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The FCC Should Drop Its Proposed Rules For Set-Top Boxes

Harold Furchtgott-Roth

When unleashed for lawful, limited and thoughtful purposes, the federal government has extraordinary power to do good. But when it exercises its power with little purpose and little thought—and possibly limited legality, the federal government is unlikely to do much if any good.

Consider the example of “set-top boxes.” If you are like most Americans, you don’t think about them much if it all. The Federal Communications Commission thinks about them often. Therein lies the problem.

American households choose from a largely competitive market for video services. Most Americans can choose from one of two satellite providers, often from one or more cable providers, from many over-the-air broadcast options, and from countless online options.

From among these many choices, tens of millions of American households happily choose to subscribe to cable television or satellite television. As part of that subscription, most customers also rent a device that deciphers encrypted video signals to be visible on television set or video monitor. These devices are commonly called “set-top boxes.” Most households with set-top boxes also have broadband Internet access.

Tens of millions of other American households happily choose not to subscribe to cable television or satellite television. These households do not have set-top boxes. But the most of these households also have broadband Internet access.

The set-top boxes serve useful purposes. Through encryption, they protect cable and satellite companies as well as the networks they carry from piracy, the theft of video signal. They also provide consumers with a greater degree of anonymity and privacy than the Internet about the videos they choose to view. To protect programmers and consumers alike, set-top boxes usually contain proprietary software from a specific distributor. The same software does not work for every cable and satellite company.

The current market works well. Programmers and networks that choose to make their video content available without set-top boxes over the Internet can choose to do so; those that prefer to have set-top boxes can choose to distribute through distributors that employ set-top boxes; those who are happy with either can allow distribution through either.

While there no doubt are instances of anticompetitive behavior, America’s video market largely works well. Americans look at the vast market and choose what they want. The FCC looks at the market and sees a pattern of a lack of competition in, of all things, set-top boxes. Thus the FCC has proposed new rules for set top boxes. The rules would largely outlaw the current system of proprietary set-top boxes.

The proposed rules are eerily reminiscent of the FCC’s failed efforts to require network unbundling for telecommunications service providers. Unbundling was required by statute to enable telecommunications competitors to offer services. The FCC took simple statutory language that might have done much good and turned it into tedious details that could not possibly work. The result of little competition was all too predictable.

With set-top boxes, there is no credible theory that unbundling them will enable new entry or new competition. Programmers who seek to distribute their videos without set-top boxes can already do so.

It is difficult to see who would benefit from the proposed rules. Certainly programmers would not benefit. Those who prefer no set-top box can already distribution programming directly to consumers over the Internet.

Few manufacturers of set-top boxes would benefit. With proprietary devices outlawed, only generic set-top boxes would be lawful. Manufacturers that can produce the devices more cheaply might do better. But manufacturers that specialize in customizable proprietary software and ever better security systems would have a diminished market.

Cable and satellite distributors would not benefit because they no longer differentiate as strongly their product in terms of security and privacy from purely on-line services.

Consumers would not be better off. The range of video options would be diminished, and the security and privacy currently afforded by set-top boxes would be lost.

It is not as if the FCC has failed to regulate set-top boxes in the past. The FCC has regulated, more than once. The FCC has the repeated disappointing results to prove it. Anyone who has worked on set-top box issues for more than 20 years can only roll her or his eyes. We have all seen this bad movie before. It is difficult to see why FCC efforts in 2016 will end differently.

Ultimately, the strongest argument the FCC has to impose new regulations on set-top boxes is that it claims that it legally can do so. Perhaps. The extraordinary unbundling of set-top boxes is beyond what is clearly required or contemplated by statute. Government power exercised without good judgment is a recipe for disaster. When the FCC exercises its power with little purpose and little thought, it is unlikely to do much if any good.

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