The FCC Tilts Its Hand

July 31, 2017

On July 13th, the Federal Communications Commission (FCC) reversed an Administrative Law Judge’s ruling that Cablevision discriminated against the Game Show Network (GSN) by moving it from its basic tier of channels to an add-on sports tier. This advantaged a rival channel owned by Cablevision itself, which would now face less competition for customer eyeballs and thus be able to charge higher rates to its advertisers.

The law under which the FCC heard GSN’s complaint was the Cable Act of 1992, which regulated the terms under which cable platforms like Cablevision could vertically integrate into original content, such as the channels that compete with GSN’s programming. The cable industry had been doing that for years and withholding the content it owned from rival networks, while also excluding independent content from their own networks. Thanks to pressure from channels that created and marketed their own programming, Congress created a procedure to adjudicate such ‘carriage disputes,’ whereby content creators could challenge discriminatory behavior by those cable platforms that they could show ‘foreclosed’ them from the market—exactly what GSN accuses Cablevision of in this case.

What we have seen since the 1992 Act, however, is a steady advance of market power through vertical integration, seen most egregiously in Comcast’s purchase of NBC-Universal—notwithstanding the provisions and safeguards that the act put in place. The FCC’s ruling on Comcast-NBCU explicitly states that the vertically-integrated conglomerate would have market power to discriminate unfairly against unaffiliated programmers, and yet the commission approved the merger, relying on the procedures of the 1992 Act and a few narrow transaction-specific conditions for a thin reed of support for market competitiveness.

What we see in the recent FCC decision is that even that thin reed is being felled, and upstream content providers will have no recourse at all as vertically-integrated behemoths dominate the industry, across all platforms.

Why should we care about the fate of a few television channels in an obscure legal proceeding while the economy crumbles? Because it’s a strong signal about the extreme cynicism behind the FCC’s plans for demolishing Net Neutrality, and even beyond that, for the Trump Administration’s and the conservative movement’s approach to antitrust and market regulation more broadly.

One component of the plan for dismantling Net Neutrality is to move the adjudication of carriage complaints from the FCC to the Federal Trade Commission (FTC), an agency which has taken a much more restrictive view of its role in ensuring competition in the telecoms sector than has the FCC. The FTC thinks that the only thing that matters is outcomes for consumers—primarily, whether prices go up or down—which means that in order to get some form of relief, a company like GSN would have to prove that Cablevision’s discrimination increased prices for consumers. That’s a higher burden than proving that the discrimination harmed GSN.

The overall move is typical bureaucratic cynicism: shift jurisdiction from the agency with one set of priorities (protecting an entire competitive marketplace) to an agency with a narrower one. But it’s also intellectual cynicism: undermine utility-style market regulation by appealing to competition-as-free-market-dogma, while also gutting antitrust law so that markets that are supposed to be competitive are in fact concentrated and oligopolistic. The upshot in telecommunications has been unregulated, private oligopolies in which a very few powerful players operate across platforms with impunity, locking independent firms out of the marketplace and presenting consumers with the bare minimum of high-priced options, programming choices limited to the platform’s own walled garden, and extremely poor customer service. With Sprint looking to expand into broadband and/or cable, AT&T already planning to buy Time Warner, and the other provisions of the FCC’s ‘open internet’ rules on the chopping block, all of this is likely to get worse before it gets better.

We see this pattern replicated across sectors: in airlines, and in finance, deregulation was supposed to serve consumers at the expense of entrenched stakeholders, but lax competition policy, especially as it relates to vertical behavior, in combination with a permissive regulatory regime interacted to produce an economically disastrous scenario. The 2008 crisis created a political context in which the extreme financial de-regulation could be rolled back, and thanks to that we got the Dodd-Frank Act, which has been a success. But the economy is still increasingly operating to the benefit of an entrenched few, exploiting the vast public, be they consumers, workers, upstream supply chains, or would-be entrepreneurs—and especially those who already suffer from unequal access to the benefits of the modern economy: minority and disadvantaged communities, rural and urban.

It’s time for a policy revolution that reverses this intellectual legacy, whose progeny are record corporate profits, payouts to shareholders, and executive pay, even while everyone else’s wages stagnate in a time of low economic growth. It was good to see the first steps in that direction in the “Better Deal” agenda, but we need explicit changes to federal policy restoring the proper interpretation of our antitrust laws so as to combat market power wherever in the supply chain it can be found.

NOTE: This post has been clarified to better reflect the FTC’s legal jurisdiction.