The big news this week in communications policy circles was the hullabaloo at the FCC over cable regulation. FCC Chairman Kevin Martin suffered a major setback in his attempt expand regulation of the video marketplace when he failed to get the votes he needed to impose new mandates on cable TV operators. Specifically, Chairman Martin was seeking to breath new life into an arcane provision of a 1984 law--the so-called "70/70" rule--that would have given him much greater regulatory authority over the day-to-day dealings of the cable market.

But the war certainly isn't over. The day after losing that skirmish, Chairman Martin made it clear he would be pursuing other forms of regulation for the cable sector, including an arbitrary 30% ownership cap on the reach of any cable operator. And the Chairman's crusade for a la carte mandates on cable will no doubt continue since it has been on his regulatory wish list for some time now, and many other groups support his efforts.

These cable TV regulatory proposals have always been fueled by the same two arguments: (1) cable TV operators have a stranglehold on market entry by new video providers and, (2) because of that, media diversity has suffered. For example, the New York Times editorial board opined this week that: "Twenty-five years ago, cable carriers promised to provide consumers with a wealth of new programming options. Today, the carriers and their packages of unwanted channels are obstacles to choice." This is the same logic that animates Chairman Martin's crusade against cable and the efforts of his pro-regulatory allies, most of whom are radical Leftist media critics.

But that logic is dead wrong.

As I mentioned yesterday, James Gattuso and I penned an editorial for National Review this week about the growth of FCC regulation and spending in recent years. In the op-ed, we also noted that, "For whatever reason, a disproportionate number of these [new regulatory proposals] have been aimed at cable television, so much so that press and industry analysts now speak of Chairman Martin’s ongoing 'war on cable.'"

Today, the editors at National Review have chimed in with an editorial of their own on the issue entitled, "Pulling the Cable on Martin’s Crusade." Specifically, the editors address what most pundits believe really motivates the Chairman's crusade against cable: His desire to force cable companies to offer consumers channels on "a la carte" basis in an effort to "clean up" cable TV. "Martin should abandon this particular crusade," the NR editors argue. "While we are sympathetic to parents’ desire to get the channels they want without having to buy access to racier fare, using economic regulation to restructure an industry is the wrong approach." They continue:

This is just a quick follow-up to the post I made earlier in which I mentioned the new editorial James Gattuso and I penned for National Review about the growth of FCC regulation and spending in recent years. A few people asked me where we got the numbers we used in the piece regarding the growth of the FCC's budget over time. Here are the relevant numbers and a graph charting that growth. The numbers can all be found in the the FCC's annual budget reports.

Next time some pro-regulatory advocate says that the agency is engaged in "radical deregulation" or something absurd like that, show them these numbers. There's still a whole lotta regulatin' going on over there!

This week in National Review Online, Cesar Conda and Lawrence Spivak ran an editorial entitled “Kevin Martin’s Pro-Market FCC,” arguing that the current FCC has generally been deregulatory and free market-oriented. Today, James Gattuso of the Heritage Foundation and I have set the record straight regarding just how off-the-rails this current FCC has really gone…
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November 29, 2007

TV Train Wreck
Martin, markets, and the potential for regulatory disaster.

By James Gattuso & Adam Thierer

Like cops shooing away onlookers at the scene of an accident, Cesar Conda and Lawrence Spivak argue (“Kevin Martin’s Pro-Market FCC”) that there’s no reason for conservatives to be concerned about the Federal Communications Commission (FCC). Under Chairman Kevin Martin, they say, the FCC has been “characterized by a consistent pro-entry/pro-consumer welfare mandate, the very hallmark of economic conservatism.”

In other words: “Just move along. Nothing to see here.”

Despite Conda and Spivak’s exhortations, however, there is much for the curious crowd to see in the train wreck that is the FCC. The most recent derailment began earlier this month, when Martin leaked plans to invoke an obscure provision of the Communications Act, and to assert nearly unlimited powers to regulate cable television if more than 70 percent of households subscribe to cable.

New York Times business columnist Joe Nocera penned a lengthy column on the potential dangers of a la carte regulation over the weekend. He summarized why--as we have pointed out here before--despite the best of intentions, a la carte regulation is certain to backfire:

À la carte. It sounds so appealing, doesn’t it? Instead of having to accept — and pay for — all the channels bundled by your cable company, you could pick from a menu and pay for only the ones you watch. ... Yet as appealing as the idea might seem at first glance, there is a reason that Congress has not taken the bait and passed an à la carte law. À la carte would be a consumer disaster. For those of you who yearn for it, this is a classic case of “be careful what you wish for.”

Nocera goes on to show that, contrary to what a la carte regulatory advocates believe, prices for most customers would rise in the long-run:

One of the things I find most interesting about calls to regulate "excessively violent" content on television, in movies, or in video games is the way critics make massive leaps of logic and draw outrageous conclusions based on myopic, anecdotal reasoning. I was reminded of that again today when reading through an interview with Sen. Jay Rockefeller (D-W.Va), one of the most vociferous critics of all sorts of media content and a long-time proponent of regulation to censor such violent content in particular (however it is defined). (I have written about his past regulatory proposals here and here).

Here's what he recently told the editorial board of The Register-Herald of West Virginia:

I want join my TLF blogging colleague James Gattuso in recommending that you read FCC Commissioner Robert McDowell's outstanding speech on media policy issues that he delivered at a Media Institute event yesterday. I just want to highlight two of the myths he debunked in his speech, (myths which I had discussed in my 2005 book Media Myths: Making Sense of the Debate over Media Ownership):

Myth #1: The public has not been given a chance to be heard. As McDowell points out, no issue has been more thoroughly studied in the history of the FCC:

In my 17 years of being in and around the FCC, I can’t think of any issue that has been examined more thoroughly. I can’t remember any proceeding where the Commission has solicited as much comment and given the American people as much opportunity to be heard. If anyone knows of an FCC proceeding where there has been more opportunity for debate over an 11-year period, please let me know.

That's exactly right, but the anti-media zealots like to propagate the myth that the public has somehow been frozen out of the process, or that important constituencies have not been heard from during these debates. It's nonsense.

Last week, the big news inside the Beltway was how FCC Chairman Kevin Martin was stepping up what many have labeled his "war on cable" by proposing still more regulations for the cable sector. Craig Moffett, a senior analyst with Sanford Bernstein & Co, summarizes the economic regs currently being proposed: "Over the past year, the Chairman has adopted an almost uniformly anti-cable stance on issues ranging from set-top boxes (CableCards), digital must carry requirements, cable ownership caps, video franchising rules, and the abrogation of exclusive service contracts with [apartment owners]." And in a short PFF paper last week, I also outlined the content / speech regulations that the Martin FCC has proposed for cable (as well as satellite and telco) operators.

As Jon Hemingway's cover story in this week's Broadcasting & Cable magazine points out, the FCC's war on cable appears to now be having an impact in the stock market. Investors are turning against cable operators fearing that the regulatory reign of terror at the FCC will limit cable's ability to respond to rising competitive threats. Here's a summary of the bad news from the B&C story:

EarthLink appears to be getting out of the muni wi-fi business for good. The company is at least is abandoning the major Philadelphia experiment it was in charge of. According to today’s press release:

“After thorough review and analysis of our municipal wireless business we have decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value," said Rolla P. Huff, EarthLink president and CEO. “Accordingly, at this time, we are considering our strategic alternatives with respect to this business," Huff added. EarthLink will seek to work closely with the municipalities in which it has operations as it considers these alternatives. The net book value of the assets attributable to EarthLink’s municipal wireless business is approximately $40 million.

A few years ago, many folks were telling us that muni wi-fi was like manna from heaven; the ultimate free lunch that would give us a broadband nirvana. As some of us predicted--reality often proves more complicated. Indeed, one lesson from this experiment is that demand counts. There was always a bit of "if-you-build-it-they-will-come" reasoning behind the Philly deal and other muni wi-fi proposals. But you can't build a network without a customer base, and recent news reports indicated that demand was lacking.

A second lesson: Network-building is a tough, time-consuming and expensive task. Networks aren't like lemonade stands; you can't just erect an entire network overnight and expect things to be functioning smoothly right away. Almost all networks involve significant upfront investments (sunk costs) that constitute an extraordinarily risky investment given uncertain market demand. And problems always creep up, for both public and private networks alike. The difference is that the private (or unsubsidized) network owners usually have a better incentive to fix whatever ails the network in order to build and retain a customer base and (hopefully) become profitable.

This doesn’t necessary mean that muni wi-fi efforts are dead entirely. Other experiments are still underway and hybrid models are emerging. Civitium, a consulting firm that helped devise the Philadelphia plan, is still bullish on other experiments. Some might work out, but the business models will likely need to change to take into account demand factors and the enormous challenges and expenses associated with network-building. If some companies (think Google, Apple, or even Starbucks) or other institutions (think universities) are willing to generously subsidize money-losing, low-demand muni wi-fi efforts, then they might work. But I remain skeptical that the old models like Philladephia's have any chance of panning out.

Earlier this week, FCC chairman Kevin Martin announced long-promised revisions to America’s media-ownership rules. As I point out in my latest essay for the City Journal, the results were extremely disappointing and could have grave consequences for the long-term viability of struggling media operators.
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Media Deregulation Is Dead
The FCC’s toothless reforms are a victory for the status quo.
November 15, 2007
by Adam Thierer

This week, Federal Communications Commission chairman Kevin Martin announced long-promised revisions to America’s archaic, convoluted media-ownership rules. The result: no serious deregulation, just tinkering at the margins. In fact, of the half-dozen rules currently on the books, Martin is proposing to revise only one—the newspaper/broadcast cross-ownership rule. “No changes to the other media-ownership rules [are] currently under review,” Martin’s press release notes tersely, leaving many TV and radio broadcasters wondering when they will ever get regulatory relief.