The Broadband Plan recommends that all MVPDs install (still undefined) gateway devices or functional equivalents in all new subscriber homes and in all home requiring replacement set-tops by Dec. 31, 2012. It appears that the Commission will first move forward with a Notice of Inquiry to collect more information, rather than launch a rulemaking proceeding as gateway advocates had urged. However, the authors’ vision of a gateway device is taken directly from some of the more extreme positions of advocates who seek to restructure cable architecture and business, such as stripping out any MVPD functionality other than delivery of standardized video and service feeds, with no recognition of the complexities involved in interactive cable services. The Broadband Plan makes a second recommendation targeted exclusively at cable operators. While declaring the CableCARD to be a failure, it proposes that the FCC adopt rules by the fall of 2010 requiring cable operators to redesign switched digital technology (SDV), restructure the prices of set-tops and bundled cable packages, change the CableCARD installation process, and possibly limit device certification to preventing harm to the network.

Background

Congress adopted Section 629 of the Communications Act in 1996 with an instruction to the FCC to “adopt regulations to assure the commercial availability” of navigation devices (such as set-top boxes) from manufacturers and retailers not affiliated with any cable or satellite television service provider. The provision arose as retail consumer electronics manufacturers sought to increase their presence in the cable television set-top box arena. Cable operators traditionally purchased customer premise set-top boxes from Scientific-Atlanta and Motorola because the headends supplied by those vendors protected cable channels with conditional access at the headend in ways that could only be decrypted by set-tops containing the manufacturer’s specific conditional access technology. The FCC implemented Section 629 by requiring cable to separate the conditional access element into a removable module known today as the CableCARD, so that retail devices containing other set-top circuitry could operate with cable systems when paired with a CableCARD specific to that system, as supplied by the Multiple System Operator (MSO). The satellite providers were effectively excused from this new requirement on the grounds that they were new market entrants that already supported retail options.

The cable industry developed a suite of required specifications for retailers to build set-top functionality into retail devices, but consumer electronics (CE) manufacturers did not adopt them. In a 2002 “one-way MOU,” the cable and consumer electronics industries took the first of two steps to resolve this impasse. The one-way MOU presented to the FCC a set of proposed rules under which retail equipment could pair with CableCARDs and receive “one-way” linear programming under relaxed requirements. At the time, most CE manufacturers dismissed Video-on-Demand (VOD), the cable electronic programming guide (EPG) and interactive services as uninteresting to consumers. The FCC adopted the proposal, but by the time retail devices using the one-way standard came to market, consumers wanted the interactive features and few manufacturers were willing to invest in their own guides. Most consumers ended up not using the CableCARD features and continued to rely instead on set-tops to receive the full panoply of new cable services.

The cable and CE industries spent several years trying to negotiate the second step: establishing a system under which retail equipment could pair with CableCARDs and receive “two-way” VOD, the cable program guide and other interactive services, in addition to linear programming.

An impasse in negotiations boiled over into a rulemaking at the FCC, but eventually the industries entered into a negotiated industry agreement using the Java-based “tru2way” middleware. The terms of the agreement are embodied in a binding Memorandum of Understanding (the “two-way MOU”) among the six largest cable companies—Comcast, Time Warner Cable, Cox, Charter, Cablevision and Bright House Networks—which serve more than 82 percent of all U.S. cable subscribers; some of the largest digital television manufacturers—Sony, Panasonic, Samsung, LG and Funai (which trades under the brand names Philips, Magnavox, Sylvania and Emerson); set-top makers ADB and Digeo; and chip manufacturer Intel. Tru2way serves as a buffer between a wide variety of hardware platforms and the many different headends and applications that cable operators use. In a way, middleware works on set-tops as a PC operating system works on computers to allow developers to write interactive applications once to the operating system with confidence that it will run on many varieties of computers.

Under this approach, retail two-way digital TVs and other devices that connect to digital cable can enjoy easy access to high-definition television services offered by cable operators, plus Video-on-Demand, interactive programming guides, other two-way services, plus future interactive innovations, without a set-top box. Retail tru2way DTVs are operating in Chicago, Denver, and Atlanta, participating MSOs have upgraded headends to support tru2way in systems passing millions of homes, and have deployed millions of their own tru2way set-tops. More detail on this approach is available here.

Throughout this time, the cable industry and others grew increasingly vocal about the Commission’s disparate regulation of cable and non-cable MVPDs to adopt retail solutions—an issue that grew in importance as nearly 4 in 10 MVPD customers took service from satellite and telephone competitors.

Broadband plan inquiry

In late 2009, the Broadband Task Force posed questions to the affected industries about whether Broadband Adoption could be increased if leased set-top boxes were engineered to also include Internet browsing capabilities. That inquiry triggered many suggestions for how MVPD services might be delivered to households, how non-cable MVPDs should make their services available to retail devices, and ideas about economic and other barriers to the development of a retail market in set-top boxes and other navigation devices. Some parties urged consideration of a “gateway” device which could deliver MVPD services into home networks for use on a variety of networked devices. But details were scant, and the “gateway” meant different things to different people. Even the key proponent acknowledged that the suggestion was only a “framework for conceptualizing,” a “starting point,” and that “it would be premature for [it] to suggest what the precise standards should be.” Cable, satellite, and telephone companies informed the Commission of myriad efforts (in standards and other inter-industry bodies) to develop similar innovative solutions, and of the need for comprehensive inquiry into complex technology, business, and economic issues on which any new approach would be dependent. Others saw such views as mere delay, arguing that the FCC should immediately launch a rulemaking whether or not it had specific rules to propose. For its part, the cable industry submitted a broad vision statement to the FCC, inviting multiple, innovative approaches for providing video content to consumers where and when they want it, on devices that can offer MVPD and Internet video sources, for those devices to be innovative platforms for new applications, and for consumers to be able to buy video devices at retail and to know that cable content can be among their video sources.

Broadband plan

The Broadband Plan recommends that the Commission initiate a proceeding focused on requiring all MVPDs to install (still undefined) gateway devices or functional equivalents in all new subscriber homes and in all homes requiring replacement set-tops by Dec. 31, 2012. The Plan is significantly silent on the FCC process to be followed, but it appears that the Commission will first move forward with a Notice of Inquiry to collect more information and comments about gateway and other approaches, rather than launch a rulemaking proceeding as gateway advocates had urged. It is noteworthy that the Plan agrees that a solution should apply to all MVPDs for a retail market to succeed, so the gateway requirement would apply to satellite and telephone company MVPDs as well as cable.

The specific vision reflected in the Broadband Plan is taken directly from some of the more extreme positions of advocates who seek to restructure cable architecture and business. The gateway would be stripped of any functionality other than delivery of standardized video and service feeds, with no recognition of the complexities involved in interactive cable services. “Network neutral” retail devices would then be able to receive services from any MVPD, and integrate those offerings with other services and functionality in a user interface without restriction. Licensing of necessary intellectual property could not be “restrictive,” and MVPDs would be required to offer rights at “low cost” and on RAND principles. Content protection “flags” could be passed through, but there is no apparent recognition of systems in place to enforce content protection rules or applicable business models.

With no serious support, the Plan states that such a solution should be simple and not require significant investment. The Plan claims that this proposal and its 2012 deadline are reasonable because of the supposed “extensive public record established in this subject area and the relatively simple architectures proposed to date,” when in fact the record reveals numerous unresolved significant complications and enormous costs. In lieu of evidence, the Plan observes that because broadband modems use “truly open, widely used and standard protocols,” “PC manufacturers do not need to sign non-disclosure agreements with broadband service providers, license any intellectual property selected or favored by broadband service providers or get approval from any broadband service providers or any non-regulatory certification bodies,” and presumes that the same can and should be true of video devices. As a consequence, it suggests that any rules adopted should carry significant enforcement penalties for failure to meet deadline, such as fines, sunsetting the recently granted waivers for digital transport adaptors (DTAs) used by cable systems to go all digital, or requiring free set-top boxes. In this form, the Plan’s recommendation is radical. However, if subjected to informed debate within an Inquiry, there are elements of the vision that could be harmonized with a suite of more practical market-based approaches that can deliver similar consumer benefits.

The Broadband Plan makes a second set of recommendations targeted exclusively at cable operators. Although the Plan essentially declares CableCARDs to be a failure and tries to redirect industry development away from that solution, it simultaneously proposes that the FCC adopt rules by the fall of 2010 with a short-term CableCARD “fix” having significant business consequence. It proposes that cable operators redesign switched digital technology (SDV) so that one-way CableCARD devices can control SDV channel selection by using an upstream Internet Protocol path, rather than the tuning adaptor that was invented specifically for the purpose. It proposes that the prices of set-tops and bundled cable packages be revised so that box rental charges will be stated separately for the set-top and the CableCARD, and so that customers who “bring their own box” can see that they pay less than those who do not. It proposes to reduce “hassles” incident to CableCARD installation by requiring operators to offer self-installation options or other ways to eliminate material differences in the experience between lease of a set-top and installation of a CableCARD in a retail device. Finally, it calls for streamlining device certification and possibly limiting certification to preventing harm to the network. It does not even acknowledge the economic issues and choices by consumer electronics manufacturers which have frustrated the development of a retail market to date.

Both of these recommendations reflect an extraordinarily broad reach for a report that is supposed to be focusing on broadband. Its theory is that the only way to ensure Internet development is to also address the devices that connect to the Internet; and that if those devices require “seamless” access to MVPD programming to succeed, then MVPDs should restructure their services and applications accordingly.

The FCC will be releasing a series of notices to launch many of these proceedings. Davis Wright Tremaine will be participating in those proceedings on behalf of our clients.