oversight

Telecommunications: Follow-Up National Survey of Cable Television Rates and Services

Published by the Government Accountability Office on 1990-06-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

          United   States   General
                                             L
                                      Accounting
          Report to the Ch.akman, Subcommittes *‘*
                                                   Office

CkAO      on TelecOmmunications and Finance,
          Committee on Energy and Commerce,
 :_
r‘%,.     House of Representatives
 :
-_
:Junelm
          TELECOMMUNICATIONS
          Follow-Up National Survey
          of Cable Television Rates
          and Services
      United States
GAO   General Accounting  Office
      Washington, D.C. 20648

      Resources, Community,   and
      Economic Development    Division

      B-226720

      June 13,199O

      The Honorable Edward J. Markey
      Chairman, Subcommittee on Telecommunications
        and Finance
      Committee on Energy and Commerce
      House of Representatives

      Dear Mr. Chairman:

      In response to your October 2, 1989, request, this report presents the results of our recent
      survey of cable television rates and services. It follows up on our first cable rate survey, the
      results of which we reported to the Subcommittee in August 1989. Specifically, we agreed to
      update our survey through 1989 and to collect data from 1984 and 1985 to further study the
      effects of the Cable Act. In addition, we sought to determine whether cable rates have
      moderated during 1989 and whether cable system ownership changes have driven up cable
      rates. We also reviewed proposals for amending the Cable Act and the major options for
      dealing with the cable industry’s market power.

      With your permission, we coordinated our survey with the Federal Communications
      Commission, and we have provided the Commission with our survey questionnaire data for
      its analysis in conjunction with its ongoing cable policy study, mandated by the Cable
      Communications Policy Act of 1984.

      As arranged with your office, unless you publicly announce its contents earlier, we plan no
      further distribution of this report until 5 days from the date of this letter. At that time, we
      will send copies to interested parties and will make copies available to others upon request.

      Major contributors to this report are listed in appendix VIII. If I can be of further assistance,
      please contact me at (202) 275-5525.

      Sincerely yours,




      John M. Ols, Jr.
      Director, Housing and Community
         Development Issues
                   Executive Summary




                   Effective December 29, 1986, the Cable Act prohibited localities from
                   regulating basic cable rates if the cable system was subject to “effec-
                   tive” competition-defined      by the Federal Communications Commission
                   (FCC) as the availability of three or more over-the-air television channels
                   in a community. As a result, cable systems located in such communities
                   no longer were subject to local rate regulation.


                   GAO'S  survey, covering 1984 through 1989, showed that cable rates have
Results in Brief   continued to increase. During 1989, an average cable subscriber’s
                   monthly rates for both the lowest priced and the most popular basic ser-
                   vices increased by 10 percent. These rate increases were accompanied
                   by small increases (one and two channels, respectively) in the average
                   number of basic channels offered. Revenue to cable operators per sub-
                   scriber increased, on average, by 5 percent during 1989. For those sys-
                   tems changing ownership between 1985 and 1989, GAO did not find any
                   statistically significant pattern of higher basic rate increases than those
                   imposed by cable systems that remained under the same ownership.

                   GAO'S survey showed, in the 3 years since deregulation, average
                   increases of 39 and 43 percent, respectively, for the most popular and
                   the lowest priced basic services, and a 21-percent increase in revenue
                   per subscriber. During this period, cable subscriptions increased by
                   22 percent, and system penetration (total number of subscribers divided
                   by the number of homes having access to cable) increased from 56 to
                   58 percent. The lack of close substitutes to which consumers can switch
                   (which gives cable operators market power) is often cited as a reason
                   that the subscriber base has not decreased despite substantial rate
                   increases, although there are other potential explanations, such as
                   improved cable programming.

                   The continued increases in cable rates are likely to fuel further debate
                   over regulating the cable industry. For many, promoting more competi-
                   tion is the policy option preferred to regulation. Views differ, however,
                   on the extent to which potential sources of competition will be available
                   on a significant enough scale to provide much competition in the near
                   future. This report discusses major legislative and regulatory proposals
                   being considered, as well as various policy options to deal with the cable
                   industry’s market power.




                    Page 3                          GAO/WED-o-1WJ   Follow-up Cable Televidon Survey
                         GAO'S  survey, however, did not confirm this charge. Comparing rate
                         increases occurring immediately after systems changed ownership with
                         rate increases during the same period in systems that did not change
                         hands, GAO found no statistically significant pattern of higher increases
                         in the systems changing ownership.


Changes in Other Cable   GAO   also collected data on other cable operations-options, premium
                         services, revenue per subscriber, subscriptions, and cable system pene-
Data                     tration. The availability of options and charges for premium services
                         showed little change. Average revenue to cable operators per subscriber
                         (covering revenue from all subscriber services) increased 2 1 percent
                         over the past 3 years, from $21.78 to $26.36. During 1989, revenue per
                         subscriber increased 5 percent, from $26.00 to $26.36. Total cable sub-
                         scriptions continued to grow, increasing by 22 percent since deregula-
                         tion. Also, the number of homes having access to cable grew by 14
                         percent. Cable system penetration (total subscribers as a percentage of
                         homes having access to cable) increased slightly, from 56 to 68 percent.


Policy Options           Because the nature of basic cable service was fundamentally altered
                         after deregulation, it is difficult to assess how much of the rate
                         increases that followed is due to the market power of cable operators.
                         However, many agree that the cable industry has structural characteris-
                         tics that permit the exercise of market power. Views on the prospects
                         for competition in the near future vary, and thus lead to different policy
                         options. Chapter 3 discusses the major legislative and regulatory pro-
                         posals currently being considered, and chapter 4 discusses the pros and
                         cons of several policy options to deal with the cable industry’s market
                         power, including broadening the definition of which cable systems are
                         subject to regulation and/or returning control to localities or FCC.


                         GAO is not making recommendations in this report or taking a position on
Recommendations          the various policy options discussed.


                         GAO  shared survey data with FCC.However, in accordance with the Sub-
Agency Comments          committee’s policy, GAO did not obtain comments on this report from FCC
                         or from representatives of the cable industry.




                         Page6                            GAO/BcED-w)-lI)oFoUow-upCableTelevlsionSurvey
Contents




                                                                            -
Table 2.1: Average Monthly Basic Service Charge per                             20
    Subscriber
Table 2.2: Changes in Basic Service Rates Since                                 20
     Deregulation
Table 2.3: Average Number of Basic Channels Received                            21
     per Subscriber
Table 2.4: Types of Programming Available With Lowest                           21
     Priced Basic Service Tier
Table 2.5: Rates for Lowest Priced Basic Service Provided                       22
     by Systems That Were Regulated/Not Regulated
     Prior to Effective Date of Cable Act
Table 2.6: Percent Changes in Cable System Ownership                            23
     Between 1985 and 1989
Table 1.1: Average Monthly Basic Service Charge per                             46
     Subscriber
Table 1.2: Average Number of Basic Channels Received                            47
     per Subscriber
Table 1.3: Average Monthly Charge per Basic Channel                             48
Table 1.4: Changes in Basic Service Rates Since                                 49
     Deregulation
Table 1.5: Dollar Changes in Basic Service Rates Since                          50
     Deregulation
Table I.6: Number of Tiers of Basic Service Offered by                          50
     Cable Systems
Table 1.7: Rates for Lowest Priced Basic Service Provided                       51
     by Systems That Were Regulated/Not Regulated
     Prior to Effective Date of Cable Act
Table I.8 Rates for Most Popular Basic Service Provided                         52
     by Systems That Were Regulated/Not Regulated
     Prior to Effective Date of Cable Act
Table 1.9: Types of Programming Available With Lowest                           53
     Priced Basic Service Tier
Table 11.1:Availability of Options With Most Popular                            54
     Basic Service on 1213 l/89
Table 11.2:Optional Services Offered at Extra Charge                            54
     With Most Popular Basic Service on 12/3 l/89
Table III. 1: Number of Premium Channels Available                              55
 Table 111.2:Monthly Charge for Individual Premium                              55
      Channels
 Table 111.3:Monthly Charge for Packages of Premium                             56
      Channels
 Table III.4: Cable Subscribers Purchasing One or More                          56
      Premium Channels


 Page 7                         GAO/RCRD-SO-1gS Follow-up Cable Televidon Survey
Page 9   GAO/RCED-99-199 Follow-up Cable Television Survey
                            Chapter 1
                            introduction




                            industry has occurred. Cable subscriptions have grown from 32 million
                            households in January 19853 to about 53 million currently, representing
                            about 58 percent of all television households.4 During this same period,
                            the number of cable programming services has more than doubled. Most
                            cable systems are technically capable of offering 12 or more channels,
                            and our survey results showed that the average cable subscriber had
                            access to almost 40 cable channels at the end of 1989.


Cable.,Television Service   Cable systems may market several different services-basic, optional,
                            premium, and pay-per-view. Basic service includes any service offering
                            the re-transmission of local television broadcast signals, and may also
                            include programs available via satellite transmission, such as C-Span
                            and CNN, either as a single level of service or as two or more “tiers,”
                            each priced individually. Additional tiers of basic service are generally
                            referred to as expanded basic service and offer additional channels
                            beyond the basic level of service. Optional services-such as set-top
                            converters, remote control units, FM radio service, cable program
                            guides, and cable outlets for additional television sets are available for
                            an extra charge. Premium services generally include movie or other
                            entertainment channels, such as Home Box Office and Cinemax, avail-
                            able individually or in combination for a monthly fee in addition to the
                            charge for basic service. Pay-per-view service offers selective program
                            viewing for special sport events, movies, or other shows for an addi-
                            tional fee per showing.


Cable Rate Regulation       The regulation of the cable television industry has historically involved
                            a mixture of federal, state, and local entities establishing policies, regu-
                            lations, rules, and procedures. However, the control of cable rates had
                            its foundation primarily at the state and local levels and was limited to
                            the lowest tier of basic service.

                             When cable television first developed as a means of providing better tel-
                             evision reception, many cities and a few states began regulating the
                             basic rates charged to cable subscribers. The regulation of basic rates
                             was a condition of the local government’s grant of a franchise or license.
                             The franchise permitted the cable system to construct and operate cable


                             “FCC Notice of Inquiry, MM Docket No. 89600, p. 3.

                             %roadcastin& May 14,1990, p. 15



                             Page 11                                   GAO/RCED-SO-M4 Follow-up Cable Television Survey
                           Chapter 1
                           Introduction




                           amend the Cable Act.” Proposals include implementing measures to con-
                           trol cable rates or making the cable industry subject to more direct
                           competition.


First GAO Cable Survey     In August 1989, in the midst of this debate on cable television rates, we
                           reported to the Chairman, Subcommittee on Telecommunications and
                           Finance, House Committee on Energy and Commerce, on the results of
                           our first national survey of cable television rates and services. We found
                           that over the 23-month reporting period ending in October 1988,
                           average monthly rates per subscriber increased by 29 percent for the
                           lowest priced basic service. A further analysis of this increase revealed
                           that about 62 percent of subscribers incurred rate increases of 10 to 40
                           percent during this period, and almost 28 percent of subscribers had
                           increases over 40 percent.

                           Different interpretations have been offered explaining the causes for
                           the rate increases we reported, with no agreement over whether they
                           were due to a one-time rate adjustment in the aftermath of deregulation,
                           increased program costs, changes in cable company ownership, or
                           deregulation. Industry officials explained to the subcommittee that
                           these rate increases were one-time adjustments in response to rates
                           being held artificially low during a period of regulation and that future
                           rate increases would be moderate. Industry officials also noted that the
                           cost per channel we reported showed a much smaller change, indicating
                           that rate increases had been accompanied by corresponding increases in
                           the number of channels offered.


Continuing Congressional   Concern over how to deal with complaints over cable rates and services
Interest                   has led to the introduction in the Congress of numerous bills dealing
                           with various cable issues, including whether to regulate rates and asso-
                           ciated charges. Congressional hearings have centered on gaining greater
                           insight into changes in the industry since deregulation to determine the
                           effect industry growth has had on rates paid by cable subscribers and
                           whether cable systems truly face effective competition. Major areas of
                           concern include (1) the increasing concentration in cable system owner-
                           ship (horizontal concentration), creating the possibility that cable sys-
                           tems may engage in anticompetitive behavior because of the size of their

                           “Actually, the legislative proposals generally purport to amend the Communications Act of 1934. The
                           Cable Act of 1984 was incorporated into the Communications Act as Title VI. The legislative pro-
                           posals which are discussed generally would amend Title VI.



                            Page 13                                   GAO/RCEB90199       Follow-up Cable Television Survey
                         chapter 1
                         introduction




                         regulation in the video services marketplace. In addition, on January 22,
                         1990, FCCissued a Notice of Proposed Rulemakings to reexamine its rules
                         regarding the regulation of basic cable rates. In particular, this notice
                         concluded that changed circumstances in the video marketplace war-
                         ranted a review of FCC’S three-signal standard for defining effective
                         competition.


                         During hearings in August 1989 on the results of our first survey of
Objectives, Scope, and   cable rates and services, the Chairman, Subcommittee on Telecommuni-
Methodology              cations and Finance, House Committee on Energy and Commerce, asked
                         us to conduct a follow-up national survey of cable television rates and
                         services. We agreed to update our survey through 1989 to determine
                         whether cable rates have moderated, obtain additional historical data
                         for 1984 and 1985 to further examine the effects of the Cable Act, and
                         examine whether a correlation exists between sales of cable systems and
                         subsequent rate increases.”

                         In conducting our follow-up rate survey, we again developed a question-
                         naire similar to the one used in our first survey. (App. VI contains a
                         copy of our questionnaire.) However, recognizing that FCC had a legisla-
                         tive mandate to conduct a study requiring similar information, with the
                         subcommittee’s concurrence, we conducted our survey in cooperation
                         with FCC to avoid duplication and an undue reporting burden on the
                         cable industry.

                         In designing our questionnaire, we coordinated closely with FCC and
                         incorporated its proposed questions where appropriate. Also, we sought
                         the comments and views of officials of the National League of Cities, the
                         Conference of Mayors, the Community Antenna Television Association,
                         and NCTA. Finally, we pre-tested the questionnaire with seven cable
                         operators. We considered their comments where appropriate in final-
                         izing the questionnaire.

                         As in our first survey, we obtained cable system names and addresses
                         from a data base maintained by Television Digest, Inc., publisher of the

                         ‘FCC Notice of Proposed Rulemaking, MM Docket No. 90-4

                         “The subcommittee also asked us to collect cable system revenue and cost data. However, we found
                         no workable approach, within a reasonable reporting time frame, for including such data in our
                         follow-up survey. The lack of omformity in cable system accounting practices, different policies on
                         aggregating costs, and concerns ~wer the willingness of cable operators to furnish confidential data
                         were all raised by both FCC and cable mdustry officials as major problems to be overcome before a
                         meaningful financial survey cwld bc conducted.



                          Page 15                                     GAO/RCED-W-199 Follow-up Cable Television Survey
chapter1
introduction




We conducted our survey between January 1990 and March 1990. All
cable systems received follow-up telephone calls after the original Jan-
uary mailing. In order to achieve as high a response rate as possible, we
sent follow-up questionnaires to nonrespondents in February, along
with another round of telephone reminders. By March 31, 1990, we had
received a total of 1,530 responses, a response rate of 78 percent.

To obtain as many usable responses as possible, we reviewed and edited
all questionnaires for consistency and contacted cable system officials
by telephone to resolve any ambiguous response patterns. Also, in our
questionnaire we pledged that, except for sharing our data with FCC,
responses would be kept confidential and reported in summary form
only and that no individual cable system’s or company’s responses
would be identified by either FCC or GAO.

Our first survey was conducted using a sample of cable systems in exis-
tence in 1988. This follow-up survey is based on responses received
from a new sample of cable systems in existence during 1989. Because
both our surveys were based on two different samples, our results for
1986-88 in this report may differ slightly from comparable results we
reported in our first survey for the same period.

Twenty-two percent of the cable systems surveyed did not respond to
our questionnaire. An analysis of these nonrespondents indicates sev-
eral reasons for their not responding, including the fact that 3 percent of
the questionnaires we mailed were undeliverable by the Postal Service.
Thus, we believe a more accurate count of systems unwilling to respond
is 19 percent. A further analysis of nonrespondents indicates that the
smaller systems were less likely to respond and that those cable systems
that did respond contained 86 percent of the total subscribers repre-
sented in our sample of 1,97 1 systems.

All sample surveys are subject to sampling error. The sampling error is
the maximum amount by which results obtained from a statistical
sample can be expected to differ from the true universe characteristic
(value) we are estimating. At the 95-percent confidence level, this means
that the chances are 19 out of 20 that if we surveyed all cable systems,
the results would differ from the estimates we obtained by less than the
sampling error of these estimates. All sampling errors for the estimates
in this report were calculated at the 98percent confidence level and are
reported in each of the tables presented in appendixes I through V. The
tables also contain estimates of the number of cable systems that would
have responded had we sampled all systems.


Page 17                          GAO/RCEIWO-199 Follow-up Cable Television Survey
Resultsof Follow-Up National Survey of Cable
Television Ratesand Services

                  In our follow-up survey, we surveyed cable television systems to com-
                  pare rates and services offered as of November 30,1986, just prior to
                  the effective data of deregulation, with those offered on December 3 1,
                  1989, the latest date for which we collected information. By comparison,
                  the cutoff date for our first survey was October 31, 1988. In addition, in
                  this survey we collected data for 1984 and 1985-2 years prior to der-
                  egulation-to    better assess the changes that took place following der-
                  egulation. Specifically, chapter 2 addresses changes in

              l   basic cable rates and services (for both the lowest priced and the most
                  popular services offered by cable systems);’
              l   the availability of options, such as cable outlets for additional television
                  sets;
              l   rates for premium services;
              l   overall revenue to cable system operators per subscriber; and
              l   cable subscriptions.

                  Appendixes I through V contain additional tables detailing the results of
                  our survey.

                  Highlighting our results for the past year, our survey showed continuing
                  substantial increases in basic cable rates. During 1989, an average cable
                  subscriber’s monthly rates for both the lowest priced and the most pop-
                  ular basic services increased by 10 percent. These rate increases were
                  accompanied by small increases (one and two channels, respectively) in
                  the average number of basic channels offered. The availability of
                  options and charges for premium services showed little change in 1989,
                  compared with our previous survey results. Overall revenue to cable
                  operators per subscriber increased, on average, by 5 percent during
                  1989.

                  In the 3 years since deregulation, our survey showed average increases
                  of 39 and 43 percent, respectively, for the most popular and the lowest
                  priced basic services, and a 21-percent increase in revenue per sub-
                  scriber.” Despite these sizeable increases, overall cable subscriptions

                  ‘Because some cable systems offer more than one level or “tier” of basic service, this report (like our
                  previous report) includes information on both the lowest priced service offered and the service to
                  which most customa subscribe (i.e., the most popular service). Since most systems have only one
                  tier of basic service, the most popular service is generally also the lowest priced service.

                  ‘During this period (November 1986 to December 19891,the nation’s overall price level, as measured
                  by the gross national product implicit price deflator, rose by about 11 percent. Taking inflation into
                  account by adjusting 1989 cable rates to 1986 constant dollars results in increases of about 29 percent
                  for the lowest priced basic service, 26 percent for the most popular basic service, and 9 percent for
                  revenue per subscriber.



                  Page 19                                      GAO/RCED-90199 Follow-up Cable Televidon Survey
                                     Chapter 2
                                     Results of Follow-Up National Survey of
                                     Cable Television Rates and Services




                                     from 24 channels on November 30, 1986, to 31 channels as of December
                                     31, 1989. Channels available for the subscribers to the most popular
                                     basic service also increased, on average, from 27 to 34. During 1989, the
                                     number of channels offered increased modestly, by one and two chan-
                                     nels, respectively, for the lowest priced and the most popular services.

Table 2.3: Average Number of Basic
Channels Received per Subscriber                                               Average number of basic channels received per
                                                                                               subscriber for:
                                     Date                                        Most popular service       Lowest priced service
                                     11/30/86                                                       27                             24
                                     lj31j88                                                    -   32                         -.- 30
                                     12/31/89                                                       34                             31



                                     Table 2.4 contains the categories of basic cable programming available
                                     to cable subscribers to the lowest priced service, showing in which cate-
                                     gories increases in the number of channels took place since 1986.
                                     Clearly, the bulk of the increase occurred in the basic cable networks.:’
                                     The table shows that basic cable networks increased from 11 to 17
                                     between 1986 and 1989, thereby providing more services. Our survey
                                     indicated that the availability of both local and distant stations4
                                     remained constant. In addition, there was little change in the leased
                                     access/other category, which includes public, educational, and govern-
                                     ment access channels (commonly referred to as PEGS).

Table 2.4: Types of Programming
Available With Lowest Priced Basic                                                              Number of channels available to
Service Tier                                                                                         average subscriber on:
                                     Type of Programming                                         f1/30/06                 12/31/09
                                     Local television        stations                                    a                           8
                                                                                       ___-~-
                                     Distant    television     stations                                  3                           3
                                     Basic cable networks                                                11                        G
                                     Leased     access/other        channels                              2                          3




Rate Changes in Regulated            Although the Cable Act restricted local rate regulation effective
and Nonregulated Systems             December 29, 1986, our survey showed that 24 percent of the cable sys-
                                     tems reported that they were already not regulated on November 30,


                                     “Examples of basic cable networks are CNN, USA, MTV, The Discovery Channel, etc.
                                     ‘%istant stations include “superstations”-such   as WTBS, WWOR,and WGN-received     by cable sys-
                                     tems via micrc-wave or satellite dish.



                                     Page 21                                       GAO,‘RCED-9&199 Follow-up Cable Television Survey
                                      Chapter 2
                                      Results of Follow-Up National Survey of
                                      Cable Television Rates and Services




                                      once during that time. Table 2.6 shows, by year, the percentage of cable
                                      systems that changed ownership.

Table 2.6: Percent Changes in Cable
System Ownership Between 1995 and                                                                                             Percentage of
1999                                  Year of ownership Change                                                                     systems
                                      1985                                                                                                0
                                      1986                                                                                                   15
                                      1987                                                                                                   14
                                      1988                                                                                                   18
                                      1989                                                                                                   13



                                      Our survey results, however, did not reveal a pattern of basic service
                                      rate increases following the sale of a cable system. We compared the
                                      dollar amount of rate increases occurring after systems changed owner-
                                      ship with rate increases during the same period in systems that did not
                                      change hands, and found that the differences were not statistically
                                      significant.

                                      In this regard, FTC, in its comments on FCC’SNotice of Inquiry, concludes
                                      that changing cable ownership should not affect cable rates. FTC com-
                                      ments that
                                      1‘
                                             it is difficult to see how ‘trafficking’ in and of itself could affect the rates
                                      charged to cable subscribers             The fact that a cable system changes hands would
                                      not by itself be expected to alter marginal revenue or marginal cost, so it is difficult
                                      to see how simply changing ownership would change price or output                  Overall, it
                                      is difficult to see how restricting ‘trafficking’ would improve consumer welfare.“”


                                      Our follow-up survey also collected information as of December 3 1,
Optional Services                     1989, on optional services, such as outlets for second television sets and
                                      remote control units, to compare changes in such services with changes
                                      in basic service rates.’ We were particularly interested in learning the
                                      extent to which services offered as options at extra charge in 1988 were
                                      being offered as part of basic service in 1989. Overall, we found little
                                      movement. For example, we reported in our first survey that as of
                                      October 31, 1988, 10 percent of systems offered additional cable outlets
                                      as part of their most popular basic service. Our follow-up survey
                                       “Gmments of the staff of the Bureau of Economics and the San Francisco Regional Office of the
                                       Federal Trade Commission, to FCC Notice of Inquiry (MM Docket 89-600), pp. 3&41.

                                       7Rates for optional services generally were not subject to state or local regulation prior to the Cable
                                       Act.



                                       Page 22                                       GAO/RcED-go-109 Follow-up Cable Televimion Survey
                      chapter 2
                      RemIts of Follow-Up National Survey of
                      Cable Television Rates and Services




                      about 5 percent.” The increase for 1989, $1.36 per month, is comparable
                      to the basic rate increases we have reported-$1.45   and $1.42, respec-
                      tively-for   the lowest priced and the most popular services.


                      The cable industry continues to grow. Total subscriptions have
Cable Subscriptions   increased by 22 percent since deregulation, and the number of homes
and Penetration       that can access cable has grown by 14 percent. Overall, cable system
                      penetration (total number of subscribers as a percentage of the number
                      of homes having access to cable) increased slightly, from 56 percent in
                      November 1986 to 58 percent in December 1989.




                      “In comparison, for the same 37.month period of our survey, the Bureau of Labor Statistics’ Urban
                      Consumer Price Index (CPI) showed a 26-percent increase in the average consumer’s monthly bill for
                      cable television servke (November 1986 to December 1989). The CPI showed a 3.8~percent increase
                      from December 1986 to December 1989.



                      Page 26                                    GAO/RCRD-90-199 Follow-up Cable Television Survey
    Chapter 3
    Analysis of Legislative Proposals to Amend
    the Cable Act




    FCCis already in the midst of re-evaluating its effective competition defi-
    nition. In particular, FCC is gathering comments on whether (1) its
    existing standard should be increased from three signals; (2) existing
    alternative video programming sources (i.e., home satellite dish, direct
    broadcast satellite, private cable systems) provide effective competition
    to basic cable service; and (3) competition will increase if subscribers
    are able to purchase cable programming on a per-channel basis. FCC is
    revisiting its definition of effective competition because competition
    among cable companies and from other technologies such as direct
    broadcast satellites (DBS), wireless cable, and private cable has been
    developing more slowly than anticipated. Increases in basic service rates
    have also led to questions about whether cable systems have greater
    market power than was indicated prior to FCC’Sadoption of its current
    effective competition definition.

    Some groups argue that the existence of over-the-air television channels
    as well as other video alternatives offers only partial substitutes for
    cable television. Such alternatives cannot compete directly with cable
    because they do not have the wide variety of programming cable offers
    the consumer. Another cable system can compete, but the existence of
    more than one cable system within an area is rare.

    We identified 11 bills introduced in the Congress designed to control
    cable rates and associated charges. For the most part, these bills would
    require or allow “re-regulation” of basic cable service. Depending upon
    the bill, either all cable systems would be subject to regulation, or only
    systems in those areas not subject to a more stringent standard of effec-
    tive competition than under existing laws.” Some proposals would regu-
    late rates at the federal level. Other proposals would allow state and
    local authorities to regulate. Of these latter proposals, some would
    require localities to consult with FCCand the cable system before
    regulation.

    These legislative proposals would generally make cable operators more
    accountable for rate increases and restore some authority to local com-
    munities. These proposals would allow state and local authorities to

l regulate rates for a limited “lifeline”                service,
. regulate basic cable service,

    ‘At least one bill provides that cable systems shall be presumed to be subject to effective competition
    if fewer than 30 percent of the households in the cable community subscribe to the cable system or
    the cable community is served by more than one multichannel video programming distributor.



     Page 27                                     GAO/RCEDW193         Follow-up Cable Television Survey
                       Chapter 3
                       Analysis of Legislative Proposals to Amend
                       the Cable Act




                       9,000 different local governments would deter cable operators’ invest-
                       ments in new programming and plant equipment. Opponents of regula-
                       tion also claim that re-regulation would create other problems, such as
                       slowing system modernization, and thus would limit channel capacity
                       for carrying both existing and new programming.

                       Telephone companies believe that competition is the solution. Rates
                       would be kept low, and regulation would not be needed if they were
                       allowed to provide cable service and compete with cable systems.

                       Some respondents also proposed to refine the definition of effective
                       competition. These respondents stated that FCC’S three-signal standard
                       should be increased to five or six signals, which when combined with
                       video alternatives such as multichannel multipoint distribution service
                       (MMDS), home satellite dishes, video cassette recorders, and movie thea-
                       ters would create sufficient competition to local cable service. Those
                       systems not subject to effective competition would be regulated.


                       The Cable Act placed several restrictions on local and state govern-
Changes in Franchise   mental authorities over the franchise renewal process. Among other
Renewal Procedures     things, the act set forth specific procedures for state and local govern-
                       ments to follow when renewing (or not renewing) a cable operator’s
                       franchise and established renewal standards and safeguards. In this
                       regard, franchise denial has to be based upon the cable operators’
                       failure to satisfy one or more of the specified standards. City officials
                       believe the franchise renewal provisions in the Cable Act make it diffi-
                       cult for franchise authorities to refuse to renew franchises, for example,
                       by preventing them from soliciting competitive bids. Thus, city officials
                       believe state and local governments have limited authority to use
                       against cable operators providing poor service. Cable operators, how-
                       ever, believe that the Cable Act has provided stability for good cable
                       operators, allowing them to plan for the long term without having to
                       worry about their assets being confiscated upon expiration of the
                       franchise.

                       Prior to the Cable Act, there were no federal statutory restrictions on
                       the cable franchise renewal process. Although city officials stated that
                       they rarely denied renewal requests, they believed that the threat of
                       denial gave cable operators a strong incentive to provide quality cable
                       service at affordable prices. However, cable operators had no assurance
                       that their franchise would be renewed regardless of how well they per-
                       formed. The term of an existing franchise is generally 10 or 15 years.


                        Page 29                                 GAO/RCED-90199 FoUow-up Cable Television Survey
                   Chapter 3
                   Analysis of Legislative Proposals to Amend
                   the Cable Act.




                   state and local governments to grant renewal to a cable operator whose
                   renewal proposal meets certain statutory standards. City representa-
                   tives object to restrictions on state and local governments’ rights to con-
                   sider competitive proposals from other cable operators.


                   In 1965, FCCpromulgated its “must carry” rules requiring that cable sys-
“Must Carry”       terns carry local television stations to ensure that cable subscribers
Provisions         would continue to receive both over-the-air and cable channels. The rule
                   was designed to protect local television stations from losing viewers to
                   the cable channels. In 1985, the DC. Circuit of the U.S. Court of Appeals
                   held that FCC’S must carry rule violated cable operators’ and cable pro-
                   grammers’ first amendment rights.” As a result of this decision, FCC
                   revised its must carry rule to avoid constitutional problems, and a few
                   cable systems dropped some lesser-viewed local stations. In 1987, the
                   DC. Circuit Court of Appeals held that this modified rule also violated
                   the first amendment. I

                   Currently, must carry provisions have been included in various pro-
                   posed bills for the purpose of assuring viewers access to news and infor-
                   mation from their local television stations. Some legislative proposals,
                   however, contain additional measures to protect the interests of local
                   stations. Proposals introduced in the Congress include the following:

               l Cable operators would be required to carry local television stations in
                 order to receive the benefits of “compulsory licensing.” These benefits
                 allow cable operators to re-transmit local television programming
                 without having to negotiate with the stations for broadcasting rights.
               l Cable operators would be required to carry all local programming or, in
                 some proposals, various categories of local programming.
               . Cable systems would be prohibited from repositioning” local television
                 channels in their cable channel lineup.
               . Localities would have the right to approve decisions by cable systems to
                 change basic service tiers or re-position local channels, regardless of
                 whether the system is subject to rate regulation.
               l Cable systems would have the option of retransmitting local television
                 stations, but would have to pay for that right. The retransmission of

                    ‘Quincy Cable TV, Inc. v. FCC, 768 F 2d. 1434 (DC Cir., 1985).

                    ‘Century Communications Carp \I.Fcc, 83.5F.2d. 292 (D.C. Cir., 19871,cert. denied, 108 S.Ct. 2014
                   (1986).

                   “Changing the channel on which ii broadcast station is aired



                   Page 31                                     GAO/RCED-90-193 FolIow-up Cable Television Survey
                        Chapter 3
                        Analysis of Legislative Proposals to Amend
                        the Cable Act




                        engaging in practices that deny subscribers access to television signals.
                        Also, a channel positioning requirement would effectively give broad-
                        casters a preference in channel placement over non-broadcast cable
                        programmers.

                         Cable systems oppose the “if carry, must pay” proposal, Their opposi-
                         tion is based on the belief that if a cable system chooses to carry one
                         local station, it must carry virtually all the local stations, and then
                         would have little choice but to raise cable rates in order to compensate
                         all the broadcast stations. The results would be higher monthly bills for
                         cable subscribers, leading to further complaints about cable rates.


                         In recent years, there has been growing vertical integration within the
Vertical Integration     cable industry. Vertical integration occurs when a company not only
                         owns local cable systems but also has ownership interests in the produc-
                         tion or supply of cable programming networks.

                         About half of the basic cable programming networks are at least par-
                         tially owned by Multiple System Operators (MSO),” and most pay cable
                         programming is owned by MSOS.This has led to the belief that indepen-
                         dent cable systems, cable programmers, and alternative cable distribu-
                         tors find it difficult to compete with MSOS and their affiliated
                         programmers. Allegedly, MSOS discriminate against programs in which
                         they do not have an ownership interest; force cable programmers to pro-
                         vide popular programming exclusively to their cable systems in areas
                         where they have competitors; and refuse to sell programming, or sell
                         only on unfavorable terms. to independent cable systems or alternative
                         video distributors. As a result of these practices, consumers are unable
                         to receive diverse programming. Legislation proposed to address these
                         practices include

                       . prohibiting cable systems or MSOS from discriminating against unaffili-
                         ated programmers in the price, terms, and conditions of access to their
                         cable system;
                       . prohibiting cable programmers affiliated with MSOs from discriminating
                         against unaffiliated cable operators and other alternative video distribu-
                         tors in the price, terms, conditions, and availability of programming;
                       . prohibiting cable operators from establishing exclusive distributorships
                         for programming in a franchise area or from entering into contracts that




                         Page 33                                 GAO/RCED-W-199 FoUow-up Cable Television Survey
                        Chapter 3
                        Analysis of Legislative PmposaLs to Amend
                        the Cable Act




                        the Department of Justice questions whether regulations prohibiting or
                        limiting vertical integration would advance consumer welfare. It
                        believes that the current antitrust laws are adequate to protect the
                        public.

                        Some cable representatives oppose legislation that would “require cable
                        networks with operator affiliation to make programming available to all
                        financially qualified distributors, regardless of distribution technologies,
                        at the same rates, terms, and conditions granted to cable operators.“H
                        They believe that limiting vertical integration would disrupt the exclu-
                        sive rights cable companies have to their programming and reduce the
                        differences between cable and noncable products. Differentiation in the
                        distribution of video programming is the key to successful competition
                        because it provides consumers with a diversity of information and
                        entertainment and enhances choices.


                        Horizontal concentration is also occurring in the cable industry. Hori-
Horizontal              zontal concentration results when a number of local cable systems are
Concentration           owned or controlled by one company (MO), resulting in the MS0 having a
                        large percentage of subscribers across numerous communities. It is
                        argued that some cable systems have grown to such a degree that they
                        are able to control the cable television market because of their large sub-
                        scriber base. These systems fare better in the market because they
                        receive a volume discount on rates for cable programming.

                        A number of measures have been proposed to limit the number of sub-
                        scribers any one cable television company can serve, capping the
                        number of cable subscribers at 15 or 25 percent of all U.S. subscribers.
                        Additional legislation has been proposed that would allow localities to
                        consider a cable operator’s media ownership interests when deciding on
                        whether to grant or renew a franchise.


Arguments in Favor of   City representatives and alternative video distributors favor capping
Limiting Horizontal     the number of subscribers nationwide an MS0 can serve. Concentration
                        can stifle competition when cable systems refuse to carry cable pro-
Concentration           gramming they are not affiliated with. In turn, this affects the diversity
                        of programming available to cable subscribers because they have fewer
                        programming choices.


                         ‘Letter to Senator Inouye from SCTA, Jan 17, 1990, p. 9.



                         Page 36                                    GAO/RCEDgOlsB   Follow-up Cable Television Survey
                            Chapter 3
                            Analysis of Legislative Proposals to Amend
                            the Cable Act




                        l   allowing telephone companies to provide video programming, similar to
                            cable, directly to subscribers with possible restrictions.


Arguments in Favor of       Telephone companies favor entry into the video market. They believe
Telephone Company           that a lifting of the ban on telephone companies cross-ownership of
                            cable systems is in the public interest. Allowing telephone companies to
Ownership of Cable          participate in video programming would expedite technological develop-
Systems                     ments, lower rates, increase the supply of programs, and give customers
                            additional choices.

                            The National Telecommunications and Information Administration also
                            favors allowing telephone company entry, but only to provide a “video
                            dial tone” as a regulated common carrier. The telephone companies
                            would not be allowed to own or control the programming sent out over
                            their cable systems.

                            Advocates of telephone company entry argue that, since the Cable Act,
                            cable has grown into a vibrant industry, without much competition. To
                            keep rates down, ensure high-quality service, and ensure the availability
                            of diverse programming, some advocate the entry of telephone compa-
                            nies into the cable marketplace. They believe that telephone companies
                            would stimulate competition in a cable industry that is now dominated
                            by a few MSOs. They also believe the entry of telephone companies may
                            result in technological innovations, such as the introduction of fiber
                            optics. A fiber optical network would enable telephone companies to
                            offer interactive television, video-on-demand, at-home banking and
                            shopping, education and self-help courses, as well as many other
                            services.12


Arguments Opposed to        Cable companies and some other assorted groups oppose the entry of
Telephone Company           telephone companies into the video marketplace. Two reasons are given.
                            The first argument is that telephone companies will not add competition
Ownership of Cable          since they intend to supplant existing cable systems, not compete with
Systems                     them. The second argument is that the telephone industry wants to put
                            a single wire into every home which would be the sole source of voice,
                            data, and video service. This concept places ratepayers at risk of paying
                            for a new technology and new facilities that may not be financially prac-
                            tical for many years to come, and may not guarantee future benefits.
                            Critics of the entry of telephone companies state that

                            “Existing copper telephone wiring cannot be used for cable television service.



                            Page 37                                     GAO/‘RCEDw)-199 Follow-up Cable Television Survey
&ulation of CableTelevision Rates:What Are
the Options?

              There is a concern that cable systems in many communities have
              enjoyed undue market power after deregulation. Comments submitted to
              FCCby a number of groups, in connection with its two current proceed-
              ings on the cable industry, generally conclude that basic cable services,
              with their wide range of programming, have become increasingly dis-
              tinct from conventional television and other video delivery technologies
              and that there is no close substitute presently available for these basic
              cable services.

              The results of our survey tend to confirm that view. For example, we
              found that while rates for the lowest priced basic service available to
              the average cable subscriber increased by 43 percent after deregulation,
              cable subscriptions and penetration nationwide have increased as well.
              Although there are other potential explanations, the unresponsiveness
              of the subscriber base to substantial price increases is frequently attrib-
              uted to the lack of any close substitute services to which consumers can
              switch. The Department of Justice, in its comments to FCC, provided a
              similar interpretation.

              If a product is provided by one seller and there are no close substitutes
              available in the market, then the seller is able to influence the price; that
              is, the seller possesses market power. Most communities have a sole
              cable provider and lack close substitutes for cable television services. A
              number of comments, submitted to FCC in response to its Notice of
              Inquiry, attempted to determine whether cable systems possess undue
              local market power. These comments generally found that local cable
              systems possess some degree of market power.

              The substantial rate increases we have reported for 1989 are likely to
              continue to fuel congressional debate over how to “reign in” what the
              Chairman of FCC and others have called an “unregulated monopoly.”
              Legislative proposals currently before the Congress, as well as com-
              ments submitted to FCCin connection with its cable proceedings, reveal
              several approaches and alternatives for dealing with the market power
              of the cable industry, including placing different degrees of reliance on
              government regulation versus introducing market forces to arrive at a
              solution.

              An important element of any debate over cable rate increases is know-
              ledge of cable system costs. We cannot state the extent to which rate
              increases were accompanied by increased cable system costs since it was
              not feasible, within a reasonable reporting time, to collect cost data as
              part of our survey.


              Page 39                           GAO/UCED-90-199 Follow-up Cable Television Survey
Chapter 4
Regulation of Cable Television Rates: What
Are the Options?




effective date of deregulation under the Cable Act, about two-thirds of
cable systems were rate-regulated.

As discussed previously in this report, FCCis currently reassessing its
definition of effective competition. A number of comments filed with FCC
recommended the adoption of a tougher standard, which would result in
more cable systems being subject to rate regulation. The Department of
Commerce’s National Telecommunications and Information Administra-
tion recommended moving to a new standard of six over-the-air televi-
sion channels, and NCTA recommended adoption of five channels as the
new standard. In this regard, the results of our survey, as of December
3 1, 1989, showed that about 30 percent of cable subscribers lived in
communities where six or fewer over-the-air television channels are
available.’

Use of an effective competition standard composed of only over-the-air
television channels, however, is open to question, since cable systems
also provide distant television channels and exclusive cable program-
ming for their basic service subscribers. For example, our survey
showed that on December 31,1989, the average cable subscriber
received, as part of the lowest priced basic service, 8 local stations, 3
distant stations, and 17 channels of basic cable programming. In this
regard, the Department of Justice commented to FCC as follows:

“Several reasons suggest that broadcast television is generally not a close substitute
in the eyes of consumers for the full range of basic programming services now dis-
tributed by cable television systems. Basic cable services offer greater variety and
quantity of video programming (i.e., non-local programming) and in some areas
superior signal quality than is available on broadcast television. That conventional
television is not a close substitute for basic cable services is also evidenced by the
very large number of consumers who pay substantial monthly charges to receive
basic cable services despite the availability of broadcast television services at no
direct cost. And, this consumer preference for basic cable services has persisted and
increased during a period when the number of conventional television signals has
increased.“”

A number of commenters on FCC’Sproceedings, as well as some legisla
tive proposals, have recommended the adoption of a more stringent
effective competition standard that would require the existence in the

‘In our questionnaire, we askedcableoperatorshow many network affiliates, other commercialsta-
tions, and noncommercialstations wereavailable over the air (significantly viewed) in their franchise
area.
‘Reply Commentsof the IJ.S.Departmentof Justiceto FCCNoticeof Inquiry (MM Docket89.SOO),
                                                                                      p,
 14.



 Page 41                                    GAO/RCED-90199 Follow-up Cable Television Survey
                          Chapter 4
                          Regulation of Cable Television Rates: What
                          Are the options?




                          Price-cap regulation, however, cannot address variations across locali-
                          ties of the market power of local cable systems or the different regula-
                          tory needs of local communities. In this regard, the Department of
                          Justice, in its comments to FCC in conjunction with FCC’Scable policy
                          study, raises a question about the need for a uniform national policy.
                          Justice points out that since the nature and the extent of local cable
                          market power may vary considerably among local markets, uniform
                          national policies have some clear disadvantages, and so allowing local
                          governments to adopt that form of regulation of local cable services that
                          they deem most beneficial would not be inconsistent with federal anti-
                          trust policy.4


Return Control to Local   Some commenters and proposals expressed concern that the Cable Act,
Communities               by both deregulating rates and establishing specific criteria for
                          franchise renewal, has greatly weakened the power of communities to
                          control rates and service, and limited their ability to monitor cable
                          system performance. These proposals seek to restore to local communi-
                          ties greater control over both cable rates and the franchise renewal pro-
                          cess as a way to improve the oversight of cable rates and service.

                          Both the Department of Justice and ITC, in comments to FCC,support
                          greater local control over cable rates and service. In particular, FTC calls
                          for amending the Cable Act to return to localities greater control over
                          the cable franchise. FK observes that the threat of franchise nonre-
                          newal seems likely to have played a role in constraining a franchisee’s
                          conduct, but that the Cable Act makes it more difficult for local govern-
                          ments to threaten nonrenewal. A decision not to renew a cable franchise
                          may not be based on the prices charged by the operator, nor on the mix,
                          quality, or level of cable services or other services provided over the
                          system. These are the service variables of greatest interest to cable sub-
                          scribers. FE concludes: “Should Congress contemplate modifying the
                          Cable Act to constrain perceived exercises of market power by cable
                          systems, it might seriously consider altering the portion of the Act that
                          governs the franchise renewal process.“”




                          “Reply Comments of the U.S. Department of Justice to FCC Notice of Inquiry (MM Docket 89-600),
                          pp. 9-10.

                          “Comments of the staff of the Bureau of Economics and the San Francisco Regional Office of the
                          Federal Trade Commission to FCC Notice of Inquiry (MM Docket 89600), pp. 3636.



                          Page 43                                    GAO/RCFLD80-199 Follow-up Cable Television Survey
Page 46   GAO/RCJ%M.I-199 Follow-up Cable Television Survey
                                    Appendix I
                                    Changes in Basic Cable Rates    and Services




Table 1.2:Average Number of Basic
Channels Received per Subscriber                                              Average number of basic channels received per
                                                                                                subscriber for:
                                    Date                                     Most popular service               Lowest priced service
                                    12/31/&l                                                     22.0                                  20.5

                                                                    -                       (k195)                                   (kO.4)
                                                                                          N=2987                                   N=2986
                                                                                            (k195)                                   (k195)
                                    12/31/05                                                     24.6                                  21.8
                                                                                             (20.5)                                  (kO.4)
                                                                                           N=3348                                  N=3350
                                                                                            (k206)
                                                                                                                                ____ (k206)
                                    11/30/86                                                     27.1                                   24.2
                                                                                             (kO.5)                                  (kO.5)
                                                                                           N=3988                                  N=4005
                                                                                            (k218)                                   (i218)
                                    12/3f/a7                                                     30.0                                  27.7
                                                                                            (k     0.5)                               (kO.6)
                                                                                           N=4704                                  N=4709
                                                                                            (k227)                                   (k227)
                                    12/31/80                                                     32.2                                  30.2

                                                                        -.                   (+0.6)                                   (rtO.7)
                                                                                           N=5429                                  N=5429

                                    ______---                                               (k227)                                   (2227)
                                    12/31/89                                                     33.6                                   31.2
                                                                                             (?0.5)                                   (_+04)
                                                                                           N=6327                                  N=6329
                                                                                            (f214)                                   (f214)

                                    Note: The table above contains sampling errors for the values presented, as well as estimates of the
                                    number of cable systems (N) that would have responded had we surveyed all systems.




                                    Page 47                                         GAO/~199              Follow-up Cable Television Survey
                                     Appendix 1
                                     Changes in Basic Cable Rates and Services




Table 1.4:Changes in Basic Service
Rates Since Deregulation                                             Percentage of subscribers whose rates changed between
                                                                                     11/30/66 and 12131/69 for:
                                     Chanae in rate
                                            s-                          Most oooular service                    Lowest oriced
                                     No change     or decrease                            3.1                             10.2
                                                                                       (kO7)                            (+1X
                                     increase    (percent)
                                     >o-520                                                   13.1                                     10.0
                                                                                            (?I   8)                                 (k1.4)
                                     120-540                                                  36.1                                     30.2
                                                                                            ( + 2.2)                                 (zt 2.3)
                                     140-560                                                  20.2                                     28.0
                                                                                            (+_2.01                                  ( * 2.21
                                                                                                                                      ~        I




                                     160-580                                                  13.8                                      14.3
                                                                                            C-t1 6)                                  t-t 2.0)
                                     >80-5100                                                  2.7’                                      3.2’
                                                                                            (kO.7)                                   (+0.9)
                                     >lOO                                                      3.0                                       3.4
                                                                                            (-+08)                                    (kl.0)

                                     Note. The table above contains sampling errors for the values presented. Below are our estimates of the
                                     number of cable systems (N) that would have responded had we surveyed all systems.

                                     Most popular seruce, N = 3968 +218,
                                     lowest priced service, N = 3918 k 218




                                      Page 49                                     GAO/RCED-ml99        Follow-up Cable Television Survey
                                           Appendix I
                                           Changes in Basic Cable Rates and Services




Table 1.7: Rates for Lowest Priced Basic
Service Provided by Systems That Were                                                             Average monthly charge per subscriber
Regulated/Not Regulated Prior to                                                                       in systems that in 1986 were?
Effective Date of Cable Act                Date                                                    Reaulated                 Not reaulated
                                           12/31/84                                                      $9.26                      $10.33

                                                                                                       N=1999                            N=753
                                                                                                        (2162)                            (+_llS)
                                           i2/31/85                                                           9.93                         11.14
                                                                                                         (2     11)                        (k     21)
                                                                                                       N=2212                             N=856
                                                                                                                                          (f127)
                                           11/30/86                                                                                        11.99
                                                                                                         (2     12)                        (2 23)
                                                                                                       N=2666
                                                                                                  -    -~-    ~ ~. ~_ _       _    ~~ ~ N=980
                                                                                                        (k190)                            (k136)
                                           12/31/67                                                      12.95                             13.21
                                                                                                         (k     11)                        (t     29)
                                                                                                       N=2997                           N=1129
                                                                                                        (+zoo)                            (+148)
                                           12/31/aa
                                                                                                  .~     14.49
                                                                                                          ~~ ~~ ~_ ~~ ~                    14.63
                                                                                                         (2     11)                       (2      32)
                                                                                                       N=3157                           N=1126
                                                                                                        (k205)                            (rk147)
                                           12/31/89                                                      16.06                             15.77
                                                                                                         (k     101                        (2 35)
                                                                                                       N=3358                           N=1198
                                                                                                        ( t- 208)                         (2152)
                                           Percent increase 1986-89                                           47.1                              31.6
                                                                                                         (22.3)                            (251)

                                           Note The table above conla~ns sampling ermrs for the values presented, as well as estimates of the
                                           number of cable systems (N) that would have responded had we surveyed all systems

                                           “All these systems were not regulated as of 12/31/89




                                           Page 51                                      GAO/RCED-St-199 Follow-up Cable Television Survey
                                     Appendix I
                                     Changes in Basic Cable Rates and Services




Table 1.9:Types of Programming
Available With Lowest Priced Basic                                                Number of channels available to average
Service Tier                                                                                  subscriber on:
                                     Type of programming                 -       12131184          1l/30/66            12/31/89
                                     Local television       stations                  7.2                 7.7         -___ 7.9
                                                                                    (kO.2)             (kO2)              (kO.2)
                                     Distant   television     stations                 3.3                3.1                3.1
                                                                                     (k0   1)                (TO.1)                  (-+O.l)
                                     Basic cable     networks                           7.8                    11.1
                                                                                                         -.__-___                      17.3
                                                                                     (+ 0.3)                 (kO.4)                  (kO.3)
                                     Leased    access/other        channels             2.3                     2.3                     2.5
                                                                                     (kO.2)                  (kO.1)                  (kO.1)

                                     Note: The table above contains sampling errors for the values presented Below are our estimates of the
                                     number of cable systems (N) that would have responded had we surveyed all systems

                                     12/31/64, N = 2484i184.
                                     1 l/30/86, N = 3343 t 210;
                                     12/31/89, N = 5451 t226.




                                     Page 53                                      GAO/RCRL%9O-199Follow-up Cable Television Survey
Appendix III

Premium CableServices


Table 111.1:Number of Premium Channels
Available                                                                                                   Number of channels available to
                                            Date                                                                        average subscriber
                                            12/31/84                                                                                              4.2
                                                                                                                                            (k.10)
                                                                                                                                        .___
                                                                                                                                          N=3041
                                                                                                                                            (k191)
                                            11/30/86                                                                                              4.9
                                                                                                                                            (k.07)
                                                                                                                                          N=4010
                                                                                                                                            (+217)
                                            12/31/89                                                                                               5.2
                                                                                                                                            (2.07)
                                                                                                                                          N=6437


                                            Note: The table above contains samplmg errors for the values presented, as well as estimates of the
                                            number of cable systems (N) that would have responded had we surveyed all systems.


Table 111.2:Monthly Charge for Individual
Premium Channels                                                                      Average charge per cable system for:
                                            Date                          .-    Home Box Office         Showtime                         Cinemax
                                            12/31/84                                     $10.19            $10.14                           $9.75
                                                                                          (k.10)             (k.14)                          (f.15)
                                                                                          N=3087                  N=1676                  N=1547
                                                                                            (k189)                  (k139)                  (k133)
                                            11/30/86                     _.~-               10.37                    10.23                     9.93
                                                                                            (k .09)                  (k.13)                  (+.lz)
                                                                                          N=4032                  N=2346                   N=2340
                                                                                            (k214)                  (f164)                  (F168)
                                            12/31/89                                         10.24                   10.02                        9.90
                                                                                             (~08)                   (k.11)                  (k .09)
                                                                         -~
                                                                                          N=5503                  N=3599                   N=3564
                                                                                            (i226)                  (e207)                  (k204)

                                            Note: The table above contams sampling errors for the values presented, as well as estimates of the
                                            number of cable systems (N) that would have responded had we surveyed all systems.




                                            Page 55                                      GAO/RCED90199        FoUow-up Cable Television Survey
Revenueto CableSystemsPer Subscriber


Table IV.1: Average Monthly Revenue
Each Subscriber Generates for the Cable                                                                                 Average revenue per
System                                    Date                                                                                    subscriber
                                          12/31/84                                                                                    $19.07
                                                                                                                                       (2.24)
                                                                                                                                            N=2284’
                                                                                                                                             (k177)
                                          1213 l/85                                                                                           20.91
                                                                                                                                              (k .22)
                                                                                                                                            N=2722

                                                         -                                                                                   (-tG)
                                          11/30/86                                                                                            21.70
                                                                                                                                              (L.21)
                                                                                                                                            N=3295

                                                                        ...~_                                                                ( ?I 207)
                                          12/31/87                                                                                            23.33
                                                                                                                                              (k.21)
                                                                                                                                      ~__
                                                                                                                                            N=3980
                                                                                                                                             (+- 220)
                                          12/31/88                                                                                            25.00
                                                                                                                              _-.__
                                                                                                                                              (k.21)
                                                                                                                                            N=4753
                                                                                                                                             ( + 228)
                                          12/31/89                                                                                            26.36
                                                                                                                                              ( -t .22)
                                                                                                                                            N=5532
                                                                                                                                                ^^^
                                                                                                                                              ( 2 Zci)
                                          Percent increase
                                            198649                                                                                              21.0
                                                                                                                                              (k1.2)
                                             190049                                                                                              5.5
                                                                                                                                              (kl.0)

                                          Note: The table above contains sampling errors for the values presented, as well as estimates of the
                                          number of cable systems (N) that would have responded had we surveyed all systems




                                          page 67                                      GAO/RCJ2D-9O-199Follow-up Cable Television Survey
Changesin CableSystemSubscribershipand
Other Information

Table V.1: Cable Industry Growth
                                                                                      Percent increase between:
                                     Category                            12/31/04 and l2/31/09            11/30/66 and 12/31/69
                                     Homes      having   access   to
                                     cable                                                     26.1                                           14.4
                                                                                              (21.4)                                        (k1.2)
                                                                                           N=3397                                     N =4300
                                                                                             (k210)                                         (I 224)
                                     Total subscriotions                                        35.5                                          22.2
                                                                                              (11.2)                                        (k1.5)
                                                                                           N=3134                                     N=4074
                                                                                                -~_~__~~__                           .___-
                                                                                             (kl96)                                         (k219)
                                     Premium channel
                                     subscriptions                                              36.6                                          15.9
                                                                                              (k33)                                   A-’
                                                                                                                                            ( ? 2.0)
                                                                                           N=2754                                      N=3846
                                                                                             (2189)                                         (k217)

                                     Note. The table above contams sampling errors for the values presented, as well as our estimates of the
                                     number of cable systems (N) that would have responded had we surveyed all systems


Table V.2: Changes in Cable System
Penetration                          Date                                                                                Percent penetrationa
                                     1213 i/84                                                                                            56.9
                                                                                                       _______
                                                                                                                                       N=2272
                                                                                                                                            (k175)
                                     ii/30/86                                                                                                  56.1
                                                                                                                                             (kl2)
                                                                                                                                       N=3025


                                     12/31 I89


                                                                                                                   _~.                 N=4868
                                                                                                                                            (k 229)

                                     Note. The table above contains sampling errors for the values presented, as well as our esttmates of the
                                     number of cable systems (N) that would have responded had we surveyed all systems Also, the estt-
                                     mated total number of homes hawng access to cable in systems reporting data I” 1984, 1986, and 1989
                                     for both homes accessible and total subscribers are 30 1 mIllIon 2 1 4 mllllon. 40 6 mllllon f 1 8 mllllon,
                                     and 53 8 mlllion+3 0 mllllon

                                     aNumber of subscribers/number     of homes hawng access to cable systems




                                     Page 59                                        GAO/RCED99-199 Follow-up Cable Television Survey
                                       Appendix V
                                       Cban@a ln Cable Syetem Subacrlbemhlp and
                                       Other hlfommtlon




Table V.5: Number of Active Channels
Carried by Cable Systems                                                                               Number of channels available to
                                       Date                                                                        average subscriber
                                       12/31/84                                                                                          29.0
                                                                                                                                       (kO.5)
                                                                                                                                     N=3056
                                                                                                                                       (k195)
                                       11/30/86                                                                                          33.7
                                                                                                                                       (50.5)
                                                                                                                                     N=4CXJ4
                                                                                                                                       (~~218)
                                       12/31/89                                                                                          39.8
                                                                                                                                        (LO.5)
                                                                                                                                     N=6412
                                                                                                                                       fk212)

                                       Note The table above contains sampling errors for the values presented, as well as our estimates of the
                                       number of cable systems (N) that would have responded had we surveyed all systems.


Table V.6: Number of Active Channels
Carried by Cable Systems                                                                     Percentage of subscribers on:
                                       Number of active channels                    12/31/84             11/30/86                   12/31/89
                                       >o-510                                              0.4                 0.1                         0
                                                                                       (kO.2)                   (kO.1)                    (k0)
                                       >lO-520                                            17.9                      7.5                     2.3
                                                                                       (21.7)                   (20.9)                  (20.3)
                                       >20-530                                            44.0                    33.3                    11.3
                                                                                       (k2.5)                   (1.2.2)                 (Irl.1)
                                       >30-140                                            26.7                    41.9                    52.5
                                                                                        (k1.9)                  (k2.2)                  (L2.1)
                                       >40-SO                                               6.7                     0.8                   17.5
                                                                                        (i1.0)                  (kl.2)                  (+1.6)
                                       >50                                                  4.3                     8.4                   16.5
                                                                                        ( + 0.9F                (_+1.3P                 tk1.81

                                       Note. The table above contains sampling errors for the values presented. Below are our estimates of the
                                       number of cable systems (N) that would have responded had we surveyed all systems.

                                       12/31/84, N = 3056k195,
                                       11/30/66. N = 4004+216;
                                       Q/31/69, N = 64122212.
                                       aThese sampling errors may be understated    because no systems I” certain strata responded this way




                                        Page61                                      GAO/RCEBsO199        Follow-up Cable Television Survey
                                        Appendix V
                                        Cbangea in Cable System SubscribersNp and
                                        Other Infhmatlon




Table V.10: Regulation of Basic Cable
Service Rates                                                                                                    Percentage of:
                                        Regulation                                                        Systems               Subscribers
                                        State/local/other
                                           12/31/84                                                              69.8                             82.4
                                                                                                               (k3.1)                           (k2.2)
                                           11/30/86                                                              67.3                             78.3
                                                                                                               (k3.0)                           (k2.0)
                                           12/31/89                                                                 3.5                             1.0
                                                                                                               (kl.l)                            (20.3)
                                        Not regulated
                                           12/31/84                                                              20.3                              17.1
                                                                                                               (k2.7)                            (k2.2)
                                           11/30/86                                                              23.7                             21.3
                                                                                                               (22.7)                            (k2.0)
                                           12l31/89                                                              96.0                              99.0
                                                                                                               ( Ii 1.2)                         (20.3)
                                        Unsure
                                           12/31/84                                                                 9.9                             0.5
                                                                                                               (k2.2)                            (kO.3)
                                           11/30/86,
                                                                                                                    9.0                             0.4
                                                                                                               (22.1)                            (kO.2)
                                           12/31/89                                                                 0.5                                   0
                                                                                                               (kO.5)                              (*‘a
                                        Note: The estimated total number of subscribers whose systems reported regulatory status are 23.1
                                        mrllron kO.9 million for 1984, 29.5 millronf 1 .O million for 1966, and 39.9 millionf 1.2 million for 1969 Also,
                                        the table above contains samptrng errors for the values presented. Below are our estimates of the
                                        number of cable systems(N) that would have responded had we surveyed all systems

                                                            Systems    Subscribsrs
                                        12/31/04 N = 4925 t 226         3126t196
                                        11/30/66 N = 5409+227           4051 f216
                                        12/31/69 N = 6.525?209          6466+211




                                        Page 08                                          GAO/ECED4@19B Follow-up Cable Television Swey
                                                                                                                                            -
                                         Appendix V
                                         Changes in Cable System Subscribership and
                                         other information




Table V.12: Year of Awarding or Latest
Renewal of Franchise Agreement           Year                                                                       Percentage of systems
                                                           __-~            ~--
                                         Before   1985                                                                                 57.2
                                                                                                                                     (k 2.9)
                                                                                                                                   N=6279




                                                                                                                                         (+216)
                                         1987                                                                                               5.4
                                                                                                                                         (+_1.5)
                                                                                                                                        N=6279)
                                                                                                                                          (_+216)
                                         1988                                                                                                 5.2
                                                                                                                                          ( I 1.6)
                                                                                                                                        N=6279
                                                                                                                                         (+-216)
                                         i989                                                                                                -.-
                                                                                                                                             9A

                                                                                                                                          (20.8)
                                                                                                                                        N=6279
                                                                                                                                         (+216)
                                         Other franchise    arrangements
                                                                                                                                          (.Y,
                                                                                                                                        N=6279
                                                                                                                                          (+_216)
                                         Note, The table above contains sampling errors for the values presented, as well as our estimates of the
                                         number of cable systems (N) that would have responded had we surveyed all systems




                                          Page 66                                      GAO/RCED-W-l9!3 Follow-up Cable Television Survey
Appendix VI

Survey Questionnaire


                                          UnitedStatesGeneralAccountingOmce
                                          Follow-Up Survey of Cable Television Rates
                                          and Services



              INTRODUCTION

              The U.S. General Accounting Office (GAO) assiststhe          Please complete this questionnaire onlyfor the cable
              U.S. Congressin evaluating federal programsand issues        system that is described in the label that appears on the
              that affect govemment operations. As a pan of a              bottom of rhepage. Thmugh the analysis of the data you
              follow-up to a review requestedby the Chairman.              provide we hope to obtain an objective updateof cable
              Subcommitteeon Telecommunicationsand Finance.                ratesand sewices. With your earnesteffort to respondto
              HouseCommittee on Energy and Commerce,we are                 the questionswe shouldbe able to provide a quality
              surveying cable systemsto updateour information on           report with statistically valid information to the Congress
              rateschargedand setvices offered.
                                                                           Your answers in this questionnaire will be
              This survey is beiig conductedin cooperation with the        confidential. Your responseswiU be combined with
              Federal CommunicationsCommission@CC). The FCC                thoseof other cable systemsand will be reported in
              requires similar data to meet its legislatively mandated     summary form only. No individual cable system’sor
              reporting requirementsas set fond in the Cable               company’s responseswilI be identified or reported
              CommunicationsPolicy Act. By combining our effons            individually.
              we are minimizing the repfling burden on the cable
              industry. The information you provide in this                Pleasecomplete this questionnairewithin 10days of its
              questtonnairewill go to both the GAO and the FCC to          receipt. A self-addressedbusinessreply envelope is
              help meet both agencies’ needs.                              enclosedfor returning your completedquestionnaire.
              This cable systemwas randomly selectedas a part of a         Spaceis provided at the end of this questionnairefor any
              nation-wide sampleof cable systems. Becausethis              ccmmentsor insights into cable television ratesyou may
              systemrepresentsother cable systemswith a similar            wish to make. If you have any questionsplease call
              number of subscribersyour responseis essential to the        either Tom Heck or Jackie Cook at (202) 634-6068.
              SUCCESS of the study. Furthermore.if you mdage more
              than one cable systemyou may receive more than one
              questionnaireto complete. However. you may not               We sincerely appreciateyour effon in tilling out this
              receive a questionnairefor every system you manage. It       questionnaireand helping us pmvide accurateand timely
              is essential to the successof this study that you complete   information to tbe Congws. If the business-reply
              all questionnairesyou receive.                               envelope has beenmisplaced,please twttm your
                                                                           completed questionnaireto:

                                                                               Mr. JohnM. 01s. Jr.. Director
                                                                               U.S. General Accounting Office
                                                                               Room 4476
                                                                               441 G St., N.W.
                                                                               Washington.DC 20548




                             Page 67                                         GAO/RCEDSO-199 Follow-up Cable Television Survey
             Appendix VI
             Survey Questionnaire




5. PIeasefIII out tbe folIowing tables concerningthis cable system’s basic service basedon the instructionsand
   definitions below.



 A. In Column A please provide the numberof basic channelsoffered by this cable systemthat correspondsto the            -
specific tier of basic service for the dateslisted. (Enter number)

EXAMPLE: If your “First Tier” has20 channelsand your “SecondTier” has an additional 30 channels.thenenter 20
for “First Tier” and 50 for “SecondTier”




 B. In Column B please enter the amount this cable systemchargedmonthly for basic sewice. including all franchise
fees.for the specific tier of basic service for the dateslisted. (Enter d&m and cenrs)

DEFINITION: Basic service generally refen to any service tier which includes the retransmissionof over-the-air
television signals (e.g.. signals that can be received without special equipment suchas antennason tall masts). Basic
service may also include a number of cable networks suchas CNN, ESPN. C-SPAN, etc.

EXAMPLE: If tbis cable system charges$10.95for the “First Tier” of basic service and chargesan additional $5.00
for the “SecondTier”, then enter $10.95for the “First Tier” and $15.95for the “SecondTier.”



REMEMBER: If you checkedin question 2 tbat ail subscribershave the samerate structure,then answerthe
following questions for all subscribers;if you checkedthat there were different rate structures,then answeronly for the
subscribersyou listed in question 3.

NOTE: If this system has only ONE tier of basic serwce answerthe table for Tier I only.

Tier I: Pleasecomplete Columns A and B for the basic service tier with the lowest level of basic service

                                                         COLUMN A          COLUMN B
                                                       Number 01Basic     Monthly Basic
                           BASIC SERVICE TIER I        ChannelsOffered Service Rate Charge
                         1. December31.1984                            s
                         2. Decembx31,1985                               I$
                         3. November30. 1986    1                        I$
                         4. December31.1987                              /$
                         5. Decemter31.1988           I                  IS
                         6. December31. 1989          1                  Is                     I




              Page 69                                         GAO/RCED-90199 FoIlow-up Cable Television Survey
             Appendix VI
             Survey Questionnaire




REMEMBER: If you checkedin question2 that all SubscrItershave the samerate ~!NctWe.then anSwerthe
following questionsfor all subscril~~; if you checkedthat there WZRdifferent rate sUU~N~TS. then allswer only for the
subscribersyou listed in question 3.

6. Correspondingu) the basic service for Tiers I, II. and III you describedin question5. pleasespecify how many
   subscriberswere billed for the following tiers of basic service for the daleslisted. Also pleaseenter the total
   numberof subscrI&rs in the last column.
     DEF’IMTION: Subscriben refersto the total numberof individual subscribersand subscribersbilled on a
    bulk-rate basis (e.g.. if the basic tier service is $10 and a 200~unitapartmentbuilding is billed SSM),then you
    would co”nt $5oODlCWOsubsclibers).
     NOTE: The total should equal the sum of Tiers 1.II, andlI1 UNLESS this cable systemhasmore !han 3 basic
    service tiers.

                                                                                               Total Number
                                              Tier I           Tier II          Tier III       of Subscribers
            1.   December31.1984
            2.   December31. 1985
            3.   November30.1986 1                       I                I                I                    I
            4.   December31.1987
            5.   December31,1988 1                       I                I                I
            6.   December31.1989
                                                                                                                1




              Page 71                                           GAO/RCED9@199 Follow-up Cable Television Survey
             Appendix VI
             survey Questionnaire




Il. PREMIUM SERVICE INFORMATION

REMEMBER: If you checkedin question 2 that all subscribershave the samerate stntctm’e.then answerthe
following questIo”s for all subsctibcrs;if you checkedthat there were different rate stmctwes. then anweronly for the
subscribetxyou listed in question 3.

8. Pm the following dates, what was the “umber of           9. For the follwi”8 dates,how many subscribers (pay
   pmnium chatmelsoffered by this cable system?                h~us.ehoIds) paid for one or more premium chamxels
   Pleas excIude pay-per-view channels. (Enter                 on this cable system? (Enw number)
    WWW




    1. Dece”lher31.1984
    2. Novemta 30.1986
    3. Decemtax31.1989

IO. Mrthc foIlowIng dates.what was a subscriber’s mrmthly “on-package (a la carte) rate for each of the premium
    &an”& listed? (Enter dollars and cents) (If this cable system doesnot offer a non-package(a Ia carte) rate for the
    l&ted premium channel, the” check “Not Offered A La Carte”; if this systemdoesnot carry this channelthen check
    “Not Offeted At AU”.)




                     3. Dece”1ber31.1989       I$                     I              I               I


                     5. Nove”&r30,1986          ($
                     6. D.xentber31.1989        18                    I              I

                     CltlI?mpX
                     7. Decenther31.1984
                     8. Novembcr30.1986         $                     I               I
                     9. December31.1989         $
                                                                                                     1




              Page 73                                         GAO/RCED-SO-199 Follow-up Cable Television Survey
            Appendix VI
            Survey Questionnaire




15. For the dateslisted on eachof the following tables pleaseenter the number of channelsof eachtype listed that
    were available on your cable system for eachbasic service tier. (Enter numberfor each)

    DEFINITIONS:

   Local Signal: a signal that is (1) “significantly viewed” in the franchiseareaor (2) an acceptablesignal in the area
   as defined by the Federal CommunicationsCommission(FCC). In general theseare signals thatcan be received
   over-the-air without special equipment (e.g.. antennaon a tall mast).

   Distant Signal: a signal from anothermarket that can only be received with special equipment(e.g., antennaon a
   tall mast.micro-wave receiver. or satellite dish). These include “supentations” such as W’IBS. WWOR. and WGN
   as well asstations from closer markets.

   Basic Cable Networks: networks that are not associatedwith any market and can only be received with a satellite
   dish. Theseare channelsthat ate usually associatedonly with cable receptionand are typically includedin the
   basic service charge (e.g.. ESPN. CNN. USA. MTV, etc.).

    Leased AccessChannels: channelsset asldefor third paroesnot affiliated with the cable systemgenerally for
    commercial purposes.

    Other: channelsnot included In other categoriessuchas accesschannels(govemmenSlocal, public, r~r
    educational).automatedservices.cable operatororiginated channels,or other servicesthat use a full video channel.
    DO NOT include radio stationsas separatechannels.

    NOTE: If your Tier I has 20 channelspleaseaccountfor a9 20 in the Tier I table. If your Tier II has an additional
    30 channelsthen pleaseaccount for ALL 50 channelsin the Tier II table.


     Tier I Lowest Tier of Basic Service

                                                             1 Dec. 31. 1984 1 Nov. 30.1986 1 Dec. 31,1989
    1.   Local network affiliates (ABC. NBC, CBS)            I                I                I
    2.   Other local commercial (Indewndent)                 I                I                I
    3.   Local non-commercial(Public)
    4.   Distant network affiliates (ABC, NBC. CBS)          I                I                I
    5.   Othcrdistant commercial (Independent)
    6.   Distant non-commercial(Public)                      I                                 I
    7.   Basic cable networks
    8.   Leasedaccesschannels                                                 I                I
    9.   Other                                               I                I                I                I




              Page 76                                            GAO/RCED-SO199 Follow-up Cable Television Survey
20. what was the total number of homesin this cable system’sfranchiseama and what wss tk numberof homes
    passedby this cable systemon the dateslisted? (Enter numberfor each)
   DEFINITION: Number of homespassedmeansthe numberof homesto which cable swife is available without
   a line extension.




2 1. For ti dateslisted. enter tbe numberof miles of plant maintainedby this cable system? (Enter nvmbcr in m&s)
    DEFIMTION: Miles of plant is the length. in miles. of cable passingall homesfrom the he&end to the furtkt
    home passed.
                              MiksasofDec.31.1984
                              Miles as of Nov. 30. 1986
                              MiiesasofDec.31.1989

22. which of the following Ievels of govemment.if any. regulated(appmved) the rate this cable systemchargedfor
    basic service on the dateslisted? (For each date check alS that apply)
     DEFINITION: For the purposesof this question.“basic service” refers to any service that includesthe
    retransmissionof over-&-air signals.
    NOTE: Cable rates were deregulatedBSof December29.1986 by the Cable Act.

                                               Local
                                  State     Government
                                Government or Municiialii Not Aepulated           other         UnSU~
                                    (11         (21            (31                  MI            (9
    1. December31.1984
    2. November 30.1986
    3. December31.1989




             Page 77                                        GAO,‘RCEWJO-199 Follow-up Cable Teletiion              Survey
              Appendix VI
              survey Questionnaire




r   27. As of Dezemter 31.1989. did any of tbe 25 largest multiple systemoperators(MSOs) listed below hold at least
        109i ownership in this cable system?(Checkone)
        1. 0 Yes
       2.0 No
        3. q unsure

    25 Largest MSOs
    Adelphia Communications                                     MultiVision Cable
    ATC-Warner-Paragon                                          NewhouseBmadcasting
    Cablevision Industries                                      ParagonCommonications
    Cablevision Systems                                         Post-NewsweekCable
    Centuty Co”““l”llcatio”s                                    Prime Cable
    Comcast                                                     SammonsCommunications
    ContinentalCablevision                                      Scripps Howard
    Cooke Cablevision                                           TCA Cable
    Cox Cable Communications                                    TeleCable
    FalconCable TV                                              Tele-CommunicationsInc. (TCI)
    JonesIntercable                                             Tele-Media
    Ma&an Hunter                                                Times Mirmr Cable TV
                                                                Viacorn Cable




    28. What is the geographiclocation of this cable system’s franchisearea?
                                             City (Largest. if more than one)
                                             county
                                             stge
                                             (Central) Zip Code



    29. Does this cable systemhave a cable rate card available for December 1989?(Check one)
        1. Cl Yes -          P1ea.w enclose with completed quesrionnaire
        2.0    No




                Page 79                                        GAO,‘ECEl%9MPBFollow~p Cable Tdevidon Survey
Appendix VII

List of Respondents


                       In chapter 3, we use terms such as “cable systems,” “cities,” and “alter-
                       native video distributors” to categorize organizations that responded to
                       FCC’S Notice of Inquiry and Notice of Proposed Rulemaking and that tes-
                       tified at congressional hearings. This appendix identifies respondents in
                       each of our broad categories.


Government Agencies    Department
                              OfJustlc?
                       Federal Trade Commission and its San Francisco Regional Office
                       National Telecommunications and Information Administration


                       National Cable Television Association
Cab1eRepresentatives   Time-Warner
                               Incorporated
                       Telesat Cablevision Incorporated
                       Competitive Cable Association
                       Turner Broadcasting System Incorporated
                       People’s Choice TV
                       Cable Television Operators and Associations
                       Bresnan Communications
                       Cox Cable Communications
                       Tele-Communications Incorporated
                       Cable Television Laboratories Incorporated
                       Hearst/ABC-Viacom Entertainment Services
                       The Discovery Channel
                       Showtime Networks Incorporated
                       USA Network
                       Heritage Communications Incorporated
                       Adelphia Communications Corporation, et al.
                       InterMedia Partners
                       Cablevision Industries Corporation, et al.


                       National Association of Broadcasters
Broadcasters           National Broadcasting Company Incorporated
                       WVLA-TV


                       United States Telephone Association
Telephone Companies    Southwestern Bell Corporation
                       GTE Service Corporation and GTE Laboratories
                       Bell Atlantic Telephone Companies
                       Organization for the Protection and Advancement of Small Telephone


                       Page 81                         GAO/RCEDBO-199 Followup Cable Television Survey
        Appendix VII
        List of Respondents




        Consumer Federation of America
Other   Motion Picture Association of America Incorporated
        Glasgow Electric Plant Board and the American Public Power
          Association
        John McLaughlin, Executive Director of Program on Information
          Resources Policy, Harvard University
        Comments of Bruce Egan and Douglas Conn
        Comments of Richard Leghorn, Cable Investor




                                       GAO/BcED9o1B9   Followap Cable TelevLsion Survey
        Requests    for copies of GAO reports   should be sent to:

        U.S. General Accounting     Office
        Post Office Box 6015
        Gaithersburg,  Maryland     20877

        Telephone    202-275-6241

T       The fiit  five copies of each report    are free. Addition
        $2.00 each.

        There is a 25% discount     on orders for 100 or more co:
        single address.
f
\

‘
    i
Appendix VIII

Major Contributors to This Report


                        Lowell Mininger, Assistant Director
Resources,              Thomas A. Heck, Assignment Manager
Community, and          Jacqueline A. Cook, Evaluator-in-Charge
                        John A. Thomson, Jr., Senior Evaluator
Economic
Development Division,   Stephanie A. Keith, Evaluator
                        Jonathan T. Bachman, Senior Social Science Analyst
Washington, D.C.

                        Yesook S. Merrill, Senior Economist
Office of the Chief
Economist




(385501)                Page 84                         GAO/RCED-W-199 Follow-up Cable Television Survey
                    Appendix VII
                    List of Respondents




                      Companies
                    Panhandle Telephone Cooperative Incorporated
                    HunTel Systems Incorporated


                    National Rural Telecommunications Cooperative
Alternative Video   The Wireless Cable Association Incorporated
Distributors        Joint Comments of National Satellite Programming Network, Beach
                      Communications, Mid-Atlantic Communications, Stellar Communica-
                      tions, Telecom Satellite Systems, and 21st Century Technology Group
                    American Telecasting Incorporated
                    Multi-Micro Incorporated
                    Pee Dee Electric Cooperative


                    State of Hawaii
States              West Virginia Public Service Commission
                    North Carolina Utilities Commission
                    National Association of Regulatory Utility Commissioners


                    National League of Cities
Local/City          National Association of Telecommunications Officers and Advisors
Representatives     City of New York; City of Huntsville, Alabama; City of Portland, Oregon;
                       and the Northwest Municipal Cable Council in conjunction with the
                       National League of Cities and the United
                       States Conference of Mayors
                    City of Los Angeles, California
                    Joint Comments of the City of Dubuque, Iowa; Montgomery County,
                       Maryland; and the City of St. Louis, Missouri
                    City of Boston, Massachusetts
                    City of Laredo, Texas
                    City of Augusta, Georgia, on behalf of the National League of Cities and
                       the United States Conference of Mayors
                    City of Ithaca, New York
                    City of Tucson, Arizona




                    page 82                        GAO/RCEDM-199   Follow-up Cable Television Survey
              Appendix VI
              Survey Questionnaire




plcasc make a copy of your completed quutionna n tmixe retuning it in dw enclosedpastagepaid envelope. In the
went WCneed to contact you to obtain clarification of my of the infomtation in this quesdannairc.pleasepmvide the
loUowing information.
Personcompleting this que.stionMire:
                                           Nm.2
                                           Title

(         1                                 Telephone number



30. If you have any additional commentson the issuesof cable rate.7and set-&s. plew feel free to addthem below or
    on an additional she* if necessary.




THANK YOU FOR YOUR COOPERATION




              Page SO                                        GAO/~~lOO            Fdow-up     Cable Television Survey
               Appendix VI
               Survey Questionnaire




r   23. AS of December31.1989. with how many separate
        jurisdiction.%.if any, did this cable systemhave
         rortt~d franchise agreements?
                                                               25. On December31.1989 did this cable systemoffer
                                                                   low income or elderly discount rates?(Check one)
                                                                   1. 0 Yes, this systemoffered a discountrate(s)for
        DEFINITION: A franchiseis an authorizaoon.                      low income or elderly subscribers
       typically issuedby a city or county. allowing a cable       2. 0 This systemdid NOT offer a discountrate(s)
       operator to constructor operate-a cable system.                  for low income or elderly subscribers
       (Check one)

       1. 0 Franchiseagreementwiih onejurisdiction             26. What was the TOTAL REVENUE PER
       2. 0 Franchiseagreementswith 2 - 5 jurisdictions            SUBSCRIBER directly received by this cable
                                                                   systemfmm all subscriberservicesfor the months
       3. 0 Franchiseagreementswith more than 5                    listed? (Enter dollars and cents)
             jurisdictions
       4. q No formal                                               DEFINITION: Subscriberrcvcnuc includesbasic
              franchiseagreements+     SKIP TO Q. 25               service. premium services.pay-per-view. installation
                                                                   charges,and other rcvcouessochas additional
       5. •I Other “franchising”                                   outlets, guides,and convertor rentals.Please
              wrar~gemen~~;such as                                 EXCLUDE revenuesfrom advertising.institutional
              municipal ownership                                  networks.leasedaccess.home shopping myallies.
              and co-ops.           SKIP TO Q. 25                  and other non-subscriberrc”e”“cs.

    24 Pleaseindicate for either the franchiseagreementthat                                         Total Monthly     ’
       includesthe most subscribers.or the single franchise                                         Revenueper
       agreementIf your systemopet~tes under only one,                                               Subscriber
       tie year the franchisewas awardedand the year the           1. December.1984            s
       franchisewill expire. (Emeryears)
                                                                   2. December. 1985           s
                            Year franchiseawarded                  3. December. 1986            $
                            Year franchiseexpwcs                   4.   wcemher.   1987         I
                                                                   5. Deccmkr.     1988         $
                                                                   6. December, 1989            I




                 Page 78                                        GAO/RCEDM-199         Follow-up Cable Television Survey
              Appendix VI
              survey Qaestionnalre




Tier II - Seumd Tier of Basic Set-vice
NOTE: Complete this table ONLY if this systemhas at least two tiers of basic service. If your systemhas 20
cbatmelsin Tier I and an additional 30 channelsin Tier II then please accountfor ALL 50 chanoelsin the Tier fl table




Iv. BACKGROUND INFORMATION

16. For the dates listed below how many nctwot affiliates (ABC, NBC, sod CBS), odw wmmetcial stations
    (Indepndcnt). and noncommercial stations(Public) were available over-the-air (significantly viewed) in this cable
    system’s franchise area?(Enter numberfor each)

                                                              CXhe~~;;;serciaI        Nonwmmarcial
                                          NetworkAfliliates                              statlms
            1. Decemter31.1984
            2. November 30.1986
            3. Decemkr31.1989


17. In what year did cable setvice first become available     19. To the best of your knowledge.how many times did
    in this franchise area? (Enter year)                          this cable systemchangeownershipin eachof the
                                                                  following years? fEnfer num6er for each year; if did
     19                                                           MI dmgc in d year. enter 0)
                                                                  1985
18. Has this systemchangedownership since Dec. 31.
    1984?(Check one)                                              1986
    1. 0 Yes. this system has changedovmersbip                    1987
    2. Cl This systemhas not
          changedownership---t      SKIP TO Q. 20                 1988
    3.   q Unsure if this systemhas                               1989
            changedownership-            SKIP TO Q. 20




               Page 76                                        GAO/RClZD@.199 Follow-up Cable Television Survey
            Appendix VI
            survey QuestioNtalre




11. At any time during the period from December31. 1984to December31.1989. did this cable systemoffer monthly
    discoontsto subscriberswho ordeted more than one premium channel as a packageor combination?(Check one)
   1. 0 Yes. this cable systemoffered a premium combination discoont
   2. 0 This cable system did not offer a premium channel combination discount-                          SKIP TO Q. 13


12. Considerthis system’s most popular two. thtx. and four premium chat& discountcombinations. Excluding the
    basic service tier charge and other discount options (such as ptugram guides.remotecontml convertors,etc.), how
    much did this cable systemcharge per month on the dateslisted for the following combinations? (Emu dollars
    and cents) (If this systemdid not offer a combination. then check the column “Not Available”.)

                                    Two channel                  Three   channel                      Four channel
                                                   Not                              Not                               Not
                                                  Avail-                           Avail-                            Avail-
                                   Charge           able         Charge            able               Charge         able
                                     (0              (21           11)              (2)                 IV            (2)
    1. Decemter31.1984         s                             s                                s
    2. November30.1986         S                             s                                s
    3. December31.1989        I$                1          IIS            .(                IIS                .I

III. PROGRAMMING INFORMATION

13. For the dateslisted below, what was the total channelcapacity and the numberof active channelsfor this cable
    system? (Enter numberforeach)

                                          1 Channel Capacity 1 Active Channels
                      I. December31.19&1 I                   I
                      2. Novemtber30.1986 1
                      3. December31.1989 )
                                                                                                          I
 14. For the dateslisted below, what was the number of active channelsavailable through basic service. premium
     service (additional monthly charges),and pay-per-view service (chargesfor one-time viewing)? (Enrer numberfor
    each)

                                                                                                       Pay-Per-View
                                            Basic Channels            Premum Channels                   Channels
              1. December31.1984        I                         I                               I
              2. November30,1986        1
              3. December31.1989        1                         I




             Page 74                                             GAO/RCED-90-199 Follow-up Cable Television Survey
                                            -
             Appendix VI
             Survey Questionnaire




7. Considerthe following ways that subscriberscan pay for options that may be available from this system:
    -   NOT AVAILABLE: Option is not offered
    -   INCLUDED IN TIER CHARGE: Option is included in the cost of the basic service tier
    -   EXTRA MONTHLY CHARGE: Option is available only for an additional monthly charge
    -   ONE-TIME CHARGE: Option is available only for an additional one-time charge
    ln the following table, please check the way that bestdescribeshow subscribersin each basic service tier paid for
   theseoptions asof December 31.1989. If you checkedeither “Extra Monthly Charge” or “One-Time Charge”
   pleaseenter the amount charged (excluding any depositsor installation charges)in the column provided. (Enter
    dollars and cents)

                                                             CHECK ONE
                                                                     Extra
                                                       IncludedIn         Monthly    One-Time    Amount 01 Additional
                                   Not AvaIlable       Tier Charge         Charge     Charge          Charge
                                        (1)                 (2)              (3)        (4               (11
    A. One Additional     Outlet
    1. Tier1
    2. Tier11                                      I                 I                          IIS
    3. Tier111
    B. Remote Control
    Convertor
    4. Tier1
    5. Tier11




                Page 72                                                  GAO/RCED-90.199 Follow-up Cable Television Survey
              Appendix VI
              survey Questionnaire




Tier II: PIeasecomplete ColumnsA and B for tbe basic wrvice tier with the next level of service. If this cable system
doesnot have a secondlevel of basic service. tbcn skip tc question6.
EXAMPLE: If your “First Tier” has 20 channelsand your “SecondTier” has an additional 30 channels.then enter
50 for “SecondTier”. If this cable systemcharges$10.95 for the “First Tier” of basic service andchargesan additional
$5.00 for the “SecondTier”. then enter $15.95for the “SecondTier.”

                                                   COLUMN A          COLUMN B
                                                  Number of Basic    Monthly Basic
                          BASIC SERVICE TIER II Channela Oflerad Service Rate Charge
                        1. Decembcr31.1984                         $
                        2. Jkemter31.1985                         1s
                        3. November 30.1986     1                 Is
                        4. Lkember31.1987                          s
                        5. December31.1988                         s
                        6. De.cember31.1989                        s




Tier IIIz Pleasecomplete ColumnsA and B for tbc basic sewice tier with the next level of service. If tbis cable
systemdoesnot have a third level of basic service, then skip to question 6.

                                                   COLUMN A         COLUMN B
                                                 Nutier 01Basic    MonthtyBasic
                          BASIC SERVICE TIER Ill Channels Onand Service Rate Charge
                        1. Decemkr31.1984                       s
                        2. Decembcr31,1985                      s
                        3. November 30.1986                     $
                        4. Lkccmber31.1987                      s
                        5. Decembcr31.1988                      s
                        6. December31.1989                      s




               Page 70                                         GAO/RCEPBO-199 Follow-up Cable Television Survey
             Appendix VI
             Survey Questionnaire




I. On December 31.1989. how many subscribersdid              2. Were any subscribersto this cable systemsubject to
   this cable svstemserve? (Enter numberJ                       different rate structm’esbaaedon facton such as
                                                                geographiclocation or date of connection? Do not
    DEFINITION: Subscribersrefers t” the total                  include short-termpromotionsor discounts.(Check
   number of individual subscribersand subscribers              One)
   biied on a bulk-rate basis (e.g.. if the basic tier
   setvice is $10 and a 2C@unitapamnent building is              I. 0 Yes
   biied $500. the” you would wunt $500/$10=50                   2. 0   No-SKIPTOQ.4
   subscribers).
                               Total number of               3. Of the total number of subscribersindicated in
                               SUbSCi-JkrS                      question 1. how many were subject tc the most
                                                                wmmon rate structure? (Enrer number)
                                                                                             Number of subscribers
                                                                                             belonging tc the mcst
                                                                                             cornm”n rate struchue



 IMPORTANT PLEASE READ: Complete the rest of this questio”nak only for those subscribersyou listed in
QUESTION 3. For example. if you had a total of lO,ooOsubscribersbut only 9.Mx) listed in Question3 then answer
the rest of the questionnaireONLY for the 9,CNXlsubscribers.



1. BASIC SERVICE INFORMATION
 Basic service generally refersto any service tier that includes the retransmissionof over-the-air television signals
(e.g.. signals that can be received without special equipment suchas antennason tall masts). Basic service may also
include a number of cable networks such as CNN. ESPN, etc. By first tier we mea” the lowest level of service while
the secondtier and third tier (etc.) representexpandedbasic service.
 If you only have ONE tier of basic service, answerquestions4 - 7 ONLY for Tier I

4. How many tiers of basic Servicedid this cable systemoffer on the following dates? (Check one box per date)

                                                    Number of Basic Set-&a Tters Offered




              Page 68                                          GAO/RCED9@199 FoIIowvp Cable Television Survey
                                            Appendix V
                                            Changea In Cable System Submribemldp and
                                            other l”formation




TBble V.13: Year of Expiration of Current
Franchise Agreement                         Year                                                                        Percentaae of svstems
                                            1990                                                                                             3.1
                                                                                                                                         ( ? 0.9)
                                                                                                                                           N=6267’
                                                                                                                                             (k216)
                                                                                                                                              .__
                                            1991                                                                                                  3.6
                                                                                                                                             ( f 0.9)
                                                                                                                                           N=6267
                                                                                                                                             (k216)
                                            1992                                                                                                    4.1
                                                                                                                                             (k10)
                                                                                                                                           N=6267
                                                                                                                                             (k216)
                                            1993                                                                                                    3.8
                                                                                                                                             (k1.0)
                                                                                                                                           N=6267
                                                                                                                                             (~216)
                                            1994                                                                                                    4.8
                                                                                                                                              c+1.11
                                                                                                                                           N=6267
                                                                                                                                             (k216)
                                                                                                                                                -
                                            1995                                                                                                 7.1
                                                                                                                                              (k1.5)
                                                                                                                                           N=6267

                                                                      -                                                                      (+216)
                                            After   1995                                                                                        64.6
                                                                                                                                              (k 2.8)
                                                                                                                                           N=6267
                                                                                                                                             (t216)
                                            Other franchise   arrangements
                                                                                                                                              (3,
                                                                                                                                           N=6267
                                                                                                                                             (+216)

                                            Note: The table above contains sampling errors for the values presented, as well as our estimates of the
                                            number of cable systems (N) that would have responded had we surveyed all systems




                                            Page 66                                      GAO/RCRBB@l98        Follow-up Cable Television Survey
                                     Appendix V
                                     Cbangea in Cable System Subscrlbership and
                                     other Information




Table V.ll: Number of Separate
Jurisdictions Covered by Franchise                                                                                       Percentage of
Agreements as of l2/31/99            Number of jurisdictions                                                                  systems
                                     1                                                                                                52.6
                                                                                                                                    (i2.8)
                                     2 to 5                                                                                          29.1
                                                                                                                                    (22.4)
                                     More than 5                                                                                      11.7
                                                                                                                                    (?I 3)
                                     No formal franchise   agreement                                                                   5.3
                                                                                                                                    (k15)
                                     Other                                                                                              1.3
                                                                                                                                    ( k 0.81
                                     Note: The table above contains sampling errors for the values presented Our estimate of the number of
                                     cable systems(N) that would have responded had we surveyed all systems is N = 6514+210




                                      Page 64                                     GAO/RCEBpO-199 Follow-up Cable Television Survey
                                           Appendix V
                                           Changes in Cable System Subscribership and
                                           Other Information




Table V.7: Changes in Cable System
Ownership Between 1985 and 1989            Ownership                                                                 Percentage of systems
                                           Chanqed     one time                                                                             39.9
                                                                                                                                           (k2.9)
                                           Changed     more than once                                                                        13.8


                                           Note. The table above contains sampling errors for the values presented. Our estimate of the number of
                                           cable systems(N) that would have responded had we surveyed all systems is N = 6524k209

Table V.8: Percent Changes in Cable
System Ownership Between 1985 and
                                           Year of ownership change                                                   Percentage of systems
1989
                                           1985                                                                                               7.8
                                                                                                                                           1f 1.5)
                                           1986                                                                                              15.1
                                                                                                                                           (22.0)
                                                                                                                                           ~      ,
                                           1987                                                                                              14.5
                                                                                                                                           (k2.1)
                                           1968                                                                                              17.7
                                                                                                                                           (22.4)
                                           1989                                                                                              12.9
                                                                                                                                           (k2.1)
                                           Note The table above contains sampling errors for the values presented. Our estimate of the number of
                                           cable systems (N) that would have responded had we surveyed all systems IS N = 6524+209


Table V.9: Availability of Discounts for
Low-Income or Elderly Subscribers as of
12/31/89                                   Availability                                                               Percentage of systems
                                           Discounts      offered                                                                        18.0
                                                                                                                                           (k2.1)
                                           Note. The table above contalns sampling errors for the values presented Our estrmate of the number of
                                           cable systems(N) that would have responded had we surveyed all systems IS N = 6315k214.




                                           Page 62                                      GAO/RCED9@199 Follow-up Cable Television Survey
                                        Appendix V
                                        Chuyles in Cable System Subscribership and
                                        other InfonMtlon




Table V.3: Number of Over-the-Air
Channels Available in Cable Community                                                                    Number of channels available to
                                        Date                                                                         average subscriber
                                        12/31/04                                                                                             7.9
                                                                                                                                        (kO.2)
                                                                                                                                       N=2973
                                                                                                                                         (?I931
                                        11/30/86                                                                                            8.4’
                                                                                                                                         lkO.21
                                                                                                                                       Ni3670’
                                                                                                                                        (+216)
                                        12/31/09                                                                                            8.9
                                                                                                                                         (kO.2)
                                                                                                                                       N=6230


                                        Note: The table above contains sampling errors for the values presented, as well as our estimates of the
                                        number of cable systems (N) that would have responded had we surveyed all systems.


Table V.4: Number of Over-the-Air
Channels Available in Cable Community                                                        Percentage of subscribers on:
                                        Number of channels available                 12/31/84            1l/30/86                     12f31189
                                        0                                                  0.8                 0.6                          0.5
                                                                                        (kO.3)               (TO.2)                      (kO.2)
                                        l-3                                                5.8                  4.0                         2.8
                                                                                         (fl.1)                  (20.8)                  (k0.6)
                                        4-6                                                37.2                    31.4                    27.4
                                                                     -                   (+ 2.4)                 (k2.2)                  (k2.0)
                                        7-9                                                31.0                    35.1                    33.8
                                                                                         (k2.1)                  (k2.1)                  (k2.0)
                                        IO-12                                              12.4                    15.8                    19.5
                                                                                         (k1.7)                  (k 1.7)                  (kl.9)
                                        Over 12                                            12.7                    13.0                     16.0
                                                                                         ( f 1.6)                (51.5)                   lk1.5)
                                        Note: The table above contains sampling errors for the values presented. Below are our estimates of the
                                        number of cable systems (N) that would have responded had we surveyed all systems.

                                        12/31/84, N = 2973* 193;
                                        11/30/M, N = 3870+216,
                                        12/31/89, N = 623Ok216

                                        aThese sampling errors may be understated    because no systems in certain sampling strata responded
                                        this way.




                                        Page 60                                       GAO/RCED90-199 Follow-up Cable Television Survey
                                    Append!x IV
                                    Revenue to Cable system      Per Subscriber




Table IV.2: Revenue Qenerated per
Subscriber by Systems That Were                                                      Average monthly revenue       r subscriber In
Regulated/Not Regulated Prior to                                                            systems that in 19 k 8 were:’
Effective Date of Cable Act         Date                                                   Regulated                  Not regulated
                                    12131 f04                                                 $19.98                          $19.70
                                                                                                   ( f .28)                           ( 2.49)
                                                                                                N=l544                               N=562
                                                                                                  ( f 147)                                (k96)
                                    12/31/85                                                       20.99                              20.90
                                                                                                   1k ,251
                                                                                                   >            ,
                                                                                                                                      lk .47)
                                                                                                                                      \            I




                                                                                                 N=1857                              N=638
                                                                                                  (kl63)                             (+106)
                                    1 l/30/86                                                      21.78                              22.11
                                                                                                   (k.23)                             ( + .53)
                                                                                                 N=2252                              N=793
                                                                                                   (k176)                            (k120)
                                    12/31/87                                                           23.40                              23.32
                                                                                                   ( f .23)                           (k.51)
                                                                                                 N=2627                              N=915
                                                                                                   (kl91)                            (5132)
                                    12/31/00                                                           25.04                              25.24
                                                                                                   (k .24)                            (+a)
                                                                                                 N=2866                              N=955
                                                                                                   (k199)                             (2134)
                                                                 ~--___
                                    12/31/89                                                           26.41                              26.74
                                                                                                       (k .25)                            (k.51)
                                                                                                 N=3043                             N=1052
                                                                                                   1 k 203)                           (+I421
                                    Percent Increase
                                      1966-1969                                                         21.3                               20.9
                                                                                                       (k1.7)                             (12.7)

                                     Note: The table above contains sampling errors for the values presented, as well as estimates of the
                                     number of cable systems (N) that would have responded had we surveyed all systems.

                                    aAll these systems were not regulated as of 12/31/89.




                                     Page 68                                      GAO/RCEDS@199 Follow-up Cable Television Survey
                                           Appendix J.U
                                           Premium Cable Services




Table 111.3:Monthly Charge for Packages
of Premium Channels                                                          Average charge per cable system for:
                                           Date                    Two channels          Three channels           Four channels
                                           12/31/84                         $18.33                           $25.88                          $34.28
                                                                             (k.36)                           (2     58)
                                                                           N=1536                            rd=aa4
                                                                             (1135)                            (La3)                           (k59)
                                           11/30/86                           i8.33                           26.03                           34.17
                                                                              (+ 29)                          (k     37)                      (k.42)
                                                                            N=2429         -                N=1542                          N=1033
                                                                             (i169)                           (k107)                           (282)
                                           i2/3i/a9                           17.50                           24.61                            31.95
                                                                              (k.20)                          (i.33)                          (Ai)
                                                                            N =3429                         N=2430                          N=1525
                                                                             (k203)                           (f161)                          (CkllO)
                                           Note, The table above contams sampling errors for the values presented, as well as estimates of the
                                           number of cable systems (N) that would have responded had we surveyed all systems

Table 111.4:Cable Subscribers Purchasing
One or More Premium Channels               Date                                                                        Percentage of subscribers
                                           12/31/84                                                                                             55.6

                                                                                                            ___...                             (512)
                                                                                                                                            N=2549
                                                                                                                                              (+lao)
                                           11/30/86                                                                                              53.7
                                                                                                                                               (509)
                                                                                                                                            N=3497
                                                                                                                                              ( k 209)
                                            12/31/89                                                                                             52.2
                                                                                                                                               (k0.a)
                                                                                                                                             N=6111


                                           Note The table above contains sampling errors for the values presented, es well as estimates of the
                                           number of cable systems(N) that would have responded had we surveyed all systems The estimated
                                           number of subscrlbers whose cable systems reported both total and premium subscrlptlon data IS 19.9
                                           million * 0.6 million in 1964. 26 9 mlllion f 1 .O millton I” 1966, and 38.5 million k 1 1 milllon in 1989




                                            Page 66                                      GAO/RCED-99-199 Follow-up Cable Television Survey
Appendix II

Availability and Ratesfor Cable
Television Options

Table 11.1:Availability of Options With
Most Popular Basic Service on 12/31/69                                                             Percentage of systems providing:
                                                                                             Added         Remote        Set-top             Program
                                          Availability                                       outlets        control    converter                guide
                                          Included m basic charge                               12.9            3.6         50.9                   27.0
                                                                                              (k20)                     ( k 0.9)   (k3.0)        (k2.7)
                                          Addedmonthly             charge                     77.2’                       72.2’      23.6’         18.9
                                          ~       ~~__~                                       (k26)                     (k 2.9)    (k2.a)        (k2.3)
                                          One-hme charge                                         6.3                        6.7       9.26                a
                                                                                               (*I      9)            <i I .a)     (k2.l)b
                                          Not avallable                                              1.5                 17.4        16.1          533
                                                                                               ( f o.a)b               (i2.6)      (k 2.5)       (k3.1)
                                          Note. The table above contarns samplrng errors for the values presented Below are our estimates of the
                                          number of cable systems (N) that would have responded had we surveyed all systems.
                                          Added outlets,            N   = 61382218.
                                          remote controls,          N   = 581Ok223;
                                          set-top converter,        N   = 56722 225;
                                          program gurde.            N   = 5580 ? 226.
                                          aNone of the cable systems respondrng to our survey answered thus way
                                          “These sampling errors may be understated           because no systems rn certarn samplrng strata responded
                                          thrs way

Table 11.2:Optional Services Offered at
Extra Charge With Most Popular Basic                                                            Averaae extra charae per cable svstem
Service on 12/31/69                       Optional service                                   Monthly charge                 One-time charge
                                          Addrtional      outlet                                       $2.99                          $17.69
                                                                                                      (k.10)                          (kl 68)
                                                                                                             N=4711                             N=451
                                                                                                              ( f 229)                           (k113)
                                          Remote control                                                         3.38                             65.58
                                                                                                               t +- ,061                        If 5.60)
                                                                                                             N=4164                              N=391
                                                                                   ~~~-_____--                (*220)                             (k104)
                                          Set-top      converter                                                 2.03                             28.54
                                                                                   ~    -.---~(+-.ogL                                           (k2.74)
                                                                                                             N=1339                              N=487
                                                                                                              (k169)          _                  (k117)
                                          Program guide                                                         1.36                                      b
                                                                                                               (2 07)
                                                                                                             N=1052
                                                                                                              (?I331
                                           Note The table above contams samplrng errors for the values presented, as well as estrmates of the
                                           number of cable systems(N) that would have responded had we surveyed all systems
                                           aThrs samplrng error may be understated          because no systems WIcertain samplrng strata responded thus
                                           way
                                           ‘None of the cable systems respondrng to our survey answered thus way




                                           Page 64                                               GAO/RCED-SO-199 Follow-up Cable Television Survey
                                          Appendix I
                                          Changes in Basic Cable Ratrs and Services




Table 1.6: Rates for Most Popular Basic
Service Provided by Systems That Were                                                                    Average monthly charge per subscriber in
Regulated/Not Regulated Prior to                                                                                systems that in 1966 were?
Effective Date of Cable Act               Date                                                               Regulated                Not regulated
                                          12/31/04                                                                $9.62                      $10.56
                                                                                                                  (k 10)                      (k 24)
                                                                                                                N=2045                             N=768
                                                                                                                 (k163)                             (k116)
                                          12131165                                                                10.36                              11.44
                                                                                                                  (k 11)                            (+ 23)
                                                                                                                N=2258                             N=856


                                          11/30/66                                                                11.55                              12.31
                                                                                                                  (2     11)                     -(‘:‘2)
                                                                                                                N=2694                             N=988
                                                                                                                 (2190)                             (2137)
                                          12/31/87                                                                13.46                              13.50
                                                                                                                  (2     11)                         (2    17)
                                                                                                                N=2998                            N=1129
                                                                                                                 (i200)                             (~148)
                                          12/31/88                                                                14.93                              14.94
                                                                                                                  (+ 11)                             (2 30)
                                                                                                                N=3169                            N=1138
                                                                                                                 (i205)                             (k146)
                                          12/31/89                                                                16.42                              16.24
                                                                                                                  (k      10)                        (? 29)
                                                                                                                N=3358                            N=1202
                                                                                                                 (i208)                             (k152)
                                          Percent increase 1966-69                                                     42.1                               31.9
                                                                                                                  (k211                              1+351

                                          Note The table above contam            samplmg errors for the values presented, as well as est!mates   of the
                                          number       of cable systems   (N) that would have responded    had we surveyed all systems

                                          “All these     systems   were not regulated   as of 12/31/89




                                          Page 52                                              GAO/RCEDW-199 Follow-up Cable Television Survey
                                      Appendix I
                                      Changes in Basic Cable Rates and Services




Table 1.5: Dollar Changes in Basic
Service Rates Since Deregulation                                      Percentage of subscribers whose rates changed between
                                                                                      IllSO/      and 12131/69 for:
                                      Change in rate                     Most popular service               Lowest priced service
                                      ~$2.00                                                12.0                              17.6
                                                                                          (+I 9)                            (k2.1)
                                      >$2.00-~$4.00                                         30.0                              26.5
                                                                                          (k2.0)                            (k2.1)
                                      >$4.00-~$6.00                                         36.6                              33.9
                                                                                          (k 2.2)                           (k2.4)
                                      >$6.00-zz§8 00                                        16.6                              17.6
                                                                                          (T17)                             (k 2.0)
                                      >$8.00-~$10.00                                         4.0                               3.9
                                                                                               (0 9)                                 (k1.1)
                                                                                               0.4                                      0.1
                                                                                            (+a 1)                                   (kO.O)a
                                      >$12.00                         -                         0                                       0.3
                                                                                              (LO)                                   (kO.1)

                                      Note The table above contams samplmg errors for the values presented. Below are our estimates of the
                                      number of cable systems (N) that would have responded had we surveyed all systems.

                                      Most popular serwe, N = 3968 t218;
                                      lowest priced service, N = 3918?218

                                      aThese sampllng errors may be understated   because no systems in certain sampling strata responded
                                      this way


Table 1.6: Number of Tiers of Basic
Service Offered by Cable Systems                                                   Percentaqe of systems offering:
                                      Date                                One tier           Two tiers             Three tiers +
                                      1 Z/3 l/84                              75.1                21.9                          3.1
                                                    _____           -~-._   (k2.3)              (k2.1)                     (21.1)
                                      ii /30/86                               74.3                22.5                          3.2
                                                                            (k2.3)              (k2.2)                     (kO.9)
                                      12/31/89                                63.4                13.5                          3.1
                                                                            ( + 1.9)            (kl.7)                     ( rt 0.9)
                                      Note The table above contans sampling errors for the values presented. Below are our estimates of the
                                      number of cable systems(N) that would have responded had we surveyed all systems

                                      12/31/84, N = 4585+224
                                      11/30/S N = 5258&227,
                                      12/31/89. N = 6527k209




                                      Page 50                                     GA0/RCED.90.199 Follow-up Cable Television Survey
                                        Appendix I
                                        Changes in Rasic cable Rates and Services




Table 1.3: Average Monthly Charge per
Basic Channel                                                                   Average subscriber charge per channel for:
                                        Date                                Most popular service           Lowest priced service
                                        12131
                                          , ,I04                                            5.43                            8.46
                                                                                               (k.01)                                    (k.01)
                                                                                             N=2971                                    N=2968
                                                                                               (?195)                                   (*G)
                                        12131 /a5                                                   .a                                         A7
                                                                                               Ck.011                                    (k.01)
                                                                                             NL3336’                                   NL3335’
                                                                                               (~206)                                    ( 2 206)
                                        11/30/86                                                    .44                                        .47
                                                                                               (k.01)                                    (k.011
                                                                                             N=39ao’                                   N=3995
                                                                                               (kzla)                                    (+2ia)
                                        12/31/87                                                    .45                                        .48
                                                                                               (k.01)                                    (k.01)
                                                                                             N=4696                                    N=4701
                                                                                               (k227)                                    ( ?I 227)
                                        12131 /aa                                                   .47                                        .49
                                                                                               (k.01)                                    (k    01)
                                                                                             N=5380                                    N=5380
                                                                                               ( + 227)                                  ( ? 227)
                                        12/31/89                                                   .49                                       .51
                                                                                                (*.ol)                                    (k.01)
                                                                                             N=62i33                                   N=6284
                                                                                               (k215)                                    (k2151
                                        Note: The table above contains sampling errors for the values presented, as well as estimates of the
                                        number of cable systems(N) that would have responded had we surveyed all systems.




                                        Page 48                                      GAO/RCRD-SO-199 Folkw-up Cable Television Survey
Appendix I

Changesin Basic CableRatesand Services


Table 1.1:Average Monthly Basic Service
Charge per Subscriber                                                          Average basic service charge per subscriber for:
                                          Date                                Most popular service           Lowest priced service
                                          12/31/84                                               $9.04                                     $9.50
                                                                                                 (k.10)                                    (k.09)
                                                                                               N=3033                                   N=2968
                                                                                                (+I961                                   (+I951
                                          12/31/85                                              ‘10.60                                    ‘10.19’
                                                                                                 (k.10)                                    (2.10)
                                                                                               N=3385                                    N=3335
                                                                                                (+207)                                    (k206)
                                          11/30/86                                               11.71                                     11.14
                                                                                                 (2.10)                                    (k.11)
                                                                                               N=4002                                    N=3995
                                                                                                (1-218)                                   (k2la)
                                          12/31/87                                                13.47                                    13.01
                                                                                                 (k.10)                                    (k.10)
                                                                                               N=4706                                    N=4701
                                                                                                (~227)                                    (k227)
                                          12/31/aa                                                14.91                                     14.50
                                                                                                 (k.11)                                    (k.11)
                                                                                               N=5405                                    N=5380
                                                                                                ( + 227)                                   ( t 227)
                                          12/31/89                                                16.33                                     15.95
                                                                                                 (k.10)                                   (k.10)
                                                                                               N=6289                                    N=6284
                                                                                                (k215)                                     (k215)
                                          Percent increase
                                            1988-89                                                     9.5                                  10.0
                                                                                                  (k1.4)
                                            1986-89                                                39.4
                                                                                                  (21     Y)                               (k2.1)

                                          Note: The table above contains sampling errors for the values presented, as well as estimates of the
                                          number of cable systems (N) that would have responded had we surveyed all systems.




                                          Page 46                                      GAO/RCEB90199           Follow-up Cable Television Survey
                        Chapter 4
                        Regulation of Cable Television Rate% What
                        Are the Options?




                        If localities are charged with the major responsibility for regulating local
                        cable rates, it may be desirable for FCC to take a greater role in estab-
                        lishing a regulatory framework. The Cable Act authorizes FCCto estab-
                        lish a framework for local rate regulation, but current FCC rules contain
                        only procedural requirements. FCC is considering requiring cable systems
                        to adopt accounting standards that would enable communities to better
                        identify costs and rates of return. FCCis also considering re-instituting
                        the annual financial reporting system in place prior to 1983. Under this
                        system, cable operators were required to submit detailed financial infor-
                        mation to XC.


                        Regardless of whether rate regulation is returned to the local communi-
Redefinition of Cable   ties or granted to FCC, a decision is needed on what portion of cable ser-
Service Subject to      vice to regulate. In legislative proposals and comments submitted to FCC,
Regulation              a wide range of views and opinions has emerged. At one end of the spec-
                        trum, several proposals would regulate only basic cable “lifeline” ser-
                        vice, which generally would include the national network channels, one
                        public broadcasting channel, and any local independent channels. At the
                        other extreme, the National League of Cities and others proposed to
                        grant franchising authorities the right to regulate all cable service, both
                        basic and premium, even if it was never before regulated.”

                        The existing standard, like that prior to the enactment of the Cable Act,
                        is that only basic service is subject to regulation. (Currently, any service
                        that includes over-the-air channels is regarded as a basic service.) Thus,
                        cable systems might be able to shift some of their channels away from
                        regulated basic service by setting up multiple service tiers. This would
                        allow them to continue to confine rate regulation to only a portion of
                        their overall subscriber offerings. A regulatory scheme that controls
                        only a fraction of a cable subscriber’s monthly bill is not likely to have
                        much regulatory impact. If federal law continues to prohibit regulation
                        of more than basic service, regulatory authorities must be able to deter-
                        mine a minimum standard for basic service. FCC would presumably be
                        called upon to establish a federal regulatory framework for these deter-
                        minations by state and local authorities.




                        “Comments of the City of New York, National League of Cities, United States Conference of Mayors,
                        City of Huntsville, Alabama, City of Portland, Oregon, and the Northwest Municipal Cable Council to
                        FCC Notice of Inquiry (MM Docket 89400), pp. 22-23.



                        Page 44                                    GAO/RCED-99-199 Follow-up Cable Television Survey
                            Chapter 4
                            Regulation of Cable Television Rates: What
                            Are the Options?




                            cable community of a competing multichannel video provider, such as
                            MMDS, DBS, or a second cable system. Since industry sources estimate that
                            very few cable systems face competition from these alternative sources,
                            the majority of cable operators would be subject to regulation under this
                            standard at least for the next few years, until alternatives become
                            viable sources of competition.

                            Another possible standard for effective competition, suggested by a few
                            commenters and legislative proposals, is the “subscription threshold
                            standard.” Under this standard, if the percentage of subscribers in a
                            community exceeds a certain threshold, then it is presumed that there is
                            no effective competition; a high penetration rate beyond that threshold
                            is interpreted to mean that consumers have no other choice than to sub-
                            scribe. However, as FCCpointed out in its Notice of Proposed
                            Rulemaking, the use of a threshold standard” also can have the perverse
                            effect of penalizing cable systems for offering a popular service that is
                            attracting new customers, and possibly may encourage systems to raise
                            rates to drive away customers and thereby avoid regulation.


Greater FCC Role in Cable   Instead of returning the power to oversee rates to thousands of local
Regulation                  franchise authorities, some proposals would assign it to FCC. The goal of
                            these proposals is to remove rate setting from the political decision-
                            making process of local communities, where the cable industry claims
                            delays frequently occurred in the past.

                            There are two principal options for regulation at the federal level: tradi-
                            tional rate-of-return regulation and price-cap regulation. Rate-of-return
                            regulation would require FCCto estimate both the cost and demand con-
                            ditions facing cable systems and set a rate that just recovers cable oper-
                            ators’ costs (including what their capital could have earned if invested
                            elsewhere). An obvious disadvantage of this approach is that it would
                            impose a heavy administrative burden on FCC by requiring it to deal, in a
                            timely manner, with thousands of rate increase requests each year.

                            Under price-cap regulation, cable systems could be allowed to annually
                            raise their basic rates without case-by-case approval from FCC or local
                            regulatory authorities. FCCcould set the amount or the percentage of the
                            rate adjustments, possibly in line with increases in the cost of living.
                            This approach avoids the need to individually adjudicate rate increase
                            requests.

                            ~‘Sweral proposals we reviewed recommended a subscription threshold of 30 percent.



                            Page 42                                   GAO/RCELNJO-199 Follow-up Cable Television Survey
                       chapter
                            4
                       Regulation of Cable Television Rates: What
                       Am the Options?




                       Many cable policy proposals seek to achieve a more competitive environ-
Focus on Market        ment by eliminating legal barriers to new entrants in the video program-
Competition            ming market. Potential rivals of existing cable operators include second
                       cable systems (overbuilds), MMDS, DBS, and provision of cable services by
                       telephone companies. However, eliminating legal entry restrictions alone
                       will not, in the near future, ensure the entry of second cable systems or
                       new technologies.

                       The real barrier to entry by second cable systems appears to be the
                       inherent characteristics of existing cable television technology: the cost
                       of providing service in a given area is lowest when provided by a single
                       cable system. This is because the presence of more than one operator in
                       a given cable market necessitates duplicate investment in receiving
                       equipment and wiring. The few instances of successful head-to-head
                       competition between cable systems, even in communities where
                       franchising authorities have encouraged the entry of a second cable
                       system, illustrate this point.

                       Thus, competitive solutions to the cable industry’s market power tend to
                       stress the emergence of new, alternative technologies. But even if legal
                       barriers are removed, it is not certain when these new technologies will
                       enter the market or how successful they will be. Therefore, even if
                       policymakers wish to rely primarily on market competition and the
                       removal of legal restrictions to entry, some form of interim rate regula-
                       tion may be desirable. The policy question revolves around what types
                       of interim regulation, if any, are needed to control rates of cable systems
                       not subject to effective competition.



Regulatory Options

Redefine “Effective”   Several proposals seek to make more cable systems subject to rate regu-
                       lation by applying a more stringent standard of “effective” competition.
Competition            The Cable Act charged FCCwith establishing criteria for determining
                       whether cable systems faced effective competition and thus were no
                       longer to be subject to regulation of basic rates. In 1985, FCC ruled that
                       the existence of at least three over-the-air television channels in a cable
                       community would ensure a competitive environment. The result of FCC’S
                       decision was that only 3.5 percent of cable systems remained rate-regu-
                       lated as of December 31, 1989, according to our survey. By comparison,
                       our survey also showed that on November 30,1986, just prior to the


                        Page 40                                 GAO/RCED-99.199 Follow-up Cable Television Survey
chapter 3
Analysis of Legislative Pmposals to Amend
the Cable Act




“the home entertainment video market is currently a highly competitive one. Cus-
tomers have several suppliers to choose from (that is, over-the-air, home video,
cable and satellite) and the average cable network today of 36 channels already
offers a viewer over 1,000 programming choices per day. Telco [telephone company
ownership], however, does not intend to add to that competitive environment, but
eliminate it....More importantly, fiber [optics] to the home does nothing to improve
our country’s ability to have information services...and is wholly unnecessary since
this added ratepayer cost burden brings no new value to the consumer.“13




‘3Statementof ThomasGill&t, Vice Presidentof BusinessDevelopmentand TechnologyTransfer,
CableTelevision Laboratories,Incorporated,beforethe Subcommitteeon Telecommunicationsand
Finance,HouseCommitteeon Energy and Commerce,Apr. 19,1990,pp. 4,6,7.



Page 38                                 GAO/RCEDWl93     Fbllmvap We     Tel-       Survey
                           Chapter 3
                           Analysis of Le&lative    Proposals to Amend
                           the Cable Act




Arguments Opposed to       Some cable representatives oppose limiting the number of subscribers a
                           company may have. They believe a cap on subscribers is unsupported
Limiting Horizontal        by any known economic theory or their experience. The Department of
Concentration              Justice commented that the cable industry is currently not highly con-
                           centrated. No cable company has a large enough market share to influ-
                           ence the market, as defined by the Herfindahl-Hirschman Index and the
                           Top Four Firm Ratio.”


                           The Cable Act prohibits telephone companies from providing video pro-
Ownership of Cable         gramming to subscribers in their telephone service area, except in speci-
Systems by Telephone       f’ie d circumstances. This is known as the ban on telephone cross-
Companies                  ownership of cable systems. The objective of this provision is to deter
                           anticompetitive and discriminatory practices that might occur when the
                           telephone company already has a telephone service monopoly in the
                           local community. One exception is that telephone companies can offer
                           cable services in rural areas of less than 2,500 people because it is more
                           practical for telephone companies to operate cable systems than it
                           would be for a separate cable system. To offer cable service within its
                           service area, a telephone company must first apply for a waiver from
                           FCC.~~’In addition, the Cable Act allows telephone companies to con-
                           struct, maintain, and lease transmission facilities for franchised cable
                           operators that provide video programming to the public.

                           In addition, the Modified Final Judgment, in U.S. v. AT&T, prohibits the
                           regional Bell operating companies from offering information servicesi

                            Provisions vary among the bills introduced that would alleviate barriers
                            to a telephone company’s entry into the cable industry. They include

                       l    allowing telephone companies the right to operate a cable system but
                            provide only cable programming that is owned and controlled by other
                            companies, and

                            “Both measure the potential for market power abuse by determiniig the market share concentration.
                            The Herfindahl-Hirschman Index was applied to the top 20 cable MSOs and had a resulting value of
                            862.4. This falls below the threshold of concentration at 1,000. The Top Four Firms ratio had a com-
                            bined market share of 44 percent, which is also lower than the 50.percent threshold that defines a
                            concentrated market.

                            “‘As of February 1990, a tot&l of 418 telephone companies had applied to FCC for a waiver to pro
                            vide cable television service. Of these, 387 applications were granted, 5 were denied, and 17 were
                            withdrawn. The remaining applications arc still pending.

                            “U.S. v. AT&T, 552 Fed. Suyp 131 (D.D.C., 1982) aff’d sub nom Maryland v. U.S., 460 US 1001
                            (1983).



                            Page 36                                     GAO/RCED90-199 Follow-up Cable Television Survey
                        Chapter 3
                        Analysis of Legislative Proposals ta Amend
                        the Cable Act




                        prevent other distributors from purchasing programming and other pro-
                        grammers from gaining access to a cable system.

                        All of the provisions described above seek to ensure that the owners of
                        cable programming are providing their programs to all video distribu-
                        tors, both large and small cable systems, as well as to alternative video
                        distributors. This would be done by providing equal access to all pro-
                        gramming, prohibiting exclusive contracts, or prohibiting the discrimi-
                        nation of video programming among cable systems.


Arguments in Favor of   Almost all interest groups-including      some cable companies, broad-
Legislation to Limit    casters, alternative video distributors, telephone companies, city repre-
                        sentatives, and consumer groups-believe the Congress should adopt
Vertical Integration    legislation limiting the vertical integration of cable companies because
                        all groups should have fair access to video programming. Although rea-
                        sons vary as to why vertical integration should be controlled, a common
                        argument can be summarized as follows: “If the Congress does not take
                        action, in a few years a small handful of MSOs and their affiliated pro-
                        grammers may totally dominate the programming choices of American
                        consumers. The price consumers may pay for such dominance is a signif-
                        icant increase in cable rates and a corresponding decrease in the diver-
                        sity of programming on cable systems.“7

                        Alternative video distributors state that, at times, satellite dish and
                        wireless cable services (which have a multichannel capacity somewhat
                        similar to cable) have been blocked out of local video markets because
                        video programmers affiliated with MSOS restrict the availability of their
                        programming. When they can purchase programming, it is at a discrimi-
                        natory price. Limiting vertical integration would help alternative video
                        distributors compete with the cable industry because the legislation
                        would provide these competitors with access to programming at nondis-
                        criminatory prices, terms, and conditions.


Arguments Opposed to    Both the Department of Justice and the National Telecommunications
Limits on Vertical      and Information Administration commented that it has not been estab-
                        lished whether vertical integration has resulted in the unavailability of
Integration             cable programming. Cable programming appears to be readily available
                        to both cable distribut.ors and home satellite dish owners. As a result,

                        ‘Statement of Charles Devanry. Mayor, Augusta, Georgia, before the Subcommittee on Telecommuni-
                        catmns and Finance, House Commiwe on Energy and Commerce, Apr. 19, 1990, p. 23.



                        Page 34                                  GAO/RCED90199       FoUow-up Cable Television Survey
                        Chapter 3
                        analysis of legislative   Proposals to Amend
                        the Cable Act




                        local channels would be barred unless the cable system carried a comple-
                        ment of local stations and paid an annual re-transmission fee to FCC.
                        This is known as the “if carry, must pay” proposal.

                        The first two provisions would essentially re-institute the must carry
                        rules as defined by FCC in 1965. If enacted, these provisions would allow
                        franchise authorities to require cable operators to carry local commu-
                        nity programming of interest to subscribers on the lowest priced tier.
                        The last three provisions-prohibiting    channel repositioning, regulating
                        re-tiering, and enacting “if carry, must pay”-would     be new must carry
                        rules.


Arguments in Favor of   City representatives generally favor many of the must carry provisions.
                        The basis for this support is their belief that local television stations are
Must Carry Provisions   important sources of local news and information to communities. The
                        proposals would protect the cable subscribers’ rights to view local tele-
                        vision channels.

                        Broadcasters favor must carry proposals. They also favor the “if carry,
                        must pay” proposal because cable systems have benefited from the
                        availability of “free” local television stations, which are the channels
                        most watched by cable subscribers, without having to pay local stations
                        for their coverage. The “if carry, must pay” plan seeks to redress what
                        broadcasters see as a competitive imbalance between the cable and
                        broadcast television industries. That imbalance-the cable system’s
                        right to re-transmit a broadcaster’s signal without any compensation-
                        can be redressed by a cable system which recognizes a broadcaster’s
                        property interest in its signal, and provides compensation for the value
                        the signal brings to the cable system.


Arguments Opposed to     Cable representatives are willing to support some type of must carry
Must Carry Provisions    rules but believe current proposals go far beyond any compromise solu-
                         tion they could support. For example, NCTA opposes expanding the
                         number of channels cable systems must set aside for carrying local tele-
                         vision stations, abandoning the “audience share test” as a means of
                         determining whether a local station qualifies for cable carriage, and
                         using the condition of compulsory licensing as a means to comply with
                         the requirements to carry television stations on certain cable channels.

                         Some cable systems also oppose provisions prohibiting channel reposi-
                         tioning. They believe there is no evidence that the cable industry is


                         Page 32                                   GAO/RCED-9@199 Follow-up Cable Television Survey
                            Chapter 3
                            Analysis of Legislative Proposals to Amend
                            the Cable Act




                            Complaints concerning the franchise renewal process have resulted in
                            legislative proposals to amend the Cable Act to loosen the restrictions on
                            state and local governments’ authority over the renewal process. For
                            example, several of these proposals would authorize state and local gov-
                            ernments to solicit competitive bids when considering franchise renewal
                            and prohibit courts from overturning a state or local government’s deci-
                            sion to deny renewal as long as the decision is not arbitrary or capri-
                            cious. In this regard, they would ensure that cable operators could not
                            avoid the consequences of past behavior.


Arguments in Favor of       City representatives argue that the legislative proposals contain reason-
Changing Renewal            able provisions for protecting state and local governments’ “legitimate
                            rights.” They believe that state and local governments should have
Procedures                  broad authority in the renewal process to consider other public interest
                            factors and competitive proposals from cable operators when making
                            their renewal decisions without fear of court suits. Also, state and local
                            governments should be allowed to make cable operators accountable for
                            actions that violate the franchise agreement-that    is, not allowing them
                            to avoid the consequences of past shortcomings simply by correcting
                            their behavior in the future. However they believe that the uniform,
                            shortened franchise period (10 years) will afford a certain amount of
                            protection to cable operators to make a reasonable return on their
                            investments.


Arguments Opposed to        Cable representatives believe that these legislative proposals should not
Changing Renewal            be enacted because of the following negative impacts:
Provisions              l   Cable operators would be stripped of their “due process” protection
                            during franchise renewal, as it is currently guaranteed by the Cable Act.
                            Furthermore, the added flexibility that state and local governments
                            would have in establishing their own renewal standards could result in a
                            reoccurrence of the “unbridled political shenanigans” that occurred
                            before the Cable Act.
                        l   Cable operators would lose the incentive to reinvest revenues in their
                            systems because of greater uncertainty over franchise renewal and
                            would be forced to maximize their return on investment during the term
                            of the existing franchise.

                            While cable representatives believe that the legislation goes too far, city
                            representatives also acknowledge that some of the pending bills have a
                            number of shortcomings, including provisions which continue to require


                            Page 30                                  GAO/RCRD-90-199 Follow-up Cable Television Survey
                            Chapter 3
                            Analysis of Legislative Proposals to Amend
                            the Cable Act




                        l regulate charges for installation and rental fees for equipment necessary
                          to receive basic cable service,
                        . require cable systems to obtain approval for any rate increase higher
                          than five percent or higher than the percentage increase in the Con-
                          sumer Price Index for the preceding twelve months, or
                        9 regulate cable systems as a common carrier or utility.

                            Many of these proposals would allow state and local authorities to regu-
                            late as they did prior to the Cable Act. These include, for example, regu-
                            lation of only a lifeline or basic service tier, or regulation of cable
                            systems as a common carrier or utility. In comparison, regulating all
                            cable services or having regulation at the federal level, instead of at the
                            state and local franchise level, would be markedly different from the
                            pre-Cable Act environment.


Arguments in Favor of       Many groups have indicated that they favor some type of rate regula-
Rate Regulation             tion as a means of controlling soaring cable rates. They believe that
                            because true competition does not exist, the government needs to inter-
                            vene. For example, city representatives favor establishing a new defini-
                            tion of effective competition that would prohibit basic rate regulation
                            only in areas where there is competition from another cable system or a
                            multichannel video programming distributor. In all areas not meeting
                            the proposed definition of effective competition, state and local authori-
                            ties could impose rate regulation.

                            City representatives have also responded that they favor legislation
                            that would permit localities to regulate rates not just for basic service
                            but also for all cable services offered. They argue that eliminating the
                            regulatory distinction between basic service and other cable offerings
                            would prevent cable systems from (1) avoiding regulation by creating a
                            new limited basic service tier subscribed to by only a few consumers and
                            (2) charging high fees for equipment rental and installation, which can
                            make cable unaffordable to potential subscribers.


Arguments Opposed to        Cable representatives, as well as telephone companies, oppose rate regu-
Rate Regulation             lation. For example, NCTA believed that a return to local government reg-
                            ulation of cable rates would be an overreaction to what was a
                            transitional problem. Re-regulation of cable rates by city councils would
                            be a mistake because a return of regulatory authority to more than




                            Page 28                                  GAO/RCED-S&199 Follow-up Cable Television Survey
Analysis of Legislative Proposalsto Amend the
CableAct

                      Numerous bills have been introduced in the current session of the Con-
                      gress dealing with the cable industry, which we believe is il~l indication
                      of public concern with existing federal cable television policy. Com-
                      plaints to the Congress, FCC, and FTChave been lodged by consumers and
                      local governments about rate increases and poor cable television service.
                      In addition, state and local governments have expressed dissatisfaction
                      because they believe the Cable Act has weakened their ability to ade-
                      quately oversee local cable operations to address their citizens’ griev-
                      ances. These mounting concerns and complaints have resulted in an
                      examination of the need for changes in cable policy.

                      This chapter addresses the major legislative proposals to amend the
                      Cable Act. A number of issues are addressed in the bills. We highlighted
                      what we believe are the major issues, and the major arguments in favor
                      of and opposed to these proposals:

                      regulating cable rates and associated charges,
                      changing the cable franchise process,
                      requiring cable systems to carry all local television channels (known as
                      “must carry”),
                      restricting vertical integration in the cable industry,
                      restricting horizontal concentration in the cable industry, and
                      allowing telephone companies into the cable industry.

                      Our discussion is drawn from congressional testimony, public comments
                      in response to FCC’Stwo cable proceedings,’ and legislative analyses by
                      the National League of Cities and NCTA. Appendix VII contains a list of
                      the respondents we drew upon to formulate these arguments.


                      The Cable Act allows state and local governments to regulate basic cable
Regulation of Cable   rates only in those areas not subject to effective competition as defined
Rates                 by FCC. As discussed in chapter 1, FCC defined effective competition as
                      the existence of at least three over-the-air television signals significantly
                      viewed by the cable community. This definition had the effect of deregu-
                      lating rates of approximately 96 percent of all cable systems, according
                      to our survey results. Proposals would either directly subject all cable
                      systems to some type of rate regulation or re-define effective competi-
                      tion in such a way that more cable systems would become subject to
                      regulation.


                      ‘Notice of Inquiry, MM DocketNo. 89-600,and Noticeof ProposedRulemaking,MM DocketNo.90-4.



                      Page 26                               GAO/BCED-90199 Follow-up Cable Television Survey
                   Chapter 2
                   Results of Follow-Up National Survey of
                   Cable Television Rates and !&vices




                   showed that as of December 31,1989,13 percent of systems offered
                   added outlets as part of their basic service. Conversely, we found a
                   slightly smaller percentage of systems offering set-top converters as
                   part of their most popular basic service, from 54 percent in our first
                   survey to 51 percent in our follow-up survey. The percentage of systems
                   offering remote control units and program guides as part of their basic
                   service also showed little change.


                   In contrast to basic service rate increases, rates for premium services
Premium Services   have decreased slightly since deregulation, both individually and for
                   combinations of premium channels.* Average rates charged by cable sys-
                   tems for three popular premium channels decreased by $.13 to $.21 per
                   month for each channel from November 30,1986, to December 31,1989.
                   Average monthly rates as of December 31,1989, showed varied
                   changes, from a decrease of $.07 to an increase of $.07 per channel com-
                   pared with our October 3 1, 1988, results, reported in our previous
                   survey.

                   Likewise, average rates per month for combinations of two, three, and
                   four premium channels also decreased, by $.83, $1.42, and $2.22,
                   respectively, from November 30,1986 to December 31,1989. Average
                   rates per month as of December 31, 1989, for the combinations of two,
                   three, and four premium channels also showed slight decreases of $.32,
                   $.55, and $.66, compared with the results reported in our 1988 survey.

                   The number of subscribers purchasing premium channels increased by
                   16 percent from November 1986 to December 1989, but the proportion
                   of total cable subscribers purchasing one or more premium channels
                   decreased from about 56 percent to 52 percent.


                   Revenue per subscriber includes the revenue received by cable systems
Revenue per        from all subscriber services, such as basic and premium services, instal-
Subscriber         lation, pay-per-view, and options. Average revenue to cable operators
                   per subscriber increased from $21.78 to $26.36 between November 30,
                   1986, and December 31, 1989, an increase of 21 percent. During 1989,
                   revenue per subscriber increased from $25.00 to $26.36, an increase of




                   8Rates for premium services were never subject to state or local regulation prior to the Cable Act.



                   Page 24                                      GAO/RCJXD90199 Follow-up Cable Television Survey
                                           Chapter 2
                                           Results of Follow-Up National Survey of
                                           Cable Television Rates and Services




                                           1986, prior to the date the Cable Act took effect.” For those systems
                                           reporting data for both 1986 and 1989, a comparison of rates charged
                                           for the lowest priced basic service by those systems that were regulated
                                           versus those systems that were not regulated in 1986 showed a signifi-
                                           cant difference. As table 2.5 shows, the systems that were regulated in
                                           1986 (but not regulated in 1989) showed rate increases of 47 percent
                                           between 1986 and 1989, from an average of $10.92 to $16.06 per sub-
                                           scriber for the lowest priced service. Systems that were not regulated in
                                            1986 (and not regulated in 1989) showed rate increases of 32 percent,
                                           from an average of $11.99 to $15.77 per subscriber. This large per-
                                           centage difference may be explained by the fact that the average basic
                                           rate for systems not regulated on November 30, 1986, was $1.07 higher
                                           than the average rate for regulated systems.

                                           A further comparison of these rates shows that basic rates for regulated
                                           systems lagged behind those not regulated, by over $1.00 per month, as
                                           far back as 1984. However, during 1987 and 1988, in the aftermath of
                                           deregulation, basic rates for systems formerly regulated quickly started
                                           to catch up, and they now are comparable to the rates of systems previ-
                                           ously not regulated.

Table 2.5: Rates for Lowest Priced Basic
Service Provided by Systems That Were                                                      Average monthly charge er subscriber in
Regulated/Not Regulated Prior to                                                                  systems that in 1166 were:
Effective Date of Cable Act                Date                                             Regulated                   Not regulated
                                            12/31/W                                                $9.26                             $10.33
                                            11/30/86                                               10.92                               11.99
                                            12/31/87                                               12.95                               13.21
                                            12/31/0FJ                                              14.49                               14.63
                                            12/31/89                                               16.06                               15.77




Impact of Changes in                        In recent years, a number of cable systems have changed ownership.
Cable System Ownership                      Critics charge that “trafficking” has resulted in increased cable system
                                            costs that must be recouped from subscribers through higher cable
                                            rates.

                                            Our survey results confirmed that many cable systems have changed
                                            ownership. Since 1985,53 percent of cable systems have changed
                                            owners at least once, with 13 percent having changed owners more than

                                            “Our survey also showed that only 3.6 percent remained regulated on December 31,1989, a number
                                            too small for meaningful statistical analysis.



                                            Page 22                                   GAO/ECEDgOl9O        Follow-up Cable Television Survey
                                      Chapter 2
                                      Results of Follow-Up National Survey of
                                      Cable Television Rates and Services




                                      increased by 22 percent during the same period, and cable system pene-
                                      tration (total number of subscribers divided by the number of homes
                                      having access to cable) increased from 56 to 58 percent.


                                      As shown in table 2.1, during 1989 an average cable subscriber’s
Basic
-.    Rates and                       monthly rate for the lowest priced basic service increased from $14.50
Services                              to $15.95, an increase of 10 percent. Rates for the most popular basic
                                      service also showed a lo-percent increase, from $14.91 to $16.33. Over
                                      the 37 months since deregulation covered by our survey-November          30,
                                       1986, through December 31,1989-monthly        rates for the lowest priced
                                      basic service increased by 43 percent, from an average of $11.14 to
                                      $15.95 per subscriber. By comparison, for the same period, the monthly
                                      rates for the most popular basic cable service increased by 39 percent,
                                      from an average of $11.7 1 to $16.33 per subscriber.

Table 2.1: Average Monthly Basic
Service Charge per Subscriber                                             Average basic service charge per subscriber for:
                                      Date                                  Most popular service       Lowest priced service
                                      11/30/86                                                $1171                           $11.14
                                      i$31;88                                                  1491                            14.50
                                      12/31/89                                                 1633                            15.95



                                      Examining basic rate increases in more detail, table 2.2 shows the range
                                      of percentage increases that subscribers have incurred. In summary,
                                      since deregulation roughly half of all subscribers incurred rate increases
                                      of more than 40 percent for both the lowest priced and the most popular
                                      service.

Table 2.2: Changes in Basic Service
Rates Since Deregulation                                                   Percentage of subscribers whose rates changed
                                                                                 between 11/30/66 and l2/31/69 for:
                                      Change in rate                         Most popular service      Lowest priced service
                                      Nochangeordecrease                                              3                            IO
                                      Increase(percent)
                                                                                                                     ___--~
                                      --PO-S20                                                    13                               IO
                                                                                .~____~..                              ___-
                                         >20-540                                                  36                              30
                                         >40-~60                                                  28                              29
                                         >60                                                      19                               21



                                      As illustrated in table 2.3, cable subscribers received additional basic
                                      channels to accompany the rate increases. Basic channels available to
                                      subscribers to the lowest priced basic service increased, on average,


                                      Page 20                                    GAO/RCED-90199 Follow-up Cable Television Survey
Chapter 1
introduction




We appreciate the cooperation of those cable operators who took the
time to answer our questionnaire. Because responses to the survey were
voluntary, the cooperation of cable operators, associated corporate offi-
cials, and industry representatives was essential to the success of this
survey.

As part of our follow-up survey, we also reviewed the major pieces of
cable legislation currently before the Congress and analyzed public com-
ments submitted to FCC in conjunction with its two ongoing cable pro-
ceedings. Chapters 3 and 4 of this report discuss the cable policy
implications (pros and cons) of these proposals, particularly with regard
to proposals for dealing with increasing cable rates. To carry out this
work, we reviewed the legislative history of the Cable Act, reviewed and
analyzed pending legislation, examined the public comments filed with
FCC concerning its two cable initiatives, and reviewed congressional
hearing documents, analyses of legislative proposals, and other avail-
able studies and reports. We also had discussions with officials from a
number of organizations, including FCC, the Department of Justice, the
Federal Trade Commission (FTC), the Bureau of Labor Statistics, NCTA,
the National League of Cities, the National Rural Telecommunications
Cooperative, and the National Association of Regulatory Utility Com-
missioners to obtain their views on the policy and legislative issues.

Our detailed work in preparing this report took place between Sep-
tember 1989 and May 1990. While we shared survey data with FCC, in
accordance with the Subcommittee’s policy, we did not obtain comments
on a draft of the report from FCC or representatives of the cable
industry.




Page 18                         GAO/RCEJM&1@9 Fokwup   Cable Television Survey
                                  Chapter 1
                                  Introduction




                                  annual Television and Cable Factbook, a well-known industry reference
                                  book. Television Digest, Inc., canvasses cable systems annually,
                                  updating its data base. We contracted to purchase its data base of 9,850
                                  cable systems, specifically system names, addresses, and subscriber
                                  figures, updated as of November 1989.


Sample Selection                  The cable television industry has a wide range of different-sized sys-
                                  tems, based on number of subscribers. To capture the industry’s diver-
                                  sity and accurately represent any significant differences in rates and
                                  services based on size, we designed our sample using five size groupings
                                  (or strata) of systems, based on the number of subscribers. However, to
                                  sample by cable system size, it was essential that the universe of sys-
                                  tems from which we selected our sample include a subscriber count for
                                  each system. Of the 9,850 systems in Television Digest’s data base, we
                                  eliminated 895 systems from our universe that did not have an accom-
                                  panying mailing address or subscriber count, leaving 8,955 systems
                                  usable for our survey. As shown in table 1.1, we selected a total of 1,971
                                  systems for our survey, from the 5 different-sized groupings created, to
                                  receive our questionnaire.

Table 1.1: GAO Sample Selection
Methodology                                                  Number of systems
                                                               Universe,
                                                            according to                 Number of      Response
                                                              Television      GAO       subscribers           rate
                                  Size of cable system            Digest    sample         (millions)    (percent)
                                  I-1,000                          5,111       500              0.17          706
                                  l,OOl-3,500                      1,703     -~425              0.82          74.8
                                  3.501.10,000                     1,070       450               2.69         79.3
                                  lO,OOl-50,000                      900       425              9.32          82.6
                                  50,001 and up                      171       171             16.12          88.3
                                  Total                           6,955      1,971             29.12          77.6



                                  Our sample of 1,971 cable systems contained about 29 million sub-
                                  scribers, according to Television Digest, Inc. This sample represents
                                  about 20 percent of the universe of cable systems but accounts for about
                                  62 percent of the universe of subscribers. Our coverage of subscribers
                                  was greater than the 20-percent coverage of cable systems because we
                                  selected larger samples from the larger-sized systems.




                                  Page 16                         GAO/RCED-90199 Follow-up Cable Television Survey
                      Chapter 1
                      Introduction




                      subscriber bases; (2) the increasing ownership interests in the produc-
                      tion or supply of cable programming networks by companies owning
                      cable systems (vertical integration); (3) the unreasonableness of limita-
                      tions on local governments’ ability to oversee cable operations in order
                      to ensure quality cable service and reasonable rates; (4) the effects of
                      the elimination of FCC’S “must carry” regulations, whereby cable sys-
                      tems no longer have to carry local over-the-air broadcast channels; and
                      (5) the question of whether competition in the cable industry should be
                      increased by allowing telephone companies to own and operate cable
                      systems.

                      In defense of the cable industry, the President of the National Cable Tel-
                      evision Association (NCTA) has testified before the Congress that the
                      Cable Act has been a success and that the deregulation of basic cable
                      rates has benefited consumers, citing examples of expenditures the
                      industry has made to improve cable service. For example, he said that
                      the industry has spent millions of dollars to improve the quality and
                      diversity of cable programming; expenditures increased from $300 mil-
                      lion in 1984 to nearly $1 billion in 1989. Spending on programming by
                      basic cable networks and premium services increased from $1 billion in
                      1984 to $2 billion in 1989. In 1984, 57 percent of the nation’s cable cus-
                      tomers had access to 30 or more channels. Today, that figure has risen
                      to 87 percent of customers. He further explained that expenditures for
                      improvements in plant and equipment have increased from about $200
                      million in 1984 to over $500 million in 1989, and that franchise fees paid
                      to local communities have tripled, from $200 million in 1984 to $768
                      million in 1989.”


Ongoing FCC Studies   The Cable Act directs FCC to conduct a study on the impact of the Cable
                      Act 6 years after enactment, and to recommend legislative changes, if
                      appropriate. FCC’Sstudy is currently underway and is scheduled for
                      completion in July 1990. As part of its study, FCC has revisited its earlier
                      analyses of a number of controversial issues, including its definition of
                      effective competition. On December 29, 1989, FCC issued a Notice of
                      Inquiry7 as a first step towards meeting its reporting mandate. The
                      notice requested comments on a number of issues. FCCwill use the com-
                      ments to analyze the effects of substituting market forces for cable rate

                      “Statement of James P. Mwmry. I’resldent of the National Cable Television Association, before the
                      Subcommttee on Telecommunirations and Finance, House Committee on Energy and Commerce, Mar
                      1, 1990.

                      ‘FCC Notice of Inquiry, MM Docket No. 89.600



                      Page 14                                   GAO/RCED-99-199 Follow-up Cable Television Survey
                           Chapter 1
                           lntroductlon




                           facilities and systems, and to use local streets and rights-of-way to con-
                           nect cable subscribers. The franchise agreement could also be used by
                           the locality to prevent cable operators from charging unreasonably high
                           basic rates for what was seen as an essential service in these areas. In
                           addition, cities viewed the ability to deny or delay a requested rate
                           increase as a useful tool to enforce other provisions of a franchise agree-
                           ment, such as the obligation to provide service to all residents of the
                           service area.


Passage of the Cable Act   The objective of the 1984 Cable Act was to transform the existing mix-
                           ture of local, state, and federal regulations into a more coordinated
                           national cable policy. The goals of this policy included (1) creating pro-
                           cedures for use by localities when selecting a cable franchisee that
                           would encourage cable industry growth and development, using an
                           orderly process for franchise renewal that would protect cable operators
                           against unfair renewal denials; (2) encouraging a wide diversity of infor-
                           mation sources and services for the public; and (3) promoting competi-
                           tion in cable communications.

                           The Cable Act generally prohibits state and local governments from reg-
                           ulating basic cable television rates in communities where the cable
                           system is subject to “effective” competition, as defined by the Federal
                           Communications Commission (FCC).FCC has determined that effective
                           competition exists if residents of a locality can receive three or more
                           television stations using their own antennae as an alternative to cable
                           service. As a result, after December 29, 1986, the effective date of rate
                           deregulation, any cable system located in an area with three or more
                           over-the-air stations would no longer be subject to local rate regulation
                           of its basic cable rates. Our follow-up survey showed that only about 3.5
                           percent of the cable systems continued to be subject to local rate regula-
                           tion as of December 31, 1989, in comparison with 67 percent regulated
                           prior to rate deregulation.

                            After rate deregulation, complaints started to be heard from a number
                            of sources about increases in cable rates. Congressional hearings have
                            been held, and a number of legislative proposals have been introduced to




                            Page 12                         GAO/RCJXD4JO-199Follow-up Cable Television Survey
Chapter 1

Introduction


               Cable television rates, once subject to broad control at the local or state
               level for the lowest priced basic service, have been deregulated since
               late 1986 in most communities, following the Cable Communications
               Policy Act of 1984 (Cable Act). Since then, local officials and consumer
               groups around the country have expressed concern about increases in
               cable rates, and a number of bills have been introduced in the Congress
               to “re-regulate” cable rates.’ Cable industry officials, on the other hand,
               report that rate increases are moderating and have been justified by a
               number of factors, including increased costs, upgrading of systems, and
               improvements in customer services.

               In August 1989, we reported and testified on the results of our first
               survey of cable television rates and services to the Subcommittee on
               Telecommunications and Finance, House Committee on Energy and Com-
               merce.’ At that time, the Chairman of the Subcommittee requested that
               we continue to monitor cable rates. This report is our follow-up survey
               of cable television rates and services.


               Cable television service continues to evolve from its original purpose
Background     over 40 years ago of providing residents in rural areas with better tele-
               vision reception to providing residents with a full range of entertain-
               ment services. Today, cable service offers a wide range of video
               programming to millions of subscribers, including not only over-the-air
               television channels but also movies, sporting events, and other program-
               ming available only to cable subscribers. In rural areas, cable television
               is seen by some as an essential service, serving as a window to the
               outside world because of otherwise poor television reception. In other
               parts of the country, however, cable is more broadly categorized as a
               multichannel video entertainment service, competing not only with
               broadcast television but also with other sources of entertainment, such
               as movie theaters and video rental stores.

               According to cable industry representatives, recent industry growth and
               development can be attributed for the most part to the relaxation of
               industry regulation brought about by the passage of the Cable Act. In
               5-l/2 years since passage of the Cable Act, major growth in the cable

               ‘The Cable Act deregulated cable rates only in those localities where the cable system was subject to
               “effective” competition, as we discuss later in this chapter.

               ‘Telecommunications: National Survey of Cable Television Rates and Services (GAO/RCED-89.193,
               Aug. 3, 1989) and National Survey of Cable Television Rates and Services (GAO/T-RCED-89-60,
               Aug. 3, 1989).



               Page 10                                     GAO/RCED90-199 Follow-up Cable Television Survey
Table IV. 1: Average Monthly Revenue Each Subscriber                          57
    Generates for the Cable System
Table IV.2: Revenue Generated per Subscriber by Systems                       58
    That Were Regulated/Not Regulated Prior to
    Effective Date of Cable Act
Table V.l: Cable Industry Growth                                              59
Table V.2: Changes in Cable System Penetration                                59
Table V.3: Number of Over-the-Air Channels Available in                       60
    Cable Community
Table V.4: Number of Over-the-Air Channels Available in                       60
     Cable Community
Table V.5: Number of Active Channels Carried by Cable                         61
     Systems
Table V.6: Number of Active Channels Carried by Cable                         61
     Systems
Table V.7: Changes in Cable System Ownership Between                          62
     1985and1989
Table V.8: Percent Changes in Cable System Ownership                          62
     Between 1985 and 1989
Table V.9: Availability of Discounts for Low-Income or                        62
     Elderly Subscribers as of 12/31/89
Table V.10: Regulation of Basic Cable Service Rates                           63
Table V. 11: Number of Separate Jurisdictions Covered by                      64
     Franchise Agreements as of 12/31/89
Table V. 12: Year of Awarding or Latest Renewal of                            65
     Franchise Agreement
Table V.13: Year of Expiration of Current Franchise                           66
     Agreement




Abbreviations

CPI       Consumer Price Index
DJX3      direct broadcast satellite
FCC       Federal Communications Commission
FTC       Federal Trade Commission
GAO       General Accounting Office
HBO       Home Box Office
          multichannel multipoint distribution service
MS0       multiple system operator
NCTA      National Cable Television Association


Page 8                          GAO/RCED-SO-199 Follow-up Cable Television Survey
Contents


Executive Summary                                                                                        2

Chapter 1
Introduction                Background
                            Objectives, Scope, and Methodology

Chapter 2                                                                                               19
Results of Follow-Up        Basic Rates and Services                                                    20
                            Optional Services                                                           23
National Survey of          Premium Services                                                            24
Cable Television Rates      Revenue per Subscriber                                                      24
and Services                Cable Subscriptions and Penetration                                         25


Chapter 3                                                                                               26
Analysis   of Legislative   Regulation of Cable Rates                                                   26
                            Changes in Franchise Renewal Procedures                                     29
Proposals to Amend          “Must Carry” Provisions                                                     31
the Cable Act               Vertical Integration                                                        33
                            Horizontal Concentration                                                    35
                            Ownership of Cable Systems by Telephone Companies                           36

Chapter 4                                                                                               39
Regulation of Cable         Focus on Market Competition                                                 40
                            Regulatory Options                                                          40
Television Rates:           Redefinition of Cable Service Subject to Regulation                         44
What Are the Options?
Appendixes                  Appendix I: Changes in Basic Cable Rates and Services                       46
                            Appendix II: Availability and Rates for Cable Television                    54
                                Options
                            Appendix III: Premium Cable Services                                        55
                            Appendix IV: Revenue to Cable Systems per Subscriber                        57
                            Appendix V: Changes in Cable System Subscribership and                      59
                                Other Information
                            Appendix VI: Survey Questionnaire                                           67
                            Appendix VII: List of Respondents                                           81
                            Appendix VIII: Major Contributors to This Report                            84

Tables                      Table 1.1: GAO Sample Selection Methodology                                 16


                            Page 6                          GAO/RCEDwFlBO Fdlow-up Cable Teletiion   Survey
                            Executive Summary




Principal Findings

Basic Cable Rates and       GAO’S survey showed that, during 1989, an average cable subscriber’s
Channels                    monthly rate for the lowest priced basic service increased by 10 percent,
                            from $14.50 to $15.95.:’ Rates for the most popular basic service also
                            showed a lo-percent increase, from $14.91 to $16.33. Between
                            November 30,1986, and December 31,1989, monthly rates for the
                            lowest priced basic service increased by 43 percent, from an average of
                            $11.14 to $15.95 per subscriber. By comparison, the monthly rates for
                            the most popular basic service increased by 39 percent, from $11.71 to
                            $16.33.

                            Cable subscribers received additional basic channels to accompany the
                            rate increases. During 1989, the number of channels available to sub-
                            scribers increased modestly, by one and two channels, respectively, for
                            the lowest priced and the most popular services. Overall since deregula-
                            tion, the number of basic channels available to subscribers to the lowest
                            priced basic service increased, on average, from 24 to 31 channels. The
                            number of channels available for subscribers to the most popular basic
                            service also increased, on average, from 27 to 34.


Rate Changes in Regulated   The cable systems that were regulated in November 1986 had greater
and Nonregulated Systems    rate increases through December 1989 than those systems that were not
                            regulated. (Twenty-four percent of cable systems were already deregu-
                            lated at that time.) Rates for the regulated systems increased by 47 per-
                            cent, compared with a 32-percent increase for the nonregulated systems.
                            This difference may be explained by the fact that the average basic rate
                            for systems not regulated on November 30, 1986, was over $1 .OOhigher
                            than the rate for regulated systems. By December 31, 1989, however,
                            basic rates for systems formerly regulated had caught up with rates of
                            those systems previously not regulated.


Changes in Cable System     GAO  found that 53 percent of cable systems had changed ownership
Ownership                   since 1985. Critics have charged that “trafficking,” or the frequent
                            buying and selling of systems, has resulted in increased cable system
                            costs that must be recouped from subscribers through higher rates.

                            “GAO’s survey results are based on responses received from 1,530 cable systems of 1,971 systems
                            randomly surveyed nationwide--a response rate of 78 percent.



                            Page 4                                     GAO/RCED-SO-199 Follow-up Cable Television Survey
Executive Summary


             Cable television rates, once controlled at the local or state level, have
Purpose      been deregulated in most communities since late 1986, following the
             Cable Communications Policy Act of 1984. The Cable Act sought to
             encourage the development of cable systems to provide a wide diversity
             of information sources and services to the public. Since deregulation, the
             cable industry has grown tremendously, but accompanying rate
             increases have caused concern over whether the industry has begun to
             abuse its market power.

             In August 1989, GAO reported and testified on the results of a cable tele-
             vision survey covering changes in rates and services between December
             1986 and October 1988.’ The survey reported a 29-percent increase in
             the average cable subscriber’s monthly rate for the lowest priced basic
             service.2 As requested, GAO updated its survey through 1989 and col-
             lected data from 1984 and 1985 to further study the effects of the Cable
             Act. In addition, GAO sought to determine whether cable rates have mod-
             erated during 1989 and whether cable system ownership changes have
             driven up cable rates. GAO also reviewed proposals for amending the
             Cable Act and the major options for dealing with the cable industry’s
             market power.


              Cable television service has continued to grow and evolve. Originally
Background    designed to provide residents in rural areas with better television recep-
              tion, cable has expanded to metropolitan areas and is now viewed as a
              multi-channel video entertainment service competing with broadcast tel-
              evision, movie theaters, and video rental stores.

              Cable systems market several services-basic, optional, and premium.
              Basic service includes the re-transmission of local television channels,
              but may also include such cable channels as C-Span, CNN, ESPN, and
              “superstations,” offered as a single level of service or as two or more
              “tiers” of service. Optional services include such features as remote con-
              trol units and cable outlets for additional television sets. Premium ser-
              vice generally includes movie and other entertainment channels, such as
              Home Box Office (HHO) and Cinemax, available for an extra monthly fee.


              ‘GAO/RCED-89-193 and GAO,?‘-RCEDSQ-60, Aug. 3,1989

              ‘Because sxne cable systems offer more than one level or “tier” of basic service, GAO collected data
              on both the lowest priced service offered and the service to which most customers subscribe, i.e., the
              most popular service. Since mwt systems have only one tier of basic service, the most popular service
              is generally also the lowest priced service.



              Page 2                                      GAO/RCED-90-199 Follow-up Cable Television Survey