Cable Cleared to Encrypt Basic TV Tiers

2012-10-16 16:40:55

The Federal Communications Commission (FCC) voted unanimously on Friday in favor of lifting a ban that prevented cable operators from encrypting their basic service tiers in all-digital systems.

Many major U.S. cable operators want to encrypt the basic tier because it will help them cut down on service theft, and because it will enable them to more easily activate and deactivate customers remotely and reduce truck rolls. Comcast Corp. (Nasdaq: CMCSA, CMCSK), for example, predicts that encrypting the basic service tier will let it perform nearly half of its activations and 90 percent of its deactivations remotely.

The order comes with several conditions that the cable industry proposed during the vetting period. Among them, it requires cable operators that choose to encrypt the basic tier to provide affected customers with a set-top box or a CableCARD (for TVs that have slots for the security modules) for free for a specific time frame:

Existing customers who take only the basic tier are to receive a set-top or CableCARD for free for two years after encryption begins.

Customers who take a tier above basic but use a secondary TV to receive only the basic tier can get that equipment for free for one year.
Subs who receive Medicaid and only take the basic tier can get that equipment for up to two TVs without charge for five years.

Additionally, the nation's six largest incumbent cable operators must provide the technology necessary to let IP-based retail devices, such as the Boxee box, support basic TV tiers. That class of device has historically obtained those signals in unencrypted form -- something called "clear QAM."

It is expected that most of those operators will support that condition by supplying free Digital Terminal Adapter (DTA) devices with home-networking capability that can decrypt basic TV signals and pass them along to the third-party retail device. Retail device makers will have an option to license the operator's security technology, an alternative that would seem to cover a software-based security system used by Cablevision Systems Corp. (NYSE: CVC).

The operators affected by that condition (Comcast, Time Warner Cable Inc. (NYSE: TWC), Cox Communications Inc. , Charter Communications Inc. , Cablevision, Bright House Networks ) serve about 86 percent of all U.S. cable subs. The retail condition is set to automatically sunset in three years, but the order gives the FCC Media Bureau the power to initiate a review in two years.

Extra retail rule pleases BoxeeBoxee sought such a concession because encrypting basic channels would require its users to pay extra for separate set-top boxes. Boxee has refused to develop a device with a CableCARD slot because it is expensive and because installing a CableCARD in retail devices has historically been a frustrating experience for consumers. To help remedy this, Boxee and Comcast have also completed a separate agreement that involves the use of DTA devices with Ethernet connectors and a licensable approach should Boxee desire to integrate that capability.

Boxee CEO Avner Ronen cheered the ruling on the company blog, noting that the FCC's final order included the recommendations it made jointly with Comcast. "Our main goal was to find a solution that would allow cable companies to move forward with encryption while enabling devices like Boxee to access basic cable channels without requiring users to buy additional hardware of pay additional monthly fees," Ronen wrote.
More detail about the order can be found here.

Why this mattersThe order and its concessions let cable operators encrypt their basic tier without having to offer a special justification for it and go through the trouble of obtaining the waiver. In addition to offering cable operators some operational relief, they can now polish off all-digital conversions and reclaim analog spectrum that can be used for other services.

However, a provision in the order puts it under possible threat, because the entire thing could be wiped away if any portion of it is somehow invalidated or overturned by a court -- a concern expressed in comments from FCC Commissioners Robert McDowell and Ajit Pai, but not one serious enough to prevent them from voting in favor of lifting the ban.
The above information is edited by 10GTEK.
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