More Doctrinal and Partisan Economic Analysis at the FCC

            According to FCC Chairman Amit Pai and the partially dissenting judge in a key case, the FCC desperately needs more economists and their work product. See https://www.youtube.com/watch?v=-JL7Wrwj9dg; and https://www.cadc.uscourts.gov/internet/opinions.nsf/3F95E49183E6F8AF85257FD200505A3A/%24file/15-1063-1619173.pdf.  If only these disciplined and intellectually honest non-lawyers were on the case, the FCC would better serve the public interest. See, e.g., Gerald R. Faulhaber, Hal J. Singer and Augustus H. Urschel, The Curious Absence of Economic Analysis at the Federal Communications Commission: An Agency in Search of a Mission, 11 INTERNATIONAL JOURNAL OF COMMUNICATION, 1214–1233 (2017); available at: http://ijoc.org/index.php/ijoc/article/view/6102/1967.

            I don’t buy it one bit.

            The FCC has far more lawyers than economists, because much of the agency’s job requires statutory interpretation and implementation.  The Commission has an established body of case precedent from which it has a legal obligation to consult and apply absent changed circumstances, particularly in the frequent adjudications it performs.  Of course economists should participate in the FCC’s policy making process to assess whether and how circumstances have changed.  Additionally, laws occasionally do specifically require the FCC to conduct economic analysis such as assessing whether a market operates with “sufficient competition.”

            D.C. Circuit Court Judge Williams endorsed a statement attributed to former Chief Economist Professor Tim Brennan criticizing the FCC for ignoring economic analysis.  See Williams Partial Dissent at 41, citing http://www.wsj.com/articles/economics-free-obamanet-1454282427.

            Professor Brennan is no shrinking violet who somehow found himself ignored, if not shunned at the FCC.  What is sought by Chairman Pai, Judge Williams, incumbents and the legions of sponsored economists already participating in FCC proceedings is something quite different from legitimacy and a seat at the table.  They want doctrinal superiority.

            Doctrinal superiority means that the FCC should unconditionally accept the work product of specific economists and their particular views. Chairman Pai does not appear to want more robust and open economic analysis.  He appears to want a specific strain of economic doctrine to apply.  Unsurprisingly that doctrine supports a deregulary wish list of incumbent ventures so they can accrue more market power, profits and insulation from competition. 

            Chair Pai does not appear to embrace peer reviewed, disciplined economic analysis unfettered by specific, desired outcomes.  Instead, he seems to welcome economics that create unimpeachable rules that he endorses.  Lawyers surely can interpret law and parse its meaning, but economists do not even have to start with an underlying predicate. They can make it up as they go along.

            Free of having to start from case precedent and specific statutes, economists can state unequivocally that mergers and acquisitions “promote competition.”  Other Big Truths from sponsored telecommunications economists include the conclusion that:

●          markets only need 3 competitors to operate efficiently;

●          deregulation should start if a market might become competitive in the future;

●          vertical integration always helps a venture achieve scale and efficiency; and

●          incumbent common carriers should receive the same or greater compensation for having to                 lease capacity to a competitor than what would accrue if the carrier provided service to an end             user.

            Most economists I know have solutions to all of society’s ills.  Many have great confidence bordering on smugness, no doubt enhanced by their command of complex math.  Most have a particular agenda that colors their research converting it into advocacy that would not pass must with peer review.  The allure of easy and lucrative financial sponsorship from stakeholders converts most economic analysis submitted to the FCC into predictable, biased, partisan and doctrinal work product.  The FCC already receives tons of this kind of material in the proceedings for which it solicits public comments.

            I have little confidence that having more unsponsored, but likely partisan and doctrinal economists at the FCC will miraculously enhance the work product of the Commission.

            I’ll conclude with a lame joke about an economist who suddenly finds herself in a pit.  How does she get out of this dilemma?  She assumes a ladder.

Insights on Future FCC Decision-making Gleaned From a Judicial Dissent

            As unorthodox as it might seem, Senior Circuit Judge Stephen F. Williams dissenting opinion in a major FCC case offers a likely roadmap on how the FCC will operate with Trump appointees and a Republican majority.  Judge Williams’ extensive opinion in U.S. Telecom v. FCC, available at: http://pdfserver.amlaw.com/nlj/6-14-16%20DC%20Circuit%20net%20neutrality%20opinion.pdf, has a flavor remarkably unlike a legal dissent.  At its best, his work identifies real defects in the logic used by the FCC to reclassify broadband Internet access as a telecommunications service.  Additionally, the Judge raises legitimate questions about the FCC’s rationales supporting a near total prohibition on paid prioritization of traffic. 

            I am not keen on ex ante regulation and can identify significant consumer benefits in having the option to receive “better than best efforts” traffic routing.  Judge Williams offers considerable evidence that consumers do not benefit and may be harmed by a prohibition on price and quality of service discrimination.

            At its worst, the Williams dissent misreads case precedent, misinterprets the statutory duty of the FCC to apply Title II common carriage regulation and shows a penchant for economic analysis regardless whether it is appropriate, helpful or sponsored by a stakeholder.   Additionally, the opinion offers copious sanctimony and snark at a high level even for dissenting jurists.

            Judge Williams believes the FCC failed to provide stakeholders adequate notice that the Commission had opted to use a new standard for assessing whether and how to apply Title II regulation.  He chides the FCC for not conducting a thorough assessment of market power to determine whether the broadband access marketplace operate competitively.  From his perspective, Judge Williams considers the Title II classification as lawful if and only if the broadband marketplace lacks competition. 

            There should be no dispute that common carriage regulation, established in Title II of the Communications Act, can apply even if a telecommunications market segment operates competitively.  For example, Congress ordered the FCC to treat Commercial Mobile Radio Service operators as common carriers (47 U.S.C. §322) regardless whether the wireless marketplace is, or will become competitive. 

            Even as I do not think the FCC should have imposed the common carrier classification, I have no doubt the FCC can lawfully make the call.  Judge Williams would prevent the FCC from applying Title II unless the Commission can prove market failure, an extraordinarily high  standard of proof no law requires.  Additionally, the Judge would deny the Commission any deference based on its expertise to interpret and apply ambiguous statutory language as the Supreme Court established in its Chevron Doctrine.

            Judge Williams appears so enamored with economic analysis, that a failure to showcase it constitutes reversible error.  Nothing in the Communications Act mandates economic analysis as the primary, “make or break” analytical tool the FCC must use.  The FCC has to assemble a complete evidentiary record based on facts, an empirical record, the advocacy documents of stakeholders and the Commission’s assessment of what would best serve the public interest.  Of course economic analysis can help the FCC meet its statutory duties, but it does not constitute a sine qua non. 

            Economic analysis, perhaps even more so than legal analysis, is rife with pitfalls.  Economists do not have to operate with the discipline and rigor of legal advocates, despite the strategic use of mathematics.  Economists can construct a theory, convert it into an unimpeachable rule and offer this rule in advocacy documents for adoption by the FCC. 

            Much of the so-called economics used in FCC proceedings by stakeholders is sponsored advocacy.  The vast majority of this advocacy attempts to legitimize and make scientific policy prescriptions that do not pass the smell test.  For example, any and all mergers promote competition and enhance consumer welfare, but set top box competition would harm competition and consumers.  Economic analysis has a legitimate role at the FCC, but Judge Williams would elevate its importance at the risk of bolstering the potential for sponsored research to provide scientific support for results-driven decision making.  In the words of a former Republican President, the FCC may be headed for a full embrace of Voodoo Economics if it provides the foundation for a desired policy outcome.  Judge Williams appears keen on replacing an “economics-free” FCC to one obsessed with anything masquerading as economics.

            In the snark and sanctimoniousness department, I sense Judge Williams takes great pride in analogizing the FCC’s Open Internet Order to a bicyclist shifting from sidewalk to roadway travel routes.  He chides the FCC for applying common carriage regulation and then abandoning most of the burdensome elements.  From my perspective the FCC evidences flexibility and a keen interest in calibrating the reach and scope of regulation to what tools are needed.

            I fear Judge Williams dissent foreshadows an FCC willing to misinterpret case law and statutory mandates to achieve a desired outcome.  I worry that an infatuation with economics will legitimize bogus rationales that the FCC will embrace hook, line and sinker.  Who needs a maverick wireless carrier like TMobile when economists prove that any and all markets work just fine with 3 competitors? 


            Lastly, I have concerns that FCC decision makers will overplay their hand.  I have seen ample and unjustified arrogance, hubris and political intrigue at the FCC.  It looks like the new management will continue—if not expand—the trend.