The Federal Communications Commission (FCC) has granted Charter Communications a conditional two-year waiver of the prohibition on “integrated” set-top boxes in Section 76.1204(a)(1) of the FCC’s rules. The order, issued by the FCC’s Media Bureau on April 18, 2013, concluded (over the objections of the Consumer Electronics Association and Public Knowledge, among others) that the waiver, as conditioned, would serve the public interest by making it more likely that other cable operators considering moving to a downloadable security system will adopt the same technology as Charter, which will in turn make it more likely that third party manufacturers will develop retail devices (the goal of the integration ban).

Background. The integration ban saga has its origins in the Telecommunications Act of 1996, which directed the FCC to adopt regulations to assure the commercial availability of set-top converter boxes and other navigation devices (i.e., devices used by consumers to access services offered by multichannel video programming distributors). The FCC first implemented this provision in 1998 by establishing a deadline for cable operators to provide navigation devices with a “separable” security element from the basic navigation device and to cease placing into service new “integrated” navigation devices that perform both conditional access and other functions. Years of litigation ensued. Ultimately, the cable and consumer electronics industry agreed to a form of separable security known as the CableCARD and the integration ban became effective on July 1, 2007.

The purpose of the integration ban was to force cable operators and equipment manufacturers to rely on a “common” separated security solution that could be used by subscribers to access encrypted services over a retail device. The fear was that if cable operators could continue to deploy integrated boxes, a retail market for CableCARD-enabled boxes would never develop. However, even after the ban took effect, there were numerous attempts on the part of various cable operators to obtain waivers of the ban that would allow them to continue to deploy integrated boxes. Some of these waiver requests were granted, while others were not. Moreover, while the cable industry has deployed millions of leased set-top boxes with CableCARDs, the retail market for such devices has not developed as the FCC had hoped.

Although the industry standard agreed upon by the cable and consumer electronics industries involved the use of a “hardware” solution (i.e., the CableCARD), the development and deployment of downloadable security has long been a goal of the FCC. Indeed, in 2007, the FCC released a Public Notice stating that the deployment of downloadable security technology would satisfy the integration ban and would not require a waiver; the FCC further cited the downloadable security solution developed by Beyond Broadband Technology as a compliant technology.

In addition, in 2007, the FCC granted a temporary waiver of the integration ban to Cablevision Systems Corporation that allowed it to use a proprietary (and thus non-compliant) separable security solution (a “SmartCard”) while it worked towards the development of a “downloadable” security solution that would meet the “common reliance” requirement. In November 2012, Charter requested a similar temporary waiver to allow it to deploy integrated boxes while it initiated implementation of “an open-standard, downloadable security solution that supports third party retail devices (and would eventually replace both the integrated boxes and CableCARDs).

Decision. The boxes for which Charter requested a waiver would include two security systems: one featuring a hardware chip that would eventually be used for downloadable security and one featuring traditional integrated security. Charter contended that the integrated security would be used for a two-year “transitional” period prior to the activation of Charter’s downloadable solution. The downloadable solution was described as “combin[ing] a software-based security with a hardware root of trust housed in a commodity chip.” The “key ladder” for the hardware root of trust will be made available on an “open royalty-free basis” in order to allow third-parties to manufacture and market devices that could interconnect and operate with Charter’s cable systems nationwide. The oppositions to the waiver request argued that granting the waiver would not produce consumer benefits because it would not be “portable” between companies, did not involve the deployment of a “separable” security solution, and would undermine common reliance and effectively end cable operators’ obligation to support CableCARD.

The FCC determined that the arguments made in opposition to the waiver did not warrant denial of the waiver request. The FCC first noted that Charter does not need a waiver in order to implement a downloadable security system so long as the system complies with the integration ban. In particular, the FCC concluded that Charter’s proposed use of a hardware chip as part of the downloadable security system was compliant with the integration ban, reiterating that the Beyond Broadband Technology downloadable security solution (which the FCC recognized as a compliant approach) also used a hardware chip. Next, the FCC found that because Charter was committing to use the same downloadable system being utilized by Cablevision, granting the waiver would spur development of a portable, industry-wide standard.

In order to ensure that the public interest was served by the waiver grant, the FCC imposed several conditions on Charter. These include the following:

Prior to deployment of any integrated set-top boxes, Charter must submit a declaration signed by its CEO under penalty of perjury attesting that Charter is engaged in good faith negotiations with a consumer electronics manufacturer that intends to develop a set-top box that will be sold at retail utilizing Charter’s downloadable security and that can be used by a Charter customer on all Charter systems nationwide.

Charter must continue, on an indefinite basis, to support CableCARD and comply with various CableCARD-related rules (including but not limited to self-installation, M-Card, switched digital video solution, uniform CableCARD fees, the IP output requirement and the “bring-your-own-discount” rule). This CableCARD support must be implemented by “simulcrypting” services so that they can be accessed by subscribers with “legacy” CableCARD devices as well as those with downloadable security.

Once downloadable security devices are available for purchase, Charter will be permitted to cease offering new CableCARDs, provided that it makes the downloadable security device available to consumers at a price that is “comparable” to CableCARD-enabled devices; however, Charter must continue to simulcrypt until such time as it no longer has any subscribers utilizing third-party CableCARD-enabled devices.

For the next four years, Charter must submit semi-annual reports to the FCC detailing Charter’s efforts during the waiver period to bring a third party downloadable device to market as well as updates regarding its deployment of integrated and CableCARD devices.

As noted above, Charter must offer the hardware, software, specifications and codes necessary to implement its downloadable security system on an open, royalty-free basis and must cooperate in a timely manner with any third-party manufacturer seeking to develop retail devices that will use the downloadable system.

Upon completion of the two-year waiver period, Charter must certify to the FCC that it has deployed a downloadable security system that employs a software-based security with a hardware based root of trust housed in a commodity chip and is no longer using integrated security on any of its systems. (Charter may leave in place the dual-security devices deployed pursuant to the waiver, but must rely solely on the downloadable security component of those devices).

In addition to meeting the above-described conditions relating to its deployment of integrated boxes and eventual transition to downloadable security, Charter is required to fulfill certain “public interest” commitments that it made to the FCC, including transitioning all of its systems to all-digital within nine months of the end of the two-year waiver period and making broadband Internet access service of 100 Mbps or greater available to 200,000 additional homes before the expiration of the waiver period.

Significance. Apart from reestablishing that downloadable security is compliant with the integration ban and indicating support from the FCC for efforts to deploy downloadable security, the decision is significant for its treatment of the D.C. Circuit January 2013 decision vacating the FCC’s “plug and play” orders. That decision, which focused principally on the FCC’s copy protection “encoding rules,” had called into question the status of various other rules, including certain CableCARD rules. The waiver order clarified that while the EchoStar decision did not impact the integration ban, it did have the effect of vacating certain rules relating to the CableCARD regime such as the technical standards for CableCARD and labeling with respect to CableCARD compatibility. The FCC specifically noted that it was not necessary for it to address the continued effectiveness of other aspects of the CableCARD regime. However, it did state that the EchoStar decision eliminated the requirement that cable operators continue to support CableCARD as a means of complying with the integration ban and impose a requirement that Charter continue to comply with those requirements “notwithstanding the impact of the EchoStar case.”