A Cliffhanger in the FCC’s Set-top Box Drama

“Sustained fever pitch” is a fair description of the weeks leading into the planned September 29 vote on Federal Communications Commission (FCC) Chairman Wheeler’s proposal to “unlock” the set-top box. Op-eds, sizable flings, and ex parte meetings have been flying at a remarkable pace. But the tech, telecom, and content industries on tenterhooks leading up to the FCC’s open meeting Thursday morning would face quite a cliffhanger: The FCC pulled the item from the vote.

This was a surprising new plot point in a drama that has been building for some time now. Earlier this month, Wheeler unveiled the latest iteration of the so-called “#unlockthebox” proposal, which—although significantly scaled back from the original—continues to face stiff, bipartisan criticism. Wheeler’s plan would require TV providers to make free apps available on widely deployed platforms, like Roku, Apple iOS, Android, or Windows. Criticism of the proposal is partly aimed at the relative obscurity of the specifics (all we really have to go on is a fact sheet and an op-ed from Chairman Wheeler), but also the substance—specifically the FCC’s intrusive role in overseeing licensing of these applications.

Democrat Commissioner Jessica Rosenworcel last week publicly voiced concern over the FCC’s authority to oversee the licenses, in particular, and Chairman Wheeler himself recognized the need for changes to get this item over the finish line. So the path to a three-vote majority was on shaky ground, but pulling the item altogether was something of a surprise, indicating something is amiss at the FCC.

So much ink has been spilled over this item that it is hard to say anything new. But at least a quick review is in order.

First, this debate is not really about the fees to rent set-top boxes, though many have fallen for that feint. Advocates have seized on the $231-per-year figure estimated by Sens. Ed Markey (D-MA) and Richard Blumenthal (D-MA). The cost estimate is debated, but the whole discussion of fees is something of a distraction—the heart of the fight lies elsewhere. I doubt that eliminating set-top box fees will ultimately lower the cost of video delivery (after all, video providers have high fixed costs to cover regardless), and removes a tool of progressive pricing (wealthier families with more TVs shoulder more of the total costs of delivering video).

Of course, doing away with added fees on TV bills makes for popular politics. But with the pay-TV industry happy to offer free apps, this debate isn’t about set-top box fees, and isn’t even really about the set-top hardware at all. The real Sturm und Drang is over control of the user interface (UI) and access to consumer data. To the extent there is a “cash cow” that TV providers are protecting, it is not the set-top box fees but instead high-margin services like pay-per-view video or home shopping and how those are presented in the UI. The content community also has its own legitimate concerns over copyright protection, piracy, and licensing flexibility.

The only people who really like the old set-top boxes are the box manufacturers. TV providers themselves view the boxes as an unfortunate constraint on innovation. When TV providers were locked into QAM-tuner based boxes, the UI and functionalities of the offering evolved at the pace of hardware. With the gradual shift to IP-based video delivery, operators can much more easily change the way the video product is packaged. Working in software simply allows for much more flexibility and rapid iteration. Comcast’s X1 platform is a good example of this transition. So the satellite/cable industry should be happy recipients of a push towards an app-based model. This is why some opponents of the FCC’s #unlockthebox plan have framed their counter-narrative as #killthebox.

We at ITIF want to see continued dynamic competition among video platforms. The best way to achieve that is to continue the convergence of services over IP-based delivery. While additional competition and user choice for set-top hardware would be a good thing, that advance should not and need not come at the expense of flexibility to tailor contracts, protection of intellectual property, and control over how video products are presented.

Although many details are up in the air, the real crux of the debate appears to have come down to the FCC’s oversight of licensing agreements. With the tremendous pace of change in the video marketplace, there seems to be little need for highly intrusive approaches to this policy, such as the proposed FCC licensing oversight board. It is 2016: We should not have to argue that tech mandates and uniform licenses are bad for innovation.

Wheeler faced repeated questions from reporters last week on why the vote was delayed, and some of his responses got quite testy, as when he asked one reporter, “What did you not hear about what I just said?” He went on, saying, “We are in the process of the deliberations… People need time. Period.” While Wheeler asserts the vote pull was simply a matter of running out of time, I am skeptical. With editorial privileges, staff is able to smooth out edits after a vote as long as commissioners agree on key policy cuts. A plausible explanation is that Wheeler put his foot down on the licensing oversight body, and Commissioner Rosenworcel—the swing vote—put her foot down against. If so, Rosenworcel deserves tremendous credit. Wheeler is aiming to make a big impact on the tech, media, and telecom industries as he nears his tenure’s finish line and shores up his legacy. But good for Rosenworcel to slow things down and try to get this one right.