December 21, 2010 / 1:03 AM / 9 years ago

Analysis: FCC plan feared stunting Internet TV services

NEW YORK (Reuters) - Internet TV services planned by Microsoft, Google and Amazon could be held back by imminent rules that would allow phone and cable companies to charge consumers based on usage, media executives told Reuters.

An employee of Sony Corp Sony's Internet TV, which is built on Google's Android platform, and its remote control at its headquarters in Tokyo October 21, 2010. REUTERS/Kim Kyung-Hoon

The Web traffic rules, due to be voted on by the Federal Communications Commission on Tuesday, could tip the economics away from consumers watching TV over Internet lines if they help cable companies charge more versus their own television offerings.

Said one executive at a major US media company: “in the event a cable company feels threatened” by Internet TV services, “they could control offerings through pricing the usage.”

FCC Chairman Julius Genachowski’s proposal would ban Internet providers from blocking lawful content but acknowledge their need to manage their networks. The plan looked assured of adoption after his two fellow Democrats on the commission announced their support on Monday, despite some misgivings.

In recent months, major companies including Microsoft Corp, Google Inc and Amazon.com have worked on plans for advanced pay-TV packages that could entice viewers to drop more expensive subscriptions sold by cable companies like Comcast Corp and Time Warner Cable.

These new services aim to make available many of the same TV channels and programs offered by local cable and phone companies, but would also feature enhanced interactive and social media features.

But high-speed Internet access is crucial to such plans. That could bring anyone that offers these new services in conflict with cable TV companies, which are also the leading providers of residential Internet service.

Companies including DVD rentals and movie streaming service Netflix Inc, satellite TV operator DISH Network Corp and Internet telephony provider Skype met with FCC staff earlier in December to complain how the proposals would be insufficient to maintain an open and free Internet.

So called paid prioritization of content is “an unjust and unreasonable form of discrimination” by Internet service providers (ISP), the group said in a letter summarizing the discussions.

“ISP’s will be in a position to exploit their dominant position and favor their own content and services, or those of select paying partners,” the group said.

The National Cable & Telecommunications Association, the cable industry group, has previously said Genachowski’s plan is fair, and has welcomed his recognition of the value of flexible business models “such as usage based pricing.”

Still, the issue of usage charges is just one of the hurdles that companies face in bringing TV to the Web.

In many cases, entertainment companies have been unwilling to offer hit shows and movies to services like Google TV or even Netflix. What’s more, Google is said to be delaying its service because of concerns its software needed tweaks, according to the New York Times.

CHOKED BY BROADBAND PROVIDERS?

“Plans for virtual cable TV from companies like Microsoft and Google are advanced but they’re worried they might get choked by broadband providers like Comcast,” said a senior TV executive, who asked not to be named because the discussions with both companies were private.

Brad Smith, general counsel of Microsoft, which has not acknowledged it is eyeing creation of a new TV service, said it is important for regulation to “promote new investments by network operators to increase broadband speeds, while also ensuring that consumers easily can access content and services from both start-up and established companies with the necessary quality of service and at the highest speeds available.”

Google and Amazon were not immediately reachable.

“Usage based pricing could alter the value proposition to consumers of (over the top) substitution - we think content investors should/will begin to focus more on this theme over the next few months,” RBC Capital Markets analyst David Bank said.

Genachowski’s rules also come as U.S. regulators near the end of a year-long review of Comcast’s proposed $30 billion acquisition of a controlling stake in General Electric’s NBC Universal, creating a combined broadcast, cable, movie studio and theme parks business.

Although Comcast, which has placed a 250 gigabyte limit on its residential broadband service, said it had no immediate plans to charge customers based on usage, it is battling Level 3, a content delivery network, over fees Comcast has charged for increased network traffic.

That fight could theoretically raise prices for subscribers to services such as Netflix, analysts have said.

Reporting by Yinka Adegoke; Editing by Kenneth Li and Tim Dobbyn

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