Xumo Streaming Devices Compel the Sunset of Set-Top Box Rules

The Free State Foundation's recent comments responding to the FCC Office of Economics and Analytics' State of Competition in the Communications Marketplace Public Notice argued that "the Commission should follow its sound decision in September 2020 to terminate the 'unlock the box' navigation device proceeding and announce that the sunset provision set forth in Section 629(e) of the 1996 Act has been satisfied." Comcast's announcement on June 27, 2024, that Xumo streaming devices, which are available for purchase at retail and now support a fourth competing virtual Multichannel Video Programming Distributor (vMVPD), is a more than compelling reason to take that long overdue step.

Enacted nearly three decades ago in a context today wholly unrecognizable, Section 629 sought "to assure the commercial availability … of converter boxes … and other equipment used by consumers to access multichannel video programming … from manufacturers, retailers, and other vendors not affiliated with any" MVPD. The Commission effectively abandoned this misguided effort four years ago, but it stopped short of triggering the sunset provision set forth in subsection (e). Consequently, the regulatory requirement that cable operators make available "separable security" remains on the books (and imposes needless costs).

Source: xumo.com

The Xumo platform, the product of a joint venture that includes Comcast and Charter, provides consumers with access to three of the largest cable services – Comcast's Xfinity, Charter's Spectrum, and Mediacom's Xtream – as well as over 250 third-party apps.

Xumo devices can be obtained directly from these providers (in some cases for free) or – critically – at retail. The Xumo Stream Box can be purchased directly from the Xumo website, while Xumo TVs manufactured by Pioneer, element, and Hisense are available on store shelves at Best Buy, Meijer, and Walmart.

Consequently, the goal of Section 629 – to make it possible for subscribers to purchase a set-top box from a third party rather than lease one directly from their provider – clearly has been achieved. (The longstanding availability of app- and browser-based options to access MVPD services similarly satisfied that objective, notwithstanding the FCC's unwillingness to acknowledge that fact.)

But wait, there's more: not only does the Xumo platform foster device-based competition, it also facilitates service-based competition. As noted above, Xumo devices recently added support for Fubo, a vMVPD that competes with traditional MVPD offerings. And that's on top of existing support for popular vMVPDs YouTube TV, Hulu + Live TV, and Sling TV.

Subsection(e) of Section 629 states that any rules adopted thereunder "shall cease to apply when the Commission determines that (1) the market for the [MVPDs] is fully competitive; (2) the market for [devices] used in conjunction with that service is fully competitive; and (3) elimination of the regulations would promote competition and the public interest."

Xumo devices singlehandedly satisfy the first two conditions, and the sunset of one-sided rules that unjustifiably impose compliance costs clearly would "promote competition and the public interest." All that is left is for the Commission to acknowledge – "determine," per the language of the statute – that which undeniably is true.

FCC Should Resist Regulatory Conditions Unrelated to Charter Merger

The FCC is reviewing Charter Communication's proposed acquisition of Time Warner Cable and Bright House Networks. March 4 marked day 160 on the Commission's informal 180-day merger review shot clock. If the merger is approved, it potentially will enable accelerated upgrades to digital video services and faster deployment of high-speed broadband services. The merger may also enhance competition for enterprise broadband services and provide cable subscribers with improved video device offerings.

Along with the merger's potential benefits, Charter/TWC/BHN poses only remote potential for harm. Certain market competitors have criticized the merger based on speculative ill effects regarding the availability of online video services and independently manufactured set-top boxes. Yet those criticisms lack solid foundation in fact. Nor do these criticisms have any direct connection to the merger. They involve broader questions about the video marketplace and FCC policy. These market-wide policy questions, to the extent they deserve closer attention, should be reserved for general proceedings, not merger reviews.

Like so many mergers before it, the Charter/TWC/BHN proposal is the subject of a stream of news commentaries and interest group press releases. Also like other mergers, Charter/TWC/BHN is the target of intense lobbying, reflected in ex parte filings to the Commission. Quite often, market competitors that are not a party to the transaction seek to persuade the Commission to impose regulatory conditions on its approval.

A claim repeated in news stories and ex parte filings by market competitors is that Charter/TWC/BHN would adversely affect availability of online video distributor (OVD) services. But there is less than meets the eye here. None of the merging entities have significant ownership in video programming networks. 

Charter/TWC/BHN simply wouldn't have video programming network content to withhold from OVD services. Nor is there reason to think Charter/TWC/BHN would have particularly strong incentives to impair their own broadband subscribers' access to OVD services. Even if Charter/TWC/BHN has an interest in protecting its video service from OVD competition, there is no good reason to think that interest would lead it to impair legal Internet traffic for its broadband subscribers. This would harm Charter/TWC/BHN's good will with its subscribers and thereby undermine return-on-investment in its broadband networks.

Still another claim has been made that Charter/TWC/BHN would stop making its video service accessible to consumers with TiVo or other set-top box devices. But it is also far-fetched to think Charter/TWC/BHN would stop allowing access to its video services through independently manufactured CableCARD-enabled set-top boxes. For starters, all major cable providers offer their own subscribers CableCARD-enabled set-top boxes. Major cable providers have made available to subscribers for leasing about 55 million such devices. Charter has provided about 5.7 million CableCARD-enabled devices to its own subscribers. That number far exceeds the 55,000 CableCARDs that Charter has supplied to subscribers using independently manufactured devices.

Charter/TWC/BHN has said it intends to deploy Charter's Worldbox set-top box device to its expanded footprint once the merger is concluded. Unlike CableCARD devices, Worldbox has downloadable security capabilities. Charter’s Worldbox would offer consumers in Charter/TWC/BHN's footprint the benefit of a cloud-interfacing device that is likely far superior to CableCARD-enabled devices many lease today. Such a device marks an important marketplace development toward apps-centric delivery of video content. In a 2013 waiver order, the Commission recognized the benefits of Worldbox in accelerating deployment of downloadable security in video devices.

By the same reasoning, Charter/TWC/BHN's deployment of Worldbox constitutes an important public benefit to consumers. And for its part, Charter/TWC/BHN would likely enjoy equipment cost savings from deployment of Worldboxes. Even so, it would be to Charter/TWC/BHN's detriment to block video accessibility to CableCARD-enabled devices. Rendering CableCARD devices useless for its video network would mean significantly reducing – if not destroying – the value of its own equipment.  

Even assuming these claims regarding OVD services and set-top boxes by those questioning the merger give cause for concern, they are not specific to the merger. That is, it does not appear that Charter/TWC/BHN would actually increase the risk of harms being alleged. There is nothing inherent in the merger that would make impairment of OVD services more likely if the Commission grants approval. Claims about OVD impairment could just as easily be made against any video service provider. Similarly, concerns about continued CableCARD compatibility could be raised with respect to any cable provider. In reality, these claimed problems with Charter/TWC/BHN are iterations of larger beefs held by various competitors or interest groups about the communications marketplace or communications policy.

Generalized concerns about the broadband and video markets should be the subject of generic industry-wide proceedings. And if necessary, those concerns may be addressed through market-wide rulemakings. Where a merger gives rise to a unique set of harms or potential harms, those may be targeted with a merger-specific remedy. But general concerns and issues should not be pigeonholed into merger review proceedings involving only two or three market participants.

It is unfair for merging parties to be singled out by the Commission for special regulatory burdens based on market-wide concerns. This is especially so when other market participants do not receive similar regulatory treatment. For the Commission to use the merger review process to achieve broader regulatory goals not specific to the merger is an evasion of rulemaking procedures. The Commission also risks exceeding its authority by imposing regulatory conditions on merging parties that have no express basis in the Communications Act.

Indeed, the Commission has already initiated industry-wide proceedings dealing with the regulatory treatment of both OVDs and video devices. These issues that implicate the entire video market and FCC policy should be raised in those proceedings – not in the merger review proceeding for Charter/TWC/BHN.

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.