Furchtgott-Roth Addresses the Realpolitik of FCC Regulation

(May 2, 2000) Harold Furchtgott-Roth gave an address on April 28 on FCC regulation. He stated the FCC does not adhere to the law, expands its jurisdiction, refuses to write regulations, is unpredictable, and treats similar parties differently. And, the FCC compares unfavorably to the DMV.

Related Pages
Transcript of Furchtgott-Roth Address.
Furchtgott-Roth Biography.
Furchtgott-Roth's FCC Web Site.

Harold Furchtgott-Roth is a Commissioner on the Federal Communications Commission. He gave an address on Friday afternoon, April 28, to the American Enterprise Institute titled "The Realpolitik of Regulation: Offensive and Defensive Strategies."

Furchtgott-Roth stated "regulators expand their power in markets by enhancing their discretion to make market affecting decisions through a series of techniques: the realpolitik of regulation."

He listed ten of these, and illustrated them with examples from the FCC:

  1. A lack of strict adherence to the law;
  2. Expansion of agency jurisdiction;
  3. Refusal to write procedural rules;
  4. Refusal to have transparent processes;
  5. Refusal to have predictable processes;
  6. Refusal to collect, disseminate, analyze, or systematically evaluation information on the costs and benefits of regulation;
  7. Complexity;
  8. Inefficiency;
  9. Promotion of benefits, and hiding of harms to consumers; and finally
  10. The treatment of similarly situated parties in different ways.

"The offensive strategy for regulators is the realpolitik of regulation," said Furchtgott-Roth. "It is to expand these characteristics, and to fully utilize them as much as possible. And, the defensive strategy for the rest of us is to diminish those powers."

Furchtgott-Roth spoke to, and answered questions from, a group of about fifty people at the American Enterprise Institute, a Washington based think tank with a free market orientation.

Harold
Furcthgott-Roth
Furchtgott-Roth is the only economist on the Commission; Chairman William Kennard, and the other three Commissioners are all lawyers. Furchtgott-Roth holds an S.B. in Economics from the Massachusetts Institute of Technology and a Ph.D. in Economics from Stanford University. He was Chief Economist for the House Commerce Committee before being appointed to the FCC. He is often the lone dissenter in FCC decisions.

He analyzed regulation from an economic viewpoint. He stated that "consumer demand for regulation is the public finance, textbook description of regulation. That is, regulation is a mechanism for pure market failure to internalize externalities."

However, he continued that there are other demands for regulation, including from the regulated businesses, Washington lawyers, and bureaucrats.

"The second source of the demand for regulation are the bureaucrats themselves, folks like me, folks like employees of the federal government. A lot of jobs at stake. They also want power," said Furchtgott-Roth.

"In the service industry of lawyers and accountants that demand regulation, their livelihood depends on regulation. The more regulation, and the more complex, the more demand there is for service," he said.

Finally, he said that "businesses also demand regulation. And they want regulation favorable to themselves, and unfavorable to their competitors. In Washington, it is called the 'level playing field'."

His address focused largely on demand for regulation from bureaucrats, and the FCC in particular. He also argued that the department of motor vehicles compares favorably to the FCC in its approach to regulation.

"When you go to the department of motor vehicles, most procedures are written down in simple detail," said Furchtgott-Roth. In contrast, "the FCC has tens of thousands of license transfer applications every year. The FCC has few written rules, though, on how to deal with these tens of thousands of license transfer applications every year. If you want to know how you are supposed to be treated, you don't know. You hire a Washington lawyer."

The FCC is currently considering license transfer applications in many pending mergers, including AOL and TimeWarner, AT&T and MediaOne, MCI WorldCom and Sprint, and Bell Atlantic and GTE.

The Commissioner continued that at the DMV "not only are procedures written down, they are followed in a predictable manner." But, at the FCC, "timelines, and possible conditions for license transfers, are unpredictable. If you are one of the tens of thousands of license transferees, you really don't know where you stand in the process."

The DMV is also simple: "You don't need to hire an army of lawyers and accountants to go and apply for a drivers license." He cited the FCC's computer cost model as an example of bureaucratic complexity. "We needed a cost model that no one could possibly understand. Because, if people understood it, then they might challenge it. ... Everyone knows it doesn't work."

The DMV is also open about how it harms consumers. "The department of motor vehicles does not try to hide from the public its failings. If it is going to take half a day standing in line, you call up and say, 'how long is it going to take?' They will tell you, 'half a day'."

At the FCC, "part of the game of regulation is to persuade people you are doing a lot of good, and you are not doing any harm. So one way of doing that is to prohibit people from describing any harms," said Furchtgott-Roth. "And so, for instance, last year, the FCC had a proceeding called the 'truth in billing' proceeding. And any time a government agency employs the word 'truth', watch out. That's words that is used in governments like Cuba, or China, or something like that, but not in the United States."

The FCC regulatory practice the Furchtgott-Roth spent the most time discussing was discrimination: treating similarly situated parties differently. This was a barely veiled discussion of the FCC's reaction to the National Association of Broadcasters' opposition to the FCC's initiative to license low power FM.

He said that one way the FCC discriminates "is to promote the idea that there is such a thing as good will and political capital at the agency. Recently, a high ranking official at the FCC suggested that a certain industry had lost good will at the FCC by lobbying for legislation on Capitol Hill."

"Are industries treated differently at regulatory agencies depending upon their stock of good will at any given point in time? Do agencies keep running tabs on good will? Does one lose free speech rights if one is involved a regulatory proceeding?"

During the question and answer session, the Commissioner stated that "I personally don't think the 96 Act is broken." He received many questions from the like minded audience at the AEI. However, most of the questions were asked for the purpose of presenting a viewpoint or suggestion.

Furchtgott-Roth also told Tech Law Journal that an example of FCC expansion of its jurisdiction affecting the Internet is its IP telephony decision, and that an area where the FCC might expand its jurisdiction in the future would be in defining ISPs as a telecom service.

Harold Furchtgott Roth also added a disclaimer to his address: "The employees of government agencies in general, and the FCC particularly, have to the best of my knowledge, the highest integrity and standards. Chairman Kennard of the FCC has, in many areas, done much to limit agency discretion, and I commend him for these efforts."