Federal Court Voids FCC’s ‘30 Percent’ Cable Rule

Published November 1, 2009

A federal court has thrown out a Federal Communications Commission rule limiting any cable company to controlling no more than 30 percent of the national market—and rebuked the commission’s policy with sharp, dismissive language.

The United States Court of Appeals for the D.C. Circuit—whose judicial influence and power are considered second only to the U.S. Supreme Court—ruled in August the FCC’s rule was “arbitrary and capricious” and vacated it. Later in the 21-page decision, the court noted the FCC’s “dereliction in this case is particularly egregious.”

FCC Commissioner Robert M. McDowell, one of two Republicans on the FCC, says he predicted this result.

“It was clear in December 2007, when I dissented from the FCC decision to once again impose a 30 percent national cap on cable system ownership, that the effort to re-justify the very same cap that the D.C. Circuit first struck down in 2001 was even more vulnerable to court challenge the second time around,” McDowell said. “It should go without saying that, in the future, outcomes in our proceedings should be driven by the facts and law, rather than the other way around.”

Victory for Cable

The ruling was a victory for Comcast Corp. and the National Cable & Telecommunications Association, which in April petitioned to have the FCC rule tossed out.

Ryan Radia, information policy analyst at the Washington, DC-based Competitive Enterprise Institute, praised the ruling and the sharp words employed by the judges.

“The FCC’s persistence in holding on to the 30 percent rule is just the latest example of the commission ignoring the facts on the ground for the sake of preserving its own regulatory power,” Radia said.

’30 Percent’ Rule

In 1992 Congress passed the Cable Television Consumer Protection and Competition Act, which directed the FCC to write rules that would “ensure that no cable operator or group of cable operators can unfairly impede … the flow of video programming from the video programmer to the consumer.” The idea was to keep a cable company from leveraging its share of the cable market to block certain channels, leading them to go out of business.

The following year, the FCC ruled no single cable company could serve more than 30 percent of the market’s premium TV subscribers. Despite the emergence of cable competition with many cities relaxing their franchise contracts, as well as the rise of satellite companies—which now serve one-third of all premium TV subscribers—the FCC never changed its rule.

Ignored Previous Rulings

That fact seemed to irk the court. The judges noted how the FCC ignored previous instructions to adapt to the changing environment, which includes fiber-optic communications companies such as Verizon and AT&T getting into the premium TV business.

“In the previous round of this litigation we expressly instructed the agency on remand to consider fully the competition that cable operators face from [satellite] companies,” the court wrote. “The commission nonetheless failed to heed our direction and we are again faced with the same objections to the rationale for the cap.

“It is apparent that the commission either cannot or will not fully incorporate the competitive impact of [satellite] and fiber optic companies into its open field model. … The commission has failed to demonstrate that allowing a cable operator to serve more than 30 percent of all cable subscribers would threaten to reduce either competition or diversity in programming,” the court wrote.

Changing Media Landscape

Radia notes cable television’s share of the overall television market has been on the decline for more than a decade, and the increasing popularity of watching TV on the Internet with services such as Hulu will cut further into cable’s market share in the near future.

“Recent reports suggest that Web video portal Hulu actually has more viewers than Time Warner Cable, one of the nation’s biggest cable companies,” Radia said. “The FCC’s defeat is hardly surprising. High-tech markets move at light speed, while regulators lag years or sometimes even decades behind.

“Consumers are very lucky the court stood up for competitive markets, or else the FCC may well have prevented cable companies from improving through strategic consolidation,” Radia added. “Mergers and acquisitions do not always pan out, of course, as the Time Warner/AOL saga has reminded us. But allowing such market evolution to occur without artificial regulatory constraints is essential for long-term wealth creation.”

Market Forces Prevail

Vince Vasquez, a senior policy analyst with the National University System Institute for Policy Research in La Jolla, California, called the ruling a victory for the market over government bureaucrats.

“The court’s actions once again demonstrate the incredible power of market forces in the telecom industry,” Vasquez said. “Rather than pick winners and losers in the marketplace, the FCC should consider a light regulatory touch that facilitates high-tech ingenuity and fluctuating consumer demands.

“Even when the government tries to constrain and control competition, it is unable to provide the high-quality service satisfaction and competitive rates that consumers want, which is what the satellite TV providers tapped into over the last two decades,” Vasquez added. “American consumers want an FCC that encourages competition, not constrains it.”

James G. Lakely ([email protected]) is co-director of The Heartland Institute’s Center on the Digital Economy and managing editor of InfoTech & Telecom News.

For more information …

United States Court of Appeals for the District of Columbia Circuit, On Petition for Review of an Order of the Federal Communications Commission, August 28, 2009. http://pacer.cadc.uscourts.gov/common/opinions/200908/08-1114-1203454.pdf