Kudos to Commissioner Clyburn!

As regular readers know, I don't always -- or even mostly -- agree with FCC Commissioner Mignon Clyburn's positions. But I respect her good faith in arriving at those positions, and I've always been pleased to have Commissioner Clyburn participate at Free State Foundation conferences to explain and advocate her views.

But the point here is to commend Commissioner Clyburn for her statement this week, speaking before the FCC's Consumer Advisory Committee, that she would refuse to vote to ban or eliminate so-called "sponsored data" plans. She stated that they offer “an affordable way for people to stream and connect with content” and because they could inhibit valuable product differentiation.

According to the report in the October 14 TR Daily, Commissioner Clyburn said she favored the FCC taking "a case-by-case approach” on sponsored-data offerings.  She also said , correctly in my view, that such offerings “could be the way for the next creative content provider that can’t get on the legacy platforms to do so.”

I've expressed views similar to these for years now, perhaps going further than Commissioner Clyburn, in explaining why T-Mobile's, Sprint's, and AT&T's various "zero-rated" or "sponsored data" plans, and others like Facebook's Free Basics program, are popular and, more importantly, pro-consumer. And, as Commissioner Clyburn no doubt appreciates, these plans are especially appealing to low-income persons who otherwise might not be able to get -- or stay -- online.

So, kudos to Commissioner Clyburn for her statement that she would refuse to ban or vote to eliminate pro-consumer sponsored data plans.  

Thinking Things Through VIII: FCC Leaks and Institutional Integrity

Most Washingtonians are familiar with the aphorism that it is best not to know how both laws and sausages are made. The most recent confirmation of that proposition comes in an Inspector General’s report regarding the leak that torpedoed a compromise among Commissioners Clyburn, Pai, and O’Rielly regarding funding for the FCC’s Lifeline program. I can’t disagree with Senate Commerce Committee Chairman John Thune’s observation that “[t]he findings by the inspector general reveal significant dysfunction and a lack of transparency at the FCC.”

Recall what occurred. After one Democratic Commissioner and two Republican Commissioners apparently had reached a compromise agreement to cap funding for the Lifeline program at $2 billion per year, news of the compromise was publicly leaked, the FCC’s monthly meeting was postponed from its scheduled start time of 10:30 a.m., various last minute ex parte communications occurred, and the compromise fell apart. Although the Inspector General was unable to determine who leaked what to whom, and when, he concluded that FCC Chairman Tom Wheeler and his Chief of Staff authorized the FCC’s Office of Media Relations to inform the press that there was a Lifeline compromise that included an annual cap on the amount of money available in the Lifeline program.

After the compromise fell apart, the FCC adopted an order that lacked a cap on Lifeline funding.

No one seems to dispute the above facts. But, putting aside the particular merits of the “compromise that was blown out of the water,” I have a problem with the Inspector General’s report that goes to the way the Commission functions as an institution and the agency’s institutional integrity. My problem is, as I will show, the IG’s report perpetuates the incorrect notion that the FCC Chairman somehow broadly possesses the power to authorize leaks of non-public information.

This matter is worth “thinking through” in some detail because various Commissioners have expressed frustration – in a number of proceedings, including the Open Internet docket – about being muzzled while the Chairman claims to be free to disclose whatever selected bits and pieces of information he wishes.  A close reading of the relevant rule suggests that the Chairman doesn’t possess such power. 

The IG’s report identifies the relevant Commission rule as Section 19.735-203.  Subsection (a) of that rule is worth quoting in full: 

“(a) Except as authorized in writing by the Chairman pursuant to paragraph (b) of this section, or otherwise as authorized by the Commission or its rules, nonpublic information shall not be disclosed, directly or indirectly, to any person outside the Commission. Such information includes, but is not limited to, the following:

“(1) The content of agenda items (except for compliance with the Government in the Sunshine Act, 5 U.S.C. 552b); or

“(2) Actions or decisions made by the Commission at closed meetings or by circulation prior to the public release of such information by the Commission.”

The report also clarifies that the power granted to the Chairman by paragraph (b) “only applies when an FCC employee wishes to disclose nonpublic information as part of any writing or teaching outside of the FCC.” This, of course, was not the circumstance of the Lifeline leak. 

So, where did the Chairman get the claimed authority to authorize the leak?  The IG’s report says that “the authority to determine what nonpublic information may become public information derives from section 5 of the Communications Act of 1934, as amended, 47 U.S.C. § 155(a), which provides that the Chairman is Chief Executive Officer of the FCC, and sections 0.3 and 0.211 of the FCC's rules, 47 C.F.R. § 0.3(4) and 0.211, which define and provide the Chairman's general authority over the affairs of the FCC.”

This interpretation appears to be a real stretch.

Yes, Section 5(a) of the Communications Act makes the Chairman the FCC’s CEO.  But the statute goes on to explain what it means by that, to wit, “to preside at all meetings and sessions of the Commission, to represent the Commission in all matters relating to legislation and legislative reports, except that any commissioner may present his own or minority views or supplemental reports, to represent the Commission in all matters requiring conferences or communications with other governmental officers, departments or agencies, and generally to coordinate and organize the work of the Commission in such manner as to promote prompt and efficient disposition of all matters within the jurisdiction of the Commission.”  47 U.S.C. Section 155(a). So the Chairman is the CEO in some circumscribed respects. But, as Section 4 makes clear, the powers of the Commission belong to the “five Commissioners appointed by the President, by and with the advice and consent of the Senate….”  47 U.S.C. Section 154(a).

The powers of the Commission may be delegated to the Chairman or to various Bureaus and Offices, but no relevant delegation appears to authorize leaks. Section 0.3 of the FCC’s rules essentially restates Section 5(a) of the statute and does not purport to confer any additional authority upon the Chairman. Section 0.211 of the Commission’s rules confers responsibility for the “general administration of internal affairs of the Commission. It identifies three categories of activities and the Chairman’s role with respect to each:   

“(a) Actions of routine character as to which the Chairman may take final action.

“(b) Actions of non-routine character which do not involve policy determinations. The Chairman may take final action on these matters but shall specifically advise the Commission on these actions.

“(c) Actions of an important character or those which involve policy determinations. In these matters the Chairman will develop proposals for presentation to the Commission.”

Authorizing leaks of internal policy deliberations surely isn’t “routine,” and revealing information about a pending compromise in a major rulemaking (especially with the goal of derailing that compromise) unquestionably involves a “policy determination.” In any event, this rule, by its terms, relates to the “internal affairs” of the Commission. It’s quite a stretch to read this as applying to the authorization of external leaks regarding confidential deliberations among Commissioners. 

That’s especially clear if we now look back at the specific rule the Commission has promulgated to deal with the release of non-public information.  The rule says clearly that “non-public information shall not be disclosed” except in one of two circumstances – (1) “as authorized in writing by the Chairman” for purposes of employee teaching or writing, or (2) “otherwise as authorized by the Commission or its rules….”  This rule clearly differentiates between the narrow circumstance in which disclosure of non-public information can be authorized by the Chairman and other situations in which such disclosure must be authorized by the Commission. As I read it, the rule is purposefully worded to differentiate between what the Chairman himself can do and what requires the approval of the full Commission. 

In my view, the leak of the Lifeline compromise required the approval of full Commission. No such approval was sought or granted in this case. 

I’m willing to grant that Chairman Wheeler probably is not the first FCC Chairman to usurp powers which the Communications Act has reserved to the full Commission, or which the Commission, by its own rules, has reserved to itself. And he may not be the last. But this doesn’t make any usurpation right. I’d like to see Chairman Wheeler recognize that Section 5 of the Communications Act and Sections 0.3 and 0.211 of the FCC's rules do not trump the specific provisions of Section 19.735-203.

By the way, I reiterate that my interest now is not whether, on the merits, the torpedoed compromise was preferable to the action ultimately taken by the Commission. Rather, my interest here – in trying to think through what for some may appear to be a pretty mundane matter – is the way the agency functions. After all, at least in theory, Congress intended the Commission, bipartisan by design, to function as a collegial body, one in which compromise is not a dirty word. Putting the theory into practice once in a while would be a worthwhile endeavor, one which might produce better communications policy.

The FCC’s Privacy Proposal Would Still Harm Consumers

In March 2016 the FCC adopted a Notice of Proposed Rulemaking (NPRM) purporting to protect “the privacy of customers of broadband and other telecommunications services.” The Commission is scheduled to vote on this item at the open meeting on October 26, 2016. FSF scholars submitted comments to the FCC in May 2016 explaining the reasons why the proposal would adversely impact consumers.

On October 6, 2016, FCC Chairman Tom Wheeler circulated a new proposal supposedly narrowing the regulatory reach of the opt-in requirement for only sensitive information. However, the definition of “sensitive information” in the FCC’s Fact Sheet is far too broad, including even all web browsing and app usage history. As Free State Foundation President Randolph May said regarding the Chairman’s new proposal in a Communications Daily report:

The latest revision to the privacy proposal seemingly may be a step in the right direction on a purely conceptual level, but it is not very helpful as a matter of reality. The categories of information requiring opt-in are much broader than necessary to protect consumer choice and, as importantly, broader than the framework the [Federal Trade Commission] FTC applies. This will lead to inequitable regulation and consumer confusion. And, to boot, the FCC lacks authority to go as far as it proposes.

Thus, the FCC’s proposed privacy regulation remains fatally flawed.

This proceeding originates, in an oddly circuitous way, out of the FCC’s Open Internet Order. The FCC reclassified broadband as a telecommunication service, imposing public utility-like regulation on Internet service providers (ISPs). The FCC failed to find evidence of a market failure, other than claiming that ISPs are “gatekeepers.” And although the Commission makes this unsupported “gatekeeper” claim when proposing regulations, it recently found in its Nineteenth Mobile Wireless Competition Report that competition in the mobile wireless industry has led to “lower prices and higher quality for American consumers, and [is] producing innovation and investment in wireless networks, devices, and services.” But as I suggested in a February 2016 blog, the FCC likely will continue to use its “gatekeeper theory” to impose additional regulations on ISPs.

FSF scholars went into further detail in their May 2016 comments to the FCC:

The Commission mistakenly relies on a factually unsupportable “gatekeeper theory” of competition and incentives in the broadband market as a basis for its proposed privacy regulations. The Commission now apparently relies on a “gatekeeper” claim as a regulatory prop of last resort when traditional market power analysis fails to support its expansive regulatory designs. The switching costs rationale upon which the Commission bases its proposed regulations is undermined by data demonstrating pro-competitive, pro-choice marketplace trends – documented in the Eighteenth Wireless Competition Report – favoring easier ability and incentives to switch providers.

The FCC’s privacy proposal would severely restrict the manner in which ISPs can collect and use consumer information. But as FSF scholars stated in their May 2016 comments, ISPs’ data collection practices do not pose a consequential threat to consumer privacy, and certainly not on the order of the large Internet content companies:

[A]s Peter Swire and his colleagues estimate in their paper, “Online Privacy and ISPs: ISP Access to Consumer Data is Limited and Often Less than Access by Others,” 70% of Internet traffic will be encrypted by the end of 2016. That means ISPs will, at best, only have access to roughly 30% of consumer data. Leading operating systems, web browsers, and video applications will have primary access to consumer personal information.

By subjecting ISPs to privacy regulations in the way it has proposed to do, the FCC is creating disparate regulations in the Internet ecosystem, confusing consumers as to the relevant applicable privacy policies because consumers do not distinguish between the two different categories of providers based on regulatory classifications, especially newly-adopted ones. Moreover, many large Internet companies have access to more information and a wider range of user information than ISPs. (See this FSF infographic.) For example, Google has access to 64% of online searches and holds over 61% of the mobile operating system market, allowing it to collect data on subscribers' location and app use.

FSF scholars explained further in their May 2016 comments:

By proposing to subject only broadband ISPs to its new privacy regulations, the Commission runs afoul of the rule of law principle that laws should be applied equally to all. Service providers that collect consumer personal information should be subject to the same rules unless clear reasons exist for treating them differently. The Commission fails to offer any reasons to justify the disparate treatment of ISPs embodied in its proposed regulations. The Commission should not adopt any privacy policy reflecting that degree of regulatory favoritism.

The Federal Trade Commission, the expert agency with jurisdiction over privacy violations within the entire Internet ecosystem, addresses consumer complaints on a case-by-case basis and focuses “on whether the collection and use of information is consistent with the context of a consumer’s interaction with a company and the consumer’s reasonable expectations.” Therefore, it should be no surprise that the former FTC Chairman Jon Leibowitz opposes the FCC’s NPRM. Additionally, it should be acknowledged that consumers have different preferences regarding how and if they want their data collected, and ISPs often update their settings to adjust to consumer trends. At the 2016 Advertising and Privacy Law Summit in June, FTC Commissioner Maureen Ohlhausen said:

Beneficial uses of consumer data go far beyond targeted advertising, of course. In the ISP context, such benefits could include lower prices and improved security and services. Regulatory restrictions on use of consumer data may foreclose these benefits, imposing significant costs on consumers – a fact often overlooked by advocates who may have different privacy preferences than average consumers.

Despite the fact that ISPs do not have access to the amount of data to which non-ISPs have access, ISPs still can use consumer data to offer targeted benefits. (See my August 2016 Perspectives from FSF Scholars entitled “FCC Privacy Rules Would Harm Consumers by Creating Barriers for Advertising.”) Many ISPs and edge providers incorporate advertising into their business model. Instead of consumers paying subscription fees for access to online information, consumers send personal non-sensitive information, which the ISP or edge provider then uses to sell targeted advertisements. If the FCC’s proposal is adopted, ISPs would be restricted with regard to the manner in which they use the advertising business model. This potentially could stifle the implementation of “free” data programs or other innovative services which use consumer information to develop such targeted offerings.

As the FSF scholars’ May 2016 comments explained:

If imposed, the nearly ubiquitous “opt-in” requirements regarding PII risk would discourage ISPs from offering consumers targeted marketing deals, selling advertisements to personally design consumer experiences, or offering sponsored data as well as free data or zero-rated plans – all of which potentially could benefit them. The Commission’s contemplation of a ban on certain ‘financial inducement practices, such as offering discounts for use of PII, would deprive consumers of their choice to enjoy free or inexpensive services. Consumers are competent to decide for themselves what form of ‘payment – whether in the form of the exchange of personal information or money – that they are willing to make for services.

An alternative approach to privacy that would benefit consumers was proposed:

Instead of imposing uneven, sector-specific, choice-limiting regulations, the better policy approach to protecting consumer privacy on the Internet is to establish common standards under the jurisdiction of a common enforcer. The digital privacy framework proposed by the White House in 2012 offers a realistic means of establishing a set of common rules with a common enforcer. Under this approach, privacy codes of conduct are to be established through a voluntary multi-stakeholder process. The Federal Trade Commission (FTC) would have authority to enforce those codes against providers who agree to abide by them but fail to do so in practice. Significant efforts have already been expended in that process. Obviously, the proposed regulations effectively would doom the prospects of the multi-stakeholder process for establishing consumer privacy protections for ISP subscribers. The far better approach for protecting consumer privacy is to refocus resources and attention on the multi-stakeholder process in order to forge a common set of rules and a common enforcer to protect consumer privacy on the Internet.

With a vote now scheduled for the October open meeting, it is important that the Commission recognizes how the FCC’s proposal would harm and confuse consumers by creating disparate – and overly restrictive – regulations within the Internet ecosystem. 

Four ISPs Are Among 2016 Investment Heroes

Today, the Progressive Policy Institute published "Investment Heroes 2016: Fighting Short-termism" by Michelle Di Ionno and Michael Mandel. Four of the investment heroes, the top 25 companies in terms of capital expenditures invested in the United States, are Internet service providers, including AT&T (ranked #1), Verizon (#2), Comcast (#8), and Time Warner Cable (#21). Although there is evidence that broadband providers have slowed their investments since the FCC adopted its Open Internet Order, these four companies invested over $40 billion in 2015, representing 23% of the all the investment heroes combined. 

FCC Should Google Google's Privacy Position

Broadcasting & Cable's John Eggerton reports that Google has told the FCC that the agency should harmonize its privacy regime with that of the FTC. That's what I've been saying for a long time, along with many other Free State Foundation scholars.

If this is true, and Google holds firm to this position, then it is an important development.

Thinking Things Through VII: Let the Public Comment

There is no reasonable doubt that the FCC’s controversial proposal to adopt new regulations governing video navigation devices has undergone significant changes since the Notice of Proposed Rulemaking was put out for public comment in February 2016. Indeed, based on what FCC Chairman Tom Wheeler and his two Democrat colleagues said last week when they pulled the item from the agenda at a public Sunshine meeting, the proposal is undergoing further changes even as I write this.

Even though we know, based on leaks and an agency-released “fact sheet,” that the Commission’s current thinking is now considerably different than that depicted in the original rulemaking notice, we don’t know key details regarding the changes now being negotiated among the agency’s three Democrats.

That’s the problem, of course. That’s why, if and when the three Democrats reach an agreement on a new proposal, the agency should put it out for public comment in a Further Notice of Proposed Rulemaking, even if the comment period is shorter than usual.

If the Commission fails to follow this course, it is unknowable at this point whether such failure would lead to a violation of the Administrative Procedure Act’s notice and comment requirements. It well might.

But this much is knowable. As a matter of sound public administration, and regardless of the survival prospects of any appeal from a final order, the Commission should put its latest proposal out for public comment. From the very beginning, Chairman Wheeler’s proposal has been one of the most controversial rulemakings in recent agency history. This is not surprising because, at a time when competitive forces in the video marketplace are responding to consumer demands in a fast-changing environment, the Commission’s regulatory intrusion has major implications in a number of areas.

One way or another, the proposal means that the government, either directly or as ultimate arbiter, will establish a new technological mandate governing the design of features and functions for navigation devices or apps. This government intrusion, in and of itself, warrants the most careful scrutiny. And the proposal necessarily has major implications regarding the protection of consumers’ privacy under government-imposed open standard licenses, as well as the protection of copyrights under such standardized licenses.

In sum, the Commission should put out its revised proposal, if and when there is one, for public comment. This level of transparency and public input may well lead to a less harmful regulation at the end of the day if a majority of commissioners continue to believe (as I don’t) that any new regulation is needed at all. At a minimum, following this course will increase the public’s confidence in the integrity of the agency’s process.

Pasadena, California Imposes Heavy Tax on Video Streaming Services

In September, the city of Pasadena, CA imposed a 9.4% tax on video streaming services, such as Netflix, HBO Go, and Hulu. The tax will go into effect on January 1, 2017. As more and more consumers “cut the cord,” cites throughout the country are turning to video streaming services to make up for the loss in tax revenue that previously was generated from pay-TV services. State and local governments instead should work to reduce taxes on all video services, allowing consumers to access as much content as possible.

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.

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. 

New Commerce Dep't Report Shows IP Industries' Economic Contribution

The Department of Commerce just issued an updated report that demonstrates the sizable contribution that Intellectual Property-intensive industries to our nation's economy.

Here's the headline message from DOC's news release:

"The U.S. Department of Commerce today released a comprehensive report that finds that intellectual property (IP)-intensive industries support at least 45 million U.S. jobs and contribute more than $6 trillion dollars to, or 38.2 percent of, U.S. gross domestic product (GDP). The report, a joint product of the Commerce Department's United States Patent and Trademark Office (USPTO) and Economics and Statistics Administration (ESA), serves as an update to the Intellectual Property and the U.S. Economy: Industries in Focus report released March 2012. 

While IP is used in virtually every segment of the U.S. economy, the report identifies 81 industries that use patent, copyright, or trademark protections most extensively. These "IP-intensive industries" are found to be the source - directly or indirectly - of 45 million jobs, roughly 30 percent of all the jobs in this country. Some of the most IP-intensive industries include: software publishers, sound recording industries, audio and video equipment manufacturing, cable and other subscription programming, performing arts companies, and radio and television broadcasting."

Whenever you run across proposals, say, for example, the FCC's current proposal to mandate a new open standard video navigation device with a compulsory license, that would threaten IP rights, please keep in mind the economic contribution of the IP-intensive market segments.

Read the full Department of Commerce report here.

Thinking Things Through VI - #UnlocktheWordProcessors

As I said in my last post in this series, some things are harder to think through than others. But, like the last post, this one too is rather easy.

I begin again with the letter Public Knowledge President Gene Kimmelman sent on September 21 to congressional leaders in which he said this: “Contrary to claims of Hollywood and cable monopolies, the FCC’s apps proposal will promote consumer choice while protecting copyright.”

In my last post, I explained why, as a matter of first principle, Mr. Kimmelman’s claim that the FCC’s navigation proposal will protect copyright is wrong.

But there is another matter of first principle at stake as well, this one involving sound communications policy. Notice that Mr. Kimmelman refers, as he and other Public Knowledge staff almost invariably do, to “cable monopolies.” There must be a locked “macro” on the PK word processors that will not allow anyone to type “cable” without “monopolies” attached. Please: #UnlocktheWordProcessors.

I could make light of this monotonous coupling by saying it is “so 90ish,” as in the 1990s. But since, for the last several years, the FCC appears to be taking so many of its cues from Public Knowledge, this is serious business.

To the extent they ever did, cable operators no longer have a monopoly in the distribution of video programming, unless Mr. Kimmelman means to argue that what he calls “cable” constitutes a distinct video distribution product market because “cable” uses a distinct “cable” technology. If he means to argue this, it is an untenable position because, in today’s video marketplace, video distributors compete vigorously against one another employing various technological platforms.

For authority that there no longer are any “cable monopolies” I refer Mr. Kimmelman to – yep! – the FCC. In June 2015, in what the agency calls the Effective Competition order, the Commission finally adopted a rule presuming that local video markets, on a nationwide basis, are subject to “effective competition.” In announcing adoption of the competitive presumption, the Commission recited the dramatic changes that have occurred in the video marketplace since the FCC started regulating basic cable rates after passage of the Cable Act of 1992.

As the agency explained in a brief filed in the D.C. Circuit appeals court in February 2016, two decades ago, in most locations, a single cable operator often was the only purveyor of multichannel video service. But now, citing all the familiar market share figures, the Commission conceded – indeed, touted – in its appellate brief that there has been a “transformation” of the multichannel video marketplace, acknowledging that “consumers have alternatives to cable,” and “cable’s market share has sharply declined.”

If ever there were, there no longer is such a thing as a “cable monopoly,” and the Commission has acknowledged this obvious truth, even if Mr. Kimmelman won’t.

But the Commission has a very bad case of cognitive dissonance when it comes to its video device navigation proposal. In a competitive market like the video distribution marketplace – that is, one in which the market participants are presumed by the Commission to lack market power – there is no sound basis, as a matter of first principle, for proposing to extend the government’s regulatory reach, rather than retract it. This is especially so, as here, where the government’s proposed new regulation ultimately involves a government-designed technological mandate in a fast-changing, dynamic technological area.

The set-top devices, or now navigation apps, that the government proposes to design, and upon which it seeks to impose a standardized compulsory license with a nondiscrimination mandate, are merely complements to the overall video distribution services offered by various video providers. And, as you might expect in a market which the FCC has declared presumptively competitive, the video distributors, in fact, do compete in the provision of navigation devices and app offerings in order to further differentiate their services. Of course, this differentiation in response to changing consumer demand is an important reason there has been considerable innovation and investment with respect to video devices and apps in the past few years.

The Commission appears blind to the adverse impact on innovation and investment by video distributors that its proposal is likely to cause. Perhaps it doesn’t care.

In any event, even if Mr. Kimmelman and his Public Knowledge colleagues continue to refer to “cable monopolies,” the Commission should know better. As a last resort, it should read its own appellate brief in defense of its Effective Competition order.