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Intel Media Finds that Hardware Is the Easy Part: Commentary
The real challenge in creating a breakthrough set-top box is providing access to unbundled premium channels.

Intel Media confirmed a month of rumors, which started just before International CES in January, by announcing last week that it would ship a device that has both live television and catch-up viewing services later this year.

Erik Huggers, general manager of Intel Media, a skunkworks project within the much larger and less nimble Intel Corp, spoke of a full-featured set-top box (STB) at the Dive Into Media conference.

"We're working with the entire industry to figure out how to get proper television," Huggers said.

The expression "proper television" suggests having rights to broadcast, via IP delivery, live television channels. That's been a showstopper for Apple, if the rumors are true, as it tries to move its Apple TV product from a "hobby" to a significant revenue source.

One area that remains cloudy, and has dogged STB makers such as Boxee and YouView, is whether or not unbundled services will be allowed on and around these IP-based delivery boxes.

There are two forms of unbundled services -- network and programmatic -- and both have yet to budge from the state of affairs that was present across the telecommunications and cable industries shortly after the passage of the Telecommunications Act of 1996.

Unbundled Network Services. On the network services front, the primary outstanding issue for consumers is whether or not "naked DSL" or unbundled cable modem service can be acquired at an attractive price point. Until now, while unbundled network services were certainly encouraged by the federal government, the actuality of acquiring unbundled network services -- apart from telephone or cable subscriptions -- has been difficult.

The Federal Communications Commission (FCC) has taken a stance, backed by the Telecommunications Act, that it will "further facilitate the development of competition in the advanced services market" by strengthening "collocation rules to reduce the costs and delays faced by competitors that seek to collocate equipment in an ILEC's central office."

The ILEC, or incumbent local exchange service provider must allow, according to assessments of the Telecommunications Act and the FCC's stance, collocation of any equipment that is "used or useful" for either interconnection or access to unbundled network elements. Some assessments say that this requirement to allow co-located equipment must occur "regardless of other functionalities inherent in such equipment."

If a consumer chooses to request unbundled data services from either their ILEC or monopolistic cable service provider -- monopolistic since over half of U.S. consumers only have access to a single telephone or cable service provider -- the ensuing cost for this unbundled service equals or exceeds that of bundled services.

In other words, if you try to get cable modem service from your local cable provider, the cost will invariably be the same or more than if you bundle basic cable with the cable modem service. The same is true for "naked DSL" from large telecommunications companies like CenturyLink.

Unbundled channels. The same financial disincentive exists in the world of broadcast programming. While the stance of the Federal Communications Commission (FCC) and the U.S. Congress, after the passage of the Telecommunications Act, was that unbundled cable channels could be purchased separately by consumers, neither Congress nor the FCC mandated a pricing scheme for these unbundled channels.

As a result, if a consumer requests purchase of an unbundled channel, the cost for that channel alone will meet or exceed the cost of a bundle of channels. And that's if the incumbent cable provider even acknowledges the existence of an unbundled option.

Try an experiment: contact your local cable provider and ask it to eliminate all channels except for ESPN or HBO. At first, more than likely, you will be told this is not possible, even though the cable providers explicitly agreed to this option back in 1996. Second, if you're allowed to unbundle, be prepared for sticker shock: for some unknown reason, you'll suddenly find ESPN or HBO cost just as much per month as your entire basic or enhanced cable subscription.

Which brings us back around to Intel Media and its goal of having "proper television" on its upcoming STB. Huggers is no stranger to the world of catch-up and other key media delivery services, having been intimately involved with the BBC iPlayer when he ran BBC's Future Media division.

Yet, even Huggers admits there will be a challenge, noting that the hardware is the easy step, and that the giant leap may just be the ability to unbundle single channels on similarly unbundled data pipes, so that consumers have true freedom of media consumption.

"We'll deliver a new consumer electronics product that will be bought directly from us or at retail under a new brand. We're working with the entire industry to work out how we can deliver proper television to the consumer," said Huggers. "Not many... no, nobody ... has cracked this yet."

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