Comcast Cries CableCARD Foul

Slapped down by Federal Communications Commission (FCC) Chairman Kevin Martin at the Consumer Electronics Show last night, Comcast Corp. (Nasdaq: CMCSA, CMCSK) plans to take its case for a waiver of the Commission's integrated set-top ban to all five of the agency's commissioners.

Comcast executives say they "will seek full Commission review immediately" of the FCC Media Bureau's formal denial of the company's set-top waiver request, which was first revealed by Martin on a CES panel late Wednesday. (See FCC to Comcast: 'No Waiver for You'.) Facing a 30-day deadline for appealing the agency's decision, Comcast must request that full agency review before mid-February.

If that appeal fails, Comcast could then take the FCC to court. Company officials haven't decided yet whether to take that step, but they note that they could only pursue that option after a full Commission review.

Staring at a July 1 deadline for switching over to new digital cable set-top boxes with slots for removable security/descrambling modules called CableCARDS, Comcast could also ask Congress to overrule the FCC. But such a move appears unlikely, given the limited time involved and the recent Democratic takeover of both the House and Senate.

Although the FCC's decision didn't come as any great shock to cable observers, Comcast officials, who had been waiting nine months for a ruling, still reacted with disappointment and anger. In a prepared statement issued last night, David Cohen, executive vice president of Comcast, argued that the ruling will cost cable subscribers money and hamper the nation's pending transition to all-digital TV because it will significantly raise the expense of installing digital cable set-tops in many customers' homes.

"The rejection of this waiver means millions of American consumers won't have the opportunity to enter the age of digital television easily and affordably," Cohen said. "Access to digital programming services like VOD, the family tier, and electronic program guides will be denied to countless cable customers. This amounts to an FCC tax of hundreds of millions of dollars on consumers with no countervailing benefits."

The ruling covers three low-cost digital set-tops that Comcast desperately wanted to keep deploying past the July 1 deadline. The three set-top models -- made, respectively, by Motorola Inc. (NYSE: MOT), Scientific Atlanta , and Pace Micro Technology -- now cost less than $100 apiece. Industry executives estimate that the CableCARD-enabled versions of these boxes will cost more than $200 each.

National Cable & Telecommunications Association (NCTA) officials, who strongly backed the set-top waiver requests by Comcast and other cable operators, also blasted the FCC's move. But they stopped short of threatening any regulatory, legal, or lobbying efforts to overturn the denial.

"It is incomprehensible that the FCC would deny these waiver requests at a time when Congress and the Administration have made the digital transition a national priority and are trying to manage the costs to consumers," said Brian Dietz, VP of communications for NCTA, in another prepared statement. "We urge the Chairman and the Commission to move in another direction on this issue and grant cable's requests to relieve consumers of this potential burden."

Cable industry wags note that Martin chose a very hospitable venue to disclose that he opposed the CableCARD set-top waiver requests by Comcast and several other large MSOs. The Consumer Electronics Association (CEA) , which sponsors CES, is the biggest and most vocal proponent of enforcing the CableCARD set-top deadlines to spur competition between the cable industry's proprietary digital set-tops and digital cable-ready TV sets sold in stores.

"Martin picked a friendly audience," one cable executive says. "[CEA President] Gary Shapiro has been the number one guy."

Indeed, not too surprisingly, CEA immediately endorsed the FCC's move. In a prepared statement, Shapiro praised the Commission for taking "a strong stand for consumers" and applauded Martin for "his dedication to the public interest." Shapiro also contended that the FCC's action "ensures that consumers will finally realize the benefits of a competitive market for products that can connect to cable systems."

In an interesting twist, Martin and the FCC Media Bureau rejected Comcast's set-top waiver request at the same time that they granted similar requests from Cablevision Systems Corp. (NYSE: CVC) and a much smaller MSO, central Oregon's BendBroadband . The two companies received either limited or conditional waivers, based on their use or pursuit of alternative ways to separate security functions from their set-top boxes.

Cablevision, for instance, now uses a different security module, called a SmartCard, for separated security instead of the industry's standard CableCARD system. Even though the Commission found that the SmartCard system doesn't comply with its rules, it grandfathered Cablevision's use of SmartCard until July 1, 2009, because the MSO has already deployed it for more than five years and the company guarantees that its SmartCards can work in all CableCARD-enabled sets and set-tops.

In its own prepared statement, Cablevision thanked Martin and the FCC for the waiver approval.

While the Commission disposed of three set-top waiver requests, it still has plenty more pending. Another eight cable and telco providers have also filed such requests, including Charter Communications Inc. , Verizon Communications Inc. (NYSE: VZ), RCN Corp. , and Suddenlink Communications.

— Alan Breznick, Site Editor, Cable Digital News