Cable companies lose round in CableCard battle

The cable industry suffered a blow on Friday when a federal appeals court upheld the Federal Communications Commission's mandate requiring cable operators to distribute a technology called CableCards, which will allow digital cable subscribers to get rid of their cable set-top boxes.

The U.S. Court of Appeals for the D.C. Circuit unanimously supported the FCC's "integration ban," which requires cable operators to separate encryption functions from basic decoding capabilities in their set-top boxes.

Separating these functions allows cable customers to plug their cable line directly into a TV set without the need for a set-top box. The CableCard device is about the size of a thick credit card, and fits into a special slot built into digital TVs and a growing number of consumer electronic devices, such as TiVo's digital video recorder and most HDTV sets.

The court's decision should move cable operators a step closer to finally offering a service that allows consumers to simply plug a card into a device to get cable TV service.

"Today's opinion sets the record straight: Consumers are entitled to a broad array of products that can connect to cable systems featuring innovative new features for competitive prices," Gary Shapiro, head of the Consumer Electronics Association, said in a statement. "In the wake of the court's decision, we are hopeful that cable will stop its foot-dragging and comply with the law for the benefit of consumers."

The integration ban was first initiated by the 1996 Telecom Act. The FCC carried out the order and established a deadline of July 2000 for the cable industry to provide encryption in a "point of deployment" module. What resulted was the CableCard technology, which can be mailed to subscribers and stuck into set-top boxes or compatible TV sets to initiate service.

The FCC set a deadline of January 2005 for cable operators to integrate the CableCard technology into their systems. That deadline was bumped back to July 1, 2006 and then later it was bumped again to July 1, 2007.

Now, the cable companies and their lobbying group, the National Cable & Telecommunications Association, are asking for the deadline to be extended yet again. Earlier this week, NCTA and Comcast filed waivers with the FCC to exempt certain low-end set-top boxes from the ban. Furthermore, they asked the FCC to push the ban deadline to the end of 2009.

Cable operators say they have developed new downloadable technology that will be less expensive to deploy. The industry makes roughly $2.5 billion a year leasing set-top boxes to consumers, according to estimates from Kagan Research. Meanwhile, deploying CableCards to all their subscribers could cost as much as $470 million.

But the CEA says consumer electronics makers have already stocked the shelves full of CableCard ready devices. They believe it's time for cable companies to start offering the service now using the technology that exists today.

NCTA is hopeful that the FCC will grant the waivers and delay the ban deadline. The group feels the court's opinion may shed some hope that the FCC will see things their way.

"We are encouraged by the court's observation that cable's progress on downloadable security 'may moot this entire controversy' and that the FCC was reasonable to delay the integration ban in light of the 'evolving nature of that technology,'" Neal Goldberg, NCTA general counsel, said in a statement. "Cable's progress on a downloadable security solution is the exact basis of the deferral request NCTA filed earlier this week with the commission which, if granted, would save consumers millions of dollars every year."

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