June 11, 1998

Re: Commercial Availability of Navigation Devices

Today we implement Section 629, one of the most pro-consumer, pro-competitive provisions of the 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.

The "set-top device" that traditionally has consisted of a cable decoder and tuner is rapidly becoming a network computer with far greater capability and flexibility. Section 629 is far- sighted and requires the Commission to ensure that a range of consumer equipment -- including new types of set-top devices -- will be available in retail stores and through distributors other than program service providers. The legislative history makes clear that the Congress recognized consumer benefits that flowed from deregulation of telephone customer premises equipment (CPE) and enacted this provision to achieve the same ends with devices that connect to cable systems and other multichannel video programming services.

I support the item fully. I write separately to underscore some of the practical concerns that may affect the degree to which a robust market for devices covered by the statute will develop, and to caution that we may need to take further action if retail markets do not begin to emerge as envisioned by the statute.

No one disputes that separation of the security element from these devices is the centerpiece of effective implementation of Section 629. I am sensitive to the need for cable operators and other multichannel video program distributors to ensure that only authorized users have access to their services. The commenters have fully discussed whether security can be maintained if the security element is separate, and we have determined that it can be.

The second issue regarding security is the time frame in which new modular security "Point of Deployment" elements ("PODs") will be available. We are requiring cable operators to meet a July 1, 2000 deadline for POD availability. To some, this date may seem unduly far off, but we believe it is as aggressive as we can reasonably make it, bearing in mind that the POD development process is in its very 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.

We have, in other contexts, provided a phase out of equipment. For example, in the spectrum refarming decision (Report and Order and Further Notice of Proposed Rulemaking, 10 FCC Rcd 10076 (1995)), in order to make a more efficient use of the spectrum, we ruled that only equipment operating with new specifications would be permitted after a transition period. And again, when the Part 15 regulations were changed in 1989 ( First Report and Order, 4 FCC Rcd 3493, corrected, 4 FCC Rcd 5404 (1989)), we adopted several transitional rules for various types of equipment, to provide clear guidance to manufacturers and users of the eventual changeover to new equipment. This is also the standard practice in Part 68 rule changes.

Let me be clear. The phase-out of integrated devices does not mean that cable operators will be unable to lease or sell devices to their subscribers. As the statute provides, they may continue to make available such 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 set-top devices.

I believe we should also consider whether and to what extent these devices will work with new DTV receivers. I have been closely following the announcements by certain cable operators that they had placed orders for devices that would pass through only certain of the ATSC formats. I have also become concerned about the delay in the adoption of an industry-generated standard for the IEEE 1394 "firewire" which will connect DTV receivers to an array of digital peripheral devices. Development of the retail market for set-top devices would be bolstered by consumer confidence that there are available a variety of devices capable of decoding the ATSC formats compatible with their TVs and more fundamentally, that consumers are confident that the digital devices they buy will connect and distribute digital information between them. The record on this issue, however, is not fully developed in this proceeding, so we have stopped short of requiring compatibility.

It may not be sufficient to rely on the open-ended time frame for adoption of the 1394 "firewire" standard and it may not be sufficient to hope that the devices will work with all ATSC formats. If it becomes apparent 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.

Achieving the goals of Section 629 will mean that consumers will have more choices and more reasonable 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.

Standards for navigation devices have been developed or are being developed in the marketplace. The industries involved have assured us they are committed to making sure that navigation devices will be available for consumers at retail from unaffiliated manufacturers, retailers and other vendors. We have decided 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.

However, we fully intend to monitor the market. We fully intend to monitor the status reports provided by 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.

This item is based on trust. We are trusting the cable industry to move ahead on POD availability according to the schedule they have provided. We are trusting that retailers will provide sufficient information to consumers about new choices as they become available and that consumers will not face obstacles in the process of selecting new devices to work with their multichannel video programming services. We are trusting that open cable standards will be suitable or adaptable to the needs of other digital service providers outside of the cable arena. Most of all, we are trusting that the industries will all continue to work expeditiously and effectively to adopt voluntary standards to ensure that all of the devices contemplated by the statute will work together. Given the steps we have taken today, I am confident 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.