FCC to strangle Cable Operators. Advantage unfair to Verizon and AT&T.

The dominance of cable operators in video services market suddenly got limelight after NYTimes ran a story speculating that Federal Communication Commission may strangle the existing cable companies by opening up the market to rival video services and independent programs. Even worse, Mr. Kevin J. Martin, the chairman of Commission, hopes to complete this controversial decision before this year ends.

The commission will announce the state of video services as part of its annual report and may restrict the cable operators from growing if they fall under the so called 70/70 rule of the Cable Communications Act of 1984. The 70/70 rule means that cable television is available to at least 70 percent of American households, and at least 70 percent of those households actually subscribe to a cable service. Once the commission gets convinced that such a state has reached, the commission will open the market to promote the diversification of information sources.

As claimed by 24/7 wallst, this can very well be the death of cable operators, which are already facing strong competition by satellite TV and telecom operators. The new rule will put the independent video services such as NFL Network and Hallmark Channel to great advantage, which do not have a business affiliation with either of the three channels to reach end-user. It will also provide a great relief to Verizon and AT&T telecom operators who are trying to tap in the already saturated market. In recent past, when the mergers and acquisitions started and the idea of double and triple play got picked up, cable operators took advantage of their already established network and offered broadband and video services to the consumers much ahead of telecom operators.

The new regulations will restrict any company from holding more than 30% of the market share. Also, the regulations will prevent already established cable operators such as Comcast and Time Warner from acquiring smaller companies or increasing their market share in other ways.

The dominance of cable operators in video services market has been a matter of dispute. Most of the cable operators argue that the market is already set on a downward path and there are no proofs that such a condition has actually reached. The officials from cable industry have criticized the proposal and raised question marks on the authenticity of the results produced. On the other hand, one of the reasoning used by FCC is the high rise in price of video services in last few years compared to inflation. FCC suggests that such a price increase is a clear indication of monopolized market.

While the regulations has been welcomed by the consumers group asserting that this will reduce the prices and increase the options for consumers, the cable operators have argued that independent studies and the commission’s own analysis from last year concluded that cable television, while available to far more than 70 percent of American households, is actually used by far less than 70 percent of those households, and it cannot increase to more than 70 percent of households in less than a year when the market is not on the rise for some time.

While the new regulations will certainly nurture more competition and offer more choices and lower prices to consumers, their is also a possibility that the cable operators might get completely wiped out of the video services market in long run. Although it is certainly a great plan to open up the video services market, making the rules for only cable operators will be an overkill to cable operators and will be a huge unfair advantages to the competitors.

AT&T's first step towards Mobile TV

Only a couple of days ago, I wrote about the much talked auction of 700 MHz spectrum. While everyone in the industry is waiting to see who is going to get those channels and how much are these going to cost, AT&T, surprising everyone (especially Verizon), closed a deal with Aloha Partners purchasing spectrum licenses in the 700 MHz frequency band for $2.5 Billion.

AT&T bought 12 MHz of spectrum covering 196 million people in 281 markets. The spectrum covers many major metropolitan areas, including 72 of the top 100 and all of the top 10 markets in the United States. $2.5 Billion seems to be a very reasonable price, given the heat that has gathered around the auction. Companies like Verizon, which will try hard to get a good share of this spectrum to strengthen their position in the market; and Google, which is determined to take its first step in the telecommunication industry with this auction, can push the price of these channels really high. The 700 MHz frequncy has total 9 channels for auction (also known as auction 73) and only 3 channels with 12 MHz frequency spectrum, all in the lower 700 MHz band. While FCC expects to generate no less than $12 Billion from auction 73, industry experts believe it to be worth $30 Billion.

Aloha Partners is the largest owner of 700 MHz spectrum in United States. Wireless analysts and industry experts agree that this spectrum is much better than other wireless frequencies, because it travels significantly farther and penetrates foliage and buildings significantly better, hence saving billions of dollars to build a network on these frequencies compared to other frequencies.

This purchase has put AT&T in a very strong strategic position, much ahead of its competitors. With the auctions still 3 months away from today, AT&T can get significant advantage in the market by launching early and ahead of everyone else. However, at the same time, it also puts AT&T under pressure to offer its products and services in stipulated time and maximize the benefits from the opportunities. Another potential risk associated with being the first is that the followers can learn quickly from the mistakes of AT&T and adjust their strategies in a short time, reduce risks and make better profits.

In the past years, Aloha Partners has been busy developing market trials to provide high-speed, wireless broadband Internet services and broadcast mobile TV and music service in several of its markets, and most probably, AT&T will be thinking on the similar lines to leverage the incredible capacity of this spectrum. While the commercial and mass deployment of these products and services are still far away, it will be very interesting to see the way this spectrum will change the face of the telecom industry and what percentage of ancient telephony is actually left in a mobile phone.

700 MHz spectrum

With the auction of 700 MHz spectrum less than three months away, the competition is expected to be fierce than ever. The auction will start on January 24, 2008 and the money collected should reach to U.S. Treasury no later than end of June, 2008. The spectrum was previously used by Broadband Analog TV Broadcasters, but now the ownership will be transferred to government by end of 2009.

In a recent interview published on the CTIA Wireless Association website, CTIA's Vice President of Regulatory Affairs Christopher Guttman-McCabe strongly emphasized the importance of additional spectrum to meet the growing demand of wireless communication. Mr. Christopher said that the money collected from this auction, which should be no less than $12 Billion, will be significantly used to reduce the deficit and massive critical upgrade of public safety communications. This money will also be used to generate coupons for users of analog TV for analog to digital transition.

The 700 MHz spectrum has strong broadcast-attractive features, such as the ability to penetrate the walls and to cover a much larger area per dollar invested than other spectrum with higher frequencies. In addition to these benefits, the telecom industry has registered a consistent growth in number of subscribers and total revenue in the last couple of years and needs to address the growing demand. Just for the records, last year, US Wireless Industry (wireless handsets and services) generated $118 billion revenue, which expected to grow to $450 billion in the next 10 years.

Verizon, a strong contender for this spectrum has recently been accused by Google for behind the scene lobbying to change the open access rules, proposed by FCC. Open Access Rules will allow wireless customers to buy handsets or download software different from what's being offered by their specific carrier. Google, which plans to foot its steps in the telecommunication market with this bid, is supportive of open access rules.