Proposed FCC Rule Change Could Make TV Cable Box an Endangered Species

The cost of the plastic box under your television has risen 185% while computers and cellphones have dropped 90%. Regulators think it’s time for change.

The cable box, that ugly plastic contraption that squats under your TV, is under threat.

At present, almost every US household that wants to descramble digital cable signals and send them to the television needs one of those boxes. And they don’t come free – they’re about $7.43 per month. Not a living wage, certainly, but probably more than the box deserves for sitting there and unenthusiastically displaying the channel number, and occasionally recording the new X-Files.

Though the box refuses to pull its weight around the home, it costs an average of $231 annually in added charges (mean number of TVs in American homes: 2.6). Customers pay an additional $20bn annually to cable companies just to lease those devices, according to the Federal Communications Commission (FCC).

Now, as the FCC continues its hot streak of investigating exorbitant charges on your cable and phone bills, all that may change with a new proposed rule that would allow third parties to build cable boxes.

This week the regulator will discuss forcing cable operators to make the specifications for their devices public and license their copy-protection software at reasonable rates so that third parties can make cable boxes of their own.

Under chairman Tom Wheeler, the FCC has emerged as something of a consumer champion. And once again the industry he regulates, and its financial analysts, are not especially enthusiastic about his plans.

“I also don’t know whether it’s possible to do this, notwithstanding the FCC’s protests to the contrary, without violating all kinds of terms and conditions in carriage agreements,” said Craig Moffett, an industry analyst with MoffettNathanson.

Contracts between networks and cable operators are fiendishly complicated – will the channel be within five clicks of a broadcast network? Will it have a channel number lower than 30? These may seem like minor details but they’re worth billions to TV makers. And the contracts are with cable providers, not third-party box builders: if someone makes a box that allows a user to group several favorite channels together, it’s probably Comcast or Time Warner Cable that gets sued.

Moffett said he understood the FCC’s interest in excessive fees but that he wasn’t convinced the new rule could hold up in court. “There are lots of different ways to skin that cat, but this is an awfully extreme proposal,” he said. “There’ll be some pretty staunch lobbying to prevent this from becoming law; if it does, it’ll almost certainly end up in the courts and it’s hard to give it more than a 50/50 shot.”

Welcome to Kabletown

Cable boxes weren’t always a necessary part of the setup, but the FCC allowed the device to become mandatory recently, initially to avoid piracy. The cable companies immediately founded a cottage industry in manufacturing and leasing the only devices that could decode those signals. Now, with a cable box mandatory for anyone who wants to watch TV in the most populous parts of the country (some rural areas still don’t require one), the cable companies started charging ever-higher rates to “rent” the cable box each month.

But in the four years since encrypting cable signals became legal, almost everything about TV consumption has changed. Cable companies compete with streaming video, fiber-optic networks and satellite service, and one way they compete is with their interfaces. “Comcast has, famously, 1,100 engineers working on the user experience,” said Moffett. “The FCC is effectively saying: ‘We won’t allow that to be a basis of competition.’”

The FCC says the industry is holding technology back because they’re happy with the status quo. “Consumers should be able to have the choice of accessing programming through the MVPD [cable-company]-provided interface on a pay-TV set-top box or app, or through devices such as a tablet or smart TV using a competitive app or software,” the commissioners wrote in the proposed rulemaking. “MVPDs and competitors should be able to differentiate themselves and compete based on the experience they offer users, including the quality of the user interface.”

If cable providers had simply sold consumers the box, they probably could have avoided the whole mess, or at least much of it. A functionally similar device like a wireless router tops out at retail at about $160 for a really high-end model; a consumer who’s had cable since 2011 has paid $1,160 for a device that makes it possible to watch television already paid for separately – and that consumer still doesn’t own the device.

‘It doesn’t have to be this way’

There are more reasons than cash on the barrelhead for Time Warner, Comcast, Charter and others to love the cable box: it logs everything you do with your TV and makes that information available to the companies selling you your TV.

The rulemaking probably won’t affect that capacity – it’s likely to be part of the software cable outfits are required to license out, should the rulemaking pass – but it would almost certainly allow the companies that make the hypothetical new devices a look at the same information.

This data is especially useful in the case of Comcast, which also owns NBCUniversal (which in turn owns NBC and a large suite of cable channels): it can not only see your viewing habits, it can cross-reference that information with purchase information (loyalty cards, movie ticket purchases) and sell ads more intelligently.

The industry is leery of creeping out consumers with advertiser data – Andrew Ward of Comcast Media 360 emphasized that the companies “only use data in an anonymized, unidentifiable way” when the program launched in 2014. But the fact remains that user info is valuable, and if the FCC tries to interfere with the collection apparatus, cable companies will kick back.

They’re already preparing: the industry is anxious to cast any potential rulemaking around cable boxes as a top-down mandate stifling organic, capitalist innovation. “We believe that, generally speaking, in a dynamic environment that’s rapidly changing, technology mandates just don’t work very well,” Neil Smit, CEO of Comcast Cable, told shareholders last week. “It appears to me that this is an attempt to create regulation that is really unnecessary given the advances that have been made driven by marketplace forces,” said Rob Marcus, CEO of Time Warner Cable.

Time Warner in particular is expanding its cable box requirements into ever-more-rural areas. Hudson Valley consumers were recently warned that as of 15 March they wouldn’t be able to simply plug the cable into their TVs any more.

Wheeler was blunt in his assessment of whether market forces were truly driving up the cost of cable box leases. “[A]ccording to a recent analysis, over the past 20 years, the cost of cable set-top boxes has risen 185% while the cost of computers, televisions and mobile phones has dropped by 90%,” wrote Wheeler.

“It doesn’t have to be this way.”

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