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NAB 2006

Jun 1, 2006 12:00 PM, By Barry Braverman, S. D. Katz, D. W. Leitner, Steve Mullen, Dan Ochiva, Jan Ozer, and Jeff Sauer

Perspectives from the show floor

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IPTV Gets Las Vegas Magic

By S.D. Katz

This year, the future of media was on display at IPTV World, an event produced in association with NAB and held during the annual convention. In pre-show marketing, IPTV World listed important topics to be covered in various panel sessions, most of which seemed to center around who will provide the fastest Internet connections to the home.

Here's a quote from an IPTV World online flyer: “Satellite and cable have been battling it out for a decade, with industry watchers taking sides and making bets on who will win. With more than 70 million cable subscribers and 16 million satellite subscribers in the U.S. market, the telco industry is taking on a huge challenge by deploying pay-television services.”

While there are 3 million square feet of toys on the show floor at NAB, the real action is the political maneuvering and lobbying by NAB, a non-stop activity that goes on throughout the year. On the show floor, Verizon, AT&T, Siemens, GlobeCast, and other wireless and IPTV companies were new vendors to most seasoned NAB attendees. If the boothgoers paid attention at all, it was to hear pitches for services and infrastructure plays that are important new business opportunities. But content creators who don't examine the legal and political decisions that determine broadband deployment are relegated to the status of hitchhikers on the information highway.

The booths of various IPTV manufacturers and service suppliers were a similar distraction from NAB's real business — securing spectrum or some other crucial advantage in the marketplace. It's the telcos and cable companies that are taking their turn at bat in Washington, D.C., but you won't hear much about the really important legislation that is in play.

However, students of the early history of radio and the allocation of the spectrum in the 1920s are all too aware that we may be repeating history. This was a series of decisions culminating in the Radio Act of 1927, which chose to favor the commercial development of broadcasting with essentially no available bandwidth for not-for-profit radio. In what many see as an extremely biased process, the Federal Radio Commission (later the FCC) allowed a handful of large broadcasters to challenge the licenses of college, labor, church, and civics organization stations, which one FRC report labeled “propaganda” radio.

The short-lived Wagner-Hatfield amendment challenged this, seeking to set aside 25 percent of the radio spectrum for not-for-profit organizations. The amendment was defeated in 1934, 42-23, but this was after the major broadcasters had already developed a power lobbying machine. Like too many important decisions made in Washington, it was hardly exposed to anything approaching a public policy debate.

If you read the popular press or the NAB's press releases, it seems a fait accompli that bandwidth will be in the hands of the cable, satellite, and telco providers. Little mention, however, is made of the wireless opportunity for non-profits or how spectrum allocation is an open invitation to anti-competitive practices.

Here's what's happening: In 2009, the analog spectrum currently used by broadcasters will be returned to the government, while the broadcasters move to digital pastures. The current plan under discussion is to auction the vacated spectrum to the wireless industry. For a number of technical reasons, this is the best available spectrum for broadband wireless networks, since it allows for service that is less vulnerable to uneven terrain and obstructions such as buildings.

That makes the empty spectrum a hot property. Consider this: Currently, many communities and cities are contemplating building their own wireless broadband infrastructures that would reach well beyond the limited hot spots at Starbucks. That analog spectrum is ideal for this use, but it won't astonish you to learn that the incumbent providers — including many NAB member companies — plan to oppose any city that hopes to provide fast, cheap, open-to-everyone service to homes in their communities.

Telcos are lobbying furiously to prevent municipally provided high-speed Internet access. So far, they've been winning. Some 14 states have now made such community wireless endeavors illegal, as long as a telco is willing to provide some service — even if only to a token number of users — to the same community.

The telcos are also working at the federal level to pass legislation restricting municipal networks. They argue that locally funded municipal networks may have tax advantages and will be able to operate outside the free market. Of course, the telcos operated for decades with huge anti-competitive advantages, which they received through federal legislation that they successfully lobbied for. AT&T would not be the leviathan it is today (again) without that thumb on the scale.

As the corporate world should see it, cities and other municipalities are just another group of competitors. Surely, with the technical and financial resources of the telcos, they should be able to offer attractive alternatives to consumers. But with the municipal networks providing a broadband option for some Internet users, telcos and wireless companies will not be able to create economics of scarcity. Even with the increased number of new wireless providers created by the auction, consolidation will happen again within a few years. A long, long period of very limited competition is likely to follow a short period during which the consumer has several broadband options. The wireless spectrum is licensed, and, for the near future, anyway, there will always be a limited amount of that spectrum space. If municipal networks had any leverage, they could at least keep the telcos and wireless providers on their toes, providing an alternative with different motives that favors diversity rather than profit. It would be just one of several options for consumers.

Auctioning the entire wireless spectrum to a few companies has enormous implications for content producers. Even if the media conglomerates, including networks and movie studios, may not actually own or provide broadband access, they are going to make deals for better placement and service for their own content. While the telcos argue that the issue is receiving a fair return on their investment, it's actually about the opportunity to be a gatekeeper and the huge profit opportunities when you can charge for access to the consumer. In market economics, the bidding process is a way of determining the value of the licenses. Ordinarily, this is reasonable, except that many of the bidders continue to enjoy anti-competitive advantages achieved through legislation with support of both Republicans and Democrats.

The problem with such oligopolies is that the broadband infrastructure in the United States connects a vast number of far more important and truly competitive businesses to the consumer — the tens of thousands of goods and services offered by business with no political clout. That's where the real entrepreneurial action is. But it's threatened and thrown out of balance by a system that favors the entrenched interests of a few media and telecommunications systems.

As an example, remember how the state and federal highway system, created with your tax dollars, provides equal access to all. There is no fast lane for cars willing to pay more at a tollbooth. Similarly on surface roads, malls cannot pay a fee to take over the better roads because they can spend more than a small local store can. The big malls still have many ways to compete — they can gain advantage by spending more on advertising and offering lower prices or innovative products — but they can't take competitive advantage by limiting the consumer's access to competition. This is the theory behind network neutrality.

Compared to the costly installation of cable and fiber networks, wireless high-speed networks are a simple, dumb technology — something that's not particularly costly to set up or maintain. Local governments, immune to being bought up, can easily set up a network. That's what worries the large providers. This would be disruptive to what will otherwise devolve to network monopolies or a limited number of huge providers. In the current faux-deregulatory environment, it might be more correct to say that the FCC is regulating — and holding back — small local governments, rather than leveling the playing field. Frankly, most local governments are more like small businesses than a bloated federal bureaucracy.

As a content producer on the show floor, you may be marveling at all the new opportunities and markets that are available. It may seem as though you have a new way to reach an audience for your content directly through one of the new DBVH services available on cell phones. Perhaps.

But here's my suggestion: Keep your eye on what's happening in Washington, D.C. There will be legislation passed there that will be far more important to your IPTV ambitions than the latest compression technology demonstrated on NAB's show floor.

© 2009 Penton Media, Inc.