FCC Report: Cable Might Lose Subs In 2002

Washington— The year 2002 could be the first in which the cable industry as a whole suffers a net loss of subscribers, the Federal Communications Commissions said in a broad report released last Tuesday.

In the 99-page report, the FCC said cable operators added about 250,000 customers over the 12-month period ending June 30, 2002. But subscriber losses sustained by AT&T Broadband and other cable operators during the second half of 2002 could mean a first-ever net decline in cable's subscriber totals.

Nevertheless, the agency said cable remains the "dominant technology" in the U.S. pay-TV market. Citing the U.S. Bureau of Labor Statistics, the FCC said during the year, nominal cable rates rose 6.3 percent, compared with an inflation rate of 1.1 percent.

Although cable-rate data gained national headlines, many stories omitted the fact that the FCC's most recent cable-rate survey, released last April, showed that per-channel cable rates declined after being adjusted for inflation, an indication that MSOs added channels while increasing rates.

Under federal law, the FCC is required to prepare a report on cable competition for Congress. Last week's report, the agency's ninth in as many years, reviewed advances by cable operators and satellite carriers and examined various trends, including the extent to which programming networks are financially affiliated with multichannel distributors.

Gains elsewhere

The FCC report said that as of June 30, 2002, cable operators had 68.8 million subscribers, or 76.5 percent of the pay TV market. A year ago, cable controlled 78 percent of that market.

The report also documented continued growth by direct-broadcast satellite providers. The FCC said DBS carriers grew from 16 million to 18 million subscribers, to comprise 20.3 percent of the pay-TV market.

Cable's potential net subscriber loss in 2002 would likely be offset by gains in other areas. As of Sept. 30, 2002, cable operators had 18 million digital video subscribers (matching the total number of DBS subscribers), 10 million high-speed data subscribers, and 2 million local telephone customers.

Last month, in a separate report, the FCC found that cable operators controlled 57 percent of the broadband Internet-access market as of June 30, 2002.

Review anomalies

The FCC's competition report contained a few anomalies. The regulator admitted that the reported number of total pay-TV households, 89.9 million, is likely overstated, because millions of households subscribe to both cable and DBS.

The agency also indicated that the extent of vertical integration — namely, the ownership of programming networks by cable operators — is overstated. The FCC found that 30 percent of 308 programming networks were owned by cable operators. But the figure would drop to 20 percent if Liberty Media Corp. were excluded.

The FCC includes Liberty because the company, controlled by John Malone, owns a cable system in Puerto Rico.

"Liberty Media remains a cable operator through its ownership of Cablevision of Puerto Rico and, as such, it is appropriate to include its networks in calculating the share of vertically integrated national programming networks," the FCC said.