ACA responds to white paper: Competition Policy & Role of the FCC

By on Jun, 13 2014 with Comments 0

ACA / American Cable AssociationHere are ACA’s (American Cable Association) responses to the House Energy & Commerce Committee’s White Paper on “Competition Policy & The Role of The Federal Communications Commission.” ACA addressed questions for stakeholder comment:

“In its January 31, 2014 comments to the Committee, ACA set forth the following as principles upon which communications policymaking should be based –

1. Regulatory intervention in a relevant product and geographic market is warranted when –

i. There is an exercise of substantial market power or unfair or deceptive acts or practices; ii. Competition or consumers are harmed in a manner contrary to the “public interest;”

iii. Smaller or more rural providers are disproportionately disadvantaged compared to other industry participants; and

iv. There are specific social objectives to achieve that markets will not deliver, such as ensuring vital communications services remain viable during emergencies and related events and available to all consumers, including those with special needs.

2. Any regulatory intervention should be applied in a competitively and technologically neutral manner.

3. Any regulatory intervention should be precisely targeted to avoid imposing excessive costs; exemptions and special considerations should be afforded to smaller and rural providers where appropriate.

The Committee, in its most recent White Paper and series of questions, focused on one of these principles – the need to develop and sustain competition in communications markets. ACA wholeheartedly agrees that communications policymaking, as the Committee notes, should reflect “the competitive conditions of the market it is addressing,” especially given “the convergence and evolution of services in the modern digital era.” In fact, since the 1970s, Congress and at the Federal Communications Commission (FCC) have sought increasingly to interpret and amend the Communications Act so that policies and regulations pivot from a monopoly mindset to promoting robust competition. This shift in regulatory philosophy was due in large measure to cable operators, competitive telecommunications providers, wireless carriers, equipment vendors, and many other entrepreneurs that wanted to enter – and then did enter – the communications business to offer innovative goods and services.

As policymakers saw the great benefits of competition, especially in comparison to the stagnant investment and innovation produced by monopolists, they gravitated toward a regulatory paradigm that facilitates the growth of competition and then eases the level of regulation where there is evidence that competition is present. In examining competition and determining whether regulation is necessary, Congress and the FCC have relied on the time-tested competition analysis used in our century-old antitrust laws: identify relevant product and geographic markets, identify firms in a market and their share, and then assess whether there is excessive market concentration enabling a firm to raise price

above competitive levels or otherwise engage in anticompetitive behavior and whether there is a realistic opportunity for new entry to offset this harm.

From this well-established intellectual base, the key aspects of the communications regulatory paradigm, incorporated over time by Congress and the FCC into the Communications Act, have been established: (1) permit rapid entry into (and exit from) all sectors of the business; (2) remove barriers that inhibit investment in infrastructure, services, and products; (3) ensure to the maximum extent that any social obligations do not undermine or distort competition; and (4) lessen regulation in specific markets where there is a demonstration that market power does not exist. This model permits generic regulation where there is evidence of industry-wide concerns about competition, provides for regular review of these generic regulations, and enables individual firms to seek relief in specific markets.

From the viewpoint of ACA’s members, who are small and medium-sized cable operators, the current regulatory paradigm embedded into much of the Communications Act has significant value, providing certainty and enabling their participation in the regulatory process. At the same time, parts of the Communications Act need to be updated, including to reflect this paradigm, and ACA in its previous submission to the Committee recommended improvements: Congress needs to review regularly and amend legislation such as the 1992 Cable Act; Sec. 10-type forbearance authority should be provided for Title VI and other provisions; and the Commission needs to consider the aggregate effect of its regulations, which can inhibit competition, on small firms. Within that context, ACA responds to the Committee’s questions and welcomes the opportunity for further discussion.

Responses to Questions:

1. Question: How should Congress define competition in the communications marketplace? How can we ensure that this definition is flexible enough to accommodate this rapidly changing industry?

Congress has sought to bring about competition in the communications industry for over three decades, and, over this time, it has developed a relatively well-refined definition of competition, as well as a paradigm for transitioning the industry from monopoly to competition. In essence, Congress has defined competition based upon the traditional market power test and analysis used by the two federal antitrust agencies, the Department of Justice and the Federal Trade Commission.1 This approach also has been adopted by numerous regulatory bodies, including the FCC, to determine the extent to which a market is competitive. The FCC, for instance, considers market power analysis fundamental to its forbearance analysis, noting that a “market power analysis was designed to identify when competition is sufficient to constrain carriers from imposing unjust, unreasonable, or unjustly or unreasonably discriminatory rates, terms, and conditions, or from acting in an anticompetitive manner.”2

Under a market power analysis, relevant product and geographic markets are first defined and market participants identified. Next, market concentration (market share) is determined, and the potential for new entry that could ameliorate any market power is evaluated. The final step in the analysis is to determine, should there be excessive market concentration and no realistic opportunity for new entry, whether a firm can raise prices significantly or otherwise engage in anticompetitive behavior.

1 Horizontal Merger Guidelines, U.S. Department of Justice and the Federal Trade Commission (Aug. 19, 2010), available at: http://www.justice.gov/atr/public/guidelines/hmg-2010.html.

2 Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. § 160© in the Phoenix, Arizona Metropolitan Statistical Area, Memorandum Opinion and Order, (FCC 10-113), WC Docket No. 09-135,¶ 37 (rel. June 22, 2010) (“Qwest Phoenix Forbearance Order”).

 

A rigorous market power analysis based on current data about the market accounts for the dynamism of a market and enables the regulator to have the flexibility to reflect the current state of the industry in its policies. The forbearance process undertaken pursuant to Section 10 of the Communications Act provides an example of how this market power analysis comes into play. Under the construct of Title II, the Commission can adopt a general industry rule based on existing market conditions and then permit a carrier to file a forbearance petition seeking relief based in part on new market conditions.3

2. Question: What principles should form the basis of competition policy in the oversight of the modern communications ecosystem?

Competition policy needs to be based on whether in the relevant market a firm can price at supracompetitive levels or otherwise engage in anticompetitive acts. Where firms in a relevant market cannot engage in such activities, competition policy cannot support the imposition of traditional economic regulation – although as discussed in the introduction, there may be other bases for such regulation.

3. Question: How should intermodal competition factor into an analysis of competition in the communications market?

Firms are present in a market – and should be included in the analysis of competition – if they provide consumers in the relevant area with service in a commercially reasonable amount of time and the services are substitutable. Thus, for instance, wireless and wireline broadband (intermodal) providers should be considered competitors if they generally offer service in the same territory and their services are considered by consumers to be substitutes.

4. Question: Some have suggested that the FCC be transitioned to an enforcement agency, along the lines of the operation of the Federal Trade Commission, rather than use broad rulemaking authority to set rules a priori. What role should the FCC play in competition policy?

In its January 31, 2014 responses, ACA cautioned against making wholesale changes in the authority and structure of the FCC because it would create substantial and prolonged uncertainty. In addition, while restricting the FCC to engaging only in enforcement actions may have appeal to larger, incumbent firms, such a change would disadvantage smaller firms. Larger firms have sufficient resources to protect their interests in the market using “litigation-like” proceedings and the means to properly defend themselves when necessary. In contrast, smaller firms largely do not have the time and resources to pursue case-by-case actions and can be easily overwhelmed if under investigation. Moreover, smaller firms cannot rely upon enforcement agencies, which have limited resources to investigate problems affecting their concerns. In contrast, general rulemakings, where the FCC acts more as legislator than judge, enables greater participation by smaller firms and the agency to account for their concerns as a group. Thus, ACA opposes making the FCC into an FTC-type enforcement agency.

At the same time, ACA believes refinements to the Communications Act are warranted. The Commission must have the appropriate processes, such as forbearance under Title VI, that will enable it to respond to market changes. Moreover, rather than imposing “indirect” regulations on firms over

3 Pursuant to Section 10 of the Communications Act, a forbearance inquiry also involves an evaluation of whether consumers will be protected if forbearance is granted (Section 10(a)(2)) and whether forbearance is in the public interest (Section 10(a)(3)). This analysis is consistent with the principles that ACA believes should underlie communications policymaking.

 

which it has jurisdiction to control the actions of firms outside its jurisdiction, the Commission should have authority to impose regulations directly over firms to address effectively the problems they cause. For instance, ACA has proposed that the Commission have additional direct authority over video programming owners so that it can directly and more efficiently impose select obligations, rather than making cable operators responsible in the first instance.

5. Question: What, if any, are the implications of ongoing intermodal competition at the service level on the Commission’s authority? Should the scope of the Commission’s jurisdiction be changed as a result?

Whether a service outside of the Commission’s jurisdiction is a substitute for a service subject to the Commission’s authority – and should be included in a market power analysis – is a factual issue. However, just because an “unregulated” service is a substitute does not necessarily mean it should be subject to the Communications Act’s regulatory regimes. Rather, if the presence of these “unregulated” services is sufficient to indicate competition exists, then, as a general rule, the Commission should reduce its oversight of providers subject to regulation. Today, for Title II of the Communications Act, the Commission can use its forbearance authority to undertake this process.

Although expansion of the Commission’s jurisdiction may be warranted in select instances, ACA is especially concerned that any substantial change in jurisdiction – particularly one resulting in new regulations being imposed – will create uncertainty, harming investment and innovation. For instance, for decades the Commission has worked diligently to ensure that its telecommunications regulatory regime in Title II does not sweep in information services, which are subject to its Title I and Section 706 authority. Although the line between a telecommunications and information service has shifted somewhat, which is not surprising in a dynamic market, it has largely held fast. As a result, providers know the rules of the game and can plan and invest. There is little doubt that the nearly decade-old Brand X decision, which correctly subjected cable provided broadband Internet access service to a more minimal regulatory regime, has fostered – and continues to foster – robust broadband investment by ACA members.

6. Question: What, if any, are the implications of ongoing intermodal competition on the role of the FCC in spectrum policy?

While ACA members have traditionally provided only wireline based services, they are increasingly using their networks to provide community hotspots over unlicensed spectrum. Over time, because of ease of access to spectrum and relatively low cost of installation, ACA members plan to expand their wireless hotspot coverage substantially. In effect, these cable operators have the potential to provide greater intermodal portable wireless competition. As noted, a key reason for ACA members entering into this business is easy access to unlicensed spectrum, and thus ACA recommends that in adopting any “pro-competitive” spectrum policy, the Committee allocate sufficient spectrum for unlicensed use.

7. Question: What, if any, are the implications of ongoing intermodal competition at the service level on the FCC’s role in mergers analysis and approval?

In exercising its authority to review and approve mergers, the Commission examines whether the transaction is in the public interest, which includes an evaluation of whether there is harm to competition. In undertaking the analysis of competitive harm, the Commission should include all firms in the relevant market, regardless of their regulatory status, that provide a service that is a substitute for the service offered by the merging parties.

8. Question: Competition at the network level has been a focus of FCC regulation in the past. As networks are increasingly substitutes for one another, competition between services has become even more important. Following the Verizon decision, the reach of the Commission to regulate “edge providers” on the Internet is the subject of some disagreement. How should we define competition among edge providers? What role, if any, should the Commission have to regulate edge providers – providers of services that are network agnostic?

It is increasingly clear that some edge providers have the incentive and ability to engage in practices that block or degrade a consumer’s ability to access lawful content over the Internet. At the moment, Viacom is selectively blocking access to freely available parts of its website by customers of ISPs whose affiliated MVPD has opted not to renew its video programming carriage agreement with Viacom. Even customers of the ISP who do not subscribe to the MVPD service are blocked. In the past, other edge providers engaged in similar actions. News Corp. blocked access by Cablevision subscribers; CBS blocked access by Time Warner Cable and Bright House subscribers.

Not only should policymakers be troubled that edge providers are engaging in Internet blocking, they should be concerned that edge providers will seek to impose a per-subscriber charge on all consumers of an ISP even if a consumer never visits a provider’s website. ACA understands that a website may charge a fee for a consumer to access its content, but there is no reason to demand fees from ISPs based upon broadband subscribers that never accesses the website’s content.

Consequently, open Internet regulations should not be imposed on ISPs by the Commission without parallel requirements being imposed on edge providers. This will ensure that consumers can reach the lawful Internet content of their choice. It also will avoid altering the bargaining relationship between edge providers and MVPDs/ISPs.

9. What regulatory construct would best address the changing face of competition in the modern communications ecosystem and remain flexible to address future change?

First, ACA believes Congress should periodically review and update provisions of the Act. In its initial submission to the Committee, ACA outlined various provisions in Title VI that are based on the outdated premise that larger cable operators have sufficient market power to increase consumer rates and leverage programmers unfairly. Because these outdated provisions are inhibiting cable operators from investing and competing, Congress should address them promptly. ACA also cited other sections of the Act, including the pole attachments provisions, that need to be revised to encourage network deployment.

To address future changes in technology and the market, in updating the Act, Congress should focus on providing the proper framework for the Commission’s authority based on fundamental principles. As discussed in the Introduction, ACA suggests the following –

1. Regulatory intervention in a relevant product and geographic market is warranted when –

i. There is an exercise of substantial market power or unfair or deceptive acts or practices; ii. Competition or consumers are harmed in a manner contrary to the “public interest;”

iii. Smaller or more rural providers are disproportionately disadvantaged compared to other industry participants; and

iv. There are specific social objectives to achieve that markets will not deliver, such as ensuring vital communications services remain viable during emergencies and related events and available to all consumers, including those with special needs.

2. Any regulatory intervention should be applied in a competitively and technologically neutral manner.

3. Any regulatory intervention should be precisely targeted to avoid imposing excessive costs; exemptions and special considerations should be afforded to smaller and rural providers where appropriate.

In addition, ACA recommends that the Act extend the reach of the current forbearance provisions (Section 10) to include any provision of the Act.

10. Given the rapid change in the competitive market for communications networks and services, should the Communications Act require periodic authorization by Congress to provide opportunity to evaluate the effectiveness of and necessity for its provisions?

ACA appreciates the need for regular examination of regulatory requirements because of changes in the market. It has long noted, for instance, that many of the provisions in the 1992 Cable Act need to be reviewed and updated. ACA thus encourages Congress to review the Act regularly, and it believes that the Commission should have forbearance authority. In select instances, it also may be appropriate to incorporate sunset provisions.

That said, ACA does not support periodic authorization for the Act as a whole. This would create uncertainty for providers. It also would cause smaller firms to expend substantial resources to be engaged in the process. Rather, as discussed above, this same objective can be achieved through regular oversight by Congress and by a mechanism that forces the Commission to consider whether changes in the market warrant deregulation.”

About The Author: Carl has been with RBR-TVBR since 1997 and is currently Managing Director/Senior Editor. Residing in Northern Virginia, he covers the business of broadcasting, advertising, programming, new media and engineering. He’s also done a great deal of interviews for the company and handles our ever-growing stable of bylined columnists.

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