In a new paper (attached) analyzing the FCC’s Notice of Proposed Rulemaking (NPRM) concerning set-top boxes, former FCC Chief Economist Steven S. Wildman concludes, “that the proposed rules, far from promoting a competitive marketplace, are likely to artificially distort competition to the detriment of consumers.”
The proposed approach, according to Professor Wildman, is a radical departure from previous Commission efforts to create a competitive device market, which simply sought to create a competitive market for set-top boxes that offered the same navigation capabilities as operator-provided boxes. In contrast, the proposed rules would allow and encourage device suppliers, at no cost, “to repackage programming offered on MVPD systems (along with other Internet-provided programming) and to sell advertisers access to audiences that are currently jointly created by MVPDs and the networks they carry.” Wildman concludes that the marketplace that is likely to emerge as a result “is likely to distort competition in multiple ways that promote inferior services and diminish the quantity, quality and diversity of video programming.” Meanwhile, it appears that “the types of integrated navigation services that the proposal seeks to promote are emerging on their own without any artificial advantages of the proposed rules.”
Wildman finds that giving device suppliers the right to sell advertisers access to the MVPDs’ customers and the program networks’ viewers “will divert advertising revenues from networks and MVPDs.” One result of this artificial subsidy to device suppliers will be that “networks likely will respond to diminished revenues by producing programming that is both less expensive and less appealing or, in some cases, by simply shutting down, leaving MVPD subscribers with a diminished set of viewing options.”
Moreover, Wildman disputes the NPRM’s assumption that the lack of a retail market for set-top boxes in the past is evidence of a market failure that harms consumers: “Economic theory tells us . . . that it is sometimes more efficient – and reflects consumers’ preferences – to sell consumers a product system’s components as an integrated bundle. That is likely to be the case with respect to set-top boxes.” He also shows that the two studies relied upon by the NPRM to show that pricing of set-top boxes is anticompetitive are “deeply flawed and inaccurate.”
Wildman’s analysis titled, “The Scary Economics of the NPRM’s Navigation Device Rules” was prepared for NCTA and will be included in its FCC comments to be filed on April 22.
Steven Wildman is Professor & J.H. Quello Chair of Telecommunication Studies Emeritus and Quello Center Senior Fellow at Michigan State University and Silicon Flatirons Senior Fellow and Interdisciplinary Telecommunications Program Visiting Scholar at the University of Colorado. He served as Chief Economist at the FCC from 2013 to 2014.
Download:The Scary Economics of the NPRM’s Navigation Device Rules
