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TiVo Seeks CableCARD Cost Probe

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner

TiVo Inc. (Nasdaq: TIVO) has called on the Federal Communications Commission (FCC) to conduct a probe into the economics of the CableCARD and uncover why costs associated with the separable security platform have failed to drop much in the wake of volume deployments by MSOs.

TiVo execs, including SVP and general counsel Matthew Zinn, pressed that idea this week during a meeting with Brad Gillen, legal advisor to FCC Commissioner Meredith Attwell Baker. TiVo presented its case as the FCC gets ready to propose new rules aimed at "fixing" the current CableCARD regime next week. (See FCC Floats 'Simple' Gateway, CableCARD Rules .)

It's been reported that the FCC, as part of the proposal, is considering an exemption that would allow cable MSOs to buy and deploy a new breed of hi-def-capable Digital Terminal Adapter (DTA) boxes with integrated security. The argument holds that such boxes, which are expected to cost $50 per unit once volumes ramp up, will give MSOs a low-cost HD box option to counter the higher costs associated with CableCARD-based set-tops. (See HD-DTA Battle Heats Up and FCC Chews on HD-DTA Exemption .)

Per its ex parte filing, TiVo, which has invested in CableCARD-capable boxes and remains grumpy about cable's level of support for them, suggested that the FCC "first examine the economics purportedly underpinning waiver requests" before considering any more exemptions for boxes with integrated security. (See TiVo Gives Cable Both Barrels .)

TiVo also wants the FCC to check out what can be done to drive down CableCARD costs. It's likewise frustrated that those costs have not dropped much even after the top 10 US cable MSOs have deployed almost 20 million CableCARD modules since the FCC's ban on integrated set-top security took effect in July 2007. (See CableCARD Update.)

Many of those costs are already known, so it appears that TiVo merely wants to shine a brighter light on them as the FCC gets ready to put new CableCARD rules out for comment.

In fact, one of the most recent documentations on CableCARD module costs originates from the FCC itself. The FCC Media Bureau has already suggested that a CableCARD adds about $56 in cost to a set-top box, according to a National Cable & Telecommunications Association (NCTA) filing made in November 2009. With current CableCARD deployment figures in mind, that means the industry has incurred at least $1.1 billion just to comply with the integration ban.

While that does offer an stark indication on how wasteful the integration ban has been thus far, TiVo is likewise wondering why such volumes haven't caused CableCARD costs to fall off the table yet.

Several industry sources confirmed that CableCARD modules still cost at least $50 each. They also blame that on the fact that competition for those cards, and the security features and licensing requirements found therein, are still largely limited to just two suppliers -- Motorola Inc. (NYSE: MOT) and Cisco Systems Inc. (Nasdaq: CSCO) -- and hold that the situation has allowed those vendors to maintain a hammerlock on the market and keep costs artificially high.

"When the separable security ruling came into effect, the CableCARD price was in the $55 to $60 range. Now, after 20 million units have been deployed, the going price for a CableCARD is... $55 to $60. That's what you get when there is no effective competition," says an industry source who is familiar with the economics of the CableCARD market.

Despite the high cost of those cards, cable operators charge consumers much less to lease them, with monthly rates typically in the $2 range. On-site installs, however, can run as high as $35.

But the CableCARD isn't the only economic component to consider. The Personal Computer Memory Card International Association (PCMCIA) slots in the boxes are believed to cost at least $25 when the hardware and license fees are factored in.

And getting retail TVs and boxes tested at CableLabs isn't free, either. According to a CableLabs fee schedule, getting a unidirectional cable product (a one-way TV or set-top, for instance) tested costs $30,000. Testing an OpenCable Unidirectional Receiver (OCUR) -- a CableCARD-based product that turns PCs into digital set-tops -- costs about $80,000. Other fees and licenses tied to OpenCable can approach $90,000. (See Ceton Pitches Cable Set-Top Alternative .)

— Jeff Baumgartner, Site Editor, Light Reading Cable

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Jeff Baumgartner
Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 4:39:15 PM
re: TiVo Seeks CableCARD Cost Probe
One adjustment to mention. Originally the story noted that the cost of testing a unidirectional box would cost $175K. Actually, that cost is for a full OpenCable (tru2way) box or TV. The cost for testing a unidirectional device is much lower -- $30,000. The last graph of the story has been adjusted to reflect that. JB
Jeff Baumgartner
Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 4:39:14 PM
re: TiVo Seeks CableCARD Cost Probe
Although there aren't that many folks out there that have required a separate CableCARD install (for a plug & play TV or Moxi or TiVo device), the reported experiences have been both good and bad, though the bad is what we usually end up hearing about. Has anyone out there in LR-land gone through this experience? What were the results? Was it worth it? JB
User Rank: Light Beer
12/5/2012 | 4:39:07 PM
re: TiVo Seeks CableCARD Cost Probe

As a European outsider it is interesting to see this interlinked situation of regulator, operator, technology supplier and CE industry. I wonder why the retail market for cable receivers never worked. The possible reasons are:

1) Cable card is too expensive. I believe fundamentally it can be a lot cheaper than it is today, seeing what similar technology costs in Europe: both modules and receiver cost-up. Retail prices for modules including serious margins for retailers is 60 euros. Bill of Material: substantially less than 15 euro's (there are fairly transparent pricings for the Conditional Access system licenses). Maybe the MSO's did not push their dear suppliers, or maybe the suppliers are very powerful. Can someone share some insight? Also: can someone explain why it is cheaper to build a HD convertor box than a Cablecard module? It cannot be the hardware, and also not the software or licenses: they cannot be higher for cablecard modules than they are for boxes.

2) It seems the whole story is a replay of the first failure of cablecard back in 2005. The fundamental problem is that the MSOs do not seem to have a positive incentive, even under this mandate, to actively support & promote the retail market for receivers. And why do other parties that try (do they really try?) fail at this promotion. If this is indeed the case one has to go back to the whole reason why this mandate was instated in the first place. 

In Europe some operators engage with the CE industry to actively promote CI-Plus and retail digital receivers, especially integrated Digital TVs. There is a mix of incentives for the participants. The operator's attraction is that customers are more strongly attracted to integrated Digital TV offers in Europe than they are to boxes, especialy the less advanced part of the market. And there is still some convergence from analog -> digital to do. So they can gain (or preserve) customers, converting them to digital. And there is less CAPEX (HD boxes are still much more expensive than CAM modules); and operators even manage to let the consumer pay for the modules, whereas they often have to fund the boxes themselves.

Jeff Baumgartner
Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 4:39:05 PM
re: TiVo Seeks CableCARD Cost Probe
I've heard much better reactions so far to CI-Plus than to the CableCARD regime. Although the 2007 fcc mandate forced separable security, it did not do anything to fix the core problem -- that the Cisco/Moto duopoly would pretty much live on in the form of security. Security is separable, but you're still stuck with one of those two suppliers.

Cablevision's the only major US cable operator to be successful outside the security end of the duopoly (it uses NDS), but it pulled that trick off by forcing Scientific Atlanta to support NDS security and the SimulCrypt interface to land the deal.

The FCC meeting that will propose new rules on how to "fix" the cableCARD situation comes tomorrow. Makes me wonder if the FCC listened to earlier arguments that called on the Commission to require Moto and Cisco to do a better job of supporting SimulCrypt in the US. JB

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