Analyst: FCC 'bound and determined' for STB ban

The Federal Communications Commission last week issued a notice of inquiry and notice of proposed rulemaking on the so-called “AllVid Concept,” which would essentially open up the traditionally proprietary TV set-top box and potentially shake up the market for future residential video navigation devices.

Though this isn’t the first time the FCC has attempted to force greater competition in the sector, and previous attempts have dragged with little compliance by the pay TV industry, Stephen Froehlich, a senior analyst with IMS Research’s Consumer Electronics group, said the FCC could move swiftly and decisively this time to ban STBs in their current form.

“The FCC is absolutely bound and determined to make this happen,” Froehlich told Connected Planet Thursday. “Some commissioners are just livid that CableCARD blew up in their faces and added cost to the cable industry.”

In its notice of proposed rulemaking, the FCC itself admitted as much: “Unfortunately, the Commission’s efforts to date have not led to a robustly competitive retail market for navigation devices that connect to subscription video services. Most cable subscribers continue to use the traditional set-top boxes leased from their cable operator. Although following adoption of the CableCARD rules some television manufacturers sold unidirectional digital cable-ready products, most manufacturers have abandoned the technology.”

Another embedded technology option, Tru2way, also hasn’t coalesced, despite a joint understanding among top cable TV operators that they would deploy the technology. Both the CableCARD and Tru2way developments, and new innovations in residential gateways and other technology, have led to dire predictions in recent years for the STB market.

There were strong indications in the National Broadband Plan that the FCC was ready to act again, and Froehlich said the FCC has advanced its position by latching onto the idea that STBs could be replaced by pay TV gateways and digital media adapter clients, using Digital Transmission Copy Protection over IP (DTCP-IP) authentication technology in combination with the Digital Living Network Alliance standard and new home networking technologies such as Wi-Fi, HomePNA and MoCA.

Any FCC ban would apply only to new navigation devices, Froehlich said, meaning pay TV operators would not have to make expensive change-outs in their installed base of STBs. Nevertheless, he said the future effect of the ban would be “massive,” considering 40 million STBs are shipped annually and account for $4.7 billion in sales.

Still, the major players in the STB market — Cisco Systems, Motorola, Thomson, Pace -- appear more than ready for the change, having already placed their bets on the eventual evolution from STBs to residential gateways (Formal comments posted on IMS Research’s Web site further indicate such readiness). “This evolution would have happened eventually on its own, based on its merits for operators and consumers, but it would have happened substantially more slowly than the FCC can make it happen,” Froehlich said.

Those merits chiefly include lower costs associated with gear deployed in pay TV households, though Froehlich said the FCC could still botch its latest attempt to open up the STB market if it decides to require a specific user interface, rather than allowing content providers to naturally provide their own user interface over an open-standard remote user interface protocol. “God is in the details, and if the FCC writes the rules the wrong way, it could add costs” where regulators are trying to remove costs, he said, adding, “The client device should become commoditized, and the point of added value moved into the gateway or into the cloud.”

The shake-up could mean greater competition among major vendors, as well as developers of STB components like MPEG decoders, while home network technology firms get a boost. Though pay TV operators have leased STBs to their customers for years at a price of a few dollars per month per device, Froehlich said changes to the STB economic model would not severely impact them. “Most set-top boxes have a life of five years in the home,” he said. “If you have a $150 set-top box leased at $3 a pop for five years, that is not a profit center for operators.”