Sunday, June 24, 2012

The FCC: "The More Things Change...."

You're familiar with the old saying, "The more things change, the more they stay the same." 
For me, the quip calls to mind the Federal Communications Commission. Despite the competitive developments that have occurred in the communications marketplace since passage of the Telecommunications Act of 1996, the FCC is essentially the same size and regulates much in the same way as it did in 1996. 
This shouldn't be the case. 
Congress declared in the 1996 Telecom Act's preamble its intent "to promote competition and reduce regulation." The primary legislative report stated the law was intended to create a "deregulatory national framework." Normally, the development of competition replaces the need for regulation, which, concomitantly, reduces the need for as many regulatory personnel. This is a general proposition to which almost all subscribe. 
Except it hasn't ever worked that way at the FCC. And even now, despite the fact that market segments regulated by the agency are becoming ever more competitive, there are no signs – absent congressional intervention – that it will work that way. 
In fact, over the course of the 15-year period since the 1996 Act's adoption, the FCC's staffing level (as measured by full-time equivalent staffers) has grown from 1755 (reported in the FCC's 1997 Annual Report) to 1917 now. Assuming that some of the increase in FTEs is attributable to additional staffing hired in connection with post-1996 Act implementation activities, in the last decade, despite the increase in competition in the markets subject to FCC regulation, the number of FCC FTEs has remained essentially steady. 
The chart below shows the number of FCC FTEs over the past decade.  

Fiscal Year
FY 2012
1,917 Projected
1,176 Estimated
FY 2011

FCC Source: Fiscal Year 2012 Budget Estimates Submitted to Congress
Prior Years’ Sources: FCC Performance Budgets,

FTC Source:  Fiscal Year 2013Congressional Budget Justification, page 36
In addition to showing the number of FCC FTEs from 2002 - 2012, the chart also shows the number of Federal Trade Commission FTEs for the same period. It is interesting – and instructive as well – that the FTC, with its dual consumer protection and competition regulatory responsibilities cutting across all U.S. markets, operates with only 1176 FTEs. The FTC generally is regarded as a well-managed and effective agency. 
Moreover, the FCC's budget has increased substantially over the past decade. According to the respected joint study of the Weidenbaum Center, Washington University, and the Regulatory Studies Center, George Washington University, since FY 2000, the amount spent by the FCC on regulatory activity has increased from $269 million to $446 million. These amounts are the budgetary "outlays" attributable to the agency's regulatory activities, gross of regulatory fees collected. This data is derived directly from the annual Budget of the United States. The Weidenbaum/RSC report may be found here and the above figures may be found in Table A-1. 
Again, the increased agency spending on regulatory activity throughout the past decade occurred as competition continued to increase in market segments subject to FCC regulation. 
Small wonder then that, in recently reducing the FCC's appropriation mark for FY 2103 by $17 million less than the Commission has requested, the House Committee on Appropriations determined, "the current organizational and management structure of the Commission does not reflect the convergence in today’s telecommunications market." Significantly, the committee concluded "[t]he increase in market-based competition should result in a smaller Commission with fewer staff." And it directed the Commission "to submit a review of the current FCC organizational structure as well as a proposal for improvement that reflects today’s technology landscape and competitive marketplace." 
As I stated at the outset, it is widely accepted that increased competition should lead to reduced regulation, which, in turn, should lead to a reduced number of staff and a reduced regulatory budget. I am not suggesting, and I do not suppose the House Appropriations Committee is suggesting, that there should have been a straight-line reduction, or a reduction in every year. But, over time, as competition increases and replaces the need for regulation, there should be a meaningful reduction in the agency's staffing level and the size of its regulatory budget. 
I am confident this is what Congress anticipated when it declared the 1996 Telecom Act was intended to "promote competition and reduce regulation." 
And I assume then-FCC Chairman William Kennard had in mind much the same when he released a strategic plan for the FCC in 1999 that began with this very statement: “In five years, we expect U.S. communications markets to be characterized predominately by vigorous competition that will greatly reduce the need for direct regulation." 
James Byrnes once said: "The nearest approach to immortality on earth is a government bureau." As someone who served in all three branches of government as a member of the U.S. House of Representatives and the Senate, governor of South Carolina, Secretary of State, and the Supreme Court, Mr. Byrnes knew something about the ways of government agencies and bureaucratic imperatives. 
Mr. Byrnes need not worry. I am not suggesting the FCC should die, or that it should be crippled. There is still important work for it to do. 
But, as the House committee report suggests, the Commission does need to reform itself institutionally in a meaningful way that reflects the marketplace changes that have occurred since 1996. This would require the agency to prioritize its activities to reflect today's realities, so, for example, it would devote resources to repurposing spectrum in a timely fashion, rather than to considering re-regulating services, such as special access, which were deregulated a decade ago.  
There simply is no reason for the FCC to go merrily along in the cause of proving that, "The more things change, the more they stay the same."