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bG"i~'K2^14Gccx+11c1114cccccccccc11`uoduc`r{.MiV{xixiY`xiiid141SS+`u]uiJor11`.rruuMMMoc]cVJSJc0ccccc1ccccccSci1u`u`u`u`u`§f]cicicici.1.1.1.1{rxrxrxrxrxoxoxoxoicu`uaxrxricuriu{Zuc{ZuZuZdcdcxnaZciciaZ{arorororo{r{r/1cicc0ix`ccicZ(Z9ccV8V.xaxa{raxrk(>$;;HCH:HCHCH:HCb[?;<0<4<0FF;;JE;;;;?;B22WddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddNHHH2;;966;;m;;;ff;'+22;f''';f##dd;;==Ld2d2H2PhhEEf'2f'"ddddHHddd2Hdd9HHffddd2ffdddf2!!dddddH;dfHHHHHHHHHHd2F;8;fdHdJ2;H2;9HNAddHHHHHHHHHHddddd6dHHHHdddddddddddddddddddHHddddddSC=NdHddd+;HHHHddddddHHH2HHdHHdddHHH,HHHH,HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHF8C682J6;.=+J9L6?2J4Y8J8?+H9H9?6;;,9.?6QF?0PEJLF;J;H??J68LEEI;;;;FJ;;;???J92,!ddhrZz.lZrrvvnFFZ8vvv,Xhv6X@`7N@<Q%GGG,XM(G6X@`7c@L(i81,`$iA P-7PLL?!,`D,?A P-7,P~)i81,n#i?Z x97X >vvv,v6Nhez7NH2*"i~'K2^11Jcco111c1111cccccccccc11Yrgdxc`r{+MdP{xgxd]]ukggd111SS1dr`rgGrr+.]+rorrGPMrd`cVJSJc/ccccc1ccccccScf+rfrfrfrfrff`cicicici++++++++{rxoxoxoxoururururicrfxaxoxoicxoir{Zrd{ZuZuZdcdcxnaZcgcgaZ{arrrrrrrr{r{r/+cfcc/fuSccdcZ(Z9ccP4S1xaxa{raxokH  yO -ԍ47 U.S.C.  549(a).>H!  x[In addition, our rules "shall not prescribe regulations . . . which would jeopardize security of . . . services  xoffered over multichannel video programming systems, or impede the legal rights of a provider of such  S -services to prevent theft of service."> X yO-ԍ47 U.S.C.  549(b).>  SX- 4p5. 44Section 629 does not prohibit service providers from offering equipment to their subscribers.  xMultichannel video programming distributors may themselves continue to offer equipment "if the system  xjoperator's charges to consumers for such devices and equipment are separately stated and not subsidized  S- xby charges for" multichannel video programming and other services.> yOh-ԍ47 U.S.C.  549(a).> Section 629 also states that the rules  x<adopted under Section 629 shall cease to apply when the Commission determines that the markets involved  xzare fully competitive and that elimination of the regulations would promote competition and be in the  Sh- xpublic interest.>hx yO-ԍ47 U.S.C.  549(e).> The statute also provides that nothing in Section 629 is to be construed "as expanding  x[or limiting any authority that the Commission may have under law in effect before the date of enactment  S-of the Telecommunications Act of 1996.">  yO-ԍ47 U.S.C.  549(f).>  S- 4^p6. 44The House Report noted that "competition in the manufacturing and distribution of consumer  xdevices has always led to innovation, lower prices and higher quality. Clearly, consumers will benefit  xfrom having more choices among telecommunications subscription services arriving by various distribution  SP-sources."a P yO#-ԍH.R. Rep. No. 104204, 104th Cong., 1st Sess. 112 (1995).a p  S- 4p7. 44In the Notice of Proposed Rule Making ("NPRM"), we stated our belief that the overarching  x=goal of this proceeding was to assure competition in the availability of settop boxes and other customer"( \+"'"'ZZ["  S- x[premises equipment ("CPE").)  {Oh- xYԍImplementation of Section 304 of the Telecommunications Act of 1996, Commercial Availability of Navigation  {O2-Devices, CS Docket No. 9780, Notice of Proposed Rule Making, 12 FCC Rcd 5639, 5641 (1997) ("NPRM").) Additionally, in the NPRM, we noted the interest service providers have  x[in protecting system and signal security and in preventing theft of service, and stated our intent to adopt  xrules that assured adequate protection of service providers' networks from harm from any device used by  xzconsumers. Also, we stated our belief that by stimulating equipment innovation, we would maximize  x>consumer choice and flexibility, and stated our preference for minimizing regulation in the equipment design and installation process.  S- III. SUMMARY  Sr- 4p8. 44This Order adopts rules and policies implementing Section 629. The decisions made in this  SL -Order may be summarized as follows:  S - ^pSection 629 is broad in terms of the multichannel video programming distributors ("MVPDs")  "covered including cable television, direct broadcast satellite ("DBS"), multichannel multipoint  distribution service ("MMDS") and satellite master antenna television ("SMATV"). We determine  Othat open video system operators are not covered as a consequence of the specific open video  0system provisions of the Communications Act which exclude open video system operators from certain regulations applicable to cable operators. (#  S- pSection 629 covers not just equipment used to receive video programming, but also equipment used  to access "other services offered over multichannel video programming systems." Such equipment  includes televisions, VCRs, cable settop boxes, personal computers, program guide equipment, and  cable modems. The focus of Section 629, however, is on cable television settop boxes, devices that have historically been available only on a lease basis from the service provider.(#  S- pSubscribers have the right to attach any compatible navigation device to a multichannel video  programming system. We conclude that the core requirement, to make possible the commercial  S- lavailability of equipment to MVPD subscribers, is similar to the Carterfone principle adopted by  S- !the Commission in the telephone environment. The Carterfone "right to attach" principle is that  SZ- {devices that do not adversely affect the network may be attached to the network. The Order also  notes that commercial availability is furthered only if consumers are aware of the availability of equipment from alternative sources.(#  S- ?pService providers are prohibited from taking actions which would prevent navigation devices that  do not perform conditional access functions from being made available by retailers, manufacturers, or other unaffiliated vendors.(#  S - NpCable operators and other MVPDs can take the necessary steps to guarantee the security of their  S - ?systems and their programming. The Order reaffirms the provisions in the Communications Act  Pthat prohibit the manufacture, sale and distribution of equipment designed to allow for the unauthorized reception of service. (#""$ \+"'"'ZZ$"Ԍ S- ԙpMVPDs must separate out security functions from nonsecurity functions by July 1, 2000. An  exception is made for navigation devices that operate throughout the continental United States and  0are commercially available from unaffiliated sources, which includes DBS. Our rules rely heavily  Qon the representations of the various interests involved that they will agree on relevant  specifications, interfaces, and standards in a timely fashion, thus permitting the manufacture and sale of navigation devices. (#  S- NpMVPDs may offer devices that have security and nonsecurity functions integrated until January  1, 2005. As of that date, no MVPD shall provide new navigation devices for sale, lease, or use that  ]perform both conditional access functions and other functions in a single integrated device. In the  !year 2000, once separate security modules are available, we will assess the state of the market to  determine whether that time frame is appropriate and we will review the mechanics of the phase out of boxes that have combined security and nonsecurity functions.(#  S - pMVPDs must provide, upon request, technical information concerning interface parameters that are needed to permit navigation devices to operate with their systems.(#  SX- pExisting equipment rate rules applicable to cable systems not facing effective competition fulfill the statute's requirement prohibiting subsidies. (#  S-pThe Order adopts rules implementing the statute's waiver and sunset provisions.(#  S- OpThe Commission will monitor developments with respect to the availability of information to  lconsumers, retailers, and manufacturers necessary to the functioning of a commercial retail market  for navigation equipment, as well as developments relating to standard means of attaching and using equipment with the networks of service providers. (#  S- pThe Commission will also monitor developments with respect to the compatibility of settop boxes and digital televisions, and the availability of program guides.(#  SR- 4p9. 44As we stated in the NPRM, the multichannel video programming systems subject to Section  x629, including cable television, direct broadcast satellite ("DBS"), and multichannel multipoint distribution  xzservice ("MMDS") typically consist of a central signal processing or switching center, a transmission  xnetwork from that facility to user locations, and customer premises equipment that controls access to the  S- xnetwork and specific communications on it, and displays or stores picture, sound, and data information.G  {O-ԍNPRM, 12 FCC Rcd at 5642.G  xCable television operators and other providers have not discouraged customer ownership of television  xreceivers, radio receivers, and video cassette recorders that receive and display the communications transmitted.  S - 4p 10. 44Equipment, however, that controls the security aspects of access to programming from cable  x>operators and some other MVPDs has generally only been available for lease so that only those who  x>subscribe may receive service. Signal security control or descrambler units tend to be combined with""Z \+"'"'ZZ$"  S- xLother control equipment such as signal tuners and remote controls.1  {Oh-ԍId.1 In contrast, customer ownership of  S- xsatellite earth stations receivers and signal decoding equipment has been the norm in the DBS field.gZ {O-ԍSBCA Comments at 4; see also DIRECTV Comments at 7.g  xEven in DBS, however, where customer ownership of equipment is common, the service provider may  S-control the technical design of the equipment involved by licensing the technology used.: {O-ԍId. at 5643.:  S8- 4@p 11. 44The competitive market for consumer equipment in the telephone context provides the model  S- xof a market we have sought to emulate in this proceeding.:~ {O. -ԍId. at 5644.: Previously, consumers leased telephones from  xtheir service provider and no marketplace existed for those wishing to purchase their own phone. The  S- xCarterfone decision allowed consumers to connect CPE to the telephone network if the connections did  S- x/not cause harm.0( {OJ- xԍSee Carterfone, 13 FCC 2d 420 (1968), recon. denied, 14 FCC 2d 571 (1968); Telerent Leasing Corp. et al.,  {O- x45 FCC 2d 204 (1974), aff'd sub nom. North Carolina Utilities Commission v. FCC, 537 F.2d 787 (4th Cir. 1976),  {O- xcert. denied, 429 U.S. 1027 (1976); Mebane Home Telephone Co., 53 FCC 2d 473 (1975), aff'd sub nom. Mebane  {O-Home Telephone Co. v. FCC, 535 F.2d 1324 (D.C. Cir. 1976).0 As a result of Carterfone and other Commission actions, ownership of telephones  x moved from the network operator to the consumer. As a result, the choice of features and functions incorporated into a telephone has increased substantially, while the cost of equipment has decreased.  S - 4p 12.44The parallel to the telephone has limitations. When customer ownership of telephone CPE  x=became available, the telephone network was effectively a national monopoly. Well developed technical  xstandards existed throughout an almost ubiquitous network. CPE compatible with the telephone network  xwas part of this environment. In contrast, cable networks do not reflect universal attributes, and have  xsubstantially different designs. Nor do satellite systems share commonality beyond the most basic  xelements. Additionally, as Section 629 recognizes, preventing interference to other network users and  xmaintaining the integrity of the system signal is of greater concern for video delivery systems than for  S-telephone systems.l  {O-ԍSee H. R. Rep. No. 104204, 104th Cong., 1st Sess. 112 (1995).l This Order seeks to accommodate these differences from the telephone model.  S- 4@p 13. 44The steps taken in this Report and Order, if implemented promptly and in good faith, should  xresult in an evolution of the market for navigation devices so that they become generally and competitively  xavailable through commercial retail outlets. To facilitate the emergence of a competitive marketplace for  xnavigation equipment, we adopt several rules to make navigation devices commercially available as  x>quickly as possible. For example, we require certain MVPDs to offer separate security modules and  xpreclude MVPDs from offering navigation devices that perform both conditional access functions and other functions in a single device after January 1, 2005.  SX- 4}p 14. 44This Report and Order is premised on the assumption that commercial interests, fueled by"X \+"'"'ZZ"  x=consumer demand, will agree on specifications for digital navigation devices to be submitted to standard xLsetting organizations, or that common interfaces will emerge that become widely accepted. For the cable  x>television industry, the OpenCable) project is an initiative being managed through Cable Television  S- xLaboratories, Inc. ("CableLabs") yO- x<ԍ#X\  P6G;P#CableLabs is a research and development consortium of cable operators representing more than 85% of the  xKcable subscribers in the United States, 75% of the cable subscribers in Canada, and 12% of the cable subscribers in  xMexico. NCTA Comments at 32, n. 62. CableLabs acts as a clearinghouse to provide the cable industry with  xinformation on current and prospective technological developments and works with other industries to develop  {O-interoperable specifications for proposals to national and international standards bodies. Id.  to develop key interface specifications to foster interoperability among  S`- xdigital navigation devices manufactured by multiple vendors.5$`z {Oz - xJ#X\  P6G;P#эSee NCTA Comments at 32 (stating that 85% of the industry is involved in OpenCable). We note that not all  xZof the cable television industry is involved in the OpenCable process and no entities outside of the cable industry  {O - xare currently participating. See OpenCable website at . See also Letter from Karen B. Possner, VicePresident, Strategic Policy, BellSouth, June 2, 1998.5 According to CableLabs, it has opened  xjits specifications to several vendors rather than designating a single proprietary solution, with the goal of  S- xintroducing digital cable ready television sets and other navigation devices into retail distribution.b f  yO- x#X\  P6G;P#эOpenCable website at , 5/4/98 at 3. In Spring 1998, CableLabs released service  yO- xrequirements and functional requirements to the vendor community for their review and comment. These  xKrequirements describe what services and technical capabilities will be required in the navigation device and reflect  yOn-responses from the consumer electronics and computer industries to a request for information from CableLabs. b The  S- x<rules we adopt in this Order are premised on the representation that the OpenCable initiative will continue,  xLand that others will be undertaken. We expect that entities outside of the membership of CableLabs will be able to participate in the eventual standards setting process.  SJ - 4p15. 44We do not believe, however, that our work with respect to these issues is complete. The  xmarkets involved are in the early stages of becoming competitive, and the participants in these markets  xare on the precipice of a change from analog to digital communications. Because of these changes, this  x\is both a particularly opportune and a particularly perilous time for the adoption of regulations. It is  xopportune because new patterns are being established and no large embedded base of equipment exists  S - xthat constrains change. N  yOp- xԍWhile some service providers have placed large orders for certain devices that have attracted industry attention, these commitments appear to be flexible enough to accommodate any requirements adopted herein. It is perilous because regulations have the potential to stifle growth, innovation,  xand technical developments at a time when consumer demands, business plans, and technologies remain unknown, unformed or incomplete.  S- 4p16. 44Our objective thus is to ensure that the goals of Section 629 are met without fixing into law  S- xLthe current state of technology." yO#- x ԍThe portion of the Conference Report for the 1996 Telecommunications Act discussing navigation devices states  xthe Commission should "avoid actions which could have the effect of freezing technologies and services. . . . Thus,  xin implementing this section, the Commission should take cognizance of the current state of the marketplace and  {OX%-consider the results of private standards setting activities." Id. at 181. In addition to enforcing the rules we adopt in this Order, we intend to  x=monitor the progress of participants in these markets to ensure that the devices continue in the direction"\+"'"'ZZ"  x[of portability, interoperability, wider availability, and increased consumer choice. If we find that market  xjparticipants are not complying with our rules or are not progressing satisfactorily towards the principles  xand goals of this proceeding, the Commission will revisit the decisions and take further action to ensure  x a competitive marketplace and consumer choice in navigation devices. In particular, we will monitor  xdevelopments with respect to the availability of information to consumers, retailers, and manufacturers  xmnecessary to the functioning of a commercial retail market for navigation equipment, as well as  xdevelopments relating to standard means of attaching and using equipment with the networks of service  xproviders. Further, the broad goals of this proceeding extend beyond making navigation equipment  x!commercially available, but in fulfilling the promise of the digital age to bring broader choices and  xjopportunities to a wider group of consumers. If, for example, service providers retain the ability to limit  xsubstantially consumer access to content, applications, and other services, this result would not achieve  xthe important goals of the statute. We intend to monitor developments with respect to the compatibility of settop boxes and digital televisions, and the availability of program guides.  S - 43p17. 44There is further risk in moving to an environment where new devices are commercially  xavailable. With the technology and market developing, it is unclear how efficiently the market will  xrespond if consumers purchase devices that may not perform all of the functions in the manner that the  xconsumer envisioned. The ability of the consumer to adjust to separate functions of the manufacturer,  xservice provider, and retailer, instead of relying on the service provider alone, will also provide a  xchallenge if the market does not respond adequately. Notably, if neither the manufacturer, retailer nor  xservice provider appear responsible to the consumer for the device's reliability and functionality, the goals  xlof Section 629 are undermined. We also recognize that commercial availability is furthered only if  S-consumers are aware of the availability of equipment from alternative sources.? yO- xԍFor example, in our 1983 proceeding to detariff customer premises equipment, AT&T was required to notify  xKits customers that they had the option to purchase or continue leasing their customer premise equipment from a  {O-separate subsidiary of AT&T. Procedures for Implementing the Detariffing of Customer Premises Equipment and  {OR- xYEnhanced Services (Second Computer Inquiry), CC Docket No. 81-893, Report and Order, 95 FCC 2d 1276, 1415 (1983).?  S@- 4|p18. 44Section 629's broad goals are especially important to bringing the substantial benefits of digital  xLtechnology to all Americans. Section 629 may, with its broad goals, require the Commission to examine  xcircumstances where commercial availability does not evolve and access to programming and services is encumbered. We remain committed to these goals.  SP- IV. p II ANANALYSIS AND DISCUSSION OF RULES AND POLICIES  p44  S-p A.44 ENTITY ENTEntities Covered by Section 629  S-p  ENTITY  44  S- 4mp19. 44 DISC Background. Section 629 is applicable by its terms to equipment used to access services over multichannel video programming systems. Specifically, Section 629(a) of the Act states: p  pThe Commission shall, in consultation with appropriate industry standard-setting  3organizations, adopt regulations to assure the commercial availability, to consumers of" |\+"'"'ZZu!"  amultichannel video programming and other services offered over multichannel video  programming systems, of converter boxes, interactive communications equipment, and other  equipment used by consumers to access multichannel video programming and other services  offered over multichannel video programming systems, from manufacturers, retailers, and  S`-other vendors not affiliated with any multichannel video programming distributor . . . .>` yO-ԍ47 U.S.C.  549(a).>H!  S- 4p20. 44In the NPRM, we tentatively concluded that Section 629 appears to be jurisdictionally broad  xas to the multichannel video programming systems covered. We sought comment on this conclusion. We also sought comment on whether to exclude open video system operators from Section 629.  Sr- 4p21. 44Discussion. We agree with the tentative conclusion in the NPRM that Section 629 is  xjurisdictionally broad in terms of the multichannel video programming systems to which it applies. As  S$ - xzwe noted in the NPRM, although the term "multichannel video programming system" is not defined in  xSection 629, Section 602(13) defines a multichannel video programming "distributor" as "a person such  xas, but not limited to, a cable operator, a multichannel multipoint distribution service, a direct broadcast  xNsatellite service, or a television receiveonly satellite program distributor, who makes available for  xzpurchase, by subscribers or customers, multiple channels of video programming . . . . " To ensure the  x=commercial availability of equipment used to access multichannel video programming and other services,  S6- xthe rules we adopt here will be applied to MVPDs as defined by Section 602(13).?6X yO.-ԍ47 U.S.C.  522(13).? As advocated by  x-NCTA, Ameritech, and other commenters, we believe that Section 629 requires that the Commission apply  S- xthe commercial availability requirements to all multichannel video programming systems.! yOn- x#X\  P6G;P#эAmeritech Comments at 4; Circuit City Comments at 14; GTE Comments at 4; ITI Comments at 27; NCTA Comments at 15; Tandy Comments at 3; TW Comments at 23; Uniden Comments at 2; US West Comments at 9.! Section 76.1200 of the rules defines the entities to which the rules apply.  Sn- 4^p22. 44We disagree with the comments of several parties that Section 629 should apply only to cable  SF- xtelevision systems.lF@ yO&-ԍDIRECTV Comments at 10; PrimeStar Comments at 7; SBCA Comments at 3.l There is no basis in the law, or the record of this proceeding, to support a conclusion  xthat the statutory language does not include all multichannel video programming systems. Our reading  x.of the law is that consumer choice in navigation devices for all multichannel video programming systems  xLwas mandated by Congress when it enacted Section 629. Our decision and rules, however, recognize the  xdifferences between various providers and, as discussed below, the rules are intended to recognize the fact  x.that DBS reception equipment is already nationally portable and commercially available. Moreover, we  xbelieve that the waiver process can sufficiently address the concerns of developing MVPDs and reject the  x=comments that developing MVPDs, such as local multipoint distribution systems ("LMDS"), should be  S-excluded from the application of Section 629.} {Ov$-#X\  P6G;P#эSee Cellular Vision Comments at 8. }  S- 44p23. 44Section 653(c)(1) does require exclusion of open video systems operators from the" b \+"'"'ZZ-"  xrequirements of Section 629. In addressing what provisions of Title VI apply to open video systems,  xSection 653(c)(1) states that any section of Part III of Title VI of the Communications Act that applies  xto cable operators shall not apply to open video system operators. Section 629 is in Part III, and applies  S- xto cable operators. Several commenters agree that Section 653 exempts open video system operators from  S`- x<the Section 629 requirements,` yO-#X\  P6G;P#эBANX Comments at 5; GI Comments at 48; PacBell Comments at 5. while others espouse that the Commission has authority to apply any rules  S8- xadopted in this proceeding to open video systems.8X yO0-#X\  P6G;P#эCEMA Comments at 11; CERC Comments at 15; US West Comments at 9. Section 653 makes no distinction between rules that  xapply only to cable operators and rules applicable to all MVPDs. Section 653(c)(1)(C) lists those sections  xof Parts III and IV that apply to open video system operators and the list does not include Section 629.  xHad Congress intended that Section 629 apply to open video system operators, it would have been listed in Section 653(c)(1).  SH -p B.44 DISC  EQUIP Equipment Covered  S - 4p24. 44Background. In the NPRM, we noted that Section 629 is broad in terms of the types of  S - xequipment to which it is applicable.G  {OZ-ԍNPRM, 12 FCC Rcd at 5647.G We stated that certain equipment existing or under development  x/might be within the scope of the statute such as cable television converters, electronic program guide  xequipment, modems, and network interface modules. Additionally, we sought comment on our conclusion  x.that some equipment does not appear to require Commission action to assure that its availability fulfills the mandate of Section 629. We sought comment as to what equipment is encompassed by Section 629.  S- 4p25. 44Discussion. The language of Section 629 indicates that Congress sought to have the  xmarketplace offer consumers a choice over a broad range of equipment. Section 629(a) enumerates  x\"converter boxes, interactive communications equipment, and other equipment used by consumers to  Sl- x.access multichannel video programming and other services . . .">!lz yO-ԍ47 U.S.C.  549(a).> We believe that the statutory language  xof Section 629 indicates that its reach is to be expansive and that Section 629 neither exempts nor limits  x=any category of equipment used to access multichannel video programming or services offered over such  S- xsystems from its coverage."  {O- x#X\  P6G;P#эSee e.g., Americast Comments at 5; BANX Comments at 5; StarSight Reply at 20; Uniden Comments at 20; WCA Reply at 11. Equipment used to access video programming and other services offered over  xmultichannel video programming systems include televisions, VCRs, cable settop boxes, personal  x computers, program guide equipment and cable modems. Section 76.1200(c) of the rules defines the equipment to which the rules apply.  S,- 4p26. 44The purpose of this proceeding is to make navigation devices commercially available, rather  S- xthan to create a market for certain specific equipment. Just as the Carterfone#d  {O&-#X\  P6G;P#э#X\  P6G;P#Carterfone, 13 FCC 2d 420 (1968), recon. denied, 14 FCC 2d 571 (1968). decision resulted in the" #\+"'"'ZZk"  xavailability to the consumer of an expanding series of features and functions related to the use of the  xtelephone, we believe that Section 629 is intended to result in the widest possible variety of navigation  xdevices being commercially available to the consumer. The expansive nature of the language of Section  x629 is a recognition that the future convergence of various types of equipment and services may result  S`-in technical innovations not foreseeable at this time.$$` yO- x,#X\  P6G;P#эGTE and Ameritech both support having the definition of equipment tied to the function of receiving services  yO-from the MVPD system. GTE Comments at 6; Ameritech Comments at 6.$  S- 4Qp27. 44Commenters seek exceptions from Section 629 for certain types of equipment, such as  S- xnavigation devices already available in the marketplace,%  yO - xy#X\  P6G;P#эAmeritech Comments at 24; BSA Comments at 5; GI Comments at 43; ITI Comments at 30; PrimeStar Comments at 17; Zenith Comments at 10. equipment performing security or access control  S- xfunctions,&x yO -#X\  P6G;P#эGI Comments at 44; NCTA Comments at 19; SA Comments at 15; TW Comments at 21; WCA Reply at 11 personal computers,e' yOh-#X\  P6G;P#эZenith Comments at 11.e enhanced nonvideo services,( yO-#X\  P6G;P#эAmericast Comments at 6; TW Comments at 21; US West Comments at 10. and cable modems.)(  yO- x#X\  P6G;P#эDIRECTV Comments at 6; GTE Reply at 8; Motorola Comments at 14; NCTA Reply at 38; US West Comments at 10. Some commenters  S- xLcontend that we should exempt analog equipment.*  yO- x#X\  P6G;P#эAmeritech Comments at 24; Echelon Comment at 49; GI Comments at 40; GTE Comments at 6; TIA Comments at 14; SA Comments at 20; TW Comments at 34; Zenith Comments at 4. As noted above, Section 629 applies to all types of  Sp- xjequipment, including analog, hybrid analog/digital and digital equipment.+p yO- x#X\  P6G;P#эAnalog equipment processes analog signals voice, video, data wherein the signal received is a continuous  xwaveform which is analogous to the original signal. Digital equipment processes digital signals voice, video,  xdata wherein the signal received is a waveform which carries a discrete stream of binary codes of ones and zeros.  xHybrid analog/digital equipment is equipment that is capable of receiving and processing analog and digital signals.  xAlthough the hybrid equipment processes the analog and digital signals independently, the processes share some common components. We note, however, that to the  xextent that analog, or other, equipment, presents concerns regarding security, our rules accommodate such  S - x\concerns., P {O -#X\  P6G;P#эSee Section IV(F), infra, for a discussion of provisions in rules designed to protect system security. Some commenters express concern that the rules will be applied to the embedded base of  S - xcurrent equipment.O-  yOz"-ԍGTE Comments at 6; NCTA Comments at 12.O While the statute requires commercial availability of equipment, we believe that this  xis intended to apply to equipment deployed and placed in service in the future and not to the embedded" r-\+"'"'ZZ "  S-base of equipment.. yOh- x[#X\  P6G;P#эAmeritech Comments at 24; Echelon Comments at 49; GI Comments at 40; GTE Comments at 6; TIA Comments at 14; SA Comments at 20; TW Comments at 34; Zenith Comments at 4. p  S-p C. RARight to Attach RA  S`- 4p28. 44 III.C.1 Background.  In the NPRM, we proposed as a core requirement that there be a "right to attach"  xkallowing subscribers to acquire and attach to the network equipment not part of an MVPD's network  S- x>distribution plant. Following the Carterfone principle adopted in the telephone context would allow  x{subscribers the option of owning their own navigation devices and would facilitate the commercial availability of equipment.  St- 4mp29. 44Discussion. To achieve the statutory requirement of alternative sources of navigation devices,  xwe mandate that subscribers have a right to attach any compatible navigation device to an MVPD system,  xregardless of its source, subject to the proviso that the attached equipment not cause harmful interference,  xjinjury to the system or compromise legitimate access control mechanisms. This rule is found in Sections  x76.1201 (Right to Attach), 76.1203 (Incidence of Harm), and 76.1209 (Theft of Service). This rule makes  xclear to subscribers that an MVPD is not the exclusive purveyor of navigation devices for its system. We  x=believe, as in the telephone context, that the right to attach leads to a broader market for equipment used  xwith MVPD systems. Manufacturers will have substantial incentive to develop and distribute new  xproducts in response to consumer demands for equipment and features, provided that the MVPD system  S- xfor which the equipment is designed is accessible.g/  yO-#X\  P6G;P#эMotorola Comments at 10.g We agree with Time Warner that the marketplace,  S-not the MVPD, should determine the price and features of navigation devices available to subscribers.a0 yO6-#X\  P6G;P#эTW Comments at 31.a  S- 4p30. 44In addition to being directly restrained from attaching navigation equipment, consumers must  xalso not be precluded from the possibility of obtaining equipment from commercial outlets by virtue of  xcontractual or other restrictions on the availability of equipment that the service provider might seek to  xdirectly impose on suppliers of equipment. The rules (76.1202) thus additionally enforce the right to  xjattach by precluding contractual or other arrangements, other than those involving equipment performing  xMconditional access or security functions, that prevent navigation devices from being made available to  x\subscribers from retailers, manufacturers, or other vendors that are unaffiliated with that such service provider.  S0- 4p31. 44The right to attach is supported by numerous commenters.10@ yO"- x#X\  P6G;P#эBSA Comments at 4; CE Comments at 2; Circuit City Comments at 22; ITI Comments at 5; Motorola Comments at 10; TIA Comments at 11. CEMA contends that the right  xkto attach would form a solid basis for encouraging the development of a marketplace characterized by  S- xlportability and interoperability.h2 yO&-#X\  P6G;P#эCEMA Comments at 6. h Motorola believes that allowing a subscriber a right to attach is" ( 2\+"'"'ZZ="  xconsistent with the 1996 Act's major objective to promote competition and consumer choice in the market  xlfor certain types of equipment because this right gives consumers greater freedom to select among  S-alternative products.g3 yO-#X\  P6G;P#эMotorola Comments at 11.g  S`- 4 p32. 44We recognize commenter's concerns regarding system security, signal leakage, and other  xharms which may arise from equipment attachments to MVPD systems, and will prescribe limitations to  S- xja subscriber's right to attach.4X yO - x#X\  P6G;P#эCircuit City Comments at 22; ITI Comments at 25; Motorola Comments at 13; NCTA Comments at 5; TW  yO -Comments at 15; WCA Reply at 12. We agree that the right to attach must be subject to the limitation that the  xLequipment does not harm the MVPD networks. As noted by Motorola, harm could take any number of  xforms, including physical damage to the MVPD system, compromise of system security, or electronic  S- x[interference to other users on the system.g5 yO -#X\  P6G;P#эMotorola Comments at 13.g The rules we adopt allow the MVPD to avoid these threats.  x.Recognizing an MVPD's statutory right to prevent theft of service, the rule we adopt specifically states  xzthat the right to attach does not apply to any equipment which can be used to receive, or assist in the  xNunauthorized reception of service. Commenters agree that this restriction on the right to attach is  S -consistent with the language of Section 629 regarding security of services.6 @ {O- x#X\  P6G;P#эTW Comments at 15.  See Part IV(E), (G), infra, for a discussion of an MVPDs ability to prevent harmful interference and signal leakage.  S -p D. Information on Technical Interface Specifications  SX- 4p 33.44Background.  We asked in the NPRM whether it would be necessary for consumers purchasing  x equipment to have access to basic technical information regarding the network the equipment will be  xattached in order to make purchasing decisions. We proposed that if this information is not readily  S-available we would require MVPDs to make it available.  S- 4ap!34. 44Discussion. Several commenters urge the Commission to adopt network disclosure  Sl- x>requirements for MVPDs similar to the requirements of Part 68 rulesh7l yO-#X\  P6G;P#э47 C.F.R.  68.110(b).h for connection to a telephone  SD- xsystem as a means to allow a commercial market to develop.8D*  yO -#X\  P6G;P#эCircuit City Comments at 22; CEMA Comments at 51; CERC Comments at 29; ITI Comments at 7. The intent of such a disclosure requirement  xis to allow interested parties a means to ascertain the specifications of a particular MVPD. This  xinformation is needed by manufacturers, retailers, and subscribers to determine if a particular navigation  xdevice is compatible with various MVPDs. We believe that a requirement to disclose information will  xassist retailers as the commercial market develops as a source for navigation devices and will aid  xconsumers seeking to buy their own navigation devices. Accordingly, we will require that MVPDs  xprovide to the requesting party the technical information concerning interface parameters necessary for  xa navigation device to operate with the services delivered by the MVPD's system. This rule is found in", 8\+"'"'ZZ"  xSection 76.1205. As discussed below, we will not replicate the more complete interface specification rules  S- xof the type used in Part 68 in the telephone contextx9 {O@-#X\  P6G;P#эSee 47 C.F.R.  68.500. x because we think it appropriate at this phase of the  xregulatory process that MVPDs develop the standards necessary for equipment manufacturers to make  S- xattaching equipment.:Z {O- xxԍ In many cases, MVPDs are already using a standard connector and thus in the cable television Inside Wiring  {OL- xProceeding, we noted that the type of connector used had become the de facto connector for services delivered via  {O- xcoaxial cable and further government action in this area was unwarranted. See Telecommunications Services Inside  {O- xWiring, CS Docket No. 95184, Report and Order and Second Further Notice of Proposed Rulemaking, FCC 97376,  {O -10 Communications Reg. 193 at  248 (Oct. 17, 1997) ("Inside Wiring Order"). We will monitor closely industry progress on development of standards for attaching equipment, as well as MVPD compliance with the network disclosure requirements.  S-pPRO E. Protection of Network Facilities  S- p  S- 4Op"35. 44  Background. In the NPRM,n; {Ot-#X\  P6G;P#эNPRM, 12 FCC Rcd at 5664.n we concluded that in implementing Section 629 we must ensure  xLthat a navigation device does not cause harm to the network to which it is attached and that the technical  Sr- xZintegrity of the network be maintained.<r yO- x#X\  P6G;P#эThis is primarily a concern of wired service providers. Customer premises equipment is not typically directly connected to radio spectrum using MVPD networks such as MMDS or DBS systems. We sought comment on three possible options to protect network  SJ - xfacilities: 1) replicating or expanding the Part 68 process;=XJ  yO- x;#X\  P6G;P#эPart 68 of the Commission's Rules govern the terms and conditions under which CPE and customer wiring may  xbe connected to the telephone network. Included in Part 68 regulations are technical standards, network disclosure requirements, and an equipment registration program. 47 C.F.R. Part 68. 2) requiring network service providers, subject  x/to Commission oversight, to establish and enforce their own standards; and 3) either separately or in  xcombination with one of the above options, mandating a technical solution in terms of a network protection device.  S - 4Ap#36. 44Discussion. We will allow service providers to establish and enforce their own reasonable  S\- xstandards to define harm to their facilities. As in other areas addressed in this Order, our decision relies  x.in part on the industry standards that have been developed or are being developed. Where protocols for  x.a range of capabilities are established, not only can equipment be manufactured and sold by other means  x=than through the service provider, but what will harm the network can become widely known. Notably,  xmthe process by which protocols are established includes the participation of service providers,  xmanufacturers and others, lending a comprehension to the needs of the network. Additionally, we accept  x=the commitment of many MVPDs to make navigation devices and other nonsecurity equipment located  xon the customer's premises commercially available, as this environment enhances overall consumer benefit  S- xand will accrue benefits to the MVPDs.t> yO$-#X\  P6G;P#эTW Reply at 2; US West Comments at 2.t With this commitment comes an incentive by manufacturers and service providers to ensure that equipment does not harm the network.">\+"'"'ZZ4"Ԍ S- 4~ԙp$37. 44Under our rules, MVPDs will have the ability to determine what will cause harm to the  x=network. We are reluctant at this time to attempt to enumerate in detail what these circumstances might  xbe. As technology and services are continually evolving, we do not think we can replicate in our rules  xzthe proper balance. Allowing MVPDs to have the ability to establish and enforce their own technical  S`- xstandards to prevent harm to their systems has support among several commenters.?` yO- x#X\  P6G;P#эBSA Comments at 4; GI Comments at 72; SA Comments at 29; TW Comments at 62; Uniden Comments at 3. GI concurs that  xallowing MVPDs to establish and enforce their own standards will minimize theft of service and network  S-harm.a@  yO -#X\  P6G;P#эGI Comments at 73.a  S- 4p%38. 44Our rules will allow MVPDs to restrict the attachment or use of equipment to their systems  xwhere electronic or physical harm would be caused by the attachment or operation of such equipment.  xWe will allow an MVPD to discontinue service if harm to the system is likely to occur. MVPDs must  xpublish, and provide to subscribers, standards and descriptions of devices that may not be used or attached  S - xto their systems because of the potential for harm.kA  {Op-#X\  P6G;P#эSee BSA Comments at 4.k These requirements are found in Section 76.1203.  x=These standards shall be used only to prevent attachment of navigation devices that raise reasonable and  x[legitimate concerns of electronic or physical harm or theft of service, and not as a means to unreasonably  xrestrict the use of navigation devices obtained from a source other than the MVPD. To the extent that  xthere is a dispute whether an MVPD's equipment restrictions are unreasonable, the Commission's petition  SX-procedures are available.BXB {O:- x#X\  P6G;P#э47 C.F.R.  1.41. The Carterfone proceeding was initiated by a formal complaint challenging AT&T's  {O- xhprohibition against attaching the Carterfone to its facilities. Carterfone, 13 FCC 2d at 422. Commission rules allow  xany interested party to request Commission action. The request should contain the facts relied upon, the relief  xsought, and the statutory and/or regulatory provisions pursuant to which the request is filed and under which the  xrelief is sought. Oppositions to the petition are to be filed within 10 days of the petition filing date. 47 C.F.R. 1.41, 1.45.  S- 4}p&39. 44We do not believe that an equipment registration process similar to that found in Part 68 is  S- x[feasible at this time with respect to navigation devices,oC  {O>-#X\  P6G;P#эSee 47 C.F.R.  68.200.o as some commenters suggest.DP  yO-#X\  P6G;P#эCEMA Comments at 18; Circuit City Comments at 6; ITI Comments at 15; Uniden Comments at 3. As a number of  xcommenters note, the telephone networks do not provide a proper analogy to the issues in this proceeding  S- xZdue to the numerous differences in technology between Part 68 telephone networks and MVPD networks.E" yO#- x#X\  P6G;P#эZenith notes that the telephone is a pointtopoint switched system connecting to a single user, whereas the  xtypical cable system is pointtomultipoint broadcast system where the signal is everywhere in the system. Zenith  {O$- xwComments at 3. See also Ameritech Comments at 16; PrimeStar Reply at 10; TIA Comments at 11; SA Comments at 29.  xBSA suggests that the Commission adopt a voluntary registration system by which manufacturers are able"hE\+"'"'ZZ"  xZto register equipment with the Commission by demonstrating that attaching the device to an MVPD system  S- x[would not cause technical harm.aF yO@-#X\  P6G;P#эBSA Comments at 4.a In view of the evolving industry standards in this area, which appears  xto have taken account of the various interests at stake, and which seek to convey a means to determine  S- xtechnical attributes of the network so that equipment may be manufactured without harming the network,PGX yO- x#X\  P6G;P#эCableLabs is establishing a certification process to give suppliers an opportunity to have their products tested  {OH-and credited with compliance by a certification board. CableLabs ex parte presentation (April 16, 1998). P  xwe are reluctant to impose a registration process seeking the same purpose at this time. Our decision in  x.this regard is premised in part on the absence of concrete suggestions as to specific rules that the parties  xjbelieve would be useful. If necessary, we will consider proposals as to procedures in this area that could  xybe considered in the future. To the extent that multichannel video programming services are to be offered  xover facilities that are already subject to Part 68, we expect those rules to be applied or specific exemptions from them sought.  SH - pF.44Security and Theft of Service  THEFT   S -  S - 4p'40.  III.F 44Background. The issue of unauthorized service reception is found in Section 629(b), which  xstates that the Commission is not to prescribe regulations that "would jeopardize security of multichannel  x.video programming and other services offered over multichannel video programming systems, or impede  S -the legal rights of a provider of such services to prevent theft of service."eH  yO-#X\  P6G;P#э47 U.S.C.  549(b).e  S2- 4p(41. 44In the NPRM, we stated that service theft is a serious matter, and requires that whatever action  x?is taken to implement Section 629 must not conflict with the maintenance of system security nor  xinadvertently validate the manufacture and distribution of equipment intended for the unauthorized  S- xzreception of communications services.GIB {O-ԍNPRM, 12 FCC Rcd at 5654.G We sought comment on how to accomplish the objectives of Section 629 to assure commercial availability while ensuring the security of services not be jeopardized.  SD- 4_p)42. 44Discussion. No Commission action in this proceeding should be construed to authorize or  xjustify any use, manufacture, or importation of equipment that would violate Section 633 of the  S- xCommunications ActvJ {Oj- x#X\  P6G;P#эSee 47 U.S.C.  553 (The use of a converter-decoder to intercept or receive, or to assist in intercepting or  xreceiving, cable programs without authorization from a cable system carries penalties of up to $1000 or imprisonment  xfor up to six months. In addition, any person who employs such devices for commercial or private financial gain may  x;be subject to a fine of $50,000 or two years imprisonment for a first offense. Greater penalties apply to subsequent offenses).v or any other provision of law precluding the unauthorized reception of MVPD  xservice. Similarly, nothing in this proceeding should be construed as diminishing an operator's ability to  xseek civil damages against parties involved with navigation devices providing unauthorized reception of  xservices. The rules we adopt protect MVPDs by allowing them to disconnect service to subscribers using"~ J\+"'"'ZZ"  S-a navigation device which assists in the unauthorized reception of service.NK yOh-ԍThis rule is found at Section 76.1209.N  S- 4p*43. 44Commenters concur that piracy and theft of service are major problems for the cable  S- x=industry.LX yO-#X\  P6G;P#эNCTA Comments at 24; SA Comments at 23; TW Comments at 8; US West Comments at 5. Several cite an NCTA Office of Cable Signal Theft Study which concluded that the industry  xloses an estimated $5.1 billion in revenue annually (not including unauthorized reception of payperview  S8- xLprogramming).)M8 {O - x,#X\  P6G;P#эNCTA Comments at 24; TW Comments at 8; US West Comments at 5; Zenith Comments at 13. But see CE Reply at 8, contending that the $5 billion figure for cable loss has never been adequately documented.) TW argues that piracy imposes costs on legitimate subscribers.`N8B yO -#X\  P6G;P#эTW Comments at 8.` WCA contends that  S- x] rampant theft of wireless cable service will occur following increased availability of wireless cable  S- xantennas and downconverters._O yOZ-#X\  P6G;P#эWCA Reply at 11._ Noting that the Communications Act provides for severe punishment for  S- xservice theft,uPb  yO-#X\  P6G;P#эCE Comments at 5; CEMA Comments at 17.u other commenters maintain that concerns over security should not be used to delay the  S-development of a commercial market for all types of navigation devices.Q  yO*- x#X\  P6G;P#эCE Comments at 5; CEMA Comments at 17; ITI Comments at 25; Tandy Comments at 12; Viacom Comments at 13.  SH -p G. Signal  Leakage  S - 41p+44. 44 III.C.3 Background. The Commission's rules specify technical requirements for consumer electronic  xequipment to control radio interference. Part 15 addresses the radiation and conducted emissions limits  x(signal leakage) requirements for equipment that can be operated without an individual license, including  S - xcable settop boxes.bR J  yOl-#X\  P6G;P#э47 C.F.R.  15.1b Part 15 specifies an equipment authorization process to ensure that this equipment  SZ- xmeets our technical requirements under that section.SZ {O- x#X\  P6G;P#эDevices operating under Part 15 generally must meet limits on radiated and power line emissions. See 47 C.F.R.  15.109111. Additionally, our current rules guard against  xharmful interference emanating from MVPD's as well as allow an operator to discontinue service to  x.subscribers whose equipment when connected to the cable system will cause the cable system to exceed  S-Part 76 signal leakage requirements.T4 {O#-#X\  P6G;P#э47 C.F.R.  76.613 and 76.617. See 47 C.F.R.  76.605, 76.61076.616.  S- 4_p,45. 44 III.C.3 The NPRM tentatively concluded that existing Part 15 rules, which addresses concern over  x.radio emissions from navigation devices available from service providers, will adequately cover the same"lT\+"'"'ZZ"  S- xNconcerns regarding navigation devices obtained from other sources.rU {Oh-#X\  P6G;P#эSee 47 C.F.R.  15.101(a).r We sought comment on this  x conclusion, with respect to attachments to cable systems and to other MVPDs, and on whether any changes in these rules are needed to address the expanded availability of such equipment.  Q-  S`- 4|p-46. 44 III.C.3 Discussion. Commenters generally agree that the Part 15 provisions adequately address signal  S:- xleakage issues that may arise with navigation devices.VX:Z yO4- x#X\  P6G;P#эCircuit City Comments at 23; CE Comments at 7; GI Comments at 74; SA Comments at 29; TIA Comments  xZat 12; Uniden Comments at 4. Additionally, NCTA, GI and TW requested that Part 15 rules be strengthened to guard against cable piracy. We decline the request since it is beyond the scope of this proceeding.  We note, however, that the equipment  xauthorization requirements for cable system terminal devices and other television interface devices have  S- xchanged since the release of the NPRM.[W&z {O - x#X\  P6G;P#эSee Amendment of Parts 2, 15, 18 and Other Parts of the Commission's Rules to Simplify and Streamline the  {O - xEquipment Authorization Process for Radio Frequency Equipment, ET Docket No. 9794, Report and Order, FCC  {O- x9858, 1998 WL 174904 at  15 (rel. Apr. 16, 1998) ("Equipment Authorization Order"). While technical standards for such equipment remain the same, the authorization is now accomplished by selfapproval procedures.[ We do not believe the change will affect our signal leakage  xrequirements. GI's recommends that the Commission adopt Society of Cable Telecommunications  xEngineers ("SCTE") specifications for coaxial cable to prevent signal leakage from inadequately shielded  St- xcable.Xth  yO|-#X\  P6G;P##X\  P6G;P#эGI Comments at 74. We decline the recommendation to do so at this time. Our rules already permit cable operators  SL - xto require that home wiring meets reasonable technical specifications.~Y\L  yO- xԍ47 C.F.R. 76.806. In another proceeding, we have sought comment on whether to apply this rule to all  {O- xMVPDs. Telecommunications Services Inside Wiring, CS Docket 95184, Report and Order and Second Further  {Ov-Notice of Proposed Rulemaking, 13 FCC Rcd 3659 (1997).~ Further, we believe that our  xcurrent Part 15 provisions, which include limitations on signal leakage from electronic equipment and also  S - xspecifies equipment authorization procedures applicable to equipment,qZ  yO-ԍThe equipment authorization procedures are set forth in 47 C.F.R. Part 2.q when combined with our Part 76  xsignal leakage requirements provide sufficient safeguards for signal leakage and interference concerns for retail navigation devices.  S\-p H.44Rules for Equipment Providing Conditional Access  CONA   CONA   S - 4 p.47. 44Background. As a matter of historical development, one of the principal functions of one class  xof the navigation devices that are the subject of Section 629, the settop box, or converter box, has been  xthe control of access to services so that only those who are authorized to receive service who have paid  xfor the service can access it. Commenters in this proceeding have made reference to the existence of  Sn- x.as many as seventeen basic analog scrambling methods.[n {O$-ԍScientificAtlanta Comments at 12, n. 5. But see Commercial Engineering Reply Comments at 67. As was described in the NPRM,M\n> {OL&-ԍNPRM, 12 FCC Rcd at 5652.M many of the"n\\+"'"'ZZ"  xtechniques that are used to accomplish this access control are relatively unsophisticated, involving, for  xkexample, suppressing the synchronous pulse of the television signal and inversion or transposition of  xvarious parts of the video picture information so that the picture is unstable or distorted when viewed on  x=a standard television receiver. To unscramble the signal, the descrambler box must contain the electronic  S`- xcircuitry to reverse the alteration of the signal.G]` {O-ԍNPRM, 12 FCC Rcd at 5653.G It is this descrambling circuitry that is most prone to  S8- xattack by those who would obtain service without paying for it.1^8Z {O2-ԍId.1 Such techniques can be relatively easily  x.defeated by subscribers if the necessary equipment can be purchased. If decoders were readily available  xLfor purchase, many existing, particularly analog, security systems would become completely ineffective.  xzThe advent of digital technology provides additional techniques that are more difficult to defeat, but a  xnumber of digital systems have also been compromised. The equipment which enables the consumer to  xaccess the service, and protects the distributor from theft of service, is generally referred to as "conditional access" equipment.  S - 4"p/48. 44Recognizing the critical importance of the security function performed by navigation devices, Section 629 does not permit the Commission to prescribe regulations that: p44  1pwould jeopardize security of multichannel video programming and other services offered over  multichannel video programming systems, or impede the legal rights of a provider of such  S0-services to prevent theft of service.>_0 yO-ԍ47 U.S.C.  549(b).>H!  S-p  x"The problem is to determine how to achieve commercial availability without at the same time  S- xcompromising the security protection priority provided for in the law. The NPRM suggested that a  xypotential solution to the problem would be to require MVPDs desiring to retain control over the security  x0equipment to provide it to consumers separated or unbundled from those portions of the devices  SB-performing nonsecurity functions.G`B| {O^-ԍNPRM, 12 FCC Rcd at 5655.G  S- 4p049. 44Discussion. In general, we find that it would be most consistent with our obligations under  x/Section 629 to require that, by July 1, 2000, a security element separated from navigation devices be  xavailable from MVPDs so that equipment may be commercially available from unaffiliated manufacturers,  xretailers, and other vendors. Our rule permits MVPDs to continue to provide equipment on an integrated  xLbasis until January 1, 2005, so long as modular security components are also made available. The record  S,- xresponding to the NPRM reflects strong advocacy that separating the security function will enhance  S- xportability of equipment generally.a {O#- xY#X\  P6G;P#эSee e.g., Circuit City ex parte presentation (June 5, 1998); CEMA ex parte presentation (June 4, 1998); Tandy Comments at 13. This requirement will facilitate the development and commercial  xzavailability of navigation devices by permitting a larger measure of portability among them, increasing  xthe market base and facilitating volume production and hence lower costs. We think it significant that"h a\+"'"'ZZ-"  x]the separation of security elements has been recognized, most prominently by cable operators, as  S- xempowering new functionality and services.b {O@-#X\  P6G;P#эNCTA ex parte presentation (June 4, 1998). The separation requirement is consistent with the intention  xof the statute, as underscored by the Conference Report, which states that "[o]ne purpose of this section  xyis to help ensure that consumers are not forced to purchase or lease a specific, proprietary converter box,  S`-interactive device, or other equipment from the cable systems or network operator."dc`Z yOZ-ԍS. Conf. Rep. 104230, 104th Cong., 2nd Sess. at 181 (1996).d  S- 4p150. 44Many commenters oppose the unbundling of security functions, citing security concerns,xd yO -#X\  P6G;P#эNCTA Comments at 28; DIRECTV Reply at 17.x  S- xand the advantages of providing navigation devices that integrate security and other functions.sez yO -#X\  P6G;P#эNCTA Reply at 19; TW Comments at 30.s Other  S- xcommenters advocate separating security from nonsecurity functions.f  yOj- x#X\  P6G;P#эBANX Comments at 3; CEMA Reply at 5; TW Comments at 11; Viacom Comments at 7; MSTV and NAB  {O2-ex parte presentation (May 20, 1998). These commenters note that  xLseparation of security and nonsecurity functions allows the MVPD to be the sole party responsible for  Sp- x-security of the system.gpd  yOt-#X\  P6G;P#эBANX Comments at 3; TW Comments at 11; Viacom Comments at 16. TW notes that the advantage of such a modular security system is that the entire  SH - xsecurity module can be replaced by the MVPD in the event of a security breach.ahH  yO-#X\  P6G;P#эTW Comments at 13.a CEMA argues that  x there is no technical reason why security and nonsecurity functions of navigation devices cannot be  S -decoupled nor any need for the security circuitry to be integrated with the tuner capabilities.ci  yO-#X\  P6G;P#эCEMA Comments at 18.c  S - 4mp251. 44In the analog environment, industry efforts have been in progress for some time, in connection  S - x.with the Equipment Compatibility Proceeding, ET Docket No. 937,j^  {O4- x=ԍSee, e.g., Implementation of Section 17 of the Cable Television Consumer and Protection Act of 1992,  {O- xJMemorandum Opinion and Order, ET Docket 937, 11 FCC Rcd 4121 (1996); First Report and Order, ET Docket  {O-No. 937, 9 FCC Rcd 1981 (1994) ("Equipment Compatibility Proceeding").BG looking toward the possibility of  xa defined "decoder interface" that would permit the access control functions of set top boxes to be  xksegregated from the rest of the functions and attached directly to the back of television receivers or to  S - x[other devices such as video tape recorders. In the NPRM, we sought comment on the possible use of the  xMET Docket No. 937 "decoder interface" as a standard means of segregating access control from other  S- xfunctions of navigation devices.Gk: {O$-ԍNPRM, 12 FCC Rcd at 5657.G We sought comment on our authority to require use of the decoder  xlinterface standard in light of the 1996 Act's amendments to Section 624A ("Consumer Electronics  xEquipment Compatibility") of the Communications Act. Further, we sought comment on the relationship"lk\+"'"'ZZ"  xxbetween these two provisions and how this relationship affects any proposal that seeks to separate security from other navigation device functions.  S- 4p352. 44Although intended for a somewhat different purpose, the interface adopted in conjunction with  S`- xythe Equipment Compatibility Proceeding is now complete. According to a joint letter of March 26, 1998,  xfrom the National Cable Television Association and the Consumer Electronics Manufacturers Association,  xEIA105 (including both EIA105.1 and EIA 105.2), which is the decoder interface standard, has been  S- xformally approved as an Electronics Industry Association standard.hl^ {OR- xԍSee Letter from Andy Scott, Director of Engineering, NCTA and George Hanover, Engineering Vice President,  {O - xZCEMA to Alan Stillwell, Economics Advisor, Office of Engineering and Technology, FCC (March 26, 1998) (ex  {O -parte filing in ET Docket 937).h The Electronics Industry Association  xis an American National Standards Institute ("ANSI") accredited standards organization. The completion  xof this work appears to demonstrate the belief of the industry groups involved that it is possible to  x0segregate analog conditional access from other functions. Alternative standards more specifically  xapplicable to separating out conditional access functions for equipment processing digital signals are under  xconsideration, including in particular the efforts being undertaken by the National Renewable Security  xyStandards ("NRSS") Committee of the EIA in connection with draft standard EIA679 and by CableLabs  S -as part of the OpenCable project.m  yO`-ԍNational Renewable Security Standard (NRSS), DRAFT EIA679 Project PN3639 (Jan. 1998).  S - 4p453. 44There is considerable discussion in the record of this proceeding regarding both the proposed  xEIA105 standard and the NRSS standards under discussion. Consistent with the Congressional  S2- xdirective,n2~ {OP- x<ԍSee 47 U.S.C.  549(a) ("The Commission shall, in consultation with appropriate industry standardsetting organizations, adopt regulations . . ."). throughout this proceeding, we have consulted with industry organizations involved in the  S - xstandards setting processes.QoZ  {O- xԍSee e.g., Cablelabs ex parte presentation (Apr. 16, 1998); CEMA ex parte presentation (May 18, 1998). We  xhave consulted with what we consider the appropriate industry standard setting organizations given the stage of development of the standards.Q Much of the discussion relating to EIA105 is related to the question of  x.whether the Commission is precluded from making any use of this standard by virtue of amendments to  x=the equipment compatibility provision of Section 624A of the Communications Act. Section 624A was  xintended to provide for compatibility between the facilities provided by cable system operators and the  x!advanced features of television receivers and video cassette recorders and to promote commercial  xavailability from retail vendors not affiliated with cable systems, of compatible converter boxes and remote  S- x>control devices.Op  yO!-ԍ47 U.S.C.  544a(a), 544a(b)(1).O Section 310(f) of the 1996 Act added new text to the existing Section 624A of the  xCommunications Act, which states that the Commission must seek "to ensure that any standards or  xregulations developed . . . do not affect features, functions, protocols, and other product and service  S-options . . . ."Eq  yO%-ԍ47 U.S.C.  544a(c)(2)(D).E The Congressional finding in Section 624A states that:"q\+"'"'ZZ"Ԍp  pcompatibility among televisions, video cassette recorders, and cable systems can be assured  owith narrow technical standards that mandate a minimum degree of common design and  @operation, leaving all features, functions, protocols, and other product and service options for  S`-selection through open competition in the market.Br` yO-ԍ47 U.S.C.  544a(a)(4).BH! p  x[The amended language of Section 624A by its terms applies only to rules prescribed by the Commission  S- xunder Section 624A.KsX yO -ԍ47 U.S.C.  544a(c)(1), (2).K These amendments to Section 624A were intended to restrict the Commission's  xKstandard setting authority and to respond directly to issues associated with the "decoder interface standard"  S-that is the subject of the Commission's Equipment Compatibility Proceeding.  SJ - 43Ԋp554. 44The decoder interface standard that has been the subject of industry discussions in the  S" - xEquipment Compatibility Proceeding would separate security from other functions performed by cable  S - xtelevision set-top boxes in the manner suggested by many commenters in this proceeding.Yt \ yO-ԍCERC Comments at 22; Circuit City Comments at 33.Y The issue  x[thus arises as to the scope of the Commission's authority to establish interface standards that govern the  x@separation of access control from other CPE features in this proceeding. The text of the 1996  xAmendments to Section 624A would appear, if applicable to Section 629, to direct the Commission to set  xonly minimal standards in implementing Section 629 in both the analog and digital environments.  xHowever, the House Report states that the amendments to Section 624A were "not intended to restrict the  xCommission's authority to promote the competitive availability of converter boxes, interactive  S-communications devices, and other customer premises equipment as required by [Section 629]."ux\ yO-ԍH. R. Rep. No. 104-204, 104th Cong., 1st Sess. 111 (1995). The Conference Report does not address this issue.  S- 4|p655. 44CERC believes that the amendment only clarifies the Commission's implementation of Section  x624A in the Equipment Compatibility Proceeding, and should not be applied to the adoption of  x[requirements beyond the scope of that section. CERC argues that in no way did Congress intend for the  S- xamendment to restrict the Commission's authority in implementing Section 629.`v\ yO-#X\  P6G;P#эCERC Reply at 47.` Additionally, CERC  xargues that the Commission has full authority to use any available tool in this proceeding for the purpose  S- xof complying with Section 629.dw\ yO!-#X\  P6G;P#эCERC Comments at 22. d Viacom contends that the three amendments to Section 624A govern  xthe narrow issue of compatibility between cable systems and consumer electronics equipment and have  S|-no applicability to the Commission's implementation of Section 629.ex|( \ yOD$-#X\  P6G;P#эViacom Comments at 16.e "T x\+"'"'ZZ"Ԍ S- 4p756. 44Several commenters strongly urge the Commission not to use the decoder interface in this  S- xproceeding. Echelon argues that the decoder interface improperly affects home automation  xcommunications, provides the TV with an anticompetitive gateway status in the home, discriminates  xagainst computer video systems, and requires a new and incompatible physical interface necessitating the  S`- xreplacement of all current TVs and VCRs.fy`\ yO-#X\  P6G;P#эEchelon Comments at 40.f Ameritech contends that the decoder interface restricts  S8- x/differentiation by requiring disclosure of all functions other than those required for signal security.hz8X\ yO0-#X\  P6G;P#эAmeritech Comments at 17.h  xCHTC disputes whether the interface is needed to ensure commercial availability in light of market  xdevelopments such as thirdparty licensing of descrambling technologies by settop box manufactures and  x[new approaches to analog signal security that descramble without settop boxes which make the decoder  S- x{interface obsolete.c{\ yO -#X\  P6G;P#эCHTC Comments at 10.c SA argues that there is no demand for the interface, particularly among cable  Sp- x/operators.]|px\ yO-#X\  P6G;P#эSA Reply at 2.] Additionally, Americast and CHTC believe simpler, cheaper and far better alternatives  x=already exist for separating security from nonsecurity functions of navigation devices such as a PC card  S - xor a smart card.}} \ yO-#X\  P6G;P#эAmericast Comments at 17; CHTC Comments at 10.} NCTA contends that the equipment compatibility proceeding may provide some useful  xprinciples to help draw limits between security and nonsecurity functions of CPE, but it was not intended  S -to address the issues raised by Section 629, and will not necessarily provide a solution.c~ \ yO-#X\  P6G;P#эNCTA Comments at 31.c  S - 4qp857. 44Commenters also argue that prescribing the decoder interface would both exceed  SX- xCommission's 629 authority and violate the Section 624A amendments,X( \ yO -#X\  P6G;P#эCHTC Comments at 18; Motorola Comments at 23; SA Comments at 26. and that adoption would lead  S0- xto a dispute regarding the Commission's standard setting authority.{0 \ yO-#X\  P6G;P#эCHTC Comments at 3; Motorola Comments at 23.{ Echelon contends that the  xCommission cannot adopt the decoder interface standard as a navigation device standard when Section  S- x624A specifically prohibits this standard for cable compatibility.fH \ yO-#X\  P6G;P#эEchelon Comments at 33.f Echelon explains that the decoder  xinterface incorporates CEBus communications protocol, a home automation standard completely unrelated  xLto the specific equipment compatibility problems, which causes the decoder interface not to be a narrow  Sh- xtechnical standard because it affects competition in the home automation and computer markets.fh\ yO#-#X\  P6G;P#эEchelon Comments at 55.f  S@- xMotorola contends that adopting the decoder interface would violate the amendments to Section 624A.g@h\ yOH&-#X\  P6G;P#эMotorola Comments at 24.g "@\+"'"'ZZ"  xOther commenters maintain that the language of Section 629 requires the Commission to work closely  xwith industry standards organizations. They further contend that the decoder interface standard is not the  xproduct of a voluntary industry standard setting process, and argue that the Commission is not authorized  S- xto adopt it as a standard over the objections of private industry groups.\ yO-#X\  P6G;P#эCHTC Comments at 13; Echelon Comments at 44 ; Motorola Comments at 24; SA Comments at 3. CHTC contends that the  x=decoder interface was developed as a closed, joint product of NCTA and CEMA, and that the C3AG ad  xhoc unaccredited committee is not the appropriate standards setting organization with which the  S-Commission should consult.X\ {O - x#X\  P6G;P#эCHTC Comments at 10. But see CERC Comments at 22 (the decoder interface standard is a balloted and accepted standard).  S- 4p958. 44A similar divergence of opinion is reflected in the comments with respect to "smart card" or  xyNRSS standards as a mechanism for segregating conditional access from other navigation device functions  xin the digital context. Viacom advocates a smartcardbased conditional access system that requires the  xkinsertion of a creditcard like card into a module of the settop box, which unlike the box itself, would  xnot be sold at retail and its distribution would be controlled and inventoried by each MVPD for its own  xcustomer. Viacom envisions that the smart card, carrying the proprietary encryption of the MVPD, would  xinterface with the otherwise commercially available settop box, which contains a common scrambling  xalgorithm. This dualmodule box will be universal, such that it can be used by the subscriber to any  S - xMVPD service.d \ yO-#X\  P6G;P#эViacom Comments at 8.d Viacom further notes that to connect this security device to the box's hardware will require a standardized connection and recommends the decoder interface connector.  S- 4p:59. 44Other commenting parties urge that it is important to maintain an integration of conditional  xaccess with other functions. They maintain that there may be significant piracy problems and other  S- xdifficulties associated with smart card technology.B\ yO- x#X\  P6G;P#эDIRECTV Comments at 18; GI Comments at 59; NCTA Comments at 25; SA Comments at 25; TCI Reply at 12. DIRECTV argues that it would be impossible for  S- xMsecurity breaches to be prevented solely through smart cards.f\ yO-#X\  P6G;P#эDIRECTV Comments at 18.f SA notes that smart cards or similar  xdevices ignore the important principle of preventing piracy and theft; that at higher levels of hardware  S@- x-integration, security becomes harder to compromise.a@* \ yO -#X\  P6G;P#эSA Comments at 25.a DIRECTV notes that dividing the security function  xfrom the other functions of a navigation device prevents the hardware unification and systemlevel  S- xintegration that allow for reductions in the complexity and manufacturing costs of settop boxes.f \ yOJ#-#X\  P6G;P#эDIRECTV Comments at 18.f NCTA  S- x\points to the prohibitive recurring cost of replacing a smart card if the security system is breached.cJ \ yO%-#X\  P6G;P#эNCTA Comments at 25.c "\+"'"'ZZ$"  xAdditionally, DIRECTV explains that security in digital broadcasts cannot be contained entirely in a smart  xcard provided separately from the navigation devices, noting that for control mechanisms in its system to  xoperate properly requires some interaction between its security module and the receiver into which it is  S- x[inserted.f\ yO-#X\  P6G;P#эDIRECTV Comments at 18.f Motorola contends that the Act prevents removal of an operator's ability to control security  S`- x{in the manner best suited for its particular system or the type of conditional access method.`X\ yOX-#Xj\  P6G;9XP##X\  P6G;P#эMotorola Comments at 28. GI  xzmaintains that Section 629(b) prevents the Commission from requiring that any particular technology  xsolutions be used by MVPDs to achieve commercial availability that includes security technology because  S- xany governmentmandated solution could impair network security.a\ yOp -#X\  P6G;P#эGI Comments at 58.a Participants in the direct broadcast  xsatellite service, for example, vigorously object to any separation requirement. Other commenters note  S- xthat certain smart card security systems that have been widely used in Europe have been compromised.Lx\ {O-ԍSee TW Comments at Appendix A.L  xThe Commission itself has studied security failures in the CBand satellite market and noted the  SH -importance of security for a market to develop.&H \ {O- xi#X\  P6G;P#эInquiry into the Need for a Universal Standard for Satellite Cable Programming, Report, GEN Docket No.  yO-8978, 5 FCC Rcd 2710 (1990).#Xj\  P6G;9XP#&  S - 4Pp;60. 44SBCA believes that bundling is a vital element of system security, as demonstrated by the  x\successful curtailing of piracy in larger home satellite dishes. SBCA contends that the more control a  xsatellite service provider has over the physical distribution of its video signal directly to a subscriber's  x=television set, the greater is the provider's ability to avert, or rectify if need be, compromise of the signal  SX- xin distribution.cXd \ yO\-#X\  P6G;P#эSBCA Comments at 10.c TIA notes that integration allows manufacturers to take advantage of current and future  S0-advances in semiconductor and integrated circuit technology.b0 \ yO-#X\  P6G;P#эTIA Comments at 17.b  S- 4p<61. 44The record with respect to equipment used with cable services convinces us that the separation  xof security will significantly enhance the commercial availability of the equipment. Separated security  xwill allow individual cable operators to design and operate equipment reflecting their particular security  xneeds, a circumstance providing broad discretion for each cable operator, while still facilitating portability  xand the development of the consumer equipment market. Any significant disparity among cable operators,  xLhowever, undermines the commercial availability of equipment. Subscribers are more likely to purchase,  xkand not lease from a provider, if they can use the navigation device when they move to an area served  xby a different operator. This will be more difficult if varying security elements are embedded in the  xequipment made available for retail. Geographic portability will enhance the commercial availability of  xnavigation devices and, should result in wider choice and lower prices to consumers. The separation of"x \+"'"'ZZ"  xsecurity will also facilitate the commercial availability of navigation devices by allowing manufacturers to provide a diverse array of equipment.  S- 4} p=62. 44We think it important to establish parameters and to mandate that security be separated to  x.ensure that navigation devices become commercially available expeditiously. We reiterate the consensus  x.of several cable operators, as well as two equipment manufacturers, that the separation of security from  S- x-nonsecurity functions in the digital context is possible."\ {Ox- xԍLetter from Leo Hindery, Jr., NCTA Chairman, et al. to Decker Anstrom, President, NCTA (June 3, 1998)  x<(The letter was signed by the Chairman and CEO of GI and the President and CEO of SA), attachment to Letter  xfrom Neal Goldberg, General Counsel, NCTA to William Johnson, Deputy Chief, Cable Services Bureau (June 4, 1998) . Throughout this proceeding, retail interests have  xjadvocated strenuously that we require the separation of security elements from the other elements of the  S- xnavigation device by a specific date.Z\ {O -ԍCircuit City ex parte filing (June 5, 1998).Z They assert that setting a date is necessary to enhance portability,  x\which will create an incentive for the mass production of equipment for sale to consumers, where the  Sp- xvarious service providers, manufacturers, and retailers, can pursue consumer interests.pD\ {OT-ԍCircuit City ex parte filing (June 5, 1998); CEMA ex parte filing (June 4, 1998). We agree that  xkfailing to separate the security elements may delay commercial availability, thereby limiting enhanced  xfunctionality and services. As of July 1, 2000, therefore, MVPDs covered by Section 629 who wish to  xdistribute devices using integrated security may do so only if they also make available the security modules separately.  S - ]p>63. As discussed above, many types of navigation devices are now being, or will in the future be,  xattached to multichannel video programming distribution systems. A number of different entities in the  xcommunications stream and a number of types of security, access control, or data encryption systems are  xinvolved. The security separation required by the rules adopted herein is applicable to access controls  xdirectly applied by the MVPD to authenticate subscribers' identification. It would not, for example, be  x=applicable to encrypted telephone or internet data used to protect the privacy of the communications or  x.to digital authentication of financial transactions regardless of the use of such devices with multichannel  xvideo programming distribution systems. Access controls included in hardware for the purpose of  xLallowing subscribers to exclude communications would not be included even though they perform a type  xjof conditional access function. "Copy protection" systems and devices that impose a limited measure of  xdata encryption control over the types of devices that may record (or receive) video content would not be  xsubject to the separation requirement. "Software" based encryption should generally be separable from  xLthe hardware that runs it and thus would not have to be changed based on the rules adopted. Equipment  xneeded for specifically addressed communications, such as for example modems for the receipt of "internet  xprotocol" telephony could retain integrated in the hardware sufficient address information to permit them to function.  S- 4p?64.44We believe, however, that differences in the marketplace for DBS equipment, where devices  x=are available at retail and offer consumers a choice, as compared to equipment for other MVPD services,  xparticularly cable operators, provide justification for not applying the rule requiring separation of security  xfunctions to DBS service. We are reluctant to implement a rule that could disrupt an evolving market that"`\+"'"'ZZ"  xis already offering consumers the benefits that derive from competition. In the DBS environment, there  S- xare three service providers\ yO@- xZ#X\  P6G;P#эDue to the similarity of the attributes of DBS operators DIRECTV and Echostar, and fixed satellite service  {O- x{provider Primestar, the Commission's reports on the status of DBS providers includes Primestar. See   x;Implementation of Section 19 of the 1992 Cable Act (Annual Assessment of the Status of Competition in the Market  {O- xfor the Delivery of Video Programming), CS Docket 97141, Fourth Annual Report ("1997 Report"), 13 FCC Rcd 1034, 1070 (1998). and at least ten equipment manufacturers competing to provide programming  S- xand equipment to consumers.CZ|\ yO- xkԍHardware manufacturers of DBS customer equipment include GE, Hitachi, Hughes Network Systems,  {O - xMagnavox, Memorex, Panasonic, ProScan, Toshiba, RCA, Sony and Thomson. See website at .C The equipment is available at retail stores. The result, over a relatively  S- xkshort time frame, has been lower equipment prices, enhanced options and features.\ yO - x#X\  P6G;P#эDIRECTV claims the price of equipment has been reduced from $600 to $100 over the past three years. DIRECTV Comments at 4. Requiring DBS  xproviders to separate security would serve a limited purpose and disrupt technical and investment structures that arose in a competitive environment.  S- 4p@65.44Additionally, DBS service providers are relatively new entrants in the MVPD service  S- xzmarketplace, particularly when compared to incumbent cable operators. \ {OV-#X\  P6G;P#эSee 1997 Report, 13 FCC Rcd at 1039, 1108. Total DBS subscribership  S- x[constitutes only 8% of the MVPD market, as compared to 87% of the MVPD market for cable.G \ yO- x#X\  P6G;P#эThe Commission has found that local markets for providing multichannel video programming remains highly  {O-concentrated and that cable systems remain the primary providers of video programming. Id. at 1038, 1108.G With  xDBS equipment available in retail stores, and with DBS possessing substantial incentive to pursue  SH - x additional market share through additional services and improved equipment,H \ yO- xԍThe Commission has found that DBS service providers are offering specialized programming, and equipment  {O-providers are offering discounted equipment. 1997 Report, 13 FCC Rcd at 1073. we do not think that  xrequiring DBS service providers to separate security elements will serve the goal of enhanced competition  xin either the service or equipment markets. We note that in many instances, the Commission refrains from  S -imposing regulations on new entrants." <\ yO- x,#X\  P6G;P#эDBS operators, for example, are not covered by a variety of other statutory requirements and rule provisions.  {Ot- xxSee, e.g., 47 U.S.C.  532 (Leased Access); 47 U.S.C.  534 (Must Carry); 47 U.S.C.  543 (Rate Regulation). As  xis the case here, the divergences reflect the new entrant nature of the DBS industry as well as differences in the technology and market structures involved.  S - 4pA66.44Further, as noted, in requiring the separation of security functions, we seek to expand the  xportability of equipment, thereby permitting consumers to purchase navigation devices with some  xLassurance that the equipment can be used beyond its present location. In DBS service, due to the means  x>of signal delivery, a particular provider's equipment is already portable as to that provider across the  xcontinental United States because DBS operators offer services nationally. This mitigates against a rule"&\+"'"'ZZ"  xto require the separation of security for DBS equipment. In contrast, other MVPD services, such as cable,  xcurrently do not offer geographic portability. Our rule provides that when an MVPD supports navigation  xdevices that are portable throughout the continental United States, and are available from retail outlets and  xother vendors, the requirement for separation of functions is not applicable. We note, however, that a  xdevice that is usable on all the systems of one particular cable multiple system operator only, for example,  xwould not be considered portable throughout the continental United States. For the same reasons, the rule  xwill exempt providers of direct to home (DTH or larger satellite service dish providers) from the  S-separation of security requirement.XZ\ yOP- xԍThe Commission has previously looked in detail into the structure and functioning of the security equipment  {O - xin this market.  Inquiry into the Need for a Universal Standard for Satellite Cable Programming, Report, GEN Docket 8978, 5 FCC Rcd 27109 (1990).X  S- 4pB67. 44A further issue associated with the security separation requirement is the extent a service  xprovider that supported separated security for purposes of the commercial retail market might at the same  xtime itself lease integrated devices that contain both security and nonsecurity features. NCTA argues that  xprohibiting MVPDs from providing integrated settop boxes would in effect force consumers to purchase  x[boxes with nonsecurity functions at retail, rather than merely giving them a choice to do so, as Congress  S - x intended.c \ yOZ-#X\  P6G;P#эNCTA Comments at 29.c NCTA proposes that digital boxes without security be made available at retail, and that  xyoperators should be permitted to supply integrated boxes with both security and nonsecurity functions.  x<NCTA disputes claims that allowing MVPDs to offer integrated CPE after nonsecurity functions are made  SX- xjcommercially available would allow MVPDs to act anticompetitively.`Xz\ yOr-#X\  P6G;P#эNCTA Reply at 19.` TW believes that if consumers  xjhave the option to purchase or lease component devices, there is no reason they should not also have the  xoption to obtain an integrated device from their MVPD, noting that consumer electronics manufacturers  S- xprovide many forms of integrated products, e.g., integrated TV/VCR devices.a \ yO-#X\  P6G;P#эTW Comments at 30.a NCTA argues that  xconsumers will benefit from the competition created by independent providers as well as MVPDs  S-providing their own featurerich nonsecurity CPE.`\ yO-#X\  P6G;P#эNCTA Reply at 19.`  SB- 4OpC68. 44Circuit City suggests that after a date certain, service providers should not be allowed to offer  S- xintegrated boxes.[* \ {O -ԍCircuit City ex parte filing (June 5, 1998). [ Circuit City argues that service providers for which unbundled navigation devices are  xavailable at retail outlets should not be permitted to lease their own bundled devices because this would  S- xgive them an effective cost advantage.@X \ yO&$- x,ԍCircuit City Comments at 32 ("While such integration superficially might appear efficient, in the longer term  xiit would be grossly inefficient, as it would frustrate integration in consumer owned devices of the ability to access competing systems").@ CEMA contends that the continued provision of integrated boxes"\+"'"'ZZ"  xby MVPDs would undermine the conditions for a successful competitive commercial market for unbundled  xdevices. CEMA argues that a rule that provides for continued provision of integrated devices by operators  x=would amount to a permanent waiver of commercial availability, maintaining that it is highly improbable  xthat devices with embedded security functionality could be made available from any other source than the  S`-cable operator.R`\ {O-ԍCEMA ex parte filing (June 4, 1998).R  S- 4pD69. 44We conclude that the continued ability to provide integrated equipment is likely to interfere  x=with the statutory mandate of commercial availability and that the offering of integrated boxes should be  x=phased out. We agree with those commenters who note that integration is an obstacle to the functioning  xof a fully competitive market for navigation devices by impeding consumers from switching to devices  Sp- x/that become available through retail outlets.\pZ\ yOj -ԍCircuit City Comments at 32; CEMA Comments at 1718.\ It has been suggested that, after a date certain, service  SH - xjproviders should not be allowed to offer integrated boxes.H \ {O-ԍCircuit City ex parte filing (June 5, 1998); CEMA ex parte filing (June 4, 1998). We agree.H |\ {Od- xԍThe Commission, in other contexts, has provided for the phase out of equipment. See e.g., Replacement of Part  {O.- xw90 by Part 88 to Revise the Private Land Mobile Radio Services and Modify the Policies Covering Them, PR Docket  {O- xYNo. 92235, Report and Order and Further Notice of Proposed Rule Making, 10 FCC Rcd 10076 (1995) (transition  {O- xto more efficient spectrum use requires switch from wideband to narrowband equipment); Administration of the North  {O- xAmerica Numbering Plan Carrier Identification Codes, CC Docket No. 92237, Second Report and Order, 12 FCC  {OV- x;Rcd 8024 (1997) (phase out of equipment not supporting four digit carrier identification code); Amendment of Part  {O - xZ73, Subpart G, of the Commission's Rules Regarding the Emergency Broadcast System, FO Docket No. 91301,  {O- xLReport and Order and Further Notice of Proposed Rule Making, 10 FCC Rcd 1786 (1994) (establishment of Emergency Alert System requires transition from analog to digital equipment). We believe that 2005 provides  x.a sufficient period of time for a reasonable transition and, therefore, our rules prohibit MVPDs from the  xselling or leasing of new integrated boxes placed in service as of January 1, 2005. Allotting a phase out  xperiod will minimize the impact of this requirement on manufacturers and MVPDs, allowing  S - x!manufacturers sufficient time to respond to equipment modifications.i\ \ \ {O- x-ԍSee Amendment of the Maritime Services Rules (Part 80) to Restrict the Frequency Selection Capability of  {On- x<VHF Transmitters to Maritime Frequencies, PR Docket No. 88507, Report and Order, 4 FCC Rcd 5680 (1989) (adoption of phase out period to avoid economic burden).i We emphasize that this  x=prohibition applies only to the sale, lease, or use of new boxes. We do not intend that equipment which  xhas already been placed in service by the MVPD before the phase out date be rendered obsolete by the  xlprohibition on the sale, lease, or use of new integrated boxes as of January 1, 2005. MVPDs may  x\continue to sell or lease boxes after this date provided the boxes have a severable security component  xinstead of integrated security. We anticipate that subscribers who obtain their boxes from their MVPD  xwill obtain the security module at the same time, and will not notice a functional difference between  xintegrated and nonintegrated boxes. In the year 2000, once separate security modules are available, we  xwill assess the state of the market to determine whether that time frame is appropriate and we will review the mechanics of the phase out of integrated boxes. "\+"'"'ZZ5"Ԍ S- 4#pE70. 44 Having required that security be separated, an issue remains as to the need to promulgate  S- xparticular standards. In the NPRM, we suggested that to facilitate the connection of the unbundled security  xequipment to commercially available navigation devices it might be necessary to require a standard  xinterface, or publication of interface specifications, permitting security control apparatus obtained from  Sb- xthe service provider to be combined with other equipment obtained by the subscriber from retail outlets.Gb\ {O-ԍNPRM, 12 FCC Rcd at 5667.G  x The separated portions of these devices cannot realistically function together in the absence of some  xgenerally agreed on connection standards. In this regard, however, we do not need to become involved,  xmore than the minimal extent necessary, in the technical design of the interfaces involved. What is  ximportant is for the device supplied by the service provider to be designed to connect to and function with  x{other navigation devices through the use of a commonly used interface or through an interface that  Sr-conforms to appropriate technical standards promulgated by a national standards organization.rZ\ yOl - xiԍIn case of a dispute regarding whether an interface is "commonly available," the Commission will make the final determination.  S" - 4@pF71. 44Although not necessarily an exclusive standard, in the analog environment, the model for such  x=a standard would be the EIA105 decoder interface standard. This standard was specifically intended to  xfacilitate the separation of conditional access and other functions and has been the subject of extended  x.discussion between the consumer electronics and cable television industries. It is a standard adopted by  xan accredited standards organization and its terms are well known to those in both the cable television and  xconsumer electronics industries that were involved in its development. We believe, based on the work  xdone in connection with the decoder interface standard, that it should be possible to separate out most  xtypes of analog security. We recognize that some parties believe that use of this particular standard (EIA x105) would conflict with both the specific terms and with the spirit of the 1996 amendments to Section  x624A of the Communications Act which direct the Commission, in implementing the consumer electronics  xequipment compatibility provisions of the law, "to ensure that any standards or regulations developed .  Sj- x. . do not affect features, functions, protocols, and other product and service options. . . ."Ej\ yO-ԍ47 U.S.C.  544a(c)(2)(D).E However, we do not believe that this provision precludes adoption of the rule discussed above.  S- pG72. First, the rule does not include any specific or detailed standards but leaves to the industry  xgroups and the market the ability to evolve standards outside of the Commission's rules. The requirement  x=that the conditional access equipment be designed to connect through widely accepted standards or ones  x-agreed upon by an accredited standards organization does not constitute a Commission developed standard.  xThis is a rather loose and flexible requirement which we believe, however, may provide the involved  x/parties sufficient guidance to proceed while not creating barriers to the types of change and technical  xadvance that the Section 624A amendments sought to protect. Secondly, as a more narrow legal question,  x?we note that the amended language of Section 624A by its terms applies only to rules required or  S- x[prescribed by Section 624A.GB\ yO$-ԍ47 U.S.C.  544a(c)(1), (2).G Further, the House Report specifically indicates that the amendments to  x Section 624A were "not intended to restrict the Commission's authority to promote the competitive"\+"'"'ZZ"  x!availability of converter boxes, interactive communications devices, and other customer premises  S-equipment as required by [Section 629]."\ yO@-ԍH. R. Rep. No. 104-204, 104th Cong., 1st Sess. 111 (1995). The Conference Report does not address this issue.  S- pH73. While the work that has been completed with respect to the decoder interface standard  x(EIA-105) indicates that, even in the analog environment, it is generally possible to separate security or  xLconditional access functions from other functions in convertors or set-top boxes, we recognize that there  x.may still remain some situations this is not possible or would be unduly risky. Section 629(b) instructs  xthe Commission not to prescribe regulations which would jeopardize security of multichannel video  S- xLprogramming and other services offered over multichannel video programming systems.>X\ yO -ԍ47 U.S.C. 549(b).> We have thus  xcreated an exception in the rules (Section 76.1204(d)) where such separation is not feasible. This is  xintended, however, to be a narrow exception to the general rules to account for unusual types of  xequipment. We would not anticipate, for example, that any equipment that it was contemplated might be separated out using the "decoder interface" standard approach would come within this exception.  S - 0pI74. With respect to interfaces in the digital environment, we believe it is also appropriate to rely  x on generally available standards. Commenters generally agree that the digital environment contains a  xnumber of differences from analog. First, digital communications are subject to protection through the  xuse of advanced security algorithms that cannot easily be defeated by the manufacturing of "pirate"  xequipment. Second, there will nevertheless be a continuing engagement between those seeking to breach  xthe security and those seeking to maintain it and that, since the attacks that develop will likely be based  x.on access to computing power and software they will likely be capable of rapid distribution through the  xinternet once means of breaching the security are found. And third, it will be highly desirable that such  x.security as exists be upgradable or renewable over time. GTE contends that agreement has been reached  Sh- xjon the use of existing DES encryption and MPEG2 system layers.ah\ yO-#X\  P6G;P#эGTE Comments at 8.a Some parties specifically support  xMtechnology using the NRSS, a joint CEMA and NCTA effort, which, as stated earlier, allows system  xoperators to place all securityrelated circuitry on a module or a security card that can be inserted into a  S- xcompetitively supplied navigation devices.x\ yO-#X\  P6G;P#эCircuit City Comments at 33; CEMA Comments at 18; TW Comments at 12; Zenith Comments at 13. Use of an interface such as NRSS would also enable a  xMnavigation device with embedded security (which could have been made available at retail) to have its  x security functions upgraded or replaced by means of separately supplied piece of conditional access  xequipment. Viacom notes that replacement of the security module is less expensive than replacing the  SP-proprietary settop boxes.eP\ yO!-#X\  P6G;P#эViacom Comments at 16.e  S- 4 pJ75. 44We believe that the NRSS (EIA679) and the related CableLabs/OpenCable efforts, when the  xMstandards process is complete, will provide a usable standard for digital communications and our rule  xreflects this premise. We recognize that discussions are ongoing about the specific means by which this  xstandard might be incorporated into navigation devices and that there is no widespread experience in the"\+"'"'ZZ"  xUnited States with the use of either "smart card" (NRSSA) security devices or security included in larger  xPCMCIA (NRSSB) cards, both of which are included in the NRSS discussions. The comments of almost  xlall parties note the dangers of detailed governmental standard setting and urge deference to private  S-standard setting processes.\ yO- xԍBSA Comments at 9; BANX Comments at 4; CHTC Comments at 1; Motorola Comments at 26; NCTA Comments at 38; SA Comments at 21; TW Comments at 37.  S8- 4 pK76. 44It is our intention that the rules in question become effective at the earliest possible date,  xysubject only to the limitations imposed by the standards, design, and manufacturing cycles involved. We  xbelieve, after consideration of all of the circumstances, that the requirement to provided separated security  x.equipment should become applicable on July 1, 2000. Although this deployment schedule is somewhat  xLfaster than the suggested schedule presented by the cable television industry that is discussed below, we  xlbelieve that a more aggressive schedule is critical to having navigation devices fully introduced and  xavailable for the critical year end electronic equipment sales period in the year 2000. The completion of  x=the design and the effective introduction of this equipment is not only important in terms of the goals of  xthis proceeding and the introduction of digital cable television service but will be critical to the delivery  xand deployment of digital broadcast television more generally. In those situations where, as here, new  xzindustry standards are needed, new types of equipment must be designed and manufactured, and new  x<distribution patterns adopted, the effective date of the requirements takes on special importance. The most  x=important time constraint in terms of accomplishing the objectives of this proceeding appears to involve  xthe time it will take to produce digital security modules. A process is underway at CableLabs that should  xlead to standardization, design, and production of these security modules and permit the design,  x!production, and distribution of the associated navigation devices for retail sale. Although neither  x/OpenCable nor CableLabs are accredited standards organizations, they are attempting to use existing  xstandards to the extent possible and to submit standards for consideration by official standards bodies.  xA number of the core standards involved, including such critical parts as the digital video compression  xand transmission standards for cable television, have been approved by accredited standards organizations  S-already.% \ yO- xw#X\  P6G;P#эAmong the standards adopted or actively under review are (1) ATSC Digital Television, A/53; (2) RF Interface  xwSpecification for Television Receiving Devices and Cable Television Systems, EIA23; (3) Cable Television Channel  xIdentification Plan, EIA542; (4) Digital Transmission Standard for Cable Television, SCTE DVS093; (5) Digital  xVideo Service Multiplex and Transport System Standard for Cable Television, SCTE DVS093; (6) "Class A' Issues x[Profiles, Levels and Formats, SCTE DVS033; (7) Program and System Information Protocol for Terrestrial Broadcast and Cable, SCTE DVS097; and (8) High Performance Serial Bus, IEEE 1394. %  S- 4pL77. 44This effort, which involves a large number of highly complex engineering issues, appears to  xbe proceeding towards completion of its part of the design and standardization process by the end of this  Sx- xyear. The following information has been included in the record by the NCTA;x\ yO"- x,#X\  P6G;P#э#X\  P6G;P#Letter from Neal Goldberg, General Counsel, NCTA to William Johnson, Deputy Chief, Cable Services Bureau  yOx#-(June 3, 1998).#x6X@`7 iX@#; regarding the time believed to be needed to complete this process: " \+"'"'ZZM"Ԍ S-Digital Security Module Interface  S-Draft specification document for member review and discussion  xx7/l/98  S-Draft specification document for vendor review and discussionpp  xx7/15/98 Interim specification document for final review and approval  S8-pby members and vendorshh@hpp  xx10/l/98 Recommended specification made publicly available and released to SCTE  S-for adoption as a US standardhh@hpp  xx12/98  S- Digital Security Module Specification  SH -Draft digital security module specification document completed  xx7/30/98 Draft digital security module specification document for independent review  S -pby Scientific Atlanta and General Instrumenthpp  xx8/15/98  S -Interim digital security module specification document for final review  xx10/15/98  S -OpenCable digital security module specification completedpp  xx12/98  SX-Digital Security Module PostSpecification ScheduleX\ yO- xԍ#X\  P6G;P#Letter from Neal Goldberg, General Counsel, NCTA to William Johnson, Deputy Chief, Cable Services Bureau  yO-(June 4, 1998).#x6X@`7 iX@#  S-Preliminary digital security module prototype completedpp  xx6/15/99 OpenCable Interop testing completed for preliminary digital  S-psecurity module prototype Phase I@hpp  xx7/15/99  S@-Final digital security module formfactor prototype completedpp  xx12/1/99 p OpenCable interop testing completed for final digital security  S-pModule formfactor prototype Phase II@hpp  xx1/l/2000  Sx-OpenCable digital security module full product demonstration completed  xx6/2000  S(-Digital security module available to cable operatorshpp  xx9/2000 X4` hp x (#%'0*,.8135@8:concern about noncompetitive MVPDs is addressed by our antisubsidy rule and that in an emerging marketplace for navigation devices, consumer choice should be as expansive as possible.  S - 41pa98. 44We agree with commenters that cable operators subject to rate regulation should be precluded  S - xfrom requiring subscribers to use systemprovided or systemdesignated navigation devices.1   {Ox- x#X\  P6G;P#эAs discussed in Section IV(C), supra, the rules we are adopting include the right of a subscriber to attach any compatible navigation device to an MVPD system regardless of the source of the equipment.1 We disagree  xMwith contentions that cable operators subject to rate regulation should be allowed to bundle regulated  xLequipment with unregulated services to prevent them from being placed in a competitive disadvantage as  SX- x/compared to other services.fXb  yOZ-#X\  P6G;P#эUS West Comments at 17.f Present law and the Commission's regulations require that charges for  S0- xLregulated service and equipment be separated, with the latter limited to cost.0  {O- x#X\  P6G;P#э47 U.S.C. 623(b)(3); 47 C.F.R. 76.923(b); Report and Order and Further Notice of Proposed Rulemaking in MM Docket 92266, 8 FCC Rcd 5631, 5810 (1993). As we have noted, these  xkpolicies have as a premise proper cost allocation in a regulated environment involving a provider with  x substantial market power. Section 629 requires, as several commenters contend, that the charges for  xyservice and equipment must be separately stated to allow customers to be able to determine exactly what  S-they are paying for the equipment.dL  yO|!-#X\  P6G;P#эTandy Comments at 16.d  Sh-  S@- 4pb99. 44Some commenters have argued that noncompetitive MVPDs that produce and sell "CPE"  xshould be required to do so through a separately owned affiliate as was required of common carriers to"(\+"'"'ZZb"  S- xensure that improper crosssubsidization would not take place.  yOh-#X\  P6G;P#эBSA Comments at 8; CEMA Comments at 16; ITI Comments at 22. We find no basis in the record for such  xa requirement at this time. Unlike the parallel that is cited from the telephone context, multichannel video  x service providers are not significantly vertically integrated with manufacturers of CPE or navigation  xdevices. Moreover, to impose a rule that requires consumers to take additional steps to approach a  xseparated affiliate when seeking to lease equipment could cause significant problems, particularly for small service providers, that are seeking to improve the customer service that they provide.  S-p K.44Waivers  S-pc100.  III.I  Background. Section 629(c) of the Act states: p  !p (c) Waiver.--The Commission shall waive a regulation adopted under subsection (a) for a limited  time on an appropriate showing by a provider of multichannel video programming and other  services offered over multichannel video programming systems, or an equipment provider, that such  0waiver is necessary to assist the development or introduction of a new or improved multichannel  }video programming or other service offered over multichannel video programming systems,  Mtechnology, or products. Upon an appropriate showing, the Commission shall grant any such waiver  |request within 90 days of any application filed under this subsection, and such waiver shall be  effective for all service providers and products in that category and for all providers of services and  S -products.e X  yO-#X\  P6G;P#э47 U.S.C.  549(c).e(#  S- ` pd101. ` ` In the NPRM, we tentatively concluded that statutory waiver requests should avoid  S- xyunnecessary procedural obstacles to innovation.n  {O-#X\  P6G;P#эNPRM, 12 FCC Rcd at 5662.n In this regard, we sought comment on this conclusion  xand on the scope and coverage of the statutory waiver process. We also sought comment on whether there  xis a need for us to adopt substantive standards at this time to govern the waiver process or whether we  S- xcould develop policies and standards for waiver requests on a casebycase basis as requests are filed.Xz  yO6- x#X\  P6G;P#эWe note, for example, that  76.605(b) of our rules allows for a waiver of certain technical standards on "an  xadequate showing . . . which establishes that the public interest is benefited." This lets cable systems of specialized design to operate, without prescribing any particular showing. 47 C.F.R.  76.605(b).  xLWe noted that the statute requires the Commission to act on waiver requests within 90 days of the filing  xof an application for waiver. We sought comment as to what modifications, if any, to filing periods are  S-needed.c  yO!-#X\  P6G;P#э47 C.F.R.  76.7.c p  ST- ` 3pe102. ` ` Discussion. A provider of multichannel video programming and other services offered  xLover multichannel video programming systems, or an equipment provider, may petition the Commission  xfor a waiver. The Commission may waive a regulation adopted under Section 629 if such service or  xequipment provider makes an appropriate showing that such waiver is necessary to assist the development")* \+"'"'ZZL"  xor introduction of a new or improved multichannel video programming or other service offered over  xmultichannel video programming systems, technology, or products. We will apply the procedural rules  xjset forth in 47 C.F.R.  76.7, consistent with our attempt to move toward more uniform procedural rules  S-for Part 76.\  {O- xj#X\  P6G;P#эSee Part 76 Cable Television Service Pleading and Complaint Rules, CS Docket No. 9854, Notice of  {O- x=Proposed Rule Making, FCC 9868 (rel. April 22, 1998) (seeking comment on making Part 76 pleading and complaint process rules more uniform). The relevant rule is in Section 76.1207.  S8- pf103. Some commenters favor granting waivers liberally to prevent stifling of innovation.8  yO - x#X\  P6G;P#эGI Comments at 82; NCTA Comments at 41; PrimeStar Comments at 27; SA Comments at 28; TW Comments at 45; US West Comments at 18.  xAmeritech argues MVPDs need flexibility to develop nonsecurity, nonaccess functions in order to  S- xdifferentiate their equipment from competitor's equipment.hD  yO -#X\  P6G;P#эAmeritech Comments at 17.h Circuit City contends that due to the  xstatutory mandate to assure a national competitive market, requests for waivers must be analyzed critically  S- xto ensure that a waiver is necessary.k  yO -#X\  P6G;P#эCircuit City Comments at 36.k We think that the Commission's review process will afford  xKadequate opportunities for any party to comment on whether a waiver is appropriate and whether the grant  xwould be consistent with the purpose of Section 629. We noted that the Conference Report indicates that  x>the language of Section 629 was written so that the "Commission avoid actions which could have the  S - xeffect of freezing or chilling the development of new technologies and service." d  yO-#X\  P6G;P#эS. Conf. Rep. 104230, 104th Cong., 2d Sess. at 181 (1996). We think it particularly  ximportant that the waiver process accommodate the need to provide, particularly to new MVPD entrants, flexibility in differentiating their equipment from competitors' equipment.  SX- {pg104. We agree with commenters suggestion that the Commission proceed on a caseby case basis  S0- x0instead of promulgating substantive waiver standards.vZ0  yO- x#X\  P6G;P#эCellular Vision argues that no review standards can be established for new services until the Commission has  {O- xgained experience in administering waiver applications. Cellular Vision Comments at 13; See also GI Comments at 84; NCTA Comments at 41.v We believe that the development of the marketplace, and the innovative uses of technology make it difficult for generic approaches.  S- ph105. Several commenters support the approach in the NPRM that if the Commission does not act  xon a petition for waiver of the Section 629 requirements by the end of the 90 day review period, the  Sj- x=petition will be deemed granted.j  yO #-#X\  P6G;P#эGI Comments at 83; TW Comments at 45; US West Comments at 18. We agree with Circuit City, however, that waivers must be analyzed  SB- xcritically to ensure an "appropriate showing," as required by the statute,kB  yO%-#X\  P6G;P#эCircuit City Comments at 36.k and that we are obligated to"B*6\+"'"'ZZ"  x=make a determination, based on the pleadings, as to whether such a showing has been made. We decline, therefore, to adopt a rule stating that waivers that are not acted on will be automatically granted.  S-p L.44 III.J Sunset of Regulations  S8- p i106. Background.. Section 629(e) provides when the regulations adopted pursuant to Section 629 shall terminate. The provision states:  $pThe regulations adopted under this section shall cease to apply when the Commission  determines that(1) the market for the multichannel video programming distributors is fully  competitive; (2) the market for converter boxes, and interactive communications equipment,  pused in conjunction with that service is fully competitive; and (3) elimination of the  S" -regulations would promote competition and the public interest.e"  yO -#X\  P6G;P#э47 U.S.C. 549(e).eH! p  S - 4pj107.44Section 629(e) establishes the premise that when the markets for programming distributors and  xequipment encompassed by Section 629 are fully competitive, consistent with the public interest, the  S - x>regulations implementing Section 629 are no longer needed. We stated in the NPRM the need to have  xMclear definitions of the relevant service and equipment markets involved as a predicate to determining  S4-when Section 629 will terminate.n4X  {O,-#X\  P6G;P#эNPRM, 12 FCC Rcd at 5673.n  S- 4@pk108.44We tentatively concluded that local geographic markets, akin to Arbitron's "areas of dominant  S- xinfluence,"!b   yOF- x#X\  P6G;P#эSection 76.55(e) of the Commission's rules provides that the areas of dominant influence ("ADIs") to be used  xfor purposes of the mandatory carriage rules are those published in Arbitron's 1991-1992 Television Market Guide.  xThe Commission recently concluded that it was appropriate to switch market definitions to Nielsen Media Research's  {O- xdesignated market areas ("DMAs") for must-carry/retransmission consent elections. See Definition of Markets for  xPurposes of the Cable Television Mandatory Television Broadcast Signal Carriage Rules, Report and Order and  x,Further Notice of Proposed Rule Making, CS Docket No. 95-178, 11 FCC Rcd 6201 (1996) ("Market Modification  x[Report and Order"). In its Market Modification Report and Order, the Commission decided to use Arbitron's  xK1991-1992 Television ADI Market Guide market designations for the 1996 election and postpone the switch to  xNielsen's DMAs until the next must-carry/retransmission consent cycle begins on Jan. 1, 2000. The Commission  xalso issued a Further Notice in its Market Modification Report and Order to solicit additional information and provide  xparties an opportunity to further consider issues relating to the transition to market designations based on Nielsen's  yO-DMAs. ! or Standard Metropolitan Statistical Areas, as determined by the Office of Management and  xLBudget, would provide useful geographic market definitions, or alternatively, the market could be related  xto the service area of the programming distributors. Further, we thought it logical to consider whether  SD- xdiscrete types of equipment , separate equipment markets, and categories of equipment should be reviewed  x<separately for sunset purposes. Additionally, we inquired whether there are service provider markets, such  xas DBS, that presently are "fully competitive." We sought comment on whether the relevant market is  xthe market for all MVPDs or if there are relevant submarkets that should be considered in determining  S-whether to justify the sunset of Section 629. "+\+"'"'ZZ"Ԍ S- lԙp l109. Discussion. The regulations adopted under this section shall cease to apply when, as stated  xin Section 629(e), the Commission determines that (1) the market for MVPDs is fully competitive; (2) the  xmarket for converter boxes and interactive communications equipment used in conjunction with that  xservice is fully competitive; and (3) elimination of the regulations would promote competition and the  Sb- xpublic interest.eb  yO-#X\  P6G;P#э47 U.S.C.  549(e).e An interested party may petition the Commission to determine that Section 629(e) has  S:- xbeen satisfied.:X  {O2-#X\  P6G;P#э See 47 C.F.R.  76.7 (procedures for Petitions for special relief). The ability to have the Section 629 requirements sunset will be an incentive for MVPDs to achieve retail availability of navigation devices. This rule is found in Section 76.1208.  S- 4Apm110.44 To review the existence of a competitive market, a relevant product market and a relevant  S- xgeographic market must be determined and analyzed.F  {O$ - xw#X\  P6G;P#эAnnual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, CS Docket  {O -No. 97141, Fourth Annual Report ("1997 Report"), 13 FCC Rcd 1034, 11071109 (1997).F The Commission has defined a product market  Sr- xas those products or services that are "reasonably interchangeable by consumers for the same purposes.^rF  {OX- x<#X\  P6G;P#эSee Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming,  {O"- xCS Docket No. 9448, First Annual Report, 9 FCC Rcd 7442 at  39 (1994) ("1994 Report"), citing United States  {O-v. E.I. du Pont de Nemours & Co,  351 U.S. 377 (1956).  x=For purposes of Section 629(e), the market for MVPD programming services is an appropriate product  xmarket because the broader market definition encompasses the full range of MVPD services available to consumers.  S - 4_pn111.44 A geographic market is an area in which all customers in that area will likely face the same  S - xcompetitive alternatives for a product.( l  {O- x#X\  P6G;P#эSee 1997 Report, 13 FCC Rcd at 1034; Assessment of the Status of Competition in the Market for the Delivery  {OX- xof Video Programming, Third Annual Report ("1996 Report"), CS Docket No. 96133, , 12 FCC Rcd 4358(1996);  {O"- xAssessment of the Status of Competition in the Market for the Delivery of Video Programming, CS Docket No. 9561,  {O-Second Annual Report ("1995 Report"), 11 FCC Rcd 2060 (1995);  1994 Report, 9 FCC Rcd at 7442.  The Commission has stated that the relevant geographic market  x[for assessing MVPD competition is local and its extent can be defined by the overlap of the "footprints"  S2- xof the various service providers.2\  {O.-#X\  P6G;P##X\  P6G;P#э1997 Report, 13 FCC Rcd at 1081; 1996 Report, 12 FCC Rcd at 4418. We believe that local geographic markets, akin to Nielsen's "areas of  xdominant influence," or Standard Metropolitan Statistical Areas, as determined by the Office of  xManagement and Budget, may be an appropriate geographic market definition. With respect to the market  x0for equipment, we conclude that any navigation device subject to Section 629 shall constitute the appropriate equipment market for Section 629(e) purposes. "j,\+"'"'ZZ"Ԍ S- 4po112.44 Several commenters suggest that DBS should not be subject to any regulation in this  S- xproceeding because DBS already complies with the commercial availability mandate of Section 629.   yO@- xx#X\  P6G;P#эCE Comments at 3; CERC Comments at 12; Circuit City Comments at 14; DIRECTV Comments at 10; GI Comments at 41; PrimeStar Comments at 7; SBCA Comments at 3; Tandy Comments at 5.   xAlthough, as discussed above, we believe it is desirable for the rules to recognize the fact that DBS  xequipment is already commercially available and nationally portable, we cannot conclude that the rules  xin their entirety should never be applied by virtue of the "sunset" criteria. Section 629(e) requires that  xthe MVPD market be "fully competitive" for all services before regulation is ended. The market for  S- xMVPD programming services as a whole is not fully competitive at this time.v   {O -#X\  P6G;P#э1997 Report, 13 FCC Rcd at 1108. v DBS services have been  S- x>successful in offering consumers choice in equipment, services, and retail outletsa  {O: -#X\  P6G;P#эId. at 1039.a and DBS is still a  xrelatively new entrant in the MVPD market and lacks market power. Yet this is not the standard of  x=Section 629. Congress did not exclude DBS from the reach of Section 629, even though the competitive  Sp-state of DBS services was known at the time of the enactment of the 1996 Act. pD  yOT- x[#X\  P6G;P#эAs discussed above, however, the rules adopted exempt DBS from the requirement to provide separated  {O-security modules. See Part III (H), supra.   S - 4Opp113.44 Some commenters propose elimination of regulations in any market where an MVPD system  xbecomes subject to "effective competition" using the statutory definition of effective competition for cable  S - x=systems set forth in the 1992 Cable Act.0    yO- x#X\  P6G;P#э47 U.S.C.  543(l)(1); 47 C.F.R.  76.905(b); BSA Comments at 10; ITI Comments at 34; GTE Comments  xat 10; WCA Reply at 7. CEMA believes that once markets are subject to effective competition, detailed rules  xZdesigned to promote commercial availability of CPE can be discontinued, although certain minimal requirements regarding network interconnection and interoperation may continue to be necessary. CEMA Comments at 15.0 Another commenter argues that effective competition exists  xwhere CPE is commercially advertised for sale or lease because CPE sales frequently occur through  S - xelectronic and home improvement magazines.f  yO-#X\  P6G;P#эUS West Comments at 19.f GI suggests that the Commission sunset Section 629 with  xrespect to an individual cable system that becomes subject to effective competition and with respect to all  S0- x\cable systems nationwide if DBS attains a national penetration of 10%.a0  yO-#X\  P6G;P#эGI Comments at 89.a Commenters contend that  xSection 629(e) requires that the market for both MVPDs and converter boxes be fully competitive; the fact  xa single cable system may be subject to effective competition is not sufficient, in itself, to satisfy the first  S- xor the second prongs of the sunset test.t  yO"-#X\  P6G;P#эCERC Reply at 56; ITI Comments at 29.t While each of these commenters' positions encompass elements  xof what Section 629(e) requires, Section 629(e) provides for the sunset of these regulations only when  xthree conditions are met: (1) the multichannel video distribution market is fully competitive; (2) the  xlmarket for navigation devices is fully competitive; and (3) elimination of the regulations promotes"@-6\+"'"'ZZ"  xcompetition and the public interest. Only when all three elements are present can the Commission determine that the regulations should terminate.  S`-p M. Digital Television Compatibility  S- 4Opq114.44 In the context of this and other proceedings, the issue of transmitting digital television signals  xto consumers has been raised. Several parties advocate that the Commission impose obligations on  xzdistributors, manufacturers and others to adhere to specific standards in transmitting digital television  xsignals. For example, ABC expresses concern that settop boxes could cause unnecessary and anti xLcompetitive bottlenecks in the distribution of DTV programming if they act as "gatekeepers," capable of  SH - x[delivering only certain digital protocols.^H  yO -#X\  P6G;P#эABC Reply at 5.^ MSTV and NAB maintain that cable operators should not be  S - xjable to deploy set-top boxes that cannot pass through all DTV signals in an undegraded form. X  {O-#X\  P6G;P#эMSTV and NAB ex parte filing (May 20, 1998). Viacom  xjadvocates that navigation devices which contain DTV converters be open such that all navigation devices  S -are capable of receiving and passing through all programming that is unencrypted.h   yOZ-#X\  P6G;P#эViacom Comments at 23-24.h  S - 4pr115.44 We recognize the importance of this issue and its relevance to a number of Commission  xproceedings. Since the record on this issue in our implementation of section 629 is extremely limited, and  x[the matter may more appropriately be addressed in another proceeding, we will defer consideration here.  xlWe intend to monitor developments with respect to the compatibility of settop boxes and digital televisions.  S-p N. Electronic Program Guides  S@- 4ps116.44 An issue was raised in reply comments in this proceeding,@z  SZ-ԍ#X\  P6G;P#Starsight Reply at 18.#Xj\  P6G;9XP#ь and emphasized in ex parte  xfilings late in the process, regarding whether electronic program guide equipment and guide services are  S- xcovered by the requirements of Section 629.H2  S- xxԍ#X\  P6G;P#E.g., June 3, 1998 ex parte filing on behalf of Gemstar International Group Limited and StarSight Telecast,  {O- xInc.; May 18, 1998 ex parte filing on behalf of StarSight Telecasting, Inc.; See also May 28, 1998 ex parte filing  x-on behalf of Cablevision System Corporation and May 28, 1998 ex parte filing on behalf of the National Cable  yO!-Television Association. #Xj\  P6G;9XP#H Based on the plain language of Section 629, it appears  xjclear that the equipment used to access such electronic program guides is "equipment used by consumers  S- xto access . . . services offered over multichannel video programming systems"e  yOV$-#X\  P6G;P#э47 U.S.C.  549(a).e and hence falls within  x=the requirements of Section 629. While we are committed to encouraging the development of the market  x=for the provision of electronic program guide services as part of our broader goal of promoting consumer"R. \+"'"'ZZ"  S- x=choice, the record in this proceeding is limited on this issue./  Sh- x-ԍ#X\  P6G;P#This is particularly the case as the issue relates to the change over to digital services and digital equipment  yO@-that is taking place across MVPD systems.#Xj\  P6G;9XP#/ Therefore, we cannot adequately address  xat this time the extent of any obligation of multichannel video programming systems to make such  xservices available pursuant to Section 629 or otherwise. We will monitor developments with respect to  S- x-the availability of electronic program guides to determine whether any action is appropriate in the future.0  SX- xԍ#X\  P6G;P#We note that a related issue was previously raised by StarSight in ex parte filings in MM Docket 92259  xiregarding the carriage of program scheduling information in the vertical blanking interval of television broadcast  x\stations and cable carriage under Sections 614 and 615 (broadcast station "mustcarry" provisions) of the  {O - xCommunications Act of 1934, as amended. Memorandum Opinion and Order in Docket 92259, 9 FCC Rcd 6723  yO -at  47, n.145 (1994). #Xj\  P6G;9XP#Ѱ  S8-  S- pO. Additional Action Steps and Regulatory Concerns  S-  S- 4pt117.44 In addition to mandating several significant requirements, we have emphasized our reliance  x\on market forces to bring innovation, choice and better prices to consumers. It is the work of private  xentities and the economic incentives motivating the participants in the OpenCable process that provide the  xmost immediate opportunity for a degree of standardization that will both create scale economies reducing  xthe cost of equipment and developing interfaces allowing the equipment to be readily sold through retail  x[outlets. The considerable degree of overlap between the standards issues that are specific to digital cable  xtelevision set top boxes and those that have to do with "cable ready" television receivers supports this  S -reliance.~   yO:- x#X\  P6G;P#эThe Commission has a separate proceeding in progress in which issues relating to cable ready receivers have  {O- xbeen discussed and in which the possibility of initiating a separate proceeding on these issues was raised.  {O- xImplementation of Section 17 of the Cable Television Consumer and Protection Act of 1992, ET Docket No. 937,  {O- xFirst Report and Order, 9 FCC Rcd 1981 at  136144 (1994). Thus, these issues have not been the focus of this  xnavigation devices proceeding. Important issues relating to the matter are also relevant to the mandatory carriage  xYby cable television systems of the signals of digital television broadcast stations. Fourth Further Notice of Proposed Rule Making in MM Docket No. 87268, 10 FCC Rcd 10504 at  79 (1995).  SX- 4pu118.44 We are realistic, however, in comprehending that the present environment where incumbent  xNcable operators dominate the MVPD market, and where consumers may not have ready access to  xinformation regarding equipment alternatives, may not easily evolve to a competitive market. We think  xit important to convey those circumstances that we believe will indicate where competition is faltering,  xyand cause us to reexamine our decisions. Additionally, we also address our concern that, having refrained  xzfrom promulgating specific technical standards, market driven efforts may not bring tangible choice to consumers, thereby requiring additional need to reexamine the direction we have taken.  S- pv119. Interface Information and Standards Functioning of the Consumer Market. Our decision  xcommits to MVPDs the development of standards necessary for equipment manufacturers to make  xattaching equipment. We require MVPDs to provide technical information concerning the interface"/8\+"'"'ZZ"  S- xparameters of their systems to allow equipment to be developed that can operate with their systems.  {Oh-#X\  P6G;P#эSee discussion at Section IV (D), supra, and  76.1205 at Appendix B.  xA central element of ensuring that consumers have more equipment choices with wider capabilities is that  xinterface information be available in a meaningful way so manufacturers and retailers can provide  x[compatible equipment. The lack of a meaningful information flow will undermine the goal of commercial  xavailability and cause us to consider more particular requirements regarding the availability of interface specifications, including what those specifications should be.  S- }pw120. Even more fundamental than providing information about interface parameters is that  xstandards actually be developed. Without these standards, the commercial availability of equipment is  x=illusory. Such a failure will cause a reexamination of the reliance that market forces are evolving and that restraint in pursuing mandates is appropriate.  S - px121. Our decisions herein, such as relying on the service provider to allow reasonable attachments,  xprotecting the network from harm, relying upon the market to educate consumers as to the availability and  x=utility of equipment that may be purchased, as well as those relating to changes in network facilities and  xjthe consequences of these changes for subscribers and equipment providers, were issues addressed in the  x.parallel telephone equipment attachment area. These concerns are addressed through the Commission's  SX- xyPart 68 rules.wXZ  {OR-#X\  P6G;P#эSee 76 C.F.R.  68.100110.w The issues that led to the adoption of the Part 68 also rules warrant consideration in the context of multichannel video programming services. p " S- "py122. There are many differences between the two situations. Telephone communications perform  x>critical safety and business functions that are different from the functions of video service providers.  xMoreover, the telephone network functions as a national and international system that requires a high  xdegree of stability, coordination, and planning. The architectures of the telephone and cable networks are  xjfundamentally different. Telephone subscribers are typically served by individual copper loops in a star  xarchitecture. The individual copper loops are not shared with other subscribers. In contrast, cable  xzsubscribers are typically served by a coaxial cable network that is arranged in a tree and branch or bus  xzarchitecture. In this arrangement, the subscribers share the capacity of the coaxial cable infrastructure  xLpotentially making it more vulnerable to interference or other forms of degradation caused by the actions of individual subscribers' equipment.  S(- pz123. Evidence from the history of the telephone market illustrates several possible problems with  xan environment where the service provider retains the initial right to determine what attachment may cause  xharm. The service provider may, if it is motivated to do so, adopt a variety of standards or "protective  xcoupler" requirements to protect itself that will make equipment provided by others prohibitively costly,  xdifficult to deploy, or restricted in functionality. It seems entirely possible, however, that manufacturers  xand retailers of equipment may not be motivated to produce and sell equipment that maximizes the  x-functioning of the network itself or to protect that network from harm. This would particularly be the case  x=where the device in question aids the individual purchaser at the expense of other subscribers or users of  xthe network. For example, a "modem" type of device might actually perform better for an individual user  xif it operated at a higher than acceptable power level or bit rate. To the extent the network is a shared"!0\+"'"'ZZF#"  xresource, such a device would be useful for the individual but damaging to the collective and the market  S- xwould not tend toward an optimized solution.  {O@- x#X\  P6G;P#эIn the HushaPhone decisions, the court ruled that subscribers should be able to attach equipment to the  {O - xZnetwork in ways that were privately beneficial but not publicly harmful. HushAPhone Corp. v. U.S., 238 F. 2d  {O- xh266 (D.C. Cir. 1956; see also Public Utility Comm'n of Texas v. FCC, 886 F. 2d 1325 (D.C. Cir. 1989) (noting long  xestablished FCC policy that carriers and noncarriers alike have a federal right to interconnect to the public telephone network in ways that are privately beneficial if they are not publicly detrimental). Problems of another type may result when network  xtechnology is upgraded. In the past, the MVPD, from whom the devices in question were leased, could  x>effectively recall those devices that would not perform, or would not perform well, with the changed  xservice parameters. The devices could be reused elsewhere and new ones provided. The retail purchase model is much different; with a different set of tradeoffs and difficulties involved.  S- !p{124. The record before us provides limited insight into which of the issues addressed by Part 68  xcan or need to be addressed with parallel rules for MVPDs and MVPDs' navigation devices. The rules  x adopted here will work if service providers, equipment manufacturers and retailers strive together to  x.maximize service to consumers and provide consumers with information regarding the functioning of the  x=equipment involved. If this proves not to be the case, it will be necessary to consider additional rules to  xprohibit the marketing of equipment that causes harm, to more specifically and clearly identify devices  xthat can confidently be purchased and attached without dispute, to deal with changes in network facilities  x[or interfaces, and to provide consumers with necessary information as to the functioning and capabilities  xof the equipment involved. Experience should assist in providing a tangible indication as to the need for  xaction in this area. We specifically invite parties with concerns in this area to file petitions for rulemaking suggesting specific rules.  S- 4p|125.44 Reliance on Voluntary Standards Development. We have noted that much of our view that  xNmarket forces are evolving stems from the work of CableLabs and its OpenCable project which is  xunderwritten by several cable operators. We have recognized that not all of the cable industry is  S- xparticipating in this process.wZ~  {O- xK#X\  P6G;P#эSee  13, supra, (discussion of OpenCable project). Member companies of CableLabs represent more than  xx85% of the cable subscribers in the United States, 70% of the subscribers in Canada, and 10% of the subscribers in Mexico. NCTA Comments at 32. w There are also limited, but significant, digital video distribution  xundertakings by entities outside the cable industry that currently are not participating. We are concerned  S@- xthat any process encompassing the goals of section 629, as OpenCable appears to, @  yO- x#X\  P6G;P#эThe goals of the OpenCable project are retail availability of settop boxes, a competitive marketplace, and new  {OH-services. OpenCable ex parte filing (April 16, 1998).  must provide  xZopportunity for a range of interests to participate. To the degree that the process excludes the participation of particular interests, we may be required to reevaluate our reliance on these private processes.  S- 4p}126.44 Movement Towards Standardization Portability and Interoperability. A significant example  x/of our reliance on market forces to establish specific standards is shown in that we have not adopted  x.specific rules to mandate portability or interoperability. The circumstances surrounding portability and  xinteroperability indicate the risk and benefits of not pursuing technical standards. As noted, portability  x refers to being able to move a device from one geographic area to another and have it able to function"1 \+"'"'ZZM"  xwith the same type of service provider, e.g. equipment could be used with different cable operators in  xdifferent parts of the country. Interoperability refers to the ability to operate across different multichannel  xvideo programming services interchangeably, e.g. equipment could be used with both a cable operator and  xa DBS provider. Both portability and interoperability would increase the likelihood of subscribers  xobtaining navigation equipment through purchase and ownership rather than through temporary leasing  xin association with a specific service provider. One reason that most DBS subscribers own their  S- xnavigation and reception equipment is undoubtedly that the equipment is portable.6   yOx- xJ#X\  P6G;P#эOur decisions regarding the separation of the security element from the other functions in the devices are also  {O@-intended to facilitate portability. See discussion supra at Section IV(H).6 In the cable setting,  xsubscriber interest in purchasing rather than leasing a navigation device will clearly be greater if the device  xis portable. As we monitor the development of the market for navigation devices and the related industry  x[standards activities, we shall pay particular attention to the development of interfaces and other features that would promote portability.  S - p~127. There are essentially two means by which portability and interoperability might be  xaccomplished. First, navigation devices could be designed and manufactured with builtin capacities to  x function with a variety of types of different systems with disparate characteristics. Under the rules  xadopted, there are no restrictions on the development of equipment that works with different systems that  xconsumers might choose to purchase. Indeed, service providers may not preclude manufacturers of  xcommercially available navigation devices from including additional features or functions so long as they  xare not designed or intended to defeat conditional access controls. This provision facilitates  xinteroperability and may encourage portability as well. Navigation devices with additional features and  xfunctions would cost more than less complex devices, but individual consumers could choose among  xalternative devices, depending on their willingness to pay and on the degree of portability or interoperability demanded.  S@- p128. The second option would be to standardize the transmission facilities and functions of the  xyservice providers involved. With respect to service provider technology standardization, we noted in the  S- xNPRM that, in contrast to the telephone industry, MVPDs in general have little standardization either  S- xamong different types of MVPDs or among MVPDs using the same distribution technology.n "  {O-#X\  P6G;P#эNPRM, 12 FCC Rcd at 5667.n We noted  xthat this lack of standardization creates a potential obstacle to the ability of manufacturers to produce and  Sz-retailers to sell equipment that can be widely used.X z  {O-#X\  P6G;P#эId.X  S*- lp129. Many parties in this proceeding are concerned that government imposed technical standards  S- xcould have a stifling effect on technological and marketplace developments. F  yO"- xZ#X\  P6G;P#эCHTC Comments at 4; Echelon Comments at 23; ITI Comments at 15; Motorola Comments at 9; NCTA Comments at 38; SA Comments at 21; TW Comments at 37. CHTC believes that  xAmerica's hightechnology industries would be especially hard hit by a mandated technical standard which"2 \+"'"'ZZ="  S- xlimits the industry's choice of technologies.b  yOh-#X\  P6G;P#эCHTC Comments at 8.b NCTA maintains that governmentmandated standards  x/mean a loss of variety and consumer choices as well as technological competition because equipment  S- xmanufacturers will not be able to offer differentiated products using different technologies.cX  yO-#X\  P6G;P#эNCTA Comments at 38.c BSA  xbelieves the market should drive the development of technical standards because governmentimposed  S`- xstandards frequently increase costs to consumers, foreclose innovation, and impede competition.a`  yO-#X\  P6G;P#эBSA Comments at 9.a ITI  x[believes that a government mandated standard is often not the product of the technological and economic  S- xconsiderations that would otherwise drive sound business decisions in a free market.bx  yO( -#X\  P6G;P#эITI Comments at 15.b CHTC and  xEchelon argue that adoption of compulsory government standards is inconsistent with Congress's clear  S- x[intent that the FCC should defer to private standardssetting organizations.{  yOh-#X\  P6G;P#эCHTC Comments at 3; Echelon Comments at 29. { GI argues that the statute  xLdoes not authorize the Commission to involve itself in questions regarding the manufacture of navigation  xdevices, but only seeks to ensure competition in the retail distribution of navigation devices to consumers,  SH - x/so that consumers have an alternative distribution source from which to obtain equipment.7 H   yO- x#X\  P6G;P#эGI Reply at 4; Additionally, Motorola contends that "technological neutrality" by the Commission benefits  xI consumers by promoting competition and retaining the incentive for manufacturers to continue to invest in developing  xKnew products that deliver innovative solutions and features. Motorola Comments at 26; WCA contends that the Commission has fostered technical innovation by refusing to impose technical standards. WCA Reply at 10. 7 Many  xcommenters, agree that instead of the Commission mandating standards, it should encourage the  S -development and adoption of industrywide standards.  yO- x#X\  P6G;P#эAmeritech Comments at 80; CEMA Comments at 9; GTE Reply at 2; ITI Comments at 14; TW Comments at 33; Zenith Comments at 5.  S - p130. There are other commenters who argue that mandated standardization of some aspects of  xnavigation devices is required to ensure national portability. CEMA believes that within a single medium,  xthere is no persuasive reason why a single set of interface standards cannot be agreed upon to promote  S0- x.portability of equipmentb0  yO-#X\  P6G;P#эCEMA Comments at 9.b and contends that portability and interoperability on a national scale require  S- xstandard interfaces between video CPE and the MVP networks to which these devices connect.`h  yO"-#X\  P6G;P#эCEMA Reply at 11.` CE  xadvocates an active Commission role in setting standards, contending that the process involving the  x[decoder interface connector demonstrates the impracticability of leaving the matter of creating a standard  S- xiinterface specification to competing industry elements.`  yO(&-#X\  P6G;P#эCE Comments at 7.` Some commenters prefer privatesector standards"3\+"'"'ZZ"  S- x>setting, but believe the Commission should set standards if the industry cannot reach a consensus.  yOh-#X\  P6G;P#эCERC Reply at 19; Circuit City Reply at 2; Viacom Reply at 11.  xAdditionally, CERC and Viacom contend that the Commission should require implementation and support  S- xof the technical standards by clear dates certain.X  yO-#X\  P6G;P#эCERC Comments at 19; Circuit City Comments at 27. Viacom Reply at 11. Circuit City supports the adoption of fundamental  x[standards developed by the private sector with respect to security and transmission at a level which will  xLsupport compatibility of a CPE across a given system, while leaving specific MVP services and product  S8-functions and features to the marketplace.k8  yO -#X\  P6G;P#эCircuit City Comments at 27.k  S- p131. Commenters proposing mandated standardization vary on which aspects of MVP services  xshould be standardized. CERC argues that navigational devices must have a common transmission  xstandard and suggests that analog transmissions are already NTSC and broadcaster compatible, and the  Sp- xmajority of digital MVPDs are going to implement a transport layer based on MPEG.cpx  yO-#X\  P6G;P#эCERC Comments at 25.c Ameritech  xMproposes a fourpart hierarchy of services based on the standards in the computer industry, with the  xhardware services layer and hardware communications services layer standardized and subject to  xcommercial availability, and the applications services layer and the applications support services layer  S - xwithout specific regulations to allow for innovation and product differentiation.h   yOx-#X\  P6G;P#эAmeritech Comments at 15.h MSTV and NAB argue  S -standardization is necessary to develop cable ready television sets.   {O-#X\  P6G;P#эMSTV and NAB ex parte filing (May 20, 1998). p  SX- p132. Appreciating the tension reflected in the comments and without any current proposal for  xspecific standards before us, we believe the best course of action at this time is to establish general  xparameters and to evaluate how the efforts to comply with these mandates progresses. We have made  xclear that the requirements we do adopt are necessary to commence the evolution to commercial  x[availability of navigation equipment. We are relying on the relevant industries to make progress towards  xkachieving portability and interoperability, and in other areas. If they do not, or if the effort is unduly delayed, it will be necessary for the Commission to consider whether further action is necessary.  S-  S-V. PROCEDURAL MATTERS  S- p133. Effective Date. Upon approval by the Office of Management and Budget ("OMB"), the rules  Sx- xadopted in this Order shall become effective, with the exception of Section 76.1203, Availability of"x4* \+"'"'ZZ"  S- xEquipment Performing Conditional Access or Security Functions.2  yOh- x,#X\  P6G;P#эBecause the rules impose new or modified information collection requirements, they cannot become effective until they are approved by OMB pursuant to the Paperwork Reduction Act of 1995, 5 C.F.R.  1320.118.2 Section 76.1203 shall become effective on July 1, 2000 after approval by OMB.  S- Np134. Paperwork Reduction Act of 1995 Analysis. The requirements adopted in this Rulemaking  xhave been analyzed with respect to the Paperwork Reduction Act of 1995 (the "1995 Act") and found to  x.impose new or modified information collection requirements on the public. The Commission, as part of  xits continuing effort to reduce paperwork burdens, invites the general public to take this opportunity to  xcomment on the information collection requirements contained in this Rulemaking, as required by the 1995  x]Act. Public comments are due 60 days from date of publication of this Rulemaking in the Federal  x[Register. Comments should address: (a) whether the proposed collection of information is necessary for  xthe proper performance of the functions of the Commission, including whether the information shall have  xjpractical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality,  x.utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of  xinformation on the respondents, including the use of automated collection techniques or other forms of information technology.  S - p135. Written comments by the public on the new or modified information collection requirements  SX- xare due 60 days from date of publication of this Rulemaking in the Federal Register. Comments on the  xinformation collections contained herein should be submitted to Judy Boley, Federal Communications  xmCommission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to  x\jboley@fcc.gov. For additional information on the information collection requirements, contact Judy Boley at 2024180214 or via the Internet at the above address.  Sh- 4}p136.44 Final Regulatory Flexibility Analysis. The Final Regulatory Flexibility Analysis, required  xby Section 603 of the Regulatory Flexibility Act, as amended by the Contract with America Advancement Act of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996), is contained in Appendix C.  S- VI.Vp ORDERING CLAUSE  SP- 4p137.44 IT IS ORDERED that, pursuant to authority found in Sections 4(i), 303(r), and 629 of the  x.Communications Act of 1934, as amended, 47 U.S.C.  154(i), 303(r), and 549, the Commission's rules ARE HEREBY AMENDED as set forth in Appendix A.  S- 4p138.44 IT IS FURTHER ORDERED that the rules as amended in Appendix A shall become effective  xupon approval by the Office of Management and Budget, except for 47 C.F.R.  76.1203, which shall become effective on July 1, 2000 after approval by the Office of Management and Budget.  S - 4n p139.44 IT IS FURTHER ORDERED that TeleCommunications, Inc., Time Warner Cable, Jones  xIntercable, U S WEST Media Group, Marcus Cable, Advance/Newhouse Communications, Cox  xyCommunications, and Comcast Corporation SHALL FILE REPORTS on January 7, 1999, July 7, 1999,  xJanuary 7, 2000, and July 7, 2000 detailing the progress of their efforts and the efforts of CableLabs to""5 \+"'"'ZZ$"  xassure the commercial availability, to consumers of equipment used to access multichannel video  xprogramming and other services offered over multichannel video programming systems, from  xmanufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor.  S8- ^p140. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference  S- xOperations Division, shall send a copy of this Report and Order, including the Final Regulatory Flexibility  xAnalysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with  xparagraph 603(a) of the Regulatory Flexibility Act, Pub.L. No. 96354, 94 Stat. 1164, 5 U.S.C. 601  S-et seq. (1981). X4` hp x (#%'0*,.8135@8: \+"'"'ZZ"  S- xcable company" is one serving no more than 400,000 subscribers nationwide. \  yOh- x#X\  P6G;P#э47 C.F.R.  76.901(e). The Commission developed this definition based on its determinations that a small cable  {O0- xJsystem operator is one with annual revenues of $100 million or less. Implementation of Sections of the 1992 Cable  {O-Act: Rate Regulation, Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393 (1995). Based on recent  xinformation, we estimate that there were 1439 cable operators that qualified as small cable companies at  S- xthe end of 1995.   {O<-#X\  P6G;P#эPaul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for Dec. 30, 1995). Since then, some of those companies may have grown to serve over 400,000  xzsubscribers, and others may have been involved in transactions that caused them to be combined with  xother cable operators. Consequently, we estimate that there are fewer than 1439 small entity cable system  xoperators that may be affected by the decisions and rules we are adopting. We conclude that only a small  xpercentage of these entities currently provide qualifying "telecommunications services" as required by the  xCommunications Act and, therefore, estimate that the number of such entities are significantly fewer than noted.  !pThe Communications Act also contains a definition of a small cable system operator, which is "a  xmcable operator that, directly or through an affiliate, serves in the aggregate fewer than 1% of all  xsubscribers in the United States and is not affiliated with any entity or entities whose gross annual  S - x?revenues in the aggregate exceed $250,000,000."h ~  yO-#X\  P6G;P#э47 U.S.C. 543(m)(2).h The Commission has determined that there are  x61,700,000 cable subscribers in the United States. Therefore, we found that an operator serving fewer  xthan 617,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with  S - xthe total annual revenues of all of its affiliates, do not exceed $250 million in the aggregate.t   yO.-#X\  P6G;P#э47 C.F.R.  76.1403(b) (SIC 4833).t Based on  SX- xavailable data, we find that the number of cable operators serving 617,000 subscribers or less totals 1450.X  {O-#X\  P6G;P#эPaul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for Dec. 30, 1995).  xAlthough it seems certain that some of these cable system operators are affiliated with entities whose gross  xannual revenues exceed $250,000,000, we are unable at this time to estimate with greater precision the  x=number of cable system operators that would qualify as small cable operators under the definition in the Communications Act.  Sh- pMultipoint Multichannel Distribution Systems ("MMDS"): The Commission refined its definition of  x"small entity" for the auction of MMDS as an entity that together with its affiliates has average gross  S- xannual revenues that are not more than $40 million for the preceding three calendar years.k0  yO -#X\  P6G;P#э47 C.F.R.  21.961(b)(1).k This  S-definition of a small entity in the context of MMDS auctions has been approved by the SBA.&  {OR#- x#X\  P6G;P#эSee Amendment of Parts 21 and 74 of the Commission's Rules With Regard to Filing Procedures in the  x Multipoint Distribution Service and in the Instructional Television Fixed Service and Implementation of Section 309(j)  {O$- x;of the Communications Act Competitive Bidding, MM Docket No. 9431 and PP Docket No. 93253, Report and  {O%-Order, 10 FCC Rcd 9589 (1995). "?\+"'"'ZZ4"Ԍ ԙpThe Commission completed its MMDS auction in March 1996 for authorizations in 493 basic  xtrading areas ("BTAs"). Of 67 winning bidders, 61 qualified as small entities. Five bidders indicated that  xthey were minorityowned and four winners indicated that they were womenowned businesses. MMDS  xKis an especially competitive service, with approximately 1573 previously authorized and proposed MMDS  x[facilities. Information available to us indicates that no MMDS facility generates revenue in excess of $11  x million annually. We conclude that, for purposes of this FRFA, there are approximately 1634 small MMDS providers as defined by the SBA and the Commission's auction rules.  S- pITFS: There are presently 2032 ITFS licensees. All but 100 of these licenses are held by  S- xeducational institutions. Educational institutions are included in the definition of a small business.~Z  yO - xw#X\  P6G;P#эSBREFA also applies to nonprofit organizations and governmental organizations such as cities, counties, towns, townships, villages, school districts, or special districts, with populations of less than 50,000. 5 U.S.C.  {O -601(5). See Appendix C (D) supra.~  xHowever, we do not collect annual revenue data for ITFS licensees and are not able to ascertain how  xmany of the 100 noneducational licensees would be categorized as small under the SBA definition. No  xlcommenters address these noneducational licensees. Accordingly, we conclude that at least 1932 licensees are small businesses.  S - pDirect Broadcast Satellite ("DBS"): Because DBS provides subscription services, DBS falls within  xthe SBA definition of cable and other pay television services (SIC 4841). As of December 1996, there  x.were eight DBS licensees. However, the Commission does not collect annual revenue data for DBS and,  xltherefore, is unable to ascertain the number of small DBS licensees that could be affected by these  S - xproposed rules. Although DBS service requires a great investment of capital for operation, in the NPRM,  xzwe acknowledged that there are several new entrants in this field that may not yet have generated $11  xmillion in annual receipts, and therefore may be categorized as a small business, if independently owned  S- xand operated. Since the publication of the NPRM, however, more information has become available. In  xlight of the 1997 gross revenue figures for the various DBS operators, we conclude that no DBS operator qualifies as a small entity.  S- pHome Satellite Dish ("HSD"): The market for HSD service is difficult to quantify. Indeed, the  xservice itself bears little resemblance to other MVPDs. HSD owners have access to more than 500  x>channels of programming placed on Cband satellites by programmers for receipt and distribution by  S- xMVPDs, of which 350 channels are scrambled and approximately 150 are unscrambled.@  {O - x,#X\  P6G;P#эAnnual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, CS Docket  {O-No. 97141, Fourth Annual Report ("1997 Report"), 13 FCC Rcd 1034 at  68 (1997).@ HSD owners  xcan watch unscrambled channels without paying a subscription fee. To receive scrambled channels,  xyhowever, an HSD owner must purchase an integrated receiverdecoder from an equipment dealer and pay  xNa subscription fee to an HSD programming packager. Thus, HSD users include: (1) viewers who  xsubscribe to a packaged programming service, which affords them access to most of the same  xprogramming provided to subscribers of other MVPDs; (2) viewers who receive only nonsubscription  S-programming; and (3) viewers who receive satellite programming services illegally without subscribing.dF  {Ox%-#X\  P6G;P#эId. at 69.d "j@\+"'"'ZZ"Ԍ pAccording to the most recently available information, there are approximately 20 to 25 program  S- xjpackagers nationwide offering packages of scrambled programming to retail consumers.d  {O@-#X\  P6G;P#эId. at 68.d These program  S- xpackagers provide subscriptions to approximately 2,184,470 subscribers nationwide.dZ  {O-#X\  P6G;P#эId. at  69.d This is an average  xlof about 77,163 subscribers per program packager. This is substantially smaller than the 400,000 subscribers used in the Commission's definition of a small multiple system operator ("MSO").  S- pSatellite Master Antenna Television ("SMATVs"): Industry sources estimate that approximately 5200  S- xSMATV operators were providing service as of December 1995.E  {Ov - x;#X\  P6G;P#эAnnual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, CS Docket  {O@ -No. 96133, Third Annual Report ("1996 Report"), 12 FCC Rcd 4358 at 81 (1996).E Other estimates indicate that SMATV  S- xoperators serve approximately 1.162 million residential subscribers as of June 30, 1997.~H  {O-#X\  P6G;P#э1997 Report, 13 FCC Rcd at  84.~ The ten largest  S- xSMATV operators together pass 848,450 units.r  {O-#X\  P6G;P#эId. at Appendix D, Table D1.r If we assume that these SMATV operators serve 50%  xof the units passed, the ten largest SMATV operators serve approximately 40% of the total number of  xSMATV subscribers. Because these operators are not rate regulated, they are not required to file financial  xdata with the Commission. Furthermore, we are not aware of any privately published financial  xinformation regarding these operators. Based on the estimated number of operators and the estimated  xnumber of units served by the largest ten SMATVs, we conclude that a substantial number of SMATV operators qualify as small entities.  SZ- pLocal Multipoint Distribution System ("LMDS"): Unlike the above pay television services, LMDS  xytechnology and spectrum allocation will allow licensees to provide wireless telephony, data, and/or video  xservices. A LMDS provider is not limited in the number of potential applications that will be available  xfor this service. Therefore, the definition of a small LMDS entity may be applicable to both cable and  xother pay television (SIC 4841) and/or radiotelephone communications companies (SIC 4812). The SBA  x!approved definition for cable and other pay services that qualify as a small business is defined in  Sl- xyparagraphs 56, supra. A small radiotelephone entity is one with 1500 employees or fewer.fll  yOx-#X\  P6G;P#э13 C.F.R.  121.201.f However,  SF- xfor the purposes of this Report and Order on navigation devices, we include only an estimate of LMDS video service providers.  \pAn auction for licenses to operate LMDS systems was recently completed by the Commission. The  xvast majority of the LMDS license auction winners were small businesses under the SBA's definition of  S- xcable and pay television (SIC 4841).  {O%-#X\  P6G;P#эSee Appendix C (D), supra, for an estimate of the number of entities under SIC 4841. In the Second R&O,N&  {O- xZ#X\  P6G;P#эIn the Matter of Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commission's Rules to Redesignate the  x;27.529.5 GHz Frequency Band, to Reallocate the 29.530.0 GHz Frequency Band, to Establish Rules and Policies  {O"- xfor Local Multipoint Distribution Service, CC Docket No. 92297, Second Report and Order, Order on  {O-Reconsideration, and Fifth Notice of Proposed Rule Making, 62 FR 23148 (1997) ("Second R&O").N we adopted a small business definition for"A\+"'"'ZZ"  xentities bidding for LMDS licenses as an entity that, together with affiliates and controlling principles, has  xaverage gross revenues not exceeding $40 million for each of the three preceding years. We have not yet received approval by the SBA for this definition.  0pThere is only one company, CellularVision, that is currently providing LMDS video services. In  S8- xthe IRFA, we assumed that CellularVision was a small business under both the SBA definition and our  S- xauction rules. No commenters addressed the tentative conclusions we reached in the NPRM. Accordingly,  x[we affirm our tentative conclusion that a majority of the potential LMDS licensees will be small entities, as that term is defined by the SBA.  St- pSmall Manufacturers: The SBA has developed definitions of small entity for manufacturers of  xhousehold audio and video equipment (SIC 3651) and for radio and television broadcasting and  xcommunications equipment (SIC 3663). In each case, the definition includes all such companies  S -employing 750 or fewer employees.  S - p Electronic Equipment Manufacturers: The Commission has not developed a definition of small  xentities applicable to manufacturers of electronic equipment. Therefore, we will use the SBA definition  S`- x=of manufacturers of Radio and Television Broadcasting and Communications Equipment.*`  yO- xi#X\  P6G;P#эThis category excludes establishments primarily engaged in the manufacturing of household audio and visual  {O~-equipment which is categorized as SIC 3651. See infra, for SIC 3651 data.* According to  xthe SBA's regulations, a TV equipment manufacturer must have 750 or fewer employees in order to  S- xkqualify as a small business concern.v  yO-#X\  P6G;P#э13 C.F.R. 121.201, (SIC) Code 3663.v Census Bureau data indicates that there are 858 U.S. firms that  xmanufacture radio and television broadcasting and communications equipment, and that 778 of these firms  S- xLhave fewer than 750 employees and would be classified as small entities.  yO- xJ#X\  P6G;P#эU.S. Dept. of Commerce, 1992 Census of Transportation, Communications and Utilities, Table D, (issued May 1995), SIC category 3663. The Census Bureau category  xis very broad, and specific figures are not available as to how many of these firms are exclusive  xmanufacturers of television equipment or how many are independently owned and operated. We conclude that there are approximately 778 small manufacturers of radio and television equipment.  S- pElectronic Household/Consumer Equipment: The Commission has not developed a definition of  xsmall entities applicable to manufacturers of electronic equipment used by consumers, as compared to  xindustrial use by television licensees and related businesses. Therefore, we will utilize the SBA definition  S- x?applicable to manufacturers of Household Audio and Visual Equipment. According to the SBA's  x.regulations, a household audio and visual equipment manufacturer must have 750 or fewer employees in"ZB \+"'"'ZZ"  S- xyorder to qualify as a small business concern.v  yOh-#X\  P6G;P#э13 C.F.R. 121.201, (SIC) Code 3651.v Census Bureau data indicates that there are 410 U.S. firms  xjthat manufacture radio and television broadcasting and communications equipment, and that 386 of these  S- x.firms have fewer than 500 employees and would be classified as small entities.3 X  yO- x#X\  P6G;P#эU.S. Small Business Administration 1995 Economic Census Industry and Enterprise Report, Table 3, SIC Code 3651, (Bureau of the Census data adapted by the Office of Advocacy of the U.S. Small Business Administration).3 The remaining 24 firms  xhave 500 or more employees; however, we are unable to determine how many of those have fewer than  x750 employees and therefore, also qualify as small entities under the SBA definition. Furthermore, the  xCensus Bureau category is very broad, and specific figures are not available as to how many of these firms  xare exclusive manufacturers of television equipment for consumers or how many are independently owned  xand operated. We conclude that there are approximately 386 small manufacturers of television equipment for consumer/household use.  Sp- pComputer Manufacturers: The Commission has not developed a definition of small entities  xapplicable to computer manufacturers. Therefore, we will use the SBA definition of Electronic  xComputers. According to SBA regulations, a computer manufacturer must have 1,000 or fewer employees  S - xin order to qualify as a small entity.v!   yOJ-#X\  P6G;P#э13 C.F.R. 121.201, (SIC) Code 3571.v Census Bureau data indicates that there are 716 firms that  S - x[manufacture computers and of those, 659 have fewer than 500 employees and qualify as small entities.3" @  yO- x#X\  P6G;P#эU.S. Small Business Administration 1995 Economic Census Industry and Enterprise Report, Table 3, SIC Code 3571, (Bureau of the Census data adapted by the Office of Advocacy of the U.S. Small Business Administration).3  xThe remaining 57 firms have 500 or more employees; however, we are unable to determine how many  x/of those have fewer than 1,000 employees and therefore also qualify as small entities under the SBA definition. We conclude that there are approximately 659 small computer manufacturers.  S - pSmall Retailers: The Commission has not developed a definition of small entities applicable to  x.navigation retail devices. Therefore, we will utilize the SBA definition. The 1992 Bureau of the Census  xdata indicates: there were 9,663 U.S. firms classified as Radio, TV & electronic stores (SIC 5731), and  xthat 9,385 of these firms had $4.999 million or less in annual receipts and 9,473 of these firms had $7.499  Sl- xLmillion or less in annual receipts.&#l  yO- x#X\  P6G;P#эU.S. Small Business Administration 1992 Economic Census Industry and Enterprise Report, Table 2D, SIC  x7812, (Bureau of the Census data adapted by the Office of Advocacy of the U.S. Small Business  xhAdministration)(SBA 1992 Census Report). The Census data does not include a category for $6.5 million therefore,  xwe have reported the closest increment below and above the $6.5 million threshold. There is a difference of 88 firms  xbetween the $4.999 and $7.499 million annual receipt categories. It is possible that these 88 firms could have annual receipts of $6.5 million or less and therefore, would be classified as small businesses.& Consequently, we conclude that there are approximately 9,663 small  xentities that produce and distribute radio, television, and electronic equipment that may be affected by  S-the decisions in the Report and Order. "C#\+"'"'ZZ"Ԍ R- pE.44Description of Reporting, Recordkeeping and Other Compliance Requirements(#4  S-  2pThis analysis examines the costs and administrative burdens associated with our rules and  x=requirements. The rules we adopt require MVPDs to make available upon request technical information  xconcerning interface parameters. The Commission believes, however, that this requirement would not  xnecessitate any additional professional, engineering, or customer service skills beyond those already utilized in the ordinary course of business by MVPDs.  R- 4;  pF.44Steps Taken to Minimize Significant Economic Impact On Small Entities and Significant  R-Alternatives Considered (#4  pWe believe that our rules, implemented to assure commercial availability of navigation devices, will  xhave the positive result of opening up to small retailers the market to sell or lease navigation devices to  xMVPD subscribers. Section 629 includes provisions which may lessen compliance impact on small  S - x!entities affected by the rules adopted in this Report and Order. Section 629(c) specifies that the  xCommission shall waive the regulations developed to implement Section 629 when necessary for an  xMVPD to develop new or improved services offered over its system. Second, Section 629(e) requires the  SZ- xCommission to sunset the rules adopted in the Report and Order once a determination is made that (1)  x|the market for MVPDs is fully competitive; (2) the market for convertor boxes and interactive  xcommunications equipment used in conjunction with that service is fully competitive; and (3) elimination  xLof the regulations would promote competition and the public interest. Our rules also consider situations  x/and offer relief where the commercial availability of navigation devices performing conditional access  xfunctions could adversely impact an MVPD. An MVPD is not subject to the rules requiring the  xcommercial availability of navigation devices if: (1) it is not reasonably feasible to separate conditional  x\access functions from other functions; or (2) it is not reasonably feasible to prevent the unauthorized reception of service by subscribers using navigation devices obtained from other sources.  S- pIn the NPRM, the Commission asked for comment as to other means for achieving a competitive  xmarket for navigation devices. Commenters suggest means which would lead to more governmental  xjinvolvement in the equipment design process and the @C-C-@retail marketplace. For instance, some commenters  xZadvocate that the Commission require MVPDs to license proprietary design specifications to manufacturers  xof navigation devices. The Commission has determined that allowing for technical innovation and flexible  x design standards would be the best means of meeting Section 629's statutory mandate of maximizing  xzconsumer choice in consumer electronics equipment. The Commission noted the ongoing activities of  x=several industry organizations to develop open equipment standards. Accordingly, the Commission has  xyadopted a regulatory regime to implement Section 629's requirements that causes minimum intrusion into the commercial marketplace.  R - pG.44Report to Congress  p  S!- pThe Commission will send a copy of the Report and Order, including this FRFA, in a report to  x]Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.  Sx#- x801(a)(1)(A). A copy of the Report and Order and this FRFA (or a copy thereof) will also be published  SR$- x.in the Federal Register, see 5 U.S.C. 604(b), and will be sent to the Chief Counsel for Advocacy of the Small Business Administration. "&D#\+"'"'ZZ'"Ԍ S-    @C-@  Statement from FCC Chairman William E. Kennard on  S-Q TV Set Top Boxes and Navigation Devices ĐTP  4p44The Commission's action today ensures that consumers will be able to purchase their  xtelevision set top boxes and other equipment from retail stores starting in July 2000. This will create a  xhuge market for the manufacture, distribution and sale of these devices. It will enhance innovation and  xbring consumers better prices. Our decision today is another key part of the larger goal of creating competition across the spectrum of telecommunications services.  4^p44Congress had the foresight to make it the Commission's statutory obligation to ensure that set  xtop boxes and other navigation devices be made commercially available. By requiring that cable operators  xyseparate security functions from nonsecurity functions for cable set top boxes by July 1, 2000, we have ensured that consumers will be able to purchase these cable boxes from their local retailers by that date.  4p44I appreciate the commitment of more than half a dozen of the largest multiple system operators  xand General Instruments and Scientific Atlanta to make security modules available by September 2000.  xAlthough the Commission has pursued a slightly more aggressive deadline, I have every confidence that  xthis deadline will be met. Indeed, our decision today is premised on the commitments that the multiple  xsystem operators and manufacturers have made. While some may argue that the Commission should have  xchosen a more aggressive effective date, I am persuaded that July 2000 is the most feasible and realistic  xtimeframe within which to make our rules effective. We will examine carefully the progress reports to be filed with the Commission every six months to track progress towards the July 1, 2000 deadline.  4p44I support the decision to establish a prohibition on the provision of integrated cable boxes as  xof January 1, 2005. While I appreciate the concerns raised by the cable industry and the manufacturers  xthat such a prohibition is unnecessary, ultimately, I believe that a sunset is appropriate to ensure that the  xLCommission satisfies the statutory mandate that cable boxes be commercially available and I believe that the January 1, 2005 date will provide for a reasonable transition period.  4p44We must recognize that this item is the beginning of a long process. There are many  xkquestions and issues that will arise during the development of new set top boxes and other navigation  xdevices that the Commission may need to address. Many of these issues were raised late in this  xLproceeding and are better addressed with the benefit of a full record, but that fact does not diminish their  ximportance. For example, I am very concerned that a variety of electronic programming guides be made  xavailable to the consumer. While it is at least clear that the equipment used by these electronic  x\programming guides is covered by Section 629, I believe that there may be additional questions under  xSection 629 about the availability of these services to the ultimate consumer. As the transition evolves,  xI will be watching this issue carefully and I invite further discussion on the need for Commission action.  42p44Lastly, another issue that is important to me is that any new navigation devices be able to  x[interact with digital televisions and that these devices not impede the development of digital television in  xany way. The introduction of digital television is one of the most important initiatives for the Commission  x=and I am monitoring the transition closely to ensure that American consumers receive the full benefits of the digital transition." %E#\+''ZZ&"  S-   Separate Statement Lof  S-Commissioner Susan Ness ĐTP  Q8-Re: Commercial Availability of Navigation Devices  x>Today we implement Section 629, one of the most proconsumer, procompetitive provisions of the  x Telecom Act. I believe development of a retail market for the devices covered by the provision may significantly improve the competitiveness and accessibility of broadband networks.  xThe "settop device" that traditionally has consisted of a cable decoder and tuner is rapidly becoming a  xnetwork computer with far greater capability and flexibility. Section 629 is farsighted and requires the  xCommission to ensure that a range of consumer equipment including new types of settop devices  xwill be available in retail stores and through distributors other than program service providers. The  xlegislative history makes clear that the Congress recognized consumer benefits that flowed from  x=deregulation of telephone customer premises equipment (CPE) and enacted this provision to achieve the  xsame ends with devices that connect to cable systems and other multichannel video programming services.  xLI support the item fully. I write separately to underscore some of the practical concerns that may affect  xthe degree to which a robust market for devices covered by the statute will develop, and to caution that  xwe may need to take further action if retail markets do not begin to emerge as envisioned by the statute.  xjNo one disputes that separation of the security element from these devices is the centerpiece of effective  xMimplementation of Section 629. I am sensitive to the need for cable operators and other multichannel  x{video program distributors to ensure that only authorized users have access to their services. The  xcommenters have fully discussed whether security can be maintained if the security element is separate, and we have determined that it can be.  xmThe second issue regarding security is the time frame in which new modular security "Point of  xDeployment" elements ("PODs") will be available. We are requiring cable operators to meet a July 1,  x2000 deadline for POD availability. To some, this date may seem unduly far off, but we believe it is as  xaggressive as we can reasonably make it, bearing in mind that the POD development process is in its very  x[early stages. We have also targeted 2005 to phase out distribution of any device that contains embedded security, while scheduling an assessment of that target when PODs become available.  x.We have, in other contexts, provided a phase out of equipment. For example, in the spectrum refarming  S8- x=decision (Report and Order and Further Notice of Proposed Rulemaking, 10 FCC Rcd 10076 (1995)), in  xkorder to make a more efficient use of the spectrum, we ruled that only equipment operating with new  xspecifications would be permitted after a transition period. And again, when the Part 15 regulations were  S!- x/changed in 1989 ( First Report and Order, 4 FCC Rcd 3493, corrected, 4 FCC Rcd 5404 (1989)), we  xOadopted several transitional rules for various types of equipment, to provide clear guidance to  xymanufacturers and users of the eventual changeover to new equipment. This is also the standard practice in Part 68 rule changes. " %F#\+''ZZ&"Ԍ S- xLet me be clear. The phaseout of integrated devices does not mean that cable operators will be unable  xto lease or sell devices to their subscribers. As the statute provides, they may continue to make available  xsuch devices but those devices simply will have PODs in lieu of integrated security. Cable operators will be full and fair competitors in the new marketplace for settop devices.  x>I believe we should also consider whether and to what extent these devices will work with new DTV  xreceivers. I have been closely following the announcements by certain cable operators that they had  xyplaced orders for devices that would pass through only certain of the ATSC formats. I have also become  xconcerned about the delay in the adoption of an industrygenerated standard for the IEEE 1394 "firewire"  xkwhich will connect DTV receivers to an array of digital peripheral devices. Development of the retail  xmarket for settop devices would be bolstered by consumer confidence that there are available a variety  SH - xof devices capable of decoding the ATSC formats compatible with their TVs and more fundamentally,  xthat consumers are confident that the digital devices they buy will connect and distribute digital  x=information between them. The record on this issue, however, is not fully developed in this proceeding, so we have stopped short of requiring compatibility.  xIt may not be sufficient to rely on the openended time frame for adoption of the 1394 "firewire" standard  xMand it may not be sufficient to hope that the devices will work with all ATSC formats. If it becomes  xapparent that the goals of Section 629 are not being fulfilled because of consumer confusion over DTV compatibility, I would hope and expect the Commission would revisit the matter.  x[Achieving the goals of Section 629 will mean that consumers will have more choices and more reasonable  x-prices. Unbundling of our telephone networks has reaped benefits for consumers. Entrepreneurs with new ideas and new products have found a way to enter and bring these products to market.  xkStandards for navigation devices have been developed or are being developed in the marketplace. The  xkindustries involved have assured us they are committed to making sure that navigation devices will be  xavailable for consumers at retail from unaffiliated manufacturers, retailers and other vendors. We have  xdecided to fashion our rules so as to allow the industries to continue their work. We are giving the market the opportunity to fulfill the goals of Section 629 with minimal government regulation.  xyHowever, we fully intend to monitor the market. We fully intend to monitor the status reports provided  xby the industries. If the goals of the statute are not being realized if navigation devices are not commercially available I expect the Commission to revisit our rules and make the appropriate changes.  xThis item is based on trust. We are trusting the cable industry to move ahead on POD availability  xaccording to the schedule they have provided. We are trusting that retailers will provide sufficient  xinformation to consumers about new choices as they become available and that consumers will not face  x>obstacles in the process of selecting new devices to work with their multichannel video programming  x\services. We are trusting that open cable standards will be suitable or adaptable to the needs of other  xdigital service providers outside of the cable arena. Most of all, we are trusting that the industries will  xall continue to work expeditiously and effectively to adopt voluntary standards to ensure that all of the  xdevices contemplated by the statute will work together. Given the steps we have taken today, I am  xconfident that our trust is well placed and I look forward to the opening of new markets and the introduction of new products and services, for the benefit of consumers. "%G#\+''ZZ'"  S-   #&a\  P6G;&P#STATEMENT OF  COMMISSIONER MICHAEL K. POWELL  S- DISSENTING IN PART ĐTP   S8-Re:pCommercial Availability of Navigation Devices, CS Docket No. 9780 #&a\  P6G;&P#  S- pIn this Report and Order, the Commission adopts rules to implement section 629 of the  xyCommunications Act. By and large, these rules are directly on target with the purpose of section 629, to  xL assure the commercial availability of converter boxes and other equipment used to obtain multichannel  xvideo services from providers other than the programming distributor. For this reason, I support those  xportions of the decision that require operators to make technical interface information available and to  S" - xmake available a separated security device that will allow consumers to use commercially available equipment while still allowing the operator to protect itself against the theft of its services.  ]pI respectfully dissent, however, from the portion of the Commissions decision that, to my mind,  xveers off target. Specifically, I disagree with my colleagues decision to prevent multichannel video  xproviders from offering settop boxes that integrate security within the box (as opposed to a separable  xL point of deployment or POD element) after the year 2005. I see nothing in the statute that requires this result and no persuasive policy reason to interfere with the market in this way. p  NpFirst, let me address the statutory point. Section 629 clearly requires the Commission to assure  S< xjthe commercial availability of settop boxes.#footnote reference##Xv6X@C hX@##X01Í ÍX01ÍÍ Xm yO- x# C\  P6QP#э 47 U.S.C.  549(a). Section 629 was adopted as part of the Telecommunications Act of 1996. Pub. L. No. 104104, 110 Stat. 56 (1996).  # &a\  P6G;&P#It does not mandate in any way, shape or form that we  x[guarantee that retail distribution win out over operator supplied alternatives or that we tip the balance in  x{their favor. Indeed, the statute squarely commands that [s]uch regulations shall not prohibit any  S-multichannel video programming distributor from also offering converter boxes.)footnote reference)#footnote reference##Xv6X@C hX@#m yOz-# X\  P6G;P#Í #X\  P6G;P#47 U.S.C.  549(a).   S-# &a\  P6G;&P#  pThe real purpose of section 629 was to ensure that consumers are not hostages to their cable  xoperators and can go elsewhere, if they choose, to obtain settop equipment. As set forth in the  xconference report, [o]ne purpose of this section is to help ensure that consumers are not forced to  ST< xpurchase or lease a specific, proprietary converter box8from the cable system or network operator.)footnote reference)#footnote reference##Xv6X@C hX@#fTxm OB< x,ԍ # X\  P6G;P#Joint Explanatory Statement of the Committee of Conference, S. Conf. Rep. 104230, 104th Cong., 2d Sess. at 181 (1996) (Conference Report).   S.- x{# &a\  P6G;&P#We accomplish that objective by mandating that separate security pods are available. This allows  xcommercial manufacturers to produce boxes without being inhibited by security specifications. And, it  xdoes so in a way that comports with the other provision of section 629 requiring the Commission to design  x=rules that do not jeopardize the security of the multichannel system. It gives the operator control of the"H\+''ZZ"  S< xvital security component that they must have and that the statute mandates.)footnote reference)#footnote reference##Xv6X@C hX@#.m O< xzԍ # X\  P6G;P#47 U.S.C.  549(b) ( The Commission shall not prescribe regulations8which would jeopardize security  x;of8services offered over multichannel video programming systems, or impede the legal rights of a provider of such services to prevent theft of service.).  # &a\  P6G;&P# Both retailers and cable  S-companies agreed on this reasonable compromise.#v6X@`7 hN@# p  Sw- p# &a\  P6G;&P#The Commission, however, has not stopped there. It has gone beyond the target established in the  xystatute and adopted a regulation that interferes with market choices for equipment design. I fear that this  xzdecision may in fact contradict another goal of section 629, to spur innovation and competition. The  xlegislative history of section 629 specifically states that [t]he conferees intend that the Commission avoid  xactions which could have the effect of freezing or chilling the development of new technologies and  S< xyservices.)Ufootnote reference)#footnote reference##Xv6X@C hX@#|m O <ԍ # X\  P6G;P#Conference Report, supra note 3, at 181. | # &a\  P6G;&P# The record developed in this case includes evidence that potential competitors to incumbent  xcable providers are developing integrated settop boxes with unique functionalities as a way to enter the  Sa<market.)footnote reference)#footnote reference##Xv6X@C hX@#a\m O3<ԍ # X\  P6G;P#See Ameritech ex parte statement (June 4, 1998).  # v6X@`7 hN@# # &a\  P6G;&P#The decision of the majority today may well inhibit that development. p  pThe question we must ask is why? The decision to ban eventually the availability of integrated  xboxes rests on the very speculative conclusion that integrated boxes are an "obstacle to the functioning  xof a fully competitive market for navigation devices by impeding consumers from switching to devices  S < xjthat become available through retail outlets.")Afootnote reference)#footnote reference##Xv6X@C hX@#[ m O <ԍ # X\  P6G;P# 69 [ # &a\  P6G;&P# We have not been asked to ensure that consumers switch  Su -to devices that become available through retail, only that they have that choice. #v6X@`7 hN@#  yOM-CfooterX4` hp x (#%'0*,.8135@8:glowingly about letting consumers make choices in free markets, but, time and again, we cannot quite  xbring ourselves to trust either those consumers or the market. Because I am willing to trust the  S<marketplace, I must respectfully dissent#v6X@`7 hN@#.  ><# v6X@`7 hN@#