THE CABLE PIPELINE

The FCC seems determined in revisiting and repairing the current CableCard rules fiasco in which it chose to mandate a universal Set-Top-Box for Cable, Telco, and DBS providers. Where does a solution lie, and is the FCC going down another road of improbable acceptance? See (Boucher Backs FCC Set-Top Box Effort)

The problem with a CableCard solution, in an attempt to create more competition, was the opening of current provider STB’s to access other venues, which turned out to be both technically and business concept unfriendly. Video providers are not going to share proprietary technology or a business specific customer experience to comply with such a rule. It did not make for good business economics, and led retail manufacturers down the wrong path of investment in believing providers would accept and adopt such a technology. Fast forward to today, and we are back at the same starting gate with another proposal by the FCC to create more competition within the video and broadband marketplace.

Set-Top-Boxes are uniquely provider centric, and therefore changing that concept is not going to be met with open arms. With that said, the market is moving to more of a gateway consumer experience, although it is not there yet, which should be and seems to be, the focus of the FCC in an attempt to create a better competitive landscape. However, the STB has to remain an exclusively provider experience whether you are a Cable, Telco, DBS, or Over-The-Top provider service. See (Death Row For the Integrated Set-Top)

For a wider acceptance of creating more choices within the home for consumers, the gateway must be specifically designed to accept the (Four Play concept) of phone, Wireless, broadband, and TV. The TV monitor should be accepting an STB signal to differentiate seamless and multiple internet surfing, and TV access. The competition aspect of this design lies within the Set-Top-Box. This device must be company specific and give the consumer a wide variety of choices to various information and entertainment exclusively provided by each competitor.

To clarify, each provider of entertainment would create their own set-top to interface with the gateway. The STB uses the broadband pipeline, from whatever carrier, and integrates the company specific experience to the consumer, whether it is Cable, Telco, DBS, or Over-The-Top providers. However, mandating some type of STB interface to access competitors separately or modifying STB’s to be universal, will just slow competition and go down the path of CableCard inoperability.

To reduce consumer costs, eliminate the need for multiple STB’s within the household. Use the gateway to provide an STB wireless-encrypted signal for each TV interface. Not being an engineer, this concept is predicated on a modified routing system for the STB. Competition remains with multiple providers of content and their unique STB interface. This also means TV manufacturers must be involved in the process while maintaining the integrity of the STB. This concept could reduce both consumer costs and capex requirements for STB providers. See (Analyst: FCC ‘bound and determined’ for STB ban)

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• FCC to “improve” CableCARD rules this month (arstechnica.com)
• FCC: Will AllVid be CableCARD Part Deux? (feldmanfile.blogspot.com)
• FCC’s Proposed Gateway Mandate Misses Opportunity for Alignment with Pay-TV Operators’ Incentives on Open-standard STBs – IMS Research (eon.businesswire.com)

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The announcement by Google that it would delve into the Broadband ISP arena in select markets is quite interesting in the fact that it looks to be marrying a public advocacy with a public initiative, and where it counts the most, in broadband infrastructure. To me it seems more of a logical move, putting your money into a venture which supports your core competency, Internet openness, proliferation, adoption, and access.

In addition, Google seems to be promoting its core legislative agenda of having a free and open internet along with proposed high speeds that would be 100 times faster than most other ISPs. Does it matter that the initiative will not access every home in the United States, not particularly? The point remains that Google is transparently moving to promote broadband proliferation at speeds only accustomed to users outside the United States, such as Europe and Japan.

It is an experiment, albeit small and concerted with a maximum 500,000 customer goal; the initiative could have lasting ramifications within the ISP community. Per Google’s press release their agenda has three goals:

• To test developer apps and what they can do a super high speeds
• To test new ways of deploying fiber networks while sharing that information for deployments elsewhere
• To promote open Internet access to give users access to multiple providers therefore aligning with their advocacy

The RFI associated with the company’s test specifically asks for municipal participation where inadequate funds or expertise hindered startup of those plans. While it is not time to jump on the competition  bandwagon with this small test sample, it does make for interesting news which could spur more future competition within the marketplace. It also has the research criteria desired to bring in collaboration and innovation that all markets need in moving to the next level. It will also serve to enhance the existing ISP’s step up their game.

There is nothing more refreshing in business than having a company willing to put up capital in promoting an agenda to help both itself and the majority of current and future Internet users, in bringing next generation communications to the forefront of development and deployment.

I like the move Google’s made, but it, along with many other ventures will have to stand the test of viability, acceptance, bottom line financials, expertise, and research and development to be successful. But most of all, I’m impressed with marrying its advocacy with initiative.

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• Google To Launch Ultrafast Broadband Service (techdailydose.nationaljournal.com)
• Seattle jumps on Google broadbandwagon (seattlepi.com)
• Google’s Ultra-Fast Broadband Plan Puts U.S. ISPs on Notice (dailyfinance.com)

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Cable providers are looking at a cross-roads with the current climate brought on by a new political landscape, a Democratic Congress, with an FCC mandated to change the future of broadband, and a public viewed skepticism of the Cable Industry.

This adds up to significant changes which might threaten the status-quo of annual rate increases, tiered program blocks, and set-top-box rentals that have plagued the industry with criticism in the past. So, how does the industry change those perceptions and move forward in a new competitive landscape?

With innovations and growth spurred by deregulation of the 1980’s Reagan era, the Cable Industry began a journey starting with wire-line build-outs spurred by terrestrial satellite programming. A phenomenal market emerged for content delivered over the pipelines, which leaped forward with the advent of fiber for better quality, bandwidth, and extended reach to new customers.

This model became so successful it began to come under scrutiny from a public, and then regulators, which perceived an industry with little competition, blocks of programming tied to rate increases, poor service from a lack of forethought, and high profits.

Fast-forward to today with broadband streaming video, alternatives to traditional linear TV, increased competition from DBS and a few wire-line providers; the industry is at a cross-roads. Where do we go from here to ensure the profit model which made us successful in the past?

But the industry has its up-side, with a commercial business market largely untapped and held by incumbent phone companies for decades; a new venue of Internet Broadband viewing by an increasingly impatient consumer for change in the status-quo, therefore TV Everywhere; a Set-Top-Box market that begs for universal service across many mediums; and a mandate by regulators to increase broadband penetrations.

The industry can, if strategically focused, take advantage of these changes in the market by embracing change, letting go of the past, and moving forward to the future. Its message should be one of new innovations, a willingness to compete under a new market structure, and a helping hand in achieving broadband proliferation. These are the cross-roads the industry must face. Their message should be communicated positively, succinctly, and often.

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• FCC offers early peak at national broadband plan (seattletimes.nwsource.com)
• FCC Takes on Cable But Not Carriers With National Broadband Plan (gigaom.com)
• Cable Companies – Always the Villains (lockergnome.com)
• Clearwire Supports Net Neutrality? Does No One Remember Its History? (techdirt.com)<!– ckey=”59BE5E2E” –>

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Why memorable quotes from Cable Industry executives in 2009 seemed either disconnected or a predictor of the future. Judge for yourself whether these quotes have merit or are they seriously off-track with the mainstream. Only time will tell whether these executives have done their homework, or they are just [in-the-moment] statements. As an Industry executive, should these leaders be better prepared before they speak?

Disney CEO, Robert Iger on Comcast/Time Warner Authentication for TV Everywhere – April 2009

“May be an “interesting” opportunity for consumers. On the other hand, preventing people from watching any shows online unless they were cable subscribers would engender a backlash. Important not to take away online video programming that’s already out there, and not to throttle access.”

NCTA Chief, Kyle McSlarrow: on the Cable Industry’s role in the economy – April 2009

“Fortunately, we have every reason to believe that our industry will continue to be resilient and grow. And I would go further…and say that we have a central role to play in our economic recovery as well.”

Comcast CEO, Brian Roberts: on working with programmers – April 2009

“I don’t think we should put our head in the sand,” he said. “We should allow customers to get video wherever they want. We have to have really thoughtful conversations with our partners in content and make it a win-win outcome for customers and programmers, and I think we can do that.”

Time Warner Cable CEO, Glen Britt: on Tiering Broadband Access – April 2009

“If you’re downloading a movie every day, you’ll spend more per month than someone who uses the internet just to check his or her e-mail. People could end up liking it: some will end up paying less, while those people paying more may get faster service.”

Time Warner Cable CEO, Glen Britt: on TWC subscription growth – December 2009

“Time Warner Cable increasingly hears from customers who would like to buy smaller packages of channels. As an industry, cable operators “need to listen” to those kinds of concerns.”

Time Warner Cable CEO, Glen Britt on Comcast-NBC Universal Merger: – December 2009

“What we found over the years was that there were very few synergies in being vertically integrated — in fact, the rules and regulations that control how this industry behaves are such that anything people might be tempted to do in a vertically integrated company is pretty much prohibited.”

How will these quotes hold up historically in 2010? Will they be on track with the market, or will they be (in-the-moment) statements that seem to be irrelevant for the future? Vote for the best and worst quote of the year; leave a comment.

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• Time Warner CEO: There Is a Willingness To Pay for Quality Content (blogs.wsj.com)
• For Comcast’s Chief, Content Led the Way (nytimes.com)
• ThePlatform Rolls Out New Service For ‘TV Everywhere’ (paidcontent.org)
• Comcast: No plans to sell fourth-place NBC network (seattletimes.nwsource.com)
• The Usual Merger Suspects (online.wsj.com)

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Here are the proposed rules rolled out this past Monday by FCC Chairman, Julius Genachowski in his Brookings Institute speech:

• prevent Internet access providers from discriminating against particular Internet content or applications, while allowing for reasonable network management
• ensure that Internet access providers are transparent about the network management practices they implement
• consumers are entitled to access the lawful Internet content of their choice
• consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement
• consumers are entitled to connect their choice of legal devices that do not harm the network
• consumers are entitled to competition among network providers, application and service providers, and content providers

It seems that the proposed new rules are taking a distinct party line affiliation with Democrats and Republicans on opposite sides. While this is common practice, it does indicate where interests lay in what will become a heated debate. From a Consumer’s Union/Google/Skype standpoint, the internet should be free and open to all comers with traffic and content flowing seamlessly and freely throughout the web, indicating their vested interests. Democrats have historically favored this type approach in making sure regulations keep the big companies in check.

 On the other hand, ISP providers like Comcast, Time Warner Cable, AT&T and Verizon are skittish about any proposed increase in regulations which might hamper innovation or encompass a regulatory nightmare in managing their services which were built on $billions of private investment.  This is where Republicans are (circling their wagons) to protect the business sector from which they rely on to fund their campaigns. Again, this is nothing new for anyone following the political landscape.

 There are some nuances which need to be considered from the perspective of both the ISP’s and the Wireless Industry which would have to contend with providing unlimited bandwidth to comply with rules requiring unfettered access by to all content. Bandwidths are not unlimited, and here lies a crucial part of the problem. There are peak times when a Wireless Network would have serious issues in accommodating all traffic if the rules, as proposed, were enacted. It just depends on the situation, and whether you are an ISP or a Wireless Carrier; there are limitations to the network.

 The good part to the equation for both consumers and the ISP’s are that comments will be taken by the FCC from all concerned parties who wish to weigh-in on the topic. The Democrats and Republicans, after initial posturing seem to understand that there is a middle-ground where the interests of each party can be addressed. There will be a vote by the FCC on October 22, 2009 to adopt the new rules, and if approved, comments will be taken as part of the rule making process.

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In a move to strengthen the Obama technology agenda on Net Neutrality, Julius Genachowski chairman of the FCC will speak to the Brookings Institute this Monday to role out his plan for this hot topic for legislators. This comes after Comcast was chided by the FCC for restricting its bandwidth to (Internet Hogs), or at least one in particular, where Comcast networks could not accommodate the increase in bandwidth thereby slowing performance for other customers.

 There are two sides to this story, one in which Google and various consumer groups have argued that the Internet is free and open to all comers, and should not be restricted in any way by providers, or refuse content companies wanting to be on their networks.  Both Google and Skype have argued to the FCC that both Apple and AT&T have denied them carriage on their wireless networks.

 On the other hand, companies like Comcast, AT&T and Verizon argue that ownership of the (pipeline) is private, and to accommodate the few who consume large amounts of bandwidth requires restrictions and/or (price tiering) to pay for upgrades to those networks, while at the same time, not slowing down overall traffic for all customers. Also, (exclusive contracts) come into play where companies enter into these agreements which, in essence, exclude others from their networks. Is this practice not simply confirming that a free market system is at work?

 In a recent post to my blog, Is Net Neutrality a Moot Point? , I address the issue with this statement; “While each of us should and will, per our government, have HSI access, the {Free Market System} will dictate, through unregulated competition, what and how much is received through this pipeline.”

However, consumers along with special interest groups have inundated legislators with their own thoughts on the issue quoted from the Washington Post:

 “Consumer interest groups have pushed for new rules and key lawmakers Thursday ratcheted up the debate when Rep. Henry Waxman (D-Calif.), chairman of the Energy and Commerce Committee said he would co-author a net neutrality bill with Rep. Ed Markey (D-Mass.) and Anna Eschoo (D-Calif.).”

 At issue is the premise that all content on the Internet should be freely shared on all networks, private or not, without restrictions on bandwidth consumption. While this is noble in thought, it does not reflect a true competitive market place, where companies vie for a “place in the sun” with price negotiations and quality content. This is why a company like Wal-Mart, Apple, and Microsoft have enjoyed unbridled success; they created a market and outperformed competitors.

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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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This is not breaking news but it does bear more enlightenment in realizing the ramifications, both good and bad, for the future of Programmers, Pipeline Providers, and Consumers alike. Fear can be a great motivator, although who wants to be pushed to be creative at the point of losing something as important as your business model? But that is what seems to be taking place with TV Everywhere, and what a motivator it has turned out to be.

Just gaze at the Programmers on which this paradigm has taken hold, the likes of CBS, HBO, STARZ, Discovery, A&E, AMC, BBC America, DIY Network, Fine Living Network, Food Network, Hallmark Channel, HGTV, History, IFC, MGM Impact, Sundance Channel, WE TV, E! Entertainment, The Style Network, G4 and Fearnet.

I believe the recent historical evidence that the Music Industry failed to see that consumers were downloading music illegally because they wanted to enjoy it on their IPods’, or that they were perfectly willing to pay for that entertainment, as is common now, was a great motivator for the likes of Comcast and Time Warner.

The Cable Industry is now in the “drivers seat” if TV Everywhere becomes a success, both with authentication, and with the notion that consumers will accept the premise that content can be delivered in SD,HD over an ISP connection just for being a current subscriber. This could change the way programmers are currently being paid for their content, which is in a linear format, and continues to be consumer unfriendly, which has driven them to the Hulu’s of content.

Consumers are frightened of what could happen with “usage fees” which the MSO’s are quite “mum” about during this test. While content online has been free to this point, all that may change if TV Everywhere is the success its conceivers envisioned. It will be interesting to see how this new paradigm continues to evolve and who will become the dominate player in taking advantage of shifting consumer preferences.

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If you are a Cable TV or Telecom Provider the risks associated with both applying and receiving Federal Funds for rural broadband coverage is not only daunting, but can be “down-right useless”.

 The intricacies and complexities in completing just the paperwork for submission can cost lots of time and money which should be considered in any venture that involves serving under-populated areas with High Speed Broadband.

 Here is how to make it work:

 Problem:  The Broadband Stimulus Package, headed by the NTIA, does not have maps of residents that do not have access to broadband service, yet have asked for detailed maps from applicants vying for federal dollars.

 Solution: Meet with and ask for submissions of maps by incumbents which are not serving contiguous areas surrounding them and base grants on those companies who can show it would benefit their interests and the publics to increase their footprints.

 Problem:  The current rules preclude applicants from applying since they are considered in the footprint of incumbent operators which choose to serve more lucrative areas, like suburbs. This includes urban areas, and cities/counties with lower homes-passed and demographics that did not meet company pay-back requirements. 

Solution: Offer incumbent companies the incentive to build out low-density areas, within or adjacent to their footprints. Since they are already making a profit from high-density areas, it would make a more compelling “business carrot” to just extend their plant. It does not make good business sense for applicants who are not already within the area, or have a profitable business within the area, to build new plant for low density areas. The cost would be prohibitive; the pay-back would be less than desired, cities and county governments wanting to do this would end up subsidizing the venture, with tax-payer dollars, in the long-term, and federal dollars would be wasted if these ventures go “belly-up”.

Problem: The rules seem to favor Incumbent Providers, those which serve a particular area but have not served contiguous areas within their footprints. These areas seem to be in a “black-hole” under current rules that preclude applicants from applying where these operators can reach and serve the “underserved”. Incumbents also have the right to “veto” applications which are deemed within their territory.

 Solution: Offer these incumbents an incentive to service these non-customers within their contiguous footprint. Federal Stimulus monies could be doled out to those companies, large or small, to subsidize investment in the “underserved”. Base fund allocations on (homes-passed per mile), half at the beginning of the project, with the remainder of funds distributed base on actual home-passing’s from the expansion.

 While this is not “Rocket Science”, it does require detailed planning and enlistment of help from the private sector.

 Step One:  Find those homes and businesses representing the “underserved”, or acquire/construct maps.

 Step Two:  Incent those companies with contiguous plant to serve these targets, since these companies are the most likely to be successful in the long-term.

Step Three: After the initial round of disbursements based on the above criteria, initiate a second round to clean up the remainder of the “underserved

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Time Warner Cable (NYSE, TWX) of South Carolina decided to delete a CBS affiliate in several communities including, Johnsonville, Effingham, Murrells Inlet, Pawley’s Island, Georgetown as well as Richmond and Brunswick counties in South Carolina.

 WBTW-CBS affiliate (Media General, NYSE-MEG) has filed a complaint with the FCC claiming Time Warner’s lack of a 30-day notification, to either WBTW-CBS or Time Warner Customers as they are required to do under current FCC rules. In their complaint the station asks the FCC to sanction Time Warner for “it’s knowingly and willful violation of the FCC’s Rules. “

 Now there are conflicting reports from both sides. “Hundreds of viewers have written and called expressing their concerns about the loss of service, “WBTW Vice President and General Manager Michael Caplan said on (scnow.com), “There is a great deal of misinformation in the marketplace. We would like for the public to know that the decision to drop WBTW was Time Warner Cable’s and theirs alone.”

 Time Warner Cable Vice President for Media Relations Melissa Buscher said, “This issue is about duplicate programming. WBTW is an out of market affiliate in the Georgetown County Area, “ said Buscher. “By removing the station we’re able to provide more programming options in the future to our customers. To include, faster broadband and more HD services and that’s what our customers have come to expect. “

 Some Time Warner customers claim they were given a week’s notice about the change via a postcard. However, the bottom line here is whether Time Warner adequately notified all affected of the planned change under the required FCC rules. This type of scenario will continue to “raise its ugly head” in the future as MSO’s are pressured to supply more digital programming by reducing their analog channels.

 The Time Warner change yields 6 digital channels compared to loosing one analog channel. It just makes good business sense, especially when duplicate broadcast channels are involved. However, the public relations, as well as the legal aspects regarding Time Warner’s handling of this move, will be in question if the scnow.com story is factual.

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