Satellite Competition Holding Down Cable Rates, FCC Reports

The rising price of cable television service has begun to slow as satellite TV companies such as EchoStar Communications Corp. and DirecTV challenge cable’s dominance, according to a new government report.

In a 100-page report assessing the subscription television market, the Federal Communications Commission said the price of cable TV service rose 3.8% through June of last year. That was almost double the inflation rate during the period but less than the 7.3% rise in cable prices the previous year--and one of the lowest increases in a decade.

While brisker competition may be a major impetus for the cable industry’s restraint, an equally important factor was a broad campaign by companies to keep a lid on rates to prevent Congress from imposing new regulation. Lawmakers threatened to assert themselves if cable rates spiked after the sunset of price regulations last February.

When Congress imposed caps on rate increases in 1992, the cable industry went into a slump that lasted several years.

All regulations on cable rates were eliminated last year because of increased competition from satellite providers.

According to the new report, that competition has pared cable’s share of the TV subscription market to 82% last year, from 85% in June 1998. Nationwide, 80.9 million households were signed up for a subscription TV service as of June 1999, compared with 76.6 million households the previous June. Satellite TV’s share of the market now stands at 12.5% (the rest of the market is from wireless cable and microwave transmissions).

“I am encouraged by the growth of competition to cable,” FCC Chairman William Kennard said in a prepared statement. “Competition is the best way to reduce cable rates for consumers.”

The FCC report comes as both direct broadcast satellite operators and the cable industry are arming themselves with new services and technologies that could dramatically alter the balance of power in the subscription video market.

A measure passed by Congress last year allowing satellite TV operators to provide local broadcast TV channels to subscribers is expected to produce huge market gains for the satellite TV industry by putting them on equal footing with cable operators.

The FCC study found that among the 60% of satellite TV subscribers who have access to cable, 24% subscribed to cable also, primarily to receive local TV broadcast signals.

Many experts, including some cable officials, expect those subscribers to fully defect to Hughes Electronics Corp.’s DirecTV and its rival, Dish Network, owned by EchoStar, in the coming years. The shift is forecast to lift satellite television’s share of American households to 30%, from 12% today.

“I think the FCC’s report reflects what we are seeing in the increasingly competitive marketplace,” said Jerry Yanowitz, vice president of federal relations for the California Cable TV Assn. in Sacramento. “People can now get a satellite dish at little or no cost. They have services that some cable systems don’t have. If cable doesn’t keep up, we will be left behind.”

Many operators are heeding Yanowitz’s advice and are rushing to deploy new services such as digital video, high-speed Internet access and telephone service that the industry hopes will lure back customers who have defected.

AT&T; Corp., for instance, is awaiting word on whether federal regulators will allow it to enlarge its cable system by purchasing cable operator MediaOne Group Inc.

But the FCC report suggests that cable operators are facing big challenges.

While competition is forcing cable operators to hold the line on price increases to subscribers, many other key costs continue to rise.

The FCC found that capital expenditures to upgrade cable facilities increased 13.2% over 1998, licensing fees rose 14.6% and programming expenses jumped 16.3%.

Labor costs also rose higher than the overall labor market.