MSOs Moving Slowly on CableCARDs

The nation's 10 largest cable operators are still not installing many removable security modules in customers' homes, even though the Federal Communications Commission (FCC) 's July 1 ban on new digital set-tops with integrated security features is just three months away.

Plus, the big MSOs say they're still running into numerous installation problems with these security modules, which are known as CableCARDs. At least two major MSOs claim that they're fielding 1,000 or more "trouble calls" a month concerning the modules.

In the industry's latest report card to the FCC, the National Cable & Telecommunications Association (NCTA) said the 10 biggest U.S. MSOs, representing 90 percent of all cable households, have now placed about 259,000 CableCARDs in subscribers' homes.

The five largest MSOs -- Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Charter Communications Inc. (Nasdaq: CHTR), Cox Communications Inc. , and Cablevision Systems Corp. (NYSE: CVC) -- accounted for the bulk of this total, having installed 229,000 CableCARDS as of March 15.

This amounts to just a tiny fraction of the 65.5 million basic cable households or the 32.6 million digital cable homes in the country.

Not surprisingly, NCTA officials, who have fiercely fought the approaching integrated set-top ban, argue that cable operators are not to blame for the laggard pace of CableCARD installations.

"The short and simple answer is that cable operators are providing CableCARDS to everyone requesting one," an NCTA spokesman says. But, he notes, consumers must first buy the digital TV sets, set-tops, digital video recorders (DVRs), DVD players, and other devices that require them.

Cable officials say that one key reason consumers may not be buying CableCARD-compliant equipment in droves is that the security modules only work for one-way services. Thus, TV viewers can't use them to access interactive services and advanced electronic programming guides. While two-way CableCARDS are in the works, they're still at least several months away from market.

The consumer electronics industry, however, claims that cable operators are still dragging their feet on CableCARDS to avoid retail set-top competition.

In a recent filing with the FCC, the Consumer Electronics Association (CEA) criticized Comcast for continuing to seek a partial waiver of the July 1 set-top ban even after the Commission's Media Bureau and Chairman Kevin Martin rejected the request.

The cable industry's latest report card also indicates that MSOs are continuing to encounter many problems with CableCARD deployments. To cite two examples, Cablevision recorded 3,319 "installation and post-installation" problems with its 12,354 CableCARD subscribers between Jan. 1 and Mar. 12, while Cox rang up more than 3,200 "trouble calls" about CableCARDS during the December through February period.

Cable operators put the blame on the digital TV "host devices," not the CableCARDs themselves, for the lion's share of these problems. For instance, Time Warner said "incorrect software/firmware on host devices" account for "most of the reported issues to date and are common across all CE brands."

With the FCC's July 1 deadline starting to draw near and most MSO set-top waiver requests rejected by the Commission so far, cable set-top box manufacturers have started churning out digital set-tops with special slots for CableCARDs in volume. Motorola Inc. (NYSE: MOT), Cisco Systems Inc. (Nasdaq: CSCO)'s Scientific Atlanta division, and Pace Micro Technology are all now shipping these set-tops to their large MSO customers.

As a result, the number of CableCARDs installed in cable homes should start picking up this summer. "It will be significant," says the NCTA spokesman. "But it's hard to estimate what the ramp-up will be."

— Alan Breznick, Site Editor, Cable Digital News