Posts tagged ‘FCC’

Today's Lesson In Unintended Consequences: Safety Mandates That May Reduce Safety

Via the WSJ (emphasis added)

Nomar may be the most extreme example of a problem plaguing 911 response centers nationwide: false emergency calls made from cellphones that no longer have a contract or prepaid minutes with a wireless carrier and so can avoid being tied to a user. Under federal rules these disabled phones, which can't make ordinary calls, must retain the ability to dial emergency numbers.

Abuse of these phones has become enough of a concern that many 911 officials and some in the telecom industry are urging the Federal Communications Commission to shut off or phase out the emergency feature in the interest of public safety.

In the San Francisco Bay Area alone, anonymous dialers have made tens of thousands of false 911 calls since 2007—with Nomar alone believed responsible for over 30,000. (Call-center operators can detect a disabled phone in part because no phone number shows up on their screen.)

During a 24-hour period on Thanksgiving Day 2012, dispatchers at the city's Department of Emergency Management reported 1,527 false 911 calls—more than one a minute. They believed all the calls came from just five phones, based in part on the cellphone towers from which the calls were connected...

At the root of the problem is a 1997 FCC requirement that all carriers include emergency-dialing capability on cellphones whether they have working service or not. Back then, 911 centers supported the feature as a potential lifeline.

"Cell service was still a new thing," said Trey Forgety, director of government affairs at the National Emergency Number Association, a trade group of 911 centers in Washington. "We wanted people in dire straits to have reliable access to 911."

There Be Crazy People Here

Yes, our Arizona legislature keeps cranking out the hits

In what has to be the most hilariously unconstitutional piece of legislation that I've seen in quite some time, senators in the Arizona state legislature have introduced a bill that would require all educational institutions in the state -- including state universities -- to suspend or fire professors who say or do things that aren't allowed on network TV. Yes, you read that right: at the same time the Supreme Court is poised to decide if FCC-imposed limits on "indecent" content in broadcast media are an anachronism from a bygone era, Arizona state legislators want to limit what college professors say and do to only what is fit for a Disney movie (excluding, of course, the Pirates of the Caribbeanfranchise. After all, those films are PG-13!).

Amazing.  I had thought the nominal reason for the FCC standards was because non-adults might watch TV and hear a bad word that they likely hear 20 times a day at school.  But college kids are generally adults.  This is just bizarre.

The Huffpo article did not mention the bill's sponsor, but how much do you want to be its a Conservative who has in the past lamented political correctness on campus?  [update: sponsors here]

Turning Cellular Phone Networks into Common Carriers

Hey, why make expensive investments when the government will just give you access to your competitor's infrastructure?

Federal Communications Commission has decided to mandate data roaming by a 3-2 vote. Simply put, major carriers like AT&T and Verizon will be required to let you check your email and perform VoIP calls over their federally-licensed airwaves even if you're actually paying a regional carrier for your cellular coverage instead -- just as they've been required to do for voice and messaging since 2007. As you can imagine, Big Red and Ma Bell aren't exactly jumping for joy at the news, with both threatening to slow expansion into niche markets if they'll be forced to share their infrastructure. The victorious members of the FCC claim that this doesn't constitute common carriage because the big boys still get to negotiate "commercially reasonable" rates. Considering that two dissenting commissioners say that it is, indeed, common carriage, though, and thus beyond the powers granted to the FCC, we imagine we haven't heard the last of this debate.

By the way,  the commercially reasonable rate piece is so much BS.  I can say from experience that there is no such thing as a true price negotiation when one party is forced to make a deal.  In one of my great moments in not reading the fine print, I signed a commercial lease with the National Park Service in which the fine print demanded that I buy the personal property used in that operation from the former tenant.

Well, you can imagine what happened.  The contract said I had to buy it at a reasonable market price, but at the end of the day, if they guy insisted on selling me a pile of useless junk for $100,000, my negotiation options were limited because I could not just walk away.  Just to really hammer the lesson home to me about being careful in such deals in the future, the former tenant really went the extra mile in taking advantage of the provision.  He stripped out every good asset from the operation and shipped in every non-working piece of junk equipment he could find in his other operations -- after all, I seem to have given him an open-ended "put".  Only his, shall we say, excessive creativity in the latter eventually saved me, as trying to sell property from other operations (there was even some old couches from someone's house sitting in the boat repair shed) was considered by the NPS to be a violation of the rules and they eventually released me from the requirement.

What Politicians Really Want From Election Laws

This nifty quote from Senator Jay Rockefeller got me to thinking:

"There's a little bug inside of me which wants to get the FCC to say to FOX and to MSNBC: "˜Out. Off. End. Goodbye.' It would be a big favor to political discourse; our ability to do our work here in Congress, and to the American people, to be able to talk with each other and have some faith in their government and more importantly, in their future."

This last election demonstrated exactly what politicians don't like about election law when they complain about things like Citizens United.  No, its not the influx of campaign donations-- politicians are perfectly thrilled to be on the receiving end of more money.  The failure in the eyes of politicians was the large turnover in Congress and the losses suffered by many incumbents.  For most in Congress, election law is about maintaining their incumbency.  Any law that makes it harder for them to be criticized in the press or by challengers is good.  Anything that increases public criticism of them is bad.

Let's Make Sure the Internet Remains Just as Innovative as General Motors

Via the WSJ

A federal appeals court ruled last month that the Federal Communications Commission lacks the authority to regulate the Internet. No worries, mate. This week the Obama Administration chose to "reclassify" the Internet so it can regulate the Web anyway. This crowd is nothing if not legally creative.

For the past decade, broadband has been classified as an "information service" and thus more lightly regulated than traditional telephone services. This has led to an explosion of new investment and Web innovation, but it hasn't sat well with Democrats who want more control over the telecom business, as well as with some Web companies (Google) that want more leverage over Internet service providers like Time Warner or Verizon.

FCC Chairman Julius Genachowski did their dirty work this week by announcing that he plans to reclassify broadband lines so his agency can regulate them under rules that were written for Ma Bell in the 1930s. This means subjecting the Internet to new political supervision"”from the federal government and 50 state public utility commissions. The goal is to put one more industry under Washington's political thumb.

By "Broadband" They Mean Banding Together to Broaden Federal Powers

The new FCC broadband policy just looks stupid.  It is classic political campaign fodder -- who can be against high-speed Internet access?  But what are they really trying to achieve?  Well, it does not seem that respect for individual preferances or decision-making has anything to do with it (emphasis added)

In addition, the plan is designed to encourage more people to subscribe to broadband. About two-thirds of U.S. households have high-speed Internet access now. Many people in the other one-third could get broadband but choose not to buy it, either because they think it's too expensive or because they don't see a need for it. The FCC plan calls for increasing adoption rates to more than 90 percent of the population.

So their major goal is to encourage people who do not value high-speed Internet access to suddenly value it.  How?  By force?  By subsidizing people who don't really even want it?   "We elites can't imagine living without Twitter for a whole day so the rest of you need to value the same things too. "

Our Government is Anti-Consumer

Forget all the BS political posturing about the consumer -- the fact is that in the vast majority of its actions, the government is anti-consumer.  How else can one explain Administration officials criticizing China for selling goods to the US below cost.  "We're sorry, consumers, that you have been burdened with product choices that have had their prices subsidized by the Chinese.   We're working hard to fix this and make sure prices go back up where they should be."

Licensing, trade law, anti-trust, even consumer products laws -- its all become protection of politically connected corporations against smaller and upstart rivals.  Just look at how Mattel, whose sloppy due diligence forced a number of toy recalls last year, became the big winner of the new "consumer" law these recalls spawned.

Google voice is one of the more exciting communication products I have seen in years.  I have a phone number for free, I can have that number ring multiple different numbers while retaining a single voice mail -- with a free transcription service.  Awesome.

So, of course, the FCC is probably going to kill it.  They will find some way to justify it on nominally consumer grounds, but they are really just doing AT&T a favor.  The argument is that Google voice blocks calls to certain high-access rural areas.  So what?  Heck, I use it mostly to receive calls but if I made calls, do I really want my phone bill to go up by four or five times just so I can call some phone numbers I am never going to call.

So We Can't Have Even One Candidate Who Truly Understands Free Speech

I stand by my no-McCain vow I made years ago after his role in campaign speech limitation.  But Obama does not look like a very promising alternative:

The Obama campaign disputes the accuracy of the advertisement, which is
fine. It has also threatened regulatory retaliation against outlets
that show it, which isn't fine. Instead of, say, crafting a response
ad, Obama's team had general counsel Robert F. Bauer send stations a
letter [pdf]
arguing that "Failure to prevent the airing of 'false and misleading
advertising may be 'probative of an underlying abdication of licensee
responsibility.'" And, more directly: "For the sake of both FCC
licensing requirements and the public interest, your station should
refuse to continue to air this advertisement."

In particular, I would love to see Obama actually say what positions that are ascribed to him on gun control are false, and what his actual, specific positions are.  A vague, gauzy support for the second amendment does not necessarily mean he has walked away from his earlier positions.  In fact, I am sure that McCain would say he supported the First Amendment but I would certainly feel comfortable pointing out how he fails to do so in the details.

On Corporations and Public Service

I had occasion to think about the term "public service" at about 6AM this Sunday morning.  As I was driving my son to a way-too-early baseball game, I flipped around the FM dial trying to find some music.  There was none.  All I could find were a number of really dull programs on arcane topics presumably on the air to fulfill the radio broadcaster's "public service" requirements of the FCC regulatory regime.  Since almost no one gets excited about this programming except for the leftish public policy types that inhabit regulatory positions, the radio stations broadcast all this garbage on Sunday mornings when no one is listening anyway.  Ironically, in the name of "public service," stations must broadcast material no one in the public actually wants to listen to.

Which leads me to coyote's definition of corporate public service:  Make a product or service for which people, without use of force or fraud, are willing to pay the listed price.

Any freaking moron can (or at least should be able to) offer a product or service that people will be willing to use for free.  Is this a public service?  Well, maybe.  If you are out there helping to feed homeless people, power to you.  But is it really a public service that the Miami transit system offers free rides that it can only pay for with deficit spending?  Or $1.50 bus rides that cost taxpayers $30 each to provide?  And this is not to mention the free services, like public service radio broadcasts, that many people would be willing to pay not to receive. 

That's why I say that any moron can give stuff away.   But find me the person who can create enough value that people are willing to pay enough for his product to cover all the material, labor, and capital inputs it took to create it, with surplus left over for both buyer and seller, and that is the person performing a real public service.

And let me listen to some freaking classic rock on Sunday mornings.

Government Limitations on Choice

I am a little late on this, but Ilya Somin has a nice post on Joel Waldfogel's book on capitalism and serving niche markets. 

University of Pennsylvania business Professor Joel Waldfogel argues that markets give us too few choices because
they often fail to provide products that satisfy minority preferences.
This is the opposite of Barry Schwartz's argument that markets are bad
because they give people too many choices, which I criticized here.
In one sense, Waldfogel's point is irrefutable: due to high startup
costs or fixed costs and just to the general scarcity of resources in
the world, there are some minority preferences that the market won't
satisfy. The market is undoubtedly inferior to a hypothetical world in
which all preferences, no matter how unusual, could be satisfied at
zero cost. Not even the most hard-core of libertarian thinkers denies
this. That, however, says little about the question of whether
government could satisfy such minority preferences better, or whether
it is even a good thing to provide products whose costs are greater
than their benefits.

He makes a number of good points, including the one that first comes to my mind -- that in most cases, it is the government that tends to limit choice.

the relative lack of diversity of programming on radio stations - one
of Waldfogel's principle examples of the inability of the market to
satisfy minority interests - is actually a failure of government
regulation. As Jesse Walker documents in this book,
the FCC has for decades colluded with big broadcasters in suppressing
alternative and "microradio" broadcasters, thereby greatly reducing the
number of stations and making it very difficult to run a station that
caters primarily to the interests of a small minority. Even a
completely free broadcasting market would not satisfy all potential
listeners. But it would have a great deal more diversity than is
currently permitted by the FCC.

I called for the end of broadcast licensing here.  By the way, the author also ignores Sirius and XM, which have some incredibly niche offerings, and which happen to be in the least regulated part of broadcasting.  Why Sirius would have more niche choices than Clear Channel is explained here.

I could add many other examples onto this.  The FCC's regulation of the cell phone market creates the stupid environment we have today, arguing about locked iPhones.  In a previous post, I demonstrated how new government "a la carte pricing' regulation will lead to more homogenization and less focus on niche viewing audiences in the cable TV industry:

I can add a million examples.  Hair braiders are stepped on by the government in collusion with licensed beauticians.  Taxi companies get the government to quash low-cost or innovative shuttle transportation.  Discount casket companies are banned by government in collusion with undertakers.  Take dentistry.  Why do I need to go to an expensive dentist when 99% of my dental needs could be served by a hygienist alone?  Because the government colludes with dentists to make it so.  And don't even get me started on medicine.  My guess is a huge percentage of the conditions people come into emergency rooms with are treatable by someone without a 4 year medical degree and 6 years of internship.  Does one really need a full medical education to stitch up a kids cut knee?  Well, yes, you do today, because doctors collude with the government to make it so.  Why can't people specialize, with less than 10 years of education, on just, say, setting bones and closing cuts?  Why can't someone specialize in simple wills or divorces without a full law degree?

Every business where the government has licensing is an industry where the government is limiting consumer choice.  It is limiting the number of competitors, and it is specifying a narrow subset of ways in which a company can compete, eliminating service or product innovation.  In Colorado, my employees needs a license to take our customers fishing on a lake.  In Phoenix, you need a license to paint street numbers on a curb.  In Scottsdale you need a license to work out of your own home, a license to valet park cars, and a license to give massages.  And, of course, there are our tremendously dated liquor licensing laws.

Per Milton Friedman:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Update:  Just for fun, I sat here and came up with 10 business ideas that would provide better service for customers, would reduce costs in notoriously high cost industries (e.g. medicine, dentistry, law) and which would make me a pile of money. which are all illegal due to licensing requirements that are set in collusion with current industry incumbents.

More Anti-Trust Fun and Games

Regulators can always declare a merger to be monopolistic -- they just have to define the market narrow enough.  For example, if the FCC and FTC are considering calling satellite radio a separate market from terrestrial radio as an excuse to stop the Sirius-XM merger.  The NAB, the trade group fro terrestrial radio, has been going ape trying to block the merger, knowing that the two together will cause its stations to bleed listeners to satellite even faster than in the past.  Hilariously, though, the NAB is having to twist itself into pretzels as it goes to Defcon 1 trying to stop the merger by ... arguing that satellite radio is a separate market from terrestrial radio and thus the merger is monopolistic.  Begging the question, then, why they are working so hard to block it, particularly after the FCC has allowed huge consolidation and merger activity among NAB members.

Now, history is repeating itself yet again, as the FTC threatens to block the Whole Foods - Wild Oats merger because... it claims organic food grocery stores are a separate market from other grocery stores.  Uh, right.  Extra points, as in satellite radio, for claiming consumers will be irreparably harmed by a merger in a "market" that did not even exist 2 decades ago.

The Boston Globe's Non-Existent Ethics

I am a big fan of the Mises blog, but in this post on a Boston Globe editorial they miss something pretty substantial.  S.M. Oliva takes as a starting point this absurd editorial on the pending XM-Sirius merger:

the proposed merger of the two US satellite radio firms is premature at
best. At this point, it should be rejected. In half a decade, the two
firms have gone from barely broadcasting to throwing up their hands in
defeat. But it is hardly clear that the nation's two satellite radio
firms will wither and die unless they unite, or that a merger would
benefit consumers.

Oliva does a good job at debunking this argument, but why bother?  It is patently absurd.  How is can one possible define a market at just satellite radio?  Where have I heard this same ridiculous argument before?  Aha!  Right in the press release from the National Association of Broadcasters, the organization most threatened by satellite radio and who would benefit most if it would just go away.

When
the FCC authorized satellite radio, it specifically found that
the public
would be served best by two competitive nationwide systems. Now,

with  their stock prices at rock bottom and their business model in
disarray
because of profligate spending practices, they seek a government

bail-out to avoid competing in the marketplace.

Of course, even a combined XM-Sirius would have to compete in the marketplace -- in fact with the members of the NAB, whose asses Satellite has been kicking for a few years.

Oh, but here is the good part: the Boston Globe's parent company is a member of the NAB, owning two radio stations and 9 TV stations.  So in fact, the Globe was not editorializing in favor of the consumer, but in fact was shilling for its own trade group, working to weaken a dangerous source of new competition for its own broadcast radio and TV stations.  And nowhere in the editorial does the Globe disclose this massive conflict of interest.  Which makes this closing line a joke:

A Sirius-XM merger would snuff out competition within a potentially
lively market at a time when the technology is still evolving. And by
creating one dominant satellite radio firm, the move would likely keep
new rivals from emerging in the future.

As any economist will tell you, it is ridiculous to define satellite radio as a "market."  At its smallest, the market is reasonably "radio."  The delivery mechanism of radio (satellite vs. terrestrial) is meaningless to the definition of a market (the editorial tries to deal with this logical fallacy by creating a straw man that the market does not include iPods, when of course the main issue is that it does include terrestrial radio stations).   The Globe, along with the NAB whose talking points the Globe is just repeating in this "editorial", are in fact interested in reducing competition for themselves, not enhancing it.

Oh, and by the way, if approving a merger of broadcast or media companies is a "bail-out," then I invite the Boston Globe to calculate how much of a bail-out the Times corporation has been given, as the government has approved the merger of the NY Times, Boston Globe, IHT, 20 other papers, 9 TV stations, 2 radio stations, and 35 commercial web sites.  And by the way, what is the market share of each of their papers in their own local "markets?"

I will leave you with a quote from Milton Friedman vis a vis licensing but entirely appropriate here:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Anti-Trust is Not About Consumers, Yet Again

I have written numerous times about how most anti-trust actions are initiated for the benefit not of consumers but of industry competitors.  The incredible claim that Microsoft's giving away free applications with its OS somehow hurts consumers is just the most famous such example. 

Now we face the specter of anti-trust review of the XM-Sirius satellite radio deal.  All you need to know is that the National Association of Broadcasters, who represent the terrestrial competitors of satellite radio, are lobbying hard for the deal to be rejected.  Nearly every line of the statement is hilarious, but this one caught me:

When
the FCC authorized satellite radio, it specifically found that
the public
would be served best by two competitive nationwide systems. Now,

with  their stock prices at rock bottom and their business model in
disarray
because of profligate spending practices, they seek a government

bail-out to avoid competing in the marketplace.

First, I am sure that the NAB is deeply, deeply concerned about satellite radio serving the public well -- NOT.  Customers gained by satellite radio are customers lost by the NAB**.  In fact, if they really believed the merger would hurt the consumer experience with satellite radio, their statement would instead be "we are thrilled by this merger because it means that customers will be served poorly in the future by the new company and that means customers will defect back to us."

Second, I love the term "government bailout."  What they mean by government bailout is the prospect that the government might not block this merger.  Which, given the white-hot merger activity between NAB members over the past 5 years, means that most NAB members have received the same "bailout."

(HT: Hit and Run)

** In the TV market, terrestrial broadcasters, particularly their local affiliates, got the government to cover their butts by passing a "Must Carry" law, which basically requires that cable companies have to include all the local broadcasters in their feed.  In practice, this and similar laws have forced satellite providers to give you your network feed only through your local affiliate.  This means that instead of DirecTV being able to just give me the NBC national feed, they have to give me the NBC Phoenix affiliate.  As a result, DirecTV has whole satellites that carry forty, fifty, sixty or more identical feeds.  What a screaming waste, and it only gets worse with HDTV.  Anyway, in radio, there is no similar law, so satellite growth is more of a zero-sum loss for terrestrial competitors.  I think the NAB is just huffy they did not get their own must-carry subsidy law passed.

Eeek! Return of the Fairness Doctrine

QandO reports that Dennis Kucinich is trying to resurrect the fairness doctrine in media, reassigning the FCC the task of policing political speech in broadcast media:

The Presidential candidate said that the committee would be holding
"hearings to push media reform right at the center of Washington." The
Domestic Policy Subcommittee of the House Government Reform Committee
was to be officially announced this week in Washington, D.C., but
Kucinich opted to make the news public early.

In addition to
media ownership, the committee is expected to focus its attention on
issues such as net neutrality and major telecommunications mergers.
Also in consideration is the "Fairness Doctrine,"
which required broadcasters to present controversial topics in a fair
and honest manner. It was enforced until it was eliminated in 1987.

Usually, you can be sure that when a politician talks about the government intervening for "fairness" in free speech, it means that he wants the government to push his political point of view and squash others.  The only surprise is that Kucinich is totally up front about this:

Kucinich said in his speech that "We know the media has become the
servant of a very narrow corporate agenda" and added "we are now in a
position to move a progressive agenda to where it is visible."

So, having failed in the marketplace, and with well-funded entrants like Air America, Kucinich wants the government to force media companies to promote a progressive agenda on the airwaves.  Yuk.

Update: Q&O is on fire, with a great followup post here.

Sedona Joins the March to Bureaucracy

Today, the town of Sedona, Arizona joined the ranks of government organizations trying to make business incrementally more difficult.  I operate campgrounds in the Sedona area, and as such I have already registered my business there with:

  • The federal government for social security and medicare taxes
  • The federal government for employee payroll withholding
  • The federal government for income taxes
  • The federal government for federal unemployment insurance
  • The State of Arizona secretary of state and corporation commission
  • The State of Arizona department for unemployment insurance
  • The State of Arizona department of revenue for sales taxes
  • The State of Arizona department of revenue (second time) for corporate income taxes
  • The State of Arizona department of liquor, for liquor license
  • Coconino County tax collector, for property taxes
  • Coconino County health department, for health inspection and certificate

I am sure this list is incomplete, but you get the idea.  I know for a fact that the town already has access to my business information, because they have access to the state department of revenue sales tax database that has all the data they want.  However, I guess so they can feel important -- they want to make sure I have THEIR approval to exist and conduct private transactions with the public as well.  Here is the only rational offered in their letter:

To those businesses operating in the City limits of Sedona:

Help Create Our Economic Future

To Create a viable economic future for Sedona, it is important to know what types of businesses currently exist within the community.  As of January 31, 2006, in order to create a database, all businesses operating in Sedona, or headquartered elsewhere and doing business in Sedona, will need to apply for a business registration.

First, we businesses are already creating Sedona's economic future, and this notion that a couple of people in a small town city clerks office can do anything to add to productivity and economic growth is the worst form of governmental hubris.  Second, though filling out a couple of pages may seem  too small to complain about, we operate in over 200 locations.  Thank God that most of them are in unincorporated area, or we would be filling out hundreds or thousands of pages a year just to help some city clerks with their "database". 

Third, it is interesting to note that Sedona is starting is campaign for their economic future by making doing business there harder.  Sedona reminds me a lot of Boulder, Colorado, where I used to live.  In Boulder, this kind of data request would be the harbinger of some massive new regulation program.  My best guess is that this will be the case in Sedona as well -- this database will be used to justify new regulations and taxes, not less.

I ran corporate planning staff groups at several large corporations.  Every time my staff guys had a new analysis they wanted to do, they often wanted to send out a new requirement to all of our operations managers to report some new data they needed for their project.  As their manager, I tried to be ruthless in defending our operating people, pushing back on my staff guys to find any other way to get the data they need, or to justify strongly the need to ask our folks to report yet another bit of data.  In most cases, the analysis did not justify the work or the data could be acquired some other way, a way that required more work of my staff guys but a lot less from the operating guys who really mattered.  This requests smacks of the exact same thing, except without the adult supervision to push back on their endless data requests.  (Other example here).

This all made me think of this, maybe because my mind works in strange ways. 

The Senate has introduced the "Digital Content Protection Act of 2006,"
a bill that will create "Broadcast Flags" for all digital radio and
television, leading to FCC oversight of all new digital media
technologies from iPods and PSPs to TVs and DVD recorders.

Under the DCPA proposal, digital media technologies would be
restricted to using technologies that had been certified by the FCC as
being not unduly disruptive to entertainment industry business-models.

Beyond my irritation at this whole broadcast-flag-FCC-power-grab raising its head again, it made me think about people's reaction to regulation.  In general, when people actually run into government regulation face to face, they hate it.  That's why with this broadcast flag issue you tend to see a lot of people who generally profess to be comfortable with big government suddenly freaking out, perhaps because this is the first time, beyond the drivers license office or trying to mail a package at Christmas, they every run into the true face of government.  Most corporations today are pretty good at sheltering customers and employees from the mind-numbing regulation they face. 

To all you guys who are fed up with the FCC, let me assure you as a small business owner:  The Department of Labor, Federal Trade Commission, Social Security Administration, Department of Commerce, and every state, county, and city agency you can think of is at least as overreaching and destructive.

The government:  Not to know it is to love it.

Update:  In the past, I have had a field day laughing at left-of-center groups who scream privacy rights at every occasion but support all the intrusion above.  Most recently, I have taken on NOW and the ACLU over this issue.

Your Cable Bill Is Going Up (and Your Choice is Going Down)

The FCC has reversed course and decided that cable companies bundling channels into packages rather than selling them a la carte is bad and requires coercive action from the government to fix.  This issue was originally pushed by religious groups, who I guess did not want signals from naughty content even accessible from their house (the "just don't watch that channel" solution presumably determined to be too difficult).  However, "progressives" on the left have latched onto this issue as well.  I remember a Kevin Drum post, which unfortunately I can find right now, advocating cable unbundling as an example of an agenda progressives should be jumping on.  Beyond the basic rationale that progressives hate cable companies almost as much as Exxon and Wal-mart so anything cable companies oppose they are for, the ostensible logic is that if I pay $50 now for 165 channels, I should only pay $10 if I choose to watch only 33 of those.  Here is their "logic":

The main obstacle for a la carte: programming contracts.
Programmers routinely bar cable operators from selling channels a la carte.

Why? Advertising rates. Cable programmers base ad rates on
the number of viewers they reach. The more they reach, the more they can charge.
If they allowed a la carte, viewership for many channels would likely
plummet.

Gene Kimmelman of Consumers Union says:"This is the essence
of how they squeeze extra revenues out of consumers."

The problem could worsen, he warns, as cable operators "” as
well as broadcasters and satellite TV "” pack on more channels.

"The bundles get bigger, and prices go up," Kimmelman says.
"A la carte would blow this scam out of the water."

This presumes that the number of channels has anything to do with cable cost or pricing.  Which it really doesn't, since the marginal 100 channels or so at the tail end of the viewership curve all just want to be carried for free, in hopes they can get some ad revenue from corporate America for being on the dial.   From a cost standpoint, beyond a few core channels, it costs cable companies about nothing extra, given the infrastructure of high-bandwidth delivery systems is already in place, to send you 20 channels or 150. 

Pricing, though, is not just set based on costs, but on value.  And the government is about to change the value equation, and maybe not in the consumer's failure.  Up to now, cable's value proposition has been "wide selection", a value proposition supported by the multi-channel bundle for one price.  After making this traditional value proposition illegal, there is no guarantee at all that the value proposition that replaces it will be a better, or even equivalent one.

Most consumer advocates tend to assume that bundles are hosing the customer, because they are being forced to pay for stuff they don't want.  But bundles can more often than not be the opposite - including items of value that the customer is not paying full price for.  The the evolution of cable service tends to confirm this.  Cable on a real basis does not cost that much more than it did 20 years ago when you only got 20 or so channels.  My suspicion, which I can't prove, is that you are paying for those 20-25 core channels, and everything else is a freebie.  In this model, bundling is delivering extra value over a la carte, because you really aren't paying much or anything at all for those incremental 130 channels.

In fact, in my years as a consultant looking at pricing, one of the first things we looked at in a company to increase total pricing and profits was unbundling services.  The issue of concern was that more often than not, bundling provided customers with hidden pools of value that they were not really paying for, and unbundling helped make consumers pay full price for things they were previously getting for free.  Airlines, banks, and numerous others make more money by unbundling today.  My suspicion is that this will be the case with cable.

By the way, look under the hood of any business regulation proposed as "consumer protection" and you will usually find the fingerprints of corporations trying to use the government to sit on their competition.  And yes, we have that here.  New entrants AT&T and Verizon want the government to ban the current cable companies' business model, thereby putting them on equal footing in entering the market.  By the way, speaking of these phone companies, does anyone out there really think they are getting a better deal when they pay for call waiting and answering service and long distance and local separately rather than in one of the advertised bundles?

So here are my predictions:

  • Assume an average cable bill today is $50 a month for 150 channels.  If the average person watches and really is willing to pay for 15 of those a la carte, then the new pricing is going to result in a $50 bill for those 15 channels.  Count on it.  People will be paying the same amount as before, but for fewer channels.  Or, if they want the same number of channels as before, they will be paying more
  • In one year, leftish backers of the bill will realize the above, and will publicly criticize the cable companies for their rational reaction to the coercive government program.  They will propose new pricing regulations to "fix" the problem they say stems from private enterprise, but in fact came from unintended consequences of the original regulation.  This use of negative consequences of regulation to justify further regulation is one of the most important tools in the statist's bag.
  • A number of smaller cable channels will go bust.  Even those wanting and willing to pay a la carte for the full 150 channels they got before will not be able to, because many will not exist any more.
  • Fewer niche or idiosyncratic channels will exist.  Today, cable companies want to sell the package of 150 channels.  At the margin, adding a channel that caters to a niche not reached by the other channels is better for them than adding yet another channel that caters to the median viewer, because it makes the package as a whole attractive to more viewers.  However, if every channel is sold a la carte, cable programmers will add channels and content aimed at the mass market to maximize sales of each channel.  Each channel must stand on its own. Oddball niches need not apply.  Interestingly, many of these will be things like the Gay Vegan Channel
    that tend to be particularly popular among "progressives".
  • Innovation in terms of new cable channel offerings will die, because a la carte pricing will substantially increase the cost for a new entrant to get going.  In the past, they just had to sell 2-3 cable company programming buyers that they should try the new channel in their lineup, and they were off and running.  Now, they not only have to convince cable companies to be on the menu, but have to sell consumers one by one to get into homes.  This is orders of magnitude more expensive.  The stock of current cable companies will go up, because competition will be harder.  In another ironic unintended consequence for "progressives", only large corporations will be able to start new cable channels in the future, increasing media consolidation that progressives decry.
  • In one year, religious backers of the bill will be upset that so many people still opt for naughty content, and will propose legislation to increase the difficulty in signing up for certain channels (e.g. physical presentation of proof of age) and to regulate advertisement and promotion of these channels.

Reason's Hit and Run has more along the same lines.

Postscript:  In the past, FCC and Congressional rules have actually mandated bundling.  For example, still on the books are must-carry laws that say that cable companies have to carry every local broadcast channel.  It will be interesting to see if I can opt out of ABC.  I bet I won't be able to - legislation pre-empts FCC rule-making.  Which will create an interesting discriminatory aspect to the regulation, which is that the cable companies must bundle in companies that also broadcast their content over airwaves but must unbundle non-broadcast content.  Which also leads to the irony that cable will have to include content that consumers have an alternative source for (e.g. ABC via an antenna) but have to be ready to exclude content that consumers have no alternative source for (e.g. the History Channel).

Final Thought: What's next from the FCC?  If I only listen to FM 93.3 on my radio, are radio makers going to be required to unbundle the capability to receive all those other stations to give me a radio that only gets 93.3?  And does anyone think that radio would be cheaper?

A Victory for Fair Use

Via Ernest Miller:

Civil and consumer rights groups have won in the Broadcast Flag case!...

...For those who are unfamiliar with the Broadcast Flag, it was ... it was a regulation promulgated by the FCC
at the request of Hollywood that would have required all HDTV receivers
to incorporate certain copy controls. Starting this July, all HDTV
receivers sold in the US would be required to enforce restrictions on
copying HDTV broadcasts that were tagged with the "Broadcast Flag."
Although you might be able to record HDTV shows, you wouldn't be able
to make additional copies for personal use (such as watching in another
room) without a lot of hassle, if it was possible at all, not to
mention taking a copy to watch at a friend's house. The ramifications
of this authority grab by the FCC were enormous, since it would have,
among other things, essentially given them the power to control
significant aspects of the design of anything capable of using HDTV
signals, i.e., modern PCs.

Good.  Now, will someone address letting me copy DVD's to play on a handheld, hard-disk based device like this one.

Its Time to End Licensing of Broadcast Media

Television and Radio have always had a very different regulatory regime than any other type of media.  Unlike, say, newspapers or cable TV companies or satellite providers, television and radio companies have to get and continue to renew licenses and are expected operate in the public interest, whatever the heck that is.  TV and radio stations get access to what has become very valuable bandwidth for free, the only cost being that they have to give regulators what amounts to a veto over their content.  Because of this regulatory structure, you get goofy stuff like this:

The Federal Communications Commission's enforcement bureau has asked NBC for tapes of the opening ceremony of the Summer Olympics, apparently in response to one or more indecency complaints.

Its fun to laugh at this stuff, and it drives me crazy, but at the end of the day the problem is not the FCC or Bush or red states or fundamentalists.  The problem is the first-amendment defying concept that the Feds should have any say in media content.  Period.  The FCC is actually in a difficult spot - by law, they have to enforce decency standards, but when they do so, they look like moralistic thugs.

I do not know the history here, but for some reason the US government, perhaps because it was in the throws of the socialist/fascist New Deal era, abandoned all of its traditional and successful models for allocating a newly discovered or accessible resource (in this case, parts of the spectrum) in favor of this public service liscencing approach.  I can think of at least three different models that the US government has used in similar circumstances and that have all worked much better:

  • The Homestead Act:  This established the principal of being the first to stake out and improve a resource (in this case parcels of land) in allocating government lands in the west.  Perhaps the best piece of legislation in the history of the country.    Could have easily followed this principle in the broadcast spectrum - an individual or company would have to broadcast continuously on a certain frequency for 2 years to gain permanent ownership
  • Mining Law: In some ways similar to the Homestead act, again it grants ownership of a resource to people who add value to it (in the case of mining, to the people who prospected for it and discovered it).
  • Outright Sales:  The government does this all the time, including land sales, mineral lease sales (e.g. offshore oil) and more recently cell phone spectrum sales.

Lets end this regulatory structure now:

  1. Grant all current licensees ownership of the spectrum they are currently using.  Drop all content-related regulation. 
  2. There are many non-licensed outlaw low-power stations operating.  Create a set of homestead requirements that they can get access to their bandwidth if they meet certain requirements within a certain time frame
  3. Acknowledge that technology today allows more of the spectrum to be used than channel spacing of the 1950's allowed.  Open up more of the holes in the spectrum for use.
  4. Sell the newly available spectrum