There Is No Power Without Interference

Broadband over power lines (BPL) has been touted as a viable alternative to DSL and cable, but suppliers have wrestled with the challenge of getting high-speed signals through power networks (called access BPL) and into homes and businesses (in-building BPL) reliably. The way they do it is by converting the binary data stream to a radio signal. The problem is that the frequencies used for BPL are some of the same frequencies used for amateur radio and other wireless services. In tests, BPL put out extremely high amounts of interference—so much so that the FCC forced BPL suppliers to go back to the drawing board.

In October 2005, the city of Manassas, Virginia and COMTek , a BPL-based ISP, announced that high-speed Internet services were available to the city’s 12,500 households. Apparently, the interference problems with amateur radio were solved. Apparently not. Today, the Amateur Radio Relay League (ARRL) released the text of two letters sent to Manassas’s city government and COMTek by the FCC, ordering them to either resolve the interference complaints of six amateur radio operators or prepare to shut down their BPL system.

This is far from a death sentence for either BPL in general or Manassas’s system in particular, but it does show that the industry still has a way to go in order to prove both the technical and business viability of BPL products. It may well be possible to implement an access BPL system that doesn’t cause unacceptable interference, but the BPL industry had better deploy one soon. BPL vendors have to demonstrate that they can actually deliver what they’ve been promising, or the utilities and their customers will soon lose interest.

Whose Choice Is It, Anyway?

The Net Neutrality battles are far from over, but it’s clear that the telcos and cable operators are going to get the right to offer different classes of service to different content and service providers, depending on:

1. How much they’re willing to pay, and
   
2. How much they compete with offerings from those same telcos and cable MSOs.
   

We saw a similar situation not too long ago, when the telcos convinced the FCC to stop forcing them to give competitive local exchange carriers (CLECs) equal access to their networks. Their argument then, as now, was that they needed to make huge investments in infrastructure in order to offer consumers broadband access, and that they couldn’t make those investments if they were forced to make their broadband networks available to competitors at wholesale prices. The telcos prevailed, and what do we have? Virtually the entire competitive DSL services industry is gone. Is your DSL service any better? Unless you live in a handful of AT&T or Verizon markets, the answer is no.

AT&T and Verizon argue that they should have the right to choose who they do business with, and under what terms. It’s hard to disagree with them, until you realize that their infrastructures were bought and paid for by their customers, who paid governmentally-mandated prices for telephone service to them as monopoly suppliers for decades. It’s not their infrastructure, it’s their customers’.

And what about their customers’ choices? The CLECs are gone, and cable is still a poor substitute for telephony services. Telephone companies’ customers have paid for decades for a network that could now give them a choice, but the FCC and Congress are systematically depriving them of the opportunity to choose their suppliers. And with recent research indicating that it may not even be worthwhile for cable operators or telcos to offer their customers a discount if they subscribe to more services, we’re headed back to where we were before the 1996 Telecommunications Act: For each market, we’ll have one company that offers telephony services, one that offers video services, a couple of satellite television providers, and that’s about it.

The best way to fight for customer choice is to do business with companies that support it. Tell your phone and cable suppliers that if they don’t give you equal access to competing telephony and video services, you’ll get it yourself. Find out which telcos and cable operators contributed to your state and U.S. Representatives and Senators, and get the word out—they can either represent you or the communications companies, but not both. As they become available, get your broadband services from a non-telco-affiliated wireless company, a satellite company, or a broadband-over-powerline provider. You’re just as entitled to be able to choose how you spend your money as the telecommunications companies.

Net Neutrality: The Subtext

Net neutrality is seriously on the ropes—the House of Representatives defeated amendments to the Communications Opportunity, Promotion, and Enhancement (COPE) Act that would preserve equal access to services on the Internet. However, the real issue isn’t whether the telcos and cable MSOs will exercise their power to discriminate against individual Internet content and service providers, but rather which content and service providers they’ll discriminate against. Somewhat surprisingly, I think that they’ll all discriminate against the same ones: VoIP and IPTV (video) providers.

It’s fairly obvious as to why the telcos want to make VoIP providers go away: Companies like Vonage and 8x8 offer comparable service to the telcos for half the price, and Skype and its ilk are largely free. Plain Old Telephone Service (POTS) has been on the decline for years, but it still represents a “cash cow” for AT&T and Verizon that neither company wants to see taken to slaughter any time soon. What’s more surprising is that the cable MSOs also want to kill VoIP competitors. The reason is that the cable operators are depending on revenues from local and long distance telephone service to help pay off their investments in two-way digital infrastructure. In my neck of the woods, Comcast is selling its VoIP service for $39.99/month, compared with Vonage at $24.95/month. All other things being equal, the quality of the two services should be just about the same, so why would anyone pay $15/month more for Comcast? How about if Comcast subscribers using Vonage get such a slow class of service that their phones are all but unusable?

The other field of potential carnage is IPTV. Again, it’s obvious why the MSOs would want to discriminate against video providers—they’re direct competitors for subscribers’ eyeballs. Cable subscribers who are watching third-party IPTV services aren’t watching cable television. Advertisers can’t reach them, so the cable operators will lose local advertising revenue. And, if cable subscribers watch enough third-party IPTV, they may not want to subscribe to premium cable channels. However, if the MSOs drop the available bandwidth for competitive IPTV services, their programs will look less like television and more like bad streaming video. For their part, the telcos have built their broadband business plans on IPTV services, so it’s counterproductive for them to allow competitors to have equal access to their subscribers.

The bottom line is that the loss of net neutrality isn’t going to hurt everyone--just those companies that compete with offerings from the MSOs and telcos. Text-based services such as search are probably pretty safe, but video and voice services from the likes of Google and MSN are definitely at risk. If this plays out as I think it might, the real issue will ultimately be revealed to be not net neutrality, but rather, restraint of trade. The telcos in particular have argued that they should be unregulated, but the protection they’ve had against most antitrust regulation for more than 100 years has been based on their willingness to accept government regulation in return for a monopoly on phone service in each market. When the regulation goes away, so should the protection. Of course, neither the telcos nor the MSOs have anything to fear from the Bush Administration’s Justice Department, but that could change fairly abruptly in 2008. In any event, I think that the true battlefield going forward will be antitrust, not net neutrality.

If It's Not a DVR, It Must Be a Lawsuit

Cablevision was sued last week by Fox, Viacom, Disney, NBC Universal and CBS. The previous week, it was sued by Time Warner's CNN and Cartoon Network. Why is Cablevision so unpopular all of a sudden? The reason is that it plans to roll out a Digital Video Recorder (DVR) service that stores the shows that subscribers record on servers on Cablevision's network, rather than on DVR-equipped set-top boxes in subscribers' homes. The services is called RS-DVR by Cablevision and Network DVR by everyone else.

What's the difference between network and set-top DVRs? To consumers, not much, but to Cablevision and the big media companies, a great deal. According to this article, by next year, Cablevision could deploy network DVRs for one-third the capital cost and 1/10th the monthly maintenance cost of in-home DVRs. Here's the breakdown:

Hardware: Set-top Box--$300 vs. Network Storage--$100 (for 80-200GB/storage per subscriber)

Maintenance: Set-top Box--$1/month vs Network DVR--$0.10/month (based on the fact that it's much less expensive to swap out a faulty hard disk from a server farm than it is to roll a truck and swap a set-top box.)

Cablevision's Network DVR system will work with any of its existing digital set-top boxes, so in Cablevision's case, 70% of its total subscribers could become DVR users the minute the company turns the system on. And, Cablevision is simply buying the software and hardware from Arroyo Video Solutions, so any other cable operator can use it. If it works for Cablevision, a lot of other cable operators will want it. So why don't big media companies want them to have it?

The debate is based on interpretation of Copyright law in general, and the Betamax decision in particular. (This is the point at which I have to remind you that I'm not a lawyer, I'm not giving legal advice, my interpretation of the relevant laws and legal decisions may be wrong, and your mileage may vary.) In 1984, the U.S. Supreme Court ruled that consumers have the right to record television programs for their own personal use, for the purpose of watching them at a later time or date ("time-shifting".) Cablevision argues that its Network DVR system does exactly what the Betamax ruling permits. The major media companies, however, counter that it's really Cablevision, not consumers, who are making the copies, and that the copies (from hundreds to potentially millions) reside on Cablevision's servers. They argue that a court ruling designed to allow one person to make one or two copies for their own use was never intended to extend to multi-billion dollar corporations making,storing and distributing millions of copies. The big media companies also argue that Network DVR is simply another name for on-demand programming, and the cable MSOs are already required to obtain licenses in order to distribute their content on demand.

Both sides have valid arguments. Network DVR is, in fact, nothing more than on-demand programming whose storage is triggered by individual viewers instead of MSOs, but the network storage really serves exactly the same purpose as the hard disk in a TiVo or other set-top DVR, or, for that matter, a VHS tape. This case is probably going to end up at the Supreme Court, which means that it'll be years before we know whether or not Network DVRs are legal. I'm rooting for the cable operators to prevail, but for the time being, thanks to the slow, grinding effect of the U.S. legal system, your next DVR is still likely to be in the form of a set-top box. At least it's legal to not have to put up with that blinking "12:00".

UPDATE: On June 8th, Cablevision agreed not to deploy network DVRs until the court can decide whether or not they are covered under the Supreme Court's Betamax decision. Both Cablevision and the studios agreed to an expedited schedule that will have the court hear arguments on October 30th or 31st.