Cable, Retailers Still Sparring

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The cable industry and consumer-electronics retailers continue to spar over
the design of government policies intended to advance competition in the
digital-set-top-box market.

The retailers -- led by RadioShack Corp. and Circuit City Stores Inc. --
claimed that cable operators are benefiting from at least two Federal
Communications Commission policies that are hobbling their entry into the
market.

The National Cable & Telecommunications Association, in contrast, backs
both policies and suggested that based on press reports, RadioShack and Circuit
City won't get serious about selling digital boxes until cable operators cut
them in on recurring cable-service revenue.

An FCC source said the agency continues to evaluate the situation but
provided no guidance on when it would go public with new rules.

Under FCC rules, cable operators are permitted to deploy integrated digital
boxes until 2005. Such boxes house signal-security and channel-surfing
functions. Even though MSOs may continue to deploy integrated boxes, they are
required to provide subscribers that own their own set-tops with insert cards
that descramble premium programming.

The retailers, which have not begun to roll out boxes, want the 2005 deadline
moved up to Jan. 1, 2002, claiming that they can't compete with cable unless
everyone produces boxes with signal security as a separate component.

While cable can live with the 2005 deadline, the industry would prefer to see
the FCC eliminate it. Cable operators insist that integrated boxes are
cost-efficient, and that removing the product line would deny consumers the
right to access cable services in the least expensive manner.

Another point of contention centers on rate regulation of cable boxes. The
FCC allows cable operators to price-average set-top boxes, which means
subscribers with analog boxes that have been in the field for years pay roughly
the same amount as subscribers with new digital boxes. This policy has allowed
cable operators to lease expensive digital boxes at rates consumers can
afford.

But the retailers want the FCC to put an end to this policy. They asserted
that by allowing cable operators to allow analog set-top revenue to subsidize
digital boxes, the commission is creating a digital-set-top market laden with
subsidies that new entrants can't hope to penetrate.

To level the playing field, RadioShack and Circuit City want cable operators
to share the digital-box subsidy with cable subscribers that buy their boxes at
retail.

The NCTA told the FCC the retailers' proposal is not authorized by law and
nothing stops retailers -- which are not rate-regulated on equipment like cable
operators -- from creating their own bundle of products, such as set-tops with
digital-TV receivers, that contain subsidies for the set-top.

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