If Fox and Univision go to cable, what happens to their stations?

Yesterday, both Fox's Chase Carey and Univision's Haim Saban said that they would move their networks from over-the-air broadcast to subscription cable distribution if Aereo is allowed to use their content without paying for retransmission rights. Both of these statements are empty threats, because the economic damage from going cable-only would be much greater than the loss of retransmission fees. Here's why:

• Fox owns 27 television stations, 17 of which are Fox affiliates. The 10 non-Fox stations are MyNetworkTV affiliates. If Fox goes cable-only, what happens to the 17 stations? Will Fox make them MyNetworkTV affiliates? Not likely, since it already owns MyNetworkTV affiliates in a number of the same markets. Will it sell them off? Perhaps, but not at the price it would like, since they'd be independents. (See Young Broadcasting's fiasco with San Francisco's KRON.)
• Univision owns 23 television stations, all of which carry the Univision network. They've got the same problems and issues as Fox--what will it program the stations with if they don't carry Univision, and who will it sell them to?
• In both cases, can the networks afford to lose viewers who can't afford or don't want to pay for a cable, satellite or IPTV video subscription?
• Finally, if either Fox or Univision goes cable-only, their affiliates will immediately go to the FCC and Congress to block the move. Just as with the networks themselves, the economic value of their stations would be dramatically reduced by losing their network affiliations.

There are several other reasons why a shift to cable is unlikely, especially for Fox. In any event, Carey's and Saban's threats are nothing more than that. If they can't stop Aereo in the courts, broadcasters will use their enormous clout to get legislation from Congress banning or greatly limiting Aereo. Lobbying, campaign contributions and Fox News' bully pulpit, not taking the broadcast networks to cable, will be the tools used to minimize or eliminate the threat from Aereo.

Why the AT&T/T-Mobile deal may mean less than it seems

Earlier today, AT&T announced an agreement with Deutsche Telekom to acquire its U.S. T-Mobile operation for $39 billion in cash and stock. The timing of the announcement was very interesting: AT&T and T-Mobile chose to announce the deal on a Sunday, while Western forces are attacking Libya, the Japanese disaster continues and the U.S. college basketball championships are underway--in other words, when very few people are likely to pay attention to it.

Part of the companies' caution is due to the fact that the deal will undergo intensive investigation by the Federal Communications Commission, Federal Trade Commission and U.S. Department of Justice. There's an excellent chance that the deal will be challenged in court; it will add T-Mobile's 33.7 million subscribers to AT&T's 95.5 million, making the merged company the largest mobile operator in the U.S.

On the other hand, there's also a good chance that the deal will go through, at least in some form. T-Mobile is the Number 4 mobile operator in the U.S., the smallest of the four nationwide operators. It's struggling to come up with the capital to upgrade its network to the worldwide LTE standard, and despite its ads portraying its existing network as 4G, most consumers realize that it's not true. Both AT&T and T-Mobile use the same GSM transmission system (albeit at different frequencies), so integration of the two companies' networks will be much easier than if the rumored Sprint/T-Mobile merger had occurred.

AT&T is likely to argue that it's the most natural partner for T-Mobile, and that T-Mobile is unlikely to survive as a national operator in the long term if it stays independent, is acquired by a company with an incompatible infrastructure, or is acquired by a private equity investor that doesn't have extensive telecom experience.

The obvious concern is that an AT&T/T-Mobile merger will result in higher prices and poorer service for consumers, and given AT&T's prior track record with acquisitions, that's likely to be the case. Regulators may require the two brands to maintain separate identities, even if the infrastructure of the two companies is merged. My belief is that AT&T will continue to use T-Mobile as a "value" brand to compete with prepaid and lower-priced postpaid services from operators such as MetroPCS and Leap Wireless, but will migrate T-Mobile's most profitable customers to AT&T.

T-Mobile may not have much of a future in the U.S., whether or not the AT&T acquisition goes through. It's up to AT&T can convince regulators that the most likely outcome for an independent T-Mobile is, at best, to become a regional carrier without the scale to compete with AT&T, Verizon and Sprint.

Does Comcast-NBC Universal matter?

Now that both the U.S. Federal Communications Commission and Justice Department have approved Comcast's acquisition of 51% of NBC Universal, observers of the deal have broken into two camps:

1. The deal will benefit consumers (this camp is very small)
2. The deal will concentrate power and harm consumers (most observers fall into this camp)

The FCC and Justice Department have imposed some conditions on Comcast--for example, it can keep its ownership share of Hulu but can't exercise any management control, it has to make NBC Universal's cable channels and movie content available on an equal basis to all "bona fide" competitors (the courts may have to define what a "bona fide" competitor is), and it has to unbundle its high-speed Internet service so that consumers can purchase it without buying Comcast's cable or telephone service. These conditions go nowhere as far as some of the opponents of the deal wanted, but let's take them as a given.

Now that the deal is done, I find myself in a third camp--the "It doesn't matter" camp. At the end of the day, I think that this deal is going to harm Comcast more than anyone else. Here's why:

• Comcast is getting control of the NBC television network after years of mismanagement that have driven it into fourth place out of four major commercial broadcast networks in the U.S. The broadcast networks' share of the television audience has been shrinking for years, so even if Comcast manages to dramatically improve NBC's programming, it's still an asset with a declining value over time.
• If Comcast tries to move NBC's premier sports programming (primarily the Olympics and NFL football) to cable, NBC's affiliates will go to the U.S. Congress and FCC to force Comcast to prevent the move.
• Universal Pictures has been floundering without direction for years. Comcast will be the studio's sixth owner in 20 years (MCA, Panasonic, Seagram's, Vivendi and General Electric). The studio has been in the "second tier" of the Big 6 U.S. movie studios since its game of ownership "hot potato" started in 1990. It's unlikely that Comcast is going to bring anything to Universal that will change the situation.
• Comcast is acquiring a strong set of cable channels, but it can't deny them to its IPTV or satellite competitors.
• Comcast can't shut down Hulu or turn it into a "TV Everywhere" service.
• Comcast faces the same problem that the last four owners of Universal didn't deal with: What should it do with its theme parks? Panasonic, Seagram's, Vivendi and GE didn't want to be in the theme park business, but they didn't do anything about it. Now, Comcast has to decide whether to invest in the parks or sell them off.

In short, with the exception of the cable networks, which Comcast will effectively no longer have to pay to carry, the company has acquired control of a bunch of problems with questionable solutions. NBC Universal's problems are going to further divert the focus of Comcast's management, which is dealing with a loss of subscribers to IPTV and satellite service providers, and the rise of over-the-top Internet video as a viable competitor to its cable services. (To date, Comcast's primary reaction has been closing its eyes and hoping that the problems go away, but that response won't work for much longer.)

I'd be willing to lay odds that within five years, Comcast will either divest itself of everything but NBC Universal's cable channels, or failing that, will divest the entire company to another acquirer who's foolhardy enough to think that it can turn things around.

Bandwidth shortage? What bandwidth shortage?

Television Broadcast magazine reports that the U.S. National Telecommunications and Information Administration (NTIA) released a report today that identifies 2,200MHz of potential available over-the-air bandwidth for the National Broadband Plan. The Obama Administration and Federal Communications Commission are trying to free 500MHz of bandwidth for broadband services, and they're doing so by moving existing services such as wireless microphones, authorizing new unlicensed services to use the "white space" between television channel allocations, and convincing television broadcasters to voluntarily relinquish portions of their licensed channels for broadband use. Every action so far has resulted in a hail of criticism from the affected parties.

The NTIA report identified 155MHz that can be opened up for commercial broadband use within five years, and another 2.1GHz that could be available within ten years. The NTIA recommends taking 120MHz from television broadcasters in the VHF and UHF bands, another 160MHz from other existing commercial services, and 500MHz from bandwidth currently used for C-band and ship-based satellite receivers. 640MHz would come from bandwidth currently reserved strictly for Federal use, and another 814MHz would come from bandwidth currently shared by the U.S. Government and private users.

Even if the NTIA is very optimistic about the amount of bandwidth that can be made available within ten years, there's clearly more than enough bandwidth available to meet the 500MHz goal, even without getting television broadcasters involved. Given that it's increasingly looking as though the Obama Administration only has two more years, time is running out for the FCC to implement its vision of a broadband future. By pursuing sources other than television broadcasters, the FCC could dramatically lessen industry resistance to its broadband plans.

Unintended consequences of the Cablevision/Fox standoff

The Cablevision/Fox retransmission rights standoff is now more than a week old. Neither the New York Yankees nor the Philadelphia Phillies made it into the World Series, so there's going to be much less demand for Fox in those cities come Wednesday. However, Dish Networks is the next service provider to be threatened with losing Fox's over-the-air stations, and its subscribers in Texas and the San Francisco Bay Area would lose access to the World Series if Fox pulls the plug on November 1st.

I wrote previously about the likelihood that these retransmission battles would result in binding arbitration being imposed, either by the FCC or the U.S. Congress. There might be a different outcome, however. You may recall ivi tv, the Seattle company that's retransmitting over-the-air signals from stations in New York City and Seattle to subscribers across the U.S. over the Internet. Ivi has been sued by just about every broadcast network and programming supplier, but the company is relying on a statute that's been on the books for decades that requires broadcasters to make their signal available to any cable operator, in return for fees paid by cable operators to the U.S. Copyright Office. These fees are then distributed to the broadcasters. In most cases, these statutory license fees are a tiny fraction of what broadcasters are asking for, and getting, from service providers for their retransmission rights.

If enough political pressure is applied, the Congress could repeal the statute that gives broadcasters the right to deny permission for retransmission and the right to ask for compensation. In that case, the law would fall back to the statutory license procedure that's still on the books. It would put local broadcasters that have been relying on retransmission fees for an ever-increasing portion of their income in a world of hurt.

The service providers would love to go back to statutory licenses, even if the license fee was raised substantially. Broadcasters will fight the change with every breath in their bodies. Both sides need to be very careful, because they could end up losing control of the negotiating process.

FCC: Will AllVid be CableCARD Part Deux?

Last Wednesday, the U.S. Federal Communications Commission (FCC) issued a Notice of Inquiry concerning its plan for next-generation set-top boxes. The FCC's intention is to encourage a retail market for intelligent set-top boxes that can support just about any video service, including cable, satellite, IPTV and over-the-top Internet video content. The FCC tried to do the same thing several years ago with its CableCARD initiative, but even the Commission now recognizes that CableCARD has failed.

The original concept was to enable consumers to purchase cable set-top boxes from any of a variety of suppliers, and then rent a CableCARD that would be compatible with individual cable operators' conditional access, authentication and encryption systems. Somewhere between the original concept and actual implementation, the wheels fell off. CableCARDs could only handle one channel at a time and were one-way only, which meant that they couldn't be used for on-demand, pay-per-view or interactive applications. Two cards were required for DVRs in order to watch one program and simultaneously record a second program. The monthly lease price for CableCARDs wasn't all that much less than complete set-top boxes. Cable operators still required installers to come to customers' homes in order to set up CableCARDs, and few installers were trained on how to set them up properly. As a result, CableCARD was a bust.

In the FCC's new proposal, consumers would purchase a "smart video device" (set-top box) that would work for any "multichannel video programming distributor" (MVPD), including cable, satellite and IPTV operators, as well as Internet video providers. Then, each MPVD (except for the Internet video providers, who would connect via Ethernet or WiFi) would supply a "set-back" device, also called an "AllVid adapter", which would serve as a tuner and also perform conditional access, authentication and decryption functions. The FCC would like the AllVid adapters to connect to the smart video devices via Ethernet and to use standard IP protocol to send and receive audio, video and data, so technically, an AllVid adapter could be connected to a conventional network router and make video content available to any device on a home network.

The FCC's goal of "one box to rule them all" is laudable, but it's likely to have many of the same problems as CableCARD. First of all, despite the Commission's attempt to redefine terms, consumers would have to have at least two set-top boxes: The smart video device and one or more AllVid adapters. The AllVid adapters would be proprietary to each service provider, so for example, if a consumer moves from an area serviced by Comcast to one serviced by Cox Cable, they'll have to lease or buy a new AllVid adapter. AllVid adapters are likely to be even more expensive than CableCARDs, since they'll perform many more functions.

Two important goals of the new AllVid strategy are to make over-the-top Internet content an "equal partner" to video from service providers on television sets, and to prohibit service providers from limiting access to over-the-top content. However, service providers will fight hard against the new proposal in order to maintain content control in the living room. They're likely to argue that AllVid adapters will be set-top boxes in all but name, so why not allow them to continue to lease all-in-one set-top boxes to consumers? They'll also argue that they've just invested an enormous amount of money to implement the Commission's CableCARD mandate, and now the Commission wants them to throw out that investment and implement another unproven technology. Satellite and IPTV service providers, who were unaffected by the CableCARD situation, would be covered under the new plan, so it's likely that they'll oppose the FCC's recommendations as well.

If the FCC hadn't already tried and failed with CableCARD, I'd give AllVid a better-than-even chance of success, but in its present form and with CableCARD's experience behind it, I give AllVid very little chance of making it to market. AllVid would elevate over-the-top Internet video content from a bit player in the living room to an equal partner, and the incumbent service providers will do almost anything to keep that from happening.

Reed Hundt did something "naughty" with the HDTV Transition

You may remember Reed Hundt. He was the Chairman of the FCC under Bill Clinton, at the time that agency was planning for the transition to HDTV. The original plan was to implement HDTV in the same way as Japan had done it--one resolution, one refresh rate, one single standard. The FCC instead mandated a convoluted standard that required some 17 combinations of resolutions and refresh rates to be supported; even what we now consider Standard Definition was included in the HD standard, in order to support data applications over broadcast bandwidth. Chairman Hundt invited Microsoft into the process, and Microsoft demanded a series of changes to the standard in order to support its plans. What was originally a clean, straightforward and reasonably inexpensive upgrade became complex and expensive for everyone--broadcasters, cable and satellite operators, and consumers.

Earlier this month, at the Columbia Business School, Mr. Hundt gave a speech where he admitted that he and his associates deliberately logjammed the HDTV transition with the intention of killing it entirely. Here's a direct quote: "This is a little naughty...we delayed the transition to HDTV, and fought a big battle against the whole idea but we lost." If Mr. Hundt and his associates were so dead-set against HDTV, why didn't they fight it out in the open instead of waging a passive-aggressive war of changing the specifications and moving the goalposts? If he and his associates had been honest, we wouldn't need this National Broadband Plan--there would be plenty of bandwidth for broadcasters and for broadband wireless services. Instead, we've got the world's most expensive and convoluted HDTV system, many consumers still aren't getting true HD, and tons of bandwidth is lying fallow in subchannels mandated by the FCC.

We have to dramatically increase the availability of broadband access at prices that U.S. consumers can afford. As I've written previously, the National Broadband Plan says precious little about how it's going to lower costs to consumers, and puts few demands on the incumbent telephone and cable providers. It's biased to take its "pound of flesh" from broadcasters. Is what we're seeing a real attempt to make broadband available to everyone at an affordable price, or is it merely the continuation of Mr. Hundt's now almost 20-year-long war against broadcasters?

Coming Wednesday: Open-Source Set-Top Boxes?

The FCC is going to release its long-awaited National Broadband Plan this coming Wednesday. Details of the plan are leaking out, and broadcasters are the group that stands to lose the most--see Harry Jessell's column on TVNewsCheck for an analysis of and link to a speech by Reed Hundt, a former Chairman of the FCC and one of the architects of the new Plan.

One element of the plan that's been leaked will also have dramatic impact on cable operators...at least if I understand its intent. The FCC will propose a new type of set-top box that will provide equal access to cable and Internet programming. The FCC tried to open up the set-top box business several years ago when it required cable operators to provide customers with CableCARDs (conditional access/tuner devices) that could be inserted into set-top boxes and HDTVs from consumer electronics companies. The cable industry fought implementation of CableCARD tooth and nail, and even today, most CableCARDs don'y allow subscribers to access pay-per-view and other two-way services. As a result, the entire CableCARD program was stillborn, and cable operators continue to equip their customers with tens of millions of proprietary set-top boxes.

On Wednesday, the FCC is likely going to propose that CableCARD be swept aside and replaced with software-based set-top boxes, HDTVs, home theater PCs and other devices that can provide customer authentication, decryption and tuning for digital cable systems without proprietary hardware. These devices will also have Internet connectivity, and will be able to provide access to Internet video in the same device and using the same user interface (interactive program guide) as cable channels. In essence, these new devices would elevate Internet video to the same level as cable channels.

I'm now diving into wild speculation, but here's what I think the FCC will also propose: These new set-top boxes and compatible devices could be purchased by consumers and used on any digital cable system. That means that consumers could move from area to area and use the same set-top box. They would no longer have to pay any monthly equipment leasing charges to cable operators, since the boxes would be configured and made compatible with different cable systems via software and firmware changes.

I know that all of this was supposed to happen with CableCARD and didn't, so why would it happen with this new scheme? It might not--the cable industry will fight it ferociously, especially the part where they have to give equal access to Internet video programming suppliers. The advocates for an open approach have nowhere near the political clout as the cable operators and broadcasters who are going to fight the Broadband Plan. However, the time has come for "soft" cable set-top boxes; the capability to do just about everything they need to do in software has long been there, and the cost of the processing power and memory they need is very low, especially compared to when CableCARD was first proposed.

Set-top boxes that don't require a truck roll in order to install, can be provisioned by consumers and can be upgraded and reconfigured in software would save an enormous amount of money for cable operators. Companies like TiVo and Arris could make a real business out of selling consumer set-top boxes. Any Blu-Ray player with an Internet interface and the horsepower to support Internet video applications could readily be adapted to become one of these new set-top boxes. In the long run, a software-based open design makes more sense for everyone.

A la carte and the law of unintended consequences

If you live in the New York metropolitan area, you were a pawn in a high-stakes game of "chicken" between Cablevision and Disney, with the Academy Awards telecast as the prize. The issue was how much Cablevision would pay Disney to retransmit ABC's broadcast stations. After the Academy Awards had been going on for 15 minutes, Cablevision and Disney finally came to an agreement.

Now, the cable and satellite companies want the FCC to outlaw broadcasters from withholding their programming and force both parties to accept arbitration. Broadcasters, who have no small amount of political clout and influence at the FCC, argue that consumers have multiple ways of getting their programming, including over-the-air at no cost. If they can't withhold their programming, they'll have almost no bargaining power with service providers.

The service providers are using these retransmission fees as a reason for raising their rates to consumers, which is causing a customer backlash. Even worse, viewers are once again viewing service providers as unreliable. The cable industry has worked for more than a decade to overcome its reputation for unreliability and poor customer service. Now that most of the major service providers seem to have their acts together, program suppliers are pulling channels at a moment's notice. Planning to watch the Academy Awards tonight? Better get that antenna out. Want to make sure you see the Super Bowl? Good luck if the network that carries it is in negotiations with your service provider.

One likely outcome, and one that neither the service providers nor the program suppliers want, is to force the service providers to make channels available a la carte. In an a la carte world, the service providers would pay the program suppliers only for the channels that its customers subscribe to, and in direct proportion to how many subscribe to each channel. Presumably, the program suppliers would set a wholesale price per subscriber, and service providers could mark that price up or down.

Service providers hate a la carte because it will almost certainly decrease their revenues. Customers will be able to trade off fixed packages and a la carte selections, and go with the cheapest option. Tiered pricing plans will be wrecked, since customers will be able to build their own packages.

Program suppliers are scared to death of a la carte for several reasons: First, they'll no long be able to charge service providers for all of their subscribers; they'll only be able to charge for the customers who actually subscribe to their channels. That will result in dramatic revenue drops for many, if not most, channels. Second, advertising-supported channels will no longer be able to represent all the subscribers to a service provider as "potential" viewers; they will only be able to list the actual number of subscribers in a given period. Which would you rather tell advertisers: We've got coverage in 60 million households in the U.S., or 2.5 million households have actually subscribed to watch our channel?

The final, and perhaps scariest, outcome of a la carte for program suppliers is that the service providers may cut back on their channel lineups to just the most popular and profitable channels. Unpopular channels that have been carried so that service providers can support a wide variety of interests may be dropped.

As brinksmanship between service providers and program suppliers becomes a way of life, consumers will increasingly look for alternative sources of programming. If they can't control how much service providers are willing to pay for channels, and are thus constantly at risk of missing shows they want to watch, they'll demand the right to select and pay for channels themselves. If the service providers and program suppliers don't agree, they'll find other ways to get the programs or other things to do with their time. This game-playing has to stop.

Nexus One: First round, not the ballgame

After all the speculation and hype surrounding the launch of Google's first smartphone, the Nexus One, has come the reality: According to Flurry, which measures usage of smartphone applications, only about 20,000 Nexus Ones were sold in the first week. In my opinion, this is because customers have to purchase the phone directly from Google, even if they buy the subsidized T-Mobile version; it's not available in stores. Google's "the buck stops somewhere else" customer support plan is drawing criticism: For hardware problems, customers have to contact HTC, for software problems, Google, and for network problems, T-Mobile. Mobile subscribers are used to getting all their support from the carrier, and they expect Google to fill that role, but they're coming away frustrated and disappointed.

One one level, it appears that Google didn't think out the launch of the Nexus One very well. However, I believe that Google wants to become a mobile carrier, not just a supplier of software, services and advertising. The question is: What kind of a carrier does Google want to be?

They're probably not going to want to buy an existing carrier; that would be too expensive and carry too much baggage. Nor would they want to become a MVNO (mobile virtual network operator); at least in the U.S., no one has been successful reselling one of the major wireless carrier's services. Their best choice, and I think the one they're pursuing, is a combination of broadcast television bandwidth and the "white space" between television channels.

The FCC, which earlier was saying that it was likely to force broadcasters to give up bandwidth for broadband services, has now backed down and asked for voluntary participation. If broadcasters can see a financial upside to ceding bandwidth, they're much less likely to continue to fight proposals to use the white space between channels as well, for which they would have gotten nothing. By assembling bandwidth from existing television stations while using white space for other markets, Google and other companies could build broadband data services to rival the major mobile operators.

Google wouldn't even have to build out the network itself; it could invest in a company that plans to do it and reserve a portion of that company's bandwidth for itself. Once the network goes live, Google could sell its own wireless data service, probably at a fraction of the price of the major carriers, and offer voice as a VoIP service (which makes sense, given Google's acquisition of Gizmo5, a VoIP provider, last year.) Merging Google Voice and Gizmo5 would enable Google to offer a robust voice service without the massive infrastructure of the big mobile operators.

Once Google gets all of this in place, its own phones will work primarily on its network. It might offer dual-network versions that work on GSM or CDMA networks in the areas where Google doesn't have its own service, just as Sprint sells adapters and routers that connect to Clearwire's WiMax network where it's available and Sprint's own 3G network where it isn't.

The best way to look at the Nexus One is as the first step in a much longer-term strategy, and its customer service problems as "teething pains" on the way to becoming a mobile carrier.

Are TV Stations Worth More Dead Than Alive?

Tom Wheeler of Core Capital Partners has written an interesting article on how the U.S. broadband bandwidth crunch could be solved. He points out that at current market prices, Sinclair Broadcasting's 30 television stations are worth less than $100 million, or $3.3 million per station, and there are 100 bankrupt stations that, by definition, have no market value.Why not take some of those stations' bandwidth and apply it to either Hulu-like offerings or common carrier-style data services?

The idea is seriously worth considering, especially when mated to the "white space" data service proposals made by Microsoft, Google, HP, Philips and others. Microsoft in particular has had significant technical success experimenting with two-way WiFi-like data services and devices that can work within the "white spaces" between television channels, without interfering with the adjacent channels. However, there's a lot more bandwidth available within a channel than between channels. If a television channel is converted to a data service, the "white spaces" will do what they're supposed to do, which is protect other channels from interference.

The FCC is going to have a lot to say about this, of course. It issues (essentially free) licenses to broadcasters for television, not data. It won't allow the only television station serving a community to become a data service. The U.S. Congress could also get involved, because if free television bandwidth is repurposed into a paid data service, the Government could resell tha licenses and make money from them.

However, converting some television stations to data services would be very appealing. Broadcasters in markets with converted stations would see competition for advertising sales go down and revenues go up. Existing "white space" users such as public safety and wireless microphones wouldn't have as much competition for their frequencies and would have far fewer problems with interference. Even cable and IPTV operators, who would naturally oppose the entry of new competitors, would benefit, because their "must carry" obligations for the stations converted to data usage would end. They could then use those channels to add more cable networks, add more bandwidth to their own data services, or both.

A company like Microsoft or Google could pick up Sinclair for pocket change. They would then have the ability to offer high-speed wireless data services in 30 cities, if the FCC approves. This could turn virtually worthless television stations into very valuable properties indeed.

Apple to the FCC: "You see? You see? Your stupid minds! Stupid! Stupid!"

Well, okay, that's actually a line from "Plan 9 from Outer Space", but someone at Apple was thinking along those lines when they responded to the FCC's questions last Friday concerning Google Voice. (You can find Apple's entire response here.) After indulging in seven paragraphs of marketingspeak, Apple claims that it hasn't actually rejected Google Voice, which TechCrunch's Michael Arrington disputes; his sources inside Google assert that Apple did, in fact, reject the application. (We don't yet know Google's side of the story, because it redacted the section of its response to the FCC dealing with its discussions with Apple.) However, Apple states its case for why it would likely reject the application, a case that doesn't stand up to even the most cursory examination.

Apple claims that the Google Voice application replaces the functionality of Apple's carefully-crafted Visual Voicemail and text messaging features. In fact, it does no such thing. Google Voice sets up an additional phone number for the user. If the user chooses to give out their Google Voice number, and if they've configured Google Voice to forward calls to their iPhone, then and only then does Google Voice replace the iPhone's voicemail functionality for calls placed to their Google Voice number. If someone sends a SMS to the user's Google Voice number, the user would access the message through the iPhone Google Voice application instead of the iPhone's own SMS feature. But, if someone calls the user's iPhone directly, then the iPhone's voicemail system is used, and if they send a SMS directly to the iPhone, the iPhone's own capabilities are used. Google Voice doesn't usurp any functionality of the iPhone--it adds additional capabilities.

Apple also charges that the Google Voice application copies the user's entire contacts list to Google's own servers, which Michael Arrington again claims is untrue. Even if the charge is true, Apple itself enables the user's contact list to be copied to Google's servers via iTunes. Why is it okay when Apple does it but not when Google does the same thing?

Apple seemed to believe that the FCC wouldn't or couldn't figure out how Google Voice actually works. Making the assumption that you can baffle the U.S. Government with B.S. is dangerous. It reminds me of Jim Allchin's infamous testimony during Microsoft's antitrust trial, when he presented a bogus video purporting to demonstrate that Internet Explorer couldn't be removed from Windows without causing the operating system to slow down or malfunction. The Government shot holes in the video and Microsoft was forced to withdraw it. Microsoft subsequently admitted that it also falsified a second video that purported to show how easy it was to install Netscape Navigator on Windows.

Microsoft did a lot to destroy its own credibility in the course of its antitrust trials, and even though it managed to avoid serious damage through a "sweetheart" settlement with the Bush Administration, the company is still paying the price.

The FCC has a great deal of power over AT&T, but if Apple independently made the decision to ban Google Voice, as both it and AT&T claim, there's very little that the FCC can do. Apple's market share in mobile phone and smartphones is too small to claim that the company is a monopolist, so there's also very little that the U.S. Department of Justice can do. (DOJ could charge Apple with perjury in its response to the FCC; good luck trying to get that to stick.) The Federal Trade Commission might be able to take action, but I'm not sure what its grounds would be. So, Apple is probably not at risk for prosecution, but its reputation is every bit as much at risk as Microsoft's.

Apple's public behavior concerning the App Store has already changed substantially since the FCC issued its inquiry letter: Phil Schiller, Apple's Senior VP of Marketing, has personally written a developer and a blogger to explain the App Store approval process and state that improvements are underway. The response to the FCC made public a number of key details about the approval process, such as the average number of weekly filings and the number of reviewers. A formal appeal process for rejected applications also seems to be in the works.

With all that, however, Apple needs to approve Google Voice as an application, to try to put the immediate crisis behind it. In the long run, it should allow iPhone users to install applications from any developer, whether or not they've been approved by Apple, as Google's Android operating system does. Not only would this lessen government scrutiny, it would eliminate a huge reason for jailbreaking the iPhone.

Should You Get a DTV Converter Anyway?

It's impossible to watch television in the U.S. lately without seeing ads reminding viewers that analog transmissions will end on February 17, 2009 (except for low-power stations.) Like most viewers, I've ignored these messages, because I'm a cable subscriber, and over-the-air service is lousy in my area. However, there's potentially a good reason to get a coupon and buy a converter, if you have one or more sets with analog tuners: Over-the-air broadcasters will be able to multicast--send multiple subchannels of programming within a single digital channel. In my market, there are three stations that are already multicasting, and I receive their multicast channels on Comcast cable. However, there is no FCC rule that requires cable or satellite operators to multicast every channel put on the air by broadcasters.

In my market (San Francisco/San Jose), the subchannels of commercial broadcasters are being used for weather services and news rebroadcasts--nothing astounding. Nevertheless, broadcasters are being offered a plethora of programming to fill these new subchannels, and some of it might be interesting. In any event, if you've got some analog sets and you're not planning to toss them out anytime soon, you might consider getting some of them digital converter coupons, and then purchasing a converter box.

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Sirius and XM Merger Approved, Finally

According to the Washington Post and other sources, by a 3-2 vote at the FCC, the Sirius-XM satellite radio merger has finally been approved. There were a few additional conditions agreed to by the two companies, including a "slap on the wrist" $19.7 million fine primarily attributable to XM, because some of the FM transmitters built into XM receivers were too powerful and interfered with conventional broadcasts. Also, some of their terrestrial repeaters used to provide better coverage in urban areas were both located in the wrong places and were too powerful, and thus they also interfered with conventional broadcasts.

Another condition was that both companies agreed to expedite the development of receivers that will work with both Sirius and XM, a promise that the two companies actually made prior to the launch of either company's satellite radio service, but that has never been carried out. The companies also agreed to freeze prices for three years (which they had, again, previously agreed to,) and to offer subscribers the option of picking and choosing channels from the two company's services (a la carte pricing), a capability that won't be available until dual Sirius-XM receivers hit the market.

In short, it looks as though the two companies made minimal concessions. Given that the U.S. Justice Department previously approved the merger even without these concessions, it's extremely unlikely that any other legal obstacles are likely to arise. Given currernt economic conditions, however, it's essential for the merged company to start cutting costs immediately, so I wouldn't be at all surprised if the merged company starts to drop duplicate staff and put much the same programming on both services as soon as possible. (Howard Stern on both Sirius and XM, perhaps?)

Loony Advice from Our Legislators

I rarely cover satellite radio, but I've been following the Sirius/XM merger and the related governmental sideshow. I've been an XM subscriber for a long time, and I'm frankly disappointed by the merger; nevertheless, it's clear to me that XM and Sirius are probably never going to get to critical mass separately. The U.S. Justice Department has approved the merger, and the Federal Communications Commission has yet to rule, but FCC Chairman Kevin Martin has said that he's ready to approve the merger with some restrictions on the new company.

Today, three U.S. Senators (Claire McCaskill (D-MO), Ben Cardin (D-MD) and John "Snatching defeat from the jaws of victory" Kerry (D-MA)) asked Martin to impose two restrictions on the merger: First, the merged company would have to allocate no less than 20%, and preferably 50%, of its channels for leasing to minority and noncommercial information programmers. Second, satellite receivers would have to include electronics for receiving terrestrial HD Radio signals.

There's no question that the merger will create a monopoly in satellite radio, but the vast majority of consumers in the U.S. get their audio entertainment from terrestrial radio, CDs and digital media players such as iPods, not satellite radio. The Justice Department decided that the relevant market for determining whether or not a monopoly exists is audio entertainment, not satellite radio. Requiring the merged company to make as much as 50% of its channels available for leasing would effectively destroy its ability to reach profitability in any reasonable time. As for making the merged company's receivers also receive HD Radio, that would be like demanding that Comcast modify its set-top boxes so that they could also be used by DirecTV, or vice versa. It's up to terrestrial broadcasters, and not Sirius and XM, to make HD Radio successful.

As I said, I'm not a fan of the Sirius/XM merger; I think that it will reduce competition and consumer choice. Nevertheless, the remedy suggested by Senators Cardin, Kerry and McCaskill doesn't address these issues at all; it simply cripples the competitiveness of satellite radio versus terrestrial broadcasters.