Phoenix Center: FCC's AllVid Could Be All Wet

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The Phoenix Center argues in a new paper that the FCC's AllVid proposal may "do more harm than good."

The FCC has proposed shoring up the CableCARD regime in the near term and spurring the creation of a universal gateway device that would deliver both broadband and traditional video to TV sets. Its twin goals are to spur retail marketing in set-tops, which it failed to do with the CableCARD regime, and to spur the adoption of broadband given that some 99% of households have a TV, while only 75%-80% have a computer.

But the new Phoenix Center study argues that, at least in terms of spurring a retail market in set-tops, distributors have no "anti-competitive preference for self-supply."

Why?

"If the equipment can be produced more efficiently and sold at a lower price in a competitive retail market, then the provider will embrace such a market to the benefit of both provider and the consumer," according to the paper.

Since boxes wind up being an expense, rather than a money-maker, the study maintains, there is every incentive for cable operators and other providers to "offload these costs on consumers through a commercial market for equipment," so long as it does not affect the quality of the service, Phoenix argues.

"If the set-top box disappeared tomorrow, the cable industry's capital costs would be cut substantially and their operating margins would improve slightly," says study co-author and Auburn University Economics Professor T. Randolph Beard.

The FCC's anticipated aggressive regulatory approach towards set-top boxes is likely -- as FCC commissioner Robert McDowell notes -- to keep the agency in "the Valley of Unattained Goals," according to the study.

"This appears to argue that having a competitive market for hardware is a bad idea," Media Access Project's Andrew Schwartzman said in response to the study. "That ignores the fact that Section 629 of the Communications Act mandates a completive market. That aside, competition is a good idea, since it not only reduces prices but it also promotes innovation. Cable operators have been noticeably uncreative about hardware; for example, it is not an accident that the DVR was invented by outsiders."

The National Cable & Telecommunications Association has warned the FCC against adopting a "one-size-fits-all" box that could "stifle innovation and harm consumers," while Public Knowledge, which has been pushing for more government action, wants rules "that would allow a consumer to buy any kind of retail set-top box which can then be used with any subscription TV provider."

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