Cable Girds for New Set-Top Rules

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Washington-The cable industry has until the end of this week to comply with federal rules designed to promote the retail sale of set-top boxes.

The industry is expected to easily meet the July 1 deadline, and only a few operators have alerted the Federal Communications Commission that they will not be able to comply with the regulations.

On the heels of waiver requests filed by AT & T Broadband and Charter Communications Inc. in May, Insight Communications Co. Inc. also asked for a waiver to cover 128,000 basic subscribers and 7,400 digital subscribers.

Insight said a temporary waiver was necessary for the company to complete rebuilds that will add the channel space needed to comply with the rules.

In 1996, Congress ordered the FCC to craft rules that would allow cable subscribers to go to consumer-electronics retailers such as Best Buy Co. Inc. and Circuit City Stores Inc. to buy their set-tops, rather than leasing them from their cable operators.

Two years later, the commission decided the best way to drive consumers into the stores and to break cable's grip on the set-top market was to compel the separation of signal-security functions from channel-selection functions.

The FCC then went ahead and ordered cable operators to provide cards-called point-of-deployment modules-that subscribers can insert into their separately purchased set-tops. The POD is the device that descrambles premium and pay-per-view programming.

At the urging of the cable industry, the FCC agreed to exempt analog boxes. But the agency refused to exempt hybrid boxes-the set-tops that are being widely deployed by cable operators today so that consumers can upgrade to digital tiers while retaining their traditional analog fare.

Because no analog PODs are being manufactured, cable subscribers with their own set-tops will not be able to use digital PODs to descramble, for example, Home Box Office in analog.

That situation has forced cable operators to get creative, but at a cost.

The solution is to duplicate HBO analog in digital, which the digital POD can descramble. For the subscriber, this means only one set-top has to sit on the TV. The cable operator, however, must eat up valuable bandwidth to comply with the FCC rules.

Relying on the duplication approach is not an immediate option for some bandwidth-constrained cable operators, causing Insight, AT & T Broadband and Charter to seek waivers from the July 1 deadline.

Insight's waiver would affect at least those 7,400 subscribers who currently receive basic cable, digital cable and scrambled analog services. If any of them decided to buy boxes from retailers, the digital POD obtained from the cable operator would not descramble analog services that had not been duplicated in digital.

AT & T Broadband's waiver request would affect about 123,000 digital subscribers, and Charter's would affect about 45,000 digital subscribers.

Circuit City told the FCCthat it generally opposed the waivers for AT & T Broadband and Charter, claiming that the unavailability of analog PODs was not something beyond the cable industry's control.

"Whether or not analog PODs exist is a question of cable-industry and MSO procurement, pure and simple. In the realm of MSO-provided equipment, the cable industry does not react to product availability, it decrees it," Circuit City said.

Instead of accommodating cable, the FCC should ban cable operators from providing subscribers with integrated set-tops in 2002 instead of 2005, Circuit City added.

The cable industry's effort to comply with FCC requirements isn't likely to expand consumer choice in the set-top box market anytime soon.

Last week, Circuit City said it had no plans to sell competing set-tops, claiming that the standards for Internet access and cable interactive services over the boxes it wants to sell are not available.

"We don't want to sell a box is that is less capable than the box [consumers] could lease from the cable operator," Circuit City spokesman Bill Cimino said.

A cable industry source disputed Cimino's position about the unavailability of specifications for competing set-tops. The source said specifications for one- and two-way boxes are available on Cable Television Laboratories Inc.'s Web page, and can be downloaded from there.

In its June 12 FCC petition, Insight said it did not have sufficient bandwidth to duplicate premium analog channels in digital. It asked for a 12-month waiver unless an analog POD becomes available before then.

Without a waiver, Insight told the FCC, it had three options, but none of them was as attractive as a waiver:

  • Insight could drop some networks from its digital tier, but the MSO said that could lessen interest in the digital tier and violate programming agreements that carry "significant penalties" for doing so.
  • It could drop basic and expanded analog channels, but that would also violate existing programming contracts and harm subscriber expectations.
  • It could fold premium analog channels into basic or expanded-basic tiers on an unscrambled basis, but the MSO said that would cause rates to go up for subscribers that did not previously subscribe to premium networks.

"These solutions are not customer-friendly, and some solutions would actually diminish program diversity and consumer choice," Insight told the FCC.

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