Improving FCC Processes Long Overdue, Analysts Say

By Jon Anzur

On July 11, Internet industry analyst and author Larry Downes and Free State Foundation President Randolph May testified before the House Energy and Commerce Committee on the need to reform the FCC’s processes to reflect the ever-changing and competitive communications marketplace.

The communications industry is prone to rapid, unpredictable changes that create and recreate markets. Given that it relies on rules that have not been updated since 1996, the FCC has struggled to maintain pace with the overwhelming innovation occurring in communications technology.

For instance, in its annual report to Congress on the state of competition in the mobile services marketplace, the FCC concluded that “the mobile wireless ecosystem is sufficiently complex and multi-faceted that it would not be meaningful to try to make a single, all-inclusive finding regarding effective competition…” As Downes wrote in an article last April, the 400-page report did not recognize more than 80 percent of consumers having a choice of five or more mobile providers as “effective competition.” Moreover, Downes noted that as the mobile wireless ecosystem grows more complex and multi-faceted, it becomes more competitive—and less amenable to the FCC’s regulatory impulses.

At the hearing, Downes and May testified that the FCC should adopt reforms that would deemphasize heavy-handed regulation and promote transparency, accountability, and consistency.

Much of the testimony focused on two draft bills that offer various proposals to streamline and structure the FCC’s regulatory processes. Similar bills passed the House last Congress but died in the Senate.

Downes said the proposals in the draft bills provide “many common-sense, modest, apolitical repairs, imposing needed structure on the Commission’s processes.” May agreed, but added that more reforms are needed, especially in regard to the FCC’s rulemaking requirements and transaction review process.

Changing the Rules

According to the rulemaking reform proposal in the Committee’s draft bill, the FCC Commission would not be permitted to adopt a new or revised rule or regulation until it provides a reasoned explanation as to why market forces and technology changes will not resolve the agency’s concerns. However, May said that stronger language is needed to prevent the FCC from defaulting to regulatory measures when problems arise. He suggested that the FCC’s “reasoned explanation” be “based on clear and convincing evidence,” a change that simply requires the agency to meet a higher evidentiary burden before adopting or revising regulations.

May also suggested that the Commission meet a higher evidentiary burden to maintain current regulations. Similarly, he proposed a “sunset” requirement so that all FCC rules automatically expire after a designated number of years absent a showing, “based on clear and convincing evidence,” that each rule remains necessary to accomplish its original objective.

Downes joined May in calling for the FCC to conduct cost-benefit market analyses of all proposed rules. Doing so, Downes said, would help to cure the FCC “of its addiction to micromanaging markets that are evolving even as the Commission’s deliberations meander along” and “focus its remedial and regulatory efforts on relevant consumer harms that are tangible and solvable with both precision and measurable efficacy.”

Easing Transactions

The FCC’s transaction review process is most urgently in need of reform. According to Downes, the agency’s inability to keep pace with technological and competitive innovations results in long delays in processing applications; inconsistent restrictions applied at different times to companies in the same industry that reduce transparency and increase consumer confusion; and long periods in which the FCC engages in expensive and distracting post-transaction reporting, monitoring, and enforcement without determining if technology and market changes have eliminated the need do so.

May pointed out that the FCC often abuses the merger review process by delaying approval of transactions until the applicants “voluntarily” agree to conditions not narrowly tailored to remedy a harm arising from or unique to the transaction. For example, the FCC took nearly a year to approve the Comcast-NBC Universal merger, and it only did so after imposing 30 pages of conditions, including a requirement to run specific commercials at specific times on specific channels—for five years.

To ease the transaction review process, May said that the FCC should condition approval of a proposed transaction only if the condition addresses a harm that is likely to occur as a result of the transaction. Downes expanded on what this process might look like: The FCC would have to apply “consistent, transaction-neutral cost-benefit analysis to both the review of a proposed transaction’s impact on consumers and of any remedies being considered to offset cognizable harms. The FCC should take into consideration its own data on market dynamics, and weigh heavily the very likely potential that technology-driven forms of competition will more effectively and efficiently resolve the kinds of problems the long lists of unrelated conditions seem intended to forestall.”

Larry Downes’ testimony can be found here.

 Randolph May’s testimony can be found here.