The on-demand, direct-to-consumer video market is driving development of a new-generation of set-top boxes and home networking controllers with far reaching implications for multichannel video content owners and distributors and for the consumer electronics and computer industries. Advances in digital technologies, declining storage and memory costs, cable and telco consolidation and a FCC proceeding calling for retail availability of cable set- tops also are pushing new set tops and home controllers. Until now, two firms, Motorola and Scientific Atlanta have dominated set top markets. In an effort to stimulate competition, the cable industry through its research and standards setting center, CableLabs, launched a comprehensive inquiry to create next- generation navigation architecture. So doing enables more suppliers to enter set-top and navigation device markets. The initiative is yielding a software- enabled solution based on proprietary standards and commercially negotiated licensing agreements subject to non-disclosure stipulations for firms entering set top and navigation device markets. So doing is positioning the cable industry to inflect the FCC proceeding to greatest advantage. So far, the FCC process is working well. The broad parameters of a software-enabled solution seem substantially, if not wholly, agreed to, and cable operators with more than 2 million subscribers will begin deploying Open Cable Applications, developed through CableLabs, in October. However, the transition is not quite a done deal. The computer industry asserts that cable is using the FCC process to set standards for laptops and personal computers. Dell, Intel, Hewlett-Packard and Sony claim cable’s new set-top amounts to no more than a secure microprocessor, perhaps OK for a cable system, but inadequate for home networking with lots of different communications devices. Other computer firms contend the new navigation system freezes them out of set-top markets. They are asking the FCC to rule that new set- top technology must work as an open standard as is customary in the computer industry. Microsoft states that the Downloadable Conditional Access Agreement does not protect or provide equitable treatment of intellectual property rights of licensees. The consumer electronics industry and various computer component manufacturers, all participating in the FCC process, express reservations about the feasibility of cable’s proposed Open Cable Application Platform (OCAP) and the manner in which the cable industry developed it. The cable industry responds that it is addressing all regulatory and legislative requirements through an open process with licensing through Cable Labs. A FCC decision is yet pending. Hugh Carter Donahue initiates and manages sponsored and original research, consults for communications firms and writes about telecommunications policy. He can be reached at hcd@dca.net.

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