Bringing the FCC Back to Legal Reality


The Federal Communications Commission (FCC) has just begun a major new effort to regulate the market for TV and video.  The government is saying that its proposed Allvid regulations will merely create more competition for set top boxes used with pay TV systems.

Sounds simple enough.  But then why are programmers, analysts and others warning that the regulations would drive up consumer costs, weaken legal protections for privacy and the security of networks, and undermine diverse and independent voices on TV?

The answer is in the details.

The FCC claims its proposed rules are basically the same as those the agency adopted in 1968 regarding the ability of customers to use telephones other than those manufactured by the Bell System – referred to as the “Carterfone” decision.

At the time of Carterfone, the Bell System had a virtual monopoly over the entire telephone network, and the only source for consumer telephone equipment was Western Electric, a wholly-owned subsidiary of the Bell System. Thus, at the time of Carterfone, the nation had a single phone company that was a monopoly and was vertically integrated into nearly all parts of the industry including equipment manufacturing.

Importantly, the Carterfone rules were promulgated to prevent the Bell System from leveraging its market power in the telephone service market into the telephone equipment market (or consumer premises equipment or “CPE” market). The obvious question is whether these conditions are present in the market for devices that give consumers access to content in 2016.

From Netflix to Roku boxes to Apple TV, we have more ways to find and watch TV than ever – from wall-size flat screens to smartphones and tablets.  And the quality and diversity of programming has exploded – “must see TV” is no longer a few hours on Thursday nights, it’s a relentless stream of online content combined with new shows appearing on traditional networks, and across pay channels every day.

As we saw at this year’s Sundance film festival, the largest purchasers of original content were online companies, not traditional cable or studio houses. There are no barriers preventing any sort of company from negotiating programming rights and launching its own video service on any number of devices.  Of course – that is what companies like Netflix, Roku, and Apple have already done.

Indeed, even the FCC agrees that the video marketplace has never been so competitive.  Just last summer, Chairman Tom Wheeler wrote that, in the last twenty years, “competition in the video marketplace has increased dramatically.”  Overall, he said, the market is characterized by “Competition, Competition, Competition.”  This is clearly not the vertically integrated monopoly marketplace of the 1968 telephone industry.

Perhaps the clearest sign that the 1968 telephone market does not provide useful guidance for how one might enable innovation and competition in the video market, is what the FCC itself said, in an earlier proceeding applying the same statute it is invoking to justify the AllVid rules today: “[T]elephone networks do not provide a proper analogy to the issues in this proceeding due to the numerous differences in technology” between phone and video networks.

There is absolutely no reason for the FCC to anchor video content to old technologies and incorrect legal precedent in order to close a procedural docket that began when a large number of consumers connected to the Internet through America Online.

The FCC should move away from calls to mire itself in illogical policy outcomes premised on incorrect legal theories.  Instead, the Commission needs to hone in on the total cost to consumers that the agency’s current AllVid proposals will likely generate, costs measured in terms of less robust privacy protections, increased opportunities for external incursions into the home through digital doorways, more expensive content, fewer and fewer specialty programming options, and determine if in fact its regulations can stand the test of the cost benefit analysis the Supreme Court has recently affirmed is a necessary part of the regulatory process.

Morning Consult