The FCC recently issued Notices of Apparent Liability against Time Warner Cable (TWC) and Cox Communications, resulting from service changes when those cable TV operators migrated certain programming channels to their Switched Digital Video (SDV) platforms.  In August, 2008, the FCC found that this action by TWC violated an FCC rule requiring 30 days advanced written notice to the local franchise authority before making a service change.  More recently and ominously, however, the FCC has expanded its enforcement action and issued additional Notices of Apparent Liability asserting that the cable operators have also violated two technical rules. The Notices propose a $20,000 fine for each of the operators, as well as a requirement that the operators issue refunds to their customers who have been harmed by the move to SDV.  

The nature of the first violation alleged in the Notices is this: the migration of the channels to the SDV platform meant that only customers who had set-top boxes leased from the operators could access the channels moved to the SDV platform – customers who were taking cable service without use of a set-top box, because they were using digital cable-ready TV sets and/or DVRs, suddenly could no longer access channels that were part of their subscription package. The FCC asserts that that is a violation of Section 76.1201 of the rules, which prohibits an operator from “prevent[ing] the connection or use of navigation devices to or with its system.”  The FCC also found a violation of the same rule because the migration of the channels to SDV prevented subscribers without set-top boxes from using some of the functions of their digital-ready TV sets and/or DVRs: viewing picture-in-picture and recording one channel while viewing another.

A bit of background:  Section 629 of the Communications Act requires the Commission to ensure the commercial availability of navigation devices, thus allowing consumers the freedom to purchase and use their own navigation devices from sources other than their cable operator, as long as such use does not lead to theft of service. In order to prevent such theft, the FCC established a framework whereby the navigation functions and the security functions of devices are separated, with consumers who purchase their own navigation devices (e.g., digital cable-ready TV sets) being required to also purchase a “CableCARD” from the cable operator, which allows the subscriber to access the operator’s programming. To facilitate this, major manufacturers and operators entered into an agreement about necessary equipment standards (Plug and Play), and in 2003 the FCC issued an Order requiring compliance with those standards (Plug and Play Order).

In the Plug and Play Order, there was some recognition that the approved standards did not support “two-way” cable services.  SDV is a sort of two-way service:  unlike traditional cable technology which sends all channels to the subscriber at all times, in order to conserve bandwidth SDV sends only the channel that the subscriber is watching, and sends that particular channel in response to a signal received from the subscriber’s equipment when the subscriber selects the channel. The cable operators attempted to use as a defense, the recognition of limits on two-way services acknowledged in the Plug and Play Order

The FCC rejected that defense, stating that it recognized two-way issues only with “interactive services” (such as video-on-demand, pay-per-view or certain electronic program guides), not with “linear programming” (i.e., programming offered on a set schedule, such as traditional cable channels).  The Commission concluded that it “is not TWC’s deployment of SDV technology that violates Section 76.1201, but TWC’s migration of existing linear programming to an SDV tier that [they] find inconsistent with the Commission’s Rules.”  This sentence suggests that the FCC might approve making new (as opposed to existing) programming available only on an SDV platform, but that suggestion is undercut by the statement in the Order that “TWC’s movement of linear programming to an SDV platform is particularly troubling because no bi-directional navigation devices are commercially available at this time.”  The Notice then goes on to suggest that this lack of availability is due to resistance from the cable operators, and it raises the question as to whether this Order (and two other similar ones issued on October 16) are designed to punish the operators for their alleged intransigence.

The second alleged rule violation noted in the Order arises as follows:  the Plug and Play Order adopted certain technical rules to ensure that cable subscribers would be able to view digital cable services while still enjoying full functionality of their equipment, including Section 76.640(b), which obligates cable operators to support consumer purchased devices through compliance with certain Program System Information Protocol (PSIP) standards encoded in digital television signals. 

In essence, Section 76.640(b)(1)(i) requires cable operators to send a one-way stream of data that is separate from the video programming (an out of band Forward Data Channel) that includes channel lineups and other programming information otherwise known as “service information tables.”  These tables allow the consumer devices (referred to by the FCC as unidirectional digital cable products, or “UDCPs”) to find and display a scrambled programming service on a particular channel.  Because of the bi-directional nature of SDV technology, however, UDCPs cannot view programming provided on such an SDV platform.  If a cable operator transmits a virtual channel table that includes SDV programming to a UDCP, the UDCP will indicate that SDV programming should appear on certain channels but will be unable to display it. 

To avoid such a scenario, some cable operators (including TWC) unilaterally excluded SDV programming from the virtual channel tables transmitted to customers with CableCARD-equipped UDCPs.  This failure to transmit the service information table data constitutes a violation of Section 76.640, according to the Notices.

We do not know at this time whether TWC or Cox will contest these Notices, either at the FCC or in court. In light of what we believe is an industry-wide trend towards moving programming to SDV platforms, and the fact that (according to TWC and Cox as quoted in the Notices) less than 1 percent of subscribers rely on UDCPs and thus could be harmed by such moves, we would be surprised if the operators do NOT contest the Notices.  Nevertheless, the FCC has shown its hand here, and cable operators would be wise to be mindful of these issues, unless and until the Notices are overturned.