Opinion

An Economics Bureau for the FCC

In the wake of Tom Wheeler’s tumultuous tenure as Federal Communications Commission chairman, there have been numerous calls for FCC process reform. Many suggestions, including those from Republican Chairman Ajit Pai and Commissioner Michael O’Rielly, are aimed primarily at increasing transparency and accountability and fostering more collaboration among commissioners. These are all valuable suggestions.

Beyond process reform, however, the FCC needs some structural reform. In particular, it should create an Economics Bureau tasked with conducting economic analyses of proposed rules, mergers and other important actions, much like the Bureau of Economics at the Federal Trade Commission.

This suggestion is consistent with O’Rielly’s call for the FCC to “conduct a quantitative cost-benefit analysis…to determine whether rules are unduly burdensome,” and to “complete [the] analysis during the rulemaking instead of after Commissioners have voted.” My proposal would go further and institutionalize the role of economics at the FCC.

This is not a radical proposal. In addition to the FTC’s Bureau of Economics (with 78 PhD-level economists), the Department of Justice has an Economic Analysis Group within the Antitrust Division and the Securities and Exchange Commission has a Division of Economic and Risk Analysis. The FCC has no such group, although it is largely concerned with competition and consumer protection and has a similar need for economic analysis to inform its decisions.

To be sure, the FCC has economists throughout the agency and brings in prominent academics to serve as chief economist, typically for one-year terms. But the commission has no single team dedicated to conducting economic analysis of all relevant issues. The Office of Strategic Planning and Policy houses a small group of excellent economists. But it is not inherently part of all relevant decision-making and can easily be excluded. Perhaps partly as a result, in recent years, with the exception of spectrum auctions, economics has played a peripheral role in the commission’s decisions. A major criticism of the Wheeler FCC was that it adopted major policies, such as reclassifying broadband providers as Title II common carriers, without adequate economic analysis.

By creating an Economics Bureau similar to the FTC’s, the commission can institutionalize the role of economics. The FCC leadership should ensure that its Economics Bureau is involved in all major issues, including significant enforcement actions, and can submit its analyses directly to the commissioners to be considered alongside the recommendations of the other operating bureaus.

The commission should also go a step further than O’Rielly suggested with respect to cost-benefit analysis. Specifically, the commission should require that a preliminary cost-benefit analysis be completed and put out for public comment at the same time as the corresponding notice of proposed rulemaking. Executive branch agencies operate this way; there is no substantive reason independent agencies should behave differently. A quality cost-benefit analysis of proposed rules is arguably more important for the FCC than the FTC, simply because the FCC has much broader rulemaking authority.

Preparing a cost-benefit analysis prior to releasing a proposal is important because ideally the analysis should be an integral part of the development of the rule. Commissioners should see a preliminary analysis before voting on a proposal, and the public should have an opportunity to submit comments. Based on those comments, the analysis — and perhaps the rule — can be modified before finalization. All of this would increase the transparency of the FCC’s decisions, which had been seen as lacking under the Wheeler FCC.

Some reforms concerning transparency and the workings of the agency are included in the FCC reform bill currently moving through Congress. But if Congress doesn’t specifically address the lack of economic analysis in FCC decisions, the agency should do so on its own.

 

Thomas M. Lenard is senior fellow and president emeritus at the Technology Policy Institute.

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