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FCC Acts on Set-top Box Waivers and Offers Guidance on Compliance With July 2007 Integration Ban Deadline

January 11, 2007

The FCC, through its Media Bureau, has taken a series of actions addressing certain pending petitions seeking waivers of the ban on the continued deployment of integrated set top boxes scheduled to take effect July 1, 2007. As discussed below, the Media Bureau generally rejected requests for blanket waivers that would have given cable operators permission to continue to deploy certain integrated boxes for the indefinite future. However, the Bureau also described the circumstances under which operators (particularly small operators) might be able to obtain more limited waivers. In addition, the Bureau issued a Public Notice clarifying that downloadable conditional access security solutions providing for “common reliance” comply with the ban on integrated set top boxes and stating that Beyond Broadband Technology LLC (“BBT”) has developed such a downloadable security solution.

Background. Section 629(a) of the Communications Act (enacted in 1996) directed the FCC to adopt regulations to assure the commercial availability of converter boxes and other equipment used by consumers to access programming and other services provided by cable operators and other multichannel video programming distributors (“MVPDs”). In order to carry out this mandate, while still protecting signal security, the FCC in 1998 adopted rules requiring MVPDs to make available a security element (the “CableCARD”) that is physically separate from the basic navigation device. While operators were required to support CableCARD enabled devices beginning in July 2000, the FCC initially allowed operators to continue to provide subscribers with “integrated” set tops until 2005. The deadline for operators to stop deploying integrated boxes was extended twice, first until July 1, 2006 and then until July 1, 2007. However, the statutory provision as well as the Commission’s rules and decisions indicated that waivers of the integrated set-top ban might be granted under certain circumstances.

Starting in mid-2006, the FCC received several waiver requests relating to the integrated set top box ban. These included waiver requests from Comcast, BendBroadband, Cablevision, NCTA, Verizon, and a number of small operators. Most of these requests sought waivers for specific “low cost” integrated set top boxes, such as the Motorola DCT 700, the Pace Chicago boxes, or the Scientific Atlanta Explorer 940. Other requests, such as that filed by NCTA, more broadly sought a delay in the July 1, 2007 deadline in order to allow time for an open downloadable conditional access security solution to be developed and deployed.

Bureau Actions. The actions announced by the Media Bureau were directed towards the waiver requests filed by Comcast, BendBroadband and Cablevision. The Bureau did not take action with respect to the other pending waiver requests, although (as discussed below) the decisions that it released give a pretty strong indication as to how the pending cases will be decided as well. Each of the three waiver decisions is discussed below.

Comcast Waiver Request. Comcast sought waivers to allow it to continue to deploy several current models of integrated, two-way digital converters from Motorola, SA, and Pace. The Bureau analyzed Comcast’s waiver request under three separate standards. First, the Bureau considered whether a waiver was appropriate under section 629(c) of the Communications Act, which provides for “limited time” waivers upon a showing that relief is “necessary to assist in the development or introduction of a new or improved” programming or other service by an MVPD. After describing this provision as applicable, for example, to a “nascent MVPD offering from a new competitor,”the Bureau concluded that Comcast did not qualify for a waiver because its request was not limited in time and, based on Comcast’s own statements regarding its success in deploying advanced digital technology, was not necessary for the introduction or development of new services. Second, the Bureau considered the waiver under the agency’s “2005 Deferral Order,” which indicated that waivers would be available for the continued deployment of “low-cost, limited-capability set-top boxes.” The Bureau found that this standard did not apply to Comcast’s request because the boxes for which it was seeking a waiver were not “limited-capability” boxes since they offered two-way functionality, including EPG and VOD. The Bureau clarified that only simple, one-way “digital to analog” converters would qualify for a waiver under the 2005 Deferral Order. Finally, the Bureau considered Comcast’s request under its general “public interest” waiver standard. The Bureau concluded that allowing Comcast to continue to deploy integrated set-top boxes would not serve the public interest because it would delay the development of a commercially-viable retail set-top box market.

While the Bureau thus rejected Comcast’s waiver petition under all three standards considered, it did identify certain circumstances under which Comcast might qualify for a waiver or not even need a waiver. In particular, the Bureau indicated that Comcast could qualify for a waiver (1) for a “truly” low-cost, limited capability digital to analog converter; (2) for converters needed to provide subscribers with specialty tiers, such as a family or ethnic tier, provided that there is no requirement for subscribers to “buy-through” any tier other than the basic tier; (3) otherwise non-compliant converters if Comcast “commits to go all-digital by a date-certain such as February 2009 or sooner, when broadcasters will cease their analog operations.” The agency also noted that Comcast would not need a waiver if it deployed a downloadable conditional access security solution that is available today, citing the BBT downloadable security solution as an example.

BendBroadband Waiver Request. BendBroadband’s waiver request, which was limited to the Motorola DCT-700, echoed many of the arguments made by Comcast, albeit with a focus on the particular hardships that complying with the July 2007 deadline would create for a smaller cable operator. The Bureau’s decision identified many of the same defects in the BendBroadband petition as had been identified in the Comcast petition: the fact that the BendBroadband had successfully deployed digital services without a waiver, the fact that the request was not limited in time and the fact that the DCT-740 was not a simple “digital to Memorandum to Clients January 11, 2007 Page 3

analog” converter. However, the Bureau noted BendBroadband’s stated intent to migrate its system to an all-digital platform by 2008 and found that granting the requested waiver would serve the public interest by allowing the system to reclaim a considerable amount of spectrum within a clearly defined timeframe. The Bureau stated that it would thus grant the requested waiver if BendBroadband (1) notifies all of its analog customers of its plans to go all digital at least six months in advance of the changeover and submits a sworn statement to the FCC confirming such notice; (2) ensures that it has in inventory, or on order, sufficient set-top boxes to provide each of its customers with continued access to programming after the changeover to all digital and submits a sworn statement to the FCC confirming that this is the case; and (3) publicly commits to make the changeover to all digital by 2008 in a sworn declaration to the FCC. In addition, the Bureau, taking note of the difficulties faced by smaller operators in complying with the July 1, 2007 deadline, stated that it would defer enforcement of the deadline so long as BendBroadband “can demonstrate that it has placed orders for set-top boxes that comply with the integration ban but that its orders will not be fulfilled in time for it to comply with the deadline.”

Cablevision Waiver Request. Cablevision’s waiver request differed from those filed by Comcast and BendBroadband because it focused on Cablevision’s unique “Smart Card” technology, which is not used by any other cable operator (although it is used by DirecTV). Although the Bureau found that the SmartCard technology did not comply with the integration ban, it nonetheless gave Cablevision a waiver to continue to deploy this technology until July 1, 2009 based on the fact that Cablevision had been deploying physically separate technology in 2001 (while other operators had made no effort to do so until recently) and that its SmartCard technology was compatible with CableCard-capable devices.

Implications for Other Cable Operators. Although the Bureau has not yet issued decisions with respect to the other pending waiver requests, the orders that it has released offer some indication of the probable outcome of those petitions. In particular, it appears likely that NCTA’s general waiver petition will be denied as will petitions filed by Charter and other operators that are not limited in time or based on a date-certain changeover to all digital service. The outcome of the Verizon petition is a bit less certain, since arguably Verizon’s service is going to be all digital and thus might qualify for a waiver on those grounds or, possibly, on the grounds that granting Verizon a waiver is necessary to assist in the introduction of a “nascent MVPD offering from a new competitor.”

As for other operators, the Bureau’s orders seem to offer the following possibilities for dealing with the July 1, 2007 integration deadline, as follows:

Compliance options:

• Deploy CableCard-capable boxes beginning July 1, 2007.

• Deploy downloadable security, such as that developed by BBT, beginning July 1, 2007.

Waiver options (will require a new filing with the FCC):

• Waiver for simple digital-to-analog converters.

• Waiver for converters provided to enable subscribers to receive specialty (e.g., family or ethnic) tiers.

• Waiver for deployment of integrated set-top boxes that are in inventory or on order as part of conversion of system to all-digital by date certain prior to February 2009.

• Request for deferral of enforcement of integration ban by smaller operators who have ordered compliant devices (e.g., CableCARD or BBT enabled) but who will not receive them in sufficient supply by the July 1, 2007 deadline. [NOTE: While the FCC has indicated that this enforcement deferral option is available to “smaller” cable operators, it has not defined what constitutes a smaller operator or clearly ruled on the issue of whether a larger operator might also qualify for an enforcement deferral if it cannot obtain compliant equipment in sufficient quantity by the deadline.]

Comcast has indicated that it may seek full Commission review of the Bureau decision denying its waiver request. In the meantime, however, we would be happy to answer any questions you may have regarding the foregoing or to otherwise assist you in assessing your options in complying with the July 1, 2007 deadline.

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