Relief in store for boxed-in cable customers

WASHINGTON -- It has been 11 years since Congress voted to break the cable television industry's stranglehold on set-top boxes -- the devices that consumers need to receive digital programming and change channels.

So why are customers still paying $5 or more a month for that thing on top of their TVs?

When Congress rewrote the nation's communications laws in 1996, it envisioned a thriving retail market where subscribers could actually buy their own boxes rather than make monthly payments to the cable company in perpetuity.

The retail market for the boxes has failed to materialize, and the cable industry has filed numerous appeals and continued to press a furious lobbying and public relations campaign to make sure it never does, foes say.

Come July 1, the gloves come off. After two years of deadline extensions, that's when the Federal Communications Commission will require cable companies to make hardware changes in all new set-top boxes that it hopes will lead to a competitive market.

A "cable card," used in some applications for cable TV reception, was seen in a Motorola High-Definition Two-Tuner Digital Video Recorder, one of the new set-top boxes cable companies will be required to ship to consumers after July 1. (Motorola)

At the center of this melee is FCC Chairman Kevin Martin, who has opposed cable's requests for another delay. He sees set-top boxes going the way of the black rotary-dial telephone that consumers once rented from the phone company.

When the government opened that market, it "led to more innovation and lower prices and better quality phones," he said. "I think the same thing can be true in this [cable box] market as well."

The cable industry disagrees. David Cohen, executive vice president of cable giant Comcast Corp. in Philadelphia and its top political liaison, said consumers won't benefit from the change.

"I'm not sure it's a piece of technology a consumer needs to own or wants to own," he said. Once a newer set-top box comes out, "Circuit City won't take their old box and give them a refund to get a new model. They have to buy a new box to get the newest and fanciest upgraded technology."

The FCC rules will only affect customers with digital cable, a population that has grown steadily. For the first time last year, there were more digital cable subscribers than analog, according to the National Cable & Telecommunications Association, the cable trade group.

Of about 65 million cable households nationwide, 33 million have digital cable.

To jump-start competition, the cable industry will be required to separate the security function inside their digital set-top boxes -- the hardware that ensures customers can only view channels they are paying for -- from the navigation function, which is basically the channel changer.

The cable industry says the new rule will cost it $600 million more a year for new boxes, an expense that will be passed along to customers. One competitor says that figure is vastly overblown.

Cable operators also say customers would rather rent their boxes rather than shell out hundreds of dollars to buy them, according to Dallas Clement, senior vice president of product management at Cox Communications Inc.

"Is there really a market for these? TiVo is $800 and $13 a month for a two-tuner high-definition digital video recorder," he said. "Us, they pay nothing up front and it's a $10 monthly lease."