Larry Downes | Vox

‘Unlocking’ Pandora’s Set-Top Box: Devil Is in the Details of FCC Proposal for Pay TV

2019-03-06T05:09:20-05:00

Writing for Re/code in January, FCC Chairman Tom Wheeler announced new rules that will soon require pay TV providers to deploy technology that will “unlock” the humble set-top box.

The idea, according to Wheeler, is for the FCC to devise an open standard that anyone can hack to build hardware or software that will stand between the pay TV signal and consumer devices. New competitors — from Google, Amazon, Apple and startups to be named at a later date — will build new devices, lower prices and innovate new features, including “user-friendly menus and search functions.”

It sounded too good to be true. And it was.

Opening the set-top box will unintentionally let loose the video industry’s most pernicious demons — many of them the creation of the FCC in the half-century since the disruptive introduction of cable TV in the 1950s.

Now that the agency has published the details of Wheeler’s plan, the devil has proven to be very much in the details. Like Pandora, opening the set-top box will unintentionally let loose the video industry’s most pernicious demons — many of them the creation of the FCC in the half-century since the disruptive introduction of cable TV in the 1950s.

For one thing, Wheeler failed to mention that this is at least the fourth time the FCC has tried to establish new technical standards for a video industry already experiencing accelerating transformation, or what my co-author and I refer to as “Big Bang Disruption.”

All the earlier efforts failed utterly. And by ignoring that history, the agency is poised to repeat it.

One earlier effort, the CableCARD, took nearly 10 years to develop and was dead on arrival. Providers wasted as much as a billion dollars on the FCC’s earlier attempt at an open standard, which a federal court voided in 2013. (A similar fate befell the “broadcast flag,” in which the FCC tried to force TV makers to introduce technology to limit time-shifting).

A replacement for CableCARD, known as AllVid, was even more ambitious. But it was abandoned after five years of dithering by the agency.

The FCC’s latest swing at the video piñata — let’s call it CableCARD 2.0 — is even less likely to pass technical or legal muster. For starters, according to the FCC’s detailed plan, one or more unnamed “open standards bodies” will have to be recruited (by whom isn’t clear) to develop the new protocols, following guidelines the agency will publish at some point in the future.

Somehow, pay TV providers will have to adopt CableCARD 2.0 within a year, and deploy millions of replacement set-top boxes within two years.

Somehow, pay TV providers will have to adopt “CableCARD 2.0” within a year, and deploy millions of replacement set-top boxes within two years.

No one can seriously expect anything close to that timetable to be realistic — no one, in any case, who has ever worked on a successful open standard that requires consensus among a fast-changing ecosystem of developers, users and incumbents. The “unlocked” box, if it ever arrives, will wind up an expensive white elephant, sitting unused in your living room.

In the interim, most providers are already committed to strategies that will eliminate the need for a standalone box. That’s a necessary response not to regulation but to growing competition the FCC plan ignores, from a wide range of over-the-top video services including YouTube, Fire, Hulu, Roku, Netflix, iTunes and literally hundreds of video apps featuring licensed and user-created content, available on every device with a screen — smart TVs, phones, tablets, and soon cars and major appliances.

And what about the chairman’s claim that regulations are urgently required to curb excessive rental prices? The “recent analysis” of prices Wheeler touted turns out to be a slapdash, back-of-the-envelope calculation, performed by self-styled consumer advocates. Among other Econ 101 sins, they didn’t even both to include cost in their determination of profit.

The reality is that buying, distributing and maintaining millions of quickly out-of-date boxes is a cost center, not a profit center, for pay TV providers. And often cheaper than buying and upgrading your own equipment — say from TiVo — and then paying $14.99 a month for the software.

All of which the FCC knows better than anyone. For decades, after all, the agency regulated the rental prices pay TV providers charged as part of bundled plans, another fact the chairman conveniently ignored.

If excess prices were just the pretext for regulation, then what’s the real goal of the FCC’s new scheme? For one thing, opening licensed video content, channel listings and viewer habits to third parties would allow favored companies, notably Google, to offer repackaged content — perhaps with different lineups and alternative, targeted advertising — without having to build their own networks or negotiate complex deals with content powerhouses such as Disney, CBS and Fox.

For the FCC itself, the new rules give further justification for a closely related proceeding, which would “reclassify” many over-the-top services as traditional pay TV companies, subject to a crazy quilt of FCC and local rules limiting licensing, rebroadcast, localization and other anti-competitive features that have hamstrung regulated providers for decades.

Perhaps that’s why Roku and other over-the-top providers have made clear that they don’t actually want the FCC’s “open” standard — even though they are the presumed beneficiary of a more competitive set-top box market.

The same folks the agency claims have been the bottleneck to a more competitive set-top box market all along will decide who gets access to the information, based on vague “public interest” criteria.

Last but not least, the FCC’s detailed plan refutes the chairman’s pledge that existing privacy regulations will somehow extend to unregulated users of the new “information flows.” Before the FCC voted, Wheeler promised that third parties — again, think Google — would have to commit to abide by “the same kind of rules” that have long governed the regulated providers.

But the FCC, as Wheeler knew, can’t legally require a “voluntary” commitment.

The privacy solution the FCC’s plan proposes is perhaps its weakest link. The agency will restrict access to the information only to companies that are “certified” as following the current privacy rules.

Since the FCC can’t oversee enforcement of the certification, however, the plan deputizes the pay TV providers to do it for them. That’s right, the same folks the agency claims have been the bottleneck to a more competitive set-top box market all along will decide who gets access to the information, based on vague “public interest” criteria.

Chairman Wheeler’s proposal seemed to many like a no-brainer — free money for consumers at the stroke of a pen. Now that we know what the FCC is really up to, it’s clear that nothing could be further from the truth. CableCARD 2.0 will likely cost consumers more, and will expose their viewing habits to, well, everyone. The new standard will be a virus, infecting every future video device, app and service for years to come.

Larry Downes is Project Director at the Georgetown Center for Business and Public Policy, which this week published a detailed analysis of the FCC’s video navigation proposal. Downes is co-author, most recently, of “Big Bang Disruption: Strategy in the Age of Devastating Innovation” (Portfolio 2014). Reach him @larrydownes.

This article originally appeared on Recode.net.

To Close the Digital Divide, Hang Up the Telephone Network

2019-03-06T06:09:08-05:00

On Thursday, the Federal Communications Commission voted unanimously to begin the orderly shutdown of the old wireline telephone network.

The time has certainly come. Americans are rushing to cut the cord to the once-ubiquitous analog network in favor of better and cheaper Internet-based voice services from providers large and small.

That’s the kind of innovation Accenture’s Paul Nunes and I call a “Big Bang Disruptor,” so named because of its devastating impact on a once-dominant technology and the businesses that offered it. In 2003, more than 90 percent of U.S. homes had a wireline connection. Today, it’s 26 percent. Bang!

The old network, required as a matter of law to continue operating, is now an expensive white elephant. Once invaluable assets have quickly becoming liabilities, pulling the wireline phone business into an economic black hole. If nothing else, the eventual transition to all-IP voice services for all Americans — perhaps by the end of the decade — will end the waste of maintaining worse and more expensive analog technologies, freeing up private capital better used for improvements to their digital replacements, wired and wireless.

But there’s a more urgent reason to encourage and accelerate the so-called IP transition. Doing so will definitively close what’s left of the “digital divide” that separates those enjoying the benefits of broadband Internet from those who don’t.

Who are the Internet have-nots? The answer may surprise you. According to the Pew Internet Project, nearly half of the 15 percent of American adults who don’t use the Internet are 65 or older. (Other factors, including sex, race, income and geographic location are less significant, and continue to decline.)

That number lines up nearly perfectly with the percentage of older Americans — between 10 percent and 20 percent of them — who, according to numbers reported by AARP, still rely exclusively on the analog phone network.

The eventual shutdown of the phone network, in other words, will close the digital divide for older Americans, at least for voice. And once the holdouts have gotten over their understandable resistance to better and cheaper new technology, helping them appreciate the value of the rest of the Internet — in health care, in continuing education, in home automation, in social, public safety, energy and entertainment services, among others — will be that much easier.

It is also essential. According to the Pew survey, the most frequent answer given by non-users as their primary reason not to connect is that the Internet is “just not relevant to them.” The next-biggest factor is usability. The problem, in other words, isn’t availability or cost. They simply don’t believe there’s anything online for them. And they lack the ability to discover otherwise.

Last year, in testimony before the Senate Commerce Committee, I argued that these findings offer the most compelling reason of all to transition the dwindling number of wireline users to the Internet as quickly as possible.

While critics of the proposed shutdown (largely local and rural phone companies) warned of the risk of leaving behind the dwindling number of households that still rely solely on the analog network, the reality is precisely the opposite.

Getting the last 25 percent of predominately older Americans exclusively onto IP networks sooner rather than later will make it easier and less expensive for them to connect to other broadband services, including video, email and Web access. Which, thanks to the economic magic known as network effects, means a more diverse, valuable and robust online experience for everyone.

To be sure, there remain tricky engineering and business issues to be resolved, including emergency services and the incompatibility of older analog devices (some fax machines and phone-activated security gates, for example) that weren’t designed to work on digital networks.

That’s why the FCC is wise to begin the process with voluntary consumer trials in specific geographic markets. The trials will surface the remaining issues, including regulatory roadblocks and consumer education, which will need to be solved before a full transition can be scheduled.

But time is of the essence. Before Thursday’s order, the FCC had been considering the trials for over a year. In the meantime, the pace of consumer defection from the old network has accelerated. It’s becoming increasingly difficult and expensive to maintain last century’s technology.

The 2009 shutdown of analog broadcast television in favor of its digital disruptor offers important lessons the FCC would be wise to heed. After only four years of planning, broadcasters managed to complete the transition, but still lost most of their remaining market share to cable, satellite and, increasingly, better and cheaper Internet-based video services. Many stations have found it difficult to use new digital platforms to compete effectively. As over-the-air broadcasters start to throw in the towel, consumers lose local content and competition suffers.

For engineers, consumers and regulators alike, nothing motivates like a deadline. So, in the inevitable shift to all-digital voice services, the best way to finish what customers have already started is to set an aggressive target date and stick to it.

In the short term, that may unsettle some older Americans. But more quickly than anyone can imagine, they’ll get over it and enrich our lives by bringing their absent voices to the digital conversation.

Larry Downes is co-author, with Paul Nunes, of “Big Bang Disruption: Strategy in the Age of Devastating Innovation” (Portfolio 2014). Reach him @larrydownes.

This article originally appeared on Recode.net.