TechLine

Relief in store for cable TV subscribers

[June 11, 2007]  WASHINGTON (AP) -- It 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 where subscribers could actually buy their own boxes rather than make monthly payments to the cable company in perpetuity.

Things haven't quite worked out that way. The retail market for the boxes has 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's when the Federal Communications Commission will require cable companies to make hardware changes in all new set-top boxes, which 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 only affect 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, 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 their digital set-top boxes -- the hardware that ensures customers can only view channels they are paying for -- from the navigation function, which is basically the channel changer.

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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's 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 very 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're supposed to. The agency hopes it will eliminate some of the problems that have faced customers like Ken Hornstein, a 36-year-old computer programmer from Vienna, Va.

Hornstein rents two cable cards so he can record one show on his TiVo while watching another. But he says one card malfunctioned after installation, requiring a second technician to visit him at home to replace it. The new card stopped working after a month or two, and had to be replaced again. Hornstein said technicians didn't seem to know much about cable cards.

"It wouldn't decrypt anything, wouldn't tune any channels," he said. The technicians "don't expect to see cable cards. If they were used to seeing cable cards we wouldn't have that problem."

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

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The cable industry says the new rule will cost it $600 million more a year for new boxes, an expense that will be passed along to customers. One competitor says that figure is vastly overblown.

Cable operators also say customers would rather rent their boxes rather than shell out hundreds of dollars to buy them, according to Dallas Clement, senior vice president of product management at Cox Communications Inc.

"Is there really a market for these? TiVo is $800 and $13 a month for a two-tuner high-definition digital video recorder," he said. "Us, they pay nothing upfront and it's a $10 monthly lease."

TiVo, which is now offering a $200 rebate for the Series3, argues that its interface and features are superior to those on digital video recorders offered by cable companies.

The dispute between cable and the FCC has been sharper since Martin became FCC chairman in 2005. But one thing they both agree on is that there is an alternative that makes more sense.

A technology dubbed "downloadable security" would let cable companies send the security function directly to a computer chip in specially enabled TV or other devices, eliminating the need for cable cards or a box.

"I think that kind of a technology is probably feasible and is definitely preferable from a consumer perspective," the FCC's Martin said. "And I think that would be a better result for consumers than having to worry about trying to get a cable card."

The problem, he said, has been getting a commitment from the cable industry.

"I think that downloadable security would have been preferable if we could have actually gotten a commitment by when this would have been rolled out -- a commitment with penalties if the cable industry failed to meet that deadline," Martin said.

Kyle McSlarrow, chief executive of the NCTA, said the FCC requirement has delayed work on the software solution.

"Candidly, a lot of that work has been put on hold. There's so much focus now on complying with the integration ban by July 1," he said.

Gary Shapiro, CEO of the Consumer Electronics Association, doesn't buy that argument.

"They've had 10 years to solve this problem," he said. "Consumers want a retail marketplace. Retailers want to sell it. Manufacturers want to make it. The cable industry is doing everything they can to preserve their monopoly profits on set-top boxes."

Even with the change, the cable industry will still have a distinct advantage over competitors. Unlike the cable company's set-top box, televisions with cable card slots sold at retail and other devices still won't be able to do interactive functions like deliver on-demand and pay-per-view programming.

An agreement has yet to be reached between cable and consumer electronics makers on technical standards for interactive technology. The digital cable-ready TVs now in circulation can receive but not transmit data, creating a one-way street that limits their appeal to consumers.

Some cable companies have struck agreements individually with manufacturers like Samsung Electronics America.

Samsung is testing a two-way digital TV in Milwaukee with Time Warner Cable Inc., but a wider rollout of similar models won't be available until next year, said Stephen Goldstein, director of business development at Samsung Electronics America.

Martin said the FCC is debating a petition filed by the consumer electronics companies, including Sony, asking for the next step to ensure that two-way technology will come to pass.

"We'll try to move forward on it in a timely basis," he said. "We're trying to get this first deadline in place first."

On the Web:

• National Cable and Telecommunications Association: http://www.ncta.com

• Consumer Electronics Association: http://www.ce.org

[Associated Press]

AP business writer Deborah Yao reported from Philadelphia.