Former baseball great Satchel Paige once was quoted, “Don’t look behind, someone may be gaining on you.” That may well be the situation satellite-TV service providers are facing in the form of intensified competition from a U.S. cable industry that has spent a whopping $85 billion since 1996 to upgrade its antiquated analog plant and equipment with digital technology aided by fiber-optic networking. The cost of that investment is a staggering $1,200 per customer.

The National Cable & Telecommunications Association (NCTA) last Tuesday released its 2004 Mid-Year Industry Overview, revealing that 95 million U.S. TV households receive advanced broadband technology from the cable-TV industry. Those homes represent 88 percent of total homes in the country that are passed by a local cable system. In addition, the cable industry’s wide-scale deployment of interactive, consumer-friendly services is continuing at a rapid pace during the first half of 2004.

The NCTA reported that the traditional cable service offerings of basic and digital television are, in many communities, now supplemented by such new interactive TV services as video-on-demand (VOD) and digital video recorders (DVR), high-speed Internet service, high-definition TV (HDTV) and local telephone service.

“With a major infrastructure upgrade during the past eight years, cable operators have demonstrated their commitment to meet consumer demand for these exciting new interactive services,” said Robert Sachs, NCTA president & CEO. “Cable operators are now offering consumers a variety of products that can meet their information, entertainment and communications needs.”

Satellite industry leaders recognize that cable has made strides but they still question the cost-effectiveness of the $85 billion spent to deploy fiber-optic cable.

“There is no doubt that the launch of DBS in 1994 lit a fire under the cable industry,” said Chuck Hewitt, former president of the Satellite Broadcasting and Communications Association (SBCA) who now is a Severna Park, Md.-based consultant. “While there are some questions concerning the return on the $85 billion investment by cable, there is no question that they have become more competitive. Their ability to bundle high speed and voice with their video offering are a major challenge to the satellite industry.”

On the other hand, satellite TV continues to offer higher quality video programs at a lower price, while leading in new technology development, quality service, interactivity and HDTV.

“We will remain a strong competitor,” Hewitt said.

The NCTA boasted last week of the industry amassing 22.9 million digital-cable subscribers, 17.3 million high-speed Internet customers and 2.7 million cable-telephone clients at the end of the first quarter of 2004. The NCTA report predicts growth in local telephone subscribers is expected to rise steadily this year and next, as several cable operators are testing or deploying voice-over-Internet Protocol (VoIP) telephone service, which uses Internet technology and data packets to transmit voice signals.

HDTV Emphasis

The cable industry further demonstrated its commitment to completing its digital TV transition during the first half of 2004 by continuing a nationwide deployment of the service. At the end of first-quarter 2004, 84 million U.S. homes could receive a package of HD channels from their local cable operator, while the amount of cable HDTV programming is rising steadily, the report found.

The satellite TV industry also has been keen on HDTV. Jericho, N.Y.-based Rainbow DBS, a satellite-TV subsidiary of Bethpage, N.Y.-based Cablevision Systems Corporation [CVC], has driven that movement. Rainbow DBS unveiled its VOOM satellite TV service last October, and it has assembled an impressive array of proprietary HDTV programming that is unmatched by any other cable or satellite TV operator. Starting at $39.90 per month, VOOM offers more than 35 HD channels to consumers across the continental United States, including 21 exclusive, commercial-free HD channels that carry hundreds of hours of movies, sports, music and other programming each day. However, Rainbow DBS was late to market, and it must compete against entrenched national satellite-TV rivals DirecTV and EchoStar Communications [DISH] as well as with major cable operators ensconced in metropolitan areas nationwide.

“We see ourselves as the first entrant in the HD, not as a third competitor in the DBS,” said Bo Park, director of communications at Rainbow DBS. “We do have the leading edge, with three times more HD programming than any other satellite or cable TV operator.”

Hewitt predicted that satellite-TV service providers would become even more formidable as they improve their use of existing spectrum and find ways to enhance capacity.

“Expect us to maintain our superior video and programming offers,” Hewitt said. “In addition, with a successful launch of Wild Blue [consumer broadband service] and future satellite delivered broadband satellites, we will dominate the Internet, mobile and rural markets as well as being able to compete in urban markets.”

Digital Difference

The start of this month marked another important milestone in the digital TV transition for cable operators nationwide as they began providing CableCARDs to consumers who purchase new digital cable-ready television equipment. The new CableCARDs, which are a byproduct of a 2002 landmark agreement between the cable and consumer electronics industries, allows consumers to receive one-way digital cable services without the need for a set-top box.

Satellite TV service providers and their trade-association representatives protested that special treatment for the cable industry, and now the advantage of those digital cable-ready TVs will become a marketplace reality. Clearly, the cable industry is touting the digital cable-ready TV sets as a leap forward, and advertising in consumer electronics stores should be expected to follow.

However, not all the news for cable is rosy. The NCTA’s report acknowledged its constituents – joined by broadcasters and other service providers — face challenges on the public-policy front about the appropriateness of content. In an effort to address concerns about certain television programming, the cable industry launched a consumer-awareness campaign during the first half of 2004 to provide parents with information intended to help them guide their children to appropriate programming. Elements of Cable Puts You in Control include a commitment from cable operators to provide free channel-blocking technology, a commitment by cable networks to use the TV parental guidelines ratings system, and several consumer awareness and media literacy efforts.

The satellite industry seems largely to have been spared the onslaught of criticism for excessively raw content. The reality is that satellite programming may not differ markedly from what cable operators carry; however, cable has been an easy and tempting target for lawmakers and public citizen watchdog groups for years due to its aggressive pricing and past reputation for abysmal service.

To that end, another key public-policy issue for the cable industry acknowledged in the NCTA’s report is the suggestion that the government regulate cable pricing and packaging to let customers select channels on an a la carte basis. At the request of Congress, the Federal Communications Commission is studying the potential impact of such a change, and it is expected to report its findings in the fall. In general, the cable industry fiercely opposes a la carte pricing.

The cable industry’s public-policy challenges, despite its lobbying budget that dwarfs what the satellite industry can muster, shows that even the most powerful interests face a measure of accountability in Washington, D.C.

–Paul Dykewicz

(Bo Park, Rainbow DBS, 516/803-6068; Chuck Hewitt, 410/544-4108; Rob Stoddard, NCTA, 202/775-3629)