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Cable’s comeuppance

- The Washington Times - Wednesday, June 13, 2007

t has been 11 years since Congress voted to break the cable television industry's stranglehold on set-top boxes — the devices that consumers need to receive digital programming and change channels.

So why are you still paying $5 or more a month for that thing on top of your TV?

When Congress rewrote the nation's communications laws in 1996, it envisioned a thriving retail market in which subscribers could buy their own boxes rather than make monthly payments to the cable company in perpetuity.

Things haven't worked out that way. The retail market for the boxes failed to materialize, and the cable industry has filed numerous appeals and continued to press a furious lobbying and public relations campaign to make sure it never does, foes say.

Come July 1, the gloves come off. After two years of deadline extensions, that is when the Federal Communications Commission will require cable companies to make hardware changes in all new set-top boxes that it hopes will lead to a competitive market.

At the center of this melee is FCC Chairman Kevin Martin, who has opposed cable's requests for another delay. He sees set-top boxes going the way of the black rotary-dial telephone that consumers once rented from the phone company.

When the government opened that market, it "led to more innovation and lower prices and better quality phones," he said. "I think the same thing can be true in this [cable box] market as well."

The cable industry disagrees. David Cohen, executive vice president of cable giant Comcast Corp. in Philadelphia and its top political liaison, said consumers won't benefit from the change.

"I'm not sure it's a piece of technology a consumer needs to own or wants to own," he said. Once a newer set-top box comes out, "Circuit City won't take their old box and give them a refund to get a new model. They have to buy a new box to get the newest and fanciest upgraded technology."

The FCC rules will affect only customers with digital cable, a population that has grown steadily. For the first time last year, there were more digital cable subscribers than analog, according to the National Cable & Telecommunications Association (NCTA), the cable trade group.

Of about 65 million cable households nationwide, 33 million have digital cable.

To jump-start competition, the cable industry will be required to separate the security function inside its digital set-top boxes — the hardware that ensures customers can view only the channels for which they are paying — from the navigation function, which is basically the channel changer.

The Telecommunications Act of 1996 included a grab bag of provisions that were meant to spark competition and limit regulation in nearly every area of the industry. The set-top box provision was no exception.

The law ordered the FCC to "adopt regulations to assure the commercial availability to consumers" of "converter boxes, interactive communications equipment and other equipment" used to access multichannel video programming such as cable. On June 11, 1998, the agency adopted a two-phase plan to do just that.

Set-top boxes distributed by cable companies today contain both security and navigation functions. In the first phase of the plan, the FCC ordered the industry to make the security function separately available by July 1, 2000.

That led to the development of the "cable card."

The credit-card-sized devices house the descrambling function and plug into competing boxes, such as the new TiVo Series3, and digital cable-ready televisions, which have a card slot.

So far, there has been little competition for competing set-top boxes. Only about 260,000 cable cards have been deployed, according to the NCTA, and they don't always work well.

The second phase begins July 1, when cable providers are banned from providing new boxes that integrate both the security and navigation functions. Existing subscribers can continue to rent their current boxes.

The new boxes will have to use the same cable-card technology as the competition. The FCC is hoping that forcing cable companies to do that will motivate them to make sure the cards work like they are supposed to.

Once cable companies have to use the same security technology as their competitors, the hope is, they will experience fewer problems because it will be in the cable companies' interest to keep them free of glitches.