Sunday begins new era for cable subscribers

Posted on July 3, 2007 - 6:24am.

from: USA Today

Sunday begins new era for cable subscribers

By David Lieberman, USA TODAY

NEW YORK — The summer's just started, yet cable operators are already drenched in sweat.

They are bracing for a deadline they staved off for more than a decade — one that could bring a wave of new TV viewing options for many of the 65.6 million homes connected to cable.

A Federal Communications Commission order taking effect on Sunday requires all major cable operators to give up the conventional cable boxes they so profitably lease to subscribers. These proprietary boxes contain technology for functions such as video-on-demand and perhaps a digital video recorder — and also house the operator's decoder that unscrambles digital, premium and HDTV channels.

All big operators now will have to provide a standard external decoder called a CableCard that plugs into their box — or into equipment from any company. Customers could ditch the operator's box and get their channels via a TV, DVR, computer or other device built for CableCards.

Nothing has to change for the 58% of cable subscribers with the old boxes. The FCC rule applies only to new installations or upgrades.

The FCC was ordered in the Telecommunications Act of 1996 to help electronics companies compete with the cable guys' leased boxes on the theory that lower prices and more choices of equipment and features would result. It took until 2003 for the cable industry to agree on a decoder, the CableCard, but it was able to fend off an FCC mandate until now. Electronics makers say the order will spur a new generation of devices and features.

"A lot of the things we've been talking about for years — now we are talking about making these things a reality," says Panasonic Corp. of North America Chief Technology Officer Paul Liao.

Retailers already are beginning to stock CableCard-ready "boxes" that manage channels but do many other things most cable-company boxes do not, such as:

•Send Web videos to TVs.

•Transmit TV programs, including recorded ones, to multiple sets in and outside the home.

•Blend Internet data, such as sports statistics or facts about a TV show character, on the screen with conventional programs.

•Facilitate remote-control voting or interactive-shopping services.

•Enable TV sets to play music and show photos digitally stored on a PC.

Cable operators have reason to worry about competition from fancy new boxes customers own. About 3% of their expected $67 billion in 2007 revenue will be from their leased boxes and installation.

Consumers have been able to get a CableCard — if they knew to ask — for the few devices that could use them, but cable companies did not promote the fact. They installed only 259,000 CableCards as of mid-March, according to the National Cable & Telecommunications Association, even though at least 8 million homes have HDTV sets and other gear built to take CableCards.

Profitable and old

Critics say that operators also made it needlessly hard to get one.

"The drivers who come to your home have one CableCard in their pocket, and 20 boxes on the truck ready to install," says Richard Doherty, senior analyst at The Envisioneering Group technology consultants. Cable operators are "salespersons for leased boxes. I've paid for the average cable box in this house seven times over their cost. They're profitable, and they're old."

The boxes' lack of advanced technology has hurt companies such as TiVo (TIVO). Although many people who use TiVo DVRs rave about how easy it is to use and its many features, the company has struggled to sell its stand-alone units to people who have cable boxes.

A big reason: It can be painfully slow to flip through channels. Most cable boxes have no input to allow another maker's DVR to change channels. To get around that, TiVo has to supply an infrared transmitter wire to run from the TiVo to the cable box, where it is taped over the infrared receiver to fool the box into responding to the remote.

"As good as TiVo is … it has had to add a lot of extra expense trying to play on this unfair playing field set up by the cable operators," Doherty says.

That's why the FCC's effort to jump-start CableCard usage "really changes the playground," says Digeo CEO Mike Fidler, whose company produces sophisticated cable boxes. Once operators begin to promote CableCards, "it makes national retail (sales) viable" for firms such as his that want to sell equipment directly to subscribers and have it work on any cable system.

As for TiVo, its new HD-DVR was designed for the CableCards, changes channels positively — and cuts one box from the clutter under the TV.

PC as hub of digital content

Microsoft is working toward making PCs the center of the home theater action. PCs run by its new Windows Vista Media Center and built with CableCard slots can function as the DVR. Such PCs also would offer inexpensive capacity for storage of videos, music and photos and could share them via home networks to TVs and other PCs.

"People want to not only watch their shows on their own time, they want to have access around the home to the thousands and thousands of pictures they're putting on their PCs and the thousands and thousands of albums and music tracks," says Microsoft's Craig Cincotta. "The PC is becoming the hub of digital content, and your TV is part of that, as well."

Some industry issues remain

Some cable operators preparing to comply with the Sunday changes have grumbled about higher prices they are having to pay for the new CableCard-ready boxes that must go to new subscribers and to subscribers changing service.

Telephone giant Verizon (VZ), trying to get into the TV service business with the FiOS fiber-optic network it is building, has bigger problems. All FiOS subscribers need a box to unscramble the network's digital-only signals. However, Verizon has no boxes yet that fulfill the FCC's separate decoder mandate.

Spokesman David Fish says Verizon has asked for a waiver, "given that our technology is new, different and providing a better alternative to cable TV."

He won't say what Verizon will do if the FCC doesn't grant one by Sunday.

And no one can say for sure, after all the FCC's efforts, how many consumers will share electronics companies' enthusiasm for CableCards.

"Consumers are fairly happy with the functionality that they get today" from cable boxes, says Bruce Leichtman of Leichtman Research Group. He found in a survey this year that 27% of adults have heard of CableCards; just 16% say they are interested.

One-way vs. two-way service

Cable companies also are quick to note that while CableCards allow users to watch the cable TV channels, their one-way design does not allow more cable such as ordering video-on-demand, or VOD. That requires two-way communication.

"We've put a lot of effort into making our network two-way and have developed a lot of great value-added applications to take full advantage of that," says Steve Necessary, Cox Communications' vice president of video product development and support.

Some electronics companies say that's no big deal: They can use the Internet to help match or beat cable's other services. "We provide you with a lot of those movie-on-demand services through (Internet sites) like Movielink, CinemaNow and Vongo," says Brian Paper of Niveus Media, which develops high-end home entertainment systems.

Digeo says that its Internet-ready Moxie cable box has an interactive guide that offers more information and sophisticated navigation tools than cable. "Our boxes have always required a broadband connection," Fidler says. "That opens up the world of the Internet and the capabilities of what's available outside of the cable operator network."

Still, electronics companies would be happier if there were a way to also offer all cable services, including interactive ones.

A single system

That may take awhile. Cable operators are moving from a hodgepodge of incompatible two-way technology to a single standard called the OpenCable Application Platform, or OCAP.

"The cable industry has gotten together and said that all companies will use OCAP, so if you build a retail product (using the standard), it will work anywhere," says Dick Green, CEO of industry technology certification center CableLabs.

Cable operators will take some time to roll out OCAP: New boxes with the processing power for the system are just coming in.

"Over the next 18 to 24 months, we expect to cover virtually our entire base with the capability," says Cox's Necessary.

Electronics companies that want to sell TVs and devices that use either CableCards and OCAP's two-way capability need to have them certified by the cable industry's technology shop, CableLabs. Samsung, Panasonic, LG, Thomson, TiVo, Scientific Atlanta, Motorola and Digeo are among companies with approved products.

Owners of Samsung's OCAP-ready HDTVs will need no other hardware for their cable service, including pay-per-view and VOD, says Stephen Goldstein, business development manager.

Too limited?

Several consumer groups and electronics companies say, however, that two-way OCAP still is too limited. The Consumer Electronics Association wants to begin work on a more advanced, next-generation standard.

Fidler says OCAP has basic two-way capability, "so you can do things like VOD. But if you want to do advanced applications like music or photo-service delivery, if you want DVR functionality, that's still not yet fully evolved."

What's more, media activists including the Consumer Federation of America, Consumers Union and Electronic Frontier Foundation told the FCC this month that having CableLabs approve equipment "limits competition and locks out flexible and innovative features from consumers."

But some major electronics manufacturers say that with all the progress they've made, fireworks are just starting.

"Up to now, there haven't been that many successful interactive TV applications," says Panasonic's Liao. "What OCAP does is allow the whole world of software developers to come up with these new applications. There is an enormous number of smart people in the world. I wouldn't be at all surprised if, a few years from now, there will be some fantastic thing that we just never thought about."

( categories: FCC )