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10/25/2012 3:30:00 PM
Judge wants to ban charges for cable boxes

Howard Fischer
Capitol Media Services

PHOENIX -- A former state Supreme Court judge is hoping to get what he believes is a little justice of his own for himself and other Arizona cable TV subscribers.

Stanley Feldman is asking a federal judge to ban the practice by Cox Communications of forcing those who are buying the company's premium service to also rent a set-top converter box at an additional $6.99 a month. He charges through his attorneys that the practice is not just unfair and expensive but also violates federal law.

But the lawsuit seeks to do more than simply halt the practice. It asks Judge Hector Estrada to order the company to "disgorge the profits it has made from its wrongful and illegal conduct alleged.'

Todd Schneider, Feldman's attorney, acknowledges that the premium services offered by Cox -- and other cable companies -- works only because there is a set-top box to do the required two-way communication between the customer and the service. That enables things like the interactive programming guide, on-demand movies and pay-per-view special events.

And forget about high-definition digital reception without a box.

But Schneider said there is no reason that Cox cannot sell the box outright, figuring it probably costs the company only about $200. And if the useful life of the box is five to seven years, the lawsuit says, that means those $6.99 monthly fees pay off the cost in less than 2 1/2 years, "leaving Cox with a minimum of 2 1/2 years of pure profits and consumers with a substantial loss.'

Schneider also said there also is no reason that customers cannot buy their own boxes -- at least not technically -- from another vendor.

He said all set-top boxes use the same basic technology and components. What is happening, Schneider said, is that Cox has set up its system so those third-party boxes just won't work on its system.

The outcome of the lawsuit could end up affecting more than just customers who want more than basic cable.

The Federal Communications Commission earlier this month rescinded its rules which until now have precluded companies that provide a digital signal from scrambling basic cable, responding to concerns by companies about theft of cable services. The net result could be that all cable customers may eventually need a set-top box -- and eventually be forced to pay an extra monthly fee.

Similar lawsuits are playing out in other states against some other major cable companies.

On an initial inquiry, Andrea Katsenes, a Cox spokeswoman, said there were technical reasons that customers had to use Cox-supplied boxes. And she promised to provide answers to why consumers cannot purchase the boxes outright.

But Katsenes subsequently said the company will not comment on pending litigation, saying in a prepared statement that company's business practices "are straightforward, fair and in full compliance with applicable state and federal regulations.'

The idea for the Arizona lawsuit did not originate with Feldman. It actually started out as a nationwide class-action lawsuit against Cox.

A federal judge in Oklahoma rejected the company's bid to dismiss the complaint.

But the court concluded a nationwide class-action lawsuit was not appropriate, suggesting that customers and their attorneys bring individual complaints in their home states. Feldman said the lead attorneys for that nationwide lawsuit sought him out to be the lead plaintiff here.

At the heart all the lawsuits is the federal Sherman Act which deals with illegal "tying arrangements.'

In essence, the contention is that customers can get premium service from Cox only if they also agree to pay the company the extra monthly fee for the set-top boxes.

The Arizona lawsuit also charges Cox with violations of this state's own anti-trust laws.

Schneider, who is spearheading the litigation, acknowledged that Cox has no monopoly on television reception. Aside from the option of off-air reception -- and the limited number of local channels -- there also are companies offering TV programming by satellite.

But Schneider said all that is legally irrelevant.

"The legal question is something called 'market power,' he said.

"Do they have the ability to raise prices without losing customers?' Schneider explained. "If the answer to that is 'yes,' then they're not allowed to tie, which is what the argument is in this case.'

He also said that a company's market share, if large enough, gives it the market power that limits the ability to force customers to rent or buy products they do not want to get those that they do.

Schneider also dismissed any technical argument that Cox might make about why it needs to be the sole source of any set-top boxes attached to its cable system.

"The boxes that we have in our houses are built by third parties,' he said.

"They're not built by Cox,' Schneider continued. "Cox didn't invent anything.'

And Schneider compared company claims to those that used to be raised by the phone company years ago when it insisted that only its own equipment could be hooked up to the phone lines -- and that equipment had to be rented and could not be owned.

Todd Smith, a spokesman at Cox headquarters in Atlanta, said his company's basic cable subscribers have no immediate need to worry about having to get a box.

Smith said the FCC order allowing encryption applies to companies that deliver only digital signals. He said Cox provides both digital and lower-quality analog signals and cannot legally scramble basic signals unless and until it drops its analog service.

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