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Why the FCC Chair Says Set-Top Box Reform Proposal Could Change

September 15, 2016

National Cable and Telecommunications Association Cable ShowNational Cable and Telecommunications Association Cable Show
The Comcast XI3 cable box held for a photograph during the National Cable and Telecommunications Association (NCTA) Cable Show in Washington, D.C., U.S., on June 11, 2013.Photograph by Andrew Harrer — Bloomberg via Getty Images

The head of the U.S. Federal Communications Commission said he might change his proposal to allow tens of millions of U.S. pay TV subscribers to ditch costly set-top boxes and access video programming online.

At a Senate hearing on Thursday, FCC Chairman Tom Wheeler defended his revised proposal, which is scheduled for a final vote on Sept. 29. The plan, announced last week, lacks some of the most controversial aspects of the original proposal unveiled in January but includes a new licensing body to ensure that pay-TV companies do not enter into anti-competitive agreements.

The plan is aimed at ending the cable industry’s long domination of the $20-billion-a-year set-top box market and lowering prices for consumers. Nearly all pay-TV subscribers lease the boxes from their cable, satellite, or telecommunications providers at an average annual cost of $231.

Those fees have jumped 185% since 1994, while the cost of televisions, computers, and mobile phones has dropped 90%, the FCC has estimated.

Jessica Rosenworcel, a Democrat on the five-member commission and the key swing vote on the set-top box issue, told the hearing that she had some “some problems” with the provision to create a licensing body and wondered whether the commission has the legal authority to do so.

Wheeler said he would work with her to address her concerns and that he was open to making changes.

Wheeler’s plan has drawn fierce opposition from television and content providers, including AT&T (T), Comcast (CMCSA), and Twenty-First Century Fox (FOX).

A group representing organizations including the Screen Actors Guild and Motion Picture Association of America said this week that the plan included an “unworkable de facto compulsory licensing regime that requires creators to allow their work to be shared across multiple platforms without compensation.”

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Senator Bill Nelson, the senior Democrat on the Commerce Committee, told Wheeler on Thursday that he also had problems with the proposal. “If we stay on the present course, I fear the FCC’s actions to promote set-top box competition could be tied up in court and hamstrung for years,” Nelson said.

Wheeler initially proposed open standards for set-top boxes, allowing companies to re-imagine the delivery of video content. The new proposal grants device makers the ability to integrate cable companies’ apps.

Cable companies have previously expressed concerns that rivals like Alphabet (GOOGL) and Apple (AAPL) could create devices or apps and insert their own content or advertising in cable programming.

The new rules would require companies covering 95% of U.S. TV subscribers to comply by September 2018.