The FCC Shouldn't Compromise Administrative Law Values

I was away last week on a bit of a vacation when the story broke that Kevin Martin, the Republican Chairman of the Federal Communications Commission, wants to impose significant new regulations on cable operators. Chairman Martin seeks to use a 1984 law that gives the agency discretion to impose additional regulations on cable systems if necessary to “provide diversity of information sources” as the basis for the new regulations. Under the statute, the FCC may impose such additional regulations only if cable systems with 36 or more channels are available to 70 percent of American households and are subscribed to by 70 percent of the households to which such systems are available.

Although there has been nothing formal released by the agency, press leaks indicate that one of the new regulations Chairman Martin wants to implement would mandate more extensive unbundling of cable systems’ network capacity for use by unaffiliated third parties at highly discounted rates set by the government. And Martin has long agitated for government-mandated unbundling of tiered cable program services. This so-called “a la carte” regime would allow subscribers to purchase channels on an individual basis, so that unbundling regulation might be on the table as well.

Suffice it to say the thought of this new regulatory initiative almost ruined my vacation. It is yet another piece of what, for Chairman Martin, has become a seemingly single-minded pursuit of new regulation of the cable industry,

As a matter of sound policy, there is no need for additional regulation of cable operators. Indeed, in light of the increasingly competitive environment in which cable operators and other broadband providers of video, Internet, and voice services compete, many of the current regulations —adopted in a monopolistic environment— should be jettisoned.

And, as I have written on several occasions before, further regulation of the kind proposed by Martin raises serious free speech and property rights issues under the First and Fifth Amendments to the Constitution. A sampling of those constitutional objections may be found here and here.

But now I want to write primarily from an administrative law perspective. As a former Chairman of the American Bar Association’s Section of Administrative Law and Regulatory Practice, this perspective is important to me in a professional sense and one about which I have some expertise. This latest in a series of Martin-proposed regulatory assaults on cable operators risks compromising fundamental administrative law values, both as a matter of process and substance. There is a broader public interest, one that transcends the interest of any one company or any one industry segment, in maintaining the integrity of the agency’s decisionmaking process.

First, the core administrative law values of transparency and public participation in agency policymaking have been put at risk. According to leaks to the press, Chairman Martin proposes to have the agency regulate based on a determination that the second prong of the “70-70” test is met, that is, cable service is subscribed to by 70 percent of the households to which it is available. According to press reports, Chairman Martin is relying on data from one industry source, Warren Communications News, Inc., to support his conclusion that the second prong, cable subscribership as a percentage of homes passed by cable, has been met. Virtually all other sources reporting cable subscribership data point to a contrary conclusion that puts cable’s penetration of homes passed in the 60% range. This is consistent with the generally acknowledged and consistent findings, by the FCC itself among others, that cable operators’ share of the multichannel video market has been declining for several years in the face of stiff competition from other alternatives, including satellite television and the phone companies’ video service offerings.

It has now becoming evident —based on clarifying and qualifying statements made by Warren’s Managing Editor— that it is doubtful Warren’s subscriber data provide support for the conclusion Chairman Martin wants to reach. When they read the qualifying statements by Warren’s Managing Editor in the press concerning the limitations of the data, Commissioners Deborah Tate and Robert McDowell wrote to Warren asking that all information concerning Warren’s data be filed in the public record.

The question whether the FCC should impose significant new regulations on cable operators is far too important to be left to conclusory back-of-the-envelope calculations that contradict the calculations based on nearly every other data source. In light of the questions that already have been raised about the use to which the Warren data is being put, it is imperative, as Commissioners Tate and McDowell have requested, that all clarifications and qualifications regarding the data’s limitations be put on the public record and subjected to scrutiny by all interested parties.

Transparency and public participation are core requirements of administrative due process. Absent the ability of the public to receive notice of, and to examine, all the underlying data and accompanying caveats upon which key regulatory factual findings are supposedly premised, the ability of the public to participate meaningfully in the agency’s process is negated. The integrity of agency’s decisionmaking process is compromised. This is especially so when the proposed draft factual findings which are the subject of leaked press reports run counter to the findings based on data from most other sources.

Another core administrative law value, this one substantive, relates to the rationality of the agency’s decisions as it exercises its discretion under delegated statutory authority. It is important to understand that even if the second prong of the 70-70 test were met, at most the Communications Act only allows the FCC to impose new regulations; it does not mandate them. And, significantly, the FCC is authorized to do so only if additional regulation is “necessary to provide diversity of information sources.”

In today’s era of media abundance, now including the Internet among all the others, it is simply not rational to suggest more regulation is needed to provide a diversity of information sources. There —apparently— always will be some who will suggest, despite the reality of the media marketplace, that Americans don’t have access to a diversity of viewpoints on important public issues. This position is no longer tenable, if it ever was. It would be untenable if only the average cable system, with its hundreds of program channels, were to be considered. But when terrestrial broadcast radio and television stations, satellite radio and television, wireless information providers, the Internet, newspapers, magazines, and the rest are thrown in, it is distinctly irrational to suggest a lack of diversity of information sources.

In the last of its Video Competition Reports, released in March 2006, the FCC concluded: “The market for the delivery of video programming services is served by a number of operators using a wide range of distribution technologies.” Based on its collection of a comprehensive set of data, the Commission summarized its findings this way:
We find that almost all consumers have the choice between over-the-air broadcast television, a cable service, and at least two DBS providers. In some areas, consumers also may have access to video programming delivered by emerging technologies, such as digital broadcast spectrum, fiber to the home, or video over the Internet. In addition, through the use of advanced set-top boxes and digital video recorders, and the introduction of new mobile video services, consumers are now able to maintain more control over what, when, and how they receive information. Further, MVPDs of all stripes are offering nonvideo services in tandem with their traditional video services.

Marketplace developments since the agency published that finding have only led to the availability of more consumer choices, especially as the telephone companies such as Verizon and AT&T, are now rolling out their video offerings with increasing robustness. An abrupt reversal of course by the agency to make a contrary determination would simply not be supported by the evidence. In traditional administrative law terms, it would be arbitrary and capricious and an abuse of discretion for the FCC to conclude that it is necessary to impose additional regulation to provide a diversity of information sources.

There are many familiar policy and legal objections to Chairman Martin’s latest stratagem to impose new regulations on cable operators. But in an important way that ought not to be ignored there are also not-so-familiar objections that sound in administrative law. And the sound is one in which core administrative law values of transparency in decisionmaking, the ability of the public to participate meaningfully in the rulemaking process, and the rationality of the policymaking process are jeopardized in a way that threatens to harm not only cable operators, but, more importantly, the institutional integrity of the FCC.