Cable slows, DBS sprints

EchoStar adds DBS subscribers so quickly that it could spawn the equivalent of the 11th-largest cable operator every quarter, with about 460,000 subscribers. By the end of the year, the 1.7 million new subscribers it expects to generate would make it the 9th-largest operator, just behind Cablevision Systems Corp.

DirecTV is growing at a slower pace, adding enough subscribers to create the 15th-largest operator each quarter and the 10th-largest operator each year.

Meanwhile, cable operators plod along with 1-2% annual growth, with the entire industry adding a million or so subscribers per year. That's basically the rate at which new households are created.

The only thing cable operators can brag about is having beaten predictions that their subscriber counts would be declining by now.

The magnitude of DBS' continuing surge is one of the starkest patterns that emerges from BROADCASTING & CABLE's annual compilation of the Top 25 MSOs. This year, for the first time, we're including EchoStar and DirecTV in what has historically been a list of cable operators. Previously, the compilation had noted the DBS providers in a sidebar. But that distinction is becoming increasingly irrelevant. DirecTV and EchoStar have grown to become the third- and eighth-largest multichannel video providers, respectively. And while, even after six years, some Wall Street players speak of DBS as "maturing," the DBS segment, compared with cable, is a quickly maturing teenager.

Except for the addition of DirecTV and EchoStar, the ranks of operators haven't changed much. Overbuilder RCN Corp. added 50% to its subscriber base, the only overbuilder not yet hitting a cash crunch. RCN would have risen two notches from last year's 13th rank had the DBS operators not been mixed in.

The cable consolidation wave has pretty much ceased. America Online completed its takeover of Time Warner, but that does not count as consolidation. In last year's list, merger activity was so frenzied that nine of 1999's Top 25 MSOs had disappeared into the bowels of larger operators.

In the past 12 months, only one Top-25 operator was sold. GS Communications, which squeaked into the 25th rank last year, was acquired by Adelphia Communications, which had initially agreed to pay an astonishing $6,200 per subscriber. After going to court over the deal after the tech markets soured, though, Adelphia managed to chisel the price down by about $1,000 per subscriber.

Other cable transactions have pretty much involved trades or straight sales by AT&T Broadband. The other major move is the completion of Cablevision Systems' shedding of all systems outside the metro-New York market. That includes not just minor markets like Kalamazoo (which went to Charter) but Cablevision's lucrative Boston cluster (bought by AT&T).

AT&T remains the largest operator, despite falling from 16.4 million subscribers to 15.9 million through system sales. The cutoff for the list is Galaxy Cablevision's 150,000 subscribers, whose financial troubles will probably lead it to sell systems or sell out entirely.

Among the interesting patterns in this year's list is how much progress operators are making in digital cable. It took a while for many large operators to risk the capital required to widely deploy digital cable.

A year ago, AT&T, which started pushing digital heavily in 1996, had sold the product to about 10% of subscribers on systems with digital available. This year, they've doubled it to 20%. More interesting is that latecomers are doing just as well. Charter Communications went from 3.3% penetration to 15% in a year, adding more than 1 million subscribers. AOL Time Warner Cable went from 4.9% penetration to 20%, adding 1.6 million digital subs. Adelphia has the highest digital penetration, at 22%. Several operators have zero: Cablevision, RCN, Ameritech and Blue Ridge Cable. But Cablevision plans an exceptionally aggressive strategy of putting digital-cable converters in about 50% of its homes over three years beginning in the fall.

Cable modem penetration is less impressive. Some MSOs have managed to break into the double-digit penetration with their high-speed Internet service: Time Warner Cable 12%, Cablevision 13% and tiny Armstrong Utilities 14%. But other major operators are hovering in the 6% to 7% range after three or four years of deploying and peddling the product. Part of the problem is competition from telcos' DSL service. But operators seem to have not yet been able to convince many users that the $30 to $40 extra a month is worth it.

The data for this listing were gathered primarily from the companies themselves, and the ranking was determined by the number of basic subscribers. In the case of uncooperative companies, we rely on securities and other regulatory filings or estimates by analysts, industry executives and, sometimes, former employees of the company. In a few instances, no reliable estimates were available. Those items are marked N/A.