FCC Dings TWC Over SDV

The Federal Communications Commission (FCC) has hit Time Warner Cable Inc. (NYSE: TWC)'s Oceanic division in Hawaii with a $7,500 fine for failing to give the local franchise authorities (LFAs) adequate notice that some channels were being moved to a switched tier.

The fine could cause other MSOs to rethink how and when they communicate their SDV rollout plans.

The MSO migrated some channels to its switched digital video (SDV) platform on Sept. 24, 2007. According to the FCC, Oceanic willfully violated a rule requiring it to give 30-day advance written notice to the Hawaii Department of Commerce and Consumer Affairs, Cable Television Division.

Time Warner Cable is among a small but growing group of cable operators implementing SDV as a bandwidth management tool. Rather than broadcasting every channel, SDV systems multicast some networks only when a customer in a given service group selects them for viewing. Cablevision Systems Corp. (NYSE: CVC), Cox Communications Inc. , Comcast Corp. (Nasdaq: CMCSA, CMCSK), Charter Communications Inc. (Nasdaq: CHTR), and Rogers Communications Inc. (NYSE: RG; Toronto: RCI) are among other MSOs that deployed or at least tested SDV. (See Comcast Expands SDV Test Pool, Cox Flips BigBand's DV Switch , Cablevision Switches With BigBand, Charter Charts First SDV Course , and Rogers Turning on SDV .)

In November 2007, complaints came in to the Spectrum Enforcement Division of the FCC's Enforcement Bureau, as Time Warner cable had moved some "popular high definition sports and entertainment channels," to SDV, rendering them inaccessible by unidirectional, CableCARD-equipped TV sets.

While those customers can access channels in the switched tier using more traditional two-way, CableCARD-based set-tops, it does throw the whole concept of a set-top-free digital TV out the window. The cable industry intends to remedy this problem with one-way CableCARD "hosts" (i.e. digital TVs and some TiVo Inc. (Nasdaq: TIVO) digital video recorders) through the use of so-called Tuning Adapters, which won't be available until later this year. (See CableLabs Stamps SDV Tuning Adapters and NCTA Sees Solution to Switching Snag.)

TWC's side
Time Warner Cable previously argued that moving channels to a switched tier doesn't apply to the notification rule because "provision of SDV services does not involve a change in rates or service packages," though it would require the customer to obtain a new digital set-top.

Time Warner Cable also stressed that it had taken steps to keep subscribers apprised of the SDV deployment, going as far as offering customers with one-way CableCARD devices an opportunity to lease an interactive set-top box for two years without additional charges.

[Ed. note: We've asked TWC officials for a reaction to the FCC ruling and we will update the story when we get an official response.]

But the FCC notes that the rule -- Section 76.1603(c), if you're dying to know -- covers the deletion of channels, and the agency says that's just what TWC did.

"Oceanic's movement of programming to a SDV platform rendered inaccessible dozens of cable channels previously accessible on CableCARD-equipped UDCPs [Unidirectional Digital Cable Products]," the FCC ruling reads.

Although a $7,500 fine is chump change for an MSO that posted revenues of $4.3 billion in the second quarter, the financial penalties will rise if TWC doesn't comply. (See Time Warner Cable Eyeing Network DVR Case .) The FCC could assess a fine of up to $32,000 for each violation or each day of a continuing violation, up to a statutory maximum forfeiture of $325,000 for any single continuing violation.

— Jeff Baumgartner, Site Editor, Cable Digital News