FCC approves proposal to increase competition in set-top box market

By Clarece Polke

WASHINGTON (Reuters) – The Federal Communications Commission on Thursday approved a proposal that would let consumers trade in pricey cable TV set-top boxes for cheaper devices and apps, a change that would increase competition in the $20 billion set-top box market while dealing a blow to the major cable companies.

The new rules, announced in January by FCC Chairman Tom Wheeler, will allow customers to get video services from providers such as Alphabet Inc, Apple Inc and Tivo, rather than from cable, satellite and other TV providers such as Comcast Corp and Verizon Communications.

The proposal passed by a vote of 3 to 2, with three Democratic commissioners, including Wheeler, in favor and two Republican commissioners dissenting.

Wheeler said the proposal is the beginning of an “information gathering process” in which the FCC will allow cable providers and other stakeholders a 60-day comment period. If implemented, the industry would have two years to comply with the rule.

“The technology allows it, the industry has proposed something similar at some point, and consumers deserve a break and a choice,” Wheeler said at the FCC meeting Thursday.

The proposal has set off a feverish lobbying battle, pitting the tech industry, eager to break into the lucrative market, against cable and TV companies that stand to lose billions of dollars in set-top box rental fees. Many of those industry providers spoke out against the measure after Thursday’s vote.

“While consumers are embracing an app-based approach that delivers a variety of content across more than 450 devices, the FCC has chosen a path that threatens the very competition and innovation that created this dynamic marketplace,” said Bob Quinn, senior vice president of federal regulatory affairs at AT&T.

Stanton Dodge, general counsel for Dish Network Corp, said: “It’s really not clear to us that any new regulation is needed to encourage innovation, and in fact could hinder it.”

The FCC says 99 percent of U.S. customers now must purchase set-top boxes from their cable operators, and they pay an average of $231 per year to lease the devices.

The commission said opening up the decoder market to alternative solutions such as smart TVs and tablets would help lower prices for consumers, noting that decoder rental fees have increased by 185 per cent since 1994.

Cable companies say the video market is already growing as more customers replace traditional pay-TV services with streaming video over the Internet.

Underscoring the industry’s fierce fight and the FCC’s concerns, the agency on Tuesday abruptly canceled a Twitter meeting where it was set to detail the proposal and its impact on independent and minority developers.

An FCC spokeswoman said the Sunshine Act prohibits outside entities from lobbying on pending issues in the week before the full commission votes. She added that the town hall meeting would be rescheduled after the commission votes and the proposal is released.

The proposed rules would require cable and satellite service providers to allow alternative device manufacturers (their future competitors) access to cable and satellite programming.

While this is currently possible, cable and satellite companies often impose restrictions on external device manufacturers, effectively locking down the market.

(Editing: Soyoung Kim, Steve Orlofsky and Leslie Adler)