SMATV section of the FCC's "Fifth Annual Report".
Re: In the Matter of  Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, CS Docket No. 98-102.
Date adopted: December 17, 1998.
Date released: December 28, 1998.
Source: FCC. See, entire report.

E. Satellite Master Antenna Television Systems

88. As we indicated in last year's Report, SMATV systems are satellite systems used to distribute television signals to households located in one or more adjacent buildings, primarily serving urban and suburban MDUs. SMATV systems do not use public rights-of-way and, thus, fall outside of the Communications Act's definition of a cable system. As such, SMATV operators are subject to less regulatory oversight than traditional cable systems. Some SMATV systems also are using microwave transmissions and wires to serve multiple buildings that are not commonly owned. Under the 1996 Act, SMATV operators may use wires to connect separately owned buildings, as long as the wires do not traverse public rights-of-way. It was thought that the statutory change that allowed SMATV systems to connect separately owned buildings would encourage growth in the private cable industry.

89. On January 10, 1998, Entertainment Connections, Inc. ("ECI") filed a motion for declaratory ruling with the Commission seeking a determination that it was not a cable operator, and therefore, not required to obtain a franchise under section 621 of the Communications Act of 1934. ECI uses Supertrunking Video Transport Service, provided by Ameritech, to transport video programming across public rights-of-way to subscribers located in multiple dwelling units ("MDUs") in two Michigan cities. ECI's facilities are located solely on private property, not crossing any public rights-of-way, and Ameritech's facilities that deliver signals from ECI's headend facilities to the MDUs served by ECI are not owned, managed, or controlled by ECI. On June 4, 1998, the Commission adopted a Memorandum Opinion and Order, granting ECI's Motion for a Declaratory Ruling. The Commission concluded that ECI is not a cable operator as defined by the Communications Act and is not obligated to comply with the requirements of Title VI of the Communications Act, including the franchising obligations of Section 621. In granting ECI's motion, the Commission decided that ECI's facilities and Ameritech's facilities do not constitute a single integrated cable system, and that it is Ameritech, not ECI, that "uses" the rights-of-way as the Commission and courts have interpreted the term.

90. Growth. As we have reported in the past, the SMATV industry is composed of hundreds of private and public, small and medium size firms throughout the nation. As of 1990, there were almost 31.5 million "households" (or, individual "dwelling units") in MDUs in the United States, compromising approximately 28% of the total housing units nationwide. As such, SMATV operators continue to have the potential to serve over one quarter of housing units nationwide. Last year, we reported that there were approximately 1,162,500 residential SMATV subscribers, as of June 30, 1997. This year, there are several varying estimates of SMATV subscribership. One source estimates that there were 940,000 residential SMATV subscribers, as of June 1998, a decrease of 19.1% from the previous year. This estimate would place SMATV's share of the MVPD market at 1.21%. Another source estimates that as of June 1998, there were approximately 800,000 residential SMATV subscribers, and anticipates that the number of SMATV subscriptions will continue to decline. A SMATV industry source estimates that as of June 1998 there were approximately 1.5 to 1.6 million subscribers. It states that this figure is an estimate based on a growth rate in excess of 10% per year, consistent with growth rates in prior years.

91. Although subscribership over the past year appears to have declined, certain technological advents have the potential to foster SMATV growth. As we reported last year, many SMATV operators are upgrading their systems to 750 MHz hybrid fiber coaxial broadband architecture capable of transmitting hundreds of channels using digital compression. This year, common carrier supertrunking and the continued use of technologies that integrate DBS antennas and standard SMATV technology, as described below, have the potential to foster SMATV industry growth as well. These technological advances and the regulatory changes that have allowed SMATV operators to use them, enable operators to serve separately- owned buildings and increased numbers of potential subscribers. Future growth, however, not only depends on the ability of SMATV operators to provide channel lineups and basic services comparable to those offered by franchised cable operators, but also demands that SMATV providers offer combination services as well as video, at attractive prices.

92. Technology. As we reported last year, some SMATV operators offer local and long distance residential telephone service as well as closed-circuit security monitoring, interactive and Internet access, voice mail, paging, and other business services tailored to the needs of residential tenants. This year, the demand for these services has increased. As a result, some SMATV operators have begun to upgrade their networks for providing local residential phone service. Many have started to use a variety of new networking arrangements, turning away from private branch exchange ("PBX") technology to a standard central-switch operation enabling SMATV operators to offer service levels on their telephone service equal to that of the independent local exchange carriers, including caller ID, call return, call rejection, distinctive ringing, and other such specialized features. OpTel, one of the largest SMATV operators, is currently licensed as a CLEC in each state in which it competes. Additionally, new technologies are being introduced into the SMATV industry that are not found with other MVPD technologies. For example, one entrepreneur has developed an electronic, touch-screen monitor kiosk to be placed on-site at the MDU that provides information about the services offered in the MDU including channel lineup, rates, a credit-card swipe to order services such as PPV, Internet, and telephone service.

93. SMATV/DBS Combination Services. According to some industry observers, the decision of SMATV providers to take advantage of DBS technology to provide video programming service to residents of multiple dwelling units has been beneficial for both SMATV and DBS providers. As we reported last year, satellite providers such as DirecTV/USSB, Primestar, and Echostar offer SMATV operators a low-cost, technically-advanced, digital programming service that significantly increases channel capacity and adds special programming that is otherwise unavailable from cable systems or MMDS operators. DirecTV, for example, has formed a number of alliances with SMATV operators such as WirelessOne, OnePoint Communications, and Heartland Wireless. NCTA states that, in the case of Wireless One, the company keeps approximately 20% of the revenue generated, with the rest going to DirecTV, which supplies equipment and programming.

94. Real Estate Owners and Property Managers. As we reported last year, Real Estate Investment Trusts ("REITS") and other national property management companies and ownership groups, with numerous interstate property holdings, are negotiating with programming and other MVPD services on a national basis. According to industry observers, private property owners are becoming more adept in negotiating contracts with SMATV operators, allowing for revenue sharing and demanding increased services for subscribers. An industry source indicates that an increasing number of small and large MDU owners and real estate investment trusts are negotiating with SMATV operators to provide service in their buildings regionally and nationally because SMATV can offer a viable alternative to other MVPDs in terms of number of channels, installations and maintenance, and the provision of service at rates comparable or lower than incumbent providers. SMATV operators in Cincinnati and Chicago, in particular, are finding REITS and apartment building owners are forming consortiums and seeking SMATV bids for thousands of apartment buildings.