Regulate the FCC

If ever there was a sector of the economy that needed substantial and sustained liberalization, the telecommunications marketplace is it.

The Federal Communications Commission (FCC) was established in 1934 to regulate "communication by wire and radio," taking over the functions of the Federal Radio Commission. The FCC was charged with allocating rights to the electromagnetic spectrum -- a resource that some call finite. But in today's iPhone and Android multimedia-soaked culture, we use the airwaves to do vastly more than listen to old-time radio. Broadband demands are skyrocketing beyond the slow-moving FCC's ability to keep up.

Fortunately, modern technologies squeeze more out of the spectrum. In fact, much of the scarcity that exists today is aggravated by the FCC, which continues to enforce outdated restrictions on how spectrum can be used rather than allowing businesses to buy and sell it freely in the marketplace. Technology matters, but so do markets for those technologies that drive efficient use.

Further, in recent years, the FCC has taken to micromanaging the telecom industry and interfering in needed large-scale transactions, often without congressional authority. The agency picks favorites, not just among companies and industries, but among business models. Recent high-profile FCC campaigns include its National Broadband Plan, its net-neutrality order (which was issued without congressional authority), its "Future of Media" initiative (which addressed a supposed crisis in journalism and free speech), its blockage of the AT&T/T-Mobile merger, and its lengthy, costly transaction reviews and decisions to impose disabling "conditions" on mergers like those between Comcast and NBC Universal and XM and Sirius.

Thankfully, there is a solution on the horizon. The House Telecommunications Subcommittee is considering a bill to reduce the FCC's ability to intervene in the marketplace. The Federal Communications Commission Process Reform Act, introduced by Rep. Greg Walden (R., Ore.), would subject FCC rulemakings to greater scrutiny. In testimony before the subcommittee, Randy May of the Free State Foundation said the bill "would go a long way toward combating abuse of the transaction review process" by forcing the FCC to provide evidence of a "specific harm" before extracting destabilizing merger concessions -- many of which historically have benefited competitors rather than consumers.

The Senate has yet to take up the bill, and its Democratic leadership has made no indication of wanting to do so. And during the last Congress, President Obama promised to veto similar legislation, though he also issued executive orders that encouraged independent agencies like the FCC to conduct cost-benefit assessments before regulating. This means that FCC-reform advocates need to make their case with even more vigor.

The White House objects to the act on the misguided belief that the FCC's micromanaging "protect[s] consumers, promote[s] competition, and increase[s] innovation." But when the FCC interferes with a business action or merger, all the agency does is prevent a competitive response from other businesses. No one benefits apart from the FCC bureaucracy and the antitrust bar.

The White House seems particularly concerned with the possibility that the act will reduce the FCC's flexibility. Indeed, reducing the FCC's ability to regulate is the whole point of the bill -- but any concerns about this are entirely misplaced.

The FCC's very power invites costly lobbying battles that delay new technologies and hurt consumers. Interventions conjure into being industry structures that otherwise would not have existed, forcibly reorganizing normal industry parameters and undermining consumer welfare.

As industry analyst Larry Downes testified before the subcommittee, the current process lacks effective mechanisms to ensure that a particular intervention is actually in the interests of consumers. In a 2006 study, economist Jerry Ellig found that telecommunications regulation may cost consumers over $100 billion annually in higher prices and foregone services -- and that was before the FCC campaigns noted above.

If Congress brought the FCC to heel, regulation of the communications industry wouldn't disappear, but it would become decentralized. Alongside the "regulation" that competitors and investors and business partners impose and that the FCC rarely acknowledges, states would continue to enforce consumer-protection rules and manage rights of way.

The FCC Process Reform Act would help move us toward more competitive discipline and regulation of general applicability -- policies that avoid the excess costs of the backward looking, centralized, and bureaucratic approach that characterizes the FCC today.