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FCC: Cable boxes must be sold

In a move with broad industry impact, the agency requires the commercial sale of cable set-top boxes now leased.

The Federal Communications Commission today voted to mandate the sale of cable set-top boxes at retail stores, a decision that has broad implications for consumer electronics and PC companies alike.

Cable set-top boxes, typically simple devices used mainly to tune TV channels, will be available by July 1, 2000, according to rules newly adopted by the FCC. These devices are now leased by customers desiring access to premium services such as movie channels or pay-per-view movies for around $2 to $4 a month.

The decision formally opens the door for consumer electronics companies such as Sony to sell next-generation digital set-top boxes directly to consumers, at a time when these devices are gaining decidedly computerlike features. For instance, Sony is working with cable equipment vendor General Instrument on digital set-tops that would offer advanced features such as video on demand, email service, and Internet browsing through the use of increasingly powerful processors.

Cable operators are eager to add these services in order to gain new sources of revenue. PC companies such as Compaq Computer have been eyeing the market as well, but as yet few have publicly indicated plans to sell set-top boxes.

In contrast, Microsoft has been angling to get its operating system software used in set-tops, as well as developing a version of the WebTV Internet set-top device for use by cable companies.

Cable companies will not be able to lease set-top boxes to consumers after the year 2005 in order to ensure movement towards the retail sale of the devices, according to FCC officials. Sources at one major cable operator said that provision may come under challenge.

The two companies that stand to be most affected by the decision are Scientific-Atlanta and General Instrument, which are the largest set-top box makers. While a portion of their business stands to come in competition with consumer electronics and PC companies, analysts expect the two cable industry powerhouses to stand their ground because they can still rely on sales of expensive equipment for the central, or "headend," cable office.

"The box [has] tight margins; The headend is cable technology with better margins. They'll also ship the majority of the digital boxes over the next two years as the industry transitions to a retail model," said Mike Harris, president of Kinetic Strategies, a cable industry market research firm.

"What happens after this transition period? It could be that the consumer electronics guys license designs [from Scientific and GI]. Certainly it would behoove cable vendors to take [the threat of competition] seriously," Harris warns.