Here's Why Big Cable Investors Should (and Should Not) Worry About the FCC's Set-Top-Box Plan

By Markets Fool.com

Tom Wheeler. Image source: fcc.gov.

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FCC Chairman Tom Wheeler has the American public's back.

After decades of acting more on behalf of the companies it regulates than the people it nominally serves, the Federal Communications Commission has a boss who's been boldly pro-consumer. Despite being a former cable industry lobbyist, Wheeler has clearly approached his job by weighing what's good for the public higher than what helps big cable make more money.

That philosophy helped lead to the agency's revised net-neutrality rules, and it almost certainly explains whyComcast's attempt to buyTime Warner Cable was not approved. Wheeler has been an activist for the little guy, and now he's taking on one of big cable's sacred cows -- the cable box.

It's a noble effort, but even with a determined leader wielding the full power of the FCC, it's one that will move very slowly even if Wheeler can manage to push changes through.

What is the battle being fought over?
Currently, nearly all cable subscribers in the United States must rent a cable box -- usually one per television, to receive the television signal they pay for. You can't buy a cable box in most cases, so you have no choice but to pay for it each month, forever.

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A Comcast cable box Source: author.

It's a smart racket that earns the industry about $20 billion in box rentals each year, according toConsumerist. That, according to a separatearticlefrom the same website, comes to $89 a year per box, with the average house having 2.6 boxes, coming to a cost of around $232 per year.

This situation benefits Comcast, Time Warner Cable, and the rest while consumers pay over and over for their box with no option to buy it and very limited options to opt out.

What is the FCC doing?
The agency has taken the bold step of beginning the process to open up the set-top-box market to allow outside companies to enter it. That sounds great -- and it is, in a big-picture way -- but the federal government moves slowly, with lots of opportunities to be tripped up.

Wheeler has started the process by pushing through a vote on a literally titled "Notice of Proposed Rulemaking (NPRM)." The chairman won that move-forward vote 3-2 on party lines after a debate that was notable for how every statement was prepared in advance and all minds seemed to be made up before any words were spoken. It was political theater to the saddest degree, which Wheeler pointed out when it came time for him to speak.

"There have been lots of wild assertions about this proposal before anyone saw it," the chairman said. "But let's remember this is the beginning of an information gathering process which is why, quite frankly, that it's disappointing that my two colleagues have made up their mind before all the facts are in."

But even though the proposal passed, an NRPM is in no way a final decision. At the very least, it allows for a 30-day comment period, with another 30 days being allotted for responses. Any final vote would occur after that, and even then standards would have to be agreed upon before cable companies would get a two-year period to implement the new open-box technology.

So if everything goes smoothly -- which is generally not the case with anything involving the government and big business -- then it will be at least two and a half years before anything changes, and it will probably be much longer than that.

Will this hurt big cable?
The cable industry -- most notably Comcast andAT&T -- have been vehemently opposed to the idea of opening up set-top boxes and ending their lucrative stream of rental fees. Neither company phrases it that way, and both clearly want to position their profit-making as being good for the public. Both companies answered a pre-meeting request from the FCC in letter form, sharing some, but not all, data asked for.

Comcast and AT&T did both acknowledge that basically all of their customers rented cable boxes, but neither saw this as a problem. Comcast even had the audacity to claim in its letter that customers "prefer to lease rather than own their set-top box." No backup was provided for that hard-to-believe statement, which would be similar to having someone in the cutlery industry say people would rather rent silverware and pay a montly fee for it forever than own their forks and knives.

Of course, both also argued that consumers don't have to have cable boxes because they can get entertainment from sources other than cable.

So, returning to the cutlery analogy, you can eat with your hands or use a readily available ax to cut your steak.

These are silly arguments, but the cable industry is going to fight for this revenue as long as it can, and it has clearly succeeded in pushing any changes well down the road.

Why is the FCC doing this?
Wheeler has good intentions, but it seems this problem could have been solved at least for the short term with a much more simple rule. If the FCC had simply forced cable companies to allow consumers to buy a cable box from them at a reasonable markup over cost, this problem would mostly go away.

That would have hurt the industry, but the actual percentage of people who would pay up front would probably be pretty small. For example. most Internet service providers -- including Comcast, Time Warner Cable, and AT&T -- allow customers to buy cable modems rather than rent then. Most people do not do that, either because they are unaware they have a choice or because they would rather have it simply be handled by the company.

Meanwhile, the FCC seems to be pursing a noble idea that may not even matter by the time it becomes law because of the changing nature of the pay-TV industry. It's very possible that changing technology will force cable companies to make programming more widely available via app or even on competitive set-top boxes. That could be forced by consumers who opt for watching on non-television devices and the competitive reality developing due to streaming services.

This FCC decision won't hurt cable stocks anytime soon, nor will it benefit consumers for years to come. Wheeler is right to do this, but he could have gone small on this one before tackling the bigger issue, and that might have provided faster relief for his constituents.

The article Here's Why Big Cable Investors Should (and Should Not) Worry About the FCC's Set-Top-Box Plan originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He would support Wheeler in a run for president. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.