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Statements: Ness | Powell

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Federal Communications Commission
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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

MAY 13, 1999
MORGAN BROMAN AT (202) 418-7200


In order to improve consumer choice and foster competition, the FCC has adopted an order revising its rules regarding the commercial availability of navigation devices (e.g cable television set-top boxes). The Order on Reconsideration affirms and refines rules adopted in 1998 to allow for consumer purchase and ownership of navigation devices. This order furthers the goal of providing competition in the telecommunications marketplace by creating a market for consumers to own equipment used to access video programming and other services in their homes. The Order modifies the FCC's separation requirement with regard to analog-only devices. The Order finds that deferring application of the rules to analog-only devices at this time will further allow the industries to focus on the development of digital equipment and expedite achievement of Section 629's goal of commercial availability.

In Section 629 of the Communications Act, as added by the Telecommunications Act of 1996, Congress directed the FCC to create rules that would allow consumers to obtain "navigation devices" -- meaning set top boxes, remote control units and other equipment -- from commercial sources other than their multichannel programming service provider. On June 11, 1998, the FCC adopted an Order (FCC 98-116) requiring that MVPDs separate security functions from non-security functions by July 1, 2000 and make available modular security components. For the cable television industry, CableLabs, the research arm of the cable industry, agreed to develop interface specifications to connect the components to the host devices.

The Order on Reconsideration responds to petitions for reconsideration filed by the Consumer Electronics Manufacturer Association (CEMA), National Cable Television Association (NCTA), Telecommunications Industry Association (TIA), Time Warner Entertainment Company Time Warner), and Wireless Communications Association. The Order notes that, in the year 2000, once separate security modules are available, the FCC will assess the state of the market to determine whether the rules are providing for an open, competitive market. As part of this assessment, the Commission stated that it will consider whether to accelerate from 2005 to 2003 the MVPD phase-out date for offering integrated equipment combining embedded security functions and non-security functions.

Summary of key elements of the order:

Analog Equipment: The Order adopts a rule deferring the separation requirement for equipment that only offers access to analog programming. Specifically, we adopt the proposal of CEMA, Circuit City and the Information Technology Industry Council (ITIC) to exclude devices that; (a) employ only an analog conditional access mechanism, (b) are capable only of providing access to analog video programming offered over an MVPD system and, (c) do not provide access to any digital transmission of MVPD programming or any other digital service through any receiving, decoding, conditional access, or other function, including any conversion of digital programming or services to analog format. Security modules remain a requirement for hybrid boxes that access both analog and digital programming. Petitions received from NCTA, TIA and Time Warner asked the FCC to reconsider the application of the separated security requirement as applied to analog-only equipment.

Integrated Boxes. Petitioners sought reconsideration of the prohibition on MVPDs offering integrated equipment combining embedded security functions and non-security functions after January 1, 2005. The Order denies petitioners' request and reaffirms the FCC's prior finding that allowing MVPDs the competitive advantage of being the only market participant offering integrated devices is likely to interfere with the statutory mandate of commercial availability and that the MVPD offering of integrated boxes should be phased out. The Order does not change the January 1, 2005 date for implementation of the ban on offering new integrated boxes.

Devices in Inventory. The Order explains that January 1, 2005 was chosen as a reasonable period of time for an MVPD to transition its inventory to unbundled equipment. The January 1, 2005 date was chosen to allow sufficient time for affected parties to respond to equipment modifications and a changed market. The FCC stated that in the year 2000, once separate security modules are available, it will assess whether integrated boxes are impeding commercial availability.

CableLabs Standards Process. The FCC expects that the standards developed through the OpenCable™ process will be sufficiently specific for manufacturers and designers unaffiliated with MVPDs to build devices that can be sold through national retail distribution. A status report on the OpenCable project, filed on January 7, 1999, states that OpenCable project is ahead of schedule. Interested parties concerned with the standards development process are encouraged to comment on the next status report which is due to the FCC in July 1999 and which will be available on the Commission's internet website, www.fcc.gov.

Application of Rules to various MVPD technologies. The Order denies petitioners' request for reconsideration of the exemption for DBS operators and open video system (OVS) operators from the requirement to separate security functions.

Functions of Equipment Performing Conditional Access. The Order clarifies that the components of the security module should be closely related to the security functions of the navigation device, and enhance, rather than assume, a function of the host device.

Portability. The Order does not require either portability or interoperability. The FCC notes that portability and interoperability will be facilitated by the standards processes that are now ongoing and that this is a matter that the Commission may address in the future.

Action by the Commission May 13, 1999, by Order on Reconsideration (FCC 99-XXX). Chairman Kennard, Commissioners Ness, Powell, Furchtgott-Roth and Tristani, with Commissioner Powell dissenting in part and Commissioners Ness and Powell issuing statements.

-FCC -

News Media contact: Morgan Broman at (202) 418-2358.
Cable Services Bureau contacts: Deborah Klein, Thomas Horan at (202) 418-7200.
TTY: (202) 418-7172

May 13, 1999

Separate Statement


Commissioner Susan Ness

Re: Commercial Availability of Navigation Devices Order on Reconsideration

Since our Report and Order just eleven months ago, "set top boxes" have become Page One news. Today, in ruling on five petitions for reconsideration, the Commission has again recognized how important navigation devices will be in the digital age. Digital set top devices are likely to be the gateway between digital bitstreams and new applications that may reside in the intelligent appliances of the future. These devices not only will control television service, but are likely to be the customer's gateway to the Internet and the world of electronic commerce. Thus, the directive of Section 629 of the Communications Act that our rules enable the commercial availability of these devices has potential consequences well beyond the provision of multichannel video.

I write separately to highlight my concern over a potential loophole that remains. As of January 1, 2005, our rule prohibits MVPDs from placing in service new navigation devices that have security integrated with other features. But our rule apparently would allow an MVPD to stockpile integrated devices even after separated security modules become widely available, and to deploy unlimited numbers of integrated devices on the eve of the phase-out deadline.

In our Report and Order, we scheduled a review of several issues in the year 2000, after separate security modules will be available. That review will include an evaluation and forecast whether the continued deployment by MVPDs of integrated devices beyond January 1, 2005 will impede commercial availability. The six year transition we established in the Report and Order is intended to allow MVPDs to draw down their inventories of integrated devices. MPVDs should not use this transition period to increase inventories of integrated devices once separate security modules are widely available. It is important that we monitor this issue in our review to ensure that manipulation of inventory does not undermine the implementation of Section 629.

I commend the cable industry for being ahead of schedule in its development of standards for the separate security module. I encourage all interested parties to review the progress reports filed with us. Those reports should be available, if they are not already, on the Commission's website at www.fcc.gov.

May 13, 1999




Re: Commercial Availability of Navigation Devices, CS Docket No. 97-80

Although I support most aspects of this decision on reconsideration of our Report and Order on Commercial Availability of Navigational Devices, I dissent from Section B of this decision. I continue to disagree with the assumption that this agency must prevent multichannel video providers (MVPDs) from offering set-top boxes that integrate security with other functions in a set-top box (as opposed to a separable "point of deployment" or "POD" element) in order to "assure commercial availability" of set-top boxes.

As I explained in my dissent to the Report and Order, I do not find this level of market engineering necessary to fulfill the goal of Section 629 nor do I find it to be sound public policy. I will not repeat the discussion in my prior statement, but only note the following:

Section 629 did not direct the FCC to incent consumers to go out to buy set-top boxes. The mission here was to make sure that boxes were available and that consumers had a choice. We accomplished that objective by ensuring that manufacturers have the ability to produce boxes that can be easily used with the video system, much as phones can easily be used with the existing network. It goes well beyond the statutory objective to decide that government's role is not merely to assure availability but also success for manufacturers and retailers.

The decision to prohibit integrated boxes may deter innovation. The record of this proceeding shows that potential competitors to incumbent cable providers have been developing integrated boxes with unique functionalities as a way of competing. It is contrary to Section 629 and to good public policy to inhibit this development.

It is also contrary to good public policy to remove from the market one potentially cost-effective choice for consumers. It would be more practical to allow operators to deploy integrated boxes that may well be less costly and provide greater security for the system. The benefits of allowing operators to use such equipment would redound to consumers, giving them more equipment options at potentially lower prices.

Finally, I note that the ban is likely to skew present business decisions of operators about when they should buy new set-top boxes, how many they should buy and what plans they should make for deploying digital technology. MVPDs, particularly smaller systems and other non-exempt operators such as wireless cable operators, will be forced to make these decisions so as to avoid the potential for stranded investment, not on the basis of what might be best for their customers. I see no reason to put these operators in such an untenable position.

For all these reasons, I respectfully dissent from this portion of the decision.