Tuesday, July 16, 2013

FCC Regulatory Reform and Administrative Law

I appreciated the invitation to appear as a witness at the July 11 hearingon "Improving FCC Process" held before the House Commerce Committee's Subcommittee on Communications and Technology. And I commend Committee Chairman Greg Walden for convening the hearing. 

My written testimony submitted to the Committee is here, and a video of the entire hearing, which includes the witnesses' oral statements, may be found here
As regular readers of this space know, for over a decade I have been arguing for meaningful FCC regulatory reform, including when I testified at the House Communications Subcommittee's June 2011 hearing on the subject. In the last congressional session, the House of Representatives did pass the two regulatory reform bills that came out of that hearing, the "Federal Communications Commission Process Reform Act," [H.R. 3309], and the Federal Communications Commission Consolidated Reporting Act," [H.R. 3310]. Unfortunately, both bills died in the Senate without serious consideration.

Now Chairman Walden has produced new Discussion Drafts that, with only a few revisions added, essentially replicate last session's H.R. 3309 and H.R. 3310. The Discussion Draft for the new FCC Process Reform Act is here and for the new Consolidated Reporting Act here.
The reforms embodied in the two new draft bills are needed now more than ever. As I explained in my testimony, this is because the FCC "needs to change in a way, so that, in today's generally dynamic, competitive communications environment, it will be less prone to continue on its course of too often defaulting to regulatory solutions, even when there is no clear and convincing evidence of market failure or consumer harm."
Aside from the proposed reforms to the FCC's transaction [merger] review process, which are much needed and which I will address again at a later date, the most important part of the new Process Reform Act is the section proposing changes to the Commission's rulemaking process. These changes would require the FCC to: (i) identify and analyze the market failure and actual consumer harm the rule addresses; (ii) make a reasoned determination that the rule's benefits justify the costs; and (iii) make a reasoned determination that market forces and changes in technology are unlikely to resolve within a reasonable period of time the problem the Commission intends the rule to address.
As I testified, requiring the Commission to perform these tasks "should be helpful in combatting the FCC's tendency to default to regulatory solutions without undertaking rigorous economic analysis, considering the cost and benefits of regulations, and evaluating marketplace conditions." In today's dynamic, increasingly competitive communications environment, the agency should be rigorously undertaking such analysis in any event – but the reality is that it often doesn't.
Opponents of the proposed reforms generally don't argue that the communications marketplace is not increasingly competitive and dynamic and that FCC regulations need not take account of these factors. Instead, they argue it is ill-advised for Congress to impose on the FCC rulemaking requirements beyond the minimal procedures prescribed by the Administrative Procedure Act. And they suggest that imposing any such requirements, with new statutory terms such as "market failure" and "changes in technology," will lead to uncertainty and litigation. Professors Richard Pierce and Stuart Benjamin generally advanced these arguments at the hearing, and you can read their witness statements here and here.
I believe the professors' professed concerns are quite exaggerated. Frankly, I find Professor Benjamin's suggestion that the addition of any new statutory terms should be avoided because of the uncertainty introduced and potential for litigation somewhat puzzling, if not a bit (unintentionally, I'm sure) demeaning to the Commission and its staff.
I have confidence that, if Congress directs the Commission to do so in connection with the consideration of new regulations, the agency will be capable of articulating, in appropriate circumstances, the proper meaning of terms such as "market failure" and "changes in technology." Assessing the likelihood of market failure and the impact of changes in technology ought to be central to the FCC's supposed expertise. Indeed, terms similar to these appear elsewhere in the Communications Act. And, as Professor Benjamin knows, under Supreme Court precedent in the Auer-Seminole Rock line of cases, if the FCC wishes to issue its own regulations interpreting these statutory terms because it believes doing so will reduce uncertainty and litigation, the agency's interpretations will receive deference upon judicial review.
Professor Benjamin's professed concerns regarding the increased potential for litigation, which in my view are exaggerated, really are not much different than arguments that can be made – and often are, depending on whose ox is being gored – regarding any proposed new statutory change or proposed regulation. Such arguments should not be a basis for rejecting reforms if the changes, on their merits, will improve the FCC's decision-making process. As (newly) former FCC Commissioner Robert McDowell testified at the hearing in response to Professor Benjamin's claims, the FCC gets taken to court in any event whenever it acts on any major item – so conjured up fears of litigation ought not hold much sway.
Professor Pierce acknowledges in his testimony that he is not an expert on communications law and lacks an adequate basis to discuss proposed changes in the substance of communications law. But he certainly is a leading authority on administrative law whose views and expertise I respect. Indeed, I am pleased that he is a member of the Free State Foundation's Board of Academic Advisors. Professor Pierce also is concerned about the potential for increased delay and uncertainty in the rulemaking process if the additional rulemaking requirements are adopted.
But in his testimony, Professor Pierce concedes there is nothing "inherently wrong" with any of the proposed new rulemaking procedures. In fact, he states that:
"In my decades of studying the rulemaking process, I have come across rulemakings in which agencies have used each of these procedures, though I have never seen any rulemaking in which an agency used all of the procedures that the FCC Process Reform Act would make mandatory. Each of the twelve additional procedures has advantages that cause it to be a potentially beneficial addition to a notice and comment rulemaking in some cases."
Professor Pierce goes on to observe that, in his view, they have serious disadvantages as well. Accordingly, sometimes the benefits of the proposed new requirements are justified, sometimes not. On balance, he would leave the decision as to whether to impose any new analytical requirements to the agency itself.
I respect Professor Pierce's views and his general administrative law expertise, and I agree with him that, in general, Congress should deliberate carefully before deciding to impose agency-specific rulemaking requirements. But there is nothing inherent in sound principles of administrative law that suggests Congress ought not impose particular sector-specific analytical decision-making requirements when it determines that circumstances warrant. And, in this case, in my view, circumstances warrant. Changes to the FCC's rulemaking process are warranted in light of the agency's ongoing proclivity to default to regulatory measures, even when there is no convincing evidence of marketplace failure or consumer harm or reasoned explanation offered as to why market forces or changes in technology are not expected to resolve its concerns within a reasonable period of time.
Without doing a deep dive here, it is worth noting that, due to special circumstances, there are agency-specific and sector-specific variations in rulemaking requirements, even while the APA maintains a certain level of minimal process. For example, the EPA has various rulemaking analytical requirements imposed by statute that go beyond the APA requirements. The FTC and OSHA do as well. And so does the SEC. The Exchange Act requires the SEC to consider efficiency, competition, and capital formation factors whenever it is “engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest.” Additionally, the Exchange Act requires the SEC to consider the impact that any rule promulgated would have on competition and to include in the rule’s statement of basis and purpose “the reasons for the Commission’s . . . determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of [the Exchange Act].” There are other examples, of course, where agencies, in conducting rulemakings, are required to undertake analyses beyond the minimum requirements specified in the APA.
Finally, I want to commend the Communications Committee's Vice Chairman, Rep. Bob Latta, for introducing, in conjunction with the hearing, H.R. 2649, the "FCC 'ABCs' Act of 2013." Rep. Latta's bill would amend Sections 10 and 11 of the Communications Act, the forbearance and periodic regulatory review provisions, to require the Commission to presume, absent clear and convincing evidence to the contrary, that regulatory relief should be granted. Here is the press release issued by Rep. Latta to accompany H.R. 2649's introduction. As Rep. Latta explains, his bill would "force the FCC to come to more deregulatory decisions by reforming the FCC's forbearance authority and biennial review of regulations by adding an evidentiary presumption."
I'm pleased that Rep. Latta's bill mirrors almost exactly the proposal offered in my April 2011 paper, "A Modest Proposal for FCC Regulatory Reform: Making Forbearance and Regulatory Review Decisions More Deregulatory." There I suggested just such an evidentiary presumption as Rep. Latta has now proposed. It is important to point out, however, that I also urged, shortly thereafter in a blog post and many times thereafter, including in my July 11 testimony, that the regulatory relief accorded by the revised forbearance and regulatory review provisions be extended to all entities regulated by the FCC, not just telecommunications carriers.
When all is said and done, there should be meaningful regulatory reform at the FCC. Perhaps not surprisingly, the agency has been very slow to reform itself in a way that makes it less likely to resort to regulation as a default. So action by Congress, such as that embodied in the revised FCC Process Reform and Consolidated Reporting Act draft bills, and Rep. Latta's new bill, should be welcomed.