Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

There are many prophecies of a coming end to the Big Cable tyranny. The compelling options for Web video grow by the day. Let's cut that coaxial cable and preserve it as a bittersweet symbol of our freedom!

Sorry, don't cue up the William Wallace speech from "Braveheart" just yet.

Two recent regulatory efforts -- to unlock the TV programming box and to give upstarts access to existing Internet and TV plumbing -- show the difficulties of loosening the grip that cable, satellite TV and phone operators have on U.S. home entertainment and Internet access. Give credit to regulators and lawmakers for trying to create more competition. Even Europe -- Europe! -- has cheaper prices for Internet connections and more options for TV-like Web services. 

But U.S. regulators have their work cut out for them. In both cases, the incumbents are fighting back hard. History has shown that we should never underestimate monarchs' zeal to stay in power, and King Cable and Queen Telecom aren't going to abdicate. 

Fraying Cord
U.S. cable, satellite and telephone companies have been losing customers -- albeit slowly -- for their television services.
Source: MoffettNathanson
Customer additions are for traditional TV service providers such as Comcast, DirecTV and Verizon Fios. *4Q 2015 figures include preliminary estimates for some companies.

In the more prominent of the Big Cable crackdowns, the FCC has proposed rules to help people avoid the programming boxes from Comcast, DirecTV or other TV providers. The idea is these boxes erect a barrier between their tightly controlled TV playgrounds and the open ranges of Netflix, YouTube and the rest of the Internet. 

In principle, it would be great if people can use an Apple TV, TiVo or Roku devices to watch both Internet entertainment and their TV programming. previously made the case for why it would be smart for TV service providers to do this on their own. But for now, most people need to pay for two different boxes -- with two different on-screen guides and two remote controls -- to hop from a Mets game to “Inside Out” on iTunes. 

The FCC has tried this before and flopped. More than a decade ago, rule changes let people buy a Tivo or a TV set and insert a piece of plastic the size of a credit card that was encoded with TV programming. The "CableCard" would give people cable TV service and a gateway to Web video. Sound familiar? 

The trouble was, cable operators made it difficult or expensive for people to use CableCards. The industry also added new features like digital video recorders, which were tied to the TV providers' own boxes. The FCC first tried tweaking the rules and later admitted it failed. Now an estimated 99 percent of homes with TV service pay to rent a programming box from their TV provider, for a collective $19.5 billion a year. 

Technology has changed in the last 10 years, of course. But history shows monopolists can slip through rules aimed at eroding their empires.

It's easy to imagine a repeat. The fresher set-top box rules are still just on paper, but the incumbents already have a grab bag of objections: The FCC will unwittingly enable TV pirates. The rules impose an undue burden on cable operators. Google will use use open set-top boxes to poach ad revenue and data on TV viewing.  

Even if the FCC changes set-top box regulations, it won't fix the core problem: Nearly all Americans who want Internet service must buy it from their cable or phone company -- no matter whether they watch traditional TV or Hulu. Living room control starts with this Internet monopoly. 

You Can't Kill Big Cable
Profit margins in TV service have shrunk for the three biggest U.S. cable companies as it grows more costly for them to license programming and sports. But they have a cushion in Internet service, which generates fat profits.
Source: Bloomberg Intelligence analysis of SNL Kagan data

Regulators and some U.S. cities are tackling this monarchy, too. The FCC tucked into last year's net neutrality rules provisions to give new Internet service providers reasonable access to existing communications equipment on utility poles and underground tunnels that house Internet wiring. Google pushed for the new FCC rules for its Google Fiber Internet and TV service.  Google also was at least in part behind a related effort in Louisville, Ky., to make it easier to build Google Fiber lines on top of existing pipes controlled by AT&T and Time Warner Cable.

Like in the rule-making for set-top boxes, incumbents are showing they're good at putting up roadblocks. AT&T last week sued the city and county and said local officials don't have the authority to regulate attachments to its poles. The telecom company also said tinkering with its equipment might cause outages for its own customers.

As the scuffles show, breaking Big Cable won't be easy. And it is cringeworthy that Americans' best chance to end the cable-and-telecom monopoly may lie with Google, another monopolist. But if the status quo doesn't change, ambitions for more robust Internet connections and more compelling home entertainment options will be realized painfully slowly, or not at all.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Cable companies' paranoia about Google may be justified here. 

  2. So, too, in the United Kingdom, where regulators are also trying (again) to make the same kind of "pole and duct" access rules to spur more options for Internet service providers. 

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net