Part 2: The Motorola-Cisco set top duopoly is a necessity
Hard as it might be to believe, the FCC is occasionally right. When federal regulators rail about a cable set-top duopoly, they're on course. What they don't or won't recognize, though, is that this duopoly of Cisco Systems and Motorola has morphed and transformed over the years to become something that is more necessary than malevolent and not nearly as pervasive as it once appeared to be.
Cable operators are disingenuous when they claim they didn't set out to build a hierarchy of set-top boxes that sit on or adjacent to everyone's television set. They're much more honest when they say they didn't deliberately create a duopoly of vendors upon whom all set-tops reside. That, like de facto standards, is just something that evolved to the point where today two vendors dominate the security foundation on which all cable set-tops must be built.
And it's continuing to evolve.
"The duopoly, if that's the right term ... is very different today than it was even five years ago," said John Morrow, chief of staff of Cisco's service provider video technology group.
Five years ago it was very different than it was, say, 25 years ago when cable operators first pulled security off the wires outside the house and planted it in a set-top box. 
Even then, if each box were mechanically secure, there would have been--and was--room for a number of box makers ranging from Panasonic to RCA, from Oak to Magnavox. What created the duopoly was the need to addressably control multiple boxes electronically from a cable headend. When that happened, two manufacturers, General Instrument and Scientific-Atlanta (later to become Motorola and Cisco) grabbed the bull by the horns and dominated the space with their own proprietary encryption.
Slowly but inexorably as cable operators strengthened their control over analog, and later digital, transmissions, the two vendors settled into an unbreakable duopoly. Cable operators built whole systems on either GI or S-A technology--but not both.
Recent licensing agreements between the lead vendors and outsiders has cracked, if not broken, the duopoly, said Mike Pulli, president of Pace Americas and an outsider who, thanks to a stint at GI/Motorola, was once an insider.
"The breaking of the duopoly starts where we can supply product for both markets," Pulli said. "In my definition of breaking a duopoly, we've broken it. If you want to shatter it or put 10 or 15 suppliers in the space then you have to move to OCAP (the Open Cable Application Platform) and even in an OCAP world it may not totally break it but it will start putting a lot more pressure on it."
OCAP has spawned tru2way and CableCARD and other iterations and created headline news such as a deal between Cablevision Systems and Samsung to use tru2way-compatible boxes to batter the duopoly. Of course, cynics with longer memories recall Cablevision trying something similar with Sony. 
That came to nothing because, besides security, Motorola and Cisco understand cable as a business and an offering the way consumer electronics companies never have and probably never will.
First off, "it's not clear that consumers want to buy set-top boxes," said David Grubb, CTO of Motorola's home group. "There are a lot of advantages to getting the set-top box from whoever your service provider is. We haven't seen strong indicators that there's a strong consumer demand to own the set-top box."
There's never been a really strong showing that cable operators--with the exception of the occasional Cablevision foray away from the norm--want to get rid of cable boxes or that kind of consumer control.
"I don't want to say that they're used to it, but my guess is it's ingrained today in their financials," said Pulli. "If they could get rid of it, I guess they would. I know they've tried and it hasn't worked out for some reason that's well beyond my pay grade."
What's not often noticed about the set-top--except by manufacturers who spend all their time trying to differentiate what are essentially similar products--is that the boxes have morphed from channel changers to security devices to integral parts of the overall home entertainment experience.
"In some respects it's very different today than it was historically but in some respects it's similar," said Morrow. "This business is very dynamic and we have to account for industry changes at a speed and a scale today that we haven't historically had to consider."
At the same time, set-tops are being asked to do more than ever before: store and regurgitate content on-demand from either the network cloud or built-in hard drives; display interactive user guides; switch channels quickly (and that's no small feat); and, of course, keep the signal safe from any number of devices that could be used to steal it.
"I absolutely believe that there will also be a need for security (and) conditional access. That points toward at least set-top box functionality if not a set-top box incarnation. There will always be a need for rendering and formatting and set-top boxes have historically served that role. Lastly there is an undeniable need and interest on behalf of the subscriber population for a unified, easy-to-navigate experience and that has long been a source of value creation within the set-top box," Morrow said.
Vendors have, over the years, tried to blend the set-top into the home entertainment system, even going so far as to match the color of the moment-black or brushed chrome-facing of the box.
"Historically, they've been big and clunky and haven't looked good in the entertainment center," Pulli said. "This is where our customers are doing a very good job on us to say 'make them smaller, hide them, let's try to get rid of that big clunky-looking square thing that seems to take up our entertainment centers.'"
Just as CE makers don't talk cable, though, CE is a foreign language for cable vendors.
The end result is a box that's going to be around for a while, probably built primarily by two vendors--with a smattering of cable-literate outsiders and the occasional loose cannon--because that's the model that's worked and it's the model that is expected to work in the future.
"When you think about it, it's in our living rooms and we see it and it does what it needs to do," said Pulli.
And when it needs to do something different, it will do that too, added Morrow. If, despite controlling the core security of the box, the duopoly fail to keep pace, operators will go in a different direction.
"The notion of opening up and changing the competitive environment is a moot point because, trust me, we're going toe-to-toe not only with Motorola but with Samsung and Pace and other providers," Morrow said.
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