The views expressed by contributors are their own and not the view of The Hill

MIA at the FCC

Greg Nash
When chief economist Tim Brennan left the FCC earlier this year, he remarked that the net neutrality rules passed by his former agency were an “economics-free” zone – a brutal assessment of regulations that would chart the future of the internet for all Americans. Especially since the problem does not seem limited to net neutrality – in a forthcoming paper we document the shocking extent to which economic analysis has been marginalized at the FCC under Chairman Tom Wheeler. 

The results could undermine decision-making and do significant damage to innovation and consumers for decades to come if Congress does not intervene.

{mosads}It is simply irresponsible for regulators to rely on gut feelings – or political pressure or public opinion polls. Rather they should be guided by empirical evidence, rigorous analysis of regulatory costs and benefits and basic economic principles taught on every college campus across the country together. What matters most is not the sheer number of docketed public comments or the enthusiasm of those blockading of the Chairman’s driveway, but instead a sober analysis of the need for regulation in light of proven market failures.

Our studies shows that in virtually all the major proceedings under Chairman Wheeler’s FCC, the Commission failed to perform even the most rudimentary cost-benefit analyses.

Last year appears to mark a historic low point of economic analysis at the agency when the FCC conducted just four economic seminars; in the five years before, the Commission hosted an average of 16. Need more evidence of the death of economics? Since 1980, the FCC has issued detailed economic working papers to support proposed regulations through its Office of Planning and Policy, a think tank within the FCC. The last such paper was issued in 2012. Today’s FCC has replaced these detailed white papers with cursory blog posts and one page “fact sheets” – which you won’t be surprised to learn contain very few “facts” at all.

In the 2015 net neutrality proceeding, the FCC released a two-page statement, noting that “the Commission is not required to prepare a cost benefit analysis.” An economics-free zone that ignores cost-benefit can chill innovation, investment and competition, and delay the introduction of new technologies, all to the harm of the economy and consumers alike.

Why is the FCC suddenly ignoring economics? Because as the country abandons landline service in favor of new communications options and broadband internet, the FCC’s regulatory relevance is slipping away – because the laws that establish its authority are focused on traditional voice service. It is no surprise, then, that the FCC should seek to claim new regulatory turf by seizing a new mandate: the Internet. But economic analysis is an obstacle to this – the internet has thrived and grown beyond anyone’s wildest dreams without stifling FCC regulation, after all.

Thus the FCC has turned its back on economic analysis as it has become an obstacle to power. And the process continues. Untethered from cost-benefit principles and armed with newly seized powers from the reclassification of internet access, the FCC is now attempting to demolish the traditional video market with new “set top box” regulations and seizing the Federal Trade Commission’s (FTC) powers to regulate privacy for ISPs. Both of these new proceedings – moving forward on unjustifiably rushed schedules as the last days of this administration wind down – have lacked the most basic economic analyses despite numerous pleas from Congress. Not only does the privacy item lack economic analysis, the FTC itself has submitted comments questioning the FCC’s plan to depart from the national privacy protection framework established by the FTC and called for by the Obama Administration in 2010.

It’s not a question of if economics should be reinserted into the policy debate, but how. Because the waning influence of economic analysis flows from the politicization of the agency and its search for relevance, the solution likely involves Congress. Congress should shield the technocrats from political pressure of the kind we observed in the Open Internet and set-top box proceedings, and clarify that the FCC is required to explicitly include the identification of market failure and careful cost-benefit analysis as a necessary condition before imposing any regulation. The future of tech and telecom is threatened by the lack of serious economic analysis at the FCC. It’s time for this to change.

Gerald Faulhaber is Professor Emeritus, Wharton School, University of Pennsylvania and Penn Law School, and was a former chief economist of the FCC. Hal Singer is Senior Fellow, George Washington School of Public Policy; Adjunct Professor, Georgetown’s McDonough School of Business; Principal, Economists Incorporated. Both have consulted to Internet service providers in the United States and abroad.

The views expressed by authors are their own and not the views of The Hill.


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