The FCC's Enforcement Bureau, at the direction of Chairman Martin, recently sent letters to 13 cable operators (who cumulatively serve more than 86 percent of the nation's cable customers) asking for information concerning cable prices and analog-to-digital channel movements and customer notification procedures. The letters requested extensive sensitive cable programming and cost data going back to 2006. A Comcast spokeswoman reportedly said the company estimated it would have taken over 1,500 man hours just to assemble the information for 2008. How long did these companies have to respond to the FCC's request? Fourteen days. Why, what's the rush? And when did cable programming rates become one of the agency's highest priorities?

In a short paper released yesterday, "Der Undue Prozess at the FCC: Part Deux," I identified at least four flaws in the FCC's investigation:

(1) the FCC has very limited authority to regulate cable rate levels; (2) to the extent lack of advance notice of channel moves is at issue, local franchising authorities (LFAs), not the FCC, are statutorily empowered to carry out enforcement activities; (3) the FCC has no rules either prohibiting cable operators from migrating cable programming channels from analog to digital transmission or requiring corresponding per-channel rate reductions; and (4) to the extent the FCC is required by Congress to collect data on the multichannel video programming distributor (MVPD) market and cable pricing generally, the agency is directed to do so by means of its annual video competition and price survey reports.

Thus, not only is the digital cable probe being conducted in a manner that calls into question the fundamental fairness of agency processes (with guilt virtually presumed), it seems to be pursuing goals hard to fathom. What the cable industry is doing in migrating its legacy analog cable services to digital transmission is unambiguously pro-consumer, and the FCC's probe will undoubtedly slow its progress. It is difficult to conceive of how consumers will benefit from this diversion of public and private resources as the nation approaches the critical switch-over from analog to digital television broadcasting just three short months from now. The public interest would be better served if the FCC would "stick to its knitting" and faithfully carry out its statutory mission. No more, and certainly no less.

The focus of the investigation, not explicitly stated in the letters but shared liberally with the press, is on cable rates changes operators may have made to their pricing and tiers of service, and suspicions that the cable industry is somehow using consumer confusion about the transition to digital television broadcasting to move subscribers to more expensive digital tier cable service. Of course, the FCC has previously recognized the benefits of cable's migration to digital transmission, and cable operators are required by FCC rules to send monthly notices to all of their customers about the digital broadcast transition. And, with less than 90 days before full-power television broadcast stations cease transmitting analog signals and switch to digital-only transmissions, there is much serious government work do be done to ensure that Americans who rely on over-the-air television can continue to receive signals on their analog TV receivers after the February digital cut-over. Why, then, is the FCC devoting its resources to investigating matters over which it has little or no regulatory authority? What is the agency really after?

One of the first to report on the probe, Amy Schatz, identified its purpose as: "FCC Opens Investigation Into Cable-TV Pricing." According to Todd Shields, Chairman Martin has said: "Listen, if I can think of anything that'll help lower prices for cable customers, I would move forward on it." But by seeking information concerning negotiated fees from wholesale programming suppliers, one suspects yet another back-door attempt to regulate such wholesale prices with an eye toward accomplishing the FCC Chairman's cable Holy Grail: a la carte programming offerings.

As I explain, this is an all-too familiar scenario, as once again the FCC's regular processes and procedures appear to have been perverted to ends not within the agency's delegated authority.

What is disturbing is the process the FCC's Chairman is using to pursue what might otherwise be a perfectly legitimate inquiry into a range of industry-wide practices in connection with the migration towards all-digital operations. This is no ordinary FCC enforcement action and it is difficult to conceive of how this use of agency resources will further two of the FCC's most pressing current goals: ensuring a smooth transition to digital television transmission and encouraging the speedy deployment of ever higher-speed broadband Internet services. In fact, the probe is more likely to slow progress on each front as enormous resources are diverted to producing and reviewing information relevant mostly to activities that lie outside the scope of the FCC's regulatory jurisdiction.

More importantly, consumers cannot possibly benefit, in the long run, when the government conducts its business using questionable procedures in a manner that strongly suggests a lack of impartiality, fairness and predictability, because there can be no confidence that the results of such actions will be fair and reasonable. If the cause of this government investigation is just, its outcomes can only gain, not lose, by scrupulous adherence to the rule of law.

The whole paper is posted here.

Melville's novel "Moby Dick" was first published in the U.S. on this date, in 1851. It has since become the archetypal literary exploration of self-destructive monomaniacal obsession, as the tyrannical Captain Ahab is driven half-mad, and ultimately to the destruction of himself, his ship and all but one of his crew, by a single-minded desire to search out and destroy the "white whale."

Captain Ahab may have perished by the end of Melville's novel but, as my colleague Adam Thierer has noted, his real-life counterpart lives on in the form of FCC Chairman Kevin Martin. Whatever real or perceived injuries have been visited upon Mr. Martin by cable television providers, there can be but little doubt that the one abiding theme throughout his tenure as FCC Chairman has been a single-minded pursuit of the cable industry.

Reuters reports:

A nine-car NASCAR pileup may have wrecked a vehicle sponsored by the Federal Communications Commission, but it gave the agency more mileage in advertising the imminent switch to digital TV signals, the FCC's chief said Monday . . . . Asked if it was a bad omen for the switch, FCC Chairman Kevin Martin told reporters it was more of a silver lining. "Except for the cars that win the races, the cars that are in wrecks get a lot of attention," he said.

Similarly, according to TV Week, the Chairman stated:

"Except for the car that wins the race, the cars that crash get a lot of attention during the race itself," he said. "From our perspective, it would be better if he won, but he gets quite a bit of attention. ... [T]he cameras focus on it. What we are trying to do is get all the attention on this car. So we appreciate all his efforts to do that."

Seriously. Are we to believe that driver David Gilliland made a special effort to draw attention to the "DTV Transition" message on the front hood of No. 38 by maneuvering it into a picturesque nine-car pile up (viewable via link in my previous post) to "get all the attention on this car"? Does this not instead illustrate the folly of this use of taxpayer funds that were supposed to be directed to help educate the millions of Americans who rely on analog over-the-air broadcasting about the digital transition that is now a mere 100 days away?

Members of Congress are apparently quite concerned about the progress to date in readying the American public for the transition. In a recent letter to the FCC, NTIA, the NAB, and TV networks and their affiliates, Reps. John D. Dingell (D., Mich.) and Edward J. Markey (D., Mass.), the chairman, respectively of the House Energy and Commerce Committee and its telecommunications and the Internet subcommittee, asked how the agencies and groups were responding to lessons learned from the September early DTV transition in Wilmington, N.C. The letter to Chairman Martin identifies three problem areas: rescanning converter boxes; antenna issues; and signal contour revealed by the Wilmington test and asks what specifically the FCC is doing to address each. Judging by the letter, there appears to be a lot of serious work to be undertaken to ensure a smooth transition to digital broadcasting. So, let us hope that the NASCAR pile up is not an omen about the success of the DTV transition and that the leadership changes now underway in Washington will act swiftly to address this other important 2009 transition without additional waste of taxpayer resources.

Last month during its first race, I suggested that the FCC's purchase of advertising space for the Digital TV transition on a NASCAR driver and his car might be a 2008 contender for the "Golden Fleece" award. As we later learned, the car, No. 38, driven by David Gilliland hit the wall and crashed (with no injuries) in the first of the three races in which sponsorship was purchased by the FCC. It now appears that misfortune has struck once again. The second race resulted in a crash and burn for the benighted racer and his DTV Transition-mobile, but again, thankfully, no one was injured (except perhaps the taxpayers). As Gilliland noted in his post-race interview, his team was struggling with its digital TV Transition-mobile, but he intends to get back and compete again on the NASCAR circuit. Let us hope that the trials and tribulations of the FCC's motorized DTV transition mascot is not a metaphor for the fate of the actual digital television transition, which some fear may not be crossing the finish line next February as a winner.

Two rural cellular associations, Rural Telecommunications Group, Inc. (RTG) and the Rural Cellular Association (RCA), are importuning the FCC to delay its scheduled November 4, 2008 vote on the proposed merger of Verizon Wireless and Alltel Corp.
until the FCC resolves three pending industry-wide matters that "impact the competitive wireless landscape." The currently pending matters identified are: (1) a rulemaking reexamining the roaming obligations of commercial mobile radio (CMRS) service providers; (2) a rulemaking regarding exclusivity arrangements between CMRS carriers and handset manufacturers; and (3) a rulemaking considering the imposition of a spectrum aggregation limit on all commercial terrestrial wireless spectrum below 2.3 GHz. RTG and RTC argue that action should be taken on all three rulemaking proceeding before the FCC acts on the license transfer proceeding.

This is exactly backwards. Because the FCC has teed-up in industry-wide rulemaking proceedings all of the contentious issues raised in opposition to the proposed merger, it should proceed expeditiously to address the merits of that transaction, leaving the industry-wide issues to be dealt with in the rulemaking proceedings. This would return some semblance of rationality to a license transfer review process run amuck.

Backwards also describes the direction the three pending rulemakings would take the wireless industry: back to the days of a pervasive regulatory framework suited for the cellular duopoly of old. Although the wireless industry is undeniably undergoing consolidation, it remains competitive, as the FCC found in its last Annual CMRS Competition Report. More importantly, while opponents of the Verizon Wireless-Alltel merger focus solely on consolidation of existing market participants, they ignore imminent new entry in wireless markets.

My once and present boss Ken Ferree recently remarked of the FCC:

Although it is true that a foolish consistency is the hobgoblin of simple minds, a foolish inconsistency is worse. The FCC is guilty of the latter.

The subjects Ferree addressed were twofold. First, the inconsistency between the FCC's recent decision to intervene on the side of the programmer, NFL Network, in its program carriage dispute with cable operator Comcast Corporation and the agency's calls for the industry to adopt an "a la carte" pricing model to ensure that consumers only receive programming channels they affirmatively choose to receive from their multi-channel video programming distributor. And second, the FCC's purchase of labeling rights - ostensibly a form of "embedded advertising" - on a NASCAR racing car at the same time it is contemplating imposing limits on the ability of commercial advertisers to do likewise.

Although it is true that a foolish consistency is the hobgoblin of simple minds, a foolish inconsistency is worse. The FCC is guilty of the latter.

For years the cable industry has been subjected to regulatory assault in detail because it has steadfastly refused to adopt formal a la carte pricing models. As your correspondent has said before, one can argue about whether or not a la carte pricing might reduce cable rates for some class of customer (i.e., extremely light users or those who abstain from high cost services such as sports and movies), but there is no doubt that it would reduce programming diversity and diminish investment in programming services. Nonetheless, there is an appeal to the populist notion that consumers should not have to pay for programming channels they don't watch and don't want.

Why then, though, when the NFL Network -- another high cost sports programming service owned by the millionaires club known as the NFL -- asks the FCC to intervene in its carriage negotiations, would the FCC side with the programmer seeking to force itself onto the basic programming tier and thereby into the living rooms and onto the cable bills of millions of unwilling subscribers? What is it about the NFL Network that has the FCC spinning on its heels to add the cost of that service to the basic cable bill? Is it, like AIG, "too big to fail"? One might think that, so long as the FCC is interested in trading programming diversity for potentially lower cable prices, programmers seeking to use the regulatory machinery to compel basic tier carriage would be told to pound sand.

Oddly, the NFL Network probably is not even at risk should it not gain basic tier carriage. While many niche services no doubt would be unsustainable if sold on an a la carte basis - resulting in a thinner, less robust cable programming menu - services like the NFL Network with a large, dedicated viewer base likely will survive whether or not it is included within the basic tier. That is, this is not a case in which the FCC must trade off some loss in diversity to help control basic cable rates. Whatever the underlying rationale for the FCC's sympathy toward the NFL Network, it appears to be completely upside-down.

Senator William Proxmire (D-WI) must be smiling somewhere in the sweet hereafter. His Golden Fleece Award for government waste, restored with the consent of his estate in 2000 by the non-profit group Tax Payers for Common Sense, has a new contender for 2008. On Oct. 17, 2008, the office of FCC Chairman Kevin Martin, a Charlotte NC area native, announced that the agency was spending $350,000 of taxpayer funds appropriated to advance DTV transition eduction efforts to sponsor a middle of the pack NASCAR racing car driver's No. 38 car "as a high-speed billboard promoting the February 2009 national tansition to digital television." I kid you not. Not to worry, the FCC received a $100, 000 government discount on the deal. This investment, in the words of Terry Malloy, could be "a contender." Setting aside the obvious question of whether the demographic for watching NASCAR racing is among the most at-risk populations for what former FCC Chairman William Kennard called the impending train wreck of the DTV transition (obviously he had got the transportation metaphor wrong). That is, did the FCC's evidence indicate that stock car racing fans are more likely than the average citizen to rely on over-the-air television? One would imagine just the opposite, as avid sports fan in general -- and there is no reason to assume NASCAR fans are different -- seem more likely to be purchasers of cable and DBS services for expanded sports offerings than they are to rely on over-the-air television signals for their entertainment needs.

It really is remarkable what you can ask of the FCC when words cease to have meaning. A few months ago, MAP and its allies were importuning the FCC to prohibit the use of bundled programming contracts by independent programmers, i.e., to mandate "wholesale a la carte." Never mind that there is absolutely nothing in the Communications Act suggesting that the FCC has regulatory jurisdiction over such contracts, MAP asserted that bundled program offerings make it more difficult for certain programmers to find shelf space on cable systems and demanded that the FCC do something about it.

This organization and various others were quick to call foul. The FCC, for one thing, cannot just make up its own jurisdictional limits - it is a creature of Congress and it can do only that which Congress empowered it to do. Moreover, the entire MAP argument was premised on content preferences. In a world of limited cable capacity, any rule designed to assist one set of programmers in obtaining carriage necessarily disfavors others. Any such rule, even if facially content neutral, would clearly be content based in practice and thereby subject to strict scrutiny.

For reasons that are not entirely clear, MAP in its latest filing seems to be abandoning the position that the FCC should outright bar independent programmers from using bundled programming contracts; instead MAP now wants the FCC to regulate the rates, terms, and conditions of those contracts. Again, though, MAP fails to point to any specific grant of authority for the FCC to do so.

Back in the mid- and even late 1990s, I was engaged in a lot of dreadfully boring telecom policy debates in which the proponents of regulation flatly refused to accept the argument that the hegemony of wireline communications systems would ever be seriously challenged by wireless networks. Well, we all know how that story is playing out today. People are increasingly "cutting the cord" and opting to live a wireless-only existence. For example, this recent Nielsen Mobile study on wireless substitution reports that, although only 4.2% of homes were wireless-only at the end of 2003...

At the end of 2007, 16.4 percent of U.S. households had abandoned their landline phone for their wireless phone, but by the end of June 2008, just 6 months later, that number had increased to 17.1 percent. Overall, this percentage has grown by 3-4 percentage points per year, and the trend doesn't seem to be slowing. In fact, a Q4 2007 study by Nielsen Mobile showed that an additional 5 percent of households indicated that they were "likely" to disconnect their landline service in the next 12 months, potentially increasing the overall percentage of wireless-only households to nearly 1 in 5 by year's end.

Anyway, I've been having a strange feeling of deva vu lately as I've been engaging in policy debates about the future of the video marketplace. Like those old telecom debates of the last decade, we are now witnessing a similar debate -- and set of denials -- playing out in the video arena. Many lawmakers and regulatory advocates (and even some industry folks) are acting as if the old ways of doing business are the only ways that still count. In reality, things are changing rapidly as video content continues to migrate online.

I was reminded of that again this weekend when I was reading Nick Wingfield's brilliant piece in the Wall Street Journal entitled "Turn On, Tune Out, Click Here." It is must-reading for anyone following development in this field. As Wingfield notes: