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CAPITAL CURRENTS: What a mess!

Fri, 08/31/2007 - 8:20pm
Jeffrey Krauss, President of Telecommunications and Technology Policy

Things are sure a mess here in Washington, thanks to FCC Chairman Kevin Martin. He is punishing the cable industry at every turn for refusing to accept his a la carte channel selection proposal, which is his way to deal with indecent programming. Meanwhile, everyone expects the FCC to screw up the February 2009 termination of analog broadcasting, and to place the blame on the industry.

Jeffrey Krauss
Kevin Martin is
punishing the cable
industry at every turn.

The cable industry made strong arguments against a la carte. It guarantees that the less-popular niche programming channels will not survive. Subscribers will wind up paying more for less.

A la carte is not dead as a concept – quite the contrary. Satellite radio broadcasters Sirius and XM Radio, hoping to get FCC approval to merge, have embraced it. Never mind that the satellite radio industry business model is quite different from that of cable TV. With perhaps a few exceptions, the satellite radio channels are not owned and programmed by “programmers” in the way cable uses that term. Sirius and XM are free to create new channels of programming and delete others because the music industry does not have the same exclusivity controls over recorded music that Hollywood has over video programming.

If the XM-Sirius merger is allowed, then look for DirecTV and EchoStar to give it another try. But don’t look for them to embrace a la carte.

Anyway, in return for the cable industry rejection of a la carte, the FCC adopted a franchising policy that – until a court strikes it down – punishes cable operators by tilting the playing field. It automatically grants cable franchises to new entrants if local municipalities don’t act within 90 days. And maybe the FCC will get around to thinking about whether incumbent cable operators can have the same automatic grant at renewal time – but don’t hold your breath for FCC action on this element.

Then, the FCC punished the industry by rejecting most cable operator requests to defer or waive the separable security deadline, while granting a waiver to Verizon. The Verizon waiver was based on a filing it made earlier the day the waiver was granted, promising to be all-digital by February 2009. We’ll see what kind of enforcement action the FCC takes when Verizon reveals that it won’t be able to meet that deadline, just like it was unable to meet the FCC’s deadlines for cellphone E-911 location capability.

The FCC has proposed to punish cable operators by taking away control over channel capacity and giving it to broadcasters. The digital must-carry rules would require cable operators to triple-carry broadcasters’ programming – first in analog, then in digital standard definition, then in digital HD. Maybe this will backfire on the FCC, and the court will throw out the entire must-carry regulatory regime, because it violates cable operators’ First Amendment rights to decide what programming to carry.

Also part of that proceeding is the question of “material degradation” of must-carry TV signals. The FCC now seems to be favoring the broadcaster position that all digital bits must be carried, rather than retaining the longstanding policy that impairments must be perceivable by viewers to qualify as material degradation. If that requirement is adopted, it would prohibit cable operators from transcoding broadcast signals from MPEG-2 to AVC, which is the way DirecTV and EchoStar now deliver broadcast stations.

Next, the FCC has opened up a proceeding to develop two-way plug and play rules. The CableCARDs being deployed only have one-way capability. They work just fine for decoding the scrambled premium programming from HBO and others – you don’t need a set-top box if you have a CableCARD-ready TV receiver – but they do not enable video-on-demand and other interactive capabilities. For VOD, you still need a set-top box. The cable industry has proposed OCAP as the platform for interactive TV receivers, but some of the consumer electronics manufacturers have a different approach based on a two-way CableCARD. The FCC wants this decided in time to have two-way TV receivers on the market by Christmas 2008, prior to the February 2009 analog shutdown. Good luck.

There is growing pressure in Congress to delay the 2009 analog shutdown date because of the millions of analog TV sets still in use. The government’s underfunded program to distribute rebate coupons for viewers to buy off-air converter boxes might work smoothly – until the money runs out. But if, as proposed, you must apply for the coupons over the Internet, they won’t go to the neediest viewers.

Meanwhile, to facilitate the analog shutdown, the FCC is asking for comments on potential DTV consumer education initiatives. Rather than the government publicizing the digital transition, the FCC wants broadcasters, cable operators, retailers and manufacturers to take the lead, and presumably to take the heat from unhappy consumers. Anyway, there is widespread agreement that telecom policy in Washington is a mess right now. Everyone is looking forward to the elections, and the prospect of a new FCC Chairman.

 jkrauss@krauss.ws

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