Thursday, February 18, 2016

Set Top Box Competition: What’s Not to Like?

            Only in this pay to play, partisan world could two out of three FCC Commissioners rise in opposition to an overdue initiative to save consumers billions of dollars.  Cable and DBS companies will join the opponents along with sponsored researchers who will trot out all sorts of bogus rationales.

            I’ll start by using two words to dismiss what appears to be the first gambit rationalizing a monopoly set top box marketplace.  The narrative goes something like this: “Why fix something that isn’t broken?  Just look at those so-called Tivo boxes.  Have you seen their prices?

            My response in two words: umbrella pricing.  Tivo charges what the market will bear, and in an artificially uncompetitive market it can use the outrageous set top box rental box rates to establish an equally outrageous sale price.

            If the FCC removes the government-sanctioned near monopoly, then cable, DBS and set top box manufacturers simply will have to sharpen their pencils and offer consumers a far better value proposition.

            Competition opponents will bolster their arguments for maintenance of the status quo by framing the FCC initiative as overbearing and unnecessary regulation.  How is it not deregulation when government eliminate previous rules that fostered a monopoly making it possible for above market set top rental and sale prices?

            This long overdue deregulatory effort reminds me of the adage about the stock market where bulls make money, and bears make money, but pigs get slaughtered.  Premium television companies have gouged consumers for years on a device that has become bundled with service.  Technological initiatives, which made it possible to offer more channels and compress more signals, also eliminated the ability of consumers to buy “cable ready” television sets useable without a set top box.  So the box has become a necessary device and pay TV operators get the privilege of charging a monopoly price, because they have no incentive to achieve progress on an open interface for competitive boxes that can provide both upstream navigation functions and downstream piracy prevention. 

            Cable operators have a lame, hassle-filled option available that they make every effort to obscure: the cable card.  Join the crowd if you have never heard of this option, one that typically requires an appointment with the “Cable Guy” to plug the card in, at considerable expense for the premises visit.

            The lack of set top box competition runs counter to a 60 year Carterfone precedent favoring the right of consumers to attach technically compatible devices like telephones, cable modems and wireless routers.  Incumbents do not want a free consumer option as they lust over the rental fees they cannot charge. 

            Consumers should think of an ecosystem where they have to pay a monthly rate to carriers for the privilege of attaching a modem, router and telephone.  We do not standard for such extortion, but even now inertia and ignorance of the ripoff allows cable operators to charge $10 a month for a cable modem that costs less than $50.  Bear in mind that unlike wireless handsets, consumers use the same cable modems and wireless routers for years. 

            Incumbents also will try to characterize the set top box as so complex in functionality that there could not possibly be a common interface usable by companies like Roku, Apple, Google and any television set manufacturer.  Nonsense.  Of course cable operators have never gotten around to finding a way for television sets to have “true two way” access to security and program guides, but their nonfeasance does not make the task undoable.

            In a nutshell: set top box competition does what I would have expected Republican regulators to applaud--competition unfettered by regulations that created a fake monopoly that has extracted billions from consumers.

1 comment:

InfoStack said...

Pretty amazing that few are talking about the significance of the NPRM being accompanied by the program diversity NoI. Who in the trade would have thought these two conjoined events would have occurred just 4 months ago?

And when will the industry of pundits and analysts understand the inherent linkages across networks and boundaries? The same holds for last mile access and interconnection in voice/app/data nets.

Simply put, monopoly capabilities (even if regulated) easily translate to monopolies elsewhere in the stack. This was the fundamental difference between the US vertical separation of the core and rest of world that kept monopoly horizontally complete; core & edge intact. That was offset by greater horizontal separation at the edge. However the core always trumps the edge in networks. So the US model fostered much more generativity than elsewhere.

Of course we screwed up the competitive process starting in 1996 with asymmetric policy provisions and an inability to deal with the subsidy issues and value conveyance inherent (and necessary) in all networks. Then we killed off any type of equal access in the early 2000s. Fortunately for us Steve Jobs resurrected equal access using wifi (shared, open edge) offload in 2007

See the linkages? Anyway, Wheeler certainly does.