Telecommunications:

The Effect of Competition From Satellite Providers on Cable Rates

RCED-00-164: Published: Jul 18, 2000. Publicly Released: Jul 20, 2000.

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Pursuant to a congressional request, GAO provided information on the effect of competition from satellite providers on cable rates, focusing on: (1) the extent to which the level of subscribership (or penetration) of direct broadcast satellite (DBS) has influenced cable rates; and (2) other key factors that may influence the level of cable rates.

GAO noted that: (1) GAO did not find that in calendar year 1998--a time when DBS firms did not generally transmit local broadcast signals as part of the DBS package--greater DBS penetration was correlated with lower cable rates; (2) GAO model results indicate that greater DBS penetration was correlated with somewhat higher cable rates; (3) these results suggest that, even though DBS increased the number of substitutes available in the subscription video market, DBS did not exert significant pricing pressure on cable companies to reduce rates at that time; (4) however, GAO did find that the penetration of DBS was correlated with nonprice competition--in particular, where DBS penetration was high, cable systems tended to provide more channels to subscribers; (5) the greater number of channels may contribute to the higher prices in these areas; (6) DBS also appears to have been more competitive with cable in nonmetropolitan areas; (7) GAO found DBS penetration to be much higher--holding other factors constant--in nonmetropolitan locations; (8) because DBS firms are making local broadcast signals available in several cities, it is likely that DBS will become a more important competitor to cable in the coming years; (9) GAO's model indicated that several other factors influenced cable rates in 1998; (10) GAO found--as have the Federal Communications Commission and others--that a greater number of channels offered by a cable system led to higher cable rates, suggesting that consumers were willing to pay more for a greater number of channels and that providing additional channels is costly for cable companies; (11) the presence of a nonsatellite competitor had an important effect on cable rates; (12) in particular, when a second cable system or other ground-based competitor (such as a wireless cable provider) is operating in part or all of a franchise area, cable rates were lower; and (13) when a cable franchise was owned by one of the larger national cable systems, cable rates tended to be slightly higher.

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