. 6 million households, or about 75 percent of Michigan’s cable television households. Radio and Television News Directors Foundation, A Look at Regional News Channels and State Public Affairs Networks (RTNDF Study), Feb. 2004, at 23. 775 RTNDF Study at 22. Some statewide networks share time with local government access cable channels that typically feature programming produced by city or county government agencies. For example, in Detroit, the Detroit Cable Commission, a city- controlled agency, shares time on its dedicated cable channel with Michigan Government Television. Some state networks, such as Florida Channel, are distributed by public broadcast networks and through access- channel arrangements with cable operators. Washington State’s TVW uses the (continued....) 91 Federal Communications Commission FCC 05- 13 92 million homes have access to state public affairs television coverage. 776 Twenty- five states feature televised coverage of government activities and events, and another ten or more state channels are in development. 777 The coverage varies from a few hours of daily state House and Senate coverage during legislative sessions to professionally staffed networks providing 24- hour daily coverage of executive, legislative and judicial activities. 778 Some state networks have begun to broaden their programming beyond retransmission of government meetings; for example, in addition to state public affairs coverage, the Pennsylvania Cable Network offers original documentary programming, book review discussions and high school sports coverage. 779 In addition, Comcast reports that it distributes a regional news, sports and entertainment channel - CN8 - to households in Delaware, Maryland, New Jersey, New England and Pennsylvania. 780 175. Children’s Programming: Nonbroadcast networks are attracting a growing audience share for their children’s programming. Total day viewing by children aged 2- 11 of advertising-supported nonbroadcast networks increased from a 28.3 share in 1993/ 1994 to a 53.6 share during the 2003/ 2004 television season. 781 In June 2004, Comcast, the Public Broadcasting System, and programmers Sesame Street Workshop and HIT Entertainment were reported to be in discussion to develop a 24- hour, commercial- free nonbroadcast network dedicated to preschool aged children. 782 176. Access to Programming by Persons with Disabilities: Under the Commission’s rules, video programming distributors are currently required to provide at least 1,350 hours of captioned “new” nonexempt programming on each channel during each calendar quarter. 783 In addition, a video (... continued from previous page) Internet to distribute content, by placing digital recordings of hearings on its website. Some statewide networks distribute programming via Internet archiving, sometimes in conjunction with state universities. For example, Michigan State University stores unedited footage of state legislative debates and proceedings to be used by researchers and historians. Id. at 24- 25. 776 RTNDF Study at 17. According to the report, in February 2004, several state public affairs networks incorporated a not- for- profit trade association, the National Association of Public Affairs Networks, to foster the advancement of public affairs channels. For purposes of the report, a state public affairs television network is defined as an organization that produces and makes available to citizens ongoing televised coverage of activities, events and proceedings of the state government, including coverage of the legislative, executive and/ or judicial branches. Id. at 18. 777 Id. 778 For example, according to the report, in Washington State, cameras are allowed within the state Supreme Court chambers, and about five percent of the 2,200 hours of television produced annually by TVW, the state’s public affairs network, consists of oral arguments before the court. That is contrasted with the California Channel, which has no access to the state’s Supreme Court, and concentrates mainly on legislative and regulatory agency hearings and activities in the state capital to make up its six- and- a- half hours of daily programming. Id. at 20- 21. 779 Id. at 21. 780 Comcast Comments at 48. 781 NCTA Comments at 46. 782 Dennis K. Berman, Comcast Plans to Create 24- Hour Network – For Toddlers, WALL STREET JOURNAL, June 9, 2004. 783 47 C. F. R. § 79. 1( b)( 1) (phase- in schedule for programming “new” programming which is defined as programming first published or exhibited on or after January 1, 1998). Video programming first published or exhibited for display on television receivers equipped for display of digital transmissions or formatted for such transmission is defined as “new” as of July 1, 2002. 47 C. F. R. § 79. 1( a)( 6)( ii). See Closed Captioning Requirements for Digital Television Receivers, 15 FCC Rcd 16788, 16808- 09 ¶ 60 (2000) (Digital Captioning Order). As of January 1, 2006, 100 percent of all new, nonexempt video programming must be provided with (continued....) 92 Federal Communications Commission FCC 05- 13 93 programming distributor must include captioning in 30 percent of its “pre- rule” nonexempt programming on each channel during each calendar quarter. 784 The rules exempt several specific classes of programming from the closed captioning requirements. 785 Video programming providers may also petition the Commission for an exemption from the closed captioning rules if the requirements would impose an undue burden. 786 The closed captioning rules specified in Section 79.1 are enforced through a complaint process, with the complaint initially directed to the video programming distributor responsible for compliance with the rules. 787 177. We sought comment on many issues relating to programming providers’ and consumers’ experiences with closed captioning, including whether programming providers are complying with the existing requirements and updated information on the cost of captioning. 788 In response, we received approximately 220 informal comments from consumers regarding the amount and quality of captioning. The vast majority of commenters express their appreciation for the existing captioning and their desire to have all television programming captioned, including commercials. 789 Many commenters described how important captioning is for their enjoyment of television, for news and other information, or for learning for children who are deaf. 790 While numerous commenters note that closed captioning has improved recently, many mention, and often complain about, the continuing problems with quality, accuracy, placement, and missing or delayed captions. The accuracy of captions ranges from excellent to undecipherable, with many spelling errors. 791 Commenters express frustration with captions that fall behind the spoken words, or are cut off when scenes switch, there are commercial breaks, or before the end of a show. 792 Another concern is captions that block a speaker’s face or name, textual material or the action in a sporting event. 793 There is also incomplete or inaccurate captioning information in television program guides and listings. 794 Some commenters point out that programs may be captioned on the first showing, although not when the program is repeated and sometimes episodes of a usually captioned series do not appear with captions. 795 Commenters are especially concerned that all or part of their local (... continued from previous page) captions. 47 C. F. R. § 79. 1( b)( iv). A separate phase- in schedule applies for Spanish programming. 47 C. F. R. § 79. 1( b)( 3)-( 4). 784 47 C. F. R. § 79. 1( b)( 2) (phase- in schedule for “pre- rule” programming). See also 47 C. F. R. § 79. 1( a)( 6) (definition of pre- rule programming). 785 47 C. F. R § 79. 1( d). 786 47 C. F. R § 79. 1( f). 787 47 C. F. R § 79. 1( g). 788 Notice, 19 FCC Rcd at 10917 ¶ 23. 789 See, e. g., Letters from Richard S. Nealy (Aug. 23, 2004); Barbara and Bob Rummel (June 25, 2004); Steve Barber (July 12, 2004). 790 See, e. g., Letters from Christopher Parkes (July 12, 2004); Marcia Breese (June 25, 2004); Deborah Culp Hook (July 12, 2004). 791 See, e. g., Letters from Barbara Curtis (June 23, 2004); Paul Hammerschlag (July 9, 2004); Carolyn Wilson (July 15, 2004). 792 See, e. g., Letters from Barbara Curtis (July 23, 2004); Clifford Cleary (July 12, 2004); Patricia Raswant (July 14, 2004). 793 See, e. g., Letters from Liz Peterson (July 9, 2004); Don Senger (June 25, 2004); Jenni Tiziani (July 13, 2004). 794 See, e. g., Letters from William D. Sager (July 14, 2004); Karen Hearn (July 19, 2004); Liz Peterson (July 9, 2004). 795 See, e. g., Letters from Nancy Rosenberg (June 23, 2004); Carolyn Wilson (July 15, 2004); Jim Grennan (Aug. 23, 2004). 93 Federal Communications Commission FCC 05- 13 94 newscasts, especially the weather reports, remain uncaptioned, yet they are not sufficiently visual to provide necessary information, and commenters ask that real- time captioning be required for local news and emergency information. 796 178. TDI submits a previously filed Petition for Rulemaking requesting that the Commission initiate a proceeding to establish additional enforcement mechanisms to better implement the closed captioning rules. 797 In its petition, TDI specifically requests that the Commission: (1) create a database with updated contact information for video programming providers and a captioning complaint form; (2) establish a compliance reporting requirement and undertake audits to ensure effective implementation of the captioning requirements and to improve accountability; (3) revise its complaint rules to require responses to consumer complaints regarding issues other than the captioning benchmarks (e. g., captioning quality) within 30 days; (4) establish fines or penalties for noncompliance with the captioning rules; (5) require continuous monitoring of captioning by video programming providers to ensure that technical problems are remedied promptly; (6) require video programming providers to reformat edited or compressed captioning; (7) require that for a program to be captioned under the rules, it must meet minimum standards for completeness, accuracy, readability and synchronicity with the audio portion of the program; and (8) adopt nontechnical quality standards to ensure that video programming is fully accessible to persons with hearing disabilities. 798 179. NAD supports TDI’s petition and further addresses our request for comment on whether the procedures for applying for an exemption based on an undue burden are sufficient. 799 NAD argues that the procedures are not adequate because they do not provide for initial review of sufficiency of the petition for such an exemption before it is put out on public notice for comments and opposition. 800 NAD also claims that a program provider who files a petition for exemption, regardless of the merits, is effectively exempt from the captioning rules for at least two years while the petition remains pending before the Commission. 801 NAD recommends that the Commission adopt procedures to provide for preliminary review for sufficiency and that it reject those petitions that are insufficient, before posting a Public Notice. It further recommends that the Commission reduce the administrative delay in processing petitions for exemption. 802 180. DIRECTV reports that it passes along all NTSC closed captioning. 803 With respect to advanced digital closed captioning, DIRECTV states that it is unaware of any HD programming currently being transmitted with native CEA- 708B (i. e., digital) closed captioning, but it has tested its receivers using in- house produced CEA- 708B closed captioning, and they have all functioned properly. 804 Fox 796 See, e. g., Letters from Lois Smith (July 19, 2004); Richard S. Nealy (Aug. 23, 2004); Julia Olson (July 12, 2004). 797 See Closed Captioning of Video Programming – Implementation of Section 305 of the Telecommunications Act of 1996 Video Programming Accessibility, (filed July 23, 2004) (TDI Petition). The Media Bureau placed this Petition, RM No. 11065, on public notice on September 2, 2004, Report No. 2670, and is reviewing comments in anticipation of making recommendations to the Commission. 798 TDI Reply Comments at 2- 3. See generally TDI Petition. 799 Notice, 19 FCC Rcd at 10917 ¶ 23. 800 NAD Comments at 2. NAD states that a review of the petitions filed in 2004 indicate that many petitioners fail to provide information addressing the undue burden criteria in the rules. Id. at 45. See also 47 C. F. R. § 79. 1( f)( 2). 801 NAD Comments at 2, 5- 7. See also NAD Comments, Exhibits 1- 3 (detailing the history of undue burden petitions). 802 NAD Comments at 7. 803 DIRECTV Comments at 17. 804 Id. at 17- 18. 94 Federal Communications Commission FCC 05- 13 95 provides information on the costs of captioning its originally- produced broadcast and nonbroadcast programming, noting that it uses several vendors and that costs vary widely depending on whether the programming is live or on tape. 805 For example, Fox’s regional sports networks spend between $105 and $365 to caption a single hour of programming, with the higher fee associated with live sports events. For its National Geographic channel, Fox indicates that it typically costs $165 to caption an hour of original programming. Fox further states that, when it purchases programming from a third party, the cost of captioning is included in the overall cost of the programming. 181. With respect to video description, in August 2000, the Commission adopted rules requiring certain larger broadcasters and video programming distributors to include “video descriptions” with a small amount of their programming to increase their accessibility to persons with visual disabilities. 806 On November 8, 2002, the U. S. Court of Appeals for the D. C. Circuit vacated the Commission’s video description rules, finding that they exceeded the Commission’s authority. 807 In light of this decision, video description currently is provided by programmers on a voluntary basis. 182. In 1996, we reported that, with the exception of PBS, there were no video described programs distributed by broadcasters and TBS provided one movie a week with video description. 808 Today, we see some programming with video description on both broadcast and nonbroadcast networks. 809 Examples of prime time broadcast television programs that include video description are: PBS’ American Experience, Masterpiece Theatre, Mystery, Nature, and Nova; CSI: Crime Scene Investigation, JAG, and some movies on CBS; NBC’s Law and Order and some movies; The Bernie Mac Show, That 70’s Show, and The Simpsons on Fox; and some movies on ABC. In addition, broadcasters distribute children’s programming containing video description, such as: Sesame Street, Barney and Friends, and Mr. Rogers’ Neighborhood on PBS: and Reading Rainbow, Rugrats, Blue’s Clues and Dora the Explorer on CBS and also on co- owned Nickelodeon; Scout Safari, Kenny the Shark, and Endurance on NBC; and Fox’s Magic School Bus. Nonbroadcast networks, TCM, TBS, TNT, Lifetime and USA offer movies with video description, with TCM showing at least one video described movie almost every day. In addition to movies, several nonbroadcast networks include video description when they rerun programs that were previously shown on broadcast networks. Examples of such programs are: Law & Order and Homicide: Life on the Street on TNT; JAG on USA; CSI: Crime Scene Investigation on Spike; and Ripley’s Believe it or Not on TBS. Moreover, numerous websites provide consumers with daily listings of the availability of video described programming, some specific to particular local markets. 810 805 Fox Comments at 4- 5. 806 Video descriptions are aural descriptions of key visual elements in a television program, inserted into the natural pauses in the program’s audio and distributed in the program’s second audio channel. See Implementation of Video Description of Video Programming, 15 FCC Rcd 15230 (2000), on recon., 16 FCC Rcd 1251 (2001). 807 Motion Picture Association of America v. FCC, 309 F. 3d 796 (D. C. Cir. 2002). 808 See Closed Captioning and Video Description of Video Programming, Implementation of Section 305 of the Telecommunications Act of 1996, Video Programming Accessibility, 11 FCC Rcd 19214, 1926- 61 ¶¶ 112- 13, 116 (1996). 809 See, e. g., The Metropolitan Washington Ear, http:// www. washear. org/ dailylogs. htm (visited Jan. 14, 2005); WGBH – Media Access Group, http:// main. wgbh. org/ wgbh/ pages/ mag/ services/ description/ ontv/ (visited Jan. 14, 2005); and Turner Broadcasting, http:// www. tnt. tv/ dvs? network= all (visited Oct. 28, 2004). See also Letter from Elizabeth Goodwin (July 12, 2004) (urging the widespread adoption of video description). 810 See, e. g., The Metropolitan Washington Ear, http:// www. washear. org/ dailylogs. htm (visited Jan. 14, 2005); WGBH, http:// wgbh. org/ schedules/ daytv (visited Jan. 14, 2005); and Arts Access (Raleigh, North Carolina), http:// www. artsaccessinc. org/ AAvideodeodesc. html (visited Oct. 28, 2004). 95 Federal Communications Commission FCC 05- 13 96 183. In its comments, DIRECTV notes that programmers may use the Secondary Audio Programming (SAP) channel for video descriptions. 811 DIRECTV states that it carries a SAP channel on 39 nonbroadcast channels, and on over 200 broadcast channels, but it leaves the decision on how to employ the SAP channel to the programmers themselves, and it does not monitor the SAP channels systematically. 812 e. Packaging of Programming Services 184. Generally, MVPDs continue to offer packages or tiers of service that include a large number of programming networks. 813 DIRECTV offers certain programming, such as pay per view events and international sports offerings, on an a la carte basis, and it offers five “mini- tiers.” 814 185. Cable and DBS operators complain of contractual restrictions requiring them to include programming in basic or expanded basic tiers. 815 With the proliferation of digital platforms, many cable operators are choosing to locate new digital cable channels on digital tiers, in many cases built around a theme, such as sports or family programming. 816 Small cable operators claim that large programmers are demanding that they distribute second tier channels to all digital subscribers, thereby undermining the ability to provide digital theme- tiers. 817 EchoStar describes as “pervasive” the practice of having to carry programming networks that it would not normally carry or carry programming on a tier it would not normally choose, if not for a tie- in requirement with an essential broadcast station or nonbroadcast network. 818 EchoStar states that this practice prevents it from offering programming on a la carte and tiered basis, requiring it to bundle must- have programming with programming its consumers do not want. 819 Large programmers argue that bundling of programming services is an economically efficient way to deliver video programming with maximum choice and minimum inconvenience to potential 811 DIRECTV Comments at 18. 812 Id. 813 See, e. g., Comcast Comments at Appendix A, listing 11 separate program packages and tiers on its Arlington, Virginia system. Comcast offers a “Limited Basic” package of 32 channels, an “Expanded Basic” package of 45 channels, five separate digital packages, Cable Latino, an Hispanic language tier, a Sports Tier, “HDTV Channels Package” of 14 HD channels, and premium channels offered on a stand alone basis, although some premium services, such as HBO, have multiple channels of programming. 814 DIRECTV Comments at 13- 14. The mini tiers consist of an HBO package, a Cinemax package, a Showtime package, a STARZ! package, and a sports package. DIRECTV subscribers can purchase their first such package for $12 per month, the second for $11 per month, the third for $10 month, the fourth for $8 per month and the fifth for $7 per month. DIRECTV states that it has no immediate plans to add further mini- tiers. 815 See, e. g., ACA Comments at 11; EchoStar Comments at 4- 5; BSPA Comments at 23- 24. 816 See, e. g., R. Thomas Umstead, Diginets Hit the Screen, MULTICHANNEL NEWS, Dec. 8, 2003; R. Thomas Umstead, CSTV Continues Fight for Acceptance, MULTICHANNEL NEWS, Apr. 12, 2004; Crown Media Holdings, Inc., Crown Media Announces Hallmark Movie Channel (press release), Nov. 11, 2003; For a description of Cable One’s “Digital Value Pak” and “Digital Faith and Family Pak” see Cable One, Inc., at http:// www. cableone. net/ default. asp? logout= true (visited Jan. 14, 2005). 817 See, e. g., ACA Comments at 13. ACA states that some programmers are demanding migration of affiliated channels from digital tiers to analog expanded basic, using that as a lever to broaden distribution of their affiliated channels on the expanded basic tier. 818 EchoStar Comments at 4- 5. 819 Id. at 5. According to EchoStar, it faces contractual provisions requiring bundling of local stations with nonbroadcast programming, bundling of nonbroadcast networks, and market penetration requirements that prevent it from placing programming on specialty tiers or offering it on an a la carte basis. Id. at 6. 96 Federal Communications Commission FCC 05- 13 97 viewers, because it reduces transaction costs to consumers as well as MVPDs’ and networks’ costs, particularly costs of equipment and marketing. 820 C. Competitive Issues in Small and Rural Markets 186. In the Notice, we requested information and comment regarding issues specific to video programming distribution in rural and smaller markets. 821 NTCA, a trade association for rural telecommunications providers, reports that a significant portion of its members are providing video service, but that their efforts are hampered due to an inability to receive terms similar to those that large cable MSOs receive, and due to tying requirements by programmers. 822 OPASTCO, a trade association representing rural telephone companies, reports that half its members operate small cable television companies, and others offer video service via DSL, sometimes overbuilding neighboring service territories. 823 Still others provide video satellite services, or have deployed fiber to the home. OPASTCO indicates that bundling of video services with other advanced services increases penetration rates and thus spurs further investment in advanced services in rural areas. OPASTCO also states, however, that the higher prices rural video providers pay for programming and retransmission consent agreements that require carriage of additional channels on the basic tier, raise costs and impede market entry. OPASTCO recommends that video providers have the option of providing programming on an la carte basis so its members can provide video in a manner that matches the needs of customers. 824 ACA, which represents small cable operators, states that more than half of its members currently offer digital cable service, more than half offer cable modem service, and more are planning on providing these services in the next 12 months. 825 ACA also reports difficulties with high programming costs, programming tying arrangements, and retransmission consent agreements, recommends allowing more flexibility for small video providers in packaging video programming, and supports some legislative changes to the retransmission consent and program access laws to address the problems ACA raises. 826 For example, ACA reports that some companies acquiring systems from major MSOs estimate that programming costs increase up to 30 percent, solely because a smaller company acquired ownership. 827 Citing a study by the Carmel Group, ACA notes that 53 percent of the small cable operators surveyed allocated between 35 and 49 percent of total expenses to programming costs, and 20 percent of respondents allocated more than 50 percent. 828 820 See, e. g., Fox Comments at 2- 4. See also Fox Comments Statement of Gustavo Bamberger at 1- 2, that bundling of programming products by programmers and by MVPDs generally reduces costs and is economically efficient. 821 Notice, 19 FCC Rcd 10919- 20 ¶ 30. 822 See NTCA Comments, generally. NTCA refers specifically to tying requirements under which a large programmer will require carriage of less popular networks it owns as a condition for carriage of its most popular network( s). See paras. 161- 63 supra for further discussion of programming tying requirements and issues surrounding retransmission consent. 823 See also Fourth 706 Report, 19 FCC Rcd at 20570. 824 See OPASTCO Reply Comments, generally. 825 ACA Comments at Exhibit 2. 826 Id. at Exhibit 1. ACA does not advocate Commission intervention to enable operators to offer their programming on an a la carte basis. 827 Id. at 39. 828 Id. 97 Federal Communications Commission FCC 05- 13 98 D. Technical Issues 1. Navigation Devices 187. As mentioned previously, the Commission’s Plug and Play Rules allow for television sets to be built with one- way “plug- and- play” functionality (e. g., premium channels). 829 Consumers still need a set- top box to receive two- way services (e. g., video- on- demand), while the cable and consumer electronics industries continue to work on an agreement for two- way “plug- and- play” functionality. 830 Since our last Report, more than 60 models of Digital Cable Ready (DCR) televisions by 11 different manufacturers are now certified for retail sale. 831 As of August 2004, the top 10 cable operators had deployed CableCARDs 832 to the approximately 5,000 subscribers nationwide that have thus far requested them. 833 The cable industry indicates that it has begun to educate consumers about the retail availability of CableCARDs and unidirectional digital cable products by working with local retailers and training their customer service representatives, and by providing consumers with educational material directly via websites, monthly bills, brochures, and advertisements. 834 188. OpenCable. In July 2004, the OpenCable Applications Platform (OCAP) was approved by the American National Standards Institute (ANSI) to standardize cable set- top box software applications. 835 Many cable operators have begun to develop applications using the OCAP standard, which are designed to run on a variety of set- top boxes and should facilitate the growth of interactive television. 836 For example, Comcast and Time Warner have announced the creation of OCAP Development, LLC, a joint venture dedicated to creating an OCAP middleware implementation. The joint venture expects that its middleware will accelerate the development of OCAP- compliant software and help hasten the development of various applications. 837 Also, Time Warner announced plans to strip out the existing interactive program guides (IPG) from Scientific- Atlanta and Pioneer set- top boxes, and 829 47 U. S. C. § 549. Plug and Play Rules, 18 FCC Rcd 20885 (2003). See Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 11- 13, 18- 22, 24- 27, 29- 30. 830 Plug and Play Rules, 18 FCC Rcd 20885 (2003). 831 CableLabs, CableLabs Verifies Three DTVs, More Than 60 Models Now Approved (press release), Aug. 24, 2004. 832 See fns. 157, 173 supra. The OpenCable specification is designed to support the retail sale of advanced digital set-top boxes and other devices such as CableCARDs. See CableLabs, at http:// www. cablelabs. com/ news/ glossary. html# C (visited Oct. 5, 2004). 833 Letter from Neal M. Goldberg, General Counsel, NCTA, to Marlene H. Dortch, Secretary, FCC (Nov. 19, 2004) (NCTA Nov. 19 Ex Parte, Docket No. 97- 80), at 2. See also Letter from Neal M. Goldberg, General Counsel, NCTA, to Marlene H. Dortch, Secretary, Federal Communications Commission (Sept. 30, 2004), Attachment (Memorandum) at 1. 834 Letter from Neal M. Goldberg, General Counsel, NCTA, to Marlene H. Dortch, Secretary, Federal Communications Commission (Sept. 30, 2004), Attachment (Memorandum) at 1. See also TiVo Reply Comments generally. 835 Society of Cable Telecommunications Engineers, SCTE Standard on CableLabs OCAP Specification Achieves ANSI Approval (press release), July 1, 2004. 836 See Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 10- 13, 16- 19, 22, 25- 27, 29- 31. 837 Time Warner Cable, Comcast and Time Warner Cable Partner to Deliver OCAP Middleware (press release), Aug. 10, 2004. 98 Federal Communications Commission FCC 05- 13 99 replace them with an OCAP- based navigation system, which will be able to handle VOD, subscription VOD, and other OCAP applications. 838 189. On October 21, 2004, Samsung Electronics was the first to enter into agreements with CableLabs allowing Samsung to implement OCAP compliant middleware on their interactive digital television sets and set- top boxes. This agreement is seen by most in the cable industry as a significant advance for making interactive two- way cable products available at retail. 839 On November 12, 2004, representatives from the cable and consumer electronics industries met with the Commission to report on the status of two- way plug- and- play negotiations. Industry representatives said that progress continues to be made at scheduled bi- weekly meetings, though no target date for completion was expressed. 840 190. In October 2003, the Advanced Television Systems Committee (ATSC) announced that it had successfully coordinated its DTV Application Software Environment (DASE) specifications with OCAP to create the Advanced Common Applications Platform (ACAP), which provides broadcasters with the same advantages that OCAP provides for cable operators. 841 In November 2004, Starz Encore Group LLC demonstrated a satellite television feed paired with an application designed to run on OCAP. The transmission was successful and the results were verified by CableLabs. This was the first “out- of-lab” use of OCAP, making Starz the first programmer to embed OCAP functionality within a U. S. broadcast. 842 News Corp. owns approximately 77 percent of NDS Group plc, a supplier of conditional access systems, and approximately 41 percent of Gemstar- TV Guide International, the leading provider of EPGs and IPGs. 843 Gemstar states that improvements in software, coupled with the introduction of open cable platforms, has permitted the development of new EPGs and their rapid deployment by MVPDs. 844 2. Emerging Technologies 191. Fiber to the Premises (FTTP). 845 The number of telephony and broadband operators deploying or testing fiber- to- the- premises (FTTP) networks continues to grow monthly. 846 The two major 838 Jeff Baumgartner, Time Warner Looks Inside for IPG Guidance, CED BROADBAND DIRECT, May 19, 2004. 839 CableLabs, Samsung Electronics First to Sign CableLabs Licenses for Two- Way Digital Cable Products (press release), Oct. 21, 2004. 840 See NCTA Nov. 19, 2004 Ex Parte, Docket No. 97- 80. 841 Advanced Television Systems Committee, Inc., ATSC Publishes New Interactive “ACAP” Candidate Standard (press release), Oct. 2, 2003. 842 Starz Encore Group, LLC, Starz Hosts First Satellite Transmission Using OCAP Platform (press release), Nov. 1, 2004. 843 NDS Group plc, Annual Report Pursuant to Section 13 or 15( d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended June 30, 2004, at 7; Gemstar- TV Guide International Inc., Quarterly Report Pursuant to Section 13 or 15( d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2004, at 10. See also News Corp Order, 19 FCC Rcd at 479, 576 ¶¶ 7, 227. 844 Gemstar Reply Comments at 6. Gemstar reports that it has arrangements with Comcast and Time Warner that allow the cable operators to combine Gemstar technology with that of other vendors; it has a non- exclusive licensing agreement with its affiliate, DIRECTV; and a non- exclusive agreement with EchoStar that allows it to use Gemstar technology for its EPG. Id. at 7- 9. See also News Corp Order, 19 FCC Rcd 576- 81, 284- 5 ¶¶ 227- 241, 247- 250. 845 See Fourth 706 Report, 19 FCC Rcd 20555- 57. As of May 2004, carriers have deployed FTTH Technology to 128 communities in 32 states. In addition, companies plan to deploy FTTH further in the future. For example, Verizon has accelerated its FTTH deployment with the goal of passing 1 million homes by the end of 2004. SBC has also announced plans to implement a limited FTTH deployment . . . in 2004, and to implement FTTH to approximately 300, 000 premises in 2005. Id. See also paras. 127- 128 supra. 846 Jeff Baumgartner, Sizing up the Fiber Smorgasbord, CED MAGAZINE. COM, Oct. 5, 2004. 99 Federal Communications Commission FCC 05- 13 100 optical techniques employed over fiber networks are active and passive. The passive technique operates over two different types of architectures: Broadband Passive Optical Network (BPON) and Gigabit PON (GPON). Standards are in force for these technologies as ITU- T recommendations G. 983 and G. 984, respectively. 847 Verizon, Bell South, and SBC Communications currently use BPON. Verizon states that the passive nature of BPON will provide huge savings on plant maintenance because the architecture does not use electronics in the field except at the customer location. 848 Verizon and SBC have launched multibillion dollar efforts to roll out fiber lines that can deliver Internet service, voice, and video through a single connection. 849 192. Active networks, on the other hand, use active electronic devices (e. g., amplifiers, splitters) and the platform enables sending only the channel the subscriber is watching, preventing signal theft from rogue set- top boxes. Makers of active FTTP architectures are entering into agreements primarily with smaller telephone companies, municipalities, and utilities. For example, the Utah Telecommunication Open Infrastructure Agency (UTOPIA) and iProvo are using active FTTP architecture. UTOPIA is connecting 50,000 premises in Salt Lake City. iProvo is building out a network that reaches 27, 000 homes and 4,100 businesses. 850 193. Distributed Television Transmission (DTx). A DTV distributed transmission system employs multiple synchronized transmitters spread around a station’s service area. Each transmitter broadcasts the station’s DTV signal on the same channel, relying on the performance of “adaptive equalizer” circuitry in DTV receivers to cancel or combine the multiple signals plus any reflected signals to produce a single signal. Such distributed transmitters are considered to be similar to analog TV booster stations, a secondary, low power service used to “fill in” gaps in the parent station’s coverage area, but DTV technology has the potential to enable this type of operation in a much more efficient manner than its analog predecessor. 851 The Commission approved such systems in principle and has agreed to begin a proceeding on the necessary rules, allowing use of the technology on a case- by- case basis in the interim. 852 194. Digital Video Recording Technologies. In August 2004, the Commission approved 13 content protection technologies for use with the Broadcast Flag, of which, several facilitate new uses of digital television content. 853 The Digital Rights Management (DRM) technologies allow consumers to securely share digital video files within a home network environment and on portable media players. 854 One DRM technology also allows a user to securely share digital video files outside the home with a 847 BPON uses ATM as a bearer protocol for transmitting in both directions. It originally supported 155 Mbps in both directions, but the latest version supports downstream rates of 622 Mbps and upstream of 155 Mbps. GPON is a new standard that carries gigabit rate streams. It is capable of up to 2.5 Gbps in each direction and supports legacy ATM infrastructure. 848 Id. 849 Almar Latour, Showdown of the Giants, WALL STREET JOURNAL, Nov. 8, 2004, at B1. 850 Id. 851 The Commission’s Spectrum Policy Task Force has recommended that digital television broadcasters be permitted to operate single frequency low power distributed transmission systems within their present service areas. See Spectrum Policy Task Force Report, ET Docket No. 02- 135 (Nov. 2002), at 64, http:// www. fcc. gov/ sptf/ reports. html (visited Jan. 14, 2005). 852 Id. at paras. 177- 8. See also para. 92 supra. 853 Digital Output Protection Technology and Recording Method Certifications, 19 FCC Rcd 15876 (2004). See also para. 91 supra. 854 The approved DRM technologies are TiVoGuard, Helix DRM, Microsoft Windows DRM, and SmartRight. Id. at ¶¶ 19, 46- 60. 100 Federal Communications Commission FCC 05- 13 101 limited number of devices registered on the user’s account. 855 Several other technologies allow users to store digital video onto new portable media formats. 856 In addition, high- definition DVRs have begun to appear on the market, which will further facilitate delivery of digital video content. 857 195. Home Networking and Wi- Fi. 858 Several cable operators are beginning to offer home networking services for their subscribers. Home networking allows cable operators to connect multiple devices in the consumer’s home (e. g., set- top boxes, television sets, personal computers) to a central processing device (e. g., set- top box, cable modem). 859 Currently, the most common application for home networking is to connect multiple computers in the home to cable modem services, but the service can be used to transmit video such as downloaded VOD movies. Comcast, Time Warner and Cox all offer home networking using a wireless system based on CableLabs’ CableHome specifications, connecting as many as five computers in the home. 860 196. In addition to CableHome technology, some cable operators are reportedly conducting trials of the power industry’s Home Plug technology. 861 HomePlug can be used to send data between cable modems, computers and other devices throughout the household at speeds of up to 14 Mbps using the electrical wiring already in the household. 862 197. Cable operators also are forming alliances with wireless hotspot providers to offer their subscribers high- speed data access via Wi- Fi hotspots. 863 Comcast, for example, offers to sign up its high- speed Internet access subscribers with Wi- Fi enabled laptops for T- Mobile subscription HotSpot service. 864 Cox has joined Intel and Arizona State officials to offer a Wi- Fi hotspot service known as 855 Id. at ¶ 19. 856 MagicGate Type- R allows storage on Minidisc and MemoryStick media. CPRM allows storage onto DVD-R/ RW Secure CompactFlash, Microdrive media, and SD Memory Cards. Vidi allows storage onto DVD+ R/ RW, D-VHS allows storage on VHS cassettes. Id. at ¶¶ 24, 36, 30, 41. 857 See, e. g., Motorola, Inc., Motorola: Never Miss a Play with Motorola HD DVR, http:// broadband. motorola. com/ getdvr/ (visited Nov. 11, 2004); DIRECTV Group Inc., DIRECTV HD DVR, http:// www. directv. com/ DTVAPP/ imagine/ TiVo_ HD. dsp (visited Dec. 3, 2004). 858 See Fourth 706 Report, 19 FCC Rcd at 20557- 58. 859 CableLabs, CableHome Home, http:// www. cablelabs. com/ projects/ cablehome/ (visited Dec. 3, 2004). 860 Alan Breznick, Cable Operators Explore HomePlug for High- Speed Data, Home Networks, CABLE DATACOM NEWS, June 2004. CableLabs has been developing a new home networking specification called CableHome. CableLabs now has 10 Cable Home 1.0 certified products and three CableHome 1.1 certified products. See CableLabs, CableHome Home, http:// www. cablelabs. com/ projects/ cablehome/ (visited Dec. 3, 2004). 861 Alan Breznick, Cable Operators Explore HomePlug for High- Speed Data, Home Networks, CABLE DATACOM NEWS, June 2004. See Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 9, 25, 32. 862 Alan Breznick, Cable Operators Explore HomePlug for High- Speed Data, Home Networks, CABLE DATACOM NEWS, June 2004. See paras. 133- 134 supra. 863 Wi- Fi is an interoperability certification for wireless local area network (LAN) products based on the Institute of Electrical and Electronics Engineers (IEEE) 802.11 standard. A hotspot is a place where the public can access Wi-Fi service, either for free or for a fee. Hotspots can be found at coffeeshops, airport lounges, train stations, convention centers, hotels or any other public meeting areas. Corporations, campuses, local governments also are implementing hotspots to provide wireless Internet access to their visitors and guests. Wi- Fi Alliance, http:// www. wi- fi. com/ OpenSection/ glossary. asp? TID= 2 (visited Jan. 14, 2005). 864 Alan Breznick, MSOs Explore Data Connections Outside The Home, CABLE DATACOM NEWS, Mar. 2004. 101 Federal Communications Commission FCC 05- 13 102 Public Online Wireless Electronic Resource (POWER), which provides free wireless broadband service to members of the public in Arizona. 865 198. Consumer demand of the home gateway along with the evolution of IEEE standards and CableLabs specifications continues to enhance innovation in the home networking segment. 866 Many companies including Intel, Cisco, D- Link, and Motorola, have recently delivered products based upon the newly revised IEEE 802.11n, CableHome 1.1, and PacketCable 1.1 standards. 867 These new devices provide connectivity in the home powerful enough for VoIP and/ or Wi- Fi hotspots to be supplied by Comcast and Time Warner. 868 199. Interactive Television (ITV). As we have reported previously, ITV services are services that support subscriber- initiated choices or actions that are related to one or more video programming streams (e. g., t- commerce, data enhancements, interactive gaming, VOD, DVRs, and EPGs). 869 Cable operators, DBS operators, application developers, and technology manufacturers continue to explore a variety of ITV services in order to increase revenue and subscribership, and to reduce MVPD churn. 200. CableLabs continues to host events in which the developers of ITV services can test products to run over any cable television system. Under the OpenCable standard, applications written by independent content developers can run successfully on OpenCable compliant consumer devices, and manufacturers can develop products that will support all services delivered by cable operators. 870 In August 2004, CableLabs conducted an interoperability event in which application developers demonstrated a wide variety of ITV applications (e. g., an airline travel reservation system, a medical advisor application, t- commerce applications, an advanced real- time and local weather application), and 11 different manufacturers presented OpenCable compliant hardware platforms. 871 201. WiMAX. WiMAX is a developing wireless standard that is expected to become a last mile solution for cable operators, broadband providers, and others. 872 The technology, embodied in IEEE Standard 802.16, has the potential to reach rural customers outside of the range of today’s infrastructure and can also be implemented to provide an entire metropolitan area with high- speed Internet access. With speeds up to 75 Mbps at ranges as far as 30 miles, WiMAX technology is a crucial step towards a transition to IP communication entirely without wires. 873 865 Id. 866 Satish Gupta, Design Challenges for Home Gateway Devices, CED MAGAZINE, Mar. 2003. The home gateway provides consumer benefits such as broadband Internet sharing, VPN, firewall security, voice/ video- over- IP and home automation. 867 Wi- Fi Alliance, IEEE 802.11n QA Final, http:// www. wi- fi. org (visited Nov. 9, 2004). 868 Craig Kuhl, Does it Take Two (or More) to Tango?, CED MAGAZINE, Nov. 2004. 869 See 2003 Report, 19 FCC Rcd at 1712- 5 ¶¶ 187- 192. See also Nondiscrimination in the Distribution of Interactive Television Services Over Cable, 16 FCC Rcd 1321 (2001) (ITV NOI). 870 CableLabs, Twenty Four Firms Participate in CableLabs OCAP Interoperability Event (press release), Aug. 18, 2004. 871 Id. 872 See Fourth 706 Report, 19 FCC Rcd at 20557. See also Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 23, 31; Jeff Baumgartner, RF Magic Conjures Up Comcast Investment, CED MAGAZINE, Oct. 26, 2004. 873 Intel Corp., Broadband Wireless Access: IEEE 802. 16 and WiMAX White Paper, 2003. 102 Federal Communications Commission FCC 05- 13 103 202. Next Generation Network Architecture LLC (NGNA). NGNA is an undertaking by Comcast, Cox, and Time Warner to help the transition to the all- digital network without undergoing expensive rebuilds. NGNA released a Request for Information (RFI) early this year. Some of the many topics under analysis are advanced codecs, such as MPEG- 4 and Windows Media 9, solutions to migrate to an alternative conditional access system while still supporting the legacy, all- digital migration devices that can be used to convert digital signals to analog signals at or in a subscriber’s home with as much transparency as possible and advanced codec transcoders, which could accept streams based on advanced codecs and convert them to MPEG- 2. It is expected that NGNA initiative will be operated by CableLabs in the near future. 874 203. Advanced Compression Techniques. These techniques can increase the number of video streams that can be transmitted in a given amount of spectrum by at least 2: 1 and commonly closer to 3: 1 compared to the current standard MPEG- 2. 875 Advanced codecs such as MPEG- 4/ H. 264 and Microsoft’s VC- 1 (formerly Windows Media 9/ VC- 9) have approximately the same technical capabilities. The differences between the two are primarily in the licensing models, with MPEG- 4 fees based on actual usage of the codec, rather than on a per- device basis. 876 Both MPEG- 4 and VC- 1 were recently added to the HD- DVD and Blu- Ray BD- ROM high- definition disc specifications along with MPEG- 2. 877 Incorporation of advanced codecs into the ATSC standard for use in the main DTV video stream is not likely in the near future, as the MPEG- 2 decoders present in all ATSC tuners are not capable of decoding the advanced codecs. The ATSC is, however, evaluating MPEG- 4 and VC- 1 for use in the Enhanced-VSB mode. 878 Use of advanced codecs is currently limited to IPTV, VOD and services developed within the last few years. MPEG- 2 users may transition into MPEG- 4, first by launching new services utilizing advanced codecs to get the hardware on the market. 879 204. Cellular Video. 880 Texas Instruments recently introduced a chip for mobile phones called “Hollywood” that will support high quality digital broadcast TV for the wireless industry. The chip will use the both the Digital Video Broadcasting – Handheld (DVB- H) standard from Europe and the Integrated Services Digital Broadcasting – Terrestrial (ISDB- T) standard from Japan. The DVB- H standard is expected to be extended to North America. Additional infrastructure must be deployed, as these standards require a dedicated wireless network, 881 although this requirement may be relaxed as IBOC datacasting, capable of carrying the video programming, becomes more prevalent. 882 Crown Castle has deployed a single- frequency DVB- H test site in Pittsburgh, Pennsylvania, using spectrum in 874 Jeff Baumgartner, NGNA: A Sneak- Peek At Cable’s Battle Plan For The Future, CED MAGAZINE, May 2004. 875 Envivio, Inc., About H. 264, http:// www. envivio. com/ products/ h264. html (visited Nov. 9, 2004). 876 Chris Forrester, IBC Agonizes Over Standards, SATMAGAZINE. COM, Oct. 20, 2004, at 19. 877 Martyn Williams, Blu- Ray Disc to Support MPEG- 4, VC- 1, PCWORLD, Sept. 2, 2004. 878 Advanced Television Systems Committee, Inc., ATSC Approves Enhancements to DTV Standard (press release), July 20, 2004. E- VSB adds additional forward error correction layers to a portion of the data stream, creating a more robust but low payload capacity fallback stream. 879 Ina Fried, Comcast Taps Microsoft for Seattle Set Tops, CNET NEWS. COM, Nov. 8, 2004. For example, Comcast’s partnership with Microsoft puts VC- 1 capable set- top boxes in subscriber’s homes. 880 See also para. 107 supra. 881 Texas Instruments, Texas Instruments Brings Live Digital TV to Your Cell Phone (press release), Oct. 21, 2004. 882 Junko Yoshida, Cell Phone Video Gets Real, EE TIMES, Sept. 20, 2004. 103 Federal Communications Commission FCC 05- 13 104 the 1440- 1790 MHz band. 883 The service will provide video at 24- 30 frames per second, with the first mass deployments expected in 2007. 884 3. Cable Modems 205. Cable modems allow cable subscribers to access high- speed data services, over hybrid fiber- coaxial (HFC) cable plant. 885 Cable operators began offering high- speed data services using cable modems in order to better compete with other providers of video programming, such as DBS, which has not widely deployed two- way facilities- based high- speed Internet access services. 886 High- speed data services provided using cable modems now enable emerging video services such as Internet video and video- on- demand. 887 206. Cable modem deployment continues to increase, with manufacturers shipping approximately 2.3 million cable modems in North America during the second quarter of 2003. 888 Internet access subscribers using cable modems also continues to increase. By June 2004, there were approximately 18.5 million cable modem subscribers in the United States. 889 207. DOCSIS. We continue to report on the progress of the CableLabs Certified Cable Modem Project (also known as Data Over Cable Service Interface Specification or DOCSIS). 890 DOCSIS defines interface requirements for cable modems used for high- speed data distribution over cable television networks. 891 As a result of this standard, DOCSIS certified modems are compatible with and interchangeable across similarly certified DOCSIS- equipped cable systems. 892 Industry analysts note that DOCSIS is the foundation of essentially all of CableLabs’ specification initiatives. 208. The first specification, DOCSIS 1.0, allows cable operators to deliver high- speed Internet services on a “best effort” basis simultaneously over the same plant as video services. 893 To date, CableLabs has certified 241 DOCSIS 1.0 modems. 894 The next specification, DOCSIS 1.1, was designed 883 Id. 884 Texas Instruments, Texas Instruments Brings Live Digital TV to Your Cell Phone (press release), Oct. 21, 2004. 885 As described above, cable modem service is primarily residential service, but may also include some small business service. See fn. 137 supra. See also Fourth 706 Report, 19 FCC Rcd at 20553; See also Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 5- 6, 15, 17, 25- 27, 32. 886 See paras. 45- 49, 52, 66- 7 supra. 887 See paras. 113- 119 supra. 888 Kinetic Strategies, Cable Modem Market Stats & Projections, CABLE DATACOM NEWS, Sept. 1, 2004, at http:// www. cabledatacomnews. com/ cmic/ cmic16c. html (visited Sept. 17, 2004). 889 See High- Speed Service Report at Table 3. 890 CableLabs, Cable Modem/ DOCSIS: Cable Modem Home, http:// www. cablemodem. com (visited Sept. 17, 2004). See Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 5- 6, 15, 17, 25- 27, 32. See also Fourth 706 Report, 19 FCC Rcd at 20553- 54; Douglas Shapiro, CableLabs Financial Analyst Day, Banc of America Securities, May 20, 2004, at 3- 6. 891 CableLabs, Cable Modem/ DOCSIS: Cable Modem Home, http:// www. cablemodem. com (visited Sept. 17, 2004). 892 Id. 893 Best effort is a term for a quality of service class with no specified parameters and with no assurances that the traffic will be delivered across the network to the target device. Newton’s Telecom Dictionary, 17 th Edition, at 88. 894 CableLabs, DOCSIS Certified Products, at http:// www. cablemodem. com/ downloads/ Certified_ Products. pdf (visited Sept. 17, 2004). 104 Federal Communications Commission FCC 05- 13 106 211. PacketCable. PacketCable, another CableLabs project, is the specification standard developed for delivering advanced, real- time multimedia services over two- way cable plant. 906 PacketCable uses IP technology to enable a wide range of services, including IP telephony, multimedia conferencing, interactive gaming, and general multimedia applications. 907 As of August 2004, 11 PacketCable- embedded multimedia terminal adapter devices were certified by CableLabs. 908 IV. FOREIGN MARKETS 212. In the Notice, the Commission invited comment on the status of competition in foreign markets for the delivery of video programming that would provide insights regarding the nature of competition in the United States. 909 We requested information regarding the differences between the United States and other markets with respect to video programming distribution and advanced services provision that would be instructive as to the efficiency of market structures and regulations within the United States. Although none of the commenters responded to our request for data analysis or case studies of video delivery in foreign markets, we continue to believe that insights may be derived from examining such developments. In this section, we report on some interesting developments in foreign markets, covering video over IP broadband, the digital television transition, and terrestrial, cable and satellite competition, that we find relevant to our examination of video programming in the United States. In particular, we have chosen to examine video provided via IP broadband (also known as IPTV) in Hong Kong, Italy, and the United Kingdom. We also report on the transition to digital television in Germany and the United Kingdom, in order to provide insight into the relative efficiency of market structures and regulations within the United States. A. Video Over IP Broadband 213. As discussed above, a potential source of new video competition is video offered over broadband Internet service. 910 Connection speeds are needed, however, such that standard full- screen viewing is possible. In the densely populated Hong Kong market, Now Broadband TV, a subsidiary of PCCW, the incumbent wireline telecommunications operator in Hong Kong, offers subscribers a service similar to cable and satellite television services using DSL connections on copper phone lines. 911 According to company reports, this 24- hour service has 62 programming channels, distributed as true a la 906 Cable Labs, PacketCable Home, http:// www. packetcable. com (visited Sept. 17, 2004). See Fourth 706 Report, 19 FCC Rcd at 20554; Letters from Paul Glist, Cole, Raywid & Braverman, Counsel for CableLabs, to Marlene Dortch, Secretary, FCC, July 28, 2004 and July 29, 2004, at 7- 8, 25. 907 Cable Labs, PacketCable Home, http:// www. packetcable. com (visited Sept. 17, 2004). 908 CableLabs, PacketCable Certified Products, at http:// www. packetcable. com/ downloads/ Certified_ Products. pdf (visited Sept. 17, 2004); CableLabs, PacketCable Qualified Products http:// www. packetcable. com/ downloads/ Qualified_ Products. pdf (visited Sept. 17, 2004). An embedded multimedia terminal adapter (E- MTA) is a device used to enable voice services over a cable modem. 909 Notice, 19 FCC Rcd at 10933 ¶ 76. 910 See paras. 113- 116 supra. 911 See fn. 514 supra. See also Fourth 706 Report, 19 FCC Rcd at 20579- 20582. In terms of absolute numbers of broadband subscribers, the United States leads the world. See id. Chart 13. 106 Federal Communications Commission FCC 05- 13 107 carte service with subscribers paying only for the channels they select to watch. 912 As of October 2004, the service had 370,000 subscribers. 913 214. Another leader, outside of the United States, in the provision of video content over a non-traditional broadband system is the FastWeb/ e. Biscom system that provides service in a number of large Italian cities, including Milan, Rome, Genoa, Turin, Naples, and Bologna. The FastWeb/ e. Biscom system provides voice, data, and over 120 channels of video service to residential and business customers over a combination of fiber- to- the- home and DSL technology. The DSL technology enables reception speeds of up to 4 Mbps. 914 At the end of June 2004, the system had approximately 151,000 video subscribers, up 116 percent from the previous year. 915 Approximately 43 percent of customers were directly connected to the fiber optic network, with the remaining 57 percent connected via DSL. 916 215. A basic television subscription is 10 Euros per month ($ 12) for mainly free channels, but there is a menu of extra channels and VOD options. Many subscribers take the television service as part of a triple bundle of television, Internet, video conferencing and telephone, which costs 110 Euros per month ($ 142). Without television and video communication, the service is 85 Euros/ month ($ 110). New films on the VOD service cost 6 Euros ($ 8) per 24 hours, older movies cost 4 Euros ($ 5) per 24 hours. 917 216. In the United Kingdom, several companies are developing broadband- based video services, spurred on in part by a reduction in the cost of securing unbundled local loop connections. 918 The first provider to enter the UK market was HomeChoice, which offers conventional TV channels, VOD, BBC programming, and highly popular BSkyB sports and movie channels. 919 HomeChoice’s network reaches approximately 1.25 million homes though 73 telephone exchanges, but the company is reported to have only 3,300 subscribers. 920 BT has initiated trials of a digital set- top box that allows users to download television programs on pay- per- view basis over broadband, with a projected commercial deployment in summer 2005. 921 Wanadoo UK, a France Telecom subsidiary, plans to launch television 912 See PCCW Ltd. Now Broadband TV, http:// www. nowbroadbandtv. com/ eng/ (visited Jan. 14, 2005). See also Lee Gomes, Web TV Is Changing The Way Programming Is Watched and Sold, WALL STREET JOURNAL, May 10, 2004, at B1; Dan Gillmor, Future of TV Looks a Lot Like Broadband, MERCURY NEWS, Dec. 7, 2003. 913 PCCW Ltd, Now Broadband TV Wins CASBAA Chairman’s Award (press release), Oct. 31, 2004. 914 Between 1.5 Mbps and 3.8 Mbps are thought to be necessary for good standard definition picture quality. 915 E. Biscom, Revenues Rise 77% in the First Half of 2004 to Euro 336.7 Million (press release), Aug. 27, 2004. 916 Id. 917 See e. Biscom, http:// www. ebiscom. it/ index. php? sid= 64 (visited Oct. 10, 2004). 918 See United Kingdom Office of Communications, Ofcom Publishes Wholesale Price Proposals for Competitive Broadband Market (press release), Aug. 26, 2004. Ofcom initiated its price review in May 2004. The final price adjustments are expected to take place in December 2004. Id. See also United Kingdom Office of Communications, Review of the Wholesale Local Access Market Explanatory Statement and Notification, Aug. 26, 2004, at http:// www. ofcom. org. uk/ consult/ condocs/ rwlam/ rwlam/ (visited Jan. 14, 2005). 919 See United Kingdom Office of Communications, The Communications Market – October 2004 Quarterly Update (Ofcom Report), at 46. HomeChoice offers approximately 80 channels of broadcast and on demand programming. The company offers service packages priced according to the download speed of the service: 512 Kbps (£ 27. 50 per month, or $51. 00), 1 Mbps (£ 35. 00 per month, or $65.00), or 2 Mbps (£ 45. 00 per month, or $83. 00). See Video Networks Ltd., Home Choice, http:// www. homechoice. co. uk/ our_ tv_ broadcast. html (visited Dec. 3, 2004). 920 Id. 921 Graeme Weardon, BT Video Trials to Fuel Broadband Speed Race, ZDNet UK, Sept. 20, 2004. BT was granted a broadcasting license in March 2002, giving it the right to transmit television and video in the UK. Id. The set- top boxes are an enhanced version of BT’s Freeview set- top boxes which receive digital terrestrial television signals. Ofcom Report at 46. See also Sean Byrne, BT Trials a Video- On- Demand Service Over Broadband, CD (continued....) 107 Federal Communications Commission FCC 05- 13 108 and VOD services on its broadband platform sometime in 2005 using a wireless broadband gateway platform. 922 Finally, Ofcom, the UK communications regulator, has proposed to create a new “Public Service Publisher,” which would distribute public interest programming, of the type presently required of the BBC, in a digital format through broadband networks, networked DVRs, and mobile networks. 923 217. Other incipient DSL- based video service offerings have been started in such places a Taipei, Taiwan; Monaco; Saskatchewan, Canada; Stavanger, Norway; and Canberra, Australia. 924 Notwithstanding these efforts, video over DSL faces a number of serious obstacles, including lack of technical standards, entrenched competition from cable, satellite, and digital terrestrial television, 925 the lack of a well developed business model, and difficulties in obtaining rights to distribute programming because of intellectual property and digital copyright issues. 926 B. Digital Television Transition in Foreign Markets 218. Several European countries are switching from analog to digital transmission. 927 There are operational platforms in the United Kingdom, Sweden, Spain, Finland, Netherlands, and Italy. France, Switzerland, Austria and Norway are expected to initiate digital television transitions beginning in 2005. 928 Generally, European regulatory authorities plan to switch off analog broadcast transmissions between 2006 and 2012. 929 For an overview of overall foreign markets’ transition to digital platforms, including terrestrial, cable and satellite, see Table 7. 219. In our last Report we noted the successful completion of the digital television broadcasting transition in the Berlin- Brandenburg television market in Germany. This experience was the subject of a subsequent report issued by the General Accountability Office (formerly the General Accounting Office). 930 Over the course of the last year, further geographic “islands” of analog terrestrial (... continued from previous page) FREAKS. COM, Sept. 21, 2004; John Delaney, TV and Video Over Broadband: BT May be Setting the Bar Too High, Ovum Research, Sept. 1, 2004. 922 Ofcom Report at 46. See also Wanadoo, Wanadoo Launches LiveBox (press release), July 19, 2004. 923 United Kingdom Office of Communications, Hypothetical Tender Document for a Public Service Publisher, Nov. 3, 2004, at http:// www. ofcom. org. uk/ consultations/ current/ psp/ psp. pdf? a= 87101 (visited Dec. 3, 2004). 924 See, e. g., Point TopicLtd., Video- on- Demand, at http:// www. point- topic. com/ content/ bmm/ profiles/ video+ on +demand. htm; Kevin Fitchard, Canadian Telcos Pave Road to Telco TV, TELEPHONY, Oct. 11, 2004. 925 Generally, throughout Europe, the term “terrestrial” is used to refer to over- the- air analog and digital broadcasting. For example, to describe new digital broadcasting, most European countries refer to digital terrestrial television, or DTT, whereas in the United States we use the term digital television or DTV. 926 Vince Vittore, Video Over DSL: Loud But Not Clear, TELEPHONY, Mar. 8, 2004; Research and Markets, Tough Challenges Ahead for Europe’s Video- Over Broadband Providers, June 2004, at http:// www. researchandmarkets. com/ reports/ 219736/ (visited Dec. 4, 2004); Amber Chung, Video Offerings the Next Star Attraction for ISPs, TAIPEI TIMES, June 24, 2004, at 10; European Video- Over- Broadband Arrives, Profits Lag Behind, ELECTRONIC NEWS, Aug. 6, 2004. 927 See, e. g., Eric Pfanner, Will Digital TV Hit Jackpot in Europe? Stay Tuned, INTERNATIONAL HERALD TRIBUNE, Nov. 1, 2004. 928 Alexander Shulzycki, DTT in Europe: Overview and Assessment, Presentation to DigiTAG Seminar, Oct. 2004, at http:// www. digitag. org/ lateupdate/ globupdate. htm( visited Jan. 14, 2005) (Shulzycki Presentation). 929 Id. at 3. See also Teething Troubles for DTT in Europe, European Broadcasting Union, DIFFUSION, 2004, at http:// www. ebu. ch/ en/ union/ publications/ diffusion/ index. php (visited Dec. 3, 2004). 930 U. S. General Accounting Office, German DTV Transition Differs From US Transition in Many Respects, But Certain Key Challenges are Similar, GAO- 04- 926T (July 2004). 108 Federal Communications Commission FCC 05- 13 109 television have completed the transition process in Germany. This experience, and the apparent ease with which the population accepted it, has triggered a search for lessons that might be transferred to the United States. 220. At the outset, it is obvious that there are significant differences in market and regulatory conditions that suggest that the German transition cannot be immediately or entirely replicated within the U. S. First, the German market does not distribute high- definition programming content, and thus the digital conversion results in more programming becoming available rather than higher quality versions of the same programming. Second, satellite service, beyond the initial cost of the reception equipment, is essentially free of direct charges for a significant quantity of programming and thus is for many a ready substitute for terrestrial service. Third, digital to analog conversion equipment (set- top- boxes) could be made readily available in Germany at a reasonably low cost due to the absence of any need to convert HD service content and the existing market for very similar devices elsewhere in Europe (e. g., U. K.). And fourth, providers of terrestrial broadcast content do not have their own distribution facilities (either terrestrial transmitters, cable or satellite) and must, subject to governmental carriage regulations, arrange for each mode of distribution. 931 221. Notwithstanding these critical differences, the ability of the German DTV transition to move forward may share with the U. S. the fact that members of the public already receiving either cable or satellite service could continue to receive either analog or digital service after the transition without significant disruption. Prior to the Berlin- Brandenberg transition, members of the public in the area each received a letter from the local media authority responsible for the transition that included the following language: Therefore, most important for everyone is: Those affected by the change are only households that receive their television programming using an antenna, roof- top antennas or room antennas. Households that exclusively receive television via cable or satellite (also via secondary or tertiary devices) are not affected. 932 222. In the United Kingdom, digital television penetration was estimated to have reached over 55 percent of households by the end of June 2004, thus making the UK the most highly penetrated digital television market in the world. 933 The principal driver of digital television penetration is Freeview, a free service allowing the reception of 30 digital broadcast channels, which accounts for close to four million of the total 13.7 million digital households. 934 Nevertheless, the UK government has determined that market forces alone would not be sufficient to compel consumers to switch to digital service and thus 931 For a detailed discussion of Berlin’s experience, see Berlin Media Authority, Berlin Goes Digital: The Switchover of Terrestrial Television from Analogue to Digital Transmission in Berlin- Brandenburg – Experiences and Perspectives, at http:// www. mabb. de/ bilder/ Projektbericht_ engl. pdf (visited Jan. 14, 2005). See also Oliver Werner, Alfred Riedel and Stefan Wirts, Switchover – the German Approach, EBU TECHNICAL REVIEW, Oct. 2004; Ed Wilson, Digital Terrestrial Television Rollout in Europe: Case Study – Germany, Presentation to DigiTAG Seminar, Oct. 2004, at http:// www. digitag. org/ lateupdate/ globupdate. htm (visited Jan. 14, 2005). 932 Letter to television viewers from Dr. Hans Hege, Director for the Media Institute Berlin- Brandenberg. 933 Ofcom Report at 45. 934 Alan Jay, 55% of UK Households Receive Digital Television, DIGITAL SPY, Sept. 17, 2004, at http:// www. digitalspy. co. uk/ article/ ds15789. html (visited Jan. 14, 2005). The remaining digital households are cable and satellite subscribers. Freeview requires a set- top box that connects to existing televisions and analog antennas, and which retails for approximately £60 ($ 111), but there is no subscription fee once installed. See Freeview, at http:// www. freeview. co. uk/ (visited Jan. 14, 2005). 109 Federal Communications Commission FCC 05- 13 110 instituted a formal process towards that end, expected sometime in 2012. 935 In March 2004, Finland adopted an analog to digital transition plan whereby all television broadcast transmissions would convert to digital by August 2007. 936 The transition is being conducted on a geographic basis, with major cities converting first and, by the end of 2004, approximately 94 percent of the Finnish population will live within range of the digital broadcast network. 937 Following a failed attempt to launch a pay model for digital television, Spain has launched a new effort to transition to digital using the Freeview model presently finding success in the UK. In July 2004, free digital television service was launched in the Maresme region near Barcelona, covering approximately 170,000 homes and delivering four digital channels and an interactive channel. 938 Sweden launched digital terrestrial television in 1999, and it is available to 90 percent of the 4.2 million Swedish households, but penetration stands at approximately 300,000 television households. 939 In March 2004, Sweden adopted legislation establishing a February 2008 deadline for its analog to digital transition. 940 935 See United Kingdom Office of Communications, Driving Digital Switchover: A Report to the Secretary of State, Apr. 5, 2004. Switch overs are expected to take place on a regional basis and will begin in 2007. The bulk of switchovers are expected between 2008 and 2011. See Richard Lindsay- Davies, Director of Public Affairs of DTG UK, Presentation to the DigiTAG Seminar, October 2004. 936 See Digitv. fi, Parliamentary Working Group: Finland Will Switch Over to Digital Television in 2007 (press release), Dec. 8, 2003. 937 For detailed information on the roll- out of the digital broadcast network, see Digitv. fi, Digital TV Coverage Area, at http:// www. digitv. fi/ sivu. asp? path= 9; 4710 (visited Jan. 14, 2005). Finland has approximately 2. 4 million television households. See Digitv. fi, Introduction to Digital Finish Digital Terrestrial Television, Sept. 2004, at http:// www. digitv. fi/ binary. asp? page= 4644& file= attachments\ 2004\ 9\ 1134146118891\ Digitv% 20stationary. pdf (visited Jan. 14, 2005). 938 Shulzycki Presentation at 8. 939 Id. at 6 and 11. 940 Per Mellberg, Swedish DTT Roll- Out, Presentation to DigiTAG Seminar, October 2004, at http:// www. digitag. org/ lateupdate/ globupdate. htm (visited Jan. 14, 2005). See also Christina Jutterstrom, Lisa Soderberg, Christina Bjork, Digital in Sweden, DIFFUSION, 2004, at http:// www. ebu. ch/ en/ union/ publications/ diffusion/ index. php (visited Jan. 14, 2005). 110 Federal Communications Commission FCC 05- 13 111 Table 7: Digital TV Households by Platform in Selected Countries in 2003 941 Country Total TV HHs Total Digital TV HH Cable Digital TV HH Satellite Digital TV HH Over- the- Air Digital TV HH (mil.) (mil.) Percent (mil.) Percent (mil.) Percent (mil.) Percent Australia 942 7.8 0.41 5.25% - - - Austria 3.2 0.55 17. 1% 0.05 1.6% 0.5 15. 5% 0 0.0% Belgium 4.2 0.18 4.3% 0.16 3.8% 0.02 0.5% 0 0.0% Canada 943 11. 1 4.11 37. 02% 2.12 19. 1% 1.99 17. 8% No data <0.1% Denmark 2.3 0.35 15. 5% 0.08 3.5% 0.27 11. 9% 0 0.0% Finland 2.3 0.21 9.2% 0.02 0.9% 0.1 4.4% 0.09 3.9% France 24. 4 4.62 18. 9% 0.92 3.8% 3.7 15. 2% 0 0.0% Germany 36. 6 5.16 14. 1% 1.63 4.5% 3.15 8.6% 0.38 1.0% Greece 3 0.25 8.4% 0 0.0% 0.25 8.4% 0 0.0% Ireland 1.3 0.46 35. 1% 0.1 7.6% 0.36 27. 4% 0 0.0% Italy 20. 9 2.85 13. 6% 0 0.0% 2.85 13. 6% 0 0.0% Japan 944 48. 5 12. 17 25. 1% 4.0 8.24% 6.2 12. 8% No data No data Luxembourg 0.2 0.01 5.3% 0 1.0% 0.01 4.2% 0 0.0% Netherlands 7.1 0.69 9.7% 0.11 1.6% 0.55 7.8% 0.03 0.4% Portugal 3.1 0.51 16. 2% 0.02 0.6% 0.49 15. 6% 0 0.0% Spain 12. 6 2.38 18. 9% 0.15 1.2% 2.06 16. 4% 0.17 1.3% Sweden 4.5 1.25 28. 0% 0.17 3.8% 0.88 19. 7% 0.2 4.5% U. K. 24. 4 13. 14 53. 8% 2.29 9.4% 8.04 32. 9% 2.81 11. 5% U. S. 945 106.6 41. 75 40. 0% 21. 5 20. 2% 20. 25 19. 0% 0.85 0.8% C. Terrestrial, Cable, and Satellite Competition 223. In contrast to the United States, the majority of European households continue to receive television by terrestrial means, with 46 percent receiving television via terrestrial means only, 32 percent receiving it via cable only, and 13 percent receiving it via satellite only. Greece has the highest terrestrial penetration rate, with 94 percent, followed by Spain at 83 percent, and Italy at 78 percent. In terms of cable penetration, Netherlands maintains the highest penetration, at 93 percent of households, followed by Belgium at 90 percent and Luxemburg at 70 percent. Greece has no cable penetration. Germany maintains the highest satellite penetration of households, reaching 38 percent, followed by Austria at 33 percent and the United Kingdom at 19 percent. Finally, seven percent of EU households overall receive programming by some combination of terrestrial, cable and satellite. 941 Unless otherwise noted, data is from Commission of the European Communities, Ninth Report on the Implementation of the Telecommunications Regulatory Package, Nov. 19, 2003, Technical Annex 1, at 100. 942 Data for Australia is from Digital Broadasting Australia Newsletter, Sept.- Oct. 2004, at http:// www. dba. org. au/ newsletter/ ib- sepoct04- full. 943 Data for Canada is from the CRTC Broadcasting Monitoring Report, Dec. 2003 (digital cable TV includes MDS subscribers); total TV households from ITU statistics. 944 Data for Japan is from Digiworld 2003: The European Way to Think the Digital World (2004), at 114. 945 Total television household and cable household data for the United States is from NCTA 2003 Year- end Industry Overview, at 6. Satellite household data is from 2003 Report, 19 FCC Rcd at 1718. Over the air digital households data is based on the Consumer Electronics Association estimate for the number of DTV recievers sold to date. 111 Federal Communications Commission FCC 05- 13 112 Table 8. Television and Means of Reception – 2003 - 2004 946 Percent of Terrestrial Only HH Percent of Cable Only HH Percent of Satellite Only HH Percent of HH with Two or More Percent of HH with None at all 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 EU Average 47 46 32 32 12 13 7 7 2 2 Austria 19 14 34 37 32 33 11 13 2 1 Belgium 2 3 92 90 2 2 1 2 2 3 Denmark 19 16 66 68 3 6 10 9 2 2 Finland 52 46 30 42 9 3 4 2 4 5 France 72 65 10 11 9 12 6 8 3 4 Germany 7 5 56 53 32 38 4 2 1 2 Greece 94 94 0 0 2 2 4 3 1 1 Ireland 36 33 42 43 12 15 8 6 1 3 Italy 80 78 3 4 5 6 9 8 2 2 Luxembourg 5 6 69 70 16 15 8 9 1 1 Netherlands 3 2 90 93 3 3 3 2 1 1 Portugal 62 65 31 28 5 5 2 2 0 0 Spain 81 83 7 6 6 2 6 8 0 0 Sweden 27 25 47 51 9 11 13 10 3 2 U. K. 52 49 14 13 17 19 16 16 1 2 V. ADMINISTRATIVE MATTERS 224. This 2004 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). 225. It is ORDERED that the Office of Legislative Affairs shall send copies of the 2004 Report to the appropriate committees and subcommittees of the United States House of Representatives and the United States Senate. 226. It is FURTHER ORDERED that the proceeding in MB Docket No. 04- 227 IS TERMINATED. 946 Data is from Ispos, Telecoms Services Indicators, Report Produced for the European Commission, DG Information Society 2004. 112 Federal Communications Commission FCC 05- 13 113 227. Accessible Formats. To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an e- mail to fcc504@ fcc. gov or call the Consumer & Governmental Affairs Bureau at 202- 418- 0530 (voice), 202- 418- 0432 (TTY). FEDERAL COMMUNICATIONS COMMISSION Marlene H. Dortch Secretary 113 Federal Communications Commission FCC 05- 13 114 APPENDIX A LIST OF COMMENTERS Initial Comments The America Channel American Cable Association (ACA) BellSouth Corporation (BellSouth) Broadband Service Providers Association (BSPA) City of Weston, Florida and the Town Foundation, Inc. (Weston) Comcast Corporation (Comcast) Consumer Electronics Association (CEA) The DIRECTV Group, Inc. (DIRECTV) EchoStar Satellite L. L. C. (EchoStar) Fox Cable Networks Group (Fox) National Association of Telecommunications Officers and Advisors and the Alliance for Community Media (NATOA) National Association of the Deaf (NAD) National Cable & Telecommunications Association (NCTA) National Rural Telecommunications Cooperative (NRTC) National Telecommunications Cooperative Association (NTCA) New Jersey Board of Public Utilities (New Jersey) Paxson Communications Corporation (Paxson) RCN Corporation (RCN) Satellite Broadcasting and Communications Association (SBCA) SBC Communications, Inc. (SBC) SES Americom, Inc. (SES) The Verizon Telephone Companies (Verizon) Reply Comments Advocate Communications, Inc. d/ b/ a Advanced Communication (Advocate) The America Channel Broadband Service Providers Association (BSPA) Comcast Corporation (Comcast) Consumers Union The DIRECTV Group, Inc. (DIRECTV) EchoStar Satellite L. L. C. (EchoStar) Gemstar- TV Guide International, Inc. (Gemstar) National Association of Broadcasters (NAB) National Association of Telecommunications Officers and Advisors and the Alliance for Community Media (NATOA) National Cable & Telecommunications Association (NCTA) Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) Paxson Communications Corporation (Paxson) Telecommunications for the Deaf, Inc. (TDI) TiVo Inc. The Verizon Telephone Companies (Verizon) Viacom The Walt Disney Company (Disney) 114 Federal Communications Commission FCC 05- 13 115 APPENDIX B TABLE B- 1 Assessment of Competing Technologies (i) Technology Used June 00 June 01 June 02 June 03 June 04 (1) TV Households Percent Change 100, 801,720 1.41% 102, 184,810 1.37% 105, 444,330 3.19% 106, 641,910 1.14% 108, 410,160 1.66% (2) MVPD Households (ii) Percent Change Percent of TV Households 82, 973, 717 4.38% 82. 31% 86, 062, 074 3.72% 84. 22% 87, 562, 641 1.74% 83. 04% 89, 772, 191 2.52% 84. 18% 92, 295, 766 2.81% 85. 14% (3) Cable Subscribers Percent Change Percent of MVPD Total 66, 250, 000 1.51% 79. 84% 66, 732, 000 0.73% 77. 54% 66, 472, 000 -0. 39% 75. 91% 66, 050, 000 (i) -0. 63% 73. 58% 66, 100, 000 0.08% 71. 62% (4) MMDS Subscribers Percent Change Percent of MVPD Total 700,000 -14.74% 0.84% 700,000 0.0% 0.81% 490,000 -30.00% 0.56% 200,000 -59.18% 0.22% 200,000 0.00% 0.22% (5) SMATV Subscribers Percent Change Percent of MVPD Total 1,500,000 3.45% 1.81% 1,500,000 0.0% 1.74% 1,600,000 6.67% 1.83% 1,200,000 -25.00% 1.34% 1,100,000 -8. 33% 1.19% (6) HSD Subscribers Percent Change Percent of MVPD Total 1,476,717 -17.20% 1.78% 1,000,074 -32.28% 1.16% 700,641 -29.94% 0.80% 502,191 -28.32% 0.56% 335,766 -33.14% 0.36% (7) DBS Subscribers Percent Change Percent of MVPD Total 12, 987, 000 28. 86% 15. 65% 16, 070, 000 23. 74% 18. 67% 18, 240, 000 13. 50% 20. 83% 20, 360, 000 11. 62% 22. 68% 23, 160, 000 13. 75% 25. 09% (8) OVS Subscribers (iii) Percent Change Percent of MVPD Total 60, 000 0.00% 0.07% 60, 000 0.00% 0.07% 60, 000 0.00% 0.07% (9) BSP Subscribers (iv) Percent Change Percent of MVPD Total 1,460,000 N/ A 1.63% 1,400,000 -4. 11% 1.52% Notes: (i) Some numbers have been rounded, and we have revised a number of the household and subscriber numbers based on improved data sources and to make consistent our use of data sources. In particular, we revised the 2003 Cable Subscriber number downward in order to allow consistent use of a source throughout the series. (ii) The total number of MVPD households is likely to be somewhat less than the given figure since some households subscribe to the services of more than one MVPD. See 1994 Report, 9 FCC Rcd at 7480. However, the number of households subscribing to more than one MVPD is expected to be low. Hence the given total can be seen as a reasonable estimate of the number of MVPD households. (iii) Beginning in 2003, we combined OVS subscribers with BSP subscribers. We are no longer therefore, reporting a separate number for OVS subscribers. (iv) This number includes some, if not all, OVS subscribers, and may double count some cable subscribers from newer cable overbuild systems. We started reporting this number last year and thus we do not have 115 Federal Communications Commission FCC 05- 13 116 subscribers for years previous to 2003. Obviously, the number did not increase from nothing, or 60, 000 (the OVS subscribers) to 1.4 million in one year, but we lacked data to estimate the number previous to 2003. Sources: (1) Television households: All years, Nielsen Media Research. (2) Total MVPD households: The sum of the total number of subscribers listed under each of the categories of the various technologies. See note (ii) above. (3) Cable subscribers: All years, Kagan Research, LLC, Kagan’s 10- Pay TV Subscriber History, Broadband Cable Financial Databook 2004, July 2004, at 9. (4) MMDS subscribers: 2000 from NCTA Comments for the 2000 Report at 9; 2001 from NCTA Comments for the 2001 Report at 7; 2002 from NCTA Comments for the 2002 Report at 12; 2003 from NCTA Comments for the 2003 Report at 8; 2004 from NCTA Comments at 7, fn. 12. (5) SMATV subscribers: 2000 subscribers from NCTA Comments for the 2000 Report at 9; 2001 subscribers from NCTA Comments for the 2001 Report at 9; 2002 subscribers from NCTA Comments for the 2002 Report at 12; 2003 subscribers from NCTA Comments for the 2003 Report at 8; 2004 subscribers from NCTA Comments at 7, fn. 12. (6) HSD subscribers: 2000 from SkyReport. com at http:// www. skyreport. com/ dth_ us. htm; 2001 from SBCA Comments for the 2001 Report, Table 1 at 4; 2002 from SkyReport. com at http:// www. skyreport. com/ dth_ us. htm; 2003 from SBCA Comments for the 2003 Report at 4; 2004 from para. 64 supra. (7) DBS subscribers: 2000 from SkyReport. com at http:// www. skyreport. com/ dth_ us. htm; 2001 from SBCA Comments for the 2001 Report, Table 1 at 4; 2002 from SkyReport. com at http:// www. skyreport. com/ dth_ us. htm; 2003 from SBCA Comments for the 2003 Report at 4; 2004 from paras. 54- 55 supra. (8) BSP subscribers: 2003 subscribers from NCTA Comments for the 2003 Report at 8; 2004 Subscribers from BSPA Comments at 6 and FCC estimates. 116 Federal Communications Commission FCC 05- 13 117 TABLE B- 2 Number and Subscriber Size of Major Cable System Clusters (Cumulative Figures) 2000 2001 2002 2003 Range of Clustered Subscribers (thousands) Clusters Subscribers (millions) Clusters Subscribers (millions) Clusters Subscribers (millions) Clusters Subscribers( (millions) 100- 199 26 3.6 30 4.3 31 4.5 34 4.9 200- 299 13 3.2 17 4.2 18 4.4 18 4.4 300- 399 22 7.4 18 6.1 21 7.1 17 5.7 400- 499 13 5.9 10 4.4 10 4.4 10 4.4 >500 34 34. 3 32 33. 3 29 31. 0 29 34. 3 Total 108 54. 4 107 52. 3 109 51. 3 1088 53. 6 Sources: 2000 from Kagan World Media, Major Cable TV Systems/ Clusters, Broadband Cable Financial Databook 2001 at 36; 2001 from Kagan World Media, Major Cable TV Systems/ Clusters, Broadband Cable Financial Databook 2002 at 38; 2002 from Kagan World Media, Major Cable TV Systems/ Clusters, Broadband Cable Financial Databook 2003, at 39; and 2003 from Kagan Research, LLC, Major Cable TV Systems/ Clusters, Broadband Cable Financial Databook 2004, at 39- 40. 117 Federal Communications Commission FCC 05- 13 118 TABLE B- 3 2004 Concentration in the National Market for Purchase of Video Programming (1) Rank Company Percent of Subscribers (2) 1 Comcast 23.37 2 DirecTV 12.10 3 Time Warner 11.87 4 EchoStar 10.63 Top 4 57.97 5 Cox 6.92 6 Charter 6.73 7 Adelphia 5.88 8 Cablevision 3.19 Top 8 80.69 9 Bright House 2.37 10 Mediacom 1.66 Top 10 84.72 Top 25 90.41 Top 50 92.32 HHI 1097 (3) Notes: (1) MSO subscriber totals as of March 2004, and reported in Top Cable System Operators as of March 2004, Kagan World Media, Cable TV Investor, July 29, 2004, at 16- 17. There is no double counting of subscribers. If a cable operator is partially owned by more than one MSO, its subscribers are assigned to the largest MSO. Subscribers for DirecTV and EchoStar are based on the company’s 10- Q filings. (2) The total number of MVPD subscribers used to calculate the HHI is 92,295,766 from Table B- 1. This figure is for June 2004, whereas individual company subscriber total come from March. As a result, 1097 probably is slightly higher than the HHI in March. (3) The HHI is calculated on the basis of market shares for the top 65 companies. Because all of the remaining MVPDs have very small shares of the market, an HHI calculation that included all cable system operators could only be slightly higher (no more than 2- 3 points) than the given HHI. (4) Due to a revision of cable and MVPD subscribers for 2003, the market shares of some of the top providers, particularly DirecTV and EchoStar, may have appeared to have shrunk, when, in fact, they grew since last year. 118 Federal Communications Commission FCC 05- 13 119 TABLE B- 4 Concentration in the National Market for the Purchase of Video Programming 2001- 2004* Percent of MVPD Subscribers Market Share 2001 2002 2003 2004 Top Share 16.44 14.75 23.80 23.37 Top 2 30.79 29.04 36.72 35.47 Top 3 42.11 41.03 48.90 47.34 Top 4 51.64 50.48 58.71 57.97 Top 10 84.29 84.44 85.94 84.72 Top 25 89.70 90.26 91.72 90.41 Top 50 91.38 92.05 93.65 92.32 HHI 905 884 1134 1097 * -- Reported statistics for 2001- 2003 are based on June data. For 2004, March data were used since June data are unavailable. Sources: Data for 2001 through 2002 were taken from Reports, 2001- 2002. Data for 2003 have been revised to use consistent data sources. Data for 2004 are from Table B- 3. 119 Federal Communications Commission FCC 05- 13 120 APPENDIX C TABLE C- 1 National Video Programming Services Affiliated With One or More Cable MSO Programming Service Launch Date MSO Ownership (%) Action Max Aug- 80 Time Warner (100) American Movie Classics (AMC) Oct- 84 Cablevision (60) Animal Planet Oct- 96 Cox (25), Advance Newhouse (25) @Max May- 01 Time Warner (100) Boomerang Time Warner (100) Cartoon Network Oct- 92 Time Warner (100) Cinemax Jun- 98 Time Warner (100) CNN Jun- 80 Time Warner (100) CNN En Español Mar- 97 Time Warner (100) CNN Headline News Jan- 82 Time Warner (100) CNN International Jan- 95 Time Warner (100) Court TV Jul- 91 Time Warner (50) Discovery Channel Jun- 85 Cox (25), Advance Newhouse (25) Discovery En Español Oct- 98 Cox (25), Advance Newhouse (25) Discovery Health Channel Jul- 98 Cox (25), Advance Newhouse (25) Discovery HD Theatre Jun- 02 Cox (25), Advance Newhouse (25) Discovery Home Channel Oct- 96 Cox (25), Advance Newhouse (25) Discovery Kids Channel Oct- 96 Cox (25), Advance Newhouse (25) Discovery Times Oct- 96 Cox (12. 5), Advance Newhouse (12.5) Discovery Wings: The Aviation and Adventure Network Jul- 98 Cox (25), Advance Newhouse (25) E! Entertainment Jun- 90 Comcast (60.5) 5StarMax May- 02 Time Warner (100) FITTV Jan- 04 Cox (25), Advance Newhouse (25) Fuse Jul- 94 Cablevision (60) Fuse On Demand Jun- 03 Cablevision (60) G4techTV Jun- 02 Comcast (83.5) Golf Channel Jan- 95 Comcast (99.85) 120 Federal Communications Commission FCC 05- 13 121 Programming Service Launch Date MSO Ownership (%) HBO (Home Box Office) Nov- 72 Time Warner (100) HBO 2 Oct- 98 Time Warner (100) HBO Comedy May- 99 Time Warner (100) HBO Family Oct- 98 Time Warner (100) HBO Latino Nov- 00 Time Warner (100) HBO Signature Oct- 98 Time Warner (100) HBO Zone May- 99 Time Warner (100) iN Demand 35 multiplexed channels Nov- 85 Comcast (54.1), Time Warner (30.3), Cox (15.6) iN Demand HD1 Sep- 03 Comcast (54.1), Time Warner (30.3), Cox (15.6) iN Demand HD2 Sep- 03 Comcast (54.1), Time Warner (30.3), Cox (15.6) Independent Film Channel Sep- 94 Cablevision (60) International Channel Jul- 90 Comcast (100) MoreMAX Jun- 98 Time Warner (100) Outdoor Life Network Jul- 95 Comcast (100) OuterMax May- 01 Time Warner (100) Ovation: The Arts Network Apr- 96 Time Warner (5.1) Science Channel Oct- 96 Cox (25), Advance Newhouse (25) Source Suite Nov- 93 Insight Communications (100) Style Oct- 98 Comcast (60.5) TBS Dec- 76 Time Warner (100) TLC (The Learning Channel) Nov- 80 Cox (25), Advance Newhouse (25) Thriller Max Jun- 98 Time Warner (100) TNT (Turner Network Television) Oct- 88 Time Warner (100) Travel Channel Feb- 87 Cox (25), Advance Newhouse (25) TCM (Turner Classic Movies) Apr- 94 Time Warner (100) TV One Jan- 04 Comcast (38.8) WE Jan- 97 Cablevision (60) WMAX May- 01 Time Warner (100) 121 Federal Communications Commission FCC 05- 13 122 Sources: NCTA, Directory of Program Services, Cable Developments 2004, at 43- 206. COLUMBIA JOURNALISM REVIEW, http:// www. cjr. org/ tools/ owners/ timewarner. asp (visited July 20, 2004). American Cable Association Comments at 10, 12. Comcast Comments at 24- 28; Reply Comments at 11. Time Warner Co., http:// www. timewarner. com (visited Sept. 14, 2004). Cartoon Network, http:// www. schedule. cartoonnetwork. com (visited Sept. 20, 2004). Liberty Media Corporation, Liberty Media and Comcast Complete Exchange of Liberty Shares for Programming Assets and Approximately $545 Million (press release), July 28, 2004. Comcast, Comcast Agrees to Purchase TechTV (press release), March 25, 2004. New York Times, http:// www. nytco. com/ subsites/ nyttv/ about- dtc. html (visited Dec. 16, 2004). Cable, COMM. DAILY, July 26, 2004, at 6. Discovery Communications, THE WASHINGTON POST, Nov. 15, 2004, at E2. 122 Federal Communications Commission FCC 05- 13 123 TABLE C- 2 National Video Programming Services Not Affiliated With a Cable MSO Programming Service Launch Date A& E (Arts & Entertainment) Feb- 84 ABC Family Apr- 77 ACNTV (America’s Collectibles Network) Oct- 93 AIT (African Independent Television) 2003 America's Store Sep- 86 ANA Television Network Dec- 91 Anime Network Dec- 02 AYM Sports Nov- 03 Bandamax May- 03 ART (Arab Radio & Television) 1999 BBC America Mar- 98 BET (Black Entertainment Television) Jan- 80 BET Gospel Jul- 02 BET Hip Hop Jul- 02 BET Jazz: The Jazz Channel Jan- 96 Biography Channel Nov- 98 Black Family Channel (formerly MBC Network) Nov- 99 Black STARZ! Feb- 97 Bloomberg Television Jan- 95 B Mania Nov- 00 Boston Kids & Family TV Oct- 03 Bravo Dec- 80 Bridges TV Nov- 04 Buzztime Entertainment 1984 Canal 24 Horas Jun- 99 CCTV- 4 (China Central Television) 1995 Celtic Vision 1995 Channel One Russian Worldwide Network 2003 Chronicle DTV Jan- 03 123 Federal Communications Commission FCC 05- 13 124 Programming Service Launch Date Church Channel Jan- 02 Cine Latino Jun- 94 Classic Arts Showcase May- 94 CMT (Country Music Television) Mar- 83 CNBC Jul- 89 CNBC World Apr- 89 CNC Columbia May- 99 College Entertainment Network Jan- 97 Comedy Central Apr- 91 Crime Channel Jul- 96 C- SPAN* Mar- 79 C- SPAN2* Jun- 86 C- SPAN3* Sep- 97 CSTV (College Sports Television) Apr- 03 CTI Zhon Tian Channel (formerly Power TV Zhon Tian Channel) 1995 Daystar Television Network Dec- 98 De Pelicula May- 03 De Pelicula Classico May- 03 Deep Dish TV Jan- 86 Destiny Channel Dec- 98 Disney Channel Apr- 83 DIY (Do- It- Yourself Network) Dec- 94 Dream Network Dec- 94 Ecology Communications Nov- 94 Encore Apr- 91 Encore HD Mar- 04 Encore Action Sep- 94 Encore Love Stories Jul- 94 Encore Mystery Jul- 94 Encore True Stories Sep- 94 Encore WAM! America’s Youth Network Sep- 94 Encore Westerns Jul- 94 ESPN Sep- 79 ESPN Classic May- 95 124 Federal Communications Commission FCC 05- 13 125 Programming Service Launch Date ESPN Deportes Jan- 04 ESPN2 Oct- 93 ESPN HD Mar- 03 ESPNEWS Nov- 96 EWTN: Global Catholic Network Aug- 81 Familyland Television Network Nov- 99 Family Net May- 00 Filipino Channel (ABS- CBN) Feb- 98 Fine Living Mar- 02 Flix Aug- 92 Food Network Nov- 93 Fox Movie Channel Nov- 94 Fox News Channel Oct- 96 Fox Sports Digital Nets Nov- 96 Fox Sports World Nov- 97 Fox Sports en Español Nov- 96 FX Jun- 94 Fuel Jul- 03 FSTV (Free Speech TV) Jun- 95 Galavision Oct- 79 GSN (Game Show Network) Dec- 94 German TV Apr- 02 Gol TV Mar- 03 Golden Eagle Broadcasting Nov- 98 Goodlife Television Network Feb- 85 Grandes Documentales 1996 Great American Country Dec- 95 Hallmark Channel Sep- 98 Hallmark Movie Channel Jan- 04 HDNET Sep- 01 HDNET Movies Jan- 03 Health TV Channel Apr- 03 Here! TV Oct- 04 History Channel Jan- 95 History Channel en Español May- 04 125 Federal Communications Commission FCC 05- 13 126 Programming Service Launch Date History International Nov- 98 Home & Garden Television (HGTV) Dec- 94 Home Shopping Network Jul- 85 Horse Racing TV Dec- 02 Hot Net Mar- 99 Hot Zone Mar- 99 HTV Aug- 95 Hustler TV Apr- 04 Imaginasian TV Aug- 04 Infinito 2003 Inspirational Life Television (I- LIFETV) Jun- 98 Inspirational Network (INSP) Apr- 90 JCTV Nov- 02 Jewelry Television by ACN Oct- 93 La Familia Network May- 02 LATV Dec- 03 Liberty Channel Sep- 01 Lifetime Movie Network Jul- 98 Lifetime Real Women Aug- 01 Lifetime Television Feb- 84 Locomotion Channel Nov- 96 MAVTV- Mav’rick Entertainment Network Oct- 04 MBC America (MUNHWA Broadcasting Corporation) 2002 Meadow Racing Network Nov- 84 MoviePlex Oct- 94 MSNBC Jul- 96 MTV Español Aug- 98 MTV Hits May- 02 MTV Jams May- 02 MTV: Music Television Aug- 81 MTV 2 Dec- 98 Mun² Oct- 01 Music First Unknown My Pet TV Sep- 96 NASA Television Jul- 91 National Geographic Channel Jan- 01 126 Federal Communications Commission FCC 05- 13 127 Programming Service Launch Date National Iranian Television (NITV) 2003 National Jewish Television May- 81 NBA TV Nov- 99 Newsworld International Sep- 94 NFL Network Nov- 03 NFL On Demand Nov- 03 Nick 2 May- 98 Nickelodeon Gas- Games & Sports Network Mar- 99 Nickelodeon/ Nick at Nite Apr- 79 Nicktoons Jan- 99 Noah’s World International May- 03 Noggin/ The N Feb- 99 Oasis TV Sep- 97 Outdoor Channel Apr- 93 Oxygen Media Feb- 00 Pax TV Aug- 98 Pentagon Channel May- 04 Playboy TV Networks Nov- 82 Pleasure Jun- 99 Praise Television Dec- 96 PIN (Product Information Network) Apr- 94 Puma TV 1997 QTV (Q Television Network) Jul- 04 QVC Nov- 86 RAI International 1999 Rang- A- Rang 2003 Ritmoson Latino May- 03 Russian Television Network of America (RTN) Aug- 00 Rx Channel May -03 Saigon Broadcasting Network Feb- 02 Sci- Fi Channel Sep- 92 SCOLA Aug- 87 Shop at Home Jun- 86 Shop NBC Oct- 91 Short TV Jan- 99 Showtime Jul- 76 127 Federal Communications Commission FCC 05- 13 128 Programming Service Launch Date Showtime Beyond Sep- 99 Showtime PPV (formerly Showtime Event Television, SET) 1979 Showtime Extreme 1998 Showtime Family Zone Mar- 01 Showtime Next Mar- 01 Showtime Showcase Jul- 01 Showtime Too 2001 Showtime Women Mar- 01 SiTV Feb- 04 Skyview World Media 1992 S | Networks May- 03 Sorpressa Mar- 03 SoapNet Jan- 00 Speed Channel Jan- 96 Spice 1 May- 89 Spice 2 Unknown Spike TV Mar- 83 Sportsman Channel Apr- 03 Starz! Mar- 94 Starz! Cinema May- 99 Starz! Family May- 99 Starz! HD Dec- 03 Starz! Kids Mar- 94 Starz! On Demand May- 01 Starz! Super Pack (13 movie channels) May- 99 Starz! Theater Mar- 96 Sun TV Aug- 96 Sundance Channel Feb- 96 Sur Aug- 91 TBN (Trinity Broadcasting Network) May- 73 TBN Enlace USA May- 02 Telefe Internacional Apr- 90 Telefutura Jan- 02 Telehit May- 03 Telemundo Jan- 87 Telemundo Internacional Mar- 00 128 Federal Communications Commission FCC 05- 13 129 Programming Service Launch Date The Erotic Network (TeN) Sep- 98 TeN on Demand Mar- 99 TeN BLOX Jan- 03 TeN Blue Jan- 03 TeN Clips May- 00 Tennis Channel May- 03 Tenxsty Feb- 98 TFN (The Football Network) Sep- 03 TMC (The Movie Channel) Dec- 79 TMC HD Dec- 03 TMC XTRA 1997 True Blue Feb- 98 Toon Disney Apr- 98 Totally Broadway TV Jun- 02 Totally Hollywood TV Jun- 02 TR! O Sep- 94 TV 5 – USA Inc. Jan- 98 TV Asia Jul- 91 TVG Network Sep- 04 TV Games Network Jul- 94 TV Japan Jul- 91 TVN Entertainment Corporation (33 digital pay- per- view channels) Feb- 98 TVN Direct Jan- 96 TV Guide Channel Jan- 88 TV Guide Interactive Oct- 96 TV Internacional 2003 TV Land Apr- 96 TV Polonia 2003 UBC (Urban Broadcasting Company) Apr- 03 Univision Sep- 96 Utilisima Satelitel Mar- 96 USA Network Apr- 80 VH1 (Music First) Jan- 85 VH1 (Classic) May- 00 VH1 Soul Aug- 98 VH1 Country Aug- 98 129 Federal Communications Commission FCC 05- 13 130 Programming Service Launch Date VH1 Megahits May- 02 VH Uno Nov- 99 Video Rola Jan- 01 Vivid TV Mar- 99 VTV: Varsity Television Jan- 03 VTV On Demand Jan- 03 Weather Channel May- 82 Weatherscan Oct- 99 WGN Nov- 78 Wisdom Television Jul- 97 Word Network Feb- 00 Worship Network Sep- 92 ZEE TV 1999 Note: * The National Cable Satellite Corporation (C- SPAN) derives 97 percent of its revenues from affiliate fees (i. e., subscriber fees from MVPDs). The remaining three percent is provided by various investments. Affiliates have no ownership or program control interests in C- SPAN. Sources: NCTA, Directory of Cable Networks, Cable Developments 2004, at 43- 206. COLUMBIA JOURNALISM REVIEW, http:// www. cjr. org/ tools/ owners/ timewarner. asp (visited July 20, 2004). American Cable Association at 10, 12. Disney Comments at 2, 3. DIRECTV Comments, Exhibit E. Fox Comments, Attachment A. Viacom Comments at 4- 5. NBC Universal, http:// www. nbcuni. com/ AboutNBC_ Universal/ Company_ Overview/ overview02. shtml (visited Dec. 16, 2004). Univision Communications Inc., http:// www. univision. net/ corp/ en/ mp. jsp (visited Dec. 16, 2004). TuTv, http:// tutv. tv/ tutv/ en/ our_ company. jsp (visited Dec. 16, 2004). Liberty Media Corporation, Liberty Media Corporation Completes Spin Off of Liberty MediaInternational, Inc. (press release), June 7, 2004. Hustler TV, http:// hustlertv. com (visited Sept. 27, 2004) Imaginasian TV, http:// www. iatv/ press. php (visited Sept. 27, 2004) Cable, COMM. DAILY, Oct. 7, 2004, at 14. Cable, COMM. DAILY, Nov. 18, 2004, at 13. 130 Federal Communications Commission FCC 05- 13 131 TABLE C- 3 National Video Programming Services Affiliated With a Media Entity* Programming Service Ownership A& E (Arts & Entertainment) Disney, NBC- Universal, Hearst ABC Family Disney ACNTV (America’s Collectibles Network) Action Max Time Warner AIT (African Independent Television) American Movie Classics (AMC) Cablevision America's Store ANA Television Network Animal Planet Cox, Advance Newhouse, Liberty Media Anime Network @Max Time Warner AYM Sports ART (Arab Radio & Television) Bandamax Univision BBC America Viacom BET (Black Entertainment Television) Viacom BET Gospel Viacom BET Hip Hop Viacom BET Jazz: The Jazz Channel Viacom Biography Channel Disney, NBC- Universal, Hearst Black Family Channel (formerly MBC Network) Black STARZ! Liberty Media Bloomberg Television B Mania Boomerang Time Warner Boston Kids & Family TV Bravo NBC- Universal Bridges TV Buzztime Entertainment Canal 24 Horas Cartoon Network Time Warner 131 Federal Communications Commission FCC 05- 13 132 Programming Service Ownership CCTV- 4 (China Central Television) Celtic Vision Channel One Russian Worldwide Network Chronicle DTV Church Channel Trinity Broadcasting Network Cine Latino Cinemax Time Warner Classic Arts Showcase CMT (Country Music Television) Viacom CNBC NBC- Universal CNBC World NBC- Universal CNC Columbia CNN Time Warner CNN En Español Time Warner CNN Headline News Time Warner CNN International Time Warner College Entertainment Network Comedy Central Viacom Court TV Time Warner, Liberty Media Crime Channel C- SPAN** C- SPAN2** C- SPAN3** CSTV (College Sports Television) CTI Zhon Tian Channel (formerly Power TV Zhon Tian Channel) Daystar Television Network Daystar Television De Pelicula Univision De Pelicula Classico Univision Deep Dish TV Destiny Channel Discovery Channel Cox, Advance Newhouse, Liberty Media Discovery En Español Cox, Advance Newhouse, Liberty Media Discovery Health Channel Cox, Advance Newhouse, Liberty Media 132 Federal Communications Commission FCC 05- 13 133 Programming Service Ownership Discovery HD Theater Cox, Advance Newhouse, Liberty Media Discovery Home Channel Cox, Advance Newhouse, Liberty Media Discovery Kids Cox, Advance Newhouse, Liberty Media Discovery Times Cox, Advance Newhouse, Liberty Media, New York Times Discovery Wings: The Aviation and Adventure Channel Cox, Advance Newhouse, Liberty Media Disney Channel Disney DIY (Do- It- Yourself Network) E. W. Scripps Dream Network E! Entertainment Comcast, Disney Ecology Communications Encore Liberty Media Encore HD Liberty Media Encore Action Liberty Media Encore Love Stories Liberty Media Encore Mystery Liberty Media Encore True Stories Liberty Media Encore WAM! America’s Youth Network Liberty Media Encore Westerns Liberty Media ESPN Disney, Hearst ESPN Classic Disney, Hearst ESPN Deportes Disney, Hearst ESPN2 Disney, Hearst ESPN HD Disney, Hearst ESPNEWS Disney, Hearst EWTN: Global Catholic Network Familyland Television Network Family Net Filipino Channel (ABS- CBN) Fine Living E. W. Scripps 5StarMax Time Warner FITTV Cox, Advance Newhouse Flix Viacom Food Network E. W. Scripps 133 Federal Communications Commission FCC 05- 13 134 Programming Service Ownership Fox Movie Channel Fox Fox News Channel Fox Fox Sports Digital Nets Fox Fox Sports World Fox Fox Sports en Español Fox FX Fox Fuel Fox FSTV (Free Speech TV) Fuse Cablevision Fuse On Demand Cablevision G4techTV Comcast, EchoStar Galavision Univision GSN (Game Show Network) Liberty Media German TV Gol TV Golden Eagle Broadcasting Golf Channel Comcast Goodlife Television Network Grandes Documentales Great American Country E. W. Scripps Hallmark Channel Liberty Media Hallmark Movie Channel Liberty Media HBO (Home Box Office Time Warner HBO 2 Time Warner HBO Comedy Time Warner HBO Family Time Warner HBO Latino Time Warner HBO Signature Time Warner HBO Zone Time Warner HDNET HDNET Movies Health TV Channel Here! TV History Channel Disney, NBC- Universal, Hearst History Channel en Español Disney, NBC- Universal Hearst 134 Federal Communications Commission FCC 05- 13 135 Programming Service Ownership History International Disney, NBC- Universal, Hearst Home & Garden Television (HGTV) E. W. Scripps Home Shopping Network Horse Racing TV Hot Net Hot Zone HTV Hustler TV Imaginasian TV iN Demand (35 multiplexed channels) Comcast, Time Warner, Cox iN Demand HD1 Comcast, Time Warner, Cox iN Demand HD2 Comcast, Time Warner, Cox Independent Film Channel Cablevision Infinito Inspirational Life Television (I- LIFETV) Inspirational Network (INSP) International Channel Comcast JCTV Trinity Broadcasting Network Jewelry Television by ACN La Familia Network LATV Liberty Channel Lifetime Movie Network Disney, Hearst Lifetime Real Women Disney, Hearst Lifetime Television Disney, Hearst Locomotion Channel MAVTV- Mav’rick Entertainment Network MBC America (MUNHWA Broadcasting Corporation) Meadow Racing Network MoreMAX Time Warner MoviePlex Liberty Media MSNBC NBC- Universal MTV Español Viacom MTV Hits Viacom 135 Federal Communications Commission FCC 05- 13 136 Programming Service Ownership MTV Jams Viacom MTV: Music Television Viacom MTV 2 Viacom Mun² NBC- Universal Music First My Pet TV NASA Television National Geographic Channel Fox National Iranian Television (NITV) National Jewish Television NBA TV Newsworld International NFL Network NFL On Demand Nick 2 Viacom Nickelodeon Gas- Games & Sports Network Viacom Nickelodeon/ Nick at Nite Viacom Nicktoons Viacom Noah’s World International Noggin/ The N Viacom Oasis TV Outdoor Channel Outdoor Life Network Comcast OuterMax Time Warner Ovation: The Arts Network Time Warner, New York Times Oxygen Media Pax TV NBC- Universal, Paxson Communications Pentagon Channel Playboy TV Networks Pleasure Praise Television PIN (Product Information Network) Puma TV QTV (Q Television Network) 136 Federal Communications Commission FCC 05- 13 137 Programming Service Ownership QVC Liberty Media RAI International Rang- A- Rang Ritmoson Latino Univision Russian Television Network of America (RTN) Rx Channel Saigon Broadcasting Network Science Channel Cox, Advance Newhouse Sci- Fi Channel NBC- Universal SCOLA Shop at Home E. W. Scripps Shop NBC NBC- Universal Short TV Showtime Viacom Showtime Beyond Viacom Showtime PPV (formerly Showtime Event Television, SET) Viacom Showtime Extreme Viacom Showtime Family Zone Viacom Showtime Next Viacom Showtime Showcase Viacom Showtime Too Viacom Showtime Women Viacom SiTV Skyview World Media S | Networks Sorpressa SoapNet Disney Source Suite Insight Communications Speed Channel Fox Spice 1 Spice 2 Spike TV Viacom Sportsman Channel Starz! Liberty Media Starz! Cinema Liberty Media Starz! Family Liberty Media 137 Federal Communications Commission FCC 05- 13 138 Programming Service Ownership Starz! HD Liberty Media Starz! Kids Liberty Media Starz! On Demand Liberty Media Starz! Super Pack (13 movie channels) Liberty Media Starz! Theater Liberty Media Style Comcast, Disney Sun TV Sundance Channel Viacom Sur TBN (Trinity Broadcasting Network) Trinity Broadcasting Network TBN Enlace USA Trinity Broadcasting Network TBS Time Warner Telefe Internacional Telefutura Univision Telehit Univision Telemundo NBC- Universal Telemundo Internacional NBC- Universal The Erotic Network (TeN) TeN on Demand TeN BLOX TeN Blue TeN Clips Tennis Channel Tenxsty TFN (The Football Network) TLC (The Learning Channel) Cox, Advance Newhouse Liberty Media Thriller Max Time Warner TMC (The Movie Channel) Viacom TMC HD Viacom TMC XTRA Viacom TNT (Turner Network Television) Time Warner True Blue Toon Disney Disney Totally Broadway TV Totally Hollywood TV 138 Federal Communications Commission FCC 05- 13 139 Programming Service Ownership Travel Channel Cox, Advance Newhouse Liberty Media TCM (Turner Classic Movies) Time Warner TR! O NBC- Universal TV 5 – USA Inc. TV Asia TVG Network TV Games Network Fox TV Japan TVN Entertainment Corporation (33 digital pay- per-view channels) TVN Direct TV Guide Channel Fox TV Guide Interactive Fox TV Internacional TV Land Viacom TV One Comcast TV Polonia UBC (Urban Broadcasting Company) Univision Univision Utilisima Satelitel USA Network NBC- Universal VH1 (Music First) Viacom VH1 (Classic) Viacom VH1 Soul Viacom VH1 Country Viacom 139 Federal Communications Commission FCC 05- 13 140 Programming Service Ownership VH1 Megahits VH Uno Video Rola Vivid TV VTV: Varsity Television VTV On Demand WE Cablevision Weather Channel Landmark Communications Weatherscan Landmark Communications WGN Tribune Company Wisdom Television WMAX Time Warner Word Network Worship Network ZEE TV Note: * Media entity is defined as a cable operator, broadcast network, or broadcast television station licensee. Liberty Media programming interests are also listed due to its ownership in News Corp. (Fox). ** The National Cable Satellite Corporation (C- SPAN) derives 97 percent of its revenues from affiliate fees (i. e., subscriber fees from MVPDs). The remaining three percent is provided by various investments. Affiliates have no ownership or program control interests in C- SPAN. Sources: See Sources Tables C- 1 and C- 2. FCC, Broadcast Radio and Television Electronic Filing System, http:// svartifoss2. fcc. gov/ cgi- bin/ ws. exe/ prod/ cdbs/ pubacc/ prod/ cdbs_ pa. htm. Paxson Communications, http:// www. pax. tv/ about/ (visited Dec. 16, 2004). Daystar Television Network, http:// www. daystar. com/ about. htm (visited Dec. 16, 2004). 140 Federal Communications Commission FCC 05- 13 141 TABLE C- 4 Regional Video Programming Services Programming Services Launch Date MSO Ownership (%) Altitude Sports & Entertainment Sep- 04 Arabic Channel Apr- 91 Arizona News Channel Nov- 96 Cox (50) Bay News 9 Sep- 97 Time Warner (100) Bay TV 1994 Bravesvision (Atlanta) Jul- 03 Comcast (100) California Channel Feb- 91 Capital News 9- Albany New York Time Warner (100) Central Florida News 13 (CFN 13) Oct- 97 Time Warner (50) ChicagoLand Television News (CLTV) Jan- 93 Carolinas Sports Entertainment Television Oct- 04 CN8 – The Comcast Network Oct- 97 Comcast (100) Comcast Local (Detroit) Aug- 04 Comcast (100) Comcast SportsNet (Philadelphia) Oct- 97 Comcast (78.34) Comcast SportsNet Chicago Oct- 04 Comcast (30) Comcast SportsNet Mid Atlantic Apr- 84 Comcast (100) Comcast SportsNet West Nov- 04 Comcast (100) Comcast / Charter Sports Southeast (CSS) Apr- 84 Comcast (69.1), Charter (23) County Television Network San Diego Jul- 96 Cowboys TV (Dallas) Sep- 04 Comcast (100) Cox Sports Television Oct- 02 Cox (100) Ecumenical Television Channel 1983 Empire Sports Network Dec- 90 Adelphia (67) Falconvision (Atlanta) Sep- 04 Comcast (100) Florida's News Channel Sep- 98 Fox Sports Net Arizona Sep- 96 Fox Sports Net Bay Area Apr- 90 Cablevision (60) Fox Sports Net Chicago Jan- 84 Cablevision (60) Fox Sports Net Detroit Sep- 97 Fox Sports Net Florida 1989 Cablevision (60) Fox Sports Net Midwest Sep- 97 Fox Sports Net New England Jan- 88 Cablevision (30) Fox Sports Net New York 1989 Cablevision (60) 141 Federal Communications Commission FCC 05- 13 142 Programming Services Launch Date MSO Ownership (%) Fox Sports Net North Mar- 89 Fox Sports Net Northwest Nov- 88 Fox Sports Net Ohio Feb- 89 Cablevision (60) Fox Sports Net Pittsburgh Apr- 86 Fox Sports Net Rocky Mountain Nov- 88 Fox Sports Net South Aug- 90 Fox Sports Net Southwest Jan- 83 Fox Sports Net West Oct- 85 Fox Sports Net West 2 Jan- 97 Game Bank Nov- 95 Gwinnet News & Entertainment Television May- 97 Hip Hop Network Jan- 97 International Television Broadcasting (ITV) Apr- 86 Las Vegas One News Apr- 98 Local News on Cable (LNC) – Hampton Feb- 97 Madison Square Garden Network (MSG) Oct- 69 Cablevision (60) MediaOne News Dec- 95 MetroSports – Kansas City, Mo. Feb- 04 Time Warner (100) Metro Stories Aug- 98 Cablevision (60) Metro Traffic and Weather Aug- 98 Cablevision (60) Metro TV Aug- 98 Cablevision (60) Michigan Government Television Jul- 96 Neighborhood News 12 Unknown Cablevision (75) New England Cable News (NECN) Mar- 92 Comcast (50) New England Sports Network (NESN) Mar- 84 New York 1 News (NY1 News) Sep- 92 Time Warner (100) NY 1 Noticias Jun- 03 Time Warner (100) News 10 Now – Syracuse, N. Y. Nov- 03 Time Warner (100) News 12 Connecticut Jun- 95 Cablevision (75) News 12 Long Island Dec- 86 Cablevision (75) News 12 New Jersey Mar- 96 Cablevision (75) News 12 Bronx Jun- 97 Cablevision (75) News 12 Westchester Nov- 95 Cablevision (75) News 8 Austin Sep- 99 Time Warner (100) News Channel 5+ Sept- 96 142 Federal Communications Commission FCC 05- 13 143 Programming Services Launch Date MSO Ownership (%) News 14 Carolina (Charlotte) Mar- 02 Time Warner (100) News 14 Carolina (Raleigh) Mar- 02 Time Warner (100) News Now 53 Jun- 97 Cox (50) News on One Oct- 97 Cox (50) News Watch 15 (New Orleans) Oct- 99 News Channel 8 Oct- 91 NGTV (National Greek Television Dec- 87 Nippon Golden Network Jan- 82 North West Cable News (NWCN) Dec- 95 Ohio News Network (ONN) May- 97 Orange County Newschannel (OCN) PASS Sports (Pro- Am Sports System) Apr- 84 Pennsylvania Cable Network (PCN) Sep- 79 Pittsburgh Cable News Channel (PCNC) Jan- 94 Comcast (30) Rarities Exchange Dec- 98 Regional News Network (RNN) Dec- 95 Rhode Island News Channel Sep- 98 Cox (50) R News – Rochester, N. Y. Jul- 95 Time Warner (100) San Diego’s News Channel 15 Jan- 97 Six News Now Jul- 95 Soundtrack Channel (STC) Mar- 02 Sunshine Network Mar- 88 Texas Cable News Jan- 99 Tri- State Media News (TSM News) Apr- 99 Turner South (STC) Oct- 99 Time Warner (100) TV33 Dec- 95 Washington Korean TV (WKTV) 1985 Yankee Entertainment Sports Network (YES) Mar- 02 Sources: NCTA, Regional Cable Networks, Cable Developments 2004, at 207- 242. Comcast Comments at 28. Fox Comments, Attachment A. Mass Media Notes, COMM. DAILY, Feb. 3, 2004, at 10. Stormy Weather, CABLEFAX DAILY, Oct. 15, 2004, at 2. http:// www. cjr. org/ tools. owners (visited July 20, 2004) http:// www. freep. com/ money/ business (visited Oct. 29, 2004) 143 Federal Communications Commission FCC 05- 13 144 TABLE C- 5 Planned Programming Services Programming Service Planned Launch Date, If Announced Africast Television Network 2004 America Channel 2004 American David Sep- 05 America National Network Mar- 05 AMC’s American Pop TBA Anti- Aging Network 3Q05 Asia Channel 2004 Auto Channel Sep- 05 BET World Music Beat TBA Bingo TV TBA Black Belt TV/ The Martial Arts Network 2004 Black Education Network 2004 Black Entertainment Network TBA Blue Highways TV 2005 Boating Channel TBA BOB: Brief Original Broadcasts 2004 Booknet TBA Box TV May- 05 California Channel 2005 Casino & Gaming Television 2004 Classified Channel TV 2004 Collectors Channel TBA CSN (Cable Science Network) TBA Destiny Channel 2004 Documentary Channel 3Q05 Edge TV 2005 Election Channel 2004 Employment Channel 1Q06 ESPNU 2005 ESPN2 HD Jan- 05 Fad TV (Fashion & Design Television) 2004 Fifth Avenue Channel TBA 144 Federal Communications Commission FCC 05- 13 145 Programming Service Planned Launch Date, If Announced Film Festival Channel 2004 Florida Channel 2004 Fox Enhanced TV TBA Gambling Channel 2004 GETV Program Network 2004 Global Village Network TBA Government Channel TBA Home Improvement Channel 2004 Honey Vision 2004 Ice Channel 4Q05 Imagination Channel 2005 Investment TV TBA JTV (Jewish TV) 1Q05 Las Vegas Channel 2005 Local News Network TBA Local News TV 2005 Local Sports TV 2005 Logo Feb- 05 Major League Baseball 2005 Moore TV Network TBA Mountain West TV 4Q06 Moviewatch 2Q05 Native American Nations Program Network 2004 New York Channel 2005 New York Mets 2006 Orb TV TBA Outdoor Channel 2 2005 Premiere Horse Network TBA Puppy Channel 4Q05 RadioTV Network 4Q05 Real Estate Channel 2004 Real Estate Network (TREN) TBA Reality Central 2004 Scream Channel 2005 145 Federal Communications Commission FCC 05- 13 146 Programming Service Planned Launch Date, If Announced SCTV (Stand- Up Comedy Television) 1Q05 Senior Citizens Television Network 2004 Simulation Channel 2005 Sundance Documentary Channel TBA Theater Channel TBA Tickets On Demand (The Ticket Channel) 2005 Tourist Channel 2005 U. S. Military Television Network 2004 Vegas Channel 2005 Voy Network TBA Wine Network TV 2004 World Cinema TBA Sources: NCTA, Planned Services, Cable Developments 2004, at 247- 274. An Unfunny Thing Happened on the Way to New Orleans, CABLEFAX DAILY, May 3, 2004 at 2- 3. Cable, COMM. DAILY, Aug. 11, 2004, at 9; Aug. 23, 2004, at 7, Sept. 14, 2004, at 11. ESPN to Launch College Net, BROADCASTING & CABLE TV FAX, Sept. 8, 2003, at 3. 146 Federal Communications Commission FCC 05- 13 147 TABLE C- 6 Top 20 Programming Services by Subscribership Rank Programming Network Number of Subscribers (Millions)* Ownership Interest in Network 1 Discovery Channel 88.6 Cox, Advance Newhouse, Liberty Media 2 ESPN 88.4 Disney, Hearst 3 CNN 88.2 Time Warner 3 TNT 88.2 Time Warner 4 TBS 88.1 Time Warner 4 USA Network 88.1 NBC Universal 7 Nickelodeon 87.9 Viacom 8 C- SPAN 87.8 National Cable Satellite Corporation** 9 A& E 87.7 Disney, Hearst, NBC-Universal 10 Lifetime Television 87.5 Disney, Hearst 10 The Weather Channel 87.5 Landmark 12 Spike TV 87.2 Viacom 13 TLC 87.0 Cox, Advance Newhouse, Liberty Media 14 ABC Family Channel 86.8 Disney 14 ESPN2 86.8 Disney, Hearst 16 MTV 86.7 Viacom 17 CNN Headline News 86.5 Time Warner 18 VH1 86.3 Viacom 19 CNBC 86.2 NBC Universal 20 The History Channel 85.8 Disney, Hearst, NBC Universal Note: * - In addition to cable systems, other MVPDs such as DBS (direct broadcast satellite) systems, wireless cable (or MMDS) systems, PCOs (private cable operators or SMATV) services, and HSD (home satellite dish) program providers may distribute these signals. Subscriber figures may include these non- cable services. ** - The National Cable Satellite Corporation (C- SPAN) derives 97 percent of its revenues from affiliate fees (i. e., subscriber fees from MVPDs). The remaining three percent is provided by various investments. Sources: NCTA, Top 20 Cable Networks, Cable Developments 2004, at 39- 40. Disney Reply Comments at 2; Fox Comments, Attachment A; Viacom Comments at 4, 5. 147 Federal Communications Commission FCC 05- 13 148 TABLE C- 7 Top 15 Programming Services by Prime Time Rating Rank Programming Service Ownership Interest in Network 1 TNT Time Warner 2 Nickelodeon Viacom 3 USA Network NBC Universal 4 Nick At Nite Viacom 5 Disney Disney 6 ESPN Disney, Hearst 7 Toon Disney Disney 8 Lifetime Disney, Hearst 9 Fox News Channel Fox 10 TBS Time Warner 11 MTV Viacom 12 FX Fox 13 History Channel Disney, Hearst, NBC Universal 14 Discovery Channel Cox, Advance Newhouse, Liberty Media 15 A& E Disney, Hearst, NBC Universal Sources: Kagan World Media, Day Part Ratings Averages, Prime Time (May), CABLE PROGRAM INVESTOR, July 16, 2004, at 6. Disney Reply Comments at 2. Fox Comments, Attachment A. Viacom Comments at 4, 5. 148 Federal Communications Commission FCC 05- 13 149 SEPARATE STATEMENT OF CHAIRMAN MICHAEL K. POWELL Re: Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming As evidenced by this year’s Report, at the forefront of the digital migration taking root in every sector of the communications landscape and bringing vast benefits to Americans across the country, stands the television industry. Whether one focuses on distribution or programming, today’s video marketplace is the most competitive and diverse in our nation’s history. The good news for the viewing public does not, however, end here. The continued proliferation of emerging broadband digital platforms and services promise a future of more competition, diversity, localism and personalization in the video marketplace. The past decade has brought great change to the video distribution marketplace. A blip on the radar screen ten years ago, direct broadcast satellite (DBS) now serves one in four pay television subscribers. Almost every household in the country can enjoy video programming from a multitude of providers including over- the- air local broadcasters, one cable operator (and in several communities a cable over- builder) and at least two DBS providers. The analog systems of yesteryear are giving way to digital platforms, as over 1,400 broadcast stations are broadcasting in digital, and almost all cable systems and DBS providers deliver some or all video programming digitally. The digital migration in the video distribution market is also bringing new players into the market. The major incumbent local exchange carriers have announced plans to offer video service over new, fiber- based distribution platforms. Broadcasters such as Emmis and USDTV are leveraging their digital assets to offer low- cost pay- television services to several communities across the country. Continuing advances in broadband Internet speeds and compression technologies are allowing thousands of channels to emerge on the Internet, offering streaming video to millions of PCs at both home and work. Finally, this next year promises to bring more video to mobile devices, offering the public the ability to get their news, information and entertainment anywhere, anytime. The power of digital video services and technologies to enhance consumers’ ability to enjoy and participate in the video marketplace is greater than ever and only increasing. Personal video recorders continue to flood the marketplace, making the viewer, not the executive, the programmer. This year promises advances in long- awaited interactive television services, giving the public more control over their viewing experiences. Even more important, individuals are using video and the Internet to be active programmers— some creating their own documentaries or entertainment programs and finding distribution on the Internet. Most exciting in this area may be the proliferation of Vblogs— the evolution of web logs is now going video. We stand at a remarkable time in the development of the video marketplace. A time at which we can say with great confidence that the monopolies of the past have given way to the most competitive video marketplace at any point in history; yet continuing developments in the video marketplace will ensure that today is also the least competitive the marketplace will ever be. A bevy of new platforms, services, devices and programming options promise infinite new choices for Americans in the days, months and years to come. 149 Federal Communications Commission FCC 05- 13 150 JOINT STATEMENT OF COMMISSIONERS MICHAEL J. COPPS AND JONATHAN S. ADELSTEIN CONCURRING Re: Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992; Statistical Report on Average Rates for Basic Service Cable Programming Service and Equipment Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming In Sections 623( k) and 628( g), Congress charged the Commission with reporting annually on cable rates and on the status of competition in the market for the delivery of video programming. As the government’s expert agency, Congress expected the Commission to gather comprehensive data and subject it to in- depth analysis in these reports. Unfortunately, in these reports, the Commission gathers less than adequate data and conducts less analysis than it did even a few years ago. At a time of significant increases in rates year after year, Congress and consumers deserve a better effort from the FCC. We took issue with our Report on cable rates last year because we believed the analysis was insufficient. At that time, the Commission recognized the report’s shortcomings, noting that “in several previous surveys, we included an econometric analysis of the survey results.” The Commission further stated its “plan to resume the econometric analysis in subsequent reports.” Yet, this year, the Commission again fails to conduct this analysis which in the past has provided information on specific factors that influence rate increases and the extent of that influence. Moreover, the Commission once again did not audit any of its results, notwithstanding problems with our methodology disclosed in a recent report from the General Accounting Office. We remain concerned that this year’s competition report continues to serve mainly as a recitation of the record rather than providing an in- depth analysis of the status of competition. As with last year’s version, this report fails to examine adequately the circumstances that distinguish those places where competition is occurring and those where it is not, and to evaluate barriers to greater competition. And it fails to consider sufficiently many of the important issues raised in the Notice, such as the impact of increasing vertical and horizontal consolidation of our media. In sum, the report seldom delves beneath the surface. In part, the fault lies with the limited data we received in response to our notices. But it is also incumbent on the Commission to undertake a pro- active and comprehensive information- gathering effort and then to commit the resources necessary to analyze the data. We recognize that there have been some positive steps in these reports in response to previous criticisms. For example, we are pleased that we have at long last begun to analyze what is happening in other countries. In addition, we are also pleased that we have added a separate section that focuses specifically on video program distribution in rural areas. In future years, we would like to see us build on the discussions here. Finally, notwithstanding the concerns we have expressed with our reports, none of our comments should take away from the large investments that have been made by those that deliver video programming. Nor do our concerns with the reports diminish the benefits American consumers receive as new services are deployed. These investments and services come not only from existing participants in the market but also from telephone companies and others that are expanding their efforts to deliver video programming. But these reports serve as the factual foundation for many Commission decisions as well 150 Federal Communications Commission FCC 05- 13 151 as providing Congress with statutorily- mandated information that can inform the national policy debate. We have an obligation to do more to gather accurate and complete data as well as provide the information and analysis that Congress required. 151