Time to change the rules

In a proposed rulemaking, the FCC is considering a change to the 22 year-old effective competition rule that requires cable operators to prove that there is effective competition in their communities before they can be exempt from local regulation of basic rates.  Under the proposed rule change, there would be the presumption that effective competition exists in all markets.  This would mean that a municipality would have to demonstrate otherwise to gain the authority to regulate rates.  The reason for the change is that the FCC has approved more than 10K effective competition requests, and has not denied any in recent years.

At the time of the initial ruling, in 1993, less than 2% of MVPD customers could choose between two or more cable providers.  Little has changed in that regard.  Gentlemen’s Agreements by the cable operators have continued to limit head-to-head competition among them.  But, beginning in 1999 and accelerating through the early part of the new millennium, DBS providers, specifically DirecTV and Dish, expanded their footprints and today cover all but a very small portion of the U.S.  Moreover, telecom companies, largely Verizon and AT&T, began offering video delivery services in major metropolitan markets in direct competition with the incumbent cable operator. So, today, in most markets, there are two (DBS only) to four (2 DBS, cable, and telco) competitors.  The mere counting of competitors in a market, however, does not suggest that competition is robust.  It merely points that in the vast majority of U.S. communities (34,000+), the current effective competition standard is met.*   “Effective” competition will have to come from new sources, not from interpreting outdated rules. 

*Effective competition is considered to exist if either the municipality or another multichannel video programming distributor (MVPD) offered an alternative service to at least 50 percent of the households in the franchise area and more than 15 percent of those households took service from a company other than the largest one.   Moreover, small cable operators are exempt from rate regulation in franchise areas where they serve fewer than 50,000 subscribers (serve less than 1% of U.S. subscribers, and do not exceed annual revenue of $250 million).