"Continuing Concentration in Cable"
March 1999

Cable MSO (multiple system operator) Adelphia Communications announced this month its plan to buy another large MSO, Century Communications, for $5.2 billion. Just last month Adelphia announced its intended purchase of even another MSO, FrontierVision Partners, for $2.1 billion.

Adelphia, with these additions, becomes the fifth largest MSO in America, with 4.7 million subscribers. These moves are only the most recent in the ongoing concentration of the cable television industry. This table demonstrates the scope of activity. Each seller represents a cable operation bought by another telecommunications company:

Interestingly, however, it is not cable television that is driving this concentration, it is everything else that cable can do. Concentration initially came to the cable industry in the form of MSOs, because as cable experienced its greatest period of growth in the late 1970s, it was only the biggest, richest corporations that could afford to build, buy, and improve operations in advance of the income they promised to generate.

Today, the five largest MSOs reach about two-thirds of all cable subscribers, with the top two, TCI and Time Warner, serving 16 million and 14 million homes, respectively. Many MSOs own more than 100 cable systems each.

The second form of concentration in cable is vertical integration, where a company holds financial interest in all aspects of the industry—production (the program service), distribution (the satellite service), and exhibition (the local franchises). There is a documented tendency for systems to demonstrate an inclination to carry cable networks owned by the MSOs that own them.

Critics of cable concentration find this inherently unfair and voice a second concern, that by its mere existence, vertical integration limits programming competition. An MSO is more likely to initiate a new program service because it is guaranteed channel space on at least its owned systems. New, potentially innovative program services have no such guarantee.

The MSOs' counter argument, however, is that guaranteed channel space encourages risk taking. They point to innovative offerings like BET, Lifetime, and the Discovery Channel as examples of channels that never would have been developed without MSO investment.

Still, the FCC is sufficiently wary of this concentration of power that it requires operators to dedicate no more than 40% of its first 75 channels to program services owned by their owners. The third way concentration has come to cable is in the form of conglomeration, the ownership of even large MSOs by even larger companies having both media and non-media holdings. General Electric, for example, owns not only NBC and 13 television stations, but it also owns outright or in part 27 cable television channels in the U.S. and abroad.

But why are big companies so interested in cable? The answer is convergence. Once the Telecommunications Act of 1996 freed telephone companies to enter the cable television business, they did. The reason they did is that they realized that if telephone service can be delivered by the same cable that brings television into the home, so too can the Internet. And whatÕs more, if the cable line is high speed, fiber optic wire capable of handling digitally compressed data, that Internet service can be even faster than that provided over traditional phone lines, sometimes up to 50 times faster than over dial-up telephone modems.

Cable, in other words, can become a one-stop, communications provider of television, audio, high-speed Internet access, long distance and local phone service, multiple telephone lines, and fax. The industry calls this bundling and everyone wants in on the action.

To many in the telecommunications industry—broadcasters, Internet providers, telephone companies, MSOs—cable (we may not be able to say cable television much longer) is the delivery system of the future.

The primary trade association for cable is the National Cable Television Association. Its Web site provides a wealth of data about the business and audience ends of cable, as well as up-to-the-minute presentations of new and emerging cable technology. Visit this site to determine where cable is headed, at least according to what those in the industry think.

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