The FCC’s Media Bureau recently granted Charter’s request for a waiver of the FCC’s ban on set-top boxes with integrated security.  Significantly, the Bureau’s order acknowledged that a recent D.C. Circuit Court of Appeals decision vacated some of the FCC’s CableCARD rules adopted in 2003, and suggested that the validity of related rules adopted in 2010 may have been undermined. 

Background
As part of the Telecommunications Act of 1996, Congress directed the FCC to adopt regulations to assure the commercial availability of “navigation devices” (e.g., set-top boxes).  One aim of the law was to help develop a consumer market for set-top boxes.  This would allow consumers to have a choice of where they obtained set-top boxes – their cable operator or an electronics retailer.

Through a series of orders, the FCC determined that commercial availability of set-top boxes required separating the “conditional access” functions of the box from other functions.  “Conditional access” means the signal security codes in the box that block or enable access to encrypted programming.  The FCC encouraged development of “CableCARDs,” removable devices that contain conditional access functions.  In 2003, through two orders – a Second Report and Order, and Order on Reconsideration – the FCC adopted several rules (“collectively known as the “plug and play” technical and encoding rules”) based on a cable and consumer electronics industry memorandum of understanding (MOU) related to navigation devices and CableCARDs.  Beginning in July 2004, operators of digital cable systems were required to support CableCARDs, and make them available to customers upon request, as well as support additional technical and encoding rules for set-top boxes that would be phased in between 2004 and 2007.  On July 1, 2007, the FCC’s “Integration Ban” went into effect, prohibiting deployment of digital set-top boxes with integrated conditional access functions.

Finally, in 2010, the FCC modified some of the plug and play rules and adopted additional rules related to navigation devices and CableCARDs, including technical requirements for home networking output, self-installation, uniform CableCARD fees, and discounts for customer provided boxes.    

EchoStar, which was not a party to the MOU, challenged the rules adopted in the FCC’s 2003 Orders on grounds that the rules exceeded the FCC’s statutory authority and should not apply to all MVPDs; the D.C. Circuit Court of Appeals agreed and vacated the Orders in January 2013. 

Charter’s Waiver Request
Charter filed a two-year Integration Ban waiver request in November 2012 while the EchoStar decision was pending.  The purpose of the Integration Ban is to assure reliance by both cable operators and consumer electronics manufacturers on a common, separated-security solution.  Charter argued that its downloadable security system would achieve this purpose.  Charter, however, requested a temporary waiver to implement its “open-standard, downloadable security solution that supports third party retail devices.”  Charter explained that it needed two years to roll out downloadable security set-top boxes to customers before its cable systems would be fully ready to support downloadable security.  During this interim period, Charter would deploy boxes that include two security systems – one that includes a hardware chip that would eventually be used for downloadable security and a second that includes integrated security to be used for the two-year transitional period.  Eventually, the downloadable security system would combine software-based security with conditional access codes on the hardware chip.  The access codes would then be made available on an open royalty-free basis to encourage device manufacturers to offer devices that consumers could purchase for use on Charter’s cable systems.  Charter argued that its downloadable security system was comparable to one deployed by Cablevision under a waiver request granted by the Media Bureau in 2009.  

The Waiver
The Media Bureau granted Charter’s request, with conditions, in part to address a problem created by the EchoStar decision.  The Bureau noted that prior to the EchoStar decision, the FCC’s CableCARD technical rules furthered Congressional intent by ensuring that consumers could purchase CableCARD retail devices with the knowledge that such devices would work on their cable operators’ digital cable system.  The Bureau recognized that after the EchoStar decision there was the potential for a fractured cable set-top box market should different cable operators adopt differing non-CableCARD separated-security standards.  

Since the concept of downloadable security is fully consistent with the Integration Ban, the Media Bureau viewed Charter’s waiver as an opportunity to encourage the deployment of a technology that could provide many of the same benefits as the CableCARD.  The Bureau reasoned that its action would promote an industry-wide downloadable security standard, helping provide certainty for third-party manufactures and for consumers purchasing third-party devices.  The Bureau emphasized Charter’s commitment to adopt the same downloadable security system used by Cablevision and that this would make it more likely that other operators considering moving to a downloadable system would adopt the same established technology.  In summary, the Bureau found that its action was consistent with the Congressional mandate insofar that granting Charter’s waiver request would help assure the commercial availability of navigation devices. 

Further, the Bureau acknowledged that some of the vacated “plug and play” technical and encoding rules, as adopted by the FCC’s 2003 Orders, were subsequently modified by the FCC’s 2010 Order.  However, it declined to address the continued effectiveness of these rules.  Nonetheless, the Bureau conditioned Charter’s waiver on the cable operator continuing to indefinitely support CableCARDs and comply with the FCC’s 2010 technical rules, expressly taking this action irrespective of the EchoStar decision.  The Bureau suggested these conditions were appropriate given that Charter voluntarily agreed to continue compliance with these rules and that it could also comply with any rule changes that the FCC may enact in the future.

What This Means for You
Cable operators should consider whether downloadable security offers an effective solution for their systems.  The Media Bureau has now twice endorsed downloadable security systems as compliant with the Integration Ban.  Specifically, the Bureau endorsed the system used by both Charter and Cablevision, which combines software-based security with a hardware chip that houses conditional access codes.

Further developments could be forthcoming about the validity of the rules contained in the FCC’s 2010 Order.  The Media Bureau’s statements in defense of its 2010 Order-based waiver conditions signal that FCC staff are aware that the EchoStar decision undermined the validity of those rules and that the FCC may take action to address this uncertainty in the future.

The Integration Ban remains in effect.

If you have questions about the integration ban, the remaining CableCARD rules, or Charter’s waiver, please contact Scott Friedman at (312) 372-3930 or at sfriedman@cinnamonmueller.com, or Elvis Stumbergs at (202) 872-6881 or estumbergs@cinnamonmueller.com.