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On August 28, the D.C. Circuit struck down as “arbitrary and capricious” a Federal Communications Commission (FCC) regulation prohibiting a single cable operator from serving more than 30 percent of the market. Comcast, which challenged the regulation, now has room to increase its 25 percent market share. Groups like Media Access Project (MAP), which represented an intervener in the case and hopes to obtain Supreme Court review, worry that further growth of major cable companies will reduce consumer choice and lead to increased prices. While these groups may be correct that competition is beneficial, it cannot be achieved via a regulation that fails to properly account for all market participants.
The FCC first exercised its authority to “enhance effective competition” among cable providers in 1993 by prohibiting any provider from serving more than 30 percent of the market. In order for a network to successfully enter the market (i.e., get picked-up by a cable provider), the FCC determined that a network would need an “open field” (a chunk of the market not served by the largest cable operators) of 40 percent. Even if the two largest operators, each serving the maximum allowable market share colluded to block a network’s entry, the FCC concluded that a network would be able to find a provider to carry its programming. Thus was born the 30 percent cap.
In 2001, when Time Warner challenged the cap, the D.C. Circuit directed the FCC to revise the regulation to adequately reflect competition from direct broadcast satellite (DBS) companies that had entered the market since Congress gave the FCC authority in 1992 to regulate cable competition. The FCC responded to the court’s direction by changing its formula to arrive at the same 30 percent figure. It did not account for DBS competition because to do so would be “quite difficult.” In any event, it argued, DBS companies do not compete in a significant way with cable operators because: (1) cable customers are unlikely to make the costly switch from cable to satellite; (2) satellite providers do not offer telephone and Internet services, while cable operators do; (3) consumers can’t determine the quality of the satellite service’s programming in advance of subscribing (so won’t switch); and, (4) networks will be unable to obtain financing for their programs if cable operators’ market domination is not curtailed.
In response, Comcast challenged the FCC’s “new” 30 percent cap on grounds that the FCC provided no valid reason for declining to heed the court’s 2001 command to consider DBS competition. Comcast argued that satellite companies now serve 33 percent of all television subscribers and are engaged in exclusive agreements with some highly sought after programmers. Additionally, as Commissioner McDowell pointed out, DirecTV and Dish Network each serves more customers than any cable company save Comcast itself. Comcast clearly is not the only show in town, so why shouldn’t the FCC regulation reflect the changing marketplace?
MAP remained fixated on the big-bad cable companies and, like the FCC, seemed to ignore DBS. Its president, Jay Schwartzman, stated, “[B]ig cable’s anti-competitive ownership structure has increased prices and limited choices for the American public.” According to evidence described in the court’s opinion, however, consumers have quite a few options. The number of cable networks has increased by almost 500 percent since 1992, when Congress legislated to “enhance effective competition” in the cable industry. And, as far as prices are concerned, the court asserts that, “cable operators will remain subject to, and competition will be safeguarded by, the generally applicable antitrust laws.”
Perhaps, as a matter of policy, the market for distribution of television programming should not be dominated by a few major players. Nevertheless, in its effort to regulate that market, the FCC must examine “the relevant data” and articulate a “satisfactory explanation for its action.” It must take into account the satellite providers that serve one-third of the market. An assertion that accounting for competition from satellite providers is “quite difficult” will not suffice.
– Emily Beverage
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