FCC Grants Cable Operator a Permanent Waiver for Refurbished, Integrated Set-Top Boxes

On March 4, 2010, the Federal Communications Commission’s (FCC) Media Bureau granted a first-of-its-kind permanent waiver from its integration ban to Baja Broadband that will allow the company to purchase and deploy refurbished, integrated high-definition (HD) and digital video recorder (DVR) set-top boxes. Baja is the first cable operator in the mainland U.S. to receive any type of permanent waiver for two-way HD or DVR devices.

Although the relief was premised on a specific finding of economic hardship, we believe that the Media Bureau may entertain other waiver requests for refurbished devices. We would be happy to discuss this issue further with you if you are interested in exploring such a request or if you have questions.

Since July 1, 2007, the integration ban has prohibited cable operators from deploying “new” set-top boxes with integrated security. The purpose of the ban was to require cable operators to use the same CableCARDs in the set-top boxes they lease to customers as are used in retail cable-ready devices. The ban does not prohibit operators from redeploying their own, previously used integrated devices. A few operators asked the FCC to clarify that previously used devices purchased from refurbishing companies are not “new” devices prohibited by the ban, but the Media Bureau denied this request just hours before the ban became effective, holding instead that the device would be considered "new" if acquired on or after July 1, 2007.

Baja demonstrated that it met the financial hardship test that the Media Bureau had used to grant one-year, renewable waivers for non-HD, non-DVR devices to five other cable operators. This test typically includes a showing of negative free cash flow. However, Baja also argued that it needed additional relief to obtain lower-cost HD and DVR devices, which could be purchased for half, or less than half, the cost of new CableCARD devices.

The Media Bureau agreed on the condition that Baja buy such devices only from companies that also commit to sell the same devices directly to Baja’s subscribers. Although refurbishers generally do not sell devices at retail today, some may now do so in order to also be able to sell devices to Baja. The Media Bureau concluded that imposing this condition on the waiver would benefit consumers by providing them with a new retail alternative to leasing a set-top box from Baja.

The Consumer Electronics Association (CEA) opposed Baja’s request, arguing that consumers could instead purchase retail TiVos for less than $300. Baja responded that CEA’s argument ignored the additional cost of TiVo’s ongoing service fees, and the Bureau held that Baja had “soundly refuted CEA’s assertion that TiVo devices are available at a price point that is competitive with refurbished devices.”

Davis Wright Tremaine represented Baja in this proceeding and has helped more than a dozen companies obtain relief from the integration ban. Please let us know if you have any questions or would like assistance in this area.