T-minus five weeks and counting.
U.S. cable operators, big and small, are hustling to comply with a quickly approaching mandate from the Federal Communications Commission (FCC) that will ban MSOs from buying and deploying set-tops with integrated security. That ban comes into effect July 1, 2007.
When the ban becomes active, cable operators will be prohibited from purchasing or deploying any new set-tops with the security embedded in the device.
After June 30, 2007, any newly purchased and deployed digital set-top purchases must have separable security. More often than not, this separation will occur at the set-top via a special interface that houses the CableCARD, a removable module that contains the conditional access keys necessary to authorize digital cable services. Most "host" devices (set-tops) deployed after this date will handle interactive services such as video-on-demand when used in tandem with the Multistream CableCARD, or M-Card. (See Show Me the M-Card!)
The cable industry is also developing more elegant, less expensive downloadable conditional access systems, but those will not be ready for commercial deployment by the deadline. (See PolyCipher Targets '08 Trials and Small Cablers Plan Sub-$100 Set-Tops.)
By separating out the security elements, the FCC mandate aims to open up cable set-top competition -- an arena presently dominated by Motorola Inc. and Scientific Atlanta, with some limited traction obtained in recent years by Pace Micro Technology.
Although competition might open up sometime down the road, many operators have complained that the ban will create an unnecessary cost burden in the near-term, and force them to introduce a new system that provides little to no incremental services benefit to cable customers.
Most of those cost-related complaints have centered on low-end, entry level digital set-tops. Operators have argued that the CableCARD version of some set-top models cost two to three times that of integrated security models that provide similar capabilities.
RCN Corp., for example, has disclosed in FCC filings that the DCT700, a bare-bones all-digital model with integrated security, costs about $84 each, while the DCH100 -- the closest CableCARD equivalent model -- costs about $232 per unit.
Faced with this cost discrepancy, several MSOs, including RCN, have applied for special waivers for lower-end set-top models with integrated security. So far, those efforts have been hit and miss. The FCC Media Bureau declined a waiver request from Comcast, but has granted conditional waivers to a handful of other operators. (See FCC to Comcast: 'No Waiver for You' and MSOs Get Waiver on Set-Top Security.)
Many other MSOs are still awaiting decisions on their requests. The table below offers a snapshot of present waiver activity.
Table 1: Set-Top Waiver Activity
||FCC Media Bureau Action/Status*
||Sought waiver on the Motorola DCT700, an entry-level, all-digital set-top that costs less than $100 per unit. Operator argued that the box is critical to its plans to migrate to an all-digital environment.
||Granted waiver on condition that operator accomplish its migration to all-digital by 2008. Operator must also reach certain milestones during this period.
|Cablevision Systems Corp.
||Sought permanent waiver, citing that deployed digital set-top already use removable SmartCard-based conditional access systems (supplied by NDS Group).
||Grandfathered Cablevison's present use of set-tops with SmartCard technology until July 1, 2009. After that date, Cablevision must migrate to FCC-approved separable security such as the CableCard or a downloadable conditional access system.
||Sought waiver on seven set-top box models.
||Granted a waiver on those models until July 1, 2008, citing the MSO's "financial difficulties" in its justification. Charter may also file a request for an extension.
||Sought waiver on three entry-level, all-digital models: the Motorola DCT700, Scientific Atlanta 940, and Pace Micro "Chicago" DC501p.
||Denied Comcast's request for a waiver. MSO now seeking full FCC review of the matter.
||Sought waiver on all new set-top boxes, acknowledging it "primarily relies" on the Motorola DCT700, an all-digital model, and two hybrid analog/digital models: the DCT1000, and DCT2000.
||Granted waiver on the DCT700, DCT1000, and DCT2000, but stipulated that the operator must migrate systems to all-digital by Feb. 17, 2009.
||Sought waiver for the Motorola DCT700 entry-level all-digital box, and the DCT3416, a model with on-board DVR and HDTV capabilities.
||Conditionally granted waiver on the DCT700, so long as MSO commits to migrate to all-digital by Feb. 17, 2009. FCC denied waiver on the DCT3416, arguing that the model is not "critical" to the operator's all-digital ambitions.
To reduce the operational impact of the ban, most operators plan to deploy set-tops with the CableCARD pre-inserted at the factory. As the theory goes, this should all but eliminate the impact on warehousing and provisioning as boxes reach the operator and make their way to the field. Set-top makers have already made this an option for cable operators as they place purchase orders ahead of the deadline.
"The key is to make this as seamless as possible to the consumers," says Marwan Fawaz, the executive vice president and chief technology officer of Charter Communications Inc..
This installation in the series tracks the progress of three cable operators: Charter Communications, Cox Communications Inc., and Bresnan Communications. Future reports will cover the progress and challenges faced by other MSOs, how set-top manufacturers are stepping up to meet the tremendous demand for CableCARD hosts, and gauge the opportunities (or lack thereof) the deadline will present to consumer electronics manufacturers that are looking to crack the U.S. cable set-top market.
Charter is one of a fortunate few to obtain a limited waiver on several digital set-top models with integrated security.
But that waiver -- set to conclude in July 2008 unless Charter tries to extend it -- gives the operator only limited relief and breathing room.
"We're thankful for the waiver," Fawaz acknowledges. "But that still doesn't completely put us in a position where we don't have to support host boxes."
On that note, he points out that more than half of Charter's set-tops are high-end units that support high-definition television (HDTV), digital video recording (DVR), or a combo of both. Because the waiver only addresses low-end set-tops, Charter will still have to deploy the CableCARD versions of the more advanced STB models.
Because those high-end boxes support some services and apps not found in entry-level digital boxes, the bigger cost on the CableCARD version is "a pill easier to swallow," Fawaz says.
Knowing the situation, Charter has been preparing for the deadline in earnest even before it was granted the waiver, gearing up in areas such as warehousing, procurement, training, billing, and customer care.
"It's not a flash-cut when you talk about warehouses," Fawaz says, adding that Charter is trying to exhaust its supply of integrated boxes as much as possible before July 1. Any "new" set-tops with integrated security (i.e., units that have not been deployed to customer homes) still languishing in the warehouse after the deadline will be as useful as boat anchors.
"It's an absolute balance operators have to work through," Fawaz says. "If you haven't provided the right forecast six to nine months ago, it will be extremely challenging." Charter, he adds, started getting ready for the July 2007 ban in the third and fourth quarters of 2006.
While coordinating with suppliers and allocating procurement resources has marked one of the biggest challenges faced by Charter in its preparation for the mandated ban, getting on top of new software releases and getting the bugs worked out and patches installed has also complicated the effort.
"That's been ongoing since the fourth quarter of last year, and we're on the tail end of that," Fawaz says. "We're confident we'll be ready. We have no choice but to comply with the rules."
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