FCC chief Tom Wheeler wants to give consumers the option of cable service without a set-top box

By Stephen Battaglio

Sept. 8, 2016 4 PM PT

Federal Communications Commission Chairman Tom Wheeler wants consumers to be able to say goodbye to their cable set-top boxes.

In a Los Angeles Times op-ed piece published Thursday, Wheeler is proposing a new rule that would require cable and satellite video companies to offer consumers the option to receive their channels through apps that provide streaming video over the Internet. Consumers have long chafed at having to pay for set-top boxes to get a cable signal.

“If adopted, consumers will no longer have to rent a set-top box, month after month,” Wheeler wrote. “Instead, pay-TV providers will be required to provide apps – free of charge – that consumers can download to the device of their choosing to access all the programming and features they already paid for.”

Wheeler’s proposal comes six months after the Federal Communications Commission voted 3-2 along party lines to begin crafting rules intended to spur competition in the set-top box market by developing technology standards so that third-party devices and apps could decode pay-TV signals.

Such a service would enable consumers to watch cable channels over on an Internet-connected television or device such as an Xbox, Roku or AppleTV.

Cable and satellite companies collect a combined $20 billion annually in rental fees, adding to the overall cost of cable or satellite service. Wheeler cited an analysis that said consumers pay an average of $231 annually for the use of a box.

Wheeler’s plan was praised by consumer groups but met with strong criticism by the cable industry. The companies and their trade group, the National Cable and Telecommunications Assn., characterized Wheeler’s plan as an act of government overreach that goes beyond the FCC’s authority.

“This proposal would far exceed the Commission’s legal authority and improperly insert the government into private contract negotiations between pay TV distributors, content creators and device manufacturers,” the NCTA said in a statement.

Wheeler, who has long been an advocate of bringing down the cost of video service to consumers, said studies have shown that 84% of consumers believe their cable bill is too high. About 99% of the nation’s 100 million pay-TV subscribers rent at least one set-top box.

“We keep paying these charges even after the cost of the box has been recovered because we have no meaningful alternative,” he said.

Wheeler also believes the industry needs to adapt to the technological changes that have already upended the television industry through the increased number of programming choices they have provided. A rapidly growing number of consumers, especially in the 18 to 34 age group, are turning to online streaming for their video content and want more options through Internet platforms.

“This proposal is an important step in giving consumers new, innovative choices in a market that’s had limited -- if any -- competition for years,” Consumers Union said in a statement.

Wheeler’s plan gives large pay TV providers, such as Comcast and DirecTV, two years to offer streaming apps to their customers. Medium-sized companies would have an additional two years while smaller providers would be exempt.

About 90% of cable and satellite customers are served by the companies that will have to adopt the service in two years.

Cable companies already have the technology that offers their channels through apps, but the rental of a set-top box is required.

Opposition from the cable industry, which has been anticipating Wheeler’s move, came quickly after his official announcement. Comcast, the largest cable provider in the U.S., said the proposed regulation would hurt the technological development of apps.

“Heavy-handed government technology mandates have a long history of failure,” the company said in a statement. “The Chairman’s approach would likely meet the same fate, while causing real damage to the thriving apps marketplace and real harm to consumers.”

Charter Communications called Wheeler’s plan “a valid goal,” but argued the marketplace is already meeting consumer demand for apps that provide video service. “The FCC’s mandate threatens to bog down with regulations and bureaucracy the entire TV app market that consumers are increasingly looking to for innovation, choice and competition,” the company said in a statement.

It’s not clear whether Wheeler’s proposal will be approved by the FCC. Commissioner Michael O’Rielly echoed the concerns of the industry.

“I will review this proposal carefully over the coming days and weeks, but at the outset it appears to exist within a fantasy world of unlimited Commission authority,” he said. “The Commission is and must remain in the business of licensing spectrum and infrastructure, not content.”

MPAA Chairman and Chief Executive Chris Dodd said he will need assurance that an FCC mandate to provide streaming apps does not interfere with the ability of program producers and creators to negotiate issues related to online usage of their content.

“The FCC must not encroach upon copyright holders’ discretion in how they exercise or license the exclusive rights,” Dodd said.

Wheeler’s proposal did receive praise from Public Knowledge, a consumer advocate group based in Washington, D.C., that specializes in digital matters.

“In addition to saving consumers money, this action would allow consumers to access online video right alongside cable TV, in the same familiar interface,” said John Bergmayer, Senior Counsel for Public Knowledge: “This will increase competition and innovation in the video marketplace while making it easier for programmers and creators who aren’t carried by cable to get equal billing in viewers’ homes.”

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Twitter: @SteveBattaglio

UPDATES:

4 p.m.: This article was updated with additional details.

This article was originally published at 11:30 a.m.