In recent years, the Federal Communications Commission (FCC) has written sweeping regulations based on little more than well-crafted narratives (0) while ignoring the cornerstones of good regulation: independence, evidence, and analysis. It has made the regulatory process an “economics-free zone, (1)” writing regulations in the dark (2) and ignoring warnings of unintended consequences (3). It has intervened in markets without any evidence of market failure (4) or consumer harm. How is it that a major regulatory agency — one that once provided substantive advice to the rest of the world on how an independent agency should function (5) — seems to have lost its way? It has had a lot of help. In case someone wants to destroy the credibility and effectiveness of an independent agency in the future, here are five ways to do it.
Take direction from politicians
The design of an independent regulatory agency is intended to keep it at arm’s-length from politics and stakeholders. This is important because, in the case of infrastructure, the regulated industries tend to slow their investment if they believe that they cannot trust the regulators.
Unfortunately, the FCC as of late has been quite cozy with politicians. The Senate Committee on Homeland Security and Governmental Affairs recently released its report detailing how the White House bowled over the FCC (6) to begin regulating the Internet using rules built for the 1930s-era telephone monopoly.
This was impressive work by the White House. According to the report, most of the regulatory decision-making was in fact done by White House aides. Once President Obama publicly announced (apparently in coordination with protesters at Chairman Tom Wheeler’s residence) that the FCC should adopt such regulations, the chairman abruptly changed course over the objections of senior FCC staff, changing from a light-handed approach to Title II.
More recently, the chairman appears to have taken direction from Democratic senators in proposing to regulate set-top boxes: Bernie Sanders (D-VT) took credit (7) for the chairman’s announcement, and the chairman unabashedly justified his proposed regulations (8) largely with data from Ed Markey’s (D-MA) website (9).
Promote partisan divides between commissioners
One of Washington’s worst-kept secrets these days is that the FCC is deeply divided along political party lines. There have been 3-2 votes (3 Democrat and 2 Republican) on major issues such as increasing telecommunications subsidies for schools and libraries (10) (E-Rate), preempting state laws on whether and how city governments can get into the broadband business (11), favoring small businesses (12) in radio spectrum auctions, and whether Internet service providers should be re-regulated (13) as public utilities.
Economist Scott Wallsten studied this political divide and found that politics have dominated the FCC (14) under Chairman Wheeler: Less than half of the FCC’s votes have been unanimous, compared to an average of 65 percent and 58 percent under recent Democrat and Republican chairmen respectively. Meanwhile, 26 percent of commission votes have been along party lines under Wheeler, compared to 8 percent and 4 percent under recent Democrat and Republican chairmen respectively.
Change the substance of orders after commission votes
It has become business-as-usual at the FCC (15) for the enforceable order that the FCC publishes to differ from that which the commissioners voted on. This happens because the staff is given “editorial privileges” to keep massaging the order after the vote. However, it was never intended that this process would open the door to substantial changes after the commissioners had had their say. In a recent and particularly egregious case, a proposed rule to cap the Universal Service Fund — a set of telecommunications subsidy programs — at $4.5 billion morphed into a $4.5 billion floor (16).
Ignore the facts
Most people would agree with President John Adams when he said, “Facts are stubborn things.” Unfortunately for some, Adams didn’t stop there. He continued, “and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.” Oops! Well, that doesn’t seem to stop some people from trying. The FCC largely ignored benefit-cost analyses (17) for its Open Internet Order. And its proposal to regulate set-top boxes ignores years of innovation and extensive competition (18). The agency’s conclusions in its broadband reports appear hard to justify (19) given the underlying data.
Or at least manipulate the facts
Most people have heard the joke about the accountant that was hired because, when asked “What is 2+2?” during his job interview, he replied, “What number did you have in mind?” Well, perhaps this is happening in telecom policy. The FCC’s proposal to regulate set-top boxes was based in part on faulty arithmetic that would not receive a passing grade in elementary school. As Hal Singer explains (20), Chairman Wheeler supported his proposal with a “magical number” that compares prices for set-top boxes in 1994 with revenues from set-top boxes in 2014, completely ignoring changes in technology and the distinction between price and revenue.
Why has this happened?
Politicians are tempted to have their way with an agency that impacts a significant part of the economy: Indeed, the FCC directly oversees 2.6 percent (21) of the US economy, including telecommunications and broadcasting, but its importance is greater than that. The agency also influences services provided over the Internet and licenses communications equipment, which make up another 2 percent of GDP. Similarly, private-sector businesses are quite happy to be regulated or to have their rivals regulated if the regulations forestall competition.
The more important question is this: Why should we want an independent and analytically sound FCC? As Singer estimated regarding the FCC’s Open Internet decision, it cost the US at least $3.3 billion in broadband investment (22) in 2015, perhaps with a loss of more than 60,000 jobs. Given the cascading effects across the economy — McKinsey estimates that the Internet accounted for 21 percent of GDP growth (23) in mature economies from 2005 to 2010 — everyone bears the cost of an ineffective FCC.