Rentals may rise on set-top boxes

The Baltimore Sun

Not long ago, the cable box we rent from Comcast went on the blink. We called the help line, turned the gadget off, turned it on, re-downloaded its programming, waited for the technician to send a "magic bullet" to resurrect it, then heard it pronounced dead of unknown causes.

The next step was relatively easy - I dropped the defunct box off at a Comcast office and picked up a new one.

All I had to do was sign a document promising to pay the company several hundred dollars if I abscond with the gadget - which I lease for 12 bucks a month. That's not an unreasonable price for a special-purpose computer that includes dual, high-definition TV tuners and a hard drive for HD recordings.

Most people who order premium cable services have similar rental deals for set-top boxes - some digital like mine, some analog, some with DVR capability and others without.

Unfortunately, the charges for these leased boxes are likely to go up next year. For this we can thank an 11-year-old law that was supposed to spur competition and help people who want to buy their own set-top cable boxes - if anyone actually wants to do that.

So far, manufacturers are hardly lining up with new models, and no one knows if consumers in significant numbers will ever care enough to go through the hassle of buying their own equipment.

Here's how it's supposed to work: On July 1, the Federal Communications Commission began requiring cable operators to separate the so-called "security" hardware and software in their cable boxes from the hardware and software that receive and record programs.

"Security" in this context is cable talk for the electronics that allow customers to subscribe to premium programming, such as HBO or Showtime. More precisely, the technology blocks premium services from reaching your TV set if you don't pay for them.

Until now, cable operators have integrated security into their set-top boxes.

As a result, one company's box wasn't necessarily compatible with another cable company's cable system.

Since people don't move that often and there's no competition in most local cable markets, this has never been a burning public issue. In fact, most people have no idea that it's possible to buy a box, and cable companies make it easy and relatively cheap to rent theirs. And, if your box breaks, as mine did, you can exchange it for a new one.

Not all these boxes, or cable systems, are created equal. Mine works pretty well, most of the time, but my son's Comcast box in Arlington, Va., is much slower and less responsive. Still, I would bet that most customers are satisfied, because there hasn't exactly been a stampede to alternatives like the well-publicized TiVo recorder. Nor have third-party manufacturers been rushing into the set-top market.

Now, however, all security programming will have to be placed on a so-called CableCard - a standardized device about the size of an overweight credit card that consumers can rent from their cable companies (Comcast charges $1.75 a month).

The CableCard will fit into a slot on all new set-top boxes, allowing those who purchase boxes to move them from one cable company to another.

CableCards already fit into some high-end TVs manufactured over the last few years. This eliminates the need for a cable box entirely if owners are willing to forego a few features.

Unfortunately, they're big features. The main failing of the first-generation CableCards in common use is that without a set-top box, a TV with a CableCard can't access Video on Demand, one of cable's most popular new services.

Although this so-called "Separable Security" was part of the Telecommunications Act of 1996, it has taken more than a decade to become reality. Why the delay?

First, cable companies and box makers had to agree on standard hardware and software to make sure every box worked on every cable system.

Second, cable companies have been dragging their feet on CableCard conversions, hoping for a reprieve from the FCC. Comcast, which has all but a fraction of the Baltimore-area market, has been particularly aggressive about seeking delays.

One reason is that cable companies make lots of money renting boxes to their customers - more than $250 million a year, according to some industry estimates.

If consumers buy their own boxes or purchase TVs equipped with CableCard slots, that steady revenue stream would suffer - and so would the market for Video on Demand and future interactive services.

On the other hand, Comcast and other cable providers have a valid complaint. They say they're willing to hook third-party CableCard boxes to their systems, but they shouldn't have to put expensive hardware that they don't need into the set-top boxes they lease to their customers.

They're also upset because the FCC exempted Verizon's new fiber-optic TV and entertainment service from the hardware requirements, under the theory that Verizon's very presence spurs competition.

Comcast was particularly incensed about replacing its cheapest, basic set-top boxes with more expensive, CableCard models that it says costs hundreds of dollars more. It asked for a waiver that would allow it to keep using its inexpensive boxes, but the FCC denied it.

That's where the consumer bite comes in. Although the ruling has no effect on existing boxes, Sena Fitzmaurice, a senior Comcast spokeswoman, said Comcast will spread the cost of the more expensive boxes it deploys in the future by increasing the fees for all set-top box rentals.

That won't happen until sometime next year, and Fitzmaurice said the company hasn't decided how much to raise monthly charges. My guess: a couple of dollars a month. Whatever the charge turns out to be, if you rent a set-top box of any type, you'll wind up paying.

The FCC says the rules are worth it to promote competition that will produce cheaper cable boxes down the road. Critics say it just gives the cable companies an excuse to raise fees.

So far, there aren't many competitors on the horizon. Sony marketed a CableCard DVR a couple of years ago, but it failed to make much of an impression. TiVo's current high-end DVR lists for $799, plus a monthly charge for its programming guide. That's hardly an enticement for current box renters.

Meanwhile, an outfit called Digeo, based in Kirkland, Wash., has developed set-top boxes for cable operators that could also wind up in consumer electronics stores. Their latest models can access programming from the Web as well as the cable company - a useful feature if your home is truly wired.

If you're satisfied with the cable box/DVR you rent for $10 to $15 a month, you may have no reason to spend hundreds up front on a third-party model. If you're not happy with your current service - or you're one of the millions who just hate your cable company - you'll welcome the competition. In the end, consumers will decide who wins this battle.

mike.himowitz@baltsun.com

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