Before the

Federal Communications Commission

Washington, D.C. 20554

 

 

 

SECOND REPORT AND ORDER AND

SECOND FURTHER NOTICE OF PROPOSED RULEMAKING

 

Adopted: September 10, 2003 Released: October 9, 2003

 

Comment Date: January 14, 2004

Reply Comment Date: February 13, 2004

 

By the Commission: Chairman Powell, Commissioners Abernathy, Copps, Martin, and Adelstein issuing separate statements.

Table of Contents

Paragraph Number

I. IntroductioN......................................................................................... 1

II. Background aND SUMMARY............................................................. 3

 

III. DIGITAL CABLE SYSTEM TRANSMISSION STANDARDS AND

SUPPORT REQUIREMENTS..................................................................... 13

 

A. Transmission Standards..................................................................... 17

B. PODs.............................................................................................. 19

C. Tuning and Guide Information............................................................ 21

D. High Definition Set-Top Boxes.......................................................... 24

E. Exemptions from Standards and Associated Obligations...................... 26

F. Innovation and Changes in Standards................................................. 29

IV. LABELING AND CONSUMER DISCLOSURES........................................ 30

 

A. Basic Requirements to be Labeled “Digital Cable Ready”................... 32

1. Over-the-Air Tuner .............................................................. 34

2. Closed Captioning ................................................................ 35

3. 1394 Interface ..................................................................... 36

B. Compliance Certification Process....................................................... 38

C. Relation to Existing Labeling Requirements......................................... 40

V. ENCODING RULES................................................................................... 42

 

A. Commission Authority Under Section 629........................................... 45

B. Selectable Output Control.................................................................. 58

C. Down-resolution............................................................................... 62

D. Limits on Copy Protection Encoding................................................... 65

VI. DFAST LICENSE........................................................................................ 75

 

A. Compliance and Robustness Rules..................................................... 76

B. Approval of New Outputs and Associated Content

Protection Technologies.................................................................... 77

 

VII. Second Further Notice of Proposed Rulemaking................ 80

VIII. Procedural MATTERS........................................................................ 87

IX. Ordering clauses............................................................................... 95

 

Appendix A: List of Commenters and Reply Commenters

Appendix B: Final Rules

Appendix C: Final Regulatory Flexibility Analysis

Appendix D: Initial Regulatory Flexibility Analysis

 

I.                   INTRODUCTION

1.                   In this proceeding we consider regulations to facilitate the direct connection of digital “navigation devices”[i] or customer premises equipment purchased from retail outlets – including television receivers, set-top boxes and digital recorders – to cable television and other multichannel video programming distributor (“MVPD”) systems. Specifically, we consider those rules set forth in the Further Notice of Proposed Rulemaking (“Further Notice”) issued in the above-captioned proceedings and the comments filed in response thereto.[ii]

2.                   The Further Notice sought comment on rules agreed upon and submitted to the Commission as part of a Memorandum of Understanding (“MOU”) reached by representatives of the cable television and consumer electronics industries.[iii] The MOU detailed a comprehensive agreement on a cable compatibility standard for integrated, unidirectional digital cable television receivers, as well as other unidirectional digital cable products. The cable and consumer electronics industries have long disagreed over the specifics of a so-called “plug and play” standard for digital cable television, as evidenced by numerous filings in the above-captioned dockets.[iv] By establishing a standard to ensure the compatibility of cable television systems with digital television (“DTV”) receivers and related consumer electronics equipment, the cable and consumer electronics industries hope to “build products and develop services to spur the digital transition.”[v] In response to the Further Notice, numerous parties filed comments and reply comments; this Second Report and Order and Second Further Notice of Proposed Rulemaking represents the Commission’s findings based upon the record established in this proceeding.[vi]

II.                BACKGROUND AND SUMMARY

3.                   Section 629 of the Communications Act, which is titled “Competitive Availability of Navigation Devices, requires the Commission to:

adopt regulations to assure the commercial availability, to consumers of multichannel video programming and other services offered over multichannel video programming systems, of converter boxes, interactive communications equipment, and other equipment used by consumers to access, multichannel video programming and other services offered over multichannel video programming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor.[vii]

 

The purpose of Section 629 is to afford consumers the opportunity to purchase navigation devices from sources other than their MVPD service provider. In addition, the statute provides that the Commission "shall not prescribe regulations . . . which would jeopardize security of multichannel video programming and other services offered over multichannel video programming systems, or impede the legal rights of a provider of such services to prevent theft of service."[viii]

4.                   In order to permit a competitive market for the design, manufacture and retail sale of navigation devices to develop, a number of practical issues must be addressed. First, because one of the primary functions of these devices is to preclude the unauthorized reception or use of service, it is necessary to address service theft in situations where the device is no longer entirely within the service provider’s control. This issue is comprised of two components, unauthorized access to service (theft of service) and unauthorized redistribution or copying of programming content legally acquired for a limited use (copy protection/digital rights management). Other practical concerns that must be addressed involve engineering and technical standards issues. Manufacturers require certain technical specifications in order to produce a device compatible with a particular MVPD’s system. Therefore, if portable devices that can be marketed nationally are to be created, some technical standardization among MVPDs is needed.

5.                   The initial decisions and rules adopted in the Navigation Devices proceeding[ix] implementing this statutory provision included, inter alia, the following:

(1) Section 629 covers not just equipment used to receive video programming, but also equipment used to access other services offered over MVPD systems, including televisions, VCRs, set-top boxes, personal computers, program guide equipment, and cable modems;

 

(2) Subscribers have the right to attach any compatible navigation device to an MVPD system;

 

(3) MVPDs must separate out conditional access or security functions from other functions and make available modular security components, also called point of deployment (“POD”) modules;

 

(4) After January 1, 2005, MVPDs shall not deploy new navigation devices for lease to subscribers that have security and non-security functions combined;

 

(5) MVPDs must provide technical information concerning interface parameters that are needed to permit navigation devices to operate with their systems in a timely manner; and

 

(6) MVPDs can take actions necessary to protect their operations from technical harm and theft of service.[x]

 

On reconsideration, the Commission deferred application of the separate security requirement for analog-only equipment and reiterated that it would assess the state of the market once separate security modules were available.[xi] The Commission also issued a Further Notice of Proposed Rulemaking and Declaratory Ruling seeking comment on whether: (i) OpenCable, the cable industry’s initiative for navigation device interconnection specifications, adequately represents the full range of interested parties and delivered specifications that permit manufacturers to build functional devices for sale at retail; (ii) the Commission should revise the 2005 ban on cable operators deploying navigation devices with integrated security functions; (iii) any obstacles exist that might inhibit the commercial availability of host devices; and (iv) there are any other factors “impeding or affecting achievement of the goals of Section 629.”[xii] Due to ongoing industry negotiations that might impact the development of technical specifications relating to host devices and POD modules, the Commission recently extended the deadline concerning the prohibition on MVPD-provided integrated devices until July 1, 2006, and committed to completing a reassessment of the navigation devices market before January 1, 2005.[xiii]

6.                   In addition to its efforts to ensure the commercial availability of navigation devices pursuant to Section 629, the Commission has focused on labeling and consumer education in the cable compatibility sphere. Section 624A of the Communications Act, as amended, requires the Commission to assure the compatibility between cable systems and consumer electronics equipment such as television receivers.[xiv] To this end, the Commission adopted cable compatibility labeling standards for analog television receivers pursuant to Section 624A(c)(2)(A).[xv] Congress also requires the Commission to review and modify its compatibility regulations “to reflect improvements and changes in cable systems, television receivers, video cassette recorders, and similar technology.”[xvi] Because cable operators, consumer electronics manufacturers, and retailers were unable to reach agreement on voluntary DTV labeling standards, the Commission issued a Report and Order establishing its own “Digital Cable Ready 1-2-3” labeling regime encompassing different degrees of interactivity and connectivity among digital cable ready television receivers.[xvii] Each of the Digital Cable Ready 1-2-3 labels reflects the ability of receivers to perform basic cable navigation for analog, digital basic and digital premium services, as well as receive encrypted services with a POD.[xviii] Digital Cable Ready 2 and Digital Cable Ready 3 receivers additionally support interactive two-way services, although they differ in how they provide these functions.[xix]

7.                   Within this regulatory framework, the cable and consumer electronics industries attempted to privately negotiate a cable compatibility standard for DTV receivers that would take into account the security separation requirement of Section 629 and effectively integrate the navigation functionality of set-top boxes into television receivers. The resulting MOU reflects a compromise agreement among the parties on a specification that will permit the manufacture of unidirectional digital cable television receivers that include this navigation functionality. Proponents of the MOU assert that unidirectional digital cable television receivers manufactured thereunder would be capable of receiving analog basic, digital basic and digital premium cable television programming by direct connection to a cable system providing digital programming.[xx] Due to the unidirectional nature of this receiver specification, an external navigation device would still be needed to receive advanced features such as cable operator-enhanced electronic programming guides (“EPGs”), impulse pay per view (“IPPV”) or video on demand (“VOD”).[xxi] Negotiations are ongoing for a bidirectional receiver specification which would eliminate the need for an external navigation device to receive advanced services.[xxii] Due to the level of technical detail involved in those discussions, however, they are not yet ripe for consideration at this time.

8.                   The MOU as proposed to the Commission requires the cable and consumer electronics industries to commit to certain voluntary acts and seeks the creation or revision of Commission rules in the following general areas:

(1) Requiring digital cable systems with an activated channel capacity of 750 MHz or greater to support operation of unidirectional digital cable products and to ensure that navigation devices utilized in connection with such systems have a 1394 interface and comply with specified technical standards;

(2) Establishing a labeling regime for unidirectional digital cable television receivers and related digital cable products that meet certain technical specifications. This regime, which would be voluntarily used by consumer electronics manufacturers, encompasses testing and self-certification standards, as well as consumer information disclosures to purchasers of such receivers and products; and

(3) Adopting limits on encoding rules for audiovisual content applicable to all MVPDs, including prohibitions on the use of selectable output controls and the down-resolution of broadcast television programming.[xxiii]

The cable and consumer electronics industries also submitted, along with the proposed rules, a draft license for the Dynamic Feedback Arrangement Scrambling Technique (“DFAST”) technology for which they did not seek regulatory approval.[xxiv] On January 7, 2003, the Commission adopted the Further Notice seeking public comment on the MOU and the proposed Commission rules contained therein.[xxv]

9.                   At the outset, we recognize that certain commenters advocate resolution of the Further Notice in tandem with related issues raised in our Digital Broadcast Copy Protection proceeding.[xxvi] We anticipate addressing these issues in the near future. We also wish to clarify the intended scope and effect of this Second Report and Order and Second Further Notice of Proposed Rulemaking. Our decision herein is not intended in any way to change or affect existing copyright law. The encoding rules adopted herein are directed at MVPDs and their distribution mechanisms. As a result, the underlying rights and remedies available to copyright holders remain unchanged. In the same manner, this decision is not intended to alter the defenses and penalties applicable in cases of copyright infringement.

10.               In this Second Report and Order and Second Further Notice of Proposed Rulemaking, we adopt the technical rules proposed as part of the MOU, with certain modifications described herein and set forth in Appendix B.[xxvii] Specifically, we adopt the proposed definition of a unidirectional digital cable product, with certain clarifications of its intended scope. In order to ensure that televisions manufactured pursuant to this definition meet its specified technical parameters and functionalities, we adopt certification procedures applicable to the first prototype of each model, and self-certification procedures for subsequent models. We also adopt a voluntary labeling regime and required consumer information disclosures in order to inform consumers of the features and functionalities of unidirectional digital cable products.

11.               A key component of the MOU proposed to the Commission is a set of encoding rules that would set caps on the levels of copy protection applicable to content distributed by MVPDs. The proposed encoding rules also include a ban on the use of selectable output control technology and the down-resolution of unencrypted broadcast television by MVPDs. Bans on both the current use of selectable output control and the down-resolution of broadcast programming will further the DTV transition and ensure that consumer expectations regarding the functionality of their digital cable ready televisions and products are met. In addition, enacting limits on the amount of copy protection that may be applied to different categories of programming strikes a measured balance between the desire of content providers and MVPDs to prevent the unauthorized redistribution or copying of content distributed by MVPDs and the preservation of consumer expectations regarding the time shifting of programming for home viewing and other permitted uses of such material. We take such action pursuant to our Congressional mandate under Section 629 to ensure the commercial availability of navigation devices and safeguard the security of MVPD programming, as well as our ancillary jurisdiction under the Communications Act.

12.               Finally, to ensure design innovation and promote device interconnectivity, we adopt interim procedures by which new outputs and associated content protection technologies can be authorized for implementation in unidirectional digital cable products. We also initiate a Second Further Notice of Proposed Rulemaking (“Second FNPRM”) to study, inter alia, procedures and mechanisms by which outputs and associated content protection technologies can be approved on a permanent basis going forward.

III.             DIGITAL CABLE SYSTEM TRANSMISSION STANDARDS AND SUPPORT REQUIREMENTS

13.               The first part of the proposed technical rules involves standards governing the manner in which video programming is distributed on digital cable systems.[xxviii] Subpart K of Part 76 of the Commission’s rules already addresses various technical requirements for cable systems which ensure that cable systems operate in a reliable and secure manner.[xxix] The proposed rules would prescribe additional technical standards to ensure that subscribers are able to fully enjoy the functionalities of unidirectional digital cable products as well as the digital services offered by their cable operator.

14.               These proposed transmission and support requirements would apply to digital cable systems, a term left undefined by the draft rules. Some commenters, such as the American Cable Association (“ACA”), seek clarification as to whether the proposed rules would affect cable systems whose only digital programming comes from Comcast Corporation’s (“Comcast”) Headend-in-the-Sky (“HITS”) service.[xxx] In response to Commission inquiries, members of the cable and consumer electronics industries indicated their belief that the definition of a “digital cable system” includes those systems “contain[ing] one or more channels utilizing Quadrature Amplitude Modulation (“QAM”) for transporting programs and services from a headend to a receiving device.”[xxxi] We concur. In order to ensure that consumer expectations regarding the functionality of digital cable compatible equipment are met, we believe that cable systems carrying at least one digital QAM channel, including programming from the HITS service, must be considered to be digital cable systems subject to the proposed transmission and support requirements. We do not believe, however, that cable systems passing through only 8 VSB digital broadcast signals would qualify as digital cable systems since they are only passing through the digital signals on their analog systems.

15.               The specific transmission and other technical obligations applicable to digital cable systems would relate to cable operator support of “unidirectional digital cable products.”[xxxii] As discussed below, unidirectional digital cable products are defined in the draft labeling rules as “one-way devices which include, but are not limited to televisions, set-top-boxes and recording devices, connected to digital cable systems.”[xxxiii] While the draft rules do not specify the meaning of unidirectional digital cable products beyond “one-way devices,” the model DFAST license accompanying the MOU excludes from its definition interactive products that “are capable of obtaining access to video-on-demand or impulse pay-per view services, of using the return path of the cable system, or of using electronic program guide services.”[xxxiv] Several commenters express concern that this definition is too narrow.[xxxv] In response, representatives of the cable and consumer electronics industries indicate that they are in the midst of negotiations for a similar agreement covering two-way or interactive devices.[xxxvi] Manufacturers have pledged to “future-proof” one-way digital products so that they permit consumer access to two-way services through digital connectors and thereby allow subscribers to benefit from all digital services offered by their service provider.[xxxvii] While we anticipate that the cable and consumer electronics industries will endeavor to complete their negotiations for a bidirectional agreement in due course, we believe that the adoption of standards for unidirectional digital cable products is a necessary first step towards ensuring the compatibility of digital devices with cable systems.[xxxviii]

16.               Although concerns have been raised regarding to certain aspects of the proposed transmission and support rules, the record largely supports the need for technical compatibility standards for digital cable television. Below we consider issues raised by commenters in six key areas: (1) transmissions standards; (2) PODs; (3) tuning and guide information; (4) high definition set-top boxes; (5) exemptions from the standards and associated obligations; and (6) innovation and changes in the standards.

A. Transmission Standards

17.               Under the proposed transmission standards, digital cable systems with an activated channel capacity of 750 MHz or greater would be required to adhere to certain technical standards involving the digital cable network interface and the digital video service multiplex and transport system.[xxxix] These requirements would standardize certain attributes of digital cable system transmissions, thereby facilitating the direct connection of unidirectional digital cable televisions and products to cable systems nationwide.[xl] A number of large cable systems comply with these standards already; other operators have begun implementation at their headends and through their networks.[xli] No comments were received objecting to these requirements; we hereby adopt them into our rules.

18.               The Electronic Frontier Foundation (“EFF”) seeks clarification from the Commission that all analog and digital basic tier services would remain unencrypted in order to encourage the development of basic tier ready devices.[xlii] EFF envisions that basic tier ready television receivers would have QAM tuners but not POD-Host interfaces, and would only be able to access digital basic tier services. In reply, NCTA argues that the issue of basic tier encryption is already addressed in the Commission’s rules and allows for waivers where needed.[xliii] In addition, NCTA and Comcast assert that a “basic tier ready” designation would be confusing as to the level of service offered.[xliv] While Section 76.630 generally prohibits encryption of the basic tier, the express issue of digital basic tier encryption is outside the scope of this proceeding and appropriate notice has not been given. As a result, we decline to act on EFF’s request.

B. PODs

19.               Section 76.1204 of the Commission’s rules requires cable operators to provide PODs to subscribers at their request for use with non-integrated navigation devices.[xlv] As a practical matter, however, non-integrated navigation devices have yet to gain adoption in the marketplace, thereby directly affecting subscriber demand for PODs. The POD provisioning requirements in the draft rules reflect the fact that unidirectional digital cable televisions and products would represent the first widespread implementation of POD and POD-Host interface technology in the marketplace. Under these rules, all digital cable systems would be required to maintain an adequate supply of PODs and ensure convenient access to such PODs for their subscribers by July 1, 2004.[xlvi] In addition, all digital cable systems would be required to conform to technical standards governing POD-Host interfaces and the POD copy protection system.[xlvii] We believe that these new requirements will further the Commission’s mandate to ensure the commercial availability of navigation devices and facilitate the adoption and implementation of both unidirectional digital cable products and the POD-Host interface platform. On this basis, we hereby adopt these POD provisioning and support requirements.

20.               Separate from these requirements, TiVo suggests that dual tuner functionality competition should be encouraged by permitting two POD-Host interfaces in consumer electronics devices until a bidirectional specification is authorized for use.[xlviii] In response, the cable industry indicates that the draft rules do not prevent MSOs from providing multiple PODs for devices with dual tuning capability, and that the multi-stream POD now in development as part of the bidirectional negotiations may also satisfy TiVo’s concern.[xlix] While a multi-stream POD specification is being developed, we expect that cable operators will make multiple PODs available to consumers with unidirectional digital cable products that have dual tuner functionality. TiVo also asks that the Commission require that PODs emit a standardized MPEG output to prevent the use of proprietary output formats by cable operators.[l] NCTA counters that this proposal is inappropriate in the one-way context and notes that these issues are being addressed in its bidirectional negotiations with the consumer electronics industry.[li] We agree with NCTA that these issues are best addressed through the ongoing bidirectional negotiations and continuing development of the OpenCable Applications Platform (“OCAP”) specification.

C. Tuning and Guide Information

21.               The proposed rules would also require digital cable systems with an activated channel capacity of 750 MHz or greater to comply with certain Program and System Information Protocol (“PSIP”) obligations, including the February 2000 PSIP Agreement between NCTA and the Consumer Electronics Association (“CEA”) (“PSIP Agreement”).[lii] PSIP is the standard protocol that enables receivers to identify, locate and process the various types of content being transmitted, including video, audio, closed captions, content advisory information and ancillary data.

22.               Parties have suggested modifications to the proposed requirements. The Association of Public Television Stations (“APTS”), National Association of Broadcasters (“NAB”) and Paxson Communications Corporation (“Paxson”) advocate that profile 4 or higher out-of-band PSIP information should be required under the ANSI/SCTE 65 2002 standard in order to make that standard comport with the PSIP Agreement.[liii] They additionally seek a requirement that the out-of-band PSIP match the channel number in-band, and reject the bandwidth limitation for in-band PSIP contained in the PSIP Agreement.[liv] Comcast and CEA counter that no additional PSIP requirements are needed at this time, while CFA suggests that broadcasters are inappropriately attempting to mandate the passage of PSIP information in this proceeding.[lv] NCTA specifically challenges the broadcasters’ views by arguing that mandated carriage of profile 4 PSIP information is not needed given that if operators agree to carry Event Information Table (“EIT”) data out-of-band, they will do so using profile 4 or higher.[lvi] NCTA further contends that bandwidth caps on in-band PSIP information are needed and that two-part channel numbering would not be backward compatible with the millions of legacy digital set-top boxes in the marketplace.[lvii]

23.               While we recognize that there are a number of outstanding PSIP issues relating to the DTV transition and cable carriage, we believe that resolution of some of those issues are properly addressed in the Commission’s digital must carry and DTV periodic review dockets.[lviii] In order to ensure the proper functioning of unidirectional digital cable products, however, we find it necessary here to incorporate those portions of the PSIP Agreement applicable to cable operators into the Commission’s rules. Rather than incorporating by reference the entire document as proposed in the draft rules, we believe that a direct incorporation of specific provisions is more appropriate. As a result, we hereby adopt those PSIP obligations that will ensure that cable operators carry PSIP data when received from content providers in conformity with the ATSC A/65B standard.[lix] However, we decline to take action on the proposed revisions that are better addressed in our ongoing digital must carry and DTV periodic review proceedings.

D. High Definition Set-Top Boxes

24.               Cable subscribers owning unidirectional digital cable televisions or DTV monitors that wish to receive advanced, interactive services will need a separate set-top box in order to do so. As a means of ensuring the connectivity of these devices, the proposed rules would obligate all cable operators, effective December 31, 2003, to replace or upgrade subscriber-leased high definition set-top boxes upon subscriber request to ensure that such boxes have “functional” 1394 interfaces.[lx] For these purposes, a “functional” 1394 means a 1394 interface with appropriate software support.[lxi] Starting July 1, 2005, all high definition set-top boxes acquired by cable operators for distribution to subscribers would need to include a 1394 interface and either a Digital Visual Interface (“DVI”) or High Definition Multimedia Interface (“HDMI”).[lxii] High definition set-top boxes provided to subscribers pursuant to these deadlines would also need to comply with certain technical standards.[lxiii] No comments were received objecting to these proposals. We believe that these interface and technical requirements will set a baseline for connectivity ensuring that cable subscribers are able to fully enjoy the range of services offered by their cable provider in a secure, digital format. As such, we adopt these high definition set-top box obligations and defer the December 31, 2003 obligation to April 1, 2004.

25.               We recognize that in this context, as well as with respect to the labeling requirements for digital cable ready devices, commenters such as Genesis Microchip have expressed concern that the patents underlying DVI and HDMI interface specifications and the HDCP content protection technologies have not been fully vetted for outstanding claims.[lxiv] Genesis Microchip also questions whether the associated licenses are offered on non-discriminatory terms with stable and certain license fees.[lxv] Although the DVI, HDMI and HDCP specifications did not result from a formal standard setting process,[lxvi] the technology underlying these specifications is widely available in the marketplace today. Further, the adopter agreements for these technologies are freely offered on non-discriminatory terms.[lxvii] Consistent with our previous patent policy, we will nonetheless consider any complaints that these technologies are not being licensed on reasonable and non-discriminatory terms, or are unavailable due to outstanding patent claims.[lxviii]

E. Exemptions from Standards and Associated Obligations

26.               Some commenters have questioned the scope of the digital cable system transmission standards and support obligations given that some of the requirements only apply to systems with an activated channel capacity of 750 MHz or greater while other requirements apply to all digital cable systems.[lxix] To the extent that certain support obligations might disparately impact small cable systems, ACA asks that the Commission consider either a small system exemption or waivers for affected entities.[lxx] In response to ACA’s concerns, CEA, NCTA and Comcast agree that small cable systems burdened by the support requirements should be allowed to seek waivers. NCTA and Comcast also suggest that the burden may not be as significant as ACA anticipates. For example, the only technical support requirement affecting digital cable systems below 750 MHz involves the provisioning of PODs to subscribers, something cable operators are already required to do upon request.[lxxi] In addition, NCTA and Comcast clarify that the July 1, 2005, deadline for certain digital interfaces on high definition set-top boxes only applies to new boxes acquired after that date, with no resulting need to replace existing set-top box inventories.[lxxii]

27.               Although the record does not reflect a detailed economic analysis of the potential cost impact on small cable systems, we believe that the proposed support obligations have been designed to minimize, to the extent possible, any negative cost impact upon small cable systems. All cable operators, including those with small systems, would be obligated to replace or provide high definition set-top boxes with digital connector interfaces. Given that the requirement commencing April 1, 2004, to ensure that leased high definition set-top boxes have functional 1394 interfaces would only apply upon subscriber request, and that the July 1, 2005, deadline for 1394 and DVI/HDMI interfaces on such boxes would apply only to equipment acquired after that date, we believe that small cable systems would not be required to replace wholesale their set-top box inventories in the short term. The only other technical support obligation applicable to digital cable systems with an activated channel capacity of less than 750 MHz relates to the provisioning of PODs, a requirement that must already be met upon subscriber request pursuant to Section 76.1204 of the Commission’s rules.[lxxiii] We recognize, however, that there may be a negative cost impact upon some small systems as a result of compliance with these obligations, particularly with those requirements incumbent on systems with an activated channel capacity of 750 MHz or greater. To the extent that small cable systems would experience economic hardship as a result of these obligations, we will consider waiver requests on a case-by-case basis.

28.               Although waivers will benefit small system operators significantly burdened by adherence to these technical requirements, we are concerned that consumers who purchase unidirectional digital cable products and find them incompatible with cable systems that are either not digital or are subject to a small system waiver will be frustrated. Consumer education regarding the ability of their local cable operator to support unidirectional digital cable products will be critical to ensuring that consumer expectations are met. We recognize that the MOU contains voluntary commitments by cable operators to: (1) offer to educate local retailers regarding the capability of the local cable system to support unidirectional digital cable products, and (2) update the cable industry’s Go2Broadband website with information identifying systems that support such products.[lxxiv] We strongly encourage these and further cable industry efforts and exhort retailers to educate consumers about the compatibility of unidirectional digital cable products with local cable systems.

F. Innovation and Changes in Standards

29.               Several commenters express concern that by incorporating specific technical standards into our rules, the current state of technology will be frozen and innovation harmed.[lxxv] Indeed, some of the standards referenced in the draft technical rules have already been revised while other amendments await adoption.[lxxvi] We recognize the rapid pace of technological development today. Nonetheless, some degree of standardization is necessary to ensure widespread compatibility of digital television with cable systems and the commercial availability of unidirectional digital cable televisions and products. We agree with NCTA that the normative requirements in the proposed rules have been minimized to the extent possible.[lxxvii] In adopting the proposed technical requirements, we are incorporating the most recent versions of the referenced standards and will seek to update them as warranted. As an added measure to ensure that innovation is not stifled, we will conduct periodic reviews of these technical requirements as suggested in the draft rules. As part of our review process, we will consider whether any of these system transmission or support requirements should be amended or sunset in light of technological changes or other factors. It is our belief that once a baseline compatibility standard has been set, marketplace forces are best suited to decide which products and services will meet consumers’ needs and interests.

IV.              LABELING AND CONSUMER DISCLOSURES

30.               As indicated above, one of the mechanisms specified in the Communications Act for addressing compatibility is an equipment labeling regime. Section 624A(c)(2)(A) authorizes the Commission to adopt regulations specifying the technical requirements for television receivers and related equipment to be sold as “‘cable compatible’ or ‘cable ready.’”[lxxviii] The establishment of a label that delineates a certain level of technical functionality serves two purposes: (1) to aid consumers in making purchasing decisions; and (2) to identify for cable operators those devices that can be attached to their system pursuant to certain baseline compatibility requirements.

31.               The labeling regime proposed to the Commission is voluntary in nature; consumer electronics manufacturers are not obliged to physically affix a label to their products. Rather, the proposed regime sets forth basic requirements that unidirectional digital cable televisions and products must meet in order to be marketed or labeled as digital cable ready. We herein adopt the proposed definition of unidirectional digital cable products, discussed above, as one-way devices and clarify that this definition excludes interactive two-way services.[lxxix] Below we address concerns raised by certain commenters seeking modification of the basic requirements for unidirectional digital cable televisions to be labeled digital cable ready. We also address the interrelation of this labeling regime to a certification compliance process and to the Commission’s existing “Digital Cable Ready 1-2-3” labels for cable compatible DTV receivers.

A. Basic Requirements to be Labeled “Digital Cable Ready”

32.               The proposed labeling rules prohibit consumer electronics manufacturers from marketing or labeling unidirectional digital cable televisions or products as digital cable ready unless they: (1) meet certain technical requirements relating to the tuning and navigation of NTSC analog and digital channels, (2) include a POD-Host interface, (3) respond to emergency alerts, and (4) have been certified to comply with certain normative requirements.[lxxx] Under this regime, unidirectional digital cable televisions would also be required to employ specified interfaces according to a phased-in timetable.[lxxxi] The cable and consumer electronics industries are developing a label graphic that could be used in advertisements or on device packaging to reflect the compliance of the product with these criteria.[lxxxii] While the use of a label to physically mark digital cable ready products would be voluntary, consumer electronics manufacturers would be obligated to include in post-sale material, such as an owner’s guide, language describing the features and functionality of unidirectional digital cable televisions.[lxxxiii]

33.               Many of the comments received in response to these labeling criteria advocate the addition of supplemental requirements in order for television receivers to be identified as digital cable ready. For the reasons set forth below, we add an over-the-air tuner requirement to the labeling criteria proposed to the Commission but otherwise decline to adopt the suggested modifications.

1. Over-the-Air Tuner

34.               Broadcasters and content providers advocate that EIA/CEA-818D be added to the list of technical compliance standards applicable to digital cable ready televisions in order to ensure that these devices have over-the-air reception capability.[lxxxiv] Consumer electronics manufacturers have publicly committed to include off-air tuners in digital cable ready televisions.[lxxxv] The fact that the proposed phase-in of digital cable ready televisions with digital interfaces would be synchronous with the implementation roll-out of our tuner mandate suggests that consumer electronics manufacturers intend to abide by this commitment.[lxxxvi] NCTA suggests, however, that an over-the-air tuner requirement in this context would be redundant, given the Commission’s existing tuner mandate.[lxxxvii] As we held in our Review of the Commission’s Rules and Policies Affecting the Conversion to Digital Television (“DTV Tuner Order”), all television receivers must include a digital broadcast tuner on a phased-in basis.[lxxxviii] We therefore believe that the addition of a DTV off-air tuner requirement to the labeling requirements for digital cable ready televisions is appropriate.[lxxxix] In the analog environment, the public has come to understand that television receivers labeled or marketed as “cable ready” universally include the capability of receiving over-the-air broadcast service. We believe it would be inconsistent with consumer expectations and thus affirmatively misleading for digital cable ready receivers not to include digital over-the-air reception capability.

2. Closed Captioning

35.               Broadcasters and content providers seek assurance that closed captioning display functionality will be built into digital cable ready televisions.[xc] In reply, NCTA states that it would not object to a clarification by the Commission regarding the applicability of its digital closed captioning rules.[xci] We concur with NCTA that the Commission’s rules independently mandate that digital television receivers be able to decode and display closed captioning.[xcii] As a result, we need not incorporate a separate closed captioning mandate into the labeling criteria for digital cable ready televisions.

3. 1394 Interface

36.               Broadcasters question why the proposed rules do not require televisions carrying the digital cable ready label to have a 1394 interface.[xciii] While the proposed rules call for the inclusion of a DVI or HDMI interface in digital cable ready televisions by specific rollout dates, 1394 interfaces would only be required on cable operator-supplied high definition set-top boxes.[xciv] NAB expresses its concern that consumers purchasing digital cable ready televisions without 1394 interfaces will be frustrated in their attempts to connect to digital VCRs and other digital devices.[xcv] In response, NCTA states that 1394 interfaces should not be required and instead market forces should determine the future acceptance of 1394 as a connector.[xcvi] NCTA further clarifies that the inclusion of 1394 interfaces on high definition set-top boxes is intended to preserve the functionality of existing digital devices that use the interface.[xcvii]

37.               It is our belief that the requirement for digital cable ready televisions to have either a DVI or HDMI interface sets a floor for digital cable compatibility without unnecessarily impeding innovation. It should be noted in this regard that the labeling regime is being used here as a convenient procedural mechanism for phasing in a set of connectors that are needed to accomplish the equipment compatibility purposes of Section 624A. We recognize that the DVI or HDMI outputs may only be available with a percentage of the digital cable ready devices manufactured and do not intend that, prior to the completion of the phase-in, the digital cable ready label be interpreted as signifying the presence of these outputs. We anticipate that the marketplace will determine which additional connectors are best for use with digital cable ready televisions and associated products and therefore decline to mandate a 1394 or other connector interface.[xcviii] As discussed below, we are establishing an interim mechanism and seeking further comment on a permanent mechanism by which additional connectors can be approved for use in digital cable products, subject to FCC oversight where disputes arise. We believe that this approach will foster competition among MVPDs and promote interoperability.[xcix]

B. Compliance Certification Process

38.               A prerequisite for the use of the digital cable ready designation under the draft labeling rules is certification for compliance with certain normative requirements. The proposed rules anticipate that a manufacturer must submit a prototype of its first unidirectional digital cable product model to CableLabs or an independent qualified test facility to ensure conformity with specific technical standards.[c] The test suite to be applied is intended to demonstrate that the subject device: (i) can tune and display scrambled digital services via the POD conditional access system; (ii) will not technically disrupt, impede, or impair delivery of services to cable subscribers; (iii) will not cause physical harm to the cable network or the POD module; (iv) will not facilitate theft of service or otherwise interfere with reasonable actions taken by cable operators to prevent theft of service; (v) will not jeopardize the security of any services offered over the cable system; (vi) will not interfere with or disable the ability of a cable operator to communicate with or disable a POD module or to disable services being transmitted through a POD module; or (vii) will not impede or impair control of content protection.[ci] The specific tests comprising the test suite were jointly agreed to by representatives of the cable and consumer electronics industries.[cii] The test suite would be executed by CableLabs or an independent qualified test facility for the first unidirectional digital cable product model developed by a manufacturer. Once this first model successfully completed the applicable test suite, self-certification procedures would apply for subsequent models.[ciii]

39.               We hereby adopt the proposed certification procedures with certain revisions as set forth in Appendix B. In so doing, we recognize that the scope of this process is limited in so far as it: (1) verifies compliance with specific normative standards to ensure the functionality and compatibility of unidirectional digital cable products with digital cable systems, and (2) allows for manufacturer self-certification procedures once an initial product model has been certified by a qualified test facility. Although we anticipate that CableLabs, or another organization similarly associated with the cable industry, will initially have a key role in this certification compliance process due to its familiarity and expertise with POD-Host interface technology, the public availability of the test protocol should allow third party testing facilities to certify compliance therewith. Our revisions to the proposed rules reflect this expectation. Any entity that executes the test protocol must do so in a reasonable and non-discriminatory manner. We will monitor the implementation of this certification compliance process to ensure it comports with these principles. Should any party have complaints regarding this implementation, or the certification test suite itself, we will consider them on a case-by-case basis. We will also review the standards in this section on a periodic basis to determine whether to sunset or amend the regulations adopted herein in light of changes in technology or other public interest factors.

C. Relation to Existing Labeling Requirements

40.               We are adopting the proposed labeling and consumer disclosure requirements to promote consumer awareness and education about the DTV transition and the functionality of unidirectional digital cable televisions and products and their compatibility with digital cable systems.[civ] We recognize that the Commission previously adopted a series of labels for digital cable compatible receivers. This “Digital Cable Ready 1-2-3” regime, however, has not yet been employed in the marketplace and may not encompass the full range of anticipated unidirectional digital cable devices.[cv] In an effort to eliminate any confusion, we hereby eliminate the existing Digital Cable Ready 1-2-3 labels and grant the petitions for reconsideration filed by NCTA and Time Warner Cable in response to our earlier Report and Order in our Compatibility Between Cable Systems and Consumer Electronics Equipment docket.[cvi]

41.               We anticipate that this labeling regime and consumer disclosure requirements will provide consumers with basic compatibility information about digital cable ready televisions and products. We remain concerned, however, that the voluntary nature of the labeling regime and the fact that a clear statement of a unidirectional digital cable television’s functionalities is only provided in post-sale material may not aid consumers in making purchasing decisions. In particular, we believe that the digital cable ready designation, absent further clarification or explanation, may cause consumer confusion because it does not indicate that a set-top box will be needed to receive interactive services. As discussed above, we expect that the cable industry will fulfill and expand upon its voluntary commitments in the MOU to ensure that subscribers and local retailers are both aware of the availability of digital cable service in their area and of the compatibility of unidirectional digital cable products with operators’ systems.[cvii] The MOU, however, also reflects an understanding that consumer electronics manufacturers need not provide retail or pre-sale consumer notification information.[cviii] We strongly believe that it is incumbent upon the consumer electronics industry to collaborate with both their retail partners and the cable industry to develop consumer awareness campaigns about unidirectional digital cable televisions and their functionalities, particularly with regard to the need for set-top boxes in order to receive interactive services. Information could be disseminated to consumers in many different ways, including but not limited to cable subscriber notices, Internet web sites, point of sale marketing materials to be provided to retailers, more informative labeling on device packaging, or some other appropriate format designed to reach consumers before they make purchasing decisions. We will also seek comment in the Second Further Notice of Proposed Rulemaking on whether some form of pre-sale consumer notification should be required.

V.                 ENCODING RULES

42.               In addition to the draft technical and labeling rules, the cable and consumer electronics industries submitted draft encoding rules to the Commission that propose: (1) a ban on selectable output control, (2) a prohibition on the down-resolution of broadcast programming, and (3) the adoption of caps on copy protection encoding for different categories of MVPD programming. Below we discuss our authority to adopt such encoding rules, and address each of the three proposals.

43.               At the outset, we recognize that members of the DBS industry assert that because they did not participate in the MOU negotiations, they should not be made subject to encoding rules that do not adequately address their interests.[cix] We disagree. The negotiations between cable and consumer electronics industries sought to establish a specification for unidirectional digital cable televisions and products – issues specific to their industries. The proposed encoding rules were developed as part of those negotiations. The entire MOU, including the proposed encoding rules and other draft regulations contained therein, were incorporated into our Further Notice and put out for public notice and comment.[cx] Indeed, both EchoStar and DIRECTV (the “DBS providers”) filed comments in response to the Further Notice on this particular issue. As discussed in greater detail below, we conclude that the arguments advanced by the DBS providers are insufficient to outweigh the need for competitive parity among MVPDs.

44.               We also acknowledge the concerns articulated by content providers that the proposed encoding rules would prevent or inhibit the use of other content protection mechanisms.[cxi] We do not interpret the draft rule