GAO Sees 32% DBS Suburban Growth, 50% in Urban Areas

In areas where cable operators don’t provide advanced services like digital cable, cable modem and telephony, DBS penetration seems significantly greater, said the GAO. By the GAO’s count, the DBS penetration rate in 2004 exceeds 36% in areas where cable operators have no advanced services, compared with 16% in areas where cable operators provide one or more advanced services, and 14% in areas where cable operators provide all 3 advanced services. The ranks of cable companies providing advanced services continue to swell: In 2001, over 18% of cable operators didn’t provide any advanced services, but in 2004 that number dropped to 3%, said the GAO. In 2004, most cable operators (about 66%) provided both digital cable and cable modem services, said the GAO.

An EchoStar spokesman said advanced service bundling is “an issue we're keeping a close eye on,” and the reason Dish Network has been so aggressive in partnerships with SBC, Commonwealth and Sprint. A DirecTV spokesman said Verizon, BellSouth and Qwest bundling deals are showing “a good response.” But while telco/DBS service bundling is making headway, it’s “still clunky,” said Steve Blum, pres. Tellus Venture Assoc.: “It really ends up being the telco on the front line, and it’s clunkier from a technical standpoint than when everything is coming in over one cable line.” Cable continues to have an advantage because it can provide everything via one pipe, said Blum: “If you start to look at how people are networking their homes, simplicity and standardization become quite an advantage -- down the road it won’t be as big of a deal because home networking will be ubiquitous, but for now it is more complicated.”

EchoStar is “exploring ways in which we can offer our own broadband service via satellite,” said a company spokesman. The technology would be particularly applicable in rural areas where the public, in general, “has no hope of ever getting cable or DSL,” the spokesman said. He said broadband via satellite is “something that various companies have been looking at for the past few years, [but] no one has really found a good way to offer the technology in a way that could be economically competitive with the other broadband technologies, but we think we're getting closer.” DirecTV said it’s looking into a variety of broadband options, including discussions with soon to roll-out WildBlue (CD March 24 p14), but said it is premature to speculate further. The DirecTV spokesman said more developments are expected this summer.

On the installation front, multiple-dwelling units (MDUs) are a permanent hurdle for DBS providers, since dishes require a clear line of sight to the southern sky and landlords call the shots. The GAO found that DBS penetration rates fall 2.5% when the percentage of MDUs rises 10%. “Single family homes have always been the sweet-spot for DBS operators,” said Blum: “The DBS guys have been chipping away at the MDU market for 10 years, but there is no easy answer.” A spokesman said initiatives underway at DirecTV will better address the MDU market, “both from a technological and a marketing standpoint.” It’s best to get in on “the ground floor” -- literally, as apartment buildings are being built -- but the spokesman said DirecTV is pushing to make wiring more affordable for MDU owners and managers at any stage.

Local-into-local service is another key factor for competition with cable, the GAO said. The report found DBS penetration 12% higher in areas where local-into-local service is available. “The next big issue is going to be local-into-local HD, and that’s what the MPEG-4 conversion is all about,” said Blum: “The DBS guys are definitely staying on top of that, and they're going to need to.” GAO studied DBS competition with cable at the request of Senate Judiciary Antitrust Subcommittee Chmn. DeWine (R- O.) and ranking Democrat Kohl (Wis.).