Two Years Later, Bliley Pushes FCC on Set-Tops

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Washington -- House Commerce Committee chairman Rep. Thomas
Bliley (R-Va.) is putting heat on Federal Communications Commission chairman William
Kennard over the agency's failure to adopt new set-top-box rules two years after the
passage of the Telecommunications Act of 1996.

In a letter to Kennard two weeks ago, Bliley complained
about the stalled set-top rulemaking, while at the same time asking several probing
questions about the operations of the FCC's Cable Services Bureau.

A House source familiar with Bliley's thinking said
concern about the set-top issue was clearly being used as a 'hook into some larger
congressional-oversight issues' of the CSB.

'The obvious question here is: It's two years
since enactment, and we don't have any rules on the set-top boxes,' a House
source said. 'So, the inevitable question is: What are they doing?'

Bliley's letter, which one FCC staff member likened to
an agency strip search, asked for an update on all pending cable rulemakings; for an
accounting of all CSB personnel since 1993, and some career history on all current bureau
employees; and for projections on out-year CSB budgets through fiscal year 2000.

Regarding the CSB's use of resources, Bliley demanded
to know the names of FCC employees who attended cable-related 'conferences, seminars,
or panel discussions' in fiscal 1997, and he asked such questions as who paid for FCC
staff members to attend them and the duration of employees' attendance at the events.

'Do you need to send 10 people or 15 people to [the]
NCTA [National Cable Television Association convention]?' a House source asked.
'We are just trying to find out what's going on.'

CSB spokesman Morgan Broman said the bureau was compiling
the information to meet Bliley's request for a response from Kennard by Feb. 20.

'We will get him that information,' Broman said.

Bliley's letter surfaced at time when the cable
industry is feeling threatened by Kennard, whose staff is looking at ways to curb
cable-rate increases until March 31, 1999, when FCC authority to regulate upper-tier rates
sunsets.

Bliley's letter could be read as a warning to Kennard
to start thinking about downsizing the 129-person CSB in preparation for next year's
deregulation of large cable operators.

Bliley, whose district includes the headquarters of
electronics retailer Circuit City, sponsored the provision that requires the FCC to adopt
rules designed to promote the retail sale of cable set-top boxes and navigation devices.
But the law did not impose a deadline for FCC action.

In the Kennard letter, dated Feb. 5, Bliley said he was
'concerned' not only that no rules have been released, but also that some within
the CSB apparently don't want new set-top-box rules to take effect until 2006.

Bliley was referring to comments made by John Wong, chief
of the CSB's Engineering and Technology Services Division, at December's Western
Show.

'If this comment represents the FCC's current
thinking, then the FCC will have failed to fulfill its responsibilities with regard to
implementing a key provision of the Telecommunications Act of 1996,' the letter said.

Wong didn't return a reporter's call last week.
According to a tape of his Western Show comments, Wong indicated that he hoped that cable
operators and electronics manufacturers could reach a voluntary agreement on standards.
Wong mused that such an agreement could take effect in 2002 or 2006 under an FCC deadline.

Referring to 2006, Wong said, 'It also provides a good
enough lead time for the industries to look carefully into trying to come out with
something.'

Bliley's letter surprised many in the cable industry,
who believe that the triad of OpenCable, Cablevision Systems Corp.'s recent purchase
of consumer-electronics chain Nobody Beats the Wiz and Sony Electronics Corp.'s
equity stake in General Instrument Corp. combine to show adequate cable momentum toward a
retail environment.

'I'd say that the FCC is poised for a very
positive response to Bliley, given what the industry is doing,' said David Robinson,
vice president and general manager of GI's digital video division.

A House source said that if the FCC is postponing a
decision because of the OpenCable project, the agency should say so. But that is no excuse
for inaction, the source said.

'[The FCC should] issue some rules, and we can make
them flexible and tinker with them over time, but clearly, they are just sort of sitting
on their hands,' the House source said.

Robinson referenced GI's recent equity arrangement
with Sony, as well as its alliance with computer retailer CompUSA to sell its SURFboard
cable modems in three metro markets, as key lines of defense.

'Plus, the whole industry has rallied behind
OpenCable, which is clearly focused on retail, interoperable set-tops,' Robinson
said.

As for timing, Tele-Communications Inc. chairman and CEO
John Malone has repeatedly pointed to 1999 as the point when OpenCable-based boxes will
start to hit a retail stride.

Several executives on the engineering side of the business,
who are familiar with the FCC's work on navigational devices via the NCTA's
Engineering Committee, said that when the FCC issued its notice of proposed rulemaking
last summer, it seemed obvious that the rules would apply to digital products, and not to
the huge, embedded analog marketplace.

That's because the FCC was clear in its comments that
the industry should work toward a retail environment for set-tops without compromising
signal security, and it is largely impossible to separate critical conditional-access and
encryption circuits from existing analog boxes, they said.

Neal Goldberg, general counsel for the NCTA, said, 'We
agree, as we said in our comments [to the FCC], that we'd like to move these devices
-- set-tops and modems -- to the retail market as soon as possible.

'Our only concern is that signal security is
maintained in the commercial environment,' Goldberg added. 'I think that the
amount of cooperation already under way between manufacturers, retailers and cable
operators is also very significant.'

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