Setting the Record Straight on Current FCC Policies

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.

News of this Musharraf-like decree sparked immediate protests, not least from fellow GOP commissioners Robert McDowell and Deborah Taylor Tate. McDowell noted that with cable firms facing more competition today than ever before, the move to expand regulation represented a “radical departure” from past pro-market FCC policies. Bizarrely, Martin’s initiative was even too regulatory for Jesse Jackson, hardly a free-market ideologue: “A bureaucratic agency should not be using a 20-year-old-legal clause to implement wholesale policy changes that hurt consumers and hurt minority television programmers,” Jackson argued. In the face of this opposition, Martin yesterday called off a planned vote on the proposal, in effect conceding defeat.

Conda and Spivak don’t dwell on this issue, stressing instead that Martin’s FCC record should be “viewed as a whole.” And certainly, there have been bright spots: Martin has generally opposed “neutrality regulation” for the web, and has pushed forward significant deregulation of telephone and broadband markets. But weighed against that is a longer list of new or proposed regulations.

For whatever reason, a disproportionate number of these have been aimed at cable television, so much so that press and industry analysts now speak of Chairman Martin’s ongoing “war on cable.” For instance, Martin has long pushed for “a la carte” pricing for cable operators — saying earlier this year that he would support legislation mandating such unbundling of cable tiers. A la carte regulation would force cable and satellite operators to sell each individual network on a channel-by-channel basis. It sounds good, but forced unbundling of video programming would require the abrogation of private contracts, the restructuring of a successful market, and likely even price controls in the long-run. Worse yet, a la carte regulation could leave the smaller, niche-oriented channels (think religious and family-oriented channels) scrambling for advertisers and subscribers, potentially forcing them out of business. Indeed, that’s exactly what the FCC concluded before Martin became chairman. In 2004, the Powell FCC studied the issue and concluded that a la carte would hurt program diversity and raise prices.

The war on cable doesn’t end there. The other regulations Martin has supported include:

* Must-carry rules, to force cable distributors to carry every digital broadcast signal from every broadcaster carried, regardless of the demand for such content.

* A set-top box “integration ban,” requiring cable companies to separate security functions from the other functions of the set-top box. In theory, the mandate is supposed to promote more competition in the set-top box market, but instead it just raises the cost of service for most consumers.

* Leased access to cable channels. Under a 1984 law, the FCC requires cable providers to lease a certain number of channels at regulated rates. Rather than repeal this unnecessary provision (the main beneficiaries of which have been home shopping channels), Martin is pushing to reduce the regulated rates by some 75 percent.

* Abrogation of contracts for cable service. Under a proposal adopted by the commission last month, exclusive service contracts between apartment owners and cable television providers are banned. This interference in almost perfectly competitive market for apartments flies in the fact of simple economic, as well as constitutional, principles.

The regulatory pile-up goes beyond cable, however. Wireless phone providers face new “open access” mandates on certain newly-allocated spectrum. Broadcasters face expanded content controls, with Martin suggesting that the FCC should police the airwaves (and potentially cable and satellite TV as well) for fatty food advertising and “excessively violent” shows. The list goes on.

Strangely, Conda and Spiwak cite with approval the FCC’s efforts under Martin to “make government work more efficiently.” But — putting to one side the question of whether taxpayers really deserve all the government they pay for — the FCC has hardly been shrinking. The agency is spending more than ever before, producing more regulations, and staffing remains high. The FCC’s appropriations request has ballooned from $281 million in FY2005, when Martin became chairman, to a proposed $313 million in FY 2008, an 11 percent jump. But the agency actually spends much more than that. The FCC skims money off of spectrum auctions and universal service proceeds, resulting in “total budget resources” for FY 2008 of $427 million, 16 percent more than 2005. Going back to 1993, the FCC’s budget authority is up a whopping 205 percent.

This is hardly the “very hallmark of economic conservatism.” As Conda and Spivak argue, things might be even worse under a different administration after 2008. But that possibility makes it even more important that today’s FCC get it right.

And pretending that the train is still on the right track doesn’t help.
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— James Gattuso is senior research fellow in regulatory policy at the Heritage Foundation and Adam Thierer is a senior fellow at the Progress & Freedom Foundation.