A New Direction for DBS Competition?

A New Direction for DBS Competition?

Singleton Commentary Published by The Cato Institute
October 09, 1996

Recently, Telquest Ventures filed an emergency petition with the Federal Communications Commission asking regulators to let it offer direct satellite broadcast (DBS) service to U.S. customers, using a satellite launched into a Canadian orbit. The FCC should approve the operation of the earth-based broadcast station that Telquest needs in order to proceed. Canadian policies might bar any using a satellite in a U.S. orbit to serve the Canadian television audience, but consumers in the United States would greatly benefit from video competition on an international scale.

Over the past decades, regulators and legislators in the United States have gradually allowed competition to develop in telecommunications markets. Long-distance and cellular phone companies compete in their respective markets. Cable television now competes with television broadcasting. Consumers have seen benefited from greater diversity of services, from voicemail to the Discovery Channel; they also get a better product for the price. But most of that competition takes place in the domestic arena. Competitors use facilities based in the United States, although some firms have benefited from infusions of foreign capital.

Markets could be opened even further, so that consumers could reap even greater benefits. A satellite's "footprint," the terrestrial area within which its signals can be received, is vast, often crossing national boundaries. Competition among satellite services based in different countries is thus perfectly natural. And consumers would benefit. As in other markets, competitive pressures would force down prices and improve quality. Policymakers should move as quickly as possible to facilitate a new era of competition on an international scale. Telquest's proposed DBS venture would be an important first step.

It shouldn't matter if other countries are slower than is the United States to recognize the benefits of competition. Canada, fearing cultural domination by its neighbor to the south, restricts U.S.-based video programming on Canadian television. The Canadian policy deprives U.S. firms of an additional market, albeit a small one. But it also hurts Canadian consumers by denying them the right to get information from certain sources and by holding back competition. If Canadian policymakers stubbornly persist in their policy in spite of the harm to their own citizens, they are unlikely to open their markets to please the FCC. It simply makes no sense for the FCC to punish Telquest and potential DBS customers in the United States by denying Telquest a license to operate. It would be wild speculation to think such punishment would lead Canadian policymakers to abandon their misguided policy.

In a similar context, the FCC has already decided that competition is more important than reciprocity. In 1976 the FCC rejected a proposed rule that would have limited foreign investment in the cable television industry. The FCC declared that the video industry should not be denied the resources it needed to grow absent "overriding reasons of national importance." The same principle still holds, whether the resource in question is foreign capital or an orbital slot for a satellite.

In 1980 the FCC considered another proposed plan to limit foreign investment in cable television. That time proponents of the rule argued that Canada did not allow U.S. financiers to invest in Canadian cable ventures. The FCC was urged to adopt a policy of reciprocity. The FCC again refused.

First, the FCC explained that it did not "know if such a policy on our part would in fact have the result intended or if, to the contrary, it would lead to increasing trade barriers." Pursuing a policy of reciprocity in the DBS arena is likewise unlikely to produce any certain benefits.

Second, the FCC explained that adopting a restrictive rule for the sake of reciprocity would hurt consumers. The commission explained that the restriction "would merely promote the self- interests of the domestic cable television industry at the expense of additional competitive alternatives for the public" -- another very good reason to allow ventures like that proposed by Telquest to proceed.

Policymakers in the United States have come a long way in recent decades in recognizing that competition is a good thing. Many other countries lag behind. If we wait for them, we only hurt ourselves. And entrepreneurs should be allowed to lead, not be forced to follow.

 (This article originally appeared in The Journal of Commerce)