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Phoenix: FCC's AllVid Could Be All Wet

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

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," the paper argues.

Since boxes wind up being an expense, rather than
a moneymaker, the study argues, 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," says
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."