Thursday, November 16, 2006

Argumentation by Adjective

A group of self-described consumer groups has submitted a letter to the FCC opposing a delay in the July 2007 scheduled implementation date of the set-top box integration ban. I disagree. I've explained in an essay on CNET and in a longer paper why the implementation date should be deferred, so I won't repeat those arguments here. I will just emphasize, as I did in my papers, that this is a case in which the FCC's authority to grant common sense regulatory relief is very clear. While the self-identified consumer groups refer to the provision in the 1996 Act requiring the FCC to adopt set-top box regulations, they fail to mention that in the very same provision Congress gave the FCC authority to waive or even sunset whatever regulations it adopted. This is rare in the Communications Act and, indeed, in most statutes delegating authority to administrative agencies. I think that even the Congress that included the set-top provision thought that technology and marketplace developments might well outrun any regulatory mandates the FCC might devise. With downloadable security and the DTV transition on the horizon, it would be unwise for this Commission to enforce a regulatory mandate whose near-term costs to consumers outweigh any benefits. This Commission should have a market-oriented majority sympathetic to avoiding unnecessary regulatory mandates,

What really struck me about the group letter, though, is that it is replete with argumentation by adjective. The groups go on about the "the onerous costs of the cable monopoly"; the "excessive monthly rental costs for cable distributor boxes"; "the costly programming packages offered by cable". There's more of this adjectival arguefying, including the usual: "consumers are already suffering from exorbitant cable price hikes."

Yes, it would be nice if multi-hundred channel cable service, with all the new on-demand programming and other digital service features, was less costly. But by what measure do the consumer groups charge that the price of the service is "onerous", "costly", or "excessive". I confess I would be pleased if the price of telephone service, cable service, the Washington Post and Communications Daily, and most certainly Consumer Reports was less rather than more. But, of course, I might not have them at all if they were forced to be priced at some less "onerous", less "costly", or less "excessive" price that I or the authors of the consumer letter prefer. I would prefer that the marketplace rahter than the consumer groups or the government establish the "right" price. In the same vein, I would prefer that policy not be based on overheated rhetoric about "costly" services.

Finally, don't get me wrong: I want to see still more competition in the video marketplace from the "telephone" companies and others. It's coming, and consumers will benefit from that. But the competitive landscape of the broadband marketplace already is such that a forward-looking, market-oriented FCC should be initiating a proceeding to sunset the set-top rules, not just waive them.

Sunday, November 12, 2006

The Maryland PSC and Regulatory First Principles

A story in the November 11 edition Saturday's Washington Post begins: "The Maryland Public Service Commission could be on their way out when a new governor and legislature take office...." The import of the story is that new governor-elect Martin O'Malley and the Democrat-controlled legislature will resume the campaign to oust all of the current members of the PSC and replace them with regulators more to their liking.

This is not a good idea for several reasons, which I have testified and written about here, here, and here. Now that the political season is over--and, really, were electricity rates and replacing the PSC big political issues anyway?--calmer heads should prevail. Before taking any rash actions the new governor and the legislature should hold balanced hearings which will provide a basis to carefully consider the following:

  • Legislative action to force the resignation of all members of a regulatory body because of disagreement with a particular regulatory action or actions is virtually unprecedented in American regulatory history. There is a reason why this is so. Commissions like the PSC were established with the idea that they would bring specialized technical and economic expertise to the complexities of utility ratemaking. And they were also established in a way that would allow them to do their work largely free from overt day-to-day political interference. If the legislature decides to fire all the PSC commissioners because it doesn't like a decision, the notion that the commission's decisions will be based upon the application of specialized administrative expertise rather than politics will be severely compromised.

  • The stability that is a necessary hallmark of any principled rule-of-law regime also will be compromised by precipitous legislative action dismissing the entire group of PSC commissioners. Without a certain degree of confidence in the stability of the legal regime that governs utilities subject to the PSC's jurisdiction, these regulated companies will be reluctant to undertake the investments and pursue the innovations necessary to meet future demand while maintaining high levels of service quality.

  • It is important for the governor and legislature to have in mind that before the recent sizeable BG&E&E and Pepco rate increases electricity rates had been frozen since 1993. That is a very long time with stable rates. Under the electricity restructuring plan adopted by the legislature in 1999, BG&E, for example, could not raise retail rates at all until this year, even as wholesale energy prices were rapidly rising. What the new governor and legislature need to consider is not how much rates have gone up in absolute terms under the 1999 restructuring plan which introduced a measure of competition into the electricity marketplace, but rather how much in relative terms rates would have gone up under the displaced regulatory regime. The displaced rate-of-return regime was viewed by most respected regulatory economists as one that created incentives for wasteful investments and expenditures by utilities that were simply passed on automatically to utility consumers.

If done thoughtfully and deliberately, a review of the organization and structure of PSC is appropriate and useful. Indeed, in my pieces referenced above, I have suggested that a greater degree of political control of the agency may be desirable. But the way to do that, if the legislature decides to go in that direction, would be to allow the governor to remove PSC commissioners before the expiration of their terms, a power that he now probably lacks. This is more consistent with our traditional notions of separation of powers than legislative hiring and firing of regulatory agency personnel.

By the same token, it is always appropriate, of course, for the legislature to review and adopt policies to guide the PSC in its ratemaking activities. But in doing so, it won't do anyone any good--especially the consumers in whose interests it purports to be acting--if the legislature ignores the economic fact-of-life that ultimately utilities subject to the PSC's jurisdiction must recover their costs of producing their services. If they aren't allowed to remain financially healthy enterprises, all of Maryland's residential and business consumers who depend on them will suffer.

Wednesday, November 01, 2006

The Integration Ban and Integrating DTV Transition Policy

NCTA President Kyle McSlarrow has sent a letter dated October 31 to the leadership of the Commerce Department and the FCC Chairman and Commissioners explaining--again--why postponement of the implementation of the FCC's Integration Ban is necessary to facilitate the DTV transition in the least costly and most economically efficient way. McSlarrow's letter is here and it speaks for itself. His main point is that, if implemented, the integration ban will add $2-3 to the monthly price of a converter box that if leased by a cable consumer will avoid the need for payment of the DTV "over the air" subsidy. In other words, unless the integration ban is postponed, different parts of the government will be working at cross-purposes.

Recently I published a CNET commentary and also a longer scholarly paper urging the FCC, at a minimum, to postpone the implementation of the integration ban. As I explain in those two pieces, unlike the case with some issues where the FCC's authority to grant regulatory relief is less clear, in this instance the agency's authority is crystal clear. This is a case in which you would hope that the Commission--or at least a Commission majority--attuned to removing and relieving unnecessary regulatory burdens in a fast-changing communications environment would want to act quickly to show its seriousness of purpose.