THE CABLE PIPELINE

The FCC has just issued a Public Notice: Comment Sought On Video Device Innovation NBP Public Notice # 27, to spur innovation within the set-top-box market currently being served by individual Cable & Telecom companies as monthly rentals to consumers. First, these providers have invested in their own versions of set tops which interface their products with consumers for a wide variety of enhanced services.

The problem the FCC sees in this configuration is that it somehow stifles competition within the marketplace therefore making it difficult for consumers to delve into the now wide range of new services like Internet TV from different providers. This makes for a hodge-podge of connection/interface devices consumers must rent or purchase to experience what they want. Examples would be X-Box, Blu-Ray, Apple TV, Netflix, and others which connect consumers to Internet content through their TV’s.

The FCC moved to solve this problem through CableCards that mandated providers to modify their equipment to be CableCard Ready. It is probably in understatement to say that this mandate has failed without bringing inter-connectively any closer to the consumer than what we have today, individual provider set-top-boxes. So, where does the solution to this quandary lie?

To say that Cable-Telecom companies are not aware, stifling competitors, or not working on solutions that will take advantage of IPTV seems ludicrous within a competitive market realm. The last thing this market needs is more regulation or mandates to companies on how they should run their businesses, or how they should spend capital to give products that market forces will demand on its own.

Personally, I would like to see Home-Gateways as a solution to this problem. Each provider could custom design their own device to interface with the Gateway, therefore routing different services to each entertainment or communications platform within the home. It would be much simpler and efficient in handling the needs of consumer demand. And this should not be mandated, but left to the innovators to come up with a device which would take any companies encryption product as a plug-in; problem solved.

Being realistic, this solution is much easier said, than done. My point is that innovation, competitiveness, adoption, and lower prices do not come from mandates, they come from market forces where demand and supply rule. With unencumbered innovation the market will solve the set-top-box dilemma the FCC is delving into from a regulatory stance. In essence, let market forces rule, not the FCC.

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What happens when you put a cutting-edge and innovative company like Apple into the TV business? That may be what business analysts are scrutinizing in the Apple TV venture, which has slipped “under the radar” of most pundits, because Apple is being very low-key about the business. It has surged and slowed with the tide as the company works to figure out how to make it a viable venture.

 It has both successfully and methodically worked on ITunes-HD Rentals, gaming, iPhones, software, and now Apple TV, which will not be just any set-top box filled with innovative consumer applications; it will be a DVR with the potential to combine what may be an unbeatable combination of consumer applications and could go whizzing past traditional broadband services before being recognized.

 What do current Cable/Telco companies have to fear? It could be the likes of competing with a company like Apple, with the resources to partner with content programmers, and consumer electronics companies, to offer a significant and competitive product in competing with Pipelines in the consumer market place. This would be some serious competition for the Tru2Way application, if and when it gets up and running, while Apple has already teamed with LG Electronics in a $500 million deal to that end.

 Gene Munster, a Piper Jaffery Analyst indicates that:

 “We continue to believe that Apple will eventually offer a monthly subscription for iTunes TV shows accessible on Apple TV, iPods, iPhones, and Macs/PCs. Apple could leverage its deep library of content with many network and cable channel content owners to provide unlimited access to a sub-library of its TV shows for a standard monthly fee ($30 to $40 per month).”

 Apple indicates that it will continue to invest in Apple TV from COO Tim Cook’s statement:

 “we fundamentally believe there is something there for us in the future”

 This is a high-stakes game of first to market with the best-product and best-price in the consumer home digital interactive video, electronics, and broadband market. While the competitors are from different sectors, manufacturing Vs service, the outcome could be quite surprising. There is no room for the slow moving in this rapidly changing consumer realm. Companies have to be focused on offering the right product, at the right price, at the right time.

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