Government Failure – FCC Should Stop Imposing Costly Set Top Box Regulations

If consumers understood the complex regulations their cable box has endured at the hands of the Federal Communications Commission, they’d be shocked at the price tag associated with these burdensome regulations.  As part of the Telecommunications Act of 1996, the FCC was tasked with creating a policy for cable hardware technology that would open the market for set-top boxes to third-party vendors to sell boxes at retail stores.  Back then, cable providers were dominating the television hardware market by leasing (at FCC-regulated rates) their own proprietary set-top boxes to their customers.  The FCC’s original solution was the CableCARD, first released in 2004, which the FCC required be put in all cable and thirdparty set-top boxes.  These CableCARDs, at least the thinking was, could be put into a third-party device to interpret and descramble cable signals from any source, thus making cable services accessible from thirdparty set-top boxes, in addition to any other innovative features offered in those boxes.

 

The CableCARD was a disaster from the start and the FCC has said as much.  The CableCARD policy didn’t work for a variety of reasons.  First, it used an already outdated PCMCIA hardware model (common in late ’90s laptop computers).  Second, building slots for CableCARDs into set-top boxes made the boxes much more expensive and the implementation incredibly complex.  It’s so costly and complicated (and not at all in demand by consumers) that there were only 14 third-party-provided set-top boxes on the market in 2009.  Third, because the FCC also regulates the rates for leased set-top boxes to keep those prices low, for most consumers, the third party retail boxes could not compete with leased boxes on price.  One study by Phoenix concludes that these regulations impose significant costs on the industry, which undoubtedly raises the cost of providing cable to consumers.  So you can only imagine the costs associated with these regulations are undoubtedly being passed along to consumers.  Also, consumers who lease boxes do not bear the risk of obsolescence or damage as consumers who purchase boxes do.  Those who lease can return the box to the cable company, if it breaks or upgrade to a new box without having to pay for the box. 

 

We’ve seen shortsighted regulations like this before from the FCC.  Starting in 2004, the FCC mandated that all set-top boxes must have a Firewire port.  The problem?  No one wanted them, and no one used them.  The market chose HDMI instead of Firewire, and most companies that supported Firewire (Apple, for one), eventually stopped and turned to better alternatives.   According to one report, a cable provider with more than five million subscribers had only five requests for this feature.  The cost passed on to consumers to implement this failure in regulation?  Four hundred million dollars.

 

Rather than admit that the market can innovate better than a government bureaucracy, the FCC is moving forward with its replacement of CableCARD with a new solution called AllVid.   AllVid would require MVPDs to publish specifications so that third party manufacturers can build applications to bring the MVPD’s content to the thirdparty devices. 

 

This sounds all well and good, until we look at what the market is already doing.  Roku, Apple TV and Boxee have all come to the market without the need of CableCARD or AllVid.  Televisions capable of downloading content directly from the Internet are now available.  Consumers can watch their favorite television shows through Hulu, Netflix, iTunes or Amazon on Demand.  Samsung has deals with both Comcast and Time Warner Cable to bring cable content to Samsung TVs and tablets.  And a whole new industry of tablets and smartphones able to consume this content are now available.  As Robert McDowell, an FCC commissioner who opposes AllVid, recently said:

 

“The idea of accessing the Internet through the TV screen is certainly attractive—so attractive, in fact, that the marketplace already appears to be delivering on that vision without any help from the government.”

 

These technologies are engineering marvels that take years of innovation, millions of dollars of research and development by hardware manufacturers, and the brains of many gifted engineers.  The consumer then decides which products are worth their money, and the best survive.  All of these hardware manufacturers use different formats and specifications, which gives the consumer a wide variety of choices, depending on their needs.  Why then does the FCC want to apply handcuffs to the innovative minds of the technology community, when the consumer can do a much better job of deciding winners and losers?  The mindset that a government bureaucracy can drive innovation only stands to stifle the true innovative technologies coming online today.

 

The answer to why the FCC deems it necessary to impose these new regulations might be found in the age-old question “Who benefits?”  Certainly not the consumer, as we’ve discussed above.  One benefactor of these new regulations is Google, who has taken the lead in lobbying for the regulations.  Google helped to form the AllVid Tech Company Alliance, a consortium of hardware companies that would benefit greatly from forcing the cable companies into this new quagmire.  This is especially troubling, considering the extremely cozy relationship the Obama administration continues to have with Google (see here, here, here, and here).  The chairman of Google is even being considered for a cabinet post.

 

As Adam Thierer at Tech Liberation Front has recently noted, Washington undermines an entire industry of companies by kneecapping competition through onerous regulations.

 

This is no exception.

 

 

Zack Christenson is a Chicago-based digital strategist who writes on tech policy.

 

 

 

 

 

 

 

 

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