Congress Passes Bill to Secure Communications Network Supply Chains from National Security Threats

On October 27, the Senate passed the H.R. 3919, the Secure Equipment Act of 2021. The lead sponsors of the legislation are Reps. Steve Scalise and Anna Eshoo. The House of Representatives passed the bill earlier this month, meaning that H.R. 3919 is going on to the White House for signature. Once signed into law, H.R. 3919 will shore up the FCC authority to withhold license authorization for equipment or services offered by companies deemed to pose a national security risk – such as companies linked to authoritarian China. The text of the enrolled bill for H.R. 3919 is available online.

Modern TV Act Would Remove Old Rules, Bring Video Policy Up to Date

The Modern Television Act of 2019 is promising new legislation that would bring federal video policy into greater alignment with 21st century market realities. Introduced in the U.S. House of Representatives on July 25 by Reps. Steve Scalise and Anna Eshoo, the Modern TV Act would repeal or at least reduce a number of old legacy broadcast TV and cable regulations that were based on a now-obsolete picture of the video market. The Modern TV Act is a bipartisan compromise measure that the 116th Congress ought to take up in earnest this year.

Among its provisions, the Modern TV Act would eliminate distant signal importation prohibitions, syndicated exclusivity rules, network non-duplication rules, authority to regulate local cable rates under Section 623, and cable leased access rules. Most of those rules involve dealings between market participants that own video programming and video service providers that distribute programming to retail subscribers. Once those rules are eliminated, video programmers and video service providers can, in most instances, simply negotiate contracts to address which programming receives carriage in which local TV markets. The Modern TV Act also would eliminate, or at least largely eliminate, cable and satellite compulsory licenses for carrying copyrighted video programming, thereby allowing parties to negotiate copyright royalties.

The Modern TV Act moves firmly in the direction of establishing a federal video policy that matches the competitive conditions of today's innovative video marketplace. For several years, Free State Foundation scholars have called attention to the fact that legacy regulations of broadcast, cable, and direct broadcast satellite (DBS) TV services are based largely on early 1990s, or even earlier, assumptions about the analog and VCR-era video market. But those regulations are now hopelessly out of touch with today's marketplace. 

The days are long gone when the video service choices of most Americans were largely limited to over-the-air (OTA) broadcast TV or a single cable operator. Today, most Americans can choose between a cable provider and two DBS providers, while many also have access to a former "telco" video services provider. Unlike the days when cable operators had a 91% market share among pay-TV services, at year's-end 2017, cable served 55.2% of multi-channel video programming distributor (MVPD) subscribers, DBS served nearly 33.5%, and "telco MVPDs" serviced 11.3%. Meanwhile, in 2018 antenna use for OTA broadcast TV reached its highest level since 2005, with 31% of U.S. households having an antenna on at least one TV. Online video distributor (OVD) services have also dramatically transformed the video market. In early 2019, Netflix had over 60 million U.S. subscribers to its streaming video service, while Amazon Prime and Hulu had 101 million and 28 million. Widespread adoption of OVD services has been recognized as an important cause of annual MVPD subscriber losses going back to 2013. Total MVPD subscriptions were down to 94 million at year's-end 2017, and sharp declines have been reported for 2018 and 2019.

Legacy regulations geared toward last century's outdated technologies and less competitive, pre-Internet market conditions confer no benefit on consumers today. Instead, their continuation saddles broadcast, cable, and DBS TV service providers with burdensome compliance costs as well as restrictions that can inhibit their ability to compete with each other and with online competitors. 

Furthermore, as Free State Foundation President Randolph May and I have explained in numerous writings, many legacy video regulations, including leased access rules, amount to forced access mandates. Requiring video service providers to carry video programming not of their own choosing violates their First Amendment free speech rights. The Modern TV Act's proposed repeal of leased access rules would better respect the free speech rights of cable providers. 

To help bring federal video policy up to date, the 116th Congress should give prompt consideration to the Modern TV Act.

Understanding the Un-Free Market for Retrans Consent Is the First Step for Reforming It

In a truly free marketplace, private parties have the liberty to pursue commercial deals with whomever they choose. By mutual consent, private parties operating in a free market are at likewise at liberty to bind themselves to negotiated terms and conditions. The parties must abide by the terms and conditions they’ve agreed to. And an impartial authority enforces the bargained-for expectation of the parties in cases where one side fails to perform as agreed.

Unfortunately, video programming services remain stuck under a decades-old legacy regulatory apparatus that in certain critical respects marks an unfree market. The retransmission consent and must-carry regulatory regime established by Congress and enforced by the FCC is a regrettable case in point.

For over 20 years now the retrans consent/must carry regime has subjected the market for video programming to forced access mandates and to restrictions on private bargaining. Under "must-carry" rules, video broadcasters are granted special rights against multichannel video programming distributors (MVPDs), such as cable and direct broadcast satellite (DBS) operators. Those rules allow broadcasters to compel carriage of their program content by an MVPD on a basic tier channel.

On the flip side, TV broadcasters can chose to forego their must-carry rights and instead require that MVPDs negotiate directly with them for permission to retransmit their video programming. But retrans consent regulations grant protections to broadcast networks and local stations by limiting the ability of cable operators to choose what broadcasters to bargain with and what programming to bargain for. In particular, network non-duplication rules block MVPDs from importing network programming from another affiliate of the same broadcast network as a designated local TV station, even if the local TV station is not carried by the MVPD. And syndicated exclusivity rules block MVPDs from carrying syndicated programming broadcast by out-of-market TV stations when the same programs are broadcast by local TV stations.

FSF Board of Academic Advisors member Bruce Owen recounted the history of political favoritism and protectionism behind retrans consent and must carry in his Perspectives from FSF Scholars paper, "The FCC and the Unfree Market for TV Program Rights." And in a Perspectives paper titled "Broadcast Retransmission Negotiations and Free Markets," FSF President Randolph May concluded the retrans consent regime "creates artificial constraints that make the negotiations anything but a free market situation" and has "the effect of conferring certain advantages that may work to the negotiating advantage of broadcasters and against the MVPDs."   

Now in a December 12 blog post at RedState, CEI's Fred Campbell took aim at the American Television Alliance's (ATVA) 2010 petition requesting that the FCC adopt certain retrans consent negotiation and dispute resolution rules. In so doing, he likened ATVA's efforts to obtain such retrans consent regulations with the efforts of pro-regulatory advocates to impose network neutrality regulations.

Fred Campbell is a former FCC Wireless Bureau Chief, a skilled analyst, and, in general, a free marketer. We at FSF are in considerable agreement with him on many communications policy issues and respect his work. But I believe a false equivalency has been made in his blog post between rules that modify an existing regulatory regime for one type of services and rules that subject a previously free market to new regulatory controls. 

Even if the FCC never acts on ATVA's petition, video programming negotiations between TV broadcasters and MVPDs are already un-free in significant respects. This is due to the 20 year-old restrans consent regulations, discussed above, that restrict who MVPDs can negotiate with. By contrast, prior to the FCC's Open Internet Order, broadband Internet access providers were free, if they pleased, to negotiate with content or "edge" providers regarding data transmission. The FCC's net neutrality regulations now restrict – or at least disfavor – certain kinds of two-sided pricing arrangements that may be consumer welfare-enhancing.

Surely there may be costs associated with all of the various proposals contained in ATVA's petition, just as there may be benefits associated with them. I leave the merits of ATVA's various proposals to others. The real focus should be on the more fundamental task of establishing a truly free market context for retrans consent negotiations, and for video services generally. The ultimate goal should be to eliminate regulatory intrusion in this space – and to thereby eliminate occasions for debate over whether this or that particular modification to the old regulations will tip the scales in favor of one class of competitors over another.

One promising vehicle for comprehensive free market reform is H.R. 3720, the Next Generation Television Marketplace Act. Just introduced again by Congressman Steve Scalise, the bill would finally eliminate outdated legacy video regulations that rest on an early 1990s snapshot picture of the video market. Among other things, the Next Generation Television Marketplace Act would repeal retrans consent regulations and allow negotiations for carriage of TV broadcast stations to take place in a deregulated and truly free market context.

Perhaps Fred Campbell may agree with me that this would be a good thing and that Rep. Scalise's "NextGenTV" bill represents the proper direction for reform.

House Unanimously Passes FCC Consolidated Reporting Act

This week, the House unanimously passed the FCC Consolidated Reporting Act (H.R. 2844) in a 415-0 vote, with 227 Republicans and 188 Democrats voting yea. The legislation requires one Communications Marketplace Report instead of the eight separate reports previously required, and it also strikes redundancies and outdated references in the Commission’s reporting requirements.

Representative Steve Scalise kicked off the House debate on Monday by stating: “This bill is another step in the process of streamlining government so that businesses can focus their time and resources on growing our economy and creating jobs, instead of complying with outdated and burdensome mandates from the federal government.”

Free State Foundation President Randolph May called for the passage of the Consolidated Reporting Act in his testimony at the July hearing before the House Subcommittee on Communications and Technology entitled, Improving FCC Process. May stated:

“I wholeheartedly support new Section 14, the proposed Federal Communications Commission Consolidated Reporting Act of 2013. The required consolidated report would replace the myriad of existing sector and technology-specific marketplace reports that the Commission is now required to compile on a periodic basis. Consolidation of the various competition/marketplace status reports should help reduce the agency's workload somewhat because there necessarily is some inherent duplication in producing the half dozen or more separate reports. But, more importantly, the requirement to produce a consolidated report should steer the Commission away from its pronounced tendency to view the separate technology-based services as confined to their own "smokestacks" and non-competitive with each other. In today's competitive digital services environment characterized by convergence, adhering to the "smokestack" view inherently neglects marketplace realities. For example, the Commission still refuses to acknowledge the extent to which wireless services compete with wireline services, even though nearly 40% of U.S. households have abandoned landline telephone service.

The draft bill requires the Commission to assess competition in the communications marketplace, taking into account all the various services and technologies, and it specifically directs the agency ‘to consider the effect of intermodal competition, facilities-based competition, and competition from new and emergent communications services, including the provision of content and communications using the Internet.’ This requirement is especially important as part of the necessary effort to get the FCC to take a more realistic, economically rigorous, view of the extent to which competition now prevails in the communications marketplace.”

FCC Commissioner Ajit Pai said in a statement Tuesday, “this is straightforward, good-government legislation, and I hope that the U.S. Senate will act quickly to send this bill to the President for his signature.”

I agree.