Comcast-Time Warner Cable: Would it really be anti-competitive?

As you probably know, Comcast and Time Warner Cable have agreed to merge. Many consumer groups and some of the companies' content providers and competitors are opposing the merger, while it's hard to find proponents that aren't either getting funding from one of the two companies or are "Astroturf" organizations created to support the merger. However, is the Comcast-TWC merger really anticompetitive? A big part of the answer depends on whether you're looking at the multichannel video services market today, or a few years from now.

If you look at the situation today, whether or not the merger is anticompetitive depends on who you are. If you're another cable company, it's not anticompetitive at all. The reason is that cable operators all have local franchises to be the exclusive cable supplier in the areas they serve. So, Comcast doesn't compete with TWC, which doesn't compete with Cox, which doesn't compete with Charter, etc. The reason for exclusivity is that it was so expensive for a cable operator to lay the wires, put in the plant and equipment, and service customers, that it was uneconomical to do so unless they could serve all the customers in an area without competition.

If you look at Comcast's and TWC's non-cable competitors, the merger is likely to have a modest impact at most. Existing Comcast and TWC customers will still be customers of the merged company, and can switch to a competitor if they want to. It's likely that Comcast will improve TWC's plant and equipment, and improve its cable and Internet services, which would make the combined company a stronger competitor in TWC markets. If you're an existing Comcast or TWC customer, your competitive situation isn't likely to change much, either. The new company will still supply your cable service, most likely your wireline Internet service, and possibly your phone service as well. The same competitors you could switch to will still be there.

However, if you're a program supplier to Comcast and TWC, your situation is likely to change substantially. The reason is that the merged company will have around 30 million subscribers and will be by far the biggest cable and Internet provider in the U.S. (If the AT&T acquisition of DirecTV is approved, that company will have at least as many video subscribers as Comcast-TWC, but DirecTV, which has the lion's share of subscribers, doesn't provide its own Internet service--it resells services from local Internet Service Providers.) The merged company will be the only way for program suppliers (television and cable networks, and movie distributors offering titles for Video on Demand (VOD)) to reach about 1/3rd of all U.S. households. That will give the new company enormous power to negotiate preferential licensing and retransmission fees, and will also give it additional power to negotiate non-fee terms and conditions, such as limitations on content providers' ability to license their content to other service providers. In addition, given that Comcast owns NBC Universal, it can give preferential treatment to NBCs broadcast and cable networks and Universal's movies and television shows similar treatment in its VOD systems, which would put other content providers at a competitive disadvantage.

If you're an Internet content provider, such as Netflix, the merged company will be by far the biggest single provider of ISP services to your customers in the U.S. There's strong evidence that Comcast was throttling the bandwidth available to Netflix subscribers until Netflix agreed to pay for a peering agreement with Comcast. The combined company would have even more power to extract payments from Internet companies.

That's today's situation, but what about tomorrow? Netflix is a nationwide (now also international) service; it can reach everyone in the U.S. who has either wired or wireless high-speed Internet access. Roku, Apple, Sony and others sell set-top boxes and devices that offer similar access to video over the Internet. Verizon, which has long operated its FiOS IPTV service which offers a cable-like video service and high-speed Internet, recently acquired Intel's OnCue Over-The-Top (OTT) Internet video platform. Verizon is expected to use OnCue as the basis of a nationwide video service that will operate over its wireless network, and possibly over the Internet as well. That would give Verizon a nationwide footprint, and would enable it to offer video services in almost every U.S. market. Sony and Dish are also rumored to be in the planning stages for a similar Internet service. Intel's attempt to launch OnCue was stymied by pressure from the cable industry to prevent its program suppliers from licensing their content to Intel, and the same pressure is suspected as the reason why Apple has not yet launched its long-rumored HDTV and video service.

What happens if OTT service and program suppliers find a way to launch viable services that can compete with cable? The video services market could change radically. Instead of today's three or four competitors (the incumbent cable operator, DirecTV, Dish, and depending on where you live, either Verizon or AT&T,) there could be many more:

• T-Mobile and Sprint could use their networks to deliver video to households.
• I've written that there's evidence that Netflix is planning to offer live programming in addition to its VOD offerings; they could expand into a full cable competitor.
• Sony and Apple could offer their own services.
• The existing cable operators could directly compete with each other for subscribers using OTT.

With the exception of Verizon, Sprint, T-Mobile and (if it doesn't acquire DirecTV,) AT&T, all of the other new competitors will have to go through telco ISPs or cable operators in order to get to consumers' homes. If cable operators set prices and/or terms & conditions that make servicing their customers with OTT video unprofitable or too complex, these new competitors could be killed in the womb. That's why I suggest that regulators set and enforce two conditions on both the Comcast-TWC and AT&T-DirecTV deals:

1. Both combined companies must offer all OTT services access to their Internet networks and subscribers under fair, reasonable and non-discriminatory (FRAND) terms.
2. Both combined companies must remove all clauses in their contracts with program suppliers that prohibit them from licensing their content to competitors, or that place significant restrictions on such licenses. In addition, they're prohibited from signing contracts with any such clauses in the future, and from using their influence and market power to informally persuade program suppliers not to deal with competitors.

Both conditions would last for five years from the day that each combined company finalizes its merger and begins operating as a single company. That would give competitors enough time to build their market presence and establish viable businesses, and also give the telecom industry five years to develop new ways for the OTT services to reach consumers without having to go through the incumbent cable operators.

Redbox partners with Verizon for video streaming, buys NCR's video rental kiosk business

Coinstar, the owner of the Redbox service that operates 29,000 video rental kiosks in retail locations in the U.S. and Canada, made two big announcements today:

• A joint venture with Verizon to enter the video streaming market, and
• A deal with NCR to acquire its video rental kiosk business

First, the joint venture with Verizon to enter the streaming video market. This deal has been rumored for months, but Verizon and Coinstar made it official today. Verizon will own 65% of the business, and Coinstar will own the remaining 35%. The service will compete directly with Netflix, and will launch in the U.S. in the second half of 2012. Coinstar and Verizon offered very few details about the service, but it will be available to all consumers with broadband Internet service, not just Verizon's subscribers.

Next, Coinstar will pay up to $100 million to acquire NCR's entertainment business, as well as pay NCR $25 million for goods and services over the next five years. NCR's entertainment business primarily consists of video rental kiosks operated under the Blockbuster Express brand; NCR licensed the brand name from Blockbuster. It's not clear whether Coinstar will convert the NCR kiosks to the Redbox brand, or will replace the NCR kiosks with its own devices.

How does all of this add up? Redbox was already the top video renter in the U.S. with 30 million customers, and the acquisition of NCR's business will both give the company even more locations and eliminate a competitor. The net result is that Redbox's video rental business, which is profitable and growing, will get even bigger and be better positioned to take business away from Netflix.

As for the streaming service, Coinstar's approach appears be the reverse of Netflix's, which is deemphasizing its video rental business in favor of streaming. Redbox appears to be betting that its kiosk rental business will remain strong while using Verizon's capital and infrastructure to stake a position in the streaming business. Verizon and Coinstar have released no details about their new service, so it's currently the equivalent of a "Watch This Space" sign. However, they have a lot of work to do before they launch, including:

• Signing licensing and distribution deals with content providers
• Building infrastructure to support video streaming across the U.S., not just on Verizon's own network
• Writing video clients for PCs, Macintoshes, iPhones, iPads, Android devices, Roku, Google TV, etc.

We'll know far more about how competitive the Verizon/Redbox service will be in the next six months.

Update, February 22, 2011: I just noticed that those pesky DISH spammers voted this post "one star" as well. If you're going to "p---" on the people who cover your industry because they refuse to give you free advertising, it most definitely will come back to bite you. At the very least, it opens questions about the financial condition of a company that has to rely on spammers instead of paying for advertising. But, I understand that DISH may be cash-poor after being forced by the courts to pay TiVo $500 million for stealing its technology.

DRM: The product that (almost) nobody wants

A few years ago, I was an industry analyst covering the IPTV (Internet Protocol Television) industry--the video delivery technology used by Verizon (FiOS) and AT&T (U-Verse) in the U.S., and many other companies worldwide. One of the hardware segments of IPTV that I tracked was Digital Rights Management (DRM). When I came on-board, the retiring analyst whom I replaced warned me that the DRM vendors would probably cause me ten times as much grief as those in any other segment. He was right.

DRM is an unusual business: The companies that demand that DRM be used aren't the ones that pay for it. You can't distribute television shows or movies from any of the major television networks or studios unless you have an acceptable DRM system in place. The same is true if you want to distribute eBooks from most of the major publishers (O'Reilly is the biggest exception...in fact, O'Reilly demands that its eBooks be distributed without DRM.)

The movie studios, television networks and publishers often specify which DRM systems are acceptable, but they don't pay for them. That cost is borne by cable and IPTV operators, over-the-top video distributors (such as Netflix and Amazon) and eBook distributors. For their part, cable and IPTV operators have their own conditional access systems, and a nearly foolproof way of keeping unauthorized users from getting their content--in the worst case, they can send out a truck and disconnect the pirates from their network. However, that's not good enough for the movie studios and television networks, who want to make sure that their content can not only not be viewed by the wrong people, but that it also can't be copied.

Over-the-top video and eBook distributors are less concerned about piracy than they are about making their services extremely easy to use, in order to stimulate sales. They already require usernames and passwords in order to download content, which helps to insure that only those customers who are authorized to access their content can get it. They want DRM, but they don't want it to make their services hard for average consumers to use. The more hoops that consumers have to jump through in order to purchase, download and use content, the less likely it is that consumers will continue purchasing from those vendors.

Apple and Amazon developed their own DRM systems, which were designed to protect content while making access as easy as possible for consumers. Most other companies don't have the ability to develop their own DRM systems, and that's where third-party vendors come in. Content distributors want the cheapest DRM systems they can get that are acceptable to their content suppliers, because DRM adds no value for the consumer (it actually subtracts value), and it adds cost for distributors while offering little or no value. The only parties that it serves are the content providers, who don't pay for the DRM systems, implement them or deal with customer complaints.

This has created a field of third-party DRM vendors who are fairly paranoid. DRM vendors regularly compete on price, but some companies have chosen other approaches. Widevine, which was acquired in 2010 by Google, had several patents on its DRM technology and would threaten (and sometimes file) patent infringement lawsuits against competitors who were undercutting it on price. Widevine used the same tactics against market research and industry analyst companies that didn't report on the company the way that it wanted, or that put its competitors in a positive light. In the case of the company I worked for, Widevine demanded that we lower the installation counts that we had compiled for some of its competitors. When we refused to do so, it threatened to file suit against us. We easily could have prevailed in any litigation (simply going public with their threat would have been sufficient to destroy their credibility), but the owner of my company caved in and removed Widevine's name from our report, replacing it with "Anonymous". Shortly after, Widevine signed a consulting contract with us, hoping to have more influence over our reporting. When a subsequent report had installation counts for competitors that Widevine disagreed with, they again threatened to file suit, and my company's owner again caved into their demands. I demanded that the company take my name off the report and resigned shortly after, because I didn't want my reputation to be sullied. 

Another company, NDS (owned by News Corporation) refused to give us any numbers for its installed base, but after each report we issued, they would complain loudly that our numbers were inaccurate. When we said that we would be glad to adjust the numbers if they gave us installed base numbers that we could confirm, they said that they were under no obligation to give us any information. Given that they were unwilling to provide any evidence to support their complaints, we stuck with our numbers.

In short, DRM is a product that (almost) nobody wants, where the companies that want it don't pay for it, and most of the companies that are forced to pay for it don't really want it. That would be enough to make just about anyone a little paranoid.

Why you shouldn't announce products without delivery dates and prices

Yesterday, Apple announced the iPad 2 in San Francisco. I won't go over the details, since it seems like every news outlet in the U.S. has already covered them. However, I want to point out one thing that Apple does consistently that its competitors still do all too rarely: Apple announced hard retail availability dates and prices for the iPad 2, iMovie and GarageBand for iOS, as well as the availability date for iOS 4.3. When the event was over, everyone knew when the products would be available and how much they'll cost. Apple regularly does this; in fact, it's rare when Apple announces a product without giving hard prices and availability dates.

Compare that to what its competitors have done. When Samsung announced the original Galaxy Tab Android tablet, it didn't release any prices or availability dates. The information leaked out over the next several weeks. Motorola and Verizon didn't announce prices or availability dates when the Xoom tablet was shown at Mobile World Congress; that information leaked out of Best Buy weeks later. LG's G-Slate came out with German pricing but no U.S. pricing or availability date. Samsung's new Galaxy Tab 10.1 doesn't have either availbility dates or prices.

It's not just the Android tablet vendors who can't get their numbers straight. RIM has been showing the BlackBerry PlayBook for months, still without hard prices or a release date, although a date of April 11th has been leaked. HP held a big event in San Francisco to launch its new WebOS-based smartphones and TouchPad tablet, but gave no prices. As for the ship dates, HP was unwilling to get more specific than "Spring" or "Summer".

It's difficult to take a product announcement seriously if the manufacturer isn't willing to say how much it will cost or when it will be available. I understand the problem when products are sold through mobile carriers, who have their own release schedules and pricing plans. However, Apple works with carriers around the world and has managed to be able to announce consistent release dates and prices.

In hindsight, given the difficulties that Samsung had with the original Galaxy Tab and that Motorola is having with the Xoom, it wouldn't have hurt to delay the announcements until price and availability dates were set. In the Xoom's case, it probably wouldn't have hurt to wait until it ships with LTE built-in and until there's a decent population of tablet-optimized Android apps. Rushing product announcements out in order to "freeze" the market and prevent consumers from buying competitive products may have worked once, but today, when new products are released continuously, consumers won't wait. For example, they're going to compare the second-generation iPad 2 and its 65,000 tablet-optimized apps with a version 0.9 Xoom--not quite ready to ship and with less than 100 tablet-optimized apps--and in the vast majority of cases, the iPad 2 will win.

Google and its partners went through this with Google TV, which should have been announced as a product concept to encourage app developers, but instead was rushed to market at too high a price, with inadequate content partnerships and insufficient user experience testing. RED preannounced its Scarlet camcorder years before it was ready, and ended up educating its competitors, frustrating its customers and frittering away its market credibility.

If you can't announce a hard price and release date, you shouldn't announce a product. It's as simple as that.

Why I didn't buy a Xoom

Motorola's Xoom Android tablet went on sale today, and I decided to buy one for Android development. Unfortunately, the buying experience was so bad that I ended up walking away. If you've shopped for or purchased an iPad, you know that buying one is an incredibly easy experience. You can purchase it online, in Apple's own stores, at Best Buy, AT&T and Verizon's own stores, and many other places. Verizon, however, has chosen to make the Xoom available only in stores, not online. So far as I know, it's only carried by Best Buy and Verizon's own stores. So, I visited a local Verizon store, and that's where the problems began.

You can buy a Xoom for $799 without a data plan, purchase a month-to-month data plan, or pay $599 with a two-year data plan. I simply wanted to pay the $799 price, but the salesperson kept trying to get me to buy a data plan. She finally had to call over her supervisor, who agreed to allow me to purchase the tablet without a data plan. Then, as the salesperson started to ring up the sale, she tried to sell me Verizon's home phone service (I live in AT&T's territory). Next, when she learned that I use an iPhone 4 and AT&T for my mobile service, she tried to get me to switch to Verizon. She offered to "buy back" my AT&T phone--but then, I'd have to pay AT&T's early cancellation fee, plus buy a new iPhone 4 phone from Verizon. By this time, I felt as though I was dealing with a pushy car salesperson.

I ended up leaving without purchasing the Xoom. It's very clear that Verizon doesn't want any Xooms to be sold without a data plan, or without selling some other ongoing phone service. If that's the case, they should simply sell it at the subsidized price and require the two-year data plan. It would be simpler for customers and easier for Verizon's salespeople. As much as I'd like a Honeycomb tablet, I'll upgrade to an iPad 2 first, and eventually add an Android tablet, with (I hope) much less hassle.

You may not be able to see Clear(ly) for much longer

Clearwire, the U.S. wireless broadband provider, is fighting for its life. Operating under the Clear name, Clear offers WiMAX services itself and through Sprint. Even as the company was announcing record subscriber growth last week, it also announced a 15% layoff, delays in opening up the Denver and Miami markets, dramatic slowdowns in the number of new retail stores to be opened, and a virtual shutdown of its advertising and promotion efforts. In addition, executives from Sprint, Clearwire's largest investor, resigned from the company's board of directors.

Now comes news that Sprint has initiated arbitration proceedings with Clearwire over the amount of money that Sprint has to pay Clearwire for use of that company's 4G mobile phones. According to FierceTelecom, Clearwire claims that several hundred thousand 4G phones are being used in areas with no 4G coverage, and that Sprint is supposed to make monthly payments to Clearwire for every 4G phone it sells, whether or not it's used in an area that supports 4G. Sprint disagrees and has initiated arbitration. Sprint charges its subscribers $10/month extra for the 4G phones it sells, whether or not the 4G service is used, and Clearwire is apparently claiming some or all of that $10 fee.

This comes on the heels of yet another story suggesting that Sprint might invest additional money in Clearwire. However, it's difficult to see how motivated Sprint is to invest more money in Clearwire if it can't be bothered to make monthly payments of no more than a few million dollars for the right to use all its 4G phones on Clearwire's network.

In more normal economic times, the most likely outcome for Clearwire is that Sprint would purchase 100% of the company and fold it into Sprint's operations. However, Sprint doesn't appear to want to do that. What may actually be happening is that Sprint is looking for a strategy for transitioning to LTE, which is being adopted by all major U.S. carriers and is widely assumed to be the replacement for WiMAX, even for Clearwire. Sprint needs a 4G solution as a differentiating advantage until it gets LTE up and running, and for that it needs Clearwire. However, that advantage isn't worth acquiring all of Clearwire.

Therefore, even with the arbitration, the most likely outcome is that Sprint will invest enough in Clearwire to keep it afloat with no new markets or major capital investments until Sprint gets LTE running nationwide. After that, Clearwire will be on its own.

If you're thinking about buying a Sprint 4G phone or Clear's service and equipment, you may want to wait. Verizon will launch its LTE service later this year, AT&T will follow soon after in 2011, and by this time next year, WiMAX may be a footnote in wireless history.

The first Feldman File videoblog is live!

I've posted the first episode of the Feldman File videoblog to YouTube! Let's put it this way: It can only get better from here. I should have taken that scholarship to the Columbia School of Broadcasting when it was offered to me.

This week's episode covers the following news:

• Barnes & Noble's NOOKcolor eBook reader (and Android tablet wannabe)
• Sprint, T-Mobile and Verizon have all set prices and availability dates for their versions of Samsung's Galaxy Tab Android tablet
• News from Adobe's MAX Developers' Conference
• Sencha Animator, a timeline tool for animation using HTML and CSS3, goes into beta
• Roku licenses the hardware and software behind its Internet set-top boxes to consumer electronics companies
• IDC reports that Apple has become the world's fourth-largest mobile phone manufacturer, passing Research in Motion

T-Mobile to sell Samsung's Galaxy Tab for $399

T-Mobile announced today that it will match Sprint's price and sell its version of Samsung's Galaxy Tab Android tablet starting November 10th for $399 with a two-year contract and data plan. Its 200MB plan will cost $29.99/month, while the 5GB plan will cost $49.99/month, with discounts for existing T-Mobile customers. Prepaid mobile broadband plans are also available, but they're not cost-effective, and T-Mobile hasn't said that it will sell an unbundled version of the Galaxy Tab.

According to eWeek, Sprint's data plan options for its version of the Galaxy Tab are $29.99 for 2GB/month or $59.99 for 5GB/month. Verizon will only sell an unsubsidized version of the Galaxy Tab for $599.99, with a month-to-month 1GB data plan for $20/month. It's confusing, and probably deliberately so, but it looks like the best deal for people who want continuous data coverage but won't use a lot of bandwidth is the Sprint 2GB/month plan. Customers who will use a lot of bandwidth (primarily for video) should go with the T-Mobile 5GB/month plan. Verizon's price is appealing only for those customers that have to have a Galaxy Tab and will primarily use it on WiFi networks. For those customers, a WiFi-only iPad would be a better option.

Sprint offers Samsung Galaxy Tab for $399.99

According to Engadget, Sprint just because the second U.S. broadband service provider to price the Samsung Galaxy Tab 7" Android tablet. Sprint will sell it for $399.99 starting November 14th for customers that commit to a two-year data plan, or $599.99 for customers that opt for month-to-month data coverage ($29.99 for 2GB/month or $59.99 for 5GB/month.) From the Sprint website, it appears that the monthly prices for the 2-year and month-to-month plans are the same.

The option to buy the Galaxy Tab at a subsidized price is likely to drive many more sales than Verizon's unsubsidized $599.99 pricing. However, AT&T and T-Mobile will also be carrying the Galaxy Tab, and they might offer even more aggressive offers when they announce their pricing.

Verizon to ship Samsung's Galaxy Tab Nov. 11th

According to Computerworld, Verizon will ship the Samsung Galaxy Tab starting on November 11th for $599.99. The Galaxy Tab is a 7" tablet that runs Android 2.2, and it includes both WiFi and 3G CDMA wireless interfaces. Verizon will sell the Galaxy Tab without a contract, with month-to-month data service starting at $20 for 1GB.

I can understand why Verizon is following the same unsubsidized model as Apple uses for the iPad, but the Galaxy Tab is a poor value at $600. Consider that the 16 GB 3G iPad is only $30 more--$629--and it has a bigger screen and access to a much bigger catalog of apps. Also, Google itself says that Android 2.2 isn't designed for tablets, and only gave Samsung access to the Google apps and Android Market through a "special dispensation". The Galaxy Tab will be able to be upgraded to Gingerbread, Android 3.0, which will support tablets, but not until next year.

Verizon would sell a lot more Galaxy Tabs if it offered the same model for $399.99 on a 2-year data-only contract as well as $599.99 unsubsidized.

Apple's iPad goes mass market

Last week, Bernstein Research announced that the iPad has become the fastest-selling consumer electronics product in history, and an analyst from Ticonderoga Securities who spoke with one of Apple's component suppliers said that the company is gearing up to sell 45 million iPads worldwide next year. Apple's putting in place a distribution channel that will be able to sell that many iPads. By the end of this month, Apple will have at least tripled the number of stores selling the iPad in the U.S. since it was first launched earlier this year, and one of the new distribution deals is a harbinger of much bigger deals to come:

• Starting today, iPads will be on sale at Wal-Mart and its sister warehouse store chain Sam's Club, both in-store and online (although online customers will have to go to their local Wal-Mart or Sam's Club to take delivery)
• Target, Wal-Mart's biggest competitor, started selling iPads earlier this month
• Best Buy, the largest consumer electronics retailer in the U.S., started selling iPads a few months ago
• AT&T will begin selling iPads in its stores by the end of the month, and will offer services to help businesses develop their own iPad apps and integrate iPads into their operations
• Perhaps the most important news is that Verizon will also start selling iPads in its stores by the end of October, but with an interesting twist. Apple doesn't have CDMA-compatible iPads avalable (CDMA is the mobile standard that Verizon and Sprint use), so Verizon will sell WiFi-only iPads in a bundle with its MiFi mobile hotspots, at exactly the same price as the equivalent 3G GSM iPads already on sale. Like AT&T, Verizon will offer the iPad/MiFi bundle contract-free; users can sign up for wireless data service on a month-to-month basis, at rates that are the same or better than AT&T's. The Verizon bundle is even more flexible because the bundled MiFi can be used as a WiFi hotspot for other devices as well.

Verizon's iPad/MiFi bundle is clearly an interim solution until Apple can start delivering a CDMA-compatible version of the iPad. More importantly, this announcement means that the rumors of a forthcoming Verizon iPhone are almost certainly true. Apple's January announcement is going to be extremely interesting.

Who's afraid of the big, fat pipe?

Cable, satellite and IPTV services all do the same thing: They distribute video content to set-top boxes in consumers' homes, where the content is watched on televisions. If you suggested to them on the record that they get rid of the content, get rid of the set-top boxes and simply allow consumers to get content from wherever they want, their heads would explode like they did in David Cronenberg's "Scanners".

Last week, however, Ivan Seidenberg, the chairman of Verizon, suggested that the future of video is over-the-top content at a Goldman Sachs conference in New York last week, and that a transition from Verizon selling the content to consumers getting content from their own sources is inevitable. Service providers would offer very fast Internet service (100Mbps or more--some Asian service providers are offering 1Gbps), thanks in part to not having to reserve so much bandwidth for video, and would act as common carriers--their pipes would carry just about anything. The service providers would make money on the connectivity, not the content. Set-top boxes and a whole lot of infrastructure and truck rolls would go away.

One enormous thing that goes away in the common carrier model is the need for service providers to negotiate for and license content. Most cable operators would tell you privately that they'd rather have a colonoscopy without sedatives than negotiate with Disney for retransmission rights. Disney's ESPN is the "900-pound gorilla" of cable channels, and Disney uses it like a hammer to get concessions from service providers, from paying to retransmit their local ABC owned-and-operated stations to carrying all of Disney's sports and children's networks. And Disney is only one player: There's CBS, NBC Universal, News Corporation/Fox, Time Warner and many others, all demanding their own share of operator revenues and priority positions in bundles.

There are only two service providers in the U.S. with their own large stables of content: Comcast, which owns E! Entertainment, Versus, The Golf Channel and G4, along with regional cable networks across the country, and Cablevision, whose Rainbow Media subsidiary owns AMC, IFC, The Sundance Channel ad WeTV. (Since 2008, Time Warner Cable has been independent of Time Warner, which owns HBO, TNT, CNN, HLN, TCM and many other cable networks, as well as Warner Brothers.) Comcast, of course, is trying to get government approval to acquire NBC Universal, which will give it NBC, Telemundo, USA Network, MSNBC, CNBC, Bravo, Lifetime, SyFy, The Weather Channel, Mun2 and other wholly- and partially-owned cable networks, as well as Universal Studios.

Comcast and Cablevision can make money by licensing their content to other service providers. They sell themselves the content they need for their own cable systems through what's called "transfer pricing"--essentially, the money goes from one pocket to another. Thus, they have lower content acquisition costs and more control over their future outlook than other service providers.

But what if some of the larger service providers decide to go the common carrier route, or pursue a hybrid strategy of offering only local broadcast stations and a small number of national cable networks, with subscribers free to get anything else they want from anyone they want? To date, no one in the U.S. has had that option (legally), but it could happen. If it did, there would be a lot of cable and IPTV service provider executives who would sleep much better at night.

PR Lesson 101 for Samsung: How to frustrate your audience

Samsung just concluded its U.S. announcement of the Galaxy Tab. The company had hyped the event online, and there was some live-blogging activity. Keep in mind that the Galaxy Tab was announced and demonstrated in detail more than a week ago at IFA in Berlin, and that announcement was widely covered. What the press, bloggers and early adopters were expecting to get from Samsung today were answers to three simple questions:

• Which carriers will sell the Galaxy Tab,
• What price(s) will they sell it at, and
• When will it be available?

Samsung only answered the first question. All four major U.S. carriers (Verizon, AT&T, Sprint and T-Mobile) will carry it. The prices will be set by the carriers, and Samsung completely refused to answer any questions about specifics. Not a single carrier spoke at the event. As for availability, all they were willing to say was "before the holidays."

There were only two hardware announcements of note: First, Samsung will sell a (presumably unsubsidized) WiFi-only model in addition to the 3G/WiFi models that the carriers will sell, and second, the Galaxy Tab will not have voice calling capabilities. That's it.

This is PR 101: If you can't answer the questions that your audience is most expecting answers to, don't bother staging the event. When the event dragged on and on without any mention of availability or price, I was afraid that Samsung would do exactly what it ended up doing. It's shifted the burden on answering the key questions to its carriers, who are no doubt thrilled about it.

Samsung should have sent out a press release launching its website and posted videos and specifications of the product, including the video produced by Adobe, instead of having this event. The next time around, when the product is actually ready, far fewer people are going to pay attention to the announcement(s).

Samsung's Galaxy Tab to be announced in the US this week?

According to FierceWireless, Samsung will formally announce its U.S. carrier partners and launch date(s) for the 7" Galaxy Tab Android-based tablet this Thursday, September 16th, in New York. Bloomberg reports that AT&T, Sprint and Verizon will all carry the Galaxy Tab, and that the price of the device will be $200 to $300, depending on carrier subsidies. According to Bloomberg, AT&T and Sprint have decided on their subsidies, while Verizon is still uncertain.

The Galaxy Tab can be used as a smartphone, but given its size, most customers are likely to keep their existing phones. If carriers require a full phone account in order to get a subsidized Galaxy Tab, it's likely to lose a great deal of its potential market. On the other hand, if the carriers offer both reasonably-priced data-only subscriptions along with conventional voice and data plans, interest in the tablet should translate into significant sales.

Previous reports indicated that the Galaxy Tab will ship next month in Europe, and that it will ship in the U.S. in November, in time for the holiday sales season.

AT&T to deploy HSPA+ as high-speed wireless stopgap

It appears that the combination of Verizon's advertising and customer complaints have taken their toll on AT&T. The company had planned to move from its existing wireless architecture, which uses HSPA 7.2 (capable of theoretical download speeds up to 7.2Mbps) but without sufficient backhaul capacity in all locations to support that speed, to LTE, which offers theoretical speeds of 100Mbps down and 50Mbps up, starting in late 2011. (There's a huge difference between theoretical and actual; Verizon achieved LTE download speeds of from 5Mbps to 12Mbps and uploads from 2Mbps to 5Mbps in tests in Boston earlier this year.)

Last week, however, AT&T announced that it will implement HSPA+ in most locations, which has a maximum theoretical download speed of 14.4Mbps, by the end of this year. Customers in areas with limited backhaul capacity will see little or no improvement. What's likely is that AT&T will increase its backhaul capacity during the rest of this year and 2011, and then start implementing LTE late next year. Meanwhile, Verizon will have LTE live in 25 to 30 markets by the end of this year, and will have as many as five LTE phones available for customers by mid-2011. Once again, AT&T's strategy of minimizing its plant and equipment investments with "good enough" technology will keep it at a competitive disadvantage for at least another year.

The "Google Phone" (HTC Nexus One) Begins to Make Sense

A short time ago, Engadget posted part of the FCC certification for the HTC Nexus One, the phone that Google mass-distributed to its employees last weekend. There's been a lot of speculation that the GSM-compatible would be sold unlocked by Google (meaning that in the U.S., it would work with AT&T and T-Mobile.) Frankly, a lot of the story didn't make sense--why would Google start competing with its biggest distributors just as Android started getting market traction?

The FCC certification shows that the Nexus One will work on a variety of international GSM networks, but it will only work in the U.S. in G3 on T-Mobile--AT&T customers can use it as a phone, but data speeds will be limited to EDGE. And, now the story begins to make sense. T-Mobile has been Google's primary partner in the U.S. since the launch of the first Android phone, the G1.

So, here's my speculation: Google is going to sell the phone, and technically, it will work on either T-Mobile or AT&T, but there will be a special T-Mobile account just for the Google Phone. It will be based on T-Mobile's Pay-as-you-go pricing models, and it can be considerably less expensive than T-Mobile's prepaid plans because T-Mobile isn't subsidizing the price of the phone.

Google will, in my opinion, subsidize the price of the phone, because the user will be locked into a suite of advertising-supported Google functions that work anywhere, even on WiFi, and even if the Nexus One doesn't have any GSM SIM card at all. (Yes. that means that Google Phone users will be able to take advantage of Google Voice wherever there's an open WiFi hotspot.)

T-Mobile won't be threatened by the Google Phone, because they'll be the preferred broadband voice and data service. Verizon won't be threatened, because the T-Mobile 3G network is even less well built out than AT&T's. Sprint has a foot in just about every camp, and they're becoming less of a market factor every day. AT&T is hostile to Android, so there's no reason for Google to play nice with them. Perhaps most importantly, Google has a chance to dramatically increase market penetration of Android phones and the appeal of the Android platform to developers, and they'll move a lot more mobile advertising inventory.

How fast is fast?

At the International Broadcasting Conference (IBC) in Amsterdam this week, Texas Instruments announced a chip for cable operators that allows eight downstream and four upstream DOCSIS 3.0 channels to be bonded together for a maximum of 320Mbps down and 160Mbps up. Compare that to today's situation, where most cable subscribers get less than 10Mbps down, and most cable operators are contemplating providing no more than 50 to 100Mbps down maximum.

I don't seriously believe that we'll see 320Mbps in the foreseeable future, but this capability will become a weapon in the arsenal of cable operators. The fundamental advantage that Verizon's FiOS service has over cable offerings is the inherent bandwidth of fiber-to-the-home (FTTH); DOCSIS 3.0 bonding is keeping cable operators in the contest. Switched digital video (SDV) and Cable IPTV will enable cable operators to utilize their available bandwidth even more efficiently. The result is that cable operators and telcos may end up competing on a level playing field, so far as bandwidth is concerned.

Here Comes Everybody

According to this article from OneTRAK, Verizon has begun construction (overbuilding) that will enable the company to introduce its FiOS service into two Texas cities (Frisco and Allen) already served by AT&T's U-Verse service. This announcement could also have implications for the five other states (Florida, California, Indiana, Washington and Oregon) that Verizon shares with either AT&T or Qwest.

Historically, overbuilding phone systems simply wasn't done; each city had one and only one telephone franchise. However, now that local franchising is no longer an issue, the decision about whether or not to overbuild is driven by economic and technical issues. It's a lot less expensive to overbuild when you already have a telephone network built in an adjoining city, and that's what's enabling Verizon's encroachment into AT&T territory in Texas. (Why is Verizon in these states, you ask? The company was formed by the merger of Bell Atlantic and GTE, and it's some of the old GTE systems that are in play for expansion.)

By and large, AT&T has three video competitors in every market: The incumbent cable operator (Comcast, Time Warner, Cox, etc.), DirecTV and Dish/Echostar. The last thing they've expected is head-to-head competition with Verizon, but they're going to get it, and in their home state (Texas). Verizon apparently believes that in FiOS, it will have a superior product to U-Verse for the foreseeable future, thus justifying the capital investment necessary to compete on AT&Ts turf.

In the past, I've talked about how Verizon's big bet on fiber to the home is turning out be much more "future-proof" than AT&T's smaller bet on fiber to the node. That's great if you live in a Verizon territory, but meaningless if you're an AT&T customer...until now. Here's an example: I live in Campbell, California, just north of Los Gatos, a Verizon city. FiOS isn't in Los Gatos yet, but once it is, one could easily envision Verizon expanding from Los Gatos to Campbell and San Jose, and from there throughout the southern part of Silicon Valley. Other Verizon outposts in Northern California could also expand, until the entire San Francisco Bay Area, or at least the most profitable parts, are covered.

This possibility has to scare AT&T silly, since the company needs those same highly profitable customers in order to pay back its capital expenditure on U-Verse. Verizon's first moves in Texas likely presage a battle that will take years to play out, but it's entirely conceivable that Verizon could end up as the sole national wireline (or "fiberline") carrier in the U.S.