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FCC Issues Annual Video Competition Report; Releases Annual Cable Price Survey for Select Cable Operators

February 15, 2006

The Federal Communications Commission ("FCC") has released two items affecting cable operators: 1) its annual report regarding the status of video competition among multichannel video programming distributors ("MVPDs"), and 2) its annual survey to collect information for its report on cable industry prices.

The Commission's 12th Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming tracks changes over the past year in the video market among competing MVPDs, such as cable operators, direct broadcast satellite ("DBS") providers, and local exchange carriers ("LECs"). Like its predecessors, the 2005 report examines various factors affecting competition among rival providers, including market structure, programming and technical issues. A unique feature of the 2005 report, however, is that the FCC solicits comment regarding its "70/70 test" as a result of questions raised by certain data submitted in the proceeding. The 70/70 test is met when cable systems with 36 or more activated channels are available to 70 percent of those households, and 70 percent of those households subscribe to those systems. When the threshold criteria are satisfied, the FCC "may promulgate any additional rules necessary to promote diversity of information sources."l The FCC seeks comment regarding the methodologies and data it should use to measure the 70-percent thresholds, as well as what action it should take to achieve statutory goals should it determine that the thresholds have been met.

The 2005 report concludes that, overall, the MVPD market continues to grow. A total of 94.2 million television households subscribe to MVPD service, compared to 92.2 million in 2004. While cable subscribership has declined slightly, the largest MVPD continues to be a cable operator. DBS subscribership has increased, however, and commensurate with that trend, the second and third largest MVPDs now are DBS operators. The DBS operators serve almost 27.7 percent of all MVPD subscribers, an increase from 25.1 percent in 2004. Cable's MVPD share shrunk from 71.6 percent in 2004 to 69.4 percent in 2005.

The FCC also released its annual survey concerning cable service and equipment rates in preparation for its Report on Cable Industry Prices. The FCC randomly selects certain cable operators to respond to the survey, which contains questions regarding rates for basic cable service, cable programming ("expanded basic") service, and the equipment used to receive such services in the communities served. In addition, the survey asks for subscriber data and information regarding system capacity, advanced services, and channel line-ups. Since the report examines whether there are differences in rates offered by cable operators found to be subject to effective competition as compared to other cable operators, the sample set includes both types of providers. Cable operators selected to respond to the survey must submit their completed questionnaire to the FCC no later than March 31, 2006.

We would be pleased to respond to any questions regarding these matters.

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