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(!z!!ooo7o!ho!!!!!d oooo(!!!!((((!!(!!!(!!!(!!!!!((o$pxp((( !d! p((((((z!!((!WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN!!!_ddddhh0!MMdz"!!!!!ddddr4d!d!!!!!!!!!!!d! !!7!!!!!!!!!!!!!!!!M 7!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! (!o k( !!! !7!(!!!%!(!!!hh@@hxxhhhhhh@xxhPPPP``H(( @`hhhxxxp8((hhhh(hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh@@hhhhhhhh8888hh````hhHHH88888hh2Û X-   FOR FCC RECORD ONLY $// NOI, 1995 Competition Report, CS Dkt No. 9561, FCC 95186 //$ $/ Part 76 Cable Television Service /$  X_- ` `  hh,Vpp    FCC 95186  X(#(# YH-` ` (J Before the W FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554  Y - In the Matter of hh,V)pp  xx- X  Y -` `  hh,V)  Y -Annual Assessment of the Status of V)CS Docket No. 9561  Y-Competition in the Market for thehh,V)  Yz-Delivery of Video Programminghh,V)  Y5-! NOTICE OF INQUIRY ă  Y- Adopted: May 4, 1995 hh,  Released: May 24, 1995 (#h  By the Commission:  Y-  Y- Comment Date:  June 30, 1995  Y- Reply Comment Date: July 28, 1995  YS-1 Table of Contents ă  Y&-` `  hh,Vpp   xx- ParagraphX` hp x (#%'0*,.8135@8:_ Y-ԍ Id. at 7505,  121. G  Y1-!34. ` ` In the 1994 Competition Report, the Commission identified one LMDS system  Y -authorized by the Commission and in commercial operation.? { YH -ԍThe LMDS system identified in the 1994 Competition Report is CellularVision of  Y3-New York, operating in Brooklyn, New York. Id. at 75056,  122. As was the case then, we cannot now reach any conclusions on the feasibility of LMDS as a technology that could be used to offer competitive service in the video marketplace because the Commission has before it an open proceeding concerning the authorization of services for use of the 28 GHz  Y -band.&@  Y-ԍRulemaking to Amend Parts 2 and 21 of the Rules to Redesignate the 27.529.5 GHz Frequency Band and to Establish Rules and Policies for Local Multipoint Distribution  Y^-Services, MM Docket No. 92297, 8 FCC Rcd 557 (1993).& We also recognize that considerable information concerning the competitive potential of this technology has been provided to the Commission in comments filed in that proceeding. We do not ask parties to repeat here the substance of comments that have been filed in other proceedings, except to the extent they wish to bring particular matters to our attention.  U6-` `  4. Satellite Master Antenna Systems    Y-"35. ` ` SMATV systems (also known as "private cable systems") are MVPDs that  Y-serve residential, multiple dwelling units, and various other buildings and complexes.AA YB-ԍIn the 1994 Competition Report, the Commission wrote that there appeared to be approximately 3000 to 4000 SMATV systems operating nationwide (9 FCC Rcd at 748889,  92). As of August 15, 1994, approximately one million subscribers were served by SMATV systems.A A SMATV system offers generally the same type of programming as a cable system, and the operation of a SMATV system largely resembles that of a cable system a satellite dish receives the programming signals, equipment processes the signals, and wires distribute the programming to individual dwelling units. The primary difference between the two is that a SMATV system typically is an unfranchised, standalone system that serves a single building or complex, or a small number of buildings or complexes in relatively close proximity to"g A0*((l" each other. This is because a SMATV system is different from a cable system only in that it does not use "closed transmission paths" to: (1)serve buildings that are not commonly  Y-owned, controlled, or managed; or (2)cross a public rightofway.B YK-ԍImplementation of Sections 11 and 13 of the 1992 Cable Act (Horizontal and Vertical Ownership Limits, CrossOwnership Limitations and AntiTrafficking Provisions),  Y-Memorandum Opinion and Order on Reconsideration of the First Report and Order,  Y -MM Docket No. 92264 (FCC 9521 Jan. 12, 1995) ("SMATVCable CrossOwnership  Y-Recon.").  Y- #36. ` ` We intend to update the information concerning the current status of  Y-competition between cable and SMATV system operators that was presented in the 1994  Yx-Competition Report.uCx% YN -ԍ1994 Competition Report, 9 FCC Rcd at 748892,  9196.u The issues that we expect to explore include: (a)the current and projected future numbers of SMATV systems and subscribers, and their locations; and (b)the channel capacities of SMATV systems, and the existing and projected future  Y5-developments in channel capacities. We note that the 1994 Competition Report's analysis of these issues was based largely on public information, and we intend to use such information to the extent possible in the 1995 Competition Report. Commenters should nevertheless feel free to comment or provide any information on the foregoing that they wish to bring to our attention. In addition, we invite comments on any problems with the information presented last year, the method used to develop the information, or any additional information that the Commission should consider.  Y-$37.` ` We also request comments concerning the following questions:  YQ-(a)` ` To what extent is competition from SMATV systems characterized by competition for the exclusive right to serve all subscribers in an individual multiple dwelling unit, and to what extent by competition for individual subscribers within a multiple dwelling unit (where each subscriber may choose between two (or more) service providers)? What are the relative shares of multiple dwelling units served by the cable and SMATV industries?(#`  Y-X(b)X` ` What effects, if any, have state mandatory access laws had on the economic viability of SMATV systems?(#`   Yk-(c)` ` To what extent is the SMATV industry becoming more concentrated? To what extent is the industry changing from one of small proprietor owned or developer owned systems, to one characterized by multiple system operators that serve entire metropolitan areas or regions? What are the sources of new investment in the industry? Are wireless cable system operators purchasing SMATV systems, and vice versa? Are any other MVPDs purchasing SMATV"C0*((" systems in significant numbers?(#`  Y-(d)` ` Are SMATV system operators engaging in marketing strategies designed to differentiate their services from cable services (particularly bundling with home security and intercom systems), and to what extent has price competition been a successful growth strategy for SMATV operators?(#`  Y_-X(e)X` ` Are there SMATV and other noncable operators that specialize in serving hotels and motels? How does their share of this business compare to the cable industry's share? What are the types of services that are offered by these operators to hotels and motels?(#`  Y -(f)` ` To what extent are SMATV operators using 18 GHz technology to  Y -interconnect SMATV systems? D  YN-ԍ See Amendment of Part 94 of the Commission's Rules to Permit Private Video  Y9-Entertainment Distribution Systems Access to the 18 GHz Band, Report and Order, PR Docket No. 905, 6 FCC Rcd 1270 (1991).  Have such developments facilitated increased competition from SMATV operators? Is the use of 18 GHz links leading to the creation of systems that serve wider geographic areas?(#`  Yy-(g)` ` Has the loosening of the SMATVcable crossownership restriction had any  Yb-effect on SMATV operators?EvbO Yb-ԍ The Commission recently released an order on reconsideration concerning, among other things, cable operators' acquisition of SMATV systems. In that decision, we eliminated the prior prohibition on such purchases. The Commission noted that one benefit of the decision was to provide an exit strategy for SMATV operators. The absence of this exit strategy caused by the prior prohibition was claimed to have been a barrier to entry.  W-SMATVCable CrossOwnership Recon. In particular, is there likely to be a significant exodus of SMATV operators from the market or acquisition of SMATV operators by incumbent cable operators? Or will the eased exit policy induce the increased entry of SMATV systems? (#`  Y-(h)` ` What is the competitive effect of the Communications Act definition of a cable system, which includes any system that interconnects separately owned  Y-buildings even where there is no use of public rightsofway?`F  Y"-ԍ Communications Act  602(7), 47 U.S.C.  522(7).` Should that  Y-definition be modified, as recommended by the Commission in the 1994  Y-Competition Report? (#`  Yi-(i)` ` Are there other barriers to increased competition by SMATV systems? In particular, what effect do perpetual exclusive contracts (or ones of greater than"R> F0*((M" 15 to 20 years in duration) between building owners and cable system operators have on competition by SMATV system operators? To what extent do SMATV systems typically enter into exclusive contracts? What is the typical duration of these contracts? What should public policy be regarding these contracts?(#`  Yv-%38.` ` Finally, the Commission also has before it a proceeding concerning home  Y_-wiring issues in which SMATV operators have extensively participated.G_ Y-ԍImplementation of the 1992 Cable Act (Home Wiring), Report and Order, MM Docket  Y -No. 92260, 7 FCC Rcd 7349 (1993), recon. pending. We recognize that considerable information has been provided to the Commission in comments filed in that proceeding concerning the potential competitive effect of various potential outcomes. We do not ask parties to repeat the substance of comments that have been filed in that proceeding, except to the extent that they wish to bring to our attention particular matters that are relevant to the 1995 Competition Report.     U - ` ` 5. DirecttoHome ("DTH") Satellite Services  Y -  W-` `  a. Direct Broadcast Satellite Services  Yb-&39. ` ` The 1994 Competition Report examined two types of directtohome ("DTH") satellite services that offer video programming for subscription that is comparable to that  Y6-provided by cable.   One is  Direct Broadcast Satellite ("DBS") services which transmit signals  Y-in the Kband "intended for reception by the general public."?Hf Y6-ԍ 47 C.F.R.  100.3.? Hughes Communications Galaxy, Inc./DirecTV ("DirecTV") and United States Satellite Broadcasting ("USSB") offer high powered DBS service. Primestar Partners, L.P. ("Primestar"), a medium power Kband service, is also analyzed as a DBS service, although it operates in the Fixed Satellite  Y-Service ("FSS").eI Y-ԍ 1994 Competition Report, 9 FCC Rcd at 7473,  61. e Using a relatively small dish, DBS subscribers receive programming that is comparable to cable programming. There are now over one million subscribers for the  Y-three DBS services combined.JJ Y!-ԍ DBS Digest, Mar. 5, 1995, at 1. J EchoStar Satellite Corporation and AlphaStar, a venture of  Y~-TeeComm Electronics, Inc., expect to begin DBS service in 1995.GK~{ Y#-ԍ See Nikhil Hutheesing, Kamikaze Satellites?  Forbes, Jul. 4, 1994, at 126. See also  Y$-AlphaStar Television Network, TeeComm Launches AlphaStar, America's New High Y%-Powered Digital DTH Service, Mar. 14, 1995 (News Release).G "g K0*(({"  Y-'40. ` ` We intend to update the information concerning the current status of  Y-competition from DBS systems that was presented in the 1994 Competition ReportuL YK-ԍ1994 Competition Report, 9 FCC Rcd at 747479,  6270.u and request comments concerning the following questions:  Y-(a)` ` To what extent do the subscribership of these DBS services overlap? What is the total estimated subscriber base for each individual service provider and for the industry as a whole? (#`  Y3-(b)` ` What is the projected subscribership of each DBS service and of the industry as a whole at the end of 1995? At the end of each subsequent year through the end of 1999? On what are these projections based?(#`  Y -(c)` ` Where are most DBS subscribers located (i.e., urban versus rural areas)? How many subscribers are located in areas served by cable operators? What factors account for cable subscribers' choice to receive DBS services? What percentage of DBS subscribers also subscribe to cable services, and what cable services do they receive?(#`   YM-(d)` ` What is the total estimated channel capacity of each operator? What are the plans of each operator to increase the digital compression ratio from the initial ratio used at the time of launch (so as to offer more channels at a later date)?(#`   Y-(e)` ` How does each operator market its services? Are current marketing efforts targeted equally to potential subscribers in areas served by cable systems and potential subscribers in areas unserved by cable systems? (#`   Y-(f)` ` Has the inability to offer local broadcast channels affected the competitive impact of DBS service? Have there been any developments that would permit DBS dish owners to use their systems to receive local broadcast channels?(#`  Y9-(g)` ` Are the prices for DBS services nationally uniform, or do they vary depending on the location of the subscriber? If they vary, what are the reasons for the price differentials?(#`  Y-(h)` ` What is the availability of equipment for those who wish to subscribe to this service? If there is an equipment shortage, when is it projected to be eliminated? What is the basis for this projection?(#`  Y#-(i) ` ` How are equipment prices projected to change over one year? Over three years? What is the basis for this projection? Do installation and equipment"j${L0*((%" charges limit the extent to which DBS services serve as reasonable substitutes for cable services? (#`  Y-(j)` ` What developments have there been concerning licensing and distribution arrangements for DBS equipment (such as plans for Sony to begin production  Y-and for other manufacturers to be licensed)?M Y-ԍSpace Business Update, Aerospace Daily, Mar. 22, 1995 (three additional suppliers of DBS equipment have been licensed Hughes Network Systems, Toshiba American Consumer Products and Uniden America Corp.). (#`  Y_-(41.` ` We would like to update the information reported on existing permittees that  YH-were identified in the 1994 Competition Report.cNHM YF -ԍ 1994 Competition Report, 9 FCC Rcd at 7476, 67.c What are the projected launch dates for these systems and their anticipated service offerings? What type of arrangements have been made for licensing and distribution of the equipment and systems for services that are not yet launched? Is it anticipated that these services will use the same or different receiving equipment as DirecTV and USSB?  Y -)42.` ` In addition to the issues addressed in the questions set forth above, the Commission observes that local zoning and other regulations may potentially serve as an  Y-impediment to the development and expansion of DBS service.QO YC-ԍSee 47 C.F.R.  25.104.Q In that regard, we note that  Y{-the Commission recently adopted a Notice of Proposed Rulemaking concerning the issue.P{ Y-ԍ Preemption of Local Zoning Regulation of Satellite Earth Stations, Notice of Proposed  Y-Rulemaking, IB Docket 95-59 (FCC 95180, Apr. 27, 1995) ("Zoning Notice"). We seek comment on these issues.  W8-` `  b. Home Satellite Dishes   Y -*43. ` ` Home satellite dishes ("HSDs") are seven to ten feet in diameter and receive video programming transmitted in the Cband of frequencies. HSD owners can watch approximately 150 unscrambled signals without payment and over 100 scrambled channels  Y-purchased from program packagers. Comments cited in the 1994 Competition Report indicated that there were approximately four million HSD users, roughly half of whom subscribe to one or more programming services.  Yk-+44. ` ` We intend to update the information concerning the current status of  YT-competition from HSD systems that was presented in the 1994 Competition Report.uQTQ  YV'-ԍ1994 Competition Report, 9 FCC Rcd at 747882,  7177.u Among"T Q0*((\" the issues that we intend to explore are: (a)the current and projected future numbers of HSD systems and subscribers, and their locations; (b)the channel capacities of HSD systems and the numbers of channels of programming offered in program packages; (c) prices for HSD systems and program packages; and (d)the extent to which HSD owners subscribe to  Y-cable services and the reasons given for such subscriptions. We note that the 1994  Y-Competition Report's analysis of these issues was based largely on public information, and we intend to use such information to the extent possible in the 1995 Competition Report. Commenters should nevertheless feel free to comment or provide any information on the foregoing that they wish to bring to our attention. In addition, we invite comments on any problems with the information presented last year, the method used to develop the  Y -information, or any additional information that the Commission should consider.(#(#  Y -,45.` ` We also request comments concerning the following questions:  Y -(a)` ` How are HSD services marketed to subscribers? What is the projected growth of HSD use in the next year? Three years? What is the basis for this projection? (#`  Yf-(b)` ` Has the inability to offer local broadcast channels affected the competitive impact of HSD services? Have there been any developments that would permit HSD owners to use their systems to receive local broadcast channels?(#`  Y -(c)` ` The HSD industry reportedly had a record year in 1994 in terms of systems  Y-sold and subscriptions to packaged programming services.R Yl-ԍ Media Business Corp., DTH Nears $2.5 Billion Retail, Sky Report, Feb. 1995, at 59. To what can that success be attributed? (#`  Y-(d)` ` Sales of new HSD systems and new subscriptions to HSD package programming services grew at substantially slower rates in the last few months  Y-of 1994.4S{ Y-ԍ Id. 4 To what can that decline be attributed? Is that decline related to the rollout and marketing of DBS? (#`  Y;--46.` ` In addition to the issues addressed in the questions set forth above, the Commission recognizes that local zoning and other regulations may potentially serve as  Y -impediments to the development and expansion of HSD services.JT . Y#-ԍ See 47 C.F.R.  25.104.J We seek comment on  Y-these issues concerning zoningZU Y&-ԍ See Zoning Notice, IB Docket 95-59. Z and other local regulations that affect competition from HSD services. "U0*(( !"Ԍ U-ԙ` `  6. Local Exchange Carriers/Video Dialtone Services  Y-  Y-.47. ` ` The Communications Act and Commission rules generally prohibit local telephone companies ("LECs") from providing video programming directly to subscribers  Y-within their service areas.IVx Y-ԍ Communications Act  613(b), 47 U.S.C.  533(b). See also 47 C.F.R.  63.54, 63.58. The crossownership restriction was instituted by the Commission in 1970, following a series of proceedings in which the Commission found that telephone companies denied access or provided discriminatory access to cable systems to utility poles necessary for cable distribution. Certain aspects of the regulatory restriction were codified by Congress in the 1984 Cable Act. Communications Act  613(b), 47 U.S.C.  533(b) (1984). I They are, however, permitted to provide video programming  Y-outside their service areas and in rural areas.QW YF -ԍ 47 C.F.R.  63.08, 63.09, 63.88.Q In addition, the court ordered agreement under which AT&T divested its local exchange telephone service (the "Modification of Final Judgment" or "MFJ") restricts the ability of the Bell Operating Companies ("BOCs") to  YH-transmit communications between or beyond the local calling areas of their regions.XH Y-ԍ United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v.  Y-United States, 460 U.S. 1001 (1983). Over the past few years, LECs have, however, been obtaining greater freedom to participate in the multichannel video marketplace.  Y -/48.` ` In 1992, the Commission established a video dialtone ("VDT") framework which allows LECs, consistent with the Communications Act, to make available on a nondiscriminatory common carrier basis, a platform capable of transmitting video  Y -programming supplied by an unaffiliated entity./Y W  Y-ԍ Telephone Co.Cable Television CrossOwnership Rules, Sections 63.5463.58, Second Report and Order, Recommendation to Congress and Second Further Notice of Proposed  Y-Rulemaking, CC Docket No. 87266, 7 FCC Rcd 5781 (1992). / Since that time, the Commission has  Y-authorized technical and market trials as well as permanent VDT service.MZ Y-ԍ  1994 Competition Report, 9 FCC Rcd at 7499500,  10911. As of May 4, 1995, the Commission had granted twelve permanent and ten trial VDT authorizations and eleven applications were pending. In addition, two applications filed by Bell Atlantic were suspended at its request. M In addition, in 1993, the U.S. District Court for the Eastern District of Virginia held the crossownership prohibition unconstitutional as applied to Bell Atlantic in its service areas; in 1994 US West"bLZ0*((+"  Y-obtained a similar ruling in the U.S. District Court for the Western District of Washington.#[ Yy-ԍ Chesapeake & Potomac Tel. Co. v. United States, 830 F. Supp. 909 (E.D. Va. 1993),  Yd-aff'd, 42 F.3d 181 (4th Cir. 1994) (Section 533(b) held unconstitutional as applied to Bell  YO-Atlantic within its service areas); US West, Inc. v. United States, 855 F. Supp. 1184 (W.D.  Y:-Wa. June 15, 1994), aff'd, 48 F.3d 1092 (9th Cir. 1995) (Section 533(b) held unconstitutional as applied to US West within its service areas). #  Y-Since the Commission issued the 1994 Competition Report, several other courts have struck  Y-down the crossownership prohibition.\% Y -ԍSee, e.g., Ameritech Corp. v. U.S., 867 F. Supp. 721 (N.D. Ill. Oct. 28, 1994);  Y -NYNEX Corp. v. U.S., No. 93323PC (D. Me. Dec. 8, 1994).  Y-049.` ` In light of these decisions, the Cable Services Bureau, Common Carrier Bureau and the Office of the General Counsel announced that they will no longer enforce the crossownership restriction against: (1) any telephone companies that are parties to cases in which the Commission is enjoined from enforcing Section 613(b), including NYNEX, Ameritech, BellSouth, Bell Atlantic, US WEST, GTE, and most members of the United States Telephone Association, Organization for the Protection and Advancement of Small Telephone Companies and National Telephone Cooperative Association; and (2) any other telephone companies, to the extent they operate in the Fourth and Ninth Circuits, regardless  Y -of their status as parties to any suit.]  Yb-ԍ Public Notice, DA 95520, Mar. 17, 1995, corrected, DA 95722, Apr. 3, 1995. Ċ  Y -150.` ` #Xw PE37=XP#The Commission has several ongoing proceedings regarding video dialtone  Y -services. The Commission issued a Fourth Further Notice of Proposed Rulemaking to consider changes in its video dialtone rules in light of court decisions such as those described above, and to consider the extent to which Title II and Title VI of the Communications Act apply to telephone companies providing video programming directly to subscribers in their  YO-telephone service areas over video dialtone facilities.P^Ov  Yv-ԍ#Xw PE37=XP# Telephone Co.Cable Television CrossOwnership Rules, Sections 63.5463.58, Fourth  Ya-Further Notice of Proposed Rulemaking, CC Docket No. 87266, (FCC 9520 Jan. 20,  YL-1995).#x6X@`7>fX@#P The Commission also issued a Third  Y:-Further Notice of Proposed Rulemaking which sought information and comment on a number of issues including (1) channel capacity issues, (2) criteria for evaluating the viability of additional wirebased video competition in particular markets in the context of a proposal to use these criteria to modify the Commission's ban on the acquisition by telephone companies of cable facilities in their telephone service areas for use in the provision of video dialtone, (3) whether the Commission should require or permit LECs to provide preferential access or discounted rates to commercial broadcasters and/or certain types of notforprofit programmers; and (4) whether we should adopt additional rules with respect to pole" ^0*(("  Y-attachments and conduit rights.D_ Yy-ԍ#Xw PE37=XP# Telephone Co.Cable Television CrossOwnership Rules, Sections 63.5463.58, Memorandum Opinion and Order on Reconsideration and Third Further Notice of Proposed  YM-Rulemaking, CC Docket No. 87266, 10 FCC Rcd 244 (1994).D The Commission is also processing a series of Section 214  Y-applications for video dialtone facilities and services.`O Y-ԍ#Xw PE37=XP# See Communications Act  214, 47 U.S.C.  214.#x6X@`7>fX@#Ѳ  Y-251. ` ` We intend to update the information concerning the current status of the  Y-deployment of VDT technology that was presented in the 1994 Competition Report.wa YW -ԍ1994 Competition Report, 9 FCC Rcd at 7495505,  10320.w Among the issues that we intend to explore are: (a)the current projections for competition from VDT networks that are the subject of pending applications for Section 214 authorization; and (b)the results obtained in various market trials for which reports have been filed with the Commission (including information on channel capacity and digital versus analog, system architecture, pricing, penetration rates, subscriber interface equipment, programmer  Y -customers). We note that the 1994 Competition Report's analysis of these issues was based largely on public information and filings with the Commission, and we intend to use such information to the extent possible in the 1995 Competition Report. Commenters should nevertheless feel free to comment or provide any information on the foregoing that they wish to bring to our attention. In addition, we invite comments on any problems with the information presented last year, the method used to develop the information, or any additional information that the Commission should consider.  Yf-352.` ` We also recognize that considerable information has been provided to the Commission in filings in the VDT proceedings described above concerning various issues relevant to the 1995 Competition Report. While we do not ask parties to repeat their comments that have been filed in other proceedings, we request any supplemental information parties choose to submit on these issues.  Y-453.` ` In addition to the foregoing, the Commission seeks comments concerning the following questions:  Y-(a) ` ` How will the prices and services offered over VDT networks compare to the prices and services charged by cable operators? How will this comparison change over time? What is the basis for this prediction?(#`   Y;-(b) ` ` What are the technological impediments and advantages to the deployment of VDT platforms as competitive alternatives to cable systems?(#`  Y-X(c)X` ` What is the status of the buildout of systems for which Section 214 authorizations have been granted? (#` "a0*(( "Ԍ  Y-(d)` ` Have the plans for deployment of VDT networks for which Section 214 authorizations have been granted, or the plans for deployment of VDT networks that are the subject of applications currently pending before the  Y-Commission, been affected by events since the 1994 Competition Report? (#`  Yx-(e)` ` What are the current plans for deployment of VDT systems that are not currently the subject of applications before the Commission? (#`  Y3-(f)` ` Are there particular market characteristics, such as relatively high population density, that are necessary to support competition between VDT and cable systems? Will this limit competition to certain types of geographic areas, such as large metropolitan areas? (#`  Y -554.` ` We also note that in January 1995, Rochester Telephone and its Vancouver, Canada based partner USA Video Corporation reportedly ended their videoondemand trial  Y-due to lack of customer demand for the services.b Y -ԍ Richard Karpinski, No Demand for VideoonDemand Rochester Quits its Trial, Interactive Age, Jan. 30, 1995, at 5. Commenters are asked to discuss any implications of this development.  YM-655.` ` #Xw PE37=XP#Finally, we note that in October 1994, Bell Atlantic, NYNEX, and Pacific Telesis Group announced the formation of a joint venture in the area of interactive video networks. One part of the venture reportedly will produce content for the networks and the other will develop technical systems. Another company, named Interactive Digital Solutions, was formed by Silicon Graphics and AT&T in October 1994 to develop network  Y-infrastructure and related services.cd Y-ԍ Heather Clancy, Telcos Step Up Integration Activities Baby Bells Team Up on  Y-Information Superhighway Effort, Computer Reseller News, Nov. 7, 1994, at 283. Finally, Ameritech, BellSouth and SBC Communications announced a definitive agreement with Disney Corporation to develop and  Y-package video programming and interactive services.d Y_-ԍ Three RHCs Join Disney in $500Million Project to Develop Video Service, Comm. Daily, Apr. 19, 1995, at 12. We seek comment on the competitive implications of these developments.  Ug-` `  7. Broadcast Television Service   Y9-756. ` ` In the 1994 Competition Report, we stated that broadcast television stations continue to be significant distributors of video programming. We indicated that broadcast television is an important source of entertainment, news, public affairs and sports programming. Between 1984 and 1994, the number of broadcast stations, commercial and"d0*(( " noncommercial, grew from 1149 to 1518, and a fourth national network, Fox, emerged. In addition, in recent months, two new networks United Paramount and Warner have started program distribution. Broadcast stations, whether received overtheair or through the facilities of an MVPD, still attract a large portion of the viewing audience. For example, as  Y-noted in the 1994 Competition Report, twothirds of all cable television viewers watching television in the 1992 to 1993 season were viewing a retransmitted broadcast signal. In addition, approximately onethird of all television households choose not to subscribe to cable service. Overtheair television seems to satisfy their demand for video programming.  YJ-Nevertheless, we concluded, in the 1994 Competition Report, that broadcast stations alone cannot currently provide the full range of specialized services offered by cable and other  Y -MVPDs.pe  Y -ԍ 1994 Competition Report, 9 FCC Rcd at 749295,  97102. p   Y -857.` ` The Commission intends to explore in the 1995 Competition Report the implications of the developments mentioned in the preceding paragraph for competition from broadcast television and requests comments concerning the following questions:  Y-(a)` ` Has the role of broadcast networks changed with the entry of new networks (United Paramount and Warner) in the last year? What is the effect of the fact that at least one of these networks (Warner) is relying on cable carriage of a superstation to provide access to households in areas where they have been  Y8-unable to enter into affiliation agreements with local broadcast stations?f8{ Yd-ԍ Warner indicates that 18% of its coverage will come from cable carriage of  YM-superstation WGN. David Tobenkin, New Players Get Ready to Roll, Broadcasting & Cable, Jan. 2, 1995, at 3031.(#`   Y -(b)` ` To what extent is any constraining effect of broadcast networks on the conduct of cable systems affected by the fact that they provide programming that is an important component of the services offered by cable systems? How is any constraining effect limited by the fact that a substantial percentage of broadcast network audiences are viewing the programming through distribution over cable systems? (#`  Yi-(c)` ` What is the competitive effect of broadcast television in conjunction with  YR-multichannel distribution services such as DBS, which is prohibited from offering networkaffiliated broadcast television stations except in limited  Y$-areas,g$ Y$-ԍ 17 U.S.C.  119, Satellite Home Viewer Act of 1988, Pub. L. 100667, 102 Stat. 3949 (1988), extended by the Satellite Home Viewer Act of 1994, Pub. L. 103369, 108 Stat. 3477 (1994) on the program delivery market? (#` "  g0*(("Ԍ Y-958.` ` In addition to the issues addressed in the questions set forth above, advances in broadcast technology, such as digital compression and advanced television, could (a) permit multiple programs to be broadcast over a single channel, and (b) expand greatly the overall  Y-number of broadcast video signals available in a particular geographic market./h Y4-ԍ Advanced Television Systems and Their Impact upon the Existing Television Broadcast Service, Memorandum Opinion and Order/Third Report and Order/Third Further Notice of  Y-Proposed Rule Making, MM Docket No. 87268, 7 FCC Rcd 6924 (1992)./ We ask for comment on the extent to which such changes would strengthen overtheair broadcast as a competitor to cable.  Y_-:59. ` ` In addition to fullpower broadcast television stations, the Commission licenses lowpower television ("LPTV"). These stations, assigned to the same VHF and UHF broadcast spectrum as fullpower stations, operate at lower power, reach more limited  Y -geographic areas and are afforded secondary status to fullpower stations.Fi O Y-ԍ See 47 C.F.R. Part 74.F Under existing Commission rules, an entity could use LPTV stations to offer multichannel video programming service that could be a competitor, especially to premium channels or packages  Y -of such channels.oj  Y-ԍ 1994 Competition Report, 9 FCC Rcd at 750708,  12630.o The Commission's rules permit LPTV stations to offer "subscription television," whereby the broadcaster charges a fee for the provision of one or more  Y -scrambled channels and the equipment to decode the signal.Fk  Y -ԍ 47 C.F.R.  73.642(a)(2).F Furthermore, the rules permit an LPTV operator to own more than one such station in a market, unlike the restriction of  Yy-one station to a market for fullpower stations.Clyf  Y-ԍ 47 C.F.R.  74.732(b).C Thus, multiple LPTV stations in a market could be combined to provide multichannel video service. On the other hand, the allocation  YK-of spectrum for LPTV use has been frozen in the largest markets in the United States.mK  Y-ԍ See Public Notice, Notice of Limited Low Power Television/Television Translator  Y-Filing Window from April 11, 1994 Through April 15, 1995, released Mar. 3, 1994. In light of these developments, the Commission invites comment concerning the extent to which LPTV technology might be deployed to provide a competitive alternative to cable services if the spectrum is made available for this purpose.  U-` `  8. Other Distribution Technologies   Y-;60. ` ` The Commission intends to explore in the 1995 Competition Report the effect of the widespread ownership and use of video cassette recorders ("VCRs") on competition in the market for video programming. Although VCRs are not multichannel video"| m0*((" programming distributors, the Commission has previously observed that the widespread use of VCRs to view overtheair television programs at times other than when they are broadcast and to view prerecorded programming provides competition, at least in part, to  Y-traditional cable service offerings.fn Y4-ԍ 1990 Report, 5 FCC Rcd at 50195020,  109110.f A Commission staff study determined that VCRs are best considered a competitor to the premium and payperview services provided by cable  Y-operators because both offer commercialfree movies.o{ Y-ԍ See Florence Setzer & Jonathan Levy, Broadcast Television in a Multichannel  Y -Marketplace 108 (Federal Communications Commission, Office of Plans and Policy, OPP Working Paper 26, June 1991). We invite comment concerning the extent to which the widespread ownership and use of VCR technology might constrain cable system operators' conduct in markets for the distribution of video programming.  Y1-<61.` ` We also want to examine in the 1995 Competition Report whether the deployment of interactive video and data service (IVDS) will affect competition in the MVPD market. Among the issues regarding IVDS that the Commission may explore in the 1995 Competition Report are: (a) the identities of the licensees, and the locations in which they are authorized to provide service; (b) the types of services that licensees currently envision offering, and the schedule for deploying those services; and (c) the extent to which these services could be substitutes or complements for services offered by cable system operators, and what those services are. Accordingly, we invite comments on the proposed issues, method of developing information, or any additional information that the Commission should consider. We recognize that information may have been provided to the Commission in filings in IVDS proceedings which may be relevant to the 1995 Competition Report. We do not ask parties to repeat here the substance of comments that have been filed in that proceeding except to the extent that they wish to bring particular matters to our attention.  U-` ` 9. Other Distributors  Y-  Y-=62. ` ` The Commission intends to explore in the 1995 Competition Report the  Y-possible entry of other types of firms into the market for the delivery of multichannel video(#(#  Y-programming, such as electric utilities.p YF -ԍ We define electric utilities to include investorowned utilities, municipal utility systems, and exempt public utility holding companies. 15 U.S.C.  79c. The 1994 Competition Report stated that some  Y~-municipal electric utility companies are actively engaged in or contemplating overbuilding.sq~ Y#-ԍ See 1994 Competition Report, 9 FCC Rcd at 750809,  13133.s The Commission also learned that plans to use electric power lines to provide multichannel video services are not welldeveloped. Nonetheless, the possibility of entry by electric utilities cannot be ignored due to the fact that those companies have already incurred substantial costs to deploy a network that reaches nearly every household in the country. ""O q0*((<"Ԍ Y-ԙ>63.` ` A number of electric companies are considering the development of broadband  Y-networks that are capable of distributing video programming and telephone services.r Yb-ԍ See, e.g., Clark Gellings and Karl Stahlkoph, Positioning Strategies: Utility  YM-Information Superhighway 5-11 (1994) (presentation prepared for Electric Power Research  Y8-Institute); Power Companies Outline Plans, Current Projects at Conference on Utility  Y#-Telecom Involvement, Telco Competition Report, Feb. 28, 1995; Vincente Pasdeloup,  Y-Utilities Buzz About Telecoms, Cable World, Feb. 20, 1995, at 86; Harry A. Jessell, Utilities  Y-Getting into Telecommunications, Broadcasting & Cable, Nov. 7, 1994, at 54. One reason for this activity has been the need for twoway communications capabilities in order to implement energy management solutions. A number of power companies have also formed  Y-alliances with cable companies or telephone companies,s Yg -ԍ See, e.g., Industry Giants Push Into Energy Management Market, Comm. Daily, Feb. 28, 1995, at 8. which could limit the competitive threat posed by the video transmission potential of these networks. Nonetheless, there remains significant interest in developing this potential "third line" into homes. In connection with these developments, we invite comments concerning the following questions:  Y1-(a)` ` What is the likelihood that a significant number of power companies might enter the market for the delivery of video services? Which are the existing, emerging or potential providers of video programming service among these companies? (#`  Y -(b)` ` Is it more likely that power companies might choose to serve as "pipeline" companies, and offer the use of their facilities to other video programming providers? (#`  Yb-(c) ` ` What are the joint ventures, existing or planned, between cable or other communications companies (e.g., LECs, long distance telephone companies) and utilities to implement energy management programs or to provide video services. Should the Commission be concerned about those ventures because they may result in the elimination of a potential source of entry into the market for the delivery of multichannel video programming? To what extent do these joint ventures yield increased efficiency due to economies of scale and scope or for other reasons? (#`  U-` ` 10. Technological Advances  Y|-  Ye-?64. ` ` There are technological changes and developments that may directly affect the competitive structure of the market for the delivery of video programming. As we observed  Y7-in the 1994 Competition Report, these issues may have a significant effect on how competition develops and the manner in which consumers have access to the services these"" s0*(("  Y-technologies may provide.kt Yy-ԍ 1994 Competition Report, 9 FCC Rcd at 7539,  200.k  Y-@65.` ` One significant technological development that may have profound effects on the future of competition in markets for the delivery of video programming is the  Y-development of digital compression technology. Digital compression is a technology that reduces the amount of information needed to transmit digitally recorded video, audio and text. This reduction in size or "compression" of digital information can increase the capacity of MVPDs' distribution systems by as much as eight times. It seems likely that such technology will be gradually integrated into information distribution systems, paralleling the transition from analog programming to digitally formatted programming and the introduction of high definition television ("HDTV"). The more quickly programmers and distributors transition to a digital format the sooner they will realize the benefits of compression technology.  Y -A66. ` ` A number of barriers stand in the way of the transition to digital compression. The first barrier is the determination of a standard digital encoding scheme. Without a standard scheme it is conceivable that not all digital programming would be compatible with all distribution systems. A number of different coding schemes have been developed, but the front runner seems to be MPEG2, developed under the guidance of the Motion Picture  YK-Experts Group.uK{ Yw-ԍ Leslie Ellis, SetTop Wars Won't Brew 'Til '96, Multichannel News, Feb. 13, 1995, at 3. General Instrument, a leading supplier of settop boxes, is including an MPEG2 option on its soon to be shipped DigiCipher digital settop boxes. Other equipment suppliers, including Hewlett Packard and Scientific Atlanta, are similarly proceeding in the development of their own boxes.  Y-B67. ` ` Another potential barrier to the implementation of digital conversion is the cost of settop boxes. If MPEG2 does in fact become the industry standard, consumers must be provided hardware and software needed to process digital signals. Right now, the most basic  Y-of digital settop boxes costs in the range of $600.|v Y[-ԍ Paul Kagan Associates, Inc., Marketing New Media, Feb. 20, 1995, at 1.| Some observers believe that MSOs will  Y|-not begin to invest substantially in digital boxes until prices fall beneath $400.3w| Y!-ԍ Id.3  YN-C68. ` ` A third potential barrier may be the supply of digitally encoded programming. The process of converting analog programming to a digital format has gone through many  Y -refinements, but it still imposes additional costs.px } YN'-ԍ Interactive Age, What Does Encoding Cost?, Nov. 14, 1994, at 36.p As digital distribution channels begin to"  0 x0*((<" emerge, the amount of digital programming will grow, but it may be a number of years before digitally encoded programming displaces analog programming. We ask for comment on the amount of digital programming that is available.  Y-D69. ` ` In connection with these developments, we invite comments concerning the following questions:  Y_-(a)` ` How will competitors using different technologies take advantage of digital compression to enhance their services? Are some competitors likely to derive a greater benefit than others by the use of digital compression? (#`  Y -(b)` ` Is it more likely that digital compression will result in convergence of costs and services among competitors using different technologies, or is it more likely that it will lead to greater divergence among competitors?(#`  Y -(c)` ` What will be the likely barriers, if any, to the deployment of digital compression technology? How can the Commission remove barriers to deployment of this technology?(#`   YK-E70. ` ` The Commission also expects to explore in the 1995 Competition Report the different transmission media used for distribution of multichannel video programming, such as copper wire, coaxial cable, optical fiber, broadcast and other terrestrial radio frequency communications, terrestrial microwave and satellites, and how they affect, and will affect, industry structure and competition for the provision of video services. We will also explore the hybridization of different transmission media as well as system configurations and designs which may also affect competition. In connection with these issues, we intend to develop information concerning the competitive effects of the various compression, modulation, digitization, multiplexing, data storage and switching techniques that are designed to increase network capacity, efficiency and functionality, and to enhance available services.  YN-F71.` ` In connection with these issues, we invite comments concerning the following questions:  Y -(a)` ` What are the capabilities of each technology and the types of services for which each may be applicable? (#`  Y -(b)` ` How will the new technologies be combined with existing technologies? (#`  Y"-(c)` ` When will these technological advances be deployed and what is the potential competitive impact of the deployment of these advances?(#` "h$!x0*((%"Ԍ Y-(d)` ` What changes can be expected from the widespread availability of such technologies? Will technological advances principally affect distribution in local or national markets, or will it affect both equally? (#`  Y-(e)` ` Should the Commission's regulatory framework be modified in any way to eliminate impediments to the competitive deployment of these new technologies? (#`   YH-(f)` ` Should the Commission adopt standards for any or all of these transmission media?(#`  Y -G72. ` ` The Commission is also interested in technologies that will facilitate consumer access to the various distribution media and services they are expected to provide. To facilitate consumer needs in the video services area, the Commission established new cableconsumer equipment compatibility regulations, which include measures that assure improved compatibility between existing cable system equipment and consumer television equipment. They also include provisions for achieving more effective compatibility through new cable  Yy-and consumer equipment./yy Y-ԍ Implementation of Section 17 of the 1992 Cable Act (Compatibility Between Cable  Y-Systems and Consumer Electronics Equipment), First Report and Order, ET Docket No.  Y-937, 9 FCC Rcd 1981 (1994), recon. pending. /  YK-H73.` ` The Commission is aware that future cable services may require additional functionality for settop boxes/terminals. In connection with these settop boxes/terminals we invite comments concerning the following questions:  Y-(a)` ` What are the advantages and disadvantages of having subscribers own settop boxes?(#`  Y-(b)` ` What functionalities are included in current settop boxes?(#`  Y|-(c)` ` To what extent can settop boxes be purchased or leased from sources other than cable operators? (#`  Y7-(d)` ` To what extent do current market conditions, including Commission rules and regulations, inhibit the development of a competitive market for settop boxes? (#`  Y-(e)` ` Could a competitive retail market develop for consumerowned settop boxes? What is the potential size and structure of such a market? Should the Commission take steps to promote the development of a competitive retail market for settop boxes that is separate from markets for the provision of video services?(#` """Qy0*((#"Ԍ Y-ԙ(f)` ` We also seek comment about future cable and broadband services that are projected to require additional functionality for settop boxes, and what steps, if any, the Commission might take to ensure development of a competitive market for such equipment.(#`  X-   V.MARKET STRUCTURE AND COMPETITION  Y_-I74. ` ` The Commission intends to explore in the 1995 Competition Report the status of horizontal concentration and vertical integration in the cable television industry and market structure conditions, such as economies of scale and scope and extensive sunk cost investments, which may affect competition in markets for the delivery of video programming. The information that the Commission develops, both from publicly available  Y -sources and comments filed in response to this NOI, will be used to assess the performance of the market for delivered video programming and to analyze developments that have the potential to change that performance.  X- A.` ` Horizontal Concentration in the Cable Industry  Ud-` `  1. Horizontal Concentration in Local Markets    Y6-J75. ` ` Horizontal concentration refers to the number and market shares of sellers in  Y-the video marketplace. Since the 1994 Competition Report, DBS has become available nationwide. In most franchise areas, DBS and HSD are the only alternatives to the single cable operator as sources of multichannel video programming that are available to cable subscribers. Where other alternative multichannel video distributors exist, their market share is generally small. In the 1995 Competition Report, the Commission would like to identify as many markets as possible where cable operators face competition from MVPDs other than DBS operators or HSD package programmers, and develop a picture of what that competition is like. In particular, the Commission would like to obtain information concerning: (a)the identity and type of competitor; (b)when it entered; (c)the location of the market, including whether it is predominantly urban or rural; (d)an estimate of the subscribership and market share for the services of the competitor(s); (e)a description of competitive service offerings; (f) the prices charged for these offerings; and (g) the incumbent's competitive responses. In this regard, we invite comments on these issues from any parties with specific information on competition in local markets and any other matters that they feel are relevant to the issue of local competition.  Y!-K76.` ` The Commission also recognizes that the use of the franchise area as the relevant geographic area is subject to question. Some viewers within a franchise area may have access and subscribe to competitive alternatives such as services from SMATV, MMDS or DBS operators, but subscribing viewers may not be sufficient in number to meet the "effective competition" definition of the 1992 Cable Act. Nonetheless, cable service"U%#y0*((p&"  Y-providers may be competitively constrained by the availability of these services.z Yy-ԍ TELCOM, INC. (Petition for Reconsideration of Certification of West Virginia Cable Television Advisory Board to regulate basic cable rates (WV0630 & WV0628)), Memorandum  YM-Opinion and Order, 10 FCC Rcd 2114 (1995). Competitors in local markets may also forego price competition, and instead focus their energies on differentiating their services from those of competitors, particularly in terms of the amount and types of programming offered or their responsiveness to customer needs and complaints. We seek comment on the foregoing.  Uv-` `  2. Horizontal Concentration Nationally    YH-L77. ` ` Concentration at the industry level is also significant because the market for the delivery of video programming may be evolving toward a national market. In addition, the market for programming, in which producers supply their programming to distributors, appears to be national in scope. When it enacted Section 11 of the 1992 Cable Act, Congress recognized that there are beneficial and harmful effects from increased horizontal  Y -concentration.{ O Y-ԍ See House Committee on Energy and Commerce, H.R. Rep. 623 ("House Report"), 102d Cong., 2nd Sess. at 4243 (1992). In light of these effects, we seek to identify the share of cable subscribers nationwide served by each company or MSO. Large MSOs may be able to operate more efficiently in a variety of areas, including administration, distribution and procurement of programming. However, large MSOs also may be able to obtain concessions from cable programmers in exchange for carriage, which could discourage the entry of new programming services and adversely impact the diversity of programming available to  YK-consumers. In this NOI, we seek information that will allow us to continue to monitor  Y6-industry concentration and to assess its effects on the video marketplace.| 6 Y-ԍ In the 1992 Cable Act, Congress required the Commission to establish limits on the number of cable subscribers that an entity is authorized to reach through cable systems it owns, controls or in which it holds an attributable interest. Communications Act 613(f)(1)(A), 47 U.S.C.  533(f)(1)(A). To implement this requirement, the Commission established a 30% limit on the number of homes passed nationwide, or 35% if the additional systems are "minoritycontrolled," that any one entity can reach through its cable systems.  YH -See Implementation of Sections 11 and 13 of the 1992 Cable Act, Second Report and Order,  Y3!-MM Docket No. 92264, 8 FCC Rcd 8565 (1993) ("Subscriber and Channel Occupancy  Y"-Limits Order"), recon. denied, Memorandum Opinion and Order on Reconsideration of the  Y #-Second Report and Order, FCC 95147 (Apr. 5, 1995). Following a federal district court  Y#-ruling that Section 11(c) of the 1992 Cable Act is unconstitutional, the Commission stayed  Y$-enforcement of its horizontal ownership rules. See Daniels Cablevision, Inc. v. United  Y%-States, 835 F. Supp. 1, 10 (D.D.C.), appeal docketed and pending, Civ. Act. No. 935290 (D.C. Cir. 1993)."6$}|0*(("Ԍ  Y-M78.` ` In the 1994 Competition Report, the Commission reported that there has been a moderate increase in the nationwide horizontal concentration of the cable industry since the  Y-issuance of the 1990 Cable Report, as measured by the HerfindahlHirschman Index  Y-("HHI"),w} Y!-ԍ See 1994 Competition Report, 9 FCC Rcd at 758688, App. G, Tbls. 1 & 2.w which is a standard measure of horizontal concentration. ~{ Y-ԍ The HHI is calculated by summing the squares of the firms' percentage shares of the  Y-market. 1992 Horizontal Merger Guidelines,  1.5, 4 Trade Reg Rep. (CCH)  13,104, at20,5734 to 20,5736.  Whether an HHI measurement, or any measure of concentration at the national level, is meaningful depends  Yz-on the existence of a national cable market. As we discussed,nz Y+ -ԍ 1994 Competition Report, 9 FCC Rcd at 746768,  4953.n the relevant market for the purpose of analyzing competition in the cable industry is generally local, although there may be larger markets in the future, should other technologies become competitive. When examining issues involving cable programming, however, the relevant geographic market may well be national, and in that context, the national HHI provides more useful information.  Y -N79.` ` The Commission found in the 1994 Competition Report that the national market for the distribution of cable services was unconcentrated as of the end of the first quarter of 1994. The HHI for the industry as of March31, 1994, was 898, which  Y-represented a modest increase since 1990.M Y-ԍ Id. at 7586, App. G, Tbl. 7. M Based on industry reports, TCI had the largest  Y-market share, 24.8%,f  Y-ԍ Compare Subscriber and Channel Occupancy Limits Order, 8 FCC Rcd at 8578,  27 n.40, which includes all systems in which TCI has an attributable interest. an increase of less than one percentage point since 1990. The top four companies still had 47% of the market, and the top ten 63%.  Y:-O80.` ` By the middle of September 1994, however, transactions had been announced that would significantly alter the market shares of those ten companies. We found that, if  Y -those transactions were consummated, the HHI would rise to approximately 1051.a   Y!-ԍ 1994 Competition Report, 9 FCC Rcd at 7586, App. G, Tbl. 1A. These transactions were (1)TCI's acquisition of TeleCable (which had been the 18th largest MSO), which added over 700,000 subscribers to TCI's total; (2)Comcast's acquisition from Rogers Communications ("Rogers") of those systems in the United States that Rogers acquired from Maclean Hunter (which had been the 28th largest MSO) earlier this year; (3) Cox Cable Communications, Inc.'s acquisition of the cable systems of Times Mirror Company (which had been the 10th largest MSO); and"7'0*((n'"Ԍ(4) Time Warner's consolidation in a joint venture of certain of its systems with those operated by Newhouse Broadcasting Corp. and Advanced Publications, Inc. (which were together the 7th largest MSO), and its purchase of Summit Communications Corporation  YK-(which had 160,000 subscribers). Id. at 7515, 145. " %60*((" Standard antitrust analysis considers a market with an HHI between 1000 and 1800 to be  Y-"moderately concentrated."6 Y-ԍ 1992 Horizontal Merger Guidelines,  1.51, 4 Trade Reg. Rep. (CCH)  13,104, at20,5735 to 20,5736. As expected, those transactions were consummated. Moreover, several additional mergers have been announced that will result in further national  Y-concentration.  Y> -ԍ For example, Time Warner has announced agreements to acquire Cablevision Industries (which is the 8th largest MSO), and the KBLCOM systems from Houston  Y-Industries (which is the 22nd largest MSO). See Rich Brown, Time Warner Eyes 2.5 Million  Y-Subs for $5 Billion, Broadcasting & Cable, Jan. 23, 1995, at 4. Continental Cablevision has agreed to buy the cable systems of the Providence Journal (which is the 17th largest MSO).  Y-See Cable Clustering Makes for Active Market, Broadcasting and Cable, Mar. 6, 1995, at 5354. Sammons Communications, Inc (which is the 14th largest MSO), has agreed to sell approximately twothirds of its cable systems to Marcus Cable, and its remaining systems  Y-to Lenfest Group and TKR Cable, entities in which TCI has an ownership interest. See Rich  Yw-Brown, Sammons Bags $1 Billion, Broadcasting & Cable, Mar. 13, 1995, at 11; TCI Picks  Yb-Up Cable Systems in N.J., Pa., Broadcasting & Cable, Mar. 27, 1995, at 14.   Y-P81.` ` In order to evaluate fully the effects of horizontal concentration nationally, we  Yv-intend to update and expand on the information that was provided in the 1994 Competition  Ya-Report, including that which was presented in Appendix G.ga Y-ԍ 1994 Competition Report, 9 FCC Rcd at 7586603, App. G.g We note that the 1994  YL-Competition Report's analysis of these issues was based largely on public information, and we intend to use such information to the extent possible in the 1995 Competition Report. Commenters should nevertheless feel free to comment or provide any information on the foregoing that they wish to bring to our attention. In addition, we invite comments on any problems with the information presented last year, the method used to develop the information, or any additional information that the Commission should consider. In addition, we seek comment on the following:  Y-(a)` ` What are the reasons for the recent transactions that have resulted in the substantial increases in horizontal concentration nationally?(#`  YQ-(b)` ` What are the potential procompetitive and anticompetitive effects of horizontal concentration nationally? (#` "#&\0*(("Ԍ Y-(c)` ` To what extent does national concentration actually affect competition in markets for the delivery of video programming? Should the Commission be concerned about the increases in such concentration?(#`  Y-Q82. ` ` In addition to analyzing the concentration of the cable industry at the national level, we believe it is appropriate to evaluate the concentration of ownership on a regional  Yv-basis.In the 1994 Competition Report, the Commission wrote, "[c]oncentration in regional,  Ya-or locally clustered, marketing areas may also be procompetitive or anticompetitive."Fa Y-ԍ Id. at 7518,  151.F We noted that "regional concentration may result in significant efficiencies," and "may also reflect the desire of cable operators to enter the telephone business, or it may reflect strategic decisions by cable operators to position themselves to compete against LECs that are poised  Y -to enter the market for the distribution of multichannel video programming."P { Y1-ԍ Id. at 751819,  15253.P These efficiencies from clustering were recognized by the Cable Services Bureau in its decision approving license transfers associated with Cox Cable Communications, Inc.'s acquisition of  Y -the cable systems of Times Mirror Company. . Y-ԍ Cox Cable Communications Inc and Times Mirror Company (Transfer of Control),  Y-Memorandum Opinion and Order, File No. CAR4484210, 10 FCC Rcd 1559 (CSB 1994). We invite comments concerning these and other possible procompetitive reasons for clustering.  Y{-R83.` ` On the other hand, we also noted that there may be "competitive risks  Yd-associated with increased regional clustering of commonly owned cable systems."ed Y-ԍ 1994 Competition Report, 9 FCC Rcd at 7519, 154.e In particular, we wrote that "[a] possible consequence of the accumulation of large regional clusters of interconnected cable systems is that such systems may send an entrydeterring  Y-signal to potential rivals."M YO-ԍ Id. at 751920,  155.M The Commission did not resolve the issue, however, concluding instead that even this possible effect of clustering was not unambiguously anticompetitive because "there may exist complex tradeoffs between the potential consumer benefits that are provided by the sunk cost investments of incumbent cable systems and the potential consumer benefits that new entrants may offer consumers if not deterred by incumbent cable systems." We also invite comments concerning these and other possible competitive effects of clustering.  Xg- B.` ` Vertical Integration in the Cable Industry  YP-  Y9-S84. ` ` A cable company is vertically integrated if it is affiliated with an owner of an interest in any video programming that is carried by cable systems and other MVPDs. ""'2 0*((K" Sections 11, 12 and 19 of the 1992 Cable Act were enacted to limit the ability of vertically integrated cable operators and other satellite programming vendors to inhibit competitive entry into the programming supply and distribution markets. These sections were enacted to ensure that vertically integrated cable operators do not engage in anticompetitive practices that limit the ability of unaffiliated video programming vendors to secure carriage on their cable systems. In addition, these provisions are intended to prevent MSOs from limiting competing multichannel video program distributors' access to the programming sources owned by those MSOs and to ensure that such programming is available on fair, nondiscriminatory terms.  Y -T85. ` ` Specifically, Section 11 of the 1992 Cable Act, in part, required the Commission to establish limits on the number of channels on a cable system that can be  Y -occupied by programming services in which the operator has an attributable interest.n  Ye -ԍ Communications Act  613(f)(1)(B), 47 U.S.C.  533(f)(1)(B). n To implement this provision, the Commission adopted "channel occupancy limits," under which a vertically integrated cable system may devote no more than 40% of its activated channels to national video programming services in which the system operator has an "attributable  Y-interest."y Y-ԍ See Subscriber and Channel Occupancy Order. See also 47 C.F.R.  76.501, 76.504. A cable operator may devote two additional channels or up to 45% of its channel capacity, whichever is greater, to the carriage of video programming owned by the cable operator or in which the operator has an attributable interest provided such video programming services are minority controlled.  Yb-U86.` ` Section 12 required that the Commission adopt rules governing program carriage agreements and related practices between cable operators and other MVPDs and  Y4-video programming vendors.4 Y-ԍ A video program vendor is defined as anyone engaged in the production, creation or wholesale distribution of video programming for sale. Communications Act  616, 47 U.S.C.  536. We adopted rules that prohibit cable operators from coercing programming vendors into granting them exclusive distribution rights and from discriminating against program suppliers on the basis of the operator's ownership interests  Y-("program carriage" rules).S  Y!-ԍ See Implementation of Sections 12 and 19 of the 1992 Cable Act (Development of Competition and Diversity in Video Programming Distribution and Carriage), Second Report  Y#-and Order, MM Docket No. 92265, 9 FCC Rcd 2642 (1993), recon. granted, Memorandum  Y$-Opinion and Order, 9 FCC Rcd 4415. See also 47 C.F.R.  76.13001302.  Y-V87.` ` Section 19 prohibits unfair competitive practices by vertically integrated satellite cable programming vendors, satellite broadcast cable programming vendors, and"(0*((" cable operators, including certain limits on exclusivity provisions in cable carriage  Y-agreements.Z Yb-ԍ Communications Act  628, 47 U.S.C.  548.Z To implement this section of the 1992 Cable Act, the Commission adopted rules to prevent discriminatory behavior and restrict the types of exclusive contracts that may be entered into between cable operators and vertically integrated program vendors ("program  Y-access rules").y Y-ԍ See Implementation of Sections 12 and 19 of the 1992 Cable Act (Development of  Y-Competition and Diversity in Video Programming and Carriage), First Report and Order,  Y -MM Docket No. 92265, 8 FCC Rcd 3359 (1993) recon. denied in part, 10 FCC Rcd 1902  Y -(1994). See also 47 C.F.R.  76.100076.1003.  Yv-W88. ` ` In the 1995 Competition Report, the Commission intends to update the  Y_-information presented in the 1994 Competition Report relating to vertically integrated and unaffiliated programming services, and in particular the information in Appendix G. In last year's report, a significant amount of information concerning vertical integration was provided in comments filed by parties to the proceeding. Nonetheless, it appears that the Commission can rely to a certain extent on publicly available information. We invite comments on any problems with the information presented last year, the method used to develop the information, or any additional information that the Commission should consider. We also request comments and information concerning:  Y-(a) ` ` The existing national programming services, and the extent to which they are affiliated with cable operators. In particular, the Commission would like to provide a description of the amount and type of interest, the date such interest was acquired, any changes since last year, and the percentage of ownership represented by each MSO's holdings for each programming service that is affiliated with cable interests; (#`  Y-(b)` ` The national programming service launches that have occurred over the past year, and the extent to which those services are affiliated with cable system operators;(#`  Y-(c)` ` The national programming services that have been announced for launch since last year, and to what extent they are affiliated with cable operators; (#`  YP-(d)` ` The number of subscribers and number of cable systems served by individual programming networks;(#`  Y - (e)` ` The audience ratings, primetime or all day parts, of national cable programming services; (#` ")0*(( "Ԍ Y-(f)` ` The ownership of national cable programming services by entities that are existing or potential competitors (e.g., broadcast networks) to cable systems. (#`  Y-X89. ` ` The channel occupancy rules were intended to ensure that unaffiliated programmers have sufficient opportunity to distribute their programming through cable carriage by limiting the number of channels that can be dedicated to MSOaffiliated programming services.  YH-(a)` ` Has the ability of program vendors, both affiliated and unaffiliated, to secure carriage been affected by the channel occupancy rules? Have these rules led to greater channel availability so that unaffiliated programmers can reach the desired number of subscribers?(#`  Y -(b)` ` What effect have the occupancy limits had on the ability of programmers, affiliated and unaffiliated, to launch new programming services? What is the market penetration needed to launch a new programming service? Do the channel occupancy rules allow sufficient channel capacity for an unaffiliated programmer to receive carriage by enough cable systems to successfully launch a new service? (#`  Y4-(c)` ` Has MSO investment in programming services been affected by these rules? (#`  Y-Y90. ` ` The 1992 Cable Act attempted to address difficulties that noncable MVPDs  Y-faced in acquiring programming services on nondiscriminatory terms. Yh-ԍ 1992 Cable Act, sec. 2(a)(5). House Report at 40. Senate Committee on Commerce, Science, and Transportation, S. Rep. No. 92 ("Senate Report"), 102d Cong., 1st Sess. at 26 (1991). We request comment on whether the program access rules and our decisions in response to program  Y-access complaints have served their intended purpose to alleviate this problem.K Y-ԍ As of May 4, 1995, the Commission had resolved 12 program access cases and 7 program access cases were pending. The Commission requests comments concerning the following questions:  Y|-(a)` ` How have the program access rules affected the number of and competition among MVPDs?(#`  Y7-(b)` ` Are MVPDs now able to get programming that was previously unavailable? (#`  Y -(c)` ` Is this programming available on nondiscriminatory terms? Have the program access rules had an effect on the price and terms offered to alternative MVPDs?(#` "*0*(( "Ԍ Y-ԙ(d)` ` Are there differences in the treatment of the various distribution technologies with respect to access? For example, are there differences between wireless cable, DBS and HSDs? Do differences exist in rural versus urban areas? (#`  Y-(e)` ` Has our complaint process worked to ensure that programming is available to alternative MVPDs? (#`  Y_-(f)` ` Has investment in, and the development of, new programming ventures been adversely affected by the program access rules?(#`  Y -(g)` ` Should the program access rules apply to LEC access to cable programming when a LEC is offering multichannel video programming service in competition with a franchised cable system, whether through the VDT framework or a franchised overbuilt cable system? Should the program access rules apply to LECs' programming in such situations?(#`  Y-(h)` ` Should the program access rules be extended to nonvertically integrated program providers?(#`  YK-(i)` ` Have the nondiscriminatory rate provisions (e.g., the volume discount provision) of the program access rules affected the competitive viability of small systems and small system operators?(#`  Y-Z91.` ` Furthermore, we seek comment on whether the program carriage rules adopted to implement Section 12 of the 1992 Cable Act have served to diminish anticompetitive practices. Are the rules working to ensure that cable operators do not take unfair advantage of programming vendors as a condition of carriage agreements? Have negotiations for carriage agreements changed? Are there other practices of which the Commission should be aware regarding program supply?  XN- C.` ` Market Performance Indicators  Y -[92.` ` In the 1994 Competition Report, the Commission looked at several market  Y -performance indicators.  Y -ԍ 1994 Competition Report, 9 FCC Rcd at 754250,  20427; 9 FCC Rcd at 760431, App. H. Those indicators included: (a)q ratio measurements; (b) evidence concerning price changes in local markets following the entry of overbuilders; (c) competitive price differentials that had been calculated in prior Commission orders; (d)changes in industrywide demand; (e) changes in industrywide revenue; (f) increases in availability of programming; and (g) increases in industrywide capital investment. We invite comment concerning the use of these market performance indicators, any updates of  Y#-these indicators, the conclusions that were drawn in the 1994 Competition Report, and the"#+d0*(($" appropriate method or methods for assessing market performance.  X- D.` ` Market Structure Characteristics that May Increase Concentration  X-` ` or Pose Impediments to Competition  Y-\93. ` ` The 1994 Competition Report considered economies of scale and scope in  Yx-cable.Xx Y-ԍ Id. at 761627, App. H.,  2044.X Economies of scale exist when the average cost of production decreases as the quantity of output produced by a firm increases. For example, economies of scale exist in cable if a single operator can produce cable services at lower cost than two operators could in the same market. In that case, higher concentration might result from the lower costs of production that would be achieved. Economies of scope exist when two products can be jointly produced at lower cost than if they were produced separately. Thus, economies of scope may exist in video distribution and telephony if it is more efficient to simultaneously provide telephone and multichannel video programming services over the same distribution plant than it is to provide them separately. We invite comments concerning economies of scale and economies of scope in the cable industry.  Y{-]94.` ` The presence of barriers to entry is one of the most important obstacles to the  Yd-development of a competitive market.d{ Y-ԍ See, e.g., McGahee v. Northern Propane Gas Co., 858 F.2nd 1487 (11th Cir. 1988),  Y{-cert. denied, 490 U.S. 1084 (1989). In the 1994 Competition Report, the Commission looked at regulatory and technological impediments to entry in markets for the delivery of multichannel video programming, including the Communications Act's definition of a cable system, state laws impeding competitive entry, pole attachment issues, and the introduction  Y -of digital compression and other technologies.o  Y-ԍ 1994 Competition Report, 9 FCC Rcd at 75546,  239245.o We invite comments concerning these and any other impediments to competitive entry into markets for the delivery of multichannel video programming. We also invite comments on the overall magnitude of barriers to entry into these markets, and actions the Commission should take to reduce or eliminate barriers to entry.  Y-^95.` ` In the 1994 Competition Report, the Commission considered the presence of substantial sunk cost investments in the cable industry, and their effect on incentives for  YT-incumbent MVPDs to engage in strategic behavior designed to protect those investments.QT Y#-ԍ Id. at 755054,  229238.Q Among the kinds of strategic behavior that could deter entry are controlling access to program supply, using litigation to delay or prevent entry, pricing services below incremental costs, and foreclosing access to customers through anticompetitive exclusive dealing. We invite comments concerning that analysis and the implications of sunk costs for competitive",0*(( " entry into markets for the delivery of multichannel video programming.  X- VI.XRECOMMENDATIONS FOR PROMOTING COMPETITION IN THE  X-MARKET FOR DELIVERED VIDEO PROGRAMMING (#  Y-_96. ` ` The legislative history of Section 19 of the 1992 Cable Act states that Congress expected the Commission to address and resolve problems regarding "unreasonable cable industry practices, including restricting the availability of programming and charging  YH-discriminatory prices to noncable technologies."H Y -ԍ House Committee on Energy and Commerce, H.R. Rep. No. 862 ("Conference Report"), 102d Cong., 2d Sess. at 93 (1992). Congress also mandated that the Commission encourage arrangements which promote new technologies and extend  Y -programming to areas not served by cable.3 b Y--ԍ Id.3 Thus, commenters are asked to consider whether there are any actions that the Commission should take to foster competition in the market for video programming delivery. In light of the current state of competition and our desire to promote additional competition, we request that parties recommend rules or policies, if any, that should be adopted, amended or eliminated to accomplish this goal. Parties submitting recommendations should explain how their proposals would increase competition in the provision of video programming to consumers or enhance the program distribution market. We also want to consider any other effects of such proposals on the cable industry.  X4- VII.PROCEDURAL MATTERS   Y-`97. ` ` This NOI is issued pursuant to authority contained in Sections 4(i), 4(j), 403 and 628(g) of the Communications Act of 1934, as amended. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's Rules, 47 C.F.R.  1.415 and 1.419, interested parties may file comments on or before June 30, 1995, and reply comments on or before July 28, 1995. To file formally in this proceeding, participants must file an original and four copies of all comments, reply comments and supporting comments. If participants want each Commissioner to receive a personal copy of their comments, an original plus ten copies must be filed. Comments and reply comments should be sent to the Office of the Secretary, Federal Communications Commission, Washington, D.C. 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center (Room 239) of the Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554.  Y-a98. ` ` There are no ex parte or disclosure requirements applicable to this proceeding  Y -pursuant to 47 C.F.R.  1.1204(a)(4).(#(# "!-0*((""Ԍ Y-b99.` ` Further information on this proceeding may be obtained by contacting Marcia Glauberman, Jonathan Ogur or Edward Hearst in the Cable Services Bureau at (202) 4160800 or Martin L. Stern or Jeffrey Lanning in the Office of the General Counsel at (202) 4160865. XX` ` X  hh,FEDERAL COMMUNICATIONS COMMISSION(#h ` ` X  hh,William F. Caton(#h  Y -` ` X  hh,Acting Secretary