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FCC Issues Orders Denying, Granting Certain Set-top Box Waiver Petitions

July 3, 2007   

            Late Friday night (June 29), the FCC’s Media Bureau issued a series of orders resolving dozens of pending petitions for waiver of the prohibition on the deployment of integrated set-top boxes.  The Bureau’s action came less than 48 hours before the July 1, 2007 effective date of that prohibition.

            As described below, the Bureau orders granted certain petitions and denied others.  With respect to the petitions that were denied, the Bureau left open the possibility that a waiver could be obtained in the future upon a sufficient showing of the petitioner’s commitment to deploy an “all-digital” platform by February 17, 2009.  Bureau also clarified that (1) integrated set-top boxes in a cable operator’s inventory that were not previously deployed may not be put into service after July 1, 2007 and (2) integrated boxes that were first deployed before July 1, 2007 and then returned to inventory may be redeployed by that operator, but previously used set-top boxes acquired from a third party will be treated as “new” devices subject to the integration ban.  It should be noted that there is still pending before the full Commission an application for review filed by Comcast challenging a Bureau order issued last January denying Comcast’s waiver request.  The Bureau orders released on Friday do not necessarily presage a particular outcome for Comcast’s application for review, although it has been reported that Chairman Martin is recommending that Comcast’s request be denied.

            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.

Over the past year, the FCC has received dozens of waiver requests relating to the integrated set top box ban.  These included waiver requests from NCTA as well as from individual cable operators.  In addition, a number of telephone companies that provide video service also sought waivers, including Verizon, QWEST, and many small, rural telcos.  Most of the waiver requests sought FCC permission to continue to deploy specific “low cost” integrated set top boxes, such as the Motorola DCT 700 or the Scientific Atlanta 1850.  NCTA’s petition more broadly sought a delay in the July 1, 2007 deadline until the end of 2009 in order to allow time for a downloadable conditional access security solution to be developed and deployed.

BUREAU ORDERS.With the exception of a few petitions filed by small, rural cable operators, most of the cable industry waiver requests (including NCTA’s) were denied by the Bureau.  On the other hand, most of the telephone company waiver requests (including the requests of not only small rural telcos, but also Verizon and QWEST) were granted, at least conditionally.  The basis for granting the waivers generally was that the petitioner had deployed an all-digital platform or had indicated its commitment to deploy such a platform by February 17, 2009.  The various waiver decisions are discussed below:

Petitions from NCTA and Individual Cable Operators.NCTA’s waiver petition sought a general delay in the implementation of the prohibition on the implementation of integrated set-top boxes, arguing that enforcement of the ban would (1) impose burdensome and unnecessary costs on consumers for boxes that would be rendered obsolete in the future by the development of downloadable security technology; (2) slow the deployment of new services and products; and (3) create a competitive disparity between cable and DBS since the FCC had previously exempted DBS from compliance with the integrated set-top ban.  Relying on similar arguments, a number of individual operators filed their own waiver petitions, typically seeking permission to continue to use specific “low-cost” integrated set-top boxes such as the Motorola DCT 700.  The Bureau rejected both NCTA’s general waiver requests and most of the individual cable operator waiver requests, finding that the harm to the public interest in deferring the integrated set-top box ban outweighed the benefits cited by the operators.  However, the Bureau noted that it had previously granted waivers to operators that made a commitment (backed up by specific evidence and sworn declarations) to deploy an all-digital platform by February 17, 2009 and granted leave to the individual petitioners to amend their waiver requests to make such a showing.  The Bureau also granted the individual petitioners who had sought relief prior to July 1, 2007 a short-term “deferral” of the integration ban deadline until September 1, 2007 and left open the door for operators to seek a further deferral upon a specific showing of their inability to obtain timely delivery of compliant non-integrated devices by that date.  As noted above, the Bureau additionally clarified that cable operators could continue to re-deploy integrated boxes so long as those boxes had first been deployed by that operator prior to July 1, 2007 (i.e., were not used boxes obtained from a third party).  Finally, the Bureau reiterated an earlier declaration that operators deploying a downloadable security system that is available today, such as that developed by Beyond Broadband Technology, do not require a waiver.

Petitions from Verizon and Other MVPDs Committed to Deploying (or Already Deploying) an All-Digital Platform.  The Bureau grouped together the waiver petitions filed by a large number of telephone companies, including Verizon, QWEST, and several smaller, rural telcos and decided them in an “omnibus” order.  The Bureau found that all of the companies covered by this omnibus order had deployed all-digital platforms or had indicated their commitment to do so by February 17, 2009.  Citing earlier decisions granting waivers to traditional cable operators that had committed to transition to an all-digital platform by a fixed date, the Bureau granted these telephone companies similar relief.  In certain cases, such as Verizon, the relief was conditioned on the company submitting, within 10 days, the documentation and sworn declarations required to demonstrate their commitment to deploying an all-digital platform by the February 17, 2009 deadline.  The Bureau distinguished among these companies in terms of the types of equipment that they would be allowed to deploy.  Companies covered by the omnibus waiver that were providing service over a “traditional” cable platform (not described) were limited to the use of low-cost, limited functionality devices such as the DCT 700.  However, other companies, including Verizon, that deliver video over an Internet Protocol (IP), Asynchronous Transfer Mode (ATM), or hybrid QAM/IP system were given until July 1, 2008 to continue to deploy more sophisticated integrated devices that provide high definition and DVR functionality.

Miscellaneous Waiver Requests.  The Bureau issued three other orders granting or denying individual requests.  Specifically, the Bureau deferred enforcement of the integration ban for a small operator from Crosslake, Minnesota that had demonstrated its inability to obtain timely delivery of compliant, non-integrated devices by the July 1, 2007 deadline.  The Bureau indicated that it would consider granting comparable relief to other operators making a similar showing.  In a separate order, the Bureau denied a waiver requested by Massillon Cable that sought permission to continue to deploy new equipment from inventory.  The Bureau was unsympathetic to Massillon’s claim that delays outside of its control had led it to have a larger than expected inventory of integrated devices on hand.  However, the Bureau did invite Massillon to file an amended petition asking for a deferral of the July 1, 2007 deadline upon a showing that Massillon is having difficulty obtaining timely delivery of compliant, non-integrated devices.  Finally, the Bureau granted a waiver petition filed by Guam Cablevision based on unique circumstances encountered by an operator in a typhoon-prone, underdeveloped market located far from the US mainland.  

            GOING FORWARD OPTIONS.   Operators not covered by the specific orders released last Friday have several options with regard to the integration ban, as follows:

            Deploy compliant devices.  Operators can simply comply with the rule by deploying only compliant set-top devices.  According to the FCC, these could be either CableCARD-enabled devices or devices that utilize a compliant downloadable security solution.

            Deploy used devices out of inventory.  Operators also can continue to deploy integrated set-tops if those set-tops are devices that the operator first put in service before July 1, 2007 and that were later returned to inventory.  We recommend that operators redeploying devices out of inventory keep records to establish (1) that the device was first put in service before July 1, 2007 and (2) that it was first put in service by that operator and not by a third party.

            Seek deferral of the compliance deadline based on device unavailability.  If an operator has placed an order for a supply of compliant devices but the manufacturer is unable to fill that order in a timely fashion, the operator can file a request with the FCC for deferral of the compliance deadline.  It should be noted that one of the few pending petitions not decided by the Bureau last Friday is a petition filed by JetBroadband seeking a deferral of the integration ban pending delivery of compliant devices utilizing Beyond Broadband Technology’s downloadable security solution.  If and when the FCC acts on JetBroadband’s petition, we will provide you with an update.

            Seek a waiver based on a commitment to go “all-digital” by February 17, 2009.  As indicated, the FCC invited operators who had filed petitions before July 1, 2007 to amend their petitions to include a request for relief based on the operator’s demonstrated commitment to go all-digital by February 17, 2009.  Based on our review of the orders and conversations with FCC staff, we believe that any operator may file such a petition (not just the operators that had filed petitions before July 1, 2007).  It should be noted that operators pursuing this approach will still be in default of their obligations if they deploy new integrated boxes while their waiver petition is pending.  Also, the “all-digital” waivers granted so far appear to have involved situations where an operator pledged to migrate all of its systems to a fully digital platform by the February 17, 2009 deadline.  We expect, however, that some operators may push forward with requests for waivers where they only can commit to going all-digital in a portion of their systems (and will use compliant devices in the remaining systems).  We cannot predict the outcome of such an approach, although we believe that there is a credible case for treating those requests favorably.
                         
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            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 integrated set-top box prohibition.

 

 

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