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FCC Draws Line on Cable Box Foot-dragging

January 17, 2007

After throwing up roadblocks and lawsuits for ten years, the cable industry is finally going to lose its monopoly on the cable set-top-box. It starts on July 1.

In 1996 Congress mandated that consumers should be able to buy any cable box they wanted from any manufacturer, and that box should work on any cable system in the country, so the cable subscriber could take their box with them when they moved. It would be much the same as when the telephone industry was opened up to competition (when your choice had been a leased black rotary-dial phone from Ma Bell).

Look what happened to telephones and telephone service after that.

Because cable boxes contained a "security" function (subscriber authorization and decryption of premium channels) that was integrated with the "navigation" function (channel switching, etc.), those two functions had to be physically separated. Only the navigation function would be open to competition; the security function would still be controlled by the cable companies.

For there to be true competition, cable company boxes and third-party boxes needed a level playing field. That meant each model cable box had to have a common reliance on the same separate security device; it couldn't be integrated in the cable company supplied box and a two-part system for competing boxes.

Hence the rule was called the "integration ban," and the separate security device became the CableCARD.

The cable industry was not happy. After running out of other stalls, it finally opted this past year to go after Congressionally authorized waivers for integrated low-cost limited-capability set-top boxes that were "needed" to introduce new digital services and enhance competition among video service providers.

Several petitions for these waivers were submitted to the FCC in 2006. The FCC has just decided those from Comcast, Bend Cable Communications, and Cablevision. The Commission granted Cablevision's request, conditionally granted Bend Cable Communications' request, and denied the request filed by Comcast (while granting Comcast leave to amend its request).

The FCC slammed Comcast on every argument it made.

First, Comcast flatly stated that the set-top boxes it wanted exempted from the integration ban (those proprietary boxes containing both security and navigation functions that it leased to its customers) were the low-cost limited capability boxes eligible for a waiver. The FCC pointed out that in every proceeding before this one, the cable industry had characterized those same bi-directional/interactive boxes (capable of video-on-demand, etc.) as "advanced." The FCC said eligible boxes were those that provided one-way basic digital-to-analog conversion. The Commission cited such a box produced in 2003 and dropped by the manufacturer due to lack of interest by the cable industry.

Second, waivers are only available for temporary application, and yet Comcast wanted a permanent exemption. Not only that, but Comcast was asking that the waiver apply to future boxes similar to the ones in the waiver request, ones that incorporated new features and services! That sort of exemption would have made the integration ban moot.

Third, Comcast alleged that the waiver would be needed to introduce new digital services (another waiver requirement). The FCC pointed out that the services Comcast raised were already available to most or all of its subscribers and had already achieved substantial acceptance.

Fourth, one of the goals of the waiver provision in the legislation was to promote the transition to all-digital cable systems in order to make it more attractive for consumers to embrace the transition to the new digital/HD TV standard. That happens February 17, 2009, but Comcast had suggested that it would be keeping its analog cable service around for years after that, waiver or no waiver.

The FCC left the door open for Comcast to change its policies and try again. Temporary waivers would be entertained for simple, one-way integrated boxes, or if waivers for other boxes led to an all-digital cable network before February 2009.

While Cablevision also failed to meet the criteria under the legislative waiver authority, the FCC granted it a two-year waiver under its own general waiver authority.

Cablevision had started implementing its own separate security function in 2001, years before CableCARD was available. It employed a similar SmartCard, and today all of its own boxes are so equipped. When used with an adapter, its SmartCard will also work with CableCARD TVs and boxes.

The SmartCard does not comply with FCC requirements, because it contains only the security "key," and the encryption mechanism is in the box itself (or in the adapter used for CableCARD applications). Nevertheless, because Cablevision acted in good faith to comply with the Congressional mandate while everyone else stalled, the FCC is giving them until July 1, 2009, to fully comply with the integration ban.

Bend Cable's waiver request was conditionally granted in order to allow that company to convert to an all-digital system by 2008. The temporary waiver is conditioned on the following:

(1) BendBroadband's filing with the Media Bureau a sworn declaration in which it commits to move to an all-digital network by 2008,

(2)BendBroadband's notifying all of its analog customers of its plans to go all digital at least six months in advance of that event and submitting an affidavit to the Commission confirming that such notice has been provided, and

(3) BendBroadband's assurance that, at least six months prior to its migration to all digital, it has in its inventory or has placed orders for enough set-top boxes to ensure that each of its customers can continue to view BendBroadband's video programming on their television sets and submitting an affidavit to the Commission confirming that this is the case.

So, where does all of this leave the consumer?

This was a gutsy move by the FCC. Things are going to change. The integration ban does not begin until July 1 of this year, so not too much before then. And the ban only affects new set-top boxes, so all of those millions of boxes already out there are going to stay.

Of course, if you've got analog cable service, you're going to have to switch sooner or later to digital.

One of the most significant changes coming out of this wave of decisions was the statement by the FCC that cable operators implementing a software-based security system would not need a waiver at all. This is so-called DCAS (downloadable conditional access system), as opposed to a hardware-based separate security system (i.e. CableCARD).

While an industry committee has been debating DCAS for years with no visible progress to show, the FCC made a point of noting that Beyond Broadband Technology, LLC, "has already developed a downloadable security solution which provides for common reliance. BBT reports that its open standard, low-cost solution for separated security will be available in time to comply with our July 1, 2007 ban on integrated security devices."

This software solution will replace CableCARD, and will require that set-top-boxes and TVs be designed to accept the software. So we're talking about future products. But you can expect that a TV you might buy in 2008 or later, would not need any sort of box to get digital, HD, or premium cable service. You would plug the cable into the back of the TV, the cable company would download its security software, and you'd be set.

Starting in the same time frame, you could go to your favorite big electronics store, shop for a cable box with the features you want, take it home and hook it up to your TV, and tell the cable company to download its security software into the box. Then move across the country and take the box with you, and your new cable company would download its security software into the same box. No leasing boxes from the cable company anymore (unless you like theirs, and that's the whole point--competition--better boxes for less money to make the sale--and not simply take what the cable company wants to give you).

The fate of future waivers? Since the FCC clarified that bi-directional set-top-boxes are not eligible for Section 629 waivers (they are not "limited capability"), waivers will be limited to special circumstances. The cable industry is set on bi-directional/interactive services and will not field a one-way box. Bi-directional gives them the opportunity for new revenue streams (video on demand, etc.) and enables "switched digital video" to be implemented, which greatly increases the efficiency of their bandwidth (allowing them to sell more services, e.g. broadband, VoIP, etc.).

If you have a one-way box, the cable companies may limit your access to HD programming, now or in the future. The competing Verizon and AT&T video programming services that are in the early stages of being rolled out will also be fully bi-directional.

TV's in a high state of flux. What can I say?