By Clarece Polke
WASHINGTON (Reuters) - The Federal Communications Commission approved on Thursday a proposal to let consumers swap pricey cable boxes for cheaper devices and apps, a change that would boost competition in the $20 billion television set-top box market while delivering a blow to major cable companies.
The new rule, unveiled by FCC Chairman Tom Wheeler in January, would allow customers to obtain video services from providers such as Alphabet Inc, Apple Inc and Tivo, instead of cable, satellite and other television providers such Comcast Corp and Verizon Communications.
The proposal passed in a 3-2 vote, with three Democratic commissioners including Wheeler in favor and two Republican commissioners dissenting.
Wheeler said the proposal is the beginning of an "information-gathering process” in which the FCC will allow cable providers and other stakeholders a 60-day comment period. If implemented, the industry would then have two years to comply with the rule.
"Technology allows it, the industry at one point proposed something similar to it and the consumers deserve a break and the choice," Wheeler said at Thursday's FCC meeting.
The proposal has set off a frenzied lobbying battle pitting a tech industry eager to tap into the lucrative market against cable and TV companies, which could lose billions of dollars in rental fees for set-top boxes. Many of those industry providers spoke out against the measure after the vote Thursday.
"While consumers are embracing an apps-based approach that offers a variety of content on more than 450 devices, the FCC has chosen to go down a path that threatens the very competition and innovation that has led to this vibrant marketplace," said Bob Quinn, AT&T's senior vice president of federal regulatory.
Stanton Dodge, general counsel of Dish Network Corp, said: "It is really not clear to us that any new regulation is needed to encourage innovation and in fact would actually hinder it."
The FCC says 99 percent of U.S. customers now must get their boxes from their cable companies, and they pay on average $231 a year to lease the devices.
The commission has said opening the set-top box market to alternatives such as a smart TV or tablet would help lower prices for consumers, noting that set-top box rental fees have risen 185 percent since 1994.
The cable companies say the video marketplace is already evolving as more customers replace traditional pay TV services with streaming Internet video.
Underscoring the fierce industry battle and the FCC's concerns, the agency on Tuesday abruptly canceled a Twitter town hall where it was slated to detail the proposal and its impact on minority and independent programmers.
An FCC spokeswoman said the Sunshine Act prohibits outside parties from lobbying it on a pending item during the week before a full commission vote, and said the town hall would be rescheduled after the proposal was voted on by the commission and released publicly.
The proposed rule would require cable and satellite providers to give alternative device makers - their eventual competitors - access to cable and satellite programming.
While that is currently possible, cable and satellite companies often impose restrictions on third-party device makers, resulting in a virtual lockup of the market.
(Editing by Soyoung Kim, Steve Orlofsky and Leslie Adler)