Reforming the FCC

The FCC has long used suboptimal procedures and processes. These failings are not, however, due merely to shortcomings in leadership. Notably, the agency's early leaders often were influenced by the need to make the inherently political judgments of assigning control over radio frequencies through command-and-control regulation. In particular, the agency took as its mandate the need to evaluate which particular firms or individuals were best suited to hold licenses to use the radio spectrum. In some cases, this power was famously used to benefit those with political connections—including then-Congressman Lyndon Johnson's wife^[11]—and, in other cases, it led the agency to make judgments about the relative importance to the U.S. economy of different activities (such as livestock breeding as opposed to dairy inspection).^[12] In all cases, the agency was limited in its ability to use judicial-like processes because, as noted economist Alfred Kahn put it, "[t]he dispensation of favors to a selected few is a political act, not a judicial one."^[13]

The agency's culture was shaped by the philosophy that emerged from regulating natural monopolies and an often implicit partnership between the regulated parties and the regulator. As former FCC Chairman Reed Hundt put it, the old tradition embraced monopolies "as the best market structures to deliver universal and high quality communications services, such as telephony or video."^[14] In the assessment of Judge Posner, this model of regulation involved a cozy relationship between the two parties not necessarily because the regulator was captured or subject to political forces. Rather, as Posner saw it, the regulatory regime allowed (or even encouraged) the interests of the regulator to become intertwined with the conduct of the regulated firm that participated in a program-such as the protection of universal service-that he called "taxation by regulation."^[15]

The FCC’s legacy of command-and-control regulation and political favoritism has often steered the agency towards ad hoc judgments and away from any principled framework for evaluating alternative courses of action. Almost forty years ago, FCC Commissioner Nicholas Johnson summed up this legacy in bemoaning that “[t]oo often decisions are the product of an ad hoc disposition reigning in the absence of any clearly articulated standards for spectrum allocation and utilization priorities.”^[16] In reviewing spectrum management by the Commission of the 1960s, Johnson offered criticisms that could be made of today’s Commission, highlighting “the need to view spectrum problems as a whole; the need to anticipate and plan for future spectrum requirements; and the need to obtain better and more complete data on the use of the spectrum.”^[17]

The FCC of Commissioner Johnson’s day, like today’s Commission, is one where alternative regulatory strategies and a holistic perspective on policymaking are often constrained by the practice of viewing issues in isolation without any strategic direction or focus. In some respects, the Commission has adopted the most limiting aspects of the judicial process-reacting mostly to matters that come before it-as well as the most unfortunate aspect of legislative processes-engaging in political deal-making and rewarding those with influence. In theory, of course, the Commission could combine the best of both traditions-drawing on the judiciary’s legacy of impartiality and data-driven decision-making and the legislative branch’s ability to view issues in a broad and strategic manner. Unfortunately, as Commissioner Johnson noted, the FCC generally fails to utilize any of its own insights or independent research, relying “almost exclusively upon information and analysis supplied by” the parties that appear before it.^[18]

The FCC’s limited strategic planning and its tendency to engage in ad hoc decision-making are perennial points of criticism. In 1949, former President Herbert Hoover-who (as Commerce Secretary) was largely responsible for the establishment of the Federal Radio Commission that evolved into the FCC-led a commission that concluded that the FCC had “failed both to define its primary objectives and to make many policy determinations required for efficient and expeditious administration.”^[19] In a similar vein, Professor Landis, who helped President Roosevelt develop the basic architecture of the modern administrative state, authored a report for President Kennedy that excoriated the FCC for being “incapable of policy planning, of disposing within a reasonable period of time the business before it, [and] of fashioning procedures that are effective to deal with its problems.”^[20] Despite such criticisms, the FCC’s practice of ad hoc decision-making has remained largely intact.

To underscore the limitations of the FCC, Commissioner Johnson pointed to a landmark proceeding that authorized domestic satellites. This proceeding, while seemingly obscure to many of today’s observers, led to a revolutionary form of communications that has transformed an array of communications technologies (from video programming to cell phones to international voice communications). Johnson explained that this proceeding did not emerge from a strategic assessment of technological possibilities and how the Commission could advance their development, but rather from a proposal shaped by AT&T. Consequently, the FCC approached that matter by heading down the road of granting the request without carefully rethinking the appropriate regulatory strategy. Fortunately, as Johnson described it, “[t]he Ford Foundation subsequently filed a proposal that radically changed the frame of reference in which the question was being discussed-including the concept of a ‘people’s dividend’” from the massive investment that followed the FCC’s decision.^[21] That concept, in short, led to proposals for funding for the Public Broadcasting Service that, but for the Ford Foundation’s intervention, the Commission would have overlooked.

For another case illustrating the costs of relying on telecommunications companies as the agenda setter at the FCC, consider the decision to authorize cellular telephone service. Like domestic satellite service, the proposal stemmed from a request by AT&T, which sought the sole authority to deploy such a service. Significantly, AT&T’s incentive to roll out the service was dulled by its status as a dominant firm evaluating a potentially disruptive technology-i.e., it was skeptical that the technology could succeed, it did not believe there would be a huge market for it, and it worried that wireless services might ultimately pose a threat to its landline operations.^[22] Consequently, neither the FCC nor AT&T pushed the matter aggressively, meaning that the authorization was “slow rolled,” costing American consumers, on one account, $33 billion in lost productivity gains.^[23]

In addition to failing to set its own agenda, the FCC often fails to address issues in an intellectually defensible and careful manner. One notable and famous such case arose from the agency’s re-evaluation of the financial interest and syndication (finsyn) rules, which restricted the ability of broadcast networks to participate in the production of TV programming. Originally, these rules were seen as providing important protections for independent TV producers, but over time, it increasingly appeared that they served to protect the Hollywood studios (which fought for the preservation of the rules) from competition by the networks that were eager to create their own programming development arms. When it decided to keep the rules in place, the FCC wrote a long opinion that Judge Posner, in overturning it on appeal, famously remarked was “like a Persian cat with its fur shaved, [] alarmingly pale and thin.”^[24] To that zinger, he added that “[t]he impression created [by the agency’s opinion] is of unprincipled compromises of Rube Goldberg complexity among contending interest groups viewed merely as clamoring supplicants who have somehow to be conciliated.”^[25]

In evaluating the above proceedings and the Commission’s legacy, some former FCC officials have concluded that the agency is prone to “capture” by the interests it regulates. Former Chair Reed Hundt, for example, suggested that the acronym “FCC” stands for “Firmly Captured by Corporations”^[26] while former FCC Chief Economist Tom Hazlett counters that “FCC” stands for “Forever Captured by Corporations.”^[27] To my mind, the challenge is not so much the classic portrait of agency capture (e.g., the revolving door) or even the more subtle version of the intertwined interests model (i.e., taxation by regulation) advanced by Posner. Rather, because the agency operates with limited imagination, almost no strategic thinking or planning, and with an absence of well-developed sources of data to guide its decisions, it often misses opportunities to chart independent courses of action like the one identified by the Ford Foundation as to satellite policy. To be sure, the agency also has an uncomfortable track record of conducting its proceedings-like the finsyn rulemaking and a number of proceedings discussed below-without engaging in careful data-driven decision-making, thereby inviting reversal on appeal. To highlight this issue, Section B discusses three recent case studies in which the agency has operated in a highly questionable fashion.