The FCC, the Cable Card, and the Internet

The FCC issued an NPRM today regarding the cable card issue. We have discussed this issue before. Simply the cable companies have a monopoly on the interface box or boxes in your residence. They lease you a cable modem and a TV interface at what I consider extortionary prices. Typically it is about $9 per month per box. You pay that per box forever. There is no alternative. They get tons of money from this process.

Now the FCC in its wisdom is trying to get a better solution. Yet one must remember this is the FCC and most likely whatever it rules it will mess it up and get the Federal District Appeals Court to rule it illegal. But let us hope there can be some progress.

The FCC states:

1. In this Notice of Inquiry, the Commission seeks comment on specific steps we can take to unleash competition in the retail market for smart, set-top video devices (“smart video devices”) that are compatible with all multichannel video programming distributor (“MVPD”) services. Our goal in this proceeding is to better effectuate the intent of Congress as set forth in Section 629 of the Communications Act of 1934, as amended.1 In particular, we wish to explore the potential for allowing any electronics manufacturer to offer smart video devices at retail that can be used with the services of any MVPD and without the need to coordinate or negotiate with MVPDs. We believe that this could foster a competitive retail market in smart video devices to spur investment and innovation, increase consumer choice, allow unfettered innovation in MVPD delivery platforms, and encourage wider broadband use and adoption.

2. More specifically, we introduce the concept of an adapter that could act either as a small “setback” device for connection to a single smart video device or as a gateway allowing all consumer electronics devices in the home to access multichannel video programming services. Unlike the existing cable-centric CableCARD technology, this adapter could make possible the development and marketing of smart video devices that attach to any MVPD service anywhere in the United States, which could greatly enhance the incentives for manufacturers to enter the retail market. As conceived, the adapter would communicate with the MVPD service, performing the tuning and security decryption functions that may be specific to a particular MVPD; the smart video device would perform navigation functions, including presentation of programming guides and search functionality. The Commission seeks comment on this concept. We also invite any alternative proposals that would achieve the same objective of eliminating barriers to entry in the retail market for smart video devices that are compatible with all MVPD services.

The FCC continues:

17. Ideally, the Commission’s all video (“AllVid”) solution would work for all MVPDs and lead
to a nationwide interoperability standard, much as Ethernet and the IEEE 802.11 standards have led to nationwide interoperability for customer data networks while allowing broadband service providers to deploy differing proprietary network technologies. The AllVid solution would be designed to accommodate any delivery technology that an MVPD chooses to use and allow MVPDs to continue unfettered innovation in video delivery, because the MVPD-provided AllVid adapter, rather than the consumer-owned smart video device, would be responsible for all communication with the MVPD. At the same time, it would allow consumer electronics manufacturers to design to a stable interface and to integrate multiple functions within a retail device. This approach would provide the necessary flexibility for consumer electronics manufacturers to develop new technologies, including combining MVPD content with over-the-top video services (such as videos offered from, for example, Amazon, Hulu, iTunes, or NetFlix), manipulating the channel guide, providing more advanced parental controls, providing new user interfaces, and integrating with mobile devices.

18. Two previous standardization approaches help to illustrate how this solution could unleash
competition and innovation in equipment used with MVPD services, while allowing unfettered innovation in the services themselves: (i) The Carterfone and Computer Inquiry decisions required that the telephone network be terminated in a standardized RJ-11 interface; and (ii) broadband services developed using divergent and rapidly developing network technologies terminated in an adapter that presents a standardized Ethernet interface.

19. The RJ-11 interface requirement allowed the development of a vibrant retail market for
answering machines, cordless phones, fax machines, modems, and other customer-premises equipment used with the telephone network.42 The requirement that the network terminate in a standardized interface with no carrier-supplied terminating device was implemented in the context of a single telephone network that used a single, stable delivery technology. It was a workable and successful solution in that context because our telephone network was based on a nationwide standard.

20. Broadband services differ from telephone service in two key respects that have led to a
significantly different approach. Multiple broadband operators provide services using divergent network technologies; and those technologies are not static but are rapidly developing. Numerous broadband delivery technologies exist – among them cable, digital subscriber line (“DSL”), satellite, wireless broadband, and optical fiber to the home. In each system, the operator provides a customer with an interface device such as a cable modem that performs all of the network-specific functions and connects via an Ethernet port to a multitude of competitively provided customer-premises devices including computers, printers, game consoles, digital media devices, wireless routers, and network storage devices. This approach has promoted an innovative and highly competitive retail market for devices used with broadband services. At the same time, because each operator terminates its service in an interface device that it can swap out as needed to accommodate innovations in delivery technologies, this approach has freed service providers to innovate in their networks without changing the Ethernet connection to which customers attach their devices. For example, a DSL provider can introduce a new, faster technology in its network and, if necessary, swap in a new DSL modem that incorporates the new technology, without changing the customer interface or requiring customers to replace devices they use with the service. This allows consumers to benefit from new and improved services without incurring the cost of replacing devices they have purchased at retail – replacing a single modem is more cost-effective than replacing each device that accesses broadband services.

The problem is why can't we have a device like an 802.11 device or an Ethernet router or the like. Because the cable companies "bundle" their services. Frankly that is utter nonsense. With cable ready TVs of two decades ago there was no bundling. The cable companies have just heavy handedly moved in and set prices with no reasonable market controls. They have a stronger monopoly than AT&T ever did. The FCC may have an opportunity here and it should be interesting to watch.