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How to Regulate the Federal Communications Commission

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How to Regulate the Federal Communications Commission

The House of Representatives just passed H.R. 3309, the Federal Communications Commission Process Reform Act, in an attempt to normalize the FCC‘s propensity to regulate without congressional authority, and to arrest its eager interference with ordinary, essential business transactions like mergers.

Yet the Senate will never pass Rep. Greg Walden’s (R-Ore.) bill. And the Obama Administration promises a veto despite recent executive orders like “Improving Regulation and Regulatory Review,” and a newer order ostensibly encouraging independent agencies like FCC itself to conduct cost-benefit assessments and otherwise make regulation more sensible.

High profile, priestly campaigns for the FCC have been its National Broadband Plan (I still demand a National Elevator Plan first), its net neutrality order recently issued without congressional authority, and its “Future of Media” campaign addressing a supposed crisis in journalism.

Others include FCC’s blockage of the AT&T/T-Mobile merger, and lengthy, costly transaction reviews and disabling “conditions” imposed on mergers like those of Comcast-NBC Universal and XM-Sirius.

Thus, what the White House says is wrong with the FCC Process Reform Act is actually what’s right about it:

H.R. 3309 would also limit the FCC’s ability to impose conditions, or to accept commitments from transacting parties, as part of its review of transfers of licenses and other assets. These restrictions would harm the Federal Government’s ability to promote the most effective competitive outcome in any given transaction involving communications firms. H.R. 3309 would limit the ability of the FCC and the Justice Department to work together on telecommunications matters to protect consumers, promote competition, and increase innovation to ensure access to more choices, lower rates and prices, and better products.

Governments don’t “promote effective competitive outcomes,” especially when agencies team up to do it forcibly, at the behest of lobbyists besides.

The FCC explicitly interferes with competitive processes at their most fundamental level. It picks favorites, not just among companies and industries, but among business models as such. It conjures into existence an industry structure that otherwise would not have existed, forcibly reorganizing industry parameters themselves and undermining consumer welfare.

It’s a highly destructive, wasteful game, and few seem to care much.

The FCC exists almost as it was when it was established in 1934 to regulate “communication by wire and radio” in a world of scarcity.

The net makes scarcity largely a thing of the past; some even exaggerate that “information wants to be free.” If ever an economic sector needed a coherent vision for substantial and sustained liberalization to replace FCC’s heed-my-commandments impulses, the massive telecommunications marketplace is it. A study by economist Jerry Ellig found telecommunications regulation may cost consumers $105 billion annually in higher prices and foregone services, and that was before net neutrality and the newer campaigns came along.

If we were starting from a clean slate in today’s world, we wouldn’t likely create a Federal Communications Commission with command over price, entry and services. Internet technologies are among mankind’s most liberating; erasing distance, making broadcasters out of everyone. Today’s communications landscape has given individuals a freedom of speech that the framers could never have imagined.

Thus the “scarcity” FCC was supposed to allocate is barely there, apart from the need for it to get spectrum into the marketplace in a manner that clarifies rights of future owners to resell. Speech is wonderfully free.

Public interest and airwave scarcity rationalizations were the long-time justifications for telecom regulation, but today that large government bureaucracy itself threatens to exaggerate scarcity in infrastructure and spectrum by continued interference and fortress-building.

When liberalizing any heavily regulated segment of a mixed economy–here, communications–the gauge of the impending reform’s appropriateness is simple: The body of private activity subject to regulation must decline rather than increase. Instead, the FCC is on a growth path with respect to micro-managing telecom and an unwillingness to leave needed large-scale transactions alone. In the latest Unified Agenda of Federal Regulations, 103 rules originate from the FCC. The agency seeks a FY2013 budget of $347 million.

FCC’s very power invites costly lobbying battles that delay new technologies and hurt consumers. Most recently, this week the group Public Knowledge accused Comcast of net neutrality violations for certain Xfinity services, although those involve the use of a user’s Microsoft xBox for delivery of content that doesn’t even traverse the public Internet.

Regulation of the communications industry wouldn’t disappear without the FCC, but would become decentralized. Alongside the heavy “regulation” that competitors and investors and business partners impose (and that FCC rarely acknowledges), states would continue to enforce consumer protection rules (and rights of way). The federal antitrust rules do remain (but you won’t hear me invoking them), such that the Federal Trade Commission could strike down the kind of vertical restraints of trade that some fear.

The underlying goal of the FCC Process Reform Act is exactly appropriate: to move toward more competitive discipline and regulation of general applicability that avoids the excess costs of a backward looking, centralized bureaucracy called FCC.

The FCC has engaged in it net neutrality campaign for years; Rep. Walden has just kicked off the more urgently needed “agency neutrality” campaign. Regulatory reform and free enterprise need more champions like that.