The cable industry wants the FCC’s permission to encrypt basic cable to cut down on truck rolls and cable theft, a change it claims will affect only a small number of consumers who rely on “clear QAM” channels.
Boxee, which wants to keep the status quo so its Live TV adapter can piggyback off clear QAM, claims that millions of cable customers will be inconvenienced and will pay more in set-top fees (see Boxee CEO: The Cable Industry Is Lying About Encryption, Boxee: Who Needs Cable? Actually, We Do and NCTA: Boxee Is Wrong About Basic Cable Encryption).
Who’s right? Here are some data points on the issue.
* First, it’s important to note that the proposed FCC rule change would apply only to all-digital cable systems. That means the majority of cable systems wouldn’t even be allowed to employ full-lineup encryption. The FCC, based on data submitted for its 2010 Cable Price Survey, estimates that only 9.4% of cable subscribers were served by all-digital systems at the time. According to SNL Kagan data, about 12.6 million subscribers were analog-only as of September 2011 — the subject of the FCC’s proposed extension to analog viewability mandates through 2015 (see Three More Years Of Analog TV: FCC Wants To Extend Cable’s Viewability Mandates).
* Cablevision, as I noted previously, partially converted its New York City system to encrypted basic in July 2011. In an FCC filing, Cablevision said less than 0.1% of approximately 400,000 subscribers affected by the change — about 400 — requested a free set-top or CableCard. Boxee CEO Avner Ronen wondered how that could be so low, and whether the MSO engaged in upselling customers to leased boxes.
But remember: Cablevision NYC is an all-digital system, so customers who needed set-tops or adapters for second or third TVs already had them — unless they were tapping into clear QAM directly. The number of basic-only subscribers served by Cablevision in New York City is less than 2% of its total subscriber base of more than 1 million, “and the subset of those customers receiving their basic service via QAM tuner is even smaller.” Apparently that was no more than about 400 of them in the initial 400,000-sub region.
* Time Warner Cable, in November 2011 comments with the FCC, provided details on its “digital conversion initiative” pilot in its Augusta, Maine, system, which serves nearly 86,000 subscribers. TWC has distributed more than 124,000 digital terminal adapters, which are being made available to Augusta subscribers for free for two years and 99 cents per month thereafter.
“Even though the Augusta system has a higher basic-tier penetration (and a lower digital service penetration) than both the average TWC system and Cablevision’s New York City system, questions or communications from customers regarding the transition have been virtually nonexistent,” Time Warner Cable said. The point is that moving to encrypted basic would be similarly uneventful, according to the MSO.
* RCN, which is all-digital in Chicago and New York, said in a November 2011 filing that the number of customers who rely on unencrypted basic cable TV is “difficult to quantify, although RCN believes the number to be very small.”
However, RCN was in some cases able to estimate how many subscribers were watching cable TV and not paying for it. The operator cited two “tap pulls” (physical disconnections of service) from Chicago apartments where it had previously provided service but was no longer doing so. In one instance, nearly 20% of the households that were physically disconnected service contacted RCN within a week of the tap pull to subscribe for cable service, “clear evidence that they had previously been viewing cable without paying.” In the other case, 12% did.
“A reasonable explanation for this trend, which coincides with RCN’s conversion to all-digital video and the recent ubiquity of QAM tuners, is theft of service,” RCN said.
The operator has filed for a waiver of the encryption ban for those two systems, arguing that theft of service is an urgent problem and noting that only three subscribers commented — each “raising issues unrelated to the waiver petition.”
Regarding Boxee’s opposition to letting cable operators encrypt basic channels, RCN said in a filing this week that it was concerned that “the economics of Boxee’s Live TV product benefit greatly from — indeed, may depend upon — basic tier cable theft.” RCN added that it is “aware of no evidence that Boxee itself has encouraged its users to steal basic cable service” but cited comments in Boxee user forums about getting cable TV service for “free.”
Perhaps I should have titled this post, “How Many TVs Actually Rely on ‘Clear QAM’ and Aren’t Used to Steal Cable?”
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