Since its introduction in 1994, direct broadcast satellite (DBS) service has  grown dramatically and is now the primary competitor to cable operators. Subscription to DBS Has Grown Rapidly Since 2001

From 2001 to 2004, the aggregate number of U.S. households that subscribe  to DBS television service grew rapidly. As of January 2004, DBS penetration remained the  highest in rural areas, growing to about 29 percent, while it grew to 18  percent of suburban households and 13 percent of urban households. Figure 3 displays the percentage growth in total DBS  subscribers and the percentage growth in DBS penetration rates in urban,  suburban, and rural areas. However, in these areas, the DBS penetration rate is about 53  percentage points greater than in areas where cable television service is  available. In 2004, the DBS penetration rate was over  20 percentage points greater in areas where cable operators did not provide  advanced services, compared with areas where these services were  available. In 2004, the DBS penetration rate was over 36  percent in areas where cable operators did not provide advanced services,  compared with approximately 16 percent in areas where cable operators  provided one or more, but not all, advanced services, and only 14 percent in  areas where cable operators provided all three advanced services. Regarding geographic factors, we found that (1) the DBS  penetration rate is lower in areas with a high prevalence of multiple  dwelling units, such as apartments and condominiums; (2) the DBS  penetration rate is lower in areas where the angle at which the satellite dish  must be installed is relatively low, such that the satellite points more  toward the horizon than toward the sky; and (3) the DBS penetration rate is  higher in nonmetropolitan areas. In terms of competitive factors, we found  that (1) the DBS penetration rate is lower in areas where the cable  operator’s system has greater system capacity; (2) the DBS penetration rate  is lower in areas where there is more than one wire-based cable provider;  and (3) the DBS penetration rate is higher in areas where DBS providers  carry local broadcast stations, such as an ABC affiliate. With wire-based competition, additional  companies are competing for customers. Agency Comments and Our Evaluation

We provided a draft of this report to the Federal Communications  Commission (FCC) for its review and comment. FCC staff provided  technical comments that we incorporated, where appropriate. Scope and Methodology

To respond to the first and second objectives—to provide information on  how direct broadcast satellite (DBS) subscribership has changed since  2001 and how the DBS penetration rate differs across urban, suburban, and  rural areas—we gathered data on DBS subscribers from the Satellite  Broadcasting and Communications Association (SBCA). To respond to the fourth objective—to provide information on the factors  that appear to influence the DBS penetration rate in cable franchise  areas—we used an econometric model we previously developed that  examines the effect of competition on cable rates and service and the DBS  penetration rate.
Why GAO Did This Study

Since its introduction in 1994, direct broadcast satellite (DBS) service has grown dramatically, and this service is now the principal competitor to cable television service. Although DBS service has traditionally been a rural service, passage of the Satellite Home Viewer Improvement Act of 1999 enhanced the competitiveness of DBS service in suburban and urban markets. GAO agreed to examine (1) how DBS subscribership changed since 2001; (2) how DBS penetration rates differ across urban, suburban, and rural areas; (3) how DBS penetration rates differ across markets based on the degree and type of competition provided by cable operators; and (4) the factors that appear to influence DBS penetration rates across cable franchise areas. To complete this report, GAO prepared descriptive statistics and an econometric model using data from the Federal Communications Commission's annual Cable Price Survey and the Satellite Broadcasting and Communications Association's subscriber count database.

What GAO Found

Since 2001, the number of households subscribing to DBS service has grown rapidly; thus the percentage of households subscribing to DBS service, the DBS penetration rate, has grown to over 17 percent of American households. The DBS penetration rate is highest in rural areas, but growing most rapidly in suburban and urban areas. Between 2001 and 2004, the DBS penetration rate grew 15 percent in rural areas to 29 percent of rural households, 32 percent in suburban areas to 18 percent of suburban households, and 50 percent in urban areas to 13 percent of urban households. The degree and type of competition influences the DBS penetration rate. In areas with no cable service, the DBS penetration rate is about 53 percentage points greater than in areas where cable service is available. Where cable service is available, cable operators increasingly offer advanced services. The DBS penetration rate is approximately 20 percentage points greater in areas where cable operators are not providing advanced services, compared with areas where these services are available. While relatively few areas have more than one wire-based cable operator, in these areas the DBS penetration rate is 8 percentage points lower than in areas with only one cable operator. In addition to the differences in DBS penetration rates across rural, suburban, and urban areas, and differences associated with the degree and type of cable competition, additional geographic and competitive factors also influence the DBS penetration rate. For example, the DBS penetration rate is lower in areas with a high prevalence of multiple-dwelling units, such as apartments. Additionally, the DBS penetration rate is higher in areas where DBS providers offer local broadcast stations (such as ABC and NBC affiliates) directly to their subscribers. The Federal Communications Commission provided technical comments on a draft of this report that we incorporated where appropriate.