If you cut the cord and are watching all of your HD programming over-the-air, we have some bad news. Your current television set will soon be obsolete.

TV stations across the country are making plans to switch to the next generation of digital television — ATSC 3.0, and it isn’t compatible with millions of television sets and adapter boxes still in daily use across the United States.

The other night I talked with a station engineer who reminded me that consumers are going to have a nasty surprise when local stations start disappearing from existing sets starting a few years from now. Consumer electronics stores will continue to slash prices to clear current television inventory without telling buyers they will eventually need an adapter or rely on cable or satellite television to keep that set working after ATSC 3.0 is fully implemented.

Broadcasters have already started to budget for replacement equipment, necessary to support the new standard. For them, it opens the door to significant new revenue streams and a better quality TV picture. For you, it could mean a bill for a new set, an adapter, or a paid subscription to keep your favorite shows.

At present, over-the-air digital stations in the United States use ATSC 1.0, developed more than 20 years ago. Despite the standard, it took until February 2009 for most television stations to discontinue their analog television broadcasts. To ease the transition, Congress mandated a DTV Converter Box Coupon Program, which subsidized the cost of digital adapters for every household in the country still using an analog-only television set. No such luck this time around. Consumers relying on over-the-air broadcasts will either have to replace their current sets or purchase adapters or dongles out-of-pocket to keep watching.

To avoid a firestorm from the public, some station owners are thinking about a stop-gap measure that would launch a “digital bouquet” of participating local stations using lower bit rate Standard Definition on a single legacy ATSC 1.0 transmitter for at least a year or two until consumers upgrade their existing equipment. Then, one by one, existing HD stations would switch to ATSC 3.0 and effectively disappear from the dial of sets made before 2016. The good news is you would still have access to free television. The bad news is the picture will be significantly degraded.

Television stations are highly motivated to push for ATSC 3.0 as quickly as possible because it allows them to further monetize the spectrum the FCC allows them to use for free. For the first time, local stations will also be able to charge consumers directly to access broadcast television channels on portable devices like tablets and smartphones. ATSC 3.0 is based on Internet Protocol, allowing stations to blend broadcast and internet content. One of the unique changes ATSC 3.0 will allow is geographical or viewer-targeted commercials. A viewer in the suburbs could theoretically get a different commercial than another living in the city while watching the same station.

Television shows, transmitted in much higher-quality 4K, will also be accompanied by improved high quality audio and will integrate with online content that will run along with the show a viewer is watching. Theoretically, a viewer can lose over the air reception and have their internet connection seamlessly continue to stream the station in fringe reception areas. But viewers will likely be charged for that privilege.

ATSC 3.0 is also considerably more efficient than the current standard, which allows stations to add more digital sub-channels to their lineup, and deliver them in higher quality. That is a very important consideration as the FCC auctions away much of the current UHF television dial to mobile phone companies looking for boost wireless data capacity. ATSC 3.0 likely won’t be on the scene in a major way until after the FCC repacks current UHF stations closer together on the reduced number of UHF channels still left.

Some stations are expected to lease sub-channel space to third parties, which could start another avalanche of religious and home shopping channels, which often pay for coverage. If you have an Ion TV affiliate in your area, you already have an idea of what that looks like. In addition to a primary Ion TV channel, the broadcaster multiplexes 6 sub-channels – Qubo, Ion Life, The Worship Network, Ion Shop, QVC, and Home Shopping Network.

Currently, many major commercial stations support one or two sub-channels, often used for networks like Bounce, Antenna TV, MeTV, local weather and news, and shopping. But with an abundance of extra bandwidth, stations could add ethnic channels, time-shifted network shows, and a plethora of additional channels. That’s good news for cord-cutters looking for more over-the-air entertainment, but it will require an investment in a new set or an adapter to participate.

An introduction to ATSC 3.0 produced by the committee working on the standard. It doesn’t mention you will need a new television or adapter to watch. (3:15)

With the advent of AT&T/DirecTV Now, AT&T’s new over-the-top streaming TV service launching later this year, AT&T is preparing to bury the U-verse brand.

Earlier this year, AT&T customers noticed a profound shift in the company’s marketing priorities. The phone company began steering potential customers to AT&T’s latest acquisition, satellite television provider DirecTV, instead of U-verse. There is an obvious reason for this – DirecTV has 20.45 million customers as of the second quarter of 2016 compared to 4.87 million customers for AT&T U-verse TV. Volume discounts make all the difference for pay television companies and AT&T hopes to capitalize on DirecTV’s lower programming costs.

AT&T’s buyout of DirecTV confused many Wall Street analysts, some who believe the days of satellite television are past their peak. Satellite providers lack the ability to bundle services, although some phone companies partner with the satellite company to pitch phone, broadband, and satellite TV to their customers. But consider for a moment what would happen if DirecTV introduced satellite television without the need for a satellite dish.

Phillip Dampier: The “U” in U-verse doesn’t stand for “unlimited.”

AT&T’s DirecTV Now will rely on the internet to deliver television channels instead of a satellite. AT&T is currently negotiating with most of the programmer conglomerates that own popular cable channels to allow them to be carried “over-the-top” through broadband connections. If successful, DirecTV Now could become a nationwide powerhouse alternative to traditional cable TV.

AT&T is clearly considering a potential future where DirecTV could dispense with satellites and rely on broadband instead. The company quietly began zero rating DirecTV streaming in September for AT&T Mobility customers, which means watching that programming will not count against your data plan. For current U-verse customers, broadband speeds have always been constrained by the need to reserve large amounts of bandwidth to manage television viewing. Although AT&T has been boosting speeds in selected areas, a more fundamental speed boost could be achieved if AT&T dropped U-verse television and turned the service into a simple broadband pipe that relied on DirecTV Now to manage television service for customers.

AT&T seems well on the way, adding this notice to customer bills:

“To make it simpler for our customers U-verse High Speed Internet and U-verse Voice services have new names: AT&T Internet and AT&T Phone. AT&T Internet product names will now align with our Internet speed tiers. Our voice plan names will remain the same.”

An earlier internal company memo suggested AT&T would eventually transition all of its TV products into “AT&T Entertainment” after completing a transition to its “next generation TV platform.” Increasingly, that platform seems to be an internet-powered streaming solution and not U-verse or DirecTV satellite. That transition should begin in January.

Gone by end of 2016.

It would represent a formidable change, but one that makes sense for AT&T’s investors. The transition to IP networks means providers will offer one giant broadband pipe, across which television, phone and internet access will travel. The bigger that pipe becomes, the more services customers are likely to use — and that means growing data usage. Having a lot of fiber infrastructure also lays the foundation for expansion of AT&T’s wireless network — particularly towards 5G service, which is expected to rely on small cell technology to offer faster speeds to a more localized area — fast enough to serve as a home broadband replacement. Powering that network will require plenty of fiber optics to provide backhaul access to those small cells.

Last week, AT&T announced it launched a trial 100Mbps service using point-to-point millimeter-wave spectrum to offer broadband to subscribers in multiple apartment complexes around the Minneapolis area. If the initial trial is successful, AT&T will boost speeds to include 500Mbps service to those same complexes. AT&T has chosen to provide the service outside of its usual service area — Minneapolis is served by CenturyLink. AT&T acquired a nationwide license to offer service in the 70-80GHz band back in 2009, and an AT&T spokesperson claimed the wireless signal can reach up to two miles. The company is also experimenting with new broadband over power lines technology that could offer service in rural areas.

Just like its wireless service, AT&T stands to make money not just selling access to broadband and entertainment, but also by metering customer usage to monetize all aspects of how customers communicate. Getting customers used to the idea of having their consumption measured and billed could gradually eliminate the expectation of flat rate service, at which point customers can be manipulated to spend even more to access the same services that cost providers an all-time low to deliver. Even zero rating helps drive a belief the provider is doing the customer a favor waiving data charges for certain content, delivering a value perception made possible by that provider first overcharging for data and then giving the customer “a break.”

As of mid-September, streaming media analyst Dan Rayburn noted Akamai — a major internet backbone transit provider — was selling content delivery contracts at $0.002 per gigabyte delivered, the lowest price Rayburn has ever seen. Other bids Rayburn has reviewed recently topped out at 0.5 cents per gigabyte. According to industry expert Dave Burstein, that suggests large ISPs like AT&T are paying something less than a penny per gigabyte for internet traffic.

“If you use 139GB a month, that costs your provider something like $1/month,” Burstein wrote, noting doubling backbone transit costs gives a rough estimate of the cost to the carrier, which also has to carry the bits to your local exchange. In this context, telecom services like broadband and phone service should be decreasing in cost, not increasing. But the opposite is true. Large providers with usage caps expect to be compensated many times greater than that, charging $10 for 50GB in overlimit fees while their true cost is well under 50 cents. Customers buying a cell phone are often fitted with a data plan that represents an unprecedented markup. The extent of price increases customers can expect can be previewed by looking at the cost of phone service over the last 20 years. The average, often flat rate telephone bill in 1995 was $19.98 a month. In 2014, it was $73 a month. In 2015, it was $90 a month. Those dramatically rising prices in the last few years are mostly as a result of the increased cost of data plans providers charge to clean up on customers’ growing data usage.

Both Comcast and AT&T are dedicated to a campaign of getting customers to forget about flat rate, unlimited service at a reasonable cost. Even as both companies raise usage caps, they continue to raise prices as well, even as their costs to provide the service continue to drop. Both companies hope to eventually create the kind of profitable windfall with wired services that wireless providers like AT&T and Verizon Wireless have enjoyed for years since they abandoned unlimited flat rate plans. Without significant new competition, the effective duopoly most Americans have for telecommunications services offers the opportunity to create a new, more costly (and false) paradigm for telecom services, based on three completely false claims:

• data costs are expensive,
• usage must be monetized, and
• without a bigger return on investment, investors will not finance the next generation of telecom upgrades.

But as the evidence clearly shows, profits from selling high-speed internet access are only growing, even as costs are falling. Much of the drag on profits come from increasing costs related to licensing television content. Voice over IP telephone service is almost an afterthought for most cable and phone companies, often thrown in for $10-20 a month.

AT&T’s transition puts all the attention and its quest for fatter profits on its broadband service. That’s a bad deal for AT&T customers no matter what the company calls its “next generation” network.

Is this the future of satellite TV?

Ten years ago, large programmers like NBC-Universal, Fox, Viacom, and Time Warner started bundling new niche channels into their programming packages, forcing pay television providers to add networks few wanted just to get a contract renewal agreement in place for the networks they did want. Now, in the era of cord-cutting, those programming conglomerates are preparing to slim down.

One of the largest — Comcast/NBCUniversal — is the first to admit “there are just too many networks,” to quote NBCUniversal CEO Steve Burke.

Burke warned investors back in July that axing networks like Style and G4 was just the beginning.

“You’ll see us and others trimming channels,” Burke said during Comcast’s second-quarter earnings call. “We will continue to invest what we need to invest into our bigger channels, and we’ll continue to trim the smaller ones.”

Cable operators hope that day arrives sooner rather than later as cord-cutting continues to have an impact on cable-TV subscriptions.

For every popular cable network like USA and Bravo, cable operators get stuck carrying ratings-dogs like CNBC World, Centric, Cloo, VH1 Classic, Fox Business Network, and Fuse — all of which attract fewer than 100,000 viewers nationwide at any one time. Fuse barely attracted 51,000 viewers in 2015. But just about every cable TV customer pays for these channels, and many more.

Many cable channels wouldn’t survive without subscription fees because advertisers consider them too small to warrant much attention.

While Burke’s prediction has yet to slash the cable dial by more than a few networks so far, it has slowed down the rate of new network launches considerably. One millennial-targeted network, Pivot, will never sign on because it failed to attract enough cable distribution and advertisers, despite a $200 million investment from a Canadian billionaire. Time, Inc.’s attempts to launch three new networks around its print magazines Sports Illustrated, InStyle and People have gone the Over The Top (OTT) video route, direct to consumers who can stream their videos from the magazines’ respective websites.

Fierce Cable this week opined that forthcoming cord cutter-targeted TV packages streamed over the internet from players including DirecTV/AT&T and Hulu, among others, will likely start a war of cable network attrition, which may make the concept of a-la-carte cable a thing of the past. Editor Daniel Frankel believes the future will be a finite number of cable networks delivered primarily over IP networks, which are expected to dramatically pare down the traditional cable TV bundle into fewer than 100 channels. Only the most popular networks will be included in a traditional cable TV lineup, and some of these providers expect to deliver a bundle of fewer than 50 channels, including local stations. Those booted out of the bundle may still find life from viewers going OTT, if those networks can attract enough people to watch.

AT&T is hoping for the best of both worlds as it prepares to launch an internet-based package of networks under its DirecTV brand called DirecTV Now. Sources told Bloomberg News AT&T is hoping DirecTV Now will attract more subscribers by 2020 than its satellite service. At some point in the future, it may even replace DirecTV’s satellite television service.

DirecTV Now is expected by the end of this year and will likely offer a 100 channel package of programming priced at between $40-55 a month, viewable on up to two screens simultaneously. The app-based service will be available for video streaming to televisions and portable devices like tablets and phones. No truck rolls for installation, no service calls, and no equipment to buy or rent are all attractive propositions for AT&T, hoping to cut costs.

Since AT&T has taken over DirecTV, it has lost over 100,000 satellite customers. The threat to AT&T U-verse TV is also significant as customers increasingly look for alternatives to cable TV’s bloated and expensive programming packages. AT&T no doubt noticed the impending arrival of Hulu’s cable TV streaming platform next year and other services like Sling TV. Deploying their own streaming alternative with AT&T’s volume discounts from the combined subscribers of DirecTV and U-verse means AT&T can sell its streaming service at a substantial discount.

If consumers find the offerings from DirecTV Now and Hulu a credible alternative to traditional cable television, cord cutting could dramatically accelerate, provoking a response from cable operators likely to offer their own slimmed-down packages. So being among the 100 or so networks carried on DirecTV Now, or among the 50 or so networks Hulu is planning to offer, could be crucial to the future survival of any cable network. Those stranded in the 500-channel Universe of today’s cable television packages could be forced off the air or to an alternative means of reaching an audience such as OTT.

The lesson learned by the cable television industry is that customers are tapped out and unwilling to pay ever-rising cable TV bills for dozens of networks they’ve never watched and don’t intend to. The longer term lesson may be even more scary for some networks. Live, linear television as a concept may have seen its time come and go, at least for entertainment programming. While viewers are always going to seek live television for sports and breaking news, alternative on-demand viewing of everything else, preferably commercial-free, is a growing priority for many, especially if the price is right.

[Editor’s Note: Federal Communications Commission chairman Thomas Wheeler today released a compromise proposal hoping to get the cost of set-top box equipment down for millions of Americans forced to lease equipment to watch cable television.

Wheeler originally proposed requiring an open standard for set-top box equipment that would open the market to competition by allowing manufacturers to directly sell equipment to consumers and compete for their business. Cable operators, programmers, and various special interest groups that depend on financial contributions from those operators immediately launched an unprecedented pushback claiming set-top box reform was racist, anti-minority, promoted copyright theft, and was illegal and unconstitutional. Small cable operators claimed they might be driven out of business, and programmers claimed companies like Google might fundamentally change the channel lineup on new equipment that would leave them in a disadvantaged position.

In fact, the hundreds of millions of dollars in annual revenue earned by cable operators charging the same price for equipment fresh out of the box or handed down in beat up condition to the fifth customer in eight years was more likely the driving factor.

Mr. Wheeler capitulated and released a more modest proposal promising cable operators would be forced to offer free “apps” for devices like Roku and Apple TV. But cable operators will likely own and manage those apps and have direct control of authentication methods and anti-piracy measures that are likely to be proprietary. Still, apps like TWC TV which covers Time Warner Cable’s lineup on devices like Roku have allowed consumers to ditch expensive set-top equipment and irritating Digital Adapters that don’t function well and have almost tripled in price since their introduction. Making sure these apps provide comparable functionality with set-top boxes and are released to a variety of devices will be key to whether Wheeler’s proposal, delivered in full below courtesy of the Los Angeles Times, has a measurable impact on cable bills.]

FCC chairman: Here are the new proposed rules for set-top boxes

There’s never been a better time to watch television in America. We have more options than ever, and, with so much competition for eyeballs, studios and artists keep raising the bar for quality content. But when it comes to the set-top-box that delivers our pay-TV subscriptions, we have essentially no options, creating headaches and costing us serious money in rental fees. That makes no sense, which is why I’m sharing a proposal with my fellow commissioners at the Federal Communications Commission to change the system.

Wheeler’s compromise

Ninety-nine percent of pay-TV subscribers currently lease set-top boxes from their cable, satellite or telecommunications provider, paying an average of $231 a year for the privilege, according to a recent analysis. The collective tab is $20 billion annually in rental fees. In a recent study, 84% of consumers felt their cable bill was too high. What they may not realize is that every bill includes an add-on fee for their set-top boxes. We keep paying these charges even after the cost of the box has been recovered because we have no meaningful alternative.

Pay-TV providers will be required to provide apps — free of charge — that consumers can download to the device of their choosing.
Earlier this year, the FCC launched a process to unlock the set-top-box marketplace. We were motivated by the desire to give consumers relief, but we were also mandated to take action by Congress and the law, which says that consumers should be able to choose their preferred device to access pay-TV programming.
Over the past seven months, the Commission conducted an open proceeding where we heard from pay-TV providers, programmers, device and software manufacturers, consumers groups, and, most important, the American people. We listened.

Now, I am proposing rules that would end the set-top-box stranglehold. If adopted, consumers will no longer have to rent a set-top box, month after month. Instead, pay-TV providers will be required to provide apps – free of charge– that consumers can download to the device of their choosing to access all the programming and features they already paid for.

If you want to watch Comcast’s content through your Apple TV or Roku, you can. If you want to watch DirectTV’s offerings through your Xbox, you can. If you want to pipe Verizon’s service directly to your smart TV, you can. And if you want to watch your current pay-TV package on your current set-top box, you can do that, too. The choice is yours. No longer will you be forced to rent set-top boxes from your pay-TV provider.

One of the biggest benefits consumers will see is integrated search. The rules would require all pay-TV providers to enable the ability for consumers to search for pay-TV content alongside other sources of content. Just type in the name of a movie, and a list will come up with all the places it is scheduled for broadcast and where it can be streamed (like Amazon Prime or Hulu).

Integrated search also means expanded access to programming created by independent and diverse voices on the same platform as your pay-TV providers. Consumers will more easily find content even if it’s not on the pay-TV service to which they subscribe.

These rules will open the door for innovation, spurring new apps and devices, giving consumers even more choice and user control.

While our primary focus during this proceeding was to promote consumer choice and fulfill our congressional mandate, we recognize that protecting the legitimate copyright interests of content creators is also key to serving the public interest. To ensure that all copyright and licensing agreements will remain intact, the delivery of pay-TV programming will continue to be overseen by pay-TV providers from end-to-end. The proposed rules also maintain important protections regarding emergency alerting, accessibility and privacy.

Large pay-TV providers, which serve more than 90% of subscribers, will have two years to fully implement the new requirements.  Medium-sized providers will have an additional two years to comply, and the smallest providers would be exempt.

This is a golden era for watching television and video. By empowering consumers to access their content on their terms, it’s about to get cheaper — and even better.