Sept. 29, 2016
This blog post was written in advance of today's expected FCC vote on set-top boxes. This morning, the vote was postponed. The issue remains under consideration by the FCC commissioners.
Consumer technology is constantly evolving, leaving behind a collection of formerly cutting-edge devices that are now laughably outdated. From Palm Pilots to car phones the size of bricks, these relics are signs of a competitive market that rewards innovation. Yet one device has proved remarkably resilient over the years: the set-top boxes that millions of Americans use to connect to television programming. These devices are clunky, antiquated, and almost exclusively rented from cable or satellite providers. These are all signs of a market that is badly broken, strikingly monopolized, and illegal. In 1996, Congress passed a law directing the Federal Communications Commission to break up the set-top box monopoly. Consumers have been waiting for help ever since.
Today, the FCC plans to vote on a proposal to comply with Congress’ directive and finally end this pernicious monopoly. The proposal, which Chairman Tom Wheeler calls “Unlock the Box,” requires cable and satellite providers to make their content available on apps that consumers could use to access television content on third-party devices like a Roku or Apple TV. “Unlock the Box” has earned praise from President Obama, editorial boards, and public interest groups including the Open Technology Institute, but its fate remains uncertain heading into today’s meeting. Here’s a rundown of what’s at stake:
Consumer choice and prices. The cable industry has turned its stranglehold on set-top boxes into a $20 billion-per-year cash cow. Monthly rental fees have increased even as the devices remain stuck in the 1990s. “Unlock the Box” aims to let consumers watch the content they’ve paid for on the device of their choosing, including devices that they buy outright rather than rent for a monthly fee. The competitive pressure could also push cable and satellite providers to lower the prices of their legacy boxes.
Jobs and innovation. By leveling the playing field for device manufacturers, “Unlock the Box” could foster a new market for set-top boxes that generates innovation and jobs. That’s what happened 50 years ago when the FCC promoted device competition in the telephony market. For decades, consumers were locked into leasing rotary phone equipment from their phone company. Then, in 1968, the FCC ordered AT&T to allow customers to make calls on a third-party device called the Carterfone. The order unleashed a wave of innovation that led to answering machines, wireless phones, and thousands of jobs. A similar dynamic could encourage new entrants to make better, cheaper set-top boxes—or more innovative devices that don’t yet exist. The prospect of this new device market is why retailers like Best Buy support “Unlock the Box.”
Cable's expanding reach into the home. The cable industry may finally update the set-top box, but not in ways consumers might want. The industry has ambitions to transform the box into the central hub for household devices, from media systems to smart appliances. Think of it as a set-top box on steroids (and a justification for charging even higher rental fees). Moreover, the boxes could centralize an unprecedented amount of sensitive personal information, creating a lucrative data trove that’s ripe for resale or theft. Cable companies are seeking ways to diversify their business model to offset the impact of cord-cutting, which explains their plans for the set-top box. But this approach leverages their existing monopoly to create new revenue streams; it wouldn’t lower prices or enable competition. The prospect of cable using the set-top box to further dominate household technology only adds to the urgency of today’s vote. Consumers must be freed from this monopoly as soon as possible.
FCC oversight. Whether the commissioners can agree on an accountability mechanism is a key question for today’s vote. Chairman Wheeler has proposed having the FCC license the apps that cable and satellite providers make available to third-party devices. The cable industry opposes this scheme and wants the FCC to largely trust that they will make apps available on a fair and competitive basis. But we’ve seen this movie before. A decade ago, the FCC unsuccessfully tried to open up the device with a hardware-based solution called CableCARD. But the cable industry found loopholes and exploited them, making CableCARD such a hassle that manufacturers had little incentive to make compatible equipment. Given this history, it is difficult to overstate the importance of strong FCC oversight. Without it, “Unlock the Box” could be little more than a bad sequel to CableCARD.
Jessica Rosenworcel. “Unlock the Box” needs at least three votes to pass, and Democratic Commissioner Jessica Rosenworcel is widely seen as the swing vote. Adding to the pressure are Senate Republicans, who blocked her nomination to a second term as commissioner. This enraged Senate Democrats who say Republicans betrayed a deal to jointly confirm Rosenworcel and GOP Commissioner Michael O’Rielly. The Senate confirmed O’Rielly in 2015, but Rosenworcel never got a vote.