NCTA: Boxee Is Wrong About Basic Cable Encryption

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National Cable & Telecommunications Association said Internet-video startup Boxee is "simply wrong" in asserting that changing FCC rules to let cable operators encrypt basic cable channels would hurt consumer choice and limit competition.

The Federal Communications Commission opened a proceeding last fall on a proposal to eliminate the requirement that MSOs provide basic cable TV "in the clear"; that is, without any encryption.

Boxee, in a Feb. 2 filing with the FCC, said that as many as 40% of its customers who use the live TV option with set-tops based on its software for accessing Web video would be forced to pay more for cable set-tops if the encryption ban were lifted. The New York-based company markets its products as an alternative to paying for cable TV.

"If Clear QAM is eliminated, consumers who have little or no OTA [over-the-air] antenna reception will not only be denied the choice of 'shaving the cord' with a product such as Boxee, but will also be forced to rent additional set-top boxes for any TVs in their home that were previously receiving only the basic tier via Clear QAM," the company said.

In a presentation to FCC staff, Boxee said "we don't see any" consumer benefits to allowing basic-tier encryption, unless such a rule change were accompanied by an open standard that would ensure compatibility of third-party devices with pay-TV services.

Satellite TV providers are not subject to the FCC's ban on basic-tier encryption.

In a response filed with the FCC Tuesday, NCTA said Boxee's assertion that allowing basic-cable encryption would provide no consumer benefits was "astounding."

"Contrary to Boxee's claims, the proposed rule change will result in substantial consumer benefits for tens of millions of cable customers," NCTA general counsel Neal Goldberg wrote.

Basic-tier encryption will mean cable customers won't have to wait at home for a service visit when connecting or disconnecting service, the NCTA argued. The rule change also would result in improved service reliability by reducing theft of service (particularly among broadband-only subscribers) and provide cable operators incentives to migrate to all-digital networks, according to the trade group.

NCTA also said only a fraction of cable operators' customers in all-digital systems rely on clear-QAM devices -- and that those subscribers will be eligible to receive free equipment under the industry's proposed transition measures to basic-tier encryption. Cablevision Systems, for example, has said that in its New York City system, which switched to an encrypted basic-service tier after receiving an FCC waiver, less than 0.1% of subscribers requested a free set-top box or CableCard to decode the newly encrypted signal.

Moreover, NCTA said, Boxee's claim that its customers will be harmed is at with odds its marketing of the live TV feature as a "cord-cutting device" that can access broadcast signals via over-the-air antennas.

The group cited the Boxee Live TV website, which says in part, "Still Spending Too Much on Cable TV?... Boxee Live TV delivers live sports, local news, special events, and shows from your local broadcast stations (like ABC, CBS, FOX, NBC) via an HD antenna -- it means more stuff to watch on a Boxee device with no monthly fees . . . so why spend so much on cable TV?"

The cable lobbying group said Boxee is opposing the elimination of the encryption ban to protect its product design, which does not incorporate CableCard, the cable industry's standard for accessing encrypted video programming.

"As Boxee well knows, its customers would be able to access encrypted cable channels if it included a CableCard slot in its device," Goldberg wrote. "Requiring operators to support one-off fixes for individual manufacturers like Boxee is completely contrary to the commission's basic objective in this area."

Boxee, in its comments, objected to CableCard because the technology is "not mature." The NCTA countered that cable operators have spent more than $1 billion dollars supporting CableCard and that it can be supported in a wide range of devices, including devices like TiVo DVRs and CableCard-equipped PCs.

Boxee, founded in 2007, claims to have about 2 million users worldwide. The 45-employee company has raised $28.5 million from investors including Pitango Venture Capital, SoftBank Capital, General Catalyst Partners, Spark Capital and Union Square Ventures.

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