FCC’s Revised Set-Top Box Proposal Remains Deeply Flawed

26 September 2016
By Dr. Christian M. Dippon

In an opinion piece prepared for CALinnovates, an advocate for California’s consumers of technology and innovation, Co-Chair of NERA’s Communications, Media, and Internet Practice Dr. Christian M. Dippon comments on the deficiencies in Federal Communications Commission (FCC) Chairman Tom Wheeler’s fact sheet providing a revised proposal regarding consumers’ video navigation choices as they apply to multichannel video programming distributors (MVPDs). Dr. Dippon identifies additional economic miscalculations introduced into this latest version of the set-top-box (STB) proposal.

The crux of Dr. Dippon’s argument relies on three key points: (1) the revised proposal is economically inefficient, which will lead to higher consumer prices; (2) the revised proposal will hinder, not promote, innovation; and (3) the revised proposal aggravates the digital divide. Requiring MVPDs to provide consumers with a free app available on “widely deployed platforms” is prohibitively costly and unwieldy, which will subsequently drive up consumer prices. Chairman Wheeler’s proposal is not only unprecedented, but it directly contradicts an efficient market outcome. The revised proposal also mandates an integrated search function (the ability “to search their programming options in one place”) across all sources of programming. Similar to Chairman Wheeler’s proposed mandate to offer apps for all “popular” platforms, the integrated search function represents an inefficient cost increase for all MVPDs.

In addition to being inefficient and costly to implement, the revised proposal will negatively affect STB, app, and platform innovation, including potentially inhibiting new entry. The mandate to provide free apps to any platform reaching five million units in one year will handicap device startups employing an alternative platform with greater long-term potential than an incumbent platform but now will be forced to compete with incumbents receiving a subsidized app.

Chairman Wheeler’s revised proposal excludes smaller operators “with fewer than 400,000 subscribers,” which affects a large number of both cable subscribers and providers. The affected subscribers predominantly live in small towns and rural communities where innovation and lower prices arguably would improve the digital divide. Thus, exempting small MVPDs would aggravate the digital divide highlighted in the FCC’s Connecting America: The National Broadband Plan and deprive the people that allegedly would benefit the most from the proposal.

Dr. Dippon concludes by reiterating that the revised proposal submitted by Chairman Wheeler is still not feasible because of numerous flaws that will prevent it from attaining the goals set forth. With few realistic benefits and a real danger of increasing prices and damaging market performance, Dr. Dippon remains deeply concerned that the proposal, if adopted, will do more harm than good for consumers.