Retransmission reform on hold for Wednesday’s STELA hearing

The House Communications and Technology subcommittee will hold a hearing Wednesday morning on chairman Greg Walden’s draft bill to extend the essential provisions of the Satellite Television Extension and Localism Act (STELA) for five years, but don’t expect major fireworks around the broader issue of retransmission consent reform this time around.

Most of the more controversial proposals put forth by various members looking to use the must-pass STELA reauthorization bill as a vehicle to tackle retransmission consent for both cable and satellite were dropped from the discussion draft on the table for Wednesday’s hearing. In a background memo released ahead of the hearing, Walden (R-OR) said the committee’s review of the broader Communications Act, currently underway but unlikely to be voted on this year, was a better venue for hashing out retrans reform.

The few proposals that survived the pruning would make relatively minor tweaks to the current system, such as eliminating the rule that prohibits cable and satellite operators from dropping broadcast channels during Nielsen sweeps weeks as part of a retransmission negotiation, and imposing some limitations on broadcasters’ use of joint sales agreements.

The hearing won’t be totally without drama, however. One proposal added to the discussion draft would eliminate the FCC rule requiring cable operators to separate the security components of the set-top boxes they lease to subscribers from the other functions of the device such as navigation. Currently, cable operators are required to use the same CableCARD security plugin in their own STBs that they are required to make available to subscribers for use with retail STBs such as TiVo DVRs.

The rule was originally put in place to help bolster the market for retail devices that can interoperate with cable systems. The goal was to create a level playing field between operators’ STBs and retail devices by requiring the use of identical security modules and to discourage operators from disadvantaging competing STBs by changing their security protocols.

Cable operators claim the “non-integration” requirement adds $40 to $50 to the cost of their STBs and have long pushed for elimination of the rule.

In written testimony submitted to the committee, however, TiVo senior VP and general counsel Matthew Zinn blasts the proposed elimination of the FCC rule and accuses cable operators of playing a double-game with regulators on the issue.

The [National Cable & Telecommunications Association] has been characterizing the repeal of the integration ban as a minor change and claiming that they still have to support retail CableCARD products. The NCTA and some of its members are simultaneously taking the  position at the FCC that there are no rules requiring them to provide or support CableCARDs to retail devices...

This means that if the integration ban is eliminated, and if the FCC agrees with NCTA’s position, there will be no requirement for cable operators use CableCARDs themselves and no requirement to supply CableCARDs to new retail devices. Indeed, no requirement for cable operators to even support existing retail CableCARD devices. Cable operators would be free to use new security technology but leave retail devices using legacy technology that they will have little incentive to support, keep current with new technology developments, or control costs. Would anyone reasonably expect any consumer to spend $200, $400, or $600 to purchase a retail set top box for the express purpose of replacing their cable-supplied set-top box if there was no assurance that their cable operator would actually support that retail box? [Emphasis in the original.]

With the industry moving gradually (even grudgingly) toward the integration of linear and OTT services in a single set-top box, the question of whose box that is, and who controls the user interface, will be an increasingly critical and contentious one. If the FCC is prevented from enforcing interoperability between devices and services, the service providers will get a major leg up in that struggle.