FCC ADOPTS RULES FOR ONE-WAY DIGITAL, CABLE-READY TV SETS

Order largely accepts technical, labeling and encoding rules in agreement between cable and made last Dec. (CED Dec 20 p1). However, FCC made some changes, one of which was to order that sets include over-air digital tuners -- something broadcasters had lobbied for. Order also would allow PC manufacturers or others to hook their wares up to cable systems as long as devices complied with same content protections prescribed by FCC. FCC Media Bureau Chief Kenneth Ferree said this was “not just a rubber stamp” of industries’ original agreement.

Decision was hailed widely by CE industry. CEA Pres. Gary Shapiro, who had predicted at Berlin news conference Aug. 30 that FCC would approve plug-&-play agreement in its entirety, said “history books will mark this as a momentous day in the U.S. transition to digital television. Consumers now will be able to purchase a high-definition television set, just as they buy analog sets today. They will be able to take it home, plug it into the cable jack in their wall and turn it on to view glorious high-definition programming. This is what many consumers have been waiting for.” Shapiro said that while manufacturers didn’t reveal their plans and production schedules, he believed consumers would begin to see new sets in stores in 4th quarter of 2004.

Other CE makers echoed Shapiro in their praise of FCC decision. Mitsubishi Vp Robert Perry called action “a watershed event, and all of us in the CE industry need to understand the importance of it.” Perry said: “We finally have a world where consumer electronics manufacturers can build all kinds of products and be assured they can connect to cable.”

Similarly, Thomson views plug-&-play decision as “just what the doctor ordered” for DTV transition to proceed, said David Arland, vp-govt. & investor relations. “We know we will not be successful in reclaiming the analog spectrum unless we get more people involved in watching digital TV, and the key to that is cable.” Arland said as result of decision, Thomson will move “immediately to add cable-ready functionality” to 2004 sets that already face “a very expensive mandate” in requirement that receivers incorporate ATSC terrestrial tuners by July 1 next year. FCC action means Thomson now “will be able to take that lemon and make lemonade, because we will now have a feature that people will want, that they expect. And once you have the terrestrial tuner-decoder, the addition of cable is a nominal expense.”

Arland said “the real winner here is the consumer,” but conceded that the buying public “doesn’t even know it yet because the average consumer hasn’t yet been shopping for an HDTV set.” Nevertheless, he said, “all around the bend, it gives us the certainty of a standard that will work in every nook and cranny of the country.” Moreover, he said, CE industry now knows what cable operators will deploy, “which has been the real bugaboo in this transition.” FCC action also permitted Thomson “tremendous” collective sigh of relief, Arland said, because in late June decided to add cable functionality to 2004 model sets on assumption that plug-&-play agreement would be approved in its entirety, Arland said.

Order starts 2nd Further Notice of Proposed Rulemaking (FNPRM) into how new cable-ready products will be certified as such. It asks for public comment on whether additional methods for approving new technologies should be adopted. In meantime, agency said CableLabs would make preliminary determinations on new outputs and content protection technologies, subject to review by Commission. Parties with complaints can file petitions for special relief to resolve disputes.

FCC Chmn. Powell said action was “major step” in digital transition in that it would facilitate protection of high value content on cable systems. He said agency must turn its attention to broadcasting immediately. “The viability of our free broadcasting system is a high priority for me, and the government needs to ensure that broadcast television is not disadvantaged as a delivery platform for high value content,” Powell said. He said he planned to deliver draft decision to fellow commissioners “in the very near future” on broadcast flag proceeding. Ferree later said he hoped bureau would have item on 8th floor within weeks.

Powell specifically thanked Reps. Tauzin (R-La.) and Upton (R-Mich.) of Commerce Committee for helping industries come together. Tauzin held series of roundtable discussions to bridge divides between industries in DTV transition. In statement, Tauzin said he was pleased industries were able to settle their issues with FCC and called Commission’s action example of how private sector could resolve consumer issues with minimal govt. intervention. “Chairman Upton and I plan to hold a further roundtable discussion in the coming weeks to build on this success,” he said. Tauzin said he also was pleased FCC planned to resolve questions on broadcast flag soon.

Comr. Abernathy called rules “critical milestones” in transition, and while she normally would leave encoding rules to marketplace, she said she was convinced that cable and CE industries wouldn’t have worked out their differences without regulatory intervention. “I take comfort from the fact that our rules are both balanced and narrowly tailored to the governmental interests at stake,” she said. Comr. Martin said he was disappointed agency wasn’t able to finish broadcast flag proceeding at same time, but he was pleased it intended to tackle flag very soon. He exhorted cable and CE industries to allow other parties in on future negotiations.

Comr. Copps said this was “not an ideal solution,” but was step forward. He said he wanted agency to address consumer confusion on digital devices and should force manufacturers to give consumers information “up front.” He also wanted Commission to conduct consumer outreach and education. Comr. Adelstein said that although agency’s action was “not perfect,” it was move forward. He encouraged manufacturers and cable operators to work with retailers in broad outreach campaign to public.

NCTA Pres. Robert Sachs said FCC’s action would “hasten the day when ‘digital cable-ready’ television sets will reach the market.” He said FCC’s endorsement of cable-CE agreement “sends a positive signal to all involved in the DTV transition to work together to voluntarily resolve outstanding issues.” NCTA announced separately that HDTV now was available to 60 million TV households from local cable operators. Cable customers in 83 of top 100 Designated Market Areas (DMAs) -- including 19 of top 20 -- were passed by at least one cable operator that provided HDTV service as of Sept. 1, NCTA said.

NAB Pres. Edward Fritts said he was particularly pleased that FCC had insisted that digital TV tuners with over-air reception be included in digital “cable-ready” TV receivers. “The time is ripe for the FCC to complete the loop by adopting cable carriage rules ensuring consumer access to the 1,000 digital broadcast stations on the air and serving their communities,” he said.

Spokeswoman for Public Knowledge said group was glad FCC had acknowledged that computers had part in DTV transition, but was unhappy commissioners hadn’t allowed further comment on encoding rules. “To the extent that they say that consumers will have the same abilities in the digital world as in the analog world, that’s just untrue,” she said.

New rules will allow consumers to plug their cable directly into their digital TV without need for set-top box and will allow one-way services, which include basic cable programming services and premium channels such as HBO or Showtime. Consumers will have to get security card from local cable operator to be inserted into set.

Consumers still will need set-top box if they want 2-way services such as video-on-demand (VOD), pay-per-view or enhanced electronic program guides. But cable and CE industries are negotiating for 2-way plug-&-play capability that would eliminate need for boxes. One of biggest criticisms of 2 industries during process was that other players didn’t have seat at bargaining table. Those complaining included DBS industry, broadcasters, MPAA and computer manufacturers such as Microsoft. As cable and CE move forward on this 2nd agreement, FCC encouraged them to consult with others.

Cable and CE filed model license for DFAST scrambling technology to protect content from unauthorized use. They didn’t seek regulatory action on license, but model would have FCC review certain issues in case of dispute.

Order says all digital cable systems must conform to certain technical standards, and small cable systems can obtain waivers where requirements would be unduly burdensome. FNPRM will look at whether rules that apply to 750 MHz cable systems also should apply to 550 MHz systems. Under order, cable operators must keep sufficient supply of point-of-deployment (POD) security cards, and beginning April 1, 2004, upon request must supply high- definition (HD) set-top boxes with functional 1394 “firewire” connectors. By July 1, 2005, all HD set-top boxes would require digital visual interface (DVI) or HD multimedia interface (HDMI).

Commission also provided labeling requirements. Manufacturers that label their DTV receivers “digital cable ready” must meet certain technical standards, complete testing and verification process and equip their receivers with DVI or HDMI interface using high-bandwidth digital content protection (HDCP) technology. Interface requirement would be phased in gradually on receiver screen-size basis along time frame similar to DTV broadcast tuner phase-in schedule. DTVs labeled “digital cable ready” must include over-air DTV tuner. FCC said it was encouraging manufacturers and cable operators to provide detailed information about functions of sets before sale occurred, but at this stage wasn’t requiring industries to do so. Instead, they're required to include post-sales material, such as owner’s guide with language informing consumers about functions of device and need to obtain security card from cable operator. FCC is asking whether it should require presale notification.

FCC stressed that its rules weren’t intended in any manner to affect copyright rights and remedies of consumers and content owners. Order bans use of selectable output controls by multichannel video programming distributors, but Ferree said agency wasn’t closing door to new technologies in future. Reducing resolution of HD programming to standard-definition is prohibited for broadcast programming by all MVPDs. FCC said down-resolution of nonbroadcast programming would be addressed in rulemaking. In meantime, MVPDs that want to use down-resolution for nonbroadcast programming must notify FCC at least 30 days in advance.

Encoding rules were modeled on Digital Millennium Copyright Act, with copy-never for pay-per-view and VOD, copy-once for basic and extended basic cable and no restrictions on copying of broadcast TV. Agency said rules didn’t extend to distribution of content over Internet or MVPD’s services offered by cable modem or DSL.

Order included petition process for new services or business models that might be developed in future. That would involve case-by-case determinations of whether specific encoding rules were in public interest.