Steve,
What do you think about the threat of changes in Satellite TV regulations (to allow them to carry local station) to broadband cable (ATHM, UMG/CMSK). There is a piece from Briefing addressing this issue.
Satellite TV Regulations: Internet Investors Must Watch
If you are an investor in cable-modem broadband delivery systems, such as @Home (ATHM) or
MediaOne/Comcast, (UMG/CMCSK) you should be following current legislation in Congress
regarding satellite TV regulations.
The reason is simple.
Broadband through cable modems is counting on the existing cable infrastructure to
capture clients.
Satellite TV represents a significant threat to existing cable companies.
The only thing holding satellite TV back over the past few years has been legislation.
The most significant regulation protecting the cable company franchise, has been the ban
on local station carriage.
And that ban is about to disappear. And if that happens, and satellite TV grows at the expense of
cable subscribers, does it hurt cable-based broadband?
Current Law Prohibits Local Station Carriage
Currently satellite TV companies are prohibited from carrying local broadcast network stations.
There is an exception for customers who can prove inability to receive quality air-transmission,
but for most people in the concentrated urban areas, this exception does not apply. The
prohibition against local station carriage was designed to protect protect cable companies from
losing to satellites.
For this reason, digital satellite TV dominates rural areas, but has limited urban penetration.
Nevertheless the adoption of satellite TV bears the distinction of the most quickly adopted
consumer technology ever. The only thing which has kept it from exploding in urban areas is the
local station prohibition.
But the ban against local station broadcasts in urban areas is likely to be withdrawn soon,
although the battle in legislation is far from over.
New Legislation Coming
Originally, a bill adopted in the House Judiciary Committee called for the complete cancellation of
the local station ban. The bill was supported by network broadcasters and satellite TV
companies, but opposed by cable companies. Nevertheless, the bill was adopted by the
Committee.
However, an amendment filed in committee by Representatives Howard Berman (CA-Dem) and
Howard Coble (N.C.-Rep.) calls for the elimination of the "raw" network broadcasting, called
distant signal broadcasts, now carried by satellite TV, if a satellite carrier begins carrying local
stations.
In a bizarre restriction of free-market competition, the amendment requires all satellite
companies to stop carrying network broadcasting to a local market if a single satellite company
begins carrying local TV stations. In other words, the actions of one satellite company would
force other companies to follow suit, denying consumers choice.
The amendment is an attempt to keep the franchise of local TV stations intact. If you can watch
ER on your local NBC channel and the NBC nationwide broadcast, the value of the local channel
advertising is immediately deteriorated.
The Senate Commerce Committee has also created a bill, S. 303, to eliminate the ban on local
station carriage. That bill will be reconciled with the House Committee bill before it reaches the
floor of the House for a vote.
Briefing.com isn't prepared to make a prediction on how the legislative battles will eventually
resolve. But there does seem to be strong movement towards eliminating the local station
carriage ban for satellite TV companies.
Hughes and EchoStar
The two principal satellite TV companies are Hughes Electronics (GMH), providers of DirectTV,
and EchoStar Communications (DISH), providers of DISH Network. Both are very similar
services, both are available almost everywhere in North America. Primestar and United States
Satellite Broadcasting (USSB) are the other major direct satellite TV providers, but both are in
the process of being acquired by Hughes. The Hughes-Primestar-USSB system has 7 million
subscribers. The DISH Network has 2 million subscribers.
Internet Broadband Implications
Why should all this concern broadband investors?
If the direct broadcast satellite companies become empowered to carry any and all TV
programming, in rural and urban areas, then cable companies are strongly threatened. If urban
area residents begin adopting satellite TV as quickly as rural residents did, the turnover could be
incredibly fast. And because satellite TV is already digital, and both major satellite TV companies
are internet ready, the only thing stopping sign up of new broadband customers is marketing.
In contrast, one of the major problems faced by @Home is equipping cable companies, with
whom @Home has contracts, with the transmission capabilities for the internet. @Home uses a
term called "homes passed" to indicate how homes could be reached if every subscriber in a
broadband equipped cable transmitter station subscribed. This number was 13.2 million at the end
of 1998.
By comparison, DirectTV could use the same terminology to claim 7 million homes passed.
DirectTV already offers DirectPC, which is internet download transmission of 400KB. Currently,
Direct PC is download only, with upload requests (for most users these are only page requests
such as clicks) going through a telephone line. It is also slightly more expensive than @Home.
But if the urban market becomes open to them, expect prices to drop dramatically.
Digital satellite TV quality is better. And for essentially the same price as monthly cable, you get
many more channels, plus digital surround sound, plus 30 channels of digital music, programmed
by type. In fact, the only reason we haven't switched personally, is the lack of local stations in
our area. But if that becomes available, goodbye cable box.
Why is satellite TV such a direct threat to cable-based broadband companies? Because the same
profile user that will want broadband is likely to be interested in the superior quality and choice, at
roughly the same cost as cable, that direct satellite digital TV provides.
If satellite companies gain the power to carry local stations, they will expand their user base.
Nearly every user added will be one subtracted from the cable ranks. And every lost cable
customer is one customer @Home or MediaOne won't now reach.
We haven't seen much coverage by analysts of this issue. But we think it is important enough for
every cable-based broadband investor to start watching the progress of satellite TV regulations. |
