Cable Industry in Full-Court Press Against Set-top Box NPRM

The cable industry is leveling both barrels at FCC-proposed set-top box rules. The American Cable Association and NCTA said they likely would pursue legal redress in response to agency implementation. "I've seen very few things I'm this confident contravene the express wishes of Congress," NCTA CEO Michael Powell said Thursday in a call with media.

In advance of Friday's deadline for initial comments in docket 16-42 (see 1603180041), the trade groups elaborated on their criticisms of Chairman Tom Wheeler's set-top proposal (see 1604130052 and 1604010020). "It's presumed his rules will be put into effect unless we can rebut it," ACA CEO Matt Polka said in a separate call with media. "We're trying, [but] it's an uphill road." The deadline for reply comments is May 23.

ACA and NCTA said they believe the set-top NPRM exceeds FCC authority. Section 629 of the Telecom Act, which covers navigation devices, "unquestionably" deals with creating greater commercial availability of equipment, not services, Powell said. While the set-top proceeding has focused on creating program guide competition and expanded integrated search capabilities, he said, "neither of those things is remotely contemplated by the language of 629." Appeals lawyer Helgi Walker of Gibson Dunn, who co-authored an NCTA-commissioned white paper to be part of NCTA's filing on the legality of the set-top proposal, said Section 629 was aimed at creating a retail marketplace for buying set-tops: "It was never about disaggregating the intellectual property of MVPDs and giving [programming] to third parties ... so they could create their own service. That's a much more sweeping and ambitious aim than anything Congress authorized the commission to do."

In their respective media calls, ACA and NCTA had a litany of criticisms of the proposed set-top regime. Walker said various public interest requirements under Title VI, including privacy and emergency alert, "will go out the window," especially since there's no enforceable mechanism to ensure privacy protection. Ted Olson of Gibson Dunn, another white paper co-author, said the set-top proposal "not only is .. bad policy but it's also unlawful and unconstitutional" because it violates the First Amendment rights of TV programmers to communicate with subscribers and overrides their intellectual property rights. He also said the proposal overrides Copyright Act limits on reproduction, distribution, display and transmission by giving third-party app or device makers access to content without limits. The white paper, to be part of NCTA's filing Friday in the docket, also argues the rules would treat cable providers as common carriers, in violation of Section 621(c), by "forcing them to act as 'dumb pipes' for video programming content." It's "not a gray area," Walker said. "It's per se common carrier regulation, because the [MVPD] would have no discretion to engage in any negotiation."

Digital system operators won't have the bandwidth to simulcast and will need to install a gateway box at each customer's house to convert QAM (quadrature amplitude modulation) to IP -- at a cost of about $350 per box -- said communications lawyer Tom Cohen of Kelley Drye during the ACA call. He also said cable operators will need to spend at least $500,000 each on a compliance security system. And cable lawyer Barbara Esbin of Cinnamon Mueller, also on the ACA call, said the proposal wrongly delegates FCC regulatory authority to open standards bodies to create the standards for the service discovery, entitlement and content delivery streams that will go from MVPDs to the competitive device or app creators.

Asked about its Section 629 authority, the FCC told us in a statement that Wheeler's proposal "implements Congress’ clear mandate to ensure a competitive marketplace." It also said it's seeking comment on its tentative conclusion "that third-party software and hardware solutions should certify they are in compliance with identical privacy obligations in order to receive the data from MVPDs, and seeks comment on appropriate enforcement mechanisms." The agency said it's "committed to protecting the content creator’s copyright, and will not interfere in the business or content agreements between MVPDs and content providers." It also said copyright safeguards "will remain fully intact ... and content creators retain all of their right to utilize those remedies." The FCC said the set-top proposal would require those third parties to abide by licensing terms agreed to by MVPDs to receive the streams, "just as it does with CableCARDs today.” And it said its use of standards bodies is to avoid technology mandates the cable industry also urged, thus "allow[ing] the Commission to set ground rules that are technology-neutral and allow all parties to respond to changes in the marketplace and technology.”

The FCC has plenty of consumer support for its set-top proposal, consumer advocacy group Consumer Action said in a filing Wednesday in the docket. "These rented devices are cash cows for the pay-TV industry," it said. "The pushback we are seeing about the proposed rulemaking only points to the fact that pay-TV providers are desperately trying to protect an outdated model and unconscionable profits." It also said dire predictions of copyright and privacy problems are unlikely since the CableCARD regime never saw similar ills emerge.

Polka said ACA opposes the proposal, but if the agency does go forward it should at minimum exclude small MVPDs -- like its members -- from the rules due to the onerous costs. Larger MVPDs serve the vast majority of U.S. pay-TV subscribers -- a higher percentage "than the amount needed for a technology to become self sustaining," said ACA Senior Vice President-Government Affairs Ross Lieberman. Since small MVPDs already are integrating third-party devices into their systems, he said, their customers wouldn't be disadvantaged if not party to the rules.