1. Implications of E(verything) over IP Robert Pepper Chief, Policy Development Federal Communications Commission TTI/Vanguard April 2005

2. Robert PepperImplications of E(verything) Over IP -2- Summary: Questions Arising from EoIP n n For producers and distributors n n For law and policy n n How to achieve traditional public policy goals in the new environment? n n How will consumers respond? What will they want?

3. Robert PepperImplications of E(verything) Over IP -3- Old Reality and Assumptions n n Distinct industry and regulatory structures based upon distinct analog technologies n n Old rules assumed non-competitive model n n The technology told you something about the content--defined boundaries u u Single network/single service n n The world of six into four: A,B,C,N,S,T

4. Robert PepperImplications of E(verything) Over IP -4- Old Reality and Assumptions n n Distinct industry and regulatory structures based upon distinct analog technologies n n Old rules assumed non-competitive model n n The technology told you something about the content--defined boundaries u u Single network/single service n n The world of six into four: ABC,CBS,NBC,AT&T

5. Robert PepperImplications of E(verything) Over IP -5- Revolution in Communications Technology n n Technology: analog digital n n Network: circuit-switched packet-switched n n Packetization/digitization convergence of video, voice and data n n Narrowband broadband n n From Silos to Convergence n n Digitization destroys compartmentalization u u Traditional boundaries between industry segments (e.g., telephony, cable TV, broadcasting, wireless) are blurring

6. Robert PepperImplications of E(verything) Over IP -6- Technology Trend Drivers n n Processor power—Moore’s Law n n Faster network technology u u New/better uses of copper—DSL u u Fiber optics u u Advanced wireless n n Cheap storage u u $25 DVD players v. $1.8 million “quad” VTRs u u 70% annual improvement in local storage—120Gigs for $60 n n Dramatic improvement in compression

7. Robert PepperImplications of E(verything) Over IP -7- Cheap Storage + Compression n n Storing one hour of MPEG-2 video u u Today: $1.35/hour u u 2008: 18¢/hour u u 2010: 2¢/hour n n Storing one hour of MPEG-4 video u u Today: 20¢/hour u u 2010:.3¢/hour u u 2015:.02¢/hour? Free? n n Pre-recorded storage? u u 5,000 movies on your hard drive? Source: Bernstein Research

8. Robert PepperImplications of E(verything) Over IP -8- Broadband Deployment and Adoption n n First generation broadband (cable modems and DSL) available to 85-90% US households n n Low latency/low jitter n n 30+% of U.S. households subscribe to DSL or cable Modems n n 55% of online U.S. households n n Global comparisons u u Value proposition u u High cost of dial-up u u Voice over IP as driver u u What’s the value proposition? n n New platforms

9. Robert PepperImplications of E(verything) Over IP -9- Broadband + Compression n n Video over broadband means u u Streaming video u u Video downloads u u P2P video u u Consumers become producers n n Real time gaming n n Note: drivers for broadband in Asia u u P2P file sharing u u Gaming u u Video u u VoIP n n Entertainment as drive for broadband?

10. Robert PepperImplications of E(verything) Over IP -10- Broadband + Compression + Cheap Storage n n Video transmission + compression + cheap storage = TiVo n n Broadband + compression + cheap storage = Netflix to your TiVo n n = consumer choice and control

11. Robert PepperImplications of E(verything) Over IP -11- Trend: Personal Communications (control moves to the edge) n n Telecom u u Personal service v. household u u Mobility n n Internet u u Personal media—user control/customization u u Person-to-person communication—IM u u Streaming video to MyPVR n n The Five Stages of Television u u Limited choice or control u u Increased consumer choice u u Increased consumer control u u Interactive TV/PVRs--choice and control u u Customized, personalized, intelligent TV

12. Robert PepperImplications of E(verything) Over IP -12- Demand for Digital Content: Consumer Market for Bits n TV Broadcasting$42.1 n Radio Broadcasting$19.6 n Cable & Satellite television$83.5 n Personal computer software (non-OS)**$14.3 n Consumer Internet$30.7 n Motion Pictures Box Office$9.9 n Home Video$33.1 n Interactive Entertainment$7.2 n Newspaper Publishing$63.6 n Magazine Publishing* $39.3 n Book Publishing* $27.4 n Recorded Music$11.9 TOTAL$382.6 Sources:Veronis Suhler, Communications Industry Report (PQ Media 2005) *2002, Statistical Abstract of US, No. 1114 (2004 – 2005) **2003, Statistical Abstract of US, Table 3.1.7, Software Publisher Revenues Communications Industry Revenue 2003 (billions)

13. Robert PepperImplications of E(verything) Over IP -13- VoIP The Next Example? n n VoIP—What is it? u u A technology? u u Next phase of competition? u u Example of convergence? u u Driver for broadband? u u A new phone company? Old phone company? n n The other VoIP Video n n From VoIP E(verything)oIP

14. Robert PepperImplications of E(verything) Over IP -14- Questions Arising from EoIP n n For producers and distributors u u Traditional financial models under pressure F F E.g., Advertising/subscription mix u u Need to re-engineer the business model? u u Need to re-engineer the firm? u u Investment to compete F F Financial risk--Debt today, revenue tomorrow? n n For law and policy u u Copyright u u Security u u Consumer protection F F From fraud/abuse (e.g., SPAM, identity theft, etc) F F From unwanted content u u Definitions

15. Robert PepperImplications of E(verything) Over IP -15- Questions Arising from EoIP n n How to achieve traditional public policy goals in the new environment? u u What does “localism” mean in a networked, high-compression, local storage world? F F Does local mean “community”? F F Geographic or affinity or both? u u What does “diversity” mean in a networked, high-compression, local storage world? u u What are appropriate measures of competition? F F Competition for what? n n How will consumers respond? What will they want? u u How will they use the new technologies? u u Will they continue to exercise increased control? u u The need for aggregators and editors?

16. Robert PepperImplications of E(verything) Over IP -16- Thank You For more information: n n www.fcc.gov