Network Neutrality: Cause and Effect

Perhaps you might join me in wondering how sponsored researchers managed to convince FCC Chairman Pai and others that network neutrality regulation singularly caused a near immediate drop in infrastructure investment by U.S. carriers.  How do you isolate the variable of “regulation” from, for example, the investment cycle in migrating from 4G to next generation 5G wireless plan.

Set out below, are two FCC charts that track capex incurred by the major U.S. wireless carriers from 2010 to 2019:

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Source: https://www.fcc.gov/20th-mobile-wireless-competition-report-quick-facts

Source: https://docs.fcc.gov/public/attachments/FCC-20-188A1.pdf

 From 2010 to 2019, the FCC toggled between imposing network neutrality requirements and eliminating them. For purposes of our direct comparison of a regulatory or deregulatory action and subsequent impact on investment, keep these years in mind:

 2010, the FCC approved the first FCC Open Internet Order creating network neutrality rules and regulations; 2014, the D.C. Circuit partially reverses the FCC on grounds that some of the network neutrality requirements imposed common carrier duties on private, non-common carriers; 2015, the FCC respond to the appellate court reversal with the 2015 Open Internet Order reclassifying broadband Internet as Title II regulated common carrier telecommunications service; 2016, the D.C. Circuit defers to the FCC and largely upholds the Commission; 2017-2018, the Ajit Pai led FCC signals its priority in reversing the 2015 Open Internet Order and does so in 2018 with the Restoring Internet Freedom Order.

Does wireless carrier investment correlate up or down with the changing regulatory regime? It sure does not look like it to me.  Even stakeholders, when communicating with buy side Wall Street analysts, emphasize competitive necessity and the business cycle for next generation network investment. 

Regulation does not matter significantly, until it becomes the sole predictor of investment in a different forum.          

 

Local Broadcast Market Concentration Promotes More Local News Operations?

            At the eleventh hour, the Ajit Pai-led FCC released an economic study examining the impact of market size and concentration on the number of local news operations.  See Kim Makuch & Jonathan Levy, Market Size and Local Television News, OEA Working Paper 52 (rel. Jan. 15, 2021); available at: https://docs.fcc.gov/public/attachments/DOC-369214A1.pdf.  While the authors explicitly stated that “this paper does not analyze the total quantity of local news (i.e., number of hours, which has been rising or its content,” I am certain that had Chairman Pai retained his position, he would have relentlessly touted the paper as unimpeachable, empirical proof that further concentration in the broadcast marketplace serves the public interest. 

             I appreciate that well financed and profitable media ventures can exploit scale economies and the efficiency possibly accrued. Ventures with deeper pockets can afford to hire staff to create local content.  Long ago, Bruce Owen in a book he wrote (Television Economics) and elsewhere explained how mergers and market concentration can actually generate more program format diversity.  Rather than duplicate a format, a radio station can generate higher revenues by opting to offer a new format, rather than duplicate one already available.  Arguably, format proliferation contributes to a generous sense of what qualifies as “diversity.”

             One can readily count the number of radio formats, e.g., talk, adult contemporary, oldies, news, etc.)  However, counting truly independent local news providers is a far more daunting task than the paper implies, or what Chairman Pai would claim.

             While I am math challenged, I infer from the paper that one can count additional local news providers and that larger markets can support more local news dissemination.  However, the authors extrapolate that point to assert the possible counterproductive impact of current FCC rules limiting further concentration, with existing rules that establish a floor in terms of the number of broadcast voices a single market must have to warrant consideration of a proposed acquisition and usually prohibit mergers of stations that both have local market share in the top 4 of all stations.

             The paper counts the number of broadcast local news operations with a simple yes or no assessment.  Does the station offer local news, or does it not? 

             The question whether a station offers local news is different from whether it constitutes a new and independent source of local news.  The paper’s counting process does not differentiate between truly local and repurposed content made to look local.  Would it surprise you that some so-called local content is reality is centrally produced material lightly edited to appear local?  Have we forgotten how Sinclair Broadcasting issued “must run” edicts to its stations mandating the local dissemination of content created at the Mother Ship?  See https://www.nytimes.com/2017/05/12/business/media/sinclair-broadcast-komo-conservative-media.html.

             In the worst case scenario, the Makuch & Levy paper could be cited by advocates to bolster a finding the paper never intended to reach and surely did not offer empirical proof. Once again, we get a relentless cascade of “proofs” that market concentration promotes competition and all things good, even if the counting process becomes partisan and politicized.  Would the paper count as a net addition in local news operations a simulcast, or rebroadcast of a news program aired by another station with common ownership?  Would the paper count a station that has no net increase in employee numbers, but manages to generate a news program by cobbling together video press releases, content from the Mother Ship and clips from another local station having the same national owner?

             Recently, Gray Broadcasting filed a Friend of the Court brief in the Prometheus case showcasing how it acquires local market laggards and upgrades their news operations with much commercial success.   See https://www.supremecourt.gov/docket/docketfiles/html/public/19-1231.html.  I helped write a brief challenging the premise that market concentration promotes localism and the proliferation of video on demand content from Netflix and others warrants the relaxation of ownership rules in light of robust competition (scroll down the Supreme Court link to the Dec. 23, 2020 Brief amici curiae of Media Law and Policy Scholars).

             Sadly,  stakeholder advocacy, economic models, wishful thinking and results-driven decision making convert conjecture into gospel truth.  Former FCC Chairman Pai masterfully convinced a lot of people with an endless assertion that network neutrality created a multi-billion dollar reduction in infrastructure investment.  If he says it long enough and frequently enough, it becomes true even though, for example, the recently released 2020 Market Competition Report shows stable wireless plant investment even after the FCC eliminated the network neutrality investment disincentive.   See 2020 Communications Marketplace Report,  GN Docket No. 20-60, Fig. II.A.26, Wireless Capital Expenditures by Provider 2016 – 2019, 38 (rel. Dec. 31, 2020); available at: https://docs.fcc.gov/public/attachments/FCC-20-188A1.pdf.

             Yet again, a reminder that there are “lies, damn lies and statistics.”