Dishing Out Competition

Drive along any rural highway in West Virginia, Vermont, or Colorado, and they dot the landscape like high-tech mushrooms. In Connecticut and New York suburbs, their shells interrupt the zoning enforced conformity. Even in such places as Philadelphia they can be seen atop inner city row houses. A million and a half homes in the United States now sport satellite dishes or, as they are known to an industry addicted to acronyms, HTVROs (Home TV Receive-Only earth stations).

Until the satellite dish came along, communications technologies had always spread from population centers outward. But the dish revolution has advanced, like some Third World guerrilla army, from the country to the cities. And now it promises a change in the landscape of communications all across the United States. For, although the various players in the industry don't fully realize it yet, satellite TV could erode, perhaps even wipe out, the monopolistic foundations on which the cable-TV industry was built.

Monopolists vs. Mushrooms

To rural viewers long accustomed to enduring the fewest broadcast channels and the worst TV reception around, the satellite dish was the ultimate revenge. Introduced into TV distribution in 1975, dishes quickly evolved from huge $100,000 items restricted to government, TV stations, and cable systems to widespread consumer products now priced at about $2,000.

The programs carried by your local cable system-say United Cable in Denver or Group W in Los Angeles-are the same satellite signals pulled down by backyard dishes. So until recently, rural TV buffs who invested a few thousand dollars to buy and install a dish could scoop up for free the best that television had to offer: pay cable services like HBO and the Disney Channel, syndicated programming, network feeds to local affiliates, superstations like Ted Turner's WTBS, and numerous "backhaul feeds"-transmissions of news reports and sports events from the field to network headquarters.

It was a good deal-too good to last. In January 1986, Home Box Office ended the free lunch by scrambling its HBO and Cinemax transmissions. Other programmers soon followed, and by the end of the year half of all satellite programming was encrypted and therefore gibberish to anyone without a $400 decoder and a subscription costing $10 or more a month per service.

At first, satellite dishes were used only by consumers unserved by cable or broadcasters. But in 1984 and 1985, cable operators began to notice an alarming number of electronic mushrooms sprouting up in their backyards. More than a half milliondishes were purchased in 1985 alone, and a growing proportion of them-about a third-were in cabled areas, according to Home Satellite Newsletter. A 1985 study commissioned by the National Cable Television Association (NCTA), the cable operators' trade group, projected that dishes would cost cable franchises $400 million in lost revenue over the next five years.

Scrambling, cable companies seemed to think, might stop the attack of the giant mushrooms. "Cable operators are in the pay-TV business," says Steve Tuttle, public relations director of NCTA. "Let's remember that. Now, it gets awfully hard to be in the pay-television business when the product is being given away across the street from you."

For several months before and after HBO's move to scrambling, confusion, anger, and fear prevailed in the dish business. Existing dish owners wondered whether they had invested thousands of dollars in useless pieces of junk. Sales of new dishes slowed to a trickle. RCA and Goldstar, two big consumer-electronics manufacturers that had been poised to enter the dish business, pulled out.

The dish industry's scrappy trade group, the Society for Private and Commercial Earth Stations (SPACE), filed retaliatory suits and petitions against everyone connected with scrambling. The Justice Department began an investigation, still underway, of the possibility that the companies that operate local cable franchises had pressured some programmers into scrambling. Several bills to regulate or delay scrambling were aired in rancorous hearings before the House telecommunications subcommittee.

The hysteria reached an appropriate peak on April 27, when a video pirate calling himself "Captain Midnight" overpowered HBO's satellite link for about five minutes to broadcast a protest against hbo's dish subscription prices to millions of surprised viewers. Captain Midnight, known to his friends as John R. MacDougall, owner of a Florida dish dealership, later pleaded guilty to illegally interfering with HBO's transmissions.

The scrambling controversy, however, is not really about scrambling anymore. No one publicly disputes the right of pay television services to protect their signals. The game is changed, and the stakes are actually higher now. What is going on today is a turf battle between the dish and the cable-pay-TV technologies that can both complement and compete with each other.

Pay-TV programmers like HBO and Showtime have traditionally sold their services through local cable operators. These middlemen, companies like Group W and Cox Cable, install and control the cable "pipeline" through which cable customers receive their TV services. If you want to order HBO in Los Angeles, you don't call Home Box Office, you call Group W.

Even if you don't like your local cable company, you still have to deal with it. Cable operators are almost always given monopoly franchises by city governments. The cable company gets protection from competition and permission to tear up the street; the city gets regulatory control, free telecommunications services, and a cut of the revenue.

For many years, the cable industry has been playing a coy game with its franchised monopoly status. When First Amendment rights and rate regulation are discussed, cable operators abhor any comparison with public utilities and claim that theirs is an open business "just like print." But when municipal franchises are handed out, most (though not all) of the industry starts talking about "economies of scale" and "natural monopoly." But satellite television lays the monopoly myth to rest once and for all.

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