Chevron Deference and Independent Agencies

Tomorrow (January 16) the Supreme Court will hear oral argument in City of Arlington v. FCC. As we have observed previously, City of Arlington is likely to be one of the most important administrative law decisions of the last quarter century, impacting not only the FCC but most other federal agencies as well.

The question before the Court is whether courts, upon judicial review, should give Chevron deference to an agency’s determination of its own jurisdictional boundaries. When Chevron deference applies, courts give what the Court called "controlling weight" to an agency's statutory interpretations. While, at times, an agency's statutory interpretation may not prevail even if Chevron deference is held to apply, this is rare.

In my December 27 Washington Times opinion piece and in FSF Academic Board Member Jonathan Adler's November 26 Perspectives from FSF Scholars, we explained why the Supreme Court should hold that deference should not apply to agency determinations concerning the bounds of an agency's own jurisdiction. As Professor Adler concluded: "There are good reasons for [the Supreme Court] to make clear that agencies should only receive Chevron deference when they are exercising that authority Congress has delegated, and they should not receive deference when facing the question of whether the agency has authority at all."

And, as I explained in my Washington Times commentary:

"The very separation of powers principles upon which the Chevron deference doctrine primarily rests should mean that such deference doesn’t apply to agencies’ interpretations regarding the bounds of their own authority….If agencies themselves are allowed, by virtue of receiving extraordinary judicial deference, to presumptively resolve statutory ambiguities over the outer bounds of their own power, then it is far easier for legislators to avoid political accountability for decisions Congress makes regarding the expansive reach of the regulatory state. Finally, if agencies’ decisions about the scope of their own jurisdictions are given 'controlling weight' under the Chevron doctrine, the bureaucratic imperative naturally will be for officials to continue enlarging the limits of their regulatory authority."

Before Wednesday's argument, I want to call your attention to another point, one not addressed directly either in my piece or Professor Adler's. For a long time, I have suggested that independent agencies should not receive Chevron deference in the same way that Executive Branch agencies do. In other words, I have argued there ought to be a difference in application of the deference standard depending on whether the agency is an Executive Branch agency – like EPA, the agency whose ruling was at issue in Chevron itself – or an independent agency like the FCC, whose ruling is before the Court in City of Arlington.

The principal reason I have advocated this difference in judicial review deference standards has to do with constitutional separation of powers principles. In Chevron, the Court grounded the deference doctrine primarily (but not exclusively) in notions of political accountability inherent in separation of powers principles. In this regard, the Court explained that when congressional intent regarding delegated authority is not clear:

"[A]n agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices -- resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities."

Simply put, because independent agencies such as the FCC are, as a matter of our current understanding of the law and of historical practice, mostly free from executive branch political control, Chevron’s political accountability rationale should imply that independent agencies' statutory interpretations receive less judicial deference because such agencies, including the FCC, are less politically accountable.

I have published two articles in the Administrative Law Review articulating my position at some length and won't elaborate further here. The first, published in 2006, is titled, Defining Deference Down: Independent Agencies and Chevron Deference, and the second, published in 2010, Defining Deference Down, Again: Independent Agencies, Chevron Deference, and Fox. You may find these law review articles interesting if you are following the City of Arlington case.

A final intriguing note: Then Harvard Law School Dean Elena Kagan – now Justice Kagan – took essentially the same position that I have advocated regarding the judicial deference owed independent agencies in her widely-praised 2001 Presidential Administration law review article. And she based her view on the same rationale that I have suggested – that independent agencies are not as politically accountable as Executive Branch agencies because the President cannot control the independent agencies to the same degree. We'll see whether in City of Arlington Justice Kagan, or any other Justice, finds the differences between executive and independent agencies relevant for Chevron purposes.   

Studies Emphasizing Negative Effects of Taxes on Economic Growth

The Tax Foundation's Dr. William McBride published a Special Report in December titled "What is the Evidence on Taxes and Growth?"  McBride conducted an economic literature review of more than two-dozen peer reviewed academic journal articles from the last thirty years examining the empirical relationship between taxes and economic growth.

The Special Report contains a helpful table listing the referenced studies, summarizing their methodologies and findings.  McBride concluded that, "the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy." 

According to McBride, "a review of the empirical studies establishes some standards by which a tax system may be judged."  Applying those standards, McBride judged that "the U.S. has probably the most inefficient tax mix in the developed world."  Here, McBride pointed to U.S. tax policy regarding personal and corporate income taxes, including double taxation of corporate income through capital gains and dividend taxes.  As explained in the Special Report, these kinds of taxes can adversely affect production, innovation, and risk-taking, thereby harming economic growth.

But McBride also offers a way forward for U.S. tax policy:

Pro-growth tax reform that reduces the burden of corporate and personal income taxes would generate a more robust economic recovery and put the U.S. on a higher growth trajectory, with more investment, more employment, higher wages, and a higher standard of living.

Captive Audience's Captive Thinking

I've just finished reading Susan Crawford's new book, "Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age." It is interesting in many ways, and even entertaining in others. 

But, most importantly, "Captive Audience" is fundamentally flawed. 

"Captive Audience" is flawed because Professor Crawford relies on an incorrect – indeed, a hypothesized – view of the communications and information services marketplace to construct the case for monopoly power. And then she offers anachronistic, legacy regulatory measures to remedy the supposed ills that exist in her hypothesized market. In my view, the book more appropriately might have been titled, "Captive Thinking: Viewing Today's Telecom Industry Through An Analog-Era Lens." 

The book's central thesis is unmistakably clear: Comcast possesses monopoly power with respect both to the provision of broadband services and the provision of video programming. While less clear, at times it appears Professor Crawford may be making the same monopolistic power claim with regard to Time Warner Cable and other cable operators. 

While it doesn't come until the very end of the book, the proposed remedy for this supposed monopolistic power is unmistakably clear as well: "America needs to move to a utility model." Professor Crawford looks back to the days of the early twentieth century creation of AT&T – even further back to the late nineteenth century's railroad regulation model – to support her argument that America needs a "utility" regulatory regime for today's broadband companies, especially for Comcast. 

Indeed, consistent with her backwards-looking focus on public utility models, Professor Crawford equates the provision of electricity service and broadband service. She argues that electricity service, while first considered a luxury, soon came to be viewed as a necessity, and that broadband is like electricity in this respect. Therefore, broadband companies, like power companies, should be regulated as public utilities. 

Among others, a central problem with Professor Crawford's argument, however, is that the provision of electricity, at least to a large segment of America's population, does exhibit, to a degree that differs materially from broadband provision, natural monopoly characteristics. There are not significant competitive facilities-based distributors of electricity to end users. (Resellers of government-regulated wholesale services are in a different market category, and, in my view, do not provide sustainable competition to end users.) This lack of alternative competitive providers is not true with respect to broadband, including video programming. 

There are not alternative providers of electricity that employ cable, wireless, telephone, or satellite network infrastructures. There are for broadband. I dwell on the electricity analogy because, at the end of the day (and at the end of the book!) Professor Crawford rests so much weight on it. She considers the markets for electricity and broadband both to be natural monopolies. I don't. 

Professor Crawford's argument that cable operators like Comcast are now monopolies is based on her assertion that "cable has decisively won the battle for high-speed wired communications in America." Over the decades I've learned it is wise not to be overly certain when predicting the future course of developments in the communications marketplace. Technological advances occur in unpredictable ways, sometimes more rapidly than predicted, sometimes more slowly. For example, when I first got involved in communications law and policy, there were many pundits predicting that domestic satellites (we called them "domsats" and the FCC for years carried on "domsat" proceedings) might become dominant providers of all forms of communications. Today they play an important role in our communications landscape, but they certainly are not dominant. 

In support of her claim that cable already has "decisively" won the battle, Professor Crawford engages in a bit of sleight of hand. This is because her claim is based entirely on substantially narrowing the market definition by defining the relevant market – and this is buried in a footnote [page 284, note 3] – as "cable companies with DOCSIS 3.0-enabled infrastructure that can offer very high peak download speeds." In other words, in the few places where Professor Crawford addresses market power and market definition in any serious way, she distinguishes, albeit very subtly, between "high-speed" and "very high peak download speed" broadband services. The latter only includes services with speeds above 100 Mbps. In other places, she distinguishes between high-speed wired broadband and what she calls "truly" high-speed broadband. 

The problem with this approach is that it doesn't reflect present marketplace reality. Even though Professor Crawford may think otherwise, for most consumers, telephone company-provided high-speed broadband services provide a satisfactory alternative to those of cable operators, even in areas in which fiber technology is not employed. Many consumers consider the broadband service provided by satellite operators a satisfactory alternative to cable broadband. And still other consumers consider wireless broadband services not only complementary to cable (as Professor Crawford maintains), but substitutable as well. This is increasingly so as high-speed 4G wireless services become more ubiquitous. 

Indeed, over 80% of American households have access to at least two high-speed wireline providers consistent with the FCC's definition of high-speed, even if one does not provide service, at peak times, at the "truly" or "very" high-speed above-100 Mbps that Professor Crawford insists on employing for market-defining purposes. 

So, the problem with Professor Crawford's claim of cable monopoly power is that it rests on a hypothesized marketplace based on an unduly restrictive market definition, not on the broadband market as it presently exists. Her hypothesized market definition is based on her own personal predilections concerning the level of service she thinks she will demand in the future, rather than on an analysis of the services consumers demand in today's actual marketplace. Note that she does not report that when the FCC last surveyed consumers, the agency found that 93% were satisfied with their broadband service. And note also that right at the outset of her book [on page 2] she predicates her assertion of Comcast's dominance on the level of service that she hypothesizes will be sufficient to satisfy Americans "in the near future," without explaining what that means.   

It is possible – although I don't think it is likely – that the market may evolve in the way Professor Crawford hypothesizes, that is to say that Comcast and other cable companies come to dominate the broadband distribution marketplace because telephone companies, wireless providers, and satellite operators simply cannot compete for the "truly" high-speed services that consumers may come one day to demand. I doubt this will be the case because, barring regulatory policies that constrain ongoing investment by cable's competitors, I expect that technological and innovation advances, along with new business models, will continue to evolve in ways that provide consumers with meaningful competitive alternatives that satisfy evolving consumer demands. If I am wrong about this, there will be time enough then to consider what remedial measures may be appropriate to prevent consumer harm.          

Rather than going on at length now, I want to make a few additional points briefly. They likely warrant more attention in subsequent posts. 

As I said at the beginning, Professor Crawford claims that Comcast possesses dominant market power not only with respect to broadband transmission but also with respect to video program acquisition and distribution, although she doesn't make the latter claim with the same degree of certainty. Although she apparently envisions a "captive audience," in an age of media abundance, most Americans would beg to differ. Indeed, in a chapter describing the Comcast-NBCU merger, accompanied by broad allegations concerning Comcast's alleged chokehold on video program distribution, Professor Crawford pivots, declaring at page 134 that broadcasters "have more distribution outlets for video than they had before – they can get their programing out through satellite (Dish, DirecTV) or telco (Verizon, AT&T) video offerings as well as cable." This concession – or at least recognition – concerning the availability of satellite and telco video distribution alternatives undercuts the claim that Comcast monopolizes this market segment, whether with regard to broadcasters or other independent programming entities looking for distribution outlets. 

Now, even if Professor Crawford were to concede the existence of alternative providers or outlets, as she seems at times to do, I'm quite certain she would not back away from her plea for public utility regulation of Comcast and other cable operators. This is because she would claim, as she does throughout, that these service providers nevertheless possess enough market power that other entities (that she happens to favor) do not receive "fair treatment." [p. 175]. Especially with respect to Netflix (a company she particularly favors) and other online video providers, Professor Crawford expresses concern that these entities may not be treated fairly. And in this regard, she targets usage-based billing offerings as an especially egregious means of treating Netflix and other online video providers "unfairly" because, in her view, such plans may cause users to curtail the amount of video streamed. Thus, she argues the FCC needs to examine cable operators' revenues, costs, quality of service, and other data – in other words, conduct a traditional public utility rate case – to determine the ultimate "fairness" of usage-based billing. 

We have explained many times on these pages why this plea for the FCC to conduct what, in effect, would amount to an old-fashioned rate case is a recipe for disaster. Usage-based billing plans are employed throughout the economy to enhance economic efficiency by using the price mechanism to allocate scarce resources, here limited bandwidth capacity. Employing price signals this way promotes overall consumer welfare. Not coincidently, to the extent Professor Crawford is really concerned about "fairness" to consumers, and not merely to Netflix, such plans may be fairer to consumers than non-usage-based plans because consumers' charges are more nearly aligned with the costs they impose on the network. Here I am just going to refer you to the recent FSF Perspectives published by Daniel Lyons, a member of FSF's Board of Academic Advisors, entitled "Why Broadband Pricing Freedom Is Good for Consumers." Please review. 

Professor Crawford's single-minded focus on "fairness" for Netflix and others who ride on top of broadband operators' networks, and the supposed harm these "on-toppers" might experience under usage-based billing plans, means there is little acknowledgment that, having invested billions of dollars in building and maintaining their networks, broadband providers are entitled to a fair return on their invested capital. 

Again, Professor Crawford's book is interesting and informative in many respects, especially with regard to some of the historical information concerning the companies and industry leaders she discusses. At times, it is even gossipy, and this can be entertaining. 

But "Captive Audience" is fundamentally flawed because the call for public utility regulation of cable companies is based on an incorrect view of the market. Only by hypothesizing market developments that she predicts – wrongly in my view – will come to pass in the future is Professor Crawford able to construct an argument that provokes her reach back into history for ill-conceived remedial measures. The call for public utility regulation may have been appropriate for the early analog-era of Theodore Vail and the late nineteenth century's railroad magnates. But Professor Crawford's plea to apply such utility regulation to broadband providers operating in today's dynamic digital environment should be rejected.

Sprint's FM Radio Deal Provides Another Reason for Tuning Out Calls for Device Regulation

News outlets are reporting on the "preliminary arrangement" reached between Sprint and radio broadcasters to receive local FM stations on certain smartphones. As TRDaily reported on January 8:

The announcement makes Sprint the first U.S. wireless carrier to offer its customers the ability to access local FM radio on several of its devices.  Radio stations would be accessed through the NextRadio tuner application or using other radio apps or services, the company said.  The NextRadio app tuner is expected to be made available later this year.

Of course, there are other existing options for wireless consumers seeking access to radio broadcast content.  As pointed out in the New York Times' Media Decoder blog:

Radio stations are already widely available on phones through streaming apps like TuneIn and Clear Channel Communications’s iHeartRadio, which offer not only local stations but also thousands from around the world.

Sprint's arrangement with radio broadcasters should hopefully put to rest the occasional lobbying efforts to require wireless carriers or handset manufacturers to install and activate AM/FM radio chipsets in mobile devices.  I briefly addressed this subject in a September 2010 blog post and explained why "Government Shouldn't Design Devices in Dynamic Markets."

Free market bargaining – as witnessed in Sprint's deal – and technological alternatives – including streaming apps – render any wireless chipset device regulation completely unjustifiable. (Don't forget that consumers can also buy radios if they want.)

Panel Proposes Ideas for Communications Law and Policy Reform in 2013

FSF has now released the expert panel transcript from the "Ideas for Communications Law and Policy Reform in 2013" seminar. 

The panel was moderated by FSF President Randolph May. Experts on the panel included Robert Atkinson of the Information Technology & Innovation Foundation, James Gattuso of The Heritage Foundation, David Honig of the Minority Media & Telecommunications Council, and Adam Thierer of the Mercatus Center.   

As I mentioned in an October blog post, YouTube videos of the proceedings are available through FSF's YouTube page. 

The seminar began with a conversation between FSF President Randolph May and FCC Commissioner Robert McDowell. That transcript is also available.

Will FCC Adopt Rules Removing Threat of Ad Hoc Spectrum Restrictions?

On January 7, the FCC completed its collection public comments in mobile spectrum holdings rulemaking proceeding. The Commission sought comments on its general approach to mobile spectrum holdings, including some bright-line rules regarding its analysis for transfers of spectrum licenses.

I made a conditional case for bright-line rules in my Perspectives from FSF Scholars paper "Spectrum Rules for Reducing Uncertainty Must Reject Unduly Regulatory FCC Precedents." In that paper, I wrote:

Adoption of formal rules for how the agency analyzes the competitive effects of spectrum license acquisitions could reduce regulatory uncertainty. But new rules will be undesirable if they end up guaranteeing that wireless carriers are saddled with insurmountable regulatory roadblocks. New spectrum rules will only be desirable if they further innovation and investment in the wireless market. And those rules will do so only to the extent they encourage and enable wireless carriers to pursue new spectrum for upgrading and deploying next-generation wireless networks.

A case-by-case approach – rooted in a market power analysis that looks at whether there is actual harm to consumer welfare – would render any new set of bright-line rules unnecessary.  But on several prior occasions the FCC has imposed ad hoc restrictions on spectrum holdings through auction rules or merger reviews.  This has prompted calls for clearer rules to reduce moving goal post-rationales for new restriction.

Of course, no new rules would be far better than a new set of restrictions on mobile spectrum holdings, such as restrictions on wireless provider eligibility in future spectrum license auctions or re-imposition of spectrum caps.  What course the Commission will pursue in this proceeding will be seen in the time ahead.

Will the FCC's Next Wireless Competition Report Take Competition Seriously?

The FCC is soon expected to release its 16th Wireless Competition Report. Those reports are a useful resource of industry and consumer activities and trends in wireless services.

In a pair of Perspectives from FSF Scholars essays I have criticized the 14th and 15th Wireless Competition Reports.  The last two reports have not included any FCC overall assessment of whether or not the wireless market is "effectively competitive," though the statute's directive appears calls for such an assessment.  (Prior reports, including the 13th Wireless Competition Report, concluded that the wireless market is effectively competitive.)  Also, the last two reports have declined to take even a modest look at whether intermodal competition has competitive effects on wireless services and prices.  I expanded on the critiques offered in both Perspectives essays in a law review article I wrote for CommLaw Conspectus titled "Seeing Competition, Eyeing Regulation: FCC Wireless Policy Following the Fifteenth Report."

In the coming days we will see if the 16th Wireless Competition Report finally overcomes the defective aspects of its predecessors.

The FCC Should Reject CWA's Job Protection Pleas

On November 26, my colleague Seth Cooper and I filed comments in the FCC's proceeding reviewing the proposed T-Mobile-MetroPCS merger. In those comments, we concluded that, "considered in a proper analytical framework, this proposed combination will likely improve the competitive standing of T-Mobile/MetroPCS in reaching wireless consumers across the nation and thus serve the public interest."

The only other party to submit comments on that date was the Communications Workers of America, which asked the FCC to condition approval of the proposed transaction on the imposition of certain job protection requirements. On December 5, I posted a blog, "The FCC, Merger Reviews, and Job Protection Pleas," in which I said: "No one wants to see people lose jobs, especially in today's difficult economy. I certainly don't. Nevertheless, CWA's request for job protection conditions is out of place in the merger proceeding."

In concluding, I summarized this way:

"[T]he FCC has no business abusing its merger review authority by conditioning the merger on adoption of the job protection plan put forward by the CWA. Regardless of whether the Commission has abused its authority this way in the past, such a condition is simply too far afield from any legitimate view of the Commission's exercise of its merger review responsibilities."

In catching up post-holiday on my reading backlog, I see that a group of organizations, ranging from the AFL-CIO and NAACP to the Sierra Club, Jobs for Justice, and the Center for Community Change, have submitted a reply comment in support of CWA's position. These groups ask the FCC to adopt the same job protection provisions requested by CWA and, like CWA, they assert that "[t]here is ample evidence in the record to raise concerns about post-merger job cuts by a merged T-Mobile/MetroPCS."

In my December 5 blog, I explained in considerable detail why it would be wrong for the FCC to adopt CWA's request to impose job protection conditions. So I don't want to repeat all that here.

Without belaboring the matter, let me just emphasize these points.

•      Even granting that the "public interest" standard under which the merger is being considered may be vague, were the Commission to attempt to employ such vagueness as a basis for imposing – or for seeking to impose on T-Mobile through a wink-and-a-nod "voluntary" extraction – job protection conditions, the agency will commit an egregious abuse of its regulatory authority. However broad the FCC's "public interest" authority may be, in the context of reviewing proposed license transfers, it is not so broad as to encompass injecting itself into the management of the size and composition of the workforces of companies subject to the agency's regulatory authority. This is far afield from its legitimate responsibilities. If the Commission goes down the road sought by the CWA, it will be confronted with incessant requests to adopt further job protection plans in different contexts.

•      While it is would be improper for the FCC to grant the relief sought by CWA and the other public interest organizations in the context of the T-Mobile-MetroPCS or any other license transaction review, it is appropriate for the Commission to consider the impact of its regulations on investment, innovation, and job growth in generic regulatory proceedings. Regulations which are unduly burdensome or which are unnecessary to prevent consumer harm have an adverse economic impact.

•       It would be wrong for the Commission to allow the objections of CWA and the other public interest organizations to slow down processing of the proposed merger. Apparently there are no other non-frivolous objections to the transaction, so this should be a case in which the Commission shows that it can act with dispatch in reviewing merger proposals. Perhaps it can even be a precedent of sorts that, going forward into 2013, the Commission intends to consider proposed license transactions much more quickly than it has in the past.