>> host: and this week on "the communicators," a discussion of the fcc's proposal to open up the set-top box market to competition and what that might mean for consumers and businesses. joining us are two guests on different sides of this issue. george ford is with the phoenix center where he's their chief economist, and mark cooper is the research director for the consumer federation of america. mr. cooper, what do you think about what the fcc has proposed? >> guest: we think we need competition in the set-top box market. the '96 act that we want competition, competition, competition, some places it's worked, some places it hasn't, this is one place where it

really hasn't, and we think consumers would have lower prices and more choices if we got vigorous competition into that space. >> host: george ford. >> guest: well, the fcc's nprm asked the question whether the set-top box is competitive, the first question x. actually the first question is, is there a market for set-top boxes, and in terms of what's delivered over the cable network, no, because the set-top box is actually a component of the network. that's the most efficient way to design and deliver cable television service, so it's the cheapest way to do it, the most efficient way to do it, is so no market has developed. the companies would prefer a market if it was more efficient to do it that way. >> host: let's bring in lydia beyoud as well, she is with bloomberg bna where she coffers telecommunications. >> thank you. so to follow up on both of your questions, chairman wheeler in introducing this proposed rule

said he want withs to open up -- wants to open up what's been a closed market and make it more like the market where consumers can buy their own devices as we have seen with mobile phones, tvs and other electronics. do either of you think there is something different to that analogy that would make it such that this proposal would or wouldn't work? >> guest: we think it clearly is the perfect analogy. you have an interface between the device and the network that has been closed. it's been impossible for people to sell across that interface. it's just like computers or modems or software systems, the microsoft case was about that interface. and the courts said open the interface, and you get competition. we've seen that time and time again. remember the old telephone market, at&t used to say no one can plug a foreign, a piece of foreign equipment into my network, it'll blow it up. and, of course, they were wrong. we opened it up, and we got tremendous competition. that's the perfect analogy.

open the interface, and we think you'll get a lot of competition and innovation for the device without harming the network. >> guest: well, you look at the set-top box, and rather than making a judgment are about whether it is or is not like the other things, look at it and say, well, it's not behaving like the other things, and why might that be. and the answer is it's not like the other things. it's not like a cable modem which you could buy from best buy if you wanted to. it's not like a telephone either in the fact that these devices are a secure link which secures property that is delivered over it which is copyrighted content and also prohibits theft of the signal because it's scrambled. so it's not the same thing by any stretch of the imagination. it's also a very important part of managing the quality of the network for the cable operator. if you call the cable operator

and say your service is down, first thing they do is say let me hit your box and see what's going on. rather than trying to convince you of why is it different than other things, why is this different from a cable modem, for example, where you're perfectly able to buy one at the store and use it even though only 15% of people do. >> host: mr. cooper, what's your response? >> guest: well, you know, that's what they always say. we have to be integrated to protect it, and the answer is the way the order is written, the way the law is written you will protect the quality, you will protect privacy, you will protect the advertising stream. and letting people connect is exactly what has been the issue with the home recording industry. they wanted to stop vcrs, they wanted to stop mp3 players. there'll be theft. well, they can defend themselves, and they've won all

those cases, but the court has never let them dictate technology to protect their copyright, and for us that's a critical point. the marketplace just opens the system up because there's a lot of value in consumer choice there. this is exactly the same thing. it has worked so many times that the, the question is should we experiment? the answer is, absolutely yes. if it goes wrong, we can close the door. we honestly believe it won't go wrong because of that experience every place else. >> host: george ford? >> guest: well, it has gone wrong. the reason that the telephone companies were opposed to the telephone was that the whole system was regulated, and the telephone was part of the scheme, and it created an incentive to want to keep the phone as part of the network. so there are significant differences between that experience and the other. you also had to look at who is really opposing the chairman's proposal, and that is the copyright industry. they're very concerned that this

program is going to threaten their livelihood. and there's also, what's interesting about this case is that normally when a new company comes along that wants to use video content, for example, when the phone companies began operating in the cable business or when netflix came around, is that the copyright industry then had a new customer, right? i sat down with these guys, we did a deal, we created new things, you know? and so they had an expanded base, a customer base for the copyright products. now what the fcc wants to do is say, no, comcast can buy it, and then whoever wants access to that can have it. no compensation. you really don't have to pay a whole lot of attention to the contracts that are written. and so the programmers -- or the program content people are thinking, wait a minute, this isn't, this isn't really right and fair, and it's really confiscation of our property. and i think really what happens

to this whole program is it runs square into the law of copyright law. the fcc has no authority to implement copyright law, and this is a pretty clear violation of it. >> well, to follow up -- >> guest: that's absolutely wrong. when someone puts an independent third-party set-top box there, it does not erase the relationship between the cable company and the consumer. you don't get it for free. you still have to pay your cable bill. your paying the -- you're paying the bill to the cable company, you just don't have to pay the company for the set-top box. so there's exactly the same compensation the day after as there was the day before. >> guest: that's not true at all. what these companies want to do is to take the content and do something to make money with it, to make profit with it, okay? you make profit with copyrighted content, you have to compensate the content owner. google isn't in this business to deliver service for free, you know? they want to be in the business so they can monetize whatever information they gather from

what the viewer is doing. well, where does the copyright owner get to play in this game of monetizing the use of this video content? so it's not the same thing. there's something else going on, otherwise nobody would be interested in doing it. >> so to allay the concerns that the content providers have in this proceeding, do either of you view a way that perhaps is an alternative to what the fcc has proposed in the rule, a google or any third party device or app maker could go and negotiate carriage contracts directly with the content providers? why do they have to go through the pay tv industry? >> guest: they may do that too. but that stream that is coming through the cable box, the set-top box today is going to continue. it is going to be almost impossible for anybody to monkey with that scheme, because that would require rebuilding an entire network to replicate what exists. now, would they put a piece of advertising in front of the

show? maybe. he thinks they own that. they don't own that. they get all the advertising in the show. they give people the ability to move around more quickly, absolutely. they don't own that ability. so they had their stream of revenue, they put their ads in, their ads will stay this. and now anytime someone else thinks of a neat way to place that, to spread it around like the slingbox, they hate that. but anyone who tries to think of another way to deliver that content exactly the way they provided it, they get very upset. oh, i could have monetized that for me. that's my money they're taking away. it's not. they made their deal, and other people are innovating and maybe gaining rewards for how they move the content around but not display. also this is a marketplace where money to be made in manufacturing, that has been monopolized by the cable market power. >> so we're already seeing pay tv providers delete or skip over

advertisements in the shows now, and is that a concern that consumers -- that they would have with this proceeding as well as it relates to copyright? >> guest: they have a right to defend their interest under the copyright act. but what they can't do, shouldn't do and the courts haven't let them do is use the communications act or even the copyright act to dictate technology. and so this debate about should consumers be allowed to skip ads? well, consumers do skip ads. they can turn it off, they can turn the sound off, and now we've got some technology that automates that. is that a radical change? should that be banned? well, the federal communications commission has no business being in the middle of the copyright act. they've been to court every decade numerous times to battle against technology. and the iron is they win their -- irony is they win their court cases, but they lose the economic war because the courts will not let them dictate the structure and nature of technology in order to protect their interests.

and so they work it out. now streaming music is the perfect example. that's the majority of their income. they make less money than they did before, they have much smaller costs than they did before. so that's the process under the copyright act. remember, it's a balance between the consumer interest and the creative arts and the copyright holder interests in getting enough revenue to continue to create. that's a different balance. the fcc's about communications, not copyright. >> guest: well, i think you pretty much made my point. when you make money using copyrighted content, then you owe the owner money. if it's in addition to the ones that are there, you must pay for that right. that's what a broadcaster is. they get copy can wrighted content, sell -- copyrighted content, sells advertisement around it. that's exactly the point.

you can't do anything, reorganize the channels, right? put a nicer front end on it. anything you do to make money is a violation of somebody else's right if you don't pay them for it. that's what the copyright law is. >> host: well, george ford, wouldn't opening up the market benefit the consumer by having competition where you can buy box a, b or c? >> guest: well, it wouldn't. the cable operator, the box is a cost to the try. it is not a benefit. it provides no profit. i mean, you can't take a product like video, which everybody wants, and add to it a set-top box which known wants and -- which nobody wants and become more profitable. that's insanity. they're trying desperately to get out from under it by moving to an app-based model. the industry was onboard with that. the pcc had -- the fcc had two choices here. the copyright industry and the cable industry and the rest of the providers were onboard with

it which would eliminate the box for all practical purposes or this other approach that is very complex and is going to experience significant resistance. and the fcc's always saying the reason the cable card didn't work by significant resistance by the industry. what the heck do you think they're going to do now? not only are they going to do it, but the copyright people are going -- what if the copyright industry says you can't give this information to a third party? you can't. okay? what is the fcc's program going to do, mandate that you can give it to a third party as a video provider? i mean, is that really legal to do that? i don't think it is. you're going to run into that. on the other hand, we could have just gone the other -- the chairman could have gone the other route and done it. but at a time when we're trying to just eliminate the set-top backs, if you read the nprm, it's almost like, whoa, whoa, whoa, we can't eliminate the set-top box because the statute

says i have to have a market for the set-top box, so i'm going to force you to keep it so we can have competition in it, which is a crazy idea. >> host: you referenced the cable card. what was that? >> guest: ing the cable card the first time they did this was a total disaster, a total failure. they had a security card, basically. the cable signal comes in from the head-in, it leaves the head-in, it's scrambled, you don't know what's there, it hits the set-top box, and they can see it. they decided we can pull out this security piece of it, right, and move it around in different boxes, okay? so then you could actually have a tv even that had a slot anytime, and you could slide this card in there, and it would descramble the signal, okay? and you could buy the little card, and everything would be fine. go get your market box from the store and plug this thing ask in. it was a mess. nobody bought the thing. i think half a million of the things were ever put into service.

people just quit making the technology really because consumers just really aren't that interested in it. they don't want -- they could buy a cable modem, and they just don't. you can buy a cable modem for $60, and they choose instead to rent it for $4, $5 a month. it's pretty obvious that they're really not that keen on that, but that costs billions of dollars to implement that program. nothing came of it. it was a disaster, and the fcc admits it's a disaster, and this is going to be a disaster too. this is the fcc's third try. the dog returns to its vomit, right? as the scripture says. and the fcc's coming righting back poo this almost -- you read the nprm, and you think no wonder the soviet union's failed. look at all this complexity. then the copyright -- >> guest: well, we'll have a fight. the copyright holders would like when i buy a book, they want to charge me every time i read it, and they certainly don't want me to allow to read it to a room full of kids. they want to get a quarter from

every kid that listens to that book. that's the model they like. instead of recovering their costs in the sale of the book or in this case the monthly subscription fee they get back from the cable operators. they want to have a copyright fight, let's have a copyright fight in the courts. we've had, as i said, the home recorder, the mp3 player, file sharing, we've had those fightses, and the world has moved on. the fact that they say, look, let's get rid of the is set-top box this way, it was a way to get rid of their bilateral monopoly. there'd be no competition in that space. they defined the way the programs come through. they define the way you search through the programs. i think -- and that's exactly what at&t said about the telephone. it's exactly the same argument. if you plug it in, it's going to blow the system up. and the answer is that it's just the way, it's the wall they put

up to defend their market power. and the commission has looked at statute. they said we've come 20 years later, we do things in software now. and so the cable card involved a physical thing and, actually, some people succeeded with cable cards. i believe tivo uses cable cards. but we no longer have that. so we have this new flexibility about how to do it, and we can control these interfaces. and that's much more efficient way to do it. and is so we can have security, fair protection of copyright and also competition. and that's what we as consumers, we care most about getting some competition in this space. >> guest: well, i mean, i think that was a gross misstatement of the copyright industry's take on books. they've never charged, tried to charge me for reading it to my children, and we've read the same books many times. but the question, the question is, is there such thing, i mean,

this is fundamental. is there such thing as a market for set-top boxes really, or is it just part of the network? now, we can draw regulatory distinctions at house and say the cable network ends outside your house and all the inside stuff is yours, but that's just an artificial regulatory distinction, okay? is that thing separate and apart from the network? it's really not. the other thing is now we've actually got a realistic possibility to move to a software-based solution to this and get rid of the thing altogether, but that's not good enough for some reason for the fcc. and i think the reason's pretty obvious. that's a very valuable piece of information that traverses that cable wire and comes into somebody's house, particularly when you know what they're watching and what they're not. there's a huge opportunity to monetize, okay in and the fcc is not going to let that to go, okay? they're going to let somebody else in there which, of course, is the problem the copyright people have was they should be able to charge when somebody makes money with their product.

there's nothing illegal or wrong-headed about that. it is their property, okay? there is a software solution that can be implemented here. why is that not good enough? why can't we get rid of the set-top box altogether? i already have. charter communications actually provides an app for me that i can use on roku. why isn't that good enough? >> host: let's get the next question from lydia beyoud. >> guest: if you expose the api on that software solution to other people, i'd be fine with it. >> guest: that's not what the fcc's saying to do. >> guest: well, they reject it, but you guys didn't -- >> guest: they rejected it. >> guest: but you didn't offer it -- >> guest: they did offer it. i don't offer anything, i don't provide -- >> guest: they did not offer an open interface. >> guest: here's my app, open your roku box which is a competitive business, hit on the comcast app and -- >> guest: you still have to the permission from the cable operator --

>> guest: what you cannot do -- >> host: let's get lydia beyoud in here from bloomberg. >> here's a question to follow up again, and the copyright a little bit more, bun of the most criticized aspects of this proposed rule is it is not clear how copyright holders would be able to enforce that copyright if a third party were to either change the program's neighborhood where it sits in relation to other channels or layer certain types of content and is enforced through their contract. so could you describe a little bit about what the fcc has imposed -- it sounds like a self-certification regime -- and how that wouldn't work because when the fcc says, well, if there's a violation, the pay tv

provider can turn off the device, but the industry has said that ultimately harms the consumer -- >> guest: well, the point is the fcc has laid out a program where you have to have permissionless innovation. if i have to ask the cable operators whether or not i can do something, you know they're going to make my life miserable. they've been doing this for 50 years. and we use this for wi-fi, there's a simple certification procedure where the device was intended to do certain things, and they would certify that. and you know what? the cable guys and broadcasters know pretty quickly if someone is violating those obligations. and they have given the ability of the cable operator to say if you can show, if you understand, if you see that they're violating those obligations, you can turn them off. so there's the enforcement mechanism. but if you have to have permission of the cable operator

before you can get to the customer, you're doomed. so we have to cut through that. we cut through that by giving them the protections if you see something that you think violates our rules, you can stop it, and then we'll litigate it. well, you know, the copyright holders are clearly willing to litigate on their side. so that's the mechanism. innovation first, litigation later. >> but does that not harm consumers? because a consumer would be more likely to hold their pay tv provider, the one they give the money to, responsible even if the chokepoint was at the app or device of the third party. >> well, the consumer will be harmed if the consumer really wanted that to happen. and one suspects a lot of consumers would complain in disney's case, right? they're not shy about sending the fcc letters when they see stuff they don't like, all right? so the kissny case, if one -- disney case, if someone puts something on top of a kids'

show, the fcc will hear about that in the blink of an eye, and the cable operator will be authorized to stop that in the blink of an eye. and then we will sort the facts out, right? but the point is that so i don't see the harm in allowing the innovation and e competition to take place first and then let's see if there are abuses. we've had the cable card, and it hasn't been as popular as we had hoped, but they've been out there for a while, and you don't have a boatload of complaints about it. the only people who complained about it were the copyright holders who lost a stream of income that if they had been smart enough, they might have been able to capture. that's what this is about, capturing streams of income and making up horror stories that are supposed to scare somebody into not allowing open competition. >> guest: that's exactly what it's about, capturing income from somebody else's property. that's exactly what this is about, and doing it without having to compensate them at all.

i mean, if you really break it down, that's what it's about. but i think your question really drives the point home as to why the box market looks like it does today or the box looks like it does today. these are very complex contracts between distributers and copyright owners, and the copyright is a right. this is something they own. it is property, okay? these are very complex contracts. if i don't know how that signal is being treated at all times throughout the entire chain, then i don't have the confidence that it's being treated properly. that's really what it's about. that's why you see it look like it does, because you really have to maintain very tight control. how in the world is either the copyright industry or the cable industry going to know if somebody is distributing boxes over ebay that allow you to do things you shouldn't be able to do like plug a usb thumb drive in the back of the thing and copy an entire movie to post on the internet? how are they going to know?

are they going to put every single person inside somebody's house? i mean, god knows what'll come out of china that can translate this stuff. i mean, it's -- and you can imagine this wonderful world where all this stuff gets sorted out, but somebody's going to figure out a way around it. that's why the thing is closed like it is. and we use -- you see this underlying everything. open is good, closed is bad. that's not true. some things are better closed, some things are better open. and the market is pretty darn good at sorting out which is which. >> guest: we haven't had a chance to have -- i believe in markets, i don't believe in monopolies. he believes in monopolies. control, control, control. the copyright holders, there is no fair use. they want to say, no, you can't use it that way. so for us, every time we've opened one of these markets, you go back for 50 years from the phone where we let people plug a modem into the telephone network.

every time we opened one of those bottlenecks, we get good competition, we get consumer-friendly choice, and the industry moves on. now, sometimes the industry has to restructure. the music industry has restructured. americans listen to more music today at one-third the price than they did 20 years ago. because they hated singles. they don't want you to listen to singles, so you couldn't buy a single. that's exactly what they want to do with the video. we want this space to be open. we believe in competition. and we don't believe in this control, control, control. >> guest: show me what monopoly in this business. >> guest: set-top boxes. >> guest: no, no, no, no. >> host: let's have time for one more question, lydia beyoud. she's the only polite one at this table. >> is neither of you have really directly addressed one of the other big issues to this proceeding, and this is the idea that tech companies would be able to capture the sort of consumer information and develop

very tailored, very detailed profiles of your behaviors and combine that if, in the case of a google or an apple or amazon, with all the other information that they have on you and then sell that and monetize that. do you view that as any sort of problem? is that just the nature that the marketplace is heading in? >> guest: the fcc has a proceeding on privacy ongoing -- >> not for edge providers. >> guest: well, but let's be clear. the fcc has on authority over communications providers. they don't have authority over edge providers. and i guarantee you the minute i say the fcc should regulate the internet, he'll be screaming like crazy. the interesting thing is this is a chokepoint here that is really, really to tent. when i buy -- potent. when i buy something from netflix, netflix knows what aisle doing. -- i'm doing. they don't know when i buy

something for you, but the telephone, the communications network is part of that transaction. so all of those signals pass through the hands of the network operator. so that network operator has the greatest potential to abuse that information. when netflix does it, they have to go out and find it someplace else. it all comes through the hands of the telephone company. and that is the great threat to privacy, and that is what the fcc is working on. i think those privacy issues and will be dealt with in that oh -- other proceeding. maybe other privacy issues under other sections of title iii and title vi which govern the stream of video, but those are separate privacy issues. but the biggest threat to privacy is the guy who sees everything i do, and that's what the fcc -- >> host: final word, george ford. >> guest: i disagree. i have talked about that today. that is the whole basis of this, is getting to that information to monetize that information. that is the only reason. you're not going make money selling little boxes.

that is the only reason this is going on, is was the fcc is going to allow edge providers to moptize people's viewing habits -- monetize people's viewing habits. that's it. underneath it all, there it is. everything else is a distraction. >> host: george ford is chief economist for the phoenix center, formerly worked at the fcc in the cable bureau are. and mark cooper is the research director for the consumer federation of america, and he is also a fellow at stanford law school center for internet and society. lydia beyoud is with bloomberg bna. this is "the communicators." >> guest: thank you, peter. >> c-span, created by america's cable companies 35 years ago and brought to you as a public service by your local cable or satellite provider.

>> today the obama administration's immigration policy goes before the supreme court. the eight justices will hear oral argument in a challenge to president obama's executive actions on immigration that would allow some undocumented immigrants to stay in the u.s. we'll have cameras outside the court to see reaction from case participants and activity around the court with interest groups and possible protests. that's live at 10 a.m. eastern here on c-span2. >> now, democratic presidential candidate senator bernie sanders of vermont speaks at a campaign rally in brooklyn, new york. voters in that state cast ballots in their presidential primary on tuesday. the senator is introduced by actor danny devito. this is just under an hour. [cheers and applause]