TCI's Involvement in DBS: A Natural Conflict TCI's quest for the Canadian orbital position is directly against the interest of American consumers and contrary to the public interest. A cursory examination of TCI's financial stake in its cable business results in the drawing of several obvious conclusions. Primary among them is that TCI's interest in protecting its traditional cable holdings is far more important to its economic well being than becoming an aggressive competitor in the DBS arena. The opposite is likely to be true: TCI will use its DBS service to protect its cable business by driving up the competition's cost of doing business, distorting the pricing of DBS, and expanding the anti-competitive practices for which it has become infamous in the cable industry into the DBS market. Due to the Time-Warner/Turner merger and TCI's interest in the merged company, the stakes are even higher for TCI to protect the cable business. Common sense dictates that TCI should not be permitted to use the Canadian slot to become a larger DBS player than it is presently. Not only is TCI the largest competitor to the new service, it has a huge financial interest in the second largest competitor, Time-Warner/Turner. The DBS service is intended to be an alternative and competing service to cable, and allowing the largest cable provider to become the largest DBS provider would be antithetical to that goal (see attached pie charts). It is important to note that there are many companies interested in DBS and TCI's involvement is in no way necessary for the Canadian slots, should they become available, to be utilized in serving the U.S. In addition to the anti-competitive effects, allowing TCI to use the Canadian slot is against the public interest because it means that there will be one fewer option for the airing of diverse programming. With a new DBS competitor there is an additional delivery system for content providers which will result in increasing the diversity of available content, whether contained in political, ideological, or educational programming and advertising. With TCI as a major DBS player, there will be a further constriction in the variety of viewpoints aired nationally, rather than a beneficial expansion. TCI is clearly pursuing a political agenda in its programming - consider its bumping of the left leaning 90s Channel and active promotion of right leaning shows like Damn Right! Keeping TCI out of the Canadian slot will contribute to First Amendment values by providing another outlet for greater viewpoint diversity. TCI and Conventional Cable T.V. TCI is the largest Cable Multiple Systems Operator (MSO) in the United States with over 26% of total subscriptions in 1995. TCI currently has over 13 million subscribers and receives more than four billion dollars in cable revenues annually. TCI also has a nine percent ownership of the second largest MSO, Time Warner, and is permitted to acquire up to a total of 14.9% of the stock of the newly merged Tme Warner/Turner. Time Warner has 11.7 million subscribers and earns several billion dollars in cable revenues each year. The two companies have a combined customer base of about 25 million, which accounts for more than 40% of cable subscriptions. That TCI's main interest must be to preserve and promote its cable holdings and the general health of traditional cable goes without saying. Growth of DBS Subscriptions and Competition for Cable: As shown in the table below, the number of DBS subscribers is growing exponentially and is considered the fasted growing consumer electronics product in history. Several years ago DBS may have been most popular in areas not served by conventional cable. However, today DBS is drawing customers away from conventional cable systems. At a conference last year, DirecTV's president stated that more than half of all cable subscribers drop cable within two months of acquiring access to DBS. At the same conference, USSB's president commented that more than half of his company's subscribers are located in areas where cable is available. Total Number of U.S. Direct Broadcast Satellite Subscriptions (in millions, at year's end) Year 1993 1994 1995 1996 (estimated) Subscriptions .07 .602 2.86 6.25 Sources: FCC: Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Appendix G, Table 1; and Broadcasting and Cable Magazine June 24, 1996, p.52. In addition to the robust nature of DBS sales, cable providers have recently received bad news in trade magazine articles citing studies indicating that 30% of cable customers are "less than satisfied" with their service and 84% are unaware other alternatives exist. See Harry A. Jessell, Cable's Performance Gap, Broadcasting & Cable, July 15, 1996, at 38-40. Although only 16% of cable customers were aware of alternatives, 55% of them were considering making a switch. Id. This is a critical juncture for the DBS market. With DBS as the fastest growing video provider, in combination with the troubles that have recently become apparent for the cable industry in customer dissatisfaction, this may result in the cable industry facing increasingly formidable competition on a national scale for the first time. Recently, in response to rate hikes, TCI reported that DBS operators were targeting these regions and that TCI was countering these efforts with coupons and other incentives to keep their customers. See Jim McConville, MSOs Push Silver Linings, Broadcasting & Cable, July 15, 1996 at 42. This is kind of competition will benefit consumers, but TCI's DBS involvement will attempt to minimize these effects. TCI's Interests and Consumers' Interests: Past Practices In the past, TCI has used market power to its own advantage, contributing to an anti-competitive environment in the video programming industry. For example, CNBC was slated to become an all-news cable channel. But due to TCI's stake in CNN, TCI refused to carry CNBC in the proposed form. As a result, CNBC has since shifted from an all news focus to one on talk shows and financial news. TCI has also refused to do business with some content providers unless the providers would first grant TCI part ownership of the provider. Given TCI's enormous market share, such demands cannot be easily ignored. Partly because of this kind of behavior, TCI owns all or part of 32 National Programming Services, including CNN, TNT, Headline News, Prime Sports Channel, The Learning Channel, the Discovery Channel, and the Home Shopping Network. (TCI also exercises control over other content providers through its 9% stake in Time Warner). In addition, when DBS first became a possible competitor several years ago, TCI ran negative advertising about the new service. TCI's first instinct was correct in that DBS could be a vigorous competitor and it is obvious that TCI's interest is still the same--it wants to preserve the viability of its traditional cable service. Rather than fight it out in the market place, where consumers would see benefits in improved service, more diverse programming, and lower prices, TCI wants to become the largest player in the competing DBS service and reduce the effects of competition. At the very least, and this tact is by no means sufficient, the one time rule applied in the previous DBS auction whereby the winner would have to divest itself of full-CONUS DBS frequencies already controlled, must apply to TCI/Tempo's full-CONUS frequencies at the 119 W.L. orbital slot. (See Revision of Rules and Policies for the Direct Broadcast Satellite Service, FCC 95-507, IB Docket No. 95- 168, PP Docket No. 93-253, para. 28 (Dec. 15, 1995)). Allowing TCI to gain control of strategically placed Canadian DBS orbital positions will grant the company more undue influence in this vitally important communications medium and cripple DBS as a competitor to cable. Todd J. Paglia Staff Attorney Consumer Project on Technology