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More or Less Competition from FCC’s Approved “Open” Set Top Box Proposal?

On Feb 18, 2016, the Federal Communications Commission (FCC) narrowly approved a proposal by Chairman Tom Wheeler to let consumers swap their cable television boxes for cheaper devices and apps, a move that is intended to increase competition in the $20 billion set-top box market. The proposal passed on a 3-to-2 vote, with commissioners Ajit Pai and Michael O’Rielly dissenting.

An image of Tom Wheeler, Chairman of the FCC,.
FCC Chairman, Tom Wheeler (image courtesy of FCC.gov)

FCC chairman, Tom Wheeler, said of the measure: “Technology allows it,” but the cable industry is likely to challenge the ruling in court. During the FCC meeting, Wheeler reiterated that “nothing in this proposal slows down or stops cable innovation.”

Cable providers and other stakeholders will have 60 days to comment [Editor’s note: 30 days for initial comments and 60 days for reply comments after publication in Federal Registry]. If the proposal takes effect, the industry will have two years to comply. However, opponents are already voicing their concerns. The Future of TV Coalition said the regulations would cause consumers to pay more, hurt programmers and “blow a gaping hole in Congressional protections for our TV privacy.”  Coalition member AT&T [1.] said the plan “threatens the very competition and innovation that has led to this vibrant marketplace.” 

Note 1.  AT&T U-verse customers pay a $7 monthly fee for their Residential Gateway (DSL modem, WiFi router and frequency band splitter).  The U-verse set-top box is technically free, but is much more complex. It’s a special purpose high-speed computer that streams video, enables Video on Demand (VoD), and has several Internet-like apps. The U-verse TV service is delivered by AT&T’s private, high-speed Intranet using IPTV framing for real-time/linear video and VoD.

USTelecom president Walter McCormick said the regulator’s decision to “insert itself into how video should be delivered to American consumers is unlikely to serve consumers or competition.” This author disagrees.

“The FCC’s thumb on the scales will inevitably straitjacket innovation and harm competition, neither of which will serve the public interest,” McCormick added.

The proposal is backed by companies such as Google and TiVo, which could develop products to compete with traditional cable boxes.  It also recommended that cable, satellite and telecommunications companies open access to their video feeds so that other companies could build the devices and apps to compete with the boxes.

Rumor has it that Google wants to make such devices with all sorts of apps to access cloud resident videos and data as yet another way to generate advertising revenue from content providers.

References:

F.C.C. Proposes Changes in Cable Set-Top Box Market

FCC Votes to Dismantle Cable’s Monopoly Over The Set Top Box

FCC Sets Its Sights On Set-Top Box

Author Alan Weissberger

View all posts by Alan Weissberger | Website

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4 responses to “More or Less Competition from FCC’s Approved “Open” Set Top Box Proposal?”

  1. Basant Khaitan Avatar
    Basant Khaitan

    Open STB standard will, over time, foster innovation and lower prices for consumers. Cable companies will oppose any open standard since they want to continue their monopoly on the entire ecosystem and control the prices/terms of the sale to consumers (e.g. imposed lease of single sourced equipment)

    I cannot understand the dissenting votes in FCC committee.

    Reply
  2. Ken Pyle, Managing Editor Avatar
    Ken Pyle, Managing Editor

    Alan, thanks for writing this excellent summary of what’s going on with this NPRM. In principle, I agree with an open approach, like the Carterfone decision for telephones that decoupled the network from the end devices and revolutionized the telephone industry. Perhaps instead of trying to delve into the details of a cable network, the FCC should be ensuring/facilitating more competition among MVPDs (whether real or virtual). In fact, with the advent of services like SlingTV, Go90, etc. this appears to be happening.

    With that said, I am cautious about what is being proposed and really need to look closer at the details, as there could be a number of unintended consequences or perhaps this will just be trading a oligopoly for a new kind of monopoly.

    First, one of goals of the 1996 Telecommunications Act was to open up the cable set-top market. This manifested itself through the “Cable Card”, which provided for separable security in a credit card size device that the consumer could “rent” from the operator for $2 to $4 per month.

    The idea was that the Cable Cards could be plugged into third-party set-tops or TVs.

    It wasn’t until 2007 when it was finally mandated and then, it excluded IPTV set-top boxes, so AT&T never was required to have Cable Cards. What this meant for the cable industry was a box that was more expensive to allow for the insertion of a card. As I recall, it meant an extra $50 or so in costs to the box and required massive set-top change outs and huge capital costs, particularly for smaller cable operators.

    In the end, the consumer market never developed (with less than 1% being purchased at retail) and Congress ended the mandate for the Cable Card in November 2014 http://www.lightreading.com/cable-video/set-top-boxes/congress-ends-cablecard-mandate/d/d-id/712231

    In other words, this first attempt at opening the set-top market was a huge failure.

    The concerns I heard from smaller operators this week is that another mandate could end up costing them millions of dollars as they have to invest in new capital in order to live up to a new mandate. To illustrate the costs associated with set-tops, one operator is overlaying a GPON FTTH system on their Hybrid Fiber Coax system to future-proof their system. They didn’t want to go with IPTV, because of the massive cost of changing set-tops, They would rather spend that money future-proofing their network with FTTH.

    The other concern I have is the Google monopoly. It was reported that the day after the AllVid proposal surfaced from the FCC, Google demonstrated a working version of such a device for Washington D.C. staffers.

    Why is Google so interested in this market? Advertising dollars.

    Google cannot deliver the personalized advertising we have come to expect on the web or mobile devices across the television screen. With 6 or 7 hours per day of household use, this is a huge missed opportunity for the Mountain View-based search firm.

    By splitting up the content, metadata and encryption functions it’s not too difficult to imagine Google creating a TV search function where they supply their own advertising. They could sell advertising for cable operators, programmers and, in the user interface, supply their own and keep all the revenue.

    This advertising would be personalized, like it is online, which is something the cable operators cannot provide because of regulations. In other words, this AllVid proposal seems to open up a new market for the search giant and its Android engine.

    In this light, it wouldn’t be surprising to see subsidized set-tops from multiple manufacturers and the price will drop. At one level, this will help the consumer see lower prices, but it will effectively trade an oligopoly for an advertising monopoly.

    Scott Cleland writes about the Google Ad Grab, here:

    http://googlemonitor.com/2016/fccs-allvid-proposal-is-really-the-great-google-ad-grab/

    Reply
    1. Alan Weissberger Avatar
      Alan Weissberger

      Ken, Thanks for your comment which is too long for me to reply in this space. Readers please note:
      NPRM= Notice of Proposed Rule Making.
      A notice of proposed rulemaking (NPRM) is a public notice issued by law when one of the independent agencies of the United States government wishes to add, remove, or change a rule or regulation as part of the rulemaking process. It is an important part of United States administrative law which facilitates government by typically creating a process of taking of public comment.
      https://en.wikipedia.org/wiki/Notice_of_proposed_rulemaking

      Reply
    2. Ken Pyle, Managing Editor Avatar
      Ken Pyle, Managing Editor

      Two other references

      This article from the Mulitchannel News regarding why Google is in favor of the FCC approach:

      http://www.multichannel.com/news/fcc/future-tv-fcc-set-top-item-google-gift/402694

      and this interview with Matt Polka of the American Cable Association:

      http://www.viodi.tv/2016/02/25/worse-than-a-cablecard/

      Reply

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