The FCC Should Rescind the Telnyx Forfeiture Now

I was pleased to see the report in today's Communications Daily [subscription required] that Telnyx, which is contesting a $4.5 million forfeiture proposed by the FCC, has been reinstated in good standing by the Industry Traceback Group (ITG). ITG, established by USTelecom, works collaboratively with voice service providers to combat illegal calls by tracing them back to their origin.

 

A Free State Foundation Perspectives, published March 12, 2025, explained in detail why the FCC's proposed forfeiture, based on a claim that Telnyx failed to satisfy the agency's "Effective Measures" rule for blocking illegal calls, raises serious rule of law concerns implicating fundamental due process and fair notice constraints. As the FSF Perspectives states: "This is because it appears Telnyx, and other providers for that matter, could not have known in advance the requirements of the rule Telnyx is charged with violating."

 

In this instance, if not rescinded, the proposed forfeiture, in effect, would transform the "Effective Measures" rule by imposing more stringent yet unspecified requirements and a higher liability standard than that which the Commission previously established through notice-and-comment rulemakings. As such, the FCC's proposed forfeiture smacks of "regulation by enforcement." This is because regulated entities are deprived of the ability to know and follow the law, contrary to the requirement of fair notice and the prohibition of unfair surprise that are recognized in Supreme Court's Fifth Amendment Due Process Clause jurisprudence.

 

 

As the FSF Perspectives observed:

 

These due process concerns are at the core of President Trump's newly reinstated Executive Order 13892 – "Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication." The very first sentence reads: "Regulated parties must know in advance the rules by which the Federal Government will judge their actions." The EO goes on to declare that regulated entities should not be subjected to a civil administrative enforcement action or adjudication absent prior public notice of "the legal standards applicable to that conduct." Indeed, the EO directs that agencies "shall afford regulated parties the safeguards described in this order, above and beyond those that the courts have interpreted the Due Process Clause of the Fifth Amendment to the Constitution to impose."

Indeed, considering its vagueness and open-endedness, the FCC itself should "DELETE" the "Effective Measures" rule that Telnyx is claimed to have violated. In accordance with President Trump's April 9 Presidential Memorandum, "Directing the Repeal of Unlawful Regulations," this likely unlawful rule, which inherently invites abuse on the basis of lack of due process and fair notice, should be repealed on the agency's own initiative.

 

In the meantime, and more immediately, the FCC should act now to rescind the proposed Telenyx forfeiture. Hopefully, ITG's reinstatement is a positive indication in that regard.

Chevron Deference Never Promoted Regulatory Stability

As reported by Policyband, at a policy forum hosted yesterday by Broadband Breakfast, Senator Amy Klobuchar bemoaned the demise of the Chevron deference doctrine, claiming that the doctrine's jettisoning "could be a real mess because a lot of how we move forward with our economy is if we have consistent rules in place, right?” She went on: “You know what the rules are and then you can invest because you know what the rules are. And if people don't know what the rules are going to be or if they're going to change, it makes it a lot harder.”

Senator Klobuchar is right that stability in the law is important for businesses so they can properly plan investments and make other business decisions. This is even more true, of course, when the legal rules in question are not improperly or unnecessarily restrictive, costly, or burdensome.

But Senator Klobuchar, and others who have taken the same line, especially those familiar with communications law and policy, should know better. They surely understand that the Chevron doctrine promoted more instability in legal regimes than stability. Of course, the back-and-forth "switcheroos" in the "net neutrality" context between imposition of heavy-handed Title II public utility-like regulations and a light-touch regulatory regime for broadband Internet services is a prime example.

Each time the FCC adopted and then abandoned one or the other version of its "net neutrality" regime it relied upon Chevron deference to support the switcheroo. And each time the courts affirmed the FCC's changes based on the Chevron deference doctrine.

Very few credible observers contend that somehow this instability in the legal regime governing broadband providers has promoted investment, or otherwise has been conducive to business planning. Of course it hasn't. And the same "instability effect" has occurred across the administrative state where regulatory regimes have been subject to back-and-forth switcheroos sustained by application of Chevron deference.

The principal reason the Chevron doctrine was eliminated in Loper Bright Enterprises is because Chevron is inconsistent with the Administrative Procedure Act's requirement that courts, not agencies, must decide “all relevant questions of law” arising on review of agency actions. And the Constitution's separation of powers reinforces the APA's dictate.

In my view, the elimination of the Chevron doctrine is correct as a matter of law. And the fact that it promotes stability with respect to regulatory regimes cannot be gainsaid.

Jim Tozzi and the Center for Regulatory Effectiveness

 Over the past couple of years there's been much change in administrative law, and much of it positive in my view. The Supreme Court's adoption of the Major Questions Doctrine in West Virginia v. EPA, the overturning of the Chevron deference doctrine in Loper Bright Enterprises v. Raimondo, and the limitation on the SEC's ability to seek civil penalties in SEC v. Jarkesy are examples of recent decisions reorienting administrative law to check overly aggressive administrative agencies.

Periodically I like to remind readers of the sometimes overlooked contributions of Jim Tozzi. Among other accomplishments, Jim played a leading role in the 1970s and 1980s as a senior official of the Office of Management and Budget in establishing centralized review of proposed regulations of the executive agencies and requiring cost-benefit analyses. These were early steps in the direction of formalizing processes intended to promote increased efficiency, effectiveness, transparency, and accountability in agency policymaking initiatives.

If you want to learn more about Jim Tozzi -- one of the more interesting, but lesser known Washington legends  -- and Jim's contributions of the development of administrative law, along with his take on some current issues, I recommend a visit to his Center for Regulatory Effectiveness website. Or if you happen to encounter Jim, just ask him about the "early days" of regulatory reform and you'll be in for a treat!

 

Interested in Ad Law? Check Out CRE"s Regulatory Perspectives

Periodically, I like to remind those that are interested in the administrative state and administrative law and regulation to check out the Center for Regulatory Effectiveness (CRE) website and especially its Regulatory Perspectives page. 

Always some useful material for those interested in ad law and regulatory perspectives. CRE is run by Jim Tozzi, one of the real "godfathers" -- in a good sense! -- of a centralized regulatory review process for the executive branch and the use of cost-benefit analysis.

Thanks to Jim for all he's done and continues to do in the interest of good government.

New Paper: New Technologies are Upending the Typical Role of Regulation

On November 19, 2015, Will Rinehart, Director of Technology and Innovation Policy at American Action Forum, released a paper entitled "The Modern Online Gig Economy, Consumer Benefit, and the Importance of Regulatory Humility.” In the paper, Mr. Rinehart discusses the many consumer benefits of sharing economy platforms. He also says that reputational feedback mechanisms create transparency and enable trust between consumers, upending the typical role of regulation. This is an important paper for understanding why competition and self-regulating markets can often create more efficient outcomes for consumers than government regulation.

Maryland's Ridesharing Legislation Is Better Than Prohibition

On April 14^th, the Maryland Senate followed the House of Delegates in passing legislation, which would legalize commercial ridesharing applications like Uber and Lyft, making Maryland the tenth state to pass such legislation. Now, the legislation waits for Governor Larry Hogan’s signature to become a law.

I commend Maryland legislators for understanding that the emergence of the new “sharing economy” is in the interests of consumers and the economy as a whole. I commend them for realizing that new innovative technologies are emerging to compete with traditional business models. I also commend Maryland legislators for not giving in to the interests of taxicab commissions by issuing an outright prohibition on ridesharing services. And I appreciate that the legislation bans Maryland municipalities from levying taxes or additional regulations on ridesharing companies or any participants in ridesharing markets. (Although, it has been reported that municipalities could add a $0.25 surcharge fee on all rides. See here and here.)

Having said all this, I would not call this legislation a free-market approach to the sharing economy. The provisions require “transportation network companies” – as the legislation defines ridesharing companies - to collect, file, and register information, creating a barrier for new startups to emerge in the ridesharing market.

For example, a transportation network company must register with the Public Service Commission, create an application process for individuals to apply for registration as a transportation network operator (driver), maintain a current registry of drivers and their personal information, and submit proof to the Commission that the company is registered with the State of Maryland – just to name a few of the requirements.

Uber and Lyft already keep driver information on file in order to provide transparency and accountability to their consumers. So this is not a costly requirement, right? Wrong. Uber and Lyft are already well-established and likely can afford to cover these costs. But a new ridesharing start-up, on the other hand, may not have the capital to provide this type of immediate transparency, thus they will not be able to operate in Maryland.

I do not know how long the registration and approval process will take for a “transportation network company” to become certified with the Commission. But if it has taken several years for Maryland legislators to recognize the benefits of ridesharing because the interests of taxicab commissions have hindered the process, it concerns me that new ridesharing start-ups will be disadvantaged at the hands of well-established companies like Uber and Lyft. In other words, these rules could incentivize successful ridesharing companies like Uber and Lyft to lobby Maryland’s Public Service Commission to reject the entry of potential competitors.

Additionally, the reason that ridesharing companies must maintain personal information about their drivers for the Public Service Commission is because the legislation also has a long list of regulatory standards for drivers regarding age, criminal background, and vehicle compliance. The standards that the State would require might be in the interest of public safety, and they are likely similar to the standards that Uber and Lyft administrators already conduct when hiring drivers. But it seems unnecessary and costly for both the respective ridesharing company and the Commission to perform a background investigation on each driver. Instead, a case-by-case investigation of instances of consumer harm would be warranted to insure that ridesharing companies have followed the State’s standards.

Interestingly, taxicabs are regulated at the county-level in Maryland, therefore ridesharing drivers might actually be subjected to regulations that taxicabs drivers are not. Yet, even if drivers of ridesharing companies and taxicab drivers were subjected to the same regulations - which would be a fair way to “level the playing field,” it does not necessarily mean the public is any safer. Competition, not regulation, generally provides the most benefits to consumers, whether those benefits come in the form of lower prices, more convenience, public safety or healthy environments. As Randolph May and I stated in our Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future:”

If purveyors of sharing applications engage in harmful, unhealthy, or unsafe activities, competition is probably the most important regulatory mechanism to address any real problems. In competitive markets, poor consumer satisfaction generally means that a company will lose market share, or even fall out of the market. If a company is not operating safely or if it is putting its users in unhealthy conditions, a competitive market allows for unsatisfied consumers to choose alternatives.

The legislation does lift some of the burdensome licensing regulations for taxicabs, but other regulations that remain appear unnecessary. Rather, many of these regulations appear to have been adopted to “level the playing field” between ridesharing companies and taxicab companies. In our paper, Randolph May and I stated:

If the laws or regulations applicable to the existing incumbent businesses no longer make sense today, they should be changed. It always harms consumers when public policymakers attempt to “level the playing field” by subjecting entities to regulatory restrictions that are not needed. The proper way to respond to “level the playing field” claims is to remove unnecessary regulations wherever they apply, not to expand them to new entities.

It is fair to apply the same level of regulation to both taxicabs and ridesharing companies, but the best way to “level the playing field” is to deregulate down and open the market to contestability and competition – not regulate up as this legislation would do.

Despite all of this, a regulated ridesharing market that makes room for new entrants is still better than one based on prohibitions that render new entrants unlawful.