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FCC to Weigh in on Cable Set-Top Box Out

By Deane Hinton

On February 18th, the five commissioners of the U.S. Federal Communications Commission (FCC) voted to propose formally an open standard for cable set-top boxes. In other words, the FCC intends to enact new regulations mandating cable companies to let third parties create hardware and software that taps into the video stream the cable companies provide. The idea behind the regulation is that by allowing third parties to manipulate the video stream consumers will have more options when it comes to choosing a cable set-top box and the associated features.

In an editorial published on the website Re/Code, FCC Chairman Tom Wheeler, shares the impetus that fueled the current proposal stating,

“Today, 99 percent of pay-TV customers lease set-top boxes from their cable, satellite or telco providers [sic]. Pay-TV subscribers spend an average of $231 a year to rent these boxes, because there are few meaningful alternatives.”

Wheeler argues that consumers benefit not only from cheaper set-top boxes, but also from potential innovation. He compares it to the 1968 Carterfone decision, which allowed consumers to use their own phones to connect to the telephone network, rather than lease them from telephone companies; a decision that led to many innovations such as answering machines and early modems.

As an example, of how opening up the video stream could benefit consumers, Wheeler points out that Smart TVs allow consumers to access the Internet and video streaming apps using just one controller, and yet they still have to use separate cable set-top boxes, with separate controllers and different user interfaces if they want to access their paid-TV. Opening up the data stream to third- party devices would enable TV manufacturers to integrate cable set-tops.

Open video stream access would enable third party set-top boxes to compete, not only at the hardware level, but at the software as well. As an example of how innovators might be able to improve the cable experience Wheeler mentions more intuitive user interfaces and improved search functions to find programming. Potentially, this could go further and change the way channels are presented and organized.

Like all government regulation, there are potential pitfalls and repercussions, the largest of which, might hurt the natural market transition from paid-TV to cord-cutting and Internet streaming already underway. Additionally, there is a concern that opening up the cable set-top box may negatively impact minority broadcasters, resulting in the loss of revenues that support their programming. Larry Downes, project director at Georgetown’s Center for Business and Public Policy, argues that the FCC is, “mistaking its clear view of the traditional market for an easy path to redesign the emerging new industry, which is mutating rapidly outside its peripheral vision.”

The big threat, as he sees it, is that opening up the data stream for third parties would threaten the deals already in place between content providers and producers; thereby disrupting revenue streams for both. Paid television is an industry that is already hurting, in large part, because content producers are already able to distribute their product without them and gain revenue from both markets. A shake-up in deals between the two, could therefore threaten the content that is being made, in which case no consumers benefit.

The FCC has been arguing over a proposal to reclassify Internet video providers and apply the some of the same regulations that govern TV providers for a couple of years. So far, it has not made a decision and this is a good thing, according to Downes, because should internet video providers be reclassified it “would be a disaster for consumers and entrepreneurs.” Opening video stream access to third-party set-top box producers could blur the distinction between paid-TV providers and Internet video providers and lead to reclassification.

The National Cable & Telecommunications Association, which represents cable and satellite TV companies, makes a similar argument to Downes. They state that the new proposed regulations “will ignore contractual freedoms, weaken content diversity and security, undermine important consumer protections like privacy, and stall the creative and technical innovation that is driving positive changes in today’s TV marketplace.” In particular, they worry that companies like Google and Amazon would benefit by tracking user behavior, inserting their own advertisements, and having their devices promote some content over other content.

There is also a case to be made that the proposed regulations would be a violation of the first amendment as pointed out by Free State Foundation president Randolph May. He asserts that this proposed regulation would have mandates attached over channel and menu orders to prevent discrimination either for or against the cable companies. This would in essence mean that the government is regulating content, which is prohibited. Therefore, he does not believe the courts would uphold such regulations should they come to pass.

This is also not the FCC’s first attempt at opening up the cable set-top box market. In 2007, they passed a mandate requiring cable companies to develop a standard CableCard that could be used with third party devices. The initiative failed and potentially cost billions of dollars to cable companies, which was ultimately passed on to consumers.

The FCC’s vote in favor of formally developing regulations to open set-top cable boxes has only set the wheels in motion. It will be months before the FCC drafts and releases proposed rules for review and comment. There is a lot to work out in terms of the collection and handling of consumer data, the kind of access new set-top box providers would have to video content, the cost implications for cable providers and consumers, etc. Whatever the proposed rules end up looking like, expect great debate once they are released.