Cable and the Internet: A Strange, Unraveling Future

Steve Wildstrom / February 19th, 2014

What a crazy world has been created by the dealings of giant telecommunications companies and cable operators, not to mention broadcasters, video producers, content creators, and internet subscribers. It is almost impossible to predict what the situation will be five years from now, as everyone is scrambling with relationships that seem to rearrange from day to day.

Let’s look at today’s situation:

  • The Federal Communications Commission’s attempt to set network neutrality requirements on wireline internet providers was struck down by the Court of Appeals, which is likely to seconded by the Supreme Court.
  • Comcast, the country’s largest cable operator wants to swallow Time Warner Cable, the No. 2 operator. If approved, the deal will probably require Comcast to extend the network neutrality promised when Comcast acquired NBC Universal to TWC at least through 2018 and perhaps to the combined cable company for several years beyond that.
  • Some Verizon FiOS customers complain that Verizon is throttling the delivery of Netflix video, especially in the evening. Both Verizon and Netflix deny that throttling is a problem but it appears more likely that Netflix’s peering agreements are not providing enough bandwidth to handle the traffic at peak hours.
  • In another case before the Supreme Court, a gimmick that lets Aereo deliver broadcast television stations over the internet may explode the billions of dollars in “retransmission consent” fees cable companies pay to broadcasters.

Are you confused by how these varied tangled affairs affect each other? That’s hardly a surprise.

Advocates Bumping. The situation is such that advocates seem to be bumping into themselves. For example, advocacy groups such as Free Press and Public Knowledge oppose the merger of Comcast and TWC even though such a deal would extend net neutrality requirements both in scope and time. A major reason for their opposition to the merger is the growth of a monopoly, although Comcast and TWC effectively are already cable monopolies in the separate geographies that they serve. And an net-neutrality bound, Giant TWC, would probably effectively cause Verizon, AT&T, Cox, Cablevision, and other smaller cable operators to stick with net neutrality as well. But the same advocates also want the ISPs to be regulated as common carriers, and arrangement that will push everything back into the 20th century.

In fact, the whole network neutrality fight is more about the past than the future. If an internet service providers customers want Netflix (or Amazon Prime Instant, or Hulu Plus,  or YouTube), ISPs, whether Comcast or Verizon or AT&T, are going to be feeling pressure to make their customers happy.

Worrying About the Future. And for the future, companies that are providing both internet broadband and cable content–and it really doesn’t matter whether it is a cable company like Comcast that doubles as a landline ISP or a telco like Verizon that doubles as both an ISP and a cable company–are all worrying about the future plans of content providers. For now, HBO (owned by Time Warner, which has now fully separate from Time Warner Cable) will provide its HBO GO over-the-top service only to customers who already subscribe to HBO via cable or satellite. But HBO execs have made it clear that when selling HBO Go directly to internet subscribers who want to cut the cable, the company will make that move in time. Disney’s ESPN may make the same maneuvers with over-the-top ESPN 3. And the producers of sports content are considering going around both the broadcast networks and ESPN to sell events over-the-top to fans on the internet. Today, it’s World Wrestling Entertainment, but next year it may be the Big Ten Network.

One thing that would clearly be a big help is the government could step in and provide a framework that looked out for consumer interests and provided an orderly framework for the 21st century. The main legal framework, the Telecommunications Act of 1986, was a mess when it was created and has gotten a lot worse over the past 30 years. Basically, congressional Republicans let the big cable companies such as the now extinct TCI write the cable sections and the phone companies, the old AT&T and the Baby Bells, write the phone sections. Broadcasters got their piece too. Every time the Federal Communications Commission has tried to go beyond the provisions of the Telecommunications Act, it has been slapped down  by the courts.

Trouble on the Hill. Congress was forced to write the 1986 law primarily because every one was tired with the efforts of the federal courts to deal with the complexities created by the breakup of AT&T. Unfortunately, there is no similar issue driving congressional involvement and deep divisions among both Republicans and Democrats make it very unlikely that any serious effort will come from the Hill. Chairman Tom Wheeler sees and opportunity for more aggressive FCC, but he also seems to have a solid understanding of just what Congress and the courts will allow.

This means we can expect a complicated and confused situation, in which big companies will try to rearrange things and the courts and the government will plunge in ways that add to the confusion. It’s going to be and interesting time.

 

 

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • jfutral

    “If an internet service providers customers want Netflix (or Amazon Prime Instant, or Hulu Plus, or YouTube), ISPs, whether Comcast or Verizon or AT&T, are going to be feeling pressure to make their customers happy.”

    See, here is the rub in that thinking. If they were only ISPs I could believe this and take comfort in it. TV networks, broadcasters, and TV deliverers are already arguing about who’s customers people are and they take their arguments to the public. Everybody thinks they have “the customer” in mind in these wranglings. In Atlanta PeachtreeTV (formerly the local TBS OTA broadcaster) fought with Dish over retransmission. The result was several blackouts with both sides appealing to “the customer”.

    This is all about control and thus money. This is a fight for customers not a fight advocating customer rights. A lawyer once told me (not our Mr. Kirk) people want to know the rules, not so they can obey them, but to justify why the rules don’t apply to them. I really do hate to be cynical, but working in the entertainment industry has forced it upon me. I am firmly convinced Comcast is biding their time while all this is transitional and they will be able to justify why that net neutrality agreement is not in their interest, though they will absolutely couch it as not in the customer’s best interest. As an artist, I’ve already seen the damage Clear Channel has caused music. I have no doubt this is headed in the same direction.

    I hate to sound like a broken record, but if we are to learn from history, this is all going to get worse for the customer before it gets better. I really, honestly, do hope I am wrong.

    “It is almost impossible to predict what the situation will be five years from now, as everyone is scrambling with relationships that seem to rearrange from day to day.”

    Right. Especially in an industry with multi-year contracts. In many cases we won’t see the ramifications until several years down the road. I can’t imagine the government machine yielding a result that will be relevant even 5 years from now. That is my reason for not really trusting the government imposed net neutrality.

    It is easy to rag on the industry for not being “forward thinking” and visionary. With this kind of situation, how can we honestly expect them to be?

    Joe

  • tz

    Bottom line, does the Government favor the Consumer, or does it favor the Corporate monopolies? It appears to me to be the latter.

  • Peter

    It’s time for the last-mile issue to be resolved but I think that the FCC will take one more crack at net-neutrality before taking this contentious step. Maybe the one-more-try is intended to provide increased justification (but this subtlety will be ignored by Verizon/AT&T/TWC/Comcast etc).

    The network needs to be subject to common-carrier rules. Value-added services such as TV should be unregulated. This much is obvious. What is not is exactly how to do the split.

  • jfutral

    I would enjoy your insights on the latest developments regarding Comcast, Netflix, and Verizon. I’ve read many articles and the varying perspectives are plausible, but still, in the end, opinions. Like one article that said (all of these are Futral’s paraphrased versions) noted the one company that accepted self imposed NN (Comcast) is the first company to come to terms with Netflix, vs Verizon who seems to continue to hold Netflix hostage. And what ever happened to Netflix’ promise to unleash the rage of their customers on the ISPs? But then another article pointed out that Netflix _needing_ to pay Comcast is exactly what NN is supposed to prevent. But then there is the whole middlemen issue of connectivity that I didn’t even know existed, but probably could have guessed if I gave it half a shot.

    Joe

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