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FCC Offers No Economic Rationale for Set-Top Box Regulation

FCC Offers No Economic Rationale for Set-Top Box Regulation

Wallsten files Comments with the Federal Communications Commission

Contact: Amy Smorodin
(202) 828-4405

April 19, 2016 – The Federal Communications Commission offers no economic rationale to justify its proposal to impose new regulations on the set-top box market, states Scott Wallsten in comments filed today with Commission. Specifically, it fails to explain why the FCC believes, despite clear evidence to the contrary, that the video delivery or the set-top box markets are not competitive. The NPRM also shows no evidence of consumer harm and no evidence that consumers would be better off under its proposed rules.

Wallsten, Technology Policy Institute Vice President for Research and Senior Fellow, identifies a number of issues with the NPRM:

  • Counter to the FCC’s assumptions, there is vigorous competition in video delivery, with 99 percent of households having access to at least three multichannel video programming distributors (MVPDs), strong growth in over-the-top video options like Netflix, Hulu, and Amazon, and services that replicate the traditional MVPD experience, but over broadband.
  • Competition in the set-top-box market is also robust. Over-the-top set-top-boxes are available from Roku, Amazon, Google, Apple, and others. This competition is also stimulating innovation in traditional set-top boxes and creating incentives for new collaborations that eliminate the traditional set-top box entirely.
  • The FCC fails to explain why the current arrangement of MVPDs purchasing set-top boxes from an outside firm and leasing them to consumers is not an efficient vertical relationship. Theory alone suggests it is a textbook example of an efficient integration, with that theory corroborated globally—25 of 26 providers in 11 OECD countries also are the sole providers of set-top boxes to their customers.
  • As evidence that set-top box fees are too high, the FCC relies on data from a press release from Senator Edward Markey’s office. However, correct interpretation of the data do not support the FCC’s claims. Those data show a wide range of prices, including some providers offering a first box for $0 per month. In addition, the FCC’s own data on prices show that features and functions performed by the set-top boxes have changed dramatically since the 1990s, making a price comparison between 1994 and 2015 meaningless.
  • Despite the FCC’s assurances, it is unlikely that existing contracts between programmers and MVPDs could survive the new rules. In addition, the new rules would change incentives facing both programmers and MVPDs with uncertain consequences. At a minimum, the FCC should take those concerns seriously and consider what the effects of its new rules would be.

“The Commission should take a step back, examine its rationale for intervention and consider the effects on the video marketplace,” Wallsten concludes. “If it is serious about its proposal, it should take the economics seriously, study data from sources other than a congressman’s press release, and provide a coherent explanation of why it believes the status quo results from anticompetitive behavior and how its proposal would fix the problem.”

The comments are available on the TPI website.

The Technology Policy Institute

The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/.

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