Addressing Effective Competition Filings

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Addressing Effective Competition Filings
NATOA Annual Conference Denver, Colorado
September 10, 2003
Frederick E. Ellrod III Miller Van Eaton,
P.L.L.C.
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Introduction

• Effective competition filings tend to appear as
  if materializing suddenly out of the future
• Cable operator can take months to prepare local
  community has 20 days
• Brief review of FCC rules underlying assumptions
  about competition NATOAs critique

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Four ways to findeffective competition

• (A) lt 30 of households subscribe
• (B) second multichannel provider
• offers service to ? 50 of franchise area
• serves ? 15 of households
• (C) municipal system offers to ? 50
• (D) LEC offers comparable service in franchise
  area

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The process at the FCC

• Operator files a petition for special relief
• FCC puts on public notice (Daily Digest)
• Deadlines are counted from the public notice
  date, not the filing date

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FCC Public Notice
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FCC Public Notice
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The process at the FCC

• Community has 20 days from the public notice to
  oppose
• Serve petitioner
• Factual allegations require declaration
• Operator has 10 days to reply
• Operator has burden of proof theoretically
• FCC issues an order, eventually

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Purpose of the effective competition rules

• Congress wished to allow rate regulation only
  where the market did not solve the problem
• The FCC treats competition as a sudden state
  change you reach 88 mph, and everything is
  different
• The real theory of competition is much more
  complex

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The Invisible Hand

• Adam Smiths invisible hand if people act on
  economic self-interest, the overall result tends
  to be good
• In a robust market, players have incentives to
  compete on
• price
• service quality
• expanded offerings etc.

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The Invisible Hand

• If there is robust competition, these incentives
  will tend to keep prices down, service up
• The more competitors there are, the better this
  tends to work
• If it works well, the need for regulation to
  reach favorable results is minimized

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Market Failure

• Not every market achieves ideal results
• A real market can fall short of the ideal through
  (e.g.)
• Monopoly/oligopoly too few competitors
• Collusion among competitors
• Lack of information by consumers
• Differentiated products do not compete
• Barriers to switching (e.g., e-mail address)

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Market Failure

• If a market can be rectified, antitrust laws are
  designed to deal with problems like monopoly and
  collusion
• If not, we may accept existence of a natural
  monopoly public utility regulation is designed
  to mitigate the effects

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Problems with the FCCs effective competition
rules

• Divided franchise areas two operators hold
  franchises for whole area, but they serve
  separate portions the Ventura case
• Anticipated competition treated as real the
  Boston case
• DBS-only competition

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DBS As A Competitor

• Technically available everywhere
• Actually available if marketed in specific area
• Programming deemed comparable even without local
  broadcasters and PEG
• Penetration is shown through SkyTrends data

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Problems WithDBS-Only Competition

• DBS does not actually control cable rates
• FCC competition report found the presence of
  effective competition due to DBS overbuild status
  has no significant effect on cable rates.
• Commissioner Copps rates continue to climb,
  undisciplined by either the cable industry or, in
  fact, by satellite providers
• GAO even carriage of local broadcasters by DBS
  does not restrain cable rates

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Problems WithDBS-Only Competition

• If DBS were equivalent to wireline competition,
  there would be little difference between areas
  with and without the latter but there is
• If DBS is not in fact restraining rates, the FCC
  was mistaken to count it as competition the
  Invisible Hand is absent

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Problems WithDBS-Only Competition

• Since only cable operators have access to
  SkyTrends data, the FCCs uncritical acceptance
  of such data effectively shifts the burden of
  proof to the local community
• GAO suggests conditions leading FCC to declare
  effective competition may have changed in some
  communities, though few have recertified

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Outlook

• Strong impulse to conclude there is effective
  competition may drive results
• Factual basis for competition claims may be open
  to challenge, if facts can be obtained
• Underlying economic basis of FCCs treatment is
  also open to challenge