• FCC Releases Set-Top Box Waiver Decisions
  • August 8, 2007 | Authors: Howard J. Barr; Mark J. Palchick
  • Law Firm: Womble Carlyle Sandridge & Rice - Washington Office
  • The Commission recently released several decisions ruling on requests for waivers of the set-top box integration ban so as to allow the use of conditional access technology that is or will be incorporated into their cable set top boxes. The integration ban went into effect July 1, 2007. Following is a summary of the decisions:

    Colo Telephone Company, et al

    In this case, the Commission considered the requests of seven entities seeking waivers. Each of the petitioners indicated that they operate all-digital systems or will transition to all-digital systems by February 17, 2009. Each argued that a waiver of the integration ban is necessary in order to make the transition or to continue to provide high-quality video and related digital services over their all-digital distribution networks.

    INS Providers is a group of small MVPDs in Iowa who receive their programming through a central distribution network connected to a central headend operated by Iowa Network Services and offer (or intend to offer) video service over all-digital copper and fiber optic based systems. INS Providers stated that they have “diligently made inquiries with [their] middleware provider[s] to determine when an integration-ban compliant solution will be available,” but that the “providers have not committed to making compliant devices available before the effective date of the integration ban.” They also claimed that, as small rural providers, they do “not have the market power or resources to influence manufacturer timetables to develop conditional access solutions that comply with the FCC’s integration ban."

    NTS Communications, Inc. ("NTS") – a small telecommunications provider that offers video service over an all-digital fiber-to-the-home network -- asserted that no compliant set-top box options are available and that, as a small competitive provider, it did not possess market power to influence set-top box maker decision-making.

    XIT Telecommunication & Technology LTD ("XIT") sought a waiver to allow it to upgrade two rural cable systems that it recently acquired. It stated that it planed to transition to an all-digital network by December 31, 2007, and sought a waiver only until that time.

    The commission declined to grant any of the waiver requests under the standards set forth in Section 629 of the Act – which instructs the Commission to grant waivers necessary to assist the development or introduction of a new or improved multichannel video programming or other service offered over multichannel video programming systems, technology, or products. Based upon each Petitioner’s demonstration that it had already made a digital transition, or stated a commitment to move to an all-digital network by February 17, 2009 if it were able to continue to deploy certain low-end integrated set-top boxes after July 1, 2007, the Commission chose to conditionally grant the requests under its general authority under Sections 1.3 and 76.7 of the rules. It found that a grant was justified in order to enable the Petitioners to continue to provide all-digital services to their subscribers, or to complete their migrations to all-digital networks by February 17, 2009.

    Based on its understanding that set-top box manufacturers have not developed any non-integrated HD or DVR devices for use with Internet Protocol (“IP”) or Asynchronous Transfer Mode ("ATM") systems, the Commission determined to allow the Petitioners to deploy HD and DVR devices with integrated security elements for use on such systems only until July 1, 2008.

    As for XIT, which had yet to transition to an all-digital network, the waiver grant was conditioned on XIT: (1) filing with the Media Bureau a sworn declaration within 10 days of the release of the order in which it commits to move to an all-digital network on or before February 17, 2009; (2) notifying all of its analog customers of its plans to go all digital within 10 days of the Order’s release and submission of a sworn declaration to the Commission confirming that such notice was provided; (3) ensuring that XIT has in its inventory or has placed orders for enough set-top boxes to ensure that each of its customers can continue to view its video programming on their television sets after the transition and submission of confirming sworn declaration to the Commission, and (4) publicly committing to this plan by sworn declaration.

    Innovative Cable TV St. Thomas-St. John & St. Croix

    In this case, the Commission denied the waiver request, finding that the set top boxes at issue – Motorola DCT-1000 and DCT-2000 – were not low cost limited functionality boxes as portrayed by Innovative. The Commission denied the claim based on the ability of the boxes to support two-way communications and other services such as VOD and Internet access. The Commission has routinely held that boxes with such capabilities do not qualify. Innovative, however, sought to rely on its inability to provide enhanced services, such as Internet access, as a distinguishing factor. The Commission, however, focused solely on the capabilities of the set top boxes.

    As in past cases, the Commission denied a waiver under Section 629 finding that, since Innovative had already introduced digital cable service, a waiver was not necessary to assist in the “introduction” of these services. The commission also found Innovative’s commitment to transition to an all digital network by December 2009 was insufficient since that date is beyond the broadcast transition.

    The Commission did, however, grant Innovative a deferral until September 1, 2007. That decision was based on Innovative’s status as a small operator that had filed its request prior to the July 1st deadline but did not receive a decision until after the deadline. It not only encouraged Innovative to use the deferral period to take all steps possible to come into compliance with the integration ban, but required it to place orders only for compliant devices. The Commission held out the prospect of a further deferral should Innovative be able to document that it ordered an adequate number of compliant boxes which its vendor will be unable satisfy by September 1, 2007.

    The Commission also granted Innovative leave to amend seeking either a waiver for "truly low-cost, limited capability" set top boxes or a waiver based on a commitment to go all digital by a date certain such as February 2009 when broadcasters will cease their analog transmissions.

    Comsouth Telesys

    As in the Innovative case, the Commission here denied the waiver request but granted Comsouth a deferral. Comsouth sought a waiver for a two year period, asserting that its set-top box provider would not deliver compliant boxes until early September. It also contended that a waiver was necessary to allow it to compete effectively with direct broadcast satellite ("DBS") competition. It asserted that the increased cost of compliant set-top boxes would force it to raise its price for digital cable service, which would not allow it to effectively compete with DBS.

    As in the Innovative case, the Commission denied a waiver under Section 629 because Comsouth had already introduced digital cable service. Again, the Commission reasoned that if the service is already introduced then a waiver is not necessary to the introduction of the services.

    Additionally, the Commission found that Comsouth failed to provide an explanation as to why it should be afforded a two-year waiver. Because Comsouth did not provide any information to support the claim that it had made substantial efforts to comply with the integration ban, the Commission found insufficient Comsouth's claim that its equipment provider was more than 120 days out from shipment to warrant grant of a waiver.

    Further, the Commission found "too speculative" Comsouth’s contention that a waiver was needed in order to allow it to compete with DBS providers. The Commission here held that "the costs that this requirement will impose should be counterbalanced to a significant extent by the benefits likely to flow from a more competitive and open supply market," apparently deferring to the goal of a competitive navigation device marketplace.

    The Commission granted Comsouth a deferral on the same terms and conditions applicable to Innovative, though it did not grant leave to amend.

    JetBroadband

    JettBroadband sought a waiver of the integration ban based on its plan to upgrade its systems with equipment developed by Beyond Broadband Technology (“BBT”). Finding that it lacked enough information to issue a ruling on the request, the Commission sought additional information and granted an interim deferral of enforcement until September 1, 2007.

    More specifically, the Commission sought the submission, by August 3, of detailed information regarding the openness of BBT’s standards. JetBroadband was directed to include concrete examples that compare the openness of BBT's standards with other open standards, such as those developed by the Institute of Electrical and Electronics Engineers.

    Great Plains Cable Television, et al

    In this case, the Commission granted limited waivers to Great Plains Cable Television, Inc., James Cable, LLC, RCN Corporation, and WideOpenWest Finance, LLC until July 1, 2008. The grant of waiver was based on the poor financial condition of each of the petitioners.

    The Commission found that: 

    • Great Plains demonstrated not only negative free cash flow, but increasing net losses over the last three years, indicating worsening financial health. 
    • James Cable demonstrated negative free cash flow in three out of the last five years, and negative cash flow from financing in 2006. 
    • Wide Open West demonstrated negative free cash flow for the last three consecutive years, a net operating loss in 2006, and increases in necessary capital expenditures for the last three consecutive years. 
    • RCN demonstrated negative free cash flow for two of the last five years, operating losses and net losses for the last three consecutive years, and negative cash flow from financing and decreases in cash on hand for the last three consecutive years.

    The Commission found that these facts warranted grant of the requested waivers.

    Please let us know if you have any questions or would like a copy of the Commission’s NPRM.