Republican FCC commissioner Robert McDowell exited his post May 17 after seven years at the agency, heading for think tank The Hudson Institute. McDowell was appointed by George H.W. Bush, then re-appointed by President Obama in 2009, the first Republican named to an independent agency by the Obama administration.
While he was no longer weighing in officially on FCC business, McDowell agreed to speak with B&C about his tenure, the votes on which he would prefer a do-over and his read on the futures of the broadcasting and cable businesses. An edited transcript follows.
You were re-nominated by President Obama in 2009 for a full seven-year term and have been praised at times from both sides of the aisle. Why did you decide to leave?
There are a few natural inflection points when you decide whether you are going to stay or leave. One is at the end of your term. The other is after a presidential election, and you anticipate there being some turnover at the agency, and this was one of those times. So, I have been here seven years, which is longer than I thought I was going to be here. But this makes sense in that we can pair up a Republican and a Democrat and make it easier to get them both confirmed.
Was this about Mitt Romney not winning and you not being named chairman, or about having to be in the minority for another four years?
The vast majority of what we do here is unanimous, so it was less about that. It was just time to go. It is nice to go when people are still saying some nice things about you rather than looking at their watch with a quizzical look in their eyes.
What kind of future do you see for cable?
I think the current business model for cable is under a lot of competitive market pressure. There is a lot of free video out there that will start to disrupt the pricing model, and already has. And the premium content will be the live content or high-end scripted content. But it is so fragmented. And there is going to be a lot of abundance in terms of consumer choice as we go forward that the cable model of five or 10 years ago is something of the past.
I think cable as a pure reseller of content with broadband thrown in will see declining margins in the coming years.
What future do you see for broadcasting?
While wireless companies will covet broadcasters' spectrum, from a public policy perspective, the market has yet to replicate the local news and content model that broadcasting has perfected over the decades. All that could change, of course, if [broadcast] networks start going to pay TV. Then you could see the local broadcasting model start to unravel pretty quickly. But right now it is all voluntary for broadcasters if they want to relinquish their spectrum. But keep in mind there is also a symbiotic relationship between broadcasters and Congress every two years, and that will probably slow any potential demise of broadcasting as we know it. That coupled with the local news and content space that broadcasters uniquely fill.
What are you proudest of in your time at the FCC?
If you look at items I'm most proud of, there is a common theme in that they all languished for years before we were able to reach agreement. One would be universal service. That is the first federal entitlement reform in about a generation, really, since the 1996 welfare reform act. There was the ban on no-Hispanic dictates, which was a ban on discrimination in broadcast advertising. That was first proposed at the FCC in 1984.
Also I think just pointing out from time to time that it is important for regulators to be patient with markets. Five or six years ago there was a lot of talk about handset exclusivity. AT&T had an exclusive contract to carry the iPhone. I was concerned if we acted too hastily without enough thought or information that we could actually be undermining the vehicle for the products to come to market. So, one could make the argument that the iPhone would have come to market a lot later had AT&T not guaranteed Apple minimum distribution. And here we are today. I was just shopping myself for a cellphone today and was looking at the plethora of smartphones available. I think the Samsung Galaxy is outselling the iPhone internationally. The point being that things are happening in the marketplace all the time, and sometimes it takes a while for it to become apparent that a perceived "problem" is actually being resolved through competition and innovation.
If there was one vote you lost that you could have won on, which would you pick?
Biggest picture would be the network neutrality order. I think that created a lot of uncertainty in the Internet space. There was no market analysis done supporting the need to do the order. There was no market analysis done, period. Also, I think the U.S. lost the high ground when it all of a sudden said, "Yes, we want government intervention in this space." And now we are explaining that government intervention in this space is OK, but only the way the U.S. perceived intervention, and actually only the way this administration perceives government intervention.
So, that is a fundamental paradigm shift in the argument and the whole premise of the discussion has changed for the worse.
How about a do-over-something you voted for that was passed but you now wish you had voted against it?
There were two votes. One is the D block vote [the D block was spectrum set aside for a public safety network in the 700 MHz auction in 2007], which at the time I thought was too complex to bid on it, but I voted on it that way because some members of public safety wanted it. It ended up being a problem, with the D block sitting fallow for all those years, and I think it will take the better part of a decade for the FirstNet [First Responder Network Authority] scenario to unfold.
So, explain the D block.
The law didn't require us to set aside that spectrum for public safety, but we did so in the hopes of a public-private partnership to build out a 10 MHz block adjacent to the 10 MHz Congress had set aside for public safety back in 1997. It didn't happen because it was so regulatory, so prescriptive and so complicated that no bidder found it attractive. So the dogs didn't eat the dog food.
How would you reform the FCC?
I think Congress needs to fundamentally reevaluate the communications laws. We are still operating from this foundation that is 80 years old that looks at what kind of technology a company is using to provide communications services rather than looking at it all through the eyes of consumers. Consumers don't really care how they are getting the content or how the content that they generate travels so long as they are satisfied. Why should there be a different set of rules for coaxial cable vs. fiber vs. copper vs. broadcast over the air vs. wireless broadband over the air?
Which brings us to a big question: What should the definition of an MVPD be? Should the same set of rules that apply to cable apply to over-the-top, or should cable be deregulated to match?
I would ask what our objective is. If you are looking at the statute, I would treat it like zero-based budgeting. Basically you start from scratch. You can look at what has been written before and see if there are any good ideas that are still relevant. What is [a multichannel video programming distributor] is an excellent question when most consumers are pulling content over the Internet. So, with that kind of competitive pressure, why is the government creating this market asymmetry by putting more regulations on one aspect of video service than another?
We should look at all this with three questions in mind. Is there market power? Is there abuse of that power, and is there consumer harm resulting from that abuse of power? A fourth question would be what can be done in a narrowly tailored fashion to cure that consumer harm?
So, this is not a case of, get rid of all regs, or add them all to over-the-top?
Yes, and maybe we need to look at all this through a lens of competition law, and use that as a template to go forward. But let's also do bona fide studies of each market and find out if there are any bottlenecks and where they are.
Any advice for the incoming FCC chair?
"Listen" would be my first piece of advice. Meet with as many people as possible. Get out of your office and go to them and you will learn a lot. That's the best way to forge consensus.
Any parting thoughts?
It has been sincerely an extreme honor serving here. It has flown by quickly and I hope that future occupants of these offices follow the facts and the law and don't try to think that they are smarter than the marketplace.
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