Wednesday, October 31, 2012

FCC Inviting An Especially Big Mess On Special Access

The FCC is now preparing what it calls a "comprehensive data collection order" in an effort to establish a new regulatory framework for special access services. New regulations apparently would replace the modest deregulatory approach that the FCC dumped in August.
The FCC's special access data collection endeavor presents a set of complex and compounding problems that, as much as anything else, serve to illustrate the misguided nature of the agency's re-regulation bent. Fights are already brewing over what data should be collected. And disputes are also taking place over how to define the data that should be considered relevant in the first place.
There's plenty of reason to be concerned by the new re-regulatory FCC's special access policy. The agency dropped pricing flexibility triggers even while admitting it lacked the necessary data for a comprehensive analysis of the market – hence the pending data collection order. And once it has collected the data, the FCC hinted it will analyze it under a decidedly pro-regulatory framework like the one it adopted in its 2010 Qwest Phoenix MSA Order. So, the likely result would be a significantly re-regulated market for special access services.
Special access services employ dedicated facilities running directly between the end user and the physical point where an interexchange carrier connects its network with a local network. (By contrast, switched access services use local exchange switches to route originating and terminating interstate traffic.) Competitive carriers, including those offering services to enterprise businesses, often rely on special access lines to reach customers. And large businesses also directly purchase special access services to meet their needs.
Starting in 1999 the FCC permitted incumbent local exchange carriers (ILECs) offering special access services to receive pricing flexibility. Under what the FCC termed a "market-based approach," the FCC established a pair of "competitive triggers" based on the extent that competitors had collocated facilities in ILEC's wire centers within a particular metropolitan statistical area (MSA). Where the lower competitive collocation trigger was met, ILECs were permitted to offer services at discounts off the capped prices. And where the higher trigger was met, ILECs could offer services outside of price cap regulation but subject to tariffs. Through the FCC's Enterprise Broadband Orders, ILECs have also been granted forbearance relief from special access regulation for enterprise broadband services such as Ethernet.
FCC put a sudden stop to its modest deregulatory approach in its August Special Access Order. The FCC suspended the automatic pricing flexibility triggers for special access services. The agency preemptively took this action – that is, it changed policies even while expressly acknowledging the lack of data concerning special access services.
For instance, the Special Access Order gave nods to claims by various parties about the supposed lack of competitiveness in the market. Such claims appear to have helped prompt the order, at least in part. This despite the FCC's admission it "cannot yet evaluate these claims of competitive harm based on the evidence to date in the record." The FCC said a "comprehensive evaluation of competition in the market for special access services is necessary." But then the agency insisted it lacked the necessary data for such an analysis. By the same token the FCC admitted: "…we currently lack the necessary data to identify a permanent reliable replacement approach to measure the presence of competition for special access services."
So the Special Access Order concluded: "[I]n the absence at this time of clear evidence to establish reasonable and reliable proxies to determine where regulatory relief is appropriate, we will collect necessary data and undertake a robust competition analysis that may identify reliable proxies for competition in the market for special access services going forward. We will issue a comprehensive data collection order within 60 days to facilitate this market analysis." Release of the FCC's comprehensive data collection order apparently is now imminent.
That the FCC changed policy regarding special access services without the data necessary for a robust competition analysis is dubious in its own right. But it is evident that there are other reasons why the FCC's forthcoming data collection order is not likely to inspire confidence. And they have as much to do with the increasingly competitive nature of the marketplace as anything else.
Deciding what data should be collected poses serious dilemmas, especially in markets that are changing and technologically dynamic. For example, in order to determine whether specific geographic areas are competitive or not, the FCC will likely need to collect data on the number and location of existing facilities. But requiring disclosure of such information imposes significant compliance costs on providers. Some smaller providers have argued they should receive de minimis exemptions from any such disclosure requirements. But this would mean ignoring real existing facilities and their competitive effects. And, not surprisingly, providers may be reluctant to disclose such information because they consider it to be commercially sensitive.
Pricing information regarding special access services also presents problems for the FCC. In ex parte filings with the FCC, competing providers have indicated they also consider pricing data to be commercially sensitive. ILECs often enter into commercial arrangements with carriers or business enterprises at discounted prices. Nonetheless, providers, again, not surprisingly, have suggested they would rather not disclose data regarding price offerings or privately negotiated arrangements.
Similarly, the kind of forward-looking analysis that the FCC insists it will undertake will require information not only about existing competition but also about sources of potential competition. However, providers, still not surprisingly, have indicated reluctance to divulge their strategic plans for future deployment.
Presumably, the FCC must also define the kinds of services, facilities, and business practices that are relevant or otherwise within the scope of its data collection order.  In particular, any serious data collection order would need to include – and therefore to define – those kinds of services that are reasonably close substitutes to special access services. As I blogged about previously, broadband enterprise services relying on Ethernet technology offer an alternative for handling wireless backhaul traffic and for meeting the needs of large businesses. Of course, some competitors have already complained that Ethernet and other broadband enterprise services aren't adequate substitutes.
Disputes already have arisen in ex parte filings over what competitor facilities should be counted in any competitive analysis. That is, the FCC will have to settle whether its data collection and analysis should include facilities where competing providers possess "indefeasible rights of use" (IRUs) through lease agreements. This includes settling on a minimum term of years for recognizing such IRUs, whether 5, 10, or even 20 years time.
As I have written about on prior occasions, the framework adopted in the Qwest Phoenix MSA Order disregards close substitutes, such as wireless. And it makes evidence of price reductions in large networks with substantial up-front fixed costs and subject to extensive regulations a pre-requisite to any regulatory relief. For such reasons, that framework poses a near insurmountable barrier to obtaining regulatory forbearance relief. Extending that kind of framework to the special access market would likely result in a highly re-regulated special access market. This despite the prevalence of competitive and potentially competitive alternatives posed by enterprise broadband services and other alternatives.
Resolving the data collection and definitional dilemmas that confront the FCC will be no easy task. This is not so much because there are not a lot of capable people at the agency. Instead, it is because, in essence, the FCC has now taken upon itself the task of trying to assemble the type of market data that would be required in an old-fashioned analog-era rate case in a competitive era not suited to old fashioned rate case data production.
As it now stands, the brouhahas surrounding the agency's attempt to delineate the parameters of its information collection effort are simply foreshadowing the big mess the FCC's new pro-regulatory policy almost certainly will create.

Tuesday, October 30, 2012

Every Movie Ever Made

There is a piece in today's Communications Daily [subscription required] concerning whether public policy is causing EU countries to fall behind in fiber deployment. I may have more to say about this in the future.
But I was really struck by this statement in the article: "Cisco forecasts that global Internet traffic will grow by 30 percent per year to 1.36 zettabytes by 2016, [DotEcon economist Christian] Koboldt said. That means that the gigabyte equivalent of every movie ever made will cross the Internet every three seconds, he said."
It is hard for the average person -- or at least an average Joe like me -- to even comprehend what a "zettabyte" means. But I do have a sense what it means to talk about the bandwidth required to handle every movie ever made crossing the Internet every three seconds.
And I have a good sense that it will be important to have in place public policies that provide sufficient incentives for broadband providers to invest sufficient capital to continue to build out high-capacity networks.

Tuesday, October 23, 2012

Ideas for Communications Law and Policy Reform for 2013

Videos are now available for Free State Foundation's October 18 lunch seminar at the National Press Club. The event focused on ideas for reforming communications law and policy in the year to come.
The event kicked off with a conversation between FCC Commissioner Robert McDowell and Free State Foundation President Randolph May. The video for that conversation can be found online here:
The event also included an expert panel discussion, the video for which can be found here:
The panel featured Information Technology and Innovation Foundation's (ITIF) Robert Atkinson, Heritage Foundation's James Gattuso, and Minority Media & Telecommunications Council's David Honig. Mercatus Center's Adam Thierer, another panel participant, has posted an outline of his main remarks at Technology Liberation Front in a blog titled "Getting Communications & Media Reform Done Right Once and For All."

Friday, October 19, 2012

Notes from My Recent Travels

By Deborah Taylor Tate

This past week, I had the honor to participate in the ITU Telecom World 2012, October 14-18, 2012, in Dubai, where I moderated three sessions: "Women in ICT" in my role as co-chair (my co-chair is actor Geena Davis); "ehealth in the 21st Century: Transformation and Collaboration - in Partnership with Verizon Global Enterprise"; and "Locking the Digital Door - Protecting the Privacy of Children Online - in partnership with the Cyber Guardian." The prior week, October 10-11, I spoke at the Asia-Pacific and Korean Broadcasters conference in Seoul, Korea, which included a women's summit, "Women with the Wave," along with Geena Davis and numerous women CEOs from South East Asia.

Maryland's Heavy Business Tax Burden Keeps Investment and Jobs Down

Just as businesses compete with other businesses for customers, states compete with other states for new businesses and jobs. By creating economic climates favorable to start-ups and business migrations, states benefit from increased investment and job growth.

But as detailed in the Tax Foundation's 2012 Business Tax Climate Index, Maryland remains one of the nation's least economically competitive states. The Index places Maryland at number 42. That is, the Index designates Maryland's system of business taxes as the 8th worst state in terms of its fostering a favorable business and jobs climate. 

Interstate tax competition, including business tax competition, is especially important in difficult economic times, when job creation is most urgently needed. As the State Business Tax Climate Index explains, "the Index is an important and useful tool for policymakers who want to make their states’ tax systems welcoming to business." Maryland's lawmakers need to take the Index's findings seriously: the state is long overdue for significant tax reforms improve its attractiveness to increased financial investment and job creators.

The State Business Tax Climate Index is based on five weighted components: state corporate taxes, state individual income taxes, state sales taxes, state unemployment taxes, and state property taxes.

Overall, Maryland ranks 42nd in the Index. Maryland's bottom-tier status owes in significant part to the poor economic impact of the state's individual income tax and unemployment insurance tax systems. Maryland's property tax system is also a serious cause of concern.

In terms of state individual income taxes, the Index puts Maryland near the cellar, at 46th place. State individual income taxes have a critically important impact on a given state's economic competitiveness. According to the Index, "a significant number of businesses, including sole proprietorships, partnerships and S-corporations, report their income through the individual income tax code." Also, "[t]axes can have significant impact on an individual's decision to become a self-employed entrepreneur." In addition, heavy state income tax burdens reduce the quantity and the quality of the labor force and raises costs for doing business.

The Index points to the individual income tax burdens resulting from states, like Maryland, that permit income taxes at the municipal and county levels. By calculating an average effective local option income tax rate for such states, the Index concludes that "Maryland has the highest average effective local rate, at 1.56 percent of state personal income." Maryland's poor individual income tax rating is also attributed to its imposing a marriage penalty on taxpayers filing jointly as well as its double taxation of capital income – such as ordinary dividends, interest, and cap gains – for which businesses have already paid taxes.

Maryland also has one of the worst overall scores for its unemployment insurance tax system. It ranks 45th in this category. These taxes are paid by employers to finance benefits for recently unemployed workers. Competitive states have "rate structures with low minimum and maximum rates and a wage base at the federal level," along with simpler charging methods. Maryland, however, is among states with the highest minimum tax rates (2.2%) and the highest maximum tax rates (13.5%).

And when it comes to property taxes, Maryland makes a poor showing once more. Out of 50 states, Maryland has the 40th most economically competitive property tax system. For Maryland, this low score results substantially from its wide state property tax base. The state's property taxes include: inventory taxes, real estate transfer taxes, estate taxes, and inheritance taxes.

Keep in mind that neighboring states all fare significantly better than Maryland in the Index's scoring: Delaware (12th), Pennsylvania (19th), West Virginia (23rd), and Virginia (26th). And the consequences of Maryland's business unfriendliness have already been observed. Look no further than Maryland Public Policy Institute's Larry Hogan's May 30, 2012 article, "How Maryland's Tax Rates Are Driving Jobs to Virginia." Citing another Tax Foundation study, Hogan wrote:
Maryland accounted for the largest taxpayer exodus of any state in the region between 2007 and 2010, with a net migration resulting in 31,000 residents having left the state. Where did most of them go? Virginia. Virginia is now home to nearly 11,500 former Marylanders—a shift of $390 million from the tax rolls of one state to another.
Maryland's dismal Index ranking should be another wake-up call to officials and citizens in Maryland. There is urgent need for tax reforms to make the state's economic atmosphere more conducive to investment and job growth. For Maryland to continue on its current path means losing economic opportunities and jobs to neighboring states.

Wednesday, October 17, 2012

Breaking Down Barriers to Wireless Broadband Build-Out

There is a critical need for expanding infrastructure to meet next-generation wireless traffic demand. Too often, however, local regulatory barriers slow down or stand in the way of the construction of new towers or the upgrading of old ones. Those regulatory barriers delay and drive up the costs of next-generation wireless broadband networks, keeping local economies from realizing the benefits conferred those networks.

Local regulatory barriers to wireless infrastructure build-out were the subject of my Perspectives from FSF Scholars essay, "4G Wireless Networks Need Relief from Cell Siting Barriers: Economy Would Benefit Through New Jobs and Investment." 

In that essay, I called into questions aspects of the Fourth Circuit's ruling in T-Mobile v. Fairfax County Board of Supervisors (2012) that the County Board's denial of cell tower siting permit  did not "effectively prohibit" wireless services. Nonetheless, I pointed out a positive point in the case, arising from the FCC's amicus curiae brief. The FCC rejected the idea that the Section 332(c)'s ban on "effective prohibitions" of wireless services by local governments applies only to "blanket bans" on wireless tower siting by all providers. As I wrote:

[I]n its amicus brief, the FCC reiterated that the restrictions on zoning authority contained in Section 332(c)(7)(B), apply not only to land use applications by the first wireless provider to enter the local market but to siting requests by all subsequent entrants.

A more positive overall result was reached by the Sixth Circuit in T-Mobile v. West Bloomfield (2012). In August, the Sixth Circuit ruled that a local township's denial of a wireless tower siting permit was not supported by substantial evidence and constituted an improper "effective prohibition" on wireless services. Perhaps more importantly, the Sixth Circuit ruled on two matters of first impression for that circuit, namely: (1) whether denial of a single application of a siting permit can constitute an "effective prohibition" or whether the statute only applies to "blanket bans" and (2) whether a "significant gap" in coverage for one wireless provider indicates an "effective prohibition" or whether service provided by a single wireless provider is sufficient. 

Fortunately, the Sixth Circuit rejected the "blanket ban" argument. And it concluded that a "significant gap" by a single wireless provider - combined with a "least intrusive alternative" analysis - should be used for analyzing whether an "effective prohibition" of wireless services exists in a given situation.

I've previously blogged on the importance of local governments accommodating wireless infrastructure build-out in their zoning processes. A smooth process is far preferable to litigation. But where local regulatory barriers make resort to the courts a necessity, it's good to see the Sixth Circuit opt for interpretations of Section 332(c) that are sounder as public policy, more in keeping with Congress's purposes.

Monday, October 15, 2012

Changing the FCC's Analog-Era Mindset

There is almost certainly not a marketplace in the United States today that is as dynamic and rapidly evolving as the communications and information services sector. The reason for this, of course, is that the transition from narrowband to broadband services, from analog to digital technologies, and from monopolistic to competitive market structures, has been well underway for over a decade now.
Despite the FCC's recently acquired reticence to pronounce various market segments "competitive," the evidence nevertheless is strong that the broadband, wireless, and video markets are effectively competitive. It appears the agency's newfound reticence has more to do with wanting to justify the preservation of its regulatory domain than with performing fact-driven competitive market evaluations.
And, make no mistake, the FCC's specific regulatory actions – indeed its overall regulatory posture – matters. No doubt consumers should be protected from abusive practices in the face of demonstrable market failure. But absent market failure, marketplace competition will protect consumers better than the FCC's brand of regulation, which very often is unnecessarily broad, overly anticipatory in reach, and unduly rigid in application.
Stated simply, when the FCC over-regulates and unnecessarily intervenes in the marketplace, investment and innovation are dampened, market structures and business models are frozen in place, competitive entry is discouraged – all with the effect of impeding the completion of the transition to all-IP networks for all.
This is not to say that the Commission, even in recent years, has not taken some welcome deregulatory steps, such as beginning to implement meaningful Universal Service Reform, allowing the partial expiration of the ban on exclusive contracts for satellite programming between any cable operator and any cable-affiliated programming vendor in areas served by a cable operator, or forbearing from enforcing the prohibition on mergers between cable operators and competitive local exchange carriers.
When the Commission has taken such market-oriented actions, I have been happy to applaud them and give the agency, and Chairman Genachowski, due credit. But the reality is that they have been the exception and not the norm.
The norm has been too much regulation in an era of ever increasing competition. The adoption of new Internet regulation in the form of net neutrality mandates is but one example, albeit an important one. Another example is the deleterious practice of routinely engaging in "regulation-by-condition" in the context of reviewing proposed mergers.
To some (lesser) extent, and at some (slower) pace, the digital revolution likely will continue to bring more competition, more consumer choice, and more innovative products at lower prices, even in the face of Commission over-regulation. But surely the extent and the pace of the revolution matters. More investment and innovation, more competition and consumer choice – all more quickly – is better for consumers and for the country.
Here's the crux of the matter. The FCC largely still operates as if it is in the grip of an analog-era regulatory mindset in which the default presumption is the existence of static, monopolistic markets. This analog-era mindset has an air of unreality about it.
Regardless of who wins the coming election, this mindset should change in 2013. A digital-era mindset would find ways to account for a presumption of dynamic, competitive markets. (No reason why it can't change in the last months of 2012, of course.)
To that end, I hope you'll be able to join us for this Thursday's (October 18) Free State Foundation luncheon event at the National Press Club that begins at 11:45 AM. The program is entitled, "Ideas for Communications Law and Policy Reform in 2013." FCC Commissioner Robert McDowell and I will lead off the session with what I'm sure will be a lively, thought-provoking conversation. This will be followed by a free-wheeling panel discussion by four of the nation's leading experts on communications law and policy. Details concerning the program and a registration link are in the sidebar to the right, and you must register to attend because space is limited.
At the forum, we'll discuss both process and substance reforms. Regarding the latter, we will address topics such as reforming the forbearance relief process and the way the agency performs competitive assessments, reforming the transaction review process, revising spectrum policy to relieve the spectrum crunch, completing USF reform, and more. Of course, with a growing sense that the Communications Act needs to be substantially revised, we'll discuss policy reforms that can only be accomplished by Congress.
Please tweet your ideas at: fsfOct18ideasforum. And keep the discussion going on Twitter during and after the event.
Finally, I'll have more to say about this in the near future, but you will be the first to know! The Free State Foundation's latest book, "Communications Law and Policy in the Digital Age: The Next Five Years," will be in print and available in a week. In the book, some of the nation’s most eminent scholars explain why communications law and policy should be changed in response to the profound marketplace transitions taking place. And, as importantly, the contributors explain how law and policy should be changed. In addition to myself, the contributors, all recognized experts on the subjects they address, are: Representative Marsha Blackburn, Michelle Connolly, Seth Cooper, Ellen Goodman, Daniel Lyons, Bruce Owen, James Speta, and Christopher Yoo.
While the book is available on Amazon, Barnes & Noble, and at other outlets, Carolina Academic Press, the book's esteemed publisher, is now offering a 20% discount for orders using the special discount code on this CAP promotional flyer.       

Thursday, October 11, 2012

Rising USF "Tax" Rate and Urgency of Reforms

On September 12 the FCC issued a public notice announcing that for the fourth quarter of 2012 the universal service contribution factor will be 17.4%. That's an increase over the previous quarter and almost 2% higher than it stood in the fourth quarter of 2011.
As I explained in my blog post "New USF Tax Adds Urgency to Reform Effort," "the contribution factor translates into the line-item surcharge amount that is added to the interstate long-distance portion of consumer’s monthly phone bills." So consumers will be tapped with a 17.4% surcharge or "tax" on the long-distance part of their monthly phone bill for the next few months.
Below is an updated chart showing the dramatic growth of the USF tax burden on consumers in recent years:
This upward march in USF surcharges and the growth of the fund highlight the need to carry forward the reforms that the FCC begun in its 2011 USF Reform Order. FCC Chairman Julius Genachowski deserves credit for forging ahead with that order, as I discuss in my blog post "Universal Service Reforms Must Continue to be Implemented." Also critical is the FCC's more recent notice on USF contribution reform. We will likely have more to say about contribution reform in the months ahead.

Wednesday, October 10, 2012

Muni Broadband Project's Gig Service: Fast or Phantom?

Taxpayers Protection Alliance's David Williams re-published a piece in the Chattanooga Times Free Press that questions the hype surrounding a municipal broadband project in Tennessee. Chattanooga's EPB has touted broadband Internet service speeds of 1G. But as the title of the piece asks, "Is EPB's gig service a hoax?"
Given EPB's steep infrastructure investment, one might expect EPB's boasts of stellar service speeds to be plausible. Of course, EPB's infrastructure is funded by local taxpayers and electricity customers—to the tune of $552 million.
However, EPB declined to provide broadband services to a local business enterprise with significant bandwidth capacity demands. Refusing to offer service to the enterprise at EPB's advertised rates, the enterprise turned to EPB's rival Comcast to meet its broadband service needs. Curious.
As we have explained in prior writings, municipal broadband projects across the country have hit local taxpayers hard, precisely at a time when public and private budgets are already on the ropes. 
But EPB appeared to offer a counterfactual, a success story to be emulated by other aspiring local government officials. EPB was even cited by the FCC in its recent Section 706 Report. So answers to questions surrounding EPB certainly deserves close attention.
Now that EPB has been called out it will be interesting to see whether EPB is more about spin than speeds. 

[*Editorial note: this post was edit to reflect that the Chattanooga Times Free Press piece was re-printed but not authored by Mr. Williams.]

The FCC, the Administrative State, and Separation of Powers

On October 11, I am speaking at an event sponsored by Vermont Law School's Federalist Society chapter. The topic is "The Administrative State," with a special focus on what Federalist Papers Nos. 47 and 51 have to say about the role of administrative agencies in our system of government.
This is a very good topic, for which I commend Vermont Law School's students. If I had my way, not just all law students, but all college students, would be required to read at least certain numbers of the Federalist Papers (especially Nos. 10, 47, 48, 51, 55, 70, and 78) before receiving their degrees!
Federalist Nos. 47 and 51 consider the role of separation of powers in our constitutional design, and they contain some of the most oft-quoted language from the papers. At the law school, I plan to discuss how separation of powers principles impact the way we think about the administrative state – or should think about it. With an emphasis on the Federal Communications Commission, I'll consider the nondelegation doctrine, the status of the so-called independent agencies, and the degree of judicial deference accorded independent agencies vis-รก-vis the executive branch agencies.
For my purposes here, I am going to focus only on the nondelegation doctrine. An appreciation of the doctrine's derivation from constitutional separation of powers principles, and its purpose, is central to understanding the way in which communications law, and the FCC itself, ought to be reformed.
In Federalist No. 47, defending the proposed Constitution against the contention that it allowed too much blending of the separate departments’ powers, James Madison declared:

"The accumulation of all powers, legislative, executive, and judiciary, in the same hands . . . may justly be pronounced the very definition of tyranny. Were the federal Constitution, therefore, really chargeable with this accumulation of power, or with a mixture of powers, having a dangerous tendency to such accumulation, no further arguments would be necessary to inspire a universal reprobation of the system."

In support of the idea that separation of powers is essential to preserve liberty, Madison referred to the writings of "the celebrated Montesquieu," who Madison assured us, is "the oracle who is always consulted on this subject."
It is true. Madison and many other Founders were well versed in Montesquieu, the French Enlightenment philosophe. In his most famous work, The Spirit of Laws, first published in English in 1750, Montesquieu had written:

"When the legislative and executive powers are united in the same person, or in the same body of magistrates, there can be no liberty; because apprehensions may arise, lest the same monarch or senate should enact tyrannical laws, to execute them in a tyrannical manner.
Again, there is no liberty, if the judiciary power be not separated from the legislative and executive. There would be an end of every thing, were the same man, or the same body, whether of the nobles or of the people, to exercise those three powers, that of enacting laws, that of executing the public resolutions, and of trying the causes of individuals."
Federalist No. 51 is much to the same effect as No. 47:

"In order to lay a due foundation for that separate and distinct exercise of the different powers of government, which to a certain extent is admitted on all hands to be essential to the preservation of liberty, it is evident that each department should have a will of its own; and consequently should be so constituted that the members of each should have as little agency as possible in the appointment of the members of the others."

While both Nos. 47 and 51 acknowledge that some deviations from strict separation of powers are necessary, and, in fact, are incorporated into the constitutional framework, the emphasis in both is on the role separation of powers plays in protecting liberty and promoting political accountability.
Consistent with separation of powers, Article I of the Constitution provides "[a]ll legislative powers herein shall be vested" in Congress. Now, if this injunction were taken literally, we wouldn't have much of an "administrative state" about which to be concerned. This is because most federal agencies, including the FCC, exercise rulemaking power – that is, the power to promulgate regulations that bind individuals and businesses in the same way that laws of Congress do.
But the injunction is not taken literally. The Supreme Court has accommodated the agencies' exercise of lawmaking power by adopting what is referred to as the "nondelegation doctrine." The Court indulges in the fiction that there has not been an unconstitutional delegation of power, as the Court put it in J. W. Hampton in1928, so long as "Congress shall lay down by legislative act an intelligible principle" to guide the agency in carrying out the delegation of authority.
The rationale for requiring Congress to provide an "intelligible principle" when delegating legislative power to agencies is that we want to be able to hold Congress politically accountable for the policy choices it makes, even if such policy choices are set forth in fairly broad terms.
There are many enabling statutes that contain delegations in which the required "intelligible principle" is pretty difficult to discern. But the Communications Act, which delegates authority to the FCC to regulate in "the public interest," is certainly at the outer reaches of intelligibility. Much of the FCC's regulatory activity takes place under the public interest delegation.
Where's the "intelligible principle" in the public interest delegation?
Well, here’s what Justice Frankfurter said in1940 in FCC v. Pottsville Broadcasting Co. Referring to the new "science of broadcasting," he declared the public interest standard "is as concrete as the complicated factors for judgment in such a field of delegated authority permit."
Read Frankfurter's statement again – slowly, this time – as you try to discern the "intelligible principle" laid down by Congress.
David Schoenbrod, a scholar at New York Law School, has observed the public interest standard says "practically nothing at all" about Congress's goals in the Communications Act. Constitutional scholar Gary Lawson has called the standard "easy kill number one" in terms of statutory provisions that should be invalidated on nondelegation doctrine grounds.
But the fact of the matter is that the public interest standard hasn't been killed. Indeed, in 1943 in National Broadcasting Company v. United States, the Court rejected a contention the public interest standard is unconstitutionally vague.
Even though the Supreme Court has allowed the public interest standard to stand, it is unlikely Madison would be pleased. After all, it is difficult to hold Congress politically accountable for communications policy when so much of the FCC's activity takes place under the public interest standard.
So, the lesson is this. When Congress tackles revision of the Communications Act – as it should, and sooner rather than later – this time it ought to do better by way of setting forth a more determinate "intelligible principle," or principles, to guide the FCC. Given today's competitive marketplace environment, in contrast to the much more monopolistic environment that prevailed when the Communications Act was adopted, the agency ought to be specifically directed by Congress to find the existence of marketplace failure and demonstrable consumer harm before regulating.
If Congress does replace the indeterminate public interest standard with more specific competition-based directives, communications law would be reformed in a way that comports much more closely with fundamental separation of powers principles. Political accountability would be increased. Abuse of government power would be less likely.
Madison would be pleased – and so would I.