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FCC Delays Proposed Rules on Cable/Satellite Carriage of Broadcasters' Digital Channels

June 3, 2007

The FCC had planned to announce new proposed rules at its May 31 monthly meeting but dropped the item at the last minute. There was no description offered about the substance of the almost-proposed rules, nor was any reason given why it was dropped, but we can always speculate.

The proposed rule changes would have affected three sections of the Code of Federal Regulations. Two of these dealt with broadcast signal carriage obligations by cable and satellite programming distributors. The third has the title "Modification of television markets," which has to do with which viewers belong to which TV stations, and under what circumstances, for example, a cable company can carry the signals of one TV station in another's territory, etc.

Anyway, FCC Chairman Martin has made no secret of his desire to have cable companies carry broadcasters' analog and digital signals, as well as their digital sub-channels. "Must-carry," in FCC lingo. I expect that was to be the subject of these almost-proposed rules.

He also has been pushing a la carte channel pricing, but this was not likely to have been included in these pulled proposed rules.

So what happened? I looked into the relevant FCC docket 98-120 and found three recent and interesting submissions: one from Comcast Cable, one from a frustrated cable subscriber, and one from The Weather Channel (!).

Comcast

This was an April 17 summary of an "ex parte" telephone call between a Comcast attorney and the FCC Chairman's senior legal advisor. During the call, the Comcast attorney argued against the FCC "imposing any additional must-carry obligations on cable operators."

The Comcast attorney made the following arguments:

  • Cable companies' bandwidth is constrained while demands on bandwidth increase (These other demands, however, are mostly for voice and data, not TV programming.),
  • cable has "every incentive to meet the needs of its customers," and it was up to the cable companies to decide how to do that, and not the FCC (more on this below),

  • cable already makes available to its subscribers the equipment they need to view digital signals on their analog TVs. He argued that the ability to use "low-cost" digital cable set-top-boxes is "critical to accelerating this transition to digital." (This latter part refers to the FCC's enforcement of the Congressional requirement to bring open competition to the cable set-top-box market, which cable has been fighting tooth and nail. By "low-cost" digital STBs, the Comcast attorney means to say cable company leased bi-directional boxes.)

  • "growing numbers of consumers are finding value in digital service offerings that include digital simulcasts of programming that is delivered to other households in analog" (meaning consumers are paying extra money for something that costs Comcast less in bandwidth to provide),

  • "cable needs the flexibility to continue to make bandwidth allocation decisions based on technological and marketplace developments" (which means they might want to scrimp on TV programming bandwidth if they can make more money on data or telephone services over their cable system),

  • "government interference in this complex and costly transition, even if well-intentioned, could have adverse consequences for competition and consumers" (lobbyists like to make this type of vague and ominous assertion a lot), and finally

  • "must-carry already rests on shaky legal foundation, and any expansion of must-carry obligations will be extremely vulnerable on statutory and constitutional grounds . . ." (That, my friends, is a threat of a court challenge to any FCC must-carry rule.)

The Frustrated Cable Subscriber

In stark contrast to that message, there was another submission by a disgruntled consumer, who had issues with Comcast practices. The Chambersburg, PA consumer seemed to disagree with the Comcast assertion that they had "every incentive to meet the needs of its customers." To wit:

"It is very clear that cable TV companies are using the FCC mandated digital television transition as an excuse to gouge the public. The transition is being used as an excuse to force consumers to switch to digital cable. Cable companies such as Comcast are charging 25 percent more for digital cable. There does not appear to be any technical reason why basic digital cable should be significantly more expensive than analog cable. If anything, it should be less since supposedly bandwidth is released for other services." (Very true; digital signals use a fraction of the bandwidth an analog cable channel uses.)

"The increased cost does not include the rental fees for the set top boxes. Depending on how many TVs a consumer owns, that rental fee could be another 40 percent."

At this point he states that "There are no digital cable ready TV sets."

In fact, virtually every digital TV that contains an ATSC digital over-the-air receiver also has a QAM digital cable receiver, and many of the older HD-Ready sets had QAM decoders. The standard chips include NTSC/ATSC/QAM. The QAM receiver will decode unscrambled digital cable signals. (If you need to see encrypted cable signals, you need either a CableCARD-equipped set or a set-top box.)

The question is--are cable companies encrypting broadcast network digital channels and other basic and standard channels? These were never encrypted in their analog form.

I have read two versions of what is happening. First--some cable companies are encrypting the digital/HD versions of these heretofore unencrypted channels, thereby "encouraging" subscribers to pay a premium for the digital tier and a digital/HD set-top-box.

Second--the cable companies are not encrypting these digital channels, but are nevertheless telling their subscribers they need a special box to see them on their new high-def TVs. The person who reported this found he could get the digital/HD channels without a box and without CableCARD.

Why would the cable companies try to hide this information? The FCC commenter continues:

"Cable companies are making billions of dollars on set top box rentals, something unrelated to cable service. It's a monopoly that consumers can not control. They have no option."

No option? Maybe.

If you have a digital TV with an ATSC receiver (all new sets do), look in you owner's manual to see how to switch the antenna input to digital cable (or just play with your remote), plug the cable into the back of the set (if it's not already there) and then punch in digital cable channel numbers and see what happens.

You may be surprised.

Would it work if you are an analog cable subscriber? Maybe. It shouldn't matter to the cable company since you would be getting the same programming. Easy enough to try. (I get my free programming via a very nice antenna, so I could not try this.)

If the digital/HD channels are encrypted, and you have a CableCARD-equipped TV, you can get a CableCARD from your cable company and see the scrambled channels. But cable companies are not very interested in supporting CableCARDs, because they are one-way devices, and they want you to use a two-way set-top-box so you can buy video-on-demand and so they can transition to switched digital video.

Switched digital frees up bandwidth so they can sell more services, such as telephone (VoIP) and broadband data.

Same reason they don't want you to just plug the cable into the back of your digital TV set and see glorious HD without a box. It's one-way (TV programming coming into your house from the cable company; no information running from your house to their computers.)

The FCC's "integration ban" goes into effect at the end of this month. New cable set-top-boxes will henceforth be separated into two functions--the navigation function (selecting channels, program guides, etc.), and the security function (decrypting premium channels, etc.). The cable company will be provide the security function; the consumer will be able to buy their own universal cable box (made by Sony, Samsung, etc.) from Best Buy or wherever, rather than taking what the cable company leases them.

A few cable companies have received a temporary waiver from the integration ban by meeting certain conditions.

Comcast applied (and lobbied hard) for an integration ban waiver, after successfully delaying the rule for years. The FCC turned them down. Now that they are finally going to have to comply, what are they doing?

The consumer commenter says "What Comcast is now doing is offering two free digital set top boxes to each subscriber so that those boxes will be in service before July 1 and can then be used well after consumers are supposed to be able to have a choice in the purchase of STBs."

Any integrated set-top-box put into service before the date can be kept in service forever, recycled from consumer to consumer for years to come.

The commenter goes on to complain about what cable/satellite services do to HD signals:

"However, because of excess compression, the crystal clear pictures transmitted by the heavily regulated broadcast stations end up as pixelated blotches on their big screens. Instead of discrete blades of grass on the football field, the consumer sees large blotches of green, with very little discernible detail. HD pictures should be transmitted with all content bits."

The latter mandate--requiring that cable systems send every content bit of HD programming to their subscribers--is something the FCC is considering. They are aware of the degradation.

The Weather Channel

So why is the Weather Channel worried about what happens to the cable industry? Their docket letter reporting the "ex parte" meeting between three Weather Channel people and FCC Commissioner Copps and his senior adviser did not supply the detail it is required to.

All it said was "The parties discussed the history of The Weather Channel, Inc. and the detrimental impact that a la carte or any expansion of the must carry requirements would have on The Weather Channel."

But we can guess.

First, a la carte channel pricing would give consumers the right to select only the channels they want. Right now, it's my understanding that the Weather Channel is included in just about every cable package in the country. Every subscriber that gets it puts some money in Weather's bank account.

Given a choice, many would choose not to pay for it.

Second, multi-cast must-carry means that cable companies would have to carry all of the local TV stations' sub-channels. There could be as many as four of them per local TV station.

Because most people get their TV via cable or satellite, broadcasters would not have many viewers left for their sub-channels if cable companies declined to carry them. Broadcasters have admitted that without multi-cast must-carry, the business model for all of these sub-channels (many with limited appeal) would fall apart.

Only the few sub-channels with compelling programming would be voluntarily picked up by cable companies.

As it turns out, many local TV stations would like to create (or have already created) a local weather sub-channel. Direct competition for the Weather Channel if the government mandates that cable channels carry them.

Apparently competition works. At their meeting with the FCC, the Weather Channel people presented a brochure on their new enhanced local weather programming. They've been distributing the brochure to cable companies.

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So now we wait to see if the FCC's proposed rule will see the light next time.