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The Status of Competition in the Multi-Channel Video Programming Distribution Marketplace
Subcommittee on Telecommunications and the Internet
Mr. Jared E. Abbruzzese
Oral Testimony Good
afternoon Mr. Chairman, and thank you for the opportunity to testify before this
Committee. My name is Jared E. Abbruzzese and I am Chairman and Acting CEO
of WSNet, a satellite based, wholesale provider of digital video programming
services headquartered in Austin, Texas. In
my testimony today, I plan to provide you a brief overview of WSNet's business
and its unique relationship with small local and rural cable TV operators.
I will also briefly review with you important industry events and trends
that have occurred since the 1992 Cable Act was implemented.
Areas of focus will include; an update on the video programming industry
and program access, a review of consolidation in the cable TV industry, and an
assessment of the satellite-video distribution industry and the impact of the
announced merger. In
addition, I will discuss how all of these other industry events have impacted
the small local and rural cable TV companies and their communities. WSNet offers satellite facilities based, wholesale programming and technology services to 1,200 small private cable and rural cable TV companies nationwide, representing almost 4,000 local cable TV systems. WSNet's role is that of an enabler; we enable these smaller operators to deploy advanced video service technologies that they otherwise would never have access to, because of their size and/or the size of the market they serve. These multiple services include: pre-packaged pre-digitized video services and new digital technologies that allow small and rural cable TV operators to upgrade their service offerings, so that they can provide more channels of satellite delivered TV programming over their existing cable plant at a fraction of the cost that they would otherwise incur in upgrading their plant. In addition, WSNet also offers its cable TV operators a satellite delivered direct-to-the-home service of more than 200 digital video channels. The
1992 Cable Act was successful in creating an environment that allowed for the
number of households with access to pay-TV services, to grow to the 87
million households that are served today. The
Act was also helpful in greatly expanding the availability of new upgraded
digital video and data services. The
Act however, was less than successful in creating the desired goal of increasing
the number of competitive multi-channel TV services providers and in slowing the
increasing cost of cable TV services.
These shortcomings can mainly be attributed to two factors; the first
being the restructuring and consolidation of the programming industry and the
second being the consolidation of the cable TV industry. In
response to the 92' Act, most vertically integrated programming companies
de-vertically integrated themselves. After
a series of divestitures, restructurings, and consolidations, there now exists
seven major programming companies and most of these now operate free of '92
Act restrictions governing pricing and program access. These programmers can
decide how, when, for how much, and to whom they wish to sell their commercially
critical programming content. In
effect, those entities who do not have millions of customers worth of buying
power, can sometimes find that access to critical programming is delayed, is
over-priced, is packaged with unwanted services or even denied.
In light of these concerns, WSNet would respectfully ask this Committee
to consider the imposition of expanded program access rules. Regarding
the status of the cable TV distribution industry; in 1996, of the approximately
72 million households that were pay TV customers at the time, the 7 largest
cable TV companies had 42.1 million or 58% of the overall customer base.
The 3 DBS satellite service providers controlled about 3.9 million
customers or about 5% of the total market.
During this period, local private cable, rural cable TV and of the
smaller operators controlled about 26 million customers or about 36% of the
total market. Since 1996, there has been a massive consolidation effort on the part of the largest cable TV companies. Not only have these cable TV companies become dramatically larger, but, just as importantly, they have systematically consolidated franchise assets surrounding large metropolitan areas through acquisitions from and trades with each other. In prior years, a large metropolitan market may have had several cable TV companies operating in adjacent franchise areas. Today, you will generally find most large markets dominated by a single company. This strategy has since rewarded big cable TV companies with tremendous buying and pricing power. The
results of this industry consolidation since 1996 are impressive. Of the approximately 87 million U.S. households that are
currently pay-TV customers, the largest 7 cable TV companies now control 65% or
almost 56.9 million customers (an increase of almost 35% in 5 yrs.).
The two remaining high-powered DBS satellite companies now control
service to about 19% or 17 million customers (a staggering 356% increase).
During this period of explosive growth in market share for both the large
cable TV operators and the two high-powered DBS operators, the smaller local and
rural cable TV companies have seen their market share shrink by almost 48% to
about 13.4 million customers. Clearly,
since 1996 the smaller cable TV operators have been steadily losing both market
share and customers. This decline
can mainly be attributed to the fact that,
in many cases smaller operators simply have not been able to afford to
offer either the number of channels nor the enhanced digital services that are
necessary to compete with the high-powered DBS satellite offerings. There
are currently three companies that provide satellite facilities-based, digital
video services operating in the
U.S. The two largest, EchoStar and
DIRECTV, operate utilizing high-powered DBS satellites, and the third, WSNet
operates utilizing medium-powered KU band satellites. If
the announced EchoStar and Hughes/DIRECTV merger goes through, the combined
entity will control 100% of all 3 of the U.S. licensed, high-powered DBS, full-conus
orbital locations (means each one can broadcast to all of the U.S.). In addition, they will also control more than 55% of the only
2 remaining useable high-powered DBS semi-conus orbital locations (each
broadcasts to ½ the U.S.). In
short, the merged company will control virtually all of the U.S. high-powered
DBS satellite assets (over 130 high-powered DBS transmitters). In addition,
EchoStar/DIRECTV will combine substantial other satellite assets in other
frequency bands. Clearly, the
merged company will be a daunting giant with vast competitive weapons at its
disposal. WSNet
has not been able to, and currently cannot find any commercially viable
high-powered DBS capacity in the U.S. While
high-powered DBS is the much-preferred technology, WSNet must compete utilizing
18 leased transmitters of medium-powered KU band capacity operated from two
different satellites. These
medium-powered transmitters can only provide service to WSNet and its customers,
through a 34"-36" receive dish, an antenna more than twice the 18" size of
the receive dish utilized by EchoStar and DIRECTV. Largely
in response to the extraordinary control that a merged EchoStar and DIRECTV will
enjoy, WSNet sought out the only possible high-powered alternative in existence
in North America and recently filed with the FCC for landing-rights from two
Canadian high-powered DBS satellites. It
should be noted that all of the capacity from both Canadian DBS locations, is
currently committed to Canadian operators and it is highly questionable as to
whether these satellites would be useable in the U.S. Mr.
Chairman, even considering the intimidating realities posed by a merged entity,
WSNet believes that the EchoStar/DIRECTV combination can be good for
competition; positioning it well for competing with big cable TV companies in
the large markets. Unfortunately,
we also believe that as currently structured, an undesired consequence of this
merger could be the further elimination of competition in the smaller and
especially the rural markets. It
is also evident Mr. Chairman, that, any further negative impact on the small
local and rural cable TV operators could have a corresponding negative impact on
the 800-1,000 local broadcasters who also rely on these operators to reach large
portions of their markets. In conclusion, Mr. Chairman, WSNet believes that the EchoStar/DIRECTV merger should go forward with the addition of some modifications that would afford WSNet permanent access to enhanced satellite facilities. This accommodation should be accomplished in a way that does not materially diminish EchoStar/DIRECTV's ability to compete aggressively with the large cable TV companies. WSNet is confident, that an enhanced satellite facilities commitment combined with the suggested modifications to the program access rules, will provide the best opportunity to ensure that real competition will exist in all markets in the U.S.. THANK YOU
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