Cable Gains In Race With Satellite

CHICAGO–Bundled product offerings that feature video, broadband, data and new interactive services will help cable TV operators gain a significant competitive advantage over the satellite TV industry, cable industry leaders predicted.

The annual National Cable & Telecommunications Association (NCTA) show held here last week at times resembled a pep rally rather than an industry confab. Part of the cable industry’s confidence stems from the $75 billion it has collectively invested in plant and equipment to introduce new digital services, such as high-definition TV (HDTV), video- on-demand (VOD), high-speed Internet and cable-based telephone service.

The digital upgrade by the cable industry is aimed, in part, at wiping out satellite TV’s advantage in offering high quality digital programming at a competitive price. The cable industry’s upgrade program now allows it to reach roughly 80 million of the 107 million U.S. TV households. The result is that consumers are signing up in record numbers, according to a mid-year industry overview released last week by NCTA.

“Cable consumers are getting more, buying more and using more cable services at an accelerating pace,” according to the NCTA’s report.

NCTA President Robert Sachs told conference attendees that cable operators at the end of the first quarter were serving more than 20 million digital cable subscribers, 12 million high-speed Internet customers, and 2.5 million cable-based telephone customers.

“Broadband technology is cable’s true growth engine,” Sachs said. “As first quarter results confirm, our business is hitting on all cylinders. This is particularly impressive when you consider that cable faces strong competition in every business segment.”

The cable industry’s investment has enabled it to offer HDTV services in 78 of the top 100 designated market areas (DMAs) in the United States – including 18 of the top 20.

Aside from HDTV, cable’s growth is being fueled by VOD, subscription VOD, personal video recorders, high-speed Internet access service, and voice-over-IP, Sachs said.

“Price, value, and service will determine which provider consumers choose,” Sachs said. “If we are responsive to our customers, nobody – nobody – is better positioned than cable to win consumer loyalty.”

One Trick Pony

Jim Robbins, president and CEO of Cox Communications [NYSE: COX], called satellite TV a “one trick pony” with a few bells and whistles. “We have all those bells and whistles,” Robbins told a panel at the show. “And, we have data and telecom, too.”

On the interactivity front, the satellite and cable appear to be at parity right now, said Ben Mendelson, president of the Interactive Television Alliance.

Cable has an edge with its ability to deliver two-way, real-time interactivity, he said. The sector also is deploying VOD at an accelerated rate and expanding the digital base faster than expected, he added.

Direct broadcast satellite (DBS) service “is inherently digital, so it currently has an advantage in numbers of interactive digital homes,” Mendelson said. “It is also addressing technical disadvantages by successfully promoting DVR [digital video recorders]. The landscape is still fiercely competitive, but each service offers distinct advantages. And both need to look over their shoulder at IP-delivered broadband, which should be viable in the next five years.”

Both DirecTV and EchoStar Communications [Nasdaq: DISH] may want to take heed of the advanced services cable and other providers are rolling out.

Jimmy Schaeffler, chairman and CEO of The Carmel Group, said, “The pendulum swing is beginning to favor cable, once again. Cable had the high ground until the mid-1990s when DBS [direct broadcast satellite] arrived. Since then, the DBS players have shown the value, the price and innovation to lead the industry. With the bundling of services, cable is poised to regain that lost ground.”

For cable to beat satellite on multiple fronts, it must become proactive rather than reactive, Schaeffler said.

“That approach would require cable to find ways to make the consumer more loyal,” he said. “That is the key to the future of multi-channel TV.”

Show Me The Money

Andy Wright, president of the Satellite Broadcasting and Communications Association, strongly disagrees with the view that cable is ready to overtake satellite in consumer satisfaction and value.

“Cable has spent $75 billion to try to get themselves in a position where they have a product almost as good as satellite,” Wright said. For example, satellite TV is all- digital, whereas cable just offers a digital tier, he said.

“People still consider that satellite is a better value and provides a better choice with better customers service,” Wright said. “We are extremely pleased with the consumer reaction to our product. We are looking for the next 20 million subscribers after hitting 19.6 million at the end of the first quarter.”

The innovative services that cable plans to offer, such as VOD and voice-over-IP, have yet to show they will change the competitive balance between cable and satellite operators, Wright said.

“The cable industry has had a lot of silver bullets that they have talked about over the last few years.” None have proven to be a magic formula to success, he said.

Chuck Hewitt, who heads the Charles C. Hewitt satellite-broadcasting consultancy, said the introduction of high-powered satellite TV in 1994 “awakened” the cable industry.

“Cable now is responding the way a strong competitor should,” Hewitt said. “But it will take a long time for them to get their $75 billion back.”

Hewitt would not concede that cable would wield a competitive edge over satellite. The “jury is still out” on whether VOD and standard VOD will become profitable endeavors. Interactivity, as well as HDTV, will be a positive for both cable and satellite, he said.

No matter which technology ultimately proves to benefit the most from HDTV, the use of that technology will “grow tremendously” in the next few years, Hewitt said. “I think cable is mistaken if it thinks it is leading in the ballgame,” he said.

Satellite is at a price disadvantage compared to cable and DSL when it comes to broadband services. However, satellite will become a stronger competitor as its new broadband systems are rolled out, Hewitt predicted.

Cable’s role in providing voice-over-IP may be eclipsed by continued growth in mobile phone use. “I really believe the future in voice is wireless,” said Hewitt. He also questioned if bundled service offerings would help cable as much as the cable TV operators expect. “I think quite a few people will have sticker shock when they get their bundled cable, broadband and telephone bill.”

Overall, cable and satellite are going to have a “great battle,” Hewitt said. “It is good to see competitors trying to step up to the bar that we’ve set. It is going to be a hotly competitive [marketplace] for a long time to come.”

–Paul Dykewicz

(Robert Sachs, National Cable & Telecommunications Association, 202/775-3629; James Robbins, Cox Communications, 404/843-5000; Ben Mendelson, ITA, 310/403-3004)