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Setting aside years of bitter discord, the cable and consumer-electronics industries last week inked a groundbreaking agreement that will marry digital cable and TV technology, paving the way for plug-and play high-definition televisions that don't require a set-top box.

But while the agreement is an important step, the two groups still must convince the Federal Communications Commission to turn the agreement's proposed rules into federal regulations, and — perhaps more importantly — convince still-wary content producers to back the deal.

The "plug-and-play" agreement between seven top cable MSOs and 14 digital-TV manufacturers will set the foundation for high-definition digital TV sets with built-in cable set-top box functions. Under the memorandum of understanding, the MSOs and electronics manufacturers have voluntarily agreed to a set of rules to govern digital-cable-enabled HDTV sets.

They include: a set of technical standards and test procedures; a framework for supporting digital TVs and devices; a draft security technology license to protect valuable content as it moves around within a home network; and encoding rules to deal with copyright issues related to home recording and viewing.

The agreement covers such one-way services as DTV. Work on a follow-up agreement covering bidirectional services, such as video-on-demand, will begin in January.

Digital TV spur

At a Dec. 19 press conference, supporters of the agreement stressed that offering TV sets that can connect directly to any cable system would spur the adoption of DTV.

The transition to digital TV has been a major national priority, and "this milestone, to me, is the most significant accomplishment in terms of actually making it happen," said Consumer Electronics Association president and CEO Gary Shapiro.

For the cable industry, it opens an important door to retail TV product, said National Cable & Telecommunications Association president and CEO Robert Sachs.

"For the first time, the cable industry will enjoy a substantial retail presence," he said. "When these devices come to market, consumers will go into a Best Buy or a Circuit City or a Sears or other consumer-electronics store, and find right next to the traditional satellite display equipment for digital-cable devices, where consumers will not need a set-top box in order to receive many of our services."

With the exception of Adelphia Communications Corp., the top MSOs — including Time Warner Cable, Comcast Corp. and Cox Communications Inc. — will back the agreement. For cable operators, meeting the proposed technical standards isn't likely to be a big problem.

That's because those standards are based in existing Society of Cable and Telecommunications Engineers' specifications, according to Comcast senior vice president of strategic planning Mark Coblitz, cable's lead negotiator.

The unidirectional devices will require a point-of-deployment interface to decode the scrambled digital-cable signal. The POD interface is a licensed technology under Cable Television Laboratories Inc.'s OpenCable specification.

"Now, this kind of television will be able to be just as if it were on the old trap system, meaning you won't need anything but the POD to slip into the slot," Coblitz said. "And as long as you are contracted for the content, you will be able to have it without the set-top."

More backing needed

But the plug-and-play agreement still hinges on FCC adoption of the associated rule proposals. The biggest challenge may be convincing the Hollywood studios to back the plug-and-play products, given their potentially contentious copy-protection and encoding elements.

The plug-and-play guidelines employ 5C, a copy-protection scheme developed by a consortium of consumer-electronics companies several years ago. The 5C specification allows content to be offered for recording or on a view-only basis.

The agreement also bans use of selectable outputs, which allow connections that aren't copy-protected — including analog jacks — to be turned off while copy-protected content is being transmitted.

"That would mean anyone who is connected via that port would not be able to view that content," Coblitz said. "The issue has not been about viewing. The issue has been about copying. And so, we have said we agree with the consumer-electronics industry that there should be no selectable outputs."

The idea was to create a balance between the needs of consumers and content producers.

"We wanted to be able to set up the circumstance — and so did the consumer-electronics guys — where that new content that needs to be more strongly protected had an opportunity to occur, and yet, there is the other side of people who have expectation to record," Coblitz said.

Content providers, who've long been worried about a Napster Inc.-like video-piracy plague, were less than enthusiastic in their reactions.

Motion Picture Association of America CEO Jack Valenti issued a decidedly neutral statement.

It was important for the FCC and Congress to encourage high-quality digital programming by providing protection against unauthorized content distribution, Valenti said.

Ball in FCC's court

"Although we question the wisdom of mandatory encoding rules, we are pleased that the CE industry agrees that the FCC has jurisdiction in this area which, contrary to opinions voiced by that sector less than two weeks ago, would certainly encompass the broadcast flag," he said in a statement.

Ultimately, the agreement places the burden for deciding the encoding standards squarely on the FCC. But that is only appropriate, given that the matter involves industries outside cable and consumer electronics, Coblitz said.

The FCC is the place to have that resolution, with all of the parties participating."

While the agreement might also appear a threat to business of such well-established cable-box vendors as Scientific-Atlanta Inc. and Motorola Inc., the consensus holds the opposite view.

"I think this sort of defines now what the next generation of set-tops will look like," said Motorola vice president and general manager of consumer gateways Carl McGrath. "There will be less need for basic pay-type digital set-tops in the future, but the reality is most of them are focused on interactive services anyway.

"While this sets the stage for agreements on where to go with two-way, I think it also recognizes now, in paper and in fact, that two-way is a tougher animal, and it is going to take some time to work out."