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Analyst: FCC Set-Top Box Plan Won't Bring Prices Down

By Daniel B. Kline - Mar 18, 2016 at 8:30AM

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The FCC is considering a proposal that would end pay-TV companies' near-monopoly on the extremely lucrative set-top-box market. But the industry may have less to fear than you'd think.

Big cable knows a good thing when it has one, and it's fighting to keep that good thing going.

That's why companies such as Comcast (CMCSA 2.68%) and DirecTV-owner AT&T (T 1.67%) have openly opposed a proposal by the Federal Communications Commission that would end their near-monopoly on the set-top-box market. Currently, pay-TV customers must either rent a cable box or a cable card from their provider. Buying them is not an option, nor is using a third-party product (aside from the few which work with the aforementioned cable cards and come with rental fees). 

Cable boxes are rented to consumers with no option to buy. Source: author

As you might imagine, this is a pretty lucrative setup for the industry; it nets an estimated $20 billion in box rentals each year, according to Consumerist. At roughly $89 a year per box, and with the average house having 2.6 boxes, (according to another article on the same website) that adds up to over $230 per year per pay-TV household in rental fees for a product you have no option to buy.

So it makes sense that big cable would want to derail any proposal that would stop the gravy train. However, one analyst thinks it won't matter at all: Jonathan Chaplin of New Street Research wrote a report asserting that -- despite the FCC's best intentions -- consumers won't save money if these rules pass.

What is Chaplin saying?
Essentially, Chaplin believes that even if big cable loses its set-top-box monopoly, pay-TV providers will simply find other ways to keep bills high.

"We argue that STB revenue is just video revenue in disguise," wrote Chaplin. "If required, the industry would simply reclassify revenue, as the wireless industry did during a similar transition in 2012."

"Cable companies aren't in the STB business; boxes are just a cost of doing business," he continued. "If this revenue stream is threatened, we assume the cable industry will simply shift the revenue from boxes to service as they go through their annual rate adjustment process. After all, box revenues just go to help pay rising content costs."

Chaplin also noted that while the FCC's actions put a stream which accounts for 11% of industry revenues at risk, the threat is simply not as serious as it's perceived to be. "We doubt there will be much demand for a box that is not supported by the cable company," he wrote, noting elsewhere in the report that "STB regulation is a non-issue."

It's not quite that simple
Chaplin has a point in that consumers have been able to buy instead of rent cable modems for years now, but only a small percentage do so. The public is simply not very good on a gross basis at making technology changes. It's the old "blinking clock on the VCR" joke. It's easy enough to fix, yet a lot of people were never able to do it.

In this case, the FCC is well intentioned, but its efforts probably won't result in much relief for consumers. Either the public will simply not take advantage of the new rule in great enough numbers to hurt the industry, or big cable -- led by Comcast and AT&T -- will find another way to make its money.

In the long run that could send consumers fleeing to streaming services, but if the numerous fees most cable providers add to their advertised prices have not done that than perhaps nothing will. Cable investors have little to fear from any FCC action and most paying consumers will likely keep paying as much, or more, than they do now, even if how the bill gets broken down changes a little.

 

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