Monday, September 26, 2016

Thinking Things Through VI - #UnlocktheWordProcessors

As I said in my last post in this series, some things are harder to think through than others. But, like the last post, this one too is rather easy.

I begin again with the letter Public Knowledge President Gene Kimmelman sent on September 21 to congressional leaders in which he said this: “Contrary to claims of Hollywood and cable monopolies, the FCC’s apps proposal will promote consumer choice while protecting copyright.”

In my last post, I explained why, as a matter of first principle, Mr. Kimmelman’s claim that the FCC’s navigation proposal will protect copyright is wrong.

But there is another matter of first principle at stake as well, this one involving sound communications policy. Notice that Mr. Kimmelman refers, as he and other Public Knowledge staff almost invariably do, to “cable monopolies.” There must be a locked “macro” on the PK word processors that will not allow anyone to type “cable” without “monopolies” attached. Please: #UnlocktheWordProcessors.

I could make light of this monotonous coupling by saying it is “so 90ish,” as in the 1990s. But since, for the last several years, the FCC appears to be taking so many of its cues from Public Knowledge, this is serious business.

To the extent they ever did, cable operators no longer have a monopoly in the distribution of video programming, unless Mr. Kimmelman means to argue that what he calls “cable” constitutes a distinct video distribution product market because “cable” uses a distinct “cable” technology. If he means to argue this, it is an untenable position because, in today’s video marketplace, video distributors compete vigorously against one another employing various technological platforms.

For authority that there no longer are any “cable monopolies” I refer Mr. Kimmelman to – yep! – the FCC. In June 2015, in what the agency calls the Effective Competition order, the Commission finally adopted a rule presuming that local video markets, on a nationwide basis, are subject to “effective competition.” In announcing adoption of the competitive presumption, the Commission recited the dramatic changes that have occurred in the video marketplace since the FCC started regulating basic cable rates after passage of the Cable Act of 1992.

As the agency explained in a brief filed in the D.C. Circuit appeals court in February 2016, two decades ago, in most locations, a single cable operator often was the only purveyor of multichannel video service. But now, citing all the familiar market share figures, the Commission conceded – indeed, touted – in its appellate brief that there has been a “transformation” of the multichannel video marketplace, acknowledging that “consumers have alternatives to cable,” and “cable’s market share has sharply declined.”

If ever there were, there no longer is such a thing as a “cable monopoly,” and the Commission has acknowledged this obvious truth, even if Mr. Kimmelman won’t.

But the Commission has a very bad case of cognitive dissonance when it comes to its video device navigation proposal. In a competitive market like the video distribution marketplace – that is, one in which the market participants are presumed by the Commission to lack market power – there is no sound basis, as a matter of first principle, for proposing to extend the government’s regulatory reach, rather than retract it. This is especially so, as here, where the government’s proposed new regulation ultimately involves a government-designed technological mandate in a fast-changing, dynamic technological area.

The set-top devices, or now navigation apps, that the government proposes to design, and upon which it seeks to impose a standardized compulsory license with a nondiscrimination mandate, are merely complements to the overall video distribution services offered by various video providers. And, as you might expect in a market which the FCC has declared presumptively competitive, the video distributors, in fact, do compete in the provision of navigation devices and app offerings in order to further differentiate their services. Of course, this differentiation in response to changing consumer demand is an important reason there has been considerable innovation and investment with respect to video devices and apps in the past few years.

The Commission appears blind to the adverse impact on innovation and investment by video distributors that its proposal is likely to cause. Perhaps it doesn’t care.

In any event, even if Mr. Kimmelman and his Public Knowledge colleagues continue to refer to “cable monopolies,” the Commission should know better. As a last resort, it should read its own appellate brief in defense of its Effective Competition order.