FCC allows cable operators to encrypt basic cable TV signals

The free ride is over for people who have been getting access to basic cable TV stations by simply plugging their TVs into the wall.

Late last week, the Federal Communications Commission gave cable operators permission to encrypt basic cable TV service, which includes broadcast TV, in an effort to allow people to sign up for and disconnect cable service remotely and help cable operators reduce theft of basic services. Cable operators already encrypt the more expensive channel packages.

The FCC had prohibited encryption of basic service, because doing so required consumers to rent a set-top box. The idea was that people who want just the basic TV channels, shouldn't have to pay to rent a cable box for access to that service. But even though cable operators had to adhere to this restriction, satellite TV providers and TV services from the phone companies were not under the same restrictions.

Still, unencrypted cable TV channels made it easy for consumers to get access to the channels without paying, especially if they were subscribed to broadband service from the cable operator but not TV service. The National Cable & Telecommunications Association has estimated that in 2004 about 5 percent of homes near cable lines accessed service without paying. This resulted in nearly $5 billion in lost revenue.

The FCC recognized this problem. But the agency's new rules are not without strings. The FCC wants to ensure that consumers can still access basic cable services without specifically renting a box from the cable companies. And so the FCC is requiring that the cable operators make the unencrypted TV signals available to third-party device makers and Internet TV service providers.

The FCC is giving cable companies two options in order to comply with this part of the rule. The first option requires cable operators to provide network-connected converter boxes that will allow other devices to gain access to the unencrypted cable signal. These boxes would be offered free of charge for the first two years. And after that the cable companies could charge a nominal rental fee. The second option would require cable companies to provide a software solution for third-party device makers to offer access to the signal.

While the rule-making is bad news for cord cutters who have been able to access basic cable TV channels for free simply by plugging their TVs into their walls, it's not all bad news. The conditions the FCC has put on the rule-making may encourage cable operators to offer some content via third party companies. And this could be great for cord-cutters.

For example, Boxee, which just announced that its new Boxee TV will provide live TV, Internet apps, and a cloud-based DVR, struck a deal with Comcast, the largest cable operator in the U.S. back in June. The new Boxee TV box will be available in the U.S. in November. The Boxee TV box will cost $99 and it will require a monthly service fee of $15.

Boxee said in its blog recently that the FCC's rule-making paves the way for more innovative services.

"Our main goal was to find a solution that would allow cable companies to move forward with encryption while enabling devices like Boxee to access basic cable channels without requiring users to buy additional hardware or pay additional monthly fees. The rule-making ensures startups like Boxee can continue to invest in building products to innovate in the set-top box/connected TV space. We are also excited about the new opportunity to work with cable companies to provide next-generation experiences that will delight customers and push the industry forward."