Regulations and the FCC: A Commissioner's Wisdom

To be generous, it's rare when a regulator understands the ills of regulation.

But that is the case with FCC Commissioner Robert McDowell. His job is, in essence, to be a regulator. Yet, he possesses a strong understanding of both the economics and the history of regulation gone awry.

McDowell was on Capitol Hill on March 19 testifying before the House Subcommittee on Financial Services and General Government. And part of his testimony focused on spectrum policy, given that Congress passed legislation in February that puts television broadcast spectrum up for auction. There has been considerable debate over how this auction should be handled, with some advocating that the FCC micro manage the auction by effectively picking winners and losers.

McDowell countered such regulatory activism in his testimony. He stated:

"Meanwhile, a debate continues over whether or how the FCC should shape the outcome of this process. History has proven that regulators' attempts to over-engineer spectrum auctions often result in harmful, unintended consequences. Thus, I hope all of us can apply the lessons learned from the Commission's past missteps as we implement this new legislation. I am committed to working with my colleagues to ensure that our auction rules are minimal and ‘future proof,' allowing for flexible uses in the years to come as technology and markets change... I am confident that the FCC can get it right this time. And ‘getting it right' means avoiding regulatory hubris by keeping the government's hands off of the marketplace's steering wheel as much as possible."

McDowell correctly notes that regulation has consequences, and those often include consequences of the unintended variety. Especially in an industry so dynamic and innovative as telecommunications, there is simply no way for regulators to understand where the market might be headed, and therefore, it would be dangerous, not to mention arrogant, for the FCC to dictate where spectrum should be allocated, as opposed to leaving resource allocation to the market which ultimately is guided by consumers.

It is worth noting that in late March, the House voted by a 247-174 margin to reform the FCC. In a letter of support sent to the House on the Federal Communications Commission Process Reform Act (H.R. 3309), SBE Council President and CEO Karen Kerrigan explained: "H.R. 3309 would bring greater transparency, consistency and effectiveness to the FCC's regulatory process. For example, it would establish and clarify procedures for when the FCC issues rulemaking notices, including citing the FCC's authority for adopting and amending a rule. Also, the economic impact of a rulemaking would need to be considered, with the FCC required to assess the presumed market failure and consumer harm, the governmental failures warranting FCC action, as well as the burden of existing regulation. For good measure, it would have to be determined that the benefits justify the costs of new regulatory action. In addition, H.R. 3309 would establish greater openness when it comes to the Commission's deliberations, agenda, meetings, and dissemination of information."

Unfortunately, the Senate appears uninterested in dealing with this legislation, while the White House stands opposed. In addition, while efforts were made to set limits on the FCC's regulatory discretion on spectrum auctions in the bill passed in February, that effort also was denied and excluded by the Senate.

So, we are left hoping that Commissioner McDowell's view prevails at the FCC, and that his optimism that the FCC will get it right is well placed.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

House to Vote on Federal Communications Commission Process Reform Act

The following letter was sent to the U.S. House of Representatives. The House is scheduled to vote on H.R. 3309 on March 27.

Dear Representative:

The Small Business & Entrepreneurship Council (SBE Council) urges your support for the Federal Communications Commission Process Reform Act (H.R. 3309). From net neutrality regulations to its activity that derailed the AT&T/T-Mobile merger, the FCC has become far too intrusive and ideological – costing the economy jobs, investment and innovations. Tightening up boundaries with regard to FCC authority, and making it a more transparent and accountable entity is not only desirable, but timely.

SBE Council fully agrees with comments made by U.S. Rep. Greg Walden (R-OR), Chairman of the Energy and Commerce Subcommittee on Communications and Technology and sponsor of H.R. 3309, this past November when he observed: “At a time when job creators are crippled with regulatory uncertainty, Congress has the obligation to ensure that federal agencies carry out the public's business transparently. The technology and communications sector is the most innovative in our country - it deserves the most innovative and open government agency.”

H.R. 3309 would bring greater transparency, consistency and effectiveness to the FCC’s regulatory process. For example, it would establish and clarify procedures for when the FCC issues rulemaking notices, including citing the FCC’s authority for adopting and amending a rule. Also, the economic impact of a rulemaking would need to be considered, with the FCC required to assess the presumed market failure and consumer harm, the governmental failures warranting FCC action, as well as the burden of existing regulation. For good measure, it would have to be determined that the benefits justify the costs of new regulatory action. In addition, H.R. 3309 would establish greater openness when it comes to the Commission’s deliberations, agenda, meetings, and dissemination of information.

H.R. 3309 would open up, provide checks and balances for, enhance certainty, and rationalize the FCC’s rulemaking process. That would be positive for reining in unwarranted costs on innovation and investment, and a huge plus for the entrepreneurs that both supply and consume telecommunications services. This legislation warrants bipartisan support.

SBE Council urges you to vote for H.R. 3309 when it comes before the full House for a vote this week. Thank you, in advance, for your support of small business.

Sincerely,
Karen Kerrigan

President & CEO

Picking Auction Winners and Losers

Politicians and their appointees often exhibit unique talents for manipulating language to mislead. That was, in part, the case when Federal Communications Commission (FCC) Chairman Julius Genachowski spoke to the Consumer Electronics Show on January 13 on the topic of incentive spectrum auction legislation.

Genachowski identified the issue adequately: "If we don't authorize incentive auctions and make much more spectrum available for mobile broadband, we are going to get swamped by an ocean of demand and risk our competitive advantage in the race to lead the world in mobile innovation... And future innovators will be incentivized to launch their businesses in countries that beat us in the race for the best wireless infrastructure. The price of that will be measured in lost jobs, investment, and innovation. That's why the incentive auction concept needs to become law now."

So far, so good. After all, the idea behind these incentive auctions is that current licensees could, if they chose, give up their current license rights for a share of the auction proceeds, while the FCC would be able to auction spectrum it currently controls along with this spectrum held by private entities so as to increase the potential efficiency of spectrum usage. Consumers, including small business owners and their employees, investment, innovation and the economy would benefit.

However, Genachowski does not like the fact that the bipartisan legislation moving in Congress would allow any firms meeting technical, financial and character qualifications required to hold a license to participate in these auctions. That's an odd position for the FCC, especially if the commission truly is interested in the most efficient allocation of spectrum. But apparently Chairman Genachowski is interested in having the FCC free to pick the winners and losers when it comes to spectrum allocation.

But rather than simply making its case in a straightforward manner, Genachowski actually tries to dress up such political controls as being pro-market. For example, he said, "Why would it be a mistake to tie the agency's hands? This is an incredibly fast-moving space, and any policy that pre-judges or predicts the future runs a great risk of unintended and unfortunate consequences.

We don't know what the world will look like when the FCC adopts auction rules... We know how hard it is to change a law. In this dynamic space, locking restrictions into a statute would be a real mistake. And the consequences of a mistake are greater than in the past. We've never had more global competition, and the race to lead the world in mobile innovation is particularly intense. The costs of tying our hands could be devastating in the fast-moving and competitive global economy."

But the legislation does not tie the hands of the FCC. Instead, it merely protects against politics overruling economics by allowing all qualified competitors to compete in the auctions.

Genachowski even refers to a letter from various economists: "In endorsing incentive auctions, 112 leading economists from across the ideological spectrum wrote: ‘Giving the FCC the authority to implement incentive auctions with flexibility to design appropriate rules would increase social welfare.' That's economist-speak for more innovation, more economic growth, and more improvements in our quality of life."

But that statement does not refer to giving the FCC unfettered power to include and exclude certain firms from auctions. After all, that same letter clearly declared: "The United States has a long tradition of relying on private market transactions to guide resources to their highest value uses. Voluntary transactions in free markets ensure that trades happen only when the buyer and seller both benefit."

The incentive spectrum auction legislation merely seeks to allow qualified firms to participate in auctions, and prevent the FCC from excluding such entities due to non-economic, political preferences.

In the end, letting the market work through a free and open auction will ensure the most efficient allocation of spectrum, as ultimately dictated by consumers, not government appointees.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Ideological Blindness at the FCC?

When seeking to spend, tax and regulate more, big government advocates seem willing to say just about anything. That includes, of course, offering all kinds of assertions that ignore economic reality.

This was evident, for example, by those pushing ObamaCare during the recent, and continuing, debate over health care. And recently, another example was served up by the Federal Communications Commission (FCC) regarding competition in wireless telecommunications...

Read this recent SBE Council Technology & Entrepreneurs analysis here.

The FCC's Lame Defense

It's always interesting to hear politicians or government bureaucrats try to defend bad public policy decisions. On matters of taxes, spending and regulation, for example, it often comes down to ignoring sound economics, along with common sense.

That's most certainly the case with FCC Chairman Julius Genachowski trying to defend his decision to push net neutrality and decades-old, telephone-monopoly regulations on broadband Internet services...

Read the Technology & Entrepreneurs analysis here.

Does the Internet Need to be Micromanaged by Government?

FCC "Net Regulation" Initiative Will Harm Broadband Innovation and Deployment
...small firms and investment will suffer

If Federal Communication (FCC) Chairman Julius Genachowski advances new Internet regulations, such an initiative will negatively impact private sector investment and economic recovery. The FCC is also working on a plan to reach full deployment of broadband in the U.S., but these new Internet regulations work against encouraging the large-scale private sector investment that is needed to achieve their "broadband for all" goal.

Small businesses will invariably suffer under this intrusive regulatory regime as an investment chill will leave many small firms without broadband -- that includes the breakthrough innovations that lead to improved efficiency, productivity and expanded market access.

"Entrepreneurs who use the Internet - and those who do not yet have access to broadband - as well small businesses that are helping to build and enhance the Internet will be the hardest hit by a regulatory climate that stifles investment," as I said in response to the FCC "net neutrality" announcement.

Genachowski announced new principles to govern the Internet, and said he would initiate a "public discussion" that is "fair, transparent, fact-based and data-drive" before implementing new rules. If the Chairman sticks by his statement regarding the type of proceedings and metrics the FCC plans to use, he should ultimately conclude that the Internet does not need the type of government intervention he proposes.

The fact that the telecommunications industry is so critical to U.S. economic competitiveness and health, should make regulators wary of interference. Yet, incredibly, we see policymakers developing proposals that only fuel the flames of uncertainty. This is an astonishing move that will have unintended consequences.

SBE Council believes that the FCC should stick with the congressionally-mandated priority to fully deploy broadband. This important effort is better aligned with economic conditions and will bring hurting Americans greater opportunity. Regulating the Internet remains a lousy idea in good economic times and bad.

Karen Kerrigan, President & CEO