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Commission Relaxes The Cable Encryption Prohibition

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Released: October 12, 2012

Federal Communications Commission

FCC 12-126

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of
)
)

Basic Service Tier Encryption
)
MB Docket No. 11-169
)
Compatibility Between Cable Systems and
)
PP Docket No. 00-67
Consumer Electronics Equipment
)
)

Inter Mountain Cable Inc.’s Request for Waiver of )
CSR-8483-Z
Section 76.630(a) of the Commission’s Rules
)
)

RCN Telecom Services, Inc.’s, Request for
)
CSR-8525-Z
Waiver of Section 76.630(a) of the Commission’s
)
Rules
)
)

Coaxial Cable TV’s Request for Waiver of Section )
CSR-8334-Z
76.630(a) of the Commission’s Rules
)
)

Mikrotec CATV LLC’s Request for Waiver of
)
CSR-8528-Z
Section 76.630(a) of the Commission’s Rules
)

REPORT AND ORDER

Adopted: October 10, 2012

Released: October 12, 2012

By the Commission: Chairman Genachowski issuing a statement; Commissioners McDowell and Pai
approving in part, concurring in part and issuing separate statements.

TABLE OF CONTENTS

Heading

Paragraph #

I.
INTRODUCTION...........................................................................................................................1
II. BACKGROUND.............................................................................................................................2
III. DISCUSSION..................................................................................................................................8
A. Systems Eligible to Encrypt .......................................................................................... 9
B. Benefits of Permitting Basic Service Tier Encryption..................................................12
C. Consumer Protection Measures to Reduce Burdens on Subscribers ...........................16
D. Legal Basis .......................................................................................................................34
E. Waiver Requests ..............................................................................................................37
IV. CONCLUSION..............................................................................................................................38
V. PROCEDURAL MATTERS ........................................................................................................39
VI. ORDERING CLAUSES ...............................................................................................................44
APPENDIX A - Final Rules
APPENDIX B - Final Regulatory Flexibility Analysis
APPENDIX C - List of Commenters and Reply Commenters

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I.

INTRODUCTION

1. With this Report and Order (Order), we amend our rules to allow cable operators to encrypt
the basic service tier in all-digital cable systems if they comply with certain consumer-protection
measures. As discussed below, this rule change will benefit consumers who can have their cable service
activated and deactivated from a remote location. By allowing remote activation and deactivation, we
expect our amended rules will result in benefits to both cable operators and consumers by significantly
reducing the number of truck rolls associated with provisioning service and significantly reducing the
need for subscribers to wait for service calls to activate or deactivate cable service. At the same time, we
recognize that this rule change will adversely affect a small number of cable subscribers who currently
view the digital basic service tier without using a set-top box or other equipment. If a cable operator
decides to encrypt the digital basic tier, then these subscribers will need equipment to continue viewing
the channels on this tier. To give those consumers time to resolve the incompatibility between consumer
electronics equipment (such as digital television sets) and newly encrypted cable service, we require
operators of cable systems that choose to encrypt the basic service tier to comply with certain consumer
protection measures for a period of time. In addition, we note that this rule change may impact the ability
of a small number of subscribers that use certain third-party equipment that is not CableCARD
compatible to access channels on the basic service tier. To address this issue, we require the six largest
incumbent cable operators to comply with additional requirements that are intended to ensure
compatibility with certain third-party-provided equipment used to access the basic tier.

II.

BACKGROUND

2. In the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Cable
Act”), Congress sought to make sure that consumer electronics equipment could receive cable
programming and that compatibility issues did not limit the premium features of that equipment. Section
17 of that law added Section 624A to the Communications Act of 1934, as amended.1 Section 624A
requires the Commission to issue regulations to assure compatibility between consumer electronics
equipment and cable systems.2 In 1994, the Commission implemented the requirements of Section 624A
in part by adding Section 76.630(a) to its rules.3 Section 76.630(a) prohibits cable operators from
scrambling or encrypting signals carried on the basic tier of service.4 Encryption is an essential
component of a conditional access system, which cable operators use to ensure that subscribers receive
only the services that they are authorized to receive.5 Nevertheless, the Commission determined that this
rule would significantly advance compatibility by ensuring that all subscribers would be able to receive
basic tier signals “in the clear” and that basic-only subscribers with cable-ready televisions would not
need set-top boxes.6 The Commission concluded that “[t]his rule also will have minimal impact on the


1 47 U.S.C. § 544a.
2 Id.
3 See Implementation of Section 17 of the Cable Television Consumer Protection and Competition Act of 1992:
Compatibility between Cable Systems and Consumer Electronics Equipment
, 9 FCC Rcd 1981, 1990-92, ¶¶ 49-59
(1994) (“Compatibility Order”).
4 47 C.F.R. § 76.630(a). Section 76.630(a), in pertinent part, provides that “[c]able system operators shall not
scramble or otherwise encrypt signals carried on the basic service tier. Requests for waivers of this prohibition must
demonstrate either a substantial problem with theft of basic tier service or a strong need to scramble basic signals for
other reasons.” Id.
5 Nondiscrimination in Distribution of Interactive Television Services Over Cable, 16 FCC Rcd 1321, 1332, n.27
(2001). Encryption is defined as “the transformation of data into a form unreadable by anyone without a secret
encryption key.” See H. Newton, Newton’s Telecom Dictionary 300 (20th ed. 2004).
6 Compatibility Order, 22 FCC Rcd at 1990-92, ¶¶ 49-59.
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cable industry in view of the fact that most cable systems now generally do not scramble basic tier
signals.”7
3. In the mid-1990’s, cable operators began to upgrade their systems to offer digital cable
service in addition to analog cable service (hybrid service).8 More recently, many cable operators have
transitioned to more efficient all-digital service, freeing up spectrum to offer new or improved products
and services like higher-speed Internet access and high definition programming.9 After a cable operator
transitions to an all-digital system, most of its subscribers have at least one cable set-top box or retail
CableCARD10 device in their homes.11 We expect that the percentage of homes with set-top boxes or
retail CableCARD devices will continue to increase as more cable operators eliminate analog service
from their systems in favor of more efficient digital service.12
4. The percentage of homes with set-top boxes or CableCARD devices is high because most
cable systems now scramble most of their signals. As cable operators began to transition programming
on their cable programming service tier (“CPST”)13 to digital, many program carriage agreements


7 Id. at 1991, ¶ 55.
8 See generally http://www.ncta.com/About/About/HistoryofCableTelevision.aspx.
9 Bend Cable Communications, LLC, Request for Waiver of Section 76.1204(a)(1), 22 FCC Rcd 209, 217-8, ¶¶ 24-
25 (MB 2007); Brier Dudley, Comcast: All customers will need adapters soon, THE SEATTLE TIMES, August 15,
2012, available at
http://seattletimes.nwsource.com/html/technologybrierdudleysblog/2018925960_comcast_all_customers_will_nee.h
tml.
10 CableCARD devices are devices that can access linear digital cable service when paired with a CableCARD. See
Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation
Devices; Compatibility Between Cable Systems and Consumer Electronics Equipment
, 18 FCC Rcd 20885 (2003).
See also infra, note 14 explaining the CableCARD standard. Some CableCARD devices, such as the TiVo digital
video recorder and the Ceton InfiniTV 4 tuner for personal computers are available for purchase at retail. Others,
such as the set-top boxes produced by Motorola Mobility and Cisco, are only available for lease from a cable
operator. Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of
Navigation Devices
, 25 FCC Rcd 14657 (2010).
11 See Ian Olgeirson, Mari Rondeli, and Michelle Ow, Q3 video subscriber trends improve but still lack real
strength
, MULTICHANNEL MARKET TRENDS (SNL Kagan, Charlottesville, VA), Nov. 16, 2011, available at
http://www.snl.com/interactivex/article.aspx?id=13666901&KPLT=6 (reporting that 78.3 percent of cable
subscribers are digital subscribers, which would necessitate a set-top box or CableCARD). Some consumers
currently use devices with QAM tuners to receive digital service without a set-top box or CableCARD to view
unencrypted basic service tier programming, but data that Cablevision filed with the Media Bureau indicates that the
number of subscribers in this category is extremely limited, e.g., only one-tenth of one percent of subscribers. See
Cablevision Reply, MB Docket No. 08-168, at 1-2 (filed Nov. 16, 2009) (reporting that Cablevision has more than
700,000 subscribers in New York City); Letter from Michael E. Olsen, Senior Vice President, Legal Regulatory and
Legislative Affairs, Cablevision Systems Corporation, to Marlene H. Dortch, Secretary, Federal Communications
Commission, MB Docket No. 09-168 (Aug. 11, 2011) (reporting that Cablevision deployed 739 free set-top boxes to
basic service tier subscribers as a condition of its basic service tier encryption waiver, representing roughly one-
tenth of one percent of Cablevision’s subscribers in New York City). See also infra, n. 21 (defining “QAM”).
12 See BendBroadband Comments at 4 (reporting that set-top boxes are in 100 percent of BendBroadband’s
subscribers’ homes, up from 55 percent before BendBroadband’s transition to all-digital service); Comcast
Comments at 3-4 (announcing Comcast’s goal of transitioning at least 50 percent of its footprint to all-digital
service); TWC Comments at 2-3 (describing an all-digital conversion pilot project in Augusta, Maine).
13 On most cable systems, the basic service tier includes broadcast stations and public access services, whereas the
CPST generally includes other popular non-broadcast programming services. See TCR Sports Broadcasting
Holding, L.L.P. d/b/a Mid-Atlantic Sports Network v. Time Warner Cable Inc
., 25 FCC Rcd 18099, 18102, ¶ 5.
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required cable operators to encrypt that programming as a condition of carriage.14 In addition, cable
operators use encryption as part of their conditional access system to ensure that cable service is available
only to those who have paid for it.15 Particular methods of encryption, however, vary across cable
systems, which could lead to incompatibility between consumer devices and cable service.16 In 2003, the
Commission adopted the CableCARD standard to address this incompatibility problem.17 The
CableCARD, which subscribers must lease from their cable provider either as a part of a leased set-top
box or separately for use in a compatible retail television or set-top box,18 decrypts the cable services. At
present, over 78 percent of all cable subscribers have at least one leased set-top box or retail CableCARD
device in their home.19 Cable operators who offer only digital service indicate that all of their subscribers
have at least one leased set-top box or retail CableCARD device.20 Some cable subscribers rely on QAM


14 “Many cable program networks want to require cable operators to encrypt all of their signals, including standard
definition digital signals. Doing so would require [a CableCARD or set-top box for use with] every single digital TV
set.” Letter from Mark Palchick, Counsel to Massillon Cable TV, to Marlene H. Dortch, Secretary, Federal
Communications Commission, CSR-7229-Z, CS Docket No. 97-80, at Attachment at 7 (July 31, 2009). See also
Montgomery County, Maryland Reply, MB Docket No. 10-91, at 9 (filed Aug. 12, 2010) (“The majority of cable
operators now encrypt all but their broadcast channels and PEG access channels.”).
15 Historically, cable operators have prevented subscribers from receiving signals to which they do not subscribe
through the use of physical “traps” installed between the subscriber’s equipment and the cable operator’s plant,
which block or scramble a signal. WALTER CICIORA ET AL, MODERN CABLE TELEVISION TECHNOLOGY 824-6 (2d
ed. Morgan Kaufmann Publishers 2004). Digital encryption technology, in contrast, allows a cable operator to
change the services that a subscriber receives without visiting the subscriber’s home and is more effective at
preventing unauthorized access to content. Id. at 875-892.
16 In the late 1990s, the Commission recognized that this diversity in encryption techniques could present a barrier to
compatibility between retail devices and cable services because consumer electronics manufacturers could not build
complex, system-specific decryption technology into their devices, and cable operators did not wish to entrust
consumer electronics manufacturers with the complex encryption algorithms used to protect cable content.
Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation
Devices
, Notice of Proposed Rulemaking, 12 FCC Rcd 5639, 5653-7, ¶¶ 30-36 (1997).
17 Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation
Devices; Compatibility Between Cable Systems and Consumer Electronics Equipment
, 18 FCC Rcd 20885 (2003).
The CableCARD standard separates the encryption function from all other functions of a television or set-top box;
the CableCARD is designed to decrypt the system-specific encryption and re-encrypt the signal into the nationally
supported dynamic feedback arrangement scrambling technique (DFAST). Id. This permits consumer electronics
device manufacturers to build nationally portable devices that are compatible with cable systems nationwide. Id.
18 Retail CableCARD devices (such as set-top boxes, computer peripherals, and television sets) come without
CableCARDs installed; subscribers who purchase such devices must lease the CableCARD from the cable operator
and install it in the device in order to view encrypted programming. See id.; Implementation of Section 304 of the
Telecommunications Act of 1996: Commercial Availability of Navigation Devices
, 25 FCC Rcd 14657 (2010).
Leased set-top boxes usually come with the CableCARD preinstalled by the manufacturer. Implementation of
Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation Devices
, 25 FCC Rcd
14657, 14660-1, ¶ 5 (2010).
19 Ian Olgeirson, Mari Rondeli, and Michelle Ow, Q3 video subscriber trends improve but still lack real strength,
MULTICHANNEL MARKET TRENDS (SNL Kagan, Charlottesville, VA), Nov. 16, 2011, available at
http://www.snl.com/interactivex/article.aspx?id=13666901&KPLT=6.
20 RCN Comments at 2 (“all legitimate RCN video subscribers already use set-top boxes or CableCARDs to access
cable service”); BendBroadband Comments at 4 (“every single one of BendBroadband’s 35,000 customers has at
least one set-top box and there [are] over 2.7 set-top boxes on average per household in the system.”). See also
Comcast Comments at 14 (“across Comcast’s footprint, approximately 90% of its customers take digital service, and
the average digital customer has 2.5 STBs or DTAs.”).
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tuners21 in television sets and consumer electronics devices that allow access to unencrypted digital cable
service without additional equipment,22 but, based on the record before us, we believe that few consumers
rely on them for primary access to cable service.23 The fact that most cable subscribers already have a
cable set-top box or retail CableCARD device significantly reduces the number of subscribers who
benefit from the prohibition on encryption of the basic service tier in all-digital systems in contrast to
systems that carry analog service.24
5. Our rules state that requests for waiver of the encryption prohibition “must demonstrate either
a substantial problem with theft of basic tier service or a strong need to scramble basic signals for other
reasons.”25 Prior to 2010, the Commission had waived the rule based only on theft of service.26 Recently,
the Commission has received several requests for waiver of the rule prohibiting encryption of the basic
service tier based on the argument that the rule imposes more burdens than benefits as cable operators
transition to all-digital systems.27 The petitioners argue that there are very few people who subscribe only
to the basic service tier in all-digital systems, and that access to the basic tier would therefore be
unaffected by encryption for the overwhelming majority of subscribers to such systems because they


21 “QAM” refers to quadrature amplitude modulation, the modulation technique that cable operators use to transmit
data using traditional 6 MHz RF channels. CICIORA ET AL, supra note 15, at 12 (2d ed. Morgan Kaufmann
Publishers 2004). This technique is analogous to the 8-VSB modulation technique that over-the-air broadcast
television uses to transmit data. Id. at 137-81. Section 15.117(i) of the Commission’s rules requires all television
reception devices shipped in interstate commerce to include digital television (DTV) tuners. 47 C.F.R. § 15.117(i)
(setting forth an implementation schedule for devices to include DTV tuners and stating that as of March 1, 2007 all
television reception devices shipped in interstate commerce must include DTV tuners). Many devices that include
digital tuners can receive both QAM signals transmitted by cable operators and 8-VSB signals transmitted by
broadcast stations. See The FCC's Office of Engineering and Technology Releases Report on Tests of Prototype TV
White Space Devices
, 23 FCC Rcd 16007, 16046 (2008).
22 We understand, anecdotally, that these devices often are non-primary devices in households, such as television
sets in guest rooms and kitchens.
23 See supra n.11.
24 We note that a limited number of subscribers in all-digital homes may use second or third television sets to access
unencrypted digital basic service tier service without set-top boxes or CableCARDs, but data that Cablevision filed
with the Media Bureau suggests that the number of subscribers in this category is relatively small, because few
people took advantage of free equipment offered to subscribers that accessed digital basic service without set-top
boxes or CableCARDs. Letter from Michael E. Olsen, Senior Vice President, Legal Regulatory and Legislative
Affairs, Cablevision Systems Corporation, to Marlene H. Dortch, Secretary, Federal Communications Commission,
MB Docket No. 09-168 (Aug. 11, 2011).
25 47 C.F.R. § 76.630(a).
26 See Liberty Cablevision of Puerto Rico, Inc. Petition for Waiver of Section 76.630(a) Basic Tier Scrambling, 15
FCC Rcd 15064 (CSB 2000); Centennial Puerto Rico Cable TV Corp. Petition for Waiver of Section 76.630(a)
Basic Tier Scrambling
, 18 FCC Rcd. 7736 (MB 2003). Theft of service occurs when unauthorized users physically
connect their outlets to the cable plant. For example, people would climb poles and connect the cable operator’s
coaxial cable to homes that do not subscribe to cable service. See Liberty Cablevision of Puerto Rico, Inc. Petition
for Waiver of Section 76.630(a) Basic Tier Scrambling
, 15 FCC Rcd 15064, 15065-6, ¶¶ 5-6 (MB 2000). Cable
operators combat the theft problem by educating consumers, penalizing offenders, pursuing civil actions, and
assisting law enforcement officials in criminal actions. Id. at 15065, ¶ 3.
27 See, e.g., Inter Mountain Cable Inc.’s Request for Waiver of Section 76.630(a) of the Commission’s Rules, CSR-
8483-Z (filed April 13, 2011); RCN Telecom Services, Inc.’s, Request for Waiver of Section 76.630(a) of the
Commission’s Rules, CSR-8525-Z (filed Aug. 12, 2011) (“RCN Request”); Cablevision Systems Corporation’s
Request for Waiver of Section 76.630(a) of the Commission’s Rules, MB Docket No. 09-168 (filed Aug. 19, 2009)
(“Cablevision Request”).
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already have a set-top box or CableCARD-equipped retail device.28 Furthermore, they contend,
encrypting the basic service tier in an all-digital system would eliminate the need for many service calls
because it would allow cable operators to enable and disable cable service remotely, activating and
deactivating the encryption capability of set-top boxes and CableCARDs from the headend rather than
visiting subscribers’ homes.29 Today, cable operators typically must manually connect and disconnect the
cable that runs to a home to activate or deactivate service and use traps to block access to particular
channels.30 If the cable operator were allowed to encrypt every signal, the operator could keep every
home connected to the cable plant regardless of whether the home subscribes to cable service. In
addition, the operator could ensure that only paid subscribers are able to access the service by authorizing
and deauthorizing CableCARDs, or other legitimate devices, as people subscribe to or cancel cable
service.31
6. In January 2010, the Media Bureau granted a conditional waiver of the rule that prohibits
encryption of the basic service tier to Cablevision with respect to Cablevision’s New York City systems,
which are all-digital.32 The Bureau based its decision on the fact that encryption of the basic service tier
on Cablevision’s all-digital systems would allow Cablevision to enable and disable cable service
remotely.33 The Bureau also found that remote activation and deactivation of cable service would
“reduce[] costs for Cablevision, improve[] customer service, and reduce[] fuel consumption and CO2
emissions.”34 Remote activation and deactivation, the Bureau concluded, would reduce installation costs
for Cablevision’s subscribers and also benefit these subscribers by reducing the number of occasions
when they must wait at home for a service call, as compared to unencrypted cable systems.35 The Bureau
reasoned that Cablevision would sufficiently address the problem of incompatibility with consumer
electronics “by providing basic-only subscribers with set-top boxes or CableCARDs without charge for
significant periods of time.”36 Finally, the Bureau also concluded that the waiver would “provide an


28 See RCN Request at 1-2.
29 Id. at 6-7.
30 See supra, n.15.
31 Without the CableCARD, which is necessary to decrypt the service, a device cannot decrypt and display any
encrypted signals it receives. Therefore, if all signals are encrypted, cable operators can send cable signals into
every home passed without allowing non-subscribers to access the service. While cable operators cannot activate
service instantaneously – subscribers will need to obtain CableCARDs or set-top boxes from their providers to
receive service – delivery of CableCARDs or set-top boxes to and from subscribers is much easier logistically than
scheduling an appointment with consumers to connect or disconnect a specific home. See Cablevision Request at 4
(“Customers could pick up a digital set-top box at a walk-in center or have it shipped directly to their home, plug in
the digital box for any level of service, and enjoy it immediately, without waiting for a service appointment to install
or reactivate a drop.”). We note that as of November 1, 2011, our rules require all cable operators to allow self-
installation of CableCARDs in devices, provided that the device manufacturer or vendor includes appropriate
installation instructions and a manned toll-free telephone number to answer installation questions. 47 C.F.R. §
76.1205(b)(1); Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of
Navigation Devices
, 25 FCC Rcd 14657, 14669-14673, ¶¶ 20-29 (2010).
32 Cablevision Systems Corporation’s Request for Waiver of Section 76.630(a) of the Commission’s Rules, 25 FCC
Rcd 134 (MB 2010) (“Cablevision Waiver”).
33 Id. at 139, ¶ 12.
34 Id.
35 Id.
36 Id. As a condition of waiver, the Bureau required Cablevision to offer “(a) current basic-only subscribers up to
two set-top boxes or CableCARDs without charge for up to two years, (b) digital subscribers who have an additional
television set currently receiving basic-only service one set-top box or CableCARD without charge for one year, and
(c) current qualified low-income basic-only subscribers up to two set-top boxes or CableCARDs without charge for
(continued….)
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experimental benefit that could be valuable in the Commission’s further assessment of the utility of the
encryption rule,”37 and therefore required Cablevision to file three reports detailing the effect of
encryption on subscribers.38 Four cable operators have filed similar petitions for waiver with the
Commission’s Media Bureau since the release of the Cablevision Waiver.39
7. In the wake of these petitions as well as requests from Public Knowledge and Media Access
Project for the Commission to deal with the basic service tier encryption issue by launching a rulemaking
proceeding,40 the Commission issued a Notice of Proposed Rulemaking in October 2011.41 The
Commission proposed to allow cable operators to encrypt the basic service tier in all-digital systems,
subject to conditions that would minimize disruption for affected subscribers by providing a transition
period in which to make informed choices about purchasing or leasing new equipment to continue
accessing service.42 Based on the reports that Cablevision submitted as a condition of its waiver, the
Commission in the Encryption NPRM predicted that the rule change would reduce truck rolls and service
calls with modest adverse effects on few subscribers.43 We received comments or reply comments on the
Encryption NPRM from 34 parties, and a number of subsequent ex parte filings. The parties’ positions
are described in the ensuing Discussion.

III.

DISCUSSION

8. Because of the public benefits associated with allowing all-digital cable operators to encrypt
the basic service tier, we amend our rule to permit this practice as long as the cable operator complies
with certain consumer protection measures.44 Encryption of all-digital cable service will allow cable
(Continued from previous page)__________________
five years.” Cablevision Waiver, 25 FCC Rcd at 136, 139-140 ¶¶ 5, 15. The boxes that Cablevision offered to its
subscribers are capable of outputting a high-definition picture. Id.
37 Id. at 140, ¶ 16.
38 The Bureau required Cablevision to file those reports at the 3, 6 and 12-month intervals from the date on which
Cablevision encrypted its basic signals, and stated that the reports must include (i) the number of customer
complaints related to the waiver, (ii) the number of set-top boxes and CableCARDs described above that were
provided at no charge, (iii) the number of installations provided at no charge, (iv) the impact of the waiver on the
reduction in truck rolls, and (v) any further steps that it took in order to effectively manage the encryption process
and the impact on its customers. Id. Cablevision has filed these reports, and they are discussed in more detail in
paragraphs 7 and 12. See Letter from Michael E. Olsen, Senior Vice President, Legal Regulatory and Legislative
Affairs, Cablevision Systems Corporation, to Marlene H. Dortch, Secretary, Federal Communications Commission,
MB Docket No. 09-168 (Oct. 29, 2010); Letter from Michael E. Olsen, Senior Vice President, Legal Regulatory and
Legislative Affairs, Cablevision Systems Corporation, to Marlene H. Dortch, Secretary, Federal Communications
Commission, MB Docket No. 09-168 (Feb. 4, 2011); Letter from Michael E. Olsen, Senior Vice President, Legal
Regulatory and Legislative Affairs, Cablevision Systems Corporation, to Marlene H. Dortch, Secretary, Federal
Communications Commission, MB Docket No. 09-168 (Aug. 11, 2011).
39 Inter Mountain Cable Inc.’s Request for Waiver of Section 76.630(a) of the Commission’s Rules, CSR-8483-Z
(filed April 13, 2011); RCN Request; Coaxial Cable TV’s Request for Waiver of Section 76.630(a) of the
Commission’s Rules, CSR-8334-Z (filed April 13, 2010); Mikrotec CATV LLC’s Request for Waiver of Section
76.630(a) of the Commission’s Rules, CSR-8528-Z (filed Sept. 7, 2011).
40 PK & MAP Comments, MB Docket No. 09-168, at 2-3 (filed Oct. 22, 2009); PK & MAP Reply, MB Docket No.
09-168, at 2-4 (filed Nov. 16, 2009).
41 Basic Service Tier Encryption; Compatibility Between Cable Systems and Consumer Electronics Equipment, 26
FCC Rcd 14870 (2011) (“Encryption NPRM”).
42 Encryption NPRM, 26 FCC Rcd 14870, 14878-80, ¶¶ 11-14 (2011).
43 Id. at 14876-77, ¶ 8 (2011).
44 At ACA’s request, we clarify that under our rule cable operators will be permitted, but not required, to encrypt the
basic service tier. ACA Comments at 12.
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operators to activate and deactivate cable service remotely, thus relieving many consumers of the need to
schedule appointments when they sign up for or cancel cable service. In addition, encryption will reduce
the number of truck rolls necessary for manual installations and disconnections, reduce service theft, and
establish regulatory parity between cable operators and their satellite competitors, who are not subject to
the encryption rule. We find these benefits offset the increased burdens that may result from encryption
of the basic service tier. Recognizing, as noted above, that some consumers rely on unencrypted basic tier
service, we adopt narrowly tailored consumer protection measures to help ease the transition to encrypted
service for those consumers. In the sections below, we first discuss which systems will be allowed to
encrypt the basic service tier. Then we discuss the benefits associated with permitting all-digital cable
operators to encrypt the basic service tier, as well as the burdens associated with our rule change and
consumer protection measures we adopt to mitigate those burdens. Finally, we discuss the legal basis for
the rule changes.

A.

Systems Eligible to Encrypt

9. In the Encryption NPRM, the Commission proposed to allow encryption of the basic service
tier only with respect to all-digital systems “because remote activation and deactivation of cable service,
and its attendant benefits, are only feasible in all-digital systems.”45 For this reason, we limit encryption
eligibility of the basic tier to all-digital systems. The Commission proposed to define an “all-digital”46
system as one in which “no television signals are provided using the NTSC system.”47 As explained
below, we adopt our proposed definition, finding that it will best achieve our goal of facilitating remote
activation and deactivation of cable service “while minimizing interference with the special functions of
subscribers’ television sets.”48
10. Commenters suggested several substantive changes to our proposed rule. Several
commenters suggested that we extend encryption eligibility to cable operators that offer unencrypted
analog “barker channels.”49 Mikrotec and Inter Mountain Cable suggested that operators should be
allowed to encrypt the basic service tier as long as all “programming”50 on the basic tier is transmitted
digitally and “if that condition is met, then there should be no concern that the system otherwise uses
analog modulation.”51 They also suggest that eligibility to encrypt should be determined subscriber-by-


45 Encryption NPRM, 26 FCC Rcd at 14877, ¶ 9 (2011). Public Knowledge and Media Access Project note in their
comments that remote activation and deactivation are technically feasible if the cable operator does not encrypt any
of its analog programming and delivers all of that programming to every house regardless of whether the house
subscribes. PK and MAP Comments at 13. Nothing in our current rules would prevent an operator from delivering
unencrypted all tiers of service if they wanted to, but no commenter suggested that cable operators want to deliver
all analog programming unencrypted—delivering program unencrypted increases the chance for theft of service.
46 Encryption NPRM, 26 FCC Rcd at 14877-8, ¶ 9 (2011).
47 Id. at 14883, Appendix A.
48 See 47 U.S.C. § 544a(c)(1) (directing the Commission to adopt regulations that “minimize interference with or
nullification of the special functions of subscribers’ television receivers.”).
49 NCTA Comments at 10-11; Eric Kotz Comments at 3; Comcast Comments at 8, n.19; ACA Reply at 11. NCTA
explains that cable operators may transmit “analog barker channels explaining how to subscribe or promoting digital
services, and may even combine locally-inserted informational channels.” NCTA Comments at 10. The term
“barker channel” generally refers to menu, directory, or promotional video channels. See Implementation of
Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation
, 9 FCC Rcd
4119, 4157, n.118 (1994); Playboy Entertainment Group, Inc. v. U.S., 30 F.Supp.2d 702, 719 (D. Del. 1998).
50 Mikrotec and Inter Mountain Cable define “programming” to include “TV station programming, the PEG channel
programming and any cable network programming (e.g., CNN, TNT).” Mikrotec and Inter Mountain Cable
Comments at 3.
51 Id.
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subscriber, not on a system-by-system basis, because cable operators may elect to transition portions of
systems to all-digital piecemeal, and the rule should not discourage that practice.
11. We believe the best criterion for eligibility to encrypt the basic service tier is that the system
carries only digital signals aside from unencrypted analog barker channels. Encryption on hybrid systems
(that is, systems that transmit signals in analog and digital) would not generate the benefits associated
with encryption on all-digital systems because the analog portion of the system will still require truck
rolls to activate and deactivate service and the Commission does not have a separated security solution
like CableCARD to ensure that retail devices can access scrambled analog cable programming. 52
Therefore, permitting hybrid systems to encrypt would not result in the type of benefits that justify easing
the encryption requirement for all-digital systems. We do not believe that it is practical to adopt Mikrotec
and Inter Mountain Cable’s proposal to determine eligibility for encryption on a consumer-by-consumer
basis,53 because encryption disparity on a consumer-by-consumer basis could lead to consumer confusion:
under this proposal, one subscriber could be subject to encryption (and the commensurate consumer-
protection measures described below), while his neighbor could face no encryption and be able to access
channels on the basic service tier. The administrative burdens of determining the applicability of the rule
would also make such a proposal unreasonable. Therefore, we believe that our rule, which determines
eligibility for encryption on a system-wide basis, is more reasonable and will better serve the public
interest.54

B.

Benefits of Permitting Basic Service Tier Encryption

12. Remote Activation and Deactivation. Based on examination of the record, we are persuaded
that allowing encryption of the basic service tier on all-digital systems will reduce the need for many
consumers to schedule a service call and wait for the cable technician to arrive before initiating or
terminating their cable service. ACA states in its comments that physical connection and disconnection
of cable service in all-digital systems is “unnecessary but for the existence of the basic service tier
encryption prohibition.”55 Comcast predicts that encrypting the basic service tier will allow the company
to perform nearly half of its activations and 90 percent of its deactivations remotely.56 Cablevision


52 Public Knowledge and Media Access Project propose that hybrid systems (systems that carry analog and digital
video programming) should be eligible to encrypt if (1) the operator does not encrypt any channels it provides via
analog transmission, and (2) the operator uses remote activation and does not require a service visit to begin service.
PK & MAP Comments at 13. We do not believe that this approach would be any different in practice than the rule
we adopt, which prohibits hybrid systems from encrypting the basic service tier, because no operator would be able
to meet the second criterion. As Cablevision explains in its comments, remote activation is not feasible for every
new subscriber until every home has an active and encrypted connection to the cable network, which would not be
the case for the analog portion of the hybrid system. Cablevision Comments at 12-13. To the extent that digital
service is encrypted but the operator also provides an analog barker channel that is unencrypted, the operator is still
able to remotely activate and deactivate service.
53 Mikrotec and Inter Mountain Cable suggest that we allow encryption when “[n]o television programming is
provided to the subscriber using the NTSC system.” Mikrotec and Intermountain Cable Comments at 8 (emphasis
added).
54 As discussed below, as a consumer-protection measure, we will require cable operators that choose to encrypt to
notify all subscribers about encryption of the basic service tier and to offer them free set-top boxes for a period of
time. See infra ¶¶ 16-24.
55 ACA Comments at 3; see also Public Knowledge Comments at 4-5, Comcast Comments at 4-6.
56 Comcast Comments at 6-7. Comcast explained that, “[r]emote service activations are likely to be commonplace in
situations where a new customer is signing up for cable service that involves a simple connection of a set-top box or
CableCARD-enabled device to a TV set, or connecting a cable modem for high-speed Internet service to a single PC
or laptop.” Letter from Jonathan Friedman, Counsel for Comcast Corporation, to Marlene H. Dortch, Secretary,
Federal Communications Commission, MB Docket No. 11-169 (Jan. 20, 2012). Consumers who subscribe to
(continued….)
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reports that, since it received waiver of the encryption prohibition, 99.5 percent of its deactivations were
performed remotely and a growing number of its new customers are eligible for remote activation.57 The
result for consumers is that in many cases they will no longer need to rearrange their schedules to wait for
cable technicians to arrive at their homes in order to activate and deactivate their cable service, making
activation and deactivation of service much more convenient.58
13. In addition to the projected time savings for subscribers because of remote activation and
deactivation, the record is replete with secondary benefits that cable operators and their customers will
realize as a result of remote service change. These include savings for cable operators because of a
reduction in the need to dispatch service technicians to customers’ homes. For example, commenters
assert that reduced costs due to truck rolls and system maintenance will save cable operators money that
they can use to “invest in innovative new products that customers demand and highly value.”59 In
addition, Comcast states that, with remote activation and deactivation, “technicians would need to access
drop lines less frequently, thereby reducing ‘wear-and-tear’ on the lines and the need for maintenance.”60
Many commenters also highlight the benefits remote activation and deactivation will have on vehicle
traffic and the environment.61 Microtek and Inter Mountain Cable even suggest that these increased
efficiencies could lead to lower rates for subscribers.62
(Continued from previous page)__________________
certain services, such as whole-home digital video recorders or bundled services, may require a professional
installation because installing those services is complex. Id. Comcast states that “truck rolls for service reconnects
could be reduced further as Comcast gains increased confidence that wiring in customers’ homes is adequate to
support remote installations of multiple services.” Id.
57Cablevision Comments at 12; Cablevision Reply at 1. Cablevision indicates that as of October 2011, the
percentage of households eligible for a “truckless reconnect” reached nearly 40 percent of all new and transferred
connections, and that “Cablevision is expanding the opportunities for consumers to self-install services.” Letter
from Christopher J. Hardie, Counsel for Cablevision Systems Corporation, to Marlene H. Dortch, Secretary, Federal
Communications Commission, MB Docket No. 11-169 (Jan. 24, 2012). Like Comcast, Cablevision states that
certain homes may be ineligible for remote activation due to “home inside wiring issues” and “the variety of service
configurations and issues that need to be addressed.” Id.
58 MMTC Comments at 2-3; Letter from C. Kim Bracey, Mayor, City of York, Pennsylvania, to Marlene H. Dortch,
Secretary, Federal Communications Commission, MB Docket No. 11-169, PP Docket No. 00-67 (Dec. 8, 2011);
TWC Comments at 4. A recent survey by TOA Technologies estimates that the cost of the time spent waiting for
in-home service from cable, satellite, telephone, utility and other service providers amounts to $37.7 billion per year.
TOA Technologies, 2011 Cost of Waiting Survey, United States Results 5, 7-8, available at
http://toatech.com/costofwaiting/documents/TOA-Cost-of-Waiting-US_2011.pdf (2011). That survey also estimates
that MVPD service is the most common cause for in-home waiting, with 57 percent of respondents having waited
for a cable or satellite provider over the past year with an average wait time of over four hours. Id. While not all of
this cost can be attributed to waiting for a cable technician (rather than satellite or other technician), the time that
this rule change may save consumers could be worth billions of dollars.
59 Comcast Comments at 12; see also Letter from J. Richard Gray, Mayor, City of Lancaster, Pennsylvania, to
Marlene H. Dortch, Secretary, Federal Communications Commission, MB Docket No. 11-169, PP Docket No. 00-67
(Dec. 9, 2011); NCTA Comments at 8; Public Knowledge Comments at 4-5; TWC Comments at 5. The costs
associated with installing traps used to physically block or scramble the signals are substantial. See supra, n. 15.
BendBroadband estimates that the cost to the cable operator of installing and maintaining traps is $200 per
subscriber over four years, money that could be better spent on new services or system upgrades. BendBroadband
Comments at 2.
60 Comcast Comments at 11.
61 See, e.g., Cablevision Comments at 10-11; NCTA Comments at 6; TWC Comments at 4; TWC Reply at 2; Letter
from Tomas Regalado, Mayor, City of Miami, Florida, to Julius Genachowski, Chairman, Federal Communications
Commission, MB Docket No. 11-169 (Dec. 12, 2011); HTTP Comments at 1; Letter from Wayne Smith, Mayor,
Township of Irvington, N.J., to Marlene H. Dortch, Secretary, Federal Communications Commission, MB Docket
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14. Reduction of Theft and Piracy. Another benefit of basic tier encryption is the likely reduction
in theft of cable service.63 In 2004, NCTA estimated that five percent of homes passed receive
unauthorized cable service, which equates to five billion dollars in unrealized revenue that cable operators
could dedicate to offering improved services.64 The resulting reduction in cable operator revenues may
increase the rates operators charge their subscribers.65 In addition, Comcast explains that theft of service
reduces the quality of cable service because thieves sometimes access the cable system by splitting cables
and adding unauthorized taps, which degrade connections and can lead to signal leakage and lower
broadband speeds.66 This unauthorized splicing also can add to wear-and-tear on the cable system and
increase the need for maintenance.67 Encryption of the basic service tier will discourage thieves from
splicing cable lines as it will not enable viewing of the signals without leasing an authorized set-top box
or CableCARD from the operator. Encryption of the basic service tier could also benefit channels that are
carried on the basic service tier, as developers of high-value content may be more willing to make the
content available to basic service tier channels if they are encrypted and less susceptible to piracy.68
15. Regulatory Parity. Several commenters emphasized that the proposed rule change will
increase regulatory parity between cable operators and satellite providers, which are not subject to the
encryption rule.69 Commenters explain that the technology and market landscapes were quite different
when the rule was adopted, when consumers had a reasonable expectation that they would be able to
connect their televisions directly to a coaxial cable without the need for a set-top box.70 In the years since
enactment of the 1992 Cable Act, consumer expectations have changed substantially. First, cable
(Continued from previous page)__________________
No. 11-169 (Dec. 9, 2011); but see Greg Cunningham Comments at 1; Montgomery County, MD Comments at 6-7
(arguing that the power consumed by set-top boxes will offset the environmental impact of reduced truck rolls).
62 Microtek and Inter Mountain Cable Comments at 5; but see Craig Arnold Comments at 1; Shawn Foy Comments
at 1 (arguing that basic tier encryption will increase costs to consumers).
63 Letter from John Nakahata, Counsel for RCN Telecom Services, LLC, to Marlene H. Dortch, Secretary, Federal
Communications Commission, at 1-2 (filed February 24, 2012) (“We explained to Ms. McGrath that, while RCN’s
internet-only offerings help fulfill the Commission’s broadband objectives, they also increase RCN’s exposure to
theft of basic tier cable service. We noted that the problem of theft is exacerbated by the fact that there are no
commercially available cable ‘traps’ that will permit RCN to physically block access to the unencrypted channels
that accompany its internet service without also blocking the internet service itself.”).
64 NCTA Comments at 7; TWC Comments at 5. See RCN Request at 3-6 (reporting the results of two separate
audits in Chicago: one revealed that at least 12 percent of homes received service without paying for it and another
revealed that at least 20 percent of homes received service without paying for it).
65 See Mikrotec and Inter Mountain Cable Comments at 5 (indicating that elimination of the costs associated with
the basic service tier encryption ban could lead to lower rates).
66 Comcast Comments at 11; BendBroadband Comments at 3.
67 Comcast Comments at 11; see also RCN Comments at 3; TWC Comments at 5; Letter from Carlos Hernandez,
Mayor, City of Hialeah, to Marlene H. Dortch, Secretary, Federal Communications Commission, MB Docket No.
11-169 (Dec. 7, 2011); Letter from Tomas Regalado, Mayor, City of Miami, Florida, to Julius Genachowski,
Chairman, Federal Communications Commission, MB Docket No. 11-169 (Dec. 12, 2011); Letter from C. Kim
Bracey, Mayor, City of York, Pennsylvania, to Marlene H. Dortch, Secretary, Federal Communications
Commission, MB Docket No. 11-169, PP Docket No. 00-67 (Dec. 8, 2011); Letter from Wayne Smith, Mayor,
Township of Irvington, N.J., to Marlene H. Dortch, Secretary, Federal Communications Commission, MB Docket
No. 11-169 (Dec. 9, 2011).
68 MPAA Reply at 2-3; Cablevision Comments at 7-10.
69 See, e.g., BendBroadband Comments at 3, 7; Cablevision Comments at 5; Mikrotec and Inter Mountain Cable
Comments at 4-5.
70 TWC Reply at 3.
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operators have introduced new and innovative services, such as video on demand and pay-per-view
services, that cannot be accessed by digital subscribers without an authorized set-top box or, in some
instances, a CableCARD.71 As a result, almost all digital subscribers already use set-top boxes or
CableCARDs to access cable service.72 Second, since the 1992 Cable Act, satellite television operators
have begun to offer video programming services to tens of millions of subscribers,73 who access these
services through the use of one or more converter boxes. Our rules do not prohibit satellite operators
from encrypting their services, and therefore they are able to make service changes remotely and in real
time. Cable operators argue that this puts them at a regulatory disadvantage vis-à-vis their competitors
that are not constrained by the requirements of Section 76.630(a).74 We believe that by amending our
encryption rule we will reduce this regulatory disparity and enable all-digital cable operators to provide a
similar level of customer service as their MVPD competitors.

C.

Consumer Protection Measures to Reduce Burdens on Subscribers

16. Although we expect our rule change will affect relatively few subscribers,75 we nonetheless
adopt consumer protection measures to mitigate any resulting harm to subscribers who are impacted by
encryption of the digital basic tier. This rule change will impact the few digital cable subscribers who
access the basic service tier without a set-top box or CableCARD76: they will need to obtain a set-top box


71 Cablevision Comments at 4; NCTA Comments at 3. Although in general retail CableCARD devices can only
access cable operators’ linear programming services, some operators are making certain two-way services available
to retail partners. Letter from Natalie G. Roisman, Counsel to Cox Enterprises, Inc., to Marlene H. Dortch,
Secretary, Federal Communications Commission, CS Docket No. 97-80 (filed Oct. 8, 2010) (documenting Cox’s
plan to offer on-demand programming directly to certain retail CableCARD devices).
72 See supra, n.20.
73 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, 24 FCC
Rcd 542, 684, Appendix B-1 (2007); See http://www.ncta.com/Stats/TopMSOs.aspx (visited January 7, 2012)
(reporting that DIRECTV, Dish Network, Verizon and AT&T serve more than 40 million subscribers in total).
74 BendBroadband Comments at 3; Cablevision Comments at 5; Mikrotec and Inter Mountain Cable Comments at 4-
5.
75 We note, in this regard, that only one-tenth of one percent of Cablevision’s subscribers in the affected systems
availed themselves of Cablevision’s free device offer. See supra n.11.
76 The Encryption NPRM identified two types of devices that subscribers use to view unencrypted QAM signals: (i)
television sets with QAM tuners, and (ii) devices such as computer peripherals that have coaxial and IP-based
inputs. Encryption NPRM, 26 FCC Rcd at 14874-5, n.29. The main difference between these devices is that
television sets have high definition multimedia interface (“HDMI”) inputs, whereas computer peripherals do not.
Letter from Neal M. Goldberg, Vice President and General Counsel, National Cable and Telecommunications
Association, to Marlene H. Dortch, Secretary, Federal Communications Commission, at 5, n.16 (Feb. 7, 2012)
(“Feb. 7 NCTA Ex Parte”). The Encryption NPRM proposed a set of free box conditions to address the first
category, and sought comment on appropriate measures for the second. Encryption NPRM, 26 FCC Rcd at 14874-5,
n.29. Commenters pointed out that the set-top boxes that cable operators lease to their subscribers include standard
connectors that are compatible with all or nearly all television sets sold in the United States; however, those set-top
boxes typically do not have connections to enable consumers to continue to use computer peripherals or similar
devices. See Letter from Melissa Marks, General Counsel, Boxee Inc., to Marlene H. Dortch, Secretary, Federal
Communications Commission at 2-3 (Dec. 21, 2011) (“Boxee Dec. 21 Ex Parte”); Feb. 7 NCTA Ex Parte at 5, n.16.
See also Letter from Jonathan Friedman, Counsel for Comcast Corporation, to Marlene H. Dortch, Secretary,
Federal Communications Commission, CS Docket No. 97-80, at 1 (Oct. 7, 2010). Several companies and
consumers explain that they rely on clear QAM with personal computers or retail set-top boxes designed to receive
content from a variety of sources. See, e.g., Letter from Christopher Southwick to Julius Genachowski, Chairman,
Federal Communications Commission (filed by Public Knowledge, March 21, 2012); Letter from David Yeubanks
to Julius Genachowski, Chairman, Federal Communications Commission (filed by Public Knowledge, March 21,
2012); Letter from Robert DiPietro to Marlene H. Dortch, Secretary, Federal Communications Commission (filed
(continued….)
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or CableCARD from their cable operator once the operator encrypts the basic service tier. To give these
consumers time to assess their options to access encrypted cable service, we will require cable operators
that choose to encrypt to offer affected subscribers equipment necessary to receive the encrypted
programming without charge for a limited time, and to notify their subscribers about encryption and the
equipment offers. In addition, we require the six largest incumbent cable operators to offer equipment
that is compatible with IP-enabled clear-QAM devices provided by third parties. We intend that this
requirement will provide an opportunity for affected consumers to make informed choices about whether
to purchase a CableCARD-compatible device, lease a set-top box from their cable operator, or use
another method to access the broadcast and other channels carried on the basic service tier (for example,
by accessing the signals over-the-air or via another MVPD). As we explained in the Encryption NPRM,
such an opportunity will minimize the impact of encryption on clear-QAM users by offering a transition
period during which they can continue to access the basic tier without an additional equipment charge
while they consider their options for device compatibility.77 In this section, we identify the small class of
subscribers that encryption may affect and adopt two categories of measures to protect those subscribers:
transitional equipment requirements and notice requirements.
17. Subscribers That May Be Affected by Encryption of the BST. The Commission concluded in
1994 that adopting the basic service tier encryption prohibition “will have minimal impact on the cable
industry in view of the fact that most cable systems now generally do not scramble basic tier signals.”78
Today our examination of the record reflects that relaxing the encryption prohibition for all-digital
systems will have minimal impact on consumers because most subscribers do not rely on the clear-QAM
tuners in their devices to access basic tier signals.79 Nevertheless, we recognize that lifting the encryption
prohibition may impact some cable subscribers who use clear-QAM devices to access the basic tier, such
as subscribers who use second or third television sets to access unencrypted digital basic service tier
service without set-top boxes or CableCARDs and subscribers that use third-party provided IP-enabled
devices that have clear-QAM tuners. Several cable subscribers and equipment manufacturers filed
comments claiming that our rule change would have a negative impact on them.80 These subscribers
explain that they rely on clear-QAM tuners in their electronic devices (such as computers and television
sets) to access basic tier programming, and that because they have more than two devices on which to
view BST programming (e.g., they have multiple televisions in their home), their monthly bills will
(Continued from previous page)__________________
January 27, 2012); Hauppauge Computer Works, Inc. Ex Parte at 2-3 (Dec. 22, 2011) (“Hauppauge Ex Parte”);
Boxee Dec. 21 Ex Parte at 2-3.
77 Encryption NPRM, 26 FCC Rcd at 14879 ¶¶ 11-12.
78 Compatibility Order, 9 FCC Rcd at 1991, ¶ 55.
79 See Cablevision Comments at 13 (reporting that less than 2% of its total subscriber base in New York subscribes
only to the basic service tier, and the subset of those customers receiving their basic service via QAM tuner is even
smaller). See also BendBroadband Comments at 3-4; PK and MAP Comments at 2 (“technology has changed and
the rule no longer serves its purpose”); NCTA Comments at 8-9.
80 See, e.g., Shawn Foy Ex Parte (filed Dec. 27, 2011); Richard Utz Comments at 1; Greg Cunningham Comments at
1; Craig Arnold Comments at 1. Boxee Dec. 21 Ex Parte at 1-3; Hauppauge Ex Parte at 1-2; Shawn Foy Ex Parte
(filed Dec. 27, 2011). Local franchising authorities also filed comments suggesting that the proposed rule change
will affect many more subscribers than the Commission predicts because many subscribers will need boxes for non-
primary television sets. See, e.g., City of Boston Comments at 4-5; Montgomery County, MD Comments at 2-3;
New Jersey Division of Rate Counsel Comments at 6. As Comcast responds in its reply, however, these local
franchising authorities conflate digitization and encryption—once a system is all-digital, nearly all of the subscribers
in that system will have decryption equipment regardless of whether the system encrypts because (i) that equipment
is also used to convert digital service into an analog signal, and (ii) that equipment is necessary to view any
programming aside from the basic service tier on any television set. Comcast Reply at 10. Therefore we expect the
impact of basic service tier encryption to be very limited in scope.
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increase because they will need a greater number of converter boxes than afforded under the free box
conditions that the Commission proposed in the Encryption NPRM.81 We are concerned about the effect
of this rule change on the small group of subscribers who access unencrypted basic service tier
programming through clear-QAM receivers, but, at the same time, recognize that no consumer protection
measure could fully satisfy every affected subscriber. Nonetheless, we believe that the consumer-
protection measures outlined below are appropriate and necessary to minimize disruption to affected
subscribers by providing a reasonable transition period to make informed choices about the options
available to access the basic tier.
18. Transitional Equipment Requirements Applicable to All Cable Operators. To limit the costs
that affected consumers may face due to encryption, we adopt our proposed consumer-protection
measures that require a cable operator that chooses to encrypt the basic service tier to: (i) offer to existing
subscribers who subscribe only to the basic service tier and do not use a set-top box or CableCARD, the
subscriber’s choice of a set-top box or CableCARD on up to two television sets without charge for two
years from the date of encryption; (ii) offer existing subscribers who subscribe to a level of service above
“basic only” but use an additional television set to access only the basic service tier without the use of a
set-top box or CableCARD at the time of encryption, the subscriber’s choice of a set-top box or
CableCARD on one television set without charge for one year from the date of encryption; and (iii) offer
existing subscribers who receive Medicaid,82 subscribe only to the basic service tier, and do not use a set-
top box or CableCARD, the subscriber’s choice of a set-top box or CableCARD on up to two television
sets without charge for five years from the date of encryption. These consumer protections apply to
televisions and devices connected to the cable system at the time of encryption. To ensure that any
subscriber likely to be affected by encryption has adequate time to consider these offers, we will require
cable operators to keep the offer open to subscribers for at least 30 days before the date the operator
begins encrypting the first basic tier channel on the channel lineup and for at least 120 days after that date.
NCTA suggested that the offer extend for only 30 days after the date that encryption begins. We believe
that 30 days after the date of encryption would not afford affected consumers sufficient time to learn
about the effect of encryption and the consumer-protection measures available to them and act on the
information. Furthermore, because encryption will affect only a very small number of subscribers, the
consumer protection measures we adopt will not be unduly onerous on cable operators.83 We expect these
transitional protections will substantially mitigate the costs to affected subscribers while they consider
alternative means for accessing the basic service tier.84
19. Equipment Requirements Applicable to Top Six Incumbent Cable Operators. A few
commenters assert that the free equipment conditions described above do not mitigate any disruption


81 Shawn Foy Ex Parte (filed Dec. 27, 2011); Richard Utz Comments at 1; Greg Cunningham Comments at 1; Craig
Arnold Comments at 1.
82 As we explain in paragraph 26, we believe that Medicaid is a reasonable way to establish need. Medicaid users
receive readily identifiable identification cards that should make it easy for cable operators to identify whether a
subscriber is eligible for this protection. Cablevision Reply at 10, Comcast Reply at 6, NCTA Reply at 3.
83 NCTA Comments at 11-12. See, e.g., NCTA Comments at 9 (“In all-digital cable systems, almost all customers
will already have a set-top box or CableCARD to access digital services.”); Cablevision Comments at 13-14;
BendBroadband Comments at 4 (“every single one of BendBroadband’s 35,000 customers has at least one set-top
box”).
84 The lengths of these transitional periods are the same afforded Cablevision subscribers when Cablevision
encrypted the basic service tier in New York City. Cablevision Waiver, 25 FCC Rcd at 136, ¶ 5; See Appendix A
(adding §§ 76.630(a)(1)(ii)-(iv)). These transitional periods appear to have worked well, and commenters suggested
that they will provide adequate consumer protection, so we adopt them here. Comcast Comments at 16; Samuel
Biller Reply at 2; Letter from Carlos Hernandez, Mayor, City of Hialeah, to Marlene H. Dortch, Secretary, Federal
Communications Commission, MB Docket No. 11-169 (Dec. 7, 2011).
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because some consumers may own third-party provided IP-enabled devices that do not have the ability to
decrypt cable signals.85 Therefore, these commenters call for the Commission to reject the proposed rule,
or adopt special measures to mitigate disruption to consumers that use those third-party devices.86
Specifically, these parties complain that existing cable set-top boxes and DTAs are not compatible with
IP-enabled devices because they do not output signals in a manner that third-party-provided IP-enabled
devices can access.87 Accordingly, such devices would not be compatible with the operator’s free
equipment offering – i.e., there would be no connection by which such devices could access the basic tier
channels–thus rendering such devices useless if a cable operator chooses to encrypt the basic tier. 88
Commenters assert that such devices were purchased or manufactured on the expectation that
unencrypted basic service tier QAM signals would continue to be available from cable operators. The
record indicates that at least four companies have developed products that rely on customers’ ability to
access clear-QAM signals, and that a relatively small number of consumers have purchased these devices
for this capability.89 As explained above, however, we anticipate the impact of encryption of the basic
tier on the public at large will be minimal because the record indicates that only a small number of
consumers rely on clear-QAM devices to access the basic tier.90 And, the record further indicates that


85 See Boxee Dec. 21 Ex Parte at 1-3; Hauppauge Ex Parte at 1-2; Shawn Foy Ex Parte (filed Dec. 27, 2011). These
IP-enabled devices are equipment that consumers use as set-top boxes to access the basic tier signals as well as
permit consumers to view video programming offered over the Internet on their television sets. See e.g.,
Hauppauge Ex Parte at 1-2; http://www.boxee.tv/live. These devices cannot decrypt signals because they are not
CableCARD compatible. See Boxee Dec. 21 Ex Parte at 2.
86 Letter from Melissa Marks, General Counsel, Boxee Inc., to Marlene H. Dortch, Secretary, Federal
Communications Commission, at 2-6 (filed July 30, 2012) (“Boxee July 30 Ex Parte”); Shawn Foy Ex Parte (filed
Dec. 27, 2011).
87 Boxee Dec. 21 Ex Parte at 2-3 (“The interim relief set forth in the NPRM also fails to sufficiently address Boxee’s
likely harm, because, as currently proposed, the rule does not require that interim set-top boxes be compatible with
Boxee’s device. . . a set-top box that can ‘descramble or decrypt the basic service tier signals’ does not necessarily
require that the output of that set-top box be a QAM stream, as it would need to be in order to be compatible with
the Boxee device.”).
88 See Boxee Dec. 21 Ex Parte at 3-4 (filed Dec. 21, 2011); Joseph Fowble Comments, MB Docket No. 09-168, at 1
(filed Oct. 21, 2009). But see Letter from Neal M. Goldberg, Vice President and General Counsel, National Cable
and Telecommunications Association, to Marlene H. Dortch, Secretary, Federal Communications Commission at 1-
2 (Dec. 29, 2011) (highlighting that encryption would not render these devices worthless because the broadcast
signals carried on the basic service tier are available over the air and are accessible to consumers with the use of an
antenna).
89 See Hauppauge Ex Parte at 1-2; Boxee Dec. 21 Ex Parte at 1-3; Letter from Mark Ely, President & CEO, Really
Simple Software, Inc., to Marlene H. Dortch, Secretary, Federal Communications Commission, at 1 (Feb. 13, 2012);
Elgato Comments, MB Docket No. 09-168, at 2 (filed Oct. 15, 2009). These commenters state that between 30 and
40 percent of their customers use the devices to access clear QAM signals (the others use the devices to access over-
the-air signals or analog cable signals). Hauppauge Ex Parte at 1-2; Letter from Melissa Marks, General Counsel,
Boxee Inc., to Marlene H. Dortch, Secretary, Federal Communications Commission at Attachment at 10 (March 19,
2012). According to the most recent available information from Boxee, they have sold 200,000 devices, but not all
of those devices are equipped with the LiveTV dongle, which is the peripheral needed to access clear-QAM on a
Boxee box. Mark Hachman, 200,000 Boxee Boxes Sold? ‘Outdated’ Number, Boxee Says, PCMAG.COM, April 13,
2012, http://www.pcmag.com/article2/0,2817,2403017,00.asp (visited August 14, 2012) (reporting that “Apple TV
or Roku set-tops”—devices without clear-QAM tuners—“are the only connected devices in 1 percent of all
households.”).
90 See supra n.11, indicating that only one-tenth of one percent of cable subscribers in Cablevision’s New York City
systems took advantage of the consumer-protection conditions of the Cablevision Waiver.
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subscribers who use IP-enabled clear-QAM devices that would be incompatible with the free equipment
offerings by cable operators represent an even smaller subset of clear-QAM users.91
20. To mitigate any harm to the small group of consumers that may use such devices, NCTA’s
six largest incumbent cable members–serving 86 percent of all cable subscribers–have committed to
adopt, prior to encrypting, a solution that would provide basic service tier access to third-party provided
IP-enabled clear QAM devices.92 Pursuant to this commitment, these six cable operators will make basic
service tier channels available either via connection from operator-supplied equipment or by providing
access to the operator’s security technology. Specifically, these cable operators have proposed to either
(i) provide a converter box with “standard home networking capability” that can provide IP-enabled clear
QAM devices access to basic service tier channels on the same terms proposed in the Encryption NPRM
(“Option 1”),93 or (ii) enable IP-enabled clear QAM devices to access basic service tier channels without
any additional hardware through the use of commercially available software upgrades (“Option 2”).94
NCTA proposed to sunset these commitments three years after we adopt this Order unless the
Commission extends them.95 Boxee and CEA argue that these commitments do not sufficiently support
the operation of IP-enabled clear QAM devices. Instead, they advocate that all cable operators should be
required to make the basic service tier available to IP-enabled devices without additional hardware.96


91 See supra n.89; Shawn Foy Ex Parte (filed Dec. 27, 2011) (explaining that he owns four clear-QAM television
sets, which would be compatible with decryption equipment, and one clear-QAM network tuner device, which
would not).
92 Letter from Michael K. Powell, President and Chief Executive Officer, National Cable and Telecommunications
Association, to Julius Genachowski, Chairman, Federal Communications Commission (filed July 25, 2012) (“NCTA
Commitment Letter”). Those operators are Comcast, Time Warner Cable, Cox, Charter, Cablevision, and Bright
House. See Top 25 Multichannel Video Programming Distributors, http://www.ncta.com/Stats/TopMSOs.aspx/
(visited Aug. 14, 2012).
93 NCTA’s commitment states: “Cable Operators shall be permitted to encrypt their Basic Service Tiers in
Encrypted Systems at such time as they offer to basic tier subscribers with retail IP-enabled Clear QAM devices in
such systems an Operator-supplied set-top box, digital transport adapter (‘DTA’) or other Operator-supplied
equipment with standard home networking capability (e.g., equipment with a DLNA-enabled Ethernet connector or
Wi-Fi capability). Such Operator-supplied equipment will be offered pursuant to the terms of the Transitional
Equipment Measures regarding notice to consumers and availability of equipment at no charge for a limited period
of time. In Encrypted Systems that utilize DTA security, Cable Operators will support the delivery of the Basic
Service Tier to an IP-enabled Clear QAM Device with embedded DTA security (‘Retail DTA’) without the need for
Operator-supplied equipment. Such Cable Operators will have no duty to offer Operator-supplied equipment to a
customer with a Retail DTA in such Encrypted Systems.” NCTA Commitment Letter at 2.
94 NCTA’s commitment states: “Subject to the procedure described in this paragraph, Cable Operators shall be
permitted to encrypt their Basic Service Tiers in Encrypted Systems in which they enable IP-enabled Clear QAM
Devices to access the Basic Service Tier without the need for an Operator-supplied set-top box, DTA, or
CableCARD. In enabling such access, such Cable Operators shall use commercially available security technology
that is licensable on a non-discriminatory basis to manufacturers of such retail devices. Any Cable Operator that
pursues this option agrees to make publicly available the requirements necessary (including any authentication
processes) for such a device to access the Basic Service Tier and submit a copy of such requirements to the
Commission. Cable Operators who elect this option shall be permitted to encrypt their Basic Service Tiers three
months after submitting such requirements to the Commission.” NCTA Commitment Letter at 2.
95 Id.
96 Boxee July 30 Ex Parte at 2-6; Letter from Julie M. Kearney, Vice President, Regulatory Affairs, Consumer
Electronics Association, to Marlene H. Dortch, Secretary, Federal Communications Commission, at 2-4 (filed July
31, 2012) (“CEA July 31 Ex Parte”). Boxee advocates an approach that would guarantee that by July 2013 Boxee
devices can access basic tier signals without additional hardware. Boxee July 30 Ex Parte at Appendix A.
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CEA further encourages the Commission not to sunset the commitments after three years.97 The AllVid
Alliance suggests that the Commission initiate a Notice of Proposed Rulemaking seeking comment on “a
nationally-portable common IP-based interface from MVPD services to consumer devices.”98
21. We believe that the commitments from the six largest incumbent cable operators will be
sufficient to address the compatibility issue concerning IP-enabled devices and achieve the objectives of
Section 624A of the Act – i.e., to ensure compatibility between cable service and consumer electronics
equipment.99 We do not extend the additional equipment requirement to smaller cable operators because
we do not believe it is necessary at this time.100 As noted above, based on the current record, only a small
number of consumers rely on IP-enabled devices to access the basic tier and thus we expect this particular
compatibility problem to be extremely limited in scope.101 Because the six largest incumbent cable
operators subject to the rule serve 86 percent of all cable subscribers nationwide, we expect most
consumers that use such devices will have ready access to the necessary equipment.102 Moreover, large
cable operators generally dictate equipment features to manufacturers and commonly get priority in
delivery of that equipment.103 We anticipate that the large operators’ demand for this equipment
eventually will lead all equipment to include this functionality in the marketplace, and thus the equipment
small cable operators provide will eventually include the IP functionality as well, regardless whether they
specify this particular feature.104 Nonetheless, we may revisit this issue if the equipment market does not
develop as expected or if we find that small cable operators do not make their service compatible with
these consumer devices.
22. Contrary to Boxee’s argument, nothing in Section 624A requires that consumer equipment
compatibility be achieved by means of a hardware-free solution.105 Under the equipment measure we
adopt today, the vast majority of consumers will be able to access service that is encrypted using a
commercially available security technology or via equipment with standard home-networking capability
in much the same way they do today. In fact, if this standard home-networking capability is connected to
a wireless home network, the consumer experience could improve because consumers will be able to


97 CEA July 31 Ex Parte at 2.
98 Letter from Robert S. Schwartz, Counsel to the AllVid Tech Company Alliance, to Marlene H. Dortch, Secretary,
Federal Communications Commission at 1-2 (Aug. 8, 2012).
99 47 U.S.C. §544a; see infra ¶¶ 34-36.
100 See U.S. Cellular Corp. v. FCC, 254 F.3d 78, 86 (D.C. Cir. 2001) (“agencies need not address all problems in
one fell swoop”) (citations and internal quotation marks omitted); Personal Watercraft Industry Assoc. v. Dept. of
Commerce,
48 F.3d 540, 544 (D.C. Cir. 1995) (“An agency does not have to ‘make progress on every front before it
can make progress on any front.’) (quoting United States v. Edge Broadcasting Co., 509 U.S. 418, 434 (1993));
National Association of Broadcasters v. FCC, 740 F.2d 1190, 1207 (D.C. Cir. 1984) (“[A]gencies, while entitled to
less deference than Congress, nonetheless need not deal in one fell swoop with the entire breadth of a novel
development; instead, ‘reform may take place one step at a time, addressing itself to the phase of the problem which
seems most acute to the [regulatory] mind.”’) (citations and internal quotation marks omitted, alteration in original).
101 See supra n.89.
102 See http://www.ncta.com/StatsGroup/OperatingMetric.aspx, http://www.ncta.com/Stats/TopMSOs.aspx (stating
that the six largest incumbent cable operators serve 49.38 million of the 57.3 million cable video customers in the
United States).
103 Mike Robuck, Technicolor tops 10 million DTAs sold in North America, CED MAGAZINE, Jan. 31, 2012,
available at http://www.cedmagazine.com/news/2012/01/technicolor-tops-10-million-dtas-sold-in-north-america.
(“Comcast set the table when it came to the SD DTA product specifications, and has started to roll out HD DTAs.”).
104 Id.
105 47 U.S.C. § 544a.
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access basic service tier channels without physically connecting a device to a coaxial plug from the
wall.106 Thus, mandating a hardware-free solution is not necessary to protect consumers in the context of
the instant proceeding.107
23. We adopt these commitments as required preconditions to encrypting by the top six
incumbent cable operators with slight modifications and clarifications. These conditions will
automatically sunset three years from the release date of this Order unless the Media Bureau (“Bureau”)
determines prior to this date that the IP-enabled device protections remain necessary to protect
consumers.108 We believe that a future review of these rules is warranted because the market for these IP-
based devices is nascent and it is unclear whether consumer demand for this equipment will flourish.109
Accordingly, we delegate authority to the Bureau to initiate a review two years after the release of this
Order to decide whether these IP-enabled device protections remain necessary to protect consumers or
whether it is appropriate to sunset the IP-enabled device protections.110 If the Bureau does not release an
order extending these protections within three years from the release date of this Order, then the consumer
protection measures concerning IP-enabled devices detailed in paragraph 20 will no longer apply to the
top-six cable operators for purposes of encryption of the basic service tier. In deciding whether the sunset
is appropriate, the Bureau shall consider the costs to cable operators and the benefits to consumers,
whether competitive services are available, regulatory parity between cable and other MVPDs, the state of
technology and the marketplace, and cable operators’ efforts to meet these commitments and ensure
compatibility.111 The Bureau shall also consider whether the IP-enabled device protections should be
extended to small cable operators.
24. Second, we add some clarifying language to address Boxee and CEA’s concerns that cable
operators could use licenses to limit retail device manufacturers from building compatible devices.112
Any license terms that cable operators require for the “standard home networking capability”113 used to
offer access to the basic service tier in Option 1 and the “requirements necessary (including any


106 We note that the cable industry’s high-speed data services require hardware—cable modems—which IP-enabled
devices rely on to receive high-speed Internet access service. Therefore, we believe that most consumers are
comfortable with using hardware necessary to receive service.
107 Nor do we believe that it is appropriate in this Order to address device compatibility issues related to all MVPDs
as the AllVid Tech Company Alliance suggests. Letter from Robert S. Schwartz, Counsel to the AllVid Tech
Company Alliance, to Marlene H. Dortch, Secretary, Federal Communications Commission at 1-3 (Aug. 8, 2012); [
see 47 U.S.C. § 544a, Video Device Competition; Implementation Of Section 304 Of The Telecommunications Act
Of 1996: Commercial Availability Of Navigation Devices; Compatibility Between Cable Systems And Consumer
Electronics Equipment
, 25 FCC Rcd 4275 (2010).
108 See CEA July 31 Ex Parte at 2 (arguing that sunset of the IP-enabled device protections “makes the options
unworkable for competitive device entry”). The Bureau will consider the effect that these rules have on the market
for IP-enabled devices when it decides whether to sunset the consumer protection measures concerning IP-enabled
devices.
109 Unlike the transitional equipment requirements applicable to all cable operators that address situations where the
customer has not been using equipment to access the basic service tier signals, the requirements applicable to the top
six incumbent cable providers are intended to address situations where the customer has been accessing the basic tier
signals using a third-party provided box that will be rendered useless absent the conditions we adopt today.
110 As provided under our rules, any entity that wishes to challenge the Bureau’s decision regarding the sunset will
have the opportunity to file an Application for Review by the full Commission. See 47 C.F.R. § 1.115.
111 See NCTA Commitment Letter at 2.
112 Boxee July 30 Ex Parte at 3-4; CEA July 31 Ex Parte at 2.
113 This term refers to the methods used to connect video devices throughout a home (i.e., the physical connections
between those devices) and the protocols necessary to send videos to and from those devices.
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authentication processes)” in Option 2 must be made available on a good faith basis.114 In adopting this
“good faith” licensing requirement, we intentionally do not specify any particular technology or
technology licensing model (e.g., we do not require or specify “fair, reasonable, and non-discriminatory”
licensing, as that term has been interpreted in other contexts, as urged by Boxee and CEA).115 Third, we
require the operators that choose to offer access to the basic service tier using Option 1 to “publicly
disclose the DLNA profile or other protocol that is being used for the home-networking capability on
such operator-supplied equipment.” Such a requirement is necessary to ensure that third-party
manufacturers have the information necessary to build a device that works with cable-provided
equipment.116 We also remind cable operators that Section 76.640(b)(4)(iii) of our rules, which goes into
effect in December of this year, requires all high definition set-top boxes (except for one-way, non-
recording set-top boxes) to include an IP-compatible output based on an open industry standard that
provides for audiovisual communications including service discovery, video transport, and remote control
command pass-through standards for home networking.117 We believe that these additional consumer
protection measures will ease the transition to encrypted service for the vast majority of the small subset
of customers that rely on third-party provided IP-enabled devices to access the basic service tier.
25. Other Issues. Public Knowledge and Media Access Project state in their comments that there
have been no complaints from customers in Cablevision’s encrypted systems about “hidden fees” related
to the free device offers, and they anticipate that cable operators “intend to act in good faith.”118 Out of
an abundance of caution, however, they suggest we affirmatively state that cable operators may not
impose service fees (such as “digital access fees” or “outlet fees”) in lieu of rental fees for the free
devices.119 Consistent with Public Knowledge and Media Access Project’s suggestion, we clarify that


114 For example, it would be bad faith for a cable operator to charge an excessive amount for a third-party to license
the technology necessary to access these signals. See CEA July 31 Ex Parte at 2. This good faith requirement
applies only to the terms that cable operators impose. This limit does not apply to licensing terms that are not
subject to cable operator control—for example, patent licenses for specific codecs. Because CableLabs’ board of
directors consists largely of cable executives, this limit does apply to CableLabs’ licensing terms. See About
CableLabs: Board of Directors, http://www.cablelabs.com/about/board/ (last visited Aug. 10, 2012). We note that
the NCTA letter already reflects a commitment by any of the six largest cable operators who elect to use Option 2 to
enable access to the basic service tier using “security technology that is licensable on a non-discriminatory basis.”
NCTA Commitment Letter at 2.
115 See Letter from Melissa Marks, General Counsel, Boxee Inc., to Marlene H. Dortch, Secretary, Federal
Communications Commission at 1 (Aug. 3, 2012); CEA July 31 Ex Parte at 3.
116 NCTA does not object to this requirement. Letter from Rick Chessen, Senior Vice President, Law & Regulatory
Policy, National Cable and Telecommunications Association, to Marlene H. Dortch, Secretary, Federal
Communications Commission (August 13, 2012).
117 See 47 C.F.R. § 76.640(b)(4)(iii) (requiring that as of December 1, 2012, “cable-operator-provided high
definition set-top boxes, except unidirectional set-top boxes without recording functionality, shall comply with an
open industry standard that provides for audiovisual communications including service discovery, video transport,
and remote control command pass-through standards for home networking.”); CEA July 31 Ex Parte at 2-4. The
Commission adopted this rule “to ensure that video made available over these interfaces can be received and
displayed by devices manufactured by unaffiliated manufacturers (i.e., manufacturers not owned by or under license
of the leased set-top box vendor or cable operator) and sold at retail,” stating that it “is important to define a baseline
of functionality to ensure that consumers who network their devices and device manufacturers can rely on
networked devices’ ability to communicate with leased set-top boxes.” Implementation of Section 304 of the
Telecommunications Act of 1996: Commercial Availability of Navigation Devices Compatibility Between Cable
Systems and Consumer Electronics Equipment
, 25 FCC Rcd 14657, 14677-9, ¶¶ 39, 44 (2010).
118 PK and MAP Comments at 9.
119 PK and MAP Comments at 3, 8-11. See also Eric Kotz Comments at 1.
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boxes provided by cable operators that choose to encrypt the basic service tier must be provided without
any additional service charges related to the equipment.
26. Public Knowledge and Media Access Project also suggest that we tie the low-income
condition to Lifeline/Linkup eligibility because Medicaid eligibility can vary from state to state.120 We
reject that suggestion as unnecessary. As several commenters point out, Medicaid eligibility presents an
easily verifiable, bright-line test, and is less likely to cause confusion among subscribers and cable
customer service representatives.121
27. We also reject calls from some commenters to require free equipment in perpetuity for
existing subscribers, and not to limit free boxes to existing subscribers.122 The consumer protection
measures we adopt are intended to mitigate the disruption that may be experienced by current cable
subscribers. We do not agree that free equipment is necessary for new subscribers: given the movement
to digital services, many subscribers have become accustomed to leasing set-top devices, and that trend
seems likely to continue.123 Furthermore, we agree with NCTA that unnecessarily burdensome conditions
such as free devices for all new subscribers could discourage cable operators from encrypting and prevent
the public from realizing the benefits that stem from cable operators’ ability to remotely activate and
deactivate service which benefits most subscribers.124 Accordingly, we do not condition this rule change
on cable operators’ supplying free devices in perpetuity to existing subscribers or to new subscribers.125
28. Certain commenters express concern about the impact that basic service tier encryption could
have on institutional subscribers and schools in particular.126 They suggest that the Commission extend
the free-device consumer protections to institutional subscribers to prevent the rule change from placing a
financial burden on them.127 Cable operators, however, suggest that these commenters conflate
encryption with digitization, and we agree.128 As cable operators transition to all-digital service, these


120 PK and MAP Comments 2-3, 6-8. The Lifeline program provides discounts on monthly telephone charges, and
Link Up provides a discount on the cost of commencing telephone service for qualifying low-income households.
Under federal guidelines, telephone subscribers who have an income at or below 135% of the federal poverty
guidelines or participate in Medicaid, Food Stamps, Supplemental Security Income, Federal Public Housing
Assistance, Low-Income Home energy Assistance Program, Temporary Assistance to Needy Families, or the
National School Lunch Program’s Free Lunch Program are eligible, but eligibility criteria can vary by state. See
Lifeline and Link Up: Affordable Telephone Service for Income-Eligible Consumers,
http://www.fcc.gov/guides/lifeline-and-link-affordable-telephone-service-income-eligible-consumers (visited
January 9, 2012).
121 See Cablevision Reply at 10, Comcast Reply at 6, NCTA Reply at 3.
122 See, e.g., New Jersey Division of Rate Counsel Comments at 5; Montgomery County, MD Comments at 4-6.
123 See BendBroadband Comments at 4; Cablevision Comments at 4-5 (“The trend towards required devices for
viewing broadcast programming was cemented during the digital [broadcast] transition.”).
124 NCTA Reply at 3, 13-14; see supra ¶¶ 12-13 discussing the public interest benefits of remote activation and
deactivation.
125 Although we do not require cable operators to make these device offers available in perpetuity, cable operators
are free to do so and, in any event, we expect them to work with their subscribers to provide as easy a transition as
possible.
126 Alliance for Community Media Comments at 2; City of Boston Reply at 1-2; Montgomery County, MD
Comments at 4; NATOA Reply at 4; New Jersey Division of Rate Counsel Reply at 4-6. Commenters use the term
“institutional subscribers” to refer to subscribers such as schools and public buildings. See Alliance for Community
Media Comments at 2.
127 Id.
128 See Comcast Reply at 10; Cablevision Reply at 8; NCTA Reply at 13-14. See also supra, n.80.
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institutional subscribers will need devices to convert digital signals to analog regardless of whether the
service is encrypted unless the institutional subscribers use television sets with clear-QAM tuners and
only use those televisions to access the basic service tier.129 Furthermore, Comcast argues that cable
operators establish agreements with local institutions on a case-by-case basis, and that each franchising
authority negotiates consumer protection measures to meet its needs.130 We are persuaded that it is
unnecessary to adopt consumer-protection measures with respect to institutional subscribers, because we
expect that cable operators will continue to work with local institutions – and may be required to do so by
franchising authorities – to ensure that the institutions’ needs will be met. We emphasize that our rules
are not intended to limit or preempt existing, renegotiated, or future franchise agreements that provide
institutional subscribers more equipment on different terms than our rules require for residential
subscribers. We expect that cable operators will work closely with local franchising authorities and
institutions to ensure that any disruption institutional subscribers experience as a result of encryption will
be minimized.
29. ACA and BendBroadband express concern about the effect that the conditions will have on
small cable operators.131 We agree with ACA and BendBroadband that in some instances the benefits of
encryption may be outweighed by the burdens of administrative upgrades to account for the new billing
procedures needed to offer free devices for a limited period of time. We note, however, that the decision
to encrypt the basic service tier will be a voluntary decision made at the sole discretion of the cable
operator under the rules we adopt here. Thus, each cable operator may use its business judgment to
decide whether, and when, the benefits of encryption outweigh the costs of upgrading billing software and
providing equipment to its subscribers to ease the transition to encrypted service.132
30. Notification-Requirements. Based on the record, we believe that notification requirements
are also necessary to protect consumers. Therefore, we will require cable operators to notify their
subscribers about the planned encryption and the device offers at least 30 days before the date encryption
of the basic tier commences. We will also require cable operators to notify their subscribers at least 30
days, but no more than 60 days, before the end of the free device transitional period. These notifications
are necessary to make the device-based consumer protection measures meaningful to consumers; the
measures would be meaningless if affected consumers were not made aware of the offers.
31. NCTA proposed that our rules require cable operators to notify their subscribers about
encryption and free device offers at least 30 days prior to the date encryption of the basic service tier
commences.133 Several commenters supported NCTA’s proposal,134 and we agree that it is important to
identify when cable operators must notify their subscribers about encryption. Therefore, we will require
cable operators to notify their subscribers that they will encrypt at least 30 days before the date encryption


129 Id. In its comments, Montgomery County, MD indicates that its schools rely on unencrypted analog service,
rather than digital service: “the County’s schools use a central media room to distribute an unscrambled analog
video lineup throughout the school.” Montgomery County, MD Comments at 4.
130 Comcast Reply at 8-9.
131 BendBroadband Comments at 6; ACA Comments at 6-7; ACA Reply at 3-10.
132 In June, the Commission relied on the prevalence of low-cost equipment as a reason for allowing the viewability
rule to sunset. See Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission’s
Rules
, 27 FCC Rcd 6529, 6534, ¶ 14 (2012) (“[L]ow-functionality/low cost digital equipment is now readily
available as an option to cable consumers.”). Because low-cost equipment is now available, the cost of the
consumer protections we adopt in this Order should be minimal.
133 NCTA Comments at 12.
134 See Cablevision Comments at 15; Comcast Reply at 5; TWC Reply at 7, n.28.
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of the basic service tier commences, at which time they must also include information about the
transitional device requirements set forth in Section 76.630.135 The notice must state:
On (DATE), (NAME OF CABLE OPERATOR) will start encrypting (INSERT
NAME OF CABLE BASIC SERVICE TIER OFFERING) on your cable system.
If you have a set-top box, digital transport adapter (DTA), or a retail CableCARD
device connected to each of your TVs, you will be unaffected by this change.
However, if you are currently receiving (INSERT NAME OF CABLE BASIC
SERVICE TIER OFFERING) on any TV without equipment supplied by
(NAME OF CABLE OPERATOR), you will lose the ability to view any
channels on that TV.
If you are affected, you should contact (NAME OF CABLE OPERATOR) to
arrange for the equipment you need to continue receiving your services. In such
case, you are entitled to receive equipment at no additional charge or service fee
for a limited period of time. The number and type of devices you are entitled to
receive and for how long will vary depending on your situation. If you are a
(INSERT NAME OF CABLE BASIC SERVICE TIER OFFERING) customer
and receive the service on your TV without (NAME OF CABLE OPERATOR)-
supplied equipment, you are entitled to up to two devices for two years (five
years if you also receive Medicaid). If you subscribe to a higher level of service
and receive (INSERT NAME OF CABLE BASIC SERVICE TIER OFFERING)
on a secondary TV without (NAME OF CABLE OPERATOR)-supplied
equipment, you are entitled to one device for one year.
You can learn more about this equipment offer and eligibility at (WEBPAGE
ADDRESS) or by calling (PHONE NUMBER). To qualify for any equipment at
no additional charge or service fee, you must request the equipment between
(DATE THAT IS 30 DAYS BEFORE ENCRYPTION) and (DATE THAT IS
120 DAYS AFTER ENCRYPTION) and satisfy all other eligibility
requirements.
We believe that 30 days’ notice will provide a reasonable opportunity for affected consumers to avail
themselves of free device offers in advance of basic service tier encryption without unduly burdening
cable operators. In addition, at least 30 days, but no more than 60 days, before the end of the free device
transitional period, a cable operator that encrypts must notify subscribers that have taken advantage of the
transitional period that the period is ending as follows:
You currently receive equipment necessary to descramble or decrypt the basic
service tier signals (either a set-top box or CableCARD) free of charge. Effective
with the (MONTH/YEAR) billing cycle, (NAME OF CABLE OPERATOR) will
begin charging you for the equipment you received to access (INSERT NAME
OF CABLE BASIC SERVICE TIER OFFERING) when (NAME OF CABLE
OPERATOR) started encrypting those channels on your cable system. The
monthly charge for the (TYPE OF DEVICE) will be (AMOUNT OF CHARGE).


135 See Appendix A (adding §§ 76.630(a)(1)(ii)-(iv)). This requirement is consistent with the condition that the
Media Bureau adopted in the Cablevision Waiver. See Letter from Howard Symons, Counsel for Cablevision, to
Marlene H. Dortch, Secretary, Federal Communications Commission, MB Docket No. 09-168 (Jan. 7, 2010).
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While our rule prescribes the language that cable operators must use to notify their subscribers about
encryption and the device-based protection measures, we leave open the option for cable operators to
supplement this notice as they see fit. We will not require the six largest incumbent cable operators to
provide special notice to their subscribers about the availability of IP-enabled device compatibility,
though they must comply with existing notice requirements.136 Third-party IP-enabled device
manufacturers have an economic incentive to ensure their customers are aware of the functions and
features of their devices, e.g., provide notice to their customers in marketing materials about the need to
obtain IP-enabled equipment from their cable operator and the special equipment the six largest
incumbent cable operators are required to offer their subscribers under Commission rules.137
32. Public Knowledge and Media Access Project proposed that we require operators to notify
subscribers when their free device period is ending on each monthly bill for the three months preceding
the end of the transition period.138 We agree that preventing “bill shock” is important, and Section
76.1603(d) of our rules requires cable operators to provide written notice of any increase in price to be
charged for equipment necessary to access the basic service tier at least 30 days before the increase is
effective.139 We do not believe that the three notices that Public Knowledge and Media Access Project
propose are necessary. But we are concerned that cable operators could notify their subscribers too early
in the transition period to render notification essentially meaningless.140 Therefore, we believe it is
important to define the window for notices more precisely so that affected subscribers are notified no
more than 60 days before the end of the transitional free-device period. At that time, affected subscribers
can determine the course that best suits their circumstances. Some subscribers may opt to continue their
current level of service and pay for the additional equipment charges. Other subscribers may choose to
reduce their level of service or terminate their existing cable service and pursue a competitive alternative
that better meets their service needs and budgets.141
33. The New York City Department of Information Technology and Telecommunications (NYC
DoITT) argues that, because Cablevision’s encryption of its New York City systems is nascent, the
Commission cannot be sure of the long-term effects that basic service tier encryption may have.142


136 We believe that our existing rules provide cable subscribers with adequate notice: Section 76.1621(c) of the
Commission’s rules requires operators to determine the specific equipment needed by individual subscribers on a
case-by-case basis, and to make good faith efforts to provide subscribers with the types of special equipment needed
to resolve their individual compatibility problems. 47 C.F.R. § 76.1621(c). In addition, Section 76.1622 requires
operators to educate subscribers annually about compatibility issues. 47 C.F.R. § 76.1622.
137 See, e.g., http://www.boxee.tv/live (last visited Aug. 27, 2012),
http://www.hauppauge.com/site/products/data_hvr2250.html (last visited Aug. 27, 2012),
http://www.elgato.com/elgato/na/mainmenu/products/EyeTV-Hybrid-10/product3.en.html (last visited Aug. 27,
2012).
138 PK and MAP Comments at 3, 8-11. See also Eric Kotz Comments at 1.
139 47 C.F.R. § 76.1603(d).
140 For example, under our existing rule 76.1603(d), a cable operator might notify the subscriber of the increase in
price as soon as the consumer receives the device—in the case of a Medicaid recipient, this would be 60 months
before the price increase, which is technically more than 30 days before the charge increases.
141 Public Knowledge and Media Access Project also proposed that we require cable operators to provide subscribers
with set-top boxes with the lowest rental fees by default. PK and MAP Comments at 11. We decline to dictate what
type of set-top box cable operators must provide to comply with these requirements. Once subscribers are notified
that the term of their free boxes is coming to an end they will be able to decide whether to continue leasing the box
that was provided for free, select another box, or take some other action.
142 NYC DoITT Comments at 1-3
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Therefore, NYC DoITT encourages the Commission to make this rule change temporary.143 We agree
that we cannot predict how our rule change will affect the cable industry and subscribers with absolute
certainty. The information before us indicates, however, that this rule change will result in the substantial
public interest benefits discussed above and that any additional burdens imposed on a limited number of
subscribers will be tempered by the consumer protection measures adopted herein. The Commission will
keep apprised of the consequences of the rule change and, if the situation develops differently than
predicted, we can revisit the issue on our own initiative or in response to a petition for rulemaking.144 In
the future, we may seek information from the operators that have chosen to encrypt to ensure that the
expected benefits are being achieved and any burdens to consumers are being minimized. However,
nothing in the record persuades us that it is necessary to build a sunset into the rule.

D.

Legal Basis

34. Section 624A of the Communications Act provides the Commission broad authority to make
changes to our encryption rule and to impose the consumer-protection measures we adopt today.145
Congress’s objective in enacting Section 624A was to ensure compatibility between cable systems and
consumer TV (receiving and recording) equipment, consistent with the need to prevent theft of cable
service.146 Section 624A(b)(2) directs the Commission to “determine whether and, if so, under what
circumstances to permit cable systems to scramble or encrypt signals or to restrict cable systems in the
manner in which they encrypt or scramble signals.”147 Section 624A(d) directs the Commission to
periodically review and modify regulations adopted pursuant to Section 624A “to reflect improvements
and changes in cable systems, television receivers, video cassette recorders and similar technology.”148
The record suggests that to achieve the statutory goals of Section 624A a blanket ban on encryption is no
longer necessary, and that changes in cable technology justify relaxing the rule for all-digital cable
systems, provided consumer protection measures are addressed. As explained above, cable technology is
markedly different than it was when the Commission first adopted the encryption prohibition set forth in
Section 76.630.149 For example, the transition to all-digital systems means that encryption of the basic
service tier will permit remote activation and deactivation of cable service resulting in significant savings
of time and resources for both cable operators and the vast majority of cable customers.150 Furthermore,
as discussed below, the CableCARD standard provides an avenue for consumers to purchase consumer
electronics devices that are compatible with digital cable service, which achieves Congress’ stated goal in
Section 624A.151


143 Id.
144 47 C.F.R. §§ 1.411, 1.401.
145 47 U.S.C. § 544a.
146 47 U.S.C. § 544a(a).
147 47 U.S.C. § 544a(b)(2).
148 47 U.S.C. 544a(d); BendBroadband Comments at 5; Comcast Comments at 17-18.
149 Compatibility Order, 9 FCC Rcd at 1990, ¶ 50 (noting that at the time of adoption of the encryption prohibition,
the basic service tier was nearly always unscrambled, theft of basic service was less of a problem than theft of other
services, and it was beneficial to allow subscribers to access basic tier channels without using a descrambling set-top
box).
150 ACA Comments at 3; Comcast Comments at 4-6.
151 We note that Executive Order No. 13579 provides additional support for the rule change. Executive Order No.
13579 directs government agencies to review and modify rules that “may be outmoded, ineffective . . . or
excessively burdensome.” Exec. Order No. 13579, 76 Fed. Reg. 41,587 (July 11, 2011). In response to the
Executive Order, the Commission explained that it identifies regulations ripe for retrospective analysis based on
whether the regulation “(1) has been affected by changes in technology or new scientific research or changes in
(continued….)
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35. Relaxing the encryption rule in this manner will not impede Section 624A’s goal of
compatibility between consumer electronics equipment and cable systems. The Commission has adopted
a standard that allows for “plug and play”152 compatibility between consumer electronics devices and
cable systems.153 This standard provides a clear path for device manufacturers to follow if they wish to
build devices that are compatible with digital cable systems and can access all linear digital cable
services.154 Montgomery County, Maryland argues that the CableCARD standard is not successful, and
that the Commission should endeavor to relieve compatibility problems, rather than compound them.155
According to Montgomery County, relaxing the encryption rule will lead to compatibility problems
because consumers will no longer be able to use clear-QAM tuners on non-primary television sets.156
However, the Commission has already adopted a solution for compatibility between consumer electronics
equipment and digital cable: the CableCARD standard is intended to allow consumers to buy compatible
retail devices to access all linear digital cable services as opposed to the basic-only service that clear-
QAM tuners can access without additional equipment. Indeed, the Commission’s cable-ready labeling
rules prohibit device manufacturers from labeling their devices as “digital cable ready” unless they
comply with the CableCARD standards. Thus, under our existing rules, manufacturers should not have
indicated to consumers that devices could receive digital cable service unless those devices were, in fact,
CableCARD-compatible.157 Therefore, we disagree with Montgomery County’s characterization that
encryption will lead to an abundance of compatibility problems due to the rule changes adopted herein.
Section 624A(c)(1)(B) expressly directs the Commission to consider “the costs and benefits to consumers
of imposing compatibility requirements on cable operators.”158 As discussed above, the costs associated
with a blanket encryption prohibition in all-digital systems greatly outweigh the anticipated benefits to
consumers,159 particularly in light of the consumer protection measures we are also adopting.160
(Continued from previous page)__________________
market structure; (2) has a disproportionate or undue burden on particular entities, has caused unintended negative
effects, or could result in greater net benefits to the public if modified; and (3) has been subject to frequent requests
for waivers by affected stakeholders or been identified by the public as needing revision.” FEDERAL
COMMUNICATIONS COMMISSION, PRELIMINARY PLAN FOR RETROSPECTIVE ANALYSIS OF EXISTING RULES 7 (Nov.
7, 2011), available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db1107/DOC-310874A1.pdf.
We believe the rule change we adopt today helps meet these important objectives.
152 The term “plug and play” refers to a device’s ability to plug into a cable system and receive cable programming
without a cable-operator provided set-top box.
153 Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation
Devices; Compatibility Between Cable Systems and Consumer Electronics Equipment
, 18 FCC Rcd 20885 (2003).
See also supra ¶¶ 3-5.
154 Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation
Devices; Compatibility Between Cable Systems and Consumer Electronics Equipment
, 18 FCC Rcd 20885 (2003).
In addition, the Commission has commenced an inquiry into a future standard for MVPD-compatibility, which
would provide a system for manufacturers to build devices compatible with all MVPDs, without causing the
challenges to system security and inconvenience to customers that the encryption ban creates. See Video Device
Competition; Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of
Navigation Devices; Compatibility between Cable Systems and Consumer Electronics Equipment
, 25 FCC Rcd 4275
(2010).
155 Montgomery County, MD Comments at 8-9.
156 Id. at 2-3.
157 See 47 C.F.R. § 15.123.
158 47 U.S.C. § 544a(c)(1)(B).
159 See supra ¶¶ 12-15.
160 See supra ¶¶ 16-33.
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Furthermore, in 2010, the Commission adopted changes to the CableCARD rules, including streamlined
device approval procedures, a self-installation option, and a prohibition on price discrimination against
CableCARD devices, that should increase the retail availability and the quality of experience for
CableCARD devices and further increase compatibility between consumer electronics and cable service
by ensuring that retail devices can access all linear digital cable services.161 Given these technological
and rule changes, we conclude that a complete prohibition on basic service tier encryption in all-digital
systems is no longer necessary to ensure compatibility between consumer electronics devices and cable
service, provided certain consumer protection measures are satisfied.162
36. We also conclude that the requirement in Section 623(b)(3)(A) of the Act to base any price
or rate standards for equipment installation and leasing on actual cost does not bar the Commission from
imposing the consumer protection measures set forth in Sections 76.630(a)(1)(ii)-(vi) of our new rules.163
The commenters who addressed our legal authority agree that the consumer protection measures–which
are adopted as a transitional measure and implicate a limited number of affected customers—do not run
afoul of Section 623 of the Communications Act,164 and we did not receive any comments claiming that
the consumer protection measures, as structured, would violate 623. These measures are not being
imposed as a regulation of equipment rates under Section 623. Rather, the consumer protection measures
are being adopted pursuant to Section 624A(b)(2)’s broad grant of authority to the Commission to
determine “under what circumstances to permit cable systems to scramble or encrypt signals or to restrict
cable systems in the manner in which they encrypt or scramble signals.”165 We have determined that
relaxing the encryption prohibition should be permitted for all-digital systems, provided the potential
harm to affected consumers is minimized. Our new rule permits a cable operator to elect to abide by the
encryption prohibition without having any obligation to offer subscribers equipment for a transitional
period. It is only when a cable operator chooses to encrypt the basic service tier that it is required to
comply with the requisite regulatory conditions (by providing set-top boxes at no cost to affected
subscribers for a limited transitional period). Thus, this requirement is imposed as a condition of a cable
operator’s voluntary election to encrypt the basic service tier, and not as a rate regulation imposed under
Section 623(b)(3)(A).

E.

Waiver Requests

37. As mentioned in paragraph 5 above, the Commission has pending before it four petitions for
waiver of the encryption ban.166 These petitions have been pending for more than a year. Petitioners seek


161 Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation
Devices Compatibility Between Cable Systems and Consumer Electronics Equipment
, 25 FCC Rcd 14657 (2010).
162 CEA and the AllVid Tech Company Alliance filed comments suggesting that the Commission should only act on
basic service tier encryption in the broader context of device compatibility and the AllVid proceeding and that the
Commission must take steps to comply with Section 629 of the Act. AllVid Tech Company Alliance Comments at
2-3; CEA Comments at 10-12. We agree with CEA and the AllVid Tech Company Alliance that ensuring the
effective implementation of Section 629 of the Act and continuing future device compatibility are important issues
that the Commission must resolve. However, we agree with Cablevision that those important issues need not be
resolved before revising the ban on encryption of the basic service tier. Cablevision Reply at 5.
163 47 U.S.C. § 543(b)(3)(A).
164 See Cablevision Comments at 11 n.23; NCTA Comments at 12-14; see also TWC Reply at 10.
165 47 U.S.C. § 544a(b)(2).
166 Inter Mountain Cable Inc.’s Request for Waiver of Section 76.630(a) of the Commission’s Rules, CSR-8483-Z
(filed April 13, 2011); RCN Request; Coaxial Cable TV’s Request for Waiver of Section 76.630(a) of the
Commission’s Rules, CSR-8334-Z (filed April 13, 2010); Mikrotec CATV LLC’s Request for Waiver of Section
76.630(a) of the Commission’s Rules, CSR-8528-Z (filed Sept. 7, 2011). None of these operators is one of the six
(continued….)
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immediate relief, claiming that they face extraordinary theft of service.167 We find good cause to grant
these waiver requests effective upon release of this Order to prevent further delay. For the reasons set
forth above, these waivers are conditioned upon the petitioners’ complying with the consumer protection
requirements discussed in this Order.

IV.

CONCLUSION

38. We conclude that allowing cable operators to encrypt the basic service tier in all-digital
systems will result in substantial, tangible benefits to both consumers and cable operators with minimal
countervailing burdens on affected subscribers. We believe that the consumer-protection measures that
we adopt will mitigate any burdens that encryption will have on the limited number of consumers that
may be affected by the instant rule change.

V.

PROCEDURAL MATTERS

39. Paperwork Reduction Act Analysis. The Report and Order in this document does not contain
proposed information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law
104-13.168 In addition, therefore, it does not contain any new or modified information collection burden
for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork
Relief Act of 2002, Public Law 107-198, see 44 U.S.C. § 3506(c)(4).
40. Final Regulatory Flexibility Analysis. As required by the Regulatory Flexibility Act,169 the
Commission has prepared a Final Regulatory Flexibility Analysis (“FRFA”) relating to this Report and
Order
. The FRFA is set forth in Appendix A.
41. Congressional Review Act. The Commission will send a copy of this Third Report and Order
in a report to be send to Congress and the Government Accountability Office pursuant to the
Congressional Review Act, see 5 U.S.C. § 801(a)(1)(A).
42. Additional Information. For additional information on this proceeding, contact Steven
Broeckaert, Steven.Broeckaert@fcc.gov, or Brendan Murray, Brendan.Murray@fcc.gov, of the Media
Bureau, Policy Division, (202) 418-2120.
43. For additional information concerning the information collection(s) contained in this
document, contact Cathy Williams at (202) 418-2918, or via the Internet at PRA@fcc.gov.

VI.

ORDERING CLAUSES

44. Accordingly,

IT IS ORDERED

that, pursuant to the authority contained in Sections 1, 4(i),
4(j), 303(r), 601, and 624A of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i),
154(j), 303(r), 521, and 544a, this Report and Order

IS ADOPTED

.
(Continued from previous page)__________________
largest incumbent cable operators; therefore, they are not subject to the IP-enabled device conditions we impose
above.
167 Inter Mountain Cable Inc.’s Request for Waiver of Section 76.630(a) of the Commission’s Rules, CSR-8483-Z at
7-13 (filed April 13, 2011); RCN Request at 2-5; Coaxial Cable TV’s Request for Waiver of Section 76.630(a) of the
Commission’s Rules, CSR-8334-Z at 3-4 (filed April 13, 2010); Mikrotec CATV LLC’s Request for Waiver of
Section 76.630(a) of the Commission’s Rules, CSR-8528-Z at 5-9 (filed Sept. 7, 2011).
168 The proposed notification requirements do not qualify as information collections under the PRA. 5 C.F.R. §
1320.3(c)(2).
169 See 5 U.S.C. § 604.
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45.

IT IS FURTHER ORDERED

that, pursuant to the authority contained in Sections 1, 4(i),
4(j), 303(r), 601, and 624A of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i),
154(j), 303(r), 521, and 544a, Part 76 of the Commission’s rules

IS AMENDED

as set forth in Appendix
A, effective 30 days after publication in the Federal Register. It is our intention that all of the rule
changes adopted in this order are interdependent and inseparable and that if any provision of the rules, or
the application thereof to any person or circumstance, are held to be unlawful or invalid, the remaining
rule changes adopted herein shall not be effective.
46.

IT IS FURTHER ORDERED

that, pursuant to Section 1.3 of the Commission’s rules, 47
C.F.R. § 1.3, the requests for waiver of Section 76.630(a) of the Commission’s rules, 47 C.F.R. §
76.630(a), filed by RCN Corporation, Mikrotec CATV, LLC, Inter Mountain Cable, Inc., and Coaxial
Cable TV

ARE GRANTED

, to the extent described herein and conditioned as set forth above.
47.

IT IS FURTHER ORDERED

that the Commission’s Consumer and Governmental Affairs
Bureau, Reference Information Center,

SHALL SEND

a copy of this Report and Order, including the
Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration.
48.

IT IS FURTHER ORDERED

that the Commission

SHALL SEND

a copy of this Report
and Order in a report to be sent to Congress and the General Accounting Office pursuant to the
Congressional Review Act, see 5 U.S.C. § 801(a)(1)(A).
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
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APPENDIX A

Final Rules

Part 76 of Title 47 of the Code of Federal Regulations will be amended as follows:
I. SUBPART K – TECHNICAL STANDARDS
1. Amend § 76.630 to revise paragraph (a), delete Notes 1 and 4, and redesignate notes 2 and 3 as
notes 1 and 2 to read as follows:
§ 76.630 Compatibility with consumer electronics equipment.
(a) Cable system operators shall not scramble or otherwise encrypt signals delivered to a subscriber
on the basic service tier.
(1) This prohibition shall not apply in systems in which:
(i) no encrypted signals are carried using the NTSC system; and
(ii) the cable system operator offers to its existing subscribers who
subscribe only to the basic service tier without use of a set-top box or
CableCARD at the time of encryption the equipment necessary to
descramble or decrypt the basic service tier signals (the subscriber’s
choice of a set-top box or CableCARD) on up to two television sets
without charge or service fee for two years from the date encryption of
the basic service tier commences; and

(iii) the cable system operator offers to its existing subscribers who
subscribe to a level of service above “basic only” but use a digital
television or other device with a clear-QAM tuner to receive only the
basic service tier without use of a set-top box or CableCARD at the
time of encryption, the equipment necessary to descramble or decrypt
the basic service tier signals (the subscriber’s choice of a set-top box or
CableCARD) on one television set without charge or service fee for one
year from the date encryption of the basic service tier commences; and

(iv) the cable system operator offers to its existing subscribers who
receive Medicaid and also subscribe only to the basic service tier
without use of a set-top box or CableCARD at the time of encryption
the equipment necessary to descramble or decrypt the basic service tier
signals (the subscriber’s choice of a set-top box or CableCARD) on up
to two television sets without charge or service fee for five years from
the date encryption of the basic service tier commences;

(vi) the cable system operator notifies its existing subscribers of the
availability of the offers described in subsections (ii) through (iv) at
least thirty days prior to the date encryption of the basic service tier
commences and makes the offers available for at least thirty days prior
to and one hundred and eighty days after the date encryption of the

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basic service tier commences. The notification to subscribers must
state:

On (DATE), (NAME OF CABLE OPERATOR) will start
encrypting (INSERT NAME OF CABLE BASIC SERVICE
TIER OFFERING) on your cable system. If you have a set-top
box, digital transport adapter (DTA), or a retail CableCARD
device connected to each of your TVs, you will be unaffected by
this change. However, if you are currently receiving (INSERT
NAME OF CABLE BASIC SERVICE TIER OFFERING) on
any TV without equipment supplied by (NAME OF CABLE
OPERATOR), you will lose the ability to view any channels on
that TV.

If you are affected, you should contact (NAME OF CABLE
OPERATOR) to arrange for the equipment you need to
continue receiving your services. In such case, you are entitled
to receive equipment at no additional charge or service fee for a
limited period of time. The number and type of devices you are
entitled to receive and for how long will vary depending on your
situation. If you are a (INSERT NAME OF CABLE BASIC
SERVICE TIER OFFERING) customer and receive the service
on your TV without (NAME OF CABLE OPERATOR)-
supplied equipment, you are entitled to up to two devices for
two years (five years if you also receive Medicaid). If you
subscribe to a higher level of service and receive (INSERT
NAME OF CABLE BASIC SERVICE TIER OFFERING) on a
secondary TV without (NAME OF CABLE OPERATOR)-
supplied equipment, you are entitled to one device for one year.

You can learn more about this equipment offer and eligibility at
(WEBPAGE ADDRESS) or by calling (PHONE NUMBER). To
qualify for any equipment at no additional charge or service fee,
you must request the equipment between (DATE THAT IS 30
DAYS BEFORE ENCRYPTION) and (DATE THAT IS 120
DAYS AFTER ENCRYPTION) and satisfy all other eligibility
requirements.

(viii) the cable system operator notifies its subscribers who have
received equipment described in subsections (ii) through (iv) at least 30
days, but no more than 60 days, before the end of the free device
transitional period that the transitional period will end. This
notification must state:

·

You currently receive equipment necessary to
descramble or decrypt the basic service tier signals
(either a set-top box or CableCARD) free of charge.
Effective with the (MONTH/YEAR) billing cycle,
(NAME OF CABLE OPERATOR) will begin charging
you for the equipment you received to access (INSERT
NAME OF CABLE BASIC SERVICE TIER

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OFFERING) when (NAME OF CABLE OPERATOR)
started encrypting those channels on your cable system.
The monthly charge for the (TYPE OF DEVICE) will
be (AMOUNT OF CHARGE).

(2) Requests for waivers of this prohibition must demonstrate either a substantial
problem with theft of basic tier service or a strong need to scramble basic signals for
other reasons. As part of this showing, cable operators are required to notify
subscribers by mail of waiver requests. The notice to subscribers must be mailed no
later than thirty calendar days from the date the request for waiver was filed with
the Commission, and cable operators must inform the Commission in writing, as
soon as possible, of that notification date. The notification to subscribers must state:
On (date of waiver request was filed with the Commission), (cable
operator's name) filed with the Federal Communications Commission a
request for waiver of the rule prohibiting scrambling of channels on the
basic tier of service. 47 CFR § 76.630(a). The request for waiver states (a
brief summary of the waiver request). A copy of the request for waiver shall
be available for public inspection at (the address of the cable operator's local
place of business).
Individuals who wish to comment on this request for waiver should mail
comments to the Federal Communications Commission by no later than 30
days from (the date the notification was mailed to subscribers). Those
comments should be addressed to the: Federal Communications
Commission, Media Bureau, Washington, DC 20554, and should include
the name of the cable operator to whom the comments are applicable.
Individuals should also send a copy of their comments to (the cable operator
at its local place of business). Cable operators may file comments in reply
no later than 7 days from the date subscriber comments must be filed.
* * * * *
Note 1 to § 76.630: 47 C.F.R. § 76.1621 contains certain requirements pertaining to a cable
operator's offer to supply subscribers with special equipment that will enable the simultaneous
reception of multiple signals.
Note 2 to § 76.630: 47 C.F.R. § 76.1622 contains certain requirements pertaining to the
provision of a consumer education program on compatibility matters to subscribers.
II. SUBPART T – NOTICES
2. Amend § 76.1603 to revise paragraph (d):
§ 76.1603 Customer Service – Rate and Service Changes.
* * *
(d) A cable operator shall provide written notice to a subscriber of any increase in the price to be
charged for the basic service tier or associated equipment at least 30 days before any proposed
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increase is effective.

If the equipment is provided to the consumer without charge pursuant to §
76.630, the cable operator shall provide written notice to the subscriber no more than 60 days
before the increase is effective.

The notice should include the price to be charged, and the date
that the new charge will be effective, and
the name and address of the local franchising authority.
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APPENDIX B

Final Regulatory Flexibility Analysis

1. As required by the Regulatory Flexibility Act of 1980, as amended (RFA),1 an Initial
Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rule Making
(NPRM).2 The Commission sought written public comment on the proposals in the NPRM, including
comment on the IRFA.3 No commenting parties specifically addressed the IRFA. This present Final
Regulatory Flexibility Analysis (FRFA) conforms to the RFA. The Commission will send a copy of the
R&O, including this FRFA, to the Chief Counsel for Advocacy of the Small Business Administration.4 In
addition, the R&O and FRFA (or summaries thereof) will be published in the Federal Register.5

A.

Need for, and Objectives of the Proposed Rules.

2. With this Report and Order, the Commission amends its rules to allow cable operators to
encrypt the basic service tier in all-digital cable systems if they comply with certain consumer-protection
measures. This rule change will benefit consumers who can have their cable service activated and
deactivated from a remote location. By allowing remote activation and deactivation, we expect our
amended rules will result in benefits to both cable operators and consumers by significantly reducing the
number of service calls associated with provisioning service and significantly reducing the need for
subscribers to wait for service calls to activate or deactivate cable service. At the same time, we
recognize that this rule change will adversely affect a small number of cable subscribers who currently
view the digital basic service tier without using a set-top box or other equipment. If a cable operator
decides to encrypt the digital basic tier, then these subscribers will need equipment to continue viewing
the channels on this tier. To give those consumers time to resolve the incompatibility between consumer
electronics equipment (such as digital television sets) and newly encrypted cable service, we require
operators of cable systems that choose to encrypt the basic service tier to comply with certain consumer
protection measures for a period of time. The Commission concludes that allowing cable operators to
encrypt the basic service tier in all-digital systems will lead to benefits like decreased service calls and
theft of service, with few associated burdens on consumers. Therefore the Commission believes that this
rule change will reduce burdens on small entities. The Commission predicts that encryption of the basic
service tier will not substantially affect compatibility between cable service and consumer electronics
equipment for most subscribers because over 75 percent of subscribers already have set-top boxes to
decrypt the signals. Because the rule is voluntary—a cable operator with an all-digital system may
choose whether to encrypt that system—each cable operator may decide whether the benefits of
encryption (which include reduced service calls and reduced theft) outweigh the cost of providing its
subscribers with the equipment they will need to continue viewing the channels on the basic service tier. .
3. The need for FCC regulation in this area derives from changing technology in the cable
services market. When the Commission adopted technical rules in the 1990s, digital cable service was in
its infancy, and therefore the rules were adopted with analog cable service in mind. Today, digital cable


1 See 5 U.S.C. § 603. The RFA, see 5 U.S.C. §§ 601-612, has been amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
2 Basic Service Tier Encryption; Compatibility Between Cable Systems and Consumer Electronics Equipment, 26
FCC Rcd 14870, 14885 (2011).
3 See id.
4 See 5 U.S.C. § 603(a).
5 See id.
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service is common, and the encryption rule does not translate well in systems that offer all-digital service.
Therefore, the Commission will allow all-digital cable operators to encrypt the basic service tier.
4. We recognize that some consumers subscribe only to a cable operator’s digital basic service
tier and currently are able to do so without using a set-top box or other equipment. Similarly, there are
consumers that may have a set-top box on a primary television but access the unencrypted digital basic
service tier on second or third televisions in their home without using a set-top box or other equipment.
Although we expect the number of subscribers in these situations to be extremely small, these consumers
may be affected by lifting the encryption prohibition for all-digital cable systems. To address this
problem, we conclude that operators of all-digital cable systems that choose to encrypt the basic service
tier must comply with certain consumer protection measures for a limited period of time in order to
minimize any potential subscriber disruption,6 including a requirement that the six largest cable operators
offer IP-enabled set-top boxes to subscribers as part of these protections.
5. The Commission believes that the rule will save small entities money. The consumer
protection element of the rule—the requirement that cable operators offer existing basic tier customers
set-top boxes without charge for certain lengths of time—does associate a cost with the rule. But the
Commission believes that the financial benefit to small cable operators in reduced truck rolls and theft of
services will far outweigh that cost. Furthermore, because the decision of whether to encrypt the basic
tier is voluntary, small businesses will be able to make a business decision about whether to encrypt.

B.

Legal Basis.


6. The authority for the action proposed in this rulemaking is contained in Sections 1, 4(i) and
(j), 303(r), 601, and 624A of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i)
and (j), 303(r), 521, and 544a.

C.

Description and Estimate of the Number of Small Entities to Which the Proposed

Rules Will Apply

.
7. The RFA directs the Commission to provide a description of and, where feasible, an estimate
of the number of small entities that will be affected by the proposed rules.7 The RFA generally defines the
term “small entity” as having the same meaning as the terms “small business,” “small organization,” and
“small governmental entity” under Section 3 of the Small Business Act.8 In addition, the term “small
business” has the same meaning as the term “small business concern” under the Small Business Act.9 A


6 A cable operator that chooses to encrypt must (i) offer to existing subscribers who subscribe only to the basic
service tier and do not use a set-top box or CableCARD, the subscriber’s choice of a set-top box or CableCARD on
up to two television sets without charge for two years from the date of encryption; (ii) offer existing subscribers who
subscribe to a level of service above “basic only” but use an additional television set to access only the basic service
tier without the use of a set-top box or CableCARD at the time of encryption, the subscriber’s choice of a set-top
box or CableCARD on one television set without charge for one year from the date of encryption; and (iii) offer
existing subscribers who receive Medicaid, subscribe only to the basic service tier, and do not use a set-top box or
CableCARD, the subscriber’s choice of a set-top box or CableCARD on up to two television sets without charge for
five years from the date of encryption.
7 5 U.S.C. § 603(b)(3).
8 5 U.S.C. § 601(3) (incorporating by reference the definition of “small business concern” in 15 U.S.C. § 632).
Pursuant to the RFA, the statutory definition of a small business applies, “unless an agency, after consultation with
the Office of Advocacy of the SBA and after opportunity for public comment, establishes one or more definitions of
such the term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal
Register.
9 5 U.S.C. § 601(3) (incorporating by reference the definition of “small business concern” in the Small Business Act,
15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an
(continued….)
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small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its
field of operation; and (3) satisfies any additional criteria established by the Small Business
Administration (“SBA”).10
8. Cable and Other Program Distribution. Since 2007, these services have been defined within
the broad economic census category of Wired Telecommunications Carriers; that category is defined as
follows: “This industry comprises establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data,
text, sound, and video using wired telecommunications networks. Transmission facilities may be based on
a single technology or a combination of technologies.”11 The SBA has developed a small business size
standard for this category, which is: all such firms having 1,500 or fewer employees.12 According to
Census Bureau data for 2007, there were a total of 955 firms in this previous category that operated for
the entire year.13 Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had
employment of 1000 employees or more.14 Thus, under this size standard, the majority of firms can be
considered small and may be affected by rules adopted pursuant to the NPRM.
9. Cable Companies and Systems (Rate Regulation Standard). The Commission has also
developed its own small business size standards for the purpose of cable rate regulation. Under the
Commission’s rules, a “small cable company” is one serving 400,000 or fewer subscribers nationwide.15
As of 2008, out of 814 cable operators,16 all but 10 (that is, 804) qualify as small cable companies under
this standard.17 In addition, under the Commission’s rules, a “small system” is a cable system serving
15,000 or fewer subscribers.18 Current Commission records show 6,000 cable systems. Of these, 726
have 20,000 subscribers or more, based on the same records. We estimate that there are 5,000 small
systems based upon this standard.
10. Cable System Operators (Telecom Act Standard). The Communications Act of 1934, as
amended, also contains a size standard for small cable system operators, which is “a cable operator that,
directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the
United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate
exceed $250,000,000.”19 There are approximately 63.7 million cable subscribers in the United States
(Continued from previous page)__________________
agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity
for public comment, establishes one or more definitions of such term which are appropriate to the activities of the
agency and publishes such definition(s) in the Federal Register.”
10 15 U.S.C. § 632. Application of the statutory criteria of dominance in its field of operation, and independence are
sometime difficult to apply in the context of broadcast television. Accordingly, the Commission’s statistical account
of television stations may be over-inclusive.
11 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial definition),
http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
12 13 C.F.R. § 121.201, NAICS code 517110 (2007).
13 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms for
the United States: 2007, NAICS code 5171102 (issued Nov. 2010).
14 See id.
15 47 C.F.R. § 76.901(e). The Commission determined that this size standard equates approximately to a size
standard of $100 million or less in annual revenues. Implementation of Sections of the 1992 Cable Act: Rate
Regulation, Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7408 (1995).
16 Cable MSO Ownership, A Geographical Analysis, 2009 Edition, 14-31, SNL Kagan (June 2009).
17 Id. at 12.
18 47 C.F.R. § 76.901(c).
19 47 U.S.C. § 543(m)(2); see 47 C.F.R. § 76.901(f) & nn.1-3.
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today.20 Accordingly, an operator serving fewer than 637,000 subscribers shall be deemed a small
operator, if its annual revenues, when combined with the total annual revenues of all its affiliates, do not
exceed $250 million in the aggregate.21 Based on available data, we find that the number of cable
operators serving 637,000 subscribers or less is also 804.22 We note that the Commission neither requests
nor collects information on whether cable system operators are affiliated with entities whose gross annual
revenues exceed $250 million.23 Although it seems certain that some of these cable system operators are
affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time to
estimate with greater precision the number of cable system operators that would qualify as small cable
operators under the definition in the Communications Act.
11. Direct Broadcast Satellite (“DBS”) Service. DBS service is a nationally distributed
subscription service that delivers video and audio programming via satellite to a small parabolic “dish”
antenna at the subscriber’s location. DBS, by exception, is now included in the SBA’s broad economic
census category, “Wired Telecommunications Carriers,”24 which was developed for small wireline firms.
Under this category, the SBA deems a wireline business to be small if it has 1,500 or fewer employees.25
However, the data we have available as a basis for estimating the number of such small entities were
gathered under a superseded SBA small business size standard formerly titled “Cable and Other Program
Distribution.” The definition of Cable and Other Program Distribution provided that a small entity is one
with $12.5 million or less in annual receipts.26 Currently, only two entities provide DBS service, which
requires a great investment of capital for operation: DIRECTV and EchoStar Communications
Corporation (“EchoStar”) (marketed as the DISH Network).27 Each currently offer subscription services.
DIRECTV28 and EchoStar29 each report annual revenues that are in excess of the threshold for a small


20 See Cable TV Investor: Deals & Finance, No. 655, SNL Kagan, March 31, 2009, at 6.
21 47 C.F.R. § 76.901(f); see Public Notice, FCC Announces New Subscriber Count for the Definition of Small
Cable Operator, DA 01-158 (Cable Services Bureau, Jan. 24, 2001).
22 Cable MSO Ownership at 12.
23 The Commission does receive such information on a case-by-case basis if a cable operator appeals a local
franchise authority’s finding that the operator does not qualify as a small cable operator pursuant to § 76.901(f) of
the Commission’s rules. See 47 C.F.R. § 76.901(f).
24 See 13 C.F.R. § 121.201, NAICS code 517110 (2007). The 2007 North American Industry Classification System
(“NAICS”) defines the category of “Wired Telecommunications Carriers” as follows: “This industry comprises
establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure
that they own and/or lease for the transmission of voice, data, text, sound, and video using wired
telecommunications networks. Transmission facilities may be based on a single technology or a combination of
technologies. Establishments in this industry use the wired telecommunications network facilities that they operate
to provide a variety of services, such as wired telephony services, including VoIP services; wired (cable) audio and
video programming distribution; and wired broadband Internet services. By exception, establishments providing
satellite television distribution services using facilities and infrastructure that they operate are included in this
industry.
” (Emphasis added to text relevant to satellite services.) U.S. Census Bureau, 2007 NAICS Definitions,
“517110 Wired Telecommunications Carriers”; http://www.census.gov/naics/2007/def/ND517110.HTM.
25 13 C.F.R. § 121.201, NAICS code 517110 (2007).
26 13 C.F.R. § 121.201, NAICS code 517510 (2002).
27 See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming,
Thirteenth Annual Report, 24 FCC Rcd 542, 580, ¶ 74 (2009) (“13th Annual Report”). We note that, in 2007,
EchoStar purchased the licenses of Dominion Video Satellite, Inc. (“Dominion”) (marketed as Sky Angel). See
Public Notice, “Policy Branch Information; Actions Taken,” Report No. SAT-00474, 22 FCC Rcd 17776 (IB 2007).
28 As of June 2006, DIRECTV is the largest DBS operator and the second largest MVPD, serving an estimated
16.20% of MVPD subscribers nationwide. See id. at 687, Table B-3.
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business. Because DBS service requires significant capital, we believe it is unlikely that a small entity as
defined by the SBA would have the financial wherewithal to become a DBS service provider. We seek
comments that have data on the annual revenues and number of employees of DBS service providers.
12. Satellite Master Antenna Television (SMATV) Systems, also known as Private Cable
Operators (PCOs). SMATV systems or PCOs are video distribution facilities that use closed transmission
paths without using any public right-of-way. They acquire video programming and distribute it via
terrestrial wiring in urban and suburban multiple dwelling units such as apartments and condominiums,
and commercial multiple tenant units such as hotels and office buildings. SMATV systems or PCOs are
now included in the SBA’s broad economic census category, “Wired Telecommunications Carriers,”30
which was developed for small wireline firms.31 Under this category, the SBA deems a wireline business
to be small if it has 1,500 or fewer employees.32 However, the data we have available as a basis for
estimating the number of such small entities were gathered under a superseded SBA small business size
standard formerly titled “Cable and Other Program Distribution.” The definition of Cable and Other
Program Distribution provided that a small entity is one with $12.5 million or less in annual receipts.33
As of June 2004, there were approximately 135 members in the Independent Multi-Family
Communications Council (IMCC), the trade association that represents PCOs.34 The IMCC indicates
that, as of June 2006, PCOs serve about 1 to 2 percent of the multichannel video programming
distributors (MVPD) marketplace.35 Individual PCOs often serve approximately 3,000-4,000 subscribers,
but the larger operations serve as many as 15,000-55,000 subscribers. In total, as of June 2006, PCOs
serve approximately 900,000 subscribers.36 Because these operators are not rate regulated, they are not
required to file financial data with the Commission. Furthermore, we are not aware of any privately
published financial information regarding these operators. Based on the estimated number of operators
and the estimated number of units served by the largest 10 PCOs, we believe that a substantial number of
PCOs may have been categorized as small entities under the now superseded SBA small business size
standard for Cable and Other Program Distribution.37
13. Open Video Services. The open video system (“OVS”) framework was established in 1996,
and is one of four statutorily recognized options for the provision of video programming services by local
exchange carriers.38 The OVS framework provides opportunities for the distribution of video
(Continued from previous page)__________________
29 As of June 2006, DISH Network is the second largest DBS operator and the third largest MVPD, serving an
estimated 13.01% of MVPD subscribers nationwide. Id. As of June 2006, Dominion served fewer than 500,000
subscribers, which may now be receiving “Sky Angel” service from DISH Network. See id. at 581, ¶ 76.
30 See 13 C.F.R. § 121.201, NAICS code 517110 (2007).
31 Although SMATV systems often use DBS video programming as part of their service package to subscribers, they
are not included in Section 340’s definition of “satellite carrier.” See 47 U.S.C. §§ 340(i)(1) and 338(k)(3); 17
U.S.C. §119(d)(6).
32 13 C.F.R. § 121.201, NAICS code 517110 (2007).
33 13 C.F.R. § 121.201, NAICS code 517510 (2002).
34 See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming,
Eleventh Annual Report, FCC 05-13, ¶ 110 (rel. Feb. 4, 2005) (“2005 Cable Competition Report”).
35 See 13th Annual Report, 24 FCC Rcd at 684, Table B-1.
36 Id.
37 13 C.F.R. § 121.201, NAICS code 517510 (2002).
38 47 U.S.C. § 571(a)(3)-(4). See Annual Assessment of the Status of Competition in the Market for the Delivery of
Video Programming
, MB Docket No. 06-189, Thirteenth Annual Report, 24 FCC Rcd 542, 606, ¶ 135 (2009)
(“Thirteenth Annual Cable Competition Report”).
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programming other than through cable systems. Because OVS operators provide subscription services,39
OVS falls within the SBA small business size standard covering cable services, which is “Wired
Telecommunications Carriers.”40 The SBA has developed a small business size standard for this
category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau data
for 2007, there were a total of 3,188 firms in this previous category that operated for the entire year.41 Of
this total, 3,144 firms had employment of 999 or fewer employees, and 44 firms had employment of 1000
employees or more.42 Thus, under this size standard, most cable systems are small and may be affected
by rules adopted pursuant to the NPRM. In addition, we note that the Commission has certified some
OVS operators, with some now providing service.43 Broadband service providers (“BSPs”) are currently
the only significant holders of OVS certifications or local OVS franchises.44 The Commission does not
have financial or employment information regarding the entities authorized to provide OVS, some of
which may not yet be operational. Thus, again, at least some of the OVS operators may qualify as small
entities.
14. Computer Terminal Manufacturing. “Computer terminals are input/output devices that
connect with a central computer for processing.”45 The SBA has developed a small business size standard
for this category of manufacturing; that size standard is 1,000 or fewer employees.46 According to 2007
Census Bureau data, there were 42 establishments in this category that operated during 2007. Only 3 had
more than 100 employees.47 Consequently, we estimate that all of these establishments are small entities.
15. Other Computer Peripheral Equipment Manufacturing. Examples of peripheral equipment in
this category include keyboards, mouse devices, monitors, and scanners.48 The SBA has developed a
small business size standard for this category of manufacturing; that size standard is 1,000 or fewer
employees.49 According to 2007 Census Bureau data, there were 647 establishments in this category that
operated in 2007.50 Of these, only 62 had more than 100 employees. Consequently, we estimate that the
majority of these establishments are small entities.
16. Audio and Video Equipment Manufacturing. The SBA has classified the manufacturing of
audio and video equipment under in NAICS Codes classification scheme as an industry in which a


39 See 47 U.S.C. § 573.
40 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers”;
http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
41 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms for
the United States: 2007, NAICS code 5171102 (issued Nov. 2010).
42 See id.
43 A list of OVS certifications may be found at http://www.fcc.gov/mb/ovs/csovscer.html.
44 See Thirteenth Annual Cable Competition Report, 24 FCC Rcd at 606-07, ¶ 135. BSPs are newer firms that are
building state-of-the-art, facilities-based networks to provide video, voice, and data services over a single network.
45 U.S. Census Bureau, 2002 NAICS Definitions, “334113 Computer Terminal Manufacturing,” available at
http://www.census.gov/epcd/naics02/def/ND334113.HTM#N334113.
46 13 C.F.R. § 121.201, NAICS code 334113.
47 http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=300&;-
ds_name=EC0731I1&-_lang=en
48 U.S. Census Bureau, 2002 NAICS Definitions, “334119 Other Computer Peripheral Equipment Manufacturing,”
available at http://www.census.gov/epcd/naics02/def/ND334119.HTM#N334119.
49 13 C.F.R. § 121.201, NAICS code 334119.
50 http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=300&;-
ds_name=EC0731I1&-_lang=en .
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manufacturer is small if it has less than 750 employees.51 Data contained in the 2007 U.S. Census
indicate that 491 establishments operated in that industry for all or part of that year. In that year, 376
establishments had between 1 and 19 employees; 80 had between 20 and 99 employees; and 35 had more
than 100 employees.52 Thus, under the applicable size standard, a majority of manufacturers of audio and
video equipment may be considered small.

D.

Description of Reporting, Recordkeeping and Other Compliance Requirements

17. The rules adopted in the Order will require cable operators to notify their subscribers about
offers of free equipment associated with encryption. The rule also requires a cable operator to notify its
subscribers when those subscribers are subject to charges at the end of the free equipment period.

E.

Steps Taken to Minimize Significant Impact on Small Entities, and Significant
Alternatives Considered.


18. The RFA requires an agency to describe any significant alternatives that it has considered in
reaching its proposed approach, which may include the following four alternatives (among others): (1) the
establishment of differing compliance or reporting requirements or timetables that take into account the
resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or
reporting requirements under the rule for small entities; (3) the use of performance, rather than design,
standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.53
19. As an alternative to the rules the Commission adopted, the Commission considered leaving
the current rule in place—with the result that no cable operator would realize the benefits of encryption—
or exempting small cable companies from the consumer protection rules that require encrypting cable
operators to provide certain subscribers with free set-top boxes for a limited time. The Commission
rejected leaving the rule in place because that alternative would not lead to the benefits of reduced service
calls and reduced cable theft. The Commission rejected exempting small cable companies from the
consumer protection rules because it concluded that the protections are necessary to give affected
consumers time to consider how to make consumer electronics equipment (such as digital television sets)
compatible with newly encrypted cable service. For these reasons, the Commission concluded that basic
service tier encryption prohibition should be relaxed. The Commission also concluded that transitional
consumer protection measures are necessary to serve the limited number of consumers who currently
access unencrypted cable service without the use of a set-top box.

F

.

Federal Rules Which Duplicate, Overlap, or Conflict with the Commission's
Proposals.

20. None.


51 13 CFR § 121.201, NAICS Code 334310.
52 http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-_skip=300&-ds_name=EC0731I1&-_lang=en.
53 5 U.S.C. § 603(b).
39

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APPENDIX C

List of Commenters and Reply Commenters

Commenters:
Alliance for Community Media
American Cable Association
Craig Arnold
Bend Cable Communications, LLC d/b/a BendBroadband
Cablevision Systems Corporation
City of Boston, Massachusetts
Comcast Corporation
Greg Cunningham
Hispanic Technology and Telecommunications Partnership (HTTP)
Mikrotec CATV, LLC and Intermountain Cable Inc.
Minority Media and Telecommunications Council (MMTC)
Montgomery County, Maryland
National Cable & Telecommunications Association
National Association of Telecommunications Officers and Advisors (NATOA) et al
The New Jersey Division of Rate Counsel
NYC Department of Information Technology and Telecommunications
Public Knowledge, Media Access Project
RCN Telecom Services, LLC
Mark Seekins
Christopher Thompson
Time Warner Cable Inc.
Reply Commenters:
AllVid Tech Company Alliance
Samuel Biller
Cablevision Systems Corporation
City of Boston, Massachusetts
City of Hialeah
City of Lancaster
City of Miami
City of York
Comcast Corporation
Consumer Electronics Association
Paul Goldberg
John Lachut
Eric Kotz
Motion Picture Association of America, Inc.
National Cable & Telecommunications Association
The New Jersey Division of Rate Counsel
Public Knowledge, Media Access Project
RCN Telecom Services, LLC
Time Warner Cable Inc.
Township of Irvington
Richard Utz
40

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STATEMENT OF

CHAIRMAN JULIUS GENACHOWSKI

Re: Basic Service Tier Encryption, MB Docket No. 11-169
Today is a good day for consumers and for innovation in the video market. The Commission
removes regulatory barriers that prevented cable companies from remotely activating service and forced
consumers to wait for the cable guy to show up at their homes. At the same time, we ensure that
encrypting cable signals won’t limit consumers from using an ever-growing number of Internet-
connected, third-party video devices, and keep barriers low for video device innovators. We make clear
that cable companies can only encrypt their signals so long as these important pro-consumer, pro-
innovation protections remain in place—to decouple the two components of the Order would shortchange
consumers and innovators.
I appreciate the constructive participation of a number of stakeholders in this process. And I want
to thank the FCC staff whose outstanding and diligent work produced an Order that removes regulatory
barriers without harming innovation, all for the benefit of consumers.
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STATEMENT OF

COMMISSIONER ROBERT M. McDOWELL

APPROVING IN PART, CONCURRING IN PART

Re: Basic Service Tier Encryption, MB Docket No. 11-169
At long last, we provide cable operators with the freedom to encrypt their basic service tier
offering. Encryption will allow cable operators to activate and deactivate cable service remotely to better
serve their customers. This newly-allowed ability will also prevent theft of service while evening the
regulatory playing field with satellite providers that have not been subject to this rule.

On the other hand, there are some aspects of this order that, as a matter of good government,
should have been handled differently. First, the Commission could have decided this matter more
expeditiously. Needless delay of the relief we provide today has frustrated the private sector’s ability to
meet consumer demand. Going forward, it is my hope that the Commission will work with greater
alacrity when pursuing the noble goal of providing greater flexibility to the private sector.
Second, in light of the flexibility we grant today, the six largest cable providers have committed
to ensure basic service tier access to third-party IP-enabled devices. These commitments are
preconditions to encryption for these entities. I am pleased that these IP-enabled device protections will
sunset in three years; however, the Commission today also delegates to the Media Bureau authority to
extend these protections should the bureau decide they are necessary to protect consumers. I would prefer
that the Commission, rather than the bureau, make this call. I am concerned that delegating this authority
to the bureau may invite further unnecessary delay.
Additionally, an ordering clause states that, if any of the Order’s rule changes are invalidated, the
remaining provisions will not be effective. I have concerns regarding the possible inconvenience and
confusion that would be experienced by both consumers and cable operators if any portion of this order
happens to be overturned by a court after cable operators have taken the necessary steps to encrypt
service.
Despite these concerns and others, I vote to approve in part and concur in part to today’s order.
Furthermore, I thank the Chairman, my colleagues and our fine team in the Media Bureau for their
conscientious work on this matter.
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STATEMENT OF

COMMISSIONER AJIT PAI

APPROVING IN PART, CONCURRING IN PART

Re: Basic Service Tier Encryption, MB Docket No. 11-169
Today’s item is a win for consumers. By updating our rules to keep pace with changing
technology, cable operators will more often be able to activate and deactivate cable service remotely.
This means that fewer Americans will have to rearrange their busy schedules for cable service
appointments. It also means they will waste less time waiting for the “cable guy” to come to their homes.
That said, there are some aspects of the item with which I do not agree; I would prefer a less
complicated order with fewer conditions. For example, I do not support the highly unusual non-
severability provision contained in paragraph 45. The item does not explain why consumers should be
denied the benefits of basic-tier encryption if “any provision of the rules, or the application thereof to any
person or circumstance, are held to be unlawful or invalid.” Indeed, if the application of any of the
conditions contained in this order are held to be invalid as applied to any circumstance, cable operators
apparently would be obligated to stop encrypting basic-tier signals even if they had already complied with
all of the conditions set forth in this item (e.g., providing free set-top boxes, etc.). The non-severability
provision thus seems both overbroad and unnecessary.
Additionally, I believe that a policy judgment to extend the conditions pertaining to IP-enabled
devices beyond their three-year term should be made by the Commission as a whole, rather than the
Bureau on delegated authority.
Overall, however, I appreciate my colleagues’ willingness to improve the original version of this
item. In particular, it is important that consumers be provided with notice that clarifies how they will (or
will not) be impacted by basic-tier encryption, rather than confuses them.
All in all, the benefits of this item clearly outweigh the drawbacks, so I am pleased to support it.
43

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