Wednesday, November 30, 2016
Likely and Behind the Scenes Changes at the FCC
It should come as no surprise that the Federal Communications Commission will substantially change its regulatory approach, wingspan and philosophy under a Trump appointed Chairman. One can readily predict that the new FCC will largely undo what has transpired in previous years. However, that conclusion warrants greater calibration.
As a threshold matter, the new senior managers at the FCC will have to establish new broad themes and missions. They have several options, some of which will limit how deregulatory and libertarian the Commission can proceed.
Several ways forward come to mind:
1) Channeling Trump Populism—the FCC can execute President Trump’s mission of standing up to cronyism and rent seeking, even when it harms traditional constituencies and stakeholders.
2) What’s Good for Incumbents is Good for America—the FCC can revert to the comfortable and typical bias in favor of incumbents like Comcast, Verizon, AT&T and the major broadcast networks.
3) A Libertarian Credo—the FCC can reduce its regulatory wingspan, budget and economic impact by concentrating on limited core statutory mandates, such as spectrum management.
4) Humility—without having the goal of draining the FCC’s pond, senior managers can temper their partisanship and snarkiness by refraining from mission creep.
Each of the above scenarios hints at major and equally significant, but unpublicized changes at the agency. A populist FCC equates the public interest with what the court of public opinion supports. For example, most consumers like subsidies that make products and services appear free. A populist FCC responds to consumers by interpreting network neutrality rules as allowing zero rating and sponsored data plans.
However, a populist FCC risks overemphasis on public opinion that stakeholders can energize as occurred when companies like Netflix and Google used their web sites for 24/7 opposition to the Stop Online Piracy Act and when Jon Oliver motivated 4 million viewers to file informal comments favoring network neutrality on the overburdened FCC web site.
On the other hand, a populist FCC can remind rural residents of how much they count in this new political environment. The FCC can validate rural constituencies by refraining from modifying—if not eliminating--inefficient and poorly calibrated universal service cross-subsidies. Most telephone subscribers in the U.S. do not realize that they are paying a 10%+ surcharge on their bills to support universal service funding, most of which flows to incumbent telephone companies. Consumers would quickly contract compassion fatigue if knew about this sweetheart arrangement.
The favoring incumbents scenario has a long and tawdry history at the FCC. If the new FCC reverts to this model, the Commission will largely give up fining companies for regulatory violations. Additionally, it might purport to reintroduce economic analysis to its decision making by adopting incumbent-advocated, but highly controversial templates. For example, incumbents have touted the “Rule of 3” to support further industry consolidation. This rule is nothing more than an advocacy viewpoint that markets with 3 competitors generate most of the consumer benefits accruing from markets with more than 3 competitors. Having only 3 competitors may work if 1 of them does not collude and match the terms, conditions and prices offered by the other 2. But in many markets—think commercial aviation—having only 3 operators risks markets organized to extract maximum revenues from consumers with little incentive to innovate and compete.
An incumbent friendly FCC likely will approve mergers and acquisitions with limited, if any, conditions and negotiated conditions. This kind of FCC will approve AT&T’s acquisition of Time Warner despite President Trump’s disapproval. The FCC probably also would have no problem with a wireless marketplace duopoly of AT&T and Verizon controlling 90+% of the national market, because the Commission will have largely abandoned the use of a specific market penetration caps and other indices (such as the Herfindahl-Hirschman index) to identify dangerously concentrated markets.
Many press analysts assume the FCC will embark on a libertarian bent, possibly leading to the elimination of the agency. I believe the press has misread advocacy items written by Trump Transition Team members who couldn’t easily pitch a short term gig at the FCC and who readily acknowledge the perennial need for core functions performed by the agency. A libertarian FCC strictly limits its statutory interpretations and does not seek to expand its regulatory wingspan. However, the national interest—surely including the corporate interests of incumbents—requires the FCC to participate in global standard setting, radio frequency allocation and Internet governance. The national interests suffers if the FCC does not attend intergovernmental forums and does not forge alliances with other governments keen on reigning in the motivation of global forums to favor specific governments and expand its reach and significance.
Last, but not least, the new FCC could emphasize humility and bipartisanship using its independence and expertise to determine what best serves the public interest. This requires abandonment of results-driven decision making and creative statutory interpretation. I really like this option.