The Metaphysics of Video Competition

Do you want another example – aside from possibly resolving the long-running "net neutrality" controversy – of why the Communications Act needs to be updated, if not completely overhauled?

Okay, I've got one for you.

If you're a regular reader of this space, or even a halfway regular one, you know that Section 623 of the Communications Act exempts cable operators from rate regulation by state or local franchise authorities (LFAs) if the cable system is subject to "effective competition." What's more, the "no regulation" provision is contained in a subsection titled "Preference for Competition." I bet you can't find very many other "Preference for Competition" subtitles in the U.S. Code.

Section 623(l) contains definitions of "effective competition" that the Federal Communications Commission must apply in making a finding as to whether effective competition exists. In 2015, the Commission established a national presumption in favor of an "effective competition" finding, reversing the then-existing presumption against such a finding. I didn't agree with many of the FCC's actions under then-Chairman Tom Wheeler's leadership, but I had no hesitation commending this one, and often.

The FCC's decision still permitted franchising authorities to file certifications claiming to rebut that presumption. Which brings us to the point I wish to make regarding competition in the video marketplace.

In September 2018, Charter Communications, Inc., filed a felicitously-styled "Petition for Determination of Effective Competition" seeking a determination from the FCC that it faces “effective competition” in certain franchise areas in Massachusetts and in Kauai, Hawaii. Charter asserted that in each of these franchise areas it is subject to effective competition under the so-called "Local Exchange Carrier Test" (LEC Test) because of the availability of AT&T’s DIRECTV NOW streaming service, which offers customers access to at least 65 channels of live television, cloud DVR services, and, in the majority of areas, additional local broadcast channels.

 

So, here is the "LEC Test" as set forth in Section 623:

"a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area."

In its petition, Charter states:

"The LEC Test is satisfied if a LEC affiliate offers a comparable video programming service by any means (other than direct-to-home satellite service) in areas that substantially overlap with the cable system’s franchise area. DIRECTV NOW meets each requirement of the LEC Test. It is a non-satellite video programming service offered by DIRECTV, LLC (“DIRECTV”), an affiliate of AT&T. It is offered throughout the Franchise Areas to any household with an Internet connection, which is available to virtually 100 percent of Charter’s customers in these areas. AT&T has marketed DIRECTV NOW extensively, and residents are well aware of this competing service. Finally, DIRECTV NOW meets the Commission’s definition of a “comparable” video programming service, with at least 12 channels of non-broadcast programming."

On its face, Charter's reading of the statute and its contention regarding the existence of "effective competition" is persuasive. Nevertheless, when I perused the docket, admittedly only casually, I saw that the Massachusetts and Hawaii franchising authorities put forward several different reasons why the DIRECTV NOW streaming offering, even though available to nearly all of the residents in the subject localities, doesn't satisfy the "LEC Test" requirement.

You can go through the docket if you like to examine back-and-forth arguments. If you do, you'll see that they are mostly based on dissecting the techno-functional constructs that are built into the LEC Test definition. These arguments – tending heavily towards the metaphysical – have to do with contending characterizations of the meaning of "facilities" used to deliver the streaming service, whether they are "physical" facilities or not, whether DIRECTV NOW is offered "directly" or "indirectly" to customers, what "by any means" means, whether AT&T is or is not a LEC, and the like.

By the way, when I say the arguments tend towards the metaphysical, I mean metaphysical in the very same sense that I did when I wrote what became my widely-circulated "The Metaphysics of VoIP" piecein 2004. I submit that, fifteen years later, it's still a worthwhile read if you want to appreciate why we need a Communications Act overhaul that doesn't tie regulation to techno-functional constructs.

In other words, in the present case, in doing their best to pick apart the statutory definition in order to retain their rate regulation authority, Massachusetts and Hawaii discuss almost everything but what ought to be the most relevant question: Does the availability of the DIRECTV NOW streaming service, which offers customers access to at least 65 channels of live television, cloud DVR services, and additional local broadcast channels, constitute effective competition and provide customers with an alternative multichannel video service choice if they are dissatisfied with Charter's offering?

To repeat, I find Charter's reading of the statute as it relates to the "LEC Test" persuasive. In any event, at the least, it is within the realm of the Commission's interpretative discretion to the extent the provision is ambiguous. Recall Chevon deference. And recall the "Preference for Competition" subtitle in Section 623.

But the point I wish to make is more fundamental. This one "effective competition" determination proceeding demonstrates yet again why Congress needs to update the Communications Act. Whatever Congress may have been thinking when it adopted the "effective competition" provision in 1992, it certainly didn’t have in mind today's myriad – and still proliferating – Internet video streaming services. I need not name them all here or say more here about their competitive impact.

Whatever the outcome of the proceeding in which Charter is now engaged to free itself from rate regulation of its cable service, I submit that the present competitiveness of the video marketplace – in which cable operators, satellite companies, over-the-air broadcasters, wireless providers, and Internet streaming services all compete – cries out for Congress to take deregulatory action. It doesn't make sense today for the FCC to be required to parse analog age techno-functional constructs embedded in legacy Communications Act definitions to determine whether regulatory relief should be granted.

A good place at least to start considering an update of the Communications Act video provisions is Rep. Steve Scalise's deregulatory "Next Generation Television Marketplace Act," first introduced in 2011. The bill made sense then and it makes even more sense now, when the video marketplace is much more competitive today than it was eight years ago. When Rep. Scalise reintroduced the bill under the same name in July 2018, I wrote about it here in a Washington Times piece. In any updating of the Communications Act, Congress should require that regulation be tied to assessments of competition and consumer harm -- not to abstruse techno-functional definitions that give rise to metaphysical argumentation divorced from marketplace reality.

Spurring Broadband Deployment and Reforming Communications Law

The House Subcommittee on Communications and Technology will hold a hearing, “Closing the Digital Divide: Broadband Infrastructure Solutions,” on January 30 to discuss a raft of recently introduced bills and resolutions aimed at encouraging broadband deployment. As reported in TR Daily on January 23, these include H.Res. 687 (addressing federal, state, and local taxes, fees, regulations, and permitting policies); H.Res. 689 (urging preference for prioritizing wireless infrastructure funding to states that have enacted streamlined siting for small cells); H.Res. 690 (opposing funding broadband overbuilds); H.Res. 691 (recommending that broadband deployment be competitively and technologically neutral); and H.Res. 701 (recommending that environmental and historic studies required for broadband deployment be limited to the area impacted).

As for the remainder, here is TR Daily’s bare-bones listing with the bill numbers:

Leading Infrastructure for Tomorrow’s America Act (HR 2479); the ACCESS BROADBAND Act (HR 3994); the Broadband Infrastructure Finance and Innovation Act (HR 4287); the Communications Facilities Deployment on Federal Property Act (HR 4795); the Inventory of Assets for Communications Facilities Act (HR 4798); the Streamlining and Expediting Approval for Communications Technologies Act (HR 4802); the Making Available Plans to Promote Investment in Next Generation Networks without Overbuilding and Waste (MAPPING NOW) Act (HR 4810); the Wireless Internet Focus on Innovation  in Spectrum Technology for Unlicensed Deployment (WIFI STUDy) Act (HR 4813); the Community Broadband Act (HR 4814); the Promoting Exchanges for Enhanced Routing of Information so Networks are Great (PEERING) Act (HR 4817); the Restoring Economic Strength and Telecommunications Operations by Releasing Expected Dollars (RESTORED) Act (HR 4832); Connecting Communities Post Disasters Act (HR 4845); the Streamlining Permitting to Enable Efficient Deployment of Broadband Infrastructure (HR 4842); the Broadband Deployment Streamlining Act (HR 4847); the CLIMB ONCE Act (HR 4858).

Aside from the use of the clever – even if sometimes awkward – acronym-dictating bill naming protocols, it appears that most of these bills will, in fact, speed broadband deployment by removing or reducing regulatory barriers and facilitating planning processes. Several of them are targeted more specifically at streamlining regulations or processes that otherwise would unnecessarily inhibit deployment of 5G network infrastructure.

Subcommittee Chairman Marsha Blackburn and her committee colleagues should be commended for getting off to a fast start this year in their work to spur broadband infrastructure deployment, including measures targeted to 5G. I haven’t studied all of the details of the bills that will be discussed at the hearing. Nevertheless, it appears that many of them propose common-sense measures that ought to warrant bipartisan support.

Of course, “net neutrality” is the proverbial elephant in the room as congressional Democrats now prepare to attempt to use the Congressional Review Act (CRA) to overturn the FCC’s December 2017 Restoring Internet Freedom order (notwithstanding the fact that several of the leading proponents of this action, only recently, have advocated repeal of the Congressional Review Act.)

Rather than using the CRA process in what almost certainly will be an unsuccessful effort to overturn the Restoring Internet Freedom order, opponents at least should attempt to work across party lines to enact legislation that would resolve the decade-old net neutrality controversy, if not for “all time,” then at least for the foreseeable future.

For many years now, I have stated frequently that I am not fond of a legislative resolution of the net neutrality controversy that writes into law – in other words, that locks in – absolute bans on certain practices, even, say, “throttling,” foreclosing any consideration of the existence or not of market failure or consumer harm. This is especially true, for example, with regard to so-called paid prioritization, where an absolute prohibition, in the absence of consideration of evidence of market failure or consumer harm, seems particularly short-sighted. In other words, in the fast-changing, dynamic Internet environment, legislation that is framed in terms of targeting practices that cause consumer harm or that constitute anticompetitive abuses, examined by the expert agency in the context of current and projected market conditions, is preferable over a law containing outright bans.

Be that as it may, consumers are not well-served for net neutrality regulations to be akin to the proverbial ping-pong, with a change in the rules accompanying each change in administration. Even as the Internet services marketplace and the technology continue to evolve at a quick pace, there certainly is value in stability of the rules of the road. Aside from the need for the market participants to have a predictable, stable legal regime, which facilitates investment and innovation, far too many resources are consumed non-productively by opposing parties contesting regulations subject to administrative ping-pong. To my mind, Chairman Blackburn’s “Open Internet Preservation Act” represents a good starting part for discussing a compromise net neutrality bill.

In the meantime, and in the near term, the cause of advancing broadband infrastructure deployment, including deployment of game-changing 5G networks, ought to be one on which bipartisan consensus can be reached. Tuesday’s hearing is a welcome step in the right direction.

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PS – Note immediately above that I said “in the near term.” I remain convinced that, if not this year, then in the not-too-distant future a comprehensive overhaul of the Communications Act is needed. Back in 2014, the House Commerce Committee initiated what it called a #CommActUpdate process to begin examining what a modernized law – one fit for the Digital Age – should look like. Amidst the heat of the net neutrality controversy that overhaul effort has stalled. But for the full potential of the digital revolution to be realized in a way that enhances overall consumer welfare, and the nation’s social and economic well-being, there will need to be a #CommActUpdate that requires evidence of market failure and consumer harm before regulatory sanctions are imposed.

With that in mind, for those who are willing, or even anxious, to “think ahead,” I commend to you the book recently published by the Free State Foundation titled, #CommActUpdate – A Communications Act Fit for the Digital Age. In addition to a Preface and a lengthy, substantive Introduction containing much detailed background information, this new book reproduces all six Responses to the House Commerce Committee’s White Papers prepared by a distinguished group of Free State Foundation-affiliated scholars. I’m convinced, and I think you may be as well, that the book’s recommendations are instructive in pointing the way forward as the digital revolution continues to produce more competition and more convergence in the communications marketplace.

House Unanimously Passes the Communications Act Update of 2016

On September 27, 2016, the House of Representatives unanimously passed the Communications Act Update of 2016. The bill is comprised of eight Energy and Commerce Committee bills including: H.R. 2583, the Federal Communications Commission Process Reform Act, H.R. 734, the Federal Communications Commission Consolidated Reporting Act, H.R. 4596, the Small Business Broadband Deployment Act, H.R. 4167, Kari’s Law Act of 2015, H.R. 3998, Securing Access to Networks in Disasters Act, H.R. 2669, Anti-Spoofing Act of 2016, H.R. 1301, Amateur Radio Parity Act, and H.R. 2566, Improving Rural Call Quality and Reliability.

We commend the Energy and Commerce Committee Chairman Fred Upton (R-MI) and the Communications and Technology Subcommittee Chairman Greg Walden (R-OR) for their hard work to make the FCC more transparent and to enhance public safety and communication networks throughout the country.