FCC approves controversial set-top proposal by 3-2 vote

The FCC voted 3-2 to adopt a controversial Notice of Proposed Rulemaking that Chairman Tom Wheeler says will "unlock" the pay-TV set-top box leasing business.

"There is nothing complex about this," Wheeler said, before delivering his deciding vote. "It's pretty clear -- there should be more competition."

FCC Commissioners Ajit Pai and Michael O'Rielly stridently argued against the chairman's proposal, which calls for MVPDs to share information with third-party makers of set-tops and apps, allowing their products to work in their closed ecosystems. 

Both commissioners argued that the pay-TV industry is already migrating to an IP-only paradigm that uses apps and eliminates set-tops. "Our goal should not be to unlock the box. it should be to eliminate the box," Pai said. 

Calling Wheeler's proposal a "20th Century solution for a 21st Century problem," Pai said the new regulation will bog down the pay-TV industry in an expensive standards-making process, distracting operators from an ongoing trajectory towards achieving the proposals goals on their own terms. 

Further, Pai refuted the notion that pay-TV operators and third-party consumer electronics brands like Google (NASDAQ: GOOG) and TiVo are capable of hammering out the technical specifics needed to make the proposal a reality. "This proposal calls for a heavy reliance on open standards bodies performing on consensus. Would this consensus ever really happen?" Pai said. 

However, backed by Commissioners Mignon Clyburn and Jessica Rosenworcel, Wheeler was undeterred.

He dismissed the notion that his proposal is confined merely to set-top boxes -- it applies to proprietary pay-TV apps, as well, he said.

Wheeler also dismissed the notion that the proposal calls for a second decoder box to be installed on pay-TV networks -- a widely purported criticism levied against the chairman by pay-TV networks.

"Nothing in this item requires a second box in the home," he said. "Say that to yourself as many times as you like."

"The proposal does not require operators to stop using the security systems they have now," Wheeler added. "There is no multibillion-dollar re-engineering of cable systems required. There is nothing allowing third parties to disaggregate cable content and sell advertising. It takes the same product that goes through the cable system and cable box, with the same structures, and simply moves it through a different box. Existing copyrights and programming agreements are unaffected."

Wheeler said Section 629 of the Telecom Act requires the FCC to continue to look for ways to open the closed pay-TV set-top leasing business to third-party manufacturers.

Noting previous ill-fated attempts to achieve that goal, notably the CableCard initiative, Pai said, "The failure of FCC's policies is what brings us here today."

Meanwhile, explaining her support for the plan, Rosenworcel noted the rapid innovation of smart phones in recent years, with operators like AT&T (NYSE: T) and Verizon (NYSE: VZ) allowing third-party device and app makers like Apple (NASDAQ: AAPL) to create products that operate on their networks

"Smart phones have changed our lives and are changing our world, but the clunky set-top box and remote have not evolved at the same pace," she said. 

Rosenworcel added, "What we have here may or may not be the precise way forward, but something has got to give."

Responding to the FCC vote, the Future of TV Coalition -- the blanket organization established by the pay-TV industry to fight Wheeler's proposal -- issued the following statement: "We welcome a thorough vetting of the FCC's flawed AllVid proposal through the agency process. The massive outpouring of opposition to this costly and destructive rule from members of congress, the creative community, TV distributors, and public advocates reflects a basic truth: the rules under consideration will drive up consumer costs, hurt programmers (and most especially small and diversity programming), and blow a gaping hole in Congressional protections for our TV privacy -- all for an unnecessary government giveaway to Big Tech. In short, this rule does not make sense."

Separately on Thursday, the commission voted unanimously to launch an inquiry into the state of program diversity on television and the challenges independent minority channel operators face in obtaining distribution. 

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