Monday, August 31, 2009

DC Circuit: Vindicating Video Competition

In a sensible and straightforward ruling, the U.S. Court of Appeals for the District of Columbia Circuit struck down the Federal Communication Commission's (FCC) regulations limiting the market share of any single cable operator to 30% of all subscribers. In an opinion by Judge Douglas Ginsburg, the D.C. Circuit panel held that the FCC’s 30% limit is "arbitrary and capricious." The FCC's "open field" analysis supporting the 30% limit, ruled the D.C. Circuit, was contradicted by "overwhelming evidence" concerning "the dynamic nature of the communications marketplace" and by "the entry of new competitors at both the programming and distribution levels." The D.C. Circuit's ruling in Comcast v. FCC was significant for a few reasons.

First, the D.C. Circuit expressly recognized the increasingly competitive and dynamic marketplace for video:

First, the record is replete with evidence of ever increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992. Second, over the same period there has been a dramatic increase both in the number of cable networks and in the programming available to subscribers.
Judge Ginsburg went on to write that "[t]here can be no doubt that consumers are now able to receive far more channels than they could in 1999, let alone in 1992."

Second, the D.C. Circuit shredded the FCC's proffered reasons for disregarding direct broadcast satellite (DBS) competition with cable service. The D.C. Circuit held that the supposed cost-prohibitive barrier to switching from cable to DBS was belied by evidence that almost half of all DBS customers previously subscribed to cable. It also rejected the FCC's claims that DBS competition was not significant because cable operators typically offer triple-play packages that bundle phone and Internet access with cable video. As the D.C. Circuit observed, DBS providers have partnerships with phone companies to offer bundled services. Moreover, the D.C. Circuit dismissed as non-empirical conjecture the FCC's assertions that cable consumers will not switch to competitors because they can't know the quality of competitor’s programming before they consume it. Finally, the D.C. Circuit similarly dismissed the FCC’s claim that the 30% subscriber limit is needed to help upstart networks secure financing. DBS companies already serve more than 30% of the video provider market.

Third, the FCC demonstrated a willingness to discipline a defiant agency. The D.C. Circuit struck down an earlier version of the FCC's 30% subscriber cap on cable providers, and ordered the FCC to consider DBS competition in reformulating its rules. But the FCC refused to do this, essentially dismissing DBS competition as insignificant (as recounted above) and insisting that assessment of DBS competition is difficult. Wrote Judge Ginsburg, "That a problem is difficult may indicate a need to make some simplifying assumptions…but it does not justify ignoring altogether a variable so clearly relevant and likely to affect the calculation of a subscriber limit—not to mention one the court had directed the agency to consider." In reaching an appropriate remedy, Judge Ginsburg had sharp words for the FCC, writing that "[t]he Commission's dereliction in this case is particularly egregious," that it "failed to heed our direction," and that "[i]t is apparent that the Commission either cannot or will not fully incorporate the competitive impact of DBS and fiber optic companies into its open field model." The D.C. Circuit vacated the FCC's order, thereby eliminating the 30% subscriber limit.

Incidentally, the D.C. Circuit reiterated that First Amendment protections apply in the context of video service and media regulations. For Judge Ginsburg and concurring Judge Brett Kavanaugh, the First Amendment burdens imposed by the subscriber limits were a factor supporting the vacating of the FCC's order. (Senior Judge Raymond Randolph maintained that the Administrative Procedures Act requires courts to vacate all unlawful administrative rules or orders without any multi-factor analysis.) The recognition of First Amendment protection for cable providers doesn't break any new jurisprudential ground, as that must likely fall to the U.S. Supreme Court. But the principled application of the First Amendment to media outlets is significant, not a mere afterthought.