FCC Delays Set-Top Divorce

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With an assist from Microsoft Corp., cable has won a victory at the Federal Communications Commission.

The commission said Thursday it has decided to delay implementing the ban on integrated cable set-top boxes for a year.

While upholding the ban, which is meant to spur retail competition for cable-ready DTV gear, it deferred the effective date one year to July 2007 to give operators a chance to come up with downloadable security software that could be used by both its boxes and competing retail offerings.

Cable operators complained that the 2006 deadline would have forced them to raise monthly lease rates for new set tops by roughly $2.50 per month.  That cost increase, Paul Gallant of Sanford Research Group says, could lead to customer defections or lower margins.

The deadline was originally imposed to encourage a retail market for interactive digital boxes by divorcing security functions (the card or software that tells the box what channels you are authorized to receive) from channel surfing and interactive features.

The FCC judged that the market would be hindered if cable operators continued to supply all-in-one boxes, leaving customers less incentive to seek a retail version.

The FCC late last year appeared to be leaning toward delaying the deadline until a lobbying blitz by Intel gave them second thoughts. But Microsoft late last month took cable's side, supporting the delay.

Maintaining the 2006 deadline will “further impede the kinds of collaborative efforts between the consumer electronics, information technology and cable industries that are need to devise more forward-looking and effective” routed to developing a retail market, wrote Microsoft regulatory counsel Paula Boyd in the company's letter to the FCC Feb. 24.

Not surprisingly, the cable industry praised the decision: "We are pleased that the Commission has deferred implementation of the ban on cable-operator supplied integrated set-top boxes," said National Cable & Telecommunications Association VP, Communications, Brian Dietz. "In the additional time provided by this Order, the cable industry will investigate the feasibility of a downloadable security solution as requested by the Commission, plus we will demonstrate beyond a doubt that cable operators are making CableCARDs work with Digital Cable Ready devices.  More than 31,000 CableCARDs have been provided by cable operators to our customers and we expect that number will grow significantly."
Consumer Electronics Association President Gary Shapiro wasn't happy. While he applauded the benchmarks the FCC set up to gauge the cable industry's progress, he saw the delay as detrimental to consumers.

"We are disappointed by the FCC's decision to allow cable operators to maintain their monopoly on cable set-top boxes for an additional twelve months," said Shapiro in a statement. "While at first glance, one year may not seem like a long time, the extension provides cable operators with additional time to further entrench their monopoly.

"The real victims of this decision are cable consumers who will be unable to reap the benefits of a competitive market, including consumer choice, innovation and competitive pricing."



--John Eggerton contributed to this report.

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