Low Cost Set-Tops: Down for the Count

2/02/2007 7:05 PM Eastern

Henderson, Nevada— The days of low-cost set-top boxes, at least for independent cable operators, appear to be numbered.

And counting from today, that number appears to be 146.

That's how far away July 1, when a Federal Communications Commission mandate goes into effect, is. The mandate will ban operators from deploying any more set-top boxes that include built-in conditional-access features, for controlling access to tiers of television services or individual programs.


And the 1,100 or so operators that serve about 10 million cable subscribers in small systems across the country will be hard-pressed to avoid complying with the mandate, American Cable Association CEO Matthew Polka told attendees of an educational workshop on technical issues here last Tuesday. They will also find it next to impossible to avoid the expense of installing much higher-cost boxes after that date.

“It's a huge imposition of cost,” said Polka.

In a Dec. 11 letter to the Federal Communications Commission, Polka said that new boxes from Motorola that will supply standard-definition pictures and can accept CableCards, insertable credit-card sized modules which include each operator's rules for access to programming, will cost $225 each. That compares to $80 for the boxes with built-in access controls Motorola now supplies to operators.

At the educational workshop run by the National Cable Television Cooperative, a purchasing organization for independent cable operators, two Motorola officials confirmed that pricing.

That could mean an independent operator such as Sunflower Broadband in Lawrence, Kan., would have to raise its rates for digital TV service from $3.95 a month to $6.95 a month to recoup the difference. That will deter consumers from subscribing to digital TV, Polka argued — an unintended consequence of the FCC order.

It wasn't supposed to be this way.

The idea of the FCC's ban was to open up competition in the manufacture of set-top boxes, and to allow for TV sets that can act like set-top boxes. If security and access control features are all placed on a credit-card sized slice of insertable instructions, then consumers could buy their own boxes or cable-ready TVs more readily. And more cheaply, if more manufacturers got in the game.

The FCC is pushing both broadcasters and cable operators to phase out non-digital transmission of television programming and services by early 2009.

The price hikes for getting access to digital services will vary by operator. Roughly speaking, it takes 30 months of charging $3 a month to recover the cost of an $80 box; and $7.50 a month from a subscriber over the same time to recover the cost of a $225 box.

Polka, cable operators and even manufacturers questioned whether a retail market will ever emerge for set-top boxes.

“I am a consumer. And as a consumer, I would rather rent a box” than buy it from a retailer, said Carlton Casey, director of business development for subscriber networks at set-top box maker Scientific Atlanta.

Independent cable operators can expect relief from the mandate only if they pledge to make their systems all-digital operations by year-end, said Polka, as Bend Cable Communications of Bend, Ore., recently did. Or if manufacturers fail to supply boxes in sufficient quantities to meet the mandate.

The FCC granted Bend a waiver last month, after it signed a sworn affidavit committing it to complete a conversion to all-digital signal transmission by the end of 2008.

Representatives of both of the cable industry's major set-top box suppliers — Scientific Atlanta and Motorola — stated on stage at the NCTC's workshop that they would begin mass production of the new boxes by the middle of first-quarter 2007.

But that was met with some skepticism. “The middle of the quarter is in two weeks,” Polka said after the presentations.

Motorola's product manager for what it calls “host” set-tops, Rob Folk, said that one benefit of separating control features from the boxes will be to enable operators to provide new services, such as digital recording of TV programs, in all corners of a home.

But the ability to add features got considerably less attention from the operators than the added costs.


In fact, there will be more costs imposed on operators besides the boxes themselves, according to NCTC president Jeffrey Abbas.

The untalked-about cost? The CableCards themselves, he said. Each is likely to set back an operator between $20 and $50 apiece. Or more, because operators shouldn't expect customers to return them when they move to a new home.

“It's not going to happen,” Abbas said. And pursuing the customer is not “going to be worth the effort.”

An alternative to CableCards offered by Abbas, Polka and some engineers was to instead send out the security instructions as codes that can be downloaded into existing boxes.

To date, however, cable industry engineers have not developed a standardized mechanism for downloading security instructions to set-top boxes of any kind.

ON DEADLINE: Set-Top Boxes
The costs of more expensive set-top boxes, to be passed on to consumers:
SOURCE: American Cable Association
July 1: No operator can deploy a digital set-top box that incorporates security features governing the conditions on which access is granted to television services.
• Boxes deployed before July 1, 2007
• Waivers granted by the Federal Communications Commission
Price Line
The costs of more expensive set-top boxes, to be passed on to customers.
SOURCE: Multichannel News research
$3: Monthly charge to cable TV customer to recoup cost of $80 set-top box over 30 months.
$7.50: Monthly charge to cable TV customer to recoup cost of $225 set-top box over same duration.
On Deadline: CALEA and Cable Operators
The Community Assistance for Law Enforcement Act of 1995 requires communications carriers to help investigators intercept messages carried on their networks. They can be required to intercept calls or computer activity of a criminal suspect and deliver "reasonably available" information that identifies the origin, direction or termination of calls. In 2005, the Federal Communications Commission determined that the provisions applied to providers of broadband Internet access and digital telephone service.
SOURCE: Bruce Beard, counsel, Cinnamon Mueller; American Cable Association
Feb. 12: Monitoring Reports Due
• Identify how your firm will comply with CALEA, using FCC Form 445.
• Develop your own monitoring, reporting and information collection system.
• Approval from the U.S. Department of Justice may be required.
March 12: Systems Security And Integrity Reports Due Plans must:
• Assure adequate protection of customers' privacy.
• Describe functions of and include name of a CALEA Compliance officer.
• Provide 24-hour contact information for law-enforcement use.
• Describe policies to ensure lawful authorization for interceptions.
• Describe record retention policies.
• Describe reporting of any irregularities or unlawful act.
May 14: Final Compliance CALEA program must be operational by this date:
• Limited opportunity to seek relief if compliance is not “reasonably achievable” because it would involve “significant difficulty or expense.”
• Detailed information on compliance program required.

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