This week the National Cable Television Association (NCTA) published a document called The Integration Ban – A Rule Past its Prime. So what is the integration ban and why are they so upset about it?
When the cable industry uses the phrase integration ban, they are referring to the various rules that require cable companies to offer settop boxes that include a cable card. There is no actual FCC order called the integration ban and that is a ‘marketing’ phrase the industry came up with to talk about the cable card rules.
NCTA has a lot of really valid points and there probably is no other set of rules administered by the FCC that is as much of a mess as the cable card rules. These rules came into place in 1998 and were due to multiple requests from the public to be able to use their own settop boxes rather than use the ones supplied by the cable company (and for which the cable company charges). And so the FCC came up with some complicated rules that required cable companies to use boxes that included a cable card.
A cable card is a little device that is about the size of a credit card and that fits into a slot in settop boxes. Its function is to decrypt the television signal from the cable company in order to watch the programming. Different cable companies use different encryption techniques, and so a consumer must acquire a cable card from their own cable company, and then they can use the card in a settop box they buy on their own.
This sounds like a good idea. Cable companies have historically charged around $5 per month forever to ‘rent’ the settop box and the FCC clearly envisioned that a lot of people would buy their own settop boxes to avoid these fees. But they haven’t, and so from a practical aspect this order has been a dismal failure. According to the NCTA there are only 600,000 cable cards in use today compared to 40 million cable card-ready settop boxes. And there are a huge number of settop boxes that don’t include the cable card technology, so less than 1% of consumers have taken the opportunity to avoid the settop box charges. From a market perspective that is a failure.
But that is not the only reason that the cable card order is a mess today. The FCC has granted numerous waivers over the years and so some companies do not have to use cable cards. AT&T and the telcos who use DSL do not have to use cable cards because nobody has really figured out a way to make them work with the way that DSL is used to deliver TV signal. One of the functions of a cable card is to act as a tuner, meaning it changes channels, and these technologies change the channel back at the headend rather than at the customer location. Many of the smaller fiber providers cannot buy settop boxes that will allow cable cards, although Verizon must offer them. The satellite providers also do not have to use cable cards for similar reasons.
But the FCC has also granted conditional waivers to some traditional cable companies like Charter and Cablevision. These providers have been working with a new technology that would allow customers to download software that would allow external devices to act as settop boxes on their systems.
But there is even a bigger reason why the cable card rules are a mess. In January of this year the D.C Circuit Court of Appeals entirely vacated what is known as the ‘Plug and Play rules’ that were issued by the FCC in 2003. These rules made changes to the cable card rules along with other cable-related issues. Further, the FCC amended the cable card rules again in 2010, largely based upon the 2003 order, and yet those rules were not vacated by the Court. We now have a regulatory puzzle that I am not sure anybody can solve (but many lawyers will be glad to charge to try).
Finally, and probably most important of all, settop boxes are quickly going to lose relevance in the marketplace. The FCC needs to look into people’s living rooms to see how people are watching video today. (I don’t mean that literally since that seems to be the NSA’s job). People want to be able to watch video on a wide array of devices, not just their television sets. They are connecting a plethora of new devices to their TVs and wireless networks to let them do this on their own. And many cable companies are now helping them by offering some form of what they are calling ‘TV Everywhere”. There are also cable providers who are actively allowing boxes like Hulu, Playstation and Apple TV to act as their settop box.
So we have cable card rules that are a failure in the marketplace. Further, the cable card rules have been eviscerated by a Court order and almost nobody understands what is or is not required any more. And technology is getting ready to quickly bypass the traditional settop box. The FCC needs to admit that this is an order past its prime and should stop requiring new cable cards. It might make some sense for some period of time to allow existing cable cards to be used, but it’s time to face the reality of the market and the technology and get out of the way of innovation