Audio Video News

EchoStar CEO Charlie Ergen has hyped his company's proposed acquisition of DirecTV as "competition against cable" rather than a "monopoly in the sky." Merger or not, direct broadcast satellite (DBS) services have steadily eroded cable's subscribership, a situation that is beginning to yield benefits for consumers in some parts of the US.

Several major cable companies have recently announced rate freezes or rate cuts in an attempt to remain competitive against DBSers. They are also offering cheaper packages with fewer channels. St. Louis, MO–based Charter Communications, the nation's fourth-largest cable provider with 6.8 million subscribers in 40 states, recently announced a rate freeze for its home city for the next year. The company offers a 99-channel viewing package for $45.85 per month. In July, AT&T Broadband launched new viewing options intended to compete against satellite services, including an option for 150 channels at $50 per month and another for 100 channels at $40 per month. The two packages straddle AT&T's previous basic option, which offered 125 channels for $43 per month.

Over the past couple of years, cable companies have experienced sluggish subscriber growth, heavy debt, and disillusioned investors. Until the rise of satellite services in the mid-1990s, cable was essentially a monopolistic business, with large territories assigned to single providers by the Federal Communications Commission (FCC). With no real competition, cable companies were able to raise their rates faster than the rate of inflation, prompting complaints and lawsuits by irate consumers. The lack of competition also made cable a good investment.

All that has changed now that EchoStar and DirecTV have multiple satellites in orbit, and are marketing programs that offer free dish antennas, receivers, and installation in exchange for a one-year commitment to their services. The two DBSers now have a combined viewership of more than 18 million subscribers, with about 6500 new accounts added each day. A basic subscription to EchoStar's Dish Network provides 60 channels at $22.99 per month.

Until last year, cable still had the edge with consumers because it offered local channels as part of its basic subscription. A legislative change allowed satellite services to do the same—a re-broadcasting technique known as "local into local"—thereby eliminating the last advantage cable had to offer, although local channels are offered as a premium service by satellite companies in some areas. Satellite subscriptions took off once local channels became available. DBSers were also the first to offer HDTV and multichannel sound, moves resisted by cable executives in the belief that the HDTV market is still insignificant.

Rates are the last front in the war for subscribers. According to a 2001 survey by the consulting firm Carmel Group, DBS services charge an average monthly rate of 35¢ per channel for premium service. Analog cable customers pay $1.07 and "digital" cable customers pay about 46¢ for the same services, the study's authors stated. Rates for satellite services have risen only about 10% since the mid-1990s, but cable rates have increased by more than 30% in the same period, according to the Wall Street Journal. Whether those trends will continue depends on Washington's view of the EchoStar/DirecTV merger. At present, the forecast looks cloudy. The US Justice Department reportedly may not approve it on the grounds that it would create its own monopoly, with rate increases certain to follow.