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Before the Federal Communications Commission Washington, D.C. 20554 Before the
Federal Communications Commission
Washington, D.C. 20554


In the Matter of

Annual Assessment of the Status of
Competition in the Market for the
Delivery of Video Programming
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MB Docket No. 03-172

Comments Of The
Consumer Electronics Retailers Coalition


The Consumer Electronics Retailers Coalition (CERC) is pleased to
submit comments in this annual Notice of Inquiry on competition in the market
for delivery of video programming.
1
CERC agrees with the Commissions
decision, for this inquiry, to take a broad rather than marginal look at a
marketplace that is dynamic in several directions. CERC is a non-profit, tax-
exempt public interest corporation. Its membership includes Best Buy Co., Inc.;
Circuit City Stores, Inc.; Good Guys, Inc.; RadioShack Corporation; Sears,
Roebuck & Co.; Tweeter Home Entertainment Group, Inc.; Ultimate Electronics,
Inc.; the International Mass Retail Association; the National Retail Federation;
and the North American Retail Dealers Association.


A longstanding CERC objective has been the introduction of competitive
devices into the market for customer premises equipment to receive digital cable
audiovisual programming and related services. CERC worked with Members of
Congress toward passage of Section 304 of the 1996 Telecommunications Act,
and subsequently has participated in every Commission undertaking to implement
that section (Section 629 of the Communications Act), as well as Section 624A,
which was added in the 1992 Cable Act. Digital cable television has been the
only major consumer service for which customer premises equipment must be
provided by the service provider to receive the major services offered.


In paragraph 24, the NOI says, [w]e seek comment on the availability and
compatibility of customer premises equipment used to provide video
programming and other services. The Commission then poses a series of
questions:

How many households have one or more devices (i.e., analog and digital set-
top boxes, cable modems, integrated receiver/decoders, navigation devices, or

1
In the Matter of Annual Assessment of the Status of Competition in the Market for the
Delivery of Video Programming, MB Docket No. 03-172 (Rel. July 30, 2003).
2
receivers that facilitate or differentiate video distributors service offerings)?
How many of these devices contain digital capability?


CERC does not collect or pool marketing statistics, so can provide only
qualitative rather than quantitative answers. It is well known that approximately
70% of our consumers are cable subscribers and more than 15% are DBS
subscribers. We believe that, to date, cable operators have furnished consumers
with 25 - 30 million digital set-top boxes, none of which were designed for
national retail distribution. While cable and DSL modems are available at
retail, distribution of audiovisual program via modem has not yet become a
significant competitor to MVPD distribution of programming through set-top
boxes.
2



The continued presence in the marketplace of analog cable set-top boxes
has served as a deterrent to the development and distribution of competitive
digital set-top products. This is so because, as CERC has noted in many filings
with the Commission,
3
existing rules have been interpreted so as to allow cable
operators, in setting rental prices, to pool the costs of (low cost) analog and (much
higher cost) digital STBs, thereby subsidizing the consumer price of leased STBs.
CERC has not objected to this practice, but has urged the Commission to clarify
its regulations so as to afford the same degree of subsidy to competitively
procured navigation device products.
4


Further, we seek information on the retail availability of navigation devices
to consumers.
5
What are the obstacles to equipment manufacturers and others
obtaining approval to attach devices to MVPD systems? To what extent, if
any, do subscriber agreements attempt to limit the uses that may be made of
subscriber premises equipment? What types of devices are available at retail
and at what cost?
6


2
Technically, some set-top boxes also contain a modem. The reference here is to a cable
DOCSIS or a DSL product designed to operate via TCP/IP over the Internet.
3
For a complete discussion of the subsidy issue, its impact on competition, and reference to
earlier filings, see CERC ex parte filing of Nov. 6, 2001 in Docket No. 97-80, pp. 15 - 22.
4
Id.
5
[f.n. to text:] Under the Commissions navigation rules, video programming distributors (except
DBS) were required to separate security functions from non-security functions by July 1, 2000,
and make modular security components available by that date. See Navigation Devices Order, 13
FCC Rcd 14775. By July 1, 2006, MVPDs will no longer be allowed to offer conditional access
and other functions in a single integrated device. See Implementation of Section 304 of the
Telecommunications Act of 1996, Commercial Availability of Navigation Devices, CS Docket No.
97-80, Order and Further Notice of Proposed Rulemaking, FCC 03-89 (rel. Apr. 25, 2003). See
also 47 C.F.R. § 76.1204 (a)(1).
6
[f.n. to text;] We asked for comment on the Memorandum of Understanding and the proposed
Commission rules contained therein which was reached between consumer electronics and cable
industries regarding compatibility of cable systems and DTV receivers and related consumer
3


Until yesterday, CERCs report on this topic was one of grim frustration.
Although Commission regulations have declared a right to attach since mid-1998
and have required cable operators to support competitive devices since mid-2000,
no nationally competitive products have been forthcoming, and no devices reliant
on PODs (now known as CableCARDs
TM
) have been available at retail.
However, on December 19, 2002, consumer electronics manufacturers and cable
operators filed the landmark Plug & Play package with the Commission, taking
concrete steps -- as requested by the Commission -- to break this impasse.
Yesterday, in Dockets 97-80 and 00-67, the Commission announced that it would
be issuing a Report & Order and regulations implementing the major parts of the
Plug & Play package.


As the text of the Report & Order and the regulations have not yet been
released, CERC cannot at this time comment specifically on whether they will in
fact produce the competition envisioned by the Plug & Play parties at the time of
their filing and in subsequent submissions to the Commission. It has been
CERCs position, as expressed jointly with the Consumer Electronics Association
(CEA) in comments and reply comments on the Plug & Play proceeding,
7
that
issuance of these regulations presents the last, best hope for competition, and that
there appears to be no feasible alternative.


The NOI, in par. 23, inquires about interactive devices and services. The
Commission also asks, in par. 30, What percentage of existing equipment is
compatible with the OpenCable standards? What developments have taken place
in the last year relating to the POD-Host Interface, or PHI license that affect the
deployment of navigation devices or their availability at retail stores? The Plug
& Play agreement provides for a Phase II, to result in products that are fully
interactive with virtually any cable headend.
8
CERC views implementation of
Phase II as equally important as the Phase I addressed by the Commission
yesterday. Ultimately, a fully competitive market requires:

(1) Ability of competitive devices to deliver the features and functions
offered by devices provided by the service provider, and


electronics equipment. See Implementation of Section 304 of the Telecommunications Act of 1996,
18 FCC Rcd 518 (2003).)
7
See, Joint Comments Of The Consumer Electronics Association And The Consumer Electronics
Retailers Coalition In Response To Further Notice Of Proposed Rulemaking [Dockets Nos. 97-80
and 00-67], March 28, 2003; and Joint Reply Comments, April 28, 2003.

8
The Phase I regulations proposed to the Commission address products that may be interactive
in any respect except as to the cable headend. Thus, while they receive most cable services, they
would not be able to order, e.g