A Look at the Broadband Video Provisions of the House Commerce Committee Telecom Act Reform Discussion Draft

Progress Snapshot
Release 1.12 September 2005

by Adam Thierer*

On September 15th, the House of Representatives' Energy & Commerce Committee released draft legislation aimed at reforming the nation's telecom and cable laws. This essay examines Title III of the discussion draft dealing with the provision of "broadband video services." This will be the new regulatory classification for those firms offering high-speed, two-way, interactive voice, video, and data services to the public.

Much like the provisions of the discussion draft dealing with VoIP, the section on broadband video services represents an attempt to marry the past to the present in terms of merging older regulatory responsibilities and mandates with new technological or marketplace realities. In the VoIP context, for example, the discussion draft argues that a new federal regulatory framework is needed to keep VoIP services free of burdensome state and local meddling. The measure goes on, however, to impose a variety of old Title II analog-era regulations on this new digital, packet-switched service.

Regrettably, the broadband video provisions of the House Commerce discussion draft go well beyond this in terms of broadening the coverage of analog-era regulation to new markets and technologies. Indeed, the discussion draft opens a new front in the 70-year battle over "public interest" regulation of media markets. This draft, if enacted into law as it currently stands, would impose many of the most onerous regulatory elements of the old broadcast and cable regulatory regimes on the emerging world of broadband Internet video.

Inexplicably, therefore, new competition and innovation are not being greeted with elimination of the old public interest regulations, but rather with the extension of those rules to new providers and services. This makes no logical sense if one understands that increased market competition is supposed to alleviate the need for regulation, not increase it.

What the Draft Proposes

The video services section of the draft begins sensibly enough by preempting almost all regulation of broadband video services by stipulating that "neither the [FCC] nor any State or political subdivision thereof may establish or enforce any law, rule, regulation, or other provision... that regulates... the rates, charges, terms, or conditions for, or entry into the provision of, any broadband video service." In particular--and this is the most important deregulatory action taken under this section--the draft proposes the preemption of local franchising requirements for broadband video services and providers.

Unfortunately, however, the discussion draft then quickly goes on to carve out a litany of exceptions that largely nullify the benefits associated with those deregulatory provisions. For example, Section 304 of the bill is entitled "Application of Video Regulations to Broadband Service Providers." Section A, which immediately follows, is appropriately labeled "Comparable Requirements and Obligations," since it proposes that "each of the following provisions of the 1934 [Communications] Act, and the regulations under each such provision, that apply to a cable operator shall apply to a broadband service provider under this title in accordance with regulations prescribed by the Commission..." The specific video regulations that this section is referring to are pulled directly out of the Title III (broadcasting) and Title VI (cable) sections of the Communications Act of 1934. The discussion draft advocates imposing these rules on all broadband video service providers. The regulations that would be imposed on new broadband competitors include:

• "Program Ratings" - Sec. 303(w)(2): These rules mandate ratings schemes for TV.
• "Facilities for Candidates for Public Office" - Sec. 315: These rules mandate special access to broadcast facilities while running for office.
• "Announcements with Respect to Certain Matter Broadcast and Disclosure of Certain Payments" - Sec. 317: These rules forbid "payola," or the practice of broadcasters accepting payment to run certain programs without acknowledging receipt of payment for doing so.
• "Retransmission" - Sec. 325: These regulations govern how various types of signals are carried or retransmitted to the public. The draft also specifies that FCC network non-duplication, syndicated exclusivity, and sports black-out rules are to be rolled onto broadband service providers as well.
• "Ownership" - Sec. 613: These rules impose ownership caps on the reach of cable systems and would be extended to broadband providers.
• "Carriage of Local Commercial and Noncommercial Educational Television Signals" -Sec. 614 and 615: These "must-carry" mandates force cable operators to carry local broadcast TV signals on their cable systems.
• "Blocking and Scrambling of Channels" - Sec. 624(d)(2): Mandates that a cable provider scramble access to certain channels if a subscriber demands it.
• "Public, Educational, or Governmental [Set-Asides]": These are the mandates imposed on video operators forcing them to carry certain local programs over their networks.

There are several other mandates in the bill not summarized here including "anti-redlining" regulations and yet-to-be-determined "build-out" requirements governing the pace and structure of broadband video diffusion. Thus, despite the draft's initial deregulatory thrust, the measure goes on to propose a fairly significant regulatory regime for broadband video in the future.

No Faith in Markets

Again, what is so troubling about this proposal to extend public interest-type regulation is that it means Congress apparently has very little faith in the market to police itself even in an increasingly competitive market. There is no explanation in the text of the discussion draft regarding why the old public interest mandates should be extended to cover all new broadband networks and providers. The draft simply rolls the bulk of the old regulatory regime on any new entrants into this field.

It is important to remember that the rationale underlying these old public interest mandates was that we lived in a world of scarcity and regulated monopoly. Competition was thought to be impossible in this environment and regulation was supposed to serve as a rough surrogate to ensure price competition and content diversity.

But things have changed dramatically in recent years. We now have more competition in the video services marketplace than ever before. As the FCC acknowledged earlier this year in its Eleventh Annual Report on the Status of Competition in the Market for the Delivery of Video Programming, "overall, the level of competition among video providers has increased dramatically since our first Report in 1994." [1] The agency continued: "consumers today have viable choices in the delivery of video programming, and they are exercising their ability to switch among [video providers]." [2]

Similarly, scarcity is now a thoroughly discredited basis for regulating the video marketplace. Today's media environment is more diverse than ever before and is characterized by information abundance, not information scarcity. Citizens enjoy more news and entertainment options than at any other point in American history or human civilization. The only "scarcity" problem today is the scarcity of human time and attention to manage all the information we have at our disposal. [3] Again, the FCC has acknowledged this fact. In March, the agency released a white paper entitled "The Scarcity Rationale for Regulating Traditional Broadcasting: An Idea Whose Time Has Passed," which referred to the scarcity rationale as "outmoded" and "based on fundamental misunderstandings of physics and economics." [4]

In other words, the FCC has acknowledged that vigorous competition exists in the video marketplace and that scarcity can no longer serve as a valid basis for imposing public interest regulations on video providers. The House Commerce Committee discussion draft, by contrast, inexplicably embraces the old regime and applies it to any new broadband video provider.

Long Live Public Interest Regulation?

With no end in sight for public interest regulation, it is unlikely that the FCC's powers will contract under this bill, at least as they relate to media regulation. Indeed, the draft contains no language that would sunset any of these mandates in the future. It is disturbing enough that lawmakers would propose extending public interest regulation to cover all new broadband networks and providers, but it is even more troubling that they would not propose sunsetting any of these rules at some point in the future. In the absence of such sunsetting language, we can assume that these old rules will cover any new provider or technology that comes along in the future, including wireless broadband providers or "broadband over powerline" companies.

While it is highly illogical that new competition will be greeted with increased federal regulation, also overlooked is the fact that these public interest mandates are at odds with the First Amendment. Whether lawmakers are looking to compel speech or restrict it, it all runs counter to the "Congress shall make no law..." vision of the First Amendment. Although the Supreme Court has allowed some of these rules to remain on the books, it largely did so by resorting to the now-discredited scarcity rationale. One wonders what possible constitutional defense can be put forward now to justify treating all these new broadband / media competitors as second-class citizens in the eyes of the First Amendment.

Conclusion

The House Commerce Committee's discussion draft is intended to provide a first cut at comprehensive communications / cable law reform. It does accomplish some important goals in this regard, especially in terms of preempting burdensome state and local regulation of these markets.

Unfortunately, however, it is what the draft proposes after that which raises serious concern. Lacking faith in market competition to serve as the primary deterrent to consumer harm, the bill largely adopts the regulatory playbook of the old analog era for the new digital broadband Internet era. Instead of representing a clean break with the past, therefore, the current discussion draft embodies an extension of it.

Footnotes:

* Adam D. Thierer is a Senior Fellow and Director of the Center for Digital Media Freedom at The Progress & Freedom Foundation. The views expressed here are his own and do not necessarily reflect those of The Progress & Freedom Foundation, its officers or Board Members.