Video from your phone company, HDTV reserved for existing broadcasters

In two separate actions, the U.S. Federal Communications Commission (FCC) has set in motion proposals that, if adopted, will mark out a new playing field for delivery of video services to the home. Both proposals are certain to generate debate, challenges and controversy. One will almost certainly end up in Congress’s lap.

HDTV TO EXISTING BROADCASTERS

The first proposal reaffirms the allocation of a portion of the broadcast spectrum for transmission of HDTV broadcasts and reserves these channels for existing broadcasters rather than opening them to newcomers.

The unanimous 5-0 decision underlines the FCC’s commitment to over-the-air broadcast of HDTV. In essence, the FCC has decided not to cut into the frequencies allocated for HDTV to satisfy the intense demand for additional channels for two-way radio communication.

The more controversial portion of the proposal reserves the HDTV channels for use by existing broadcasters. The theory has been that broadcasters will transmit the same programs simultaneously on two different channels: one for existing (analog) NTSC broadcasts, the other for new (most likely digital) HDTV signals. More recently, broadcasters have asked the FCC for permission to broadcast different programming on the different channels. (Since HDTV sets will also receive existing broadcast signals, broadcasters ask, why bother transmitting news programs in HDTV?)

This opened up the question of allocating some HDTV channels to new entrants. If you are going to allow broadcast of different programs on HDTV and NTSC channels, why not allow new entrants to compete for the new HDTV channels?

Despite its professed commitment to open markets and competition, the FCC has now decided that it will not do this — at least not initially. Instead, the new channels will be reserved for existing broadcasters. The rationale is that existing broadcasters will be able to bring HDTV to the market more quickly than will new entrants.

The hot breath of competition. This logic completely escapes us. As we explain below, the FCC will be giving broadcasters a five-year window (starting in 1993) to get HDTV broadcasts up and running. But why should broadcasters rush to make the substantial investment in HD any sooner than they have to? If there is any lesson we should have learned by now, it is that the best way to encourage innovation is to open markets to the hot breath of competition. If the FCC really wants broadcasters to move quickly, it should allow new entrants to compete for HD licenses. That is the way to motivate existing broadcasters to invest now to ensure their position in the new HD market.

The next step in the procedure will be for the FCC to accept “comments” from interested parties before adopting a final ruling. As it currently stands, the proposal gives broadcasters three years (starting in July 1993, when the FCC expects to select an HDTV standard) to apply for an extra channel, and two years after that to put transmission into service. There is a vague threat that channels not used by existing broadcasters may be awarded to new competitors, and could even be re-allocated for land-based mobile radio services. It makes sense to reserve a spectrum of the bandwidth for HD transmission, but it doesn’t make sense not to open the spectrum to competition from the get-go.

VIDEO FROM THE PHONE COMPANY

The second proposal would allow phone companies to carry video signals and to provide “dial tone” video services.

The basic logic of this proposal states that allowing the local phone companies to provide video services over phone lines will give them incentive to bring high-bandwidth fiber-optic lines to the home and will provide competition for cable TV operators.

To ensure open access to telco video delivery, the proposal would require that the fiber-optic highway be open to anyone who wants to provide video services and is willing to pay the standard (regulated) rates. However, one must question how the FCC intends to enforce such open access and to ensure that competitors are not subject to discrimination.

Legal battleground. It is also safe to assume that competitors claiming discrimination would be loath to take on a protracted legal battle against a telco. In addition, before such sweeping permissions are granted, it would behoove the FCC, acting in the public interest, to enact strict provisions regarding how much information the telcos will be allowed to glean from their massive customer databases to promote their services.

We think that it is inevitable, though improvident, that at least this much of the proposal will ultimately be adopted.

The rest of the package will be more controversial. These are the two key items:

1. Phone companies will be allowed to own and provide their own video services. This is consistent with the latest court rulings allowing the regional Bell operating companies (RBOCs) to become information providers. Judge Harold Greene had (correctly, we believe) resisted making this ruling until ordered by a federal appeals court to do so (see Vol. 1, No. 3, p. 7). Cable operators, newspapers and other information providers appealed the ruling, but their appeal was denied by the U.S. Supreme Court on October 30. Despite the Supreme Court ruling, the outcry is not likely to die down. The next battleground will likely be in Congress.

(We will publish a presentation on this subject by Cathleen Black, president of the American Newspaper Publishers Association, in our next issue.)

2. Unlike cable operators, phone companies will be exempt from local franchise fees and taxes. This is certain to enrage cable operators who will claim –with justification — that it creates an unequal playing field. If the telcos cannot originate their own programming, it makes sense to exempt them from local franchise fees. If they can originate programming, why give them this advantage over the cable operators?

Recommendations, reservations. The FCC is following recommendations made by the National Telecommunications and Information Administration, part of the U.S. Department of Commerce, and (presumably) supported by the Bush administration. However, three of the four commissioners who voted for the proposal expressed reservations about allowing telephone companies into the television content business. This issue is far from closed.

Ultimately, this and related issues may have to be decided in Congress. As we stated in an earlier issue (see above reference), we still hope that U.S. government policy makers will move in the direction of separating the highways (phone networks, cable, etc.) from the traffic on the highways, and that they will do so in an equitable fashion that allows for open competition across the board between the two types of “highway” providers.

Logically, both the phone companies and the cable companies should be information carriers. Neither should be allowed to originate programming. Both should be allowed to carry whatever services they choose to carry — including voice and data as well as video. Given where we are starting from, and given the power of the vested interests involved, this is not going to be easy to accomplish. But that is no reason to give in to the vested interests at the outset and not even try to do the “right” thing.

Jonathan Seybold