FCC Extends Set-Top Rules To Analog


Washington -- Call it cable's "Year 2005"

Last week, the Federal Communications Commission banned
cable operators from providing set-top boxes with integrated security functions starting
Jan. 1, 2005 -- a mandate that operators will likely take to court if it is not reversed
by the commission.

On top of that, the FCC told operators that as of July 1,
2000 -- two months sooner than cable agreed to in talks with FCC officials -- they must
provide subscribers with security modules that plug into set-tops that are purchased from
consumer-electronics retailers.

The two deadlines, handed down in a 4-1 vote, were the key
decisions that the FCC made to ensure, under the Telecommunications Act of 1996, that
cable subscribers can walk into any consumer-electronics store, such as Circuit City or Nobody Beats the Wiz, and buy
their set-tops.

The rules, according to cable-industry and FCC sources,
apply equally to analog, hybrid and digital set-tops.

"We make no distinctions," an FCC source said.

One cable-industry executive, speaking not for attribution,
said the decision to include analog set-tops in the rules was handed down late on the
evening before the rules came out last Thursday.

"Sounds like a jam-down from somewhere," the
source said.

Cable Television Association
president Decker Anstrom released a statement
saying that the FCC had taken "a reasonable and balanced approach." But Anstrom
balanced that praise with his concerns about the 2005 sunset and the inclusion of analog

"We believe that there is nothing in the statute that
requires or authorizes the commission to prohibit integrated boxes," said Daniel
Brenner, the NCTA's vice president of law and regulatory policy.

Cable sources said they are balking at the analog mandate
because it might prove impossible to locate a manufacturer that is willing to make analog
security modules and to price them at an affordable level.

"Frankly, we have no clue how on earth we'll do
this for analog," one senior cable executive said.

And, they added, analog technology is less secure than
digital technology in guarding against signal theft.

FCC leaders insisted, however, that the rules are more than
adequate to protect operators from premium-channel pirates.

"This is not going to happen overnight," FCC
commissioner Susan Ness said. "No one wants to see security compromised."

FCC commissioner Michael Powell, in his dissent, said the
2005 ban on integrated boxes would force cable subscribers to buy set-tops with expensive
add-on features from retailers, while denying them the right to lease less-expensive,
integrated set-tops from their cable operator.

"That's why we want to have the right to continue
to lease integrated boxes," NCTA executive vice president June Travis said.

Industry technical consultant Walt Ciciora estimated that
under the new rules, per-unit set-top costs will rise by $50 to $80.

"The only beneficiary in this is the retailer, who
will see reduced competition -- and I thought the whole point of this was increased
competition," Ciciora said.

Powell said all that the Telecommunications Act of 1996
required was that the FCC ensure the commercial availability of set-tops. The FCC, he
said, achieved that by mandating the unbundling of security in July 2000. The 2005
mandate, he added, was an FCC sop to retailers.

Ness said the 2005 rules do not handicap cable operators.
They have the same rights as retail-store giants to lease or sell set-tops to subscribers,
she added.

"The only difference is that instead of it being an
integrated device, it will look like an integrated device from the consumer's
perspective, except that it will have a little [security] card that will go in it,"
Ness said.

FCC chairman William Kennard said the 2005 decision was
critical in his view to ensuring the development of a retail market.

"We grappled with the 2005 sunset. It was a difficult
issue. It was ultimately a balancing of policy objectives here," Kennard said.
"At the end of the day, I think that a sunset is necessary to ensure that these boxes
are truly commercially available."

House Commerce Committee chairman Rep. Tom Bliley (R-Va.)
hailed the FCC's action. Bliley -- who backed Circuit City, an important constituent
of his, in the debate -- inserted the set-top provision in the 1996 law.

"The FCC's decision expands consumer choice and
competition in cable equipment," Bliley said in a prepared statement. "Consumers
will benefit from the resulting manufacturing and distribution of a new generation of
digital set-top boxes."

Cable executives seemed surprised and dismayed at the 2005
ban, but otherwise comfortable with the rules.

David Robinson, vice president and general manager of
General Instrument Corp.'s digital-video division, said, "For the most part, the
rules seem consistent with the direction that the industry is taking."

He added that GI's large, 15 million-unit order from
several MSOs -- mainly Tele-Communications Inc. -- is not affected by the 2005 sunset,
because that order should be fulfilled well before that date.

Richard Green, president and CEO of Cable Television
Laboratories Inc., said the ongoing OpenCable effort is on track for a year-end deadline
for complete technical specifications, including "PODs," or
"point-of-deployment modules."

PODs will look similar to PCMCIA computer cards, and they
will hold set-top-configuration information specific to an operator's system. It is
the POD that will become cable's answer to a removable security module.

This means that consumers will be able to buy set-tops
outfitted with POD receptacles, then get with their cable subscriptions the POD cards that
fire up the boxes and secure premium channels.

Anstrom noted that the cable industry, through the
OpenCable process, will have separate digital-security modules available by September