Ajit Pai can restore regulatory humility to the FCC

As one of his first actions on office, President Trump selected Ajit Pai to be the next chairman of the Federal Communications Commission. It was a phenomenal choice. Chairman Pai is a “lawyer’s lawyer” with significant experience in the field and, as such, is one of the most qualified persons ever to hold the post in recent memory.  It is wonderful to see that hard work, expertise, and merit still matter in American politics.

The incoming chairman certainly has a lot on his plate. I would submit that among Chairman Pai’s most pressing concerns must be to repair the commission’s tattered reputation as an expert agency worthy of public trust.

{mosads}Pai’s predecessor, Democrat Tom Wheeler, had no regard for due process and no reluctance to lie to the American people to achieve political outcomes.  As a result, there are growing calls to curtail—if not outright abolish—the FCC and to transfer those responsibilities to the Federal Trade Commission and other federal agencies.

While changing market conditions warrant serious contemplation about the nature and scope of FCC oversight, it is also important that we not throw the proverbial baby out with the bath water simply because the Obama administration cavalierly abused the public trust.

To begin, a strong case can be made that an expert agency still has merit. Our telecom marketplace is rapidly changing and, like it or not, the economics of the industry are extremely complex and do not lend themselves to simple, off-the-shelf thinking and solutions.  Telecommunications markets are characterized by high capital costs, which means that the number of competitors will always be small. Antitrust agencies like the FTC and DOJ, whose expertise lies in protecting competition in industries that can support many sellers, just don’t have the analytical tools to deal with perpetually concentrated industries.    

Moreover, on top of the unique economic forces that drive the industry, communications services are vital to social and democratic life. As a result, the regulator in charge must balance Congressionally-mandated social objectives (e.g., universal service, spectrum set-asides for small businesses) with the difficult economic realities of the industry.  The Antitrust agencies are mostly litigators, not regulators. 

To shift these responsibilities to another agency does little more than move offices between buildings—the responsibilities, and the potential for baseless regulatory activism, are not eliminated. While the FTC—given their consumer protection expertise—may be the appropriate forum for handling digital privacy matters, this does not automatically mean that that the FTC is equipped to handle the bulk of the FCC’s responsibilities. 

Besides, if one studies both the literature and the history of the FTC, it becomes readily apparent that the grass is not necessarily greener on the other side of Independence Avenue.

The FTC’s primary legal authority—Section 5 of the eponymous FTC Act—provides an “unfair competition” standard.  However, as former FTC Chairman Timothy Muris noted nearly fifteen years ago, the “unfair competition standard” in the wrong hands produced “a series of proposed rules relying upon vague theories of unfairness that often had no empirical basis, could be based entirely upon the commissioners’ personal values, and did not have to consider the ultimate costs to consumers of foregoing their ability to choose freely in the marketplace.” Thus, depending on who’s in charge, it is unclear how a subjective “unfair competition” standard is any better than the FCC’s “public interest” standard so many complain about.

Unfortunately, the FTC has yet to address satisfactorily the problem. Last year, the FTC finally issued its much-ballyhooed “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act.” Rather than fill the intellectual vacuum with a detailed analysis, the UMC statement was rather perfunctory, consisting of exactly three bullet points. The lone dissent from Commissioner (and now Acting Chair) Maureen Ohlhausen detailed several reasons how the paucity of the UMC statement may come back to haunt future enforcement applications.  Subsequent events suggest she had a point.

Like the FCC, Obama’s FTC had its own biases. As pointed out in an in this space by Phoenix Center Chief Economist Dr. George Ford, just last year in reviewing the validity of auto dealer franchise laws the FTC has engaged in the exact same type of sloppy, politically-driven decision making that marked Wheeler’s chairmanship. Clearly, when it comes to abuse of government power, there are no “white hats.”

Which brings us back to the point of the pencil:  If, as Ajit claims, he truly “loves” the FCC, what can he do to salvage the commission’s reputation?  There is some low hanging fruit. 

First, the chairman can send a clear and unequivocal message that under his administration serious analysis matters and political hyperbole will no longer be tolerated. Telecom is a serious business and, as such, policymaking deserves to be approached with rigor and respect.

Pai can make it clear to industry stakeholders that they need to bring their “A” game and file serious legal, economic, and technical analyses that actually answer the questions asked by the commission. Indeed, an agency’s work is informed by the quality of public comment received, so if there is “garbage in” we should not be surprised when we get garbage out. 

Second and along the same lines, Pai can send a clear message that “clicktivism” from political interest groups on either side of the political landscape (i.e., “one click” pro forma filings that offer no legal or economic arguments and clog up the commission’s filing system) will be summarily ignored.  Unlike the Obama administration (which actively encouraged and relied upon clicktivism as probative evidence), Chairman Pai needs to make it clear that the FCC will no longer make policy based on plebiscite but on the facts, law and economics of each case.

As the old adage goes, policy is personnel.  After eight long years in the wilderness, we finally have a true telecom professional at the helm of the FCC. I wish him the best of luck.

Lawrence Spiwak is the President of the Phoenix Center for Advanced Legal & Economic Public Policy Studies (www.phoenix-center.org), a non-profit research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.

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