Congress Wants to Calculate the Costs of FCC Decisions

Federal Communications Commission Chairman Julius Genachowski Photograph by Stephen Voss/Redux

Yesterday the House passed the Federal Communications Commission Process Reform Act of 2012 on what was basically a party-line vote. The legislation would curb the FCC’s power over companies seeking to merge and force the agency to do cost-benefit analyses of some regulations it wants to pass. Bloomberg reports that the Senate has no plans to take up the measure.

There is much good in the bill, and anyone who spends any time with the FCC can tell you the institution is difficult to navigate and in need of reform. The problem is that what’s wrong with the commission is what’s wrong with the way America looks at telecoms policy.

America’s telecommunications market is not competitive. Whether fixed-line or wireless, we pay more for service and get less of it than consumers in other countries. For the last two years, the FCC has declined to certify the wireless market as “competitive,” and in the commission’s comprehensive 2010 broadband plan, it allowed the fairly obvious point that duopolies in fixed-line broadband could fail to produce competitive pricing. In theory, the FCC is an independent agency, but in practice it’s subject to political pressure—usually to produce what in Washington is called “a consensual decision” and in English is called “most of what industry wants.” This leaves the commission to fiddle around at the margins of its powers to try to increase competition.

One of the provisions of the House bill would end this fiddling. The FCC often places conditions on its merger approvals, like the net neutrality provision Comcast agreed to last year as a condition of its purchase of NBC Universal. The bill would make it difficult for the commission to wring concessions as it considers mergers and license transfers. Agreed, a patchwork of merger-by-merger rule-making is a terrible way to make telecoms policy, and much of what companies promise the commission never materializes anyway. But does the House really believe that if the FCC stops getting concessions on mergers, it’ll suddenly begin a full-throated defense of competition in its rule-making? It doesn’t seem so, given that Greg Walden, the Oregon Republican who sponsored the bill, opened his time on the floor by describing telecommunications as “one of the most competitive, innovative, and open sectors of our economy.”

One of the bill’s other provisions requires the FCC to run a cost-benefit analysis of a new rule or amendment before adopting it. The provision is fair, well-worded—and will absolutely not work out as nicely as it reads. Costs are easy to tally. There are plenty of industry associations at the ready to help calculate the harm of regulation to a group of incumbents. Calculating benefits is trickier. Telecommunications is an input cost for everyone. If your business pays too much for its T1 line, you charge your customers more, or you have less money to expand. It’s a small charge for you and a small consequence for your business, which is why high input costs are difficult to calculate across an entire economy. It’s also difficult to calculate the loss to the economy of new entrants that are priced out of the market for telecommunications.

The way to bring input costs down is to encourage competition through regulation. Run a cost-benefit analysis on that regulation and you’re left with existing companies able to precisely tally what they’ll lose on the costs side. As for the benefits side? Well, even Representative Walden’s bill concedes that it’s hard to quantify some consequences of regulation.

So sure. Let’s have the FCC make real rules instead of imposing backhanded conditions on mergers. Then let’s calculate the costs and benefits of proposed regulations. And as we do this, let’s remember that the extraordinary margins in America’s telecoms sector are coming from somewhere. What’s good for AT&T and Verizon Wireless shareholders may not be good for the rest of the economy.

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