Policy-Induced Competition: The Case of Cable TV Set-Top Boxes

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12 Minn. J.L. Sci. & Tech. 279 (2011).  Ralitza A. Grigorova-Minchev, Vice President, Arlington Economics, Thomas W. Hazlett, Professor of Law & Economics, George Mason University School of Law.

“…This failure is, in less glossy reports, the assessment of the FCC itself. In the Commission’s words, the CableCARD technology developed to facilitate modular conformity of competing devices has “failed to stimulate a competitive retail market for set-top boxes.” The top two cable STB manufacturers in North America, Motorola and Cisco, both supply their STBs through cable providers and account for an estimated ninety-five per-cent of the units’ shipments over the first three quarters in 2009. In contrast, “there are 0.5 million CableCARDS deployed in retail devices today, which represent approximately 1% of all set-top boxes deployed in cable homes.” There are only two manufacturers, TiVo and Moxi, that “continue to sell Cab-leCARD-enabled set-top boxes through retail outlets.”

The experience of the FCC’s attempt to create a “policy-induced competition” is important on its own and for its more general implications. In many services, particularly in telecommunications, regulators have sought to restrict vertical integration so as to leave complements free to compete. Classically, this was the approach in the old Bell System following the Carterfone mandate, which allowed non-AT&T equipment—notably, telephones and switches—to access standard interfaces as plug-in devices. The result was that, even while phone networks maintained monopoly services for voice and data transport, competitive rivalry developed with respect to network-connected devices.”

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