What's good for the goose...

Open video system cost allocation rules may be just around the corner, but the very existence of those rules may be the straw that broke the camel's back for OVS.

Telcos that are committed to a common carrier platform for video services delivery have had their patience sorely tried over the last couple of years. First, the Federal Communications Commission shelved its video dial tone rules during the endless wait for the Telecom Reform Act to pass, then imposed a four-month wait on the industry while it hammered out initial OVS rules.

But the FCC's upcoming cost allocation order will likely be the deciding factor in whether OVS will be anything more than a novelty. The commission is expected to order telcos to allocate at least 50% of the cost of their integrated OVS networks to their unregulated video businesses and the remainder to their telephone businesses-somewhat better than the cable TV industry's proposition that telcos allocate 75% of their costs to the video side and 25% to telephony.

That's easy for the cable guys to say. Although many MSOs are planning to offer integrated services over their hybrid fiber/coax networks, they face no similar controls. According to a cable industry representative, MSOs don't need cost allocation regulations because they face more competition than telephone companies and their rates are set by the FCC.

But under price cap rules, telcos' rates are regulated as well, making it more difficult for them to cross-subsidize. Moreover, MSOs will be eligible for rate regulation relief when they face telco competition, but no one's demanding that they cut their rates to reflect the efficiencies of offering voice and video over a single network.

In fact, the telcos are surprisingly silent on this subject-maybe because they don't want to shoot themselves in the foot. As long as they face cost allocation restrictions under OVS that may require them to bear the majority of their costs on the video side, they're likely to go the cable TV route for their integrated networks.

It's just common sense. Price cap regulation keeps telcos from raising their telephone rates, and if they're forced to bear the majority of their network costs on the video side, they'll be forced to either raise their video rates or absorb that cost, neither of which is a good business practice in a competitive market.

Hmmm... maybe those cable guys aren't so goofy, after all.