Circuit City Firm on Set-Top Security


Washington -- The cable industry suffered a setback last
week, when Circuit City Stores Inc. called for tighter set-top-box rules than those
adopted by the Federal Communications Commission in June.

Cable-industry sources said they were hoping that Circuit
City -- a future retail distributor of advanced set-tops -- would urge the FCC to jettison
the ban on cable-operator provision of set-tops with embedded security functions, set for
Jan. 1, 2005.

Instead, Circuit City joined forced with the Consumer
Electronics Manufacturers Association in urging the FCC to not only retain the
integrated-box ban, but also to expedite the sunset.

"The record clearly supports a phase-out by an earlier
date, and it is wholly within the FCC's discretion to assure competition by
shortening the deadline," Circuit City said in a Sept. 23 FCC filing.

In a press release issued that day, the CEMA said it had
called on the FCC to require cable systems to cease providing set-tops that bundle
security and nonsecurity functions by July 1, 2000.

"The FCC should firmly reject cable's attempts to
eviscerate this pro-consumer order," said Michael Petricone, director of technology
for the CEMA, adding that the association's proposed changes "will only hasten
the development of a competitive retail market for cable set-top boxes."

Circuit City said a 2005 deadline would improperly give the
cable industry six years to deploy advanced set-tops with integrated security while its
competitors could not do so.

Cable sources were hoping that support from Circuit City
might coax the FCC into stripping out some of the more onerous requirements in the set-top
order, which is designed to assure the commercial availability of navigation devices.

FCC commission Susan Ness said last week that she was
unaware of any current effort at the agency to rewrite the set-top rules.

In its own FCC filing, the National Cable Television
Association said the 2005 sunset had to go because it was contrary to the FCC's
mandate under the Telecommunications Act of 1996, and it could serve to deny consumers
access to the most affordable technology.

Scientific-Atlanta Inc. and General Instrument Corp. are
asking federal courts of appeals to overturn the FCC's June order. And the NCTA last
week asked the courts for permission to enter the case on behalf of the two set-top

In other comments, the NCTA asked the FCC to reconsider its
decision to mandate separate security for analog-only boxes. The NCTA obtained support
from Circuit City on this issue last week, although the company said it was already on
record in support of an analog-only exemption.

The NCTA also asked for a clarification that the 2005
sunset would not apply to boxes that are already in consumers' homes or in
operators' inventory as of that date.

At issue on the cable side is the development of removable
security cards, which are necessary to ensure that only those consumers who order premium
services receive them. In current analog and digital boxes, the security mechanism is
built into the box.

In a removable fashion, the cards -- called PODs, or
point-of-deployment modules -- are scheduled to be made by GI and S-A. But cable MSOs have
indicated concern about whether the two manufacturers will view the making of $50 to $75
PODs as a financial disincentive to their core business of building $300-plus set-top

GI and S-A have publicly said that they plan to comply to
the FCC's rules about making removable PODs.

PODs will likely take the form of computer PCMCIA cards,
not unlike plug-in telephone modems, and they will include conditional-access circuits,
some memory, a processing chip and similar ingredients.

Time Warner Cable was concerned enough about the
availability of PODs that it included language in its reconsideration petition filed to
the FCC that extends the FCC rules to conditional-access-control vendors like GI and S-A,
although the two were not named directly.

Circuit City picked up on those concerns in its filing last

"With the apparent reluctance of monopolistic
suppliers to support the essential interface by supplying PODs as quickly and
inexpensively as is possible ... it becomes clearer and clearer that ... only through a
phase-out of the non-POD configuration, with which other suppliers cannot compete, will
the supply monopoly be eased and competition evolve," Circuit City argued.

Metaphorically, Circuit City likened the POD situation to
one in which the "fox is in charge of the chicken coop."

Circuit City did say that it supports the OpenCable process
of establishing necessary interfaces for navigational devices, because if the process goes
out to a larger, cross-industry group, nobody can be held accountable.

CEMA had argued that the Cable Consumer Electronics
Compatibility Advisory Group, or C3AG -- a group established to advise the FCC
on compatibility issues -- should share responsibility for setting standards on cable

But Circuit City opposed that, saying, "The flaw in
CEMA's proposal is that if, instead, the C3AG -- which must operate as a
due-process, multi-industry organization -- were given responsibility, then everyone,
which is to say no one, would be accountable."

Instead, that accountability should lay at the feet of
OpenCable, Circuit City said.