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Tuesday, November 13, 2007

How About a One-Armed Regulator?

I believe it was President Harry Truman who said he was looking for a one-armed economist. Truman was frustrated that many economists tend to say “on the one … but on the other hand.” Two newspaper pieces got me thinking about the need for a one-armed regulator at the Federal Communications Commission (FCC).

On the one hand, a November 12, 2007, story in the Washington Post (“FCC Moves to Place Restrictions on Cable TV”), reported that FCC Chairman Kevin J. Martin is pushing for greater regulation of cable television. The story noted:

"Under a proposed rule circulating at the FCC, cable companies such as Comcast and Time Warner Cable would have to slash the price they charge smaller television programmers to lease access on spare cable channels, a move the FCC says would open up cable viewers to a wider diversity of shows.

"In addition, the FCC is contemplating a national ownership cap that would prevent one company from having more than 30 percent of all cable subscribers…

"Central to the rules under consideration is a simple question of arithmetic: How many U.S. households pay for cable television?

"If the number is 70 percent or higher, broad FCC regulations set in place by Congress more than 20 years ago can kick in, capping the growth of big companies and forcing open the marketplace to smaller competitors.

"The 1984 Cable Act, which largely deregulated nascent cable systems to allow them to compete against the entrenched broadcast television industry, created the so-called '70/70 provision,' stipulating that if cable television becomes available to 70 percent of U.S. households, and 70 percent of those who can subscribe to cable do, the industry can once again be regulated."

Martin also favors forcing cable operators to unbundle channels and imposing a la carte mandates.

On the other hand, in a November 13, 2007, op-ed in The New York Times (“The Daily Show”), Martin wrote about the need to ease – just a bit – media ownership rules in local markets in order to help ailing newspapers. Martin observed:

"Eighteen months ago, the Federal Communications Commission began a review, ordered by Congress and the courts, of its media ownership rules. After six public hearings, 10 economic studies and hundreds of thousands of comments, the commission should move forward. The commission should modify only one of the four rules under review — the one that bars ownership of both a newspaper and a broadcast TV or radio station in a single market. And the rule should be modified only for the largest markets.

"A company that owns a newspaper in one of the 20 largest cities in the country should be permitted to purchase a broadcast TV or radio station in the same market. But a newspaper should be prohibited from buying one of the top four TV stations in its community. In addition, each part of the combined entity would need to maintain its editorial independence…

"Since 2003, when the courts told the commission to change its media ownership rules, the news media industry has operated in a climate of uncertainty. Many newspapers and broadcast stations are operating under waivers of the ban on cross-ownership. The F.C.C. needs to address these issues in a coherent and consistent fashion rather than considering them case by case, making policy by waiver."

That’s not exactly a bold declaration for deregulation, but it certainly is different to Martin’s regulatory impulse regarding cable TV.

In the end, there is no reason for the federal government to be involved in either of these regulatory schemes.

On the one hand, there is no reason for the federal government to be imposing price, subscriber or channel controls on cable operators. Let the market work, including the ever-expanding amount of video choice consumers are enjoying. On the other hand, there should be no cross-ownership restrictions on the media. Again, let the market work out the best ownership and business models for newspapers, radio and television stations.

Here the two hands of the economist are consistent – the government needs to deregulate and get out of the way.

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