I attended the Consumer Electronics Show in Las Vegas and while there’s been a lot of buzz about AT&T’s announcing its support of Android phones and about the usual new CE devices like tablet PCs, netbooks, e-readers and 3D TVs that were on display, I want to highlight an underappreciated announcement that has public policy implications for video services.

In his keynote address on Wednesday evening, Microsoft CEO Steve Ballmer announced that both the Xbox 360 and Windows 7 PCs will support Microsoft Mediaroom, Microsoft’s IPTV solution that powers AT&T’s U-verse service.  As Ballmer mentioned, AT&T is planning to introduce the option for U-verse TV customers to use their Xbox 360 as a U-verse set-top box later this year.  There is the potential of doing the same for Mediaroom-capable PCs in the future.

Why is this important to policymakers?  Last month the FCC issued an inquiry as part of its National Broadband Plan raising several questions related to set-top boxes which, as explained by Saul Hansell in the NY Times Bits Blog included “Why can’t that box you get from your cable company also get programs over the Internet and from other sources?” and “Would the availability of set-top boxes in retail stores encourage people to get broadband Internet service…and create a competitive market in devices that hook up to cable systems?”

And in an interview on Friday at CES with CEA President Gary Shapiro, FCC Chairman Julius Genachowski commented that only slightly more than 60% of households had a computer with a broadband connection in the home, but that over 90% had a cable set-top box.  He said that the FCC’s interest was in how enabling the set-top box to function more like a PC could drive broadband adoption – a critical component for achieving the Administration’s goal of broadband for all Americans.

This is precisely what AT&T U-verse could enable.  Microsoft’s Mediaroom solution should be more consumer-friendly than today’s cable solution that requires a combination of a tuner and CableCard.  Mediaroom is software-based, so there’s no need for separate tuners and a physical card provided by the subscriber’s cable provider.  So, later this year, when Microsoft Mediaroom enables the Xbox 360 console to be used as a standard secondary receiver, a U-verse subscriber will have the ability to use their Xbox to receive U-verse programming on their TVs connected to the Xbox.  This is an important development because it provides consumers with another choice for how they receive video services in their homes.

If the range of PCs demonstrated at CES is any indication, enabling a PC to function as a set top box just might be one potential means to incent innovation in set-top boxes.  And given that Xboxes and PCs can also access over-the-top video services, such as NetFlix or YouTube, this should continue to blur the lines between the over-the-top and multichannel video distribution models where both will co-exist on a single device, partially answering the FCC’s question around how a set-top box can also access content from the Internet.

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