FCC Chairman Tom Wheeler has issued proposed set-top box rules that aim to bring more choice to the video market and reducing the need for consumers to rent out devices from MVPDs.

The proposal, billed as “simplified consumer-first, app-driven” rules and one that seemingly favors the approach preferred by cable operators, telco TV providers and satelite TV providers, will be voted on by the commission at its next open meeting, set for Thursday, Sept. 29.

RELATED: Wheeler Proposing Set-Top Standards Enforcer

In a fact sheet outlining the details of the proposal, the rules, if adopted, will give the largest U.S. pay TV providers, serving 95% of the nation’s pay TV subs, two years to come into compliance.

RELATED: Comcast Blasts Set-Top Rules Proposal, Says It Exceeds FCC’s Authority  

More specifically, large providers will have two years to comply, while medium-sized MVPDs will get an additional two years. Smaller operators (those with fewer than 400,000 subs), will not be forced to comply, but can provide apps and software “as appropriate for their business.” 

According to the proposal, the rules will require pay TV to offer consumers a free app, controlled by the MVPD, to access all the programming they pay for on a variety of devices, including tablets, smartphones, gaming systems, streaming devices or smart TVs. That, in turn, will mean consumers are no longer required to rent boxes from their provider. Notably, the proposed rules do not address data caps.

Pay TV providers are also required to provide their apps to widely deployed platforms, such as Roku, iOS, Windows and Android. FCC officials said the definition of widely deployed means operating system that has had shipments in the U.S. of at least 5 million devices during the previous year. 

RELATED: FCC’s Magical Number: 5 Million

The rules also call on MVPDs to support integrated search for linear and VOD, alongside other video services accessible on the device, such as OTT offerings. Pay TV providers would also be barred from discriminating search results or promoting the pay-TV app over other sources of programming in the search function.

MVPDs must also provide consumers with “an equivalent ability to access content via the pay-TV app as they have in the set-top box.” Because the aim is to replicate all elements of a pay TV provider’s service on qualified retail devices, the apps must also comply with existing consumer protections such as emergency alerting, privacy and accessibility functions.

One potential snag with the FCC’s proposal is that MVPDs don’t have digital rights for all programming, making it difficult to replicate the full pay TV service on an app. FCC officials said the proposal requires that MVPDs treat programmers the same on a set-top as they do on apps, believing that the rules will spur the two sides to come together to do deals that bring unify the rights for set-tops and apps. Given that the largest MVPDs have two years to comply, "they have plenty of time to do that outreach,” FCC officials said. 

To address copyright and carriage contract concerns, the proposed rules require that pay TV content will only be opened by the pay TV app using the “robust security protocols already built in to pay-TV apps.” Additionally, programming will continue to be controlled by the pay-TV provider from end-to-end, protecting content and maintaining all contracts and agreements currently in place, the proposed rules say.

The pay-TV’s software will also manage the full suite of linear and on-demand programming licensed by the pay-TV provider, and the existing distribution deals  and licensing terms between MVPDs and programmers will be unchanged.

Standard License

The FCC’s proposal also will pave the way for a “standard license” that governs this process for placing an app or device on a platform, with programmers having a “seat at the table to ensure that  content remains protected.”  The FCC will “serve as a backstop” to keep tabs on the process to that nothing in the standard license “will harm the marketplace” for competitive video devices.

The rules also aim to be “technology-neutral,” meaning they won’t mandate a specific standard for app development, though MVPDs must make apps for devices that meet the “widely deployed” threshold in the rules. 

According to FCC officials, the licensing body will create a standard license that “governs the rules of the road” for any device or platform that wants access the MVPD apps. However, the FCC does propose, down the line, to retain some oversight over the licensing bodies.

That’s because “[W]e learned our lesson in CableCARD,” officials said, holding that cable operators were able to “manipulate the licensing process” and tamp down true competition for devices. 

FCC Officials: Apps Approach Will Meet Goals 

FCC officials were also asked why Wheeler went with an apps-based approach and seemingly abandoned an alternative idea that identified three “core information streams” (service discovery, entitlements and the video programming itself) that would need to pass from MVPDs to the device maker. Cable operators, telcos and satellite TV providers favored the apps angle, while many CE-focused companies, including Google, wanted rules based on the three-stream proposal. 

FCC officials said that the original NPRM sought comment on a number of alternatives, which were vetted by the Downloadable Security Technical Advisory Committee (DSTAC) and presented to the FCC last fall, and found that the MVPD-controlled apps approach was aligned with the goals of the initiative, and made those goals easier to achieve than the alternative, and vehemently disagreed with the notion that the current proposal represents a “significant retreat” from the three-stream idea. 

What About Satellite?

FCC officials also recognized that satellite TV providers, which don’t have inherent two-way connectivity into the home, have a “unique architecture” and that, in order to comply with the rules, will likely need to deploy and maintain one box – and only one box – inside the customer’s home that can talk to retail video devices.

But the proposed rules likewise leave it up to the MVPD how they deploy an architecture that fits within the scope of the rules. The proposal doesn’t dictate one technical approach over another to support apps, and provides enough flexibly in cases where in-home equipment is required, FCC officials explained. 

FCC chairman Tom Wheeler is putting the final touches on a set-top box proposal that would create a central licensing agency to oversee standards for an apps-based approach to third-party access to video content.

Cable operators are not pleased, saying they are committed to licensing an app on reasonable terms, but that the FCC plan would create a new compulsory license.

The standards body would have to years to come up with a standard license and would enforce it, though the FCC would review its work and put it out for comment, according to an ex parte filing by the National Cable & Telecommunications Association and sources talking with FCC staffers.

The FCC would set the baseline terms of the license and be able to eliminate terms that did not promote device competition.

Read more about the FCC's efforts to create new set-top rules.

Device makers over a certain size would be eligible for the license and could negotiate additional terms with MVPDs, who would have to develop an app for the device. If an MVPD felt the terms were not doable, it could seek a waiver from providing an app for that platform.

The license would apply to both HTML5 and non-HTML apps.

Wheeler is trying to promote a competitive set-top marketplace, so MVPD apps would have to offer parity with the consumer set-top experience to the degree technically feasible. That would include things like channel lineups and recording, which MVPDs could handle via cloud DVR capability.

Cable operators with fewer than 400,000 subs would be exempt, while those with more than 400,000 and less than 1 million would get a phase-in.

MVPDs would have to let third-party devices access consumer data and would have to build in an opt-in choice in the apps for sharing personal information.

NCTA pitched an apps-based approach and wants channel lineups protected, but the centralized standards body enforcing the licenses did not sit well with the trade group.

In  a meeting with FCC staffers, NCTA execs said the proposed licensing body approach is "unnecessary and unworkable; exceeds the Commission’s authority under Section 629; essentially imposes a royalty-free compulsory copyright license on MVPDs and programmers, which would also be well beyond the Commission’s authority to adopt; and raises other legal issues."

The NCTA said MVPDs are commited to offer a standard license on reasonable terms, so a standards licensing body is unnecessary.

Wheeler is expected to bring up the proposal for a vote at the FCC's September meeting. The agency will circulate on Sept 8 its tentative agenda for the meeting.

RELATED:NAB 2016: O'Rielly Slams FCC's 'Black Box' Proposal | Complete Coverage of the FCC's Set-Top Plan

The Technology Policy Institute's Scott Wallsten says the FCC has provided no economic rationale to justify its new set-top box proposal, and provides no evidence of consumer harm from the current set-top marketplace or evidence that consumers would be better off under the FCC's proposal.

In comments to the FCC, Wallsten, VP for research and senior fellow at TPI, said that, by contrast, there is clear evidence that the set-top box marketplace is competitive.

Wallsten said the FCC needs to explain why it believes the set-top marketplace is not competitive and why regulatory intervention is necessary.

FCC chairman Tom Wheeler has said the set-top marketplace is not competitive, pointing to the fact that 99% of boxes are still leased from MVPDs.

Wallsten said the set-top marketplace is robustly competitive. He also says that the FCC's proposal would do damage to the business models of both programmers and MVPDs.

"Despite the FCC’s assurances, given the many details involved in negotiations between programmers and MVPDs it is unlikely that existing contracts could survive the new rules," he told the FCC. "The new rules would change incentives facing both programmers and MVPDs with uncertain consequences. At a minimum, the FCC should take those concerns seriously and consider the potential effects of its proposed rules."

TPI supporters include both Comcast, the largest member of set-top proposal opponent, and the National Cable & Telecommunications Association, as well as Google, one of the set-top proposal's biggest backers.

Asked about that, a spokesperson for TPI said: "We have supporters from all sides of most issues we deal with, and we don’t take positions on issues as an organization. It allows the [institute's] fellows to be independent. Scott [Wallsten] pretty thoroughly went through the FCC’s justifications for regulation and found them to be severely lacking.

The "interplay" of three pending FCC issues -- the "unlocked" set-top box proposal, privacy rules and "the ultimate resolution of  net neutrality -- is impeding cable industry development and improperly putting "a government imprimatur on the notion of competition," NCTA president/CEO Michael Powell said March 23 at the Free State Foundation’s Eighth Annual Telecom Policy Conference.

Expanding his criticism of several FCC initiatives, Powell cited the agency's "biases [towards] the development of tech companies" that "makes it possible for tech companies to invade our traditional areas" but prohibits cable firms from moving in  their direction. 

He singled out the recent privacy proposal that would affect Internet Service Providers (including cable operators) in different ways than it would impact content or application suppliers.

"Privacy is not controversial; it is the hypocritical inconsistency that is controversial," Powell said.  "You cannot describe that data collection and monetization is the justification for this level of rules while ignoring the fact that [similar actions] take place on every other platform that consumers use."

Powell challenged the FCC to find a way to differentiate "between the value of privacy and personalization" without taking a heavy-handed approach.

He also slammed the set-top box proceeding, saying that it "perfectly encapsulates government intervention."

"You cannot find one soul who doesn't recognize that there is no market that is shifting more than video delivery," Powell emphasized.  He said cable has lost 50% of its market share to new entrants, referring to telco TV and over-the-top operators. "This market is on fire."  He called the FCC's STB plan a "rent transfer" decision and an "unrestrained violation" of its role.

"All costs will be borne by customers," Powell said. He pointed out that the proposal will take at least five years to implement, "by which time the market will have changed."  The commission should not "pick winners and losers," Powell said.

His criticisms came during a panel of association executives discussing "Hot-Topic Communications Issues," part of a day-long program that included FCC commissioners Michael O'Rielly and Mignon Clyburn plus Federal Trade Commission member Maureen Ohlhausen. FSF's intent was to explore "the FCC and the rule of law," although many of the speakers focused on perceived abuses of power.

Even FCC general counsel Jonathan Sallet, in a conversation with FSF president Randolph May that was centered on procedural processes at the commission, conceded that "more direct conversations between commissioners would be a very helpful step."  Sallet, who recommended changes to sunshine laws "so that commissioners can deliberate," acknowledged that the FCC could use more input on many topics it is reviewing.

"Sometimes we know issues are in flux and we need to know more," he said.

Right-leaning FSF's agenda began with politicized rhetoric when keynoter Rep. Marsha Blackburn (R-Tenn.)  lambasted the FCC and singled out chairman Tom Wheeler as "a bull in a china shop."  Blackburn, vice chair of the House Energy and Commerce Committee and a member of its Communications and Technology Subcommittee, characterized the FCC staff as having "failed to exercise regulatory humility," citing its recent effort to oversee privacy, which she said is the FTC's responsibility.

"The FCC does not have the necessary expertise to oversee privacy," she said.  "It is arguing for a solution that is one-sided and focused only on one part of the Internet ecosystem."  

Blackburn also plowed into the issues of unlocked set-top boxes and municipal broadband, citing that Memphis "is $27 million in the hole" from its flirtation with such plans, and "the list of failures goes on and on."

"It's the government's job is to create an environment that encourages competition, not to create a system where the government is the competition," she said. "If the state decides to create broadband networks, so be it, but "the FCC has no right" to butt in.

As for the open STB issue -- which she referred to under the old "All-Vid" name -- Blackburn said, "Nashville content creators are absolutely baffled by what the FCC is trying to do." She contended that the FCC plan would encourage theft and could create conflict between FCC policy and business contracts between content producers and carriers.

"It has created a tremendous amount of confusion," Blackburn said.

"The FCC's decision-making has frustrated content makers, the telecom industry and policy makers," she concluded, emphasizing that telecom "has thrived under light-touch regulation."

Diplomatic Commissioners

FSF's May sought to explore possibilities for less politicization and more "collegiality" among FCC commissioners during his "fireside chat" with O'Rielly and Clyburn, with a series of "can't we all just get along" questions.  Both officials initially tried to be cordial.

O'Rielly: "I get along with my colleagues very well. ... I try not to let one issue color my feelings about the next one."

Clyburn: "My compass is serving the public interest. We're not in a vacuum." 

And then they got into specifics, where political polarization quickly emerged.  They disagreed on the STB plan.

"Words have meaning," O'Rielly said about the chairman's perception that software is part of the STB revision. "When Congress wrote 'equipment,' it didn't mean 'software.'"  The direction toward applications and software has nothing to do with the statute and is "problematic," he added.

Clyburn insisted that "Congress envisioned a robust marketplace...whatever the interface is."  She said that the plan is focused on "whether this is a non-competitive marketplace."

Similarly, on the privacy issue, O'Rielly pointed out that "our expertise, the number of people at the FCC working on privacy is small, compared with expertise at the FTC."  Clyburn said she doesn't use the word "duplicate" but rather focuses on "context," considering the two agencies' efforts "complementary."

"We work together to insure that expectations are met," Clyburn said.

And again when discussing the Open Internet situation, she emphasized "flexibility and innovation," while O'Rielly insisted, "You can never have certainty when you have no structure." 

"That's what the chairman created under the 'net neutrality rule," O'Rielly said.

They also sparred over proposals for "lifeline" services.  O'Rielly said he prefers "a hard budget rather than a [percentage] cap," while Clyburn insisted that the plan "removed duplicates, put in discipline and [provided] a lot of accountability."

The panel of association executives, which included (in addition to NCTA's Powell) CTIA president/CEO Meredith Baker; U.S. Telecom Association president/CEO Walter McCormick; NARUC general counsel Brad Ramsay; and Nicol Turner-Lee, VP of the Multicultural, Media, Telecom and Internet Council, continued the blast of the FCC rulemakings and its process.

Regarding muni cable, Ramsey said, "The FCC is telling the state what to do." He predicted if the Sixth Circuit appeals court in Cincinnati, which is reviewing challenges by Tennessee and North Carolina to the FCC's muni cable ruling, sides with the FCC,  the case is likely to go to the Supreme Court and it will be reversed.

McCormick focused on FCC decisions that are "slowing investment in the industry. "

"We've seen that in every year since the recession, there were increase in broadband investment up until Title II," he said, referring to the FCC's 2014 ruling to regulate broadband.  McCormick said that annual investment growth for the industry dropped from 9% to almost nothing, contending that the privacy issue has further muddied the financial market's view of telecom. He criticized FCC policies as thwarting "the full development of the telecom industry."

The CTIA's Baker focused on 5G (fifth generation) wireless as a "life-changing technology," calling it the "high-speed spectrum frontier." She emphasized the Internet of Things opportunities.

Most of the panelists were also critical of President Obama's intervention in the net -neutrality decision rulemaking which led to the now-contested Title II decision.

"It sets a bad precedent," Powell said. "Future administrations will use it as a precedent.  We might as well have a Secretary of Communications."

At an afternoon session wrapping up the "rule of law" theme, AT&T senior VP Robert Quinn promoted the value of a revision of the Communications Act.

"We have to go back to the drawing board," he said. "The Act really doesn't contemplate the kinds of things we're doing differently with the Internet.  We compete with everyone."

FSF's May said that this year's event was the best-attended conference in its eight years.

Charter Communications shed a bit more light on its downloadable security system, telling the FCC in a filing last week that it had completed two national centralized data centers to support the new platform.

Charter will be deploying the downloadable security platform in tandem with the rollout of the new IP-capable “Worldbox,” and has been rolling it out in dual-security boxes that supports an integrated form of Charter’s legacy security systems as well as the new version.

Charter deployed those dual-security boxes under an FCC waiver that expired at the end of 2015, and told the FCC last week that it was supporting 2.77 million set-tops with integrated security that were covered by that waiver. The FCC’s ban on integrated security boxes ended on Dec. 4, 2015, and is preparing to vote on a new set of set-top box rules.

“Charter commenced its deployments of a new downloadable Worldbox in 2015 and is readying deployment of Worldbox in markets throughout its footprint,” the MSO told the FCC in the filing, calling it a “closing declaration certifying its deployment of a downloadable security system.”

Speaking on Charter’s Q3 2015 call last fall, company president and CEO Tom Rutledge said the MSO was initiating deployments of its new cloud-based Spectrum guide and the Worldbox in St. Louis, Mo., and in Reno, Nev., adding that the MSO was about six weeks behind its original rollout schedule as it ironed out software issues. Humax and Cisco Systems are the known suppliers of the Worldbox (Technicolor acquired Cisco’s set-top box business last year).

Charter’s expected to provide an update on the rollout when it reports Q4 results on Thursday (February 4).

Though one aim of using boxes with downloadable security is to reduce the costs of the devices, Charter customers are not able to lease those devices at lower costs than the fees for Charter’s legacy set-tops, at least not in the early phases of deployment. “Lease charges for downloadable Worldboxes and for CableCARD-enabled set-top boxes are derived from a common equipment basket and are therefore the same,” Charter told the FCC.

Per the conditions of waiver granted by the FCC in April 2013, Charter said discussions with “a consumer electronics manufacturer are continuing,” and that the focus is on an app-based approach for service delivery, similar to Charter’s TV apps for iOS, Android, amazon Kindle and, moset recently, on Roku retail devices. Charter hasn’t announced that CE partner, but the MSO and TiVo have been in talks about a retail solution that would use Charter’s new downloadable security platform.

Charter said it met the public interest condition of making broadband service of 100 Mbps or greater available to 200,000 additional homes ahead of schedule, and is closing in on the completion of its digital conversion, noting that 99% of its subs have converted to all-digital.

For those still keeping score, the nine largest U.S. incumbent cable operators have deployed 55 million operator-supplied set-tops with CableCARD modules, compared to just 589,000 CableCARDs for deployment in retail products such as TiVo boxes, according to a National Cable & Telecommunications Association report filed with the FCC late last week.

For operator-supplied set-tops with CableCARDs, it’s a small increase from the 54 million reported by the NCTA in November 2015, and, for retail devices with CableCARD slots, a decrease from 618,000.

The NCTA has been issuing these reports since the FCC’s ban on integrated security set-tops took effect in July 2007. That ban ended on Dec. 4, 2015, per a Congressional mandate tied to the passing of the STELAR Act, which became law on Dec. 4, 2014.

The cable industry has long held that the integration ban was costly and unnecessary, but is now faced with the possibility of new set-top rules that would apply not just to cable operators, but to telco TV and satellite TV providers as well.

FCC Chairman Tom Wheeler proposed those new rules last week, claiming they will drive “choice and competition” in the set-top market. The FCC is expected to vote on the proposal at its February 18 public meeting. The proposal will need to garner three votes to pass.

Please go here for a roundup of stories about the proposal and the reactions to it.

Click here for more FCC set-top box news.

In Comcast’s turn to blast the FCC’s proposal to create new rules aimed at spurring a retail market for set-top boxes, the MSO said that, if enacted, such rules threaten to “stifle TV innovation.”

The proposal, led by FCC chairman Tom Wheeler, “would require satellite and cable TV providers to disaggregate or separate their services so that a few companies could repackage them as their own without negotiation for content rights like everybody else in the market does today,” Mark Hess Comcast’s SVP, office of the CTO, wrote Thursday in this blog post.

Hess had a front seat on FCC-appointed technical advisory committee formed a year ago to pursue potential downloadable successors to the CableCARD, and came up with multiple paths – an apps-based model favored by the cable industry, and another AllVid-style approach that discusses the idea of a "virtual headend." 

Earlier today, Wheeler said assertions that the proposal is akin to an earlier proposed AllVid regime are incorrect, and that it would not create the need for a second box and did not affect MVPD programming deals or how operators tier, bundle or price video services.

Hess argued that Wheeler’s “proposal, like prior federal government technology mandates, would impose costs on consumers, adversely impact the creation of high-quality content, and chill innovation.  It also flies in the face of the rapid changes that are occurring in the marketplace and benefitting consumers.”

Hess also echoed the arguments already laid out by the cable industry, holding that the market for competitive video devices is proliferating without government meddling, citing the rise of OTT services from Netflix and Amazon, multichannel alternatives such as Sony’s PlayStation Vue and Dish Network’s Sling TV.

As proof of the impact of the current state of competition, Hess pointed to X1, Comcast’s next-gen, IP-capable video platform, noting that it supports apps for retail mobile devices.

“Given these exciting, pro-consumer marketplace developments, it is perplexing that the FCC is now considering a proposal that would impose new government technology mandates on satellite and cable TV providers with the purported goal of promoting device options for consumers,” he wrote.

Hess also argued that the FCC’s track record on tech mandates is “has been less than stellar,” citing examples such as the CableCARD, which failed to create a vibrant retail market for set-tops and cable-ready TVs, and a mandate for 1394 outputs in set-tops “even after it was clear that other outputs had won out in the marketplace.” The FCC scuttled 1394 "FireWire" interface requirements in cable HD set-tops in 2010, as long as the boxes provided alternative access to content over IP home networks.