On this blog, we’ve supported bipartisan efforts at the Federal Communications Commission to reform  the universal service fund (USF) and related intercarrier compensation (ICC) programs, and have suggested ways that the funding of rural broadband can be made more targeted, efficient and accountable. The federal government agrees that changes are necessary.

Last month, the U.S. Department of Agriculture’s Office of Inspector General issued a report on issues to consider for reauthorization of the Farm Bill. It noted that its own agency, the Rural Utilities Service, has for many years needed to improve its Broadband Grant and Loan Programs. For example, the report notes:

We found that RUS had not maintained its focus on rural communities most in need of Federal assistance. This is largely because its definition of “rural area,” although within the statutory guidelines, was too broad to distinguish between suburban and rural communities. As a result, RUS issued over $103.4 million in loans to 64 communities near large cities. RUS also needed to create a management structure able to make necessary judgments for a program of this size and scope. For instance, we found no specific written procedures for approving and servicing broadband grants and loans.

Our past audits have also disclosed that while RUS’ Broadband Programs serve similar needs, RUS has kept these programs separate, often causing duplicated efforts. We recommended that RUS clarify its definition of an eligible rural area, create a management structure and procedures, and recover funds from defaulted loans.

The cable industry, which has played a leading role in delivering broadband, supports the goals of achieving universal broadband availability.  However, it is critical that as the government oversees the RUS broadband programs, it takes all the steps needed to ensure that taxpayer dollars are used to fill the gaps for those who lack broadband service today.

Those in charge of reforming and overseeing these programs must ensure that the RUS, using a process that is fair and transparent, focuses not on overbuilding but on deploying broadband to those unserved areas most in need of federal help.

All of this is possible today because of a massive technology infrastructure that has been created by service providers that are competing in a vigorous marketplace. We often don’t think about who delivers these great services – but sometimes taking a step back from the daily chaos brings some insight.

That in part is why we’ve launched a new awareness initiative to remind people about the many benefits of the great services our companies provide.  If you haven’t seen our messages yet, check them out at www.CableConnectsUs.com.

This initiative describes the industry we represent today.  While “cable” for many people still conjures images primarily of great television – and there’s nothing at all wrong with that – cable today is so much more.  Cable companies started building out their networks in the early and mid 90s, offering services such as high-speed broadband and digital phone, and since then have added huge consumer favorites, such as HD content, DVRs, 3D, video on demand, and more.  And cable programmers have upped their game, many producing programming that not only is hugely valued by consumers, but can now be seen on any screen near you…even if it’s in your pocket.

We know that consumers are passionate about the content and services that companies in the cable industry are providing.  And they’re using those services in a million different ways, to improve their lives and connect with each other.  We’re just not sure that consumers always recognize that cable is the platform enabling their instant access to infinite possibilities. This campaign is meant to remind them.

With the theme “Cable. It’s more than TV. It’s How We Connect.”, the awareness effort should serve as a simple reminder of how consumers enjoy cable every day, whether it’s tapping our broadband services to share information with friends and family around the globe; using our digital phone services to talk with loved ones; or just watching TV in lots of new ways, whenever and wherever they want.  Consumers are using cable to connect, with each other, and with the world at large.

We think that’s worth talking about.

As Rozzelle noted, rural broadband funding programs should be dedicated primarily to bringing broadband to consumers who currently don’t have access. The Rural Utilities Service (RUS) programs have sometimes lacked focus on the issue of unserved areas, which should be the clear mandate, Rozzelle said, as NCTA has long suggested.

Rozzelle’s testimony referred the subcommittee to reports from the USDA’s Office of Inspector General (“OIG”), which has criticized the RUS for failing to focus on unserved areas. Even after initial analysis, subsequent RUS rules adopted did not resolve the problems identified in those reports with respect to overbuilding.

Rozzelle said that the new Farm Bill should take strong steps to direct taxpayer dollars where they are most needed. He asked the Subcommittee to consider four proposals:

• Limit funding to substantially unserved areas.
• Seek additional information, by asking existing providers to voluntarily submit information about their service areas that may overlap areas proposed to be served by the applicant, for subsequent due diligence review by the RUS.
• Prioritize support to areas most in need of it.  To ensure funds are used where they are most needed, the Secretary should continue to give priority to the RUS broadband loans, loan guarantees, or grants that will extend broadband service to areas with the greatest proportion of households that do not currently have broadband at basic access speeds available from any provider.  This would simply extend a provision in current law.
• Ensure transparency and accountability by requiring each entity receiving RUS broadband support loans, loan guarantees, or grants to report quarterly on its use of the funds and its progress in fulfilling the objectives for which the funding was provided.

You can read his full testimony on NCTA’s website.

Unsurprisingly, rural telephone companies that have long benefited from the old regime are fighting this progress.  They have appealed the order in court, filed petitions for reconsideration at the FCC, and are waging a massive lobbying campaign to prevent USF from supporting broadband in a competitive era.  These companies argue that the FCC should “let the dust settle” before taking additional steps.  But continued action is essential to executing the FCC’s long-term blueprint for reform.  If the FCC succumbs to backsliding, the nation would be left with a deeply flawed regulatory regime and the telecom marketplace would have far less certainty than exists today.

Certainty is best achieved through continued implementation of USF/ICC reforms

In their attempt to stop implementation of the FCC’s order, rural carriers claim that stalling reform somehow will create greater certainty, but ironically, uncertainty was the major impetus for reform.

While the old regime was riddled with questions about the growing size of the fund, the efficient use of high-cost subsidies in areas with unsubsidized competitors, and the massive swamp of unpaid bills, unresolved complaints and unending litigation surrounding ICC, the new system provides far more certainty and clarity for marketplace participants.

The order also provides greater certainty to USF contributors by setting a firm budget that is designed to keep the high-cost support program at its current size.  And it begins to transition funds from subsidizing every incumbent phone company to instead supporting only carriers that provide broadband where the private marketplace can’t deliver.

Eliminating support in areas served by multiple providers sends an important signal to private investors that they will not be overbuilt by government-subsidized providers, and puts carriers on notice that government funds will no longer be available in competitive markets.

Freezing reform efforts will increase regulatory uncertainty and perpetuate inefficiency

Slamming the brakes on reforms would completely undermine the careful balancing of short and long-term changes envisioned by the FCC.  Because only a handful of reforms took effect when the order was adopted, efforts to “stop the clock” would leave the nation with largely the same flawed regime that the FCC spent the last decade trying to reform.  The lack of certainty as to when, or even whether, additional USF reform would take place means that wasteful practices, like subsidizing telcos in areas that are 99-100 percent served by competitors, would continue indefinitely.  The FCC found that there were 18 study areas where competitive providers serve 100 percent of the area.  Over two years ago, NCTA identified dozens more areas where competitors serve at least 90 percent of customers.  Taking expeditious steps to reduce or eliminate support in these areas will free up funding that can be used in areas where it is truly necessary.

The FCC faced a daunting task in modernizing the USF and ICC regimes.  While its decisions are not perfect, on balance they move in the right direction and at the right speed with safety valves in place that will allow the FCC to deal with legitimate exceptional situations through waiver processes established in the order.  For too long, we lacked the collective will to reform universal service; we should not heed the calls to turn back now.

The last twenty years has seen incredible progress.  Just consider for a moment:

• In 1992, there were 101 national and regional cable networks vying for consumers’ attention; today, there are over 900.
• In 1992, cable was the only real multichannel video option for consumers and had a market share of 98 percent; today, cable’s percentage of multichannel households has fallen to 57 percent – the result of healthy competition from satellite, telco, and other providers.
• In 1992, watching your favorite show meant sitting in front of the TV when the program aired or setting your VCR; today, consumers can watch a program live, recorded on a network or home DVR, via On Demand (billions of views each year), or over the Internet.
• In 1992, video programming was all in analog, with very little interactivity and no high definition; today, most consumers are watching in digital, via the 100+ high definition choices (and even some 3D) and enjoying burgeoning levels of interactivity.
• In 1992, a TV set (probably a pretty heavy one) was your sole option for watching shows; today, with the proliferation of laptops, iPads, smartphones and other devices, consumers have many options for watching their favorite programs.

And then there’s the Internet.  By investing over $185 billion dollars over the past 15 years, cable operators built broadband networks that ended the dial-up era and today support the delivery of high-quality video programming over the Internet.

Now, through a web browser, external devices such as Roku or Apple TV, or a smart television set, consumers can access Hulu, Netflix, YouTube or countless other sites to watch TV shows or movies.  Cable is actively participating in the Internet video revolution by introducing streaming services like HBO Go and Watch ESPN, robust cable operator apps from Comcast, Time Warner Cable, Cablevision and Cox, and other features so consumers can enjoy content at home or on the go.

All this progress leads to two inescapable conclusions.  First, when it comes to video programming, consumers will have access to more choice, quality, and convenience than ever before.  And second, that rules adopted two decades ago to regulate a marketplace of limited options for consumers no longer make sense in an era of abundance.

We’ve come a long way in the past twenty years.  And for consumers, the picture is only getting brighter.

The Tohoku earthquake that struck on the afternoon of Friday, March 11, was the largest seismic event in Japan’s recorded history, with a magnitude of 9.0. A half hour later, the east coast of Japan was hit by a tsunami which reached 50 feet in height, and covered 400 miles of coastline — roughly the distance between the District of Columbia and Boston.

NTT East lost 65,000 poles, 1,900 miles of conduits and 5,000 miles of cables. Some central offices were destroyed or flooded. Massive power outages strained the resources of their backup equipment.

At the same time, their network was hit with an enormous jump in activity, with outgoing voice traffic jumping 60-fold in the hours after the quake, and incoming calls increasing 40-fold.

Carriers had to restrict fixed phone line voice traffic by 80-90%, and mobile phone traffic by 70-95%. Packet traffic also increased, but only by about four times as much as the previous week. In addition to congestion from voice calls, emails were delayed as well. Just 15 percent of email was delivered immediately, 80% went through within 30 minutes and 90% was delivered within 80 minutes.

NTT East set up 4,000 free public phone lines in evacuation centers and hospitals, and provided broadband access to 450 locations. It also deployed 100 power supply vehicles as a fail-safe in case backup generators died, and dispatched remote terminals to replace demolished central offices. In order to allow families to connect with loved ones in the face of staggering congestion, NTT East already had in place a “171″ voice message system. People could call in and leave a message. Family members could call in to the system and retrieve those messages by punching in the cell phone number. NTT East workers who found handwritten notes at rescue stations would manually enter those messages into the 171 system. Unfortunately, because the different mobile carriers systems weren’t interoperable, you would need to know what carrier your target was using in order to get their message; since the quake, the carriers have been working on making the systems interoperable.

NTT has negotiated with convenience store chains to pre-install Wi-Fi lines and emergency public phones, which can be turned on during emergencies and used free of charge. NTT also has introduced vehicles with mobile Wi-Fi stations and special antennas that can reach more than 10 miles.

Other recommendations from a study group include: developing new technology that’s resistant to congestion, introducing more emergency power sources, and encouraging roaming agreements between telecom carriers for emergency calls.

Also present were representatives from various governmental agencies. From such tragedies, hopefully we can all learn how to prepare for the future.

Using Kinect, he was able to both speak to the Xbox and use hand gestures to navigate content.  It was fun, hip and effective.  He also demonstrated how services like Xbox Live gaming, Netflix, VUDU, and HBO Go could be accessed in a common way.  The only problem – he said – is that he cannot yet get cable channels on the Xbox, but that he was looking forward to being able to do so.

This is the kind of innovation that everyone – industry, regulators, public interest advocates and Internet evangelists – has been calling for.  It’s the use of Internet Protocol (IP) to deliver cable content so that the programming can have more of the exciting functionality we have come to enjoy on the Web and also make it easier to watch your cable channels on other devices than the cable box.  It also is a step toward alleviating the pain of those who moan about set-top boxes, “Get rid of them!”

This week, news broke of the availability of a Comcast Xfinity TV app for Xbox Live (as well as HBO GO and MLB.TV), helping to bring this content-on-any device-box-killing-sexy interface-vision into reality. Much like the Xfinity app for the iPad and iPhone, users can access a variety of video on-demand.

Let’s be clear, it’s not a new streaming service like Netflix or Hulu, which are delivered to you over the public Internet. It’s nothing more than giving cable subscribers the content they pay for that is delivered to the set-top, but in a form that allows you to access it on the admittedly more hip Xbox, integrating the experience for those who build their leisure time around Halo, Mass Effect 3 and Madden NFL.  For a consumer with an Xbox, this is a major and exciting innovation.  My son – and, presumably, others like him – is psyched.

Given all of this I am bemused and disappointed to see the advocacy group, Public Knowledge, scream with alarm this week that somehow this new service raises questions about the survival of the open Internet.

Really???  The Internet is going to die as a result of consumers watching Mad Men on Xbox?  Many now crying mortal danger have long lectured cable companies to offer content in IP, to get rid of boxes, to offer better interfaces and guides, and to allow people to access content on other devices.  Yet, when a cable company actually does it, they are killing the Internet?

Public Knowledge claims the app threatens net neutrality.  First, as a factual matter, this is flatly wrong.  The FCC in crafting its net neutrality rules expressly allowed this type of service, which does not use the public Internet, recognizing it would be good for innovation and good for consumers. (Note this GigaOM post which acknowledges that the video traffic going to the Xbox does not travel over the public Internet.)

Many public interest groups did not like this (preferring government-managed and dumb – as opposed to innovative – pipes).  The FCC wisely rejected this approach, understanding that existing service providers needed to innovate to delight customers. So, what we are really seeing is folks trying to get another bite at the regulatory apple.

Second, Comcast is not counting this service against its bandwidth caps because it is not a service provided over the open Internet; indeed, it is similar to the service it delivers now through one technology protocol (MPEG), but sent by way of a different protocol (IP).  The shift to IP transport will provide enormous benefits to consumers and a powerful springboard for innovation.

Exaggerating the risk to the Internet and suggesting non-existent legal violations in order to reargue the desire for greater government control over the network, is putting a pro-regulatory agenda ahead of the interests of consumers.

UPDATE: Below is a video featuring Comcast’s Tom Blaxland demonstrating the features of the Xfinity service through the Xbox.

We are already seeing positive results from cable’s commitment to energy conservation.  Monday, CableLabs announced that its testing of the “light sleep” mode for digital set-top boxes being deployed later this year projects an energy savings of 20 percent or more when the devices shift into “light sleep.”

Since set-top boxes are connected to a network, communication to the box is critical. The “light sleep” mode is a lower-power condition that allows essential activities within a set-top box to continue while energy consumption associated with other tasks (such as channel tuning and video display) is discontinued.  CableLabs estimates that cable operators will have more than 10 million set-top boxes with a “light sleep” option by the end of this year.

The testing was welcomed by the Natural Resources Defense Council (NRDC), an advocacy group which last summer criticized the energy consumption of set-top boxes.  Noah Horowitz, Senior Scientist at NRDC said:

We applaud the cable industry’s initial efforts to reduce the energy consumed by its set-top boxes and look forward to even greater efficiency gains in the future. Due to this light sleep initiative, more than 10 million installed DVRs will now use 20 to 30 percent less energy when they are not being used. This one change alone will save consumers over $44 million per year in electricity costs.

Cable is looking well beyond the set-top box to provide consumers with energy savings.  As Mark Coblitz, Comcast’s Senior Vice President for Strategic Planning, outlined last week in a speech at SCTE’s Smart Energy Management Initiative (SEMI) meeting, cable needs to take a long-term strategic approach that supports anticipated growth in new services.

He outlined a need for “a long view of energy” that encompasses the cable telecommunications ecosystem of operators, programmers, broadcasters, vendors and associations such as SCTE, NCTA and CableLabs, as well as other network providers, power utilities and university and government labs.

Some of the cable industry’s other efforts to improve energy efficiency include:

• ENERGY STAR compliance. The vast majority of the set-top boxes purchased by the largest cable operators comply with ENERGY STAR power consumption limits and continue to improve in energy efficiency. Cable operators providing service to approximately 85 percent of U.S. cable customers have committed to ensure that by the end of 2013 at least 90 percent of all new set-top boxes they purchase and deploy will be ENERGY STAR 3.0 devices.
• The use of low-power adapters, such as digital transport adapters (DTAs) that use less than four watts.
• The development of new technologies, such as: digital-only tuners; home networking and whole-home DVR; network- and cloud-based delivery that allows the processing and storage power of the network to be shared across many consumers; and video services delivered via Internet Protocol (IP) directly to tablets and gaming stations without the need for a set-top box.

As the cable industry continues to make more progress on these important energy issues, we’ll keep you informed.

We’ve pointed out that such encryption would reduce the need for technicians to visit customers’ homes for installations and disconnections. We’ve argued that deploying physical filters at consumers’ homes to control authorization is a very inefficient and backwards-looking approach.

Now, some of cable’s top executives have sent a letter to the FCC to argue that it only makes sense for the Commission to eliminate the prohibition on encryption of the basic tier for all-digital cable systems.

This rule was originally adopted at a time when satellite service was just beginning, telephone companies were not yet providing video services and the Internet was not a place to watch video.

Back then, cable was an analog service and most cable customers could only access about 60-80 channels on their TVs without a set-top box.  Since then, cable operators have moved to digitize and largely encrypt their channel lineups, so only the 20 or so basic tier channels (i.e., over-the-air broadcast signals, PEG channels, and a few other channels) can be accessed without a set-top box or CableCARD-enabled device.

In this digital environment, the overwhelming majority of digital cable customers already have set-top boxes or retail CableCARD devices to access encrypted services.  In cable systems that go all-digital, nearly 100% of customers will have such equipment, so elimination of the encryption prohibition will be a non-event.

As the executives state in the letter:

…for the very small percentage of customers in all-digital systems who receive basic tier services without equipment, we have made clear our support for transitional equipment measures to help ease the potential impact.  As you know, the Commission granted Cablevision a waiver of the encryption rule in part to get real-world experience about the effect of encrypting the basic tier.  Cablevision’s experience in its New York City system confirms that very few customers will be impacted by basic tier encryption.  In that system, fewer than 0.1% of subscribers requested equipment under the conditions in the waiver order, demonstrating that the overwhelming majority of subscribers already had set-top boxes or retail CableCARD devices in their homes to access encrypted programming.

This change will be a critical part of the move toward all-digital networks.  It will free up cable bandwidth for faster broadband, more high-definition channels, more VOD choices, and other services that customers are demanding in today’s competitive marketplace.

It’s notable that the basic tier encryption prohibition applies only to cable. Satellite and IPTV providers encrypt all of their programming, as do online video distributors. In today’s world, it is unfair and unreasonable to single out cable as the sole video platform that is prohibited by law from fully encrypting its video programming services.

We hope that the FCC will agree and make this change to the rule.

At the heart of encryption is the idea of authentication.   Providers need to ensure that only people who pay for the service receive it. In this post from 2009, we discussed the role that set-top boxes and CableCARDs played in controlling authentication.

An old school way of controlling authentication is through the use of filters, also known as “traps.” Back in the mid-70s, cable operators began offering more than just the local over-the-air broadcast stations, with the launch of HBO, the first-ever premium channel.  Some customers chose not to subscribe to this service, so a device was developed called a negative trap or filter to prevent unauthorized reception. These filters let only certain frequencies go through, blocking others.

The issue of authentication has assumed a new urgency now that cable has moved well beyond being simply a television programming provider to a triple-play provider of voice, video and data. Some people subscribe to all of our services, others do not. Today, there are a number of customers who only receive our broadband service and do not subscribe to the cable TV product at all. These non-video subscribers are valued customers, but we need to ensure they don’t get unauthorized access to the video service they’re not paying for.

As RCN reported in a filing with the FCC, traps don’t always work in this new world where broadband services and television programming may be pretty close in frequency. As a result, even traps can let television programming get through to a customer who is only subscribing to broadband.

As RCN explained, “former subscribers, new residents, and Internet-only subscribers” are able to receive programming without paying for it, as long as they have a TV or other device with what’s called a QAM tuner (see here for more information).

RCN notes in this filing, consumers can easily find information online to view unencrypted basic tier channels without paying for them, simply by installing an inexpensive splitter before the router.

Some are advocating the use of traps, as described above, in order to prevent the improper reception of video service. However, there still more problems with using them:

• Traps require a technician to come out to the customer’s home to physically add or remove them. The service technician might also need to enter the home to ensure that the trapping process is not interfering with broadband service.
• Operators need to ensure that the installed traps are physically secured. Otherwise, someone could simply remove the trap and continue receiving an unauthorized signal.
• Traps can also make it difficult to re-arrange channels or launch new services, because channels that might be utilized are being physically blocked by hundreds of traps at customers’ homes.

Let’s say that you’ve been a customer of the XYZ Cable Co. You decide to cancel the video service – maybe you’re “cutting the cord,” maybe you’ve decided to try our competitors’ service. But you appreciate the great broadband service that XYZ provides. After all, cable has the fastest speeds and our customers are really happy with the service. So, you might disconnect the video today, keeping the broadband; you might reconnect video service in the future.

Is forcing cable companies to send out technicians to install or remove traps really the best way to facilitate this – at a time when cable is moving to an all-digital environment? Is larding the network with physical devices invented back in the ‘70s the most effective way to achieve innovation?

By encrypting the basic tier (consisting largely of broadcast stations) and leaving the cable plant “hot” at all times, cable operators will be able to significantly reduce service calls to install and disconnect service. We think this is the best solution, one that doesn’t ask the cable industry to remain stuck in the past.