Is the Public Served by the Public Interest Standard?
The Standard Discourages Industry Competition and Innovation
SEPTEMBER 01, 1996 by ADAM THIERER
Filed Under : Regulation, Competition
Mr. Thierer is the Alex C. Walker Fellow in Economic Policy at The Heritage Foundation.
The so-called “public interest standard” has governed communications policy decision-making at the Federal Communications Commission (FCC) for more than 70 years. It is time to question whether this “standard” does indeed serve the public, or if it has instead served only the interests of regulators and companies that stand to gain via the regulatory process.
Ever since the passage of the Radio Act of 1927, federal regulators have been given the power to regulate if they found it was in the “public interest, convenience, or necessity.” This meant that regulators were given broad authority and discretion to regulate in the name of communications consumers. Unfortunately, in practice, this has resulted in the public truly having no voice in this marketplace.
Why is this so? Precisely because Congress has never defined what exactly is “in the public interest.” As Nobel Laureate economist Ronald Coase noted over 35 years ago, “The phrase . . . lacks any definite meaning. Furthermore, the many inconsistencies in commission decisions have made it impossible for the phrase to acquire a definite meaning in the process of regulation.” More recently, critics have pointed out that regulation “in the public interest” has come to mean whatever is in the interest of regulators to do at a given time. Hence, the “public interest” or “public trustee” model of regulation that sprang up 70 years ago gave regulators the ability to exert unusual influence and require special demands be fulfilled, especially as a condition of broadcast spectrum license renewal. In effect, therefore, the standard is a non-standard: it has no fixed meaning.
Over time, FCC actions taken “in the public interest” have had less than desirable results. Consider:
• To supposedly serve the “the public interest,” the FCC instituted in 1949 the inappropriately named “fairness doctrine.” The doctrine required radio and television broadcasters to “afford reasonable opportunity for the discussion of conflicting views of public importance.” Instead of promoting the discussion of conflicting views and free speech in general, the fairness doctrine stifled it. In fact, over the span of its 40-year existence the doctrine was used as a tool of blatant political intimidation and influence by threatening license revocation for failure to comply with the political whims of the day. The Reagan administration FCC wisely repealed the doctrine in 1987, citing First Amendment concerns and the fact that program diversity (informational, educational, religious, and entertainment fare) had increased steadily over time.
• To promote “the public interest” in the early 1960s, the FCC restricted the development of cable television at the request of broadcasters who felt their turf was being threatened. As telecommunications scholars Michael K. Kellogg, John Thorne, and Peter W. Huber note, “For many years the FCC’s principal objective was to suppress the cable industry by preventing direct competition between cable, and over-the-air broadcasting. It did so quite successfully. . . .” Essentially, the commission did not allow the entrepreneurial cable industry to offer innovative service options to consumers since it posed a threat to the survival of some local broadcasters. This regulatory setback delayed the onset of video competition for over a decade. Despite no clear justification of how this served “the public interest,” the FCC carried these anti-competitive policies, even though no explicit grant of Congressional authority had been given to do so.
• More recently, the FCC has attempted to serve “the public interest” by using the Children’s Television Act of 1990 as a tool of blatant regulatory extortion. The FCC went beyond the statutory language of the act and used the law to demand a specific, quantitative minimum number of hours of children’s programming in exchange for other business freedoms. For example, after CBS and Westinghouse announced their intention to merge, FCC regulators (who have the power to block such alliances) forced the companies to promise that certain quantitative programming requirements would be honored as a condition of merger approval. Several other firms have faced similar threats from the FCC as a condition of normal business operation.
Fewer Choices, Less Freedom of Speech
Two things should be obvious from these examples of the public interest standard in action. First, the public interest or public trustee model of regulation often does not serve the public in any constructive way. Industry competition and innovation is often discouraged because of the standard, meaning the public has fewer and poorer quality choices available to them.
Secondly, the public interest standard makes a mockery out of the First Amendment, especially in the realm of electronic wireless communication. Ever since the adoption of the Radio Act of 1927, Congress and the FCC have bought into the mistaken notion that the supposed scarcity of spectrum, or potential interference within the spectrum, justifies asymmetrical First Amendment treatment of electronic communications providers.
As Thomas G. Krattenmaker and Lucas A. Powe, authors of Regulating Broadcast Programming argue, “[B]y adopting public ownership of the spectrum and administrative control over its uses, Congress chose a legal regime for broadcasting that differs radically from the law that governs every other mass communications medium in the United States. Congress thus put its imprimatur on the twin myths that scarcity and interference are phenomenon unique to broadcasting and that scarcity and interference necessitate administrative control of the quality of broadcasts.”
Ironically, regulation itself created artificial scarcity and interference within the spectrum. Because the government enforced an extremely inefficient licensing policy in the early days of spectrum management and then rejected the imposition of a more orderly property-rights regime to govern the spectrum, scarcity and interference resulted. Instead of solving the problem by instituting property rights and private ownership, which solved the problems of land scarcity and trespass centuries ago, Congress and the FCC instead opted for an inefficient system of public management with “the public interest standard” as its guiding star.
The rest, as they say, is history. But it is a history we should not and cannot forget since we are still living with its adverse consequences. The FCC still uses the public interest standard to restrict beneficial industry advances that, in turn, deny new services to the public. It also inhibits the free flow of information and free speech in general.
How, then, can “the public interest” be truly served? By encouraging vigorous market competition—and by rejecting misguided social compacts and vague regulatory standards flowing from Washington.
2. See, William T. Mayton, “The Illegitimacy of the Public Interest Standard at the FCC,” 38 Emory Law Journal 715 (1989), pp. 715-769; Mark S. Fowler and Daniel L. Brenner, “A Marketplace Approach to Broadcast Deregulation,” Texas Law Review, Vol. 60 (1 1982-1983), pp. 207-257; Thomas G. Krattenmaker and Lucas A. Powe, Regulating Broadcast Programming (London: The MIT Press, 1994), pp. 173-174; Adam D. Thierer, “A Report Card on the Pressler Telecommunications Plan (S.652),” Heritage Foundation Issue Bulletin No. 209, May 5, 1995, pp. 14-15.
3. This does not mean, however, that broadcasters put up a serious fight to end the public trustee paradigm. On one hand they speak of its importance to ensure that viable competitors are kept out of their market, while on the other, they cite its intrusiveness as an excuse to produce mediocre programming. As Henry Geller, fellow at the Markle Foundation notes, “A broadcaster loves to be considered a public interest figure. Broadcasters generally want the economic benefits of being a public fiduciary without having to meet the burden of adhering to public interest content regulation.” See Henry Geller, “Broadcasting and the Public Trustee Notion: A Failed Promise,” Harvard Journal of Law and Public Policy, Vol. 10, No. 1 (Winter 1987), p. 90.
5. For more information see Adam D. Thierer, “Why the Fairness Doctrine is Anything But Fair,” Heritage Foundation Executive Memorandum No. 368, October 29, 1993; E. Brandt Gustavson, “The Fairness Doctrine: Once and Future Threat to Speech, Religion,” in Speaking Freely: The Public Interest in Unfettered Speech (Washington, D.C.: The Media Institute, 1995), pp. 87-106; “The Hush Rush Law,” the Wall Street Journal, September 1, 1993, p. A14; John Corry, “Fairness Most Foul,” The American Spectator, November 1993, pp. 50-51; Thomas W. Hazlett, “The Fairness Doctrine and the First Amendment,” The Public Interest, Summer 1989, pp. 103-116; Jonathan W. Emord, “Toward a Free Broadcast Press,” Freedom Technology, and the First Amendment (San Francisco: Pacific Research Institute, 1991), pp. 233-248; Krattenmaker and Powe, “The Fairness Doctrine,” in op.cit., pp. 237-275; Ford Rowan, Broadcast Fairness: Doctrine, Practice, Prospects (New York: Longman, 1984).
8. See Thomas W. Hazlett, “Station Brakes: The Government’s Campaign Against Cable Television,” Reason, February 1995, pp. 41-47. Hazlett notes that when cable television (or “CATV” as it was known then) was developing between 1950 and 1972, “Cable television was then officially judged a menace to society, and the [FCC] had launched a regulatory jihad against it. Like all holy wars, this offensive was undertaken in the `public interest.”’ Hazlett dramatically illustrates the FCC’s protectionist policies in action by quoting from a 1966 Commission report on cable. The Commission stated: “We must thoroughly examine the question of CATV entry into the major markets, and authorize such entry only upon a hearing record giving reasonable assurance that the consequences of such entry will not thwart the achievement of Congressional goals. We cannot sit back and let CATV move signals about as it wishes.”
9. For more information see Adam D. Thierer, “Who Will Mind the Children? The Regulation of Children’s Programming in the Information Age,” in Speaking Freely: The Public Interest in Unfettered Speech (Washington, D.C.: The Media Institute, 1995), pp. 47-66.