Kyle McSlarrow

A $600M Tax On The Future
November 3, 2006

Cable, broadcast and consumer-electronics companies are moving full-speed ahead to support the transition to an all-digital broadcast-TV format, a cutover that Congress has mandated for 2009. But a backwards-looking and completely unnecessary government mandate threatens to impose a new tax on all cable customers and discourage that migration of analog television owners into the digital age.

Worse, it threatens to undermine what will already be an enormous challenge by making the transition more complex and more expensive for consumers.

The mandate is the "Integration Ban." Imposed by the Federal Communications Commission (FCC), the mandate specifically requires that cable boxes must be re-engineered to use an insertable security card (a "CableCARD") that performs the same "security" and "descrambling" functions that current "integrated" boxes already perform. 

The end result? An FCC-imposed tax on consumers to the tune of $600 million per year. Consumers will pay $2 to $3 more per month for new equipment that provides exactly the same functionality as their existing set-top box. Even more puzzling is the fact that a new downloadable security technology -- a more efficient, less costly and more consumer-friendly option -- soon will be deployed by cable operators.

Cable operators are currently testing this new security technology, the industry’s Downloadable Conditional Access System, and plan to implement it in the next two to three years. So NCTA has asked the FCC to defer the integration ban until downloadable security is deployed or Dec. 31, 2009, whichever comes first.    

The FCC's apparent willingness to implement the Integration Ban shows there is a serious disconnect in government policies that threatens the digital TV transition. Congress last year established a $1.5 billion fund to subsidize the costs of digital-to-analog "converter" boxes for consumers that don't subscribe to a pay TV service. The National Telecommunications and Information Agency (NTIA) is now determining how to implement that voucher program.

So at a time when Congress has made the digital transition a national priority, and when NTIA is preparing to subsidize over-the-air households to the tune of $40 for each digital-to-analog converter, we have the rather bizarre situation where another government agency, the FCC, is preparing to force consumers to pay $2-$3 per month per box more for leased set-top boxes that actually would facilitate the digital transition for millions of viewers without any government subsidy.

The alternative to deferring the Integration Ban is to make all cable households eligible for the federal voucher program. But that would either add potentially billions of dollars to the cost of the program for the U.S. Treasury, or, since the current budgetary authority for this program is limited, severely diminish the financial support that's provided for those who are deemed eligible.

A far better solution is to defer the Integration Ban, allow downloadable security to work, and continue to encourage all players to look ahead, not backwards.  We encourage all cable interests, as well as consumer and taxpayer groups, to strongly support our efforts. 

Posted by Kyle McSlarrow on November 3, 2006 | Comments (0)