Wednesday, September 28, 2016

The FCC's Attempt to Make Choices for Consumers Will End up Harming Them

In February 2016, the Federal Communications Commission (FCC) adopted a Notice of Proposed Rulemaking (NPRM) purporting to “unlock the box,” mandating requirements for video navigation devices. Including the time the FCC spent writing the NPRM, this proceeding has lasted roughly ten months. After heavy criticism from inside and outside the FCC, the Commission is now apparently proposing an entirely new set of regulations which would require pay-TV providers to deliver video service through an application (as opposed to a set-top box) that can be used on “widely deployed platforms.” The draft Report and Order (unseen by the public) is scheduled to be voted on during an Open Meeting on September 29, 2016.  
If the technological innovation of the video marketplace has changed so much in the last ten months that the Commission has revised its proposal, what makes the FCC so sure that “apps” will be the technology consumers want in the future? And shouldn’t the FCC let the public comment on such a dramatic revision before the Commission casts its votes?
In FSF’s recent comments to the FCC regarding the status of competition in the video market, FSF scholars explained that consumers have more choices for video access than ever before. Our comments also discussed how the FCC’s original and new proposals would violate copyright terms, disincentivizing creators from producing additional content. (In addition to our comments, see my August 2016 blog and Senior Fellow Seth Cooper’s February 2016 blog for more on the copyright violations that the FCC’s proposal would enable.) Regardless of these very important issues, the FCC has misunderstood what should be a pretty simple concept: consumers like having choices in the video market. The fundamental mistake the FCC made in its original proposal was not the type of technological mandate; it was the mandate itself!
The video market has experienced tremendous innovation in the last five to ten years as online video distributors (Netflix, Amazon, Hulu) have emerged to become competitors with facilities-based pay-TV providers (Comcast, Verizon, Time Warner Cable). In fact, Netflix, Amazon, and Hulu combined have more than twice as many subscribers as all cable providers combined. The video market has been transitioning from set-top boxes to applications, so this mandate simply creates unnecessary uncertainty and removes the traditional options for consumers who are less likely to adopt to the latest market trends. (See here, here, and here for examples of the innovative transition that is occurring in the video market.)
If adopted, the mandate proposed by the FCC will raise costs for pay-TV providers. In fact, the FCC’s fact sheet acknowledges this because the proposal exempts providers with fewer than 400,000 subscribers in an attempt to “limit burdens on smaller providers.” Ultimately, consumers will end up paying for this technological mandate with an increase in the price of their pay-TV service.
Consumers likely will be able to see the increase in their provider’s costs on their monthly bills, but there will also be hidden costs. The FCC’s mandate could disable pay-TV providers from differentiating their application’s interface and usability. This would discourage providers from developing new ways to deliver their service. Such a requirement could force video distribution, which recently has been at the forefront of innovation, onto the back burner of technological development. Consumers would enjoy less innovation in the video market than they otherwise would, absent the FCC’s proposed regulations.
On September 16, 2016, Jason Furman, Chairman of the Council of Economic Advisers for President Obama, praised FCC Chairman Tom Wheeler for his efforts to “improve the proposal.” But neither President Obama and his closest advisers nor Chairman Wheeler and his FCC colleagues are knowledgeable enough to predict the future and mandate efficient outcomes in the video marketplace. Consumers, collectively, are the only group of people who can dictate what technologies provide value and which do not. While applications (as opposed to set-top boxes) might be closer to where the video market is moving right now, technology changes so rapidly that it may be only be a matter of weeks or months before the mandated technology is out-of-date.
Over the period of ten months, the FCC changed its mind about what technology to mandate for pay-TV providers and consumers. Who is to say that the FCC will not mandate a new technology a year or so down the road? The FCC should shut down this proceeding and allow consumers in the competitive marketplace to choose the technologies and platforms they prefer when accessing video content. If not, at the very least, the FCC should issue a new NPRM, instead of a Report and Order, so the public can comment on its quick switch from set-top boxes to applications.