STELA Offers An Opportunity for Congress to Clean Out Old Cable Regulations

When Congress has an opportunity to eliminate outdated, unnecessary, and constitutionally problematic regulations, it should consider doing so. Congressional legislation reauthorizing the Satellite Television Extension and Localism Act (STELA) offers just such an opportunity. 

Section 623 of the Communications Act contains basic tier regulations that are relics of a long bygone cable "bottleneck" era. Basic tier rate and must-buy regulations should be eliminated so that federal communications policy can better match today's competitive market conditions. STELA reauthorization legislation constitutes one plausible vehicle to clean out outdated basic tier cable regulations. Congress should keep an open mind about using STELA as a route to regulatory reform.

STELA is considered "must-pass" legislation because it contains the framework for retransmission of broadcast TV content by direct broadcast satellite (DBS) providers. Absent reauthorization, certain provisions regarding broadcast TV, DBS, and cable video will sunset at the end of this year.

Some suggest that Congress should keep the STELA bill "clean." Here "clean" means extending provisions scheduled to sunset at the end of 2014 while avoiding any reforms of legacy video regulation. However, prior STELA reauthorization legislation included a variety of provisions touching on video services. For example, the 2010 bill reauthorizing STELA included directives to the Copyright Office regarding filing fees, audits, and reports. It likewise permitted carriage of low-power broadcast TV stations throughout local markets and modified cable statutory licenses to address carriage of multicast broadcast TV streams.

Congress shouldn't be rigidly wedded to any artificial principle in order to obstruct genuine regulatory reform. Rather, it's a sound principle that burdensome government regulations premised on market failure should be reduced or eliminated where competitive market conditions actually emerge. Whether necessary reforms are to take shape through legislation that is broad-based or narrowly targeted, immediate or incremental, typically involve context-specific judgments of expediency. Leaving expediency judgments aside, STELA reauthorization presents a fitting instrument for clearing away government restrictions on cable services that market changes have rendered unjustifiable.

For example, Congress could insert into STELA reauthorization legislation a provision to eliminate basic tier cable rate regulation. Under Section 623, the FCC is authorized to oversee local rate regulation for "basic tier" service on cable systems. And under Section 76.906 of the FCC's rules, "cable systems are presumed not to be subject to effective competition." Cable operators must overcome that pro-regulatory presumption by demonstrating the existence of effective competition. With two nationwide DBS providers, not to mention telco entrants into the video market that are rapidly gaining market share, cable operators have obtained relief from basic tier rate regulation in numerous local markets.

But the entire rate regulation system has outlived its reason for being. Rate regulations are an onerous form of government restrictions that can be justified only in instances of market failure. Much of existing law concerning cable video services was adopted back in the early 1990s. At that time, most people could obtain video subscriptions only through their local cable operators.

By contrast, today's video services market is marked by choice in video content and competition between different platforms. As indicated in the FCC’s 15th Video Competition Report, by mid-2012 there were approximately 101 million multichannel video programming distributors (MVPD) service subscriptions. Of those, 98.6% – that is, 130.7 million households – had access to at least three MVPDs, and 35.3% – 46.8 million households – had access to at least four MVPDs. As of mid-2012, DBS operators had a market share estimated at 33.6% and "telco" MVPD entrants had a market share of 8.4%.

Also, Congress could insert into STELA reauthorization legislation a provision to eliminate basic tier "must-buy" regulation. Under Section 623, cable operators are required to carry all local broadcast TV signals on their basic tier channel lineup. Must-buy is a central component of the government-prescribed basic tier that cable operators must make available to consumers as a pre-condition to offering additional tiers of cable channels.

But must-buy has likewise outlived its reason for being. Cable operators should be free to offer consumers video content according to their own editorial judgment, not government dictates. To the extent cable operators would rather carry broadcast TV content on a separate premium tier or not carry it at all, consumers could still seek such content from DBS providers, online video distributors such as Hulu or broadcast TV websites, or by using rabbit-ears that receive over-the-air high-definition TV signals.

Further, must-buy regulation poses serious First Amendment problems. Supreme Court case law clearly holds that MVPDs engage in and transmit speech, thereby receiving First Amendment protection from government restriction. The so-called cable bottlenecks that justified much of the cable regulation adopted in the early 1990s do not exist in today's video services market. This point was amply made in the context of the D.C. Circuit's decision in Comcast v. FCC (2013). The D.C. Circuit reversed the FCC's attempt to determine cable channel lineup placement by government decree. In his concurring opinion, Judge Kavanaugh explained that because "the video programming market has changed dramatically, especially with the rapid growth of satellite and Internet providers," MVPDs do not possess market power in the nationwide video services market. Concluded Judge Kavanaugh: "In restricting the editorial discretion of video programming distributors, the FCC cannot continue to implement a regulatory model premised on a 1990s snapshot of the cable market." (For more on this see  The Free State Foundation's "The Case for Program Carriage Reform.")

The must-buy requirement implements a regulatory model premised on a 1990s snapshot of the cable market. Congress should not wait for a new Supreme Court ruling to address must-buy’s misalignment with today's market conditions and First Amendment protections. By some legislative proposal or the other, Congress should eliminate must-buy regulation.

In fact, additional legislative proposals have been offered that would eliminate onerous and outdated regulations of video services. H.R. 3720, introduced by Rep. Steve Scalise, would eliminate both rate and must-buy basic tier cable regulation. Rep. Scalise's "Next Generation Television Marketplace Act" is much broader in scope than basic tier regulation, and its approach is something FSF scholars have previously expressed support for.

Likewise, H.R. 3196, introduced by Rep. Bob Latta, would eliminate the FCC's integration ban that prohibits MVPD-provided video devices from performing both navigation and security functions. The bill offers an approach that could be embodied in STELA reauthorization legislation. FSF scholars have previously commended the policy approach of Rep. Latta's "Consumer Choice in Video Devices Act."    

Congress should keep an open mind about using STELA reauthorization legislation as a route to regulatory reform for video services. Through STELA, Congress could tidy up its policy toward cable services by eliminating rate and must-buy basic tier regulations. Whether STELA is ultimately the right instrument for eliminating outdated cable regulations may be a question of expediency and tactics within the legislative domain. But there’s nothing unclean about the imperative to remove old regulations that are no longer justifiable in today’s competitive video services market.