Evolution Broadband employees were no doubt euphoric yesterday when the Federal Communications Commission notified the company that it was granted a three-year waiver for two of its low-cost set-top boxes.

The FCC found that Evolution’s waiver request met the criteria for the limited-capacity standard that was in its 2005 Deferral Order.

The waiver, which was the first of its kind, means that Evolution Broadband can offer its DMS-1002 and DMS-1002 CA boxes in a price range of $44-$50 per box to cable operators, as opposed to the more advanced set-top boxes with separable security that cost several hundred dollars each.

Evolution BroadBand DTA

The FCC’s integration ban went into effect in July 2007 and required that cable operators deploy set-top boxes with removable CableCards, which drove up the prices of those boxes.

With Evolution’s digital terminal adapters (DTAs), cable operators can reclaim bandwidth from their analog tiers by moving to a digital environment, while allowing some of their customers to continue using their analog TV sets.

"The FCC's action will allow small cable operators to take their systems all-digital at a much faster pace, because now they can deploy set-top boxes that will cost about $50 instead of several hundred dollars each," said American Cable Association President and CEO Matt Polka. "Under this ruling, cable's transition to digital, which the federal government is not subsidizing as it did for TV stations, will be far less costly for cable customers in this economically stressful time." 

The Evolution boxes in the FCC’s waiver are one-way, limited-capability devices that don’t support advanced technologies and services such as interactive program guides, video-on-demand and pay-per-view. While the FCC delivered the news yesterday to Centennial, Colo.-based Evolution, the decision was dated May 28.

“We submitted a waiver for our DTA with the FCC about a year ago,” said Evolution President Brent Smith. “The whole idea was as opposed to the typical cable operator seeking a waiver for his system, we looked at the letter of the law in terms of the integration ban and it left an opening for the integration of security on a basic, limited-capability box.

“We now have the ability to go to any cable operator and provide them with the DTA converter with integrated security, and not basic security. We’re using Conax’s conditional access, and we can provide full security, where if you wanted to have a few premium services also running on the DTA boxes you can do that because it’s not the privacy mode functionality that currently exists with the Motorola and Pace boxes.”

The FCC indicated in Evolution’s waiver that it would look favorably on granting similar waivers to Evolution’s DTA competitors such as Pace, Motorola and Thomson, all three of which have been mentioned in Comcast’s deployments of DTAs (story here).

“Pace and Motorola and Thomson, as their DTA solutions pertain to Comcast, have the ability of enabling the box to run in a privacy mode, but because they didn’t have a waiver, they were running it only in the clear,” Smith said. “So it’s conceivable based on the FCC’s decision that it will look at anyone else who meets the same criteria as far as limited capability is concerned and grant waivers for those boxes, as well, but they’re based on a basic, fixed key privacy mode security.”

The Consumer Electronics Association opposed Evolution’s waiver request on several counts: “CEA asserts that granting Evolution's request would undermine the goal of a competitive market for navigation devices at a critical time,” the FCC wrote in its decision. “CEA argues that as cable operators are deploying an increasing number of digital set-top boxes, allowing them to rely on a security technology that is not available to competitive set-top box manufacturers would remove the market and regulatory incentives that cable operators have to support competitive CableCard devices."

The CEA also said that if granted the waiver, Evolution would be able to offer its devices to cable operators nationwide, and that would have a detrimental effect on the retail market for navigation devices.

Evolution said that the retail market for navigation boxes was “nearly non-existent” in its reply to the CEA’s claims, while the FCC disagreed with the CEA’s assertions.

Last week, Evolution announced a deal with TiVo to use the latter’s Series 3 high-definition set-top boxes (story here). Smith said Evolution can cover the market with its lower-end DTA boxes with smartcards and use Conax’s CableCards in the higher-end TiVo boxes.

The TiVo deal will give cable customers access to Internet content from the likes of Amazon and Netflix, which Smith said gives smaller cable operators a VOD-like service without the expensive network equipment.

“There’s a large investment that has to be made to reclaim bandwidth by using DTAs, and there was such a cloud of unknowns related to being able to deploy with security because most of these operators really would rather have all of their services secured on the network as opposed to running even the basic stuff in the clear,” Smith said. “This waiver now enables us to aggressively go out there with confidence to package all of this together. We have one particular operator who we will be able to announce over the next six weeks who plans to do a very broad deployment of our turnkey solution, including TiVo.”

More Broadband Direct 06/03/09:
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•  Dish ordered to pay TiVo $103M plus interest
•  McDowell re-appointed to FCC; transition rules tweaked
•  VOD specialist Imake appears shuttered
•  Verimatrix, HFCNet team up on Cablemás' hybrid network
•  OpenTV committee spurns Kudelski's buyout bid
•  Sigma Designs signs on CE partners for whole-home networking
•  Tessera signs Motorola royalty terms, ups outlook
•  Much riding on success - or failure - of Palm Pre
•  MobiTV: 7M and counting
•  Broadband Briefs for 06/03/09