The Federal Communications Commission (FCC) recently kicked off its latest quadrennial review of broadcast-ownership rules, a statutorily mandated process to determine whether changes in the media marketplace obviate the need for the rules and if they still serve the public interest. Theoretically, this should encompass economic analysis of the competitive effects of the various technologies that compete with broadcasters for viewers’ time and attention. Unfortunately, that isn’t always the case.
The FCC’s broad public-interest standard has allowed the agency to take a different approach to competition policy than other regulators. In antitrust law, competition tests focus on the economics of a given product market, and whether consumers can substitute alternative products sufficient to restrain a given firm’s ability to act as a monopolist. While the FCC can take this approach, it has instead often defined the market so narrowly as to effectively require that new services be a complete substitute for the original, regardless of the competitive effects.
As then-FCC Commissioner (now Chairman) Brendan Carr lamented in his dissent against the 2018 quadrennial review:
[D]espite a record bursting with evidence of a vibrant media marketplace, the Commission continues to advance the fiction that broadcast radio and broadcast television stations exist in markets unto themselves.
Indeed, the commission’s rules often defy the economic realities of media markets and apply artificial restrictions on broadcasters that competitors do not face. The FCC should use the ongoing quadrennial-review process to clarify that competition analysis is not a policy question, but an economic one. The agency may find that, even if it fully accounts for competitive pressures from alternative technologies, some broadcast-ownership restrictions still serve the public interest. But it should not ignore obvious competitors and should undertake the same rigorous analysis as other competition regulators.
FCC Statutory Authority
Congress passed the Telecommunications Act of 1996 to deregulate communications markets, including radio and television broadcasting. In Section 202(h), the law directs the FCC to revise and eliminate outdated rules and regulations:
The Commission shall review its rules adopted pursuant to this section and all of its ownership rules biennially as part of its regulatory reform review under section 11 of the Communications Act of 1934 and shall determine whether any of such rules are necessary in the public interest as the result of competition.
While the statute was clearly intended to restrain FCC authority to regulate broadcasting, it left many terms undefined, which has given the commission significant flexibility to interpret the text as it sees fit.
Courts over the years have been critical of the FCC’s approach to the review, but generally deferred to the agency’s interpretation of the statute so long as the commission fully considered the arguments in the record and evaluated whether the rules promote competition, localism, and viewpoint diversity. While the U.S. Supreme Court’s 2024 Loper Bright decision overturned the Chevron deference analysis upon which the courts had relied for past reviews, federal courts can still defer to agency interpretations as persuasive authority using the less-deferential Skidmore standard.
One term used in the quadrennial review that the statute left undefined is “competition”; more specifically, the text fails to specify how to delineate the appropriate market when considering the broadcast-ownership rules. In the 2018 quadrennial review, the FCC effectively determined that only complete substitutes in every facet of the business were relevant to determining the appropriate market. For example, technologies like cable systems were deemed to be complements rather than competitors, because these non-broadcast options don’t compete with broadcasters for retransmission-consent fees, network affiliations, or the provision of local programming.
Clearly, this narrow market definition ignores the market realities for broadcasting. The 8th U.S. Circuit Court of Appeals nonetheless upheld the FCC’s market definition earlier this year in Zimmer Radio v. FCC. As the court explained, the term “competition” should be read through the lens of the “public interest” standard, which offers a broad grant of regulatory authority to the FCC with few, if any, limiting principles. Over the years, the standard has allowed the commission to regulate content decisions, decide which stations deserve a license, and target policy goals that go well beyond the original intent of statutorily granted authority. Given this broad discretion to regulate broadcasting in the public interest, the court deferred to the agency’s market definition.
Untethering Competition Analysis from the Public Interest Standard
The 8th Circuit’s interpretation of Section 202(h) and its deference to the FCC allow the agency to ignore the economic realities of media markets and, in turn, to harm competition in those markets. It seems clear that Congress should respond by eliminating the FCC’s broad public-interest authority to regulate broadcasting.
As Eric Fruits has previously explained here at Truth on the Market, “the FCC has translated this vague mandate into a set of specific content and operational requirements.” Worse, the standard allows regulators to determine the public interest, rather than the public determining that for itself through its viewing choices in a competitive market. And because Congress provided few statutory limits, the standard gives the FCC the ability to extract not-so “voluntary” conditions unrelated to the merger itself.
But assuming no major legislative reforms are likely in the near term, the commission should take the important step to untether the term “competition” from the public-interest analysis mandated by Congress to be part of the quadrennial review. Indeed, the term should be viewed as wholly independent from the public-interest analysis. While the public-interest analysis must review how existing regulations promote competition, localism, and viewpoint diversity, the statute doesn’t allow the commission to ignore specific forms of competition simply because it feels that ignoring them is also in the public interest.
In other words, while the FCC can still determine whether regulations serve public-interest goals, it must do so through a lens that fully accounts for competitive pressures from various extant technologies. In the current ongoing quadrennial review, the FCC should clarify that the term “competition” in Section 202(h) is not affected by the reference to public interest. Instead, the term should be viewed in the context of other U.S. competition laws.
Competition Is an Economic Question, Not a Policy Question
Untethering competition from the public-interest standard would mean making clear that competition analysis is an economic inquiry and not a political one. The FCC can do this by conducting analyses similar to those undertaken by other competition regulators under existing antitrust laws.
In modern antitrust jurisprudence, the inquiry of substitutability does not require that one product act as a complete substitute for another. Consumers have different needs, and products often have different uses, functions, and features that are designed to make them more appealing to potential customers. For example, a gaming headset may have a built-in microphone, or the user could purchase a standalone microphone with better noise quality and filtering. While these two options are not complete substitutes, the savvy gamer will likely consider the relative costs and benefits of each. If the price of headsets with built-in microphones increases, consumers will be driven to choose the microphone/headset pair. The market for gaming headsets therefore likely includes both products, even if they aren’t precisely the same.
Ultimately, the economic question comes down to market power. If enough consumers view a different product as a substitute, and can switch to that product when the quality of the original decreases or its cost increases, the presence of this potential substitute restricts the original provider’s ability to act like a monopolist. Conversely, if a product can sustain a small but significant nontransitory increase in price (SSNIP) without losing sales to competitors, it is more likely to be in a distinct market.
This type of economic analysis should form the bedrock of the FCC’s quadrennial-review process. There are, indeed, differences between the broadcast medium and the various newer technologies for media distribution and consumption. Broadcast signals do not require broadband access to receive, and generally are free to the end user. But 96% of Americans currently use the internet, and most internet content can be downloaded and played regardless of where a user is located or whether they have access to a broadband network at a given time. Whether consumers choose to substitute these products is therefore an economic question, not a policy one.
Even if the FCC were to broaden the market definition for its quadrennial review, it could still find that relaxing the broadcast-ownership rules does not serve the public interest. New competition from digital services may not actively promote localism or viewpoint diversity, and the FCC should be free to explore that analysis. But the process of analyzing competitive effects in these markets shouldn’t foreclose consideration of new competition simply because the FCC chooses not to deem the new technologies perfect substitutes.
Conclusion
Section 202(h) of the Telecommunications Act requires the FCC to eliminate or modify ownership rules that no longer serve the public interest, given changes in competition. To fulfill this mandate, the commission must accurately assess competitive conditions in broadcast markets.
The FCC should clarify that determining whether competition exists is an economic question that requires an analysis of consumer substitution and market power. This analysis should employ the same methodology that antitrust regulators use: examining whether consumers view different products or services as substitutes in ways that constrain firms from exercising market power. The public-interest standard empowers the FCC to pursue goals beyond economic efficiency. But these policy determinations should follow, rather than shape, the economic analysis of competition.
After accurately assessing competitive conditions, the FCC may conclude that some ownership restrictions continue to serve the public interest by promoting localism or viewpoint diversity. But this determination should be based on an accurate understanding of how broadcasters compete with alternative media platforms, rather than a predetermined conclusion that alternatives do not compete because they have historically differed in business models or regulatory treatment.
