FCC Order Adds Time To '05 Set-Top Sunset

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In a move cheered by cable operators, the Federal Communications Commission last Friday pushed back the January 2005 ban on deployment of new integrated set-top boxes.

The cable industry favored complete removal of the ban. That didn't happen.

The FCC instead extended the deadline by 18 months, or until July 2006, and put cable on notice that it had not completely abandoned the idea of imposing a ban at some point.

In a unanimous decision, the FCC said the extension was warranted because private negotiations between cable and consumer-electronics industries had made "significant progress" on standards aimed at allowing consumers to own their own set-tops and digital TV sets without the need for a set-top.

Cable boxes now running in consumer homes have built-in encryption and other functions, such as channel navigation.

But in 1998 the FCC — eager to encourage set-top box distribution at retail — ordered security and navigation functions separated, with encryption provided by a point-of-deployment card that could be inserted into a set-top.

That way, consumers could buy standard boxes from different makers at retail, and obtain a POD card later from a cable operator when they signed up for service.

The FCC's new order allows operators and set-top makers to continue using integrated digital set-tops for 18 more months before they must switch to boxes using the POD interface.

Powell factor

Michael Powell, then an FCC commissioner, sharply criticized the 2005 ban when it was enacted. Powell is now chairman of the GOP-controlled agency.

The 2005 sunset on integrated boxes first applied to all cable set-tops. But the FCC later exempted analog boxes, leaving only hybrid analog-digital units covered by the rule.

The agency intended to bar the introduction of new integrated boxes, but not to demand the recall of integrated boxes already in the field.

In recent weeks, the National Cable & Telecommunications Association has been lobbying the FCC to eliminate the 2005 deadline in light of the plug-and-play agreement between cable operators and consumer-electronics manufacturers.

The agreement — a memorandum of understanding that the FCC released for public comment — is designed to create a market for POD-enabled digital-TV sets without the need for set-tops to receive one-way DTV programming, including scrambled premium networks.

As the FCC noted in Friday's order, major cable operators and consumer-electronics firms are currently negotiating a new agreement that would cover DTV sets capable of handling two-way services provided by cable companies.

In lobbying the FCC, the NCTA also argued that issuing nonintegrated boxes would cost operators at least an additional $72 per unit.

At the consumer level, that would cost a cable subscriber an extra $2 or $3 per month for a box that performed the same functions as an integrated unit.

FCC member Michael Copps, a Democrat, issued a statement saying he favored a shorter extension, but indicated support for the NCTA's point about avoiding additional cost burdens on consumers where possible.

"Given recent and ongoing industry developments, not extending the deadline at this time would have forced consumers in the short-term to lease costlier devices, or purchase technology that will likely become obsolete once the industry works out the remaining details on bidirectional cable compatibility," Copps said.

Cable's combatants in all of this have been the giant consumer-electronics retailers, which persuaded Congress to include provisions in the Telecommunications Act of 1996 that would give them a crack at selling cable set-tops.

The Consumer Electronics Retailers Coalition—which includes Best Buy Co. Inc. and Circuit City Stores Inc.— repeatedly urged the FCC to accelerate the ban from 2005 to 2002.

The agency did not heed those requests.

The FCC acknowledged that retail markets for cable set-tops have failed to take off. For that reason, it decided not to remove the ban on integrated boxes.

NCTA statement

The NCTA, in a statement attributed to general counsel Neal Goldberg, said: "Today's FCC action deferring the ban on operator-supplied integrated set-top boxes is good news for cable customers because the requirement to separate security in operator-supplied leased boxes would have imposed unnecessary costs on cable customers with no benefit to them.

"Since customers return leased boxes when they move, these boxes do not need to be portable, which was the primary reason for separating security from non-security functions in such devices.

"We are particularly pleased that that FCC has established a timetable to consider elimination of the rule in its entirety as it examines the development of the market for retail devices with separate security and operator support for such equipment.

"Cable operators are committed to ensuring that those retail devices work on their systems, and, with the extra time to demonstrate this, we are confident that commission will reach that conclusion at the end of its proposed proceeding."

Bob Van Orden, Scientific-Atlanta Inc.'s vice president of strategy and product planning, said the order gives operators and technology vendors more time to test different products.

"One of the core arguments of the NCTA and ourselves was … you really should let the market decide whether it is embedded security or separated security," he said. "And that's what this does. I think you will see a wider range of products and choices than you would have otherwise."

He added: "I fully expect that this Christmas there will be television sets for sale at stores that are POD hosts, and there will be PODs available for those."

Karen Brown contributed to this report.

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