CE Stresses ‘Silver Lining’ in FCC Delay of Integration Ban

CEA Pres. Gary Shapiro said CE could take some solace from the Commission’s having set stringent reporting requirements on the deployment of unidirectional CableCARDs, as CE had sought, as a condition for delaying the July 2006 deadline. Nevertheless, CE’s small victory seemed dimmed by cable’s surprisingly warm reception to the reporting requirements. Cable didn’t welcome the rules with open arms, but most MSOs we polled said the requirements were conditions they could live with.

Moreover, Shapiro suggested establishing the reporting rules was small consolation for the deadline extension, which he said “provides cable operators with additional time to further entrench their monopoly” over digital cable set-top boxes. “The real victims of this decision are cable consumers who will be unable to reap the benefits of a competitive market, including consumer choice, innovation and competitive pricing,” Shapiro said. “Once again, Americans are tied to the limited choices, premium pricing and questionable customer service that have become a hallmark of consumer complaints about their cable providers.”

Dave Arland, vp-govt. and public relations at Thomson -- among the CE makers that had lobbied hardest to keep the July 2006 ban -- said that for 8 years, Congress has been trying to get cable and CE to operate on a “level playing field” when it comes to digital cable set-top devices. “Regrettably, that goal has been pushed back again” with the Commission decision to delay the integration ban for another year, Arland said. The ruling could delay the DTV transition “at the very same time the Commission is trying to advance it” through its campaign for a hard analog switch-off date, Arland said. The decision puts “enormous pressure on cable” to come up with a downloadable security system that’s workable with CE and cable and has the blessing of the Hollywood content industry, he said. That the FCC is putting cable’s “feet to the fire” through stringent new reporting requirements on deployment of unidirectional CableCARDs and development of multiscreen CableCARDs is “a silver lining” in the decision, Arland said.

FCC Comr. Adelstein said the decision was “a difficult one.” Since enforcement of the integration ban had been delayed twice already, “I was very hesitant to support any further adjustment… absent a compelling reason to do so,” Adelstein said. He said he also was driven by “the lack of any real alternative to leasing a set-top box for cable subscribers who want access to the latest digital technologies.” In the end, he said, the pledge by Comcast, Microsoft and Time Warner Cable to deploy a downloadable security system “provides a justification for a modest extension,” he said. He said downloadable security technology “would have cost savings, compared to the alternative of physical separation of navigation and security functionalities, for the benefit of consumers.”

It was clear from the Commission’s order that the cable-Microsoft proposal on downloadable security played a pivotal role in persuading the FCC to delay the integration ban for a year to promote its development and deployment. In so doing, the Commission repudiated CE’s argument that downloadable security could be developed without the need to extend the deadline. Microsoft, which before siding with cable had been a vehement advocate with other CE and IT interests in seeking to keep the July 2006 deadline unchanged, “recognizes the thoughtful consideration the FCC gave to this difficult issue and appreciates the compromise reached” in its ruling,” according to Andrew Moss, senior dir. of technology policy. “It formalizes a process to track progress on critical issues such as CableCARD support, expedited delivery of multistream unidirectional cable cards, and deployment of 2-way retail devices while creating the flexibility for all parties to adopt an improved and more cost effective security technology to be used simultaneously in retail and leased devices,” Moss said.

Cable likewise welcomed the decision, although the industry had lobbied hard for extension of up to 18 months or outright removal of the integration ban. The 12-month extension was a reasonable compromise -- apparently brokered by Microsoft, which had opposed an 18-month delay -- allowing time to explore the downloadable security option, cable sources said. Cable also pledged its continued commitment to CableCARDs: “We will demonstrate beyond a doubt that cable operators are making CableCARDs work with digital cable ready devices,” NCTA said in a statement.

The reporting requirements are “tough but fair,” said Comcast attorney Jim Casserly. Other cable companies agreed, with several industry lawyers saying cable made it clear in many meetings with the FCC that it was willing to be held accountable for reporting requirements on 2-way plug & play and CableCARDs.

The industry has installed 31,000 CableCARDs so far, far short of the 1 million mark that CEA had predicted would be met by year-end 2004. But cable sources said that the numbers should continue to increase as more CableCARD-ready sets are on the market; there was a jump after the holiday season.

“We are pleased we got a deferral of the implementation date, but we remain committed to the CableCARD process,” said Time Warner attorney Steven Teplitz. “This will give us a chance to move forward with the downloadable security solution.”

But the Microsoft solution may be too complex to complete in a year, so cable might be forced to ask the FCC for another extension, sources said. Not only are there thorny technical and intellectual property issues to be worked out, multiple industries must be involved to develop a uniform solution. Cable has until Dec. 1 to report on whether it will work and give a timeline for deployment.

In deciding against eliminating the integration ban as cable had hoped, the FCC found that the “prohibition of integrated devices appears to be one of the few reasonable mechanisms” for assuring that cable would devote its “technical and business energies toward the creation of an environment in which competitive markets will develop.” In its order, the Commission said it wasn’t its intention “to force cable operators to develop and deploy new products and services in tandem with consumer electronics manufacturers.” But it sided with the CE industry when it said the concept of a common reliance date was designed “to assure that cable operator development and deployment of new products and services does not interfere with the functioning of consumer electronics equipment or the introduction of such equipment into the commercial market for navigation devices.”

However, a software downloadable security system would allow MSOs and CE makers to rely on an identical security function, “but would not require the potentially costly complete separation of the physical security element,” the Commission said. “We acknowledge that an integration of different functions within various electronic devices is one of the reasons why the costs of these devices generally continue to decline and that a software-based security function would be consistent with this trend. If the ban were to go into effect in 2006, this would, as a practical matter, impede the development of a less expensive and more flexible system for both protecting system security and creating a consumer product interface, as resources would be diverted from producing a downloadable security system to physical separation of the security element from set-top boxes.”

The Commission found a one-year extension “will not significantly delay the establishment of a more competitive market for navigation devices,” as CE had feared, “and may reduce costs associated with the ban,” as cable had advocated. “In addition, we disagree with CEA, TiVo and others that this limited delay will adversely affect innovation in digital cable ready equipment.”

Nevertheless, the Commission said it takes seriously the allegations that cable or individual MSOs are failing to meet their obligations to deploy and support CableCARDs. “If specific allegations of CableCARD support violations are brought to the Commission, we will investigate, such allegations and take appropriate action if necessary.” Under its stringent new reporting rules, the FCC directed the 6 largest cable operators -- Comcast, Time Warner Cable, Cox, Charter, Adelphia and Cablevision -- to file “status reports on CableCARD deployment and support” beginning Aug. 1, and every 90 days thereafter.

The Commission adopted many of the recommendations forwarded by Sharp and other CE companies the past several days. It said the reports should address: (1) The general availability of CableCARDs. (2) The number of CableCARDs in service and how those devices are placed in service. (3) Whether service appointments are required for all CableCARD installations; (4) The average number of truck rolls required to install a CableCARD. (5) The monthly price charged for a CableCARD and the average cost of installation. (6) Problems encountered in deploying CableCARDs and how those problems have been resolved. (7) The process in place for resolving existing and newly discovered CableCARD implementation problems.

As for the development and deployment of multistream CableCARDs, the cable operators will be required to report on that progress, the FCC said. The report “should address the development process and include a timetable indicating when a multi-stream CableCARD will be available for widespread use in digital devices available commercially.” CE makers contend multistream CableCARDs could be available this year, the FCC said. Although the cable industry has not offered an alternative date certain, it said, “we expect the timetable provided in the report to be in the near future.” The Commission said it would carefully review the reports “to ensure that the cable industry is in fact living up to its commitment to expedite the multi-stream CableCARDs, and that a delayed timetable is not motivated by anticompetitive or other improper reasons.”