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CHAPTER VI - Regulatory Changes to Promote Network Deployment

The accumulation of legacy regulations over time was a prominent theme in describing the challenges regulators face in the rapidly changing new media market. Larry Downes presented a long list of regulations to which multi-channel video programming distributors (MVPDs) and networks are subject—such as cross-ownership bans, set-top box rules, copyright, cable ownership and affiliated channel caps, the national TV ownership cap, and more. New players are subject to few of these rules.

To deal with the accretion of regulation, participants recommended that policymakers conduct a thought experiment that would start with a clean regulatory slate and add back rules as needed. The experiment would start with existing law, such as antitrust or copyright, and examine whether they are appropriate to current conditions. The recommendation also noted that government mandates should be avoided and that any solutions to market failures should avoid technology-specific approaches. Additionally, any regulatory interventions should apply to all firms in all affected industries unless there is a valid reason to deviate from this principle.

Rules that impact MVPDs are one example of where legacy regulations impact market dynamics for new media. These entities face competitive challenges from “over-the-top” (OTT) video services such as YouTube, but they are, said Larry Downes, shackled by legacy rules that require MVPDs to transmit local broadcast signals and pay retransmission fees for programming. These rules complicate the market. For incumbents, they make it harder to respond to competitive threats by entrants if entrants are not subject to, say, must-carry rules. For potential entrants, they can raise the cost of negotiating with content providers, such as broadcast networks, that OTT firms need to make their offerings appealing to consumers.

The FCC’s response has been to consider whether to expand the definition of a MVPD to encompass new OTT entrants. Leveling the playing field is laudable, but participants also suggested that it is better to begin with a blank slate, rather than start from the regulatory structure as it exists today. The idea is to come up with only those regulations that fit the new media landscape rather than try to fit the new media landscape into the existing regulatory structure, which is based on legacy markets and technology.

Another area where it is preferable for government to treat all sectors equally is social regulation. Rather than take an overly prescriptive approach to regulation in this arena, two mechanisms emerged to address current challenges. The first is industry-wide collaboration. There are circumstances under which allowing companies to coordinate efforts make sense. As a participant observed, Disney’s Circle device, which allows parents to monitor online activity of all connected devices in the home, is an example of a collaborative effort across firms to give parents a tool to track the surfing habits of kids.

The other promising mechanism is innovation. Well-publicized “grand challenges” with monetary prizes attached to them—could provide incentives for innovators to develop new ways for rating content or ease the use of technology for those with disabilities. The virtue here is that the market develops the solution, with government (or perhaps charitable foundations) spurring an innovation competition by providing prize money.

In rounding out non-regulatory approaches to addressing the new media market, the obligations of consumers came into play. Individuals bear some responsibility in learning the ins and outs of the new media market, but need tools to help inform themselves. For that reason, programs for public education and digital literacy for the new media landscape have a role in an evolving new media market.

All this said, the notion of beginning with a clean slate on regulation was not something everyone signed on to. Although regulation designed to treat entrants and incumbents equally is a worthy goal, Jessica Gonzalez noted that it may make sense for new marketplace entrants to have little regulation, with regulatory burdens potentially growing as companies grow. Reed Hundt expressed concern over whether the emphasis on less regulation would get the FCC out of the regulatory business. With net neutrality rules on the brink of being weakened or removed, the FCC should retain some authority to police anti-competitive actions, especially exclusive deals among content providers and internet service providers.

Antitrust. Another mechanism that might substitute for regulation is antitrust, whereby government action takes place only after inquiry by antitrust authorities. Harms may be addressed by structural means (e.g., prohibiting a transaction or requiring divestments among parties) or behavioral ones (e.g., conditions to which parties must agree before a transaction’s approval). This contrasts with regulatory rules that seek to proscribe anti-competitive behavior that, given the structure of a market, companies may have incentives to undertake. The virtue of antitrust enforcement is that any action taken addresses only the case at hand, whereas regulatory rules that apply industry-wide may have unintended consequences.

There was a strong sentiment that antitrust law is preferable to regulation, but that it has to evolve given the nature of the digitally-driven new media industry. Rob Atkinson from ITIF recommended that antitrust officials embrace the thinking of Howard Shelanski and others in considering competition policy in the current digital landscape. This school-of-thought acknowledges risks of over-enforcement in the digital markets, in that errors in over-enforcement could have large negative consequences for innovation in these industries.

Yet this does not mean little or no competition enforcement; rather, there should be a shift in focus to customer data and innovation in the markets that rely on digital platforms. For many digital products, customer data is a crucial input to the product, which means that the metrics that receive antitrust scrutiny when mergers happen (e.g., price effects, whether the merger is vertical or horizontal) may not be as relevant as they have been.i A proposed merger of digital firms may result in an entity with a lot of data on customer behavior and preferences. The merged entity may not raise prices, but its store of customer data has the potential to foreclose innovation-driven entry from competitors.

At the same time, excessive reliance on antitrust enforcement to police new media and telecom markets was met with some skepticism. One participant argued that antitrust actions might not occur quickly or vigorously enough to deal with anti-competitive behavior in digital markets.

Infrastructure Sharing. A more ambitious idea on how to use regulation to promote entry into the market pertained to infrastructure sharing. This notion gained currency in recent years in developing countries where people are heavily reliant on mobile technology for communication, demand for data is on the rise, and it is very expensive to deploy communications infrastructure. In developing markets, mobile network operators (MNOs) often find it advantageous to share networks to expand into unserved areas or to serve dense urban areas where it is expensive to acquire additional sites for antennae. Typically, the market is the driver for infrastructure sharing, not mandates from regulators. The role for regulators is not to set out terms for sharing, but to ensure that there are not barriers to parties entering into sharing arrangements.

The advent of 5G networks brings infrastructure-sharing into the U.S. policy debate. Emerging 5G networks rely on millimeter wave radio signals, which in turn call for a density of cell sites that is an order of magnitude greater than for earlier generations of wireless. This means carriers will have to find numerous sites in cities and town to build 5G networks. Acquiring the permits to deploy antennae at the local level has substantial transaction costs. Even if those cost fall—and many localities are working to do this—the cost of deployment makes infrastructure sharing potentially attractive for 5G .

This makes infrastructure-sharing, in some form, a real possibility, and policymakers will have to develop the knowledge base to participate in the debate. Such arrangements might unfold with relative ease, with firms entering into sharing agreements through contracting. At the same time, 5G deployment is in its early days, so contractual arrangements may encounter issues that draw the attention of policymakers. For that reason, the group recommended that the FCC initiate a notice of inquiry (NOI) into the effectiveness and viability of shared infrastructure services.

i Howard Shelanski, “Information, Innovation, and Competition Policy for the Internet.” University of Pennsylvania Law Review, 2013. Vol. 161: 1663.
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