Big Cable uses critics' own arguments to slam set-top box shake-up

Analysis Amid a battle to end Big Cable's $20bn annual windfall from rented set-top boxes, the industry has hit on a novel strategy: use its opponents' own arguments against them.

In a filing on the last day of public comment to the FCC's plan to open up the market, the National Cable & Telecommunications Association (NCTA) in the US argued, among other things, that the FCC's authority to impose change ends at transmission's edge.

Its defense for the position? The courts, which struck down an effort by the FCC to introduce anti-piracy measures a decade ago. And the organization making the arguments that won the case? Public Knowledge, a key proponent of the new set-top box proposal.

The NCTA makes a range of arguments and claims in its response, but most notable is the inclusion of Public Knowledge's name, which appears no less than 50 times in the 120-page submission.

Big Cable and Big Telco have grown increasingly upset at a whole range of proposals emanating from the FCC, all of which cut into their profits by opening up the cable market to competition.

The filing makes it clear that the industry sees the former CEO of Public Knowledge, Gigi Sohn, as behind those efforts. Sohn headed the organization for 12 years and was a fierce critic of the FCC.

When Tom Wheeler took over as chair of the FCC in November 2013, one of the first things he did was hire Sohn as "special counsel for external affairs." She is now "counselor to the chairman" and has been a fierce advocate for changes that are shaking up the telco industry, including:

• Net neutrality regulations
• Expanding data privacy rights
• Overhauling backhaul competition
• Pushing public disclosure of broadband specs and data
• Ending the set-top box consumer rip-off

Flag on the play

However, arguments made by Sohn and Public Knowledge back in 2005 to kill the "broadcast flag" proposal by the FCC, which would have instructed boxes not to record certain shows, have been repurposed to explain why the set-top box plan should not proceed.

The Washington DC courts ruled that the FCC did not have the authority to introduce broadcast flag because it was a post-transmission technology, and so outside the FCC's jurisdiction.

The NCTA argues: "When the Commission considered the imposition of a less-invasive tech mandate a decade ago, the broadcast flag, it received similar warnings about the unintended consequences of attempting to regulate through detailed technical prescriptions in a rapidly-changing market."

Public Knowledge then argued back that the "heavy-handed tech mandate" would "inject government into technological design" and set technical requirements "in stone." That, in turn, would "slow the rollout of new technologies and seriously compromise US companies' competitiveness in the electronics marketplace."

The new proposal, the NCTA argues, is the same: it has the FCC requiring cable companies to use a specific format and make it available to others to build cable boxes. In effect, setting that format in stone.

Later on, it also noted that Public Knowledge was strongly opposed to "government intervention in the free market," and argued that "the market for delivering content digitally over new technologies is working."

Cable companies have repeatedly pointed to the fact that apps are increasingly being used to navigate cable content, and have argued that the free market is already solving the problem the new proposal aims to solve.

A little different

Of course, while the arguments are comparable, the set-top box issue is somewhat different.

The broadcast flag proposal was about preventing people from doing something – recording shows – whereas the set-top box proposal is about opening up the market to allow people to do new things, such as make cable just one part of a broader media offering.

The broadcast flag would have added a data signal to stop recording; the set-top box plan makes the existing data available in a different format.

Legal arguments aside, the market reality is that 99 per cent of cable customers are forced to "rent" their cable boxes because it is a controlled market. They pay on average $231 a year for the privilege, when the boxes themselves use old technology and realistically are worth a fraction of what is charged each year. By contrast, the latest Roku and Apple TV cost between $130 and $150 to buy outright.

The cost of cable boxes has grown at three times inflation and brings in $20bn every year for cable companies. With that much money at stake, it's no surprise that Big Cable is fighting hard against the proposal.

Alongside guest columns and legal threats, the companies have also engaged in a huge astroturf operation that has seen over 150,000 comments sent to the FCC over the issue, a huge number of them repeating the same line: "I oppose unnecessary set-top box regulations that will mean higher bills, fewer choices, and less privacy on TV. The television and video market today is full of great choices, why put such a healthy market at risk with complex and unnecessary new mandates?"

Why indeed. ®