FCC: Buy-Through Sunset on Horizon

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Washington— By October of 2002, the federal government will require cable operators to cease the practice of requiring subscribers to "buy through" a second tier of basic service before they can purchase premium channels.

And the Federal Communications Commission last month put the cable industry on notice that the deadline is fast approaching. That's caused some within the industry to speculate that the agency does not want any sudden surprises about compliance problems from large MSOs over the next 15 months.

Under the 1992 Cable Act, cable operators not subject to effective competition — today defined as those systems whose basic tiers are still regulated — cannot force subscribers who take only the introductory level of basic-cable service to purchase an "expanded basic" tier of channels as a prerequisite for subscribing to Home Box Office, Showtime or pay-per-view events.

The law's objective was to allow subscribers to buy their local broadcast signals (plus any cable networks added to basic), as well as premium or pay-per-view programming, without having to buy dozens of additional channels in the upper tier.

Upper-tier services typically include networks such as Cable News Network, Discovery Channel, C-SPAN, CNBC and ESPN.

The law granted cable operators a 10-year exemption from the rule if they were technically incapable of allowing subscribers to bypass the upper tier if all they wanted was basic and HBO.

Legislators' expectation was that cable operators would use the 10-year transition period to make their systems fully addressable, so signals would be encrypted at the headend and decoded at the set-top box.

The issue is probably more urgent for small systems than for large cable operators, which have spent billions of dollars over the last five years on digital upgrades. But so far, small systems have not taken any inventory of possible compliance problems.

"We have been clearly aware that it is an issue," said Matt Polka, president of the American Cable Association, which represents small operators that serve 7.5 million subscribers.

"We have not done anything formal yet to survey our members to find out. We are aware of the buy-through issue."

Last year, the FCC granted waivers to 10 cable operators with 133 systems that could not comply with agency rules designed to promote the retail sale of analog-digital set-top boxes.

The MSOs sought waivers after they told the FCC they did not have the channel capacity to duplicate premium programming in digital, which would then be unscrambled by the consumer's retail-acquired set-top with a point-of-deployment (POD) module supplied by the cable operator. The FCC had given the MSOs until July 1, 2001 to comply with the rules.

Paul Glist, a Washington cable attorney with Cole, Raywid & Braverman, said the FCC, by alerting cable of the buy-through sunset in last month's annual cable competition notice of inquiry (NOI), was signaling to cable that it did not want to relive the POD waiver experience.

"The FCC is informally trying to tell the industry: If you see a problem on some of your smaller, un-rebuilt systems coming up, would you let us know early on, because we really don't want a repeat of the hybrid box situation, the POD waivers," Glist said.

Glist said he expected cable operators to comply with the October 2002 deadline, and any waivers would be at the margins.

"I can't tell you anything more than my hunch," said Glist. "My hunch is that with all of the billions that have been spent rebuilding the industry, the vast majority of customers will be able to take advantage of the buy-through rule."

At least anecdotally, Glist said most cable subscribers served by systems that comply with the buy-through prohibition today have highly penetrated expanded-basic tiers, which means subscribers typically do not limit their purchases to just basic and premium channels.

"Not a lot of people buy around the tier," Glist said.

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