FCC to Vote on Plan Requiring Cable Boxes to Be Sold in Stores
Washington, June 10 (Bloomberg) -- Cable TV customers would
be able to buy cable set-top boxes directly from retail outlets
like Circuit City Stores and Best Buy Co., Inc., under U.S.
Federal Communications Commission rules scheduled to be voted on
tomorrow.
Set top box manufacturers, like General Instrument and
Scientific Atlanta, are anxious for the retail roll-out because
it'll give them more flexibility to try out different features
and functions in the boxes that might not work on a mass scale.
Cable companies, like Time Warner Inc. and Tele-
Communications Inc., would also benefit from customers being able
to buy the boxes. ''It should only benefit the cable operators
because they won't have to fund the purchases of the boxes
anymore,'' said Douglas Shapiro, a media analyst with Deutsche
Morgan Grenfell.
Cable customers who want to order pay-per-view movies or get
premium movie channels like HBO and Cinemax must now rent a set-
top box directly from the cable company at an average monthly
cost of $2.53. Under the FCC's plan, those same boxes would have
to be sold in stores directly to cable customers beginning in
2000, much the same way satellite TV dishes are sold today. The
boxes will likely sell for about $300-$400.
Increasingly Important Role
Set top boxes could play an increasingly important role for
cable companies as new digital boxes open up new sales
opportunities. The analog boxes that about half to two-thirds of
the 67 million cable customers have now allow them to order pay-
per-view movies and get premium movie channels. The new digital
boxes allow cable systems to boost their channel capacity and
receive better quality pictures and sound. More advanced digital
boxes that'll be rolled out beginning next summer are intended to
allow customers to surf the Internet, send e-mail, and shop from
home.
''Retail availability of set tops helps the industry as a
whole to promote digital cable,'' said David Fritch, senior
manager of marketing and strategy for General Instrument's
digital network systems.
TCI, the second largest U.S. cable company, now offers some
subscribers a limited digital package with 36 video and 10 music
channels at a cost of $10 a month. Because most customers also
use their boxes to order pay-per-view movies and additional movie
channels, each box brings in an average total of $12-$13 per
month, said Shapiro.
About 1.9 million households will have the digital boxes by
year's end, growing to 5.5 million in 1999 and to about 10
million by 2000, Shapiro estimated.
General Instrument said the company has digital set-top box
contracts worth $4.5 billion with 12 major cable operators,
including TCI, Time Warner, and Comcast Corp. Scientific Atlanta
has digital set-top contracts with nine cable operators,
including Time Warner, Cox Communications, and Comcast.
Smart Cards
One key feature of the FCC's proposed new rules is that the
cable boxes sold in stores won't include built-in security
devices used to unscramble local cable company signals. Instead,
customers will have to get a so-called smart-card security device
from the cable company that'll plug into the set-top box. The
rules will apply to both analog and digital cable boxes.
The FCC's rules to be voted on Thursday would let cable
companies continue leasing customers set-top boxes that have the
security functions built in, as the cable industry requested. Set
top boxes that decode direct satellite broadcast signals would
also be unaffected.
The FCC plans to leave it to the manufacturers and cable
industry to come up with the technical specifications for the set
tops so they will work with a cable company's smart card.
One of the most difficult technical issues still to be
resolved is how to manufacture cable boxes in such a way that
they'll work anywhere in the country, on any cable system. Cable
operators have different transmission systems, security
technologies and other characteristics.
Cable operators say the law doesn't require portability. The
equipment manufacturers say a standard product that can be used
anywhere is critical to retail sales.
''Without that kind of portability, you don't have a
national market, and without a national market, it's very
difficult to manufacture'' the set-top devices, said Cynthia
Upson, vice president of strategic communications for the
Consumer Electronics Manufacturers Association.
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