OPINION
I Want My IPTV

Watching television over an Internet connection is no longer a futuristic idea for select groups in the area of San Diego, Calif. The testing of a new service called "Broadband TV" demonstrates the power of communications convergence and shows why legacy regulations governing the sector need to be shelved.

There's been plenty of discussion about the plans of telco companies like SBC and Verizon to roll out Internet Protocol television (IPTV) to compete with cable. But the recently announced test in the San Diego area is actually being conducted by a cable company: Time Warner (NYSE: TWX) Cable.

Competitive forces are driving cable companies to innovate before key competitors can break free of red tape and keep them out of the game. This should tip off legislators that convergence in the communications space requires a revamp of the nation's policies.

Distorting the Market

The rules that govern traditional phone and cable systems were written during a time when generally only phone companies provided phone service and only cable companies provided cable. Technology has changed things, and already cable companies, wireless firms, and various Voice over Internet Protocol (VoIP) providers are offering phone services.

When it became obvious that VoIP was set to help wireless practically obliterate traditional phone service, state governments attempted to regulate it. The Federal Communications Commission (FCC) wisely saw that it didn't make sense to have a patchwork of laws for a national, and indeed international, service, so the agency pre-empted state meddling. The same should happen with IPTV.

This technology will make it possible for companies outside the regular cable space to compete with cable by offering television over the Internet. Primed from the VoIP experience, already local and state governments are working to secure their spots to regulate and tax the service. But unlike the scuffle over VoIP, this may be a bigger fight.

Because old cable rules allowed local governments to grant near monopolies to cable companies, bureaucrats have been able to use this power to extract big bucks and obtain special favors. Cable companies haven't had much of a choice in the matter and have been forced to give away movies and plant trees in public parks. This market distortion has raised prices and lowered quality for consumers, but new competition should remedy these problems.

Making Mistakes

Unfortunately, localities have wielded a great deal of power and don't want to give it up. And the problem is being compounded because one of the big telcos, Verizon, is transitioning into the market using traditional cable technology. This choice of technology has made it easier for bureaucrats to argue that Verizon and others should be subjected to the same stifling rules as the traditional cable companies. But saddling new competitors with legacy regulations is a huge mistake because it will delay their market entry and harm consumers by slowing innovation and keeping prices high.

To their credit, legislators in Congress, California and Texas recognize that outdated cable franchising rules are slowing communications convergence. They have introduced bills to allow the telcos to enter the cable space without having to negotiate franchise deals with the thousands of cities across the country. If any of these initiatives pass, it will be a step in the right direction, but the real long-term solution may come from the FCC.

New FCC Chairman Kevin Martin recently said that "we need to place all broadband providers on equal footing so that they can fairly compete in the marketplace. This means that we must treat all such providers in the same manner -- free of undue regulation that can stifle infrastructure investment."

Strategic Policy

He's right, and one way to solve the problem of different rules for cable services is for the FCC to stipulate one policy for IPTV and, as with VoIP, pre-empt the states from touching it. That way, when both cable and telco companies move their services to the Internet, as they are obviously attempting to do, the providers will be on a more equal footing and real competition can thrive.

Innovations in technology are improving the communications landscape. Policy makers must ensure all consumers, not just those in San Diego, realize the full benefits.