FCC Allows Prohibition on Exclusive Cable Programming Contracts to Expire

[Editor’s Note:  Paul Feldman is an attorney with the communications law firm Fletcher, Heald and Hildreth, Washington, D.C. (feldman at fhhlaw.com)]

Recently, the FCC released a Report and Order and Further Notice of Proposed Rulemaking that will likely impact the ability of some cable operators and telco video providers to obtain cable TV programming. In the Order, the FCC declined to extend the exclusive contract prohibition in its cable TV program access rules beyond the previous October 5, 2012 sunset date. This prohibition generally banned exclusive contracts between any cable operator and its affiliated programming vendor for satellite-delivered cable programming in areas served by the cable operator.

In place of the blanket ban on exclusive programming contracts, the FCC will fall back on case-by-case evaluation of such contracts, in which cable/telco/satellite operators (multichannel video programming distributors, or “MVPDs”) denied access to cable programming may file a complaint at the FCC. Importantly, this case-by-case approach will include the establishment of a rebuttable presumption that an exclusive contract involving a cable-affiliated regional sports network (“RSN”) has a prohibited purpose or effect.

It has been a long journey getting to this point. In the 1992 Cable Act, Congress enacted a prohibition on exclusive satellite-delivered cable programming contracts, but provided for termination of that prohibition on October 5, 2002, unless the FCC found that it “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming.”  In June 2002, the Commission found that the exclusive contract prohibition continued to be necessary, and retained the exclusive contract prohibition for five years, until October 5, 2007. After conducting another review, the Commission in September 2007 concluded that the exclusive contract prohibition was still necessary, and it retained the prohibition for five more years, until October 5, 2012.  In 2011, the D.C. Circuit upheld the FCC’s ruling, but the Court made it clear that given the changes in the MVPD and programming industries, it did not expect, nor would it likely uphold, the FCC extending the prohibition past 2012.

As a result, under the FCC’s complaint process, MVPDs that have been denied access to cable programming will now have the burden of showing that the exclusive contract at issue is “unfair” based on the facts and circumstances presented. The FCC has held previously that determining whether challenged conduct is “unfair” requires “balancing the anti-competitive harms of the challenged conduct against the pro-competitive benefits.” In addition, the complainant will have the burden of proving that the exclusive contract has the prohibited “purpose or effect” of “significantly hindering or preventing” the complainant from providing satellite cable programming or satellite broadcast programming. Notably, the new Order states that it is “highly unlikely” that the FCC would find that the withholding of local news and local community or educational programming is prohibited, as local news and local community or educational programming “is readily replicable by competitive MVPDs and exclusivity has played an important role in the growth and viability of local cable news networks.” This would be in contrast to RSN programming, for which the FCC established a  rebuttable presumption that such exclusive contracts are prohibited, due to the unique nature of each sports event.

While some parties had urged the FCC to make the case-by-case litigation a bit less burdensome and time-consuming by enacting additional new rebuttable presumptions, the FCC deferred, and rather seeks comments on them in the Further Notice of Proposed Rulemaking (“FNPRM”). Among other issues, comments are sought on:  (i) a rebuttable presumption that a complainant challenging an exclusive contract involving an RSN is entitled to a standstill of an existing programming contract during the pendency of a complaint; and (ii) rebuttable presumptions challenging an exclusive contract involving a cable-affiliated “national sports network”.   The FNPRM also seeks comment on revisions to the program access rules to ensure that buying groups such as NCTC utilized by small and medium-sized MVPDs can file complaints on behalf of their members.   As part of this last issue, the FCC proposes to require that such buying groups open their membership on a non-discriminatory basis.

So, the net and most immediate effect of the FCC’s action is that the blanket ban on exclusive cable programming contracts is gone. When faced with denial of access to cable programming, operators will have to file a complaint at the FCC. While that process should be a bit less burdensome and time-consuming if the disputed programming is an RSN, the process still will not be quick or easy. And while the additional rebuttable presumptions proposed in the FNPRM  would be somewhat helpful, it will be an uphill battle to get the FCC to enact them. Telcos with questions or concerns on this issue should contact their telecommunications counsel.

Viodi View – 06/15/2009

The week before last, Roger Bindl and I had a chance to document innovations and innovative ideas at Parks Associates’ Connections Conference. The fun thing about the Connections Conference is that it spans different disciplines and the mix of speakers last week included folks from sectors such as telecommunications, energy, consumer electronics and entertainment. Mitch Singer, CTO of Sony Pictures and president of the DECE, was one of those speakers. He explained how the DECE is trying to make the online video experience as user friendly as DVDs.

Thanks to the Connections Conference, we may have the first video documenting a working demonstration of Qualcomm’s 600 Mb/s WiFi chipset designed for home networking of multiple high definition video signals. Home Networking was a major theme of the conference. In this issue, Alan Weissberger has a comprehensive article on home networking from a panel at a Telecom Council Meeting. Lastly, thanks to a chance encounter at the Connections Conference, I learned how to use the new camcorder capabilities of the G1 Phone.

Some Video Highlights from the Connections Conference Sponsored by Parks Associates

Hope for a Digital Media Distribution Standard

Mitch Singer, CTO of Sony Pictures

Mitch Singer, CTO & Executive Vice President New Media and Technology of Sony Pictures, who provided a keynote address at Parks’ Connections Conference, discusses the relatively new group, DECE, that is trying to bring standards to digital media distribution.  DECE, LLC is made up of content owners, service providers and consumer electronics and offers consumers the promise of media portability and ease of use, while assuring content owners that their content will be protected

A New Twist on Wireless Home Networking

Jason Ellis of Qualcomm shows the new 4 radio WiFi chipset from Qualcomm

Qualcomm announced the doubling of wireless home networking speeds with its chip technology that integrates 4×4 MIMO technology to provide throughputs of up to 600 Mb/s.  Jason Ellis of Qualcomm demonstrates this high speed solution in this brief video.

PlumChoice at Connections 2009

Fred King talks about support services at the Connections Conference

Ken Pyle interviews Fred King of PlumChoice, at CONNECTIONS 2009 in Santa Clara, CA. King explains how they work through service providers and consumer electronic manufacturers to help them help their customers. King suggests that now is a good time to provide remote support services, as people are opting for more frugal behavior and as a result are looking at fixing instead of replacing technology.

Network, Video & More on the Same Cable – HDMI 1.4

Rob Tobias explains the new HDMI 1.4 specification

Rob Tobias of Silicon Image discusses the newly announced HDMI 1.4 specification.  This new specification promises to add networking capabilities to what was traditionally a digital video specification.

Broadband Wireless and the Connected Home – Telecom Council Meeting Review by Alan Weissberger

This article covers the wireless networking aspects of the Connected Home – both inside and out. It is primarily based on the Telecom Council’s May 14, 2009 meeting titled, “The Connected Home: Services and Models.” Trends in delivery of multiple residential services, mobile broadband, home networking, and remote access to the connected home are examined. We also highlight a few related news items from Sling Media (now Echo Star) and Motorola.  Click here to read the rest of the article.

Mobility in the Spotlight at the TIECon 2009 Wireless Sessions by Alan Weissberger

TiEcon is the world’s largest conference for entrepreneurs, focusing on technology markets, entrepreneurial opportunity and innovation. Now in its 16th year, TiEcon 2009 was themed "The BOLD Entrepreneur." The record-breaking attendance of over 3,500 included entrepreneurs, venture capitalists, industry executives, analysts, engineers, and business leaders. TiEcon 2009 lived up to its entrepreneurial spirit by featuring dynamic speakers who showed how they adapted to changing conditions and create their own future, despite a very challenging economic climate. This article reviews two wireless panel sessions, which had a very pragmatic market and business focus.  Click here to read the rest of this article.

TCA Management Conference – I Survived the Tribe

I was extremely honored to participate in the TCA Management conference the week before last, where I had a chance to speak on the topic of local content. Unfortunately, I missed most of the conference, but the excellent binder of material (it was so refreshing to have materials in a traditional form) provided a good summary of the presentations that covered regulatory, marketing, finance and the stimulus.  In addition to the good material, TCA made it a fun event, as the theme was based on the television series, Survivor.

Efficient Video Production with the G1 Phone

Downtown Colorado Springs where the OPASTCO 2009 Convention will be held

I am not a big gadget person – really. I have had the G1 Phone for a couple of months and other than the electronic whoopee cushion application and the Shazam application (listens to music and identifies the song and artist), all of the applications I have downloaded from the Android Market have been ones intended to enhance productivity. So, at the Connections Conference, I was pleasantly surprised to find that the latest version of the Android software enables the recording of videos on my G1 Phone.

The video quality of the G1 can be marginal, especially in low light conditions and especially compared to the Creative or Flip camera I normally use. It cannot be beat for efficiency and ease of distributing the video either on YouTube or via email. The only thing I haven’t figured out is why the share feature doesn’t always work, which is probably just as well, as the world doesn’t need to see most of the videos I take.

The following video was shot while taking an early morning walk through downtown Colorado Springs. When I started my walk, my only plan was to get a little exercise in the brisk Colorado air. As I saw the various monuments and museums, along with the natural beauty of Pike’s Peak, I felt inspired to share what I saw with others, particularly since the upcoming OPASTCO Summer Convention finds its way to Colorado Springs next month. Additionally, I decided it would be kind of fun to present my impromptu creation during my presentation on Local Content (I didn’t).

Hopefully, we will see you in Colorado Springs at the OPASTCO event (July 25th-29th).

Viodi View -04/03/2009

The first time I got serious about using a personal digital assistant was something that Atari produced some 20 years ago. This was before the term PDA was coined. I bought it because somehow I thought it would make me smarter or, at least, better organized. It did neither and it was soon relegated to the shelf to gather dust. The G1 from T-Mobile (service) /HTC (phone manufacturer) /Google (Android operating system) may finally provide the organizational nirvana I have been looking for my entire life.

The G1 phone proved to be a handy assistant in producing ViodiTV at last month’s MTA convention. Although, I haven’t looked for teleprompting sofware for it yet (that sort of application exists for other PDAs), it served as a great way to jot down notes and scripts. The fast web browsing, thanks to the 3G network, made this a very useful research tool for getting facts for our "just in time" video production. Two extremely useful applications that helped us coordinate our interviews at MTA were the integrated calendar and email; allowing us to create more video than we had in years past.

Working Together – Yesterday and Today

click here to watch our video interview with Ron LaquaA video that was very special to me is my interview with Ron Laqua of Halstad Telephone. Ron chaired the MTA Centennial committee. In this interview, I was struck with how we were part of a living history that in some way might be part of a 200th anniversary celebration. I caught up with Ron, via email, this week regarding the historic flooding along the Red River. He indicated that his town was relatively safe given the high dike walls and the standby generator that has been providing back up power this past week.

He explained that his town helped out by stuffing and distributing sandbags to farms and other towns. He pointed out that 90% of the Fargo-Moorhead population was somehow involved in fighting the flood. As Ron said, this sort of volunteerism is inspiring.  Click here to watch the video interview.

click here to watch the video interview with Brian Potter of Gardonville Telphone Cooperative AssociationIndependent WiMax

In this interview shot at MTA’s Convention, Brian Potter of Gardonville Telephone Cooperative Association discusses their rollout of WiMax services in rural Minnesota and their use of both 700 MHz and 3.7 GHz to provide fixed wireless Internet.  Click here to watch this interview.

Femtocells and Mobile Broadband Technologies by Alan Weissberger

Femtocells are another topic of hot discussion in the telecommunications world. They offer the wireless carrier the potential of off-loading backhaul traffic, while improving customer experience and potentially providing better value by allowing the cell phone to have unlimited minutes in the home environment. Alan Weissberger provides a summary of a recent conference on the topic of Femtocells in this article. Click here to read the latest on Femtocells.

Managing the Mobile Workforce using MaaS by Alan Weissberger

On April 1st, I attended a SaaS Conference talk by Jim Sheward, CEO of Fiberlink, on the topic of Mobility-as-a-Service (MaaS). I found it provocative and of vital interest to IT managers that are having great difficulting managing a mobile work force. Mobility-as-a-Service (MaaS) is the delivery of enterprise mobility infrastructure using a Software-as-a-Service (SaaS) platform where the programs run on servers that are reached via the public Internet. Specifically, MaaS is a "cloud" based, always on, Enterprise Mobility Platform™ with cost advantages, ubiquitous mobile device connectivity capability and a real-time updating and enforcement software engine.


Congratulations to Tellytopia and SureWest for implementation of Tellytopia’s i2TV online to television platform. SureWest is a definition validation for Tellytopia’s unique approach to bringing User Generated Content to the TV. Tellytopia gave a preview of this at the panel Viodi organized at last year’s Telecom at NAB show.

We are going to miss this year’s NAB. The folks from Lightbulb Communications have another great content slate at the Telecom2009 at NAB conference they are producing.

We will be at the IP Possibilities show in San Diego, which also has a great list of speakers but overlaps with NAB. I am looking forward to moderating a panel on local content at this forum.

The Korner – Time Saver or Distraction?

Click here to watch the video of my experience with Northwest Airline's electronic boarding passOne of the reasons for holding off on the procurement of a smart phone, besides the increase in monthly subscription fee, was my tendency to become tethered – some might say addicted – to Internet access. Those who saw me at MTA Convention could attest that the G1 phone was effectively my new appendage. It is a double edge sword as the constant connectivity and access to information provides gives me more opportunity to be productive. On the other hand, the persistent availability of the Internet competes for the idle moments where I could think random thoughts that might lead to a good idea.

Worse yet, is the distraction of the Internet and email that causes me to lose focus on the task at hand.

For instance, I was able to use the G1 phone to check in while on the Minneapolis Light Rail system. Even better than checking in, I was able to receive a virtual bar code on my phone for scanning at security. I was so thrilled with this time saving step, that I emailed Roger. In between our virtual high five emails celebrating my technical prowess, I missed the stop for my terminal. It took about 5 minutes before I realized I would have to backtrack. Fortunately, I could bypass check-in and go straight to security. I simply waived my phone over the security bar code reader and made my plane with at least 5 minutes to spare.  Click here to watch my brief video on this electronic ticketing application. 

In the next part of this review, we will look at some of the productivity enhancing applications from Android market that I have been using.

Telecom Council panel session: Update on U.S. Broadband Policy


In a lively Telecom Council panel session sponsored by AT&T, seven industry executives discussed the ramifications for the U.S. government’s stimulus package and federal budget proposal as related to broadband policy. The sober and candid assessments offered a realistic view at what is involved in building out broadband, particularly using wireless technology, to underserved and rural areas in the U.S.


The Obama Team pitched improved broadband access and "Network Neutrality" as key priorities during the Presidential campaign. The stimulus bill the new administration initiated and the U.S. Congress passed (as the American Recovery and Reinvestment Act) on February 17, 2009, set aside $7.2 billion in funds for broadband build-outs. Of that, the Commerce Department’s National Telecommunications and Information Administration (NTIA) will administer $4.7B, while the Department of Agriculture’s Rural Utilities Service (RUS) will control $2.5B. Wireline, unlicensed wireless broadband (WISPs), and high-speed cellular data service are all eligible for grants and/or loans. Companies can tap into one, but not both of these pools of funds, if their application is approved by the respective government agency (NTIA or RUS).

The final version of the bill maintains that projects funded by NTIA must adhere to "nondiscrimination and openness principles." The funds must be dispersed before September 30, 2010, to projects that can be completed within two years. The RUS funds, to be awarded by Sept. 30 of this year, focus more on rural broadband access, requiring that at least 75 percent of an area receiving funds be in a rural area without sufficient high-speed broadband access. The RUS will give priority to projects that give consumers a choice of more than one service provider. Although rural telcos are not the only companies eligible to receive RUS money, they may be best positioned to receive it because many of them are already familiar with the process. Recipients of RUS funding traditionally have been required to use equipment approved by RUS, and that is not expected to change. The approval process relies heavily on the experiences of fund recipients, who must install and use a product for six months before it can be approved. That requirement favors companies that already have RUS approval.

It’s hoped that this new funding will create jobs and provide broadband Internet access to many communities that don’t have it now. Maybe the U.S. telecom industry will become more competitive and innovative as a result? But there are many issues involved and many industry players may stay on the sidelines. There are also many rules and regulations that have yet to be set by the government agencies before funds will be dispersed. For example, there is no part of the bill that defines the terms "broadband," "unserved area," or "underserved area." The NTIA will work with the Federal Communications Commission (FCC) to define those terms and spell out guidelines for funding.

While the focus of this panel session was on wireless broadband access, wire-line solutions (e.g. Fiber to the Node/Premises, Broadband over Power lines, etc) are also possible.

For more information, please refer to:

Stimulus bill includes $7.2 billion for broadband


Author’s note: The rural or underserved includes 12M households and 35M people in the U.S. According to Pew Research, 38% of rural Americans have broadband, which implies that 62% don’t.


Prior definitions of Broadband, and “served area” in the USA have been deceptive at best. Historically, residents of a zip code were said to be in a “served area” if only a single subscriber in that zip code had broadband access. This distorts the US availability numbers and paints a deceptively positive picture.

Panel Discussion:

The panel was co-moderated by Derek Kerton of the Kerton Group and Jon Metzler of Blue Field Strategies. The five panelists were:

  • Christopher Boyer, AT&T, AVP – Internet & Technology Policy
  • Danielle Coffey*, Vice President, Government Affairs for Telecommunications Industry Association (TIA)
  • Mike Masnick, founder Techdirt; CEO, floor64
  • Robert Rini*, Partner, Rini Coran, PC (Washington DC based law firm representing WISPA)
  • David Pejcha, Marketing Director, Silver Springs Networks

* These two panelists dialed in from DC as Dulles Airport was closed and their flights cancelled.

Jon Meltzer noted that the $7.2B for broadband is the largest such government funded disbursement ever. It is about the size of the Universal Service Fund (USF)- which was approximately $7.6B total at last check. The USF is a fund that is mandated by the U.S. Federal government for the purpose of subsidizing rural, low income, and health/ education telecommunications customers. Jon notes that USF subsidization of broadband is still expected (perhaps to decrease its bias toward copper wire voice service).

Chris Boyer stated that AT&T was supportive of a flexible framework to deploy broadband services. However, AT&T was not seeking funds from the stimulus bill during the legislative process. However they are looking at how the legislation may advance their already substantial investment in broadband and projects currently in progress. Chris sited AT&T’s experience in California remarking that AT&T currently makes available broadband to around 90% of its service territory and getting broadband to the last 10% of the population (that does not yet have the infrastructure in place to realize broadband service) was a very expensive proposition. He later commented that AT&T’s broadband network is closer to 85% (give or take) built out elsewhere in the U.S.

The panelists agreed that the requirements for filing grant/loan applications needs to be clearly defined as do the previously mentioned terms- "broadband," "unserved area," or "underserved area." It would also be useful to define "over served area" for contrast with "underserved area." While creating jobs is the number one goal of this legislation, it’s equally important that the technology selected meets the need of the targeted user community.

If “rural” is defined as 20,000 or less, and grants/loans are contingent on addressing the “unserved” or “underserved” rural markets, the likelihood that an incumbent carrier would use the funds to roll out a broadband network for a city of 250,000 or so would be unlikely, according to Jon Meltzer.

Danielle Coffey said that TIA would ask for the time for grant/loan disbursement be accelerated, that the filing requirements not be too onerous, and that the selection criteria be technology neutral.

Robert Rini’s law firm (Rini Coran, PC) has been working with several wireless companies and Wireless ISPs (WISPs) who have asked how they can gain access to licensed spectrum to deploy wireless broadband technologies. The WISPs are interested in receiving government funding to build out wireless broadband in "small, granular service areas."

Derek Kerton observed that it’s a natural tendency of SP’s to deploy new wireless technology in densely populated areas, (e.g. Towerstream’s fixed WiMAX deployment in major U.S. cities) so they can get a better ROI. Greenfield operators often prefer to be the fourth or fifth provider in a dense city than the first provider in an underserved rural zone. So if rural deployment is the priority, then special requirements need to be attached to the funding. The population addressed by the new deployments is also important and should be taken into consideration when approving grants/ loans. Derek was concerned that job creation was more likely to come from incumbent SP’s, but they were not the likely candidates to provide broadband to rural areas (it’s the independent telcos and WISPs). Would a stimulus whose goal was to provide jobs also move the country forward in terms of the global broadband race?

Mike Masnick opined that more broadband competition in the market would create more jobs than a narrowly targeted government sponsored program, and especially so over the long-term. A narrowly defined jobs program would not really help the U.S. economy, which would face the same problems in 12 to 18 months.

Bob Rini, along with several other panelists, felt the final bill "was not stimulating enough." While Clearwire and Digital Bridge Communications may benefit from the bill, due to their synergy with educational institutions and ownership of 2.4G-to-2.5GHz spectrum, the WISPs would also benefit because they are well positioned to provide wireless broadband to rural and underserved areas. WISPs are generally very small businesses operating on a shoestring budget. They have expressed a keen interest in building out wireless broadband in their service areas, perhaps using WiMAX technology at 700MHz or 2.3G-to-2.5GHz licensed frequencies. WISPs (along with this author) believe that licensed spectrum is necessary to provide a carrier grade service- to eliminate interference, noise and signal distortion. Note that AT&T wireless broadband services operate on licensed spectrum.

Some WISPs are considering the 3.65GHz “lightly licensed” band for fixed WiMAX service, but there is no method yet defined by the FCC (or anyone else) to resolve contention amongst multiple possible users of that band. The rural telcos would have to work out spectrum re-use zones or other sharing agreements prior to turning on wireless broadband service. WISPs have not competed well at auctions for licensed spectrum, so a lightly licensed approach would be better for them if a contention or spectrum sharing arrangement can be defined. Rini said, "The FCC has one year to figure this out."

David Pejcha company (Silver Springs Network) builds smart power grids– a communications overlay over the last mile for electricity distribution. Utilities are considering smart grids to better manage their electricity distribution, provide automated remote meter reading, electricity switching for efficient distribution to customers. In addition, they plan to offer on-demand customer notification of electricity use. Electricity demand is outpacing supply so the power delivered needs to be more efficiently managed and usage monitored automatically. Solar energy producing modules might also connect to a smart power grid. Silver Springs Networks builds wireless communications systems using unlicensed 900MHz spectrum. Their network provides a direct link between the electric utility and its customers. It is an "Open IP network" that permits many different devices to attach to it. AT&T provides backhaul transport for some smart grids.

The discussion returned to licensed spectrum being more "investable" than unlicensed spectrum. Again, licensed spectrum prevents noise and interference. It was noted that cordless phones, microwave ovens, and wireless microphones operate at 2.4GHz, which would create interference for any unlicensed service at that frequency, e.g. long range/mesh WiFi. Further, the transmit power levels might be too high in an unlicensed service arrangement. Licensed spectrum, on the other hand, provides a de facto monopoly for the network operator- he has paid for the right of exclusion to keep competitors away.

Where will the licensed spectrum come from? The FCC is freeing up vacated UHF spectrum ("white spaces") for wireless Internet access and intends to make it available to SP’s as unlicensed spectrum for two classes of wireless broadband service: fixed access and personal/ portable access. The white space rules currently specify a 30-foot antenna on the receiver, fixed or portable. That’s a vestigial holdover from the TV broadcast world, according to Jon Meltzer.

With the transition to Digital TV, analog TV broadcasters will free a great deal of spectrum up on June 12th (DTV Delay Act),. But Rini is concerned that the FCC has not comprehensively specified how that spectrum will be used and distributed to interested SPs. WISPs are lobbying the FCC to create a lightly licensed regime for the vacated analog TV spectrum. Meanwhile, the "White Spaces Database Group," plans on formulating a plan to create, govern and maintain a wireless broadband network on abandoned analog television spectrum. When the spectrum is finally vacated, the group hopes that system in place, which will allow for the creation of an open wireless broadband network, which could be accessible by any device.

Currently, there is a secondary market for licensed spectrum in the U.S. Incumbent operators are leasing spectrum at wholesale rates directly to smaller SPs. In addition, Spectrum Bridge has become "the eBay" of auctioned spectrum. The Spec Ex or spectrum exchange is offered by Spectrum Bridge (http://www.spectrumbridge.com/).

Which companies might benefit from the broadband grants/ loans?

Mike Masnick opined that the stimulus funding criteria would be based on the projected number of jobs created by the broadband build-out, rather than any consideration of the requesting company to turn a profit. Since start-up companies are too small to be on the government’s radar screen, they are unlikely to get stimulus money. And since they focus on keeping costs down, and NOT hiring excessive headcount, they are not aligned with the stimulus’ goals. Start-ups are about long-term value creation, and the stimulus is about rapid job creation, thus Silicon Valley’s innovators probably will not participate in the broadband funding program. That is somewhat of a disappointment, as it’s the start-ups that provide long-term job growth and keep the US competitive with the rest of the world.

Counterpoint: We think that independent telcos, utilities, and WISPs will apply for the funding and start-up network equipment manufacturers will likely benefit. On February 17, 2009 (date the final bill was passed by Congress) start-up Airspan Networks announced the availability of what they claim is the industry’s most complete FCC and Rural Utilities Service (RUS) certified lineup of fixed and mobile WiMAX Base Stations and Customer Premises Equipment (CPE) for the U.S. rural market. RUS approval is obtained from the U.S. Department of Agriculture, affirming Rural Development acceptance and “Buy American” status of equipment. Airspan is among a select few WiMAX equipment manufacturers with this coveted “Buy America” status.

How are Capex and Opex impacted by the broadband stimulus?

The panelists and moderator pointed out that capex and opex are different accounting items. Jon Meltzer believes that the broadband stimulus may help with capex, but it won’t help lower opex. Still, offsetting capex is a non-trivial benefit. Grants could be used to offset the civil and construction costs of putting up a cell tower for rural broadband.

What is the FCC’s role in determining U.S. Broadband Policy?

Bob Rini provided this information: The FCC has one year to deliver Congress a report containing a national broadband plan “to ensure that all people of the United States have access to broadband capabilities” and establish benchmarks for reaching that goal. The plan will include:

  • Analysis of the most efficient and effective mechanisms for ubiquitous service
  • Strategy for achieving affordable service
  • Evaluation of broadband deployment, including progress of funded projects
  • lan for use of broadband to support national purposes

The FCC is expected to invite public comment to help develop national broadband plan

Finally, a questioner asked about "spectrum fees" in Obama’s new budget. No definitive answer was provided regarding renewal fees for operators that already owned licensed spectrum. But it’s something to watch down the line.


What the broadband stimulus package means to rural telcos


Acknowledgement: The author would like to thank Bob Rini, Jonathan Meltzer and Derek Kerton for their diligent review of this manuscript and very helpful comments and clarifications.

An Excellent Broadband TV Primer

Parks Associates Web Cast, Broadband Video to the TV and Beyond, is an excellent primer for anyone wanting to get the most out of the upcoming Digital Hollywood and TelcoTV conferences. It is not too late to listen, as Parks Associates has the recording online. Kurt Scherf, Vice President, Principal Analyst, combines extensive primary and secondary research together with excellent analysis to provide a clear picture of the current broadband video market.

Scherf’s presentation provides an update on the broadband video space and the various players that are distributing online video content, how online video is being monetized and the rise of networked consumer electronics as a way of viewing broadband video. He splits the broadband video space into multiple categories, including:

  • DVD+electronic delivery (e.g. NetFlix)
  • Broadcaster initiatives (e.g. ABC, CBS, etc.)
  • Internet Video Providers (e.g. Apple TV)
  • Portals (e.g. Google)
  • TV on the Web (e.g. Veoh)
  • Broadband Service Providers (e.g. Verizon)
  • Hardware and Content (e.g. TiVo)

He makes the point that the combined revenue for theatrical box office, DVD sales and DVD rentals has been flat since 2004. As a result, all of the major content owners seen online video as a new revenue channel. Examples of the seriousness of the major content providers include:

  • NBC, where 92% of viewers who start a program watch the entire program
  • CBS estimates its average online video viewer is 38 years old
  • ABC.com has served up 400 million episodes and 1 billion advertisements.

The major content owners are finding advertising as one way to monetize existing content, with ad rates up to $70 CPM on sites such as Hulu. The value of online advertising is more than just impressions, as ad executives surveyed by Parks Associates highly value the interactivity, reporting, immediate feedback and direct customer relationships that broadband video provides.

Example of an overlay ad, sold by Google, on Blip.TV

Broadband video allows for innovative advertising and new formats, such as overlay ads, which are much less intrusive to viewers. One of the early innovators in overlay and alternative format advertising is Blip.TV, which, according to Scherf, will be integrating onto Verizon’s FiOS service. Scherf points out broadband video may provide service providers, such as Verizon and Comcast with new advertising opportunities as well.

People are also spending money on transactional online video. Scherf suggests that the game console has become and will continue to be an important way for viewing video from the Internet (e.g. see this link on how the Play Station 2 works with video). For instance, over 5.1 million homes are using game consoles to view video. In the case of the X-Box 360, the average monthly spend is over $20 per month. Other methods for moving online video to the living room include DVD players and TVs with integrated Internet connections. To this last point, Scherf sees a general trend for a tighter linkage between content and devices.

This article captured just a few of the many jewels from this excellent webcast. Scherf ended the session with a number of provocative questions that remain to be answered. I look forward to future Parks Associates’ webcasts to help answer his questions regarding this rapidly evolving market.

Positive Signs and Positive Cashflow from One Telco

Jeff Gardner, President and CEO of Windstream Communications, opened his keynote speech at U.S. Telecom’s Executive Business Forum with a note of appreciation to US Telecom for getting behind what he termed, “credit stabilization legislation.” These opening comments set the theme for his talk, which was primarily about the financial condition of his company. In doing so, he provided insight into Windstream’s thoughts on the basic business, but also on topics such as wireless and IPTV.

Gardner spoke of the transformation of Windstream Communications from a telephony-based to a broadband-centric company. As proof points, he cited metrics that showed growth in broadband customers from 81k to 934k from 2002 to present. Revenues have increased from $3.1 to $3.21 billion in that same period, which is remarkable given the ongoing voice line loss of approximately 5% per year.

Windstream was born out of a merger of Alltel’s wireline properties together with those of VALOR Communications and instantly became a top-ten telco. It is primarily a rural and suburban carrier with about 20 access lines per mile. Still, they are facing strong competition, particularly in their suburban areas, as evidenced by the fact that 50 to 55% of their markets have voice competitors and 80% of their markets have broadband competitors.

Despite this, OIBDA (Operating Income Before Depreciation and Amortization) is at 53% and Gardner indicated that the dividend was safe and, at the time of his speech, was yielding 9%. He indicated that only 15% of Windstream’s revenue results from regulation (e.g. High Cost Fund, Switched Access, etc.).

Gardner said that there are multiple secrets to Windstream’s success, including aggressive marketing at the local level. Windstream staffs at the local level and targets its marketing efforts to particular markets, as opposed to one-size-fits-all, national programs.

They are expanding distribution channels as well and are finding success in marketing to MDUs – some of Windstream’s college towns have 30 to 40% of their residences located in MDUs. Approximately 10% of their sales are coming from retail channels. Gardner suggested that they are making big investments in their save desk; they have saved some 50% of customers who were about to defect to a competitor.

He spoke of the importance of offering products that customers want. As an example, they created an offering called Greenstreak; which is targeted at those people who are wireless-only customers. Greenstreak is a broadband product which provides a metered voice line (primarily for emergencies). They have not seen cannibalization of revenue from higher priced tiers as they have carefully targeted this offering.

One of the offerings Windstream won’t be providing anytime soon is wireless, especially as an MVNO. Gardner, who has 20+ years of wireless experience, said that Windstream could not see a path to profitability for a wireless offering. He said it was very difficult, if not impossible, for a rural telco to be competitive in the wireless space.

He had similar thoughts about building out a traditional IPTV infrastructure and IPTV does not appear to be in their video plans in the near-term. With that in mind, he is very pleased with the performance of their digital video offering via their partnership with Echostar/DishTV and called it a long-term strategy. He said that they are paid in the millions of dollars per quarter in upfront commissions, plus ongoing fee for billing and collections for their 231k video subscribers.

When asked who owns the customer, he admitted that, at this point, the customer is pretty much DishTV’s. He hinted that this could change as the rollout of a hybrid satellite/on-demand via broadband offering (expected in Q1 2009) will allow much more customization of the product for Windstream.

This is consistent with their focus on enhancing the broadband experience of their customers. Approximately 85% of their customers can receive their 3 Mbs tier, 40% can receive 6 Mbs and 22 to 25% can receive 12 Mbs. To increase the value of this bandwidth, Windstream has is either offering or planning to offer services such as tech help, home network VOD and security services.

He suggested that one way to monetize its broadband infrastructure is through, “Consumer preference advertising.” This is the type of targeted advertising that has been at the center of controversy in Washington. Gardner pointed out that the industry has to figure out how to add this revenue stream to their portfolio. He believes that targeted advertising ultimately provides a better experience for the consumer, as they will receive advertisements they want to see and implied that the new advertising revenue streams will effectively subsidize consumers’ broadband subscriptions.

Finally, Gardner suggested that Windstream is well positioned for further merger and acquisitions with other telcos. He warned that the ability to enter into such transactions will be slowed somewhat by the credit markets and to not expect anything for 12 to 24 months.

What is the market for Carrier Ethernet- metropolitan and/or rural areas?

September 25th Update:  Carrier Ethernet Thunder from Light Reading + PBT based Backhaul in SPRINT’s Xohm

Undoubtedly, this piece is intended to promote Light Reading’s Ethernet Expo next month in NYC.  However, it has some useful market share numbers from the leading vendors, e.g. Cisco’s share has dropped to below 50%, while Alcatel-Lucent is in 2nd place.  Light Reading claims “there has been a thundering of CESR-related product and feature news in recent months.”  Judge for yourself:


Provider backbone transport (PBT, also call provider backbone bridging, or PBB) will be used for backhaul in Sprint’s new Xohm WiMAX network. Sprint is using gear from Ciena (and Clearwire is, too, according to Unstrung).  In this scenario, the WiMAX MAC frame is enveloped in a PBT frame and transported over fiber optic cable.

PBT is based on an emerging standard for IEEE 802.1 “service provider” MAC bridging that has been in the works for many years (I participated in the initial debates in early 2002!).  PBT is an alternative to MPLS-TP (IETF and ITU work in progress) for a scalable Carrier Ethernet network.
PBT: Alive ‘n’ Kicking
The MPLS camp is determined to write PBT’s obituary. Even former supporters of the controversial Ethernet technology, such as Huawei Technologies Co. Ltd. and Nokia Siemens Networks , are keen to dig PBT’s grave now that they are no longer championing the still pre-standards flavor of Ethernet.
The MPLS camp’s alternative to PBT is MPLS-TP (transport profile), another pre-standards technology that is being pushed hard here by the likes of Nokia Siemens, Cisco Systems Inc. (Nasdaq: CSCOmessage board), and Alcatel-Lucent (NYSE: ALUmessage board). (See Transport MPLS Gets a Makeover.)
But PBT is alive, and even kicking: The news that Sprint Nextel Corp. (NYSE: Smessage board), widely regarded as a Cisco shop, is deploying equipment from Ciena Corp. (Nasdaq: CIENmessage board) to use PBT for WiMax traffic backhaul was a boost for the technology’s supporters, who say there are more such announcements to come.

September 18th Update:  Nortel to divest Metro Ethernet Unit

Standards in search of a market?  Neglected enterprise network customers?  This is how we characterized the Carrier Ethernet market, which was originally intended to provide new private line, virtual private line and virtual private LAN services to business customers.  But that market has been growing very slowly.
Nortel just announced it plans to divest its Metro Ethernet unit.  Who will buy it?  A Heavy Reading analyst reports:  ” The CESR market is likely to be about $2.1 billion in 2008, compared to $1.9 billion in 2007. So it’s a growing area, but also very competitive, with 21 equipment vendors in the space,”   That is a very small growth rate- insufficient to support so many vendors, in our opinion.  For more info:
“I am shocked by this announcement from Nortel,” says Heavy Reading‘s Sterling Perrin. “Given Nortel’s history and contributions to optical networking, they are in many ways selling the core business of Nortel. This has got to be incredibly difficult for the many long-time Nortel optical employees who have stuck with the company through tremendous upheaval.”     Perrin says Nortel’s Metro Ethernet Networking (MEN) business, which houses the carrier Ethernet and optical equipment, only contributed about 13 percent of the company’s revenues through the first half of 2008, so “its contribution within the company clearly has diminished through the years.”

Nortel Move to Sell MEN Perplexes Analysts


Nortel is wrestling with the same problems as the rest of the telecom equipment industry: Carrier sales are tepid and sales cycles are prolonged. Exchange rates no longer are favorable toward North American currencies.



Original Article:

A recent Viodi TV video on Carrier Ethernet for rural markets (see bottom of this article for Abstract and link) , stimulated me to share thoughts about that long hyped technology, which has seen more action on standards, articles and conference papers then actual deployment.

The following report is taken from two posts to the IEEE ComSoc SCV Discussion mail list which I combined and edited for Viodi View readers.

Our take:   In a post several months ago, we opined that despite a plethora of standards for Carrier Ethernet and over 8 years of vendor effort to get it going, the technology was still in search of a mass market.   We identified last mile distribution for IPTV and fiber access VPNs for large business customers. Well, that may be changing with more and more carriers interested in expanding their Carrier Ethernet service to small and medium business customers. In addition, we see an important role for Carrier Ethernet in 2G/3G copper based backhaul (mid-band Ethernet) and in fiber based backhaul (Optical Ethernet).

We recommend reading the Telecommunications article (below) for a realistic assessment of the Carrier Ethernet market.  There are still way too many chearleaders out there, even after so many startups in this space have gone belly up. Opinion:  We still think that the main use of Ethernet in the MAN/WAN will be: for IP VPN access,  to deliver IPTV services to residential customers, and for backhaul of 3G/4G and possibly WiMAX networks (as Ethernet over Microwave Radio or Fiber).

In addition to the market information provided in the articles below we note that ITU-T SG13 Question 11 is wrestling whether or not to define a lower rate (ODU0) to carry 1 Gig E and 2 Gig E over the OTN (a DWDM based optical network).  They have a late September meeting in Korea, where they will hopefully decide.  One of our members participates in that committee and we will report back in early October with results.

Here’s a summary and links to recent Carrier Ethernet articles of interest to Viodi View readers:

The Rural Telco Play: Carrier Ethernet Fills Wide-Open Spaces

A  study that was disclosed at the OPASCO show reported that rural telcos’ traditional revenue will diminish by 5 percent this year, 9 percent next year and 13 percent the following year — and that federal and state subsidies, including the Universal Service Fund, will not support the revenue shortfall. As a result, rural carriers will have to take quick action to launch new revenue-generating services such as Ethernet.

The benefits of Carrier Ethernet are not lost on the rural telco community. Indeed, among Nortel Networks’ 40 Carrier Ethernet customers are Dakota Carrier Network, Frontier, Golden West Telecommunications and Panhandle Telephone Cooperative Inc.   Increasing bandwidth demands are being driven by a variety of both residential and business applications, including IPTV, video on demand, Internet access, Ethernet services and 3G/4G wireless, noted Mike Loomis, director of Carrier Ethernet technical sales at Nortel

Carrier Ethernet services: strategy for success Service providers need a plan that balances their strengths and weaknesses

by Doug Allen  Telecommunications Magazine, August 12, 2008       Conventional wisdom says carrier Ethernet services are the next Big Thing in telecom, and service providers are moving accordingly, from the Tier 1 carriers to alternative CLECs. Consider Verizon Business, along with AT&T one of the top national carriers, which claims Ethernet service revenues grew by more than 100% in 2007 over the previous year, even though Ethernet is only a small portion of the carrier’s overall data services portfolio. To read more, go to:


Business Ethernet shows gains

Fueled largely by demand from AT&T and Verizon Communications customers, the number of Business Ethernet services rose 16% in the first half of the year, according to Vertical Systems Group’s latest market analysis. “Most providers steadily increased their port deployments, spurred by new Ethernet service offerings and migration of larger customer networks,” said Rick Malone, principal at Vertical Systems Group. xchange (9/5)

XO Enhances Ethernet infrastructure to deliver new speeds and extended reach

XO Communications has rolled out new Ethernet speeds in several of its markets, which now have access to 20, 30, 40, 50, 60, 70, 200, 300, 400 or 500 Mbps at on-net fiber locations. Chicago; Dallas; Los Angeles; Minneapolis; New York; San Jose, Calif.; Seattle; Philadelphia; and Washington are the first markets to gain access to the higher speeds, although additional markets are set to follow. To read more, go to:



Light Reading: Ethernet Services Revenue Still Growing Strong
The latest news from key players suggests that the market is still going strong, although the law of large numbers is beginning to make growth look more modest than the 25 percent to 100 percent rates characteristic of 2005-2007.  To read more….


NXTcomm: Carrier Ethernet heats ups at NXTcomm Trade Show in Las Vegas

There have been a number of product announcements and advancements offered by Tellabs, Alcatel-Lucent, Ericsson, Ixia, Soapstone Networks, Extreme Networks, Fujitsu, Foundry Networks, Actelis and others. While this week’s announcements address a variety of market trends, it might be safe to say that increasingly apparent needs for bigger and better mobile backhaul options are fueling some of the activity, while the emergence of a complex multi-carrier, multi-network Ethernet environment also factoring into the innovations.


Foundry Unveils Carrier Ethernet Switches

Foundry Networks unleashed a series of Carrier Ethernet edge/aggregation switches designed to scale Ethernet services while reducing the burden on MPLS routers. Foundry is unveiling six 1RU Carrier Ethernet switches under the NetIron CES 2000 brand. The switches feature 24- or 48-port gigabit Ethernet copper or fiber interfaces with optional dual 10 Gigabit Ethernet uplinks. The switches support the IEEE 802.1ad Provider Bridge (PB) and 802.1ah Provider Backbone Bridging (PBB) standards for scaling multipoint Ethernet services by hiding media access control (MAC) addresses.

Nortel Continues to Build Customer Base for Carrier Ethernet Portfolio

With over 40 customers around the world acquired within the last 12 months, a vendor ecosystem of more than 25 members and a growing product portfolio, Nortel is demonstrating how its innovative technologies have defined Carrier Ethernet as a viable, cost-effective metro infrastructure.   Among Nortel’s 40 customers are U.S. service providers Panhandle Telephone Cooperative, Golden West Telecom, Frontier and Dakota Carrier Network as well as KPN in the Netherlands, China Netcom, Australia’s Silk Telecom and Promigas Telecomunicaciones in Colombia. http://money.cnn.com/news/newsfeeds/articles/marketwire/0407582.htm

Comment:  What are the Tier 1 network operators doing?  For years, Verizon has quietly deployed Private Line Ethernet and Ethernet Transparent LAN.  What else is going on in the tier 1 carrier space?

Carrier Ethernet Growing Faster and Smarter

Standards bodies are working toward specifications for both Ethernet and optical networks that would run at 100G bps, which for Ethernet would represent the next speed hop in a streak that has come all the way from Gigabit Ethernet in about a decade. Another standard in the works will cover 40G bps Ethernet. But even the standards, not expected until 2010, won’t do the job by themselves.  On June 16th, the “Road to 100G Alliance” formed a technical committee to fill in gaps in interoperability among various Ethernet and optical technologies that are under development for 100G-bps (bit-per-second) networks, spanning from enterprises to carrier backbones.  http://www.pcworld.com/businesscenter/article/147158/carrier_ethernet_growing_faster_and_smarter.html

Carrier Ethernet Vendor Ethos Makes US Debut

The four-year-old company made generally available its portfolio, which includes two Carrier Ethernet transport switches, which employ PBB-TE technology, and a management system that allows service providers to monitor and optimize their networks, said company co-founder Adam Dunsky.   Note:  PBB= IEEE 802.1ah Provider Backbone Bridging http://www.xchangemag.com/hotnews/nxtcomm-carrier-ethernet-ethos-us-debut.html

Perspective from an IEEE ComSoc member who works for a vendor supplying Carrier Ethernet gear as well as other WAN transport equipment:

“From what I’ve seen, Ethernet is being mapped into SONET/SDH or OTN at all segments of the (wide area) network, with the possible exception of the access networks.  Even in access networks there are deployments of Ethernet mapped via GFP over PDH (DS1s and DS3s) for bundled connections.  As far as I know those types of deployments are all book ended (same vendor on each end of a link), though there is a standard for it (G.8040).”

Comment:  Carrier Ethernet is defined as the transparent of Ethernet MAC and PHY frames over a “carrier class” network.  That means robust, reliable, high performance.  While Ethernet OAM was developed by the IEEE 802.3, 802.1, and ITU-T standards committees, many feel that the associated cost and complexity diminishes the attractiveness of Ethernet in the carrier network.  Some say, that the cost and simplicity advantages are negated when you add OAM, Performance Monitoring, and Protection Switching to Ethernet.  So with that said, the key issue is when and where Carrier Ethernet terminates and Ethernet over SONET/SDH or the OTN originates.  As I previously mentioned, the now mostly extinct MSPP (God box) vendors thought that demarcation point was in the basement of a building (business tenants).  Others felt it was at the 1st POP with either fiber or copper Ethernet access including OAM. Where is it now?  What do Juniper and Cisco think about Carrier Ethernet vs Ethernet over Optical Transport networks?  What’s your opinion?

Viodi Video:  Carrier Ethernet for Rural Markets

In this interview Michael Loomis of Nortel Networks and Gary Bolton of Hatteras Networks explain the applicability of Carrier Ethernet to rural markets, using both existing copper and/or new fiber infrastructure. This allows carriers to provide services to rural areas that are comparable to what can be found in urban area. Michael Loomis points out how rural carriers are closer to their subscribers and are much faster to move to solutions than larger entities.


WiMAX in India Update

Indian WiMAX Spectrum Winners can offer voice, says DoT – August 29, 2008
India’s Department of Telecommunications (DoT) has proposed that winners in the upcoming licence auctions for broadband wireless access (BWA) – read mobile WiMAX – will be able to offer voice as well as data services.
But the dispensation comes at a price. Instead of calculating the BWA licence reserve price at 25 per cent of the 3G licence reserve price on a per MHz basis, the DoT has proposed, following recommendations made by the Telecom Commission, that BWA licence winners pay at least 50 per cent of the base 3G licence cost.
India 3G licence auctions are scheduled for later this year (but the exact date has not been set).



4th Update:  Intel’s WiMAX in India Push   August 19, 2008

Upshot:  Intel is negotiating with WiMAX operators in India while promising to deliver a very low cost laptop with an embedded WiMAX interface

Intel talks progress for WiMAX rollout in India

Betting big on WiMax in India, chip giant Intel is in talks with telecom operators to enable the growth of WiMax ecosystem through its products for boosting the penetration of wireless broadband in the world’s fastest-growing telecom market.

The US-based company is working with ODMs (original device manufacturers) to evolve new products like WiMax USB dongle, mobile internet devices (MIDs) besides WiMax notebooks with an aim to have wireless broadband networks running by the first quarter of 2009 in India.

Intel readies sub-$400 laptop for India


27.5M WiMax Users In India by 2012


3rd Update:  WiMAX in India article- still waiting for licenses!
While the Indian government will soon hold 3G auctions, it has not yet issued rules and regulations for the licensed spectrum auction needed for WiMAX deployment.   Why not?  Until that happens, WiMAX in India is on hold.
Here are a couple of articles on the announcement of the long awaited 3G Spectrum Auction in India:
India’s 3G Auction: sometime soon?
Although the exact date is not clear, it is rumored that the government is planning to hold the all-important auction for allocation of licenses for 3G sometime soon. We hope this happens soon as it’s high time 3G services are launched here, especially since other countries have already started looking beyond 3G.
Telecommunications Industry Association (TIA) Applauds the Announcement of a Spectrum Auction for 3G Services in India

Arlington, Va. – The Telecommunications Industry Association (TIA), the leader in advocacy, standards development, business development and intelligence for the information and communications technology (ICT) industry, applauds the Indian government’s recent announcement of its guidelines for auction and allotment of spectrum for 3G telecom services and broadband wireless access. This long anticipated announcement will help ensure that Indian consumers can access the latest wireless technologies for voice and data services.
TIA is encouraged that the Indian government has addressed a number of concerns raised by global industry regarding the allocation and eligibility criteria for 3G spectrum. TIA, as Chair of the Telecommunications Subcommittee of the U.S.-India ICT Working Group, has been recommending to India for many years that it identify, allocate and distribute Spectrum for 3G and Broadband Wireless Services. The new auction guidelines are a positive step toward accomplishing this goal.
To obtain the actual documents, please visit

Related Previous Articles:

The Viodi View : : WiMAX in India– Whom do you believe: press or …

Business Week called it "A WiMAX Breathrough in India– Tata It indicates to me that they believe there is greater WiMAX potential outside of India.

The Viodi View : : 2nd Update on WiMAX in India article

July 15, 2008 update: More disputes threaten to delay India’s WiMAX 


The DTV Transition – At What Cost?

[Author’s Note:  Thank you very much to David Irwin, Director of the Communications Law Institute at The Catholic University of America, for his review and suggestions for this article]

Click here to learn the detail of the DTV Transition from the official government web siteMuch has been made about the recent 700 MHz spectrum auction and the potentially billions of dollars raised for the U.S. Treasury, but this is just one part of a complex equation related to spectrum management and economics that may be implicitly costing U.S. citizens much more than they are receiving.

For example, there is the opportunity cost of the new, digital broadcast spectrum, given away to existing broadcasters by the government that is worth untold billions of dollars. Unfortunately, this article is probably about 10 years too late to affect a change, but maybe it will serve as a warning for future generations.

Prior to auctions, back in the early days of the FCC, spectrum was regarded almost like land during the homestead days of the eighteen hundreds.  That is, entities were given spectrum in exchange for building out the infrastructure, providing certain public goods and accepting regulations and restrictions.  Where more than one entity sought spectrum in a given locale, each spectrum application being mutually exclusive to the other, evidentiary-type hearings were held to determine which applicant would best serve the “public interest;” but, at the end of the hearing process a spectrum license was simply awarded by the government to the winner.

Much like homesteading, this policy lessened the risk for entrepreneurs and was a catalyst that expedited the build-out of the radio, television and original cellular infrastructures. These build-outs evidenced the inherent value of the spectrum and, as result, Congress turned to spectrum auctions as the prevalent way to ensure that the public received a return on its spectrum assets; that is, except for the give-away of digital television broadcast spectrum.

Giving away spectrum may have made sense in the 1990s when Congress and the FCC began laying the foundation for what what has become known as the 2009 digital television transition. In February 2009, all legacy television stations (with the exception of low-power stations) will turn off their analog transmitters and thereafter only broadcast digital signals; this may include high-definition TV.

The intent of Congress, heavily lobbied by the broadcast industry, was to free up the analog spectrum for other uses, as well as ensure that the U.S. remained competitive with other nations by having a digital broadcast infrastructure that supported HDTV. Like in the 1940s, the Federal Government essentially gave away spectrum to broadcasters in return for a digital build-out and exchange of bandwidth that had been used for analog signals. There have been significant and unanticipated changes since the DTV legislation was passed in the 90s, including:

  • The continued growth of cable, telco video distribution via fiber optics and copper DSL and DBS operators, such that the number of households receiving off-air broadcasts is estimated by Jeff Zucker, CEO of NBC-Universal at 10%.  He suggested at NATPE 2008 that the number of households receiving off-air only will drop to approximately 5% after the transition.
  • The transition of the Internet into a video distribution medium is a true unknown — a “sleeper” in this equation.  Broadcasters and television networks are “re-inventing” themselves, embracing the internet, proving by their own actions and plans that broadband is a viable distribution outlet for video.
  • The success of unlicensed WiFi spectrum also indicates that spectrum does not have to be licensed in order to have value.  On the horizon is WiMax, which may be thought of as WiFi on steriods; WiMax is a potential threat to cable, satellite and telcos.  In all events, it appears that the concept of device-regulated spectrum (the devices are network-aware and transmit data accordingly, minimizing interference), instead of the traditional agency-licensed and regulated spectrum.
  • Improvements in video compression, which frees up bandwidth for uses that were probably never anticipated by Congress.
  • The success of auctions in allocating spectrum.

The transition to digital television broadcast required a huge investment by the broadcast industry and probably never would have been justified by better picture quality alone (although, the broadcast industry did make feature upgrades to include color and stereo in earlier days, but these didn’t involve such an extensive infrastructure upgrade).

That is, there is probably no new revenue for the broadcaster who only replaces a standard definition digital signal, albeit better than analog, with HDTV programming.   It is thus understandable why broadcasters are looking for ways to monetize their investments in digital technology including the use of the bandwidth not utilized for their primary digital and/or HDTV signal by:

  • Creating mini-cable systems by developing new content to go along with their primary channel
  • Potentially creating “pay versions” of popular programming (several years ago, one industry pundit suggested networks could create two versions of the same show; a tamer version for general broadcast and a wilder version that people would be willing to pay for as a premium service).
  • Leasing out bandwidth to third-parties that would essentially act as aggregators
  • Offering a mobile video solution that would extend their service offerings onto personal video devices.

Policy makers and broadcasters believe that these new applications of the broadcast bandwidth will have value to some consumers.  But, there are, as noted above, real costs, as well as opportunity costs that need to be considered.  Some of the real costs to the DTV transition include:

  • The $1.8 B in coupons provided by the Federal Government to consumers to pay for digital set-top coversion boxes that will let analog televisions play digital broadcast signals.
  • The costs that my telco friends and others had to spend as a result of an FCC mandate to publicize the digital TV transition.
  • The costs associated with cable systems and telcos having to support standard definition, long after the broadcasters make the switch to digital.
  • The big cost is probably the opportunity cost, as the digital spectrum given away would have value that could be realized explicitly through an auction process or as an unlicensed public good.  Based on the recent $19.6 B expected from the auction of the 700 MHz spectrum, the remaining 200+ MHz of spectrum could be well worth many multiples of the 700 MHz spectrum bids.

As much as I would like to be able to present a silver bullet that would change the situation, I doubt there is anything that could be done politically or practically to improve the value of the DTV transition for the U.S. taxpayer (it is our spectrum).  After making such a huge investment and with rules in place for so long, it simply isn’t fair to the broadcast industry to change the rules of the game at this late date.  Economists will suggest that there is nothing like political uncertainty to impede business investment and it would be bad precedent to make significant changes to DTV.  The time to make changes was 10 years ago.

It will be interesting to see how economic historians view the digital TV transition. Hopefully, they will learn from it and be able to influence politicians and regulators the next time we have the opportunity to make such a historic shift in our communications’ infrastructure.

Film Distribution 101


Stacey Brooks of Film Specific interviews Brian Stevenson, a long-time friend and long-time veteran of content licensing, discusses the challenges for an independent producer in getting distribution in various on-demand and pay television platforms. He provides good insight into pricing and the type of revenue a filmmaker can earn and how they can go about selling their product to studios and pay television outlets.  He stresses the importance of marketing to gain exposure and credibility with the studios. Promotional and marketing ideas that Stevenson suggests include submissions to film festivals, theatrical release and having name stars, even if they are B-stars.  Click here to listen to the post