Wednesday, May 26, 2010

Memorial Day - 2010

Since the founding of the Free State Foundation in 2006, I have written special messages each Memorial Day, Independence Day, and Thanksgiving Day that I hoped would have some special meaning in recognition of the holiday. In thinking about this upcoming Memorial Day, I recalled an essay entitled "A Baby Boomer's Appreciation" that I did for the Baltimore Sun in June 1995. I was moved to write that piece at a time when the nation was witnessing a series of 50th anniversary commemorations of various events surrounding World War II.

Although that appreciation was not written for Memorial Day, upon rereading, it seems to convey sentiments of mine that are relevant still, and entirely appropriate for reflection on this Memorial Day. In some ways the essay is intensely personal regarding choices made during the Vietnam era – a subject much in the news again of late as a result of certain statements made by a certain Connecticut Attorney General running for the Senate. But I hope, above all, the piece conveys my sense of the unpayable debt the country owes to those in uniform who have put themselves in harm's way to protect us all and who have paid the ultimate price in doing so.

So, on this Memorial Day, I leave you immediately below with "A Baby Boomer's Appreciation" – and with the wish that, with solemn remembrance in mind and awareness of the challenges ahead, you and those whom you hold dear enjoy your Memorial Day.


A Baby Boomer's Appreciation

Baltimore Sun, June 20, 1995
By Randolph J. May

FOR THE World War II generation, this year's series of 50th anniversary commemorations compellingly evoke memories of bloody battles fought in faraway places -- and of lives lost and lives spared. For that generation, the anniversaries and the names associated with these commemorations -- Pearl Harbor, D-Day, the Battle of the Bulge, Midway, Okinawa, etc. -- call to mind times of supreme triumph and tragedy. They recall countless heroic and selfless individual acts of courage and sacrifice, even in the face of likely death, by ordinary men who were fighting for a cause in which they believed.

This is not to say that everyone who went to war in that generation was courageous and selfless. Human nature is not such. But it is true that an extraordinary number of ordinary men and women willingly volunteered in service to their country -- and thereby volunteered to die -- in a war they believed had to be won to preserve freedom and certain universal values. Whether volunteers or draftees, most of them performed in the same courageous way.

With that in mind, the 50th anniversary commemorations provide the nation with an opportunity to say thank-you to those who won the war and to pay homage to those who did not return.

For the baby boomers, these commemorations stir deep emotions that we don't often express. These emotions relate to our own war, which though not as costly in terms of lives lost, was costly enough, with over 58,000 American deaths. Like World War II, Vietnam certainly produced its own share of heroism and courage on the battlefields. But if the threat to America's vital interests in our fathers' war was as stark as black and white, Vietnam was nothing if not multiple shades of gray. The national interest in fighting the Vietnam War with American combat troops was not so apparent or readily agreed-upon, particularly by those called upon to do the fighting. And even many people who asserted that the United States indeed did have vital interests at stake in Vietnam disagreed about strategy and tactics.

The debate about whether Vietnam was the wrong war, at the wrong place, at the wrong time rages to this day, 20 years after the last helicopter departed from the last Saigon rooftop. Former Secretary of Defense Robert McNamara's new book "In Retrospect: The Tragedy and Lessons of Vietnam," in which he now states that the Vietnam War was "terribly wrong" and that he and other senior officials knew it early on, provides new fodder for the Vietnam debate. History ultimately instructs, and Mr. McNamara's book no doubt will become another important component of history's instruction materials.

Regardless, however, of anyone's opinions today -- in retrospect -- about the wisdom of the objectives or conduct of the Vietnam War, there is no gain saying that many young Americans of my generation were confronted with painful choices: some volunteered to fight because they believed duty called; many were drafted and served honorably; many accepted various student and other deferments; some fled to Canada before being drafted or after being inducted; others went to prison proclaiming their convictions, rather than be drafted. Many, like me, joined the Army Reserve, where we served out our six-year commitments, but never got closer to anything resembling the fighting in Vietnam than fighting the mosquitoes and snakes in the swamps at Fort Polk, La.

Even if there were now widespread agreement in hindsight that our mission in Vietnam was ill-conceived and wrong (I'm not suggesting there is or ought to be such agreement), I believe that many of my generation who did not serve in Vietnam still harbor doubts about the individual choices we made at the time, despite what we may say publicly, or even privately. I believe many of us wonder whether our individual actions really reflected strongly held views about the rightness or wrongness of the war and its moral implications, as many proclaimed, or did such choices instead reflect a lack of personal courage on our part? We now wonder how readily we would have marched off to war like our fathers, if the rightness of our country's cause had been less ambiguous? How much less ambiguous? Finally, we question whether we should have said to the less fortunate (i.e. deferment-less) members of our generation: "Well, if you have to go, then so should I."

Being deprived of the moral clarity which confronted our fathers in their war, we were left to grapple with profound "what-ifs" about how we would have responded in less ambiguous circumstances. We can never answer definitively these nagging "what-ifs." I doubt if Mr. McNamara's book will provide the necessary cover to resolve our doubts. We can only live life on a going-forward basis -- which brings me back to this year's 50th anniversary commemorations.

These solemn commemorations give my Baby Boomer generation the opportunity to show our respect and, above all, gratitude, for the sacrifices of the war generation. When my father came home from the war after serving in Europe, he stowed away his Army uniforms, patches and other war paraphernalia. For many years, he was not much interested in talking about the war and the horrors he witnessed. Now he and some of his fellow soldiers are passing on their physical and mental remembrances.

But beyond the opportunity for final thank-yous, this season of commemoration is also a time when we baby boomers are of an age to understand that no two generations face the same challenges. While we can never know how each of us would have responded to the particular challenges and circumstances confronted by our fathers -- including being called upon to fight a war that had to be won for the country's sake -- that is not really what matters now. We can honor the war generation best by drawing inspiration from all that its members accomplished. That should help us understand that opportunities to display courage and leadership in the service of our country may take different forms in each generation. Then, not only will we honor these of the war generation, but also we will honor those of our own generation, especially those who gave their lives in Vietnam.

Tuesday, May 25, 2010

Unreasonable Tactics, Reasoned Decisionmaking, and the Rule of Law at the FCC

Over the past decade or so, the FCC's review of proposed mergers of communications companies has gotten much more unseemly as the Commission often has resorted to the practice of extracting midnight "voluntary" commitments from the merger applicants in exchange for approval of a merger. I first wrote about this unseemly practice in a March 2000 Legal Times piece entitled "Any Volunteers?" The Commission's practice of using its unbridled discretion under the vague public interest standard to force companies to engage in what I then called "the FCC's version of 'Let's Make a Deal'" denigrates the notion the agency is deciding mergers on a principled basis under a rule of law regime. Instead, the process smacks more of politics than principled decisionmaking.

Unless it is careful, the FCC risks further erosion of confidence in the way it handles merger proceedings in connection with its review of the proposed Comcast-NBCU merger. The "public interest" groups, such as Free Press, Public Knowledge, and Media Access Project, are leading a full-fledged assault on the merger. (Because the public interest is, as noted above, an indeterminate standard, any entity is free to call itself a public interest group, and, of course, media outlets are free happily to embrace such self-designation for some groups but not for others that might not meet their own conception of what is in the public's interest.) It is the perfect right of such groups to oppose the Comcast-NBCU merger if they please, and, indeed, to do so vigorously. No problem with that.

The problem arises with some of the tactics the groups employ in mounting such opposition. These tactics have the effect of undermining the role of the FCC acting independently on the basis of its expertise and experience. And the problem is only compounded if the Commission allows itself to become complicit – or, in effect, an enabler – in a process that begins to look more like a political advocacy campaign than a reasoned decisionmaking process conducted under established administrative law norms.

Here's a sampling of what I have in mind when I refer to problematic tactics in the context of an FCC proceeding, such as the proposed merger, which is principally adjudicatory in nature. Free Press is promoting a video it calls "How to Save the World from Comcast" that begins by announcing the Comcast merger "is headed for us like an asteroid" and gets more untethered from earth-bound facts from there. On the same "Stop the Merger" web page, Free Press urges its supporters to use a suggested comment form to enter a brief comment to be forwarded to the FCC. As Broadcasting & Cable's John Eggerton observed in a May 21 report, Free Press's tactic is beginning to swell the FCC's public docket with comments, although many just adhere to the suggested form and some appear to be duplicates filed by the same person. Finally, along with other groups, Free Press is urging the FCC to hold a number of public hearings around the country so that people can express their views on the merger.

As I said, the problem is not that Free Press, Public Knowledge, Media Access Project, or any other group, wishes to participate in the FCC's process and express their opposition to the merger. They are free to express such opposition in any way that conforms to the agency's rules. The problem arises if the Commission allows itself to be influenced or distracted by the groups' tactics in a way that delays what ought to be the agency's timely consideration of the merger or that detracts from what should be – and what should appear to the public to be -- a deliberative process focused on evidence directly relevant to established decisional factors.

Surely the FCC's ultimate decision should not accord much weight to the sheer number of short form letters submitted for or against the merger. These letters are almost entirely devoid of any facts relevant to the decisional considerations. Instead, they merely express, in formulaic terms, a computer-generated opinion. Such mass form letter-writing campaigns may be a relevant consideration in a purely legislative process. But it is inappropriate for them to be given much decisional weight in the consideration of an adjudicatory decision that should be grounded, in significant part, on expert economic and technical analysis, not organizational letter-writing muscle. The Commission cannot reach a reasoned decision simply by counting form letters.

By the same token, the Commission should reject calls for it to hold hearings across the country on the merger. Engaging in such a process is likely to turn consideration of the merger into distracting opportunities for showmanship that add no information to the record that cannot otherwise be supplied through the agency's normal processes. The relevant committees in Congress already have held four hearings and could decide to hold others as well. Indeed, if Congress were so disposed, it could even adopt legislation that would impact the Commission's consideration of the merger or squash it outright.

But the FCC is not a mini-Congress and should avoid allowing itself to be turned into one. Under established administrative law norms, the FCC is considered an independent regulatory agency that at times acts in a quasi-legislative capacity (such as when it engages in generic rulemaking), and at other times, such as in the consideration of a merger, in a quasi-judicial capacity. Again, as with the mass form emails, what would be the real purpose of field hearings? To count the number of witnesses that the Commission itself allows to testify for or against the proposal?

The Commission, rightly, has established a participatory process that allows interested parties a full opportunity to submit comments and replies to the agency, and they can do so easily through the Commission's website, or by mail if they prefer. In truth, there really is no relevant evidentiary information that would be presented to the Commission in field hearings that otherwise cannot be presented. Presumably, the Commission does not intend to base its decision on the "intensity" of the opposition that can be generated by Free Press and its allies to turn out for a hearing, or the number of signs waved in the back of the room.

There has always been a gap between the theory behind the creation of independent regulatory agencies such as the FCC and the reality. When Congress created the FCC it said it was putting its faith in, as the Senate Report put it, "one independent body" that would base its decisions on its specialized expertise. Indeed, the principal rationale for creation of the Commission in the independent agency format was that the commissioners would apply their "expertise" – a word oft-used in the legislative debates – to the technical and rapidly changing field of communications.

The reality is that application of the FCC's presumed expertise does not – and should not – occur in a vacuum. To a degree much greater than supposed, or at least admitted, by the Progressive-era theorists, every commissioner brings his or her own philosophical or policy perspective to each decision. This is in no way improper. But what would be improper, and injurious to the FCC as an institution, is for the Commission to allow itself or its processes to be used in a way that obviously invites the courts to conclude the agency itself is downgrading the role of its own expertise, while elevating considerations more suited to political campaign advocacy. And if this occurs, the FCC's credibility as an institution with expertise won't be damaged only in the eyes of the courts that review its decisions, but also in the eyes of the broader public the agency is supposed to serve.

Note that, quite deliberately, I have said not one word about the merits of Comcast-NBCU merger process, although I do have views on the subject. My concern here is for maintaining the integrity of the FCC's decisionmaking process, and certainly not only in the context of the Comcast merger or any particular merger proceeding. As a long-ago former Associate General Counsel of the FCC, a member of the Administrative Conference of the United States, and a former chair of the American Bar Association's Section of Administrative Law and Regulatory Process, I understand – indeed, I believe deeply -- that process matters with respect to the maintenance of the rule of law.

Noted constitutional law scholar Alexander Bickel wrote in his 1975 book, The Morality of Consent, that "the highest form of morality almost always is the morality of process." Whether or not one agrees with Professor Bickel's precise formulation, there should be no disagreement that the FCC should have as one of its own highest objectives the careful guarding of the integrity of its process.

Friday, May 21, 2010

The Law of Unintended Consequences - and Remembering Larry Darby

Much rightly has been made, including by me, regarding Bill Kennard's -- Bill Clinton's FCC Chairman -- opposition to regulating broadband Internet service providers as common carriers. There were other similar statements, but I especially have in mind Kennard's 1999 warning that it would not be good for America to "pick up this whole morass of regulation and dump it wholesale on the cable pipe." He was referring to the incipient cable broadband services. You can read the relevant part of his entire statement in my May 1999 blog here, or you can google "Bill Kennard" and "whole morass of regulation."

I was thinking of Bill Kennard's opposition to broadband Internet regulation because I recalled a very brief article by former FCC Commissioner Susan Ness, Kennard's Democratic colleague also appointed by President Clinton. The article, which I had been meaning for some time to get back to, was entitled, "The Law of Unintended Consequences." It appears in the June 2006 edition of the Federal Communications Law Journal. You can read it here.

Not unexpectedly, I don't agree with everything former Commissioner Ness says in the article. But, on rereading, there is much to commend it, especially as it relates to the ongoing efforts of current FCC Chairman Julius Genachowski to have broadband Internet services regulated as common carrier services under Title II of the Communications Act.

(I understand Genachowski suggests the Commission, in a problematical legal maneuver, would attempt to forbear from applying some of Title II's common carrier provisions to Internet providers at the very same time the agency determines to subject those same ISPs to Title II regulation. But note he does not propose to forbear from the two provisions – Sections 201 and 202 – of Title II that are at the heart of the common carrier regime. These two provisions require that the telecom carriers' – remember, the providers would no longer be ISPs – rates be reasonable and that they not discriminate. The FCC enforces the reasonable rate and nondiscrimination obligation.

Don't get me started on why the FCC's proposal definitely does not embody a consensus view and in no way, whether denominated "Third Way" or "any which way," does it represent "light handed regulation" as the Chairman tries to suggest.)

Back to Susan Ness's article. Here are some excerpts that ought to be quite relevant to today's net neutrality debate:

"Whether intentional or not, the 1996 Telecommunications Act (“1996 Act”) was transitional legislation, focused largely on the constituencies that battled before Congress at the time of its passage, with compromises to address historic realities."

"Even though the Internet was scarcely understood, Congress wisely established a national policy that it should be 'unfettered by Federal or State regulation.'"

"Facilities-based competition is preferred over resale and similar arrangements, both because it allows for greater differentiation in service offerings and because competitors fare better when they control their own destinies. But as we ruefully learned, a detailed regime of wholesale regulation is virtually impossible to administer in the face of determined resistance from incumbent providers."

"Do not pick winners and losers. Technological and competitive neutrality should be the goal. We do not have different regulatory regimes for wireless depending on whether a given provider uses Global System for Mobile Communications (“GSM”), time division multiple access (“TDMA”), or code division multiple access (“CDMA”)—or Evolution-Data Optimized (“EV-DO”). Technology changes too fast to base regulation on a specific technology, and regulators should not skew outcomes anyway."

"Think, and think again, before imposing regulatory restrictions. Many of the things that seem important when lobbyists are pressing their case turn out to be inconsequential within the not-too-distant future."

As I said above, there is much in these statements that warrants serious consideration by the current FCC Chairman and Democratic majority. Commissioner Ness was correct – and perceptive in recognizing back in 2006 – that the Telecom Act of 1996 is transitional legislation. It ought to be even more obvious now than it was then that the Communications Act needs an overhaul. A primary aspect of such overhaul should be the substitution, for decision-making purposes, of antitrust-like competition standards for the indeterminate "public interest" standard that pervades the act. This reorientation would require that the agency's decisions be grounded more rigorously in economics and less in politics.

And, for present purposes, if Congress determines there is a need for the FCC to have authority to regulate the Internet, it should devise a narrowly-circumscribed statutory provision that requires a showing of market power and demonstrable consumer harm before the agency takes any remedial action. Unless and until Congress determines the FCC should have such authority, the express admonition in the 1996 Act – highlighted by Commissioner Ness – that the Internet should be unfettered by federal and State regulation should be heeded, not circumvented, by the FCC.

Finally, I confess that Chairman Genachowski's current course, one of persistence in trying to impose net neutrality mandates even after the Comcast decision, puzzles me greatly. The fact of the matter is that there is no present evidence of market failure or of consumer abuses requiring the Commission to implement a regulatory regime for the Internet resembling the one employed to regulate the railroads – before the railroads were deregulated thirty years ago. In his Brookings speech on September 21 laying out his plan for net neutrality regulation of Internet providers, Genachowski acknowledged: "We cannot know what tomorrow holds on the Internet, except that it will be unexpected." And then he added this: “I understand the Internet is a dynamic network and that technology continues to grow and evolve." There was a real disconnect, even then, between his words, like those, and the reality of his proposal. On that September day, I wrote a blog about what I called his "immodest proposal for Internet regulation."

Now, the rejiggered course proposed – abandonment of a successful agency decision, successfully defended in the Supreme Court, that broadband Internet service providers should not be classified as common carriers – is even more immodest. Since the Chairman has acknowledged the Internet is a dynamic network and that technology continues to grow and evolve, just a modicum of regulatory modesty would caution against proceeding further without congressional sanction. It would be appropriate to consider carefully the words of former Commissioner Ness reproduced above, especially: "Think, and think again, before imposing regulatory restrictions."

And it would also be appropriate to be mindful of the "Law of Unintended Consequences," which Commissioner Ness chose as the title for her law review article.


PS – I would like to dedicate this particular blog to the memory of Larry Darby, who passed away suddenly on Tuesday. Larry was a distinguished economist. He served as Chief Economist and Chief of the Common Carrier Bureau back in the late 1970s, and I was fortunate that my service at the Commission overlapped with his. He was a fine civil servant who cared deeply about doing a good job for the Commission, especially encouraging the development of then-emerging competition, while at the same time protecting consumers.

Most recently, Larry was a Senior Fellow at the American Consumer Institute. You can read much of his recent work, superbly data-driven and rigorously analytic, on the ACI website. In the past half dozen years, we had reconnected, and we reminisced often and fondly about our time together at the FCC and about how much the communications environment had changed since those bygone days. Of this I am certain: Larry knew a monopolistic environment when he saw one in the 1970s Ma Bell era. And he understood that those days were long gone, supplanted by a technology-driven competitive environment that hardly could be imagined during our FCC days. To my mind, this understanding is why in recent years Larry became such a steadfast, articulate opponent of net neutrality regulation. Indeed, in a May 7 posting concerning Chairman Genachowski's Title II regulatory proposal, Larry had this to say: "Notably missing from the statement is any link between means (more FCC regulation) and ends (more investment, more innovation, more competition, greater consumer welfare, etc.) The reason is in equal parts obvious and distressing. There is not a shred of evidence that more regulation – light, heavy or in between — will advance any of these goals. None."

Larry's family and friends can be proud of his body of work, and the legacy he leaves behind by virtue of his intellect, good humor, and collegiality. But for all I have said about him – which praise might embarrass him into silence – I'm sure, as to all the rest, Larry would say, "Keep up the good fight!" Larry Darby, RIP.

Wednesday, May 19, 2010

No Need for "EU-Style" Wireless Mandates

Last week the FCC issued a public notice seeking comment on EU-inspired regulation of wireless customer service and billing. The public notice requests comment on the feasibility of imposing regulation similar to recently-adopted EU "bill shock" regulations that "are designed to ensure that a consumer is fully aware of the roaming charges he or she is incurring so that the consumer does not receive a higher than expected bill for these services." Now, transparency and disclosure of clear information are vital to informed consumer transactions. But since we already have those kinds of rules in place, is the addition of an extra layer of rules based on EU regulatory assumptions necessary? There are good reasons to think it's not.
Basic truth-in-billing rules prohibit fraud or deceptive practices that harm consumers. Since 2005, the FCC’s truth-in-billing rules requiring brief, clear, non-misleading and plain language descriptions of services rendered have applied to both wireline and wireless carriers. FCC regulation already prohibits slamming (carriers switching consumers' service to another carrier without consent) and cramming (carriers overcharging consumers). And general consumer protection statutes provide a venue in state courts to counter unfair and deceptive trade practices related to wireless services.

Unlike truth-in-billing rules or consumer protection statutes, however, the case for imposing EU-inspired "bill shock" rules is not nearly so strong. For starters, "bill shock" regulations can't be justified on anti-fraud or anti-deception grounds. After all, such regulations and laws are not directed to prohibiting fraudulent or deceptive practices. Rather, "bill shock" regulations are intended to provide consumers with extra notice about services they've already agreed to receive. Seen in this light, these regulations are less a matter of protecting consumers from wrongful e-commerce practices than protecting consumers from themselves. This suggests a paternalistic element to "bill shock" regulations premised on regulators' own judgments about what kind of wireless services carriers should provide and consumers should want.

Imposing EU-type "bill shock" regulations also makes little sense in light of the dynamic and competitive nature of the wireless marketplace. Why adopt regulations that risk freezing into place wireless services that are new and in a state of rapid change? Text messaging, smartphone apps, and other wireless data services are recent offerings in a rapidly-changing market that is likely to undergo further unpredictable innovation in the years ahead. And why single out wireless carrier bills for special regulation when consumers are increasingly using wireless devices for a variety of e-commercial purposes? Consumers now purchase all kinds of wireless-delivered goods and services—including video and music files—through entities other than wireless carriers. This includes a variety of paid subscription services with recurrent billing. But imposing "bill shock" regulations on iTunes, Zune, or online app stores would be unnecessarily sweeping and almost certainly exceed the FCC's jurisdiction. Given that truth-in-billing rules already exist, there is little justification for imposing "bill shock" regulations on one particular facet of today's wireless consumer experience.

Coinciding with rapid technological innovation in wireless services, billing practices have also undergone significant change and cut against the need for EU-style "bill shock" regulations. In terms of roaming fees or charges resulting from exceeding wireless plan use limits, the issue is fading due to the number of wireless carriers now offering free domestic roaming, unlimited calling, and unlimited texting plans. For instance, I solved my own "bill shock" experience 5 or 6 years ago by upgrading my plan to better fit my own text messaging patterns. Also witness the 13-year old girl in California who recently sent 14,582 text messages in one month under a flat-rate plan but incurred no extra charges. The economic downturn has likewise seen a sharp rise in pre-paid plan adoption by consumers. Pre-paid plans present none of the concerns with wireless carrier billing and consumer behavior apparently sought to be addressed by "bill shock" regulations. Indeed, the rapid rise of pre-paid services may be seen as an indication that consumers are wise enough to choose the type of services best-suited to their own needs.
Importantly, wireless carriers already provide consumers with the ability to check on the status of their wireless bills and obtain updates via e-mail or text messaging. And the wireless industry already has its own self-regulatory framework in place through CTIA's Consumer Code of ten principles. Industry self-regulation and wireless marketplace competition alone are not panaceas for all consumer protection issues. But self-regulation and competition are both disciplining forces that benefit consumers.

Unfortunately, if the FCC follows the EU's course then none of these developments in the U.S. wireless marketplace would matter. As the FCC's public notice points out: "[a] number of EU mobile services providers had already implemented procedures to combat the problem of 'bill shock' prior to the adoption of the 2009 regulations." Despite innovation in wireless services and choices in the U.S., the FCC is now considering whether to impose EU-inspired "bill shock" regulations, too.

All of this raises the most obvious question: why should the FCC look to EU policy to guide U.S. policy? The U.S. obviously has a regulatory framework and perspective that is quite different than the EU. Europe is much more prone to adopt a regulatory answer than enable pursuit of marketplace solutions to competition issues. The European wireless market is still working itself out from a telecom industry past characterized by national, government-owned operators. Unlike the U.S., Europe standardized GSM technology for its wireless market, primarily operates on a "caller pays" system rather than a both parties pay system, and it tends towards a "competitor welfare" emphasis for competition regulation and antitrust over a consumer welfare model. By contrast, since deregulation and preemption policies for wireless were put in place by Congress in 1993, U.S. wireless innovation and competition has exploded in an atmosphere of minimal federal and state regulation.

Now just because the EU adopts a policy doesn't mean that it's a bad policy or that it's never worth considering. But given fundamental differences between the U.S. and European view of marketplace micromanagement, the FCC is better off sticking with the justifiable rules it already has in place for wireless billing than with importing regulations premised on the EU's different set of regulatory assumptions. The FCC's recent release of a tip sheet for avoiding "bill shock" is certainly helpful. But beyond existing rules and educational efforts, the best thing the FCC can do for consumers is continue to let the wireless innovation and competition that got us to this point flourish, free from regulatory interventionism.

Thursday, May 13, 2010

Critiquing the So-Called Consensus on FCC Internet Regulation

Last week, FCC Chairman Julius Genachowski announced his plans to change broadband Internet service from a lightly-regulated "information service" into a more heavily regulated "telecommunications service." Oddly, the Chairman portrayed his plan to reclassify broadband as an attempt to save a so-called "consensus" concerning the FCC's role in regulating the Internet. But serious observers shouldn't let this curious "consensus" narrative take their eyes off the ball.

The real question to be decided is whether broadband reclassification under Title II is legally justifiable. In the end, a storyline about a vague and ephemeral claimed "consensus" won't authoritatively decide that question. Instead, the propriety of broadband reclassification and regulation depends on laws actually passed by Congress, and by policies actually adopted by the FCC and upheld by the courts.

Network neutrality regulation of the Internet is a policy still in search of a legal basis. Nowhere in the Telecommunications Act of 1996 is there any express authorization for the FCC to impose net neutrality regulation. And the ruling in Comcast v. FCC rejected the Commission's previous claimed "ancillary" jurisdictional basis for imposing net neutrality regulation. So now the Chairman hopes to overcome these obstacles by undoing key FCC deregulatory policies treating broadband Internet as an "information service" and by instead subjecting broadband Internet to outdated regulation designed for monopoly-era phone service.

So what exactly is this "consensus" that net neutrality regulation is supposed to be preserving? It's not so clear. In describing his plans to subject broadband Internet to Title II regulation, the Chairman stated that "[t]he goal is to restore the status quo consensus that existed prior to the court decision on the FCC's role with respect to broadband Internet service." The Chairman describes a "broad consensus in the public and private sectors" developed over the past fifteen years that calls for light-touch regulation of broadband by the FCC. It's also called "bipartisan."

So there was a consensus prior to the court’s ruling that was not itself challenged by the ruling but nevertheless is coming apart after the ruling? And the way to save this consensus is by adopting a reclassification and regulation plan for which there is obviously not a consensus?

This "consensus" is an odd sort of thesis-antithesis-synthesis narrative for smoothing over a sudden repudiation of deregulatory policies that have kept the Internet free from regulation. And in terms of messaging, the consensus mantra was hard to miss. The Chairman's speech announcing his reclassification and regulation plans used "consensus" nine times. (This excludes his references to a "widely understood," "widely accepted," and "long and widely thought" view of how the FCC should treat the Internet.) Moreover, FCC General Counsel Austin Schlick repeated the word "consensus" another ten times in his "legal framework" for broadband reclassification and regulation.

Perhaps the advantage of conjuring up a fuzzy consensus is that it's then supposedly easy to suggest what's in the conjured "collective" mind. And perhaps an imagined consensus of private companies, policy analysts, regulators, and elected officials existing over a span of a decade-and-a-half gives some rhetorical cover to a bold and controversial course of action by a federal regulatory agency. When a regulatory policy is in desperate search of a jurisdictional basis, it is certainly easier to ground it in a story instead of a statute. But regardless of how vaporous or verifiable the claimed "consensus" truly is, that isn't the one that ultimately counts.

If there is a real consensus that matters, it is the consensus expressed in the Telecom Act actually passed by Congress. It is also the consensus embodied in actual FCC rulings that classified broadband Internet as a lightly regulated Title I "information service." And it is likewise contained in actual court rulings that upheld Title I classification of broadband and rejected Title I "ancillary jurisdiction" as a basis for net neutrality regulation.

Congressional statutory limits on the FCC's delegated authority, the precedential weight of prior Title I classification rulings by the Commission, and authoritative court rulings concerning the limits of agency processes and powers are the concrete realities against which audacious broadband reclassification and regulation will ultimately be measured. And don't expect courts to give much deference based on agency technical expertise grounds to storytelling by a Fuzzy Consensus Commission.

But let's not forget the serious policy problems with the Chairman's so-called "third way" for broadband reclassification and regulation. Free State Foundation President Randolph May recently called this approach the "wrong way":

It is wrong because the proposal to unbundle 'transmission' from 'content' and 'applications' is impractical in a broadband world of integrated services. Even if it were practical, which it is not, it would be too costly. And the new unbundling regime would be too unstable as the line between 'transmission' and other services is constantly litigated. The 'third way' is the 1980s way of regulating telephone companies -- but the Internet is a 21st century phenomenon.

Seen in this light, Title II-based net neutrality regulation of the Internet faces serious legal and policy shortcomings.

Tuesday, May 11, 2010

Elena Kagan, Chevon Deference, and Independent Agencies

For a well-respected law professor and former Harvard Law School dean, Supreme Court nominee Elena Kagan has not produced a large body of scholarly work. But, after leaving her high-ranking positions in the Clinton Administration, she did produce a "large" law review article, the well-received Presidential Administration, published by the Harvard Law Review in 2001.

In that article, Kagan addresses the Supreme Court's famous Chevron case, which has to do with how much deference the courts should accord decisions of administrative agencies. She advocates a Chevron doctrine that "would begin by distinguishing between actions taken by executive branch agencies and by those taken by independent commissions." After elaborating factors that give independent agencies – such as the FCC – greater freedom from presidential direction and control than executive branch agencies, Kagan concludes that a Chevron doctrine "attuned to the role of the President would respond to this disparity by giving greater deference to the executive than to independent agencies." In 2005, a law review commentator observed that Kagan's view "is best read as applying Chevron deference only to executive agencies and some lower level of deference to independent ones."

This view, of course, should be of interest to those who are concerned with the actions of the FCC. It comports with my long-held view as well, which I set forth in my law review article, Defining Deference Down: Independent Agencies and Chevron Deference, published by the Administrative Law Review in 2006. In my article, I discuss Kagan's views on Chevron deference and independent agencies.

My article concludes:

"But at least with respect to the independent agencies, which are not politically accountable to the people in the same measure as the President and Congress, I suggest that a reading of Chevron that accords less deference to independent agencies’ decisions than to those of executive branch agencies would be more consistent with our constitutional system and its values."

On this point at least – a not unimportant point for all administrative lawyers and anyone interested in judicial review of the decisions of independent agencies like the FCC – Elena Kagan and I are on the same page.

Monday, May 10, 2010

USF - "Find the Good and Praise It"

[posted for Deborah Taylor Tate

"Find the good and praise it" is one of the famous injunctions I try to follow. It comes by way of my Tennessee colleague, Alex Haley, author of Roots.

So I want to applaud Chairman Genachowski for including the Universal Service rulemaking notice on the FCC's May agenda. In this new digital age, given the breadth of the FCC's National Broadband Plan, the agency needs to utilize every tool in the toolbox --including a revamp of the arcane and inefficient Universal Service Fund program. A total revamp of the subsidy program is absolutely crucial, especially in light of the fact that American taxpayers are shouldering the 15.2 percent added fee (aka "contribution factor") on all interstate calls. This is an unacceptable burden in this historic economic downturn.

However, now that universal service reform is on the agenda, I hope the FCC will pick up where we left off in December 2008 -- 17 months ago --- when I served on the Commission. And, rather than delay, make the tough decisions that are crucial and necessary. Subsidies for the most competitive markets in history no longer make economic sense. The focus should be on the unserved areas and unconnected people.

I wish Commissioner Mignon Clyburn well in her work as Chairman of the Federal-State Joint Board on USF.

To reform USF you have to make tough, but necessary decisions. So my advice, like President Truman's, is: "Get a dog!" And get the job done.

Monday, May 03, 2010

Process Problems Plague FCC Review of Harbinger Merger

Communications Daily recently highlighted a disconcerting facet of the FCC's conditional grant of approval in the Harbinger-SkyTerra merger. It appears that non-parties to the transaction directly affected by controversial conditions to the merger were kept in the dark about those proposed conditions because of a Commission grant of confidentiality issued a month prior to the merger approval. The episode highlights the continuing need for change that the Commission has promised in other areas. It's time to bring greater openness and transparency to the FCC's merger approval process.

The conditions adopted in the FCC's Order approving the merger include a prohibition on the merged entity’s allowing access to its spectrum by the two largest wireless carriers absent prior Commission consent. In a blog post from last month ("FCC Regulating Outside Its Orbit"), I pointed to the problem inherent in the Commission’s action. In sum, the FCC claimed for itself authority to bind not only the mobile satellite service providers that are parties to the transaction but also a power of sole discretionary approval of future business deals involving non-parties to the merger. Whereas several prior Commission merger approvals gave rise to extra-statutory regulation by condition relating to merging parties, its conditional approval of the Harbinger-SkyTerra merger marks a troublesome enlargement of the "regulation by condition" problem to unwitting non-parties.

Now added to those concerns with a seemingly open-ended condition by regulation process through FCC merger review is another peculiar dimension of agency non-transparency. The Supplement to Petition for Partial Reconsideration recently submitted to the FCC by Verizon Wireless complains about the Commission’s grant of confidentiality to the merging parties’ proposal of conditions "materially the same" as those adopted one month later in the FCC’s Order. "At no point during the month after they were first proposed," asserts Verizon Wireless, "did [it] ever receive notice that its access to spectrum and alternative network capacity was at risk of being restricted via an adjudicatory proceeding to which it was not a party." Rather, an unexplained post-approval withdrawal of confidentiality by Harbinger resulted in the disclosure of those "materially the same" conditions offered up a month before the FCC's Order.

In light of the new FCC's professed commitments to change, to openness and to transparency, one is hard-pressed to understand the Commission's decision to consider those controversial merger conditions while keeping them away from the eyes of the non-parties to be affected and the eyes of public. None of this is to suggest that Harbinger-SkyTerra merger approval was the result of a conspiracy of regulators with sinister motives conducting deals in a dark and smoky room. But the episode positively points to the need for agency reform. The Commission is undertaking reforms of its procedural rules, its ex parte rules, and its forbearance process. FCC merger review should be the next prime candidate for process reform.

The non-transparency of the FCC’s actions in approving the Harbinger-SkyTerra merger certainly bring into sharper focus the short-changing of due process principles resulting from the Commission’s merger review actions. As Verizon Wireless' supplemental petition aptly put it:

Stripped to its essence, the filing of the proposed commitments under these circumstances prevented Verizon Wireless from learning of their existence until after the Order was adopted. This new information underscores that the conduct in this proceeding denied Verizon Wireless – a target of two of the Order’s key conditions – any opportunity to be heard, and underscores the unlawfulness of the conditions themselves. This deprivation of Verizon Wireless's due process and other rights represents that antithesis of open and transparent decisionmaking, and further establishes why the conditions should be eliminated immediately.

It is a basic rule of law that the rights of parties cannot be adjudicated unless those parties are actually or constructively before the decision-maker. FCC regulation by conditions imposed on non-parties to merger transactions epitomizes arbitrary agency action and is fundamentally unfair.

Overall, the FCC's case for adopting merger conditions constraining the non-party wireless carriers appears shaky. Agency non-transparency and non-party due process problems raise serious questions about the FCC's Order. Not to mention that the FCC's Order offered no analytical reasoning tying the controversial conditions it approved with any kind of market failure or power. Taking all these shortcomings into account, the most immediately sensible thing for the Commission to do is to drop the merger conditions constraining the non-parties to the transaction. The next most sensible thing for the Commission to do is to bring its professions of commitment to change, openness and transparency to its merger review rules with meaningful process reform.

Sunday, May 02, 2010

Net Neutrality: Chairman Genachowski's Wagon Train Moment

Almost everything that can be said about the FCC's proposal to adopt new rules governing the practices of Internet service providers (ISPs) has been said – at least for now. My own post-Comcast decision position is that, if a Commission majority is determined that some form of Internet regulation is necessary or advisable, the agency should work with Congress to amend the Communications Act to give the Commission circumscribed authority to adjudicate complaints alleging that ISPs possessing market power have engaged in practices that cause consumer harm. You can read the comments here that I filed with the FCC urging this approach. I also commend to you the recent op-ed by former FCC Commissioner and Free State Foundation Distinguished Adjunct Senior Fellow Deborah Tate in which she declares: "Without evidence of any real threat of discriminatory treatment by Internet providers that harms consumers, the effort to adopt net neutrality regulations is a troublesome distraction."

What moves me (metaphorically at least) to pick up my pen today is the sense that FCC Chairman Julius Genachowski is rapidly reaching a "Wagon Train" moment. Many of the readers of this space are too young to have watched the 1950s-60s television series "Wagon Train" starring Ward Bond as wagon master Seth Adams and Robert Horton as the dashing scout Flint McCullough. For some time, Wagon Train was television's top-rated show. And I watched along with millions of Americans.

Here's the image that sticks in my mind about Wagon Train and real-world wagon trains of modern sorts. As the wagon train, with its pioneers, pushed steadily west, week after week, there were always potential perils ahead. The scout's job was to ride ahead and to detect and appraise the dangers –- and to report back to the wagon master. The wagon master had to assess the scout's information –- and to have the foresight to make the right decision about the road ahead. Whether to speed up or slow down. Or take the right or left fork, or no fork. Or to turn back or move forward.

FCC Chairman Genachowski is facing his own Wagon Train moment. Presumably, his scouts have considered potential perils and offered their assessments of various options. But like the wagon master, in this instance the decision is his. He is being pressed by Democrat Commissioner Michael Copps to classify broadband Internet services as Title II common carrier services and regulate them, as Free Press Chairman Tim Wu says, just like the railroads and telegraph carriers were regulated in 1910. Democrat Commissioner Mignon Clyburn reportedly would go along with this approach, while Republican Commissioners Robert McDowell and Meredith Baker steadfastly oppose it.

Ultimately, the wagon train's pioneers – risking all – had to depend on the wagon master's experience, expertise, and most of all, sound judgment, to make the right decision. Making the right decision involved an understanding by the wagon master of what had been encountered on the trail already traveled. But, more importantly, it involved an ability to look ahead, to see around the curve in the bend – to see into the future, if you will – concerning the trail not yet traveled. The responsibility of leadership was the wagon master's.

I have been thinking of my childhood memories of Wagon Train and my adulthood image of all variety of wagon trains as I contemplate where we are today in the net neutrality debate. There may be options other than my preferred one of the FCC working with Congress to develop a new market-oriented statutory framework. For example, perhaps the FCC could adopt the transparency rule it has proposed, and adopt a rule governing Internet practices along the lines I suggest for a statutory provision.

But I am strongly of the view that a bare FCC majority should not turn back the clock to 1910. In the technologically-dynamic and rapidly-evolving competitive marketplace environment in which they operate, broadband Internet service providers do not resemble twentieth century railroads, or telegraph carriers, or Ma Bell. Putting aside all the legal difficulties that changing the ISPs' present "information services" classification would cause, the risks to innovation and investment posed by imposing a common carrier straightjacket make such backwards-looking approach untenable as a matter of policy.

If Chairman Genachowski has a proper appreciation and understanding of the road already traveled by communications policy in the past decade or so –- simply put, from largely regulated monopolistic narrowband telephone services to lightly regulated broadband Internet services –- and a farsightedness concerning the road ahead, as the Internet continues to evolve, he will not want to turn-about and go backwards. There is no doubt that the Title II common carrier route would constitute such a turn-about.

Come to think of it, I don't remember the wagon master Seth Adams ever turning the wagon train around and heading backwards. To the contrary, the wagon train always continued on the westward journey, the way forward.

As a leader, Chairman Genachowski is facing his wagon train moment. I'd be quite surprised – and very disappointed – if he decided to turn around and head in a backwards direction on the nation's Internet journey.