Sunday, April 22, 2012

The Elements of Healthy Media - A New Report

Deborah Taylor Tate, the former FCC commissioner and Free State Foundation Distinguished Adjunct Senior Fellow, and actress Geena Davis, co-chairs of the Healthy MEdia Commission, released the Commission's first report, The Elements of Healthy Media, last week at the National Association of Broadcasters convention.  The report, along with details about its release, is here.

In releasing the report, Tate and Davis said: "We are proud to come together to release the Elements of Healthy Media to define what our Healthy MEdia Commission finds to be 'positive and healthy' portrayals of women and girls. The Healthy MEdia Commission supports efforts to increase the number of female characters in the media and ensure that female roles, images, and portrayal are authentic, balanced and healthy.  We thank our partners and commission members for helping to advance the national conversation about how to ensure we are creating a positive media environment for all our children."

The National Cable and Telecommunications Association and the NAB are supporters of the Healthy MEdia project.

Tuesday, April 17, 2012

Forbearing From Forbearance

The FCC has a disappointing track record when it comes to exercising its statutory forbearance authority. Indeed, you might say the Commission has an unfortunate record of forbearing from forbearance.
This is a shame, and the Commission should change its ways. It has an opportunity to at least begin to do so by acting promptly on the pending forbearance petition filed by the United States Telecom Association.
"Forbearance" refers to Congress's direction to the FCC in the Telecommunications Act of 1996 to "forbear" from applying any FCC regulation or provision of the Communications Act applicable to telecom carriers if certain conditions are met. The Commission must forbear if it determines enforcement of such regulation is not necessary (1) to ensure the carrier's rates and practices are reasonable and nondiscriminatory; (2) to protect consumers; and (3) to uphold the public interest.
Congress stated right in the preamble of the 1996 Telecom Act that it intended for the FCC to "promote competition and reduce regulation." And, in the principal legislative report accompanying the 1996 Act, Congress stated its intent "to provide for a pro-competitive, de-regulatory national policy framework."
Thus, there is no mistaking Congress intended the 1996 Act to have a deregulatory thrust. With unassailable logic, Congress concluded the development of more competition and more consumer choice should lead to reduced regulation.
And there is little doubt forbearance was intended by Congress to be used as a deregulatory tool. The forbearance provision is unique. I am not aware of any provision like it in another regulatory statute. And forbearance is mandatory, not discretionary. The FCC statute says the FCC "shall forbear" if the specified criteria are met.
As further indication of Congress's deregulatory intent, the act states that a forbearance petition "shall be deemed granted" if the FCC does not deny it within one year. In other words, the default for agency inaction is forbearance from regulation, not continued regulation.
In light of the Commission's disappointing record of failing to grant forbearance petitions, about a year ago I offered what I characterized as a "modest proposal" urging Congress to amend the statutory forbearance provision to include an evidentiary presumption to the effect that, absent clear and convincing evidence to the contrary, the consumer protection and public interest criteria have been met. In effect, this presumption would shift the burden of proof to proponents of retaining regulations. The rationale and details of the reform proposal are set forth in these three pieces: (1) "A Modest Proposal for FCC Regulatory Reform," (2) "Rolling Back Regulation at the FCC," and (3) "Rolling Back Regulation at the FCC – Part II." (Note that under my proposal forbearance relief would be available to all entities subject to the FCC's regulatory jurisdiction, not just to telecommunications carriers.)
I would still like to see Congress revise the forbearance provision along the lines I have suggested. But, that said, under the terms of the existing statute, it is wrong for the Commission to continue generally denying otherwise meritorious forbearance petitions. In several pieces, my colleague, Seth Cooper, has explained how the Commission has erected inappropriately high barriers to the grant of forbearance petitions. In important cases, the agency wrongly has refused to credit wireless as a competitive alternative to landline service and consciously employed a static market analysis that totally discounts potential competition and other dynamic market impacts. For one example of Seth's work critiquing the agency's approach, see his "Forbearance Follies."
Now comes US Telecom with a forbearance petition that offers the Commission the opportunity to act consistently with Congress's intent that forbearance be employed as a deregulatory tool. The US Telecom petition identifies a number of outdated legacy regulations that clearly are no longer needed to protect consumers or the public interest in today's marketplace environment. Indeed, most no longer serve any purpose at all. And almost all were adopted long ago in a monopolistic analog narrowband environment that bears little or no resemblance to today's competitive digital broadband marketplace.
Examples of such legacy regulations identified by US Telecom include service discontinuance rules, network change approval requirements, accounting and cost assignment regulations, open network architecture mandates, various reporting obligations, and the like.
In the language of the old Title II common carrier regulatory regime that spawned them, these regulations are no longer "used or useful." Like facilities deemed no longer "used or useful," which in the days of old were excised from the rate base, the now no longer "used or useful" legacy regulations should be excised from the FCC's rule books.
There is a fairly broad, but not unanimous, consensus among commenters that many of the regulations identified by US Telecom should be jettisoned. Truth be told, the relief sought in the US Telecom petition is, for the most part, indisputably modest.
The US Telecom forbearance petition presents the FCC with the opportunity to demonstrate a seriousness of purpose, heretofore largely lacking, concerning Chairman Genachowski's pledge to eliminate unnecessary, outdated regulations that impose costs that exceed their benefits. The FCC should avail itself of the opportunity presented. And it should do so in a timely fashion.
Looking ahead in December 2000 to the then already rapidly emerging Internet age, former FCC Chairman Michael Powell, in his landmark address, "The Great Digital Broadband Migration," put the matter especially well:
"Our bureaucratic process is too slow to respond to the challenges of Internet time. One way to do so is to clear away the regulatory underbrush to bring greater certainty and regulatory simplicity to the market."
Right on. It's past time to stop forbearing from forbearance.

Saturday, April 14, 2012

Wireless Industry Initiative Takes Aim At Stolen Cellphones

As described in the April 9 Wall Street Journal article "Carriers Band to Fight Cellphone Theft," the wireless industry has committed to establishing a central database of stolen cellphones. According to the WSJ article:

Wireless phones that have been reported stolen to the carrier will be listed in the database using unique serial numbers associated with mobile gadgets. The carriers will block listed phones from accessing carrier networks for voice and data service.

Carriers will roll out their own individual databases within six months. The individual databases will be integrated and centralized over the 12 months thereafter. Smaller, regional wireless carriers are expected to join the database over two years, according to a person familiar with the plan. As part of the agreement, wireless carriers will also roll out initiatives to encourage mobile-phone users to set up passwords on their devices to deter theft.

The wireless industry's initiative was taken at the promptings of the FCC and other government officials. FCC Chairman Julius Genachowski's remarks provide some additional details. The FCC has also released a Consumer Tip Sheet on how to protect one's self against theft and what to do if one's device has been stolen.

With the rapid growth of feature-rich smartphones, cellphone theft has sharply increased. The wireless industry's initiative is a positive step toward curbing this criminal activity. The FCC and other government officials should be commended for deferring to the wireless industry's lead in address cell phone theft rather than directly imposing regulation. While existing criminal laws against theft are indispensable, wireless providers are in the best position to address matters of technical design and operation that could help inhibit future cellphone theft. As I blogged about in August 2011, the general lesson for wireless policymaking should be to "Address Problems with Wireless Applications, Not Regulations."

In my October 2011 blog post, "New Wireless Industry Alert Standards Stave Off FCC "Bill Shock" Regulation," I raised concerns about how "voluntary" one should regard the wireless industry self-policing regarding overage charges given the FCC leveraging of its consumer protection regulatory power to coax industry action. Fortunately, the FCC's approach to cellphone theft appears to avoid heavy-handedness in prompting the wireless industry to take action. As FSF President Randolph May sized things up in CommDaily on April 11:

I would be troubled if what occurred was the government called together the wireless operators and said, 'These are the four things you must do — or else,'… I don't think that is what occurred here. Also, keep in mind in this instance industry and government are cooperating to take steps to combat criminal activity…We need to re- main alert that the FCC doesn't resort to a modus operandi of 'or else' regulation under the guise of 'voluntary' agreements.

Friday, April 13, 2012

A Truly Free Market TV Marketplace - Part II

On March 30, I published a blog entitled "A Truly Free Market TV Marketplace." The piece essentially made two fundamental points in response to a letter from the American Conservative Union asserting that the current retransmission regime represents a "functioning market" for bargaining over the rights for carriage of video programming.

First, I said: "[I]n light of all the various legacy laws and regulations that together overlay the video marketplace – must carry, network non-duplication and syndicated exclusivity, compulsory licensing, and others -- the retransmission regime operates in the overall context of an 'unfree' market."

And the second point I made was this: "Because I know a free market when I see one, I commend Senator DeMint and Rep. Scalise for introducing the 'Next Generation Television Marketplace Act.' The bill certainly represents the direction in which policy needs to go."

A few days ago, the Competitive Enterprise Institute's Ryan Radia published a long and thoughtful blog entitled "A Free Market Defense of Retransmission Consent." In it, Ryan responds to my piece and to a similar one by my friend, Adam Thierer. Adam's essay is entitled "Towards a True Free Market in Television."

I don't want to repeat here, on a Friday afternoon no less, all the substance of the three pieces. If you haven't read them, and if you are interested in the debate about the current retransmission consent regime and the issues surrounding the "Next Generation Television Marketplace Act" bill introduced by Sen. DeMint and Rep. Scalise, you should read the pieces as background for what follows.

Here I want to respond to Ryan's post by making just a few points. They show that, in reality, he essentially agrees with much of what I say (and Adam Thierer as well.)

Before addressing the substantive points, it would be an exhibition of false modesty if I didn't acknowledge that I appreciate Ryan calling my piece "superb" and calling me "venerable." And, best of all, a "free market policy icon." Thanks, Ryan, for the kind words.

So, on to the two essential points.

Ryan states that he wholeheartedly agrees with me "that ACU’s characterization of the current regime as a 'functioning market' is inaccurate." This is a very fundamental point to acknowledge in any discussion of the current retransmission regime.

And he agrees with me that "[i]t’s high time for Congress to liberalize the television marketplace to bring it into the 21st century. Sen. DeMint and Rep. Scalise’s bill would, if enacted, mark a major step toward a freer video market." I appreciate acknowledgement of this point as well. Recall I concluded my blog by stating the DeMint-Scalise bill "represents the direction in which policy needs to go." I didn't say the bill was perfect in every respect. Few bills are, at least as introduced.

At bottom, though, Ryan concludes that the bill "could be improved by leaving retransmission consent intact." In between his acknowledgment that the current retransmission consent regime is not a "functioning market" and his acknowledgement that the DeMint-Scalise bill constitutes a "major step" forward, he goes through a lengthy and useful exposition of the major regulatory overlays in today's video marketplace.

The sheer length of the exposition pretty much proves the point concerning the extent to which the current video marketplace is burdened with a real mish-mash of protectionist-inspired legacy regulation which is ill-suited for today's competitive video marketplace. Ryan himself seems to agree that the must carry, network non-duplication, and syndicated exclusivity regulations which confer upon broadcasters certain statutory protectionist privileges should be repealed. And I think he would say the same with respect to the protectionist compulsory license benefitting cable operators.

Out of the current regime, the only regulation that Ryan suggests possibly should remain on the books is retransmission consent, albeit in an altered form so that the FCC's role in supervision and enforcement is eliminated in favor of a judicial private right of action. He recognizes that, for the vast majority of video programming, it is not necessary to preserve retransmission consent in order to ensure program owners are compensated, by virtue of a private bargaining process, by pay-TV providers. Pay-TV providers would have to negotiate for the right to carry copyrighted programming with the rights holders, whether they are local broadcasters, national or regional networks, syndicators, or whomever.

In the end, when you cut through it all, Ryan is concerned that if the DeMint-Scalise bill were adopted as is, local broadcasters "would hold far fewer cards, losing the regulations that benefit them." He acknowledges that the "disintermediation of broadcasters might benefit consumers, especially if it translates into lower fees (and, hence, more content choices and/or lower television bills.") This is no small acknowledgement.

But Ryan worries that deregulation possibly may have a "dark side." Without a statutory retransmission consent requirement in place, pay-TV operators may be able to free ride on whatever "incremental value" local broadcasters provide through certain signal enhancements such as display tickers ("crawlers") with sports scores, school closings, election results, and the like. Ryan focuses on this possible "incremental value" of local broadcasters' signals because he acknowledges that almost all their programming is, in fact, copyrighted. Thus, the vast majority of local broadcasters' programming would be subject to private bargaining between the rights holders and pay-TV providers before it could be carried by pay-TV providers.

Ryan acknowledges that the economic value of the local broadcasters' signal enhancements beyond copyrighted programming (and whatever else is left that is not subject to "fair use") is unknown. He suggests that if the signal enhancements have any incremental economic value at all, pay-TV operators' carriage of such signals without negotiated compensation offends the long-standing common law equitable principle of unjust enrichment, which holds that a person who is unjustly enriched at the expense of another is entitled to restitution.

Now the whole notion that local broadcasters are entitled to compensation for the mere retransmission of their local signals is somewhat questionable in any event, because the signals can be picked up for free by anyone within reception range. Ryan acknowledges this was the law prior to 1992 when Congress created the current must-carry/retransmission statutory regime. I think this is an important point.

But putting this point aside for the moment, my sense is that it likely would be preferable to have in place the deregulated marketplace envisioned by the DeMint-Scalise bill than to retain, as the last standing relic of the current regime, a statutory retransmission consent requirement. If there is any justification for compensation for mere retransmission at all, which I don't concede, perhaps it would be preferable to leave the matter of compensation for a pay-TV operator's carriage of a local signal to the courts under the common law theories of unjust enrichment. I doubt if the "incremental value" derived from crawlers and such would amount to much enrichment in the real world marketplace.   

Ryan's contribution to the debate is welcome. To my mind, his acknowledgement that the current retransmission consent regime does not constitute a functioning market and his acknowledgement that the DeMint-Scalise bill represents a major step forward are both significant and important. As I head into the weekend, I am happy to emphasize those key elements of agreement, rather than exaggerate the differences that exist.

Wednesday, April 11, 2012

Cable a La Carte Class Action Dies Another Death in Court

In October I blogged about the U.S. Court of Appeals for the 9th Circuit's ruling in Brantley v. NBC Universal, upholding the case's dismissal. The 9th Circuit panel later withdrew its opinion. But on March 30, the 9th Circuit issued a new opinion in Brantley, again affirming dismissal of the class action's Sherman Act antitrust claims.

My October blog post gives further background on the case. Here are a few relevant excerpts from the 9th Circuit's opinion on reconsideration:

First, it is clear that the complaint does not allege the types of injuries to competition that are typically alleged to flow from tying arrangements. The complaint does not allege that Programmers' practice of selling "must-have" and low-demand channels in packages excludes other sellers of low-demand channels from the market, or that this practice raises barriers to entry into the programming market. Nor do the plaintiffs allege that the tying arrangement here causes consumers to forego the purchase of substitutes for the tied product…Nothing in the complaint indicates that the arrangement between the Programmers and Distributors forces Distributors or consumers to forego the purchase of alternative low-demand channelsIndeed, Plaintiffs disavow any intent to allege that the practices engaged in by Programmers and Distributors foreclosed rivals from entering or participating in the upstream or downstream marketsNor does the complaint allege that the tying arrangements pose a threat to competition because they facilitate horizontal collusion...

Businesses may choose the manner in which they do business absent an injury to competition…Therefore, the mere allegations that Programmers have chosen to limit the ability of Distributors to offer Programmers' channels for sale individually does not state a cognizable injury to competition...

Here, Plaintiffs have not alleged that the contracts between Programmers and Distributors forced either Distributors or consumers to forego the purchase of other low-demand channels (a result analogous to the competitive injury in Loew's), but only that consumers could not purchase programs a la carte and they did not want all of the channels they were required to buy from Distributors. "[C]ompelling the purchase of unwanted products" is not itself an injury to competition...

But the plaintiffs here have not alleged in their complaint how competition (rather than consumers) is injured by the widespread practice of packaging low- and high-demand channels. The complaint did not allege that Programmers' sale of cable channels in packages has any effect on other programmers' efforts to produce competitive programming channels or on Distributors' competition as to cost and quality of service. Nor is there any allegation that any programmer's decision to offer its channels only in packages constrained other programmers from offering their channels individually if that practice was competitively advantageous. In sum, the complaint does not include any allegation of injury to competition, as opposed to injuries to the plaintiffs...

Indeed, because Plaintiffs' complaint alleges that the restraints at issue in this case were imposed by Programmers, not Distributors, Leegin suggests that any competitive threat is diminished...

If my earlier blog post spoke to soon about the demise of cable a la carte regulation-by-litigation, the chances of Brantley being resuscitated through a contrary ruling by the 9th Circuit en banc or by the U.S. Supreme Court are extremely remote.

Tuesday, April 10, 2012

Video Competition Renders Cable Rate Regulation Ridiculous

On April 9, the FCC's Media Bureau released an order granting the City of Boston's petition to re-regulate cable rates. The Media Bureau ruled that its 2001 order granting Comcast relief from cable rate regulation was premised on prospective build-out plans by RCN that a decade later have not come to pass. This despite the fact that RCN covers about one-third of the territory in question, and that the FCC has in prior orders found effective competition to exist when a competitor's overlap with an incumbent cable operator is as little as 18%. But the Media Bureau ruled that Comcast also has the ability to file a petition seeking relief from rate regulation on the grounds that it faces "effective competition" in the City of Boston from two direct broadcast satellite (DBS) providers as well as from RCN.

The FCC's cable rate regulation apparatus dates back to the 1992 Cable Act. Under Section 623, the FCC has the power to set standards for and oversee local regulation of rates for "basic tier" service on cable systems. And under Section 76.906 of the FCC's rules, "[i]n the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition."

But the FCC's rules for imposing cable rate regulations are premised on early 1990s ideas about cable operators' so-called "bottleneck." Those premises do not correspond to today's reality. As we've written about previously, consumers now enjoy vibrant video competition, with choices including two nationwide DBS providers, telco entrants in the video market, and myriad online video delivery options. DBS now has one-third of the video subscriber market. These rapid market changes have rendered Section 76.906's presumption against effective competition completely unjustifiable. And those same developments in the video market make cable rate regulation nothing short of ridiculous.

Presumably, it will take an act of Congress to eliminate local cable rate regulating authority and the FCC's corresponding regulatory obligations. But the FCC still has options to make its rules a better match with reality.

Section 623(b)(2) provides that the FCC shall periodically revise its cable rate regulations and in so doing "shall seek to reduce the administrative burdens on subscribers, cable operators, franchising authorities, and the Commission." The FCC could certainly consider rule-changes that would better streamline rate regulation and relief petitions so that cable operators like Comcast don't have to jump through so many hoops in order to receive proper treatment. More importantly, abundant nationwide competition should lead the FCC to reverse Section 76.906's presumption to recognize "effective competition" in the video market unless would-be rate regulating local franchising authorities can demonstrate that a lack of competition exists.

Monday, April 09, 2012

Judicial Independence

Regarding President Obama's remarks concerning the pending Obamacare decision in the Supreme Court, I was pleased to see that American Bar Association President Bill Robinson issued a statement to the effect:

"President Barack Obama’s remarks on Monday speculating about the Supreme Court’s potential decision in the health care legislation appeal are troubling. Particularly worrisome was his suggestion that the court’s decision in this case could serve as a 'good example' of what some commentators have cited as 'judicial activism or a lack of judicial restraint' by an 'unelected group of people.'"

Robinson's full statement may be found here.
On judicial independence, I also like this statement form Justice Story: 
"The truth is, that, even with the most secure tenure of office, during good behavior, the danger is not, that the judges will be too firm in resisting public opinion, and in defense of private rights or public liberties; but, that they will be ready to yield themselves to the passions, and politics, and prejudices of the day." 

Monday, April 02, 2012

Red Tape Still Rising, Despite Administration's Regulatory Review

Continuing their series of periodic reports on the growing number of costly government regulations, Heritage Foundation’s James Gattuso and Diane Katz recently released "Red Tape Rising: Obama-Era Regulation at the Three-Year Mark."

Like its predecessors (one of which I blogged about previously), this report continues to chronicle the accelerated rate of federal rulemaking:

During 2011, the Obama Administration completed a total of 3,611 rulemaking proceedings, according to the Federal Rules Database maintained by the Government Accountability Office (GAO), of which 79 were classified as "major," meaning that each had an expected economic impact of at least $100 million per year. Of those, 32 increased regulatory burdens (defined as imposing new limits or mandates on private-sector activity). Just five major actions decreased regulatory burdens…Regulations adopted in 2011 cost Americans some $10 billion in new annual costs, according to estimates by the regulatory agencies.

But Gattuso and Katz go on to explain why "[t]he actual cost of these new regulations is almost certainly higher than the totals reported here." And even more federal regulations are in the works for 2012:

The most recent Unified Agenda (also known as the Semiannual Regulatory Agenda)—a bi-annual compendium of planned regulatory actions as reported by agencies lists 2,576 rules (proposed and final) in the pipeline. The largest proportion—505 rulemakings—is from the Treasury Department, the SEC, and the Commodity Futures Trading Commission—all tasked with issuing hundreds of rules under the massive Dodd–Frank statute. The Environmental Protection Agency is responsible for 174 others, while 133 are from the Department of Health and Human Services, reflecting, in part, the regulatory requirements of Obamacare.

Of the 2,576 pending rulemakings in the fall 2011 agenda, 133 are classified as “economically significant.” With each of these expected to cost at least $100 million annually, they represent a total additional burden of at least $13.3 billion every year.

Gattuso and Katz also challenge effectiveness of the Administration's agency-by-agency regulatory review initiative to reduce outdated and costly mandates:

The Administration claimed that its reforms would, if implemented, reduce regulatory costs by $10 billion per year. But little or none of this reduction has materialized. Of the four major actions in 2011 that reduced regulatory burdens, none were the product of the regulatory review initiative.

The authors then offer some steps for Congress to take in stemming the tide of new federal regulations. Like its predecessors, this report offers a sobering assessment of the persistent growth of costly government mandates. Gattuso and Katz's critique of the Administration's regulatory review process is certainly worth further reflection.