Heading off a potential FCC debacle

Policy analyst Randolph J. May says the FCC needs to revise set-top equipment rules, or costs to consumers will be great.

A decade ago, Congress decided cable companies and their competitors should allow consumer electronics manufacturers to make "plug and play" set-top equipment that would work with any cable or direct-broadcast satellite service. Rather than leasing it, consumers could buy such equipment from multichannel video program distributors.

So it was that Congress authorized regulations in 1996 to ensure that equipment used to access multichannel video programming would be available at retail from entities unaffiliated with cable or direct broadcast satellite service operators.

Congress' goal may have made theoretical sense then in the staid, still fairly monopolistic world that characterized analog communications. However, the rapid changes in technology and the marketplace spurred by the digital revolution require that the FCC revise its equipment regulations, or their costs to consumers will far exceed their benefits.

With a firm digital-TV transition date, it is counterproductive to deter consumers from switching by raising their price.

First, some history.

In 1998, the FCC directed the cable industry to develop a physical device--now called a CableCard--containing the security functions that could be inserted into the equipment of independent manufacturers.

That made sure that their boxes could be used with cable systems around the country. The FCC thought that this separate security device would allow multichannel video program distributors to retain control over the security function while enabling independent entities separately to market navigation devices.

The cable industry has so far supplied about 200,000 CableCards for use in more than 140 models of digital cable-ready devices. But the vast majority of cable subscribers continue to use equipment leased from their cable companies.

The FCC went further. In 1998, it required that all multichannel video program distributors stop selling or leasing new devices that integrate both security and nonsecurity functions by 2005. This rule meant that all equipment used to access cable services would rely on common technology--like the CableCard.

However, the agency exempted from this integration ban multichannel video program distributors that support the use of equipment available in unaffiliated retail outlets and that operate throughout the United States.

Direct-broadcast satellite service providers were the only multichannel video program distributors that qualified for the exemption. That's because the FCC found that, unlike cable subscribers, users of direct-broadcast satellite services could buy a device and use it anywhere in the country. Thus, cable operators were covered by the ban, while their principal competitors were not.

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