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FCC’s Slippery Slope to Regulating Content, Speech, and the Press

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Scott Cleland
Chairman, NetCompetition
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      Scott Cleland

      Scott Cleland is Chairman of NetCompetition® a pro-competition e-forum supported by broadband interests and President of Precursor LLC, a research consultancy for Fortune 500 companies. He is author of the book: Search & Destroy Why You Can’t Trust Google Inc.

Last December an FCC Administrative Judge surprisingly ordered Comcast to carry the Tennis Channel in the same tier and channel neighborhood as the Golf Channel. Never before has the FCC ordered a private cable company to carry particular programming in a particular business arrangement.

This very troubling and far-reaching content regulation precedent thrusts the FCC down a slippery slope toward regulating content, speech, and the press — unless the full FCC votes to overturn it.

Few FCC decisions will be as revealing of the FCC’s sense of its power than its decision to either uphold or overturn this shocking power grab and precedent. If the FCC now imagines it has the power to dictate what channels or programming a private cable company can carry and how prominently that programming is offered to the public, this implies the FCC also has the power to order cable news channels it does not like off the primary tier and those it likes onto the primary tier.

A high school civics student knows that the U.S. Constitution’s First Amendment prohibits Government from “abridging the freedom of speech, or of the press.” This alarming and ill-conceived initial FCC content regulation precedent manages to effectively threaten both free speech and a free press.

Another fatal flaw in the FCC administrative judge’s ruling is that it tries to implement obsolete law. His decision relies upon Section 616 of the 1992 Cable Act, which assumes now obsolete 1992 market conditions that cable is a monopoly video distributor with large ownership stakes in cable channels. Twenty years later, cable has only 60% share of the video distribution market and falling, and dramatically less ownership interests in cable channels.

The Cable Act is obsolete because it never envisioned the mass market success of DBS competitors DirecTV and DISH, telco competitors Verizon-FiOS and AT&T-UVerse, or online entrants like Netflix, which has more subscribers than Comcast, and Google-YouTube, which has an online video audience six times the size of Comcast’s NBC online audience.

Unlike the core premise of the 1992 Cable Act, Comcast is no video monopoly in 2012. Consequently, this decision is legally unsustainable because it is arbitrary and capricious in completely ignoring obvious pertinent competitive facts that wholly contradict the entire rationale for the decision.

Yet another fatal flaw in the FCC judge’s decision is that it illegally abrogates a commercially-negotiated 2005 contract between Comcast and the Tennis Channel. If the FCC were to uphold this decision, it would set the scary precedent that the FCC believes it has the power to look-back and unilaterally break longstanding commercially-negotiated contracts.

If obvious competitive facts to the contrary do not limit the FCC’s power in any way here, what would be the FCC’s limiting standard for deciding which contracts or provisions are deemed to be acceptable or unacceptable to the FCC in the future?

If the FCC wants to create fundamental economic and investment uncertainty in the content distribution business, upholding the ruling that the FCC can arbitrarily break contracts without an accurate competitive factual predicate would certainly do it.

Why should companies negotiate programming contracts at all if they cannot fulfill their purpose of reliably defining the economic terms of a business relationship and creating necessary business certainty for a period of time? Why should companies take risks and invest in new distribution infrastructure or new programming, if the FCC can arbitrarily and without authority or evidence abrogate common law contracts?

In short, our Founding Fathers well understood the natural temptation and threat of the Government regulating content, speech and the press and summarily prohibited it in the First Amendment of the U.S. Constitution.Given that context, this should be a no-brainer decision for the FCC.

However, the fact that the full FCC has yet to overturn this December administrative Comcast-Tennis Channel ruling — which is wrong on the merits, facts, contract common law, and the Constitution — is very troubling and unsettling. The full FCC needs to swiftly end the unnecessary economic, investment and business uncertainty that this wrong-headed FCC precedent creates.