When Congress passed the Radio Act of 1927, the US airwaves became "public" property. This scarce resource, Congress concluded, must be conserved and regulated for the benefit of all. The Federal Radio Commission (which evolved into the Federal Communications Commission) was set up to allocate frequencies, issue licenses, and set technical standards. Thus ended a several-decades-long era during which there had arisen a market for use of the airwaves. And thus, too, arose a system of extensive state control of telecommunications, a system whose present rationale is still based on the principles that motivated passage of the 1927 act.
Technological developments, however, now occurring at breakneck speed, have all but completely undermined the rationale for airwave regulation. A profusion of new and refined technologies—among them microwave and low-power transmission, cable, and fiber-optics, for example—has shown the antiquity of regulatory principles and their inapplicability to today's telecommunications world. One emerging technology that promises to deliver an especially powerful blow to the very foundations of communications regulation is direct-to-home satellite television. (This technology is commonly referred to as "direct broadcast satellite" TV. This latter term, however, is reserved by those in the industry and by regulators for a certain type of direct-to-home satellite TV, one that satisfies specific technical criteria. Since this distinction is not important from a nontechnical point of view, I shall throughout this article use the term "direct broadcast satellite" (DBS) TV to refer to all direct-to-home satellite TV service.)
The advent of DBS television, which went into commercial operation only a few months ago, will force serious rethinking of several fundamental aspects of regulation, including those concerning freedom of speech and antitrust. That DBS television presents such a bold challenge to the prevailing regulatory rationale follows from how DBS works.
You may have seen a satellite "dish" antenna, measuring 10 to 15 feet across, sitting in someone's back yard or seen an advertisement for one in your local newspaper. These, however, have nothing to do with DBS. These large, costly dishes are intended to receive signals from existing low-power satellites. And the signals in question were never intended to be received by individual homeowners. Instead, these signals are meant to deliver programs to local TV stations and cable-TV systems; to deliver pay-to-view programs to hotels, motels, and cable-TV systems; and to transmit unedited programs from on-the-spot locations to the TV networks' headquarters.
The legality of intercepting these signals with backyard dishes—an estimated 50,000 are now in use—is uncertain. Some communications lawyers refer to such reception as "piracy." Others argue that it's impossible—and wrong—to prevent people from receiving a signal that literally "falls on their doorstep." In any case, these signals have nothing to do with DBS.
By contrast, DBS is intended from the beginning for individual homeowners. Direct broadcast satellites use more-powerful transmitters—about 200 watts, as opposed to the roughly 20 watts used by existing TV satellites, though the use of lower-wattage transmission (in the 55- to 60-watt range) has recently been discussed. This allows the homeowner's receiving dish to be much smaller—about three feet (one meter) in diameter—and to be mounted on rooftops and conventional TV masts, rather than anchored in the ground. The cost for the DBS dish and its electronics is about $600, compared with an average $10,000—and as much as $50,000—you would pay for the 5-meter dishes used to intercept conventional satellite TV signals.
A direct-broadcast satellite, like other satellites transmitting TV signals to earth, is equipped with "transponders." These receive the original signals sent from an earth station, amplify the signals, then rebroadcast them back to earth. Also like existing communications satellites, direct broadcast satellites are in geosynchronous (or geostationary) orbit—that is, they take exactly 24 hours to circle the earth and hence appear to be fixed in the sky. Therefore, a DBS dish doesn't need to track the satellite. It can be fixed in position and will always point at the spot in the sky where the satellite appears. Moreover, the various DBS operators who have yet to start up service hope to "collocate" their satellites—that is, place them in the same orbital area, only miles apart—so if your antenna can "see" one of the satellites it can see the rest as well.
By November 1982, the Federal Communications Commission had granted "construction permits" to eight companies that had applied for authority to establish direct broadcast satellites in orbit about the earth. Satellite Television Corporation (STC), a subsidiary of the federally chartered Communications Satellite Corporation (Comsat), was the first applicant and had proposed an initial operating date of late 1985.
Then, early in 1983, the FCC granted permits to additional applicants. At least two of these proposed to use existing low-power satellites to provide DBS services, starting in 1984. Under pressure from this competitive threat, STC decided to advance its initial operational date to sometime in 1984. By late 1983, one company had already started up DBS service—United Satellite Communications, Inc. (USCI), of New York City.
What USCI and the DBS hopefuls primarily aim to do is tap the market of the 20 million to 30 million American households that are unlikely ever to get cable-TV service. In their first 5 years of operation, the DBS providers project a total of 4–5 million subscribers to their services.
To see just how and why DBS is going to undermine telecommunications regulation, it's first necessary to understand the origins of such regulation. When the Italian engineer and inventor Guglielmo Marconi constructed the first "wireless" communications device in the 1890s, he didn't need anyone's permission to put it "on the air." But by the second decade of this century, radio was widely used for maritime and naval purposes. Messages about maritime hazards were being interfered with, because any station could operate on any frequency. At the urging of the US Navy, Congress passed the Communications Act of 1912. This set aside certain frequency bands for commercial users and others for amateurs and required that all transmitters be licensed.
This, in itself, did not create a problem. It simply meant that individual operators could claim an operating authority within a band of frequencies (as with amateurs or CB operators) by obtaining a license. In effect, licensed operators "owned" the frequency. Indeed, by the 1920s, as available frequencies were appropriated by licensed operators, a market in licenses grew up. People bought and sold licenses and began to treat them much as they would treat deeds to real property. This arrangement came to an end when Congress nationalized the airwaves in the Radio Act of 1927.
The basic principle and rationale of the 1927 legislation is that the airwaves cannot be privately owned. Following from this is the principle that since radio frequencies are scarce, they must be allocated to specific users (and therefore denied to other specific users). The final principle is that since specific users have been allowed to use "public" property, their use of it must be regulated.
The Federal Communications Commission (FCC)—like its predecessor, the Federal Radio Commission—took seriously its responsibility to regulate the use of the airwaves "in the public interest." It concluded early on that radio would destroy local newspapers and, therefore, that radio stations should be required to provide the cohesive force in the community that the newspaper had done. This meant that stations should be primarily local in nature: they should broadcast local news, advertise the wares of local merchants, and provide a forum for local discussion. This was the concept of "localism," which governed not only the early allocation of radio frequencies but eventually that of TV channels as well.
Under the doctrine of localism, the FCC restricted the range of radio and TV stations, in order to assure that each region of the country would be served by its own station, free from the threat of competition from stations in other areas. This resulted in reducing the profits of stations and in creating large "underserved" areas, where people could receive only one or two stations.
In addition, broadcasters were to present "both sides" of controversial issues and provide opportunities for rebuttal of any material they carried (the "fairness doctrine"). They also had to give "equal time" to all qualified candidates for public office. Radio and TV stations also had to carry a certain amount of "public interest" programming, which in practice means programming that is—in the judgment of the regulators—"good for" the public but which has such a small audience no advertiser will pay for it.
It should be evident that all these doctrines and requirements, if applied to the printed media rather than the electronic media, would be a violation of the First Amendment.
Perhaps the first conflict between DBS and regulation will come in the area of localism. The so-called footprint of a direct-broadcast satellite—the region over which a satellite's signal can be received by a homeowner's dish—can readily be half the nation, and most operators are planning their footprints to cover essentially a whole time zone. It would make no economic sense to restrict the size of the footprint to a single metropolitan area. In fact, among the virtues of DBS is its ability to bring broadcasting to rural areas now "underserved" by conventional TV and too thinly populated for cable TV. Another virtue is its ability to aggregate a "thin" audience over a wide geographic area. For example, there may not be enough Shakespeare lovers in a single city to justify frequent broadcast of the bard's plays, but there might well be enough of them in a whole time zone to make them a worthwhile audience for frequent "specials."
To impose localism on DBS would destroy it, and the service is politically too popular for that to happen. But if DBS is freed of the localism requirement, what about terrestrial TV—can TV compete effectively with DBS when it labors under the burden of localism? And if not, will the FCC remove the burden? Either way, the regulators are faced with a dilemma of their own making.
A second area of conflict between DBS and regulation involves the First Amendment. The new technology poses a whole host of problems that simply wouldn't exist if the electronic media had First Amendment protection.
Users of the airwaves are classified into different categories for regulatory purposes. For instance, "common carriers" are regulated on rates but not content; "broadcasters" are regulated on content but not rates. If a DBS provider produces its own programming—as Satellite Television Corp., a Comsat subsidiary planning to start up DBS service later this year, proposes to do—is it a broadcaster? If a DBS provider simply carries the programming of others, as Western Union proposes to do, is it a common carrier? If it does some of both, what is it then? And in that case, should the DBS operator be regulated on rates or content, both or neither?
This problem is particularly acute in the case of DBS, because the so-called early entry operators—those who propose to use existing low-power satellites to begin broadcasting instead of waiting to construct their own more-powerful ones—plan to lease transponders on satellites in what the FCC calls the "fixed satellite service." The operators of these satellites, which have been licensed by the FCC as common carriers, will simply lease their satellites to the DBS services. Who gets regulated—the broadcaster? The satellite owner? And on what—rates? Content? And how does that differ from the way those operators who build and own their own satellites will be regulated?
Direct broadcast satellite TV signals are intended to be received directly by individual viewers. However, it's likely that cable-TV operators will also want to carry DBS programming, and so will so-called satellite master antenna TV (SMATV) operators. (In an SMATV system, a satellite dish receives signals and distributes them over a private mini-cable-TV system in apartments, condos, office blocks, housing developments, mobile-home parks and so on.) Will these redistributors be regulated? If so, then, by the same logic, would individual homeowners who also receive the signal be candidates for regulation, as well? If not, then why regulate the satellite operators, who also "distribute" the signal to the homeowner? And if they are to be regulated, will such regulation be of rates or of content—or of both?
Some DBS programming will be free to the viewer, since it will either be advertiser-supported or paid for by the broadcasters (religious broadcasts, for example). Some, however, will be similar to pay-TV: the signal will be scrambled, and only those who have paid for the program (and the unscrambling device) will receive it. Some DBS operators plan a "monthly" payment for their programs, such as cable systems now use. Others plan "pay-per-view," using so-called addressable decoders. In either case, if you don't pay, you don't see the program. And this, too, has implications for regulation: will the content of DBS pay-TV programs be regulated just as is the content of today's terrestrial TV?
Part of the argument for content regulation arises from the fact that radio-waves are ubiquitous—they literally fall on your doorstep. The argument goes that you should have some control over what enters your house, and since you can't shut out the radio-waves, what goes over them should be regulated. But this argument falls flat when the programming is scrambled and you must pay to see it. Why should it be regulated any more than is a book or a newspaper that you must buy in order to read?
The possibility of "teletext" also raises regulatory issues. Television pictures are transmitted at the rate of 30 per second. Each is a still picture, but the pictures are replaced so quickly that they provide the illusion of motion. In between the individually transmitted pictures is the "vertical blanking interval," in which no signal is sent. From the standpoint of TV transmission, this is simply a wasted resource.
Teletext is a scheme for using this blanking interval to send text and graphic information by broadcasting such data as a series of "pages," carousel fashion. A decoder in your set can grab this information and display it on the screen, instead of displaying the regular program. You select one page out of the sequence to be stored in the decoder and displayed on your screen as long as you want it.
Teletext amounts to an electronic newspaper. It can carry the same news as a regular paper, but with both more depth and more breadth, since not everything will be delivered to everyone. You choose what you want to see and pay for only those portions for which there is a charge. Operators of DBS services will undoubtedly want to include teletext among their services, since it will increase their revenues. Their geographically widespread audiences make teletext even more desirable for them than it is for terrestrial TV broadcasters. The regulatory question that emerges is, will teletext be regulated when the very same news and advertisements appearing in printed newspapers are unregulated?
The original reason for denying First Amendment protection to radio broadcasters was that frequencies were "scarce" (never mind that newsprint, ink, and printing presses are also economically "scarce"). Direct broadcast satellite TV yanks the props right out from under that argument. If even half the current DBS applicants actually get satellites in orbit and operating, the typical homeowner will be able to choose among 10 to 15 channels. That is more channels than there were daily newspapers in this country when the First Amendment was adopted.
During the infancy of the broadcast industry, when there were only two or three TV stations in a town, the government could get away with the scarcity argument (even though it was the FCC, through its localism doctrine, that had created the scarcity in the first place). But as DBS services get off the ground, the scarcity argument will become an empty one. Indeed, DBS may provide the final push necessary to get First Amendment protection for the electronic media.
There is yet another area where DBS will conflict with regulation—antitrust law. Antitrust is a peculiarly American superstition. Other national governments think that big companies are good but have to be fostered by the state, so they force little companies to merge or even nationalize them all to create one big company. In the United States, by contrast, conventional wisdom says that big companies are bad, but they just grow naturally, while little companies have to be fostered by the government. So the authorities break up the big companies and keep the little ones from cooperating with each other. This superstition is likely to hamper the development of DBS.
As I noted earlier, DBS operators would like to collocate their satellites so that, in order to receive all the services, a person need buy only one dish and point it at only one spot in the sky. In addition, they would like to standardize their scrambling procedures so that a person needs only one unscrambler. (You would pay for a different unscrambling code for each DBS service, but that would be a lot cheaper than buying a separate "black box" for each one.) Moreover, DBS operators would like to have a standardized dish, so no matter which one you buy, you can still receive all the operators' signals. But if they were to try to agree on some standard, they might be accused of violating the antitrust laws. This, despite the fact that a standard would actually increase competition, because DBS subscribers could use their equipment to switch easily from one service to another.
Looking farther ahead, from both an engineering and economic standpoint it makes no sense to have several individual satellites orbiting near each other in order to achieve collocation. And, indeed, by the 1990s it will be technically possible to launch a "space platform" that could have its own power supply and attitude-control and station-keeping equipment; it could also carry many more transponders than an ordinary satellite. For each DBS operator, such a facility would be cheaper than having its own individual satellite, since the overhead would be spread over more transponders—the devices on satellites that receive signals from terrestrial stations and retransmit them to DBS subscribers—and the total number of spare transponders would be smaller than if each individual satellite had to have at least one.
A consortium to build and launch such a platform, however, might be considered anticompetitive. It might be seen, in the eyes of regulators, as reducing "potential competition" among those who participate in the venture. Or, it might be seen as freezing out those who don't participate, since the nonparticipants would have higher operating costs. In either case, the obvious benefits to the viewer, flowing from the producers' lower costs, might be lost if antitrust law blocks DBS operators from such a cooperative enterprise.
By a fortunate coincidence, the collision between DBS and regulation comes at a time when there is a strong deregulatory trend in government. The successful deregulation of the airlines, for instance, has caused people to rethink their ideas about regulation. Many of the proposals for reopening the airwaves to market forces—such as levying user charges or even auctioning off frequencies—have moved from the academic journals into policy discussion in Washington.
While denationalizing the airwaves is probably still a long way off, there has been notable progress. In 1981, the FCC eliminated many of its regulations on radio programming, giving station owners a great deal more freedom. (The limit of 18 minutes of commercials per hour was removed, for instance, as was the requirement that stations air a specific minimum amount of news and public-affairs programming.) The FCC justified its action on the grounds that with so many radio stations in operation (about 10,000 nationwide), the industry is highly competitive and doesn't need regulation. The FCC ruling was challenged in court, but in May of 1983 the FCC was upheld by a federal appeals court.
Heartened by this success, FCC chairman Mark Fowler is moving to partially deregulate TV. Under a current proposal, the so-called 5-5-10 rule would be abolished. (Under this rule, TV stations are required to devote at least 5 percent of their programming to news and public affairs, 5 percent to local programming, and 10 percent to non-entertainment programming.) The proposal would also eliminate an existing requirement that TV stations make extensive public surveys to determine the kind of programming their viewers want (a similar requirement for radio stations was lifted in 1981). The reasoning behind the deregulatory proposal is that in a competitive market, TV stations can be counted upon to try to satisfy their viewers without the burden of FCC requirements.
The FCC has also proposed abolishing its current regulations requiring TV stations to keep detailed program logs—radio stations were relieved of this burden in 1981—and to limit broadcast of commercials to 16 minutes per hour. (The FCC had found that competitive pressures on radio stations kept the amount of advertising well under the limits allowed by regulation, hence the regulations were unnecessary. The same presumption holds for TV.) As of this writing, these proposals are not final, but they indicate a strong trend.
If the FCC were to follow its original regulatory practices, it would strangle DBS just as it strangled cable TV when cable didn't fit the regulatory pattern of the time. Fortunately, DBS has the backing of some major corporations—RCA, Western Union, and CBS among them—and government agencies (think of all the satellites NASA will launch), whereas cable TV started off as a "mom and pop" activity with no political clout. This means that DBS is unlikely to be strangled. Instead, it will strengthen the deregulatory trend already evident at the FCC.
In addition, DBS may give the final push necessary to get First Amendment protection for the electronic media, since it shows the fallacy of the arguments denying that protection.
Finally, DBS puts one more gaping hole in the already tattered fabric of intellectual justifications for antitrust. Though it's unlikely that American judges and regulators will abandon their superstitions about antitrust solely because of DBS, this new technology might bring some more rationality to the subject.
Direct broadcast satellite TV is not just another technology that will bring some benefit to consumers, welcome as that might be. It also promises to be a significant catalyst in the cause of freedom, certainly in the United States and possibly in other countries, as well.
Joseph Martino is a senior research scientist at the Research Institute of the University of Dayton.