Set-top boxes planned for deployment this year will marry digital programming, high-speed data and Internet content for display on analog and digital TV receivers.

Consumers prefer the quality of digital pictures and therefore digital television is a very competitive business. DBS providers of course distribute their programming in a digital format. I don’t need to remind you that DBS subscriber rates are rising rapidly, with more than 13 % of the multichannel video households now subscribing to DBS in part due to better picture quality. And recent changes in the law are likely to encourage that growth. Under The Satellite Home Viewer Improvement Act, DBS providers are able to retransmit local broadcast signals within the originating market—the "local-into-local" authority. The FCC will soon address must carry rules for DBS under a congressionally mandated schedule.

Broadcasters are trying to meet their schedules for the transition to digital. Over 100 stations are delivering digital broadcasts. Currently, there is a controversy over the modulation used for over-the-air transmission. These sorts of difficulties can be expected in any transition of this magnitude. But we are headed in the right direction.

I think we can all agree that the competitive market for digital television is developing rapidly. The public has embraced the transition and it is progressing—with some starts and stops—but it is progressing.

However, the transition to digital television is not easy for consumers. At present, a typical viewer must first choose a provider of digital service. If a consumer wants digital service but wants to keep the existing TV receiver, he or she must purchase a satellite dish and box or alternatively arrange with the cable company to install a new digital cable box, or purchase a DVD player. For over-the-air broadcast digital service, the consumer must purchase a new DTV receiver. The cable industry has long recognized that a tangle of wires and boxes with the attendant difficulty of interconnecting in-home equipment is not in our best interest. The consumer is ill served if these new digital services are incompatible. We have been working to solve the problem and considerable progress has been made and I want to spend my time today giving you a report on those efforts.

We have made considerable progress for two reasons: First, we are vigorously pursuing a strategy that recognizes the consumer’s needs as our highest priority. Second, we have been able to achieve new levels of inter-industry cooperation.

Each of these industries supports a very successful business and as businesses we are mutually dependent. The cable industry needs the computer software and hardware to put in the set-top box. The broadcast industry needs this same technology to provide advanced data and television service over the airwaves. The computer industry needs connectivity. Cable modems provide the high-speed interconnection that ends the worldwide wait. In order for the computer industry to continue its double-digit growth rate, new applications—for example—video, have been built into the PC. Who better to provide digital video to computers than the broadcast and cable industries? All of us need the consumer electronics industry. The next generation of TV sets is certainly adding to the entertainment value of services with clearer pictures and improved sound. Also, television sets will likely become display terminals for data supplied over the air and through the terrestrial networks.

Let me submit to you that based on the convergence of the digital technology that we are all using, we are working to build a national digital video system. As individual industries, we each are constructing a component of that system. But the system is made up of many components, including over-the-air broadcasting, cable, satellite, MMDS, etc. The system supplies multichannel television to the people of North America. And each of us provides a part of the distribution. The system gives the customer choice and we all compete on the basis of such attributes as content, price and quality. From our technology-based platforms, no one of us directly serves all the television receivers. But we are interconnected because we must use the same standards.

Competing for viewer attention and dollars is healthy. It builds strong and competitive businesses. Cooperation and collaborations on the technical interfaces within the system builds a sound cost-effective infrastructure. Both are in the best interests of the public and our customers.

One of our goals has been to work with manufacturers to develop specifications for set-top boxes, which will be available for retail purchase by July. Cable operators will provide separable security modules so that content can be adequately protected. Being able to protect content from misuse is an important principle in the digital world. It is now possible to make perfect copies and to transmit digital files around the world in seconds. Developers have told us that they will withhold content from all distribution systems that cannot provide the necessary controls to guarantee safe transmission.

If a first-run digital program can be immediately recorded from cable and replicated in perfect copies or webcast—without payment to the copyright holders, developers are not going to release their product for cable distribution. At CableLabs we are working to provide a technological framework which can be supported by a legal environment in which producers and the content community can be reasonably assured that their product will not be stolen. This is not to say that customers do not have a right to record material for their own use. Home recording is fundamental to customer satisfaction. However, we need to provide the technical tools that will allow legal duplication and use and prevent pirate duplication and distribution.

This brings me to the issue of the ever popular 1394 interface and the cable industry’s commitment to resolve the compatibility between television sets and cable equipment.

In the past, home video equipment has been connected to television sets using channel 3 or 4. Many existing set-top boxes, and video recorders work that way. But, these devices are all analog. The new generation of home equipment is, of course, digital. So we must have an equivalent interconnection for TV sets in the digital age. In other words, in the digital world, a DVD player or a digital set-top box should connect to a digital TV set via a digital plug. This is the only way to preserve the original quality of the material.

A consensus among industries has singled out the 1394 "plug," sometimes call "firewire" as the method of choice for connecting digital equipment to the TV set. The cable industry has strongly supported that choice and has specified 1394 connectors in the current purchase orders for our own digital set-tops. Also, we have included in our "OpenCable" specification an additional requirement that the cable 1394 connectors include digital copy protection technology called 5C. We have done this in order to preclude pirating of the pristine digital pictures. However, we cannot require this technology on equipment that we do not own. Therefore, we have tried to persuade the consumer manufactures to include the 1394 connector with 5C on digital television receivers. Many manufacturers have indicated that they will build to our specification, others may choose to build sets without this technology. We believe that this is a mistake, as it will lead to customer confusion about interoperability between cable services and television sets. It also will produce TV sets that may not connect to all digital video home equipment in the future.

The consumer electronics industry argues that it should have the option of building receivers without the added complexity and expense of the digital connector. We have agreed to disagree on this matter. As long as the sets are not marketed as "OpenCable compliant or compatible" or "cable ready" or other misleading labels. The marketplace must sort out the viability of television receivers that will not be fully compatible with cable services and non-upgradable for future equipment.

But the good news is that, currently, this is the only disputed technical issue. We greatly appreciate the dedicated technical effort by the consumer electronic manufacturers and the Consumer Electronics Association (CEA) to support the development of mutually acceptable specifications. And we are 98% there. The major elements of technical agreement necessary to produce compatibility between cable systems and television sets are complete. The paper documents needed to achieve this compatibility and to produce the retail set-tops and POD modules are complete. The next stage is to build and test the hardware.

We are supporting this second step by conducting interoperability testing. Together with manufacturers, we held an interoperability session in December to provide a venue for cooperative testing and development.

Nine major consumer electronics manufacturers joined five conditional access suppliers and three headend suppliers for interoperability tests of removable security technologies. This is a critical step in opening the cable set-top market to greater competition, and moving cable set-top circuitry into TVs and onto retail shelves. A significant level of interoperability was demonstrated when multiple POD modules interoperated with multiple set-top devices.

Three types of manufacturers participated: 1) those companies that produce "host" devices, such as set-tops, PC card receivers, and integrated TV receivers; 2) cable headend suppliers; and 3) companies that manufacture the"PODs," which take the form of slide-in PCMCIA cards used in personal computers. Following the laboratory tests, the manufacturers demonstrated these prototype modules, boxes, and TV sets at the CableNET exhibit at the Western Show. General Instrument and Scientific Atlanta showed POD-equipped set-top boxes. Some manufacturers, including Panasonic, demonstrated POD-equipped television sets in their booths at the Western Show and the Consumer Electronic Show. There was even a POD-equipped personal computer. I was encouraged by these demonstrations and I believe the cable industry has some confidence that the deadline will be met.

Still there is additional work to be done before July. As with any specification there are clarifications and corrections, which result from tests with real hardware. These revisions are currently being published. In addition there is significant manufacturing engineering that must be accomplished, but working with the commitment and support of the manufactures we are on track and I predict we will be on time with digital PODs compatible with boxes and other digital devices available at retail stores. We will continue to sponsor periodic POD interoperability tests up to the July deadline.

I want to talk briefly about the process that we have adopted to meet the FCC requirements and deadlines. We call the effort "OpenCable." As a project, OpenCable seeks to develop a new generation of set-top boxes that are interoperable and that offer a new range of services to consumers. A goal of the effort is to reduce the equipment development time to a minimum. We do this by working with equipment designers and manufactures to cooperatively prepare a specification that reduces the risk and development time. It is an open community process bringing together more than 400 companies to prepare and approve the specification. The recent Interop really confirms that OpenCable is on the same track that was so successful in the development of the DOCSIS standard cable modem.

When we formed DOCSIS, and made the decision to lead a standard-setting effort on behalf of the cable operating companies, it was something of a new experience for us.

It may be worthwhile to review that process for a minute. It’s relevant to OpenCable because it turned out to be a great success in enabling a retail market in cable-related equipment.

In starting DOCSIS, we set a goal, among others, of making possible the retail distribution of cable modems. It was a way to share the cost burden of deploying high-speed data, certainly. But retail also required that cable companies come together in a major way to agree on a fundamental technical platform common to all. The historical evolution of the cable industry had led to a patchwork of incompatible systems existing side by side. I can tell you that getting agreement on a common set of technical requirements was no trivial goal and no small achievement.

We acknowledged early on that we didn’t want to try to create this standard in a vacuum, so we enlisted the help of both our traditional vendor companies as well as consumer manufactures and data transmission companies. By including them as vendor authors working on various elements of the spec where they believed they had the most expertise, we think we ended up with a truly best-of-breed solution at the end of the day.

Once the outlines of the specification began to take shape, we started to plan an approach to interoperability testing. Again, we needed the expertise represented among the vendor companies. Those companies in turn acknowledged the value of beginning development efforts in parallel with the spec development. And further, CableLabs provided a venue allowing competitors to work side by side in development and with potential MSO customers on hand for real time feedback. We even invented testing tools on the fly as the need arose.

The value of this "pre-certification" testing showed up in a number of ways. For example, once we had prototype products attempting to interoperate, we could start to see how different implementations of the same spec could lead to incompatibilities, and were able to adjust the specifications accordingly.

And then as the specifications began to stabilize, we began a wave of interoperability testing that ultimately evolved into what we called "Certification Waves." And after a few tries, CableLabs certified the first two DOCSIS vendors. And now 12 months later, CableLabs has certified 13 different modem vendors, along with qualifying three headend vendors. There are now close to 30 more vendors participating in the next round of certification.

Starting from nothing, developing a specification and conforming product, including approval as an international standard, in just three years is an unprecedented accomplishment, and we’re proud of it. I have personally been involved in the setting of standards for the last two decades and I have never seen anything move this quickly. The DOCSIS process also proves that the manufacture and retail distribution of a standard cable product works. We believe that DOCSIS has been a win-win activity for cable operators, retailers and manufactures.

We’re also proud of the integrity of the certification process. I think that was important in maintaining the commitment of the participating vendor companies.

Now, the OpenCable team has worked very hard to take the experience of the DOCSIS effort and apply it in the design of the OpenCable process. It’s not an exact fit - the set-top environment is more complex, has a set of security and legacy issues that weren’t a problem in DOCSIS, and so on.

But we certainly believe that the some key aspects of the DOCSIS process are directly relevant:

So with that positive DOCSIS model in mind, let’s return to OpenCable.

The OpenCable process applies to a family of consumer devices. Although the initial focus is on advanced digital set-tops. We expect that this functionality will quickly migrate to integrated television receivers, consumer electronic devices, such as DVDs, DVCRs. As I mentioned, one exhibitor at the Western Show demonstrated a personal computer that used an OpenCable-compliant POD to access cable services for display on the PC screen.