PREPARED STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS

I thank the Chair for yielding.

Mr. Chairman, I commend you for holding this oversight hearing. I believe this bearing on the degree of competition among providers of multichannel video programming serves as a meaningful step in overseeing our progress on this issue.

In addition to the Commerce Committee, I also serve on the Government Reform and Oversight Committee, so I know what an important purpose these oversight hearings serve. Not only do they bring us a better understanding as to whether the letter of the law is being followed, but they also serve us in comprehending whether the wishes of our citizens are being respected.

In the case of oversight of competition in multichannel video programming, I believe our focus is on whether the FCC is following the directions we set out in previous legislation, as well as whether the swift and robust competition we promised to consumers is being delivered. Obviously, competition has not increased as quickly as we would have liked. However, in recognizing this point, we must also keep in mind that we made great strides in last year's Telecommunications Act, so we should not be too impatient in our expectations. The fact of the matter is that the market is growing, and that competition for access, delivery, and equipment is opening.

Certainly, there are many points of view on this issue, and everyone's side needs to be reviewed. With that in mind, I come to this hearing and future hearings with an open mind so that I have a proper perspective on the degree of increased competition.

Again, thank you Mr. Chairman for holding this oversight hearing so that we may continue our search for the "holy grail" of telecommunications policy: full, open competition.

Mr. Chairman, I yield back the balance of my time.

Mr. TAUZIN. I thank the gentleman. The gentleman from Maryland, Mr. Wynn-is not here.

Any other members seeking recognition?

[No response.]

Mr. TAUZIN. Then the Chair is pleased to welcome its distinguished panel of witnesses and, gentlemen and lady, we certainly appreciate the fact that you have come to help teach us and through the process of this hearing teach Americans a little bit more about the advent of competition in multichannel video distribution.

With us today are Mr. Decker Anstrom, president and CEO of the National Cable Television Association; Mr. Deborah Lenart, president of Ameritech New Media; Mr. Eddy Hartenstein, president of DIRECTV; Mr. Richard Hahn, vice president for Technology Research and Development at Boston Edison; Mr. William Reddersen, group president, Long Distance and Video Services for BellSouth Enterprises; and Mr. Shant Hovnanian, chairman and CEO of CellularVision USA, a new wireless cable system I believe in New York.

Gentlemen and lady, we want to welcome you all and we will start with Mr. Anstrom, and again, Decker, I want to thank you for breaking other commitments that you had to be with us today and we will now welcome your opening statement.

STATEMENTS OF DECKER ANSTROM, PRESIDENT AND CEO, NATIONAL CABLE TELEVISION ASSOCIATION; DEBORAH L. LENART, PRESIDENT, AMERITECH NEW MEDIA, INC.; EDDY W. HARTENSTEIN, PRESIDENT, DIRECTV, INC.; WILLIAM F. REDDERSEN, GROUP PRESIDENT, LONG DISTANCE AND VIDEO SERVICES, BELLSOUTH ENTERPRISES; RICHARD S. HAHN, VICE PRESIDENT, TECHNOLOGY RESEARCH AND DEVELOPMENT, BOSTON EDISON COMPANY; AND SHANT S. HOVNANIAN, PRESIDENT AND CEO, CELLULARVISION USA Mr. ANSTROM. Thank you, Mr. Chairman.

Thank you for providing the cable television industry with the opportunity to participate in today's hearing to review the status of video competition.

This morning I really have one simple message, and that is despite the perception some may have, the multichannel video marketplace is becoming increasingly competitive and consumers now have one or more alternatives to their local cable company.

Consider this fact. By the end of this year, 10 million consumers will obtain multichannel video service from one of cable's competitors and already in the past year alone cable's share of all multichannel video homes has declined from 89 percent to 87 percent. Let me repeat those numbers-10 million consumers choose someone other than a local cable company and cable's market share has declined to 87 percent.

Now while we certainly appreciate the subcommittee's interest in reviewing the video marketplace, the level of competition in video stands in stark contrast to the local telephone marketplace where today local telephone monopolies have more than 99 percent of the local residential telephone business.

Some have asked, where is the competition provided by the 1996 Telecommunications Act? We think the answer to that question is clear. At least in the video marketplace millions of consumers not only have a choice but are exercising it.

These choices may be different. One distributor's offering may not be identical to another's or to the local cable company's but these are real choices.

Consider, too, cable's primary competitors-direct broadcast satellite services or DBS and our aforementioned friends, the telephone companies.

DBS continues to add customers at a rapid pace. From May, 1996 to May, 1997, DBS subscribership grew from 2.66 million homes to 4.91 million homes, a growth rate of 84.5 percent, and DBS Digest projects that 7.2 to 7.8 million households will subscribe to DBS by the end of this year.

Now why does DBS grow so quickly? What makes it such a competitive product?

I don't think you have to look any further than Direct TV's program offerings to Cable. Together with USSB, Mr. Hartenstein and his company offer a consumer up to 220 channels, whereas the typical cable system today has 53 channels and they have virtually every cable network in their package as well as exclusive exclusive sports and big event programs. That is competition.

Or consider the Telcos. More than 1 million households will have access to comprehensive multichannel choice from a local telephone

company by the end of the year. That number may well be higher. Already just a little more than a year after the 1996 Act eliminated any statutory or regulatory barriers to the phone companies entering the cable business Ameritech has obtained more than 40 franchises and is operating new cable systems in a number of communities and claims that they are winning a number of our customers. GTE is moving ahead in Florida and California. Southern New England Telephone has received a statewide franchise to offer cable service in Connecticut and they are offering that service, and BellSouth has acquired a number of MDS licenses and apparently will offer video services using wireless technologies.

These are big, well capitalized companies that we treat seriously. They cover many States and we expect them to continue their involvement in the video business.

As we are going to hear, utilities are also beginning to offer competitive video choices. Boston Edison and its partner, RCN, are demonstrating this in the Boston Metropolitan area. Each of these distributors has a somewhat different approach but each offers consumers a clear alternative to cable.

Mr. Chairman, I must add that from reading the written statements of my colleagues here this morning, with the exception of Mr. Hahn, you could assume that their principal business strategy is to regulate cable more, particularly in the area of program access, even though they carry every major national cable program network today.

Now that is their right, but we can be sure about this, that the answer to any imperfections in this rapidly evolving video marketplace surely is not more Federal regulation.

I would like to conclude with this point. Cable companies are responding vigorously to this new competition. With new and better programming, significantly improved customer service, substantial new investments to expand our channel capacity so we can compete in particular with DBS, and new services including high speed cable modem services, digital TV and telephone service we intend to earn our customers' loyalty and to win new customers, because if we don't, our competitors will, because they have real and compelling choices.

Thank you, Mr. Chairman.

[The prepared statement of Decker Anstrom follows:]

PREPARED STATEMENT OF DECKER ANSTROM, PRESIDENT AND CEO, NATIONAL CABLE TELEVISION ASSOCIATION

Mr. Chairman, members of the subcommittee, my name is Decker Anstrom and I am President of the National Cable Television Association. Thank you for inviting me to testify before you today on behalf of the NCTA, which represents cable companies serving more than 80 percent of the nation's 65 million cable customers and more than 100 cable program networks. I welcome this opportunity to comment on "Video Competition: The Status of Competition Among Video Delivery Systems." A. Multichannel Video Competition is Growing

The nation's television consumers are experiencing a steady and irreversible increase in video choices continuing a trend the Federal Communications Commission identified in its 1996 Video Competition Report. These increased choices come about because of a dramatically more competitive market, as satellite, telephone, SMATV and MMDS providers continue to step up their efforts to provide multichannel video programming services.

The numbers bear this out. From September 1996 to May 1997, the cable industry's share of multichannel homes declined from 89% to 87%.

In vivid contrast, cable's most significant multichannel competitor, DBS, had a subscriber growth rate of 84.5% over the past year-nearly 34% as great as cable's. (Chart #1) Likewise, MMDS and SMATV subscribership increased 27% during this same period. And well over a million households either have access to a competitive multichannel choice from a telephone company or will have a choice within the next 12 months.

The developments of the last year continue a trend the FCC acknowledged in its 1996 Video Competition Report. Earlier this year, the FCC found that "non-cable MVPD subscribership has been increasing an average of 22% per year since 1990, with cable subscribership currently down to 89% of all MVPD subscribers."1 As noted, as of May 1997 that number has declined to 87%.2

The FCC found in its last report that "incumbent franchised cable systems continue to be the primary distributors of multichannel video programming," but acknowledged that other MVPDs, particularly those using alternative technologies (e.g., DBS, wireless cable and SMATV systems), continue to increase their share of subscribers in many markets.3 Since September 1996, the number of consumers using a noncable MVPD has grown to 9.5 million.

If present trends continue, we conservatively estimate that 10 million consumers will obtain multichannel video service from one of cable's competitors by the end of 1997. (Chart #2)

The substantial competition faced by cable operators contrasts sharply with the near total absence of competition experienced by local telephone companies. Cable operators compete for video service with DBS, SMATVs, MMDS, OVS and telephone company cable systems. More importantly, nearly all consumers have a choice between the incumbent cable operator and one or more competitors. How many residential telephone customers have a facilities-based choice, let alone have selected the competitor over the incumbent? Few residential customers can choose among providers, nearly 18 months after Congress eliminated statutory and regulatory barriers to local telephone competition. (Chart #3)

B. DBS and Other MVPD Growth

Consumers have choices among multichannel video service providers. While cable service is available to approximately 97% of all television households (and taken by 67.2%), DBS service is generally available to all single-family residences. And many residents of multiple dwelling units ("MDUs") can elect SMATV service and in many areas, MMDS or DBS service. So there are actual or potential cable competitors everywhere for virtually every consumer.

1. DBS is particularly thriving. DBS is an unparalleled consumer phenomenon in terms of growth: first year sales of DBS dishes alone were "stronger than those of any other consumer electronics product in history, including VCRs, CD players and big-screen televisions."4 DBS subscribership grew 2.66 million to 4.91 million between May 1996 and May 1997. DirecTV and United States Satellite Broadcasting ("USSB") alone added 1.05 million subscribers during this period. DirecTV subscribership has grown from zero in mid-1994 to nearly 3 million. (Chart #4) The rate of DBS subscriber growth in 1997 is even higher than in 1995 and 1996.5

DBS Digest now "projects that 7.2 to 7.8 million households will subscribe to DBS by year's end." This projection is not surprising given the rate of growth DBS has experienced since its inception. (Chart #5)

According to the SkyREPORT Newsletter, Direct-to-Home ("DTH"), i.e., all dish customers, including DBS and C-Band subscribership, grew from about 5.1 million to 7.2 million, an increase of 42%, from May 1996 to May 1997.7 (Chart #6) DTH

Annual Assessment of Competition in the Market for the Delivery of Video Programming, FCC 96-496, rel. Jan. 2, 1997, at 5 (“1996 Report"). Section 628 (g) of the Communications Act of 1934, as amended, directs the Commission to "annually report to Congress on the status of competition in the market for the delivery of video programming."

2 In May, 1997, there were approximately 74.5 million multichannel subscribers, 65 million cable subscribers, or 87.2%, and 9.5 million noncable multichannel customers.

31996 Report at 95.

"Pizza-Sized Dish is the Hottest Item on Home Telecommunications Menu," Washington Times, February 4, 1995.

"During the first five months of 1997, DBS subscribers increased 741,000. By comparison during the first five months of 1996, subscribership increased by 546,000 and in 1995 by 445,000. See Cable World, July 7, 1997, at 17.

•Id.

7 SkyREPORT, June 1997. DTH includes C-Band subscribers (roughly 2 million). It should be noted that virtually all of the growth in DTH subscribership over the past three years is attributable to DBS, given that C-Band subscribership has remained relatively flat.

subscribers increased an additional 182,089 in June 1997, to its current total of about 7.4 million.

Growing numbers of consumers are taking advantage of these options in ways that have a real impact in the marketplace. Aggregate national numbers tell only part of the story. In 24 states, DTH satellite subscribership is now over 10% of all television homes. (Table #1) While this level may not yet technically satisfy the Cable Act's "effective competition" test, it has proved more than sufficient to place real competitive pressures on cable operators.

The continuing growth in the number of programming_networks available from DBS also demonstrates expanding competition in the MVPD marketplace. The availability of more than 100 DBS channels fosters the viability of new networks and enables these networks to market their services to consumers nationwide and, in many cases, worldwide.

DBS providers have a distinct competitive advantage over cable operators in light of regulatory and technical factors, notably additional capacity. Subscribers to DirectTV, and its companion service USSB, have access to up to 220 channels, including 34 movie channels, 30 sports channels, 27 variety channels, 16 news and information channels, 6 music channels, 68 pay-per-view channels and 31 audio channels. The average cable system has 53 channels.

Prices for high-power DBS receiving equipment have fallen dramatically since DBS was first introduced to the American public. The Commission has traced_this trend in its various annual reports on the status of video competition. In its First Annual Report to Congress, released shortly after the institution of DBS service, the Commission reported that DBS dishes-which were then used in conjunction with DirecTV and USSB, the only high-power DBS providers at the time cost $699, and subscribers also had to pay $150-$200 for professional installation or purchase the installation equipment for $69.95.9

One year later, in its 1995 Video Competition Report, the Commission observed that the DBS receiving system available from RCA was then available for $597.10 And last year, the Commission reported that when EchoStar began service, it offered receiving equipment for $199 to customers who signed up for a year's programming. In addition, two DSS manufacturers lowered their prices for their basic models to $399 and DirecTV began a $200 rebate program for subscribers who purchased a year's worth of programming.11

This trend has continued. On June 1, 1997 EchoStar "unbundled" its programming from its receiving equipment so that its customers did not have to purchase a year's worth of programming in order to purchase the EchoStar dish for $199.12 DirecTV recently adopted the same pricing policy.13 It seems likely that this trend in price reductions for DBS receiving equipment will continue.

At the same time that prices for basic DBS receiving equipment have steeply declined, a series of initiatives have been announced to make equipment with additional features available to the public. For example, at least two manufacturers have integrated an off-air antenna into a DBS receiving dish so that DBS subscribers may be able to receive local broadcast signals. 14 And, just last week, Hughes Networks Systems introduced an antenna called DirectDuo that can receive both the DBS programming packages of DirecTV and USSB as well as the high-speed data services of DirecPC. Existing subscribers to either DirecTV or DirectPC can upgrade to Direct Duo for between $599 and $699, while new subscribers can purchase the new antenna for $899 to $999.15 Given the history of DBS dish prices, the prices for this TV/PC service can be expected to fall in the near future.

DBS systems operated by DirectTV and EchoStar offer customers a package of services that nearly always exceeds in number of channels the services available from incumbent cable operators. 16 The presence of multiple DBS operators affords consumer choices among full-fledged DBS competitors with cable.

8 See infra n.16.

91994 Report, 9 FCC Rcd 7442, 7475 (1994).

10 1995 Report, 11 FCC Rcd 2060, 2085 (1995).

11 1996 Report, FCC 96-496 at 943.

12 "A Mixed Bag for DBS," Broadcasting & Cable, June 9, 1997, at 42.

13 Satellite News, June 16, 1997.

14 See, "A Solution for DBS" Local Signal Blind Spot?", Cable World, July 21, 1997, at 64, and "Antenna America Licensed by DirecTV," Cable World, July 21, 1997, at 8.

15 "New Dish," Cable World, July 21, 1997, at 18.

16 The DirecTV programming options include the following services: AMC, Encore, EncoreWest, Encore 2-Love Stories, Encore3-Westerns, Encore 4-Mysteries, Encore 5-Action, Encore 6True Stories, Encore 7-WAM!, Independent Film Channel, Starz!, Starz!-2, Starz!-West, Starz!2West, Romance Classics, Turner Classic Movies, CMT, MuchMusic, TNN, ESPN, ESPN2, Empire Sports Network, Fox Sports-Arizona, Fox Sports-Midwest, Fox Sports-Northwest, Fox