Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01312/USCOURTS-caDC-99-01312-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
General Instrument Corporation
Petitioner
United States of America
Respondent

Document Text:

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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.

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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 Commission, 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, Robert 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 boxes 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 Communications 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 "converter" box. Converter boxes are the most common instrument

("navigation device") that provides access to cable programming or other multichannel video programming services.1

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1 "Multichannel video programming services" include not only

cable programming but also other services that provide multiple

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The typical converter box performs an important security or

"conditional access" function, containing embedded technology 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 subscription 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 consumers 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-

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channels of video programming, such as direct broadcast satellite

service. See In re Implementation of Section 304 of the Telecommunications 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 requirement), 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 complexity involved in digital signal delivery methods, digital programming 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 distributor from also offering converter boxes, interactive communications 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

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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 availability" with section 629(b)'s prohibition against any Commission

action that would "jeopardize" the security of cable programming. 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 customers. But the Commission offered a possible alternative that

it thought might "assure commercial availability" of navigation devices without posing a major risk to cable security. It

noted that

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3 See In re Implementation of Section 304 of the Telecommunications Act of 1996, Commercial Availability of Navigation Devices, 12 F.C.C.R. 5639 (1997) ("Notice of Proposed Rulemaking").

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[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), permitting 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 adopting this proposal. See In re Section 304 of the Telecommunications Act of 1996, Commercial Availability of Navigation

Devices, 13 F.C.C.R. 14775 (1998) ("Navigation Devices Order"). Cable operators were directed to make available separate 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 commercially 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 functions. After a lengthy discussion of technological alternatives, the Commission, noting the "dangers of detailed government standard setting," left it to the cable industry and its

national standard-setting organizations to develop the appropriate interfaces.

The FCC did more than impose this separation requirement on cable operators. The question remained concerning

precisely what equipment cable operators would be allowed to

provide. In addition to mandating the "commercial availability" of converter boxes, section 629(a) states that the Commission "shall not prohibit" cable operators from providing those

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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 providers] 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 available 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 functions, which could in turn be combined with the security

module by the consumer.

Commissioner Powell wrote a separate statement dissenting in part. While he agreed with the Commission's requirement 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

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sions it reached in the Navigation Devices Order.4 It deferred indefinitely the July 2000 separation deadline for navigation devices providing access to analog video programming.

Finding a consensus among commenters that the cable industry 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" converter boxes capable of processing both analog and digital

signals. The agency, over the protestations of commenters in

the cable industry, maintained its prohibition against integrated 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 Reconsideration 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 separation 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 equipment, and other equipment used by consumers to access

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4 See In re Implementation of Section 304 of the Telecommunications Act of 1996, Commercial Availability of Navigation Devices, 14 F.C.C.R. 7596 (1999) ("Reconsideration Order").

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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 scrutiny. 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" secuUSCA Case #99-1312 Document #521473 Filed: 06/06/2000 Page 8 of 17
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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 somewhat 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 consistency 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 Commission's interpretation which is easily a permissible one.

We move on to petitioners' alternative (but related) statutory theory: that section 629(b)'s prohibition of regulations

"which would jeopardize security of multichannel video programming" precludes the Commission's integration ban (emphasis added). It is argued that evidence in the record

indicates that "embedded security currently contained in integrated 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) (defining "jeopardize" as "to expose to danger (as of imminent loss,

defeat, or serious harm): Imperil"). In any event, we do not

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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 navigation devices.5 Regardless of our disposition of the Commission'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 insufficient 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 economic policy decision to ban the sale of integrated devices was

unsound--essentially to echo Commissioner Powell's thoughtful 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 requirements 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 availability 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 Implementation 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) ("Compatability Order").

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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 statement 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 petitioners did not assert in their briefs that the Commission's

integration ban was arbitrary and capricious. At oral argument, 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.

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did make a Chevron argument in their opening brief, and

although it was phrased in Chevron step one terms, it necessarily implied a step two argument as well, and a step two

Chevron argument is close enough to an arbitrary and capricious claim. Even granting petitioners' point that its statutory 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 arbitrary 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 mischaracterization of an argument, but rather of a party raising an entirely

new argument--the reasonableness of the Commission's economic 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 Commission's requirement that cable operators provide separate

security modules. As mentioned above, the Commission exUSCA Case #99-1312 Document #521473 Filed: 06/06/2000 Page 12 of 17
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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 Commission 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 Decoder 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 Interface 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

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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 limitations 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 amendment 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 commercial provision of integrated boxes in fact creates excessive

security risks, then the very mandate of commercial availability 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).

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passage. We certainly understand the Commission's reluctance to conclude that section 629(b) requires this result.

Moreover, while petitioners proffer ample evidence--evidence 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 packaging that security hardware in a separate module, as opposed 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 proprietary 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] information 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 operators providing hybrid service--a standard which, as we discussed 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. Convinced by comments that analog programming was rapidly

becoming obsolete, the Commission reversed itself on rehearing, and indefinitely deferred the separation requirement with

respect to analog-only navigation devices. It did not, however, extend this exemption to hybrid devices, which are capable

of processing both analog and digital signals. See Reconsideration Order, 14 F.C.C.R. at 7603; 47 C.F.R. s 76.1204(f).

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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 navigation device if their equipment choice to receive all services 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 analog-only and hybrid devices. Petitioners respond that the

Commission offers inadequate evidence to support this assumption about the hybrid navigation devices market. While

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the Commission's order is hardly a model of comprehensiveness on this point, we disagree that its conclusion is unsupported 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 "hybrid" 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 petitioners' final challenge to the Commission's separation requirement for hybrid navigation devices.

* * * *

For the foregoing reasons, the petitions for review are

Denied.

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