Posted this week on the communicators a discussion of the fccs proposal to open up the settop box market to competition and what that might mean for consumers and businesses. Joining us are two guests on both sides of this issue. George ford is a chief economist and mark cooper is Research Director for the Consumer Federation of america. Mr. Cooper what do you think about what they have proposed . Guest competition the settop market. We want competition, competition, competition. We think consumers would have lower prices and more choices if we got bigger as competition to. Host george ford. Guest they asked the question whether the settop docsis competitive. Actually the first question this is their market for set top docsis and the answer really in terms of what is delivered over cable network, no because the settop boxes are a component of the network as opposed to delivering Cable Television service so its the cheapest way to do it in the most efficient way to do it. Host lets bring lydia beyoud into the conversation. Shes her guess reported this weekend shes with bloomberg dna where she covers tolkien education. Guest to follow up on both of your questions Kevin Wheeler wants to open up a closed market with mobile phones and tvs and all sorts of other electronics. Do either of you think theres something similar or different to that analogy that would make it to not work . Guest you have an interface between a device in the network. Its impossible for people to sell across that interface. Just Like Computers or motors or the Microsoft Case is about the interface and open the interface and you get competition. We have seen that time and time again. Remember the old market . At t used to say no one can plug up piece of phone equipment to my network, will blow it up and of course they were wrong. We opened it up like a charm and is competition. Thats the purse perfect analogy. You work with the settop box and make the judgment about whether it is or is not like the new thing. Look at it and say its not behaving like the new things. A link from the cables head into the householder secures the property delivered over that which is copyrighted content and also prohibits the signal because it scrambles. So its not the same thing by name stretch of the imagination. Its also a very important part of managing the quality of the network and Cable Operators predict a call that cable operator for service the first thing they say is let me look at the box and see whats going on so its a different thing. Think its worth asking yourself that rather than trying to convince you of that. Why is this different from other things and wisest different from a cable modem modem where you are perfectly able to buy one in the store and use it even though 50 people do. Host mr. Cooper what is your response . Guest thats what they always say. You have to be able to protected and the answer is the way the order is written in the way the laws written you will protect the quality. You will protect privacy radio protect the advertising stream and letting people connect which is exactly whats been the issue with the home recording industry. They want to stop dvr and they want to stop mp3 players. Under the copyright laws they can defend themselves. They have won all those cases. The court has never let them dictate technology to did protect their copyright and for us thats a critical point. They win the court cases in the marketplace just opens the system up because there is a lot of value in consumer choice. This is exactly the same thing. It has worked so many times that the question is should we experiment and they answer is absolutely yes. If the go fund me can close the door. They honestly believe it wont go wrong because of that experience. Guest it has gone wrong and the telephone Marketing Edge remember the reason the Cell Phone Companies were opposed to the cell phone was the whole system is regulated on the scene and it created an incentive. There are significant differences between that. You also have to look at who is really opposing the chairmans proposal and that is copyrighted. They are very concerned that this program is going to threaten their livelihood. Also whats interesting about this case is that normally when a new Company Comes along and wants video content, for example when the phone Company Begins operating in the cable business, the copyright industry i sat down these guys and we created these things. They had an expanded Customer Base for the copyright products. Now what the fcc wants to do is say no comcast will buy it and whoever wants access to that can have it. No conversation. You dont have to pay a whole lot of attention to the contracts that are written. So the programmers or the Program Content people go wait a minute, this isnt really right and fair and its confiscation of our property. I think really what happens with this whole program as it runs squared to the copyright law. The fcc has no authority to implement copyright law. Guest thats absolutely wrong. When someone puts an independent thirdparty settop box there it does not erase the relationship within the Cable Company. You dont get it for free. You still have to pay your cable bill. You are paying your cable bill to the Cable Company. You dont just have to pay the Cable Company for the settop box so theres the same compensation after an an independent settop boxes from the line as there was the day before. Thats not true at all. With the Company Wants to do is to take the content that make money with it. You make profit with copyrighted content you have to compensate the content owner, the copyright owner for that. They are going to be in the business to deliver service for free. They want to be in a business where they can monetize whatever information they gather from what the customer is doing. Where does the copyright owner gets to play in this game of monetizing bees for this video content so its not the same thing. Theres Something Else going on otherwise nobody also be adjusted and doing it. Guest to allay the concerns that the content providers have to either of you view away that has an alternative to the rule, google or any thirdparty could negotiate character contracts directly with the content providers . Why do they have to go to the ptb . Guest they may do that too but that stream coming through the settop box today is going to continue. Its going to be almost impossible for anybody to monkey with that scheme because that would require rebuilding an entire network to replicate what exists. Would they put a piece of advertising in front of the show . Maybe. They all that. They have all the advertising in the show. Read a give people the ability to move around more quickly, absolutely. They will own that ability. They have their stream of revenue. Now anytime someone else thinks of a neat way spread it around, they hate that. To think of it another way they will do the content exactly like they would provide. Thats my money. Its not. Other people are innovating and may be gaining rewards for how they move the content around. Also this is a marketplace where there is money to be made and manufactured. That has been monopolized by the cable market power. Guest so we are already scene providers skip over ever tysons in the shows now and is that a concern to consumers that they would have this as well as copyright . They have a right to defend there and just under the copyright but what they can and shouldnt do is use the copyright act or the Communications Act or even the copyright act to dictate technology. This debate about should consumers be allowed consumers can turn the sound off and now we have technology that automates that. Is that a radical change . Should that be . The Telecommunications Commission has no business being in the middle of copyright. They have been to court numerous times to battle against technology. The irony is they win their court cases but they lose the economic war because the courts will not let them take date the nature of technology in order to protect. Now streaming music is a perfect example. They make less money than they did before, they have much more smaller cost than they did before. Thats the process under the copyright act. Copyright is a balance between the consumer interest in the Creative Arts and the Copyright Holder interested in getting enough revenue revenues to continue to create. Thats a different thing. Fcc is about communication. Guest i think you pretty much made my point rates when you make money using copyrighted content than you owe the copyright owner money. If you use advertisement in addition to the ones that are there are you must be for that right. Thats what a broadcaster is. A broadcaster gives copyrighted content sells advertising around it and makes money doing that and the copyright owner comes in and takes his fair share of that money. So thats exactly the point. You cant do anything, you reorganize the channels, put a nicer front end on it. The only thing you do is make money in a violation of somebody elses right if you dont pay them for. Thats what copyright law is. Host wouldnt opening up the market benefit the consumer by having competition by box a, p or. The box is a cost to the industry. It provides no profit. You cant take a product like video and add to it a settop box that nobody want to become more profitable. Thats insanity. This has to be there and they are trying desperately to get out from under which comes back to your question which is by moving to an app based law. The industry was all good with happy the fcc had two choices. They could do a choice of the copyright industry and the cable industry and the rest of the video providers were onboard with which would laminate the box for all practical purposes. Its very complex and up will experience significant resistance. The fcc is always saying the reason cable didnt work because there was significant resistance. What are they think theyre going to did not . Not only are they doing the cable right industry but the copyright people. What if the copyright industry says you cant give this information to thirdparty . You cant. What is the fcc Program Going to do, mandate that you can give it to a third party is a video provider . Is that really legal to do that . I dont think it is. You are going to run into that. On the other hand the chairman could have gone the other route and done it but at a time when we are trying to eliminate the settop boxes its almost like waldmack, wow we can to learn it the settop talks because the statute says i have to have a market for the settop box so im going to convince you to keep it. So we have competition which is just a crazy idea. You reference that cable card. What is that . The first time they did this was a total failure. They had a Security Card basically. This cable signal comes in lisas attendance scrambled. Heres the settop oxen against the scrambled so the viewer can see it. We can pullout the security piece of it and move it around. Then you could actually have a tv that has a slot and it any good slide this in and it would be scrambled the signal. You go by a little card and everything would be fine. You go get your market ox from the store and plug this thing in it was a mess. I think maybe half a million were put into service. People just quit making that technology really because consumers arent that interested in it. They could buy a cable modem in and they just dont predict them by cable modem for 60 bucks and they choose instead to rent it for four or five bucks a month. Its pretty out his that theyre really not that keen on it but that costs billions of dollars to implement that program. Nothing came of that. He was a disaster. This is going to be a disaster too. This is the third try. The dog returns to its boxes the scripture says and the fcc is coming right into this. This is under the soviet unions fail. This is never going to work in the copyright industry comes in. Guest the copyright owners when i buy a book they wont charge me every time i read it and they certainly dont allow me to read it to a roomful of kids. Guess who they want to get a quarter for every kid who listens to that luck. Instead of covering their costs in the sale of the book or in this case in a subscription fee they get back from the cable operator. If they want to have a copyright fight lets have a copyright fight in the courts. The mp3 player, filesharing we have had those fights and the world has moved on and technology has moved on. They said look lets get rid of the settop boxes way. It was a way to preserve their bilateral monopoly. The cable guys have a way to power the signal and there would be no competition. They defined the way that the programs come through. They defined the way you search the programs. Thats what at t said about the telephone. Its exactly the same argument. If you plug it in is going to blow the system up and the answer is its just a way, while they put up to defend their market power. The commission has looked at the statute. They say we have commuted 20 years later. The cable card is a physical thing. I believe tivo uses cable cards that may no longer have that so we have to have flexibility and we can control these interfaces. Thats much more efficient way to do it. We can have security, protection of copyright and also competition. Thats what we as consumers care the most about getting some competition in this space. Guest i think that was a gross misstatement of the copyright industry taking on books. They never tried to charge me for reading it to my children and we have read the same books many times. The question is is there such a thing and this is fundamental, is there such a thing as a market for set top set top ox is or is it part of the network quickly can job at atari distinctions about how the cable industry lives inside of her house and all the insides of the sewers but thats a regulatory extension. Is that separate and apart from a network and its really not. The other thing is that we have we have actually got the realistic possibility to move to a softwarebased solution and get rid of this thing altogether but thats not that enough for the fcc. I think the reason is pretty obvious. Thats a very valuable piece of information that traverses that cable wire and comes into somebodys house particularly when you know when theyre watching and when they are not. Theres a huge opportunity to commoditize and the industry is not going to let that go. It was somebody else in there which of course is the problem the copyright industry people have because they should be able to charge somebody who makes money with their product raid theres nothing illegal or wrongheaded about that. Its their property. There is a Software Solution that can be implanted here. Why is that not good enough . Why cant we get rid of the settop box altogether . I already hat. I got routed to cable boxes because they provide a nap that i can use. Host lets get the next question from lydia beyoud. Thats what you can do. They want to be able to manipulate and reorganize. One of the most criticized aspects is that it is not clear how Copyright Holders will be able to enforce that copyright if the 3rd party were to either change the program. Certain types of content, nonfamily friendly comment content and that they enforce through the contract so could you describe a little bit about what has been proposed, Self Certification regime and how that would work. If is a violation, they can choose to break her turn off the device, but the cable industry, so that is not a solution. The fcc, you have to have permission was innovation. You know there going to make my life miserable. Theyve been doing it for 15 years. We use this for all the cell phones in your pocket, a simple certification procedure with the device was intended to do certain things, and they would certify that. You know what, they will know pretty quickly if someone has violated those obligations. They have given the ability of the cable operator to say, if you can show that there violating thosethey are violating those obligations you can turn them off. There is the enforcement. But if you have to have a misuse of the cable operator before it gets to the customer, and so we have to cut through that. We cut through that by giving them the protection. If you see something that violates that you think violates our rules, you can stop it and then we are unmitigated. Willing to litigate on their side. So that is the mechanism. Innovation 1st, litigation later. Is that not harmed consumers . The consumer is more likely to hold the paytv provider responsible even if the chokepoint was at the thirdparty. The consumer will be harmed if the consumer really want that to happen. A lot of consumers would complain. They are not shy about sending the fcc letters. Someone put something on top of it, the fcc will hear about that in the blink of an eye. And the cable operator will be authorized to stop it in the blink of an eye. And then we will sort the facts out. The point is, i dont see the harm in allowing the innovation and competition to take place. And then lets see if there are abuses. It had to be popular, but they have been out there for a while. The only people who complained about it, lost the stream of income. So that is what this is about. Capturing the stream of income and making up stories that is supposed to scare somebody and not allowing open competition. Capturing the income from somebody elses product is exactly what this is about, and doing it without having to compensate the middle. If you really break it down that is what it is about. Your question drives the point home as to why the box market looks like it does today. These are very complex contracts between distributors and copyright owners. Copyright, and something they own, property. Big, complex contracts. I dont know how the signal is being treated at all times, then i dont have the confidence that it is being treated properly. That is really what it is about. That is why you see it look like it does. You have to maintain tight control. How in the world am i going to know if somebody is distributing boxes over ebay that allow you to do things you shouldnt be able to do like plug a thumb drive in the back of the thing and copy a