Video Competition Boosting Broadband Penetration

Americans are consuming record amounts of media services and that bodes well
for broadband according to the Federal Communications Commission’s (FCC)
latest report on U.S. video competition.

The report says cable companies remain the primary video providers in the
country, although their dominance is slipping as satellite TV and the Bells’
entry into the video market continues to chip away at cable’s market share.

As of June of last year, the FCC’s numbers show that 69.4 percent of pay TV
subscribers received video programming from a franchised cable operator, as
compared to 71.6 percent as of June 2004. Overall, 76 percent of American
television households pay for video service.

As the competition begins to heat up between the cable companies and the
telephone giants entering the pay TV market, broadband service is
increasingly being offered as part of a bundled package.

“We are seeing wired competitors to cable trying to enter the market. The
Commission should facilitate this entry, not only because it furthers video
competition, but also because it promotes the deployment of the broadband
networks over which the video services are provided,” FCC Chairman Kevin
Martin said at the agency’s February open meeting.

The meeting was held in Keller, Tex., where Verizon rolled out its
first fiber-networked offering, providing video competition to the Dallas-Fort Worth
suburb’s local cable franchise holder.

According to the FCC report, cable is responding by expanding channel
offerings and bundling its video service with broadband connections and
traditional voice services. Satellite providers, in turn, are offering
broadband to go along with its video services.

Cable, fiber or satellite, Martin said, is good for the broadband business.

“The widespread deployment of these networks is critical to the United
States’ international competitiveness,” he said. “Further, it will help
improve Americans lives through applications such as distance learning and
remote medical diagnostics.”

What cable companies are not doing, however, is lowering prices.

“I note with concern that last year — and this seems to be an annual
story — cable rates rose again, out-stripping inflation by a significant
margin,” Commissioner Michael Copps said. “Different interests cite
different reasons for these never-ending consumer cost increases. Consumers
are feeling the pain and paying the cost and not liking it.”

Nevertheless, Copps found hope in the numbers.

“Cable and telephone companies are beginning to compete to offer consumers
the much-heralded triple play — bundles of telephone, video and Internet
services,” he said. “The erosion of old industry boundaries can give way to
a more consumer-friendly future, but arriving at that future will demand not
only creative entrepreneurship and considerable investment, but also FCC
policy founded foursquare on advancing the public interest.”

One of those public policy issues will be franchising requirements for the
Bells to offer their triple play networks. Bills are pending in Congress and
the FCC is considering rules to simplify the process.

In Texas, the legislature recently approved new laws that allow cable
competitors to receive a single state license, as opposed to forcing the
Bells to negotiate deals with individual cities.

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