Perspective: Time to rethink set-top box regulation

Cable companies and telecommunications companies that have begun offering video services to consumers are asking the Federal Communications Commission to postpone the set-top box "integration ban," now scheduled to go into effect July 1, 2007.

Not only should the ban be delayed, it should be permanently rescinded.

The ban is a relic of a "managed competition" regulatory mindset that has been unsuccessful in other contexts and is entirely unsuited to the increasingly competitive converged world of video communications services. If it goes into effect, it will inhibit innovation in a variety of ways and impose significant costs on consumers.

The "integration ban" stems from the Telecommunications Act of 1996, which sought to stimulate a competitive market in "navigation devices" such as set-top boxes. As a result, the FCC adopted rules that would require most multichannel video program distributors to separate (meaning to not integrate) the security functions (which are specific to the individual provider) from the other functions of the set-top box. Consumers would be able to purchase a set-top box commercially, but would have to get a card--known as a CableCard--from their video provider for the set-top box to work.

If it goes into effect, it will inhibit innovation in a variety of ways and impose significant costs on consumers.

The idea is that consumers should have the benefit of a competitive set-top box market and not be dependent on devices leased by their providers. However, the requirement also applies to those devices, so as not to place the independent providers at a competitive disadvantage. Cable companies and the new entrants such as AT&T and Verizon are covered by this requirement; direct-broadcast satellite providers apparently are not.

The integration ban is essentially a mandatory unbundling regime for manufacturers of navigation devices. The experience with the other, better-known unbundling regime established by the 1996 act?-the effort to promote local telephone competition by requiring incumbent local exchange carriers to unbundle their networks?-should give the FCC pause. That experiment ultimately proved unsuccessful, at a cost of tens of billions of dollars of economic activity. And, competition developed in other ways.

This is exactly what is happening in the video sector. The integration ban is based on the premise of a monopoly video provider, but we now have cable, direct broadcast satellite, traditional telephone companies and Internet video all scrambling for consumers' attention and dollars. This is all happening not by creating artificial regulatory advantages, but as a result of technological advances and by removing barriers to entry.

Moreover, a robust competitive market for cable-ready devices has apparently also developed, without the integration ban going into effect. This belies the notion that cable or other video providers have either the ability or the incentive to squelch competition in that area. Their major incentive is to increase the value of their video services to consumers. A competitive device market is entirely consistent with that goal. But it should not be mandated, because integrating the various navigation and video-provider functions may also sometimes be the best way to foster innovation, promote efficiency and best serve consumers? interests. Regulators are not in a position to determine the circumstances in which one alternative is better than the other.

Finally, the integration requirement has very tangible costs. It would require consumers to transition to CableCard-ready boxes, which everyone expects to be superseded in a few years by more efficient downloadable security systems. This, at a cost of $70 to $90 per leased box (which inevitably will be passed on to consumers), according to industry estimates.

It would divert resources from the rollout of advanced broadband, video and voice services, which are really what consumers want. It would increase the cost of the digital-TV transition by slowing the migration to pay-TV services. And it would bias competition if some providers--such as cable--are subject to the integration ban, while others--such as direct broadcast satellite?-are not.

The communications world has changed a lot since 1996. One way the FCC can recognize this is to rescind the non-integration requirement.

Biography
Thomas Lenard is senior fellow at the Progress & Freedom Foundation. The views expressed here are his own and not necessarily those of the foundation.

More Perspectives

Let's cut to the chase....

Cable companies and new entrants (Telcos) are enjoying the
revenue stream from leasing me a cable box to get advanced
features. They don't want to let go of that.

These arguments sound strangely like those that were made
before Telephone deregulations. "We can have third parties
adding telephones to our network"

This should be able consumer choice and competition, not
lockiing in revenue streams for the service providers. If the
cable companies and telco's would stop dragging their feet on
Cablecard. A truly competitive market would develop.
Something neither of these providers is interesting is seeing.

[atmuscarella]

STB regulation provides consumer choice

I disagree and think set-top box (STB) regulation should be expanded to cover Satellite TV as well. The bottom line as I see it is, it is in the cable, satellite, & FIOS providers best interest to control the set-top box and it is in the consumers best interest if they control the set-top box. Why would anyone want to have their own STB? Think TiVo, media center, or media PC and then you will understand. It?s all about control, either the cable, satellite, & FIOS providers have it or I do. I vote I have it.

[NMHUCOWBOY]

Set Top Box?...

I don't want a Set Top Box. I want to use the TV remote that came with the set I paid $5000.00 for, along with the PIP I've never been able to use because of this STB nonsense. They can take their STB and go sit on a Tack! I'm going somewhere else! The NTSC system we have now is better. Build the tuners in and I might get interested. The cable companies should control what they sell at the source not in my home on top of a $5000.00 TV. --Early Adopter (disappointed)

[markdoiron]

Exactly!

You're exactly right: Give the consumer (who's paying for this, after all!) the choice of viewing experience that he buys.

Thomas Lenard is just pushing the cable company party line.

mark d.

[LarryLo]

Yeah lets "Re-Think"....lets implement it now!

I got news for you Mr. Cable provider/Telco I don't want your set top box...I don't want to pay $10 or $20 a month for it. Shocking huh? You provide me TV services, that's it. Please don't try to dictate what equipment I should attach to it.

One day you will **** off your customers enough, that they will vote out the politicians that so happily take your money and let you write our laws and regulations.

[chuck_whealton]

Re: Yea let's "Re-think"...Let's implement it now!

I have to agree, I resent the living heck out of being forced to lease equipment for every single television in my house from my provider.

I thought they were there to provide channels, not make millions off of leasing us mandatory hardware.

The real kicker was when I was in the market for a new television. I called my cable provider and asked if they would program a cable card that came in a unit I was considering purchasing.

Of course, I think you can all figure out what the answer was - a big, fat, NO. But they would be happy to lease me one.

We are STILL waiting for competition here in my vicinity. Verizon has mapped out pre-existing cables here but has YET to lay the fibre. I have no idea what the heck they're doing.

This is what happens with LACK OF COMPETITION. Controlling companies can milk us for every last cent possible and our own Government lets it go on by without lifting a finger.

We need to be able to purchase set top boxes on the open market, just like we were able to purchase analog converters on the open market. Some of us don't care about being able to get movies on demand or anything else. We just want our channels.

Charles R. Whealton
Charles Whealton @ pleasedontspam.com

[Michael Grogan]

Sure we're seeing innovation now

That's one way the cable companies and telcos compete with each other. When the new regulation takes effect and people can start buying their own boxes we should see an explosion in innovation. The third party vendors will start adding all sorts of things to the boxes because that's the MAIN way they'll have to compete for the box market. This regulation will be the best thing to happen to the industry in years from a consumer viewpoint. Why do the pundits always support the industry vs. the public anyway? We pay their salaries with our patronage after all. Or are your kickbacks really that substantial?

[ordaj]

Progress and Freedom Foundation?

They're a front group for the telecom industry. I wonder where their bread is buttered?

[bmgoodman]

Get real, pal

So the author is suggesting that because most people can choose between at least two providers (cable vs. sat), cable card is no longer needed? Then he talks about new devices costing $70 to $90. Well, won't those same cable companies rent the new cable-card boxes out and recoup the money over time? Won't they recoup the money many times over? Won't consumers have a choice of BUYING a box based on features THEY WANT? When is choice bad, unless you are a company TRYING TO LOCK IN A CUSTOMER BASE TO PROTECT YOUR PROFITS? (Or unless you're a writer who shills for such a company.)

Cable card is a fine idea that should be applied to every provider--cable and satellite.

Seems like we've rethought it and that everyone posting here thus far SUPPORTS CHOICE, excepting the author.

[bmgoodman]

P&FF is ironic

Much like calling a fat guy "Tiny", calling a telecom-backed think tank "Progress & Freedom Foundation" is ironic.

[JoJetSki]

CableCard should be mandatory for allSTB's

I just bought a Tivo Series 3. If you want to see why the big cable companies should have to use cable cards in their STB's just go read a few Tivo Forum threads. The cable companies customer service reps are clueless because management just wants them to push their STB's so they are not well trained. They make it very hard for you and send out technicians that don't understand cable cards.

If they were forced to eat their own dog food we would get past this Cable Card issue because they would be implementing them all the time. Plus they would realease two way cable cards which again would allow them to sell things like VOD without requiring us to rent their box month after month.

I want a choice and if I am allowed to choose, then the cable companies will start to listen and bring out devices that will compete with my choices. Which will give me more choice.

[mssoot]

TOTAL BS

Everybody can see right through this BS. The cable co.s want to lock in the 10.00 month for the boxes and the extra fees for the digitial. All this goes out the window with the cable cards. Thats exactly why comcast makes it damn hard to make the thing work for you when you can use it in your TV. THIS IS A FRONT!!!!!!!!!

[TV James]

Whatever, dude.

What a clueless argument. You list all these options. Here I am in city of 80,000 five minutes from the state's second largest city and 20 minutes from the state's largest city.

Satellite = unavailable due to geography (boo hoo - my own little problem, neighborhood's on a hill facing the wrong way and very full of trees)

TV by the phone company = reselling satellite

Cable company = only game in town. And the danged cable box resets every night at 9:05.

And I heard Dell is gonna introduce its own optical media in a non-standard format and a non-standard size and prevent you from installing a CD or DVD player in their computers -- so that you can only buy software from their store.

[fred dunn]

Totally wrong. This is cable company BS..

UH OH, it's getting close to that mandated date. So someone like you comes out with a totally biased and proprietary viewpoint.
No one except the providers is interested in your viewpoint. You are speaking to the wrong crowd.
Go away and take your opinions with you.

[juser_bogus]

Pure BS

This author is clueless... the story and position has so much misinformation that it's just stupid.

[juser_bogus]

hey

How come I can't report the story as offensive?

[Herbert Sacher]

FCC & Satellite Providers

The FCC should also mandate satellite providers to follow the same rules. I don't think it's fair to only target cable companies. This way other companies can make STB for satellite providers with more features. Also, with DMR (Digital Media Recorders) becoming more widespread in households, it would allow software developers like Tivo and Microsoft to incorporate a better interface with those STB's than provide by the satellite company. I recently left a satellite provider because of the new DVR service they developed. I would more likely go back to satellite service over cable if I could purchase a STB with a DVR interface of my choice.

[itworker--2008]

It's Time to Rethink

I think it's time for C|net to rethink WHO should be able to author perspectives.

Unless of course this perspective was only posted to reveal the author's lack of perspective.

[mikeburek]

RE: Time to rethink set-top box regulation

Dear Mr. Lenard,

I read your story with interest, but am confused with a few things. Currently, the integration ban is not in effect, correct? And this ban would affect cable and the traditional telephone companies, but not satelite companies.

Could you help explain the ban with a few examples? When I buy basic cable, and plug the coax directly into my TV, that would be separation and would stay the same with the integration ban?

When someone gets the cable extras and has to lease one box for a single tv from the cable company, that would be integration? And that would have to change with the integration ban? So by banning integration, would I then need 2 boxes per TV?

I know people used to complain about cable (pre-satelite and pre-digital cable) because they would have to lease one box per tv to watch cable. So the money that was part of the TV purchase for a tuner inside the TV was a waste.

I understand that currently satelite is excluded from this integration ban. From understanding these points above, I think I can figure out how it would affect satelite devices.

Thank you for your time.

Michael Burek
[e-mail]

[disco-legend-zeke]

State Monopolies Unfairly Bundle regulated and competitive services. Legal?

Being a little guy in the communications arena is more than frustrating.

The communications act of 96 was intended to let competition into communications. What really happened was a total perversion of the intent of the law.

The telcos, of which QWEST is the one i have to deal with bundles dialtone and DSL with internet service, then sells the package below cost with the express intent of closing the marketplace to competition.

The situation with QWEST DSL is similar to the old days of bundling AT&T long distance services with local dial tone. The law states that QWEST may not sell Internet Service, they are required to offer the consumer a choice of Internet Providers when they call for DSL. Joust like long distance carriers.

However what actually happens is that they are offered a bundle including internet. If the availability of alternate carriers is mentioned, the operated mumbles some carefully worded phrase about alternate providers after the customer has already been sold on the QWEST package.

The cable companies are worse, their networks are not only closed, they want to charge Internet Web providers a premium for access to bandwidth their customera are already (over)paying for.

Both cables and telcos are running scared. Here in Las Vegas i get eight HD digital channels off the air for the one time cost of an antenna. (about 65 bucks) Cox cable (in spite of their false advertising of "FREE HD" charges $78 a month for their HD package, as opposed to $45 a month for basic cable. VOIP over WI-FI handsets, which are already available will replace wired and cell phones in the near future.

Nonetheless they are riding roughshod over competition.

[tanis143]

I see dumb people

Oh sure, its so easy to blame the cable companies. Blah blah blah, they control me, blah blah blah, I want control....

Get a friggen grip. You all sound like, well, exactly what you are, ignorant. Ok, who developed the cable ready tv? Was it the cable companies? No. But, now that digital is here, the FCC has mandated that the cable companies to design the system to provide secure access to digital content. And now, this setup ban is forcing the cable companies to build devices to compete with what.... oh yeah, something that is not there yet! This ban is absolutely ludicrous! And here is why. Lets take the cable card. Its only a few years old, so obviously the bugs are not worked out yet. However, if the demand was so great, then why hasn't anyone made a retail box that will use a cable card to provide service for a regular tv. Oh wait, only ONE company so far has, and thats Tivo. And they even goofed it up since their box uses two cable cards instead of one.

But, I'm probably going to be flamed by all the haters and dumba$$'s out there who can not hold a truly cognitive thought. Lets see, I'm the one who is ignorant, I'm sticking up for the evil cable providers, blah blah blah. You know what, if you do not like the cable company so bad, switch to dish! Oh yeah, you need a set top box with their service, and they have NO tv that works just by plugging in a cable. And Verizon's FIOS tv, its even worse, you can only stream so many channels at once.

And lets see, how fair is it that the cable company has to do this but the DBS providers dont? Why not require them both to work on these cable cards together, that way a tv can be provided that works with both satellite and cable services without the use of a set top box. BUT no, Satellite services are competition to cable, so they get special attention right?