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Big Cable Does Not Want You to Have Set-Top Box Choices

By Daniel B. Kline – Feb 17, 2016 at 7:15AM

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A number of companies are fighting the FCC to protect a revenue source.

If you owned a burger joint with not only a legal monopoly on ketchup but also the ability to require that customers purchase it, you would fight pretty hard to keep that situation in place.

That's essentially why big cable, led by AT&T (T -1.42%), which now owns DirecTV, and Comcast (CMCSA -1.94%) wants to stop a Federal Communications Commission proposal that would open up the set-top-box market. If that happens, the industry would lose a near-monopoly that earns it about $20 billion in box rentals each year, according to Consumerist. That, according to a separate article from the same website, works out to $89 a year per box, with the average house having 2.6 boxes, coming to a cost of around $232 per year.

These are non-optional rental fees that nearly every American cable customer has to pay endlessly. You can't buy a set-top box. It's a rental that you never pay off.

You can see why Comcast, AT&T, and the rest of the industry would want to hold on to that, just like it's obvious why the FCC would want to end the practice, opening up the market for competition.

What is the FCC trying to do?
Led by Chairman Tom Wheeler, the FCC wants to force cable companies to allow other manufacturers to make set-top boxes that work on their networks. It's a pretty simple proposal that would give consumers choices while forcing cable companies to either lower prices or actually let people buy their boxes rather than pay rent them.

As you might imagine, the cable industry, led by AT&T and Comcast, has decided to argue that the FCC proposal -- which clearly benefits the American public -- has argued that having more choice and paying less would somehow cause consumers great harm.

What are AT&T and Comcast saying?
Both companies have found unique ways to argue against competition and in favor of maintaining the lucrative status quo. Comcast made a number of arguments in a letter to the FCC answering a number, but not all, of the questions the agency asked.

One of its charges was that it had been supportive of TiVo, noting that Comcast supports 350,000 customers who get cable through the products of DVR companies and other alternative players, which require leasing a special card from the cable giant. But later in the letter the company said that "almost all" of its customers lease a cable box. It also said that "most Comcast customers prefer to lease rather than own their set-top box."

A Comcast cable box and remote. Source: author.

The letter offers no support for that statement, and the company detailed how it only offers a purchase option in some very limited markets as part of a trial. So saying customers "prefer" renting over owning a box is a little bit like an airline saying most passengers prefer crowded seats and no leg room. You can't prefer your only choice. You simply have to accept it.

AT&T, which filed its response letter before it bought DirecTV, made some similar arguments and said that 100% of its customers rent a cable box, though the first one is offered at no charge. The company also pointed out that its U-Verse technology didn't work with the limited alternative options that Comcast customers can have, as long as they still pay a card rental fee.

In a more recent blog post, Stacy Fuller, AT&T vice president of federal regulatory, argued that streaming services delivered through non-cable-company set-top boxes already offered competition. Basically, she wrote that because people can use these devices and apps, it's OK for her company to keep forcing people to lease cable boxes. And perhaps the most egregious part of the post was Fuller's attempt to argue that the current policy helps the public.

"The American consumer, at the end of day, is going to pay a bundle for this unnecessary, backward-looking technology mandate through higher prices, less privacy protection, less content diversity, and increased customer confusion," she wrote.

So by no longer having to pay a recurring monthly rental fee forever, the argument goes, people will lose out and pay more because the current alternatives aren't required to offer some of the things cable companies are. Of course, that's most likely not the case if people simply are allowed to buy a third-party box that works with AT&T's signal.

This is only good for consumers
Any industry that enjoys a technological monopoly that produces an enormous amount of revenue would fight to protect it. Right now Comcast, AT&T, and the rest of big cable have an exclusive franchise to sell water in the desert. There are arguments that make sense from both that say it's their signal and they can deliver it how they want.

But where everything breaks down and the FCC should (and will) step in to protects the public is the idea that consumers have to endlessly lease set-top boxes, paying for them over and over again. The FCC will almost certainly open that up to competition, which is bad news for entire industry.

This is a case where the rich got greedy. Had companies such as Comcast and AT&T offered a purchase option at a decent price, many consumers would have chosen to lease (or not noticed), but it's the job of the FCC to step in when people are being taken advantage of. It may take a while, but the entire industry will lose revenue once the final FCC plan gets enacted and competitors enter the set-top-box market.

Daniel Kline has no position in any stocks mentioned. He is not enjoying the below zero weather in New Hampshire. 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.

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