General Instrument Corp. v. Federal Communications Commission
213 F.3d 724 | D.C. Cir. | 2000
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 6, 2000 Decided June 6, 2000
No. 98-1420
General Instrument Corporation,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
National Cable Television Association, Inc., et al.,
Intervenors
Consolidated with
98-1423, 98-1576, 99-1204, 99-1312, 99-1313
On Petitions for Review of Orders of the
Federal Communications Commission
Theodore Whitehouse argued the cause for petitioners and
supporting intervenor. With him on the briefs were John L.
McGrew, Glenn B. Manishin, Christy C. Kunin, Daniel L.
Brenner, Neal M. Goldberg, Loretta P. Polk, Bruce D. Ryan,
and Michelle W. Cohen.
Roberta L. Cook, Counsel, Federal Communications Com- mission, argued the cause for respondents. Christopher J.
Wright, General Counsel, Daniel M. Armstrong, Associate
General Counsel, Lisa A. Burns, Counsel, Joel I. Klein,
Assistant Attorney General, U.S. Department of Justice, Rob- ert B. Nicholson and Robert J. Wiggers, Attorneys, were on
the brief. James M. Carr and Nancy L. Kiefer, Counsel,
Federal Communications Commission, entered appearances.
David Alan Nall argued the cause for intervenors. With
him on the brief were Jonathan Jacob Nadler, Jonathan D.
Blake, Joe D. Edge, Mark F. Dever, Catherine M. Krupka,
and Kevin S. DiLallo. Benigno E. Bartolome, Jr. and John
W. Pettit entered appearances.
Before: Silberman, Williams, and Sentelle, Circuit
Judges.
Opinion for the Court filed by Circuit Judge Silberman.
Silberman, Circuit Judge: Petitioners challenge an order
of the Federal Communications Commission precluding cable
television operators from offering "integrated" converter box- es that perform both security and ancillary functions. We
think the Commission's ban on integrated devices is premised
on a reasonable interpretation of section 629 of the Communi- cations Act, and we deny the petitions.
I.
This case concerns a piece of electronic equipment familiar
to most American consumers: the set-top cable or "convert- er" box. Converter boxes are the most common instrument
("navigation device") that provides access to cable program- ming or other multichannel video programming services.1
__________
1 "Multichannel video programming services" include not only
cable programming but also other services that provide multiple
The typical converter box performs an important security or
"conditional access" function, containing embedded technolo- gy that decodes or descrambles a digital or analog cable
signal.2 It is this function that precludes a consumer from
accessing tiers of cable programming not part of his subscrip- tion package. At the same time, converter boxes often
perform other tasks--which we refer to for simplicity's sake
as ancillary functions--unrelated to security. For instance,
converter boxes commonly include channel tuners and provide
access to video programming guides.
Converter boxes traditionally have been available to con- sumers only by lease from cable operators, as part of a cable
service package. Section 629 of the Communications Act,
passed by Congress as part of the Telecommunications Act of
1996, sought to change this state of affairs. The FCC was
directed to take steps to make converter boxes (and other
navigation devices) commercially available from sources other
than cable operators. Entitled "Competitive Availability of
Navigation Devices," section 629 provides as follows:
(a) Commercial consumer availability of equipment used
to access multichannel video programming distributors.
The Commission shall, in consultation with appropriate
industry standard-setting organizations, adopt regula-
__________ channels of video programming, such as direct broadcast satellite
service. See In re Implementation of Section 304 of the Telecom- munications Act of 1996, Commercial Availability of Navigation
Devices, 13 F.C.C.R. 14775, 14783 (1998). Since the regulations at
issue in this case apply primarily to cable operators, see id. at
14800-801 (exempting satellite programming from separation re- quirement), we use the generic term "cable programming" to refer
to all multichannel video programming services covered by the
contested regulations.
2 Cable programming can be delivered by means of either
analog or digital signals. An analog system transmits and receives
microwave signals in their original form; a digital system, on the
other hand, translates the original signal into a binary code, and
decodes that signal upon receipt. Because of the increased com- plexity involved in digital signal delivery methods, digital program- ming is far less susceptible to theft than analog programming.
tions to assure the commercial availability, to consumers
of multichannel video programming ... of converter
boxes, interactive communications equipment, and other
equipment used by consumers to access multichannel
video programming ... from manufacturers, retailers,
and other vendors not affiliated with any multichannel
video programming distributor. Such regulations shall
not prohibit any multichannel video programming distrib-
utor from also offering converter boxes, interactive com-
munications equipment, and other equipment used by
consumers to access multichannel video programming
... if the system operator's charges to consumers for
such devices and equipment are separately stated and
not subsidized by charges for any such services.
(b) Protection of system security. The Commission shall
not prescribe regulations under subsection (a) of this
section which would jeopardize security of multichannel
video programming ..., or impede the legal rights of a
provider of such services to prevent theft of service.
47 U.S.C. s 549(a)-(b).
The Commission issued a Notice of Proposed Rulemaking
seeking comment on how best to implement section 629's
requirements.3 It explicitly recognized that it was required
to balance section 629(a)'s mandate for "commercial availabili- ty" with section 629(b)'s prohibition against any Commission
action that would "jeopardize" the security of cable program- ming. Any solution requiring devices containing conditional
access functionality to be made widely available at retail
certainly would exacerbate the problem of cable theft, already
a $5 billion dollar drain on cable operators and their custom- ers. But the Commission offered a possible alternative that
it thought might "assure commercial availability" of naviga- tion devices without posing a major risk to cable security. It
noted that __________
3 See In re Implementation of Section 304 of the Telecommuni- cations Act of 1996, Commercial Availability of Navigation De- vices, 12 F.C.C.R. 5639 (1997) ("Notice of Proposed Rulemaking").
[i]n theory, it would be possible to take a typical decoder
box and divide it into two separate parts. One part
would contain the operational and functional components
such as the tuner, the remote control circuitry, the power
supply, and any other non-access control features. A
second part would contain the access control features.
With an interface, it would be possible to have the first
part of the device available through retail outlets, and the
second part, containing the more sensitive access control
apparatus, available only from the service supplier.
In other words, the Commission suggested a separation of the
traditional converter box into two parts (unbundling), permit- ting a device providing ancillary functions to be available at
retail while allowing cable operators to maintain exclusive
control over conditional access functionality.
After receiving comments, the FCC issued an order adopt- ing this proposal. See In re Section 304 of the Telecommuni- cations Act of 1996, Commercial Availability of Navigation
Devices, 13 F.C.C.R. 14775 (1998) ("Navigation Devices Or- der"). Cable operators were directed to make available sepa- rate security components or "modules" by July 1, 2000. See
47 C.F.R. s 76.1204(a)(1) & (e). The Commission's notion
was that these modules could then be "plugged in" to com- mercially available equipment performing ancillary functions.
It recognized that standardized digital and analog interfaces
would be necessary to make the security modules uniformly
compatible with retail equipment performing ancillary func- tions. After a lengthy discussion of technological alterna- tives, the Commission, noting the "dangers of detailed gov- ernment standard setting," left it to the cable industry and its
national standard-setting organizations to develop the appro- priate interfaces.
The FCC did more than impose this separation require- ment on cable operators. The question remained concerning
precisely what equipment cable operators would be allowed to
provide. In addition to mandating the "commercial availabili- ty" of converter boxes, section 629(a) states that the Commis- sion "shall not prohibit" cable operators from providing those
devices. Cable industry commenters asserted that operators
should be able to offer the traditional "integrated" converter
boxes that perform both conditional access and ancillary
functions, so long as they make available a separate security
module for use in combination with retail navigation devices.
The Commission disagreed:
We conclude that the continued ability [of cable provid-
ers] to provide integrated equipment is likely to interfere
with the statutory mandate of commercial ability and
that the offering of integrated boxes should be phased
out. We agree with those commenters who note that
integration is an obstacle to the functioning of a fully
competitive market for navigation devices by impeding
consumers from switching to devices that become avail-
able through retail outlets.
It accordingly required cable operators to cease providing
new integrated cable boxes by January 1, 2005. See 47
C.F.R. s 76.1204(a)(1). Cable operators could, however--like
any retailer--provide a device performing only ancillary func- tions, which could in turn be combined with the security
module by the consumer.
Commissioner Powell wrote a separate statement dissent- ing in part. While he agreed with the Commission's require- ment that cable operators make available separate security
modules with standard interfaces, he argued that the agency's
decision barring them from producing integrated devices was
unsound. He thought that efficiencies might well accompany
the integration of security and ancillary functions in a single
device, and that the Commission's ban might "den[y] a cost
effective choice for consumers." "It is quite plausible to me,"
he explained, "that the 'impediment' to switching to retail
may in fact be a consumer preference for distributor-supplied
integrated boxes! I see no reason to attempt to control
consumer preferences."
In response to requests for reconsideration from several
commenters, the Commission modified some of the conclu-
sions it reached in the Navigation Devices Order.4 It de- ferred indefinitely the July 2000 separation deadline for navi- gation devices providing access to analog video programming.
Finding a consensus among commenters that the cable indus- try was rapidly moving from analog to digital programming,
the FCC concluded that "the application of Section 629 to
analog devices would result in unnecessary expenditures by
[the cable industry] for a module that will soon be obsolete."
However, it reaffirmed the separation deadline for digital
devices and, importantly for the purposes of this case, it also
applied the separation requirement to so-called "hybrid" con- verter boxes capable of processing both analog and digital
signals. The agency, over the protestations of commenters in
the cable industry, maintained its prohibition against inte- grated navigation devices. Commissioner Powell again voiced
his objection to the integration ban in a brief dissenting
statement.
Several members of the cable industry now petition for
review of the Navigation Devices Order and the Reconsidera- tion Order. Petitioners' primary argument is that the FCC
exceeded its authority under section 629 by precluding cable
operators from offering integrated converter boxes to their
customers. They do not challenge the Commission's separa- tion requirement insofar as it applies to digital equipment.
They do, however, object to the Commission's requirement
that cable operators make available separate hybrid security
modules.
II.
Petitioners assert that the integration ban is squarely
foreclosed by the second sentence of section 629(a), which
states that the Commission's regulations "shall not prohibit
any multichannel video programming distributor from also
offering converter boxes, interactive communications equip- ment, and other equipment used by consumers to access
__________
4 See In re Implementation of Section 304 of the Telecommuni- cations Act of 1996, Commercial Availability of Navigation De- vices, 14 F.C.C.R. 7596 (1999) ("Reconsideration Order").
multichannel video programming." (emphasis added). While
the term "converter box" is not defined in the 1996 Act,
petitioners claim that the term at the very least includes
those integrated devices that the Commission banned in the
Navigation Devices Order. They point out that the most
common type of navigation device in existence at the time of
the passage of the 1996 Act was the integrated converter box.
The Commission stumbles over the first step of Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837 (1984), in petitioners' view, because the second
sentence of section 629(a) clearly prohibits the Commission
from enacting the integrated device ban.
The attractive simplicity of petitioners' construction, as the
Commission persuasively responds, dissolves upon close scru- tiny. For the term "converter box" also appears in the first
sentence of section 629(a): "The Commission shall enact
regulations to assure the commercial availability of converter
boxes...." (emphasis added). If petitioners' interpretation is
correct, the Commission is therefore equally compelled by the
plain language of the statute to permit retailers to provide
integrated navigation devices, see, e.g., Sullivan v. Stroop, 496
U.S. 478, 484 (1990) (noting presumption that "identical words
used in different parts of the same act are intended to have
the same meaning")--certainly an unacceptable result from
petitioners' point of view.
Petitioners gamely insist that the parallel language in the
first and second sentences of 629(a) is not fatal to their
argument. They do not dispute that Congress meant to use
the term "converter box" consistently in the statute. They
acknowledge that, if section 629(a) were to be applied in
isolation, the Commission would be obliged to permit both
cable providers and retailers to provide integrated navigation
devices. Their construction is saved from that concededly
unacceptable outcome according to them, because another
section, section 629(b), limits section 629(a), precluding the
Commission from implementing the statute's commercial
availability requirement in a manner that "jeopardizes" the
security of cable programming. Since permitting retailers to
offer integrated devices would undoubtedly "jeopardize" secu-
rity, petitioners reason, the Commission must prohibit them
from doing so--but this limitation does not alter the clear
command in the second section of section 629(a).
Petitioners offer a plausible construction, but it is some- what strained. They reach their result only by reading
section 629(b) not merely to "limit" section 629(a), but to
disrupt the textual symmetry of its language. We have
before us two constructions then, both of which interpret
section 629(b)'s mandate as "limiting" section 629(a) in a not
obvious manner. The FCC's interpretation maintains consis- tency between the provision's two sentences by adopting a
narrow definition of "converter box." Petitioners take the
opposite approach, holding to the more typical definition of
"converter box" in one sentence of section 629(a) at the price
of the same term meaning something entirely different in the
other. Under Chevron, we are obliged to accept the Commis- sion's interpretation which is easily a permissible one.
We move on to petitioners' alternative (but related) statuto- ry theory: that section 629(b)'s prohibition of regulations
"which would jeopardize security of multichannel video pro- gramming" precludes the Commission's integration ban (em- phasis added). It is argued that evidence in the record
indicates that "embedded security currently contained in inte- grated equipment is a more secure method of protecting
intellectual property than is separated security." Petitioners
contend that this evidence, combined with a rather liberal
definition of the word "jeopardize" as meaning any increase
in security risk, should lead us ineluctably to the conclusion
that the Commission's prohibition of integrated devices is
unlawful.
We think petitioners' premise that any Commission action
that (even slightly) increases security risk "jeopardizes" cable
programming is wrong. To place something in "jeopardy"
means to subject it to serious or significant danger. See
Webster's Third New International Dictionary (1981) (defin- ing "jeopardize" as "to expose to danger (as of imminent loss,
defeat, or serious harm): Imperil"). In any event, we do not
see how the Commission's decision to ban integrated convert-
er boxes in and of itself poses any threat to system security.
Petitioners point to evidence purportedly showing that the
separation of security functions increases the risk of cable
theft. But petitioners do not challenge the Commission's
separation requirement--at least with respect to digital navi- gation devices.5 Regardless of our disposition of the Commis- sion's integration ban, would-be cable thieves will be able to
request separate security modules from their cable operators.
Petitioners' failure to explain how the Commission's bar on
integration would in and of itself threaten the security of
digital cable systems is fatal to their section 629(b) statutory
argument. In sum, we think petitioners' statutory objections
to the Commission's ban on integrated digital and hybrid
navigation devices, while well-presented by counsel, are insuf- ficient to clear the formidable hurdle of Chevron deference.6
Petitioners at oral argument sought to slide from their
statutory claim to an argument that the Commission's eco- nomic policy decision to ban the sale of integrated devices was
unsound--essentially to echo Commissioner Powell's thought- ful position. The Commission concluded that integration
__________
5 Petitioners do challenge the separate security requirement
insofar as it applies to the analog programming delivery function of
"hybrid" navigation devices. We treat this argument infra.
6 We reject petitioners' rather labored contention that section
629(d)(1), which states that "[d]eterminations made or regulations
prescribed with respect to commercial availability ... before the
[date of the Telecommunications Act of 1996] shall fulfill the re- quirements of this section," prohibits the Commission's ban on
integrated navigation devices. While we doubt that section
629(d)(1) proscribes the Commission from altering commercial avail- ability determinations made prior to the 1996 Act, that provision is
not even implicated in this case since the earlier Commission
"determination" relied on by petitioners became final after the 1996
Act was enacted. See Order on Reconsideration, In re Implemen- tation of Section 17 of the Cable Television Consumer Protection
and Competition Act of 1992, Compatibility Between Cable Systems
and Consumer Electronics Equipment, 11 F.C.C.R. 4121 (1996)
(issued on April 10, 1996, after 1996 Act's effective date) ("Compata- bility Order").
would "impede[ ] consumers from switching to devices that
become available through retail outlets," Navigation Devices
Order, 13 F.C.C.R. at 14803. This statement does not in and
of itself tell us very much, without further explanation as to
why consumers would be "impeded." Consumers might have
chosen not to purchase retail devices for perfectly sensible
economic reasons--because, for instance, there are efficiency
gains captured in the manufacture of an integrated box that
lead it to cost less than the combined cost of a separate
security module and a retail device, or because consumers
view as too high the transaction costs of seeking a separate
ancillary device at retail. If this is the case, the integration
ban does nothing more than deny the most cost-effective
product choice to consumers--an ironic outcome for an order
implementing "one of the most pro-consumer, pro-competitive
provisions of the Telecom Act." Id. at 14844 (separate state- ment of Commissioner Ness). Perhaps there are benefits
that will flow to consumers from the integration ban,7 but the
Commission did not clearly spell them out. If it had, and if
we nevertheless thought Commissioner Powell had the better
argument, we would not on that basis alone be justified in
reversing the Commission's economic judgment. See City of
Los Angeles v. United States Dep't of Transp., 165 F.3d 972,
977 (D.C. Cir. 1999) ("In reviewing the Department's order,
we do not sit as a panel of referees on a professional
economics journal, but as a panel of generalist judges obliged
to defer to a reasonable judgment by an agency acting
pursuant to congressionally delegated authority.").
We need not decide this question, however, since petition- ers did not assert in their briefs that the Commission's
integration ban was arbitrary and capricious. At oral argu- ment, counsel responded to this omission by noting that they
__________
7 Or perhaps, somewhat paradoxically, it is the lack of these
benefits that makes the ban necessary. The statute requires
"commercial availability," but does not condition that availability on
an improvement in consumer welfare. So even if it were merely the
transaction costs that "impeded" consumers from buying devices at
retail, the Commission might be authorized to take affirmative steps
to create a retail market.
did make a Chevron argument in their opening brief, and
although it was phrased in Chevron step one terms, it neces- sarily implied a step two argument as well, and a step two
Chevron argument is close enough to an arbitrary and capri- cious claim. Even granting petitioners' point that its statuto- ry argument allows us to consider whether the statute, if
ambiguous, was reasonably interpreted (Chevron step two),
their problem is that that argument was put entirely in terms
of statutory interpretation. At no point in their opening brief
did petitioners contend that, even assuming the statute did
not foreclose the Commission's policy, it was nevertheless
unreasonable. To be sure, we have recognized that an arbi- trary and capricious claim and a Chevron step two argument
overlap, and because of that we have not been sticky as to
whether an argument in the area of overlap is characterized
as a Chevron step two claim or as an arbitrary and capricious
challenge. Whether a statute is unreasonably interpreted is
close analytically to the issue whether an agency's actions
under a statute are unreasonable. See National Ass'n. of
Regulatory Util. Comm'rs v. ICC, 41 F.3d 721, 726 (D.C. Cir.
1994). But here the contention petitioners pressed at oral
argument is outside the area of overlap: they challenge the
Commission's assumptions about market behavior for reasons
wholly independent of the statutory arguments made in their
opening brief. This is not a case of a mere mischaracteriza- tion of an argument, but rather of a party raising an entirely
new argument--the reasonableness of the Commission's eco- nomic judgment--in its reply brief. Since petitioners' initial
brief did not in our view properly put the Commission on
notice that its economic reasoning was being challenged, we
do not think it appropriate to consider the arbitrary and
capricious challenge. See, e.g., McBride v. Merrell Dow and
Pharmaceuticals, Inc., 800 F.2d 1208, 1210-11 (D.C. Cir.
1986).
III.
There remain petitioners' arguments directed to the Com- mission's requirement that cable operators provide separate
security modules. As mentioned above, the Commission ex-
empted analog-only devices from this requirement in its
Reconsideration Order, and petitioners do not contest the
Commission's separation requirement with respect to digital
navigation devices. Petitioners' objections, then, concern
only the application of the separation mandate to a rather
narrow class of navigation devices: "hybrid" converter boxes
capable of processing both analog and digital signals.
The first of these arguments, to which petitioners devote
much effort, is that the separation requirement violates the
"Eshoo Amendment," Congress's 1996 modification to section
624a of the Communications Act. See 47 U.S.C. s 544a.
Section 624a, passed by Congress in 1992, directed the Com- mission to take steps to facilitate the compatibility of cable
systems with consumer equipment, such as televisions and
VCRs. The Eshoo Amendment, apparently animated by
concerns that the FCC was using its power under section
624a to impose technology-forcing technical standards on the
cable industry, required the Commission to "ensure that any
standards or regulations developed under the authority of
this section to ensure compatibility between televisions, video
cassette recorders, and cable systems do not affect features,
functions, protocols, and other product and service options."
See 47 U.S.C. s 544a(c)(2)(D). Petitioners argue that the
Commission's requirement that cable providers provide a
hybrid security module constitutes a de facto mandate that
the industry adopt a particular protocol, the EIA-105 Deco- der Interface, that violates the "letter and spirit" of the
Eshoo Amendment. Indeed, they inform us, it was a concern
about the Commission's adoption of that very interface in an
earlier proceeding that prompted Congress to pass the Eshoo
Amendment in the first place. Cf. Compatability Order at
4127.
Even granting the dubious proposition that the Commission
has mandated the cable industry's use of the Decoder Inter- face in the proceeding under review,8 petitioners' argument is
__________
8 The Commission insists, quite plausibly, that it has done no
such thing. Its regulations make no reference to the Decoder
Interface nor to any other particular protocol; to the contrary, they
foreclosed by the text of the provision on which it relies.
For, as the quoted language above demonstrates, the Eshoo
Amendment applies only to regulations promulgated under
section 624a's equipment compatibility provisions; its limita- tions simply do not extend to the Commission's actions in this
proceeding which were pursuant to section 629's independent
grant of regulatory authority. Nor do we find the legislative
history inconsistent with that precise textual analysis of the
statute. Although Representative Eshoo by letter to the
Commission sought to support petitioners' interpretation, that
"legislative future" is of almost no value, see United States ex
rel. Long v. SCS Bus. & Technical Inst., 173 F.3d 870, 878-79
(D.C. Cir. 1999), modified, 173 F.3d 890 (D.C. Cir. 1999), and,
in any event, contradicts her statements at the time of the
bill's passage, see H.R. Rep. No. 204, 104th Cong., 1st Sess. at
215 (1995) (Additional Views of Rep. Eshoo) ("[M]y amend- ment does not affect section 203 [of] H.R. 1555, which assures
that 'set-top' boxes will be made available to consumers
through retail stores.").
We also are unpersuaded by petitioners' contention that the
Commission's application of the separation requirement to the
analog security components of hybrid devices impermissibly
"jeopardizes" cable security in violation of section 629(b). As
the Commission properly observed in its Reconsideration
Order, see 14 F.C.C.R. at 7605, if the analog separation
requirement will violate section 629(b) in every case, without
regard to specific evidence of security risks, and if commer- cial provision of integrated boxes in fact creates excessive
security risks, then the very mandate of commercial availabil- ity itself violates section 629(b)--which is another way of
saying that section 629 violates section 629, at least with
respect to those navigation devices accessing the dominant
category of cable programming at the time of the 1996 Act's
__________ require only the industry's development of a "commonly used
interface or an interface that conforms to appropriate technical
standards promulgated by a national standards organization." 47
C.F.R. s 76.1204(b).
passage. We certainly understand the Commission's reluc- tance to conclude that section 629(b) requires this result.
Moreover, while petitioners proffer ample evidence--evi- dence uncontested by the Commission, see Reconsideration
Order, 14 F.C.C.R. at 7605-that analog navigation devices are
more vulnerable to attacks by cable thieves than are their
digital counterparts, it does not necessarily follow that pack- aging that security hardware in a separate module, as op- posed to as an embedded part of an integrated converter box,
"jeopardizes" analog security. After all, in both situations
the security components themselves remain under the pro- prietary control of the cable operator. Petitioners do point to
comments in the record explaining how the existence of a
standardized industrywide common analog interface would
increase the risk of theft by "restrict[ing] the development of
security improvements" or by "necessarily reveal[ing] infor- mation about the proprietary technology used to provide
security." Telecommunications Industry Association Petition
for Reconsideration at 4-5; Comments of Ameritech New
Media at 4. Conclusory statements like these are, however,
insufficient to establish that the Commission's separation
requirement would "jeopardize" the cable security of opera- tors providing hybrid service--a standard which, as we dis- cussed above, requires a showing of a substantial, as opposed
to slight, risk of harm.
Petitioners bring one final argument against the FCC's
application of the separation requirement to hybrid navigation
devices. As noted above, the Commission had originally
required all cable operators, including those offering analog
programming service, to offer a separate security module.
See Navigation Devices Order, 13 F.C.C.R. at 14793. Con- vinced by comments that analog programming was rapidly
becoming obsolete, the Commission reversed itself on rehear- ing, and indefinitely deferred the separation requirement with
respect to analog-only navigation devices. It did not, howev- er, extend this exemption to hybrid devices, which are capable
of processing both analog and digital signals. See Reconsid- eration Order, 14 F.C.C.R. at 7603; 47 C.F.R. s 76.1204(f).
Petitioners argue that it was arbitrary and capricious for the
FCC to treat analog-only and hybrid devices differently.
This claim is based on petitioners' contention that "the
same factors that the Commission identified as supporting the
exemption of analog-only devices ... apply with equal force
to the analog security component of 'hybrid' devices." But
this is an overstatement. The Commission did not abandon
its separation mandate for analog-only devices out of concerns
over the security problems inhering in an analog security
interface. See Reconsideration Order at 7601-03. Nor did
the Commission base its determination on the research and
development costs of a common analog interface per se.
Instead, the agency did not think it worthwhile for the
industry to construct a separate analog security module (not
merely an interface) that "will soon be obsolete" because of
the industry's transition from analog to digital programming.
Id. at 7602. The competitive access mandate of section 629(a)
would be more sensibly satisfied, the Commission reasoned,
by focusing the industry (and the FCC) on the equipment
capable of processing digital signals. See id. at 7602-03.
Equipment, that is to say, like hybrid navigation devices.
The Commission found that, unlike analog-only equipment,
hybrid devices could interfere with competition in the
digital marketplace. If hybrid devices were included in
the deferral, it is more likely that subscribers would lack
incentives to look to the marketplace for a digital naviga-
tion device if their equipment choice to receive all ser-
vices was either to lease a box from the [cable operator],
or to purchase a digital box at retail and obtain a
separate analog box and a digital security module.
Id. at 7603. In other words, the Commission thought that,
because of their ability to access digital programming, hybrid
devices would likely find a market in the future--a distinction
that explains the Commission's differential treatment of ana- log-only and hybrid devices. Petitioners respond that the
Commission offers inadequate evidence to support this as- sumption about the hybrid navigation devices market. While
the Commission's order is hardly a model of comprehensive- ness on this point, we disagree that its conclusion is unsup- ported by the record. A coalition of electronic retailers that
supported the Commission's decision to exempt analog-only
devices argued that many cable systems will be hybrid "for
the foreseeable future," and thus should be not exempt from
the separation requirement. Written Ex Parte Presentation
of Circuit City et al. Moreover, the Commission's concern
about hybrid devices "interfering with competition in the
digital market" appears well-grounded in common sense. As
intervenors observe, the ability to offer an integrated "hy- brid" box capable of accessing digital programming might
encourage cable operators to incorporate outdated analog
functionality into their navigation devices in order to avoid
the digital separation requirement. We therefore reject peti- tioners' final challenge to the Commission's separation re- quirement for hybrid navigation devices.
* * * *
For the foregoing reasons, the petitions for review are
Denied.