Why is this a bad thing? Because the integrated decryption component in Evolution's box sounds a death knell for the competitive market.
What is CableCARD? **
Prior to 1998, when you got cable service, you had to get a set-top box from that cable provider. The service's navigation functions (i.e., channel changing) were built into the same device that performed the security functions (i.e., signal descrambling). As a result, the cable provider had an effective monopoly on its set-top boxes and any other device that might want to connect to the cable video network (like TiVo, Windows Media Center, or Moxi.) The box's integrated security component was unavailable to any would-be competitors, preventing them from even trying to market competing set-top boxes.
In 1998, the FCC implemented §629 of the Telecommunications Act of 1996, sometimes called the “integration ban”, which required navigation and security functions in set-top boxes to be split into separate components. CableCARD was designed to be that separable security component, a descrambler card that could be plugged into whichever set-top box the consumer decided to use. Though the law passed in 1998, it didn't fully take effect until 2005 due to various extensions, exemptions, waivers, and so forth granted to the cable providers. In 2005, the FCC issued an order stating that the cable operators were not adequately supporting CableCARD, and requiring them to provide the FCC with periodic updates on their CableCARD deployment and support.
New Waiver Requests and Grants
On June 1, 2009, the FCC unexpectedly granted Evolution a waiver of the integration ban for low-end set-top boxes that performed digital-to-analog conversion. The FCC reasoned that granting the waiver was reasonable because the boxes were relatively inexpensive to produce, thus aiding in the digital television transition, and that the boxes would only be useful to a small segment of the market because of their restricted capabilities, so would not endanger the competitive market. Specifically, the FCC based its decision on language in its 2005 order stating that it would “entertain requests for waiver” for limited capacity integrated set-top boxes. However, the FCC's earlier order stated the requirements for waiver requests as a minimum necessary standard for consideration, while its ruling in Evolution treated those requirements merely as a sufficient condition: once Evolution met the requirements, the FCC granted the waiver without apparent concern for the consequences.
Within two weeks of the FCC's decision in Evolution, four major manufacturers filed nearly identical applications to produce these “limited capability” devices. Each of these DTA boxes – including Evolution's – contains an integrated decryption capability that permits the kind of conditional access to content that the cable companies enjoyed before CableCARD. If the FCC were right, lifting the integration ban for these devices shouldn't have much competitive effect because there's little demand and only a small market for these devices – but that's not what we're seeing. The alacrity with which the major players have jumped on this opportunity indicates that they intend to flood the market with these proprietary boxes to undermine the development of a common standard. As long as the cable operators can skirt the legal ban and offer proprietary integrated devices more cheaply than competitors can offer their non-integrated devices, they can limit the adoption of CableCARD and forestall the competitive market that is meant to flow from the use of the common standard. If the FCC allows manufacturers to get around the ban, it will ultimately retard any innovation that might lead to consumer choice. This is monopoly in action, folks.
In answer to the deluge of waiver requests, PK has filed a petition for reconsideration of the Evolution decision. That decision itself is the biggest problem, as it effectively grants an exemption of the integration ban to an entire class of devices. The loss of the nascent CableCARD market for such devices could prevent CableCARD from reaching the critical mass it needs to remain viable and ensure the cable companies' continued monopoly on subscribers' hardware. PK hopes that the FCC will realize the consequences of the Evolution exemption and reverse its ruling.
PK has also filed opposition to each of the waiver requests under the new Evolution exemption. These oppositions serve mainly to ensure that the set-top boxes produced under these waivers are, in fact, purely limited-capability, low-end devices. Even if the FCC upholds the Evolution decision, then PK's efforts will continue to ensure the cable operators cannot leverage their monopoly on the low-end set-top box market into a stranglehold on the market as a whole.
* Low-end, in the context of Evolution, means the set-top box does not support high-definition (HD) signals, two-way communication (such as internet access or on-demand video), or DVR capability.