Since the widespread launch of cable television throughout the United States in the 1980s, the companies that sell you pay-TV packages have had a near monopoly on set-top boxes. That has been a pretty sweet racket for Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), Charter Communications (NASDAQ:CHTR) and the rest of big cable.
Not only have these companies been able to sell their television packages to consumers, they have also been able to force them to pay to rent a cable box, or sometimes even more than one. In nearly all cases, consumers have no option to purchase a box and instead pay a monthly fee.
Now, FCC Chairman Tom Wheeler wants to open up the set-top box market to competition. As you might imagine, the cable industry is freaking out over the prospect of losing its cash cow.
How bad is it?
Currently, 99% of cable customers pay an average of $231 per year in cable box rental fees, wrote FCC Chairman Tom Wheeler in an opinion piece for Re/Code.
If you've ever signed up for a $99-a-month bundle for cable, phone and Internet and then wondered why your bill is significantly higher, this is a big reason. Even when the company has recovered the cost of the box, you must continue to pay for it. Altogether, U.S. consumers spend a whopping $20 billion a year to lease these devices. In fact, according to a recent analysis, over the past 20 years the cost of cable set-top boxes has risen 185% while the cost of computers, televisions and mobile phones has dropped by 90%.
Wheeler noted that the FCC tried to open up this market 20 years ago, and even passed rules requiring that people have the right to choose their equipment when joining a pay-TV service. Those rules, however, are "woefully out of date and based on 20-year-old technology," wrote Wheeler. This forces consumers, in nearly all cases, to rent from their cable provider while using separate devices to access streaming content.
Wheeler's plan calls for opening up the marketplace by creating a framework for device manufacturers, software developers and others in order to create devices that could support cable programming, Internet content, and streaming services. "Nothing in this proposal changes a company's ability to package and price its programming to its subscribers, or requires consumers to purchase new boxes," he wrote.
Cable doesn't like it
No industry would be happy to lose its monopoly in an area that has been such a significant source of revenue, and cable is no different. The National Cable & Telecommunications Association, which has Comcast's, Time Warner Cable's, and Charter's CEOs on its board, has come out aggressively against the idea of opening up the set-top box marker in a letter to the FCC.
It's all very technical, but the trade association is essentially arguing that what the FCC proposes will be bad for consumers, forcing them to buy government-mandated boxes. Comcast and the rest of big cable support a more-restrictive plan, where cable companies would build apps for third-party devices and content.
"The downloadable 'apps' approach enables consumers to watch content from Multichannel Video Programming Distributors (MVPDs) and Online Video Distributors (OVDs) on an array of customer-owned and TV-attached devices, including iOS and Android tablets and smartphones, game stations, PCs and Macs, Smart TVs, Kindle Fire, and Roku," pay-TV operators wrote.
Basically, big cable is trying to do the same thing it has done for its entire existence -- control everything. That worked in the past, and led to no real changes; but it may not succeed this time.
Wheeler has a point
Even Internet service providers allow consumers to buy, not rent, modems and routers. They may make it hard, and keep it a bit of a secret, but they don't force consumers to pay for devices multiple times over -- though they are happy to take the money from people who don't know any better.
In this case, Wheeler is merely pushing an agenda that consumers should have been screaming for for years. Why can't your Roku Player or Fire TV also handle your cable subscription, and why are we paying endlessly to rent devices that we could have purchased many times over?
Cable has put up every roadblock to stop this from happening, with security concerns being the one cited most frequently. Wheeler addressed all their points, and makes it clear that he's not playing this time, and the industry won't get away with making minor concessions.
This is going to take time, but it's good for consumers, while being very bad for cable companies (and their investors). Wheeler wants to end a practice that has hurt the public while filling corporate coffers with money people should never have had to pay.
Stopping this practice, and opening up the set-top market, makes sense. It should save people money, while also helping consolidate their devices into one box that controls cable, streaming, and Internet content.
Daniel Kline has no position in any stocks mentioned. He misses Abe Vigoda already. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.