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2. SMATV and MMDS are also providing significant competition to cable systems. Tens of millions of consumers live in apartment buildings. 17 MDU residents can obtain multichannel video services from an incumbent cable operator and often from one or more operators of SMATV or MMDS systems. These high density buildings are the subject of vigorous competition From May 1996 to May 1997, the number of MMDS and SMATV customers increased from 1.78 million to 2.26 million, or approximately 27%.18 SMATV and MMDS service remains an option, particularly for residents of MDUs, that many find attractive

3. Well over a million households either have access to a competitive multichannel choice from a telephone company or will have such a choice within the next 12 months. Since the enactment of the 1996 Telecommunications Act, which struck down statutory and regulatory barriers to local telcos' entry into cable, a number of telcos have moved quickly to offer competitive cable service.

• Ameritech is aggressively seeking cable franchises throughout its region. At last count, it has received authorizations to operate cable systems in 46 communities serving a population of more than 2,000,000; 19

• The Southern New England Telephone Company (“SNET”) has begun cable service and plans to operate throughout Connecticut; 20

• GTE, through its subsidiary GTE Media Ventures, passes more than 520,000 homes in Clearwater, Florida and Ventura County, California, in competition with incumbent operators; 21

• BellSouth plans to operate video systems in many parts of its telephone service area; and 22

• Bell Atlantic operates an OVS system in Dover Township, New Jersey, and apparently plans to offer cable service in Philadelphia in the near future.23

And the Commission permits telcos to jointly market video service at the time a new resident applies for phone service.24 Under these circumstances, the cable company is not likely to be the first call of a new resident; the telco will be.

While subscriber counts are not reported by these companies and are difficult to come by, it is nevertheless clear that telephone company video systems constitute an increasingly significant factor in any assessment of multichannel service competition.

The presence of these choices profoundly changes the multichannel marketplace. This stands in stark contrast to the local telephone market. When a consumer orders residential telephone service, she or he does not have a choice among a number

Sports-Pittsburgh, Fox Sports-Rocky Mountain, Fox Sports-South, Fox Sports-Southwest, Fox Sports-West, Fox Sports-West 2, HTS, MSGN, NESN, PASS, SportsChannel-Chicago, SportsChannel-Cincinnati, SportsChannel-Florida, SportsChannel-New England, SportsChannel-New York, SportsChannel-Ohio, SportsChannel-Pacific, SportsChannel-Philadelphia,_Sunshine Network, Classic Sports Network, The Golf Channel, Outdoor Life, SpeedVision, A&E Television Network, Animal Planet, BET, Bravo, Cartoon Network, Discovery Channel, DisneyEast, Disney-West, E!, The Family Channel, The History Channel, Home & Garden TV, HSŃ, TLC, Sci-Fi Channel, QVC, TBS, Trinity, TRIO, TNT, TV Food Network, USA Network, WGN, America's Health Network, Bloomberg Information TV, Channel Earth, CNBC, CNN, CNNI CNNfn, C-SPAN, C-SPAN2, Court TV, Fox News Channel, Headline News, MSNBC, NewSport, Newsworld International, The Weather Channel and 31 channels of digital audio programming. DirecTV also offers Playboy TV and Spice a la carte. DirecTV also offers numerous sports programming packages including NFL Sunday Ticket, MLB Extra Innings, NBA League Pass, NHL Center Ice, ESPN Full Court (college basketball) and ESPN GamePlan (college football).

In addition to the programming available on DirecTV, USSB carries the following programming services: HBO-East, HBO-West, HBO2-East, HBO2-West, HBO3, HBO Family, HBO Family-West, Cinemax-East, Cinemax-West, Cinemax 2, Flix, Showtime-East, Showtime-West, Showtime 2, Showtime 3, The Movie Channel-East, The Movie Channel-West, Sundance Film Channel, VH-1, MTV, M2, Comedy Central, Lifetime, Nickelodeon, Nick-at-Nite's TV Land, and All News Channel. There's simply no cable company in the U.S. today that offers this line-up of programming.

According to the Statistical Abstracts of the United States 1995 at 733 Table No. 1224, over 28 million people resided in multiple dwelling units with three or more units in 1993.

18 Paul Kagan Associates, Marketing New Media, May 19, 1997, at 4.

19 Cableday, July 18, 1997, at 2.

20 "SNET Expanding Competition for Cable Subscribers," Hartford Courant, July 3, 1997. 21 "Cable Service Puts Internet Feel on GTE Subscribers" Television," LA Daily, May 10, 1997. 22 See, e.g., BellSouth Acquires Wireless Cable of Atlanta; Video Services to be Available to 900,000 Households: Yahoo PR Newswire, Feb. 12, 1997; BellSouth Agrees to Buy Wireless Cable TV Services in Nine Southern Markets," Atlanta Journal-Constitution, Mar. 20, 1997. 23 See CableFAX Daily, July 21, 1997, at 1.

24 Implementation of the Nonaccounting Safeguards of Section 271 and 272 of the Communications Act of 1934, as amended, 5 FCC Rcd 696, 782 (1996).

of options. The only choice is the incumbent telephone company.25 Such is not the case with multichannel video service.26

4. The scope and intensity of the broadcast competition faced by cable operators has grown significantly. Where a multitude of strong off-air broadcast signals are available, the need for cable service to assure a full complement of local broadcast channels is reduced. In 1975 there were 706 commercial stations; 27 in 1997 there are 1,193 stations on the air, a net gain of 69% more stations.28 And cable's carriage of UHF stations, along with random access tuners, have narrowed the "UHF handicap" to the point where even major networks freely affiliate with UHF stations.

In the mid-1980's, cable operators competed principally with three national commercial broadcast networks for allegiance of television viewers. Since then, FOX affiliates have become full-fledged competitors, achieving prime-time ratings that are comparable to other network affiliates. For example, for the week ending July 12, 1997, CBS achieved a prime rating of 5.9, while FOX's rating was 5.7. The two networks garnered equal 11 shares.29

Cable operators are also pressed by competition from affiliates of two new broadcast networks, "The WB" and UPN, which developed due in part to the increase in licensed TV stations. Cable operators and programmers thus face off-air competition from six commercial broadcast networks, plus public television, rather than three or four, in many markets. Affiliated with two of the leading production studios, “The WB" and UPN have ready access to original programming. Despite the early stage of these networks' development, they already achieve average prime-time ratings in excess of any cable network.

Overall, the evidence is clear: the level of alternatives to cable provides significant competition to the cable industry. The MVPD video market share enjoyed by cable's rivals would certainly be greater if cable companies had been so foolish as to fail to respond to the competition.

Some may argue that if the video marketplace were truly competitive, cable companies would irretrievably lose, not gain, customers. But that analysis assumes that cable operators have not responded effectively to more competition. It ignores the cable industry's successful efforts to improve customer service, to add capacity, and to restructure and enrich program packages. Recognizing that the cable industry cut its teeth as an aggressive competitor to the broadcast oligopoly, it should not be surprising to see cable respond effectively to a new competitive environment.

Cable is competing hard and is winning new customers, due to its competitive product when compared to other multichannel viewing options. Yet, despite these gains, there has been a marked slowing of cable's subscriber growth rate. In 199495, cable subscribership grew at a 3.9% rate; in 1996-97, the rate had declined to 2.5%.30

CONCLUSION

The MVPD marketplace is competitive, it is on the road to even more competition and there is no turning back. Consumers have more, and more aggressively marketed, MVPD choices. Cable's principal competitors are growing at a rate nearly 34 times faster than cable. And cable operators are responding with a price-value offering that brings real benefits to those who choose to continue to be subscribers. Cable operators really have no other choice because video customers now have other choices.

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25 Over 99% of residential telephone subscribers still have only one choice of provider. 26 Moreover, the proliferation of the Internet as a consumer service, with video capability although small today, should be taken into account in assessing the competitiveness of the video marketplace. Reports that web sites showing the recent Mars landing have generated over 100 million hits emphasizes the importance of the Internet as a visual communications medium. 27 Warren Publishing, Television & Cable Factbook Services, Vol. 65, at I-45.

28 Broadcasting & Cable, July 14, 1997, at 66.

29 Nielsen Media Research, as reported in The Washington Post, July 16, 1997, at D4. 30 A.C. Nielsen Cable Universe Estimates, May 1994-1997.

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Chart 1

A Comparison of the Percentage Increase in Subscribership May 1996-May 1997: Cable Television versus DBS

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84.5%

DBS

Source: Cable data from A C Nielsen, Cable Universe Estimates; DBS data from Media Business Corp., SkyREPORT, June 1997.

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Source: 1992-1996: Federal Communications Commission, Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, released 1/2/97, at Appendix F; 1997 estimate: NCTA based on industry data.

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