The FCC has a fight on its hands between cable companies and Internet streaming set-top box companies such as Boxee. The cable companies are pushing the FCC to make a change to current regulation in order to allow them to encrypt basic cable programming.

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Their argument is that they would be able to answer service calls remotely instead of sending out technical support, which would mean a reduction in cable costs. They also say this move could reduce piracy.

On the other hand, Boxee and companies similar to it believe the policy change could be harmful to both consumers and competition.

“We looked hard to see what consumer benefits could come out of that ruling, and we couldn’t find any,” said Boxee CEO Avner Ronen in a recent interview.

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Ronen believes the cable companies are hoping to gain revenue and block cable alternatives. As he explained to us, if the FCC changes the regulation, consumers would need to get a set-top box from their cable provider. This, in turn, would mean consumers would pay an additional monthly fee to their cable companies for renting the boxes.

“This is a great way for them to just increase the revenue they get per user, on one hand, and try and slow down the trend,” he said.

The “trend” he is speaking of is what has commonly been referred to as “cord cutting.” It’s gaining a lot of ground in the U.S. as consumers find that they can watch all their favorite shows online at a much lower price or for nothing at all.

In fact, a study out earlier this year from business advisory firm Deloitte found that as many as one-fifth of cable subscribers could drop their services this year. In addition, 9 percent of consumers have already made the move to abandon cable.

According to Ronen, the cable companies’ quarterly reports showcase the trend and this move is their reaction to it. He does, however, credit the recent rise in lobbying efforts to Boxee’s launch of its Live TV dongle. He said the cable companies saw the press about it and that users were excited.

“They don’t like the idea of competition. Those are organizations that have been a monopoly for many years,” he pointed out. “They didn’t like the idea of competition from satellite providers, they didn’t like IPTV competition, and now they don’t like competition from the Internet.”

“Whatever they can do to block it or delay it, they’ll do.”

The National Cable & Telecommunications Association (NCTA) recently filed a response to Boxee’s filing with the FCC saying that Boxee was “simply wrong” in its assumptions. One particular point it brought up was that Boxee subscribers could still access basic cable if the company included a CableCard slot in its device. In the filing, Neal M. Goldberg, the Vice President and General Counsel for NCTA, wrote:

“Contrary to Boxee’s claims, the proposed rule change will result in substantial consumer benefits for tens of millions of cable customers… Boxee’s proposal is that the Commission delay or deny these consumer benefits to protect Boxee’s particular design for its product, which Boxee has deliberately chosen to build without a CableCARD slot (and without standard interfaces for connecting to a set-top box)… As Boxee well knows, its customers would be able to access encrypted cable channels if it included a CableCARD slot in its device. The whole point behind CableCARD is that consumer electronics manufacturers can build to a common technology that is supported across cable systems. Requiring operators to support one-off fixes for individual manufacturers like Boxee is completely contrary to the Commission’s basic objective in this area.”

When asked about this, Ronen told us that a CableCard was a “bad idea” for consumers for a few reasons. First of all, Boxee Live TV would cost 2-3 times more than what it does now. Secondly, users would need to order one from their cable company, which would be another monthly rental charge they would have to pay. Thirdly, Ronen said the NCTA’s defense “doesn’t make any sense” since cable companies have stated that they are heading toward IP solutions and that the idea of a CableCard is not a long-term option.

Ronen also found fault in another benefit that the NCTA wrote in its filing. As he explained, the NCTA asked the FCC to make the change since it would be good for the environment. The claim was that it would eliminate service calls. Ronen, however, pointed out that users would still need to get the set-top boxes. In other words, either the cable company would be delivering them or users would be picking them up, which would be no lesser impact on the environment.

Ronen told us a better alternative for cable companies would be to support broadcast channels over pure IP. He said this would “address their issues and enable much more competition than there is today.”

Many consumer electronics companies are in favor of a proposed FCC standard called AllVid that would allow users to access cable and satellite programming through an IP-based system. Although Boxee is not part of the AllVid alliance at this point, Ronen thinks it, or something similar, would be an effective option for the future.

Regardless of what happens with the cable encryption proposal, Ronen is confident that the trend to view content online will only increase with time.

“The transition toward more video over the top that’s coming over the Internet such as Netflix and Hulu and iTunes is inevitable,” he said. “If they’ll be successful in getting the FCC to adopt this rulemaking, it’s probably going to slow down the transition, but it’s not going to prevent it – it’s inevitable.”

How will this fight play out? Will cable companies win, or will companies like Boxee get their message across? What will the impact of either outcome be on the future of pay TV? We’d love to your input in the comments.