The FCC is breaking the cable hold on set-top boxes and letting rivals step in
I hate my cable box. It's a high-end Motorola (MOT) unit with dual tuners so I can watch one show and record another using a built-in digital video recorder. But the program guide is awful, I can't search for shows, the hard drive is too small, and the remote often fails to respond. Worse, the way cable contracts are set up, I have to use whatever Comcast (CMCSA) rents.
For the past couple of weeks, however, I've been experimenting with a second system. It's complex and expensive, being based on a Windows Vista PC, but it offers a much better viewing experience. And it is the prototype for much simpler, cheaper, and more versatile cable boxes that are on the way.
What allows me to carry out this experiment is a change in the way cable operators control access to their networks. Starting on July 1, new Federal Communications Commission rules will force cable companies to split the functions of the cable box: The first task is authentication, which means telling the cable company who the subscribers are and what channels they can receive. The second function, known as cable tuning, involves decoding the signals. The authentication part will be carried out by a device called a Cablecard that you will continue to rent from the cable companies. And the other task, tuning cable signals, will be opened up to companies who make set-top boxes or can build the function into TV sets, game consoles, computers, and devices yet to be conceived.
Cablecards have been around for a while, but cable operators haven't publicized them and they often haven't worked well. The new rules will make them ubiquitous and give cable companies a powerful incentive to make the technology work because their own cable boxes, which they still hope to rent, are required to use Cablecards.
My dream is an inexpensive and simple box that lets me watch both cable and Internet TV and play downloaded and DVD movies, something like a more versatile and cheaper version of the $800 TiVo (TIVO) Series3. My interim system, supplied by Microsoft (MSFT), does all that. It's based on a $2,400 Dell (DELL) XPS 410 desktop, but the key is an external digital tuner box made by ATI (AMD). The Comcast cable feed is connected to the ATI box, a Cablecard slides into a slot, and the unit sends decoded TV signals to the Dell. I didn't want this messy system in my TV room, so the computer sends the video over a wired network to an Xbox 360 that is hooked up to my high-definition TV.
There are flaws in this setup beyond its cost and complexity. Current Cablecards provide premium channels, including high-definition programming, but not on-demand or pay-per-view shows. "Two-way" Cablecards that will deliver those are in the works, but operators haven't said when they'll be available. The fan in the Xbox makes a racket. And you can't cut the price of the setup just by adding a cable tuner to any old PC. To meet complex copy-protection rules, you need new gear certified for Cablecard use.
Cable companies have resisted all of these changes for years. They make money renting boxes and use their program guides both to sell ads and to keep their branding in viewers' faces. The cable operators' hostility and their lack of support for Cablecard has blocked all but specialty companies such as TiVo from entering the market. But it looks like the FCC intends to keep the heat on. If so, it will finally make economic sense for consumer-electronics companies to move into the market for simple but versatile set-top boxes.
This scenario isn't new. Once upon a time, the telephone company prevented customers from connecting anything but AT&T-owned equipment to their phone lines. Only after the FCC forced AT&T (T) to open its network did rapid innovation come to telephone services. It looks like the same sort of fresh breeze may bring some long-overdue change to the cable business.