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Pirates Said Using Modern Business Techniques To Sell Illegal Electronics

June 16, 1988

WASHINGTON (AP) _ A pirate underworld that holds seminars in the Bahamas and advertises openly in publications is thriving on sales of illegal decoders to backyard satellite dish owners, according to industry officials.

Pirates are using modern business techniques, including the distribution of ″how to″ video tapes, to establish a sales network for the illegal electronics, J. Lawrence Dunham, a General Instrument Corp. executive, said in testimony submitted Wednesday to the House telecommunications subcommittee.

General Instrument makes the VideoCipher II decoder, whose electronics have become the de facto industry standard. Each of the three dozen or so cable programming services that have scrambled their signals can be decoded by the VideoCipher.

Industry leaders estimate that as many as half of the nearly 1 million decoders on the market have been illegally modified. With the illegal decoders, backyard dish owners can avoid subscribing to scrambled programming services like HBO, Showtime and other popular cable channels. Instead, they can pick up virtually all channels free.

Dunham said General Instrument has responded to the piracy with changes in the circuitry of the decoder, a public relations campaign to let dish owners know the penalties for dealing with the illegal electronics and an amnesty program that allowed dish owners to trade in modified units at no cost or legal risk.

″In spite of these efforts, piracy has continued,″ Dunham said.

Dunham said decoder pirates have held seminars in the Bahamas to exchange information, run technology centers to develop new ways to break the system and have tried to buy General Instrument’s proprietary chips from suppliers.

Bob Phillips, chief executive officer of the National Rural Telecommunication s Cooperative, said pirates are offering full services to the dealers and telling them the risk of getting caught is low.

And pirates are even making house calls, going ″door to door where they see the satellite dishes and offer their services. They will sell entire modified descramblers or modify your own unit at home,″ he said.

″Pirates are so competitive, they have even developed programs and systems to prevent other pirates from pirating from them,″ he said.

Sid Swartz, president of West Inc., a satellite TV retailer based in Mount Vernon, Wash., said illegal decoders are costing him business. Dealers can make a $1,000 profit on the sale of an illegal decoder, and buyers get a sky full of permanent free programming.

Legal decoders retail for $395, and users then must buy a program package, which for a variety of cable channels and a couple of premium channels costs about $250, he said.

″The consumer perceives no real value in complying with the law when all of his neighbors are apparently violating it with impunity,″ he said in testimony to the the House Energy and Commerce Committee panel.

Witnesses called for swift prosecution and punishment of pirates and tougher penalties. Currently, a first offense nets up to one year in prison and a fine of up to $25,000.

Charles C. Hewitt, president of the Satellite Broadcasting and Communications Association, said that should be increased to two years and $50,000 and five years and $100,000 for a second offense, he said.

The National Cable Television Association says penalties are already stiff enough and that what’s needed is more vigorous enforcement coupled with technological innovations and ″a better understanding by the public that piracy is a serious crime.″

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