Cable MSOs Fight for Set-top Status Quo
Alan Breznick, Cable/Video Practice Leader, Light Reading
The National Cable & Telecommunications Association (NCTA) , American Cable Association (ACA) , several leading MSOs, numerous cable programming networks, and even cable rival Verizon Communications Inc. (NYSE: VZ) are all lobbying the Federal Communications Commission (FCC) to postpone its July 1 ban on conventional digital set-tops with embedded security. In letters, petitions, white papers, op-ed pieces, regulatory filings, and briefings, the aforementioned group is pushing for the Commission to waive the twice-delayed deadline for up to two-and-a-half more years.
Industry officials say a ban on "integrated" set-tops jacks up set-top deployment costs for cable operators, forcing them to charge consumers more without improving customer service. The FCC's position is that decoupling the set-top from the security mechanism will spur competition, providing an even playing field between cable set-tops and retail-bought cable-ready TVs.
But the cable industry says the move is just too expensive. In its letters and filings, the NCTA cites estimates that set-top costs would jump $72 to $93 per box, which would translate into higher consumer set-top rental rates of $2 to $3 per month, or a total of more than $600 million a year.
Cable-ready TVs and the new, decoupled set-tops would use security modules called CableCARDS to provide conditional access to consumers, giving them only the channels and features they pay for. But cable exes say forcing CableCARDS on the industry now will stall efforts to develop alternative security technologies.
In a three-year, $100 million venture that has cost about $30 million so far, industry engineers are working on a new downloadable conditional access system (DCAS) technology that would rely on software to provide the same security features as a CableCARD.
Cable officials assert that the great set-top shift could "jeopardize" the nation's mandated transition to all-digital broadcasting over the next two years. They say the costs of deploying the new digital boxes would particularly hurt low-income consumers with analog sets, who would lose their TV signals without cable set-tops.
In a recent letter to FCC Chairman Kevin Martin, NCTA President Kyle McSlarrow urged the agency to "take the time to let us (and our competitors like Verizon,...) develop a downloadable security solution instead of wasting time and energy on a technology that will be obsolete in just a few years." He wrote that such a move "might well be the single most pro-consumer decision this Commission makes in the next few years."
But, under pressure from the consumer electronics industry to make the CableCARD rules finally apply to the cable industry after several years of delays, the FCC seems determined not to bend this time. While it has encouraged the development of downloadable conditional access technology, the Commission has not yet acted on any of the cable petitions for full or partial waivers of the integrated set-top ban.
"There's no evidence at all to suggest they'll grant our waiver," McSlarrow said to reporters during a year-end briefing last week. "I see no evidence that we're going to get this resolved any time soon."
As a result, with the July 1 deadline starting to approach, cable set-top manufacturers have reluctantly started preparing for the integrated set-top ban to take effect.
Motorola Inc. (NYSE: MOT), the industry's leading producer of set-top boxes, recently stated that it intends to shift to full production of CableCARD-compliant set-tops by early April. The manufacturer has already begun phasing out its popular low-end digital set-top model, the DCT-700, which won't be permitted under the FCC's ban because it doesn't have a CableCARD slot.
Similarly, Cisco Systems Inc. (Nasdaq: CSCO)'s Scientific Atlanta division, the industry's other big set-top maker, aims to wrap up testing of all CableCARD-enabled boxes with MSOs and start shipping the new set-tops by the spring. Like their Motorola counterparts, S-A officials say they may soon stop shipping their low-end digital box, the Explorer 940, because it won't meet the FCC's new requirements.
At the same time, cable operators have started getting ready for the widescale deployment of CableCARD-enabled set-tops. But they're not discussing their plans much yet.
In an interesting twist, the latest battle over the integrated set-top ban comes as cable operators steadily continue to supply CableCARDS to subscribers who buy cable-ready digital TV sets, which don't need digital set-top boxes plugged into them. As part of its decade-long effort to encourage retail competition for cable operators, the FCC mandated the deployment of CableCARDS for cable-ready TV sets several years ago.
In its latest regulatory filing with the Commission late last week, the NCTA said cable operators had deployed more than 216,000 CableCARDS across the country as of Nov. 10, up from 170,000 at the end of June. The five largest MSOs -- Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Charter Communications Inc. , Cox Communications Inc. , and Cablevision Systems Corp. (NYSE: CVC) -- had installed 191,000 modules, up from 150,000 at the end of June.
NCTA also reported that 29 consumer electronic (CE) makers have had more than 541 one-way, Unidirectional Digital Cable Ready Products (UDCPs), such as cable-ready digital TV sets, "verified" for use with the CableCARDS. Those figures represent gains from 24 CE manufacturers and 450 product models at the end of June.
— Alan Breznick, Site Editor, Cable Digital News