The Federal Communications Commission in a 134-page study concludes that video services are not the only area in which the cable industry is seeing competition. The study predicts that by 2004 nearly half of all Internet connections in the United States will be high-speed broadband.
"DSL technologies remain the most significant competitors to Internet over cable," the report concludes, noting that phone company pricing is now competitive with cable and both offer high-speed, two-way connections. Direct broadcast satellite (DBS) services rely on a telephone return path, but the FCC noted that both DirecTV and EchoStar plan to offer high-speed, two-way broadband connections as early as this year.
The FCC report "confirms the irrefutable trend of the last five years--direct broadcast satellite is cable's head-on video competitor and is rapidly becoming a significant competitor in data as well," said David Beckwith, vice president for communications at the National Cable Television Association.
Cable still has its broadband lead, the FCC said: As of June 2000, there were about 820,000 DSL subscribers vs. more than 2.3 million cable broadband subscribers. However, the agency said, "the rollout of DSL and other broadband technologies is accelerating." The FCC cited a Morgan Stanley Dean Witter report that predicts 10.1 million DSL subscribers by the end of 2002, more than the projection of 9.1 million cable-modem subscribers.
Video may be the key
But the tremendous growth of DBS as a video provider was cited as a reason to consider that industry a threat to cable's broadband dominance. In the last year, the number of DBS subscribers grew to 13 million homes from 10.1 million, vs. 67.7 million cable homes. More than 15 percent of all multichannel video subscribers are DBS customers, and DirecTV and EchoStar are among the top 10 video providers in the United States, joining the ranks of AT&T Broadband, Time Warner Cable and Comcast Communications.
According to the FCC, the biggest liability DBS suffers in broadband is its inability to send back high-speed data from the customer to a satellite, instead requiring a dedicated phone line. But DBS companies are working to change that.
By 2003, DirecTV will shift from its DirecPC telephone-return system to a Ka-band satellite system called Spaceway. A partnership with Hughes, Spaceway promises to bring faster, two-way connections. DirecTV also has a partnership with America Online and hopes to offer two-way connections soon using Ku-band satellites, the FCC said.
EchoStar has a stake in Starband, formerly Gilat-2-Home. Starband, which aims shortly to begin offering two-way, high-speed Internet services, launched its first satellite in November and also boasts Microsoft as a partner.
EchoStar also has invested in WildBlue, formerly iSky, which will use Ka-band and spot-beam technology to deliver two-way, high-speed services later this year. WildBlue's other prominent investors include Gemstar, Liberty Media, Kleiner Perkins Caufield & Byers, TRW and TeleSat.
The FCC was cautious as to how much success these ventures might have, saying their strongest chances lay "in the estimated 20 to 30 million homes in rural and suburban areas that may be unable to receive cable or DSL for the foreseeable future."
Still, the cable industry cited this increased competition as yet another reason not to impose federal regulations on its industry, such as forcing it to carry competing Internet service providers on its broadband network.
"This competition is reason enough to reject government micromanagement of these communications markets," Beckwith said.
The FCC report is conducted annually as a mandate in the 1996 Telecom Act, and this year's release was approved by four of the agency's five commissioners. Commissioner Harold Furchtgott-Roth dissented, as he has every year, saying the agency's examination was too narrow.