Tuesday, June 03, 2014

Switching Off an Outdated Cable Rule: End the Costly Integration Ban

In an op-ed for The Washington Times published on May 15, House Communications Subcommittee Vice Chairman Bob Latta, R-Ohio, and Republican Federal Communications Commission Commissioner Ajit Pai jointly advocated an end to the integration ban. In the piece, Vice Chairman Latta and Commissioner Pai educated readers on what the integration ban is, why it was implemented, and how it negatively affects the video marketplace, as well as consumers’ cable and energy bills. It is important that other members of Congress, the Commission, and the public understand the harms caused by the integration ban and that all parties work toward removing the integration ban and other unnecessary and burdensome video regulations. 
As Vice Chairman Latta and Commissioner Pai reported in their piece, the integration ban is an FCC-implemented technological mandate that is not required by the Communications Act. It requires cable companies to use a CableCARD or other technology to perform the security function of a set-top box. However, the CableCARD is not necessary because set-top boxes and other navigation devices – mobile applications, tablets, computers, and gaming consoles – can perform the security and navigation functions without the CableCARD. The reason the FCC instituted the integration ban was to help third-party retailers compete with cable companies in the set-top box market. But the mandated integration ban, and specifically the CableCARD regime, clearly have not accomplished this goal.
In addition to being technologically and statutorily unnecessary, the integration ban adds about $56 to the cost of each set-top box, increasing the monthly rental fees charged to customers. Additionally, CableCARDs increase cable customers’ energy consumption by 500 million kilowatt hours each year, enough to power all the homes in Washington, D.C. for about three months according to the Environmental Protection Agency. Despite the incurrence of these costs, only 606,000 CableCARDs have been deployed for use in third-party retail devices. In other words, less than 1.4 percent of customers are choosing to purchase their set-top boxes through the retail market despite the FCC’s attempts to push consumers that direction. In contrast, cable companies have supplied 45 million of their own CableCARD-enabled set-top boxes to their customers.
And the video marketplace has developed in ways that offer consumers many choices in how and when to access video content, many of which bypass the CableCARD mandate. Major providers like Comcast, Time Warner Cable, and Cox are among those that have made their services available through these new platforms and devices. Additionally, various online video providers including Netflix and Hulu and other set-top box, IP, and cloud-based technologies have all experienced major growth in recent years. All this in spite of not because of the Commission’s integration ban as I explained in a February 2014 Perspectives from FSF Scholars.
Many cable subscribers are likely unaware of this technological mandate and its effects on their cable bills. But Free State Foundation scholars have been focused on reforming consumer-harming video device regulations for years. For example, in an October 2010 piece FSF Adjunct Scholar Seth Cooper urged the Commission to eliminate the integration ban and to employ the sunset provision contained in Section 629 according to which, the FCC shall cease to apply regulations when it finds the multichannel video programming and video navigation device markets are fully competitive and the public interest favors eliminating such regulations. Even nearly five years ago, the rapid growth of DBS, telco video services, video gaming devices, broadband-enabled smartphones, and PCs with broadband Internet showed that the video market was highly competitive. FSF scholars have frequently echoed the need to remove legacy video device regulations in other Perspectives as new developments continue to render technological mandates and regulatory intervention increasingly unnecessary and improper. And in March of this year, FSF reiterated the competitive state of the video marketplace and proposals to reform outdated regulations in comments to the FCC.
Thankfully, Vice Chairman Latta has been focused on this important issue as well. In September 2013, he introduced legislation that would remove the costly integration ban. That legislation has since been included in one Satellite Television Extension and Localism Act bill, HR-4572, which cleared the Commerce Subcommittee on Communications and Technology in March 2014. At the Free State Foundation’s October 2013 seminar, Vice Chairman Latta delivered a keynote address explaining that Congress cannot keep up with the rapidly changing video marketplace. He enumerated the harms the integration ban causes and provided reasons why eliminating the ban and reforming other outdated regulations of the video market would benefit competition and consumers.
Hopefully, Vice Chairman Latta and Commissioner Pai’s piece will spur Congress and the Commission to implement long-overdue reforms of video regulations. The authors concisely explained the clear reasons why now is the time to remove the costly integration ban:
By ending the integration ban, we can kill two birds with one stone. We will take a step toward reducing consumers’ cable and energy bills. We will recognize the marketplace as it is today, not how the government theorized and planned it to be more than a decade ago. That’s something that everyone in Washington should support.