It's the Consumer, Stupid! - Part II

In thinking about the brouhaha over AT&T's proposed "sponsored data" plan for its wireless service, I was reminded of a blog I wrote shortly after the oral argument in Verizon's appeal of the FCC's net neutrality regulations. With a nod to James Carville, it was titled, "It's the Consumer, Stupid!"

I explained there that, amidst all the back-and-forth about net neutrality, it is easy to be seduced into focusing on the wrong questions – for example, whether "edge providers" or broadband providers are more adversely impacted by a particular business practice. The most important questions should involve the impact of the business practice on consumers, not the providers.

Well, welcome to "It's the Consumer, Stupid – Part II" – courtesy of some of the reactions to AT&T's sponsored data proposal. As you know by now, under AT&T's proposal, data charges on AT&T wireless service resulting from eligible uses will be billed directly to the sponsoring company, rather than to the AT&T subscriber. Thus, as AT&T claims, the sponsored data plan operates in a fashion similar to the long-familiar 1-800 numbers that allow telephone customers to call toll-free, with the sponsor of the 800 number paying for the call.

First, let me make clear that I understand, and almost no one seriously contends otherwise, that the FCC's net neutrality regulations, by their terms, do not apply to AT&T's plan because the prohibitions don't apply to wireless services. Nevertheless, this fact doesn't stop some, who almost always reflexively oppose any business practice that can be made to "sound" in net neutrality from suggesting that, in any event, the practice ought not be allowed.

Second, I understand that sometimes it doesn't matter one whit whether the FCC 's existing regulations actually do or do not prohibit a proposed business practice, or whether the FCC actually does or does not possess authority to prohibit the practice. By this I mean that often the objectors' goal is simply to create enough of a stir – a brouhaha, as we say – so that the company proposing the new service will withdraw the proposal to "reconsider," "reevaluate," "recalibrate," or whatever. It may take only a raised eyebrow or two from FCC officials or members of Congress to lead to such a strategic back-off.

I have seen such back-offs under fire many times in the past, and I'm sure I'll see more. I often wince when they occur, but I understand the pressures that may be brought to bear.

In this instance, I hope AT&T holds fast for one main reason: Consumers, on the whole, are likely to benefit if AT&T's plan goes forward. Whether or not the plan benefits AT&T is not my concern, although I assume AT&T anticipates its business will benefit or it wouldn't propose the new offering. Too often "consumer advocates" adopt the posture that anything that benefits the service provider's business must be detrimental to the provider's consumers. In other words, they view the provider-customer relationship through a "zero-sum game" lens. This, of course, is completely wrong.

Let me now address the two principal objections raised in one form or another to AT&T's proposal.

AT&T's plan puts it in the business of picking winners and losers on the Internet.

AT&T says its plan is voluntary and non-exclusive, so it is difficult to understand how AT&T is picking any winners and losers. What some of the objectors seem to mean, instead, is that the very existence of the plan means, ipso facto, there will be winners and losers in the sense that some companies may not be able to afford to establish a sponsored data plan. Perhaps they are even the proverbial start-up still in the garage.

Depending on the business model employed by the content or apps provider, the sponsored data plan will be more or less attractive. Some companies certainly may benefit from such a business model more than others. This is the way markets operate. Most importantly, though, consumers benefit from the marketplace competition as companies innovate and invest in new content and applications while seeking a competitive edge.

Even assuming for the sake of argument that AT&T's plan were exclusive rather than non-exclusive, it still would be wrong to assume AT&T would be in the position of picking winners and losers. This is because the wireless marketplace is competitive, and, therefore, it is in the interest of AT&T and its competitors to carry all the content and applications that consumers find attractive. In other words, AT&T and its competitors all want more usage of their network facilities. If a new start-up content or application provider has a good business plan that includes sponsored data – a proposal for a service likely to attract consumers – it will be able to attract capital to fund participation in AT&T's plan.

AT&T's plan could ultimately harm consumers.

This claim has been made by several of the objectors, but, for illustrative purposes, I'll take the statement issued by Rep. Anna Eshoo, the ranking member of the House Subcommittee on Communications and Technology, whom I respect. According to a report in the Hillicon Valley blog, Rep. Eshoo said:

 On its face, the ability for consumers to access ‘toll-free’ content seems like long-awaited relief from frustrating data caps. But embedded in programs of this type are serious implications for fairness and competition in the mobile marketplace. …And we must ask just how beneficial a program like this is to consumers who could ultimately foot the bill for the added cost of doing business.

I wouldn't characterize data usage plans (most providers no longer have actual caps on usage, but rather tiered usage pricing plans) as frustrating as opposed to economically sound. But, in any event, a plan that allows consumers to enjoy certain content and applications free from usage caps appears consumer-friendly, and not just "on its face." Just ask real-world consumers whether or not they prefer having this usage-free option available for some of their favorite heavy-trafficked sites, say, Netflix or ESPN. We know the answer.

But Rep. Eshoo's suggestion is that, whatever the data-free plan's acknowledged short-term benefit to consumers, they "could ultimately foot the bill for the added cost of doing business." Presumably she means to suggest that the content and apps providers, ultimately, might pass on to consumers the fees they pay AT&T to participate in the sponsored data program. Depending on the business model devised by the content and apps providers, they may or may not charge consumers to access their products and services.

But here's the most fundamental point: There simply is no free lunch. Assuming that the government is not going to take over the private wireless networks, and pay the costs of maintaining and operating them – and I don't take Rep. Eshoo to be proposing this – it is just an economic fact that, ultimately, private networks, such as AT&T's, must be paid for one way or another by those who use them, whether by AT&T's subscribers, or by the content and apps providers who rely on AT&T's network for reaching their own users, or some combination of these segments.

Under AT&T's proposal, participating content and apps providers will share some of the costs of operating and expanding AT&T's wireless network. There is no reason for the government to dictate that the costs for network operation and facilities upgrades shouldn’t be paid for, at least in part, by the content and applications providers that are reliant on the network to reach their customers. It is at least possible, if not likely, that this cost-sharing mechanism will turn out to be, at least for some business models, a more economically efficient way to recover the costs of operating and expanding the service provider's networks, while expanding customer usage. And, in this context, economically efficient means less costly, on an overall basis, ultimately to the benefit of all consumers that use the network.

Put slightly differently, given the competition in the wireless broadband market – indeed, in the broadband marketplace at large – the costs of the FCC interfering with proposals like AT&T's are likely to outweigh the benefits. This is because the costs entail curtailing market experimentation that drives innovation in new products and investment in new facilities. And when that happens, especially in a dynamic marketplace, we're talking real consumer harm.

So, remember, in thinking about these issues: "It's the Consumer, Stupid!"

First Principles: Restoring the First Amendment to Its Rightful Place

On December 27, the D.C. Circuit issued an important opinion involving Federal Communications Commission rules promulgated to implement the Cable Act of 1992. Court opinions may not have been on your holiday reading list – there is a reason my wife calls me a workaholic! – so you may have missed the opinion in Agape v. FCC.

Because the court's decision implicates first principles – in this case respecting the First Amendment's free speech guarantee – you should be aware of it.

In Agape, the D.C. Circuit rejected a challenge to the FCC's 2012 order allowing the FCC's "Viewability Rule" to expire. The Viewability Rule imposed certain "downconversion" requirements on cable operators in connection with "must carry" obligations created by the Cable Act of 1992. In the 1992 Act, Congress required cable television systems to dedicate some of their channels to local broadcast stations, creating "must carry" rights for broadcast stations that elect mandatory carriage.

For present purposes, it is enough to understand that the Commission allowed the Viewability Rule to sunset in light of the transition from analog to digital broadcasting and accompanying technological and marketplace changes. Or as Judge Edwards puts it near the beginning of his opinion: "Since 2007 [when the Viewability Rule was promulgated], the telecommunications market – including the technology in use by broadcasters, cable distributors, and customers – has changed dramatically."

Judge Edwards explains why each of the challengers' arguments regarding statutory authority, arbitrary reasoning, and APA notice-and-comment violations are to no avail, and I refer you to his decision on these points. But the principal reason I write now is to call your attention to Judge Kavanaugh's excellent – and important – concurring opinion.

While Judge Kavanaugh agrees in full with Judge Edwards' opinion, he would go further: "The dramatically changed marketplace that the Commission aptly recognized in this case undermines the constitutional foundation of the Viewability Rule and, indeed, of the broader must-carry regime as well."

Judge Kavanaugh asserts – just as he did in his concurring opinion in the Tennis Channel case in May 2013 – that the "must carry" and other program carriage requirements imposed on cable operators violate the First Amendment. He points out that, in sustaining these requirements in Turner Broadcasting System, Inc. v. FCC in 1994, the Supreme Court "rested its approval of the must-carry regime on the fact that cable operators in the early 1990s possessed 'bottleneck monopoly power.'" As Judge Kavanaugh explained:

"Things have changed. In the two decades since Congress enacted the Cable Act of 1992, the video programming marketplace has radically transformed. Cable operators today face intense competition from a burgeoning number of satellite, fiber optic, and Internet television providers – none of whom are saddled with the same program carriage and non-discrimination burdens that cable operators bear. As this Court has flatly stated, cable operators 'no longer have the bottleneck power over programming that concerned the Congress in 1992.'"

I am pleased that, in his opinion, Judge Kavanaugh cited my 2009 Charleston Law Review article, "Charting a New Constitutional Jurisprudence for the Digital Age," in support of that proposition. In my article, after reviewing the Supreme Court's jurisprudence, along with marketplace developments, I argued that legacy program content requirements, including those applying to cable operators, should no longer be considered constitutional. I concluded this way:

"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."

In addition to relying on my law review article, Judge Kavanaugh cited Christopher Yoo's Vertical Integration and Media Regulation in the New Economy at 19 Yale. J. on Reg. 171. I am proud that Professor Yoo is a member of the Free State Foundation's Board of Academic Advisors.

This excerpt from Judge Kavanaugh's opinion captures the essence of the matter:

"Unsurprisingly, cable regulations adopted in the era of Cheers and The Cosby Show are ill-suited to a marketplace populated by Homeland and House of Cards. And the constitutional problems infecting the 1992 Cable Act’s various program carriage and non-discrimination requirements grow more significant every day, as new video programming distributors emerge and prosper. The upshot is that the cable 'bottleneck monopoly' on which Turner rested no longer exists – and, as a result, the Act’s infringements on cable operators’ editorial discretion no longer can withstand First Amendment scrutiny."

I like the reference to House of Cards in this sense – the whole edifice of legacy First Amendment jurisprudence regarding the electronic media was constructed primarily on notions of "scarcity" and "bottleneck monopoly power" that no longer exist in today's communications marketplace, if ever they did. This First Amendment jurisprudence is a "House of Cards" waiting to crumble. I am confident that, before too much longer, other jurists will join Judge Kavanaugh in recognizing that existing government controls and program carriage mandates impinging on the editorial discretion of cable operators and other electronic media are incompatible with the free speech rights guaranteed by the First Amendment.

The FCC itself has a duty to conform its actions to the dictates of the First Amendment, so the agency should not wait for the courts to order it to do so. But, in the meantime, I commend to you a close reading of Judge Kavanaugh's decision. It's about first principles – in this instance restoring the First Amendment to its rightful place.

MAY: A new digital age Communications Act - Washington Times

Take a look at my latest op-ed in the Washington Times!

MAY: A new digital age Communications Act - Washington Times

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.

Special Access: A Special FCC Debacle in the Making

Two developments last week caused me (regretfully) to refocus on the Federal Communications Commission's ill-begotten special access proceeding. I say "regretfully" because it is one of those never-ending, backward-looking FCC proceedings that make you cringe. But like Ol' Man River, the proceeding just keeps rolling along.

It has been more or less a decade, depending on how you count, since the FCC embarked on a quest to determine whether what the FCC calls "special access" services are priced unreasonably (read: "too high" to the FCC's mind) by what are still called the "incumbent" telephone companies, even in today's competitive telecom environment.

Back during the years of the Clinton Administration's FCC the agency had relaxed its regulation of special access rates after finding the services were subject to competition in certain geographic areas. The FCC's current proceeding is all about whether to re-regulate rates.

Trust me: The years-long quest upon which the FCC has been embarked to determine whether special access rates are "reasonable" makes Don Quixote's quest look like child's play.

And trust me on this too: The special access proceeding is a special debacle in the making – unless the proceeding gets shut down. In a blog published in June 2012 called "Special Pleading for Special Access Is Especially Counter-Productive," I said: "There are other candidates, but if one is looking for an indictment of what is wrong with the FCC's approach to regulation, there is no need to look further than the agency's handling of 'special access' services." Still true today, perhaps more so.

For anyone reading this not steeped in FCC regulatory lingo, you might be wondering what the heck is "special access," anyway. Here's the FCC's official definition:

"Special access services encompass all services that do not use local switches; these include services that employ dedicated facilities that run directly between the end user and an interexchange carrier’s (IXC) point of presence, where an IXC connects its network with the local exchange carrier’s (LEC) network, or between two discrete end user locations."

Translation: Special access services are dedicated circuits not used by ordinary residential consumers, but rather by businesses and carriers other than the telephone companies offering the services. The majority are copper-based TDM circuits with a T-1 (1.5 Mbps) capacity, but they also include TDM T-3 (45 Mbps) capacities as well.

Now back to last week's two developments. The National Cable & Telecommunications Association (NCTA) filed an Application for Review asking the FCC to curtail substantially the proceeding's currently-applicable data collection requirements. NCTA says that, in formulating the data collection mandates, the FCC's staff has "ignored critical concerns regarding the security of network maps and detailed customer proprietary network information (CPNI)." It's hard to believe, but the FCC's data collection mandates require every provider of special access or special access-comparable services to give the Commission all information concerning every circuit in the country. This includes every building location served by every provider.

Here is what NCTA says about the mandate in its application:

"The data collection punishes the very companies that are investing private capital to finally bring widespread competition to the special access marketplace. Cable operators are making significant investments to provide commercial customers with services that are more robust and less expensive than the services offered by incumbent providers, a result that the Commission has long encouraged through its limited regulation of competitive providers. Yet these same companies, which have never been subject to any recordkeeping or reporting obligations with respect to their competitive special access services, are now expected to devote thousands of hours and tens of millions of dollars to gathering virtually every scrap of information about the commercial services they provide (or could provide), the networks they operate, and the customers they serve (including detailed CPNI regarding every business in America that purchases dedicated services)." [My italics.]

There is more along these lines in the NCTA pleading, but the import of NCTA's plea should be clear. First, the prospects for the FCC ever gathering all, or even most, of the requested data are close to nil. It is simply unrealistic to think that all special access or special access-equivalent service providers are going to be able to provide information concerning every customer they serve in every location in America, even if they wanted to – and, let's be honest, they don't want to. They will resist, in ways subtle and not so subtle, disclosing what NCTA, rightly, calls competitively "sensitive information."
This data collection and analysis effort, if it goes forward, almost certainly will end up a huge mess. And, as NCTA correctly points out, even assuming for the sake of argument the FCC "possibly could complete" its data collection and analysis in 2015, "such analysis will be out of date immediately upon its release because the data the Commission is collecting is from 2010 and 2012."

Second, as NCTA's pleading makes clear, cable companies are investing significant amounts of private capital to compete in the special access marketplace, investments they claim will bring widespread competition to this market segment. They should be commended for these investments, and, indeed, the cable operators are by no means alone. All of the other service providers that, along with NCTA, have also protested the breadth of the FCC's data collection requirements are, by self-admission, competitors as well. These other competitors include, for example, established companies such as Level 3, XO, and Cogent, and fiber providers. In addition, Sprint conducted an RFP for backhaul services and received responses from more than 20 different vendors.

Third, and this is a point that the Commission often fails to appreciate: Assuming for the sake of argument the Commission would prefer for the special access market to be more competitive than the agency assumes it is, and assuming, again for the sake of argument, that the agency somehow could complete its data collection quest on a timely basis and conclude the incumbents' special access rates should be reduced by Commission fiat, the effect of this mandated rate reduction actually would be to deter the development of further facilities-based competition – competition that, in any event, already is progressing. This is because, by forcing the incumbents' rates down, it is more difficult for other competitors to compete. If the cable operators and other facilities-based providers conclude the FCC will be forcing down incumbents' rates, it is less likely these competitors will continue, in NCTA's words, "making significant investments to provide commercial customers with services that are more robust and less expensive than the services offered by the incumbent providers."

The reality is this: It is no doubt true that in some locations there is more competition than in others. Certainly there are many particular buildings across the country that, presently, are served by only one provider. But surely this is largely irrelevant unless the FCC proposes to regulate rates on a building-by-building basis. The agency's quest to gather information for all building locations in the country is a fool's errand. What is important is the unmistakable, long-term trend towards more competition and more choices for consumers in most locations – a trend enabled and furthered by the deployment of lower-cost, more efficient digital technologies.

Now, it is the deployment of newer, more efficient IP technologies that brings me to the second of last week's developments. The Commission's staff suspended and set for investigation AT&T special access service tariff filings proposing to eliminate for any new customers or existing customers placing new orders certain discount plans with terms of sixty months or greater. AT&T said the purpose of eliminating such discounts for far-out years (i.e., 2020) is to prepare for the transition to an all-IP network. Recall that the incumbents' special access services are, for the most part, legacy copper-based circuits.

The FCC's action was a mistake, and it leaves one wondering whether the agency has any appreciation at all of the way its actions can adversely affect the transition to all IP networks that enable less costly, more efficient services. After all, here the tariff revisions simply proposed eliminating discounts for new customers and new orders. No one contends – I don't think even the FCC contends this – that AT&T or any other carrier could be ordered, in the first place, to offer specific long-term discount plans.

Without saying more about the Commission's tariff suspension action now, I simply want to commend to you two pieces that contain further analysis and commentary: Scott Cleland's blog, "Perspective on the FCC's Special Access Delay of Its IP Transition," and Fred Campbell's blog, "FCC Tariff Decision Is Not Consistent with the IP Transition, the National Broadband Plan, or the Law."

I'll conclude by repeating yet again what I said in my June 2012 "Special Pleading for Special Access" blog: "There are other candidates, but if one is looking for an indictment of what is wrong with the FCC's approach to regulation, there is no need to look further than the agency's handling of 'special access' services."

The Commission needs to reorient its pro-regulatory mindset in a meaningful way. As I have often urged, and as I did so again recently in an ex parte filing regarding the IP Transition, in today's rapidly changing digital environment, the agency's "default, or presumptive, position should be that, absent clear and convincing evidence to the contrary, legacy economic regulation should not be applied."

Another Message for Susan: Promoting Policies Premised on a Hypothesized Market Will Harm Consumers and Hinder Broadband Progress

On November 22, Susan Crawford participated in a teleconference in which she discussed marketplace competition and her book, “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” Professor Crawford asserted that the U.S. market for broadband services is dominated by cable TV companies. She stated that consumers only have a choice of about 1.5 competitors, and that competition should be measured based on the market for the choice-limiting “bundle” of video and data services. When asked about statistics that seem to prove that competition is healthy and increasing, Professor Crawford stated that companies like AT&T are good at “shaping the numbers to make it appear like competition is right around the corner.”

Today, many statistics demonstrate that the broadband market is effectively competitive. Also, recent technological innovations and trends in consumer habits indicate that “the bundle” is not the only market relevant to analyzing the state of broadband competition. Broadband services are currently offered by many competitors that include cable, telephone, and satellite companies alike. In addition to a variety of service providers, consumers can also choose from a range of subscription options and modes of access to content. Although some obstacles to broadband innovation and investment may remain, the U.S. offers broadband access and a choice of providers to most consumers and leads the world in many measures that are indicative of broadband leadership.

Despite its curious failure to determine that the broadband market is effectively competitive, in the FCC’s most recent 706 Report, the Commission found that the broadband “market has responded” to consumer demand for increasingly fast Internet services. The report notes that “recent trends show [broadband] providers offering much higher speeds” and increasing data limits for customers. Mobile broadband providers have expanded their coverage, and are “deploying faster, and more spectrally-efficient mobile network technologies.” Yet there are several remaining barriers to infrastructure investment including costs and delays in building out networks, broadband service quality, lack of affordable broadband Internet access services, lack of access to computers and other broadband-capable equipment, and a lack of relevance of broadband for some consumers.

Although there may be some remaining obstacles to broadband deployment and adoption, the communications and information services marketplace today offers many consumers access to high-speed broadband services at affordable costs. Additionally, consumers may subscribe to broadband not only through their local cable providers, but also through phone, satellite, or Internet providers.

In her book Captive Audience, Professor Crawford asserts that Comcast possesses monopoly power with respect both to the provision of broadband services and the provision of video programming. In the recent teleconference, Professor Crawford seemed to argue that cable companies, particularly Comcast, dominate the broadband market because they have a price advantage in obtaining video programming for “the bundle.” However, companies other than cable providers are quickly gaining traction in the video marketplace. For example, companies like AT&T and Verizon now offer video services in addition to phone service and Internet service. According to Professor Crawford, being able to compete in the video market enhances the ability of companies to compete with cable companies in the broadband services marketplace. Following this line of reasoning, since companies like AT&T and Verizon are competing with cable providers in the video marketplace, they are also competing with cable providers in the broadband marketplace, which means that the broadband market is not monopolistic.

Looking more specifically at the video marketplace, the Wall Street Journal reported in November that Verizon and AT&T “are nearing the market share of cable operators in areas where they operate.” The top two cable providers, Comcast and Time Warner Cable, shed 435,000 video customers in the quarter, while AT&T and Verizon added 400,000. Verizon and AT&T are not the only companies competing with cable providers in the video marketplace.

The FCC’s 15th Annual Video Competition Report provided more evidence of a marketplace in which consumers have a choice of service providers and modes of access to content. By the end of last year, cable providers represented only 55% of the more than 100 million households that subscribe to all multichannel video programming distributors (“MVPDs”) overall. Meanwhile telephone and direct broadcast satellite MVPDs gained marketshare, claiming about 8.4% and 33.6% of all MVPD subscribers respectively. At the end of 2012, 98.6% of subscribers or 130.7 million households had access to at least three MVPDs, 35.3% or 46.8 million households had access to at least four, and some areas had access to as many as five MVPDs.

In addition to this variety of service providers, consumers today can also access content through a greater range of technologies and subscriber options than ever before; bundled service subscriptions are just one option available and may not provide a proper measure of the broadband services market overall. The FCC’s 15th Annual Video Competition Report cited an SNL Kagan study, which estimated that by the end of 2012, there would be 41.6 million Internet-connected television households, representing 35.4% of all television households. The FCC’s 15^th Annual Report also noted the continued growth of non-cable MVPDs, rapid deployment and adoption of other new technologies that enable time and space shifting, and other developments that offer further options for consumer viewing.

Furthermore, consumers today can access video content through a wide range of devices, not just through set top boxes leased by cable providers as part of a “bundle.” Video access devices available today include IP connected MVPD provided set-top boxes, multi-room DVR and home networking solutions, cloud-based user interfaces, mobile applications, portable media players, gaming consoles, Internet-connected smart phones and table computers, and home monitoring systems that act as extensions of cable MVPD networks.

Today’s video marketplace offers consumers a choice of providers, subscription options, and devices. Subscribing to a “bundle” of video and data services offered by cable providers is not the only way to access video content anymore. The implications of this marketplace development are that cable providers likely do not have an advantage in the broadband market because other companies now offer video services, and can compete directly with cable providers for “bundle” customers.

Additionally, innovative modes of access to content and changing viewer habits also indicate that not all consumers prefer the cable “bundle” of video and data services: high-speed broadband access to over-the-top content may be enough for some consumers today. As the Wall Street Journal observed, the growth of telecom’s share of the video market is already having a significant impact on the cable industry, and offering high-speed broadband services will be the way to maintain subscribers given these changes. Thus, cable, telecom, and satellite providers must compete in the broadband marketplace to adjust to these developments, and the Wall Street Journal’s recent statistics indicate that such competition is currently underway.

Free State Foundation scholars have often analyzed the state of the communications and information services marketplace to respond to Professor Crawford’s arguments that the broadband market is not competitive. Recently, Free State Foundation President Randolph May posted a “Message for Susan” on our blog. That piece presented recent statistics, which demonstrate that the cable market is effectively competitive, and not monopolistic.  And by definition, Mr. May found that the same is true for the cable operators' competitors, AT&T, Verizon, and all the other broadband providers, including the various wireless and satellite operators. Mr. May urged Professor Crawford to stop branding Comcast and other cable operators "monopolies," and to stop calling for regulation of broadband companies as utilities like electric power companies, which by and large continue to retain dominant market power.

Citing an earlier response to Professor Crawford’s book entitled, “Captive Audience’s Captive Thinking,” Mr. May argues: 

“Captive Audience" is flawed because Professor Crawford relies on an incorrect – indeed, a hypothesized – view of the communications and information services marketplace to construct the case for monopoly power. And then she offers anachronistic, legacy regulatory measures to remedy the supposed ills that exist in her hypothesized market.

In the recent teleconference, Professor Crawford again seemed to look at too narrow a market to draw conclusions about the overall state of competition. Rather than analyzing the state of the cable market based on “the bundle,” any assessment of the marketplace should be informed by the vast range of service providers, subscription plans, technologies, and content provision platforms available to consumers today. Recent statistics and articles, and the continued innovation and growth in the cable marketplace indicate that there is effective competition – not monopoly power in this market.

Of course there may be weak spots in an otherwise generally competitive market. As the FCC’s 706 Report pointed out, not all Americans currently have access to high speed broadband. However, the U.S. leads Europe in broadband progress, and offers broad choice to consumers in the cable and video marketplaces. Additionally, cable and telecommunications providers lead capital investment in the United States; AT&T, Verizon Communications, Comcast, Sprint Nextel, and Time Warner, all ranked in the top twenty of non-financial companies making capital investments in the U.S over the past year. The investments of these companies, among others, have allowed 99.5% of Americans to have access to broadband – via landline, wireless, or both – as of the end of 2012.  

These successes and other positive digital economy developments may be threatened if burdensome public utility-style regulations are implemented. As the Commission noted in its 706 Report, the broadband market in particular is responsive to consumer demands and is constantly evolving to improve weak performance areas. Critics should listen to Randolph May’s “message”: “It's no time to let captive thinking premised on a hypothesized market trump the competitive realities of the broadband marketplace. If such thinking ever were to lead to regulating broadband providers as public utilities, rest assured that consumers would be the real losers.”