Thursday, November 03, 2011

Reforming the FCC's Regulatory Process

Representative Greg Walden, Chairman of the House Commerce Committee's Subcommittee on Communications and Technology, and Senator Dean Heller, a member of the Senate Commerce Committee's Subcommittee on Communications, Technology, and the Internet, have just introduced two bills that, in important ways, would reform the Federal Communications Commission's regulatory processes.
The bottom line is that, together, the two pieces of legislation would require the FCC to operate in a more transparent, more efficient, less reflexively regulatory, and more market-oriented manner. In today's dynamic, competitive communications environment, this will serve American consumers well.
The "Federal Communications Commission Process Reform Act of 2011" (H.R. 3309) contains various provisions that would, on the whole, improve the way the agency operates. The "Federal Communications Commission Consolidated Reporting Act of 2011" (H.R. 3310), as its name implies, would require consolidation of various separate annual reports the FCC is now required to produce. This consolidated biennial report would focus, in a comprehensive fashion, on the state of intermodal (cross-technology platform) competition, the deployment of communications to unserved communities, and the elimination of unnecessary regulatory barriers.
Testifying at a hearing before the House Subcommittee on Communications and Technology on June 22, 2011, on the draft bill upon which the two new bills are closely modeled, I supported most of the proposed reforms, while not necessarily endorsing all of them. I won't repeat here what I said in my testimony about all of the various aspects of the proposed reforms because you can read the testimony.
What I want to do instead is simply highlight a few points that may be worthy of note as the process moves forward.
  • ·      In answering post-hearing follow-up questions, I suggested consolidating the various reports identified in H.R. 3310 into one "marketplace report." The bill accomplishes this very nicely. The requirement that the Commission examine cross-platform marketplace developments and competitive alternatives in a comprehensive, holistic way should lead not only to less duplication of effort at the agency and by the private sector, but, more importantly, to sounder decisions. For example, the holistic approach ought to be more difficult for the agency to ignore the fact that wireless service is substitutable for wireline service, or that the video distribution market is highly competitive.
  • ·      H.R. 3309's provision ("Transaction Review Standards") reforming the agency's merger review process is certainly one of the bill's most important features. In acting on a transaction application, the FCC could impose a condition on its approval only if the condition is narrowly tailored to remedy a harm that arises as a result of the specific transaction on review and only if the Commission possesses authority to impose a similar requirement outside of the merger review context. This provision would limit, at least to some extent, the Commission's tendency to use the merger review process to adopt regulatory requirements unrelated to alleged transaction-specific harms and that should be imposed, if at all, only in a generic rulemaking proceeding. I first urged these same reforms to the merger review process – the elimination of "regulation by condition" – back in 2000 in this Legal Times piece.
  • ·      The provision in H.R. 3309 ("Nonpublic Collaborative Discussion") that would allow, notwithstanding the existing Sunshine Act strictures, a bipartisan group of FCC commissioners to meet collaboratively is another key reform. Allowing more than two commissioners to meet together, rather than relying on a series of ongoing round-robin meetings or staff gatherings for communication with each other, would be more efficient. But more importantly, it would foster greater collegiality and collaboration among the commissioners, increasing at least somewhat the likelihood of sounder decisions. I have been advocating reform of the Sunshine Act along these lines since shortly before Genesis. Here is my law review piece from 1997 reporting on an effort to revise the Sunshine Act by a special committee of the Administrative Conference of the United States that I chaired.
  • ·      There is much to commend several of the various other process reforms that would, for example, prevent last-minute data dumps in rulemaking proceedings, require "shot clocks" for certain proceedings so decisions are reached on a timely basis, and require release of draft orders before public meetings and final orders promptly thereafter.
  • ·      One of the most important parts of H.R. 3309 would require, for rules that may have an "economically significant impact," that the FCC's order identify and analyze the specific market failure, actual consumer harm, burden of existing regulation, or failure of public institutions, that warrants adoption of the rule. And for these major rules with an economically significant impact, the agency also would be required to conduct a form of cost-benefit analysis. Compliance with these analytical requirements should make it more difficult for the Commission to adopt regulations that are unnecessary or which are unduly costly or burdensome. The draft bill did not restrict the requirement to perform the specified analyses to any subset of rules. At the June hearing, I agreed with some of the draft bill's critics that it may be appropriate to narrow the application of the analytical requirements so they do not apply to all proposed rules, no matter how limited the projected economic impact. In my view, however, H.R. 3309 now goes too far in the other direction. This is because economically significant impact rules are defined in the bill generally as those with an annual effect on the economy of $100 million or more. In my post-hearing responses, I agreed it might be impractical and unnecessary to apply the analytical requirements to all proposed FCC rules, but I suggested they be applied to those with a projected annual economic impact, say, of $10 - $20 million or more. I said: "A relatively low threshold such as this will ensure that most economically significant rules are subject to cost-benefit analysis, but exclude those with little or no impact, including rules, such as those barring racial or religious discrimination, that do not lend themselves to cost-benefit analyses." I understand the $100 million figure has been used in the various executive orders governing regulatory review. But I still believe a threshold considerably less than a $100 million annual impact is appropriate for the FCC, an agency with an historic tendency to over-regulate in the face of the development of competition. After all, in 2010, according to the government's “Regulatory Plan and the Unified Agenda of Federal Regulatory and Deregulatory Actions,” the FCC had 147 rules in various stages of development. Only 7 of these 147, or approximately 5%, were considered in the "economically significant" category triggered by the $100 million annual impact threshold. These figures are generally in line with those from previous years. Thus, as proposed, the analytical requirements designed to lead to sounder, more rigorous, market-oriented decisions – by requiring consideration of specific market failure, actual consumer harm, the burden of existing regulation, and the costs and benefits of the proposed rule – would not apply to most of the rules considered for adoption by the agency. (For information concerning the FCC's rulemaking activities, as well as much useful information concerning the regulatory activities of agencies throughout the federal government, see the most recent edition of Wayne Crews' "Ten Thousand Commandments" series of reports.)
All things considered, both H.R. 3309 and H.R. 3310, if enacted, would substantially improve the FCC's processes. The reforms almost certainly would lead to FCC decisionmaking that is more transparent and efficient than at present. And the reforms likely would lead to adoption of regulations that are less costly and less burdensome than they otherwise would be, or, in some instances, to the rejection of regulations not shown to be justified. The constraints placed on the FCC's pro-regulatory bent, particularly the constraints imposed by the market-oriented analytical requirements, will help spur job and investment growth in a very important, dynamic sector of the economy.
Finally, Chairman Walden seems to have gone out of his way to draft the two reform bills in a moderate way in order to attract support from House and Senate Democrats. It remains to be seen whether his effort in this respect will bear fruit. And it also remains to be seen whether President Obama will be supportive, now that, even if belatedly, he is talking regularly about eliminating unnecessary and unduly burdensome regulations.
In truth, regulatory reform once was a bipartisan undertaking. Reforming the FCC regulatory process ought now to be a bipartisan effort. I hold out hope it will be.