FCC Wades into the Newsroom

FCC Commissioner Ajit Pai has an important piece in today's Wall Street Journal entitled "FCC Wades into the Newsroom." [subscription required].

Even in today's age of media abundance, the FCC can't resist the notion that part of its job is to ensure that the media -- in this case even the print media which, thankfully, it doesn't directly regulate -- are covering certain issues sufficiently and in a balanced way. The Commission says that right now it is only gathering information -- just investigating --  but the history of the FCC shows that often this is a prelude to trying to implement some new regulatory scheme or another.

Many of the FCC's regulations are outdated and don't fit today's competitive communications environment. They should be jettisoned. But those that involve content regulation, or even the threat of content regulation, run up against First Amendment rights and are especially pernicious.

Commissioner Pai's op-ed calls attention to a matter at the FCC that bears close attention.

The Court Should Call A Double Fault

On February 25, the D.C. Circuit Court of Appeals will hear oral argument in Comcast Cable Communications v. FCC. This is the case in which the FCC, with Commissioners Robert McDowell and Ajit Pai dissenting, held that Comcast unlawfully discriminated against the Tennis Channel by refusing to accede to the Tennis Channel's request  – right in the middle of a contract term – that it be moved to a program tier with broader distribution than the one on which it was carried. 

After all is said and done, the court should call the FCC for a clear double fault. First, based on the facts of the case, the FCC should not have found that Comcast committed a statutory violation. Second, if it reaches the constitutional claim, the court should find that the FCC's decision violates Comcast's First Amendment rights. 

The FCC's Tennis Channel ruling is a clear case of agency regulatory overreach. Hopefully, the D.C. Circuit court will vacate the agency's decision. This will not only right a wrong, but it will also send a message to the agency that such regulatory zealotry is out of bounds. 

The basic facts of the case are really not in dispute. In the middle of a negotiated contract term, the Tennis Channel requested that Comcast move it from its current program neighborhood to the more broadly distributed tier on which two Comcast-affiliated networks – the Golf Channel and Versus (now called the NBC Sports Network) – were located. When Comcast refused, the FCC determined Comcast violated Section 616 of the Communications Act and the agency's regulations issued thereunder. Section 616 and the agency's implementing rules prohibit multichannel video program distributors ("MVPDs") from acting to "unreasonably restrain" unaffiliated program vendors from "compet[ing] fairly by discriminating in video programming distribution" on the basis of affiliation. 

The FCC determined that Comcast "discriminated" against the Tennis Channel in violation of Section 616 and the Commission's regulations despite the fact that, at the time of the ruling, six of the 20 largest MVPDs did not carry the Tennis Channel at all. And despite the fact that at the time the complaint was filed, every major MVPD that did carry the channel distributed the Golf Channel and Versus more broadly than the Tennis Channel. And, significantly, despite the fact that the FCC's ruling required Comcast to carry the Tennis Channel on a tier that would distribute the channel more broadly than it is distributed by its two owners – satellite operators DISH and DIRECTV – who happen to be Comcast's vigorous competitors in the multichannel program distribution market. The Commission ordered Comcast to move the channel to a different program tier. 

I initially addressed the problematic nature of this case in a blog back in December 2011 when an agency Administrative Law Judge ruled in the Tennis Channel's favor, a ruling the Commission affirmed in July 2012, essentially adopting the ALJ's reasoning. 

Without repeating everything I said in that December 2011 piece, I just want to make these points in advance of the upcoming oral argument. Even granting that the "discrimination" standard, with its competing "fairly" and "unreasonably" restrain language, is inherently somewhat vague and malleable, under the facts of this case, the agency's finding of discrimination on the basis of affiliation is unsupportable. Comcast was carrying the Tennis Channel in accordance with an agreement negotiated by the parties, and no other major MVPD was distributing the Tennis Channel in a manner more broadly than Comcast. When the complaint was filed, many large MVPDs did not carry the Tennis Channel at all, and all the major MVPDs that did carry it were distributing Versus and the Golf Channel more broadly. 

The Commission erred in finding "discrimination" under Section 616 just because the Tennis Channel was not treated in exactly the same manner as Comcast's affiliated sports channels. The statute does not require "equal treatment." Rather, it prohibits discrimination that is proven to be based on affiliation, a showing that, under the circumstances, could not be made. 

In my view, the Commission's action in the Tennis Channel case likely is inconsistent with the First Amendment as well. If Comcast is required to move the Tennis Channel from its present location, as the Commission ordered, it almost certainly will be required, due to channel capacity limitations, to displace another program channel that Comcast has determined either is more popular with its customers, or one that deserves an opportunity to try to build audience support. The decision to carry a channel, and where to place the channel, involves editorial discretion on the part of the cable operator that implicates free speech interests.

Moreover, in rendering its "discrimination" decision, the Commission was required to make determinations concerning the similarity of the programming among program channels. It may be true that tennis and golf are both "sports." But to make the type of determination rendered in this instance, the FCC necessarily examined the nuances of program genres, program ratings, target audiences, and the like. This type of detailed examination into programming decisions raises obvious free speech concerns regarding the violation of Comcast's First Amendment rights.

Indeed, while the Commission's Tennis Channel order in any event should be vacated, in light of today's competitive video marketplace environment, it is time for Congress to consider jettisoning the entire program carriage regime, especially as implemented by an overreaching agency. When Congress adopted Section 616 as part of the Cable Act of 1992, cable operators arguably possessed dominant market power in the multichannel video distribution marketplace. Now, more than two decades later, the marketplace environment is vastly different. With two satellite television operators competing, along with the "telephone" companies, cable's share of the MVPD market has dropped from 98% in 1992 to less than 60% today.

As the D.C. Circuit stated in 2009 in vacating in the FCC's rule limiting the number of subscribers a single cable operator could serve:

"First, the record is replete with evidence of ever increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992. Second, over the same period there has been a dramatic increase both in the number of cable networks and in the programming available to subscribers." Comcast Corp. v. FCC [Lexis subscription required].
So, while the facts alone of the Tennis Channel case warrant reversal of the discrimination finding, if the court considers the First Amendment claim, it certainly should have in mind the present competitive multichannel video marketplace – which is more competitive now than in 2009.

And Congress should have the changed marketplace in mind as well when it revisits the current outdated provisions of the Communications Act.

New Year's 2012: Hayek, Liberty, and the Communications Policy Reform Agenda

I spent part of the holidays re-reading Friedrich A. Hayek's The Constitution of Liberty. (I know. Not exactly light reading like, for instance, The Girl with the Dragon Tattoo!)

During the holiday period, I also devoted considerable time to thinking about the Free State Foundation's ongoing efforts to spur reform of the nation's communications laws and policies. (I know. Not exactly light thinking, like, for instance, thinking about whether to go see Meryl Streep in The Iron Lady before catching up on missed episodes of Glee).

In Hayek's famous work, The Use of Knowledge in Society, he explains the important role that dispersed bits of incomplete and frequently contradictory knowledge -- that is, information possessed by individuals acting on their own in response to price signals – play in the working of free markets.

The Constitution of Liberty, on the other hand, is not a work of economics, but rather of political economy. Here Hayek explains why a system of government based on certain foundational rule of law principles is a predicate not only for the functioning of a rational, efficient economic order but, just as importantly, for a government that both preserves liberty and promotes prosperity.

I acknowledge that when Hayek wrote The Constitution of Liberty, published in 1960, he was not focused on reforming communications law and policy. I understand this. Nevertheless, the fundamental principles he espoused have much relevance in thinking about that topic today.

To show why this is so, first, I want to set forth a few key excerpts from The Constitution of Liberty that fairly capture overarching central themes of Hayek's work:

"[T]here are two reasons why all control of prices and quantities are incompatible with a free system: one is that all such controls must be arbitrary, and the other that it is impossible to exercise them in such a manner as to allow the market to function adequately."

"If there is to be an efficient adjustment of the different activities in the market, certain minimum requirements must be met; the more important of these are, as we have seen, the prevention of violence and fraud, the protection of property and the enforcement of contracts, and the recognition of equal rights of all individuals to produce in whatever quantities and sell at whatever prices they choose."

"All experience confirms what is 'clear enough from American as well as from English experience, that the zeal of the administrative agencies to achieve the immediate ends they see before them leads them to see their function out of focus and to assume that constitutional limitations and guaranteed individual rights must give way before their zealous efforts to achieve what they see as a paramount purpose of government.' It would scarcely be an exaggeration to say that the greatest danger to liberty today comes from the men who are most needed and most powerful in modern government, the efficient expert administrators exclusively concerned with what they regard as the public good."

"[T]here is a strong presumption against such [general regulations of economic activity] because their over-all cost is almost always underestimated and because one disadvantage in particular – namely, the prevention of new developments – can never be fully taken into account."

Next, with the above excerpts in mind, I want to extract from these themes several key principles that are relevant to establishing welfare-enhancing communications policies in today's competitive, fast-changing, technologically dynamic marketplace, and also to understanding the FCC's proper role and stance. These principles are:

•       A proper role for government is the protection of property and the enforcement of contracts.

•       The free market, not government officials, should dictate the quantities of goods and services produced and the prices at which they are sold because the decisions of government officials necessarily will be arbitrary in relation to those of the market.

•       Even if they are well-intentioned, administrative agencies are, by definition, almost always overzealous in pursuing what they claim as the public good at the expense of individual freedom.

•       The costs imposed by new regulations almost always are underestimated, while new developments are not fully anticipated.

Finally, I want to suggest, what should be obvious: Communications law and policy, as it stands today, is far from grounded in Hayekian principles. And the FCC, as the administrative agency charged with implementing the communications laws, regularly acts just in the way Hayek suggested such an agency would act – by overzealously and arbitrarily regulating in the name of the "public good," while downplaying the costs imposed by its regulations and failing to anticipate new developments.

So, as we continue our efforts at the Free State Foundation to spur free market-oriented reform of our nation's communications law and policies, we will do so with Hayek's themes and principles in mind.

This is true, for example, with respect to our efforts over the coming year to:

•       Prevent broadband services from being subjected to public utility-style regulation and rolling back such regulation where it already has occurred, for example, with respect to the FCC's imposition of net neutrality mandates. See my recent commentary, "Build Back That Broadband Wall."

•       Free up additional spectrum through authorization of incentive auctions and removal of current FCC rules that unnecessarily restrict licensees' freedom to use their spectrum more flexibly and to dispose of their spectrum more easily through workable, transparent secondary markets.

•       Eliminate or curtail outdated video regulations such as the FCC's program carriage rules. In a recent FCC administrative law judge's decision, the program carriage regulations were (mis)used by the judge to arbitrarily abrogate negotiated contract rights in mid-term, and substitute the government's judgment concerning program carriage for that of a private business operator's, all the while disregarding First Amendment free speech rights regarding program content selection. See my recent commentary, "The Tennis Channel Case: No Mere Foot Fault."

•       Eliminate, as contemplated by the newly-introduced "Next Generation Television Marketplace Act," the obsolete regulatory regime in which the government requires that multichannel video operators "must carry" certain kinds of channels with particular kinds of program content, restricts the number and kinds of media outlets that may be commonly owned, and establishes a compulsory license regarding retransmission of certain kinds programming by cable operators, all the while offending free market and free speech principles. For a good short primer on why the "Next Generation Television Marketplace Act" warrants a positive reception, see the paper, "The FCC and the Unfree Market for TV Program Rights," by Free State Foundation Academic Advisory Board Member Bruce Owen.

•       Reform the FCC's broken merger (transaction) review process in which the agency frequently exercises its largely unfettered discretion under the indeterminate public interest standard to impose conditions on the merging parties that are unrelated to the transaction before the Commission and which are not justified by competition analysis. Nothing has changed to improve this "regulation by condition" process of coerced volunteerism since I first wrote about the problem in "Any Volunteers" in 2000.

•       Oppose efforts to get the International Telecommunications Union's World Congress on Information Technology (WCIT–2012), to be held in October 2012, to adopt policies that, under cover of the ITU, sanction control and regulation of the Internet in various ways, including regulation of transmissions and content that governments deem offensive. See FCC Commissioner Robert McDowell's recent speech warning about those advocating at the WCIT for a new regime that "would create a new overarching layer of international regulation."

I understand there are other communications policy topics that could be highlighted, and that there are issues within issues in the topics listed above. The listing is not intended to be exhaustive. What I intend to show is that, running through the compilation, is a Hayekian approach that respects contracts and private property, constrains otherwise unbridled administrative discretion, and promotes free markets and the rule of law.

This is the surest – and, in the end -- the only sure way to advance prosperity and protect liberty at the same time. 

The Tennis Channel Ruling: No Mere Foot Fault

This was no mere foot fault. A Federal Communications Commission Administrative Law Judge (ALJ) issued a decision yesterday that was far enough out of bounds that perhaps it will be a game-changer that persuades policymakers that outdated legacy communications laws and policies no longer make sense.

The ALJ ruled in favor of the Tennis Channel in its "program carriage" complaint against Comcast. In essence, the ALJ ruled that Comcast discriminated against the Tennis Channel, which is not affiliated with Comcast, by not acceding to the Tennis Channel's request that it be moved, in the midst of its contract term, to the same program tier as two of Comcast's affiliated sports channels. The ALJ finds the Tennis Channel is sufficiently similar to the Golf Channel and Versus channels that they must all be located in the same program neighborhood for Comcast to avoid running afoul of the anti-discrimination prohibitions in the agency's carriage regulations.

In today's dynamic broadband world, including the broadband video world, the FCC inflicts much marketplace damage in the name of preventing or rectifying "discrimination." Just witness last year's promulgation of net neutrality mandates. Net neutrality mandates are based on public utility-style regulation that has, at its core, a prohibition on discrimination. This discrimination regulation may have been appropriate in the monopolistic Ma Bell-era but it is not proper in today's competitive multi-platform broadband environment.

In the Tennis Channel case, the ALJ purports to be enforcing the Commission's program carriage regulations promulgated under Section 616 of the Communications Act which gives the FCC authority to prevent multichannel video programming distributors (MVPDs) like Comcast from restraining the ability of unaffiliated video program vendors from competing "fairly by discriminating."

"Fairly by discriminating." Aha. There's a lot of room for the exercise of unbridled administrative discretion encompassed in those three words.

In my "Build Back That Broadband Wall" commentary, published just last week in the Washington Times, I highlighted four examples to show how the FCC is extending, or proposing to extend, legacy analog-era regulations developed in last century's monopolistic narrowband environment into today's competitive broadband world. One example, somewhat prescient in light of the ALJ's decision, was the FCC's program carriage regulations.

Here is what I said in my commentary:

"The commission proposes to expand existing program carriage rules intended to prevent cable operators and other video programming distributors from discriminating against unaffiliated programming vendors. The existing rules, adopted in the early 1990s when cable operators still possessed market power and when vertical integration was more pronounced, no longer serve any useful purpose. Today, only two of the 25 most-viewed cable networks are wholly owned by cable operators. With two nationwide satellite television operators and a broadband telecommunications provider competing vigorously in most locales - not to mention a growing number of popular Internet video sites - cable operators lack the incentive and ability to discriminate against unaffiliated programmers. So there is a good argument the existing program carriage requirements should be eliminated, especially in light of free speech concerns raised by the government mandating carriage of particular programs. At the very least, however, the regulations should not be expanded as the commission now proposes. Contrary to the First Amendment, the expanded regulations would have the government injecting itself even further into decisions about what programming video providers must carry and where in their channel lineups such programming must appear."

To understand what is wrong with the ALJ's decision, in a very fundamental sense, please carefully consider what I wrote above – before the issuance of the ruling in favor of the Tennis Channel.

And, now also consider this:

·      In this instance, the Tennis Channel's placement in Comcast's program lineup was in accordance with a contract between the parties in which the Tennis Channel had agreed to its lineup placement. The amount of compensation negotiated under the contract was, of course, related to the agreed-upon tier placement.

·      Several other MVPDs simply made a decision not to carry the Tennis Channel at all, thus obviating any need to bargain about placement of the channel.

·      If Comcast is required to move the Tennis Channel from its present location, it almost certainly will be required, due to channel capacity limitations, to displace another program channel that Comcast has determined, based on its business judgment, either is more popular with its customers, or one that at least deserves an opportunity to try to build audience support.

·      In rendering his decision on "discrimination," the ALJ was required to make determinations concerning the similarity of the programming among program channels. It is true, I suppose, that tennis and golf are both "sports." But to make the type of determination rendered in this instance, the government regulator is required to examine the intricacies of program genres, program ratings, target audiences, and the like. This type of examination into programming decisions raises obvious free speech concerns.

So, in sum, the ALJ's decision in the Tennis Channel case was a ball hit out of bounds. The Free State Foundation's mission, proclaimed on our website, is to promote understanding of "free market, limited government, and rule of law principles." By ignoring the competition that exists in today's video marketplace, by, in effect, abrogating the negotiated contract in mid-term, and by deciding to substitute his judgment concerning the carriage and placement of programs based on an examination of the contents of the programming, the ALJ has managed to offend free market, limited government, and rule of law principles in one fell swoop.

In the not too much longer-term, taking account of today's competitive video marketplace in which cable operators, satellite operators, and telephone companies – and, increasingly, popular Internet video sites -- all compete for viewers, Congress should repeal the provision in the Communications Act authorizing the FCC to promulgate and enforce program carriage regulations.

A proper understanding of the First Amendment demands no less.
In the near-term, the FCC commissioners should reverse the ALJ's decision.

Willful Denial and First Amendment Jurisprudence

With the submission of briefs to the Supreme Court in FCC v. Fox Television Stations (a.k.a. "the FCC indecency case"), I have been thinking, as I often do, about the Federal Communications Commission and the First Amendment.

The issue in the Fox Television case is whether the FCC's determination that three different broadcasts violated the agency's indecency policy is consistent with the First Amendment. Two of the broadcasts concern the use of "fleeting" expletives, and the other, "fleeting" nudity. If you want more graphic details, you can go to the briefs, or to the original broadcasts.

For my purposes here it is unnecessary to dwell on the specifics of the broadcasts, or my sense as to whether or not the broadcasts comport with my own standards of decency. What I want to do instead is to use the occasion to once again call attention to the need for a new First Amendment jurisprudence that treats all media the same. By that, I mean a First Amendment jurisprudence that accords all media, including broadcasters and cable television and satellite operators, the same robust First Amendment protection accorded to the print media.

In the case now before the Supreme Court, the Court of Appeals for the Second Circuit held unconstitutional the FCC's new context-based indecency policy on the basis that it is impermissibly vague. "Void for vagueness," as the constitutional doctrine goes. It is quite possible, perhaps more likely than not, that the Supreme Court will decide the case on this vagueness point.

But Fox and other broadcasters explicitly are asking the Court more broadly "to overrule Pacifica and recognize that broadcasters have the same First Amendment protections as other media." To the same effect, a distinguished group of former FCC commissioners and staff officials filed a brief declaring:

In today’s media environment, the distinctions drawn by Pacifica between broadcast and other electronic media are unsustainable. Viewers can access the same content across broadcast, cable, satellite, and the internet or can subvert the Commission’s enforcement efforts by simply switching channels or turning on a computer. This reality makes plain that the Commission’s efforts to impose a separate standard on broadcasters is woefully under-inclusive. The First Amendment cannot tolerate discrimination against one of several like speakers. It is time for this Court to declare that the same First Amendment principles apply to all media.

And I have long argued the same point. In a 2009 law review article published in the Charleston Law Review, I ended this way:

Hopefully sooner rather than later, the Court will revisit Red Lion, Pacifica, and Turner in order to establish a new First Amendment paradigm for the electronic media, one that is much more in keeping with the founders’ First Amendment vision. It may even move in this direction this Term upon its Fox Television decision. Perhaps it was predictable, maybe even likely, that the First Amendment’s protections would be limited substantially during the twentieth century’s Analog Age that tended towards a monopolistic or oligopolistic communications marketplace. But now, in the face of proliferating competitive alternatives attributable to profound marketplace and technological changes, it ought to be considered predictable and yes, even likely, for the Court to establish a new First Amendment jurisprudence befitting the media abundance of the twenty-first century’s Digital Age.

Of course, on the first trip up to the Supreme Court for the FCC's indecency decisions now on review, the Court did not confront the constitutional issues now before it. Instead, in Fox Television Stations, Inc. v. FCC (2009), it remanded the case to the appeals court, sustaining the FCC's actions on administrative law grounds, thereby avoiding a decision on the broadcasters' First Amendment claims. Notably, Justice Thomas, in a concurring opinion citing my Charleston Law Review article, invited reconsideration of Red Lion and Pacifica, the two principal cases that provide the foundational sanction for according broadcasters less First Amendment protection than other media. Justice Thomas stated: "The extant facts that drove this Court to subject broadcasters to unique disfavor under the First Amendment simply do not exist today."

Many, if not most, of the readers of this space are familiar with the posture of the Fox Television Stations II case now before the Court and with the First Amendment jurisprudence to which I have alluded. But many may not be familiar with one of the more eloquent calls ever for a new First Amendment jurisprudence, certainly one of the most eloquent delivered by an FCC commissioner. An FCC commissioner who suggested the FCC ought to relinquish, as a matter of constitutional duty, authority to regulate broadcast content. I have in mind then-commissioner Michael Powell's June 1998 address entitled, "Willful Denial and First Amendment Jurisprudence."

At the time I first read it, I found Mr. Powell's address a stirring, prescient declaration of free speech principles, with which I was in full sympathy. I pull out the speech from a ragged old folder to re-read from time to time. As the Supreme Court prepares to hear argument on, and decide, Fox Television Stations II this term, I suggest you too may find the address by Mr. Powell, now President and CEO of NCTA, worth reading, or re-reading.

Here are a few excerpts to whet your appetite:

This leads me to the heart of my remarks today. Though I consider the constitutionality of proposed broadcast regulation last when I work through such issues under the public interest standard, at least I do work through it. I have observed that while changes in technology, the law, markets and consumer preferences often ignite discussion about the impact of changed circumstances on broadcaster's public interest obligations, such changes rarely initiate an equally serious examination of their constitutional protections. I believe that any attempt to consider how changes in technology and the regulatory environment affect public interest obligations, necessarily must include a review of the underpinnings of current First Amendment jurisprudence. There is a symbiotic relationship between the scope and content of public interest duties and the Constitution. The greater the protection afforded by the latter the less intrusive the government can be with respect to the former.

***

I submit that the time has come to reexamine First Amendment jurisprudence as it has been applied to broadcast media and bring it into line with the realities of today's communications marketplace. As far back as 1984, the Supreme Court indicated in the League of Women Voter's case, that it would await "some signal from Congress or the FCC that technological developments have advanced so far that some revision of the system of broadcast regulation may be required." I believe we should be getting those signal fires ready.

***

With scarcity and the uniqueness of broadcasting such demonstrably faulty premises for broadcast regulation, one is left with the undeniable conclusion that the government has been engaged for too long in willful denial in order to subvert the Constitution so that it can impose its speech preferences on the public -- exactly the sort of infringement of individual freedom the Constitution was masterfully designed to prevent.

***

In sum, I submit that it is time to reexamine the defensibility of maintaining a separate First Amendment jurisprudence. We must take the truth about scarcity for broadcast media out of the closet. Rather than continuing to engage in willful denial of reality, the time has come to move toward a single standard of First Amendment analysis that recognizes the reality of the media marketplace and respects the intelligence of American consumers.

Recall that these excerpts are from a speech delivered in 1998, more than twelve years ago. Surely, it is time for the "willful denial" of First Amendment rights, of which the then-FCC commissioner Michael Powell so eloquently spoke, to end. It is time, as I said in my 2009 Charleston Law Review article, for the Supreme Court "to establish a new First Amendment jurisprudence befitting the media abundance of the twenty-first century’s Digital Age." This means a jurisprudence that willfully provides full First Amendment protection to broadcasters, cable and satellite operators, Internet service providers, print purveyors, and other media alike.

Red Flags Over The FCC's Broadband Plan

Politico has posted what is described as a late draft of the executive summary of the FCC's "National Broadband Plan." Here are some quick reactions.

Foremost, the plan is breathtaking in its scope, although some of the goals propounded are clearly hortatory and admittedly long-term. As for the scope, I do not think it is ungraceful to acknowledge the hard work and good faith of Blair Levin and his team, while at the same time suggesting that an overly ambitious and diffuse plan, with too much government direction, ultimately is likely to make it more difficult to achieve the widely shared goal of getting broadband to the increasingly few unserved areas and the increasingly few unserved citizens. At least ot achieve that goal in a sound and economic fashion.

The plan's overly ambitious scope is somewhat at odds, right from the outset, with this up-front acknowledgement:

"Fueled primarily by private sector investment and innovation, the American broadband ecosystem has evolved rapidly. The number of Americans who subscribe to broadband has grown from eight million in 2000 to nearly 200 million last year. Increasingly capable fixed and mobile networks allow Americans to access a growing number of valuable applications through innovative devices."

Here are a few specific (not meant to be exhaustive) red flags based on the leaked executive summary:

· The suggestion of a "comprehensive review of wholesale competition rules" to ensure competition is troubling. In plainer English, this means considering requiring that some Internet service providers unbundle and share their networks with other would-be competitors. The FCC tried that approach of "managed competition" in the late '90s in implementing the Telecom Act of 1996. The result was not pretty. Investment was stifled. The court ultimately overturned the FCC's mandatory sharing rules – but not before a lot of damage was done. The FCC shouldn't even start down this road again.

· The focus on freeing up and allocating "unlicensed spectrum" is misplaced. Licensing spectrum, and creating property-like rights, ensures that the spectrum resource will be developed to its highest and best use. Consumers and taxpayers are the beneficiaries.

· The proposal to consider conditioning a spectrum block on the offering of a free or low cost service should be rejected. It is an uneconomic and inefficient way of addressing a problem that, if it exists, should be addressed on a narrowly targeted basis that provides support to low-income persons. Conditioning spectrum disserves consumers and taxpayers.

· The proposal to create new Connect America and Mobility Funds are problematic. It looks like, with the Universal Service Fund tax now at 15% on all interstate calls, the plan's drafters recognize that the legacy USF fund supporting voice calls no longer represents sound policy, if it ever did. The problem is that the plan apparently envisions creation of new mechanisms that will work somewhat similarly to the existing regime by collecting fees from telecom users assessed on the services they use. This approach provides government administrators with an unending pot of money to spend with no endgame in sight or defined. The money keeps flowing arguably long after even any perceived problem has been addressed. Witness the difficulty in reforming the existing universal service regime, more than a decade or so after nearly all economists agreed the program had outlived its usefulness. So, here, the plan proposes an overly long transition period of another ten years to sunset the support of the existing voice regime. A better approach is to have Congress appropriate funds directly from the Treasury, so there is greater accountability to the public, and to rely on Linkup-LifeLine programs (which the plan proposes) to provide targeted support to low-income persons who need subsidies to acquire service.

· The executive summary refers to "creating a robust public media ecosystem and modernizing the democratic process." Suffice it to say here that when government officials propose getting into the business of creating and foster the "public media" it inevitably means they will end up exercising control over the media they create, even though they will almost always deny it. This is troubling for many reasons, not least of which is the jeopardy to the First Amendment. Those who are some of the fiercest advocates of creating public media tend, whether inadvertently or advertently, not to recognize that the First Amendment is intended to protect against government censorship and control, not to offer cover for increased government control or interference with the media.

As for "modernizing the democratic process"? It should be enough to say great caution is warranted here. The Founders did a pretty good job, and they should be looking on at this effort warily.

Richard Epstein on the Comcast-NBCU Merger

Last Friday, the Free State Foundation published a Perspectives from FSF Scholars on the proposed Comcast-NBCU merger by Richard Epstein, one of the nation's foremost law and economics scholars. In his Perspectives paper, Professor Epstein, Free State Foundation Distinguished Adjunct Senior Scholar, refutes the testimony on the merger of the Consumer Federation of America's Dr. Mark Cooper. Indeed, Professor Epstein states that Dr. Cooper has achieved a rare feat in that the "evidence that he presents against this proposed merger suffices to explain emphatically why it ought to be approved."

You should read Professor brief paper in its entirety. But here are a few excerpts:

• "Dr. Cooper's analysis does not engage in this elementary form of analysis. The words "efficiency" and "benefit" do not appear anywhere in the analysis, so that the implicit baseline for his dubious judgment is that any cost of the merger is in and of itself to require its rejection by the applicable public authorities."

• "Dr. Cooper has the rare skill to turn an economic virtue into a social vice. He writes that the two companies have in their respective roles of distributor and content provider, 'a competitive rivalry. For example, in providing complementary services, broadcasters and cable operators argue about the price, channel location and carriage of content.' Argue? What his odd choice of words shows us is that he has no explanation as to why the reduction in transaction costs should count as a social loss, when in fact it allows the provision of more services at lower prices. The gains from vertical integration are treated as though they create a social loss, which is even more mysterious because he does not bother to establish that either firm has any level of monopoly power to begin with."
  

• "He then fortifies this analysis with one kind of alarmist prediction that makes sense only to those who are convinced that both companies with commit hari-kari after their linking up their fortunes. Thus he thinks that Comcast will carry only NBC content, which NBC will in turn only supply to Comcast. But why would either company wish to make its network weaker than it need be, by entering into actions of exclusion that hurt itself as much as any outsider? If the purchase of outside content allows Comcast to satisfy its customers' tastes, it will go for it. If selling content to other service providers allows NBC to gain more revenues, all the better. Both points are especially true for Comcast which does not have nationwide penetration in the cable market."

• "[T]he last thing that any analyst should do is botch the antitrust analysis in any field that is as important as speech. Instead, the question is to ask why this combination might affect the market in speech. Here two points are relevant. The first is that the political speech market has never been healthier, because the coming of age of the web introduces more political content and lower cost of access than ever before. Entertainers may experience serious grief with the web because they are trying to sell content that is easily pirated. But political commentators are intent upon giving away content for free in the in the hope that every reader will forward a particular story to his or her entire list. Puhleeze forward!!"
  

• "The situation is in reality exactly the opposite of what Dr. Cooper topsy-turvy analysis predicts. Efficiency is even more important when first amendment issues are at stake than when they are not. He is not able to perform a minor intellectual miracle of having an upside down antitrust analysis saved by topsy-turvy First Amendment analysis. His errors don't cancel each other out. They cumulate."

Anyone interested in following the Comcast-NBCU merger, especially those susceptible to falling for the wildly exaggerated claims of the so-called public interest groups, should read Professor Epstein's paper. At the same time, it would be useful to have in mind Professor Epstein's impressive bio.

Of Transformational Moments and Media Regulation

There is an interesting piece on the Broadcasting & Cable website in which John Eggerton, B&C's longtime, highly knowledgeable media reporter, interviews Steven Waldman, senior advisor to FCC Chairman Julius Genachowski. The interview gives me pause – and it may give you pause as well.

In the setup for the interview, which you should read in its entirety, B&C states: "Waldman is charged with coming up with a report to the commission on the state and fate of the media in the midst of radical change." In the interview, Waldman is careful to say that, with the project he leads, the FCC is not looking to save any particular company or industry because "that is not really our job." But what exactly is the job that the FCC is looking to do under Waldman's charge? Mr. Waldman says: "We are looking at it in terms of preserving certain functions, in which I do include accountability journalism."

Here's the rub. It is not really the FCC's job – or generally within its delegated jurisdiction – to preserve "accountability journalism," or even to define it. Indeed, despite Waldman's appropriate nods to First Amendment sensitivities, free speech concerns are necessarily implicated when the government categorizes different kinds of media content and worries about preserving some content and not other.

I prefer to assume the good intentions of Chairman Genachowski and Mr. Waldman, and others, when they bemoan what they perceive as the troubled state of the news media and when they pledge to focus government's efforts on what Mr. Waldman calls "the information needs of the community." But the truth of the matter, if we are to be candid, is that many of those in the "fix the media" camp just don't like particular programs, or networks, or what they might call the slants of particular media outlets. They often rail against the "24-hour cable news networks," and especially against one particular cable news network they say is not as "fair and balanced" as it advertises.

Perhaps what many of the "accountability journalism" proponents really long for are the days when television news was dominated by three major network news operations with a generally liberal tilt. When Walter Cronkite closed each evening's broadcast with the soothing, "And that's the way it is." Except when it wasn't. And recall the occasions when Cronkite's successor, Dan Rather, told us the way it was, but it wasn't. We only found out because of the bloggers, certain 24-hour cable news networks, and other non-mainstream media. Accountability journalism in action, perhaps – without government help.

Now here are some of Mr. Waldman's specific responses that particularly give me pause.

He says: "But the one premise is that the chairman and I believe we are at a transformational moment. The first thing we have to do is make sure the FCC meets that moment in a smart way." When government officials speak of "transformational moments" as justification for embarking on new missions, caution is in order. The Obama Administration, especially, has been keen to invoke transformational moments, for example, as justification for radical changes in health care and energy policy. The result, in my view, has been overreaching. I worry that invocation of the "transformational moment" could lead to overreaching as well with respect to media policy.

Mr. Waldman says: "Everything the FCC does affects the structure and organization of the media, and those often have very profound effects. Traditionally there has been a line between structural rules and ownership and micromanaging content, and I think that is a reasonable line in the sand." In one (theoretical) sense, this statement about a reasonable line in the sand is reasonable enough. But in another more practical sense it is not.

First, for many years (decades really), with Commissioner Copps and similar-minded commissioners leading the charge, the FCC has stood in the way of reforms that might have prevented or slowed the demise of journalistic endeavors whose demise they now purport to decry. I refer, of course, to their reflexive opposition to any relaxation of media ownership regulations, say, for example, that would have allowed combinations of local newspapers and broadcast outlets. Such combinations might have provided the necessary financial and other resources for supporting more of the "accountability journalism" that now is of such professed concern to these media regulators. I am confident that if you ask Commissioner Copps, he will tell you he has never been so concerned about "media concentration" as he is today. Not even when three television networks dominated the 30 minute nightly news shows, before the availability of new over-the-air networks, a multitude of cable networks, satellite radio outlets, the Internet, and so forth.

Second, while Mr. Waldman expressly eschews micro-managing content, I worry about the FCC macro-managing content. The line between micro and macro-managing content is not that clear. The natural inclination of government officials is the all-too-human tendency to want to enhance control of the media control in the interest of self-promotion or self-protection. This is why we have a First Amendment, by the way.

In this regard, in the context of the net neutrality debate, it has been shocking, if not surprising, to hear high government officials with responsibilities in the area of communications regulation, such as Andrew McLaughlin, a former top Google policy executive, speak as if they do not understand the difference between government censorship and private party choice as to what to information to convey or not.

Towards the end of the interview, Mr. Eggerton asks: "Can we establish that this initiative will not be a stealth takeover of the media by the government?"

Mr. Waldman responds: "Yes, we can absolutely, definitively say that we have no plans to take over the media, and we have no plans to reinstitute the fairness doctrine while I am at it."

I do not doubt that Mr. Waldman or Mr. Genachowski have no plans for the FCC "to take over the media." Or even to reinstitute the fairness doctrine, as least in the same form we knew it back when. Nevertheless, despite my presumption of their good intentions, I do doubt the wisdom of the FCC's endeavor to preserve and promote certain media functions, including "accountability journalism" and what is now fashionably called the "public media."

It is true that in order for our democracy to function well, we need a vigorous press with sufficient resources to investigate and shine a light on wrongdoing, especially government wrongdoing. So, yes, "accountability journalism" is desirable. But above all we need an independent press.

I am certain that our Founders – who gave us not only a real transformational moment but our First Amendment – would find it somewhat odd if we gave the government more power to regulate or interfere with the media, or to support "public media" with special preferences or subsidies, in order to promote government accountability. The Founders would understand the ultimate threat to democracy inherent in such a project.

I am sure they would prefer that those in positions of power in government, such as FCC commissioners, eliminate or reduce media regulations that constrain the actions and decisions of private media outlets, rather than using presumed transformational moments to enhance government involvement in, or control over, the media.

Riding the Back of the Internet Public Utility Tiger

There is a remarkable interview with Robert McChesney, a founder of the Free Press organization, in the current edition of a publication called "The Bullet." The Bullet is published by the Socialist Project. The interview with McChesney, a long-time guru to those advocating more government control and regulation of the media, may be found here on the Socialist Project's website.

To appreciate – or I should say understand – the radical vision that undergirds Robert McChesney's views concerning media policy, you should read the entire interview. The extreme nature of his anti-capitalistic views ought to be at home in only a few places in the world, say, in Hugo Chavez's Venezuela, Castro's Cuba, or perhaps Putin's Russia.

Here I only want to focus attention on what McChesney has to say about network neutrality. Again, read the entire interview, but this is a key statement:

"The battle for network neutrality is to prevent the Internet from being privatized by telephone and cable companies. Privatization would give them control over the Internet, would allow these firms to privilege some information flows over others. We want to keep the Internet open. What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don't have to have a password and that you don't pay a penny to use. It is your right to use the Internet."

I understand that there are several definitions that one might put forward for "net neutrality," and that the fact that this is so has caused some to suggest, including those broadband providers that would be subject to net neutrality mandates, that net neutrality might be a relatively benign concept. Well sure, it all depends on the definition. But it would be a big mistake to ignore what a founder of Free Press says he wants net neutrality to mean – "an Internet that is not private property, but a public utility" and one in which "you don't pay a penny to use."

I have explained over and over again for many years that, for most of its proponents, net neutrality means regulation of the Internet as a common carrier or traditional public utility. In the FCC's broadband policy proceeding and other venues, Free Press acknowledges that this is its position. See my recent pieces here and here, and my reply comments in the FCC's broadband proceeding.

Professor McChesney also says this in the Socialist Project interview:

"[W]e have had much success around the net neutrality struggle. I expect within the next twelve months, we will have a formal law passed by U.S. Congress, signed by President Obama, and backed up by orders from the Federal Communications Commission (FCC). Network neutrality is well on its way to becoming the new law of the land."

It may be that Professor McChesney's vision of a government takeover and control of the Internet, running it as a public utility, will come to pass. If it does, this takeover will occur in the form of net neutrality mandates that, initially, may seem to some as benign as the net neutrality label itself. But the ultimate harm to consumers caused by diminished private sector investment and discouraged innovation will be substantial.

Finally, the risk to free speech posed by government policing Internet "neutrality" and "non-discrimination" regulations should be cause for concern to all those who appreciate that the First Amendment's free speech values are not promoted by government control of the means of speech. I sounded an early warning about the threat to the First Amendment posed by net neutrality mandates in this September 2006 Broadcasting & Cable commentary entitled "Net Neutrality and Free Speech," and at greater length in this 2007 law review article entitled "Net Neutrality Mandates: Neutering the First Amendment in the Digital Age."

There is an old Chinese proverb, one of President John F. Kennedy's favorites, that goes like this: "Those who ride the back of a tiger may find themselves inside."

There will be a tremendous push at the FCC and in Congress during the next year to implement net neutrality mandates and the Robert McChesney/Free Press vision of the Internet as a public utility. Those who underestimate the push – or who suppose they might be able to work out the "right type" or "a manageable type" of net neutrality mandates -- are riding the back of a tiger. And I think I know where they are likely, ultimately, to be found.

Video News Releases and Constitution Day at the FCC

On September 17, in honor of the day that marks our Constitution's adoption, I published an essay entitled, "Constitution Day at the FCC." The basic point of the piece is that the FCC's communications policies would be more sound if the agency would pay more heed to certain constitutional values particularly relevant to communications policymaking.

My piece was called to mind this morning when I read an item in Broadcasting & Cable's online edition about the fines that the FCC proposes to impose on Comcast for what the agency considers to be a violation of its sponsorship identification rules. Comcast's fining offense: One of its afffilated cable networks, CN8, aired "video news releases" that, in the Commission's judgment, contained too much focus on a product or brand name in the programming material without identifying a sponsor.

You can read the B&C article, "Free, Noncontroversial VNRs Can Still Trigger Fines" or one of the actual FCC notices proposing the fines to get the gist of the matter.

The FCC's action regarding these video news releases ("VNRs") appears overzealous. First, normally the sponsorship identification rules are invoked when someone pays a broadcaster to air programming. Indeed, the relevant statutory provision from which the FCC's authority derives seems to require sponsor ID only when programming is aired by a broadcaster in exchange for "money, service, or other valuable consideration." In the case of Comcast's airing of the subject video news releases, there doesn't seem to be any dispute that Comcast was not compensated in any way beyond the provision of the news releases.

The second point, which is fundamental, also relates to the statute from which in this instance the agency derives its authority. On its face, Section 317 of the Communications Act applies only to "matter broadcast by any radio station," not matter aired by cable television operators. Throughout Section 317, the provision speaks only of broadcasting and station licensees. There is no intimation that Congress intended the provision to be applicable to cable operators. It is true that the FCC long ago adopted a rule applying its broadcast licensee sponsor identification rules to cable television operators. And it even may be true (although I do not know) that the cable operators that existed at the time did not object to adoption of the rule. Nevertheless, this does seem, on its face, an instance of agency-stretching of statutory authority. There are many instances, of course, where the Communications Act was amended specifically to address regulations applicable to cable operators.

The last point, in my view, is the most fundamental, and brings me back to "Constitution Day at the FCC." Even as applied to broadcasters, the FCC's newly-instituted foray into regulation of video news releases raises serious First Amendment issues. In a letter dated October 5, 2006, the Radio-Television News Directors Association (“RTNDA”) called the FCC's recent inquiries to broadcast stations concerning their own airing of VNRs "an unprecedented regulatory intrusion into newsroom operations." On behalf of the broadcast news directors, RTNDA concluded, "[t]he government would not dream of inserting itself into a print newsroom to dictate or otherwise oversee how newspaper editors utilize press releases."

While not minimizing the legitimate First Amendment concerns of broadcasters, free speech concerns are even more serious when the Commission intrudes into the programming operations of cable operators. Even under the Supreme Court's oft-muddled First Amendment jurisprudence, there is no doubt that free speech claims of cable operators are considerably stronger than those of broadcasters. Although for First Amendment purposes it ought to make little difference, in the Comcast case for which the FCC now proposes fines, the cable operator did not just take the proffered VNRs and air them as presented. Before airing, they were edited in an exercise of the operator's programming judgment. In other words, the cable operator exercised editorial discretion.

Before proceeding further down the road of intruding into the editorial judgments of cable operators regarding video news releases (or other programming decisions for that matter), each Commissioner ought to consider carefully how his or her actions comport with the oath each took to protect and defend the Constitution. I submit that giving some thought to this question will lead to the conclusion that the agency's proposal to levy a fine against Comcast for airing the video news releases in question raises serious First Amendment questions.

That being so, this is yet another example of an instance where having in mind fundamental constitutional values, such as the protection of free speech, will serve the Commission well.