The previous plan to require the cable companies to support a software-only cable card was better. That would allow TVs and set-top boxes to be built with native cable support--you would just need to do some configuring. It would use the same encrypted QAM signal that is coming in over the coax.
The app approach can be helpful, but it involves streaming the channels over the Internet instead of using the QAM signal that is already being sent. This has a number of downsides. Streamed video may be more highly compressed. It may be subject to dropped packets. Streaming may be subject to WiFi interference in places where coax already runs to the TV.
Another advantage of the virtual cable card is that cable cards allow for recording. I know people are shifting to streaming on demand as the most popular option, but many of us like to record on DVRs. I love my MythTV, and many people love their TiVos.
And then there's the privacy issue. How many times have I heard people complain about smart TVs sending data back to corporate servers for who-knows-what purpose? With a streaming app, you can't easily block that.
All said, what really makes sense is both. Require both a freely licensed streaming app and a software-only cable card. Prohibit charging a rental fee for cable cards or set-top boxes until they comply with the regulation.