The nation's pay-TV services — cable, satellite and fiber — have cornered the lucrative rental market for the set-top boxes needed to receive their programming, saddling consumers with an average of more than $231 a year in "hidden, hideously vexing fees," according to a new report.
Competition for this $19 billion-a-year rental market is virtually non-existent, according to the July 30 report by two Democratic members of Congress, Sens. Edward Markey of Massachusetts and Richard Blumenthal of Connecticut.
Based on a survey of the major pay-TV services, the senators estimate that approximately 99 percent of pay-TV customers rent the set-top box from their service provider. A single box rents for $89 a year and the average American household has 2.6 boxes, resulting in the average cost of more than $231.
"Consumers deserve protection against hidden, hideously vexing fees for set-top boxes," Blumenthal said in a statement. "As the world becomes increasingly connected and technology advances, new innovations must be able to break into the cable marketplace and provide the vigorous competition that drives down prices for consumers. Consumers deserve competitive options in accessing technology and television — not exorbitant prices dictated by monopoly cable companies."
The situation could get even worse for consumers.
The Federal Communications Commission (FCC) had hoped to spur this competition with a rule adopted in 1998 and finally implemented in 2007 that required cable companies to separate the tuning and security functions in their set-top boxes.
Security in the cable box is provided through a CableCARD. This makes it possible for subscribers to buy their own box and only have to rent the CableCARD from the cable company, typically for about $2 a month.
Congress voted to let this rule sunset expire at the end of the year. Cable companies applauded the move. The National Cable & Telecommunications Association (NCTA) calls the current rule "an unnecessary and expensive mandate that saddles consumers of cable leased set-top boxes with high cost and higher energy bills."
Markey and Blumenthal believe the end of the FCC's rule will harm consumers by discouraging electronics companies from manufacturing and selling set-top boxes.
"We (Congress) doomed consumers to being captive to cable company rental fees forever," Markey said in a statement. "We need a new, national consumer-friendly standard that will allow consumers to choose their own video box irrespective from their pay-TV provider. Consumers should not be forced to rent video boxes from their pay-TV provider in perpetuity."
The cable industry group called the statements by Markey and Blumenthal "inaccurate" and said they "misrepresent" the impact of the congressional action.
The NCTA insists the end of the FCC's rule will not affect the market for retail devices and will not result in the elimination of CableCARDs or the industry's support of the retail video device marketplace.
"In today's competitive video marketplace, American consumers have a growing number of choices of video providers and ways to access video content on multiple devices in and out of the home," NCTA said in a statement. "Retail devices, including TiVo, Roku and Apple TV, have been purchased by tens of millions of consumers. Pay TV and content providers have embraced the mobile marketplace and offer robust apps that have been downloaded 52 million times on Apple and Android devices."
TV viewers can cut their costs with streaming services, depending on how many programs they watch and whether they are willing to live with limited choices. (Consumer Reports recently reviewed three of the leading services — Amazon Fire TV, Apple TV and Roku 3.)
Consumers in many areas also can "cut the cord" and eliminate the need for set-top cable boxes by purchasing their own box for a one-time fee, purchasing indoor antennas capable of receiving UHF and VHF signals or by downloading TV shows and movies from the Internet.
TIVO opposed the move by Congress to end the FCC rule. Company executives believe the lack of regulation could limit future competition.
Nothing will change in the short-term — cable companies will continue to provide CableCARDs to outside companies, even if they don't use them in their own set-top boxes, Matt Zinn, TIVO's general counsel, told NBC News.
"But years down the road, retail devices could be left behind as operators move to different and potentially non-standard security solutions," he said.
As part of its sunset legislation, Congress told the FCC to create a committee to study what should be done to preserve competition in the set-top marketplace. The Downloadable Security Technical Advisory Committee (DSTAC) is scheduled to report to Congress by Sept. 4.
Consumer advocates hope the committee finds ways to boost competition in this lucrative market.
"We understand the FCC is taking a close look at this problem, and we hope policymakers and the cable industry can address this frustrating problem promptly," Delara Derakhshani, policy counsel for Consumers Union, said in an email to NBC News. "With cable rates increasing every year, consumers shouldn't have to pay excessive fees for equipment to get the content they want."
Edgar Dworsky, founder of ConsumerWorld.org agrees. Dworsky owns his Samsung HD cable box — he bought it two years ago for less than $100 and saves $10 a month in rental fees to his cable company.
These days, Dworsky said, it's nearly impossible to find any box for sale other than TIVO, which is a DVR with a monthly service fee.
"Why aren't manufacturers jumping in on this multi-billion-dollar business to make boxes that people can buy at the electronics store, instead of paying a high monthly rental fee?" Dworsky asked. "The market was flooded with phones, once people didn't have to lease them from Ma Bell anymore, but companies aren't making set-top boxes that compete with the cable companies. Why? I don't know what the answer is, but there's something wrong with the current system."