Thursday, August 24, 2006

The FCC's Adelphia Order, Mergers, and Free Speech

I confess that only in the heat of late summer's dog days was I able to muddle through the nearly 200 pages of the FCC's order approving the transfer of control of Adelphia's cable systems to Comcast and Time Warner.

Over the years, I have written much concerning how the FCC's merger review process could be improved by having the agency defer to the Department of Justice or the Federal Trade Commission's review of the competitive impact of the proposed transaction. That would eliminate a lot of the unnecessary duplication of government resources (yes, the FCC and the DOJ and FTC are all part of the same government) that takes place now. And, of course, at the same time it would minimize the tangible and intangible costs incurred by the parties to the transaction resulting from the duplicative effort. In essence, the merger review process should be reformed so that the authority of the FCC is confined to ensuring that the proposed merger does not create any violation of the Communications Act or of an FCC rule. A couple of my essays on the subject are here and here, the first from 2000 and the second from last year. So I have been at this merger review reform effort for a long time. The Digital Age Communications Act (DACA) project's Regulatory Framework Working Group recommends embodies this approach. And Senator DeMint's DACA bill, S. 2113, adopts the merger reform recommendation.

One of the major problems with the FCC's current review process is that the indeterminate "public interest" standard allows the agency practically unbridled discretion to impose conditions on the merger that are not be required to bring the merged entity into compliance with existing Communications Act provisions or rules. In the Adelphia case, the agency used that public interest authority to impose conditions mandating the "nondiscriminatory" availability of Comcast and Time Warner-affiliated "regional sports network" (RSN) programming to unaffiliated video distributors. The primary reason the FCC imposed the RSN conditions, even though they are beyond the scope of existing regulations, is that the agency deems RSNs to be "must have" programming without which competitors will be unable effectively to compete. According to the FCC, RSNs are "must have" programming because "sports fans believe there is no good substitute for watching their local and/or favorite team play an important game."

Now there is much to question about the economic analysis concerning the Commission's judgment that, in today's competitive broadband marketplace, RSN programming is "must have" programming (see paragraphs 217-218 on the competitiveness of the broadband marketplace). And you can question the wisdom, as a policy matter, of the remedies imposed by way of condition. But here I want to highlight why, apart from whether the agency's economic analysis may be questionable, the FCC's decision is problematical. Anytime the Commission imposes consequential regulatory judgments based on the content of programming, it is on shaky First Amendment ground. And in this instance it made some pretty fine-tuned cuts denominating "must have" RSN programming. For example, it defines RSNs to include Major League Baseball, the NBA, NFL, and NHL, NASCAR, and NCAA (but only Division 1) programming. (In his separate statement, FCC Chairman states that in North Carolina, "there is no substitute for Tarheel basketball." Surely, a slip of the tongue. In my heart, I know he meant to refer to the "Duke Blue Devils"!)

The problematical nature of the agency making such content-based regulatory decisions is illustrated by Commissioner Michael Copps' dissenting statement. He agrees RSN programming is "must have" but asks if it is the only such programming. "What if you only speak Spanish? Wouldn't a Spanish language channel be 'must have'? How about local news? Children's programming?" Copps says "[w]e ought to be careful before starting down the slippery slope of determining what is and isn't 'must have' cable content." He's right about that, of course. But, unfortunately Commissioner Copps' preferred remedy apparently would be to impose common carrier-like "non-discrimination" requirements on cable operators and other broadband service providers as well. Right about the slippery slope. Terribly wrong remedy.

My former colleague, PFF's Adam Thierer, recently posted a good essay on how people have come to view themselves as having entitlement to an expanding array of "rights" to cable television programming, and how the government, in one way or another, has catered to what Adam called this "rights inflation". Towards the end of his essay, Adam turns to the real "rights" at stake--the cable operators' First and Fifth Amendment rights. With respect to the First Amendment, he says: "When the FCC starts intervening in private contractual disputes over channel carriage, it is interfering with the editorial function played by cable programmers."

Bottom line: There has been far too little attention paid to the way in which the FCC's conditioning of the Adelphia transaction to mandate special access to regional sports programming raises serious free speech issues. And, as I wrote recently in a National Law Journal article, there has been too little attention paid as well to the way in which net neutrality mandates would impinge on the free speech rights of all broadband Internet access providers.

Don't get me wrong. I like to watch Blue Devil basketball games as much as Chairman Martin likes to watch the Tarheels. But especially in today's competitive communications environment, with all the various video choices available, I "must not have" this "must have" programming at the expense of an infringement of anyone's First Amendment rights.