Who Needs the FCC?
On the rare occasions that Americans think of the Federal Communications Commission, its responses to Howard Stern and the Super Bowl "wardrobe malfunction" probably first come to mind. But the agency does far more than police nudity and off-color jokes on the air, and few realize just how much it regulates, and therefore how much it matters. From its beginning, the FCC has been charged by Congress with a broad mandate to enforce an even broader standard: regulating the country's communications networks according to "the public interest." In addition to regulating broadcast media, the FCC allocates wireless spectrum worth hundreds of billions of dollars, approves consumer technologies like Wi-Fi and smartphones, dispenses tens of billions of dollars of subsidies, and much more. Today, the FCC has substantial power over the country's technology and media companies, including Google, Comcast-NBCUniversal, Verizon, and DirecTV.
Nearly every American uses the communication networks regulated by the FCC, yet despite the immediate relevance of its actions, few people understand what the agency does. The labyrinthine regulatory system it has created over eight decades has obscured its influence from all but a few specialists, making effective oversight nearly impossible. And that is intentional: The FCC's superficially complex proceedings minimize the "headline risk" that can bring congressional accountability and perhaps even the revocation of authority.
As a result, reviewing modern communications laws and regulations is akin to pawing through an eccentric antique dealer's basement: One stumbles upon artifacts that no one quite remembered were there and that no one can quite justify. Even the agency's most basic work — like regulation related to television and phone service, the work most relevant for consumers — is rendered unintelligible by bureaucratic jargon and tedious complexity. Communications policy is littered with neologisms — syndicated exclusivity, interconnected VoIP, retrans, deintermixture — seemingly invented by FCC lawyers to discourage prying eyes. This vast network of policies and terms has built up over the decades, creating around communications law what Steven Teles has termed "kludgeocracy" — an expansive system, updated only incrementally to deal with new issues, that is both opaque and prone to failure.
The FCC's broad grant of authority, combined with its impenetrable complexity, means that it has nearly boundless ability to distribute favors and shape the trillion-dollar technology and media industries. The FCC's tendencies, in the words of economist and judge Richard Posner, result in "unprincipled compromises of Rube Goldberg complexity among contending interest groups viewed merely as clamoring suppliants who have somehow to be conciliated." The discretion it reserves for itself undermines its work because its approval processes are frequently sidetracked by powerful interests in and outside of government. For example, one wireless company, LightSquared, spent billions of dollars converting satellite spectrum for use as mobile broadband, in the hopes of competing with AT&T and Verizon. The FCC tentatively encouraged that costly process for a few years before rescinding crucial permissions under intense political pressure. The bureaucratic shift immediately bankrupted LightSquared and deprived Americans of the benefits of another major wireless operator.
The opacity of the FCC has become even more problematic since, at the urging of President Obama, the nominally independent agency has voted itself unprecedented authority to regulate the internet in the name of so-called "net neutrality." FCC actions in decades past have left most new media platforms with weakened First Amendment rights compared to traditional media outlets like bookstores, print publishers, and newspapers. And the agency's recent actions again threaten the First Amendment rights of new media, such as online portals and search engines. Speech and mass media are intertwined — carried by wire and wireless to millions of households — and the FCC intimidates these "modern printing presses" in ways it never could traditional print media.
The FCC's ad hoc enforcement of legacy regulations has done untold damage to consumer interests for decades, and the agency's new claim of authority to regulate broadband much like the old Bell telephone monopoly is the culmination of its missteps. We need to rethink the necessity of both the agency's economic and noneconomic responsibilities. As progressive legal scholar Lawrence Lessig has said, the problems with the FCC are in its DNA, a sentiment shared by many conservative FCC critics. In this era of growing competition, technological change, and content abundance, Congress needs to pave a path toward not only limiting the agency's power over the internet but eliminating most FCC authority outright.
THE PUBLIC-INTEREST STANDARD
According to Randy May, who formerly served as associate general counsel at the FCC, there are nearly 100 statutory provisions that direct or authorize the FCC to act based on its understanding of the "public interest." The result is that a majority of the commission — three out of five individuals — gets to decide what constitutes the public's interest regarding the nation's communications networks. This standard is so broad and all-encompassing that it shields the agency from legal accountability: While Congress does give the FCC more specific directives, the agency can always point to the pervasive public-interest standard, ensuring that court review will remain limited.
The public-interest standard was first applied to mass media over 90 years ago. In the early 1920s, radio broadcasting took the world by storm. For the first time, millions of people could simultaneously enjoy a variety of widely disseminated information, like election results, live coverage of baseball games, and music. There was no regulatory body overseeing radio yet, and under existing law broadcasters had simply to register their use of the airwaves in a particular geographic location with the secretary of commerce, an ambitious man named Herbert Hoover. In 1926, however, the acting Attorney General, William Donovan, abruptly declared that registration system untenable. The resulting "chaos" in the airwaves — nearly 200 stations tried to begin service in the ensuing seven-month free-for-all — led directly to the creation of the Federal Radio Commission in 1927.
Congress authorized the new FRC to operate for "the public interest, convenience, or necessity," but the agency's origin shows that it had quite different objectives from the very beginning. Clemson University economist Thomas Hazlett argues that the creation of a radio agency with the authority to license mass media satisfied two powerful interest groups. First, an agency with broad discretion satisfied regulators and the political class, who could now "guide" a powerful new medium. Second, the agency found support from the major players in the radio industry, who could afford to placate regulators with public-interest obligations in return for protection from economic rivals. In an early hint of the agency capture that would follow, the public-interest standard gave the agency the pretext to eliminate hundreds of mostly small, non-profit, religious, and amateur radio stations — a necessary step, regulators reasoned, to advance their technocratic vision of modern mass communications.
It is a mistake to assume the congressmen who promulgated this vague standard in the 1920s thought that it had any true significance. Contemporaries knew the agency had few legal restraints. Louis Caldwell, the first general counsel of the FRC, described the standard in 1930 as akin to instructing a radio czar to "do the best he can." Caldwell continued, "'Public interest, convenience or necessity' means about as little as any phrase that the drafters of the Act could have used and still comply with the constitutional requirement that there be some standard to guide the administrative wisdom of the licensing authority." The standard was formless from the start, and intentionally so. It reflected the Progressive Era beliefs that laissez faire was unfair, wasteful, and chaotic, and that technocrats needed freedom to organize complex economic systems efficiently and extract obligations from the regulated industries.
While the standard was open-ended, the creators of the new FRC did not expect the agency to have unlimited power. Where regulators overreach, courts can and do cabin their discretion. That was the theory put forth by Attorney General Donovan, who was instrumental in the creation of the FRC. Donovan noted that the FRC's public-interest standard "has to be marked out and developed by a line of administrative and judicial decisions." Courts had, after all, constrained seemingly discretionary antitrust laws. Section 1 of the Sherman Antitrust Act, for instance, bars "contract[s]...in restraint of trade or commerce." Taken literally, this provision makes even the most routine commercial agreements illegal. Rather than empower the antitrust agencies with that immense discretion, courts applied something like common-law standards to the statute to prevent the exercise of arbitrary power.
Despite the passage of decades, however, neither the FRC (which became the FCC in 1934) nor the courts have put meaningful limits on what the agency can do under the nebulous public-interest standard. If anything, the FCC became increasingly aggressive in expanding its interpretation of its charter and attempting to regulate areas — like cable TV in the 1960s and the internet lately — outside its traditional purview.
It is this tremendous discretion that leaves communications law so full of kludges. Over the history of the FCC, its officials have stumbled from one agency-created regulatory crisis to another, and the standardless vacuum has invited an easily manipulated, politicized, and arbitrary process. The biggest winners, aside from the self-perpetuating agency itself, have been the industry parties that rise to the top of the dog-pile and the universe of communication lawyers and economists who — often in informal processes inscrutable to outsiders — dress up their clients' interests to resemble the public's.
Reflecting its New Deal-era origins, the FCC seeks to regulate a fairly static competitive landscape to ensure the orderly deployment of wire and wireless services according to its own standards and categories. The FCC has a technology-specific, compartmentalized doctrine for each area it regulates, including telephone, over-the-air broadcasting, cable, direct broadcasting satellite, and interactive computer services. The regulatory rigidity that results from this compartmental approach slows or halts competition and innovation, and whole industries are stymied as the agency tries to maintain artificial distinctions and protect established practices from competitive upheaval. This competitive upheaval is what Joseph Schumpeter termed "creative destruction," and even though it is the origin of tremendous innovation and numerous consumer benefits, it is anathema to an industry-specific agency like the FCC. As former FCC commissioner Glen Robinson has noted, the FCC has consistently concluded that the best way to eliminate the risk of "unfair competition" is to eliminate competition altogether.
One of the best examples of the FCC's opposition to competition that undermines its regulatory silos was the FCC's cozy but counterproductive relationship with the Bell telephone monopoly. Major technological innovations were delayed for decades in part because Bell was protected by the FCC from normal competitive pressures. Television over a telephone wire, largely prohibited by law until the mid-1990s, was developed in 1927. The first mobile telephone service, linking moving cars, debuted in 1946. The FCC had several hearings about subscription TV throughout the 1950s and allowed only a few local experiments. But these innovations were stifled by a slow-moving bureaucracy, and the result was a monopoly that served the public interest only incidentally. It was the FCC's perceived inability to effectively regulate Bell and its subsidiaries that led to the forced breakup of the monopoly in the 1970s and 1980s. The FCC's preference for a knowable, stable, communications market discouraged experimentation and ultimately delayed now-ubiquitous services.
Both broadcast and cable television were held up by similar regulatory practices. The FCC froze the licensing of broadcast TV from 1948 to 1952, leaving most small cities with one TV station and most communities with no TV at all. Communications scholar Don LeDuc notes that "the television systems of 1952 could have been operating in 1940...[and] possibly as early as 1937," and it would have hastened the end of the radio era but for the FCC's failure to permit such services. Unfortunately for the FCC, as soon as the agency had an orderly, nationwide system of television broadcasters (dutifully following the Commission's public-interest mandates, which required that every new station submit a proposed schedule of programming in order to ensure time for educational and public-affairs programming, for instance) in the late 1940s, a precursor to modern cable systems called community antenna television (CATV) started retransmitting those TV broadcasts and undermined the entire enterprise.
CATV and cable arose spontaneously because there were many areas of the country that broadcast signals could not reach, like the hilly Appalachian regions. People began putting antennas at the top of hills and wiring homes in the valleys and mountainsides to extend the broadcast signal beyond its normal reach. This quickly became a niche hobby for entrepreneurial amateurs. In 1951, the first person applied to the FCC to carry broadcasts via a crude cable system, but it was three years before the Commission made a decision on this groundbreaking application.
At that early stage, the FCC didn't know quite which category cable fit into, and as a result of the confusion, the agency delayed its development. It wasn't quite like telephone, despite relaying information by wire, nor did it function like radio or TV broadcasts, despite transmitting mass entertainment in competition with those services. As a result, the development of cable — the foundation of modern internet, video, and phone services — was significantly delayed and subject to ad hoc FCC regulations.
After years of indecision and changing administrations, the FCC took full regulatory control of cable television in the mid-1960s when it became apparent that cable threatened the FCC's complex system of profitable local broadcasters in every media market. Despite some of the advantages of cable, like greater penetration and the opportunity for more programming, the FCC reasoned that it had a duty to protect broadcasters from this "substantial competition of a patently unfair nature." Cable threatened not only the viability of new, weaker broadcasters that the FCC had spent years developing, but also, and more disturbingly, the FCC's ability to ensure the public received "responsible" news and entertainment.
A complicated series of broadcaster-cable rules flowed out of the FCC from the late 1960s on to relieve some of the competitive pressure that cable was putting on public broadcasters. In the meantime, Congress passed no laws related to cable, and the Supreme Court issued a 1968 copyright decision that injured broadcaster interests and helped the growing cable operators. Nevertheless, in an effort to protect the broadcasters, the FCC created, in the words of a contemporary trade magazine, a "jerry-built substitute" copyright obligation called "retransmission permission" that still plagues television to this day in the form of complex content negotiations and high cable bills.
At the same time that the FCC was reining in cable expansion, it was also protecting cable from a new competitor — local telephone companies. In 1970, the FCC banned telephone companies from providing TV service, thus depriving Americans of a third television source. The stated fear was that the telephone companies, which were part of the Bell system and had government-granted local monopolies, would use their monopoly power and control of utility poles to harm independent cable operators. Rather than "regulate down" and open up the market to all entrants, the FCC increased regulatory burdens to preserve its silo approach to regulation. In 1972, the FCC decided that licensing cable operators was too onerous, so it required state and local regulatory bodies to assign local monopolies to cable companies, called "franchises," and regulate the rates the franchises charged.
The policy kludges have continued to mount in recent years. Satellite TV firms also face complex and unnecessary technical requirements. And just this year, the FCC turned its attention to internet-delivered television and may soon craft regulations that will help preserve its 1950s-era broadcast market allocations. The result is stifled competition and fewer choices for consumers.
Regarding wireless regulation and spectrum policy, the FCC has been similarly suspicious toward new services, but an added wrinkle has been thrown in: the politicized allocation of lucrative spectrum licenses. The FCC is subject to intense lobbying for the valuable spectrum licenses it assigns, resulting in "woeful inefficiencies and wasted resources," according to former FCC officials Gerald Faulhaber and David Farber. Because of the technical nature of spectrum debates, it is hard to calculate just how much waste has resulted, but conservative estimates of even routine delays in auctioning airwaves to their highest-valued use place consumer-welfare losses at tens of billions of dollars annually. These distortions in the market take the form of higher smart-phone bills, fewer competitive choices for broadband and television, and more delayed wireless services.
Reforms enacted in the 1996 Telecommunications Act made marginal improvements in telephone markets, and spectrum auctions are getting wireless spectrum to market faster than they used to. Still, the FCC time and again has inhibited competition and investment in cutting-edge technology — like cable- and telephone-delivered television and wireless data networks — in order to protect legacy services and entrenched interests. Further, the policy kludges generated as the agency whipsaws between administrations and regulatory approaches create "homemade legislation" and norms known only to the FCC and a few select outsiders.
Entrepreneurs who try to cut through this thicket of unstable, unpredictable rules frequently draw industry and professional activist opposition, which is channeled through the agency. Since the public interest cannot be measured, the FCC must measure its effectiveness according to the economic performance of the parties it regulates. This prejudices the agency in favor of stability and so against disruptive innovation — in a sector that not only thrives on innovation but often powers developments in the rest of our economy.
THREATENING FREE SPEECH
The FCC in recent years has turned its focus from legacy systems like cable television and traditional phone networks — which face declining numbers of subscribers — to the new distributors of media, communications, and technology, typically found on the internet. Recent actions by the agency, particularly the nascent net-neutrality legal regime, indicate it is seeking substantial power over the internet and will become entangled in content-related issues. And this raises some critical First Amendment questions.
Because many communications companies are involved in both speech and the distribution of speech, supposedly content-neutral actions pose unique threats to their First Amendment rights, giving rise to what University of Pennsylvania professor Christopher Yoo has dubbed "architectural censorship." Structural regulation — imposing requirements before allowing media companies to merge and extracting "voluntary" social commitments from regulated firms — is a common source of kludges and of much of the FCC's direct and tacit power over mass media. Structural regulation was used extensively against the Bell system to prevent it from getting involved in non-telephone services like data communications and television. In recent decades, the FCC has become even more aggressive with its structural regulations and has extracted concessions from companies relating to ancillary concerns like hiring decisions, employee wages, and compliance with net-neutrality norms.
The FCC and media-access groups have long favored structural rules, not because they encourage competition but because those non-economic remedies ostensibly increase the diversity of media viewpoints and local, educational, and public-affairs programming. Many scholars wish to equip the FCC to handle even larger civic-minded aspirations in the Internet Age. Professor Tim Wu, for instance, who coined the phrase "net neutrality" and lobbied for the FCC's internet rules, argued in congressional testimony that the FCC should be charged with "protecting an open society," "safeguarding the political process," and prohibiting media companies from silencing political viewpoints.
What appear to be content-neutral economic regulations, however, have pernicious effects when applied to media distributors. Information policy scholar Christian Sandvig astutely notes that internet "distribution architecture remains an important site of investigation for the media scholar, as well as an avenue for intervention by the media activist" because "within the distribution infrastructure lies a clear picture of which speakers are valued and what content is important. The distribution infrastructure is a crucial battleground: competing visions of society are made manifest within seemingly-technical struggles."
The FCC can intentionally influence the speech of regulated entities because the jurisprudence on how the First Amendment protects electronic media is unsettled. It shouldn't be this way. As FCC commissioner Jessica Rosenworcel has said, the internet "is our printing press. It is our town square. It is our individual soapbox and our shared platform for opportunity." Unfortunately, legal precedent is clear that the FCC can treat some "modern printing presses" very differently from the traditional one. Therefore, there is persistent political pressure to withhold free-speech rights from cable companies, internet providers, social networks, and search engines.
Even most legal scholars are probably unaware that there is a fierce fight over how the First Amendment applies to new media. The question is whether modern platforms and speech intermediaries — like cable TV, the internet, and search engines and algorithms — resemble broadcast television or resemble newspapers. In law reviews and conferences, scholars and regulators parry over whether electronic media should receive the substantial speech protections found in the "print media" or the relatively meager protections given TV and radio broadcasters, who are subject to indirect and direct government censorship. As Sandvig says, "What is at stake is not some arcane technical principle of point-to-point routing vs. broadcasting, but the shape of culture itself."
Regulating internet, cable, and wireless platforms affects speech rights just as regulating newspaper delivery or newspaper racks would affect speech rights. Traditional speech intermediaries like bookstores, the op-ed pages in a newspaper, and print publishers have secure First Amendment rights to offer only certain content and to aggregate and "curate" their offerings. The Supreme Court has recognized in traditional print media that, because it is far easier for regulators to punish intermediaries transmitting speech than to punish speakers, vigilance against even facially unobjectionable regulation is required. As the Court said in the 1988 case City of Lakewood v. Plain Dealer Publishing Company, a case striking down a city's licensing of newspaper racks: "[A] law requiring the licensing of printers has historically been declared the archetypal censorship statute." Even if a licensor's discretion is never actually abused, the Court reasoned, parties are impermissibly intimidated into self-censorship.
In sharp contrast, the FCC can license speakers who use the airwaves. The Supreme Court said in 1943 in National Broadcasting Co. v. U.S. that the FCC was not limited to technical and engineering concerns: "[T]he Act does not restrict the Commission merely to supervision of [wireless] traffic. It puts upon the Commission the burden of determining the composition of that traffic." This case ratified the formal and informal speech restrictions for broadcasters, including the infamous Fairness Doctrine, which was one of several vague requirements that broadcasters treat issues of public importance evenhandedly.
Despite disclaiming censorship, neutral-sounding regulations about "balance" became political weapons to silence enemies and enrich friends. In the 1960s, the Kennedy administration was distressed that far-right radio broadcasters were vociferously criticizing the president's policies. The Democratic National Committee therefore sought to use the FCC's rules to make an example of a conservative broadcaster. As Kennedy advisor Bill Ruder said, "Our massive strategy was to use the Fairness Doctrine to challenge and harass right-wing broadcasters and hope that the challenges would be so costly to them that they would be inhibited and decide it was too expensive to continue." The DNC found one such broadcaster in Red Lion, Pennsylvania. When the broadcaster aired a segment attacking a Goldwater critic, the DNC network made sure the author knew of the attack. When the author petitioned the FCC for free airtime to respond, the station offered its regular rate for airtime but declined to offer free airtime, drawing FCC sanction. The broadcaster sued the FCC and the case reached the Supreme Court in 1969.
In Red Lion Broadcasting Co. v. FCC, the Supreme Court reinvigorated the "right of the viewers and listeners" found in NBC when it upheld the Fairness Doctrine. The Court relied on its earlier argument that the "scarcity" of radio licenses necessitated extensive government control, including requiring the provision of time to political opponents. That case silenced Kennedy critics, of course, who could not afford an FCC inquiry and possible license revocation. It also lead to other FCC-initiated speech infringements, like regulating broadcast advertisements for cigarettes, and it serves as the justification for non-economic regulation of media companies today.
The scholarly response to Red Lion has been deservedly harsh. Scholars generally agree that the Warren Court had an end in mind — justifying the existence of the FCC's substantial regulatory apparatus — and simply needed a pretextual defense of long-standing agency practice. As one scholar noted, the case's reasoning possessed "devastating — even embarrassing — deficienc[ies]." "No one besides the Supreme Court actually believes the scarcity rationale," said another in a law review. In the late 1960s, for instance, most cities had dozens of radio stations but only one or two daily newspapers, yet the paucity of newspaper outlets did not (and does not) permit government control of content. The Ninth Circuit concluded that even a newspaper with a "substantial monopoly" cannot be compelled to run an advertisement it does not wish to publish. In fact, a few years after Red Lion, the Supreme Court decided a case with very similar facts, except the regulation at issue mandated a newspaper allow a right of reply when that newspaper endorsed one politician over another. The Court held that law unconstitutional, thus setting up an obvious schism between treatment of electronic media outlets like broadcast radio and print outlets.
Though ostensibly content-neutral, regulating internet architecture, cable television, and spectrum licenses is done for the express purpose of shaping culture and media in ways Red Lion defenders intended. Media law professor Laurence Winer points out that "'bottleneck control' quickly is becoming the talisman for cable that spectrum scarcity once was for broadcasting." More recently, the "gatekeeper theory" used to justify internet regulations is simply warmed-over scarcity rationale. Scholars in recent years have been laying the groundwork to give lesser First Amendment protections to internet intermediaries like Google, Comcast, Twitter, and Facebook. There are even rumblings from prominent progressives that the politicization of news is a problem requiring FCC remedy. Cass Sunstein, for instance, bemoans that "many of us...construct, with the help of the Internet or with the sheer number of other options — a political universe that is limited to topics and ideas that please or interest us." He concludes that this "is a problem from the standpoint of the First Amendment and not a solution."
No matter how abundant competition and media outlets become, history shows the FCC will never voluntarily abandon the field, nor will media activists relent. Further, the FCC has the benefit of bringing about the very circumstances that necessitate its control of distribution. As Christopher Yoo has pointed out, because "the amount of spectrum available...is itself a product of regulation, any reliance on spectrum scarcity in effect allows regulation to serve as the constitutional justification for other regulations." Similarly, the lack of competition in broadband provision has been exacerbated by FCC regulation from the very start, when it restricted cable entry and later encouraged local cable monopolies akin to the telephone monopoly it was overseeing. Structural regulation and architectural censorship, then, is a self-reinforcing problem that threatens some basic American values about free speech.
REFORMING COMMUNICATIONS POLICY
While conservatives are critical of the FCC and its processes, progressives have raised their own concerns about it, which indicates there may be room for scaling back the FCC's responsibilities. The FCC's industrial planning hurts conservatives by concealing the true size of government, particularly the industries that the FCC shapes and supports. FCC policies also harm progressives by creating, in Teles's words, both the perception and the reality that the government is incompetent and corrupt. Lawrence Lessig penned a piece in 2008 for Newsweek titled, "It's Time to Demolish the FCC," in which he bemoaned the problems of industry capture and the FCC's increased politicization. Echoing many conservative complaints, he concluded that, when it comes to technology, there's an urgent need to "remove the government from the mix as much as possible." There are certainly devilish details to be sorted out, but it is not hard to imagine a conservative and progressive coalition that could agree at least on removing portions of the FCC's authority.
An effective reform of communications policy should have two parts: targeted, transparent subsidies, and the deletion of reams of communications statutes that attempt, ineffectually, to benefit consumers while giving policymakers a carte blanche to regulate as they please.
Lawmakers want to avoid the appearance of increasing government spending, so their public-minded policies are implemented in complex and costly (off-budget) agency rules. Because of this, programs whose ends could be accomplished with relatively small direct expenditures become large indirect subsidies. Take local news programming as an example. A huge television-regulation edifice relies on maintaining a nationwide system of free over-the-air television and local news content. The costs to society are tremendous. The opportunity costs for the radio spectrum used nationwide for broadcasting — which could be used for wireless data networks or media distribution — is tens of billions of dollars per year. Other costs, in terms of less broadband access and television competition and diverted FCC attention, are substantial but not amenable to calculation.
If members of Congress want localism, they should fund local journalism directly. Parts of the spectrum worth billions of dollars should not have been parceled out for free, with strings attached, to what is simply one of several distribution channels. Likewise, if Congress wants diverse sources of news and entertainment and children's programming, they should fund more programming, as they do through PBS and NPR. These outlets are reliable conservative irritants, but subsidized programming is far more honest and transparent, and ultimately less costly, than FCC regulation.
Likewise, the universal service mechanisms for deployment of telephone and broadband demonstrate both congressional cowardice and a lack of FCC accountability. Rather than make these subsidies overt through taxation and individual vouchers, Congress directs the FCC to collect fees from telephone companies in the Universal Service Fund and then ensure that consumers have access to communications networks. The result is that the FCC is now a de facto tax collector and industry Santa Claus. As Hank Hultquist, a vice president of AT&T's federal regulatory affairs department, characterized the program, "It's almost as if the FCC put out a sign saying GET DOLLARS HERE." The Washington Post reported a few years ago that several areas in the country had over a dozen wireless carriers drawing USF funds and competing for customers. In a recent economic analysis of USF, Scott Wallsten and Thomas Hazlett state that "assuming the best for [the USF subsidies], the cost per extra (voice) connected household exceeds $100,000."
The program has ballooned from $2.3 billion in 1998, when it started, to over $8 billion in 2014. The increase is more startling when you realize the Senate Commerce Committee, which drafted the USF law, predicted in the mid-1990s "that competition and new technologies will greatly reduce the actual cost of providing universal service over time, thus reducing or eliminating the need for universal service support mechanisms" (emphasis added). This aspiration is now a fantasy, and an expensive one at that. GAO analysis of the program finds little evidence that USF appreciably increases phone or broadband penetration or competition, despite redistributing tens of billions of dollars from consumers to telecom companies since 1998. The true magnitude and direction of subsidies are difficult to determine because they are hidden in the complex machinations of the USF, but judging by the program's chief advocates, it's likely that most of the benefits accrue to telecom carriers, not consumers.
Congress does not fight hunger by paying construction companies to build grocery stores in needy areas, and it should not expand communications access via circuitous subsidies to carriers. To address hunger, federal and state governments provide individuals with vouchers earmarked for groceries — "food stamps" or SNAP — which allow them to satisfy their food needs as they see fit. Similarly, for the poor and for schools, Congress might provide "tech stamps" — vouchers earmarked for various consumer technologies, whether internet access from any provider, laptops, smartphones, or e-book readers. This would give consumers and schools more choices to optimize their technology use according to their needs. It would also reduce the wasteful overbuilding of telecom services and the misguided pursuit of ever more bandwidth. Consumers care about outputs — the ability to check job boards online, to use library materials, to communicate with family or doctors — not the inputs, like 100 megabits per second and fiber deployment that regulators fetishize.
Finally, the essentially blank-check authority to approve the transactions of communications companies, who often have media affiliates, ought to be removed. The FCC's legitimate goals in these reviews — greater competition, lower prices, expanded output — are already served by the Federal Trade Commission and the Department of Justice Antitrust Division, which are less subject to special-interest pressures. These authorities have a long history of ensuring that transactions and mergers in various industries do not harm competition or consumers. The FCC's unique role in transactions is mostly to extract "voluntary" concessions — like net-neutrality obligations, employment practices, and programming decisions — that are impossible to defend in a conventional competition inquiry.
DISMANTLING THE FCC
If the FCC's failures were more visible, it is unlikely the agency would survive in its current form. Every federal agency certainly has its problems, but in every major era of regulation, the FCC has managed to arrive at either the wrong policy or the right policy years too late. In a world of content abundance and growing communications competition, the FCC is looking more and more like the creaky, New Deal relic that it is.
The costs and dangers posed by the FCC have been accumulating for decades. The overlapping and bewildering maze of federal communications laws have created a mentality of compliance in our most innovative sectors. The regulatory costs the FCC imposes show up not only in cable or cellphone bills but also in the dilution of First Amendment protections. The ability to license is the ability to punish, and the ability to target communications and media intermediaries is one the FCC will never relinquish. The Fairness Doctrine was effectively eliminated in 1987, and regulators will not bring it back, but the FCC's ability to shape media messages, reward friendly outlets, and discourage undesired speech has grown stronger since it began regulating the internet.
The FCC pursues worthwhile goals — affordable access, diverse media viewpoints, competition — clumsily at best, and these should be reassigned to other agencies or accomplished via transparent subsidy programs, for the sake of both good government and free speech. Replacing many of the FCC's current responsibilities with a mixture of public-infrastructure investment to make broadband deployment easier, means-tested vouchers to minimize the digital divide, and increased, transparent funding for public affairs and local programming could attract pro-growth liberals as well as conservatives. Both the media and the country would be strengthened as a result.