[opendtv] Re: FCC Eliminates Simulcast Rules
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: opendtv@xxxxxxxxxxxxx
- Date: Tue, 21 Sep 2004 11:59:49 -0400
At 6:32 PM -0400 9/20/04, Manfredi, Albert E wrote:
>What would it take to do something like Freeview or
>the Berlin system here? What are the obstacles? Why
>can't something similar but perhaps slightly
>different be arranged by broadcasters?
Probably the biggest problem with such a move is the relative
competitive advantages now enjoyed by "some" broadcasters. This is
particularly true of the Owned and Operated stations of the major
networks and the rest of the stations owned by station groups in the
nation's largest markets. These stations currently enjoy pretax
profit margins in the 25-50% range. It would be fair to say that
these owners do not want to do anything that would kill this cash
cow, nor do they want OTA viewers to have access to 20-30 additional
channels that could eat into their share of the OTA audience.
Contrast this with the U.K., which has been dominated by a state
controlled broadcaster, with a few commercial OTA broadcasters who do
not have significant market power. Or contrast this with Germany,
which began the move to multi-channel television for ALL of its
citizens several decades ago (the shift to digital simply makes the
networks that most Germans already see, available OTA.
Another major reason that it is difficult for broadcasters to work
together is U.S. anti-trust regulations. If local broadcasters were
to pool their resources to compete with cable or DBS, it is highly
likely that the move would be challenged on anti-trust grounds. So
for now, the closest they can get is to work with an independent
third-party that negotiates with each broadcasters for a portion of
their DTV transmission capacity - e.g. USDTV.
Working with a third party is fraught with issues. A "free service"
seems highly unlikely, since there would be no economic upside for
existing broadcasters. And, it is not clear that broadcasters in
larger markets will be willing to lease a portion of their capacity
to USDTV, or work with a group of broadcasters, such as those
assembled by Emmis, to develop such a service. There are many issues
that would need to be resolved with respect to compensation.
Even if they do agree to such a strategy, there are downstream issues
that could tear the whole thing apart. If the service is successful,
the broadcasters who lease the spectrum could decide to charge more
for the spectrum, which would have one of two potential effects:
1. Require rate increases which would make the system less competitive.
2. Make continued operation of the system economically unattractive.
The bottom line is that anything that the broadcasters do would
further erode their current privileged position.
>
>For example, "fragmentation of the staions primary
>network audience" must have happened in the UK and
>Germany as well. And yet, Freeview flourishes.
It would be more accurate to say that the audience has been
fragmented for many years in these countries, and that the OTA
broadcasters do not enjoy the economic or political power to block a
system that is clearly beneficial to consumers. Perhaps the most
compelling evidence to support this reality is that BSkyB is
preparing to offer its own (limited) "free" service, in hopes that it
will serve as a gateway to new paying subscribers.
I think they call this market-based competition...
>Take a look at cellular phone systems. How come they
>don't require a separate monopoly to provide the RF
>infrastructure? Could it be because competition can
>work just as well without?
Good question.
One could reasonably argue that we would be better off had the
government decided to create a regional wireless infrastructure
monopoly. We all suffer for the lack of interoperability among
systems that are using different transmission technologies.
A regional monopoly would not have had the same benefits for the
politicians, who were eager to take "their" share up front. By
creating the illusion of competition, and auctioning the spectrum to
potential operators, the value of that spectrum was increased
substantially. And the value of this spectrum was further enhanced by
government created artificial scarcity of spectrum; the mismanagement
of the DTV transition has taken huge chunks of spectrum off the board
indefinitely. Cell phone service is not likely to improve until
Auctions are really nothing more than indirect taxation, with the
benefit that the revenues are collected up front, rather than during
an extended time frame (in the form of use and excise taxes). This
has a strong parallel in the Tobacco settlement, in which the tobacco
companies agreed to a massive litigation payout, then raised their
prices to cover the "expense," with a little more to boost their
profits.
Perhaps the U.S. approach has worked better, given the fact that
rates tend to be lower here than in countries with wireless
communications monopolies. On the downside, service tends to be
worse, so I'm not certain who is better off.
It is also important to note that the "competitors" have created
their own infrastructure pooling companies. Most cell towers are
leased to holding companies that maintain and operate them, often to
multiple competitors.
>With systems that require a lot of widely distributed
>physical infrastructure that isn't wireless, such as
>power, gas, water, sewer, and wired telephone, if you
>want to have competition, you almost require the
>infrastructure to be run as a local utility. Or
>most often, in the past, the entire service was set
>up as a utility.
Yup. This is the basis for the notion of "natural monopolies." The
perceived advantage of not having to replicate infrastructure. One
can only speculate as to the real cost of these services IF there
were competition. We have seen some moves to deregulation, with mixed
results. The reality is that the creation of electric power is almost
completely decoupled from the distribution infrastructure. For
example, the City of Gainesville - through Gainesville Regional
utilities - sells power to Disney in Orlando. If you operate the
infrastructure as a monopoly, you can still have competition among
the companies that use that infrastructure.
>
>This does NOT apply to OTA TV, or even to wireless
>telephones. (Although one could make a much stronger
>argument for the latter to share a single
>infrastructure.)
One could make strong arguments for BOTH. What is needed is an
environment where the infrastructure monopoly has strong incentives
to provide an infrastructure that maximizes the potential revenues
that can be generated. For example, they SHOULD take the huge profits
from large markets and use them to build infrastructure in areas
where profitability is marginal, or where NO for-profit company would
build infrastructure and operate it at a loss.
This is the one area where government can force universal service by
structuring the infrastructure companies properly.
>
>> Anyone can use the PSTN to move any voice message, or
>> any bits. There is NO regulation of the content; there
>> IS OPEN access to the network for anyone willing to pay
>> the carriage fees.
>
>Apples and oranges. A unicast, two-way private comms
>system is completely different from a system designed
>for broad distribution of copywritten content.
Why?
The PSTN is carrying a huge amount of copyrighted material today -
nearly half of all Internet connections still rely on good old dial
up telephone connections.
What is different about a company contracting with an ISP to host a
web site, versus contracting with a Digital TV infrastructure company
to deliver their bits to local caches at the edges of the network?
Are you suggesting that a market-based approach to selling access to
a "universal" DTV infrastructure could not work? Would content
providers refuse to use such an infrastructure, choosing instead to
rely on cable and DBS exclusively?
Or would such an OPEN infrastructure encourage new entrants who would
have the same chance to access viewers as a huge media conglomerate?
>
>I tried to explain that as long as the PSTN was only
>used as a unicast two-way voice telephone system, what
>you say might be true. But now that the PSTN wants to
>become more like a cable TV system, including broad
>distribution of TV content via PONs and upgraded xDSL
>connections, you will see plenty of regulation of the
>content, copy protection paranoia, and all the rest
>that comes with the wide distribution of high value
>content.
Perhaps. But the reality may be quite different than the picture you
are painting. Clearly, it has been POSSIBLE for many years for the
phone companies to compete with cable - why have they not chosen to
do so?
Here are a few possibilities to consider.
1. The cost of fiber-to-the curb solutions is still too expensive to deploy.
2. The telcos are unable to negotiate competitive rates for the
content that is now delivered by cable, DBS, broadcasters, et al.
They have no experience in this area, and there are no regulations
that FORCE the big media companies to offer them the content at
competitive rates. DBS is a perfect example; it COULD NOT get off the
ground without government regulation. DBS only became feasible AFTER
the government required the content owners to make their content
available to the DBS operators at non discriminatory rates.
3. Perhaps the telcos are just waiting for the current entertainment
distribution system to collapse under its own weight. Why get into
the multichannel TV business at all, if it is likely to be
disintermediated by pervasive broadband connections? Perhaps the
telcos are more interested in being common carriers of bits - a
business they understand - and are assuming that in the next decade
people will simply access or buy the content they want via the
Internet.
Clearly, the interplay of competitive interests with the politicians
is the speed governor on the "digital" transition.
Regards
Craig
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