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.

Sunday, November 27, 2016

Reform the FCC!

In this volatile and contentious time, it has become even more likely that any advocacy position may trigger misperception, intentional or not.  Recently, one of the two FCC transition managers for the incoming Trump administration, has been characterized as calling for the agency’s closure.  See http://www.techpolicydaily.com/communications/do-we-need-the-fcc/.

 
I do not read Dr. Mark A. Jamison as advocating a torch to the very agency he will help staff with senior managers.  Instead, I get a strong message with which I agree: the FCC has become far too partisan and political on matters that do not typically cleave on a Democrat/Republican fulcrum.  For decades, FCC Commissioners did not split on party lines.

Why now?

 
I attribute the polarization of the agency as directly resulting from Commissioner appointments of congressional staffers who in turn hire the same type of professional to serve as their senior staff.  Rather than consider major regulatory issues in terms of the national interest, it appears that baser, political motivations predominate.  We really, really, really need an independent, expert regulatory agency that does not allow its work product to be molded by politics.

 
This is a two-party problem: if Democratic FCC senior management allowed President Obama to lobby for a preferred network neutrality policy to rousing Republican indignation, then these very same folks should resist efforts by President Trump to direct a preferred agency decision on, for example, the proposed merger of Time Warner and AT&T.  Science, or as close to dispassionate scientific analysis, should apply, regardless of what that analysis generates.  Economic analysis does matter, and for the Commission’s part, it must be free of results-driven assumptions and strategies.


Making the FCC apolitical, requires fortitude and the commitment to empirical analysis, rather than the lazy and convenient reliance on sponsored research used in advocacy documents by stakeholders.


We do need to replace the current partisan FCC with an honest broker ready, willing and able to apply science and empiricism.

           

A Curious Blend of Millennial Indignation and Glitchy Bar Code Pricing

            A grocery store cashier called me a liar and shot me the bird yesterday as I insisted a 2 for 1 promotion applied to my pretzel purchase.  Wow! I didn’t think Millennials knew about obscene gestures, nor did I think a representative of this “snowflake” generation could muster the indignation about something having nothing to do with her.


            What a bizarre story I have to tell that combines defective bar code pricing with a Millennial’s reminder that I have no reason to live, much less demand application of a promotional price.  The Weis grocery chain currently offers buy one get one free for their store-branded pretzels.  However, at the same time as the promotion, the company has changed the trade dress, reduced the portion size and changed the bar code for the product.  At purchase, the scanned bar code did not trigger the savings, despite on the shelf price tags touting the 2 for 1 offer.
 

            As this pricing glitch had sucked 20 minutes out of my day on the previous day, I expedited the display of my lawyer tone which offspring and student alike consider “yelling.”  For the record, I cannot yell, having had vocal cord surgery that substantially reduces the volume I can generate.
 

          The 60-something cashier handling my order gladly offered to check the price, but her granddaughter cashier in the next line reported the price without a doubt.  This Millennial refused to accept my report of the discount and quickly escalated the conflict.  How could an old person like myself possibly know the price of an item, or maybe she tagged me as a petit scam artist?
 

            Do Millennial service workers reverse the traditional business premise that the customer is always right?  For my part, I accept that customers are not always right, but surely they cannot always be wrong.


            I had a pleasant, but inconclusive chat with the store manager and suggested that customers do not deserve vilification as liars when challenging a price.  His perception of the situation was influenced by another, more regular customer, who attested to the wonderfulness of the cashier who shot me the bird.


            My university has forced me to reframe the student-teacher relationship into one with high touch customer service in light of Millennial expectations and the cost of post-secondary instruction.  I suspect that lesson has not reached many Millennials when the shoe is on the other foot.