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Charter Gets Waiver On STB Rules

Washington – The Federal Communications Commission (FCC) Friday granted a Charter Communications waiver request to put off for one year a ban on seven cable set-top box models with integrated security systems.

According to a statement for the FCC’s Media Bureau, the waiver was granted until July 1, 2008, due to “the severe financial difficulties that Charter faces.”

Under a revised Communications Act of 1939 order being administered by the FCC, cable operators are to separate conditional access security systems from cable boxes beginning July 1, 2007. The goal is to open up competition for set-top box equipment to multiple manufacturers and retailers beyond the cable provider, who could sell cable-ready products with slots for cable company-supplied CableCARD security modules.

In addition, the FCC granted conditional waivers on the integration ban to Millennium Telcom, OneSource Communications and GCI Cable, because “the bureau found that these operators’ commitments to migrate their systems to all-digital on or before February 17, 2009 justified grant of the waivers.”

“Among other things, migration to all digital will facilitate the DTV transition and enable expanded service offering,” the FCC statement said.

However, the bureau denied Millennium’s request for a waiver on one high-end set-top box model, finding Millenium’s arguments that the model was critical to its ability to migrate to all digital was unconvincing.

Charter had argued that in a 2005 Deferral Order and in an Advance/Newhouse case before the D.C. Circuit, “the Commission recognized that a waiver of the integration ban could be appropriate for certain low-cost, limited-capability boxes.”

Charter also said its high-end set-top boxes (which it estimates will encompass more than half of all new set-top boxes placed into service after July 1, 2007) will be subject to the integration ban and those boxes will ensure that Charter has a strong incentive to ensure that CableCARD technology functions properly.

What convinced the FCC, however, was an additional argument in ex parte communications that “it is uniquely burdened because of financial difficulties and its status as a rural operator.”

Charter pointed to its own SEC filings showing it has more than $20 billion in outstanding debt obligations, which is “almost 11 times its annualized EBITDA.”

The company also said its audiences are primarily rural, passing 55 homes per mile compared to 200 to 600 homes per mile passed in more urban markets.

The FCC stated that “while we have not been persuaded by others who have made speculative claims that the integration ban may impose a financial burden on their companies, we are persuaded by Charter’s specific, unambiguous demonstration of its existing financial hardship.”

The commission added that “if Charter believes that, as a result of continuing, non-speculative financial difficulties, an extension of the waiver beyond this initial one-year period is warranted, it may submit updated financial and other information for our consideration.”